VONTOBEL INTERNATIONAL BOND FUND
A SERIES OF VONTOBEL FUNDS, INC.
Dear Shareholder:
Enclosed is a Notice of a Special Meeting of Shareholders of the Vontobel
International Bond Fund. The Special Meeting has been called for August 25, 1999
at 10:00 a.m., at the offices of the Fund, located at 1500 Forest Avenue,
Richmond Virginia, Suite 223. The accompanying Combined Proxy
Statement/Prospectus describes a proposal to reorganize your Fund. To avoid
having your fund incur the expense and delay of further solicitations, we ask
you to give your prompt attention to this proposal, and vote by sending in the
enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND RETURN THE ENCLOSED PROXY CARD NOW.
This meeting is very important to your Fund. You are being asked to consider and
approve a Plan of Reorganization which would result in the exchange of your
shares in the Vontobel International Bond Fund (the "Bond Fund") for those of a
separate fund presently called the Vontobel Eastern European Debt Fund (the
"Debt Fund"). Each of these Funds is managed by Vontobel USA Inc. (the
"Advisor"). If the proposal is approved, on the date of the exchange you will
receive shares in the Debt Fund equal in value to your shares of the Bond Fund
at that time. Prior to the date of the reorganization the Debt Fund will be
revising certain of its investment strategies to permit the Debt Fund to invest
in debt instruments issued by countries throughout Europe.
The transaction is being recommended by the Board of Directors of the Funds
for three reasons: 1) cost-effectiveness; 2) the impact of advent of Euro; and,
3) both funds seek the same investment objective, which is to seek to
maximize total return from capital growth and income.
Please take the time to review this document and vote now. To ensure that your
vote is counted, indicate your position on the enclosed proxy card. Sign and
return your card promptly. If you determine at a later date that you wish to
attend this meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
/s/John Pasco, III
Chairman
<PAGE>
VONTOBEL FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
VONTOBEL INTERNATIONAL BOND FUND
To Be Held On August 25, 1999
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the Vontobel
International Bond Fund (the "Bond Fund") series of Vontobel Funds, Inc. (the
"Company"), will be held at the offices of the Company at 1500 Forest Avenue,
Richmond, Virginia, Suite 223 on August 25, 1999, at 10:00 a.m. for the
following reasons:
To approve or disapprove a Plan of Reorganization providing for the
transfer of substantially all of the assets of the Bond Fund to the
Vontobel Eastern European Debt Fund series (the "Debt Fund") of the
Company, in exchange for shares of the Debt Fund, followed by the
distribution of such shares to the shareholders of the Bond Fund, and the
liquidation of the Bond Fund.
To transact any other business as may properly come before the Special
Meeting or any adjournment thereof.
The transaction contemplated by the Plan of Reorganization is described in the
attached Combined Proxy Statement/Prospectus. A copy of the Plan of
Reorganization is attached as Exhibit A thereto and information about the Debt
Fund is also attached.
Shareholders of record as of the close of business on August 3, 1999, are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
By Order of the Board of Directors,
John Pasco III
Chairman
August 5, 1999
The Board of Directors urges you to complete, date, sign and return the enclosed
proxy card(s) in the enclosed postage-paid return envelope. It is important that
you return your signed proxy promptly so that a quorum may be ensured. If you
attend the meeting, you may vote your shares in person.
<PAGE>
VONTOBEL FUNDS, INC.
VONTOBEL INTERNATIONAL BOND FUND SERIES
SPECIAL MEETING OF SHAREHOLDERS - AUGUST 25, 1999
The undersigned hereby revokes all previous proxies for shares and appoints John
Pasco, III and Darryl Peay, and each of them proxies of the undersigned, with
full power of substitution, to vote all shares of the Vontobel International
Bond Fund which the undersigned is entitled to vote at the Fund's Special
Meeting of Shareholders to be held at the offices of the Fund, 1500 Forest
Avenue, Richmond, Virginia, at 10:00 a.m. Eastern Time on the 25th day of
August, 1999, including any adjournments thereof, upon such business as may
legally be brought before the Meeting.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED
IN FAVOR OF PROPOSAL NO. 1 AND WITHIN THE DISCRETION OF THE PROXYHOLDERS AS
TO ANY OTHER ITEMS WHICH MAY PROPERLY COME BEFORE THE MEETING.
No. 1. To approve a Plan of Reorganization providing for the
transfer of substantially all of the assets of the Vontobel
International Bond Fund (the "Bond Fund") to the Vontobel
Eastern European Debt Fund (the "Debt Fund") series of the
Company, in exchange for shares of the Debt Fund, to be
followed by the distribution of such shares to the
shareholders of the Bond Fund, and the liquidation of the Bond
Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the Proxyholders are authorized to vote upon such other
matters as may legally come before the Meeting or any adjournment thereof.
- ----------------------------- ----------------------- --------------------
Signature Signature (Joint Owner) Date
<PAGE>
Combined Proxy Statement/Prospectus
TABLE OF CONTENTS
Chairman's Letter
Notice to Shareholders
Cover Page
Overview of the Reorganization and the Funds
What is involved in the proposed Reorganization?
Why is the Reorganization being proposed at this time?
What vote is required in order to approve the Reorganization?
What are the tax consequences of the Reorganization?
How do the investment objectives and policies of the Funds compare?
Comparison of investment policies and risks.
How are the Funds each managed?
How are shares of the Funds distributed?
What are the various fees and expenses of the Funds?
How do the risks of the Funds compare?
Performance comparison.
What is the purchase and redemption price of shares of the Debt Fund?
How are income and gains of the Funds distributed?
Information about the Reorganization
Method of Carrying Out Reorganization
Conditions Precedent to Closing
Expenses of the Transaction
Tax Considerations
Information about the Company and the Funds
Voting Information and Principal Stockholders
Proposed Plan of Reorganization Exhibit A
Prospectus of Vontobel Funds, Inc. dated May 1, 1999 Exhibit B
Pro-Forma Financial Statements Exhibit C
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated August 5, 1999
Proposal for the Acquisition of the assets of the Vontobel International
Bond Fund by, and in exchange for shares of, the Vontobel Eastern European
Debt Fund (each a series of Vontobel Funds, Inc.)
This Combined Proxy Statement/Prospectus is being furnished to you by the Board
of Directors (the "Board") of Vontobel Funds, Inc., a registered open-end
investment company (the "Company"). The Board is recommending that shareholders
approve a proposed reorganization of the Vontobel International Bond Fund (the
"Bond Fund") into the Vontobel Eastern European Debt Fund (the "Debt Fund"). The
Funds are separate series of the Company and each is managed by Vontobel USA
Inc. (the "Advisor"). Prior to the date of the reorganization the Debt Fund will
be revising certain of its investment strategies to permit the Debt Fund to
invest in debt instruments issued by countries throughout Europe.
The transaction is recommended by the Board for three reasons:
1) Cost-effectiveness: The Board has concluded that the size of the Bond Fund
will make it difficult to achieve desired investment returns for shareholders
due in part to the proportionally higher expenses of operating a small fund. The
Advisor has been voluntarily waiving its advisory fees and reimbursing Bond Fund
expenses in order to limit total annual operating expenses. This voluntary
arrangement for the benefit of the Bond Fund has expired. However, the Advisor
has entered into an expense limitation agreement with the Company to limit the
total operating expenses for the Debt Fund through May 1, 2001. Although the
Bond Fund had a lower expense ratio during its last fiscal year, it is now
smaller than it was at that time, and due to the impact of fixed costs of
operation, the Bond Fund would have a higher expense ratio in the future.
Therefore, the Board has concluded that in the future the operating expenses of
the Debt Fund will be proportionally lower than the expenses of the Bond Fund if
it continued in operation. 2) Impact of advent of Euro on the Debt Fund's
diversification: Since its inception in 1994, the Bond Fund has invested a
substantial portion of its assets in instruments denominated in the major
European currencies, which provided an opportunity for liquidity and effective
pricing. These instruments, which presently comprise most of the Bond Fund's
portfolio, are now denominated in the Euro, which is the new currency of the
European Union. Investments in eastern european debt instruments will therefore
offer an opportunity for the former Bond Fund shareholders who will become
shareholders of the Debt Fund to hold investments denominated in currencies
other than the Euro, although the Board recognizes that such currencies may be
more volatile than the Euro. The Board has concluded that the shareholders will
benefit from this effect if the Bond Fund is consolidated into the Debt Fund, to
be renamed Vontobel Greater European Bond Fund ("Greater European Bond Fund").
Thus, shareholders will maintain their exposure to the major fixed income
markets in Europe, which are denominated in the Euro, while benefiting from the
convergence effect on the debt instruments of the developing markets of Europe
as they bring their fiscal and monetary policies into alignment with those of
the European Union; and, (3) Compatibility of investment objective: The Board
believes that consolidation of the Bond Fund into the larger Debt Fund will
continue to provide the benefits of the international fixed income strategies
developed by the Advisor since both funds share the same investment objective:
to maximize total return from capital growth and income.
All proxies received by the time of the Special Meeting will be voted at a
Special Meeting of Shareholders called to consider a Plan of Reorganization (the
"Plan"), which provides for the transfer of substantially all of the Bond Fund's
assets to the Debt Fund. Following the transfer, the Bond Fund's shareholders
will receive shares of the Debt Fund having a net asset value equal to the net
asset value of their shares of the Bond Fund at the time of the transaction, and
the Bond Fund will cease to exist.
This combined Proxy Statement/Prospectus sets forth concisely
information about the Debt Fund that a prospective investor should know
before investing, and should be retained for future reference.
A Prospectus dated May 1, 1999 containing information about both Funds
(as well as the other Vontobel Fund series) is attached as Exhibit B
and is incorporated by reference.
A Statement of Additional Information dated August 5, 1999 relating to
this Combined Proxy Statement/Prospectus and the proposed
reorganization and other information and reports have been filed with
the U.S. Securities and Exchange Commission and the statement of
additional information is incorporated by reference. A copy may be
obtained without charge by writing or calling the Company at:
Vontobel Funds, Inc.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
(800) 527-9500
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or adequacy
of this prospectus. It is a criminal offense to suggest otherwise.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus/proxy statement
and in the materials expressly incorporated herein by reference and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund.
PROPOSAL
TO APPROVE A PLAN OF REORGANIZATION PROVIDING FOR
THE TRANSFER OF SUBSTANTIALLY ALL OF THE ASSETS OF THE
BOND FUND TO THE DEBT FUND IN EXCHANGE FOR SHARES OF THE
DEBT FUND TO BE DISTRIBUTED TO THE SHAREHOLDERS OF THE
BOND FUND, AND THE LIQUIDATION OF THE BOND FUND.
This summary of information contained in this Combined Proxy
Statement/Prospectus is qualified by reference to the more complete information
contained elsewhere in this document. The Plan of Reorganization and the
Prospectus of the Debt Fund are attached as Exhibits A and B, respectively.
WHAT IS INVOLVED IN THE PROPOSED REORGANIZATION?
If the proposed Plan of Reorganization (the "Plan") is approved and implemented,
substantially all of the assets of the Bond Fund will be transferred to the Debt
Fund in exchange for shares of the Debt Fund. The Debt Fund shares received by
the Bond Fund in exchange for its assets will be distributed to the Bond Fund
shareholders, who will become Debt Fund shareholders (collectively, the
"Reorganization"), after which the Bond Fund will be dissolved.
The shareholders of the Bond Fund will receive Debt Fund shares equal in value
to the net asset value of their existing shares of the Bond Fund at the time of
the Reorganization.
WHY IS THE REORGANIZATION BEING PROPOSED AT THIS TIME?
The investment activities of the Bond Fund are subject to the supervision of the
Advisor. The agreement between the Fund and the Advisor provides for the payment
by the Bond Fund of an investment advisory fee of 1% per annum. In the past, the
Advisor has voluntarily agreed to waive the collection of its fee, benefiting
the shareholders of the Bond Fund. The Advisor has noted that the voluntary
waivers and expense reimbursements have expired. The Board believes that the
limited growth in the assets of the Bond Fund, coupled with the increase in the
cost of operating the Bond Fund, would cause an increase in the overall expense
ratio of the Bond Fund which is not in the interest of the shareholders of the
Bond Fund. The Board therefore considered alternatives which could avoid this
adverse impact on shareholders, and concluded that the proposed Reorganization
offers several distinct benefits to shareholders.
Other factors considered by the Board when it determined to recommend the
Reorganization include: (1) The Reorganization of the Bond Fund with the Debt
Fund will permit Bond Fund shareholders to avoid an increase in operating costs,
which will be the result of several factors, including the reduction of the
assets comprising the Bond Fund. (2) The transaction will involve minimal
disruption to shareholders and to their servicing relationships. (3) The
Reorganization will permit shareholders to continue to receive the benefit of
the investment advice of the same Advisor. (4) The investment objectives of the
two funds, the type of debt instruments in which each invests, and the European
orientation of each fund are similar, assuring that investors will have less
disruption of their investment programs.
WHAT VOTE IS REQUIRED IN ORDER TO APPROVE THE REORGANIZATION?
Approval of the Plan (and therefore, the Reorganization) will require the vote
of a majority of the shares of the Bond Fund that are outstanding at the close
of business on August 3, 1999 (the "Record Date"). Each shareholder will be
entitled to one vote for each share of the Bond Fund held on the Record Date and
a fractional vote for each fractional share held at that time. On the Record
Date, there were 654,095.073 outstanding shares of the Bond Fund.
Each shareholder is asked to sign and return the enclosed proxy card to indicate
their voting instructions. You may, however, revoke your proxy by executing
another proxy, by giving written notice of such revocation to the Company or by
attending the meeting and voting by ballot at that meeting. If you return a
signed proxy card without indicating voting instructions, your shares will be
voted in favor of the Plan. If any other matter is properly placed before the
meeting, your shares will be voted in accordance with the recommendation of the
Board of Directors. The Fund has no knowledge of any other matters which may be
presented to the Meeting and, under corporate law, a special meeting is
generally called solely for the purpose specified in the Notice.
The Company will include abstentions and broker non-votes for purposes of
determining whether a quorum is present at the meeting. Fifty percent (50%) of
the shares entitled to be present and vote will constitute a quorum at the
meeting. Due to the requirement that the proposal be approved by a majority of
the votes authorized to be cast upon this proposal, abstentions and
broker-non-votes have the effect of a vote against the proposal.
WHAT ARE THE TAX CONSEQUENCES OF THE REORGANIZATION?
The Reorganization is expected to qualify under section 368(a)(1)(C) of the
Internal Revenue Code. It is anticipated that no gain or loss will be recognized
by the Bond Fund or its shareholders for federal income tax purposes as a result
of such Reorganization; that the holding period and aggregate tax basis of the
Debt Fund shares received by shareholders of the Bond Fund will be the same as
the holding period and aggregate tax basis of the shareholders' shares of the
Bond Fund; and that the holding period and tax basis of the assets of the Bond
Fund in the hands of the Debt Fund as a result of the Reorganization generally
will be the holding period and tax basis of those assets in the hands of the
Bond Fund from which they were acquired immediately prior to the Reorganization.
It is anticipated that the Debt Fund will continue to hold the investable assets
of the Bond Fund with disposition of such assets only in the normal course of
business. The Funds will receive a tax opinion from Stradley, Ronon, Stevens &
Young, LLP, Fund counsel, as to the effects of the Reorganization. The opinion
will state that, based upon the facts and representations made by the Funds
regarding the Reorganization, counsel is of the opinion that the transaction
will qualify under section 368(a)(1)(C). Shareholders should consult their tax
advisors regarding the effect, if any, of the Reorganization in light of their
individual circumstances. Shareholders of the Bond Fund should also consult
their tax advisor as to the state and local tax consequences, if any, of the
Reorganization. For further information about the tax consequences of the
Reorganization, see "Information About the Reorganization - Tax Considerations."
HOW DO THE INVESTMENT OBJECTIVES AND POLICIES
OF THE FUNDS COMPARE?
INVESTMENT OBJECTIVE
Bond Fund:
The Bond Fund's investment objective is to maximize total return from capital
growth and income. The Bond Fund seeks to achieve its objective by investing in
fixed-income securities that are traded in bond markets outside the U.S. Foreign
government, governmental agency and supranational agency obligations and foreign
currency Eurobond issues represent the most common types of investments used in
the Fund's portfolio.
Debt Fund:
The Debt Fund's objective is to maximize total return from capital growth and
income. Under changes approved by the Board of the Company, the Debt Fund,
renamed as the Greater European Bond Fund, will seek to achieve its investment
objective by investing in fixed-income securities that are issued by borrowers
in both Western and Eastern European countries. Foreign government, governmental
agency and supranational agency obligations issued in local currencies represent
the most common types of investments used in the Fund's portfolio.
<PAGE>
INVESTMENT POLICIES:
Bond Fund: Greater European Bond Fund:
Under normal market Under normal circumstances the
conditions, at least 65% of Greater European Bond Fund
the Bond Fund's total assets will invest at least 65% of
will be invested in foreign its total assets in
securities that are rated A or fixed-income instruments that
higher by S&P or Moody's are issued by borrowers
Investors Service, Inc. located in Western and Eastern
("Moody's") or unrated bonds European countries. The Fund
which the Advisor believes are will normally invest at least
comparable in quality; 65% of its total assets in
however, the fund generally debt instruments denominated
invests 90% of its total in foreign currencies.
assets in foreign debt
securities. The Bond fund may The Greater European Bond Fund
invest in lower rated intends to invest primarily in
securities in order to take debt securities. It generally
advantage of the higher yields will invest in securities
available with these rated Baa3 or higher by
securities. However, no more Moody's Investor Service, Inc.
than 5% of the total assets ("Moody's") or BBB- by
may be invested in securities Standard & Poors Rating Group
that are rated below ("S&P") or unrated securities
investment grade (i.e., below which the Advisor believes are
BBB by S&P or Baa by Moody's) of comparable quality. The
or which are unrated but are Fund reserves the right,
of comparable quality as however, to invest more than
determined by the Advisor. 5% of its assets in lower
Securities that are rated rated securities (including
below investment grade entail unrated securities which the
greater risk than investment Advisor believes to be of such
grade debt securities. After lower quality). The Fund will
purchase by the Bond Fund, invest no more than 10% in
debt securities may cease to securities rated Ba2 and no
be rated or their rating may more than 5% in securities
be reduced. Neither event rated B2 by Moody's or,
would require the Fund to respectively, securities rated
dispose of the debt security. BB and B by S&P, or securities
which are unrated but are of
The Bond Fund intends to comparable quality as
select its investments from a determined by the Advisor. The
number of country and market Fund may invest substantial
sectors. It may invest amounts in issuers from one or
substantial amounts in issuers more countries and will
from one or more countries and normally have investments in
would normally have securities of issuers from a
investments in securities of minimum of three different
issuers from a minimum of countries.
three different countries;
however, it may invest
substantially all of its The Fund's investment universe
assets in securities of includes, but is not limited
issuers located in the U.S. to, Germany, the United
for temporary or emergency Kingdom, France, Denmark,
purposes. A non-governmental Norway, Sweden, Belgium,
issuer will be considered to Spain, Switzerland,
be "from" a country in which
it is organized,
INVESTMENT POLICIES (continued):
Bond Fund (continued): Greater European Bond Fund
(continued):
in which it has at least 50%
of its assets, or from which Ireland, Portugal, Italy,
it derives at least 50% of its Austria, Finland, Luxembourg,
revenues. Greece, Turkey, the Czech
Republic, Slovakia, Hungary,
To protect against adverse Poland, Slovenia, the Baltic
movements of interest rates states, Croatia, Romania and
and for liquidity, the Bond Russia.
