As filed with the Securities and Exchange Commission on June 2,
1997. File Numbers: 2-78931 and 811-3551
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. /_/
Post-Effective Amendment No. 34 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34 /X/
(Check appropriate box or boxes)
VONTOBEL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1500 Forest Avenue, Suite 223, Richmond, VA 23229
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (804) 285-8211
John Pasco, III, 1500 Forest Ave., Suite 223, Richmond, VA 23229
(Name and Address of Agent for Service)
Please send copies of communications to
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering: Upon effectiveness
of this amendment.
It is proposed that this filing will become effective (check
appropriate box).
/ / immediately upon filing pursuant to paragraph (b).
/ / on (date) pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(1).
/X/ 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
No additional shares being registered at this time. Registrant
has previously elected to register an indefinite number of shares
pursuant to Rule 24f-2. The Notice for the fiscal year ended
December 31, 1996 was filed on February 28, 1997.<PAGE>
CROSS-REFERENCE SHEET
Prospectus for the Vontobel U.S. Value Fund,
Vontobel International Equity Fund (formerly named, Vontobel
EuroPacific Fund), Vontobel Eastern European
Equity Fund, Vontobel International Bond Fund, Vontobel Eastern
European
Debt Fund and Vontobel Emerging Markets Equity Fund
Part A
Item No. Information Required in a Prospectus
1. Cover Page. Cover Page.
2. Synopsis. Prospectus Summary; Fund Expenses.
3. Condensed Financial
Information. Financial Highlights.
4. General Description Prospectus Summary; Cover Page;
of Registrant. General Information About the Company;
The Funds' Investments and Policies;
Additional Information on Policies and
Investments; Special Risk Considerations;
Investment Restrictions.
5. Management of the Prospectus Summary; The Company's
Fund Management; General Information About
the Company; To Obtain More Information.
5A. Management's 1996 Performance; and *.
Discussion of Fund
Performance.
6. Capital Stock and Prospectus Summary; Taxes; Dividends
Other Securities. and Capital Gains Distributions; General
Information About the Company; To
Obtain More Information.
7. Purchase of Securities Prospectus Summary; How to Invest;
Being Offered. How Net Asset Value is Determined; Special
Shareholder Services; How to Transfer
Shares.
8. Redemption or How to Redeem Shares; Special Shareholder
Services; How to Transfer Shares.
9. Pending Legal Not Applicable.
Proceedings.
<PAGE>
Statement of Additional Information for the Vontobel U.S. Value
Fund, Vontobel International Equity Fund (formerly named,
Vontobel EuroPacific Fund), Vontobel Eastern European
Equity Fund, Vontobel International Bond Fund, Vontobel Eastern
European Debt Fund and Vontobel Emerging Markets Equity Fund
Part B Information Required in a Statement of
Item No. Additional Information
10. Cover Page. Cover Page.
11. Table of Contents. Table of Contents.
12. General Information
and History. Not Applicable.
13. Investment Objectives Vontobel Funds, Inc.; Additional
and Policies Investments and Investment
Techniques; Special Investment
Considerations of the
Funds; Investment Restrictions.
14. Management of the Directors and Officers.
Registrant.
15. Control Persons and Directors and Officers.
Principal Holders of
Securities.
16. Investment Advisory Investment Advisor; Transfer Agent;
and Other Services. Administrator; Distribution.
17. Brokerage Allocation Portfolio Transactions.
and Other Practices.
18. Capital Stock General Information and History;
and Other Securities. Dividends and Distributions.
19. Purchase, Redemption Special Shareholder Services; Valuation
and Pricing of Calculation of Net Asset Value.
Securities Being
Offered.
20. Tax Status. Taxes.
21. Underwriters. Distribution.
22. Calculation of Performance.
Performance Data.
23. Financial
Statements. Incorporated by reference in the Prospectus.
Part C
Item No. Other Information.
24. Financial Statements Financial Statements and Exhibits.
and Exhibits.
25. Persons Controlled Persons Controlled By Or Under Common
By Or Under Common Control With Registrant.
Control With
Registrant.
26. Number of Holders of Number of Holders of Securities.
Securities.
27. Indemnification. Indemnification.
28. Business and Other Business and Other
Connections of Connections of Investment Advisor.
Investment Advisor.
29. Principal Principal Underwriters.
Underwriters.
30. Location of Accounts Location of Accounts and Records.
and Records.
31. Management Services. Management Services.
32. Undertakings. Undertakings.
* Incorporated herein by reference to Registrant's Annual Report
to Shareholders dated December 31, 1996 as filed with the
Commission via its EDGAR system on February 28, 1997.
<PAGE>
VONTOBEL U.S. VALUE FUND
VONTOBEL INTERNATIONAL EQUITY FUND
VONTOBEL EMERGING MARKETS EQUITY FUND
VONTOBEL EASTERN EUROPEAN EQUITY FUND
VONTOBEL INTERNATIONAL BOND FUND
VONTOBEL EASTERN EUROPEAN DEBT FUND
PORTFOLIOS OF
VONTOBEL FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS
Suite 223 Dated July __, 1997
Richmond, Virginia 23229
Telephone: 1-800-527-9500
Vontobel Funds, Inc. ("the "Company") (formerly named, The
World Funds, Inc.) is an open-end management investment company
commonly known as a "mutual fund." A "series" mutual fund offers
investors a choice of investment objectives, with each series
having its own separate and distinct portfolio of investments and
operating much like a separate mutual fund. This Prospectus offers
shares of the following six series (each, a "Fund") of the Company:
Vontobel U.S. Value Fund ("Value Fund") seeks to achieve long-term
capital returns in excess of the broad market by investing in
a carefully selected, continuously managed non-diversified
portfolio composed principally of equity securities ("Equity
Securities," which include securities convertible into equity
securities, such as warrants, convertible bonds, debentures or
convertible preferred stock) traded on U.S. exchanges.
Vontobel International Equity Fund ("International Equity Fund")
(formerly named, Vontobel EuroPacific Fund) seeks to achieve
capital appreciation by investing in a carefully selected and
continuously managed diversified portfolio consisting
primarily of Equity Securities of issuers located in Europe
and the Pacific Basin.
Vontobel Emerging Markets Equity Fund ("Emerging Markets Fund")
seeks to achieve long-term capital appreciation by investing
in a carefully selected and continuously managed portfolio
consisting primarily of Equity Securities of issuers in
developing countries around the world.
Vontobel Eastern European Equity Fund ("E. European Equity Fund")
seeks to achieve capital appreciation by investing in a
carefully selected and continuously managed diversified
portfolio consisting primarily of Equity Securities of issuers
located in Eastern Europe.
Vontobel International Bond Fund ("Bond Fund") seeks to maximize
total return from capital growth and income by investing in a
non-diversified portfolio composed primarily of fixed income
securities traded in bond markets outside the U.S.
Vontobel Eastern European Debt Fund ("E. European Debt Fund") seeks
to maximize total return from capital growth and income by
investing in a carefully selected and continuously managed
non-diversified portfolio consisting primarily of debt
instruments issued by borrowers located in Eastern European
countries.
The Value, Bond and E. European Debt Funds are non-diversified
series, and the other three Funds are diversified series, of the
Company for purposes of the Investment Company Act of 1940, as
amended. Investors will be able to exchange all or part of their
investment from one Fund to another or to certain other mutual
funds, under conditions set by the Company.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. AMOUNTS INVESTED IN
THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the
Funds that a prospective investor should know before investing. It
should be read and retained for future reference. More information
about the Funds has been filed with the Securities and Exchange
Commission and is contained in the "Statement of Additional
Information," dated [July __, 1997], which is available at no
charge upon written request to the Company. The Funds' Statement
of Additional Information is incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
PROSPECTUS SUMMARY
FUND EXPENSES
FINANCIAL HIGHLIGHTS
1996 PERFORMANCE
THE FUNDS' INVESTMENTS AND POLICIES
ADDITIONAL INFORMATION ON POLICIES AND INVESTMENTS
SPECIAL RISK CONSIDERATIONS
INVESTMENT RESTRICTIONS
PERFORMANCE TERMS AND COMPUTATIONS
THE COMPANY'S MANAGEMENT
HOW TO INVEST
HOW TO REDEEM SHARES
HOW TO TRANSFER SHARES
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
SPECIAL SHAREHOLDER SERVICES
HOW NET ASSET VALUE IS DETERMINED
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
GENERAL INFORMATION ABOUT THE COMPANY
TO OBTAIN MORE INFORMATION
<PAGE>
P R O S P E C T U S S U M M A R Y
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus.
Investment Objectives
Vontobel U.S. Value Fund ("Value Fund") seeks to achieve long-
term capital returns in excess of the broad market by
investing in a carefully selected, continuously managed
non-diversified portfolio composed principally of equity
securities ("Equity Securities," which include securities
convertible into equity securities, such as warrants,
convertible bonds, debentures or convertible preferred
stock) traded on U.S. exchanges.
Vontobel International Equity Fund ("International Equity
Fund") seeks to achieve capital appreciation by investing
in a carefully selected and continuously managed
diversified portfolio consisting primarily of Equity
Securities of issuers located in Europe and the Pacific
Basin.
Vontobel Emerging Markets Equity Fund ("Emerging Markets
Fund") seeks to achieve long-term capital appreciation by
investing in a carefully selected and continuously
managed portfolio consisting primarily of Equity
Securities of issuers in developing countries around the
world.
Vontobel Eastern European Equity Fund ("E. European Equity
Fund") seeks to achieve capital appreciation by investing
in a carefully selected and continuously managed
diversified portfolio consisting primarily of Equity
Securities, of issuers located in Eastern Europe.
Vontobel International Bond Fund ("Bond Fund") seeks to
maximize total return from capital growth and income by
investing in a non-diversified portfolio composed
primarily of fixed income securities traded in bond
markets outside the U.S.
Vontobel Eastern European Debt Fund ("E. European Debt Fund")
seeks to maximize total return from capital growth and
income by investing in a carefully selected and
continuously managed non-diversified portfolio consisting
primarily of debt instruments issued by borrowers located
in Eastern European countries.
See "The Funds' Investments and Policies" on Page [11].
Principal Investments The Funds' primary investments:
Value Fund - Equity Securities traded on U.S. exchanges.
International Equity Fund - Equity Securities principally of
issuers located in Europe and the Pacific Basin.
Emerging Markets Fund - Equity Securities principally of
issuers in developing countries around the world.
E. European Equity Fund - Equity Securities principally of
issuers located in Eastern Europe.
Bond Fund - primarily fixed income securities traded in bond
markets outside the U.S.
E. European Debt Fund - primarily fixed income securities of
issuers located in Eastern Europe.
See "The Funds' Investments and Policies" on Page [11].
Investment Advisor Vontobel USA Inc. (the "Advisor") is the
investment advisor and manages the investments of each Fund
according to its investment objective and policies. See "The
Company's Management" on Page [19].
Distributions/Dividends Paid annually from available capital gains
and income. See "Dividends and Capital Gains Distributions"
on Page [18].
Reinvestment Distributions may be reinvested automatically. See
"Dividends and Capital Gains Distributions" on Page [18].
Purchases Initial purchase is $1,000 minimum. Subsequent purchases
must be a minimum of $50. Shares of the Funds are offered for
sale without a sales charge from the distributor, Vontobel
Fund Distributors (see "How to Invest" on Page [22]).
Net Asset Value Quoted daily in the financial section of most
newspapers under Vontobel. Additional information may also be
obtained by calling 1-800-527-9500. See "How the Net Asset
Value is Determined" on Page [26].
Principal Risk Factors There can be no assurance that a Fund will
achieve its investment objective. An investor should consider
other factors, including the following: the International
Equity Fund, Emerging Markets, E. European Equity Fund, Bond
Fund and E. European Debt Fund (each, an "International Fund")
invest in foreign securities, and consequently may be affected
by currency fluctuations or exchange controls, foreign taxes,
differences in accounting procedures, less supervision and
regulation of security markets, political or social
instability and other risks. Each International Fund may
utilize various investment strategies, including purchasing
and selling exchange listed and over-the-counter put and call
options on securities, fixed income indices and other
financial instruments, purchasing and selling financial
futures contracts and options thereon and entering into
various interest rate transactions and currency transactions.
Each of these strategies entail special risks. The Funds may
invest in repurchase agreements and the Bond Fund may invest
in reverse repurchase agreements. Investing in such
securities entails risks. See "Special Risk Considerations"
on Page [15].
<PAGE>
<TABLE>
FUND EXPENSES
The following table illustrates all expenses and fees that
shareholders in the Funds will incur.
<CAPTION>
Shareholder Transaction Expenses
Value International Emerging E. European Bond E. European
Fund Expenses Fund Equity Fund Markets Fund Equity Fund Fund Debt Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load
Imposed on
Purchases None None None None None None
Sales Load
Imposed on
Reinvested
Dividends None None None None None None
Redemption
Fees None<F1> None<F1> None<F1><F3> None<F1><F3> None<F1> None<F1><F3>
Exchange
Fees None<F2> None<F2> None<F2> None<F2> None<F2> None<F2>
<FN>
<F1> A shareholder electing to redeem shares via a telephone request will be
charged $10 for each such redemption request.
<F2> A shareholder may be charged a $10 fee for each telephone exchange.
<F3> A 2% redemption fee is charged on shares held less than six months.
</FN>
</TABLE>
<PAGE>
<TABLE>
Annual Fund Operating Expenses (as percentage of average daily net
assets)
<CAPTION> Value International Emerging E. European Bond E. European
Fund Equity Fund Markets Fund Equity Fund Fund Debt Fund
<S> <C> <C> <C> <C> <C> <C>
Management
Fee 0.95%<F1> 0.93% 1.25% 1.25% 1.00% 1.25%
12b-1 Fees None None None None None None
Other
Operating
Expenses 0.48%<F1> 0.46%<F1> 0.46% 0.46% 0.52%<F1> 0.46%
Total
Fund
Operating
Expenses 1.43%<F1> 1.39%<F1> 1.71% 1.71% 1.52%<F1> 1.71%
<FN>
<F1> The Advisor has voluntarily agreed to waive a portion of its Management Fee and
custodian fee credits have reduced Other Operating Expenses as set forth above.
For the Emerging Markets and E. European Debt Funds, Other Operating Expenses
are based on estimated amounts for the current fiscal year. Set forth
below, for each Fund as applicable, are the management fees and total
operating expenses absent such fee waivers and/or expense credits as a
percentage of the average daily net assets of each such Fund:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Value International Emerging E. European Bond E. European
Fund Equity Fund Markets Fund Equity Fund Fund Debt Fund
<S> <C> <C> <C> <C> <C> <C>
Management
Fees Absent
Fee Waivers<F1> 1.00% 0.93% 1.25% 1.25% 1.00% 1.25%
Other
Operating
Expenses
Absent
Expense
Credits 0.53% 0.67% 0.77% 0.77% 0.84% 0.77%
Total
Operating
Expenses
Absent Fee
Waivers/
Expense
Credits 1.53% 1.60% 2.02% 2.02% 1.84% 2.02%
<FN>
<F1> Information concerning reductions in the management fees due
to higher Fund asset levels
appears on page [__].
</FN>
</TABLE>
The purpose of these tables is to assist investors in
understanding the various costs and expenses that they will bear
directly or indirectly. Management expects that, to the extent
that the Funds increase in size, their Other Operating Expenses
will decline as an annual percentage rate reflecting economies of
scale.
Example
The following examples illustrate the expenses that an
investor would pay on a $1,000 investment over various time periods
assuming (1) a 5% annual rate of return, and (2) redemption at the
end of each time period. As noted in the table above, the Funds do
not charge redemption fees (apart from small per transaction
charges for telephone redemption and/or exchange service fees and
the redemption fee of the E. European Equity Fund that is not
charged on shares held six months or more, as noted above).
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Value $16 $48 $83 $182
International Equity $16 $50 $87 $190
Emerging Markets $21 $63 <F1> <F1>
E. European Equity $21 $63 $109 $235
Bond $19 $58 $100 $216
E. European Debt $21 $63 <F1> <F1>
<FN>
<F1>Fund is a new registrant and estimated expenses for five years
and ten years are not projected.
</FN>
</TABLE>
These examples should not be considered a representation of
past or future expenses or performances. Actual expenses may be
greater or lesser than those shown.
<PAGE>
FINANCIAL HIGHLIGHTS
The Financial Highlights for the Funds for the periods
indicated below have been examined by Tait, Weller and Baker,
independent certified public accountants, whose unqualified reports
thereon appear with the Funds' audited financial statements in the
Annual Reports to Shareholders of the Value, International Equity,
E. European Equity and Bond Funds for the year ended December 31,
1996 (each, an "Annual Report"). The financial statements of the
foregoing Funds and the reports thereon are incorporated by
reference in this Prospectus from the Annual Reports. Additional
performance information for each of the foregoing Funds is included
in its Annual Report. The Annual Reports and the financial
statements therein are available at no cost upon request to the
Company at the address and telephone number noted on the cover page
of this Prospectus. The Emerging Markets and E. European Debt
Funds had not commenced operations as of December 31, 1996.
<TABLE>
Vontobel U.S. Value Fund
For a Share Outstanding Throughout Each Period
<CAPTION> Years ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning
of period $13.25 $10.26 $12.64 $12.00
Income from investment operations-
Net investment income 0.17 0.05 0.09 0.16
Net realized and unrealized gain
(loss) on investments 2.65 4.09 (0.08) 0.56
Total from investment
operations 2.82 4.14 0.01 0.72
Less distributions-
Distributions from net investment
income (0.19) (0.04) (0.23) (0.02)
Distributions from realized gains
on investments (2.10) (1.11) (2.16) (0.06)
Total distributions (2.29) (1.15) (2.39) (0.08)
Net asset value, end of period $13.78 $13.25 $10.26 $12.64
Total Return 21.28% 40.36% .02% 6.00%
Ratios/Supplemental Data
Net assets, end of period (000) $69,552 $55,103 $29,852 $34,720
Ratio to average net assets-<F1>
Expenses <F2> 1.48% 1.65% 1.62% 1.82%
Expenses-net <F3> 1.43% 1.50% 1.62% 1.82%
Net investment income 0.63% 0.23% .76% 1.23%
Portfolio turnover rate 108.36% 95.93% 98.80% 137.32%
Average brokerage commissions
per share $0.0883 -- -- --
<FN>
<F1> Management fee waivers reduced the expense ratios and
increased net investment income ratios by 0.04% in 1996,
0.06% in 1995 and 0.09% in 1990.
<F2> Expense ratio has been increased to include additional
custodian fees in 1996 and 1995 which were offset by
custodian fee credits; prior to 1995 custodian fee
credits reduced expense ratios.
<F3> Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
</FN>
</TABLE>
<PAGE>
<TABLE> Vontobel U.S. Value Fund
For a Share Outstanding Throughout Each Period
<CAPTION> Mar. 30<F1> to
Years ended December 31, Dec. 31
<S> <C> <C> <C>
Per Share Operating Performance 1992 1991 1990
Net asset value, beginning of period $11.36 $8.86 $10.00
Income from investment operations-
Net investment income 0.10 0.07 0.14
Net realized and unrealized gain
(loss) on investments 1.70 3.23 (1.13)
Total from investment operations 1.80 3.30 (0.99)
Less distributions-
Distributions from net
investment income (0.10) (0.06) (0.15)
Distributions from realized gains
on investments (1.06) (0.74) 0.00
Total distributions (1.16) (0.80) (.15)
Net asset value, end of period $12.00 $11.36 $8.86
Total Return 16.30% 37.29% (9.90%)
Ratios/Supplemental Data
Net assets, end of period (000) $31,335 $22,315 $9,488
Ratio to average net assets-<F2>
Expenses<F3> 1.96% 2.54% 1.94%*
Expenses-net<F4> 1.96% 2.54% 1.94%*
Net investment income .76% .92% 1.48%*
Portfolio turnover rate 99.66% 166.46% 87.29%
Average brokerage commissions per
share -- -- --
<FN>
<F1> Commencement of Operations was March 31, 1990; ratios are
annualized.
<F2> Management fee waivers reduced the expense ratios and increased
net investment income ratios by 0.04% in 1996, 0.06% in 1995 and
0.09% in 1990.
<F3> Expense ratio has been increased to include additional custodian
fees in 1996 and 1995 which were offset by custodian fee credits;
prior to 1995 custodian fee credits reduced expense ratios.
<F4> Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
</FN>
</TABLE>
<PAGE>
<TABLE> Vontobel International Equity Fund
For a Share Outstanding Throughout Each Period
<CAPTION> Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $17.13 $16.23 $17.22
Income from investment operations-
Net investment income 0.03 0.16 0.01
Net realized and unrealized gain
(loss) on investments 2.85 1.61 (0.92)
Total from investment operations 2.88 1.77 (.91)
Less distributions-
Distributions from net investment
income (0.03) (0.17) (0.08)
Distributions from realized gains (1.76) (0.70) 0.00
Distributions in excess of realized
gains 0.00 0.00 0.00
Total distributions (1.79) (0.87) (0.08)
Net asset value, end of period $18.22 $17.13 $16.23
Total Return 16.98% 10.91% (5.28%)
Ratios/Supplemental Data
Net assets, end of period (000's) $151,710 $130,505 $138,174
Ratio to average net assets-<F1>
Expenses<F2> 1.60% 1.63% 1.54%
Expenses-net<F3> 1.39% 1.53% 1.54%
Net investment income 0.15% .41% .08%
Portfolio turnover rate 54.58% 68.43% 34.04%
Average commission rate paid per
share $0.0279 -- --
<FN>
<F1>Management fee waivers and expense reimbursements reduced
the expense ratio and increased the net investment income ratio
by .07% in 1991.
<F2>Expense ratio has been increased to include additional custodian
fees in 1996 and 1995 which were offset by custodian fee
credits. Prior to 1995, custodian fee credits reduced expense
ratios.
<F3>Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
</FN>
</TABLE>
<PAGE>
<TABLE> For a Share Outstanding Throughout Each Period
<CAPTION> Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $12.23 $12.67 $10.67
Income from investment operations-
Net investment income 0.08 0.08 0.00
Net realized and unrealized gain
(loss) on investments 4.91 (0.38) 2.00
Total from investment operations 4.99 (0.30) 2.00
Less distributions-
Distributions from net investment
income 0.00 (0.08) 0.00
Distributions from realized gains 0.00 0.00 0.00
Distributions in excess of realized
gains 0.00 (0.06) 0.00
Total distributions -- (0.14) 0.00
Net asset value, end of period $17.22 $12.23 $12.67
Total Return 40.80% (2.37%) 18.74%
Ratios/Supplemental Data
Net assets, end of period (000's) $136,932 $47,761 $25,611
Ratio to average net assets-
Expenses<F2> 1.77% 1.98% 2.71%<F1>
Expenses-net<F3> 1.77% 1.98% 2.71%<F1>
Net investment income .85% .79% .02%<F1>
Portfolio turnover rate 10.66% 27.42% 3.40%
Average commission rate paid per
share -- -- --
<FN>
<F1> Management fee waivers and expense reimbursements reduced the
expense ratio and increased the net investment income ratio
by .07% in 1991.
<F2> Expense ratio has been increased to include additional
custodian fees in 1996 and 1995 which were offset by custodian
fee credits. Prior to 1995, custodian fee credits reduced
expense ratios.
<F3> Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
<PAGE>
</FN>
</TABLE>
<TABLE> Vontobel International Equity Fund
(continued)
<CAPTION>
Years Ended December 31,
1990 1989<F1> 1988<F1> 1987<F1>
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period $12.24 $11.17 $10.27 $10.00
Income from investment operations-
Net investment income .02 (.09) (.03) (.06)
Net realized and unrealized gain
(loss) on investments (1.54) 1.21 .96 .33
Total from investment operations (1.52) 1.12 .93 .27
Less distributions-
Distributions from net investment
income (.02) 0.00 0.00 0.00
Distributions in excess of realized
gains (.03) (.05) (.03) 0.00
Total distributions (.05) (.05) (.03) 0.00
Net asset value, end of period $10.67 $12.24 $11.17 $10.27
Total Return (12.42%) 10.03% 9.06% 2.70%
Ratios/Supplemental Data
Net assets, end of period (000's) $10,074 $2,564 $2,732 $1,109
Ratio to average net assets-
Expenses<F3> 2.76% 2.99% 2.99% 4.35%
Expenses-net<F4> 2.76%<F2> 2.99%<F2> 2.99%<F2> 4.35%<F2>
Net investment income .25%<F2> (.83%)<F2> (.57%)<F2>(.50%)<F2>
Portfolio turnover rate 60.87% 84.56% 18.60% 80.00%
<FN>
<F2> Management fee waivers and expense reimbursements reduced the
expense ratio and increased the net investment income ratio by
.69%, 3.11%, 5.03% and 1.00% in 1990, 1989, 1988 and 1987,
respectively.
<F3> Expense ratio has been increased to include additional
custodian fees in 1995 which were offset by custodian fee credits.
Prior to 1995, custodian fee credits reduced expense ratios.
<F4> Expense ratio-net reflects the effect of the custodian fee credits
the Fund received.
<F1> Periods during which the Fund was advised by other investment
advisors. On July 6, 1990, the Fund's current investment advisor
was appointed and the Fund's investment objective was changed to
its current status.
</FN>
</TABLE>
<PAGE>
<TABLE>
Vontobel Eastern European Equity Fund
For a Share Outstanding Throughout the Period
<CAPTION> February 15<F1> to
December 31, 1996
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $10.00
Income from investment operations-
Net investment loss (0.06)
Net realized and unrealized gain
on investments 4.95
Total from investment operations 4.89
Net asset value, end of period $14.89
Total Return 48.90%
Ratios/Supplemental Data
Net assets, end of period (000's) $61,853
Ratio to average net assets-
Expense<F3> 2.02%<F2>
Expense ratio-net<F4> 1.71%<F2>
Net investment loss (1.07)%<F2>
Portfolio turnover rate 38.69%
Average commission rate paid per share $0.0737
<FN>
<F1> Commencement of Operations
<F2> Annualized
<F3> Expense ratio has been increased to include additional
custodian fees which were offset by custodian fee credits.
<F4> Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
</FN>
</TABLE>
<PAGE>
<TABLE> Vontobel International Bond Fund
For a Share Outstanding Throughout the Period
<CAPTION>
Year Ended Year Ended March 1<F1> to
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning
of period $10.60 $9.48 $10.00
Income from investment
operations
Net investment income 0.47 0.61 0.70
Net realized and unrealized
gain (loss) on investments 0.32 1.06 (0.50)
Total from investment
operations 0.79 1.67 0.20
Less distributions-
Distributions from net
investment income (0.40) (0.55) (0.70)
Distributions from realized
gains on investments (0.06)
Distributions in excess
of net investment income -- -- (0.02)
Total distributions (0.46) (0.55) (0.72)
Net asset value, end of period $10.93 $10.60 $9.48
Total Return 7.51% 17.60% 1.98%
Ratios/Supplemental Data
Net assets, end of period (000) $26,879 $16,253 $10,235
Ratio to average net assets<F3>
Expense<F4> 1.84% 1.76% 1.35%<F2>
Expense ratio-net<F5> 1.52% 1.35% 1.35%<F2>
Net investment income 4.78% 5.38% 3.99%<F2>
Portfolio turnover rate 19.89% 18.63% 19.00%
<FN>
<F1> Commencement of Operations
<F2> Annualized
<F3> Management fee waivers reduced the expense ratios and
increased the ratios of net investment income by 0.20%
in 1996, 1.00% in 1995 and 0.19% in 1994.
<F4> Expense ratio has been increased to include additional
custodian fees in 1996 and 1995 that were offset by
custodian fee credits; prior to 1995 custodian fee credits
reduced the expense ratio.
<F5> Expense ratio-net reflects the effect of the custodian fee
credits the Fund received.
</FN>
</TABLE>
<PAGE>
1996 PERFORMANCE
The Emerging Markets and E. European Debt Funds did not
commence operations in 1996 and had no performance in that year.
VONTOBEL U.S. VALUE FUND
The Value Fund produced a total return of 21.3% for the year,
versus the 23.0% return for the S&P 500 with income and 20.8% for
the average growth and income equity fund tracked by Lipper
Analytical Services, Inc. For the second consecutive year, holders
of U.S. stocks in 1996 experienced total returns well above the
historical trendline. Perhaps the most notable aspect of the
market's move over the past twelve months was the heady
outperformance of large-cap stocks. The Dow Jones Industrial
Average, comprised of 30 of America's largest, most well-known
companies, led the pack in 1996, providing a total return of 28.7%
for the year, well ahead of the broader S&P 500's 23.0% total
return, and almost double the return on the Russell 2000, an index
representing relatively small companies. The Fund's
underperformance was not surprising given its strict adherence to
an investment style that dictates the sale of securities held as
they approach established price targets. The Advisor therefore
reduced the Fund's holdings in many companies during the year whose
stocks subsequently appreciated even further. Gillette, for
example, represented 4.4% of total assets at the start of 1996.
This great company met everyone's expectations over the course of
the year, and entered into an agreement to purchase Duracell in the
fourth quarter, further capturing investors' imaginations. The
Advisor sold the last of the Fund's Gillette shares shortly after
the acquisition was announced. In examining and rejecting many
individual companies for possible investment, it is not so much
that the Advisor does not like the companies, but that the Advisor
feels their stock prices do not offer the relative safety of
principal and potential of a satisfactory return that the Fund
seeks. Because the Advisor experienced difficulty in identifying
compelling new investments in 1996, the Fund carried a large cash
position throughout much of the year, which penalized performance
to the extent that cash underperformed stocks in 1996.
VONTOBEL INTERNATIONAL EQUITY FUND
The International Equity Fund produced a total return of 17.0%
for the year, versus the 6.0% return of the MSCI Europe, Australia,
Far East Index and 11.8% for the average international equity fund
tracked by Lipper Analytical Services, Inc. Again in 1996, global
markets turned in strong performances as economic growth ranged
from moderate to tepid, and inflation remained tame. Except for
the UK, central banks remained accommodative, which was the major
support for the markets' multiple expansion during the year. The
Fund's performance benefitted primarily from the shift in country
allocation in the first quarter, when the Advisor increased the
weighting in Europe at the expense of Japan and the emerging
markets. Since, at the beginning of the year, the Advisor could
not find a great number of attractively valued companies in Japan,
the Advisor turned instead to Europe, which offered attractive
valuations from both a top-down and bottom-up standpoint. The key
factors in the Advisor's top-down valuation process are the
comparison of bond market versus equity market valuations, and the
rate of change in the direction of interest rates, both of which
pointed to equity market valuations, and the rate of change in the
direction of interest rates, both of which pointed to double-digit-
return expectations for European markets based on their historical
behavior. At the end of 1996 the Fund's weighting in Europe was
59.1%, versus 49.7% at the end of 1995. The Japanese domestic
economy remains very weak, and the lack of progress in addressing
the issues in the financial sector remains a negative for the
sector and the stock market as a whole, at least in the short term.
The average price to earnings multiple of the Fund's Japanese
holdings is about 25X and the price to sales ratio is 2.3, which
represents not only a large discount to the domestic equity markets
but is comparable with international markets. At year end the
Fund's weighting was 22.9%, versus 29.7%, at the end of 1995. To
protect the value of the Fund's portfolio against the adverse
effects of an appreciating U.S. dollar, the Fund had hedge
contracts covering approximately 65% of the portfolio's exposure to
the DM bloc, the French franc, the Swiss franc and the Japanese
yen. The Fund had no hedges against the Fund's holdings in pound
sterling, which turned out to be a good call since the British
pound was one of the few currencies to appreciate against the
dollar during the year.
VONTOBEL EASTERN EUROPEAN EQUITY FUND
The E. European Equity Fund produced a total return of 48.9%
for the period from inception on February 15, 1996 through December
31, 1996, versus the 23.9% return of the Nomura Research Inc.
Eastern European Index ("NRI Index") for the same period. The
Fund's fourth quarter performance ranked 23rd out of 115 emerging
markets funds tracked by Lipper Analytical Services, Inc. In the
second and third quarters the Fund ranked 1st out of 90 and 99
funds, respectively. 1996 was a momentous year for investors in
Central and Eastern European equities as the more advanced markets
(Hungary, Poland and the Czech Republic) consolidated their
credibility, attracting an estimated flow of US$ 5 billion in new
funds to the region's bourses. Russia, Hungary and Poland were
among the world's five top-performing markets, in both local
currency and U.S. dollar terms. Russia, the world's best-
performing market in 1996, was rated for the first time in its
history and successfully placed a US$ 1 billion 5-year bond issue
in international capital. The Fund's performance benefitted from
the improved credit standings of Central and Eastern European
nations, spurring heavy capital inflows into the region. It
further benefitted from the increased allocation to Russia from 5%
in the second quarter to 16% by year end. It should be noted that
the NRI Index used for comparative purposes has no exposure to the
Russian market. Eastern European equities are a relatively new
asset class. As the investment industry further develops and
refines its indices, the Advisor may select a new benchmark in the
future that more appropriately reflects its country allocation.
VONTOBEL INTERNATIONAL BOND FUND
The Bond Fund produced a total return of 7.5% for the year,
versus the 5.3% return of the J.P. Morgan Government Bond Index ex-
U.S. and 8.8% for the average global fixed income fund tracked by
Lipper Analytical Services, Inc. During the first half of 1995,
U.S. dollar weakness contributed to over half of international bond
market returns. In the second half, particularly the last quarter,
international bond markets were propelled by falling yields as
inflation remained subdued not only in Europe and Japan but also in
the U.S. European bond markets posted double-digit returns in U.S.
dollar terms, led by Sweden, Denmark, Spain, the Netherlands and
France. In contrast, the Japanese market, the best-performer in
the first quarter, ended the year with the lowest U.S dollar return
in the benchmark index, 10.4%. An added factor in the European
markets was the re-commitment of the European Union to introduce a
single European currency within the 1999 timetable. The Fund
remained overweighted in the European markets of Denmark, Germany
and Ireland. It was also overweighted in the Australian market,
given the Advisor's positive outlook for both the Australian
currency and bond market. Thanks to its continued lack of exposure
to the Japanese yen bond market, the Fund outperformed its
benchmark by 2.3%. However, it fell shy of the average return of
8.8% of the 44 international bond funds in the Lipper universe.
With its emphasis on high-quality investment-grade debt, the Fund,
unlike many of its peers, held no positions in high-flying emerging
markets debt, the year's best-performing asset class. About 23% of
the Fund's assets were held in U.S. dollar and foreign cash and
short-term instruments. Some 11% of the Fund's non-dollar-related
assets were hedged to safeguard against possible further U.S.
dollar appreciation.
THE FUNDS' INVESTMENTS AND POLICIES
VONTOBEL FUNDS, INC.
The Funds are series of Vontobel Funds, Inc. (the "Company"),
an open-end management investment company incorporated in Maryland
in 1983. The Company currently consists of six series, and the
Board of Directors may elect to add more series in the future. A
minimum initial investment of $1,000 is required to open a
shareholder account in each Fund, and each subsequent investment
must be $50 or more.
The investment objective of each Fund is fundamental and may
not be changed without the approval of shareholders. The
investment policies of each Fund are not fundamental, however, and
may be changed with the approval of the Company's Board of
Directors. All investments entail some risks and there is no
assurance that the investment objective of a Fund can be achieved.
See "Special Risk Considerations" below.
VONTOBEL U.S. VALUE FUND
Investment Objective. The investment objective of the Value
Fund is to seek to achieve long-term capital returns in excess of
the broad market by investing in a carefully selected, continuously
managed non-diversified portfolio of principally equity securities
(including securities convertible into equity securities, such as
warrants, convertible bonds, debentures, or convertible preferred
stock) traded on U.S. exchanges. The Advisor uses the S&P 500 as
the benchmark for the broad market against which the performance of
the Value Fund is measured.
The Value Fund operates as a non-diversified fund for purposes
of the Investment Company Act of 1940, as amended (the "1940 Act"),
but will seek to qualify as a diversified investment company for
purposes of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
Investment Policies. The Value Fund is designed for
individuals and institutions who need a core exposure to U.S.
equity markets. It is the policy of the Value Fund to invest
primarily in equity securities (common stocks or securities
convertible into common stocks) that are listed on a securities
exchange or that have an established over-the-counter market.
It is not the intention of the Advisor to attempt to time the
direction of the market or to forecast future changes regarding
interest rates or the economy. As an equity fund the Value Fund
will have at least 65% of its assets invested in common stocks or
securities convertible into common stocks.
Since the Value Fund seeks to achieve capital appreciation, it
will dispose of a security, regardless of the time it has been
held, to establish gains, to avoid anticipated reductions of value,
or to reduce or eliminate a position in a security which is no
longer believed to offer the potential for suitable gains.
Portfolio turnover is expected not to exceed an annual rate of 100%
under normal circumstances. Such a turnover rate may reflect
substantial short term trading and corresponding brokerage costs
which the Value Fund must pay. A higher portfolio turnover rate
may result in additional brokerage commissions or expenses to the
Value Fund.
The selection of the securities in which the Value Fund will
invest will not be limited to companies of any particular size, or
to securities traded in any particular marketplace, and will be
based only upon the expected contribution such securities would
make to the investment objective. The Value Fund may assume a
temporary defensive posture. See "Additional Information on
Policies and Investments - Temporary Defensive Positions" below.
For additional information regarding investments and a description
of additional permitted investments, see "Additional Information on
Policies and Investments."
The Value Fund is a "non-diversified" investment company under
Federal securities laws, and therefore may invest a larger portion
of its assets in certain issuers, including foreign governments and
domestic issuers other than the U.S. government. It may invest
more than 5% of its assets in government debt securities of the
U.S. However, because it intends to qualify as a "regulated
investment company" for purposes of Subchapter M of the Code, at
least 50% of its total assets must be invested in cash, U.S.
government securities, and securities of issuers (including foreign
governments), in which it has invested not more than 5% of its
assets. A regulated investment company is also limited in its
purchases of voting securities of any issuer.
Investment Strategy. In managing the Value Fund, the Advisor
draws a distinction between investment, i.e., an action that seeks
safety of principal and a satisfactory return, versus speculation,
i.e., an action that may offer significant return potential but
that offers insufficient safety of principal. The Advisor believes
that the intrinsic value of any asset can be calculated by
discounting the estimated free cash flow generated by that asset
over its lifetime. This belief has led the Advisor to adopt a
bottom-up approach that stresses predictability, one in which the
prevailing level of interest rates provides a yardstick for
determining absolute value independent of the level of market
indices. Eschewing many of the tenets of modern portfolio theory,
the Advisor considers the riskiness of an investment to be a
function of the company's business rather than the volatility of
its stock price.
The Advisor employs a bottom-up approach to
stock picking, relying on a screening process to help find stocks
that are statistically cheap. The Advisor emphasizes qualitative
criteria in evaluating a company's potential as a prospective
investment opportunity.
A valuation technique based upon the discounting of future
cash flows implies a high degree of reliance upon the estimates of
future financial results. The Advisor believes that the best
beginning point to analyzing a company's future is to review its
past. Consequently, those companies that have produced highly
volatile returns and those with short operating histories do not
lend themselves to the Advisor's investment approach. Recognizing
the tendency of markets to overreact to both good news and to bad
news, the Advisor, like many value investors, often takes a
contrarian stance to "momentum" managers. Recognizing also the
broader market's tendency to paint with the same brush all
companies within an industry group, the Advisor often finds itself
significantly overweighting out-of-favor market sectors.
The Advisor has developed a proprietary screen that assigns a
"value indicator" to each of approximately 3,000 stocks in a
selected universe of companies. Stocks are ranked from highest to
lowest "value indicator", and those stocks comprising the S&P 500
index are also sorted by industry group. Using a firm's
profitability level (as measured by its relative cash flow return
on equity) and a valuation measure (as measured by its price to
book value), the purpose of the screen is to highlight those firms
that are more productive than the market but that are selling at a
discount to the market. The screening process also collects and
reports information regarding each company's historical return
levels, debt-to-capitalization, and historical price-to-earnings
and dividend yield. The sorting by industry group draws attention
to sector moves that may indicate stress and, by extension,
opportunity.
The screens provide a starting point, a way of focusing the
Advisor's attention on stocks that are statistically cheap versus
the market or versus their historical ranges. The Advisor also
uses brokerage and industry contacts and the business press to
obtain additional investment ideas.
Having determined that an investment opportunity may exist,
the Advisor reads company-provided materials and public filings and
often will look at materials developed by or related to the
company's competitors. The Advisor also may interview company
management, and if the company is followed by brokerage houses with
which the Advisor does business, may also review brokerage firm
research. Most company interviews are by telephone, but personnel
of the Advisor also travel several times each year, visiting
companies whose stock is held or is under consideration, or which
is a competitor of such companies. In evaluating a company's
suitability as an investment vehicle, the Advisor takes into
account the following:
Predictability: No one can foretell the future with
exactitude, but some businesses are far more predictable than
others. An asset cannot be valued without some idea of the
cash flows that asset will generate. This desire for
predictability has for the most part deterred the Advisor from
investing in fast-evolving industries (specifically,
technology) and has also deterred the Advisor from committing
capital to highly cyclical businesses.
Generation of Free Cash Flow: Free cash flow is the amount of
money available, after required capital spending, for
reinvestment and/or return to the owners of the business.
Adequate Returns: Those businesses not generating a
competitive level of return on invested capital are unsuitable
as investments.
Low Debt: High leverage introduces a level of risk that is
unacceptable.
Elements of a Franchise: This provides a competitive
advantage, enabling high returns over extended periods of
time.
Regulatory Environment: The less regulation to which a
company is subject, the better, as less regulation increases
the company's ability to manage and price effectively.
Shareholder-oriented Management: High insider ownership is
one indicator that management will act with the best interests
of the shareholders in mind. Intelligent, prudent use of
company funds is another.
The Advisor considers companies that meet these qualitative hurdles
"investable".
A price target is generally reached by treating forecasted
free cash flow as an annuity, using prevailing interest rates as
the discount factor. For those companies in which the Advisor has
an exceptional level of confidence, it projects some level of cash
flow growth, using either proprietary or consensus forecasts.
(Price targets may later be adjusted for significant changes in the
prevailing level of interest rates, and also may later be reviewed
as company-specific events dictate.)
Generally, a new position will be established if the market
price of a security is 20% or more below calculated intrinsic
value. Position size is dictated by the Advisor's degree of
confidence in the business and the stock's degree of
undervaluation, as well as the availability of attractive
investment alternatives. Position sizes normally range from 1% to
6% of portfolio assets, but the Advisor has occasionally taken
larger positions. Generally, portfolios comprise approximately 20
positions.
