As filed with the Securities and Exchange Commission on July 1, 1999
Registration No. 2-78931
File No. 811-3551
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
(Check appropriate box or boxes)
VONTOBEL FUNDS, INC. (800) 527-9500
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Exact Name of Registrant as Specified in Charter Area Code and Telephone No.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VIRGINIA 23229
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Address of Principal Executive Offices: (Number, Street, City, State, Zip Code)
Approximate Date of
Proposed Public Offering: As soon as practicable after this Registration
Statement becomes effective under the
Securities Act of 1933 and the reorganization
is approved by shareholders.
Name and Address
of Agent for service: John Pasco, III
Commonwealth Shareholder Services, Inc.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
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Copies to: Steven M. Felsenstein, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
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Title of Securities Being Registered: Shares of Common Stock of the Vontobel
Eastern European Debt Fund series
of the Registrant
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940. Pursuant to Rule 429(a), this registration Statement
relates to shares previously registered on Form N-1A (Securities Act of 1933
File No. 2-78931; Investment Company Act of 1940 File No. 811-3551)
It is proposed that this filing will become effective on July 31, 1999 pursuant
to Rule 488.
<PAGE>
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 __, 1999
at ______a.m.(p.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 on
currency diversification; 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 __, 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 __, 1999, at _____ a.m.(p.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 July __, 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
July ___, 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 __, 1999
The undersigned hereby revokes all previous proxies for shares and appoints
______________ and ________________, 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 ____a.m. (p.m.) Eastern Time on the _____
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
"International 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.
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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
Statement of Additional Information dated May 1, 1999
Other information
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated________________________________
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 small size of the Bond Fund
makes it difficult to achieve desired investment returns for shareholders, due
in part to the proportionally higher expenses of operating a smaller fund. (2)
Impact of advent of Euro on fund's currency diversification: Since its inception
in February, 1994, the Bond Fund has invested primarily in instruments
denominated in the major European currencies. In view of the advent of the new
currency of the European Union, the Euro, on January 1, 1999, the Board has
concluded that the shareholders will benefit from the greater level of currency
diversification afforded by consolidation 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 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. (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 the Debt Fund
(and the other Vontobel Fund series) is attached as Exhibit B and is
incorporated by reference.
A Statement of Additional Information dated _____________, 1999 relating
to this Combined Proxy Statement/Prospectus and the proposed
reorganization has been filed with the U.S. Securities and Exchange
Commission and is incorporated by reference. A copy may be obtained 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
Completeness 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
Adviser. The agreement between the Fund and the Adviser provides for the payment
by the Bond Fund of an investment advisory fee of 1% per annum. In the past, the
Adviser has voluntarily agreed to waive the collection of its fee, benefiting
the shareholders of the Bond Fund. The Adviser has indicated that it will not
continue the voluntary waiver of the advisory fee. 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 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.
The Board determined to recommend the Reorganization for several reasons: (1)
The Reorganization of the Bond Fund with the Debt Fund will be a cost-effective
transaction involving minimal disruption to shareholders and to their servicing
relationships. (2) The Reorganization will permit shareholders to continue to
receive the benefit of the investment advice of the Adviser. (3) 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 July __, 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 ____________ 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. 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 Debt Fund will not be receiving a tax opinion by counsel as to the effects
of the Reorganization, although it is anticipated by the Debt Fund 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 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. 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
<PAGE>
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:
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.
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.
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.
Greater European Bond Fund
Under normal circumstances the Greater European Bond Fund will invest at least
65% of its total assets in fixed-income instruments that are issued by borrowers
located in Western and Eastern European countries. The Fund will normally invest
at least 65% of its total assets in debt instruments denominated in foreign
currencies.
The Greater European Bond Fund may invest primarily in debt securities. It will
invest in securities rated Baa3 or higher by Moody's Investor Service, Inc.
("Moody's") or BBB- by Standard & Poor's Rating Group ("S&P") or unrated
securities which the Advisor believes are of comparable quality. The Fund
reserves the right, however, to invest in lower rated securities (including
unrated securities which the Advisor believes to be of such lower quality). The
Fund will invest no more than 10% in securities rated Ba2 and no more than 5% in
securities rated B2 by Moody's or, respectively, securities rated BB and B by
S&P, or securities which are unrated but are of comparable quality as determined
by the Advisor. 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
The Fund's investment universe includes, but is not limited to, Germany, the
United Kingdom, France, Denmark, Norway, Sweden, Belgium, Spain, Switzerland,
Ireland, Portugal, Italy, Austria, Finland, Luxembourg, Greece, Turkey, 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. Generally, the Fund will have up to a
maximum of 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), and 50% of its total assets in debt instruments
of Western Europe. When investments in Eastern European debt instruments appear
more volatile, the Advisor may reduce its holdings in those instruments to 40%.
Conversely, when market conditions in Eastern European countries appear more
favorable, total assets invested in debt instruments may be increased to 60%. In
extreme circumstances, the Fund may invest up to 80% of its total assets in
Western European debt instruments.
While the Greater European 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 Greater European 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. In circumstances
where the outlook for U.S. dollar cash returns is more attractive than that for
cash and bond returns in all other currencies, the Fund will hold a U.S. dollar
cash position of up to 35% of the Fund's total assets. Conversely, if the
outlook for Eastern European currency cash returns is more attractive, the Fund
will hold foreign cash positions of up to 25% of the Fund's total assets. From
time to time, the Advisor may hold up to 90% of the Fund's total assets in
securitized money market instruments, such as government short-term paper,
treasury bills issued by governments of European countries, commercial paper 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.
PRINCIPAL RISKS.
Bond Fund:
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.
Greater European Bond Fund:
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
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 Greater European Bond Fund is 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.
OTHER PRINCIPAL RISKS --- BOTH 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.
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.
HOW ARE THE FUNDS EACH 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 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 Year 5 Year 10 Year
International Bond Fund $189 $585 $1,006 $2,180
o Expenses-net(a) $164 $508 $ 876 $1,911
Eastern European
Debt Fund $242 $745 $1,275 $2,726
o Expenses-net(b) $201 $621 $1,068 $2,306
(a) Expenses reflect the effect of management fee waivers and reimbursed
expenses.
(b) Expenses reflect the effect of management fee waivers.
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 only in debt instruments rated A or higher by Standard &
Poor's ("S&P"); (2) it invests in instruments that are highly liquid; 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
illiquid; 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.
Neither fund may 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,
normally will have up to a maximum of 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).
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.
[Graph goes here]
Year Total Return
1994* 1.98%
1995 17.60%
1996 7.51%
1997 (6.04%)
1998 14.85%
* 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)
------------------------------------------
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
1997* (0.55%)
1998 24.54%
* 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 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.
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
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 __, 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.
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 Plan.
TAX CONSIDERATIONS.
As noted above, the Company will not obtain a tax opinion concerning the tax
treatment of the transaction for Federal income tax purposes, however, it is
expected that the Reorganization will qualify as a non-taxable event for
shareholders. If the Reorganization is not a tax-free transaction for Federal
income tax purposes, it will be treated as a purchase and sale transaction for
federal income tax purposes, with gain or loss recognized as a consequence of
the Reorganization by the shareholders of the Bond Fund. 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, as revised July __, 1999, with respect to
the Debt Fund, and 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 __________, 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.
PRINCIPAL STOCKHOLDERS. (Be sure to update date and percentages)
As of March 31, 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 486,304.532
outstanding shares (or 69.273%); Charles Schwab Reinvestment, 101 Montgomery
Street San Francisco, CA 94104, owned of record 75,059.966 outstanding shares
(or 10.692%).
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 636,765.604
outstanding shares (or 85.996%); and Palenzona Ingeborg of Bahnhofstrasse 33
Ch-8022 Zurich Switzerland owned of record 40,637.473 outstanding shares (or
5.488%).
<PAGE>
EXHIBITS TO COMBINED PROXY
STATEMENT/PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization on behalf of the Vontobel
International Bond Fund and the Vontobel Eastern European Debt Fund.
B Prospectus of the Vontobel Funds, Inc. dated May 1, 1999, as revised
July __, 1999.
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION (the "Plan"), made as of this day of
_______________________, 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 ________________________________, 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.
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 _____________________, 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
_______________________________, 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>
VONTOBEL FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
1-800-527-9500
STATEMENT OF ADDITIONAL INFORMATION FOR PROXY STATEMENT/PROSPECTUS DATED
AS OF JULY _______, 1999.
Information contained in the Statement of Additional Information of the
Registrant dated May 1, 1999 is herein incorported by reference.
<PAGE>
VONTOBEL FUNDS, INC.
(THE "COMPANY")
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
1-800-527-9500
STATEMENT OF ADDITIONAL INFORMATION
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
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the Vontobel U.S. Value
Fund, Vontobel International Equity Fund (formerly named Vontobel EuroPacific
Fund), Vontobel Emerging Markets Equity Fund, Vontobel Eastern European Equity
Fund, Vontobel International Bond Fund and Vontobel Eastern European Debt Fund
(collectively, the "Funds"), dated May 1, 1999. You may obtain the Prospectus of
the Funds, free of charge, by writing to Vontobel Funds, Inc. at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229 or by calling 1-800-527-9525.
The Fund's audited financial statements and notes thereto for the year ended
December 31, 1998 and the unqualified report of Tait, Weller & Baker, on such
financial statements (the "Report") are incorporated by reference in this SAI
and are included in the Fund's 1998 annual report to shareholders (the "Annual
Report"). A copy of the Annual Report accompanies this SAI and an investor may
obtain a copy of the Annual Report by writing to the Fund or calling
(800)-527-9500.
The date of this SAI is May 1, 1999.