Fund may also invest all or a
portion of its net assets in The Fund intends to select its
short-term obligations investments from a number of
denominated in U.S. and country and market sectors.
foreign currencies such as, The Fund may invest
but not limited to, bank substantial amounts in issuers
deposits; bankers' from one or more countries and
acceptances; certificates of will normally have investments
deposit; commercial paper; in securities of issuers from
short-term government, a minimum of three different
government agency, countries. Generally, the Fund
supranational agency and will have up to a maximum of
corporate obligations; and 50% of total assets invested
repurchase agreements. in debt instruments
denominated in the currencies
While the Bond Fund intends to of developing European nations
invest primarily in foreign (including Greece, Turkey and
securities, it may invest Portugal in addition to
substantially all of its Eastern Europe), and 50% of
assets in securities of its total assets in debt
issuers located in the U.S. instruments of Western Europe.
for temporary or emergency When investments in Eastern
purposes. Under normal European debt instruments
circumstances the Bond Fund appear more volatile, the
will not invest more than 35% Advisor may reduce its
of its total assets in U.S. holdings in those instruments
debt securities; however, the to 40%. Conversely, when
Fund generally invests less market conditions in Eastern
than 10% of its total assets European countries appear more
in U.S. debt securities. The favorable, total assets
Fund may also hedge using U.S. invested in debt instruments
dollars in certain situations. may be increased to 60%. In
extreme circumstances, the
Cash may be held in U.S. fund may invest up to 80% of
dollars and/or in any of the its total assets in Western
major trading currencies. The European debt instruments.
Fund's cash position is first
and foremost a function of the While the Greater European
Advisor's currency allocation Bond Fund intends to invest
decision and secondarily a primarily in foreign
function of the Advisor's securities, it may invest
duration selection. If he substantially all of its
outlook for U.S. dollar cash assets in securities of
returns is more attractive issuers located in the U.S.
than that for cash and bond for temporary or emergency
returns in purposes. Under normal
circumstances the Greater
European Bond Fund will not
INVESTMENT POLICIES (continued):
Bond Fund (continued): Greater European Bond Fund
(continued):
all other currencies, the Fund
will hold a U.S. dollar cash invest more than 35% of its
position generally not in total assets in U.S. debt
excess of 25% of its total securities; however, the Fund
assets. Conversely, if the generally invests less than
outlook for foreign currency 10% of its total assets in
cash returns is more U.S. debt securities. In
attractive, the Fund will hold circumstances where the
foreign cash positions not in outlook for U.S. dollar cash
excess of approximately 25% of returns is more attractive
its total assets. than that for cash and bond
returns in all other
The portfolio investments of currencies, the Fund will hold
the Bond Fund will be selected a U.S. dollar cash position of
on the basis of, among other up to 35% of the Fund's total
things, yields, credit assets. Conversely, if the
quality, and the fundamental outlook for Eastern European
outlooks for currency and currency cash returns is more
interest rate trends in attractive, the Fund will hold
different parts of the globe, foreign cash positions of up
taking into account the to 25% of the Fund's total
ability to hedge a degree of assets. From time to time, the
currency or local bond price Advisor may hold up to 90% of
risk. The Bond Fund will the fund's total assets in
normally invest at least 65% securitized money market
of its total assets in bonds instruments, such as
denominated in foreign government short-term paper,
currencies, however, generally treasury bills issued by
foreign currency denominated governments of European
bonds will constitute 90% of countries, commercial paper
its portfolio. and corporate short-term paper
with maturities of up to one
year.
To protect against adverse
movements of interest rates
and for liquidity, the Fund
may also invest all or a
portion of its net assets in
short-term obligations, such
as bank deposits, bankers'
acceptances, certificates of
deposit, commercial paper,
short-term government,
government agency,
supranational agency and
corporate obligations and
repurchase agreements. The
Advisor also attempts to
protect the Fund from rising
interest rates by selling
interest rate future contracts
or purchasing put options on
interest rate futures
contracts.
<PAGE>
HOW IS EACH FUND MANAGED?
The business and affairs of each Fund are supervised by the Company's Board of
Directors.
INVESTMENT MANAGEMENT SERVICES.
Investment Advisor - Vontobel USA Inc., 450 Park Avenue, New York, N.Y. 10022
(the "Advisor"), manages the investments of each Fund pursuant to separate
Investment Advisory Agreements (each, an "Advisory Agreement"). The Advisor is a
wholly owned and controlled subsidiary of Vontobel Holding Ltd., a Swiss bank
holding company, having its registered offices in Zurich, Switzerland. As of
December 31, 1998, the Advisor manages in excess of $1.9 billion. The Advisor
also acts as the advisor to three series of a Luxembourg fund organized by an
affiliate of the Advisor. That fund does not accept investments from the U.S.
The Advisor has provided investment advisory services to mutual fund clients
since 1990.
Pursuant to the Advisory Agreements, the Advisor provides the Funds with
investment management services and with office space. The Advisor pays the
office and clerical expenses that are associated with investment research,
statistical analysis, and the supervision of the Fund's portfolios. The Advisor
also pays the salaries (and other forms of compensation) of the Company's
directors and officers or employees of the Company who are also officers,
Directors or employees of the Advisor. Each Fund is responsible for all other
expenses that are not specifically assumed by the Advisor. Such expenses include
(but are not limited to) brokerage fees and commissions, legal fees, auditing
fees, bookkeeping and record keeping fees, custodian and transfer agency fees
and registration fees.
As compensation for its service as investment advisor for each of the Funds, the
Advisor receives a fee. That fee is payable monthly an annualized rate that is
equal to a percentage of the Fund's average daily net assets. The annual fee
paid by the Bond Fund is 1% of the Fund's assets, and the fee paid by the Debt
Fund is 1.25%. The fees paid by the Funds are set forth in the table below.
These fees are higher than those charged to most other investment companies, but
are comparable to fees paid by investment companies with investment objectives
and policies similar to the Funds' investment objectives and policies.
ADMINISTRATIVE SERVICES.
Commonwealth Shareholder Services, Inc. ("CSS"), serves as Administrator to each
Fund pursuant to Administrative Services Agreements. CSS provides certain
recordkeeping and shareholder servicing functions required of registered
investment companies, and will assist each Fund in preparing and filing certain
financial and other reports and performs certain daily functions required for
ongoing operations. CSS may furnish personnel to act as the Company's officers
to conduct the Company's business subject to the supervision and instructions of
the Company's Board of Directors. The address of CSS is 1500 Forest Avenue,
Suite 223, Richmond, Virginia 23229
TRANSFER AND DIVIDEND DISBURSING AGENT.
Fund Services, Inc. ("FSI" or the "Transfer Agent") is the transfer and
dividend disbursing agent for the Company. The address of the Transfer
Agent is 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229.
CUSTODY SERVICES.
Brown Brothers Harriman and Co., 40 Water Street, Boston, Massachusetts 02109
acts as the Custodian of the securities and cash for each of the Funds.
HOW ARE SHARES OF THE FUNDS DISTRIBUTED?
Vontobel Fund Distributors, a division of First Dominion Capital Corp. (the
"Distributor"), 1500 Forest Avenue, Suite 223, Richmond, VA 23229, serves as the
principal underwriter of the Funds' shares pursuant to a Distribution Agreement
dated August 18, 1997. John Pasco, III, Chairman of the Board of the Company,
owns 100% of the Distributor, and is its President, Treasurer and a Director.
WHAT IS THE PURCHASE AND REDEMPTION PRICE
OF SHARES OF THE DEBT FUND?
The Debt Fund's share price, called its NAV, is determined as of the close of
trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Time) on each business day ("Valuation Time") that the NYSE is open; however,
the Company's management may compute the NAV more frequently in order to protect
shareholders' interests. As of the date of this prospectus, the Fund is informed
that the NYSE will be closed on the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. NAV per share is computed by
adding the total value of the investments and other assets, subtracting any
liabilities and then dividing by the total number of shares outstanding.
The offering price per share is equal to the NAV next determined after the Fund
receives your purchase order. The minimum initial investment for the Debt Fund
is $1,000. Subsequent investments must be $50 or more. The Company may waive the
minimum initial investment requirement for purchases made by Directors, officers
and employees of the Company. The Company may also waive the minimum investment
requirement for purchases by its affiliated entities and certain related
advisory accounts and retirement accounts (such as IRAs). You may purchase
shares of a Fund by mail or wire.
SELLING SHARES.
You may redeem shares of the Debt Fund at any time and in any amount by mail or
telephone. The Funds will use reasonable procedures to confirm that instructions
communicated by telephone are genuine and, if the procedures are followed, will
not be liable for any losses due to unauthorized or fraudulent telephone
transactions.
The Company's procedure is to redeem shares at the NAV determined after FSI
receives the redemption request in proper order. The Company deducts a 2%
redemption fee from proceeds of the Debt Fund shares redeemed less than six
months after purchase (including shares to be exchanged). The Debt Fund retains
this amount to offset the Fund's costs of purchasing or selling securities.
The Company may suspend the right to redeem shares for any period during which
the NYSE is closed or the SEC determines that there is an emergency. In such
circumstances you may withdraw your redemption request or permit your request to
be held for processing at the NAV next computed after the suspension is
terminated.
Expenses of the Funds, including the Administrative fee and Advisory fee, are
accrued each day.
Reinvestment of dividends and distributions in additional shares of the Funds
are made on the payment date at the net asset value determined on the record
date of the dividend or distribution unless the shareholder has elected in
writing to receive dividends or distributions in cash.
HOW ARE INCOME AND GAINS OF THE FUNDS DISTRIBUTED?
Dividends from net investment income, if any, are declared annually by each
Fund. Each of the Funds intends to distribute annually any net capital gains.
Dividends will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. If you do not wish to have
your dividends reinvested in additional shares, you should send a written
request to that effect to the Transfer Agent. There are no sales charges or
transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made with an IRA, all dividends and capital
gain distributions must be reinvested
HOW DO THE RISKS OF THE DEBT FUND AND THE BOND FUND COMPARE?
Because the Bond Fund invests primarily in very high investment grade
instruments issued primarily by Western European national governments, and the
Debt Fund invest primarily in debt of Eastern European national governments, the
principal risk factors are materially different for the two funds.
An investment in the Bond Fund involves a lesser degree of risk due to the fact
that(1) it invests primarily in debt instruments rated A or higher by Standard &
Poor's ("S&P"); (2) it invests in instruments that are less volatile; and, (3)
it invests primarily in sovereign debt denominated in the currencies of major
Western European nations whose creditability is sound.
In the past, an investment in the Debt Fund involved a greater degree of
political, currency and market risk due to the fact that (1) it invested
primarily in debt instruments rated BB- or better by S&P; (2) it invested in
instruments whose markets are in their infancy and are therefore relatively
volatile; and, (3) it invested primarily in sovereign debt denominated in the
currencies of the developing nations of Eastern European nations whose
currencies tend to fluctuate more widely than those of Western European nations.
Under the revised investment practices which the Board will implement for the
Debt Fund prior to the Reorganization, the disparity in risk between the two
Funds will be less than in the past, as the investments of the Debt Fund will be
comprised of both the types of securities presently held in the Bond Fund, and
the types of securities presently held in the Debt Fund. Under the revised
investment practices the Debt Fund will invest primarily in higher quality debt
instruments, as described in "How Do The Investment Objectives and Policies of
The Funds Compare?". The eastern european currencies in which the Debt Fund will
invest may be more volatile than Euro denominated securities.
At the present time, neither fund intends to invest more than 5% of its total
assets in securities rated below investment grade.
The reorganized fund, to be renamed Vontobel Greater European Bond Fund, will,
under normal market conditions, have at least 65% of its assets in foreign debt
securities; however, it will not invest more than 50% of total assets invested
in debt instruments denominated in the currencies of developing European nations
(including Greece, Turkey and Portugal in addition to Eastern Europe).
PRINCIPAL RISKS.
INTEREST RATES:
The market values of fixed income securities tend to vary inversely with the
level of interest rates. When interest rates rise, the market values of such
securities tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than short-term securities of
similar quality, longer term securities are subject to greater price
fluctuations. There are no restrictions on the maturity composition of the Bond
Fund or the Greater European Bond Fund. Maturity selection is based on the
Advisor's total return forecasts. Currently, most local currency debt
instruments tend to have short-term maturities of one year or less. Eurocurrency
instruments, on the other hand, that have short- to intermediate-term
maturities, generally are priced at a spread over the interest rate applicable
to the same-maturity government bond of the country in whose currency the debt
instrument is issued.
The Bond Fund and the Greater European Bond Fund are non-diversified for
purposes of the 1940 Act. As a non-diversified fund, the Debt Fund may invest a
larger portion of its assets in fewer issuers. Consequently, adverse effects on
the Fund's security holdings may affect a larger portion of the Fund's assets
and cause the value of your investment to decline.
FOREIGN INVESTING:
A Fund's investments in foreign securities may involve risks that are not
ordinarily associated with U.S. securities. Foreign companies are not generally
subject to the same accounting, auditing and financial reporting standards as
are domestic companies. Therefore, there may be less information available about
a foreign company than there is about a domestic company. Certain countries do
not honor legal rights enjoyed in the U.S. In addition, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments, which could affect U.S. investments in those countries.
Many foreign securities have substantially less trading volume than in the U.S.
market, and securities in some foreign issuers are less liquid and more volatile
than securities of domestic issuers. These factors make foreign investment more
expensive for U.S. investors. Mutual funds offer an efficient way for
individuals to invest abroad, but the overall expense ratios of mutual funds
that invest in foreign markets are usually higher than those of mutual funds
that invest only in U.S. securities.
EMERGING AND DEVELOPING MARKETS:
A Fund's investments in emerging and developing countries involve those same
risks that are associated with foreign investing in general (see above). In
addition to those risks, companies in such countries generally do not have
lengthy operating histories. Consequently, theses markets may be subject to more
substantial volatility and price fluctuations than securities that are traded on
more developed markets.
<PAGE>
EUROPEAN CURRENCY:
Several European countries are participating in the European Economic and
Monetary Union, which established a common European currency for participating
countries. This currency is commonly known as the "Euro." Each participating
country replaced its existing currency with the Euro as of January 1, 1999.
Additional European countries may elect to participate in the common currency in
the future. The conversion presented unique uncertainties, including, among
others: (1) whether the payment and operational systems of banks and other
financial institutions will function properly; (2) how certain outstanding
financial contracts that refer to existing currencies rather than the Euro will
be treated legally; (3) how exchange rates for existing currencies and the Euro
will be established; and (4) how suitable clearing and settlement payment
systems for the Euro will be managed. If any of the Funds invests in securities
of countries that have converted to the Euro, or convert in the future, the Fund
could be adversely affected if these uncertainties cause adverse affects on
these securities. The Fund could also be adversely affected if the computer
systems used by its major service providers are not properly prepared to handle
the implementation. The Company has taken steps to obtain satisfactory
assurances that the major service providers of each of the Funds have taken
steps reasonably designed to address these matters. There can be no assurances
that these steps will be sufficient to avoid any adverse impact on the
operations and investment returns of the Funds. To date the conversion of the
Euro has had negligible impact on the operations and investment returns of the
Funds.
WHAT FEES AND EXPENSES ARE PAID BY THE BOND FUND AND THE DEBT FUND?
The following information is provided in order to assist you in understanding
the fees and expenses that an investor in the Debt Fund and the Bond Fund will
bear directly or indirectly. The expense figures and examples shown are based on
figures from the fiscal year ended on December 31, 1998. While actual expenses
may be greater or less than those shown, the expenses of the Debt Fund are not
expected to change materially as a result of the proposed Reorganization.
Bond Fund Debt Fund
---------- ---------
Shareholder transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None
Redemption Fees (1) None 2%(2)
Exchange Fees (3) None None
Annual Fund Operating Expenses
(Expenses that are deducted from Fund assets)
Management Fees 1.00% 1.25%
Distribution (12b-1 Fees) None None
Other Expenses 0.86% 1.14%
----- -----
Total Annual Fund Operating Expenses 1.86% 2.39%
===== =====
(1) A shareholder electing to redeem shares by telephone will be charged $10
for each such redemption request.
(2) A 2% redemption fee is charged on shares held less than six (6) months. (3)
A shareholder may be charged a $10 fee for each telephone exchange.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that as the Fund increases in size, its annual operating expenses stated
as "Other Expenses" above will decline as an annual percentage rate reflecting
economies of scale.
- --------------------------------------------------------------------------------
The following expense examples show the expenses that you could pay over time.
They will help you compare the costs of investing in the Funds with the costs of
investing in other mutual funds. Each example assumes that you invest $10,000 in
the Fund and then redeem all of your shares at the end of the periods indicated.
Each example assumes that you earn a 5% annual return, with no change in Fund
expense levels. Because actual return and expenses will be different, the
examples are for comparison only. Based on these assumptions, your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
International Bond Fund $189 $585 $1,006 $2,180
Eastern European
Debt Fund $242 $745 $1,275 $2,726
PRO-FORMA CAPITALIZATION TABLE
Pro-Forma
Combining for
Vontobel Vontobel Surviving
International Eastern European European
As of December 31, 1998 Bond Fund Debt Fund Bond Fund
- ----------------------- --------- --------- ---------
Net Assets $6,983,389 $7,881,885 $14,865,274
Shares outstanding 654,921 771,630 1,455,605
NAV per share $10.66 $10.21 $10.21
PERFORMANCE COMPARISON.
International Bond Fund:
The bar chart below shows how the Bond Fund's performance has varied from one
year to another. The table below the chart shows what the return would equal if
you averaged out actual performance over various lengths of time. Please keep in
mind that the Bond Fund's past performance may not indicate how it will perform
in the future.
Year Total Return
1995 17.60%
1996 7.51%
1997 (6.04%)
1998 14.85%
The following table compares the performance of the Bond Fund and the J.P.
Morgan Government Bond Index ("J.P. Morgan Index"). The J.P. Morgan Index is an
unmanaged index of the world's 12 major government bond markets (Australia,
Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain,
Sweden and the UK). Returns to not include dividends and are expressed in U.S.
dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
Since Inception
1 Year (March 1, 1994)
------ ---------------
Bond Fund 14.85% 7.07%
J.P. Morgan Index (3.73%) .84%
Eastern European Debt Fund:
The bar chart below shows how the Eastern European Debt Fund's performance has
varied from one year to another. The table below the chart shows what the return
would equal if you averaged out actual performance over various lengths of time.
Please keep in mind that the Debt Fund's past performance may not indicate how
it will perform in the future.
Year Total Return
1998 24.54%
The following table compares the performance of the Debt Fund and the Bank
Austria-Creditanstalt Eastern European Bond Index ("Bank Austria-Creditanstalt
Index"). The Bank Austria-Creditanstalt Index is a market-weighted index of
government and corporate debt instruments issued in local currency and traded on
exchanges in Hungary, Poland, Russia, the Czech Republic and Slovakia. Returns
do not include dividends and are expressed in U.S. dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
Since Inception 1 Year
(September 1, 1997)
Eastern European
Debt Fund 24.54% 17.43%
Bank Austria-
Creditanstalt
Index (27.78%) (23.86%)
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than the original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gains or losses from portfolio investments assuming
reinvestment of dividends.
INFORMATION ABOUT THE REORGANIZATION
The following is a summary of the Plan of Reorganization, and is subject in all
respects to the provision of, and is qualified in its entirety by reference to,
the Plan, a copy of which is attached hereto as Exhibit A.
METHOD OF CARRYING OUT THE REORGANIZATION.
It is expected that the Bond Fund will be consummated promptly upon approval of
the Plan by the shareholders of the Bond Fund, subject to satisfaction of the
various conditions to the obligations of each of the parties. (See "Conditions
Precedent to Closing.") Consummation of the Reorganization will be on or about
August 27, 1999, or such other date as is determined by the Company on behalf of
the Debt Fund and the Bond Fund (the "Closing Date"), provided that the Plan may
be terminated by the Company on behalf of either Fund if the Closing Date does
not occur on or before September 30, 1999.
On the Closing Date, the Bond Fund will transfer substantially all of its assets
to the Debt Fund in exchange for shares of the Debt Fund having an aggregate net
asset value equal to the aggregate value of assets so transferred as of 4:00
p.m. Eastern Time on the Closing Date. In the event that the shareholders of the
Bond Fund do not approve the Plan, the assets of the Bond Fund will not be
transferred on the Closing Date and the obligations of the Company under the
Plan relating to the Bond Fund shall not be effective.
