<PAGE>
Montgomery Institutional Series:
Emerging Markets Portfolio
Semi - Annual Report
December 31, 1998
[LOGO APPEARS HERE]
Invest wisely.(R)
MONTGOMERY ASSET MANAGEMENT(SM)
<PAGE>
Montgomery Institutional Series: Emerging Markets PortfolioGraphicsFinancial
Printing GroupMontgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights
December 31, 1998
Top Five Countries as of 12/31/98
(as a percentage of total net assets):
<TABLE>
<CAPTION>
<S> <C>
South Africa 13.2%
Brazil 11.9
Greece 7.8
India 7.1
Taiwan 5.6
Top Ten Industries as of 12/31/98
(as a percentage of total net assets):
Banks 10.4%
Holding 8.6
Electric utilities 7.1
Telephone/Networks 6.8
Oil 4.5
Conglomerates 4.0
Metals & Mining 3.7
Computers & Office Equipment 3.2
Telecommunications/Other 2.8
Telephone/Long Distance 2.8
Top Ten Holdings as of 12/31/98
(as a percentage of total net assets):
Telec Brasileiras-Telebras ON 2.8%
Barlow Ltd. 2.2
Alpha Credit Banks 2.0
Telephono de Mexico S.A., ADR 1.9
National Bank of Greece 1.9
Liberty Life Association of Africa Ltd. 1.9
Brisa-Auto Estradas 1.8
Manila Electric Company, Series B 1.6
Haci Omer Sabanci Holdings A.S. 1.5
Hon Hai Precision Industry 1.3
Samsung Electronics 1.3
</TABLE>
Portfolio Management
Josephine S. Jimenez, CFA Senior Portfolio Manager
Bryan L. Sudweeks, Ph.D., CFA Senior Portfolio Manager
Frank Chiang Portfolio Manager
Jesus Duarte Regional Portfolio Manager
Stuart Quint Regional Portfolio Manager
Fund Performance
Average annual total returns for the period ended 12/31/98
Montgomery Institutional Series: Emerging Markets Portfolio
Since inception 12/17/93 (9.17)%
1 year (34.99)%
<PAGE>
5 years (9.49)%
MSCI Emerging Markets Free Index/1/
Since 12/31/93 (9.27)%
1 year (25.34)%
5 years (9.27)%
IFC Global Composite Index/2/
Since 12/31/93 (8.69)%
1 year (21.07)%
5 years (8.69)%
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
There are risks of 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.
/1/ The Morgan Stanley Capital International Emerging Markets Free Index is an
unmanaged, capitalization-weighted composite index that covers individual
securities within the Equity Markets of approximately 25 Emerging Markets
countries.
/2/ The IFC Global Composite Index is comprised of more than 1,900 individual
stocks from 32 developing countries in Asia, Latin America, Middle East,
Africa and Europe.
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks--83.5% Value
Shares (Note 1)
<S> <C> <C>
Argentina - 2.9%
402,722 Cresud S.A.+ (Real Estate) $ 483,719
319,020 Inversiones y Representaciones (Real Estate) 874,933
61,600 Telefonica de Argentina, Sponsored, ADR
(Telephone/Networks) 1,720,950
45,300 Y.P.F. Sociedad Anonima, ADS (Oil) 1,265,568
4,345,170
Brazil - 5.3%
80,700,000 Centrais Geradoras do Sul do Brasil S.A.
Gerasul + (Electric Utilities) 1,389,249
2,875,000 Cia Saneamento Basico Estado (Water Utilities) 217,722
24,500 Electrobras, GDS*** (Electric Utilities) 1,127,000
136,000 Souza Cruz S.A. (Tobacco) 877,964
94,520,000 Telec Brasileiras-Telebras, Receipts (Holding) 4,224,358
1,291,545 Telecomunicacoes de Ceara**
(Telephone/Regional-Local) 188,133
170,996 Telemunicacoes de Sao Paulo S.A.- Telesp
(Telephone/Regional-Local) 14,717
170,996 Telesp Celular S.A. + (Telephone/Regional-Local) 3,857
8,043,000
Chile - 2.1%
30,000 Compania de Telefonos de Chile S.A., ADR
(Telephone/Networks) 620,625
25,100 Distribucion y Servicio S.A., ADR
(Food & Beverage) 288,650
56,300 Enersis S.A., ADR (Electric Utilities) 1,453,243
26,034 Sociedad Quimica y Minera de Chile, ADR
(Chemicals) 877,020
3,239,538
China/Hong Kong - 3.3%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
70,000 Cheung Kong (Holdings) Ltd. (Real Estate) 503,704
48,000 China Telecom Ltd., ADR + (Telephone/Wireless) 1,668,000
28,000 HSBC Holdings (Banks) 697,506
534,000 New World Infrastructure Ltd.+ (Heavy Construction) 782,294
320,000 Shanghai Industrial Holdings Ltd. (Conglomerates) 646,394
91,800 Yanzhou Coal Mining Company Ltd., ADR + (Coal) 694,238
4,992,136
Czech Republic - 2.5%
14,000 Ceska Radiokomuknikace, GDR +
(Broadcasting/Advertising) 451,500
48,750 Ceska Radiokomuknikace, GDR +
(Broadcasting/Advertising) 1,572,188
126,700 The Czech Value Fund** + (Mutual Funds) 681,013
150,059 Vseobecny I.F. + (Mutual Funds) 329,937
104,191 Vynosovy I.F. + (Mutual Funds) 725,441
3,760,079
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
Egypt 3.1%
2,500 Al-Ahram Beverages Company, GDR
(Food & Beverage) $ 72,188
66,400 Al-Ahram Beverages Company, GDR***
(Food & Beverage) 1,917,300
5,775 Al-Ahram Pyramid Beverages Company
(Food & Beverage) 330,241
33,728 Amreya Cement (Cement) 504,436
200,000 Egyptian Mobile Phone Network +
(Telephone/Networks) 1,217,009
37,200 Tourah Portland Cement Company (Cement) 632,727
4,673,901
Greece - 7.8%
28,355 Alpha Credit Bank (Banks) 2,960,315
13,800 Commercial Bank of Greece S.A. (Banks) 1,357,911
50,833 Hellenic Telecommunication Organization S.A.