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TABLE OF CONTENTS
PAGE
General Information 3
Investment Objectives 3
Strategies and Risks 3
Investment Programs 3
Convertible Securities 3
Warrants 3
Illiquid Securities 3
Debt Securities 4
International Bonds 4
Strategic Transactions 4
Options 5
Futures 8
Currency Transactions 9
Combined Transactions 10
Eurocurrency Instruments 10
Use of Segregated and Other Special Accounts 11
Depositary Receipts 11
Temporary Defensive Positions 12
U.S. Government Securities 12
Repurchase Agreements 12
Reverse Repurchase Agreements 12
When-Issued Securities 13
Other Investments 13
Investment Restrictions 13
Management of the Company 15
Principal Securities Holders 18
Investment Advisor and Advisory Agreement 19
Management-Related Services 20
Portfolio Transactions 22
Portfolio Turnover 23
Capital Stock and Dividends 23
Dividends and Distributions 23
Additional Information about Purchases and Sales 24
Eligible Benefit Plans 24
Tax Status 26
Investment Performance 28
Financial Information 30
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GENERAL INFORMATION
Vontobel Funds, Inc. (the "Company") was organized as a Maryland corporation on
February 28, 1997. The Company is an open-end, management investment company
(commonly known as a "mutual fund"), registered under the Investment Company Act
of 1940, as amended (the "1940 Act"). This SAI relates to the Vontobel U.S.
Value Fund ("Value Fund"), Vontobel International Equity Fund ("International
Equity Fund"), Vontobel Emerging Markets Equity Fund ("Emerging Markets Fund"),
Vontobel Eastern European Equity Fund ("E. European Equity Fund"), Vontobel
International Bond Fund (the "Bond Fund") and Vontobel Eastern European Debt
Fund ("E. European Debt Fund") (individually, a "Fund," collectively, the
"Funds"). Each Fund is a separate investment portfolio or series of the Company
(see "Capital Stock" below). Each of the International Equity, Emerging Markets
and E. European Equity Funds is a "diversified" series," as that term is defined
in the 1940 Act. The Value, Bond and E. European Debt Funds are
"non-diversified" series.
INVESTMENT OBJECTIVES
The Value Fund's investment objective is to achieve long-term capital return.
The investment objective of each of the International Equity and E. European
Equity Funds is to achieve capital appreciation and the investment objective of
the Emerging Markets Fund is to achieve long-term capital appreciation. The
investment objective of each of the Bond and E. European Debt Funds is to
maximize total return from capital growth and income.
All investments entail some market and other risks. For instance, there is no
assurance that a Fund will achieve its investment objective. You should not rely
on an investment in a Fund as a complete investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Funds'
Prospectus. In seeking to meet its investment objective, each Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Convertible Securities: Each of the Value, International Equity, Emerging
Markets and E. European Equity Funds may invest in convertible securities.
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are convertible either at a stated price or a stated rate (that is,
for a specific number of shares of common stock or other security). As with
other fixed income securities, the price of a convertible security generally
varies inversely with interest rates. While providing a fixed income stream, a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
higher yield or capital appreciation. In such situations, the Funds have to pay
more for a convertible security than the value of the underlying common stock.
Warrants: Each of the Value, International Equity, Emerging Markets and E.
European Equity Funds may invest in warrants. Warrants are options to purchase
equity securities at a specific price for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Hence,
warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
differ from call options in that the underlying corporation issues warrants,
whereas call options may be written by anyone.
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. For this purpose, the term "illiquid securities" means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Illiquid securities include generally, among other things, certain
written over-the-counter options, securities or other liquid assets as cover for
such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests and other securities whose disposition is
restricted under the federal securities laws.
Debt Securities: Each of the Bond and E. European Debt Funds invest primarily in
debt securities. The Bond Fund will invest in securities rated A or higher by
Moody's Investors Service, Inc. ("Moody's"), or Standard & Poor's Rating Group
("S&P) at the time of purchase, or unrated securities which the Advisor believes
are of comparable quality. The Bond Fund may also invest in securities rated (at
the time of purchase): Baa or higher by Moody's; BBB or higher by S&P; or
foreign securities not subject to standard credit ratings, which the Advisor
believes are of comparable quality. Securities rated as BBB or Baa are generally
regarded as having adequate capacity to pay interest and repay principal. Under
normal circumstances, the Value Fund will have at least 65% of its assets
invested in common stocks or securities convertible into common stocks. The Fund
may also acquire fixed income investments where these fixed income securities
are convertible into equity securities. The fixed income securities in which the
Value Fund may invest will be rated at the time of purchase Baa or higher by
Moody's, or BBB or higher by S&P, or foreign securities not subject to standard
credit ratings, which the Adviser believes are of comparable quality.]
The E. European Debt Fund may purchase debt securities that are rated Baa3 or
higher by Moody's or BBB- or higher by S&P, or unrated securities which the
Advisor believes are of comparable quality. The Fund reserves the right,
however, to invest its assets in lower rated securities (including unrated
securities which the Advisor believes to be of such lower quality). The Fund
will invest no more than 5% of its assets in securities rated below BBB- by S&P
or Baa3 by Moody's or which are unrated but are of comparable quality as
determined by the Advisor. Bonds rated Baa3 or BBB- may have speculative
elements as well as investment-grade characteristics. The Fund may invest in
debt securities which are rated as low as C by Moody's or D by S&P. Such
securities may be in default with respect to payment of principal or interest.
International Bonds: International bonds are bonds issued in countries other
than the United States. The Bond Fund's investments in international bonds may
include debt securities issued or guaranteed by a foreign national government,
its agencies, instrumentalities or political subdivisions, debt securities
issued or guaranteed by supranational organizations, foreign corporate debt
securities, bank or holding company debt securities and other debt securities
including those convertible into common stock. The investments of the E.
European Debt Fund may include debt securities issued or guaranteed by an
Eastern European national government, its agencies, instrumentalities or
political subdivisions, corporate debt securities issued by borrowers in Eastern
European countries and Eastern European or bank holding company debt securities.
Strategic Transactions
Each of the Funds may utilize a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates, and broad
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities, or to enhance potential gain
(strategies described in more detail below). Such strategies are generally
accepted as modern portfolio management and are regularly utilized by many
mutual funds and institutional investors. Techniques and instruments may change
over time as new instruments and strategies develop and regulatory changes
occur.
In the course of pursuing these investment strategies, each Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as they are in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities,
currencies and other instruments. The value of such positions could also be
adversely affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.
Options
Each of the Funds may purchase and sell options as described in the Prospectus
and herein.
Put and Call Options
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. A Fund may
purchase a put option on a security to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in market value by giving the Fund the right to sell such instrument at
the option exercise price. Such protection is, of course, only provided during
the life of the put option when the Fund is able to sell the underlying security
at the put exercise price regardless of any decline in the underlying security's
market price. By using put options in this manner, the Fund will reduce any
profit it might otherwise have realized in its underlying security by the
premium paid for the put option and by transaction costs.
A call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. The Fund's purchase of a call option on a security,
financial future, index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying instrument.
When writing a covered call option, the Fund, in return for the premium, gives
up the opportunity to profit from a market increase in the underlying security
above the exercise price, but conversely retains the risk of loss should the
price of the security decline. If a call option which the Fund has written
expires, it will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Fund will realize a gain
or loss from the sale of the underlying security.
The premium received is the market value of an option. The premium the Fund will
receive from writing a call option, or, which it will pay when purchasing a put
option, will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, the general supply and demand for credit conditions, and the
general interest rate environment. The premium received by the Fund for writing
covered call options will be recorded as a liability in its statement of assets
and liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the
Fund's net asset value per share is computed (close of the New York Stock
Exchange ("NYSE")), or, in the absence of such sale, the latest asked price. The
liability will be extinguished upon expiration of the option, the purchase of an
identical option in a closing transaction, or delivery of the underlying
security upon the exercise of the option.
The premium paid by the Fund when purchasing a put option will be recorded as an
asset in its statement of assets and liabilities. This asset will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the Fund's net asset value per share ("NAV") is computed
(close of the NYSE), or, in the absence of such sale, the latest bid price. The
asset will be extinguished upon expiration of the option, the selling (writing)
of an identical option in a closing transaction, or the delivery of the
underlying security upon the exercise of the option.
The purchase of a put option will constitute a short sale for federal tax
purposes. The purchase of a put at a time when the substantially identical
security held long has not exceeded the long term capital gain holding period
could have adverse tax consequences. The holding period of the long position
will be cut off so that even if the security held long is delivered to close the
put, short term gain will be recognized. If substantially identical securities
are purchased to close the put, the holding period of the securities purchased
will not begin until the closing date. The holding period of the substantially
identical securities not delivered to close the short sale will commence on the
closing of the short sale.
The Fund will purchase a call option only to close out a covered call option it
has written. It will write a put option only to close out a put option it has
purchased. Such closing transactions will be effected in order to realize a
profit on an outstanding call or put option, to prevent an underlying security
from being called or put, or, to permit the sale of the underlying security.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option, or purchase another put option, on the underlying security
with either a different exercise price or expiration date or both. If the Fund
desires to sell a particular security from its portfolio on which it has written
a call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security. There is,
of course, no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If it cannot enter into such a transaction,
it may be required to hold a security that it might otherwise have sold, in
which case it would continue to be at market risk on the security. This could
result in higher transaction costs, including brokerage commissions. The Fund
will pay brokerage commissions in connection with the writing or purchase of
options to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
Options written by the Fund will normally have expiration dates between three
and nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, the Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional brokerage commissions will be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different call or put option. Also, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
An American style put or call option may be exercised at any time during the
option period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto. The Fund is authorized
to purchase and sell exchange-listed options and over-the-counter options ("OTC
options"). Exchange-listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although cash
settlement may become available in the future. Index options and Eurocurrency
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange-listed put or call option is dependent, in part, upon liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through a direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days.
Although it is not required to do so, the Fund generally expects to enter into
OTC options that have cash settlement provisions.
Unless the parties provide otherwise, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers," or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that OTC options purchased by a Fund and portfolio securities
"covering" the amount of a Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to a fund's limitation on investing no more than 10%
of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge against a decrease in the value of the underlying securities or
instruments in its portfolio. The premium may also increase the Fund's income.
