<PAGE>
Annual Report
March 31, 1999
Global Long-Short Fund
Emerging Markets Focus Fund
The Montgomery Partners Series
<PAGE>
[LETTERHEAD OF INVEST WISELY APPEARS HERE]
-------------------------------
The Montgomery Partners Series
-------------------------------
Annual Report
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March 31, 1999
Performance data quoted in this report represents past performance and is not
necessarily indicative of future results. The investment return and principal
value of an investment will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than their original cost. The inception date for each
Fund was December 31, 1997.
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 5.5% (applicable only to shares
purchased prior to 1/29/99, for the Global Long-Short Fund), a maximum
contingent deferred sales charge (CDSC) of 5% or any applicable redemption fees
unless otherwise indicated. Total return reflecting these charges and fees would
have been as follows:
Average annual total returns from inception (12/31/97) through 3/31/99:
<TABLE>
<CAPTION>
Since
Inception
One Year (12/31/97)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Montgomery Global
Long-Short Fund Class R 32.18% 51.73%
Class B 33.88% 54.28%
Class C 37.81% 49.07%
Montgomery Emerging
Markets Focus Fund Class A (18.79)% (5.70)%
Class B (19.32)% (2.81)%
Class C (15.82)% 0.47%
</TABLE>
There are risks associated with investing in funds that invest in securities of
foreign countries, 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
appropriate for conservative investors.
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. 5/99
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Contents
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Portfolio Highlights and Investments
Global Long-Short Fund ................................................... 2
Emerging Markets Focus Fund .............................................. 19
Statements of Assets & Liabilities ......................................... 24
Statements of Operations ................................................... 26
Statements of Changes in Net Assets ........................................ 28
Statement of Cash Flows .................................................... 30
Financial Highlights ....................................................... 32
Notes to Financial Statements .............................................. 34
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The Montgomery Partners Series
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Global Long-Short Fund
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Portfolio Highlights
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Portfolio Management
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Nancy Kukacka................................................ Portfolio Manager
Angeline Ee.................................................. Portfolio Manager
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TOP TEN HOLDINGS
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(long positions as a percentage of net assets)
<TABLE>
<S> <C>
International Integration Corporation..................................... 2.2%
Securicor PLC............................................................. 1.9%
Veritas Software Corporation.............................................. 1.5%
Wet Seal Inc.............................................................. 1.5%
Covad Communications Group Inc............................................ 1.5%
Verisign Inc.............................................................. 1.5%
Softbank Corporation...................................................... 1.5%
Equant NV Registered...................................................... 1.4%
PSA Peugeot Citroen....................................................... 1.4%
Comcast Corporation, Class A.............................................. 1.4%
</TABLE>
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TOP FIVE HOLDINGS
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(long positions as a percentage of net assets)
<TABLE>
<S> <C>
United States............................................................ 62.2%
Great Britain............................................................ 13.1%
France................................................................... 11.1%
Netherlands.............................................................. 5.5%
Brazil................................................................... 3.6%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Investment Review
Q: What were the major developments in the global markets during the year ended
March 31, 1999?
A: Although many developed markets began the fiscal year on a strong note, by
the third quarter of 1998 practically every global market was experiencing
volatility. The onset of market instability was rooted in the currency crisis
that began in Asia in June 1997. The resulting recession in many Asian economies
continued to have an unfavorable impact on most Asian markets during the first
two quarters of 1998. By August, negative sentiment toward Asia had begun to
spread to other emerging markets. The resulting capital flight from this asset
class contributed to the collapse of the Russian ruble and concern over possible
devaluation in other markets such as Brazil.
Developed markets were not immune to this shift in investor sentiment. Recession
in Asia began to negatively impact economic growth and corporate earnings in the
United States and Europe after a near 12-month lag. As a result, analysts and
economists downgraded their expectations for both economic growth and corporate
earnings, causing a "flight to quality" as investors sold riskier assets in
favor of large liquid stocks or Treasury bonds.
By the fourth quarter of 1998, however, some measure of investor confidence had
been restored. Three interest rate reductions in short succession in the United
States and a coordinated rate cut in Europe ahead of the January 1, 1999,
introduction of the euro underpinned the notion that central banks in the
developed markets would take the action needed to avert an economic crisis. As
it also became clear that economies in Asia were beginning to stabilize,
developed markets and the markets in emerging Asia rallied strongly.
Since the beginning of 1999, robust economic growth and an Internet buying
frenzy have helped spur a rally, albeit very narrowly based, in the U.S. market.
Japan has also enjoyed strong returns, driven by optimism that the country's
economic problems may finally be near resolution. In Europe, however, a
worsening economic outlook has dampened enthusiasm for equities. Meanwhile,
results in the emerging markets have varied. Some Asian markets have continued
to enjoy solid returns, while the performance of the markets in
2
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The Montgomery Partners Series
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Global Long-Short Fund
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Portfolio Highlights
eastern Europe has been disappointing. The Latin American markets suffered due
to Brazil's currency devaluation in January but have since staged a strong
recovery.
Q: How did the Montgomery Global Long-Short Fund perform against this
background?
A: We were very pleased with the performance of the Global Long-Short Fund
during its first full fiscal year. The Fund returned 39.87% for the one-year
period ended March 31, 1999, versus its benchmark, the Morgan Stanley Capital
International (MSCI) All-Country World Free Index, which returned 11.36%. The
Fund's average annual total return since inception (12/31/97) was 58.75%.
Q: To what extent did the Fund's long-short strategy positively contribute to
performance?
A: The Fund's performance over the course of the fiscal year was driven
primarily by strong stock selection and the Fund's strategy, which enables us to
hedge the portfolio's long positions to reduce volatility. Although the
Montgomery Global Long-Short Fund has a long bias, unlike typical mutual funds
it has the capability to exploit negative as well as positive swings across
markets worldwide. The Fund uses short sales as hedges against negative price
moves in its long positions or opportunistically, to take advantage of price
corrections.
At the beginning of the year, our net long position enabled us to take full
advantage of the strong U.S. and European markets, while our short positions
helped in a difficult emerging markets environment. The Fund's shorting ability
gave it a clear advantage during the periods of greatest volatility in the third
quarter of 1998 and first quarter of 1999. At the height of the third-quarter
correction in global markets, the Fund's short positions were nearly equal to
its long positions, which contributed to the Fund's outperformance against major
benchmark indices during the period.
Q: Were there any disappointments over the period?
A: The objective of the Global Long-Short Fund is to seek to achieve
above-average returns with reduced volatility. To
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Fund Performance
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Average annual total returns for the period ended 3/31/99
- --------------------------------------------------------------------------------
Montgomery Global Long-Short Fund
<TABLE>
<CAPTION>
Since Inception
One Year (12/31/97)
<S> <C> <C>
Class R shares........... 39.87% 58.75%
Class B shares........... 38.88% 57.16%
Class C shares........... 38.81% 49.07%
</TABLE>
- --------------------------------------------------------------------------------
MSCI All-Country World Free Index /1/
<TABLE>
<CAPTION>
Since Inception
One Year (12/31/97)
<S> <C> <C>
......................... 11.36% 20.92%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of $10,000*
<TABLE>
<CAPTION>
Global Long-Short Fund A Fund B Fund C MSCI World Free
<S> <C> <C> <C>
Dec-97 9450 10000 10000 10000
Jan-98 9979 10510 9830 10220
Feb-98 11198 11800 11050 10919
Mar-98 12020 12650 11850 11385
Apr-98 12833 13490 12640 11492
May-98 12871 13530 12670 11274
Jun-98 13249 13910 13030 11477
Jul-98 13514 14180 13280 11481
Aug-98 12767 13390 12540 9872
Sep-98 12720 13330 12480 10069
Oct-98 13154 13780 12900 10988
Nov-98 13665 14310 13390 11655
Dec-98 14495 15169 14198 12197
Jan-99 15679 16412 15362 12446
Feb-99 15060 15785 14774 12133
Mar-99 16812 17169 16449 12679
</TABLE>
/1/ The Morgan Stanley Capital International All-Country World Free Index is an
unmanaged, capitalization-weighted monthly total return index composed of
securities available for purchase by foreigners that are listed on the
stock exchanges of more than 45 developed and emerging countries, including
the United States.
* The chart above shows the performance of the Montgomery Global Long-Short
Fund's Class R shares since the Fund's inception versus the index. This
represents a cumulative return of 68.13%. The chart assumes a hypothetical
$10,000 initial investment in the Fund's Class R shares and reflects all
Fund expenses and the maximum 5.5% sales charge (applicable only to shares
purchased prior to 1/29/99). A $10,000 investment in the Fund's Class B
shares at inception on December 31, 1997, would have been valued at $17,169
on March 31, 1999. This figure reflects all Fund expenses and the
applicable contingent deferred sales charge (5% in the first year,
decreasing to 0% after six years), assuming a complete redemption at the
end of the period. A $10,000 investment in Class C shares at inception,
December 31, 1997, would have been worth $16,449 on March 31, 1999.
3
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The Montgomery Partners Series
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Global Long-Short Fund
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Portfolio Highlights
attempt to realize this we have generally maintained at least 20% of the
portfolio in short positions at any one time as a hedge against negative
movements in our long positions. Our short positions may contribute to
underperformance against the benchmark index in a market with strong upward
momentum, but we view them as a key element in helping to attain our goal: to
provide above-average returns with reduced volatility. The markets worked
against our short positions in the fourth quarter of 1998, when the Fund was
still relatively conservatively positioned. The loss in relative performance,
however, was not significant enough to detract from our overall returns for the
year.
Q: Looking forward, how do you view the outlook for global markets, and how is
the Fund positioned in relation to this outlook?
A: The Fund currently has approximately 60% of its assets invested in the U.S.
market, roughly 30% invested in the European markets, an extremely modest
weighting in the Japanese market and about 20% invested in the emerging markets.
Reflecting our fairly positive view of the global markets, 70% of the Fund's
positions are long and 30% are short. In terms our long positions, we remain
focused on businesses and industries that look attractive over the three-year
time horizon, such as telecommunications, technology, consumer staples and
health care. We are also opportunistically looking to short companies that are
either fundamentally weak, misrepresent themselves or have what we consider to
be a poor range of products.
U.S equity market: The U.S. economic environment remains very strong, and we are
excited by some of the opportunities present in the market. We continue to like
select technology stocks and have exposure to the Internet industry through
companies that offer investors real, rather than conceptual, earnings growth. We
concentrated our short positions in consumer and cyclical stocks in the first
quarter and consider these to offer the best shorting opportunities looking
forward.
Europe: We are in the process of raising our exposure to Europe. We anticipate a
reduction in interest rates by the second half of the year, which should have a
positive economic impact; and at current prices, European stocks are very
attractively valued. Our investments remain concentrated in markets such as the
United Kingdom and France, where the economies are showing signs of improvement
and companies have already restructured or are actively restructuring to improve
efficiency.
Japan: We do not foresee any significant change in our positioning in the
Japanese market. Although the market rallied strongly in the first quarter, we
continue to identify better individual stock opportunities in the U.S. market.
Emerging markets: Our largest allocations are in Asia and Latin America. In both
these regions we are net long. We continue to like the prospects for companies
in Korea and Singapore. In Korea we are concentrating on second-tier companies
that have recently restructured, can take advantage of the depreciation of the
won and represent good value. In Singapore we continue to favor the banking
sector. We believe that the most interesting opportunities in Latin America in
the short term are in Brazil and Argentina, where telecommunications and oil
stocks are particularly attractive.
_______________________
This Fund uses sophisticated investment approaches that may present
substantially higher risks than most mutual funds. It may invest a larger
percentage of its assets in transactions using margin, leverage, short sales and
other forms of volatile financial derivatives such as options and futures. As a
result, the value of an investment in the Fund may be more volatile than
investments in other mutual funds. This Fund may not be appropriate for
conservative investors.
There are risks associated with investing in a fund of this type that invests in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
Performance stated is for Class R shares. The Fund also offers Class B and C
shares, which have different sales charges and expense levels that may affect
performance.
