SEMI-ANNUAL REPORT
TO SHAREHOLDERS
VONTOBEL U.S. VALUE FUND
VONTOBEL INTERNATIONAL EQUITY FUND
VONTOBEL EASTERN EUROPEAN EQUITY FUND
VONTOBEL INTERNATIONAL BOND FUND
SAND HILL PORTFOLIO MANAGER FUND
A SERIES of Vontobel Funds, Inc.
a "Series" Investment Company
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
<PAGE>
VONTOBEL U.S. VALUE FUND - SEMI-ANNUAL REPORT 1997
Dear Shareholder:
Before getting into the numbers, we'd like to extend a warm welcome to those new
shareholders who've entrusted Vontobel with their money over the past six
months, resulting in the fund's growth beyond the $100 million mark, up from $70
million at the start of 1997. While we can't promise outperformance in any
single quarter (indeed, we fell short of the S&P 500 in the June quarter -- more
on that below), we can, as our longstanding shareholders have come to know,
promise adherence to an investment approach that has provided satisfactory
returns over the long term. This approach, following the investment tenets first
formulated by Benjamin Graham in the 1930s and further developed by Warren
Buffett in our own era, is based on the concept that stocks are best bought when
they are offered at a significant discount to their intrinsic value, which can
be calculated as the per-share present value of a company's future free cash
flows. It's a relatively simple, non-emotional discipline that differentiates
Vontobel U.S. Value Fund from the mushrooming mass of mutual funds in the
marketplace today. We're honored that you've chosen Vontobel. Now about those
numbers. . .
At June 30, 1997, the fund's closing net asset value was $15.74, providing a
total return of 14.2% over the first half of 1997 (10.7% in the June quarter).
Reacting to strong earnings reports along with signs that moderating economic
growth would forestall any interest rate hike by the Federal Reserve, investors
bid U.S. stocks sharply higher in 1997's second quarter. Indeed, the powerful
rally generated three-month total returns more often associated with an annual
span; the S&P gained 17.5% in the quarter (20.6% year-to-date) and the Dow Jones
Industrial Average posted a 17.0% rise (20.0% through 1997's six months). This
latest rally is noteworthy not only for its power, but also for its breadth.
Indexes less influenced by moves in large-cap, widely held stocks also moved
sharply higher; the Russell 2000, for example, climbed 15.7% in the June
quarter, moving back into the black after a painful first quarter (that index is
up 9.3% year-to-date).
<PAGE>
The violent selloff in late-March through April 11th, the first significant
correction in years, provided a limited opportunity to boost investment levels.
In April we added to positions in Knight-Ridder, UNUM, Fannie Mae and Freddie
Mac. Sticking to our investment discipline, though, we trimmed substantially as
the rally gained steam, ending June with just over 60% of fund assets in stocks.
The large cash position, a residual of our inability to find bargains given the
current earnings outlook and interest rate environment (we cannot assume lower
rates in order to justify stock purchases), has reduced risk levels, but also
return levels. From our bottom-up perspective we find valuations extremely
stretched. While there is no obvious catalyst for a near-term correction, we
will stick to our discipline even if it results in underperformance versus the
giddy indexes. We do this out of respect for risk that is all but invisible in
today's financial markets.
Edwin Walczak, Fund Manager
Mark Robertson, Associate Fund Manager
July 17, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
------ ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Vontobel U.S Value Fund............................ 28.62% 24.65% 18.18% 16.13% 3/30/90
</TABLE>
Past performance cannot guarantee future results. Investment return and share
price will fluctuate and redemption value may be more or less than original
cost. For more complete information, including management fees, expense and
special risk considerations, call (800) 445-8872 for a prospectus.
2
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCK: 60.52%
BANKING: 8.80%
56,772 California Center Bank $ 1,050,284
29,800 Wells Fargo & Co. 8,031,100
------------
9,081,384
------------
FOOD-PROCESSING: 2.38%
36,700 Wrigley Co. 2,458,900
------------
INDUSTRIAL: 1.26%
32,000 Cleveland Cliffs 1,304,000
------------
INSURANCE-DISABILITY: 3.79%
35,300 Provident Companies Inc. 1,888,550
48,000 Unum Corp. 2,016,000
------------
3,904,550
------------
INSURANCE-DIVERSIFIED: 13.77%
55,000 American International Group 8,215,625
44,200 Horace Mann Educators Corp. 2,165,800
126,150 Old Republic International Corp. 3,823,922
------------
14,205,347
------------
INSURANCE-PROPERTY/CASUALITY: 12.53%
86,700 Chubb Corp. 5,798,062
49,000 Cincinnati Financial 3,871,000
90,200 Commerce Group 2,221,175
14,025 Orion Capital 1,034,344
------------
12,924,581
------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
OTHER FINANCIAL: 9.21%
103,724 Federal National Mtg. 4,524,960
144,800 Federal Home Loan Mtg. 4,977,500
------------
9,502,460
------------
PUBLISHING AND BROADCAST: 6.37%
9,224 Walt Disney Co. 740,226
26,800 Gannett Co. 2,646,500
64,800 Knight Ridder 3,179,250
------------
6,565,976
------------
RESTAURANTS: 2.41%
51,400 McDonald's Corp. 2,483,262
------------
TOTAL COMMON STOCKS:
(Cost: $49,881,654) 62,430,460
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
U.S. GOVT. SECURITIES: 30.13%
4,000,000 U.S. Treasury Bill maturity date 07/15/97; 8.50% 4,005,000
3,000,000 U.S. Treasury Bill maturity date 07/31/97; 5.875% 3,000,939
4,000,000 U.S. Treasury Bill maturity date 08/15/97; 6.50% 4,005,000
3,000,000 U.S. Treasury Note maturity date 08/31/97; 6.00% 3,001,875
3,000,000 U.S. Treasury Note maturity date 09/30/97; 5.75% 3,001,875
5,000,000 U.S. Treasury Bill maturity date 10/15/97; 8.75% 5,045,315
3,000,000 U.S. Treasury Note maturity date 10/30/97; 5.625% 3,000,939
3,000,000 U.S. Treasury Note maturity date 11/15/97; 7.375% 3,018,750
3,000,000 U.S. Treasury Note maturity date 12/31/97; 5.25% 2,995,314
------------
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost: $31,074,045) 31,075,007
------------
TOTAL INVESTMENTS:
(Cost: $80,955,699)* 90.65% 93,505,467
Other assets, net 9.35% 9,641,992
------ ------------
NET ASSETS 100.00% $103,147,459
------ ------------
------ ------------
</TABLE>
*Cost for Federal income tax purposes is $80,955,699 and consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 12,724,598
Gross unrealized depreciation (174,830)
------------
Net unrealized appreciation $ 12,549,768
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (identified cost of $80,955,699) (Notes 1
& 3) $ 93,505,467
Cash 8,097,036
Receivables:
Dividend and interest 726,438
Capital stock sold 107,522
Securities sold 691,390
------------
1,525,350
Prepaid expenses 58,757
Deferred organization costs 45,576
-----------------
TOTAL ASSETS 103,232,186
-----------------
LIABILITIES
Investment management fees payable 84,366
Administrative fee 361
------------
TOTAL LIABILITIES 84,727
-----------------
NET ASSETS $ 103,147,459
-----------------
-----------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($103,147,459 / 6,555,248 shares outstanding) $ 15.74
-----------------
-----------------
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $ 75,410,054
Undistributed net investment income 280,847
Undistributed net realized gain on investments 14,906,790
Net unrealized appreciation of investments 12,549,768
------------
Net Assets $103,147,459
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest $512,759
Dividend 406,725
--------
Total income $ 919,484
-----------
Expenses:
Investment management fees (Note 2) 379,600
Transfer agent fees (Note 2) 43,889
Recordkeeping and administrative services
(Note 2) 83,241
Legal and audit fees 36,469
Filing fees and registration (Note 2) 17,667
Shareholder servicing and reports (Note 2) 41,345
Custodian fees (Note 3) 23,330
Amortization of organization cost 9,000
Other 38,926
--------
673,467
Custodian fee waiver (23,330)
Management fee waiver (11,500)
-----------
Expenses, net 638,637
-----------
Net investment income 280,847
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 5,209,199
Net change in unrealized appreciation on investments 6,009,319
-----------
Net gain on investments 11,218,518
-----------
Net increase in net assets resulting from operations $11,499,365
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- -----------
<S> <C> <C>
OPERATIONS
Net investment income $ 280,847 $ 396,316
Net realized gain on investments 5,209,199 11,188,744
Change in unrealized appreciation of investments 6,009,319 158,072
---------------- -----------
Net increase in net assets resulting from operations 11,499,365 11,743,132
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($0 and $.19 per share, respectively) 0 (468,857)
Net realized gain from investment transaction
($0 and $2.10 per share, respectively) 0 (5,158,503)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share transactions* 22,096,437 8,332,548
---------------- -----------
Net increase in net assets 33,595,802 14,448,320
Net assets at beginning of period 69,551,657 55,103,337
---------------- -----------
NET ASSETS at the end of the period (including undistributed net investment
income of $280,847 and $0, respectively) $103,147,459 $69,551,657
---------------- -----------
---------------- -----------
</TABLE>
*A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------------ -------------------------
SHARES VALUE SHARES VALUE
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,241,626 $ 32,818,679 5,091,561 $ 70,799,337
Shares reinvested from dividend 0 0 397,818 5,485,919
Shares redeemed (733,169) (10,722,242) (4,602,188) (67,952,708)
--------- ------------ ---------- ------------
Net increase 1,508,457 $ 22,096,437 887,191 $ 8,332,548
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1997 -----------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.78 $ 13.25 $ 10.26 $ 12.64 $ 12.00 $ 11.36
---------------- ------- ------- ------- ------- -------
Income from investment operations-
Net investment income 0.04 0.17 0.05 0.09 0.16 0.10
Net realized and unrealized
gain (loss) on investments 1.92 2.65 4.09 (0.08) 0.56 1.70
---------------- ------- ------- ------- ------- -------
Total from investment operations 1.96 2.82 4.14 0.01 0.72 1.80
---------------- ------- ------- ------- ------- -------
Less distributions-
Distributions from net investment
income 0 (0.19) (0.04) (0.23) (0.02) (0.10)
Distributions from realized gains on
investments 0 (2.10) (1.11) (2.16) (0.06) (1.06)
---------------- ------- ------- ------- ------- -------
Total distributions 0 (2.29) (1.15) (2.39) (0.08) (1.16)
---------------- ------- ------- ------- ------- -------
Net asset value, end of period $ 15.74 $ 13.78 $ 13.25 $ 10.26 $ 12.64 $ 12.00
---------------- ------- ------- ------- ------- -------
---------------- ------- ------- ------- ------- -------
Total Return 14.19% 21.28% 40.36% 0.02% 6.00% 16.30%
Ratios/Supplemental Data
Net assets, end of period (000) $103,147 $69,552 $55,103 $29,852 $34,720 $31,335
Ratio to average net assets-(A)
Expenses (B) 1.56%(D) 1.48% 1.65% 1.62% 1.82% 1.96%
Expenses-net (C) 1.50%(D) 1.43% 1.50% 1.62% 1.82% 1.96%
Net investment income 0.66%(D) 0.63% 0.38% 0.76% 1.23% 0.76%
Portfolio turnover rate 26.55% 108.36% 95.93% 98.80% 137.32% 99.66%
Average brokerage commissions per
share $ 0.0900 $0.0883 -- -- -- --
</TABLE>
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .03% on an annualized basis in 1997, 0.4% by
1996, and 0.06% in 1995.