The sale of put options can also provide income.
The Funds may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, and Eurocurrency instruments (see "Eurocurrency Instruments" below
for a description of such instruments) that are traded in U.S. and foreign
securities exchanges and in the over-the-counter markets, and futures contracts.
Each of the International Equity, European Equity and Bond Funds (collectively,
the International Funds) may purchase and sell call options on currencies. All
calls sold by the Fund must be "covered" (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
The Funds may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, convertible securities, and Eurocurrency
instruments (whether or not it holds the above securities in its portfolio), and
futures contracts (except each of the Bond and E. European Debt Funds may not
purchase or sell futures contracts on individual corporate debt securities.) The
International Funds may purchase and sell put options on currencies. The Fund
will not sell put options if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover its potential obligations under such
put options other than those with respect to futures and options thereon. In
selling put options, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price above the market price. For tax
purposes, the purchase of a put is treated as a short sale, which may cut off
the holding period for the security. Consequently, the purchase of a put is
treated as generating gain on securities held less than three months or short
term capital gain (instead of long term) as the case may be.
Options on Securities Indices and Other Financial Indices
The Funds may also purchase and sell call and put options on securities indices
and other financial indices. By doing so, the Funds can achieve many of the same
objectives that they would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement. For example, an option on an index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the index upon which the option is based exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option. This amount of cash is equal to the excess of the closing price
of the index over the exercise price of the option, which also may be multiplied
by a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or any other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
Futures
The International Funds may enter into financial futures contracts or purchases
or sell put and call options on such futures as a hedge against anticipated
interest rate or currency market changes and for risk management purposes. The
Bond and E. European Debt Funds, may enter into financial futures contracts or
purchases or sell put and call options on such futures for duration management.
The use of futures for hedging is intended to protect an International Fund from
(i) the risk that the value of its portfolio of investments in a foreign market
may decline before it can liquidate its interest, or (ii) the risk that a
foreign market in which it proposes to invest may have significant increases in
value before it actually invests in that market. In the first instance, the
International Fund will sell a future based upon a broad market index which it
is believed will move in a manner comparable to the overall value of securities
in that market. In the second instance, the International Fund will purchase the
appropriate index as an "anticipatory" hedge until it can otherwise acquire
suitable direct investments in that market. As with the hedging of foreign
currencies, the precise matching of financial futures on foreign indices and the
value of the cash or portfolio securities being hedged may not have a perfect
correlation. The projection of future market movement and the movement of
appropriate indices is difficult, and the successful execution of this
short-term hedging strategy is uncertain.
Regulatory policies governing the use of such hedging techniques require the
International Funds to provide for the deposit of initial margin and the
segregation of suitable assets to meet their obligations under futures
contracts. Futures are generally bought and sold on the commodities exchanges
where they are listed with payment of initial and variation margin as described
below. The sale of a futures contract creates a firm obligation by an
International Fund, as seller, to deliver to the buyer the specific type of
financial instrument called for in the contract at a specific future time for a
specified price (or, with respect to index futures and Eurocurrency instruments,
the net cash amount). Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position.
The International Funds' use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements, particularly
the rules and regulations of the Commodity Futures Trading Commission. The
International Funds will use such techniques only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option thereon
requires the International Fund to deposit an amount of cash or other specified
assets (initial margin), which initially is typically 1% to 10% of the face
amount of the contract (but may be higher in some circumstances) with a
financial intermediary as security for its obligations. Additional cash or
assets (variation margin) may be required to be deposited thereafter on a daily
basis as the mark to market value of the contract fluctuates. The purchase of an
option on financial futures involves payment of a premium for the option without
any further obligation on the part of the International Fund. If the
International Fund exercises an option on a futures contract, it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction, but there can be
no assurance that the position can be offset prior to settlement at an advantage
price or that delivery will occur.
An International Fund will not enter into a futures contract or related option
(except for closing transactions) if immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the International Fund's total assets (taken at
current value); however, in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The segregation requirements with respect to futures contracts
and options thereon are described below.
Currency Transactions
Each of the International Funds may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange-listed currency
futures, exchange-listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract between the
parties, at a specified price. These contracts are traded in the interbank
market and conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward foreign currency contract
generally has no deposit requirement or commissions charges. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies. Currency swaps operate similarly to an interest rate swap
(described below). The International Funds may enter into currency transactions
with Counterparties which have received (or the guarantors of the obligations of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from a NRSRO, or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Advisor.
The International Funds' dealings in forward currency contracts and other
currency transactions such as futures, options on futures, options on currencies
and swaps will be limited to hedging involving either specific transactions
("Transaction Hedging") or portfolio positions ("Position Hedging").
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Furthermore, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time an International Fund is engaging in proxy
hedging (see "Proxy Hedging," below). If an International Fund enters into a
currency hedging transaction, it will comply with the asset segregation
requirements described below. Cross currency hedges may not be considered
"directly related" to the International Funds' principal business of investing
in stock or securities (or options and futures thereon), resulting in gains
therefrom not qualifying under the "less than 30% of gross income" test of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to an
International Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges the International Fund has
entered into to be rendered useless, resulting in full currency exposure and
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Furthermore, settlement
of a currency futures contract for the purchase of most currencies must occur at
a bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy. Although forward foreign currency contracts and currency
futures tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they tend to limit any potential gain which might result should
the value of such currency increase.
Transaction Hedging
Transaction Hedging occurs when a fund enters into a currency transaction with
respect to specific assets or liabilities. These specific assets or liabilities
generally arise in connection with the purchase or sale of a fund's portfolio
securities or the receipt of income therefrom. The International Funds may use
transaction hedging to preserve the United States dollar price of a security
when they enter into a contract for the purchase or sale of a security
denominated in a foreign currency. An International Fund will be able to protect
itself against possible losses resulting from changes in the relationship
between the United States dollar and foreign currencies during the period
between the date the security is purchased or sold and the date on which payment
is made or received by entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of the foreign currency
involved in the underlying security transactions.
Position Hedging
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
The International Funds may use position hedging when the Advisor believes that
the currency of a particular foreign country may suffer a substantial decline
against the United States dollar. The International Funds may enter into a
forward foreign currency contract to sell, for a fixed amount of dollars, the
amount of foreign currency approximating the value of some or all of its
portfolio securities denominated in such foreign currency. The precise matching
of the forward foreign currency contract amount and the value of the portfolio
securities involved may not have a perfect correlation since the future value of
the securities hedged will change as a consequence of market movements between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is difficult, and the
successful execution of this short-term hedging strategy is uncertain.
The International Funds will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.
Cross Hedging
The International Funds may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the International Funds
have or expect to have portfolio exposure.
Proxy Hedging
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the International Funds may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the fund's portfolio securities
are or are expected to be denominated, and buying U.S. dollars. The amount of
the contract would not exceed the value of the International Fund's securities
denominated in linked currencies. For example, if the Advisor considers that the
Japanese yen is linked to the Euro, the International Funds hold securities
denominated in yen and the Advisor believes that the value of yen will decline
against the U.S. dollar, the Advisor may enter into a contract to sell Euros and
buy U.S. dollars.
Combined Transactions
The Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward foreign currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction or when the Advisor believes that it is in the Fund's best interests
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on the Advisor's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
Eurocurrency Instruments
The International Funds may make investments in Eurocurrency instruments.
Eurocurrency instruments are futures contracts or options thereon which are
linked to the London Interbank Offered Rate ("LIBOR") or to the interbank rates
offered in other financial centers. Eurocurrency futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. The International Funds might use Eurocurrency
futures contracts and options thereon to hedge against changes in LIBOR and
other interbank rates, to which many interest rate swaps and fixed income
instruments are linked.
Segregated and Other Special Accounts
In addition to other requirements, many transactions require a Fund to segregate
liquid high grade assets with its custodian to the extent Fund obligations are
not otherwise "covered" through the ownership of the underlying security,
financial instruments or currency. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by a Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate liquid high grade securities sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by a Fund on an index
will require the Fund to own portfolio securities which correlate with the index
or segregate liquid high grade assets equal to the excess of the index value
over the exercise price industry or other on a current basis. A put option
written by a Fund requires the Fund to segregate liquid, high grade assets equal
to the exercise price. A currency contract which obligates an International Fund
to buy or sell currency will generally require the Fund to hold an amount of
that currency or liquid securities denominated in that currency equal to the
Fund's obligations or to segregate liquid high grade assets equal to the amount
of the Fund's obligation.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange-listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange-listed options sold by the Fund other than those
generally settle with physical delivery, and the Fund will segregate an amount
of liquid assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
sufficient liquid assets. Such assets may consist of cash, cash equivalents,
liquid debt securities or other liquid assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. An International Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the International Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. Moreover, instead of segregating assets,
if the International Fund held a futures or forward contract, it could purchase
a put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other Strategic Transactions may
also be offered in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to such time, liquid assets equal to any remaining obligation
would need to be segregated.
An International Fund's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Code for qualification as a
regulated investment company.
Depositary Receipts
American 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.
Like ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Registered Depositary Certificates ("RDCs") represent receipts for
a foreign security. However, they are issued outside of the U.S. The Emerging
Markets Fund may invest in ADRs, EDRs, GDRs or RDCs and the E. European Equity
Fund may invest in ADRs and GDRs. EDRs, GDRs and RDCs involve risks comparable
to ADRs, as well as the fact that they are issued outside of the U.S.
Furthermore, RDCs involve risks associated with securities transactions in
Russia.
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 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, E. European Equity and Bond Funds may hold
cash or debt obligations denominated in U.S. dollars or foreign currencies.
These debt obligations include U.S. and foreign government securities and
investment grade corporate debt securities, or bank deposits of major
international institutions. When a Fund is in a temporary defensive position, it
is not pursuing its stated investment policies. The Advisor decides when it is
appropriate to be in a defensive position. It is impossible to predict for how
long such alternative strategies will be utilized.
