<PAGE>
The Montgomery Partners Series Funds
December 31, 1997
<PAGE>
[LOGO OF MONTGOMERY]
The Montgomery Partners Series
101 California Street
San Francisco, California 94111
800-695-8758
----------------------------------------------------------
T a b l e o f C o n t e n t s
Investment Review & Portfolio Investments
Montgomery Global Long-Short Fund ................. 2
Montgomery Emerging Markets Focus Fund ............ 14
Statements of Assets and Liabilities ................. 19
Statements of Operations ............................. 21
Statements of Changes in Net Assets .................. 23
Financial Highlights ................................. 24
Statement of Cash Flows .............................. 26
Notes to Financial Statements ........................ 27
- --------------------------------------------------------------------------------
Fund results in this report were computed without a sales charge or redemption
fee unless otherwise indicated. Had such sales charges or redemption fee been
included, performance would have been as follows:
Total returns from inception (12/31/97) through 3/31/98:
Class A Class B Class C
---------------------------------------
Montgomery Global
Long-Short Fund 20.20% 21.50% 17.50%
Montgomery Emerging
Markets Focus Fund 8.11% 13.40% 17.30%
Performance is for a limited period of time only and is not necessarily
indicative of future results. 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 December 31, 1997. Performance figures reflect a partial waiver of fees
without which the total returns would have been lower. This information must
be preceded or accompanied by a prospectus. Please read the prospectus
carefully before you invest.
These funds invest in securities of foreign countries which may present
special risks such as erratic market conditions, economic and political
instability, and fluctuations in currency exchange rates. The Montgomery
Global Long-Short Fund also 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 this Fund may be more
volatile than investments in other mutual funds. This Fund may not be an
appropriate investment for conservative investors.
<PAGE>
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CHAIRMAN'S LETTER
================================================================================
[LOGO OF CHAIRMAN]
April 1998
Dear Fellow Shareholder:
Welcome to The Montgomery Partners Series! The Partners Series Funds were
launched as a response to changing times and a heightened demand for
sophisticated investment strategies. We leveraged our expertise and proven
disciplines to offer funds that we believe are designed to achieve consistent,
superior results. The Montgomery Global Long-Short Fund was created to provide
mutual fund investors access to hedging techniques once reserved only for the
very wealthy through private partnership vehicles. The Fund's performance has
been outstanding-up 27.2% for the quarter ended March 31, 1998.* The
Montgomery Emerging Markets Focus Fund takes a concentrated approach by
investing its holdings in just three to 10 emerging countries. This enables
the portfolio manager to act on research and insights quickly, moving in and
out of positions opportunistically. Another strong performer in its asset
class, this Fund gained 14.4% for the quarter ended March 31, 1998.*
We are glad to partner with financial professionals to introduce these Funds
to the marketplace. By now you've most likely been advised on the value of
diversification and asset allocation, setting risk tolerances and taking a
long-term perspective on your investments. Portfolio planning has been
reemphasized in newspapers, magazines and financial journals alike, with the
general assumption that investments are chosen as part of an overall strategy.
At the same time, the variety of investment options is ever increasing. And
variety demands choice. As someone once said, "Mistakes are made only at the
time of decision." As investors we are information gatherers; an insight here,
a foresight there, and, at the end of the day, those ideas are just that-until
we build a plan and take action. The brilliance of evolution is that it
leverages the hundreds of smart decisions made over great periods of time. At
Montgomery we call this wisdom.
We are proud to present you with the first annual report for The Montgomery
Partners Series, and we look forward to earning your continued confidence.
Sincerely,
/s/ R. Stephen Doyle
R. Stephen Doyle
Chairman and Chief Executive Officer
* Performance stated is for A class shares. The Funds also offer B and C class
shares that have different sales charges and expense levels which may affect
performance. Please see the preceding page for discussion of fund
performance.
1
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INVESTMENT REVIEW-GLOBAL LONG-SHORT FUND
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First Quarter 1998
Montgomery Global
Long-Short Fund
----------------------------------------------------
P o r t f o l i o M a n a g e m e n t
[LOGO OF NANCY KUKACKA] [LOGO OF ANGELINE EE]
Nancy Kukacka Angeline Ee
Portfolio Manager Portfolio Manager
----------------------------------------------------
F u n d P e r f o r m a n c e
Total Return since inception (12/31/97)
for the period ended 3/31/98
Montgomery Global Long-Short Fund
Class A Shares ...................... 27.20%
Class B Shares ...................... 26.50%
Class C Shares ...................... 18.50%
MSCI All Country World Free Index
Since 12/31/97 ...................... 13.85%
Past performance is no guarantee of future results. Net asset value,
investment return and principal value will fluctuate, so shares, when
redeemed, may be worth more or less than their original cost.
The Morgan Stanley Capital International All Country World Free Index is an
unmanaged, capitalization-weighted monthly total return index comprised of
securities listed on the stock exchanges of over 45 developed and emerging
countries, including the United States.
----------------------------------------------------
Q: The Montgomery Global Long-Short Fund has been termed an "alternative
investment strategy." What does this mean in the context of an overall
portfolio?
A: Unlike typical mutual funds, the Montgomery Global Long-Short Fund has the
capability to exploit both positive and negative swings across markets
worldwide. This gives the Fund tremendous growth potential as well as a
greater arsenal of defensive tactics. The Fund's unique approach means that
its performance does not correlate closely with any market index, making it
an attractive diversification vehicle for long-term investors who want to
lower the overall risk of their portfolios with the goal of higher absolute
returns.
Q: Has the Fund taken advantage of its shorting capabilities thus far?
A: Yes. We did short a number of selected stocks during the first quarter. At
any one time, we expect to have as much as 70% of the portfolio in short
positions or as little as 30%. All of our investments-short as well as long-
are based on bottom-up assessments of corporate fundamentals, not top-down
calls. We have the ability to use short positions defensively (to hedge
current portfolio holdings) and opportunistically (to take advantage of
overvalued stocks rather than simply avoid them).
Q: The Montgomery Global Long-Short Fund outperformed most market benchmarks
from its inception (December 31, 1997) through the end of the first
quarter. What factors contributed to that performance?
A: The Fund's recent performance was driven primarily by the portfolio's
overall strength in stock picking rather than by big bets in any one
country or one stock in particular. The Fund profited from both long and
short positions in a variety of markets. We traded Asian stocks very well
during the quarter, which contributed about 500 basis points to the Fund's
performance. We also invested profitably in U.S. and European issues in the
wake of the Asian crisis.
2
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INVESTMENT REVIEW-GLOBAL LONG-SHORT FUND
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Q: As one of the pioneer retail funds offering a long-short strategy, have
there been any challenges to overcome?
A: The Taxpayer Relief Act of 1997 opened up greater options for investors by
repealing the "short-short" rule. It thereby allowed mutual fund managers
to fully utilize investment strategies that until then had been confined to
hedge funds and other private partnerships. Although some constraints have
been removed, the Montgomery Global Long-Short Fund still must adhere to
the Securities and Exchange Commission ("SEC") guidelines and restrictions
that apply to other mutual funds. Unlike hedge fund managers, we cannot
dictate the flow of assets into the Global Long-Short Fund to a large
degree. We view these constraints not as obstacles, however, but as safety
features that the typical hedge fund doesn't offer.
Q: What is your outlook for the U.S. market, and how have you positioned the
Fund accordingly?
A: Current valuations in some segments of the U.S. market (particularly large-
cap consumer-oriented and technology stocks) are unprecedented, at a time
when the market is still potentially vulnerable to the instability in Asian
economies. We believe that this kind of environment is ideal for our focus
on stock picking and our ability to short, both as a defensive measure and
as an opportunistic strategy.
Portfolio holdings are subject to change and should not be considered a
recommendation to purchase.
