Vontobel Semi-Annual Report to Shareholders 2000
Vontobel U.S. Value Fund
Vontobel International Equity Fund
Vontobel Eastern European Equity Fund
Vontobel U.S. Equity Fund
A Series of Vontobel Funds, Inc.
A "Series" Investment Company
Vontobel Funds, Inc.
<PAGE>
Contents
Vontobel U.S. Value Fund
Vontobel International Equity Fund
Vontobel Eastern European Equity Fund
Vontobel U.S. Equity Fund
<PAGE>
VONTOBEL U.S. VALUE FUND
SEMI-ANNUAL REPORT 2000
Dear Shareholder:
Vontobel U.S. Value Fund lost 4.13% during the first half of 2000, vs. a 0.42%
loss for the Standard & Poor's 500 Index. The fund's net asset value at June
30th was $13.68, and net assets totaled $51,675,740, vs. $14.27 and $71,480,063,
respectively, at December 31, 1999.
Once the internet bubble burst in mid-March and many of our financial stocks
rocketed out of the oversold depths to which they had fallen, it seemed that the
protracted drought for value investors had finally come to an end. After
declining more steeply than the market in the first two months of the year, the
fund surged ahead 14.4% in March, vs. the S&P 500's 9.8% gain, and went on to
beat the index's April and May gains. But in June the arch-enemy of Buffett
emulators--the tech-heavy NASDAQ--picked itself up off the mat and retraced a
large part of its March selloff. Sure enough, as money flowed back into
technology, it flowed out of traditional "value" stocks and the lead that the
fund briefly enjoyed over the market evaporated. As for the fund's typically
steady growers, they too fell prey to setbacks, some due to earnings
disappointments (in the case of McDonald's and Gillette), others to fears of the
effect of rising short-term rates on future revenues (Knight-Ridder and
Gannett). Despite the TMT rally in June, the fact that the fund eked out a
positive 0.4% gain for the second quarter vs. the S&P 500's 2.7% loss gives us
some hope that there has been a resurgence of investor interest in high-quality,
non-tech companies selling at valuations that offer a margin of safety.
It's been almost a year since our travails really began on August 3, 1999, when
UNUM unexpectedly announced that it would need to add to its reserves as it
consummated its merger with Provident Life and the stock suffered a severe
downfall. Unlike last year, though, when commercial and auto insurance prices
were still in a cyclical downturn, the second-quarter results of several of the
fund's property and casualty insurers have confirmed that the worst of the cycle
is over. Insurers have in fact been raising their prices, and the market has
taken note of their improved operating profits. Although financials gave back
some of their gains in June, many insurance stocks had big bounces off their
lows. Bermuda reinsurer Ace rose 70% and multi-line insurer Old Republic, a
longtime holding, advanced 24% during the first half. Auto insurer Mercury
General had a strong first quarter gain of 35%, which was whittled back to a
first-half gain of 8% in June. While the cyclical fundamentals were in many
cases still declining last year, the long-term viability of 95% of our companies
(ESG was the exception, and was sold) was never in doubt.
There was tremendous value in the portfolio at the end of 1999 and there still
is today. Much of it resides in the insurance sector (35% of the portfolio).
Even disappointing UNUMProvident is finding its way; we've recently added to
that position as the company repairs itself and again begins to enjoy the
benefits of holding the dominant market share in the disability insurance
business, which is growing at a respectable 12%-15% pace.
And what can one say about Fannie Mae and Freddie Mac? Last year, their stock
prices declined 15% and 26% despite earnings rising 15% and 27%, respectively.
Together these GSEs (government-sponsored enterprises) constitute about 15% of
the fund. They declined another 10% this year because of fears of Alan Greenspan
and a perceived increase in political risk. As to the former, when in 1994 the
bond market suffered a serious debacle, Fannie and Freddie still managed to
increase earnings at a double-digit rate. The GSEs are not immune to rising
rates, but they've proved that they can manage through a traditional rising rate
cycle rather well. Regarding political risk, this is a wild card that any
investor must always take seriously, but Fannie and Freddie today are not priced
for perfection (at ten or eleven times earnings). Our best read is that any
possible political changes will not seriously impair their future expected
earnings growth. Despite volatility in the Treasury market, fears about rising
interest rates, and concerns about their government charter, Fannie and Freddie
both generated double-digit earnings growth for the second quarter. At current
levels, we believe that both stocks could be as much as 100% undervalued.
For Vontobel U.S. Value Fund, which had long received accolades as a fund that
generally kept up with the market but with considerably less risk, 1999 was a
world turned upside down. We "fessed up" to our own errors in our year-end
report, but as time passes the historical extremes between momentum and value
investing that prevailed in 1999 have become strikingly apparent. We strongly
believe that 2000 presents a unique opportunity for investors to benefit from
substantial outperformance in the long-ignored non-tech and non-telecom areas of
the market. In fact, the fund is more fully invested now than it has been in
many years, which means that we've been finding a considerable amount of value
not just in financials but in other sectors as well. CVS Drugstores constitutes
over 5% of the fund, health care makes up about 5%, and fast-growing Dollar
General weighs in at 3.9%. We recently took a small position in Home Depot at
$46 (it has grown earnings at a 25% pace for the past several years).
Overall, we're pleased that Vontobel U.S. Value Fund has a P/E of about 18 X,
versus about 23 X for the market, and that the fund is not overly exposed to
cyclical or technology issues that could be adversely impacted if Greenspan
accidentally slows the economy down too much.
Has value investing now come back into favor and will it stay in favor for many,
many years, as it did after the bursting of the "Nifty 50" bubble in the 1970s?
At the very least, we believe that the conditions for sustained outperformance
by the kinds of companies in which we seek to invest have rarely been so
propitious.
Edwin Walczak, Fund Manager
July 6, 2000
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Vontobel U.S. Value Fund
Schedule of Portfolio Investments
June 30, 2000 (Unaudited)
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Number of Market
Shares Security Description Value
---------- -------------------- ------------
COMMON STOCK: 94.55%
BANKS: 5.37%
103,213 California Center Bank* $ 1,748,170
26,500 Wells Fargo & Company 1,026,875
------------
2,775,045
------------
DIVERSIFIED COMMERCIAL SERVICES: 2.21%
63,500 IMS Health Inc. 1,143,000
------------
DIVERSIFIED FINANCIAL SERVICES: 14.73%
72,724 Fannie Mae 3,795,284
94,200 Freddie Mac 3,815,100
------------
7,610,384
------------
DRUG RETAIL: 5.19%
67,000 CVS Corp. 2,680,000
------------
FOOD RETAIL: 2.65%
41,200 Albertsons, Inc. 1,369,900
------------
GENERAL MERCHANDISE STORES: 3.90%
103,250 Dollar General 2,013,375
------------
HEALTH CARE FACILITIES: 2.85%
113,000 Health Management Assn., Inc.* 1,476,063
------------
HOME FURNISHINGS: 2.06%
44,400 Ethan Allen Interiors, Inc. 1,065,600
------------
HOME IMPROVEMENT RETAIL: 3.92%
9,500 Home Depot 474,406
73,200 Sherwin-Williams 1,550,925
------------
2,025,331
------------
INDUSTRIAL MACHINERY: 2.73%
111,800 Watts Industries "A" 1,411,475
------------
LIFE & HEALTH INSURANCE: 6.65%
86,436 UNUMProvident Corp. 1,734,122
69,000 Torchmark Corp. 1,703,437
------------
3,437,559
------------
MULTILINE INSURANCE: 10.61%
53 Berkshire Hathaway Class A* 2,851,400
175,300 Horace Mann Educators Corp. 2,629,500
------------
5,480,900
------------
PERSONAL PRODUCTS: 1.69%
25,000 Gillette Co. 873,438
------------
PROPERTY/CASUALTY INSURANCE: 21.86%
63,000 Ace Ltd. 1,764,000
21,600 Chubb Corp. 1,328,400
86,500 IPC Holdings Ltd.* 1,211,000
122,900 Mercury General Corp. 2,903,512
145,225 Old Republic International Corp. 2,396,213
38,900 RenaissanceRe Holdings Ltd. 1,694,581
------------
11,297,706
------------
PUBLISHING AND PRINTING: 5.52%
20,000 Gannett Co. 1,196,250
31,100 Knight Ridder, Inc. 1,654,131
------------
2,850,381
------------
RESTAURANTS: 2.61%
41,000 McDonalds Corp.* 1,350,438
------------
Total Investments:
(Cost: $52,177,725)** 94.55% $ 48,860,595
Other assets, net 5.45% 2,815,145
------- ------------
NET ASSETS 100.00% $ 51,675,740
======= ============
*Non-income producing
**Cost for Federal income tax purposes is $52,177,725 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 2,625,737
Gross unrealized depreciation (5,942,867)
------------
Net unrealized depreciation $(3,317,130)
============
See Notes to Financial Statements
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VONTOBEL U.S. VALUE FUND
Statement of Assets and Liabilities
June 30, 2000(Unaudited)
-------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $52,177,725)(Notes 1&3) $48,860,595
Cash 2,714,237
Receivables:
Capital stock sold $ 41,824
Dividends receivable 18,558
Investments sold 127,503
--------
187,885
Other assets 32,050
------------
TOTAL ASSETS 51,794,767
------------
LIABILITIES
Payables:
Capital stock redeemed 32,228
Investment management fees 43,960
Accrued expenses 42,839
-------
TOTAL LIABILITIES 119,027
------------
NET ASSETS $ 51,675,740
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($51,675,740/3,776,682 shares outstanding) $ 13.68
============
At June 30, 2000 there were 50,000,000 shares of $.01 par value stock authorized
and components of net assets are:
Paid in capital $ 65,667,295
Net investment income 83,255
Net unrealized loss on investments (3,317,130)
Accumulated net realized loss on investments (10,757,680)
------------
Net Assets $ 51,675,740
============
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Value Fund