U.S. Government Securities
The Funds may invest in U.S. Government Securities. The term "U.S. Government
Securities" refers to a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the U.S. Government, and by
various instrumentalities which have been established or sponsored by the U.S.
Government. U.S. Treasury securities are backed by the full faith and credit of
the United States. Securities issued or guaranteed by U.S. Government agencies
or U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
directly against the United States in the event the agency or instrumentality
does not meet its commitment. An instrumentality of the U.S. Government is a
government agency organized under Federal charter with government supervision.
Repurchase Agreements
As a means of earning income for periods as short as overnight, the Funds may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. The Funds may enter into repurchase commitments for investment
purposes for periods of 30 days or more. Such commitments involve investment
risks similar to those of the debt securities in which the Funds invest. Under a
repurchase agreement, a Fund acquires a security, subject to the seller's
agreement to repurchase that security at a specified time and price. A purchase
of securities under a repurchase agreement is considered to be a loan by a Fund.
The Advisor monitors the value of the collateral to ensure that its value always
equals or exceeds the repurchase price and also monitors the financial condition
of the seller of the repurchase agreement. If the seller becomes insolvent, a
Fund's right to dispose of the securities held as collateral may be impaired and
the Fund may incur extra costs. Repurchase agreements for periods in excess of
seven days may be deemed to be illiquid.
Reverse Repurchase Agreements
As a means of enhancing income, the Bond and E. European Debt Funds may enter
into reverse repurchase agreements with selected banks and broker/dealers. Under
a reverse repurchase agreement, a Fund sells securities subject to an obligation
to repurchase those securities at a specified time and price. In order to comply
with U.S. regulatory conditions applicable to investment companies, the Fund
will recognize gains or losses on such obligations each day, and will segregate
cash, U.S. government securities, or other high-grade debt instruments in an
amount sufficient to satisfy its repurchase obligation. The Fund will also mark
the value of the assets to market daily, and post additional collateral if
necessary. The Fund may invest the payment received for such securities prior to
fulfilling its obligation to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. Therefore, the
Fund's investment in reverse repurchase agreements is subject to the borrowing
limitations of the 1940 Act (See "Investment Restrictions").
If the buyer under a repurchase agreement becomes insolvent, the Fund's right to
reacquire its securities may be impaired. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the buyer of the securities
before repurchase of the securities under a reverse repurchase agreement, it may
encounter delay and incur costs before being able to apply the cash held to
purchase replacement securities. Also, the value of such securities may increase
before it is able to purchase them.
When-issued Securities
The Emerging Markets and Bond Funds may purchase securities on a when-issued or
forward delivery basis, for payment and delivery at a later date. The price and
yield of the securities are generally fixed on the date of commitment to
purchase. During the period between purchase and settlement, no interest accrues
to the Fund. At the time of settlement, the market value of the security may be
more or less than the purchase price. The Fund reflects gains or losses on such
commitments each day, and segregates assets sufficient to meet its obligation
pending payment for the securities.
OTHER INVESTMENTS
The Board of Directors may, in the future, authorize one or more of the Funds to
invest in securities other than those listed in this SAI and in the prospectus,
provided such investments would be consistent with Fund's investment objective
and that such investments would be consistent with the fund's investment
objective and that such investment would not violate the Fund's fundamental
investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Funds have adopted the
following fundamental investment restrictions. The fundamental investment
restrictions cannot be changed without approval by the vote of a "majority of
the outstanding voting securities" of each Fund.
As a matter of fundamental policy, a Fund will not:
1) Except for the Value, Bond and E. European Debt Funds, as to 75% of its
assets, purchase the securities of any issuer (other than obligations
issued or guaranteed as to principal and interest by the Government of the
United States or any agency or instrumentality thereof) if, as a result of
such purchase, more than 5% of its total assets would be invested in the
securities of such issuer.
2) Except for the Value, Bond and E. European Debt Funds, purchase stock or
securities of an issuer (other than the obligations of the United
States or any agency or instrumentality thereof) if such purchase
would cause the Fund to own more than 10% of any class of the
outstanding voting securities of such issuer or, except for the
Emerging Markets Fund, more than 10% of any class of the outstanding
stock or securities of such issuer.
3) Act as an underwriter of securities of other issuers, except that each of
the International Equity and E. European Equity Funds may invest up to 10%
of the value of its total assets (at time of investment) in portfolio
securities which the Fund might not be free to sell to the public without
registration of such securities under the Securities Act of 1933, as
amended, or any foreign law restricting distribution of securities in a
country of a foreign issuer.
4) Buy or sell commodities or commodity contracts, provided that each of the
International Equity and E. European Equity Funds may utilize not more
than 1% of its assets for deposits or commissions required to enter into,
for the International Equity Fund, forward foreign currency contracts, and
for the E. European Equity Fund, financial futures contracts, for hedging
purposes as described under "Investment Policies" and "Additional
Information on Policies and Investments Strategic Transactions." (Such
deposits or commissions are not required for forward foreign currency
contracts.)
5) As to the International Equity and E. European Equity Funds, borrow money
except for temporary or emergency purposes and then only in an amount not
in excess of 5% of the lower of value or cost of its total assets, in
which case the Fund may pledge, mortgage or hypothecate any of its assets
as security for such borrowing but not to an extent greater than 5% of its
total assets. As to the Value, Emerging Markets, Bond and E. European Debt
Funds, borrow money, except as a temporary measure for extraordinary or
emergency purposes, or except in connection with reverse repurchase
agreements, provided that the Fund maintains asset coverage of 300% in
connection with the issuance of senior securities. Notwithstanding the
foregoing, to avoid the untimely disposition of assets to meet
redemptions, the Value, Emerging Markets and E. European Debt Funds may
borrow up to 33 1/3%, and the Bond Fund may borrow up to 20%, of the value
of the Fund's assets to meet redemptions, provided that the Fund may not
make other investments while such borrowings are outstanding.
6) Make loans, except that a Fund may (1) lend portfolio securities; and (2)
enter into repurchase agreements secured by U.S. Government securities
and, with respect to the Bond and E. European Debt Funds, except to the
extent that the entry into repurchase agreements and the purchase of debt
securities in accordance with its investment objective and policies may be
deemed to be loans.
7) Invest more than 25% of a Fund's total assets in securities of one or more
issuers having their principal business activities in the same industry,
provided that, for the Emerging Markets Fund, Bond Fund and E. European
Debt Fund, there is no limitation with respect to investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and, for the Bond Fund and E. European Debt Fund, for
the purpose of this restriction: telephone companies are considered to be
in a separate industry from gas and electric public utilities, and wholly
owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of their parents.
8) Except for the Emerging Markets Fund, Bond Fund and E. European Debt Fund,
invest in securities of other investment companies except by purchase in
the open market involving only customary broker's commissions, or as part
of a merger, consolidation, or acquisition of assets.
9) Invest in interests in oil, gas, or other mineral explorations or
development programs.
10) Issue senior securities.
11) Participate on a joint or a joint and several basis in any securities
trading account.
12) Purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities).
13) Invest in companies for the purpose of exercising control.
14) Purchase securities on margin, except that it may utilize such short-term
credits as may be necessary for clearance of purchases or sales of
securities.
15) Engage in short sales.
Non-Fundamental Policies and Restrictions: In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectus and elsewhere in the SAI, the
Funds will be subject to the following investment restrictions. Theses
restrictions are considered non-fundamental and may be changed by the Board of
Directors without shareholder approval.
As a matter of non-fundamental policy, a Fund may not:
1) Invest more than 15% of its net assets in illiquid securities.
In applying the fundamental investment policies and restrictions:
(a) Restrictions with respect to repurchase agreements shall be construed to
be for repurchase agreements entered into for the investment of available
cash consistent with the Fund's repurchase agreement procedures, not
repurchase commitments entered into for general investment purposes.
(b) The Funds adhere to the percentage restrictions on investment or
utilization of assets set forth above at the time an investment is made. A
later change in percentage resulting from changes in the value or the
total cost of the Fund's assets will not be considered a violation of the
restriction.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Company is governed by a Board of Directors, which is responsible for
protecting the interests of shareholders. The Directors are experienced
businesspersons who meet throughout the year to oversee the Company's
activities, review contractual arrangements with companies that provide services
to the Funds, and review performance. The names and addresses of the Directors
and officers of the Company, together with information as to their principal
occupations during the past five years, are listed below. The Directors who are
considered "interested persons" as defined in Section 2(a)(19) of the 1940 Act,
as well as those persons affiliated with the Advisor and principal underwriter,
and officers of the Company, are noted with an asterisk (*).
Name, Address and Position(s) Held With Principal
Birthdate Company Occupation(s) During
the Past 5 Years
*John Pasco, III Chairman, Director Mr. Pasco has served
1500 Forest Ave, Suite and Treasurer as Treasurer and
223 Richmond, VA 23229 Director of
(4/10/45) Commonwealth
Shareholder Services,
Inc. ("CSS"), the
Company's
Administrator, since
1985; Director,
President and
Treasurer of
Commonwealth Capital
Management, Inc. (a
registered Investment
Advisor) since 1983;
Director and
shareholder of Fund
Services, Inc., the
Company's Transfer and
Disbursing Agent,
since 1987;
shareholder of
Commonwealth Fund
Accounting, Inc.,
which provides
bookkeeping services
to Star Bank; and
Chairman, Director and
Treasurer of the World
Funds, Inc., a
registered investment
company, since May,
1997. Mr. Pasco is
also a certified
public accountant.
*Henry Schlegel Director Mr. Schlegel has
450 Park Avenue served as a Director,
New York, NY 10022 the President and the
(1/24/53) Chief Executive
Officer of Vontobel USA Inc., a
registered investment adviser,
since 1988.
