<PAGE>
The Montgomery Partners Series/SM/
Semiannual Report
September 30, 1998
Small Cap Systematic Value Fund
Macro Cap Systematic Value Fund
<PAGE>
Performance data quoted represents past performance and is not necessarily
indicative of future results. Performance is for a limited time only. The
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The inception date for both Funds is August 31, 1998.
Performance figures reflect a partial waiver of fees without which the total
returns would have been lower. Fund results in this report are total returns and
do not reflect a maximum sales charge of 5.50%, a maximum contingent deferred
sales charge of 5%, or any applicable redemption fees unless otherwise
indicated. Total return reflecting these charges and fees would have been as
follows:
Total returns from inception (8/31/97) through 9/30/98:
<TABLE>
<CAPTION>
Class A Class B Class C
--------- --------- ---------
<S> <C> <C> <C>
Montgomery Small Cap
Systematic Value Fund (3.31)% (3.10)% 0.90%
Montgomery Macro Cap
Systematic Value Fund (6.73)% (6.24)% (2.29)%
</TABLE>
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.
This information must be preceded or accompanied by a prospectus. Please read
the prospectus carefully before you invest.
The Funds are distributed by Funds Distributor, Inc. 10/98
<PAGE>
Table of Contents
Investment Review & Portfolio Investments
Small Cap Systematic Value Fund 2
Macro Cap Systematic Value Fund 11
Statements of Assets & Liabilities 16
Statements of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 22
[MONTGOMERY PARTNERS SERIES LOGO APPEARS HERE]
The Montgomery Partners Series
101 California Street
San Francisco, California 94111
800-OWL-8758 (695-8758)
INVEST WISELY./R/
<PAGE>
Investment Review--Small Cap Systematic Value Fund
Top Ten Holdings
(as a percentage of total net assets)
1. S&P Depositary Receipt
2. Eastern Enterprises
3. NCI Building Sytems, Inc.
4. Rayonier, Inc.
5. Dexter Corporation
6. Bay View Capital Corporation
7. Peoples Energy Corporation
8. Springs Industries, Inc.
9. Potlatch Corporation
10. New Field Exploration Company
Portfolio Management
Montgomery Asset Management, "Manager"
Martingale Asset Management, "Subadvisor"
The Fund is managed by the following individuals:
William E. Jacques
Douglas E. Stark
Top Five Industries
(as a percentage of total net assets)
1. Banks
2. Construction
3. Other Insurance
4. Real Estate
5. Electric Utilities
Fund Performance
Total Return Since Inception (8/31/98)
for the period ended 9/30/98
Small Cap Systematic Value Fund
Class A shares 2.00%
Class B shares 1.90%
Class C shares 1.90%
Russell 2000 Value Index/1/
Since 8/31/98 5.65%
/1/ The Russell 2000 Value Index measures the performance of companies with
lower price-to-book ratios and lower forecasted growth in values in the Russell
2000 Index, an index composed of the smallest 2,000 of the 3,000 largest
publicly traded U.S. companies, based on total market capitalization.
2
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited)
Common Stocks--97.2%
Value
Shares (Note 1)
- ------ --------
Aerospace--1.3%
100 Alliant Techsystems, Inc. $6,625
------
Agriculture/Food--1.9%
400 Chiquita Brands International 4,226
100 International Multifoods 1,645
200 Universal Foods Corporation 4,176
------
10,047
------
Apparel--2.4%
200 Guilford Mills, Inc. 2,975
100 Kellwood Company 2,677
200 Springs Industries, Inc. 6,951
------
12,603
------
Banks--9.0%
100 Citizens Banking Corporation 3,319
100 Commerce Bancorp, Inc. 3,951
200 First Hawaiian, Inc. 6,739
100 One Valley Bancorp, Inc. 3,234
200 Provident Bankshares Corporation 5,046
100 Susquehanna Bancshares, Inc. 1,888
100 UMB Financial Corporation 4,746
200 United Bankshares, Inc. 5,157
300 UST Corporation 6,394
100 Westamerica Bancorporation 2,887
100 Whitney Holding Corporation 4,095
------
47,456
------
Business Machines--1.3%
200 Banctec, Inc./+/ 2,850
