ANNUAL REPORT
TO SHAREHOLDERS
VONTOBEL
U.S. VALUE FUND
A SERIES of
Vontobel Funds, Inc.
a "Series" Investment Company
FOR THE YEAR ENDED
DECEMBER 31, 1996
<PAGE>
VONTOBEL U.S. VALUE FUND - ANNUAL REPORT 1997
Dear Shareholder:
At December 31, the fund's closing Net Asset Value stood at $13.78 and net
assets totaled $69,551,657, vs. $54,939,906 at the end of 1995. On December 10
the fund paid a per share distribution of $1.41 in income and $0.88 in long-term
capital gains to shareholders of record on December 9.
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
Standard & Poor's 500's 23.0% total return, and almost double the return on the
Russell 2000, an index representing relatively small companies. Much of the gain
in U.S. equities came in the powerful post-election rally, which accounted for
the bulk of the fourth-quarter gains of 10.2% and 8.3%, respectively, in the
DJIA and S&P 500. The Vontobel U.S. Value Fund trailed the broader large-cap
averages, providing investors with total returns of 7.8% in the final quarter of
the year and 21.3% over the 12-month span.
While not necessarily pleased about trailing the S&P 500 benchmark, we were not
surprised, either. Strict adherence to an investment style that dictates the
sale of securities held as they approach established price targets prompted us
to reduce the fund's holdings in many companies during the year. 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. We sold the last of the fund's Gillette shares shortly
after the acquisition was announced. Coca-Cola shares represented 8.6% of total
fund assets at January 1st. By mid-May, and into a strong advance, we sold the
last of those shares, although we subsequently repurchased the stock in
December. Because we 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.
We claim no skill in calling the direction of either the economy or the markets.
We note, though, that the past few years' combination of relatively low interest
rates and soaring corporate profitability in a gradually expanding national
economy has been a remarkably rewarding environment for U.S. stockholders, who
have responded by pouring new money into stocks. The consensus seems to call for
more of the same in 1997. While we can't point to any one factor that will
necessarily go wrong, we could point to many factors that might go wrong.
<PAGE>
Inflation could emerge now that everyone believes it has been vanquished.
Profits could disappoint, possibly due to fierce competitive pressures or a
drop-off in spending by heavily indebted consumers. Perhaps Alan Greenspan,
concerned about "irrational exuberance" in the stock market, will tighten
credit.
In examining and rejecting many individual companies for possible investment,
it's not so much that we don't like the companies, but that we feel their stock
prices do not offer the safety of principal and promise of a satisfactory return
that we seek. Investors in the Vontobel U.S. Value Fund should be aware that we
intend to stick our investment discipline. Until we find compelling investment
ideas on our terms, we'll hold cash, possibly resulting in underperformance in
an "ebullient" market. On the plus side, we'll be well prepared to buy when the
market presents us with opportunity.