If the Reorganization is approved, and the conditions to the Closing have been
satisfied, the stock transfer books of the Company with respect to the Bond Fund
will be permanently closed as of 4:00 p.m. Eastern Time on the Closing Date and
only requests for redemption of shares of the Bond Fund received in proper form
prior to 4:00 p.m. on the Closing Date will be accepted. Redemption requests
relating to the Bond Fund received thereafter shall be deemed to be redemption
requests for shares of the Debt Fund which are to be distributed to the former
shareholders of the Bond Fund.
Upon consummation of the Reorganization, the Bond Fund will receive shares of
the Debt Fund. The number of shares shall be determined by dividing the
aggregate value of the assets of the Bond Fund to be transferred (computed in
accordance with the policies and procedures set forth in the current prospectus
of the Bond Fund and using market quotations determined by the Bond Fund) by the
net asset value per share of the common stock of the Debt Fund as of 4:00 p.m.
Eastern Time on the Closing Date.
Since the relative asset value of the Bond Fund and the Debt Fund have not yet
been ascertained for the purposes of the Closing, it is not possible to
determine the exact exchange ratio until the Closing Date. Fluctuations and
relative performances of the Bond Fund and the Debt Fund, among other matters,
will affect this ratio.
<PAGE>
CONDITIONS PRECEDENT TO CLOSING.
The obligation to transfer the assets of the Bond Fund to the Debt Fund pursuant
to the Plan is subject to the satisfaction of certain conditions precedent,
including performance by the Debt Fund, in all material respects, of its
agreements and undertakings under the Plan, the receipt of certain documents
from the Debt Fund, and requisite approval of the Plan by the shareholders of
the Bond Fund, as described above. The obligations of the Debt Fund to
consummate the Reorganization is subject to the satisfaction of certain
conditions precedent, including the performance by the Company of its
undertakings under the Plan, the receipt of certain documents and financial
statements.
EXPENSES OF THE TRANSACTION.
The Bond Fund and the Debt Fund shall each bear its own expenses incurred in
connection with entering into and consummating the transaction contemplated by
the Plans
TAX CONSIDERATIONS.
As noted above, the Company will receive a tax opinion that the transaction will
qualify under Section 368(a)(1)(C) of the Internal Revenue Code for Federal
income tax purposes. The Funds believe that more than half of the shareholders
of the Bond Fund are not subject to U.S. Federal income taxation. Former
shareholders of the Bond Fund will be advised of the tax treatment of the
Reorganization.
DESCRIPTION OF SHARES OF THE DEBT FUND.
Shares of the Debt Fund will be issued to shareholders of the Bond Fund in
accordance with the procedures under the Plan as described above. Each share
will be fully paid and non-assessable when issued with no personal liability
attaching to the ownership thereof, will have no preemptive or conversion rights
and will be transferable upon the books of the Debt Fund. No redemption or
repurchase of the Debt Fund shares issued to shareholders whose Bond Fund share
were represented by unsurrendered stock certificates shall be permitted until
such certificates have been surrendered for cancellation.
As shareholders of the Debt Fund, former shareholders of the Bond Fund will have
substantially similar voting rights and rights upon dissolution with respect to
the Debt Fund as they currently have with respect to the Bond Fund.
It is the position of the Division of Investment Management of the U.S.
Securities and Exchange Commission that shareholders of the Bond Fund will not
be entitled to any "dissenter's rights" since the proposed reorganization is
between two open-end investment companies registered under the 1940 Act.
Although no dissenters' rights may be available to shareholders of the Bond
Fund, shareholder have the right to redeem their shares at net asset value until
the Closing Date, and thereafter such shareholders may redeem their Debt Fund
shares at net asset value or exchange their Debt Fund shares into share of any
other fund in the Vontobel Family of funds subject to the terms of the
Prospectus of the fund being acquired.
To the extent permitted by law, the Plan may be amended without shareholder
approval by the Company on behalf of the Debt Fund or the Bond Fund. The Plan
may be terminated and the Reorganization abandoned at any time before or, to the
extent permitted by law, after the approval of shareholders of the Bond Fund by
the Company on behalf of the Debt Fund or the Bond Fund.
INFORMATION ABOUT THE COMPANY AND THE FUNDS
Information about the Debt Fund and the Bond Fund is included in the Company's
current Prospectus dated May 1, 1999, that Prospectus is attached to this
Combined Proxy Statement/Prospectus and incorporated by reference herein.
Additional information about the Reorganization and the Funds is included in a
Statement of Additional Information, dated August 5, 1999, which has been filed
with the Securities and Exchange Commission and is incorporated by reference
herein. A copy of the Statement of Additional Information may be obtained
without charge by writing to the Company or calling 800-527-9500. The Funds are
subject to the informational requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, as applicable, and, in accordance with
such requirements, file proxy materials, reports and other information with the
Securities and Exchange Commission. These materials can be inspected and copied
at the Public Reference Facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street NW, Washington, DC 20549; at the offices of the
Fund at 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229; and, at the
Philadelphia Regional Office of the Securities and Exchange Commission at The
Curtis Center, Suite 1005 E, 601 Walnut Street, Philadelphia, Pennsylvania
19106-3322. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumers Affairs and Information Services,
Securities and Exchange Commission, Washington DC 20549, at prescribed rates,
and from the internet site maintained by the Commission at http://www.sec.gov.
The International Bond Fund was established in February, 1994 as a series of the
Company, which has allocated to the Fund 50,000,000 of its 500,000,000 shares of
$0.01 par value common stock. The Eastern European Debt Fund was established in
September, 1997 as a series of the Company, which has allocated to the Debt Fund
50,000,000. Each share has equal dividend, voting, liquidation and redemption
rights. There are no conversion or preemptive rights. When issued in accordance
with the Prospectus, shares will be fully paid and non-assessable. Fractional
shares have proportional voting rights.
VOTING INFORMATION AND PRINCIPAL STOCKHOLDERS
In the event that sufficient votes in favor of the proposal set forth in the
Notice of Special Meeting of Shareholders are not received by the date of the
Meetings, the proxy holders present may propose one or more adjournments of the
Meeting to permit further solicitation of proxies to obtain a quorum. Even if a
quorum is present, if enough votes have not been received to approve the
proposed Plan, a motion to adjourn the Special Meeting may be presented. Proxies
which direct a vote against the Plan will be voted against any motion to
adjourn; all other proxies will be voted in favor of adjournment. Any such
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the Meeting to be
adjourned. The proxies will be voted in the best judgment of management. The
costs of any such additional solicitation and of any adjourned session will be
borne by the Bond Fund.
<PAGE>
PRINCIPAL STOCKHOLDERS.
As of August 3, 1999, the following persons owned of record or beneficially
shares of the Funds in the following amounts.
International Bond Fund:
Bank J. Vontobel and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich Switzerland, owned of record 477,713.432
outstanding shares (or 73.754%); Charles Schwab Reinvestment, 101 Montgomery
Street San Francisco, CA 94104, owned of record 34,711.696 outstanding shares
(or 5.359%).
Eastern European Debt Fund:
Bank J. Vontobel and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich Switzerland, owned of record 551,549.754
outstanding shares (or 82.024%); and Palenzona Ingeborg of Bahnhofstrasse 33
Ch-8022 Zurich Switzerland owned of record 40,637.473 outstanding shares (or
6.043%).
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION (the "Plan"), made as of this 5th day of August , 1999 by
the Vontobel Funds, Inc. (the "Fund"), a corporation organized under the laws of
the State of Maryland, with its principal place of business at 1500 Forest
Avenue, Suite 223, Richmond, Virginia 23229, on behalf of the Vontobel Eastern
European Debt Fund series of shares (the "Eastern European Debt Fund") and the
Vontobel International Bond Fund series of shares (the "International Bond
Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of Reorganization" or
"Plan") will consist of (i) the acquisition by the Eastern European Debt Fund of
substantially all of the property, assets and goodwill of the International Bond
Fund in exchange for shares of common stock of the Eastern European Debt Fund,
with $0.01 per share par value, and the assumption of other liabilities, if any,
of the International Bond Fund, (ii) the distribution of such shares of common
stock of the Eastern European Debt Fund to the shareholders of the International
Bond Fund according to their respective interest, and (iii) the dissolution of
the International Bond Fund as soon as practical after the closing (as defined
in Section 3, hereinafter called the "Closing"), all upon and subject to the
terms and conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of the
premises and of the covenants hereinafter set forth, and intending to be legally
bound, the Fund covenants as follows:
1. Sale and Transfer of Assets, Liquidation and Dissolution of the Portfolio
(a) Subject to the terms and conditions of this Plan, and in reliance on the
representations and warranties of the Fund on behalf of the Eastern
European Debt Fund herein contained, and in consideration of the
delivery by the Eastern European Debt Fund of the number of its shares
hereinafter provided and the assumption by the Eastern European Debt
Fund of other liabilities, if any, of the International Bond Fund, the
Fund on behalf of the International Bond Fund agrees that it will
convey, transfer and deliver to the Eastern European Debt Fund at the
Closing all of the then existing assets of the International Bond Fund
free and clear of all liens, encumbrances, and claims for which the
International Bond Fund has reserved cash, bank deposits, or cash
equivalent securities in an estimated amount necessary (1) to pay its
costs and expenses of carrying out this Plan (including, but not limited
to, fees of counsel and accountants, and expenses of its liquidation and
dissolution contemplated hereunder), which costs and expenses shall be
established on the International Bond Fund books as liability reserves,
(2) to discharge its unpaid liabilities on its books at the closing date
(as defined in Section 3, hereinafter called the "Closing Date"),
including, but not limited to, its income dividends and capital gains
distributions, if any, payable for the period prior to the Closing Date,
and (3) to pay such contingent liabilities as the directors shall
reasonably deem to exist against the International Bond Fund, if any, at
the Closing Date, for which contingent and other appropriate liability
reserves shall be established on the International Bond Fund's books
(hereinafter "Net Assets"). The International Bond Fund shall also
retain any and all rights which it may have over and against any person
which may have accrued up to and including the close of business on the
Closing Date.
(b) Subject to the terms and conditions of this Plan, and in reliance on the
representations and warranties of the Fund herein contained, and in
consideration of such sale, conveyance, transfer, and delivery, the Fund
on behalf of the Eastern European Debt Fund agrees at the Closing to
delivery to the International Bond Fund the number of Eastern European
Debt Fund shares of common stock (with $0.01 per share par value)
determined by dividing the aggregate value of the net assets of the
International Bond Fund on the Closing Date by the net asset value per
share of common stock of the Eastern European Debt Fund on the Closing
Date and multiplying the result by the number of outstanding shares of
the International Bond Fund on the Closing Date. All such values shall
be determined in the manner and as of the time set forth in Section 2
hereof.
(c) Immediately following the Closing, the International Bond Fund shall
distribute pro rata to its shareholders of record as of the close of
business on the Closing Date the shares of common stock of the Eastern
European Debt Fund received by the International Bond Fund pursuant to
this Section 1, and shall thereafter dissolve. Such distribution shall
be accomplished by the establishment of accounts on the share records of
the Eastern European Debt Fund of the type and in the amounts due such
shareholders based on their respective holdings as of the close of
business on the Closing Date. Fractional shares of beneficial interest
of the Eastern European Debt Fund shall be carried to the third decimal
place. As promptly as practicable after the Closing, each holder of any
outstanding certificate or certificates representing shares of
beneficial interest of the International Bond Fund shall be entitled to
surrender the same to the transfer agent for the Eastern European Debt
Fund and request in exchange therefor a certificate or certificates
representing the number of whole shares of common stock of the Eastern
European Debt Fund into which the shares of beneficial interest of the
International Bond Fund theretofore represented by the certificate or
certificates so surrendered shall have been converted. Until so
surrendered, each outstanding certificate which, prior to the Closing,
represented shares of beneficial interest of the International Bond Fund
shall be deemed for all purposes to evidence ownership of the number of
shares of common stock of the Eastern European Debt Fund into which the
shares of beneficial interest of the International Bond Fund (which
prior to Closing were represented thereby) have been converted.
2. Valuation
(a) The net asset value of a share of common stock of the Eastern European
Debt Fund shall be determined to the nearest full cent as of 4:00 p.m.
Eastern Time on Closing Date, using the valuation procedures as set forth
in the Fund's then effective prospectus.
(b) The net asset value of a share of common stock of the International Bond
Fund shall be determined to the nearest full cent as of 4:00 p.m. Eastern
Time on the Closing Date, using the valuation procedures as set forth in
the Fund's then effective prospectus.
3. Closing and Closing Date
The Closing Date shall be August 27, 1999 or such later date as the Fund may
determine. The Closing shall take place at the principal office of the Fund,
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229 at 4:00 p.m. Eastern
Time on the Closing Date. The International Bond Fund shall have provided for
delivery as of the Closing of those Net Assets to be transferred to the Eastern
European Debt Fund's Custodian, Brown Brothers Harriman and Co., 40 Water
Street, Boston, Massachusetts 02109. Also the Fund shall deliver at the Closing
a list of names and addresses of the shareholders of record of the International
Bond Fund and the number of shares of beneficial interest of the International
Bond Fund owned by each such shareholder, indicating thereon which such shares
are represented by outstanding certificates and which by book-entry accounts,
all as of 4:00 p.m. Eastern Time on the Closing Date, certified by its Transfer
Agent or by the President to the best of their knowledge and belief. The Fund
shall issue and deliver a certificate or certificates evidencing the shares of
common stock of the Eastern European Debt Fund to be delivered to said Transfer
Agent registered in such manner as the International Bond Fund may request, or
provide evidence that such shares of the Eastern European Debt Fund have been
registered in an account on the books of the Eastern European Debt Fund.
4. Representations and Warranties by the Fund on behalf of the International
Bond Fund
The Fund represents and warrants that:
(a) The International Bond Fund is a validly existing series of the Fund, and
that the Fund is duly registered under the Investment Company Act of 1940,
as amended, as a non-diversified, open-end management company and all of
its International Bond Fund shares sold have been sold pursuant to an
effective registration statement filed under the Securities Act of 1933,
as amended.
(b) The Fund is authorized to issue a series of shares designated as the
International Bond Fund series, consisting of 50,000,000 shares of Common
Stock, with a par value of $0.01, each outstanding share of which is fully
paid, non-assessable, fully transferable and has full voting rights.
(c) The financial statements appearing in the Fund's Annual Report to
Shareholders for the period ending December 31, 1998, audited by Tait,
Weller and Baker, fairly present the financial position of the
International Bond Fund as of the date indicated, in conformity with
generally accepted accounting principles applied on a consistent basis.
(d) The books and records of the International Bond Fund accurately summarize
the accounting date represented and contain no material omissions with
respect to the business and operations of the Portfolio.
(e) The Fund on behalf of the International Bond Fund has the necessary power
and authority to conduct the business of the International Bond Fund as
such business is now being conducted.
5. Representations and Warranties by the Fund on behalf of the Eastern
European Debt Fund
The Fund represents and warrants that:
(a) The Eastern European Debt Fund is a validly existing series of the Fund,
and that the Fund is duly registered under the Investment Company Act of
1940, as amended, as a non-diversified, open-end, management investment
company and all its shares sold have been sold pursuant to an effective
Registration Statement filed under the Securities Act of 1933, as amended.
(b) The Fund is authorized to issue a series of shares designated as the
Eastern European Debt Fund series, consisting of 50,000,000 shares of
common stock, with $0.01 per share par value. Each outstanding share is
fully paid, non-assessable, fully transferable, and has full voting
rights. The shares of common stock of the Eastern European Debt Fund
issued pursuant to the Plan will be fully paid, non-assessable, freely
transferable and have full voting rights.
(c) At the Closing, the shares of common stock of the Eastern European Debt
Fund will be duly qualified for offering to the public in all states of
the United States in which the sale of shares of the International Bond
Fund are qualified, and there are a sufficient number of such shares
registered under the Securities Act of 1933, as amended, to permit the
transfers contemplated by this Agreement to be consummated.
(d) The financial statements appearing the Fund's Annual Report to
Shareholders for the fiscal year ending December 31, 1998, audited by
Tait, Weller and Baker, fairly present the financial position of the
Eastern European Debt Fund as of the date indicated and the results of its
operations for the periods indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(e) The Fund on behalf of the Eastern European Debt Fund has the necessary
power and authority to conduct the business of the Eastern European Debt
Fund as such business is now being conducted.
(f) The Fund on behalf of the Eastern European Debt Fund has full power and
authority to perform its obligations under this Plan. The execution and
delivery of this Plan and the performance of the matters contemplated
hereby the Fund on behalf of the Eastern European Debt Fund have been duly
authorized by the Board of Directors of the Fund.
(g) Except as disclosed in the Fund's currently effective prospectus, there
are no legal, administrative or other proceedings pending against or, to
the knowledge of the Fund, threatened against the Fund which would
materially affect its financial condition or its ability to consummate
the transactions contemplated by this Plan. The Fund is not charged
with or, to the best of its knowledge, threatened with any violation or
investigation or any possible violation of any provisions of any
federal, state or local law or regulation or administrative ruling
related to any aspect of its business.
(h) The Fund is not a party to or obligated under any provision of its
certificate of incorporation, bylaws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which
would be violated by its execution of or performance under this Plan.
<PAGE>
6. Representations and Warranties by the Fund
The Fund, on behalf of the Eastern European Debt Fund and International Bond
Fund represents and warrants that:
(a) The statement of assets and liabilities to be furnished by it, as of
4:00 p.m. Eastern Time for the International Bond Fund and the Eastern
European Debt Fund on the Closing Date, for the purpose of determining
the number of shares of common stock of the Eastern European Debt Fund
to be issued pursuant to Section 1 of this Agreement will accurately
reflect its net assets in the case of the International Bond Fund and
its net assets in the case of the Eastern European Debt Fund and
outstanding shares of common stock as of such date in conformity with
generally accepted accounting principles applied on a consistent basis.
(b) At the Closing it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and
liabilities referred to in "(a)" above, free and clear of all liens or
encumbrances of any nature whatever except such imperfections of title or
encumbrances as do not materially detract from the value or use of the
assets subject thereto, or materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus, there is no
material suit, judicial action, or legal or administrative proceeding
pending or threatened against it.
(d) There are no known actual or proposed deficiency assessments with respect
to any taxes payable by it.
(e) The execution, delivery and performance of this Plan has been duly
authorized by all necessary action of its Board of Directors and this Plan
constitutes its valid and binding obligation enforceable in accordance
with its terms.
(f) It anticipates that consummation of this Plan will not cause it to fail to
conform to the requirements of Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), for Federal income taxation as a
regulated investment company at the end of its fiscal year.
7. Covenants of the Fund on behalf of the International Bond Fund and the
Eastern European Debt Fund
(a) The Fund, on behalf of the International Bond Fund and the Eastern
European Debt Fund, covenants to operate the respective business of the
Eastern European Debt Fund and the International Bond Fund as presently
conducted between the date hereof and the Closing, subject to such actions
as are necessary in connection with the approval and implementation of
this Plan.
(b) The Fund undertakes that it will not acquire the Eastern European Debt
Fund shares for the purpose of making distributions thereof other than to
the International Bond Fund shareholders.
(c) The Fund on behalf of the International Bond Fund and the Eastern European
Debt Fund agrees that by the Closing, all of its Federal and other tax
returns or tax extensions and reports required by law to be filed on or
before such date shall have been filed and all Federal and other taxes
shown as due on said returns shall have either been paid or adequate
liability reserves shall have been provided for the payment of such taxes.
(d) The Fund will at the Closing provide a copy of the shareholder ledger
accounts for all the shareholders of record of the International Bond Fund
as of 4:00 p.m. Eastern Time on the Closing Date who are to become
stockholders of the Eastern European Debt Fund as a result of the transfer
of assets which is the subject of this Plan, certified by its Transfer
Agent or its President to the best of their knowledge and belief.
(e) The Fund agrees to mail to each shareholder of record of the
International Bond Fund entitled to vote at the special meeting of
shareholders at which action on this Plan is to be considered, in
sufficient time to comply with requirements of the General Corporation
Law of Maryland as to notice thereof, a Combined Proxy
Statement/Prospectus which complies in all material respects with the
applicable provisions of Section 14(a) of the Securities Exchange Act of
1934, as amended, and Section 20(a) of the Investment Company Act of
1940, as amended, and the rules and regulations, respectively,
thereunder.