(Telephone/Networks) 1,353,100
47,000 Heracles General Cement S.A. (Cement) 1,276,261
12,840 National Bank of Greece (Banks) 2,890,239
62,000 STET Hellas Telecommunications S.A., ADR +
(Telecommunciations/Other) 1,980,125
11,817,951
Hungary - 2.4%
45,000 Borsodchem Rt. + (Chemicals) 1,170,705
25,000 EGIS Rt. + (Pharmacy/Drugs) 569,092
33,400 Mol Magyar Olaj-es Gazipari Rt. (Oil) 916,248
21,600 Mol Magyar Olaj-es Gazipari Rt., GDR*** (Oil) 596,700
30,000 Zalakeramia Rt. + (Building Materials) 363,755
3,616,500
India - 7.1%
8,000 Bajaj Auto, Ltd.** (Auto/Auto Parts) 98,187
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
140,000 BSES Ltd.** (Electric Utilities) 466,117
50,000 BSES Ltd., GDR (Electric Utilities) 637,500
207 Castrol (India) Ltd.** (Chemicals) 3,697
140,000 Dr. Reddy's Laboratories Ltd.**(Pharmacy/Drugs) 1,600,424
3,300 Dr. Reddy's Laboratories Ltd., GDR
(Pharmacy/Drugs) 37,950
50 Hindustan Lever Ltd.**
(Cosmetics & Personal Care) 1,958
90,000 Hindustan Petroleum Corporation Ltd.** (Oil) 498,211
35,700 Housing Development and Finance Corporation**
(Banks) 1,831,233
56 Indian Hotels Company, Ltd.** (Lodging) 473
1,950 ITC Ltd.** + (Tobacco) 34,437
83,000 ITC Ltd., GDR (Tobacco) 1,848,825
300,000 Mahanagar Telephone Nigam, Ltd.** +
(Telecommunications/Other) 1,294,090
40,000 Mahanagar Telephone Nigam, Ltd., GDR*** +
(Telecommunications/Other) 488,000
100 Oil and Natural Gas Corporation Ltd.** (Oil) 474
150 State Bank of India** (Banks) 555
155,000 Videsh Sanchar Nigam Ltd., GDR
(Telephone/Long Distance) 1,898,750
10,740,881
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
Israel - 2.6%
835,000 Bank Leumi Le-Israel (Banks) $ 1,179,390
31,600 ECI Telecom Ltd., ADR
(Telecommunications/Equipment) 1,118,837
25,000 Formula Systems Ltd., ADR + (Software Systems) 632,031
241,124 Makhteshim-Agan Industries Ltd. (Chemicals) 521,287
194,410 Supersol Ltd. (Retail Trade) 482,406
3,933,951
Kazakhstan - 0.1%
54,859 Central Asia Growth Fund** (Mutual Funds) 164,577
12,600 Kazomerts Bank, GDR*** + (Banks) 44,100
208,677
Korea - 4.0%
177,920 Hanjin Heavy Industries (Heavy Construction) 1,360,652
12,050 Pohang Iron & Steel Company Ltd.+ (Steel) 775,287
6,500 Pohang Iron & Steel Company Ltd., ADS (Steel) 109,688
64,920 Pusan City Gas Company Ltd. (Gas Utilities) 1,780,848
31 Samsung Electronics, Ltd., GDR + (Semiconductor) 1,201
37,590 Sindoh Rioch Company
(Computers & Office Equipment) 1,346,741
25,310 Youngone Corporation (Apparel & Textiles) 679,562
6,053,979
Malaysia - 0.8%
404,000 Berjaya Sports Toto Berhad** (Leisure Time) 503,937
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
907,000 YTL Power International Berhad** (Electric Utilities) 713,666
1,217,603
Mexico - 4.4%
483,000 Carso Global Telecom, Series A1
(Telephone/Networks) 1,628,693
404,140 Corporacion Interamericana Entertainment S.A.,
Series B + (Entertainment) 1,101,644
5,500 Fomento Economico Mexicano, S.A. de C.V., ADR
(Food & Beverage) 146,438
233,000 Grupo Financiero Banamex Accival S.A. de C.V.,
Series B - Banacci + (Banks) 305,804
86,100 Grupo Radio Central S.A. de C.V., ADR
(Broadcasting/Advertising) 462,788
53,885 Interamericana Entrenamiento Corporation,
Series L (Entertainment) 113,700
60,500 Telefono de Mexico S.A., ADR
(Telephone/Networks) 2,945,594
6,704,661
Morocco - 0.0%#
2 Banque Marocaine du Commerce Exterieur,
GDR*** (Banks) 47
Pakistan - 0.7%
898,200 Fauji Fertilizer Company Ltd.**
(Agriculture Commodities) 826,886
141,964 Pakistan State Oil** (Oil) 223,575
1,050,461
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
Peru - 1.5%
48,300 Compania de Minas Buenaventura S.A.,
ADR (Metals & Mining) $ 627,900
38,200 Credicorp Ltd. (Banks) 343,800
639,708 Ferreyros Enrique S.A. (Machinery & Tools) 577,500