There are certain risks associated with investing in foreign markets, such as
currency fluctuations and political and economic instability.
----------------------------------------------------
G R O W T H O F $ 10,000*
[GRAPH OF PAYMENT OF MAXIMUM SALES CHARGES AND REDEMPTION FEE]
----------------------------------------------------
12/97 9450 10000 10000 10000
1/98 9979 10510 9830 10220
2/98 11198 11800 11050 10919
3/98 12020 12150 11750 11385
----------------------------------------------------
Global Long-Short Fund-A
Global Long-Short Fund-B
Global Long-Short Fund-C
MSCI All Country World Free Index
* These figures, unlike those appearing elsewhere in this report, reflect
payment of the maximum sales charges and/or redemption fee.
3
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INVESTMENT REVIEW-GLOBAL LONG-SHORT FUND
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Long Positions
- ------------------------------ ----------------------------------
T o p T e n H o l d i n g s T o p F i v e C o u n t r i e s
1. Adminstaff, Inc 1. United States
2. Belvedere SA 2. France
3. Montupet 3. Netherlands
4. Baron de Ley, SA 4. Brazil
5. Medicis Pharmaceutical Corporation, 5. Malaysia
Class A
6. Anchor Gaming
7. Telecom Italia SpA
8. China Telecom Ltd
9. Gucci Group NV
10. Fred's, Inc
4
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PORTFOLIO INVESTMENTS-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98
Common Stocks-112.3% Value
Shares (Note 1)
Brazil-2.6%
<S> <C>
10,400 Elevadores Atlas, SA (Machinery & Tools) $ 150,923
1,550 Telebras, ADR*** (Telephone/Networks) 201,208
800,000 Telec Brasileiras-Telebras (Telephone/Networks) 82,674
----------
434,805
----------
Canada-1.1%
8,000 Bell Canada International Inc***+ (Telecommunications/Wireless) 179,750
----------
China / Hong Kong-2.8%
55,000 Cathay Pacific Airways (Airlines) 53,590
178,000 China Telecom Ltd+ (Telecommunications/Wireless) 360,653
10,000 Henderson Land Development Company Ltd (Real Estate) 50,717
----------
464,960
----------
Finland-1.3%
2,000 Nokia Oyj, Sponsored ADR (Telecommunications Equipment) 215,875
----------
France-16.0%
900 Accor SA (Lodging) 230,788
2,420 Altran Technologies SA (Consumer Services) 306,379
3,110 Belvedere SA+ (Food & Beverage) 484,017
2,480 Cie Financiere de CIC et de l'Union Europeenne
(Diversified Financial Services) 239,981
2,000 Cie Financiere de Paribas, Class A (Banks) 202,241
2,450 Etam Development SA+ (Retail Trade) 222,063
1,780 Montupet (Auto/Auto Parts) 440,657
4,500 Pernod Ricard (Food & Beverage) 305,540
450 Sagem SA (Telecommunications Equipment) 287,903
----------
2,719,569
----------
Germany-2.9%
4,780 Hornbach Baumarkt Aktiengesellschaft (Retail Trade) 170,461
440 Mannesmann AG (Machinery & Tools) 321,902
----------
492,363
----------
</TABLE>
The accompanying notes are integral part of these financial statements.
5
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PORTFOLIO INVESTMENT-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98 (continued)
Common Stocks (continued) Value
Shares (Note 1)
<S> <C>
Great Britain-2.4%
8,000 COLT Telecom Group PLC+ (Telephone/Regional-Local) $ 190,702
357,000 Freepages Group PLC+ (Broadcasting/Advertising) 206,177
----------
396,879
----------
Greece-1.5%
1,370 Alpha Credit Bank (Banks) 106,094
6,160 Hellenic Telecommunication Organization SA (Telephone/Networks) 154,193
----------
260,287
----------
India-1.4%
4,400 Mahanagar Telephone Nigam Ltd, GDR**+ (Telecommunications/Other) 74,580
13,000 Videsh Sanchar Nigam Ltd, GDR+ (Telephone/Long Distance) 162,500
----------
237,080
----------
Italy-2.2%
46,900 Telecom Italia SpA (Telephone/Networks) 369,313
----------
Malaysia-4.0%
130,000 Batu Kawan Berhad (Holding) 174,877
160,000 John Hancock Life Insurance (Insurance) 79,781
35,000 Malaysia International Shipping Berhad (Shipping) 62,328
306,000 PPB Oil Palms Berhad (Agriculture Commodities) 300,132
100,000 Selangor Properties Berhad (Real Estate) 53,151
----------
670,269
----------
Netherlands-7.5%
3,450 ASM Lithography Holding NV+ (Semiconductor) 319,125
7,500 Gucci Group NV (Retail Trade) 356,250
11,000 Ispat International NV+ (Metals & Mining) 313,499
3,800 Royal Philips Electronics NV, ADR (Electronics) 279,063
----------
1,267,937
----------
Philippines-0.7%
650,000 Cosmos Bottling Corporation (Food & Beverage) 89,264
39,500 Security Bank Corporation+ (Investment Management) 25,297
----------
114,561
----------
</TABLE>
The accompanying notes are integral part of these financial statements.
6
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PORTFOLIO INVESTMENT-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98 (continued)
Common Stocks (continued) Value
Shares (Note 1)
<S> <C>
Portugal-0.4%
1,320 Brisa-Auto Estradas de Portugal SA*** (Auto/Auto Parts) $ 60,221
----------
Singapore-0.8%
280,000 Comfort Group Ltd (Holding) 132,591
----------
South Africa-3.1%
1,800 Anglo American Corporation of South Africa Ltd (Metals & Minings) 82,502
3,000 De Beers Consolidated Mines*** (Metals & Mining) 65,416
4,700 De Beers Consolidated Mines, ADR***+ (Metals & Mining) 102,959
5,500 Liberty Life Association of Africa Ltd*** (Insurance) 185,682
9,900 Nasionale Pers Beperk (Holding) 81,591
----------
518,150
----------
Spain-2.3%
15,900 Baron de Ley, SA+ (Food & Beverage) 394,629
----------
Thailand-3.9%
22,800 GSS Array Technology Public Company, Ltd+ (Electronics) 104,295
17,000 GSS Array Technology Public Company, Ltd(F)+ (Electronics) 77,764
168,500 International Broadcasting Corporation Public Company, Ltd+
(Cable Television) 205,540
131,500 International Broadcasting Corporation Public Company, Ltd(F)+
(Cable Television) 160,406
350,000 Security One Public Company Ltd+ (Investment Management) 102,287
----------
650,292
----------
Turkey-1.7%
957,143 Akbank TAS (Banks) 69,882
1,300,000 Haci Omer Sabanci Holding AS (Holding) 76,199
4,200,000 Yapi ve Kredi Bankasi AS (Banks) 145,117
----------
291,198
----------
</TABLE>
The accompanying notes are integral part of these financial statements.
