-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+7QjIsgIuioOMHas9fYuylbl5ouMGEeGtt94FcZQfepwRep2i/JUNn2kWqlIja1 wV6L9C8dfHI7r6hBuUREEA== 0000929624-99-001681.txt : 19990909 0000929624-99-001681.hdr.sgml : 19990909 ACCESSION NUMBER: 0000929624-99-001681 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONTGOMERY FUNDS I CENTRAL INDEX KEY: 0000863435 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 946625703 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06011 FILM NUMBER: 99707481 BUSINESS ADDRESS: STREET 1: 600 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156272482 MAIL ADDRESS: STREET 1: 600 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 N-30D 1 THE MONTGOMERY FUNDS RETAIL ANNUAL REPORT [PICTURE APPEARS HERE] The Montgomery Funds(SM) Annual Report - ------------- June 30, 1999 Invest wisely ==================== The Montgomery Funds - -------------------- Annual Report - -------------------- June 30, 1999 - -------------------------------------------------------------------------------- CONTENTS - -------------------------------------------------------------------------------- Chairman's Letter ...................................................... 1 Stock and Bond Market Overview ......................................... 2 Performance Summary .................................................... 4 - -------------------------------------------------------------------------------- Portfolio Highlights and Investments Montgomery U.S. Equity Funds - -------------------------------------------------------------------------------- Growth Fund ............................................................ 5 U.S. Emerging Growth Fund .............................................. 9 Small Cap Fund ......................................................... 13 Equity Income Fund ..................................................... 17 Montgomery International and Global Equity Funds - -------------------------------------------------------------------------------- International Growth Fund .............................................. 21 International Small Cap Fund ........................................... 25 Global Opportunities Fund .............................................. 29 Global Communications Fund ............................................. 33 Emerging Markets Fund .................................................. 37 Emerging Asia Fund ..................................................... 43 Montgomery Multi-Strategy Funds - -------------------------------------------------------------------------------- Global Long-Short Fund ................................................. 48 Select 50 Fund ......................................................... 59 U.S. Asset Allocation Fund ............................................. 63 Montgomery U.S. Fixed-Income and Money Market Funds - -------------------------------------------------------------------------------- Total Return Bond Fund ................................................. 65 Short Duration Government Bond Fund .............................................................. 69 California Tax-Free IntermediateBondFund ................................................... 73 Government Money Market Fund ........................................... 79 Federal Tax-Free Money Fund ............................................ 79 California Tax-Free Money Fund ......................................... 79 Financial Statements - -------------------------------------------------------------------------------- Statements of Assets and Liabilities ................................... 92 Statements of Operations ............................................... 98 Statements of Changes in Net Assets .................................... 102 Statements of Cash Flows ............................................... 106 Financial Highlights ................................................... 110 Notes to Financial Statements .......................................... 130 Independent Auditors' Report ........................................... 146 Tax Information ........................................................ 147 The Montgomery Funds are a comprehensive family of no-load mutual funds, offering U.S. equity, international and global, and U.S. fixed-income investment strategies. We currently manage more than $4.2 billion in the Funds on behalf of over 200,000 individual investors, helping them meet their financial goals through a combination of professional portfolio management and high-quality customer service. [LOGO OF THE MONTGOMERY FUNDS APPEARS HERE] The Montgomery Funds(SM) 101 California Street San Francisco, CA 94111-9361 ==================== The Montgomery Funds -------------------- Annual Report -------------------- June 30, 1999 CHAIRMAN'S LETTER August 1999 Dear Fellow Shareholder: The investment climate over the past 12 months wasn't suited for the faint of heart. We began the fiscal year (on July 1, 1998) with a significant global market correction, followed by rapid recoveries in some markets juxtaposed with painfully slower reform in others. In an unexpected twist, companies in age-old industries such as industrial materials appeared to give way to newer ones--mainly Internet-related--only to stage an eleventh-hour comeback. Like a wild roller-coaster ride, the reversal of fortune for many markets and sectors was rapid, often catching unwitting investors by surprise. Reflecting on these extremes, I find myself dwelling on two themes very familiar to Montgomery shareholders: the importance of keeping a long-term perspective and the equally critical need to maintain a diversified portfolio. Keeping Perspective All too often, we find ourselves tempted to believe the pundits when they tell us that the world has fundamentally changed. But it is crucial for us to decipher between reality and short-term trends. Did we really believe that investors would never return to the emerging markets, that nobody would ever invest in anything other than a growth stock and that inflation was dead? Let's take the recent experience in emerging markets as an example. In my view, the exodus from the emerging markets asset class at its lowest point over the past 12 months is an example of blurred perspective. There can be no denying that it was hard for emerging markets investors to watch the value of their holdings diminish while the S&P 500 Index seemed to be powering forever upward. But those who stayed focused on their belief in the long-term prospects for these markets have seen them rapidly appreciate in 1999. Similarly, many investors shifted their portfolio concentration to large-cap growth funds that included heavy exposure to Inter-net issues and abandoned the less-mainstream growth funds, which rebounded sharply as many Internet companies gave up their leadership in the second quarter of 1999. Diversify, Diversify, Diversify One tried-and-true way to help maintain your perspective is to spread your portfolio risk across investments. The short-term distractions and frustrations associated with trying to identify the next hot market segment or asset class--in my view, an impossible task--are of less concern if you hold a diversified portfolio of stocks and bonds. As Nobel Prize-winning economist Harry Markowitz pointed out in the 1950s, diversification produces far superior risk-adjusted returns. Any investor whose portfolio included mutual funds with exposure to both the S&P 500 and this year's rapidly appreciating emerging Asia markets can attest to the benefits of such diversification. I urge you to remain focused on your long-term investment goals and objectives, regardless of short-term market fluctuations. Keep in mind that it is a wise investor who sets an appropriate asset allocation plan and sticks with it. As always, thank you for your continued support of The Montgomery Funds. Sincerely, /s/ R. Stephen Doyle Chairman R. Stephen Doyle Chairman [PHOTO OF R. STEPHEN DOYLE APPEARS HERE] R. Stephen Doyle Chairman and Chief Executive Officer Funds Distributor, Inc. This material is intended for use only when preceded or accompanied by a prospectus. Please read the prospectus carefully before you invest. 1 ==================== The Montgomery Funds - -------------------- Annual Report - -------------------- June 30, 1999 STOCK AND BOND MARKET OVERVIEW U.S. Stocks The health of the global economy proved to be the dominant influence over U.S. stocks during the financial year ended June 30, 1999. The beginning of the period was marked by a steep correction in U.S. equities. This was due not to any obvious weakening in the U.S. economy, which remained remarkably robust over the period, but to the stock market's inability to avoid the negative investor sentiment that swept global markets in August and September 1998. A series of interest rate cuts by the U.S. Federal Reserve, combined with coordinated cuts in other developed countries, allayed fears of a global recession and reversed the downward momentum of the market. An economic slowdown in Europe and a recession in Japan and most of the developing world, however, had a lingering impact on U.S. stocks. Into the beginning of 1999, with the exception of Internet-related stocks, investors continued to express a narrow preference for large-cap stocks over small- and mid-caps. The outperformance of a handful of large-cap growth and Internet securities masked the weaker returns of the broader market, especially of small-caps and cyclicals. Against a backdrop of high domestic growth and low inflation, this narrow bias reflected ongoing concerns about the prospects for the global economy outside the United States. By March 1999, however, the market's emphasis shifted dramatically. The world economy appeared to be on the road to recovery, changing investors' perceptions of risk. In addition, the benign interest rate environment that had favored growth stocks began to change. An improvement in commodity prices, partly triggered by an increase in oil prices as OPEC held to promised production cuts, coupled with stronger than anticipated economic growth, led to increasing concern about inflation. [GRAPH APPEARS HERE] THE S & P 500 INDEX PERFORMANCE: July 1, 1998, to June 30, 1999 Date S & P Index 500 Date S & P Index 500 ---- --------------- ---- --------------- 30-Jun-99 1372.71 6/30/98 1133.84 29-Jun-99 1351.45 7/2/98 1146.42 28-Jun-99 1331.35 7/10/98 1164.33 25-Jun-99 1315.31 7/17/98 1186.75 24-Jun-99 1315.78 7/24/98 1140.8 23-Jun-99 1333.06 7/31/98 1120.67 22-Jun-99 1335.88 8/7/98 1089.45 21-Jun-99 1349 8/14/98 1062.75 18-Jun-99 1342.84 8/21/98 1081.18 17-Jun-99 1339.9 8/28/98 1027.14 16-Jun-99 1330.41 9/4/98 973.89 15-Jun-99 1301.16 9/11/98 1009.06 14-Jun-99 1294 9/18/98 1020.09 11-Jun-99 1293.64 9/25/98 1044.75 10-Jun-99 1302.82 10/2/98 1002.6 9-Jun-99 1318.64 10/9/98 984.39 8-Jun-99 1317.33 10/16/98 1056.42 7-Jun-99 1334.52 10/23/98 1070.67 4-Jun-99 1327.75 10/30/98 1098.67 3-Jun-99 1299.54 11/6/98 1141.01 2-Jun-99 1294.81 11/13/98 1125.72 1-Jun-99 1294.26 11/20/98 1163.55 28-May-99 1301.84 11/27/98 1192.29 27-May-99 1281.41 12/4/98 1176.74 26-May-99 1304.76 12/11/98 1166.46 25-May-99 1284.4 12/18/98 1188.03 24-May-99 1306.65 12/24/98 1226.27 21-May-99 1330.29 12/31/98 1229.23 20-May-99 1338.83 1/8/99 1275.09 19-May-99 1344.23 1/15/99 1243.26 18-May-99 1333.32 1/22/99 1225.19 17-May-99 1339.49 1/29/99 1279.64 14-May-99 1337.8 2/5/99 1239.4 13-May-99 1367.56 2/12/99 1230.13 12-May-99 1364 2/19/99 1239.19 11-May-99 1355.61 2/26/99 1238.33 10-May-99 1340.3 3/5/99 1275.47 7-May-99 1345 3/12/99 1294.59 6-May-99 1332.05 3/19/99 1299.29 5-May-99 1347.31 3/26/99 1282.8 4-May-99 1332 4/1/99 1293.72 3-May-99 1354.63 4/9/99 1348.35 30-Apr-99 1335.18 4/16/99 1319 29-Apr-99 1342.83 4/23/99 1356.85 28-Apr-99 1350.91 4/30/99 1335.18 27-Apr-99 1362.8 5/7/99 1345 26-Apr-99 1360.04 5/14/99 1337.8 23-Apr-99 1356.85 5/21/99 1330.29 22-Apr-99 1358.83 5/28/99 1301.84 21-Apr-99 1336.12 6/4/99 1327.75 20-Apr-99 1306.17 6/11/99 1293.64 19-Apr-99 1289.48 6/18/99 1342.84 16-Apr-99 1319 6/25/99 1315.31 15-Apr-99 1322.85 6/30/99 1372.71 14-Apr-99 1328.44 13-Apr-99 1349.82 12-Apr-99 1358.63 9-Apr-99 1348.35 8-Apr-99 1343.98 7-Apr-99 1326.89 6-Apr-99 1317.89 5-Apr-99 1321.12 1-Apr-99 1293.72 31-Mar-99 1286.37 30-Mar-99 1300.75 29-Mar-99 1310.17 26-Mar-99 1282.8 25-Mar-99 1289.99 24-Mar-99 1268.59 23-Mar-99 1262.14 22-Mar-99 1297.01 19-Mar-99 1299.29 18-Mar-99 1316.55 17-Mar-99 1297.82 16-Mar-99 1306.36 15-Mar-99 1307.26 12-Mar-99 1294.59 11-Mar-99 1297.68 10-Mar-99 1286.84 9-Mar-99 1279.84 8-Mar-99 1282.73 5-Mar-99 1275.47 4-Mar-99 1246.64 3-Mar-99 1227.7 2-Mar-99 1225.5 1-Mar-99 1236.16 26-Feb-99 1238.33 25-Feb-99 1245.02 24-Feb-99 1253.41 23-Feb-99 1271.18 22-Feb-99 1272.14 19-Feb-99 1239.19 18-Feb-99 1237.28 17-Feb-99 1224.03 16-Feb-99 1241.87 12-Feb-99 1230.13 11-Feb-99 1254.04 10-Feb-99 1223.55 9-Feb-99 1216.14 8-Feb-99 1243.77 5-Feb-99 1239.4 4-Feb-99 1248.49 3-Feb-99 1272.07 2-Feb-99 1261.99 1-Feb-99 1273 29-Jan-99 1279.64 28-Jan-99 1265.37 27-Jan-99 1243.17 26-Jan-99 1252.31 25-Jan-99 1233.98 22-Jan-99 1225.19 21-Jan-99 1235.16 20-Jan-99 1256.62 19-Jan-99 1252 15-Jan-99 1243.26 14-Jan-99 1212.19 13-Jan-99 1234.4 12-Jan-99 1239.51 11-Jan-99 1263.88 8-Jan-99 1275.09 7-Jan-99 1269.73 6-Jan-99 1272.34 5-Jan-99 1244.78 4-Jan-99 1228.1 31-Dec-98 1229.23 30-Dec-98 1231.93 29-Dec-98 1241.81 28-Dec-98 1225.49 24-Dec-98 1226.27 23-Dec-98 1228.54 22-Dec-98 1203.57 21-Dec-98 1202.84 18-Dec-98 1188.03 17-Dec-98 1179.98 16-Dec-98 1161.94 15-Dec-98 1162.83 14-Dec-98 1141.2 11-Dec-98 1166.46 10-Dec-98 1165.02 9-Dec-98 1183.49 8-Dec-98 1181.38 7-Dec-98 1187.7 4-Dec-98 1176.74 3-Dec-98 1150.14 2-Dec-98 1171.25 1-Dec-98 1175.28 30-Nov-98 1163.63 27-Nov-98 1192.29 25-Nov-98 1186.87 24-Nov-98 1182.99 23-Nov-98 1188.21 20-Nov-98 1163.55 19-Nov-98 1152.61 18-Nov-98 1144.48 17-Nov-98 1139.32 16-Nov-98 1135.86 13-Nov-98 1125.72 12-Nov-98 1117.69 11-Nov-98 1120.97 10-Nov-98 1128.26 9-Nov-98 1130.2 6-Nov-98 1141.01 5-Nov-98 1133.85 4-Nov-98 1118.67 3-Nov-98 1110.84 2-Nov-98 1111.6 30-Oct-98 1098.67 29-Oct-98 1085.93 28-Oct-98 1068.09 27-Oct-98 1065.34 26-Oct-98 1072.32 23-Oct-98 1070.67 22-Oct-98 1078.48 21-Oct-98 1069.92 20-Oct-98 1063.93 19-Oct-98 1062.39 16-Oct-98 1056.42 15-Oct-98 1047.49 14-Oct-98 1005.53 13-Oct-98 994.8 12-Oct-98 997.71 9-Oct-98 984.39 8-Oct-98 959.44 7-Oct-98 970.68 6-Oct-98 984.59 5-Oct-98 988.56 2-Oct-98 1002.6 1-Oct-98 986.39 30-Sep-98 1017.01 29-Sep-98 1049.02 28-Sep-98 1048.69 25-Sep-98 1044.75 24-Sep-98 1042.72 23-Sep-98 1066.09 22-Sep-98 1029.63 21-Sep-98 1023.89 18-Sep-98 1020.09 17-Sep-98 1018.87 16-Sep-98 1045.48 15-Sep-98 1037.68 14-Sep-98 1029.72 11-Sep-98 1009.06 10-Sep-98 980.19 9-Sep-98 1006.2 8-Sep-98 1023.46 4-Sep-98 973.89 3-Sep-98 982.26 2-Sep-98 990.47 1-Sep-98 994.24 31-Aug-98 957.28 28-Aug-98 1027.14 27-Aug-98 1042.59 26-Aug-98 1084.19 25-Aug-98 1092.86 24-Aug-98 1088.14 21-Aug-98 1081.18 20-Aug-98 1091.6 19-Aug-98 1098.06 18-Aug-98 1101.2 17-Aug-98 1083.67 14-Aug-98 1062.75 13-Aug-98 1074.91 12-Aug-98 1084.22 11-Aug-98 1068.98 10-Aug-98 1083.14 7-Aug-98 1089.45 6-Aug-98 1089.63 5-Aug-98 1081.43 4-Aug-98 1072.12 3-Aug-98 1112.44 31-Jul-98 1120.67 30-Jul-98 1142.95 29-Jul-98 1125.21 28-Jul-98 1130.24 27-Jul-98 1147.27 24-Jul-98 1140.8 23-Jul-98 1139.75 22-Jul-98 1164.08 21-Jul-98 1165.07 20-Jul-98 1184.1 17-Jul-98 1186.75 16-Jul-98 1183.99 15-Jul-98 1174.81 14-Jul-98 1177.58 13-Jul-98 1165.19 10-Jul-98 1164.33 9-Jul-98 1158.56 8-Jul-98 1166.37 7-Jul-98 1154.66 6-Jul-98 1157.31 2-Jul-98 1146.42 1-Jul-98 1148.56 30-Jun-98 1133.84 The S&P 500 Index achieved new highs during the year, resuming its upward trend after an initial bout of volatility. Although index gains were focused on a narrow group of stocks for much of the year, by June more stocks had begun to participate. These events cooled investor enthusiasm for highly valued growth stocks, and the market broadened as cyclicals and smaller-caps returned to favor. In particular, investors saw opportunities in stocks that had been depressed by the Asian crisis. In a reversal of recent trends, large-cap growth stocks that had led the market for more than six quarters underperformed while value-oriented and small-cap stocks that had badly lagged regained investor atteion. U.S. Bonds The financial year can be split into two distinctive segments in terms of the bond market: During the period from July 1, 1998, to February 1999, concerns of global recession and deflation were the dominant themes, whereas by the latter half of February a series of reports suggesting that economic activity was stronger than expected reawakened fears about inflationary pressures. While deflationary concerns persisted, investors continued favoring the most liquid, high-quality bond issues. As a result, the yield on the 30-year Treasury bond sunk to lows not seen since the late 1960s. In response to slowing global economic activity and loss of liquidity, the Federal Reserve reduced the overnight bank-lending rate to a mere 4.8% in a series of three cuts. By the first quarter of 1999, however, negative economic factors began to offset the positive factors that had previously driven bond prices higher. Inflation remained low as a result of high productivity and worldwide manufacturing overcapacity, while tight labor markets, bottoming commodity markets and strong consumer spending were all of increasing concern to the bond market. The clearest manifestation of these concerns was the fall in bond prices in February, as stronger than anticipated economic data and comments by Federal Reserve Chairman Alan Greenspan dampened hopes of further short-term interest rate reductions. The behavior of the market in general had largely returned to normal by the final three months of the financial year. In response to heightened inflationary concerns, the Fed announced a tightening bias. Increasing rates, which have risen as much as 1.0% since February, have led to abnormally low bond market returns. Underlying the upward trend in rates has been the Fed's determination to slow growth to head off inflation. U.S. rates are quite attractive by international standards, but the country's trade deficit is daunting and commodity prices have stopped declining. Nevertheless, the Lehman Brothers Aggregate Bond Index has never had two consecutive first and second half-years of negative returns. We now believe that bond yields are nearing their highs. 2 ==================== The Montgomery Funds -------------------- Annual Report -------------------- June 30, 1999 U.S. TREASURY 30-YEAR BOND YIELD: July 1, 1998, to June 30, 1999 [GRAPH APPEARS HERE] U. S. Treasury U. S. Treasury Date 30 Year Bond Date 30 Year Bond ---- -------------- ---- -------------- 6/30/98 5.627 6/30/98 5.627 7/3/98 5.599 7/1/98 5.629 7/10/98 5.625 7/2/98 5.6 7/17/98 5.746 7/3/98 5.599 7/24/98 5.686 7/6/98 5.572 7/31/98 5.713 7/7/98 5.603 8/7/98 5.631 7/8/98 5.626 8/14/98 5.54 7/9/98 5.605 8/21/98 5.433 7/10/98 5.625 8/28/98 5.338 7/13/98 5.692 9/4/98 5.288 7/14/98 5.717 9/11/98 5.229 7/15/98 5.705 9/18/98 5.147 7/16/98 5.727 9/25/98 5.109 7/17/98 5.746 10/2/98 4.84 7/20/98 5.713 10/9/98 5.115 7/21/98 5.663 10/16/98 4.978 7/22/98 5.681 10/23/98 5.178 7/23/98 5.657 10/30/98 5.157 7/24/98 5.686 11/6/98 5.387 7/27/98 5.708 11/13/98 5.25 7/28/98 5.74 11/20/98 5.218 7/29/98 5.769 11/27/98 5.159 7/30/98 5.722 12/4/98 5.04 7/31/98 5.713 12/11/98 5.024 8/3/98 5.659 12/18/98 4.998 8/4/98 5.631 12/25/98 5.216 8/5/98 5.671 1/1/99 5.095 8/6/98 5.671 1/8/99 5.272 8/7/98 5.631 1/15/99 5.107 8/10/98 5.624 1/22/99 5.082 8/11/98 5.602 1/29/99 5.086 8/12/98 5.609 2/5/99 5.349 8/13/98 5.65 2/12/99 5.422 8/14/98 5.54 2/19/99 5.387 8/17/98 5.546 2/26/99 5.576 8/18/98 5.556 3/5/99 5.596 8/19/98 5.556 3/12/99 5.526 8/20/98 5.513 3/19/99 5.56 8/21/98 5.433 3/26/99 5.589 8/24/98 5.471 4/2/99 5.596 8/25/98 5.428 4/9/99 5.46 8/26/98 5.417 4/16/99 5.572 8/27/98 5.344 4/23/99 5.597 8/28/98 5.338 4/30/99 5.662 8/31/98 5.267 5/7/99 5.813 9/1/98 5.341 5/14/99 5.922 9/2/98 5.333 5/21/99 5.751 9/3/98 5.303 5/28/99 5.828 9/4/98 5.288 6/4/99 5.963 9/7/98 5.284 6/11/99 6.159 9/8/98 5.363 6/18/99 5.972 9/9/98 5.262 6/25/99 6.149 9/10/98 5.204 6/30/99 5.963 9/11/98 5.229 9/14/98 5.23 9/15/98 5.26 9/16/98 5.221 9/17/98 5.179 9/18/98 5.147 9/21/98 5.125 9/22/98 5.152 9/23/98 5.168 9/24/98 5.164 9/25/98 5.109 9/28/98 5.141 9/29/98 5.094 9/30/98 4.978 10/1/98 4.882 10/2/98 4.84 10/5/98 4.716 10/6/98 4.735 10/7/98 4.86 10/8/98 4.999 10/9/98 5.115 10/12/98 5.117 10/13/98 5.089 10/14/98 5.031 10/15/98 4.967 10/16/98 4.978 10/19/98 4.982 10/20/98 5.069 10/21/98 5.071 10/22/98 5.137 10/23/98 5.178 10/26/98 5.107 10/27/98 5.089 10/28/98 5.12 10/29/98 5.078 10/30/98 5.157 11/2/98 5.244 11/3/98 5.215 11/4/98 5.325 11/5/98 5.355 11/6/98 5.387 11/9/98 5.289 11/10/98 5.288 11/11/98 5.288 11/12/98 5.249 11/13/98 5.25 11/16/98 5.288 11/17/98 5.294 11/18/98 5.249 11/19/98 5.243 11/20/98 5.218 11/23/98 5.252 11/24/98 5.217 11/25/98 5.187 11/26/98 5.186 11/27/98 5.159 11/30/98 5.063 12/1/98 5.036 12/2/98 5.023 12/3/98 5.003 12/4/98 5.04 12/7/98 5.034 12/8/98 4.993 12/9/98 4.982 12/10/98 4.955 12/11/98 5.024 12/14/98 4.99 12/15/98 5.025 12/16/98 4.994 12/17/98 5.012 12/18/98 4.998 12/21/98 5.06 12/22/98 5.138 12/23/98 5.177 12/24/98 5.213 12/25/98 5.216 12/28/98 5.152 12/29/98 5.1 12/30/98 5.087 12/31/98 5.095 1/1/99 5.095 1/4/99 5.151 1/5/99 5.208 1/6/99 5.163 1/7/99 5.224 1/8/99 5.272 1/11/99 5.306 1/12/99 5.22 1/13/99 5.132 1/14/99 5.057 1/15/99 5.107 1/18/99 5.115 1/19/99 5.149 1/20/99 5.168 1/21/99 5.131 1/22/99 5.082 1/25/99 5.116 1/26/99 5.129 1/27/99 5.127 1/28/99 5.107 1/29/99 5.086 2/1/99 5.183 2/2/99 5.239 2/3/99 5.254 2/4/99 5.288 2/5/99 5.349 2/8/99 5.341 2/9/99 5.302 2/10/99 5.366 2/11/99 5.366 2/12/99 5.422 2/15/99 5.427 2/16/99 5.341 2/17/99 5.308 2/18/99 5.378 2/19/99 5.387 2/22/99 5.355 2/23/99 5.43 2/24/99 5.508 2/25/99 5.652 2/26/99 5.576 3/1/99 5.67 3/2/99 5.614 3/3/99 5.696 3/4/99 5.7 3/5/99 5.596 3/8/99 5.588 3/9/99 5.531 3/10/99 5.554 3/11/99 5.563 3/12/99 5.526 3/15/99 5.521 3/16/99 5.476 3/17/99 5.507 3/18/99 5.488 3/19/99 5.56 3/22/99 5.568 3/23/99 5.541 3/24/99 5.531 3/25/99 5.585 3/26/99 5.589 3/29/99 5.64 3/30/99 5.58 3/31/99 5.625 4/1/99 5.671 4/2/99 5.596 4/5/99 5.588 4/6/99 5.519 4/7/99 5.503 4/8/99 5.443 4/9/99 5.46 4/12/99 5.452 4/13/99 5.49 4/14/99 5.507 4/15/99 5.526 4/16/99 5.572 4/19/99 5.519 4/20/99 5.507 4/21/99 5.524 4/22/99 5.603 4/23/99 5.597 4/26/99 5.575 4/27/99 5.538 4/28/99 5.583 4/29/99 5.53 4/30/99 5.662 5/3/99 5.655 5/4/99 5.713 5/5/99 5.706 5/6/99 5.791 5/7/99 5.813 5/10/99 5.79 5/11/99 5.835 5/12/99 5.827 5/13/99 5.75 5/14/99 5.922 5/17/99 5.892 5/18/99 5.889 5/19/99 5.803 5/20/99 5.827 5/21/99 5.751 5/24/99 5.757 5/25/99 5.748 5/26/99 5.804 5/27/99 5.851 5/28/99 5.828 5/31/99 5.828 6/1/99 5.924 6/2/99 5.934 6/3/99 5.963 6/4/99 5.963 6/7/99 5.965 6/8/99 5.994 6/9/99 6.026 6/10/99 6.063 6/11/99 6.159 6/14/99 6.099 6/15/99 6.111 6/16/99 6.066 6/17/99 5.963 6/18/99 5.972 6/21/99 6.019 6/22/99 6.057 6/23/99 6.146 6/24/99 6.16 6/25/99 6.149 6/28/99 6.094 6/29/99 6.067 6/30/99 5.963 It was a challenging year for the bond market. From July through December, deflationary fears hurt all sectors other than Treasuries. In 1999, however, renewed inflationary concerns pushed up Treasury yields and led to a decline in absolute returns. International Equities The financial year started badly for international equity markets. Following the devaluation of the Russian ruble in August, there was massive capital flight from the emerging markets. In Europe the lingering effects of recession in Asia began to feed through into corporate earnings, resulting in a downgrade in expectations for economic growth and weaker markets. By the end of 1998, the markets had recovered from their lows, helped by interest rate cuts in the United States and Europe and the stabilization of the yen. There were still enough global uncertainties, however, to make it difficult to predict what the New Year might bring. Confounding even many optimists, 1999 brought better news than expected. In the first three months of this year, both the developed and the emerging economies of Asia showed significant signs of recovery. Japanese companies, facing few alternatives, finally began substantial restructuring efforts, spurred by a change in the government's attitude toward corporate bailouts. By March even skeptics were convinced that the recovery was more than an illusion. Evidence of recovery was borne out by Japan's seasonally adjusted first-quarter GDP (gross domestic product) numbers, which indicated a slight increase in consumer spending--an important component to a sustainable return to economic growth. In much of the rest of Asia, currencies stabilized, interest rates declined and the current account deficits that had proved so problematic at the beginning of the Asian crisis had been eliminated. In addition, companies that had survived were beginning to restructure and improve their global competitiveness. Reflecting such good news, capital flooded back into the equity markets, which began to appreciate rapidly. The Asian emerging markets weren't the only ones to enjoy good fortune. In Latin America, Brazil rebounded surprisingly quickly after devaluing its currency in January. Hyperinflation failed to take hold, and interest rates have been gradually declining. Rising commodity prices were also a boon to Brazil as well as to emerging markets in the rest of Latin America, Asia and Africa/ Middle East. Nevertheless, Brazil still faces significant hurdles in its recovery process, which are reflected in its current valuation. The most disappointing region in terms of performance, particularly in the past six months, has been Europe. These markets failed to recover as rapidly as their U.S. counterpart in the final months of 1998. Major markets such as the United Kingdom and Germany were suffering decelerating growth, and a weak euro affected dollar returns for the continental European markets. By June, however, there were subtle signs of improvement. We believe that the United Kingdom and France are beginning a phase of accelerating growth and we have seen evidence that inspires some optimism for the German market. Looking forward, because of the attractive valuations in these markets, we believe that there are likely to be plenty of interesting investment opportunities. 3 ==================== The Montgomery Funds - -------------------- Performance Summary - -------------------- June 30, 1999 AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/99
Fund name (Fund number) Inception date One year Three years Five years Since inception Montgomery U.S. Equity Funds - ------------------------------------------------------------------------------------------------------------------------------------ Growth Fund (284) 9/30/93 11.41% 16.33% 19.98% 22.30% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Emerging Growth Fund (294) 12/30/94 (4.07)% 10.26% -- 16.80% - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Fund (276) 7/13/90 (4.14)% 8.06% 16.12% 17.72% - ------------------------------------------------------------------------------------------------------------------------------------ Equity Income Fund (293) 9/30/94 15.06% 18.87% -- 20.13% - ------------------------------------------------------------------------------------------------------------------------------------ Montgomery International and Global Equity Funds - ------------------------------------------------------------------------------------------------------------------------------------ International Growth Fund (296) 7/3/95 2.34% 14.57% -- 17.72% - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap Fund (283) 9/30/93 (3.82)% 5.08% 7.50% 6.54% - ------------------------------------------------------------------------------------------------------------------------------------ GlobalOpportunitiesFund (285) 9/30/93 15.68% 20.41% 19.02% 17.86% - ------------------------------------------------------------------------------------------------------------------------------------ GlobalCommunications Fund (280) 6/1/93 31.66% 29.89% 22.79% 21.71% - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Fund (277) 3/1/92 3.85% (9.00)% (3.82)% 1.93% - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Asia Fund (648) 9/30/96 97.44% -- -- 4.84% - ------------------------------------------------------------------------------------------------------------------------------------ Montgomery Multi-Strategy Funds - ------------------------------------------------------------------------------------------------------------------------------------ Global Long-Short Fund (1478) 12/31/97 51.78% -- -- 65.67% - ------------------------------------------------------------------------------------------------------------------------------------ Select 50 Fund (295) 10/2/95 13.89% 18.43% -- 24.73% - ------------------------------------------------------------------------------------------------------------------------------------ Asset Allocation Fund (291) 3/31/94 11.93% 13.74% 19.92% 19.33% - ------------------------------------------------------------------------------------------------------------------------------------ Montgomery U.S. Fixed-Income and Money Market Funds - ------------------------------------------------------------------------------------------------------------------------------------ Total Return Bond Fund (650) 6/30/97 3.20% -- -- 6.99% - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration Government Bond Fund (279) 12/18/92 4.82% 6.39% 6.63% 6.32% - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Free Intermediate Bond Fund (281) 7/1/93 2.71% 5.47% 5.71% 5.03% - ------------------------------------------------------------------------------------------------------------------------------------ As of 6/30/99 One-day yield Seven-day yield - ------------------------------------------------------------------------------------------------------------------------------------ Government Money Market Fund* (278) 9/14/92 4.32% 4.04% - ------------------------------------------------------------------------------------------------------------------------------------ Federal Tax-Free Money Fund (647) 7/15/96 2.91% 3.17% - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Free Money Fund (292) 9/30/94 2.53% 2.73% - ------------------------------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than their original cost. Performance information is for Class R (Retail) shares only. The performance figures provided do not reflect the effect of (i) any securities purchased or sold by the Funds after 6/30/99 but that were effective on 6/30/99 or (ii) any purchases or redemptions of Fund shares completed after 6/30/99 that were effective on 6/30/99. The performance figures for the Class R shares shown above do not reflect the 0.25% Rule 12b-1 fees paid by the ClassP shares that would reduce performance. Income from tax-free funds may be subject to the alternative minimum tax and/or state and local taxes. An investment in one of our money market funds is neither insured nor guaranteed by the government. There can be no assurance that the money market funds will be able to maintain a stable net asset value of $1 per share. Yields may fluctuate. There are certain risks associated with investing in foreign markets, such as currency fluctuations and political and economic instability. There are also additional risks associated with investing in small-cap companies. Investors are encouraged to read the prospectus carefully before investing. * Formerly named the Montgomery Government Reserve Fund. 4 ==================== The Montgomery Funds -------------------- Growth Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform for the quarter and year ended June 30, 1999? A: For the quarter ended June 30, 1999, the Fund dramatically outperformed its benchmark, returning 17.5% versus the S&P 500 Index's return of 7.0%. In our 1998 year-end shareholder letter, we discussed the fact that stock market results were being driven by a small group of very large cap companies with extremely high stock valuations. The first quarter of 1999 showed a continuation of these trends. Market dynamics shifted abruptly as we moved into the second quarter, resulting in the Fund's outperforming the S&P 500 by more than 1,000 basis points. Because of the three prior quarters, however, for the 12-month period the Fund returned 11.4%, versus a return of 22.7% for the S&P 500. Q: What trends had the most impact on performance over that period? A: Although the Fund invests primarily in U.S.-based companies, global trends had the biggest impact on performance during the year. Following a long period of impressive growth in the economies of Asia, the subsequent crisis in the region had a tremendous negative effect on world commodity prices and demand for capital goods. It was this effect that caused the ripple that brought down so many other markets and contributed to the correction in the U.S. market in the third quarter of 1998. Against this backdrop investors fled to the largest, most liquid securities, which they believed could offer sustainable earnings growth regardless of the global economic climate. By April 1999, however, signs of a recovery in Asia, coupled with substantial, continued strength in the U.S. economy, led to rising commodity prices (especially energy). This helped awaken investors to opportunities in a broad array of attractively valued companies likely to benefit from a resumption of global growth. As a result, there was a market rotation away from richly valued growth stocks into the previously neglected cyclical and smaller-cap sectors, in which the Fund has a higher concentration of its assets. Q: Did you make any significant changes to the portfolio in response to such shifting market conditions? A: In spite of the very narrow focus of the market through three of the four quarters of the fiscal year, we maintained our strategy, which emphasizes buying companies that exhibit reasonable valuations yet have substantial future growth prospects. Today two-thirds of the market capitalization of the S&P 500 Index trades at an average price-to-earnings multiple above 40, more than double the historical norm. Furthermore, these historically high valuations are based on company earnings that are themselves at historic highs (i.e., record net profit margins). In our opinion the narrowness of the market was due to a set of very unusual global circumstances that caused investors to focus on the near term without taking into consideration the long-term potential and risks. Our strategy, in contrast, involves seeking out companies that are undergoing positive, long-term fundamental change and are attractively valued. This led the portfolio to be ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Roger Honour........................................... Senior Portfolio Manager Kathryn Peters................................................ Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Growth Fund Since inception (9/30/93)................................................ 22.30% One year................................................................. 11.41% Five years............................................................... 19.98% - -------------------------------------------------------------------------------- S&P 500 Index Since 9/30/93............................................................ 23.57% One year................................................................. 22.74% Five years............................................................... 27.86% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE]
Montgomery S&P 500 Lipper Growth Montgomery S&P 500 Lipper Growth Date Growth Fund Index/1/ Funds Average/2/ Date Growth Fund Index/1/ Funds Average/2/ ---- ----------- -------- ---------------- ---- ----------- -------- ---------------- 9/93 10,000 10,000 10,000 1/97 21,847 18,623.62 16,716.22 10/93 10,400 10,203.3 10,139.37 2/97 21,636 18,772.98 16,540.12 11/93 10,983 10,107.18 9,959.69 3/97 21,045 17,992.22 15,802.65 12/93 11,834 10,231.4 10,239.89 4/97 21,921 19,065.63 16,445.99 1/94 12,488 10,573.64 10,575.6 5/97 23,704 20,235.88 17,606.16 2/94 12,647 10,278.84 10,402.23 6/97 24,348 21,125.65 18,286.91 3/94 12,530 9,840.11 9,920.03 7/97 26,913 22,803.03 19,819.45 4/94 12,982 9,967.54 9,960.78 8/97 26,586 21,539.28 19,125.61 5/94 13,116 10,130.61 10,017.46 9/97 28,021 22,713.82 20,186.46 6/94 12,798 9,880.18 9,683.76 10/97 26,744 21,966.31 19,421 7/94 13,259 10,206.92 9,940.11 11/97 26,786 22,973.9 19,791.78 8/94 13,929 10,622.24 10,405.78 12/97 26,405 23,362.16 20,015.95 9/94 13,846 10,365.92 10,200.56 1/98 25,826 23,626.62 20,138.93 10/94 14,349 10,602.99 10,361.77 2/98 28,094 25,324.43 21,659.69 11/94 13,919 10,213.76 9,974.14 3/98 29,312 26,624.34 22,600.36 12/94 14,309 10,362.98 10,063.45 4/98 29,758 26,900.16 22,858.19 1/95 13,996 10,632.42 10,144.96 5/98 28,805 26,432.37 22,211.9 2/95 14,537 11,044.95 10,535.34 6/98 28,564 27,506.05 23,002.25 3/95 15,128 11,371.99 10,835.75 7/98 27,153 27,213.66 22,499.86 4/95 15,230 11,705.42 11,075.81 8/98 22,521 23,285.1 18,810.98 5/95 15,568 12,168.02 11,423.18 9/98 23,052 24,793.04 19,917.8 6/95 16,193 12,454.21 11,900.44 10/98 25,054 26,800.04 21,393.3 7/95 16,869 12,869.43 12,460.36 11/98 26,526 28,424.92 22,694.8 8/95 16,920 12,904.44 12,550.78 12/98 26,959 30,078.97 24,445.48 9/95 17,360 13,446.3 12,929.31 1/99 27,350 31,317.02 25,464 10/95 17,081 13,398.83 12,757.07 2/99 26,368 30,344.31 24,443 11/95 17,664 13,988.65 13,211.84 3/99 27,088 31,563.25 26,507 12/95 17,692 14,247.3 13,261.63 4/99 30,146 32,765.17 26,254 1/96 17,932 14,737.98 13,566.4 5/99 29,923 32,007.64 25,766 2/96 18,641 14,879.61 13,870.83 6/99 31,817 33,757.18 27,306 3/96 19,157 15,022.15 13,982.55 4/96 19,904 15,243.43 14,401.1 5/96 20,668 15,636.25 14,761.16 6/96 20,217 15,699.74 14,575.4 7/96 19,295 15,000.63 13,742.15 8/96 20,042 15,319.24 14,200.75 9/96 20,613 16,180.34 15,009.89 10/96 20,977 16,623.19 15,159.76 11/96 21,878 17,885.06 16,114.83 12/96 21,267 17,535.05 15,874.26
(1) The Standard & Poor's 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC markets. (2) The Lipper Growth Funds Average universe consists of 338 funds. 5 ===================== The Montgomery Funds - -------------------- Growth Fund - -------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Alcoa, Inc. ............................................................. 4.4% Amerada Hess Corporation ................................................ 3.5% Dow Chemical Company .................................................... 3.4% Boise Cascade Corporation ............................................... 3.2% Union Pacific Corporation ............................................... 3.0% Golden West Financial Corporation ....................................... 2.9% Union Pacific Resources Group, Inc. ..................................... 2.9% First Health Group Corporation .......................................... 2.9% Raychem Corporation ..................................................... 2.8% Republic Services, Inc. ................................................. 2.5% ================================================================================ TOP FIVE INDUSTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Paper ................................................................... 6.0% Railroads ............................................................... 5.4% Aluminum ................................................................ 4.4% Telecommunications Equipment ............................................ 3.6% Computer Software ....................................................... 3.5% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. overweighted in basic materials stocks, global industrial stocks and smaller-capitalization issues. Q: Can you give an example of a stock that has performed well since the prospects of a global economic recovery have broadened investor interest in the market? A: Alcoa (4.4% of net assets as of 6/30/99) is one of the portfolio's commodity sector holdings. It is the world's leading aluminum producer, and its shares have performed very well since the market has begun to broaden. While prices of aluminum were depressed, the company had undergone significant restructuring to enable it to grow earnings even during periods of weak commodity prices. As a result, any aluminum price increase will contribute directly to profits, a fact that is now being recognized by the market. Q: Which sectors do you think are the riskiest now that the market is trading at all-time highs? A: We believe that the highly valued growth stocks still represent the biggest investment risk. Even though some of these stocks corrected from March through June 1999, most are still expensive. Although many of these companies have strong fundamentals, their excessive valuations make them risky investments. The market is discounting a long stretch of rapid sales and earnings growth within areas of the economy that typically have the greatest amount of vulnerability to competition and technological change. Against a background of rising interest rates, these risks intensify. By contrast, in our view there is still a lot of value to be found in the broader market. Many cyclical companies may do well in a global recovery, and we do not think their current potential is reflected in their stock prices. Q: How is the Fund positioned in relation to these risks? A: We have taken the opportunity to trim or eliminate stocks in companies that we believe had become fully valued. In spite of the rally in stocks owned in the portfolio, we believe that our current holdings continue to represent attractive long-term investments. Companies such as Alcoa are global players and still have a lot of ability to improve prices as world economic growth reaccelerates. 6 ==================== The Montgomery Funds -------------------- Growth Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 94.6% Advertising -- 1.1% 220,000 Snyder Communications, Inc.#+ ......................... $ 7,205,000 Aerospace/Defense -- 1.5% 280,000 Lockheed Martin Corporation ........................... 10,430,000 Air Freight/Delivery Services -- 1.9% 235,000 FDX Corporation+ ...................................... 12,748,750 Aluminum -- 4.4% 480,000 Alcoa, Inc. ........................................... 29,700,000 Books/Magazines -- 1.1% 140,000 Harcourt General, Inc. ................................ 7,218,750 Clothing/Shoe/Accessory Stores -- 3.0% 380,000 Nordstrom, Inc. ....................................... 12,730,000 225,000 TJX Companies, Inc. ................................... 7,495,312 ------------- 20,225,312 Computer Software -- 3.5% 360,000 Autodesk, Inc.# ....................................... 10,653,750 800,000 Avid Technology, Inc.+ ................................ 12,825,000 ------------- 23,478,750 Construction/Agriculture Equipment/Trucks -- 1.7% 220,000 PACCAR, Inc. .......................................... 11,742,500 Consumer Electronics/Appliances -- 2.2% 200,000 Whirlpool Corporation ................................. 14,800,000 Discount Stores -- 1.7% 700,000 Kmart Corporation+ .................................... 11,506,250 Diversified Electronic Products -- 1.8% 60,000 Matsushita Electric Industrial Co., Ltd., ADR .......... 11,898,750 Diversified Financial Services -- 1.6% 350,000 Stancorp Financial Group, Inc.+ ....................... 10,500,000 Diversified Manufacture -- 1.3% 90,000 Tyco International Ltd. ................................ 8,527,500 EDP Services -- 3.1% 100,000 Computer Sciences Corporation+ ........................ 6,918,750 240,000 Electronic Data Systems Corporation ................... 13,575,000 ------------- 20,493,750 Electrical Products -- 2.8% 500,000 Raychem Corporation ................................... 18,500,000 Electronic Production Equipment -- 1.2% 75,000 Sony Corporation, ADR .................................. 8,278,125 Environmental Services -- 2.5% 682,700 Republic Services, Inc., Class A+ ..................... 16,896,825 Farming/Seeds/Milling -- 0.7% 310,000 Seminis, Inc.+ ........................................ 4,659,703 Finance Companies -- 1.5% 180,000 Capital One Financial Corporation ..................... 10,023,750 Food Distributors -- 1.5% 850,000 Fleming Companies, Inc. ............................... 9,881,250 Forest Products -- 1.6% 160,000 Weyerhaeuser Company .................................. 11,000,000 Integrated Oil Companies -- 3.5% 390,000 Amerada Hess Corporation .............................. 23,205,000 Major Banks -- 2.0% 180,000 Bank of America Corporation ........................... 13,196,250 Major Chemicals -- 3.4% 180,000 Dow Chemical Company .................................. 22,837,500 Managed Health Care -- 2.9% 900,000 First Health Group Corporation+ ....................... 19,378,125 Media Conglomerates -- 1.1% 240,000 News Corporation Ltd., ADR ............................ 7,575,000 Medical Specialties -- 2.3% 200,000 Bausch & Lomb, Inc. ................................... 15,300,000 Motor Vehicles -- 1.8% 180,000 General Motors Corporation ............................ 11,880,000 Movies/Television -- 1.3% 325,000 Fox Entertainment Group, Inc., Class A+ ............... 8,754,688 Multi-Sector Companies -- 1.3% 110,000 Loews Corporation ..................................... 8,703,750 Office/Plant Automation -- 1.3% 300,000 Newbridge Networks Corporation+ ....................... 8,625,000 Oil and Gas Production -- 2.9% 1,200,000 Union Pacific Resources Group, Inc. ................. 19,575,000 Oilfield Services/Equipment -- 2.3% 240,000 Schlumberger Ltd. ..................................... 15,285,000 Other Metals/Minerals -- 2.0% 200,000 Rio Tinto PLC, ADR .................................... 13,450,000 Package Goods/Cosmetics -- 0.8% 80,357 Unilever N.V. .......................................... 5,604,901 Paper -- 6.0% 500,000 Boise Cascade Corporation ............................. 21,500,000 170,000 Chesapeake Corporation ................................ 6,364,375 240,000 International Paper Company ........................... 12,120,000 ------------- 39,984,375 Printing/Forms -- 2.5% 450,000 Donnelley (R.R.) & Sons Company# ...................... 16,678,125 The accompanying notes are an integral part of these financial statements. 7 ==================== The Montgomery Funds - -------------------- Growth Fund - -------------------- Investments Shares Value (Note 1) COMMON STOCKS - continued Railroads -- 5.4% 240,000 Canadian National Railway Company ................... $ 16,080,000 340,000 Union Pacific Corporation ........................... 19,826,250 ------------- 35,906,250 Real Estate Investment Trusts -- 0.9% 525,000 Host Marriott Corporation ........................... 6,234,375 Savings and Loan Associations -- 2.9% 200,000 Golden West Financial Corporation ................... 19,600,000 Specialty Chemicals -- 1.7% 220,000 Nalco Chemical Company .............................. 11,412,500 Specialty Steels -- 1.0% 240,000 Carpenter Technology Corporation .................... 6,855,000 Telecommunications Equipment -- 3.6% 180,000 Comverse Technology, Inc.+ .......................... 13,578,750 110,000 Motorola, Inc. ...................................... 10,422,500 ------------- 24,001,250 TOTAL COMMON STOCKS (Cost $471,189,228) ............................................ 633,757,054 ------------- Principal Amount REPURCHASE AGREEMENTS -- 6.7% $45,284,000 Agreement with Paine Webber Group, Tri-Party, 5.05% dated 06/30/99, to be repurchased at $45,290,265 on 07/01/99, collateralized by $45,374,039 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates. (Cost $45,284,000) ................................. 45,284,000 ------------- TOTAL INVESTMENTS -- 101.3% (Cost $516,473,228*) ........................................... 679,041,054 OTHER ASSETS AND LIABILITIES -- (1.3)% (Net) .......................................................... (9,033,749) ------------- NET ASSETS -- 100.0% ........................................... $ 670,007,305 ============= * Aggregate cost for federal tax purposes $527,737,071. # All or a portion of this security is on loan at June 30, 1999 (see Note 4 to Financial Statements). + Non-income-producing security. Abbreviations ADR American Depositary Receipt The accompanying notes are an integral part of these financial statements. 8 ==================== The Montgomery Funds -------------------- U.S. Emerging Growth Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform for the quarter and year ended June 30, 1999? A: The Fund rebounded strongly from a difficult first quarter in 1999, returning 10.2% in the quarter ended June 30, 1999. Over the 12-month period, the Fund returned -4.1%, versus 1.5% for the benchmark Russell 2000 Index. Q: What factors affected the Fund's underperformance? A: The Fund's performance in the period ended June 30, 1999, reflected the highly unusual and somewhat contradictory nature of the small-cap benchmark. The growth that fueled the rise of the Russell 2000 Index in the first six months of 1999 was largely attributable to a handful of Internet names that profited tremendously from the investor exuberance surrounding the Internet sector. In the first six months of 1999, six of the seven best-performing stocks were Internet stocks. By our estimate the combined return of five of the Internet stocks contributed more than two-thirds of the total return of all the stocks in the index. Prior to January 1, 1999, the Internet investment fervor had already pushed the market capitalization of many of the largest Internet stocks in the Russell 2000 well into the mid-cap sector. The rapid appreciation of these stocks during the six months dramatically increased their market cap and thus their weighting in the index. The two largest "small-cap" stocks within the Russell 2000 illustrate this point quite well: Both CMGI, Inc., and E*TRADE Group, Inc., achieved market-cap peaks of $16.9 billion in April 1999. Because the Russell 2000 is a market-cap weighted index, such highly capitalized Internet stocks skewed the performance of the index as a whole. Indices are reconstituted regularly to avoid precisely this kind of distortion. Unlike the S&P 500 Index, however, which is rebalanced quarterly, the Russell 2000 is reconstituted annually. In the most recent rebalancing on June 30, 1999, the largest outperforming Internet names were removed because they were no longer small-cap, and the more traditional small-cap profile of the index was restored. The Fund underperformed its benchmark primarily because it remained true to its small cap mandate, and in general avoided the Internet sector. Q: Why didn't the Fund invest heavily in the Internet sector? A: The Fund has chosen not to invest in some of the more celebrated Internet names because of their exceedingly high valuations. Using a bottom-up approach to analysis, the Fund seeks to identify small- and micro-cap growth companies that have improving business fundamentals whose growth potential has not been fully recognized by the market. These are typically profitable, growth-oriented companies with proven business models that meet our risk criteria. We believe that the growth potential of many of the Internet companies is already fully reflected in their stock price. We have little doubt that some of these companies will be successful over the long term but we are concerned that their current high valuations carry a comparably high level of risk for our investors. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Roger Honour.......................................... Senior Portfolio Manager Kathryn Peters............................................... Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery U.S. Emerging Growth Fund Since inception (12/30/94).............................................. 16.80% One year................................................................ (4.07)% Three years............................................................. 10.26% - -------------------------------------------------------------------------------- Russell 2000 Index Since 12/30/94.......................................................... 16.00% One year................................................................ 1.50% Three years............................................................. 11.22% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Montgomery Lipper U.S. Emerging Russell Small Cap Date Growth Fund 2000 Index/1/ Funds Average/2/ ---- ----------- ------------- --------------- 12/94 $10,000 $10,000 $10,000 01/95 10,083 9,873.83 9,897.15 02/95 10,208 10,284.57 10,300.98 03/95 10,558 10,461.69 10,580.81 04/95 10,683 10,694.31 10,724.75 05/95 10,792 10,878.2 10,897.6 06/95 11,458 11,442.51 11,543.39 07/95 12,083 12,101.62 12,409.43 08/95 12,292 12,351.96 12,608.54 09/95 12,475 12,572.55 12,928.95 10/95 12,058 12,010.28 12,521.45 11/95 12,571 12,514.88 13,010.66 12/95 12,866 12,845.08 13,210.65 01/96 12,790 12,831.26 13,116 02/96 13,161 13,231.21 13,652.18 03/96 13,590 13,500.53 14,005.77 04/96 14,752 14,222.42 15,049.34 05/96 15,838 14,782.93 15,668.06 06/96 15,005 14,175.9 15,047.37 07/96 13,464 12,937.78 13,737.34 08/96 14,079 13,688.94 14,570.38 09/96 14,584 14,223.94 15,324.8 10/96 14,544 14,004.72 15,005.54 11/96 14,866 14,581.77 15,455.85 12/96 15,326 14,963.96 15,659.48 01/97 16,015 15,262.94 16,045.25 02/97 15,082 14,892.86 15,331.97 03/97 14,493 14,190.13 14,532.99 04/97 14,438 14,229.86 14,445.24 05/97 16,070 15,812.93 16,159.27 06/97 17,221 16,490.6 16,991.53 07/97 18,181 17,257.93 18,033.56 08/97 19,070 17,652.82 18,343.50 09/97 20,420 18,944.89 19,724.27 10/97 19,758 18,112.67 18,837.26 11/97 19,414 17,995.51 18,567.54 12/97 19,472 18,310.49 18,709.52 01/98 19,530 18,021.18 18,380.88 02/98 21,045 19,353.72 19,802.31 03/98 21,936 20,151.92 20,705.52 04/98 21,927 20,262.42 20,852.29 05/98 21,064 19,172.09 19,651.07 06/98 20,968 19,212.42 19,838.51 07/98 19,520 17,657.1 18,395.67 08/98 16,587 14,228.45 14,667.09 09/98 17,354 15,341.93 15,559.86 10/98 18,494 15,967.59 16,200.01 11/98 19,559 16,804.16 17,251.38 12/98 21,018 17,844.03 18,548.25 01/99 19,993 18,081 18,594 02/99 18,166 16,617 17,086 03/99 18,257 16,876 17,401 04/99 19,181 17,388 18,521 05/99 18,876 18,657 18,875 06/99 20,114 19,501 20,136 /1/ The Russell 2000 Index is a capitalization-weighted total return index that includes the smallest 2,000 companies within the Russell 3000 Index. /2/ The Lipper Small Cap Funds Average universe consists of 283 funds. 9 ==================== The Montgomery Funds - -------------------- U.S. Emerging Growth Fund - -------------------- Portfolio Highlights - -------------------------------------------------------------------------------- TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Manitowoc Company, Inc. .................................................. 4.5% Elcor Corporation ........................................................ 4.3% Duane Reade,Inc. ......................................................... 3.9% MICROS Systems, Inc. ..................................................... 3.0% Comverse Technology, Inc. ................................................ 2.8% Metro Networks, Inc. ..................................................... 2.7% Moog, Inc. ............................................................... 2.5% On Assignment, Inc. ...................................................... 2.5% Bank United Corporation, Class A ......................................... 2.2% Commercial Federal Corporation ........................................... 2.0% - -------------------------------------------------------------------------------- TOP FIVE INDUSTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Diversified Commercial Services .......................................... 7.8% Computer Software ........................................................ 6.2% Construction/Agriculture Equipment/Trucks ........................................................ 4.5% Building Products ........................................................ 4.3% Savings and Loan Associations ............................................ 4.2% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. There are risks associated with investing in small-cap companies, which tend to be more volatile and less liquid than stocks of large companies, including the increased risks of price fluctuations. While the Fund has been selective, it's important to note that it has not ignored the Internet sector. Many companies within the portfolio are currently leveraging the Internet to promote business growth and development and to provide superior customer service. Catalina Marketing (1.0% of net assets as of 6/30/99) is an example of this type of investment. Catalina is a leading provider of in-store electronic marketing services with proprietary networks that deliver coupons to shoppers at the checkout stand. Catalina has broadened its coupon distribution by giving targeted promotions to consumers via the Internet. The company has one of the leading shopping sites on the Internet as well as an alliance with America Online. Q: Why is this a good time to be invested in the U.S. Emerging Growth Fund? A: In second quarter 1999, we began to see evidence of increasing breadth in the U.S. stock market. Not only did small-cap stocks rally, but also an increased number of large-cap companies participated in the ongoing market expansion. While these developments attest to the continuing strength of the U.S. market, they also indicate that investor appetite is expanding beyond the narrow band of large-cap stocks that have received the lion's share of investor attention for some time. The rally in small-caps suggests that the market is reassessing the very high valuations assigned to the large-cap sector and is beginning to address the significant valuation disparities that exist between the asset classes. Relative to the large-cap market, small-cap stocks are still trading at their lowest levels in several decades. The pricing multiples applied to many of these stocks are not without historic precedent, as they currently are for the growth stocks in the S&P 500. The large-cap companies themselves have begun to recognize the value of smaller-cap stocks and are actively acquiring these lower-priced companies as an inexpensive means of growing revenues and earnings. We believe that this rising awareness of small-cap values will present very real and very promising investment opportunities in the months ahead and that the Montgomery U.S. Emerging Growth Fund is well positioned to take advantage of these developments. Q: Did the merger with the Montgomery Small Cap Opportunities Fund have any impact on the U.S. Emerging Growth Fund? A: We are pleased to report that the merger (completed in March 1999) went exceptionally well, and the impact on shareholders of both Funds was minimal. We had decided on our approach to the merger well in advance of the actual consolidation date and had successfully identified all the material investment and operational issues that needed to be addressed. This enabled us to transition smoothly and quickly without any unwelcome distractions from our core investment responsibilities. 10 ==================== The Montgomery Funds -------------------- U.S. Emerging Growth Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 97.3% Advertising -- 1.8% 164,000 Snyder Communications, Inc.#+ ......................... $ 5,371,000 23,000 TMP Worldwide, Inc.+ .................................. 1,464,813 ------------- 6,835,813 Aerospace/Defense -- 2.5% 280,000 Moog, Inc., Class A+ .................................. 9,625,000 Apparel -- 0.4% 89,250 Cutter & Buck, Inc.+ ................................... 1,489,359 Broadcasting -- 2.7% 191,000 Metro Networks, Inc.+ ................................. 10,182,687 Building Products -- 4.3% 373,000 Elcor Corporation ..................................... 16,295,437 Clothing/Shoe/Accessory Stores -- 3.2% 90,000 AnnTaylor Stores Corporation+ ......................... 4,050,000 140,000 Men's Wearhouse, Inc. (The) ........................... 3,596,250 126,000 Talbots, Inc. ......................................... 4,803,750 ------------- 12,450,000 Computer Communications -- 1.2% 31,200 Juniper Networks, Inc.+ ............................... 4,653,675 Computer Software -- 6.2% 193,100 Genesys Telecomm Laboratories, Inc.+ .................. 4,821,466 88,400 Macromedia, Inc.+ ..................................... 3,140,962 336,000 MICROS Systems, Inc.+ ................................. 11,466,000 75,500 Synopsys, Inc.+ ....................................... 4,164,297 ------------- 23,592,725 Construction/Agriculture Equipment/Trucks -- 4.5% 410,000 Manitowoc Company, Inc. ............................... 17,066,250 Containers/Packaging -- 1.1% 137,000 AptarGroup, Inc. ...................................... 4,110,000 Contract Drilling -- 1.0% 400,000 R&B Falcon Corporation+ ............................... 3,750,000 Diversified Commercial Services -- 7.8% 120,000 Administaff, Inc.+ .................................... 1,920,000 121,800 Bell & Howell Company+ ................................ 4,605,563 41,000 Catalina Marketing Corporation+ ....................... 3,772,000 640,087 HA-LO Industries, Inc.+ ............................... 6,320,859 123,000 MAXIMUS, Inc.+ ........................................ 3,536,250 368,000 On Assignment, Inc.+ .................................. 9,591,000 ------------- 29,745,672 Diversified Financial Services -- 1.4% 183,000 Stancorp Financial Group, Inc.+ ....................... 5,490,000 Drug Store Chains -- 3.9% 490,000 Duane Reade, Inc.#+ ................................... 15,006,250 EDP Services -- 1.4% 218,200 Acxiom Corporation+ ................................... 5,448,181 Electrical Products -- 1.4% 150,000 Raychem Corporation ................................... 5,550,000 Electronic Components -- 3.4% 12,500 Optical Coating Laboratories, Inc. .................... 1,044,922 240,000 Plexus Corporation+ ................................... 7,155,000 64,000 Sanmina Corporation+ .................................. 4,856,000 ------------- 13,055,922 Engineering and Construction -- 1.8% 232,000 Granite Construction, Inc. ............................ 6,800,500 Environmental Services -- 3.5% 181,500 Casella Waste Systems, Inc., Class A#+ ................ 4,696,312 200,700 Republic Services, Inc., Class A+ ..................... 4,967,325 217,150 TETRA Technologies, Inc.+ ............................. 3,610,119 ------------- 13,273,756 Farming/Seeds/Milling -- 1.0% 253,400 Seminis, Inc.+ ........................................ 3,808,931 Finance -- 1.4% 111,992 Radian Group, Inc. .................................... 5,466,610 Food Distributors -- 1.0% 343,300 Fleming Companies, Inc. ............................... 3,990,863 Homebuilding -- 2.2% 225,000 Champion Enterprises, Inc.+ ........................... 4,190,625 165,000 Kaufman & Broad Home Corporation ...................... 4,104,375 ------------- 8,295,000 Industrial Machinery/Components -- 1.8% 255,000 Applied Power, Inc., Class A .......................... 6,964,688 Investment Bankers/Brokers/Services -- 1.2% 173,000 Waddell & Reed Financial, Inc., Class A ............... 4,746,688 Major Banks -- 1.2% 67,000 Republic New York Corporation ......................... 4,568,563 Major Pharmaceuticals -- 1.9% 510,000 Catalytica, Inc.+ ..................................... 7,124,062 Managed Health Care -- 1.0% 243,500 Oxford Health Plans, Inc.+ ............................ 3,781,859 Medical Specialties -- 0.7% 129,600 Cerus Corporation+ .................................... 2,867,400 Newspapers -- 0.9% 290,000 Hollinger International Inc. .......................... 3,443,750 Office/Plant Automation -- 1.9% 164,950 Kronos, Inc.+ ......................................... 7,350,584 Oil and Gas Production -- 0.6% 330,000 Belco Oil & Gas Corporation+ .......................... 2,289,375 Oilfield Services/Equipment -- 0.8% 290,000 Varco International, Inc.+ ............................ 3,171,875 The accompanying notes are an integral part of these financial statements. 11 ==================== The Montgomery Funds - -------------------- U.S. Emerging Growth Fund - -------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued Other Consumer Services -- 2.4% 200,000 Education Management Corporation+ ...................... $ 4,143,750 257,000 Regis Corporation ...................................... 4,923,156 ----------- 9,066,906 Other Specialty Stores -- 1.5% 135,000 Linens 'N Things, Inc.+ ............................... 5,906,250 Other Telephone/Communication -- 1.4% 125,000 Esat Telecom Group PLC, ADR+ .......................... 5,468,750 Package Goods/Cosmetics -- 1.9% 457,800 Playtex Products, Inc.+ ............................... 7,124,512 Paper -- 3.3% 155,000 Mead Corporation ...................................... 6,471,250 136,000 Willamette Industries, Inc. ........................... 6,264,500 ----------- 12,735,750 Restaurants -- 2.5% 130,000 CEC Entertainment, Inc.+ .............................. 5,492,500 225,000 Consolidated Products, Inc.+ .......................... 4,050,000 ----------- 9,542,500 Retail Department Stores -- 1.1% 91,000 Ames Department Stores, Inc.+ ......................... 4,151,875 Savings and Loan Associations -- 4.2% 205,000 Bank United Corporation, Class A ...................... 8,232,031 335,000 Commercial Federal Corporation ........................ 7,767,813 ----------- 15,999,844 Specialty Foods/Candy -- 2.0% 185,000 Celestial Seasonings, Inc.+ ........................... 3,931,250 90,000 Suiza Foods Corporation+ .............................. 3,768,750 ----------- 7,700,000 Telecommunications Equipment -- 4.2% 121,100 Carrier Access Corporation #+ ......................... 5,301,910 141,525 Comverse Technology, Inc.+ ............................ 10,676,292 ----------- 15,978,202 Trucking -- 1.7% 292,750 Swift Transportation Company, Inc.+ ................... 6,431,352 TOTAL COMMON STOCKS (Cost $262,662,738) .............................................. 372,397,416 ----------- Principal Amount Value (Note 1) REPURCHASE AGREEMENTS -- 3.4% $ 12,813,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $12,814,790 on 07/01/99, collateralized by $13,069,280 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $12,813,000) .................................. $12,813,000 ----------- TOTAL INVESTMENTS -- 100.7% (Cost $275,475,738*) ............................................. 385,210,416 OTHER ASSETS AND LIABILITIES -- (0.7)% (Net) ............................................................ (2,727,906) ----------- NET ASSETS-- 100.0% .............................................. $382,482,510 =========== * Aggregate cost for federal tax purposes $275,704,663. # All or a portion of this security is on loan at June 30, 1999 (see Note 4 to Financial Statements). + Non-income-producing security. Abbreviations ADR American Depositary Receipt The accompanying notes are an integral part of these financial statements. 12 ==================== The Montgomery Funds -------------------- Small Cap Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform for the year ended June 30, 1999? A: In spite of a very strong finish to the year, the Fund underperformed its benchmark, the Russell 2000 Index, for the financial year, returning -4.1% versus a return for the index of 1.5%. Q: What factors affected performance most over the period? A: The Fund's performance was badly affected by the extreme volatility of the U.S. market from August through September 1998. In fact, all of the Fund's underperformance occurred during these months. Small-cap stocks were sold off disproportionately to larger-cap issues, as investors signaled their preference for more-liquid, brand-name stocks that were perceived to be less risky. In addition, as a result of our individual stock selections, the Fund was overweighted in sectors such as telecommunications and consumer services, which fared even worse than the average small-cap stock. As the market recovered, however, and especially as these small-caps returned to favor in the latter part of the financial year, our positions in these same sectors were major contributors to the Fund's outperformance. As a result of the inclusion of fundamentally strong telecommunications and consumer services companies, and also of our holdings in biotech and select technology stocks, the Fund regained performance and actually outperformed relative to the benchmark in the final quarter. Q: Were there any changes in the Fund's strategy resulting from the changing market environment? A: No. We continue to be fundamental investors, basing our investment decisions on bottom-up stock selection rather than sector or macroeconomic criteria. Although minor adjustments were made to the Fund's positioning following the challenging market correction at the beginning of the financial year, they were based on our individual stock analysis rather than due to sector considerations. On the whole we remained pleased with our stock selections throughout the year. We were very encouraged by the earnings of the companies in the Fund's portfolio, even though these did not necessarily translate into higher valuations. For most of the year, 87% of the companies in our portfolio reported earnings in line with or exceeding expectations. We believe that this illustrates the fact that the underperformance of the small-cap sector during much of the year was due to sentiment rather than earnings related. This has been borne out by the recovery in the small-cap sector since the world economy has begun to improve, making investors less risk averse and more willing to add attractively valued yet less-liquid companies to their portfolios. Q: Do you believe that small-cap stocks can sustain their current momentum? A: We believe that the broader participation in this quarter's strong performance is a leading indicator of a more sustained interest in small-cap stocks. But as we look at the current conditions in the financial markets, we also believe that there are a number of compelling reasons why the small-cap sector may continue its outperformance. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Stuart Roberts..........................................Senior Portfolio Manager Brad Kidwell.................................................. Portfolio Manager Cam Philpott, CFA............................................. Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Small Cap Fund Since inception (7/13/90).............................................. 17.72% One year............................................................... (4.14)% Five years............................................................. 16.12% ================================================================================ Russell 2000 Index - -------------------------------------------------------------------------------- Since 7/13/90.......................................................... 13.45% One year............................................................... 1.50% Five years............................................................. 