11,558 Ferreyros Enrique S.A., ADS***
(Machinery & Tools) 203,718
46,300 Telefonica del Peru S.A., ADR
(Telephone/Networks) 587,431
2,340,349
Philippines - 3.9%
1,800,000 Ayala Corporation (Conglomerates) 636,247
1,750,000 Ayala Land, Inc. (Real Estate) 494,859
250,000 Bank of Philippine Islands (Banks) 530,206
770,000 Manila Electric Company, Series B
(Electrical Utilities) 2,474,293
58,843 Philippine Long Distance Telephone, ADR
(Telephone/Long Distance) 1,526,240
1,937,000 Philippino Telephone Corporation
(Telephone/Wireless) 179,260
5,841,105
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Poland - 1.7%
35,000 Bank Handloway W. Warszawie S.A. (Banks) 431,766
45,000 Bank Handloway W. Warszawie, GDR*** (Banks) 582,750
44,500 Prokom Software, GDR*** (Business Services) 838,825
154,500 Telekomunikacja Polska S.A., GDR*** +
(Telephone/Long Distance) 787,950
2,641,291
Portugal - 3.3%
39,200 Brisa-Auto Estradas+ (Auto/Auto Parts) 2,308,516
23,500 Cia de Segros Tranquilidade (Insurance) 750,353
40,180 Sonae Investimentos (Retail Trade) 1,954,200
5,013,069
Romania - 0.1%
46,653 Romania Growth Fund PLC** + (Mutual Funds) 87,708
Russia - 0.4%
1,350,000 Bashkirenergo** + (Electric Utilities) 27,000|
3,728 Global Telesystems Group, Inc., ADR +
(Telephone/Networks) 207,603
100,000 Irkutskenegro, Sponsored, ADR** (Electric Utilities) 150,000
22,046 Kransnoyarskelectrosvyaz, ADR** (Electric Utilities) 13,228
26,500 Krasny Oktyabr** + (Food & Beverage) 34,450
5,000 LukOil Company, ADR** (Oil) 85,000
84,242 Murmansk Electrosvyaz, ADR**
(Telecommunications/ Other) 8,508
29,054 Nizhnovsvyazinform, Sponsored, ADR**
(Telephone/Regional-Local) 8,716
120,450 Orenburg Region Electrosvyaz, ADR** +
(Telecommunications/Other) 6,023
6,278 Uraltelecom, ADR** + (Telephone/Networks) 21,973
562,501
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
South Africa - 13.2%
125,000 Anglo American Investment Trust Ltd. (Holding) $ 1,490,811
38,500 AngloGold Ltd. (Metals & Mining) 1,498,103
2,380,916 B.O.E. Corporation Ltd., N Shares (Holding) 1,354,114
870,826 Barlow, Ltd. (Conglomerates) 3,341,228
6,199,500 Consolidated African Mining Company +
(Metals & Mining) 842,002
116,700 De Beers Centenary AG (Metals & Mining) 1,485,930
31,800 Liberty Holdings Ltd. (Holding) 1,111,063
207,649 Liberty Life Association of Africa Ltd. (Insurance) 2,855,492
424,100 Molope Foods Ltd. (Holding) 379,802
686,300 Molope Group Ltd., N Shares (Holdings) 544,706
205,300 Nasionale Pers Beperk (Holding) 801,647
9,000 Pepsi International Bottlers** + (Food and Beverage) 153,000
485,811 Sasol, Ltd. (Oil) 1,835,116
610,000 Smith (C.G.) Ltd., Ord + (Conglomerates) 1,382,539
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
331,080 Wooltru Ltd. (Retail Trade) 416,502
363,068 Wooltru Ltd., N Shares (Retail Trade) 443,799
19,935,854
Taiwan - 5.6%
520,000 Compal Electronics Inc. +
(Computers & Office Equipment) 1,694,600
360,000 Hon Hai Precision Industry (Electronics) 1,988,827
1,300,000 Kindom Construction (Real Estate) 1,250,776
413,874 Synnex Technology International Corporation
(Computers & Office Equipment) 1,836,871
776,023 Taiwan Semiconductor Company + (Semiconductor) 1,710,044
8,481,118
Thailand - 3.2%
67,500 BEC World Public Company Ltd. (Entertainment) 371,389
200,000 BEC World Public Company Ltd. (F) (Entertainment) 1,100,413
2,100,000 Industrial Finance of Thailand (F)
(Securities Brokerage) 866,575
385,400 Krung Thai Bank Public Company Ltd. + (Banks) 209,399
66,000 Krung Thai Bank Public Company Ltd. (F) + (Banks) 35,860
48,700 PTT Exploration and Production Public
Company Ltd. (Oil) 342,977
144,300 PTT Exploration and Production Public
Company Ltd. (F) (Oil) 1,016,253
500,000 Thai Farmers Bank Public Company Ltd.