7
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PORTFOLIO INVESTMENT-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98 (continued)
Common Stocks (continued) Value
Shares (Note 1)
<S> <C>
United States-53.7%
11,750 Adminstaff, Inc***+ (Business Services) $ 505,984
8,000 Analog Devices, Inc***+ (Semiconductor) 266,000
5,200 Anchor Gaming***+ (Leisure Time) 387,400
5,400 Arbor Software Corporation***+ (Software Systems) 248,400
9,000 AXENT Technologies, Inc***+ (Software Systems) 273,938
7,100 CKE Restaurants, Inc*** (Restaurants) 260,925
3,000 Cost Plus, Inc+ (Retail Trade) 95,438
2,000 Dell Computer Corporation+ (Computers & Office Equipment) 135,438
6,700 EVI, Inc***+ (Oilfield Equipment) 310,294
10,000 Edwards (JD) & Company+ (Software Systems) 326,875
2,800 Emulex Corporation***+ (Telecommunications/Networks) 25,900
8,000 Fidelity National Financial, Inc*** (Insurance) 294,000
4,000 Forest Laboratories, Inc+ (Pharmacy/Drugs) 150,250
13,500 Fred's, Inc*** (Retail Trade) 337,500
13,000 Friendly Ice Cream Corporation***+ (Restaurants) 260,813
15,000 Genesco Inc+ (Footwear) 271,875
3,000 Genesys Telecommunications Laboratories, Inc+ (Software Systems) 113,813
600 Gilead Sciences, Inc***+ (Pharmacy/Drugs) 21,581
16,000 Global DirectMail Corporation***+ (Retail Trade) 296,000
7,000 Global TeleSystems Group, Inc+ (Telephone/Networks) 328,562
15,000 Hain Food Group, Inc***+ (Food & Beverage) 277,969
15,000 Halter Marine Group, Inc+ (Shipping) 238,125
2,500 Intel Corporation (Semiconductor) 195,078
6,000 Jones Apparel Group, Inc***+ (Apparel & Textiles) 330,375
4,000 Lilly (Eli) & Company*** (Pharmacy/Drugs) 238,500
9,000 Medicis Pharmaceutical Corporation, Class A***+ (Pharmacy/Drugs) 392,906
10,000 Micro Warehouse, Inc+ (Computers & Office Equipment) 163,750
7,000 New Era of Networks, Inc***+ (Telecommunications/Networks) 169,313
4,000 Newpark Resources, Inc***+ (Oil) 73,000
3,000 Payless ShoeSource, Inc***+ (Footwear) 225,750
5,000 PeopleSoft, Inc***+ (Software Systems) 263,281
7,000 Pride International, Inc***+ (Oilfield Equipment) 167,125
2,000 Sangstat Medical Corporation***+ (Medical Products) 64,000
10,000 Sequent Computer Systems, Inc***+ (Computers & Office Equipment) 182,813
1,000 Sola International, Inc+ (Cosmetics & Personal Care) 41,438
</TABLE>
The accompanying notes are integral part of these financial statements.
8
<PAGE>
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PORTFOLIO INVESTMENT-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98 (continued)
Common Stocks (continued) Value
Shares (Note 1)
<S> <C>
United States (continued)
29,000 Sunglass Hut International, Inc***+ (Retail Trade) $ 303,594
1,000 Time Warner, Inc (Newspapers/Publishing) 72,000
4,000 Tommy Hilfiger Corporation***+ (Apparel & Textiles) 240,250
2,000 Veritas Software Corporation***+ (Software Systems) 118,500
5,000 WorldCom, Inc+ (Telephone/Long-Distance) 215,156
7,500 Zonagen, Inc+ (Pharmacy/Drugs) 165,469
----------
9,049,378
----------
TOTAL COMMON STOCKS (Cost $17,195,169) 18,920,107
==========
<CAPTION>
Preferred Stocks-1.8% (Cost $260,803)
Brazil-1.8%
2,850,000 Banco do Estado de Sao Paulo SA+ (Banks) 190,501
42,000 Cia Riograndense de Telecomunicacoes
(Telecommunications Equipment) 52,823
2,200 Petroleos Brasileiro SA, ADR*** (Oil) 52,250
295,574
==========
Principal Amount
Foreign Government Obligations-0.9% (Cost $159,703)
Turkey-0.9%
TKL 60,000,000,000 Treasury Bill, due 11/04/98 155,208
----------
Number of Contracts Expiration Strike
Date Price
---------- -------
Call Options Purchased-0.2% (Cost $28,888)
150 General Nutrition Center, Inc
(Retail Trade) 05/16/98 $40.0 34,688
----------
</TABLE>
The accompanying notes are integral part of these financial statements.
9
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PORTFOLIO INVESTMENT-GLOBAL LONG-SHORT FUND
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<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Portfolio Investments-3/31/98 (continued)
Number of Contracts Expiration Strike Value
Date Price (Note 1)
----------- --------- -----------
Put Options Purchased-0.3% (Cost $69,425)
<S> <C> <C> <C>
75 Computer Learning Centers, Inc+
(Business Services) 05/16/98 $17.5 $ 29,531
50 Fila Holding SpA (Footwear) 04/18/98 $20.0 938
50 Fila Holding SpA (Footwear) 04/18/98 $22.5 3,281
50 Nike, Inc, Class B (Footwear) 07/18/98 $45.0 16,563
50,313
-----------
TOTAL INVESTMENTS (Cost $17,713,988*) 115.5% 19,455,890
TOTAL SHORT SALES (Proceeds $7,904,023) (49.2)% (8,292,731)
TOTAL OPTIONS WRITTEN
(Premium Received $71,092) (Note 5) (0.4)% (64,594)
OTHER ASSETS AND LIABILITIES (Net) 34.1% 5,743,678
-----------
TOTAL NET ASSETS 100.0% $16,842,243
-----------
</TABLE>
- ------------------
* Aggregate cost for federal tax purposes was $17,802,177
** Restricted secuities. Such securities represent $74,580 or 0.4% of total
net assets.
*** Designated as short sale collateral
+ Non-income producing security
Abbreviation:
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
TKL Turkish Lira
The accompanying notes are integral part of these financial statements.
10
<PAGE>
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SCHEDULE OF SHORT SALES-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Schedule of Short Sales-3/31/98
Short Sales-49.2% Value
Shares Proceeds (Note 1)
<S> <C> <C>
Austria-0.8%
2,150 Wolford AG (Apparel & Textiles) $ 155,730 $ 134,649
---------
France-2.8%
2,200 Credit Lyonnais (Banks) 170,142 195,146
2,960 GrandVision SA (Retail Trade) 104,522 109,225
4,400 SEITA (Tobacco) 175,867 172,438
---------
476,809
---------
Israel-0.9%
10,000 Teledata Communications Ltd
(Telecommunications/Networks) 162,807 151,250
---------
Italy-1.8%
13,500 Bulgari SpA (Retail Trade) 69,218 92,430
51,000 Ittierre Holding SpA
(Apparel & Textiles) 172,368 212,052
---------
304,482
---------
Japan-3.8%
40,000 Itochu Corporation (Retail Trade) 109,572 96,006
12,000 JUSCO Company, Ltd (Retail Trade) 219,461 215,113
14,000 Sekisui House, Ltd (Real Estate) 112,698 114,457
18,000 Sumitomo Corporation (Conglomerates) 112,654 117,052
36,000 Taisei Corporation (Building Materials) 95,968 98,826
---------
641,454
---------
Malaysia-2.9%
20,000 Berjaya Sports Toto Berhad
(Leisure Time) 52,449 54,247
45,000 Kuala Lumpur Kepong Berhad
(Agriculture Commodities) 100,935 107,877
65,000 Perusahaan Otomobil Nasional Berhad
(Auto/Auto Parts) 104,781 113,082
30,000 Telekom Malaysia Berhad
(Telephone/Networks) 88,078 103,562
40,000 Tenaga Nasional Berhad
(Electric Utilities) 100,119 100,822
---------
479,590
---------
Netherlands-0.7%
2,500 Baan Company NV (Software Systems) 109,528 119,531
---------
</TABLE>
The accompanying notes are integral part of these financial statements.