15.40% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Lipper Montgomery Russell Small Cap Funds Date Small Cap Fund 2000 Index/1/ Average/2/ ---- -------------- ------------ ---------------- 07/90 $10,000 $10,000.00 $10,000.00 07/90 9,539 9,560.16 9,641.42 08/90 8,569 8,286.94 8,439.82 09/90 7,853 7,553.63 7,742.45 10/90 7,552 7,092.49 7,443.32 11/90 8,154 7,633.29 8,026.90 12/90 8,820 7,936.16 8,463.57 01/91 10,055 8,653.86 9,184.70 02/91 11,319 9,618.89 9,972.39 03/91 12,310 10,295.95 10,596.61 04/91 12,083 10,270.05 10,536.60 05/91 12,979 10,759.57 11,016.92 06/91 12,489 10,132.54 10,443.59 07/91 13,764 10,488.11 11,045.01 08/91 14,917 10,876.32 11,518.31 09/91 15,371 10,961.48 11,585.41 10/91 16,384 11,251.40 11,962.56 11/91 15,313 10,731.00 11,484.61 12/91 17,529 11,590.29 12,788.01 01/92 18,607 12,529.41 13,399.23 02/92 18,370 12,894.91 13,649.10 03/92 17,541 12,458.44 13,099.81 04/92 16,602 12,021.97 12,534.65 05/92 16,577 12,181.83 12,531.98 06/92 15,947 11,605.72 11,982.81 07/92 16,379 12,009.55 12,396.83 08/92 15,749 11,670.66 12,140.31 09/92 16,231 11,939.82 12,419.48 10/92 16,787 12,319.34 12,925.47 11/92 18,740 13,262.01 13,943.17 12/92 19,210 13,724.03 14,408.70 01/93 19,495 14,188.54 14,715.40 02/93 18,555 13,860.83 14,165.26 03/93 19,396 14,310.61 14,665.39 04/93 18,876 13,917.79 14,193.30 05/93 20,323 14,533.64 14,963.88 06/93 20,805 14,624.30 15,069.49 07/93 20,941 14,826.22 15,174.65 08/93 22,393 15,466.73 15,938.14 09/93 23,432 15,903.20 16,480.58 10/93 24,369 16,312.53 16,723.13 11/93 22,624 15,775.63 16,164.30 12/93 23,881 16,315.01 16,842.15 01/94 24,651 16,826.54 17,262.00 02/94 24,313 16,765.68 17,250.53 03/94 22,800 15,880.49 16,331.11 04/94 22,800 15,974.85 16,360.59 05/94 21,651 15,795.50 16,064.01 06/94 20,475 15,259.14 15,493.85 07/94 21,097 15,509.84 15,745.40 08/94 23,002 16,374.09 16,691.21 09/94 22,718 16,319.27 16,798.53 10/94 22,489 16,254.86 17,044.23 11/94 21,475 15,598.38 16,431.69 12/94 21,503 16,017.46 16,759.27 01/95 21,475 15,815.37 16,609.11 02/95 22,236 16,473.28 17,284.34 03/95 22,811 16,756.98 17,753.82 04/95 22,768 17,129.58 17,979.90 05/95 23,214 17,424.11 18,255.44 06/95 24,594 18,328.00 19,370.53 07/95 26,130 19,383.73 20,835.37 08/95 27,310 19,784.71 21,183.61 09/95 27,828 20,130.04 21,747.49 10/95 26,405 19,237.42 21,103.65 11/95 27,276 20,045.66 21,879.87 12/95 29,056 20,574.55 22,151.08 01/96 29,008 20,552.43 21,952.65 02/96 30,137 21,193.05 22,848.63 03/96 31,519 21,624.43 23,355.13 04/96 33,459 22,780.71 25,102.94 05/96 35,382 23,678.51 26,121.58 06/96 34,253 22,706.21 25,100.60 07/96 31,837 20,723.04 22,825.14 08/96 33,045 21,926.21 24,213.18 09/96 34,794 22,783.10 25,510.31 10/96 34,036 22,432.01 24,905.65 11/96 34,929 23,356.30 25,599.83 12/96 34,487 23,968.46 25,933.69 01/97 35,143 24,447.35 26,634.98 02/97 33,138 23,854.59 25,472.38 03/97 30,457 22,729.98 24,116.36 04/97 29,708 22,792.63 23,961.16 05/97 34,318 25,328.30 26,753.33 06/97 36,586 26,413.75 28,101.34 07/97 38,629 27,642.82 29,801.37 08/97 38,873 28,275.34 30,263.36 09/97 42,903 30,344.91 32,533.99 10/97 41,628 29,011.89 31,107.44 11/97 41,347 28,824.24 30,710.95 12/97 42,716 29,328.76 30,987.69 01/98 40,759 28,865.35 30,506.58 02/98 45,195 30,999.74 32,819.12 03/98 47,740 32,278.26 34,339.46 04/98 47,175 32,456.85 34,567.10 05/98 43,847 30,708.82 32,667.84 06/98 45,087 30,773.43 33,140.41 07/98 41,085 28,282.20 30,870.01 08/98 29,971 22,790.36 24,724.36 09/98 30,493 24,573.88 26,225.65 10/98 32,472 25,576.02 27,357.18 11/98 35,495 26,916.00 29,132.33 12/98 39,330 28,581.61 31,464.29 01/99 39,566 28,962.00 31,543.00 02/99 36,148 26,616.00 28,985.00 03/99 36,879 27,031.00 29,518.00 04/99 39,228 29,454.00 31,419.00 05/99 39,463 29,884.00 32,019.00 06/99 43,220 31,235.00 34,158.00 /1/ The Russell 2000 Index is a capitalization-weighted total return index that includes the smallest 2,000 companies within the Russell 3000 Index. Fund performance presented is for Class R shares. /2/ The Lipper Small Cap Funds Average universe consists of 80 funds. 13 ==================== The Montgomery Funds - -------------------- Small Cap Fund - -------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Echostar Communications, Class A ......................................... 7.3% Smithfield Foods, Inc. ................................................... 4.0% AT&T Corporation Liberty Media, Class A .................................................................. 4.0% USA Networks, Inc. ....................................................... 3.8% ICG Communications, Inc. ................................................. 3.2% Winstar Communications, Inc. ............................................. 2.9% SFX Entertainment, Inc. .................................................. 2.8% Conexant Systems, Inc. ................................................... 2.8% Gilead Sciences, Inc. .................................................... 2.6% Canandaigua Wine Company, Inc., Class A .................................................................. 2.5% ================================================================================ TOP FIVE INDUSTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Other Telephone/Communication ............................................ 10.4% Media Conglomerates ....................................................... 7.8% Cable Television ......................................................... 7.6% Biotechnology ............................................................ 6.9% EDP Services ............................................................. 6.2% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. There are risks associated with investing in small-cap companies, which tend to be more volatile and less liquid than stocks of large companies, including the increased risks of price fluctuations. First, investors seem comfortable with the larger, global macroeconomic issues that have dominated investor psychology for the past 12 to 18 months. In addition, the interest rate environment appears stable following the Federal Reserve's last Federal Open Market Committee meeting. With stable macro elements, we expect that investors will focus on specific company fundamentals. We believe that the higher-growth, lower-valuation companies in our portfolio will continue to attract investors' attention. Second, at the end of the financial year, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite Indices were all trading near their historic highs, while the Russell 2000 was approximately 7% below its April 1998 peak. We believe that this disparity represents an opportunity for investors in small-caps. Finally, because of changes to accounting rules, we believe that large companies seeking to bolster slowing growth rates will accelerate their pace of acquisition of smaller companies. Q: What do you currently consider the most interesting opportunities for small-cap investors? A: We are very excited by the opportunities in the small-cap sector. There remains a wide valuation disparity between small-cap and large-cap stocks, even though we believe that the fundamentals of many small-caps are very strong and offer good earnings versus their overvalued large-cap peers. What's more, in spite of the recent appreciation in some small-cap stocks, we believe it is possible to find value in many different sectors. Applying our stock selection criteria, we have recently identified a number of additions to the portfolio. These operate in such different areas as retail and financial services. The features they have in common are that we expect them all to enjoy positive business momentum, and they are all attractively valued relative to both their potential earnings growth and their large-cap peers. 14 ==================== The Montgomery Funds -------------------- Small Cap Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 91.0% Advertising -- 0.3% 12,000 Snyder Communications, Inc.#+ ........................... $ 393,000 Alcoholic Beverages -- 2.5% 64,000 Canandaigua Wine Company, Inc., Class A+ ................ 3,354,000 Biotechnology -- 6.9% 36,000 Alkermes, Inc.+ ......................................... 828,000 68,000 Gilead Sciences, Inc.+ .................................. 3,548,750 32,000 IDEC Pharmaceuticals Corporation+ ....................... 2,465,000 36,000 Medimmune, Inc.+ ........................................ 2,444,625 ------------ 9,286,375 Cable Television -- 7.6% 64,000 Echostar Communications, Class A#+ ...................... 9,822,000 8,600 Pegasus Communications Corporation+ ..................... 338,894 ------------ 10,160,894 Computer Communications -- 1.5% 24,000 Applied Micro Circuits Corporation+ ..................... 1,993,500 Computer Software -- 0.2% 23,000 Avant! Corporation+ ..................................... 289,656 Department Chains -- 1.0% 30,000 Ames Department Stores, Inc.+ ........................... 1,366,875 Diversified Commercial Services -- 1.2% 66,100 Nova Corporation (Georgia)+ ............................. 1,652,500 Diversified Financial Services -- 1.1% 48,000 Stancorp Financial Group, Inc.+ ......................... 1,440,000 EDP Services -- 6.2% 110,400 CSG Systems International, Inc.+ ........................ 2,894,550 16,000 DST Systems, Inc.+ ...................................... 1,006,000 56,000 National Data Corporation ............................... 2,394,000 34,000 The BISYS Group, Inc.+ .................................. 1,990,062 ------------ 8,284,612 Electronic Components -- 2.3% 28,000 Flextronics International, Ltd.+ ........................ 1,547,875 21,000 RF Micro Devices, Inc.+ ................................. 1,567,781 ------------ 3,115,656 Electronic Production Equipment -- 3.3% 32,000 Advanced Energy Industries, Inc.+ ....................... 1,297,000 44,300 Kulicke & Soffa Industries, Inc.+ ....................... 1,180,872 57,600 MKS Instruments, Inc.+ .................................. 1,074,600 24,000 PRI Automation, Inc.+ ................................... 873,000 ------------ 4,425,472 Finance Companies -- 4.7% 200,000 AmeriCredit Corporation+ ................................ 3,200,000 40,000 Heller Financial, Inc. .................................. 1,112,500 40,000 Radian Group, Inc. ...................................... 1,952,500 ------------ 6,265,000 Food Chains -- 1.0% 28,000 Whole Foods Market, Inc.#+ $ ............................ 1,344,875 Home Furnishings -- 1.2% 40,350 Ethan Allen Interiors, Inc. ............................. 1,523,213 Homebuilding -- 2.2% 160,000 Champion Enterprises, Inc.+ ............................. 2,980,000 Insurance Brokers/Services -- 1.8% 36,000 E. W. Blanch Holdings, Inc. ............................. 2,454,750 Internet Services -- 0.2% 6,400 Intermedia Communications, Inc. ......................... 181,200 Investment Managers -- 1.1% 48,000 Affiliated Managers Group, Inc.+ ........................ 1,449,000 Life Insurance -- 0.5% 30,000 Annuity and Life Re (Holdings), Ltd. .................... 674,063 Major Banks -- 0.4% 16,000 Unionbancal Corporation ................................. 578,000 Managed Health Care -- 1.7% 62,600 Trigon Healthcare, Inc.+ ................................ 2,277,075 Meat/Poultry/Fish -- 4.0% 160,000 Smithfield Foods, Inc.+ ................................. 5,325,000 Media Conglomerates -- 7.8% 144,000 AT&T Corporation Liberty Media, Class A+ .......................................................... 5,292,000 128,000 USA Networks, Inc.+ ..................................... 5,132,000 ------------ 10,424,000 Medical Specialties -- 0.9% 64,000 Steris Corporation+ ..................................... 1,240,000 Medical/Dental Distributors -- 1.5% 80,000 Amerisource Health Corporation, Class A+ ................ 2,040,000 Movies/Entertainment -- 3.4% 56,000 SFX Entertainment, Inc.+ ................................ 3,724,000 23,400 TCI Music, Inc., Class A+ ............................... 829,237 ------------ 4,553,237 Oilfield Services/Equipment -- 0.7% 64,000 Petroleum Geo-Services, ADR+ ............................ 952,000 Other Specialty Stores -- 3.5% 36,000 Linens 'N Things, Inc.+ ................................. 1,575,000 116,900 Rent-A-Center, Inc.+ .................................... 2,801,947 24,100 Trans World Entertainment Corporation+ .................. 269,619 ------------ 4,646,566 Other Telephone/Communication -- 10.4% 200,000 ICG Communications, Inc.+ ............................... 4,256,250 52,000 McLeod USA, Inc.+ ....................................... 2,856,750 52,000 Viatel, Inc.+ ........................................... 2,912,000 80,000 Winstar Communications, Inc.+ ........................... 3,902,500 ------------ 13,927,500 The accompanying notes are an integral part of these financial statements. 15 ==================== The Montgomery Funds - -------------------- Small Cap Fund - -------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued Rental/Leasing Companies -- 0.6% 32,800 Rent-Way, Inc.+ ................................. $ 807,700 Restaurants -- 0.8% 40,000 Brinker International, Inc.+ .................... 1,087,500 Savings and Loan Associations -- 2.6% 45,700 Bank United Corporation, Class A ................ 1,835,141 72,000 Commercial Federal Corporation .................. 1,669,500 ----------- 3,504,641 Semiconductors -- 2.8% 64,000 Conexant Systems, Inc.+ ......................... 3,714,000 Telecommunications Equipment -- 3.1% 72,000 Commscope, Inc.+ ................................ 2,214,000 16,000 Gilat Satellite Networks Ltd.+ .................. 841,000 23,000 L-3 Communications Corporation+ ................. 1,111,187 ----------- 4,166,187 TOTAL COMMON STOCKS (Cost $81,025,880) ............................................. 121,878,047 ----------- Principal Amount REPURCHASE AGREEMENTS -- 12.4% $16,578,000 Agreement with Paine Webber Group, Tri-Party, 5.050% dated 06/30/99, to be repurchased at $16,580,294 on 07/01/99, collateralized by $16,610,962 market value of U.S. government and mortgage- backed securities, having various maturities and interest rates (Cost $16,578,000) 16,578,000 ----------- TOTAL INVESTMENTS -- 103.4% (Cost $97,603,880*) ............................................ 138,456,047 OTHER ASSETS AND LIABILITIES -- (3.4)% (Net) .......................................................... (4,526,827) ----------- NET ASSETS -- 100.0% ........................................... $ 133,929,220 =========== * Aggregate cost for federal tax purposes $97,603,880. # All or a portion of this security is on loan at June 30, 1999 (see note 4 to Financial Statements). + Non-income-producing security. Abbreviations ADR American Depositary Receipt The accompanying notes are an integral part of these financial statements. 16 ==================== The Montgomery Funds -------------------- Equity Income Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform in the 12 months ended June 30, 1999? A: The Fund provided a 15.1% total return during the period, compared with 22.7% for the S&P 500 Index. The portfolio performed best relative to the S&P 500 in the most recent quarter, when it returned 8.1% against the S&P 500's return of 7.0%. Our broad market focus is paying off now that the market appears to be normalizing. We continue to invest in what we believe are higher-quality blue chip companies that may perform well over the long term in most market environments, providing consistent and stable returns. Q: What factors most affected relative performance over the period? A: The major factor affecting relative Fund performance over the period was the extremely narrow performance of the S&P 500 Index. Until the second quarter of 1999, the strongest performance was concentrated in the 50 largest companies in the index, only a few of which met our stock selection criteria, primarily due to their high valuations and low dividend yields. Fortunately, the market is beginning to broaden. For the second quarter, we found that the 50 largest companies in the S&P 500, which represent 56% of the index, returned only 4.0%. The remaining 450 companies, representing 44% of the index, returned 10.2%. On the positive side, Fund performance was helped by its commodities exposure, especially energy and paper stocks. Also, though we are still underweighted relative to the market, as a result of our stock selection process we have increased our technology exposure, which to date has paid off nicely. Q: Were there any changes in Fund strategy to reflect the prevailing investment environment? A: The Fund's objective is to generate income as well as capital appreciation. Due to the inherent income component, our investment guideline has been to select stocks with a relative yield at least 40% greater than that of the S&P 500. Because this investment guideline limited our exposure to technology and health care, we changed our policy slightly. We now allow up to 20% of the Fund to be invested in stocks that are attractive relative to their historic yield, if not relative to the benchmark index. There are a number of good companies that possess the characteristics and valuations desired by the Fund but that also have a lower dividend yield. This change increased the size of our universe, so we were able to take a meaningful position in technology, adding Hewlett-Packard (3.4% of net assets as of 6/30/99), Electronic Data Systems (2.1% of net assets as of 6/30/99) and Autodesk (1.4% of net assets as of 6/30/99). Q: Which of the Fund's holdings did especially well during the period? A: Hewlett-Packard is one stock we're very excited about. It was the first company added to the Fund under the guideline change. Hewlett-Packard is a leading computer ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- William King, CFA ............................................ Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Equity Income Fund Since inception (9/30/94)................................................ 20.13% One year................................................................. 15.06% Three years.............................................................. 18.87% - -------------------------------------------------------------------------------- S&P 500 Index Since 9/30/94........................................................... 28.22% One year................................................................ 22.74% Three years............................................................. 29.07% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Lipper Equity Montgomery Income Funds Date Equity Income S&P 500 Index/1/ Average ----- ------------- ---------------- ------------- 9/94 10,000 10,000.00 10,000.00 10/94 10,083 10,228.70 10,061.03 11/94 9,825 9,853.20 9,687.36 12/94 9,907 9,997.16 9,764.84 1/95 10,336 10,257.09 9,954.51 2/95 10,597 10,655.06 10,286.68 3/95 10,824 10,970.56 10,533.98 4/95 11,028 11,292.21 10,779.82 5/95 11,392 11,738.48 11,108.59 6/95 11,426 12,014.57 11,238.70 7/95 11,562 12,415.14 11,535.35 8/95 11,742 12,448.91 11,652.72 9/95 12,280 12,971.64 12,037.71 10/95 12,280 12,925.85 11,920.92 11/95 12,899 13,494.84 12,452.72 12/95 13,392 13,744.36 12,766.42 1/96 13,610 14,217.72 13,074.35 2/96 13,705 14,354.35 13,184.18 3/96 13,784 14,491.86 13,356.10 4/96 13,828 14,705.33 13,495.62 5/96 14,065 15,084.29 13,703.55 6/96 14,232 15,145.53 13,732.34 7/96 13,834 14,471.10 13,252.77 8/96 14,108 14,778.46 13,599.74 9/96 14,639 15,609.16 14,117.15 10/96 15,126 16,036.38 14,443.57 11/96 16,028 17,253.71 15,250.80 12/96 15,848 16,916.05 15,170.61 1/97 16,174 17,966.20 15,719.63 2/97 16,668 18,110.29 15,921.18 3/97 16,232 17,357.08 15,445.67 4/97 16,511 18,392.60 15,907.56 5/97 17,356 19,521.54 16,817.03 6/97 17,935 20,379.90 17,441.98 7/97 18,936 21,998.07 18,557.43 8/97 18,285 20,778.94 17,994.26 9/97 19,148 21,912.01 18,881.09 10/97 18,412 21,190.89 18,306.90 11/97 19,430 22,162.91 18,879.01 12/97 19,984 22,537.47 19,334.30 1/98 19,827 22,792.59 19,303.94 2/98 20,783 24,430.47 20,390.12 3/98 21,711 25,684.48 21,331.57 4/98 21,248 25,950.57 21,331.37 5/98 20,819 25,499.29 21,001.95 6/98 20,774 26,535.07 21,143.49 7/98 20,126 26,253.01 20,526.97 8/98 18,409 22,463.12 17,983.66 9/98 19,623 23,917.83 18,937.59 10/98 21,087 25,853.98 20,038.18 11/98 21,796 27,421.51 20,902.12 12/98 22,130 29,017.17 21,453.60 1/99 21,979 30,211.51 21,394.00 2/99 21,654 29,273.14 20,945.00 3/99 22,115 30,449.05 21,410.00 4/99 23,794 31,608.55 22,923.00 5/99 23,018 30,877.76 22,692.00 6/99 23,902 32,565.54 23,388.00 /1/ The Standard & Poor's 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC markets. /2/ The Lipper Equity Income Funds Average universe consists of 113 funds. 17 ==================== The Montgomery Funds - -------------------- Equity Income Fund - -------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Ameritech Corporation .................................................... 3.8% Halliburton Company ...................................................... 3.5% American General Corporation ............................................. 3.5% Bank of America Corporation .............................................. 3.4% Hewlett-Packard Company .................................................. 3.4% Marsh &McLennan Companies ................................................ 3.3% McGraw-Hill Companies, Inc. .............................................. 3.2% Kimberly-Clark Corporation ............................................... 3.2% Pharmacia & Upjohn, Inc. ................................................. 3.2% Household International, Inc. ............................................ 3.0% ================================================================================ TOP FIVE INDUSTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Major Pharmaceuticals ................................................... 8.1% Major U.S. Telecommunications ........................................... 8.1% Major Banks ............................................................. 7.1% Paper ................................................................... 5.8% Oilfield Services/Equipment ............................................. 5.3% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. company with new products for the Internet, but in recent years its growth had slowed considerably. Management indicated that they were interested in making changes to increase growth. Shortly after we added the position, the company announced that it was making positive management changes and spinning off its medical division. Q: Were there any disappointments? A: Obvious disappointments are the narrow performance of the market and the excessive valuation accorded to certain sectors, which made stock selection particularly difficult. One action we took was the modification to guidelines discussed earlier. We also diligently continue our research so that we can react quickly as opportunities present themselves. Q: How are you positioning the Equity Income Fund for next year? A: We're selling stocks that reach their price targets or are underperforming, and switching into stocks that we expect to have greater capital appreciation. For example, we sold our position in Weyerhaeuser when it reached its price target, and added positions in Bowater (0.9% of net assets as of 6/30/99) and Westvaco (1.0% of net assets as of 6/30/99). This keeps us exposed to the paper and forest products sector while increasing our expected return. Another switch we've made is to significantly lower our utility holdings and to emphasize gas utilities, which we believe have higher return potential. We continue to monitor technology for attractive candidates. Much of the excess valuation in the market is concentrated in that sector. We find that we have to wait and watch this group to identify a company that moves down into our buy range. One benefit of all the market volatility is that this does happen, and we are prepared to act quickly. The Fund is also well positioned in oil services, owning Halliburton (3.5% of net assets as of 6/30/99) and Baker Hughes (1.8% of net assets as of 6/30/99). In addition, the Fund has excellent exposure in telecommunications, with holdings in Ameritech (3.8% of net assets as of 6/30/99), Bell Atlantic (2.5% of net assets as of 6/30/99) and GTE (1.8% of net assets as of 6/30/99). These holdings have performed especially well in the past two quarters, and the outlook is still very favorable. We believe that a broadening market should continue to prove more favorable to Fund performance going forward. 18 ==================== The Montgomery Funds -------------------- Equity Income Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 96.7% Alcoholic Beverages -- 2.2% 9,500 Anheuser-Busch Companies, Inc. ........................ $ 673,906 Apparel -- 2.0% 14,000 VF Corporation ........................................ 598,500 Books/Magazines -- 0.9% 5,000 Harcourt General, Inc. ................................ 257,813 Building Products -- 2.8% 29,000 Masco Corporation ..................................... 837,375 Computer Software -- 1.4% 14,000 Autodesk, Inc. ........................................ 414,313 Department Chains -- 2.7% 19,500 May Department Stores Company ......................... 797,062 Diversified Electronic Products -- 3.4% 10,000 Hewlett-Packard Company ............................... 1,005,000 Diversified Financial Services -- 1.7% 11,000 Citigroup, Inc. ....................................... 522,500 Diversified Manufacture -- 1.8% 4,700 Honeywell, Inc. ....................................... 544,613 EDP Services -- 2.1% 11,000 Electronic Data Systems Corporation ................... 622,188 Electric Utilities: South -- 0.7% 5,000 Texas Utilities Company ............................... 206,250 Finance Companies -- 3.0% 19,000 Household International, Inc. ......................... 900,125 Financial Publishing/Services -- 3.2% 18,000 McGraw-Hill Companies, Inc. ........................... 970,875 Food Chains -- 2.4% 14,000 Albertsons, Inc. ...................................... 721,875 Home Furnishings -- 2.0% 13,000 Newell Rubbermaid, Inc. ............................... 604,500 Industrial Machinery/Components -- 2.5% 9,000 Illinois Tool Works, Inc. ............................. 738,000 Insurance Brokers/Services -- 3.3% 13,000 Marsh & McLennan Companies ............................ 981,500 Integrated Oil Companies -- 2.6% 5,000 Chevron Corporation ................................... 475,937 4,000 Exxon Corporation ..................................... 308,500 ---------- 784,437 Life Insurance -- 3.5% 14,000 American General Corporation .......................... 1,055,250 Major Banks -- 7.1% 14,000 Bank of America Corporation ........................... 1,026,375 7,000 Fleet Financial Group, Inc. ........................... 310,625 5,000 National City Corporation ............................. 327,500 5,500 Wachovia Corporation .................................. 470,594 ---------- 2,135,094 Major Chemicals -- 0.7% 3,000 du Pont (E.I.) de Nemours and Company ................. 204,938 Major Pharmaceuticals -- 8.1% 14,000 American Home Products Corporation .................... 805,000 9,000 Merck & Company, Inc. ................................. 666,000 17,000 Pharmacia & Upjohn, Inc. .............................. 965,812 ---------- 2,436,812 Major U.S. Telecommunications -- 8.1% 15,500 Ameritech Corporation ................................. 1,139,250 11,500 Bell Atlantic Corporation ............................. 751,812 7,000 GTE Corporation ....................................... 530,250 ---------- 2,421,312 Medical Specialties -- 2.9% 4,000 Bausch & Lomb, Inc. ................................... 306,000 9,000 Baxter International, Inc. ............................ 545,625 ---------- 851,625 Motor Vehicles -- 1.8% 8,000 General Motors Corporation ............................ 528,000 Motor Vehicles & Parts -- 0.9% 4,000 Johnson Controls, Inc. ................................ 277,250 Office Equipment/Supplies -- 2.3% 10,500 Pitney-Bowes, Inc. .................................... 674,625 Oil/Gas Transmission -- 3.0% 15,000 Coastal Corporation ................................... 600,000 5,000 Columbia Energy Group ................................. 313,437 ---------- 913,437 Oilfield Services/Equipment -- 5.3% 16,000 Baker Hughes, Inc. .................................... 536,000 23,500 Halliburton Company ................................... 1,063,375 ---------- 1,599,375 Package Goods/Cosmetics -- 3.2% 17,000 Kimberly-Clark Corporation ............................ 969,000 Paints/Coatings -- 0.8% 4,000 PPG Industries, Inc. .................................. 236,250 Paper -- 5.8% 6,000 Bowater, Inc. ......................................... 283,500 14,000 International Paper Company ........................... 707,000 10,000 Westvaco Corporation .................................. 290,000 10,000 Willamette Industries, Inc. ........................... 460,625 ---------- 1,741,125 Printing/Forms -- 2.5% 20,000 Donnelley (R.R.) & Sons Company# ...................... 741,250 TOTAL COMMON STOCKS (Cost $23,160,532) ............................................... 28,966,175 ---------- 19 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds - -------------------- Equity Income Fund - -------------------- Investments Principal Amount Value (Note 1) REPURCHASE AGREEMENTS -- 4.3% $ 1,308,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $1,308,183 on 07/01/99, collateralized by $1,334,162 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $1,308,000) ................................... $ 1,308,000 ----------- TOTAL INVESTMENTS -- 101.0% (Cost $24,468,532*) ............................................. 30,274,175 OTHER ASSETS AND LIABILITIES -- (1.0)% (Net) ........................................................... (312,198) ----------- NET ASSETS -- 100.0% ............................................ $ 29,961,977 ============ * Aggregate cost for federal tax purposes $24,504,924. # All or a portion of this security is on loan at June 30, 1999 (see note 4 to Financial Statements). 20 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds ------------------------- International Growth Fund ------------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform during the year ended June 30, 1999? A: Two very strong quarters of performance were not sufficient to offset two weaker quarters, as market conditions proved very challenging for the international growth style of investing during the period. As a result, the Fund underperformed its benchmark for the year, returning 2.3% versus a 7.9% return for its benchmark, the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index. In recognition of its good long-term track record, however, Morningstar awarded an overall four-star rating to the Fund for its risk-adjusted performance and four stars for the three-year period ended June 30, 1999, among 987 international equity funds.* Q: What contributed to the Fund's underperformance during the period? A: There were two events that detracted from the Fund's relative performance during the course of the year: the August through September turmoil in global financial markets and the rotation out of growth stocks and into industrial cyclicals in 1999. Strong stock selection has enabled us to offset the negative impact of the latter trend in recent months. At the beginning of the financial year, the Fund's relative performance suffered as global markets corrected sharply. Growth stocks were particularly affected by this volatility. Although our fully invested positioning initially hurt relative performance, it allowed us to take full advantage of the subsequent recovery. In maintaining our focus on good stock selection, the Fund enjoyed strong outperformance against the benchmark during the final quarter of the financial year. Stocks such as KAO Corp. (2.0% of net assets as of 6/30/99) and Equant (1.9% of net assets as of 6/30/99), appreciated rapidly, contributing to the Fund's outperformance. Q: There has been some excitement that Japan is finally beginning to emerge from recession. Did you make any adjustments to the portfolio in recognition of this? A: We have made some adjustments to the portfolio in recent months, but primarily as a result of our bottom-up approach to investment analysis that favors original research at the country, sector and company levels. For much of the financial year, we maintained a strong overweight position in Europe. The introduction of the euro and continuing efforts toward deregulation have created a favorable long-term growth environment, and we have identified many dynamic European companies with strong management teams that we believe will be solid performers in 1999. We are starting to see some signs of improvement in Japan. Although much of the positive gross domestic product (GDP) surprise in the first quarter of 1999 was the result of temporary fiscal stimuli, we did see evidence of improving domestic consumption, which is an important confirmation of improving economic fundamentals. We have added several companies to the Fund that are undergoing positive fundamental change and whose earnings will benefit from improving business momentum in Japan. We continue to watch Japan closely, as follow-through on pend- ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- John Boich, CFA....................................... Senior Portfolio Manager Oscar Castro, CFA..................................... Senior Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery International Growth Fund Since inception (7/3/95)................................................ 17.72% One year................................................................ 2.34% Three years............................................................. 14.57% - -------------------------------------------------------------------------------- MSCI EAFE Index Since 7/3/95............................................................ 10.23% One year................................................................ 7.92% Three years............................................................. 9.12% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Montgomery Lipper International MSCI EAFE International Growth Index/1/ Funds Average ------ --------- ------------- 06/95 $10,000 $10,000.00 $10,000.00 07/95 10,083 10,622.56 10,535.91 08/95 10,058 10,217.35 10,339.11 09/95 10,417 10,416.90 10,495.93 10/95 10,675 10,136.89 10,286.61 11/95 10,783 10,418.93 10,396.57 12/95 11,142 10,838.72 10,708.57 01/96 11,392 10,883.21 10,949.63 02/96 11,617 10,920.00 10,995.95 03/96 11,842 11,151.90 11,186.91 04/96 12,600 11,476.12 11,540.05 05/96 12,925 11,264.94 11,508.20 06/96 12,758 11,328.34 11,585.43 07/96 12,183 10,997.25 11,150.67 08/96 12,500 11,021.34 11,278.40 09/96 12,717 11,314.13 11,521.57 10/96 12,737 11,198.36 11,444.71 11/96 13,420 11,643.92 11,933.52 12/96 13,477 11,494.13 11,976.28 01/97 13,748 11,091.87 11,932.77 02/97 13,683 11,273.29 12,085.45 03/97 13,730 11,314.11 12,118.03 04/97 13,739 11,374.14 12,118.00 05/97 14,572 12,114.30 12,136.05 06/97 15,208 12,782.37 12,853.97 07/97 15,704 12,989.16 13,453.37 08/97 14,899 12,019.08 12,815.77 09/97 15,789 12,692.37 13,615.29 10/97 14,572 11,716.78 12,571.16 11/97 14,750 11,597.33 12,453.90 12/97 14,845 11,698.49 12,552.73 01/98 15,478 12,233.50 12,862.04 02/98 16,937 13,018.47 13,712.55 03/98 17,862 13,419.33 14,414.36 04/98 18,506 13,525.55 14,615.61 05/98 18,717 13,459.90 14,632.53 06/98 18,747 13,561.80 14,527.51 07/98 19,129 13,699.30 14,763.50 08/98 16,283 12,002.10 12,643.20 09/98 15,529 11,634.14 12,174.74 10/98 17,078 12,846.89 13,087.66 11/98 18,144 13,505.05 13,759.60 12/98 19,105 14,037.82 14,192.05 01/99 19,862 13,996.00 14,307.00 02/99 18,791 13,663.00 13,932.00 03/99 18,468 14,233.00 14,420.00 04/99 18,994 14,810.00 15,083.00 05/99 18,519 14,047.00 14,466.00 06/99 19,186 14,595.00 15,227.00 (1) The Morgan Stanley Capital International EAFE Index is composed of 20 developed market countries in Europe, Australasia and the Far East. (2) The Lipper International Funds Average universe consists of 269 funds. * Morningstar proprietary ratings reflect historical risk-adjusted performance through 6/30/99. The ratings are subject to change every month, and past performance is no guarantee of future results. Morningstar ratings are calculated from the funds' three-, five-, and 10-year average annual returns (if applicable) in excess of 90-day Treasury bill returns, with appropriate fee adjustments and a risk factor that reflects fund performance below 90-day T-bill returns. The top 10% of the funds in a broad asset class receive five stars; the next 22.5% receive four stars. Ratings are for Class R shares only; other classes may vary. 21 ========================== The Montgomery Funds - -------------------------- International Growth Fund - -------------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Total S.A., Class B ..................................................... 2.9% Alstom .................................................................. 2.6% Vivendi ................................................................. 2.4% Orange PLC .............................................................. 2.4% Veba AG ................................................................. 2.2% Cable &Wireless Optus Ltd. .............................................. 2.2% Railtrack Group PLC ..................................................... 2.2% Nissan Motor Company,Ltd. ................................................ 2.2% Cap Gemini S.A. ......................................................... 2.1% Kirin Brewery Company, Ltd. ............................................. 2.1% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) United Kingdom .......................................................... 24.6% France .................................................................. 17.8% Japan ................................................................... 16.2% Netherlands ............................................................. 8.7% Germany ................................................................. 5.9% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. Investors should be aware that there are risks associated with investing in funds of this type that invest in securities of foreign countries, such as erratic market conditions, economic and political instability, and fluctuations in currency exchange rates. ing policy initiatives will be vital if that country is to maintain its current economic and market momentum. Q: You appear to be more optimistic about the prospects for Japan; what are your views on Europe? A: There have been subtle improvements in the outlook for the European economies in recent months. As a result, the consensus view is for an improvement in economic growth in the region for the second half of 1999. However, this positive growth outlook is likely to be accompanied by the possibility of higher interest rates as inflationary concerns increase. There are two countries that we are particularly excited about--France and the United Kingdom. Both have shown encouraging signs of accelerating growth, and we believe that their equity markets may perform well. Q: How have you positioned the Fund to take advantage of trends in Asia and Europe? A: As mentioned, we have been increasing the Fund's exposure to Japan. We have also added to our holdings in France and the United Kingdom. In both these countries, we have identified companies in the industrial growth cyclical and consumer durables sectors that are attractively valued and that we believe will profit from accelerating economic growth. Although we currently anticipate stronger growth in Japan and Europe, there are risks, including the possibility of higher interest rates, that may change this outlook. We believe that our stock selection process, which combines primary original research, expert industry knowledge and the advantage of good insight, should help offset unfavorable macroeconomic trends. 22 ========================= The Montgomery Funds ------------------------- International Growth Fund ------------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS - 94.8% Australia - 4.0% 563,034 Australia & New Zealand Banking Group Ltd. (Non-U.S. Banks) .................................. $ 4,124,379 2,231,400 Cable & Wireless Optus Ltd. (Other Telephone/Communication) ........................ 5,061,566 ----------- 9,185,945 Austria - 1.6% 70,000 Bank Austria AG (Non-U.S. Banks) ....................... 3,686,189 Belgium - 1.3% 69,400 Acec-Union Miniere S.A. (Metal Fabrications) ................................... 2,866,347 Finland - 3.3% 82,900 Helsinki Telephone# (Other Telephone/Communication) ........................ 3,937,510 40,180 Nokia Oyj (Telecommunications Equipment) ......................... 3,526,454 ----------- 7,463,964 France - 17.8% 187,400 Alstom+ (Electrical Products) .......................... 5,901,722 2,400 Alstom, ADR+ (Electrical Products) ..................... 76,800 40,400 Banque Nationale de Paris(Non-U.S.Banks) ............... 3,370,560 31,220 Cap Gemini S.A.# (EDP Services) ........................ 4,912,779 38,440 Coflexip (Metal Fabrications) .......................... 3,304,281 8,220 Groupe Danone (Packaged Foods) ......................... 2,121,882 22,230 Lafarge S.A. (Building Materials) ...................... 2,116,312 94,690 Lagardere S.C.A. (Aerospace/Defense) ................... 3,529,561 64,700 Societe BIC S.A. (Consumer Specialties) ................ 3,417,113 51,400 Total S.A., Class B+ (Oil Refining/Marketing) ............................... 6,639,414 68,911 Vivendi+ (Non-U.S. Utilities) .......................... 5,589,128 ----------- 40,979,552 Germany - 4.2% 29,920 Mannesmann AG (Cellular Telephone) ..................... 4,470,329 86,990 Veba AG (Non-U.S. Utilities) ........................... 5,119,806 9,590,135 Japan - 16.2% 543 East Japan Railway Company (Railroads) ................. 2,920,079 518,000 Fuji Heavy Industries Ltd.#(Motor Vehicles) ............ 4,002,747 491,000 Hitachi Ltd. (Diversified Electronic Products) ...................... 4,610,615 392 Japan Tobacco, Inc. (Tobacco) .......................... 4,345,826 161,000 KAO Corporation (Package Goods/Cosmetics) .............................. 4,528,833 406,000 Kirin Brewery Company, Ltd. (Alcoholic Beverages) .................................. 4,870,522 1,051,000 Nissan Motor Company, Ltd. (Motor Vehicles) ....................................... 5,025,879 42,000 Sony Corporation (Consumer Electronics/Appliances) ...................... 4,534,624 326,000 Sumitomo Rubber Industries, Ltd. (Automotive Aftermarket) ............................... 2,308,728 ----------- 37,147,853 Netherlands - 8.7% 45,800 Equant N.V.+ (Other Telephone/Communication) ........................ 4,310,925 73,300 ING Groep N.V. (Oil Refining/Marketing) ................ 3,973,494 94,519 Koninklijke KPN, N.V. (Other Telephone/Communication) ........................ 4,440,582 51,200 United Pan-Europe Communications N.V.#+(Cable Television) ............................... 2,780,770 164,761 Vendex N.V. (Department Chains) ........................ 4,406,193 ----------- 19,911,964 Portugal - 1.0% 18,300 Telecel-Comunicacoes Pessoais S.A. (Cellular Telephone) ................................... 2,361,949 Russia - 1.8% 51,800 Global TeleSystems Group, Inc.+ (Other Telephone/Communication) ........................ 4,194,181 Spain - 5.1% 150,380 Argentaria S.A. (Non-U.S. Banks) ....................... 3,430,008 444,600 Banco Santander Central Hispano S.A. (Non-U.S. Banks) ....................................... 4,636,606 76,403 Telefonica de Espana S.A.+ (Other Telephone/Communication) ........................ 3,684,933 ----------- 11,751,547 Sweden - 1.7% 133,200 Enator AB# (EDP Services) .............................. 4,010,627 Switzerland - 3.5% 1,403 Julius Baer Holding AG (Investment Banks/Brokers)) ............................ 4,005,472 10,455 Swisscom AG (Other Telephone/Communication) ........................ 3,941,596 ----------- 7,947,068 United Kingdom - 24.6% 198,000 Abbey National PLC (Diversified Financial Services) ....................... 3,723,061 219,500 Alliance & Leicester PLC (Non-U.S. Banks) .............. 2,963,924 128,600 Barclays PLC (Non-U.S. Banks) .......................... 3,746,852 635,900 British Airways PLC (Airlines) ......................... 4,398,627 340,000 British American Tobacco PLC (Tobacco) ................. 3,201,931 389,100 Diageo PLC (Alcoholic Beverages) ....................... 4,093,980 677,300 Enterprise Oil PLC (Oil and Gas Production) ............................... 4,385,842 23 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds - ------------------------- International Growth Fund - ------------------------- Investments Shares Value (Note 1) COMMON STOCKS - continued United Kingdom - continued 112,703 Glaxo Wellcome PLC (Major Pharmaceuticals) ............................... $ 3,132,565 270,000 Great Universal Stores PLC (Catalog/Specialty Distribution) ...................... 2,985,661 107,200 HSBC Holdings PLC (Diversified Financial Services) ...................... 3,799,763 151,000 Lloyds TSB Group PLC (Diversified Financial Services) ...................... 2,055,637 374,254 Orange PLC (Cellular Telephone) ....................... 5,481,596 246,648 Railtrack Group PLC (Railroads) ....................... 5,046,337 352,700 Scottish & Southern Energy PLC (Non-U.S. Utilities) .................................. 3,621,972 842,500 Somerfield PLC (Food Chains) .......................... 3,953,808 ------------- 56,591,556 TOTAL COMMON STOCKS (Cost $209,929,276) .............................................. 217,688,877 ------------- PREFERRED STOCK - 1.7% Germany - 1.7% 1,610 Porsche AG (Motor Vehicles) (Cost $3,899,460) ..................................... 3,790,269 ------------- TOTAL SECURITIES (Cost $213,828,736) .............................................. 221,479,146 ------------- Principal Amount REPURCHASE AGREEMENT - 3.2% $7,390,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $7,391,033 on 07/01/99, collateralized by $7,537,812 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $7,390,000) ..................................... 7,390,000 ------------- TOTAL INVESTMENTS - 99.7% (Cost $221,218,736*) ............................................. 228,869,146 OTHER ASSETS AND LIABILITIES - 0.3% (Net) ............................................................ 769,838 ------------- NET ASSETS - 100.0% .............................................. $ 229,638,984 ============= * Aggregate cost for federal tax purposes $221,334,613. # All or a portion of this security is on loan at June 30, 1999 (see note 4 to Financial Statements). + Non-income-producing security. Abbreviations ADR American Depositary Receipt ORD Ordinary 24 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds -------------------- International Small Cap Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform from July 1 through June 30, 1999? A: Following a challenging year for international small-cap investors, the Fund returned -3.8% versus a return of 3.4% for its benchmark, the Salomon Smith Barney World Extended Market (ex-U.S.) Index. Q: What factors contributed to this underperformance? A: A difficult quarter at the beginning of the financial year negatively impacted the Fund's absolute returns throughout the year. The international small-cap sector was particularly affected by the financial turmoil that engulfed global markets in August and September 1998. Although global markets have since recovered, in the small-cap sector this recovery has been largely confined to the Pacific Rim, specifically Japan. In Europe, with the exception of technology stocks, small-cap securities have continued to underperform their large-cap peers. The largest contributing factor to the Fund's lower returns versus the benchmark was its underweight position in Japan. Although we had begun increasing our exposure to Japan to take advantage of any improvement in its economy, our weighting was still significantly under the benchmark's when the November announcement of a stimulus package led to a rapid appreciation in the value of the yen. Driven by our disciplined stock selection process as much as by macroeconomic considerations, we maintained a cautious approach to Japan throughout the year, adding only stocks that we believed were undergoing positive fundamental change and would benefit from positive business momentum. The Fund benefited from our increased exposure to this market in the first three months of 1999, but in the final three months we began reducing our exposure. Because of strong price appreciation, our holdings rapidly exceeded their price targets and we took profits. Although this decision may have detracted from short-term returns, we believe that the rally in this market has nearly run its course; and because Japanese small-cap stocks are typically very illiquid, it is wise to sell into strength during market rallies. Offsetting our underweight position in Japan, our overweight position in the U.K. market helped returns over the period. The FTSE Small Cap Index outperformed the rest of the European small-cap sector as well as U.K. large-cap stocks during the year. Q: Which stocks performed well over the period? A: Inevitably, the stocks that performed particularly well over the year include many of the Fund's Japanese holdings, which made a very positive contribution to performance. For example, we were particularly pleased with the returns of Fast Retailing, an apparel company similar to The Gap in the United States. This company reached its price target during the rally in Japanese small-cap stocks, and we took profits, selling out of our position. Other portfolio holdings in the recovering Asian markets also performed well: Natsteel Electronics (2.2% of net assets as of 6/30/99), a Singapore manufacturer of circuit boards and devices for mobile phone handsets, and Esprit Holdings (1.7% of net assets as of ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- John Boich, CFA .................................... Senior Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery International Small Cap Fund Since inception (9/30/93) ............................................. 6.54% One year .............................................................. (3.82)% Five years ............................................................ 7.50% - -------------------------------------------------------------------------------- Salomon Smith Barney World Extended Market (ex-U.S.) Index Since 9/30/93 ......................................................... 4.69% One year .............................................................. 3.40% Five years ............................................................ 3.47% Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Salomon Smith Barney Montgomery Lipper International Extended Market International Small Cap Date (ex-U.S.) Index Small Cap Fund Funds Average/2/ ---- --------------- -------------- ---------------- 9/93 $10,000 $10,000.00 $10,000.00 10/93 10,433 9,964.00 10,492.44 11/93 10,492 9,130.01 10,254.07 12/93 11,342 9,717.99 11,222.30 01/94 12,117 10,688.81 12,132.78 02/94 12,083 10,763.63 12,134.62 03/94 11,158 10,587.11 11,585.28 04/94 10,817 10,904.72 11,706.52 05/94 10,625 10,748.79 11,611.83 06/94 10,017 10,974.51 11,370.82 07/94 10,450 11,099.62 11,628.65 08/94 10,825 11,217.28 11,935.75 9/94 10,517 10,896.46 11,639.84 10/94 10,642 11,093.69 11,749.61 11/94 9,951 10,401.44 11,076.17 12/94 9,835 10,540.82 10,927.22 01/95 9,318 10,198.24 10,476.14 02/95 9,409 10,049.35 10,512.67 03/95 9,301 10,476.45 11,370.82 04/95 9,543 10,790.74 11,628.65 05/95 9,635 10,601.90 11,935.75 06/95 9,793 10,471.50 11,639.84 07/95 10,285 11,081.99 11,749.61 08/95 10,260 10,801.61 11,076.17 9/95 10,751 10,885.87 10,927.22 10/95 10,651 10,572.35 10,476.14 11/95 10,586 10,684.42 10,512.67 12/95 10,987 11,093.63 11,554.35 01/96 11,413 11,291.10 11,946.28 02/96 11,429 11,467.24 12,203.36 03/96 11,671 11,730.64 12,419.20 04/96 12,164 12,347.54 12,853.14 05/96 12,490 12,247.27 13,075.09 06/96 12,406 12,248.87 13,140.47 07/96 11,997 11,785.68 12,682.47 08/96 12,348 11,905.22 12,895.08 9/96 12,423 11,971.39 12,973.36 10/96 12,281 11,924.37 13,010.08 11/96 12,773 12,119.40 13,395.03 12/96 12,631 11,896.48 13,507.89 01/97 13,041 11,639.40 13,658.66 02/97 13,199 11,834.94 13,856.64 03/97 13,032 11,678.02 13,856.64 04/97 12,924 11,503.43 13,646.41 05/97 13,959 12,240.52 14,353.95 06/97 14,326 12,517.26 14,737.35 07/97 14,193 12,327.86 14,725.38 08/97 13,892 11,802.02 14,313.31 9/97 14,118 12,011.78 14,750.80 10/97 13,241 11,537.33 13,937.77 11/97 12,515 11,022.21 13,519.26 12/97 12,533 10,778.46 13,378.46 01/98 12,958 11,227.80 13,567.51 02/98 14,016 12,065.30 14,580.09 03/98 14,955 12,632.20 15,489.03 04/98 15,212 12,728.39 15,802.43 05/98 15,182 12,965.75 15,927.92 06/98 14,965 12,587.53 15,433.99 07/98 15,331 12,501.14 15,442.28 08/98 12,524 10,968.25 13,304.22 9/98 12,504 10,682.92 12,864.69 10/98 12,830 11,436.81 13,375.34 11/98 13,304 11,803.26 13,849.71 12/98 13,859 12,088.46 14,175.85 01/99 14,344 12,051.46 14,441.00 02/99 14,067 11,817.53 14,406.00 03/99 14,048 12,261.16 14,850.00 04/99 14,691 12,924.41 15,951.00 05/99 14,344 12,586.05 15,571.00 06/99 14,393 13,015.24 16,778.00 /1/ The Salomon Smith Barney World Extended Market (ex-U.S.) Index is a comprehensive float-weighted equity index consisting of every company with an investable market capitalization of more than $100 million in developed countries. Within this index, the Extended (ex-U.S.) Market Index defines the small-capitalization stock universe. /2/ The Lipper International Small Cap Funds Average universe consists of six funds. 25 ==================== The Montgomery Funds - -------------------- International Small Cap Fund - -------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) AT&T Canada, Inc. ....................................................... 5.1% Henlys Group PLC ........................................................ 3.7% Esat TelecomGroup PLC, ADR .............................................. 3.6% Baron de Ley S.A. ....................................................... 3.6% Banca Lombarda SpA ...................................................... 3.1% Primacom AG ............................................................. 2.9% Global TeleSystems Group, Inc. .......................................... 2.7% Virgin Express Holdings PLC; Sponsored ADR .............................. 2.7% Ordina Beheer N.V. ...................................................... 2.7% Wickes PLC .............................................................. 2.6% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) United Kingdom .......................................................... 18.4% Germany ................................................................. 12.8% Ireland ................................................................. 8.8% Spain ................................................................... 8.2% Canada .................................................................. 5.5% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. There are risks associated with investing in funds of this type that invest in securities of foreign countries, such as erratic market conditions, economic and political instability, and fluctuations in currency exchange rates. There are also risks associated with investing in small-cap companies, which tend to be more volatile and less liquid than stocks of large companies, including the increased risk of price fluctuations. 6/30/99), a Hong Kong apparel company. The latter typifies the companies that our strategy tries to identify--ones that have benefited from restructuring and have therefore been able to achieve immediate earnings expansion independent of revenue growth. This and the recovery of the Hong Kong market helped Esprit appreciate strongly in the second quarter of 1999. The Fund also enjoyed some notable successes in Europe, in spite of a challenging small-cap environment. Our best results were in such industries as telecommunications, where we have strong industry expertise, can draw on the benefit of good insight and have excellent access to senior management. One such outperformer was Global TeleSystems Group (2.7% of net assets as of 6/30/99), a Belgium-domiciled provider of local and long-distance calling combined with data transmission and Internet service. Q: What trends do you see developing in international small-caps in the coming year? A: Recently released Japanese economic statistics suggest a fledgling recovery in domestic consumption in the first three months of 1999. This is significant in that consumer spending is key to a sustainable economic recovery. We continue to monitor developments carefully, believing that for a sustainable recovery, the extended session of the Japanese Diet (parliament) will have to pass a further fiscal stimulus package, pass a proposed bill on debt relief and tighten bankruptcy laws. Against this background we may begin to explore other interesting opportunities in the Japanese small-cap sector, although after the recent rally we believe many are too highly valued at present. We are more excited about the prospects for the European small-cap sector. We believe that at this point in the economic cycle it remains wise to monitor developments very carefully, but we are beginning to see subtle improvements, particularly in France and the United Kingdom. With the exception of technology stocks, European small-cap stocks have underperformed relative to the benchmark and their large-cap peers for most of the past 12 months, but in the final few months of the year interest has begun to revive. We believe that a recovery in European growth could lead small-cap stocks to outperform and that the Fund will be well positioned to take advantage of this. Q: How is the Fund positioned to take advantage of these trends? A: Based on our stock selection process, we continue to add to our exposure in Europe. We have been able to identify some attractively valued companies, which have the potential to perform well if interest in the European small-cap sector continues to grow. Whatever the macroeconomic outcome, however, we remain committed to portfolio positioning decisions based on our stock selection process, which seeks to identify companies with high earnings visibility that are undergoing positive fundamental change and business momentum, and that we believe have the ability to perform well in any macroeconomic environment. 26 ==================== The Montgomery Funds -------------------- International Small Cap Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 95.6% Australia -- 1.7% 285,900 Cable & Wireless Optus Ltd.+ (Other Telephone/Communication) ......................... $ 648,517 Austria -- 4.3% 14,400 Bank Austria AG (Non-U.S. Banks) ........................ 758,302 5,910 EVN AG (Non-U.S. Utilities) ............................. 865,312 ---------- 1,623,614 Canada -- 5.2% 30,600 AT&T Canada, Inc.+ (Other Telephone/Communication) ......................... 1,955,531 51,640 InMedia Presentations, Inc.+ (Computer Software) ..................................... 26,624 ---------- 1,982,155 China/Hong Kong -- 3.8% 202,000 Dah Sing Financial Group (Diversified Financial Services) ........................ 769,382 984,000 Esprit Holdings Ltd. (Clothing/Shoe/Accessory Stores) ........................ 665,868 ---------- 1,435,250 France -- 3.1% 9,800 Etam Development S.A. (Clothing/Shoe/Accessory Stores) ........................ 434,103 14,040 Societe BIC S.A. (Consumer Specialties) ................. 741,519 ---------- 1,175,622 Germany -- 10.3% 615 Hugo Boss AG# (Apparel) ................................. 739,158 23,500 Moebel Walther AG (Other Specialty Stores) .............. 359,120 24,020 Primacom AG+ (Cable Television) ......................... 1,091,277 38,190 Vossloh AG (Diversified Electronic Products) ....................... 867,524 39,330 Winkler & Duennebier AG (Industrial Machinery/Components) ....................... 852,811 ---------- 3,909,890 Greece -- 1.3% 21,700 STET Hellas Telecommunications S.A., ADR+ (Other Telephone/Communication) .................... 485,538 Ireland -- 8.8% 277,719 Anglo Irish Bank Corporation PLC (Non-U.S. Banks) ........................................ 688,218 31,400 Esat Telecom Group PLC, ADR+ (Other Telephone/Communication) ......................... 1,373,750 59,633 Irish Permanent PLC (Diversified Financial Services) ........................ 621,895 12,900 Ryanair Holdings PLC, ADR+ (Airlines) ................... 682,088 ---------- 3,365,951 Israel -- 0.7% 39,000 Paradigm Geophysical Ltd.+ (Oilfield Services/Equipment) ........................... 262,031 Italy -- 5.1% 97,200 Banca Lombarda SpA (Non-U.S. Banks) ..................... 1,197,035 170,900 Monte dei Paschi di Siena SpA+ (Non-U.S. Banks) ........................................ 752,258 ---------- 1,949,293 Japan -- 4.6% 28,300 Aiwa Company Ltd. (Consumer Electronics/Appliances) ....................... 936,543 34,500 Shimano, Inc. (Recreational Products/Toys) .............. 817,759 ---------- 1,754,302 Netherlands -- 4.3% 11,281 Benckiser N.V., "B" Shares (Package Goods/Cosmetics) ............................... 602,791 35,464 Ordina Beheer N.V.+ (EDP Services) ...................... 1,025,310 ---------- 1,628,101 New Zealand -- 2.0% 375,500 Air New Zealand Ltd., Class B (Airlines) ................ 776,304 Norway -- 3.4% 148,400 Christiania Bank OG Kreditkasse (Non-U.S. Banks) ........................................ 534,078 92,100 Selmer ASA (Engineering and Construction) ............... 781,799 ---------- 1,315,877 Portugal -- 1.5% 4,300 Telecel-Comunicacoes Pessoais S.A. (Cellular Telephone) .................................... 554,993 Russia -- 2.7% 12,700 Global TeleSystems Group, Inc.+ (Other Telephone/Communication) ......................... 1,028,303 Singapore -- 2.2% 190,200 Natsteel Electronics Ltd.# (Diversified Electronic Products) ....................... 832,373 Spain -- 8.2% 35,265 Azkoyen S.A. (Industrial Machinery/Components) ....................... 910,318 16,400 Banco Pastor S.A. (Non-U.S. Banks) ...................... 837,374 39,650 Baron de Ley S.A. (Alcoholic Beverages) ................. 1,367,411 ---------- 3,115,103 Sweden -- 2.3% 82,600 Scandic Hotels AB# (Hotels/Resorts) ..................... 882,666 Switzerland -- 1.7% 225 Julius Baer Holding AG (Non-U.S. Banks) ................. 642,360 United Kingdom-- 18.4% 53,000 Alliance & Leicester PLC (Non-U.S. Banks) ............... 715,663 The accompanying notes are an integral part of these financial statements. 27 ==================== The Montgomery Funds - -------------------- International Small Cap Fund - -------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued United Kingdom -- continued 11,300 Colt Telecom Group, ADR+ (Other Telephone/Communication) ........................ $ 971,447 149,674 Henlys Group PLC (Motor Vehicles) ...................... 1,402,463 150,900 Jarvis PLC (Engineering and Construction) .............. 710,546 39,850 National Express Group PLC (Railroads) ................. 636,476 900,000 Scoot Company PLC (Other Consumer Services) .............................. 532,393 111,500 Virgin Express Holdings PLC, Sponsored ADR+ (Airlines) ........................................ 1,027,891 163,800 Wickes PLC (Building Material Chains) .................. 992,210 ------------ 6,989,089 TOTAL COMMON STOCKS (Cost $34,028,804) ................................................ 36,357,332 ------------ PREFERRED STOCKS -- 2.5% Germany -- 2.5% 18,250 Fielmann AG (Other Specialty Stores) ................... 676,498 400 Wella AG (Package Goods/Cosmetics) ..................... 291,178 ------------ TOTAL PREFERRED STOCKS (Cost $1,064,098) ................................................. 967,676 ------------ WARRANTS -- 0.3% Canada -- 0.3% 215,706 InMedia Presentations, Inc.+ (Computer Software) (Cost $177,771) ........................................ 111,212 ------------ TOTAL INVESTMENTS-- 98.4% (Cost $35,270,673*) ............................................... 37,436,220 OTHER ASSETS AND LIABILITIES -- 1.6% (Net) ............................................................. 620,515 ------------ NET ASSETS -- 100.0% .............................................. $ 38,056,735 ============ * Aggregate cost for federal tax purposes $35,290,545. # All or a portion of this security is on loan at June 30, 1999 (see note 4 to Financial Statements). + Non-income producing security. Abbreviations ADR American Depositary Receipt The accompanying notes are an integral part of these financial statements. 28 ========================= The Montgomery Funds ------------------------- Global Opportunities Fund ------------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform from July 1, 1998, through June 30, 1999? A: The Fund matched the Morgan Stanley Capital International (MSCI) World Index benchmark with a return of 15.7% for the period. The portfolio performed well during most of the financial year, outperforming its benchmark in three of the four quarters. In recognition of the Fund's strong long-term performance, Morningstar awarded it an overall five-star rating among 978 international equity funds for its risk-adjusted returns over the various periods ended June 30, 1999. The Fund was rated among 987 and 498 international equity funds over the respective three- and five-year periods ended 6/30/99 and received five stars for each period.* Q: Did you change your positioning in response to shifts in the global investment environment over the course of the year? A: Changes in the Fund's positioning during the year resulted from our bottom-up stock selection process rather than macroeconomic themes, and it was this that led us to emphasize certain industries and countries. At the beginning of the financial year, the Fund was overweighted in several industries, such as communications, that were particularly hard hit by the volatility in global markets. We stayed consistent with our investment process and were rewarded by strong performance in the subsequent three quarters. Our stock selections in these two industries in particular helped boost the Fund's relative performance. Based on the fundamentals of the companies and helped by our expertise and insight in these areas, we continue to be overweighted in these sectors. Q: Which of your stock selections contributed most to performance over the period? A: Several stocks made particularly favorable contributions to performance over the course of the year. Among the strongest were Japanese electronics firms Aiwa (1.5% of net assets as of 6/30/99) and Hitachi (2.3% of net assets as of 6/30/99), communications company AT&T Canada (3.7% of net assets as of 6/30/99) and computer component assembler Hon Hai Precision Industry of Taiwan (2.0% of net assets as of 6/30/99). These holdings reflect our emphasis on well-managed companies undergoing positive fundamental change that are in industries we like for their long-range growth prospects. Aiwa and Hitachi benefited from corporate restructuring, which has improved the growth potential and financial health of both companies. AT&T Canada is a beneficiary of the global communications revolution. With its recent merger and acquisition activity, AT&T Canada has created Canada's largest facilities-based voice, data and Internet communications provider. Hon Hai is a well-managed company in an industry whose growth prospects are improving. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- John Boich, CFA ..................................... Senior Portfolio Manager Oscar Castro, CFA ................................... Senior Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Global Opportunities Fund Since inception (9/30/93) ............................................. 17.86% One year .............................................................. 15.68% Five years ............................................................ 19.02% - -------------------------------------------------------------------------------- MSCI World Index Since 9/30/93 ......................................................... 15.45% One year .............................................................. 15.67% Five years ............................................................ 16.75% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE]
Montgomery Lipper Montgomery Lipper Global MSCI Global Global MSCI Global Opportunities World Funds Opportunities World Funds Date Fund Index/1/ Average/2/ Date Fund Index/1/ Average/2/ ---- ---- -------- ---------- ---- ---- -------- ---------- 9/93 $10,000 $10,000.00 $10,000.00 1/97 $15,956 $14,800.42 $14,936.98 10/93 10,692 10,273.16 10,414.67 2/97 15,700 14,967.87 15,014.54 11/93 10,708 9,689.62 10,134.58 3/97 15,508 14,669.01 14,823.53 12/93 11,850 10,161.38 10,926.79 4/97 15,563 15,145.70 15,047.95 1/94 12,533 10,829.21 11,441.64 5/97 16,704 16,077.79 15,921.76 2/94 12,350 10,686.68 11,195.61 6/97 17,498 16,876.91 16,621.20 3/94 11,508 10,223.56 10,705.24 7/97 18,292 17,651.45 17,462.06 4/94 11,650 10,537.56 10,886.60 8/97 17,480 16,467.87 16,440.17 5/94 11,517 10,561.93 10,867.98 9/97 18,420 17,359.75 17,445.45 6/94 10,767 10,530.18 10,647.50 10/97 16,750 16,443.28 16,321.21 7/94 11,217 10,727.96 10,970.54 11/97 16,941 16,731.46 16,402.20 8/94 11,858 11,048.59 11,368.42 12/97 16,959 16,932.57 16,607.58 9/94 11,608 10,755.85 11,154.33 1/98 17,654 17,401.64 16,819.89 10/94 11,883 11,059.33 11,336.46 2/98 19,648 18,575.94 18,019.92 11/94 11,096 10,577.23 10,834.02 3/98 21,085 19,357.49 18,928.31 12/94 10,836 10,677.17 10,735.18 4/98 22,070 19,543.74 19,263.60 1/95 10,292 10,514.34 10,430.83 5/98 21,966 19,295.89 19,137.64 2/95 10,421 10,665.08 10,615.97 6/98 22,244 19,750.91 19,227.15 3/95 10,343 11,176.54 10,880.26 7/98 22,963 19,716.29 19,269.87 4/95 10,663 11,563.46 11,232.46 8/98 18,477 17,084.11 16,350.26 5/95 10,983 11,659.76 11,475.98 9/98 17,712 17,383.32 16,323.32 6/95 11,459 11,653.55 11,664.75 10/98 19,428 18,951.79 17,414.88 7/95 12,082 12,234.00 12,257.59 11/98 20,888 20,075.87 18,422.84 8/95 11,866 11,958.82 12,080.26 12/98 22,514 21,053.62 19,258.84 9/95 12,315 12,304.54 12,321.30 1/99 24,202 21,512.00 19,667.00 10/95 12,030 12,108.17 12,077.59 2/99 23,438 20,936.00 19,091.00 11/95 12,403 12,525.95 12,289.57 3/99 23,921 21,805.00 19,807.00 12/95 12,707 12,889.52 12,520.65 4/99 24,270 22,661.00 20,779.00 1/96 12,985 13,120.03 13,197.24 5/99 24,015 21,830.00 20,187.00 2/96 13,289 13,197.24 12,984.70 6/99 25,732 22,845.00 21,296.00 3/96 13,733 13,414.11 13,209.46 4/96 14,550 13,726.78 13,614.50 5/96 14,923 13,735.90 13,738.61 6/96 14,741 13,802.60 13,725.60 7/96 13,768 13,312.04 13,144.73 8/96 14,280 13,462.28 13,459.75 9/96 14,880 13,986.58 13,867.65 10/96 14,822 14,081.45 13,898.98 11/96 15,453 14,867.78 14,590.42 12/96 15,271 14,626.88 14,614.76
