VONTOBEL FUNDS, INC
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED JUNE 30, 1999
VONTOBEL INTERNATIONAL EQUITY FUND - SEMI-ANNUAL REPORT 1999
Dear Shareholder:
At June 30, 1999 the fund's closing Net Asset Value stood at $21.01 and net
assets totaled $165,014,992 vs. $161,933,093 at the end of 1998. For the first
half of the year, the fund produced a total return of 4.11%, vs.
3.96% for the MSCI Europe, Far East and Australia Index.
Japan was the best performer among the world's developed markets, posting a
first-half gain of 18% in US dollar terms as investors responded to the strong
recovery in earnings (+37% for fiscal year ended March 31, 1999). European
markets, on the other hand, produced mixed results, negatively impacted by the
euro's steep slide against the dollar and the uncertainty created by the Kosovo
conflict. The Euro-11 bloc was up about 8% during the first half. The non-euro
bloc's biggest winners were Sweden (11.7 %) and the UK (1.8%), while Switzerland
and Denmark posted double-digit losses.
Although Europe's first-half returns proved disappointing, we're finding a lot
of very good businesses that are cheaply priced on a discounted cash flow basis,
and have maintained over 70% of fund assets invested in the region. Our core
holdings in Europe continue to deliver good sales and profit growth, and still
sell at a discount to their intrinsic worth. For example, Heineken, a pure play
in the premium beer market, has never had a loss in 20 years and is trading at a
20% discount to our estimation of its intrinsic worth, which we determined by
calculating the present value of 10 years of projected cash flow growing at a
rate of 16%. Assa Abloy, a Swedish lockmaker that we've owned for four years,
has generated a rate of return for our shareholders of 80% per year. Had we set
an arbitrary price target, we probably would have swapped out of the stock a
long time ago, generating a tax liability for our clients and missing out on a
great opportunity to stay invested in a unique firm with literally no true
competition. Assa Abloy currently trades at a discount of 45% to our intrinsic
value, using a discount factor of 6%.
In all of our investments, we look for visibility, reliability and a proven
business model. These characteristics are conspicuously missing in the year's
best-performing industry sector, Japanese banks, a sector to which we still have
zero exposure. We believe that it will be difficult for the banks to generate
double-digit ROE's in the foreseeable future, despite the recapitalization
efforts of the Ministry of Finance. The biggest problem facing the banking
system is that each bank has too small a revenue base. We believe that Japan
needs only 2-4 major banks. While mergers alone will not create economic wealth,
they can at least slow the pace of destruction of capital, which has largely
been discounted by the market.
We believe that the restructuring process in Japan will be a gradual one, which
needs to be backed up by further disposals of non-core assets or businesses,
improved disclosure to investors, a shift in the mindset of senior corporate
managers, and fully consolidated accounting on a yearly basis. The value of
Japanese stocks has decoupled from the economy since 1990. With an index level
over 17,000 the market is discounting a recovery of ROE's at close to 7%, still
below the averages in Europe and the US. Achieving significantly higher returns
will depend on aggressive restructuring and a restoration of top-line growth. In
the meantime, investors will have to be satisfied with improved asset turnover
as companies sell divisions and write down assets.
During the first half, we increased our exposure to Japan to 20% of fund assets
(vs. 23% for the benchmark) by adding positions in Mikuni and NTT DoCoMo. The
former is a Coke bottler with a large market share in Tokyo and environs. Sales
growth was slow last year but its longer term track record has been excellent.
It has grown market share despite a recessionary environment and boosted pricing
power by the introduction of new beverages, like the coffee drinks sold at its
vending machines, a niche market that it dominates. NTT DoCoMo is the market
leader in Japan's mobile communications market, and is expected to grow earnings
at 18% for the next 4-5 years due to the low penetration rate of cellular
phones.
Most of the Japanese companies we've owned over the last couple of years have
regularly generated good profit growth as the market has undergone a rerating
process. Companies like Rohm, Nintendo and Murata had great returns, exceeding
the Japanese market by a factor of 2.5x. The average return of our Japanese
holdings for the first half was about 55%. Honda, a relatively new holding that
we've owned for less than a year, has delivered year after year revenue growth
of plus 5%, with strong free cash flow, no debt, a return on equity of 14%, and
a return on capital of 12.5%. The firm's sales performance proves that Honda is
not a cyclical stock despite being in a cyclical industry. We don't make
distinctions about "value" plays versus "growth" stocks. We tend to own firms in
widely diversified sectors, independent of the market's perception of their
industry's niche in the economic cycle, or market ratios like price-to-earnings
or price-to-book. In our approach, every firm is analyzed on the basis of its
proven business model and the relevant growth numbers that support the rationale
of our investment decision.
Given the growth differential between the US economy and that of both Europe and
Japan, we placed hedges on our euro-, yen- and Swiss franc-denominated positions
during the first half. We are currently 40% hedged against both the euro and the
Swiss franc, not based on any macroeconomic assessment but purely on technical
analysis, which over time has added value to the fund.
Fabrizio Pierallini, Fund Manager
Rajiv Jain, Associate Fund Manager
July 27, 1999
VONTOBEL INTERNATIONAL EQUITY FUND
Schedule of Portfolio Investments
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Market
Shares Security Description Value
- -------------- --------------------------------------------------------------- -------
Common Stocks and Warrants: 94.07%
Belgium: 0.65%
6,700 Barco Nv Npv (Electronic Components/Instruments) $1,077,926
-----------------
Denmark: 0.50%
13,050 Bang & Olufsen Holding (Appliances and Household Durables) 826,966
-----------------
Finland: 2.23%
24,800 Nokia ADR (Telecommunications) 2,270,750
5,000 Pohjola Group Insurance B Shares (Insurance) 256,374
40,000 Sampo Insurance Co Ltd A (Insurance) 1,158,451
-----------------
3,685,575
-----------------
France: 11.81%
5,340 Altran Technologies SA (Aerospace and Military Technology) 1,408,940
20,000 Axa SA (Insurance) 2,438,518
37,000 CGIP (Multi-industry) 1,788,487
42,000 Dassault Systems SA (Aerospace and Military Technology) 1,387,358
2,600 L'OREAL (Health and Personal Care) 1,756,537
7,000 LVMH Louis Vuitton/Moet Hennessy (Beverages and Tobacco) 2,048,211
7,000 LVMH Louis Vuitton/Moet Hennessy Rts. 9/21/99 * (Beverages and Tobacco) 204,532
45,000 Scor (Insurance) 2,230,842
11,000 Societe Generale (Banking) 1,937,519
18,315 Total SA (Energy Sources) 2,361,432
10 Vivendi Rights * (Business and Public Services) 12
23,890 Vivendi SA (Business and Public Services) 1,934,076
-----------------
19,496,464
-----------------
Greece: 0.44%
11,250 Alpha Credit Bank (Banking) 724,701
-----------------
Germany: 5.62%
4,839 Alliance AG (Insurance) 1,341,588
1,819 Bayerische Motoren Werke (Automobile) 1,250,460
20,000 Mannesmann AG (Machinery and Engineering) 2,982,701
88 Munchener Ruckversicherung Wts 6/03/02 * (Insurance) 2,630
2,588 Munchener Ruckversicherung New Shs. * (Insurance) 472,116
1,088 Munchener Ruckversicherung (Insurance) 201,282
7,550 SAP AG (Data Processing and Reproduction) 3,015,295
-----------------
9,266,072
-----------------
Great Britain: 21.37%
38,677 AstraZeneca PLC (Health and Personal Care) 1,508,453
14,949 BP Amoco PLC Spon. ADR (Energy Sources) 1,621,966
110,000 Capita Group PLC (Business and Public Services) 1,138,397
87,135 CGU PLC (Insurance) 1,258,901
276,000 Compass Group PLC (Business and Public Services) 2,736,693
29,821 CRH Ord (Building Materials and Components) 527,215
82,000 Diageo PLC (Beverages and Tobacco) 856,379
130,000 Dixons Group (Merchandising) 2,428,444
150,000 Hays PLC (Business and Public Services) 1,580,735
78,000 HSBC Holdings (Banking) 2,762,893
109,348 Lloyds TSB Group PLC (Banking) 1,482,435
199,040 Misys PLC (Data Processing and Reproduction) 1,703,753
90,000 Next Ord (Merchandising) 1,093,155
83,959 Provident Financial Group PLC (Financial Services) 1,166,691
573,000 Rentokil Initial PLC (Business and Public Services) 2,235,611
61,654 Schroders PLC (Banking) 1,259,600
200,000 Securicor PLC (Business and Public Services) 1,754,533
268,560 Siebe PLC (Multi-industry) 1,271,132
100,000 Smithkline Beecham PLC (Health and Personal Care) 1,299,742
329,192 Tomkins PLC (Energy Equipment and Services) 1,427,080
108,000 Vodafone Group PLC (Telecommunications) 2,128,140
238,000 WPP Group (Business and Public Services) 2,012,858
-----------------
35,254,806
-----------------
Italy: 0.79%
125,000 Telecom Italia Spa (Telecommunications) 1,298,619
-----------------
Ireland: 2.35%
126,306 Allied Irish Banks PLC (Banking) 1,660,567
30,328 CRH Ord (Building Materials and Components) 537,630
52,400 Elan Corporation ADR * (Medical Products) 1,454,100
68,260 Greencore Group (Food and Household Products) 224,357
-----------------
3,876,654
-----------------
Netherlands: 8.64%
19,209 Aegon NV ADR (Insurance) 1,421,466
33,108 Aegon NV (Insurance) 2,400,536
41,000 ASM Lithography Holdings NV * (Electronic Components/Instruments) 2,370,598
30,000 Getronics NV (Business and Public Services) 1,153,297
31,000 Heineken NV (Beverages and Tobacco) 1,586,325
19,463 Hunter Douglas NV (Building Materials and Components) 667,983
26,000 Kempen & Co NV (Banking) 1,299,650
20,240 Koninklijke Philips (Applinces and Household Durables) 1,995,293
51,195 Vendex Non Food (Food and Household Products) 1,366,591
-----------------
14,261,739
-----------------
Spain: 0.87%
20,000 Banco Popular Espanol SA (Banking) 1,437,757
-----------------
Sweden: 4.95%
150,000 ABB-B Shares (Energy Equipment and Services) 1,988,358
242,800 Assa Abloy Series 'B' (Industrial Components) 2,632,009
242,800 Assa Abloy Sub Shs. * (Industrial Components) 263,201
10,800 Bure Investment AB (Multi-industry) 57,265
100,000 Hennes & Mauritz B (Merchandising) 2,474,402
66,000 OM Gruppen AB (Financial Services) 746,562
-----------------
8,161,797
-----------------
Switzerland: 9.16%
20,000 Credit Suisse Group (Banking) 3,461,365
700,000 Kantonalbank Cw99 Wts. * (Banking) 463,874
1,150 Nestle AA (Food and Household Products) 2,072,412
1,000 Pharma Vision * (Health and Personal Care) 630,509
75 Roche Holdings AG (Health and Personal Care) 1,235,283
410 Roche Holdings Genusscheine (Health and Personal Care) 4,215,274
800 Swiss Reinsurance Registered (Insurance) 1,523,515
4,000 Swisscom Ag Ittigen (Telecommunications) 1,505,501
-----------------
15,107,733
-----------------
Hong Kong: 2.56%
271,400 Dah Sing Financial Services (Financial Services) 1,035,424
340,000 Smartone Telecom Hldgs Ltd. (Telecommunications) 1,209,497
191,000 Sun Hung Kai Properties (Real Estate) 1,741,712
300,000 Pacific Century Insurance (Insurance) 242,827
-----------------
4,229,460
-----------------
Japan: 19.11%
77,000 Bridgestone Corporation (Industrial Components) 2,330,150
50 Credit Saison Co. (Financial Services) 1,046
46,000 Fuji Photo Film Co. (Electrical and Electronics) 1,741,949
39,000 Honda Motor Co. (Automobile) 1,654,223
30,000 Hoya Co. (Electronic Components/Instruments) 1,694,158
33,000 Mikuni Coca Cola (Beverage and Tobacco) 671,214
29,500 Murata Manufacturing Co. Ltd. (Electronic Components/Instruments) 1,941,544
18,000 Nintendo Co. Ltd. (Recreation/Other Consumer Goods) 2,531,564
200 NTT Data Communications Systems (Business and Public Services) 1,590,806
54 NTT Mobile Communications Network, Inc. (Telecommunications) 732,234
216 NTT Mobile Communications Network, Inc. New Shs. * (Telecommunications) 2,893,216
25,000 Rohm Co. Ltd. (Electronic Components/Instruments) 3,917,070
20,000 Sony Corp. (Appliances and Household Durables) 2,158,006
75,000 Takeda Chemical Industries (Health and Personal Care) 3,478,854
60,000 Tokyo Broadcasting (Broadcasting and Publishing) 868,163
32,000 Tokyo Electron Ltd. (Electronic Components/Instruments) 2,172,227
220,000 Yasuda Fire & Marine Insurance (Insurance) 1,165,985
-----------------
31,542,409
-----------------
Malaysia: 0.55%
300,000 Malayan Banking Berhad (Banking) 900,000
-----------------
Singapore: 2.47%
620,000 Jardine Strategic Holdings Ltd. (Multi-industry) 1,612,000
145,000 Singapore Press Holdings New 98 (Broadcasting and Publishing) 2,470,623
-----------------
4,082,623
-----------------
Total Common Stocks and Warrants:
(Cost: $111,901,370) 155,231,301
Convertible Corporate Bonds: 0.48%
800,000 Salomon Smith EMTN, 0%; 5/9/00
(Cost: $800,000) 796,000
-----------------
Total Investments:
(Cost: $112,701,372) 94.55% 156,027,301
Other assets, net 5.45% 8,987,691
---------- -----------------
========== =================
Net Assets 100.00% $165,014,992
========== =================
* Non-income producing
** Cost for Federal income tax purposes is $112,701,372 and net unrealized appreciation consists of:
Gross unrealized appreciation 46,758,707
ross unrealized depreciation (3,432,778)
-----------------
=================
Net unrealized appreciation/depreciation $43,325,929
=================
ADR--Security represented is held by the custodian bank in the Form of American
Depository Receipts.