Ed Walczak
President
January 31, 1997
2
<PAGE>
[GRAPH GOES HERE]
US VALUE S&P 500
03/30/90 $10,000.00 $10,000.00
12/31/90 $ 9,010.85 $ 9,714.00
12/31/91 $12,370.63 $12,270.00
12/31/92 $14,343.49 $12,817.00
12/31/93 $15,205.24 $13,722.00
12/31/94 $15,215.10 $13,510.78
12/31/95 $21,355.82 $18,588.13
12/31/96 $25,900.56 $22,857.66
3
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES SECURITY VALUE
- ---------- -------- ------------
<S> <C>
COMMON STOCK: 65.61%
BANKING: 6.93%
51,146 California Center Bank $ 792,763
24,832 Hanmi Bank* 297,984
------------
13,800 Wells Frago & Co. 3,722,550
------------
4,813,297
------------
BEVERAGE: 2.20%
29,000 Coca Cola 1,526,125
------------
CREDIT AND FINANCE: 2.55%
31,360 American Express 1,771,840
------------
FOOD-PROCESSING: 4.08%
50,500 Wrigley Co. 2,840,625
------------
INDUSTRIAL: 1.10%
16,000 Cleveland Cliffs 726,000
2,000 New Holland 41,750
------------
767,750
------------
INSURANCE-DIVERSIFIED: 14.36%
38,000 American International Group 4,113,500
68,700 Horace Mann Educators Corp. 2,773,763
115,450 Old Republic International Corp. 3,102,719
------------
9,989,982
------------
INSURANCE-PROPERTY/CASUALITY: 14.01%
96,700 Chubb Corp. 5,197,625
49,000 Cincinnati Financial 3,178,875
22,425 Orion Capital 1,370,728
------------
9,747,228
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES SECURITY VALUE
- ---------- -------- ------------
<S> <C>
INSURANCE-LIFE: 3.05%
10,400 Reliastar Financial Corp. 600,600
16,700 Torchmark 843,350
9,400 UNUM Corp. 679,150
------------
2,123,100
------------
OTHER FINANCIAL: 2.90%
23,924 Federal National Mtg. 891,169
10,200 Federal Home Loan Mtg. 1,123,275
------------
2,014,444
------------
PUBLISHING AND BROADCAST: 10.57%
59,224 Walt Disney Co. 4,123,471
43,100 Gannett Co. 3,227,112
------------
7,350,583
------------
RESTAURANTS: 3.86%
59,400 McDonald's Corp. 2,687,850
------------
TOTAL COMMON STOCKS:
(Cost: $39,093,581) 45,632,824
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<S> <C>
U.S. GOVT. SECURITIES: 27.07%
$4,000,000 U.S. Treasury Bill maturity date 01/16/97; 4.6722% 3,992,800
4,000,000 U.S. Treasury Bill maturity date 01/23/97; 4.6764% 3,989,200
4,000,000 U.S. Treasury Bill maturity date 01/30/97; 4.6806% 3,985,600
3,500,000 U.S. Treasury Note maturity date 05/01/97; 5.159% 3,441,690
3,500,000 U.S. Treasury Note maturity date 06/12/97; 5.2536% 3,421,110
------------
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost: $18,829,195) 18,830,400
------------
TOTAL INVESTMENTS:
(Cost: $57,922,776)* 92.68% 64,463,224
Other assets, net 7.32% 5,088,433
-------- ------------
------------
NET ASSETS 100.00% $ 69,551,657
-------- ------------
-------- ------------
</TABLE>
* Cost for Federal income tax purpose is $57,922,776 and net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 6,582,424
Gross unrealized depreciation (41,975)
------------
Net unrealized appreciation $ 6,540,449
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
_____________________________________________________________________________________________________
<S> <C>
ASSETS
Investments at value (Identified cost of $57,922,776)
(Notes 1 & 3) $64,463,224
Cash 4,138,782
Receivables:
Dividend and interest 84,777
Capital stock sold 421,134
Securities sold 410,330 916,241
-----------
Deferred organization costs 54,594
Prepaid expenses 10,661
Other assets 23,275
-----------------
TOTAL ASSETS 69,606,777
-----------------
LIABILITIES
Investment management fees payable 55,120
-----------
55,120
-----------------
TOTAL LIABILITIES
NET ASSETS $69,551,657
-----------------
-----------------
NET ASSET VALUE OFFERING
AND REDEMPTION PRICE PER SHARE
($69,551,657/5,046,792 shares outstanding) $ 13.78
-----------------
-----------------
At December 31, 1996 there were 50,000,000 shares of $.01 par value stock
authorized and components of net assets are:
Paid in capital $53,313,618
Undistributed net realized gain on investments 9,697,591
Net unrealized appreciation of investments 6,540,448
-----------
Net Assets $69,551,657
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
STATEMENT OF OPERATIONS
Year ended December 31, 1996
<TABLE>
______________________________________________________________________________________________________
<S> <C>
INVESTMENT INCOME
Income:
Interest $537,493
Dividend 763,105
--------
Total income $ 1,300,598
Expenses:
Investment management fees (Note 2) 620,780
Transfer agent fees (Note 2) 75,835