STATEMENT OF OPERATIONS
Six months ended June 30, 2000 (Unaudited)
Investment Income
Income
Interest $ 93,570
Dividend 458,990
--------
Total income $ 552,560
------------
Expenses
Investment management fees (Note 2) 275,286
Recordkeeping and administrative service
(Note 2) 57,057
Shareholder servicing and reports (Note 3) 51,960
Transfer agent fees (Note 2) 27,347
Custodian and accounting fees (Note 3) 16,415
Filing and registration fees (Note 2) 9,056
Legal and audit fees 16,031
Other 16,153
--------
Total expenses 469,305
------------
Net investment income 83,255
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (7,921,369)
Net change in unrealized loss on investments 4,038,043
------------
Net loss on investments (3,883,326)
------------
Net decrease in net assets resulting from operations $ (3,800,071)
============
See Notes to Financial Statements
<PAGE>
VONTOBEL U.S. VALUE FUND
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31, 1999
(Unaudited)
---------------- -----------------
OPERATIONS
Net investment income $ 83,255 $ 529,027
Net realized loss on investments (7,921,369) (2,836,311)
Change in unrealized loss on investments 4,038,043 (18,597,297)
----------- -----------
Net decrease in net assets resulting
from operations (3,800,071) (20,904,581)
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income ($.-, and $.11 per
share, respectively) - (725,107)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting from
capital share transactions* (16,004,252) (107,353,117)
----------- -----------
Net decrease in net assets (19,804,323) (128,982,805)
Net assets at beginning of period 71,480,063 200,462,868
----------- -----------
NET ASSETS at the end of period $51,675,740 $71,480,063
=========== ===========
*A summary of capital share transactions follows:
Six months ended
June 30, 2000 Year ended
(Unaudited) December 31,1999
--------------------- -----------------------
Shares Value Shares Value
-------- ------- -------- -------
Shares sold 798,039 $11,031,717 1,958,018 $31,261,054
Shares reinvested from
distribution - - 44,006 664,930
Shares redeemed (2,030,847) (27,035,969) (8,975,932) (139,279,101)
--------- ---------- --------- -----------
Net decrease (1,232,808) $(16,004,252) (6,973,908) $(107,353,117)
========= ============ ========= =============
See Notes to Financial Statements
<PAGE>
VONTOBEL U.S. VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six months
ended Years ended December 31,
June 30, 2000 ---------------------------------------
(Unaudit) 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value, beginning of period $14.27 $16.73 $16.51 $13.78 $13.25 $10.26
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.02 0.07 0.22 0.10 0.17 0.05
Net realized and unrealized gain (loss) on
investments (0.61) (2.42) 2.06 4.61 2.65 4.09
------ ------ ------ ------ ------ ------
Total from investment operations (0.59) (2.35) 2.28 4.71 2.82 4.14
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net investment income - (0.11) (0.16) (0.10) (0.19) (0.04)
Distributions from realized gain on
investments - - (1.90) (1.88) (2.10) (1.11)
------ ------ ------ ------ ------ ------
Total distributions - (0.11) (2.06) (1.98) (2.29) (1.15)
------ ------ ------ ------ ------ ------
Net asset value, end of period $13.68 $14.27 $16.73 $16.51 $13.78 $13.25
====== ====== ====== ====== ====== ======
Total Return (4.13%) (14.07%) 14.70% 34.31% 21.28% 40.36%
Ratios/Supplemental Data
Net assets, end of period(000's) $51,676 $71,480 $200,463 $203,120 $69,552 $55,103
Ratio to average net assets (A)
Expenses - (B) 1.70%* 1.87% 1.46% 1.61% 1.48% 1.65%
Expenses - net (C) 1.70%* 1.87% 1.45% 1.58% 1.43% 1.50%
Net investment income 0.30%* 0.40% 0.93% 0.72% 0.63% 0.38%
Portfolio turnover rate 59.59% 66.62% 122.71% 89.76% 108.36% 95.93%
</TABLE>
* Annualized
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .02% in 1999, 0.01% 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.
(C) Expense ratio-net reflects the effect of the custodian fee credits, the Fund
received.
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Value Fund
Notes to the Financial Statements
June 30, 2000
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NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel U.S. Value Fund (the"Fund")
is a series of Vontobel Funds, Inc. ("VFI") which is registered under The
Investment Company Act of 1940, as amended, as a non-diversified open-end
management company. The Fund was established in March 30, 1990 as a series of
VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock. The following is a summary of significant accounting
policies consistently followed by the Fund. The policies are in conformity with
generally accepted accounting principles.
The investment objective of the Fund is to achieve long-term capital returns of
the broad market by investing in a continuously managed non-diversified
portfolio of U.S. equity securities.
A. Security Valuation. Investments in securities traded on a national securities
exchange or included in the NASDAQ National Market System are valued at the last
reported sales price; other securities traded in the over-the-counter market and
listed securities for which no sale is reported on that date are valued at the
last reported bid price. Short-term investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required. The Fund has capital loss carryforwards
available to offset future capital gains, if any, of $730,305 which expires in
2007. Additionally, the Fund incurred capital losses of $2,106,006 after October
31, 1999 which are deemed, under income tax regulations, to occur on the first
day of the Fund's next fiscal year (January 1, 2000).
C. Security Transactions and Dividends. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
D. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA Inc.("VUSA")
provides investment services for an annual fee of 1.00% on the first $100
million of average daily net assets and .75% on average daily net assets over
$100 million. VUSA will waive its advisory fee or reimburse the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to
1.75% of average daily net assets.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $69,945 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $57,347 for its services for the six months ended June
30, 2000.
To discourage short-term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short-term
investing, the Fund charges a 2% fee on such redemption of shares held less than
three months. Such fees amounted to $91,122, for the six months ended June 20,
2000, representing .16% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS--Purchases and sells of securities other than short-term
notes aggregated $31,016,326 and $37,654,320, respectively.
NOTE 4 - DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income
and realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences are primarily due to differing
treatments for equalization and post-October capital losses.
<PAGE>
VONTOBEL INTERNATIONAL EQUITY FUND
SEMI-ANNUAL REPORT 2000
Dear Shareholder:
Vontobel International Equity Fund lost 12.07% during the first half of 2000, as
its TMT holdings gave back some of the gains that accounted for the fund's
outperformance last year. The fund's net asset value at June 30th was $24.63,
and net assets totaled $160,767,310, vs. $28.01 and $192,537,291, respectively,
at December 31, 1999. The fund's benchmark, Morgan Stanley Capital
International's EAFE Index, posted a first-half decline of 4.05%.
As bottom-up investors, we generally avoid making frequent changes from a
country or sector standpoint. Last year's strong returns posed a valuation risk
that exceeded our margin of safety. At year-end 1999, the fund was valued at 40x
PE with EPS growth of 26%. We reduced our TMT weighting by approximately 14% in
the first quarter and another 10% in the second, but maintain approximately 24%
in TMT firms whose growth prospects and market leadership, we believe, justify
their selling at a premium to intrinsic worth. For some of our core TMT
positions like Vodafone and Philips, business conditions are better than ever,
with top-line growth and operating margins expanding at double-digit rates. The
sector rebalancing didn't affect the fund's growth profile; based on our
estimates at June 30 it was valued at 24x with EPS growth of 22%.
We did most of our trimming in Japan, last year's best-performing market and the
worst performer year to date (-14%). We sold NTT Data, where government
contracts made earnings and revenue estimates less predictable than in the past,
and reduced such core positions as Murata, Rohm, NTT DoCoMo, all great companies
whose position size had grown beyond our risk management parameters due to their
exceptional performance in 1999. One new purchase was Fujitsu, a major producer
of flash memory chips, trading at a 10% discount to intrinsic worth. The
Japanese stocks in our investable universe remain highly attractive: sales
growth is up 5%, average margins are rising, operating profits are up 12% and
recurring profits up 23%. At June 30 the fund had an underweight of
approximately 21% in Japan, vs. 27% for the MSCI EAFE Index.
Due to the multiple contraction in TMT stocks, we were able to buy back or
invest in some high-quality firms with consistent growth numbers, like SAP, NTT
DoCoMo and ATOS, France's second-largest IT consultant and the fifth-largest in
Europe. SAP, which we had sold back in January, is expected to deliver 20%
top-line revenue growth in ERP (enterprise resource planning) and CRM (customer
relationship management). After two years of investment in personnel and
development, SAP should be able to maintain its global leadership, and its
partnership with Commerce One will expand its customer base. Having taken
profits in NTT DoCoMo, we added back to the position during its 40% selloff in
the second quarter. We're staying focused on investing in quality firms with
strong records in execution, solid financial records, and positive cash flow
numbers, and we control our risk by keeping our positions in these firms to only
about 1%-1.5% of portfolio assets at this point.