Forward Currency Contracts Outstanding
June 30, 1999 (Unaudited)
Face Value Contract Delivery Appreciation/
(U.S. Dollar) Price Date Depreciation
--------------- ------------- ------------ ----------------
Euro $22,284,000 1.1142 8/24/99 $1,584,600
Japanese Yen 8,468,835 118.0799 8/24/99 (75,253)
Swiss Franc 7,026,419 1.4231 8/24/99 550,446
=============== ================
$37,779,254 $2,059,793
=============== ================
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
Vontobel International Equity Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments at value (identified
cost of $112,701,372)(Notes 1 & 3) $156,027,301
Cash (including foreign currencies) 3,527,766
Receivables:
Capital stock sold 3,467,240
Dividends and interest 236,248
Forward currency contracts 37,779,254
------------------------
41,482,742
------------------------------
TOTAL ASSETS 201,037,809
------------------------------
LIABILITIES
Payables:
Forward currency contracts payable at
market value - proceeds-$37,779,254 35,719,461
Investment management fees 119,965
Capital stock redeemed 60,817
Accrued expenses 122,574
------------------------
TOTAL LIABILITIES 36,022,817
------------------------------
NET ASSETS $165,014,992
==============================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($165,014,992 / 7,853,103 shares outstanding) $21.01
==============================
At June 30, 1999 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $113,936,483
Undistributed net investment income 258,922
Accumulated net realized gain on investments and
foreign currency transactions 5,439,747
Net unrealized gain on investments
and currency transactions 45,379,840
------------------------------
Net Assets $165,014,992
==============================
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Vontobel International Equity Fund
Statement of Operations
Six months ended June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
Investment Income
Income:
Interest $47,031
Securities lending income 36,964
Dividends (Net of foreign tax withheld of $147,464) 1,357,346
------------------
Total income $1,441,341
Expenses:
Investment management fees (Note 2) 727,368
Recordkeeping and administrative services (Note 2) 160,905
Custodian and accounting fees (Note 3) 146,781
Shareholder servicing and reports (Note 2) 33,179
Transfer agent fees (Note 2) 43,130
Legal and audit fees 43,087
Filing and registration fees (Note 2) 9,906
Other 18,063
------------------
Total expenses 1,182,419
-------------------
Net investment income 258,922
-------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 5,672,688
Net realized loss on foreign currency
conversions and forward currency contracts (232,941)
Change in unrealized appreciation
on investments and foreign currencies 1,799,470
-------------------
Net gain on investments 7,239,217
-------------------
Net increase in net assets
resulting from operations $7,498,139
===================
</TABLE>
See Notes to Financial Statements
Vontobel International Equity Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six months ended Year ended
June 30, 1999 December 31,
(Unaudited) 1998
------------------ ------------------
OPERATIONS
Net investment income $258,922 $106,817
Net realized gain on investments
and foreign currency transactions 5,439,747 16,174,584
Net unrealized appreciation
of investments and currencies 1,799,470 10,265,830
------------------ ------------------
Net increase in net assets resulting
from operations 7,498,139 26,547,231
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain from
investment transactions
($0.00 and $0.96 per share, respectively) 0 (7,497,265)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets
resulting from capital
share transactions* (4,416,240) (17,937,871)
------------------ ------------------
Net increase in net assets 3,081,899 1,112,095
Net assets at beginning of period 161,933,093 160,820,998
------------------ ------------------
NET ASSETS at end of period
(includes undistributed net investment income of
$258,922 and $0.00, respectively) $165,014,992 $161,933,093
================== ==================
*A summary of capital share transactions follows:
Six months ended
June 30, 1999 Year ended
(Unaudited) December 31, 1999
----------------------------------------- ---------------------------------------
Shares Value Shares Value
------------------ ------------------ ------------------ ------------------
Shares sold 7,777,751 $158,222,179 10,169,780 $205,066,242
Shares reinvested
from distributions 0 0 366,109 6,999,999
Shares redeemed (7,949,388) (162,638,419) (11,371,833) (230,004,112)
================== ================== ================== ==================
Net decrease (171,637) ($4,416,240) (835,944) ($17,937,871)
================== ================== ================== ==================
</TABLE>
See Notes to Financial Statements
Vontobel International Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Year
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six months Years ended December 31,
ended --------------------------------------------------------------------
June 30, 1999
(Unaudited) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value, beginning of period $20.18 $18.15 $18.22 $17.13 $16.23 $17.22
--------------- ------------ ------------ ----------- ------------ ---------
Income from investment
operations-
Net investment income (loss) 0.03 0.01 (0.03) 0.03 0.16 0.01
Net realized and unrealized
gain (loss) on investments 0.80 2.98 1.74 2.85 1.61 (0.92)
--------------- ------------ ------------ ----------- ------------ --------
Total from investment operations 0.83 2.99 1.71 2.88 1.77 (0.91)
--------------- ------------ ------------ ----------- ------------ --------
Less distributions-
Distributions from net investment - - - (0.03) (0.17) (0.08)
income
Distributions from realized gains - (0.96) (1.78) (1.76) (0.70) -
--------------- ------------ ------------ ----------- ------------
Total distributions - (0.96) (1.78) (1.79) (0.87) (0.08)
--------------- ------------ ------------ ----------- ------------ ---------
Net asset value, end of period $21.01 $20.18 $18.15 $18.22 $17.13 $16.23
=============== ============ ============ =========== ============ =========
Total Return 4.11% 16.77% 9.19% 16.98% 10.91% (5.28%)
Ratios/Supplemental Data
Net assets, end of period (000's) $165,015 $161,933 $160,821 $151,710 $130,505 $138,174
Ratio to average net assets-
Expenses (A) 1.47% ** 1.40% 1.56% 1.60% 1.63% 1.54%
Expenses-net (B) 1.47% ** 1.36% 1.50% 1.39% 1.53% 1.54%
Net investment income (loss) 0.32% 0.06% (0.17%) 0.15% 0.41% 0.08%
Portfolio turnover rate 17.23% 41.51% 38.45% 54.58% 68.43% 34.04%
** Annualized
(A) Expense ratio has been increased to include additional custodian fees
since 1995 which were offset by custodian fee credits. Prior to 1995,
custodian fee credits reduced expense ratios.
(B) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
</TABLE>
See Notes to Financial Statements
Vontobel International Equity Fund
Notes to the Financial Statements
June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel International Equity Fund
(the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in December, 1984 as a series of
VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The investment objective of the Fund is to seek 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.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments traded on stock exchanges are valued
at the last quoted sales price on the exchange on which the securities
are traded as of the close of business on the last day of the period
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the
Fund's Board of Directors. Securities traded in the over-the-counter
market are valued at the last available sale price in the
over-the-counter market prior to time of valuation. Securities for
which market quotations are not readily available are valued on a
consistent basis at fair value as determined in good faith by or under
the direction of the Fund's officers in a manner specifically
authorized by the Board of Directors of the Fund. Temporary
investments in U.S. dollar denominated short-term investments are
valued at amortized cost, which approximates market. Portfolio
securities which are primarily traded on foreign exchanges are
generally valued at the closing price on the exchange on which they
are traded, and those values are then translated into U.S. dollars at
the current exchange rate.
B. Federal Income Taxes. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
C. Security Transactions and Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is
determined generally on a first-in, first-out basis. Dividends are
recorded on the ex-dividend date.
<PAGE>
D. Currency Translation. The market values of foreign securities,
currency holdings, other assets and liabilities initially expressed in
foreign currencies are recorded in the financial statements after
translation to U.S. dollars based on the exchange rates at the end of
the period. The cost of such holdings is determined using historical
exchange rates. Income and expenses are translated at approximate
rates prevailing when accrued or incurred. The Fund does not isolate
that portion of gains and losses on investments which is due to
changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with
net realized and unrealized gains and losses from investments. Foreign
securities and currency transactions may involve certain
considerations and risks not typically associated with those of
domestic origin.