A stock is sold for one of two reasons. Either it has reached
the target price or the thesis for purchase has deteriorated.
Large positions are trimmed as stocks approach sell targets. There
is no automatic sell-down percentage.
Sector Allocation: No conscious sector allocation decision is
made. Sector allocation is the result of stock selection.
Investment Level: The extent of the Fund's cash position is
the result of the Advisor's ability to find suitable investment
opportunities.
In managing the Value Fund, the Advisor follows a highly
differentiated approach. This approach is bottom-up, with strict
adherence to a discipline constructed around absolute, not
relative, valuation, resulting in comparatively high levels of
investment in both individual issues and industry sectors. On
occasion, when suitable investments are not identified, a large
cash position may be maintained.
VONTOBEL INTERNATIONAL EQUITY FUND
Investment Objective. The investment objective of the
International Equity Fund is to seek to achieve capital
appreciation by investing in a carefully selected and continuously
managed diversified portfolio consisting primarily of equity
securities (including securities convertible into equity
securities, such as warrants, convertible bonds, debentures or
convertible preferred stock). The investments of the International
Equity Fund will consist principally of equity securities of
European and Pacific Basin countries.
Investment Policies. The International Equity Fund is
designed as a core holding for individuals and institutions who
wish to diversify their investment programs to take advantage of
opportunities in international securities markets, with the
principal emphasis on opportunities in Europe and the Pacific
Basin. Investing in the International Equity Fund can provide
international diversity to an investor's existing portfolio of U.S.
equity securities and U.S. dollar and foreign currency denominated
bonds, thereby improving risk-adjusted returns. The International
Equity Fund will invest most of its assets in equity securities of
countries which are generally considered to have developed markets,
such as the United Kingdom, Germany, France, the Netherlands,
Switzerland, Norway, Spain, Japan, Hong Kong, Australia, and
Singapore. The Advisor will decide when and how much to invest in
each of those markets. Investments may also be made in equities
issued by companies in "developing countries" or "emerging
markets", such as Taiwan, Malaysia, Indonesia, and Brazil, included
in Morgan Stanley Capital International's Emerging Markets Free
Index ("EMF") Investments in the equity markets of these countries
involves exposure to economic structures that are generally less
diverse and mature, and whose political systems may have less
stability than those of "developed countries." Subject to
investment limitations stated in the Statement of Additional
Information, the International Equity Fund may invest in the shares
of open-end and closed-end investment companies that acquire equity
securities of foreign issuers in which the Fund may invest. By
investing in shares of such investment companies, the Fund would
indirectly pay a portion of the operating expenses, management
expenses, and brokerage costs of such companies, as well as those
of the Fund. Federal and state securities laws impose limits on
such investments with which the Fund will comply, and may affect
the ability of the Fund to acquire or dispose of such shares.
The Advisor believes that global economic and political
developments have created new opportunities in an enlarged
investment universe. In recent years a number of economies in
developed and emerging countries have grown faster than the U.S.
economy, and return on equity investments in these markets has
often been superior to similar investments in the U.S. In
addition, the U.S. stock market presently represents approximately
40% of the capitalization of the world's stock markets compared to
approximately two-thirds in 1970. Significant growth of
international capital markets, coupled with advances in technology
and lower cost of communications, have increased the globalization
of securities trading. Therefore, over the past few years, the
number of investment opportunities outside the U.S. has grown
rapidly.
It is the policy of the International Equity Fund to invest
primarily in equity securities which may achieve capital
appreciation by selecting companies with superior potential based
on a series of macro and micro analyses. The International Equity
Fund may select its investments from companies which are listed on
a securities exchange or from companies whose securities have an
established over-the-counter market, and may make limited
investments in "thinly traded" securities (please refer to
"Investment Restrictions" in the Statement of Additional
Information).
Under normal circumstances the International Equity Fund will
have at least 65% of its assets invested in European and Pacific
Basin equity securities. The International Equity Fund intends to
diversify broadly investments among countries and normally to have
represented in the portfolio business activities of not less than
three different countries. The securities the International Equity
Fund purchases may not always be purchased on the principal market.
For example, American Depositary Receipts ("ADRs") may be purchased
if trading conditions make them more attractive than the underlying
security. ADRs are receipts typically issued in the U.S. by a bank
or trust company evidencing ownership of an underlying foreign
security. The International Equity Fund may invest in ADRs which
are structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign
investment applicable to the underlying securities, such
unsponsored ADRs may also be subject to the risks that the foreign
issuer may not be obligated to cooperate with the U.S. bank, may
not provide additional financial and other information to the bank
or the investor, or that such information in the U.S. market may
not be current. Please refer to the Statement of Additional
Information for more information on ADRs.
The selection of the securities in which the International
Equity Fund will invest will not be limited to companies of any
particular size, or to securities traded in any particular
marketplace, and will be based only upon the expected contribution
such security will make to its investment objective.
Since the International Equity Fund seeks to achieve capital
appreciation, it will dispose of a security, regardless of the time
it has been held, to establish gains, to avoid anticipated
reductions of value, or to reduce or eliminate a position in a
security which is no longer believed to offer the potential for
suitable gains. Portfolio turnover is expected not to exceed an
annual rate of 100% under normal circumstances. Such a turnover
rate may reflect substantial short term trading and corresponding
brokerage costs which the International Equity Fund must pay.
The International Equity Fund may enter into forward contracts
to purchase or sell foreign currencies, purchase and write covered
call options on foreign currencies and enter into contracts for the
purchase or sale for future delivery of foreign currencies
("foreign currency futures") as described in "Additional
Information on Policies and Investments - Strategic Transactions"
below. The International Equity Fund may assume a temporary
defensive posture. See "Additional Information on Policies and
Investments - Temporary Defensive Positions" below. For additional
information regarding investments and a description of additional
permitted investments, see "Additional Information on Policies and
Investments."
Investment Strategy. Using an approach that involves top-down
country allocation combined with bottom-up stock selection, the
Advisor will seek to identify countries where economic and political
factors are likely to provide above average returns, and companies
in such countries that are best positioned in their respective
industries and that are attractively valued. In this regard the
Advisor will allocate the assets of the International Equity Fund
principally between the European and Pacific regions.
The Advisor's approach is governed by its belief that the
principal factors affecting an equity market's return are, on a
country allocation basis, the proportion of liquidity in the
economy, and, on a stock selection basis, consistent profit growth,
a strong balance sheet and high returns on employed capital and, in
addition, that the effect of currency fluctuations on portfolio
returns can be reduced through a systematic hedging strategy.
For its country allocation, the Advisor analyzes approximately
35 international equity markets, which include the 20 markets
currently comprised in Morgan Stanley Capital International's
Europe, Australia and Far East Index ("EAFE"), as well as the
constituent countries of its EMF. The Advisor also gives
consideration to such factors as market liquidity, accessibility to
foreign investors, regulatory protection of shareholders,
accounting and disclosure standards, transferability of funds and
foreign exchange controls, if any.
The tendency of markets to overreact to short-term factors
such as monthly inflation data or quarterly earnings results
creates market valuations that may deviate significantly from their
underlying historical values. The country allocation process aims
to determine the relative attractiveness of the markets in the
Advisor's country universe by establishing a relationship between
their current valuations and the amount of liquidity available in
their respective economies and then comparing that relationship
with its historic norm. The rigorous use of comparative historical
data is designed to reduce subjective and speculative bias.
The Advisor's country allocation process is guided by the
output of a valuation model that produces a total expected return
range in local currency for each country in the Advisor's
investment universe. The data series used in the valuation model
covers extended periods of market history for the EAFE and EMF
universe. The Advisor has backtested the reliability of the
principal factors used in the valuation model which, in
combination, have historically proven to have statistically significant
predictive power. These factors broadly fall into the following
categories: macroeconomic indicators, valuation indicators
and market-specific factors.
Each factor is assigned a numerical value based on a scale
determined by the historic ranges. Based on the arithmetical sum
of all such values, an attractiveness ranking for each country in
the Advisor's universe is produced on a quarterly basis. The use
of three different sets of variables in combination results in a
higher degree of predictability of the valuation model's output.
Generally, the factors are equally weighted. In a few instances a
double weight is assigned if the predictive power of a particular
factor has historically been very high, like yield curve analysis,
which is relevant in all markets.
The valuation model's total return expectations provide a
relative ranking in descending order of attractiveness of all
countries in the Advisor's universe. It is not the Advisor's approach
to make country "bets" by, for example, significantly overweighting those
countries showing the highest expected return based on the output
of the Advisor's valuation model. Rather, the Advisor normalizes
the distribution of country weights through the use of a proprietary
risk-variance matrix that establishes for each market a
minimum/maximum weight relative to the benchmark (EAFE). Since
the Advisor's country allocation valuation model cannot take into
account exogenous events impacting country stock market returns
such as political events, social unrest and currency turmoil,
this matrix serves for risk control purposes.
Before a decision is made to increase or lower a country
weight based on the quantitative output of the valuation model, the
Advisor reviews the country's fundamental economic data that are
not part of the country screening process as well as its political
situation. This systematic qualitative analysis focuses on such
macroeconomic data as GDP growth, external trade balances, current
account and balance of payments, external debt position and debt
service ratios, foreign reserve position, ability to finance
deficits in external accounts, fiscal and exchange rate policies,
private and public savings rates, as well as inflationary trends.
The Advisor believes this approach to be more useful than a
rigid discipline that ties the magnitude and timing of shifts in
country weights directly to changes in the expected returns for
each country produced by the Advisor's valuation model since the
Advisor does not employ portfolio optimization techniques.
Normally, the Fund will tend to be fully invested.
International equity markets have historically demonstrated low
correlation with one another, so it is extremely unlikely that the
model would produce simultaneously negative total return
expectations for a large number of countries in the Advisor's
universe so as to trigger a significant temporary defensive move to
cash.
For stock selection within each country, the Advisor seeks to
invest in large- and medium-capitalization companies that have a
long record of successful operations in their core business and
earnings growth through increasing market share and unit sales
volumes. Typically they occupy a leading position in their
industry, have demonstrated a high degree of self-financing and
have consistently generated free cash flow.]
The Advisor's stock selection process begins by screening a
universe of approximately 3000 stocks in a market capitalization
range from approximately $500 million to approximately $100
billion. The Advisor's screens are designed to be representative
of each market and generally cover a broad cross-section of
companies which together account for about 70% of total market
capitalization. The Advisor's approach is to look at companies
whose growth factors can be measured and compared. The Advisor's
data series focus on low price to sales ratios, consistent earnings
growth, consistent operating margins, high returns on equity
relative to
price to cash flow, and healthy debt ratios. The Advisor defines
cash flow as recurrent net profit plus depreciation. Furthermore,
the Advisor analyzes the share price in relation to earnings before
interest, taxes, depreciation and amortization, and looks at the
underlying trend of cash and retained earnings. The screens,
comprising multiple valuation ratios, are used to ensure rigor and
consistency in the Advisor's bottom-up research.
The Advisor supplements the above quantitative screening
process by an analysis of certain qualitative criteria, one of the
most important of which is to identify strong, stable and reliable
management that maintains a company's market position through
consistent unit volume growth and gains in market share rather than
a reliance on price increases, exercises tight financial control
and fosters a culture of market responsiveness.
Based on the Advisor's ranking of approximately 3000 stocks in
about 35 different international equity markets, the Advisor
usually selects names which appear in the top third of the
quantitative screens for each country. Based on the screening
factors, these stocks typically show low historical deviations of
annual earnings, high returns on equity and low debt levels.
Position size at purchase ranges from about 0.7% to 1% of total
portfolio assets. Within this range position size varies in
proportion to the market capitalization of the company within a
given country's stock market. The Advisor normally allows
positions to reach a maximum of approximately 5% of total assets.
Shifts in country weight are the principal cause for selling
stocks. Stocks are sold if a country's maximum weight based on the
risk-variance matrix has been exceeded. The Advisor may trim or
sell positions if a name drops from the top third of its
quantitative screens due to price appreciation or if a company's
fundamentals have deteriorated.
Within each country, no conscious sector allocation decision
is made. Sector allocation is the result of the stock selection
within each country.
The holding periods of the Fund's core holdings generally
exceed one year.
For active currency risk management, the Advisor employs a
systematic currency hedging approach based on a technical-trend-
following model.
VONTOBEL EMERGING MARKETS EQUITY FUND
Investment Objective. The investment objective of the
Emerging Markets Fund is to seek to achieve long-term capital
appreciation by investing in a carefully selected and continuously
managed portfolio consisting primarily of equity securities
(including securities convertible into equity securities, such as
warrants, convertible bonds, debentures or convertible preferred
stock). The investments of the Emerging Markets Fund will consist
principally of equity securities of issuers in developing countries
around the world.
Investment Policies. The Emerging Markets Fund is designed
for individuals and institutions who wish to diversify their
holdings of equities issued by companies whose principal offices
are located in countries with developed equity markets which
generally includes the constituent countries of the EAFE, each a
developed market country. Investing in the Emerging Markets Fund
can provide international diversity to an investor's existing
portfolio of U.S. and international equity securities and U.S.
dollar and foreign currency denominated bonds, thereby seeking to
reduce volatility or risk over time. The Emerging Markets Fund
will invest most of its assets in equity securities of countries
which are considered to have developing equity markets. The
Emerging Markets Fund considers countries having developing markets
to be all countries included in the EMF, generally considered to be
developing or emerging markets countries by the International Bank
for Reconstruction and Development (more commonly referred to as
the World Bank) or the International Finance Corporation, as well
as countries that are classified by the United Nations or otherwise
regarded by their authorities as developing. Currently, the
countries not in this category include Ireland, Spain, New Zealand,
Australia, the United Kingdom, Italy, the Netherlands, Belgium,
Austria, France, Canada, Germany, Denmark, the United States,
Sweden, Finland, Norway, Japan, Iceland, Luxembourg and
Switzerland. In addition, as used in this prospectus, emerging
markets equity securities means (i) equity securities of companies
the principal securities trading market for which is an emerging
market country, as defined above, (ii) equity securities traded in
any market, of companies that derive a substantial portion of their
total revenue or potential revenue from either goods or services
produced in developing countries or sales made in emerging market
countries, or (iii) equity securities of companies organized under
the laws of, and with a principal office in, an emerging market
country. Subject to investment limitations stated in the Statement
of Additional Information, the Emerging Markets Fund may invest in
shares of open and closed-end investment companies that acquire
equity securities of issuers in emerging markets in which the Fund
may invest. By investing in shares of such investment companies,
the Fund would indirectly pay a portion of the operating expenses,
management expenses, and brokerage costs of such companies, as well
as those of the Fund. Federal securities laws impose limits on
such investments with which the Fund will comply, and may affect
the ability of the Fund to acquire or dispose of such shares.
The Advisor believes that global economic and political
developments have helped to create new investment opportunities.
In recent years some economies in developing countries have grown
faster than economies in industrialized countries, and some returns
on equity investments in some of these countries have been superior
to similar investments in the U.S. or industrialized countries. In
addition, the share of global stock market capitalization accounted
for by emerging markets currently amounts to approximately 15%
which compares to currently 40% for the U.S. equity markets and
about 45% for the developed countries.
It is the policy of the Emerging Markets Fund to invest
primarily in equity securities which may achieve capital
appreciation by selecting companies with superior potential based
on a series of macro and micro economic analyses. The Emerging
Markets Fund may select its investments from companies which are
listed on a securities exchange or from companies whose securities
have an established over-the-counter market, and may make limited
investments in "thinly traded" securities. (Please refer to
"Investment Restrictions" in the Statement of Additional
Information).
Under normal circumstances the Emerging Markets Fund will have
at least 65% of its total assets invested in developing countries
around the globe. The Emerging Markets Fund intends to diversify
investments broadly among countries and normally to have
represented in the portfolio business activities of not less than
three different countries. It is anticipated that the Emerging
Markets Fund will invest in three or more of the countries in the
following list, which is meant to be representative and not
exhaustive:
Argentina
Brazil
Chile
China
Columbia
Czech Republic
Egypt
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Malaysia
Mexico
Pakistan
Panama
Peru
Philippines
Poland
Portugal
Russia
Singapore
South Africa
South Korea
Sri Lanka
Taiwan
Thailand
Turkey
Venezuela
The securities the Emerging Markets Fund purchases may not
always be purchased on the principal market of the country. For
example, ADRs, European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or Registered Depositary Certificates
("RDC") may be purchased if trading conditions make them more
attractive than the underlying security. ADRs are described above
in the "Vontobel International Equity Fund" section. Similar to
ADRs, EDRs, GDRs and RDCs represent receipts for a foreign security
issued in a location outside the U.S., and may involve risks
comparable to ADRs, as well as the fact that the EDR, GDR or RDC is
itself issued outside the U.S. RDCs involve risks associated with
Russian securities transactions. Please refer to
the Statement of Additional Information for more information on
ADRs, EDRs, GDRs and RDCs.
The selection of the securities in which the Emerging Markets
Fund will invest will not be limited to companies of any particular
size, or to securities traded in any particular marketplace, and
will be based only upon the expected contribution such security
will make to its investment objective.
Since the Emerging Markets Fund seeks to achieve long-term
capital appreciation, it will dispose of a security, regardless of
the time it has been held, to establish gains, to avoid anticipated
reductions in value, or to reduce or eliminate a position in a
security which is no longer believed to offer the potential for
suitable gains.
The Emerging Markets Fund may invest in securities that are
neither listed on a stock exchange nor traded over-the-counter,
including privately placed securities. Such unlisted equity
securities may involve a higher degree of business and financial
risk that can result in substantial losses. As a result of the
absence of a public trading market for these securities, they may
be less liquid than publicly traded securities. The Fund may not
invest in such securities that are deemed to be illiquid in excess
of 15% of the Fund's net assets. Securities that are restricted
from sale to the public without registration ("Restricted
Securities") under the Securities Act of 1933, as amended (the
"1933 Act"), are deemed illiquid, except that Restricted Securities
that can be offered and sold to qualified institutional buyers
pursuant to Rule 144A under the 1933 Act may be deemed liquid under
guidelines adopted by the Board of Directors of the Company. The
Fund may assume a temporary defensive posture. See "Additional
Information on Policies and Investments - Temporary Defensive
Positions" below. For additional information regarding investments
and a description of additional permitted investments, see
"Additional Information on Policies and Investments."
Investment Strategy. The investment objective of the Emerging
Markets Fund reflects the Advisor's belief that investment
opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may
especially benefit certain countries having emerging markets. This
trend may be facilitated by local or international political,
economic or financial developments that could benefit the capital
markets of such countries. Certain such countries, which may be in
the process of developing more market-oriented economies, may
experience relatively high rates of economic growth. Other
countries, although having relatively mature emerging markets, may
also be in a position to benefit from local or international
developments encouraging greater orientation and diminishing
governmental intervention in economic affairs.
The Advisor's emerging markets equity approach is governed by
its belief that the principal factors affecting an equity market's
returns are, on a country allocation basis, the proportion of
liquidity in the economy, and on a stock selection basis, the
growth of recurrent cash flow from operations. The Advisor's
investment approach involves two steps: (i) top-down country
allocation; and (ii) bottom-up stock selection. The Advisor does
not currently actively manage currency risk.
The Advisor currently analyzes the equity markets of
developing or emerging markets countries as described above in
"Investment Policies." The Advisor also gives consideration to
such factors as liquidity, accessibility to foreign investors,
regulatory protection of shareholders, accounting and disclosure
standards, transferability of funds and exchange controls, if any.
The tendency of markets to overreact to short-term factors
such as monthly inflation data or quarterly earnings results
creates market valuations that may deviate significantly from their
underlying historical values. The country allocation process aims
to determine the relative attractiveness of the markets in the
Advisor's country universe by establishing a relationship between
their current valuations and the amount of liquidity available in
their respective economies, and then comparing that relationship
with its historical norm. The rigorous use of comparative
historical data tends to reduce subjective and speculative bias.
The Advisor's country allocation process is guided by the
output of a valuation model that produces a total expected return
range in local currency for each country in the Advisor's
investment universe. The data series used in the valuation model
covers extended periods of market history for the EMF universe.
Thesefactors broadly fall into the following categories: macroeconomic
indicators, valuation indicators and market-specific factors. The
Advisor has backtested the reliability of the principal factors
which, in combination, have historically proven to have
statistically significant predictive power.
The Advisor supplements the quantitative analysis by an
analysis of a country's current and expected level of economic
activity based on the conduct of monetary and fiscal policy
combined with ongoing evaluation of the underlying economic
dynamics created by short- and long-term investment flows.
The valuation model's total return expectations, a relative
ranking in descending order of attractiveness of all countries
in the Advisor's universe.
It is not the Advisor's approach to make country "bets" by,
for example, significantly overweighting those countries showing the
highest expected return based on the output of the Advisor's valuation
model. Rather, the Advisor normalizes the distribution of country
weights through the use of a proprietary risk-variance matrix that
establishes for each market a minimum/maximum weight relative to
the benchmark (EMF). Since the Advisor's country allocation
valuation model cannot take into account exogenous events impacting
country stock market returns such as political events, social
unrest and currency turmoil, this matrix serves for risk control
purposes.
Before a decision is made to increase or lower a country
weight based on the quantitative output of the valuation model, the
Advisor reviews the country's fundamental economic data that are
not part of the country screening process as well as its political
situation. This systematic qualitative analysis focuses on such
macroeconomic data as GDP growth, external trade balances, current
account and balance of payments, external debt position and debt
service ratios, foreign reserve position, ability to finance
deficits in external accounts, fiscal and exchange rate policies,
private and public savings rates, as well as inflationary trends.
The Advisor believes this approach to be more useful than a
rigid discipline which ties the magnitude and timing of shifts in
country weights directly to changes in the expected returns for
each country produced by the Advisor's model since the Advisor does
not employ portfolio optimization techniques.
Generally, the Fund tends to be fully invested. International
equity markets have historically demonstrated low correlation with
one another, so it is extremely unlikely that the Advisor's model
would produce simultaneously negative total return expectations for
a large number of the countries in the emerging markets universe so
as to trigger a significant temporary defensive move to cash.
Within each country in the Advisor's universe, the Advisor
seeks to invest in large- to medium-capitalization companies with
solid prospects for consistent and sustainable annual earnings
growth. The Advisor's focus is on companies that have a long
record of successful operations in their core business and earnings
growth through increasing market share and unit sales volumes.
Typically, these companies occupy a leading position in their
industry, have demonstrated a high degree of self-financing and
have consistently generated free cash flow.
The Advisor's stock selection process begins by screening a
universe of approximately 2500 stocks in a market capitalization
range generally in excess of US$ 100 million. The Advisor's
screens are designed to be representative of each market and
generally cover a broad cross-section of companies which together
account for about 70% of total market capitalization. The
Advisor's approach is to look at companies whose growth factors can
be reliably measured and compared. The Advisor's data series focus
on low price to sales ratios, consistent earnings growth and
operating margins, high returns on equity relative to price to cash
flow and healthy debt ratios. The Advisor defines cash flow as
recurrent net profit plus depreciation. Furthermore, the Advisor
analyzes the share price in relation to earnings before interest,
taxes, depreciation and amortization ("EBITDA"), and looks at the
underlying trend of cash and retained earnings. The screens,
comprising multiple valuation ratios, are used to ensure rigor and
consistency in the Advisor's bottom-up research.
The Advisor supplements the quantitative screening process by
an analysis of certain qualitative criteria, one of the most
important of which is to identify strong, stable and reliable
management that maintains a company's market position through
consistent unit volume growth and gains in market share rather than
a reliance on price increases, exercises tight financial control
and creates a culture of market responsiveness.
Based on the Advisor's ranking of approximately 2500 stocks in
emerging markets, the Advisor concentrates the Fund's holdings on
names which usually appear in the top third of the Advisor's equity
screens for each country. Based on the Advisor's screening
factors, these stocks typically show low historical deviations of
annual earnings, high returns on equity and low debt levels. At
initial purchase, the Advisor focuses on companies that
are selling at a discount to their long-term growth rate.
Shifts in country weight are the principal cause for selling
stocks. Stocks are sold if a country's maximum weight based on the
risk-variance matrix has been exceeded. The Advisor may trim
positions if a name drops from the top third of its quantitative
screen due to price appreciation, or if a company's fundamentals have
deteriorated.
Within each country, no conscious sector allocation decision
is made. Sector allocation is the result of the Advisor's stock
selection within each country.
Position size at purchase ranges from approximately 0.5% to
1.0% of the Fund's total assets. Within this range position size
varies in proportion to the market capitalization of the company
within a given country's stock market. The Advisor allows
positions to reach a maximum of 5% of the Fund's total assets.
VONTOBEL EASTERN EUROPEAN EQUITY FUND
Investment Objective. The investment objective of the E.
European Equity Fund is to seek to achieve capital appreciation by
investing in a carefully selected and continuously managed
diversified portfolio consisting primarily of equity securities
(which are securities convertible into equity securities, such as
warrants, convertible bonds, debentures or convertible preferred
stock). The investments of the Fund will consist principally of
equity securities of Eastern European countries.
Investment Policies. The Fund is designed for individuals and
institutions who wish to diversify their investment programs in
international equities to take advantage of opportunities in the
newly reorganized capital and securities markets of Central/Eastern
Europe. The Fund normally will invest at least 65% of its assets
in equity securities of companies located in or which conduct a
significant portion of their business in countries which are
generally considered to comprise Eastern Europe, i.e., the member
countries of the former Warsaw Pact, including the European
successor states of the former Soviet Union. Currently, the Fund
invests principally in Hungary, the Czech Republic, Poland and
Russia. These countries are already at a relatively advanced stage
in their transition to a market-based economy. The Advisor
believes that their relatively well developed capital and stock
markets can handle transactions of a large enough size to permit
fund investment. However, trading volume of the stock exchanges of
these markets may be substantially lower than that in developed
markets, and the purchase and sale of portfolio securities may not
always be made at an advantageous price. The Advisor generally
will decide when and how much to invest in these developing markets
based upon its assessment of their continuing development.
As stock markets in the region develop and more investment
opportunities emerge, the Fund will broaden its portfolio to
include securities of companies located in or which conduct a
significant portion of their business in countries in this region.
As noted above, investments in equity securities issued by
companies in these "developing countries" or "emerging markets,"
involve exposure to economic structures that are generally less
diverse and mature, with political systems which may have less
stability than those of "developed countries."
The Advisor believes that economic and political developments
in Europe have helped to create new opportunities. In recent years
a number of economies in developed and developing countries have
grown faster than the U.S. economy, and the return on equity
investments in these markets has often been superior to similar
investments in the U.S. In addition, the U.S. stock market
presently represents approximately 40% of the capitalization of the
world's stock markets compared to approximately two-thirds in 1970.
Significant growth of European securities markets, coupled with
advances in technology and lower cost of communications, have
increased the globalization of securities trading. Therefore, over
the past few years, the number of investment opportunities outside
of the U.S. has grown rapidly. Despite this trend, however,
Central and Eastern European stocks are generally underrepresented
in investment portfolios. Therefore, the Fund offers a means to
achieve equity exposure to this region.
It is the policy of the Fund to invest primarily in equity
securities which may achieve capital appreciation by selecting
companies with superior potential based on a series of macro and
micro economic analyses. The Fund may select its investments from
companies which are listed on a securities exchange or from
companies whose securities have an established over-the-counter
market, and may make limited investments in "thinly traded"
securities (please refer to the "Investment Restrictions" in the
Statement of Additional Information).
The Fund may invest in other investment companies which invest
in Eastern European stocks. By investing in shares of such
investment companies which invest exclusively in such countries,
the Fund would indirectly pay a portion of the operating expenses,
management expenses, and brokerage costs of such companies, as well
as those of the Fund. Federal and state securities laws impose
limits on such investments with which the Fund will comply, and may
affect the ability of the Fund to acquire or dispose of such
shares.
The Fund intends to diversify investments broadly among
countries and normally will have represented in the portfolio
business activities of not less than three different countries.
The securities the Fund purchases may not always be purchased on
the principal market. For example, ADRs, EDRs or GDRs may be
purchased if trading conditions make them more attractive than the
underlying security. ADRs are described above in the "Vontobel
International Equity Fund" section and EDRs and GDRs are described
above in the "Vontobel Emerging Markets Equity Fund" section.
For temporary defensive purposes, the Fund may hold cash or
debt obligations denominated in U.S. dollars or foreign currencies.
These debt obligations include U.S. and foreign government
securities and investment grade corporate debt securities, or bank
deposits of major international institutions.
The selection of the securities in which the Fund will invest
will not be limited to companies of any particular size, or to
securities traded in any particular marketplace, and will be based
only upon the expected contribution such security will make to its
investment objective.
Since the Fund seeks to achieve capital appreciation, it will
dispose of a security, regardless of the time it has been held, to
establish gains, to avoid anticipated reductions of value, or to
reduce or eliminate a position in a security which is no longer
believed to offer the potential for suitable gains. Portfolio
turnover is expected not to exceed an annual rate of 100% under
normal circumstances. Such a turnover rate may reflect substantial
short term trading and corresponding brokerage costs which the Fund
must pay.
The E. European Equity Fund may enter into forward contracts
to purchase or sell foreign currencies, purchase and write covered
call options on foreign currencies and enter into contracts for the
purchase or sale of foreign currency futures as, described in
"Additional Information on Policies and Investments - Strategic
Transactions" below.
The E. European Equity Fund may assume a temporary defensive
posture. See "Additional Information on Policies and Investments
- -
Temporary Defensive Positions" below. For additional information
regarding investments and a description of additional permitted
investments, see "Additional Information on Policies and
Investments."
Investment Strategy. The Advisor will seek to identify those
countries in the Central/Eastern European region where economic and
political factors are likely to produce above average long term
returns, as well as those companies in such countries that are best
positioned to take advantage of such developments or are most
attractively valued. The Fund's assets will be allocated primarily
to the equity markets of those countries whose economies are likely
to benefit from strengthening macroeconomic forces as a result of
their transition from a centrally planned to a market-based
economy, the orderly functioning of democratized political
institutions, flexible and viable economic policies, persistent
privatization efforts, modernized legal, banking and regulatory
frameworks, as well as from widespread domestic and foreign support
for their respective national policies.
The Advisor's approach is governed by its belief that the true
economic value of companies in the newly emerging markets of
Eastern Europe is reflected in their ability to generate consistent
growth of free cash flow based on a sound and verifiable balance
sheet and profit and loss accounts prepared in accordance with
internationally accepted accounting principles.
The equity markets of Eastern Europe are currently small by
comparison with those of the industrialized nations of the
Organization of Economic Cooperation and Development, representing
on average only approximately 5% of GDP versus 75% in the U.S. The
Fund invests only in equity markets in countries that (i) are in
or have completed transition to a true free market economy, (ii)
have a continued commitment to privatization, and (iii) follow
consistent economic policies. All of these criteria have to be
fulfilled simultaneously for an equity market to qualify for
investment.
The region's free market economies and their equity markets
are in their initial stages of development. Reliable historical
macroeconomic data is scarce, and most companies whose shares are
listed have insufficiently long operating histories to permit
meaningful long-term financial analysis. Therefore, the Advisor
selects stocks using a thorough bottom-up analysis based on
reliable financial statements supported by regular visits of all
companies in which the Fund invests and which are candidates for
investment.
The Advisor in most cases requires companies to present their
balance sheets and profit and loss accounts using either
International Accounting Standards ("IAS") or U.S. generally
accepted accounting principles ("US GAAP"). If a company is unable
or unwilling to supply the Fund with financials prepared in
accordance with the foregoing accounting standards, the Advisor
either refrains from investing or employs the local office of a
major international accounting firm to translate the financial
information supplied into IAS or US GAAP financial statements.
The Advisor's stock selection process begins by screening the
universe of companies in an approximate market capitalization range
of $20 million to $4 billion or more. The screening process
involves quantitative and qualitative criteria.
The Advisor's equity screens focus first and foremost on a
company's ability to generate consistently strong free cash flow.
The Advisor defines free cash flow as net income plus depreciation
and amortization, plus or minus changes in working capital minus
capital investments to sustain current and future earnings growth,
and minus amounts used for retiring the principal of outstanding
debt. The Advisor also screens for strong balance sheets and
consistent growth in returns on equity.
The most important quantitative factors are aggregate amount
of free cash flow, cash flow relative to total debt, net cash to
total equity, acid test, current ratio, inventory turnover, asset
growth, sales and unit volume growth, and trend rate of growth in
return on equity.
On occasion the Fund may also invest in companies with strong
growth potential but that do not yet generate free cash flow. Such
investments are made only if there is a strong probability that
they will be able to do so within a time horizon of 12 to 18
months.
The Advisor focuses on companies that manufacture and sell
commercially viable products and services in growing markets, both
domestic and export, and have experienced, minority-shareholder-
oriented management.
Based on the Advisor's own two-year earnings and balance sheet
projections, the Advisor calculates earnings and cash flow per
share estimates. The Advisor discounts two-year cash flows to
present value using a composite discount rate, based on local
interest rates to which is added a risk premium for each market.
The Advisor corroborates the valuation of fair market value by
comparing it against the company's historical multiples, the
forward multiples of similar companies in the same industry in its
domestic market, the forward multiples of similar international
companies in the same industry and the overall market's forward
multiple.
The Advisor generally purchases stocks when they are trading
at a discount of about 25% to the Advisor's calculation of fair
market value, after adjusting for the expected rate of inflation
for the next 12 months, the expected rate of currency
depreciation/devaluation, if any, and an "illiquidity" discount of
10% to allow for difficult markets at the time of sale.
Generally, stocks are sold when they reach fair value, they
underperform the local index by more than 20% over a trailing six-
month period or a company's fundamentals deteriorate and neither
research nor management can explain the underlying cause. Stock
positions generally are trimmed when market appreciation causes
them to exceed 5% of the Fund's total assets.
Position size at purchase ranges from about 2% to 5% of the
Fund's total assets. Within this range, position size varies in
proportion to the market capitalization of the company within a
given country's stock market. Positions generally are allowed to
reach a maximum of 5% of the Fund's total assets. For risk control
purposes, the Advisor generally limits investments in emerging
growth companies with micro market capitalizations, i.e., $50
million or less ("micro-caps"), to a maximum of about 2% of the
Fund's total assets. The Fund's allocation to micro-caps normally
will not exceed approximately 25% of its total assets.
Normally, the Fund tends to be fully invested.
Within each country, no conscious sector allocation decision
is made. Sector allocation is a residual of the stock selection
within each country.
The holding periods of the Fund's core holdings generally
exceed one year.
The Fund currently does not actively manage currency risk.
Expected currency depreciation/devaluation is part of the Advisor's
evaluation process for determining a purchase price.
VONTOBEL INTERNATIONAL BOND FUND
Investment Objective. The investment objective of the Bond
Fund is to maximize total return from capital growth and income.
The Bond Fund offers investors a convenient way to invest in a
managed portfolio of debt securities denominated in foreign
currencies ("International" securities). The Bond Fund seeks to
achieve its objective of total return by investing in a
continuously managed non-diversified portfolio consisting primarily
of high-grade international bonds. International bonds are defined
as bonds issued (i) in countries other than the U.S.; (ii) by
issuers which are organized in a country other than the U.S. or
have at least 50% of their assets or derive at least 50% of their
revenues in such country (notwithstanding the currency in which
such bonds are denominated); or (iii) by national or international
authorities other than the U.S. The Advisor will seek protection
and possible enhancement of principal value by actively managing
currency, bond market and maturity exposure and by security
selection.
The Bond Fund operates as a non-diversified fund for purposes
of the 1940 Act, but will seek to qualify as a diversified
investment company for purposes of Subchapter M of the Code.
Investment Policies. The Bond Fund is designed for
individuals and institutions who wish to diversify their investment
programs to take advantage of opportunities in bond markets outside
the U.S. Direct investment in international securities is usually
impractical for most individual and smaller institutional
investors. Investors often find it difficult to purchase and sell
international bonds, to obtain current information about foreign
entities, to hold securities in foreign safekeeping and to convert
the value of their investments from foreign currencies into U.S.
dollars. The Bond Fund manages these concerns for the investor.
With a single investment in the Bond Fund, a shareholder can
benefit from the income and potential capital protection and
appreciation associated with a professionally managed portfolio of
high-grade international bonds. The Advisor to the Bond Fund has
had extensive experience investing in international markets and
dealing with trading, custody and currency transactions around the
world. To achieve its objective, the Bond Fund will invest in a
managed portfolio of high-grade international bonds that are
denominated in foreign currencies, including bonds denominated in
the European Currency Unit ("ECU").
In recent years, opportunities for investment in international
bond markets have become more significant. Foreign currency
denominated bond markets have grown faster than the U.S. dollar
denominated bond market in terms of U.S. dollar market value and
now represent more than half of the value of the world's developed
bond markets. Participants in the markets have grown in number
thereby providing better marketability. A number of international
bond markets have reduced entry barriers to foreign investors by
deregulation and by reducing their withholding taxes.
Simultaneously with the opening of foreign markets, barriers
to international capital flows have been reduced or eliminated,
freeing investment funds to seek the highest real returns. Thus,
market conditions in one economy influence market conditions
elsewhere through the channel of global capital flows. The Bond
Fund provides a convenient vehicle to participate in international
bond markets, some of which may outperform U.S. dollar denominated
bond markets in U.S. dollar terms during certain periods of time.
Although the Bond Fund is non-diversified, investing in the
Bond Fund can provide international diversity to an investor's
existing portfolio of U.S. dollar denominated bonds ("U.S. bonds"),
thereby reducing volatility or risk over time. Historically, total
returns of international bond markets have often diverged from
returns generated by U.S. bond markets. These divergences stem not
only from fluctuating exchange rates, but also from foreign
interest rates not always moving in the same direction or magnitude
as interest rates in the U.S. Investment in the Bond Fund may
provide the international bond portion of an investor's
diversification program.
International bonds may provide, at times, higher investment
returns than U.S. bonds. For example, international bonds may
provide higher current income than U.S. bonds and the local price
of international bonds can appreciate more than U.S. bonds.
Fluctuations in foreign currencies relative to the U.S. dollar can
potentially benefit investment returns. Of course, in each case,
at any time the opposite may also be true. Investments in the Bond
Fund provide international diversity not only to an investor's
existing portfolio of U.S. bonds but also to an investor's holdings
of U.S. or international equities and other assets.
The portfolio investments of the Bond Fund will be selected on
the basis of, among other things, yields, credit quality, and the
fundamental outlooks for currency and interest rate trends in
different parts of the globe, taking into account the ability to
hedge a degree of currency or local bond price risk. The Bond Fund
will normally invest at least 65% of its total assets in bonds
denominated in foreign currencies, however, generally foreign
currency denominated bonds will constitute 90% of its portfolio.
The Bond Fund will invest in very high investment grade
instruments that will bear the rating of A or higher by Standard &
Poor's Ratings Group ("S&P") or A or higher by Moody's Investors
Service, Inc. ("Moody's"), or unrated securities which the Advisor
believes to be of comparable quality. The Bond Fund reserves the
right, however, to invest its assets in lower rated debt
securities, that is, debt securities rated BBB by S&P or Baa by
Moody's or below, but no lower than B by S&P or Moody's or which
are unrated but are of comparable quality as determined by the
Advisor. It will do so to avail itself of the higher yields
available with these securities. The Bond Fund will invest no more
than 5% of its total assets in securities rated below investment
grade or which are unrated but are of comparable quality as
determined by the Advisor. Securities rated below investment grade
(i.e., below BBB by S&P or Baa by Moody's) entail greater risks
than investment grade debt securities. Securities rated BB by S&P
or Ba by Moody's and below are commonly referred to as "junk bonds"
and involve a high degree of speculation with respect to the
payment of principal and interest. (See "Special Risk
Considerations.")
The investments of the Bond Fund may include:
* Debt securities issued or guaranteed by a foreign national
government, its agencies, instrumentalities or political
subdivisions;
* Debt securities issued or guaranteed by supranational
organizations (e.g., European Investment Bank, Inter-American
Development Bank, the World Bank and other such
organizations);
* Corporate foreign debt securities;
* Bank or bank holding company debt securities;
* Other debt securities, including those convertible into common
stock.
The Bond Fund may purchase securities which are not publicly
offered. If such securities are purchased, they may be subject to
restrictions applicable to restricted securities. Please see
"Additional information on Policies and Investments - Investment
Restrictions."
The Bond Fund intends to select its investments from a number
of country and market sectors. It may invest substantial amounts
in issuers from one or more countries and would normally have
investments in securities of issuers from a minimum of three
different countries; however, it may invest substantially all of
its assets in securities of issuers located in the U.S. for
temporary or emergency purposes. A non-governmental issuer will be
considered to be "from" a country in which it is organized, in
which it has at least 50% of its assets, or from which it derives
at least 50% of its revenues.
Under normal circumstances, the Bond Fund will invest no more
than 35% of the value of its total assets in U.S. dollar debt
securities, however, generally it will invest less than 10% of its
assets in U.S. dollar debt securities. The Bond Fund may engage in
strategic transactions, as described below, for hedging purposes
and to seek to increase gain.
To protect against adverse movements of interest rates and for
liquidity, the Bond Fund may also invest all or a portion of its
net assets in short-term obligations denominated in U.S. and
foreign currencies such as, but not limited to, bank deposits;
bankers' acceptances; certificates of deposit; commercial paper;
short-term government, government agency, supranational agency and
corporate obligations; and repurchase agreements.
The Bond Fund does not engage in short-term trading due to the
fact that such practices would result in increased commissions and
transactions costs. The Bond Fund may assume a temporary defensive
posture. See "Additional Information on Policies and Investments
- -
Temporary Defensive Positions" below. For additional information
regarding investments and a description of additional permitted
investments, see "Additional Information on Policies and
Investments."
Investment Strategy. The Bond Fund seeks to minimize credit
risk and maintain high liquidity. The Bond Fund is a
"non-diversified" investment company under Federal securities laws,
and therefore may invest a larger portion of its assets in certain
issuers, including foreign governments and domestic issuers other
than the U.S. government. It may invest more than 5% of its assets
in government debt securities of the U.S. However, because it
intends to qualify as a "regulated investment company" for purposes
of Subchapter M of the Code, at least 50% of its total assets must
be invested in cash, U.S. government securities, and securities of
issuers (including foreign governments), in which it has invested
not more than 5% of its assets. In any event, it does not intend
to invest more than 5% of its assets in the securities of any one
issuer unless such securities are issued or guaranteed by a
national government and will not invest more than 25% of its total
assets in the securities of any one issuer or national government
(other than the United States). (A regulated investment company is
also limited in its purchases of voting securities of any issuer;
the Bond Fund does not intend to purchase any voting securities,
except to the extent it receives such securities due to conversion
of convertible securities.)