With the proceeds of our TMT sales, we increased our exposure to financials this
year by about 6%, by adding to some of our existing holdings like Credit Suisse,
Swiss Re, Allianz, Munich Re, Axa and establishing positions in the UK firms
Royal Bank of Scotland, Prudential and Abbey National. Royal Bank of Scotland,
purchased at a discount to book, has an 8-year track record of consistent
revenue growth is growing earnings at over 15%. Due to multiple expansion or
stock price appreciation, our financial sector weighting is now higher than that
of the EAFE Index. At quarter end we reduced some of these holdings by realizing
profits, but we intend to hold on to our core positions in financial companies,
so long as they avoid asset provisioning, credit deterioration and revenue risk.
Among our largest financial holdings are Axa and Aegon, the world's best-run
life insurance firms after AIG in the US.
Historically we've been able to add value through our currency hedging
techniques, which have contributed to returns and reduced overall portfolio
volatility, but this year the technical tools we use for currency hedging gave
us a number of false signals. Despite the collapse in us financial markets
driven by the Nasdaq and a reacceleration of growth in europe, the dollar,
defying logic, remained strong. We went from being fully unhedged to fully
hedged, which we define as a 50% hedge ratio against the euro, swiss franc, yen
and pound sterling. At June 30 the fund was hedged only against the pound
sterling.
Day-to-day sentiment changes but our investment process stays the same. We
invest in firms with defensible franchises that are growing at much more
reliable rates than their competitors, and we invest with a 5-year time horizon.
The environment for bottom-up investors has become increasingly challenging, but
we haven't lacked for highly attractive candidates for our investable universe.
This year we added about 30 new stocks that we've been following over the last
3-5 years; they all have strong franchises and are generating better than 15%
growth in cash flow and earnings. While our repositioning of the fund's holdings
has not yet benefited returns, the fundamentals in international markets remain
very attractive. Given their ongoing restructuring and enhanced use of balance
sheets, which for the most part are much stronger than those of their US
counterparts, we believe our holdings have great potential for improved
profitability, as expressed in higher returns on equity and returns on capital.
Fabrizio Pierallini, Fund Manager
Rajiv Jain, Associate Fund Manager
July 6, 2000
<PAGE>
VONTOBEL INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
Number of Market
Shares Security Description Value
--------- --------------------- ---------------
Common Stock: 99.56%
Finland: 2.92%
72,400 Nokia ADR (Electrical & Electronics) $ 3,615,475
34,400 Perlos OYJ (Electronic Components & Instruments) 1,084,668
---------------
4,700,143
---------------
France: 9.99%
10,070 Altran Technologies (Multi-Industry) 1,967,459
12,500 Atos SA* (Business & Public Services) 1,166,935
12,000 Axa S.A. (Insurance) 1,886,148
4,038 CAP Gemini (Business & Public Services) 709,697
19,700 Carrefour Super Marche (Merchandising) 1,343,661
32,895 CGIP (Multi-Industry) 1,397,576
11,900 Dassault Systems SA (Business & Public Services) 1,107,521
1,200 L'OREAL* (Health & Personal Care) 1,036,810
2,200 Publicis SA (Business & Public Services) 861,341
8,800 Sidel Bearer (Machinery & Engineering) 712,126
11,700 Societe Generale A (Banking) 702,161
19,500 StMicroelectronics NV (Electronic Components &
Instruments) 1,225,996
12,715 Total SA Cl B (Energy Sources) 1,945,237
---------------
16,062,668
---------------
Germany: 4.42%
5,189 Alliance AG (Insurance) 1,878,356
35,294 Bayerische Motoren Werke (Automobiles) 1,062,426
88 Munchener Ruckversicherung Wts 6/03/02* (Insurance) 7,335
5,676 Munchener Ruckversicherung (Insurance) 1,797,813
9,500 Prosieben Media AG PFD (Broadcasting & Publishing) 1,185,511
6,375 Sap AG PFD (Data Processing & Reproduction) 1,175,091
---------------
7,106,532
---------------
Great Britain: 20.57%
82,000 31 Group PLC (Banking) 1,685,499
61,000 Abbey National (Banking) 728,874
137,960 Amvescap (Financial Services) 2,211,844
39,000 Astrazeneca Group PLC (Health & Personal Care) 1,819,764
23,398 British Petroleum PLC Sponsored ADR * (Energy Sources) 1,323,449
104,100 Capita Group PLC (Business & Public Services) 2,545,987
190,000 Compass Group PLC (Business & Public Services) 2,501,599
29,821 CRH Ord (Building Materials & Components) 538,322
335,809 Dixons Group (Merchandising) 1,366,281
59,000 Glaxo Wellcome PLC (Health & Personal Care) 1,719,607
180,000 Hays PLC (Business & Public Services) 1,003,241
140,000 HSBC Holdings (Banking) 1,599,771
309,560 Invensys PLC (Electronic Components & Instruments) 1,161,160
480,000 Lasmo ORD (Energy Sources) 1,020,030
52,000 Logica PLC (Business & Public Services) 1,230,086
84,840 Misys PLC (Business & Public Services) 716,028
65,959 Provident Financial Group PLC (Financial Services) 693,353
120,000 Prudential PLC (Insurance) 1,756,920
80,000 Royal Bank of Scotland Group ORD (Banking) 1,338,260
700,419 Vodafone Group PLC (Telecommunications) 2,828,555
224,800 WPP Group (Business & Public Services) 3,281,097
---------------
33,069,727
---------------
Italy: 4.02%
162,500 Eni SPA (Energy Sources) 936,525
599,700 Parmalat Finanziaria SPA (Food & Household Products) 844,343
53,000 Pininfarina Spa (Automobiles) 891,615
53,000 Pirelli (Industrial Components) 1,705,869
650,000 Telecom Italia Mobile (Telecommunications) 1,243,524
61,300 Telecom Italia (Telecommunications) 840,879
---------------
6,462,755
---------------
Ireland: 1.72%
100,306 Allied Irish Banks PLC (Banking) 896,273
38,700 Elan Corporation ADR * (Health & Personal Care) 1,874,531
---------------
2,770,804
---------------
Netherlands: 6.83%
11,048 Aegon NV (Insurance) 393,585
60,462 Aegon NV ADR (Insurance) 2,146,606
47,700 ASM Lithography Holdings NV * (Electronic Component
& Instruments) 2,045,665
37,500 Getronics NV (Business & Public Services) 576,918
31,000 Heineken NV (Beverages & Tobacco) 1,882,576
55,760 Koninklijke Philips (Appliances & Household Durables) 2,623,979
28,500 Unilever NV (Food & Household Products) 1,304,514
---------------
10,973,843
---------------
Norway: 1.70%
119,500 Nycomed Amersham (Health & Personal Care) 1,154,589
59,700 Tomra Systems AG (Machinery & Engineering) 1,581,020
---------------
2,735,609
---------------
Denmark 0.97%
9,200 Novo-Nordisk AS B (Health & Personal Care) 1,562,109
---------------
Spain: 1.18%
86,000 Banco Santander Central Hispano (Banking) 905,256
46,000 Telefonica De Espana* (Telecommunications) 985,941
---------------
1,891,197
---------------
Sweden: 7.40%
6,140 Assa Abloy Sub Shs (Building Materials & Components) 122,507
122,820 Assa Abloy Series B (Building Materials & Components) 2,460,960
117,100 Ericsson (LM) Tele Series B Free (Electrical &
Electronics) 2,313,208
47,800 Investor AB Class B (Multi-Industry) 652,044
22,100 Modern Times Group AG* (Broadcasting & Publishing) 1,050,761
285,000 Nordic Baltic Holding AB (Banking) 2,145,501
55,600 Securitas AB Ser B (Business & Public Services) 1,177,006
74,600 Skandia Forsakrings AB Free (Insurance) 1,967,692
---------------
11,889,679
---------------
Switzerland: 9.54%
15,000 Credit Suisse Group (Banking) 2,980,163
485 Givaudan AG* (Food & Household Products) 147,433
800 Nestle AG (Food & Household Products) 1,599,216
1,000 Pharma Vision * (Financial Services) 667,361
10,000 PSP Swiss Property AG* (Insurance) 918,386
5,000 Rieter Holding AG (Machinery & Engineering) 1,683,708
75 Roche Holdings AG (Health & Personal Care) 792,338
330 Roche Holdings Genusscheine* (Health & Personal Care) 3,208,474
800 Swiss Reinsurance (Insurance) 1,628,605
860,000 Zurcher KTBK 9/15/00 WT CHF* (Banking) 558,133
2,350 Zurich Allied* (Insurance) 1,159,676
---------------
15,343,493
---------------
Australia: 3.17%
124,216 Computershare LTD CPU (Business & Public Services) 637,275
59,553 MacQuarie Bank LTD. (Banking) 927,614
764,200 Powerlan Limited* (Business & Public Services) 796,907
225,500 Westfield Holdings LTD (Real Estate) 1,546,529
153,000 Woodside Petroleum LTD (Energy Sources) 1,187,930
---------------
5,096,255
---------------
Hong Kong: 1.92%
161,400 Dah Sing Financial Services (Banking) 650,114
85,000 Hutchison Whampoa (Multi-Industry) 1,068,565
209,000 Smartone Telecom Hldgs Ltd (Telecommunications) 462,478
125,000 Sun Hung Kai Properties (Real Estate) 897,954
---------------
3,079,111
---------------
Japan: 20.72%
22,500 Asatsu DK Inc (Business & Public Services) 922,088
14,000 Benesse Corporation (Business & Public Services) 969,429
50 Credit Saison Co. (Financial Services) 1,159
16,000 Fuji Photo Film Co. (Recreation & Other Consumer
Goods) 654,199
71,000 Fujitsu (Data Processing & Reproduction) 2,454,850
5,500 Fujitsu Support and Service Inc. (Business & Public
Services) 544,067
2,000 Hikari Tsushin Inc (Telecommunications) 81,963
10,000 Hoya Co. (Electronic Components & Instruments) 895,002
33,000 Mikuni Coca Cola (Beverages & Tobacco) 478,468
14,500 Murata Manufacturing Co. Ltd. (Electronic Components