E. Forward Currency Contracts. Forward sales of currencies are undertaken
to hedge certain assets denominated in currencies that Vontobel USA,
Inc.("VUSA"), the Fund's investment advisor, expects to decline in
value in relation to other currencies. A forward currency contract is
an agreement between two parties to buy or sell a currency at a set
price on a future date. Forward contracts are marked to market daily
and the change in market value is recorded by the Fund as an unrealized
gain or loss. When a contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. The
Fund could be at risk if the counterparties are unable to meet the
terms of the contracts or if the value of the currency changes
unfavorably.
F. Distribution to Shareholders. Distribution from 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 differences are primarily due to
differing treatments for foreign currency transactions, net operating
losses, equalization and post-October capital and currency losses.
G. Accounting Estimates. In preparing financial statements in conformity
with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA") provides
investment services for an annual fee of 1.00% on the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
<PAGE>
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $26,914 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $43,130 for its services for the period ended June 30,
1999.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sales of securities other than
short-term notes aggregated $27,040,955 and $32,586,908,respectively.
NOTE 4-G--At June 30, 1999, securities valued at $21,376,855 were on loan to
brokers. For collateral, the Fund received shares of a short-term global
investment trust valued at $22,528,515. Income from securities lending amounted
to $43,004 for the period ended June 30, 1999. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
VONTOBEL U.S. VALUE FUND - SEMI-ANNUAL REPORT 1999
Dear Shareholder:
At June 30th, 1999, the fund's closing Net Asset Value was $16.89, up slightly
vs. $16.73 at December 31st, 1998. Net assets at the end of 1999's first half
totaled $133,951,983, down from $200,462,868 at the start of the year. Through
the six months to June 30th, the fund produced a total return of 0.96%, trailing
the 12.38% total return generated by the benchmark S&P 500 Index. The Dow Jones
Industrial Average, representing 30 of the country's largest and most successful
companies, roared ahead 20.45% (including dividends) in 1999's opening half.
We wrote at year end 1998 of our frustration due in part to the "narrowness" of
last year's market advance, in which only a relative handful of stocks, most
issued by "growth" companies, generated the bulk of the indexes' returns. While
breadth has improved -cyclicals and energy stocks rallied in the April-June
quarter and the advance/decline line turned up - we remain frustrated, as our
picks have underperformed and we have found few new investment ideas. "Pained"
is probably a better description of how we felt in the first three and a half
months of 1999, during which many of the insurance stocks in the fund posted
double-digit declines. At one point in April the fund was down by about 8% at
the same time that the S&P 500 and the Dow were both up by more than 10%. More
investors seem to be finding value in insurance of late, however; several of the
fund's insurance stocks rebounded smartly in the second quarter. UNUM, for
example, the fund's biggest holding, advanced 15.1% between March 31st and June
30th, while shares of Chubb, another large position, gained 18.7%. UNUM recently
completed its merger with Provident and Chubb indicated that pricing in some
product lines is improving. The fund picked up some of the ground lost versus
the broader averages since mid-April, due to the advances among the insurers as
well as solid gains in Ethan Allen, a furniture company purchased in late March
and early April, and in Dallas Semiconductor, the fund's sole technology name.
We've reviewed our insurance holdings, visited with some companies, talked with
management, talked with other investors and analysts, and continue to believe
that these companies are undervalued and represent solid long-term investments.
Mercury General, for example, continues to add new clients profitably in its
home state of California and is building a promising new business base in
Florida. Earnings will probably be down in 1999 versus 1998's total, but
comparisons versus the prior-year quarter are estimated to turn positive in the
second half of this year, and year 2000 earnings will show further improvement.
Yet the stock sells for about 12 times earnings. ESG Reinsurance, a young
company, has built its book of business ahead of plan and is initiating a
potentially very profitable health program in Germany, but its shares sell at a
discount to book value per share and at less than eight times estimated year
2000 earnings. In reviewing our holdings, we did decide to sell the fund's
shares in Commerce Group, a Massachusetts insurer facing increasing competitive
pressures and also experiencing disappointing results in states into which it
had recently expanded.
Insurance stocks, as a group, have been abandoned en masse because of pricing
pressures brought on by a surplus of capacity in the industry. We take note of
the industry's problems, but note also the solid long-term records and
compelling valuations of those companies in which we've invested fund assets.
Indeed, we worry that we might not have committed enough capital to the group.
Valuations could adjust quickly, particularly if consolidation continues within
the various insurance sectors. Orion Capital, for example, spiked from under $30
a share in late June to over $47 on July 12th, when it announced that it had
agreed to be acquired by Royal & Sun Alliance Insurance Group. Although we don't
buy or hold stocks based on their attractiveness as acquisition targets, we
believe that several of the fund's holdings are, in fact, very attractive
targets.
We've gotten questioned this year as to why we own stock in so many financial
companies. Are we, really, a sector fund masquerading as a general stock fund?
Not at all. We have concentrated the fund's investments in financial stocks,
primarily insurance issues, in recent quarters because that's where we see the
most compelling values, as discussed above. Each of the insurance companies
within the portfolio represents a unique business with its own particular
characteristics and challenges. We did not set out to buy a whole basket of
insurance stocks, but, rather, picked these up one by one after a close
examination of each one individually. In years past we've had significant
overweights in pharmaceutical companies (when the President and his
Administration were gearing up to reorganize the entire health-care delivery
system in the U.S.) and in consumer nondurables (when growth seemed to be
underappreciated in the market, a far cry from today's perhaps euphoric
projections and lofty valuations). We hope that we've made it quite clear over
the years that there are certain areas of the market where we are highly
unlikely to invest our shareholders' cash, but that we remain open-minded; we'll
buy where we feel there is the most value, and sell as that value is realized in
the market. If things work out really well, the fund may, a year from now, hold
no insurance stocks at all. Maybe by then the banks will be cheap. Or perhaps
healthcare providers will be the 800 pound gorilla within the portfolio. Perhaps
no one specific industry group will represent as much of total assets as the
insurers currently do. Without a crystal ball, it's impossible to say. We can
say with certainty, though, that we'll be investing in high-quality companies
with: demonstrated track records of success; high rates of return on capital;
credible plans for future growth; strong finances; and talented management
teams. These companies will operate in non-commodity sectors and will enjoy some
barriers to entry. The fund's holdings are often likely to be controversial
because fear and pessimism breed opportunity.
As noted above, we've found few new investment ideas in the first six months of
1999. We found Ethan Allen very attractive in late March, but didn't get a full
position before the stock took off in April; we trimmed the position in late
April and early May. We revisited a prior holding in February, re-establishing a
position in Horace Mann, an insurer that sells primarily to teachers through a
sales force of, mostly, retired teachers. We also established a new position in
Allstate, the diversified insurance company that insures one of every eight
Americans' homes or cars. On the sell side, we sold the last of the fund's
McDonald's shares after they hit our estimate of fair value, and also trimmed
(and subsequent to June 30th, liquidated) the Valspar position, as that paint
manufacturer's shares also hit our sell target. Our sales have been prompted not
only by stock price appreciation, but also by the continued uptrend in long-term
interest rates, which play an important part in determining the value of all
financial assets. The sell off in many hitherto high-flying growth stocks has
caught our attention (we'd love to get back into McDonald's, Pfizer, and Disney,
for example), but has not yet lured us into any new (or old) names.
Edwin Walczak, Fund Manager
Mark Robertson, Associate Fund Manager
July 26, 1999
Vontobel U.S. Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Schedule of Portfolio Investments
June 30, 1999
(Unaudited)
Number
of Market
Shares Security Description Value
- ---------------- ----------------------------------- ----------------
COMMON STOCK: 75.17%
BANKING: 0.98%
85,869 California Center Bank* $ 1,320,236
----------------
ELECTRONIC COMPU-SEMICONDUCTOR: 3.10%
82,300 Dallas Semiconductor Corp. 4,156,150
----------------
HOME FURNISHINGS: 1.29%
45,600 Ethan Allen Interiors Inc. 1,721,400
----------------
INSURANCE - DISABILITY: 15.68%
207,500 Provident Companies Inc 8,300,000
232,000 UNUMProvident Corp. 12,702,000
----------------
21,002,000
----------------
INSURANCE-DIVERSIFIED: 18.02%
76,000 Allstate Corp. 2,726,500
42,900 American International Group 5,021,981
351,600 Esg Re Limited* 5,274,000
230,000 Horace Mann Educators Corp. 6,253,125
280,925 Old Republic International Corp. 4,863,514
----------------
24,139,120
----------------
INSURANCE-PROPERTY/CASUALTY: 18.74%
91,900 Chubb Corp. 6,387,050
286,000 Mercury General Corp. 9,724,000
250,550 Orion Capital 8,988,481
----------------
25,099,531
----------------
OTHER FINANCIAL: 7.03%
137,724 Federal National Mortgage Assn. 9,416,878
----------------
PAINT & RELATED PRODUCTS: 4.27%
191,900 Sherwin Williams 5,325,225
10,550 Valspar Corp. 400,900
----------------
5,726,125
----------------
PUBLISHING AND BROADCAST: 6.06%
27,000 Gannett Co. 1,927,125
112,600 Knight Ridder Inc. 6,185,963
----------------
8,113,088
----------------
Total Investments:
(Cost: $99,859,775)** 75.17% $100,694,528
Other assets, net 24.83% 33,257,455
------------ ----------------
NET ASSETS 100.00% $133,951,983
============ ================
*Non-income producing
**Cost for Federal income tax purposes is $99,859,775 and net unrealized appreciation consists of:
Gross unrealized appreciation $9,279,953
Gross unrealized depreciation (8,445,200)
----------------
Net unrealized appreciation $ 834,753
================
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VONTOBEL U.S. VALUE FUND
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
ASSETS
Investments at value (identified cost of $99,859,775) (Note 1& 3) $ 100,694,528
Cash 34,929,077
Receivables:
Capital stock sold 613,124
Dividends receivable 81,120
Investments sold 1,042,749
---------------