(B) Expense ratio has been increased to include additional custodian fees since
1995 which were offset by custodian fee credits. Prior to 1995 custodian fee
credits reduced expense ratios.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
(D) Annualized
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES -- Vontobel U.S. Value Fund (the "Fund")
is a series of Vontobel Funds, Inc. ("VFI") which is registered under The
Investment Company Act of 1940, as amended, as a non-diversified open-end
management company. The Fund was established March 30, 1990 as a series of VFI
which has allocated to the Fund 50,000,000 shares of its 500,000,000 shares of
$.01 par value common stock. The following is a summary of significant
accounting policies consistently followed by the Fund. The policies are in
conformity with generally accepted accounting principles.
The investment objective of the fund is to achieve long-term capital returns in
excess of the broad market by investing in a continuously managed portfolio of
U.S. equity securities.
A. SECURITY VALUATION. Investments in securities traded on a national securities
exchange or included in the NASDAQ National Market System are valued at the last
reported sales price; other securities traded in the over-the-counter market and
listed securities for which no sale is reported on that date are valued at the
last reported bid price. Short-term investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates market value.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. SECURITY TRANSACTIONS AND DIVIDENDS. As is common in the industry, security
transactions are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date.
D. DEFERRED ORGANIZATIONAL EXPENSES. All of the expenses of VFI incurred in
connection with its organization and the public offering of its shares have been
assumed by the series funds of VFI. The organization expenses allocable to
Vontobel U.S. Value Fund are being amortized over a period of fifty-seven (57)
months. Reorganization costs assumed in the acquisition of Centurion Growth Fund
amounted to $90,899 and will be amortized over a period of five (5) years.
E. ACCOUNTING ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the
10
<PAGE>
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS -- Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA Inc. ("VUSA") provides
investment services for an annual fee of 1.0% of the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
VUSA will reimburse the Fund, to the extent of its advisory fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes, brokerage
commissions and amortization of organization expenses), to the lowest applicable
percentage limitation prescribed by any state in which the Fund's shares are
qualified for sale. VUSA has agreed to reduce its management fee by $22,500 per
year for four years commencing January 1, 1995.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $94,679 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky filings and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $20,602 for its services for the six months ended June 30,
1997.
Certain officers and/or directors of the Fund are also officers and/or directors
of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES -- Purchases and sales of securities
other than short-term notes aggregated $26,325,847 and $20,748,314,
respectively. The Custodian has provided credits in the amount of $23,330
against custodian and accounting charges based on credits on uninvested cash
balances of the Fund.
NOTE 4-DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences are primarily due to differing
treatments for equalization and post-October capital losses.
11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
VONTOBEL INTERNATIONAL EQUITY FUND - SEMI-ANNUAL REPORT 1997
Dear Shareholder:
At June 30, the fund's closing NAV stood at $20.41, and net assets totaled
$165,914,310. The fund gained 9.4% for the second quarter, vs. the MSCI EAFE
Index at 12.9%. For the first half of 1997, the fund produced a total return of
12%, vs. the benchmark at 11.2%.
Falling interest rates, strengthening balance sheets and a change in the
attitude of corporate management toward shareholders were some of the factors
that helped to spur strong returns in Europe and Latin America during the second
quarter. Asian markets continued their falling trend due to structural issues
like currency risk, interest rate pressure, falling levels of corporate
profitability, and weakening export demand from Europe and Japan. Overall, this
did not affect the fund's performance since we had already reduced most of our
exposure to the peripheral Asian markets.
The major continental European markets are close to being fully valued after a
double-digit run-up in equity prices year to date, e.g., France +23%, Germany
+29%, Switzerland +44%, the Netherlands +35% (in local currency terms). In view
of this outperformance, we have started to raise cash, but are maintaining an
overweight in the Netherlands, Sweden and Switzerland. Based on our top-down and
bottom-up analyses, 8 out of 14 European markets still have the potential to
produce returns in the low teens over the next 12 months. The UK market was
restrained by political uncertainty and concerns about interest rate moves. The
Labor Party's election win after 18 years of Tory rule should not impact the
UK's success in attracting global capital due to its highly skilled labor force
and well-regulated business environment. The economy hasn't looked this rosy
since the 1980's, as reflected by the strength of the sterling and the potential
risk of further interest rate hikes. Corporate profits are strong while stock
market sentiment is quite weak, which is a good combination for maintaining a
full weighting in the UK.
The Japanese economy is showing growth of around 1% for 1997 after four years of
recession. Due to corporate restructuring, cost controls and sales growth, the
operating environment for large- and mid-size corporations in the manufacturing
sector is generating large amounts of
13
<PAGE>
cash flow. For most companies we own, free cash flow is increasing at about 40%
relative to the last peak prior to the 1989 bubble. Valuation ratios in the
Japanese market are still giving mixed signals: PCF 10X, PB 2.2X and PE 42X
(ex-financials and utilities). Earnings, however, continue to be strong and over
the next 12 months should grow by about 38% for the Topix Index. Our allocation
to this market has increased to 29%, v. 23% at year end.
The US dollar remained extremely strong against the major European currencies
with the exception of the pound sterling; the fund benefitted from our unhedged
position in the latter. We maintained hedges on the German mark, French franc
and Swiss franc. Our hedge against the yen worked against us, as noted above, in
view of the yen's strong appreciation during the quarter.
Fabrizio Pierallini, Fund Manager
Rajiv Jain, Associate Fund Manager
July 17, 1997
14
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
------ ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Vontobel International Equity Fund*................ 19.47% 13.13% 12.98% 10.78%** 7/6/90
</TABLE>
* On February 26, 1997 the Board of Directors of Vontobel Funds, Inc. approved
changing the name of the Vontobel EuroPacific Fund series to the Vontobel
International Equity Fund.
** On July 6, 1990, the Fund's current investment adviser was appointed and the
Fund's investment objective was changed to its current status. Average annual
total return of 7.20% for the ten-year period since January 1, 1987 includes
that of the Fund's predecessor, the Tyndall-Newport Global Growth Fund
(1/1/87-7/6/90).
Past performance cannot guarantee future results. Investment return and share
price will fluctuate and redemption value may be more or less than original
cost.
Investing in foreign securities involves special risk considerations which
normally are not associated with investing in United States securities, such
as: political or social instability; changes in currency rates; costs incurred
in connection with conversions between various currencies; availability of less
financial information than comparable United States companies; and, lack of
uniform accounting, auditing and financial reporting requirements. Please
review the Fund's prospectus for a complete discussion of foreign investments.