& Instruments) 2,079,137
30,000 Nichiei Co Ltd (Financial Services) 491,780
12,000 Nintendo Co. Ltd. (Recreation & Other Consumer Goods) 2,093,740
16 Nippon Tel and Tel (Telecommunications) 212,539
2,100 Nippon Television Network (Broadcasting & Publishing) 1,365,114
88 NTT Mobile Comm Network Inc (Telecommunications) 2,379,387
10,000 Rohm Co. Ltd. (Electronic Components & Instruments) 2,920,533
9,000 Ryohin Keikaku Co Ltd Jpy (Textiles & Apparel) 1,144,661
15,000 Secom Co (Business & Public Services) 1,095,200
13,000 Seven-Eleven Japan (Merchandising) 1,086,344
35,000 Shin-Etsu Chemical Co. (Chemicals) 1,773,988
6,400 Shohkoh Fund & Co (Banking) 1,441,048
15,200 Sony Corp. (Appliances & Household Durables) 1,417,683
40,000 Takeda Chemical Industries (Health & Personal Care) 2,622,827
42,000 Tokyo Broadcasting System, Inc. (Broadcasting
& Publishing) 1,812,238
12,000 Tokyo Electron Ltd. (Electronic Components &
Instruments) 1,641,528
140,000 Yasuda Fire & Marine Insurance (Insurance) 737,293
---------------
33,316,265
---------------
Malaysia: 0.30%
120,000 Malayan Banking Berhad (Banking) 486,316
---------------
Singapore: 2.19%
114,466 Datacraft Asia Ltd* (Business & Public Services) 1,007,301
85,000 DBS Group Holdings Limited (Banking) 1,092,330
90,500 Singapore Press Holdings Ltd. (Broadcasting &
Publishing) 1,414,472
---------------
3,514,103
---------------
Total Investments:
(Cost: $124,925,842) ** 99.56% $ 160,060,609
Other assets, net 0.44% 706,701
---------- ---------------
Net Assets 100.00% $ 160,767,310
========== ===============
* Non-income producing
** Cost for Federal income tax purposes is $124,925,842 and net unrealized
appreciation consists of:
Gross unrealized appreciation $44,146,349
Gross unrealized depreciation (9,011,582)
---------------
Net unrealized appreciation $35,134,767
===============
ADR--Security represented is held by the custodian bank in the form of American
Depositary Receipts.
Forward Currency Contracts Outstanding
June 30, 2000 (Unaudited)
Face Value Contract Delivery Appreciation/
(U.S. Dollar) Price Date Depreciation
------------- -------- -------- ----------------
Euro $ 20,366,500 $ 0.9257 07/27/00 $ 13,200
Japanese Yen 10,214,031 107.6950 08/22/00 (777,176)
Swiss Franc 5,839,450 1.7124 08/02/00 (90,517)
Great Britain Pound 12,602,100 1.4826 08/22/00 (270,453)
------------ ----------
$ 49,022,081 ($1,124,946)
============ ============
See Notes to Financial Statements
<PAGE>
VONTOBEL INTERNATIONAL EQUITY FUND
JUNE 30, 2000
INDUSTRY PERCENTAGE BASED ON NET ASSETS (UNAUDITED)
-------------------------------------------------------------------------------
Appliances & Household Durables 2.51%
Automobile 1.22%
Banking 11.28%
Beverages & Tobacco 1.47%
Broadcasting & Publishing 4.25%
Building Materials & Components 1.94%
Business & Public Services 14.21%
Chemicals 1.10%
Components & Instruments 0.56%
Data Processing & Reproduction 2.26%
Electrical & Electronics 3.69%
Electronic Components & Instruments 7.56%
Energy Sources 3.99%
Financial Services 2.53%
Food & Household Products 2.42%
Health & Personal Care 9.82%
Industrial Components 1.06%
Insurance 10.13%
Machinery & Engineering 2.48%
Merchandising 2.36%
Multi-Industry 3.16%
Real Estate 1.52%
Recreation & Other Consumer Goods 1.71%
Telecommunications 5.62%
Textiles & Apparel 0.71%
------
99.56%
Other assets, net 0.44%
------
Net assets 100.00%
======
<PAGE>
Vontobel International Equity Fund
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
------------------------------------------------------------------------------
ASSETS
Investments at value (identified
cost of $124,925,842)(Notes 1 & 3) $160,060,610
Cash (including foreign currencies) 1,591,769
Receivables:
Capital stock sold $ 263,553
Dividends 246,074
Forward currency contracts 49,022,081
-----------
49,531,708
Other assets 35,113
-------------
TOTAL ASSETS 211,972,488
-------------
LIABILITIES
Forward currency contracts payable at market
value (proceeds $49,022,081) 50,147,027
Investment management fees payable 120,304
Capital stock redeemed 31,637
Accrued expenses 152,922
------------
TOTAL LIABILITIES 50,451,890
-------------
NET ASSETS $160,767,310
=============
Net Asset Value, Offering and Redemption Price Per Share
($160,767,310/6,527,996 shares outstanding) $24.63
=============
At June 30, 2000 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $98,199,142
Accumulated net realized gain on investment and
and foreign currency transactions 28,493,251
Undistributed net investment income 67,030
Net unrealized gain on investments
and currency transactions 34,007,887
-------------
Net Assets $160,767,310
=============
See Notes to Financial Statements
<PAGE>
Vontobel International Equity Fund
Statement of Operations
For the six months ended June 30, 2000 (Unaudited)
-----------------------------------------------------------------------------
Investment Income
Income:
Interest $ 83,835
Dividend (Net of foreign tax
withheld of $129,479) 1,038,620
Other 150,807
------------
Total income $1,273,262
----------
Expenses:
Investment management fees (Note 2) 785,357
Recordkeeping and administrative services (Note 3) 176,277
Custodian and accounting fees (Note 3) 134,748
Shareholder servicing and reports (Note 2) 24,963
Transfer agent fees (Note 2) 19,540
Legal and audit fees 40,798
Filing and registration fees (Note 2) 10,231
Other 22,169
------------
Total expenses 1,214,083
Custody credits (Note 3) (7,851)
---------------
Expenses, net 1,206,232
---------------
Net investment income 67,030
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 31,554,559
Net realized loss on foreign currency
conversions and forward currency contracts (3,061,308)
Change in unrealized gain on investments
and foreign currencies (51,135,051)
---------------
Net loss on investments (22,641,800)
---------------
Net decrease in net assets resulting from operations ($22,574,770)
===============
See Notes to Financial Statements
<PAGE>
Vontobel International Equity Fund
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31, 1999
(Unaudited)
---------------- -----------------
OPERATIONS
Net investment income $ 67,030 $ 41,079
Net realized gain on investments
and foreign currency transactions 28,493,251 24,547,677
Net unrealized gain (loss)
of investments and currencies (51,135,051) 41,562,567
------------ -----------
Net increase (decrease) in net assets
resulting from operations (22,574,770) 66,151,323
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ($ - and $0.05 per
share, respectively) - (345,700)
Net realized gain from investment transactions
($ - and $1.25 per share, respect - (8,366,747)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting from
capital share transactions* (9,195,211) (26,834,678)
------------ -----------
Net increase (decrease) in net assets (31,769,981) 30,604,198
Net assets at beginning of period 192,537,291 161,933,093
------------ -----------
NET ASSETS at end of period $160,767,310 $192,537,291
============ ============
*A summary of capital share transactions follows:
Six months ended
June 30, 2000 Year ended
(Unaudited) December 31,1999
--------------------- -------------------------
Shares Value Shares Value
-------- ------- -------- -----------
Shares sold 1,679,564 $43,455,503 11,858,769 $247,523,446
Shares reinvested from
distributions - - 351,845 8,229,657
Shares redeemed (2,024,843) (52,650,714) (13,362,079) (282,587,781)
---------- ----------- ----------- ------------
Net decrease (345,279) $(9,195,211) (1,151,465) $(26,834,678)
========== =========== =========== ============
See Notes to Financial Statements
<PAGE>
Vontobel International Equity Fund
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six months
ended Years ended December 31,
June 30, 2000 ----------------------------------------
(Unaudit) 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value, beginning of period $28.01 $20.18 $18.15 $18.22 $17.13 $16.23
------ ------ ------ ------ ------ ------
Income from investment operations-
Net investment income (loss) 0.01 0.06 0.01 (0.03) 0.03 0.16
Net realized and unrealized gain (loss)
on investments (3.39) 9.07 2.98 1.74 2.85 1.61
------ ------ ------ ------ ------ ------
Total from investment operations (3.38) 9.13 2.99 1.71 2.88 1.77
------ ------ ------ ------ ------ ------
Less distributions-
Distributions from net income - (0.05) - - (0.03) (0.17)
Distributions from realized gains - (1.25) (0.96) (1.78) (1.76) (0.70)
------ ------ ------ ------ ------ ------
Total distributions - (1.30) (0.96) (1.78) (1.79) (0.87)
------ ------ ------ ------ ------ ------
Net asset value, end of the period $24.63 $28.01 $20.18 $18.15 $18.22 $17.13
====== ====== ====== ====== ====== ======
Total Return (12.07%) 46.52% 16.77% 9.19% 16.98% 10.91%
Ratios/Supplemental Data
Net assets, end of period (000's) $160,767 $192,537 $161,933 $160,821 $151,710 $130,505
Ratio to average net assets-
Expenses (A) 1.38%* 1.28% 1.40% 1.56% 1.60% 1.63%
Expenses-net (B) 1.37%* 1.27% 1.36% 1.50% 1.39% 1.53%
Net investment income (loss) 0.08%* 0.03% 0.06% (0.17%) 0.15% 0.41%
Portfolio turnover rate 42.12% 37.91% 41.51% 38.45% 54.58% 68.43%
</TABLE>
* 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.