(F) (Banks) 880,330
4,823,196
Turkey - 1.5%
32,500,000 Haci Omer Sabanci Holding A.S. + (Holding) 499,667
26,500,000 Hurriyet Gazetecilik ve Matbaacilik A.S.
(Newspapers/Publishing) 403,221
600,000 Migros Turk T.A.S. (Retail Trade) 599,125
7,200,000 Tupras-Turkiye Petrol Rafinerileri A.S. + (Gas) 319,532
42,727,407 Yapi ve Kredi Bankasi A.S. (Banks) 494,373
2,315,918
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
Ukraine - 0.0%#
232,000 Ukraine Enterprise Corporation (Mutual Funds) $ 26,505
Venezuela - 0.0%#
2 Electricidad Caracas (Electric Utilities) 1
Total Common Stocks (Cost $154,825,186) 126,467,150
Preferred Stocks 8.6%
Brazil - 6.6%
24,100,000 Banco do Estado de Sao Paulo S.A. - Banespa (Banks) 997,310
19,700,000 Centrais Geradoras do Sul do Brasil S.A.
Gerasul+ (Electric Utilities) 24,457
69,861,114 Cia Energetica de Minas Gerais (Electric Utilities) 1,329,862
88,402,000 Cia Paranaense de Energi (Electric Utilities) 636,538
19,700,000 Electrobras, B (Electric Utilities) 378,266
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
2,219,000 Itausa Investimentos Itau (Holding) 1,230,482
9,400 Kepler Weber S.A.** + (Machinery & Tools) 14,702
84,287,000 Odebrecht S.A. (Heavy Construction) 209,279
19,940,000 Renner Participacoes S.A. (Retail Trade) 14,028
12,292,475 Telec de Minas Gerais S.A.
(Telephone/Regional-Local) 359,135
1,536 Teleceara Celular S.A., Series B** +
(Telephone/Wireless) 83
1,291,545 Teleceara Celular S.A., Series D**
(Telephone/Wireless) 28,861
15,670 Telecomunicacoes Brasileiras S.A.
Telebras, ADR (Holding) 1,139,013
3,253,872 Telecomunicacoes Brasileiras S.A.
Telebras, Receipts (Holding) 238,604
1,536 Telecomunicacoes de Ceara**
(Telecommunications/Equipment) 127
4,350,833 Telecomunicacoes de Sao Paulo S.A.
(Telephone/Regional - Local) 593,074
15,732,475 Telemig Cellular S.A., Series C +
(Telephone/Wireless) 308,595
19,675,401 Telerj Celular S.A., Series B
(Telecommunications/Other) 464,100
20,847,860 Telesp Cellular S.A., Series B +
(Telephone/Wireless) 916,219
87,600 Vale do Rio Doce A (Metals & Mining) 1,123,774
142,956 Vale do Rio Doce B (Metals & Mining) 0
10,006,509
Korea - 1.3%
59,690 Samsung Electronics Ltd. + (Electronics) 1,964,858
Portugal - 0.7%
95,000 Lusomundo-SGPS, S.A. + (Entertainment) 1,102,224
Russia - 0.0%#
16,000 LukOil Company, ADR** (Oil) 56,000
6,000 Samarasvyazinform** + (Telephone/Regional-Local) 19,200
75,200
Total Preferred Stocks (Cost $9,909,930) 13,148,791
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Preferred Stocks (continued) Value
Shares (Note 1)
<S> <C> <C>
Rights 0.0%# (Cost $0)
Taiwan - 0.0%#
1,040 Compal Electronics Inc., Rights, Expire
01/22/99 + (Electronics) $ 807
Warrants 0.4% (Cost $587,593)
Philippines - 0.4%
1,200,000 Jollibee Foods Company, Warrants,
Expire 02/24/03 + (Food & Beverage) 570,694
</TABLE>
<PAGE>
Total Securities Cost $165,322,709) 140,187,442
Repurchase Agreements - 5.0% (Cost $7,512,000)
Principal Amount
$7,512,000 Agreement with Prudential Securities, Tri-Party,
5150% dated 12/31/98 , to be repurchased at
$7,516,299, on 01/04/99, collateralized by
$7,662,240 market value of US government
securities, having various maturities and
various interest rates 7,512,000
Total Investments (Cost $172,834,709*) 97.5% 147,699,442
Other Assets and Liabilities (Net) 2.5 3,827,322
Net Assets 100.0% $151,526,764
* Aggregate cost for federal tax purposes.
** Illiquid Security or Special Situation Security (See Note 5 to Financial
Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of
1933.
These securities may be resold in transactions exempt from registration,
normally
to qualified institutional buyers.
# Amount represents less than 0.1%.
+ Non-income producing security.