Samuel Boyd, Jr. Director Mr. Boyd has served as
10808 Hob Nail Court the Manager of the
Potomac, MD 20854 Customer Services
(9/18/40) Operations and
Accounting Division of the
Potomac Electric Power Company
since 1978 and as Director of
World Funds, Inc., a registered
investment company, since May,
1997. Mr. Boyd is also a
certified public accountant.
William E. Poist Director Mr. Poist has served
5272 River Road as a financial and tax
Bethesda, MD 20816 consultant through his
(6/11/39) firm Management
Consulting for
Professionals since
1968 and as Director
of World Funds, Inc.,
a registered
investment company,
since May, 1997. Mr.
Poist is also a
certified public
accountant.
Paul M. Dickinson Director Mr. Dickinson has
8704 Berwickshire Drive served as President of
Richmond, VA 23229 Alfred J. Dickinson,
(11/11/47) Inc., Realtors since
April 1971 and as a Director of
World Funds, Inc., a registered
investment company, since May,
1997.
Mr. Walczak has served
*Edwin D. Walczak Vice President of the as Senior Vice
450 Park Avenue Company and President and
New York, NY 10022 President of the Portfolio Manager
(9/17/53) Vontobel U.S. Value (U.S. Equities) of
Fund Vontobel USA Inc. a
registered investment
adviser, since
July1988.
*Fabrizio Pierallini Vice President of the Mr. Pierallini has
450 Park Avenue Company, President of served as Senior
New York, N.Y. 10022 the Vontobel Vice President and
(8/14/59) International Portfolio Manager
Equity Fund and the (International and
Vontobel Emerging Emerging Markets
Markets Equity Fund Equities) of Vontobel
USA inc., a registered investment
adviser, since April 1994.
*Monica Mastroberardino
450 Park Avenue Vice President of the
New York, NY 10022 Company and President
(6/2/58) of the Vontobel Ms. Mastroberardino has
International Bond served as
Fund Vice President and
Portfolio Manager (International
Fixed Income) of Vontobel USA
Inc., a registered investment
adviser since February 1999. Dr.
Mastroberardino has been a
macroeconomic analyst with
Vontobel Asset Management,
Switzerland, since February 1998,
and also serves as the associate
portfolio manger of the Vontobel
group's Luxembourg- and U.S.-
registered Eastern European debt
funds. From February 1995 to
January 1998 she was a
macroeconomic and financial
analyst with Credit Suisse,
Switzerland.
*Luca Parmeggiani Vice President of the Mr. Parmeggiani has
450 Park Avenue Company and President served as Vice
New York, NY 10022 of the Vontobel President and
(3/23/62) Eastern European Portfolio Manager
Equity Fund (Eastern European
equities) of Vontobel
USA Inc., a registered
investment adviser,
since October 1997.
Mr. Parmeggiani has
served since September
1997 as head of
Eastern European
equity management of
Vontobel Asset
Management,
Switzerland. From
1992 to 1997 he was a
portfolio manager with
Lombard Odier & Cie,
Geneva. Mr.
Parmeggiani is an
EFFAS certified
financial analyst
(European Federation
of Financial Analysts
and Statisticians).
*Volker Wehrle Vice President of the Mr. Wehrle has served
450 Park Avenue Company and President as Vice President and
New York, NY 10022 of the Vontobel Portfolio Manager
(3/29/58) Eastern European Debt (Eastern European
Fund Debt) of Vontobel USA
Inc. , a registered
investment adviser,
since August 1997. He
has served since
October 1994 as a
portfolio manager of
Vontobel Asset
Management,
Switzerland, where he
is the head of fixed
income management.
From January 1989 to
September 1994 he
managed fixed income
investments for the
Group Treasury
Department of Sandoz
AG, Switzerland.
F. Byron Parker, Jr. Secretary Mr. Parker has served
810 Lindsay Court as Secretary of
Richmond, VA 23229 Commonwealth
(1/26/43) Shareholder Services,
Inc. since 1986. He is
also a Partner in the
law firm Mustian &
Parker.
Compensation of Directors: The Company does not compensate the Directors who are
officers or employees of the Advisor. The "independent" Directors receive an
annual retainer of $1,000 and a fee of $200 for each meeting of the Directors
which they attend in person or by telephone. Directors are reimbursed for travel
and other out-of-pocket expenses. The Company does not offer any retirement
benefits for Directors. As of December 31, 1998 the officers and Directors,
individually and as a group, owned beneficially less than 1% of the outstanding
shares of the Funds. For the fiscal year ended December 31, 1998, the Directors
received the following compensation from the Company:
Name and Aggregate Pension or Total
Position Held Compensation Retirement Compensation
From the Benefits from the
Funds Fiscal Accrued as Company
Year Ended Part of Fund
December 31, Expenses
1998(1)
John Pasco,II N/A N/A N/A
Director
Henry Schlegel N/A N/A N/A
Director
Samuel Boyd, Jr. 10,050.00 N/A 10,050.00
Director
William E. Poist 10,050.00 N/A 10,050.00
Director
Paul M. Dickinson 10,050.00 N/A 10,050.00
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Funds for the
fiscal year ended December 31, 1998.
PRINCIPAL SECURITIES HOLDERS
As of March 31, 1999, the following persons owned of record or beneficially
shares of the Funds in the following amounts.
Value Fund
Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco CA 94104,
owned of record 3,699,032.275 outstanding shares (or 40.847%); and Bank J.
Vontobel and its affiliates for the benefit of its customers, Bahnhofstrasse #3
CH-8022 Zurich Switzerland, owned of record 1,172,282.468 outstanding shares (or
12.945%).
International Equity Fund
Bank J. Vontobel and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich Switzerland, owned of record 3,139,026.644
outstanding shares (or 40.071%); Riggs Bank P.O. Box 96211, Washington, D.C.
20090-6211, owned of record 458,518.362 outstanding shares (or 5.853%); and
Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco, CA 94104,
owned of record 1,497,863.507 outstanding shares (or 19.121%).
E. European Equity Fund
Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco, CA 94104,
owned of record 9945537.070 outstanding shares (or 24.772%); and Bank J.
Vontobel and its affiliates for the benefit of its customers, Bahnhofstrasse #3
CH-8022 Zurich Switzerland, owned of record 574,658.584 outstanding shares (or
14.313%).
Bond Fund
Bank J. Vontobel and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich Switzerland, owned of record 486,304.532
outstanding shares (or 69.273%); Charles Schwab Reinvestment, 101 Montgomery
Street San Francisco, CA 94104, owned of record 75,059.966 outstanding shares
(or 10.692%).
Emerging Markets Equity Fund
Charles Schwab Reinvestment 101 Montgomery Street, San Francisco, CA 94104,
owned of record 16,241.398 outstanding shares (or 8.372%); and Bank J. Vontobel
and its affiliates for the benefit of its customers Banhhofstrasse #3 CH-8022
Zurich Switzerland, owned of record 54,666.501 outstanding shares (or 28.178%)
and Vontobel USA Inc. 450 Park Avenue, New York, N.Y. 10022 for Acct. # V202-039
owned of record 10,828.810 outstanding shares (or 5.582%).
E. European Debt Fund
Bank J. Vontobel and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich Switzerland, owned of record 636,765.604
outstanding shares (or 85.996%); and Palenzona Ingeborg of Bahnhofstrasse 33
Ch-8022 Zurich Switzerland owned of record 40,637.473 outstanding shares (or
5.488%).
INVESTMENT ADVISOR AND ADVISORY AGREEMENT
Vontobel USA Inc. (the "Advisor"), 450 Park Avenue, New York, N.Y. 10022, is
each Fund's investment adviser. The Advisor is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, (the "Advisers
Act"). The Advisor is a wholly owned subsidiary of Vontobel Holding Ltd., a
Swiss bank holding company which is traded on the Swiss Stock Exchange.
The Advisor serves as investment adviser to the Funds pursuant to separate
Investment Advisory Agreements with the Company for each Fund (each an "Advisory
Agreement"). The Advisory Agreements of the Emerging Markets and E. European
Debt Funds are effective for a period of two years from August 18, 1997, and may
be renewed annually thereafter. The Advisory Agreements for the Value Fund,
International Equity Fund, Bond Fund and E. European Equity Fund are dated July
14, 1992, July 14, 1992, February 10, 1994, and February 14, 1996, respectively.
The Advisory Agreement for each such Fund may be renewed annually provided such
renewal is approved annually by: 1) the Company's Board of Directors; or 2) by a
majority vote of the outstanding voting securities of the Company and a majority
of the Directors who are not "interested persons" of the Company. The Advisory
Agreements will automatically terminate in the event of their "assignment," as
that term is defined in the 1940 Act, and may be terminated without penalty at
any time upon 60 days' written notice to the other party by: (i) the majority
vote of all the Directors or by vote of a majority of the outstanding voting
securities of the Fund; or (ii) the Advisor.
Under the Advisory Agreements, the Advisor, subject to the supervision of the
Directors, provides investment management advice with respect to securities and
other instruments. The Advisor makes all decisions and performs all duties in
accordance with the Funds' investment objectives, policies, and investment
restrictions.
The Advisor is responsible for effecting all security transactions on behalf of
the Funds, including the allocation of principal business and portfolio
brokerage and negotiation of commissions. In placing orders with brokers or
dealers, the Advisor will attempt to obtain the best price and execution for the
Fund's orders. The Advisor may allocate brokerage to an affiliated dealer in
accordance with written policies adopted by the Company's Board of Directors.
The Advisor is also permitted to purchase and sell securities to and from
brokers and dealers who provide the Advisor with research advice and other
statistical services. In such instances, the Advisor may be authorized to pay a
commission, which is higher than the commission that would be charged by another
broker. From time to time, and subject to the Advisor obtaining the best price
and execution for each Fund, the Board of Directors may authorize the Advisor to
allocate brokerage transactions to a broker in consideration of: (1) the sale of
Fund shares; or (2) payment of an obligation otherwise payable by the Funds.