4
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The Montgomery Partners Series
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Global Long-Short Fund
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Investment
Portfolio Investments
Common Stocks--128.8%
<TABLE>
<CAPTION>
Shares Value
(Note 1)
----------
<S> <C>
Argentina--1.5%
22,500 Central Constanera SA***(Electric Utilities)................................. $ 58,541
172,000 Perez Companc SA--B***(Oil).................................................. 808,970
7,300 Telefonos de Argentina, Sponsored ADR (Telephone/Networks)................... 220,825
14,500 YPF SA, Sponsored ADR (Oil).................................................. 457,656
----------
1,545,992
----------
Brazil--2.1%
9,800 Aracruz Celulose SA, Sponsored ADR (Pulp & Paper)............................ 142,100
5,800,000 Banco do Estado de Sao Paulo SA (Banks)...................................... 263,790
37,600 Cia Paranaense de Energi, Sponsored ADR (Electric Utilities)................. 282,000
27,000 Embratel Participacoens SA, ADR+ (Telecommunications/Other).................. 450,562
4,100,000 Petroleo Brasileiro SA (Oil)................................................. 454,227
1,000,000 Telec de Sao Paulo SA (Telephone/Regional-Local)............................. 75,796
7,500 Tele Centro Sul Participacoes SA, ADR+ (Telephone/Regional-Local)............ 346,406
13,600 Tele Sudeste Celular Participacoes SA, ADR (Telephone/Regional-Local)........ 275,400
----------
2,290,281
----------
Canada--2.0%
22,600 Metronet Communications, Series B***+ (Telephone/Networks)................... 1,243,000
30,000 Newbridge Networks Corporation+ (Telephone/Networks)......................... 930,000
----------
2,173,000
----------
Czech Republic--0.2%
59,000 Komercni Banka AS, GDR+ (Banks).............................................. 233,050
----------
Estonia--0.3%
15,000 AS Eesti Telekom, GDR 144A+ (Telephone/Regional-Local)....................... 336,750
----------
Finland--1.2%
8,250 Nokia Corporation, ADR, Series A***+ (Telecommunications Equipment).......... 1,284,937
----------
France--11.1%
3,870 Altran Technologies SA (Information/Business Services)....................... 982,661
5,200 AXA*** (Insurance)........................................................... 689,964
----------
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- ------ ----------
<S> <C>
France--continued
11,330 Banque Nationale de Paris (Banks)............................................. $ 986,711
11,400 Brice***(Apparel & Textiles).................................................. 445,901
11,400 Canal Plus (Cable Television)................................................. 1,174,890
4,690 Cap Gemini SA*** (Information/Business Services).............................. 785,977
13,920 Eiffage***(Holding)........................................................... 921,987
645 Galeries Lafayette***(Retail Trade)........................................... 669,046
9,900 Marc Orian SA***(Retail Trade)................................................ 1,167,038
3,600 Pathe SA (Entertainment)...................................................... 925,773
10,350 PSA Peugeot Citroen (Auto/Auto Parts)......................................... 1,489,600
10,300 Rexel SA***(Electronics)...................................................... 824,114
11,000 SEB SA (Household Products)................................................... 808,214
----------
11,871,876
----------
Germany--2.5%
18,000 Bayer AG***(Medical Products)................................................. 674,881
6,010 Kinowelt Medien AG+ (Entertainment)........................................... 1,039,009
8,000 Mannesmann AG (Telephone/Wireless)............................................ 1,022,586
----------
2,736,476
----------
Great Britain--13.1%
80,300 Amvescap PLC (Investment Management).......................................... 813,914
315,000 Arcadia Group PLC (Retail Trade).............................................. 1,054,950
13,000 Arm Holding PLC***+ (Semiconductor)........................................... 566,514
2,200 Arm Holding, ADR (Semiconductor).............................................. 291,363
187,500 British Airways PLC (Airlines)................................................ 1,300,530
4,000 COLT Telecom Group, Sponsored ADR (Telephone/Regional-Local).................. 287,375
32,000 COLT Telecom Group PLC***+ (Telephone/Regional-Local)......................... 575,875
319,000 Cordiant Communications Group PLC (Broadcasting/Advertising).................. 816,062
32,500 Energis PLC***+ (Telecommunications/Other).................................... 904,324
66,000 Orange PLC***+ (Telephone/Wireless)........................................... 923,563
51,500 Pearson PLC (Newspapers/Publishing)........................................... 1,176,162
46,000 Reckitt & Colman PLC (Cosmetics & Personal Care).............................. 498,919
205,000 Saatchi & Saatchi PLC (Broadcasting/Advertising).............................. 685,728
227,000 Securicor PLC (Business Services)............................................. 2,020,574
241,300 Telewest Communications PLC+ (Cable Television)............................... 1,045,695
</TABLE>
The accompanying notes are an integral part of these financial statements
6
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Global Long-Short Fund
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Investments
<TABLE>
Common Stocks--continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
Great Britain--continued
21,900 Zeneca Group PLC***(Holding).................................. $ 1,036,715
---------------
13,998,263
---------------
Greece--0.3%
8,985 Hellenic Telecommunication Organization SA+
(Telephone/Networks).......................................... 218,569
8,000 Hellenic Telecommunication Organization,
ADR***(Telecommunications/Other).............................. 95,200
---------------
313,769
---------------
Hong Kong--2.1%
87,000 Asia Satellite Telecommunication (Telecommunications/Other)... 138,086
501,000 Axa China Region Ltd. (Insurance)............................. 352,339
134,000 Citic Pacific Ltd. (Holding).................................. 281,850
339,000 Guangdong Kelon Electrical Holdings Company Ltd.
(Home Appliance).............................................. 249,345
20,000 Hutchison Whampoa Ltd. (Conglomerates)........................ 157,430
143,000 New World Development Company Ltd. (Holding).................. 281,405
270,000 New World Infrastructure Ltd. (Heavy Construction)............ 351,894
270,000 Ng Fung Ltd. (Food & Beverage)................................ 205,562
24,000 Sun Hung Kai Properties Ltd. (Real Estate).................... 179,624
---------------
2,197,535
---------------
Hungary--0.6%
9,250 Magyar Tavkozlesi Rt, ADR (Matav)
(Telecommunications Equipment)................................ 247,438
24,000 Matav RT***(Telecommunications/Other)......................... 127,972
11,800 Mol Magyar Olaj - ES Gazipari (Oil)........................... 253,700
---------------
629,110
---------------
India--1.1%
12,300 Ranbaxy Laboratories, GDR+ (Pharmacy/Drugs)................... 207,562
80,700 Reliance Industries Ltd., Sponsored GDR***+
(Apparel & Textiles).......................................... 510,428
7,400 Reliance Industries Ltd., Sponsored GDR 144A (Conglomerates).. 46,805
40,000 Videsh Sanchar Nigam Ltd., GDR 144A
(Telephone/Long Distance)..................................... 399,000
---------------
1,163,795
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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Investments
<TABLE>
Common Stocks--continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
Indonesia--0.4%
54,100 Gulf Indonesia Resources Ltd.+ (Oil)......................... $ 453,087
---------------
Ireland--0.9%
23,600 Esat Telecom Group PLC, ADR***+
(Telecommunications/Other)................................... 997,100
---------------
Italy--1.9%
108,000 Gruppo Editoriale L'Espresso (Newspapers/Publishing)......... 1,213,618
737,000 Seat Pagine Gialle SpA (Newspapers/Publishing)............... 864,017
---------------
2,077,635
---------------
Japan--3.5%
158,000 Fuji Heavy Industries Ltd. (Auto/Auto Parts)................. 978,035
105,000 Makita Corporation (Machinery & Tools)....................... 1,171,347
14,400 Softbank Corporation (Software Systems)...................... 1,614,931
---------------
3,764,313
---------------
Korea--2.0%
24,000 Comtec Systems Company Ltd. (Software Systems)............... 145,721
13,700 Daou Technology Inc.+ (Software Systems)..................... 88,319
45,465 Hankook Tire Company Ltd. (Auto/Auto Parts).................. 255,671
680 Hansol Paper Company (Pulp & Paper).......................... 8,452
18,600 Hyundai Industrial Development & Construction Company
(Heavy Construction)......................................... 197,066
5,500 Korea Telecom Corporation (Telecommunications/Other)......... 214,442
29,600 LG Electronics (Electronics)................................. 393,219
15,900 Pohang Iron & Steel Company Ltd., ADR (Steel)................ 284,212
1,900 Samsung Electronics Company (F) (Electronics)................ 147,107
55,140 Shinhan Bank (Banks)......................................... 447,142
---------------
2,181,351
---------------
Mexico--1.1%
7,300 Coca Cola Femsa SA, Sponsored ADR (Food & Beverage).......... 119,081
560,000 Grupo Financiero Banamex (Banks)............................. 191,835
42,900 Grupo Radio Centro SA, Sponsored ADR+
(Broadcasting/Advertising)................................... 235,950
36,000 Organizacion Soriana SA, Series B (Retail Trade)............. 124,458
3,400 Telefonos de Mexico, ADR (Telephone/Networks)................ 222,700
</TABLE>
The accompanying notes are an integral parts of these financial statements.