(f) The Fund will file with the Securities and Exchange Commission a
Registration Statement on Form N-14 under the Securities Act of 1933, as
amended ("Registration Statement") relating to the issuance of the
shares of common stock of the Eastern European Debt Fund issuable
hereunder, and will use its best efforts to provide that the
Registration Statement becomes effective as promptly as practicable. At
the time the Registration Statement becomes effective, it (i) will
comply in all material respects with the applicable provision of the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder; and (ii) will not contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; at
the time the Registration Statement becomes effective, at the time of
the International Bond Fund shareholder's meeting, and at the Closing
Date, the prospectus and statement of additional information included
therein will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
8. Conditions Precedent to be Fulfilled by the Fund on behalf of the
International Bond Fund and the Eastern European Debt Fund
The obligations of the Fund on behalf of the International Bond Fund and the
Eastern European Debt Fund to effectuate this Plan hereunder shall be subject to
the following respective conditions:
(a) That (1) all the representations and warranties contained herein shall be
true and correct as of the Closing with the same effect as though made as
of and at such date; (2) the Fund shall have performed all obligations
required by this Plan to be performed by it prior to the Closing ; and,
(3) the Fund shall have delivered a certificate signed by the President
and by the Secretary or equivalent officer to the foregoing effect.
(b) That the Fund shall have delivered a copy of the resolutions approving
this Plan adopted by the Fund's Board of Directors, certified by the
Secretary or equivalent officer.
(c) That the Securities and Exchange Commission shall not have issued an
unfavorable management report under Section 25(b) of the Investment
Company Act of 1940, as amended, nor instituted nor threatened to
institute any proceeding seeking to enjoin consummation of the Plan
under Section 25(c) of the Investment Company Act of 1940, as amended,
an no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial
condition of either party or would prohibit the transactions
contemplated hereby.
(d) That the holders of at least a majority of the outstanding shares of
common stock of the International Bond Fund shall have voted in favor of
the adoption of this Plan contemplated hereby at an annual or special
meeting to be held no later than August 25, 1999, or other such date as
the Fund may determine.
(e) That the Fund shall have declared a distribution or distributions prior
to the Closing date which, together with all previous distributions,
shall have the effect of distributing to the shareholders (i) all of its
net investment income and all of its net realized capital gains, if any,
for the period from the close of its last fiscal year to 4:00 p.m.
Eastern Time for the International Bond Fund on the Closing Date, and
(ii) any undistributed net investment income and net realized capital
gains from any prior period.
(f) That the Fund on behalf of the Eastern European Debt Fund shall have
received an opinion in form and substance satisfactory to it from Messrs.
Stradley, Ronon, Stevens and Young, LLP, counsel to the International Bond
Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
and other laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) The Fund was incorporated under the laws of the State of Maryland
on October 28, 1983, and is validly existing and in good standing
under the laws of the State of Maryland;
(2) The Fund has an authorized capital of 500,000,000 shares of common
stock, with a par value of $0.01, of which one series of shares
has been designated as shares of the International Bond Fund, and,
assuming that the initial capital shares of the Fund were issued
in accordance with the Investment Company Act of 1940, as amended,
and the Articles of Incorporation and By-laws of the Fund and that
all outstanding shares of the International Bond Fund were sold,
issued and paid for in accordance with the terms of the Fund's
prospectus in effect at the time of such sales, each such
outstanding share is fully paid, non-assessable, fully
transferable and has full voting rights;
(3) The Fund is an open-end, non-diversified investment company of the
management type registered as such under the Investment Company
Act of 1940, as amended;
(4) Except as disclosed in the Fund's currently effective
prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or
threatened against the Fund, the unfavorable outcome of which
would materially and adversely affect the Fund or the
International Bond Fund;
(5) All corporate actions required to be taken by the Fund to
authorize and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary corporate
action on the part of the Fund; and,
(6) This Plan is the legal, valid and binding obligation of the Fund
and is enforceable against the Fund in accordance with its terms.
In giving the opinion set forth above, this counsel may state that it is relying
on certificates of the officers of the Fund with regard to matters of fact and
certain certifications and written statements of governmental officials with
respect to the good standing of the Fund.
(g) That the Fund on behalf of the International Bond Fund shall have received
an opinion in the form and substance satisfactory to it from Messrs.
Stradley, Ronon, Stevens and Young, LLP, counsel to the Eastern European
Debt Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other laws now or hereafter affecting generally the enforcement of
creditors' rights:
(1) The Fund was incorporated under the laws of the State of Maryland
on October 28, 1983, and is validly existing and in good standing
under the laws of that state;
(2) The Fund has an authorized capital of 500,000,000 shares of common
stock, with $0.01 per share par value, and, assuming that the
initial capital shares of the Fund were issued in accordance with
the Investment Company Act of 1940, as amended, and its Articles
of Incorporation and By-laws and that all the outstanding shares
of the Eastern European Debt Fund were sold, issued and paid for
in accordance with the terms of the Fund's prospectus in effect at
the time of such sales, each such outstanding share is fully paid,
non-assessable, fully transferable and has full voting rights;
(3) The Fund is an open-end, non-diversified investment company of the
management type registered as such under the Investment Company
Act of 1940, as amended;
(4) Except as disclosed in the Fund's currently effective prospectus,
such counsel does not know of any material suit, action, or legal
or administrative proceeding pending or threatened against the
Fund, the unfavorable outcome of which would materially and
adversely affect the Fund;
(5) The shares of common stock of the Eastern European Debt Fund to be
issued pursuant to the terms of this Plan have been duly
authorized and, when issued and delivered as provided in this
Plan, will have been validly issued and fully paid and will be
non-assessable by the fund;
(6) All corporate actions required to be taken by the Fund to
authorize and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary corporate action
on the part of the Fund;
(7) Neither the execution, delivery nor performance of this Plan by
the Fund violates any provision of its Articles of Incorporation,
its By-laws, or the provisions of any agreement or other
instrument, known to such counsel to which the Fund is a party or
by which the Fund is otherwise bound; this Plan is the legal,
valid and binding obligation of the Fund and is enforceable
against the Fund in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement
of creditors' rights generally and by equitable principles; and,
(8) The Registration Statement of which the Prospectus of the Eastern
European Debt Fund is a part, dated May 1, 1999, (the
"Prospectus"), is, at the time of the signing of this Plan,
effective under the Securities Act of 1933, as amended, and, to
the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, and
no proceedings for such purpose have been instituted or are
pending before or threatened by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and
nothing has come to its attention which causes it to believe that
the time the Prospectus became effective, or at the time of the
signing of this Plan, or at the Closing, such Prospectus (except
for the financial statements and other financial and statistical
data included therein, as to which counsel need express no
opinion), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and such
counsel knows of no legal or government proceedings required to be
described in the Prospectus or of any contract or document of a
character required to be described in the Prospectus that is not
described as required.
In giving the opinion set forth above, this counsel may state that it is relying
on certificates of the officers of the Fund with regard to matters of fact and
certain certifications and written statements of governmental officials with
respect to the good standing of the Fund.
(h) That the Fund on behalf of the International Bond Fund shall have
received a certificate from the President and Secretary of the fund to
the effect that the statements contained in the Fund's Prospectus dated
May 1, 1999, at the time the Prospectus became effective, at the date of
the signing of this Agreement and at the Closing, did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and
(i) That the Fund on behalf of the International Bond Fund shall have received
a letter from Tait, Weller and Baker, dated the Closing, in form and
substance satisfactory to the Fund stating in respect of the Eastern
European Debt Fund that:
(1) On the basis of (a) reading the latest available unaudited interim
financial statements of the Eastern European Debt Fund, (b)
inquiries of officers of the Fund responsible for financial
and accounting matters, (c) reading the minutes of the
meetings of the shareholders and the Board of Directors of the
Fund for the period from January 1, 1999 to the Closing Date,
nothing came to their attention which caused them to believe
that during the period from January 1, 1999 to a date
specified not more than five days prior to the date of the
letter, there were any changes in the shares of common stock
of the Eastern European Debt Fund or any decrease in the net
investment income or net assets except those which may occur
in the normal course of operations, including but not limited
to changes or decreases which this Plan and/or the current
Prospectus disclose have occurred or may occur, as calculated
using the procedures set forth in the Eastern European Debt
Fund's currently effective prospectus.
(2) After completion of the above procedures, nothing came to Their
attention which caused them to believe that the Eastern
European Debt Fund's unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis consistent with that followed by the Fund in the
December 31, 1998 financial statements reported on by them in the
Annual Report to Shareholders.
(j) That the Fund's Registration Statement with respect to its shares to be
delivered to the International Bond Fund shareholders in accordance with
this Plan shall have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing Date or shall be in
effect at Closing, and no proceedings for the issuance for such an order
shall be pending or threatened on that date.
(k) That the shares of the Eastern European Debt Fund to be delivered
hereunder shall have been registered by the Fund with each state
commission or agency with which such registration is required in order to
permit the shares lawfully to be delivered to each of the International
Bond Fund shareholder.
(l) That at the Closing the Fund on behalf of the International Bond Fund
transfers to the Eastern European Debt Fund aggregate Net Assets of the
International Bond Fund comprising at least 90% in fair market value of
the total net assets and 70% of the fair market value of the total gross
assets recorded on the books of the International Bond Fund on the Closing
Date.
9. Brokerage Fees and Expenses
(a) The International Bond Fund and the Eastern European Debt Fund each
represent and warrant to the other that there are no broker or finders
fees payable by it in connection with the transactions provided for
herein.
(b). The expenses of entering into and carrying out the provisions of this Plan
shall be borne as follows: The International Bond Fund and the Eastern
European Debt Fund shall each bear its own expenses incurred in connection
with this Plan.
10. Termination; Waiver; Order
(a) Anything contained in this Plan to the contrary notwithstanding, this Plan
may be terminated and abandoned at any time (whether before or after
adoption thereof by the shareholders of the International Bond Fund) prior
to the Closing by the Board of Directors of the Fund.
(b) If the transactions contemplated by this Plan have not been consummated by
September 30, 1999, the Plan shall automatically terminate on that
date, unless a later date is selected by the Board of Directors of the
Fund.
(c) In the event of termination of this Plan pursuant to the provisions
hereof, the same shall become void and have no further effect, and there
shall not be any liability on the part of the Fund or persons who are its
directors, officers, agents or shareholders in respect of this Plan.
(d) At any time prior to the Closing, any of the terms or conditions of this
Plan may be waived by the Fund, by action taken by the Board of Directors
of the Fund, if, in the judgment of the Board of Directors of the Fund
such action or waiver will not have a material adverse affect on the
benefits intended under this Plan to the holders of shares of the
International Bond Fund or the Eastern European Debt Fund, on behalf of
which such action is taken.
(e) The respective representations and warranties contained in Sections 4-7
hereof shall expire with, and be terminated by, the Plan of
Reorganization, and neither the Fund nor any of their officers,
directors, agents or shareholders shall have any liability with respect
to such representations or warranties after the Closing. This provision
shall not protect any officer, director, agent or shareholder of the
Fund against any liability to the entity for which that officer,
director, agent or shareholder so acts or to which that officer,
director, agent or shareholder would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard
of the duties in the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Plan shall be issued prior to the Closing and shall
impose any terms or conditions which are determined by action of the
Board of Directors of the Fund to be acceptable, such terms and
conditions shall be binding as if a part of this Plan without further
vote or approval of the shareholders of the International Bond Fund,
unless such terms and conditions shall result in a change in the method
of computing the number of shares of the Eastern European Debt Fund to
be issued to the International Bond Fund in which event, unless such
terms and conditions shall have been included in the proxy solicitation
material furnished to the shareholders of the International Bond Fund,
prior to the meeting at which the transactions contemplated by this Plan
shall have been approved, this Plan shall not be consummated and shall
terminate unless the Fund shall promptly call a special meeting of
shareholders of the International Bond Fund at which such conditions so
imposed shall be submitted for approval.
This plan of Reorganization has been executed on behalf of the International
Bond Fund and on behalf of the Eastern European Debt Fund by the Fund's duly
authorized officers, all as of the day and year first above written.
VONTOBEL FUNDS, INC.
Attest:
_________________________________ By:________________________________
<PAGE>
EXHIBIT B
VONTOBEL FUNDS, INC.
A "Series" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS
Suite 223 Dated May 1, 1999
Richmond, Virginia 23229
Telephone: 1-800-527-9500
VONTOBEL U.S. VALUE FUND
VONTOBEL INTERNATIONAL EQUITY FUND
VONTOBEL EMERGING MARKETS EQUITY FUND
VONTOBEL EASTERN EUROPEAN EQUITY FUND
VONTOBEL INTERNATIONAL BOND FUND
VONTOBEL EASTERN EUROPEAN DEBT FUND
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities. The Commission does not guarantee the accuracy or completeness of
this Prospectus and does not determine whether an investment in any of the funds
contained in this Prospectus is a good investment. It is illegal to claim that
the Commission has done so.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY................................................
VONTOBEL U.S. VALUE FUND.....................................
VONTOBEL INTERNATIONAL EQUITY FUND...........................
VONTOBEL EMERGING MARKETS EQUITY FUND........................
VONTOBEL EASTERN EUROPEAN EQUITY FUND........................
VONTOBEL INTERNATIONAL BOND FUND.............................
VONTOBEL EASTERN EUROPEAN DEBT FUND..........................
FUND FEES AND EXPENSES.............................................
INVESTMENT OBJECTIVES/STRATEGIES AND RISKS.........................
OTHER PRINCIPAL RISKS..............................................
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE......................
SHAREHOLDER INFORMATION............................................
PURCHASING SHARES..................................................
REDEEMING SHARES...................................................
OTHER SHAREHOLDER SERVICES.........................................
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..........................
DISTRIBUTIONS AND TAXES............................................
DISTRIBUTION ARRANGEMENTS..........................................
FINANCIAL HIGHLIGHTS...............................................
<PAGE>
RISK/RETURN SUMMARY
Vontobel U.S. Value Fund ("Value Fund")
Investment Objective Long-Term Capital Return
Principal Investment Under normal circumstances, the Value Fund
Strategies will invest at least 65% of its assets in
equity securities that are traded on U.S.
exchanges. The Fund may also invest in
fixed-income securities and cash
equivalents, such as overnight repurchase
agreements and short-term U.S. Treasuries.
Principal Investment Risks The Value Fund's investments are
subject to market, economic and business risks. These
risks will cause the Value Fund's net asset value
("NAV") to fluctuate over time. Therefore, the value
of your investment in the Value Fund could decline.
Also, there is no assurance that the Investment
Advisor will achieve the Fund's objective.
The Value Fund operates as a non-diversified fund for
purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"). As such, the Fund may
invest a larger portion of its assets in fewer
issuers. Consequently, adverse effects on the Fund's
security holdings may affect a larger portion of the
Fund's total assets and cause the value of your
investment to decline.
An investment in the Value Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Investor Profile You may want to invest in the Value Fund
if you are seeking long-term capital
return, together with relative safety of
principal in the long-term, and are
willing to accept share prices that may
fluctuate, sometimes significantly, over
the short-term. You should not invest in
the Value Fund if you are seeking current
income.
Performance Information
The bar chart below shows how the Value Fund's performance has varied from one
year to another. The table below the chart shows what the return would equal if
you averaged out actual performance over various lengths of time. Please keep in
mind that the Value Fund's past performance may not indicate how it will perform
in the future.
Graph goes here:
Vontobel U.S. Value Fund
Year Total Return
1990* (9.90%)
1991 37.29%
1992 16.30%
1993 6.00%
1994 0.02%
1995 40.36%
1996 21.28%
1997 34.31%
1998 14.70%
Best Calendar Quarter 1st Q 1991 up 21.90%
Worst Calendar Quarter 3rd Q 1990 down 21.80%
* Shows non-annualized return for the period from March 31, 1990, commencement
of operations, to December 31, 1990.
The following table compares the performance of the Value Fund and the S&P
500. The S&P 500 is an unmanaged index of the common stock of the 500
largest publicly traded U.S. Companies. Returns include dividends and are
expressed in U.S. dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year 5 Years Since Inception
(March 30, 1990)
Value Fund 14.70% 21.27% 17.12%
S&P 500 Index 28.38% 23.84% 18.70%
VONTOBEL INTERNATIONAL EQUITY FUND ("International Equity Fund")
Investment Objective Capital Appreciation
Principal Investment Under normal circumstances the
Strategies International Equity Fund will invest at
least 65% of its assets in equity securities of
companies in Europe and the Pacific Basin. The Fund
intends to diversify its investments broadly among
countries and normally to have represented in the
portfolio business activities of not less than three
different countries. The Fund will primarily hold
securities listed on a security exchange or quoted
on an established over-the-the counter market.
Principal Investment Risks The International Equity Fund's
investments are subject to market,
economic and business risks. These risks
may cause the International Equity Fund's
NAV to fluctuate over time. Therefore,
the value of your investment in the Fund
could decline. Also, there is no
assurance that the Investment Advisor
will achieve the Fund's objective.
The International Equity Fund will invest in foreign
countries. These investments may involve financial,
economic or political risks that are not ordinarily
associated with U.S. securities. Hence, the
International Equity Fund's NAV may be affected by
changes in exchange rates between foreign currencies
and the U.S. dollar, different regulatory standards,
less liquidity and increased volatility, taxes and
adverse social or political developments.
The Fund may also invest in securities that trade in
newly developed markets. In addition to the typical
risks that are associated with investing in foreign
countries, companies in developing countries
generally do not have lengthy operating histories.
Consequently, these markets may be subject to more
substantial volatility and price fluctuations than
securities traded on more developed markets.
An investment in the International Equity Fund is
not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any
other government agency.
Investor Profile You may want to invest in the
International Equity Fund if you are
seeking capital appreciation and wish to
diversify your existing investments. The
International Equity Fund may be
particularly suitable for you if you wish
to take advantage of opportunities in the
securities markets of Europe and the
Pacific Basin and are willing to accept
the risks associated with foreign
investing.
Performance Information
The bar chart below shows how the International Equity Fund's performance has
varied from one year to another. The table below the chart shows what the return
would equal if you averaged out actual performance over various lengths of time.
Please keep in mind that the International Equity Fund's past performance may
not indicate how it will perform in the future.
Vontobel International Equity Fund
Graph goes here:
Year Total Return
1990* (12.42%)
1991 18.74%
1992 (2.37%)
1993 40.80%
1994 (5.28%)
1995 10.91%
1996 16.98%
1997 9.19%
1998 16.77%
Best Calendar Quarter 4th Q 1998 up 18.60% Worst Calendar Quarter 3rd Q 1990
down 19.40%
* Represents a period during which the Fund was advised by other investment
advisors. On July 6, 1990, the Fund's current investment advisor was
appointed and the Fund's investment objective was changed to its current
status.
The following table compares the performance of the International Equity Fund
and Morgan Stanley Capital International's Europe, Australia and Far East Index
("EAFE Index"). The EAFE Index is an unmanaged index of more than 1100 common
stock securities issued by Foreign companies. Returns include dividends and are
expressed in U.S. dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
Since Inception
1 Year 5 Years (July 6, 1990)
International Equity Fund 16.77% 9.38% 9.89%
EAFE Index 20.00% 9.19% 6.75%
VONTOBEL EMERGING MARKETS EQUITY FUND ("Emerging Markets Fund")
Investment Objective Long-Term Capital Appreciation
Principal Investment Under normal circumstances the Emerging
Strategies Markets Fund will invest at least 65% of
its total assets in the equity securities of
companies in developing countries. The Fund intends
to diversify its investments broadly among countries
and normally to have represented in the portfolio
business activities of not less than three different
countries. The Fund will primarily hold securities
listed on a security exchange or quoted on an
established over-the-counter market. The Emerging
Markets Fund may also invest in American Depositary
Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and
Registered Depositary Certificates ("RDCs").
Principal Investment Risks The Emerging Markets Fund's investments
are subject to market, economic and
business risks. These risks may cause
the Fund's NAV to fluctuate over time.