Each Fund is obligated to pay the Advisor an advisory fee. That fee is payable
monthly at an annual rate that is equal to a percentage of the Fund's average
daily net assets. Both the Value and International Equity Funds pay the Advisor
at a rate of 1.00% on the first $100 million and 0.75% on assets in excess of
$100 million. Each of the Emerging Markets, E. European Equity and E. European
Debt Funds pay the Advisor at a rate of 1.25% on the first $500 million and
1.00% on assets in excess of $500 million. The Bond Fund pays the Advisor a flat
fee of 1.00%. The table below shows the total amount of advisory fees that each
Fund paid the Advisor for the last three fiscal years. The table also shows the
amount of investment advisory fees that the Advisor waived during the last three
fiscal years.
Years Ended December 31,
Fund 1996 Fee 1997 Fee 1998 Fee
Payable/Waived Payable/Waived Payable/Waived
Value Fund $620,780/22,437 $986,164/22,500 $1,903,694/22,500
International Equity Fund 1,280,135/0 1,443,062/0 $1,505,510/0
Emerging Markets Fund* N/A 14,720/14,720 35,051/35psi
E. European Equity Fund** 302,021/0 2,113,314/0 1,003,342/0
Bond Fund 248,407/48,630 193,299/115,099 80,161/80,161
E. European Debt Fund* N/A 57,164/0 154,111/50,475
* Fees paid and/or waived in 1997 reflect payments for the period from
September 1, 1997, the commencement of operations, to December 31, 1997.
** Fees paid and/or waived in 1996 reflect payments for the period from February
15, 1996, the commencement of operations, to December 31, 1998.
Pursuant to the terms of the Advisory Agreements, the Advisor pays all expenses
it incurs in connection with rendering its management services. 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, fees for bookkeeping and record keeping
services, custodian and transfer agency fees and registration fees. The services
furnished by the Advisor under the Advisory Agreements are not exclusive, and
the Advisor is free to perform similar services for others.
ADMINISTRATION
Pursuant to the Administrative Services Agreement with the Company, dated
January 7, 1999 (the "Service Agreements"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
the administrator of the Funds. CSS supervises all aspects of the operation of
the Funds, except those performed by the Advisor. John Pasco III, Chairman of
the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Funds, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives asset-based fees, computed daily and paid monthly
at annual rates of 0.20% of the average daily net assets of the Funds on the
first $500 million and 1.50% on assets in excess of $500 million (which includes
regulatory matters, backup of the pricing of shares of each Fund, administrative
duties in connection with execution of portfolio trades, and certain services in
connection with Fund accounting). CSS receives an hourly fee, plus certain
out-of-pocket expenses, for shareholder servicing and state securities law
matters.
<PAGE>
The table below shows the total amount of administrative fees that each Fund
paid CSS for the last three fiscal years.
Years Ended December 31,
Fund 1996 1997 1998
Value Fund $147,596 $318,571 $504,371
International Equity Fund 297,410 419,496 328,563
Emerging Markets Fund* N/A 11,074 18,245
E. European Equity Fund** 80,336 432,860 205,758
Bond Fund 58,468 59,783 28,517
E. European Debt Fund* N/A 14,359 36,769
* Fees paid in 1997 reflect payments for the period from September 1, 1997, the
commencement of operations, to December 31, 1997.
** Fees paid 1996 reflect payments for the period from February 15, 1996, the
commencement of operations, to December 31, 1998.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to the Custodian Agreement and Accounting Agency Agreement with the
Company dated November 1,1998, Brown Brothers Harriman & Co. ("BBH"), 40 Water
Street, Boston Massachusetts, 02109, acts as the custodian of the Funds'
securities and cash and as the Funds' accounting services agent. With the
consent of the Company, BBH has designated The Depository Trust Company of New
York, as its agent to secure a portion of the assets of the International Funds.
BBH is authorized to appoint other entities to act as sub-custodians to provide
for the custody of foreign securities which may be acquired and held by the
International Funds outside the U.S. Such appointments are subject to
appropriate review by the Company's Board of Directors. As the accounting
services agent of the International Funds, BBH maintains and keeps current the
books, accounts, records, journals or other records of original entry relating
to such Funds' business.
TRANSFER AGENT
Pursuant to a Transfer Agent Agreement with the Company dated September 1, 1987,
Fund Services, Inc. ("FSI") acts as the Company's transfer and disbursing agent.
FSI is located at 1500 Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco,
III, Chairman of the Board of the Company and an officer and shareholder of CSS
(the Administrator of the Funds), owns one-third of the stock of FSI; therefore,
FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. FSI disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
DISTRIBUTOR
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.
INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Advisor, in placing orders for the purchase and sale of
each Fund's securities, to seek to obtain the best price and execution for
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the Advisor arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange,
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Advisor, when placing transactions, may allocate a portion of a Fund's
brokerage to persons or firms providing the Advisor with investment
recommendations, statistical, research or similar services useful to the
Advisor's investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Advisor can keep abreast of the
information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions for a
Fund may be used by the Advisor for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, a Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Advisor may be authorized, when placing
portfolio transactions for a Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Board of Directors of the Company has adopted policies and procedures
governing the allocation of brokerage to affiliated brokers. The Advisor has
been instructed not to place transactions with an affiliated broker-dealer,
unless that broker-dealer can demonstrate to the Company that the Fund will
receive (1) a price and execution no less favorable than that available from
unaffiliated persons, and (2) a price and execution equivalent to that which
that broker-dealer would offer to unaffiliated persons in a similar transaction.
The Board reviews all transactions which have been placed pursuant to those
policies and procedures at its Board meetings.
When two or more Funds that are managed by the Advisor are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated in a manner deemed equitable to each Fund. In some cases this
procedure could have a detrimental effect on the price or volume of the security
as far as a Fund is concerned. In other cases, however, the ability of such Fund
to participate in volume transactions will be beneficial for the Fund. The Board
of Directors of the Company believes that these advantages, when combined with
the other benefits available because of the Advisor's organization, outweigh the
disadvantages that may exist from this treatment of transactions.
The Funds paid brokerage commissions as follows:
Years Ended December 31,
------------------------
Fund 1996 1997 1998
- ----- ---- ---- ----
Value Fund $ 198,787 $290,165 $496,553
International Equity Fund 1,185,252 292,194 146,822
Emerging Markets Fund N/A 4,604 17,928
E. European Equity Fund 344,275 932,733 374,114
Bond Fund 0 0 0
E. European Debt Fund N/A 0 0
The Funds paid brokerage commissions to Vontobel Securities, Ltd. (an
affiliated broker-dealer) as follows:
Years ended December 31,
------------------------
Fund 1996 1997 1998
- ----- ----- ----- -----
Emerging Markets Fund N/A 0 0
E. European Equity Fund N/A 0 0
Bond Fund 0 0 0
E. European Debt Fund N/A 0 0
International Equity Fund N/A 0 0
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Advisor makes purchases and sales for a
Fund's portfolio whenever necessary, in the Advisor's opinion, to meet the
Fund's objective. The Advisor anticipates that the average annual portfolio
turnover rate of each of the Funds will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 500,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has presently allocated
50,000,000 shares to each of the Funds. Each share has equal dividend, voting,
liquidation and redemption rights and there are no conversion or preemptive
rights. Shares of the Funds do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect all of the directors if they choose to do so. In such event,
the holders of the remaining shares will not be able to elect any person to the
Board of Directors. Shares will be maintained in open accounts on the books of
FSI.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If the Directors create
additional series or classes of shares, shares of each series or class are
entitled to vote as a series or class only to the extent required by the 1940
Act or as permitted by the Directors. Upon the Company's liquidation, all
shareholders of a series would share pro-rata in the net assets of such series
available for distribution to shareholders of the series, but, as shareholders
of such series, would not be entitled to share in the distribution of assets
belonging to any other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the applicable Fund at
its net asset value as of the date of payment unless the shareholder elects to
receive such dividends or distributions in cash. The reinvestment date normally
precedes the payment date by about seven days although the exact timing is
subject to change. Shareholders will receive a confirmation of each new
transaction in their account. The Company will confirm all account activity,
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
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 Funds directly from 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, Bond Fund, E. European Equity
Fund, Emerging Markets Fund and E. European Debt Fund is $1,000. The minimum
initial investment in the International Equity Fund is 4200,000. 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). You may purchase
shares of a Fund by mail or wire.
ELIGIBLE BENEFIT PLANS
An eligible benefit plan is an arrangement available to the (1) employees of an
employer (or two or more affiliated employers) having not less than ten
employees at the plan's inception (2) or such an employer on behalf of employees
of a trust or plan for such employees, their spouses and their children under
the age of 21 or a trust or plan for such employees, which provides for
purchases through periodic payroll deductions or otherwise. There must be at
least five initial participants with accounts investing or invested in shares of
one or more of the Funds and/or certain other funds.
The initial purchase by the eligible benefit plan along with prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $5,000. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
SELLING SHARES
You may redeem shares of the Funds 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 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.
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.
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.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, each Fund offers the following
shareholder services:
Regular Account: A regular account allows a shareholder to make voluntary
investments and/or withdrawals at any time. Regular accounts are available to
individuals, custodians, corporations, trusts, estates, corporate retirement
plans and others. You may use the Account Application provided with the
Prospectus to open a regular account.
Telephone Transactions: You may redeem shares or transfer into another fund if
you request this service on your initial Account Application. If you do not
elect this service at that time, you may do so at a later date by sending a
written request and signature guarantee to FSI.
Each Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Invest-A-Matic Account: Invest-A-Matic Accounts allow shareholders to make
automatic monthly investments into their account. Upon request, FSI will
withdraw a fixed amount each month from a shareholder's checking account and
apply that amount to additional shares. This feature does not require you to
make a commitment for a fixed period of time. You may change the monthly
investment, skip a month or discontinue your Invest-A-Matic Plan as desired by
notifying FSI. In order to open an Invest-A-Matic Account, you must complete a
separate application. To obtain an application, or to receive more information,
please call the offices of the Company at 1-800-527-9500. Any shareholder may
utilize this feature.