8
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Investments
<TABLE>
Common Stocks--continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
Mexico--continued
38,100 TV Azteca SA, Sponsored ADR (Cable Television)............... $ 238,125
---------------
1,132,149
---------------
Netherlands--5.5%
25,000 ASM Lithography Holding NV+ (Semiconductor).................. 1,121,875
19,900 Equant NV Registered (Software Systems)...................... 1,497,475
13,000 Gucci Group NV*** (Retail Trade)............................. 1,046,500
36,400 Ordina Beheer NV***+ (Information/Business Services)......... 959,657
16,800 United Pan-Europe Communications NV+ (Cable Television)...... 658,932
25,000 Vedior NV (Business Services)................................ 579,418
---------------
5,863,857
---------------
Norway--0.4%
29,500 Petroleum Geo-Services, Sponsored ADR+ (Oilfield Equipment).. 449,875
---------------
Philippines--0.2%
650,000 Cosmos Bottling Company*** (Food & Beverage)................. 52,000
2,300,000 International Container Terminal Services Inc.***+
(Shipping)................................................... 154,323
---------------
206,323
---------------
Poland--0.3%
17,100 Agora SA, GDR 144A+ (Newspapers/Publishing).................. 186,390
12,500 Elektrim Spolka Akcyjna SA (Electrical Equipment)............ 132,979
---------------
319,369
---------------
Russia--0.2%
30,400 Surgutneftegaz, Sponsored ADR** (Oil)........................ 194,560
---------------
Singapore--3.3%
54,000 City Developments Ltd. (Real Estate)......................... 281,494
38,000 Cycle & Carriage Ltd. (Consumer Services).................... 160,672
256,000 DBS Land (Real Estate)....................................... 378,106
740,000 Keppel Land Ltd.*** (Real Estate)............................ 878,656
116,000 Keppel Tatlee Bank Ltd.*** (Banks)........................... 195,517
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
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Investments
<TABLE>
Common Stocks--continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
Singapore--continued
333,000 MCL Land Ltd. (Real Estate).................................. $ 281,599
528,000 MMI Holdings Ltd. (Electronics).............................. 324,170
180,000 Sembcorp Industries Ltd. (Holding)........................... 197,046
73,000 Venture Manufacturing Ltd. (Electronics)..................... 329,800
688,000 Wing Tai Holdings (Holding).................................. 557,892
---------------
3,584,952
---------------
South Africa--2.0%
98,100 ABSA Group Ltd. (Banks)...................................... 469,664
7,815 Anglogold*** (Metals & Mining)............................... 314,541
45,800 Barlow Ltd. (Conglomerates).................................. 245,287
13,600 De Beers Consolidated Mines, ADR*** (Metals & Mining)........ 258,400
1,024 Edgars Stores Ltd. (Retail Trade)............................ 5,285
14,630 JCI Gold Limited (Holding)................................... 9,379
20,000 Liberty Life Association of Africa Ltd.*** (Insurance)....... 248,955
16,800 Nedcor Bank Ltd. (Banks)..................................... 375,166
52,000 Theta Group Ltd. (Investment Management)..................... 177,222
---------------
2,103,899
---------------
Spain--1.0%
96,000 Prosegur, CIA de Seguridad SA (Business Services)............ 1,043,504
---------------
Sweden--2.5%
26,500 Ericsson (L.M.) Telephone Company, Sponsored ADR***
(Telecommunications Equipment)............................... 631,859
67,100 Modern Times Group, B Shares (Cable Television).............. 1,213,241
27,000 Scandic Hotels AB*** (Lodging)............................... 775,843
---------------
2,620,943
---------------
Switzerland--0.7%
2,400 UBS AG--Registered (Banks)................................... 755,330
---------------
Taiwan--1.0%
165,000 ASE Test Ltd.,TDR+ (Semiconductor)........................... 179,213
31,000 Hon Hai Precision Industry+ (Electronics).................... 165,545
165,000 Standard Foods Taiwan Ltd. (Food & Beverage)................. 188,173
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
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Investments
<TABLE>
<CAPTION>
Common Stocks-continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
Taiwan-continued
28,000 Taiwan Semiconductor Manufacturing Company, ADR (Semiconductor).......................... $ 87,856
2,700 Taiwan Semiconductor Manufacturing Company+ (Semiconductor).............................. 63,787
29,000 Ulead Systems Inc.+ (Software Systems)................................................... 108,493
54,000 United Micro Electronics Corporation (Semiconductor)..................................... 93,679
120,000 Winbond Electronics Corporation (Electronics)............................................ 141,922
-----------
1,028,668
-----------
Thailand--0.5%
30,000 PTT Exploration & Production (Oil)....................................................... 234,856
96,200 Shin Corporations PLC (F)*** (Computers & Office Equipment).............................. 251,034
215,703 United Broadcasting Corporation***+ (Cable Television)................................... 86,155
-----------
572,045
-----------
Turkey--1.1%
9,220,000 Akbank T.A.S. (Banks).................................................................... 296,582
80,600,000 Yapi Kredi Koray Gayrimenkul (Real Estate)............................................... 626,565
16,300 Yapi Ve Kredi Bankasi, GDR (Banks)....................................................... 297,883
-----------
1,221,030
-----------
United States--62.2%
17,700 AT&T Corporation Liberty Media, Class A+ (Telephone/Networks)............................ 931,463
40,000 Adaptec Inc.+ (Telephone/Networks)....................................................... 911,250
74,750 Administaff Inc.***+ (Business Services)................................................. 971,750
15,000 American Home Products Corporation*** (Pharmacy/Drugs)................................... 978,750
8,000 America Online Inc. (Information/Business Services)...................................... 1,168,000
25,600 AnnTaylor Stores Corporation (Retail Trade).............................................. 1,131,200
10,000 Ascend Communications Inc.***+
(Telecommunications Equipment)........................................................... 837,187
17,000 AXENT Technologies Inc.***+ (Software Systems)........................................... 410,656
28,000 Ballys Total Fitness Corporation+ (Leisure Time)......................................... 668,500
16,100 Bebe Stores Inc.+ (Apparel & Textiles)................................................... 656,075
34,500 Becton Dickinson & Company*** (Medical Products)......................................... 1,321,781
25,000 BMC Software Inc.+ (Software Systems).................................................... 927,344
20,500 Centocor Inc.+ (Biotechnology)........................................................... 757,219
29,500 Cerus Corporation+ (Biotechnology)....................................................... 649,922
23,000 Checkfree Holding Corporation+ (Information/Business Services)........................... 979,656
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
- -------------------------------
The Montgomery Partners Series
- -------------------------------
Global Long-Short Fund
- -------------------------------
Investments
<TABLE>
<CAPTION>
Common Stocks-continued
Value
Shares (Note 1)
- ------ --------
<S> <C>
United States-continued
17,500 Circuit City Stores Inc. (Retail Trade)...................................................... 1,340,937
7,500 Cisco Systems***+(Telephone/Networks)........................................................ 821,953
16,000 Citigroup Inc. (Banks)....................................................................... 1,022,000
23,000 Comcast Corporation, Class A*** (Cable Television)........................................... 1,448,281
43,000 ConexantSystems Inc.+ (Semiconductor)........................................................ 1,189,219
24,700 Consolidated Graphics Inc.***+ (Business Services)........................................... 1,426,425
25,000 Cooper Cameron Corporation+ (Oilfield Equipment)............................................. 846,875
24,800 Covad Communications Group, Inc.+ (Telecommunications/Other)................................. 1,633,700
32,800 Cymer Inc.+ (Semiconductor).................................................................. 653,950
6,000 Doubleclick Inc.***+ (Information/Business Services)......................................... 1,092,563
37,000 Drill-Quip Inc.***+ (Oilfield Equipment)..................................................... 816,312
11,250 Entertainment Inc.+ (Cable Television)....................................................... 106,172
15,220 Firstar Corporation*** (Banks)............................................................... 1,362,190
22,500 Forest Laboratories Inc.***+ (Pharmacy/Drugs)................................................ 1,268,438
39,000 Fox Entertainment Group, Class A***+ (Broadcasting/Advertising).............................. 1,057,875
51,000 General Nutrition Companies, Inc.*** (Retail Trade).......................................... 712,406
22,900 Global TeleSystems Group Inc.***+ (Telephone/Networks)....................................... 1,280,253
40,000 Infinity Broadcasting Corporation (Broadcasting/Advertising)................................. 1,030,000
72,500 International Integration Corporation***+ (Information/Business Services).................... 2,381,172
20,000 International Network Services***+ (Information/Business Services)........................... 1,398,125
10,000 Intuit Inc.***+ (Information/Business Services).............................................. 1,017,187
28,500 Keane Inc.+ (Information/Business Services).................................................. 607,406
18,500 Linens 'N Things Inc.+ (Retail Trade)........................................................ 839,438
16,000 MCI WorldCom, Inc. (Telephone/Long Distance)................................................. 1,416,500
16,500 Micron Technology Inc.+ (Semiconductor)...................................................... 796,125
19,000 New Era of Networks Inc.***+ (Software Systems).............................................. 1,287,250
15,200 Noble Drilling Corporation+ (Oilfield Equipment)............................................. 263,150
7,500 PathoGenesis Corporation+ (Biotechnology).................................................... 100,078
31,500 Peregrine Systems Inc.+(Software Systems).................................................... 1,055,250
8,100 Priceline.com Inc.+ (Information/Business Services).......................................... 671,034
15,500 Rambus Inc.***+ (Semiconductor).............................................................. 996,844
8,300 Restoration Hardware Inc.+(Retail Trade)..................................................... 181,044
45,000 SAKS Holdings Inc.***+ (Retail Trade)........................................................ 1,170,000
17,000 Sangstat Medical Corporation***+ (Medical Products).......................................... 209,844
12,500 Securities First Technologies+ (Information/Business Services)............................... 912,500
14,600 Snyder Communications Inc.*** (Broadcasting/Advertising)..................................... 406,975
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Global Long-Short Fund
------------------------------
Investments
<TABLE>
<CAPTION>
Common Stocks-continued
Value
Shares (Note 1)
- ------ ------------
<S> <C>
United States-continued
8,000 Sun Microsystems Inc.***+ (Software Systems)........................ $ 1,000,250
23,000 Synetic Inc.*** (Health Care Services).............................. 1,283,687
33,500 The Men's Wearhouse Inc.*** (Retail Trade).......................... 966,266
44,000 The Sports Authority Inc.+ (Retail Trade)........................... 321,750
18,500 Teligent Inc., Class A+ (Telephone/Wireless)........................ 767,750
16,000 Teradyne Inc.*** (Semiconductor).................................... 873,000
10,500 Texas Instruments Inc.*** (Semiconductor)........................... 1,042,125
51,700 Trans World Entertainment Corporation***+ (Retail Trade)............ 580,009
12,000 Uniphase Corporation***+ (Semiconductor)............................ 1,379,250
7,000 United International Holdings Inc., Class A+ (Cable Television)..... 303,625
20,000 U.S. Foodservice+ (Food & Beverage)................................. 930,000
23,000 USWeb Corporation***+ (Information/Business Services)............... 947,312
10,500 Verisign Inc.***+ (Information/Business Services)................... 1,617,656
20,500 Veritas Software Corporation***+ (Software Systems)................. 1,652,813
13,000 Warner Lambert Company*** (Pharmacy/Drugs).......................... 860,437
28,400 Weatherford International***+ (Oilfield Equipment).................. 741,950
44,500 Wet Seal Inc., Class A***+ (Specialty Apparel Retail)............... 1,643,719
29,500 Xilinx Inc.+ (Semiconductor)........................................ 1,195,672
9,600 Ziff-Davis Inc.+ (Information/Business Services).................... 345,600
------------
.................................................................... 66,573,095
------------
TOTAL COMMON STOCKS (Cost $121,344,402) 137,917,919
============
Preferred Stocks--2.7%
Brazil--1.5%
41,100,000 Cia Paranaense de Energi (Electric Utilities)....................... 310,107
12,300 Cia Vale do Rio Doce A (Metals & Mining)............................ 181,093
11,500 Telebras SA (Holding)............................................... 927,187
3,800,000 Telesp Celular SA, Series B+ (Telephone/Wireless)................... 141,808
------------
1,560,195
------------
Germany--0.7%
324 Porsche AG*** (Auto/Auto Parts)..................................... 796,437
------------
</TABLE>
The accompaying notes are an integral part of these financial statements
13
<PAGE>
- ------------------------------
The Montgomery Partners Series
- ------------------------------
Global Long-Short Fund
- ------------------------------
Investments
<TABLE>
<CAPTION>
Preferred Stocks-continued
<S> <C>
Korea--0.5%
15,200 Samsung Electronics NV (Electronics).................................................... 481,891
----------
TOTAL PREFERRED STOCKS (Cost $2,705,268) $2,838,523
==========
Warrants--0.0%++ (Cost $0)
Thailand--0.0%++
350,000 Security One Public Company Ltd.***, Warrants, Expire 05/31/01+ (Investment Management). 20,503
</TABLE>
<TABLE>
<CAPTION>
Expiration Strike Value
Number of Contracts Date Price (Note 1)
---------- ------ -------
<S> <C> <C> <C>
Put Options Purchased--0.0%++
5 Telebras SA (Holding) 04/17/99 $ 60 $ 0
13 Telefonos de Mexico (Telecommunications/Other) 05/22/99 $ 40 325
--------
TOTAL PUT OPTIONS PURCHASED (Cost $8,092) 325
===========
TOTAL INVESTMENTS--131.5% (Cost $124,057,762*) 140,777,270
TOTAL SHORT SALES--(37.1)% (Proceeds $35,894,589) (39,731,904)
TOTAL OPTIONS WRITTEN--0.0%++ (Premium Received $25,273) (Note 5) (19,250)
OTHER ASSETS AND LIABILITIES--5.6% (Net) 6,068,396
============
NET ASSETS--100.0% $107,094,512
============
</TABLE>
________________________________________
* Aggregate cost for federal tax purposes.
** Illiquid security (see note 1 to Financial Statements).
*** Security, or a portion thereof, designated as short sale collateral.
+ Non-income-producing security.
++ Amount represents less than 0.1%.
144A Security registered under Section 144A. Such securities represent 0.9%
of net assets.