11
<PAGE>
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SCHEDULE OF SHORT SALES-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Schedule of Short Sales-3/31/98 (continued)
Short Sales (continued) Value
Shares Proceeds (Note 1)
<S> <C> <C>
Philippines-0.9%
5,500 Philippine Long Distance Telephone Company
(Telephone/Long Distance) $ 142,969 $ 153,242
---------------
Singapore-1.0%
17,000 Keppel Corporation Ltd (Shipping) 50,813 51,142
60,000 Natsteel Electronics Ltd (Electronics) 99,155 116,620
---------------
167,762
---------------
Spain-1.5%
4,000 Gas Natural SDG, SA (Gas) 197,758 246,921
---------------
Switzerland-1.6%
1,105 Sulzer Medica AG (Biotechnology) 278,703 276,015
---------------
Taiwan-0.7%
12,000 Acer Inc, GDR (Software Systems) 131,225 123,300
United States-29.8%
6,000 3Com Corporation (Computers & Office Equipment) 198,493 215,813
12,000 Advanced Micro Devices, Inc (Semiconductor) 252,459 348,750
6,000 America Online, Inc (Software Systems) 385,524 409,875
2,600 Arterial Vascular Engineering, Inc (Biotechnology) 102,713 95,306
2,500 Avon Products, Inc (Cosmetics & Personal Care) 174,532 195,000
8,500 Black Box Corporation (Software Systems) 310,615 311,844
600 Compaq Computer Corporation (Computers &
Office Equipment) 17,531 15,525
12,500 Computer Learning Centers, Inc (Software Systems) 222,805 209,766
4,300 Federated Department Stores, Inc (Retail Trade) 210,691 222,794
3,400 Gateway 2000, Inc (Computers & Office Equipment) 136,933 159,588
500 Goody's Family Clothing, Inc (Retail Trade) 15,435 22,155
10,000 Gymboree Corporation (Retail Trade) 260,616 258,124
4,000 Liz Claiborne, Inc (Retail Trade) 187,754 199,500
5,000 Nautica Enterprises, Inc (Apparel & Textiles) 141,870 153,906
1,900 NBTY, Inc (Food & Beverage) 81,272 115,365
5,000 Nike, Inc, Class B (Footwear) 214,708 221,250
5,000 Nine West Group Inc (Footwear) 136,945 123,124
600 Pacific Sunwear of California (Apparel & Textiles) 16,837 24,788
</TABLE>
The accompanying notes are integral part of these financial statements.
12
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SCHEDULE OF SHORT SALES-GLOBAL LONG-SHORT FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Global Long-Short Fund
Schedule of Short Sales-3/31/98 (continued)
Short Sales (continued) Value
Shares Proceeds (Note 1)
<S> <C> <C>
United States (continued)
4,000 Penney (JC) Company, Inc (Retail Trade) $ 297,250 $ 302,749
6,000 Reebok International Ltd (Retail Trade) 175,447 183,000
5,000 SCI Systems, Inc (Electronics) 184,694 178,125
3,000 Sears, Roebuck and Company (Retail Trade) 153,852 172,313
5,000 St Jude Medical, Inc (Medical Products) 178,132 167,188
5,100 Starbucks Corporation (Food & Beverage) 191,650 231,253
7,000 The Sports Authority, Inc (Retail Trade) 98,452 114,625
10,000 Transcrypt International, Inc (Telecommunications/Other) 162,495 109,688
6,000 Ultratech Stepper, Inc (Semiconductor) 130,840 123,187
10,000 United Auto Group, Inc (Auto/Auto Parts) 145,958 133,125
-----------
5,017,726
-----------
TOTAL SHORT SALES $ 7,904,023 $ 8,292,731
===========
</TABLE>
The accompanying notes are integral part of these financial statements.
13
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INVESTMENT REVIEW-EMERGING MARKETS FOCUS FUND
================================================================================
First Quarter 1998
M o n t g o m e r y E m e r g i n g
M a r k e t s F o c u s F u n d
-------------------------
P o r t f o l i o M a n a g e m e n t
[LOGO OF JOSEPHINE S. JIMENEZ]
Josephine S. Jimenez, CFA
Senior Portfolio Manager
-------------------------
F u n d P e r f o r m a n c e
Total Return since inception (12/31/97)
for the period ended 3/31/98
Montgomery Emerging Markets Focus Fund
Class A Shares................. 14.40%
Class B Shares................. 18.40%
Class C Shares................. 18.30%
MSCI Emerging Markets Free Index
Since 12/31/97.................. 6.19%
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
The 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.
-------------------------
Q: What is the Fund's strategy?
A: The Montgomery Emerging Markets Focus Fund employs a disciplined, research-
driven investment strategy combining quantitative analysis of macroeconomic
and market trends with qualitative insight gleaned through original research
and frequent visits to emerging markets countries. The Fund differs from
other general emerging markets funds in that it concentrates its investments
in three to 10 emerging markets. It may also invest up to 50% of its assets
in a single emerging market.
Q: Why should investors consider a focused emerging markets investment strategy?
A: First of all, the case for investing in the emerging markets is compelling,
as many investors know. Developing countries are home to 80% of the world's
population, about half of which are young people on the verge of entering
their prime consumption and production years. In recent years quite a few
developing countries have made important strides toward democracy, free
markets, free trade and citizenship in the global economic community. We
believe many are establishing the structural and fiscal policies necessary
for sustainable economic growth into the next century. In fact, we expect the
world's developing economies to grow at an average rate of nearly three times
that of developed countries. That growth should create exceptional long-term
opportunities for investors in their capital markets.
Given this compelling outlook, investors who have strong convictions about
the potential opportunities in developing countries may find the typical
diversified emerging markets fund overly diluted. Most such funds invest in
30 or more countries and upwards of 200 individual securities. By
concentrating the portfolio in a smaller number of attractive, relatively
liquid markets-while maintaining ample diversification across individual
securities and sectors-the Montgomery Emerging Markets Focus Fund can act
more forcefully on our convictions about where developing economies and their
stock markets are heading.
14
<PAGE>
================================================================================
INVESTMENT REVIEW-EMERGING MARKETS FOCUS FUND
================================================================================
Q: The Montgomery Emerging Markets Focus Fund had an excellent first quarter-it
outperformed its benchmark, the Morgan Stanley Capital International Emerging
Markets Free Index by a wide margin. What factors contributed to the Fund's
outperformance?
A: The Fund's position in South Africa (34.4% of the portfolio at quarter end)
was very profitable. The South African market rallied over the first three
months of 1998, driven by a number of positive trends: declining interest
rates, lower inflation, restructuring and merger-and-acquisition activity.
The Fund's exposure to Turkey (21.5% of the portfolio on March 31) was also
beneficial, as that market rallied over the first three months of the year.
Q: Were there any holdings that did not live up to your expectations?
A: The Fund's position in Russia (4.6% of the portfolio at the end of the first
quarter) worked against it during early 1998. Political and other concerns
drove down the country's equity market. We continue to see what we believe
are phenomenal asset values there, however. In addition, the Fund's positions
in Brazil and China/Hong Kong contributed some gains to its performance, but
the rallies in those markets were no match for the strength of turnaround
stories such as Thailand and South Korea.
Q: How are you positioning the Fund for the upcoming year?
A: We believe that market sentiment toward the emerging markets should improve
over the next 12 months, potentially leading to strong capital inflows into
the large, liquid emerging markets on which the Fund focuses. We remain
cautious about some Asian markets, which may have gotten ahead of their
fundamentals over the past few months. We believe Latin American markets, in
contrast, remain attractively valued. We continue to believe that Brazil will
benefit greatly from its upcoming privatization programs (scheduled to take
place over the next 14 months) and we have positioned the Fund to take
advantage of those opportunities. All in all, we are cautiously optimistic
about the outlook for emerging markets in the coming year and are very
bullish about their potential over the longer term.
Portfolio holdings are subject to change and should not be considered a
recommendation to purchase.
There are certain risks associated with investing in foreign markets, such as
currency fluctuations and political and economic instability.