Recordkeeping and administrative services (Note 2) 126,056
Legal and audit fees 15,586
Filing fees and registration (Note 2) 13,481
Shareholder servicing and reports (Note 2) 33,483
Custodian fees (Note 3) 33,231
Amortization of organization cost 25,765
Other 15,733
--------
959,950
Custodian fee waiver (33,231)
Management fee waiver (22,437)
-----------
Total expenses 904,282
-----------
Net investment income 396,316
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 11,188,744
Net change in unrealized appreciation on investments 158,072
-----------
Net gain on investments 11,346,816
-----------
Net increase in net assets resulting from operations $11,743,132
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C>
OPERATIONS
Net investment income $ 396,316 $ 146,804
Net realized gain on investments 11,188,744 5,377,553
Change in unrealized appreciation (depreciation) of investments 158,072 7,554,055
------------ ------------
Net increase in net assets resulting from operations 11,743,132 13,078,412
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.19 and $.04 per share) (468,857) (74,261)
Net realized gain from investment transaction ($2.10 and $1.15
per share) (5,158,503) (2,060,752)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share transactions* 8,332,548 14,307,777
------------ ------------
Net increase in net assets 14,448,320 25,251,176
Net assets at beginning of period 55,103,337 29,852,161
------------ ------------
NET ASSETS at the end of the period (including undistributed net investment
income of $0 and $72,541, respectively) $ 69,551,657 $ 55,103,337
------------ ------------
------------ ------------
</TABLE>
*A summary of capital share transactions follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995
------------------------ -------------------------
SHARES VALUE SHARES VALUE
---------- ----------- ---------- ------------
<S> <C>
Shares sold 5,091,561 $70,799,337 3,591,066 $ 46,834,241
Shares reinvested from dividend 397,818 5,485,919 149,147 1,974,662
Shares redeemed (4,602,188) (67,952,708) (2,489,941) (34,501,126)
---------- ----------- ---------- ------------
Net increase 887,191 $ 8,332,548 1,250,272 $ 14,307,777
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.25 $ 10.26 $ 12.64 $ 12.00 $11.36
------- ------- ------- ------- ------
Income from investment operations-
Net investment income 0.17 0.05 0.09 0.16 0.10
Net realized and unrealized
gain (loss) on investments 2.65 4.09 (0.08) 0.56 1.70
------- ------- ------- ------- ------
Total from investment operations 2.82 4.14 0.01 0.72 1.80
------- ------- ------- ------- ------
Less distributions-
Distributions from net investment income (0.19) (0.04) (0.23) (0.02) (0.10)
Distributions from realized gains on
investments (2.10) (1.11) (2.16) (0.06) (1.06)
------- ------- ------- ------- ------
Total distributions (2.29) (1.15) (2.39) (0.08) (1.16)
------- ------- ------- ------- ------
Net asset value, end of period $ 13.78 $ 13.25 $ 10.26 $ 12.64 $12.00
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Total Return 21.28% 40.36% 0.02% 6.00% 6.30%
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Ratios/Supplemental Data
Net assets, end of period (000) $69,552 $55,103 $29,852 $34,720 $31,335
Ratio to average net assets-(A)
Expenses (B) 1.48% 1.65% 1.62% 1.82% 1.96%
Expenses-net (C) 1.43% 1.50% 1.62% 1.82% 1.96%
Net investment income 0.63% 0.38% 0.76% 1.23% 0.76%
Portfolio turnover rate 108.36% 95.93% 98.90% 137.32% 99.66%
Average brokerage commissions per share $0.0883 -- -- -- --
</TABLE>
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .04% in 1996, 0.06% in 1995 and 0.09% in 1990.
(B) 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.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
________________________________________________________________________________
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES -- Vontobel U.S. Value Fund (the "Fund")
is a series of Vontobel Funds, Inc. ("VFI") which is registered under The
Investment Company Act of 1940, as amended, as a diversified open-end management
company. The Fund was established in March 30, 1990, as a series of VFI which
has allocated to the Fund 50,000,000 shares of its 500,000,000 shares of $.01
par value common stock. the following is a summary of significant accounting
policies consistently followed by the fund. The policies are in conformity with
generally accepted accounting principles.