Abbreviations:
ADR American Depositary Receipt
ADS American Depositary Share
(F) Foreign or alien share
GDR Global Depositary Receipt
GDS Global Depositary Share
ORD Ordinary
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Assets and Liabilities
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investment in securities, at value (Identified cost $172,834,709)(Note 1)
Securities $ 140,187,442
Repurchase agreements 7,512,000
Total investments 147,699,442
Cash 605,316
Foreign currency (Cost $870,459) 745,729
Receivables:
Shares of beneficial interest sold 1,754,121
Investment securities sold 852,776
Dividends 715,153
Interest 1,075
Deferred organization costs (Note 1) 106,011
Total Assets 152,479,623
Liabilities:
Forward foreign currency exchange contracts:
Net unrealized depreciation of forward foreign currency
contracts (Note 3) $ 16
Payables:
Investment securities purchased 465,435
Management fee (Note 2) 123,270
Custodian fees 105,933
Shares of beneficial interest redeemed 13,156
Transfer agency and servicing fees 1,485
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Administration fee (Note 2) 1,320
Trustees' fees and expenses (Note 2) 626
Accrued liabilities and expenses 241,618
Total Liabilities 952,859
Net Assets $ 151,526,764
Net Assets consist of:
Distributions in excess of net investment income $ (649,397)
Accumulated net realized loss on securities sold, forward foreign
currency exchange contracts and foreign currency transactions (67,479,904)
Net unrealized depreciation of investments, forward foreign currency
exchange contracts, foreign currency transactions and
net other assets (25,231,837)
Shares of beneficial interest 50,609
Additional paid-in capital 244,037,293
Net Assets $ 151,526,764
Net Asset Value, per share outstanding* $ 29.94
Maximum offering price per share (Note 4) ($29.94/.9925) (based
on maximum investment expense reimbursement fee of
0.75% of the offering price) $ 30.17
Number of Fund shares outstanding 5,060,865
* Redemption price per share is equal to Net Asset Value less any applicable investment expense reimbursement fee (Note 4).
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Operations
For the Six Months Ended December 31, 1998 (unaudited)
Net Investment Income:
Dividends (net of foreign withholding taxes of $90,464) $ 1,388,503
Interest 92,682
Total Income 1,481,185
Expenses:
Management fee (Note 2) $ 831,779
Custodian fees 175,598
Legal and audit fees 35,288
Administration fee (Note 2) 11,174
Trustees' fees and expenses (Note 2) 3,882
Amortization of organization costs (Note 1) 3,848
Registration and filing fees 3,192
Transfer agency and servicing fees 2,634
Interest expense 5,201
Tax Expense 116,274
Other 34,416
Total Expenses 1,223,286
Fees deferred by Manager and Administrator (Note 2) (102,194)
Net Expenses 1,121,092
Net Investment Income $ 360,093
Realized and Unrealized
Gain/(Loss) on Investments:
Net realized gain/(loss) from:
Securities transactions (36,851,836)
Forward foreign currency exchange contracts (163,884)
Foreign currency transactions 968,754
Net realized loss on investments during the period (36,046,966)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Net change in unrealized appreciation/(depreciation)of:
Securities 815,047
Forward foreign currency exchange contracts 909
Foreign currency and net other assets (93,733)
Net unrealized appreciation of investments during the period 5,722,223
Net Realized and Unrealized Loss on Investments (30,324,743)
Net Decrease in Net Assets Resulting from Operations $(29,964,650)
</TABLE>
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
12/31/98 Year Ended
(unaudited) 06/30/98
<S> <C> <C>
Net Increase/(Decrease)in Net Assets Resulting From Operations:
Net investment income. $ 360,093 $ 2,566,382
Net realized loss on securities transactions, forward foreign
currency exchange contracts and foreign currency
transactions during the year (36,046,966) (29,436,439)
Net unrealized appreciation/(depreciation)of securities, forward
foreign currency exchange contracts, foreign currency and
net other assets during the period 5,722,223 (95,233,904)
Net decrease in net assets resulting from operations (29,964,650) (122,103,961)
Distributions to shareholders from net investment
income (13,008) (3,559,976)
Distributions to shareholders from
net realized
gains on investments -- (854,895)
Net decrease from beneficial interest
transactions (Note 4) (16,073,687) (10,083,756)
Net decrease in net assets. (46,051,345) (136,602,588)
Net Assets:
Beginning of period 197,578,109 334,180,697
End of period $151,526,764 $ 197,578,109
Distributions in excess of net investment income $ (649,397) $ (996,482)
Montgomery Institutional Series:
Emerging Markets Portfolio
Statement of Changes in Net Assets (continued)
Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
Selected Per Share Data for the
Year or Period Ended:
12/31/98
(unaudited) 06/30/98 06/30/97 06/30/96 06/30/95++ 06/30/94*
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $ 35.61 $ 58.52 $ 49.09 $ 44.61 $ 43.71 $ 50.00
Net investment income 0.07 0.32 0.43 0.50 0.13 0.09
Net realized and unrealized
gain/(loss)on investments (5.74) (22.44) 9.46 3.93 0.67 (6.67)
Net increase/(decrease)in
net assets resulting from
investment operations (5.67) (22.12) 9.89 4.43 0.80 (6.58)
Effect of redemption expense
reimbursement fee -- -- 0.02 0.09 0.11 0.29
Distributions from net
investment income 0.00# (0.64) (0.48) (0.04) (0.01) --
Distributions from net realized
gains on investments -- (0.15) -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total distributions -- (0.79) (0.48) (0.04) (0.01) --
Net asset value - end of
year/period $ 29.94 $ 35.61 $ 58.52 $ 49.09 $ 44.61 $ 43.71
Total return ** (15.92)% (38.05)% 20.45% 10.14% 2.09% (12.58)%
Ratios to Average Net
Assets/Supplemental Data:
Net assets, end of period
(in 000's) $151,527 $ 197,578 $ 334,181 $ 270,878 $ 186,666 $ 127,085
Ratio of net investment income
to average net assets 0.45%+ 0.96% 0.86% 1.16% 0.29% 0.47%+
Ratio of net expenses to average
net assets including
interest and tax expenses 1.42%+ 1.25% 1.26% 1.29% 1.40% 1.40%+
Ratio of net expenses to average
net assets excluding
interest and tax expenses 1.25% 1.25% 1.25% 1.25% 1.40% 1.40%
Portfolio turnover rate 44% 104% 85% 88% 101% 33%
Net investment income/(loss)before
deferral of fees by Manager
including interest and
tax expenses $ 0.03 $ 0.03 $ 0.26 $ 0.33 $ (0.05) $ 0.01
Ratio of expenses before deferral
of fees by Manager
including interest and tax expenses 1.55% 1.66% 1.61% 1.70% 1.79% 1.81%+
</TABLE>
* The Montgomery Institutional Series: Emerging Markets Portfolio commenced
operations on December 17, 1993.