100 CHS Electronics, Inc./+/ 1,077
100 Gerber Scientific, Inc. 2,700
------
6,627
------
3
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------ --------
Chemicals--3.2%
300 Dexter Corporation $7,350
300 Gencorp, Inc. 5,775
200 Geon Corporation 3,550
------
16,675
------
Construction--6.4%
100 Butler Manufacturing Company 2,313
100 Calmat Company 1,731
300 Foster Wheeler Corporation 4,124
200 Instituform Technologies, Class A/+/ 2,638
200 Jacobs Engineering Group, Inc./+/ 6,200
400 NCI Building Systems, Inc./+/ 7,925
200 Oakwood Homes Corporation 2,625
100 Ryland Group, Inc. 2,438
200 TJ International, Inc. 3,724
------
33,718
------
Consumer Durables--1.5%
300 LA-Z-Boy, Inc. 5,888
100 Toro Company 2,068
------
7,956
------
Containers--0.7%
100 Ball Corporation 3,526
------
Drugs--1.8%
100 Alpharma, Inc., Class A/+/ 2,625
100 Cambrex Corporation 2,356
500 Herbalife International, Class A 4,672
------
9,653
------
4
<PAGE>
Portfolio Investments--Emerging Markets Focus Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------ -------
Electric Utilities--4.8%
100 Central Hudson Gas & Electric Company $ 4,188
100 Commonwealth Energy System, Inc. 3,638
100 Eastern Utilities Company 2,612
200 Rochester Gas & Electric Company 6,250
100 United Illuminating Company 5,225
100 WPS Resources Corporation 3,575
-------
25,488
-------
Electronics--1.4%
100 Cohu, Inc. 1,669
100 Kimball International, Inc., Class B 1,522
400 Pioneer Standard Electronics, Inc. 2,513
200 VLSI Technologies, Inc./+/ 1,543
-------
7,247
-------
Forest--1.5%
200 Rayonier, Inc. 7,800
-------
Gas--Utilities--4.8%
200 Eastern Enterprises 8,425
200 Equitable Resources, Inc. 5,088
200 Peoples Energy Corporation 7,200
200 UGI Corporation 4,625
-------
25,338
-------
Health Care--1.4%
100 Datascope Corporation 2,177
200 Maxxim Medical, Inc./+/ 5,137
-------
7,314
-------
Hotel & Restaurant--0.6%
400 Servico, Inc./+/ 3,000
-------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------- --------
Leisure Time--1.1%
500 Grand Casinos, Inc./+/ $ 3,969
100 Oneida Ltd. 1,700
-------
5,669
-------
Life Insurance--0.7%
100 Delphi Financial Group, Class A/+/ 3,938
-------
Media--1.3%
200 Carmike Cinemas, Inc., Class A 3,675
100 Gaylord Entertainment Company 2,981
-------
6,656
-------
Metals--0.4%
100 Wolverine Tube, Inc./+/ 2,106
-------
Miscellaneous--5.3%
100 Minnesota Power, Inc. 4,406
100 Polaris Industries, Inc. 3,100
200 S&P Depositary Receipt 20,338
-------
27,844
-------
Miscellaneous Financial--1.3%
300 Advanta Corporation, Class A 3,872
100 Dain Rauscher Corporation 3,150
-------
7,022
-------
Mortgage--1.0%
300 Resource Bancshares MTG Group 5,316
-------
Motor Vehicle--2.7%
100 Arvin Industries, Inc. 3,725
200 Coachman Industries, Inc. 3,975
100 Modine Manufacturing Company 2,875
200 Standards Products Company 3,500
-------
14,075
-------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------ --------
Oil--1.2%
200 Devon Energy Corporation $ 6,500
-------
Oilfield Equipment--1.3%
300 New Field Exploration Company/+/ 6,750
-------
Oil R&D--0.8%
300 Quaker ST Corporation 4,369
-------
Other Insurance--6.1%
100 Berkeley (W.R.) Corporation 3,006
100 Blanch (E.W.) Holdings, Inc. 3,869
100 Capital R E Corporation 2,738
200 HCC Insurance Holdings, Inc. 3,875
100 HSB Group, Inc. 4,038
100 LandAmerica Financial Group 5,125
200 Selective Insurance Group, Inc. 3,825
100 Stewart Information Services 5,763
-------
32,239
-------
Paper--1.3%
200 Potlatch Corporation 6,813
-------
Photo--Optics--1.0%
300 Imation Corporation/+/ 5,550
-------
Products--Goods--4.3%
300 Exide Corporation 3,450
100 Gleason Corporation 1,606
200 Hughes Supplies, Inc. 5,700
100 Lincoln Electric Holdings, Inc. 2,294
300 Mark IV Industries, Inc. 4,369
100 Tecumseh Products Company, Class A 4,953
-------
22,372
-------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited)(continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------ --------