(1) The Morgan Stanley Capital International World Index measures the performance of selected stocks in 22 developed countries. The index is presented net of dividend withholding taxes. (2) The Lipper Global Funds Average universe consists of 59 funds. * Morningstar proprietary ratings reflect historical risk-adjusted performance through 6/30/99. The ratings are subject to change every month, and past performance is no guarantee of future results. Morningstar ratings are calculated from the funds, three-, five-, and 10-year average annual returns (if applicable) in excess of 90-day Treasury bill returns, with appropriate fee adjustments and a risk factor that reflects funds' performance below 90-day T-bill returns. The top 10% of the funds in a broad asset class receive five stars. Ratings are for Class R shares only; other classes may vary. 29 ========================== The Montgomery Funds - -------------------------- Global Opportunities Fund - -------------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) AT&T Canada, Inc........................................................ 3.7% MCI WorldCom, Inc....................................................... 2.6% Sprint Corporation...................................................... 2.6% Total S.A., Class B..................................................... 2.5% Hitachi Ltd............................................................. 2.3% Orange PLC.............................................................. 2.3% Vivendi................................................................. 2.2% Global TeleSystems Group, Inc........................................... 2.2% Veba AG................................................................. 2.2% Nissan Motor Company.................................................... 2.1% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) United Kingdom.......................................................... 18.2% United States........................................................... 13.9% France.................................................................. 13.4% Netherlands............................................................. 7.7% Spain................................................................... 7.5% 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. Q: Were there any disappointments? A: There were few disappointments during the year. In general, stocks that lost value during the global markets crisis recovered, and we were pleased with the performance of most of our stock selections. Toward the end of the financial year, our position in Cable & Wireless Optus (2.1% of net assets as of 6/30/99) suffered, as the market rotated from growth stocks into cyclicals. We continue to be positive about the company's long-term fundamentals, however, and believe that it will recover. Q: What opportunities are you most excited about, looking forward, and how is the Fund positioned to take advantage of them? A: We believe that the rebound of the global economy is likely to continue and that an improving global outlook will support additional corporate earnings growth, which will in turn be a positive for the growth-oriented stocks in the Fund. We also continue to be optimistic about the prospects in the rapidly evolving technology and communications sectors. Through our stock selection process and our in-depth knowledge of technology and communications, we have identified several exciting companies in these sectors and believe that the Fund is well positioned to take advantage of their strong growth prospects in the coming months. 30 ========================= The Montgomery Funds ------------------------- Global Opportunities Fund ------------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 95.1% Australia -- 2.1% 534,100 Cable & Wireless Optus Ltd. (Other Telephone/Communication) ...................... $ 1,211,518 Austria -- 1.5% 16,900 Bank Austria AG (Non-U.S. Banks) ..................... 889,951 Canada -- 3.7% 32,900 AT&T Canada, Inc.+ (Other Telephone/Communication) ...................... 2,102,516 Finland -- 1.5% 9,680 Nokia Oyj, Class A (Telecommunications Equipment) ....................... 849,579 France -- 13.4% 59,600 Air France#+ (Airlines) .............................. 1,064,638 36,300 Alstom+ (Electrical Products) ........................ 1,143,183 9,630 Banque Nationale de Paris (Non-U.S. Banks) ..................................... 803,428 7,470 Cap Gemini S.A.# (EDP Services) ...................... 1,175,479 9,070 Coflexip S.A. (Metal Fabrications) ................... 779,652 10,970 Total S.A., Class B+ (Oil Refining/Marketing) ............................. 1,417,011 15,728 Vivendi+ (Non-U.S. Utilities) ........................ 1,275,643 ------------- 7,659,034 Germany -- 4.1% 7,160 Mannesmann AG (Cellular Telephone) ................... 1,069,771 21,380 Veba AG (Non-U.S. Utilities) ......................... 1,258,322 ------------- 2,328,093 Italy -- 3.5% 74,900 Banca Lombarda SpA (Non-U.S. Banks) .................. 922,406 240,300 Monte dei Paschi di Siena SpA+ (Non-U.S. Banks) ..................................... 1,057,739 ------------- 1,980,145 Japan -- 7.4% 25,300 Aiwa Company Ltd. (Consumer Electronics/Appliances) .................... 837,263 139,000 Hitachi Ltd. (Electrical Products) ................... 1,305,246 255,000 Nissan Motor Company (Motor Vehicles) ................ 1,219,409 8,000 Sony Corporation (Consumer Electronics/Appliances) .................... 863,738 ------------- 4,225,656 Netherlands -- 7.7% 11,600 Equant N.V.+ (Other Telephone/Communication) ...................... 1,091,850 23,415 Koninklijke KPN N.V. (Other Telephone/Communication) ...................... 1,100,056 29,600 Libertel N.V.+ (Cellular Telephone) .................. 580,704 33,852 Ordina Beheer N.V.+ (EDP Services) ................... 978,705 12,500 United Pan-Europe Communications N.V.+ (Cable Television) ............................. 678,899 ------------- 4,430,214 Portugal -- 1.5% 6,700 Telecel-Comunicacoes Pessoais S.A. (Cellular Telephone) ................................. 864,757 Russia -- 2.2% 15,600 Global TeleSystems Group, Inc.+ (Other Telephone/Communication) ...................... 1,263,112 Spain -- 7.5% 33,700 Argentaria S.A. (Non-U.S. Banks) ..................... 768,661 108,600 Banco Santander Central Hispano S.A. (Non-U.S. Banks) ..................................... 1,132,558 22,500 Baron de Ley S.A. (Alcoholic Beverages) .............. 775,958 21,386 Telefonica de Espana S.A.+ (Other Telephone/Communication) ...................... 1,031,452 28,000 Telefonica Publicidad e Informacion S.A.+ (Advertising) ........................................ 559,433 ------------- 4,268,062 Sweden -- 1.7% 31,800 Enator AB# (EDP Services) ............................ 957,492 Switzerland -- 3.2% 311 Julius Baer Holding AG (Non-U.S. Banks) ..................................... 887,884 2,530 Swisscom AG (Other Telephone/Communication) ...................... 953,825 ------------- 1,841,709 Taiwan -- 2.0% 124,000 Hon Hai Precision Industry+ (Electronic Components) .............................. 1,120,991 United Kingdom -- 18.2% 53,100 Alliance & Leicester PLC (Non-U.S. Banks) ............ 717,013 30,800 Barclays PLC (Non-U.S. Banks) ........................ 897,380 80,000 British Airways PLC (Airlines) ....................... 553,373 9,600 Colt Telecom Group PLC+ (Other Telephone/Communication) ...................... 202,016 13,200 Colt Telecom Group PLC, ADR+ (Other Telephone/Communication) ...................... 1,134,788 92,700 Diageo PLC (Alcoholic Beverages) ..................... 975,359 26,600 Glaxo Wellcome PLC (Major Pharmaceuticals) .............................. 739,343 23,300 HSBC Holdings PLC (Diversified Financial Services) ..................... 825,881 36,700 Lloyds TSB Group PLC (Diversified Financial Services) ..................... 499,615 52,630 National Express Group PLC (Railroads) ............... 840,596 88,400 Orange PLC (Cellular Telephone) ...................... 1,294,771 The accompanying notes are an integral part of these financial statements. 31 ========================= The Montgomery Funds - ------------------------- Global Opportunities Fund - ------------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued United Kingdom -- continued 44,439 Railtrack Group PLC (Railroads) ....................... $ 909,207 4,050 Vodafone Group PLC, ADR (Other Telephone/Communication) ....................... 797,850 ------------ 10,387,192 United States -- 13.9% 13,500 BMC Software, Inc.+ (Computer Software) ............... 728,578 21,500 Carrier Access Corporation#+ (Telecommunications Equipment) ........................ 941,297 13,100 Cisco Systems, Inc.+ (Computer Communications) ............................. 843,722 16,800 Estee Lauder Companies, Class A (Package Goods/Cosmetics) ............................. 842,100 9,075 Lucent Technologies, Inc. (Telecommunications Equipment) ........................ 611,995 17,400 MCI WorldCom, Inc.+ (Major U.S. Telecommunications) ....................... 1,496,944 4,300 New Era of Networks, Inc. (Computer Software) ................................... 188,797 9,300 Project Software & Development, Inc.+ (Computer Software) ................................... 288,881 20,500 Seagate Technology, Inc.+ (EDP Peripherals) ..................................... 525,313 26,000 Sprint Corporation+ (Major U.S. Telecommunications) ....................... 1,485,250 ------------ 7,952,877 TOTAL COMMON STOCKS (Cost $46,030,130) ................................................ 54,332,898 ------------ PREFERRED STOCK -- 1.7% Germany -- 1.7% 400 Porsche AG (Motor Vehicles) (Cost $968,380) ....................................... 941,682 ------------ TOTAL SECURITIES (Cost $46,998,510) ................................................ 55,274,580 ------------ Principal Amount REPURCHASE AGREEMENTS -- 4.0% $ 2,303,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $2,303,322 on 07/01/99, collateralized by $2,349,064 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $2,303,000) ..................................... 2,303,000 ------------ TOTAL INVESTMENTS -- 100.8% (Cost $49,301,510*) ............................................... $ 57,577,580 OTHER ASSETS AND LIABILITIES -- (0.8)% (Net) ............................................................. (432,040) ------------ NET ASSETS -- 100.0% .............................................. $ 57,145,540 ============ * Aggregate cost for federal tax purposes $49,290,216. # All or a portion of this security is on loan at June 30, 1999 (see note 4 to Financial Statements). + Non-income-producing security. Abbreviations ADR American Depositary Receipt ORD Ordinary The accompanying notes are an integral part of these financial statements. 32 ===================== The Montgomery Funds --------------------- Global Communications Fund --------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform in the financial year ended June 30, 1999? A: The Fund returned 31.7% for the 12-month period ended June 30, 1999 due to particularly strong performance in the latter half of the financial year. Despite this solid absolute performance, however, the Fund underperformed its benchmark, the Morgan Stanley Capital International (MSCI) Telecommunications Index, which returned 38.2% for the same period. During the global equity markets' sell-off in August and September 1998, the Fund's exposure to wireless companies proved disadvantageous, as wireless stocks corrected more sharply than those of other communications companies. Although the Fund's positioning in wireless companies hurt relative performance in the short run, we believed its wireless holdings to be well-managed, fundamentally sound companies with excellent long-term growth prospects. Our faith in this industry proved justified as the markets began to recover, and wireless stocks were among the best performers. Q: What factors contributed positively to performance? A: Throughout the period, the Fund benefited from strong investor interest in the communications sector. Although wireless stocks underperformed during the global market correction, they have rebounded strongly from their lows and have recorded positive gains for the year. We were particularly pleased with the performance of several of our holdings such as Vodafone/AirTouch (1.5% of net assets as of 6/30/99) and Nokia Oyj (1.5% of net assets as of 6/30/99). Q: Were there any disappointments? A: There were two areas in which we believe we missed opportunities during the financial year. The Fund had low exposures to both the emerging markets and the U.S. cable TV industry. As a result, we did not benefit from the sharp recovery of the emerging markets during the first half of 1999. We continue to seek emerging markets companies with attractive fundamental outlooks and will add emerging markets stocks that we believe will be positive contributors to the Fund. Cable TV stocks also rallied strongly in the first quarter of 1999, as investors were attracted to companies trying to reinvent themselves as alternative telecommunications providers. Although the Fund's underweighting in cable stocks detracted from relative performance during the first quarter, valuations of cable stocks have since fallen. Concern about new regulations that could force cable operators to make their newly built-out networks available to competing firms on an "unbundled" basis--in other words, to allow any competing company who wants access to the network to use it-- has made cable companies appear less attractive. We believe that the regulatory issue will likely be resolved in an equitable manner and, given the pullback in valuations, we are considering an increase in our exposure to U.S. cable stocks. We are particularly interested in companies that can combine ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Oscar Castro, CFA...................................... Senior Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Global Communications Fund Since inception (6/1/93)................................................ 21.71% One year................................................................ 31.66% Five years.............................................................. 22.79% - -------------------------------------------------------------------------------- MSCI Telecommunications Index Since 5/31/93........................................................... 17.99% One year................................................................ 38.24% Five years.............................................................. 21.17% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE]
Montgomery Global MSCI Lipper Communications Telecommunications Telecommunications Date Fund Index/1/ Funds Average/2/ ---- ---- -------- ---------------- 6/93 $10,375 $10,222.42 $10,453.97 7/93 10,625 10,322.50 10,754.21 8/93 11,675 10,926.62 11,538.95 9/93 12,017 10,753.92 11,643.76 10/93 12,867 11,224.74 12,034.04 11/93 12,067 10,633.67 11,360.88 12/93 13,483 10,826.21 11,842.93 1/94 14,050 11,289.13 12,245.83 2/94 13,558 10,524.82 11,789.47 3/94 12,558 10,179.59 11,272.63 4/94 12,742 10,495.95 11,491.94 5/94 12,608 10,540.39 11,457.14 6/94 11,833 10,474.40 11,341.20 7/94 12,342 10,772.38 11,832.70 8/94 13,217 11,096.25 12,191.48 9/94 12,950 10,762.79 11,942.34 10/94 13,117 10,984.54 12,198.77 11/94 12,068 10,218.92 11,646.41 12/94 11,675 10,178.04 11,520.18 1/95 11,007 10,394.72 11,525.91 2/95 10,982 10,376.05 11,426.82 3/95 11,241 10,567.71 11,467.08 4/95 11,700 10,692.30 11,869.62 5/95 12,260 10,844.01 12,005.18 6/95 12,878 11,012.18 12,580.47 7/95 13,571 11,262.25 13,405.51 8/95 13,596 11,507.81 13,770.25 9/95 14,297 12,184.28 14,104.30 10/95 13,629 12,031.70 13,553.11 11/95 13,763 12,101.60 13,831.37 12/95 13,646 12,471.68 14,243.71 1/96 13,947 12,681.42 14,534.61 2/96 14,064 12,569.04 14,410.07 3/96 14,180 12,376.44 14,332.34 4/96 15,158 12,767.54 15,214.74 5/96 15,124 12,627.66 15,517.57 6/96 15,074 12,589.88 15,350.74 7/96 14,172 11,739.67 14,016.27 8/96 14,456 11,792.36 14,326.09 9/96 14,932 11,926.72 14,626.12 10/96 14,499 12,157.20 14,437.30 11/96 15,107 12,812.85 15,068.48 12/96 14,740 13,098.04 14,998.14 1/97 15,497 13,224.07 15,631.18 2/97 15,180 13,363.43 15,432.16 3/97 14,863 12,939.91 14,520.67 4/97 15,189 13,079.18 14,949.77 5/97 16,440 13,876.96 16,359.27 6/97 17,250 14,462.94 17,302.49 7/97 18,271 14,723.79 18,236.38 8/97 17,118 13,799.20 17,269.87 9/97 18,297 14,732.82 19,051.34 10/97 16,862 14,516.83 18,227.38 11/97 16,792 15,485.77 18,938.50 12/97 17,074 16,052.89 19,079.86 1/98 17,940 16,979.46 20,021.78 2/98 21,559 17,646.00 21,298.62 3/98 23,675 19,178.56 23,465.40 4/98 24,289 18,974.30 23,214.86 5/98 23,905 19,031.81 22,343.53 6/98 25,090 19,789.20 23,381.86 7/98 26,581 20,948.95 23,995.97 8/98 20,221 19,019.91 19,752.23 9/98 20,023 19,422.47 20,896.55 10/98 22,436 20,738.09 22,552.31 11/98 24,388 21,673.58 24,084.58 12/98 26,459 24,044.69 27,874.81 1/99 29,757 26,376.91 30,256.00 2/99 28,190 26,087.64 29,085.00 3/99 28,957 25,377.72 31,490.00 4/99 30,231 26,204.00 33,338.00 5/99 30,035 26,253.68 32,962.00 6/99 33,034 27,355.60 35,365.00
(1) The Morgan Stanley Capital International Telecommunications Index is a capitalization-weighted index comprising equity securities of communications companies in developed countries worldwide. (2) The Lipper Telecommunication Funds Average universe consists of six funds. 33 ===================== The Montgomery Funds - --------------------- Global Communications Fund - --------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) AT&T Canada, Inc. ....................................................... 3.3% Global TeleSystems Group, Inc. .......................................... 3.1% MCI WorldCom, Inc. ...................................................... 2.8% Cable & Wireless Optus Ltd. ............................................. 2.6% Esat Telecom Group PLC, ADR ............................................. 2.5% Sprint Corporation ...................................................... 2.3% Vivendi ................................................................. 2.3% Cap Gemini S.A. ......................................................... 2.3% Hitachi Ltd. ............................................................ 2.3% Sony Corporation ........................................................ 2.2% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) United States ........................................................... 24.4% United Kingdom .......................................................... 11.2% Netherlands ............................................................. 7.7% Japan ................................................................... 6.0% France .................................................................. 4.5% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. Funds whose investments are concentrated in a specific industry or sector are subject to a higher degree of risk than funds whose investments are diversified and may not be suitable for all investors. In addition, technology securities tend to be relatively volatile as compared with other types of investments. content ownership with efficient network distribution in order to succeed in an increasingly competitive environment. Q: What trends are currently driving growth in the communications market? A: The themes that currently dominate the communications sector are deregulation, merger and acquisition (M&A) activity, and increasing demand for broadband services that can transmit large volumes of data. We expect deregulation to continue to drive growth, as regulatory barriers that previously prevented competition are removed. The combination of regulatory reform and technological advancement make further convergence likely among cable companies, Internet service providers and telecommunications companies. The convergence of voice and data communications services makes additional M&A activity likely, particularly in Europe. Q: How is the Fund positioned to take advantage of these trends? A: Our current portfolio of stocks is broad based and includes exposure to such industry leaders as MCI WorldCom (2.8% of net assets as of 6/30/99); well-managed new entrants such as U.K.-based Colt Telecom (2.4% of net assets as of 6/30/99); equipment providers set to benefit from broadband network expansion, such as Cisco Systems; and innovative, less well known companies such as ADC Telecommunications (1.1% of net assets as of 6/30/99). We expect that many communications companies will encounter some significant management challenges as they branch out into unfamiliar territory. In view of this, we will continue to focus on companies with strong management teams that we perceive to be better equipped to manage the pace of growth and industry change. 34 ===================== The Montgomery Funds --------------------- Global Communications Fund --------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 87.9% Australia -- 2.6% 4,065,800 Cable & Wireless Optus Ltd. (Other Telephone/Communication) ..................... $ 9,222,602 Canada -- 3.3% 182,100 AT&T Canada, Inc.+ (Other Telephone/Communication) ..................... 11,637,328 Denmark -- 1.7% 249,900 Navision Software AS+ (Computer Communications) ........................... 6,142,351 Finland-- 3.4% 103,800 Helsinki Telephone (Other Telephone/Communication) ..................... 4,930,200 59,160 Nokia Oyj (Telecommunications Equipment) ...................... 5,192,260 144,000 Perlos Oyj+ (Semiconductors) ........................ 2,111,350 ------------- 12,233,810 France -- 4.5% 51,190 Cap Gemini S.A. (EDP Services) ...................... 8,055,258 99,799 Vivendi+ (Non-U.S. Utilities) ....................... 8,094,345 ------------- 16,149,603 Germany -- 4.1% 49,060 Mannesmann AG (Cellular Telephone) .................. 7,330,024 122,600 Veba AG (Non-U.S. Utilities) ........................ 7,215,637 ------------- 14,545,661 Greece -- 1.2% 185,900 STET Hellas Telecommunications S.A., ADR+ (Other Telephone/Communication) ................ 4,159,513 Ireland -- 2.5% 203,100 Esat Telecom Group PLC, ADR+ (Other Telephone/Communication) ..................... 8,885,625 Japan -- 6.0% 158,600 Aiwa Company Ltd. (Consumer Electronics/Appliances) ................... 5,248,614 851,000 Hitachi Ltd. (Diversified Electronics Products) .................. 7,991,106 73,000 Sony Corporation (Consumer Electronics/Appliances) ................... 7,881,609 ------------- 21,121,329 Korea -- 1.5% 130,500 Korea Telecom Corporation, ADR+ (Other Telephone/Communication) ..................... 5,220,000 Netherlands -- 7.7% 75,000 Equant N.V.+ (Other Telephone/Communication) ..................... 7,059,375 140,169 Koninklijke KPN, N.V. (Other Telephone/Communication) ..................... 6,585,257 181,800 Libertel N.V.+ (Cellular Telephone) ................. 3,566,620 209,560 Ordina Beheer N.V.+ (EDP Services) .................. 6,058,648 75,200 United Pan-Europe Communications N.V.+ (Cable Television) ............................ 4,084,256 ------------- 27,354,156 New Zealand -- 1.5% 1,244,600 Telecom Corporation of New Zealand Ltd.# (Other Telephone/Communication) ............... 5,344,066 Portugal -- 1.4% 38,800 Telecel-Comunicacoes Pessoais S.A. (Cellular Telephone) ................................ 5,007,847 Russia-- 3.1% 134,780 Global TeleSystems Group, Inc.+ (Other Telephone/Communication) ..................... 10,912,968 200,000 Russian Telecommunication Development Corporations.(s)(a) (Other Telephone/Communication) ..................... 109,597 ------------- 11,022,565 South Africa -- 0.9% 683,492 Dimensions Data Holding Ltd. (EDP Services) ...................................... 3,024,151 Spain-- 1.5% 109,187 Telefonica de Espana S.A.+ (Other Telephone/Communication) ..................... 5,266,113 Sweden -- 1.9% 228,000 Enator AB (EDP Services) ............................ 6,865,037 Switzerland -- 1.6% 15,175 Swisscom AG (Other Telephone/Communication) ..................... 5,721,064 Taiwan -- 1.9% 755,000 Hon Hai Precision Industry+ (Electronic Data Processing) ........................ 6,825,387 United Kingdom-- 11.2% 77,400 Colt Telecom Group PLC (Other Telephone/Communication) ..................... 1,628,754 79,900 Colt Telecom Group PLC, ADR+ (Other Telephone/Communication) ..................... 6,868,903 530,400 Orange PLC (Cellular Telephone) ..................... 7,768,624 375,190 Pearson PLC (Financial Publishing/Services) ..................... 7,705,857 635,900 Securicor Group PLC (Cellular Telephone) ................................ 5,607,372 693,200 The Future Network PLC+ (Media) ..................... 4,620,021 27,350 Vodafone Group PLC, ADR (Other Telephone/Communication) ..................... 5,387,950 ------------- 39,587,481 The accompanying notes are an integral part of these financial statements. 35 ===================== The Montgomery Funds - --------------------- Global Communications Fund - --------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued United States -- 24.4% 84,900 ADC Telecommunications, Inc.+ (Telecommunications Equipment) ....................... $ 3,865,603 41,200 At Home Corporation+ (Internet Services) ............. 2,223,513 59,200 AT&T Corporation (Major U.S. Telecommunications) ...................... 3,304,100 153,800 Atmel Corporation+ (Semiconductors) .................. 4,022,831 87,300 Bell Atlantic Corporation (Major U.S. Telecommunications) ...................... 5,707,238 81,100 BMC Software, Inc.+ (Computer Software) .............. 4,376,866 129,000 Carrier Access Corporation+ (Telecommunications Equipment) ....................... 5,647,781 82,678 Cisco Systems, Inc.+ (Computer Communications) ............................ 5,324,980 100,650 Covad Communications Group, Inc.+ (Other Telephone/Communication) ...................... 5,362,758 256,900 Fox Entertainment Group, Inc.+ (Media Conglomerates) ................................ 6,920,244 65,340 Lucent Technologies, Inc. (Telecommunications Equipment) ....................... 4,406,366 116,048 MCI WorldCom, Inc.+ (Major U.S. Telecommunications) ...................... 9,983,754 108,700 McLeod USA, Inc., Class A+ (Other Telephone/Communication) ...................... 5,971,706 26,300 New Era of Networks, Inc. (Computer Software) .................................. 1,154,734 57,900 Project Software & Development, Inc.+ (Computer Software) .................................. 1,798,519 98,800 SBC Communications, Inc. (Other Telephone/Communication) ...................... 5,730,400 99,000 Seagate Technology, Inc. (EDP Peripherals) .................................... 2,536,875 144,700 Sprint Corporation+ (Major U.S. Telecommunications) ...................... 8,265,987 ------------- 86,604,255 TOTAL COMMON STOCKS (Cost $236,520,128) .............................................. 311,939,944 ------------- PREFERRED STOCKS -- 0.0%@ Brazil -- 0.0%@ 200,650 Telecomunicacoes de Minas Gerais- Telemig, Series B (Other Telephone/Communication) (Cost $0) ............................................ 4,978 ------------- TOTAL SECURITIES (Cost $236,520,128) .............................................. 311,944,922 ------------- Principal Amount Value (Note 1) REPURCHASE AGREEMENTS -- 11.4% $ 40,277,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $40,282,628 on 07/01/99, collateralized by $41,082,604 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $40,277,000) .................................. $ 40,277,000 ------------- TOTAL INVESTMENTS -- 99.3% (Cost $276,797,128*) ............................................. 352,221,922 OTHER ASSETS AND LIABILITIES -- 0.7% (Net)............................................................. 2,508,263 ------------- NET ASSETS -- 100.0% ............................................. $ 354,730,185 ============= * Aggregate cost for federal tax purposes $276,742,221. (S) Valued in good faith at fair value using procedures approved by the Board of Trustees. # All or a portion of this security on loan at June 30, 1999 (see note 4 to Financial Statements). + Non-income-producing security. @ Amount represents less than 0.1%. (a) Restricted security: At June 30, 1999 the Fund owned the following restricted security constituting 0.03% of net assets which may not be publicly sold without registration under Securities Act of 1933 (Note 1). Additional information on the security is as follows: Russian Telecommunication Development Corporation Value per Acquisition Date Shares Cost Share - -------------------------------------------------------------------------------- 12/22/97 200,000 $2,000,000 $0.55 Abbreviations ADR American Depositary Receipt ORD Ordinary The Montgomery Global Communications Fund concentrates its investments in the global communications industry. Because of this concentration, the value of this Fund's shares may vary in response to factors affecting the global communications industry and therefore may be more volatile than those of investment companies that do not similarly concentrate their investments. The global communications industry may be subject to greater changes in governmental policies and governmental regulation than many other industries, and regulatory approval requirements may materially affect the products and services of this industry. The accompanying notes are an integral part of these financial statements. 36 ===================== The Montgomery Funds --------------------- Emerging Markets Fund --------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform during the year ended June 30, 1999? A: In an extremely challenging year for emerging markets, the Fund returned 3.9% versus a 28.7% return for the benchmark Morgan Stanley Capital International (MSCI) Emerging Markets Free Index. Although this underperformance is disappointing, the Fund lost most ground during the difficult market conditions in the second half of 1998. We are pleased to report that by the end of June, our relative performance against the benchmark improved considerably. Q: What factors contributed to these results? A: There were a couple of factors. First, the Fund's bias toward small- and mid-cap stocks placed it in a much more vulnerable position than many of its peers during the severe correction in global markets and the subsequent "flight to quality." Smaller-cap companies felt the most severe impact of such capital outflows, as investors who remained in the emerging markets sought the relative safety of large-cap, highly liquid securities. Second, our cautious approach to the rebounding markets of South Korea and Indonesia meant that we did not fully participate in these markets' fourth-quarter 1998 rally, detracting from relative returns. In our view, because of the tentative nature of the Korean recovery and political upheaval in Indonesia, the inherent risks outweighed the potential rewards. A much more benign investment environment for most of the latter half of the financial year proved more favorable to the Fund's performance. Our strategy maintains its slight bias toward small- and mid-cap companies. We believe that by identifying smaller, well-managed, fundamentally sound and attractively valued companies before the rest of the market recognizes their potential we can add value to the Fund. Interest in such stocks is beginning to improve, especially in Asia, where market liquidity has improved considerably in recent months. In addition, the Fund's overweight position in the outperforming Pacific Rim markets, specifically in South Korea and Thailand in the three months ended June 30, 1999, contributed to strong returns and a considerable improvement in the Fund's relative performance against both its benchmark and its peers. Q: You mentioned the recovery in Asian markets as a contributing factor to improved performance. Were there any other trends that increased returns over the period? A: The recovery in commodity prices during the final three months of the financial year proved beneficial to the emerging markets in general--which tend to be large exporters of primary products such as metals and oil--and to the Fund's performance. Recognizing the potential for a rebound in this sector at the end of March, we increased the Fund's exposure to companies that would profit from such a recovery. As a result, 57% of the portfolio holdings were in countries likely to benefit from this trend by June 30, 1999. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Josephine Jimenez, CFA ................................. Sr. Portfolio Manager Bryan Sudweeks, Ph.D.,CFA .............................................. Sr. Portfolio Manager Frank Chiang ........................................... Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Emerging Markets Fund Since inception (3/1/92) .............................................. 1.93% One year .............................................................. 3.85% Five years ............................................................ (3.82)% - -------------------------------------------------------------------------------- MSCI Emerging Markets Free Index Since 3/1/92 .......................................................... 5.07% One year .............................................................. 28.71% Five years ............................................................ (0.83)% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Montgomery MSCI Lipper Emerging Emerging Emerging Markets Markets Markets Date Fund Free Index/1/ Funds Average/1/ 2/92 10,000 10,000.00 10,000 10,000.00 3/92 9,970 10,338.49 10,073 9,964.65 4/92 10,010 10,266.75 9,908 10,114.17 5/92 10,140 10,229.72 9,614 10,379.93 6/92 9,960 9,215.03 9,247 10,184.29 7/92 9,750 9,315.26 8,854 9,916.73 8/92 9,620 8,880.95 8,677 9,682.22 9/92 9,570 8,911.25 8,485 9,570.51 10/92 9,950 9,388.03 8,915 9,732.72 11/92 9,880 9,286.77 8,813 9,589.49 12/92 10,031 9,559.99 8,951 9,639.89 1/93 10,242 9,606.09 8,891 9,867.28 2/93 10,342 9,767.18 9,313 10,313.37 3/93 10,482 10,090.13 9,500 10,523.51 4/93 10,702 10,322.17 9,669 10,973.89 5/93 10,922 10,609.82 9,745 11,292.26 6/93 11,083 10,924.56 9,955 11,373.58 7/93 11,263 11,213.06 10,096 11,572.56 8/93 11,934 12,159.89 10,558 12,490.06 9/93 12,324 12,604.56 10,908 12,741.52 10/93 13,295 13,735.53 11,795 13,846.62 11/93 13,689 14,343.35 12,572 14,420.62 12/93 15,916 16,714.06 14,993 16,749.29 1/94 16,110 17,018.36 15,439 17,100.33 2/94 15,609 16,715.61 14,913 16,634.48 3/94 14,445 15,202.91 13,674 15,168.89 4/94 14,373 14,898.87 13,751 14,881.64 5/94 14,731 15,408.80 14,113 15,169.18 6/94 13,975 14,984.07 13,853 14,424.52 7/94 14,782 15,915.62 14,733 15,280.65 8/94 16,212 17,891.12 16,336 16,717.19 9/94 16,437 18,094.42 16,849 16,909.57 10/94 16,365 17,768.11 16,492 16,530.75 11/94 15,591 16,844.06 15,786 15,717.78 12/94 14,687 15,491.41 14,914 14,573.25 1/95 13,170 13,843.26 13,218 13,170.26 2/95 13,191 13,488.10 13,053 13,113.58 3/95 13,105 13,573.79 13,000 13,162.65 4/95 13,331 14,182.73 13,205 13,559.57 5/95 14,160 14,937.25 13,704 14,165.12 6/95 14,170 14,981.43 13,678 14,196.34 7/95 14,569 15,317.71 13,938 14,697.81 8/95 13,998 14,956.90 13,395 14,343.77 9/95 13,837 14,885.92 13,477 14,357.03 10/95 13,320 14,316.08 13,079 13,712.42 11/95 12,912 14,060.78 12,707 13,467.78 12/95 13,353 14,684.40 13,076 13,979.56 1/96 14,235 15,728.20 13,749 15,391.52 2/96 13,912 15,478.12 13,663 15,197.02 3/96 14,170 15,598.68 13,879 15,262.52 4/96 14,891 16,222.36 14,913 15,814.51 5/96 15,160 16,149.92 14,626 15,920.64 6/96 15,268 16,250.77 14,840 15,938.37 7/96 14,321 15,140.13 13,914 14,974.68 8/96 14,773 15,527.67 14,224 15,426.63 9/96 14,870 15,662.18 14,351 15,609.46 10/96 14,555 15,244.47 14,031 15,191.11 11/96 14,879 15,499.91 14,232 15,628.45 12/96 14,998 15,570.01 14,107 15,814.98 1/97 16,155 16,632.04 15,056 16,944.61 2/97 16,685 17,344.31 15,740 17,594.47 3/97 16,296 16,888.71 15,461 16,960.72 4/97 16,306 16,918.55 15,464 16,838.31 5/97 16,912 17,402.76 15,718 17,341.59 6/97 18,220 18,344.11 16,522 17,922.09 7/97 18,869 18,607.79 16,782 18,447.45 8/97 16,847 16,239.97 14,965 16,156.64 9/97 17,518 16,689.94 15,036 16,771.74 10/97 14,468 13,951.33 12,747 13,848.22 11/97 13,982 13,442.28 12,012 13,190.43 12/97 14,527 13,766.21 12,055 13,297.36 1/98 12,853 12,686.53 11,368 12,160.16 2/98 13,729 14,010.69 12,539 13,288.30 3/98 14,145 14,618.70 12,943 13,763.63 4/98 14,302 14,459.45 12,839 13,881.30 5/98 12,437 12,477.92 11,311 12,053.34 6/98 11,078 11,169.03 10,146 10,967.42 7/98 11,606 11,523.16 10,437 11,261.67 8/98 8,067 8,191.36 7,784 8,003.58 9/98 8,348 8,710.98 8,170 8,309.40 10/98 8,741 9,628.26 9,005 9,109.88 11/98 9,493 10,429.02 9,678 9,702.50 12/98 8,965 10,277.88 9,515 9,573.32 1/99 8,594 10,112.00 8,594 9,803.00 2/99 8,314 10,210.00 8,314 9,743.00 3/99 9,449 11,556.00 9,449 10,829.00 4/99 10,325 9,433.00 10,595 12,254.00 5/99 10,798 9,378.00 10,382 12,106.00 6/99 14,375 12,901.00 11,505 11,505.00 (1) The Morgan Stanley Capital International Emerging Markets Free Index is an unmanaged, capitalization-weighted composite index that covers individual securities within the equity markets of approximately 25 emerging markets countries. (2) The Lipper Emerging Markets Funds Average universe consists of seven funds. 37 ===================== The Montgomery Funds - --------------------- Emerging Markets Fund - --------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) Samsung Electronics Company ............................................. 3.3% Telefonos de Mexico S.A., ADR ........................................... 3.2% Korea Electric Power Corporation, ADR ................................... 2.4% Korea Telecom Corporation ............................................... 2.1% Samsung Display Devices Company ......................................... 2.0% Hon Hai Precision Industry .............................................. 1.9% Synnex Technology International Corporation ............................. 1.9% Egyptian Mobile Phone Network ........................................... 1.8% STET Hellas Telecommunications S.A., ADR ................................ 1.7% Petroleo Brasileiro S.A. ................................................ 1.6% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Korea ................................................................... 15.5% Brazil .................................................................. 10.9% Mexico .................................................................. 11.0% South Africa ............................................................ 9.5% India ................................................................... 7.4% 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. There were a number of stocks across the emerging markets regions that boosted performance. These included low-cost copper producer Grupo Mexico (0.5% of net assets as of 6/30/99) and South Africa's Anglo American Platinum (0.7% of net assets as of 6/30/99). Q: Where do you believe that the best opportunities are likely to be in the emerging markets in the coming year? A: We are confident that the recovery we have seen in the emerging markets since the beginning of 1999 is likely to continue. We are especially optimistic about the prospects for Asia. The economic fundamentals of the region continue to improve, and significant progress has been made in bank reform and corporate restructuring. Although Asian markets appreciated rapidly during the second quarter, we believe that there are still some attractively valued companies whose potential has yet to be widely recognized. We particularly like the prospects for India and China. We believe that the combination of strong economic growth and a possible resolution of its conflict with Pakistan over Kashmir and may boost the Indian market. Selected Chinese stocks are likely to benefit from the country's possible entry into the World Trade Organization (WTO). Elsewhere, in Latin America we are optimistic about the outlook for the Brazilian market. Interest rates in Brazil have fallen, and inflation is running at a rate lower than even the most optimistic analysts had predicted at the beginning of the year. In view of such rapidly improving fundamentals, we believe Brazil will outperform. We also like the prospects for selected stocks in Egypt and South Africa. Q: How is the Fund positioned to take advantage of any opportunities? A: The Fund remains overweighted in Asia, specifically in South Korea and Thailand, but we are also researching opportunities in India and have begun to build positions in Chinese stocks that we believe may benefit from WTO membership. In Latin America the Fund has an overweight position in Brazil, and we are looking for interesting opportunities in Chile. In the Middle East and Africa, we continue to like the prospects for the Fund's existing holdings in commodities stocks and Egyptian cellular phone services. We are optimistic that if we maintain our strong focus on asset allocation and good stock selection, we should continue to improve our relative performance against the benchmark. 38 ===================== The Montgomery Funds --------------------- Emerging Markets Fund --------------------- Investments
PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 84.6% Argentina -- 0.6% 68,149 Telefonica de Argentina ADR (Other Telephone/Communication)................. $ 2,138,175 Brazil -- 2.3% 159,200 Cia Cervejaria Brahma ADR (Non-U.S. Utilities)............................ 1,800,950 238,100 Embratel Participacoes ADR (Other Telephone/Communication)................. 3,303,637 155,800 Pao de Acucar, ADR (Casinos/Gambling) 2,911,513 ----------- 8,016,100 Chile -- 0.5% 67,674 Cia de Telecom Chile de S.A. ADR (Other Telephone/Communication)................. 1,674,932 China/Hong Kong -- 1.6% 147,000 Cheung Kong (Holdings) Ltd. (Real Estate)................................... 1,307,374 15,600 China Telecom Ltd., ADR+ (Other Telephone/Communication)................. 889,200 2,350,000 Cosco Pacific Ltd. (Marine Transportation)...... 1,953,714 34,800 HSBC Holdings PLC (Non-U.S. Banks).............. 1,269,402 ----------- 5,419,690 Czech Republic -- 0.5% 54,520 Ceske Radiokomunikace, GDR+ (Other Telephone/Communication)................. 1,880,940 Egypt -- 2.9% 24,135 Al-Ahram Beverages Company (Alcoholic Beverages)........................... 1,347,514 77,000 Al-Ahram Beverages Company, GDR+ (Alcoholic Beverages)........................... 2,188,725 283,333 Egyptian Mobile Phone Network (Cellular Telephone)............................ 6,385,098 200 Tourah Portland Cement Company (Building Materials)............................ 3,515 ----------- 9,924,852 Greece -- 3.2% 81,663 Alpha Credit Bank (Non-U.S. Banks).............. 5,270,926 255,100 STET Hellas Telecommunications S.A., ADR+ (Other Telephone/Communication)............ 5,707,862 ----------- 10,978,788 Hungary -- 1.8% 45,610 Borsodchem Rt. (Paints/Coatings)................ 1,113,337 55,000 EGIS Rt. (Other Pharmaceuticals)................ 1,317,515 115,000 Mol Magyar Olaj-es Gazipari Rt. (Integrated Oil Companies)...................... 2,773,836 28,190 OTP Bank Rt. (Non-U.S. Banks)................... 1,176,794 ----------- 6,381,482 India -- 7.4% 276,701 Bajaj Auto Ltd. (Motor Vehicles)................ 3,448,802 100 Bharat Petroleum Corporation Ltd. (Oil Refining/Marketing)........................ 606 250 BSES Ltd. (Non-U.S. Utilities)+................. 859 420 Castrol (India) Ltd. (Oil Refining/Marketing)........................ 4,018 200 Cummins India Ltd. (Auto Parts: O.E.M.)............................ 1,930 125,800 Dr. Reddy's Laboratories Ltd. (Generic Drugs)................................. 2,414,560 311,000 Hindustan Petroleum Corporation Ltd. (Oil Refining/Marketing)........................ 1,780,521 93,398 Housing Development and Finance Corporation (Finance Companies)................. 4,781,255 240 Indian Hotels Company Ltd. (Hotels/Resorts)................................ 1,924 220,103 ITC Ltd. (Diversified Manufacture).............. 5,555,186 582,000 Mahanagar Telephone Nigam Ltd. (Other Telephone/Communication)................. 2,493,998 79,800 Satyam Computer (Computer Software)............. 2,331,123 150 State Bank of India (Non-U.S. Banks)............ 818 10 Tata Engineering & Locomotive Company (Motor Vehicles)................................ 47 201,500 Videsh Sanchar Nigam Ltd., GDR (Other Telephone/Communication)................. 2,581,719 ----------- 25,397,366 Indonesia -- 2.1% 91,000 Asia Pulp & Paper Company Ltd., ADR+ (Paper)......................................... 875,875 58,800 Gulf Indonesia Resources Ltd.+ (Other Metals/Minerals)......................... 676,200 4,035,000 PT Indah Kiat Pulp & Paper Corporation (Paper)......................................... 1,864,549 1,308,000 PT Indofood Sukses Makmur Tbk+ (Food Distributors)............................. 1,775,480 3,834,000 PT Telekomunikasi Indonesia (Other Telephone/Communication)................. 2,214,585 ----------- 7,406,689 Israel -- 3.1% 2,060,000 Bank Leumi Le-Israel (Non-U.S. Banks)........... 3,894,788 390,350 Bezeq Israeli Telecommunication Corporation Ltd. (Other Telephone/Communication)................. 1,572,604 33,300 Koor Industries Ltd. (Multi-Sector Companies)........................ 3,841,179 49 Makhteshim-Agan Industries Ltd.+ (Speciality Chemicals).......................... 110
39 The accompanying notes are an integral part of these financial statements. ===================== The Montgomery Funds - --------------------- Emerging Markets Fund - --------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued Israel -- continued 446,256 Supersol Ltd. (Food Chains)..................... $ 1,311,489 ----------- 10,620,170 Korea -- 15.5% 140,000 Hyundai Motor Company (Motor Vehicles).......... 3,320,086 88,000 Kookmin Bank (Non-U.S. Banks)................... 1,786,609 401,700 Korea Electric Power Corporation, ADR (Non-U.S. Utilities)............................ 8,234,850 111,100 Korea Telecom Corporation (Other Telephone/Communication)................. 7,371,473 22,255 Korea Telecom Corporation, ADR+ (Other Telephone/Communication)................. 890,200 111,800 LG Chemical Ltd. (Major Chemicals).............. 3,042,505 43,291 Pohang Iron & Steel Company Ltd. (Steel/Iron Ore)................................ 5,213,527 71,400 Pohang Iron & Steel Company, ADS (Steel/Iron Ore)................................ 2,400,825 125,000 Samsung Display Devices Company (Industrial Specialties)........................ 6,803,456 104,309 Samsung Electronics Company (Diversified Electronic Products)............... 11,444,702 56 Samsung Electronics Ltd., GDR (Diversified Electronic Products)............... 2,999 52,744 Sindo Ricoh Company (Office Equipment/Supplies)..................... 2,825,165 ----------- 53,336,397 Malaysia -- 3.0% 4,000,000 Public Bank Berhad (Non-U.S. Banks)............. 2,585,783 1,487,000 Tenaga Nasional Berhad(Non-U.S.Utilities)....... 2,910,403 1,158,000 YTL Corporation Berhad (Engineering and Construction).................. 2,072,205 3,368,000 YTL Power International Berhad (Non-U.S. Utilities)............................ 2,742,254 ----------- 10,310,645 Mexico -- 10.8% 757,100 Carso Global Telecom, Series A1+ (Other Telephone/Communication)................. 4,796,654 1,093,952 Corporacion Interamericana Entertainment S.A., Series B+ (Movies/Entertainment).......................... 3,558,275 133,200 Fomento Economico Mexicano S.A. de C.V. (Soft Drinks).............................. 5,311,350 610,000 Grupo Carso S.A., Series A+ (Textiles).......... 2,828,929 1,487,000 Grupo Financiero Banamex Accival S.A. de C.V. Series B-Banacci+ (Non-U.S. Banks)......... 3,755,768 760,000 Grupo Industrial Bimbo S.A. de C.V. (Specialty Foods/Candy)......................... 1,685,663 438,000 Grupo Mexico S.A. (Other Metals/Minerals)......................... 1,863,929 466,600 Grupo Radio Central S.A. de C.V., ADR+ (Broadcasting).................................. 2,449,650 138,600 Telefonos de Mexico S.A., ADR (Other Telephone/Communication)................. 11,200,612 ----------- 37,450,830 Morocco -- 0.0%@ 2 Banque Marocaine du Commerce Exterieur, GDR+ (Non-U.S. Banks)................ 43 Pakistan -- 0.0%@ 333 Engro Chemical Pakistan (Agricultural Chemicals)........................ 469 Peru -- 1.2% 18,500 Compania de Minas Buenaventura S.A., ADR (Precious Metals)........................... 283,281 78,200 Credicorp Ltd. (Non-U.S. Banks)................. 860,200 68,826 Ferreyros Enrique S.A., ADR (Construction/Agriculture Equipment/Trucks)............................... 903,341 1,099,788 Ferreyros S.A.(Construction/Agriculture Equipment/Trucks)............................... 722,416 83,700 Telefonica del Peru S.A., ADR (Other Telephone/Communication)................. 1,265,963 ----------- 4,035,201 Philippines -- 2.2% 6,360,000 Ayala Corporation (Multi-Sector Companies)........................ 2,093,482 500,000 Bank of Philippine Islands (Non-U.S. Banks)................................ 1,790,652 591,000 Manila Electric Company, Series B (Non-U.S. Utilities)............................ 2,132,113 52,837 Philippine Long Distance Telephone, ADR (Other Telephone/Communication)................. 1,591,715 ----------- 7,607,962 Poland -- 1.3% 45,900 Agora S.A., GDR (Broadcasting)+................. 534,735 70,600 Elektrim Spolka Akcyjna S.A. (Wholesale Distributors)........................ 997,023 115,500 Prokom Software, GDR+ (EDP Services).................................. 1,894,200 154,200 Telekomunikacja Polska S.A., GDR+ (Other Telephone/Communication)................. 1,087,110 ----------- 4,513,068 Singapore -- 0.7% 18,000 Pacific Internet Ltd.+ (Internet Services)...... 858,938 88,000 Singapore Press Holdings Ltd. (Newspapers).................................... 1,499,104 ----------- 2,358,042 South Africa -- 9.5% 159,000 ABSA Group Ltd. (Finance Companies)............. 899,801 109,900 Anglo American Platinum Corporation Ltd. (Precious Metals).......................... 2,564,242 49,300 AngloGold Ltd. (Precious Metals)................ 2,124,120
40 The accompanying notes are an integral part of these financial statements. ===================== The Montgomery Funds --------------------- Emerging Markets Fund --------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued South Africa -- continued 1 B.O.E. Corporation Ltd. (Investment Managers)........................... $ 1 4,696,794 B.O.E. Corporation Ltd., "N" Shares (Investment Managers)........................... 3,735,953 732,452 Barlow Ltd. (Multi-Sector Companies)............ 4,223,934 177,000 De Beers Centenary AG (Other Metals/Minerals)......................... 4,241,312 63 Iscor Ltd. (Steel/Iron Ore)..................... 20 124,621 Liberty International PLC (Finance Companies)............................. 825,024 267,288 Liberty Life Association of Africa Ltd. (Life Insurance)................................ 3,423,873 1,040,500 Molope Group Ltd.+ (Diversified Commercial Services)............... 681,080 1,400,900 Molope Group Ltd., "N" Shares+ (Diversified Commercial Services)............... 789,305 533,500 Nasionale Pers Beperk, "N" Shares (Newspapers).................................... 3,204,802 37,000 Nedcor Bank Ltd. (Non-U.S. Banks)............... 837,551 18,970 Pepsi International Bottlers+(S)(a) (Soft Drinks)................................... 159,917 523,936 Sasol Ltd. (Coal Mining)........................ 3,737,749 876,451 Wooltru, Ltd., "N" Shares, Series B (Food Chains)................................... 1,423,352 ----------- 32,872,036 Taiwan -- 7.3% 4,670,450 China Steel Corporation (Steel/Iron Ore)................................ 3,528,142 2,570,000 Far East Textile Ltd.+ (Textiles)............... 3,819,195 715,000 Hon Hai Precision Industry+ (Electronic Data Processing).................... 6,463,777 1,241,225 Synnex Technology International Corporation (Diversified Electronic Products)............... 6,455,907 1,254,305 Taiwan Semiconductor Manufacturing Company Ltd.+ (Electronic Production Equipment)............... 4,795,872 ----------- 25,062,893 Thailand -- 3.8% 3,541,000 Bank of Ayudhya Public Company Ltd.(F) (Non-U.S. Banks)................................ 2,424,027 5,455,800 Industrial Finance of Thailand(F) (Finance Companies)............................. 3,475,974 823,000 National Finance PLC(F) (Non-U.S. Banks)................................ 496,455 316,200 PTT Exploration and Production Public Company Ltd.(F) (Oil and Gas Production)........ 2,417,471 1,419,600 Thai Farmers Bank Public Company Ltd.(F) (Non-U.S. Banks)........................ 4,387,540 ----------- 13,201,467 Turkey -- 3.3% 102,587,500 Haci Omer Sebanci Holding S.A. (Real Estate)................................... 2,286,967 2,165,000 Migros Turk T.A.S. (Food Chains)................ 2,695,596 25,500,000 Tupras-Turkie Petrol Rafinerileri (Oil Refining/Marketing)........................ 1,693,308 135,740,000 Turkiye Is Bankasi, Class C (Non-U.S. Banks)................................ 2,414,386 165,472,470 Yapi Ve Kredi Bankasi S.A. (Non-U.S. Banks)................................ 2,393,829 ----------- 11,484,086 Vietnam -- 0.0%@ 37,064 The Vietnam Frontier Fund, ORD+ (Mutual Funds).................................. 138,990 TOTAL COMMON STOCKS (Cost $253,879,287)............................................... 292,211,313 ----------- PREFERRED STOCK -- 9.5% Brazil -- 8.6% 337,400,000 Banco do Brasil S.A. (Non-U.S. Banks)........... 1,769,467 35,200,000 Banco do Estado de Sao Paulo S.A.-Banespa (Non-U.S. Banks)................... 1,497,915 125,900,000 Cia Energetica de Minas Gerais (Non-U.S. Utilities)............................ 2,646,781 392,783,000 Cia Paranaense de Energi (Non-U.S. Utilities)............................ 3,196,426 2,826,000 Itausa Investimentos Itau (Multi-Sector Companies)........................ 1,485,267 39,700 Keplar Weber S.A.+ (Construction/Agricultureal Equipment/Trucks)............................... 26,250 36,477,000 Petroleo Brasileiro S.A. (Integrated Oil Companies)...................... 5,648,317 560,224 Telec de Minas Gerais (Other Telephone/Communication)................. 13,899 30,200,000 Telec de Sao Paulo S.A.-Telesp (Other Telephone/Communication)................. 3,566,996 4,556,835 Telecel-Comunicacoes Pessoais S.A.+ (Cellular Telephone)............................ 257,521 24,507,000 Telecomunicacoes Bras (Other Telephone/Communication)................. 1,156,448 66,859,988 Telemig Celular S.A., Series C (Cellular Telephone)............................ 600,776 41,305,828 Telesp Celular S.A., Series B (Cellular Telephone)............................ 2,147,576 939,000 Usinas Siderurgicas de Minas Gerais, GDR (Steel/Iron Ore).............. 3,162,724 135,300 Vale do Rio Doce, "A" Shares (Other Metals/Minerals)......................... 2,676,180
41 The accompanying notes are an integral part of these financial statements. ===================== The Montgomery Funds - --------------------- Emerging Markets Fund - --------------------- Investments
Shares Value (Note 1) PREFERRED STOCK -- continued Brazil -- continued 487,888 Vale do Rio Doce, "B" Shares (Other Metals/Minerals)........................ $ 3 ------------ 29,852,546 Russia -- 0.6% 270,000 LUKoil Company, ADR (Integrated Oil Companies)..................... 1,957,500 Thailand -- 0.3% 622,000 Siam Commercial Bank+ (Non-U.S. Banks)............................... 885,319 TOTAL PREFERRED STOCKS (Cost $35,077,872)............................................... 32,695,365 ------------ WARRANTS -- 0.4% Philippines -- 0.4% 2,907,000 Jollibee Food Company, Warrants, expiring 03/24/03+ (Restaurants) (Cost $1,423,445)...... 1,492,732 Principal Amount FIXED-INCOME SECURITIES -- 0.2% Mexico -- 0.2% $750,000 Alpha S.A. de C.V., 8.00% due 09/15/00 (Major Chemicals) (Cost $772,626).............. 738,750 TOTAL INVESTMENTS -- 94.7% (Cost $291,153,230*)............................................. 327,138,160 OTHER ASSETS AND LIABILITIES -- 5.3% (Net)............................................................ 18,289,016 ------------ NET ASSETS -- 100.0%............................................. $345,427,176 ============
* Aggregate cost for federal tax purposes $293,465,066. (s) Valued in good faith using procedures approved by the Board of Trustees. + Non-income-producing security. @ Amount represents less than 0.1%. Abbreviations ADR American Depositary Receipt ADS American Depositary Share (F) Foreign or Alien Shares GDR Global Depositary Receipt ORD Ordinary (a) Restricted securities: At June 30, 1999, the Fund owned the following restricted securities, constituting less than 0.05% of net assets, which may not be publicly sold without registration under Securities Act of 1933 (Note 1). Additional information on the securities is as follows:
Pepsi International Bottlers Value per Acquisition Date Shares Cost Share - ------------------------------------------------------------------------------- 3/20/97 18,970 $569,100 $8.43
42 The accompanying notes are an integral part of these financial statements. ===================================== The Montgomery Funds ------------------------------------- Emerging Asia Fund ------------------------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform during the year ended June 30, 1999? A: We are very pleased with the Fund s overall results. The Fund returned 97.4% versus 78.1% for its benchmark, the Morgan Stanley Capital International (MSCI) All-Country Asia Free (ex-Japan) Index. This strong performance was aided by good stock selection and the recovery of the Asian economies and markets over the period. Q: How much did your investment strategy change in response to the pace of recovery from the economic crisis in Asia? A: Over the course of the year, we sought out investment opportunities in companies, sectors and countries in the regions that we believed were best positioned to profit from the various stages of recovery. This stock selection strategy proved to be a significant factor in the Fund s outperformance against its benchmark. Having been defensively invested through much of the Asian economic crisis in companies such as those in the utilities sector that we believed were unlikely to fail, we began to reposition the portfolio at the end of the third quarter of 1998. This was in response to the recognition of an improvement in the economies of Southeast Asia and South Korea. We began to build the Fund s positions in companies that were restructuring in markets that we felt had the best recovery prospects, such as in Thai-land and South Korea. This allowed us to fully participate in the September 1998 rallies in these markets. Other shifts in strategy that benefited performance included our decision at the end of the first quarter of 1999 to increase the Fund s exposure to cyclical stocks through the purchase of well-managed oil, steel, and pulp and paper companies in anticipation of a recovery in those sectors. At the same time, in line with our view that regional governments would begin to reflate their economies to stimulate demand, we added stocks that would benefit from an improvement in domestic demand. Throughout the year we remained mindful of economic conditions on a country-by-country basis. For example, toward the end of the financial year we increased our exposure to markets that had underperformed due to political and economic concerns except where the situation had begun to improve, such as in Indonesia and Malaysia. These markets subsequently outperformed, and our exposure to them boosted returns from April through June 1999. Q: Which of the Fund s positions contributed most to performance? A: A number of positions made strong contributions to performance over the course of the year. At the beginning of the period, companies likely to survive the crisis and benefit from restructuring and lower interest rates, such as Thai Farmers Bank (1.2% of net assets as of 6/30/99), increased returns. ======================================== PORTFOLIO MANAGEMENT - ---------------------------------------- Frank Chiang.......... Portfolio Manager ======================================== FUND PERFORMANCE - ---------------------------------------- Average annual total returns for the period ended 6/30/99 - ---------------------------------------- Montgomery Emerging Asia Fund Since inception (9/30/96)....... 4.84% One year........................ 97.44% - ---------------------------------------- MSCI All-Country Asia Free (ex-Japan) Index Since 9/30/96................... (7.17)% One year........................ 78.07% - ---------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost.
- ---------------------------------------- Growth of a $10,000 Investment [BAR GRAPH APPEARS HERE] (MSCI) Lipper All-County All-Pacific Montgomery Asia Free (ex-Japan) Emerging (ex-Japan) Funds Date Asia Fund Index/1/ Average/2/ - ---------------------------------------- Sep-96 10,000 10,000 10,000 Oct-96 10,142 9,810.4 9,857.86 Nov-96 11,750 10,273.81 10,353.55 Dec-96 12,106 10,238.21 10,437.75 Jan-97 12,807 10,449.83 10,581.45 Feb-97 13,175 10,539.17 10,668.58 Mar-97 13,275 9,943.77 10,168.77 Apr-97 13,475 9,795.14 10,012.89 May-97 14,502 10,238.27 10,619.62 Jun-97 15,780 10,612.98 10,954.03 Jul-97 16,256 10,701.75 11,115.05 Aug-97 14,928 8,803.84 9,464.41 Sep-97 14,035 8,764.44 9,393.41 Oct-97 9,785 6,815.87 7,364.74 Nov-97 8,992 6,348.51 6,950.66 Dec-97 8,680 6,111.6 6,753.05 Jan-98 7,130 5,583.2 6,111.33 Feb-98 9,015 6,767.04 7,083.27 Mar-98 8,698 6,667.43 6,997.09 Apr-98 7,681 6,083.05 6,596.57 May-98 6,636 5,154.73 5,024.48 Jun-98 5,768 4,576.2 5,204.71 Jul-98 5,366 4,460.09 5,096.83 Aug-98 4,582 3,817.86 4,453.09 Sep-98 5,506 4,196.41 4,884.74 Oct-98 7,065 5,108.64 5,635.5 Nov-98 7,522 5,521.02 5,978.12 Dec-98 7,402 5,635.8 6,057.64 Jan-99 6,777 5,546 5,905 Feb-99 6,459 5,438 5,754 Mar-99 7,066 6,090 5,299 Apr-99 9,194 7,203 6,342 May-99 9,064 7,047 6,283 Jun-99 11,388 8,149 7,271
/1/ The Morgan Stanley Capital International All-Country Asia Free (ex-Japan) Index comprises equities in 11 countries in the Asia Pacific region. /2/ The Lipper All-Pacific (ex-Japan) Funds Average universe consists of 67 funds. 43 ====================================== The Montgomery Funds - -------------------------------------- Emerging Asia Fund - -------------------------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) China Shipping Development Company, Ltd. ......................................................... 4.4% HSBC Holdings PLC ....................................................... 3.4% Kiatnakin Finance and Securities Public Company Ltd. ................................................... 2.4% Kiatnakin Finance, Ltd., Warrants ....................................... 2.3% Singapore Press Holdings Ltd. ........................................... 2.2% Industrial Finance Corp. of Thailand .................................... 2.1% Reliance Industries Ltd., GDR ........................................... 1.8% HonHai Precision Industry ............................................... 1.6% Jardine Matheson Holdings Ltd. .......................................... 1.6% Hengan International Group Co., Ltd. .................................... 1.6%
================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) China/Hong Kong ......................................................... 33.8% Thailand ................................................................ 18.7% Singapore ............................................................... 8.5% Taiwan .................................................................. 6.8% Indonesia ............................................................... 5.7%
Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. Please be aware that foreign investing, particularly in a single geographical area such as the Asia Pacific region, involves certain risks, including currency fluctuations and political and economic instability. In the second half of the financial year, companies such as Kiatnakin Finance and Securities (2.4% of net assets as of 6/30/99), one of the few Thai finance companies that survived the country s economic crisis, and China Shipping Development Company (4.4% of net assets as of 6/30/99), the largest state-owned shipping line, performed particularly well. Kiatnakin Finance is a conservatively managed company that holds an undervalued portfolio of assets formally owned by bankrupt competitors which were auctioned off by the government at very low prices. As a result, it is well positioned to take advantage of improving consumer demand, a fact recognized by the market. China Shipping is a prime beneficiary of reflation in China, because of the improving regional economic outlook and restructuring. Q: Were there any disappointments? A: There were few notable disappointments over the period, but at the beginning of 1999 performance was negatively affected by our overweight position in China/Hong Kong. These markets corrected sharply on unfounded rumors of a possible Chinese currency devaluation and the collapse of a Chinese investment company. By March, however, they rebounded sharply, and many of the Fund s investments in these markets enjoyed strong gains as a result. Q: What major trends do you see in Asia that might have an impact on Fund performance in the coming year, and how is the Fund positioned to take advantage of them? A: In contrast to our earlier, more cautious stance, because of signs of recovery in domestic demand we believe that economic recovery may have finally taken hold in Asia. Looking forward, we are likely to continue seeking to exploit the theme of a recovery in domestic consumption. We believe that the market has yet to recognize the benefit of this trend toward many well-managed, domestically focused smaller companies. Meanwhile, we are also exploring other themes, such as the continuing restructuring and recapitalization trend and the growth of the Internet. We are looking for opportunities in companies and sectors that we believe are most likely to benefit from such trends. We believe that selected shipping companies are good examples of the former, and that telecommunications companies with a good modern infrastructure in place will likely benefit from the latter. 44 ===================================== The Montgomery Funds ------------------------------------- Emerging Asia Fund ------------------------------------- Investments PORTFOLIO INVESTMENTS
June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 87.4% China/Hong Kong -- 33.8% 5,000,000 Anhui Conch Cement Company Ltd. (Building Materials).......................... $ 850,702 147,000 Beijing Enterprises Holdings Ltd. (Diversified Manufacture)..................... 303,159 4,625,000 Benefun International Holdings Ltd. (Apparel)..................................... 321,913 100,000 Cheung Kong Holdings Ltd. (Real Estate)....... 889,370 1,000,000 China Everbright Ltd. (Other Specialty Stores)...................... 998,930 2,000,000 China Pharmaceutical Enterprise and Investment Corporation (Major Pharmaceuticals)....................... 404,728 3,000,000 China Resources Beijing Land (Real Estate)................................. 688,295 300,000 China Resources Enterprises Ltd. (Real Estate)................................. 529,755 12,000,000 China Shipping Development Company Ltd.+ (Marine Transportation)................. 2,768,648 1,000,000 Citic Ka Wah Bank Ltd. (Non-U.S. Banks)....... 409,239 648,000 Cosco Pacific Ltd. (Marine Transportation).... 538,726 8,000,000 Guangnan Holdings (Food Distributors)......... 536,200 1,000,000 HKR International Ltd. (Real Estate).......... 863,591 58,800 HSBC Holdings PLC (Non-U.S. Banks)............ 2,144,851 2,000,000 Hengan International Group Company Ltd. (Consumer Sundries)...................... 1,011,820 206,377 Jardine Matheson Holdings Ltd. (Multi-Sector Companies)...................... 1,031,885 948,000 JCG Holdings, Ltd. (Diversified Financial Services).............. 452,109 253,000 New World Development Company Ltd. (Real Estate)................................. 758,188 938,000 Pacific Century Insurance Holdings Ltd.+ (Insurance Brokers/Services).................. 759,270 2,550,000 Shandong International Power Development Company Ltd.+ (Electrical Utility).......................... 575,191 3,080,000 Shanghai Industrial Holdings Ltd. (Speciality Chemicals)........................ 726,499 2,160,000 Shum Yip Investment Ltd. (Real Estate)........ 563,783 Sino Land Company (Real Estate)............... 670,514 3,376,000 Sinopec Kantons Holdings+ (Oil/Gas Transmission)........................ 526,528 158,000 Smartone Telecommunications (Cellular Telephone).......................... 562,082 100,000 Sun Hung Kai Properties Ltd. (Real Estate).... 911,927 2,800,000 Zhejiang Expressway Company Ltd. (Other Transportation)........................ 555,792 ------------ 21,353,695 India -- 5.0% 33,300 Bajaj Auto Ltd., GDR (Motor Vehicles)......... 546,120 35,000 Hindalco Industries Ltd., GDR+ (Aluminum).................................... 680,750 114,700 Reliance Industries Ltd., GDR (Textiles)...... 1,152,735 60,000 Videsh Sanchar Nigam Ltd., GDR (Other Telephone/Communication)............... 768,750 ------------ 3,148,355 Indonesia -- 5.7% 615,000 PT Astra International, Inc. (Auto and Agricultural........................ 279,747 Holdings) 2,600,000 PT Bank Internasional Indonesia (Non-U.S. Banks).............................. 75,090 128,000 PT Hanjay Mandala Sampoerna (Tobacco)..................................... 292,043 1,770,000 PT Indah Kiat Pulp & Paper Corporation (Paper)....................................... 817,906 500,000 PT Indofood Sukses Makmur Tbk+ (Food Distributors)........................... 678,701 4,590,000 PT Mayora Indah (Food Chains)................. 646,246 1,404,000 PT Telekomunikasi (Other Telephone/Communication)............... 810,975 ------------ 3,600,708 Korea -- 4.1% 36,400 Korea Electric Power Corporation ADR (Non-U.S. Utilities).......................... 746,200 29,050 LG Chemical Ltd. (Major Chemicals)............ 790,562 38,000 Samsung Display Devices Company, GDR+ (Industrial Specialties)................. 486,400 50,000 Shinhan Bank Company Ltd. (Non-U.S. Banks).............................. 561,555 ------------ 2,584,717 Malaysia -- 3.7% 200,000 Malaysian Pacific Industries Berhad (Electronic Components)....................... 474,209 750,000 Malaysian Resources Corporation (Engineering and Construction)................ 469,736 230,000 Tenaga Nasional Berhad (Non-U.S. Utilities).......................... 450,163 134,900 WEBS-Malaysia Index Series (Mutual Funds)................................ 927,438 ------------ 2,321,546 Philippines -- 4.8% 1,480,000 Ayala Land, Inc. (Real Estate)................ 467,676
45 The accompanying notes are an integral part of these financial statements. ===================== The Montgomery Funds - --------------------- Emerging Asia Fund - --------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- Continued Philippines -- continued 270,400 Bank of the Philippine Islands (Non-U.S. Banks)............................... $ 968,384 650,000 Belle Corporation (Real Estate)................ 69,322 250,000 Manila Electronics Company, Series B (Non-U.S. Utilities)........................... 901,909 300,000 San Miguel Corporation, Class B (Alcoholic Beverages).......................... 655,695 ------------ 3,062,986 Singapore -- 8.5% 100,000 City Developments Ltd. (Real Estate)........... 640,291 450,000 First Capital Corporation Ltd. (Real Estate)... 700,502 183,000 Keppel Corporation Ltd. (Multi-Sector Companies)....................... 623,491 275,000 Keppel Land Ltd. (Real Estate)................. 516,933 258,000 Keppel Tatlee Bank Ltd. (Non-U.S. Banks)............................... 572,879 117,700 Overseas Union Bank Ltd. (Non-U.S. Banks)............................... 566,946 7,800 Pacific Internet Ltd.+ (Internet Services)..... 372,206 80,352 Singapore Press Holdings Ltd. (Newspapers)................................... 1,368,818 ------------ 5,362,066 Taiwan -- 6.8% 509,250 China Steel Corporation (Steel/Iron Ore)....... 384,697 580,000 Far East Textiles Ltd.+ (Textiles)............. 861,919 1,160,000 Far Eastern International Bank+ (Non-U.S. Banks)............................... 425,573 115,000 Hon Hai Precision Industry+ (Electronic Data Processing)................... 1,039,628 396,000 Nan Ya Plastic Corporation (Speciality Chemicals)......................... 655,913 971,000 Yageo Corporation+ (Electronic Components)........................ 937,932 ------------ 4,305,662 Thailand -- 15.0% 593,100 Bangkok Expressway Public Company Ltd. (Other Transportation)......................... 389,933 1,204,000 Bank of Ayudhya Public Company Ltd. (Non-U.S. Banks)............................... 824,210 2,050,000 Industrial Finance Corporation of Thailand (Finance Companies)................... 1,306,087 786,000 Kiatnakin Finance and Securities Public Company Ltd.+ (Finance Companies).............. 1,491,663 930,000 National Finance Company Ltd. (Non-U.S. Banks)............................... 561,000 118,800 PTT Exploration and Production Public Company Ltd. (F) (Oil and Gas Production)...... 908,272 46,000 Shin Corporations Public Company Ltd. (Electronics Distributors)..................... 214,504 1,000,000 Shinawatra Satellite Public Company Ltd. (Other Telephone/Communication)................ 928,562 9,700 Siam Cement Public Company Ltd. (Building Materials)........................... 294,537 317,500 Siam Panich Leasing Public Company Ltd. (Rental/Leasing Companies)..................... 477,735 241,000 Thai Farmers Bank Public Company Ltd. (Non-U.S. Banks)............................... 744,856 1,630,000 Thai Telephone & Telecommunication Company Ltd. (Other Telephone/Communication)................ 618,680 668,000 The Book Club Finance and Securities Public+ (Finance Companies).................... 728,941 ------------ 9,488,980 TOTAL COMMON STOCKS (Cost $44,799,876)............................................... 55,228,715 ------------ Principal Amount CONVERTIBLE BONDS -- 1.0% United Kingdom -- 1.0% $ 600,000 New World Capital Finance 3.00% due 06/09/04 (Real Estate) (Cost $600,000)................................ 615,000 Shares WARRANTS -- 4.4% Philippines -- 0.7% 800,000 Jollibee Food Company, Warrants, expiring 03/24/03+ (Restaurants).................................. 410,796 Singapore -- 0.0%@ 7,500 Asia Pulp & Paper, Warrants, expiring 07/27/00+ (Paper).............................. 19,687 Thailand -- 3.7% 977,100 Kiatnakin Finance, Ltd., Warrants, 05/10/09+ (Finance Companies).................. 1,470,220 2,000,000 Securities One Public Company Ltd., Warrants, expiring 05/31/01+ (Investment Bankers/Brokers/Services).......... 151,823 575,000 Siam Commercial Bank Ltd., Warrants, expiring 05/10/02+ (Non-U.S. Banks)............ 370,239 400,000 TISCO Finance Public Company Ltd. Warrants, expiring 05/31/02+ (Finance Companies)............................ 374,136 ------------ 2,366,418 TOTAL WARRANTS (Cost $1,036,246)................................................ 2,796,901 ------------ TOTAL SECURITIES (Cost $46,436,122)............................................... 58,640,616 ------------
46 The accompanying notes are an integral part of these financial statements. ===================== The Montgomery Funds --------------------- Emerging Asia Fund --------------------- Investments
Principal Amount Value (Note 1) REPURCHASE AGREEMENTS -- 8.1% $ 5,150,000 Agreement with Paine Webber, Tri-Party, 5.050% dated 06/30/99, to be repurchased at $5,150,713, collateralized by $5,160,240 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $5,150,000).............................. $ 5,150,000 ------------ TOTAL INVESTMENTS -- 100.9% (Cost $51,586,122*).............................................. 63,790,616 OTHER ASSETS AND LIABILITIES -- (0.9)% (Net)............................................................ (594,727) ------------ NET ASSETS -- 100.0%............................................. $ 63,195,889 ============
* Aggregate cost for federal tax purposes $52,981,889. + Non-income-producing security. @ Amount represents less than 0.1% Abbreviations ADR American Depositary Receipt (F) Foreign or Alien Shares GDR Global Depositary Receipt 47 The accompanying notes are an integral part of these financial statements. ====================================== The Montgomery Funds - -------------------------------------- Global Long-Short Fund - -------------------------------------- Portfolio Highlights ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Nancy Kukacka................................................ Portfolio Manager Angeline Ee.................................................. Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Global Long-Short Fund Since inception (12/31/97)............................................... 65.67% One year................................................................. 51.78% - -------------------------------------------------------------------------------- MSCI All-Country World Free Index Since 12/31/97........................................................... 21.51% One year................................................................. 16.71% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares.