** Total return represents aggregate total return for the periods indicated.
# Amount represents less than $0.01 per share.
+ Annualized.
++ Per share numbers have been calculated using the monthly average shares
method, which more appropriately represent the per share data for the year
since the use of the undistributed method did not accord with results from
operations.
The Montgomery Funds II
Notes to Financial Statements (unaudited)
The Montgomery Funds II (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end management
investment company and was organized as a Delaware business trust on September
8, 1993 and commenced operations with the Montgomery Institutional Series:
Emerging Markets Portfolio. As of December 31, 1998, the Trust had seven
publicly offered series, the Montgomery U.S. Asset Allocation Fund, the
Montgomery Global Long-Short Fund, the Montgomery Emerging Markets Focus Fund,
the Montgomery Small Cap Systematic Value Fund, the Montgomery Macro Cap
Systematic Value Fund, the Montgomery Institutional Series: Emerging Markets
Portfolio and the Montgomery Institutional Series: International Growth
Portfolio. Prior to the public offerings of shares of each Fund, a limited
number of shares were sold to Montgomery Asset Management, LLC (or its
predecessor) and/or affiliated persons of Montgomery Asset Management in private
placement offerings. Otherwise, no Fund had any significant operations prior to
the date on which it commenced operations (i.e., commenced selling shares to the
public) Information presented in these financial statements pertains only to the
Montgomery Institutional Series: Emerging Markets Portfolio (the "Fund"). The
financial statements for the other funds in the Trust have been presented under
separate cover.
1. Significant Accounting Policies:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported
<PAGE>
amounts and disclosures in the financial statements. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies.
a. Portfolio Valuation
The Fund's securities are valued using current market valuations: either the
last reported sales price or, in the case of securities for which there is no
reported last sale and in the case of fixed income securities, the mean between
the closing bid and asked price. Securities and assets for which market
quotations are not readily available (including restricted securities which are
subject to limitations as to their sale) are valued at fair value by management
as determined in good faith in accordance with methods which are authorized by
the Trust's Board of Trustees.
Portfolio securities which are traded primarily on foreign securities
exchanges or for which market quotations are readily available are generally
valued at the last reported sales price on the respective exchanges or markets,
except that when an occurrence subsequent to the time that a value was so
established is likely to have changed said value, the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees or its delegates. Securities traded on the
over-the-counter market are valued at the mean between the last available bid
and ask price prior to the time of valuation. The value of equity swap
agreements will be the value of the underlying security.
Short-term securities with maturities of 60 days or less are valued at
amortized cost which approximates fair value.
b. Repurchase Agreements
The Fund may engage in repurchase agreements individually or jointly through a
joint repurchase account with other series of the Trust and affiliated series of
another registered investment company pursuant to a joint repurchase agreement.
Under the terms of a typical repurchase agreement, the Fund takes possession of
a government debt obligation as collateral. The Fund also agrees with the
counterparty to allow the counterparty to repurchase, and the Fund to resell,
the obligation at a specified date and price, thereby determining the yield
during the Fund's holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the Fund's holding
period. The value of the collateral is at least equal at all times to the total
amount of the repurchase obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There could be potential loss to the Fund in the event the Fund
is delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights. The Fund's investment manager, acting under the supervision of the Board
of Trustees, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an individual or
joint basis in tri-party repurchase agreements which involve a counterparty and
a custodian bank.
c. Foreign Currency
Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. Unrealized gains
and losses which result from changes in foreign currency exchange rates on
investments have been included in the unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses resulting from
movement in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amount actually received and
the portion of foreign currency gains and losses related to fluctuations in
exchange rates between the initial purchase trade date and subsequent sale trade
date.
<PAGE>
d. Forward Foreign Currency Exchange Contracts
The Fund may engage in forward foreign currency exchange contracts with off
balance sheet risk in the normal course of investing activities in order to
manage exposure to market risks. Forward foreign currency exchange contracts are
valued at the forward rate and are marked-to-market daily. The change in market
value is recorded by the Fund as an unrealized gain
or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Forward foreign currency exchange contracts
have been used solely to establish a rate of exchange for settlement of
transactions. Although forward foreign currency contracts limit the risk of loss
due to a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of the currency increase. In
addition, the Fund could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts.
e. Dividends and Distributions
Dividends from net investment income of the Fund are declared and paid
annually.