See Notes to Financial Statements
<PAGE>
Vontobel International Equity Fund
Notes to the Financial Statements
June 30, 2000
-------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel International Equity Fund
(the "Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in December, 1984 as a series of
VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The objective of the Fund is to achieve capital appreciation by investing in a
carefully selected and continuously managed diversified portfolio consisting
primarily of equity securities of issuers located the Europe and the Pacific
Basin.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments traded on stock exchanges are valued at the
last quoted sales price on the exchange on which the securities are traded as of
the close of business on the last day of the period or, lacking any sales, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated by or under
the authority of the Fund's Board of Directors. Securities traded in the
over-the-counter market are valued at the last available sale price in the
over-the-counter market prior to time of valuation. Securities for which market
quotations are not readily available are valued on a consistent basis at fair
value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund. Temporary investments in U.S. dollar denominated short-term investments
are valued at amortized cost, which approximates market. Portfolio securities
which are primarily traded on foreign exchanges are generally valued at the
closing price on the exchange on which they are traded, and those values are
then translated into U.S. dollars at the current exchange rate.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions and Dividends. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments. Foreign securities and currency
transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Forward Currency Contracts. Forward sales of currencies are undertaken to
hedge certain assets denominated in currencies that Vontobel USA Inc. ("VUSA"),
the Fund's investment advisor, expects to decline in value in relation to other
currencies. A forward currency contract is an agreement between two parties to
buy or sell a currency at a set price on a future date. Forward contracts are
marked to market daily and the change in market value is recorded by the fund as
an unrealized gain or loss. When a contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. The Fund
could be at risk if the counter parties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably.
F. Distribution to Shareholders. Distributions from net investment income and
realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations that may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, net operating losses and post-October capital and
currency losses.
G. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA Inc.("VUSA")
provides investment services for an annual fee of 1.00% on the first $100
million of average daily net assets and .75% on average daily net assets over
$100 million.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $187,060, for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $39,540, for its services for the six months ended June
30, 2000.
To discourage short term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short term
investing, the Fund charges a 2% fee on such redemption of shares held less than
three months. Such fees amounted to $326,807, for the six months ended June 30,
2000, representing .18% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sells of securities other than
short-term notes aggregated $73,790,263 and $82,178,901, respectively. The
custodian has provided credits in the amount of $7,851 against custodian and
accounting charges based on credits on cash balances of the Fund.
NOTE 4-SECURITIES LENDING--At June 30, 2000 securities valued at $16,385,827
were on loan to brokers. For collateral, the Fund received shares of a
short-term global investment trust valued at $7,502,857. Income from securities
lending amounted to $11,115 for the six months ended June 30, 2000. The risks to
the Fund of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
<PAGE>
VONTOBEL EASTERN EUROPEAN EQUITY FUND
SEMI-ANNUAL REPORT 2000
Dear Shareholder:
After a strong first quarter during which they mostly posted double-digit US
dollar returns, Eastern European markets mirrored the declines of the major
developed markets during the second quarter of 2000 (in particular that of the
NASDAQ -- many of the Eastern European indices are dominated by telecom
operators). Hungary, Poland and the Czech Republic started to lose ground from
the end of March when the NASDAQ peaked. The Russian market managed to resist
market pressures up to mid-May but then collapsed, succumbing to negative
worldwide sentiment and some post-election profit taking.
Vontobel Eastern European Equity Fund declined 6.76% in the first six months of
2000, as the second quarter's rout in TMT stocks eradicated the fund's
first-quarter 20.5% gain. The fund's net asset value at June 30th was $8.69, and
net assets totalled $26,948,920, vs. $9.32 and $33,644,024, respectively, at
December 31, 1999. Through June 30, 2000, Nomura Research Institute's
Composite-11 Index provided a total return of 1.41%.
The fund's underperformance of the benchmark during the first half was due to
its overweight position in Hungary and underweight in Poland, one of the
region's best performers in relative terms due to its first quarter gains in
TMT. The fund's performance was also negatively impacted by the ongoing slide in
the euro, which lost 7% against the US dollar in the first half. Over the past
12 months, however, the fund outperformed its benchmark by 0.5% due to its
overweight positions in Russia and Hungary and its underweight in Poland.
The performance of the region's major markets (in US$) for the first six months
of the year is given below:
Russia (RTS index) -2.2%
Czech Republic (PX50 index) 3.4%
Poland (WIG index) 3.2%
Hungary (BUX index) -12.0%
Source: Bloomberg (1/1/00 - 6/30/00)
We maintain a tactical overweight in Russia, where we continued to feel
confident enough about the composition of Vladimir Putin's new government and
the pace of reforms to increase our weighting during the first six months,
principally by adding to our positions in Mosenergo, the Moscow power company;
Sibneft, a vertically integrated oil company; Unified Energy Systems, the
Russian electricity grid; and Vimpel Communications, a Moscow cellular operator.
At June 30 the fund had approximately 31% of portfolio assets allocated to
Russia, vs. 23% at year end.
Our second-favorite market remains Hungary, although it's been a laggard in
terms of its year-to-date market performance. We believe it's still the best
positioned among Central European countries to join the European Union. Its
extraordinary current account surplus for April of 20 million euros, versus an
expected deficit of 100 million euros, reflects the extent to which Hungary is
benefiting from accelerating European growth and, by contrast, the necessity for
the Polish government to adopt a strict, non-demagogic, economic discipline.
In Poland macro developments have generally been disappointing (worrying current
account figures, low export growth, higher than expected inflation). The
collapse of the coalition government underscores the reluctance of the AWS, the
political arm of the Solidarnosc Trade Union, to embrace an accelerated
restructuring process. If Poland wants to be among the first Eastern European
countries to join the European Union, it needs to start cutting subsidies to the
agricultural sector and imposing much stricter fiscal discipline. We reduced our
weighting in this market by 5% during the first half, selling our positions in
Bank Polska, Computerland and Prokom Software. We also locked in a gain of
approximately $1 per share in Exbud by tendering our holdings in a public bid by
Skanska, a Swedish construction company.
In the coming months the fortunes of Eastern European equity markets will
continue to depend on the evolution of international sentiment. From a
fundamental standpoint, we remain positive. The fact is, though, that the
NASDAQ's volatility, although it has no fundamental impact on the region, will
greatly influence the level of investor interest. However, after the recent drop
in the region's markets, valuations are again reaching very appealing levels,
providing the basis for a post-summer rally.