Publishing--2.2%
400 Hollingher International, Inc. $5,750
100 McClatchy Company, Class A 3,000
100 Standard Register Company 2,719
------
11,469
------
Railroad--1.1%
200 Varlen Corporation 5,589
------
Real Estate--5.7%
100 Crossman Communities, Inc./+/ 1,975
300 Impac MTG Holdings, Inc. 4,050
200 MDC Holdings, Inc. 3,688
100 NVR, Inc./+/ 3,300
300 Prime Retail, Inc. 2,944
300 Standard Pacific Corporation 4,238
200 Thornburg Mortgage Asset Corporation 1,800
100 Toll Brothers, Inc./+/ 2,294
300 Walter Industries, Inc./+/ 3,722
100 Webb Del Corporation 2,106
------
30,117
------
Retail--Food--1.4%
200 Fleming Companies, Inc. 2,450
200 Great Atlantic & Pacific Tea Company 4,850
------
7,300
------
Retail--Other--2.4%
200 Cato Corporation, Class A 2,306
400 Heilig-Meyers Company 2,875
100 XTRA Corporation 4,656
100 Zale Corporation/+/ 2,563
------
12,400
------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
- ------ --------
Services--1.6%
100 Leasing Solutions, Inc. $ 2,738
600 Olsten Corporation 3,413
200 Rollins Truck Leasing Corporation 2,238
-------
8,389
-------
Shipping--1.5%
200 Alexander & Baldwin, Inc. 3,963
100 Seacor Holdings, Inc./+/ 4,150
-------
8,113
-------
Steel--2.5%
100 Cleveland-Cliffs, Inc. 3,900
300 Inland Steel Industries, Inc. 6,525
400 National Steel Corporation 2,800
-------
13,225
-------
Telephone--0.5%
100 Aliant Communications, Inc. 2,478
-------
Thrifts--3.5%
100 Andover Bancorp, Inc. 3,106
400 Bay View Capital Corporation 7,225
200 Carolina First Corporation 4,388
200 Firstfed Financial Corporation/+/ 3,413
-------
18,132
-------
Tires--0.6%
100 Bandag, Inc. 3,175
-------
Trucking--0.4%
100 US Freightways Corporation 1,984
-------
TOTAL COMMON STOCKS
(Cost $502,913) 510,663
-------
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Portfolio Investments--Small Cap Systematic Value Fund
================================================================================
Montgomery Small Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
<TABLE>
<CAPTION>
Principal Amount
- ----------------
<S> <C> <C> <C>
Repurchase Agreement--1.9%
(Cost $10,000)
$ 10,000 Agreement with Greenwich Capital Markets, 5.730% dated 09/30/98, to
be repurchased at $10,002 on 10/01/98, collateralized by $10,200
market value of U.S. government securities, having various
maturities and various interest rates $10,000
TOTAL INVESTMENTS (Cost $512,913/*/) 99.1% 520,663
OTHER ASSETS AND LIABILITIES (Net) 0.9% 4,795
NET ASSETS 100.0% $525,458
</TABLE>
/*/ Aggregate cost for federal tax purposes.
/+/ Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Investment Review--Macro Cap Systematic Value Fund
================================================================================
Top Ten Holdings
(as a percentage of total net assets)
1. International Business Machines Corporation
2. AT&T Corporation
3. Exxon Corporation
4. Ford Motor Company
5. Citicorp
6. SBC Communications, Inc.
7. GTE Corporation
8. Nationsbank Corporation
9. First Union Corporation
10. Mobil Corporation
Portfolio Management
Montgomery Asset Management, "Manager"
Martingale Asset Management, "Subadvisor"
The Fund is managed by the following individuals:
William E. Jacques
Douglas E. Stark
Top Five Industries
(as a percentage of total net assets)
1. Telephone
2. Banks
3. International Oil
4. Motor Vehicle
5. Business Machines
Fund Performance
Total Return Since Inception (8/31/98)
for the period ended 9/30/98
Macro Cap Systematic Value Fund
Class A shares (1.60)%
Class B shares (1.30)%
Class C shares (1.30)%
Russell Top 200 Value Index/1/
Since 8/31/98 5.69%
S&P 500(R) Index/2/
Since 8/31/98 6.41%
/1/ The Russell Top 200 Value Index measures the performance of companies with
lower price-to-book ratios and lower forecasted growth values in the Russell Top
200 Index, an index composed of the 200 largest U.S. companies, based on total
market capitalization.