Abbreviations:
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
TDR Taiwan Depositary Receipt
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
-------------------------------
The Montogomery Partners Series
-------------------------------
Global Long-Short Fund
-------------------------------
Investments
SCHEDULE OF SHORT SALES
Short Sales--37.1%
<TABLE>
<CAPTION>
Value
Shares Proceeds (Note 1)
- ------ -------- --------
<S> <C> <C>
Argentina--0.2%
22,400 Banco Rio de la Plata SA, ADR (Banks)......................... $ 211,673 $ 215,600
----------- -----------
France--1.5%
18,000 Dassault Systemes SA, ADR (Computers & Office Equipment)...... 738,163 661,500
2,905 Essilor International (Cosmetics & Personal Care)............. 1,056,987 969,906
----------- -----------
1,795,150 1,631,406
----------- -----------
Germany--0.5%
6,080 Adidas AG (Footwear).......................................... 625,089 542,964
----------- -----------
Great Britain--2.6%
82,200 F.I. Group PLC (Information/Business Services)................ 343,038 441,130
62,700 Kingfisher PLC (Retail Trade)................................. 567,085 789,343
67,500 Sema Group PLC (Information/Business Services)................ 628,634 761,526
134,300 Rentokil Initial PLC (Consumer Services)...................... 837,452 825,856
----------- -----------
2,376,209 2,817,855
----------- -----------
Hong Kong--0.3%
137,000 Cathay Pacific Airways (Airlines)............................. 147,878 157,339
600 HSBC Holdings PLC, Sponsored ADR (Banks)...................... 155,395 188,700
----------- -----------
303,273 346,039
----------- -----------
India--0.4%
18,200 BSES Ltd., GDR (Electric Utilities)........................... 195,650 179,725
5,200 Infosys Technologies Ltd., ADR (Software Systems)............. 215,143 225,225
----------- -----------
410,793 404,950
----------- -----------
Japan--1.9%
44,000 Ibiden Company Ltd. (Machinery & Tools)....................... 708,288 724,942
43,000 Kurita Water Industries Ltd. (Machinery & Tools).............. 701,376 703,745
56,000 NGK Spark Plug Company, Ltd. (Auto/Auto Parts)................ 641,777 645,999
----------- -----------
2,051,441 2,074,686
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
15
<PAGE>
- -------------------------------
The Montogomery Partners Series
- -------------------------------
Global Long-Short Fund
- -------------------------------
Investments
Short Sales--continued
<TABLE>
<CAPTION>
Value
Shares Proceeds (Note 1)
- ------ -------- --------
<S> <C> <C>
Mexico--0.6%
89,000 Grupo Modelo SA, Series C (Food & Beverage).................... $ 217,875 $ 228,193
62,000 Kimberly-Clark de Mexico, Series A (Pulp & Paper).............. 217,553 233,563
6,200 Telesp Celular Participacoes SA, ADR (Telephone/Wireless)...... 136,957 129,813
----------- -----------
572,385 591,569
----------- -----------
Netherlands--0.9%
11,100 Hagemeyer NV (Retail Trade).................................... 371,539 341,816
12,600 Ranstad Holdings (Business Services)........................... 665,086 566,355
----------- -----------
1,036,625 908,171
----------- -----------
Philippines--0.1%
45,000 Manila Electric Company, Class B (Electric Utilities).......... 148,492 148,645
----------- -----------
Singapore--0.5%
8,800 Creative Technology Ltd. (Computers & Office Equipment)........ 104,260 102,450
166,000 Natsteel Ltd. (Steel).......................................... 153,226 174,028
40,000 Singapore Airlines Ltd. (F) (Airlines)......................... 300,979 289,603
----------- -----------
558,465 566,081
----------- -----------
Spain--2.1%
50,000 Banco Bilbao Vizcaya SA (Banks)................................ 648,813 745,545
9,300 Repsol SA, Sponsored ADR (Oil)................................. 498,407 476,625
134,600 TelePizza SA (Food & Beverage)................................. 1,016,500 1,028,228
----------- -----------
2,163,720 2,250,398
----------- -----------
Sweden--0.5%
21,000 Atlas Copco AB, Series B (Machinery & Tools)................... 484,949 557,409
----------- -----------
Switzerland--0.9%
4,500 CIBA Specialty Chemicals (Chemicals)........................... 562,490 350,254
1,030 Rieter Holdings AG (Machinery & Tools)......................... 601,886 586,978
----------- -----------
1,164,376 937,232
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
16
<PAGE>
-------------------------------
The Montogomery Partners Series
-------------------------------
Global Long-Short Fund
-------------------------------
Investments
Short Sales--continued
<TABLE>
<CAPTION>
Value
Shares Proceeds (Note 1)
- ------ -------- --------
<S> <C> <C>
Taiwan--0.2%
8,300 Taiwan Semiconductor Manufacturing Company, ADR (Semiconductor).. $ 171,105 $ 196,088
----------- -----------
United States--23.9%
16,000 American Eagle Outfitters (Retail Trade)......................... 764,791 1,146,500
23,000 Apple Computer Inc. (Computers & Office Equipment)............... 855,159 827,281
22,500 Autozone Inc. (Retail Trade)..................................... 754,232 683,438
20,000 Barnes & Noble Inc. (Retail Trade)............................... 675,277 642,500
26,500 Bed Bath & Beyond Inc. (Retail Trade)............................ 556,117 967,250
30,000 Beringer Wine Estates, Series B (Food & Beverage)................ 1,069,735 1,080,937
17,600 Children's (The) Place Retail Stores, Inc. (Retail Trade)........ 510,841 474,650
13,600 Cintas Corporation (Apparel & Textiles).......................... 622,954 888,675
28,000 Darden Restaurants Inc. (Restaurants)............................ 439,879 577,500
40,000 Delia's Inc. (Retail Trade)...................................... 694,916 1,258,750
26,000 Dollar General Corporation (Retail Trade)........................ 714,322 884,000
13,000 Dollar Tree Stores (Retail Trade)................................ 400,112 400,969
23,000 Ecolab Inc. (Chemicals).......................................... 700,499 816,500
39,000 Helen of Troy Ltd. (Cosmetics & Personal Care)................... 574,724 505,781
35,000 Hollywood Entertainment Corporation (Entertainment).............. 850,582 652,969
7,600 i2 Technologies Inc. (Software Systems).......................... 90,485 202,113
29,000 Intimate Brands Inc. (Retail Trade).............................. 739,181 1,395,625
17,750 Lamar Advertising (Broadcasting/Advertising)..................... 383,592 602,945
5,000 Merck & Company Inc. (Pharmacy/Drugs)............................ 313,755 400,937
30,300 Miami Computer Supply Corporation (Computers & Office Equipment). 602,192 605,053
3,500 Nacco Industries Inc., Class A (Machinery & Tools)............... 406,870 259,219
17,000 Nike Inc., Class B (Footwear).................................... 680,333 980,688
10,000 PC Connection Inc. (Computers & Office Equipment)................ 130,308 173,750
12,000 Perot Systems Corporation, Class A (Information/Business Services) 808,371 307,500
16,700 Pomeroy Computer Resources Inc. (Information/Business Services).. 229,301 216,056
22,000 Rent-A-Center Inc. (Diversified Financial Services).............. 546,658 633,875
18,500 Restoration Hardware Inc. (Retail Trade)......................... 550,614 403,531
13,200 Siebel Systems Inc. (Software Systems)........................... 591,069 624,525
24,000 Staples Inc. (Retail Trade)...................................... 472,984 789,000
44,000 Starbucks Corporation (Food & Beverage).......................... 958,191 1,234,750
6,000 ST Microelectronics (Semiconductor).............................. 259,110 582,750
11,400 Tiffany & Company (Retail Trade)................................. 591,041 852,150
18,500 Timberland Company, Class A (Footwear)........................... 805,157 1,166,656
</TABLE>
The accompanying notes are an integral part of these financial statements
17
<PAGE>
- -------------------------------
The Montgomery Partners Series
- -------------------------------
Global Long-Short Fund
- -------------------------------
Investments
Short Sales--continued
<TABLE>
<CAPTION>
Value
Shares Proceeds (Note 1)
- ------ ----------- -----------
<S> <C> <C>
United states--continued
26,000 Ultratech Stepper Inc. (Semiconductor)..... $ 468,172 $ 364,000
7,200 Wild Oats Markets Inc. (Food & Beverage)... 194,393 194,850
22,000 Whole Foods Markets Inc. (Food & Beverage). 764,474 756,250
18,300 Vail Resorts Inc. (Leisure Time)........... 350,402 290,513
14,800 VF Corporation (Apparel & Textiles)........ 700,051 698,375
----------- -----------
21,820,844 25,542,811
----------- -----------
TOTAL SHORT SALES $35,894,589 $39,731,904
=========== ===========
</TABLE>
________________________________
Abbreviations:
ADR American Depositary Receipt
(F) Foreign or Alien Shares
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Emerging Markets Focus Funds
------------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: What were the major developments in the emerging markets during the year
ended March 31, 1999?
A: The past year has been extremely challenging for emerging markets investors.
Of the 24 countries that constitute the emerging markets benchmark, the Morgan
Stanley Capital International (MSCI) Emerging Markets Free Index, only four--
South Korea, Greece, Israel and Jordan--ended the fiscal year in positive
territory.
The poor overall performance of the index resulted from the continued effects of
the Asian currency crisis, which started in Thailand in mid-1997 and quickly
spread to neighboring countries. Asian markets remained in a slump during the
first half of the fiscal year due to the high interest rate legacy of the
crisis. This served to dampen interest in other emerging markets. Sentiment
toward the emerging markets turned even more negative following the August 1998
devaluation of the Russian ruble, caused by a combination of weak oil prices and
macroeconomic imbalances, which resulted in a loss of investor confidence in the
market. Russia's difficulties resulted in capital flight from any emerging
country with market liquidity and perceived financial imbalances. Brazil, which
was finally forced to devalue its currency in January 1999, proved to be the
final casualty of this trend.
Although the investment environment in the emerging markets was extremely
difficult in the first half of the year, by the second half the situation began
to improve, and positive sentiment toward many Asian markets returned. It became
clear that these economies had finally bottomed out and, as a result, many
markets in the region rallied strongly. Emerging markets in Europe also staged a
recovery. In another positive development, markets in Latin America were not as
badly affected by Brazil's January 1999 currency devaluation as had been feared,
and even the Brazilian market began to recover by fiscal year end. In spite of
these developments, however, most markets failed to regain the levels at which
they were trading a year earlier.
Q: How did the Montgomery Emerging Markets Focus Fund perform against this
background?
A: The Emerging Markets Focus Fund performed extremely well under such difficult
circumstances. Although the Fund
------------------------------
The Montgomery Partners Series
Emerging Markets Focus Fund
Portfolio Highlights
--------------------
PORTFOLIO MANAGEMENT
--------------------
Josephine S. Jimenez, CFA................... Senior Portfolio Manager
----------------
TOP TEN HOLDINGS
----------------
(as a percentage of net assets)
Pacific Internet Ltd.................................... 5.9%
Samsung Electronics Company............................. 5.1%
Korea Electric Power Corporation, ADR................... 4.8%
Grupo Carso Global Teleco............................... 4.7%
Telefonos de Mexico SA, ADR............................. 4.2%
Aracruz Celulose SA, Sponsored ADR...................... 4.1%
Al-Ahram Beverages Company.............................. 4.0%
Gold Fields Ltd......................................... 3.8%
Petroleo Brasileiro SA.................................. 3.7%
Grupo Financiero Banamex................................ 3.7%
-----------------
TOP FIVE HOLDINGS
-----------------
(as a percentage of net assets)
Brazil.................................................. 16.8%
Mexico.................................................. 15.9%
South Africa............................................ 14.6%
South Korea............................................. 10.3%
Egypt................................................... 7.6%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
19
<PAGE>
- -------------------------------
The Montgomery Partners Series
- -------------------------------
Emerging Market Focus Fund
- -------------------------------
Portfolio Highlights
returned (14.04)% for the one-year period ended March 31, 1999, it outpaced its
benchmark, the MSCI Emerging Markets Free Index, which returned (20.95)%. The
Fund's average annual total return since inception (12/31/97) was (1.33)%.
Q: To what extent did the Fund's focused strategy positively contribute to
performance?
A: The Fund's strategy was instrumental in achieving its strong relative
performance. Unlike regular emerging markets funds, the Emerging Markets Focus
Fund concentrates its investments in a minimum of three to a maximum of 10
emerging markets, and up to 50% of assets may be invested in a single market.
Country allocation and individual stock selection is determined using a
disciplined strategy combining macroeconomic analysis and original company
research to identify the most attractive markets and stocks. The Fund mainly
invests in large-cap markets and issues.
This strategy, combined with our opportunistic management style, allowed the
Fund to steer clear of many of the problems in the emerging markets and move
assets very efficiently. At the height of the instability, the Fund was invested
in only three emerging countries. Moreover, during the course of the year we
used our ability to concentrate up to 50% of the Fund in one market to our
advantage. By investing a significant portion of assets in Greece, we were able
to achieve less volatile returns than the average emerging markets fund.
Our strategy of focusing the Fund's investments in large-cap stocks also boosted
performance. Over the past year, the largest, most liquid investments have
outperformed. The superior liquidity of these issues helped when we needed to
exit positions quickly or reenter a certain market. In the second half of the
fiscal year, the latter consideration became particularly important. As markets
such as Korea and Brazil began to show signs of improvement, we were able to
move swiftly into stocks where we recognized the greatest opportunities,
boosting the Fund's overall returns.
Q: Were there any holdings that detracted from performance over the period?