Fund NRI
Weightings Composite-11
Weightings
(6.30.00) (6.30.00)
Hungary 30.1% 18.7%
Poland 22.7% 42.5%
Croatia 5.0% 2.5%
Russia 31.3% 11.7%
Czech Rep. 4.5% 15.6%
Other (+ cash) 6.4% 9.0%
*Source: Nomura Research Institute
Luca Parmeggiani, Fund Manager
David Molnar, Associate Fund Manager
July 6, 2000
<PAGE>
EASTERN EUROPEAN EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
Number of Market
Shares Security Description Value
--------- -------------------- --------
Common Stocks: 96.55%
Croatia: 5.01%
133,000 Pliva D D GDR* (Medical-Drugs) $ 1,349,950
-----------
Czech Republic: 4.52%
16,400 Cesky Telecom AS Sponsored GDR Reg S*
(Telecom Services) 275,520
138,800 Komercni Banka AS Sponsored ADR* (Banking) 943,840
-----------
1,219,360
-----------
Estonia: 0.51%
1,206,800 Britannic Group PLC (Natural Resources) 136,896
-----------
Hungary: 29.94%
4,700 Brosodchem GDR Reg S (Chemicals) 143,350
39,925 Danubius Hotel & Spahuf * (Hotel) 767,311
18,600 Delmagyarorszagi Aramsz Sponsored GDR *
(Utilities-Electric) 199,950
9,200 Egis Gyogysergyar (Medical-Drugs) 383,937
9,900 Gedeon Richter Ltd GDR Reg S (Medical Drugs) 524,700
34,127 Magyar Olay Es Gazipari RT (Oil and Gas) 469,110
65,300 Matav RT ADR (Telecommunications) 2,248,769
2,500 North American Bus Industries * (Auto-Trucks) 53,126
26,000 OTP Bank GDR (Banking) 1,313,000
37,700 Pannonplast Muanyagipari (Construction Materials) 813,565
31,300 Pick Szeged (Food-Meat) 1,152,109
-----------
8,068,927
-----------
Poland: 22.60%
2,550 Bank Slaski (Banking) 137,015
20,500 Elektrim SA (Engineering) 225,947
10,000 Europejski Fundasz Leas GDR*
(Finance-Leasing Company) 161,500
20,000 KGHM Polska Midez SA* (Metals) 147,417
50,000 KGHM Polska Miedz GDR* (Metals) 743,750
23,000 Mostostal Warzawa SA* (Construction) 75,786
75,000 Mostostal Zabrze-Holding SA (Construction) 237,658
61,300 Orbis SA* (Hotels) 474,354
52,000 Polski Koncern Nafto GDR (Oil and Gas) 488,800
2,600 Powszechny Bank Kredy GDR (Banking) 57,200
392,000 Telekomunikacja Polska SA GDR*
(Telecommunications) 2,706,760
44,526 Zakalady Metali Lekkich * (Manufacturing) 633,895
-----------
6,090,082
-----------
Slovakia: 0.38%
8,600 Slovnaft AS* (Oil and Gas) 101,890
-----------
Russia: 33.59%
105,700 Tatneft Sponsored ADR Reg S (Oil and Gas) 1,027,932
23,000 Cores Russian CTFS YAR Telecom
(Telecommunications) 17,250
34,200 Lukoil Oil Co Sponsored ADR (Oil and Gas) 1,744,200
29,000 Mobile Telesystems Sponsored ADR*
(Telecommunications) 623,500
224,000 Mosenergo Sponsored ADR (Electric-Integrated) 840,000
7,500 Oil Co Lukoil Sponsored ADR F/Pfd Shs*
(Oil and Gas) 150,000
23,000 RAO Gazprom Sponsored ADR Reg S* (Oil and Gas) 161,000
6,100 RAO Unified Energy System ADR
(Electric-Distribution) 68,320
54,000 Rostelecom Long Distance&Intl Tl ADR
(Telecommunications) 729,000
131,000 Sibneft Sponsored ADR* (Oil) 314,400
106,000 Surgutneftegaz Sponsored ADR* (Oil and Gas) 1,378,000
136,300 Unified Energy Systems GDS (Utility-Electric) 1,526,560
21,300 Vimpel Communications Sponsored ADR*
(Telecommunications) 471,262
-----------
9,051,424
-----------
Total Investments:
(Cost: $31,106,627)** 96.55% $26,018,529
Other assets, net 3.45% 930,391
------------- -------------
Net Assets 100.00% $ 26,948,920
============= =============
* Non-income producing
** Cost for Federal income tax purposes is $31,106,627 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 1,030,217
Gross unrealized depreciation (6,118,315)
-----------------
Net unrealized depreciation $ (5,088,098)
-----------------
ADR--Security represented is held by the custodian bank in the form of American
Depositary Receipts.
GDR--Security represented is held by the custodian bank in the form of Global
Depositary Receipts.
GDS--Security represented is held by the custodian bank in the form of Global
Depositary Shares.
See Notes to Financial Statements
<PAGE>
VONTOBEL EASTERN EUROPEAN EQUITY FUND
JUNE 30, 2000
INDUSTRY PERCENTAGE BASED ON NET ASSETS (UNAUDITED)
-------------------------------------------------------------------------------
Automobile 0.20%
Banking 9.10%
Chemicals 0.53%
Building Materials & Components 4.18%
Machinery & Engineering 0.84%
Financial Services 0.60%
Food & Household Products 4.27%
Recreation & Other Consumer Goods 4.61%
Manufacturing 2.35%
Health & Personal Care 8.38%
Metals 3.31%
Natural Resources 0.51%
Energy Sources 21.65%
Telecommunications 26.24%
Utilities 9.78%
------
96.55%
Other assets, net 3.45%
------
100.00%
======
<PAGE>
Vontobel Eastern European Equity Fund
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $31,106,627)
(Notes 1 & 3) $26,018,529
Cash (including foreign currencies) 1,746,212
Receivables:
Capital stock sold $ 32,305
Dividends 82,955
Investments sold 19,530
-----------
134,790
Deferred organizational costs 8,873
----------------
TOTAL ASSETS 27,908,404
----------------
LIABILITIES
Payables:
Investments purchased 773,940
Investment management fees 29,628
Capital stock redeemed 7,198
Accrued expenses 148,718
-----------
TOTAL LIABILITIES 959,484
----------------
NET ASSETS $26,948,920
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($26,948,920/3,102,272 shares outstanding) $8.69
================
At June 30, 2000 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $75,768,334
Net unrealized loss on investments and foreign
currency transactions (5,087,759)
Accumulated deficit in undistributed net income (308,565)
Accumulated net realized loss on investments (43,423,090)
----------------
Net Assets $26,948,920
================
See Notes to Financial Statements
<PAGE>
Vontobel Eastern European Equity Fund
Statement of Operations
For the six months ended June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
Investment Income
Income:
Dividend (Net of foreign tax withheld of $24,425) $ 149,553
------------
Expenses:
Investment management fees (Note 2) $ 220,841
Recordkeeping and administrative services (Note 2) 35,334
Custodian and accounting fees (Note 3) 42,235
Transfer agent fees (Note 2) 43,889
Shareholder servicing and reports (Note 2) 37,674
Legal and audit fees 28,676
Filing and registration fees (Note 2) 6,035
Organizational costs 6,989
Other 24,250
------------
Total expenses 445,923
Custody credits (Note 3) (8,571)
------------
Expenses, net 437,352
------------
Net investment loss (287,799)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 4,728,172
Net realized loss on foreign currency conversions (1,713,761)
Net change in unrealized loss of investments
and foreign currencies (4,150,960)
------------
Net loss on investments (1,136,549)
------------
Net decrease in net assets resulting from operations ($1,424,348)
============
See Notes to Financial Statements
<PAGE>
Vontobel Eastern European Equity Fund
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31, 1999
(Unaudited)
---------------- -----------------
OPERATIONS
Net investment loss $ (287,799) $ (729,279)
Net realized gain (loss) on investments
and foreign currency transactions 3,014,411 (20,580,372)
Change in unrealized loss of investments
and foreign currencies (4,150,960) 24,939,581
------------ -----------
Net increase (decrease) in net assets
resulting from operations (1,424,348) 3,629,930
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting from
capital share transactions (5,270,756) (6,139,848)
------------ -----------
Net decrease in net assets (6,695,104) (2,509,918)
Net assets at beginning of period 33,644,024 36,153,942
------------ -----------
NET ASSETS at end of period $ 26,948,920 $33,644,024
============ ===========
*A summary of capital share transactions follows:
Six months ended
June 30, 2000 Year ended
(Unaudited) December 31,1999
--------------------- -------------------------
Shares Value Shares Value
-------- ------- -------- -----------
Shares sold 1,090,456 $11,150,154 1,024,124 $ 8,406,082
Shares redeemed (1,599,044) (16,420,910) (1,854,214) (14,545,930)
---------- ---------- --------- -----------
Net decrease (508,588) $(5,270,756) (830,090) $(6,139,848)
========== =========== ========= ============
See Notes to Financial Statements
<PAGE>
Vontobel Eastern European Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
<TABLE>
<S> <C> <C> <C> <C> <C>
Six months
ended Years ended December 31, February 15,*
June 30, 2000 -------------------------- to
(Unaudit) 1999 1998 1997 December 31, 1996
------------- ---- ---- ---- -----------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.32 $ 8.14 $15.25 $14.89 $10.00
------ ------ ------ ------ ------
Income from investment operations-
Net investment loss (0.09) (0.20) (0.31) (0.19) (0.06)
Net realized and unrealized gain (loss)
on investments (0.54) 1.38 (6.80) 1.47 4.95
------ ------ ------ ------ ------
Total from investment operations (0.63) 1.18 (7.11) 1.28 4.89
------ ------ ------ ------ ------
Less distributions-
Distributions from realized gains on investments - - - (0.92) 0.00
------ ------ ------ ------ ------
Total distributions - - - (0.92) 0.00
------ ------ ------ ------ ------
Net asset value, end of period $8.69 $9.32 $8.14 $15.25 $14.89
====== ====== ====== ====== ======
Total Return (6.76%) 14.50% (46.62)% 8.74% 48.90%
Ratios/Supplemental Data
Net assets, end of period (000's) $26,949 $33,644 $36,154 $139,408 $61,853
Ratio to average net assets-
Expenses (A) 2.52%* 3.37% 2.57% 1.94% 2.02%**
Expenses-net (B) 2.47%* 3.26% 2.41% 1.66% 1.71%**
Net investment loss (1.63%)* (2.35%) (1.67%) (1.30%) (1.07%)**
Portfolio turnover rate 51.73% 103.80% 135.35% 105.86% 38.69%
</TABLE>
* 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.
See Notes to Financial Statements
<PAGE>
Vontobel Eastern European Equity Fund
Notes to the Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel Eastern European Equity
Fund (the"Fund") is a series of Vontobel Funds, Inc. ("VFI") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in February, 1996 as a series of
VFI which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The objective of the Fund is to achieve capital appreciation by investing in a
carefully selected and continuously managed diversified portfolio consisting
primarily of equity securities of issuers located the Eastern Europe.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
Security Valuation. Investments traded on stock exchanges are valued at the last
quoted sales price on the exchange on which the securities are traded as of the
close of business on the last day of the period or, lacking any sales, at the
last available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Fund's Board of Directors. Securities traded in the
over-the-counter market are valued at the last available sale price in the
over-the-counter market prior to time of valuation. Securities for which market
quotations are not readily available are valued on a consistent basis at fair
value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund. Temporary investments in U.S. dollar denominated short-term investments
are valued at amortized cost, which approximates market. Portfolio securities
which are primarily traded on foreign exchanges are generally valued at the
closing price on the exchange on which they are traded, and those values are
then translated into U.S. dollars at the current exchange rate.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required. The fund has capital loss carryforwards,
available to offset future capital gains, if any, of $39,223,357 of which
$20,327,913 expires in 2006 and $18,895,462 expires in 2007.