1,736,993
Deferred organizational costs 9,267
Other assets 238,529
-----------------
TOTAL ASSETS 137,608,394
-----------------
LIABILITIES
Payables:
Investments purchased 2,766,609
Capital stock redeemed 781,703
Due investment advisor 103,700
Accrued expenses 4,399
---------------
TOTAL LIABILITIES 3,656,411
-----------------
NET ASSETS $ 133,951,983
=================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($133,951,983/7,932,066 shares outstanding) $ 16.89
=================
At June 30, 1999 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $ 124,415,176
Net unrealized appreciation on investments 834,753
Undistributed net investment income 352,587
Accumulated net realized gain on investments 8,349,467
-----------------
Net Assets $ 133,951,983
=================
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Vontobel U.S. Value Fund
STATEMENT OF OPERATIONS
Six months ended June 30, 1999 (Unaudited)
Investment Income
Income:
Interest $ 627,186
Dividend 972,846
--------------------
Total income $ 1,600,032
-----------------
Expenses:
Investment management fees (Note 2) 696,741
Recordkeeping and administrative services (Note 2) 152,738
Shareholder servicing and reports (Note 2) 113,984
Transfer agent fees (Note 2) 112,253
Custodian and accounting fees (Note 3) 47,567
Filing and registration fees (Note 2) 29,487
Legal and audit fees 41,700
Organizational costs 9,016
Other 43,959
--------------------
Total expenses 1,247,445
-----------------
Net investment income 352,587
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 7,963,473
Net change in unrealized appreciation on investments (10,407,371)
-----------------
-----------------
Net loss on investments (2,443,898)
-----------------
=================
Net decrease in net assets resulting from operations $ (2,091,311)
=================
</TABLE>
See Notes to Financial Statements
VONTOBEL U.S. VALUE FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six months
ended Year ended
June 30, 1999 December 31,1998
(Unaudited)
-------------------------------
OPERATIONS
Net investment income $ 352,587 $ 2,056,313
Net realized gain on investments 7,963,473 29,341,209
Change in unrealized appreciation of investments (10,407,371) (4,007,234)
-------------------------------
Net increase (decrease) in net assets resulting from (2,091,311) 27,390,288
operations
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income ($-, and $.16 per share, - (1,357,295)
respectively)
Net realized gain from investment transactions
$-, and $1.90 per share, respectively) - (16,117,877)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting from capital share
transactions** (64,419,574) (12,571,875)
-------------------------------
Net decrease in net assets (66,510,885) (2,656,759)
Net assets at beginning of period 200,462,868 203,119,627
-------------------------------
NET ASSETS at the end of period (including undistributed $133,951,983 $200,462,868
net investment income of $352,587, and $-, respectively) ===============================
*A summary of capital share transactions follows:
Six months ended June 30, 1999 Year ended December 31, 1998
(Unaudited)
---------------------------- ------------------------------
Shares Value Shares Value
Shares sold 1,292,963 $21,012,863 15,954,466 $270,442,839
Shares reinvested from - - 1,043,131 16,283,273
distributions
Shares redeemed (5,344,295) (85,432,437) (17,313,425) (299,297,987)
======================== ==============================
Net decrease (4,051,332)$(64,419,574) (315,828) $(12,571,875)
======================== ==============================
See Notes to Financial Statements
</TABLE>
VONTOBEL U.S. VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six months
ended
June 30, 1999 Years ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
--------------
Per Share Operating Performance
Net asset value, beginning of period $16.73 $16.51 $13.78 $13.25 $10.26 $12.64
-------------- ----------- ----------- --------- --------- ---------
Income from investment operations
Net investment income 0.04 0.22 0.10 0.17 0.05 0.09
Net realized and unrealized gain (loss) on
investments 0.12 2.06 4.61 2.65 4.09 (0.08)
-------------- ----------- ----------- --------- --------- ---------
Total from investment operations 0.16 2.28 4.71 2.82 4.14 0.01
-------------- ----------- ----------- --------- --------- ---------
Less distributions
Distributions from net investment income - (0.16) (0.10) (0.19) (0.04) (0.23)
Distributions from realized gain on - (1.90) (1.88) (2.10) (1.11) (2.16)
investments
-------------- ----------- ----------- --------- --------- ---------
Total distributions 0.00 (2.06) (1.98) (2.29) (1.15) (2.39)
============== =========== =========== ========= ========= =========
Net asset value, end of period $16.89 $16.73 $16.51 $13.78 $13.25 $10.26
============== =========== =========== ========= ========= =========
Total Return 0.96% 14.70% 34.31% 21.28% 40.36% 0.02%
Ratios/Supplemental Data
Net assets, end of period (000's) $133,952 $200,463 $203,120 $69,552 $55,103 $29,852
Ratio to average net assets - (A)
Expenses - (B) 1.63% ** 1.46% 1.61% 1.48% 1.65% 1.62%
Expenses - net (C) 1.63% ** 1.45% 1.58% 1.43% 1.50% 1.62%
Net investment income 0.46% ** 0.93% 0.72% 0.63% 0.38% 0.76%
Portfolio turnover rate 17.17% 122.71% 89.76% 108.36% 95.93% 98.90%
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by $- in 1999,$.01% in 1998, 0.02% in 1997,
0.04% in 1996 and 0.06% in
1995.
(B) Expense ratio has been increased to include additional custodian fees in
1998, 1997, 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.
</TABLE>
See Notes to Financial Statements
Vontobel U.S. Value Fund
Notes to the Financial Statements
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--Vontobel U.S. Value Fund (the "Fund") is
a series of Vontobel Funds, Inc. ("VFI") which is registered under The
Investment Company Act of 1940, as amended, as a non-diversified open-end
management company. The Fund was established March 30, 1990 as a series of VFI
which has allocated to the Fund 50,000,000 shares of its 500,000,000 shares of
$.01 par value common stock. The following is a summary of significant
accounting policies consistently followed by the Fund. The policies are in
conformity with generally accepted accounting principles.
The investment objective of the fund is to seek to achieve long-term capital
returns in excess of the broad market by investing in a continuously managed
non-diversified 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. Security transactions are accounted for
on the trade date. The cost of securities sold is generally on a first-in,
first-out basis. Dividend income is recorded on the ex-dividend date.
D. Deferred Organizational Expenses. Reorganization costs assumed in the
acquisition of Centurion Growth Fund on December 24, 1994 amounted to $90,899
and are being 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.
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 1.00% of the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
VUSA will reimburse the Fund, to the extent of its advisory fee, to limit the
Fund's aggregate annual operating expenses (excluding taxes, brokerage
commissions and amortization of organization expenses), to the lowest applicable
percentage limitation prescribed by any state in which the Fund's shares are
qualified for sale.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $178,040 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky filings and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $112,253 for its services for the six months ended
June 30, 1999.
Certain officers and/or directors of the Fund are also officers and/or directors
of CSS and FSI.
NOTE 3-INVESTMENTS--Purchases and sales of securities other than
short-term notes aggregated $21,823,768 and $81,438,617,respectively.
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.
VONTOBEL EASTERN EUROPEAN EQUITY FUND - SEMI-ANNUAL REPORT 1999
Dear Shareholder:
At June 30, 1999, the fund's closing Net Asset Value stood at $8.08, and net
assets totaled $32,693,349, vs. $36,153,942 at year end. For the first half of
the year, the fund posted a loss of 0.74%, vs. a 10.37% gain for Nomura Research
Institute's Composite-11 Index.
The major events of the first half of 1999 were the strong rally in the Russian
market, the Kosovo crisis and the weakening of local currencies against the
dollar. In early February investors increased their exposure to Russia, spurred
by rising oil prices, the re-opening of negotiations with the IMF, and rumors
that the GKO debt restructuring would result in massive inflows to the equity
market. Mutual funds that had sold off their Russian holdings piled back in as
they saw the risk of the market exploding without them.
After a 95% loss in 1998, the Russian market returned 112% in US dollar terms
during the first half (on low daily volumes of around $20 million, vs. $100
million before the Asian crisis). In Central Europe Poland was the sole bright
spot, producing a first-half US dollar return of 23%. Hungary and Croatia lost 9
% and 15% respectively, and the Czech Republic's 23% local currency advance
translated into only a 3% US dollar gain.
We adopted a short-term trading approach to the Russian market during the first
half, cautiously keeping our exposure well within benchmark levels as a
risk-control measure. At June 30th, our Russian weighting was 7.8%, vs. 2.2% at
year end. The increased weighting to the Russian market contributed positively
to the fund's first-half performance, as did our increased weighting to the
Czech market. The fund nevertheless remained significantly underweight these two
markets so the effect of this positive contribution on overall portfolio
performance was limited. Moreover, these gains were more than offset by the
decline in the Hungarian market.
The reasons for Hungary's disappointing performance were twofold. First, with no
new money flowing into Eastern Europe, investors who decided to increase their
Russian exposure had to sell their other regional holdings. Hungary, as the most
liquid market in the region, suffered more from the Russian rally as investors
shifted assets. Second, ongoing concerns about Hungary's twin budget and current
account deficits accelerated the profit taking. For example, our largest
position, oil and gas producer MOL, dropped 18% in the first quarter despite
posting better than expected results as foreign investors sold the most liquid
stocks. In our view, the market selloff was overdone. Although foreign direct
investment has shrunk to half the 1998 level, it continues to be strong,
covering about 65% of the current account shortfall; competitiveness continues
to improve; central bank reserves are high ($9 billion); and the stock market is
poised for a rebound once inflows to Central Europe resume. MOL, trading at 10x
2000 earnings, should be one of the main beneficiaries of a market rebound. The
negative remains the government's refusal to undertake spending cuts to
alleviate the budget deficit. Nevertheless, we are comfortable with our
weighting in Hungary since it has completed its privatization process and has
made the fundamental shift from a transition economy to a European economy.
Our favorite markets remain Hungary and Poland, which will be the main
beneficiaries of convergence within the European Union. Our largest position in
the latter market is Exbud, Poland's largest construction company, which trades
at a 2000 P/E multiple of 10x; EPS growth will be flat this year due to the cost
of recent acquisitions, but is expected to exceed 40% next year. We remain very
cautious about Russia, whose fundamental situation is catastrophic; our major
positions are in liquid, commodity-related stocks, Lukoil, Surgutneftegas and
Gazprom.