A: We were fortunate that even in such a difficult investment environment there
were no significant disappointments during the year. During the period of
greatest market
----------------
FUND PERFORMANCE
----------------
Average annual total returns for the period ended 3/31/99
---------------------------------------------------------
Montgomery Emerging Markets Free Fund
<TABLE>
<CAPTION>
Since Inception
One Year (12/31/97)
<S> <C> <C>
Class A shares........................................... (14.04)% (1.33)%
Class B shares........................................... (15.13)% 0.39%
Class C shares........................................... (14.98)% 0.47%
</TABLE>
- --------------------------------------------------------------------------------
MSCI Emerging Markets Free Index/1/
<TABLE>
<CAPTION>
Since Inception
One Year (12/31/97)
<S> <C> <C>
......................................................... (20.95)% (13.08)%
</TABLE>
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.
<TABLE>
<CAPTION>
Emerging Markets Fund A MSCI EMIndex(GD)
<S> <C> <C>
Dec-97 9450 10000
Jan-98 8949 9216
Feb-98 9998 10178
Mar-98 10801 10619
Apr-98 11331 10504
May-98 9790 9064
Jun-98 8826 8113
Jul-98 9081 8371
Aug-98 6558 5950
Sep-98 7258 6328
Oct-98 7825 6994
Nov-98 8032 7576
Dec-98 7489 7466
Jan-99 7846 7346
Feb-99 7740 7417
Mar-99 9293 8395
</TABLE>
1 The Morgan Stanley Capital International Emerging Markets Free Index is an
unmanaged, capitalization-weighted composite index that covers individual
securities available for purchase by foreigners that are within the equity
markets of approximately 25 emerging markets countries.
* The chart above shows the performance of the Montgomery Emerging Markets
Focus Fund's Class A shares since the Fund's inception versus the index. This
represents a cumulative return of (7.07)%. The chart assumes a hypothetical
$10,000 initial investment in the Fund's Class A shares and reflects all Fund
expenses and the maximum 5.5% sales charge. A $10,000 investment in the
Fund's Class B shares at inception on December 31, 1997, would have been
valued at $9,651 on March 31, 1999. This figure reflects all Fund expenses
and the applicable contingent deferred sales charge (5% in the first year,
decreasing to 0% after six years), assuming a complete redemption at the end
of the period. A $10,000 investment in Class C shares at inception, December
31, 1997, would have been worth $10,058 on March 31, 1999.
20
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Emerging Market Focus Funds
------------------------------
Portfolio Highlights
volatility, September 1998, we were surprised by the magnitude of capital flight
from Brazil. But in any event, when the real was devalued in January, the Fund
did not have any investments in Latin America, and this absence helped
performance. Once the Brazilian real was devalued, we initiated investments in
Brazil and further raised exposure there when the exchange rate hit R$2.30 to
the U.S. dollar. Since then the real has strengthened to R$1.72 to the dollar.
Our decision to invest in Mexico in February also contributed to our
outperformance.
Q: Looking forward, how do you view the outlook for emerging markets, and
how is the Fund positioned in relation to this outlook?
A: As evidence of the degree to which investor sentiment has improved toward
emerging markets as a whole, the Emerging Markets Focus Fund is currently
invested in eight countries. We are comfortable with the portfolio's current
positioning, and our stock selection theme reflects the anticipated upturn in
the fortunes of emerging markets economies. The Fund is heavily weighted in
cyclical stocks, such as pulp and paper, oil and energy, and consumer cyclical-
related issues, which we expect may perform well as the emerging economies
recover. We also continue to like the prospects for technology. On a
geographical basis, we are most excited about the following countries.
Asia: The Fund is currently invested in three markets in Asia: South Korea,
China and Singapore. Of these three, our largest presence is in South Korea,
which now constitutes 10% of the Fund. The Korean macroeconomic situation is
continuing to improve, industrial production has begun to pick up, and the
country enjoys a large current account surplus. We particularly favor the
technology sector in this market and see room for further appreciation in these
stocks.
We have fewer holdings in China and Singapore. Even though the economic outlook
for China is not as favorable as that for South Korea, there are companies that
we believe can outperform, including Zhejiang (1.6% of assets as of 3/31/99),
which operates an expressway. Similarly, there are select stocks in Singapore
that we believe will perform well.
Latin America: We have been increasing our holdings in Latin America since the
Brazilian real bottomed out in mid-January. This region now accounts for 33% of
the Fund's assets. Our investments are concentrated in Brazil and Mexico, both
of which have improving fundamentals. In Brazil the inflationary impact of the
country's currency devaluation has been less than initially expected by the
market, allowing the central bank to begin gradually reducing interest rates. We
are also more optimistic about the prospects for Mexico. The government appears
to have finally addressed problems in the country's banking sector, and an
increase in oil prices may help Mexico's balance of payments. In both these
markets, valuations had become very cheap, suggesting that there is plenty of
potential upside.
Europe/Africa: The outlook for the markets of central Europe is attractive. We
especially like Greece, due to its membership in the European Union and its
possible inclusion in the euro group of countries. Nonetheless, because this
market has already performed very well, we have elected to reduce the Fund's
weighting in Greece and to hold only Titan Cement (3.3% of assets as of
3/31/99), which has recently won, along with Lafarge, the tender for an Egyptian
cement company. There is a shortage of cement in Greece, and we expect the
sector to post strong volume growth down the road as Greece prepares for the
2004 Olympics.
A strong Egyptian economy and improving economic outlook in South Africa have
created some interesting opportunities in Africa for the Fund. In line with our
current investment theme, commodities stocks make up the preponderance of issues
in the portfolio, especially in South Africa, where the majority of the Fund's
exposure is in gold and platinum shares.
In summary, as of this writing the Montgomery Emerging Markets Focus Fund has
investments in 23 companies in South Korea, China/Hong Kong, Singapore, Brazil,
Mexico, Greece, Egypt and South Africa.
______________________________
There are risks associated with investing in a fund of this type that invests in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
Performance stated is for Class A shares. The Fund also offers Class B and C
shares, which have different sales charges and expense levels that may affect
performance.
21
<PAGE>
- -------------------------------
The Montgomery Partners Series
- -------------------------------
Emerging Markets Focus Fund
- ------------------------------
Investments
<TABLE>
<CAPTION>
Common Stocks--70.8%
Value
Shares (Note 1)
- ------ ---------
<S> <C>
Brazil--11.6%
5,000 Aracruz Celulose SA, Sponsored ADR (Pulp & Paper).............................................. $ 72,500
5,500 Centrais Electricas Brasileiras, Sponsored ADR (Electric Utilities)............................ 53,625
2,400 Cia Vale do Rio Doce, ADR (Metals & Mining).................................................... 34,800
970 Tele Centro Sul Participacoes SA, ADR
(Telephone/Regional-Local)..................................................................... 44,802
-----------
205,727
-----------
China/Hong Kong--1.6%
162,000 Zhejiang Expressway Company Ltd. (Heavy Construction).......................................... 27,594
-----------
Egypt--7.6%
2,200 Al-Ahram Beverages Company, GDR+ (Food & Beverage)............................................. 69,960
5,600 Egyptian Mobile Phone Network (Telephone/Networks)............................................. 64,565
-----------
134,525
-----------
Greece--3.3%
770 Titan Cement Company (Cement).................................................................. 58,734
-----------
Mexico--15.9%
14,000 Cemex SA (Building Materials).................................................................. 57,153
16,000 Grupo Carso Global Teleco (Telephone/Networks)................................................. 82,972
30,000 Grupo Financiero Banamex (Banks)............................................................... 64,940
1,140 Telefonos de Mexico, Sponsored SA, ADR
(Telephone/Networks)........................................................................... 74,670
-----------
279,735
-----------
Singapore--5.9%
1,800 Pacific Internet Ltd.+ (Software Systems)...................................................... 104,063
-----------
South Africa--14.6%
2,400 Anglo American Platinum Corporation of
South Africa Ltd. (Metals & Mining)............................................................ 38,171
11,600 Gold Fields Ltd. (Metals & Mining)............................................................. 66,926
3,550 Impala Platinum Holdings Ltd. (Metals & Mining)................................................ 61,070
3,200 Liberty Life Association of Africa Ltd. (Insurance)............................................ 39,833
67,000 Molope Group Ltd., N Shares+ (Food & Beverage)................................................. 51,649
-----------
257,649
-----------
</TABLE>
The accompanying notes ar an integral part of these financial statements.
22
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Emerging Markets Focus Fund
------------------------------
Investments
<TABLE>
<CAPTION>
Common Stocks-continued
Value
Shares (Note 1)
- ------ -------
<S> <C>
South Korea--10.3%
6,700 Korea Electric Power Corporation,
Sponsored ADR (Electric Utilities)............................................................... $ 85,006
7 SK Telecom Company Ltd. (Telephone/Wireless)..................................................... 6,304
1,160 Samsung Electronics Company (Electronics)........................................................ 89,812
----------
181,122
----------
TOTAL COMMON STOCKS (Cost $1,056,653) $1,249,149
==========
Preferred Stocks--5.2%
Brazil--5.2%
53,000 Banco do Brasil SA (Banks)....................................................................... 27,041
470,000 Petroleo Brasileiro SA (Oil)..................................................................... 65,224
----------
TOTAL PREFERRED STOCKS (Cost $61,462) $ 92,265
==========
TOTAL INVESTMENTS--76.0% (Cost $1,118,115*) 1,341,414
OTHER ASSETS AND LIABILITIES--24.0% (Net) 422,566
==========
NET ASSETS--100.0% $1,763,980
==========
</TABLE>
____________________________________________
* Aggregate cost for federal tax purposes.
+ Non-income-producing security.
Abbreviations:
ADR American Depositary Receipt
GDR Global Depositary Receipt
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
- -----------------------------------
The Montgomery Partners Series
- -----------------------------------
Statements of Assets & Liabilities
- -----------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Assets: Fund Focus Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities................................................... $ 140,777,270 $ 1,341,414
Cash............................................................ 33,700,282 333,354
Deposit with custodian bank for short sales..................... 423,007 --
Foreign currency, at value (Cost $0 and $67,861, respectively). -- 67,445
Receivables:
Dividends and interest....................................... 240,674 12,733
Expenses absorbed by Manager (note 2)........................ -- 44,876
Shares of beneficial interest sold........................... 1,577,751 2,648
Investment securities sold................................... 9,474,979 121,916
From broker for settled equity swap.......................... 148,754 --
Other assets:
Prepaid expenses and other assets............................ 31,265 --
Organization costs (note 1).................................. 21,242 15,515
--------------------------------------------------
Total Assets.................................................... $ 186,395,224 $ 1,939,901
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------
Short sales (proceeds $35,894,589) (note 1)..................... $ 39,731,904 $ --
Options written, at value (premium
received $25,273) (note 1)...................................... 19,250 --
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward
foreign-currency exchange contracts (note 1)................. 10,546 --
Equity swap agreements:
Net unrealized depreciation of equity
swap agreements (note 1)..................................... 50,204 --
Payables:
Investment securities purchased.............................. 13,014,630 70,400
Foreign currency due to Custodian (cost $214,788)............ 828,171 --
Shares of beneficial interest redeemed....................... 225,443 --
Management fees.............................................. 65,521 --
Administration fees.......................................... 5,610 99
Loans payable................................................ 25,000,000 --
Printing fees................................................ 11,638 12,422
Organization costs........................................... 13,704 9,399
Custodian fees............................................... 38,368 5,810
Transfer agent fees (note 2)................................. 11,765 11,347
Trustees' fees and expenses (note 2)......................... 1,428 1,929
Distribution fees (Class B and Class C shares only) (note 4). 23,335 38,656
Shareholder servicing fees (note 4).......................... 131,819 8,557
Accrued liabilities and expenses............................. 117,376 17,302
-------------------------------------------------
Total Liabilities............................................... $ 79,300,712 $ 175,921
Net Assets.............................................. $ 107,094,512 $ 1,763,980
Investments at identified cost.................................. $ 124,057,762 $ 1,118,115
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
----------------------------------
The Montgomery Partners Series
----------------------------------
Statements of Assets & Liabilities
----------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Net Assets Consist of: Fund Focus Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Accumulated net investment loss)/(Distributions in excess of net
investment income)..................................................... $ (337,050) $ (69,929)
Accumulated net realized gain/(loss) on securities sold, forward
foreign-currency exchange contracts, written options, equity
swaps, futures contracts, foreign-currency transactions and
securities sold short............................................... 5,740,064 (1,841,529)
Net unrealized appreciation of investments, forward foreign-currency
exchange contracts, written options, equity swaps, foreign-currency
transactions, securities sold short and other assets................ 12,241,897 223,575
Shares of beneficial interest.......................................... 65,495 1,828
Additional paid-in capital............................................. 89,384,106 3,450,035
--------------------------------------------
Net Assets............................................................. $ 107,094,512 $ 1,763,980
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------
Class R shares......................................................... $ 83,638,361 $ --
Class A shares......................................................... -- 1,655,170
Class B shares......................................................... 17,031,077 16,502
Class C shares......................................................... 6,425,074 92,308
---------------------------------------------
Net Assets............................................................. $ 107,094,512 $ 1,763,980
Number of Fund shares outstanding:
Class R shares......................................................... 5,076,797 --
Class A shares......................................................... -- 171,844
Class B shares......................................................... 1,048,039 1,663
Class C shares......................................................... 424,702 9,298
--------------------------------------------
Total Shares........................................................... $ 6,549,538 $ 182,805
Class R shares:
Net asset value, offering price and redemption price per
share outstanding................................................... $ 16.47 N/A
--------------
Class A shares:
Net asset value and redemption price per share outstanding.......... N/A $ 9.63
-----------
Maximum offering price per share (net
asset value plus sales charge of 5.5% of offering price)............ N/A $ 10.19
----------
Class B shares*:
Net asset value, offering price and redemption price per
share outstanding................................................... $ 16.25 $ 9.92
--------------------------------------------
Class C shares*:
Net asset value, offering price and
redemption price per share outstanding.............................. $ 15.13 $ 9.93
--------------------------------------------
</TABLE>
_______________________________________
(a) 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.