Distributions of any short-term capital gains earned by the Fund are
distributed no less frequently than annually. Additional distributions of net
investment income and capital gains for the Fund may be made in order to avoid
the application of a 4% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
f. Securities Transactions and Investment Income
Securities transactions are recorded on a trade-date basis. Realized gain
and loss from securities transactions are recorded on the specific identified
cost basis. Dividend income is recognized on the ex-dividend date and interest
income, including, where applicable, amortization of discount on short-term
investments, is recognized on an accrual basis. Dividend income on foreign
securities is recognized as soon as the Fund is informed of the ex-dividend
date.
g. Federal Income Taxes
The Fund has elected and qualified and it is the intention of the Fund to
continue to qualify to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), by
complying with the provisions available to certain investment companies, as
defined in applicable sections of the Code, and to make distributions of taxable
income to shareholders sufficient to relieve the Fund from all or substantially
all federal income taxes.
h. Organization Costs
Expenses incurred in connection with the organization of the Fund were
amortized on a straight-line basis over a period of five years from the
commencement of operations.
i. Expenses
Most expenses of the Trust can be directly attributed to a Fund. Expenses
which cannot be directly attributed are apportioned among the Funds in the Trust
based upon relative net assets.
2. Management Fees and Other Transactions with Affiliates:
a. Montgomery Asset Management, LLC. is the Fund's Manager (the "Manager"). The
Manager, a Delaware liability company, is an investment adviser registered with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). The Manager is a subsidiary of
Commerzbank AG.
Pursuant to an investment management agreement ("Investment Management
Agreement"), the Manager provides the Fund with advice on buying and selling
securities,
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (unaudited)
(continued)
manages the investments of the Fund including the placement of orders for
portfolio transactions, furnishes the Fund with office space and certain
administrative services, and provides the personnel needed by the Trust with
respect to the Manager's responsibilities under such agreement. As compensation,
the Fund pays the Manager a monthly management fee (accrued daily)based upon the
average daily net assets of the Fund, at an effective annual rate of 1.32% of
average daily net assets before any deferral of fees for the six months ending
December 31, 1998, (the effective rate including the effect of current period
fee deferral was 0.91% for the six months ending December 31, 1998.) The Manager
has agreed to reduce some or all of its management fee or absorb Fund expenses
if necessary to keep the Fund's annual operating expenses, exclusive of interest
or taxes, at or below 1.25% of average daily net assets. Any reductions made for
the Fund by the Manager in its fees are subject to recovery within the following
three years provided the Fund is able to affect such reimbursement and remain in
compliance with applicable expense limitations. Any of the Manager's expense
voluntary expense absorptions are also subject to recovery. For the six months
ending December 31, 1998, the Manager recouped no fees which were deferred
during prior fiscal years. For the six months ended December 31, 1998, the
Manager has deferred fees of $91,020. As of December 31, 1998, the deferred
management fee subject to recoupment is $1,096,027.
b. Montgomery Asset Management, LLC, serves as the Fund's administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of the Fund's administrative operations. As compensation, the Fund pays
the Administrator a monthly fee at an annual rate of 0.05% of average daily
net assets. For the six months ended December 31, 1998, the Administrator has
voluntarily waived fees of $11,174.
c. Certain officers and Trustees of the Trust are, with respect to the Trust's
Manager and/or principal underwriter, "affiliated persons" as defined in the
1940 Act. Each Trustee of the Montgomery Funds II who is not an "affiliated
person" receives an annual retainer and quarterly meeting fees totalling $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 was allocated to the
Montgomery Funds II).
DST Systems, Inc. serves as the Fund's transfer agent.
3. Securities Transactions:
a. The aggregate amount of purchases and sales of investment securities, other
than short-term securities, for the six months ended December 31, 1998, were
$68,706,041 and $89,831,551, respectively.
b. At December 31, 1998, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value for federal income tax purposes were $14,195,430 and
$39,330,697 respectively.
c. The schedule of forward foreign currency exchange contracts at December 31,
1998 were as follows:
d.
<TABLE>
<CAPTION>
Foreign Currency Settlement In Exchange Net Unrealized
Amount Date For (US$) Depreciation
<S> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to deliver:
18,723 Brazilian Cruziero 01/04/99 $15,496 $16
Total Forward Foreign Currency
Exchange Contracts to Deliver
</TABLE>
d. Under an unsecured Revolving Credit Agreement with DeutscheBank (New York),
the Fund, along with other funds of Montgomery Funds, Montgomery Funds II and
Montgomery Funds III, may for one year starting August 13, 1998, borrow
(consistent
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (unaudited)
(continued)
with applicable law and its investment policies)up to 10% of its net asset
value, provided that the aggregate principal amount of outstanding loans under
the agreement to all Funds does not exceed $175,000,000. The Fund pays its pro-
rata share of the quarterly commitment fee of 0.08% per annum of the unutilized
credit line balance. For the six months ended December 31, 1998, there were no
borrowings under this agreement.
4. Transactions in Shares of Beneficial Interest:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Transactions in shares of beneficial interest
for the periods indicated below were:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Sold 79,078 $ 2,341,991 839,837 $ 46,214,845
Issued as reinvestment of dividends 300 8,857 73,789 3,279,907
Shares redeemed (567,618) (18,424,535) (1,075,255) (59,578,508)
Net Decrease (488,240) $(16,073,687) (161,629) $(10,083,756)
</TABLE>
To the extent consistent with certain tax requirements, investment expense
reimbursement fees and redemption expense reimbursement fees of 0.75% may be
imposed on the purchase or redemption of Fund shares. Payment of such fees
reflected in the dollar amounts above are paid in cash. This adjustment is not a
sales charge. It is kept in the Fund for the benefit of all shareholders.