- -------------------------------------------------------------------------------- Growth of a $10,000 Investment* [BAR GRAPH APPEARS HERE] Montgomery Global MISCI All-Country Lipper Global funds Date Long-Short Fund World Free Index/1/ Average/2/ - -------------------------------------------------------------------------------- Dec-97 9,450 10,000 10,000 Jan-98 9,979 10,220 10,096 Feb-98 11,198 10,919 10,811 Mar-98 12,020 11,385 11,349 Apr-98 12,833 11,492 11,507 May-98 12,871 11,274 11,361 Jun-98 13,249 11,477 11,398 Jul-98 13,514 11,481 11,361 Aug-98 12,767 9,872 9,658 Sep-98 12,720 10,069 9,741 Oct-98 13,154 10,988 10,400 Nov-98 13,665 11,655 10,977 Dec-98 14,495 12,197 11,485 Jan-99 15,679 12,446 11,727 Feb-99 15,060 12,133 11,383 Mar-99 16,812 12,679 11,811 Apr-99 18,365 13,227 12,394 May-99 18,242 12,759 12,040 Jun-99 20,110 13,394 12,704
/1/ The Morgan Stanley Capital International All-Country World Free Index is an unmanaged, capitalization-weighted monthly total return index composed of securities available for purchase by foreigners that are listed on the stock exchanges of more than 45 developed and emerging countries, including the United States. /2/ The Lipper Global Funds Average universe consists of 223 funds. * The chart above shows the performance of the Montgomery Global Long-Short Fund's Class R shares since the Fund's inception versus the index. This represents a cumulative return of 101.14%. The chart assumes a hypothetical $10,000 initial investment in the Fund's Class R shares and reflects all Fund expenses and the maximum 5.5% sales charge (applicable only to shares purchased prior to 1/29/99). A $10,000 investment in the Fund's Class B shares at inception on December 31, 1997, would have been valued at $17,737 on June 30, 1999. This figure reflects all Fund expenses and the applicable contingent deferred sales charge (5% in the first year, decreasing to 0% after six years), assuming a complete redemption at the end of the period. A $10,000 investment in the Fund's Class C shares at inception, December 31, 1997, would have been worth $18,232 on June 30, 1999. INVESTMENT REVIEW Q: How did the Fund perform from July 1, 1998, to June 30, 1999? A: We were very pleased with the Fund's performance over the period a return of 51.8%, versus 16.7% for its most comparable benchmark, the Morgan Stanley Capital International (MSCI) All-Country World Free Index. Q: Did the Fund's ability to sell stocks short contribute to this performance? A: Although we attribute the Fund's good returns mainly to strong stock selection, our ability to hedge the Fund's long positions by short selling certainly helped minimize volatility during a challenging year for global markets. The Fund has continued to maintain a long bias throughout the financial year. During the third quarter of 1998, however, a correction in global financial markets resulted in an unusual situation in which the Fund's short positions nearly equaled its long positions. This short exposure gave the Fund a definite advantage relative to its benchmark, and to long-only global funds, as stock valuations fell sharply. We believe that knowing when to reduce the number of short positions in improving market conditions is as important as using those positions to hedge against negative market movements. Our decision to decrease our short exposure during the first two quarters of 1999, however, particularly in the rapidly appreciating emerging markets, also contributed to the Fund's returns. In this environment some of our most successful short positions, such as those we established against selected Internet stocks, were opportunistic. Nevertheless, the Fund's objective to reduce volatility of returns has meant that we have generally maintained a level of at least 20% of the portfolio in short positions to act as a hedge against negative movements in our long positions. Q: Which of the Fund's long ideas were particularly helpful in boosting returns? A: In the developed markets, our long strategy emphasized fundamentally good companies in high-growth sectors such as telecommunications and technology that we believed had the potential to increase their earnings at a rapid rate. This strategy has worked well for us. For example, in the U.S. wireless communications sector, cell phone market penetration has risen 30% in the past year, and there has been a 50% increase in Nokia s sales of wireless handsets and equipment. This has benefited our portfolio holding in Nokia (0.8% of net assets as of 6/30/99). Other communications companies that made a positive contribution to performance include Colt Telecom (1.0% of net assets as of 6/30/99) of the United Kingdom and Equant (0.8% of net assets as of 6/30/99), a data communications company servicing Europe and the United States. Although the valuations of these companies increased rapidly, their earnings did too, so we maintained our positions for much of the year. In the emerging markets, the ideas that contributed most to performance were slightly different. We had a higher exposure to the recovering commodities sector than in the developed markets, and investments in stocks such as YPL, an Argentine oil company (no longer in the portfolio since it was acquired in the second quarter of 1999), performed particularly well. The Fund's overweight position in the rapidly appreciating Asian markets also helped boost returns over the period. 48 ====================================== The Montgomery Funds -------------------------------------- Global Long-Short Fund -------------------------------------- Portfolio Highlights Q: What is your outlook for the global markets, and how is the Fund positioned in relation to this view? A: In the developed markets, although we remain overweighted in the United States, mainly in telecommunications and technology, we have reduced our positions due to concerns over current valuations and inflation. An increase in inflation may translate into higher interest rates, which would have a negative impact on growth stocks. In recognition of this latter risk, we have adopted a slightly more cautious approach by reducing exposure to growth stocks and marginally increasing our weighting in cyclicals. In other developed markets, we remain underweighted in Europe and Japan. The strong performance of our Japanese stock selections, such as Softbank Corporation (0.7% of net assets as of 6/30/99), Japan's equivalent to Yahoo!, have made up for this underweight position as the Japanese market has appreciated, and we remain confident that these will continue to do well. In the emerging markets, we continue to like the prospects for Asia, specifically South Korea, India and China/Hong Kong. We remain heavily overweighted in these markets, because their economic fundamentals have continued to improve. We are also seeing a revival in consumer demand, an important element in any sustainable recovery. These countries are benefiting from ongoing financial and fiscal restructuring and as a result continue to present the Fund with interesting opportunities to add value. We have limited exposure to Latin America and are underweighted in emerging Europe. Q: How is the Fund positioned in terms of its long and short exposure, and do you foresee any changes to this positioning? A: At the end of the period, the Fund was invested 95% net long. We had fewer short positions in the emerging markets due to our optimism that they will continue to rebound. In the developed markets, however, we have recently adopted a slightly more cautious stance, increasing our short positions in line with rising interest rate risk. We are also holding more cash. We don't anticipate any significant changes to this positioning in the short term, but will continue to monitor the markets carefully and make adjustments where warranted. ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (long positions as a percentage of total net assets) Societe Generale ........................................................ 1.4% General Nutrition Companies, Inc. ....................................... 1.2% Teradyne, Inc. .......................................................... 1.2% Global TeleSystems Group, Inc. .......................................... 1.1% Xilinx, Inc. ............................................................ 1.1% Canal Plus .............................................................. 1.1% The Mens Wearhouse,Inc. ................................................. 1.1% Verisign, Inc. .......................................................... 1.0% Doubleclick, Inc. ....................................................... 1.0% Advantest Corporation ................................................... 1.0% ================================================================================ TOP FIVE COUNTRIES - -------------------------------------------------------------------------------- (long positions as a percentage of total net assets) United States ........................................................... 53.6% France .................................................................. 10.4% United Kingdom .......................................................... 8.7% China/Hong Kong ......................................................... 4.8% Brazil .................................................................. 4.2% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. This Fund uses sophisticated investment approaches that may present substantially higher risks than most mutual funds. It may invest a larger percentage of its assets in transactions using margin, leverage, short sales and other forms of volatile financial derivatives such as options and futures. As a result, the value of an investment in the Fund may be more volatile that investments in other mutual funds. This Fund may not be appropriate for conservative investors. 49 ====================== The Montgomery Funds - ---------------------- Global Long-Short Fund - ---------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999
Shares Value (Note 1) COMMON STOCKS -- 120.5% Argentina -- 0.5% 86,000 Perez Companc S.A. (Oil and Gas Production)..................... $ 494,564 12,100 Telecom Argentina S.A., ADR (Other Telephone/Communication).............. 323,675 14,400 Telefonica de Argentina, Sponsored ADR (Other Telephone/Communication).............. 451,800 ------------- 1,270,039 Brazil -- 2.0% 35,400 Aracruz Celulose S.A., ADR (Paper)........... 778,800 46,600 Cia Cervejaria Brahma, ADR (Alcoholic Beverages)........................ 527,162 25,800 Cia Vale do Rio Doce (Other Metals/Minerals)...................... 363,052 15,100,000 Gerdau S.A. (Speciality Steels).............. 251,738 38,200 Petroleo Brasileiro S.A., ADR (Integrated Oil Companies)................... 580,162 15,300 Tele Celular Sul Participacoes S.A., ADR (Cellular Telephone)......................... 331,819 2,800 Tele Centro Sul Participacoes S.A., ADR (Cellular Telephone)......................... 155,400 25,400 Tele Sudeste Celular Participacoes S.A., ADR (Cellular Telephone)..................... 736,600 9,500 Telebras, ADR (Other Telephone/Communication).............. 856,781 1,000,00 Telec de Sao Paulo S.A. (Cellular Telephone)......................... 83,074 10,100 Telesp Participacoes S.A., ADR (Cellular Telephone)......................... 231,038 ------------- 4,895,626 Canada -- 1.7% 26,600 AT&T Canada, Inc.+# (Other Telephone/Communication).............. 1,699,906 48,500 TLC The Laser Center, Inc.+ (Medical Specialties)........................ 2,328,000 ------------- 4,027,906 China/Hong Kong -- 4.8% 426,000 Amoy Properties Ltd. (Real Estate)........... 400,835 141,000 Asia Satellite Telecommunications Holdings Ltd. (Other Telephone/Communication).............. 331,677 2,300,000 Beijing Yanhua Petrochemical Company Ltd., "H" Shares (Major Chemicals)........... 518,799 45,000 Cheung Kong Holdings Ltd. (Real Estate)................................ 400,217 1,356,00 China Hong Kong Photo Products Holdings, Ltd. (Photographic Products)....... 216,728 231,000 Citic Pacific Ltd. (Wholesale Distributors).. 736,920 345,000 Cosco Pacific Ltd. (Marine Transportation)... 286,822 184,000 DahSing Financial Group (Non-U.S.Banks)...... 700,824 418,000 Dairy Farm International Holdings Ltd. (Food Chains)................................ 501,600 339,000 Guangdong Kelon Electrical Holdings Company Ltd. (Consumer Electronics/Appliances)............ 395,441 2,918,000 Guangshen Railway Company, Ltd. (Railroads).. 447,575 230,000 Guoco Group Ltd. (Diversified Financial Services)............. 616,630 472,000 Hongkong and Shanghai Hotels Ltd. (Hotels/Resorts)............................. 401,531 424,000 Hopewell Holdings Ltd. (Engineering and Construction)............... 322,442 35,600 HSBC Holdings PLC (Non-U.S. Banks)........... 1,298,583 1,784,000 Huaneng Power International, Inc. (Integrated Oil Companies)................... 747,328 38,000 Hutchison Whampoa Ltd. (Multi-Sector Companies)...................... 344,083 1,575,000 IDT International Ltd. (Diversified Electronic Products)............. 324,813 358,000 Mandarin Oriental International Ltd. (Hotels/Resorts).............................. 315,040 188,000 New World Development Company Ltd. (Real Estate)................................. 563,397 134,000 New World Infrastructure Ltd. (Other Transportation)........................ 252,169 1,700,000 Shandong International Power Development Company Ltd.+ (Non-U.S. Utilities).......................... 383,460 382,000 Shaw Brothers (Hong Kong) Ltd. (Media Conglomerates)......................... 260,959 345,000 Wheelock and Company Ltd. (Real Estate)................................. 473,590 1,400,000 Zhejiang Expressway Company, Ltd., Class H (Other Transportation)................ 277,896 ------------- 11,519,359 Egypt -- 0.1% 14,920 Suez Cement Company, GDR (Building Materials).......................... 214,848 Estonia -- 0.1% 15,000 AS Eesti Telekom, GDR (Other Telephone/Communication)............... 295,125 Finland -- 0.8% 20,400 Nokia Corporation, Sponsored ADR (Telecommunications Equipment)................ 1,867,875
50 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Global Long-Short Fund - ---------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued France -- 10.4% 5,870 Altran Technologies S.A. (Engineering and Construction)................ $ 1,551,627 8,960 Axa (Multi-Line Insurance).................... 1,094,465 17,330 Banque Nationale de Paris (Non-U.S. Banks).............................. 1,445,837 11,400 Brice S.A.+ (Clothing/Shoe/Accessory Stores).............. 629,750 9,465 Canal Plus (Cable Television)................. 2,659,246 54,000 Coflexip S.A., ADR (Metal Fabrications) ...... 2,369,250 21,780 Eiffage# (Engineering and Construction)....... 1,621,446 12,600 Galeries Lafayette (Department Stores)........ 1,669,193 17,300 Groupe SEB S.A. (Consumer Electronics/Appliances)....................... 1,295,071 14,170 Marc Orian S.A. (Consumer Specialties) ....... 1,562,609 9,100 PSA Peugeot Citroen (Motor Vehicles).......... 1,437,614 8,000 Publicis S.A. (Advertising)................... 1,693,375 15,950 Rexel S.A. (Wholesale Distributors)........... 1,237,653 13,000 Sidel S.A. (Industrial Machinery/Components).. 1,582,583 18,600 Societe Generale, Class A (Non-U.S. Banks).... 3,282,195 ------------- 25,131,914 Germany -- 2.1% 28,900 Deutsche Bank AG (Non-U.S. Banks)............. 1,765,070 29,080 Kinowelt Median AG+ (Movies/Entertainment).... 2,116,864 8,000 Mannesmann AG (Cellular Telephone)............ 1,195,275 ------------- 5,077,209 Greece -- 0.7% 3,060 Alpha Credit Bank (Non-U.S. Banks)............ 197,507 37,000 Alpha Credit Bank, ADR (Non-U.S. Banks)....... 591,075 33,085 Hellenic Telecommunication Organization S.A. (Other Telephone/Communication)............... 710,069 8,000 Hellenic Telecommunication Organization S.A., ADR (Other Telephone/Communication)..... 85,800 8,300 STET Hellas Telecommunications S.A., ADR+# (Other Telephone/Communication)............... 185,713 ------------- 1,770,164 Hungary -- 0.6% 9,750 Borsodchem Rt. (Paints/Coatings).............. 237,997 24,000 Matav Rt., ADR (Other Telephone/Communication)............... 129,877 20,400 MOL Magyar Olaj-es Gazipari Rt. (Integrated Oil Companies).................... 492,054 22,500 MOL Magyar Olaj-es Gazipari Rt., GDR (Integrated Oil Companies).................... 538,875 ------------- 1,398,803 India -- 2.3% 26,600 Hindalco Industries Ltd., GDR (Aluminum).................................... 517,370 89,000 Larsen & Toubro Ltd., GDR (Building Materials).......................... 1,372,825 23,800 Mahanagar Telephone Nigam Ltd., GDR (Other Telephone/Communication)............... 235,620 12,300 Ranbaxy Laboratories Ltd., GDR (Other Pharmaceuticals)....................... 203,565 88,100 Reliance Industries Ltd., GDR+ (Textiles).................................... 885,405 48,100 State Bank of India, GDR (Non-U.S. Banks).............................. 590,427 79,000 Tata Engineering and Locomotive Company Ltd. (Motor Vehicles)................. 458,200 26,600 Videsh Sanchar Nigam Ltd., GDR (Other Telephone/Communication)............... 340,813 40,000 Videsh Sanchar Nigam Ltd., Sponsored GDR (Other Telephone/Communication)........... 512,500 10,000 Zee Telefilms Ltd.+ (Movies/Entertainment).... 335,215 ------------- 5,451,940 Indonesia -- 0.6% 1,714,800 PT Astra Agro Lestari Tbk (Farming/Seeds/Milling)....................... 594,299 590,000 PT Indah Kiat Pulp & Paper Corporation Tbk (Paper)................................... 272,635 130,500 PT Semen Gresik Tbk (Building Materials).......................... 282,671 550,800 PT Telekomunikasi Indonesia (Other Telephone/Communication)............... 318,152 ------------- 1,467,757 Ireland -- 1.4% 70,400 Bank of Ireland (Non-U.S. Banks).............. 1,173,963 51,400 Esat Telecom Group PLC, ADR+ (Other Telephone/Communication)............... 2,248,750 ------------- 3,422,713 Israel -- 0.1% 12,400 Nice Systems Ltd., ADR+ (Telecommunication Equipment)................. 343,325 Italy -- 2.0% 495,000 Banca Intesa SpA (Non-U.S. Banks)............. 1,102,976 118,800 Gruppo Editoriale L Expresso (Newspapers).................................. 1,916,295 1,285,000 Seat Pagine Gialle SpA (Printing/Forms).............................. 1,751,404 ------------- 4,770,675 Japan -- 3.8% 22,000 Advantest Corporation (Electronic Production Equipment)............. 2,420,783 105,000 Makita Corporation (Tools/Hardware)........... 1,189,253
51 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Global Long-Short Fund - ---------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued Japan -- continued 30,000 Promise Company Ltd. (Finance Companies)............................ $ 1,774,634 61,000 Shin-Etsu Chemical Company Ltd. (Major Chemicals).............................. 2,043,931 8,300 Softbank Corporation (Electronics Distributors)..................... 1,683,073 ------------- 9,111,674 Korea -- 3.9% 44,900 Comtec System Company Ltd. (Motor Vehicles)............................... 397,603 40,300 Daewoo Securities Company (Investment Bankers/Brokers/Services)...................... 783,369 16,069 Daou Technology, Inc.+ (Computer Software)............................ 174,225 7,100 Dongwon Securities Company (Investment Bankers/Brokers/Services).......... 130,652 47,700 Hana Bank (Non-U.S. Banks)..................... 700,562 70,600 Hyundai Industrial Development & Construction Company (Engineering and Construction)................. 988,095 153,900 Ichon Iron & Steel Company (Steel/Iron Ore)............................... 977,248 13,500 Korea Electric Power Corporation (Non-U.S. Utilities)........................... 560,994 13,100 Korea Telecom Corporation (Other Telephone/Communication)................ 869,184 9,100 Korea Zinc Company (Metal Fabrications).................................. 275,162 48,000 LG Electronics, Sponsored GDR+ (Diversified Electronic Products).............. 306,000 12,100 Pohang Iron & Steel Company, ADR (Steel/Iron Ore)............................... 406,862 417 Samsung Electronics Company (Diversified Electronic Products).............. 45,753 440 Samsung Electronics Company, GDR (Computer Software)............................ 23,562 555 Samsung Fire & Marine Insurance (Insurance Brokers/Services)................... 390,778 55,140 Shinhan Bank (Non-U.S. Banks).................. 619,283 57,000 Sungmi Telecom Electronics Company (Telecommunications Equipment)................. 339,784 10,400 Tae Young Corporation (Construction/Agriculture Equipment/Trucks).... 593,002 12,000 Tong Yang Confectionery Company (Specialty Foods/Candy)........................ 357,667 12,100 Trigem Computer, Inc.+ (Electronic Data Processing)................... 470,410 ------------- 9,410,195 Malaysia -- 0.7% 254,400 WEBS-Malaysia Index Series (Mutual Funds)................................. 1,749,000 Mexico -- 2.4% 223,000 Cemex S.A. de C.V., Class B (Building Materials)........................... 1,107,545 39,700 Coca-Cola Femsa S.A., ADR+ (Soft Drinks).................................. 769,187 298,000 Grupo Financiero Banamex Accival S.A. de C.V.+ (Diversified Financial Services)...................................... 752,669 37,200 Grupo Iusacell, Sponsored ADR, Series L+ (Cellular Telephone)................. 483,600 231,000 Grupo Mexico S.A., Series B (Other Metals/Minerals)........................ 983,031 74,000 Grupo Radio Centro S.A. de C.V., ADR (Broadcasting)............................. 388,500 7,300 Grupo Televisa S.A., GDR+ (Broadcasting)....... 326,219 13,500 Panamerica Beverages, Inc. (Soft Drinks)....... 321,469 3,400 Telefonos de Mexico S.A., ADR (Other Telephone/Communication)................ 274,763 32,300 TV Azteca S.A. de C.V., Sponsored ADR+ (Textiles)................................ 167,556 36,000 Vitro S.A., ADR (Home Furnishings)............. 184,500 ------------- 5,759,039 Netherlands -- 2.8% 38,000 ASM Lithography Holding N.V.+ (Electronic Production Equipment).............. 2,250,312 19,900 Equant N.V.+ (Other Telephone/Communication)................ 1,873,088 19,000 Gucci Group N.V.+# (Apparel)................... 1,330,000 36,400 Ordina Beheer N.V.+# (EDP Services)............ 33,826 77,066 Vedior N.V. (Other Telephone/Communications)............... 1,312,974 ------------- 6,800,200 Norway -- 0.6% 93,500 Petroleum Geo-Services, Sponsored ADR+ (Oilfield Services/Equipment).................. 1,390,813 Peru -- 0.1% 10,100 Telefonica del Peru S.A., ADR (Other Telephone/Communications)............... 152,763 Philippines -- 0.7% 2,143,000 Benpres Holdings Corporation+ (Broadcasting)... 507,887 650,000 Cosmos Bottling Corporation (Soft Drinks).................................. 47,070 2,300,000 International Container Terminal Services, Inc.+ (Other Transportation)................... 299,803 94,000 Philippine Commercial International Bank (Non-U.S. Banks)............................... 643,581 10,800 Philippine Long Distance Telephone Company (Other Telephone/Communications)............... 329,901 ------------- 1,828,242 Poland -- 0.4% 7,550 @ Entertainment, Inc.+ (Cable Television)...... 141,327
52 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds ---------------------- Global Long-Short Fund ---------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued Poland -- continued 59,000 Mostostal-Warszawa S.A.+ (Diversified Manufacture)................... $ 355,801 59,000 Telekomunikacja Polska S.A. (Other Telephone/Communications)............ 412,850 ------------- 909,978 Russia -- 1.1% 33,900 Global TeleSystems Group, Inc.+ (Other Telephone/Communication)............. 2,744,841 Singapore -- 3.7% 88,000 Cycle & Carriage Ltd. (Other Specialty Stores).................... 506,594 431,000 DBS Land (Real Estate)...................... 860,810 372,000 GES International Ltd. (EDP Peripherals).... 402,079 700,000 Hersing Corporation Ltd. (Real Estate)...... 351,573 397,000 Inchcape Motors Ltd. (Automotive Aftermarket).................... 638,987 799,000 Keppel Land Ltd. (Real Estate).............. 1,501,924 210,000 Lindeteves-Jacoberg Ltd. (Diversified Commercial Services)........... 298,529 375,000 Neptune Orient Lines Ltd. (Marine Transportation)..................... 458,190 26,800 Pacific Internet Ltd.+ (Internet Services) .................................. 1,278,862 1,644,000 Popular Holdings Ltd. (Office Equipment/Supplies)................. 777,408 37,000 Singapore Press Holdings Ltd. (Newspapers).. 630,305 735,000 Singapore Telecommunications Ltd. (Other Telephone/Communication)............. 1,260,728 ------------- 8,965,989 South Africa -- 0.7% 45,800 Barlow Ltd. (Multi-Sector Companies)........ 264,121 1,024 Edgars Consolidated Stores Ltd. (Clothing/Shoe/Accessory Stores)............ 7,959 14,630 JCI Gold Ltd.+ (Precious Metals)............ 13,334 20,000 Liberty Life Association of Africa Ltd.# (Life Insurance)...................... 256,194 116,200 Naspers Ltd., "N" Shares+ (Newspapers)...... 698,028 69,200 Sasol Ltd. (Coal Mining).................... 493,671 ------------- 1,733,307 Spain -- 1.5% 194,600 Banco Santander Central Hispano S.A.+ (Non-U.S. Banks)............................ 2,029,427 137,300 Prosegur, CIA de Seguridad S.A. (Diversified Commercial Services)........... 1,533,936 ------------- 3,563,363 Sweden -- 1.4% 98,800 Modern Times Group AB, "B" Shares+ (Broadcasting).............................. 2,152,391 109,500 Scandic Hotels AB (Hotels/Resorts).......... 1,170,121 ------------- 3,322,512 Taiwan -- 2.8% 167,900 Acer Peripherals, Inc. (Electronic Data Processing)................ 415,851 30,000 Asustek Computer, Inc. (Electronic Components)..................... 338,081 589,000 Chung Hwa Pulp Corporation+ (Paper)......... 421,235 144,300 Compeq Manufacturing Company Ltd.+ (Electronic Components)..................... 844,356 264,000 Evergreen Marine Corporation+ (Marine Transportation)..................... 330,204 905,000 Far Eastern International Bank+ (Non-U.S. Banks)............................ 332,020 31,000 Hon Hai Precision Industry+ (Electronic Data Processing)................ 280,248 174,000 Nien Hsing Textile Corporation Ltd.+ (Textiles).................................. 406,718 496,000 Powerchip Semiconductor Corporation+ (Semiconductors)............................ 340,904 172,000 Siliconware Precision Industries Company+ (Semiconductors)................... 327,492 165,000 Standard Foods Taiwan Ltd. (Specialty Foods/Candy)..................... 197,183 259,000 Systex Corporation+ (Electronic Components)..................... 741,718 191,880 Taiwan Semiconductor Manufacturing Company Ltd.+ (Electronic Production Equipment)........... 733,659 2,700 Taiwan Semiconductor Company Ltd., ADR+ (Electronic Production Equipment)...... 91,800 7,250 Ulead Systems, Inc.+ (Electrical Products)................................... 31,873 427,800 United Microelectronics Corporation, Ltd.+ (Semiconductors)...................... 920,499 ------------- 6,753,841 Thailand -- 1.0% 115,000 BEC World PCL (Movies/Entertainment)...................... 717,094 30,000 PTT Exploration and Production PCL (Oil and Gas Production).................... 229,361 131,200 Shin Corporations PCL (Electronics Distributors).................. 611,804 60,000 Siam City Cement PCL (Building Materials)... 247,255 215,703 United Broadcasting Corporation PCL (Cable Television).......................... 169,592 466,900 United Communication Industry PCL (Other Telephone/Communications)............ 430,381 ------------- 2,405,487 Turkey -- 0.4% 4,620,000 Akbank T.A.S. (Non-U.S. Banks).............. 67,932 4,810,000 Vestel Elektronik Sanayi ve Ticaret A.S.+ (EDP Peripherals)........................... 524,736 6,400,000 Yapi Ve Kredi Bankasi A.S. (Non-U.S. Banks)............................ 92,586
53 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Global Long-Short Fund - ---------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued Turkey -- continued 13,040 Yapi Ve Kredi Bankasi A.S., GDR (Non-U.S. Banks)............................. $ 192,992 ------------ 878,246 United Kingdom -- 8.7% 8,800 ARM Holdings PLC, ADR+ (Semiconductors)............................. 307,450 31,200 Astrazeneca PLC (Multi-Sector Companies)..................... 1,208,764 594,000 British Steel PLC (Steel/Iron Ore)........... 1,539,042 32,000 Colt Telecom Group PLC+ (Other Telephone/Communication).............. 673,387 21,000 Colt Telecom Group PLC, ADR+ (Other Telephone/Communication).............. 1,805,344 58,500 Energis PLC (Other Telephone/Communication).............. 1,396,219 9,323 Liberty International PLC (Finance Companies).......................... 61,721 160,400 Orange PLC# (Cellular Telephone)............. 2,349,335 102,600 Pearson PLC (Financial Publishing/Services).............. 2,107,255 162,000 Racal Electronics PLC (Military/Government/Technical).............. 987,696 46,000 Reckitt & Colman PLC (Consumer Sundries).......................... 480,006 493,600 Saatchi & Saatchi PLC (Advertising).......... 1,662,385 227,000 Securicor Group PLC (Cellular Telephone)..... 2,001,688 294,600 Somerfield PLC (Food Chains)................. 1,382,542 341,800 Telewest Communications PLC (Cable Television)........................... 1,538,000 243,300 The Future Network PLC+ (Media).............. 1,621,539 ------------ 21,122,373 United States -- 53.6% 153,000 Actv, Inc.+ (Broadcasting)................... 2,118,094 26,500 Adaptec, Inc.+# (Computer Communications).................... 934,953 89,750 Administaff, Inc.+# (Diversified Commercial Services)............ 1,436,000 9,500 America Online, Inc.+# (Internet Services)... 1,049,750 35,000 American Home Products Corporation# (Major Pharmaceuticals)...................... 2,012,500 48,100 Ann Taylor Stores Corporation+# (Clothing/Shoe/Accessory Stores)............. 2,164,500 10,100 Ariba, Inc.+ (Internet Services)............. 986,644 24,000 At Home Corporation+ (Other Specialty Stores) 1,295,250 61,400 AT&T Corp. Liberty Media Group, Class B+# (Broadcasting)..................... 2,256,450 36,500 Aware, Inc.+ (Telecommunications Equipment)............... 1,679,000 48,000 Bally Total Fitness Holdings Corporation+# (Other Consumer Services).................... 1,362,000 31,700 BMC Software,Inc.+# (ComputerSoftware)....... 1,710,809 17,000 Careinsite, Inc.+ (Assisted Living Services). 806,438 50,000 Centocor, Inc.+# (Biotechnology)............. 2,332,812 22,000 Cerus Corporation+ (Medical Specialties)..... 486,750 32,500 Chancellor Media Corporation, Class A+# (Broadcasting)............................... 1,790,547 25,500 Circuit City Stores Circuit City Group# (Computer/Video Chains)...................... 2,371,500 31,000 Cisco Systems, Inc.+# (Computer Communications).................... 1,996,594 36,000 Citigroup, Inc. (Diversified Financial Services)............. 1,710,000 62,000 Comcast Corporation, Class A# (Cable Television)........................... 2,383,125 29,000 Comverse Technology, Inc.+ (Telecommunications Equipment)............... 2,187,687 37,000 Conexant Systems, Inc.+# (Semiconductors).... 2,147,156 40,000 Cooper Cameron Corporation+ (Oilfield Services/Equipment)................ 1,482,500 18,750 Covad Communications Group, Inc.+ (Other Telephone/Communication).............. 999,023 76,800 Cymer, Inc.+ (Electronic Production Equipment)............ 1,920,000 27,000 Doubleclick, Inc.+# (Advertising)............ 2,471,344 64,000 Dril-Quip, Inc.+# (Oilfield Services/Equipment)................ 1,468,000 7,400 EMC Corporation+ (EDP Peripherals)........... 407,000 20,000 Emulex Corporation+ (Computer Communications).................... 2,231,875 24,000 Equitable Companies, Inc.# (Diversified Financial Services)............. 1,608,000 45,660 Firstar Corporation (Mid-Sized Banks)........ 1,278,480 36,500 Forest Laboratories, Inc., Class A+ (Other Pharmaceuticals)...................... 1,688,125 45,000 Fox Entertainment Group, Inc.+# (Media Conglomerates)........................ 1,212,188 128,000 General Nutrition Companies, Inc.+# (Other Specialty Stores)..................... 2,980,000 32,000 Guidant Corporation (Medical Specialties).... 1,646,000 16,000 Healtheon Corporation+# (Services to the Health Industry)............ 1,234,000 40,000 Infinity Broadcasting Corporation, Class A+# (Broadcasting)..................... 1,190,000 42,000 Insight Enterprises, Inc.+ (Catalog/Specialty Distribution)............. 1,038,188 65,800 International Integration Corporation+ (EDP Services)............................... 1,488,725 57,000 International Network Services+ (EDP Services)............................... 2,288,906 48,000 Lam Research Corporation+ (Semiconductors)............................. 2,239,500 21,450 Lucent Technologies, Inc. (Telecommunications Equipment)............... 1,446,534
54 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds ---------------------- Global Long-Short Fund ---------------------- Investments
Shares Value (Note 1) COMMON STOCKS -- continued United States -- continued 90,000 Marine Drilling Company, Inc.+ (Oil and Gas Production).................... $ 1,231,875 21,000 MCI WorldCom, Inc.+# (Major U.S. Telecommunications)............. 1,806,656 46,000 Medquist, Inc.+ (Medical Specialties)....... 2,011,063 49,500 Micron Technology, Inc.+# (Semiconductors)............................ 1,995,469 32,600 MIH Ltd.+ (Broadcasting).................... 870,013 39,000 New Era of Networks, Inc.+# (Computer Software)......................... 1,712,344 26,000 NTL Incorporated+# (Other Telephone/Communication)............. 2,241,687 7,500 PathoGenesis Corporation+ (Biotechnology)............................. 106,172 74,500 Peregrine Systems, Inc.+ (Computer Software)......................... 1,911,391 13,500 Priceline.com, Inc.+ (Internet Services).... 1,559,672 24,000 Rambus, Inc.+# (Semiconductors)............. 2,211,750 25,500 Realnetworks, Inc.+ (Internet Services)..... 1,757,109 40,000 Realty Information Group, Inc.+ (Real Estate)............................... 1,727,500 4,400 Rhythms Netconnections, Inc.+ (Internet Services)......................... 257,125 28,000 Safeway, Inc.+# (Food Chains)............... 1,386,000 17,000 Sangstat Medical Corporation+# (Biotechnology)............................. 289,531 30,000 Security First Technologies+ (Savings and Loan Associations)............. 1,351,875 84,000 Sola International, Inc.+ (Consumer Sundries)......................... 1,632,750 33,500 Sprint Corporation+# (Cellular Telephone)... 1,913,688 31,000 Sun Mircosystems, Inc.+# (Electronic Data Processing)................ 2,136,094 125,000 Sunglass Hut International, Inc.+# (Other Specialty Stores).................... 2,144,531 34,000 Synetic, Inc.+# (Services to the Health Industry)........... 2,338,562 41,000 Teradyne, Inc.+# (Electronic Production Equipment)........... 2,941,750 10,500 Texas Instruments, Inc.# (Semiconductors)............................ 1,522,500 103,500 The Men's Wearhouse, Inc.+# (Clothing/Shoe/Accessory Stores)............ 2,658,656 104,000 The Sports Authority, Inc.+ (Other Specialty Stores).................... 461,500 25,200 TMP Worldwide, Inc.+ (Restaurants).......... 1,604,925 12,000 Uniphase Corporation+# (Diversified Electronic Products)........... 1,993,500 28,500 United International Holdings, Inc., Class A+ (Cable Television)........... 1,928,203 38,600 Unsinternetworking, Inc.+# (Computer Software)......................... 1,619,994 29,000 Verisign, Inc.+# (Internet Services)........ 2,501,250 20,500 Veritas Software Corporation+# (Computer Software)......................... 1,946,859 13,000 Warner Lambert Company# (Major Pharmaceuticals)..................... 901,875 41,400 Weatherford International, Inc.# (Oilfield Services/Equipment)............... 1,516,275 40,500 Wet Seal, Inc., Class A+# (Clothing/Shoe/Accessory Stores).. 1,151,719 46,500 Xilinx, Inc.+ (Semiconductors).............. 2,663,578 ------------ 129,542,388 TOTAL COMMON STOCKS (Cost $254,368,539)............................................ 291,069,529 ------------ PREFERRED STOCKS -- 2.9% Brazil -- 2.2% 5,000,000 Banco do Estado de Sao Paulo S.A. (Non-U.S. Banks)............................. 212,772 41,100,000 Cia Paranaense de Energi S.A. (Non-U.S. Utilities)......................... 334,467 80,300,000 Cia Siderurgica de Tubarao S.A. (Steel/Iron Ore)............................. 862,221 30,900 Cia Vale do Rio Doce S.A., Series A (Other Metals/Minerals)...................... 611,190 5,100,000 Petroleo Brasileiro S.A. (Integrated Oil Companies)................... 789,714 4,500,000 Telepar Celular S.A., Series B+ (Cellular Telephone)......................... 241,594 33,500,000 Telerj Celular S.A., Series B (Cellular Telephone)......................... 1,097,104 20,090,000 Telesp Celular S.A., Series B (Cellular Telephone)......................... 1,044,521 ------------ 5,193,583 Germany -- 0.3% 324 Porsche AG# (Motor Vehicles)................. 762,762 Thailand -- 0.4% 740,000 Siam Commercial Bank+ (Non-U.S. Banks)....... 1,053,274 TOTAL PREFERRED STOCKS (Cost $6,101,908)............................................... 7,009,619 ------------ Principal Amount BONDS -- 0.4% Mexico -- 0.4% $ 840,000 Telefonos de Mexico S.A., 4.250% due 06/15/04 (Cost $840,000)............................... 865,200 ------------
55 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Global Long-Short Fund - ---------------------- Investments
Shares Value (Note 1) RIGHTS -- 0.0%@ Korea -- 0.0%@ $ 10,984 Hyundai Industrial Development and Construction Company Rights, Expire 07/2/99+ (Engineering and Construction)............. $ 62,630 69 S1 Corporation Rights+..................... 3,136 TOTAL RIGHTS (Cost $0).................................................... 65,766 ------------ WARRANTS -- 0.0%@ Thailand -- 0.0%@ 350,000 Securities One PCL.Warrants, Expire 05/31/01+ (Investment Bankers/Brokers/Services) (Cost $0).................................. 49,342 ------------ TOTAL INVESTMENTS -- 123.8% (Cost $261,310,447*)......................................... 299,059,456 TOTAL SHORT SALES -- (28.5)% (Proceeds $63,592,826)....................................... (68,980,966) TOTAL OPTIONS WRITTEN -- (0.1)% (Premium Received $131,401).................................. (227,150) OTHER ASSETS AND LIABILITIES -- 4.8% (Net)........................................................ 12,361,723 NET ASSETS -- 100.0%......................................... $ 242,213,063 ============
* Aggregate cost for federal tax purposes $261,636,962. + Non-income-producing security. # Security, or a portion thereof, designated as short-sale collateral. @ Amount represents less than 0.1%. Abbreviations ADR American Depositary Receipt GDR Global Depositary Receipt 56 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds ------------------------ Global Long-Short Fund ------------------------ Schedule of Short Sales SCHEDULE OF SHORT SALES June 30, 1999 Shares Proceeds Value (Note 1) SHORT SALES -- 28.5% Brazil -- 0.2% 31,600 Centrais Eletricas Brasileiras S.A. (Non-U.S. Utilities) .......... $ 317,965 $ 319,950 10,100 Telesp Participacoes S.A., ADR (Cellular Telephone) ............... 265,141 231,038 --------- --------- 583,106 550,988 --------- --------- China/Hong Kong -- 0.5% 166,000 Dao Heng Bank Group Ltd. (Non-U.S. Banks) ................... 626,516 744,596 162,000 Wharf (Holdings) Ltd. (Real Estate)....................... 518,658 505,317 --------- --------- 1,145,174 1,249,913 --------- --------- France -- 1.4% 18,000 Dassault Systemes S.A., ADR (Computer Software) ................ 738,163 595,688 4,385 Essilor International S.A. (Medical Specialties) .............. 1,541,582 1,372,350 36,000 Michelin (C.G.D.E), Class B (Automotive Aftermarket) ........... 1,535,690 1,474,599 --------- --------- 3,815,435 3,442,637 --------- --------- Germany -- 1.8% 16,140 Adidas AG (Shoe Manufacturing) ............... 1,486,795 1,604,034 38,900 Deutsche Telekom AG (Other Telephone/Communication) ........... 1,440,692 1,634,758 38,900 Deutsche Telekom AG, Rights (Other Telephone/ Communication) ..................... -- -- 30,000 Kamps AG (Specialty Foods/Candy) ............ 931,821 1,223,567 --------- --------- 3,859,308 4,462,359 --------- --------- Greece -- 0.0%@ 199 National Bank of Greece, GDR, Rights (Non-U.S. Banks) ............ -- 4,562 Indonesia -- 0.3% 17,300 PT Indosat Tbk, ADR (Other Telephone/ Communication) ..................... 351,488 337,350 33,480 PT Telekomunikasi Indonesia, ADR (Other Telephone/ Communication)...................... 286,606 416,408 --------- --------- 638,094 753,758 --------- --------- Italy -- 0.6% 169,800 Mediaset SpA (Broadcasting) ........ 1,479,286 1,513,241 Japan -- 0.8% 81,000 Ibiden Company Ltd. (Electronic Components) ............ 1,311,845 1,340,283 56,000 NGK Spark Plug Company Ltd. (Auto Parts: O.E.M.) ............... 641,776 576,818 --------- --------- 1,953,621 1,917,101 --------- --------- Korea -- 0.2% 30,000 SK Telecom Company Ltd. ADR (Other Telephone/ Communication)...................... 455,685 510,000 Mexico -- 0.4% 186,000 Grupo Modelo S.A., Series C (Consumer Electronics/ Appliances) ........................ 493,299 530,977 88,000 Organizacion Soriana S.A. de C.V. (Other Specialty Stores) ...... 347,416 414,645 --------- --------- 840,715 945,622 --------- --------- Netherlands -- 0.7% 37,600 Randstad Holdings N.V. (Diversified Commercial Services) .......................... 1,737,090 1,657,773 Philippines -- 0.4% 29,400 Philippine Long Distance Telephone Company, ADR (Other Telephone/ Communication) .................... 852,957 885,675 Singapore -- 0.7% 166,000 Natsteel Ltd. (Metal Fabrications) .............. 153,227 290,586 31,000 Oversea-Chinese Banking Corporation Ltd. (Non-U.S. Banks)................... 269,702 258,584 388,000 Serial System Ltd. (Electronic Components) ........... 355,455 337,322 74,000 Singapore Airlines Ltd. (Airlines) ........................ 687,271 704,203 --------- --------- 1,465,655 1,590,695 --------- --------- South Africa -- 0.1% 6,800 De Beers (Other Metals/Minerals) ........... 145,725 162,943 Spain -- 0.9% 429,400 TelePizza S.A. (Restaurants) ...... 2,872,721 2,225,743 Sweden -- 0.2% 21,000 Atlas Copco AB, Series B (Industrial Machinery/ Components) ....................... 484,948 565,356 Switzerland -- 1.3% 5,870 Clariant AG (Speciality Chemicals) ............ 2,486,897 2,421,087 1,030 Rieter Holdings AG (Industrial Machinery/Components) ............. 601,886 619,978 --------- --------- 3,088,783 3,041,065 --------- --------- Taiwan -- 0.2% 15,500 Taiwan Semiconductor Manufacturing Company Ltd., ADR (Electronic Production Equipment) ........................ 483,729 527,000 The accompanying notes are an integral part of these financial statements. 57 ======================= The Montgomery Funds - ----------------------- Global Long-Short Fund - ----------------------- Schedule of Short Sales Shares Proceeds Value (Note 1) Thailand -- 0.2% 77,700 Bangkok Bank PCL (Non-U.S. Banks) ................. $ 249,737 $ 290,703 71,000 Thai Farmers Bank Ltd. (Non-U.S. Banks) ................. 232,831 219,439 ----------- ----------- 482,568 510,142 ----------- ----------- Turkey -- 0.0%@ 34,120 Turkiye Garanti Bankasi A.S., Rights (Non-U.S. Banks) .......... -- 51,603 United Kingdom -- 2.0% 4,826 Anglo American PLC, ADR (Precious Metals) ................ 234,580 229,235 82,200 F.I. Group PLC (EDP Services) ................... 343,038 422,715 117,000 PowderJect Pharmaceuticals PLC (Other Pharmaceuticals) ...... 1,532,163 1,541,101 123,400 Sema Group PLC (EDP Services) ................... 1,165,318 1,191,311 148,000 W.H. Smith Group PLC (Other Specialty Stores) ......... 1,462,380 1,422,965 ----------- ----------- 4,737,479 4,807,327 ----------- ----------- United States -- 15.6% 48,000 American Eagle Outfitters (Clothing/Shoe/Accessory Stores) .......................... 1,371,020 2,185,500 31,000 Apple Computers, Inc. (Electronic Data Processing) ..... 1,219,147 1,437,625 42,500 Autozone, Inc. (Other Specialty Stores) ......... 1,355,511 1,280,313 26,500 Barnes & Noble, Inc. (Other Specialty Stores) ......... 896,377 725,437 30,000 Beringer Wine Estates, Series B (Alcoholic Beverages) ............ 1,069,735 1,251,563 19,300 Best Buy Company, Inc. (Other Specialty Stores) ......... 879,900 1,302,750 40,000 BioChem Pharma, Inc. (Other Pharmaceuticals) .......... 797,333 748,750 32,000 Central Parking Corporation (Other Consumer Services) ........ 998,076 1,096,000 18,600 Cintas Corporation (Diversified Commercial Services) ........................ 972,943 1,249,106 28,000 Darden Restaurants, Inc. (Restaurants) .................... 439,879 610,750 63,000 Delia s, Inc. (Catalog/Specialty Distribution)..................... 1,218,831 844,594 26,000 Ecolab, Inc. (Industrial Specialties) ......... 807,378 1,134,250 35,000 Hollywood Entertainment Corporation (Computer/Video Chains) .......... 846,191 683,594 16,000 International Paper Company (Paper) .......................... 879,329 808,000 30,450 Intimate Brands, Inc. (Clothing/Shoe/Accessory Stores)........................... 739,181 1,442,569 37,750 Lamar Advertising Company (Advertising) .................... 1,038,642 1,544,211 57,200 Metris Companies, Inc. (Finance Companies) .............. 1,686,118 2,330,900 31,300 Miami Computer Supply Corporation (Electronics Distributors) ....... 622,192 591,766 28,500 Monsanto Company (Major Chemicals) ................ 1,283,085 1,123,969 47,000 Papa John's International, Inc. (Restaurants) ............... 2,005,229 2,098,844 32,500 PC Connection, Inc. (Catalog/Specialty Distribution) ................... 502,952 393,047 12,000 Perot Systems Corporation, Class A (EDP Services) ........... 808,371 354,000 51,500 Reebok International Ltd. (Shoe Manufacturing) ............. 1,000,246 959,187 22,000 Rent-A-Center, Inc. (Other Specialty Stores) ......... 546,658 527,312 26,000 Restoration Hardware, Inc. (Other Specialty Stores) ......... 709,515 346,125 15,300 Siebel Systems, Inc. (Computer Software) ........................ 620,657 1,014,103 47,000 Staples, Inc. (Other Specialty Stores) ......... 1,129,280 1,452,594 44,000 Starbucks Corporation (Restaurants) .................... 958,191 1,648,625 16,400 Tiffany & Company (Other Specialty Stores) ......... 996,665 1,582,600 18,500 Timberland Company, Class A (Shoe Manufacturing) ............. 805,157 1,259,156 5,286 uBid, Inc. (Internet Services) ... 165,698 169,317 19,300 Value America, Inc. (Internet Services) .............. 589,288 367,906 22,000 Whole Foods Market, Inc. (Food Chains) .................... 764,475 1,056,687 57,000 Williams Sonoma, Inc. (Other Specialty Stores) ......... 1,747,497 1,984,313 ----------- ----------- 32,470,747 37,605,463 ----------- ----------- TOTAL SHORT SALES .................................. $63,592,826 $68,980,966 =========== =========== @ Amount represents less than 0.1%. Abbreviations ADR American Depositary Receipt 58 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds -------------------- Select 50 Fund -------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform in the year ended June 30, 1999? A: A strong relative outperformance for the six months ended June 30, 1999, was not enough to offset disappointing results in the previous six months. As a result, the Fund underperformed relative to both the Morgan Stanley Capital International (MSCI) World and the S&P 500 Indices, returning 13.9% versus 15.7% and 22.7%, respectively. Q: What factors contributed to this underperformance? A: During the unusual period of turbulence in global financial markets at the beginning of the financial year, the Fund's diversified asset class exposure included some the worst-hit sectors and markets, specifically the emerging markets and U.S. small-cap stocks. As investors fled all but the largest, most liquid assets, virtually no emerging market escaped unscathed. Because the small-cap market too was perceived to more risky, investors also sold these stocks disproportionately. Even as the developed markets began to recover, investors continued to favor a relatively small number of large-cap growth stocks, especially in the United States. As a result, the broader exposure of the Fund hurt relative performance. As the economic outlook for Europe, Japan and the emerging markets has improved, however, the global investment environment has changed dramatically. In stark contrast to 1998, in 1999 the emerging markets, particularly those in Asia, have outperformed the developed markets. And, against a background of global growth, interest in the U.S. market has broadened to include the small-cap and cyclical stocks which had been out of favor during 1998. This broadening trend has particularly suited the Fund's diversified nature, so it performed very well against its benchmarks in the latter half of the financial year. Q: Did you alter the Fund's strategy to reflect changing market conditions? A: The Fund's globally oriented strategy remains unchanged. The Fund continues to focus on bottom-up stock selection, drawing upon the resources of Montgomery's five equity investment disciplines--growth equity, emerging growth, equity income, international equity and emerging markets. Each team selects 10 of its best capital appreciation ideas to construct a diversified portfolio of approximately 50 stocks. Under normal conditions, the Select 50 Fund will have a portfolio exposure of 60% to the U.S. market and 40% to international markets. We believe that the Fund offers a powerful combination of concentrated investment ideas with a systematic allocation to five independent disciplines for diversification and capital appreciation. In the long run, we believe that this combination will offer excellent absolute and relative returns. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Portfolio Managers from each equity team representing: U.S. Growth Equity U.S. Emerging Growth U.S. Equity Income International Equity Emerging Markets ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Select 50 Fund Since inception (10/2/95) ............................................... 24.73% One year ................................................................ 13.89% Three years ............................................................. 18.43% - -------------------------------------------------------------------------------- S&P 500 Index Since 9/30/95 ........................................................... 27.82% One year ................................................................ 22.74% Three years ............................................................. 29.07% - -------------------------------------------------------------------------------- MSCI World Index Since 9/30/95 ........................................................... 17.94% One year ................................................................ 15.67% Three years ............................................................. 18.29% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Montgomery Select 50 S&P 500 MSCI World Lipper Global Date Fund Index Index Funds Average/3/ ------ ---------- -------- ---------- ---------------- Sep-95 10,000 10,000.00 10,000.00 10,000.00 Oct-95 10,417 9,964.70 9,840.40 9,804.26 Nov-95 11,080 10,403.35 10,179.93 9,979.30 Dec-95 11,574 10,595.70 10,475.42 10,176.36 Jan-96 11,951 10,960.62 10,662.75 10,446.06 Feb-96 12,160 11,065.95 10,725.50 10,563.78 Mar-96 12,520 11,171.96 10,901.75 10,728.28 Apr-96 13,281 11,336.53 11,155.86 11,101.71 May-96 14,068 11,628.67 11,163.27 11,230.04 Jun-96 13,775 11,675.88 11,217.48 11,215.00 Jul-96 12,704 11,155.95 10,818.79 10,716.94 Aug-96 13,298 11,392.91 10,940.90 10,993.91 Sep-96 13,700 12,033.30 11,367.01 11,330.87 Oct-96 13,629 12,362.65 11,444.11 11,337.68 Nov-96 14,142 13,301.10 12,083.16 11,892.06 Dec-96 13,942 13,040.80 11,887.38 11,904.28 Jan-97 14,960 13,850.37 12,028.41 12,184.20 Feb-97 15,125 13,961.45 12,164.51 12,218.01 Mar-97 14,647 13,380.80 11,921.62 12,024.76 Apr-97 14,969 14,179.09 12,309.03 12,182.09 May-97 16,526 15,049.41 13,066.54 12,939.45 Jun-97 17,404 15,711.13 13,716.00 13,478.45 Jul-97 18,735 16,958.59 14,345.47 14,165.16 Aug-97 18,587 16,018.75 13,383.57 13,416.36 Sep-97 19,657 16,892.25 14,108.40 14,238.96 Oct-97 18,396 16,336.33 13,363.58 13,314.70 Nov-97 18,082 17,085.67 13,597.79 13,341.45 Dec-97 18,023 17,374.42 13,761.23 13,505.32 Jan-98 17,631 17,571.10 14,142.45 13,602.78 Feb-98 18,942 18,833.76 15,096.81 14,560.76 Mar-98 20,158 19,800.50 15,731.98 15,299.41 Apr-98 20,789 20,005.63 15,883.35 15,523.08 May-98 20,301 19,657.73 15,681.93 15,326.86 Jun-98 20,091 20,456.23 16,051.72 15,396.90 Jul-98 19,679 20,238.78 16,023.58 15,394.52 Aug-98 16,138 17,317.11 13,884.39 13,037.89 Sep-98 16,654 18,438.56 14,127.56 13,105.76 Oct-98 17,669 19,931.17 15,402.27 13,966.75 Nov-98 18,952 21,139.59 16,315.82 14,725.76 Dec-98 19,717 22,369.71 17,110.45 15,439.87 Jan-99 19,790 23,290.44 17,482.62 15,767.00 Feb-99 19,099 22,567.04 17,015.08 15,305.00 Mar-99 19,842 23,473.56 17,721.04 15,879.00 Apr-99 21,295 24,367.43 18,417.14 16,659.00 May-99 21,367 23,804.06 17,741.67 16,184.00 Jun-99 22,882 25,105.19 18,566.68 17,073.00 /1/ The Standard & Poor s 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC markets. /2/ The Morgan Stanley Capital International World Index measures the performance of selected stocks in 22 developed countries. The index is presented net of dividend withholding taxes. /3/ The Lipper Global Funds Average universe consists of 130 funds. 59 ==================== The Montgomery Funds - -------------------- Select 50 Fund - -------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) AT&T Canada, Inc. ............................................... 4.1% Alcoa, Inc. ..................................................... 3.2% Manitowoc Company, Inc. ......................................... 3.1% Elcor Corporation ............................................... 3.0% Duane Reade, Inc. ............................................... 2.9% Reliance Industries, Ltd. ....................................... 2.8% Korea Telecom Corporation ....................................... 2.7% Amerada Hess Corporation ........................................ 2.6% Lockheed Martin Corporation ..................................... 2.5% Telebras, ADR ................................................... 2.5% ================================================================================ TOP FIVE INDUSTRIES - -------------------------------------------------------------------------------- (as a percentage of total net assets) Other Telephone/Communication ................................... 17.7% Construction/Agriculture Equipment/Trucks ................................................ 4.3% Major Banks ..................................................... 3.9% Telecommunications Equipment .................................... 3.9% Aerospace/Defense ............................................... 3.8% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. This Fund invests in stocks of both small-cap companies and foreign companies. There are risks associated with investing in small-cap companies, which tend to be more volatile and less liquid than stocks of large companies, including the increased risk of price fluctuations. There are also risks associated with investing in securities of foreign countries, such as erratic market conditions, economic and political instability, and fluctuations in currency exchange rates. Q: Can you comment on some of the stock ideas that have made a positive contribution to performance over the period? A: Among the top positive contributors to Fund performance were: Nokia (2.3% of net assets as of 6/30/99), DBS Land (2.3% of net assets as of 6/30/99) and a more recent addition, Korea Telecom (2.7% of net assets as of 6/30/99). Nokia is a telecommunications equipment manufacturer and a market leader in the mobile phone segment of the industry. Both DBS Land, a Singapore property company, and Korea Telecom have profited from the recovery of the Asian markets. Their share prices have outperformed due to the fact that both are likely to benefit from major restructuring. DBS is further along in this effort; it began to restructure at the bottom of the market and has since acquired more properties. The company is now reaping the rewards of its earlier efforts, as mortgage rates have fallen and demand for property is recovering. In contrast, recently privatized Korea Telecom is at the beginning of the restructuring process but, as the country's largest telecom provider, offers investors great potential. Stocks benefiting from the broadening trend in the United States include Alcoa (3.2% of net assets as of 6/30/99) and Manitowoc (3.1% of net assets as of 6/30/99). Q: What is your outlook for the coming year, and how can the Fund potentially benefit? A: We believe that the broadening trend in the U.S. market will continue and that excellent opportunities in international and emerging markets remain. This type of global market environment is favorable to the Fund's strategy and is an environment that we believe will support a continuation of the strong absolute and relative performance enjoyed by the Fund to date in 1999. 60 ==================== The Montgomery Funds -------------------- Select 50 Fund -------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) COMMON STOCKS -- 93.3% Advertising -- 0.6% 25,000 Snyder Communications, Inc.+ (United States) ................... $ 818,750 Aerospace/Defense -- 3.8% 92,500 Lockheed Martin Corporation (United States) ................... 3,445,625 52,200 Moog, Inc., Class A+ (United States) ........................... 1,794,375 ----------- 5,240,000 Aluminum -- 3.2% 70,000 Alcoa, Inc. (United States) ....... 4,331,250 Apparel -- 1.5% 29,000 Gucci Group N.V. (Netherlands)..... 2,030,000 Building Materials -- 3.0% 95,400 Elcor Corporation (United States).. 4,167,788 Building Products -- 1.8% 85,000 Masco Corporation (United States).. 2,454,375 Cable Television -- 1.8% 8,600 Canal Plus (France) ............... 2,416,219 Cellular Telephone -- 2.0% 185,000 Orange PLC (United Kingdom) ....... 2,709,645 Clothing/Shoe/Accessory Stores -- 1.6% 67,000 Nordstrom, Inc. (United States)... 2,244,500 Computer Software -- 2.9% 182,600 Avid Technology, Inc.+ (United States) ........................... 2,927,306 1,100 Clarent Corporation (United States) 30,800 29,600 MICROS Systems, Inc.+ (United States) ........................... 1,010,100 ----------- 3,968,206 Construction/Agriculture Equipment/Trucks -- 4.3% 251,000 Larsen & Tourbo Ltd. (India) ...... 1,656,756 102,325 Manitowoc Company, Inc. (United States) ........................... 4,259,278 ----------- 5,916,034 Diversified Commercial Services -- 3.3% 175,000 HA-LO Industries, Inc.+ (United States) ........................... 1,728,125 106,600 On Assignment, Inc.+ (United States) ........................... 2,778,262 ----------- 4,506,387 Diversified Electronic Products -- 1.6% 22,000 Hewlett-Packard Company (United States) ................... 2,211,000 Drug Store Chains -- 2.9% 129,000 Duane Reade, Inc.+ (United States). 3,950,625 Finance Companies -- 1.9% 56,000 Household International, Inc. (United States) ................... 2,653,000 Food Chains -- 1.9% 51,000 Albertson's, Inc. (United States).. 2,629,688 Industrial Machinery/Components -- 1.0% 48,100 Applied Power, Inc., Class A (United States) ................... 1,313,731 Integrated Oil Companies -- 2.6% 59,500 Amerada Hess Corporation (United States) ................... 3,540,250 Internet Services -- 0.5% 13,100 Pacific Internet Ltd.+ (Singapore). 625,116 Major Banks -- 3.9% 41,000 Bank of America Corporation (United States) ................... 3,005,812 35,000 National City Corporation (United States) ................... 2,292,500 ----------- 5,298,312 Major Chemicals -- 2.5% 26,500 Dow Chemical Company (United States) ................... 3,362,188 Major Pharmaceuticals -- 1.1% 27,000 Glaxo Wellcome PLC, ADR (United Kingdom) .................. 1,528,875 Managed Health Care -- 2.2% 140,000 First Health Group Corporation+ (United States) ................... 3,014,375 Metal Fabrication -- 1.5% 47,600 Coflexip S.A., ADR (France)........ 2,088,450 Oil & Gas Production -- 0.6% 58,400 Petroleo Brasileiro S.A., ADR (Brazil) .......................... 886,950 Oil/Gas Transmission -- 2.1% 71,500 The Coastal Corporation (United States) ........................... 2,860,000 Oilfield Services/Equipment -- 2.0% 60,000 Halliburton Company (United States) ........................... 2,715,000 Other Pharmaceuticals -- 1.9% 171,000 Ranbaxy Laboratories, Ltd. (India). 2,576,523 Other Specialty Stores -- 1.5% 46,300 Linens 'N Things, Inc.+ (United States) ........................... 2,025,625 Other Telephone/Communication -- 17.7% 87,200 AT&T Canada, Inc.+ (United States). 5,572,625 69,300 Colt Telecom Group PLC+ (United Kingdom) .................. 1,458,302 11,800 Colt Telecom Group PLC, ADR+ (United Kingdom) .................. 1,014,432 26,500 Equant N.V. (Netherlands) ......... 2,494,313 33,500 Global TeleSystems Group, Inc.+ (United States) ................... 2,712,453 61 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds - -------------------- Select 50 Fund - -------------------- Investments Shares Value (Note 1) COMMON STOCKS -- continued Other Telephone/Communication -- continued 112,550 Hellenic Telecommunication Organization S.A. (Greece) ........ $ 2,415,543 54,900 Korea Telecom Corporation (Korea).. 3,642,609 152,500 Matav Rt. (Hungary) ............... 825,262 21,700 Matav Rt., ADR (Hungary) .......... 596,750 38,300 Telebras, ADR (Brazil) ............ 3,454,182 ----------- 24,186,471 Package Goods/Cosmetics -- 1.7% 41,000 Kimberly-Clark Corporation (United States) ................... 2,337,000 Paper -- 2.1% 57,000 International Paper Company (United States) ................... 2,878,500 Real Estate -- 2.2% 1,531,000 DBS Land Ltd. (Singapore) ......... 3,057,773 Soft Drinks -- 0.2% 15,600 Coca-Cola Femsa S.A., ADR+ (Mexico) .......................... 302,250 Telecommunications Equipment -- 3.9% 30,000 Comverse Technology, Inc.+ (United States) ................... 2,263,125 34,200 Nokia Corporation, ADR (Finland)... 3,131,437 ----------- 5,394,562 Textiles -- 2.8% 927,100 Reliance Industries, Ltd. (India)............................ 3,774,187 Trucking -- 1.2% 75,000 Swift Transportation Company, Inc.+ (United States) ............. 1,647,656 TOTAL COMMON STOCKS (Cost $102,372,266) ................................. 127,661,261 ----------- PREFERRED STOCK -- 0.2% Paper -- 0.2% 10,100,000 Caemi Mineracao e Metalurgia S.A.+ (Brazil)(Cost $344,075) ..... 342,470 TOTAL SECURITIES (Cost $102,716,341) ................................. 128,003,731 ----------- Principal Amount REPURCHASE AGREEMENT -- 2.3% $3,120,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $3,120,436, collateralized by $3,182,405 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $3,120,000) ................ 3,120,000 ----------- Value (Note 1) TOTAL INVESTMENTS -- 95.8% (Cost $105,836,341*) ............................... $131,123,731 OTHER ASSETS AND LIABILITIES -- 4.2% (Net) .............................................. 5,723,438 ----------- NET ASSETS -- 100.0% ............................... $136,847,169 =========== * Aggregate cost for federal tax purposes $106,999,755. + Non-income-producing security. Abbreviations ADR American Depositary Receipt 62 The accompanying notes are an integral part of these financial statements. ========================== The Montgomery Funds - -------------------------- U.S. Asset Allocation Fund - -------------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform during its fiscal year? A: The Fund returned 11.9% over the 12 months ended June 30, 1999, underperforming its benchmark, a blend of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index, which returned 15.3% during the same period. The Fund's underperformance was concentrated in the third and fourth quarters of 1998, however, and were pleased to report that its relative performance improved in the second half of the financial year. Since the beginning of 1999, the Fund has returned 11.7%, against a return for the benchmark of only 6.7%. Q: What factors contributed to the Fund's improved performance in 1999? A: The Fund's strong recent performance is primarily attributable to its allocation in the Montgomery Growth Fund, which performed strongly during the second quarter of 1999, returning 17.5% versus 7.1% for the S&P 500 Index. A broadening of the market was the most important factor behind this stellar performance. In the first quarter of 1999, the performance of the S&P 500 was driven by fewer than 20 stocks, most of which were among the narrow group of high-valuation growth companies that have fueled S&P 500 returns over the past few years. In contrast, in the second quarter of 1999, S&P 500 performance broadened significantly, with more than 70 stocks driving returns. The Fund benefited from being invested in previously neglected areas of the market, namely those growth stocks with reasonable valuations. For example, the market became enamored of basic materials firms, including such Montgomery Growth Fund holdings (as of 6/30/99), as Alcoa (4.4% of net assets), Dow Chemical (3.4% of net assets) and Boise Cascade (3.2% of net assets). Global industrial concerns such as Matsushita (1.8% of net assets), Rio Tinto (2.0% of net assets) and Sony (1.2% of net assets) also performed well, as did smaller-company stocks such as First Health (2.9% of net assets). The strength of the global economy and the firming of global commodity prices were key considerations that caused investors to look at companies like these. Q: What about the fixed-income portion of the portfolio? How did that fare? A: The fixed-income allocation has performed very well throughout the year, beating the Lehman Brothers Aggregate Bond Index during the 12-month period. This portion of the Fund -- represented by its investment in the Montgomery Total Return Bond Fund switched from an overweighting in Treasury securities during the first part of the year to higher-yielding spread securities such as corporates and mortgages starting in December. These moves were predicated on achieving the best rewards at the lowest possible risk, a philosophy that helped the Fund benefit from the strong Treasury rally during the first part of the fiscal year and prosper from the relative outperformance of spread sectors during their rebound in the first half of 1999. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- Fund of Funds, including: Montgomery Growth Fund Montgomery Total Return Bond Fund Montgomery Government Money Market Fund* ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery U.S. Asset Allocation Fund Since inception (3/31/94) ............................................... 19.33% One year ................................................................ 11.93% Five years .............................................................. 19.92% - -------------------------------------------------------------------------------- S&P 500 Index Since 3/31/94 ........................................................... 26.47% One year ................................................................ 22.74% Five years .............................................................. 27.86% - -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index Since 3/31/94 ............................................................ 7.22% One year ................................................................. 3.14% Five years ............................................................... 7.82% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Fund performance presented is for Class R shares. - -------------------------------------------------------------------------------- Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE[ US Asset Allocation (Lehman) S&P 500 Lipper Mar-94 10,000 10,000 10,000 10,000 Apr-94 10,158 9,920.15 10,128.12 10,023.71 May-94 10,374 9,918.76 10,293.68 10,071.35 Jun-94 10,199 9,896.84 10,041.78 9,905.52 Jul-94 10,741 10,093.42 10,371.29 10,110.38 Aug-94 11,040 10,105.95 10,795.52 10,355.87 Sep-94 11,141 9,957.2 10,531.75 10,190.12 Oct-94 11,533 9,948.33 10,768.02 10,257.92 Nov-94 11,933 9,926.24 10,376.35 10,020.23 Dec-94 11,976 9,994.78 10,529.97 10,087.66 Jan-95 12,095 10,192.58 10,802.85 10,197.28 Feb-95 12,494 10,434.92 11,223.45 10,493.49 Mar-95 12,876 10,498.94 11,554.1 10,704.09 Apr-95 12,952 10,645.59 11,894.07 10,922.85 May-95 13,436 11,057.55 12,368.74 11,303.1 Jun-95 13,869 11,138.62 12,655.53 11,540.45 Jul-95 14,293 11,113.74 13,075.02 11,838.41 Aug-95 14,489 11,247.87 13,107.66 11,918.02 Sep-95 14,786 11,357.29 13,660.52 12,191.77 Oct-95 14,786 11,504.99 13,611.11 12,127.57 Nov-95 15,551 11,677.39 14,205.57 12,506.87 Dec-95 15,880 11,841.27 14,482.26 12,694.27 Jan-96 15,863 11,919.91 14,974.6 12,953.46 Feb-96 16,263 11,712.71 15,113.91 13,018.39 Mar-96 16,486 11,631.29 15,259.42 13,087.23 Apr-96 16,975 11,565.88 15,481.19 13,249.23 May-96 17,347 11,542.4 15,882.04 13,416.59 Jun-96 17,187 11,697.4 15,943.39 13,418.81 Jul-96 16,663 11,729.41 15,239.4 13,042.92 Aug-96 17,045 11,709.75 15,561.34 13,270.41 Sep-96 17,462 11,913.82 16,436.39 13,745.16 Oct-96 17,743 12,177.72 16,899.54 13,989.62 Nov-96 18,329 12,386.71 18,165.06 14,656.57 Dec-96 17,921 12,271.14 17,805.22 14,517 Jan-97 18,200 12,308.72 18,917.01 15,010.08 Feb-97 18,061 12,339.34 19,065.52 15,000.84 Mar-97 17,674 12,202.6 18,283.61 14,580.67 Apr-97 18,239 12,385.27 19,374.15 14,986.6 May-97 19,270 12,502.35 20,558.64 15,648.2 Jun-97 19,705 12,650.74 21,472.6 16,135.32 Jul-97 21,152 12,991.89 23,180.71 17,063.19 Aug-97 20,923 12,881.08 21,883.06 16,542.42 Sep-97 21,655 13,071.05 23,080.84 17,244.65 Oct-97 21,339 13,260.67 22,310.87 16,856.47 Nov-97 21,389 13,321.74 23,342.84 17,146.37 Dec-97 21,330 13,455.86 23,743.44 17,368.57 Jan-98 21,247 13,628.61 24,005.8 17,476.69 Feb-98 22,123 13,618.35 25,736.19 18,329.99 Mar-98 22,645 13,665.15 27,053.05 18,941.99 Apr-98 22,858 13,736.47 27,330.08 19,123.24 May-98 22,597 13,866.78 26,860.96 18,885.52 Jun-98 22,598 13,984.38 27,951.24 19,230.4 Jul-98 22,112 14,014.13 27,655.83 18,973.3 Aug-98 20,714 14,242.2 23,660.22 17,078.24 Sep-98 21,176 14,575.69 25,177.22 17,753.97 Oct-98 21,888 14,498.63 27,222 18,642.71 Nov-98 22,527 14,580.91 28,871.2 19,412.08 Dec-98 22,648 14,624.75 30,534.8 20,160.82 Jan-99 22,889 14,729 31,825.88 20,522 Feb-99 22,346 14,472 30,837.37 19,904 Mar-99 22,918 14,552 32,076.11 20,426 Apr-99 24,513 14,598 33,297.57 21,120 May-99 24,332 14,470 32,527.73 20,772 Jun-99 25,295 14,423 34,305.69 21,428 /1/ The Standard & Poor s 500 Index is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC markets. /2/ The Lehman Brothers Aggregate Bond Index comprises all bonds that are investment grade, are in excess of $25 million and have at least one year to maturity. /3/ The Lipper Flexible Portfolio Funds Average universe consists of 92 funds. * Formerly named Montgomery Government Reserve Fund. 63 ========================== The Montgomery Funds - -------------------------- U.S. Asset Allocation Fund - -------------------------- Portfolio Highlights Q: What asset allocation moves were made over the course of the year? A: Going into the third quarter of 1998, the Fund was positioned with target weightings of 40% equities and 60% bonds, a cautious stance relative to the Fund's neutral weighting of 60% equities and 40% bonds. During the turmoil that hit the market in the third quarter, this was a beneficial position to take. By the beginning of the first quarter of 1999, the Fund had moved back to its neutral weighting. That position was changed in May, when the Fund's exposure to equities was increased to 65% and the bond portion was reduced to 35%. This apportionment was maintained through the end of the second quarter of 1999. Overall, the shift to an overweighting in equities helped the Fund's performance in the final months of the financial year. Our rationale for the increase in equities was based on the strengthening of global economies, the positive outlook for corporate earnings and the continued low rates of inflation. Nevertheless, our enthusiasm toward the equity market was tempered somewhat by concerns about rising interest rates, the war in Kosovo and the resignation of U.S. Treasury Secretary Robert Rubin. Q: What is your outlook for the rest of 1999? A: We continue to be optimistic about the prospects for equity markets. We believe that we are entering a period of accelerating world growth and are optimistic that the broadening of market performance that began in the second quarter will continue into 1999. Looking at the fixed-income portion, we believe that bond yields may be nearing their highs, despite the fact that the Federal Reserve Board is poised to raise interest rates in the event that inflationary pressures grow. The Total Return Bond Fund is currently overweighted in mortgages to take advantage of their attractive yields, underweighted in corporates for technical reasons and underweighted in Treasuries. PORTFOLIO INVESTMENTS June 30, 1999 Shares Value (Note 1) INVESTMENT COMPANY SECURITIES--100.0% Bond Mutual Fund Taxable--34.8% 2,421,962 Montgomery Total Return Bond Fund ............. $ 28,240,074 Equity Mutual Fund--65.2% 2,175,809 Montgomery Growth Fund ........................ 