/2/ The Standard & Poor's 500(R) Index is composed of 500 widely held common
stocks listed on the New York Stock Exhange, the American Stock Exchange and the
over-the-counter markets.
11
<PAGE>
Portfolio Investments--Macro Cap Systematic Value Fund
================================================================================
Montgomery Macro Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited)
Value
Shares (Note 1)
Common Stocks--84.7%
Aerospace--1.3%
200 Allied Signal Corporation $ 7,075
Air Transfer--1.1%
100 AMR Corporation/+/ 5,544
Banks--16.7%
200 Bankamerica Corporation 12,025
200 BankBoston Corporation 6,600
100 Bankers Trust Corporation 5,900
300 Chase Manhattan Corporation 12,975
200 Citicorp 18,588
300 First Union Corporation 15,356
300 Nationsbank Corporation 16,050
87,494
Business Machines--4.9%
200 International Business Machines Corporation 25,600
Chemicals--1.2%
200 Praxair, Inc. 6,538
Cosmetics--1.1%
200 Avon Products, Inc. 5,612
Electric Utilities--2.7%
200 Firstenergy Corporation 6,212
200 Public Service Enterprise 7,863
14,075
Electronics--1.2%
100 Honeywell 6,406
Food--1.1%
100 Quaker Oats 5,900
Health Care--0.8%
400 Healthsouth Corporation/+/ 4,225
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
Portfolio Investments--Macro Cap Systematic Value Fund
================================================================================
Montgomery Macro Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
International Oil--7.6%
300 Exxon Corporation $21,056
200 Mobil Corporation 15,188
100 UNOCAL Corporation 3,625
39,869
Life Insurance--2.7%
200 Conseco, Inc. 6,113
200 Equitable Companies 8,275
14,388
Media--1.0%
100 Tribune Companies 5,031
Miscellaneous Financial--4.3%
100 Lehman Brothers Holdings, Inc./+/ 2,825
200 Morgan Stanley Dean Witter & Company 8,613
300 Travelers Group, Inc. 11,250
22,688
Motor Vehicle--5.0%
200 Dana Corporation 7,462
400 Ford Motor Company 18,774
26,236
Oil R&D--3.3%
300 Coastal Corporation 10,125
200 USX-Marathon Group 7,088
17,213
Other Insurance--2.2%
100 Allstate Corporation 4,169
200 MGIC Investment Corporation 7,375
11,544
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Portfolio Investments--Macro Cap Systematic Value Fund
================================================================================
Montgomery Macro Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Common Stocks (continued)
Value
Shares (Note 1)
Paper--1.9%
300 Fort James Corporation $ 9,844
Products--Goods--1.7%
200 Caterpillar, Inc. 8,912
Publishing--1.0%
100 Gannett, Inc. 5,356
Retail--Food--0.9%
100 Safeway, Inc./+/ 4,638
Retail--Other--2.3%
200 Federated Department Stores/+/ 7,275
400 Kmart Stores/+/ 4,775
12,050
Services--1.3%
600 Cendant Corporation/+/ 6,975
Telephone--17.4%
100 Airtouch Communications/+/ 5,700
400 AT&T Corporation 23,375
100 Bellsouth Corporation 7,525
300 GTE Corporation 16,500
200 MCI Worldcom, Inc./+/ 9,781
400 SBC Communications, Inc. 17,775
200 US West, Inc. 10,487
91,143
TOTAL COMMON STOCKS
(Cost $453,527) 444,356
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Portfolio Investments--Macro Cap Systematic Value Fund
================================================================================
Montgomery Macro Cap Systematic Value Fund
Portfolio Investments--9/30/98 (unaudited) (continued)
Principal Value
Amount (Note 1)
U.S. Treasury Bill--1.9%
(Cost $9,906)
$ 10,000 U.S. Treasury Bill, 0.000% due 12/17/98 $9,911
Repurchase Agreement--13.4%
(Cost $70,000)
$ 70,000 Agreement with Greenwich Capital Markets, 5.730% dated 09/30/98, to be
repurchased at $70,011 on 10/01/98, collateralized by $71,400 market
value of U.S. government securities, having various maturities and
various interest rates $70,000
TOTAL INVESTMENTS (Cost $533,433/*/) 100.0% 524,267
OTHER ASSETS AND LIABILITIES (Net) 0.0% 315
NET ASSETS 100.0% $524,582
- ----------------
/*/ Aggregate cost for federal tax purposes.