25
<PAGE>
- ------------------------------
The Montgomery Partners Series
- ------------------------------
Statement of Operations
- ------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Net Investment Income: Fund Focus Fund
- ---------------------------------------------------------------------------------------------------------------
Investment Income:
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest..................................................... $ 1,122,155 $ 32,941
Dividends (net of foreign withholding taxes)................. 570,095 84,542
-----------------------------------------------
Total Income................................................. $ 1,692,250 $ 117,483
Expenses:
- ---------------------------------------------------------------------------------------------------------------
Management fee (note 2)...................................... $ 863,717 $ 46,263
Custodian fee................................................ 112,391 16,363
Equity swap fees............................................. 8,103 --
Transfer agency fees......................................... 119,465 60,612
Administration fee (note 2).................................. 38,828 2,353
Dividend expense............................................. 208,338 --
Legal and audit fees......................................... 102,999 44,999
Trustees' fees............................................... 8,801 9,300
Registration and filing fees................................. 44,415 36,773
Tax expense.................................................. 4,418 3,338
Interest expenses (notes 1 and 3)............................ 363,688 1,716
Amortization of organization costs (note 1).................. 5,367 4,132
Shareholder servicing fees (note 4).......................... 137,886 8,399
Other........................................................ 84,235 57,662
Distribution fees (note 4):
Class B shares........................................... 72,735 76
Class C shares........................................... 27,393 872
-----------------------------------------------
Total Expenses............................................... $ 2,202,779 $ 292,858
Fees deferred and/or expenses absorbed by
Manager (note 2)............................................ (214,996) (216,217)
-----------------------------------------------
Net Expenses................................................. 1,987,783 $ 76,641
Net Investment Income/(Loss)................................. (295,533) $ 40,842
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Statement of Operations
------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Global Long-Short Emerging Markets
Net Realized and Unrealized Gain/(Loss) on Investments: Fund Focus Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net realized gain/(loss) from:
Securities transactions and equity swaps................................. $ 11,019,215 $ (1,795,863)
Securities sold short.................................................... (94,947) --
Futures contracts........................................................ (2,933) --
Forward foreign-currency exchange contracts.............................. (334,144) (16,272)
Written options.......................................................... (48,235) --
Foreign-currency transactions and other net assets....................... (435,335) (83,837)
---------------------------------------
Net Realized Gain/(Loss) on Investments During the Year.................... $ 10,103,621 $ (1,895,972)
Net change in unrealized appreciation/(depreciation) of:
Securities............................................................... $ 14,977,606 $ 13,977
Securities sold short.................................................... (3,448,607) --
Equity swaps............................................................. (50,204) --
Forward foreign-currency exchange contracts.............................. (9,847) --
Written options.......................................................... (475) --
Foreign-currency transactions and other net assets....................... (579,527) 430
---------------------------------------
Net unrealized Appreciation on Investments During the Year................. $ 10,888,946 $ 14,407
Net Realized and Unrealized Gain/(Loss) on Investments
During the Year.......................................................... 20,992,567 (1,881,565)
---------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations............ $ 20,697,034 $ (1,840,723)
Foreign withholding taxes.................................................. $ 57,248 $ 1,575
---------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
- ----------------------------------
The Montgomery Partners Series
- ----------------------------------
Statement of Changes in Net Assets
- ----------------------------------
March 31, 1999
Global Long-Short Fund
<TABLE>
<CAPTION>
Year Ended Period Ended
Increase in Net Assets from Operations: 3/31/99 3/31/98*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss).................................................. $ (295,533) $ 13,539
Net realized gain/(loss) on securities sold, forward foreign-currency
exchange contracts, securities sold short, written options,equity
swaps, futures contracts and foreign-currency transactions during
the period.................................................................. 10,103,621 506,608
--------------------------------------
Net unrealized appreciation of securities, forward foreign-currency
exchange contracts, written options, equity swaps, foreign-currency
transactions and other net assets during the period......................... 10,888,946 1,352,951
--------------------------------------
Net Increase in Net Assets Resulting from Operations.......................... $ 20,697,034 $ 1,873,098
Distributions to Shareholders:
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investments:
Class R shares.............................................................. $ (3,527,506) $ --
Class B shares.............................................................. (1,000,105) --
Class C shares.............................................................. (402,108) --
Beneficial Interest Transactions:
- --------------------------------------------------------------------------------------------------------------------------
Net increase from beneficial interest transactions (note 8):
Class R shares.............................................................. 69,369,043 --
Class A shares.............................................................. (14,713,895) 14,714,995
Class B shares.............................................................. 14,519,052 59,080
Class C shares.............................................................. 5,310,754 195,070
--------------------------------------
Net Increase in Net Assets.................................................... $ 90,252,269 $ 16,842,243
Net Assets:
- --------------------------------------------------------------------------------------------------------------------------
Beginning of Period........................................................... $ 16,842,243 $ --
End of Period................................................................. $ 107,094,512 $ 16,842,243
Accumulated Net Investment Loss............................................... $ (337,050) $ (13,885)
</TABLE>
_______________________________
* The Montgomery Global Long-Short Fund commenced operations on December 31,
1997.
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
----------------------------------
The Montgomery Partners Series
----------------------------------
Statement of Changes in Net Assets
----------------------------------
March 31, 1999
Emerging Markets Focus Fund
<TABLE>
<CAPTION>
Year Ended Period Ended
Increase/(Decrease) in Net Assets from Operations: 3/31/99 3/31/98*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income........................................................... $ 40,842 $ 35,459
Net realized loss on securities sold, forward foreign-currency exchange
contracts and foreign-currency transactions during the period................. (1,895,972) (23,089)
Net unrealized appreciation of securities, foreign-currency
transactions and other net assets during the period........................... 14,407 209,168
-----------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations................. $ (1,840,723) $ 221,538
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A shares................................................................ $ (72,049) $ --
Class B shares................................................................ (168) --
Class C shares................................................................ (1,738) --
Beneficial Interest Transactions:
- -----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 8):
Class A shares................................................................ $ 1,734,616 $ 1,576,045
Class B shares................................................................ 17,057 220
Class C shares................................................................ (16,325) 145,507
-----------------------------------
Net Increase/(Decrease) in Net Assets........................................... $ (179,330) $ 1,943,310
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................. $ 1,943,310 $ --
End of Period................................................................... $ 1,763,980 $ 1,943,310
(Distributions in excess of)/undistributed Net Investment Income................ $ (69,929) $ 37,012
</TABLE>
_________________________________________________
* The Montgomery Emerging Markets Focus Fund commenced operations on December
31, 1997.
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
- ------------------------------
The Montgomery Partners Series
- ------------------------------
Statement of Cash Flows
- ------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Cash Flows from Operating Activities: Global Long-Short Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income received........................................... $ 946,051
Dividend income received........................................... 478,749
Operating expenses paid............................................ (1,095,930)
Dividend and interest expense paid................................. (576,906)
Proceeds from foreign-currency transactions........................ 1,152,419
Proceeds from sales of securities.................................. 260,074,316
Proceeds from short sales and futures transactions................. 27,584,828
Payments for forward foreign-currency exchange contracts........... (334,144)
Payments for written options transactions.......................... (94,054)
Purchase of securities and purchased options....................... (351,316,598)
---------------
Cash Used by Operating Activities..................................... $ (63,181,269)
Cash Flows from Financing Activities:
Proceeds from shares subscribed.................................... $ 153,879,547
Payments on shares redeemed........................................ (83,179,311)
Cash dividends paid*............................................... (2,217,935)
Proceeds from loans payable........................................ 25,000,000
Repayment of custodian borrowings.................................. (3,473,635)
---------------
Cash Provided by Financing Activities................................. $ 90,008,666
Increase in cash................................................... $ 26,827,397
Cash at beginning of year.......................................... 6,872,885
---------------
Cash at end of year................................................ $ 33,700,282
</TABLE>
______________________________
* Non cash activities include reinvestment of dividends of $2,711,769.
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
------------------------------
The Montgomery Partners Series
------------------------------
Statement of Cash Flows
------------------------------
March 31, 1999
<TABLE>
<CAPTION>
Reconciliation of Net Increase in Net Assets from
Operations to Cash Used by Operating Activities: Global Long-Short Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net increase in net assets resulting from operations.................... $ 20,697,034
Increase in investments................................................. $ (121,321,380)
Increase in interest receivable......................................... (105,686)
Increase in dividend receivable......................................... (91,346)
Decrease in other assets................................................ 15,184
Increase in receivables for investments sold and equity swaps........... (6,574,281)
Decrease in payable for investments purchased........................... 11,601,002
Decrease in forward foreign-currency exchange contracts................. 9,847
Decrease in unrealized depreciation of equity swaps..................... 50,204
Decrease in foreign currency............................................ 1,152,419
Decrease in written options............................................. (45,344)
Increase in short sales................................................. 31,439,173
Increase in accrued expenses and dividend payable....................... 299,763
Increase in deposit with custodian bank for short sales................. (307,858)
---------------
Total Adjustments........................................................... $ (83,878,303)
Cash Used by Operating Activities........................................... $ (63,181,269)
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
- ------------------------------
The Montgomery Partners Series
- ------------------------------
Financial Highlights
- -----------------------------
<TABLE>
<CAPTION>
Global Long-Short Fund*
Selected Per-Share Data for the Year or Period Ended: Class R Shares(a)
3/31/99# 3/31/98#
<S> <C> <C>
Net Asset Value--Beginning of Period $ 12.70 $ 10.00
=============================================================================================================
Net investment income (0.05) 0.02
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments 4.92 2.68
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from investment operations 4.87 2.70
- -------------------------------------------------------------------------------------------------------------
Distributions: Dividends from net
investment income (1.10) --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 16.47 $ 12.70
=============================================================================================================
Total Return** 39.87% 27.20%
=============================================================================================================
Ratios to Average Net
Assets/Supplemental Data:
Net assets, end of period (in 000s) (0.35)% 0.65%+
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
to average net assets 3.35% 2.35%+
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets, excluding
dividend, interest and tax expense 3 40% 2.78%+
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 225.61% 84.25%
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
before reduction of fees by Manager,
to average net assets (0.74)% (1.77)%+
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before
reduction of fees by Manager, to
average net assets 3.79% 5.19%+
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Focus Fund*
Selected Per-Share Data for the Year or Period Ended: Class A Shares
3/31/99# 3/31/98#
<S> <C> <C>
Net Asset Value--Beginning of Period $11.43 $10.00
=============================================================================================================
Net investment income 0.12 0.27
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments (1.76) 1.16
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from investment operations (1.64) 1.43
- -------------------------------------------------------------------------------------------------------------
Distributions: Dividends from net
investment income (0.16) --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 9.63 $11.43
=============================================================================================================
Total Return** (14.04)% 14.40%
=============================================================================================================
Ratios to Average Net
Assets/Supplemental Data:
Net assets, end of period (in 000s) $ 1,655 $ 17
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
to average net assets 1.24% 0.46%
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets, excluding
dividend, interest and tax expense 2.10% 2.10%+
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 437.08% 70.62%
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
before reduction of fees by Manager,
to average net assets (5.19)% (2.77)%+
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before
reduction of fees by Manager, to
average net assets 8.68% 15.34%+
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* The Funds commenced operations on December 31, 1997.