52,959,187 TOTAL INVESTMENTS--100.0% (Cost $77,061,264*) ............................................. 81,199,261 ------------ OTHER ASSETS AND LIABILITIES--0.0%@ (Net) ........................................................... (9,766) ------------ NET ASSETS--100.0% .............................................. $ 81,189,495 ============ * Aggregate cost for federal tax purposes $79,795,112. @ Amount represents less than 0.1%. 64 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Total Return Bond Fund - ---------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform in the year ended June 30, 1999? A: We are very encouraged by the performance of the Fund given the challenging investment environment over the past 12 months. The Fund returned 3.2%, enjoying strong relative performance against its benchmark, the Lehman Brothers Aggregate Bond Index, which returned 3.1%. Q: Did changes in Federal Reserve Bank interest rate policy have an impact on Fund strategy over the course of the year? A: Throughout the year we focused on achieving the highest returns at the lowest possible risk. Changes in Federal Reserve policy tended to follow the lead of the bond market throughout the financial year and affected strategy only insofar as they marked turning points in the fortunes of different sectors of the bond market. The three rate cuts that the Fed implemented to calm the financial markets and respond to concerns about deflation at the end of 1998 contributed to a strong Treasury bond rally. As concern over inflationary pressures grew in 1999, the Fed's announcement of a tightening bias helped restore some sense of normality to the market by the end of the financial year. The changing risk/reward relationship created by Fed policy shifts led us to make some adjustments to the portfolio. For example, in December 1998, we switched from an overweight position in Treasury bonds to an overweight position in higher-yielding spread securities, such as corporate bonds and mortgages. This major shift in strategy reflected our belief that on a risk-weighted basis the potential returns offered by higher-yielding spread products were now greater than those offered by Treasuries. This emphasis on the risk/reward relationship enabled us to make profitable sector calls during the course of the year. Q: What other factors affected performance over the period? A: Due to the release of stronger than anticipated economic growth statistics in fourth quarter 1998, inflation became a renewed concern for the bond markets by February 1999. This led to a 1% rise in long-term interest rates from February through June 30, 1999, as market sentiment shifted 180 degrees and bond prices fell. Our research indicates that there have been four semiannual bond performances that have been worse over the past 20 years. As a result, absolute bond market returns were unusually low, and the performance of the Fund was similarly affected. In spite of lower absolute returns, our switch into higher-yielding issues resulted in the strong returns relative to the benchmark. Q: Now that the bond markets have returned to normal, where do you believe the best opportunities to add value to the Fund are to be found? A: Despite the fact that the Fed appears determined to slow growth in order to stifle inflationary pressures against a background of rising commodity prices and a daunting trade deficit, we believe that bond yields (interest rates) may be nearing their ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- William Stevens........................................ Senior Portfolio Manager Marie Chandoha................................................ Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Total Return Bond Fund Since inception (6/30/97) ................................................ 6.99% One year ................................................................. 3.20% - -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index Since 6/30/97 ............................................................ 6.78% One year ................................................................. 3.14% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Total Return/1/ (Lehman) Lipper/2/ Jun-97 10,000.00 10,000.00 10,000.00 Jul-97 10,276.00 10,269.67 10,261.46 Aug-97 10,176.00 10,182.07 10,170.54 Sep-97 10,333.00 10,332.24 10,316.37 Oct-97 10,493.00 10,482.13 10,434.05 Nov-97 10,543.00 10,530.40 10,464.53 Dec-97 10,646.00 10,636.42 10,559.13 Jan-98 10,792.00 10,772.97 10,696.33 Feb-98 10,779.00 10,764.86 10,681.51 Mar-98 10,824.00 10,801.85 10,720.30 Apr-98 10,860.00 10,858.23 10,766.05 May-98 10,985.00 10,961.23 10,859.99 Jun-98 11,092.00 11,054.19 10,937.90 Jul-98 11,110.00 11,077.71 10,957.49 Aug-98 11,326.00 11,257.99 11,085.45 Sep-98 11,569.00 11,521.61 11,324.79 Oct-98 11,479.00 11,460.69 11,235.09 Nov-98 11,506.00 11,525.74 11,288.92 Dec-98 11,575.00 11,560.39 11,327.14 Jan-99 11,663.00 11,643.00 11,397.00 Feb-99 11,454.00 11,440.00 11,190.00 Mar-99 11,546.00 11,503.00 11,271.00 Apr-99 11,569.00 11,539.00 11,306.00 May-99 11,474.00 11,438.00 11,188.00 Jun-99 11,447.00 11,401.00 11,146.00 /1/The Lehman Brothers Aggregate Bond Index comprises all bonds that are investment grade, are in excess of $25 million and have at least one year to maturity. /2/The Lipper Intermediate Investment-Grade Debt Funds Average universe consists of 215 funds. 65 ====================== The Montgomery Funds - ---------------------- Total Return Bond Fund - ---------------------- Portfolio Highlights ================================================================================ TOP TEN HOLDINGS - -------------------------------------------------------------------------------- (as a percentage of total net assets) FNMA, 9.000% Pass-through Pool #B00688 due 09/01/05 ............................................12.8% U.S. Treasury Notes 5.625% due 05/15/01 ............................................. 9.8% FNMA, TBA Jul., 30 Yr., 6.000% due 06/29/29 ............................................. 9.8% U.S. Treasury Bonds, 8.875% due 02/15/19 ............................................. 8.0% U.S. Treasury Notes, 7.000% due 07/15/06 ............................................. 6.5% FNMA, TBA Aug., 30 Yr. 7.000% due 06/29/29 ............................................. 6.4% FHLMC, 2098VA (PAC), 6.000% due 10/15/05 ............................................. 5.5% Premier Trust, Series B1, 10.500% due 12/20/05 ............................................ 5.2% FHLMC, 1676KD (AD), 6.250% due 03/15/06 ............................................. 3.8% Bristol-Myers Squibb Company, Debentures, 6.800% due 11/15/26 ............................................. 3.1% ================================================================================ ASSET MIX - -------------------------------------------------------------------------------- (as a percentage of total investments) Corporate Bonds and Notes................................................. 23.4% Treasuries................................................................ 20.7% Collateralized Mortgage Obligations....................................... 16.7% Agencies.................................................................. 16.3% Mortgage Pass-throughs.................................................... 12.8% Asset-Backed Securities................................................... 6.4% Other..................................................................... 3.7% ================================================================================ INVESTMENT GRADE - -------------------------------------------------------------------------------- (as a percentage of total investments) Aaa ....................................................................... 71% Aa ........................................................................ 2% A ......................................................................... 8% Baa ....................................................................... 11% Nonrated .................................................................. 8% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. highs. Our optimism is in part based on historical precedent. The Lehman Brothers Aggregate Bond Index has never had two consecutive six-month periods of negative returns. If we are proven correct, the market is likely to offer plenty of ways in which to add value to the Fund in the coming year. On the technical side, we have identified three areas particularly worth exploring. First, the declining Treasury supply is a new dynamic in the U.S. fixed-income market that is gaining momentum. Second, as the number of indexers has grown, so have the opportunities to take advantage of them. Third, the Y2K issue may also create some opportunities. In addition, improved liquidity is permitting us to take advantage of relative- value ideas. Rates are high enough that we believe that over a five-year period we will provide high returns relative to inflation. Mortgage-backed securities are cheap enough that they make sense even if they never attain the tighter spreads we saw a year ago. Corporate bonds appear to be properly pricing based on the possibility of a recession. In this market we believe there are ample opportunities for us to add value. Q: How is the Fund positioned to take advantage of these opportunities? A: Currently, we are overweighted in mortgages to take advantage of the yield, underweighted in corporates (on a risk basis, not a dollar basis) for technical reasons and underweighted in Treasuries. Although we think real yields are attractive, we are at the benchmark for duration, expecting a better entry point sometime in the third quarter. We believe the spread between the 10-year and 30-year Treasury to be too narrow and are overweighted in the intermediate part of the curve. 66 ====================== The Montgomery Funds - ---------------------- Total Return Bond Fund - ---------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Principal Amount Value (Note 1) ASSET-BACKED SECURITIES -- 7.5% $ 620,000 DLJ Commercial Mortgage Corporation, Series 1999-CG2, A1B, 7.30% due 06/10/09 ............................ $ 629,300 250,768 Master Financial Asset Securitization Trust, Series 1998-1A2, 6.22% due 08/20/11 ............................ 250,727 2,034,773 Premier Trust, Series B1, 10.50% due 12/20/05 ........................... 2,006,897 ----------- TOTAL ASSET-BACKED SECURITIES (Cost $2,907,863) ............................................... 2,886,924 ----------- CORPORATE BONDS AND NOTES -- 27.6% 850,000 AT&T Corporation, Notes, 6.500% due 03/15/29 ........................... 767,125 1,200,000 Bristol-Myers Squibb Company, Debentures, 6.800% due 11/15/26 ........................... 1,174,500 600,000 Ford Motor Credit Company, Notes, 5.800% due 01/12/09 ........................... 548,250 200,000 Franchise Finance Corporation, MTN, 6.780% due 02/20/02 ........................... 195,000 1,205,000 Hunt (J.B.) Transport Services, Inc., Notes, 6.250% due 09/01/03 ........................... 1,168,850 875,000 IRT Property Company, Notes, 7.450% due 04/01/01 ........................... 867,344 650,000 Kimco Realty Corporation, Senior Notes, 6.500% due 10/01/03 ........................... 633,750 950,000 Lockheed Martin Corporation, Notes, 7.200% due 05/01/36 ........................... 955,937 1,175,000 Northern States Power, MTN, 6.500% due 03/01/28 ........................... 1,067,781 110,000 Occidental Petroleum Corporation, MTN, 9.750% due 06/15/01 ........................... 115,913 575,000 Occidental Petroleum Corporation, Senior Notes, 7.650% due 02/15/06 ........................... 580,031 550,000 Price Reit, Inc., Senior Notes, 7.250% due 11/01/00 ........................... 556,100 650,000 Raytheon Company, Notes, 6.750% due 08/15/07 ........................... 640,250 700,000 Tele-Communications, Inc., Senior Notes, 7.250% due 08/01/05 ........................... 712,250 645,000 Vastar Resources, MTN, 6.960% due 02/26/07 ........................... 648,225 ----------- TOTAL CORPORATE BONDS AND NOTES (Cost $11,133,060) .............................................. 10,631,306 ----------- FEDERAL HOME LOAN BANK (FHLB) -- 3.0% Agencies: $ 1,150,000 5.500% (FLTR) due 04/14/00++# (Cost $1,143,200) ............................. $ 1,149,425 ----------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 12.9% CMOs: 1,050,000 1604IA (PAC) 6.000% due 09/15/08 ........................... 1,037,058 1,480,000 1676KD (AD)# 6.250% due 03/15/06 ........................... 1,467,859 2,138,920 2098VA (PAC)# 6.000% due 10/15/05 ........................... 2,120,507 328,060 2114VM (AD)# 6.000% due 09/15/04 ........................... 321,689 ----------- TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION (Cost $4,994,989) ............................................... 4,947,113 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 37.4% Agencies: 4,000,000 TBA Jul., 30 Yr. 6.000% due 06/29/29 ........................... 3,757,520 2,500,000 TBA Aug., 30 Yr. 7.000% due 06/29/29 ........................... 2,466,400 CMOs: 510,621 1988-16B (PAC)# 9.500% due 06/25/18 ........................... 537,249 303,528 1993-159PA (PAC)# 0.000% due 01/25/21 ........................... 295,275 1,100,000 1993-234PB (PAC)# 5.500% due 10/25/07 ........................... 1,086,330 700,000 1994-12PH (PAC)# 6.250% due 01/25/09 ........................... 690,790 Pass-throughs: 630,878 Pool #323193# 9.000% due 09/01/07 ........................... 657,887 4,768,050 Pool #B00688# 9.000% due 09/01/05 ........................... 4,912,955 ----------- TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (Cost $14,384,215) .............................................. 14,404,406 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 0.6% Pass-throughs: 227,193 8.500% Pass-through Pools due 1/15/23-7/15/23 (Cost $236,343) ............................... 237,701 ----------- 67 The accompanying notes are an integral part of these financial statements. ====================== The Montgomery Funds - ---------------------- Total Return Bond Fund - ---------------------- Investments Principal Amount Value (Note 1) U.S. TREASURY BONDS -- 8.1% $ 2,400,000 U.S. Treasury Bonds, 8.875% due 02/15/19 (Cost $2,963,428) ............................. $ 3,093,384 ---------- U.S. TREASURY NOTES -- 16.3% 3,750,000 U.S. Treasury Notes, 5.625% due 05/15/01 ...... 3,758,205 2,375,000 U.S. Treasury Notes, 7.000% due 07/15/06 ...... 2,515,134 ---------- TOTAL U.S. TREASURY NOTES (Cost $6,257,208) ............................................... 6,273,339 ---------- TOTAL SECURITIES (Cost $44,020,306) .............................................. 43,623,598 ---------- REPURCHASE AGREEMENTS -- 4.3% 1,664,000 Agreement with Greenwich Capital Markets, Tri-Party, 5.250% dated 6/30/99, to be repurchased at $1,664,242 on 07/01/99, collateralized by $1,697,312 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $1,664,000) ............................. 1,664,000 ---------- TOTAL INVESTMENTS -- 117.7% (Cost $45,684,306*) ............................................. 45,287,598 OTHER ASSETS AND LIABILITIES -- (17.7)% (Net) ........................................................... (6,811,929) ---------- NET ASSETS -- 100.0% ............................................. $ 38,475,669 ========== * Aggregate cost for federal tax purposes $45,897,311. ++ Floating-rate note reflects the rate in effect at June 30, 1999. # All or a portion of this security is held as collateral for dollar roll transactions. Abbreviations AD Accretion Directed: These bonds receive, as principal, the negative amortization from the accrual tranche(s) in a deal. These securities often have guaranteed final maturities. CMO Collateralized Mortgage Obligation. FLTR Floating-Rate Securities: bonds with coupon rates that adjust in proportion to an index. MTN Medium-Term Note. PAC Planned Amortization Class: bonds that are protected in part from variations in prepayments, generally resulting in greater stability. TBA To-Be-Announced Security. 68 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds ------------------------ Short Duration Government Bond Fund ------------------------ Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform over its fiscal year? A: The Fund returned 4.8% for the year, slightly underperforming its benchmark, the Lehman Brothers Government Bond 1-3 Year Index, which returned 5.0%. This underperformance was concentrated in the final three months of the financial year ended June 30, 1999, which was a difficult environment for short-term government bonds. In recognition of its consistently strong long-term risk-adjusted performance, however, the Fund was awarded an overall five-star rating by Morningstar for the period ended June 30, 1999, among 1,543 taxable bond funds. The Fund also received five stars for the three- and five-year periods ended June 30, 1999, among 1,543 and 1,102 taxable bond funds, respectively.* Q: What factors affected performance over the period? A: The Fund performed in line with or slightly better than the benchmark for the first three quarters of the financial year. Contributing to this encouraging performance were the Fund's broad diversity of holdings that enabled us to maintain a relatively low risk profile in a challenging market environment, as well as our active management style. In late July 1998, we reduced the Fund s mortgage exposure in favor of Treasury bonds. As a result, the Fund was able to fully participate in the strong rally in Treasuries as investors sought a safe haven from the effects of global economic turmoil and the well-publicized near collapse of several large hedge funds. At the beginning of the fourth quarter of 1998, other sectors of the bond market started to revitalize from severe downturns caused by the "flight to quality." We had anticipated this trend, reducing our exposure to Treasuries and increasing our weighting in the mortgage sector. Our purchases of collateralized mortgage obligations (CMOs) added moderately to fourth-quarter performance but were a large contributor to the Fund s first-quarter relative outperformance. Offsetting these positive contributions, however, the portfolio s overexposure to mortgage-backed securities worked against us in the final months of the financial year. In addition, our target duration of two years is longer than the benchmark s, but we were unable to find openings to extend this beyond the benchmark weighting as we were sailing into the headwind of a rising rate environment. Although this detracted from overall performance, the Fund still maintained its position in the top quartile of similar funds for the year. Q: Where do you see opportunities to add value going forward? A: Toward the end of the period, the Fed tightened, reflecting its increasing concern over inflationary pressures in the economy. We believe that this more recognizable market environment may provide many opportunities to add value. There are a number of issues related to supply and demand that should be positive developments as well. First, with the U.S. government balancing the budget, it has less need to issue debt to finance government operations. The resulting decline in the supply of Trea- - ------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT - ------------------------------------------------------------------------------- William Stevens.......................................Senior Portfolio Manager Marie Chandoha.............................................. Portfolio Manager - -------------------------------------------------------------------------------- FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery Short Duration Government Bond Fund Since inception (12/18/92) ............................................... 6.32% One year ................................................................. 4.82% Five years ............................................................... 6.63% - -------------------------------------------------------------------------------- Lehman Brothers Government Bond 1-3 Year Index Since 12/18/92 ........................................................... 5.58% One year ................................................................. 5.04% Five years ............................................................... 6.31% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Short Duration Lehman Brothers Lipper Short Date Gov. Bond Fund Government Bond/1/ U.S. Government/2/ ------- --------------- --------------- --------------- Dec-92 10,000 10,000.00 10,000.00 Jan-93 10,175 10,104.63 10,098.78 Feb-93 10,268 10,185.02 10,178.11 Mar-93 10,350 10,216.30 10,206.23 Apr-93 10,425 10,278.46 10,262.52 May-93 10,442 10,253.59 10,253.07 Jun-93 10,363 10,330.05 10,328.65 Jul-93 10,623 10,352.42 10,356.66 Aug-93 10,699 10,438.40 10,431.17 Sep-93 10,758 10,471.76 10,457.86 Oct-93 10,796 10,495.17 10,474.49 Nov-93 10,797 10,496.83 10,464.46 Dec-93 10,356 10,538.47 10,502.64 Jan-94 10,940 10,604.36 10,568.70 Feb-94 10,880 10,539.92 10,507.61 Mar-94 10,831 10,486.68 10,436.78 Apr-94 10,791 10,446.69 10,398.17 May-94 10,799 10,460.78 10,408.92 Jun-94 10,829 10,487.09 10,423.47 Jul-94 10,938 10,581.36 10,500.62 Aug-94 10,971 10,616.17 10,527.78 Sep-94 10,931 10,592.14 10,508.78 Oct-94 10,961 10,616.38 10,527.93 Nov-94 10,940 10,572.25 10,496.02 Dec-94 10,979 10,592.76 10,520.71 Jan-95 11,133 10,736.96 10,642.57 Feb-95 11,287 10,883.02 10,773.41 Mar-95 11,351 10,944.35 10,830.68 Apr-95 11,461 11,042.14 10,915.15 May-95 11,651 11,230.68 11,083.52 Jun-95 11,725 11,291.38 11,137.20 Jul-95 11,732 11,336.14 11,165.68 Aug-95 11,835 11,403.68 11,234.46 Sep-95 11,918 11,459.41 11,289.84 Oct-95 12,004 11,554.30 11,373.52 Nov-95 12,133 11,652.92 11,464.88 Dec-95 12,262 11,740.98 11,547.94 Jan-96 12,336 11,840.22 11,627.25 Feb-96 12,281 11,794.43 11,585.12 Mar-96 12,210 11,785.52 11,576.12 Apr-96 12,277 11,796.92 11,587.47 May-96 12,288 11,823.44 11,602.60 Jun-96 12,398 11,909.42 11,676.44 Jul-96 12,448 11,955.62 11,722.78 Aug-96 12,485 11,999.34 11,752.78 Sep-96 12,598 12,108.52 11,851.28 Oct-96 12,760 12,244.85 11,968.91 Nov-96 12,887 12,335.39 12,057.55 Dec-96 12,872 12,337.46 12,052.58 Jan-97 12,936 12,396.51 12,109.27 Feb-97 12,957 12,426.55 12,140.15 Mar-97 12,930 12,416.82 12,129.15 Apr-97 13,045 12,518.13 12,221.30 May-97 13,136 12,605.35 12,295.01 Jun-97 13,210 12,692.16 12,372.88 Jul-97 13,410 12,830.77 12,501.68 Aug-97 13,408 12,844.03 12,509.12 Sep-97 13,524 12,941.62 12,599.68 Oct-97 13,642 13,037.96 12,683.54 Nov-97 13,678 13,070.69 12,708.43 Dec-97 13,769 13,158.33 12,776.02 Jan-98 13,917 13,283.88 12,886.12 Feb-98 13,927 13,295.90 12,897.23 Mar-98 13,985 13,347.08 12,943.03 Apr-98 14,058 13,411.72 12,994.70 May-98 14,156 13,483.40 13,063.85 Jun-98 14,242 13,552.81 13,123.56 Jul-98 14,320 13,616.21 13,175.82 Aug-98 14,510 13,781.96 13,317.60 Sep-98 14,698 13,967.39 13,466.82 Oct-98 14,745 14,035.55 13,488.11 Nov-98 14,718 14,021.05 13,491.91 Dec-98 14,785 14,074.71 13,538.85 Jan-99 14,835 14,128.58 13,604.00 Feb-99 14,783 14,064.97 13,551.00 Mar-99 14,877 14,160.28 13,631.00 Apr-99 14,941 14,204.41 13,684.00 May-99 14,876 14,194.88 13,672.00 Jun-99 14,929 14,236.32 13,677.00 Fund performance presented is for Class R shares. /1/ The Lehman Brothers Government Bond 1-3 Year Index comprises all U.S. government issues with maturities of one to three years. /2/ The Lipper Short U.S. Government Funds Average universe consists of 31 funds. * Morningstar proprietary ratings reflect historical risk-adjusted performance through 6/30/99. The ratings are subject to change every month, and past performance is no guarantee of future results. Morningstar ratings are calculated from the funds three-, five-, and 10-year average annual returns (if applicable) in excess of 90-day Treasury bill returns, with appropriate fee adjustments and a risk factor that reflects funds performance below 90-day T-bill returns. The top 10% of the funds in a broad asset class receive five stars. Ratings are for Class R shares only; other classes may vary. 69 ===================================== The Montgomery Funds - ------------------------------------- Short Duration Government Bond Fund - ------------------------------------- Portfolio Highlights - ---------------------------------------------------- TOP TEN HOLDINGS - ---------------------------------------------------- (as a percentage of total net assets) U.S. Treasury Note, 4.000% due 10/31/00 ................. 15.0% U.S. Treasury Note, 5.625% due 05/15/01 ................. 7.1% FHLMC, 2121TA (PAC) 6.000% due 04/15/08 ................. 6.3% FNMA, TBA Jul., 30 Yr, 6.000% due 06/29/29 ................. 5.6% FHLMC, 1166D (AD) 8.000% due 02/15/05 ................. 4.7% FNMA, Pool #323450, 8.500% due 05/01/07 ................. 4.5% FNMA,1999-34VE (AD) 6.500% due 09/25/05 ................. 3.2% FNMA, Pool #323193, 9.000% due 09/01/07 ................. 3.0% FHLMC, 2114VM(AD) 6.000% due 09/15/04 ................. 2.6% FHLMC, 2098VA (PAC) 6.000% due 10/15/05 ................. 2.5% - ---------------------------------------------------- ASSET MIX - ---------------------------------------------------- (as a percentage of total investments) Collateralized Mortgage Obligations .......... 32.4% Treasuries ................................... 24.6% Mortgage Pass-throughs ....................... 20.9% Asset-Backed Securities ...................... 12.1% Other ........................................ 7.3% Corporate Notes ............................... 1.6% Municipal Bonds and Notes .................... 1.1% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. sury securities is a new dynamic that should help the relative performance of Treasuries. Second, the growing popularity of indexing as an investment tool has opened up a number of opportunities. For example, at the close of the markets at month's end, different sectors can become attractively priced for a very short time as indexers move to rebalance their portfolios. And finally, the year 2000 issue-- centered on questions related to computer codes and their ability to recognize dates at the turn of the millennium--should create some opportunities. Q: What are the possible risks? A: Although we have identified plenty of opportunities in the current market environment, we are mindful of possible risks to the portfolio. Yields rose yet again in June. Although the Fed tightened monetary policy on June 30, with overnight rates moving up to 5%, the move was not accompanied by a tightening bias, which the bond market liked-at least for the short term. Wage pressures and low unemployment continue to be the main inflationary concern, but the turnaround in global growth rates is also adding fuel to the fire of strong U.S. economic growth. Nevertheless, the aberrantly high rise in the Consumer Price Index (CPI) rate for May was not repeated in June, and inflation remains only a theoretical concern, albeit one that the Fed will act to preempt. We have extended the Fund to benchmark duration but have not found an entry point to extend further, and we remain concerned that the market will price in further Fed tightenings before the economy finally cools. As much as we like these high real yields, we recognize that they could go still higher. As we focus on the wealth of relative value opportunities, we will not do so at the expense of risk management and consistent returns. Q: How is the Fund currently positioned? A: The Fund is currently overweighted in mortgages (62.0% of net assets as of 6/30/99) to take advantage of their added yield. Further, we are underweighted in Treasuries (28.0% of net assets as of 6/30/99). Even though we feel that inflation-adjusted yields are attractive at this point, we're not making any significant interest rate bets with the Fund's duration, because we believe that there will be better opportunities to do so at some point in the third quarter. 70 ========================================== The Montgomery Funds ------------------------------------------ Short Duration Government Bond Fund ------------------------------------------ Investments PORTFOLIO INVESTMENTS June 30, 1999 Principal Amount Value (Note 1) ASSET-BACKED SECURITIES--13.8% $ 1,400,000 Chase Manhattan Auto Owner Trust, Series 1997-B A5, 6.60% due 03/15/02 ............................ $ 1,412,806 1,750,000 Citibank Credit Card Master Trust, Series 1998-1 A, 5.75% due 01/15/03 ............................ 1,742,877 700,000 Discover Card Master Trust, Series 1998-4 A, 5.75% due 10/16/03 ............................ 696,227 1,000,000 EQCC Home Equity Loan Trust, Series 1998-2 A3F, 6.23% due 03/15/13 ............................ 998,320 2,523,000 Ford Credit Auto Owner Trust, Series 1996 B, 6.55% due 02/15/02 ............................ 2,530,090 243,891 Green Tree Financial Corporation, Series 1993-4 A3, 6.25% due 01/15/19 ............................ 243,958 1,000,000 Green Tree Home Improvement Loan Trust, Series 1997-C HEA3, 6.88% due 08/15/28 ............................ 1,008,150 3,134,605 Master Financial Asset Securitization Trust, Series 1998-1 A2, 6.22% due 08/20/11 ............................ 3,134,088 1,700,000 Premier Auto Trust, Series 1998-5 A3, 5.07% due 07/08/02 ............................ 1,677,090 1,000,000 Premier Auto Trust, Series 1999-2 A3, 5.49% due 02/10/03 ............................ 988,750 1,600,000 The Money Store Home Equity Trust, Series 1994-C A6, 8.05% due 12/15/25 ............................ 1,641,676 2,000,000 The Money Store Home Equity Trust, Series 1995-A A5, 8.40% due 02/15/24 ............................ 2,073,383 750,000 Toyota Auto Lease Trust, Series 1997-A A3, 6.45% due 04/26/04 ............................ 752,107 3,000,000 Toyota Auto Lease Trust, Series 1998-B A3, 5.50% due 12/26/03 ............................ 2,942,145 TOTAL ASSET-BACKED SECURITIES (Cost $21,868,206) .............................................. 21,841,667 -------------- CORPORATE NOTES--1.9% $ 2,000,000 Associates Corporation N.A., Senior Notes, 5.800% due 04/20/04 ........................... $ 1,932,500 1,000,000 Countrywide Home Loans, Inc., MTN 5.620% due 10/16/00 ........................... 994,080 TOTAL CORPORATE NOTES (Cost $2,999,092) ............................................... 2,926,580 -------------- FEDERAL HOME LOAN BANK (FHLB)--0.3% 550,000 5.500% (FLTR) due 04/14/00++................... 549,725 TOTAL FEDERAL HOME LOAN BANK (Cost $549,099) ................................................. 549,725 -------------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)--30.0% CMOs: 7,250,000 1166D (AD) 8.000% due 02/15/05 ................ 7,392,738 1,894,121 1320F (PAC) 7.000% due 05/15/05 ............... 1,896,848 167,385 1329SA (PAC) 10.703% due 08/15/99 ............. 166,129 1,942,098 1499PE (PAC) 6.000% due 02/15/19 .............. 1,939,975 1,525,644 1521C (PAC) 5.800% due 07/15/00# .............. 1,524,735 2,754,800 1639PL (PAC) 5.900% due 08/15/06 .............. 2,757,924 2,528,000 1643PE (PAC) 5.500% due 10/15/19# ............. 2,521,183 1,606,899 1659PE (PAC) 5.750% due 05/15/07# ............. 1,606,200 792,689 1694PE (PAC) 5.750% due 03/15/19# ............. 791,658 1,428,957 1711PH (PAC) 0.000% due 03/15/24 .............. 1,399,920 4,037,908 2098VA (PAC) 6.000% due 10/15/05 .............. 4,014,564 4,193,541 2114VM (AD) 6.000% due 09/15/04 ............... 4,177,160 10,000,000 2121TA (PAC) 6.000% due 04/15/08 .............. 9,962,364 -------------- 40,151,398 Notes: 1,000,000 5.000% (FLTR) due 05/19/03++................... 964,181 Pass-throughs: 26,618 Pool #281208 9.000% due 10/01/16# ............. 27,646 3,426,896 Pool #A01841 8.750% due 10/01/10# ............. 3,592,484 1,794,948 Pool #E40290 8.500% due 06/01/07# ............. 1,858,963 898,146 Pool #G10007 8.500% due 03/01/06# ............. 934,809 5,469 Pool #730288 8.500% due 07/01/06 .............. 5,588 12,591 Pool #730223 9.500% due 01/01/06# ............. 13,193 -------------- 6,432,683 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION (Cost $47,751,199) .............................................. 47,548,262 ------------- The accompanying notes are an integral part of these financial statements. 71 ======================================== The Montgomery Funds - ---------------------------------------- Short Duration Government Bond Fund - ---------------------------------------- Investments Principal Amount Value (Note 1) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--28.6% CMOs: $ 2,087,478 1992-176SA (PAC) 9.002% due 10/25/99............ $ 2,086,010 2,323,302 1993-109G (PAC) 6.000% due 08/25/05#............ 2,317,493 650,000 1993-99D (AD) 6.700% due 03/25/04# ............. 658,176 1,340,955 1994-23PV (PAC) 5.125% due 07/25/17#............ 1,329,564 2,500,000 1994-39PG (PAC) 6.150% due 06/25/20 ............ 2,491,016 5,000,000 1999-34VE (AD) 6.500% due 09/25/05 ............. 5,011,719 ------------ 13,893,978 Pass-throughs: 3,000,000 TBA Aug, 30 Yr, 7.000% due 06/29/29............. 2,959,680 9,500,000 TBA Jul, 30 Yr, 6.000% due 06/29/29............. 8,924,110 665,659 Pool #242836, 5.500% due 10/01/00............... 662,200 895,480 Pool #244098, 5.500% due 10/01/00 .............. 890,827 1,026,282 Pool #252432, 5.000% due 02/01/09 .............. 957,970 4,613,727 Pool #323193, 9.000% due 09/01/07 .............. 4,784,758 6,810,840 Pool #323450, 8.500% due 05/01/07 ............. 7,049,220 1,629,218 Pool #348144, 8.500% due 04/01/10# ............. 1,691,969 1,553,052 Pool #420599, 5.000% due 03/01/27 ............. 1,409,092 914,380 Pool #438089, 9.000% due 06/01/08 .............. 957,348 984,540 Pool #70851, 9.500% due 06/01/06................ 1,036,536 ------------ 31,323,710 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (Cost $45,240,516)................................................ 45,217,688 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)--2.8% CMOs: 1,102,509 1996-22VA (AD) 7.000% due 01/16/05 ............. 1,120,511 3,214,891 1998-18VK (AD) 6.500% due 10/20/11# ............ 3,236,241 ------------ 4,356,752 Pass-throughs: 9,337 GNMA II, 10.50% Pool #1123# due 01/20/19 .................................. 10,040 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (Cost $4,452,807) ................................................ 4,366,792 ------------ MUNICIPAL BONDS AND NOTES--1.3% 2,000,000 Greater Orlando Aviation Authority, Orlando, Florida, Airport Facilities, Revenue Bonds, Series E (AMBAC Insured) 7.100% due 10/01/09 ............................ 2,006,500 TOTAL MUNICIPAL BONDS (Cost $2,010,466) ................................................ 2,006,500 ------------ U.S. TREASURY NOTES--28.0% $ 3,039,510 U.S. Treasury Note, Inflationary Index, 3.875% due 01/15/09+............................ $ 3,003,401 24,200,000 U.S. Treasury Note, 4.000% due 10/31/00......... 23,765,126 11,250,000 U.S. Treasury Note, 5.625% due 05/15/01......... 11,271,037 3,000,000 U.S. Treasury Note, 6.250% due 01/31/02 ........ 3,045,480 3,125,000 U.S. Treasury Note, 6.500% due 05/15/05 ........ 3,220,688 TOTAL U.S. TREASURY NOTES (Cost $44,550,567) ............................................... 44,305,732 ------------ TOTAL SECURITIES (Cost $169,421,952) .............................................. 168,762,946 REPURCHASE AGREEMENT--7.3% 11,624,000 Agreement with Greenwich Capital Markets, Tri-Party, 5.300%, to be repurchased at $11,625,688 on 07/01/99, collateralized by $11,856,703 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates (Cost $11,624,000) ............................. 11,624,000 ------------ TOTAL INVESTMENTS--114.0% (Cost $181,045,952*) ............................................. 180,386,946 OTHER ASSETS AND LIABILITIES --(14.0)% (Net)............................................................. (22,134,227) ------------ NET ASSETS--100.0% ............................................... $158,252,719 ============ * Aggregate cost for federal tax purposes $181,130,003. ++ Floating-rate note reflects the rate in effect at June 30, 1999. # All or a portion of this security held as collateral for dollar roll transactions. + Inflation indexed security. Security includes principal adjustment feature in which par amount adjusts with the Consumer Price Index to insulate bonds from effects of inflation. The principal amount shown is that in effect on June 30, 1999. Abbreviations AD Accretion Directed: These bonds receive, as principal, the negative amortization from tranche(s) in a deal. These securities often have guaranteed final maturities.. AMBAC American Municipal Bond Assurance Corporation. CMO Collateralized Mortgage Obligation. FLTR Floating-Rate Securities: bonds with coupon rates that adjust in proportion to an index. MTN Medium-Term Notes. PAC Planned Amortization Class: bonds with coupon rates that adjust in proportion to an index. TBA To-Be-Announced Security. The accompanying notes are an integral part of these financial statements. 72 ================================== The Montgomery Funds ---------------------------------- California Tax-Free Intermediate Bond Fund --------------------------------- Portfolio Highlights INVESTMENT REVIEW Q: How did the Fund perform over the past fiscal year? A: The Fund returned 2.7% versus a return of 2.4% for the Lipper California Intermediate Municipal Debt Funds Average and a return of 3.8% for the Merrill Lynch Cali-fornia Intermediate Municipal Bond Index. Although it lost some ground in the latter half of the fiscal year, the Fund enjoyed strong relative results against the benchmark in the first half. The Fund s previous outperformance was more than sufficient to provide good relative returns for the year as a whole. The Fund was awarded an overall four-star rating by Morningstar for its risk-adjusted performance for the period ended June 30, 1999, among 1,591 municipal bond funds. The Fund also received three and four stars for the three- and five-year periods ended June 30, 1999, among 1,591 and 1,191 municipal bond funds, respectively.* Q: What were some of the major trends in the California municipal bond market? A: There were two notable trends during the period. In the first half of 1999, the number of new municipal bonds issued (issuance) was less than three-quarters that of the same period in 1998. Additionally, the municipal market witnessed a lower percentage of insured bonds being issued in the primary market. The decline in new issues from January through June 1999 resulted from a change in the interest rate environment. In the previous six-month period, declining interest rates had been the norm, reflecting market concerns about deflation. This had led to a significant increase in the number of bonds issued as the interest rates on the debt became progressively more attractive. In contrast, at the beginning of 1999, as fears of a resurgence in inflation began to emerge, the bond market started to price the worst-case scenario into bond yields (interest rates), making it more expensive to borrow money in this manner. And, as a result, refunding existing bonds that were rate sensitive no longer made economical sense and had to be postponed until savings targets could once again be achieved. It was this that reduced new issuance supply. Q: You mentioned that longer-term interest rates have risen on the back of inflationary fears. What affect has this had on returns of the Fund? A: The general rate rise since the beginning of 1999 has led to negative returns for the Fund and for other municipal bond funds. The reason for this is the relationship between interest rates and bond prices. One of the major determinants of the price of a bond is the market s expectation of future interest rates. Investors are less likely to want to buy a lower-yielding bond if interest rates are expected to rise, making the yields on bonds issued in the future more attractive. As a result, as interest rate expectations (and therefore bond yield expectations) rise, bond prices generally fall. ================================================================================ PORTFOLIO MANAGEMENT - -------------------------------------------------------------------------------- William Stevens ....................................... Senior Portfolio Manager ================================================================================ FUND PERFORMANCE - -------------------------------------------------------------------------------- Average annual total returns for the period ended 6/30/99 - -------------------------------------------------------------------------------- Montgomery California Intermediate Bond Fund Since inception (7/1/93) ................................................ 5.03% One year ................................................................ 2.71% Five years .............................................................. 5.71% - -------------------------------------------------------------------------------- Merrill Lynch California Intermediate Municipal Bond Index Since 6/30/93 ........................................................... 4.55% One year ................................................................ 3.83% Five years .............................................................. 5.95% - -------------------------------------------------------------------------------- Past performance is no guarantee of future results. Net asset value, investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Growth of a $10,000 Investment [LINE GRAPH APPEARS HERE] Montgomery California Merrill Lynch California Lipper California Tax-Free Intermediate Intermediate Municipal Intermediate Debt Bond Fund Bond Index 1 Funds Average 2 Jun-93 10,000 10,000 10,000 Jul-93 9,991 9,982 10,002 Aug-93 10,077 10,023 10,195 Sep-93 10,121 10,016 10,325 Oct-93 10,151 10,139 10,341 Nov-93 10,144 10,091 10,266 Dec-93 10,233 10,263 10,453 Jan-94 10,295 10,333 10,563 Feb-94 10,185 10,186 10,319 Mar-94 10,086 10,035 10,022 Apr-94 10,117 10,018 10,063 May-94 10,175 10,127 10,133 Jun-94 10,171 9,782 10,100 Jul-94 10,264 9,994 10,248 Aug-94 10,285 10,009 10,279 Sep-94 10,271 9,937 10,169 Oct-94 10,233 9,920 10,044 Nov-94 10,187 9,825 9,885 Dec-94 10,238 9,915 9,995 Jan-95 10,352 9,995 10,186 Feb-95 10,486 10,195 10,431 Mar-95 10,583 10,262 10,534 Apr-95 10,645 10,311 10,552 May-95 10,777 10,587 10,817 Jun-95 10,784 10,603 10,739 Jul-95 10,849 10,726 10,851 Aug-95 10,970 10,799 10,974 Sep-95 11,054 10,824 11,042 Oct-95 11,187 10,885 11,175 Nov-95 11,327 11,062 11,303 Dec-95 11,406 11,045 11,366 Jan-96 11,495 11,179 11,473 Feb-96 11,470 11,170 11,428 Mar-96 11,373 11,092 11,297 Apr-96 11,368 11,103 11,287 May-96 11,355 11,099 11,288 Jun-96 11,442 11,163 11,366 Jul-96 11,531 11,272 11,472 Aug-96 11,536 11,276 11,471 Sep-96 11,634 11,349 11,572 Oct-96 11,761 11,452 11,688 Nov-96 11,964 11,579 11,877 Dec-96 11,921 11,556 11,831 Jan-97 11,964 11,581 11,852 Feb-97 12,042 11,659 11,934 Mar-97 11,901 11,575 11,817 Apr-97 11,962 11,608 11,876 May-97 12,112 11,747 12,034 Jun-97 12,233 11,878 12,136 Jul-97 12,539 12,069 12,412 Aug-97 12,435 12,008 12,313 Sep-97 12,566 12,119 12,440 Oct-97 12,619 12,158 12,478 Nov-97 12,672 12,198 12,530 Dec-97 12,815 12,313 12,681 Jan-98 12,968 12,408 12,802 Feb-98 12,977 12,443 12,813 Mar-98 12,920 12,449 12,799 Apr-98 12,852 12,405 12,722 May-98 13,038 12,533 12,901 Jun-98 13,071 12,580 12,934 Jul-98 13,095 12,612 12,976 Aug-98 13,323 12,848 13,162 Sep-98 13,540 12,991 13,349 Oct-98 13,533 13,012 13,328 Nov-98 13,577 13,022 13,368 Dec-98 13,591 13,089 13,379 Jan-99 13,771 13,267 13,536 Feb-99 13,688 13,219 13,472 Mar-99 13,702 13,253 13,492 Apr-99 13,705 13,270 13,503 May-99 13,624 13,223 13,422 Jun-99 13,425 13,062 13,231 1 The Merrill Lynch California Intermediate Municipal Bond Index is composed of those issues contained in the broader Merrill Lynch California Municipal Bond Index whose maturities range from three to seven years. 2 The Lipper California Intermediate Municipal Debt Funds Average universe consists of 12 funds. * Morningstar proprietary ratings reflect historical risk-adjusted performance through 6/30/99. The ratings are subject to change every month, and past performance is no guarantee of future results. Morningstar ratings are calculated from the funds three-, five-, and 10-year average annual returns (if applicable) in excess of 90-day Treasury bill returns, with appropriate fee adjustments and a risk factor that reflects fund performance below 90-day T-bill returns. The top 10% of the funds in a broad asset class receive five stars; the next 22.5% receive four stars; and the next 35% receive three stars. Ratings are for Class R shares only; other classes may vary. 73 ================================== The Montgomery Funds - ---------------------------------- California Tax-Free Intermediate Bond Fund - ---------------------------------- Portfolio Highlights ====================================================================== TOP TEN LONG-TERM HOLDINGS - ---------------------------------------------------------------------- (as a percentage of total net assets) Antioch, California, Public Financing Authority, Series B, 4.000% due 09/02/99 ................................. 5.6% San Bernardino County, California, Transportation Authority Sales Tax Revenue, Series A (MBIA Insured) 6.000% due 04/01/05 ................................. 2.8% California State, 6.250% due 09/01/08 ........................ 2.7% Redwood City Public Financing Authority, Lease Revenue, Capital Facilities Project, 5.000% due 07/15/10 ........................ 2.7% Anaheim, California, Public Financing Authority, Lease Revenue, Series C (FSA Insured), 6.000% due 09/01/12 ................................. 2.7% California Pollution Control Financing Authority, Revenue, San Diego Gas and Electric, Series A, 5.900% due 06/01/14 ................................. 2.6% California State, 7.000% due 10/01/09 ........................ 2.3% Los Angeles County State Building Authority, Lease Revenue (MBIA Insured), 5.600% due 05/01/08 ................................. 2.2% Walnut Valley, California, School District, Series A (MBIA Insured) 7.000% due 08/01/08 ................................. 2.0% California Statewide Communities Development Authority Revenue Certificates of Participation (Sutter Health System Group) 3.400% due 07/01/15 ................................. 2.0% ================================================================================ I N V E S T M E N T G R A D E - -------------------------------------------------------------------------------- (as a percentage of total net assets) Aaa ........................................................................ 52% Aa ......................................................................... 13% A .......................................................................... 9% Baa ........................................................................ 13% Nonrated ................................................................... 12% Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax. Q: Is the booming California economy a further factor in reduced supply of municipal bonds? A: Not necessarily. Unlike the effect of rising interest rates on refundings, the expansion of the California economy has, if anything, encouraged new money financings. Strong economic growth has allowed the collection of increased tax revenues, and as a result, projects that were put on hold due to lack of funding have been reactivated. Q: How have you positioned the Fund for the year ahead? A: The decline in new issuances being insured over the period was a reflection of the tougher underwriting standards imposed by credit-rating agencies on bond insurers. As a result, there were fewer Aaa-rated bonds available, and spreads between insured and high uninsured bonds widened, as anticipated, creating the opportunity for us to add high-quality, noninsured bonds at attractive values. We have therefore increased the percentage of uninsured bonds in the Fund. The current credit profile of the Fund includes only 51% in Aaa's, as opposed to 75% at the beginning of the fiscal year, June 30, 1998. Also, as rates were rising, we reversed our strategy from extending to reducing our interest rate exposure. The Fund's current duration of 5.44 years and maturity of 7.11 years were reduced from their June 30, 1998, position of 5.86 years and 8.01 years, respectively. 74 ================================== The Montgomery Funds ---------------------------------- California Tax-Free Intermediate Bond Fund ---------------------------------- Investments PORTFOLIO INVESTMENTS June 30, 1999 Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES--98.9% California 97.2% $1,000,000 Anaheim, California, Public Financing Authority, Lease Revenue, Series C (FSA Insured), 6.000% due 09/01/12 ........................... $ 1,095,000 2,295,000 Antioch, California, Public Financing Authority, Series B, 4.000% due 09/02/99 ........................... 2,294,702 205,000 Benicia, California, GO, Series B, 7.000% due 08/01/04 ........................... 229,856 California Educational Facilities Authority Revenue Pooled College & University Projects, Series A: 370,000 3.550% due 04/01/00 ........................... 369,267 255,000 3.900% due 04/01/01 ........................... 253,088 275,000 3.600% due 04/01/02 ........................... 271,219 300,000 4.050% due 04/01/02 ........................... 296,250 285,000 3.700% due 04/01/03 ........................... 279,656 310,000 3.950% due 04/01/05 ........................... 301,475 455,000 4.400% due 04/01/05 ........................... 443,625 545,000 4.800% due 04/01/09 ........................... 521,837 250,000 California Educational Authority Revenue, University of San Francisco (MBIA Insured), 6.000% due 10/01/08 ........................... 274,062 745,000 California Educational Facilities Authority Revenue, LA College of Chiropractic 5.100% due 11/01/05 ........................... 755,244 200,000 California Housing Finance Agency, Housing Revenue, Series C (MBIA Insured), 6.150% due 08/01/14 ........................... 207,000 1,000,000 California Pollution Control Financing Authority, Revenue, San Diego Gas and Electric, Series A, 5.900% due 06/01/14 ........................... 1,082,500 100,000 California Public Works Board High Technology Lease Revenue, San Jose Facilities, Series A (AMBAC Insured), 7.750% due 08/01/06 ........................... 111,625 300,000 California Public Works Board Lease Revenue, Series A (AMBAC Insured), 6.200% due 12/01/05 ........................... 330,375 365,000 California Public Works Board University Trust Certificates, 6.450% due 06/01/02 ........................... 385,987 California State: 260,000 6.200% due 11/01/02 ........................... 276,900 100,000 6.750% due 04/01/04 ........................... 110,250 115,000 7.000% due 04/01/06 ........................... 131,388 200,000 7.400% due 09/01/07 ........................... 237,500 100,000 6.500% due 02/01/08 ........................... 112,125 1,000,000 6.250% due 09/01/08 ........................... 1,110,000 250,000 6.000% due 10/01/08 ........................... 272,812 145,000 7.000% due 08/01/09 ........................... 169,469 800,000 7.000% due 10/01/09 ........................... 937,000 100,000 7.000% due 10/01/10 ........................... 117,375 100,000 6.250% due 09/01/12 ........................... 111,875 (FGIC Insured): 250,000 7.000% due 04/01/06 ........................... 286,250 500,000 6.500% due 02/01/08 ........................... 561,875 265,000 California State Public Works Board Lease Revenue, Department of Corrections, Series A (AMBAC Insured), 6.000% due 01/01/06 ........................... 287,525 75,000 California State Public Works Board University Revenue (AMBAC Insured), 6.250% due 11/01/00 ........................... 77,438 365,000 California State University, Various Community College Projects, Series A (AMBAC Insured), 6.000% due 03/01/06 ........................... 396,937 495,000 California State Public Works Board, Various Community College Projects, Series A, 6.000% due 03/01/05 ........................... 535,219 70,000 California State Veterans Bonds, Series AL (AMBAC Insured), 9.600% due 04/01/01 ........................... 76,563 100,000 California State, Veterans Bonds, Series AT, 9.500% due 02/01/10 ................ 136,500 California Statewide Communities Development Authority Revenue Certificates of Participation (Sutter Health System Group): 250,000 6.500% due 07/01/04 ........................... 274,375 800,000 3.400% due 07/01/15 ........................... 800,000 100,000 Capinteria, California (FGIC Insured), 7.500% due 07/01/00 ........................... 103,942 The accompanying notes are an integral part of these financial statements. 75 ================================== The Montgomery Funds - ---------------------------------- California Tax-Free Intermediate Bond Fund - ---------------------------------- Investments Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- continued California -- continued Castaic Lake, California, Water Agency, Certificates of Participation, Refunding, Water System Improvement Project, Series A (MBIA Insured): $ 150,000 7.250% due 08/01/07 ........................... $ 175,688 500,000 7.250% due 08/01/08 ........................... 588,750 Chino Basin, California, Regional Financing Authority Revenue, Municipal Water and District Sewer Systems Project (AMBAC Insured): 500,000 7.000% due 08/01/06 ........................... 574,375 240,000 7.000% due 08/01/08 ........................... 278,400 Commerce, California, Community Development Commission, Tax Allocation, Merged Redevelopment Project, Series A, Refunding: 100,000 5.100% due 08/01/04 ........................... 101,250 190,000 5.200% due 08/01/05 ........................... 192,850 120,000 5.500% due 08/01/09 ........................... 121,800 500,000 Contra Costa, California, Transportation Authority, Series B, 6.000% due 03/01/07 ........................... 545,625 300,000 Contra Costa, California, Transportation Authority Sales Tax Revenue, Series A (FGIC Insured), 6.000% due 03/01/05 ........................... 324,375 300,000 Desert Hospital District, California, Hospital Revenue, Certificates of Participation (CGIC Insured), 6.150% due 07/01/02 ........................... 317,250 100,000 East Bay Regional Parks District, Series B, 8.750% due 09/01/99 ........................... 100,810 75,000 East Bay Municipal Utility District, Revenue, Certificates of Participation (CGIC Insured), 7.500% due 03/01/00 ........................... 77,003 375,000 Eastern Municipal Water District, California, Water and Sewer Revenue, Certificates of Participation, Refunding, Series A (FGIC Insured), 6.250% due 07/01/05 ........................... 393,281 250,000 Elsinore Valley, California, Municipal Water District, Certificates of Participation, Refunding, Series A (FGIC Insured), 6.000% due 07/01/12 ........................... 273,750 140,000 Emeryville, California, Public Financing Authority Housing Revenue, 5.600% due 09/01/06 ........................... 147,350 130,000 Emeryville, California, PubliC Financing Authority Housing Revenue, Unrefunded, 5.600% due 09/01/06 ........................... 140,238 50,000 Estero, California, Series S-1, 7.000% due 07/01/00 ........................... 51,696 290,000 Fresno, California, Sewer Revenue, Series A (MBIA Insured), 6.000% due 09/01/07 ........................... 317,912 La Mesa, California, Improvement Board, Assessment District No. 98-1: 180,000 4.900% due 09/02/04 ........................... 180,450 100,000 5.500% due 09/02/11 ........................... 99,500 175,000 Lafayette, California, Elementary School District, 6.900% due 05/15/06 ........................... 199,281 50,000 Los Angeles County Public Works, Revenue Anticipation Notes, 4.500% due 03/01/01 ........................... 50,500 835,000 Los Angeles County State Building Authority, Lease Revenue (MBIA Insured), 5.600% due 05/01/08 ........................... 888,231 Los Angeles Transportation Commission, Sales Revenue, Proposition C, Second Series, Series A: 400,000 6.400% due 07/01/06 ........................... 444,500 180,000 6.200% due 07/01/04 ........................... 195,075 200,000 Los Angeles County, California Certificates of Participation, 6.708% due 06/01/15 ........................... 213,250 Mammoth, California, Community Water District: 260,000 5.100% due 09/02/07 ........................... 259,025 255,000 5.200% due 09/02/08 ........................... 254,362 275,000 5.250% due 09/02/09 ........................... 272,937 Manteca, California, School District, Community Facilities District No. 89-1: 170,000 5.450% due 09/01/11 ........................... 168,725 120,000 5.400% due 09/01/10 ........................... 119,400 600,000 Metropolitan Water District, Southern California Waterworks Revenue, Series C, 6.000% due 07/01/08 ........................... 656,250 200,000 Metropolitan Water District, Southern California Waterworks Revenue, 6.000% due 07/01/21 .................. 208,000 The accompanying notes are an integral part of these financial statements. 76 ================================== The Montgomery Funds ---------------------------------- California Tax-Free Intermediate Bond Fund ---------------------------------- Investments Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- continued California -- continued $ 250,000 Ontario, California, Redevelopment Financing Authority, Revenue Refunding (Ontario Redevelopment Project No. 1)(MBIA Insured), 6.550% due 08/01/06 ........................... $ 280,312 150,000 Oxnard, California, School District, Refunding (MBIA Insured), 5.625% due 08/01/13 ........................... 158,813 Piedmont, California, School District, Series A: 75,000 8.300% due 08/01/01 ........................... 81,375 45,000 7.100% due 08/01/02 ........................... 48,825 40,000 Piedmont, California, School District: Series C (MBIA Insured), 7.200% due 08/01/01 ........................... 42,550 200,000 Pomona, California, Unified School District, Series A (MBIA Insured), 5.950% due 08/01/10 ........................... 217,750 Port of Redwood City, California: 190,000 4.350% due 06/01/04 ........................... 184,538 210,000 4.600% due 06/01/06 ........................... 202,913 170,000 4.000% due 06/01/01 ........................... 168,300 160,000 4.100% due 06/01/02 ........................... 157,200 185,000 4.200% due 06/01/03 ........................... 180,838 200,000 4.500% due 06/01/05 ........................... 194,250 215,000 4.700% due 06/01/07 ........................... 206,938 225,000 4.800% due 06/01/08 ........................... 215,156 1,095,000 Redwood City Public Financing Authority, Lease Revenue, Capital Facilities Project, 5.000% due 07/15/10 ........................... 1,103,212 Rancho, California, Water District Financing Authority, Revenue Refunding (FGIC Insured): 400,000 6.500% due 11/01/05 ........................... 445,500 400,000 6.500% due 11/01/02 ........................... 430,500 320,000 Redwood City, California Multi-family Housing (Redwood Shores), Series B (Mandatory Put 10/01/00), 5.200% due 10/01/08 ........................... 320,355 250,000 Riverside County, California, Special Tax Communities Facilities District No, 84-2, 4.050% due 09/01/00 ........................... 248,750 500,000 Riverside County, California, Transportation Commission Sales Tax Revenue, Series A (FGIC Insured), 6.000% due 06/01/09 ........................... 546,250 625,000 Sacramento, California, Municipal Utilities, Electric Revenue Refunding, Series A (MBIA Insured), 6.250% due 08/15/10 ........................... 692,969 San Bernardino County, California, Transportation Authority Sales Tax Revenue, Series A (MBIA Insured): 1,075,000 6.000% due 04/01/05 ........................... 1,163,687 250,000 6.000% due 03/01/06 ........................... 271,875 500,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation Revenue Central City Merged Project, Series A (AMBAC Insured) 5.750% due 07/01/16 ........................... 531,875 175,000 San Diego County Water Authority Revenue, Certificates of Participation, Series A, 6.000% due 05/01/01 ........................... 181,563 115,000 San Diego, California, Public Financing Authority, Sewer Revenue (FGIC Insured), 6.000% due 05/15/07 ........................... 125,781 San Francisco City & County, International Airport Revenue, AMT Second Series: 445,000 8.000% due 05/01/06 ........................... 529,550 500,000 8.000% due 05/01/09 ........................... 592,500 240,000 San Mateo-Foster City, California, School District (MBIA Insured), 7.750% due 08/01/06 ........................... 286,500 Santa Rosa, California, Central Packaging Service Facilities, Refunding: 100,000 4.900% due 07/02/07 ........................... 98,875 170,000 5.100% due 07/02/09 ........................... 167,238 265,000 4.200% due 07/02/00 ........................... 266,094 200,000 4.800% due 07/02/06 ........................... 198,000 500,000 Santa Rosa High School District, (FGIC Insured), 7.000% due 05/01/01 ........................... 526,875 South Tahoe, California, Joint Powers Financing Authority, (South Tahoe Development Project), Series A: 95,000 4.400% due 10/01/06 ........................... 92,031 100,000 4.500% due 10/01/07 ........................... 96,500 105,000 4.625% due 10/01/08 ........................... 100,931 740,000 Sweetwater, California, Water Revenue Authority (AMBAC Insured), 5.250% due 04/01/10 ........................... 760,350 Torrance, California, Downtown Redevelopment Authority: 200,000 5.100% due 09/01/09 ........................... 196,000 210,000 5.200% due 09/01/10 ........................... 206,063 Walnut Valley, California, School District, Series A (MBIA Insured): 100,000 6.850% due 08/01/07 ........................... 114,875 700,000 7.000% due 08/01/08 ........................... 814,625 The accompanying notes are an integral part of these financial statements. 77 ================================== The Montgomery Funds - ---------------------------------- California Tax-Free Intermediate Bond Fund - ---------------------------------- Investments Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- continued California -- continued Wiseburn, California, School District, Series A (FGIC Insured): $ 395,000 6.875% due 08/01/07 ........................... $ 454,250 360,000 6.875% due 08/01/06 ........................... 410,850 ---------- 39,872,157 Puerto Rico -- 1.7% 135,000 Commonwealth of Puerto Rico, 5.700% due 07/01/09 ........................... 143,775 170,000 Commonwealth of Puerto Rico (FSA Insured), 5.700% due 07/01/09 ........................... 181,475 350,000 Commonwealth of Puerto Rico Public Improvement Bonds (MBIA Insured), 5.000% due 07/01/07 ........................... 356,563 ---------- 681,813 TOTAL MUNICIPAL BONDS AND NOTES (Cost $40,343,421) .............................................. 40,553,970 ---------- TOTAL INVESTMENTS -- 98.9% (Cost $40,343,421*) ............................................. 40,553,970 ---------- OTHER ASSETS AND LIABILITIES -- 1.1% (Net) ........................................................... 462,919 ---------- NET ASSETS -- 100.0% ............................................ $ 41,016,889 ========== * Aggregate cost for federal tax purposes $40,343,421. Abbreviations: AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax CGIC Capital Guaranty Insurance Corporation FGIC Federal Guaranty Insurance Corporation FSA Financial Security Assurance GO General Obligation MBIA Municipal Bond Investors Assurance TRANS Tax and Revenue Anticipation The Montgomery California Tax-Free Intermediate Bond Fund concentrates in California municipal securities. Certain California constitutional amendments, legislative measures, executive orders, administrative regulations, court decisions and voter initiatives could result in certain adverse consequences, including impairing the ability of certain issuers of California municipal securities to pay principal and interest on their obligations. The accompanying notes are an integral part of these financial statements. 78 ====================== The Montgomery Funds ---------------------- Money Market Funds ---------------------- Portfolio Highlights INVESTMENT REVIEW Q: How have the Funds performed over the past 12 months? A: The Montgomery Money Market Funds all outperformed their benchmarks over the fiscal year ended June 30, 1999. The California Tax-Free Money Fund returned 2.6%, the Federal Tax-Free Money Fund returned 2.8% and the Government Money Market Fund (formerly the Government Reserve Fund) returned 4.8%. For the same time period, the benchmark returns of the Lipper California Tax-Exempt Money Market Funds Average, the Lipper Tax-Exempt Money Market Funds Average and the Lipper U.S. Government Money Market Funds Average were 2.5%, 2.7% and 4.5%, respectively. Q: What were the major bond market trends during the period? A: Market sentiment reversed from expectations that the United States was headed into a deflationary environment in the latter half of 1998, to one where moderate inflation was expected in 1999. Several factors contributed to this move. Commodity prices stopped declining, there were signs that economies in Asia and elsewhere were recovering from the crises they have experienced over the past few years, and the U.S. domestic economy continues to grow at a strong rate while unemployment remains at historically low levels. Although increases in productivity spurred by improved technology have helped keep consumer prices in check, there are questions about how long that can last. As a result, by the end of June the Federal Reserve Board felt compelled to raise a key short-term interest rate in an attempt to slow the economy and head off inflation. On the national front, the significant gains provided by short-term municipal securities at the end of 1998 toned down somewhat, as short-term Treasury securities faltered and brought municipals back to more normal price and yield levels. At the same time, it appears that issuance in the national short-term municipals market should be lower than in the recent past, a factor that should help performance in the short term. As far as the municipal bond markets were concerned, there were a few factors that affected the performance of the California municipal bond market, in particular. Over the past few months, added supply caused a backup in short-term rates. Two factors contributed to this move. First, at the beginning of April, many investors in municipal money market funds or securities redeemed their investments in order to collect funds for their tax payments. In addition, as is typically the case, California municipalities came to market with new issuance starting at the beginning of June. This oversupply pushed interest rates higher. In response we extended the Funds'average maturity slightly to capture some of these higher yields. It should also be noted that we shifted strategy in the Montgomery California Tax-Free Money Fund by no longer purchasing AMT (alternative minimum tax) securities, because more California investors are becoming concerned about being subject to the AMT. Q: What can we expect for the remainder of 1999? A: Looking forward we believe that the Federal Reserve will try to find the perfect level for interest rates, one that will allow economic growth at a sustainable level without inflation. When the Fed announced its rate hike, it surprised most market observers by also announcing a switch to a neutral bias. One of the open questions that remains concerns the strength of the recovery in foreign economies. We are confident that from this point, however, emerging economic data and the market's reactions to them should provide ample opportunities to find value in the marketplace. - ------------------------------------------ PORTFOLIO MANAGEMENT - ------------------------------------------ William Stevens.......... Senior Portfolio Manager - ------------------------------------------ FUND PERFORMANCE - ------------------------------------------ Montgomery Government Money Market Fund* Since inception (9/14/92)........... 4.52% One year............................ 4.81% Five years.......................... 5.07% One-day yield....................... 4.67% Seven-day yield..................... 4.53% Lipper U.S. Government Money Market Funds Average Since 9/30/92....................... 4.30% One year............................ 4.51% Five years.......................... 4.86% - ------------------------------------------ Montgomery Federal Tax-Free Money Fund Since inception (7/15/96)........... 3.11% One year............................ 2.82% One-day yield....................... 2.91% Seven-day yield..................... 3.17% Lipper Tax-Exempt Money Market Funds Average Since 7/31/96....................... 2.94% One year............................ 2.68% - ------------------------------------------ Montgomery California Tax-Free Money Fund Since inception (9/30/94)........... 3.00% One year............................ 2.59% Three years......................... 2.85% One-day yield....................... 2.53% Seven-day yield..................... 2.73% Lipper California Tax-Exempt Money Market Funds Average Since 9/30/94....................... 2.91% One year............................ 2.46% Three years......................... 2.79% - ------------------------------------------ Past performance is no guarantee of future results. Yields will fluctuate. An investment in one of our money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although these Funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Funds. A portion of income may be subject to some state and/or local taxes, and, for certain investors, a portion may be subject to the federal alternative minimum tax. Fund performance presented is for Class R shares. *Formerly named Montgomery Government Reserve Fund. 79 ======================== The Montgomery Funds - ------------------------ Government Money Market Fund - ------------------------ Investments PORTFOLIO INVESTMENTS June 30, 1999 Principal Amount Value (Note 1) FEDERAL FARM CREDIT BANK (FFCB) -- 4.6% $ 1,000,000 8.400% due 07/26/99.............................. $ 1,001,815 500,000 4.870% due 09/01/99.............................. 499,730 15,000,000 5.157% due 10/01/99++............................ 15,000,000 10,000,000 Discount Note due 12/21/99....................... 9,776,542 ----------- 26,278,087 FEDERAL HOME LOAN BANK (FHLB) -- 35.3% 500,000 6.315% due 07/09/99.............................. 500,064 3,600,000 5.540% due 07/13/99.............................. 3,599,935 1,500,000 4.110% due 07/15/99++............................ 1,499,432 1,550,000 7.180% due 07/30/99++............................ 1,552,867 7,270,000 5.805% due 08/06/99.............................. 7,274,747 14,015,000 5.510% due 08/17/99.............................. 14,013,936 500,000 5.545% due 08/17/99.............................. 500,524 7,550,000 7.866% due 08/31/99++............................ 7,585,415 10,000,000 5.419% due 09/02/99++............................ 9,999,134 20,000,000 4.721% due 09/08/99++............................ 19,998,099 3,000,000 5.915% due 09/24/99.............................. 3,006,083 18,000,000 6.035% due 09/27/99.............................. 18,060,764 20,000,000 4.910% due 10/13/99++............................ 20,001,106 4,545,000 8.375% due 10/25/99.............................. 4,598,159 500,000 7.650% due 10/28/99.............................. 504,229 10,000,000 4.910% due 11/10/99++............................ 9,997,853 2,000,000 5.790% due 11/18/99.............................. 2,007,703 1,000,000 6.405% due 11/22/99.............................. 1,006,922 1,000,000 5.880% due 11/26/99.............................. 1,005,070 2,000,000 5.670% due 01/14/00.............................. 2,005,959 5,000,000 4.995% due 02/24/00.............................. 4,998,712 5,635,000 5.035% due 02/25/00.............................. 5,630,021 3,250,000 4.870% due 03/17/00++............................ 3,245,366 4,000,000 4.500% due 03/22/00++............................ 3,980,908 3,650,000 4.625% due 03/22/00++............................ 3,636,534 19,435,000 4.200% due 03/23/00++............................ 19,289,078 1,000,000 5.590% due 03/27/00.............................. 1,000,911 8,250,000 5.050% due 03/29/00++............................ 8,239,769 8,000,000 4.425% due 04/05/00++............................ 7,954,589 3,000,000 4.120% due 04/12/00++............................ 2,975,236 8,000,000 5.260% due 05/26/00.............................. 8,000,525 500,000 4.690% due 06/01/00++............................ 490,744 5,000,000 5.415% due 06/14/00.............................. 4,998,808 ----------- 203,159,202 FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.6% 916,318 6.500% due 10/01/99.............................. 917,305 8,100,000 5.000% due 03/10/00++............................ 8,095,132 ----------- 9,012,437 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 0.2% 330,734 6.500% due 09/01/99.............................. 330,838 348,407 6.500% due 10/01/99.............................. 348,657 460,505 6.500% due 10/01/99.............................. 460,831 ----------- 1,140,326 MUNICIPAL BONDS AND NOTES -- 4.0% New York City, General Obligation Bonds, Prerefunded: 305,000 9.800% due 08/15/04.............................. 312,823 55,000 9.750% due 08/15/09.............................. 56,407 985,000 9.625% due 08/01/10.............................. 1,008,394 165,000 9.750% due 08/15/10.............................. 169,230 150,000 9.750% due 08/15/11.............................. 153,837 351,000 9.875% due 08/15/13.............................. 360,039 3,935,000 9.875% due 08/15/14.............................. 4,036,339 585,000 9.875% due 08/15/15.............................. 600,066 6,200,000 9.875% due 08/15/16.............................. 6,359,671 9,005,000 9.875% due 08/15/17.............................. 9,233,969 1,000,000 9.875% due 08/15/18.............................. 1,025,754 ----------- 23,316,529 STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 17.7% 5,600,000 5.469% due 07/15/99++............................ 5,600,840 11,200,000 5.530% due 07/16/99.............................. 11,204,026 42,215,000 4.500% due 08/02/99.............................. 42,192,283 8,000,000 5.583% due 08/11/99.............................. 7,999,758 20,000,000 4.670% due 09/15/99++............................ 19,997,395 15,000,000 4.910% due 11/05/99++............................ 14,999,185 ----------- 101,993,487 TENNESSEE VALLEY AUTHORITY (TVA) -- 0.3% 1,650,000 8.375% due 10/01/99.............................. 1,663,664 ----------- TOTAL SECURITIES.................................................. 366,563,732 REPURCHASE AGREEMENTS -- 36.1% 70,000,000 Agreement with Bear Stearns, Tri-Party, 5.200% dated 06/30/99, to be repurchased at $70,009,973 on 07/01/99, collateralized by $71,864,715 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates..... 70,000,000 121,712,000 Agreement with Greenwich Capital Markets, Tri-Party, 5.300% dated 6/30/99, to be repurchased at $121,729,673 on 07/01/99, collateralized by $124,148,571 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates................................... 121,712,000 80 The accompanying notes are an integral part of these financial statements. ======================= The Montgomery Funds ----------------------- Government Money Market Fund ----------------------- Investments Principal Amount Value (Note 1) REPURCHASE AGREEMENTS -- continued $ 2,073,000 Agreement with Paine Webber Group, Tri-Party, 5.050% dated 06/30/99, to be repurchased at $2,073,287 on 07/01/99, collateralized by $2,077,122 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates.................................. $ 2,073,000 14,172,000 Agreement with Prudential Securities, Tri-Party, 5.100% dated 06/30/99, to be repurchased at $14,173,980 on 07/01/99, collateralized by $14,455,462 market value of U.S. government and mortgage-backed securities, having various maturities and interest rates.................................. 14,172,000 ----------- TOTAL REPURCHASE AGREEMENTS...................................... 207,957,000 ----------- TOTAL INVESTMENTS -- 99.8% (At amortized cost*)............................................. 574,520,732 OTHER ASSETS AND LIABILITIES -- 0.2% (Net)............................................................ 867,457 ----------- NET ASSETS -- 100.0%............................................. $ 575,388,189 =========== * Aggregate cost for federal tax purposes was $574,520,732. ++ Floating-rate note reflects the rate in effect at June 30, 1999. 81 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds - ------------------------ Federal Tax-Free Money Fund - ------------------------ I n v e s t m e n t s Portfolio Investments