/+/ Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Statements of Assets & Liabilities
================================================================================
The Montgomery Partners Series
Statements of Assets and Liabilities
September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Small Cap Macro Cap
Systematic Systematic
Value Fund Value Fund
<S> <C> <C>
ASSETS:
Investments in securities, at value (note 1)
Securities (Cost $502,913 and $463,433,
respectively) $510,663 $454,267
Repurchase agreements, at cost 10,000 70,000
Total Investments 520,663 524,267
Cash 816 384
Receivables:
Dividends and interest 892 484
Expenses absorbed by Manager (note 2) 2,602 2,606
Investment securities sold 21,831 70,000
Total Assets 546,804 597,741
LIABILITIES:
Payables:
Investment securities purchased 18,026 70,000
Management fees (note 2) 514 349
Trustees' fees and expenses (note 2) 479 479
Shareholder servicing fees (note 3) 103 102
Other accrued liabilities and expenses 2,224 2,229
Total Liabilities 21,346 73,159
Net Assets $525,458 $524,582
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Statements of Assets & Liabilities
================================================================================
The Montgomery Partners Series
Statements of Assets and Liabilities (continued)
September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Small Cap Macro Cap
Systematic Systematic
Value Fund Value Fund
<S> <C> <C>
Net Assets Consist of:
Undistributed net investment income $ 885 $ 610
Accumulated net realized gain on securities sold 1,713 --
Net unrealized appreciation/(depreciation)
of investments 7,750 (9,028)
Paid-in capital 515,110 533,000
Net Assets $525,458 $524,582
Class A Shares:
Net assets $525,438 $524,562
Fund shares outstanding 51,502 53,321
Net asset value and redemption price
per share outstanding $ 10.20 $ 9.84
Maximum offering price per share
(net asset value plus sales charge of 5.50%
of offering price) $ 10.79 $ 10.41
Class B Shares:
Net assets $ 10 $ 10
Fund shares outstanding 1 1
Net asset value and offering price
per share outstanding/*/ $ 10.19 $ 9.87
Class C Shares:
Net assets $ 10 $ 10
Fund shares outstanding 1 1
Net asset value and offering price
per share outstanding/*/ $10.19 $9.87
</TABLE>
/*/ Redemption price is equal to net asset value less any applicable contingent
deferred sales charge (CDSC).
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
Statements of Operations
================================================================================
The Montgomery Partners Series
Statements of Operations
<TABLE>
<CAPTION>
Period/*/ Ended September 30, 1998 (unaudited)
Small Cap Macro Cap
Systematic Systematic
Value Fund Value Fund
<S> <C> <C>
Net Investment Income:
Investment Income:
Interest $ 574 $ 701
Dividends 1,030 462
Total Income 1,604 1,163
Expenses:
Management fee (note 2) 514 349
Legal and audit fees 1,430 1,430
Trustees' fees 479 479
Shareholder servicing fees (note 3) 103 102
Transfer agency fees 62 62
Administration fee (note 2) 29 29
Other 704 708
Total Expenses 3,321 3,159
Fees deferred and/or expenses absorbed by Manager (note 2) (2,602) (2,606)
Net Expenses 719 553
Net Investment Income 885 610
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain from securities transactions 1,713 --
Net change in unrealized appreciation/(depreciation) of:
Securities 7,750 (9,166)
Futures contracts -- 138
Net Unrealized Appreciation/(Depreciation)
of Investments During the Period 7,750 (9,028)
Net Realized and Unrealized Gain/(Loss) on Investments 9,463 (9,028)
Net Increase/(Decrease) in Net Assets Resulting
from Operations $10,348 $(8,418)
</TABLE>
/*/ The Funds commenced operations on August 31, 1998.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
Statements of Changes in Net Assets
================================================================================
The Montgomery Partners Series
Statements of Changes in Net Assets
Period/*/ Ended September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Small Cap Macro Cap
Systematic Systematic
Value Fund Value Fund