Additionally the fund incurred capital losses of $7,214,126 and currency losses
of $20,766 after October 31, 1999 which are deemed, under income tax
regulations, to occur in the first day of the fund's next fiscal year (January
1, 2000).
C. Security Transactions and Dividends. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments. Foreign securities and currency
transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Distribution to Shareholders. Distributions from net investment income and
realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations that may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, net operating losses and post-October capital and
currency losses.
F. Deferred Organizational Expenses. All of the expenses of the Fund incurred in
connection with its organization and the public offering of its shares have been
assumed by the Fund. The organization expenses allocable to the Fund are being
amortized over a period of sixty (60) months.
G. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA Inc.("VUSA")
provides investment services for an annual fee of 1.25% on the first $500
million of average daily net assets and 1.00% on average daily net assets over
$500 million.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $47,643 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $61,889 for its services for the six months ended June
30, 2000.
To discourage short-term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short-term
investing, the Fund charges a 2% fee on such redemption of shares held less than
six months. Such fees amounted to $80,265 for the six months ended June 30,
2000, representing .23% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sells of securities other than
short-term notes aggregated $17,296,281 and $22,927,632, respectively. The
custodian has provided credits in the amount of $8,571 against custodian and
accounting charges based on credits on cash balances of the Fund.
<PAGE>
VONTOBEL U.S. EQUITY FUND
SEMI-ANNUAL REPORT 2000
Dear Shareholder:
Vontobel U.S. Equity Fund provided a total return of 2.17% in the first six
months of 2000. The fund's net asset value at June 30th was $9.90, and net
assets totaled $15,105,867, up from $9.69 and $10,946,236, respectively, at
December 31, 1999. Through June 30, 2000, the Standard & Poor's 500 Index
provided a total return of (-0.42%).
Looking at the total return for the S&P 500 Index, an investor just coming on
the scene might well assume that it's been a fairly quiet six months on Wall
Street. Anyone who's been watching the market on a daily basis knows how far
from the truth that assumption would be. The year thus far has been extremely
volatile, particularly in the technology sector: the tech-heavy NASDAQ composite
was up by over 24% between December 31st and March 10th, but by late May it had
suffered a nasty bear market, dropping by over 37% versus its March high. The
more broadly diversified S&P 500 has seen less dramatic swings than the NASDAQ
Composite, but it's certainly not been boring: the S&P 500 gained 17% between
its late-February low and its March 24th peak (using intraday prices), and by
April 14th had receded back almost to its late-February low.
This year's volatility reflects investor uncertainty regarding the direction of
interest rates and the pace of earnings growth going forward. The Federal
Reserve Board's late-June decision to hold steady those short-term interest
rates under its control represents something of a mixed blessing. On the one
hand, it could signal the end of the rise in interest rates that has weighed
heavily on those sectors of the market judged most interest-rate-sensitive,
including several consumer cyclical stocks and financials held by our fund. On
the other hand, the Fed's decision to stand still for now indicates that the
rise in rates is at least starting to have its desired effect: a slowdown in
economic activity. Insofar as a slowdown releases some of the inflationary
pressures that had been building over the past 18 months or so, the Fed will
have successfully engineered a "soft landing" that sets the stage for continued
expansion at a more measured pace. Some pundits fear that the Fed has gotten
behind the curve, and that rates will have to be pushed sharply higher, leading
to a more damaging contraction in demand and the first recession in a decade. At
least for now, a soft landing looks like the most likely outcome.
As bottom-up stockpickers, our role is not to predict Fed actions or moves in
interest rates, and we freely admit that our guesses about the near-term
direction of the economy, aggregate corporate earnings and the market are no
better than anyone else's. We're optimists about the long term, though (John
Maynard Keynes' observation that "in the long term, we're all dead"
notwithstanding). Economic and market cycles come and go (seemingly further and
further apart, but that's a topic for another day), but the long-term story is
one of progress and of growth. With this Fund we seek to invest in that progress
by buying shares in corporate leaders in a wide range of industries.
We've made some changes to the portfolio over the past six months. Among other
things, we sold all of our Coca-Cola shares in light of disappointing operating
results; took profits in Cisco Systems and Sun Microsystems; established a new
position in Novellus Systems, a supplier of capital equipment to the
semiconductor industry; and established a new position in Ecolab, a leading
supplier of cleaning products and services to hotels, restaurants and
institutional clients around the world. We've trimmed into strength in some
instances (including Pfizer, American Home Products and Intel), and have added
to some positions on weakness (including Motorola, Ethan Allen, and Freddie
Mac). We will be active in managing this Fund, but we note that we expect to be
long-term holders of many of the issues currently held. Position sizes may be
adjusted based on valuation and sector weight considerations, and we will
occasionally liquidate completely either because a stock's market price
significantly exceeds intrinsic value or because a company's fundamentals appear
to be changing for the negative.
In early July, the software giant Computer Associates announced that its
June-quarter sales and earnings would fall significantly short of expectations,
sending the stock down more than 40% in one day. Our investment in Computer
Associates appears, in hindsight, to have been the worst stock decision of the
Fund's first half-year as a fund investing in U.S. equities. Fortunately, most
of our "bad" decisions were offset by some better ones: American Power
Conversion's shares, for example, were particularly strong, having gained 50% as
of June 30th, and Pfizer shares gained 48% over those six months.
Looking at the portfolio, we're confident that the investments we've made will,
on balance, prove to have been good decisions. Among those investments: Ethan
Allen, the country's best-known furniture company, that has grown earnings at a
greater than 30% compound annual rate over the past five years, yet sells
currently at about 11 times this year's estimated earnings; Novellus Systems,
the semiconductor capital equipment supplier whose earnings should more than
triple this year, reflecting a surge in demand as chip companies invest to meet
strong and growing demand; Citigroup, the premier financial services company in
the country, if not the globe, which is selling for about 18 times this year's
estimates. As we said earlier, we're optimists. With good cause, we believe.
We're gratified in having provided a satisfactory total return relative to the
S&P 500 benchmark, we thank our shareholders for their support, and we look
forward to an interesting second half.
Fabrizio Pierallini, Fund Manager
Mark Robertson, Associate Fund Manager
July 6, 2000
<PAGE>
VONTOBEL US EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30,2000 (Unaudited)
------------------------------------------------------------------------------
Number of Market
Shares Security Description Value
--------- ------------------------------------------- ---------------
Common Stock: 99.58%
ADVERTISING: 1.14%
4,000 Interpublic Group Co. Inc. $ 172,000
BANKS: 5.15%
6,700 Comerica 300,663
10,400 Synovus Financial Corp. 183,300
7,600 Wells Fargo & Company 294,500
-----------
778,463
-----------
COMPUTER HARDWARE: 3.91%
6,300 Apple Computer Inc.* 329,962
2,500 Dell Computer Corp.* 123,281
1,100 Hewlett Packard Co. 137,362
-----------
590,605
-----------
CONSUMER FINANCE: 1.22%
6,100 Countrywide Credit Inds., Inc. 184,906
-----------
DISTRIBUTION & SERVICES: 1.92%
5,700 Patterson Dental Co.* 290,700
-----------
DIVERSIFIED COMMERCIAL SERVICES: 1.38%
5,350 Ecolab Inc. 208,984
DIVERSIFIED FINANCIAL SERVICES: 9.22%
6,100 Citigroup, Inc. 367,525
6,700 Fannie Mae 349,656
8,700 Freddie Mac 352,350
1,700 Morgan Stanley Dean Witter 141,525
4,000 Paine Webber Group, Inc. 182,000
-----------
1,393,056
-----------
ELECTRONIC COMPONENTS & EQUIPMENT: 5.69%
6,050 Emerson Electric Corp. 365,269
12,100 American Power Conversion Corp.* 493,831
-----------
859,100
-----------
FOOD RETAIL: 2.75%
12,500 Albertsons, Inc. 415,625
-----------
GENERAL MERCHANDISE STORES: 3.01%
23,350 Dollar General 455,325
-----------
HEALTH CARE FACILITIES: 2.82%
3,260 Health Management Assoc., Inc.* 425,837
-----------
HOME FURNISHINGS: 2.60%
16,400 Ethan Allen Interiors, Inc. 393,600
-----------
HOME IMPROVEMENT RETAIL: 3.37%
2,800 Home Depot 139,825
17,400 Sherwin-Williams 368,663
-----------
508,488
-----------
INDUSTRIAL MACHINERY: 1.22%
9,350 Donaldson, Inc. 184,662
-----------
INTEGRATED OIL & GAS: 3.12%
2,200 Exxon Mobil Corp. 172,700
5,600 Texaco Inc. 298,200
-----------
470,900
-----------
INTEGRATED TELECOMMUNICATION SERVICES: 7.24%
6,150 Alltel Corp. 380,916
8,100 Bellsouth Corp. 345,263
8,500 SBC Communications, Inc. 367,625
-----------
1,093,804
-----------
MULTILINE INSURANCE: 1.91%
2,450 American International Group 287,875
-----------
PACKAGED FOOD: 1.04%