-----------------------------------------
G R O W T H O F $10,000*
[GRAPH OF MAXIMUM SALES CHARGES AND/OR REDEMPTION FEE APPEARS HERE]
-----------------------------------------
12/97 9450 10000 10000 10000
1/98 8949 9810 9810 9216
2/98 9998 10970 10960 10178
3/98 10811 11340 11730 10619
-----------------------------------------
Emerging Markets Focus Fund-A
Emerging Markets Focus Fund-B
Emerging Markets Focus Fund-C
MSCI Emerging Markets Free Index
* These figures, unlike those appearing elsewhere in this report, reflect
payment of the maximum sales charges and/or redemption fee.
15
<PAGE>
================================================================================
INVESTMENT REVIEW-EMERGING MARKETS FOCUS FUND
================================================================================
- ----------------------------- ----------------------------------
T O P T E N H O L D I N G S T O P F I V E C O U N T R I E S
1. JD Group Ltd 1. South Africa
2. Liberty Life Association of Africa Ltd 2. Turkey
3. ABSA Group Ltd 3. Brazil
4. Erciyas Biracilik ve Malt Sanayii AS 4. China/Hong Kong
5. Banco de Estado de Sao Paulo SA 5. Russia
6. China Telecom ADR
7. Irkutskenergo ADR
8. De Beers Consolidated Mines
9. Haci Omer Sabanci Holding AS
10 Ege Biracilik ve Malt Sanayii AS
16
<PAGE>
================================================================================
PORTFOLIO INVESTMENTS-EMERGING MARKETS FOCUS FUND
================================================================================
<TABLE>
<CAPTION>
Montgomery Emerging Markets Focus Fund
Portfolio Investments-3/31/98
Common Stocks-79.8%
Value
Shares (Note 1)
<S> <C> <C> <C>
Brazil-3.1%
2,600 Eletrobras, ADR (Electric Utilities) $ 60,450
-----------
China / Hong Kong-12.4%
36,000 China Resources Enterprises Ltd (Holding) 72,941
2,300 China Telecom ADR+ (Telecommunications/Wireless) 94,444
18,000 Shanghai Industrial Holdings Ltd (Conglomerates) 73,638
-----------
241,023
India-3.8%
5,900 Videsh Sanchar Nigam Ltd, GDR+ (Telephone/Long Distance) 73,750
-----------
Russia-4.6%
10,300 Irkutskenergo, ADR (Electric Utilities) 90,125
-----------
South Africa-34.4%
10,700 ABSA Group Ltd (Banks) 97,216
8,250 Barlow, Ltd (Conglomerates) 67,173
16,900 CG Smith Ltd (Conglomerates) 80,884
4,100 De Beers Consolidated Mines (Metals & Mining) 89,401
21,700 JD Group Ltd (Furniture) 205,774
3,800 Liberty Life Association of Africa Ltd (Insurance) 128,289
-----------
668,737
-----------
Turkey -21.5%
570,000 Ege Biracilik ve Malt Sanayii AS (Food & Beverage) 82,060
595,000 Erciyas Biracilik ve Malt Sanayii AS (Food & Beverage) 96,672
132,000 Ford Otomotiv Sanayi AS (Auto/Auto Parts) 81,443
1,455,000 Haci Omer Sabanci Holding AS+ (Holding) 85,284
365,000 Petrol Ofisi AS (Oil) 71,314
-----------
416,773
-----------
TOTAL COMMON STOCKS (Cost $1,365,149) 1,550,858
-----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
17
<PAGE>
================================================================================
PORTFOLIO INVESTMENTS - EMERGING MARKETS FOCUS FUND
================================================================================
MONTGOMERY EMERGING MARKETS FOCUS FUND
PORTFOLIO INVESTMENTS-3/31/98
<TABLE>
<CAPTION>
Value
Preferred Stocks-10.1% (Note 1)
<S> <C> <C> <C>
Shares
Brazil-10.1%
1,440,000 Banco de Estado de Sao Paulo SA+ (Banks)................................. $ 96,253
800 Eletrobras (Electric Utilities).......................................... 19,900
3,400 Petroleos Brasileiro SA, ADR (Oil)....................................... 80,750
TOTAL PREFERRED STOCK (Cost $173,290).................................... 196,903
TOTAL SECURITIES (Cost $1,538,439)....................................... 1,747,761
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Repurchase Agreements-9.8%
<C> <S> <C>
$95,000 Agreement with Bear Stearns, Tri-Party, 6.100% dated 03/31/98, to
be repurchased at $95,016 on 04/01/98, collateralized by $96,900
market value of US government securities, having various maturities
and various interest rates.............................................. 95,000
$95,000 Agreement with Paine Webber, Tri-Party, 6.050% dated 03/31/98, to
be repurchased at $95,016 on 04/01/98, collateralized by $96,900
market value of US government securities, having various maturities
and various interest rates.............................................. 95,000
TOTAL REPURCHASE AGREEMENTS (Cost $190,000) 190,000
TOTAL INVESTMENTS (Cost $1,728,439*)........................ 99.7% 1,937,761
OTHER ASSETS AND LIABILITIES (Net).......................... 0.3% 5,549
TOTAL NET ASSETS............................................ 100.0% $1,943,310
</TABLE>
- ---------------
* Aggregate cost for federal tax purposes was $1,756,378
+ Non-income producing security
Abbreviation:
ADR American Depositary Receipt
GDR Global Depositary Receipt
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
================================================================================
STATEMENTS OF ASSETS & LIABILITIER
================================================================================
The Montgomery Partners Series
Statements of Assets and Liabilities
March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Fund Focus Fund
------------------ ----------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (note 1)
Securities (cost $17,713,988 and $1,538,439, respectively)............. $ 19,455,890 $ 1,747,761
Repurchase agreements.................................................. - 190,000
------------------ ----------------
Total Investments.............................................................. 19,455,890 1,937,761
Cash........................................................................... 6,872,885 512
Deposit with custodian bank for short sales.................................... 115,149 -
Foreign currency, at value (cost $326,958 and $18,608, respectively)........... 324,248 18,231
Receivables:
Dividends and interest................................................. 43,642 37,809
Expenses absorbed by Manager (note 2).................................. 12,886 6,350
Shares of beneficial interest sold..................................... 279,374 49,987
Investment securities sold............................................. 3,049,452 -
Other Assets:
Prepaid expenses....................................................... 28,196 28,467
Organization costs (note 1)............................................ 26,609 19,647
------------------ ----------------
Total Assets................................................................... 30,208,331 2,098,764
------------------ ----------------
LIABILITIES:
Short sales (proceeds $7,904,023) (note 1)..................................... 8,292,731 -
Options written, at value (premium received $71,092) (note 5).................. 64,594 -
Forward foreign currency exchange contracts:
Net unrealized depreciation of forward foreign currency
contracts (note 5).................................................... 699 -
Payables:
Borrowings from custodian.............................................. 3,473,635 -
Dividends.............................................................. 4,880 -
Investment securities purchased........................................ 1,413,628 75,431
Management fees........................................................ 19,494 1,863
Organization costs..................................................... 13,704 9,399
Registration and filing fees........................................... 33,622 34,122
Trustees' fees and expenses (note 2)................................... 1,500 1,500
Distribution fees (Class B and Class C shares only) (note 4)........... 43 67
Shareholder servicing fees (note 4).................................... 5,233 849
Other accrued liabilities and expenses................................. 42,325 32,223
------------------ ----------------
Total Liabilities.............................................................. 13,366,088 155,454
------------------ ----------------
Net Assets..................................................................... $16,842,243 $1,943,310
================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
The Montgomery Partners Series
Statement of Cash Flows
Period Ended March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Fund
-------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Interest income received..................................................... $ 14,937
Dividend income received..................................................... 6,717
Operating expenses paid...................................................... (444,475)
Proceeds from sales of securities and purchased options...................... 4,842,142
Net proceeds from futures and short sales transactions....................... 7,877,942
Net proceeds from forward foreign currency exchange contacts................. (5,926)
Net proceeds from written options transactions............................... 71,724
Purchases of securities and purchased options................................ (23,653,582)
--------------
Cash Used by Operating Activities............................................ $ (11,290,521)
--------------
Cash Flow from Financing Activities:
Proceeds from subscriptions.................................................. $ 15,267,303
Payments on shares redeemed.................................................. (577,532)
Proceeds from custodian borrowings........................................... 3,473,635
--------------
Cash Provided by Financing Activities........................................ $ 18,163,406
--------------
Increase in cash..................................................................... 6,872,885
Cash at beginning of period.......................................................... -
--------------
Cash at end of period................................................................ $ 6,872,885
--------------
Reconciliation of Net Increase in Net Assets from
Operations to Cash Used by Operating Activities:
Net increase in net assets resulting from operations......................... $ 1,873,098
Amortization of organization costs........................................... $ 1,380
Increase in investments...................................................... (19,455,890)
Increase in interest and dividends receivable................................ (43,642)
Increase in other assets..................................................... (508,468)
Increase in receivables for investments sold................................. (3,049,452)
Increase in payable for investments purchased................................ 1,413,628
Increase in short sales...................................................... 8,292,731
Increase in forward foreign currency exchange contracts...................... 699
Increase in written options.................................................. 64,594
Increase in accrued expenses................................................. 120,801
--------------
Total adjustments............................................................ (13,163,619)
--------------
Cash Used by Operating Activities.................................................... $ (11,290,521)
==============
Supplemental Information:
Interest paid................................................................ $ 4,070
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
================================================================================
STATEMENTS OF OPERATIONS
================================================================================
The Montgomery Partners Series
Statements of Operations
Period Ended March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Fund* Focus Fund*
----------------- ----------------
<S> <C> <C>
Net Investment Income:
Investment Income:
Interest............................................................................. $ 21,368 $ 4,766
Dividends (net of witholding tax of $1,887 and $1,260, respectively)................. 50,359 37,890
----------------- ----------------
Total Income................................................................. 71,727 42,656
Expenses:
Management fee (note 2).............................................................. 31,398 4,244
Custodian fee........................................................................ 16,748 3,450
Transfer agency fees................................................................. 3,422 2,611
Administration fee (note 2).......................................................... 1,465 238
Legal and audit fees................................................................. 16,318 16,003
Trustees' fees....................................................................... 1,500 1,500
Printing fees........................................................................ 12,053 12,052
Registration and filing fees......................................................... 7,876 8,606
Dividend and interest expense........................................................ 8,950 -
Amortization of organization costs (note 1).......................................... 1,380 1,019
Shareholder servicing fees........................................................... 5,233 849
Other................................................................................ 2,384 1,502
Distribution fees (note 3):
Class B shares............................................................... 14 1
Class C shares............................................................... 36 66
----------------- ----------------
Total Expenses....................................................................... 108,777 52,141
Fees deferred and/or expenses absorbed by Manager (note 2)........................... (50,589) (44,944)
----------------- ----------------
Net Expenses......................................................................... 58,188 7,197
================= ================
Net Investment Income................................................................ 13,539 35,459
================= ================
</TABLE>
- -------------------
* Montgomery Global Long-Short Fund and Montgomery Emerging Markets Focus Fund
commenced operations on December 31, 1997.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
================================================================================
STATEMENTS OF OPERATIONS
================================================================================
The Montgomery Partners Series
Statements of Operations (continued)
Period Ended March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Fund* Focus Fund*
----------------- ----------------
<S> <C> <C>
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from:
Security transactions....................................................... $ 572,362 $ (23,804)
Securities sold short....................................................... (26,081) -
Forward foreign currency exchange contracts................................. (5,926) 260
Written options............................................................. 631 -
Foreign currency transactions and net other assets.......................... (34,378) 455
----------------- ----------------
Net Realized Gain/(Loss) on Investments During the Period........................... 506,608 (23,089)
----------------- ----------------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................. 1,741,902 209,322
Securities sold short....................................................... (388,708) -
Forward foreign currency exchange contracts................................. (699) -
Written options............................................................. 6,498 -
Foreign currency transactions and net other assets.......................... (6,042) (154)
----------------- ----------------
Net Unrealized Appreciation of Investments During the Period........................ 1,352,951 209,168
----------------- ----------------
Net Realized and Unrealized Gain on Investments..................................... 1,859,559 186,079
================= ================
Net Increase in Net Assets Resulting from Operations................................ $ 1,873,098 $ 221,538
================= ================
</TABLE>
- ---------------------
* Montgomery Global Long-Short Fund and Montgomery Emerging Markets Focus Fund
commenced operations on December 31, 1997.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
The Montgomery Partners Series
Statements of Changes in Net Assets
Period Ended March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Fund* Focus Fund*
----------------- ----------------
<S> <C> <C>
Increase/(Decrease) in Net Assets from Operations:
Net investment income.............................................................. $ 13,539 $ 35,459
Net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, written options and foreign currency transactions
during the period.......................................................... 506,608 (23,089)
Net unrealized appreciation of securities, forward foreign currency
exchange contracts, securities sold short, written options, foreign
currency transactions and net other assets during the period............... 1,352,951 209,168
----------------- ----------------
Net Increase in Net Assets Resulting from Operations............................... 1,873,098 221,538
Beneficial Interest Transactions:
Net increase from beneficial interest transactions (note 6):
Class A shares............................................................. 14,714,995 1,576,045
Class B shares............................................................. 59,080 220
Class C shares............................................................. 195,070 145,507
----------------- ----------------
Net Increase in Net Assets......................................................... 16,842,243 1,943,310
Net Assets:
Beginning of Period................................................................ - -
----------------- ----------------
End of Period...................................................................... $ 16,842,243 $ 1,943,310
================= ================
</TABLE>
- ----------------------
* Montgomery Global Long-Short Fund and Montgomery Emerging Markets Focus Fund
commenced operations on December 31, 1997.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
The Montgomery Partners Series
Financial Highlights
Selected Per Share Data for the Period Ended:..................................
Net asset value-beginning of period............................................
Net investment income #........................................................
Net realized and unrealized gain on investments................................
Net increase in net assets resulting from investment
operations....................................................................
Net asset value-end of period..................................................
Total return **................................................................
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period......................................................
Ratio of net investment income/(loss) to average
net assets +..................................................................
Ratio of operating expenses to average net assets,
excluding dividend and interest expense +.....................................
Ratio of operating expenses to average net assets,
including dividend and interest expense +.....................................
Portfolio turnover rate........................................................
Ratio of net investment income/(loss), before deferral
of fees by Manager, to average net assets +...................................
Ratio of operating expenses, before deferral of
fees by Manager, to average net assets +......................................
- --------------------
* Montgomery Global Long-Short Fund and Montgomery Emerging Markets Focus Fund
commenced operations on December 31, 1997.
** Total return does not include sales charge or redemption fees.
+ Annualized.
++ Includes dividend and interest expense.