The investment objective of the fund is to achieve long-term capital returns in
excess of the broad market by investing in a continuously managed portfolio of
U.S. equity securities.
A. SECURITY VALUATION. Investments in securities traded on a national securities
exchange or included in the nasdaq national market system are valued at the last
reported sales price; other securities traded in the over-the-counter market and
listed securities for which no sale is reported on that date are valued at the
last reported bid price. Short-term investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates market value.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. SECURITY TRANSACTIONS AND DIVIDENDS. As is common in the industry, security
transactions are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date.
D. DEFERRED ORGANIZATIONAL EXPENSES. All of the expenses of VFI incurred in
connection with its organization and the public offering of its shares have been
assumed by the series funds of VFI. The organization expenses allocable to
Vontobel U.S. Value Fund are being amortized over a period of fifty-seven (57)
months. Reorganization costs assumed in the acquisition of Centurion Growth Fund
(see Note 5) amounted to $90,899 and will be amortized over a period of five (5)
years.
E. ACCOUNTING ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
11
<PAGE>
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS -- Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA Inc. ("VUSA") provides
investment services for an annual fee of 1.0% of the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
VUSA will reimburse the fund to the extent of its advisory fee to limit the
fund's aggregate annual operating expenses (excluding taxes, brokerage
commissions, amortization of organization expenses), to the lowest applicable
percentage limitation prescribed by any state in which the fund's shares are
qualified for sale. VUSA has agreed to reduce its management fee by $22,500 per
year for four years commencing January 1, 1995.
As provided in the administrative agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $147,596 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky filings and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets, with a minimum fee of
$30,000.
Fund Services, Inc. ("FSI") is the fund's transfer and dividend disbursing
agent. FSI received $75,835 for its services for the year ended December 31,
1996.
Certain officers and/or directors of the fund are also officers and/or directors
of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES -- Purchases and sales of securities
other than short-term notes aggregated $89,866,849 and $84,570,050 respectively.
The Custodian has provided credits in the amount of $33,231 against custodian
and accounting charges based on credits on uninvested cash balances of the Fund.
NOTE 4-DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences are primarily due to differing
treatments for equalization and post-October capital losses.
NOTE 5-ACQUISITION OF CENTURION GROWTH FUND -- On December 27, 1994, Vontobel
U.S. Value Fund acquired all of the assets and liabilities of Centurion Growth
Fund. The acquisition was accomplished by the tax-free exchange of 730,811
shares (valued at $7,490,812) of Vontobel U.S. Value Fund for 902,983 shares of
Centurion Growth Fund. The manager has agreed to limit expenses for the Vontobel
U.S. Value Fund to 1.5% for the period of December 27, 1994 through December 31,
1996. The net assets of the acquired Fund as of December 27, 1994 consisted of
paid in capital of $7,490,812.
The net assets of Vontobel U.S. Value Fund immediately after the acquisition
amounted to $33,546,177.
12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Shareholders and Board Of Directors of
Vontobel Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of Vontobel
U.S. Value Fund, a series of Vontobel Funds, Inc., including the schedule of
portfolio investments as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmations of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Vontobel U.S. Value Fund as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with generally accepted accounting
principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
January 17, 1997
13
<PAGE>
INVESTMENT ADVISOR:
Vontobel USA Inc.
450 Park Avenue
New York, New York 10022
DISTRIBUTOR:
First Dominion Capital Corp.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
INDEPENDENT AUDITORS:
Tait, Weller and Baker
Two Penn Center, Suite 700
Philadelphia, Pennsylvania 19102-1707
TRANSFER AGENT:
For account information, wire purchase or redemptions, call or write to
Vontobel's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
MORE INFORMATION:
For 24 hour, 7 days a week price information, and for information on any
series of Vontobel Funds, Inc., investment plans, and other shareholder
services, call Commonwealth Shareholder Services at (800) 527-9500 Toll Free
NASDAQ SYMBOL: VUSVX