June 30, 1999 Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- 100.2% Alabama -- 0.4% $ 500,000 Huntsville, Alabama, General Obligation Bonds, Prerefunding, 6.750% due 02/01/10............................. $ 519,084 Alaska -- 1.6% 1,350,000 Alaska Municipal Bond Authority Revenue, Series A, Revenue Bonds (FSA Insured), 4.000% due 12/01/99............................. 1,354,414 500,000 Alaska Student Loan Revenue Corporation, Series A, Revenue Bonds (AMBAC Insured), 4.700% due 07/01/99............................. 500,000 ----------- 1,854,414 Arizona -- 0.6% 250,000 Maricopa County, Arizona, Unified High School District, No. 210 Phoenix, Series C, 7.400% due 07/01/99............................. 250,000 450,000 Phoenix, Arizona, General Obligation Bonds, Prerefunding, 6.250% due 07/01/16............................. 459,000 ------------ 709,000 Arkansas -- 0.4% 500,000 Paragould, Arkansas, Sales and Use Tax, Revenue Bonds (AMBAC Insured), 4.750% due 07/01/99............................. 500,000 District of Columbia -- 9.2% 5,400,000 District of Columbia, General Obligation Bonds, Series A-3, 3.450% due 01/01/28++........................... 5,400,000 1,100,000 District of Columbia, General Obligation Bonds, Series A-3, Refunding, 3.500% due 10/01/07++........................... 1,100,000 2,530,000 District of Columbia, General Obligation Bonds, Series B-1, 3.700% due 06/01/03++........................... 2,530,000 1,700,000 District of Columbia, General Obligation Bonds, Series B-2, 3.700% due 06/01/03++........................... 1,700,000 ------------ 10,730,000 Florida -- 4.5% 4,700,000 Indian River County, Florida, Hospital District Revenue Bonds Commercial Paper, 3.150% due 07/09/99............................. 4,700,000 500,000 Port Everglades Port Authority, Florida, Series A, Revenue Bonds, Prerefunding, 7.500% due 09/01/12............................. 513,516 ------------ 5,213,516 Georgia -- 1.3% 1,200,000 Burke County, Georgia, PCR (Georgia Power Company Project), 3.500% due 09/01/25++............................ 1,200,000 260,000 Metropolitan Atlanta Rapid Transit Authority, Georgia Sales Tax Revenue, Series P (AMBAC Insured), 5.500% due 07/01/99.............................. 260,000 ------------ 1,460,000 Illinois -- 7.1% 2,100,000 Chicago, Illinois, Public Building Commission, Series A (FGIC Insured), 3.500% due 01/01/12++............................ 2,100,000 220,000 Franklin Park, Illinois, General Obligation Revenue (AMBAC Insured), 6.000% due 07/01/99.............................. 220,000 3,000,000 Illinois State Toll Authority, Highway Priority Revenue, Series B, 3.700% due 01/01/17++............................ 3,000,000 2,955,000 Lombard, Illinois, Multi-family Housing Revenue (Clover Creek Apartments Project) (Put, 12/15/99), 3.550% due 12/15/06.............................. 2,955,000 ------------ 8,275,000 Indiana -- 0.4% 500,000 Warren Township, Indiana, School Building Corporation Revenue Bonds, First Mortgage, Series B, 5.600% due 07/15/99.............................. 500,444 Iowa -- 1.0% 1,100,000 Iowa Higher Education Authority, Loan Revenue Anticipation Notes, Briar Cliff, Series A, 4.250% due 07/07/99.............................. 1,100,077 Kansas -- 2.9% 250,000 Emporia, Kansas, General Obligation Bonds, Refunding (AMBAC Insured), 4.750% due 09/01/99.............................. 250,579 2,875,000 Johnson County, Kansas, Public Buildings Commission, Lease Revenue, 4.250% due 09/01/99.............................. 2,877,846 250,000 Kansas Municipal Energy Agency Electric Power (Nearman Project), Series A (AMBAC Insured), 3.800% due 12/01/99.............................. 250,612 ------------ 3,379,037
82 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds ------------------------ Federal Tax-Free Money Fund ------------------------ I n v e s t m e n t s
Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- continued Kentucky -- 4.1% $ 390,000 Floyd County, Kentucky, General Obligation Bonds, Prerefunding (FSA Insured), 4.350% due 03/01/00.............................. $ 392,784 505,000 Kentucky State, Turnpike Authority, Economic Development Revenue Bonds, Prerefunded, 7.250% due 05/15/10.............................. 528,422 3,900,000 Ohio County, Kentucky, PCR, Big Rivers Electric Corporation, Revenue Bonds (AMBAC Insured), 3.500% due 10/01/15++............................ 3,900,000 ------------ 4,821,206 Louisiana -- 5.0% 4,300,000 Louisiana Public Facilities Authority, Multi-family Mortgage Revenue (River View Project), 3.550% due 07/01/07++............................ 4,300,000 1,500,000 West Baton Rouge Parish, Louisiana, Industrial District No. 3 Revenue (Dow Chemical Project), 3.600% due 12/01/24++............................ 1,500,000 ------------ 5,800,000 Maryland -- 1.5% 250,000 Baltimore County, Maryland, General Obligation Bonds, Prerefunding, 5.500% due 05/01/00.............................. 254,470 200,000 Howard County, Maryland, Series B, General Obligation Bonds, 5.600% due 08/15/99.............................. 200,553 1,000,000 Montgomery County, Maryland, Housing Opportunity Community, Multi-family Mortgage Revenue (Falklands Project), 3.350% due 08/01/15++............................ 1,000,000 300,000 University of Maryland Systems Auxiliary Facilities and Tuition Revenue, Series B, 6.750% due 10/01/99.............................. 302,468 ------------ 1,757,491 Massachusetts -- 0.4% 230,000 Dighton and Rehoboth, Massachusetts, Regional School District, General Obligation Bonds (AMBAC Insured), 4.100% due 07/15/99.............................. 230,069 250,000 Massachusetts State, General Obligation Bonds, Series A (FGIC Insured), 7.000% due 03/01/00.............................. 255,852 ------------ 485,921 Michigan -- 0.4% 500,000 Grand Traverse County Hospital, Michigan, Munson Healthcare, Series A (AMBAC Insured), 3.600% due 07/01/99.............................. 500,000 Mississippi -- 0.3% 290,000 Vicksburg Warren, Mississippi, School District, Certificates of Participation (MBIA Insured), 4.600% due 04/01/00.............................. 292,861 Missouri -- 4.0% 2,500,000 Kansas City, Missouri, Industrial Development Authority Revenue (Ewing Marion Kauffman Project), 3.650% due 04/01/27++............................ 2,500,000 270,000 Missouri State, Development Financing Board, Infrastructure Facilities Revenue (Bolger Square Project), Series A (AMBAC Insured), 5.250% due 06/01/00.............................. 273,611 1,390,000 Missouri State, Economic and Industrial Development, Export and Infrastructure Board, Series E, 3.800% due 09/01/10++............................ 1,390,000 485,000 Neosho, Missouri, School District No. R-5, Building Corporation Leasehold Revenue, Prerefunding (FSA Insured), 3.500% due 09/01/99.............................. 485,000 ------------ 4,648,611 Nevada -- 0.3% 300,000 Nevada State, General Obligation Bonds (Colorado River Community), 5.000% due 07/01/99.............................. 300,000 New Jersey -- 0.4% 500,000 Keansburg, New Jersey, Board of Education, Certificates of Participation, Prerefunding, 8.000% due 11/01/14.............................. 517,790 New York -- 0.2% 250,000 Hempstead Town, New York, Series C, General Obligation Bonds, 4.800% due 02/15/00.............................. 252,278 North Dakota -- 0.3% 300,000 North Dakota State Municipal Board (Capital Financing Project), Series I, Prerefunding, 6.250% due 12/01/11.............................. 303,744 Ohio -- 14.1% 3,820,000 Clermont County, Ohio, Hospital Facilities, Series B, Infrastructure Facilities Revenue (Bolger Square Project), Series A (AMBAC Insured), 3.600% due 09/01/21++............................ 3,820,000 4,930,000 Ohio State University, General Receipts Revenue, 3.500% due 12/01/07++............................ 4,930,000 3,350,000 Ohio State University, General Receipts Revenue, 3.500% due 12/01/17++............................ 3,350,000
83 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds - ------------------------ Federal Tax-Free Money Fund - ------------------------ Investments
Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES--continued Ohio--continued $ 4,350,000 Ohio State, PCR (General Motors Corporation Project), 3.350% due 03/01/06++ .......................... $ 4,350,000 ------------ 16,450,000 Oregon -- 4.8% 220,000 Medford, Oregon, Gas Tax Revenue (FSA Insured), 4.000% due 02/01/00 ............................. 220,820 1,010,000 Oregon State, Department of Administrative Services, Certificates of Participation, Series B (MBIA Insured), 4.400% due 11/01/99 ............................. 1,013,533 3,950,000 Portland, Oregon, Multi-family Revenue (South Park Block Project) (LOC:Harris Trust & Savings Bank), 3.350% due 12/01/11++ ........................... 3,950,000 390,000 Umatilla Indian Reservation, Oregon, Confederated Tribes, Series A, General Obligation Bonds (LOC: Bank of America), 4.200% due 02/01/00 ............................. 391,562 ------------ 5,575,915 Pennsylvania -- 1.3% 490,000 Pennsylvania State University, Revenue Bonds, Series B, 4.500% due 08/15/99 ............................. 490,440 1,000,000 Sewickley Valley, Pennsylvania, Hospital Authority Revenue (Sewickley Valley Hospital Project), Prerefunding, 7.500% due 10/01/14 ............................. 1,029,385 ------------ 1,519,825 South Carolina -- 0.4% 450,000 Horry County, South Carolina School District, Series B, General Obligation Bonds (MBIA Insured), 6.500% due 03/01/00 ............................. 459,504 Tennessee -- 0.7% 820,000 Nashville and Davidson Counties, Tennessee, Metropolitan Government, Prerefunding, 3.700% due 08/01/99 ............................. 820,000 Texas -- 10.1% 535,000 Austin, Texas, General Obligation Bonds, Series A, Prerefunded, (Call, 09/01/99), 7.000% due 09/01/02 ............................. 538,185 1,200,000 Calhoun County, Texas, Naval Industrial Development Authority, Port Revenue (Formosa Plastics Corporation) (LOC: Bank of America), 3.450% due 11/01/15++............................ 1,200,000 250,000 Dallas, Texas, Waterworks and Sewer Systems Revenue Bonds, 5.600% due 10/01/99 ............................. 251,163 700,000 Grand Prairie Sports Facility Tax Revenue, Series B, Prerefunding (FSA Insured), 4.000% due 09/15/99 ............................. 701,045 1,000,000 Guadalupe-Blanco River Authority, PCR (Central Power & Light Company Project) (LOC: ABN Amro Bank N.V.), 3.450% due 11/01/15++ ........................... 1,000,000 790,000 Harlingen, Texas, Airport Improvement Revenue, Prerefunding (AMBAC Insured), 3.450% due 02/15/00 ............................. 790,000 580,000 Harris County, Texas, Health Facilities Development Revenue (Texas Medical Center Project) (MBIA Insured), 7.375% due 05/15/20++ ........................... 610,849 3,900,000 Harris County, Texas, Industrial Development Corporation, Solid Waste Disposal Revenue, 3.300% due 02/01/23++............................ 3,900,000 1,000,000 Lower Neches Valley, Texas Authority, Industrial Development Corporation Revenue (Mobil Oil Refining Corporation), 3.550% due 03/01/29++............................ 1,000,000 275,000 Plano, Texas, General Obligation Bonds, Prerefunding (AMBAC Insured), 5.000% due 09/01/99 ............................. 275,671 225,000 Plugerville, Texas, Independent School District, General Obligation Bonds, 8.750% due 08/01/99 ............................. 226,001 200,000 Texas Municipal Power Agency Revenue, Prerefunding (FGIC Insured), 7.000% due 09/01/99 ............................. 201,090 300,000 Texas State Public Financing Authority, General Obligation Bonds, Prerefunding, 4.000% due 10/01/99.............................. 300,668 700,000 Texas State Public Financing Authority, General Obligation Bonds, Series B, 7.100% due 10/01/03 ............................. 706,166 ------------ 11,700,838 Utah -- 4.0% 4,100,000 Utah State Board, Regents Student Loan Revenue, Series B (AMBAC Insured), 3.500% due 11/01/00++............................ 4,100,000 500,000 Utah State Building Ownership Authority, Series A, 5.500% due 05/15/00 ............................. 509,131 ------------ 4,609,131 Virginia -- 0.9% 250,000 Fairfax County, Virginia, Series A, General Obligation Bonds, Prerefunding, 4.700% due 06/01/00 ............................. 253,120
84 The accompanying notes are an integral part of these financial statements. ======================== The Montgomery Funds ------------------------ Federal Tax-Free Money Fund ------------------------ Investments
Principal Amount Value (Note 1) MUNICIPAL BONDS AND NOTES -- continued Virginia -- continued $ 815,000 Virginia State, Series B, General Obligation Bonds, Prerefunding, 4.200% due 06/01/00 ............................. $ 821,517 ------------ 1,074,637 Washington -- 13.8% 265,000 King County, Washington, Housing Authority Housing Revenue, Series A, 3.850% due 07/01/99 ............................. 265,000 1,000,000 Port Seattle, Washington, Industrial Development Corporation Revenue (Sysco Food Services Project), Prerefunding, 3.550% due 11/01/25++ ........................... 1,000,000 450,000 Richland, Washington, Water and Sewer Revenue, Refunding (AMBAC Insured), 4.000% due 04/01/00 ............................. 451,961 285,000 Snohomish and Island Counties, Washington, Stanwood School District No. 401, Refunding (FGIC Insured), 3.250% due 12/15/99 ............................. 285,000 965,000 Thurston County, Washington, Olympia School District No. 111, Refunding (FGIC Insured), 4.300% due 12/01/99 ............................. 969,027 315,000 Washington State, Certificates of Participation, Series A, 3.000% due 07/01/99 ............................. 315,000 320,000 Washington State, Certificates of Participation, Series A, 3.250% due 01/01/00 ............................. 320,000 3,000,000 Washington State, Economic Development Financing Authority Revenue (Pioneer Human Services Project), Series H (LOC: U.S. Bank of Washington), 3.700% due 09/01/18++ ........................... 3,000,000 3,200,000 Washington State, Healthcare Facilities Authority Revenue (Sisters Providence), 3.400% due 10/01/05++ ........................... 3,200,000 370,000 Washington State, Higher Education Facilities Authority Revenue (Whitworth College Project), Refunding (MBIA Insured) 3.250% due 10/01/99 ............................. 370,000 1,100,000 Washington State, Housing Finance Community, Multi-family Mortgage Revenue (Canyon Lakes II Project) (LOC: U.S. Bank of Washington), 4.650% due 10/01/19++ ........................... 1,100,000 2,600,000 Washington State, Housing Finance Community, Multi-family Mortgage Revenue (Inglenook Court Project) (LOC: Bank of America), 3.600% due 07/01/25++ ........................... 2,600,000 2,225,000 Washington State, Housing Finance Community, Multi-family Mortgage Revenue (Winterhill Apartments Project), 3.250% due 07/01/28++ ........................... 2,225,000 ------------ 16,100,988 Wisconsin -- 1.6% 1,800,000 Wisconsin State Transportation Revenue, Multi-family Mortgage Revenue (Canyon Lakes II Project), 5.800% due 07/01/99 ............................. 1,800,000 Wyoming -- 2.2% 2,500,000 Lincoln County, Wyoming, Environmental Improvement Revenue (Pacificorp Projects), AMT, 3.650% due 11/01/25++ ........................... 2,500,000 TOTAL INVESTMENTS -- 100.2% (At amortized cost*) ............................................. 116,531,312 OTHER ASSETS AND LIABILITIES -- (0.2)% (Net) ............................................................ (189,999) ------------ NET ASSETS -- 100.0% ............................................. $116,341,313 ============
* Aggregate cost for federal tax purposes $116,531,312. ++ Floating-rate note reflects the rate in effect at June 30, 1999. Abbreviations: AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax FGIC Federal Guaranty Insurance Corporation FSA Financial Security Assurance LOC Letter of Credit MBIA Municipal Bond Investors Assurance PCR Pollution Control Revenue 85 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds - ------------------------- California Tax-Free Money Fund - ------------------------- Investments PORTFOLIO INVESTMENTS
June 30, 1999 Principal Amount Value (Note 1) Municipal Bonds and Notes -- 103.7% California -- 103.0% $ 1,300,000 Abag, California, Financing Authority Revenue, Nonprofit Corporation, Certificates of Participation, Series C, Prerefunding 3.100% due 10/01/27++ ........................... $ 1,300,000 300,000 Alameda County, California, Unified School District 6.900% due 07/01/99 ............................. 300,000 1,000,000 Anaheim, California, Certificates of Participation, Prerefunding (AMBAC Insured) 7.125% due 05/15/13 ............................. 1,053,559 2,450,000 Antioch, California, Public Financing Authority Reassessment Revenue, Series A (AMBAC Insured) 6.500% due 09/02/99 ............................. 2,464,469 1,000,000 Bakersfield, California, City School, Series B, Prerefunding 6.250% due 08/01/14 ............................. 1,022,604 200,000 Bay Area, California, Redevelopment Agency, Pool A (FSA Insured) 4.900% due 12/15/99 ............................. 201,653 200,000 Berkeley, California, School District Authority (AMBAC Insured) 8.100% due 08/01/01 ............................. 204,841 320,000 Berkeley, California, Unified School District (FGIC Insured) 4.375% due 08/01/99 ............................. 320,355 400,000 Calexico, California, Financing Authority Revenue, Water System (AMBAC Insured) 3.150% due 11/01/99 ............................. 400,000 500,000 California Statewide Community Development Authority, Oakland Convention Center Project 5.200% due 10/01/99 ............................. 502,568 5,000,000 California Education Facilities Authority 3.050% due 08/20/99 ............................. 5,000,000 1,105,000 California Educational Facilities Authority Revenue, Prerefunding 6.200% due 01/01/02 ............................. 1,144,332 2,000,000 California Educational Facilities Authority Revenue, Pepperdine University, Series B 2.650% due 11/01/29++ ........................... 2,000,000 5,200,000 California Educational Facilities Authority Revenue, Pomona College 2.650% due 07/01/22++ ........................... 5,200,000 335,000 California Educational Facilities Authority Revenue, Pomona College 2.900% due 01/01/00 ............................. 334,831 6,000,000 California Health Facilities Financing Authority Revenue (MBIA Insured) 3.000% due 11/01/21++ ........................... 6,000,000 3,210,000 California Health Facilities Financing Authority Revenue 3.200% due 09/01/20++ ........................... 3,210,000 600,000 California Health Facilities Financing Authority Revenue, Prerefunding 7.500% due 05/01/20 ............................. 633,674 6,000,000 California Health Facilities Financing Authority Revenue (MBIA Insured), 3.070% due 08/15/28++ ........................... 6,000,000 875,000 California Health Facilities Financing Authority Revenue, Catholic Health, Series A, Prerefunding (AMBAC Insured) 7.000% due 07/01/06 ............................. 892,500 2,300,000 California Health Facilities Financing Authority Revenue, Catholic Healthcare, Series B (MBIA Insured) 3.000% due 07/01/16++ ........................... 2,300,000 500,000 California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A, Prerefunding 7.000% due 10/01/18 ............................. 514,715 15,050,000 California Health Facilities Financing Authority Revenue, Memorial Health Services 3.200% due 10/01/24++............................ 15,050,000 2,200,000 California Health Facilities Financing Authority, Saint Joseph Health System, Series B 2.900% due 07/01/09++ ........................... 2,200,000 2,100,000 California Health Facilities Financing Authority, Sutter Healthcare Series B 2.900% due 07/01/12++ ........................... 2,100,000 7,600,000 California Pollution Control Financing Authority 3.050% due 10/14/99 ............................. 7,600,000 8,400,000 California Pollution Control Financing Authority 3.300% due 11/01/26++ ........................... 8,400,000 4,000,000 California Schools Cash Reserve Authority, Series A 4.000% due 07/03/00 ............................. 4,035,000 5,250,000 California State 4.500% due 10/01/99 ............................. 5,267,892 490,000 California State 5.900% due 02/01/00 ............................. 497,639
86 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds ------------------------- California Tax-Free Money Fund ------------------------- Investments
Principal Amount Value (Note 1) Municipal Bonds and Notes -- continued California -- continued $ 450,000 California State 6.000% due 11/01/99 .............................. $ 454,447 400,000 California State Department of Water Resources Central Valley Project Revenue, Series H, Prerefunding 6.900% due 12/01/11 .............................. 421,031 380,000 California State Department of Water Resources Central Valley Project Revenue, Series I, Prerefunding 6.600% due 12/01/19 .............................. 397,256 8,265,000 California State Economic Development Financing Authority Revenue 3.050% due 04/01/08++ ............................ 8,265,000 250,000 California State Public Works Board Energy Efficiency Revenue Series B (AMBAC Insured) 4.200% due 03/01/00 .............................. 251,966 500,000 California State Public Works Board Lease Revenue, Department of Corrections State Prisons, Series A (AMBAC Insured) 4.500% due 12/01/99 .............................. 503,074 13,750,000 California Statewide Communities Development Authority Revenue, Certificates of Participation, Sutter Health Obligation Group 3.400% due 07/01/15++ ............................ 13,750,000 5,000,000 California Statewide Communities Development Authority Revenue, Series A 4.000% due 06/30/00 .............................. 5,039,600 7,200,000 California Statewide Community Development Authority, Certificate of Participation FSA Financing 2.900% due 12/01/15++ ............................ 7,200,000 2,700,000 California Statewide Communities Development Authority, Certificates of Participation 3.200% due 06/01/26++ ............................ 2,700,000 250,000 Central Coast, California Water Authority Revenue (AMBAC Insured) 5.300% due 10/01/99 .............................. 251,355 3,300,000 Central Valley, California Schools Financing Authority 3.500% due 01/27/00 .............................. 3,307,304 475,000 Chico, California, Unified School District (FSA Insured) 9.000% due 08/01/99 .............................. 477,336 1,000,000 Clovis, California, Unified School District 5.000% due 08/01/99 .............................. 1,001,568 320,000 Compton, California, Community Redevelopment Agency, Prerefunding (AMBAC Insured) 7.500% due 08/01/13 .............................. 327,571 3,400,000 Contra Costa County, California, Multi-family Mortgage Revenue 3.200% due 11/15/22++ ............................ 3,400,000 2,500,000 Contra Costa County, California Board of Education, TRANS 3.750% due 06/30/00 .............................. 2,515,700 500,000 Contra Costa County, California, Water District, Water Revenue Series F (FGIC Insured) 4.375% due 10/01/99 .............................. 501,693 400,000 Coronado, California Community Development Agency Tax Allocation (FSA Insured) 4.300% due 09/01/99 .............................. 400,865 650,000 Culver City, California, Redevelopment Financing Authority, Prerefunding, Senior Lien, Series A (AMBAC Insured) 6.900% due 11/01/01 .............................. 671,217 450,000 Davis California Joint Unified School District Yolo & Solano Counties, TRANS 3.250% due 04/04/00 .............................. 450,484 4,000,000 East Bay, California, Municipal Utility District, Water System Revenue 3.000% due 10/08/99 .............................. 4,000,000 250,000 East Bay, California, Municipal Utility District, Water System Revenue (FGIC Insured) 6.000% due 06/01/00 .............................. 256,251 250,000 Evergreen, California, School District Special Tax (AMBAC Insured) 3.900% due 09/01/99 .............................. 250,373 1,630,000 Folsom Community Facilities District 2, Special Tax, Prerefunding 7.700% due 12/01/19 .............................. 1,692,315 360,000 Fontana, California, Redevelopment Agency, Tax Allocation, Southwest Industrial Park (MBIA Insured) 4.000% due 09/01/99 .............................. 360,569 5,000,000 Fontana, California, Unified School District, TRANS 4.000% due 07/09/99 .............................. 5,000,359 765,000 Fremont, California, Certificates of Participation, Police Facility Refinancing Project (MBIA Insured) 3.000% due 08/01/99 .............................. 765,000 345,000 Garden Grove, California Public Financing Authority Revenue, Water Services (FGIC Insured) 4.200% due 12/15/99 .............................. 346,687
87 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds - ------------------------- California Tax-Free Money Fund - ------------------------- Investments
Principal Amount Value (Note 1) Municipal Bonds and Notes -- continued California -- continued $ 1,945,000 Golden Empire Schools Financing Authority, Var-Kern High School District, Series A 3.250% due 12/01/24++............................ $ 1,945,000 1,440,000 Golden West Schools Financing Authority, Series A (MBIA Insured) 4.600% due 08/01/99.............................. 1,441,889 250,000 High Desert, California, Memorial Health Care District Revenue 3.950% due 10/01/99.............................. 250,000 725,000 Imperial County, California, Certificates of Participation (MBIA Insured) 3.500% due 02/15/00.............................. 727,201 700,000 Irvine California Improvement Bonds, Act of 1915 Adjusted Assessment 2.900% due 09/02/22++............................ 700,000 500,000 Irvine California Improvement Bonds, Act of 1915 Adjusted Assessment 2.900% due 09/02/23++............................ 500,000 4,150,000 Irvine Ranch Improvement Bonds, Act of 1915 2.900% due 09/02/24++............................ 4,150,000 9,400,000 Irvine Ranch Water District Certificates of Participation 3.700% due 08/01/16++............................ 9,400,000 1,460,000 Irvine Ranch, California, Water District Bank of America NT&SA 3.200% due 04/01/33++............................ 1,460,000 2,000,000 Irvine Ranch, California, Water District 2.900% due 10/01/10++............................ 2,000,000 400,000 Kaweah Delta Healthcare District California Revenue, Series A (MBIA Insured) 3.100% due 06/01/00.............................. 400,000 2,705,000 Kern, California, High School District (MBIA Insured) 3.270% due 02/01/13++............................ 2,705,000 250,000 Long Beach, California, Harbor Revenue 7.150% due 05/15/00.............................. 258,634 300,000 Los Angeles County California, Metropolitan Transit Authority Sales Tax Revenue, Series A (FSA Insured) 4.000% due 07/01/99.............................. 300,000 5,260,000 Los Angeles County Certificate of Participation, Equipment and Realty Property Acquisition (AMBAC Insured) 4.000% due 12/01/99.............................. 5,282,399 2,000,000 Los Angeles County, California Schools Pooled Financing Program, Certificates of Participation, Series A 4.000% due 06/30/00.............................. 2,016,820 1,080,000 Los Angeles County, California, Certificates of Participation, Prerefunding 7.000% due 03/01/02 ............................. 1,129,657 300,000 Los Angeles County, California, Schools Regionalized Business Services, Series A (FSA Insured) 3.850% due 06/01/00 ............................. 301,873 5,000,000 Los Angeles Multi-family Housing Mortgage Revenue, Valencia Village Project (FSA Insured) 3.300% due 10/01/14++ ........................... 5,000,000 2,000,000 Los Angeles Waste Water Systems Revenue, Series B, Prerefunding 7.150% due 06/01/20 ............................. 2,110,407 2,000,000 Los Angeles Water Works (MBIA Insured) 3.050% due 08/27/99 ............................. 2,000,000 325,000 Los Angeles, Convention and Exhibition Center Authority, Certificates of Participation, Series A, Prerefunding 6.600% due 08/15/99 ............................. 326,341 2,000,000 Los Angeles, Community Redevelopment Agency 2.800% due 04/01/09++ ........................... 2,000,000 750,000 Los Angeles, Convention and Exhibition Center Authority, Certificates of Participation, Series A, Prerefunding 7.375% due 08/15/18 ............................. 765,028 200,000 Los Angeles, California, Departments of Airport Revenue 4.250% due 05/15/00 ............................. 201,529 775,000 Los Angeles, California, GO Series A 4.900% due 09/01/99 ............................. 777,442 1,000,000 Los Angeles, California, Municipal Corporation Lease Revenue 7.300% due 09/01/99 ............................. 1,006,825 200,000 Los Angeles County, California Flood Control District 4.300% due 11/01/99 ............................. 200,284 215,000 Mammoth County, California, Community Water District, Act 1915 4.000% due 09/02/99 ............................. 215,000 5,500,000 Metropolitan Water District, Southern California Water Works Revenue, Series C 2.500% due 07/01/28++ ........................... 5,500,000 7,800,000 Modesto Irrigation District 3.050% due 09/14/99 ............................. 7,800,000 500,000 Northern California Power Agency, Public Power, Combustion Turbine, Prerefunding (MBIA Insured) 6.000% due 08/15/10 ............................. 501,743 300,000 Northern California, Power Agency Northwest Revenue (MBIA Insured) 4.200% due 06/01/00 ............................. 302,407
88 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds ------------------------- California Tax-Free Money Fund ------------------------- Investments
Principal Amount Value (Note 1) Municipal Bonds and Notes -- continued California -- continued $ 5,800,000 Ontario California Industrial Development Authority 3.450% due 04/01/15++ ............................ $ 5,800,000 1,300,000 Orange County Apartment Development Revenue, Harbor Point, Issue D 3.600% due 12/01/06++ ............................ 1,300,000 750,000 Orange County Local Transportation Authority, Sales Tax Revenue 5.400% due 02/15/00 ............................. 761,036 5,000,000 Orange County Water Corporation 3.000% due 08/25/99 ............................. 5,000,000 1,300,000 Orange County, California, Sanitation District, Certificates of Participation (AMBAC Insured) 2.900% due 08/01/16++ ........................... 1,300,000 5,000,000 Orange County, California Apartment Development Revenue, Issue D 3.600% due 11/15/28++ ........................... 5,000,000 1,000,000 Orange County, California, Sanitation District Certificates of Participation, Series C (FGIC Insured) 3.050% due 08/01/17++ ........................... 1,000,000 5,000,000 Orange County, California, Special Financing Authority, Teeter Plan Revenue, Series B (AMBAC Insured) 2.950% due 11/01/14++ ........................... 5,000,000 4,100,000 Orange County, California, Recovery, Certificates of Participation (MBIA Insured) 3.520% due 07/01/19++ ........................... 4,100,000 2,275,000 Orange County, Water Authority, California 3.050% due 10/13/99 ............................. 2,275,000 2,000,000 Pollution Control Financing Authority 3.000% due 11/01/26++ ........................... 2,000,000 5,620,000 Redlands, California, Certificates of Participation (FGIC Insured) 3.300% due 09/01/17++ ........................... 5,620,000 1,040,000 Redlands, California, Redevelopment Agency, Series A (MBIA Insured) 3.700% due 08/01/99 ............................. 1,040,604 860,000 Riverside County, California, TRANS 4.500% due 09/30/99 ............................. 862,744 3,300,000 Riverside County, California, Housing Authority Multi-family Revenue 3.250% due 12/01/07 ............................. 3,300,000 310,000 Rocklin, California, Unified School District, Community Facilities District, Special Tax (MBIA Insured) 3.750% due 09/01/99 ............................. 310,281 1,565,000 Sacramento, California, Regional County Sanitation District 4.500% due 08/01/99 ............................. 1,566,149 5,000,000 Riverside Teeter, Commercial Paper 3.000% due 08/24/99 ............................. 5,000,000 195,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation Revenue, Series B 4.600% due 07/01/99 ............................. 195,000 1,419,000 San Diego Port Corporation 3.000% due 09/09/99 ............................. 1,419,000 900,000 San Diego, Regional Transportation Commission, Series A 4.500% due 09/30/99 ............................. 902,640 290,000 San Diego, California, Unified School District, Certificates of Participation, Series B 6.000% due 07/01/99 ............................. 290,000 1,070,000 San Francisco California, City and County Financial Corporate Lease Revenue, Emergency Radio 3.700% due 04/01/00 ............................. 1,075,469 500,000 San Francisco, California, Bay Area Rapid Transit District Sales Tax Revenue 6.700% due 07/01/00 ............................. 516,869 375,000 San Francisco, California, City & County City Hall Improvement Project, Series A (FGIC Insured) 6.100% due 06/15/00 ............................. 385,379 250,000 San Francisco, California, City and County Sewer Revenue, Prerefunding (AMBAC Insured) 6.500% due 10/01/10 ............................. 256,991 500,000 San Francisco, California, City and County Sewer Revenue, Prerefunding (AMBAC Insured) 6.500% due 10/01/11 ............................. 514,246 475,000 San Francisco, California, City and County Sewer Revenue, Prerefunding (AMBAC Insured) 6.500% due 10/01/21 ............................. 488,530 510,000 Santa Ana, California, Community Redevelopment Agency, Tax Allocation, Prerefunding 7.400% due 09/01/19 ............................. 523,743 300,000 Santa Barbara County, California, Local Transit Authority Sales Revenue (FGIC Insured) 4.300% due 04/01/00 ............................. 302,522 2,510,000 Santa Clara County, California, TRANS 4.500% due 10/01/99 ............................. 2,518,622 1,935,000 Santa Clara County, California, Transit District, Series 1985 A 3.200% due 06/01/15++ ........................... 1,935,000
89 The accompanying notes are an integral part of these financial statements. ========================= The Montgomery Funds - ------------------------- California Tax-Free Money Fund - ------------------------- Investments
Principal Amount Value (Note 1) Municipal Bonds and Notes -- continued California -- continued $ 500,000 Santa Monica California, Community College District, Certificates of Partici- pation, Prerefunding (AMBAC Insured) 3.200% due 06/01/00 ............................. $ 500,311 250,000 Santa Rosa, California, Central Parking Service Facilities District 4.050% due 07/02/99 ............................. 250,002 500,000 Santa Cruz County, California, Public Financing Authority Revenue, Series B, Prerefunding 7.625% due 09/01/21 ............................. 515,997 1,000,000 Sonoma County, TRANS 3.500% due 02/01/00 ............................. 1,002,156 500,000 South Coast Air Quality Management, District Building Corporation, California, Revenue, Series B (AMBAC Insured) 6.900% due 08/01/00 ............................. 511,579 250,000 South Poway Community, Facilities District Number 1, California (MBIA Insured) 3.500% due 08/02/99 ............................. 250,106 1,835,000 Southern California Rapid Transit District, Certificates of Participation (MBIA Insured) 7.625% due 07/01/99 ............................. 1,910,400 375,000 Temecula, California, Community Special Tax 4.250% due 09/01/99 ............................. 375,169 435,000 Thousand Oaks, California, Certificate of Participation, Wastewater System Improvement Project (FSA Insured) 3.400% due 10/01/99 ............................. 435,319 555,000 Torrance, California, Certificate of Participation, Wastewater System Improvement Project (FSA Insured) 4.000% due 12/01/99 ............................. 557,270 510,000 Tri-City California Hospital District Revenue, Series B (MBIA Insured) 5.500% due 02/15/00 ............................. 517,348 4,610,000 Triunfo, California County, Sanitation District (Callable) 3.300% due 06/01/19++ ........................... 4,610,000 455,000 University of California, Revenue Series, Prerefunding, (AMBAC Insured) 6.800% due 09/01/09 ............................. 466,898 2,000,000 University of California, UCLA Central Chiller/Cogeneration Facility, Certificate of Participation, Prerefunding 7.000% due 11/01/21 ............................. 2,065,943 2,100,000 Vallecitos Water District, California, Water Revenue Credit (LOC: Local de France) 3.200% due 07/01/30++ ........................... 2,100,000 2,300,000 Vallejo, California, Multi-family Housing Authority Revenue, (LOC: Dresdner Kleinworth Benson) 2.800% due 01/01/08++ ........................... 2,300,000 200,000 West Covina, California, Public Financing Water Revenue, Water Systems Capital Improvements Project, Prerefunding 7.500% due 09/01/08 ............................. 205,437 320,000 Whittier, California, Community Facility District Special Tax 3.600% due 09/01/99 ............................. 320,000 5,550,000 Yuba County, California, TRANS 3.750% due 02/10/00 ............................. 5,569,800 ------------ 301,808,692 Puerto Rico -- 0.7% 1,910,000 Puerto Rico GDB 3.150% due 09/10/99 ............................. 1,910,000 TOTAL INVESTMENTS -- 103.7% (At amortized cost*) ............................................. 303,718,692 OTHER ASSETS AND LIABILITIES -- (3.7%) (Net) ............................................................ (10,817,465) ------------ NET ASSETS -- 100.0% ............................................. $292,901,227 ============
* Aggregate cost for federal tax purposes $303,718,692. ++ Floating-rate note reflects the rate in effect at June 30, 1999. Abbreviations: AMBAC American Municipal Bond Assurance Corporation FGIC Federal Guaranty Insurance Corporation FSA Financial Security Assurance GO General Obligation LOC Letter of Credit MBIA Municipal Bond Investors Assurance TRANS Tax and Revenue Anticipation The Montgomery California Tax-Free Money Fund concentrates in California municipal securities. Certain California constitutional amendments, legislative measures, executive orders, administrative regulations, court decisions and voter initiatives could result in certain adverse consequences, including impairing the ability of certain issuers of California municipal securities to pay principal and interest on their obligations. 90 The accompanying notes are an integral part of these financial statements. ======================= The Montgomery Funds ----------------------- Annual Report ----------------------- June 30, 1999 ==================== FINANCIAL STATEMENTS - -------------------- Statements of Assets and Liabilities ..... 92 Statements of Operations ................. 98 Statements of Changes in Net Assets ...... 102 Statements of Cash Flows ................. 106 Financial Highlights ......................110 Notes to Financial Statements ............ 130 Independent Auditor's Report ............. 146 Tax Information .......................... 147 91 ======================= The Montgomery Funds - ----------------------- Statements of Assets and Liabilities - ----------------------- June 30, 1999
Growth Assets: Fund - ------------------------------------------------------------------------------------------------------------------------------------ Investments in securities, at value (note 1) Securities ..................................................................................... $633,757,054 Repurchase agreements .......................................................................... 45,284,000 Cash ................................................................................................ -- Foreign currency, at value (Cost $475,277) .......................................................... -- Cash held as collateral for loaned securities (note 4) .............................................. 15,683,855 Dividends receivable ................................................................................ 675,128 Interest receivable ................................................................................. 6,352 Receivable for expenses absorbed by Manager ......................................................... -- Receivable for shares of beneficial interest sold ................................................... 908,304 Receivable for investment securities sold ........................................................... 5,040,520 Other assets ........................................................................................ -- ------------ Total Assets ........................................................................................ 701,355,213 ------------ Liabilities: - ------------------------------------------------------------------------------------------------------------------------------------ Forward foreign-currency exchange contracts: Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ............ -- Collateral on securities loaned (note 4) ............................................................ 15,683,855 Notes payable (note 4) .............................................................................. -- Payable for shares of beneficial interest redeemed .................................................. 8,430,324 Payable for investment securities purchased ......................................................... 5,891,945 Management fees payable ............................................................................. 102,653 Administration fees payable ......................................................................... 36,385 Share marketing plan fees payable (note 3) (Class P shares only) .................................... 563 Dividends payable ................................................................................... -- Trustees' fees and expenses payable ................................................................. 3,445 Cash overdrafts payable to custodian ................................................................ 645,746 Accounting, Custodian and Transfer agency fees payable .............................................. 399,395 Other accrued liabilities and expenses .............................................................. 153,597 -------------- Total Liabilities ................................................................................... 31,347,908 -------------- Net Assets .......................................................................................... $670,007,305 -------------- Investments at identified cost ...................................................................... $516,473,228 Net Assets Consist of: - ------------------------------------------------------------------------------------------------------------------------------------ Undistributed net investment income/(distributions in excess of net investment income/accumulated net investment loss) .................................................................................... $ 4,220,770 Accumulated net realized gain/(loss) ................................................................ 107,535,433 Net unrealized appreciation ......................................................................... 162,567,826 Shares of beneficial interest ....................................................................... 275,293 Additional paid-in capital .......................................................................... 395,407,983 -------------- Net Assets .......................................................................................... $670,007,305 Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Class R shares ................................................................................. $669,788,754 Class P shares ................................................................................. 218,551 -------------- Net Assets .......................................................................................... $670,007,305 Class R shares outstanding ..................................................................... 27,520,359 Class P shares outstanding ..................................................................... 8,916 Class R shares: Net asset value, offering and redemption price per share outstanding ................ $ 24.34 -------------- Class P shares: Net asset value, offering and redemption price per share outstanding ................ $ 24.51 --------------
92 The accompanying notes are an integral part of these financial statements.
U.S. Emerging Equity International International Global Growth Small Cap Income Growth Small Cap Opportunities Fund Fund Fund Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------------------ $ 372,397,416 $ 121,878,047 $ 28,966,175 $ 221,479,146 $ 37,436,220 $ 55,274,580 12,813,000 16,578,000 1,308,000 7,390,000 -- 2,303,000 -- -- 990 -- -- 62,887 -- -- -- -- -- 474,452 7,355,591 12,069,405 356,679 16,859,354 1,614,873 3,582,787 96,143 10,760 28,042 558,423 160,957 98,943 1,815 2,326 185 1,047 -- 326 -- -- 216,317 175,020 303,164 227,394 206,696 63,902 2,557 5,086,064 205,534 67,883 2,848,093 1,965,956 233,622 2,456,811 1,071,177 1,180,174 5,071 -- -- -- 2,514 -- - ------------- ------------- ------------- ------------- ------------- ------------- 395,723,825 152,568,396 31,112,567 254,005,865 40,794,439 63,272,426 - ------------- ------------- ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------------ -- -- -- 98,326 2,156 11,021 7,355,591 12,069,405 356,679 16,859,354 1,614,873 3,582,787 -- -- -- -- 400,000 -- 292,404 5,359,491 15,163 154,311 3,959 58,174 4,693,685 994,978 464,925 6,357,625 139,625 2,163,202 253,898 55,602 246,788 450,573 344,292 192,295 18,922 12,310 1,706 13,185 2,284 3,119 -- 23,038 4,936 2,017 36 -- -- -- -- -- -- -- 2,093 1,063 565 2,322 751 656 482,160 14,254 -- 264,548 133,616 -- 50,061 51,668 28,594 95,668 45,421 69,794 92,501 57,367 31,234 68,952 50,691 45,838 - ------------- ------------- ------------- ------------- ------------- ------------- 13,241,315 18,639,176 1,150,590 24,366,881 2,737,704 6,126,886 - ------------- ------------- ------------- ------------- ------------- ------------- $ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540 - ------------- ------------- ------------- ------------- ------------- ------------- $ 275,475,738 $ 97,603,880 $ 24,468,532 $ 221,218,736 $ 35,270,673 $ 49,301,510 - ------------------------------------------------------------------------------------------------------------------------------------ $ -- $ -- $ 8,286 $ (606,751) $ (192,896) $ 11,294 22,828,520 (6,874,371) 2,100,116 6,940,454 (441,699) 4,813,717 109,734,676 40,852,167 5,805,643 7,544,887 2,156,473 8,266,541 193,133 80,970 15,743 121,084 26,263 29,748 249,726,181 99,870,454 22,032,189 215,639,310 36,508,594 44,024,240 - ------------- ------------- ------------- ------------- ------------- ------------- $ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540 - ------------------------------------------------------------------------------------------------------------------------------------ $ 382,482,510 $ 113,322,824 $ 26,749,914 $ 227,286,877 $ 38,053,879 $ 57,145,540 N/A 20,606,396 3,212,063 2,352,107 2,856 N/A - ------------- ------------- ------------- ------------- ------------- ------------- $ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540 19,313,325 6,836,591 1,405,261 11,984,060 2,626,071 2,974,786 N/A 1,260,377 168,990 124,311 198 N/A $ 19.80 $ 16.58 $ 19.04 $ 18.97 $ 14.49 $ 19.21 - ------------- ------------- ------------- ------------- ------------- ------------- N/A $ 16.35 $ 19.01 $ 18.92 $ 14.42 N/A - ------------- ------------- ------------- ------------- ------------- -------------
93 ====================== The Montgomery Funds - ---------------------- Statements of Assets and Liabilities - ---------------------- June 30, 1999
Global Communications Assets: Fund - ------------------------------------------------------------------------------------------------------------------------------------ Investments in securities, at value (note 1) Securities ....................................................................................... $311,944,922 Repurchase agreements ............................................................................ 40,277,000 Cash .................................................................................................. 475,789 Foreign currency, at value (Cost $855,581, $4,176,930, $1,304,115, $152,779 and $682,683, respectively) 855,250 Net unrealized appreciation of forward foreign-currency exchange contracts (note 4).................... -- Cash held as collateral for loaned securities (note 4) ................................................ 473,884 Net unrealized appreciation of equity swaps............................................................ -- Dividends receivable .................................................................................. 342,408 Interest receivable ................................................................................... 5,706 Receivable for expenses absorbed by Manager............................................................ -- Receivable for shares of beneficial interest sold ..................................................... 3,105,470 Receivable for investment securities sold ............................................................. 3,145,752 Receivable for short sales............................................................................. -- Deferred organization costs (note 1)................................................................... -- Other assets .......................................................................................... 834 ------------ Total Assets 360,627,015 ------------ Liabilities: - ------------------------------------------------------------------------------------------------------------------------------------ Short sales (Proceeds $63,592,826) (note 1)............................................................ -- Options written, at value (Premium received $131,401) (note 1)......................................... -- Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ................... 55,438 Collateral on securities loaned (note 4) .............................................................. 473,884 Notes payable (note 4)................................................................................. -- Deferred fee income on dollar roll transactions........................................................ -- Purchase of investments under dollar roll transactions................................................. -- Payable for shares of beneficial interest redeemed .................................................... 125,761 Payable for investment securities purchased ........................................................... 4,816,758 Payable for foreign currency due to Custodian.......................................................... -- Management fees payable ............................................................................... 70,158 Administration fees payable ........................................................................... 19,470 Share marketing plan fees payable (note 3)............................................................. -- Dividends payable...................................................................................... -- Trustees' fees and expenses payable ................................................................... 3,147 Variation margin payable............................................................................... -- Cash overdrafts payable to custodian................................................................... -- Accounting, Custodian and Transfer Agency fees payable ................................................ 214,406 Other accrued liabilities and expenses ................................................................ 117,808 ------------ Total Liabilities 5,896,830 ------------ Net Assets $354,730,185 ------------ Investments at identified cost ........................................................................ $276,797,128 Net Assets Consist of: - ------------------------------------------------------------------------------------------------------------------------------------ Undistributed net investment income/(distributions in excess of net investment income/accumulated net investment loss)....................................................................................... $ 54,907 Accumulated net realized gain/(loss) .................................................................. 64,255,823 Net unrealized appreciation ........................................................................... 75,327,755 Shares of beneficial interest ......................................................................... 132,729 Additional paid-in capital ............................................................................ 214,958,971 ------------ Net Assets $354,730,185 Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Class B shares ................................................................................... $ N/A Class C shares ................................................................................... N/A Class R shares ................................................................................... 354,730,185 Class P shares ................................................................................... N/A ------------ Net Assets $354,730,185 Class B shares outstanding ....................................................................... N/A Class C shares outstanding ....................................................................... N/A Class R shares outstanding ....................................................................... 13,272,893 Class P shares outstanding ....................................................................... N/A Class B shares: Net asset value, offering and redemption price per share outstanding .................. N/A ------------ Class C shares: Net asset value, offering and redemption price per share outstanding .................. N/A ------------ Class R shares: Net asset value, offering and redemption price per share outstanding .................. $ 26.73 ------------ Class P shares: Net asset value, offering and redemption price per share outstanding .................. N/A ------------
The accompanying notes are an integral part of these financial statements. 94
Global U.S. Asset Emerging Emerging Long-Short Select 50 Allocation Total Return Markets Fund Asia Fund Fund Fund Fund Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ $ 327,138,160 $ 58,640,616 $ 299,059,456 $ 128,003,731 $ 81,199,261 $ 43,623,598 -- 5,150,000 -- 3,120,000 -- 1,664,000 -- 23,916 58,402,425 -- 90,082 -- 4,176,931 1,304,115 111,169 655,931 -- -- -- -- 4,092 -- -- -- -- -- -- -- -- -- -- -- 46,793 -- -- -- 1,568,446 34,372 328,781 433,979 -- -- 17,663 1,822 1,984 442 -- 511,684 221,543 -- -- -- 224,274 52,802 7,189,327 1,975,373 928,250 1,356,108 5,822 5,024 19,216,199 865,192 6,674,193 7,085,128 -- 417,331 -- -- 869,334 -- -- -- -- 7,549 19,846 2,200 717 4,197 -- -- -- -- -- 100,000 - ------------- ------------- ------------- ------------- ------------- ------------- 359,528,269 68,002,955 366,446,323 140,657,519 81,520,156 46,378,636 - ------------- ------------- ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------------ -- -- 68,980,966 -- -- -- -- -- 227,150 -- -- -- 20,911 2,086 -- 1,021 -- -- -- -- -- -- -- -- 7,500,000 -- 40,000,000 -- -- -- -- -- -- -- -- 4,017 -- -- -- -- -- 72,675 293,209 77,597 1,255,226 326,671 250,760 31,932 1,817,010 3,580,405 13,128,362 3,190,528 -- 7,217,374 -- -- -- -- -- -- -- 14,888 79,997 63,055 -- 115,338 18,343 2,941 -- 7,743 -- 1,617 250 -- 29,196 -- 628 -- -- -- 49,085 -- -- 206,748 1,797 1,031 1,493 1,082 1,738 638 -- -- -- -- -- 391 3,739,906 1,043,493 -- 20,930 -- 194,367 554,475 36,907 123,322 131,283 37,573 9,733 155,192 47,718 358,463 68,037 39,962 48,137 - ------------- ------------- ------------- ------------- ------------- ------------- 14,101,093 4,807,066 124,233,260 3,810,350 330,661 7,902,967 - ------------- ------------- ------------- ------------- ------------- ------------- $ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669 - ------------- ------------- ------------- ------------- ------------- ------------- $ 291,153,230 $ 51,586,122 $ 261,310,447 $ 105,836,341 $ 77,061,164 $ 45,684,306 - ------------------------------------------------------------------------------------------------------------------------------------ $ (8,200,457) $ (888,647) $ (160,495) $ (792,662) $ 811,588 $ (46,628) (364,695,283) (12,765,830) 16,204,055 12,884,667 (1,156,320) 478,159 35,783,338 12,199,592 32,248,669 25,260,238 4,138,097 (396,708) 337,230 51,762 123,739 61,642 48,421 32,992 682,202,348 64,599,012 193,797,095 99,433,284 77,347,709 38,407,854 - ------------- ------------- ------------- ------------- ------------- ------------- $ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669 - ------------------------------------------------------------------------------------------------------------------------------------ $ N/A $ N/A $ 18,703,880 $ N/A $ N/A $ N/A N/A N/A 7,208,697 N/A N/A N/A 344,907,496 63,195,889 216,300,486 136,791,645 81,133,231 38,475,669 519,680 N/A N/A 55,524 56,264 N/A - ------------- ------------- ------------- ------------- ------------- ------------- $ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669 N/A N/A 966,639 N/A N/A N/A N/A N/A 400,192 N/A N/A N/A 33,671,243 5,176,207 11,007,094 6,161,627 4,838,742 3,299,191 51,732 N/A N/A 2,544 3,362 N/A N/A N/A $ 19.35 N/A N/A N/A - ------------- ------------- ------------- ------------- ------------- ------------- N/A N/A $ 18.01 N/A N/A N/A - ------------- ------------- ------------- ------------- ------------- ------------- $ 10.24 $ 12.21 $ 19.65 $ 22.20 $ 16.77 $ 11.66 - ------------- ------------- ------------- ------------- ------------- ------------- $ 10.05 N/A N/A $ 21.83 $ 16.74 N/A - ------------- ------------- ------------- ------------- ------------- -------------
95 - --------------------------- The Montgomery Funds - --------------------------- Statements of Assets and Liabilities - --------------------------- June 30, 1999
Short Duration Government Assets: Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ Investments in securities, at value (note 1) Securities ..................................................................................... $ 168,762,946 Repurchase agreements .......................................................................... 11,624,000 Cash ................................................................................................ 253,207 Interest receivable ................................................................................. 1,169,608 Receivable for shares of beneficial interest sold ................................................... 830,273 Receivable for investment securities sold ........................................................... 3,615,178 Receivable for expenses absorbed by Manager.......................................................... -- Sale of investments under dollar roll transactions .................................................. 32,343 Other assets......................................................................................... -- ------------ Total Assets ........................................................................................ 186,287,555 ------------ Liabilities: - ------------------------------------------------------------------------------------------------------------------------------------ Deferred fee income on dollar roll transactions ..................................................... 8,429 Payable for shares of beneficial interest redeemed .................................................. 1,281,669 Payable for investment securities purchased ......................................................... 25,672,644 Management fees payable ............................................................................. 225,279 Administration fees payable ......................................................................... 12,504 Share marketing plan fees payable (note 3) (Class P shares only) .................................... 4,752 Dividends payable ................................................................................... 759,209 Trustees' fees and expenses payable ................................................................. 1,027 Cash overdrafts payable to custodian................................................................. -- Accounting, Custodian and Transfer agency fees payable .............................................. 25,730 Other accrued liabilities and expenses .............................................................. 43,593 ------------- Total Liabilities ................................................................................... 28,034,836 ------------- Net Assets .......................................................................................... $ 158,252,719 ------------- Investments at identified cost ...................................................................... $ 181,045,952 ------------- Net Assets Consist of: - ------------------------------------------------------------------------------------------------------------------------------------ Undistributed net investment income/(distributions in excess of net investment income/accumulated net $ (198,522) investment loss) Accumulated net realized gain/(loss) ................................................................ (930,714) Net unrealized appreciation ......................................................................... (659,006) Shares of beneficial interest ....................................................................... 157,583 Additional paid-in capital .......................................................................... 159,883,378 ------------- Net Assets .......................................................................................... $ 158,252,719 ------------- Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Class R shares ................................................................................. $ 154,365,349 Class P shares ................................................................................. 3,887,370 ------------- Net Assets .......................................................................................... $ 158,252,719 Class R shares outstanding ..................................................................... 15,370,636 Class P shares outstanding ..................................................................... 387,674 Class R shares: Net asset value, offering and redemption price per share outstanding ................ $ 10.04 ------------- Class P shares: Net asset value, offering and redemption price per share outstanding ................ $ 10.03 -------------
The accompanying notes are an integral part of these financial statements. 96 California Tax-Free Government Federal California Intermediate Money Market Tax-Free Tax-Free Bond Fund Fund* Money Fund Money Fund - -------------------------------------------------------------------------------- $ 40,553,970 $ 366,563,732 $ 116,531,312 $ 303,718,692 -- 207,957,000 -- -- 22,671 -- -- 597,580 683,302 5,085,149 808,906 2,194,234 6,500 290,782 -- 2,701,267 -- -- -- -- -- -- -- 70,198 -- -- -- -- -- -- -- 38,927 ------------- ------------- ------------- ------------- 41,266,443 579,896,663 117,340,218 309,320,898 ------------- ------------- ------------- ------------- - -------------------------------------------------------------------------------- -- -- -- -- 6,289 1,015,869 371,273 14,300 -- 722,745 -- 15,517,520 56,660 333,020 122,546 223,917 1,702 21,739 4,223 13,510 -- -- -- -- 137,011 2,030,323 268,307 567,442 592 3,857 1,560 1,518 -- 101,593 191,150 -- 7,941 124,588 15,137 30,078 39,359 154,740 24,709 51,386 ------------- ------------- ------------- ------------- 249,554 4,508,474 998,905 16,419,671 ------------- ------------- ------------- ------------- $ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227 ------------- ------------- ------------- ------------- $ 40,343,421 $ 574,520,732 $ 116,531,312 $ 303,718,692 ------------- ------------- ------------- ------------- - -------------------------------------------------------------------------------- $ (79,767) $ 4,448 $ (209) $ 296 (7,321) 6,927 (990) (6,735) 210,549 -- -- -- 32,381 5,753,656 1,163,428 2,929,076 40,861,047 569,623,158 115,179,084 289,978,590 ------------- ------------- ------------- ------------- $ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227 - -------------------------------------------------------------------------------- $ 41,016,889 $ 575,387,260 $ 116,341,313 $ 292,901,227 N/A 929 N/A N/A ------------- ------------- ------------- ------------- $ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227 3,238,118 575,364,707 116,342,816 292,907,663 N/A 928 N/A N/A $ 12.67 $ 1.00 $ 1.00 $ 1.00 ------------- ------------- ------------- ------------- N/A $ 1.00 N/A N/A ------------- ------------- ------------- ------------- *Formerly named Montgomery Government Reserve Fund. 97 ========================= The Montgomery Funds - ------------------------- Statements of Operations - ------------------------- Year Ended June 30, 1999
U.S. Emerging Growth Growth Small Cap Net Investment Income: Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------------------ Investment Income: Interest ...................................................... $ 2,768,428 $ 1,706,433 $ 150,156 Dividends (net of foreign withholding taxes) .................. 13,998,220 1,130,762 158,953 Securities lending income (note 4) ............................ 55,863 111,032 44,287 ------------- ------------- ------------- Total Income .................................................. 16,822,511 2,948,227 353,396 ------------- ------------- ------------- Expenses: Custodian fee ................................................. 82,432 20,997 19,099 Transfer agency and servicing fees ............................ 1,931,012 513,855 138,097 Management fee (note 2) ....................................... 8,698,673 4,867,019 1,529,933 Administration fee (note 2) ................................... 596,578 244,217 107,095 Share marketing plan fee (note 3) (Class P shares only) ....... 432 -- 45,933 Legal and audit fees .......................................... 118,482 40,813 55,573 Trustees' fees ................................................ 8,250 6,055 5,866 Registration fees ............................................. 62,317 31,854 42,007 Accounting fees ............................................... 343,900 123,298 56,198 Printing fees ................................................. 383,933 140,142 40,165 Amortization of organization expenses (note 1) ................ 1,428 2,194 -- Tax expense ................................................... -- -- -- Other ......................................................... 112,152 58,655 23,234 Interest expense .............................................. 260,268 1,745 3,552 ------------- ------------- ------------- Total Expenses ................................................ 12,599,857 6,050,844 2,066,752 Fees deferred and/or expenses absorbed by Manager (note 2) .... -- -- -- ------------- ------------- ------------- Net Expenses .................................................. 12,599,857 6,050,844 2,066,752 ------------- ------------- ------------- Net Investment Income/(Loss) .................................. 4,222,654 (3,102,617) (1,713,356) ------------- ------------- ------------- Net Realized and Unrealized Gain/(Loss) on Investments: - ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain/(loss) from: Securities transactions ................................... 126,994,489 20,878,928 (6,685,358) Futures contracts ......................................... (3,718,426) 5,213,328 -- Foreign-currency transactions and other assets ............ (200) -- -- ------------- ------------- ------------- Net Realized Gain/(Loss) on Investments ....................... 123,275,863 26,092,256 (6,685,358) Net change in unrealized appreciation/(depreciation) of: Securities ................................................ (103,710,125) (33,067,747) (11,588,109) Forward foreign-currency exchange contracts ............... -- -- -- Futures contracts ......................................... -- -- -- Foreign-currency transactions and other assets ............ -- -- -- ------------- ------------- ------------- Net Unrealized Appreciation/(Depreciation) of Investments ..... (103,710,125) (33,067,747) (11,588,109) ------------- ------------- ------------- Net Realized and Unrealized Gain/(Loss) on Investments ........ 19,565,738 (6,975,491) (18,273,467) ------------- ------------- ------------- Net Increase/(Decrease) in Net Assets Resulting from Operations $ 23,788,392 $ (10,078,108) $ (19,986,823) ------------- ------------- ------------- Foreign withholding taxes ..................................... $ 109,803 $ -- $ -- ------------- ------------- -------------