15
<PAGE>
<TABLE>
<CAPTION>
VONTOBEL INTERNATIONAL EQUITY FUND INDUSTRY PERCENTAGE
06/30/97 BASED ON NET ASSETS
- --------------------------------------------------------------------- --------------------
<S> <C>
Industrial/Machines/Electronics 11%
Pharmaceutical/Medical Products 11%
Consumer Goods 10%
Banking 9%
Miscellaneous 9%
Insurance 6%
Auto/Automotive 5%
Retail 5%
Financial 4%
Food 4%
Oil 4%
Publishing/Broadcasting/Telecommunications 4%
Conglomerate/Diversified 3%
Shipping/Trading 3%
Chemicals 2%
Metal 2%
Utility 2%
--------------------
94%
</TABLE>
16
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS AND WARRANTS: 93.92%
BELGIUM 0.82%
6,700 Barco NV NPV* (Conglomerate) $ 1,357,433
------------
FINLAND 0.64%
20,000 Cultor Oy Ser '2' (Food -- Process) 1,060,278
------------
FRANCE 8.07%
40,000 AXA S A (Insurance) 2,487,791
12,000 Bic (Consumer Goods) 1,962,326
2,870 Carrefour (Merchandising) 2,084,360
24,000 Dassault Systemes SA* (Aerospace & Military Technology) 1,702,997
11,000 Generale des Eaux (Utility -- Water) 1,409,464
6,500 Generale des Eaux Wts 5/2/2001 (Utility -- Water) 3,893
26,000 Scor (Reinsurance) 1,046,778
17,315 Total SA Cl B (Oil) 1,750,151
15,135 Valeo (Automobile) 940,030
------------
13,387,790
------------
GERMANY 6.78%
18,000 Adidas AG (Consumer Goods) 1,992,087
50,000 Bayer AG (Chemicals) 1,921,555
1,400 Bayerische Motoren Werk (Automobile) 1,158,438
7,900 CKAG Colonia Konzern AG (Insurance) 729,341
16,500 GEHE AG (Pharmaceutical) 1,125,925
6,500 SAP AG Pfd. (Computer Software) 1,349,275
13,500 SGL Carbon AG (Chemicals) 1,848,615
20,000 Veba AG (Utility) 1,123,918
------------
11,249,154
------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
GREAT BRITAIN 17.99%
1,198 BAA ORD (Transportation -- Miscellaneous) 11,039
25,454 British Petroleum PLC Spons ADR (Petroleum) 1,905,868
133,149 CRH ORD (Construction) 1,394,827
210,000 Dixons Group PLC (Retail) 1,632,571
51,304 Emi Group PLC (Leisure & Rec. Products) 922,382
120,000 General Accident ORD (Insurance) 1,747,935
128,495 GKN ORD (Automobile) 2,212,854
100,219 HSBC Holdings ORD (Banking) 3,083,937
160,000 Lloyds TSB Group ORD (Finance -- Consumer Loans) 1,643,392
250,000 Mirror Group PLC (Publishing) 782,409
50,209 Misys PLC (Computer Services) 1,129,205
120,000 Norwich Union PLC 144A (Insurance) 638,246
150,000 Powerscreen International (Industrial Components) 1,640,562
134,013 Provident Financial PLC (Financial) 1,249,312
340,000 Rentokil Initial PLC (Diversified) 1,194,256
110,000 Reuters Holdings (Publishing) 1,159,131
390,000 Shell Transport & Trading Regd (Oil) 2,658,609
136,640 Siebe (Multi-Industry) 2,315,590
120,000 Smiths Industries ORD (Machinery & Engineering) 1,534,188
30,000 Zeneca Group PLC ORD (Medical -- Drugs) 991,828
------------
29,848,141
------------
IRELAND 3.00%
264,869 Allied Irish Banks PLC (Banking) 2,019,448
36,600 Elan Corp. ADR* (Medical Products) 1,656,150
261,812 Greencore Group (Food -- Process) 1,294,440
------------
4,970,038
------------
NETHERLANDS 7.06%
18,162 Aegon N V ADR (Insurance) 1,272,475
14,427 Aegon NV (Insurance) 1,006,844
140,000 Elsevier NV (Publishing) 2,339,200
32,290 Hagemeyer NV (Wholesale & International Trade) 1,667,905
32,484 Ing Groep NV (Financial Services) 1,497,557
9,000 Oce-Van Der Grinten NV (Data Processing) 1,160,838
50,632 Vendex International NV (Merchandising) 2,772,675
------------
11,717,494
------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
NORWAY 0.54%
35,000 Smedvig As Sponsored ADR B* (Oil) 892,500
------------
SPAIN 0.74%
5,000 BCO Popular ESP REG (Banking) 1,224,750
------------
SWEDEN 5.36%
7,700 Assa Abloy Paid Subs Sh (Metal Processors & Fabrication) 157,532
77,000 Assa Abloy Series 'B' (Metal Processors & Fabrication) 1,575,323
106,666 Astra Ab Ser B Free (Pharmaceutical) 1,885,300
35,000 Autoliv Inc (Automotive) 1,369,375
40,000 Ericsson (LM) Tele Series B Free (Electrical & Electronics) 1,577,136
45,000 Hennes & Mauritz B Free (Merchandising) 1,584,905
24,000 Om Gruppen AB (Financial Services) 745,837
------------
8,895,408
------------
SWITZERLAND 7.60%
1,500 Nestle AG Reg (Food) 1,978,090
4,200 Pharma Vision (Pharmaceuticals) 2,401,232
600 Roche Holding AG Wts 5/05/98* (Medical) 46,012
600 Roche Holdings Genusscheine DRC (Pharmaceutical) 5,424,855
2,414 Union Bank of Switzerland Bearer (Banking) 2,760,273
------------
12,610,462
------------
AUSTRALIA 0.56%
65,000 National Australia Bank Ltd (Banking) 931,014
------------
HONG KONG 1.84%
225,000 Dah Sing FCL Services (Financial Services) 1,243,014
150,000 Sun Hung Kai Properties (Real Estate) 1,800,627
------------
3,043,641
------------
JAPAN 29.14%
100,500 Bank Of Tokyo-Mitsubishi (Banking) 2,016,840
130,000 Bridgestone Corporation (Tire & Rubber) 3,017,189
65,000 Canon, Inc. (Office Equipment) 1,769,479
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
85,750 Credit Saison Co. (Retail) 2,094,931
125,400 Ezaki Glico Co. (Food & Household Products) 1,126,970
74,000 Fuji Photo Film Co. (Consumer Goods) 2,976,529
35,000 Hitachi Maxell (Audio/Video Products) 867,289
39,000 Hoya Co. (Glass Products) 1,735,451
24,000 Ito-Yokado (Retail) 1,392,549
75,000 Jusco Co. (Retail) 2,532,502
195,000 Komatsu Ltd. (Machinery & Engineering) 1,582,323
17,000 Kyocera Corp. (Electronics) 1,349,795
380,000 Mitsubishi Heavy Industries (Shipping) 2,914,405
200,000 Mitsui & Co. (Trading) 1,919,553
32,500 Murata Manufacturing Co. (Manufacturing) 1,293,080
90,000 Nikko Securities (Finance) 553,617
590,000 Nippon Steel Corp. (Steel) 1,884,129
35 NTT Data Corp. (Telecommunications) 1,352,849
100,000 Omron Corp. (Machinery) 2,120,234
32,000 Rohm Co. (Electronics) 3,294,650
18,000 SMC (Machines) 1,520,286
23,000 Sony Corp. (Electronics) 2,004,799
77,000 Taisho Pharmaceutical (Pharmaceutical) 2,075,997
80,000 Takeda Chemical Industries (Medical -- Drugs) 2,247,622
60,000 Tokyo Broadcasting (Broadcasting) 1,230,259
220,000 Yasuda Fire & Marine Insurance (Insurance) 1,478,056
------------
48,351,383
------------
MALAYSIA 1.68%
150,000 Malayan Banking BHD (Banking) 1,574,880
67,500 Telekom Malaysia (Telecommunications) 315,571
125,000 United Engineers (Conglomerate) 901,347
------------
2,791,798
------------
PHILIPPINES 0.53%
177,450 Manila Electric 'B' (Utility) 874,602
------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ---------- ------------------------------------------------------------------------------ ------------
<C> <S> <C>
SINGAPORE 0.59%
100,000 City Developments (Real Estate) 979,226
------------
THAILAND 0.41%
100,000 Bangkok Bank (Foreign) (Banking) 687,126
------------
BRAZIL 0.57%
1,250,000 Brahma PN (Beverage) 952,116
------------
TOTAL INVESTMENTS:
(Cost: $114,623,797)** 93.92% 155,824,354
Other assets, net 6.08% 10,089,956
------ ------------
NET ASSETS 100.00% $165,914,310
------ ------------
------ ------------
</TABLE>
*Non-income producing
**Cost for Federal income tax purposes is $114,623,797 and consists of:
<TABLE>
<C> <S> <C>
Gross unrealized appreciation $ 46,687,601
Gross unrealized depreciation (5,487,044)
------------
Net unrealized appreciation $ 41,200,557
------------
------------
ADR -- Security represented is held by the custodian bank in the form of American Depository Receipts.
</TABLE>
21
<PAGE>
FORWARD CURRENCY CONTRACTS OUTSTANDING
June 30, 1997
<TABLE>
<CAPTION>
FACE VALUE CONTRACT DELIVERY APPRECIATION/
(U.S. DOLLAR) PRICE DATE (DEPRECIATION)
------------- -------- -------- --------------
<S> <C> <C> <C> <C>
French Franc 1,050,788 5.71 09/08/97 $ (27,728)
French Franc 4,903,678 5.71 09/08/97 (129,397)
French Franc 6,113,537 5.72 10/16/97 114,440
Deutsche Mark 14,787,649 1.69 09/08/97 (350,104)
Deutsche Mark 17,637,203 1.70 10/16/97 292,999
Japanese Yen 21,876,315 118.85 09/08/97 177,099
Japanese Yen 21,170,053 122.81 10/16/97 (1,877,231)
Swiss Franc 6,874,742 1.45 09/08/97 (217,456)
Swiss Franc 8,333,912 1.43 10/16/97 7,157
--------------
$ (2,010,221)
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (identified cost of $114,623,797)(Notes 1 &
3) $155,824,354
Cash (including foreign currencies) 11,461,242
Receivables
Capital stock sold 137,102
Dividends and interest 417,881
Receivable for forward currency contracts 102,747,877
Investments sold 979,934 104,282,794
------------
Other assets 23,322
------------
TOTAL ASSETS 271,591,712
------------
LIABILITIES
Payables
Forward currency contracts payable
at market value-proceeds $102,747,877 104,758,098
Investment management fees 122,309
Capital stock redeemed 249,142
Securities purchased 373,475 105,503,024
------------
Accrued expenses 174,378
------------
TOTAL LIABILITIES 105,677,402
------------
NET ASSETS $165,914,310
------------
------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($165,914,310 / 8,130,699 shares outstanding) $ 20.41
------------
------------
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $112,826,840
Undistributed net investment income 226,158
Net unrealized gain on investments and currency transactions 39,195,484
Undistributed net realized gains on investments and foreign currencies 13,665,828
------------
Net Assets $165,914,310
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest $ 1,123
Dividend (Net of foreign
tax withheld of $162,424) 1,396,985
----------
Total income $ 1,398,108
-----------
Expenses:
Investment management fees (Note 2) 691,016
Custodian and accounting fees (Note 3) 140,000
Transfer agent fees (Note 2) 37,384
Recordkeeping and administrative services (Note 2) 156,904
Legal and audit fees 64,475
Filing fees and registration (Note 2) 17,161
Shareholder servicing and reports (Note 2) 25,903
Other 179,107
----------
Total expenses 1,311,950
Custodian fee waiver (140,000)
-----------
Expenses, net 1,171,950
-----------
Net investment income 226,158
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 5,959,706
Net realized gain on foreign currency conversions and forward
currency contracts 3,103,100
Net increase in unrealized appreciation on investments and foreign
currencies 8,399,573
-----------
Net gain on investments 17,462,379
-----------
Net increase in net assets resulting from operations $17,688,537
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 226,158 $ 206,752
Net realized gain on investments and foreign currencies 9,062,806 18,362,272
Net unrealized appreciation of investments and currencies 8,399,573 3,375,302
---------------- ------------
Net increase in net assets resulting from operations 17,688,537 21,944,326
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ($.00 and $.03 per share, respectively) 0 (206,752)
Net realized gain from investment transactions ($.00 and $1.76 per
share, respectively) 0 (13,391,354)
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets resulting from capital share
transactions* (3,483,978) 12,858,641
---------------- ------------
Net increase in net assets 14,204,559 21,204,861
Net assets at beginning of period 151,709,751 130,504,890
---------------- ------------
NET ASSETS at the end of the period (Includes undistributed net
investment income of $226,158 and $0 respectively.) $165,914,310 $151,709,751
---------------- ------------
---------------- ------------
</TABLE>
*A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------------ -------------------------
SHARES VALUE SHARES VALUE
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,461,714 $27,587,175 2,028,975 $ 36,708,062
Shares reinvested from distributions 0 0 699,320 12,545,808
Shares redeemed (1,652,846) (31,071,153) (2,020,237) (36,395,229)
---------- ----------- ---------- ------------
Net increase (decrease) (191,132) ($3,483,978) 708,058 $ 12,858,641
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31
JUNE 30, 1997 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period $ 18.22 $ 17.13 $ 16.23 $ 17.22 $ 12.23 $ 12.67
---------------- -------- -------- -------- -------- -------
Income from investment operations-
Net investment income 0.03 0.03 0.16 0.01 0.08 0.08
Net realized and unrealized gain
(loss) on investments 2.16 2.85 1.61 (0.92) 4.91 (0.38)
---------------- -------- -------- -------- -------- -------
Total from investment
operations 2.19 2.88 1.77 (0.91) 4.99 (0.30)
---------------- -------- -------- -------- -------- -------
Less distributions-
Distributions from net
investment income 0.00 (0.03) (0.17) (0.08) 0.00 (0.08)
Distributions from realized
gains on investments 0.00 (1.76) (0.70) 0.00 0.00 0.00
Distributions in excess of
realized gains 0.00 0.00 0.00 0.00 0.00 (0.06)
---------------- -------- -------- -------- -------- -------
Total distributions 0.00 (1.79) (0.87) (0.08) 0.00 (0.14)
---------------- -------- -------- -------- -------- -------
Net asset value, end of period $ 20.41 $ 18.22 $ 17.13 $ 16.23 $ 17.22 $ 12.23
---------------- -------- -------- -------- -------- -------
---------------- -------- -------- -------- -------- -------
Total Return 12.04% 16.98% 10.91% (5.28)% 40.80% (2.37)%
Ratios/Supplemental Data
Net assets, end of period (000's) $165,914 $151,710 $130,505 $138,174 $136,932 $47,761
Ratio to average net assets-
Expenses (A) 1.72%* 1.60% 1.63% 1.54% 1.77% 1.98%
Expenses-net (B) 1.54%* 1.39% 1.53% 1.54% 1.77% 1.98%
Net investment income 0.30%* 0.15% 0.41% 0.08% 0.85% 0.79%
Portfolio turnover rate 21.12% 54.58% 68.43% 34.04% 10.66% 27.42%
Average commission rate paid per
share $ 0.0405 $ 0.0279 -- -- -- --
</TABLE>
* Annualized
(A) Expense ratio has been increased to include additional custodian fees since
1995 which were offset by custodian fee credits. Prior to 1995, custodian
fee credits reduced expense ratios.