<S> <C> <C>
Increase/(Decrease) in Net Assets from Operations:
Net investment income $ 885 $ 610
Net realized gain on securities sold during the period 1,713 --
Net unrealized appreciation/(depreciation)
of securities during the period 7,750 (9,028)
Net Increase/(Decrease) in Net Assets Resulting from Operations 10,348 (8,418)
Beneficial Interest Transactions:
Net increase from beneficial interest transactions (note 5):
Class A shares 515,090 532,980
Class B shares 10 10
Class C shares 10 10
Net Increase in Net Assets 525,458 524,582
Net Assets:
Beginning of Period -- --
End of Period $525,458 $524,582
</TABLE>
/*/ The Funds commenced operations on August 31, 1998.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Financial Highlights
================================================================================
The Montgomery Partners Series
Financial Highlights (unaudited)
<TABLE>
<CAPTION>
Small Cap Systematic Value Fund/*/
Class A Shares Class B Shares Class C Shares
Selected Per-Share Data for the Period Ended: 9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
Net Asset Value--Beginning of Period $10.00 $ 10.00 $ 10.00
Net investment income/#/ 0.03 0.02 0.02
Net realized and unrealized gain on investments 0.17 0.17 0.17
Net increase in net assets resulting from investment operations 0.20 0.19 0.19
Net Asset Value--End of Period $10.20 $ 10.19 $ 10.19
Total Return/**/ 2.00% 1.90% 1.90%
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period $525,438 $ 10 $ 10
Ratio of net investment income/(loss) to average net assets/+/ 2.15% 1.40% 1.40%
Ratio of expenses to average net assets/+/ 1.75% 2.50% 2.50%
Portfolio turnover rate 8.55% 8.55% 8.55%
Ratio of net investment income/(loss), before deferral of fees by
average net assets/+/ (4.18)% (4.93)% (4.93)%
Ratio of operating expenses, before deferral of fees by Manager,
assets/+/ 8.08% 8.83% 8.83%
</TABLE>
/*/ The Funds commenced operations on August 31, 1998.
/**/ Total return does not include sales charges, contingent deferred sales
charge or redemption fees.
/+/ Annualized.
/#/ Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Macro Cap Systematic Value Fund/*/
Class A Share Class B Shares Class C Shares
<S> <C> <C> <C>
Selected Per-Share Data for the Period Ended: 9/30/98 9/30/98 9/30/98
Net Asset Value--Beginning of Period $ 10.00 $10.00 $ 10.00
Net investment income/#/ 0.02 0.01 0.01
Net realized and unrealized gain on investments (0.18) (0.14) (0.14)
Net increase in net assets resulting from investment operations (0.16) (0.13) (0.13)
Net Asset Value--End of Period $ 9.84 $ 9.87 $ 9.87
Total Return/**/ (1.60)% (1.30)% (1.30)%
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period $524,562 $ 10 $ 10
Ratio of net investment income/(loss) to average net assets/+/ 1.49% 0.74% 0.74%
Ratio of expenses to average net assets/+/ 1.35% 2.10% 2.10%
Portfolio turnover rate 0.00% 0.00% 0.00%
Ratio of net investment income/(loss), before deferral of fees by
average net assets/+/ (4.87)% (5.62)% (5.62)%
Ratio of operating expenses, before deferral of fees by Manager,
assets/+/ 7.71% 8.46% 8.46%
</TABLE>
/*/ The Funds commenced operations on August 31, 1998.
/**/ Total return does not include sales charges, contingent deferred sales
charge or redemption fees.
/+/ Annualized.
/#/ Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
21
<PAGE>
Notes to Financial Statements
================================================================================
The Montgomery Partners Series
Notes to Financial Statements (unaudited)
The Montgomery Small Cap Systematic Value Fund and the Macro Cap Systematic
Value Fund (the "Funds") are part of the Montgomery Partners Series (the
"Series"). Each Fund and the Series are part of the Montgomery Funds II (the
"Trust"). The Trust is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a diversified, open-end management investment
company and was organized as a Delaware business trust on September 10, 1993.
Each Fund commenced operations on August 31, 1998. Each Fund's investment
objective is to seek long-term capital appreciation.