Individual Retirement Account ("IRA"): All wage earners under 70-1/2, even those
who participate in a company sponsored or government retirement plan, may
establish their own IRA. You can contribute 100% of your earnings up to $2,000
(or $2,250 with a spouse who is not a wage earner, for years prior to 1997). A
spouse who does not earn compensation can contribute up to $2,000 per year to
his or her own IRA. The deductibility of such contributions will be determined
under the same rules that govern contributions made by individuals with earned
income. A special IRA program is available for corporate employers under which
the employers may establish IRA accounts for their employees in lieu of
establishing corporate retirement plans. Known as SEP-IRA's (Simplified Employee
Pension-IRA), they free the corporate employer of many of the recordkeeping
requirements of establishing and maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer Federal Income Taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA: A Roth IRA permits certain taxpayers to make a non-deductible
investment of up to $2,000 per year. Provided an investor does not withdraw
money from his or her Roth IRA for a 5 year period, beginning with the first tax
year for which contribution was made, deductions from the investor's Roth IRA
would be tax free after the investor reaches the age of 59-1/2. Tax free
withdrawals may also be made before reaching the age of 59-1/2 under certain
circumstances. Please consult your financial and/or tax professional as to your
eligibility to invest in a Roth IRA. An investor may not make a contribution to
both a Roth IRA and a regular IRA in any given year.
An annual limit of $2,000 applies to contributions to regular and Roth IRAs. For
example, if a taxpayer contributes $2,000 to a regular IRA for a year, he or she
may not make any contribution to a Roth IRA for that year.
How to Establish Retirement Accounts: Please call the Company to obtain
information regarding the establishment of individual retirement plan accounts.
Each plan's custodian charges nominal fees in connection with plan establishment
and maintenance. These fees are detailed in the plan documents. You may wish to
consult with your attorney or other tax advisor for specific advice concerning
your tax status and plans.
Exchange Privilege: Shareholders may exchange their shares for shares of any
other series of the Company, provided the shares of the fund the shareholder is
exchanging into are noticed for sale in the shareholder's state of residence.
Each account must meet the minimum investment requirements (currently $1,000).
You must complete an Exchange Privilege Authorization Form to make an exchange.
Also, to make an exchange, an exchange order must comply with the requirements
for a redemption or repurchase order and must specify the value or the number of
shares to be exchanged. Your exchange will take effect as of the next
determination of the Fund's NAV per share (usually at the close of business on
the same day). FSI will charge your account a $10.00 service fee each time you
make such an exchange. The Company reserves the right to limit the number of
exchanges or to otherwise prohibit or restrict shareholders from making
exchanges at any time, without notice, should the Company determine that it
would be in the best interest of its shareholders to do so. For tax purposes, an
exchange constitutes the sale of the shares of the Fund from which you are
exchanging and the purchase of shares of the Fund into which you are exchanging.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes. The exchange privilege is available
only in states where it is legally permissible to do so. You may obtain Exchange
Privilege Authorization Forms by calling the Company at 1-800-527-9525.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income
- --------------------------------------
The Funds receive income generally in the form of dividends and interest on
their investments. This income, less expenses incurred in the operation of a
Fund, constitutes a Fund's net investment income from which dividends may be
paid to you. Any distributions by a Fund from such income will be taxable to you
as ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains
- ------------------------------
The Funds may derive capital gains and losses in connection with sales or other
dispositions of their portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in a Fund. Any net capital
gains realized by a Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on the Fund. Effect of foreign investments on
distributions Most foreign exchange gains realized on the sale of debt
securities are treated as ordinary income by a Fund. Similarly, foreign exchange
losses realized by a Fund on the sale of debt securities are generally treated
as ordinary losses by the Fund. These gains when distributed will be taxable to
you as ordinary dividends, and any losses will reduce a Fund's ordinary income
otherwise available for distribution to you. This treatment could increase or
reduce a Fund's ordinary income distributions to you, and may cause some or all
of a Fund's previously distributed income to be classified as a return of
capital.
A Fund may be subject to foreign withholding taxes on income from certain of its
foreign securities. If more than 50% of a Fund's total assets at the end of the
fiscal year are invested in securities of foreign corporations, a Fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, the year-end statement you receive from a Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. A Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions
- -------------------------------------------------
The Funds will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
their tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, a Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxed as a regulated investment company
- ------------------------------------------------------
Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
regulated investment companies, the Funds generally pay no federal income tax on
the income and gains they distribute to you. The board reserves the right not to
maintain the qualification of a Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
a Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements
- ------------------------------------
To avoid federal excise taxes, the Internal Revenue Code requires a Fund to
distribute to you by December 31 of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31; and 100% of any undistributed amounts from the prior year. Each Fund
intends to declare and pay these amounts in December (or in January that are
treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
Redemption of Fund shares
- -------------------------
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares, or exchange your
Fund shares for shares of a different series of the Company, the IRS will
require that you report a gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, the gain or loss that you realize will be
capital gain or loss and will be long-term or short-term, generally depending on
how long you hold your shares. Any loss incurred on the redemption or exchange
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains distributed to you by the Fund
on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. Government Obligations
- ---------------------------
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
Dividends-received deduction for corporations
- ---------------------------------------------
If you are a corporate shareholder, you should note that 10% of the dividends
paid by the Value Fund for the most recent fiscal year qualified for the
dividends-received deduction. In some circumstances, you will be allowed to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Value Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculation.
Because the income of the International Equity Fund, E. European Equity Fund,
Bond Fund, Emerging Markets Equity Fund and E. European Debt Fund is derived
primarily from investments in foreign rather than domestic U.S securities, no
portion of its distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by such Funds for the
most recent calendar year qualified for such deduction, and it is anticipated
that none of the current year's dividends will so qualify.
Investment in complex securities
- --------------------------------
The Funds may invest in complex securities. These investments may be subject to
numerous special and complex tax rules. These rules could affect whether gains
and losses recognized by a Fund are treated as ordinary income or capital gain,
accelerate the recognition of income to a Fund and/or defer a Fund's ability to
recognize losses, and, in limited cases, subject a Fund to U.S. federal income
tax on income from certain of its foreign securities. In turn, these rules may
affect the amount, timing or character of the income distributed to you by a
Fund.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Funds to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
Fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
YIELD INFORMATION
From time to time, the Funds may advertise a yield figure. A portfolio's yield
is a way of showing the rate of income the portfolio earns on its investments as
a percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
Yield = 2[(a-b +1)-1]6
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
A Fund's yield, as used in advertising, is computed by dividing the Fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period
dividing this figure by a Fund's NAV at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond mutual
funds. Dividends from equity investments are treated as if they were accrued on
a daily basis solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are excluded
from the calculation. Income calculated for the purpose of calculating a Fund's
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a Fund may differ from the rate of
distributions the fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
P(1+T)n= ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1,5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
NAV as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the prescribed periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value.
Fund Name One-Year Five-Year Ten-Year From
Period Ended Period Ended Period Ended Inception
12/31/98 12/31/98 12/31/98
12/31/98
Value Fund 14.70% 21.27% N/A 17.12%
International
Equity Fund 16.77% 9.38% N/A 9.89%
Emerging Markets
Fund (22.20%) N/A N/A (20.97%)
E. European
Equity Fund (46.62%) N/A N/A (4.95%)
Bond Fund 14.85% N/A N/A 7.07%
E. European
Debt Fund 24.54% N/A N/A 17.43%
The Funds may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately each Fund's performance with other measures of investment return. The
Funds may quote an aggregate total return figure in comparing each Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, each Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $1,000 in shares
of the applicable Fund and assuming the reinvestment of each dividend or other
distribution at NAV on the reinvestment date. Percentage increases are
determined by subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. To calculate its
average annual total return, the aggregate return is then annualized according
to the SEC's formula for total return quotes outlined above.
The Funds may also advertise the performance rankings assigned by the various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's, Fortune, Money Magazine, The New York Times, Financial World,
Financial Services Week, USA Today and other national or regional publications.
FINANCIAL INFORMATION
Financial Highlights, Statements and Reports of Independent Accountants. You can
receive free copies of reports, request other information and discuss your
questions about the Funds by contacting the Funds directly at:
VONTOBEL FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
The books of each Fund will be audited at least once each year by Tait, Weller
and Baker, of Philadelphia, PA, independent public accountants.
The Fund's audited financial statements and notes thereto for the year ended
December 31, 1998 and the unqualified report of Tait, Weller & Baker, on such
financial statements (the "Report") are incorporated by reference in this SAI
and are included in the Fund's 1998 annual report to shareholders (the "Annual
Report"). A copy of the Annual Report accompanies this SAI and an investor may
obtain a copy of the Annual Report by writing to the Fund or calling
(800)-527-9500.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1)Articles of Incorporation of the Registrant are herein
incorporated by reference from Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the SEC on April 26, 1999.
(2) Articles Supplementary of the Registrant dissolving Commonwealth Emerging
Growth Fund series and designating Nicholson Growth Fund series and
Newport Far East series dated October, 1984 are herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on April 26, 1999.
(3) Articles Supplementary of the Registrant dissolving Commonwealth Emerging
Growth Fund series and creating Nicholson Growth Fund series and Newport
Far East series dated November, 1984 are herein incorporated by reference
from Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the
SEC on April 26, 1999.
(4) Articles Supplementary of the Registrant creating the Vontobel U.S. Value
Fund series dated January 12, 1990 are herein incorporated by reference
from Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the
SEC on April 26, 1999.
(5) Articles Supplementary of the Registrant creating the Vontobel
International Bond Fund series dated October, 1993 are herein incorporated
by reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on April 26, 1999.
(6) Articles Supplementary of the Registrant designating shares of each series
dated December, 1993 are herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(7) Articles Supplementary of the Registrant creating the Sand Hill Portfolio
Manager Fund series dated August, 1994 are herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on April 26, 1999.