(B) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES -- The Vontobel International Equity Fund
(the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in December, 1984 as a series of
VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The investment objective of the Fund is to achieve capital appreciation by
investing in a continuously managed diversified portfolio of equity securities.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments traded on stock exchanges are valued at the
last quoted sales price on the exchange on which the securities are traded as of
the close of business on the last day of the period or, lacking any sales, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated by or under
the authority of the Fund's Board of Directors. Securities traded in the
over-the-counter market are valued at the last available sale price in the
over-the-counter market prior to time of valuation. Temporary investments in
U.S. dollar denominated short-term investments are valued at amortized cost,
which approximates market. Portfolio securities which are primarily traded on
foreign exchanges are generally valued at the closing price on the exchange on
which they are traded, and those values are then translated into U.S. dollars at
the current exchange rate.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. SECURITY TRANSACTIONS AND DIVIDENDS. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
D. CURRENCY TRANSLATION. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are
27
<PAGE>
translated at approximate rates prevailing when accrued or incurred. Foreign
securities and currency transactions may involve certain considerations and
risks not typically associated with those of domestic origin.
E. FORWARD CURRENCY CONTRACTS. Forward sales of currencies are undertaken to
hedge certain assets denominated in currencies that Vontobel USA, Inc. ("VUSA"),
the Fund's investment advisor, expects to decline in value in relation to other
currencies. A forward currency contract is an agreement between two parties to
buy or sell a currency at a set price on a future date. Forward contracts are
marked to market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When a 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. The Fund
could be at risk if the counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably.
F. DISTRIBUTION TO SHAREHOLDERS. Distribution from investment income and
realized gains, if any, are recorded on the ex-dividend date. 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 for
foreign currency transactions and futures, equalization and post-October capital
and currency losses.
G. In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS -- Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA") provides
investment services for an annual fee of 1.0% on the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
VUSA will reimburse the Fund, to the extent of its management fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes and brokerage
commissions), to the lowest applicable percentage limitation prescribed by any
state in which the Fund's shares are qualified for sale. For the six months
ended June 30, 1997, no reimbursement was necessary.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $159,608 for
providing shareholder
28
<PAGE>
services, recordkeeping, administrative services and blue-sky filings. The Fund
compensates CSS for blue-sky and certain shareholder servicing on an hourly rate
basis. For other administrative services, CSS receives 0.20% of average daily
net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $13,868 for its services for the six months ended June 30,
1997.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY -- Purchases and sales of securities other than
short-term notes aggregated $30,044,652 and $30,010,442, respectively. The
Custodian has provided credits in the amount of $140,000 against custodian and
accounting charges based on credits on uninvested cash balances of the Fund.
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
VONTOBEL EASTERN EUROPEAN EQUITY FUND -
SEMI-ANNUAL REPORT 1997
Dear Shareholder:
Vontobel Eastern European Equity Fund produced a total return of 3.9% for the
2nd quarter and 21% for the first half of 1997, vs. the -11.8% and -7.6% returns
of the Nomura Research Inc. Eastern European Index (ex-Russia) for the same
periods. Russia and Hungary were among the world's best-performing markets
during the first half (up over 130% and 40% respectively). The region's other
core markets, Poland and the Czech Republic, suffered from a combination of
deteriorating fundamentals and depreciation of their respective currencies, the
zloty and the koruna. Thus, Poland's 5% local currency gain became an 8% US$
loss and the Czech Republic's -7% local currency return deepened into a 22% loss
for US$ investors. Despite this mixed regional performance, the bull stampede on
Wall Street boosted capital inflows into these markets, and fund assets
increased by over 200% from $61.4 million to $188.1 million over the period.
The Fund's composition has changed dramatically over the last 6 months. At year
end 75% of the fund's assets were invested in the core markets of Hungary,
Poland and the Czech Republic. Since then we reduced our weighting in Poland by
over one-third, while our weighting in Russia has grown from 16% to 27%. At June
30 Russia and Hungary alone accounted for 62% of total assets. In the Czech
Republic, we ended the quarter with only one position accounting for .5% of
portfolio assets v. 8% at year end; we have since sold that position. What we've
been predicting over the past year has finally come to pass, the Czech Republic
is in major turmoil. Its central bank has pegged the Czech koruna to the German
mark, effectively devaluing the currency by 10%. However, the government has as
yet failed to address fundamental structural and regulatory issues, and is still
willing to pay the price of low productivity in order to maintain the social
desideratum of high employment.
The only constant in the fund's asset allocation year to date is Hungary, in
whose market we have maintained a 35% weighting, in keeping with its position as
the regional leader in privatization of its economy. Thanks to its successful
restructuring, as evidenced by robust corporate earnings, inflation and interest
rates are coming down, giving further support to solid top-
31
<PAGE>
line and earnings growth. The improving economic fundamentals easily translate
into growing support for the government, which as yet faces no real challenge
for next year's election. Local and foreign investor interest in this market
remains unabated, as recently demonstrated by the hugely successful secondary
offerings of MOL, the national oil and gas company, and Richter, a leading
pharmaceutical company with booming sales to Russia (both fund holdings). The
Hungarian market also benefited from a flight to quality precipitated by the
market weakness in the Czech Republic and Poland year to date, exacerbated by
the extensive damage wrought by the worst flooding in both countries in this
century.
In addition, we enlarged our investment universe in the first quarter to include
Slovenia and the Baltic republics of Estonia and Lithuania, and in the second
quarter, Romania. Two of these countries, Estonia and Slovenia, were deemed
worthy enough by the European Union to be included with Poland, Hungary and the
Czech Republic on the fast track for EU membership. Exposure to these three new
peripheral markets, together with our longstanding position in Croatia, accounts
for about 10.5% of portfolio assets.
From a stock selection perspective, we remain confident about the long-term
prospects of our top core holdings in Hungary. In addition to MOL and Richter,
they include Pannonplast, a high-growth plastic product manufacturer, and
Graboplast, which has successfully converted itself from an artificial leather
and PVC floor covering manufacturer into a home improvement product company.
Both companies are good plays on the regional construction boom. Scala, our
largest position in Hungary, has grown from a Budapest-based software
distributor into a global emerging market business software company over the
last five years. In Poland the construction sector has been an excellent
performer so far, but companies that can take advantage of the post-flood
reconstruction, like Mostostal Zabrze, are expected to continue to do well
despite the market's overall sluggishness. Given its size, natural resources and
potential, Russia has become the focal point of investors in the region. Our
largest sector weighting is in energy stocks, among them Lukoil, one of the
world's largest integrated oil companies, Irkutskenergo, one of the few
independent utilities with a modern hydropower station, and Mosenergo, Moscow's
utility, which together account for about 30% of our Russian allocation.
Eastern European equity markets have been the best-performing markets in the
world in the past 18 months and, we believe that the fundamental arguments for
investing in this region remain intact: diversification of international equity
portfolios and relative growth differential at attractive valuation levels.
32
<PAGE>
We are pleased to report that, as a result of strong investor response to
Vontobel's Eastern European fund products, the Zurich-based Eastern European
investment team has been expanded to six members. We take this opportunity to
announce that Luca Parmeggiani will become lead manager of the fund effective
October 1 in replacement of Arpad Pongracz, who is leaving the mutual fund
industry to join Soros Management in London. Mr. Parmegianni formerly managed
the closed-end Polish Investment Fund and LO Invest Eastern Europe Fund of
Geneva-based Lombard Odier.