98 The accompanying notes are an integral part of these financial statements.
Equity International International Global Global Income Growth Small Cap Opportunities Communications Emerging Emerging Fund Fund Fund Fund Fund Markets Fund Asia Fund - ------------------------------------------------------------------------------------------------------------------- $ 63,569 $ 740,254 $ 211,313 $ 130,468 $ 928,218 $ 191,806 $ 156,659 865,200 2,935,033 637,703 568,119 3,783,021 8,062,289 440,817 215 127,398 57,818 105,768 227,264 -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 928,984 3,802,685 906,834 804,355 4,938,503 8,254,095 597,476 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 14,931 132,926 69,445 87,367 127,387 978,345 34,668 81,400 385,720 91,489 120,999 564,262 1,426,513 82,749 303,646 2,215,164 855,638 923,286 3,513,626 4,630,828 562,967 25,341 128,893 32,122 40,303 198,318 265,350 22,722 7,483 2,122 109 -- -- 925 -- 25,168 50,697 39,719 40,971 57,155 77,825 50,465 5,371 6,229 5,560 5,477 7,958 6,948 5,377 28,294 42,788 31,801 23,660 46,781 62,540 30,713 11,543 110,827 24,362 34,332 169,391 269,638 21,080 18,661 90,021 11,545 29,865 122,449 197,962 20,181 2,878 1,953 1,483 1,450 -- -- 3,149 -- -- -- -- 5,382 135,594 -- 7,752 33,287 8,439 13,883 56,180 94,022 11,008 1,670 12,551 2,994 62,766 12,615 481,973 93,961 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 534,138 3,213,178 1,174,706 1,384,359 4,881,504 8,628,463 939,040 (217,211) (160,139) (299,803) (227,394) -- (397,685) (228,921) ------------- ------------- ------------- ------------- ------------- ------------- ------------- 316,927 3,053,039 874,903 1,156,965 4,881,504 8,230,778 710,119 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 612,057 749,646 31,931 (352,610) 56,999 23,317 (112,643) ------------- ------------- ------------- ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------------ 2,848,156 7,059,105 (159,760) 10,716,706 89,060,782 (219,608,583) (1,014,857) -- -- -- -- -- -- 238,945 -- (1,246,001) (204,823) (591,340) (1,430,125) (3,482,340) (431,832) ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2,848,156 5,813,104 (364,583) 10,125,366 87,630,657 (223,090,923) (1,207,744) ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,204,992 (1,642,974) (1,935,788) (5,044,724) (11,288,950) 180,122,934 25,917,257 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -- (286,275) 237 (6,298) (44,816) (16,415) (2,086) -- -- -- -- -- -- -- -- 8,294 6,343 15,928 (41,215) (60,699) (71,203) ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,204,992 (1,920,955) (1,929,208) (5,035,094) (11,374,981) 180,045,820 25,843,968 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 4,053,148 3,892,149 (2,293,791) 5,090,272 76,255,676 (43,045,103) 24,636,224 ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 4,665,205 $ 4,641,795 $ (2,261,860) $ 4,737,662 $ 76,312,675 $ (43,021,786) $ 24,523,581 ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ -- $ 385,734 $ 84,950 $ 77,251 $ 268,294 $ 671,483 $ 34,123 ------------- ------------- ------------- ------------- ------------- ------------- -------------
99 ======================== The Montgomery Funds - ------------------------ Statements of Operations - ------------------------ Year Ended June 30, 1999
Global Global Long-Short Long-Short Select 50 Net Investment Income: Fund* Fund** Fund - ------------------------------------------------------------------------------------------------------------------------------------ Investment Income: Interest ...................................................... $ 107,964 $ 1,122,155 $ 228,460 Dividends (net of foreign withholding taxes) .................. 668,729 570,095 1,964,261 ------------ ------------ ------------ Total Income .................................................. 776,693 1,692,250 2,192,721 ------------ ------------ ------------ Expenses: Custodian fee ................................................. 73,921 112,391 146,573 Transfer agency and servicing fees ............................ 50,876 119,465 256,149 Management fee (note 2) ....................................... 885,497 863,717 2,118,848 Administration fee (note 2) ................................... 31,290 38,828 118,656 Equity swap fees .............................................. -- 8,103 -- Dividend expense .............................................. 175,308 208,338 -- Share marketing plan fee (note 3) Class P shares ............................................ -- -- 116 Class B shares ............................................ 33,611 72,735 -- Class C shares ............................................ 12,731 27,393 -- Legal and audit fees .......................................... 17,270 102,999 27,281 Trustees fees ................................................ 1,672 8,801 5,884 Registration fees ............................................. 7,453 44,415 36,135 Accounting expenses ........................................... 27,883 -- 98,812 Printing fees ................................................. 3,648 -- 91,431 Amortization of organization expenses (note 1) ................ 1,396 5,367 1,748 Shareholder servicing fees (note 4) ........................... 111,750 137,886 -- Tax expense ................................................... -- 4,418 -- Overdraft expense ............................................ 228,477 -- -- Other ......................................................... 8,728 84,235 34,980 Interest expense .............................................. 352,367 363,688 45,203 ------------ ------------ ------------ Total Expenses ................................................ 2,023,878 2,202,779 2,981,816 Fees deferred and/or expenses absorbed by Manager (note 2) .... (188,977) (214,996) -- ------------ ------------ ------------ Net Expenses .................................................. 1,834,901 1,987,783 2,981,816 ------------ ------------ ------------ Net Investment Income/(Loss) .................................. (1,058,208) (295,533) (789,095) ------------ ------------ ------------ Net Realized and Unrealized Gain/(Loss) on Investments: - ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain/(loss) from: Securities transactions ................................... 12,700,812 11,019,215 17,826,369 Securities sold short ..................................... 102,762 (94,947) -- Futures contracts and written options ..................... (81,821) (51,168) -- Foreign-currency transactions and other assets ............ (1,030,107) (769,479) (2,163,346) ------------ ------------ ------------ Net Realized Gain/(Loss) on Investments ....................... 11,691,646 10,103,621 15,663,023 Net change in unrealized appreciation/(depreciation) of: Securities .................................................... 21,029,501 14,977,606 (5,457,920) Forward foreign-currency exchange contracts ................... 14,638 (9,847) (143,831) Securities sold short ......................................... (1,550,825) (3,448,607) -- Equity swaps .................................................. 96,997 (50,204) -- Futures contracts and written options ......................... (101,773) (475) -- Foreign-currency transactions and other assets ................ 518,234 (579,527) 42,489 ------------ ------------ ------------ Net Unrealized Appreciation/(Depreciation) of Investments ..... 20,006,772 10,888,946 (5,559,262) ------------ ------------ ------------ Net Realized and Unrealized Gain/(Loss) on Investments 31,698,418 20,992,567 10,103,761 ------------ ------------ ------------ Net Increase/(Decrease) in Net Assets Resulting from Operations $ 30,640,210 $ 20,697,034 $ 9,314,666 ------------ ------------ ------------ Foreign withholding taxes ..................................... $ 52,047 $ 57,248 $ -- ------------ ------------ ------------
* For the three-month period ended June 30, 1999. The Fund changed its year end from March 31 to June 30. ** Year ended March 31, 1999. The accompanying notes are an integral part of these financial statements. 100
California U.S. Asset Short Duration Tax-Free Government Federal California Allocation Total Return Government Intermediate Money Market Tax-Free Tax-Free Fund Bond Fund Bond Fund Bond Fund Fund*** Money Fund Money Fund - ------------------------------------------------------------------------------------------------------------------------------------ $ 3,100 $ 4,267,110 $ 8,491,824 $ 1,868,241 $ 38,606,173 $ 4,227,007 $ 7,582,120 3,117,168 -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3,120,268 4,267,110 8,491,824 1,868,241 38,606,173 4,227,007 7,582,120 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 6,067 10,138 12,196 2,246 199,450 -- 8,361 238,629 18,000 123,425 17,665 279,096 31,042 32,779 -- 340,724 1,019,539 357,085 2,230,429 763,874 1,135,573 -- 30,298 64,534 20,231 321,086 62,270 122,096 -- -- -- -- -- -- -- -- -- -- -- -- -- -- 165 -- 4,785 -- 1 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 21,013 11,491 28,994 18,024 159,911 26,837 36,716 7,649 5,567 5,832 5,397 9,467 4,932 4,830 43,246 7,316 58,014 10,756 66,206 40,443 5,160 14,323 27,733 47,513 17,029 341,653 44,264 89,625 32,293 1,768 16,546 3,770 22,494 6,664 7,889 4,511 10,304 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 92,861 13,316 71,062 27,933 92,613 21,641 38,386 -- 279,451 945,297 -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 460,757 756,106 2,397,737 480,136 3,722,406 1,001,967 1,481,415 (207,593) (50,454) (647,496) (202,315) -- (257,501) (70,198) ------------ ------------ ------------ ------------ ------------ ------------ ------------ 253,164 705,652 1,750,241 277,821 3,722,406 744,466 1,411,217 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 2,867,104 3,561,458 6,741,583 1,590,420 34,883,767 3,482,541 6,170,903 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1,328,853 1,402,105 (582,777) 28,947 32,817 (72) 33 -- -- -- -- -- -- -- -- 30,819 14,579 -- -- -- -- -- -- (1,819) -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1,328,853 1,432,924 (570,017) 28,947 32,817 (72) 33 4,581,206 (2,230,098) (869,520) (682,980) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 4,581,206 (2,230,098) (869,520) (682,980) -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 5,910,059 (797,174) (1,439,537) (654,033) 32,817 (72) 33 ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 8,777,163 $ 2,764,284 $ 5,302,046 $ 936,387 $ 34,916,584 $ 3,482,469 $ 6,170,936 ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ -- $ -- $ -- $ -- $ -- ------------ ------------ ------------ ------------ ------------ ------------ ------------
***Formerly named Montgomery Government Reserve Fund. 101 - ------------------------ The Montgomery Funds - ------------------------ Statements of Changes in Net Assets - ------------------------ Year Ended June 30, 1999
U.S. Emerging Growth Growth Small Cap Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) ....................................................... $ 4,222,654 $ (3,102,617) $ (1,713,356) Net realized gain/(loss) on securities, forward foreign-currency exchange contracts, futures contracts, foreign-currency transactions and other assets during the period ........................................................................ 123,275,863 26,092,256 (6,685,358) Net unrealized appreciation/(depreciation) of securities, forward foreign-currency exchange contracts, foreign-currency transactions and other assets during the period ........................................................................ (103,710,125) (33,067,747) (11,588,109) -------------- ------------- ------------- Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 23,788,392 (10,078,108) (19,986,823) Distributions to Shareholders: - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from net investment income: Class R shares ................................................................ (4,685,102) -- -- Class P shares ................................................................ (787) -- -- Distributions to shareholders in excess of net investment income: Class R shares ................................................................ -- -- -- Distributions to shareholders from net realized gains on investments: Class R shares ................................................................ (75,567,304) (21,441,030) (17,927,065) Class P shares ................................................................ (12,703) -- (2,233,433) Distributions to shareholders in excess of net realized gains on investments: Class R shares ................................................................ -- -- (6,112,721) Class P shares ................................................................ -- -- (761,650) -------------- ------------- ------------- Total Distributions ................................................................ (80,265,896) (21,441,030) (27,034,869) Beneficial Interest Transactions: - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) from beneficial interest transactions (note 6) ............. (656,586,933) 22,028,789 (44,034,045) Net Increase/(Decrease) in Net Assets .............................................. (713,064,437) (9,490,349) (91,055,737) Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of Period ................................................................ 1,383,071,742 391,972,859 224,984,957 End of Period ...................................................................... $ 670,007,305 $ 382,482,510 $ 133,929,220 Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ 4,220,770 -- -- Global Global Long-Short Long-Short Select 50 Increase/(Decrease) in Net Assets from Operations: Fund* Fund** Fund - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) ....................................................... $ (1,058,208) $ (295,533) $ (789,095) Net realized gain/(loss) on securities, forward foreign-currency exchange contracts, futures contracts, equity swaps and foreign-currency transactions during the period ........................................................................ 11,691,646 10,103,621 15,663,023 Net unrealized appreciation/(depreciation) of securities, forward foreign-currency exchange contracts, equity swaps, foreign-currency transactions and other assets during the period ...................................................... 20,006,772 10,888,946 (5,559,262) ------------- ------------- ------------- Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 30,640,210 20,697,034 9,314,666 Distributions to Shareholders: - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from net investment income: Class R shares ................................................................ -- -- (2,143,762) Class P shares ................................................................ -- -- (475) Distributions to shareholders in excess of net investment income: Class R shares ................................................................ -- -- (928,695) Class P shares ................................................................ -- -- (206) Distributions to shareholders from net realized gains on investments: Class B shares ................................................................ -- (1,000,105) -- Class C shares ................................................................ -- (402,108) -- Class R shares ................................................................ -- (3,527,506) (9,337,841) Class P shares ................................................................ -- -- (2,414) Distributions to shareholders in excess of net realized gains on investments: Class R shares ................................................................ -- -- -- Class P shares ................................................................ -- -- -- ------------- ------------- ------------- Total Distributions ................................................................ -- (4,929,719) (12,413,393) Beneficial Interest Transactions: - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) from beneficial interest transactions (note 6) ............. 104,478,341 74,484,954 (129,772,361) Net Increase/(Decrease) in Net Assets .............................................. 135,118,551 90,252,269 (132,871,088) Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of Period ................................................................ 107,094,512 16,842,243 269,718,257 End of Period ...................................................................... $ 242,213,063 $ 107,094,512 $ 136,847,169 Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ (160,495) $ (337,050) $ (792,662)
* For the three-month period ended June 30, 1999. The Fund changed its year end from March 31 to June 30. ** Year ended March 31, 1999. The accompanying notes are an integral part of these financial statements. 102
Equity International International Global Global Income Growth Small Cap Opportunities Communications Emerging Emerging Fund Fund Fund Fund Fund Markets Fund Asia Fund - ------------------------------------------------------------------------------------------------------------------------------------ $ 612,057 $ 749,646 $ 31,931 $ (352,610) $ 56,999 $ 23,317 $ (112,643) 2,848,156 5,813,104 (364,583) 10,125,366 87,630,657 (223,090,923) (1,207,744) 1,204,992 (1,920,955) (1,929,208) (5,035,094) (11,374,981) 180,045,820 25,843,968 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 4,665,205 4,641,795 (2,261,860) 4,737,662 76,312,675 (43,021,786) 24,523,581 - ------------------------------------------------------------------------------------------------------------------------------------ (559,687) -- -- (558,444) -- -- -- (44,084) -- -- -- -- -- -- -- -- (36,660) -- -- -- -- (2,953,011) (940,560) -- (5,700,468) (29,529,571) -- -- (250,330) (4,968) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (3,807,112) (945,528) (36,660) (6,258,912) (29,529,571) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ (13,875,041) 161,118,037 (10,140,563) (37,744,824) 40,834,194 (370,874,641) 14,063,944 (13,016,948) 164,814,304 (12,439,083) (39,266,074) 87,617,298 (413,896,427) 38,587,525 - ------------------------------------------------------------------------------------------------------------------------------------ 42,978,925 64,824,680 50,495,818 96,411,614 267,112,887 759,323,603 24,608,364 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540 $ 354,730,185 $ 345,427,176 $ 63,195,889 $ 8,286 $ (606,751) $ (192,896) $ 11,294 $ 54,907 $ (8,200,457) $ (888,647) U.S. Asset Short Duration California Tax-Free Government Federal California Allocation Total Return Government Intermediate Money Market Tax-Free Tax-Free Fund Bond Fund Bond Fund Bond Fund Fund*** Money Fund Money Fund - ------------------------------------------------------------------------------------------------------------------------------------ $ 2,867,104 $ 3,561,458 $ 6,741,583 $ 1,590,420 $ 34,883,767 $ 3,482,541 $ 6,170,903 1,328,853 1,432,924 (570,017) 28,947 32,817 (72) 33 4,581,206 (2,230,098) (869,520) (682,980) -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 8,777,163 2,764,284 5,302,046 936,387 34,916,584 3,482,469 6,170,936 - ------------------------------------------------------------------------------------------------------------------------------------ (5,412,395) (3,561,458) (6,441,336) (1,510,644) (34,878,792) (3,482,322) (6,169,715) (3,284) -- (95,475) -- (22) -- -- -- (41,221) (204,526) (79,767) -- (209) -- -- -- (3,034) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (9,737,684) (2,032,202) -- (92,379) -- -- -- (6,222) -- -- -- -- -- -- (8,188,227) -- (699,799) (7,321) -- -- -- (5,233) -- (115) -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (23,353,045) (5,634,881) (7,444,285) (1,690,111) (34,878,814) (3,482,531) (6,169,715) ------------- ------------- ------------- ------------- ------------- ------------- ------------- (32,380,618) (36,347,494) 94,034,691 6,103,794 (149,268,606) (942,095) 105,683,949 (46,956,500) (39,218,091) 91,892,452 5,350,070 (149,230,836) (942,157) 105,685,170 ------------- ------------- ------------- ------------- ------------- ------------- ------------- 128,145,995 77,693,760 66,360,267 35,666,819 724,619,025 117,283,470 187,216,057 $ 81,189,495 $ 38,475,669 $ 158,252,719 $ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227 $ 811,588 $ (46,628) $ (198,522) $ (79,767) $ 4,448 $ (209) $ 296
*** Formerly named Montgomery Government Reserve Fund. 103 ======================== The Montgomery Funds - ------------------------ Statements of Changes in Net Assets - ------------------------ Year Ended June 30, 1998
U.S. Emerging Growth Growth Small Cap Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss)................................................... $ 9,632,489 $ (3,157,905) $ (1,618,774) Net realized gain/(loss) on securities, forward foreign-currency exchange contracts, futures contracts, foreign-currency transactions and other assets during the period..................................................... 164,931,428 28,785,885 42,779,392 Net unrealized appreciation/(depreciation) of securities, forward foreign-currency exchange contracts, foreign-currency transactions and other assets during the period..................................................... 31,011,960 44,225,233 4,803,792 ----------------- ------------- ------------ Net Increase/(Decrease) in Net Assets Resulting from Operations 205,575,877 69,853,213 45,964,410 Distributions to Shareholders: - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from net investment income: Class R shares............................................................... (8,102,760) -- -- Class P shares............................................................... (591) -- -- Distributions to shareholders in excess of net investment income: Class R shares............................................................... -- -- -- Class P shares............................................................... -- -- -- Distributions to shareholders from net realized gains on investments: Class R shares............................................................... (160,149,883) (19,493,315) (27,244,989) Class P shares............................................................... (20,125) -- (2,828,409) ----------------- ------------- ------------ Total Distributions............................................................ (168,273,359) (19,493,315) (30,073,398) Beneficial Interest Transactions: - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) from beneficial interest transactions (note 7)......... 208,213,759 23,801,277 4,139,175 ----------------- ------------- ------------ Net Increase/(Decrease) in Net Assets 245,516,277 74,161,175 20,030,187 Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of Year.............................................................. 1,137,555,465 317,811,684 204,954,770 End of Year $ 1,383,071,742 $391,972,859 $224,984,957 Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 4,685,889 $ -- $ -- Global Long-Short Select 50 U.S. Asset Increase/(Decrease) in Net Assets from Operations: Fund* Fund Allocation Fund - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss)................................................... $ 13,539 $ 1,416,052 $ 4,211,290 Net realized gain/(loss) on securities, forward foreign-currency exchange contracts, futures contracts, equity swaps and foreign-currency transactions during the period............................................................ 506,608 23,620,118 29,420,101 Net unrealized appreciation/(depreciation) of securities, forward foreign-currency exchange contracts, equity swaps, foreign-currency transactions and other assets during the period.............................. 1,352,951 3,990,850 (15,356,094) ----------------- ------------- ------------ Net Increase/(Decrease) in Net Assets Resulting from Operations 1,873,098 29,027,020 18,275,297 Distributions to Shareholders: - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from net investment income: Class B shares............................................................... -- -- -- Class C shares............................................................... -- -- -- Class R shares............................................................... -- -- (5,713,481) Class P shares............................................................... -- -- (3,135) Distributions to shareholders in excess of net investment income: Class R shares............................................................... -- -- (4,805,423) Class P shares............................................................... -- -- (2,791) Distributions to shareholders from net realized gains on investments: Class R shares............................................................... -- (20,659,018) (11,764,751) Class P shares............................................................... -- (7,288) (6,851) ----------------- ------------- ------------ Total Distributions............................................................ -- (20,666,306) (22,296,432) Beneficial Interest Transactions: - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) from beneficial interest transactions (note 7)......... 14,969,145 88,839,567 4,879,135 ----------------- ------------- ------------ Net Increase/(Decrease) in Net Assets 16,842,243 97,200,281 858,000 Net Assets: - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of Year.............................................................. -- 172,517,976 127,287,995 End of Year $ 16,842,243 $269,718,257 $128,145,995 Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (13,885) $677,989 $1,771,623
* For the period from commencement of operations on December 31, 1997 to March 31, 1998. The accompanying notes are an integral part of these financial statements. 104
Equity International International Global Global Emerging Emerging Income Growth Small Cap Opportunities Communications Markets Fund Asia Fund Fund Fund Fund Fund Fund - --------------------------------------------------------------------------------------------------------------------- $ 1,066,465 $ 90,925 $ (16,628) $ (8,126) $ (1,553,254) $ 5,849,057 $ 97,480 5,353,093 1,926,799 3,884,910 4,218,182 16,560,504 (143,171,602) (11,921,961) 165,897 6,190,676 (2,291,295) 8,813,624 53,641,157 (369,794,189) (23,554,621) ----------- ----------- ----------- ----------- ------------ ------------- ------------ 6,585,455 8,208,400 1,576,987 13,023,680 68,648,407 (507,116,734) (35,379,102) - --------------------------------------------------------------------------------------------------------------------- (1,024,731) (49,520) -- -- -- (11,344,230) (552,799) (41,734) -- -- -- -- (5,297) -- -- (479) (338,201) -- -- -- (799) -- -- (22) -- -- -- -- (4,032,302) (2,206,214) (5,935,927) (4,796,210) (29,194,471) (24,396,251) (3,025,530) (153,692) (291) (651) -- -- (14,456) -- ----------- ----------- ----------- ----------- ------------ ------------- ------------ (5,252,459) (2,256,504) (6,274,801) (4,796,210) (29,194,471) (35,760,234) (3,579,128) - --------------------------------------------------------------------------------------------------------------------- 2,183,421 24,955,086 1,576,493 55,813,221 73,703,850 42,136,641 (4,528,662) ----------- ----------- ----------- ----------- ------------ ------------- ------------ 3,516,417 30,906,982 (3,121,321) 64,040,691 113,157,786 (500,740,327) (43,486,892) - --------------------------------------------------------------------------------------------------------------------- 39,462,508 33,917,698 53,617,139 32,370,923 153,955,101 1,260,063,930 68,095,256 $42,978,925 $64,824,680 $50,495,818 $96,411,614 $267,112,887 $ 759,323,603 $ 24,608,364 $ -- $ (133,569) $ (252,194) $ (259,674) $ (914,375) $ (5,228,216) $ (344,172)
Short Duration California Tax-Free Government Federal California Total Return Government Intermediate Money Market Tax-Free Tax-Free Bond Fund Bond Fund Bond Fund Fund* Money Fund Money Fund - --------------------------------------------------------------------------------------------------------------------- $ 4,495,030 $ 3,137,833 $ 1,173,983 $ 33,237,943 $ 3,829,270 $ 5,235,752 2,124,761 670,997 114,279 36,767 670 (23) 1,833,390 78,579 462,957 -- -- -- ---------------- ----------------- ----------------- ----------------- ------------------- ------------------ 8,453,181 3,887,409 1,751,219 33,274,710 3,829,940 5,235,729 - --------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- -- -- -- (4,458,508) (3,046,386) (1,174,001) (33,224,825) (3,829,270) (5,235,794) -- (90) -- -- -- -- (1,652) -- -- -- -- -- -- -- -- -- -- -- (775,110) (90,023) -- -- -- -- -- -- -- -- -- -- ---------------- ----------------- ----------------- ----------------- ------------------- ------------------ (5,235,270) (3,136,499) (1,174,001) (33,224,825) (3,829,270) (5,235,794) - --------------------------------------------------------------------------------------------------------------------- 74,475,849 18,344,636 13,408,266 251,415,147 3,085,705 68,493,060 ---------------- ----------------- ----------------- ----------------- ------------------- ------------------ 77,693,760 19,095,546 13,985,484 251,465,032 3,086,375 68,492,995 - --------------------------------------------------------------------------------------------------------------------- -- 47,264,721 21,681,335 473,153,993 114,197,095 118,723,062 $77,693,760 $ 66,360,267 $35,666,819 $ 724,619,025 $ 117,283,470 $ 187,216,057 $ (1,652) $ -- $ 1,374 $ (303) $ (219) $ (113)
*Formerly named Montgomery Government Reserve Fund. 105 - --------------------------- The Montgomery Funds =========================== Statement of Cash Flows =========================== Year Ended June 30, 1999
TOTAL RETURN BOND FUND Cash Flows from Operating Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Interest Income received...................................................$ 4,573,813 Fee income received............................................... 87,616 Operating expenses paid........................................... (345,904) Interst expense paid.............................................. (279,451) Proceeds from sales of long-term securities....................... 152,138,121 Net payments for short-term investments........................... (455,000) Proceeds from futures transactions................................ 30,820 Purchases of long-term securities................................. (107,260,203) -------------------- Cash Provided by Operating Activities............................. $ 48,489,812 Cash Flows from Financing Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from subscriptions....................................... $ 27,528,621 Payments on shares redeemed....................................... (67,469,679) Net paments for reverse repurchase agreements..................... (6,908,738) Proceeds from loans with custodian................................ 194,367 Net dollar roll transactions...................................... 67,960 Cash dividends paid*.............................................. (1,903,769) ------------------ Cash Used by Financing Activities................................. (48,491,238) Decrease in cash.................................................. (1,426) Cash at beginning of period....................................... 1,426 ------------------- Cash at end of period............................................. $ -- Reconciliation of Net Increase in Net Assets from Operations to Cash Provided by Operating Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase in net assets resulting from operations: $ 2,764,284 Decrease in investments............................................. $ 39,584,977 Decrease in interest receivable..................................... 394,319 Increase in variation margin for futures transactions............... 391 Decrease in other assets and liabilities............................ (134,529) Decrease in receivables for investments sold........................ 2,292,790 Increase in net receivable for fund shares sold..................... 3,517,978 Increase in accrued expenses........................................ 69,602 ----------------- Total Adjustments................................................... 45,725,528 ------------------- Cash Provided by Operating Activities............................... $ 48,489,812 - ------------------------------------------------------------------------------------------------------------------------------------
*Noncash activities include reinvestment of dividends of $3,526,016. 106 The accompanying notes are an integral part of these financial statements. ------------------------ The Montgomery Funds ======================== Statement of Cash Flows ======================== Year Ended June 30, 1999
SHORT DURATION GOVERNMENT BOND FUND Cash Flows from Operating Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Income received.................................................. $ 7,737,623 Fee income received.............................................. 106,458 Operating expenses paid.......................................... (557,850) Interest expense paid............................................ (945,297) Proceeds from sales of long-term securities...................... 273,573,629 Net payments for short-term investments.......................... (7,802,000) Proceeds from futures transactions............................... 14,579 Purchases of long-term securities................................ (355,778,711) ------------------ Cash Used by Operating Activities................................ $ (83,651,569) Cash Flows from Financing Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from subscriptions...................................... $ 226,558,005 Payments on shares redeemed...................................... (137,328,999) Net payments for reverse repurchase agreements................... (4,934,813) Net dollar roll transactions..................................... (14,857) Cash dividends paid*............................................. (919,901) ----------------- Cash Provided by Financing Activities............................ $ 83,359,435 Decrease in cash................................................. (292,134) Cash at beginning of period...................................... 545,341 ------------ Cash at end of period............................................ $ 253,207 Reconciliation of Net Increase in Net Assets from Operations to Cash Used by Operating Activities: - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase in net assets resulting from operations: $ 5,302,046 Increase in investments.......................................... $ (106,193,595) Increase in interest receivable.................................. (647,743) Increase in receivables for investments sold..................... (3,440,407) Increase in payables for investments purchased................... 21,090,792 Decrease in other assets and liabilities......................... (9,756) Increase in accrued expenses..................................... 247,094 ------------------ Total Adjustments................................................ (88,953,615) ------------- Cash Used by Operating Activities................................ $ (83,651,569)
*Noncash activities include reinvestment of dividends of $5,814,761. ======================= The Montgomery Funds - ----------------------- Statement of Cash Flows - ----------------------- Year Ended June 30, 1999 GLOBAL LONG-SHORT FUND
Cash Flows from Operating Activities: - ----------------------------------------------------------------------------------------------------------------- Interest income received ........................................... $ 211,666 Dividend income received............................................ 474,936 Dividends and interest paid ........................................ (478,590) Operating expenses paid ............................................ (1,102,658) Proceeds from sales of securities .................................. 96,652,639 Proceeds from short sales transaction .............................. 28,340,372 Net proceeds from forward foreign currency exchange contracts ...... 855,199 Purchases of long-term securities and purchased options ............ (221,420,974) Proceeds from written options transactions ......................... 11,928 --------------- Cash Used by Operating Activities .................................. $ (96,455,482) Cash Flows from Financing Activities: - ------------------------------------------------------------------------------------------------------------------- Proceeds from subscriptions ........................................ $ 115,673,255 Payments on shares redeemed ........................................ (9,515,630) Proceeds from loans payable ........................................ 15,000,000 --------------- Cash Provided by Financing Activities ................................ 121,157,625 Increase in cash ..................................................... 24,702,143 Cash at beginning of period .......................................... 33,700,282 -------------- Cash at end of period ................................................ $ 58,402,425
The accompanying notes are an integral part of these financial statements. 108 ======================== The Montgomery Funds ------------------------ Statement of Cash Flows ------------------------ Year Ended June 30, 1999 GLOBAL LONG-SHORT FUND
Reconciliation of Net Increase in Net Assets from Operations to Cash Used by Operating Activities: - ---------------------------------------------------------------------------------------------------- Net Increase in net assets resulting from operations: $ 30,640,210 Increase in investments ......................................... $(158,282,186) Increase in dividends and interest receivable ................... (90,091) Decrease in unrealized depreciation for equity swap agreements .. (96,997) Decrease in payable to custodian for foreign currency ........... (828,171) Increase in forward foreign-currency exchange contracts ......... (14,638) Increase in written options ..................................... 207,900 Increase in short sales ......................................... 29,249,062 Decrease in deposits with custodian bank for short sales ........ 423,007 Increase in foreign currency .................................... (111,169) Decrease in receivables for equity swaps ........................ 148,754 Decrease in receivables for investments sold .................... 1,931,452 Increase in payable for investments purchased ................... 113,732 Increase in accrued expenses and dividend payable................ 220,992 Decrease in other assets......................................... 32,661 ------------- Total Adjustments ............................................... (127,095,692) ------------ Cash Provided by Operating Activities ............................. $ (96,455,482)
109 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
GROWTH FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------------- 1999T 1998T 1997T 1996 1995 Net Asset Value - Beginning of Period $ 23.68 $ 23.07 $ 21.94 $ 19.16 $ 15.27 - ---------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.09 0.17 0.15 0.17 0.12 Net realized and unrealized gain/(loss) on investments 2.24 3.51 3.90 4.32 3.91 - ---------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.33 3.68 4.05 4.49 4.03 - ---------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.10) (0.15) (0.15) (0.17) (0.07) Distributions from net realized capital gains (1.57) (2.92) (2.77) (1.54) (0.07) - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (1.67) (3.07) (2.92) (1.71) (0.14) - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 24.34 $ 23.68 $ 23.07 $ 21.94 $ 19.16 - ---------------------------------------------------------------------------------------------------------------------------- Total Return* 11.41% 17.31% 20.44% 24.85% 26.53% - ---------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $669,789 $1,382,874 $1,137,343 $926,382 $878,776 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.46% 0.71% 0.69% 0.78% 0.98% - ---------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.09 $ 0.17 -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 39% 54% 61% 118% 128% - ---------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.38% 1.20% 1.27% 1.35% 1.50% - ---------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.38% 1.20% -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.35% 1.19% -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------------- 1999T 1998T 1997T 1996(a) Net Asset Value - Beginning of Period $ 23.77 $ 23.12 $ 21.94 $ 19.22 - ----------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.04 0.11 0.09 0.03 Net realized and unrealized gain/(loss) on investments 2.31 3.55 3.96 2.69 - ----------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.35 3.66 4.05 2.72 - ----------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.04) (0.09) (0.10) -- Distributions from net realized capital gains (1.57) (2.92) (2.77) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (1.61) (3.01) (2.87) -- - ----------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 24.51 $ 23.77 $ 23.12 $ 21.94 - ----------------------------------------------------------------------------------------------------------------------------- Total Return* 11.62% 17.09% 20.41% 14.15% - ----------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: Net assets, end of year (in 000s) $ 219 $ 198 $ 212 $ 82 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.21% 0.46% 0.44% 0.53%+ - ----------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.04 $ 0.11 -- -- - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 39% 54% 61% 118% - ----------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.63% 1.45% 1.52% 1.60%+ - ----------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.63% 1.45% -- -- - ----------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.60% 1.44% -- -- - -----------------------------------------------------------------------------------------------------------------------------
(a) The Growth Fund's Class P shares commenced operations on January 12, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. T 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. 110 The accompanying notes are an integral part of these financial statements. -------------------- The Montgomery Funds -------------------- Financial Highlights --------------------
U.S. EMERGING GROWTH FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------------------------------- 1999 1998T 1997 1996 1995(a)T Net Asset Value - Beginning of Period $ 21.89 $ 19.00 $ 17.82 $ 13.75 $ 12.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.16) (0.18) (0.13) (0.04) 0.09 Net realized and unrealized gain/(loss) on investments (0.80) 4.21 2.54 4.26 1.66 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations (0.96) 4.03 2.41 4.22 1.75 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income -- -- -- (0.04) -- Distributions from net realized capital gains (1.13) (1.14) (1.23) (0.11) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.13) (1.14) (1.23) (0.15) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.80 $ 21.89 $ 19.00 $ 17.82 $ 13.75 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* (4.07)% 22.18% 14.77% 30.95% 14.58% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $382,483 $391,973 $317,812 $306,217 $162,949 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.83)% (0.84)% (0.75)% (0.11)% 1.40%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.16) $ (0.18) -- $ (0.05) $ 0.07 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 76% 24% 79% 89% 37% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.66% 1.57% 1.71% 1.75% 1.75%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.66% 1.57% -- 1.79% 2.07%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.66% 1.56% -- -- -- - -------------------------------------------------------------------------------------------------------------------------------
(a) The U.S. Emerging Growth (formerly Micro Cap) Fund's Class R shares commenced operations on December 30, 1994. * Total return represents aggregate total return for the periods indicated. + Annualized. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 111 - -------------------- The Montgomery Funds - -------------------- Financial Highlights - --------------------
SMALL CAP FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------------------------------------------------- 1999T 1998T 1997 1996 1995 Net Asset Value - Beginning of Period $ 20.73 $ 19.52 $ 21.55 $ 17.11 $ 15.15 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.17) (0.15) (0.18) (0.09) (0.10) Net realized and unrealized gain/(loss) on investments (1.21) 4.33 1.43 6.31 3.04 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations (1.38) 4.18 1.25 6.22 2.94 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains (2.07) (2.97) (3.28) (1.78) (0.98) Distributions in excess of net realized capital gains (0.70) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.77) (2.97) (3.28) (1.78) (0.98) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 16.58 $ 20.73 $ 19.52 $ 21.55 $ 17.11 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* (4.14)% 23.23% 6.81% 39.28% 20.12% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: Net assets, end of year (in 000s) $113,323 $203,437 $198,298 $275,062 $202,399 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (1.09)% (0.70)% (0.78)% (0.47)% (0.57)% - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.17) $ (0.15) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 71% 69% 59% 80% 85% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.32% 1.24% 1.20% 1.24% 1.37% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.32% 1.24% -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.32% 1.24% -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------- 1999T 1998T 1997(a) Net Asset Value - Beginning of Period $ 20.53 $ 19.48 $ 21.73 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.21) (0.20) (0.10) Net realized and unrealized gain/(loss) on investments (1.20) 4.22 1.13 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations (1.41) 4.02 1.03 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains (2.07) (2.97) (3.28) Distributions in excess of net realized capital gains (0.70) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.77) (2.97) (3.28) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 16.35 $ 20.53 $ 19.48 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* (4.39)% 22.44% 5.74% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 20,606 $ 21,548 $ 6,656 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (1.35)% (0.95)% (1.03)%+ - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.21) $ (0.20) -- - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 71% 69% 59% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.57% 1.49% 1.45%+ - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.57% 1.49% -- - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.57% 1.49% -- - ----------------------------------------------------------------------------------------------------------------------------------
(a) The Small Cap Fund s Class P shares commenced operations on July 1, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. The accompanying notes are an integral part of these financial statements. 112 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
EQUITY INCOME FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------------------------- 1999 1998 1997T 1996 1995(a) - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - Beginning of Period $ 18.27 $ 17.91 $ 16.09 $ 13.38 $12.00 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.32 0.44 0.49 0.43 0.31 Net realized and unrealized gain/(loss) on investments 2.30 2.27 3.35 2.82 1.38 - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.62 2.71 3.84 3.25 1.69 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.31) (0.44) (0.46) (0.42) (0.31) Distributions from net realized capital gains (1.54) (1.91) (1.56) (0.12) -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.85) (2.35) (2.02) (0.54) (0.31) - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.04 $ 18.27 $ 17.91 $ 16.09 $13.38 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 15.06% 15.83% 26.02% 24.56% 14.26% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $26,750 $40,260 $38,595 $19,312 $6,383 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 1.71% 2.32% 2.93% 3.03% 4.06%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.21 $ 0.34 $ 0.39 $ 0.34 $ 0.13 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 57% 68% 62% 90% 29% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 0.85% 0.86% -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.45% 1.38% 1.46% 1.45% 3.16%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.85% 0.85% 0.86% 0.85% 0.84%+ - -------------------------------------------------------------------------------------------------------------------------------- Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------------- 1999 1998 1997T 1996(a) Net Asset Value - Beginning of Period $18.25 $ 17.90 $16.09 $15.66 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.26 0.38 0.44 0.08 Net realized and unrealized gain/(loss) on investments 2.31 2.27 3.35 0.35 - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.57 2.65 3.79 0.43 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.27) (0.39) (0.42) -- Distributions from net realized capital gains (1.54) (1.91) (1.56) -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.81) (2.30) (1.98) -- - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.01 $ 18.25 $17.90 $16.09 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 14.74% 15.49% 25.64% 2.75% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 3,212 $ 2,719 $ 868 $2 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 1.46% 2.07% 2.68% 2.78%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.15 $ 0.28 $ 0.34 $ 0.06 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 57% 68% 62% 90% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.10% 1.11% -- -- - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.70% 1.63% 1.71% 1.70%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.10% 1.10% 1.11% 1.10%+ - --------------------------------------------------------------------------------------------------------------------------------
(a) The Equity Income Fund's Class R shares and Class P shares commenced operations on September 30, 1994, and March 12, 1996, respectively. * Total return represents aggregate total return for the periods indicated. + Annualized. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 113 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
INTERNATIONAL GROWTH FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------------- 1999 1998T 1997T 1996(a) Net Asset Value - Beggining of Period $ 18.67 $ 16.24 $ 15.31 $ 12.00 - -------------------------------------------------------------------------------------------------------------------------------- Net Investment income/(loss) 0.09 0.04 0.08 0.02 Net realized and unrealized gain/(loss) on investments 0.31 3.48 2.53 3.29 - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.40 3.52 2.61 3.31 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income -- (0.02) -- -- Distributions in excess of net investment income -- (0.00)++ -- -- Distributions from net realized capital gains (0.10) (1.07) (1.68) -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.10) (1.09) (1.68) -- - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 18.97 $ 18.67 $ 16.24 $ 15.31 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 2.34% 23.27% 19.20% 27.58% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $227,287 $64,820 $33,912 $18,303 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.41% 0.22% 0.57% 0.26%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.09 $ (0.04) $ (0.02) $ (0.07) - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 150% 127% 95% 239% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.66% 1.66% -- -- - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.74% 2.13% 2.37% 2.91%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.65% 1.65% 1.66% 1.65%+ - -------------------------------------------------------------------------------------------------------------------------------- Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------------------- 1999 1998T 1997T 1996(a) Net Asset Value - Beginningof Period $ 18.64 $ 16.22 $ 15.31 $ 13.66 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.12 (0.01) 0.05 0.00++ Net realized and unrealized gain/(loss) on investments 0.26 3.50 2.54 1.65 - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.38 3.49 2.59 1.65 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions in excess of net investment income -- (0.00)++ -- -- Distributions from net realized capital gains (0.10) (1.07) (1.68) -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.10) (1.07) (1.68) -- - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 18.92 $ 18.64 $ 16.22 $ 15.31 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 2.18% 23.03% 19.13% 12.08% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 2,352 $ 5 $ 5 $ 1 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.16% (0.03)% 0.32% 0.01%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.12 $ (0.08) $ (0.06) $ (0.05) - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 150% 127% 95% 239% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.91% 1.91% -- -- - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax 1.99% 2.38% 2.62% 3.16%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.90% 1.90% 1.91% 1.90%+ - --------------------------------------------------------------------------------------------------------------------------------
(a) The International Growth Fund s Class R shares and Class P shares commenced operations on July 3, 1995, and March 11, 1996, respectively. * Total return represents aggregate total return for the periods indicated. + Annualized. ++ Amount represents less than $0.01 per share. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. The accompanying notes are an integral part of these financial statements. 114 ==================== The Montgomery Funds -------------------- Financial Highlights --------------------
INTERNATIONAL SMALL CAP FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------------- 1999** 1998** 1997 1996 1995 Net Asset Value - Beginningof Period $ 15.14 $ 17.16 $ 14.86 $ 11.75 $ 12.02 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.01 (0.01) (0.05) 0.03 0.12 Net realized and unrealized gain/(loss) on investments (0.65) 0.31 2.35 3.10 (0.39) - --------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations (0.64) 0.30 2.30 3.13 (0.27) - --------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income -- -- -- (0.02) (0.00)++ Distributions in excess of net net investment income (0.01) (0.13) -- -- -- Distributions from net realized capital gains -- (2.19) -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.01) (2.32) -- (0.02) (0.00)++ - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 14.49 $ 15.14 $ 17.16 $ 14.86 $ 11.75 - --------------------------------------------------------------------------------------------------------------------------------- Total Return* (3.82)% 4.46% 15.48% 26.68% (2.23)% - --------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $38,054 $50,491 $53,602 $41,640 $28,516 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.07% (0.03)% (0.34)% 0.20% 0.95% - --------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ (0.10) $ (0.14) $ (0.08) $ 0.05 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 117% 111% 85% 177% 156% - --------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.91% 1.92% -- 1.96% 1.91% - --------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.56% 2.53% 2.60% 2.76% 2.50% - --------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.90% 1.90% 1.90% 1.90% 1.90% - --------------------------------------------------------------------------------------------------------------------------------- Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------- 1999** 1998** 1997(a) Net Asset Value - Beginning of Period $ 15.13 $ 17.16 $ 16.96 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) (0.02)# (0.05) 0.00++ Net realized and unrealized gain/(loss) on investments (0.69) 0.30 0.20 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) in net assets resulting from investment operations (0.71) 0.25 0.20 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions: Distributions from net net investment income -- -- -- Distributions in excess of net net investment income -- (0.09) -- Distributions from net realized capital gains -- (2.19) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions -- (2.28) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value - End of Period $ 14.42 $ 15.13 $17.16 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return* (4.03)% 4.13% 1.18% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (in 000s) $ 3 $ 5 $ 15 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income/(loss) to average net assets (0.18)% (0.28)% (0.59)%+ - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) before deferral of fees by Manager $ (0.03) $ (0.16) $ (0.01) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 117% 111% 85% - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio including interest and tax expense 2.16% 2.17% -- - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio before deferral of fees by Manager, including interest and tax expense 2.81% 2.78% 2.85%+ - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio excluding interest and tax expense 2.15% 2.15% 2.15%+ - ------------------------------------------------------------------------------------------------------------------------------------
(a) The International Small Cap Fund s Class P shares commenced operations on June 9, 1997. * Total return represents aggregate total return for the periods indicated. + Annualized. ++ Amount represents less than $0.01 per share. # The amount shown in this caption for each share outstanding throughout the period may not be in accord with the net realized and unrealized gain/(loss) for the period because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio. ** Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 115 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
GLOBAL OPPORTUNITIES FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------------- 1999 1998** 1997 1996 1995 Net Asset Value - Beginning of Period $ 19.19 $ 19.17 $ 16.96 $ 13.25 $ 12.92 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.12) 0.00++ (0.11) (0.06) 0.13 Net realized and unrealized gain/(loss) on investments 2.56 3.87 3.14 3.84 0.70 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.44 3.87 3.03 3.78 0.83 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.22) -- -- (0.07) -- Distributions from net realized capital gains (2.20) (3.85) (0.82) -- (0.50) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.42) (3.85) (0.82) (0.07) (0.50) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.21 $ 19.19 $ 19.17 $ 16.96 $ 13.25 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* 15.68% 27.12% 18.71% 28.64% 6.43% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $57,146 $96,412 $32,371 $28,496 $13,677 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.61)% (0.02)% (0.62)% (0.56)% 1.03% - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.14) $ 0.00++ $ (0.23) $ (0.16) $ (0.01) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 172% 135% 117% 164% 119% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 2.01% 1.96% -- 2.05% 1.91% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.40% 2.37% 2.62% 3.10% 2.99% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.90% 1.90% 1.90% 1.90% 1.90% - ----------------------------------------------------------------------------------------------------------------------------------
* Total return represents aggregate total return for the periods indicated. ++ Amount represents less than $0.01 per share. ** Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. The accompanying notes are an integral part of these financial statements. 116 ==================== The Montgomery Funds -------------------- Financial Highlights --------------------
GLOBAL COMMUNICATIONS FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, -------------------------------------------------------- 1999 1998++ 1997 1996 1995 Net Asset Value - Beginningof Period $ 22.88 $ 19.61 $ 18.05 $ 15.42 $ 14.20 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.01 (0.17) (0.25) (0.20) (0.03) Net realized and unrealized gain/(loss) on investments 6.35 7.19 2.72 2.83 1.28 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 6.36 7.02 2.47 2.63 1.25 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains (2.51) (3.75) (0.91) -- -- Distributions in excess of net realized capital gains -- -- -- -- (0.03) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.51) (3.75) (0.91) -- (0.03) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 26.73 $ 22.88 $ 19.61 $ 18.05 $ 15.42 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* 31.66% 45.45% 14.43% 17.06% 8.83% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $354,730 $267,113 $153,955 $206,671 $209,644 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.02% (0.85)% (1.05)% (1.01)% (0.10)% - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ (0.17) $ (0.27) $ (0.22) $ (0.07) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 146% 80% 76% 104% 50% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.69% 1.93% -- 2.01% 1.91% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.69% 1.93% 2.00% 2.11% 2.09% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.68% 1.90% 1.91% 1.90% 1.90% - ----------------------------------------------------------------------------------------------------------------------------------
* Total return represents aggregate total return for the periods indicated. ++ Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 117 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
EMERGING MARKETS FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------------------------------- 1999 1998 1997 1996 1995T Net Asset Value - Beginning of Period $ 9.86 $ 16.85 $ 14.19 $ 13.17 $ 13.68 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.92 0.07 0.07 0.08 0.03 Net realized and unrealized gain/(loss) on investments (0.54) (6.58) 2.66 0.94 0.25# - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.38 (6.51) 2.73 1.02 0.28 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income -- (0.15) (0.07) -- -- Distributions from net realized capital gains -- (0.33) -- -- (0.42) Distributions in excess of net realized capital gains -- -- -- -- (0.37) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (0.48) (0.07) -- (0.79) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 10.24 $ 9.86 $ 16.85 $ 14.19 $ 13.17 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 3.85% (39.20)% 19.34% 7.74% 1.40% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 344,907 $758,911 $1,259,457 $994,378 $998,083 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 0.01% 0.55% 0.48% 0.58% 0.23% - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.96 $ 0.07 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 86% 97% 83% 110% 92% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 2.05% 1.65% -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.15% 1.65% -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.90% 1.60% 1.67% 1.72% 1.80% - -------------------------------------------------------------------------------------------------------------------------------
Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------------------------- 1999 1998 1997 1996(a) Net Asset Value - Beginning of Period $ 9.74 $ 16.77 $ 14.19 $ 12.62 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.00++ 0.03 0.06 0.01 Net realizedand unrealized gain/(loss) on investments 0.31 (6.61) 2.58 1.56 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.31 (6.58) 2.64 1.57 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income -- (0.12) (0.06) -- Distributions from net realized capital gains -- (0.33) -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (0.45) (0.06) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 10.05 $ 9.74 $ 16.77 $ 14.19 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 3.08% (39.75)% 18.62% 12.44% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 520 $ 413 $ 607 $2 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.24)% 0.30% 0.23% 0.33%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ 0.03 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 86% 97% 83% 110% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 2.30% 1.90% -- -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.40% 1.90% -- -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 2.15% 1.85% 1.92% 1.97%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The Emerging Markets Fund's Class P shares commenced operations on March 12, 1996. * Total return represents aggregate total return for the periods indicated. # The amount shown in this caption for each share outstanding throughout the peroid may not be in accord with the net realized and unrealized gain/(loss) for the period because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio. + Annualized. ++ Amount represents less than $0.01 per share. T 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. 118 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds -------------------- Financial Highlights --------------------
EMERGING ASIA FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------- 1999 1998 1997(a) Net Asset Value - Beginning of Period $ 6.18 $ 18.91 $ 12.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.01) 0.13 (0.01) Net realized and unrealized gain/(loss) on investments 6.04 (11.74) 6.95 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 6.03 (11.61) 6.94 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.00)++ (0.17) -- Distributions from net realized capital gains -- (0.00)++ (0.03) Distributions in excess of net realized capital gains -- (0.95) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (1.12) (0.03) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 12.21 $ 6.18 $ 18.91 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 97.44% (63.45)% 57.80% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $63,196 $24,608 $68,095 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.35)% 0.22% (0.42)%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.03) $ (0.08) $ (0.02) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 233% 154% 72% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 2.19% 1.91% 2.20%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.89% 2.27% 2.69%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.90% 1.90% 1.80%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The Emerging Asia Fund's Class R shares commenced operations on September 30, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. ++ Amount represents less than $0.01 per share. 119 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
GLOBAL LONG-SHORT FUND Class R Shares Fiscal Year Ended Selected Per-Share Data for the Year or Period Ended: June 30, March 31, ------------ -------------------- 1999(b)(c) 1999T 1998(a)T Net Asset Value - Beginning of Period $ 16.47 $ 12.70 $ 10.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.06) (0.05) 0.02 Net realized and unrealized gain/(loss) on investments 3.24 4.92 2.68 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 3.18 4.87 2.70 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.65 $ 16.47 $ 12.70 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 19.61% 39.87% 27.20% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $216,300 $83,638 $16,579 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (2.30)%+ (0.35)% 0.65%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.06) $ (0.09) $ (0.05) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 43% 226% 84% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 4.18%+ 3.40% 2.78%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 4.61%+ 3.79% 5.19%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 2.35%+ 2.35% 2.35%+ - -------------------------------------------------------------------------------------------------------------------------------
Class B Shares Fiscal Year Ended Selected Per-Share Data for the Year or Period Ended: June 30, March 31, ------------ ---------------------- 1999(b)(c) 1999T 1998(a)T Net Asset Value - Beginning of Period $ 16.25 $ 12.64 $ 10.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.15) (0.16) 0.00++ Net realized and unrealized gain/(loss) on investments 3.25 4.87 2.64 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 3.10 4.71 2.64 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value - End of Period $ 19.35 $ 16.25 $ 12.64 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 19.38% 38.88% 26.50% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $18,704 $17,031 $ 61 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (3.07)%+ (1.10)% (0.10)%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.16) $ (0.28) $ (0.00)++ - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 43%+ 226% 84% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 4.93%+ 4.15% 3.53%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 5.36%+ 4.54% 5.94%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 3.10%+ 3.10% 3.10%+ - -------------------------------------------------------------------------------------------------------------------------------
120 The accompanying notes are an integral part of these financial statements. ==================== The Montgomery Funds -------------------- Financial Highlights --------------------
Class C Shares Fiscal Year Ended Selected Per-Share Data for the Year or Period Ended: June 30, March 31, ------------ ----------------------------- 1999(c) 1999T 1998(a)T Net Asset Value Beginning of Period $15.13 $ 11.83 $10.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.13) (0.15) 0.00++ Net realized and unrealized gain/(loss) on investments 3.01 4.55 1.83 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.88 4.40 1.83 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Distributions from net realized capital gains -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (1.10) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value End of Period $18.01 $ 15.13 $11.83 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 19.37% 38.81% 18.50% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $7,209 $ 6,425 $ 202 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (3.07)%+ (1.10)% (0.10)%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $(0.15) $ (0.26) $(0.00)++ - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 43% 226% 84% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 4.93%+ 4.15% 3.53%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 5.36%+ 4.54% 5.94%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 3.10%+ 3.10% 3.10%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The Global Long-Short Fund commenced operations on December 31, 1997. (b) On January 29, 1999, Class R shares were issued in exchange for Class A shares. (c) The Fund changed its year end from March 31 to June 30. * Total return represents aggregate total return for the periods indicated. + Annualized. ++ Amount represents less than $0.01 per share. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 121 ==================== The Montgomery Funds - -------------------- Financial Highlights - --------------------
SELECT 50 FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------- 1999T 1998T 1997T 1996(a) Net Asset Value -- Beginning of Period $ 20.98 $ 20.01 $ 16.46 $ 12.00 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.09) 0.12 0.01 0.06 Net realized and unrealized gain/(loss) on investments 2.70 2.70 4.16 4.45 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.61 2.82 4.17 4.51 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.24) -- (0.10) (0.04) Distributions in excess of net investment income (0.10) -- -- -- Distributions from net realized capital gains (1.05) (1.85) (0.52) -- Distributions in excess of net realized capital gains -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.39) (1.85) (0.62) (0.05) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 22.20 $ 20.98 $ 20.01 $ 16.46 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 13.89% 15.44% 26.35% 37.75% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $136,792 $269,667 $172,509 $ 77,955 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.47)% 0.58% 0.04% 0.42%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.09) $ 0.12 $ (0.01) $ 0.02 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 115% 151% 158% 106% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.76% 1.81% -- -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.76% 1.81% 1.92% 2.11%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.73% 1.80% 1.82% 1.80%+ - -------------------------------------------------------------------------------------------------------------------------------
Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, --------------------------------------- 1999T 1998T 1997(a) Net Asset Value -- Beginning of Period $ 20.68 $ 19.98 $15.89 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) (0.14) 0.09 (0.02) Net realized and unrealized gain/(loss) on investments 2.64 2.46 4.11 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 2.50 2.55 4.09 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.21) -- -- Distributions in excess of net investment income (0.09) -- -- Distributions from net realized capital gains (1.05) (1.85) -- Distributions in excess of net realized capital gains -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.35) (1.85) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 21.83 $ 20.68 $19.98 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 13.46% 14.12% 25.74% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 55 $ 52 $ 9 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets (0.72)% 0.34% (0.21)%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ (0.14) $ 0.09 $ (0.03) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 115% 151% 158% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 2.01% 2.06% -- - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 2.01% 2.06% 2.17%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 1.98% 2.05% 2.07%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The Select 50 Fund's Class R shares and Class P shares commenced operations on October 2, 1995, and December 12, 1996, respectively. * Total return represents aggregate total return for the periods indicated. + Annualized. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 122 The accompanying notes are an integral part of these financial statements. -------------------- The Montgomery Funds ==================== Financial Highlights ====================
U.S. ASSET ALLOCATION FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, -------------------------------------------------- 1999T 1998# 1997T 1996 1995 Net Asset Value -- Beginning of Period $ 19.08 $ 19.89 $ 19.33 $ 16.33 $ 12.24 - ------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) 0.48 1.66 0.48 0.26 0.25 Net realized and unrealized gain/(loss) on investments 1.23 0.99 2.13 3.54 4.11 - ------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) in net assets resulting from investment operations 1.71 2.65 2.61 3.80 4.36 - ------------------------------------------------------------------------------------------------------------------------ Distributions: Dividends from net investment income (0.93) (0.93) (0.39) (0.25) (0.17) Dividends in excess of net investment income -- (0.70) -- -- -- Distributions from net realized capital gains (1.68) (1.83) (1.66) (0.55) (0.10) Distributions in excess of net realized capital gains (1.41) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ Total distributions (4.02) (3.46) (2.05) (0.80) (0.27) - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value -- End of Period $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33 - ------------------------------------------------------------------------------------------------------------------------ Total Return* 11.93% 14.67% 14.65% 23.92% 35.99% - ------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (in 000s) $ 81,133 $128,075 $127,214 $132,511 $ 60,234 - ------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income/(loss) to average net assets 2.63% 3.10% 2.55% 1.85% 3.43% - ------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) before deferral of fees by Manager $ 0.45 $ 1.63 $ 0.47 $ 0.24 $ 0.19 - ------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 36% 84% 169% 226% 96% - ------------------------------------------------------------------------------------------------------------------------ Expense ratio including interest and tax expense 0.25% 0.26% 1.43% 1.42% 1.31% - ------------------------------------------------------------------------------------------------------------------------ Expense ratio before deferral of fees by Manager, including interest and tax expense 0.46% 0.31% 1.49% 1.55% 2.07% - ------------------------------------------------------------------------------------------------------------------------ Expense ratio excluding interest and tax expense 0.25% 0.25% 1.31% 1.30% 1.30% - ------------------------------------------------------------------------------------------------------------------------
Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ---------------------------------------- 1999T 1998# 1997T 1996(a) Net Asset Value -- Beginning of Period $ 19.11 $ 19.89 $ 19.33 $ 17.86 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.44 1.62 0.43 0.09 Net realized and unrealized gain/(loss) on investments 1.17 1.01 2.13 1.38 - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 1.61 2.63 2.56 1.47 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.89) (0.84) (0.34) -- Dividends in excess of net investment income -- (0.74) -- -- Distributions from net realized capital gains (1.68) (1.83) (1.66) -- Distributions in excess of net realized capital gains (1.41) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (3.98) (3.41) (2.00) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 16.74 $ 19.11 $ 19.89 $ 19.33 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 11.15% 14.53% 14.35% 8.23% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 56 $ 71 $ 74 $ 43 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 2.68% 2.85% 2.30% 1.60%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.41 $ 1.59 $ 0.42 $ 0.08 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% 84% 169% 226% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 0.50% 0.51% 1.68% 1.67%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 0.71% 0.56% 1.74% 1.80%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.50% 0.50% 1.56% 1.55%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The U.S. Asset Allocation Fund's Class P shares commenced operations on January 3, 1996. # The Fund converted to a fund of funds structure effective July 1, 1998. Expense ratios prior to that date do not reflect expenses borne indirectly. * Total return represents aggregate total return for the periods indicated. + Annualized. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 123 The accompanying notes are an integral part of these financial statements. - -------------------- The Montgomery Funds ==================== Financial Highlights ====================
TOTAL RETURN BOND FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------- 1999 1998(a) Net Asset Value -- Beginning of Period $ 12.44 $ 12.00 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.73 0.72 Net realized and unrealized gain/(loss) on investments (0.35) 0.56 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.38 1.28 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.73) (0.72) Dividends in excess of net investment income (0.01) -- Distributions in excess of net realized capital gains -- (0.00)++ Distributions from net realized capital gains (0.42) (0.12) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.16) (0.84) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 11.66 $ 12.44 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* 3.20% 10.92% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 38,476 $ 77,694 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 5.88% 5.81% - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.72 $ 0.71 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 158% 390% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.16% 1.29% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.25% 1.34% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.70% 0.70% - ----------------------------------------------------------------------------------------------------------------------------------
(a) The Total Return Bond Fund's Class R shares commenced operations on June 30, 1997. * Total return represents aggregate total return for the periods indicated. ++ Amount represents less than $0.01 per share. 124 The accompanying notes are an integral part of these financial statements. -------------------- The Montgomery Funds ==================== Financial Highlights ====================
SHORT DURATION GOVERNMENT BOND FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------ 1999 1998 1997T 1996 1995 Net Asset Value -- Beginning of Period $ 10.14 $ 9.99 $ 9.92 $ 9.95 $ 9.80 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.53 0.57 0.59 0.60 0.62 Net realized and unrealized gain/(loss) on investments (0.05) 0.16 0.07 (0.04) 0.16 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.48 0.73 0.66 0.56 0.78 - ---------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.51) (0.56) (0.59) (0.59) (0.62) Dividends in excess of net investment income (0.02) -- (0.00)# (0.00)# -- Distributions from net realized capital gains -- (0.02) -- -- -- Distributions in excess of net realized capital gains (0.05) -- -- -- -- Distributions from capital -- -- -- -- (0.01) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.58) (0.58) (0.59) (0.59) (0.63) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 10.04 $10.14 $ 9.99 $ 9.92 $ 9.95 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return* 4.82% 7.56% 6.79% 5.74% 8.28% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $ 154,365 $66,357 $47,265 $22,681 $17,093 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 5.21% 5.83% 5.87% 5.88% 6.41% - ---------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.48 $ 0.51 $ 0.54 $ 0.52 $ 0.54 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 199% 502% 451% 350% 284% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.35% 1.15% 1.55% 1.55% 1.38% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.85% 1.73% 2.05% 2.31% 2.23% - ---------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.62% 0.28% 0.60% 0.60% 0.47% - ----------------------------------------------------------------------------------------------------------------------------------
Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------- 1999 1998 1997T 1996(a) Net Asset Value -- Beginning of Period $10.15 $9.99 $9.92 $9.98 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.41 0.61 0.59 0.16 Net realized and unrealized gain/(loss) on investments (0.06) 0.12 0.06 (0.05) - ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.35 0.73 0.65 0.11 - ------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.41) (0.57) (0.58) (0.17) Dividends in excess of net investment income (0.01) -- (0.00)# -- Distributions from net realized capital gains -- -- -- -- Distributions in excess of net realized capital gains (0.05) -- -- -- Distributions from capital -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.47) (0.57) (0.58) (0.17) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $10.03 $10.15 $9.99 $9.92 - ------------------------------------------------------------------------------------------------------------------------------- Total Return* 4.47% 7.34% 6.69% 1.12% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $3,887 $ 3 $ 0 $ 1 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 4.96% 5.58% 5.62% 5.63%+ - ------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $0.37 $0.55 $0.54 $ 0.14 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 199% 502% 451% 350% - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 1.60% 1.40% 1.80% 1.80%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager,including interest and tax expense 2.10% 1.98% 2.30% 2.56%+ - ------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.87% 0.53% 0.85% 0.85%+ - -------------------------------------------------------------------------------------------------------------------------------