Luca Parmeggiani
Fund Manager
July 27, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NRI Composite-11
Fund Weightings Weightings YTD Pfc* YTD Pfc*
(6.30.99) (6.30.99) (Local Currency) (US$)
Hungary 37.1% 19.3% 2.8% -8.8%
Poland 33.4% 42.2% 31.5% 23.2%
Croatia 9.5% 3.1% 0.6% -14.5%
Russia 7.8% 8.7% 138.7% 112.0%
Czech Rep. 6.3% 17.6% 22.7% 2.8%
Other (+ cash) 5.9% 9.1%
</TABLE>
*Source: Nomura Research Institute
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VONTOBEL EASTERN EUROPEAN EQUITY FUND
Schedule of Portfolio Investments
June 30, 1999 (Unaudited)
Number of Market
Shares Security Description Value
- ----------- ---------------------------------------------- ------------
Common Stock and Warrants: 100.07%
Croatia: 9.50%
137,000 Pliva DD GDR (Medical-Drugs) $2,072,125
101,000 Zagrebacka Banka GDR (Banking) 1,035,250
------------
3,107,375
------------
Czech Republic: 6.31%
47,100 Ceska Sporitelna A.S. * (Banking) 195,941
247,400 Ceske Energeticke Zavody AS * (Utilities-Electric) 508,296
20,800 Ceske Radiokmunikace GDR * (Telecommunications) 717,600
13,000 SPT Telecom AS * (Telecommunications) 210,689
14,200 SPT Telecom AS Spon. GDR * (Telecommunications) 230,750
106,000 Unipetrol (Petrochemicals) 200,961
------------
2,064,237
------------
Estonia: 3.66%
1,206,800 Britannic Group Plc * (Wood and Paper) 351,944
43,000 Estonian Telecom GDR (Telecommunications) 844,950
------------
1,196,894
------------
Hungary: 37.14%
64,000 Danubus Hotel & Spahuf * (Hotel) 1,160,728
66,700 Egis Gyogysergyar (Medical-Drugs) 1,595,476
6,100 Gedeon Richter Ltd GDR (Pharmaceutical) 268,400
19,615 Inter Europa Bank (Banking) 891,388
77,000 Magyar Olay Es Gazipari Rt (Oil and Gas) 1,854,579
70,300 Matav RT ADR (Telecommunications) 1,933,250
24,500 MOL Magyar Olay GDR (Oil and Gas) 588,000
20,500 OTP Bank GDR (Banking) 855,875
74,504 Pannonplast Muanyagipari (Construction Material) 1,443,572
51,099 Pick Szeged (Food-Meat) 1,433,402
10,000 Synergon Info Sys GDR * (Technology) 116,000
------------
12,140,670
------------
Lithuania: 2.55%
10,150 Baltic Republic Fund * (Other) 832,300
------------
Poland: 33.02%
52,500 Agora GDR * (Media) 611,625
120,614 Agros Holdings Series C * (Food) 823,241
49,800 Bank Handlowy GDR * (Banking) 794,310
43,740 Bank Polska Kasa Opieki * (Banking) 497,944
89,987 Computerland Poland SA * (Technology) 1,615,710
48,200 Elektrim SA (Engineering) 662,880
105,000 Exbud SA Spon.GDR * (Construction) 829,500
75,249 Exbud SA * (Construction) 592,180
55,000 Exbud SA GDR * (Construction) 434,500
75,000 Mostostal Zabrze-Holding SA (Construction) 233,032
78,706 Orbis SA * (Hotels) 677,515
37,500 Prokom Software SA GDR (Technology) 618,750
11,000 Softbank SA GDR (Technology) 402,875
69,200 Telekomunikacja Polska SA GDR * (Telecommunications) 487,860
112,057 Wielkopolski (Banking) 664,950
80,000 Zakalady Metali Lekkich * (Manufacturing) 847,574
------------
10,794,446
------------
Russia: 7.78%
1,600,000 Cores Kuzbassenergo GDR * (Utilities) 24,000
23,000 Cores Yar Telecom GDR * (Telecommunications) 17,250
34,600 Lukoil Oil Co. Spon. ADR (Oil and Gas) 1,418,600
480,000 Nearmedic Austrian * (Medical Products) 138,519
33,200 Rao Gazprom ADR (Gas) 365,200
6,000 Rostelecom ADR (Telecommunications) 58,875
63,300 Surgutneftegaz ADR (Oil and Gas) 522,225
------------
2,544,669
------------
Slovakia: 0.11%
2,600 Slovnaft AS * (Refinery) 34,332
------------
Total Investments:
(Cost: $49,927,747)** 100.07% $32,714,923
Other assets, net -0.07% (21,574)
======== ===========
Net Assets 100.00% $32,693,349
======== ============
* Non-income producing
** Cost for Federal income tax purposes is $49,927,747 and net unrealized
appreciation/depreciation consists of:
Gross unrealized appreciation $1,134,516
Gross unrealized depreciation (18,347,339)
============
Net unrealized depreciation ($17,212,823)
============
</TABLE>
ADR--Security represented is held by the custodian bank in the form of American
Depository Receipts. GDR--Security represented is held by the custodian bank in
the form of Global Depository Receipts. RDC--Security represented is held by the
custodian bank in the form of Russian Depository Certificates.
See Notes to Financial Statement
Vontobel Eastern European Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
ASSETS
Investments at value (identified
cost of $49,927,747)(Notes 1 & 3) $32,714,923
Receivables:
Capital stock sold $ 45,750
Dividends 260,243
Investments sold 222,209
-------------------
528,202
Deferred organizational costs 22,927
Other assets 14,691
--------------------
TOTAL ASSETS 33,280,743
--------------------
LIABILITIES
Payables:
Bank overdraft 328,659
Foreign currency obligations 189,379
Investment management fees 33,482
Capital stock redeemed 35,874
-------------------
TOTAL LIABILITIES 587,394
--------------------
NET ASSETS $32,693,349
====================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($32,693,349 / 4,045,198 shares outstanding) $8.08
====================
At June 30, 1999 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $85,056,498
Net unrealized loss on investments and
foreign currency transactions (17,216,765)
Accumulated net realized loss on investments
and foreign currency transactions (35,076,270)
Accumulated deficit in net investment income (70,114)
====================
Net Assets $32,693,349
====================
See Notes to Financial Statements
</TABLE>
Vontobel Eastern European Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Statement of Operations
Six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividend (Net of foreign tax withheld of $26,028) $346,618
Other 23,110
-
369,728
Expenses:
Investment management fees (Note 2) 201,065
Shareholder servicing and reports (Note 2) 38,319
Recordkeeping and administrative services (Note 2) 32,170
Transfer agent fees (Note 2) 63,049
Custodian and accounting fees (Note 3) 57,263
Filing and registration fees (Note 2) 8,190
Legal and audit fees 27,597
Organizational costs 7,027
Other 11,224
-
Total expenses 445,904
Custody credits (Note 3) (6,062)
-
Expenses, net 439,842
-
Net investment loss (70,114)
-
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized loss on investments (8,891,537)
Net realized loss on foreign currency conversions (142,220)
Net change in unrealized depreciation
of investments and foreign currencies 8,659,615
-
Net loss on investments (374,142)
-
Net decrease in net assets
resulting from operations ($444,256)
=
See Notes to Financial Statements
</TABLE>
Vontobel Eastern European Equity Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six months ended Year ended
June 30, 1999 December 31,
(Unaudited) 1998
--------------- -----------------
OPERATIONS
Net investment loss ($70,114) ($1,339,272)
Net realized loss
on investments and
foreign currency transactions (9,033,757) (24,016,438)
Change in unrealized depreciation
of investments and foreign currencies 8,659,615 (18,220,110)
--------------- -----------------
Net decrease in net assets resulting from operations (444,256) (43,575,820)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets
resulting from capital
share transactions* (3,016,337) (59,678,643)
--------------- -----------------
Net decrease in net assets (3,460,593) (103,254,463)
Net assets at beginning of the period 36,153,942 139,408,405
--------------- -----------------
NET ASSETS at end of period (includes
accumulated deficit in net investment
income of $(709,114) and $0.00, respectively) $32,693,349 $36,153,942
=============== =================
*A summary of capital share transactions follows:
Six months ended
June 30, 1999 Year ended
(Unaudited) December 31,1998
Shares Value Shares Value
--------------- --------------- ----------------- ----------------------
Shares sold 536,231 $4,290,249 8,327,774 $68,491,154
Shares reinvested from distributions -- -- -- --
Shares redeemed (931,983) (7,306,586) (13,029,324) (128,169,797)
--------------- --------------- ----------------- ----------------------
Net decrease (395,752) ($3,016,337) (4,701,550) ($59,678,643)
=============== =============== ================= ======================
</TABLE>
See Notes to Financial Statements
<TABLE>
Vontobel Eastern European Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six months ended February 15, *
June 30, 1999 Years ended December 31, to
(Unaudited) 1998 1997 December 31, 1996
------------------ ----------------- ----------- -----------------
Per Share Operating
Performance
Net asset value,
beginning of period $8.14 $15.25 $14.89 $10.00
------------------ ----------------- ----------- ----------
Income from investment
operations-
Net investment loss (0.01) (0.31) (0.19) (0.06)
Net realized and unrealized
gain (loss) on investments (0.05) (6.80) 1.47 4.95
------------------ ----------------- ----------- ----------
Total from investment
operations (0.06) (7.11) 1.28 4.89
------------------ ----------------- ----------- ----------
Less distributions-
Distributions from realized
gains on investments - - (0.92) -
------------------ ----------------- ----------- ----------
Total distributions - - (0.92) -
------------------ ----------------- ----------- ----------
Net asset value, end of period $8.08 $8.14 $15.25 $14.89
================== ================= =========== ==========
Total Return (.74)% (46.62)% 8.74% 48.90%
Ratios/Supplemental Data
Net assets, end of period (000's) $32,693 $36,154 $139,408 $61,853
Ratio to average net assets-
Expenses (A) 2.77% ** 2.57% 1.94% 2.02% **
Expenses-net (B) 2.73% ** 2.41% 1.66% 1.71% **
Net investment loss (.44)% ** (1.67%) (1.30%) (1.07%) **
Portfolio turnover rate 70.99% 135.35% 105.86% 38.69%
* Commencement of operations
** Annualized
(A) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits. (B) Expense ratio-net reflects the effect
of the custodian fee credits the fund received.
</TABLE>
See Notes to Financial Statements
Vontobel Eastern European Equity Fund
Notes to the Financial Statements
June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel Eastern European Equity
Fund (the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is
registered under The Investment Company Act of 1940, as amended, as a
diversified open-end management company. The Fund was established in February,
1996 as a series of VFI which has allocated to the Fund 50,000,000 of its
500,000,000 shares of $.01 par value common stock.
The objective of the Fund is to seek to achieve capital appreciation by
investing in a carefully selected and continuously managed diversified portfolio
consisting primarily of equity securities of issuers located in Eastern Europe.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments traded on stock exchanges are valued at the
last quoted sales price on the exchange on which the securities are traded
as of the close of business on the last day of the period or, lacking any
sales, at the last available bid price. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Fund's Board of Directors.
Securities traded in the over-the-counter market are valued at the last
available sale price in the over-the-counter market prior to time of
valuation. Securities for which market quotations are not readily available
are valued on a consistent basis at fair value as determined in good faith
by or under the direction of the Fund's officers in a manner specifically
authorized by the Board of Directors of the Fund. Temporary investments in
U.S. dollar denominated short-term investments are valued at amortized
cost, which approximates market. Portfolio securities which are primarily
traded on foreign exchanges are generally valued at the closing price on
the exchange on which they are traded, and those values are then translated
into U.S. dollars at the current exchange rate.
B. Federal Income Taxes. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
The Fund has capital loss carryforwards available to offset future
capital gains, if any, of $20,327,913 which expires in 2006.
C. Security Transactions and Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is
determined generally on a first-in, first-out basis. Dividends are
recorded on the ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to
U.S. dollars based on the exchange rates at the end of the period. The cost
of such holdings is determined using historical exchange rates. Income and
expenses are translated at approximate rates prevailing when accrued or
incurred. The Fund does not isolate that portion of gains and losses on
investments which is due to changes in foreign exchange rates from that
which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains and
losses from investments. Foreign securities and currency transactions may
involve certain considerations and risks not typically associated with
those of domestic origin.
E. Distribution to Shareholders. Distribution from 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 differences are primarily due to
differing treatments for foreign currency transactions, net operating
losses and post-October capital and currency losses.
F. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA")
provides investment services for an annual fee of 1.25% on the first $500
million of average daily net assets and 1.00% on average daily net assets over
$500 million.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $ 23,262 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $63,049 its services for the period ended June 30, 1999.
To discourage short-term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short-term
investing, the Fund charges a 2% fee on such redemption of shares held less than
six months. Such fees amounted to $23,110 for the period ended June 30, 1999,
representing 0.07% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sales of securities other than
short-term notes aggregated $30,035,550 and $22,515,697, respectively. The
custodian has provided credits in the amount of $6,062 against custodian and
accounting charges based on credits on uninvested cash balances.