Arpad Pongracz, Fund Manager
July 16, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Vontobel Eastern European Equity Fund................. 31.48% n.a. n.a 53.44% 2/15/96
</TABLE>
Past performance cannot guarantee future results. Investment return and share
price will fluctuate and redemption value may be more or less than original
cost.
Investing in foreign securities involves special risk considerations which
normally are not associated with investing in United States securities, such
as: political or social instability; changes in currency rates; costs incurred
in connection with conversions between various currencies; availability of less
financial information than comparable United States companies; and, lack of
uniform accounting, auditing and financial reporting requirements. Please
review the Fund's prospectus for a complete discussion of foreign investments.
33
<PAGE>
<TABLE>
<CAPTION>
VONTOBEL EASTERN EUROPEAN EQUITY FUND INDUSTRY PERCENTAGE
06/30/97 BASED ON NET ASSETS
- --------------------------------------------------------------------- --------------------
<S> <C>
Oil/Gas 17%
Pharmaceutical 15%
Banking 12%
Other/Miscellaneous 10%
Construction 9%
Financials 6%
Telecom 5%
Chemicals 4%
Software 4%
Utility 4%
Food 3%
Consumer Goods 2%
Hotel 2%
--------------------
91%
</TABLE>
34
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ----------- ------------------------------------------------------------------------------ -----------
<C> <S> <C>
COMMON STOCK AND WARRANTS: 91.43%
CROATIA 4.91%
357,400 Pliva D D GDR (Pharmaceutical) $ 5,807,750
107,000 Zagrebacka Banka GDR (Banking) 3,424,000
-----------
9,231,750
-----------
CZECH REPUBLIC 0.51%
36,750 Central European Media Class A* (Media & Entertainment) 955,500
-----------
ESTONIA 1.55%
8,450 Baltic Republic Fund (Other) 1,926,600
1,206,800 Britannic Group PLC (Timber) 994,435
-----------
2,921,035
-----------
HUNGARY 35.29%
60,000 BorsodChem Rt. (Chemicals -- Plastics) 2,401,410
144,680 Danubus Hotel & Spahuf* (Hotel) 4,276,313
98,882 Egis Rt. (Pharmaceutical) 6,309,988
5,000 Egis Rt. EDR (Pharmaceutical) 317,500
105,000 Euronet Services, Inc. (Financial -- Other Services) 1,161,563
47,000 Gedeon Richter Ltd. (Pharmaceutical) 4,328,171
61,822 Gedeon Richter Ltd GDR (Pharmaceutical) 5,533,069
84,260 Graboplast Rt Regd (Construction Material) 3,959,565
7,846 Inter Europa Bank (Financial) 1,948,250
100,000 MOL Rt. (Oil & Gas) 2,216,111
209,230 MOL GDR (Oil & Gas) 4,833,213
100,000 Mezogep Rt. (Automotive & Machinery) 1,575,308
75,000 OTP Bank (Banking) 2,002,510
128,500 OTP Bank GDR (Banking) 3,341,000
99,122 Pannonplast (Construction Material) 4,975,553
45,865 Pick Szeged Ord Bearer (Food -- Meat Products) 3,526,852
29,500 Primagaz Hungaria Co. Ltd. (Gas) 1,606,814
41,500 Scala ECE Bearer* (Software) 6,929,904
50,000 Tiszai Vegyi Kombinat (Chemicals) 873,094
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ----------- ------------------------------------------------------------------------------ -----------
<C> <S> <C>
100,000 Tiszai Vegyi Kombinat GDR (Chemicals) 1,750,000
65,180 Zalakeramia AG (Construction Material) 2,523,456
-----------
66,389,644
-----------
LITHUANIA 1.11%
27,000 Birzai Milk Spon. GDR (Food -- Dairy) 621,000
25,000 Vilniaus Bankas AB GDR (Banking) 1,462,500
-----------
2,083,500
-----------
POLAND 18.39%
67,000 Agros Holdings Series C* (Consumer Goods) 1,783,813
3,000 Bank Handlowy W Warszawie GDR (Banking) 36,750
15,000 Bank Handlowy W Warszawie (Banking) 172,980
38,584 Bank Przemyslowo Handlowy (Banking) 1,896,034
60,000 Bank Rozwoju Eksportu SA (Banking) 1,259,699
27,000 Bank Slaski (Banking) 1,930,625
3,030,000 Big Bank (Banking) 3,641,716
156,000 Computerland Poland SA* (Technology) 3,844,820
39,915 Drosed SA (Poultry) 1,044,482
210,000 Elektrim SA (Engineering) 1,827,476
415,574 Exbud SA* (Construction) 4,185,455
76,822 Jelfa SA (Pharmaceutical) 1,519,376
7,770 Lentey SA (Manufacturing) 76,601
239,485 Mostostal Zabrze -- Holding SA (Construction) 1,318,935
80,932 Optimus SA "A' Shares (Technology) 2,265,554
60,000 Polfa Kutno SA Series A* (Pharmaceutical) 2,227,293
200,000 Polifarb Cieszyn Bearer (Chemicals) 1,016,279
147,500 Polifarb Wroclau (Chemicals) 552,031
29,609 Relpol SA (Electric Products -- Miscellaneous) 909,937
253,771 Sokolowskie Meat Factory (Food -- Meat Products) 355,194
200,000 Wielkopolski (Banking) 1,144,074
104,000 Zakalady Metali Lekkich* (Manufacturing) 1,582,230
-----------
34,591,354
-----------
ROMANIA 1.38%
2,500 Romanian Inv Fund (Other) 2,587,500
-----------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES DESCRIPTION VALUE
- ----------- ------------------------------------------------------------------------------ -----------
<C> <S> <C>
RUSSIA 26.74%
140,000 CSFP Norilsk Nickel Warrant 11/14/97 (Financial) 1,330,000
639 CSFP Norilsk Nickel RDC (Financial) 6,070,500
600,000 CSFP Certs Rostelekom Series 3 (Telecommunications) 2,310,000
150,000 Gazprom ADR (Gas) 2,475,000
188,000 Irkutskenergo AO Spon. ADR (Utility) 3,149,000
18 Irkutskenergo RDC (Utility) 855,000
100,000 Lukoil Oil Co Spon. ADR (Oil & Gas) 7,750,000
99,300 Mosenergo AO Spon. ADR (Utility) 4,120,950
9,600 Nearmedic Austrian Certs (Pharmaceutical) 1,431,725
5 Megionneftegaz GDR (Oil & Gas) 187,500
81 Megionneftegaz RDC (Oil & Gas) 5,767,200
69,500 Surgutneftegaz ADR (Oil & Gas) 3,683,500
29,538 Tatneft Spon. ADR (Oil & Gas) 3,160,566
22,500 Torgoviy Dom Gum Spon. ADR (Retail) 1,755,000
164,822 Vimpel Communications Spon. ADR (Telecom) 6,263,236
-----------
50,309,177
-----------
SLOVENIA 1.57%
87,600 SKB Banka D D GDR (Banking) 2,956,500
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS:
(Cost: $156,356,543) ** 91.43% 172,025,960
Other assets, net 8.57% 16,122,970
------ ------------
NET ASSETS 100.00% $188,148,930
------ ------------
------ ------------
</TABLE>
*Non-income producing
**Cost for Federal income tax purposes is $156,356,543 and consists of:
<TABLE>
<C> <S> <C>
Gross unrealized appreciation $23,743,983
Gross unrealized depreciation (8,074,566)
-----------
Net unrealized appreciation $15,669,417
-----------
-----------
</TABLE>
ADR -- Security represented is held by the custodian bank in the form of
American Depository Receipts.
GDR -- Security represented is held by the custodian bank in the form of
Global Depository Receipts.
RDC -- Security represented is held by the custodian bank in the form of
Russian Depository Certificates.
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (identified cost of $156,356,543)(Notes 1 & 3) $172,025,960
Cash (including foreign currencies) 13,894,950
Receivables
Capital stock sold 2,118,488
Dividend & interest 525,306
Investments sold 4,300,000
---------
6,943,794
Organization 53,302
Other assets 154,274
------------
TOTAL ASSETS 193,072,279
------------
LIABILITIES
Payables
Securities purchased 4,731,880
Investment management fees 183,871
Other 1,435
---------
4,917,186
Accrued expenses 6,163
------------
TOTAL LIABILITIES 4,923,349
------------
NET ASSETS $188,148,930
------------
------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($188,148,930 / 10,442,725 shares outstanding) $ 18.02
------------
------------
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock
authorized and the components of net assets are:
Paid in capital $166,235,127
Net unrealized gain on investments and currency transactions 15,669,310
Undistributed gain on investments and currencies 6,210,037
Undistributed net investment income 34,456
------------
Net Assets $188,148,930
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest $ 343
Dividend (Net of foreign tax withheld of $43,552) 953,587
Other 561,773
---------
Total income $ 1,515,703
-----------
Expenses:
Investment management fees (Note 2) 1,078,905
Organization 4,443
Custodian and accounting fees (Note 3) 223,911
Transfer agent fees (Note 2) 53,696
Recordkeeping and administrative services (Note 2) 182,298
Legal and audit fees 14,159
Filing fees and registration (Note 2) 14,465
Shareholder servicing and reports (Note 2) 63,217
Other 7,153
---------
Total expenses 1,642,247
Custodian fee waiver (161,000)
-----------
Expenses, net 1,481,247
-----------
Net investment income 34,456
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 8,951,073
Net realized loss on foreign currencies conversions (1,632,873)
Net increase in unrealized appreciation on investments and foreign
currencies 7,863,259
-----------
Net gain on investments 15,181,459
-----------
Net increase in net assets resulting from operations $15,215,915
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 FEBRUARY 15,* TO
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment gain (loss) $ 34,456 $ (260,396)
Net realized gain (loss) on investments
and foreign currencies 7,318,200 (1,057,304)
Net unrealized appreciation of investments
and currencies 7,863,259 7,806,051
---------------- -----------------
Net increase in net assets resulting from operations 15,215,915 6,488,351
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share
transactions** 111,080,371 55,364,293
---------------- -----------------
Net increase in net assets 126,296,286 61,852,644
Net assets at beginning of period 61,852,644 0
---------------- -----------------
NET ASSETS at the end of the period
(Includes undistributed net investment
income of $34,456 and $0, respectively) $188,148,930 $61,852,644
---------------- -----------------
---------------- -----------------
</TABLE>
*Commencement of operations
**A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 FEBRUARY 15,* TO
(UNAUDITED) DECEMBER 31, 1996
-------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold 9,068,099 $159,378,768 5,134,390 $ 69,104,233
Shares redeemed (2,778,465) (48,298,397) (981,300) (13,739,940)
---------- ------------ --------- ------------
Net increase 6,289,634 $111,080,371 4,153,090 $ 55,364,293
---------- ------------ --------- ------------
---------- ------------ --------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 FEBRUARY 15,* TO
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.89 $ 10.00
---------------- -----------------
Income from investment operations-
Net investment gain (loss) 0.00 (0.06)
Net realized and unrealized gain on investments 3.13 4.95
---------------- -----------------
Total from investment operations 3.13 4.89
---------------- -----------------
Net asset value, end of period $ 18.02 $ 14.89
---------------- -----------------
---------------- -----------------
Total Return 21.02% 48.90%
Ratios/Supplemental Data
Net assets, end of period (000's) $188,149 $61,853
Ratio to average net assets-
Expenses (A) 2.18%** 2.02%**
Expenses-net (B) 1.97%** 1.71%**
Net investment gain (loss) 0.05%** (1.07)%**
Portfolio turnover rate 33.82% 38.69%
Average commission rate paid per share $ 0.0219 $0.0737
</TABLE>
(A) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits.