Because the Bond Fund is intended for long-term investors who
can accept the risks associated with investing in international
bonds, investors should not rely on an investment in the Bond Fund
for their short-term financial needs and should not view it as a
vehicle for playing short-term swings in the international bond and
foreign exchange markets. Shares of the Bond Fund alone should not
be regarded as a complete investment program.
Total return from investment in the Bond Fund will consist of
income after expenses, bond price gains (or losses) in terms of the
local currency, and currency gains (or losses). For tax purposes,
realized gains and losses on currency are regarded as ordinary
income and loss and could, under certain circumstances, have an
impact on distributions. The value of the Bond Fund's portfolio
will fluctuate in response to various economic factors, the most
important of which are fluctuations in foreign currency exchange
rates and interest rates.
The Advisor's investment approach is governed by its belief
that the principal factors affecting the total returns of the Fund
are (i) the outlook for the currency in which the underlying
securities are denominated, and (ii) the return outlook in local
currency for each bond market in the Advisor's investment universe.
The Advisor believes that quality/sector and security selection
should be aimed at reducing overall portfolio risk rather than
producing incremental return. In addition, the Advisor believes
that the effect of interest rate and foreign currency fluctuations
on the Fund's returns can be reduced through a systematic hedging
strategy.
The management of the Fund involves several levels of
decision-making: currency exposure, interest rate sensitivity
within markets, quality/sector exposure and issue selection. The
exclusion or inclusion of markets from the Advisor's market
universe and the weighting of markets relative to a benchmark index
cannot be determined without first evaluating currency exposure.
The Advisor's investment approach involves three steps: (i)
top-down currency and market allocation; (ii) management of
currency risk and market allocation; and (iii) relative value
analysis (involving maturity, quality/sector and security
selection).
The Advisor analyzes the 12 international fixed income markets
which currently constitute the J.P. Morgan World Government Bond
Index (ex-U.S.) and the markets of Switzerland and Ireland, as well
as ECU fixed income markets. To determine currency and hence
market allocation, the Advisor produces monthly forecasts for both
the currency and bond markets in each country in this market
universe. These forecasts are based upon an analysis of broad
macroeconomic factors and economic conditions, including inflation
and growth expectations, monetary and fiscal policy, balance of
payments and exchange rates. Technical market indicators and
general sentiment are also assessed. Based on this macroeconomic
scenario, the Advisor develops 3-, 6- and 12-month forecasts for
exchange rates and bond market returns in local currency that form
the basis of the Advisor's investment strategy.
The Advisor's investment process begins with the calculation
of total local currency returns along the yield curve (including
yields on short-term investments) for each market in the Advisor's
universe. These projected local currency returns are translated
into U.S. dollar total returns. The Advisor then establishes a
relative attractiveness ranking based on each market's forecasted
U.S. dollar returns, which forms the basis for the Advisor's
currency and market exposure decision.
The Advisor seeks to maximize total return by overweighting
those markets and currencies showing the highest total expected
U.S. dollar return based on the Advisor's ranking. These total
returns are adjusted for individual market risk based on historical
volatility and the manager's experience. This may result in
significant over- or underweighting of individual fixed income
markets as well as the underlying currency exposure.
The Fund's currency and bond market weightings are reviewed on
an ongoing basis and compared against the monthly ranking of the
markets in the Advisor's universe according to their total return
outlook in U.S. dollars. Shifts in bond market weights are driven
by changes in the relative attractiveness ranking and tend to be
gradual. Since it is possible to increase or reduce currency and
bond market exposure by using derivatives, it is not uncommon for
a specific bond market's weighing to differ from the weighing of
its corresponding currency. Futures may also be employed to adjust
portfolio risk in anticipation of foreign currency devaluations,
political turmoil in countries to whose currency and interest rate
policy the Fund's portfolio is exposed, or to address expected
downgrades of an issuer's credit rating.
If the need for rapid adjustment of market exposure manifests
itself, exchange-traded derivative instruments are used (i) as
hedging instruments or (ii) as instruments for tactical asset
allocation, as described below.
Hedging against negative return impact caused by rising
interest rates takes place through the sale of interest rate
futures contracts or the purchase of put options on interest rate
futures contracts. The hedge ratio is derived from the duration of
the underlying fixed income investment(s). These techniques are
employed as anticipatory hedges to gain time to allow for the
orderly sale of underlying securities in response to a negative
assessment of market conditions. The need to hedge currency risk
in this context is assessed separately.
Due to changes in the Advisor's market return forecasts, it
may become necessary from time to time to adjust the duration of
certain fixed income investments held in the Fund which are
denominated in one or various foreign currencies. In this event,
the Fund's cash positions can be converted into synthetic bond
positions through the purchase of interest rate futures contracts
or the purchase of call options thereon. As a result, portfolio
duration is lengthened. This technique allows the Fund to make an
immediate adjustment to portfolio duration pending the purchase of
underlying positions. Alternatively, bond positions can be
converted into synthetic cash positions by means of selling
interest rate futures contracts or the purchase of put options
thereon, thereby shortening portfolio duration. In all such cases,
the portfolio's currency allocation does not change.
If the U.S. dollar shows strength relative to a currency in
which the Fund holds investments in excess of that projected in the
Advisor's currency forecast, the Advisor hedges positions by buying
U.S. dollars against the foreign currency in the interbank forward
foreign exchange market or by selling the currency in the futures
and options markets. Currency hedging decisions are driven by a
systematic currency hedging approach based on a technical- trend-
following model, combined with fundamental analysis.
Cash may be held in U.S. dollars and/or in any of the major
trading currencies. The Fund's cash position is first and foremost
a function of the Advisor's currency allocation decision and
secondarily a function of the Advisor's duration selection. If the
outlook for U.S. dollar cash returns is more attractive than that
for cash and bond returns in all other currencies, the Fund will
hold a U.S. dollar cash position generally not in excess of 25% of
its total assets. Conversely, if the outlook for foreign currency
cash returns is more attractive, the Fund will hold foreign cash
positions not in excess of approximately 25% of its total assets.
Maturity selection is based on the Advisor's total return
forecasts, i.e., the Advisor focuses on investment that the Advisor
expects to produce the highest total return in local currency along
the yield curve in each market in the Advisor's universe for the
planned holding period. Maturity selection or, more precisely,
duration selection, is the second most important factor in the
Advisor's process. Duration is the expected life of a fixed-income
security, taking into account its coupon yield, interest payments,
maturity and call features. Duration attempts to measure actual
maturity, as opposed to final maturity, by measuring the average
time required to collect all payments of principal and interest.
The duration of a callable bond, also called its effective
duration, may be considerably shorter than its stated maturity in
a period of rising interest rates. Thus, as market interest rates
rise, the duration of a financial instrument decreases. For
example, a 30-year conventional mortgage may have an effective
duration of only 11 to 12 years, which means the loan will probably
be paid off in about one-third of the time it is supposedly carried
by the originating lender as an earning asset. Duration differs
from other measurements such as average life and half life.
Duration measures the time required to recover a dollar of price in
present value terms (including principal and interest), whereas
average life computes the average time needed to collect one dollar
of principal. The Advisor's selection of duration is based on the
Advisor's total return forecasts. Particular yield curve shapes
and/or anomalies are also taken into account. As indicated in the
preceding paragraph, U.S. dollar and/or foreign cash positions are
a function of both currency allocation and duration selection
decisions.
Foreign government, governmental agency and supranational
agency obligations and foreign currency Eurobond issues represent
the most common types of investment used in the Fund's portfolio
construction. Credit quality of most issuers in these markets
tends to be very high. Quality and sector management are therefore
not as complex as for domestic U.S. bonds. The Advisor focuses its
issue selection on the highest credit quality since opportunities
to achieve significant incremental returns in sector selection are
limited.
Issue selection within the quality constraints referred to
above is principally aimed at achieving duration and yield curve
targets determined in accordance with the Advisor's top-down market
allocation decisions. The Advisor is conscious of the need for
liquidity and therefore invests only in issues within a sector that
have the greatest future marketability, as determined by quality of
issuer, issue size, number of market makers, and bid/offer spreads.
Since in most markets the Advisor purchases government bonds, the
liquidity of portfolio holdings is usually very high.
The Advisor's aim is to buy those fixed income securities that
are most reasonably priced as measured in terms of the yield spread
against a comparable government bond or, in the case of a
government bond, if the Advisor believes that it is undervalued
relative to its peers. At purchase the Advisor establishes
positions of up to a maximum of 5% of the Fund's total assets. The
Advisor also gives consideration to such factors as liquidity
(tradability), legal protection of bondholders, accounting and
disclosure standards, transferability of funds and the risk of
imposition of exchange controls, as well as the tax treatment of
interest and capital gains.
Positions are sold (i) as a result of shifts in currency and
market weights, (ii) as a result of duration adjustments, (iii) if
the underlying bonds become expensive relative to the government
bond, (iv) in response to sector selection, (v) based on a negative
credit review of an issuer, or (vi) if cash becomes a more
attractive investment alternative.
The most critical determinants of performance (total return in
U.S. dollars) are strategic decisions as to currency exposure and
duration. The Advisor therefore refrains from switching among
issues to boost portfolio return; any incremental benefit would
likely be offset by trading costs since bid/ask spreads in
international fixed income markets can be wider than in U.S.
domestic markets. Trading activity is usually governed by
implementation of strategic changes in portfolio composition, which
are usually infrequent, so portfolio turnover is generally low.
VONTOBEL EASTERN EUROPEAN DEBT FUND
Investment Objective. The investment objective of the E.
European Debt Fund is to maximize total return from capital growth
and income. The Fund will seek to achieve this objective by
investing in a carefully selected and continuously managed non-
diversified portfolio consisting primarily of debt instruments
issued by borrowers located in Eastern European countries. The
Advisor will seek protection and possible enhancement of principal
value by actively managing debt market and maturity exposure and by
security selection.
The Fund operates as a non-diversified fund for purposes of
the 1940 Act, but will seek to qualify as a diversified investment
company for purposes of Subchapter M of the Code. As a
"non-diversified" investment company under Federal securities laws,
the Fund may invest a larger portion of its assets in certain
issuers, including foreign governments and domestic issuers other
than the U.S. government. It may invest more than 5% of its assets
in government debt securities of the U.S. However, because it
intends to qualify as a "regulated investment company" for purposes
of Subchapter M of the Code, at least 50% of its total assets must
be invested in cash, U.S. government securities, and securities of
issuers (including foreign governments), in which it has invested
not more than 5% of its assets.
Investment Policies. The Fund is designed for individuals and
institutions that wish to diversify their investment programs to
take advantage of opportunities in the developing debt markets of
Eastern Europe. Direct investment in these markets is generally
impractical for most individual and smaller institutional
investors. Investors often find it difficult to purchase and sell
debt instruments in this region, to obtain current information
about borrowers located in the countries of Eastern Europe, to hold
securities in foreign safekeeping and to convert the value of their
investments from foreign currencies into U.S. dollars. The Fund
manages these concerns for the investor. With a single investment
in the Fund, shareholders can benefit from the income and potential
capital appreciation associated with a professionally managed
portfolio of Eastern European debt instruments. The Advisor has
had extensive experience investing in international markets and
dealing with trading, custody and currency transactions around the
world. To achieve its objective, the Fund will invest in a managed
portfolio of debt instruments that are denominated in Eastern
European currencies, including bonds denominated in Deutsche Marks,
U.S. dollars and ECUs.
In recent years, some of the Eastern European countries have
made significant progress in their efforts to become market-
oriented economies. Those nations making the most successful
transitions include Poland, the Czech Republic, Hungary, Slovakia,
Slovenia, the Baltic states and to a lesser extent Russia. The
transformation from centrally planned economies to market oriented
economies has led to the creation of financial markets in all of
these countries. The opening of these markets has led to the
reduction or elimination of barriers to international capital
flows, presenting investors with opportunities for investment
seeking the highest real returns. The Fund provides a convenient
vehicle to participate in the emerging debt markets of Eastern
European countries, some of which may outperform U.S. dollar
denominated bond markets and the bond markets of other developed
countries during certain periods of time.
The Fund can provide international diversity to an investor's
existing portfolio of U.S. dollar denominated bonds and U.S. and
international equities, thereby reducing volatility or risk over
time. Debt instruments issued by Eastern European borrowers may
provide, at time, higher investment returns than U.S. bonds. For
example, such bonds may provide higher current income than U.S.
bonds and the local price of such bonds can appreciate more than
U.S. bonds. Fluctuations in foreign currencies relative to the
U.S. dollar can potentially benefit investment returns. Of course,
in each case, at any time the opposite may also be true.
The portfolio investments of the Fund will be selected on the
basis of, among other things, yields, credit quality, and the
fundamental outlooks for currency and interest rate trends in the
different Eastern European countries. The Fund will normally
invest at least 65% of its total assets in debt instruments
denominated in foreign currencies. Generally, however, foreign
currency denominated debt instruments will constitute 90% of its
portfolio.
The Fund will invest principally in instruments that bear the
rating of BBB or better by S&P or Baa or higher by Moody's, or
unrated securities that the Advisor believes to be of comparable
quality to such instruments with ratings of BBB or better by S & P
or Baa or higher by Moody's. Due to the relative scarcity and small size
of many securities offerings in the Eastern European market, the number of
securities that are rated by S&P and Moody's is limited. The
Advisor reserves the right to determine that certain securities are
of comparable quality where such securities have not been rated due
to the small size of the offering or other factors. The Fund will
invest no more than 5% of its total assets in securities rated
below investment grade or which are unrated but are of comparable
quality to such securities rated below investment grade as
determined by the Advisor. Securities rated below
investment grade (i.e., below BBB by S&P or Baa by Moody's) entail
greater risks than investment grade debt securities. Securities
rated BB by S&P or Ba by Moody's and below are commonly referred to
as "junk bonds" and involve a high degree of speculation with
respect to the payment of principal and interest.
The investments of the Fund may include:
* Debt securities issued or guaranteed by an Eastern European
national government, its agencies, instrumentalities or
political subdivisions;
* Corporate debt instruments issued by borrowers in Eastern
European countries;
* Eastern European Bank or bank holding company debt securities;
and
* Other debt securities, including those convertible into common
stock.
The Fund may purchase securities that are not publicly
offered. If such securities are purchased, they may be subject to
restrictions applicable to restricted securities.
The Fund intends to select its investments from a number of
country and market sectors. The Fund may invest substantial
amounts in issuers from one or more countries and will normally
have investments in securities of issuers from a minimum of three
different countries; it may, however, invest substantially all of
its assets in securities of issuers located in the U.S. for
temporary or emergency purposes. A non-governmental issuer will be
considered to be "from" a country in which it is organized, in
which it has at least 50% of its assets, or from which it derives
at least 50% of its revenues.
Under normal circumstances, the Fund will invest no more than
35% of the value of its total assets in U.S. dollar debt
securities. Generally, however, the Fund will invest less than 10%
of its assets in U.S. dollar debt securities.
Short-term investments. To protect against adverse movements
of interest rates and for liquidity, the Fund may also invest all
or a portion of its net assets in short-term obligations
denominated in U.S. and foreign currencies, such as, but not
limited to, bank deposits; bankers' acceptances; certificates of
deposit; commercial paper; short-term government, government
agency, supranational agency and corporate obligations; and
repurchase agreements.
The Fund does not engage in short-term trading due to the fact
that such practices would result in increased commissions and
transaction costs. The Fund may assume a temporary defensive
position. See "Additional Information on Policies and Investments
- - Temporary Defensive Positions" below. For additional information
regarding investments and a description of additional permitted
investments, see "Additional Information on Policies and
Investments."
Investment Strategy. The Advisor's Eastern European fixed
income approach is governed by the Advisor's belief that the
principal factors affecting the U.S. dollar total returns of an
emerging markets debt portfolio are (1) the macroeconomic
fundamentals in each country which are reflected in the currency
and fixed income yield outlook, and (2) the credit quality of
sovereign risk in each country. Quality/sector and security
selection are aimed at reducing overall portfolio risk rather than
producing incremental return. In addition, because fixed income
markets of emerging market countries are more susceptible to abrupt
and significant interest rate and currency fluctuations than their
counterparts in more mature economies, the Advisor attempts to
reduce the adverse effects on portfolio returns of such
fluctuations through a systematic hedging strategy.
The Advisor's Eastern European fixed income approach involves
four steps:
- Evaluation of country risk
- Top-down currency and market allocation
- Management of currency risk and market allocation
- Relative value analysis (involving maturity,
quality/sector and security
selection)
Market selection from the Advisor's country universe and the
weighting of markets relative to a benchmark index cannot be
determined without first evaluating the credit risk of each
country's market.
In each country in the Advisor's market universe, the Advisor
analyzes GDP growth, inflation, nominal wage increases, the budget
balance and GDP, current account, public indebtedness,
international reserve position, level of foreign debt and debt
service capacity, fiscal policy and foreign exchange and monetary
policy, as well as the political situation, International Monetary
Fund ("IMF") stance, degree of liberalization of foreign exchange
and fixed income markets, liquidity and transaction costs.
Countries will not or no longer qualify for inclusion in the
Advisor's market universe, if
- there is a lack of co-operation with the IMF;
- a borrower defaults on its debt instruments issued
in local currency or in Eurocurrencies;
- there is no effective legislation, or history of
interpretation of existing laws on taxation of
foreign holders of local currency debt;
- trade settlement risks and procedures are not
acceptable to the Advisor; and
- the country's debt service capacity shows a
declining trend (i.e., average
life of Eurocurrency debt is reduced by 30% within
a year and the median life of outstanding
foreign debt shows a negative trend and is less
than 1.5 years.
In addition, each country must have liberalized its foreign
currency markets to allow foreign holders of local currency debt to
convert all debt service payments into foreign currency and
repatriate such foreign currency.
In order for Eastern European debt markets to be included in
the Advisor's investment universe, the markets must pass the
Advisor's qualitative country risk screen.
The Advisor's investment universe encompasses two distinct
markets: (1) the local currency debt markets of Eastern Europe,
the Russian market and the markets of the newly formed countries
that belonged to the former Soviet Union, and (2) the Eurocurrency
markets that are used by public and private sector borrowers in the
Advisor's market universe to raise capital in the major trading
currencies, including the U.S. dollar. For investments in local
currency debt instruments, the Advisor's core markets are the Czech
Republic, Slovakia, Hungary, Poland, Slovenia, the Baltic states,
Croatia, Romania and Russia.
To determine market allocation, the Advisor employs
proprietary forecasts with which the Advisor produces a monthly
matrix of projected total returns in U.S. dollars of debt
instruments denominated in local currency for each country in the
Advisor's investment universe, as well as Eurocurrency instruments
issued by borrowers in those countries. These projected returns
are produced on the basis of official forecasts published by the
IMF and European Bank for Reconstruction and Development ("EBRD"),
projections prepared by the research departments of large
international brokerage houses and forecasts of at least one
independent domestic forecaster in each country, as well as the
Advisor's proprietary projections.
For local currency markets, and for instruments denominated in
Eurocurrencies, the Advisor produces on a monthly basis total
return forecasts in U.S. dollars across the available maturity
spectrum. On the basis of these total return forecasts, the
Advisor determines which instruments and which maturities are the
most attractive for investment in each country.
Market weights are generally determined by positioning the
portfolio so as to produce what the Advisor expects to be an
optimal risk/reward profile on the basis of the total return
forecasts adjusted for expected volatilities. Since data series of
a sufficiently long duration to produce statistically meaningful
correlation coefficients of intermarket total returns are not yet
available, the Advisor has at all times at least three markets
represented in the Advisor's portfolio, each weighted with at least
15% of the Fund's total assets in order to achieve a minimum level
of diversification.
Eastern European debt markets are characterized by limited
liquidity, high transaction costs and restricted availability of
hedging instruments. The Advisor therefore positions the Fund at
all times to reflect these circumstances through rigid security
selection and by constructing a maturity profile that provides
adequate liquidity. Generally, short-term instruments issued in
local currency are held to maturity.
If the qualitative criteria of a country's fixed income market
in combination are expected to produce a negative trend for the
country's fixed income markets, the Advisor increases the risk
factor (volatility) used in the total return forecast matrix for
that country. This causes a downward adjustment of the weight
assigned to the country's fixed income markets in the Fund. Events
that give rise to such adjustments include upward revisions in
projected inflation rates, downward revisions of GDP growth rates,
upward adjustments of projected budget deficits and deterioration
of a country's foreign exchange reserve position.
If the U.S. dollar shows strength relative to a currency in
which the Fund holds investments in excess of that projected in the
Advisor's currency forecast, the Advisor hedges positions by buying
U.S. dollars against the foreign currency in the interbank forward
foreign currency exchange contract market or by selling the
currency in the futures and options markets (if such instruments
are available in the different markets). The Advisor also employs
proxy hedges in instances where direct hedges are difficult to
establish. A proxy hedge is a hedge against another currency or
basket of currencies which are closely correlated to the currency
in which the Fund holds a position.
The Advisor attempts to protect the Fund against negative
return impact caused by rising interest rates by selling interest
rate future contracts or by purchasing put options on interest rate
futures contracts in those markets where such instruments are
available. This hedging technique is used mostly for Eurocurrency
instruments because effective interest rate risk management tools
for local currency debt instruments have not yet evolved.
Cash may be held in U.S. dollars and/or in any of the Eastern
European currencies. The Fund's cash position is first and
foremost a function of the Advisor's currency allocation decisions
and secondarily a function of the Advisor's duration selections. If
the outlook for U.S. dollar cash returns is more attractive than
that for cash and bond returns in all other currencies, the Fund
will hold a U.S. dollar cash position of up to 35% of the Fund's
total assets. Conversely, if the outlook for Eastern European
currency cash returns is more attractive, the Fund will hold
foreign cash positions of up to 25% of the Fund's total assets.
From time to time, the Advisor may hold up to 90% of the Fund's
total assets in securitized money market instruments, such as
government short-term paper, treasury bills issued by governments
of Eastern European countries, commercial paper and corporate
short-term paper with maturities of up to one year.
Maturity selection is based on the Advisor's total return
forecasts. Currently, most local currency debt instruments tend to
have short-term maturities of one year or less. Eurocurrency
instruments, on the other hand, have short- to intermediate-term
maturities are generally are priced at a spread over
the interest rate applicable to the same-maturity government bond
of the country in whose currency the debt instrument is issued.
The Advisor focuses on issuers of the highest available credit
quality and uses international and supranational issuers with
credit ratings at least equal to those of local borrowers. Quality
and sector management are therefore not as complex as for domestic
U.S. bonds. Because the Advisor focuses its issue selection on the
highest available credit quality, opportunities to achieve
significant incremental returns in sector selection are limited.
Issue selection within the quality constraints referred to
above is principally aimed at achieving duration and yield curve
targets determined in accordance with the Advisor's top-down market
allocation decision. The Advisor is conscious of the need for
liquidity and therefore invests only in issues within a sector
which the Advisor deems to have the greatest future marketability.
The Advisor's aim is to buy those debt securities that are
most reasonably priced as measured in terms of the yield spread
against a comparable government bond or, in the case of Eastern
European local currency instruments, if the Advisor believes that
the instrument is undervalued relative to its peers. At purchase
the Advisor establishes positions of up to a maximum of 10% of the
Fund's total assets. Given that the Advisor's investment universe
consists of newly emerging markets, the Advisor pays particular
attention to such factors as liquidity (tradability), legal
protection of bondholders, accounting and disclosure standards,
transferability of funds, the risk of imposition of exchange
controls and settlement risks, as well as the tax treatment of
interest and capital gains.
Positions are sold (1) as a result of market disruptions that
lead to a change in the country allocation weight, (2) as a result
of shifts in currency and market weights, (3) in the case of
Eurocurrency debt instruments, due to valuation reasons, (4) due to
deterioration of credit quality, or (5) if cash becomes a more
attractive investment alternative. The Advisor determines high/low
price target ranges for each position in the Fund's portfolio,
which are reviewed monthly. Such targets are based on historical
volatilities of the underlying debt instruments and serve as profit
and stop-loss targets.
The most critical determinants of performance (total return in
U.S. dollars) are strategic decisions as to country allocation and
currency exposure. The Advisor therefore refrains from switching
among issues to boost portfolio return. Given generally lower
levels of market liquidity and relatively high transaction costs,
the Advisor tends to hold short-term issues denominated in local
currency to maturity. Trading activity is usually governed by
implementation of strategic changes in portfolio composition, which
are usually infrequent, and consequently, portfolio turnover is
generally low.
ADDITIONAL INFORMATION ON POLICIES AND INVESTMENTS
Repurchase Agreements. As a means of earning income for
periods as short as overnight, the Funds may without limit enter
into repurchase agreements, which are collateralized by U.S.
government securities in which it may otherwise invest, with
selected banks and broker/dealers. Under a repurchase agreement,
a Fund acquires securities, subject to the seller's agreement to
repurchase at a specified time and price. The Fund requires the
party obligated to repurchase the securities to provide it with
collateral for that obligation. Repurchase agreements are
considered to be loans under the 1940 Act. The Fund may enter into
repurchase commitments for investment purposes for periods of 30
days or more. Such commitments involve investment risk similar to
that of debt securities in which it invests. For purposes of the
tax diversification test under Subchapter M of the Code, repurchase
agreements are likely to be treated as securities issued by the
seller and subject to the "5% per issuer" requirement noted above.
If the seller under a repurchase agreement becomes insolvent, the
Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before
repurchase of the securities under a repurchase agreement, the Fund
may encounter delay and incur costs before being able to sell the
securities. Also, the value of such securities may decline before
it is able to dispose of them.
Reverse Repurchase Agreements. As a means of enhancing
income, the Bond and E. European Debt Funds may enter into
reverse repurchase agreements with selected banks and
broker/dealers. Under a reverse repurchase agreement, a fund sells
securities subject to an obligation to repurchase those securities
at a specified time and price. In order to comply with U.S.
regulatory conditions applicable to investment companies, the Fund
will recognize gains or losses on such obligations each day, and
will segregate cash, U.S. government securities, or other
high-grade debt instruments in an amount sufficient to satisfy its
repurchase obligation, will mark the value of the assets to market
daily, and post additional collateral if necessary. The Fund may
invest the payment received for such securities prior to fulfilling
its obligation to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
Therefore, the Fund's investment in reverse repurchase agreements
is subject to the borrowing limitations of the 1940 Act (See
"Investment Restrictions" in the Statement of Additional
Information). If the buyer under a repurchase agreement becomes
insolvent, the Fund's right to reacquire its securities may be
impaired. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the buyer of the securities
before repurchase of the securities under a reverse repurchase
agreement, it may encounter delay and incur costs before being able
to apply the cash held to purchase replacement securities. Also,
the value of such securities may increase before it is able to
purchase them.
When-issued Securities. The Emerging Markets and Bond Funds
may purchase securities on a when-issued or forward delivery basis,
for payment and delivery at a later date. The price and yield are
generally fixed on the date of commitment to purchase. During the
period between purchase and settlement, no interest accrues to the
Fund. At the time of settlement, the market value of the security
may be more or less than the purchase price. The Fund reflects
gains or losses on such commitments each day, and segregates assets
sufficient to meet its obligation pending payment for the
securities.
Strategic Transactions. Each of the Funds may, but is not
required to, utilize various other investment strategies as
described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific fixed-income
market movements), to manage the maturity or duration of
fixed-income securities, or to enhance potential gain. Such
strategies are generally accepted as modern portfolio management
and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or
regulatory changes occur.
In the course of pursuing these investment strategies, the
Fund may purchase and sell exchange-listed and over-the-counter put
and call options on securities, fixed-income indices and other
financial instruments, purchase and sell financial futures
contracts and options thereon, enter into various interest rate
transactions such as swaps, caps, floors or collars, and enter into
various currency transactions such as forward foreign currency
contracts, foreign currency futures as defined below, currency
swaps or options on currencies (collectively, all the above are
called "Strategic Transactions"). Interest rate swaps involve the
exchange by a fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a
notional amount of principal. The purchase of a cap entitles the
purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of interest
rates or values.
The Advisor does not, as a general rule, intend regularly to
enter into strategic transactions for the purpose of reducing
currency and market risk, for two reasons. First, for the E.
European Equity Fund, since financial derivatives in Eastern
European markets currently must be tailor-made to the Fund's
specifications, they are extremely costly and illiquid instruments,
and as such do not offer a cost-effective way to reduce currency
and market risk. Second, each of the Funds is intended for
investors with a long-term investment horizon and it is the
Advisor's view that any short-term losses due to fluctuations in
local currencies or stock market values will be compensated over
the long term by the capital appreciation of the portfolio
securities. Notwithstanding the foregoing, the Advisor may, from
time to time as circumstances dictate, engage in strategic
transactions as described herein.
Currency risk is assessed separately from equity analysis. To
balance undesirable currency risk, each of the International Equity
Fund, E. European Equity Fund and Bond Fund (each, an
"International Fund") may enter into forward contracts to purchase
or sell foreign currencies in anticipation of the International
Fund's currency requirements, and to protect against possible
adverse movements in foreign exchange rates. Although such
contracts may reduce the risk of loss due to a decline in the value
of the currency which is sold, they also limit any possible gain
which might result should the value of the currency rise. Foreign
investments which are not U.S. dollar denominated may require the
International Fund to convert assets into foreign currencies or
convert assets and income from foreign currencies to dollars.
Normally, exchange transactions will be conducted on a spot or cash
basis at the prevailing rate in the foreign exchange market.
However, the investment policies permit the International Fund to
enter into forward foreign currency exchange contracts in order to
provide protection against changes in foreign exchange rates. Any
transactions in foreign currencies will be designed to protect the
dollar value of the assets composing or selected to be acquired or
sold for the investment portfolio of the International Fund; the
International Fund will not speculate in foreign currencies. In
addition, because the exchange rate of some Eastern European
currencies may be linked to a basket of convertible currencies
including the U.S. dollar and the deutschemark, the Advisor may
elect, from time to time as circumstances dictate, to reduce the
effect of currency fluctuations on the value of existing or
anticipated holdings or sales proceeds of portfolio securities by
proxy hedging. For more information, see sections on forward
foreign currency contracts and proxy hedging in the Statement of
Additional Information.
Each International Fund may purchase and write covered call
options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign securities. The purchase
of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs.
In connection with such transactions, the Fund will segregate
assets sufficient to meet its obligations: when the Fund's
obligation is denominated in a foreign currency, the Fund will own
that currency or assets denominated in that currency, or a currency
or securities which the Advisor determines will move along with the
hedged currency or portfolio securities.
Each International Fund may enter into contracts for the
purchase or sale for future delivery of foreign currencies
("foreign currency futures"). This investment technique will be
used only to hedge against anticipated future changes in exchange
rates which otherwise might adversely affect the value of the
portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase or sell at a later date. The
successful use of currency futures will usually depend on the
Advisor's ability to forecast currency exchange rate movements
correctly. Should exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
Each International Fund is authorized to use financial
futures, currency futures, and options on such futures for certain
hedging purposes subject to conditions of regulatory authorities
(including margin requirements) and limits established by the
Company's Board of Directors to avoid speculative use of such
techniques.
Strategic Transactions may be used to attempt to protect
against possible changes in the market value of securities held in
or to be purchased for a Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect its
unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to
manage the effective maturity or duration of its portfolio, to
establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities, or as
a means to efficiently change country and/or currency allocation.
Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of a Fund's assets will be committed
to futures and options on future entered into for non-hedging
purposes. Any or all of these investment techniques may be used at
any time and there is no particular strategy that dictates the use
of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market
conditions. The ability of the Bond Fund to utilize these
Strategic Transactions successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be
assured. The Bond Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only
for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes.
See "Special Risk Considerations - Strategic Transactions" for
additional information. Strategic Transactions also are likely to
involve "Section 988 transactions," at least in part. As such, the
foreign currency component must be segregated for tax purposes and
treated as ordinary interest income or loss and distributed. See
"Taxation," also.
Temporary Defensive Positions. When the Advisor believes that
investments should be deployed in a temporary defensive posture
because of economic or market conditions, each of the Funds may
invest up to 100% of its assets in U.S. Government securities (such
as bills, notes, or bonds of the U.S. Government and its agencies)
or other forms of indebtedness such as bonds, certificates of
deposits or repurchase agreements (for the risks involved in
repurchase agreements see the Statement of Additional Information).
For temporary defensive or emergency purposes, however, the Bond
Fund may invest without limit in investment grade U.S. debt
securities, including short-term money market securities. For
temporary defensive purposes, the International Funds may hold cash
or debt obligations denominated in U.S. dollars or foreign
currencies. These debt obligations include U.S. and foreign
government securities and investment grade corporate debt
securities, or bank deposits of major international institutions.
When a Fund is in a temporary defensive position, it is not
pursuing its stated investment policies. The Advisor decides when
it is appropriate to be in a defensive position. It is impossible
to predict for how long such alternative strategies will be
utilized.
SPECIAL RISK CONSIDERATIONS
Foreign Securities and Currencies. Since investments in each
International Fund are normally primarily denominated in foreign
currencies, exchange rates are likely to have a significant impact
on its total performance. For example, a fall in the U.S. dollar's
value relative to the Japanese yen will increase the U.S. dollar
value of a Japanese bond held in the portfolio, even though the
price of that bond in yen terms remains unchanged. Conversely, if
the U.S. dollar rises in value relative to the yen, the U.S. dollar
value of a Japanese bond will fall. Investors should be aware that
exchange rate movements can be significant and endure for long
periods of time. The Advisor attempts to control exchange rate
risks through active portfolio management.
In addition, for the Bond Fund, the Advisor attempts to
mitigate interest rate risks through management of currency, bond
market and maturity exposure and security selection which will vary
based on available yields and the Advisor's outlook for the
interest rate cycle in various countries and changes in foreign
currency exchanges rates. In any of the markets in which the Fund
invests, longer maturity bonds tend to fluctuate more in price as
interest rates change than shorter-term instruments - again
providing both opportunity and risk.
In addition to the risks outlined above, an investor should be
aware that investing in foreign securities involves risks which are
not normally associated with investing in U.S. securities, such as,
exchange control regulations; costs incurred in connection with
conversions between various currencies; availability of less
financial information than comparable U.S. companies; lack of
uniform accounting, auditing and financial reporting requirements;
less liquidity and more volatility than securities listed on U.S.
security markets due to substantially lower trading volume;
possibly lower sales prices in the event of forced liquidation of
securities in order to meet unanticipated cash requirements; fixed
commissions on foreign security markets which are generally higher
than negotiated commissions on U.S. security markets, in addition
to less supervision and regulation of such security markets;
difficulty in enforcing judgments abroad; and the possibility of
expropriation of assets, confiscatory taxation, imposition of
withholding of taxes prior to payment of dividends or other
distributions, political or social instability, or diplomatic
developments which could affect U.S. investments in those
countries. Communications between the U.S. and foreign countries
may be less reliable than within the U.S., thus increasing the risk
of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. It may be more difficult
for an International Fund's agents to keep currently informed about
corporate actions which may affect the prices of portfolio
securities.
Newly Developed Markets. The Emerging Markets, E. European
Equity and E. European Debt Funds invest, and the International
Equity Fund may invest, in securities which trade in newly
developed markets which do not have a lengthy operating history.
These markets may be subject to substantial volatility and
securities traded on these markets may be subject to greater
fluctuations in price than securities traded on more developed
markets. An investment in securities trading in these types of
markets should be considered risky and they pose greater risk than
investments in more developed markets. In cases of extreme
volatility, obtaining accurate quotes on securities may be
difficult and in some instances the fund will rely on security
prices which are determined by procedures set by the Board of
Directors to determine "fair value".
Non-Diversified Fund. While each of the Value, Bond and E.
European Debt Funds will seek to qualify as a "diversified"
investment company under provisions of Subchapter M of the Code,
neither Fund will be diversified under the 1940 Act. Thus, while
at least 50% of the total assets of each such Fund will be
represented by cash, cash items, and other securities limited in
respect of any one issuer to an amount not greater than 5% of its
total assets, the Fund will not satisfy the 1940 Act requirement in
this respect, which applies that test to 75% of the Funds assets.
A non-diversified Fund is subject to greater risk because adverse
effects on the Fund's security holdings may affect a larger portion
of the Fund's overall assets.
Strategic Transactions. Strategic Transactions have risks
associated with them including possible default by the other party
to the transaction, illiquidity and, to the extent the Advisor's
view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater
than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of
portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call
options) current market values, limit the amount of appreciation it
can realize on its investments or cause it to hold a security it
might otherwise sell. The use of currency transactions can result
in the Fund incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degrees of
correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater
than gains in the value of the Fund's position. In addition,
futures and options markets may not be liquid in all circumstances
and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out
a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure
is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if
the Strategic Transactions had not been utilized. The Strategic
Transactions that the Fund may use and some of their risks are
described more fully in the Statement of Additional Information.
Investments in debt securities issued by foreign governments and
foreign corporations domiciled in such countries could result in
the imposition of withholding taxes on interest and capital gains
by the country of domicile or residence of the issuer. The amount
of tax withheld, if any, will depend on the domestic tax law of the
country of domicile or residence of the issuer and/or the
availability of a bilateral income tax treaty between such country
and the United States. If a withholding tax is imposed, the rate
of return on the foreign investments could be adversely affected.
INVESTMENT RESTRICTIONS
The investments of the Funds are subject to investment
limitations which may not be changed without the approval of at
least a majority of the outstanding voting securities, as that term
is defined in the 1940 Act. (See the Statement of Additional
Information for the specific definition.)
Certain of these policies are detailed below, while other
policies which prohibit or limit particular practices are set forth
in the Statement of Additional Information. The investment
restrictions of each Fund specifically provide, except as noted
otherwise, that it may not:
* Except for the Value, Bond and E. European Debt Funds, as to
75% of its assets, purchase the securities of any issuer
(other than obligations issued or guaranteed as to principal
and interest by the Government of the United States or any
agency or instrumentality thereof) if, as a result of such
purchase, more than 5% of its total assets would be invested
in the securities of such issuer.
* Except for the Value, Bond and E. European Debt Funds,
purchase stock or securities of an issuer (other than the
obligations of the United States or any agency or
instrumentality thereof) if such purchase would cause the Fund
to own more than 10% of any class of the outstanding voting
securities of such issuer or, except for the Emerging Markets
Fund, more than 10% of any class of the outstanding stock or
securities of such issuer.
* Act as an underwriter of securities of other issuers, except
(i) that each of the International Equity and E. European
Equity Funds may invest up to 10% of the value of its total
assets (at time of investment) in portfolio securities which
the Fund might not be free to sell to the public without
registration of such securities under the Securities Act of
1933, as amended, or any foreign law restricting distribution
of securities in a country of a foreign issuer; and (ii) with
respect to the Bond Fund, to the extent that the Bond Fund may
be deemed an underwriter in connection with the disposition of
portfolio securities of the Fund.
* Buy or sell commodities or commodity contracts, provided that
each of the International Equity and E. European Equity Funds
may utilize not more than 1% of its assets for deposits or
commissions required to enter into, for the International
Equity Fund, forward foreign currency contracts, and for the
E. European Equity Fund, financial futures contracts, for
hedging purposes as described under "Investment Policies" and
"Additional Information on Policies and Investments -
Strategic Transactions." (Such deposits or commissions are
not required for forward foreign currency contracts.)
* As to the International Equity and E. European Equity Funds,
borrow money except for temporary or emergency purposes and
then only in an amount not in excess of 5% of the lower of
value or cost of its total assets, in which case the Fund may
pledge, mortgage or hypothecate any of its assets as security
for such borrowing but not to an extent greater than 5% of its
total assets. As to the Value, Emerging Markets, Bond and E.
European Debt Funds, borrow money, except as a temporary
measure for extraordinary or emergency purposes, or except in
connection with reverse repurchase agreements, provided that
the Fund maintains asset coverage of 300% in connection with
the issuance of senior securities. Notwithstanding the
foregoing, to avoid the untimely disposition of assets to meet
redemptions, the Value, Emerging Markets and E. European Debt
Funds may borrow up to 33 1/3%, and the Bond Fund may borrow
up to 20%, of the value of the Fund's assets to meet
redemptions, provided that the Fund may not make other
investments while such borrowings are outstanding.
* Make loans, except that a Fund may (1) lend portfolio
securities; and (2) enter into repurchase agreements secured
by the U.S. Government or Agency securities and, with respect
to the Bond and E. European Debt Funds, except to the
extent that the entry into repurchase agreements and the
purchase of debt securities in accordance with its investment
objective and policies may be deemed to be loans.
* Invest more than 25% of a Fund's total assets in securities of
companies in the same industry, with certain qualifications
with respect to the Bond and E. European Debt Funds
described in the Statement of Additional Information.
Percentage limitations in the foregoing description of the
Funds' investments and policies and this "Investment Restrictions"
section are determined at the time a Fund makes a purchase or loan
subject to such percentage.
PERFORMANCE TERMS AND COMPUTATIONS
From time to time each of the Funds may advertise information
regarding its performance. All performance figures are historical,
show the performance of a hypothetical investment and are not
intended to indicate future performance. Advertising may include
the following performance measurements.
"Yield" is the ratio of income per share derived from the
portfolio investments to the current maximum offering price
expressed in terms of a percentage.
"Distribution rate" is the amount of distribution per share
made over a twelve-month period divided by a current maximum
offering price.
"Total return" is the total of all income and capital gains
paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment,
expressed as a percentage of the purchase price.
"Average annual total return" refers to the average annual
compound rate of return of an investment in the Fund assuming that
the investment has been held for one-, five- and ten-year periods,
as applicable, and/or the life of the Fund.
"Cumulative total return" represents the cumulative change in
value of an investment in the Bond Fund for various periods. These
calculations assume that dividends and capital gains distributions
were reinvested.
"Capital change" measures return from capital, including
reinvestment of any capital gains distributions but not
reinvestment of dividends.
Performance will vary based upon, among other things, changes
in market conditions and the level of the Funds' expenses. Please
refer to the Statement of Additional Information for more
information on Performance.