VONTOBEL EMERGING MARKETS EQUITY FUND
SEMI-ANNUAL REPORT 1999
Dear Shareholder:
Building on the momentum of the final quarter of 1998, the majority of emerging
markets posted double-digit returns during the first half, supported by fund
inflows, a reversal in the decline of commodity prices, lower interest rates,
and stabilizing currencies. Based on the current trend in earnings growth,
valuations remain attractive, with Latin America and Asia trading at P/E's of
14x and 18x respectively. Operating profits are accelerating on a year-over-year
basis, largely due to reduced interest rate charges, lower depreciation levels
and cost-cutting efforts.
The de-pegging of most regional currencies to the US dollar has given these
countries a greater degree of independence in their monetary policy vis-a-vis
the Fed, as exemplified by a succession of rate cuts from Brazil to Malaysia.
While the revaluation process is now starting to be driven by earnings growth,
excess liquidity was unquestionably the overriding factor behind the performance
of these markets year to date.
At June 30, 1999 the fund's closing Net Asset Value stood at $8.91, producing a
first half total return of 21.89%. This compares with a 39.86% gain for Morgan
Stanley Capital International's Emerging Markets Free Index. The fund's
underperformance relative to the benchmark is principally due to its underweight
in Asia, in particular Korea, which carries a 15% benchmark weighting and which
gained 78% in the first half. We remain very cautious about Korea. Our bottom-up
investment discipline precludes us from investing in the debt-ridden heavy
industry issues that predominate in this market. The 25 largest companies in
Korea have debt to equity levels of 700%, and have produced only a 2% return on
equity over the last five years. Although the stocks of many of these companies
enjoyed a strong rebound, we will stick to our discipline of investing only in
high-quality companies that continue to deliver consistently high returns on
equity and that have little or low debt.
The momentum-driven rally that indiscriminately supported equity prices,
regardless of underlying company fundamentals, may have priced in unrealistic
expectations for the emerging markets, particularly in Asia. While many Asian
companies have already been rated as if their earnings had fully recovered, very
few will be able to generate positive cash flow. In addition, the banking sector
remains seriously undercapitalized; some banks in Korea and Indonesia cannot
even cover their cash expenses out of operating revenues. Earnings expectations
based on corporate restructuring will probably disappoint since companies have
so far focused largely on cutting R&D expenses, advertising and trainee programs
rather than on eliminating unprofitable businesses. This low-quality earnings
scenario demands a higher risk premium than usual.
We had been discounting EPS growth of about 17%. The market, despite a falling
revenue base for many firms, has been betting as high as 30%. As consolidation
within the broad markets begins, valuations should tilt in favor of companies
that deliver solid growth and earnings. Our concern remains finding a sufficient
number of good companies whose business model, operating numbers and valuation
will sustain their growth pattern.
We've been holders throughout the crises in stocks that we can value properly,
such as Grupo Modelo (Mexico), Banco Itau (Brazil) and Singapore Press. Our
objective is to remain invested in these companies for the long term, based on
their predictability and 10-year track record in generating surplus cash for
shareholders.
During the first half we increased our exposure to Asia by taking a 2% position
in Hong Kong and re-entering the Korean market with the purchase of SK Telecom,
Korea's leading telecom company, selling at 4x cash flow. We also took some
profits in Greece and Turkey, and added to our overweight of South Africa with
the purchase of Richemont (luxury goods) and Sasol (oil). Our weightings in
Latin America remain largely neutral as the recent rally has made finding
attractive issues more difficult. Despite the run-up in prices, we remain
comfortable with our holdings since their selection was based on fundamental
rather than market strength.
Going forward, the reversal in Japan's economic trend, indicated by early signs
of GDP acceleration, might fuel better growth numbers in the emerging markets,
which are highly dependent on external growth factors. The pick-up in exports is
easing current account imbalances, allowing interest rates to continue to fall
within Latin America and Asia.
The fund remains fully invested. Our regional allocation at June 30 was as
follows:
MSCI EMF
Fund at 6.30.99
Europe/Middle East/Africa 37.0% 27.5%
Asia 34.0% 43.7%
Latin America 29.0% 28.8%
Fabrizio Pierallini, Fund Manager
Rajiv Jain, Associate Fund Manager
July 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VONTOBEL EMERGING MARKETS EQUITY FUND
Schedule of Portfolio Investments
June 30, 1999 (Unaudited)
Number of Market
Shares Security Description Value
- -------------- ---------------------------------------------------------------------------------- ------------------
Common Stock: 96.31%
Botswana: 2.02%
10,000 Barclays Bank of Botswana (Banking) $10,818
17,000 Sechaba Breweries Ltd. (Beverages) 19,493
900 Standard Chartered Bank of Botswana (Banking) 4,673
-----------------
34,984
-----------------
Great Britain: 3.69%
1,800 HSBC Holdings PLC (Banking) 63,759
-----------------
Greece: 5.69%
623 Alpha Credit Bank (Banking) 40,132
1,300 Hellenic Bottling Co. (Beverages) 31,393
343 Hellenic Telecommunications Organanization S.A. (Telecommunications) 7,347
500 Panafon Hellenic Telecommunications S.A. GDR * (Telecommunications) 12,138
300 Panafon Hellenic Telecommunications S.A. * (Telecommunications) 7,230
-----------------
98,240
-----------------
Israel: 5.58%
600 ECI Telecommunications Ltd. (Telecommunications Equipment) 19,913
663 Formula Systems (1985) Ltd. * (Software) 20,125
300 Gilat Satellite Networks Ltd. * (Telecommunications-Satellite) 15,750
500 Matav-Cable Communication Media ADR (Broadcasting-Cable TV) 22,250
9,686 Bank Leumi Le Israel (Banking) 18,305
-----------------
96,343
Mauritius: 1.01%
26,500 State Bank Mauritius * (Banking) 17,368
-----------------
Poland: 0.76%
800 Prokom Software SA GDR (Software) 13,120
-----------------
Portugal: 1.43%
600 Brisa Auto Estrada de Portugal S.A. (Construction-Motorways) 24,736
-----------------
South Africa: 13.39%
1,400 Amalgamated Beverage Industries Ltd. (Beverages) 11,485
1,012 Coronation Holdings Ltd. N Shares (Financial Services) 21,099
2,200 De Beers Cons Mines Ltd. ADR (Mining) 52,525
8,771 Dimension Data Holdings * (Technology) 38,811
800 Investec Group Ltd. (Financial) 33,543
1,562 Nedcor Ltd. (Banking) 35,361
500 Richemont ADR (Tobacco) 9,712
2,500 Sasol Ltd. (Oil-Integrated) 17,836
7,800 Softline Ltd. * (Software) 10,923
-----------------
231,295
-----------------
Turkey: 5.12%
1,705,000 Akbank T.A. S. (Banking) 25,043
28,000 Migros Turk T.A. S. (Retail-Food) 34,825
226,000 Vestel Electronik Sanayai ve Ticaret A.S. * (Audio/Video) 24,629
154,332 Yapi Kredi Bankasi A.S. (Banking) 2,230
123,465 Yapi Kredi Bankasi New Shs 99 * (Banking) 1,638
-----------------
88,365
-----------------
Hong Kong: 1.96%
2,000 Cheung Kong Holdings (Housing/Real Estate) 17,787
4,500 Smartone Telecom Holdings Ltd. (Telecommunications-Cellular) 16,008
-----------------
33,795
-----------------
India: 3.08%
700 Baja Auto GDR (Automotive) 11,480
1,500 India Tobacco Ltd. GDR (Tobacco) 41,625
-----------------
53,105
-----------------
Indonesia: 1.88%
12,000 PT Gudang Garam TBK (Tobacco) 32,404
-----------------
Korea: 1.08%
1,100 SK Telecom Ltd. Spon. ADR (Telecommunications) 18,700
-----------------
Malaysia: 9.50%
25,000 IOI Corporation Berhad (Diversified) 15,855
25,000 Resorts World Berhad (Resorts) 58,882
10,000 RJ Reynolds Berhad (Tobacco) 11,684
25,000 Sime Darby Berhad (Diversified) 32,763
12,000 Telekom Malaysia (Telecommunications) 44,842
-----------------
164,026
-----------------
Pakistan: 0.87%
28,000 Hub Power Co. Ltd. * (Utilities) 7,651
500 Lever Brothers Pakistan Ltd. * (Diversified) 7,364
-----------------
15,015
-----------------
Philippines: 3.45%
500 Philippine Long Distance Telelphone Spon. ADR (Telephone-Integrated) 15,063
197,000 SM Prime Holdings (Real Estate) 44,526
-----------------
59,589
-----------------
Singapore: 1.48%
1,500 Singapore Press Holdings New 98 (Publishing) 25,558
-----------------
Taiwan: 0.55%
2,000 Yageo Corp. GDR * (Electronics) 9,500
-----------------
Thailand: 4.86%
7 Thailand International Fund * (Other) 84,000
-----------------
Argentina: 1.93%
2,800 Perez Companc SA Spon. ADR (Oil and Gas) 33,250
-----------------
Brazil: 9.18%
2,300 Companhia Cervejaria Spon. ADR (Beverages) 26,019
734 Companhia Energetica Spon. ADR (Utilities-Electric) 15,231
30,000 Investimentos Itau SA (Diversified) 15,932
1,207 Investimentos Itau SA Itausa (Diversified) 641
60,000 Banco Itau S.A. Pfd. Regd. PN * (Banking) 30,847
300 Telebras Holders Pfd. Blk. ADR (Telecommunications) 27,056
600 Telebras Spon. ADR * (Telecommunications) 38
1,600 Telesp Celular Participacoes SA Spon. ADR (Telecommunications-Cellular) 42,800
-----------------
158,564
-----------------
Chile: 2.83%
800 Chilectra SA Spon. ADR (Utilities) 17,050
400 Compania de Telecomunicaciones de Chile S.A. (Telephone-Integrated) 9,900
1,100 Embotelladora Andina ADR (Beverages) 22,000
-----------------
48,950
-----------------
Mexico: 12.91%
9,920 Corporacion Interamericana de Entretenimiento S.A.-B * (Entertainment) 32,295
1,322 Corporacion Interamericana de Entretenimiento S.A.-L * (Entertainment) 3,855
400 Coca Cola Femsa S.A. ADR * (Beverages) 7,750
22,000 Grupo Continental S.A. (Beverages) 34,481
9,800 Grupo Modelo S.A.-C (Beverages) 27,955
600 Grupo Televisa S.A. GDR * (Broadcasting) 26,888
1,400 Kimberly Clark de Mexico ADR (Manufacturing-Paper and Paper Products) 28,350
1,500 Panamerican Beverages Cl A (Beverages) 35,719
250 Telefonos de Mexico S.A. ADR (Telephone-Integrated) 20,203
500 Tubos de Acero de Mexico S.A. ADR (Manufacturing) 5,438
-----------------
222,934
-----------------
Venezuela: 0.79%
500 Compania Nacional Telefonos de Venezuela (Telephone-Integrated) 13,625
-----------------
United States: 1.27%
2,000 The Argentina Fund, Inc. * (Other) 22,000
-----------------
Total Investments:
(Cost: $1,584,677) 96.31% $1,663,225
Other assets, net 3.69% 63,640
============ =================
Net Assets 100.00% $1,726,865
============ =================
* Non-income producing
** Cost for Federal income purposes is $1,584,677 and net unrealized appreciation consists of:
Gross unrealized appreciation $219,169
Gross unrealized depreciation (140,621)
-----------------
=================
Net unrealized appreciation $78,548
=================
ADR--Security represented is held by the custodian bank in the form of American
Depository receipts. GDR--Security represented is held by the custodian bank in
the form of Global Depository Receipts.