(B) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
*Commencement of operations
**Annualized
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES -- The Vontobel Eastern European Equity
Fund (the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is
registered under The Investment Company Act of 1940, as amended, as a
diversified open-end management company. The Fund was established in February,
1996 as a series of VFI which has allocated to the Fund 50,000,000 of its
500,000,000 shares of $.01 par value common stock.
The objective of the Fund is to seek to achieve capital appreciation by
investing in a carefully selected and continuously managed diversified
portfolio consisting primarily of equity securities.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments traded on stock exchanges are valued at the
last quoted sales price on the exchange on which the securities are traded as
of the close of business on the last day of the period or, lacking any sales,
at the last available bid price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Fund's Board of Directors. Securities traded in the
over-the-counter market are valued at the last available sale price in the
over-the-counter market prior to time of valuation. Temporary investments in
U.S. dollar denominated short-term investments are valued at amortized cost,
which approximates market. Portfolio securities which are primarily traded on
foreign exchanges are generally valued at the closing price on the exchange on
which they are traded, and those values are then translated into U.S. dollars
at the current exchange rate.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. SECURITY TRANSACTIONS AND DIVIDENDS. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
42
<PAGE>
D. CURRENCY TRANSLATION. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to U.S.
dollars based on the exchange rates at the end of the period. The cost of such
holdings is determined using historical exchange rates. Income and expenses are
translated at approximate rates prevailing when accrued or incurred. Foreign
securities and currency transactions may involve certain considerations and
risks not typically associated with those of domestic origin.
E. DISTRIBUTION TO SHAREHOLDERS. Distribution from investment income and
realized gains, if any, are recorded on the ex-dividend date. 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 for
foreign currency transactions, net operating losses and post-October capital
and currency losses.
F. USE OF ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER -- Pursuant
to an Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA")
provides investment services for an annual fee of 1.25% on the first $500
million of average daily net assets and 1.00% on average daily net assets over
$500 million.
VUSA will reimburse the Fund, to the extent of its management fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes and brokerage
commissions), to the lowest applicable percentage limitation prescribed by any
state in which the Fund's shares are qualified for sale.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $254,030 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
43
<PAGE>
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $53,696 for its services for the six months ended June 30,
1997.
To discourage short term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short term
investing, the Fund charges a 2% fee on such redemption of shares held less
than six months. Such fees, net of cost recovery, are included in other income.
Certain officers and/or directors of the Fund are also officers and/or
directors of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY -- Purchases and sales of securities other than
short-term notes aggregated $178,342,864 and $47,022,463, respectively. The
custodian has provided credits in the amount of $161,000 against custodian and
accounting charges based on credits on uninvested cash balances of the Fund.
44
<PAGE>
VONTOBEL INTERNATIONAL BOND FUND SEMI-ANNUAL REPORT 1997
Dear Shareholder:
The fund's net asset value at the close of the first half was $10.23, producing
a total return of -6.4%, vs. the -2.9% return of the J.P. Morgan Government Bond
Index ex-U.S. for the period. Fears of a reversal of the downward trend in
interest rates proved to have been premature in the second quarter of 1997 as
evidence from virtually all four corners of the globe pointed towards the
continuation of a benign inflationary environment. Both consumer and producer
price inflation continued to fall in the industrialized countries and real wage
gains have remained subdued. However, acceleration of monetary growth in both
Britain and Germany over the past two years has cast a slight shadow on an
otherwise bright inflation picture. Overall, long-term interest rates have risen
only slightly in the past few months, but volatility has been high.
At June 30 the fund's currency/market allocation was as follows: Australia 7.4%,
Canada 8.4%, Britain 5.4%, Ireland 3.3%, Denmark 7.9%, Germany 14.2%, France
11.3%, Italy 12.1%, Spain 7.6%, the Netherlands 6.1%, European Currency Units
12.1%. Vis a vis the benchmark we are maintaining an overweight of about 15% in
continental Europe, and still have no exposure to Japan.
The U.S. currency continued to gain strength during the second quarter of the
year against the major European trading currencies, but lost almost 8% against
the Japanese yen. Hence, in U.S. dollar terms, the bond markets constituting the
dollar bloc (Australia, Canada) together with Britain outperformed their
European counterparts. Portfolio performance during the quarter continued to lag
due to lack of exposure to the mighty greenback and our strategy of avoiding the
Japanese market, whose 3.5% U.S. dollar return was mainly attributable to the
yen's unexpected appreciation.
The outlook for European bonds is favorable. It is widely perceived that all
countries willing to join the European Monetary Union will, in time, be able to
do so. This implies a softer euro, with markets such as Germany and the
Netherlands underperforming, and the peripheral ones (Italy, Spain, Ireland)
continuing to outperform. Germany, France and the Netherlands have
45
<PAGE>
announced their intention to convert all of their government debt into the euro
on January 1, 1999. Nonetheless, we continue our strategy of holding a basket of
bonds issued in the individual component markets instead of holding investments
denominated in the European Currency Unit exclusively. Expected higher economic
growth would facilitate achievement of the deficit targets established in the
Maastricht Treaty for all member countries of the European Union, and thus
ensure that the euro will be launched successfully in early 1999. Higher growth
could affect overall yield levels, but will not change relative performance
patterns within Europe.
Sven Rump
Fund Manager
July 17, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Vontobel International Bond Fund....................... 0.15% 6.32% n.a. 5.71% 3/1/94
</TABLE>
Past performance cannot guarantee future results. Investment return and share
price will fluctuate and redemption value may be more or less than original
cost.
Investing in foreign securities involves special risk considerations which
normally are not associated with investing in United States securities, such
as: political or social instability; changes in currency rates; costs incurred
in connection with conversions between various currencies; availability of less
financial information than comparable United States companies; and, lack of
uniform accounting, auditing and financial reporting requirements. Please
review the Fund's prospectus for a complete discussion of foreign investments.