THE COMPANY'S MANAGEMENT
The Board of Directors of the Company is responsible for the
supervision of the general business of the Company. The Directors
act as fiduciaries for shareholders under the laws of the State of
Maryland. The Board has appointed John Pasco, III to serve as
President of the Company. The Company employs the following
persons to provide it with investment advice and to conduct its
ongoing business:
Investment Advisor - Vontobel USA Inc. (the "Advisor") manages
the investments of the assets of the Funds pursuant to Investment
Advisory Agreements (each, an "Advisory Agreement"). The Advisory
Agreements of the Emerging Markets and E. European Debt Funds are
effective for a period of two years from July , 1997 and the
Advisory Agreement of the E. European Equity Fund is effective for
a period of two years from February 14, 1996, and such Advisory
Agreements may be renewed thereafter, and the Advisory Agreement of
each of the other Funds may be renewed, only so long as such
renewal and continuance is specifically approved at least annually
by the Company's Board of Directors or by vote of a majority of the
outstanding voting securities of the applicable Fund, provided the
continuance is also approved by a majority of the Directors who are
not "interested persons" of the Company or the Advisor by vote cast
in person at a meeting called for the purpose of voting on such
approval. The address of the Advisor is 450 Park Avenue, New York,
N.Y. 10022.
The Advisor is a wholly owned and controlled subsidiary of
Vontobel Holding Ltd., a Swiss bank holding company, having its
registered offices in Zurich, Switzerland. As of December 31,
1996, the Advisor manages in excess of $1.4 billion. The Advisor
also acts as the advisor to three series of a Luxembourg fund
organized by an affiliate of the Advisor. That fund does not
accept investments from the U.S.
Mr. Edwin Walczak is the First Vice President and Chief
Investment Officer of the Advisor, and has been the President and
portfolio manager of the Value Fund since its inception in March
1990.
Mr. Fabrizio Pierallini, who is a Vice President of the
Advisor, has been the President and portfolio manager of the
International Equity Fund since May 1994 and the Emerging Markets
Fund since its inception on July , 1997. From May 1991 to April
1994 Mr. Pierallini was an Associate-Director/Portfolio Manager
with Swiss Bank Corporation in New York where he was responsible
for, among other things, international asset allocation. From
September 1988 to May 1991 Mr. Pierallini was a Vice-
President/Portfolio Manager with SBC Portfolio Management Ltd. in
Zurich, Switzerland, where, among other responsibilities, he
actively managed institutional portfolios.
Mr. Arpad Pongracz, who is a Vice President of the Advisor,
has been the President and portfolio manager of the E. European
Equity Fund since its inception on February 15, 1996. Mr. Pongracz
joined Vontobel Asset Management, Switzerland, in 1990 as an equity
analyst. He was subsequently appointed portfolio manager for all
European equity institutional accounts and mutual funds. Since
1995, he has been head of Vontobel Asset Management's international
equities team. Mr. Pongracz is a Chartered Financial Analyst.
Mr. Sven Rump, who is a Vice President of the Advisor, has
been the President and portfolio manager of the Bond Fund since its
inception on March 1, 1994. Mr. Rump is also a Vice President of
Vontobel Asset Management Ltd., Zurich, Switzerland, where he is
responsible for managing fixed income investments and mutual funds.
From October 1990 to October 1991, Mr. Rump was a Vice President of
Bank Vontobel (Switzerland) and a fixed income specialist for the
private banking group. Mr. Rump is a Chartered Financial Analyst.
Mr. Volker Wehrle, who is a Vice President of the Advisor,
has been the President and portfolio manager of the E. European Debt
Fund since its inception on July , 1997. Mr. Wehrle is currently
(since October 1994) a Vice President of Vontobel Asset Management,
Switzerland, where he is deputy head of fixed income securities. From
January 1989 to September 1994 he managed fixed income investments
for the Group Treasury Department of Sandoz AG in Basel, Switzerland.
From January 1993 to August 1993 he was responsible for setting up
the Sandoz Investment Trust in London. From October 1986 to December
1988 Mr. Wehrle worked as a European equity analyst at Dresdner
Bank in Frankfurt, Germany.
Pursuant to the Advisory Agreements, the Advisor provides the
Funds with investment management services, subject to the
supervision of the Board of Directors of the Company, and with
office space, and pays the ordinary and necessary office and
clerical expenses relating to investment research, statistical
analysis, supervision of the Funds' portfolios and certain other
costs. The Advisor also bears the cost of fees, salaries and other
remuneration of the Company's Directors, officers or employees who
are officers, Directors, or employees of the Advisor. Each Fund is
responsible for all other costs and expenses, such as, but not
limited to, brokerage fees and commissions in connection with the
purchase and sale of securities, legal, auditing, bookkeeping and
record keeping services, custodian and transfer agency fees and
fees and other costs of filing notice of or registration of its
shares for sale under various state and Federal securities laws.
All expenses of each Fund not specifically assumed by the Advisor
are assumed by the Fund.
Under the Advisory Agreement with each Fund, the Advisor is
entitled to monthly compensation accrued daily at an annual rate
equal to the percentage of the average daily net assets
of the Funds as set forth below:
<TABLE>
<CAPTION>
Amount of Value International Emerging E. European Bond E. European
Assets Managed Fund Equity Fund Markets Fund Equity Fund Fund Debt Fund
<S> <C> <C> <C> <C> <C> <C>
$0-$100 million 1.00% 1.00% 1.25% 1.25% 1.00% 1.25%
More than $100
million to $500 0.75% 0.75% 1.25% 1.25% 1.00% 1.25%
More than $500
million 0.75% 0.75% 1.00% 1.00% 1.00% 1.00%
</TABLE>
These fees are higher than those charged to most other investment
companies, but are comparable to fees paid by investment companies
with investment objectives and policies similar to the Funds'
investment objectives and policies. The fee is paid monthly,
within five business days after the end of the month. Each
Advisory Agreement provides that the fee paid will be reduced to
the extent necessary to comply with any applicable state expense
limitation provision to which the Fund may be subject.
The Advisory Agreements contemplate the authority of the
Advisor to place orders for each of the Funds pursuant to its
investment determinations either directly with the issuer or with
any broker or dealer. The Advisor may allocate brokerage to an
affiliated dealer in accordance with written policies and
procedures adopted by the Company's Board of Directors. In placing
orders with brokers or dealers, the Advisor will attempt to obtain
the best net price and the most favorable execution of its orders.
The Advisor may purchase and sell securities to and from brokers
and dealers who provide the Advisor with research advice and other
services, or who sell shares of the Funds. From time to time, and
subject to the Advisor obtaining the best price and execution for
each Fund, the Board of Directors may authorize the Advisor to
allocate brokerage transactions to a broker in consideration of:
(1) investment research or statistical services, or (2) payment of
an obligation otherwise payable by the Funds.
Administrator - Commonwealth Shareholder Services, Inc.
("CSS"), serves as Administrator to each Fund pursuant to
Administrative Services Agreements. CSS provides certain
recordkeeping and shareholder servicing functions required of
registered investment companies, and will assist each Fund in
preparing and filing certain financial and other reports and
performs certain daily functions required for ongoing operations.
CSS may furnish personnel to act as the Company's officers to
conduct the Company's business subject to the supervision and
instructions of the Company's Board of Directors.
The Administrative Services Agreements provide that CSS will
be paid monthly: (1) 0.20% of the average daily net assets of the
Funds (which includes regulatory matters, backup of the pricing of
shares of each Fund, administrative duties in connection with the
execution of portfolio trades, and certain services in connection
with Fund accounting); (2) an hourly fee for shareholder servicing
and state securities law matters; and (3) certain out-of-pocket
expenses. The address of CSS is 1500 Forest Avenue, Suite 223,
Richmond, VA 23229.
Custodian and Accounting Services Agents
Brown Brothers Harriman & Co. ("BBH") is the Company's
custodian and accounting services agent for the International
Funds. BBH collects income when due and holds all the portfolio
securities and cash of the International Funds. (BBH, with the
consent of the Company, has designated The Depository Trust Company
of New York, as its agent to secure some of the assets of the
International Funds.) BBH is authorized to appoint other entities
to act as sub-custodians to provide for the custody of foreign
securities which may be acquired and held by the International
Funds outside the U.S. Such appointments are subject to
appropriate review by the Company's Board of Directors. BBH, as
the accounting services agent of the International Funds, maintains
and keeps current the books, accounts, records, journals or other
records of original entry relating to such Funds' business. The
address of BBH is 40 Water Street, Boston, Massachusetts 02109.
Star Bank (the "Star Bank") in Cincinnati, Ohio is the
custodian and accounting services agent for the Value Fund. Star
Bank collects income when due and holds all of the Value Fund's
portfolio securities and cash. Such appointments are subject to
appropriate review by the Company's Board of Directors. Star Bank,
as the accounting services agent of the Value Fund, maintains and
keeps current the books, accounts, records, journals or other
records of original entry relating to the Value Fund's business.
The address of Star Bank is 425 Walnut Street, P.O. Box 1118,
Cincinnati, Ohio 45201-1118.
Transfer and Dividend Disbursing Agent - Fund Services, Inc.
("FSI" or the "Transfer Agent") is the transfer and dividend
disbursing agent for the Company. John Pasco, III, Chairman of the
Board of the Company owns one third of the stock of FSI, and,
therefore, FSI may be deemed to be an affiliate of the Company.
FSI provides all the necessary facilities, equipment and personnel
to perform the usual and ordinary services of the transfer and
dividend disbursing agent, including administrative receipt and
processing of orders and payments for purchases of shares, opening
shareholder accounts, preparing shareholder meeting lists, mailing
proxy material, receiving and tabulating proxies, mailing
shareholder reports and prospectuses, withholding certain taxes on
non-resident alien accounts, disbursing income dividends and
capital distributions, preparing and filing U.S. Treasury
Department Form 1099 (or equivalent) for all shareholders,
preparing and mailing confirmation forms to shareholders for all
purchases and redemptions of the Company's shares and all other
confirmable transactions in shareholders' accounts, recording
reinvestment of dividends and distribution of the Company's shares.
Under the Agreement between the Company and FSI, as in effect on
May 1, 1991, FSI is compensated pursuant to a schedule of services
and out-of-pocket expenses. The schedule calls for a minimum
payment of $16,500 per year. The address of the Transfer Agent is
P.O. Box 26305, Richmond, VA 23260.
Principal Underwriter/Distributor - Vontobel Fund
Distributors, a division of First Dominion Capital Corp. (the
"Distributor"), acts as the principal underwriter for the Company
pursuant to an agreement effective January 1, 1994. Mr. John
Pasco, III, who owns 100% of the outstanding stock of the
Distributor, is the President, Treasurer and a Director of the
Distributor. Mr. Pasco is also the Chairman and a Director of the
Company. The address of the Distributor is 1500 Forest Avenue,
Suite 223, Richmond, VA 23229.
HOW TO INVEST
Shares of the Funds may be purchased directly from the
Distributor or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. who are
registered, if required, in the state where the purchase is made
and who have a sales agreement with the Distributor. After a
shareholder account is established, subsequent orders for shares
may be mailed directly to the Transfer Agent. The offering price
per share is equal to the net asset value per share next determined
after receipt of a purchase order. A minimum initial investment of
$1,000 is required to open a shareholder account in each Fund, and
each subsequent investment must be $50 or more. Under certain
circumstances the Company may waive the minimum initial investment
for purchases by officers, Directors and employees of the Company
and its affiliated entities and for certain related advisory
accounts and retirement accounts (such as IRAs).
When an investor acquires shares of a Fund from a securities
broker or dealer, the investor may be charged a transaction fee for
shares purchased and/or redeemed at net asset value through that
broker or dealer.
To facilitate the handling of transactions with shareholders,
the Company uses an open account plan. The Transfer Agent will
automatically establish and maintain an open account for the Funds'
shareholders. Under the open account plan your shares are
reflected in your open account. This service facilitates the
purchase, redemption or transfer of shares, eliminates the need to
issue or safeguard certificates and reduces time delays in
executing transactions. Stock certificates are not required and
are not normally issued. Stock certificates for full shares will
be issued by the Transfer Agent upon written request but only after
payment for the shares is collected by the Transfer Agent.
Purchase by Mail - For initial purchases the account
application form (the "Account Application") which accompanies this
Prospectus should be completed, signed, and mailed to the Transfer
Agent, together with your check or other negotiable bank draft
drawn on and payable by a U.S. Bank payable to the applicable Fund.
For subsequent purchases include with your check the tear-off stub
from a prior purchase confirmation, or otherwise identify the
name(s) of the registered owner(s) and the social security numbers.
Investing by Wire - You may purchase shares by requesting your
bank to transmit "Federal Funds" by wire directly to the Transfer
Agent. To invest by wire please call the Transfer Agent for
instructions, then notify the Distributor by calling 800-527-9500.
Your bank may charge you a small fee for this service. The Account
Application which accompanies this Prospectus should be completed
and promptly forwarded to the Transfer Agent. This application is
required to complete the Funds' records in order to allow you
access to your shares. Once your account is opened by mail or by
wire, additional investments may be made at any time through the
wire procedure described above. Be sure to include your name and
account number in the wire instructions you provide your bank.
HOW TO REDEEM SHARES
Subject to certain exigencies described below, shares of the
Funds may be redeemed at any time and in any amount by mail or
telephone. For your protection, the Transfer Agent will not redeem
your shares until it has received all information and documents
necessary for your request to be in "proper order." (See
"Signature Guarantees.") You will be notified promptly by the
Transfer Agent if your redemption request is not in proper order.
If a shareholder redeems shares of the Emerging Markets Fund,
E. European Equity Fund or E. European Debt Fund that have been
held less than six months (including shares to be exchanged), the
Company will deduct from the proceeds a redemption charge of 2% of
the amount of the redemption. This amount is retained by the
applicable Fund to offset the Fund's costs of purchasing or selling
securities.
The Company's procedure is to redeem shares at the net asset
value next determined after receipt by the Transfer Agent of the
redemption request in proper order as described herein. Payment
will be made promptly, but no later than the seventh day following
receipt of the request in proper order. Please note that (1) the
Transfer Agent cannot accept redemption requests which specify a
particular date for redemption, or which specify any special
conditions; and (2) if the shares you are redeeming were purchased
by you less than 15 days prior to the receipt of your redemption
request, the Transfer Agent must ascertain that your check in
payment of the shares you are redeeming has cleared prior to
disbursing the redemption proceeds. If you anticipate the need to
redeem before 15 days after purchase, you should make your purchase
by Federal Funds wire, or by a certified, treasurer's or cashier's
check.
The Company may suspend the right to redeem shares for any
period during which the New York Stock Exchange is closed or the
Securities and Exchange Commission determines that there is an
emergency. In such circumstances you may withdraw your redemption
request or permit your request to be held for processing at the net
asset value per share next computed after the suspension is
terminated.
Redemption by Mail - To redeem shares by mail, send the
following information to the Transfer Agent: (1) a written request
for redemption signed by the registered owner(s) of the shares,
exactly as the account is registered; (2) the stock certificates
for the shares you are redeeming, if any stock certificates were
issued; (3) any required signature guarantees (see "Signature
Guarantees"); and (4) any additional documents that might be
required for redemption by corporations, executors, administrators,
trustees, guardians, etc. The Transfer Agent will mail the
proceeds to your currently registered address, payable to the
registered owner(s) unless you specify otherwise in your redemption
request. There is no charge to shareholders for redemptions by
mail.
Redemption by Telephone - You may redeem your shares by
telephone if you request this service on your Account Application
at the time you complete your initial Account Application. If you
do not request this service at that time, you must request approval
of telephone redemption privileges in writing (sent to the
Company's Transfer Agent) with a signature guarantee (see
"Signature Guarantee") before you can redeem shares by telephone.
Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. By
establishing this service, you authorize the Transfer Agent to act
upon any telephone instructions it believes to be genuine, to (1)
redeem shares from your account and (2) mail or wire redemption
proceeds. There is no charge for establishing this service, but
the Transfer Agent will charge your account a $10.00 service fee
each time you make a telephone redemption. The amount of this
service charge may be changed at any time, without notice, by the
Transfer Agent.
You cannot redeem shares by telephone if you hold a stock
certificate representing the shares you are redeeming or if you
paid for the shares with a personal, corporate, or government check
and your payment has been on the books of the Company for less than
15 days.
If it should become difficult to reach the Transfer Agent by
telephone during periods when market or economic conditions lead to
an unusually large volume of telephone requests, a shareholder may
send a redemption request to the Transfer Agent by overnight mail.
The Company employs reasonable procedures designed to confirm
the authenticity of your instructions communicated by telephone
and, if it does not, it may be liable for any losses due to
unauthorized or fraudulent transactions. As a result of this
policy, a shareholder authorizing telephone redemption bears the
risk of loss which may result from unauthorized or fraudulent
transactions which the Company believes to be genuine. When you
request a telephone redemption or transfer, you will be asked to
respond to certain questions designed to confirm your identity as
a shareholder of record. Your cooperation with these procedures
will protect your account and the Company from unauthorized
transactions.
Redemption by Wire - If you request by mail or telephone that
your redemption proceeds be wired to you, please call your bank for
instructions prior to writing or calling the Transfer Agent. Be
sure to include your name, Fund account number, your account number
at your bank and wire information from your bank in your request to
redeem by wire.
Signature Guarantees - To protect you and the Company from
fraud, signature guarantees are required for: (1) all redemptions
ordered by mail if you require that the check be payable to another
person or that the check be mailed to an address other than the one
indicated on the account registration; (2) all requests to transfer
the registration of shares to another owner; and (3) all
authorizations to establish or change telephone redemption service,
other than through your initial Account Application.
In the case of redemption by mail, signature guarantees must
appear on either: (a) the written request for redemption; or (b) a
separate instrument of assignment (usually referred to as a "stock
power") specifying the total number of shares being redeemed. The
Company may waive these requirements in certain instances.
The following institutions are acceptable signature
guarantors: (a) participants in good standing of the Securities
Transfer Agents Medallion Program ("STAMP"); (b) commercial banks
which are members of the Federal Deposit Insurance Corporation
("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions
qualifying under Rule 17Ad-15 of the Securities Exchange Act of
1934, as amended that are authorized by charter to provide
signature guarantees (e.g., credit unions, securities dealers and
brokers, clearing agencies and national securities exchanges); and
(f) foreign branches of any of the above. In addition, the Company
will guarantee your signature if you personally visit its offices
at 1500 Forest Avenue, Suite 223, Richmond, VA 23229. The
Transfer Agent cannot honor guarantees from notaries public,
savings and loan associations, or savings banks.
Small Accounts - Due to the relatively higher cost of
maintaining small accounts, the Company may deduct $10 per year
from an account of a Fund or may redeem the Fund's shares in the
account, if as a result of redemption or transfer of shares the
total investment remaining in the account for the Fund, has a value
of less than $1,000. Shareholders will receive 60 days' written
notice to increase the account value above $1,000 before the fee
begins to be deducted or the shares are redeemed. A decline in the
market value of your account alone would not require you to bring
your investment up to the minimum.
HOW TO TRANSFER SHARES
If you wish to transfer shares to another owner, send a
written request to the Transfer Agent. Your request should include
(1) the name of the Fund and existing account registration; (2)
signature(s) of the registered owner(s); (3) the new account
registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be
distributed; (4) any stock certificates which have been issued for
the shares being transferred; (5) signature guarantees (See
"Signature Guarantees"); and (6) any additional documents which are
required for transfer by corporations, administrators, executors,
trustees, guardians, etc. If you have any questions about
transferring shares, call the Transfer Agent at (800) 628-4077.
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
Each time you purchase, redeem or transfer shares of a Fund,
you will receive a written confirmation. You will also receive a
year-end statement of your account if any dividends or capital
gains have been distributed, and an annual and a semi-annual
report.
SPECIAL SHAREHOLDER SERVICES
The Company offers the following four services for its
shareholders:
Regular Account - allows shareholders to make voluntary
additions and withdrawals to and from their account as often as
they wish;
Invest-A-Matic Account - permits automatic monthly investments
into a Fund from your checking account on a fixed or flexible
schedule;
Individual Retirement Accounts (IRA's); and
Exchange Privileges Account - allows the shareholder to
exchange his or her shares for shares of certain other Funds having
different investment objectives provided the shares of the Fund the
shareholder is exchanging into are noticed for sale in the
shareholder's state of residence. A shareholder's account may be
charged a $10.00 telephone exchange fee. An exchange is treated as
a redemption and a purchase, and may result in the realization of
a gain or loss on the transaction. More information on any of
these services is available upon written request to the Company.
HOW NET ASSET VALUE IS DETERMINED
The net asset value ("NAV") of the shares of each Fund is
determined by its custodian as of the close of trading on the New
York Stock Exchange (currently 4:00 p.m., Eastern Time) on each
business day from Monday to Friday or on each day (other than a day
during which no Fund share was tendered for redemption and no order
to purchase or sell a Fund share was received by the Company) in
which there is a sufficient degree of trading in the portfolio
securities that the current NAV of the shares might be materially
affected by changes in the value of such portfolio security. Each
Fund's NAV is calculated at such 4:00 p.m. time set by the
Company's Board of Directors based upon the Board's determination
that this is the most appropriate time to price the securities.
NAV per share is determined by dividing the total value of the
assets, less its liabilities, by the total number of shares then
outstanding. Generally, securities owned by a Fund are valued at
market value.
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 debt securities (less than 60 days to maturity) are
valued at their fair market value using amortized cost pricing
procedures set, and determined to be fair, by the Board of
Directors. Other assets for which market prices are not readily
available are valued at their fair value as determined in good
faith under procedures set by the Board of Directors.
ADRs, EDRs, and GDRs will be valued at the closing price of
the instrument last determined prior to the valuation time unless
the Company is aware of a material change in value. Items for
which such a value cannot be readily determined on any day will be
valued at the closing price of the underlying security adjusted for
the exchange rate.
The Company's management may compute the NAV per share more
frequently in order to protect shareholders' interests.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income are declared annually.
Each of the Funds intends to distribute annually realized net
capital gains, after utilization of capital loss carryforwards, if
any, to prevent application of a federal excise tax. However, a
Fund may make an additional distribution any time prior to the due
date, including extensions, of filing its tax return, if necessary
to accomplish this result. Any dividends or capital gains
distributed pursuant to a dividend declaration declared in October,
November or December with a record date in such a month and paid
during the following January will be treated by shareholders for
federal income tax purposes as if received on December 31 of the
calendar year declared. Unless you elect otherwise, dividends and
capital gains distributions will be reinvested in additional shares
of the Fund at no charge. Changes in your election regarding
receipt of dividends and distributions must be sent to the Transfer
Agent. Shareholders will be subject to tax on all dividends paid
to them or reinvested in shares of the Fund. If an investment in
Fund shares is made by a retirement plan, all dividends and capital
gains distributions must be reinvested into an account of such
plan.
Generally, dividends from net investment income are taxable to
investors as ordinary income. Certain gains or losses on the sale
or retirement of international securities held by a Fund, to the
extent attributable to fluctuations in currency exchange rates, as
well as certain other gains or losses attributable to exchange rate
fluctuations, must be treated as ordinary income or loss. Such
income or loss may increase or decrease (or possibly eliminate) the
income available for distribution to shareholders. If, under the
rules governing the tax treatment of foreign currency gains and
losses, the income available for distribution is decreased or
eliminated, all or a portion of the dividends declared by a Fund
may be treated for federal income tax purposes as a return of
capital or, in some circumstances, as capital gain. Generally, a
shareholder's tax basis in Fund shares will be reduced to the
extent that an amount distributed to the shareholder is treated as
a return of capital.
Long-term capital gains distributions, if any, are taxable as
net long-term capital gains when distributed regardless of the
length of time shareholders have owned their shares. Net short-
term capital gains and any other taxable income distributions are
taxable as ordinary income.
Each Fund sends detailed tax information about the amount and
type of its distributions to its shareholders by January 31 of the
year following the distributions.
TAXES
Each Fund will seek to qualify as a regulated investment
company under Subchapter M of the Code. As a regulated investment
company under the Code, a Fund is not liable for federal income
taxes on income or net capital gains that are distributed to its
shareholders or imputed to shareholders under the Code, or for any
excise tax, to the extent its earnings are distributed as provided
in the Code, and assuming it meets the tax diversification test,
90% gross income test and 30% gross income test as required by the
Code.
In order to meet the tax diversification test, at the close of
each quarter of its fiscal year, (i) at least 50% of the value of
each Fund's total assets must be represented by cash and cash items
including receivables (for these purposes, currency and demand
deposits denominated in a currency other than the U.S. dollar will
not be considered cash, a cash item or a receivable), U.S.
Government securities, and securities of other regulated investment
companies, and other securities limited in respect of any one
issuer to an amount not greater than 5% of the value of its total
assets, and to not more than 10% of the outstanding voting
securities of such issuer; and (ii) not more than 25% of the value
of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
Each Fund will meet the 90% of gross income test if 90% of its
gross income is derived from dividends, interest, payments with
respect to certain securities loans, and gain from the sale or
disposition of stock or securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures,
or forward contracts) derived with respect to its business of
investing in such stock, securities, or currencies.
Each Fund will meet the 30% of gross income test provided that
less than 30% of its gross income for the fiscal year is derived
from the sale or disposition of any of the following held for less
than three months: stock or securities, options, futures, or
forward contracts (other than such contracts on foreign
currencies), and foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such
currencies (and hedging instruments) are not directly related to
the Fund's principal business of investing in stock or securities
(or options and futures with respect to stock or securities.)
Each Fund will act and invest so as to comply with the
requirements of Subchapter M outlined above. This may mean, for
example, that it will be required to hold an investment longer than
it otherwise would, or not engage in a hedging transaction which it
otherwise would, in order to avoid violating one of the tests
outlined above.
The distribution to shareholders each year of investment
income and capital gains will represent taxable income to the
shareholders. The Company is a series corporation. Each series is
taxed as a separate taxable entity under the Code.
Each International Fund may be subject to foreign withholding
taxes on income from certain of its foreign securities. These
withholding taxes will reduce the return on the shareholder's
investment. If more than 50% of the value of a Fund's assets at
the close of its taxable year consists of stock or securities in
foreign corporations, it may elect to pass through to its
shareholders the amount of foreign withholding taxes it paid. If
this election is made, shareholders will be (i) required to include
in their gross income their pro rata share of foreign source income
(including any foreign taxes paid by the fund), and (ii) entitled
to either deduct (as an itemized deduction in the case of
individuals) their share of such foreign taxes in computing their
taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code.
The Fund will notify its shareholders of such election within 60
days of the close of its tax year. Shareholders may decide whether
to utilize such flow through amount as either a deduction or a tax
credit. Individual shareholders will usually find that the credit
is more favorable. Tax-exempt investors, such as pension plans and
individual retirement accounts, will not benefit from this pass
through.
On the account application, the shareholder must provide the
shareholder's taxpayer identification number ("TIN"), certify that
it is correct and certify that the shareholder is not subject to
backup withholding under Internal Revenue Service ("IRS") rules.
If the shareholder fails to provide a correct TIN or the proper
certifications, the Fund will withhold 31% of all distributions
and redemption proceeds payable to the shareholder. The Fund will
also begin backup withholding on a shareholder's Fund account if
the IRS instructs the Fund to do so. The Fund reserves the right
not to open a shareholder's account or, if an account is already
opened, to redeem a shareholder's shares at the current NAV, less
any taxes withheld, if the shareholder fails to provide a correct
TIN, fails to provide the proper certifications, or the IRS advises
the Fund to begin backup withholding on the shareholder's Fund
account.
GENERAL INFORMATION ABOUT THE COMPANY
The Company is authorized to issue up to 500,000,000 shares of
common stock, par value $0.01 per share, of which it has presently
allocated 50,000,000 shares to each of the Funds. The Board of
Directors can allocate the remaining authorized but unissued shares
to any series of the Company or may create additional series and
allocate shares to such series.
A share of a Fund has priority in the assets of that fund in
the event of a liquidation. The shares of a Fund will be fully
paid and nonassessable, will have no preference over other shares
of the Fund as to conversion, dividends, or retirement, and will
have no preemptive rights. Shares of a Fund will be redeemable
from the assets of that Fund at any time, as described above.
Each outstanding share of a Fund is entitled to one vote for
each full share of stock and a fractional vote for fractional
shares of stock. All shareholders vote on matters which concern
the Company as a whole. The Company is not required to hold a
meeting of shareholders each year, and may elect not to hold a
meeting in years when no meeting is necessary. The shareholders of
a Fund shall vote separately on matters that affect only such
Fund's interest. The Funds' shares do not have cumulative voting
rights, which means that the holders of more than 50% of the shares
voting for the election of Directors can elect all of the Directors
if they choose to do so. Shareholders may utilize procedures
described in the Statement of Additional Information to call a
meeting.
The name of the Company was changed from The World Funds, Inc.
to Vontobel Funds, Inc. effective on February 28, 1997, as approved
by the Board of Directors of the Company.
Limitation on Use of Name - The Advisory Agreement for each
Fund authorizes the Company to utilize the name "Vontobel." The
Company agrees that if an Advisory Agreement is terminated it will
submit to shareholders a proposal that the related Fund redesignate
its name to eliminate any reference to the name "Vontobel" or any
derivation thereof unless the Advisor waives this requirement in
writing.
TO OBTAIN MORE INFORMATION
For further information on the Funds, please contact
Commonwealth Shareholder Services, Inc., P.O. Box 8687, Richmond,
VA 23226, telephone: (800) 527-9500.
Additional information may also be obtained by requesting a
copy of the Statement of Additional Information.
Investment Advisor: Vontobel USA Inc.
450 Park Avenue
New York, NY 10022
Distributor: Vontobel Fund Distributors,
a division of First Dominion Capital Corp.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
Independent Tait, Weller & Baker
Auditors: 2 Penn Center Plaza
Suite 700
Philadelphia, PA 19102
Marketing Services: For general information on the Funds and
marketing services, call the Distributor at
(800) 527-9500 toll free.
Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Company's
Transfer Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free
More Information: For 24-hour, 7-days-a-week price information
call 1-800-527-9500.
For information on any series of the Company,
investment plans, or other shareholder
services, call 1-800-527-9500 during normal
business hours, or write the Company at 1500
Forest Avenue, Suite 223, Richmond, VA 23229.
No dealer, sales representative or any other person has been
authorized to give any information or to make any representations,
other than those contained in this Prospectus, in connection with
the offer made by this Prospectus and, if given or made, such other
information or representations must not be relied upon as having
been authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or the Distributor to sell
or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.
<PAGE>
VONTOBEL FUNDS, INC.
VONTOBEL U.S. VALUE FUND
VONTOBEL INTERNATIONAL EQUITY FUND
VONTOBEL EMERGING MARKETS EQUITY FUND
VONTOBEL EASTERN EUROPEAN EQUITY FUND
VONTOBEL INTERNATIONAL BOND FUND
VONTOBEL EASTERN EUROPEAN DEBT FUND
STATEMENT OF ADDITIONAL INFORMATION DATED JULY __, 1997
Vontobel Funds, Inc. (the "Company") is an open-end
management investment company commonly known as a "mutual fund."
This Statement of Additional Information is not a prospectus but
supplements the information contained in the current Prospectus
of the Vontobel U.S. Value Fund, Vontobel International Equity
Fund (formerly named Vontobel EuroPacific Fund), Vontobel
Emerging Markets Equity Fund, Vontobel Eastern European Equity
Fund, Vontobel International Bond Fund and Vontobel Eastern
European Debt Fund (each, a "Fund"), dated July __, 1997. It
should be read in conjunction with the Prospectus, and has been
designed to provide you with further information which is not
contained in the Prospectus. The Prospectus of the Funds may be
obtained at no charge upon request to the Company. Please retain
this Statement of Additional Information for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STATEMENT OF
ADDITIONAL INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
Vontobel Funds, Inc.
Investment Policies
Additional Investments and Investment Techniques
Strategic Transactions
Options
Futures
Currency Transactions
Combined Transactions
Eurocurrency Instruments
Use of Segregated and Other Special Accounts
U.S. Government Securities
Repurchase Agreements
Reverse Repurchase Agreements
Special Investment Considerations of the Funds
Investment Restrictions
Taxes
Dividends and Distributions
Portfolio Transactions
Valuation and Calculation of Net Asset Value
Directors and Officers
Investment Advisor
Transfer Agent
Administrator
Eligible Benefit Plans
Distribution
Fund Expenses
Special Shareholder Services
General Information and History
Performance
Financial Statements
Appendix - Bond Ratings
VONTOBEL FUNDS, INC.
The Funds are series of Vontobel Funds, Inc. (the
"Company"), a Maryland corporation which is an open-end,
management investment company, commonly known as a "mutual fund."
Each of the Funds is a no-load series of the Company. The
Vontobel International Equity Fund ("International Equity Fund")
(formerly named, Vontobel EuroPacific Fund), Vontobel Emerging
Markets Equity Fund ("Emerging Markets Fund") and Vontobel
Eastern European Equity Fund ("E. European Equity Fund") are
diversified series, and the Vontobel U.S. Value Fund ("Value
Fund"), Vontobel International Bond Fund ("Bond Fund") and
Vontobel Eastern European Debt Fund ("E. European Debt Fund") are
non-diversified series. A diversified series has investment
restrictions that require that, with respect to 75% of its total
assets, the series may invest no more than 5% of its total assets
in the securities of a single issuer, with certain exceptions,
as described in the "Investment Restrictions" section of the
Prospectus. Each of the International Equity Fund, Emerging
Markets Fund, E. European Equity Fund, Bond Fund and E. European
Debt Fund (each, an "International Fund") may or does invest a
large percentage of its assets in foreign securities, as
described in the Prospectus and below.
There is some market risk inherent in any investment, due in
part to changes in general economic and market conditions. The
investment policies of each Fund, however, are intended to
provide the flexibility to take advantage of opportunities while
accepting only what Vontobel USA Inc. (the "Advisor") believes to
be reasonable risks. Changes in holdings of portfolio securities
are made on the basis of investment considerations, and it is
against the policy of management to make changes for trading
purposes. The Funds cannot guarantee a gain or eliminate the
risk of loss. Each Fund's net asset value per share will
increase or decrease with changes in the market price of the
Fund's investments. Each Fund's investments will be subject to
the risks which are inherent in all investments, and although the
Advisor will seek to attain the Fund's stated investment
objective, there can be no assurance that the investment
objective will be achieved.
Investment Policies
Vontobel U.S. Value Fund
Under normal circumstances, the Value Fund will have at
least 65% of its assets invested in common stocks or securities
convertible into common stocks. The Fund may also acquire fixed
income investments where these fixed income securities are
convertible into equity securities (and which may therefore
reflect appreciation in the underlying equity security), and
where anticipated interest rate movements, or factors affecting
the degree of risk inherent in a fixed income security are
expected to change significantly so as to produce appreciation in
the security consistent with the Fund's objective. The fixed
income securities in which the Fund may invest will be rated at
the time of purchase Baa or higher by Moody's Investors Service,
Inc. ("Moody's"), or BBB or higher by Standard and Poor's Ratings
Group ("S&P"), or if they are foreign securities which are not
subject to standard credit ratings the fixed income securities
will be "investment grade" issues (in the judgement of the
Advisor) based on available information. Securities rated as BBB
are regarded as having adequate capacity to pay interest and
repay principal.
The Fund will select its non-equity investments from among
securities and obligations of all kinds including preferred
stocks, warrants, rights, bonds (of any class or rating),
repurchase agreements, money market investments (such as U.S.
Government securities (see "Additional Investments and Investment
Techniques - U.S. Government Securities") issued by the U.S.
Treasury, agencies or other instrumentalities) and other
evidences of indebtedness.
The Fund will enter into only repurchase agreements
involving U.S. Government securities in which it may otherwise
invest. See "Additional Investments and Investment Techniques -
Repurchase Agreements" and "- U.S. Government Securities" below.
The Fund may lend its portfolio securities.
Vontobel International Equity Fund
Under normal circumstances, the International Equity Fund
will have at least 65% of its assets invested in a portfolio of
common stocks or securities convertible into common stocks of
issuers principally from European and Pacific Basin countries.
The Fund will normally be invested in not less than three
countries. However, when the Advisor believes that investments
should be deployed in a temporary defensive posture because of
economic or market conditions, the Fund may invest up to 100% of
its assets in U.S. Government securities (such as bills, notes,
or bonds of the U.S. Government and its agencies) or other forms
of indebtedness such as bonds, certificates of deposit or
repurchase agreements.
The Fund may also acquire fixed income investments where
these fixed income securities are convertible into equity
securities (and which may therefore reflect appreciation in the
underlying equity security), and where anticipated interest rate
movements, or factors affecting the degree of risk inherent in a
fixed income security are expected to change significantly so as
to produce appreciation in the security consistent with the
Fund's objective. The fixed income securities in which the Fund
may invest will be rated at the time of purchase Baa or higher by
Moody's or BBB or higher by S&P, or if they are foreign
securities which are not subject to standard credit ratings the
fixed income securities will be "investment grade" issues (in the
judgement of the Advisor) based on available information.
Securities rated as BBB are regarded as having adequate capacity
to pay interest and repay principal.
The Fund will select its non-equity investments from among
securities and obligations of all kinds including preferred
stocks, warrant rights, bonds (of any class or rating),
repurchase agreements, money market investments (such as U.S.
Government securities (see "Additional Investments and Investment
Techniques - U.S. Government Securities") issued by the U.S.
Treasury, agencies or other instrumentalities) and other
evidences of indebtedness.
The Fund will enter into only repurchase agreements
involving U.S. Government securities in which it may otherwise
invest. See "Additional Investments and Investment Techniques -
Repurchase Agreements" and "- U.S. Government Securities" below.
The Fund is designed to take advantage of the opportunities
provided by the ability to invest overseas, and therefore may be
subject to some of the special risks described below.
As noted in the Prospectus, the Fund has the right to invest
in securities which may be considered to be "thinly traded" if
they are deemed to offer the potential for appreciation, but it
does not presently intend to invest more than 5% of its assets in
such securities. The trading volume of such securities is
generally lower and their prices may be more volatile as a
result, and such securities are less likely to be exchange-listed
securities. The Fund may also invest, subject to certain
restrictions described below, in options (puts and calls) and, to
a limited extent, in restricted securities.
The Fund may invest in the shares of closed-end investment
companies which acquire equity securities of countries in which
the Fund may invest. By investing in shares of such investment
companies, the Fund would indirectly pay a portion of the
operating expenses, management expenses, and brokerage costs of
such an investment company as well as the expenses of the Fund.
The Advisor will recommend such investments when it believes that
this would allow the Fund to achieve a greater diversification at
an economically more advantageous price than through the
acquisition of individual securities, or when such company is
able to achieve an investment in a country which the Fund cannot
acquire for legal or economic reasons.
The Fund may utilize American Depositary Receipts ("ADRs")
and European Depositary Receipts ("EDRs"). Generally, ADRs are
dollar denominated securities issued in registered form and
designed for use in the United States securities markets. They
represent and may be converted into the underlying foreign
security. EDRs, in bearer form, are similarly designed for use
in the European securities markets. For purposes of determining
the country of origin, ADRs and closed-end investment companies
will not be deemed to be domestic securities.
The Fund may lend its portfolio securities.
Hedging with Forward Foreign Currency Contracts, Futures and
Options on Futures
The Fund's investment objective (as described in the
Prospectus) contemplates investment in securities of issuers
domiciled or operating outside of the United States. Such
foreign investments may require the Fund temporarily to hold
funds in foreign currencies prior to, during or following the
completion of investment programs. In such circumstances the
value of the Fund's assets, as measured in United States dollars,
may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations.
The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market or, when deemed
necessary to "hedge" the Fund's anticipated cash movements,
through entering into forward foreign currency exchange contracts
to purchase or sell foreign currencies, futures or options on
futures. See "Additional Investments and Investment Techniques"
below.
Covered Call and Put Options
The Fund may write (sell) "covered" call options and
purchase put options, and purchase call and write put options to
close out options previously written by it. The Fund may
purchase put options in the following two circumstances when: (1)
it holds a position in the security (that is, the put is
covered), or (2) a put option on a market index when, in the
opinion of the Advisor, such index is representative of the
securities held in the portfolio, therefore, the index will move
in the same direction as the securities held in the portfolio.
The purpose of writing covered call options and purchasing put
options will be to reduce the effect of price fluctuations of
selected securities owned by it on the net asset value per share.
The hedging activities on portfolio securities using options are
separate and different from the foreign currency hedging
transactions (see above) entered into by the Fund. Although
additional revenues may be generated through the use of covered
call options, the Advisor does not consider the additional
revenues which may be generated as the primary reason for writing
covered call options, which is undertaken to hedge the
investments in a particular security. Similarly, foreign
currency hedging is intended to hedge currency movements, not to
speculate on currency gains or generate commission income. There
is no assurance that the Fund's portfolio will be hedged, or that
the hedge will be complete or in exact correlation with market
movement. In order to hedge its investment the Fund will
generally give up opportunities to gain from market movement.
The Fund will write only covered call options and purchase
put options. It will write covered call options and purchase put
options in standard contracts which are quoted on national
securities exchanges or similar instruments in comparable markets
in the countries in which it invests and holds its portfolio
securities. See "Additional Investments and Investment
Techniques" below.
Vontobel Emerging Markets Equity Fund
Under normal circumstances, the Emerging Markets Fund will
have at least 65% of its total assets invested in common stocks,
or securities convertible into common stocks, of issuers in
developing countries around the globe. The Fund may also
acquire fixed income investments where these fixed income
securities are convertible into equity securities (and which may
therefore reflect appreciation in the underlying equity
security), and where anticipated interest rate movements, or
factors affecting the degree of risk inherent in a fixed income
security are expected to change significantly so as to produce
appreciation in the security consistent with the Fund's
objective. The fixed income securities in which the Fund may
invest will be rated at the time of purchase Baa or higher by
Moody's, or BBB or higher by S&P, or if they are foreign
securities which are not subject to standard credit ratings the
fixed income securities will be "investment grade" issues (in the
judgement of the Advisor) based on available information.
Securities rated as BBB are regarded as having adequate capacity
to pay interest and repay principal.
The Fund will select its non-equity investments from among
securities and obligations of all kinds including preferred
stocks, warrants, rights, bonds (of any class or rating),
repurchase agreements, money market investments (such as U.S.
Government securities (see "Additional Investments and Investment
Techniques - U.S. Government Securities") issued by the U.S.
Treasury, agencies or other instrumentalities) and other
evidences of indebtedness.
The Fund will enter into only repurchase agreements
involving U.S. Government securities in which it may otherwise
invest. See "Additional Investments and Investment Techniques -
Repurchase Agreements" and "- U.S. Government Securities" below.
The Fund may lend its portfolio securities.