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 are valued using current market valuations: either the
last reported sales price or, in the case of securities for which there is no
reported last sale and in the case of fixed-income securities, the mean of the
closing bid and ask prices. Securities traded on the over-the-counter market or
on the Nasdaq Stock Market are valued at the mean between the last available bid
and ask price prior to the time of valuation.
Portfolio securities that are traded with market quotations that are
readily available are generally valued at the last reported sales price on the
respective exchange or market; 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 for which market quotations are not readily available (including
restricted securities that are subject to limitations as to their sale) are
valued at fair market value as determined in good faith by or under the
supervision of the Trust's officers in accordance with methods authorized by the
Trust's Board of Trustees. Short-term securities with maturities of 60 days or
less are carried at amortized cost, which approximates market value.
b. Repurchase Agreements
The Funds may engage in repurchase agreement transactions individually or
jointly through a joint repurchase account with other series of the Trust and
affiliated registered investment companies pursuant to a joint repurchase
agreement. Under the terms of a typical repurchase agreement, a Fund takes
possession of a government debt obligation as collateral. A Fund also agrees
with the counterparty to allow the counterparty to repurchase, and a Fund to
resell, the obligation at a specified date and price, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during a 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 a Fund in the event a Fund is
delayed or prevented from exercising its rights to dispose of collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. A Fund's investment manager, acting under the supervision of the Board
of Trustees, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which a Fund enters into repurchase agreements, to
evaluate risks. A Fund may also participate on an individual or joint basis in
tri-party repurchase agreements that involve a counterparty and a custodian
bank.
22
<PAGE>
Notes to Financial Statements
================================================================================
c. Futures Contracts
Each Fund may engage in futures transactions. The Funds may use futures
contracts to manage their exposure to the stock market for hedging and non-
hedging purposes. The underlying value of a futures contract is incorporated
within the unrealized appreciation/(depreciation). This amount reflects each
contract's exposure to the underlying instrument or index at September 30, 1998.
Buying futures contracts tends to increase the Fund's exposure to the underlying
instrument or index. Selling futures contracts tends to either decrease the
Fund's exposure to the underlying instrument or index, or to hedge other Fund
investments.
Upon entering into a futures contract, the Fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin." Subsequent
payments ("variation margin") are made or received by the Fund each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses, and the
Fund recognizes a realized gain or loss when the contract is closed.
There are several risks in connection with the use of futures. Futures
contracts involve, to a varying degree, potentially unlimited risk of loss in
excess of the futures variation margin. The change in the value of futures
contracts primarily corresponds with the value of their underlying instruments
or index. In addition, there is a risk that the Fund may not be able to enter
into a closing transaction because of an illiquid secondary market.
Subject to the regulations of the Commodity Futures Trading Commission,
each fund may invest in the futures contracts and options on futures contracts
for bona fide hedging purposes without limitation as to a percentage of its
assets but subject to a limit for non-bona fide hedging purposes of 5% of net
assets for initial margins and premiums on those futures.
d. Dividends and Distributions
Dividends, if any, from net investment income are declared and paid at
least annually. Distributions of any short-term capital gains earned by the
Funds 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.
e. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Realized gain
and loss from securities transactions are recorded on the specific identified
cost basis. Dividend income is recorded on the ex-dividend date. Interest
income, including, where applicable, amortization of discount on short-term
investments, is recognized on the accrual basis.
f. Federal Income Taxes
Each Fund intends to elect and 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 by applicable sections of the Code, and to make
distributions of taxable income to shareholders sufficient to relieve each Fund
from all or substantially all federal income taxes.
g. Expenses
General expenses of the Trust are allocated to the relevant Fund 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 for
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.
23
<PAGE>
Notes to Financial Statements
================================================================================
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,
one of the largest publicly held commercial banks in Germany.
Pursuant to an investment management agreement between the Manager and the
Trust with respect to each Fund ("Investment Management Agreement"), the Manager
provides the Funds with advice on buying and selling securities, manages the
investments of the Funds including the placement of orders for portfolio
transactions, furnishes the Funds with office space and certain administrative
services, and provides the appropriate personnel with respect to the Manager's
responsibilities under such agreement. The Manager has retained Martingale Asset
Management, L.P. as the Funds' subadvisor (the "Subadvisor") to provide
portfolio management services. The Subadvisor is an affiliate of the Manager.