46
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT* DESCRIPTION VALUE
- -------------- --------------------------------------------------------------------------- -----------
<C> <S> <C>
BONDS: 95.71%
AUSTRALIAN DOLLAR 7.38%
2,100,000 Queensland Treasury Corp. 8% 14 Aug 2001
Corporate Bond $ 1,685,656
-----------
BRITISH POUND 5.40%
460,000 DSL Bank 9.25% 19 Aug 2002
Corporate Bond 819,251
250,000 Tokyo Electric Power 7.125% 13 May 1998
Corporate Bond 415,347
-----------
1,234,598
-----------
CANADIAN DOLLAR 8.41%
1,000,000 Government of Canada 5.75% 1 Mar 1999
Government Bond 735,910
1,600,000 Government of Canada 6.5% 1 June 2004
Government Bond 1,185,097
-----------
1,921,007
-----------
DANISH KRONE 7.89%
6,200,000 Kingdom of Denmark 9% 15 Nov 1998
Government Bond 996,549
5,000,000 Kingdom of Denmark 7% 15 Dec 2004
Government Bond 806,229
-----------
1,802,778
-----------
DEUTSCHE MARK 14.12%
900,000 Republic of Finland 7.5% 27 Jan 2000
Government Bond 560,329
2,000,000 Republic of Germany 6.5% 14 Oct 2005
Government Bond 1,217,730
1,000,000 Republic of Germany 7.125% 20 Dec 2002
Government Bond 634,727
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT* DESCRIPTION VALUE
- -------------- --------------------------------------------------------------------------- -----------
<C> <S> <C>
1,250,000 KFW International Finance 7.75% 6 Oct 2004
Corporate Bond 814,192
-----------
3,226,978
-----------
EUROPEAN CURRENCY 12.08%
1,000,000 EuroFima 8.5% 4 Jun 2007
Supranational Entities 1,323,443
500,000 France O.A.T. 10% 26 Feb 2001
Government Bond 662,510
600,000 United Kingdom 9.125% 21 Feb 2001
Government Bond 774,932
-----------
2,760,885
-----------
FRENCH FRANC 11.35%
6,400,000 France Telecom 7.875% 3 Mar 2003
Corporate Bond 1,238,373
5,000,000 France O.A.T. 7.25% 25 Apr 2006
Government Bond 957,510
2,000,000 Republic of Finland 9.25% 24 Sept 2001
Government Bond 398,136
-----------
2,594,019
-----------
IRISH PUNT 3.32%
500,000 Republic of Ireland 6.25% 18 Oct 2004
Government Bond 757,541
-----------
ITALIAN LIRA 12.13%
1,300,000,000 LKB Bad-Wurt FIN 10.75% 14 Apr 2003
Corporate Bond 909,698
2,000,000,000 American Int'l Group 11.7% 4 Dec 2001
Corporate Bond 1,404,240
700,000,000 General Electric Capital Corp 10.375% 14 June 2000
Corporate Bond 456,290
-----------
2,770,228
-----------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT* DESCRIPTION VALUE
- -------------- --------------------------------------------------------------------------- -----------
<C> <S> <C>
NETHERLAND GUILDER 6.07%
2,400,000 Government of Netherlands 9% 15 May 2000
Government Bond 1,386,037
-----------
SPANISH PESETA 7.56%
190,000,000 Spanish Government 11.3% 15 Jan 2002
Government Bond 1,581,217
20,000,000 Spanish Government 11.45% 30 Aug 1998
Government Bond 145,002
-----------
1,726,219
-----------
Total Bonds:
(Cost: $22,929,396) 21,865,946
-----------
</TABLE>
<TABLE>
<C> <S> <C>
TOTAL INVESTMENTS:
(Cost: $22,929,396)** 95.71% 21,865,946
Other Assets, net 4.29% 979,287
------ -----------
NET ASSETS 100.00% $22,845,233
------ -----------
------ -----------
</TABLE>
*Stated in local currencies
**Cost for Federal income tax purposes is $22,929,396 and consists of:
<TABLE>
<C> <S> <C>
Gross unrealized appreciation $ 901,056
Gross unrealized depreciation (1,964,506)
-----------
Net unrealized depreciation $(1,063,450)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments at value
(identified cost of $22,929,396)
(Notes 1 & 3) $21,865,946
Cash (including foreign currencies) 284,602
Receivables:
Interest 684,237
-------
684,237
Other assets 59,668
Organization expense 21,953
-----------
TOTAL ASSETS 22,916,406
-----------
LIABILITIES
Accrued administrative fees 754
Accrued management fees 70,419
-------
TOTAL LIABILITIES 71,173
-----------
NET ASSETS $22,845,233
-----------
-----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($22,845,233 / 2,232,392 shares outstanding) $ 10.23
-----------
-----------
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $22,971,624
Accumulated loss on investments and foreign currencies (106,304)
Undistributed net investment income 1,043,928
Net unrealized depreciation of investments and foreign currencies (1,064,015)
-----------
Net Assets $22,845,233
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest $891,677
Total income $ 891,677
-----------
Expenses:
Investment management fees (Note 2) 122,619
Organization 4,326
Custodian fees (Note 3) 14,663
Transfer agent fees (Note 2) 12,321
Recordkeeping and administrative services (Note 2) 24,784
Legal and audit fees 17,290
Filing and registration fees (Note 2) 16,767
Shareholder servicing and reports (Note 2) 11,866
Other 1,016
--------
225,652
Custodian fee waiver (14,663)
Management fee waiver (42,751)
-----------
Expenses, net 168,238
-----------
Net investment income 723,439
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 20,715
Net realized loss on currencies (152,406)
Net decrease in unrealized appreciation on investments
and foreign currencies (2,302,161)
-----------
Net loss on investments (2,433,852)
-----------
Net decrease in net assets resulting from operations $(1,710,413)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER
(UNAUDITED) 31, 1996
---------------- -----------
<S> <C> <C>
OPERATIONS
Net investment income $ 723,439 $ 1,172,376
Net realized gain (loss) on investments and foreign currencies (131,691) 327,677
Change in unrealized appreciation (depreciation) of investments
and currencies (2,302,161) 190,375
---------------- -----------
Net increase (decrease) in net assets resulting from operations (1,710,413) 1,690,428
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($0 and $.40 per share, respectively) 0 (944,308)
Realized gains on investments ($0 and $.06 per share,
respectively) 0 (141,645)
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets resulting from capital
share transactions* (2,322,923) 10,030,347
---------------- -----------
Net increase (decrease) in net assets (4,033,336) 10,634,822
Net asset at beginning of period 26,878,569 16,243,747
---------------- -----------
NET ASSETS at the end of the period (including undistributed net
investment income of $1,043,928 and $320,489, respectively) $ 22,845,233 $26,878,569
---------------- -----------
---------------- -----------
</TABLE>
*A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 JAN 1, 1996 TO
(UNAUDITED) DECEMBER 31, 1996
----------------------- --------------------------
SHARES VALUE SHARES VALUE
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 140,595 $ 1,448,019 1,869,911 $ 20,499,176
Shares reinvested from distributions 0 0 94,981 1,024,842
Shares redeemed (367,833) (3,770,942) (1,037,455) (11,493,671)
-------- ----------- ---------- ------------
Net increase (decrease) (227,238) $(2,322,923) 927,437 $ 10,030,347
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JAN 1 TO JAN 1 TO MARCH 1* TO
JUNE 30, 1997 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995 1994
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.93 $ 10.60 $ 9.48 $ 10.00
---------------- ------------ ------------ ------------
Income from investment operations-
Net investment income 0.34 0.47 0.61 0.70
Net realized and unrealized gain (loss) on
investments (1.04) 0.32 1.06 (0.50)
---------------- ------------ ------------ ------------
Total from investment operations (0.70) 0.79 1.67 0.20
---------------- ------------ ------------ ------------
Less distributions-
Distributions from net investment income 0.00 (0.40) (0.55) (0.70)
Distributions from realized gains on
investments 0.00 (0.06) 0.00 0.00
Distributions in excess of net investment
income 0.00 0.00 0.00 (0.02)
---------------- ------------ ------------ ------------
Total distributions 0.00 (0.46) (0.55) (0.72)
---------------- ------------ ------------ ------------
Net asset value, end of period $ 10.23 $ 10.93 $ 10.60 $ 9.48
---------------- ------------ ------------ ------------
---------------- ------------ ------------ ------------
Total Return (6.40)% 7.51% 17.60% 1.98%
Ratios/Supplemental Data
Net assets, end of period (000) $ 22,845 $ 26,879 $ 16,253 $ 10,235
Ratio to average net assets-(A)
Expenses (B) 1.48%** 1.84% 1.76% 1.35%**
Expense ratio-net (C) 1.36%** 1.52% 1.35% 1.35%**
Net investment income 5.85%** 4.78% 5.38% 3.99%**
Portfolio turnover rate 0.00% 19.89% 18.63% 19.00%
</TABLE>
(A) Management fee waivers reduced the expense ratios and increased the ratios
of net investment income by 0.35% in 1997, 0.20% in 1996, 1.00% in 1995 and
0.19% in 1994.
(B) Expense ratio has been increased to include additional custodian fees that
were offset by custodian fee credits. Prior to 1995 custodian fee credits
reduced the expense ratio.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
* Commencement of operations
** Annualized
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES -- The Vontobel International Bond Fund
(the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a non-diversified
open-end management company. The Fund was established in February, 1994 as a
series of VFI which has allocated to the Fund 50,000,000 of its 500,000,000
shares of $.01 par value common stock.
The investment objective of the Fund is to maximize total return from capital
growth and income by investing in a continuously managed portfolio consisting
primarily of high-grade international bonds.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Money market investments with a remaining maturity of
less than sixty days are valued using the amortized cost method; debt securities
are valued by appraising them at prices supplied by a pricing agent approved by
the Fund, which prices may reflect broker-dealer supplied valuations and
electronic data processing techniques. Those values are then translated into
U.S. dollars at the current exchange rate.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. The cost of securities sold is determined on a first-in, first-out basis.
D. CURRENCY TRANSLATION. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. Foreign securities and
currency transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Forward sales of currencies are undertaken to hedge certain assets
denominated in currencies that Vontobel USA, Inc. ("VUSA"), the Fund's
investment advisor, expects to decline in
54
<PAGE>
value in relation to other currencies. A forward currency contract is an
agreement between two parties to buy or sell a currency at a set price on a
future date. Forward contracts are marked to market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When a
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. The Fund could be at risk if the counterparties
are unable to meet the terms of the contracts or if the value of the currency
changes unfavorably.
F. DEFERRED ORGANIZATIONAL EXPENSES. All of the expenses of the Fund incurred in
connection with its organization and the public offering of its shares have been
assumed by the Fund. The organization expenses allocable to the Fund are being
amortized over a period of fifty-seven (57) months.
G. DISTRIBUTION TO SHAREHOLDERS. Distribution from investment income and
realized gains, if any, are recorded on the ex-dividend date. 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 for
foreign currency transactions, equalization, forwards and post-October capital
and currency losses.
H. ACCOUNTING ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS -- Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA") provides
investment services for an annual fee of 1.0% on the first $100 million of
average daily net assets.
VUSA will reimburse the Fund, to the extent of its management fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes and brokerage
commissions), to the lowest applicable percentage limitation prescribed by any
state in which the Fund's shares are qualified for sale. For the six months
ended June 30, 1997, a reimbursement of $42,751 was made.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $29,412 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS
55
<PAGE>
for blue-sky and certain shareholder servicing on an hourly rate basis. For
other administrative services, CSS receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $8,522 for its services for the six months ended June 30,
1997.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY -- Purchases and sales of securities other than
short-term notes aggregated $0 and $1,024,154 respectively. The Custodian has
provided credits in the amount of $14,663 against custodian and accounting
charges based on credits on uninvested cash balances of the Fund.
56
<PAGE>
INVESTMENT ADVISOR:
Vontobel USA Inc.