Vontobel Eastern European Equity Fund
Under normal circumstances the E. European Equity Fund will
have at least 65% of its assets invested in a portfolio of common
stocks or securities convertible into common stocks of issuers
from not less than three countries. However, when the Advisor
believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, the
Fund may invest up to 100% of its assets in U.S. Government
securities (such as bills, notes, or bonds of the U.S. Government
and its agencies) or other forms of indebtedness such as bonds,
certificates of deposit or repurchase agreements.
The Fund may also acquire fixed income investments where
these fixed income securities are convertible into equity
securities (and which may therefore reflect appreciation in the
underlying equity security), and where anticipated interest rate
movements, or factors affecting the degree of risk inherent in a
fixed income security are expected to change significantly so as
to produce appreciation in the security consistent with the
Fund's objective. The fixed income securities in which the Fund
may invest will be rated at the time of purchase Baa or higher by
Moody's, or BBB or higher by S&P, or if they are foreign
securities which are not subject to standard credit ratings the
fixed income securities will be "investment grade" issues (in the
judgement of the Advisor) based on available information.
Securities rated as BBB are regarded as having adequate capacity
to pay interest and repay principal.
The Fund will select its non-equity investments from among
securities and obligations of all kinds including preferred
stocks, warrant rights, bonds (of any class or rating),
repurchase agreements, money market investments (such as U.S.
Government securities (see "Additional Investments and Investment
Techniques - U.S. Government Securities") issued by the U.S.
Treasury, agencies or other instrumentalities) and other
evidences of indebtedness.
The Fund may enter into repurchase agreements (which enables
it to employ its assets pending investment) during very short
periods of time. Ordinarily these agreements permit the Fund to
maintain liquidity and earn higher rates of return than would
normally be available from other short-term money market
instruments. The Fund will enter into only repurchase agreements
involving U.S. Government securities in which it may otherwise
invest. See "Additional Investments and Investment Techniques -
Repurchase Agreements" and "- U.S. Government Securities" below.
The Fund is designed to take advantage of the opportunities
provided by the ability to invest overseas, and therefore may be
subject to some of the special risks described below.
As noted in the Prospectus, the Fund has the right to invest
in securities which may be considered to be "thinly traded" if
they are deemed to offer the potential for appreciation, but it
does not presently intend to invest more than 15% of its assets
in such securities. The trading volume of such securities is
generally lower and their prices may be more volatile as a
result, and such securities are less likely to be exchange-listed
securities. The Fund may also invest, subject to certain
restrictions described below, in options (puts and calls) and, to
a limited extent, in restricted securities.
The Fund may invest in the shares of closed-end investment
companies which acquire equity securities of Eastern/Central
European countries in which the Fund may invest. By investing in
shares of such investment companies, the Fund would indirectly
pay a portion of the operating expenses, management expenses, and
brokerage costs of such an investment company as well as the
expenses of the Fund. The Advisor will recommend such
investments when it believes that this would allow the Fund to
achieve a greater diversification at an economically more
advantageous price than through the acquisition of individual
securities, or when such company is able to achieve an investment
in a country which the Fund cannot acquire for legal or economic
reasons.
The Fund may utilize ADRs, EDRs and Global Depositary
Receipts ("GDRs"). Generally, ADRs are dollar denominated
securities issued in registered form and designed for use in the
United States securities markets. They represent and may be
converted into the underlying foreign security. EDRs and GDRs,
in bearer form, are similarly designed for use in the European
securities markets. For purposes of determining the country of
origin, ADRs and closed-end investment companies will not be
deemed to be domestic securities.
It is the Fund's policy not to lend its portfolio securities
at the present time, although it is not restricted from so doing.
Hedging with Forward Foreign Currency Contracts, Futures and
Options or Futures
The Fund's investment objective (as described in the
Prospectus) contemplates investment in securities of issuers
domiciled or operating outside the United States. Such foreign
investments may require the Fund to temporarily hold funds in
foreign currencies prior to, during or following the completion
of investment programs. In such circumstances the value of the
Fund's assets, as measured in United States dollars, may be
affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations.
The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market or, when deemed
necessary to "hedge" the Fund's anticipated cash movements,
through entering into forward contracts to purchase or sell
foreign currencies, currency futures or options on currency
futures. See "Additional Investments and Investment Techniques"
below.
Vontobel International Bond Fund
The Bond Fund offers investors a convenient way to invest in
a managed portfolio of foreign currency denominated debt
securities. It seeks to achieve its objective of total return
primarily by investing in a managed portfolio of high-grade bonds
denominated in foreign currencies. It will seek protection and
possible enhancement of principal value by actively managing
currency, bond market and maturity exposure and by security
selection.
To achieve its objective, the Fund will primarily invest in
international bonds that are denominated in foreign currencies,
including bonds denominated in the European Currency Unit
("ECU"). International bonds are defined as bonds issued in
countries other than the United States. The Fund's investments
may include debt securities issued or guaranteed by a foreign
national government, its agencies, instrumentalities or political
subdivisions, debt securities issued or guaranteed by
supranational organizations, corporate debt securities, bank or
holding company debt securities and other debt securities
including those convertible into common stock.
Because of the Fund's investment considerations discussed
above and its investment policies, investments in the Fund are
not intended to provide a complete investment program for an
investor.
Debt Securities. The Fund may purchase "investment-grade"
bonds, which are those rated Baa or higher by Moody's or BBB or
higher by S&P, or unrated securities which the Advisor believes
are of comparable quality. Bonds rated Baa or BBB may have
speculative elements as well as investment-grade characteristics.
The Fund reserves the right, however, to invest its assets in
lower rated securities (including unrated securities which the
Advisor believes to be of such lower quality). (See the Appendix
for Bond Ratings). The Fund will invest no more than 5% of its
assets in securities rated below investment grade (i.e., below
BBB by S&P or Baa by Moody's) or which are unrated but are of
comparable quality as determined by the Advisor. (See "Special
Risk Considerations" in the Fund's Prospectus.) The Fund may
invest in debt securities which are rated as low as C by Moody's
or D by S&P. Such securities may be in default with respect to
payment of principal or interest.
Vontobel Eastern European Debt Fund
The E. European Debt Fund offers investors a convenient way
to invest in a managed portfolio of foreign currency denominated
debt securities of issuers in Eastern Europe as described below.
It seeks to achieve its objective of total return primarily by
investing
in a managed portfolio of bonds of issuers in Eastern
Europe. It will seek protection and possible enhancement of
principal value by actively managing currency, bond market and
maturity exposure and by security selection.
To achieve its objective, the Fund will primarily invest in
bonds of issuers in Eastern Europe that are denominated in foreign
currencies, including bonds denominated in the ECU.
The Fund's investments may include debt securities issued or
guaranteed
by a foreign national government, its agencies, instrumentalities
or political
subdivisions, debt securities issued or guaranteed by
supranational organizations, corporate debt securities, bank or
holding company debt securities and other debt securities
including those convertible into common stock.
Because of the Fund's investment considerations discussed
above and its investment policies, investments in the Fund are
not intended to provide a complete investment program for an
investor.
Debt Securities. The Fund may purchase "investment-grade"
bonds, which are those rated Baa or higher by Moody's or BBB or
higher by S&P, or unrated securities which the Advisor believes
are of comparable quality. The Fund reserves the right, however,
to invest its assets in lower rated securities (including unrated
securities which the Advisor believes to be of such lower
quality). (See the Appendix for Bond Ratings). The Fund will
invest no more than 5% of its assets in securities rated below
investment grade (i.e., below BBB by S&P or Baa by Moody's) or
which are unrated but are of comparable quality as determined by
the Advisor. (See "Special Risk Considerations" in the Fund's
Prospectus.) Bonds rated Baa or BBB may have speculative
elements as well as investment-grade characteristics. The Fund
may invest in debt securities which are rated as low as C by
Moody's or D by S&P. Such securities may be in default with
respect to payment of principal or interest.
Additional Investments and Investment Techniques
Strategic Transactions. Each of the Funds may, but is not
required to, utilize various other investment strategies
described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad specific equity or
fixed-income market movements), to manage the effective maturity
or duration of fixed-income securities, or to enhance potential
gain. Such strategies are generally accepted as modern portfolio
management and are regularly utilized by many mutual funds and
other institutional investors. Techniques and instruments may
change over time as new instruments and strategies are developed
or regulatory changes occur.
In the course of pursuing these investment strategies, each
Fund may purchase and sell exchange-listed and over-the-counter
put and call options on securities, fixed-income indices and
other financial instruments, purchase and sell financial futures
contracts and options thereon, enter into various interest rate
transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options
on currencies or currency futures (collectively, all the above
are called "Strategic Transactions").
Risks of Strategic Transactions Outside the United States.
When conducted outside the United States, Strategic Transactions
may not be regulated as rigorously as in the United States, may
not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in,
or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays
in a fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United
States, and (v) lower trading volume and liquidity.
Options. Each of the Funds may purchase and sell options as
described in the Prospectus and herein.
General Characteristics of Options. Put options and call
options typically have similar structural characteristics and
operational mechanics regardless of the underlying instrument on
which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of the Fund's
assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment
of a premium, the right to sell, and the writer the obligation to
buy, the underlying security, commodity, index, currency or other
instrument at the exercise price. For instance, the Fund's
purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the
market value by giving the Fund the right to sell such instrument
at the option exercise price. Such protection is, of course,
only provided during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying
security at the put exercise price regardless of any decline in
the underlying security's market price. By using put options in
this manner, the Fund will reduce any profit it might otherwise
have realized in its underlying security by the premium paid for
the put option and by transaction costs.
A call option, upon payment of a premium, gives the
purchaser of the option the right to buy, and the seller the
obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security,
financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of
the underlying instrument. When writing a covered call option,
the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security above the
exercise price, but conversely retains the risk of loss should
the price of the security decline. If a call option which it has
written expires, it will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period.
If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option, or,
which it will pay when purchasing a put option, will reflect,
among other things, the current market price of the underlying
security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying
security, the length of the option period, the general supply of
and demand for credit conditions, and the general interest rate
environment. The premium received by the Fund for writing
covered call options will be recorded as a liability in its
statement of assets and liabilities. This liability will be
adjusted daily to the option's current market value, which will
be the latest sale price at the time at which the Fund's net
asset value per share is computed (close of the New York Stock
Exchange ("NYSE")), or, in the absence of such sale, the latest
asked price. The liability will be extinguished upon expiration
of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security upon the
exercise of the option.
The premium paid by the Fund when purchasing a put option
will be recorded as an asset in its statement of assets and
liabilities. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the
time at which the Fund's net asset value per share is computed
(close of the NYSE), or, in the absence of such sale, the latest
bid price. The asset will be extinguished upon expiration of the
option, the selling (writing) of an identical option in a closing
transaction, or the delivery of the underlying security upon the
exercise of the option.
The purchase of a put option will constitute a short sale
for federal tax purposes. The purchase of a put at a time when
the substantially identical security held long has not exceeded
the long term capital gain holding period could have adverse tax
consequences. The holding period of the long position will be
cut off so that even if the security held long is delivered to
close the put, short term gain will be recognized. If
substantially identical securities are purchased to close the
put, the holding period of the securities purchased will not
begin until the closing date. The holding period of the
substantially identical securities not delivered to close the
short sale will commence on the closing of the short sale.
The Fund will purchase a call option only to close out a
covered call option it has written. It will write a put option
only to close out a put option it has purchased. Such closing
transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security
from being called or put, or, to permit the sale of the
underlying security. Furthermore, effecting a closing
transaction will permit the Fund to write another call option, or
purchase another put option, on the underlying security with
either a different exercise price or expiration date or both. If
the Fund desires to sell a particular security from its portfolio
on which it has written a call option, or purchased a put option,
it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of
course, no assurance that the Fund will be able to effect such
closing transactions at a favorable price. If it cannot enter
into such a transaction, it may be required to hold a security
that it might otherwise have sold, in which case it would
continue to be at market risk on the security. This could result
in higher transaction costs, including brokerage commissions.
The Fund will pay brokerage commissions in connection with the
writing or purchase of options to close out previously written
options. Such brokerage commissions are normally higher than
those applicable to purchases and sales of portfolio securities.
Options written by the Fund will normally have expiration
dates between three and nine months from the date written. The
exercise price of the options may be below, equal to, or above
the current market values of the underlying securities at the
time the options are written. From time to time, the Fund may
purchase an underlying security for delivery in accordance with
an exercise notice of a call option assigned to it, rather than
delivering such security from its portfolio. In such cases
additional brokerage commissions will be incurred.
The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or
more than the premium received from the writing of the option;
however, any loss so incurred in a closing purchase transaction
may be partially or entirely offset by the premium received from
a simultaneous or subsequent sale of a different call or put
option. Also, because increases in the market price of a call
option will generally reflect increases in the market price of
the underlying security, any loss resulting from the repurchase
of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
An American style put or call option may be exercised at any
time during the option period while a European style put or call
option may be exercised only upon expiration or during a fixed
period prior thereto. The Fund is authorized to purchase and
sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"),
which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an
example, but is also applicable to other financial
intermediaries.
With certain exceptions, OCC issued and exchange listed
options generally settle by physical delivery of the underlying
security or currency, although in the future cash settlement may
become available. Index options and Eurocurrency instruments are
cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying
instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the
option) at the time the option is exercised. Frequently, rather
than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are
closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser
or seller of an OCC or exchange listed put or call option is
dependent, in part, upon liquidity of the option market. Among
the possible reasons for the absence of a liquid option market on
an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions
imposed with respect to particular classes or series of options
or underlying securities including reaching daily price limits;
(iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC
to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the
relevant market for that option on that exchange would cease to
exist, although outstanding options on that exchange would
generally continue to be exercisable in accordance with their
terms.
The hours of trading for listed options may not coincide
with the hours during which the underlying financial instruments
are traded. To the extent that the option markets close before
the markets for the underlying financial instruments, significant
price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities
dealers, financial institutions or other parties
("Counterparties") through direct bilateral agreement with the
Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and
security, are set by negotiation of the parties. The Fund will
only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require
the Counterparty to sell the option back to the Fund at a formula
price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although
it is not required to do so.
Unless the parties provide for it, there is no central
clearing or guaranty function in an OTC option. As a result, if
the Counterparty fails to make or take delivery of the security,
currency or other instrument underlying an OTC option it has
entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Advisor
must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to
determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only
with United States government securities dealers recognized by
the Federal Reserve Bank of New York as "primary dealers," or
broker dealers, domestic or foreign banks or other financial
institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of
A-1 from S&P or P-1 from Moody's or an equivalent rating from any
other nationally recognized statistical rating organization
("NRSRO"). The staff of the SEC currently takes the position
that OTC options purchased by a fund, and portfolio securities
"covering" the amount of a fund's obligation pursuant to an OTC
option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to a
fund's limitation on investing no more than 10% of its assets in
illiquid securities.
If the Fund sells a call option, the premium that it
receives may serve as a partial hedge, to the extent of the
option premium, against a decrease in the value of the underlying
securities or instruments in its portfolio or will increase the
Fund's income. The sale of put options can also provide income.
The Funds may purchase and sell call options on securities,
including U.S. Treasury and agency securities, mortgage-backed
securities, corporate debt securities, and Eurocurrency
instruments (see "Eurocurrency Instruments" below for a
description of such instruments) that are traded in U.S. and
foreign securities exchanges and in the over-the-counter markets,
and futures contracts. The International Funds may purchase
and sell call options on currencies. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or
futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund
exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to
hold a security or instrument which it might otherwise have sold.
The Funds may purchase and sell put options on securities
including U.S. Treasury and agency securities, mortgage-backed
securities, foreign sovereign debt, corporate debt securities,
convertible securities, and Eurocurrency instruments (whether or
not it holds the above securities in its portfolio), and futures
contracts (except for the Bond Fund and E. European Debt Fund,
not futures contracts on individual corporate debt securities.)
The International Funds may purchase and sell put options on
currencies. The Fund will not sell put options if, as a result,
more than 50% of the Fund's assets would be required to be
segregated to cover its potential obligations under such put
options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund
may be required to buy the underlying security at a
disadvantageous price above the market price. For tax purposes,
the purchase of a put is treated as a short sale which may cut
off the holding period for the security so it is treated as
generating gain on securities held less than three months or
short term capital gain (instead of long term) as the case may
be.
Options on Securities Indices and Other Financial Indices.
Each of the Funds may also purchase and sell call and put options
on securities indices and other financial indices and in so doing
can achieve many of the same objectives it would achieve through
the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial
indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement, i.e., an
option on an index gives the holder the right to receive, upon
exercise of the option an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of
a call or is less than, in the case of a put, the exercise price
of the option (except if, in the case of an OTC option physical
delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium
received, to make delivery of this amount. The gain or loss on
an option on an index depends on price movements in the
instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather
than price movements in individual securities, as is the case
with respect to options on securities.
Futures. Each of the International Funds may enter into
financial futures contracts or purchases or sell put and call
options on such futures as a hedge against anticipated interest
rate or currency market changes and for risk management purposes,
and for the Bond and E. European Debt Funds, for duration
management. The use of futures for hedging is intended to
protect the International Fund from (i) the risk that the value
of its portfolio of investments in a foreign market may decline
before it can liquidate its interest, or (ii) the risk that a
foreign market in which it proposes to invest may have
significant increases in value before it can cause its cash to be
invested in that market. In the first instance, the
International Fund will sell a future based upon a broad market
index which it is believed will move in a manner comparable to
the overall value of securities in that market. In the second
instance, the International Fund will purchase the appropriate
index as an "anticipatory" hedge until it can otherwise acquire
suitable direct investments in that market. As with the hedging
of foreign currencies, the precise matching of financial futures
on foreign indices and the value of the cash or portfolio
securities being hedged may not have a perfect correlation. The
projection of future market movement and the movement of
appropriate indices is difficult, and the successful execution of
this short-term hedging strategy is uncertain.
General Characteristics of Futures. Regulatory policies
governing the use of such hedging techniques require the
International Fund to provide for the deposit of initial margin
and the segregation of suitable assets to meet its obligation
under futures contracts. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of
a futures contract creates a firm obligation by the
International Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect
to index futures and Eurocurrency instruments, the net cash
amount). Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to
deliver such position.
The International Fund's use of financial futures and
options thereon will in all cases be consistent with applicable
regulatory requirements and in particular the rules and
regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management
(including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling
an option thereon requires the International Fund to deposit
with a financial intermediary as security for its obligations an
amount of cash or other specified assets (initial margin) which
initially is typically 1% to 10% of the face amount of the
contract (but may be higher in some circumstances). Additional
cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial
futures involves payment of a premium for the option without any
further obligation on the part of the International Fund. If
the International Fund exercises an option on a futures
contract it will be obligated to post initial margin (and
potential subsequent variation margin) for the resulting futures
position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantage price,
nor that delivery will occur.
The International Fund will not enter into a futures
contract or related option (except for closing transactions) if
immediately thereafter, the sum of the amount of its initial
margin and premiums on open futures contracts and options thereon
would exceed 5% of the International Fund's total assets (taken
at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount
may be excluded calculating the 5% limitation. The segregation
requirements with respect to futures contracts and options
thereon are described below.
Currency Transactions. Each of the International Funds may
engage in currency transactions with Counterparties in order to
hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with
delivery generally required) a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually
large, commercial banks) and their customers. A forward foreign
currency contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. A currency swap
is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to
an interest rate swap, which is described below. The
International Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the
obligations of which have received) a credit rating of A-1 or P-1
by S&P or Moody's, respectively, or that have an equivalent
rating from a NRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the Advisor.
The International Fund's dealings in forward currency
contracts and other currency transactions such as futures,
options on futures, options on currencies and swaps will be
limited to hedging involving either specific transactions
("Transaction Hedging") or portfolio positions ("Position
Hedging"). Transaction Hedging is entering into a currency
transaction with respect to specific assets or liabilities of the
International Fund, which will generally arise in connection with
the purchase or sale of its portfolio securities or the receipt
of income therefrom. The International Fund may enter into
Transaction Hedging out of a desire to preserve the United States
dollar price of a security when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency.
The International Fund will be able to protect itself against
possible losses resulting from changes in the relationship
between the United States dollar and foreign currencies during
the period between the date the security is purchased or sold and
the date on which payment is made or received by entering into a
forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of the foreign currency involved in the
underlying security transactions.
Position Hedging is entering into a currency transaction
with respect to portfolio security positions denominated or
generally quoted in that currency. The International Fund may
use Position Hedging when the Advisor believes that the currency
of a particular foreign country may suffer a substantial decline
against the United States dollar, the International Fund may
enter into a forward foreign currency contract to sell, for a
fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of its portfolio
securities denominated in such foreign currency. The precise
matching of the forward foreign currency contract amount and the
value of the portfolio securities involved may not have a perfect
correlation since the future value of the securities hedged will
change as a consequence of market movements between the date the
forward contract is entered into and the date it matures. The
projection of short-term currency market movement is difficult,
and the successful execution of this short-term hedging strategy
is uncertain.
The International Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all
transactions intended wholly or partially to offset other
transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its
portfolio that are denominated or generally quoted in or
currently convertible into such currency, other than with respect
to proxy hedging as described below.
The International Fund may also cross-hedge currencies by
entering into transactions to purchase or sell one or more
currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund
expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value
of existing or anticipated holdings of portfolio securities, the
International Fund may also engage in proxy hedging. Proxy
hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against
the dollar. Proxy hedging entails entering into a forward
contract to sell a currency whose changes in value are generally
considered to be linked to a currency or currencies in which some
or all of the fund's portfolio securities are or are expected to
be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the International Fund's
securities denominated in linked currencies. For example, if the
Advisor considers that the Austrian schilling is linked to the
German deutschemark (the "D-mark"), the Fund holds securities
denominated in schillings and the Advisor believes that the value
of schillings will decline against the U.S. dollar, the Advisor
may enter into a contract to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments.
Currency transactions can result in losses to a Fund if the
currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Furthermore, there is the
risk that the perceived linkage between various currencies may
not be present or may not be present during the particular time
that a Fund is engaging in proxy hedging. If a Fund enters into
a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below. Cross currency
hedges may not be considered "directly related" to the
International Fund's principal business of investing in stock or
securities (or options and futures thereon), resulting in gains
therefrom not qualifying under the less than 30% of gross income"
test of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
Risks of Currency Transactions. Currency transactions are
subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments
can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by
governments. These can result in losses to an International Fund
if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency
exposure as well as incurring transaction costs. Buyers and
sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to
establish and close out positions on such options is subject to
the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on
factors extrinsic to that country's economy. Although forward
foreign currency contracts and currency futures tend to minimize
the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Combined Transactions. The Funds may enter into multiple
transactions, including multiple options transactions, multiple
futures transactions, multiple currency transactions (including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency
and interest rate transactions ("component" transactions),
instead of a single Strategic Transaction, as part of a single or
combined strategy when, in the opinion of the Advisor, it is in
the best interests of a Fund to do so. A combined transaction
will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are
normally entered into based on the Advisor's judgment that the
combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Eurocurrency Instruments. The International Funds may make
investments in Eurocurrency instruments. Eurocurrency
instruments are futures contracts or options thereon which are
linked to the London Interbank Offered Rate ("LIBOR") or to the
interbank rates offered in other financial centers. Eurocurrency
futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for
borrowings. The International Fund might use Eurocurrency
futures contracts and options thereon to hedge against changes in
LIBOR and other interbank rates, to which many interest rate
swaps and fixed income instruments are linked.
Use of Segregated and Other Special Accounts. Many
transactions, in addition to other requirements, require that a
Fund segregate liquid high grade assets with its custodian to
the extent Fund obligations are not otherwise "covered" through
the ownership of the underlying security, financial instruments
or currency. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must
be covered at all times by the securities, instruments or
currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be
sold or transferred unless equivalent assets are substituted in
their place or it is no longer necessary to segregate them. For
example, a call option written by a Fund will require the Fund to
hold the securities subject to the call (or securities
convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities
sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require
the Fund to own portfolio securities which correlate with the
index or segregate liquid high grade assets equal to the excess
of the index value over the exercise price on a current basis. A
put option written by a Fund requires the Fund to segregate
liquid, high grade assets equal to the exercise price.
A currency contract which obligates an International Fund to
buy or sell currency will generally require the Fund to hold an
amount of that currency or liquid securities denominated in that
currency equal to the Fund's obligations or to segregate liquid
high grade assets equal to the amount of the Fund's obligation.
OTC options entered into by a Fund, including those on
securities, currency, financial instruments or indices and OCC
issued and exchange listed index options, will generally provide
for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case
of a non cash-settled put, the same as an OCC guaranteed listed
option sold by the Fund, or in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or
call. In addition, when the Fund sells a call option on an index
at a time when the in-the-money amount exceeds the exercise
price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund
other than those generally settle with physical delivery, and the
Fund will segregate an amount of liquid assets equal to the full
value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the
Fund must deposit initial margin and possible daily variation
margin in addition to segregating liquid assets sufficient to
meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash,
cash equivalents, liquid debt securities or other liquid
assets.
With respect to swaps, the Fund will accrue the net amount
of the excess, if any, of its obligations over its entitlements
with respect to each swap on a daily basis and will segregate an
amount of cash or liquid high grade securities having a value
equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic Transactions may be covered by other means when
consistent with applicable regulatory policies. An International
Fund may also enter into offsetting transactions so that its
combined position, coupled with any segregated assets, equals its
net outstanding obligation in related options and Strategic
Transactions. For example, the International Fund could purchase
a put option if the strike price of that option is the same or
higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if the International Fund
held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held.
Other Strategic Transactions may also be offered in combinations.
If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it
terminates prior to such time, liquid assets equal to any
remaining obligation would need to be segregated.
An International Fund's activities involving Strategic
Transactions may be limited by the requirements of Subchapter M
of the Code for qualification as a regulated investment company.
(See "Taxes.")
U.S. Government Securities. The term "U.S. Government
securities" refers to a variety of securities which are issued or
guaranteed by the United States Treasury, by various agencies of
the United States Government, and by various instrumentalities
which have been established or sponsored by the United States
Government. U.S. Treasury securities are backed by the "full
faith and credit" of the United States. Securities issued or
guaranteed by Federal agencies and the U.S. Government sponsored
instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment,
and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet
its commitment. An instrumentality of the U.S. Government is a
government agency organized under Federal charter with government
supervision.
Repurchase Agreements. Each of the Funds may enter into
repurchase agreements with member banks of the Federal Reserve
System, any foreign bank or with any domestic or foreign
broker/dealer which is a reporting government securities dealer
or its equivalent which may be a foreign bank whose
creditworthiness is equal to the standards set for the Fund's
direct investment in debt obligations, if the creditworthiness of
the bank or broker/dealer has been determined by the Advisor to
be at least as high as that of other obligations the Fund may
purchase.
A repurchase agreement provides a means for a Fund to earn
income on funds for periods as short as overnight. It is an
arrangement under which the purchaser (i.e., a Fund) acquires a
debt security ("Obligation") and the seller agrees, at the time
of sale, to repurchase the Obligation at a specified time and
price. Securities subject to a repurchase agreement are held in
a segregated account and the value of such securities is kept at
least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a
fund together with the repurchase price on repurchase. In either
case, the income to a Fund is unrelated to the interest rate on
the Obligation itself. Obligations will be physically held by
the Fund's custodian or in the Federal Reserve Book Entry system.
Repurchase agreements are considered securities issued by the
seller for purposes of the diversification test under Subchapter
M of the Code, and not cash, a cash item or a U.S. Government
security.
For purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"), a repurchase agreement is deemed to be
a loan from a Fund to the seller of the Obligation subject to the
repurchase agreement and is therefore subject to that Fund's
investment restrictions applicable to loans. It is not clear
whether a court would consider the Obligation purchased by a Fund
subject to a repurchase agreement as being owned by the Fund or
as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, a Fund may encounter
delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan
and a Fund has not perfected a security interest in the
Obligation, the Fund may be required to return the Obligation to
the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from
the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will
equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities. A
repurchase agreement with foreign banks may be available with
respect to government securities of the particular foreign
jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.
It is the practice of each Fund to enter into repurchase
agreements with selected banks and securities dealers, depending
upon the availability of securities, for periods as
short as overnight. Securities subject to a repurchase agreement
are held by the purchaser, and the seller holds, and may invest,
the price received for the security. The repurchase price may be
higher than the purchase price, the difference being an expense
to the Fund, or the purchase and repurchase prices may be the
same, with interest at a stated rate payable by the Fund together
with the repurchase price on repurchase. In either case, the
income paid by the Fund is unrelated to the interest rate on the
Obligation itself. When the Fund is subject to repurchase an
Obligation under a reverse repurchase agreement, it will
segregate with its custodian cash, U.S. government securities,
or other high quality debt instruments equal in value to the
amount payable by it under the agreement.
The risk to the Bond Fund and E. European Debt Fund is
that if the buyer does not resell the Obligations to the Fund,
the Fund may encounter expense or delay in applying the cash held
by it to acquire replacement securities. If the market price of
the securities to be acquired rises, the Fund may have to bear an
additional cost when making such a purchase. If the buyer is in
bankruptcy, the Fund may face claims of the Trustee seeking the
assets held by the Fund.
Special Investment Considerations of the Funds
Each of the International Funds, is intended to provide
individual and institutional investors with an opportunity to
invest a portion of their assets in a globally and/or
internationally oriented portfolio, according to the
International Fund's objective and policies, and is designed for
long-term investors who can accept international investment risk.
The Advisor believes that allocation of assets on a global or
international basis decreases the degree to which events in any
one country, including the United States, will affect an
investor's entire investment holdings. In the period since World
War II, many leading foreign economies have grown more rapidly
than the United States economy, thus providing investment
opportunities, although there can be no assurance that this will
be true in the future. As with any long-term investment, the
value of the International Fund's shares when sold may be higher
or lower than when purchased.
Investors should recognize that investing in foreign
securities involves certain special considerations, including
those set forth below, which are not typically associated with
investing in United States securities and which may favorably or
unfavorably affect the performance of each of the International
Funds. As foreign companies are not generally subject to the
same uniform standards, practices and requirements, with respect
to accounting, auditing and financial reporting, as are domestic
companies, there may be less publicly available information about
a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity,
have substantially less volume in the U.S. market, and securities
of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity
in most foreign bond markets is less than in the United States
and, at times, volatility of price can be greater than in the
United States. Furthermore, foreign markets have different
clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace
with the volume of securities transactions making it difficult to
conduct such transactions. Delays in settlement could result in
temporary periods when assets of a fund are uninvested and no
return is earned thereon. The inability of an International Fund
to make intended security purchases due to settlement problems
could cause a fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement
problems either could result in losses to an International Fund
due to subsequent declines in value of the portfolio security or,
if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser. Fixed
commissions on some foreign securities exchanges and bid to asked
spreads in foreign bond markets are generally higher than
negotiated commissions on U.S. exchanges and bid to asked spreads
in the U.S. bond market, although the International Fund will
endeavor to achieve the most favorable net results on its
portfolio transactions. Furthermore, an International Fund may
encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. There is generally less
government supervision and regulation of business and industry
practices, securities exchanges, brokers and listed companies
than in the United States. Communications between the United
States and foreign countries may be less reliable than within the
United States, thus increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States
investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the United
States economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The
International Funds' Advisor seeks to mitigate the risks
associated with the foregoing considerations through continuous
professional management.
Investments in foreign securities usually will involve
currencies of foreign countries. Because of the considerations
discussed above, the value of the assets of each of the
International Funds, as measured in U.S. dollars, may be affected
favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies.
Although the International Fund values its assets daily in terms
of U.S. dollars, it does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. It will
do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a fund at one
rate, while offering a lesser rate of exchange should the
International Fund desire to resell that currency to the dealer.
Each of the International Funds will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or
through entering into the forward or futures contracts (or option
thereon) to purchase or sell foreign currencies. Each of the
International Funds may, for hedging purposes, purchase foreign
currencies in the form of bank deposits.
Because each International Fund may be invested in both U.S.
and foreign securities markets, changes in its share price may
have a low correlation with movements in the U.S. markets. The
International Fund's share price will reflect the movements of
the bond markets in which it is invested and of the currencies in
which the investments are denominated; the strength or weakness
of the U.S. dollar against foreign currencies may account for
part of the Fund's investment performance. Foreign securities
such as those purchased by an International Fund may be subject
to foreign government taxes which could reduce the yield on such
securities, although a shareholder of the Fund may, subject to
certain limitations, be entitled to claim a credit or deduction
for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Fund (see "Taxes"). U.S.
and foreign securities markets do not always move in step with
each other and the total returns from different markets may vary
significantly. Each of the International Funds intends to invest
in many securities markets around the world in an attempt to take
advantage of opportunities wherever they may arise.
Investment Restrictions
The policies set forth below that are identified as
fundamental policies of a Fund, along with the investment
objective of such Fund, may not be changed without approval of a
majority of the outstanding voting securities of such Fund. As
used in this Statement of Additional Information a "majority of
the outstanding voting securities of a Fund" means the lesser of
(1) 67% or more of the voting securities present at such meeting,
if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or
(2) more than 50% of the outstanding voting securities of the
Fund.
As a matter of fundamental policy, the Value Fund,
International Equity Fund and E. European Equity Fund will not:
1. Invest in companies for the purpose of exercising control;
2. Invest in securities of other investment companies except by
purchase in the open market involving only customary
broker's commissions, or as part of a merger,
consolidation, or acquisition of assets;
3. Purchase or sell commodities or commodity contracts;
provided that each of the International Equity and E.
European Equity Funds may utilize not more than 1% of its
assets for deposits or commissions required to enter into,
for the International Equity Fund, forward foreign currency
contracts, and for the E. European Equity Fund, financial
futures contracts, for hedging purposes as described under
"The Funds' Investments and Policies" and "Additional
Information on Policies and Investments - Strategic
Transactions" in the Prospectus;
4. Invest in interests in oil, gas, or other mineral
explorations or development programs;
5. Purchase securities on margin, except that it may utilize
such short-term credits as may be necessary for clearance
of purchases or sales of securities;
6. Issue senior securities;
7. Act as an underwriter of securities of other issuers, except
that each of the International Equity and E. European Equity
Funds may invest up to 10% of the value of its total assets
(at time of investment) in portfolio securities which the
Fund might not be free to sell to the public without
registration of such securities under the Securities Act of
1933, as amended, or any foreign law restricting
distribution of securities in a country of a foreign issuer;
8. Concentrate its investments in any industry;
9. Participate on a joint or a joint and several basis in any
securities trading account;
10. Engage in short sales;
11. Purchase or sell real estate, provided that liquid
securities of companies which deal in real estate or
interests therein will not be deemed to be investment in
real estate;
12. Except for the Value Fund, as to 75% of its assets, purchase
the securities of any issuer (other than obligations issued
or guaranteed as to principal and interest by the Government
of the United States or any agency or instrumentality
thereof) if, as a result of such purchase, more than 5% of
its total assets would be invested in the securities of such
issuer;
13. Except for the Value Fund, purchase stock or securities of an
issuer (other than the obligations of the United States or
any agency or instrumentality thereof) if such purchase would
cause the
Fund to own more than 10% of any class of the outstanding
voting securities of such issuer or more than 10% of any class
of the outstanding stock or securities of such issuer;
14. Except as specified below for the Value Fund, borrow money
except for temporary or emergency purposes and then only in
an amount not in excess of 5% of the lower of value or cost
of its total assets, in which case the Fund may pledge,
mortgage or hypothecate any of its assets as security for
such borrowing but not to an extent greater than 5% of its
total assets. Notwithstanding the foregoing, the Value Fund
may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, or except in connection
with reverse repurchase agreements; provided that (i) the
Fund maintains asset coverage of 300% in connection with the
issuance of senior securities; (ii) to avoid the untimely
disposition of assets to meet redemptions, the Fund may
borrow up to 20% of the value of its assets to meet
redemptions; and (iii) the Fund may not make other
investments while such borrowings are outstanding; or
15. Make loans, except that it may (1) lend portfolio
securities; and (2) enter into repurchase agreements secured
by the U.S. Government or Agency securities.
As a matter of fundamental policy, the Emerging Markets
Fund, Bond Fund and E. European Debt Fund will not:
1. Borrow money, except as a temporary measure for
extraordinary or emergency purposes; or except in connection
with reverse repurchase agreements, provided that the Fund
maintains asset coverage of 300% in connection with issuance
of senior securities. However, to avoid the untimely
disposition of assets to meet redemptions the Fund may
borrow up to 20% of the value of its assets to meet
redemptions. The Fund may not make other investments while
such borrowings are outstanding;
2. Purchase or sell real estate (except that the Fund may
invest in (i) securities of companies which deal in real
estate or mortgages, and (ii) securities secured by real
estate or interest therein, and that the Fund reserves
freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities);
3. Purchase or sell physical commodities or contracts relating
to physical commodities;
4. Act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of
the Fund;
5. Make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objective and investment policies may be
deemed to be loans;
6. Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Company;
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, option or
other permitted investments, including deposits of initial
and variation margin, are not considered to be the issuance
of senior securities for purposes of this restriction; or
7. Purchase any securities which would cause more than 25% of
the market value of its total assets at the time of such
purchase to be invested in the securities of one or more
issuers having their principal business activities in the
same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and
for the Bond Fund and E. European Debt Fund, for the purpose
of
this restriction: telephone companies are considered to be in
a separate
industry from gas and electric public utilities, and wholly
owned finance companies are considered to be in the industry
of their parents if their activities are primarily related
to financing the activities of their parents.
The Directors of the Company have voluntarily adopted
certain policies and restrictions which are observed in the
conduct of the Funds' affairs. These represent intentions of the
Directors based upon current circumstances. They differ from
fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice
to or approval of shareholders.
As a matter of non-fundamental policy, the Value Fund,
International Equity Fund and E. European Equity Fund may not:
1. Invest more than 15% of its net assets in illiquid
securities;
2. Purchase warrants if such purchase would exceed 5% of the
Fund's net assets, including, within that limitation, 2% of
the Fund's net assets of warrants not listed on the New York
or American Stock Exchanges. For the purpose of this
limitation, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value;
3. Engage in arbitrage transactions;
4. Purchase or sell options (puts or calls written by others)
unless the following conditions are met: (a) the value of
its investment in puts, calls, straddles, spreads or any
combination thereof is limited to 5% of the Fund's net
assets and the premiums paid therefore may not exceed 2% of
the Fund's net assets; and (b) options must be listed on a
national securities exchange or, for foreign securities, on
comparable exchanges in the country of issuance of the
underlying security;
5. For the Value Fund, write or purchase call or put options,
except for fully covered call options;
6. Purchase or retain the securities of any issuer if, to the
Fund's knowledge, those officers or directors of the Company
or of its managers or advisors who individually own
beneficially more than 0.5% of the outstanding securities of
such issuer, together own beneficially more than 5% of such
outstanding securities; or
7. For the Value Fund, pledge, mortgage, or hypothecate its
assets in excess of 1/3 of its total assets.
As a matter of non-fundamental policy, the Bond Fund may
not:
1. Purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases,
or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets; in any event the
Fund may not purchase more than 3% of the outstanding voting
securities of another investment company, may not invest
more than 5% of its assets in another investment company,
and may not invest more than 10% of its assets in other
investment companies;
2. Pledge, mortgage or hypothecate its assets in excess of 1/3 of
its total assets;
3. Purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or director of the Company or a member, officer, or
director of the Fund's Advisor if one or more of such
individuals owns beneficially more than one-half of one
percent (1/2%) of the outstanding shares or securities or
both (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2%)
of such shares or securities together own beneficially more
than 5% of such shares or securities or both;
4. Purchase securities on margin; or make short sales unless it
holds such securities or, by virtue of its ownership of
other securities it has the right to obtain securities
equivalent in kind and amount of the securities sold and, if
the right is conditional, the sale is made upon the same
conditions, except (i) in connection with arbitrage
transactions and, (ii) that the Fund may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities;
5. Invest more than 15% of its net assets in illiquid
securities;
6. Buy options on securities or financial instruments, unless
the aggregate premiums paid on all such options held by the
Fund at any time do not exceed 20% of its net assets; or
sell put options on securities if, as a result, the
aggregate value of the obligations underlying such put
options would exceed 50% of the Fund's net assets;
7. Enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures
contracts entered into on behalf of the Fund and the
premiums paid for options on futures contracts does not
exceed 5% of the Fund's total assets, provided that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in
computing the 5% limit;
8. Invest in oil, gas or other mineral leases, or exploration
or development programs (although it may invest in issuers
which own or invest in such interests);
9. Purchase or sell real estate limited partnership interests;
10. Purchase securities which are not bonds denominated in
foreign currency ("international bonds") if, immediately
after such purchase, less than 65% of its total assets would
be invested in international bonds, except that for
temporary defensive purposes the Fund may purchase
securities which are not international bonds without
limitation; or
11. Invest more than 5% of its net assets in the securities of
issuers in emerging countries.
As a matter of non-fundamental policy, the Emerging Markets
Fund and E. European Debt Fund may not:
1. Invest in securities of any other investment company except
by purchase in the open market involving only customary
broker's commissions, or except when such purchase is part
of a plan of merger, consolidation, reorganization or
acquisition of assets;
2. Pledge, mortgage or hypothecate its assets in excess of 1/3 of
its total assets;
3. Invest more than 15% of its net assets in illiquid
securities; or
4. Buy options on securities or financial instruments, unless
the aggregate premiums paid on all such options held by the
Fund at any time do not exceed 20% of its net assets; or
sell put options on securities if, as a result, the
aggregate value of the obligations underlying such put
options would exceed 50% of the Fund's net assets;
Restrictions with respect to repurchase agreements shall be
construed to be for repurchase agreements entered into for the
investment of available cash consistent with the Fund's
repurchase agreement procedures, not repurchase commitments
entered into for general investment purposes.
If a percentage restriction on investment or utilization of
assets as set forth under "Investment Restrictions" and "Other
Investment Policies" above is adhered to at the time an
investment is made, a later change in percentage resulting from
changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.
Taxes
Each of the Funds will seek to qualify as a regulated
investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code").
A regulated investment company qualifying under Subchapter M
of the Code is required to distribute to its shareholders at
least 90% of its investment company taxable income (including net
short-term capital gain) and generally is not subject to federal
income tax (assuming the Fund meets the 90% and 30% of gross
income tests and the tax diversification test of Subchapter M) to
the extent that it distributes annually its investment company
taxable income and net realized capital gains in the manner
required under the Code. The Fund intends to distribute at least
annually all of its investment company taxable income and net
realized capital gains and therefore generally does not expect to
pay federal income taxes.