Therefore, the value of your investment
in the Fund could decline. Also, there
is no assurance that the Investment
Advisor will achieve the Fund's objective.
The Emerging Markets Fund will invest in foreign
countries. These investments may involve financial,
economic or political risks that are not ordinarily
associated with U.S. securities. Hence, the Fund's
NAV may be affected by changes in exchange rates
between foreign currencies and the U.S. dollar,
different regulatory standards, less liquidity and
increased volatility, taxes and adverse social or
political developments.
The Fund also invests in securities that trade in
newly developed markets. In addition to the typical
risks that are associated with investing in foreign
countries, companies in developing countries
generally do not have lengthy operating histories.
Consequently, these markets may be subject to more
substantial volatility and price fluctuations than
securities traded on more developed markets.
An investment in the Emerging Markets Fund is not a
bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
government agency.
Investor Profile You may wish to invest in the Emerging
Markets Fund if you are seeking long-term
capital appreciation and wish to
diversify your current investments beyond
equities of companies in developed
markets. You should not invest in the
Fund if you are not willing to accept the
risks associated with foreign investing.
Performance Information
The bar chart below shows how the Emerging Markets Fund's performance has varied
from one year to another. The table below the chart shows what the return would
equal if you averaged out actual performance over various lengths of time.
Please keep in mind that the Emerging Markets Fund's past performance may not
indicate how it will perform in the future.
Vontobel Emerging Markets Fund
Year Total Return
1997* (5.80%)
1998 (22.40%)
Best Calendar Quarter 4th Q 1998 up 14.04% Worst Calendar Quarter 3rd Q 1998
down 24.77%
* Shows non-annualized return for the period from September 1, 1997,
commencement of operations, to December 31, 1997.
The following table compares the performance of the Emerging Markets Fund and
the Morgan Stanley Capital International Emerging Markets Free Index ("the EMF
Index"). The EMF Index is a market capitalization weighted aggregate index
comprised of equities traded on listed markets in 26 emerging countries. Index
returns do not include dividends and are expressed in U.S.
dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year Since Inception
(September 1, 1997)
Emerging Markets Fund (22.40%) (20.97%)
EMF Index (27.52%) (30.91%)
VONTOBEL EASTERN EUROPEAN EQUITY FUND ("E. European Equity Fund")
Investment Objective Capital Appreciation
Principal Investment Under normal circumstances, the E.
Strategies European Equity Fund will invest at least
65% of its assets in equity securities of companies
located in Eastern Europe or which conduct a
significant portion of their business in countries
which are generally considered to comprise Eastern
Europe. The Fund normally will have represented in
the portfolio business activities of not less than
three different countries.
Principal Investment Risks The E. European Equity Fund's investments
are subject to market, economic and
business risks. These risks may cause the
Fund's NAV to fluctuate over time.
Therefore, the value of your investment
in the Fund could decline. Also, there
is no assurance that the Investment
Advisor will achieve the E. European
Equity Fund's objective.
The E. European Equity Fund will invest in foreign
countries. These investments may involve financial,
economic or political risks that are not ordinarily
associated with U.S. securities. Hence, the Fund's
NAV may be affected by changes in exchange rates
between foreign currencies and the U.S. dollar,
different regulatory standards, less liquidity and
increased volatility, taxes and adverse social or
political developments.
The Fund also invests in securities that trade in
newly developed markets. In addition to the typical
risks that are associated with investing in foreign
countries, companies in developing countries
generally do not have lengthy operating histories.
Consequently, these markets may be subject to more
substantial volatility and price fluctuations than
securities traded on more developed markets.
An investment in the E. European Equity Fund is not
a bank deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any
other government agency.
Investor Profile You may wish to invest in the E. European
Equity Fund if you seek to diversify your current
equity holdings and to take advantage of
opportunities in the newly reorganized markets of
Eastern Europe.
Performance Information
The bar chart below shows how the E. European Equity Fund's performance has
varied from one year to another. The table below the chart shows what the return
would equal if you averaged out actual performance over various lengths of time.
Please keep in mind that the E. European Equity Fund's past performance may not
indicate how it will perform in the future.
Vontobel E. European Equity Fund
Year Total Return
1996* 48.90%
1997 8.74%
1998 (46.62%)
Best calendar quarter 2nd Q 1996 up 25.74% Worst calendar quarter 3rd Q 1998
down 40.48%
* Shows non-annualized return for the period from February 15, 1996,
commencement of operations, to December 31, 1996.
The following table compares the performance of the E. European Equity Fund and
the Nomura Research Institute's Central and Eastern European Equity Index
("Nomura Composite-11 Index"). The Nomura Composite-11 Index is comprised of
equities traded on listed markets in Poland, the Czech Republic, Hungary,
Slovakia, Croatia, Romania, Slovenia, Estonia, Latvia, Lithuania and Russia.
Returns do not include dividends and are expressed in U.S. dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year Since Inception
(February 15, 1996)
E. European Equity Fund (46.62%) (4.95%)
Nomura Composite-11 Index (21.84%) 2.07%
VONTOBEL INTERNATIONAL BOND FUND ("Bond Fund")
Investment Objective To Maximize Total Return from Capital
Growth and Income
Principal Investment Under normal circumstances the Bond Fund
Strategies will invest at least 65% of its total
assets in high grade bonds issued (i) in countries
other than the U.S.; (ii) by issuers which are
organized in a country other than the U.S. or have
at least 50% of their assets or derive at least 50%
of their revenues in such country (notwithstanding
the currency in which such bonds are denominated);
or (iii) by national or international authorities
other than the U.S. The Advisor actively manages
currency, bond market and maturity exposure. The
Bond Fund will normally invest at least 65% of its
total assets in bonds denominated in foreign
currencies, however, generally foreign currency
denominated bonds will constitute 90% of its
portfolio. The Fund normally has investments in
securities of issuers from a minimum of three
different countries.
Principal Investment Risks The Bond Fund's investments are
subject to interest rate risk. Interest rate risk
may cause the NAV to fluctuate over time and the
value of the Bond Fund could decline or increase.
There is no assurance that the Bond Fund will
achieve its objective.
The Bond Fund's investments will be denominated in
foreign currencies. These investments may involve
financial, economic or political risks that are not
ordinarily associated with U.S. securities. Hence,
the Fund's investments may be affected by changes in
exchange rates between foreign currencies and the
U.S. dollar, different regulatory standards, less
liquidity, taxes and adverse social or political
developments.
The Bond Fund operates as a non-diversified fund for
purposes of the 1940 Act. As such, the Fund may
invest a larger portion of its assets in fewer
issuers. Consequently, adverse effects on the Fund's
security holdings may affect a larger portion of the
Fund's total assets and cause the value of your
investment to decline.
An investment in the Bond Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Investor Profile You may wish to invest in the Bond Fund
if you are seeking to maximize your total
return and diversify your investments.
The Bond Fund may be particularly suited
for you if you wish to take advantage of
opportunities in bond markets outside the
U.S. You should not invest in the Bond
Fund if you are not willing to accept the
risks associated with foreign investing.
Performance Information
The bar chart below shows how the Bond Fund's performance has varied from one
year to another. The table below the chart shows what the return would equal if
you averaged out actual performance over various lengths of time. Please keep in
mind that the Bond Fund's past performance may not indicate how it will perform
in the future.
Graph goes here
Vontobel International Bond Fund
Year Total Return
1994* 1.98%
1995 17.60%
1996 7.51%
1997 (6.04%)
1998 14.85%
Best calendar quarter 3rd Q 1998 up 10.00% Worst calendar quarter 4th Q 1994
down 6.60%
* Shows non-annualized return from the period from March 1, 1994, commencement
of operations, to December 31, 1994.
The following table compares the performance of the Bond Fund and the J.P.
Morgan Government Bond Index ("J.P. Morgan Index"). The J.P. Morgan Index is an
unmanaged index of the world's 12 major government bond markets (Australia,
Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain,
Sweden and the UK). Returns to not include dividends and are expressed in U.S.
dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
1 Year Since Inception
(March 1, 1994)
Bond Fund 14.85% 7.07%
J.P. Morgan Index 18.28% 9.00%
VONTOBEL EASTERN EUROPEAN DEBT FUND ("E. European Debt Fund")
Investment Objective To Maximize Total Return from Capital
Growth and Income
Principal Investment Under normal circumstances the E.
Strategies European Debt Fund will invest at least
65% of its total assets in fixed-income instruments
that are issued by borrowers located in Eastern
European countries. The Fund will normally invest at
least 65% of its total assets in debt instruments
denominated in foreign currencies. Generally,
however, foreign currency denominated debt
instruments will constitute 90% of its portfolio.
The Fund will invest principally in instruments that
bear the rating of BBB- or better by S&P or Baa3 or
higher by Moody's, or unrated securities that the
Advisor believes to be of comparable quality to such
instruments with ratings of BBB- or higher by S&P or
Baa3 or higher by Moody's. The Fund may invest
substantial amounts in issuers from one or more
countries and will normally have investments in
securities of issuers from a minimum of three
different countries.
Principal Investment Risks The E. European Debt Fund's investments
are subject to interest rate risk.
Interest rate risk may cause the NAV to
fluctuate over time and the value of the
E. European Debt Fund could decline or
increase. There is no assurance that the
E. European Debt Fund will achieve its
objective.
The E. European Debt Fund's investments will be
denominated in foreign currencies. These investments
may involve financial, economic or political risks
that are not ordinarily associated with U.S.
securities. Hence, the Fund's investments may be
affected by changes in exchange rates between
foreign currencies and the U.S. dollar, different
regulatory standards, less liquidity, taxes and
adverse social or political developments.
The E. European Debt Fund operates as a
non-diversified fund for purposes of the 1940 Act.
As such, the Fund may invest a larger portion of its
assets in fewer issuers. Consequently, adverse
effects on the Fund's security holdings may affect a
larger portion of the Fund's total assets and cause
the value of your investment to decline.
An investment in the E. European Debt Fund is not a
bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
government agency.
Investor Profile You may wish to invest in the E. European
Debt Fund if you are seeking to maximize
your total return and diversify your
investments. The Fund may be especially
suitable for you if you are willing to
take advantage of opportunities in the
developing debt markets of Eastern
Europe. You should not invest in the E.
European Debt Fund if you are not willing
to accept the risks associated with
foreign investing.
Performance Information
The bar chart below shows how the E. European Debt Fund's performance has varied
from one year to another. The table below the chart shows what the return would
equal if you averaged out actual performance over various lengths of time.
Please keep in mind that the E. European Debt Fund's past performance may not
indicate how it will perform in the future.
Vontobel E. European Debt Fund
Year Total Return
1997* (0.55%)
1998 24.54%
Best calendar quarter 4th Q 1998 up 6.72% Worst calendar quarter 4th Q 1997 down
1.14%
* Shows non-annualized return for the period from September 1, 1997,
commencement of operations, to December 31, 1997.
The following table compares the performance of the E. European Debt Fund and
the Bank Austria-Creditanstalt Eastern European Bond Index ("Bank
Austria-Creditanstalt Index"). The Bank Austria-Creditanstalt Index is a
market-weighted index of government and corporate debt instruments issued in
local currency and traded on exchanges in Hungary, Poland, Russia, the Czech
Republic and Slovakia. Returns do not include dividends and are expressed in
U.S. dollars.
Average Annual Total Returns
(for the periods ending December 31, 1998)
Since Inception
1 Year (September 1, 1997)
E. European Debt Fund 24.54% 17.43%
Bank Austria-Creditanstalt Index (27.78%) (23.86%)
FUND FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in the expenses can, over time, have a significant effect
on a Fund's performance.
The following table describes the fees and expenses that you will pay in
connection with purchases or redemptions of shares of the Value Fund, the
International Equity Fund, the Emerging Markets Fund, the E. European Equity
Fund, the Bond Fund and the E. European Debt Fund (collectively, the "Funds").
The annual operating expenses, which cover the cost of investment management,
administration, accounting and shareholder communications, are shown as a
percentage of the average daily net assets.
- --------------------------------------------------------------------------------
VALUE FUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) None
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 0.86%
Distribution (12b-1 Fees) None
Other Expenses 0.60%
Total Annual Fund Operating Expenses 1.46%
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) None
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 0.90%
Distribution (12b-1 Fees) None
Other Expenses 0.50%
Total Annual Fund Operating Expenses 1.40%
- --------------------------------------------------------------------------------
EMERGING MARKETS EQUITYFUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) 2.0%(2)
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution (12b-1 Fees) None
Other Expenses 4.88%
Total Annual Fund Operating Expenses 6.13%*
* Management Fee waivers, expense reimbursements and expense credits reduced
the Total Annual Fund Operating Expenses to 2.07% during the year ended
December 31, 1998.
- --------------------------------------------------------------------------------
E. EUROPEAN EQUITY FUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) 2.0%(2)
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution (12b-1 Fees) None
Other Expenses 1.32%
Total Annual Fund Operating Expenses 2.57%
- --------------------------------------------------------------------------------
BOND FUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) None
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 1.00%
Distribution (12b-1 Fees) None
Other Expenses 0.86%
Total Annual Fund Operating Expenses 1.86%
- --------------------------------------------------------------------------------
E. EUROPEAN DEBT FUND
Shareholder transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load Imposed on Purchases) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (1) 2.0%(2)
Exchange Fees (3) None
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution (12b-1 Fees) None
Other Expenses 1.14%
Total Annual Fund Operating Expenses 2.39%
(1) A shareholder electing to redeem shares by telephone will be charged $10 for
each such redemption request.
(2) A 2% redemption fee is charged on shares held less than six (6) months. (3)
A shareholder may be charged a $10 fee for each telephone exchange.
The purpose of these tables is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly.
Management expects that as each Fund increases in size, its annual operating
expenses stated as "Other Expenses" above will decline as an annual percentage
rate reflecting economies of scale.
- --------------------------------------------------------------------------------
The following expense examples show the expenses that you could pay over time.
They will help you compare the costs of investing in the Funds with the costs of
investing in other mutual funds. Each example assumes that you invest $10,000 in
the Fund and then redeem all of your shares at the end of the periods indicated.
Each example assumes that you earn a 5% annual return, with no change in Fund
expense levels. Because actual return and expenses will be different, the
examples are for comparison only. Based on these assumptions, your costs would
be:
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Value Fund $ 150 $ 465 $ 803 $ 1,757
o Expenses-net(a) $ 148 $ 459 $ 792 $ 1,735
International
Equity Fund $ 143 $ 443 $ 766 $ 1,680
o Expenses-net(b) $ 138 $ 431 $ 745 $ 1,635
Emerging
Markets Fund
o With
Redemption Fee $ 810 $2,008 $3,180 $ 5,995
o W/O
Redemption Fee $ 610 $1,808 $2,980 $ 5,795
o Expenses-net(c) $ 210 $ 649 $1,114 $ 2,400
E. European
Equity Fund
o With
Redemption Fee $ 460 $ 999 $1,565 $ 3,105
o W/O
Redemption Fee $ 260 $ 799 $1,365 $ 2,905
o Expenses-net(b) $ 241 $ 751 $1,285 $ 2,746
Bond Fund $ 189 $ 585 $1,006 $ 2,180
o Expenses-net(d) $ 164 $ 508 $ 876 $ 1,911
E. European
Debt Fund
o With
Redemption Fee $ 442 $ 945 $1,475 $ 2,926
o W/O
Redemption Fee $ 242 $ 745 $1,275 $ 2,726
o Expenses-net(e) $ 201 $ 621 $1,068 $ 2,306
(a)Expenses reflect the effect of management fee waivers and custodian credits
to offset custodian fees.
(b) Expenses reflect the effect of custodian credits to offset custodian fees.
(c)Expenses reflect the effect of management fee waivers, reimbursed expenses
and custodian credits to offset custodian fees.
(d)Expenses reflect the effect of management fee waivers and reimbursed
expenses.
(e) Expenses reflect the effect of management fee waivers.
INVESTMENT OBJECTIVES/STRATEGIES AND RISKS
Value Fund
The Value Fund's investment objective is to achieve long-term capital returns in
excess of the broad market by investing in common stocks and securities that are
convertible into common stocks, such as warrants, convertible bonds, debentures
or convertible preferred stock. Under normal circumstances the Fund will invest
at least 65% of its assets in common stocks or securities that are convertible
into common stock. The Value Fund typically invests in securities that are
traded on U.S. exchanges. The Value Fund also invests in fixed-income
instruments and cash equivalents, such as overnight repurchase agreements and
short-term U.S. Treasuries. The Advisor uses the S&P 500 Index as the benchmark
for the broad market against which the performance of the Value Fund is
measured.
Vontobel USA Inc. (the "Advisor"), the investment adviser for each of the Funds,
employs a bottom-up approach to stockpicking, with an emphasis on qualitative
criteria in evaluating a company's potential as a prospective investment
opportunity. Although the Value Fund's return will be compared to that provided
by the broad market, the Advisor seeks to achieve attractive absolute returns
over the "risk-free" rate, defined as the rate of return available on 10-year
U.S. Government securities. The Advisor's utilization of an "absolute" rather
than a "relative" valuation yardstick is designed to achieve not only a
satisfactory return over the risk-free rate but at the same time ensure safety
of principal. The Advisor considers the riskiness of an investment to be a
function of the company's business rather than the volatility of its stock
price. Therefore the Advisor seeks to identify companies whose businesses are
predictable or that exhibit elements of a franchise. Ideally, such companies
must have a history of competitive returns on invested capital, reliable growth
in earnings growth and free cash flow, low debt and effective management.
The Value Fund is subject to stock market risk. Stock market risk is the
possibility that stock prices overall will decline over short or long periods.
Because stock market prices tend to fluctuate, the value of your investment in
the Value Fund may increase or decrease. The Value Fund's investment success
depends on the skill of the Advisor in evaluating, selecting and monitoring the
portfolio assets. If the Advisor's conclusions about growth rates or securities
values are incorrect, the Value Fund may not perform as anticipated.
As noted above, the Advisor seeks to achieve its investment objective by
investing principally in equity securities. Nonetheless, the Advisor may
construct, and in fact has at times constructed, a portfolio in which cash and
cash equivalents (including, but not limited to, overnight repurchase agreements
and short-term U.S. Treasuries), and/or fixed-income instruments, comprise a
significant portion of the Value Fund's total assets. The Advisor views its
"cash position" as a residual measure of the ability of its investment personnel
to identify enough stocks that meet their rigorous investment criteria.
The Value Fund is a "non-diversified" investment company under Federal
securities laws, and therefore may invest a larger portion of its assets in
certain issuers, including foreign governments and domestic issuers other than
the U.S. government. Consequently, adverse effects on the Fund's security
holdings may affect a larger portion of the Fund's assets and cause the value of
your investment to decline.
The Value Fund may invest more than 5% of its assets in government debt
securities of the U.S. However, because it intends to qualify as a "regulated
investment company" for purposes of Subchapter M of the Code, at least 50% of
its total assets must be invested in cash, U.S. government securities, and
securities of issuers (including foreign governments), in which it has invested
not more than 5% of its assets. A regulated investment company is also limited
in its purchases of voting securities of any issuer.
International Equity Fund
The International Equity Fund's investment objective is to achieve capital
appreciation by investing in common stocks and securities that are convertible
into common stocks. Under normal circumstances the Fund will invest at least 65%
of its assets in securities of companies in Europe and the Pacific Basin. The
International Equity Fund will invest most of its assets in equity securities of
countries which are generally considered to have developed markets, such as the
United Kingdom, the eleven euro-zone countries (France, Germany, Italy, Spain,
Portugal, Finland, Ireland, Belgium, the Netherlands, Luxembourg and Austria),
Switzerland, Norway, Japan, Hong Kong, Australia, and Singapore. The Advisor
will decide when and how much to invest in each of those markets. Investments
may also be made in equities issued by companies in "developing countries" or
"emerging markets," such as Taiwan, Malaysia, Indonesia, and Brazil, included in
Morgan Stanley Capital International's Emerging Markets Free Index ("EMF") . The
portfolio of the International Equity Fund will be diversified. The Fund
typically invests in the securities of medium to large capitalization companies,
but is not limited to investing in securities of companies of any size. Using a
bottom-up investment approach, the Advisor seeks to invest in companies that
have a long record of successful operations in their core business and earnings
growth through increasing market share and unit sales volumes. These companies
are typically among the leaders in their industry, having demonstrated
consistent growth in cash flow, sales, operating profits, returns on equity and
returns on invested capital, and little or no debt. The Fund generally holds its
core positions for at least two years.