(8) Articles Supplementary of the Registrant are herein incorporated by
reference from Post-Effective Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on November 9, 1995.
(9) Articles Supplementary of the Registrant are herein incorporated by
reference from Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on June 3, 1997.
(10) Articles of Amendment of the Registrant changing the name of the
Corporation to Tyndall-Newport Fund and deleting all references to the
Bowser Growth Fund series dated December, 1988 are herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on April 26, 1999.
(11) Articles of Amendment of the Registrant deleting all references to Tyndall
Fund dated January, 1991 are herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the SEC on
April 26, 1999.
(12) Articles of Amendment of the Registrant renaming the Sand Hill Portfolio
Manager Fund dated October, 1994 are herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the SEC on
April 26, 1999.
(13) Articles of Amendment of the Registrant dated February, 1997 are herein
incorporated by reference to Post-Effective Amendment No. 33 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the SEC on March 14, 1997.
(14) Articles of Amendment of the Registrant dated May 13, 1997 are
incorporated herein by reference to Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the SEC on June 3, 1997.
(b) By-Laws of the Registrant are herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(1) Amendment to By-Laws of the Registrant are herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as
filed with the SEC on April 26, 1999.
(c) Not Applicable.
(d) Investment Advisory Agreements between Vontobel USA Inc. and the
Registrant on behalf of the:
(3) Vontobel International Bond Fund dated February 10, 1994 is
incorporated by reference from Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931
and 811-3551) as filed with the SEC on April 26, 1999.
(5) Vontobel Eastern European Debt Fund dated August 18, 1997 is
incorporated by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931
and 811-3551) as filed with the SEC on June 3, 1997.
(e) Distribution Agreement between Vontobel Funds, Inc. and First Dominion
Capital Corp. dated August 18, 1998 is herein incorporated by reference
from Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(f) Not applicable.
(g) Custodian Agreement between Brown Brothers Harriman & Co. and the
Registrant dated November 1, 1998 is herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(h) (1) Transfer Agency Agreement between Fund Services, Inc. and the
Registrant dated January 1, 1999 is herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(2) Administrative Services Agreement between CSS and the Registrant
dated January 7, 1999 is herein incorporated by reference from
Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the SEC on April 26, 1999.
(3) Administrative Services Agreement dated July 14, 1992 between CSS and
the Registrant (on behalf of the Vontobel International Equity Fund
and the Vontobel U.S. Value Fund) is deleted and no longer filed.
(4) Administrative Services Agreement dated February 10, 1994 between CSS
and the Registrant (on behalf of the Vontobel International Bond
Fund) is deleted and no longer filed.
(5) Administrative Services Agreement dated February 14, 1996 between CSS
and the Registrant (on behalf of the Vontobel Eastern European Equity
Fund)is deleted and no longer filed.
(6) Administrative Services Agreement dated August 18, 1997 between CSS
and the Registrant (on behalf of the Vontobel Eastern European Debt
Fund) is deleted and no longer filed.
(7) Administrative Services Agreement dated August 18, 1997 between CSS
and the Registrant (on behalf of the Vontobel Emerging Markets Equity
Fund) is deleted and no longer filed.
(8) Accounting Agency Agreement between Brown Brothers Harriman & Co.
and the Registrant dated November 1, 1998 is herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551)
as filed with the SEC on April 26, 1999.
(i) Not Applicable.
(j) Auditor's Consent is attached hereto as Exhibit EX.99-14.
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Financial Data Schedule of the:
(3) Vontobel International Bond Fund is herein incorporated by reference
from Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with
the SEC on April 26, 1999.
(5) Vontobel Eastern European Debt Fund is herein incorporated by
reference from Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551)
as filed with the SEC on April 26, 1999.
(o) Not Applicable.
(p) Powers of Attorney for:
(1) Samuel Boyd, Jr. is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the SEC on June 3, 1997.
(2) Paul M. Dickinson is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the SEC on June 3, 1997.
(3) Henry Schlegel is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the SEC on June 3, 1997.
(4) William E. Poist is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the SEC on June 3, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the "GCL")
of the State of Maryland. The Registrant's Articles of Incorporation provide
the indemnification of directors, officers and other agents of the
corporation to the fullest extent permitted under the GCL. The Articles
limit such indemnification so as to comply with the prohibition against
indemnifying such persons under Section 17 of the Investment Company Act of
1940, as amended, for certain conduct set forth in that section ("Disabling
Conduct"). Contracts between the Registrant and various service providers
include provisions for indemnification, but also forbid the Registrant to
indemnify affiliates for Disabling Conduct.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISOR.
Vontobel USA Inc., the Investment Advisor to the Vontobel U.S. Value Fund
series, the Vontobel International Equity Fund series, the Vontobel
International Bond Fund series, the Vontobel Eastern European Equity Fund
series, the Vontobel Eastern European Debt Fund series and the Vontobel
Emerging Markets Equity Fund series provides investment advisory services
consisting of portfolio management for a variety of individual and
institutions and as of December 31, 1998 had approximately $416 million in
assets under management.
For information as to any other business, profession, vocation or employment
of a substantial nature in which each director, officer or partner of
Vontobel USA Inc. (the "Advisor") is or has been at any time during the past
two fiscal years, engaged for his own accord or in his capacity of director,
officer, employee, partner or trustee, reference is made to the Advisor's
Form ADV (File #801-21953), currently on file with the SEC as required by
the Investment Advisers Act of 1940, as amended.
ITEM 27 PRINCIPAL UNDERWRITERS
(a) The World Funds, Inc.
(b)
Name and Principal Position and Office Positions and
Business Address with Underwriter Offices with Fund
John Pasco, III President, Chief Chairman,President
1500 Forest Avenue Financial Officer, and Treasurer
Suite 223 Treasurer and
Richmond VA 23229 Director
Mary T. Pasco Director Assistant
1500 Forest Avenue Secretary
Suite 223
Richmond, VA 23229
Darryl S. Peay Vice President Assistant
1500 Forest Avenue Secretary,
Suite 223 Assistant
Richmond, VA 23229 Compliance
Officer
Lori J. Martin Vice President and None
1500 Forest Avenue Assistant Secretary
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by Section 31 (a) of the Investment Company Act of 1940, as amended,
and the rules promulgated thereunder are kept in several locations:
(a) Shareholder account records (including share ledgers, duplicate
confirmations, duplicate account statements and applications forms) of the
Registrant are maintained by its transfer agent, Fund Services, Inc., at
1500 Forest Avenue, Suite
111, Richmond, VA. 23229.
(b) Investment records including research information, records
relating to the placement of brokerage transactions,
memorandums regarding investment recommendations for
supporting and/or authorizing the purchase or sale of assets,
information relating to the placement of securities
transactions, and certain records concerning investment
recommendations of the Vontobel International Equity Fund, Vontobel
U.S. Value Fund, Vontobel International Bond Fund, Vontobel Eastern
European Equity Fund, Vontobel Eastern European Debt Fund and
Vontobel Emerging Markets Equity Fund series of the Registrant
are maintained at each series' investment advisor, Vontobel USA
Inc., at 450 Park Avenue, New York, N.Y. 10022.
(c) Accounts and records for portfolio securities and other
investment assets, including cash of the Vontobel
International Equity Fund, Vontobel U.S. Value Fund, Vontobel
International Bond Fund, Vontobel Eastern European Equity Fund, Vontobel
Eastern European Debt Fund and Vontobel Emerging Markets Equity Fund
series are maintained in the custody of the Registrant's custodian
bank, Brown Brothers Harriman & Co., at 40 Water Street., Boston, MA
02109.
(d) Accounting records, including general ledgers, supporting ledgers, pricing
computations, etc. of the Vontobel International Equity Fund, Vontobel
U.S. Value Fund, Vontobel International Bond Fund, Vontobel Eastern
European Equity Fund, Vontobel Eastern European Debt Fund and Vontobel
Emerging Markets Equity Fund series are maintained by the Registrant's
accounting services agent, Brown Brothers Harriman & Co., at 40 Water
Street, Boston, MA 02109.
(e) Administrative records, including copies of the charter, by-laws, minute
books, agreements, compliance records and reports, certain shareholder
communications, etc., are kept at the Registrant's principal office, at
1500 Forest Avenue, Suite 223, Richmond, VA 23229, by the Registrant's
Administrator, Commonwealth Shareholder Services, Inc., whose address is
the same as Registrant's.
(f) Records relating to distribution of shares of the Registrant are
maintained by the Registrant's distributor, First Dominion Capital Corp.
at 1500 Forest Avenue, Suite 223, Richmond, VA 23229.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in
Parts A or B of this Form.
ITEM 30. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
As required by the Securities Act of 1933 this registration statement has
been signed on behalf of the Registrant in the City of Richmond, and the
Commonwealth of Virginia on the __ day of June, 1999.
VONTOBEL FUNDS, INC.
Registrant
By /s/John Pasco, III
John Pasco, III, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the date indicated below.
(Signature) (Title) (Date)
/s/John Pasco, III Director, Chairman June __, 1999
John Pasco, III Chief Executive
Officer and Chief
Financial officer
/s/ Henry Schlegel* Director June __, 1999
Henry Schlegel
/s/ Samuel Boyd, Jr.* Director June __, 1999
Samuel Boyd, Jr.
/s/ Paul M. Dickinson* Director June __, 1999
Paul M. Dickinson
/s/ William E. Poist* Director June __, 1999
William E. Poist
/s/ John Pasco, III
John Pasco, III
* Pursuant to Powers-of-Attorney on File
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm in the Prospectus/Proxy of Vontobel
Funds, Inc. and to the incorporation by reference of our reports dated January
22, 1999 on the financial statements and financial highlights of each of the
funds comprising the Vontobel Funds, Inc.
Tait, Weller & Baker
Philadelphia, Pennsylvania
June 17, 1999