Each Fund is subject to a 4% nondeductible excise tax on
amounts required to be but which are not distributed under a
prescribed formula. The formula requires payment to shareholders
during a calendar year of distributions representing at least 98%
of the Fund's investment company taxable income for the calendar
year, at least 98% of the excess of its capital gains over
capital losses (adjusted for certain ordinary losses prescribed
by the Code) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Investment company taxable income generally includes
dividends, interest, net short-term capital gains in excess of
net long-term capital losses, and net foreign currency gains, if
any, less expenses. Realized net capital gains for a fiscal year
are computed by taking into account any capital loss carryforward
of the Fund.
If any net realized long-term capital gains in excess of net
realized short-term capital losses are retained by the Fund for
reinvestment, requiring federal income taxes to be paid thereon
by the Fund, the Fund intends to elect to treat such capital
gains as having been distributed to shareholders. As a result,
each shareholder will report such capital gains as long-term
capital gains, will be able to claim his/her share of federal
income taxes paid by the Fund on such gains as a credit against
his/her own federal income tax liability, and will be entitled to
increase the adjusted tax basis of his/her Fund shares by the
difference between his/her pro rata share of such gains and
his/her tax credit.
Distributions of investment company taxable income are
taxable to shareholders as ordinary income.
Distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the
shares of the Fund have been held by such shareholders. Such
distributions are not eligible for a dividends-received deduction
for corporate investors. Any loss realized upon the redemption
of shares held at the time of redemption for six months or less
from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as
distributions of long-term capital gain during such six-month
period.
Distributions of investment company taxable income and net
realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have
a cost basis for federal income tax purposes in each share so
received equal to the net asset value of a share on the
reinvestment date.
All distributions of investment company taxable income and
realized net capital gain, whether received in shares or in cash,
must be reported by each shareholder on his or her federal income
tax return. Dividends and capital gains distributions declared
in October, November or December and payable to shareholders of
record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the
following year. Redemptions of shares, including exchanges for
shares of another Vontobel fund, may result in tax consequences
(gain or loss) to the shareholder and are also subject to
information reporting requirements.
An individual may make a deductible IRA contribution of up
to $2,000 or, if less, the amount of the individual's earned
income for any taxable year if (i) neither the individual nor his
or her spouse (unless filing separate returns) is an active
participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted
gross income below a certain level ($40,000 for married
individuals filing a joint return, with a phase-out of the
deduction for adjusted gross income between $40,000 and $50,000;
$25,000 for a single individual, with a phase-out for adjusted
gross income between $25,000 and $35,000). However, an individual
not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible
contributions up to $2,000, or 100% of taxable compensation if
less, to an IRA (up to $2,250 to IRAs for an individual and his
or her nonearning spouse, for years prior to 1997) for that year.
Starting in 1997, even a spouse who does not earn compensation
can contribute up to $2,000 per year to his or her own IRA. The
deductibility of such contributions will be determined under the
same rules as for contributions made by individuals with earned
income. There are special rules for determining how withdrawals
are to be taxed if an IRA contains both deductible and
nondeductible amounts. In general, a proportionate amount of
each withdrawal will be deemed to be made from nondeductible
contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions
may be made to a spousal IRA even if the spouse has earnings in a
given year if the spouse elects to be treated as having no
earnings (for IRA contribution purposes) for the year.
Distributions by each Fund result in a reduction in the net
asset value of such Fund's shares. Should a distribution reduce
the net asset value below a shareholder's cost basis, such
distribution would nevertheless be taxable to the shareholder as
ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should consider the tax
implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the
forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.
Each of the International Funds intends to qualify for and
may make the election permitted under Section 853 of the Code so
that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax returns for, and
may be required to treat as part of the amounts distributed to
them, their pro rata portion of qualified taxes paid by the Fund
to foreign countries (which taxes relate primarily to investment
income). The International Fund may make an election under
Section 853 of the Code, provided that more than 50% of the value
of the total assets of the Fund at the close of the taxable year
consists of securities in foreign corporations. The foreign tax
credit available to shareholders is subject to certain
limitations imposed by the Code.
If an International Fund invests in stock of certain foreign
investment companies, the Fund may be subject to U.S. federal
income taxation on a portion of any "excess distribution" with
respect to, or gain from the disposition of, such stock. The tax
would be determined by allocating such distribution or gain
ratably to each day of the International Fund's holding period
for the stock. The distribution or gain so allocated to any
taxable year of the International Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to
the Fund at the highest ordinary income rate in effect for such
year, and the tax would be further increased by an interest
charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of
the distribution or disposition would be included in the
International Fund's investment company taxable income and,
accordingly, would not be taxable to the Fund to the extent
distributed by the Fund as a dividend to its shareholders.
Each of the International Funds may be able to make an
election, in lieu of being taxable in the manner described above,
to include annually in income its pro rata share of the ordinary
earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from
the foreign company. These amounts would be included in the
International Fund's investment company taxable income and net
capital gain which, to the extent distributed by the Fund as
ordinary or capital gain dividends, as the case may be, would not
be taxable to the Fund. In order to make this election, the
International Fund would be required to obtain certain annual
information from the foreign investment companies in which it
invests, which in many cases may be difficult to obtain. The
International Fund may make an election with respect to those
foreign investment companies which provide the Fund with the
required information.
Many futures contracts (including foreign currency futures
contracts) entered into by a Fund, certain forward foreign
currency contracts, and all listed nonequity options written or
purchased by the Fund (including options on debt securities,
options on futures contracts, options on securities indices and
options on broad-based stock indices) will be governed by Section
1256 of the Code. Absent a tax election to the contrary, gain or
loss attributable to the lapse, exercise or closing out of any
such position generally will be treated as 60% long-term and 40%
short-term capital gain or loss, and on the last trading day of
the Fund's fiscal year, all outstanding Section 1256 positions
will be marked to market (i.e., treated as if such positions were
closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under certain circumstances,
entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a
substantially identical security in a Fund's portfolio. Under
Section 988 of the Code, discussed below, foreign currency gains
or losses from foreign currency related forward contracts,
certain futures and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income or loss.
Subchapter M requires that the Fund realize less than 30% of
its annual gross income from the sale or other disposition of
stock, securities and certain options, futures and forward
contracts held for less than three months. The Fund's options,
futures and forward transactions may increase the amount of gains
realized by the Fund that are subject to this 30% limitation.
Accordingly, the amount of such transactions that the Fund may
undertake may be limited.
Positions of a Fund which consist of at least one stock and
at least one stock option or other position with respect to a
related security which substantially diminishes a Fund's risk of
loss with respect to such stock could be treated as a "straddle"
which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term
capital losses into long-term capital losses. An exception to
these straddle rules exists for any "qualified covered call
options" on stock written by the Fund.
Positions of a Fund which consist of at least one position
not governed by Section 1256 and at least one futures contract or
forward contract or nonequity option governed by Section 1256
which substantially diminishes the Fund's risk of loss with
respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle
rules of Section 1092 of the Code, certain tax elections exist
for them which reduce or eliminate the operation of these rules.
The Fund will monitor its transactions in options and futures and
may make certain tax elections in connection with these
investments.
Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues
interest or other receivables, or accrues expenses or other
liabilities, denominated in a foreign currency and the time the
Fund actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated
in a foreign currency and on disposition of certain futures and
forward contracts, gains or losses attributable to fluctuations
in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition are also
treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its shareholders as ordinary
income.
A portion of the difference between the issue price of zero
coupon securities and their face value ("original issue
discount") is considered to be income to a Fund each year, even
though the Fund will not receive cash interest payments from
these securities. The original issue discount imputed income
will comprise a part of the Fund's investment company taxable
income which must be distributed to shareholders in order to
maintain the Fund's qualification as a regulated investment
company and to avoid federal income tax.
Each Fund will be required to report to the IRS all
distributions of investment company taxable income and capital
gains as well as gross proceeds from the redemption or exchange
of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section
3406 of the Code, distributions of investment company taxable
income and capital gains and proceeds from the redemption or
exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and
with required certifications regarding their status under the
federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer
identification number furnished by the shareholder is incorrect
or that the shareholder has previously failed to report interest
or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Amounts withheld are applied
against the shareholder's tax liability and a refund may be
obtained from the Internal Revenue Service, if withholding
results in overpayment of taxes. A shareholder should contact
the Fund or the Transfer Agent if the shareholder is uncertain
whether a proper Taxpayer Identification Number is on file with
the series.
Shareholders of each Fund may be subject to state and local
taxes on distributions received from the Fund and on redemptions
of the Fund's shares. Each investor should consult his or her
own tax adviser as to the applicability of these taxes.
In January of each year, the Company's Transfer Agent issues
to each shareholder a statement of the federal income tax status
of all distributions.
Non-U.S. Shareholders. The foregoing discussion of U.S.
federal income tax law relates solely to the application of that
law to U.S. persons, i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates. Each shareholder
who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of Fund shares. Each shareholder who
is not a U.S. person should also consider the U.S. estate tax
implications of holding Fund shares at death. The U.S. estate
tax may apply to such holdings if an investor dies while holding
shares of a Fund. Each investor should consult his or her own
tax adviser about the applicability of these taxes.
Distributions of net investment income to non-resident aliens and
foreign corporations that are not engaged in a trade or business
in the U.S. to which the distribution is effectively connected,
will be subject to a withholding tax imposed at the rate of 30%
upon the gross amount of the distribution in the absence of a Tax
Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized
by the Fund are not subject to tax unless the distribution is
effectively connected with the conduct of the shareholder's trade
or business within the United States, or the foreign shareholder
is a non-resident alien individual who was physically present in
the U.S. during the tax year for more than 182 days.
The foregoing is a general abbreviated summary of present
Federal income taxes on dividends and distributions.
Shareholders should consult their tax advisers about the
application of the provisions of the tax law described in this
Statement of Additional Information in light of their particular
tax situations and about any state and local taxes applicable to
dividends and distributions received.
Dividends and Distributions
As stated previously, it is the policy of each Fund to
distribute substantially all of its net investment income and net
realized capital gains, if any, shortly before the close of the
fiscal year (December 31st).
All dividend and capital gains distributions, if any, will
be reinvested in full and fractional shares based on net asset
value (without a sales charge) as determined on the ex-dividend
date for such distributions. Shareholders may, however, elect to
receive all such payments, or the dividend or distribution
portion thereof, in cash, by sending written notice to this
effect to the Transfer Agent. This written notice will be
effective as to any subsequent payment if received by the
Transfer Agent prior to the record date used for determining the
shareholders' entitlement to such payment. Such an election will
remain in effect unless or until the Transfer Agent is notified
by the shareholder in writing to the contrary.
Portfolio Transactions
It is the policy of the Advisor, in placing orders for the
purchase and sale of each Fund's securities, to seek to obtain
the best possible price and execution for its securities
transactions taking into account such factors as price,
commission, where applicable, (which is negotiable in the case of
U.S. national securities exchange transactions but which is
generally fixed in the case of foreign exchange transactions),
size of order, difficulty of execution and skill required of the
executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the Advisor then arranges for execution of
the transaction in a manner deemed to provide the best result for
the Fund.
Exchange-listed securities are generally traded on their
principal exchange unless another market offers a better result.
Securities traded only in the over-the-counter market may be
executed on a principal basis with primary market makers in such
securities except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis
or by dealing with other than a primary market maker.
While there is no formula, agreement or undertaking to do
so, and when it can be done consistently with the policy of
obtaining the most favorable net results, the Advisor may
allocate a portion of its brokerage commissions to persons or
firms providing the Advisor with investment recommendations,
statistical, research or similar services useful to the daily
operation of the Fund or other clients of these persons. The
term "investment recommendations, statistical, research or
similar services" means advice as to the value of securities, the
advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of
securities, and furnishing analysis and reports concerning
issuers, industries, securities, economic factors and trends, and
portfolio strategy. Such services are one of the many ways the
Advisor can keep abreast of the information generally circulated
among institutional investors by broker-dealers. While this
information is useful in varying degrees, its value is
indeterminable. Such services received on the basis of
transactions for a Fund may be used by the Advisor for the
benefit of other clients, and the Fund may benefit from such
transactions effected for the benefit of other clients. Subject
to obtaining best price and execution, a Fund may consider sales
of its shares as a factor in the selection of brokers to execute
portfolio transactions. The Advisor is not authorized, when
placing portfolio transactions for a Fund, to pay a brokerage
commission in excess of that which another broker might have
charged for executing the same transaction solely on account of
the receipt of research, market or statistical information. The
Advisor does not place orders with brokers or dealers on the
basis that the broker or dealer has or has not sold Fund shares.
Except for implementing the policy stated above, there is no
intention to place portfolio transactions with particular brokers
or dealers or groups thereof.
The Advisor has been instructed not to place transactions
with a broker-dealer with which it is affiliated unless that
broker-dealer, Vontobel Securities Ltd., stands ready to
demonstrate to the Company that each Fund will receive (1) a
price and execution no less favorable than that available from
unaffiliated persons, and (2) a price and execution equivalent to
that offered to unaffiliated persons by that broker-dealer, in
each case on transactions of a like size and nature. In this
regard, the Board of Directors of the Company has adopted
policies and procedures which govern such allocation of brokerage
transactions, and the Board reviews at its meetings details of
all transactions which have been placed pursuant to those
policies.
When two or more funds managed by the Advisor are
simultaneously engaged in the purchase or sale of the same
security, the transactions are allocated in a manner deemed
equitable to each fund. It is recognized that in some cases the
procedure could have a detrimental effect on the price or volume
of the security as far as a Fund is concerned. In other cases,
however, it is believed that the ability of such Fund to
participate in volume transactions will be beneficial for the
Fund. It is the opinion of the Board of Directors of the Company
that these advantages, when combined with the other benefits
available because of the Advisor's organization, outweigh the
disadvantages that may be said to exist from exposure to
simultaneous transactions.
The Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
Fund 1994 1995 1996
<S> <C> <C> <C>
Value Fund $155,168 $171,098 $198,787
International Equity Fund $329,824 $587,813
$1,185,252
Emerging Markets Fund N/A N/A N/A
E. European Equity Fund N/A N/A $344,275
Bond Fund 0 0 0
E. European Debt Fund N/A N/A N/A
</TABLE>
The Funds paid brokerage commissions to Vontobel Securities,
Ltd. (an affiliated broker-dealer) as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
Fund 1994 1995 1996
<S> <C> <C> <C>
Value Fund 0 0 0
International Equity Fund $7,818 0 0
Emerging Markets Fund N/A N/A N/A
E. European Equity Fund N/A N/A 0
Bond Fund 0 0 0
E. European Debt Fund N/A N/A N/A
</TABLE>
Average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the
portfolio securities owned during the year, excluding from both
the numerator and the denominator all securities with maturities
at the time of acquisition of one year or less. A higher rate
involves greater transaction expenses to a Fund and may result in
the realization of net capital gains, which would be taxable to
shareholders when distributed. Purchases and sales are made for
a Fund's portfolio whenever necessary, in the Advisor's opinion,
to meet the Fund's objective. The Advisor anticipates that the
average annual portfolio turnover rate of each of the Funds will
be less than 100%.
Valuation and Calculation of Net Asset Value
Each Fund's net asset value ("NAV") per share is calculated
daily from Monday through Friday on each business day on which
the New York Stock Exchange (the "NYSE") is open. The NYSE is
currently closed on weekends and on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day (day
observed), July 4th, Labor Day, Thanksgiving Day and Christmas
Day, and the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively. Each
Fund's NAV is calculated at the time set by the Board of
Directors based upon a determination of the most appropriate time
to price the Fund's securities.
The Board of Directors has determined that each Fund's NAV
be calculated as of the close of trading of the NYSE (currently
4:00 p.m., Eastern Time) on each business day from Monday to
Friday or on each day (other than a day during which no security
was tendered for redemption and no order to purchase or sell such
security was received by the Fund) in which there is a sufficient
degree of trading in the Fund's portfolio securities that the
current NAV of the Fund's shares might be materially affected by
changes in the value of such portfolio security.
NAV per share is determined by dividing the total value of a
Fund's securities and other assets, less liabilities (including
proper accruals of taxes and other expenses), by the total number
of shares then outstanding, and rounding the result to the nearer
cent.
Each Fund may compute its NAV per share more frequently if
necessary to protect shareholders' interests.
Generally, securities owned by each Fund are valued at
market value. In valuing a Fund's assets, portfolio securities,
including ADRs and EDRs, which are traded on the NYSE, will be
valued at the last sale price prior to the close of regular
trading on the NYSE. Lacking any sales, the security will be
valued at the last bid price prior to the close of regular
trading on the NYSE. ADRs and EDRs for which such a value cannot
be readily determined on any day will be valued at the closing
price of the underlying security adjusted for the exchange rate.
In cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated in
accordance with procedures approved by the Board of Directors of
the Company as the primary market.
Unlisted securities which are quoted on the NASD's National
Market System, for which there have been sales of such
securities, shall be valued at the last sale price reported on
such system. If there are no such sales, the value shall be the
high or "inside" bid, which is the bid supplied by the NASD on
its NASDAQ Screen for such securities in the over-the-counter
market. The value of such securities quoted on the NASDAQ
System, but not listed on the NASD's National Market System,
shall be valued at the high or "inside" bid. Unlisted securities
which are not quoted on the NASDAQ System and for which the
over-the-counter market quotations are readily available will be
valued at the last reported bid price for such securities in the
over-the-counter market. Other unlisted securities (and listed
securities subject to restriction on sale) will be valued at
their fair value as determined in good faith by the Board of
Directors. Open futures contracts are valued at the most recent
settlement price, unless such price does not reflect the fair
value of the contract, in which case such positions will be
valued by or under the direction of the Board of Directors.
The value of a security traded or dealt in upon an exchange
may be valued at what the Company's pricing agent determines is
fair market value on the basis of all available information,
including the last determined value, if the pricing agent
determines that the last bid does not represent the value of the
security, or if such information is not available. For example,
the pricing agent may determine that the price of a security
listed on a foreign stock exchange that was fixed by reason of a
limit on the daily price change does not represent the fair
market value of the security. Similarly, the value of a security
not traded or dealt in upon an exchange may be valued at what the
pricing agent determines is fair market value if the pricing
agent determines that the last sale, inside bid does not
represent the value of the security, provided that such amount is
not higher than the current bid price.
Notwithstanding the foregoing, money market investments with
a remaining maturity of less than sixty days shall be valued by
the amortized cost method; debt securities are valued by
appraising them at prices supplied by a pricing agent approved by
the Company, which prices may reflect broker-dealer supplied
valuations and electronic data processing techniques and are
representative of market values at the close of the NYSE; options
on securities, futures contracts and options on futures listed or
admitted to trading on a national exchange shall be valued at
their last sale on such exchange prior to the time of determining
NAV; or if no sales are reported on such exchange on that day, at
the mean between the most recent bid and asked price; and forward
contracts shall be valued at their last sale as reported by the
Company's pricing service, or lacking a report by the service, at
the value of the underlying currencies at the prevailing currency
rates.
U.S. Treasury bills, and other short-term obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted
bid and asked prices for such securities or, if such prices are
not available, are valued at the mean of representative quoted
bid and asked prices for securities of comparable maturity,
quality and type. Short-term securities, with 60 days or less to
maturity, are amortized to maturity based on their cost if
acquired within 60 days of maturity or, if already held, on the
60th day, based on the value determined on the 61st day.
The value of a security which is subject to legal or
contractual delays in or restrictions on resale by a Fund shall
be taken to be the fair value thereof as determined in accordance
with procedures established by the Company's Board, on the basis
of such relevant factors as the following: the cost of such
security to the Fund, the market price of unrestricted securities
of the same class at the time of purchase and subsequent changes
in such market price, potential expiration or release of the
restrictions affecting such security, the existence of any
registration rights, the fact that the Fund may have to bear part
or all of the expense of registering such security, and any
potential sale of such security to another investor. The value
of other property owned by a Fund shall be determined in a manner
which, in the discretion of the pricing agent of the Fund, most
fairly reflects fair market value of the property on such date.
Following the calculation of security values in terms of
currency in which the market quotation used is expressed ("local
currency"), the pricing agent shall, prior to the next
determination of the NAV of a Fund's shares, calculate these
values in terms of United States dollars on the basis of the
conversion of the local currencies (if other than U.S.) into
United States dollars at the rates of exchange prevailing at the
value time as determined by the pricing agent.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business on each business day in New York
(i.e., a day on which the NYSE is open). In addition, European
or Far Eastern securities trading generally or in a particular
country or countries may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days which
are not business days in New York and on which a Fund's NAV is
not calculated. Each Fund calculates NAV per share, and
therefore, effects sales, redemptions and repurchases of its
shares, as of the close of the NYSE once on each day on which the
NYSE is open. Such calculation may not take place
contemporaneously with the determination of the prices of
portfolio securities used in such calculations. If events
materially affecting the value of a portfolio security occur
between the time when its price is determined and the time when a
Fund's NAV is calculated, such a security will be valued at fair
value as determined in good faith by the Board of Directors.
Any purchase order mayenue, New York, NY 10022
First Vice President and Chief Investment Officer of
Vontobel USA Inc., a registered investment advisor, since
1988. From 1984 to 1988 Mr. Walczak was an institutional
portfolio manager at Lazard Freres Asset Management, New
York.
*Sven Rump (6/2/58)
Vice President of the Company and President of the Vontobel
International Bond
Fund
450 Park Avenue, New York, NY 10022
Vice President of Vontobel USA Inc. since 1993. Mr. Rump is
currently (since October 1991) a Vice President of Vontobel
Asset Management, Switzerland, where he is head of fixed
income investments. From October 1990 to October 1991 Mr.
Rump was a Vice President of Bank Vontobel (Switzerland) and
a fixed income specialist for the private banking group.
From September 1988 to October 1990 Mr. Rump was an
Associate with J.P. Morgan Securities (Switzerland) Ltd. in
the Fixed Income Department. Mr. Rump is a Chartered
Financial Analyst.
*Fabrizio Pierallini (8/14/59)
Vice President of the Company, President of the Vontobel
International Equity
Fund and President of the Vontobel Emerging Markets Equity
Fund
450 Park Avenue, New York, NY 10022
Vice President and Portfolio Manager (International
Equities), Vontobel USA Inc. since April 1994. From 1991 to
1994 Mr. Pierallini was Associate-Director/Portfolio Manager
with Swiss Bank Corporation in New York; from 1988 to 1991
he was a Vice-President/Portfolio Manager with SBC Portfolio
Management Ltd. in Zurich, Switzerland; and from 1986 to
1988 he was an Associate/Institutional Consultant with Bank
Julius Baer in Zurich, Switzerland.
*Arpad Pongracz (12/8/58)
Vice President of the Company and President of the Vontobel
Eastern European Equity Fund
450 Park Avenue, New York, NY 10022
Vice President of Vontobel USA Inc. since January 1966. Mr.
Pongracz joined Vontobel Asset Management, Switzerland, in
1990 as an equity analyst. He was subsequently appointed
portfolio manager for all European equity institutional
accounts and mutual funds. Since 1995 he has been head of
Vontobel Asset Management's international equities team.
Prior to joining the Vontobel group, he worked at Union Bank
of Switzerland in Canada and in Switzerland as an equity
analyst. Mr. Pongracz is a Chartered Financial Analyst.
*Volker Wehrle (3/29/58)
Vice President of the Company and President of the Vontobel
Eastern European Debt Fund
450 Park Avenue, New York, NY 10022
Vice President of Vontobel USA Inc. since May 1997. Mr.
Wehrle is currently (since October 1994) a Vice President of
Vontobel Asset Management, Switzerland, where he is deputy
head of fixed income investments. From January 1989 to
September 1994 he managed fixed income investments for the
Group Treasury Department of Sandoz AG in Basel,
Switzerland. From January 1993 to August 1993 he was
responsible for setting up the Sandoz Investment Trust in
London. From October 1986 to December 1988 Mr. Wehrle
worked as a European equity analyst at Dresdner Bank in
Frankfurt, Germany.
*F. Byron Parker, Jr. (1/26/43)
Secretary
810 Lindsay Court, Richmond, VA 23229
Secretary of Commonwealth Shareholder Services, Inc. since
1986. Partner in the law firm Mustian & Parker.
* Persons deemed to be "interested" persons of the Company,
Vontobel USA Inc. or First Dominion Capital Corp. under the 1940
Act.
The Directors of the Company received compensation from the
Company for the fiscal year ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
Compensation Table
(1) (2) (3) (4) (5)
Total
Pension or Compensation
Retirement Estimated From Registrant
Aggregate Benefits Accrued Annual and Fund
Name of Person, Compensation As Part of Fund Benefits Upon Complex Paid
Position From Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>
John Pasco, III
Director $0 N/A N/A N/A
Henry Schlegel
Director $0 N/A N/A N/A
Samuel
Boyd, Jr.
Director $8,000 N/A N/A $8,000
William E.
Poist
Director $8,000 N/A N/A $8,000
Paul M.
Dickinson
Director $8,000 N/A N/A $8,000
</TABLE>
The directors and officers of the Company, as a group, do
not own 1% or more of any of the Funds.
To the best knowledge of the Company, as of May 16, 1997, the
following persons own of record or beneficially 5% or more of the
shares of a Fund, and own such shares in the amounts indicated:
For the Value Fund, (1) Charles Schwab Reinvestment (25.12%);
(2) Bank J. Vontobel and its affiliates for the benefit of its
customers (19.65%); (3) National Financial Services (8.43%); and
(4) Vontobel #V501-504 (6.15%).
For the International Equity Fund, (1) Bank J. Vontobel and
its affiliates for the benefit of its customers (38.02%); (2) Peoples
Two Ten Co. (11.75%); and (3) Charles Schwab Reinvestment (10.84%).
For the E. European Equity Fund, (1) Charles Schwab
Reinvestment (36.26%); and (2) Bank J. Vontobel and its affiliates
for the benefit of its customers (8.69%).
For the Bond Fund, (1) Bank J. Vontobel and its affiliates for
the benefit of its customers (36.85%); (2) First Foundation (16.67%);
(3) Charles Schwab Reinvestment (8.60%); and Vontobel #V201-002 (5.58%).
Investment Advisor
Vontobel USA Inc. (the "Advisor") manages the investment of
the assets of the Funds pursuant to Investment Advisory
Agreements (each, an "Advisory Agreement"). The Advisory
Agreements of the Emerging Markets and E. European Debt Funds are
effective for a period of two years from July __, 1997 and the
Advisory Agreement of the E. European Equity Fund is effective
for a period of two years from February 14, 1996, and such
Advisory Agreements may be renewed thereafter, and the Advisory
Agreement of each of the other Funds may be renewed, only so long
as such renewal and continuance is specifically approved at least
annually by the Company's Board of Directors or by vote of a
majority of the outstanding voting securities of the Company,
provided the continuance is also approved by a majority of the
Directors who are not "interested persons" of the Company or the
Advisor by vote cast in person at a meeting called for the
purpose of voting on such approval. Each Advisory Agreement is
terminable without penalty on sixty days notice by the Company's
Board of Directors or by the Advisor. Each Advisory Agreement
provides that it will terminate automatically in the event of its
assignment.
The Advisor is a wholly owned subsidiary of Vontobel Holding
Ltd., a Swiss bank holding company. The address of the Advisor
is 450 Park Avenue, New York, N.Y. 10022.
The calculation of the investment advisory fee for a Fund is
based upon the average daily net assets of that Fund during each
month multiplied by the daily fee rate times the number of days in the
month, or an equivalent calculation of the aggregate net assets of the
Fund during that month, multiplied by the daily fee rate. The amount of fees
each Fund paid to the Advisor for investment advisory services
and the amount of investment advisory fees waived by the Advisor
for the last three fiscal years is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1995 1996
Fee Fee Fee
Fund Payable/Waived Payable/Waived
Payable/Waived
<S> <C> <C> <C>
Value Fund $330,768/ $385,289/ $620,180/
$0 $22,500 $22,437
International $1,352,106/ $1,154,541/ $1,280,135/
Equity Fund $0 $0 $0
Emerging Markets N/A N/A N/A
Fund
E. European Equity N/A N/A $302,021/
Fund $0
Bond Fund $127,150/ $128/371/ $248,407/
$27,001 $128,371/ $48,630
E. European Debt N/A N/A N/A
Fund
</TABLE>
The Advisory Agreements contemplate the authority of the
Advisor to place orders pursuant to its investment determinations
for each Fund either directly with the issuer or with any broker
or dealer. In placing orders with brokers or dealers, the
Advisor will attempt to obtain the best net price and the most
favorable execution of its orders. The Advisor may purchase and
sell securities to and from brokers and dealers who provide a
Fund with research advice and other services, or who sell shares
of the Fund. See "Portfolio Transactions" above.
Transfer Agent
Fund Services, Inc. (the "Transfer Agent" or "FSI") is the
Company's transfer and disbursing agent, pursuant to a Transfer
Agent Agreement. The Transfer Agent Agreement is dated September
1, 1987, and has been renewed each year by the Board of Directors
of the Company, including a majority of the Directors who are not
interested persons of the Company or the Transfer Agent.
John Pasco, III, Chairman of the Board of the Company and
an officer and shareholder of Commonwealth Shareholder Services,
Inc (the Administrator of the Funds) owns one third of the stock
of FSI, and, therefore, FSI may be deemed to be an affiliate of
the Company and Commonwealth Shareholder Services, Inc.
Pursuant to the Transfer Agent Agreement the minimum annual
fee for each Fund is $16,500. During 1996, the Transfer Agent
was paid $75,837 by the Value Fund, $68,948 by the International
Equity Fund, $16,073 by the E. European Equity Fund and $28,385
by the Bond Fund. The Emerging Markets and E. European Debt
Funds did not commence operations until after 1996.
Administrator
Commonwealth Shareholder Services, Inc. is the Company's
administrator pursuant to Administrative Services Agreements (the
"Service Agreements"). The Service Agreements are described in
the Funds' Prospectus. Each of the Service Agreements continues
in effect from year to year for a term of one year only if the
Board of Directors, including a majority of the directors who are
not interested persons of the Company or the Administrator,
approve the extension at least annually. During 1996, CSS was
paid $147,596 by the Value Fund, $297,410 by the International
Equity Fund, $80,336 by the E. European Equity Fund and $54,468
by the Bond Fund. The Emerging Markets and E. European Debt
Funds did not commence operations until after 1996.
Eligible Benefit Plans
An eligible benefit plan is an arrangement available to the
employees of an employer (or two or more affiliated employers)
having not less than ten employees at the plan's inception, or
such an employer on behalf of employees of a trust or plan for
such employees, their spouses and their children under the age of
21 or a trust or plan for such employees, which provides for
purchases through periodic payroll deductions or otherwise. There
must be at least five initial participants with accounts
investing or invested in shares of one or more of the Funds
and/or certain other funds.
The initial purchase by the eligible benefit plan and prior
purchases by or for the benefit of the initial participants of
the plan must aggregate not less than $5,000 and subsequent
purchases must be at least $50 per account and must aggregate at
least $250. Purchases by the eligible benefit plan must be made
pursuant to a single order paid for by a single check or federal
funds wire and may not be made more often than monthly. A
separate account will be established for each employee, spouse or
child for which purchases are made. The requirements for
initiating or continuing purchases pursuant to an eligible
benefit plan may be modified and the offering to such plans may
be terminated at any time without prior notice.
Distribution
Shares of the Funds are sold at NAV on a continuous basis,
without a sales charge.
Vontobel Fund Distributors, a division of First Dominion
Capital Corp. (the "Distributor"), 1500 Forest Avenue, Suite 223,
Richmond, VA 23229, is the Company's principal underwriter
pursuant to a Distribution Agreement between the Company and the
Distributor. John Pasco, III, Chairman of the Board of the
Company owns 100% of the Distributor, and is its President,
Treasurer and a Director.
Fund Expenses
Each Fund will pay its expenses not assumed by the Advisor,
including, but not limited to, the following: custodian; stock
transfer and dividend disbursing fees and expenses; taxes;
expenses of the issuance and redemption of Fund shares (including
stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; and the cost of
stationery and forms prepared exclusively for the Fund.
The allocation of the general expenses to each Fund is made
on a basis that the Company's Board of Directors deems fair and
equitable, which may be based on the relative net assets of the
series of the Company or the nature of the services performed and
relative applicability to each series of the Company.
Under each Fund's Advisory Agreement, the Advisor has
agreed to reimburse the Fund if the annual ordinary operating
expenses of the Fund exceeds the most stringent limits prescribed
by any state in which the Fund's shares are offered for sale.
This expense limitation is calculable based on the aggregate net
assets of the Fund. Expenses which are not subject to this
limitation are interest, taxes and extraordinary expenses.
Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized
in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital
items and not as expenses. Reimbursement, if any, will be on a
monthly basis, subject to year-end adjustment and limited to the
amount of the advisory fee due from the Fund.
Investors should understand that the International Funds'
expense ratios can be expected to be higher than investment
companies investing in domestic securities since the cost of
maintaining the custody of foreign securities and the rates of
advisory fees paid by the International Funds are higher.
Special Shareholder Services
As described briefly in the Prospectus, each Fund offers the
following shareholder services:
Regular Account: The regular account allows for voluntary
investments to be made at any time. Available to individuals,
custodians, corporations, trusts, estates, corporate retirement
plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish.
Simply use the Account Application provided with the Prospectus
to open your account.
Telephone Transactions: You may redeem shares or transfer
into another fund if you request this service at the time you
complete the initial Account Application. If you do not elect
this service at that time, you may do so at a later date by
putting your request in writing to the Transfer Agent and having
your signature guaranteed.
Each Fund employs reasonable procedures designed to confirm
the authenticity of your instructions communicated by telephone
and, if it does not, it may be liable for any losses due to
unauthorized or fraudulent transactions. As a result of this
policy, a shareholder authorizing telephone redemption bears the
risk of loss which may result from unauthorized or fraudulent
transactions which the Fund believes to be genuine. When you
request a telephone redemption or transfer, you will be asked to
respond to certain questions designed to confirm your identity as
a shareholder of record. Your cooperation with these procedures
will protect your account and the Fund from unauthorized
transactions.
Invest-A-Matic Account: Any shareholder may utilize this
feature, which provides for automatic monthly investments into
your account. Upon your request, the Transfer Agent will
withdraw a fixed amount each month from your checking account for
investment into your account. This does not require you to make
a commitment for a fixed period of time. You may change the
monthly investment, skip a month or discontinue your Invest-A-
Matic Plan as desired by notifying the Transfer Agent. This
feature requires a separate Plan application, in addition to the
Account Application. To obtain an application, or to receive
more information, please call the offices of the Company.
Individual Retirement Account ("IRA"): All wage earners
under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You
can contribute 100% of your earnings up to $2,000 (or $2,250 with
a spouse who is not a wage earner, for years prior to 1997).
Starting in 1997, even a spouse who does not earn compensation
can contribute up to $2,000 per year to his or her own IRA. The
deductibility of such contributions will be determined under the
same rules as for contributions made by individuals with earned
income. A special IRA program is available for corporate
employers under which the employers may establish IRA accounts
for their employees in lieu of establishing corporate retirement
plans. Known as SEP-IRA's (Simplified Employee Pension-IRA),
they free the corporate employer of many of the recordkeeping
requirements of establishing and maintaining a corporate
retirement plan trust.
If you have received a lump sum distribution from another
qualified retirement plan, you may rollover all or part of that
distribution into your Fund IRA. Your rollover contribution is
not subject to the limits on annual IRA contributions. By acting
within applicable time limits of the distribution you can
continue to defer Federal Income Taxes on your lump sum
contribution and on any income that is earned on that
contribution.
How to Establish Retirement Accounts: Please call the
Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian
charges nominal fees in connection with plan establishment and
maintenance. These fees are detailed in the plan documents. You
may wish to consult with your attorney or other tax advisor for
specific advice concerning your tax status and plans.
Exchange Privilege: Shareholders may exchange their shares
for shares of any other series of the Company, provided the
shares of the fund the shareholder is exchanging into are noticed
for sale in the shareholder's state of residence. Each account
must meet the minimum investment requirements (currently $1,000).
Exchange Privilege Authorization Forms are available by calling
the Company. Your special authorization form must have been
completed and must be on file with the Transfer Agent. To make
an exchange, an exchange order must comply with the requirements
for a redemption or repurchase order and must specify the value
or the number of shares to be exchanged. Your exchange will take
effect as of the next determination of the Fund's NAV per share
(usually at the close of business on the same day). The Transfer
Agent will charge your account a $10.00 service fee each time you
make such an exchange. The Company reserves the right to limit
the number of exchanges or to otherwise prohibit or restrict
shareholders from making exchanges at any time, without notice,
should the Company determine that it would be in the best
interest of its shareholders to do so. For tax purposes an
exchange constitutes the sale of the shares of the Fund from
which you are exchanging and the purchase of shares of the Fund
into which you are exchanging. Consequently, the sale may
involve either a capital gain or loss to the shareholder for
federal income tax purposes. The exchange privilege is available
only in states where it is legally permissible to do so.
General Information and History
The Company is authorized to issue up to 500,000,000 shares
of common stock, par value $0.01 per share, of which it has
presently allocated 50,000,000 shares to each of the Funds. The
Board of Directors can allocate the remaining authorized but
unissued shares to any series of the Company, or may create
additional series and allocate shares to such series. Each
series is required to have a suitable investment objective,
policies and restrictions, to maintain a separate portfolio of
securities suitable to its purposes, and to generally operate in
the manner of a separate investment company as required by the
1940 Act.
If additional series were to be formed, the rights of
existing series shareholders would not change, and the objective,
policies and investments of each series would not be changed. A
share of any series would continue to have a priority in the
assets of that series in the event of a liquidation.
The shares of each series when issued will be fully paid and
nonassessable, will have no preference over other shares of the
same series as to conversion, dividends, or retirement, and will
have no preemptive rights. The shares of any series will be
redeemable from the assets of that series at any time at a
shareholder's request at the current NAV of that series
determined in accordance with the provisions of the 1940 Act and
the rules thereunder. The Company's general corporate expenses
(including administrative expenses) will be allocated among the
series in proportion to net assets or as determined in good faith
by the Board.
The investment advisory fees payable to the Advisor by each
Fund and the expense limitation guarantee formula of each Fund
will be based upon the separate assets of each Fund. The
shareholders of each of the Funds have the right to vote with
respect to the investment advisor of such Fund, respectively.
Voting and Control - Each outstanding share of the Company
is entitled to one vote for each full share of stock and a
fractional share of stock. All shareholders vote on matters
which concern the corporation as a whole. Election of Directors
or ratification of the auditor are examples of matters to be
voted upon by all shareholders. The Company is not required to
hold a meeting of shareholders each year. The Company intends to
hold annual or special meetings when it is required to do so by
the Maryland General Corporate Law or the 1940 Act. Shareholders
have the right to call a meeting to consider the removal of one
or more of the Directors and will be assisted in Shareholder
communication in such matter. Each series shall vote separately
on matters (1) when required by the General Corporation Law of
Maryland, (2) when required by the 1940 Act and (3) when matters
affect only the interest of the particular series. An example of
a matter affecting only one series might be a proposed change in
an investment restriction of one series. The shares will not
have cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors
can elect all of the directors if they choose to do so.
Code of Ethics - The Company has adopted a Code of Ethics
which imposes certain restrictions on the authority of portfolio
managers and certain other personnel of the Company and the
Advisor governing personal securities activities and investments
of those persons and has instituted procedures to its Code of
Ethics to require such investment personnel to report such
activities to the compliance officer. The Code is reviewed and
updated annually.
Performance
Current yield and total return are the two primary methods
of measuring investment performance. Occasionally, however, a
Fund may include its distribution rate in sales literature.
Yield, in its simplest form, is the ratio of income per share
derived from the Fund's portfolio investments to the current
maximum offering price expressed in terms of percent. The yield
is quoted on the basis of earnings after expenses have been
deducted. Total return, on the other hand, is the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage
of the purchase price. The distribution rate is the amount of
distributions per share made by the Fund over a twelve-month
period divided by the current maximum offering price.
Generally, performance quotations by investment companies
are subject to certain rules adopted by the Securities and
Exchange Commission (the "Commission"). These rules require the
use of standardized performance quotations, or alternatively,
that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance
information computed as required by the Commission. Current
yield and total return quotations used by a Fund are based on the
standardized methods of computing performance mandated by the
Commission.
Yield. As indicated below, current yield is determined by
dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of
the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholder during the 30-
day base period. According to the Commission formula:
Yield = 2 [(a-b + 1) -1]
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
Total Return. The Funds' average annual total returns for
the periods ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
One-Year Five-Year Ten-Year From
Period Period Period Inception
Ended Ended Ended to
Fund Name 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C>
Value Fund 21.27% 15.91% N/A 15.06%
International
Equity Fund 16.98% 11.04% 8.97%<F1> N/A
Emerging Markets
Fund N/A N/A N/A N/A
E. European
Equity Fund N/A N/A N/A 48.93%<F2>
Bond Fund 7.51% N/A N/A 10.11%
E. European
Debt Fund N/A N/A N/A N/A
<FN>
<F1> Since July 6, 1990, when the International Equity Fund's
current investment advisor was appointed and the Fund's
investment objective was changed to its current status.
Average annual total return of 3.71% 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).
<F2> Unannualized return from inception through 12/31/96.
</FN>
</TABLE>
As the following formula indicates, the average annual total
return is determined by multiplying a hypothetical initial
purchase order of $1,000 by the average annual compound rate of
return (including capital appreciation/depreciation and dividends
and distributions paid and reinvested) for the stated period less
any fees charged to all shareholder accounts and annualizing the
result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all
dividends and distributions are reinvested at the public offering
price on the reinvestment dates during the period. The quotation
assumes the account was completely redeemed at the end of each
one-, five- and ten-year or since inception period and the
deduction of all applicable charges and fees. According to the
Commission formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
periods (or fractional portion thereof).
Sales literature pertaining to a Fund may quote a
distribution rate in addition to the yield or total return. The
distribution rate is the amount of distributions per share made
by the Fund over a twelve-month period divided by the current
maximum offering price. The distribution rate differs from the
yield because it measures what the Fund paid to shareholders
rather than what the Fund earned from investments. It also
differs from the yield because it may include dividends paid from
premium income from option writing, if applicable, and short-term
capital gains in addition to dividends from investment income.
Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the
distributions paid over the period such policies were in effect,
rather than using the distributions paid during the past twelve
months.