(a) The Short Duration Government Bond Fund's Class P shares commenced operations on March 11, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. # Amount represents less than $0.01 per share. T Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, since the use of the undistributed income method did not accord with results of operations. 125 The accompanying notes are an integral part of these financial statements. - -------------------- The Montgomery Funds ==================== Financial Highlights ====================
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ------------------------------------------------- 1999 1998 1997 1996 1995(a) Net Asset Value -- Beginning of Period $ 12.86 $ 12.53 $ 12.23 $ 12.04 $ 11.79 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.49 0.51 0.53 0.54 0.44 Net realized and unrealized gain/(loss) on investments (0.16) 0.33 0.30 0.19 0.25 - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.33 0.84 0.83 0.73 0.69 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.46) (0.51) (0.53) (0.54) (0.44) Dividends in excess of net investment income (0.03) -- -- -- (0.00)++ Dividends from net realized capital gains (0.03) -- -- -- -- Dividends in excess of net realized capital gains (0.00)++ -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.52) (0.51) (0.53) (0.54) (0.44) - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 12.67 $ 12.86 $ 12.53 $ 12.23 $ 12.04 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 2.71% 6.85% 6.91% 6.11% 6.03% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $41,017 $35,667 $21,681 $13,948 $ 5,153 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 3.93% 4.03% 4.27% 4.34% 3.71% - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.48 $ 0.44 $ 0.47 $ 0.43 $ 0.34 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 184% 42% 26% 58% 38% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 0.69% 0.69% 0.68% 0.61% 0.56% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 1.19% 1.19% 1.18% 1.43% 1.41% - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.69% 0.68% -- -- -- - --------------------------------------------------------------------------------------------------------------------------------
(a) The California Tax-Free Intermediate Bond Fund's Class R shares commenced operations on July 1, 1993. * Total return represents aggregate total return for the periods indicated. + Annualized. ++ Amount represents less than $0.01 per share. 126 The accompanying notes are an integral part of these financial statements. -------------------- The Montgomery Funds ==================== Financial Highlights ====================
GOVERNMENT MONEY MARKET FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 3 ------------------------------------------------------- 1999 1998 1997 1996 1995 Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) 0.047 0.052 0.049 0.052 0.049 Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss. 0.000ss. - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) in net assets resulting from investment operations 0.047 0.052 0.049 0.052 0.049 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions: Dividends from net investment income (0.047) (0.052) (0.049) (0.052) (0.049) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (0.047) (0.052) (0.049) (0.052) (0.049) - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return* 4.81% 5.27% 5.03% 5.28% 4.97% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (in 000s) $575,387 $724,619 $473,154 $439,423 $258,956 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income/(loss) to average net assets 4.71% 5.15% 4.93% 5.17% 4.92% - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) before deferral of fees by Manager $ 0.047 $ 0.052 $ 0.049 $ 0.050 $ 0.047 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio including interest and tax expense 0.50% 0.53% -- -- 0.63% - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio before deferral of fees by Manager, including interest and tax expense 0.50% 0.48% 0.62% 0.74% 0.79% - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio excluding interest and tax expense 0.50% 0.53% 0.60% 0.60% 0.60% - ------------------------------------------------------------------------------------------------------------------------------------
Class P Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, -------------------------------------------- 1999 1998 1997 1996(a) Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) 0.045 0.049 0.048 0.014 Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss. - ------------------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) in net assets resulting from investment operations 0.045 0.049 0.048 0.014 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions: Dividends from net investment income (0.045) (0.049) (0.048) (0.014) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (0.045) (0.049) (0.048) (0.014) - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return* 4.54% 5.00% 4.88% 1.38% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (in 000s) $ 1 -- -- $ 1 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income/(loss) to average net assets 4.52% 4.90% 4.68% 4.91%+ - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income/(loss) before deferral of fees by Manager $ 0.045 $ 0.049 $ 0.048 $ 0.013 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio including interest and tax expense 0.75% 0.78% -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio before deferral of fees by Manager, including interest and tax expense 0.75% 0.73% 0.87% 0.99%+ - ------------------------------------------------------------------------------------------------------------------------------------ Expense ratio excluding interest and tax expense 0.75% 0.78% 0.85% 0.85%+ - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Government Money Market (formerly Government Reserve) Fund's Class P shares commenced operations on March 11, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. # The amount shown in this caption for each share outstanding throughout the period may not be in accord with the net realized and unrealized gain/(loss) for the period because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio. ss. Amount represents less than $0.001 per share. 127 - -------------------- The Montgomery Funds ==================== Financial Highlights ====================
FEDERAL TAX-FREE MONEY FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, -------------------------------- 1999 1998 1997(a) Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.028 0.031 0.032 Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.028 0.031 0.032 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.028) (0.031) (0.032) Dividends in excess of net investment income (0.000)ss. -- (0.000)ss. Distributions from net realized capital gains -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.028) (0.031) (0.032) - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 2.82% 3.12% 3.26% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) $116,341 $117,283 $114,197 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 2.80% 3.08% 3.24%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.026 $ 0.031 $ 0.030 - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 0.60% 0.60% 0.33%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 0.80% 0.81% 0.69%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.60% 0.60% -- - --------------------------------------------------------------------------------------------------------------------------------
(a) The Federal Tax-Free Money Fund's Class R shares commenced operations on July 15, 1996. * Total return represents aggregate total return for the periods indicated. + Annualized. ss. Amount represents less than $0.001 per share. 128 The accompanying notes are an integral part of these financial statements. -------------------- The Montgomery Funds ==================== Financial Highlights ====================
CALIFORNIA TAX-FREE MONEY FUND Class R Shares Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30, ----------------------------------------------- 1999 1998 1997 1996 1995(a) Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) 0.026 0.029 0.029 0.030 0.027 Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss. 0.000ss. - -------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from investment operations 0.026 0.029 0.029 0.030 0.027 - -------------------------------------------------------------------------------------------------------------------------------- Distributions: Dividends from net investment income (0.026) (0.029) (0.029) (0.030) (0.027) Distributions in excess of net investment income -- -- -- -- (0.000)ss. - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (0.026) (0.029) (0.029) (0.030) (0.027) - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------------------------------------------------------- Total Return* 2.59% 3.00% 2.95% 3.03% 2.68% - -------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in 000s) 292,901 $187,216 $118,723 $98,134 $64,780 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income/(loss) to average net assets 2.55% 2.96% 2.91% 2.99% 3.55%+ - -------------------------------------------------------------------------------------------------------------------------------- Net investment income/(loss) before deferral of fees by Manager $ 0.021 $ 0.029 $ 0.028 $ 0.028 $ 0.023 - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio including interest and tax expense 0.58% 0.58% 0.58% 0.59% 0.33%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio before deferral of fees by Manager, including interest and tax expense 0.61% 0.68% 0.73% 0.80% 0.86%+ - -------------------------------------------------------------------------------------------------------------------------------- Expense ratio excluding interest and tax expense 0.58% 0.58% -- -- -- - --------------------------------------------------------------------------------------------------------------------------------
(a) The Califonia Tax-Free Money Fund's Class R shares commenced operations on September 30, 1994. * Total return represents aggregate total return for the periods indicated. + Annualized. ss. Amount represents less than $0.001 per share. ======================== The Montgomery Funds - ------------------------ Notes - ------------------------ to Financial Statements The Montgomery Funds and The Montgomery Funds II (individually, the "Trust" and, collectively, the "Trusts" ) are registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end management investment companies. As of June 30, 1999, the Trusts had 24 publicly offered series (individually, a "Fund" and, collectively, the "Funds"). The Montgomery Funds include the following: Montgomery Growth Fund, Montgomery U.S. Emerging Growth Fund, Montgomery Small Cap Fund, Montgomery Equity Income Fund, Montgomery International Growth Fund, Montgomery International Small Cap Fund, Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery Emerging Markets Fund, Montgomery Emerging Asia Fund, Montgomery Select 50 Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund, Montgomery Government Money Market Fund (formerly Montgomery Government Reserve Fund), Montgomery Federal Tax-Free Money Fund and Montgomery California Tax-Free Money Fund. The Montgomery Funds II include the Montgomery Global Long-Short Fund and the Montgomery U.S. Asset Allocation Fund, among other series. The financial statements for the other Funds in The Montgomery Funds II have been presented under separate covers . The Montgomery Funds are organized as a Massachusetts business trust and commenced operations on May 10, 1990. The Montgomery Funds II are organized as a Delaware business trust and commenced operations on September 8, 1993. The Montgomery Global Long-Short Fund, which commenced operations on December 31, 1997, has changed its fiscal year end from March 31 to June 30 of each year. The Fund s most recent audited financial statements covered the fiscal year ended March 31, 1999. On May 21, 1999, the Montgomery Global Long-Short Fund was closed to new investors; however, existing shareholders of the Fund as of this date may continue to purchase additional shares for their accounts. Effective July 15, 1999, the Montgomery Government Reserve Fund changed its name to the Montgomery Government Money Market Fund. 1. SIGNIFICANT ACCOUNTING POLICIES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies. a. Portfolio Valuation Portfolio securities, including short sales, are valued using current market valuations: either the last reported sale price or, in the case of securities for which there is no reported last sale and in the case of fixed-income securities, the mean of the closing bid and ask prices. Portfolio securities that are traded primarily on foreign securities exchanges or for which market quotations are readily available are generally valued at the last reported sale price on the respective exchanges or markets; except that when an occurrence subsequent to the time that a value was so established is likely to have changed said value, the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees or its delegates. Securities traded on the over-the-counter market or on the NASDAQ national market are valued at the mean between the last available bid and ask prices prior to the time of valuation. For the Government Money Market Fund, Federal Tax-Free Money Fund and California Tax-Free Money Fund, portfolio securities are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available (including restricted securities that are subject to limitations as to their sale) are valued at fair value as determined in good faith by or under the supervision of the Trusts' officers in accordance with methods authorized by the Trusts' Board of Trustees. Short-term securities with maturities of 60 days or less are carried at amortized cost, which approximates market value. b. Forward Foreign-Currency Exchange Contracts Certain Funds may engage in forward foreign-currency exchange contracts ("forward contracts") as a hedge in connection with portfolio purchases and sales of securities denominated in foreign currencies. A forward contract is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. Forward contracts are valued at the prevailing forward exchange rate of the underlying currencies, and unrealized gain (loss) is recorded daily. Unrealized gains and losses that represent the difference between the value of the forward contract to buy and the forward contract to sell are included in net unrealized gain (loss) from foreign-currency-related transactions. Certain risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward contracts to hedge, a Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract. c. Foreign Currency The accounting records of the Funds are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Funds denominated in a foreign currency are translated into U.S. dollars at the exchange rate each day. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rate in effect on the date of the respective transactions. The Funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign-currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized gain (loss) and unrealized appreciation (depreciation) from investments and securities sold short. d. Repurchase Agreements Each Fund may engage in repurchase agreement transactions either individually or jointly through a joint repurchase account with 130 ----------------------- The Montgomery Funds ======================= Notes ======================= to Financial Statements other series of the Trusts pursuant to a joint repurchase agreement. Under the terms of a typical repurchase agreement, a Fund takes possession of debt obligations as collateral. The Fund also agrees with the counterparty to allow the counterparty to repurchase, and the Fund to resell, the obligations at a specified date and price, thereby determining the yield during the Fund's holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the Fund's holding period. The value of the collateral is at least equal at all times to the total amount of the repurchase obligation, including interest. In the event of counterparty default, a Fund has the right to use the collateral to offset losses incurred. There could be potential loss to the Fund in the event a Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period the Fund seeks to assert its rights. The Fund's Manager, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Funds enter into repurchase agreements, to evaluate potential risks. The Funds may also participate on an individual or joint basis in tri-party repurchase agreements that involve a counterparty and a custodian bank. e. Dollar Roll Transactions Certain Funds may enter into dollar roll transactions with financial institutions to take advantage of opportunities in the mortgage market. A dollar roll transaction involves a sale by the Fund of securities with a simultaneous agreement to repurchase sustantially similar securities at an agreed-upon price at a future date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund will invest the proceeds of the sale in additional instruments, the income from which, together with any additional fee income received for the dollar roll, may generate income for the Fund exceeding the yield on the securities sold. Dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. f. Reverse Repurchase Agreements Certain Funds may enter into reverse repurchase agreement transactions with member banks on the Federal Reserve Bank of New York's list of reporting dealers. A reverse repurchase agreement involves a sale by the Fund of securities that it holds with an agreement by the Fund to repurchase the same securities at an agreed-upon price and date. A reverse repurchase agreement involves the risk that the market value of the securities sold by the Fund may decline below the repurchase price of the securities. Additionally, in the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement may be restricted pending a determination by the party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Each Fund establishes a segregated account with its custodian in which the Fund maintains cash, U.S. government securities or other high-grade liquid debt obligations equal in value to its obligations with respect to reverse repurchase agreements. g. Futures Contracts Certain Funds may enter into futures contracts. Upon entering into a futures contract, a Fund is required to deposit with the custodian on behalf of the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. When futures contracts are closed, the difference between the opening value at the date of purchase and the value at closing is recorded as realized gain (loss) in the Statement of Operations. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of the hedged investments. In addition, there is the risk a Fund may not be able to enter into a closing transaction because of an illiquid secondary market. h. Equity Swaps Certain Funds may enter into equity swap agreements in order to participate in foreign markets not currently accessible to the Fund. Pursuant to these agreements, the Fund pays a swap fee in cash which is equal to a fixed percentage of the cost for the underlying security (the "notional amount"). Additionally, the Fund will make semiannual payments to the swap counterparty equal to any capital depreciation on the underlying security, plus a floating-rate payment based on the notional amount and the six-month LIBOR rate. The swap counterparty will make semiannual payments to the Fund equal to any capital appreciation and any dividends received on the underlying security. During the terms of the agreements, changes in the underlying value of the swaps are recorded as unrealized gains or losses and are based on changes in the value of the underlying security. Amounts received from (paid to) the swap counterparty representing capital appreciation (depreciation) are recorded as realized gain (loss), whereas dividends on the underlying security are recorded when received. The Fund is exposed to credit risk in the event of non-performance by the swap counterparty; the Fund does not anticipate non-performance by the counterparty, however. i. Short Sales/Forward Commitments Certain Funds may enter into short sales and forward commitments. Short sales are transactions in which a Fund sells a security it does not own, in anticipation of a decline in the market value of that security. To complete such a transaction, a Fund must borrow the security to deliver to the buyer upon the short sale; the Fund is then obligated to replace the security borrowed by purchasing it on the open market at some later date. A Fund will incur a loss if the market price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. A Fund will typically realize a gain if the security declines in value between those dates. Dividends declared on securities sold short are recorded on the ex-dividend date. For the period ended June 131 - ----------------------- The Montgomery Funds ======================= Notes ======================= to Financial Statements 30, 1999, the Global Long-Short Fund incurred $175,308 in short dividend expenses. A Fund engaging in short sales maintains as collateral cash or liquid debt and equity securities sufficient to fully collateralize its obligation on the short position. j. Options Certain Funds may enter into options contracts. An option contract is a contract in which the writer of the option grants the buyer of the option the right to purchase from (call option) or sell to (put option) the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by a Fund if the option is exercised. If a Fund writes an option and the option expires unexercised, the Fund will realize a capital gain to the extent of the amount received for the option (the "premium"). If a Fund elects to close out the option, it will recognize a gain or loss based on the difference between the cost of closing the option and the initial premium received. If a Fund purchases an option and allows the option to expire, it will realize a loss to the extent of the premium paid. If a Fund elects to close out the option, it will recognize a gain or loss equal to the difference between the cost of acquiring the option and the amount realized upon the sale of the option. The gain or loss recognized by a Fund upon the exercise of a written call or purchased put option is adjusted for the amount of option premium. If a written put or purchased call option is exercised, a Fund's cost basis of the acquired security or currency would be the exercise price adjusted for the amount of the option premium. The liability representing a Fund's obligation under an exchange-traded written option or investment in the purchased option is valued at the last sale price or, in absence of a sale, the mean between the closing bid and ask prices or at the most recent ask price (bid for purchased options) if no bid and ask prices are available. Over-the-counter written or purchased options are valued using dealer-supplied quotations. When a Fund writes a covered call option, the Fund forgoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security or currency above the exercise price. When a Fund writes a put option, it accepts the risk of a decline in the market value of the underlying security or currency below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. A Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into options contracts, including the risk that an illiquid secondary market will limit a Fund's ability to close out an option contract prior to the expiration date, and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged. k. Dividends and Distributions Dividends from net investment income of the Growth Fund, U.S. Emerging Growth Fund, Small Cap Fund, International Growth/Fund, International Small Cap Fund, Global Opportunities Fund, Global Communications Fund, Emerging Markets Fund, Emerging Asia Fund, Global Long-Short Fund, Select 50 Fund and U.S. Asset Allocation Fund are declared and paid at least annually. Dividends from net investment income of the Total Return Bond Fund, Short Duration Government Bond Fund, California Tax-Free Intermediate Bond Fund, Government Money Market Fund, Federal Tax-Free Money Fund and California Tax-Free Money Fund are declared daily and paid monthly. Dividends from net investment income of the Equity Income Fund are declared and paid quarterly. Distributions of net realized capital gains (including net short-term capital gains) earned by a Fund are distributed no less frequently than annually. Additional distributions of net investment income and capital gains for each Fund may be made in order to avoid the application of a 4% non-deductible excise tax on certain undistributed amounts of ordinary income and capital gains. Income distributions and capital-gain distributions are determined in accordance with income-tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by a Fund, timing differences and differing characterization of distributions made by a Fund. Permanent differences incurred during the year ended June 30, 1999, resulting from differences in book and tax accounting, that have been reclassified at year end among undistributed net investment income, accumulated net realized gain (loss) and paid-in capital were as follows: Undistributed Net Undistributed Investment Capital Paid-in Fund Income Gain/(Loss) Capital - -------------------------------------------------------------------------------- Growth Fund ........................ $ (1,884) $(9,822,573) $ 9,824,457 U.S. Emerging Growth Fund .......... 3,102,617 (1,251,702) (1,850,915) Small Cap Fund ..................... 1,713,356 (3,148,630) 1,435,274 Equity Income Fund ................. -- (1,022,061) 1,022,061 International Growth Fund .......... (1,222,828) 514,247 708,581 International Small Cap Fund ....... 64,027 (361,998) 297,971 Global Opportunities Fund .......... 1,182,022 (2,427,867) 1,245,845 Global Communications Fund ......... 912,283 (3,390,685) 2,478,402 Emerging Markets Fund .............. (2,995,558) 2,993,392 2,166 Emerging Asia Fund ................. (431,832) 431,833 (1) Global Long-Short Fund ............. 1,234,763 (1,227,655) (7,108) Select 50 Fund ..................... 2,391,582 (5,499,756) 3,108,174 U.S. Asset Allocation Fund ......... 1,588,540 (4,504,134) 2,915,594 Total Return Bond Fund ............. (3,755) (329,954) 333,709 Short Duration Government Bond Fund ............... (195,734) (30,551) 226,285 California Tax-Free Intermediate Bond Fund ............. (81,150) 81,151 (1) Government Money Market Fund ....... (202) 202 -- Federal Tax-Free Money Fund ........ -- 136 (136) California Tax-Free Money Fund ......................... (2) (1) 3 132 ====================== The Montgomery Funds ---------------------- Notes ---------------------- to Financial Statements Permanent book-tax differences, if any, are not included in ending undistributed net investment income (loss) for the purposes of calculating net investment income (loss) per share in the Financial Highlights. l. Securities Transactions and Investment Income Securities transactions are recorded on a trade date basis (date the order to buy or sell is executed). Interest income is accrued daily and includes amortization of premium and accretion of discount on investments. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the Funds are informed of the ex-dividend date. Interest income, including, where applicable, accretion/amortization of discount/premium on short-term investments, is recognized on the accrual basis. Each Fund's investment income and realized and unrealized gains and losses are allocated among its classes based on the relative net assets of each class of shares. m. Federal Income Taxes Each Fund has elected and qualified, and it is the intention of each Fund to continue to qualify, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), by complying with the provisions available to certain investment companies, as defined in applicable sections of the Code, and to make distributions of taxable and tax-exempt income to shareholders sufficient to relieve each Fund of all or substantially all federal income taxes. Therefore, no federal income or excise-tax provision has been made. The Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Funds will accrue such taxes and recoveries as applicable, based on their current interpretation of tax rules and regulations that exist in the markets in which they invest. n. Organization Costs Certain expenses incurred in connection with the organization of each Fund are amortized on a straight-line basis over a period of five years from the commencement of operations. o. Cash Cash, as used in the Statement of Cash Flows, is the amount reported in the Statement of Assets and Liabilities. The Funds issue and redeem their shares, invest in securities and distribute dividends from net investment income and net realized gains (which are either paid in cash or reinvested at the discretion of shareholders). These activities are reported in the Statement of Changes in Net Assets. Information on cash payments is presented in the Statement of Cash Flows. Accounting practices that do not affect reporting activities on a cash basis include unrealized gain or loss on investment securities, accretion income recognized on investment securities and amortization of organization costs. p. Expenses General expenses of the Trusts are allocated to the relevant Funds based on relative net assets. Operating expenses directly attributable to a Fund or a class of shares are charged to that Fund s or class s operations. Expenses of each Fund not directly attributable to the operations of any Fund or class of shares are prorated among the classes based on the relative average net assets of each Fund or class of shares. 2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER CONTRACTUAL COMMITMENTS: a. Montgomery Asset Management, LLC, is the Funds' Manager (the "Manager"). The Manager, a Delaware limited liability company, is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. The Manager is a subsidiary of Commerzbank AG. Pursuant to Investment Management Agreements (the "Agreements") between the Manager and the Trusts with respect to each Fund, the Manager provides each Fund with advice on buying and selling securities, manages the investments of each Fund including the placement of orders for portfolio transactions, furnishes each Fund with office space and certain administrative services, and provides the personnel needed by the Trusts with respect to the Manager's responsibilities under the Agreements. Under Operating Expense Agreements with each Trust, the Manager has agreed to reduce some or all of its management fee or absorb Fund expenses if necessary to keep each Fund's annual operating expenses, exclusive of Rule 12b-1 fees, dividend expense, interest, extraordinary expenses and taxes, at or below the following percentages of each Fund s average net assets: 1.50% for the Growth Fund; 1.75% for the U.S. Emerging Growth Fund; 1.40% for the Small Cap Fund; 0.85% for the Equity Income Fund; 1.65% for the International Growth Fund; 1.90% for the International Small Cap Fund, the Global Opportunities Fund, the Global Communications Fund, the Emerging Markets Fund and the Emerging Asia Fund; 2.35% for the Global Long- Short Fund; 1.80% for the Select 50 Fund; 1.30% for the U.S. Asset Allocation Fund (including total expenses of the underlying Funds); 0.70% for the Total Return Bond Fund and the Short Duration Government Bond Fund; 0.70% for the California Tax-Free Intermediate Bond Fund; 0.60% for the Government Money Market Fund and the Federal Tax-Free Money Fund; and 0.60% for the California Tax-Free Money Fund. Any reductions or absorptions made to a Fund by the Manager are subject to recovery within the following three years, provided a Fund is able to effect such reimbursement and remain in compliance with applicable expense limitations. The Operating Expense Agreements have rolling 10-year terms, extendable for one year at the end of each fiscal year. Montgomery Asset Management, LLC, serves as the Fund's administrator (the "Administrator"). The Administrator performs 133 - ----------------------- The Montgomery Funds ======================= Notes ======================= to Financial Statements services with regard to various aspects of each Fund's administrative operations. As compensation, each Fund has accrued a monthly management and administration fee (accrued daily) based on the average daily net assets of each Fund. The following effective management fee annual rates include current-year accrued fees and recoupment of prior-year deferrals, but do not include the effect of current-year fee deferrals or expense absorptions: Management Fee Including Contractual Effective Effect of Management Management Fees Administration Fund Fee Fee Reduced Fee - -------------------------------------------------------------------------------- Growth Fund .................. 0.95% 0.95% 0.95% 0.07% U.S. Emerging Growth Fund .... 1.33 1.33 1.33 0.07 Small Cap Fund ............... 1.00 1.00 1.00 0.07 Equity Income Fund ........... 0.60 0.84 0.24 0.07 International Growth Fund .... 1.10 1.20 1.12 0.07 International Small Cap Fund . 1.24 1.86 1.21 0.07 Global Opportunities Fund .... 1.25 1.60 1.21 0.07 Global Communications Fund ... 1.22 1.22 1.22 0.07 Emerging Markets Fund ........ 1.16 1.16 1.06 0.07 Emerging Asia Fund ........... 1.25 1.73 1.03 0.07 Global Long-Short Fund ....... 1.50 2.02 1.47 0.07 Select 50 Fund ............... 1.25 1.25 1.25 0.07 U.S. Asset Allocation Fund.... -- -- -- -- Total Return Bond Fund ....... 0.50 0.56 0.48 0.05 Short Duration Government Bond Fund ....... 0.50 0.79 0.29 0.05 California Tax-Free Intermediate Bond Fund ..... 0.50 0.88 0.38 0.05 Government Money Market Fund.. 0.30 0.30 0.30 0.04 Federal Tax-Free Money Fund .. 0.40 0.61 0.41 0.05 California Tax-Free Money Fund ................. 0.40 0.47 0.44 0.05 The Manager recouped previously deferred fees during the year ended June 30, 1999. These amounts have been included with current annual management fees in the Statement of Operations and are part of the effective management fee shown. The amounts recouped during the year ended June 30, 1999, were $86,435, $189,698, $286,566, $203,595, $157,217, $37,741, $372,043, $154,770, $265,710 and $168,617, for the Equity Income Fund, International Growth Fund, International Small Cap Fund, Global Opportunities Fund, Emerging Asia Fund, Total Return Bond Fund, Short Duration Government Bond Fund, California Tax-Free Intermediate Bond Fund, Federal Tax-Free Money Fund and California Tax-Free Money Fund, respectively. Also included in other expense are absorbed expenses recouped from the previous year of $71,778 and $48,686 for U.S. Asset Allocation Fund and Short Duration Government Bond Fund, respectively. For the year ended June 30, 1999, the Manager has deferred fees and/or absorbed expenses and has deferred management fees and absorbed expenses subject to recoupment as follows: Deferred Management Fees and Absorbed Expenses Fees Expenses Subject to Fund Reduced Absorbed Recoupment - --------------------------------------------------------------------- Equity Income Fund ............. $217,211 -- $494,518 International Growth Fund ...... 160,139 -- 160,139 International Small Cap Fund ... 299,803 -- 299,803 Global Opportunities Fund ...... 227,394 -- 227,394 Emerging Markets Fund .......... 397,685 -- 397,685 Emerging Asia Fund ............. 228,921 -- 228,921 Global Long-Short Fund.......... 188,977 -- 241,012 U.S. Asset Allocation Fund ..... -- $207,593 296,049 Total Return Bond Fund ......... 50,454 -- 50,454 Short Duration Government Bond Fund ........... 647,496 -- 872,906 California Tax-Free Intermediate Bond Fund ......... 202,315 -- 274,332 Federal Tax-Free Money Fund .... 257,501 -- 257,501 California Tax-Free Money Fund ..................... 70,198 -- 70,198 b. Certain officers and Trustees of the Trusts are, with respect to the Trusts' Manager and/or principal underwriter, "affiliated persons" as defined in the 1940 Act. Each Trustee who is not an affiliated person will receive an annual retainer and quarterly meeting fee totaling $55,000 per annum, as well as reimbursement for expenses, for services as a Trustee of all Trusts advised by the Manager ($35,000 of which will be allocated to The Montgomery Funds and $15,000 to The Montgomery Funds II). c. Certain Funds are parties to agreements with financial intermediaries and recordkeepers related to the Funds' participation in various purchase, marketplace and retirement programs. The Funds that participate in the programs make payments to the financial intermediaries and recordkeepers for certain services provided to shareholders who own shares of the Funds through such programs. These fees are paid to shareholder servicing and recordkeeping and are reflected in the Funds' financial statement as "servicing fees." The Manager, out of its own resources, may make additional payments to financial intermediaries and recordkeepers in connection with the Funds participation in these programs. 134 ----------------------- The Montgomery Funds ======================= Notes ======================= to Financial Statements 3. SHARE MARKETING PLAN: Class P shares of each Fund, and Class B and Class C shares of Global Long Short Fund, have adopted a Share Marketing Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act (the "Rule"). Pursuant to that Rule, the Trusts Board of Trustees has approved, and each Fund has entered into, the Plan with Funds Distributor, Inc., the Funds distributor (the "Distributor"), as the distribution coordinator for the Class P, Class B and Class C shares. Under the Plan, each Fund will pay distribution fees to the Distributor at an annual rate of up to 0.25% of the Fund's aggregate average daily net assets attributable to its Class P shares, and up to 0.75% of the Fund's aggregate average daily net assets attributable to its Class B and Class C shares, to reimburse the Distributor for its distribution costs with respect to that class (the "Class"). The Plan provides that the Distributor may use the distribution fees received from the Class to pay for the distribution expenses of that Class, including, but not limited to, (i) incentive compensation paid to the directors, officers and employees of, agents for and consultants to the Manager or any other broker-dealer or financial institution that engages in the distribution of that Class; and (ii) compensation to broker-dealers, financial institutions or other persons for providing distribution assistance with respect to that Class. Distribution fees may also be used for (i) marketing and promotional activities, including, but not limited to, direct-mail promotions and television, radio, newspaper, magazine and other mass media advertising for that Class; (ii) costs of printing and distributing prospectuses, statements of additional information and reports of the Funds to prospective investors in that Class; (iii) costs involved in preparing, printing and distributing sales literature pertaining to the Funds and that Class; and (iv) costs involved in obtaining whatever information, analysis and reports with respect to marketing and promotional activities that the Funds may, from time to time, deem advisable with respect to the distribution of that Class. Distribution fees are accrued daily, paid monthly and charged as expenses of the Class P, Class B and Class C shares, as accrued. 4. SECURITIES TRANSACTIONS: a. The aggregate amount of purchases and sales of long-term securities, excluding long-term U.S. government securities, during the year ended June 30, 1999, were: Fund Purchases Sales - -------------------------------------------------------------------------------- Growth Fund...................... $326,567,872 $939,991,228 U.S. Emerging Growth Fund........ 253,108,705 286,383,431 Small Cap Fund................... 107,235,563 185,522,503 Equity Income Fund............... 19,830,078 37,668,239 International Growth Fund........ 422,617,819 259,162,943 International Small Cap Fund..... 49,228,509 55,407,437 Global Opportunities Fund........ 98,013,382 59,073,216 Global Communications Fund....... 392,345,658 416,642,893 Emerging Markets Fund............ 348,481,982 722,465,995 Emerging Asia Fund............... 82,698,284 69,997,959 Global Long-Short Fund........... 221,526,844 93,846,853 Select 50 Fund................... 186,427,205 312,664,665 U.S. Asset Allocation Fund....... 34,940,929 82,638,720 Total Return Bond Fund........... 72,359,047 109,247,461 Short Duration Government Bond Fund............. 189,522,888 143,242,800 California Tax-Free Intermediate Bond Fund........... 74,923,560 70,693,261 The aggregate amount of purchases and sales of long-term U.S. government securities, during the year ended June 30, 1999, were: Fund Purchases Sales - -------------------------------------------------------------------------------- Total Return Bond Fund........... $ 38,419,134 $ 46,382,059 Short Duration Government Bond Fund .......... 167,745,188 133,771,236 b. At June 30, 1999, aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value were as follows:
Tax Basis Tax Basis Net Tax Basis Cost for Unrealized Unrealized Unrealized Appreciation Federal Tax Fund Appreciation Depreciation (Depreciation) Purposes - ------------------------------------------------------------------------------------------------------------------------------------ Growth Fund................................. $ 168,817,106 $ 17,513,123 $ 151,303,983 $ 527,737,071 U.S. Emerging Growth Fund................... 116,326,931 6,821,178 109,505,753 275,704,663 Small Cap Fund.............................. 42,674,997 1,822,830 40,852,167 97,603,880 Equity Income Fund.......................... 5,980,845 211,594 5,769,251 24,504,924 International Growth Fund................... 15,140,891 7,606,358 7,534,533 221,334,613 International Small Cap Fund................ 5,669,180 3,523,505 2,145,675 35,290,545 Global Opportunities Fund................... 9,672,094 1,384,730 8,287,364 49,290,216 Global Communications Fund.................. 83,493,958 8,014,257 75,479,701 276,742,221 Emerging Markets Fund....................... 59,001,320 25,328,226 33,673,094 293,465,066 Emerging Asia Fund.......................... 14,134,697 3,325,970 10,808,727 52,981,889 Global Long-Short Fund...................... 55,013,496 17,591,002 37,422,494 261,636,962 Select 50 Fund.............................. 26,548,249 2,424,273 24,123,976 106,999,755 U.S. Asset Allocation Fund.................. 2,959,790 1,555,641 1,404,149 79,795,112 Total Return Bond Fund...................... 259,643 869,356 (609,713) 45,897,311 Short Duration Government Bond Fund......... 145,154 888,211 (743,057) 181,130,003 California Tax-Free Intermediate Bond Fund.. 571,141 360,592 210,549 40,343,421
135 ======================= The Montgomery Funds - ----------------------- Notes - ----------------------- to Financial Statements c. Information regarding transactions under dollar roll transactions was as follows:
Average Maximum Average Average Debt Amount Amount Amount Shares per Share Outstanding Outstanding Outstanding Outstanding Outstanding Fee During as of During During During Income Fund the Period 6/30/99 the Period the Period the Period Earned - ----------------------------------------------------------------------------------------------------------------------------------- Total Return Bond Fund ............ $14,423,590 $ 6,588,906 $ 9,243,058 4,773,038 $1.94 $ 87,616 Short Duration Government Bond Fund 14,782,500 14,055,000 10,504,862 10,956,352 0.96 106,458
The average amount outstanding during the year was calculated by totaling borrowings at the end of each day and dividing the sum by the number of days in the year ended June 30, 1999. d. Information regarding reverse repurchase agreements was as follows:
Average Maximum Average Average Debt Per Amount Amount Shares Shares Outstanding Outstanding Outstanding Outstanding Average During During During During Interest Interest Fund the Period the Period the Period the Period Rate Expense - ------------------------------------------------------------------------------------------------------------------------------------ Total Return Bond Fund $ 18,024,188 $ 4,534,948 $ 4,773,038 $0.95 4.77% $279,451 Short Duration Government Bond Fund ...111,971,250 31,680,772 10,956,352 2.89 4.97 945,297
The average amount outstanding during the year was calculated by totaling borrowings at the end of each day and dividing the sum by the number of days in the year ended June 30, 1999. There were no reverse repurchase agreements outstanding at June 30, 1999. e. The schedule of forward foreign-currency exchange contracts at June 30, 1999, was as follows:
Net Unrealized Foreign-Currency Appreciation Amount Settlement Date In Exchange for (US$) (Depreciation) - ------------------------------------------------------------------------------------------------------------------------------------ International Growth Fund: Forward Foreign-Currency Exchange Contracts to Receive 55,310,497 Japanese Yen 07/01/99 $ 457,603 $ 680 282,369 British Pound 07/02/99 445,426 (2,693) 366,170 European Union Euro 07/02/99 378,088 (3,901) 242,962 European Union Euro 07/15/99 251,154 (2,303) 2,972,303 European Union Euro 07/30/99 3,076,027 (7,411) ----------- -------- Total $ 4,608,298 $(15,628) =========== ======== Forward Foreign-Currency Exchange Contracts to Deliver 5,474,922 Swedish Krona 07/01/99 $ 646,565 $ 99 1,910,000,000 Japanese Yen 12/17/99 16,143,895 (82,797) ----------- -------- Total $16,790,460 $(82,698) =========== ======== Net Unrealized Depreciation $(98,326) ========
136
======================= The Montgomery Funds ----------------------- Notes ----------------------- to Financial Statements Net Unrealized Foreign-Currency Appreciation Amount Settlement Date In Exchange for (US$) (Depreciation) - ----------------------------------------------------------------------------------------------------------------------- International Small Cap Fund: Forward Foreign-Currency Exchange Contracts to Deliver 153,711 British Pound 07/01/99 $ 244,032 $ 1,558 73,525 European Union Euro 07/01/99 76,194 276 100,305 Singapore Dollar 07/01/99 58,899 (22) 3,444,644 Japanese Yen 07/01/99 28,456 (42) 277,169 Singapore Dollar 07/02/99 162,429 (386) 4,450,721 Japanese Yen 07/02/99 36,604 (218) 218,163 European Union Euro 07/30/99 227,224 1,960 84,000,000 Japanese Yen 12/17/99 708,354 (5,282) ----------- --------- Total $ 1,542,192 $ (2,156) =========== ========= Net Unrealized Depreciation $ (2,156) ========= Global Opportunities Fund: Forward Foreign-Currency Exchange Contracts to Receive 14,255,283 Japanese Yen 07/01/99 $ 117,939 $ 175 114,428 European Union Euro 07/02/99 118,152 (1,219) 55,171 British Pound 07/02/99 87,029 (526) ----------- --------- Total $ 323,120 $ (1,570) =========== ========= Forward Foreign-Currency Exchange Contracts to Deliver 1,009,362 Swedish Krona 07/01/99 $ 119,201 $ 18 4,975,597 Japanese Yen 07/01/99 41,104 (61) 760,629 Swedish Krona 07/02/99 90,069 255 6,878,387 Japanese Yen 07/02/99 56,570 (336) 246,000,000 Japanese Yen 12/17/99 2,080,604 (9,327) ----------- --------- Total $ 2,387,548 $ (9,451) =========== ========= Net Unrealized Depreciation $ (11,021) ========= Global Communications Fund: Forward Foreign-Currency Exchange Contracts to Receive 250,346 Swedish Krona 07/01/99 $ 29,560 $ (5) 8,244,988 Swedish Krona 07/02/99 973,549 (2,767) ----------- --------- Total $ 1,003,109 $ (2,772) =========== ========= Forward Foreign-Currency Exchange Contracts to Deliver 10,291,208 Swedish Krona 07/01/99 $ 1,215,349 $ 187 19,902,388 Japanese Yen 07/01/99 164,415 (245) 6,151,573 Swedish Krona 07/02/99 728,418 2,054 27,513,547 Japanese Yen 07/02/99 226,281 (1,348) 1,211,000,000 Japanese Yen 12/17/99 10,234,918 (53,314) ----------- --------- Total $12,569,381 $ (52,666) =========== ========= Net Unrealized Depreciation $ (55,438) =========
137 ======================= The Montgomery Funds - ----------------------- Notes - ----------------------- to Financial Statements
Net Unrealized Foreign-Currency Appreciation Amount Settlement Date In Exchange for (US$) (Depreciation) - ----------------------------------------------------------------------------------------------------------------------- Emerging Markets Fund: Forward Foreign-Currency Exchange Contracts to Receive 15,705,741 Mexican Peso 07/02/99 $ 1,659,262 $ (7,483) 8,086,280 Hong Kong Dollar 07/02/99 1,042,517 242 5,513,777 Hong Kong Dollar 07/06/99 710,767 169 ------------ --------- Total $ 3,412,546 $ (7,072) ============ ========= Forward Foreign-Currency Exchange Contracts to Deliver 220,938 European Union Euro 07/01/99 $ 228,128 $ (10,794) 439,628,539 Indonesian Rupiah 07/02/99 63,484 (3,045) ------------ --------- Total $ 291,612 $ (13,839) ============ ========= Net Unrealized Depreciation $ (20,911) ========= Emerging Asia Fund: Forward Foreign-Currency Exchange Contracts to Receive 1,359,694 Hong Kong Dollar 07/06/99 $ 175,233 $ 42 ------------ --------- Total $ 175,233 $ 42 ============ ========= Forward Foreign-Currency Exchange Contracts to Deliver 863,633 Singapore Dollar 07/01/99 $ 507,780 $ (462) 16,886,958 Thai Baht 07/02/99 458,573 (746) 3,311,534 Hong Kong Dollar 07/02/99 426,882 (44) 5,950,194 Hong Kong Dollar 07/06/99 767,025 (183) 12,879,869 Thai Baht 07/06/99 349,996 (693) ------------ --------- Total $ 2,510,256 $ (2,128) ============ ========= Net Unrealized Depreciation $ (2,086) ========= Global Long-Short Fund: Forward Foreign-Currency Exchange Contracts to Receive 1,045,604 Singapore Dollar 06/07/99 $ 614,212 $ 8,064 14,833,700 Indian Rupee 07/01/99 341,751 (651) 1,336,007 Singapore Dollar 07/01/99 784,801 (715) 105,446,400 Korean Won 07/01/99 91,098 (118) 6,836,868 Hong Kong Dollar 07/02/99 881,233 (204) 244,015 European Union Euro 07/30/99 252,530 (342) ------------ --------- Total $ 2,965,625 $ 6,034 ============ ========= Forward Foreign-Currency Exchange Contracts to Deliver 1,815,759 South African Rand 07/01/99 $ 300,896 $ (1,168) 482,289 Mexican Peso 07/01/99 54,182 (224) 1,154,638 Mexican Peso 07/02/99 122,543 (550) ------------ --------- Total $ 477,621 $ (1,942) ============ ========= Net Unrealized Appreciation $ 4,092 =========
138 ======================= The Montgomery Funds ----------------------- Notes ----------------------- to Financial Statements
Net Unrealized Foreign-Currency Appreciation Amount Settlement Date In Exchange for (US$) (Depreciation) - ---------------------------------------------------------------------------------------------------------------------- Select 50 Fund: Forward Foreign-Currency Exchange Contracts to Deliver 1,118,396 Singapore Dollar 07/01/99 $ 656,972 $ (1,021) ---------- -------- Net Unrealized Depreciation $ (1,021) ======== f. At June 30, 1999, the Global Long-Short Fund had the following written options contracts open: Number of Expiration Fund Contracts Date Strike Price Value Premiums - ------------------------------------------------------------------------------------------------------------------------------------ Call Options Written: Circuit City Stores-Circuit City Group (Computer/Video Chains) 154 7/17/99 $80.00 $227,150 $131,401 g. Written option activity for the Global Long-Short Fund for the year ended June 30, 1999, was as follows: Written Options Premiums Number of Contracts - ------------------------------------------------------------------------------------------------------------------------------------ Options outstanding, at March 31, 1999 ............... $ 25,273 55 Options written ...................................... 138,090 174 Options closed ....................................... (31,962) (75) --------- --- Written options outstanding at June 30, 1999 ......... $ 131,401 154 ========= === h. The Global Long-Short Fund has the ability to enter into equity swap agreements with Robert Fleming & Co. Limited, London, with respect to the holdings of foreign equity securities. Each swap is for a period of three years. At June 30, 1999, the Fund had the following open equity swap agreements: Unrealized Underlying Security Notional Amount Swap Fee Rate Floating Rate Termination Date Appreciation/(Depreciation) - ------------------------------------------------------------------------------------------------------------------------------------ Associated Cement Companies Ltd. $266,179 1.50% LIBOR + 0.50% 5/17/00 $(33,130) Associated Cement Companies Ltd. 31,408 1.50% LIBOR + 0.50% 5/22/00 (1,783) Associated Cement Companies Ltd. 374,631 1.50% LIBOR + 0.50% 5/24/00 (32,167) Bajaj Auto Ltd. 93,058 1.50% LIBOR + 0.50% 5/12/00 (8,818) Bajaj Auto Ltd. 90,491 1.50% LIBOR + 0.50% 5/26/00 (6,252) Britannia Gold NL 49,899 1.50% LIBOR + 0.50% 4/14/00 (6,474) DBS Malaysia Growth Fund 275,254 1.50% LIBOR + 0.50% 5/18/00 88,661 Glaxo India Ltd. 230,201 1.50% LIBOR + 0.50% 5/3/00 19,970 ITC Ltd. 234,099 1.50% LIBOR + 0.50% 3/3/00 5,965 ITC Ltd. 422,741 1.50% LIBOR + 0.50% 5/22/00 (10,840) Overseas-Chinese Banking Corporation Ltd. 550,598 1.50% LIBOR + 0.50% 5/18/00 53,380 Ranbaxy Laboratories Ltd., GDR 462,657 1.50% LIBOR + 0.50% 3/24/00 (9,957) Ranbaxy Laboratories Ltd., GDR 332,675 1.50% LIBOR + 0.50% 6/19/00 23,448 Reliance Industries Ltd., GDR 353,055 1.50% LIBOR + 0.50% 3/24/00 (7,479) Reliance Industries Ltd., GDR 282,874 1.50% LIBOR + 0.50% 5/22/00 (17,674) Reliance Industries Ltd., GDR 101,465 1.50% LIBOR + 0.50% 5/26/00 535 Satyam Computer Services Ltd. 93,223 1.50% LIBOR + 0.50% 4/19/00 (10,592) -------- $ 46,793 ========
i. Under an agreement with Chase Manhattan Bank, each Fund has the ability to lend securities to approved brokers, dealers and other financial institutions. Loans of portfolio securities are collateralized by cash. The cash collateral received is invested in short-term securities at the discretion of the Custodian. A portion of the income generated by the investments of the collateral, net of any rebates paid by Chase to borrowers, is remitted to Chase, as lending agent, and the remainder is paid to the Fund. Generally, in the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. There would be a potential loss to the Fund in the event the Fund is delayed or prevented from exercising its right to dispose of the collateral. The Fund bears the risk in the event that investment collateral is not sufficient to meet obligations due on the loans. ======================== The Montgomery Funds - ------------------------ Notes - ------------------------ to Financial Statements At June 30, 1999, the Funds had outstanding loans of securities to certain brokers, dealers or other financial institutions for which each Fund has received and segregated cash equivalent to 102% of the market value loans of domestic securities and 105% for loans of international securities as collateral with the Funds' Custodian. At June 30, 1999, the following Funds had securities on loan:
Market Value of Market Value Market Value of Market Value Fund Loaned Securities of Collateral Fund Loaned Securities of Collateral - ------------------------------------------------------------------------------------------------------------------------------------ Growth Fund ............... $15,376,328 $15,683,855 International Small Cap Fund .. $1,537,974 $1,614,873 U.S. Emerging Growth Fund . 7,211,364 7,355,591 Global Opportunities Fund ..... 3,412,178 3,582,787 Small Cap Fund ............ 11,832,750 12,069,405 Global Communications Fund .... 451,318 473,884 Equity Income Fund ........ 349,685 356,679 International Growth Fund . 16,056,528 16,859,354 Income earned from securities lending transactions is included in securities lending income on the Statements of Operations.
j. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York, each of the Funds of The Montgomery Funds and The Montgomery Funds II, except the Global Long-Short Fund, may, for one year starting August 13, 1998, borrow (consistent with applicable law and its investment policies) up to one-third of its net asset value (or such lower limit applicable to such Fund), provided that the aggregate funds borrowed do not exceed $175,000,000. The Funds pay their pro rata shares of the quarterly commitment fee of 0.08% per annum of the unutilized credit line balance. For the year ended June 30, 1999, borrowings by the Funds under the agreement were as follows:
Amount Outstanding Average Amount Maximum Average Average Debt Fund at 6/30/99 Outstanding Debt Outstanding Interest Rate Average Shares per Share - ----------------------------------------------------------------------------------------------------------------------------------- Growth Fund ................... $ -- $11,216,495 $66,600,000 5.30% 42,955,070 $ 0.26 International Growth Fund ..... -- 2,435,294 9,300,000 4.46 7,728,396 0.32 International Small Cap Fund .. 400,000 514,815 2,300,000 5.29 2,980,868 0.17 Global Opportunities Fund ..... -- 6,031,579 37,000,000 5.90 3,998,886 1.51 Emerging Markets Fund ......... 7,500,000 9,040,095 34,900,000 5.31 55,182,403 0.16 Emerging Asia Fund ............ -- 2,214,035 6,600,000 5.24 4,577,734 0.48 Select 50 Fund ................ -- 1,657,798 6,600,000 5.31 9,506,214 0.17
Under a Credit Agreement dated August 28, 1998, as amended, the Global Long-Short Fund may borrow cash of up to one-third of its total net asset value from Bank of America NT&SA. This Fund makes quarterly payments of a 0.12% annual commitment fee of the unutilized credit line balance. For the three-month period ended June 30, 1999, the Global Long-Short Fund incurred $352,367 of interest expense. For the three-month period ended June 30, 1999, borrowings by the Global Long-Short Fund under the Credit Agreement were as follows:
Amount Outstanding Average Amount Maximum Average Average Debt at 6/30/99 Outstanding Debt Outstanding Interest Rate Average Shares per Share - ----------------------------------------------------------------------------------------------------------------------------------- Global Long Short Fund $40,000,000 $5,382,955 $40,000,000 5.49% 8,041,946 $0.67
5. FOREIGN SECURITIES: Certain Funds may purchase securities on foreign security exchanges. Securities of foreign companies and foreign governments involve risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include, among others, revaluation of currencies, less-reliable information about issuers, different securities transactions clearance and settlement practices, and potential future adverse political and economic developments. These risks are heightened for investments in emerging markets countries. Moreover, securities of many foreign companies and 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. TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST: The Trusts have authorized an unlimited number of shares of beneficial interest which have a par value of $0.01. Because the Government Money Market Fund, the California Tax-Free Money Fund and the Federal Tax-Free Money Fund are money market funds, and money market funds sell shares, issue shares for reinvestment of dividends and redeem shares normally at a constant net asset value of $1 per share, the numbers of shares represented by such sales, reinvestments and redemptions are the same as the dollar amounts shown for such transactions. 140 ======================= The Montgomery Funds ----------------------- Notes ----------------------- to Financial Statements TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
GROWTH FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ---------------------------------------------------------------------------------------------------------------------------------- Sold 18,104,217 $ 390,073,046 16,507,063 $ 403,921,271 Issued as reinvestment of dividends 3,934,494 77,989,817 7,601,712 163,436,074 Redeemed (52,908,132) (1,124,668,296) (15,029,335) (359,116,329) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (30,869,421) $ (656,605,433) 9,079,440 $ 208,241,016 - ---------------------------------------------------------------------------------------------------------------------------------- P Shares: - ---------------------------------------------------------------------------------------------------------------------------------- Sold 4,069 $ 92,919 3,130 $ 75,468 Issued as reinvestment of dividends 654 13,054 949 20,488 Redeemed (4,132) (87,473) (4,943) (123,213) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 591 $ 18,500 (864) $ (27,257) - ---------------------------------------------------------------------------------------------------------------------------------- U.S. EMERGING GROWTH FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ---------------------------------------------------------------------------------------------------------------------------------- Sold 9,492,873 $ 128,296,684 2,587,843 $ 57,987,143 Issued in exchange for shares of Montgomery Small Cap Opportunities Fund (note 8) 3,376,958 60,368,327 -- -- Issued as reinvestment of dividends 1,089,727 23,479,369 966,775 19,005,916 Redeemed (12,553,360) (190,115,591) (2,378,282) (53,191,782) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 1,406,198 $ 22,028,789 1,176,336 $ 23,801,277 - ---------------------------------------------------------------------------------------------------------------------------------- SMALL CAP FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 1,500,979 $ 23,905,212 697,973 $ 14,438,171 Issued as reinvestment of dividends 1,429,493 19,813,868 1,320,879 24,450,884 Redeemed (5,909,461) (90,955,913) (2,362,125) (49,694,104) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (2,978,989) $ (47,236,833) (343,273) $ (10,805,049) - ---------------------------------------------------------------------------------------------------------------------------------- P Shares: - ---------------------------------------------------------------------------------------------------------------------------------- Sold 436,333 $ 7,082,536 943,236 $ 20,198,104 Issued as reinvestment of dividends 218,219 2,980,874 154,148 2,828,622 Redeemed (443,741) (6,860,622) (389,596) (8,082,502) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 210,811 $ 3,202,788 707,788 $ 14,944,224 - ---------------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 857,982 $ 18,361,775 1,554,094 $ 28,652,451 Issued as reinvestment of dividends 190,128 3,407,582 265,748 4,707,487 Redeemed (1,845,907) (35,994,823) (1,772,223) (33,012,153) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (797,797) $ (14,225,466) 47,619 $ 347,785 - ---------------------------------------------------------------------------------------------------------------------------------- P Shares: - ---------------------------------------------------------------------------------------------------------------------------------- Sold 60,646 $ 1,085,025 101,466 $ 1,859,907 Issued as reinvestment of dividends 16,390 294,403 10,850 195,396 Redeemed (57,061) (1,029,003) (11,769) (219,667) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 19,975 $ 350,425 100,547 $ 1,835,636 - ----------------------------------------------------------------------------------------------------------------------------------
141 ======================= The Montgomery Funds - ----------------------- Notes - ----------------------- to Financial Statements TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
EMERGING MARKETS FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 63,953,630 $ 537,114,591 64,252,253 $ 870,111,228 Issued as reinvestment of dividends -- -- 2,665,847 33,243,134 Redeemed (107,275,950) (908,071,587) (64,669,860) (861,322,948) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (43,322,320) $(370,956,996) 2,248,240 $ 42,031,414 - ----------------------------------------------------------------------------------------------------------------------------------- P Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold 24,153 $ 211,598 27,137 $ 398,184 Issued as reinvestment of dividends -- -- 1,597 19,750 Redeemed (14,780) (129,243) (22,590) (312,707) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 9,373 $ 82,355 6,144 $ 105,227 - ----------------------------------------------------------------------------------------------------------------------------------- GLOBAL OPPORTUNITIES FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 4,863,038 $ 83,285,653 6,526,549 $ 115,648,814 Issued as reinvestment of dividends 387,823 5,976,349 328,896 4,693,347 Redeemed (7,299,062) (127,006,826) (3,521,069) (64,528,940) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (2,048,201) $ (37,744,824) 3,334,376 $ 55,813,221 - ----------------------------------------------------------------------------------------------------------------------------------- SHORT DURATION GOVERNMENT BOND FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 21,806,908 $ 222,105,673 11,317,233 $ 114,184,061 Issued as reinvestment of dividends 564,567 5,733,568 251,170 2,538,235 Redeemed (13,542,909) (137,742,612) (9,757,162) (98,380,450) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 8,828,566 $ 90,096,629 1,811,241 $ 18,341,846 - ----------------------------------------------------------------------------------------------------------------------------------- P Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold 460,384 $ 4,668,471 296 $ 2,999 Issued as reinvestment of dividends 8,030 81,193 -- 5 Redeemed (81,036) (811,602) (21) (214) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 387,378 $ 3,938,062 275 $ 2,790 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN BOND FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 2,212,229 $ 27,532,949 9,144,322 $ 110,211,352 Issued as reinvestment of dividends 295,215 3,526,016 416,875 5,131,390 Redeemed (5,455,138) (67,406,459) (3,314,312) (40,866,893) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (2,947,694) $ (36,347,494) 6,246,885 $ 74,475,849 - -----------------------------------------------------------------------------------------------------------------------------------
142
INTERNATIONAL GROWTH FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 21,750,207 $ 400,464,468 4,351,572 $ 75,095,191 51,019 905,589 95,761 1,401,682 (13,289,899) (242,379,952) (3,062,252) (51,540,762) - ----------------------------------------------------------------------------------------- 8,511,327 $ 158,990,105 1,385,081 $ 24,956,111 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- 137,543 $ 2,367,177 121 $ 2,000 -- 4,968 -- -- (13,504) (244,213) (184) (3,025) - ----------------------------------------------------------------------------------------- 124,039 $ 2,127,932 (63) $ (1,025) - ----------------------------------------------------------------------------------------- INTERNATIONAL SMALL CAP FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 3,953,549 $ 55,726,426 2,996,436 $ 44,417,251 2,195 29,217 478,710 6,026,955 (4,665,338) (65,896,240) (3,262,988) (48,676,575) - ----------------------------------------------------------------------------------------- (709,594) $ (10,140,597) 212,158 $ 1,767,631 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- 27,959 $ 404,022 87,254 $ 1,157,000 -- -- 53 674 (28,087) (403,988) (87,867) (1,348,812) - ----------------------------------------------------------------------------------------- (128) $ 34 (560) $ (191,138) - ----------------------------------------------------------------------------------------- GLOBAL COMMUNICATIONS FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 16,399,838 $ 370,661,069 10,480,584 $ 216,384,607 1,295,937 25,594,755 1,826,761 27,927,779 (16,095,950) (355,421,630) (8,484,435) (170,608,536) - ----------------------------------------------------------------------------------------- 1,599,825 $ 40,834,194 3,822,910 $ 73,703,850 - ----------------------------------------------------------------------------------------- EMERGING ASIA FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 19,688,601 $ 157,590,021 15,482,971 $ 169,893,174 -- -- 289,356 2,751,873 (18,491,655) (143,526,077) (15,395,025) (177,173,709) - ----------------------------------------------------------------------------------------- 1,196,946 $ 14,063,944 377,302 $ (4,528,662) - ----------------------------------------------------------------------------------------- SELECT 50 FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 4,487,757 $ 90,080,135 9,976,256 $ 210,226,345 650,669 11,789,988 1,052,393 19,382,808 (11,827,599) (231,636,588) (6,797,972) (140,815,546) - ----------------------------------------------------------------------------------------- (6,689,173) $ (129,766,465) 4,230,677 $ 88,793,607 - ----------------------------------------------------------------------------------------- 1,804 $ 37,885 3,967 $ 82,688 69 1,238 223 4,054 (1,820) (45,019) (2,131) (40,782) - ----------------------------------------------------------------------------------------- 53 $ (5,896) 2,059 $ 45,960 - ----------------------------------------------------------------------------------------- U.S. ASSET ALLOCATION FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 871,727 $ 15,336,419 2,182,888 $ 44,133,894 1,504,322 22,440,907 1,217,904 21,581,251 (4,248,757) (70,150,396) (3,086,435) (60,834,270) - ----------------------------------------------------------------------------------------- (1,872,708) $ (32,373,070) 314,357 $ 4,880,875 - ----------------------------------------------------------------------------------------- 1,078 $ 17,773 334 $ 6,400 914 13,679 720 12,778 (2,344) (39,000) (1,074) (20,918) - ----------------------------------------------------------------------------------------- (352) $ (7,548) (20) $ (1,740) - ----------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------- 2,076,450 $ 27,138,488 1,962,625 $ 25,203,200 114,589 1,497,553 75,599 969,104 (1,727,339) (22,532,247) (994,510) (12,764,038) - ----------------------------------------------------------------------------------------- 463,700 $ 6,103,794 1,043,714 $ 13,408,266 - ----------------------------------------------------------------------------------------- FEDERAL TAX-FREE MONEY FUND Year Ended 6/30/99 Year Ended 6/30/98 Shares and Dollars Shares and Dollars - ----------------------------------------------------------------------------------------- $ 1,061,020,071 $ 1,183,904,180 3,011,207 3,577,816 (1,064,973,373) (1,184,396,291) - ----------------------------------------------------------------------------------------- $ (942,095) $ 3,085,705 - -----------------------------------------------------------------------------------------
143 ======================= The Montgomery Funds - ----------------------- Notes - ----------------------- to Financial Statements TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
GOVERNMENT MONEY MARKET FUND* Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares and Dollars Shares and Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold $ 3,814,709,697 $ 5,085,349,172 Issued as reinvestment of dividends 25,371,449 31,642,805 Redeemed (3,989,350,663) (4,865,576,626) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) $ (149,269,531) $ 251,415,351 - ----------------------------------------------------------------------------------------------------------------------------------- P Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold $ 1,008 $ 282 Issued as reinvestment of dividends 17 4 Redeemed (100) (490) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) $ 925 $ (204) - ----------------------------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY FUND Year Ended 6/30/99 Year Ended 6/30/98 R Shares: Shares and Dollars Shares and Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold $ 1,369,794,351 $ 1,344,581,138 Issued as reinvestment of dividends 5,769,768 5,033,519 Redeemed (1,269,880,170) (1,281,121,597) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) $ 105,683,949 $ 68,493,060 - ----------------------------------------------------------------------------------------------------------------------------------- GLOBAL LONG-SHORT FUND Three Months Ended 6/30/99** Year Ended 3/31/99 R Shares Shares Dollars Shares Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Sold 6,376,587 $ 115,011,592 2,502,705 $ 38,599,800 Issued as reinvestment of dividends -- -- -- -- Re-issued for name change from Class A shares (446,290) (8,621,700) 3,966,659 52,104,139 Redeemed -- -- (1,392,567) (21,334,896) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 5,930,297 $ 106,389,892 5,076,797 $ 69,369,043 - ----------------------------------------------------------------------------------------------------------------------------------- A Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold -- $ -- 6,446,498 $ 93,356,477 Issued as reinvestment of dividends -- -- 198,228 2,711,754 Redeemed -- -- (3,983,154) (58,677,987) Cancelled for name change to Class R shares -- -- (3,966,659) (52,104,139) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) -- $ -- (1,305,087) $ (14,713,895) - ----------------------------------------------------------------------------------------------------------------------------------- B Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold 668 $ 12,145 1,184,123 $ 16,623,219 Issued as reinvestment of dividends -- -- 1 15 Redeemed (82,068) (1,502,400) (140,910) (2,104,182) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (81,400) $ (1,490,255) 1,043,214 $ 14,519,052 - ----------------------------------------------------------------------------------------------------------------------------------- C Shares: - ----------------------------------------------------------------------------------------------------------------------------------- Sold 1 $ 17 511,612 $ 6,598,428 Issued as reinvestment of dividends -- -- 1 15 Redeemed (24,511) (421,313) (103,968) (1,287,689) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) (24,510) $ (421,296) 407,645 $ 5,310,754 - -----------------------------------------------------------------------------------------------------------------------------------
* Formerly named Montgomery Government Reserve Fund. ** The Montgomery Global Long-Short Fund changed its fiscal year end from March 31 to June 30. 144 ======================= The Montgomery Funds ----------------------- Notes ----------------------- to Financial Statements 7. CAPITAL LOSS CARRYFORWARDS: At June 30, 1999, the following Funds had available for federal tax purposes unused capital losses as follows:
Fund Expiring in 2003 Expiring in 2004 Expiring in 2005 Expiring in 2006 Expiring in 2007 - ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Fund ................. $ -- $ -- $ -- $ -- $ 6,876,863 International Small Cap Fund ... -- -- -- -- 420,080 Emerging Markets Fund .......... -- -- -- 83,822,425 199,540,290 Emerging Asia Fund ............. -- -- -- 3,385,829 7,819,658 California Tax-Free Money Fund . -- 6,712 -- 23 -- Federal Tax-Free Money Fund .... -- -- -- 873 45
The following Funds utilized capital loss carryforward during the year: Fund Amount ------------------------------------------------------------- California Tax-Free Intermediate Bond Fund $17,719 Government Money Market Fund 26,092 California Tax-Free Money Fund 33 Under current tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year ended June 30, 1998. The following Funds elected to defer losses occurring between November 1, 1998, and June 30, 1999, under these rules as follows: Fund Amount -------------------------------------------------------------- International Growth Fund.................... $ 705,177 International Small Cap Fund................. 194,643 Emerging Markets Fund........................ 82,233,825 Emerging Asia Fund........................... 1,652,027 Short Duration Government Bond Fund.......... 854,319 California Tax-Free Intermediate Bond Fund... 7,321 Federal Tax Free Money Fund.................. 72 Such deferred losses will be treated as arising on the first day of the fiscal year ended June 30, 1999. 8. REORGANIZATION On March 12, 1999, the Montgomery U.S. Emerging Growth Fund, as listed below ("Acquiring Fund"), acquired substantially all of the assets and liabilities of the Montgomery Small Cap Opportunities Fund, as listed below ("Acquired Fund"), in a tax-free reorganization in an exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Board of Trustees and shareholders of the Acquired Fund. The net assets of the Small Cap Opportunities Fund were exchanged for Class R shares of the U.S. Emerging Growth Fund. Net assets as of the reorganization date were as follows:
Total Net Assets of Total Net Assets of Total Net Assets of Acquiring Fund After Acquired Fund Unrealized Acquiring Fund Acquired Fund Acquired Fund Acquiring Fund Acquisition Appreciation - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Emerging Small Cap Growth Fund Opportunities Fund $60,368,324 $336,278,948 $396,647,272 $9,632,288
The shareholders of the Montgomery Small Cap Opportunities Fund voted on the proposed plan of reorganization, which included the transfer of all assets of the Fund to the Montgomery U.S. Emerging Growth Fund and the distribution to the Fund's shareholders shares of the U.S. Emerging Growth Fund. The number of shares voted was as follows (unaudited): Voted For Voted Against Abstained ------------------------------------------------------ 2,151,559 65,353 128,323 145 ==================== The Montgomery Funds - -------------------- Independent Auditors' Report - -------------------- To the Board of Trustees and Shareholders of The Montgomery Funds and The Montgomery Funds II: In our opinion, the accompanying statements of assets and liabilities, including the portfolios investments and schedule of short sales, and the related statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of Montgomery Growth Fund, Montgomery U.S. Emerging Growth Fund, Montgomery Small Cap Fund, Montgomery Equity Income Fund, Montgomery International Growth Fund, Montgomery International Small Cap Fund, Montgomery Global Opportunities Fund, Montgomery Global Communications Fund, Montgomery Emerging Markets Fund, Montgomery Emerging Asia Fund, Montgomery Select 50 Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund, Montgomery Government Money Market Fund (formerly Montgomery Government Reserve Fund), Montgomery Federal Tax-Free Money Fund, Montgomery California Tax-Free Money Fund (all portfolios of The Montgomery Funds) and Montgomery Global Long-Short Fund and Montgomery U.S. Asset Allocation Fund (two portfolios of The Montgomery Funds II) (collectively the "Funds") at June 30, 1999, the results of each of their operations, the changes in each of their net assets, their cash flows and the financial highlights for the periods presented between July 1, 1997 and June 30, 1999, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 1999 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. The financial highlights of the Funds for the periods preceding July 1, 1997 were audited by other independent accountants whose report dated August 8, 1997 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP San Francisco, CA August 18, 1999 The accompanying notes are an integral part of these financial statements. 146 =============================== The Montgomery Funds - ------------------------------- Tax Information - ------------------------------- Fiscal Year Ended June 30, 1999 (Unaudited) In accordance with the Code, the following Funds are designating the following amounts as long-term capital gain dividends: Growth Fund .....................................................$ 123,746,723 U.S. Emerging Growth Fund ....................................... 28,228,600 Equity Income Fund .............................................. 3,967,563 International Growth Fund ....................................... 3,651,865 Global Opportunities Fund ....................................... 7,547,015 Global Communications Fund ...................................... 42,755,366 Global Long-Short Fund .......................................... 301,147 Select 50 Fund .................................................. 8,190,583 U.S. Asset Allocation Fund ...................................... 18,472,060 Total Return Bond Fund .......................................... 825,245 Short Duration Government Bond Fund ............................. 124,034 California Tax-Free Intermediate Bond Fund ...................... 81,164 Government Money Market Fund .................................... 4,119 Of the distributions made from investment income, the following percentages are tax exempt for regular federal income-tax puposes: California Tax-Free Intermediate Bond Fund ...................... 100.00% Federal Tax-Free Money Fund ..................................... 100.00 California Tax-Free Money Fund .................................. 100.00 The following Funds are designating the following percentages of distributions made from net investment income, as stated in these financial statements, as net investment income dividends that qualify for the dividends-received deduction with regard to the Funds' corporate shareholders: Growth Fund ..................................................... 100.00% Equity Income Fund .............................................. 100.00 Global Opportunities Fund ....................................... 1.71 Select 50 Fund .................................................. 20.65 U.S. Asset Allocation Fund ...................................... 6.62 For the fiscal year ended June 30, 1999, foreign income and foreign taxes paid relating to foreign sources and possessions of the United States on a per-share basis were as follows: Foreign Foreign Fund Income Taxes - -------------------------------------------------------------------------- International Growth Fund ................. $0.2743 $0.0319 International Small Cap Fund .............. 0.2550 0.0323 Global Opportunities Fund ................. 0.2152 0.0260 Global Communications Fund ................ 0.2878 0.0202 Emerging Markets Fund ..................... 0.2621 0.0199 Emerging Asia Fund ........................ 0.0746 0.0066 The above figures may differ from those cited elsewhere in this report due to differences in the calculation of income and capital gains for Securities and Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes. 147 This report and the financial statements contained herein are provided for the general information of the shareholders of The Montgomery Funds. This report is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective prospectus. Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency and are subject to investment risk, including the possible loss of principal. Neither The Montgomery Funds nor Montgomery Asset Management is a bank. For more information on any Montgomery Fund, including charges and expenses, visit our Web site at www.montgomeryfunds.com or call (800) 572-FUND [3863] for a free prospectus. Read it carefully before you invest or send money. Funds Distributor, Inc. 8/99 [GRAPHIC APPEARS HERE] Invest wisely(SM) The Montgomery Funds(SM) 101 California Street San Francisco, CA 94111-9361 - ----------------------- ^ILLEGIBLE^ - ----------------------- www.montgomeryfunds.com - ----------------------- -----END PRIVACY-ENHANCED MESSAGE-----