The International Equity Fund may select its investments from companies which
are listed on a securities exchange or from companies whose securities have an
established over-the-counter market, and may make limited investments in "thinly
traded" securities.
Under normal circumstances the International Equity Fund will have at least 65%
of its assets invested in European and Pacific Basin equity securities. The
International Equity Fund intends to diversify broadly investments among
countries and normally to have represented in the portfolio business activities
of not less than three different countries. The securities the International
Equity Fund purchases may not always be purchased on the principal market. For
example, American Depository Receipts ("ADRs") may be purchased if trading
conditions make them more attractive than the underlying security.
The Fund's investments in foreign securities may involve risks that are not
ordinarily associated with U.S. securities. Foreign companies are not generally
subject to the same accounting, auditing and financial reporting standards as
are domestic companies. Therefore, there may be less information available about
a foreign company than there is about a domestic company. Certain countries do
not honor legal rights enjoyed in the U.S. In addition, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments, which could affect U.S. investments in those countries.
Many foreign securities have substantially less trading volume than in the U.S.
market, and securities in some foreign issuers are less liquid and more volatile
than securities of domestic issuers. These factors make foreign investment more
expensive for U.S. investors. Mutual funds offer an efficient way for
individuals to invest abroad, but the overall expense ratios of mutual funds
that invest in foreign markets are usually higher than those of mutual funds
that invest only in U.S. securities.
The International Equity Fund is subject to stock market risk. Stock market risk
is the possibility that stock prices overall will decline over short or long
periods. Because stock prices tend to fluctuate, the value of your investment in
the International Equity Fund may increase or decrease. The Fund's investment
success depends on the skill of the Advisor in evaluating, selecting and
monitoring the portfolio assets. If the Advisor's conclusions about growth rates
or securities values are incorrect, the International Equity Fund may not
perform as anticipated.
In addition to common stocks and securities that are convertible into common
stocks, the International Equity Fund invests in shares of closed-end investment
companies. These investment companies invest in securities that are consistent
with the International Equity Fund's objective and strategies. By investing in
other investment companies the Fund indirectly pays a portion of the expenses
and brokerage costs of these companies as well as its own expenses. Also,
federal and state securities laws impose limits on such investments, which may
affect the ability of the Fund to purchase or sell these shares.
The International Equity Fund has the authority to enter into forward contracts
to purchase or sell foreign currencies, purchase and write covered call options
on foreign currencies and enter into contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). The
International Equity Fund may also assume a temporary defensive position in
response to extreme or adverse market, economic or other conditions.
Emerging Markets Fund
The Emerging Markets Fund's investment objective is to achieve long-term capital
appreciation by investing in common stocks and securities that are convertible
into common stock. Under normal circumstances the Emerging Markets Fund will
invest at least 65% of its total assets in securities of companies that are
located in developing countries. The Fund may acquire these securities directly
in their principal markets or through the use of Depositary Receipts. The
portfolio of the Fund will be diversified.
The Emerging Markets Fund considers countries having developing markets to be
all countries included in the EMF, generally considered to be developing or
emerging markets countries by the International Bank for Reconstruction and
Development (more commonly referred to as the World Bank) or the International
Finance Corporation, as well as countries that are classified by the United
Nations or otherwise regarded by their authorities as developing. In addition,
as used in this prospectus, emerging markets equity securities means (i) equity
securities of companies that the principal securities trading market for which
is an emerging market country, as defined above, (ii) equity securities traded
in any market, of companies that derive a substantial portion of their total
revenue or potential revenue from either goods or services produced in
developing countries or sales made in emerging market countries, or (iii) equity
securities of companies organized under the laws of, and with a principal office
in, an emerging market country.
The Emerging Markets Fund intends to diversify investments broadly among
countries and normally to have represented in the portfolio business activities
of not less than three different countries. It is anticipated that the Emerging
Markets Fund will invest in three or more of the countries in the following
list, which is meant to be representative and not exhaustive:
- -----------------------------------------------------------------------
Argentina Greece Pakistan South Africa
- -----------------------------------------------------------------------
Brazil Hong Kong Panama South Korea
- -----------------------------------------------------------------------
Chile Hungary Peru Sri Lanka
- -----------------------------------------------------------------------
China India Philippines Taiwan
- -----------------------------------------------------------------------
Colombia Indonesia Poland Thailand
- -----------------------------------------------------------------------
Czech Republic Israel Portugal Turkey
- -----------------------------------------------------------------------
Egypt Malaysia Russia Venezuela
- -----------------------------------------------------------------------
Ghana Mexico Singapore
- -----------------------------------------------------------------------
The securities the Emerging Markets Fund purchases may not always be purchased
on the principal market of the country. For example, ADRs, European Depository
Receipts ("EDRs"), Global Depository Receipts ("GDRs") or Registered Depository
Certificates ("RDC") may be purchased if trading conditions make them more
attractive than the underlying security. ADRs are described above in the
"Vontobel International Equity Fund" section. Similar to ADRs, EDRs, GDRs and
RDCs represent receipts for a foreign security issued in a location outside the
U.S., and may involve risks comparable to ADRs, as well as the fact that the
EDR, GDR or RDC is itself issued outside the U.S. RDCs involve risks associated
with Russian securities transactions. Please refer to the Statement of
Additional Information for more information on ADRs, EDRs, GDRs and RDCs.
The Fund typically invests in the securities of medium to large capitalization
companies, but is not limited to investing in securities of companies of any
size. Using a bottom-up investment approach, the Advisor seeks to invest in
companies that have a long record of successful operations in their core
businesses and earnings growth through increasing market share and unit sales
volumes. These companies are typically among the leaders of their industry,
having demonstrated consistent growth in cash flow, sales, operating profits,
returns on equity and returns on invested capital, and little or no debt. The
Advisor does not currently actively manage currency risk.
The Fund's investments in developing countries involve those same risks that are
associated with foreign investing in general (see "Other Principal Risks"
below). In addition to those risks, companies in developing countries generally
do not have lengthy operating histories. Consequently, theses markets may be
subject to more substantial volatility and price fluctuations than securities
that are traded on more developed markets. Also the value of your investment in
the Emerging Markets Fund may decline due to stock market risk. Stock market
risk is the possibility that stock prices overall will decline over short or
long periods. The Emerging Markets Fund's investment success depends on the
skill of the Advisor in evaluating, selecting and monitoring the portfolio
assets. If the Advisor's conclusions about growth rates or securities values are
incorrect, the Emerging Markets Fund may not perform as anticipated.
While the Emerging Markets Fund intends to remain substantially invested in
common stock and securities that are convertible into common stock, it also
invests in shares of closed-end investment companies. These investment companies
invest in securities that are consistent with the Emerging Market Fund's
objective and strategies. By investing in other investment companies the Fund
indirectly pays a portion of the expenses and brokerage costs of these companies
as well as its own expenses. Also, federal and state securities laws impose
limits on such investments, which may affect the ability of the Fund to purchase
or sell these shares.
The Emerging Markets Fund may also invest in unlisted securities. Unlisted
securities include securities that are neither listed on a stock exchange or
traded-over-the counter and privately placed securities. Investing in unlisted
securities may involve a higher degree risk than publicly traded securities and
may result in substantial losses. These securities may also be less liquid than
publicly traded securities because they are not traded publicly.
E. European Equity Fund
The E. European Equity's Fund investment objective is to achieve capital
appreciation by investing in common stocks and securities that are convertible
into common stock. Under normal market conditions the Fund will invest at least
65% of its assets in securities of companies that are located in or conduct a
significant portion of their business in Eastern Europe. The Advisor's
investment universe consists of companies that are located in, or listed on the
exchanges of, the former Soviet Bloc countries, as well as companies that derive
at least two-thirds of their sales from such countries. Not all these countries
have a functioning stock exchange and others still have an illiquid securities
market; consequently, the Advisor concentrates on the markets of Hungary,
Poland, Slovenia, the Czech Republic, Slovakia, Russia, Croatia and the Baltic
states (Estonia, Latvia and Lithuania). In Poland, Hungary, the Czech Republic
and Slovakia, the Advisor can invest in local shares. Elsewhere, due to the lack
of local subcustodians or liquidity, the Advisor currently invests only through
GDR or ADR programs.
Trading volume of the stock exchanges of these markets may be substantially
lower than that in developed markets, and the purchase and sale of portfolio
securities may not always be made at an advantageous price. The Advisor
generally will decide when and how much to invest in these developing markets
based upon its assessment of their continuing development. As stock markets in
the region develop and more investment opportunities emerge, the Fund will
broaden its portfolio to include securities of companies located in or which
conduct a significant portion of their business in countries in this region.
The portfolio of the E. European Equity Fund will be diversified. Management
expects that the Fund will have a low turnover ratio (not exceeding 100%
annually). The selection of the securities in which the Fund will invest will
not be limited to companies of any particular size, or to securities traded in
any particular marketplace, and will be based only upon the expected
contribution such security will make to its investment objective. Currently, the
Advisor considers only about 200 stocks as investable, based upon their market
capitalization and liquidity. The Advisor expects this number to increase
dramatically in the years to come. Together, these 200 stocks represent a market
capitalization of approximately US$ 50 billion.
The Fund faces those same risks that are associated with investing in foreign
and developing markets (see "Other Principal Risks" below). Also the value of
your investment in the E. European Equity Fund may decline due to stock market
risk. Stock market risk is the possibility that stock prices overall will
decline over short or long periods. The E. European Equity Fund's investment
success depends on the skill of the Advisor in evaluating, selecting and
monitoring the portfolio assets. If the Advisor's conclusions about growth rates
or securities values are incorrect, the E. European Equity Fund may not perform
as anticipated. Generally, the Fund holds core positions for longer than one
year.
The E. European Equity Fund also invests in shares of closed-end investment
companies. These investment companies invest in securities that are consistent
with the Emerging Market Fund's objective and strategies. By investing in other
investment companies the Fund indirectly pays a portion of the expenses and
brokerage costs of these companies in addition to its own expenses. Also,
federal and state securities laws impose limits on such investments, which may
affect the ability of the Fund to purchase or sell these shares. The Fund does
not actively manage currency risk.
Bond Fund
The Bond Fund's investment objective is to maximize total return from capital
growth and income. The Bond Fund seeks to achieve its objective by investing in
fixed-income securities that are traded in bond markets outside the U.S. Foreign
government, governmental agency and supranational agency obligations and foreign
currency Eurobond issues represent the most common types of investments used in
the Fund's portfolio.
The portfolio investments of the Bond Fund will be selected on the basis of,
among other things, yields, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk. The
Bond Fund will normally invest at least 65% of its total assets in bonds
denominated in foreign currencies, however, generally foreign currency
denominated bonds will constitute 90% of its portfolio.
Under normal market conditions, at least 65% of the Bond Fund's assets will be
invested in foreign securities that are rated A or higher by S&P or Moody's
Investors Service, Inc. ("Moody's") or unrated bonds which the Advisor believes
are comparable in quality; however, the Fund generally invests 90% of its total
assets in foreign debt securities. The Bond Fund may invest in lower rated
securities in order to take advantage of the higher yields available with these
securities. However, no more than 5% of the total assets may be invested in
securities that are rated below investment grade (i.e., below BBB by S&P or Baa
by Moody's) or which are unrated but are of comparable quality as determined by
the Advisor. Securities that are rated below investment grade entail greater
risk than investment grade debt securities. After purchase by the Bond Fund,
debt securities may cease to be rated or their rating may be reduced. Neither
event would require the Fund to dispose of the debt security.
The Bond Fund intends to select its investments from a number of country and
market sectors. It may invest substantial amounts in issuers from one or more
countries and would normally have investments in securities of issuers from a
minimum of three different countries; however, it may invest substantially all
of its assets in securities of issuers located in the U.S. for temporary or
emergency purposes. A non-governmental issuer will be considered to be "from" a
country in which it is organized, in which it has at least 50% of its assets, or
from which it derives at least 50% of its revenues.
To protect against adverse movements of interest rates and for liquidity, the
Bond Fund may also invest all or a portion of its net assets in short-term
obligations denominated in U.S. and foreign currencies such as, but not limited
to, bank deposits; bankers' acceptances; certificates of deposit; commercial
paper; short-term government, government agency, supranational agency and
corporate obligations; and repurchase agreements.
While the Bond Fund intends to invest primarily in foreign securities, it may
invest substantially all of its assets in securities of issuers located in the
U.S. for temporary or emergency purposes. Under normal circumstances the Bond
Fund will not invest more than 35% of its total assets in U.S. debt securities;
however, the Fund generally invests less than 10% of its total assets in U.S.
debt securities. The Fund may also hedge using U.S. dollars in certain
situations.
The selection of bonds for the Bond Fund is dependent upon the Advisor's
evaluation of those factors influencing interest rates. The Advisor considers
the rates of return available for any particular maturity and compares that to
the rates for other maturities in order to determine the relative and absolute
differences as they relate to income and the potential for market fluctuation.
The market values of fixed income securities tend to vary inversely with the
level of interest rates. When interest rates rise, the market values of such
securities tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than short-term securities of
similar quality, longer term securities are subject to greater price
fluctuations. There are no restrictions on the maturity composition of the Bond
Fund. Fluctuations in the value of the investments will be reflected in the NAV
of the Bond Fund.
The Bond Fund is non-diversified for purposes of the 1940 Act. As a
non-diversified fund, the Bond Fund may invest a larger portion of its assets in
fewer issuers. Consequently, adverse effects on the Fund's security holdings may
affect a larger portion of the Fund's assets and cause the value of your
investment to decline.
Cash may be held in U.S. dollars and/or in any of the major trading currencies.
The Fund's cash position is first and foremost a function of the Advisor's
currency allocation decision and secondarily a function of the Advisor's
duration selection. If the outlook for U.S. dollar cash returns is more
attractive than that for cash and bond returns in all other currencies, the Fund
will hold a U.S. dollar cash position generally not in excess of 25% of its
total assets. Conversely, if the outlook for foreign currency cash returns is
more attractive, the Fund will hold foreign cash positions not in excess of
approximately 25% of its total assets.
Maturity selection is based on the Advisor's total return forecasts, i.e., the
Advisor focuses on investments that the Advisor expects to produce the highest
total return in local currency along the yield curve in each market in the
Advisor's universe for the planned holding period. Maturity selection or, more
precisely, duration selection, is the second most important factor in the
Advisor's process. Duration is the expected life of a fixed-income security,
taking into account its coupon yield, interest payments, maturity and call
features. Duration attempts to measure actual maturity, as opposed to final
maturity, by measuring the average time required to collect all payments of
principal and interest. The duration of a callable bond, also called its
effective duration, may be considerably shorter than its stated maturity in a
period of rising interest rates. Thus, as market interest rates rise, the
duration of a financial instrument decreases. For example, a 30-year
conventional mortgage may have an effective duration of only 11 to 12 years,
which means the loan will probably be paid off in about one-third of the time it
is supposedly carried by the originating lender as an earning asset. Duration
differs from other measurements such as average life and half life. Duration
measures the time required to recover a dollar of price in present value terms
(including principal and interest), whereas average life computes the average
time needed to collect one dollar of principal. The Advisor's selection of
duration is based on the Advisor's total return forecasts. Particular yield
curve shapes and/or anomalies are also taken into account. As indicated in the
preceding paragraph, U.S. dollar and/or foreign cash positions are a function of
both currency allocation and duration selection decisions.
Foreign government, governmental agency and supranational agency obligations and
foreign currency Eurobond issues represent the most common types of investment
used in the Fund's portfolio construction. Credit quality of most issuers in
these markets tends to be very high. Quality and sector management are therefore
not as complex as for domestic U.S. bonds. The Advisor focuses its issue
selection on the highest credit quality since opportunities to achieve
significant incremental returns in sector selection are limited.
E. European Debt Fund
The E. European Debt Fund's objective is to maximize total return from capital
growth and income. The Fund seeks to achieve its investment objective by
investing in fixed-income securities that are issued by borrowers in Eastern
European countries. The Fund will normally invest at least 65% of its total
assets in debt instruments denominated in foreign currencies. Generally,
however, foreign currency denominated debt instruments will constitute 90% of
its portfolio.
Under normal market conditions, the E. European Debt Fund will invest at least
65% of its assets in foreign securities that are rated BBB- or higher by S&P or
Baa3 by Moody's or unrated bonds which the Advisor believes are comparable in
quality; however, the Fund generally invests 90% of its total assets in foreign
debt securities. Due to the relative scarcity and small size of many securities
offerings in the Eastern European market, the number of securities that are
rated by S&P and Moody's is limited. The Advisor reserves the right to determine
that certain securities are of comparable quality where such securities have not
been rated due to the small size of the offering or other factors. After
purchase by the E. European Debt Fund, debt securities may cease to be rated or
their rating may be reduced. Neither event would require the Fund to dispose of
the debt security.
The Advisor's investment universe encompasses two distinct markets: (1) the
local currency debt markets of Eastern Europe, the Russian market and the
markets of the newly formed countries that belonged to the former Soviet Union,
and (2) the Eurocurrency markets that are used by public and private sector
borrowers in the Advisor's market universe to raise capital in the major trading
currencies, including the U.S. dollar. For investments in local currency debt
instruments, the Advisor's core markets are the Czech Republic, Slovakia,
Hungary, Poland, Slovenia, the Baltic states, Croatia, Romania and Russia.
The Fund intends to select its investments from a number of country and market
sectors. The Fund may invest substantial amounts in issuers from one or more
countries and will normally have investments in securities of issuers from a
minimum of three different countries. While the E. European Debt Fund intends to
invest primarily in foreign securities, it may invest substantially all of its
assets in securities of issuers located in the U.S. for temporary or emergency
purposes. Under normal circumstances the E. European Debt Fund will not invest
more than 35% of its total assets in U.S. debt securities; however, the Fund
generally invests less than 10% of its total assets in U.S. debt securities. In
circumstances where the outlook for U.S. dollar is more attractive than that for
cash and bond returns in all other currencies, the Fund will hold a U.S. dollar
cash position of up to 35% of the Fund's total assets. Conversely, if the
outlook for Eastern European currency cash returns is more attractive, the Fund
will hold foreign cash positions of up to 25% of the Fund's total assets. From
time to time, the Advisor may hold up to 90% of the Fund's total assets in
securitized money market instruments, such as government short-term paper,
treasury bills issued by governments of Eastern European countries, commercial
paper and corporate short-term paper with maturities of up to one year.
The selection of bonds for the E. European Debt Fund is dependent upon the
Advisor's evaluation of those factors influencing interest rates. The Advisor
considers the rates of return available for any particular maturity and compares
that to the rates for other maturities in order to determine the relative and
absolute differences as they relate to income and the potential for market
fluctuation.
The Advisor focuses on issuers of the highest available credit quality and uses
international and supranational issuers with credit ratings at least equal to
those of local borrowers. Quality and sector management are therefore not as
complex as for domestic U.S. bonds. Because the Advisor focuses its issue
selection on the highest available credit quality, opportunities to achieve
significant incremental returns in sector selection are limited.
Issue selection within the quality constraints referred to above is principally
aimed at achieving duration and yield curve targets determined in accordance
with the Advisor's top-down market allocation decision. The Advisor is conscious
of the need for liquidity and therefore invests only in issues within a sector
which the Advisor deems to have the greatest future marketability.
The market values of fixed income securities tend to vary inversely with the
level of interest rates. When interest rates rise, the market values of such
securities tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than short-term securities of
similar quality, longer term securities are subject to greater price
fluctuations. There are no restrictions on the maturity composition of the E.
European Debt Fund. Maturity selection is based on the Advisor's total return
forecasts. Currently, most local currency debt instruments tend to have
short-term maturities of one year or less. Eurocurrency instruments, on the
other hand, that have short- to intermediate-term maturities, generally are
priced at a spread over the interest rate applicable to the same-maturity
government bond of the country in whose currency the debt instrument is issued.