</TABLE>
See Notes to Financial Statements
Vontobel Emerging Markets Equity Fund
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS
Investments at value (identified
cost of $1,584,677)(Notes 1 & 3) $1,663,225
Foreign currencies at value 316
Receivables:
Investments sold $27,128
Capital stock sold 2,434
Dividends 3,975
---------------------
33,537
Deferred organizational costs 44,104
Other assets 11,245
---------------------------
TOTAL ASSETS 1,752,427
---------------------------
LIABILITIES
Payables:
Bank overdraft 25,562
---------------------
TOTAL LIABILITIES 25,562
---------------------------
NET ASSETS $1,726,865
===========================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($1,726,865 / 193,897 shares outstanding) $8.91
===========================
At June 30,1999 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $2,365,000
Net unrealized gain on investments
and currency transactions 78,565
Accumulated net realized loss
on investments and currency transactions (708,460)
Accumulated deficit in net investment income (8,240)
---------------------------
Net Assets $1,726,865
===========================
See Notes to Financial Statements
</TABLE>
Vontobel Emerging Markets Equity Fund
Statement of Operations
Six months ended June 30,1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Income
Dividend income (Net of foreign tax withheld of $1,568) $14,335
-----------------------
Expenses:
Investment management fees (Note 2) $10,159
Custodian and accounting fees (Note 3) 27,231
Recordkeeping and administrative services (Note 2) 1,625
Transfer agent fees (Note 2) 2,060
Organizational costs 6,972
Legal and audit fees 5,000
Other 4,695
-----------------------
Total expenses 57,742
Management fee waiver and reimbursed expenses (Note 2) (31,784)
-----------------------
Expenses, net 25,958
-----------------------
Net investment loss (11,623)
-----------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 12,947
Net realized loss on foreign currencies conversions (1,024)
Net change in unrealized depreciation
on investments and foreign currencies 325,184
-----------------------
Net gain on investments 337,107
-----------------------
Net increase in net assets
resulting from operations $325,484
=======================
See Notes to Financial Statements
</TABLE>
Vontobel Emerging Markets Equity Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six months ended Year ended
June 30, 1999 December 31,
(Unaudited) 1998
------------------- -------------------
OPERATIONS
Net investment loss ($11,623) ($574)
Net realized gain (loss) on investments
and foreign currency transactions 11,923 (625,068)
Net change in unrealized depreciation
of investments and foreign currencies 325,184 (139,157)
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations 325,484 (764,799)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets
resulting from capital
share transactions** (209,350) (1,225,012)
------------------- -------------------
Net increase (decrease) in net assets 116,134 (1,989,811)
Net assets at beginning of period 1,610,731 3,600,542
------------------- -------------------
NET ASSETS at end of period (including
undistributed net investment income loss of
$8,240 and $3,383, respectively) $1,726,865 $1,610,731
================== ====================
**A summary of capital share transactions follows:
Six months ended
June 30, 1999 Year ended
(Unaudited) December 31, 1998
-------------------------------------- -----------------------------------------
Shares Value Shares Value
------------------- ---------------- ------------------- ----------------
Shares sold 15,049 $121,930 85,805 $769,477
Shares redeemed (41,565) (331,280) (247,612) (1,994,489)
=================== ================ =================== ================
Net decrease (26,516) ($209,350) (161,807) ($1,225,012)
=================== ================ =================== ================
</TABLE>
See Notes to Financial Statements
Vontobel Emerging Markets Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six months ended Year ended September 1, *to
June 30, 1999 December 31,1998 December 31, 1997
(Unaudited)
---------------- ------------- -----------------
Per Share Operating
Performance
Net asset value, beginning of period $7.31 $9.42 $10.00
---------------- ------------- -------------
Income from investment operations-
Net investment loss (0.06) - (0.04)
Net realized and unrealized gain (loss) on 1.66 (2.11) (0.54)
investments
---------------- ------------- -------------
Total from investment operations 1.60 (2.11) (0.58)
---------------- ------------- -------------
Net asset value, end of period $8.91 $7.31 $9.42
================ ============= =============
Total Return 21.89% (22.40%) (5.80%)
Ratios/Supplemental Data
Net assets, end of period (000's) $1,727 $1,611 $3,601
Ratio to average net assets- (A)
Expenses (B) 7.11% ** 2.38% 2.41% **
Expenses-net (C) 3.19% ** 2.07% 2.20% **
Net investment loss (1.43)% ** (0.02%) (1.42%) **
Portfolio turnover rate 36.31% 130.59% 16.36%
* Commencement of operations
** Annualized
(A) Management fee waivers and expense reimbursements reduced the expense ratio
and increased net investment
income ratio by 3.91%, 3.75% and 1.25%, for the period ended June 30,
1999, and the years ended December 31, 1998 and 1997, respectively. (B) Expense
ratio has been increased to include additional custodian fees which were offset
by custodian fee credits.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
</TABLE>
See Notes to Financial Statements
Vontobel Emerging Markets Equity Fund
Notes to the Financial Statements
June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel Emerging Markets Equity
Fund (the"Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund commenced operations in September, 1997 as a series
of VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of
$.01 par value common stock.
The objective of the Fund is to seek to achieve long-term capital appreciation
by investing in a carefully selected and continuously managed diversified
portfolio consisting primarily of equity securities of issuers in developing
countries around the world.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments traded on stock exchanges are valued at the
last quoted sales price on the exchange on which the securities are traded
as of the close of business on the last day of the period or, lacking any
sales, at the last available bid price. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Fund's Board of Directors.
Securities traded in the over-the-counter market are valued at the last
available sale price in the over-the-counter market prior to time of
valuation. Securities for which market quotations are not readily available
are valued on a consistent basis at fair value as determined in good faith
by or under direction of the Fund's officers in a manner specifically
authorized by the Board of Directors of the Fund. Temporary investments in
U.S. dollar denominated short-term investments are valued at amortized
cost, which approximates market. Portfolio securities which are primarily
traded on foreign exchanges are generally valued at the closing price on
the exchange on which they are traded, and those values are then translated
into U.S. dollars at the current exchange rate.
B. Federal Income Taxes. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
The Fund has capital loss carryforwards, available to offset future
capital gains, if any, of $664,417 which expires in 2006.
C. Security Transactions and Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is
determined generally on a first-in, first-out basis. Dividends are
recorded on the ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to
U.S. dollars based on the exchange rates at the end of the period. The cost
of such holdings is determined using historical exchange rates. Income and
expenses are translated at approximate rates prevailing when accrued or
incurred. The Fund does not isolate that portion of gains and losses on
investments which is due to changes in foreign exchange rates from that
which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains and
losses from investments. Foreign securities and currency transactions may
involve certain considerations and risks not typically associated with
those of domestic origin.
E. Distribution to Shareholders. Distribution from 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 differences are primarily due to
differing treatments for foreign currency transactions, net operating
losses and post-October capital and currency losses.
F. Deferred Organizational Expenses. All of the expenses of the Fund
incurred in connection with its organization and the public offering of
its shares have been assumed by the Fund. The organization expenses
allocable to the Fund are being amortized over a period of sixty (60)
months.
G. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA")
provides investment services for an annual fee of 1.25% on the first $500
million of average daily net assets and 1.00% on average daily net assets over
$500 million.
As provided in the Administrative Agreement, the Fund accrued fees in the amount
of $1,625 for Commonwealth Shareholder Services, Inc. ("CSS"), its
administrative agent for providing shareholder services, recordkeeping,
administrative services and blue-sky filings. For the six months ended June 30,
1999, CSS waived these fees. The Fund compensates CSS for blue-sky and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $2,060 for its services for the six months ended June 30,
1999.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS--Purchases and sales of securities other than short-term
notes aggregated $569,887 and $742,963, respectively.
VONTOBEL EASTERN EUROPEAN DEBT FUND
SEMI-ANNUAL REPORT 1999
Dear Shareholder:
At June 30, 1999, the fund's closing Net Asset Value stood at $9.32 and net
assets totaled $6,509,323, vs. $7,881,885 at year end.
The year began with a rally in the bond markets and expectations that the euro
would strengthen against the dollar. It didn't last long. Fears about Brazil put
a brake on capital inflows into Eastern Europe, and signs of strength in the US
economy and weakness in Europe precipitated a steep slide in the euro. In
addition, Poland and Hungary released disappointing current account figures for
December and January. Last but not least, NATO commenced its military
intervention in the Kosovo conflict at the end of March. Though bond prices
generally fell in the first quarter, the major losses were currency-related.
Against the dollar, the Czech crown depreciated 18%, the Hungarian forint 10%,
the Polish zloty 14% and the Slovakian koruna 13%. This currency weakness was
mainly due to the strong relation between Eastern European currencies and the
euro, which depreciated 8% against the dollar during the first quarter.
The region's bond markets turned positive in US dollar terms during the second
quarter on the back of interest rate cuts, strengthening currencies and an
improvement in sentiment due to the cessation of the Kosovo conflict. While bond
returns showed increases in local currency across the board, the second quarter
was especially favorable for Eastern European currencies. Although the euro
continued to weaken against the dollar, losing almost 5% during the second
quarter, the Polish zloty and the Czech koruna gained 1.7% and 0.9% respectively
against the American currency. The Hungarian forint lost only 2.7% against the
dollar.
The Slovakian koruna deserves a special comment. It came under severe pressure
in May due to uncertainty over the outcome of presidential elections (it was the
first time that Slovaks directly elected their president) and the fact that some
Slovakian conglomerates were facing important foreign exchange debt payments. In
a thin market, the extraordinary demand for hard currency led the koruna to lose
9% in 2 weeks, forcing Slovakia's central bank to intervene in the foreign
exchange market. Finally, with the help of improving economic indicators, the
currency's slide was halted. Having dropped 5.4% against the dollar during the
June quarter, it has since been one of the region's most stable currencies.
Our expectations for the second half of the year are that all Eastern European
economies will show better growth than in the first semester, benefiting from a
pick-up in Western European growth. Inflation rate targets for the end of the
year will likely be reached, though third quarter figures may be higher than
expected, coming off last year's low base. Current account deficits are high but
sustainable. It remains to be seen how the region's central governments will
cope with their respective budget deficits. In the short term, they can use
income from privatizations to fill some gaps or temporarily cut expenditures.
However, to achieve fiscal equilibrium in the medium and long term, they will
have to start thinking about how to restructure their public sector economies.