** Total return represents aggregate total return for the periods indicated
and does not include sales charges or redemption fees.
+ Annualized.
(a) On January 29, 1999, Class R shares were issued in exchange for Class A
shares.
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
Global Long-Short Fund*
Selected Per-Share Data for the Year or Period Ended: Class B Shares Class C Shares
3/31/99# 3/31/98# 3/31/99# 3/31/98#
<S> <C> <C> <C> <C>
Net Asset Value--Beginning of Period $ 12.64 $ 10.00 $ 11.83 $ 10.00
=============================================================================================================================
Net investment income (0.16) 0.00## (0.15) 0.00##
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments 4.87 2.64 4.55 1.83
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from investment operations 4.71 2.64 4.40 --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions: Distributions from
net realized capital gains (1.10) -- 1.83 11.89
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 16.25 $ 12.64 $ 15.13 $ 11.83
=============================================================================================================================
Total Return** 38.88% 26.50% 38.81% 18.50%
=============================================================================================================================
Ratios to Average Net
Assets/Supplemental Data:
Net assets, end of period (in 000s) $17,031 $ 61 $ 6,425 $ 202
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
to average net assets (1.10)% (0.10)%+ (1.10)% (0.10)%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets, excluding
dividend, interest and tax expenses 3.10% 3.10%+ 3.10% 3.10%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets, including
dividend, interest and tax expenses 4.15% 3.53%+ 4.15% 3.53%+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 225.61% 84.25% 225.61% 84.25%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
before reduction of fees by Manager,
to average net assets (1.49)% (2.52)%+ (1.49)% (2.52)%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses including
dividend, interest and tax expenses
before reduction of fees by Manager,
to average net assets 4.54% 5.94%+ 4.54% 5.94%+
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Market Focus Fund*
Class B Shares Class C Shares
Selected Per-Share Data for the Year or Period Ended: 3/31/99# 3/31/98# 3/31/99# 3/31/98#
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value--Beginning of Period $ 11.84 $ 10.00 $ 11.83 $ 10.00
=============================================================================================================================
Net investment income 0.04 0.25 0.04 0.26
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments (1.86) 1.59 (1.84) 1.57
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from investment operations (1.82) 1.84 (1.80) 1.83
- -----------------------------------------------------------------------------------------------------------------------------
Distributions: Dividends from net
investment income (0.10) -- (0.10) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 9.92 $ 11.84 $ 9.93 $ 11.83
=============================================================================================================================
Total Return** (15.13)% 18.40% (14.98)% 18.30%
=============================================================================================================================
Ratios to Average Net
Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 92 $ 154 $ 92 $ 154
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
to average net assets 0.49% 9.71%+ 0.49% 9.71%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets, excluding
dividend, interest and tax expense 2.85% 2.85%+ 2.85% 2.85%+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 437.08% 70.62% 437.08% 70.62%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
before reduction of fees by Manager,
to average net assets (5.94)% (3.52)%+ (5.94)% (3.52)%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before
reduction of fees by Manager, to
average net assets 9.43% 16.09%+ 9.43% 16.09%+
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Funds commenced operations on December 31, 1997.
# Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
## Amount represents less than $0.01 per share.
### Represents an amount less than $1,000.
The accompanying notes are an integral part of these financial statements.
33
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Notes
- ------------------------------
to Financial Statements
- ------------------------------
The Montgomery Global Long-Short Fund and the Montgomery Emerging Markets Focus
Fund (the "Funds") 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 8, 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 and short sales are valued using current market valuations:
either the last reported sale price or, in the case of securities for which
there is no reported last sale and in the case of fixed-income securities, the
mean of the closing bid and ask prices.
Portfolio securities and short sales that are traded primarily on foreign
securities exchanges or for which market quotations are readily available are
generally valued at the last reported sale price on the respective exchanges or
markets; except that when an occurrence subsequent to the time that a value was
so established is likely to have changed said value, the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees or its delegates. Securities traded on the
over-the-counter market or on the Nasdaq National Market are valued at the mean
between the last available bid and ask 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 value as determined in good faith under the supervision of the
Trust's pricing committee or 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
contracts") as a hedge in connection with portfolio purchases and sales of
securities denominated in foreign currencies. A forward contract is a commitment
to purchase or sell a foreign currency at the settlement date at a negotiated
rate.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies, and unrealized gain (loss) is recorded daily. 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
the settlement date. Realized and unrealized gains and losses that represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign-currency-related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, a Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
c. Foreign Currency
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the Funds denominated in a
foreign currency are translated into U.S. dollars at the exchange rate each day.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate in effect on the date of the
respective transactions.
34
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Notes
------------------------------
to Financial Statements
------------------------------
The Funds do not isolate the portion of the fluctuations on investments
resulting from changes in foreign-currency exchange rates from the fluctuations
in market prices of investments held. Such fluctuations are included with the
net realized gain (loss) and unrealized appreciation/(depreciation) from
investments and securities sold short.
d. Repurchase Agreements
The Funds may engage in repurchase agreement transactions either individually or
jointly through a joint repurchase account with other series of the Trust and
other mutual funds advised by Montgomery Asset Management 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. The Fund also
agrees with the counterparty to allow the counterparty to repurchase, and the
Fund to resell, the obligation at a specified date and price, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the collateral is at least equal at all
times to the total amount of the repurchase obligation, including interest. In
the event of counter-party default, a Fund has the right to use the collateral
to offset losses incurred. There could be potential loss to the Fund in the
event a Fund is delayed or prevented from exercising its rights to dispose of
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period the Fund seeks to assert its rights.
The Fund's investment manager, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements, to
evaluate potential risks. The Funds may also participate on an individual or
joint basis in tri-party repurchase agreements that 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. The Fund is then obligated to replace the security borrowed by
purchasing it on the open market at some later date. A Fund will incur a loss if
the market price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. A Fund will
typically realize a gain if the security declines in value between those dates.
Dividends declared on securities sold short are recorded on the ex-dividend
date. For the year ended March 31, 1999, the Global Long-Short Fund incurred
$208,338 in dividend expenses.
A Fund maintains collateral assets consisting of cash or 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 (loss) based
on the difference between the cost of closing the option and the initial premium
received. If a Fund purchases an option and allows the option to expire, it
would realize a loss to the extent of the premium paid. If a Fund elects to
close out the option, it would recognize a gain or loss equal to the difference
between the cost of acquiring the option and the amount realized upon the sale
of the option.
The gain or loss recognized by a Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, a Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
35
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- ------------------------------
to Financial Statements
- ------------------------------
The liability representing a Fund's obligation under an exchange-traded written
option or investment in the purchased option is valued at the last sale price
or, in absence of a sale, the mean between the closing bid and ask price or at
the most recent ask price (bid for purchased options) if no bid and ask price is
available. Over-the-counter written or purchased options are valued using
dealer-supplied quotations.
When a Fund writes a covered call option, the Fund forgoes, in exchange for the
premium, the opportunity to profit during the option period from an increase in
the market value of the underlying security or currency above the exercise
price. When a Fund writes a put option, it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. A Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into options contracts, including the risk
that an illiquid secondary market will limit a Fund's ability to close out an
option contract prior to the expiration date, and that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
g. Equity Swaps
The Funds may enter into equity swap agreements in order to participate in
foreign markets not currently accessible to the Funds. Pursuant to these
agreements, the Fund pays a swap fee in cash, which is equal to the fixed
percentage of the cost for the underlying security (the "notional amount").
Additionally, the Fund will make semiannual payments to the swap counterparty
equal to any capital depreciation on the underlying security, plus a
floating-rate payment based on the notional amount and the six-month LIBOR rate.
The swap counterparty will make semiannual payments to the Fund equal to any
capital appreciation and any dividends received on the underlying security.
During the terms of the agreements, changes in the underlying value of the swaps
are recorded as unrealized gains or losses and are based on changes in the value
of the underlying security. Amounts received from (paid to) the swap
counterparty representing capital appreciation (depreciation) are recorded as
realized gain (loss), while dividends on the underlying security are recorded
when received. The Fund is exposed to credit risk in the event of
non-performance by the counterparty. However, the Fund does not anticipate
non-performance by the counterparty. The Funds may invest in equity swaps with
similar but not identical terms as those described above.
h. Futures Contracts
Each Fund may enter into futures contracts. The Funds may use futures contracts
to manage their exposure to the stock market for hedging and non-hedging
purposes. The underlying value of each open futures contract is incorporated
within the unrealized appreciation (depreciation). This amount reflects each
contract's exposure to the underlying instrument or index at March 31, 1999.
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, a Fund is required to deposit with the
custodian on behalf of the broker an amount of cash or cash equivalents equal to
a certain percentage of the contract amount. This is known as the "initial
margin." Subsequent payments ("variation margin") are made or received by the
Fund each day, depending on the daily fluctuations 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 contracts as a
hedging device. Futures contracts involve, to a varying degree, potentially
unlimited risk of loss in excess of the futures variation margin. The change in
value of futures contracts primarily corresponds with the value of their
underlying instruments, which may not correlate with the change in value of the
hedged investments. In addition, there is the risk a Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
36
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The Montgomery Partners Series
------------------------------
Notes
------------------------------
to Financial Statements
------------------------------
Subject to the regulations of the Commodity Futures Trading Commission, each
Fund may invest in 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 margin and premiums on those futures.
i. 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 needed in order to
avoid the application of a 4% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and
capital-gain distributions are determined in accordance with income-tax
regulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by a Fund, timing differences and
differing characterization of distributions made by a Fund.
Permanent differences incurred during the year ended October 31,1998, resulting
from differences in book and tax accounting have been reclassified at year end
to undistributed net investment income, accumulated net realized gain/(loss) and
paid-in capital as follows:
<TABLE>
<CAPTION>
Decrease Increase
Undistributed Accumulated
Decrease Net Investment Net Realized
Fund Paid-in Capital Income Gain/(Loss)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-
Short Fund........... (3,394) (27,632) 31,026
Emerging Markets
Focus Fund........... (4,419) (73,828) 78,247
</TABLE>
j. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis (date the order to
buy or sell is executed). Interest income is accrued daily and includes
amortization of premium and accretion of discount on investments. Realized gain
and loss from securities transactions are recorded on the specific identified
cost basis. Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities, which are recorded as soon as the Funds are
informed of the ex-dividend date. Interest income, including, where applicable,
accretion/amortization of discount/ premium on short-term investments, is
recognized on the accrual basis. Each Fund's net investment income and realized
and unrealized gains and losses are allocated among its classes based on the
relative net assets of each class of shares.
k. 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 of all or substantially all federal
income taxes. Therefore, no federal income- or excise-tax provision is
applicable.
The Funds may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Funds will
accrue such taxes and recoveries as applicable, based on their current
interpretation of tax rules and regulations that exist in the markets in which
they invest.
As of October 31, 1998, the Emerging Markets Focus Fund had for
federal income-tax purposes unused capital losses of $1,150,764 which will
expire in 2006 if not used to offset capital gains in future periods.
37
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- ------------------------------
Notes
- ------------------------------
to Financial Statements
- ------------------------------
l. 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 the 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 to Montgomery Asset Management, LLC, for expenses
incurred on behalf of the Funds.
m. Cash
Cash, as used in the Statement of Cash Flows for the Global Long-Short Fund, is
the amount reported in the Statements 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.
n. Expenses
General expenses of the Trust are allocated to the relevant Funds based on
relative net assets. Operating expenses directly attributable to a Fund or a
class of shares are charged to that Fund's or class's operations. Expenses of
each Fund not directly attributable to the operations of any Fund or class of
shares are prorated among the classes based on the relative average net assets
of each Fund or class of shares.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER
CONTRACTUAL COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Funds' Manager (the "Manager").