Occasionally statistics may be used to specify a Fund's
volatility or risk. Measures of volatility or risk are generally
used to compare the Fund's NAV or performance relative to a
market index. One measure of volatility is beta. Beta is the
volatility of a Fund relative to the total market as represented
by the Standard & Poor's 500 Stock Index. A beta of more than
1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of NAV or total
return around an average, over a specified period of time. The
premise is that greater volatility connotes greater risk
undertaken in achieving performance.
Sales literature referring to the use of a Fund as a
potential investment for IRAs, Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return
based upon compounding of dividends on which it is presumed no
federal income tax applies.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
Comparisons and Advertisements
To help investors better evaluate how an investment in a
Fund might satisfy their investment objective, advertisements
regarding the Fund may discuss yield, total return, or Fund
volatility as reported by various financial publications.
Advertisements may also compare yield, total return, or
volatility (as calculated above) to yield, total return, or
volatility as reported by other investments, indices, and
averages. The following publications, indices, and averages may
be used:
(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company
stocks (Dow Jones Utilities Average), and 20 transportation
company stocks. Comparisons of performance assume reinvestment
of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks, and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividends.
(c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation,
and finance stocks listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index - represents the return on the
market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume
reinvestment of dividends.
(e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed
Income Analysis, and Lipper Mutual Fund Indices - measures total
return and average current yield for the mutual fund industry.
Ranks individual mutual fund performance over specified time
periods assuming reinvestment of all distributions, exclusive of
sales charges.
(f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
(g) Mutual Fund Source Book and other material, published by
Morningstar, Inc. - analyzes price, yield, risk, and total return
for equity funds.
(h) Financial publications: Business Week, Changing Times,
Financial World, Forbes, Fortune, and Money magazines - rate fund
performance over specified time periods.
(i) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services, in major
expenditure groups.
(j) Standard & Poor's 100 Stock Index - an unmanaged index based
on the price of 100 blue-chip stocks, including 92 industrials,
one utility, two transportation companies, and 5 financial
institutions. The S&P 100 Stock Index is a smaller more flexible
index for option trading.
(k) Morgan Stanley Capital International EAFE Index - an
arithmetic, market value-weighted average of the performance of
over 1,100 securities on the stock exchanges of countries in
Europe, Australia and the Far East.
(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index
of government bond issues and includes Australia, Belgium,
Canada, Denmark, France, Germany, Italy, Japan, The Netherlands,
Spain, Sweden, United Kingdom and United States gross of
withholding tax.
(m) Financial publications: Barron's, Financial Times,
Investor's Business Daily, New York Times, and The Wall Street
Journal - publications that rate fund performance over specified
time periods.
(n) Morgan Stanley Capital International Emerging Markets Free
Index - a market value-weighted average of the performance of
approximately 900 securities traded on the stock exchanges of
emerging
markets throughout the world that are accessible to foreign
investors.
(o) Nomura Research, Inc. Eastern Europe an Equity Index -
comprised of those equities which are traded on listed markets in
Poland, the Czech Republic, Hungary and Slovakia (returns do not
include dividends).
(p) Deutsche Morgan Grenfell Emerging Eastern Europe (DB-EEE
Index) - an unmanaged index that tracks U.S. dollar total returns
for 3-month fixed income instruments denominated in the local
currencies of 12 emerging Eastern European debt markets (out of
a potential investment universe of currently 28 countries).
The DB-EEE's subindex for investmentgrade countries (EEE-IG)
currently comprises the Czech Republic, Hungary, Poland, Estonia,
Latvia and Slovakia.
In assessing such comparisons of yield, return, or
volatility, an investor should keep in mind that the composition
of the investments in the reported indices and averages in not
identical to a Fund's portfolio, that the averages are generally
unmanaged, and that the items included in the calculations of
such averages may not be identical to the formula used by the
Fund to calculate its figures. In addition, there can be no
assurance that the Fund will continue its performance as compared
to such other averages.
Financial Statements
The books of each Fund will be audited at least once each
year by Tait, Weller and Baker, of Philadelphia, PA, independent
public accountants.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS:
Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge." Interest payments are
protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
Moody's applies numerical modifiers 1,2 and 3 in the Aa and
A rating categories. The modifier 1 indicates that the security
ranks at a higher end of the rating category, modified 2
indicated a mid-range rating, and the modifier 3 indicates that
the issue ranks at the lower end of the rating category.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative
elements, their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
MOODY'S SHORT-TERM DEBT RATINGS:
Moody's short-term debt ratings are opinions of the ability
of issuers to repay punctually senior debt obligations which have
an original maturity not exceeding one year. Obligations relying
upon support mechanisms such as letters-of-credit and bonds of
indemnity are excluded unless explicitly rated. Moody's employs
the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 - Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics, lending market
positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; and well established access to range of
financial markets and assured sources of alternate liquidity.
Prime-2 - Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime 3 - Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by
Standard & Poor's to a debt obligation indicate an extremely
strong capacity to pay principal and interest.
AA - Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from highest rated issues only to
a small degree.
Plus(+) or Minus(-) - The ratings from AA to CCC may be
modified by the addition of a plus or a minus sign, which
shows relative standing within the major rating categories.
A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in the higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
categories than for debt in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC, and CC is regarded, on
balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of
the obligation which indicates BB the lowest degree of
speculation and CC the highest degree of speculation. While such
debt will have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to
adverse conditions.
C - The rating C is reserved for income bonds on which no
interest is being paid.
D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Investment Advisor: Vontobel USA Inc.
450 Park Ave.
New York, NY 10022
Distributor: Vontobel Fund Distributors,
a division of First Dominion Capital
Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229
Independent Auditors: Tait, Weller & Baker
2 Penn Center Plaza
Suite 700
Philadelphia, PA 19102
Marketing Services: For general information on the Funds and
marketing services, call the Distributor
at (800) 527-9500 toll free.
Transfer Agent: For account information, wire purchase
or redemptions, call or write to the
Fund's Transfer Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free
More Information: For 24-hour, 7-days-a-week price
information call 1-800-527-9500. For
information on any series of the
Company, investment plans, or other
shareholder services, call the Company
at 1-800-527-9500 during normal business
hours, or write the Company at 150
Forest Avenue, Suite 223, Richmond, VA
23229
<PAGE>
PART C
OTHER INFORMATION
ITEM 24.
FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
1. Included in Part A:
(a) For the Vontobel U.S. Value Fund, Vontobel
International Equity Fund (formerly known as the
Vontobel EuroPacific Fund), Vontobel Eastern
European Equity Fund and Vontobel International
Bond Fund:
* Financial Highlights dated December 31, 1996
(audited).
2. Incorporated by reference in Part A from the Annual
Report to Shareholders of each of the series of the
Registrant which was filed via (audited) the Securities
and Exchange Commission's ("SEC") EDGAR system on
February 28, 1997:
(a) For each of the Vontobel U.S. Value Fund, Vontobel
International Equity Fund (formerly known as the
Vontobel EuroPacific Fund), Vontobel Eastern
European Equity Fund and Vontobel International
Bond Fund:
* Report of Independent Auditors dated January
17, 1997 relating to the financial statements
for the fiscal periods ended December 31,
1996.
* Schedule of Portfolio Investments as of
December 31, 1996 (audited);
* Statement of Assets and Liabilities at
December 31, 1996 (audited);
* Statement of Operations for the year ended
December 31, 1996 (audited);
* Statements of Changes in Net Assets for the
years ended December 31, 1995 and December
31, 1996 (as applicable) (audited);
* Financial Highlights for years (or period)
ended December 31, 1996 and each previous
year (or period) ended December 31 through
the later of the year of inception of the
fund or 1987, as applicable (audited);
* Notes to Financial Statements dated December
31, 1996 (audited).
3. Included in Part B: None
(b) Exhibits.
1. Articles of Incorporation of the Registrant are
incorporated herein by reference to Post-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on November 1,
1983.
(a) Articles Supplementary of the Registrant are
incorporated herein by reference to:
(1) Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3557) as filed with the Commission on
October 29, 1984;
(2) Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
February 28, 1989.
(3) Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
January 29, 1990.
(4) Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
December 13, 1993.
(5) Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
April 29, 1994.
(6) Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on
Form N-1A (File No. 2-78931 and 811-
3551) as filed with the Commission on
October 19, 1994.
(7) Post-Effective Amendment No. 30 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
November 9, 1995.
(b) Articles Supplementary of the Registrant
dated February 26, 1997 creating the Vontobel
Emerging Markets Fund and the Vontobel Eastern
European Debt Fund are filed herewith as
Exhibit EX-3.(i).A.
(c) Articles of Amendment of Registrant are
incorporated herein by reference to:
(1) Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
March 1, 1991.
(2) Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
October 19, 1994.
(3) Post-Effective Amendment No. 33 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
March 14, 1997.
(d) Articles of Amendment dated May 13, 1997
changing the name of the Vontobel
Emerging Markets Equity Fund, are filed
herewith as Exhibit EX-3.(i).B.
2. By-Laws of the Registrant are incorporated
herein by reference to Post-Effective
Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File No.
2-78931) as filed with the Commission on
November 1, 1983.
(a) Amendment to By-Laws of the Registrant
are incorporated herein by reference to
Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
October 29, 1984.
3. Not Applicable.
4. (a) Specimen of security issued by the:
(1) Vontobel International Equity Fund
series of the Registrant is
incorporated herein by reference to
Post-Effective Amendment No. 19 to
Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the
Commission on March 1, 1991.
(2) Vontobel U.S. Value Fund series of
the Registrant is incorporated
herein by reference to Post-
Effective Amendment No. 19 to the
Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the
Commission on March 1, 1991.
(3) Vontobel International Bond Fund
series of the Registrant is
incorporated herein by reference to
Post-Effective Amendment No. 23 to
the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on December 13,
1993.
(4) Vontobel Eastern European Equity
Fund series of the Registrant is
incorporated herein by reference to
Post-Effective Amendment No. 30 of
the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on November 9, 1995.
(5) Vontobel Eastern European Debt Fund
is filed herewith as Exhibit
EX-4.A.
(6) Vontobel Emerging Markets Equity
Fund is filed herewith as Exhibit
EX-4.B.
5. (a) Investment Advisory Agreement between
Vontobel USA, Inc. and the Registrant on
behalf of the:
(1) Vontobel International Equity Fund
series (dated July 14, 1992) is
incorporated herein by reference to
Post-Effective Amendment No. 22 of
the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on April 30, 1993.
(2) Vontobel U.S. Value Fund series
(dated July 14, 1992) is
incorporated by reference to Post-
Effective Amendment No. 22 of
Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931) as
filed with the Commission on April
30, 1993.
(3) Vontobel International Bond Fund
series (dated February 10, 1994) is
incorporated herein by reference to
Post-Effective Amendment No. 25 of
the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on April 29, 1994.
(4) Vontobel Eastern European Equity
Fund series (dated February 14,
1996) is incorporated herein by
reference to Post-Effective
Amendment No. 31 of the
Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the
Commission on April 29, 1996.
(5) (Form of) Vontobel Eastern European
Debt Fund series is filed herewith
as Exhibit EX-99.B5.A.
(6) (Form of) Vontobel Emerging Markets
Equity Fund series is filed
herewith as Exhibit EX-99.B5.B.
6. (a) (Form of) Distribution Agreement between
First Dominion Capital Corporation
and the Registrant is filed herewith
as Exhibit EX-99.B6.
(b) Form of Selling Dealer Agreement between
Newport Distributors, Inc. and the
selling dealers is incorporated herein
by reference to Post-Effective Amendment
No. 19 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-
78931 and 811-3551) as filed with the
Commission on March 1, 1991.
(c) Form of Foreign Broker Dealer Selling
Agreement between Newport Distributors,
Inc. and the foreign selling broker
dealers is incorporated by reference to
Post-Effective Amendment No. 20 of
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
April 24, 1992.
7. Not Applicable.
8. (a) Custodian Agreement between Brown
Brothers Harriman & Co. and the
Registrant (dated November 10, 1992) is
incorporated herein by reference to
Post-Effective Amendment No. 22 of the
Registrant's Registration Statement on
Form N-1A, (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
April 20, 1993.
(b) Custodian Agreement between Star Bank
and the Registrant on behalf of the
Vontobel U.S. Value Fund (dated August
1, 1996) is incorporated herein by
reference to Post-Effective Amendment
No. 33 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-
78931 and 811-3551) as filed with the
Commission on March 14, 1997.
9. (a) Transfer Agency Agreement, as amended,
between Fund Services, Inc. and the
Registrant is incorporated herein by
reference to Post-Effective Amendment
No. 16 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-
78931 and 811-3551) as filed on April
27, 1990.
(b) Administrative Services Agreement
between Commonwealth Shareholder
Services, Inc. and the Registrant on
behalf of the:
(1) Vontobel International Equity Fund
series and Vontobel U.S. Value Fund
series (dated July 14, 1992) is
incorporated by reference to Post-
Effective Amendment No. 22 of the
Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the
Commission on April 30, 1993.
(2) Vontobel International Bond Fund
series (dated February 10, 1994) is
incorporated herein by reference to
Post-Effective Amendment No. 25 of
the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on April 29, 1994.
(3) Vontobel Eastern European Equity
Fund series (dated February 15,
1996) is incorporated by reference
to Post-Effective Amendment No. 31
of the Registrant's Registration
Statement on Form N-1A (File Nos.
2-78931 and 811-3551) as filed with
the Commission on April 29, 1996.
(4) (Form of) Vontobel Eastern European
Debt Fund series is filed herewith
as EX-99.B9.A.
(5) (Form of) Vontobel Emerging Markets
Equity Fund series is filed
herewith as EX-99.B9.B.
(c) Fund Accounting Servicing Agreement
(dated August 1, 1996) between Star Bank
and the Registrant on behalf of the
Vontobel U.S. Value Fund series is
incorporated herein by reference to
Post-Effective Amendment No. 33 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
March 14, 1997.
(d) (Form of) Fund Expense Agreement
(dated ________) between Commonwealth
Shareholder Services, Inc. and the Registrant
is filed herewith as EX-99.B9.C.
10. Opinion of Counsel is incorporated herein by
reference to the Registrant's Rule 24f-2
Notice, which was filed with the Commission
on February 28, 1997.
11. Auditor's consent is attached hereto as
Exhibit EX-99.B11.
12. Not applicable.
13. Not applicable.
14. (a) Custodial Account Agreement for
Individual Retirement Accounts is
incorporated herein by reference to
Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-
3551) as filed with the Commission on
April 30, 1993.
(b) Disclosure Statement for Individual
Retirement Accounts is incorporated by
reference to Post-Effective Amendment
No. 22 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-
78931 and 811-3551) as filed with the
Commission on April 30, 1993.
(c) Custodial Account Agreement and
Disclosure Document dated February 16,
1996 on behalf of the Vontobel Eastern
European Equity Fund series is
incorporated herein by reference to
Post-Effective Amendment No. 31 to the
Registrant's Registration Statement on
Form N-1A (File No. 2-78931 and 811-
3551) as filed with the Commission on
April 29, 1996.
15. Not Applicable.
16. (a) Schedule(s) of computation of
performance quotation(s) on behalf of
the:
(1) Vontobel International Equity Fund
series is attached hereto as
Exhibit EX-99.B16.1.
(2) Vontobel U.S. Value Fund series is
attached hereto as Exhibit EX-
99.B16.2.
(3) Vontobel International Bond Fund
series is attached hereto as
Exhibit EX-99.B16.3.
(4) Vontobel Eastern European Equity
Fund series is attached hereto as
Exhibit EX-99.B16.4.
17. (a) Financial Data Schedule on behalf of
the:
(1) Vontobel International Equity Fund
series is filed herewith as
Exhibit EX-27.1.
(2) Vontobel U.S. Value Fund series is
filed herewith as Exhibit EX-27.2.
(3) Vontobel International Bond Fund
series is filed herewith as
Exhibit EX-27.3.
(4) Vontobel Eastern European Equity
Fund series is filed herewith as
Exhibit EX-27.4.
18. Not applicable.
19. (a) Power-of-Attorney for:
(1) Samuel Boyd, Jr. is filed herewith
as Exhibit EX-99.B19.1.
(2) Paul M. Dickinson is filed herewith
as Exhibit EX-99.B19.2.
(3) Henry Schlegel is filed herewith
as Exhibit EX-99.B19.3.
(4) William E. Poist is filed herewith
as Exhibit EX-99.B19.4.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES: As of March 31, 1997:
Number of
Title of Class Record Holders
Vontobel International Equity Fund 1,177
Vontobel U.S. Value Fund 1,644
Vontobel International Bond Fund 71
Vontobel Eastern European Equity Fund 7,629
ITEM 27. INDEMNIFICATION.
Incorporated by reference from No. 1 to Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931
and 811-5331), filed with the Commission on November 1,
1983, as modified in, and incorporated by reference
from, Post-Effective Amendment No. 3, to same as filed
in March 1984.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
(a) Vontobel USA Inc., the investment advisor to the
Vontobel U.S. Value Fund series, the Vontobel
International Equity Fund series, the Vontobel
International Bond Fund series, the Vontobel
Eastern European Equity Fund series, the Vontobel
Emerging Markets Equity Fund series and the Vontobel
Eastern European Debt Fund series provides
investment advisory services consisting of
portfolio management for a variety of individuals
and institutions and as of March 31, 1997, had
approximately $2 billion in assets under
management.
For information as to any other business,
profession, vocation or employment of a
substantial nature in which each director, officer
or partner of Vontobel USA Inc. (the "Advisor")
is or has been, at any time during the past two
fiscal years, engaged for his own account or in
the capacity of director, officer, employee,
partner or trustee, reference is made to the
Advisor's Form ADV (File #801-21953), currently on
file with the Commission as required by the
Investment Advisors Act of 1940, as amended.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) The World Funds, Inc.
<TABLE>
<CAPTION> (b)
Positions and Positions and
Name and Principal Offices With Offices with
Business Address Underwriter Registrant
<S> <C> <C> <C>
John Pasco, III President, Chief Chairman &
1500 Forest Avenue Financial Officer, Treasurer &
Suite 223 Treasurer, Director
Richmond, VA 23229
Mary T. Pasco Director Assistant
1500 Forest Avenue Secretary
Suite 223
Richmond, VA 23229
Lori J. Martin Vice President None
1500 Forest Ave. & Assistant Sec.
Suite 223
Richmond, VA 23229
F. Byron
Parker, Jr. Secretary Secretary
Mustian & Parker
Two Paragon Place
Suite 100
6802 Paragon Place
Richmond, VA 23230
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the
Registrant required to be maintained by ss. 31(a) of the
Investment Company Act of 1940, as amended, and the
rules promulgated thereunder are kept in several
locations:
(a) Shareholder account records (including share
ledgers, duplicate confirmations, duplicate
account statements, and applications forms) of
each series of the Registrant are maintained by
its transfer agent, Fund Services, Inc., at 1500
Forest Avenue, Suite 111, Richmond, VA 23229.
(b) Investment records:
(1) including research information, records
relating to the placement of brokerage
transactions, memorandums regarding
investment recommendations for supporting
and/or authorizing the purchase or sale of
assets, information relating to the placement
of securities transactions, and certain
records concerning investment recommendations
of each series of the Registrant
are maintained at each series' investment
advisor, Vontobel USA Inc., at 450 Park
Avenue, New York, NY 10022.
(c) Accounts and records for portfolio securities and
other investment assets, including cash:
(1) of the Vontobel International Equity Fund,
Vontobel International Bond Fund, Vontobel
Eastern European Equity Fund, Vontobel Emerging
Markets Equity Fund and Vontobel Eastern
European Debt Fund series are
maintained in the custody of the Registrant's
custodian bank, Brown Brothers Harriman &
Co., at 40 Water St., Boston, MA 02109.
(2) of the Vontobel U.S. Value Fund series are
maintained in the custody of the
Registrant's custodian bank, Star Bank, 425
Walnut Street, P.O. Box 1118, Cincinatti,
OH 4501-1118.
(d) Accounting records, including general ledgers,
supporting ledgers, pricing computations, etc.:
(1) of the Vontobel International Equity Fund,
Vontobel International Bond Fund, Vontobel
Eastern European Equity Fund, Vontobel
Emerging Markets Equity Fund and Vontobel
Eastern European Debt Fund series are
maintained by the Registrant's accounting
services agent, Brown Brothers Harriman &
Co., at 40 Water Street, Boston, MA 02109.
(2) of the Vontobel U.S. Value Fund series are
maintained by the Registrant's accounting
services agent, Star Bank, 425 Walnut
Street, P.O. Box 1118, Cincinatti, OH 4501-1118.
(e) Administrative records, including copies of the
charter, by-laws, minute books, agreements,
compliance records and reports, certain
shareholder communications, etc., are kept at the
Registrant's principal office, at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229, by the
Registrant's Administrator, Commonwealth
Shareholder Services, Inc., whose address is the
same as the Registrant's.
(f) Records relating to distribution of shares of the
Registrant are maintained by the Registrant's
distributor, First Dominion Capital Corp. at 1500
Forest Avenue, Suite 223, Richmond, VA 23229.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not
discussed in Parts A or B of this Form.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) The Registration hereby undertakes to file a post-
effective amendment, containing financial
statements of the Vontobel Eastern European Debt
Fund and Vontobel Emerging Markets Equity Fund series,
which need not be certified within four to six
months from the effective date of the Registration
Statement which includes such series.
(c) The Registrant hereby undertakes to furnish each
person to whom a Prospectus for one or more of the
series of the Registrant is delivered with a copy
of the relevant latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of
Richmond, and the Commonwealth of Virginia on the 30th day of
May, 1997.
VONTOBEL FUNDS, INC.
Registrant
By JOHN PASCO, III
John Pasco, III, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the date indicated below.
(Signature) (Title) (Date)
JOHN PASCO, III Director, Chairman May 30, 1997
John Pasco, III & Treasurer
Henry Schlegel* Director May 30, 1997
Henry Schlegel
Samuel Boyd, Jr.* Director May 30, 1997
Samuel Boyd, Jr.
Paul M. Dickinson* Director May 30, 1997
Paul M. Dickinson
William E. Poist* Director May 30, 1997
William E. Poist
JOHN PASCO, III
John Pasco, III
Attorney-In-Fact*
* Pursuant to Powers-of-Attorney on file.
<PAGE>
EXHIBIT INDEX
FORM N-1A EDGAR
EXHIBIT NO. EXHIBIT NO.
24(b)1.(b) Articles Supplementary EX-3.(i).A.
dated February 26, 1997 re:
the Vontobel Emerging Markets
Fund and the Vontobel
Eastern European Debt Fund.
24(b)1.(d) Articles of Amendment EX-3.(i).B.
dated May 13, 1997 re:
the Vontobel Emerging Markets
Equity Fund.
24(b)4.(a)(5) Specimen security of the EX-4.A.
Vontobel Eastern European
Debt Fund.
24(b)4.(a)(6) Specimen security of the EX-4.B.
Vontobel Emerging Markets
Equity Fund.
24(b)5.(a)(5) (Form of) Investment Advisory EX-99.B5.A.
Agreement on behalf of the
Vontobel Eastern European
Debt Fund.
24(b)5.(a)(6) (Form of) Investment Advisory EX-99.B5.B.
Agreement on behalf of the
Vontobel Emerging Markets
Equity Fund.
24(b)6.(a) (Form of) Distribution Agreement EX-99.B6.
of the Registrant.
24(b)9.(b)(4) (Form of) Administrative EX-99.B9.A.
Services Agreement on behalf
of the Vontobel Eastern
European Debt Fund.
24(b)9.(b)(5) (Form of) Administrative EX-99.B9.B.
Services Agreement on behalf
of the Vontobel Emerging
Markets Equity Fund.
24(b)9.(d) (Form of) Fund Expense Agreement EX-99.B9.C.
of the Registrant.
24(b)11. Auditor's Consent. EX-99.B11.
24(b)16.(a)(1) Schedule of computation of EX-99.B16.1.
performance quotation(s) for
the Vontobel International
Equity Fund series.
24(b)16.(a)(2) Schedule of computation of EX-99.B16.2.
performance quotation(s) for
the Vontobel U.S. Value Fund
series.
24(b)16.(a)(3) Schedule for computation of EX-99.B16.3.
performance quotation(s) for
the Vontobel International
Bond Fund series.
24(b)16.(a)(4) Schedule for computation of EX-99.B16.4.
performance quotation(s) for
the Vontobel Eastern European
Equity Fund series.
24(b)17.(a)(1) Financial Data Schedule on EX-27.1.
behalf of the Vontobel
International Equity Fund
series.
24(b)17.(a)(2) Financial Data Schedule EX-27.2.
on behalf of the Vontobel U.S.
Value Fund series.
24(b)17.(a)(3) Financial Data Schedule on EX-27.3.
behalf of the Vontobel
International Bond Fund
series.
24(b)17.(a)(4) Financial Data Schedule on EX-27.4.
behalf of the Vontobel Eastern
European Equity Fund
series.
24(b)19.(a)(1) Power-of-Attorney for Samuel EX-99.B19.1.
Boyd, Jr.
24(b)19.(a)(2) Power-of-Attorney for Paul M. EX-99.B19.2.
Dickenson.
24(b)19.(a)(3) Power-of-Attorney for Henry EX-99.B19.3.
Schlegel.
24(b)19.(a)(4) Power-of-Attorney for William EX-99.B19.4.
E. Poist.
211091.1
<PAGE>
VONTOBEL FUNDS, INC.
(formerly, The World Funds, Inc.)
Articles Supplementary
*** AS FILED WITH THE MARYLAND DEPARTMENT OF ASSESSMENTS
AND TAXATION ON APRIL 22, 1997 ***
Vontobel Funds, Inc., a Maryland corporation having its
principal office in Baltimore, Maryland (the "Corporation") and
an open-end investment company registered under the Investment
Company Act of 1940, as amended, hereby certifies, in accordance
with Section 2-208 of the Maryland General Corporation Law, to
the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a
meeting held on February 26, 1997, adopted resolutions renaming
and allocating unallocated and unissued Common Stock of the
Corporation as follows: (i) Fifty Million (50,000,000) shares of
Common Stock with a par value of One Cent ($.01) per share to the
Vontobel Emerging Markets Fund series of the Corporation; and
(ii) Fifty Million (50,000,000) shares of Common Stock with a par
value of One Cent ($.01) per share to the Vontobel Eastern
European Debt Fund series of the Corporation.
SECOND: (a) The total number of shares of stock which the
Corporation was authorized to issue prior to the aforesaid action
was Five Hundred Million (500,000,000) shares of Common Stock,
with a par value of One Cent ($.01) per share, having an
aggregate par value of Five Million Dollars ($5,000,000):
One series of shares was designated as the Vontobel
International Equity Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) were classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Sand Hill
Portfolio Manager Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) were classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel
U.S. Value Fund series and Fifty Million (50,000,000) shares of
Common Stock (par value $.01 per share) were classified and
allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000); and
One series of shares was designated as the Vontobel
International Bond Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) were classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Eastern
European Equity Fund series and Fifty Million (50,000,000) shares
of Common Stock (par value $.01 per share) were classified and
allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000); and
(b) The total number of shares of stock which the
Corporation is authorized to issue, following the aforesaid
actions, is Five Hundred Million (500,000,000) shares of Common
Stock, with a par value of One Cent ($.01) per share, having an
aggregate par value of Five Million Dollars ($5,000,000):
One series of shares is designated as the Vontobel
International Equity Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) are classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Sand Hill
Portfolio Manager Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) are classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel U.S.
Value Fund series and Fifty Million (50,000,000) shares of Common
Stock (par value $.01 per share) are classified and allocated to
such series, with an aggregate par value of Five Hundred Thousand
Dollars ($500,000);
One series of shares is designated as the Vontobel
International Bond Fund series and Fifty Million (50,000,000)
shares of Common Stock (par value $.01 per share) are classified
and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Eastern
European Equity Fund series and Fifty Million (50,000,000) shares
of Common Stock (par value $.01 per share) are classified and
allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Emerging
Markets Fund series and Fifty Million (50,000,000) shares of
Common Stock (par value $.01 per share) are classified and
allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000); and
One series of shares is designated as the Vontobel Eastern
European Debt Fund series and Fifty Million (50,000,000) shares
of Common Stock (par value $.01 per share) are classified and
allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000).
THIRD: The shares of the Vontobel Emerging Markets Fund
series and the shares of the Vontobel Eastern European Debt Fund
series shall have such preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other
characteristics as are stated in Article SIXTH of the Articles of
Incorporation of the Corporation.
FOURTH: The aforesaid shares of the Vontobel International
Equity Fund series, Vontobel Emerging Markets Fund series and
Vontobel Eastern European Debt Fund series have been duly
classified and allocated by the Board of Directors pursuant to
the authority and power contained in the charter of the
Corporation.
IN WITNESS WHEREOF, Vontobel Funds, Inc. has caused these
Articles Supplementary to be signed in its name and on its behalf
this 26th day of February, 1997.
Vontobel Funds, Inc.
By JOHN PASCO, III
John Pasco, III
Chairman and Chief Executive
Officer
WITNESS:
F. BYRON PARKER, JR.
Name: F. Byron Parker, Jr.
Title: Secretary
THE UNDERSIGNED, Chairman and Chief Executive Officer of
Vontobel Funds, Inc., who executed on behalf of said Corporation
the foregoing Articles Supplementary of which this certificate is
made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles to be the corporate act
of said Corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set
forth herein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
JOHN PASCO, III
John Pasco, III
Chairman and Chief Executive Officer
Attest:
F. BYRON PARKER, JR.
F. Byron Parker, Jr.
Secretary
199514.3
VONTOBEL FUNDS, INC.
(formerly named, The World Funds, Inc.)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
(to change the name of
a series of the corporation)
*** AS FILED WITH THE MARYLAND DEPARTMENT OF ASSESSMENTS
AND TAXATION ON MAY 21, 1997 ***
Vontobel Funds, Inc., a Maryland corporation having its
principal office in Baltimore, Maryland (the "Corporation")
hereby certifies, in accordance with Section 2-605 of the
Maryland General Corporation Law (the "GCL"), to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a
meeting held on May 12, 1997, determined it to be in the best
interest of the Corporation to change the name of the Vontobel
Emerging Markets Fund series to the Vontobel Emerging Markets
Equity Fund series.
SECOND: In furtherance thereof, the Board of Directors
adopted resolutions to amend the Articles of Incorporation to
change the name of the Vontobel Emerging Markets Fund series to
the Vontobel Emerging Markets Equity Fund series.
THIRD: These Articles of Amendment changing the name of the
Vontobel Emerging Markets Fund series have been approved by a
majority of the entire Board of Directors pursuant to authority
contained in the Articles of Incorporation of the Corporation and
Section 2-605 of the GCL.
FOURTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940, as amended, and
this amendment is limited to changes expressly permitted by
Section 2-605 of the GCL to be made without action by the
stockholders.
FIFTH: These Articles of Amendment shall be effective upon
the close of business of the day of filing with the Maryland
Department of Assessments and Taxation.
IN WITNESS WHEREOF, Vontobel Funds, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf
this 13th day of May, 1997.
VONTOBEL FUNDS, INC.
By JOHN PASCO, III
John Pasco, III
Chairman and Chief Executive Officer
ATTEST:
F. BYRON PARKER, JR.
Name: F. Byron Parker, Jr.
Title: Secretary
<PAGE>
THE UNDERSIGNED, Chairman and Chief Executive Officer of
VONTOBEL FUNDS, INC., who executed on behalf of the said
Corporation the foregoing Articles of Amendment, of which this
instrument is made a part, hereby acknowledges, in the name of
and on behalf of said Corporation, said Articles of Amendment to
be the corporate act of said Corporation and further certifies
that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of
perjury.
JOHN PASCO, III
John Pasco, III
199532.3
Below is the text of a sample of the Stock Certificate for
Vontobel Eastern European Debt Fund Series of Vontobel Funds,
Inc.
CAPITAL STOCK OF CUSIP
VONTOBEL FUNDS, INC.
VONTOBEL EASTERN EUROPEAN DEBT FUND
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01
EACH OF THE CAPITAL STOCK OF
VONTOBEL FUNDS, INC.
VONTOBEL EASTERN EUROPEAN DEBT FUND
(hereinafter called the "Corporation") transferable on the books
of the Corporation in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate
of Incorporation and the bylaws of the Corporation and all
amendments thereto, to all of which the holder by acceptance
hereof assents.
This certificate is not valid until countersigned by the
Transfer Agent.
Witness the facsimile signatures of the duly authorized
officers of the Corporation
Dated Attest By
Secretary Chairman
211032.1
Below is the text of a sample of the Stock Certificate for Vontobel
Emerging Markets Equity Fund Series of Vontobel Funds, Inc.
CAPITAL STOCK OF CUSIP
VONTOBEL FUNDS, INC.
VONTOBEL EMERGING MARKETS EQUITY FUND
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01
EACH OF THE CAPITAL STOCK OF
VONTOBEL FUNDS, INC.
VONTOBEL EMERGING MARKETS EQUITY FUND
(hereinafter called the "Corporation") transferable on the books of
the Corporation in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Certificate of
Incorporation and the bylaws of the Corporation and all amendments
thereto, to all of which the holder by acceptance hereof assents.
This certificate is not valid until countersigned by the
Transfer Agent.
Witness the facsimile signatures of the duly authorized
officers of the Corporation
Dated Attest By
Secretary Chairman
211035.1
(Form of)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated
_________________, 1997 by and between VONTOBEL FUNDS, INC., a
Maryland corporation (herein called the "Fund"), and VONTOBEL USA
INC., a New York corporation (the "Advisor"), a registered
investment adviser under the Investment Advisers Act of 1940, as
amended.
WHEREAS, the Fund is registered as a diversified, open-end
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), consisting of several series of
shares, each having its own investment policies; and
WHEREAS, the Fund desires to retain the Advisor to furnish
investment advisory and management services to certain portfolios
of the Fund, subject to the control of the fund's Board of
Directors, and the Advisor is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be bound, it is agreed
between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to act
as the advisor to the VONTOBEL EASTERN EUROPEAN DEBT FUND series of
the Fund (the "Portfolio") for the period and on the terms set
forth in this Agreement. The Advisor accepts such appointment and
agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to
manage the investments and reinvestment of the Assets of the
Portfolio, and to continuously review, supervise, and administer
the investment program of the Portfolio, to determine in its
discretion the securities to be purchased or sold, to provide the
Fund and Commonwealth Shareholder Services, Inc. (the
"Administrative Services Agent") with records concerning the
Advisor's activities which the Fund is required to maintain, and to
render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Advisor's
discharge of the foregoing responsibilities.
The Advisor shall discharge the foregoing
responsibilities subject to the control of the fund's Board of
Directors and in compliance with such policies as the Board may
from time to time establish, and in compliance with the objectives,
policies, and limitations for the Portfolio as set forth in the
Fund's Prospectuses and Statement of Additional Information, as
amended from time to time, and applicable laws and regulations.
The Fund will instruct each of its agents and contractors to
cooperate in the conduct of the business of the Portfolio.
The Advisor accepts such employment and agrees, at its
own expense, to render the services and to provide the office
space, furnishings, and equipment and the personnel required by it
to perform the services on the terms and for the compensation
provided herein.
3. Portfolio Transactions. The Advisor is authorized to
select the brokers and dealers that will execute the purchases and
sales of portfolio securities for the Portfolio and is directed to
use its best efforts to obtain the best price and execution for the
Portfolio's transactions in accordance with the policies of the
Fund as set forth from time to time in the Prospectus and Statement
of Additional Information. The Advisor will promptly communicate
to the Fund and to the Administrative Services Agent such
information relating to portfolio transactions as they may
reasonably request.
It is understood that the Advisor will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to the
fund or be in breach of any obligation owing to the fund under this
Agreement, or otherwise, by reason of its having directed a
securities transaction on behalf of the fund to an unaffiliated
broker-dealer in compliance with the provisions of Section 28(e) of
the Securities Exchange Act of 1934 or as described from time to
time by the Prospectuses and Statement of Additional Information.
Subject to the foregoing, the Advisor may direct any transaction of
the Portfolio to a broker which is affiliated with the Advisor in
accordance with, and subject to, the policies and procedures
approved by the board of Directors of the Fund pursuant to Rule
17e-1 under the 1940 Act. Such brokerage services are not deemed
to be provided under this Agreement.
4. Compensation of the Advisor. For the services to be
rendered by the Advisor under this Agreement, the Fund shall pay to
the Advisor compensation at the rate specified in the Schedule
attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Advisor within five (5) business
days after the last business day of each month, and calculated by
applying a daily rate, based on the annual percentage rates as
specified in the attached Schedule, to the assets. The fee shall
be based on the average daily net assets for the month involved.
All rights of compensation under this Agreement for
services performed as of the termination date shall survive the
termination of this Agreement.
5. Expenses. During the term of this Agreement, the Advisor
will pay all expenses incurred by it in connection with the
management of the Fund. Notwithstanding the foregoing, the
Portfolio shall pay the expenses and costs of the Portfolio for the
following:
(1) Taxes;
(2) Brokerage fees and commissions with regard to
portfolio transactions;
(3) Interest charges, fees and expenses of the
custodian of the securities;
(4) Fees and expenses of the Fund's transfer agent and
the Administrative Services Agent;
(5) Its proportionate share of auditing and legal
expenses;
(6) Its proportionate share of the cost of maintenance
of corporate existence;
(7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Advisor as that term is defined by
law;
(8) Its proportionate share of the costs of corporate
meetings;
(9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to existing
shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment
records required to be maintained by the Advisor),
and daily pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal
Revenue Code of 1986, as amended, unless such
expenses and/or taxes arise from the negligence of
another party.
If the expenses projected to be borne by the Portfolio
(exclusive of interest, brokerage commissions, taxes and
extraordinary items, but inclusive of Advisory fees) in any fiscal
year are expected to exceed any applicable state expense limitation
provision to which the Fund is subject, the Advisory fee payable to
the Portfolio to the Advisor shall be reduced on each day such fee
is accrued to the extent of that day's portion of such excess
expenses. The amount of such reduction shall not exceed the actual
amount of the Advisory fee otherwise payable in such year.
Accruals of expenses and adjustment to advisory fees otherwise
payable under this Agreement, and the amounts payable monthly in
accordance with this Agreement, shall be adjusted as required from
month to month.
It is understood that the Fund will register its shares
in states which impose expense limitations on mutual funds only
with the prior written consent of the Advisor and, if consent is
granted, the Advisor agrees to reimburse the Fund for any excess
expenses incurred over such states' limitation up to a maximum of
its Advisory fee.
6. Reports. The Fund and the Advisor agree to furnish to
each other, if applicable, current information required for the
preparation by such parties of prospectuses, statements of
additional information, proxy statements, reports to shareholders,
certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to
their affairs as each may reasonably request.
u. State of the Advisor. The services of the Advisor to the
Fund are not to be deemed exclusive, and the Advisor shall be free
to render similar services to others so long as its services to the
Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also
retain the services of the Advisor to serve as the investment
advisor of other series of the Fund.
8. Books and Records. In compliance with the requirements
of the 1940 Act, the Advisor hereby agrees that all records which
it maintains for the Fund are the property of the Fund, and further
agrees to surrender promptly to the Fund any of such records upon
the Fund's request. The Advisor further agrees to preserve for the
periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.
9. Limitation of Liability of Advisor. The duties of the
Advisor shall be confined to those expressly set forth herein, and
no implied duties are assumed by or may be asserted against the
Advisor hereunder. The Advisor shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or negligence on the part of the
Advisor in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement (as used
in this paragraph 9, the term "advisor" shall include directors,
officers, employees and other corporate agents of the Advisor as
well as that corporation itself).
10. Permissible Interest. Directors, agents, and
shareholders of the Fund are or may be interested in the Advisor
(or any successor thereof) as directors, officers, or shareholders,
or otherwise; directors, officers, agents and shareholders of the
Advisor are or may be interested in the Fund as directors,
officers, shareholders or otherwise; and the Advisor (or any
successor) is or may be interested in the Fund as a shareholder or
otherwise. In addition, brokerage transactions for the Fund may be
effected through affiliates of the Advisor if approved by the
Fund's Board of Directors subject to the rules and regulations of
the Securities and Exchange Commission, and the policies and
procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby authorizes
the Fund to use the name "Vontobel" for the Portfolio. The Fund
agrees that if this Agreement is terminated it will promptly
redesignate the name of the Portfolio to eliminate any reference to
the name "Vontobel" or any derivation thereof unless the Advisor
waives this requirement in writing.
12. Duties and Termination. This Agreement shall become
effective on the date first above written subject to its approval
by the shareholders of the Portfolio and unless sooner terminated
as provided herein, shall continue in effect for two (2) years from
that date. Thereafter, this Agreement shall be renewable for
successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of
those members of the Fund's Board of Directors who are not parties
to this Agreement or interested persons of any such party (as that
term is defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on such approval, and (b) by vote
of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940
Act) of the Portfolio. Notwithstanding the foregoing, this
Agreement may be terminated by the Portfolio or by the Fund at any
time on sixty (60) days written notice, without the payment of any
penalty, provided that termination must be authorized either by
vote of the Fund's Board of Directors or by vote of a majority of
the outstanding voting securities of the Portfolio or by the
Advisor on sixty (60) days written notice. This Agreement will
automatically terminate in the event of its assignment (as that
term in defined in the 1940 Act).
13. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is sought. No material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of
the Portfolio's outstanding voting securities (as defined in the
1940 Act).
14. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the
party giving notice to the other party at the address stated below:
(a) To the Fund at: 1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Advisor at: 450 Park Avenue
New York, N.Y. 10022
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Maryland, and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Maryland, or any of
the provisions herein, conflict with the applicable provisions of
the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of
the day and year first above written.
VONTOBEL USA INC.
BY:
Heinrich Schlegel
Chief Executive Officer
BY:
Thomas P. Wittwer
Senior Vice President
VONTOBEL FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
SCHEDULE A TO
INVESTMENT ADVISORY AGREEMENT
BY AND BETWEEN
VONTOBEL FUNDS, INC AND VONTOBEL USA INC.
AND THE
VONTOBEL EASTERN EUROPEAN DEBT FUND
Pursuant to Paragraph 4 of the Investment Advisory
Agreement, dated _________________, 1997 between Vontobel Funds,
Inc. (the "Fund") and Vontobel USA Inc. (the Advisor") for the
Vontobel Eastern European Debt Fund series of the Fund, the Fund
shall pay to the Advisor compensation at an annual rate as follows:
1.25% per annum on the first $500 million of the average
daily net assets of the Portfolio and 1% on the
Portfolio's average daily net assets over $500 million
payable monthly.