1,950 Wrigley, William Jr. Co. 156,366
-----------
PERSONAL PRODUCTS: 1.50%
6,500 Gillette Co. 227,094
-----------
PHARMACEUTICALS: 8.06%
4,100 American Home Products 240,875
4,200 Johnson & Johnson 427,875
4,400 Merck & Co. 337,150
4,400 Pfizer, Inc. 211,200
-----------
1,217,100
-----------
PUBLISHING & PRINTING: 5.49%
6,650 Gannett Co. 397,753
8,100 Knight-Ridder, Inc. 430,819
-----------
828,572
-----------
RESTAURANTS: 2.12%
9,700 McDonalds Corp.* 319,494
-----------
SEMICONDUCTOR EQUIPMENT: 9.97%
2,200 Applied Materials, Inc.* 199,375
10,650 Dallas Semiconductor Corp. 433,988
2,450 Intel Corp. 327,534
9,650 Novellus Sytems* 545,828
-----------
1,506,725
-----------
SPECIALTY STORE: 2.33%
9,700 Bed Bath & Beyond* 351,625
-----------
STEEL: 0.99%
4,500 Nucor Corp. 149,344
-----------
SYSTEMS SOFTWARE: 6.89%
1,150 Adobe Systems Inc. 149,500
8,650 Computer Associates Intl., Inc. 442,772
5,600 Microsoft Corp.* 448,000
-----------
1,040,272
-----------
TELECOMMUNICATIONS EQUIPMENT: 3.52%
9,600 Motorola, Inc. 279,000
2,400 Tellabs Inc.* 253,219
-----------
532,219
-----------
Total Investments:
(Cost: $14,936,127)** 99.58% $15,042,741
Other assets, net 0.42% 63,126
------- ------------
Net Assets 100.00% $15,105,867
======= ===========
* Non-income producing
** Cost for Federal income tax purposes is $14,936,127 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 1,045,039
Gross unrealized depreciation (938,425)
-----------
Net unrealized appreciation $ 106,614
===========
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Equity Fund
Statement of Assets and Liabilities
June 30, 2000(Unaudited)
------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $14,936,127)
(Notes 1&3) $15,042,741
Cash (including foreign currencies) 133,716
Receivables:
Capital stock sold 124,382
Dividends 10,555
------------
134,937
Deferred organizational costs 30,006
-----------
TOTAL ASSETS 15,341,400
-----------
LIABILITIES
Payables:
Investments purchased 164,133
Capital stock redeemed 10,000
Investment management 47,873
Accrued expenses 13,527
----------
TOTAL LIABILITIES 235,533
-----------
NET ASSETS $15,105,867
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($15,105,867/1,525,322 shares outstanding) $9.90
==========
At June 30, 2000 there were 50,000,000 shares of $.01 par value stock authorized
and the components of net assets are:
Paid in capital $15,243,832
Net investment loss (39,552)
Net unrealized gain on investments 106,612
Accumulated net realized loss on investments (205,025)
-----------
Net Assets $15,105,867
===========
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Equity Fund
Statement of Operations
For the six months ended June 30, 2000 (Unaudited)
------------------------------------------------------------------------------
Investment Income
Income:
Dividends $67,910
------------
Expenses:
Investment management fees (Note 2) $63,391
Recordkeeping and administrative services (Note 2) 12,678
Custodian and accounting fees (Note 3) 22,300
Transfer agent fees (Note 2) 4,002
Shareholder servicing and reports (Note 2) 2,404
Filing and Registration fees 6,480
Organizational costs 7,011
Legal and audit fees 8,744
Other 11,786
------------
Total expenses 138,796
Management fee waiver and reimbursed expenses (Note 2) (31,334)
------------
Expenses, net 107,462
------------
Net investment loss (39,552)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 348,064
Net change in unrealized gain on investments 57,966
------------
Net gain on investments 406,030
------------
Net increase in net assets resulting from operations $366,478
============
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Equity Fund
Statement of Changes in Net Assets
------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31, 1999
(Unaudited)
---------------- -----------------
OPERATIONS
Net investment loss $ (39,552) $ (28,098)
Net realized gain on investments
and foreign currency transactions 348,064 166,025
Net change in unrealized gain of investments
and foreign currencies 57,966 295,265
---------- ----------
Net increase in net assets resulting from
operations 366,478 433,192
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* 3,793,153 8,902,313
---------- ----------
Net increase in net assets 4,159,631 9,335,505
Net assets at beginning of period 10,946,236 1,610,731
---------- ----------
NET ASSETS at end of period $15,105,867 $10,946,236
=========== ==========
*A summary of capital share transactions follows:
Six months ended
June 30, 2000 Year ended
(Unaudited) December 31,1999
--------------------- -------------------------
Shares Value Shares Value
-------- ------- -------- -----------
Shares sold 592,827 $5,716,378 1,033,591 $ 9,938,583
Shares redeemed (197,201) (1,923,225) (124,308) (1,036,270)
------- --------- --------- ---------
Net increase 395,626 $3,793,153 909,283 $ 8,902,313
======= ========== ========= ===========
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Six months
ended Years ended December 31, September 1,*
June 30, 2000 ------------------------ to
(Unaudit) 1999 1998 December 31, 1997
------------- -------- -------- -----------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.69 $ 7.31 $ 9.42 $10.00
------ ------ ------ ------
Income from investment operations
Net investment loss (0.03) (0.02) - (0.04)
Net realized and unrealized gain
(loss) on investments 0.24 2.40 (2.11) (0.54)
------ ------ ------ ------
Total from investment operations 0.21 2.38 (2.11) (0.58)
------ ------ ------ ------
Net asset value, end of period $ 9.90 $ 9.69 $ 7.31 $ 9.42
====== ====== ====== ======
Total Return 2.17% 32.56% (22.40%) (5.80%)
Ratios/Supplemental Data
Net assets, end of period (000's) $15,106 $10,946 $1,611 $3,601
Ratio to average net assets- (A)
Expenses (B) 2.19%* 3.05% 2.38% 2.41%**
Expenses-net (C) 1.70%* 3.02% 2.07% 2.20%**
Net investment loss (0.62%)* (1.68%) (0.02%) (1.42%)**
Portfolio turnover rate 30.16% 128.26% 130.59% 16.36%
</TABLE>
* Commencement of operations
** Annualized
(A) Management fee waivers and expense reimbursements reduced the expense ratio
and increased net investment income ratio by 5.64%, 3.75% and 1.25%, in
1999, 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.
See Notes to Financial Statements
<PAGE>
Vontobel U.S. Equity Fund (formerly Vontobel Emerging Markets Equity Fund)
Notes to the Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel U.S. Equity Fund (formerly
Vontobel Emerging Markets Equity Fund) (the "Fund") is a series of Vontobel
Funds, Inc. ("VFI") which is registered under The Investment Company Act of
1940, as amended, as a diversified open-end management company. The Fund
commenced operations in September, 1997 as a series of VFI which has allocated
to the Fund 50,000,000 of its 500,000,000 shares of $.01 par value common stock.
The effective date of the name change was December 27, 1999.
The objective of the Fund is to achieve long-term capital appreciation by
investing in a carefully selected and continuously managed diversified portfolio
consisting primarily of equity securities of issuers in the United States.
Formerly as Vontobel Emerging Markets Fund, the equity securities were issuers
in developing countries around the world.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national securities
exchange or included in the NASDAQ National Market System are valued at the last
reported sales price; other securities traded in the over-the-counter market and
listed securities for which no sale is reported on that date are valued at the
last reported bid price. Short-term investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required. The fund has capital loss carryforwards,
available to offset future capital gains, if any, of $553,089 which expires in
2006.
C. Security Transactions and Dividends. Security transactions are accounted for
on the trade date. The cost of securities sold is determined generally on a
first-in, first-out basis. Dividends are recorded on the ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments.
E. Distribution to Shareholders. Distributions from net investment income and
realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, net operating losses and post-October capital and
currency losses.
F. Deferred Organizational Expenses. All of the expenses of the Fund incurred in
connection with its organization and the public offering of its shares have been
assumed by the Fund. The organization expenses allocable to the Fund are being
amortized over a period of sixty (60) months.
G. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to
an Investment Advisory Agreement, the Advisor, Vontobel USA Inc.("VUSA")
provides investment services for an annual fee of 1.00% on the first $500
million of average daily net assets 0.875% on the next $500 million, and 0.75%
on average daily net assets over $1 billion. VUSA will waive its advisory fee or
reimburse the Fund to the extent necessary to limit the Fund's aggregate annual
operating expense to 1.75% of average daily net assets.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $15,704 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain shareholder
servicing on an hourly rate basis. For other administrative services, CSS
receives 0.20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $6,753 for its services for the six months ended June 30,
2000.
To discourage short-term investing and recover certain administrative, transfer
agency, shareholder servicing and other costs associated with such short-term
investing, the Fund charges a 2% fee on such redemption of shares held less than
three months. Such fees amounted to $12,751 for the six months ended June 30,
2000, representing .10% of average net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS--Purchases and sells of securities other than short-term
notes aggregated $8,861,294 and $3,652,976, respectively.
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<PAGE>
Vontobel Fund Distributors
A division of First Dominion Capital Corp.
Member firm NASD
1500 Forest Avenue, Suite 223
Richmond, VA 23229
Telephone (800) 527-9500