The Subadvisor receives a portion of the management fees received by the
Manager. The Manager has agreed to reduce some or all of its management fee to
absorb Fund expenses if necessary to keep the Funds' annual operating expenses,
exclusive of Rule 12b-1 fees, dividend expense, interest and taxes, at or below
1.75% and 1.35% for the Small Cap Systematic Value Fund and the Macro Cap
Systematic Value Fund, respectively. 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 Manager may terminate these reductions
or absorptions at any time.
Montgomery Asset Management, LLC, serves as the Funds' administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of the Funds' administrative operations.
As compensation, the Funds have accrued a monthly management and
administration fee (accrued daily) based on the average daily net assets of the
Funds at the following annualized rates:
<TABLE>
<CAPTION>
Management
Contractual Fee Including Effective
Management Effect of Administration
Name of Fund Fee Fees Deferred Fee
<S> <C> <C> <C>
Small Cap Systematic
Value Fund 1.25% (6.12)% .07%
Macro Cap Systematic
Value Fund 0.85% (6.14)% .07%
</TABLE>
For the period ended September 30, 1998, the Manager has deferred fees
subject to recoupment as follows:
<TABLE>
<CAPTION>
Deferred
Management
Fees and Absorbed
Fees Expenses Expenses Subject
Name of Fund Deferred Absorbed to Recoupment
<S> <C> <C> <C>
Small Cap Systematic
Value Fund $514 $2,088 $2,602
Macro Cap Systematic
Value Fund $349 $2,257 $2,606
</TABLE>
b. Certain officers and Trustees of the Trust are, with respect to the Trust's
Manager and/or principal underwriter, "affiliated persons" as defined in the
1940 Act. Each Trustee who is not an "affiliated person" will receive an annual
retainer and quarterly meeting fee totaling $35,000 per annum, as well as
reimbursement for expenses, for service as a Trustee of all Trusts advised by
the Manager ($5,000 of which will be allocated to the Montgomery Funds II).
24
<PAGE>
Notes to Financial Statements
================================================================================
3. Shareholder Servicing and Distribution Plans:
The Funds have adopted a Shareholder Servicing Plan for Class A, Class B
and Class C shares and a Distribution Plan for Class B and Class C shares of
each Fund. The Shareholder Servicing Plan permits the Funds to compensate or
reimburse servicing agents. The Distribution Plan, adopted pursuant to Rule
12b-1 under the 1940 Act, permits the Funds to compensate or reimburse Funds
Distributor, Inc. (the "Distributor") for activities or expenses primarily
intended to result in the sales of the class's shares. Payments under the
Shareholder Servicing Plan are limited to an annual rate of 0.25% of average
daily net assets. Payments under the Distribution Plan are limited to an annual
rate of 0.75% of Class B and Class C average net assets.
4. Securities transactions:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, for the period ended September
30, 1998, were:
Purchases Sales
Small Cap Systematic Value Fund $523,032 $21,831
Macro Cap Systematic Value Fund $453,527 $ --
b. At September 30, 1998, 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:
Taxable Taxable
Unrealized Unrealized
Appreciation Depreciation
Small Cap Systematic Value Fund $ 21,092 $13,342
Macro Cap Systematic Value Fund $ 21,553 $30,719
c. The schedule of open future contractslong position for the Macro Cap
Systematic Value Fund at September 30, 1998, was as follows:
Number of Unrealized
Contracts Appreciation
1 S&P 500 E-Mini December 1998 $ 138
5. 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.
Transactions in Shares of a Beneficial Interest
<TABLE>
<CAPTION>
Small Cap Systematic Value Fund Macro Cap Systematic Value Fund
Period Ended 9/30/98/*/ Period Ended 9/30/98/*/
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
A Shares:
Sold 51,502 $515,090 53,321 $532,980
Redeemed -- -- -- --
Net increase 51,502 $515,090 53,321 $532,980
B Shares:
Sold 1 $ 10 1 $ 10
Redeemed -- -- -- --
Net increase 1 $ 10 1 $ 10
C Shares:
Sold 1 $ 10 1 $ 10
Redeemed -- -- -- --
Net increase 1 $ 10 1 $ 10
</TABLE>
/*/ The Funds commenced operations on August 31, 1998.
25
<PAGE>
[MONTGOMERY PARTNERS SERIES LOGO APPEARS HERE]
---------------------------------------------
The Montgomery Partners Series
101 California Street
San Francisco, California 94111
800-OWL-8758 (695-8758)