To protect against adverse movements of interest rates and for liquidity, the
Fund may also invest all or a portion of its net assets in short-term
obligations, such as bank deposits, bankers' acceptances, certificates of
deposit, commercial paper, short-term government, government agency,
supranational agency and corporate obligations and repurchase agreements. The
Advisor also attempts to protect the Fund from rising interest rates by selling
interest rate future contracts or purchasing put options on interest rate
futures contracts.
The E. European Debt Fund is non-diversified for purposes of the 1940 Act. As a
non-diversified fund, the E. European Debt Fund may invest a larger portion of
its assets in fewer issuers. Consequently, adverse effects on the Fund's
security holdings may affect a larger portion of the Fund's assets and cause the
value of your investment to decline.
OTHER PRINCIPAL RISKS
Year 2000 Issue
Like other mutual funds and financial or business organizations around the
world, Vontobel Funds, Inc. (the "Company") could be adversely affected if its
computer systems or the computer systems of its service providers do not
properly process and calculate date-related information and data as of and after
January 1, 2000. This is commonly known as the "Year 2000 Issue." The Company
has taken steps that it believes are reasonably designed to address the Year
2000 Issue with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by its major service
providers. These steps include identifying system problems, remediation and
testing the system fixes. The Company and each of its major service providers
are in the stage of testing the system fixes that have been implemented. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Company.
European Currency
Several European countries are participating in the European Economic and
Monetary Union, which established a common European currency for participating
countries. This currency is commonly known as the "Euro." Each participating
country replaced its existing currency with the Euro as of January 1, 1999.
Additional European countries may elect to participate in the common currency in
the future. The conversion presents unique uncertainties, including, among
others: (1) whether the payment and operational systems of banks and other
financial institutions will function properly; (2) how certain outstanding
financial contracts that refer to existing currencies rather than the Euro will
be treated legally; (3) how exchange rates for existing currencies and the Euro
will be established; and (4) how suitable clearing and settlement payment
systems for the Euro will be managed. If any of the Funds invests in securities
of countries that have converted to the Euro or convert in the future, the Fund
could be adversely affected if these uncertainties cause adverse affects on
these securities. The Fund could also be adversely affected if the computer
systems used by its major service providers are not properly prepared to handle
the implementation. The Company has taken steps to obtain satisfactory
assurances that the major service providers of each of the Funds have taken
steps reasonably designed to address these matters. There can be no assurances
that these steps will be sufficient to avoid any adverse impact on the
operations and investment returns of the Funds. To date the conversion of the
Euro has had negligible impact on the operations and investment returns of the
Funds.
Foreign Investing
A Fund's investments in foreign securities may involve risks that are not
ordinarily associated with U.S. securities. Foreign companies are not generally
subject to the same accounting, auditing and financial reporting standards as
are domestic companies. Therefore, there may be less information available about
a foreign company than there is about a domestic company. Certain countries do
not honor legal rights enjoyed in the U.S. In addition, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments, which could affect U.S. investments in those countries.
Many foreign securities have substantially less trading volume than in the U.S.
market, and securities in some foreign issuers are less liquid and more volatile
than securities of domestic issuers. These factors make foreign investment more
expensive for U.S. investors. Mutual funds offer an efficient way for
individuals to invest abroad, but the overall expense ratios of mutual funds
that invest in foreign markets are usually higher than those of mutual funds
that invest only in U.S. securities.
Emerging and Developing Markets
A Fund's investments in emerging and developing countries involve those same
risks that are associated with foreign investing in general (see above). In
addition to those risks, companies in such countries generally do not have
lengthy operating histories. Consequently, theses markets may be subject to more
substantial volatility and price fluctuations than securities that are traded on
more developed markets.
Depositary Receipts
ADRs are receipts typically issued in the U.S. by a bank or trust company
evidencing ownership of an underlying foreign security. The International Equity
Fund may invest in ADRs which are structured by a U.S. bank without the
sponsorship of the underlying foreign issuer. In addition to the risks of
foreign investment applicable to the underlying securities, such unsponsored
ADRs may also be subject to the risks that the foreign issuer may not be
obligated to cooperate with the U.S. bank, may not provide additional financial
and other information to the bank or the investor, or that such information in
the U.S. market may not be current. Please refer to the Statement of Additional
Information for more information on ADRs.
Temporary Defensive Positions
When the Advisor believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, each of the Funds
may invest up to 100% of its assets in U.S. Government securities (such as
bills, notes, or bonds of the U.S. Government and its agencies) or other forms
of indebtedness such as bonds, certificates of deposits or repurchase agreements
(for the risks involved in repurchase agreements see the Statement of Additional
Information). For temporary defensive or emergency purposes, however, the Bond
Fund may invest without limit in investment grade U.S. debt securities,
including short-term money market securities. For temporary defensive purposes,
each of the International Equity Fund, E. European Equity Fund and Bond Fund may
hold cash or debt obligations denominated in U.S. dollars or foreign currencies.
These debt obligations include U.S. and foreign government securities and
investment grade corporate debt securities, or bank deposits of major
international institutions. When a Fund is in a temporary defensive position, it
is not pursuing its stated investment policies. The Advisor decides when it is
appropriate to be in a defensive position. It is impossible to predict for how
long such alternative strategies will be utilized.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
Investment Advisor - Vontobel USA Inc., 450 Park Avenue, New York, N.Y. 10022
(the "Advisor"), manages the investments of each Fund pursuant to separate
Investment Advisory Agreements (each, an "Advisory Agreement"). The Advisor is a
wholly owned and controlled subsidiary of Vontobel Holding Ltd., a Swiss bank
holding company, having its registered offices in Zurich, Switzerland. As of
December 31, 1998, the Advisor manages in excess of $1.9 billion. The Advisor
also acts as the advisor to three series of a Luxembourg fund organized by an
affiliate of the Advisor. That fund does not accept investments from the U.S.
The Advisor has provided investment advisory services to mutual fund clients
since 1990.
Pursuant to the Advisory Agreements, the Advisor provides the Funds with
investment management services and with office space. The Advisor pays the
office and clerical expenses that are associated with investment research,
statistical analysis, and the supervision of the Fund's portfolios. The Advisor
also pays the salaries (and other forms of compensation) of the Company's
directors and officers or employees of the Company who are also officers,
Directors or employees of the Advisor. Each Fund is responsible for all other
expenses that are not specifically assumed by the Advisor. Such expenses include
(but are not limited to) brokerage fees and commissions, legal fees, auditing
fees, bookkeeping and record keeping fees, custodian and transfer agency fees
and registration fees.
As compensation for its service as investment advisor for each of the Funds, the
Advisor receives a fee. That fee is payable monthly an annualized rate that is
equal to a percentage of the Fund's average daily net assets. The percentages
are set forth below. These fees are higher than those charged to most other
investment companies, but are comparable to fees paid by investment companies
with investment objectives and policies similar to the Funds' investment
objectives and policies.
For the fiscal year ended December 31, 1998, the Advisor earned $1,903,694 for
the Value Fund, $1,505,510 for the International Equity Fund, $35,051 for the
Emerging Markets Fund, $1,003,342, for the E. European Equity Fund, $80,161 for
the Bond Fund and $154,111 for the E. European Debt Fund. The Advisor waived
fees of $22,500 for the Value Fund, $35,051 for the Emerging Market Fund,
$80,161 for the Bond Fund and $50,475 for the E. European Debt Fund.
E. Bond E.
Value Interna Emerging Europea Fund European
Fund Equity Markets Equity Debt
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Amount of Assets Managed
- --------------------------------------------------------------------------------
$0-$100 million % 1.00 1.00 1.25 1.25 1.00 1.25
- --------------------------------------------------------------------------------
More than $100 million
to $500 million 0.75 0.75 1.25 1.25 1.00 1.25
- --------------------------------------------------------------------------------
More than $500 million 0.75 0.75 1.00 1.00 1.00 1.00
Mr. Edwin Walczak is a Senior Vice President of the Advisor. Mr. Walczak
joined the Advisor in 1988 and has been the President and portfolio manager
of the Value Fund since its inception in March 1990. Mr. Mark Robertson, who
is a Vice President of the Advisor, is the associate portfolio manager of the
Value Fund. He joined the Advisor in September 1991.
Mr. Fabrizio Pierallini, who is a Senior Vice President of the Advisor, has been
the President and portfolio manager of the International Equity Fund since May
1994 and the Emerging Markets Fund since its inception on August 18, 1997. From
September 1988 to April 1991 Mr. Pierallini worked with Swiss Bank Corporation
(now UBS), as a Vice President/Portfolio Manager in its Zurich office and from
May 1991 to April 1994 as an Associate Director/Portfolio Manger in its New York
office. Mr. Rajiv Jain joined the Advisor in November 1994. He is a Vice
President of the Advisor and the associate portfolio manager of the
International Equity and Emerging Markets Funds. From 1993 to 1994 Mr. Jain
worked as an analyst with Swiss Bank Corporation, New York.
Mr. Luca Parmeggiani, who is a Vice President of the Advisor, has been the
portfolio manager of the E. European Equity Fund since October 1, 1997. Mr.
Parmeggiani is a First Vice President of Vontobel Asset Management, Switzerland,
which he joined in September 1997 as head of Eastern European equity research
and management. He was formerly a Vice President of Lombard Odier & Cie, Geneva,
which he joined as a quantitative analyst in 1992 and was the portfolio manager
of Lombard Odier's closed-end Polish Investment Fund and its Luxembourg-based
Eastern Europe Fund. He is an EFFAS certified financial analyst (European
Federation of Financial Analysts and Statisticians).
Dr. Monica Mastroberardino is a Vice President of the Advisor, and was
appointed the portfolio manager of the International Bond Fund in February
1999. She is also the Associate Fund Manager of the E. European Debt Fund.
Dr. Mastroberardino has been a macroeconomic analyst with Vontobel Asset
Management, Zurich, since February 1998 and is the Associate Fund Manger of
its Luxembourg-based Eastern European Debt Fund. From February 1995 to
January 1998 she worked as a macroeconomic and financial analyst for Credit
Suisse, Zurich.
Mr. Volker Wehrle is a Vice President of the Advisor. He has been the
President and portfolio manager of the E. European Debt Fund since its
inception on August 18, 1997. Mr. Wehrle is also a Vice President and the
head of fixed income management of Vontobel Asset Management, Zurich, which
he joined in October 1994. From January 1989 to September 1994 he managed
fixed income investments for the Group Treasury Department of Sandoz AG in
Basel, Switzerland.
SHAREHOLDER INFORMATION
Each Fund's share price, called its NAV, is determined as of the close of
trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Time) on each business day ("Valuation Time") that the NYSE is open; however,
the Company's management may compute the NAV more frequently in order to protect
shareholders' interests. As of the date of this prospectus, the Fund is informed
that the NYSE will be closed on the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. NAV per share is computed by
adding the total value of the investments and other assets, subtracting any
liabilities and then dividing by the total number of shares outstanding.
The Fund's securities are generally valued at current market prices. Investments
in securities traded on the national securities exchanges or included in the
NASDAQ National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on that date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost pricing procedures. Other assets for
which market prices are not readily available are valued at their fair value as
determined in good faith under procedures set by the Board of Directors.
Depositary Receipts (i.e., ADRs, EDRs and GDRs) will be valued at the closing
price of the instrument last determined prior to the Valuation Time unless the
Company is aware of a material change in value. Securities for which such a
value cannot be readily determined on any day will be valued at the closing
price of the underlying security adjusted for the exchange rate.
PURCHASING SHARES
You may purchase shares of the Fund directly from Vontobel Fund Distributors
(the "Distributor") or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. When you acquire or redeem
shares through a securities broker or dealer, you may be charged a transaction
fee. The offering price per share is equal to the NAV next determined after the
Fund receives your purchase order.
The minimum initial investment for the Value Fund, Emerging Markets Fund, E.
European Equity Fund, Bond Fund and E. European Debt Fund is $1,000. The minimum
initial investment in the International Equity Fund is $200,000. Subsequent
investments for all Funds must be $50 or more. The Company may waive the minimum
initial investment requirement for purchases made by Directors, officers and
employees of the Company. The Company may also waive the minimum investment
requirement for purchases by its affiliated entities and certain related
advisory accounts and retirement accounts (such as IRAs).
Purchase by Mail - To purchase shares of a Fund by mail complete and sign the
attached application form (the "Account Application") and mail it together with
your check to Fund Services, Inc., (the "Transfer Agent"), at P.O. Box 26305,
Richmond, VA 23260. All checks should be made payable to the applicable Fund.
For subsequent purchases, include the tear-off stub from a prior purchase
confirmation with your check. Otherwise, identify the name(s) of the registered
owner(s) and social security number(s).
Investing by Wire - You may purchase shares by requesting your bank to wire
funds directly to the Transfer Agent. To invest by wire please call the Transfer
Agent for instructions, then notify the Distributor by calling 800-776-5455.
Your bank may charge you a small fee for this service. Once you have arranged to
purchase shares by wire, please complete and mail an Account Application
promptly to the Transfer Agent. This application is required to complete the
Funds' records. You will not have access to your shares until the Funds' records
are complete. Once your account is opened, you may make additional investments
using the wire procedure described above. Be sure to include your name and
account number in the wire instructions that you provide your bank.
The Transfer Agent will automatically establish and maintain an open account for
the Funds' shareholders. The open account reflects a shareholder's shares. This
service facilitates the purchase, redemption or transfer of shares, eliminates
the need to issue or safeguard certificates and reduces time delays in executing
transactions. Stock certificates are not required and are not normally issued.
Stock certificates for full shares will be issued by the Transfer Agent upon
written request but only after payment for the shares is collected by the
Transfer Agent.
REDEEMING SHARES
You may redeem shares of the Funds at any time and in any amount by mail or
telephone. For your protection, the Transfer Agent will not redeem your shares
until it has received all information and documents necessary for your request
to be considered in "proper order." (See "Signature Guarantees.") The Transfer
Agent promptly notify you if your redemption request is not in proper order.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. The Company
deducts a 2% redemption fee from proceeds of Emerging Markets Fund shares, E.
European Equity Fund shares or E. European Debt Fund shares redeemed less than
six months after purchase (including shares to be exchanged). The applicable
Fund retains this amount to offset the Fund's costs of purchasing or selling
securities.
After we receive your request in proper order, the Company will mail redemption
proceeds to your registered address within seven days. The Company will make
payments payable to the registered owner(s) unless you specify otherwise in your
redemption request.
Please note that (1) the Transfer Agent cannot accept redemption requests which
specify a particular date for redemption, or which specify any special
conditions; and (2) if the shares you are redeeming were purchased less than 15
days prior to the receipt of your redemption request, the Transfer Agent must
determine the check you used to pay for the shares you are redeeming has cleared
before it disburses the redemption proceeds. If you anticipate that you may make
a redemption within 15 days after you purchase shares, you should make your
purchase by wire, or by a certified, treasurer's or cashier's check.
The Company may suspend the right to redeem shares for any period during which
the NYSE is closed or the Securities and Exchange Commission determines that
there is an emergency. In such circumstances you may withdraw your redemption
request or permit your request to be held for processing at the net asset value
per share next computed after the suspension is terminated.
Redemption by Mail - To redeem shares by mail, send a written request for
redemption, signed by the registered owner(s) exactly as the account is
registered. Certain written requests to redeem shares may require signature
guarantees. For example, signature guarantees may be required if you sell a
large number of shares or if you ask that the proceeds be sent to a different
address or person. Signature guarantees are used to help protect you and the
Funds. You can obtain a signature guarantee from most banks or securities
dealers, but not from a Notary Public. Please call the Transfer Agent to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately.
There is no charge to shareholders for redemptions by mail.
Redemption by Telephone - You may redeem your shares by telephone provided that
you requested this service on your initial Account Application. If you request
this service at a later date, you must send a written request along with a
signature guarantee to the Transfer Agent. Once your telephone authorization is
in effect, you may redeem shares by calling the Transfer Agent at (800)
628-4077. There is no charge for establishing this service, but the Transfer
Agent will charge your account a $10.00 service fee for each telephone
redemption. The Transfer Agent may change the amount of this service charge at
any time without prior notice.
You cannot redeem shares by telephone if you hold a stock certificate
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the books
of the Company for less than 15 days.
If it should become difficult to reach the Transfer Agent by telephone during
periods when market or economic conditions lead to an unusually large volume of
telephone requests, a shareholder may send a redemption request to the Transfer
Agent by overnight mail.
The Company employs reasonable procedures designed to confirm the authenticity
of your instructions communicated by telephone and, if it does not, it may be
liable for any losses due to unauthorized or fraudulent transactions.
Redemption by Wire - If you request that your redemption proceeds be wired to
you, please call your bank for instructions prior to writing or calling the
Transfer Agent. Be sure to include your name, Fund account number, your account
number at your bank and wire information from your bank in your request to
redeem by wire.
Signature Guarantees - To help to protect you and the Company from fraud,
signature guarantees are required for: (1) all redemptions ordered by mail if
you require that the check be payable to another person or that the check be
mailed to an address other than the one indicated on the account registration;
(2) all requests to transfer the registration of shares to another owner; and
(3) all authorizations to establish or change telephone redemption service,
other than through your initial Account Application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts - Due to the relatively higher cost of maintaining small
accounts, the Company may deduct $10 per year from your account or may redeem
the shares in your account, if it has a value of less than $1,000. The Company
will advise you in writing sixty (60) days prior to deducting the annual fee or
closing your account, during which time you may purchase additional shares in
any amount necessary to bring the account back to $1,000. The Company will not
close your account if it falls below $1,000 solely because of a market decline.
OTHER SHAREHOLDER SERVICES
Individual Retirement Accounts (IRA's) - IRA accounts are available. Please call
(800)-527-9500 for information and to request forms.
Invest-A-Matic Account - Existing shareholders, who wish to make regular monthly
investments in amounts of $50 or more, may do so through the Invest-A-Matic
Account.
Exchange Privileges Account - You may exchange all or a portion of your shares
in each Fund for the shares of certain other Funds having different investment
objectives, provided that the share of the Fund you are exchanging into are
registered for sale in your state of residence. Your account may be charged $10
for a telephone exchange. An exchange is treated as a redemption and purchase
and may result in realization of a gain or loss on the transaction.
How To Transfer Shares
If you wish to transfer shares to another owner, send a written request to the
Transfer Agent. Your request should include (1) the name of the Fund and
existing account registration; (2) signature(s) of the registered owner(s); (3)
the new account registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be distributed;
(4) any stock certificates which have been issued for the shares being
transferred; (5) signature guarantees (See "Signature Guarantees"); and (6) any
additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any questions
about transferring shares, call the Transfer Agent at (800) 628-4077.
Account Statements And Shareholder Reports
Each time you purchase, redeem or transfer shares of a Fund, you will receive a
written confirmation. You will also receive a year-end statement of your account
if any dividends or capital gains have been distributed, and an annual and a
semi-annual report.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income, if any, are declared annually by each
Fund. Each of the Funds intends to distribute annually any net capital gains.
Dividends will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. If you do not wish to have
your dividends reinvested in additional shares, you should send a written
request to that effect to the Transfer Agent. There are no sales charges or
transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made with an IRA, all dividends and capital
gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a Fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend." To avoid buying a dividend, check each Fund's distribution
schedule before you invest. Shareholders will be subject to tax on all dividends
and distributions whether paid to them or reinvested in shares of the Fund.
DISTRIBUTIONS AND TAXES
Tax Considerations
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of a Fund or receive them in cash. Any capital gains a Fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your Fund shares, you may have a capital gain or loss. For tax
purposes, an exchange of your Fund shares for shares of a different series of
the Company is the same as a sale. The individual tax rate on any gain from the
sale or exchange of your shares depends on how long you have held your shares.
Fund distributions and gains from the sale or exchange of your Fund shares will
generally be subject to state and local income tax. Any foreign taxes paid by a
Fund that invests more than 50% of its assets in foreign securities may be
passed through to you as a foreign tax credit. Non-U.S. investors may be subject
to U.S. withholding and estate tax. You should consult with your tax adviser
about the federal, state, local or foreign tax consequences of your investment
in a Fund.