At the end of the second quarter the fund's currency positions were as follows:
Poland zloty 37.1%
Hungarian forint 19.3%
Czech crown 17.6%
Slovakian koruna 9.0%
Cash 17.0%
We were able to liquidate our small Russian position at the end of the first
quarter. We remain strongly underweighted in Hungary (vs. the benchmark at
27.9%), mainly because of the fund's diversification requirements. Since there
is only one high-quality Eurobond issued in this market, we are mainly
restricted to the government bond market. The majority of the fund's holdings
are investment-grade instruments issued by governments and supranational
entities, such as the European Bank for Reconstruction and Development.
Year to date the fund declined 8.72%, vs. a 5.28% loss for the Bank
Austria-Creditanstalt Index. The fund's underperformance was due to the
overweight position in Slovakia, the short duration of the Czech position, and
the inability to quickly reinvest cash from a bond redemption in Polish zloty at
the end of June when local currencies were strengthening against the dollar.
We've since fully reinvested the cash.
Volker Wehrle
Fund Manager
July 27, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VONTOBEL EASTERN EUROPEAN DEBT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 1999
(Unaudited)
Principal Amount* Security Description Market Value
Bonds: 82.81%
CZECH CROWN: 17.62%
20,000,000 ING Verzekeringen NV 10.625% 20 Jan 2000
Corporate Bond $575,785
10,000,000 European Investment Bank 14.5% 29 Jan 2001
Corporate Bond 312,320
8,000,000 Czech Republic 12.2% 15 Aug 2002
Government Bond 258,902
----------------
1,147,007
----------------
HUNGARY FORINT: 19.26%
25,000,000 Government of Hungary 21.0% 24 Oct 1999
Government Bond 104,949
135,000,000 Government of Hungary 16.0% 12 May 2000
Government Bond 563,597
140,000,000 Government of Hungary 14.0% 24 Jun 2002
Government Bond 585,414
----------------
1,253,960
----------------
POLISH ZLOTY: 37.10%
3,000,000 Government of Poland 15.0% 12 Oct 1999
Government Bond 765,623
1,000,000 Interamerican Dev Bank 19.0% 27 Apr 2001
Corporate Bond 280,912
1,000,000 Helaba Finance Emtn 10.5% 4 May 2001
Corporate Bond 249,459
1,000,000 Nordic Investment Mtn 17.75% 15 Apr 2002
Corporate Bond 289,062
1,000,000 International Bank for Recon & Dev 18.0% 27 Feb 2003
Corporate Bond 303,451
1,000,000 Land Sachsen Anhalt 13.5% 12 Aug 2003
Corporate Bond 274,672
1,000,000 Deutsche Bank 10.0% 21 May 2004
Corporate Bond 251,751
----------------
2,414,930
----------------
SLOVAKIA KORUNA 8.83%
12,000,000 Government of Solvakia 15.0% 14 Jan 2001
Government Bond 263,819
14,000,000 European Bank Recon & Dev Mtn 15.7% 10 May 2002
Corporate Bond 310,753
----------------
574,572
----------------
Total Investments:
(Cost:$5,778,132 )** 82.81% $5,390,469
Other assets, net 17.19% 1,118,854
========= ================
100.00% $6,509,323
========= ================
*Stated in local currencies
**Cost for Federal income tax purposes is $5,778,132 and net unrealized depreciation consists of:
Gross unrealized appreciation $46,591
Gross unrealized depreciation (434,254)
================
Net unrealized depreciation ($387,663)
================
</TABLE>
See Notes to Finanacial Statements
VONTOBEL EASTERN EUROPEAN DEBT FUND
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS
Investments at value (identified cost of $5,778,132 ) (Notes 1 & 3) $5,390,469
Foreign currencies at value 861,646
Interest receivable 306,511
Deferred organizational costs 44,965
Other assets 33,451
---------------
TOTAL ASSETS 6,637,042
---------------
LIABILITIES
Payables:
Bank overdraft 83,409
Due investment advisor 44,094
Accrued expenses 216
-------------
TOTAL LIABILITIES 127,719
---------------
NET ASSETS $6,509,323
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($6,509,323/698,132 shares outstanding) $9.32
===============
At June 30, 1999 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $7,323,935
Accumulated loss on investments and foreign currencies (759,781)
Undistributed net investment income 354,744
Net unrealized depreciation on investments and currency transactions (409,575)
---------------
Net Assets $6,509,323
===============
</TABLE>
See Notes to Financial Statements
VONTOBEL EASTERN EUROPEAN DEBT FUND
STATEMENT OF OPERATIONS
Six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Income
Interest (net foreign tax withheld of $255) $457,442
--------------
Expenses:
Investment management fees (Note 2) 44,094
Custodian and accounting fees 28,194
Recordkeeping and administrative services (Note 2) 7,055
Filing and registration fees (Note 2) 3,407
Organizational costs 7,095
Shareholder servicing and reports (Note 2) 5,272
Transfer agent fees (Note 2) 5,112
Legal and audit 2,803
Other 1,587
------------
Total expenses 104,619
Custody fee waiver (Note 3) (1,921)
--------------
Expenses, net 102,698
--------------
Net investment income 354,744
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES
Net realized loss on investments (607,037)
Net realized loss on forward currency contracts and foreign currency conversions (152,744)
Change in unrealized depreciation of investments and foreign currencies (296,873)
--------------
--------------
Net loss on investments (1,056,654)
--------------
Net decrease in net assets resulting from operations ($701,910)
==============
</TABLE>
See Notes to Financial Statements
VONTOBEL EASTERN EUROPEAN DEBT FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six months
ended Year ended
June 30,1999 December 31,
(Unaudited) 1998
------------ -----------
OPERATIONS
Net investment income $354,744 $1,482,919
Net realized gain (loss) on investments and foreign (759,781) 182,598
currency transactions
Net change in unrealized appreciation (depreciation) on investments
and foreign currencies (296,873) 443,033
------------ -----------
Net increase (decrease) in net assets resulting from (701,910) 2,108,550
operations
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ($-,and $1.64 per share, respectively) - (1,089,508)
Realized gains on investments ($-,and $.21 per share, - (139,510)
respectively)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting from capital share (670,652) (7,435,572)
transactions**
------------ -----------
Net decrease in net assets (1,372,562) (6,556,040)
Net assets at beginning of period 7,881,885 14,437,925
------------ -----------
NET ASSETS at the end of the period
(Includes undistributed net investment income of $354,744
and $-, respectively) $6,509,323 $7,881,885
============ ===========
**A summary of capital share transactions follows:
Six months ended
June 30,1999 Year ended
(Unaudited) December 31, 1998
-------------------------- --------------------------
Shares Value Shares Value
Shares sold 75,568 $741,081 193,930 $2,052,642
Shares reinvested from distributions - - 113,695 1,148,320
Shares redeemed (149,066) (1,411,733) (1,024,536) (10,636,534)
========== =========== ============ ===========
Net decrease (73,498) ($670,652) (716,911) ($7,435,572)
=========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
VONTOBEL EASTERN EUROPEAN DEBT FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six months ended
June 30, 1999 Year ended September 1* to
(Unaudited) December 31,1998 December 31, 1997
----------------- --------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of period $10.21 $9.70 $10.00
----------------- ----------------- --------
Income from investment operations
Net investment income 0.51 1.27 0.26
Net realized and unrealized gain (loss) on
investments (1.40) 1.09 (0.32)
----------------- ----------------- --------
Total from investment operations (0.89) 2.36 (0.06)
----------------- ----------------- --------
Less distributions
Distributions from net investment income - (1.64) (0.24)
Distributions from capital gains - (0.21) -
----------------- -----------------
Total Distributions 0.00 (1.85) (0.24)
================= ================= ========
Net asset value, end of period $9.32 $10.21 $9.70
================= ================= ========
Total Return (8.72)% 24.54% (0.55%)
Ratios/Supplemental Data
Net assets, end of period (000's) $6,509 $7,882 $14,438
Ratio to average net assets -(A)
Expenses - (B) 2.97% ** 1.98% 2.38% **
Expenses - net (C) 2.91% ** 1.98% 2.19% **
Net investment income 10.06% ** 12.03% 8.28% **
Portfolio turnover rate 5.12% 21.36% 0.00%
*Commencement of operations
**Annualized
(A) Management fee waivers reduced the expense ratio and increased the ratio of
net investment income by .41% in 1998.
(B) Expense ratio has been increased to include additional custodian fees
which were offset by custodian fee credits.
(C) Expense ratio - net reflects the effect of the custodian fee credits the
Fund received.
</TABLE>
See Notes to Financial Statements
Vontobel Eastern European Debt Fund
Notes to the Financial Statements
June 30, 1999 (Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel Eastern European Debt Fund
(the"Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a non-diversified
open-end management company. The Fund was established in September, 1997 as a
series of VFI which has allocated to the Fund 50,000,000 of its 500,000,000
shares of $.01 par value common stock.
The investment objective of the Fund is to seek 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 following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Money market investments with a remaining maturity of
less than sixty days are valued using the amortized cost method; debt securities
are valued by appraising them at prices supplied by a pricing agent approved by
the Fund, which prices may reflect broker-dealer supplied valuations and
electronic data processing techniques. Those values are then translated into
U.S. dollars at the current exchange rate. Securities for which a pricing agent
is unable to supply a valuation and are valued on a consistent basis at fair
market value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions. Security transactions are accounted for on the trade
date. The cost of securities sold is determined on a first-in, first-out basis.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments. Foreign securities and currency
transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Forward Currency Contracts. Forward sales of currencies are undertaken to
hedge certain assets denominated in currencies that Vontobel USA, Inc.("VUSA"),
the Fund's investment advisor, expects to decline in value in relation to other
currencies. A forward currency contract is an agreement between two parties to
buy or sell a currency at a set price on a future date. Forward contracts are
marked to market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When a contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. The Fund
could be at risk if the counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably.
F. Deferred Organizational Expenses. All of the expenses of the Fund incurred in
connection with its organization and the public offering of its shares have been
assumed by the Fund. The organization expenses allocable to the Fund are being
amortized over a period of sixty (60) months.
G. Distribution to Shareholders. Distribution 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 differences are primarily due to differing treatments for
foreign currency transactions, equalization, forwards and post-October capital
and currency losses.
H. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA, Inc.("VUSA") provides
investment services for an annual fee of 1.25% on the first $100 million of
average daily net assets.
VUSA will reimburse the Fund to limit the Fund's aggregate annual operating
expenses (excluding taxes and brokerage commissions), to the lowest applicable
percentage limitation prescribed by any state in which the Fund's shares are
qualified for sale.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $13,200 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $5,112 includes expense for its services for the six months
ended June 30, 1999.
To discourage short term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short term
investing, the Fund charges a 2% fee on such redemption of shares held less than
six months. Such fees amounted to $3,908 for the six months ended June 30, 1999,
representing 0.05% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sells of securities other than
short-term notes aggregated $3,569,729 and $166,611, respectively. The custodian
has provided credits in the amount of $1,921 against custodian and accounting
charges based on credits on cash balances of the Fund.