The Manager, a Delaware limited liability company, is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended (the "Advisors Act"). The Manager is a
subsidiary of Commerzbank AG, based in Frankfurt, Germany.
Pursuant to an investment management agreement (the "Agreement") between the
Manager and the Trust with respect to each Fund, the Manager provides each Fund
with advice on buying and selling securities, manages the investments of each
Fund including the placement of orders for portfolio transactions, furnishes
each Fund with office space and certain administrative services, and provides
the personnel needed by the Trust with respect to the Manager's responsibilities
under the Agreements. Under an Operating Expense Agreement with the Trust, the
Manager has agreed to reduce some or all of its management fee or absorb Fund
expenses if necessary to keep each Fund's annual operating expenses, exclusive
of Rule 12b-1 fees, dividend expense, interest, extraordinary expenses and
taxes, at or below 2.35% and 2.10% for the Global Long-Short Fund and the
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 effect such reimbursement and remain in compliance
with applicable expense limitations.
Montgomery Asset Management, LLC, serves as the Funds' administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of each Fund's administrative operations.
As compensation, each Fund has accrued a monthly management and administration
fee (accrued daily) based on the average daily net assets of each Fund. The
following effective management fee annual rates include current-year accrued
fees and recoupment of prior-year deferrals but do not include the effect of
current-year fee deferrals or expense absorption.
38
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------------------------------
Notes
------------------------------
to Financial Statements
------------------------------
<TABLE>
<CAPTION>
Management
Contractual Effective Fee Including
Management Management Effect of Administration
Fund Fee Fee Fees Deferred Fee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Long-
Short Fund............... 1.50% 1.56% 1.17% 0.07%
Emerging Markets
Focus Fund............... 1.25% 1.38% -- 0.07%
</TABLE>
For the year ended March 31, 1999, the Manager has deferred fees and/or absorbed
expenses subject to recoupment as follows:
<TABLE>
<CAPTION>
Deferred
Current Management
Current Year Fees and Absorbed
Year Expenses Expenses Subject
Fund Reductions Absorbed to Recoupment
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-
Short Fund.............. $214,996 $ -- $214,996
Emerging Markets
Focus Fund.............. 46,263 169,954 216,217
</TABLE>
Included in other expense are expenses recouped from the previous year of
$19,191 and $40,700 for Global Long-Short Fund and Emerging Markets Focus Fund,
respectively.
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 $55,000 per annum, as well as
reimbursement for expenses, for service as a Trustee of all Trusts advised by
the Manager ($15,000 of which will be allocated to the Montgomery Funds II).
3. LINE OF CREDIT:
Under an unsecured Revolving Credit Agreement with DeutscheBank (New York), the
Global Long-Short Fund (only through August 28, 1998) and the Emerging Markets
Focus Fund, along with other Funds of The Montgomery Funds, The Montgomery Funds
II and The Montgomery Funds III, may for one year starting August 13, 1998,
borrow (consistent with applicable law and its investment policies) up to
one-third of its net asset value (or such lower limit applicable to such Fund),
provided that the aggregate amount borrowed does not exceed $175,000,000. The
Funds pay their pro rata share of the quarterly commitment fee of 0.08% per
annum of the unutilized credit line balance.
At March 31, 1999, there were no loans outstanding under this agreement. For the
year ended March 31, 1999, there were no borrowings by the Funds under the
agreement.
Under a Credit Agreement dated August 28, 1998, the Global Long-Short Fund may
borrow up to one-third of its assets value from Bank of America NT&SA. This Fund
makes quarterly payments of a 0.10% annual commitment fee of the unutilized
credit line balance. At March 31, 1999, the fund had $25,000,000 of borrowings
outstanding under this agreement.
For the year ended March 31, 1999, the Global Long-Short Fund borrowed money to
leverage the portfolio, resulting in $363,688 of interest expense being incurred
by the Fund. For the year ended March 31, 1999, borrowings by the fund under the
agreement were as follows:
<TABLE>
<CAPTION>
Maximum Average Debt
Average Amount Debt Interest Average per
Fund Outstanding Outstanding Rate Shares Share
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Long-
Short Fund $6,627,671 $25,000,000 5.4% 3,899,994 $1.70
</TABLE>
4. SHAREHOLDER SERVICING AND DISTRIBUTION PLANS:
The Funds have adopted a shareholder servicing plan for Class A (redesignated
Class R in January 1999 for the Global Long-Short Fund), 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 servicing provided by the 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
39
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- ------------------------------
Notes
- ------------------------------
to Financial Statements
- ------------------------------
sale of the class's shares. Payments under the shareholder servicing plan are
limited to 0.25% of average daily net assets. Payments under the distribution
plan are limited to 0.75% of Class B's and Class C's average daily net assets.
The Funds were advised by the Distributor that for the year ended March 31,
1999, the Distributor received $247,361 in shareholder servicing 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 year ended March 31, 1999, the Distributor earned
$62,606 and $13,961 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, for the year ended March 31,
1999, were:
<TABLE>
<CAPTION>
Fund Purchases Sales
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Long-Short Fund..................................................................... $238,644,920 $143,135,742
Emerging Markets Focus Fund................................................................ 13,487,592 12,112,053
</TABLE>
b. At March 31, 1999, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value were as follows:
<TABLE>
<CAPTION>
Taxable Taxable Net Tax Basis Cost for Federal
Fund Unrealized Appreciation Unrealized Depreciation Unrealized Appreciation Tax Purposes
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Long-
Short Fund $22,481,446 $5,761,938 $16,719,508 $124,057,762
Emerging Markets
Focus Fund 242,011 18,712 223,299 1,118,115
</TABLE>
c. The schedule of forward foreign-currency exchange contracts at March 31,
1999, was as follows:
<TABLE>
<CAPTION>
Net Unrealized
Foreign-Currency Settlement In Exchange for Appreciation/
Amount Date (US$) (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-Short Fund:
Forward Foreign-Currency Exchange Contracts to Receive
810,066 British Pound 4/06/99 $1,307,291 $ (7,834)
1,061,532 European Monetary Unit 4/08/99 1,147,405 (536)
366,806 European Monetary Unit 4/30/99 397,011 347
----------------------------------
Total $2,851,707 $ (8,023)
=========
Forward Foreign-Currency Exchange Contracts to Deliver
732,436 European Monetary Unit 4/06/99 $ 791,590 $ (1,488)
134,741 Hong Kong Dollar 4/07/99 17,384 7
191,268 European Monetary Unit 4/30/99 207,018 (1,042)
---------- ----------
Total $1,015,992 $ (2,523)
========== =========
Net Unrealized Depreciation $ (10,546)
=========
</TABLE>
40
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Notes
-------------------------------------------
to Financial Statements
d. At March 31, 1999, the Global Long-Short Fund had the following written
option contracts open:
<TABLE>
<CAPTION>
Number of Expiration Strike
Issuer Contracts Date Price Value Premiums
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call Options Written:
Circuit City Stores Inc. (Retail Trade) 55 4/17/99 $ 75.00 $ 19,250 $ 25,273
======== ========
</TABLE>
e. Written option activity for the Global Long-Short Fund for the year ended
March 31, 1999, was as follows:
<TABLE>
<CAPTION>
Written Options Premiums Number of Contracts
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at March 31, 1998............... $ 71,092 260
Options written..................................... 188,666 12,935
Options expired..................................... (23,189) (105)
Options closed...................................... (207,776) (9,535)
Options exercised................................... (3,520) (3,500)
---------- ----------
Written options outstanding at March 31, 1999....... $ 25,273 55
========== ==========
</TABLE>
f. The Global Long-Short Fund has the ability to enter into equity swap
agreements with Robert Flemming & Co. Limited, London, with respect to the
holdings of foreign equity securities. Each equity swap is for a period of three
years. At March 31, 1999, the Global Long-Short Fund had the following open
equity swap agreements:
<TABLE>
<CAPTION>
Notional Swap Fee Floating Termination Unrealized
Underlying Security Amount Rate Rate Date Appreciation/(Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Associated Cement Co................ $ 221,107 1.50% Libor+ 0.50% 3/31/00 $ 10,705
ITC Ltd............................. 209,787 1.50 Libor+ 0.50 3/31/00 7,288
NIIT Ltd............................ 240,968 1.50 Libor+ 0.50 3/31/00 (49,661)
Ranbaxy Laboratories Ltd., GDR...... 494,223 1.50 Libor+ 0.50 3/24/00 (20,823)
Reliance Industries Ltd., GDR....... 259,436 1.50 Libor+ 0.50 3/24/00 2,287
</TABLE>
6. FOREIGN SECURITIES:
The Funds may purchase securities on foreign security exchanges. Securities of
foreign companies and foreign governments involve risks and considerations not
typically associated with investing in U.S. companies and the U.S. government.
These risks include, among others, revaluation of currencies, less-reliable
information about issuers, different securities transactions clearance and
settlement practices, and potential future adverse political and economic
developments. These risks are heightened for investments in emerging markets
countries. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
41
<PAGE>
- -------------------------------------------
The Montgomery Partners Series
- -------------------------------------------
Notes
- -------------------------------------------
to Financial Statements
7. TRANSACTIONS IN SHARES WITH A BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01.
<TABLE>
<CAPTION>
Global Long-Short Fund Emerging Markets Focus Fund
Year Ended 3/31/99 Year Ended 3/31/99
------------------------------- -------------------------------
Shares Dollars Shares Dollars
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Class R Shares:
Sold................................................ 2,502,705 $ 38,599,800 -- $ --
Issued as reinvestments of dividends................ -- -- -- --
Re-issued for name change from Class A shares....... 3,966,659 52,104,139 -- --
Redeemed............................................ (1,392,567) (21,334,896) -- --
------------------------------- -------------------------------
Net increase........................................ 5,076,797 $ 69,369,043 -- $ --
=============================== ===============================
Class A Shares:
Sold................................................ 6,446,498 $ 93,356,477 746,596 $ 7,655,077
Issued as reinvestments of dividends................ 198,228 2,711,754 8,306 63,151
Redeemed............................................ (3,983,154) (58,677,987) (739,577) (5,983,612)
Cancelled for name change to Class R shares......... (3,966,659) (52,104,139) -- --
------------------------------- -------------------------------
Net increase........................................ (1,305,087) $ (14,713,895) 15,325 $ 1,734,616
=============================== ===============================
Class B Shares:
Sold................................................ 1,184,123 $ 16,623,219 1,641 $ 17,057
Issued as reinvestments of dividends................ 1 15 -- --
Redeemed............................................ (140,910) (2,104,182) -- --
------------------------------- -------------------------------
Net increase........................................ 1,043,214 $ 14,519,052 1,641 $ 17,057
=============================== ===============================
Class C Shares:
Sold................................................ 511,612 $ 6,598,428 38,800 $ 342,778
Issued as reinvestments of dividends................ 1 15 -- --
Redeemed............................................ (103,968) (1,287,689) (42,510) (359,103)
------------------------------- -------------------------------
Net increase/(decrease)............................. 407,645 $ 5,310,754 (3,710) $ (16,325)
=============================== ===============================
</TABLE>
<TABLE>
<CAPTION>
Global Long-Short Fund Emerging Markets Focus Fund
Year Ended 3/31/98* Year Ended 3/31/98*
------------------------------- -------------------------------
Shares Dollars Shares Dollars
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Class 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
=============================== ===============================
Class B Shares:
Sold................................................ 4,825 $ 59,080 22 $ 220
Redeemed............................................ -- -- -- --
------------------------------- -------------------------------
Net increase........................................ 4,825 $ 59,080 22 $ 220
=============================== ===============================
Class 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>
______________________________
* The Funds commenced operations on December 31, 1997.
42
<PAGE>
-------------------------------------------
The Montgomery Partners Series
-------------------------------------------
Notes
-------------------------------------------
to Financial Statements
TO THE BOARD OF TRUSTEES 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 investments; and schedule of short sales, and the related
statements of operations, of changes in net assets, and of cash flows and the
financial highlights present fairly, in all material respects, the financial
position of Montgomery Global Long-Short Fund and Montgomery Emerging Markets
Focus Fund (two series constituting part of The Montgomery Funds II, hereafter
collectively referred to as the "Funds") at March 31, 1999, the results of each
their operations for the year then ended, the changes in each of their net
assets and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 1999, by
correspondence with the custodian and brokers provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, CA
June 11, 1999
43
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