# 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.
24
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Global Long-Short Fund* Emerging Markets Focus Fund*
Class A Shares Class B Shares Class C Shares Class A Shares Class B Shares Class C Shares
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
03/31/98 03/31/98 03/31/98 03/31/98 03/31/98 03/31/98
$10.00 $10.00 $10.00 $10.00 $10.00 $10.00
============= ============ ============= ============= ============ =============
0.02 0.00 0.00 0.27 0.25 0.26
2.68 2.64 1.83 1.16 1.59 1.57
------------- ------------ ------------- ------------- ------------ -------------
2.70 2.64 1.83 1.43 1.84 1.83
------------- ------------ ------------- ------------- ------------ -------------
$12.70 $12.64 $11.83 $11.43 $11.84 $11.83
============= ============ ============= ============= ============ =============
27.20% 26.50% 18.50% 14.40% 18.40% 18.30%
============= ============ ============= ============= ============ =============
$16,579,476 $60,968 $201,799 $1,789,120 $261 $153,929
0.65% (0.10)% (0.10)% 10.46% 9.71% 9.71%
2.35% 3.10% 3.10% 2.10% 2.85% 2.85%
2.78% 3.53% 3.53% n/a n/a n/a
84.25% 84.25% 84.25% 70.62% 70.62% 70.62%
(1.77)% (2.52)% (2.52)% (2.77)% (3.52)% (3.52)%
5.19% ++ 5.94% ++ 5.94% ++ 15.34% 16.09% 16.09%
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
================================================================================
STATEMENT OF CASH FLOWS
================================================================================
The Montgomery Partners Series
Statement of Cash Flows
Period Ended March 31, 1998
<TABLE>
<CAPTION>
Global Long-Short Fund
-------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Interest income received..................................................... $ 14,937
Dividend income received..................................................... 6,717
Operating expenses paid...................................................... (444,475)
Proceeds from sales of securities and purchased options...................... 4,842,142
Net proceeds from futures and short sales transactions....................... 7,877,942
Net proceeds from forward foreign currency exchange contacts................. (5,926)
Net proceeds from written options transactions............................... 71,724
Purchases of securities and purchased options................................ (23,653,582)
--------------
Cash Used by Operating Activities............................................ $ (11,290,521)
--------------
Cash Flow from Financing Activities:
Proceeds from subscriptions.................................................. $ 15,267,303
Payments on shares redeemed.................................................. (577,532)
Proceeds from custodian borrowings........................................... 3,473,635
--------------
Cash Provided by Financing Activities........................................ $ 18,163,406
--------------
Increase in cash..................................................................... 6,872,885
Cash at beginning of period.......................................................... -
--------------
Cash at end of period................................................................ $ 6,872,885
--------------
Reconciliation of Net Increase in Net Assets from
Operations to Cash Used by Operating Activities:
Net increase in net assets resulting from operations......................... $ 1,873,098
Amortization of organization costs........................................... $ 1,380
Increase in investments...................................................... (19,455,890)
Increase in interest and dividends receivable................................ (43,642)
Increase in other assets..................................................... (508,468)
Increase in receivables for investments sold................................. (3,049,452)
Increase in payable for investments purchased................................ 1,413,628
Increase in short sales...................................................... 8,292,731
Increase in forward foreign currency exchange contracts...................... 699
Increase in written options.................................................. 64,594
Increase in accrued expenses................................................. 120,801
--------------
Total adjustments............................................................ (13,163,619)
--------------
Cash Used by Operating Activities.................................................... $ (11,290,521)
==============
Supplemental Information:
Interest paid................................................................ $ 4,070
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements
The Montgomery Global Long-Short Fund and the Montgomery Emerging Markets Focus
Fund (the "Funds") comprise 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. The Funds
commenced operations on December 31, 1997. Each Fund's investment objective is
to seek 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 asked 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 sales price on the respective
exchanges or markets; except that when an occurrence subsequent to the
time that a value was so established is likely to have changed said
value, the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees or its delegates. Securities traded on the over-the-counter
market or on the NASDAQ National Market are valued at the mean between
the last available bid and ask price prior to the time of valuation.
Securities for which market quotations are not readily available
(including restricted securities that are subject to limitations as to
their sale) are valued at fair 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. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may engage in forward foreign currency exchange contracts
(forward contract) 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.
Forward contracts having the same settlement date and broker are offset
and any gain (loss) is realized on the date of offset; otherwise, gain
(loss) is realized on settlement date. Realized and unrealized gains and
losses which represent the difference between the value of the forward
contract to buy and the forward contract to sell are included in net
realized and unrealized gain (loss) from foreign currency related
transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their
contracts. Additionally, when utilizing forward contracts to hedge, a
Fund gives up the opportunity to profit from favorable exchange rate
movements during the term of the contract.
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
27
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
securities, income receipts, and expense payments are translated into
U.S. dollars at the exchange rate in effect on the dates 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 or loss and unrealized appreciation
or depreciation from investments and securities sold short.
d. 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 a 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 obligations, 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 the
collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while a 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 potential
risks. A Fund may also participate on an individual or joint basis in
tri-party repurchase agreements which involve a counterparty and a
custodian bank.
e. SHORT SALES/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; a Fund then is
obligated to replace the security borrowed by purchasing it in 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 a 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. As of March 31, 1998, the Global Long-Short Fund
incurred $4,880 in dividend expense.
A Fund maintains collateral assets consisting of cash, and liquid debt
and equity securities sufficient to fully collateralize its obligation
on the short position.
f. OPTIONS
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
would recognize a gain or loss based on the difference between the cost
of closing the option and the initial premium received. If a Fund
purchased an option and allows the option to expire it would realize a
loss to the extent of the premium paid. If a Fund elects to close out
the option it would recognize a
28
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
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 the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if
no bid and asked price 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 foregoes, 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 option 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.
g. 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.
Permanent differences incurred during the three months ended March 31,
1998, resulting from differences in book and tax accounting that have
been reclassified at year end to undistributed net investment income,
accumulated net realized gain/(loss) and paid-in capital as follows:
Undistributed Accumulated
Net Investment Net Realized
Name of Fund Paid-in Capital Income Gain/(Loss)
- ------------ -------------- ------------
Global Long-
Short Fund.... $(1,104) $(27,424) $28,528
Emerging Markets
Focus Fund.... $ (838) $ 1,553 $ (715)
h. 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, except certain cash dividends from foreign securities which are
recorded as soon as a Fund is informed of the ex-dividend date. Interest
income, including, where applicable, amortization of discount on short-
term investments, is recognized on the accrual basis.
29
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
i. FEDERAL INCOME TAXES
Each Fund has elected and qualified, and it is the intention of each
Fund to continue to qualify, as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Code, and
to make distributions of taxable income to shareholders sufficient to
relieve each Fund from all or substantially all federal income taxes.
As of March 31, 1998, the Emerging Markets Focus Fund had for federal
income tax purposes unused capital losses of $23,804, which will expire
in 2006, if it is not used to offset capital gains in future periods.
j. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Funds
amounted to $27,989 and $20,666, for the Global Long-Short Fund and
Emerging Markets Focus Fund, respectively, and are amortized on a
straight-line basis over a period of five years from the commencement of
operations. Organization costs payable represent amounts due Montgomery
Asset Management, LLC for expenses incurred on behalf of the Funds.
k. CASH
Cash, as used in the Statement of Cash Flows for the Global Long-Short
Fund, is the amount reported in the Statement of Assets and Liabilities.
The Fund issues and redeems its shares, invests in securities and
distributes 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.
l. EXPENSES
General expenses of the Trust are allocated to the relevant Funds based
upon relative net assets. Operating expenses directly attributable to a
Fund or a class of shares are charged to that Fund's or class'
operations. Expenses of each Fund not directly attributable to the
operations of any class of shares or Fund are prorated among the classes
based on the relative average net assets of each class of shares or
Fund. Registration and filing fees payable represent amounts due
Montgomery Asset Management, LLC, for expenses incurred on behalf of the
Funds.
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 "Advisers Act"). The
Manager is a subsidiary of Commerzbank AG, one of the largest publicly
held commercial banks in Germany.