The purpose of the adjustment is to prevent the performance of the Fund from
being adversely affected by the transaction costs created by the investment of
cash received by the Fund or the sale of securities to obtain cash.
5. Illiquid and Special Situation Securities:
The Fund may not invest more than 15% of its net assets in illiquid
securities. The following securities have been determined by the Manager to be
illiquid because they are restricted or there is an exceptionally low trading
volume in the primary trading market for the security at December 31, 1998:
<TABLE>
<CAPTION>
Acquisition 12/31/98 Value % of Total
Date Shares Market Value Per Share Cost Net Assets
<S> <C> <C> <C> <C> <C> <C>
Bajaj Auto, Ltd. 09/21/98 8,000 $ 98,187 $12.27 $ 124,194 0.06%
Bashkirenergo 08/18/97 1,350,000 27,000 0.02 934,335 0.02%
Berjaya Sports Toto Berhad 02/24/98 404,000 503,937 1.25 1,089,547 0.33%
BSES, Ltd. 12/02/98 140,000 466,117 3.33 1,473,497 0.31%
BSES, Ltd. GDR 02/12/98 50,000 637,500 12.75 654,953 0.42%
Castrol (India) Ltd. 06/17/97 207 3,697 17.86 2,994 0.00%*
Central Asia Growth Fund 11/03/97 54,859 164,577 3.00 565,000 0.11%
Dr. Reddy's Laboratories. Ltd. 12/02/98 140,000 1,600,424 11.43 1,473,497 0.97%
Fauji Fertilizer Company Ltd. 10/20/97 898,200 826,886 0.92 1,796,937 0.55%
Hindustan Lever Ltd. 06/02/97 50 1,958 39.16 1,618 0.00%*
Hindustan Petroleum
Corporation Ltd. 06/11/97 90,000 498,211 5.54 1,148,248 0.33%
Housing Development and
Finance Corporation 10/31/95 35,700 1,831,233 51.30 2,383,442 1.21%
Indian Hotels Company, Ltd. 07/15/97 56 473 8.45 987 0.00%
Irkutskenergo, Sponsored, ADR 12/20/96 100,000 150,000 1.50 597,986 0.10%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ITC Ltd. 12/19/97 1,950 34,437 17.66 29,448 0.02%
Kazomerts Bank, GDR 07/16/97 12,600 44,100 3.50 236,880 0.03%
Kepler Weber SA 02/10/95 9,400 14,702 1.56 122,544 0.01%
Krasnoyarskelectrosvyaz, ADR 02/20/98 22,046 13,228 0.60 254,205 0.01%
Krasny Oktyabr 07/14/97 26,500 34,450 1.30 457,125 0.02%
LukOil Company, ADR 05/20/98 5,000 85,000 17.00 118,230 0.06%
LukOil Company, Pfd., ADR 12/08/97 16,000 56,000 3.50 468,000 0.04%
Mahanagar Telephone
Nigam, Ltd. 07/11/97 300,000 1,294,090 4.31 2,213,350 0.85%
Murmansk Electrosvyaz, ADR 02/20/98 84,242 8,508 0.10 213,704 0.01%
Nizhovsyazinform,
Sponsored, ADR 02/20/98 29,054 8,716 0.30 180,471 0.01%
Oil and Natural Gas
Corporation Ltd. 09/19/97 100 474 4.74 1,007 0.00%*
Orenburg Region
Electrosvyaz, ADR 02/20/98 120,450 6,023 0.05 69,107 0.00%*
Pakistan State Oil 10/21/97 141,964 223,575 1.57 1,215,832 0.15%
Pepsi International Bottlers 12/27/95 9,000 153,000 17.00 270,000 0.10%
Romania Growth Fund PLC 08/21/97 46,653 87,708 1.88 474,320 0.06%
Samarasvyazinform 09/22/97 6,000 19,200 3.20 486,000 0.01%
State Bank of India 03/26/96 150 555 3.70 1,008 0.00%*
Teleceara Celular SA, Series B 06/18/97 1,536 83 0.05 484 0.00%*
Teleceara Celular SA, Series D 04/17/97 1,291,545 28,861 0.02 190,086 0.02%
Telecomunicacoes de Ceara 04/17/97 1,291,545 188,133 0.15 348,492 0.12%
Telecomunicacoes de
Ceara, Pfd. 06/18/97 1,536 127 0.08 125 0.00%*
The Czech Value Fund 05/21/96 126,700 681,013 5.38 1,067,091 0.45%
Uraltelecom, ADR 02/20/98 6,278 21,973 3.50 182,925 0.01%
YTL Power International
Berhad 02/25/98 907,000 713,666 0.79 841,614 0.47%
$9,890,322 6.44%
</TABLE>
* Amount represents less than 0.01%.
In addition, certain of the foreign currency at December 31, 1998 may be
illiquid because conversion to U.S. dollars could take more than seven days.
6. Foreign Securities:
The Fund purchases securities on foreign securities exchanges. Securities of
foreign companies and foreign governments involve special risks and
considerations not typically associated with investing in U.S. companies and the
U.S. government. These risks include revaluation of currencies, less reliable
information about issuers, different securities transactions clearance and
settlement practices, and potential future adverse political and economic
developments. These risks are heightened for investments in emerging market
countries. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those securities of comparable U.S. companies and the U.S. government.