450 Park Avenue
New York, New York 10022
DISTRIBUTOR:
First Dominion Capital Corp.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
INDEPENDENT AUDITORS:
Tait, Weller and Baker
Two Penn Center, Suite 700
Philadelphia, Pennsylvania 19102-1707
TRANSFER AGENT:
For account information, wire purchase or redemptions, call or write to
Vontobel's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
MORE INFORMATION:
For 24 hour, 7 days a week price information, and for information on any
series of Vontobel Funds, Inc., investment plans, and other shareholder
services, call Commonwealth Shareholder Services at (800) 527-9500 Toll Free
NASDAQ SYMBOL: VUSVX - U.S. VALUE FUND
VNEPX - INTERNATIONAL EQUITY FUND
VEEEX - EASTERN EUROPEAN EQUITY FUND
VIBDX - INTERNATIONAL BOND FUND
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND - SEMI ANNUAL REPORT JUNE 30, 1997
Schedule of Portfolio Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number of Market
Shares Description Value
<C> <S> <C>
COMMON STOCK: 71.37%
BASIC INDUSTRY: 1.83%
600 Hoechst $ 25,473
8,000 Material Sciences 123,500
148,973
CAPITAL GOODS: 3.88%
2,400 Dover Corp. 147,600
300 Sumitomo Electric ADR 50,336
1,500 W.W. Grainger 117,281
315,217
CONGLOMERATE: 2.49%
7,900 Cheung Kong Holdings ADR 78,008
2,455 Desc, S.A. De C.V. ADR 71,502
15,800 Sime Darby BHD ADR 52,582
202,092
CONSUMER DURABLES: 5.11%
2,400 Johnson Controls 98,550
3,000 Leggett & Platt Inc. 129,000
400 Matsushita Electric ADR 81,800
1,200 Sony Corp ADR 105,600
414,950
CONSUMER NON-DURABLES: 6.16%
3,400 Avery Dennison 136,425
1,400 Colgate Palmolive 91,350
2,000 Panamerican Beverage 65,750
700 Procter & Gamble 98,875
2,600 Sara Lee Corp 108,225
500,625
CONSUMER SERVICES: 5.09%
1,200 Carlton Communications ADR 51,600
3000 The Gap 116,625
1,800 Walgreen 96,525
4,500 Whole Foods Markets 149,063
413,813
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Market
Shares Description Value
<C> <S> <C>
ENERGY: 8.04%
1,400 Atlantic Richfield 98,700
1,000 British Petroleum ADR 74,875
2,400 Mobil 167,700
7,200 Nabors Industries 180,000
1,800 Western Atlas Inc 131,850
653,125
FINANCE: 8.24%
2,700 Banco de Santander ADR 83,531
1,100 Develop Bk of Singapore ADR 55,390
6,000 Hang Seng Bank Ltd ADR 85,578
1,700 MBIA Inc. 191,781
3,500 PXRE Corp. 107,625
4,600 Regions Financial Corp 145,475
669,380
HEALTH CARE: 10.10%
1,700 Amgen 98,813
5,866 Astra AB ADR 111,454
2,000 Becton Dickinson & Co. 101,250
4,100 Manor Care 133,763
600 Roche Holdings ADR 54,347
4,200 Schering Plough Corp 201,075
2,300 United Healthcare 119,600
820,302
TECHNOLOGY: 11.78%
2,200 3Com 99,000
4,000 Adaptec 139,000
3,000 Adobe Systems Inc 105,188
1,700 E M C Corp 66,300
2,430 Ericsson ADR 95,681
1,100 Intel 155,994
1,600 Hewlett Packard 89,600
4,000 Sabre Group Holding A 108,500
2,100 Sungard Data Systems 97,650
956,913
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Market
Shares Description Value
<C> <S> <C>
R E I T: 3.23%
4,000 Apartment Investment & Management Co 113,000
5,500 J P Realty 149,188
262,188
UTILITIES: 5.42%
2,300 Ameritech Corp 156,256
16,000 Hong Kong Electric ADR 64,435
4,100 Hong Kong Telecom 95,838
3,000 Nipsco Industies 123,938
440,467
TOTAL COMMON STOCKS:
(Cost: $4,168,121) 5,789,045
Principal
Amount U.S. GOVT. SECURITIES: 19.64%
$ 100,000 U.S. Treasury Note;
maturity date 10/31/99; 7.50% 102,844
200,000 U.S. Treasury Note;
maturity date 7/31/00; 6.125% 199,375
200,000 U.S. Treasury Note;
maturity date 02/28/01; 5.625% 195,625
200,000 U.S. Treasury Note;
maturity date 02/15/03; 6.25% 198,438
200,000 U.S. Treasury Note;
maturity date 02/15/04; 5.875% 193,750
400,000 U.S. Treasury Note;
maturity date 05/15/05; 6.5% 399,375
300,000 U.S. Treasury Note;
maturity date 05/15/06; 6.875% 306,188
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost: $1,593,738) 1,595,595
TOTAL INVESTMENTS:
(Cost: $5,761,859)* 91.01% 7,393,640
Other assets, net 8.99% 730,652
NET ASSETS 100.00% $8,124,292
</TABLE>
*Cost for Federal income tax purpose is $5,761,859 and net
unrealized appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $1,683,556
Gross unrealized depreciation (51,769)
Net unrealized appreciation $1,631,787
</TABLE>
ADR--Security represented is held by the custodian bank in the form of American
Depository Receipts.
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (identified
cost of $5,761,859)(Notes 1 & 3) $7,393,640
Cash 678,584
Receivables:
Dividend and interest 32,219
Receivable from manager 2,234 34,453
Other Assets 13,504
Deferred organization costs 19,786
TOTAL ASSETS 8,139,967
LIABILITIES
Investment management fees payable 15,675 15,675
NET ASSETS $8,124,292
NET ASSET VALUE OFFERING AND
PRICE PER SHARE ($8,124,292 / 578,475 shares outstanding) $ 14.04
At June 30, 1997 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $6,321,443
Undistributed net investment income 23,981
Undistributed net realized gain on investments 147,081
Net unrealized appreciation of investments 1,631,787
Net Assets $8,124,292
</TABLE>
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1997 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest $43,265
Dividend 46,475
Total income $ 89,740
Expenses:
Investment management fees (Note 2) 35,188
Transfer agent fees (Note 2) 9,333
Custodian and accounting fees (Note 3) 9,960
Legal & audit fees 9,192
Registration fees 1,525
Recordkeeping and
administrative services (Note 2) 7,543
Shareholder servicing
and reports (Note 2) 1,582
Organization expense amortization 3,519
Other 6,276 84,118
Custodian fee credits (9,960)
Reimbursement by manager (8,400)
Expenses, net 65,758
Net investment income 23,982
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 73,815
Net increase in unrealized appreciation on investments 599,661
Net gain on investments 673,476
Net increase in net assets resulting from operations $ 697,458
</TABLE>
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1997 December 31,
(Unaudited) 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 23,982 $ 68,634
Net realized gain on investments 73,815 230,479
Change in unrealized
appreciation of investments 599,661 740,807
Net increase in net assets resulting
from operations 697,458 1,039,920
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income
($.00 and $.15 per share, respectively) 0 (72,905)
Capital gains
($.00 and $.33 per share, respectively) 0 (155,461)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* 967,409 1,622,851
Net increase in net assets 1,664,867 2,434,405
Net asset at beginning of period 6,459,425 4,025,020
NET ASSETS at the end of the period
(including undistributed
net investment income
of $23,982 and $0, respectively) $8,124,292 $6,459,425
</TABLE>
* A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 Year ended
(Unaudited) December 31, 1996
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold 100,757 $1,317,208 199,556 $2,332,804
Shares reinvested
from dividend 0 0 17,744 225,708
Shares redeemed (26,987) (349,799) (75,044) (935,661)
Net increase 73,770 $ 967,409 142,256 $1,622,851
</TABLE>
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six months ended Jan. 2, 1995*
June 30, 1997 Year ended to
(Unaudited) Dec. 31, 1996 Dec. 31, 1995
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $12.79 $11.11 $10.00
Income from investment operations-
Net investment income 0.04 0.14 0.06
Net realized and unrealized
gain on investments 1.21 2.02 1.10
Total from investment operations 1.25 2.16 1.16
Less distributions-
Distributions from net
investment income 0.00 (0.15) (0.05)
Distributions from realized
gains on investments 0.00 (0.33) 0.00
Total distributions 0.00 (0.48) (0.05)
Net asset value, end of period $14.04 $12.79 $11.11
Total Return 9.72% 19.57% 11.60%
Ratios/Supplemental Data
Net assets, end of period (000's) $8,124 $6,459 $4,025
Ratio to average net assets-(A)
Expenses (B) 2.13%** 2.50% 3.03%**
Expense ratio-net (C) 1.85%** 2.00% 1.90%**
Net investment income 0.34%** 1.29% 0.52%**
Portfolio turnover rate 7.16% 32.97% 40.96%
Average brokerage
commission per share $0.0600 $0.0581 ---
</TABLE>
* Commencement of operations
** Annualized
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .64% in 1996 and 1.00% in 1995.
(B) Expense ratio has been increased to include custodian fees which were
offset by custodian credits.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
See Notes to Financial Statements
<PAGE>
Notes to the Financial Statements
June 30, 1997 (Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Sand Hill Portfolio Manager Fund
(the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in January 2, 1995 as a series of
VFI which has allocated to the Fund 50,000,000 shares of its 500,000,000 shares
of $.01 par value common stock. The following is a summary of significant
accounting policies consistently followed by the Fund. The policies are in
conformity with generally accepted accounting principles.
The investment objective of the Fund is to maximize total return by investing in
equity securities, debt securities and short term investments.
A. Security Valuation. Investments in securities traded on a national securities
exchange or included in the NASDAQ National Market System are valued at the last
reported sales price; other securities traded in the over-the-counter market and
listed securities for which no sale is reported on that date are valued at the
last reported bid price. Short-term investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions and Dividends. As is common in the industry, security
transactions are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date.
D. Deferred Organizational Expenses. All of the expenses of VFI incurred in
connection with its organization and the public offering of its shares have been
assumed by the series funds of VFI. The organization expenses allocable to Sand
Hill Portfolio Manager Fund are being amortized over a period of fifty-seven
(57) months.
E. Distributions to Shareholders. Distributions from net investment income and
realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences primarily result from different
treatments of equalization and post-October capital losses.
F. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
<PAGE>
Investment Advisory Agreement, the Advisor, Sand Hill Advisors ("SHA") provides
investment services for an annual fee of 1.0% of the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
SHA will reimburse the Fund, to the extent of its advisory fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes and brokerage
commissions), to the lowest applicable percentage limitation prescribed by any
state in which the Fund's shares are qualified for sale. For the six months
ended June 30, 1997 a voluntary reimbursement of $8,400 was made.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $8,773 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky filings and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $9,333 for its services for the six months ended
June 30, 1997.
Certain officers and/or directors of the Fund are also officers and/or directors
of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES--Purchases and sales of securities
other than short-term notes aggregated $868,997 and $508,430, respectively. The
Custodian has provided credits in the amount of $9,960 against custodian and
accounting charges based on credits on uninvested cash balances of the Fund.