Pursuant to an investment management agreement 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 personnel
needed by the Trust with respect to the Manager's responsibilities under
such agreement. The Manager has agreed to reduce some or all of its
management fee or 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 2.35% and 2.10% for the Global
Long-Short Fund and Emerging Markets Focus 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
30
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
affect 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 upon the average daily net
assets of the Funds at the following annualized rates:
<TABLE>
<CAPTION>
Management
Effective Fee Including Effective
Management Effect of Administration
Name of Fund Fee Fees Deferred Fee
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-
Short Fund............... 1.50% (0.92)% .07%
Emerging Markets
Focus Fund............... 1.25% (11.99)% .07%
</TABLE>
For the three months ended March 31, 1998, the Manager has deferred fees
subject to recoupment as follows:
<TABLE>
Deferred
Management
Fees and Absorbed
Fees Expenses Expenses Subject
Deferred Absorbed to Recoupment
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-
Short Fund.............. $31,398 $19,191 $50,589
Emerging Markets
Focus Fund.............. $ 4,244 $40,700 $44,944
</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).
3. BORROWING FROM CUSTODIAN AND LINE OF CREDIT
The Funds have entered into an arrangement with the custodian to
periodically borrow money for temporary or emergency purposes or to
leverage their portfolios in an effort to increase total return. Such
borrowings bear interest at fixed rates ranging from 6.03% to 7.02%
depending upon the balance outstanding. During the period ended March
31, 1998, the Global Long-Short Fund borrowed money to leverage the
portfolio, resulting in $4,070 of interest expense being incurred by the
Fund. At March 31, 1998 $3,473,635 was due to the custodian. The Fund
maintains collateral assets consisting of cash or liquid debt and equity
securities sufficient to collateralize 300% of the borrowed amount.
In addition, under an unsecured Revolving Credit Agreement with
DeutscheBank (New York), the Global Long-Short Fund and the Emerging
Markets Focus Fund, along with other funds of The Montgomery Funds I,
The Montgomery Funds II and The Montgomery Funds III, may borrow
(consistent with applicable law and their investment policies) up to 10%
of their net asset values, provided that the aggregate principal amount
of outstanding loans under the agreement to all Funds does not exceed
$300,000,000. Each Fund pays its pro-rata share of the .08% quarterly
commitment fee of the unutilized credit line balance. For the period
ended March 31, 1998, there were no borrowings under this agreement.
4. 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 for shareholder services
provided by the servicing agents. The distribution plan, adopted
pursuant to Rule 12b-1 under the
31
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
1940 Act, permits the Funds to compensate or reimburse Funds
Distributor, Inc (the "Distributor") for activities or expenses
primarily intended to result in the sale of the class' shares. Payments
under the shareholder servicing plan are limited to .25% of average
daily net assets. Payments under the distribution plan are limited to
.75% of Class B and Class C average net assets.
The Funds were advised by the Distributor that for the period ended
March 31, 1998, they received $6,192 in shareholder service and
distribution fees. The Distributor also received the proceeds of sales
commissions paid by shareholders upon the purchase of Class A shares,
and the contingent deferred sales charge paid upon certain redemptions
of Class B and Class C shares. For the period ended March 31, 1998, the
Distributor earned $2,079 and $1,623 in contingent deferred sales
charges on Class B and Class C shares, respectively, of the Funds.
Certain employees of the Distributor serve as officers of the Funds.
5. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the three months
ended March 31, 1998 were:
Purchases Sales
-----------------------------
Global Long-Short Fund........................ $24,765,648 $7,871,409
Emerging Markets Focus Fund................... $ 2,268,636 $ 706,394
b. At March 31, 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
-------------------------------
Global Long-Short Fund........................ $1,920,914 $267,201
Emerging Markets Focus Fund................... $ 201,304 $ 19,921
c. The schedule of forward foreign currency exchange contracts for the
Global Long-Short Fund at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Foreign Currency Settlement In Exchange for Appreciation/
Amount Date (US $) (Depreciation)
- -------------------------------------------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Receive:
99,089 British Pound 04/02/98 $165,875 $(1,466)
644,465 French Franc 04/02/98 103,938 (1,307)
--------------- --------------
Total $269,813 (2,773)
=============== ==============
Forward Foreign Currency Exchange Contracts to Deliver:
1,074,371 French Franc 04/30/98 $173,596 1,640
72,169,125 Italian Lire 04/01/98 39,561 434
--------------- --------------
Total $213,157 2,074
=============== ==============
Net Unrealized Depreciation $ (699)
==============
</TABLE>
32
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
d. The schedule of options written for the Global Long-Short Fund at March
31, 1998 were as follows:
<TABLE>
<CAPTION>
Number of Expiration Strike
Issuer Contracts Date Price Value Premiums
- ----------------------------------------------------- --------- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Call Options Written:
Computer Learning Centers, Inc.
(Business Services)......................... 75 05/16/98 $17.5 $16,875 $21,337
Fila Holding SpA (Footwear)..................... 55 04/18/98 $20.0 18,906 12,897
Nike, Inc., Class B ( Footwear)................. 50 07/18/98 $47.5 10,313 16,099
Put Options Written:
General Nutrition Center, Inc. (Retail Trade)... 80 05/16/98 $40.0 18,500 20,759
------- --------
$64,594 $71,092
======= ========
</TABLE>
e. Option activity for the Global Long-Short Fund for the period ended
March 31, 1998 was as follows:
<TABLE>
<CAPTION>
Written Options Premiums Number of Contracts
<S> <C> <C>
- ------------------------------------------------------- -------- -------------------
Options outstanding at December 31, 1997............... $ - $ -
Options written........................................ 96,851 340
Options closed......................................... (25,759) (80)
-------- -------------------
Options outstanding at March 31, 1998.................. $ 71,092 $ 260
-------- -------------------
</TABLE>
6. Foreign Securities:
The Funds may purchase securities on foreign security exchanges.
Securities of foreign companies and foreign governments involve special
risks and considerations not typically associated with investing in U.S.
companies and the U.S. government. These risks include, 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.
7. 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.
33
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Montgomery Partner Series
Notes to Financial Statements (continued)
Transactions in Shares of a Beneficial Interest
<TABLE>
<CAPTION>
Global Long-Short Fund Emerging Markets Focus Fund
Period Ended 03/31/98* Period Ended 03/31/98*
------------------------------- ----------------------------
Shares Dollars Shares Dollars
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
A Shares:
Sold................................... 1,351,456 $15,266,337 156,519 $1,576,045
Redeemed............................... (46,369) (551,342) - -
--------- ----------- ------- ----------
Net increase........................... 1,305,087 $14,714,995 156,519 $1,576,045
========= =========== ======= ==========
B Shares:
Sold................................... 4,825 $ 59,080 22 $ 220
Redeemed............................... - - - -
--------- ----------- ------- ----------
Net increase........................... 4,825 $ 59,080 22 $ 220
========= =========== ======= ==========
C Shares:
Sold................................... 20,057 $ 221,260 13,008 $ 145,507
Redeemed............................... (3,000) (26,190) - -
--------- ----------- ------- ----------
Net increase........................... 17,057 $ 195,070 13,008 $ 145,507
========= =========== ======= ==========
</TABLE>
- ---------------
* Montgomery Global Long-Short Fund and Montgomery Emerging Markets Focus Fund
commenced operations on December 31, 1997.
34
<PAGE>
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MONTGOMERY GLOBAL LONG-SHORT FUND
AND MONTGOMERY EMERGING MARKETS FOCUS FUND
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments and schedule of short sales, and the related
statements of operations, of changes in net assets, of cash flows and the
financial highlights present fairly, in all material respects, the financial
position of Montgomery Global Long-Short Fund and Montgomery Emerging Markets
Focus Fund (the "Funds") at March 31, 1998, and the results of each of their
operations, the changes in each of their net assets, cash flows and the
financial highlights for the period December 31, 1997 (commencement of
operations) through March 31, 1998, 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 audits 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 March 31, 1998 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
San Francisco, CA
May 27, 1998