By law, a Fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS instructs a Fund to do so.
DISTRIBUTION ARRANGEMENTS
The Funds are offered through financial supermarkets, investment advisers and
consultants, financials planners, brokers, dealers and other investment
professionals, and directly through the Distributor. The shares are offered and
sold without any sales charges imposed by the Funds or the Distributor. However,
investment professionals who offer shares may request fees from their individual
clients. If you invest through a third party, the policies and fees may be
different than those described in the Prospectus. for example, third parties may
charge transaction fees or set different minimum investment amounts.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years [or, if shorter, the period of the
Fund's operations]. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned [or lost] on an investment in the Fund (assuming reinvestment
of all dividends and distributions). The Funds' financial highlights for the
period presented have been audited by Tait, Weller and Baker, independent
auditors, whose unqualified report thereon is included in the SAI. The Funds'
financial statements, notes to financial statements and report of independent
accountants are included in the SAI as well as in the Funds' Annual Report to
Shareholders (the "Annual Report"). Additional performance information for the
Funds is included in the Annual Report. The Annual Report and the SAI are
available at no cost from the Fund at the address and telephone number noted on
the back card page of this Prospectus. The following information should be read
in conjunction with the financial statements and notes thereto.
Vontobel U.S. Value Fund
For a Share Outstanding Throughout Each Period
Years ended
December 31,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per Share Operating
Performance
Net asset value,
beginning of year $16.51 $13.78 $13.25 $10.26 $12.64
------ ------ ------ ------ ------
Income from
investment operations
Net 0.22 0.10 0.17 0.05 0.09
investment
income
Net realized and
unrealized gain (loss) on
investments 2.06 4.61 2.65 4.09 (0.08)
------ ------ ------ ------ ------
Total from investment
operations 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
investments (1.90) (1.88) (2.10) (1.11) (2.16)
------ ------ ------ ------ ------
Total
distributions (2.06) (1.98) (2.29) (1.15) (2.39)
------ ------ ------ ------ ------
Net asset value,
end of year $16.73 $16.51 $13.78 $13.25 $10.26
====== ====== ====== ====== ======
Total Return 14.70% 34.31% 21.28% 40.36% 0.02%
Ratios/Supplemental
Data
Net assets, end of
year (000's) $200,463 $203,120 $69,552 $55,103 $29,852
Ratio to average net
assets - (A)
Expenses -(B) 1.46% 1.61% 1.48% 1.65% 1.62%
Expenses -net (C) 1.45% 1.58% 1.43% 1.50% 1.62%
Net investment income 0.93% 0.72% 0.63% 0.38% 0.76%
Portfolio
turnover rate 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 .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.
<PAGE>
Vontobel International Equity Fund
For a Share Outstanding Throughout Each Period
Years ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per Share Operating
Performance
Net asset value,
beginning of year $18.15 $18.22 $17.13 $16.23 $17.22
------ ------ ------ ------ ------
Income from
investment operations-
Net investment
income (loss) 0.01 (0.03) 0.03 0.16 0.01
Net realized and
unrealized
gain (loss) on
investments 2.98 1.74 2.85 1.61 (0.92)
------ ------ ------ ------ -----
Total from investment
operations 2.99 1.71 2.88 1.77 (0.91)
------ ------ ------ ------ ------
Less distributions-
Distributions from net
investment income 0.00 0.00 (0.03) (0.17) (0.08)
Distributions from
realized gains (0.96) (1.78) (1.76) (0.70) 0.00
------ ------ ------ ------- ------
Total distributions (0.96) (1.78) (1.79) (0.87) (0.08)
------ ------ ------ ------- ------
Net asset value,
end of year $20.18 $18.15 $18.22 $17.13 $16.23
======= ====== ====== ====== =======
Total Return 16.77% 9.19% 16.98% 10.91% (5.28)%
Ratios/Supplemental Data
Net assets,
end of year (000's) $161,933 $160,821 $151,710 $130,505 $138,174
Ratio to average
net assets-
Expenses (A) 1.40% 1.56% 1.60% 1.63% 1.54%
Expenses-net (B) 1.36% 1.50% 1.39% 1.53% 1.54%
Net investment
income (loss) 0.06% (0.17)% 0.15% 0.41% 0.08%
Portfolio turnover rate 41.51% 38.45% 54.58% 68.43% 34.04%
(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.
<PAGE>
Vontobel Eastern European Equity Fund
For a Share Outstanding Throughout Each Period
February
15, *
to
Years ended December 31, December 31,
1998 1997 1996
------- ------ ------------
Per Share Operating
Performance
Net asset value,
beginning of period $15.25 $14.89 $10.00
------- ------ -------
Income from investment
operations-
Net investment loss (0.31) (0.19) (0.06)
Net realized and
unrealized gain
(loss) on investments (6.80) 1.47 4.95
------- ------- -------
Total from investment
operations (7.11) 1.28 4.89
------- ------- -------
Less distributions-
Distributions from realized
gains on investments 0.00 (0.92) 0.00
------- ------- -------
Total distributions 0.00 (0.92) 0.00
------- ------- -------
Net asset value,
end of period $8.14 $15.25 $14.89
======= ======= =======
Total Return (46.62)% 8.74% 48.90%
Ratios/Supplemental Data
Net assets,
end of period (000's) $36,154 $139,408 $61,853
Ratio to average
net assets-
Expenses (A) 2.57% 1.94% 2.02%**
Expenses-net (B) 2.41% 1.66% 1.71%**
Net investment loss (1.67)% (1.30)% (1.07)%**
Portfolio turnover rate 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.
<PAGE>
Vontobel International Bond Fund
For a Share Outstanding Throughout Each Period
March
1*
to
December
31,
Years ended December 31,
1998 1997 1996 1995 1994
------ ----- ----- ----- -----
Per Share Operating
Performance
Net asset value,
Beginning of
period $ 9.89 $10.93 $10.60 $ 9.48 $10.00
------ ------ ------ ------ ------
Income from
investment
Operations-
Net investment
income 0.62 0.61 0.47 0.61 0.70
Net realized and
unrealized
Gain (loss)on
investments 0.85 (1.27) 0.32 1.06 (0.50)
------ ------ ------ ------ -------
Total from
investment
Operations 1.47 (0.66) 0.79 1.67 0.20
------ ------ ------ ------ ------
Less distributions-
Distributions
from net
Investment income -- -- (0.40) (0.55) (0.70)
Distributions
from realized
Gains on
investments (0.70) (0.38) (0.06) -- --
Distributions in
excess of net
investment income -- -- -- -- (0.02)
------ ------ ------ ------ -------
Total
distributions (0.70) (0.38) (0.46) (0.55) (0.72)
------ ------- ------- ------- -------
Net asset value,
end of period $10.66 $ 9.89 $10.93 $10.60 $ 9.48
====== ====== ====== ====== ======
Total Return 14.85% (6.04)% 7.51% 17.60% 1.98%
Ratios/Supplemental
Data
Net assets,
end of
period (000's) $6,983 $10,793 $26,879 $16,253 $10,235
Ratio to average net
assets-(A)
Expenses (B) 1.61% 1.60% 1.84% 1.76% 1.35%**
Expense ratio-
net (C) 1.61% 1.40% 1.52% 1.35% 1.35%**
Net investment
income 5.04% 5.92% 4.78% 5.38% 3.99%**
Portfolio
turnover rate 8.72% 0.00% 19.89% 18.63% 19.00%
* Commencement of Operations
** Annualized
(A) Management fee waivers and expense reimbursements reduced the expense ratios
and increased the Ratios of net investment income by .25% in 1998, 0.60% in
1997, 0.20% in 1996, 1.00% in 1995 and 0.19% in 1994.
(B) Expense ratio has been increased to include additional custodian fees in
1997, 1996 and 1995 that were offset by custodian fee credits; prior to 1995
custodian fee credits reduced the expense ratio.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
<PAGE>
Vontobel Emerging Markets Equity Fund
For a Share Outstanding Throughout Each Period
Year ended September 1, * to
December 31, 1998 December 31, 1997
------------------ ------------------
Per Share Operating
Performance
Net asset value,
beginning of period $ 9.42 $10.00
------ ------
Income from investment
operations-
Net investment loss 0.00 (0.04)
Net realized
and unrealized
loss on investments (2.11) (0.54)
------- -------
Total from investment
operations (2.11) (0.58)
------- -------
Net asset value,
end of period $ 7.31 $ 9.42
======= =======
Total Return (22.40)% (5.80)%
Ratios/Supplemental
Data
Net assets, end
of period (000's) $1,611 $3,601
Ratio to average
net assets- (A)
Expenses (B) 2.38% 2.41%**
Expenses-net (C) 2.07% 2.20%**
Net investment loss (0.02)% (1.42)%**
Portfolio
turnover rate 130.59% 16.36%
(A) Management fee waivers and expense reimbursements reduced the expense ratio
and increased net investment income ratio by 3.75% and 1.25%, in 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.
* Commencement of operations
** Annualized
<PAGE>
Vontobel Eastern European Debt Fund
For a Share Outstanding Throughout Each Period
Year ended September 1, *
December 31, to December 31
1998 1997
------------ --------------
Per Share Operating
Performance
Net asset value,
beginning of period $ 9.70 $10.00
------- -------
Income from investment
operations
Net investment income 1.27 0.26
Net realized and unrealized
gain (loss) on investments 1.09 (0.32)
----- ------
Total from investment operations 2.36 (0.06)
----- ------
Less distributions
Distributions from net
investment income (1.64) (0.24)
Distributions from
capital gains (0.21) 0.00
------ ------
Total Distributions (1.85) (0.24)
Net asset value, end of period $10.21 $ 9.70
====== =======
Total Return 24.54% (0.55)%
Ratios/Supplemental Data
Net assets, end of period (000's) $7,882 $14,438
Ratio to average net assets -(A)
Expenses - (B) 1.98% 2.38%**
Expenses - net (C) 1.98% 2.19%**
Net investment income 12.03% 8.28%**
Portfolio turnover rate 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.
<PAGE>
For investors who want more information about the Funds, the following documents
are available, free of charge, upon request:
Annual and Semi-Annual Reports:
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In each Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information ("SAI")
The SAI provides more detailed information about the Funds and is incorporated
into this prospectus by reference.
You can receive free copies of the reports and the SAI, request other
information and discuss your questions about the Funds by the contacting the
Funds directly at:
VONTOBEL FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
1-800-527-9500
You can review the Funds' reports and SAI at the Public Reference Room of the
SEC. You can receive text-only copies:
For a fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009 or call 1-800-SEC-0330
Free from the SEC's Internet Website at http://www.sec.gov.
<PAGE>
EXHIBIT C
<TABLE>
VONTOBEL EASTERN EUROPEAN DEBT FUND EXHIBIT C
VONTOBEL INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
<S> C> <C> <C> <C> <C>
Pro Forma Pro Forma
Combining Combining
Vontobel Vontobel for surviving for surviving
Eastern International European Vontobel Vontobel European
European Bond Bond Fund Eastern International Bond Fund
Debt Fund Fund (Unaudited) European Debt Fund Bond Fund (Unaudited)
Principal Amount* Security Description
Market Value Market Value Market Value
Bonds: 78.70% 92.47% 85.17%
CZECH CROWN: 26.80% 14.21%
$8,000,000 $8,000,000 Czech Republic 12.2% 15
Aug 2002
Government Bond $300,708 $300,708
14,000,000 14,000,000 Deutsche Bank Finance NV
10.5% 21 Jan 2000
Corporate Bond 471,680 471,680
20,000,000 20,000,000 ING Verzekeringen
10.625% 20 Jan 2000
Corporate Bond 674,161 674,161
20,000,000 20,000,000 SBC Jersey
10.625% 28 Jan 1999
Corporate Bond 665,634 665,634
2,112,183 2,112,183
HUNGARY FORINT: 18.05% 9.57%
25,000,000 25,000,000 Government of Hungary
21.0% 24 Oct 1999
Government Bond 120,420 120,420
135,000,000 135,000,000 Government of Hungary
16.0% 12 May 2000
Government Bond 636,018 636,018
140,000,000 140,000,000 Government of Hungary
14.0% 24 Jun 2002
Government Bond 666,532 666,532
1,422,970 1,422,970
POLISH ZLOTY:
3,000,000 3,000,000 Government of Poland
15.0% 12 Oct 19 32.15% 17.05%
Government Bond 862,051 862,051
2,100,000 2,100,000 Republic of Austria
19.25% 11 Jun 1999
Government Bond 605,171 605,171
1,600,000 1,600,000 International Finance Company
0% 28 May 1999
Supranational Bond 430,769 430,769
2,200,000 2,200,000 International Bank for
Recon & Dev
19.5% 17 Jun 1999
Supranational Bond 636,182 636,182
2,534,173 2,534,173
RUSSIAN RUBLE: 1.70% 0.90%
4,000,000 4,000,000 International Finance Corp
25.0% 15 Apr 1999
Corporate Bond 133,643 133,643
BRITISH POUND 12.07% 5.67%
460,000 460,000 DSL Bank 9.25%
19 Aug 2002
Corporate Bond $ 842,653 $842,653
CANADIAN DOLLAR 4.04% 1.90%
400,000 400,000 Government of Canada
6.5% 1 June 2004
Government Bond 281,906 281,906
DANISH KRONE 6.56% 3.08%
2,500,000 2,500,000 Kingdom of Denmark
7% 15 Dec 2004
Government Bond 458,248 458,248
DEUTSCHE MARK 22.95% 10.78%
900,000 900,000 Republic of Finland
7.5% 27 Jan 2000
Government Bond 563,001 563,001
1,000,000 1,000,000 Republic of Germany
6.5% 14 Oct 2005
Government Bond 698,096 698,096
500,000 500,000 Republic of Germany
7.125% 20 Dec 2002
Government Bond 341,221 341,221
1,602,318 1,602,318
EUROPEAN CURRENCY 20.13% 9.46%
600,000 600,000 DSL Bank 4.75%
27 May 2003
Corporate Bond 737,894 737,894
500,000 500,000 France O.A.T.
10% 26 Feb 2001
Government Bond 667,880 667,880
1,405,774 1,405,774
FRENCH FRANC 15.75% 7.40%
5,000,000 5,000,000 France O.A.T.
7.25% 25 Apr 2006
Government Bond 1,100,071 1,100,071
IRISH PUNT 6.05% 2.84%
250,000 250,000 Republic of Ireland
6.25% 18 Oct 2004
Government Bond 422,456 422,456
NETHERLANDS GUILDER 4.92% 2.31%
600,000 600,000 Government of Netherlands
9% 15 May 2000
Government Bond 343,829 343,829
Total Investments:
(Cost: $6,280,880,
$6,350,250 and
$12,631,130, respectively)78.70% 6,202,969 92.47% 6,457,255 85.17% 12,660,224
Other assets,net 21.30% 1,678,916 7.53% 526,134 14.83% 2,205,050
NET ASSETS 100.00%$7,881,885 100.00% $6,983,389 100.00% $14,865,274
*Stated in local currencies
**Cost for Federal income tax purposes is $6,280,880, $6,350,250 and
$12,631,130, respectively, and net unrealized depreciation consists of:
Gross unrealized appreciation $484,280 $257,987 $742,267
Gross unrealized depreciation (562,191) (150,982) (713,173)
Net unrealized appreciation ($77,911) $107,005 $29,094
See Notes to Pro Forma Combining Financial Statements
</TABLE>
<PAGE>
Vontobel Eastern European Debt Fund
Vontobel International Bond Fund
Pro Forma Combining Statements of Assets and Liabilities
December 31, 1998
Pro Forma
Vontobel Vontobel Combining
Eastern International for surviving
European Bond European Bond
Debt Fund Fund Fund (Unaudited)
ASSETS
Investments at value
(Identified cost of $6,280,880,
$6,350,250 and $12,631,130,
respectively $6,202,969 $6,457,255 $12,660,224
Cash 1,142,478 - 1,142,478
Foreign currencies at value - 293,752 293,752
Receivables:
Capital stock sold 45,629 19,916 65,545
Interest 448,137 212,042 660,179
Other assets - 24,911 30,424(1)
Deferred organizational costs 52,060 5,513 52,060(2)
TOTAL ASSETS 7,891,273 7,013,389 14,904,662
LIABILITIES
Payables:
Capital stock redeemed 5,025 - 5,025
Accrued expenses 4,363 - 4,363
Due to manager - 30,000 30,000
TOTAL LIABILITIES 9,388 30,000 39,388
NET ASSETS $7,881,885 $6,983,389 $14,865,274
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
($7,881,885 / 771,630 shares outs $10.21
($6,983,389 / 654,921 shares outstanding ) $10.66
($14,865,274 / 1,455,605 shares outstanding ) $10.21
At December 31, 1998 there were 50,000,000 shares of $.01 par value stock
authorized and components of net assets are:
Paid in capital $7,994,587 $6,870,146 $14,864,733
Net unrealized appreciation
of investments and foreign cu (112,702) 113,243 541
Net Assets $7,881,885 $6,983,389 $14,865,274
(1) Receivable from initial investors for balance of deferred organization
costs. (2) International Bond Fund defferred organization costs will be assumed
by initial investors.
See Notes Pro Forma Combining Financial Statements
<PAGE>
<TABLE>
Vontobel Eastern European Debt Fund
Vontobel International Bond Fund
Proforma Combining Statements of Operations
Year ended December 31, 1998
<S> <C> <C> <C> <C>
Pro Forma
Vontobel Vontobel Combining
Eastern International for surviving
European Debt Bond Pro Forma European Bond Fund
Fund Fund Adjustments (Unauditied)
Investment Income
Interest $1,727,388 $532,645 $2,260,033
EXPENSES:
Investment management fees 154,111 80,161 20,000(a) 254,312
Custodian and accounting fees 47,846 52,802 (30,000)(b) 70,648
Recordkeeping and
administrative services 24,708 18,573 43,281
Filing and registration fees 17,338 13,525 (10,363)(b) 20,500
Organizational costs 14,230 16,440 (16,440)(c) 14,230
Shareholder servicing
and reports 10,229 8,856 (4,085)(b) 15,000
Transfer agent fees 9,859 20,712 (9,859)(b) 20,712
Legal and audit fees 8,713 10,859 (4,572)(b) 15,000
Other 7,910 7,211 (4,621)(b) 10,500
Total expenses 294,944 229,139 (59,900) 464,183
Management fee waiver (50,475) (100,161) (150,636)
Expenses, net 244,469 128,978 (59,900) 313,547
Net investment income 1,482,919 403,667 1,946,486
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain
(loss) on investments 249,642 (387,768) (138,126)
Net realized loss on
forward currency contracts
and foreign currency
conversions (67,044) (8,966) (76,010)
Net change in unrealized
depreciation on
investments and
foreign currencies 443,033 967,732 1,410,765
Net gain on investments 625,631 570,998 1,196,629
Net increase in net
assets resulting
from operations $2,108,550 $974,665 $3,143,115
See Notes to Pro Forma Combining Financial Statements
</TABLE>
<PAGE>
ontobel Eastern European Debt Fund
Vontobel International Bond Fund
Notes to Pro Forma Combining Financial Statements
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Note 1- BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
within the Vontobel Funds, Inc. and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The Agreement and Plan of Reorganization would be
accomplished by an exchange of shares of Vontobel Eastern European Debt Fund for
the net assets of Vontobel International Bond Fund and the distribution of
Vontobel Eastern European Debt Fund shares to Vontobel International Bond Fund
shareholders. If the Agreement and Plan of Reorganization were to have taken
place at December 31, 1998, Vontobel International Bond Fund would have received
683,975 shares.
Note 2 - THE PRO FORMA ADJUSTMENTS TO THESE PRO FORMA FINANCIAL STATEMENTS ARE
COMPRISED OF:
(a) Reflects adjustments to the acquiring fund contractual fee obligations.
(b) Adjustments reflects expected savings when the two funds become one.
(c) International Bond Fund amortization of organization expenses would
cease upon consummation of the reorganization.