211027.1
(Form of)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated
_________________, 1997 by and between VONTOBEL FUNDS, INC., a
Maryland corporation (herein called the "Fund"), and VONTOBEL USA
INC., a New York corporation (the "Advisor"), a registered
investment adviser under the Investment Advisers Act of 1940, as
amended.
WHEREAS, the Fund is registered as a diversified, open-end
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), consisting of several series of
shares, each having its own investment policies; and
WHEREAS, the Fund desires to retain the Advisor to furnish
investment advisory and management services to certain portfolios
of the Fund, subject to the control of the fund's Board of
Directors, and the Advisor is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be bound, it is agreed
between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to act
as the advisor to the VONTOBEL EMERGING MARKETS EQUITY FUND series
of the Fund (the "Portfolio") for the period and on the terms set
forth in this Agreement. The Advisor accepts such appointment and
agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to
manage the investments and reinvestment of the Assets of the
Portfolio, and to continuously review, supervise, and administer
the investment program of the Portfolio, to determine in its
discretion the securities to be purchased or sold, to provide the
Fund and Commonwealth Shareholder Services, Inc. (the
"Administrative Services Agent") with records concerning the
Advisor's activities which the Fund is required to maintain, and to
render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Advisor's
discharge of the foregoing responsibilities.
The Advisor shall discharge the foregoing
responsibilities subject to the control of the fund's Board of
Directors and in compliance with such policies as the Board may
from time to time establish, and in compliance with the objectives,
policies, and limitations for the Portfolio as set forth in the
Fund's Prospectuses and Statement of Additional Information, as
amended from time to time, and applicable laws and regulations.
The Fund will instruct each of its agents and contractors to
cooperate in the conduct of the business of the Portfolio.
The Advisor accepts such employment and agrees, at its
own expense, to render the services and to provide the office
space, furnishings, and equipment and the personnel required by it
to perform the services on the terms and for the compensation
provided herein.
3. Portfolio Transactions. The Advisor is authorized to
select the brokers and dealers that will execute the purchases and
sales of portfolio securities for the Portfolio and is directed to
use its best efforts to obtain the best price and execution for the
Portfolio's transactions in accordance with the policies of the
Fund as set forth from time to time in the Prospectus and Statement
of Additional Information. The Advisor will promptly communicate
to the Fund and to the Administrative Services Agent such
information relating to portfolio transactions as they may
reasonably request.
It is understood that the Advisor will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to the
fund or be in breach of any obligation owing to the fund under this
Agreement, or otherwise, by reason of its having directed a
securities transaction on behalf of the fund to an unaffiliated
broker-dealer in compliance with the provisions of Section 28(e) of
the Securities Exchange Act of 1934 or as described from time to
time by the Prospectuses and Statement of Additional Information.
Subject to the foregoing, the Advisor may direct any transaction of
the Portfolio to a broker which is affiliated with the Advisor in
accordance with, and subject to, the policies and procedures
approved by the board of Directors of the Fund pursuant to Rule
17e-1 under the 1940 Act. Such brokerage services are not deemed
to be provided under this Agreement.
4. Compensation of the Advisor. For the services to be
rendered by the Advisor under this Agreement, the Fund shall pay to
the Advisor compensation at the rate specified in the Schedule
attached hereto and made a part of this Agreement. Such
compensation shall be paid to the Advisor within five (5) business
days after the last business day of each month, and calculated by
applying a daily rate, based on the annual percentage rates as
specified in the attached Schedule, to the assets. The fee shall
be based on the average daily net assets for the month involved.
All rights of compensation under this Agreement for
services performed as of the termination date shall survive the
termination of this Agreement.
5. Expenses. During the term of this Agreement, the Advisor
will pay all expenses incurred by it in connection with the
management of the Fund. Notwithstanding the foregoing, the
Portfolio shall pay the expenses and costs of the Portfolio for the
following:
(1) Taxes;
(2) Brokerage fees and commissions with regard to
portfolio transactions;
(3) Interest charges, fees and expenses of the
custodian of the securities;
(4) Fees and expenses of the Fund's transfer agent and
the Administrative Services Agent;
(5) Its proportionate share of auditing and legal
expenses;
(6) Its proportionate share of the cost of maintenance
of corporate existence;
(7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Advisor as that term is defined by
law;
(8) Its proportionate share of the costs of corporate
meetings;
(9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to existing
shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment
records required to be maintained by the Advisor),
and daily pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal
Revenue Code of 1986, as amended, unless such
expenses and/or taxes arise from the negligence of
another party.
If the expenses projected to be borne by the Portfolio
(exclusive of interest, brokerage commissions, taxes and
extraordinary items, but inclusive of Advisory fees) in any fiscal
year are expected to exceed any applicable state expense limitation
provision to which the Fund is subject, the Advisory fee payable to
the Portfolio to the Advisor shall be reduced on each day such fee
is accrued to the extent of that day's portion of such excess
expenses. The amount of such reduction shall not exceed the actual
amount of the Advisory fee otherwise payable in such year.
Accruals of expenses and adjustment to advisory fees otherwise
payable under this Agreement, and the amounts payable monthly in
accordance with this Agreement, shall be adjusted as required from
month to month.
It is understood that the Fund will register its shares
in states which impose expense limitations on mutual funds only
with the prior written consent of the Advisor and, if consent is
granted, the Advisor agrees to reimburse the Fund for any excess
expenses incurred over such states' limitation up to a maximum of
its Advisory fee.
6. Reports. The Fund and the Advisor agree to furnish to
each other, if applicable, current information required for the
preparation by such parties of prospectuses, statements of
additional information, proxy statements, reports to shareholders,
certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to
their affairs as each may reasonably request.
u. State of the Advisor. The services of the Advisor to the
Fund are not to be deemed exclusive, and the Advisor shall be free
to render similar services to others so long as its services to the
Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also
retain the services of the Advisor to serve as the investment
advisor of other series of the Fund.
8. Books and Records. In compliance with the requirements
of the 1940 Act, the Advisor hereby agrees that all records which
it maintains for the Fund are the property of the Fund, and further
agrees to surrender promptly to the Fund any of such records upon
the Fund's request. The Advisor further agrees to preserve for the
periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.
9. Limitation of Liability of Advisor. The duties of the
Advisor shall be confined to those expressly set forth herein, and
no implied duties are assumed by or may be asserted against the
Advisor hereunder. The Advisor shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or negligence on the part of the
Advisor in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement (as used
in this paragraph 9, the term "advisor" shall include directors,
officers, employees and other corporate agents of the Advisor as
well as that corporation itself).
10. Permissible Interest. Directors, agents, and
shareholders of the Fund are or may be interested in the Advisor
(or any successor thereof) as directors, officers, or shareholders,
or otherwise; directors, officers, agents and shareholders of the
Advisor are or may be interested in the Fund as directors,
officers, shareholders or otherwise; and the Advisor (or any
successor) is or may be interested in the Fund as a shareholder or
otherwise. In addition, brokerage transactions for the Fund may be
effected through affiliates of the Advisor if approved by the
Fund's Board of Directors subject to the rules and regulations of
the Securities and Exchange Commission, and the policies and
procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby authorizes
the Fund to use the name "Vontobel" for the Portfolio. The Fund
agrees that if this Agreement is terminated it will promptly
redesignate the name of the Portfolio to eliminate any reference to
the name "Vontobel" or any derivation thereof unless the Advisor
waives this requirement in writing.
12. Duties and Termination. This Agreement shall become
effective on the date first above written subject to its approval
by the shareholders of the Portfolio and unless sooner terminated
as provided herein, shall continue in effect for two (2) years from
that date. Thereafter, this Agreement shall be renewable for
successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of
those members of the Fund's Board of Directors who are not parties
to this Agreement or interested persons of any such party (as that
term is defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on such approval, and (b) by vote
of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940
Act) of the Portfolio. Notwithstanding the foregoing, this
Agreement may be terminated by the Portfolio or by the Fund at any
time on sixty (60) days written notice, without the payment of any
penalty, provided that termination must be authorized either by
vote of the Fund's Board of Directors or by vote of a majority of
the outstanding voting securities of the Portfolio or by the
Advisor on sixty (60) days written notice. This Agreement will
automatically terminate in the event of its assignment (as that
term in defined in the 1940 Act).
13. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is sought. No material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of
the Portfolio's outstanding voting securities (as defined in the
1940 Act).
14. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the
party giving notice to the other party at the address stated below:
(a) To the Fund at: 1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Advisor at: 450 Park Avenue
New York, N.Y. 10022
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Maryland, and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Maryland, or any of
the provisions herein, conflict with the applicable provisions of
the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of
the day and year first above written.
VONTOBEL USA INC.
BY:
Heinrich Schlegel
Chief Executive Officer
BY:
Thomas P. Wittwer
Senior Vice President
VONTOBEL FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
SCHEDULE A TO
INVESTMENT ADVISORY AGREEMENT
BY AND BETWEEN
VONTOBEL FUNDS, INC AND VONTOBEL USA INC.
AND THE
VONTOBEL EMERGING MARKETS EQUITY FUND
Pursuant to Paragraph 4 of the Investment Advisory
Agreement, dated _________________, 1997 between Vontobel Funds,
Inc. (the "Fund") and Vontobel USA Inc. (the Advisor") for the
Vontobel Emerging Markets Equity Fund series of the Fund, the Fund
shall pay to the Advisor compensation at an annual rate as follows:
1.25% per annum on the first $500 million of the average
daily net assets of the Portfolio and 1% on the
Portfolio's average daily net assets over $500 million
payable monthly.
211029.1
(Form of)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this day of
, 1997, by and between Vontobel Funds, Inc., a Maryland corporation
(the "Fund") and First Dominion Capital Corporation ("FDCC"), a
Virginia corporation.
WITNESSETH:
1. DISTRIBUTION SERVICES
The Fund hereby engages FDCC as national distributor to
assist the Fund in promoting the sale and distribution to investors
of shares of common stock of each series of the Fund ("Shares").
In connection therewith, FDCC shall (i) promote the sale of shares,
(ii) act as principal underwriter of shares of various series of
the Fund, (iii) otherwise assist the Fund in the distribution of
shares directly to investors through dealers or otherwise. For
this purpose the Fund agrees to offer shares for sale at all times
when, and in such places as, such shares are to be made available
for sale and may lawfully be offered for sale and sold. As and
when necessary in connection therewith FDCC may act as principal or
agent for the sale of such shares.
2. SALE OF FUND SHARES
Such shares are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject
to acceptance or rejection by the Fund. Any offer or sale shall be
conclusively presumed to have been accepted by the Fund if the Fund
shall fail to notify FDCC of the rejection of such offer or sale
prior to the computation of the net asset value of the Fund's
shares next following receipt by the Fund of notice of such offer
or sale.
(b) No share of the Fund shall be sold for any
consideration other than cash or, except in instances otherwise
provided for by the Fund's currently effective Prospectus, for any
amount less than the public offering price per share, which shall
be determined in accordance with the Fund's currently effective
Prospectus. No shares may be sold for less than the net asset
value thereof.
3. REGISTRATION OF SHARES
The Fund agrees to make prompt and reasonable efforts to
effect and to keep in effect the registration or qualification of
its shares for sale in such jurisdictions as the Fund may
designate. FDCC may serve as dealer of record to assist the Fund
in connection with any such registration or qualification. The
Fund acknowledges that FDCC may incur expenses in connection with
assisting in the registration or qualification of Fund shares which
are sold at net asset value and the Fund will pay or reimburse
expenses of FDCC which are incurred in connection with such
registration or qualification.
4. INFORMATION TO BE FURNISHED TO FDCC
The Fund agrees that it will furnish FDCC with such
information with respect to the affairs and accounts of the Fund as
FDCC may from time to time reasonably require, and further agrees
that FDCC, at all reasonable times, shall be permitted to inspect
the books and records of the Fund.
5. ALLOCATION OF EXPENSES
During the period of this contract, the Fund shall pay or
cause to be paid all expenses, costs, and fees incurred by the Fund
which are not assumed by FDCC or any investment manager or
investment advisor to the Fund. FDCC shall pay advertising and
promotional expenses incurred by FDCC in connection with the
distribution of the Fund's shares which are sold subject to the
imposition of a sales charge including paying for prospectuses for
delivery to prospective shareholders.
6. COMPENSATION TO FDCC
It is understood and agreed by the parties hereto that
FDCC will receive compensation for services it performs hereunder
in accordance with Schedule A hereto.
7. LIMITATION OF FDCC'S AUTHORITY
FDCC shall be deemed to be an independent contractor and,
except as specifically provided or authorized herein, shall have no
authority to act for or represent the Fund. In the performance of
its duties hereunder, FDCC may solicit and enter into selling
dealer agreements with other broker-dealers in a form approved by
the Fund. Such selling dealer agreements shall provide for the
sale of shares of the Fund (or any series of the Fund) on terms
consistent with the registration statement of the Fund as then if
effect. Unless otherwise provided in a selling dealer agreement,
any selling dealer agreement of FDCC in effect as of the date of
this agreement shall be deemed to continue hereunder upon delivery
to the selling dealer of any amendment required by the terms of the
Fund's action eliminating the sales load on sales of affected Fund
shares.
8. SUBSCRIPTION FOR SHARES - REFUND FOR CANCELED ORDERS
If FDCC elects to act as a principal, and not as agent,
for a sale of Fund shares, FDCC shall subscribe for the shares of
the Fund only for the purpose of covering purchase orders already
received by it or for the purpose of investment for its own
account. Whether acting as principal or agent, in the event that
an order for the purchase of shares of the Fund is placed with FDCC
by a customer or dealer and subsequently canceled, FDCC shall
forthwith cancel the subscription for such shares entered on the
books of the Fund, and, if FDCC has paid the Fund for such shares,
shall be entitled to receive from the Fund in refund of such
payments the lesser of:
(a) the consideration received by the Fund for said shares;
or
(b) the net asset value of such shares at the time of
cancellation by FDCC.
9. INDEMNIFICATION OF THE FUND
FDCC agrees to indemnify the Fund against any and all
litigation and other legal proceedings of any kind or nature and
against any liability, judgment, cost, or penalty imposed as a
result of such litigation or proceedings in any way arising out of
or in connection with the sale or distribution of the shares of the
Fund by FDCC. In the event of the threat or institution of any
such litigation or legal proceedings against the Fund, FDCC shall
defend such action on behalf of the Fund at its own expense, and
shall pay any such liability, judgment, cost, or penalty resulting
therefrom, whether imposed by legal authority on agreed upon by way
of compromise and settlement; provided, however, FDCC shall not be
required to pay or reimburse the Fund for any liability, judgment,
cost, or penalty incurred as a result of information supplied by,
or as the result of the omission to supply information by, the Fund
to FDCC or to FDCC by a director, officer, or employee of the Fund
who is not an interested person of FDCC, unless the information so
supplied or omitted was available to FDCC or the Fund's investment
adviser without recourse to the Fund or any such person referred to
above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
FDCC shall be free to render to others services of a
nature either similar to or different from those rendered under
this contract, except such as may impair its performance of the
services and duties to be rendered by it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
The effective date of this Agreement shall be the date
first set forth above. Wherever referred to in this Agreement, the
vote or approval of the holders of a majority of the outstanding
voting securities of the Fund (or of any series of the Fund) shall
mean the vote of 67% or more of the securities of the Fund (or of
any affected series of the Fund) if the holders of more than 50% of
such securities are present in person or by proxy or the vote of
more than 50% of the securities of the Fund (or an affected series
of the Fund) whichever is the lesser.
Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect from year to year but only so
long as such continuance is specifically approved at least annually
by the Board of Directors of the Fund, including the specific
approval of a majority of the directors who are not interested
person of FDCC as defined by the Investment Company Act of 1940, as
amended, cast in person at a meeting called for the purpose of
voting on such approval, or by the vote of the holders of a
majority of the outstanding voting securities of the Fund or an
affected series of the Fund.
This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of the
Fund or by the vote of the holders of a majority of the outstanding
voting securities of the Fund, or by FDCC, upon 60 days' written
notice to the other party.
This Agreement shall automatically terminate in the event
of its assignment (as defined by the provisions of the Investment
Company Act of 1940, as amended).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be
effective until approved by FDCC and by the affirmative vote of a
majority of the Board of Directors of the Fund (including a
majority of the directors who are not interested persons of FDCC or
any affiliate of FDCC).
13. NOTICES
Any notice under this Agreement shall be in writing,
addressed, delivered, or mailed, postage prepaid, to the other
party at such address as such other party may designate in writing
for receipt of such notice.
IN WITNESS WHEREOF, the Fund and FDCC have caused this
Agreement to be executed by their duly authorized officers affixed
hereto all as of the day and year first above written.
VONTOBEL FUNDS, INC.
By
John Pasco, III
Chairman
Attested by
FIRST DOMINION CAPITAL CORP.
By
John Pasco, III
President
Attested by
<PAGE>
SCHEDULE A
FDCC shall receive, as compensation for its services pursuant
to this Distribution Agreement:
(a) With respect to any shares of the Fund sold subject to a
sales charge, FDCC shall be entitled to retain the underwriter's
portion of the sales charge for each investment in the Fund's
shares, computed as a percentage of the offering price determined
in accordance with the Fund's currently effective Prospectus and as
otherwise provided in the Fund's registration statement.
(b) With respect to sales of shares of the Fund sold subject
to a sales charge for which FDCC is the selling dealer, FDCC shall
retain the dealer's sales charge for each investment in the Fund's
shares, computed as a percentage of the offering price determined
in accordance with the Fund's currently effective Prospectus and as
otherwise provided in the Fund's registration statement.
(c) With respect to any shares of the Fund sold at net asset
value (without a sales charge), FDCC shall receive from the Fund
reimbursement at the rate of $30 per hour for the cost of personnel
involved with assistance in the promotion of sale of such shares
and for out-of-pocket costs incurred by FDCC.
211030.1
(Form of)
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated
_____________, 1997 by and between VONTOBEL FUNDS, INC. (the
"Fund"), a diversified, open-end management investment company,
duly organized as a corporation in accordance with the laws of the
State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES, INC.
("CSS"), a corporation duly organized as a corporation in
accordance with the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative
Services Agent, for and on behalf of the VONTOBEL EASTERN EUROPEAN
DEBT FUND series (the "Portfolio"), to perform certain
recordkeeping and shareholder servicing functions required of a
duly registered investment company to comply with certain
provisions of federal, state and local law, rules and regulations,
and, as is required, to assist the Fund in preparing and filing
certain financial reports, and further to perform certain daily
functions in connection with on-going operations of the Fund and
the Portfolio, and provide ministerial services to implement the
investment decisions of the Fund and the investment advisor of the
Portfolio, Vontobel USA Inc. (the "Advisor"); and
WHEREAS, CSS is willing to perform such functions upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto, intending to
be legally bound, agree as follows:
Section 1. CSS shall examine and review all records and
documents of the Portfolio pertaining to its duties under this
Agreement in order to determine and/or recommend how such records
and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise
the Fund and its agents of the information which is deemed to be
"necessary" for the performance of its duties under this Agreement,
and upon receipt of necessary information and Written or Oral
Instructions from the Fund, shall maintain and keep current such
shareholder relations records.
Unless the information necessary to perform the above
functions is furnished in writing to CSS by the Fund or its agents
(such as Custodians, Transfer Agents, etc.), CSS shall incur no
liability and the Fund shall indemnify and hold harmless CSS from
and against any liability arising from any discrepancy in the
information received by CSS and used in the performance by CSS of
its duties.
It shall be the responsibility of the Fund to furnish CSS with
the net asset value per share, declaration, record and payment
dates and amounts of any dividends or income and any other special
actions required concerning each of its securities.
CSS shall maintain such shareholder records above mentioned as
required by regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer
Agent all purchases and redemptions of shares of the Portfolio
effected through the Fund or its distributor, as and when such
orders are accepted by the Fund or an authorized agent of the Fund
designated for that purpose. CSS shall receive from the Fund's
Transfer Agent daily reports of share purchases, redemptions, and
total shares outstanding, and shall be accountable for the
information contained in such reports of purchases and redemptions
when received. It is agreed by the parties that the net asset
value per share of the Fund will be calculated in accordance with
Rule 22c-1 under the Investment Company Act of 1940 and as
otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and
shareholder accounts with the Fund's Transfer Agent periodically,
and not less frequently than monthly.
Section 4. CSS shall provide assistance to the Fund in the
servicing of shareholder accounts, which may include telephone and
written conversations, assistance in redemptions, exchanges,
transfers and opening accounts as may be required from time to
time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund
may from time to time agree.
Section 5. The accounts and records maintained by CSS shall
be the property of the Fund, and shall be made available to the
Fund, within a reasonable period of time, upon demand. CSS shall
assist the Fund's independent auditors, or any other person
authorized by the Fund or, upon demand, any regulatory body as
authorized by law or regulation, in any requested review of the
Fund's accounts and records but shall be reimbursed for all
reasonable and documented expenses and employee time invested in
any such review outside of routine and normal periodic reviews.
Upon receipt from the Fund of any necessary information, CSS shall
assist the Fund in organizing necessary data for the Fund's
completion of any necessary tax returns, questionnaires, periodic
reports to shareholders and such other reports and information
requests as the Fund and CSS shall agree upon from time to time.
Section 6. CSS and the Fund may from time to time adopt
procedures they agree upon, and, absent knowledge to the contrary,
CSS may conclusively assume that any procedure approved by the Fund
or directed by the Fund, does not conflict with or violate any
requirements of Fund's Prospectuses, Articles of Incorporation,
By-Laws, registration statements, orders, or any rule or regulation
of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for
notifying CSS of any changes in regulations or rules which might
necessitate changes in the Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon
statements of the Fund's lawyers, accountants and other persons
believed by it in good faith to be expert in matters upon which
they are consulted, and CSS shall not be liable for any actions
taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in
good faith reliance upon any authorized Oral Instructions, any
Written Instructions, and certified copy of any resolution of the
Board of Directors of the Fund or any other document reasonably
believed by CSS to be genuine and to have been executed or signed
by the proper person or persons.
CSS shall not be held to have notice of any change of
authority of any officer, employee or agent of the Fund until
receipt of notification thereof by the Fund.
The Fund shall indemnify and hold CSS harmless from any and
all expenses, damages, claims, suits, liabilities, actions, demands
and losses whatsoever arising out of or in connection with any
error, omission, inaccuracy or other deficiency of any information
provided to CSS by the Fund, or the failure of the Fund to provide
any information needed by CSS knowledgeably to perform its
functions hereunder. Also, the Fund shall indemnify and hold
harmless CSS from all claims and liabilities (including reasonable
documented expenses for legal counsel) incurred by or assessed
against CSS in connection with the performance of this Agreement,
except such as may arise from CSS's own negligent action, omission
or willful misconduct; provided, however, that before confessing
any claim against it, CSS shall give the Fund reasonable
opportunity to defend against such claim in the name of the Fund or
CSS or both.
Section 9. The Fund agrees to pay CSS compensation for its
services and to reimburse it for expenses, as set forth in the
Schedule attached hereto, or as shall be set forth in amendments
to such schedule approved by the Fund's Board of Directors and CSS.
Section 10. Except as required by laws and regulations
governing investment companies, nothing contained in this Agreement
is intended to or shall require CSS, in any capacity hereunder, to
perform any functions or duties on any holiday or other day of
special observance on which CSS is closed. Functions or duties
normally scheduled to be performed on such days shall be performed
on, and as of, the next business day on which both the Fund and CSS
are open. CSS will be open for business on days when the Fund is
open for business and/or as otherwise set forth in the Fund's
Prospectuses and Statements of Additional Information.
Section 11. Either the Fund or CSS may give written notice to
the other of the termination of this Agreement, such termination to
take effect at the time specified in the notice, which time shall
be not less than 90 days from the giving of such notice. Such
termination shall be without penalty.
Section 12. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in
writing, and shall be delivered in person or sent by first-class
mail, postage prepaid, to the respective parties at their last
known address, except that Oral Instructions may be given if
authorized by the Board of the Fund and preceded by a certificate
from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute but
one and the same instrument.
Section 14. This Agreement shall extend to and shall be
binding upon the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of CSS, or by
CSS without the written consent of the Fund, authorized or approved
by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral
Instructions and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or
information of any kind transmitted to CSS in person or by
telephone, telegram, telecopy, or other mechanical or documentary
means lacking a signature, by a person or persons believed in good
faith by CSS to be a person or persons authorized by a resolution
of the Board of Directors of the Fund, to give Oral Instructions on
behalf of the Fund.
Written Instructions: The term Written Instruction shall mean
an authorization, instruction, approval, item or set of data, or
information of any kind transmitted to CSS in original writing
containing original signatures or a copy of such document
transmitted by telecopy including transmission of such signature
believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to
give Written Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each
resolution of its Board of Directors authorizing execution of
Written Instructions or the transmittal of Oral Instructions as
provided above.
Section 16. This Agreement shall be governed by the laws of
the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers as of the
day and year first above written.
VONTOBEL FUNDS, INC.
By:
John Pasco, III
Chairman & President
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
Chief Executive Officer
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
FOR THE
VONTOBEL EASTERN EUROPEAN DEBT FUND
Pursuant to Section 9 of the Administrative Services
Agreement, dated ________________, 1997, by and between Vontobel
Funds, Inc. (the "Fund"), and Commonwealth Shareholder Services,
Inc. ("CSS"), the Vontobel Eastern European Debt Fund series of the
Fund shall pay CSS a fee calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Vontobel Eastern European Debt Fund series of the Fund,
payable monthly, with a minimum fee of $42,500.
D. In addition to the foregoing, the Fund shall reimburse CSS,
from the assets of the Portfolio, for the Portfolio's
proportionate share of general expenses incurred for the Fund
and for all expenses incurred by the Portfolio individually.
Such out-of-pocket expenses shall include, but not be limited
to: documented fees and costs of obtaining advice of counsel
or accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.
211018.1
(Form of)
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated
_________________, 1997 by and between VONTOBEL FUNDS, INC. (the
"Fund"), a diversified, open-end management investment company,
duly organized as a corporation in accordance with the laws of the
State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES, INC.
("CSS"), a corporation duly organized as a corporation in
accordance with the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative
Services Agent, for and on behalf of the VONTOBEL EMERGING MARKETS
EQUITY FUND series (the "Portfolio"), to perform certain
recordkeeping and shareholder servicing functions required of a
duly registered investment company to comply with certain
provisions of federal, state and local law, rules and regulations,
and, as is required, to assist the Fund in preparing and filing
certain financial reports, and further to perform certain daily
functions in connection with on-going operations of the Fund and
the Portfolio, and provide ministerial services to implement the
investment decisions of the Fund and the investment advisor of the
Portfolio, Vontobel USA Inc. (the "Advisor"); and
WHEREAS, CSS is willing to perform such functions upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto, intending to
be legally bound, agree as follows:
Section 1. CSS shall examine and review all records and
documents of the Portfolio pertaining to its duties under this
Agreement in order to determine and/or recommend how such records
and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise
the Fund and its agents of the information which is deemed to be
"necessary" for the performance of its duties under this Agreement,
and upon receipt of necessary information and Written or Oral
Instructions from the Fund, shall maintain and keep current such
shareholder relations records.
Unless the information necessary to perform the above
functions is furnished in writing to CSS by the Fund or its agents
(such as Custodians, Transfer Agents, etc.), CSS shall incur no
liability and the Fund shall indemnify and hold harmless CSS from
and against any liability arising from any discrepancy in the
information received by CSS and used in the performance by CSS of
its duties.
It shall be the responsibility of the Fund to furnish CSS with
the net asset value per share, declaration, record and payment
dates and amounts of any dividends or income and any other special
actions required concerning each of its securities.
CSS shall maintain such shareholder records above mentioned as
required by regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer
Agent all purchases and redemptions of shares of the Portfolio
effected through the Fund or its distributor, as and when such
orders are accepted by the Fund or an authorized agent of the Fund
designated for that purpose. CSS shall receive from the Fund's
Transfer Agent daily reports of share purchases, redemptions, and
total shares outstanding, and shall be accountable for the
information contained in such reports of purchases and redemptions
when received. It is agreed by the parties that the net asset
value per share of the Fund will be calculated in accordance with
Rule 22c-1 under the Investment Company Act of 1940 and as
otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and
shareholder accounts with the Fund's Transfer Agent periodically,
and not less frequently than monthly.
Section 4. CSS shall provide assistance to the Fund in the
servicing of shareholder accounts, which may include telephone and
written conversations, assistance in redemptions, exchanges,
transfers and opening accounts as may be required from time to
time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund
may from time to time agree.
Section 5. The accounts and records maintained by CSS shall
be the property of the Fund, and shall be made available to the
Fund, within a reasonable period of time, upon demand. CSS shall
assist the Fund's independent auditors, or any other person
authorized by the Fund or, upon demand, any regulatory body as
authorized by law or regulation, in any requested review of the
Fund's accounts and records but shall be reimbursed for all
reasonable and documented expenses and employee time invested in
any such review outside of routine and normal periodic reviews.
Upon receipt from the Fund of any necessary information, CSS shall
assist the Fund in organizing necessary data for the Fund's
completion of any necessary tax returns, questionnaires, periodic
reports to shareholders and such other reports and information
requests as the Fund and CSS shall agree upon from time to time.
Section 6. CSS and the Fund may from time to time adopt
procedures they agree upon, and, absent knowledge to the contrary,
CSS may conclusively assume that any procedure approved by the Fund
or directed by the Fund, does not conflict with or violate any
requirements of Fund's Prospectuses, Articles of Incorporation,
By-Laws, registration statements, orders, or any rule or regulation
of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for
notifying CSS of any changes in regulations or rules which might
necessitate changes in the Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon
statements of the Fund's lawyers, accountants and other persons
believed by it in good faith to be expert in matters upon which
they are consulted, and CSS shall not be liable for any actions
taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in
good faith reliance upon any authorized Oral Instructions, any
Written Instructions, and certified copy of any resolution of the
Board of Directors of the Fund or any other document reasonably
believed by CSS to be genuine and to have been executed or signed
by the proper person or persons.
CSS shall not be held to have notice of any change of
authority of any officer, employee or agent of the Fund until
receipt of notification thereof by the Fund.
The Fund shall indemnify and hold CSS harmless from any and
all expenses, damages, claims, suits, liabilities, actions, demands
and losses whatsoever arising out of or in connection with any
error, omission, inaccuracy or other deficiency of any information
provided to CSS by the Fund, or the failure of the Fund to provide
any information needed by CSS knowledgeably to perform its
functions hereunder. Also, the Fund shall indemnify and hold
harmless CSS from all claims and liabilities (including reasonable
documented expenses for legal counsel) incurred by or assessed
against CSS in connection with the performance of this Agreement,
except such as may arise from CSS's own negligent action, omission
or willful misconduct; provided, however, that before confessing
any claim against it, CSS shall give the Fund reasonable
opportunity to defend against such claim in the name of the Fund or
CSS or both.
Section 9. The Fund agrees to pay CSS compensation for its
services and to reimburse it for expenses, as set forth in the
Schedule attached hereto, or as shall be set forth in amendments
to such schedule approved by the Fund's Board of Directors and CSS.
Section 10. Except as required by laws and regulations
governing investment companies, nothing contained in this Agreement
is intended to or shall require CSS, in any capacity hereunder, to
perform any functions or duties on any holiday or other day of
special observance on which CSS is closed. Functions or duties
normally scheduled to be performed on such days shall be performed
on, and as of, the next business day on which both the Fund and CSS
are open. CSS will be open for business on days when the Fund is
open for business and/or as otherwise set forth in the Fund's
Prospectuses and Statements of Additional Information.
Section 11. Either the Fund or CSS may give written notice to
the other of the termination of this Agreement, such termination to
take effect at the time specified in the notice, which time shall
be not less than 90 days from the giving of such notice. Such
termination shall be without penalty.
Section 12. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in
writing, and shall be delivered in person or sent by first-class
mail, postage prepaid, to the respective parties at their last
known address, except that Oral Instructions may be given if
authorized by the Board of the Fund and preceded by a certificate
from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute but
one and the same instrument.
Section 14. This Agreement shall extend to and shall be
binding upon the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of CSS, or by
CSS without the written consent of the Fund, authorized or approved
by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral
Instructions and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or
information of any kind transmitted to CSS in person or by
telephone, telegram, telecopy, or other mechanical or documentary
means lacking a signature, by a person or persons believed in good
faith by CSS to be a person or persons authorized by a resolution
of the Board of Directors of the Fund, to give Oral Instructions on
behalf of the Fund.
Written Instructions: The term Written Instruction shall mean
an authorization, instruction, approval, item or set of data, or
information of any kind transmitted to CSS in original writing
containing original signatures or a copy of such document
transmitted by telecopy including transmission of such signature
believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to
give Written Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each
resolution of its Board of Directors authorizing execution of
Written Instructions or the transmittal of Oral Instructions as
provided above.
Section 16. This Agreement shall be governed by the laws of
the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers as of the
day and year first above written.
VONTOBEL FUNDS, INC.
By:
John Pasco, III
Chairman & President
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
Chief Executive Officer
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
FOR THE
VONTOBEL EMERGING MARKETS EQUITY FUND
Pursuant to Section 9 of the Administrative Services
Agreement, dated ___________________, 1997, by and between Vontobel
Funds, Inc. (the "Fund"), and Commonwealth Shareholder Services,
Inc. ("CSS"), the Vontobel Emerging Markets Equity Fund series of
the Fund shall pay CSS a fee calculated and paid monthly as
follows:
A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Vontobel Emerging Markets Equity Fund series of the Fund,
payable monthly, with a minimum fee of $42,500.
D. In addition to the foregoing, the Fund shall reimburse CSS,
from the assets of the Portfolio, for the Portfolio's
proportionate share of general expenses incurred for the Fund
and for all expenses incurred by the Portfolio individually.
Such out-of-pocket expenses shall include, but not be limited
to: documented fees and costs of obtaining advice of counsel
or accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.
211022.1
(Form of)
FUND EXPENSE AGREEMENT
Agreement dated , 1997.
WHEREAS, Vontobel Funds, Inc. (the "Fund") is a registered
investment company which is obligated to pay from its assets the
just and proper debts of the Fund, and
WHEREAS, Commonwealth Shareholder Services, Inc. ("CSS")
serves as Administrator for the Fund, and
WHEREAS, as Administrator for the Fund, CSS is charged with
arranging for the payment by the Fund of the Fund's just and proper
debts, and
WHEREAS, the Fund and CSS wish to provide for the efficient
and economical payment of the debts of the Fund, and
WHEREAS, the Fund and CSS wish to revise the procedures for
the lawful and efficient payment of the Fund's debts,
NOW THEREFORE, in furtherance of the Administrative Agreements
currently in effect between the Fund and CSS, the Fund and CSS, for
good and valid consideration, and intending to be legally bound,
have entered into this Agreement (the "Agreement") that:
1. CSS shall arrange for the payment on behalf of the Fund of the
debts of the Fund. In connection therewith:
1.1 CSS may require and direct the Fund or any duly
authorized custodian of, or agent acting for, the Fund to
deliver a check or draft payable by or from the assets of
the Fund, or otherwise transfer monies, to make payment
of any debt of the Fund.
1.2 CSS may elect to advance monies for the purpose of making
any payment of a debt of the Fund, subject to the right
of CSS promptly to be made whole for such advance.
1.3 Any payment made by or at the instance of CSS under this
paragraph shall only be effected as and when the payment
of the debt in question has been authorized by, and duly
approved in accordance with, procedures set and approved
by the Board of Directors of the Fund.
1.4 Subject to written modification by agreement of the Fund
and CSS, CSS shall arrange for payment of the debts of
the Fund twice each calendar month, or more frequently as
the Fund's payment needs may dictate.
1.5 CSS shall deliver to the Fund's custodian a schedule of
such payments by CSS of debts of the Fund (a
"Certification"), indicating whether such payment has
been made from assets of the Fund, or from amounts
advanced by CSS. Each Certification shall set forth a
written breakdown of the expense category of each item
for which payment has been made, and for which
reimbursement is requested by such certification,
indicating the form of payment thereof.
2. Upon receipt of a Certification from CSS, the Fund shall
promptly reimburse CSS for amounts advanced by CSS for the
payment of the just debts of the Fund. Such reimbursement
shall be made by a wire or comparable transfer of monies from
the Fund to CSS, such transfer in good funds to be effective
five business days following the payment of the expenses for
such Certification.
IN WITNESS WHEREOF, the undersigned, each being duly
authorized, has executed this Agreement on the date first set forth
above:
VONTOBEL FUNDS, INC.
By: __________________________________
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By: ___________________________________
John Pasco, III
President
211039.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports each dated January 17, 1997 on
the financial statements and financial highlights of Vontobel International
Equity Fund (formerly Vontobel EuroPacific Fund), Vontobel U.S. Value Fund,
Vontobel International Bond Fund and Vontobel Eastern European Equity Fund,
each a series of shares of Vontobel Funds, Inc. (formerly "The World
Funds, Inc.")
Such financial statements and financial highlights appear in the
1996 Annual Reports to Shareholders which are incorporated by reference
in the Prospectus filed in Post-Effective Amendment Number 34 to the
Registration Statement on Form N-1A of Vontobel Funds, Inc. We also
consent to the references to our Firm in such Registration Statement
and Prospectus.
Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
June 2, 1997
210911.1
COMPUTATION OF PERFORMANCE
VONTOBEL INTERNATIONAL EQUITY FUND
1 Year Inception
P 1,000.00 1,000.00
T 16.98% 6.67%
N 1.0 12.0
ERV 1,169.76 2,170.63
211044.1
COMPUTATION OF PERFORMANCE
VONTOBEL U. S. VALUE FUND
1 Year Inception
P 1,000.00 1,000.00
T 21.27% 15.13%
N 1.0 6.75
ERV 1,212.70 2,588.74
211055.1
COMPUTATION OF PERFORMANCE
VONTOBEL INTERNATIONAL BOND FUND
1 Year Inception
P 1,000.00 1,000.00
T 7.51% 9.38%
N 1.0 2.83
ERV 1,075.09 1,289.36
211082.1
COMPUTATION OF PERFORMANCE
VONTOBEL EASTERN EUROPEAN EQUITY FUND
Inception
P 1,000.00
T 48.90%*
N 0.87%
ERV 1,489.00
* NOT ANNUALIZED
211085.1
VONTOBEL FUNDS, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Vontobel Funds, Inc. hereby appoints John Pasco,
III, his true and lawful attorney to execute in his name, place and
stead and on his behalf a registration statement on Form N-1A for
the registration pursuant to the Securities Act of 1933, as
amended, and the Investment Company act of 1940, as amended, of
shares of said Corporation's Common Stock, and any and all
amendments to said Registration Statement (including post-effective
amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the U.S. Securities
and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the
undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents and purposes as the
undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 13th day of May, 1997.
SAMUEL BOYD, JR.
Samuel Boyd, Jr..
Director
VONTOBEL FUNDS, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Vontobel Funds, Inc. hereby appoints John Pasco,
III, his true and lawful attorney to execute in his name, place and
stead and on his behalf a registration statement on Form N-1A for
the registration pursuant to the Securities Act of 1933, as
amended, and the Investment Company act of 1940, as amended, of
shares of said Corporation's Common Stock, and any and all
amendments to said Registration Statement (including post-effective
amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the U.S. Securities
and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the
undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents and purposes as the
undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 13th day of May, 1997.
PAUL M. DICKINSON
Paul M. Dickinson
Director
VONTOBEL FUNDS, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Vontobel Funds, Inc. hereby appoints John Pasco,
III, his true and lawful attorney to execute in his name, place and
stead and on his behalf a registration statement on Form N-1A for
the registration pursuant to the Securities Act of 1933, as
amended, and the Investment Company act of 1940, as amended, of
shares of said Corporation's Common Stock, and any and all
amendments to said Registration Statement (including post-effective
amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the U.S. Securities
and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the
undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents and purposes as the
undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 19th day of May, 1997.
HENRY SCHLEGEL
Henry Schlegel
Director
VONTOBEL FUNDS, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Vontobel Funds, Inc. hereby appoints John Pasco,
III, his true and lawful attorney to execute in his name, place and
stead and on his behalf a registration statement on Form N-1A for
the registration pursuant to the Securities Act of 1933, as
amended, and the Investment Company act of 1940, as amended, of
shares of said Corporation's Common Stock, and any and all
amendments to said Registration Statement (including post-effective
amendments), and all instruments necessary or incidental in
connection therewith and to file the same with the U.S. Securities
and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the
undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents and purposes as the
undersigned might or could do, the undersigned hereby ratifying and
approving all such acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 13th day of May, 1997.
WILLIAM E. POIST
William E. Poist
Director
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<GROSS-ADVISORY-FEES> 1,280,135
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<GROSS-EXPENSE> 2,231,687
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 57,922,776
<INVESTMENTS-AT-VALUE> 64,463,224
<RECEIVABLES> 916,241
<ASSETS-OTHER> 88,530
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,606,777
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,120
<TOTAL-LIABILITIES> 55,120
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<PAID-IN-CAPITAL-COMMON> 53,313,618
<SHARES-COMMON-STOCK> 5,046,792
<SHARES-COMMON-PRIOR> 0
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<ACCUMULATED-NET-GAINS> 9,697,591
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 69,551,657
<DIVIDEND-INCOME> 763,105
<INTEREST-INCOME> 537,493
<OTHER-INCOME> 0
<EXPENSES-NET> 904,282
<NET-INVESTMENT-INCOME> 396,316
<REALIZED-GAINS-CURRENT> 11,188,744
<APPREC-INCREASE-CURRENT> 158,072
<NET-CHANGE-FROM-OPS> 11,743,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 468,857
<DISTRIBUTIONS-OF-GAINS> 5,158,503
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,091,561
<NUMBER-OF-SHARES-REDEEMED> 4,602,188
<NET-CHANGE-IN-ASSETS> 14,448,320
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<GROSS-EXPENSE> 959,950
<AVERAGE-NET-ASSETS> 63,095,374
<PER-SHARE-NAV-BEGIN> 13.25
<PER-SHARE-NII> .17
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<INVESTMENTS-AT-COST> 24,345,734
<INVESTMENTS-AT-VALUE> 25,587,032
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<DISTRIBUTIONS-OF-GAINS> 141,645
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<NUMBER-OF-SHARES-REDEEMED> 1,037,455
<NET-CHANGE-IN-ASSETS> 10,634,822
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000705455
<NAME> VONTOBEL FUNDS, INC.
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<NAME> VONTOBEL EASTERN EUROPEAN EQUITY FUND
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<S> <C>
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