As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 2-78931
File No. 811-3551
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
--
REGISTRATION STATEMENT UNDER THE SECUTITIES ACT OF 1933 |__|
--
Pre-Effective Amendment No. _______ |__|
--
Post-Effective Amendment No. 37 |__|
-------
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |__|
--
Amendment No. 37
----- |__|
(Check appropriate box or boxes) VONTOBEL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229
(Address of Principal Executive Offices)(Zip Code)
(800)-527-9500
(Registrant's Telephone Number, Including Area Code)
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practical after this
post-effective amendment of this registration statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
--
|__| immediately upon filing pursuant to paragraph (b)
--
|X_| on April 30, 2000 pursuant to paragraph (b)
--
|__| 60 days after filing pursuant to paragraph (a)(1)
--
|__| on (date) pursuant to paragraph (a)(1)
--
|__| 75 days after filing pursuant to paragraph (a)(2)
--
|__| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
--
|__| This post-effective amendment designates a new effective date for
previously filed post-effective amendment.
TABLE OF CONTENTS
This filing of a post-effective amendment to the Registrant's registration
statement on Form N-1A consists of the following:
1. Part A revising the prospectuses of the Vontobel U.S. Value Fund series;
the Vontobel International Equity Fund series; the Vontobel Eastern
European Equity Fund series; the Vontobel U.S. Equity Fund series and the
Vontobel Greater European Bond Fund series of Vontobel Funds, Inc.
2. Part B revising the statements of additional information of the Vontobel
U.S. Value Fund series; the Vontobel International Equity Fund series; the
Vontobel Eastern European Equity Fund series; the Vontobel U.S. Equity Fund
series and the Vontobel Greater European Bond Fund series of Vontobel
Funds, Inc.
3. Part C.
<PAGE>
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
April 28, 2000
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Vontobel Funds, Inc. (formerly,The World Funds, Inc.)
File Numbers: 2-78931 and 811-3551
Gentlemen:
Transmitted herewith for electronic filing with the U.S. Securities and
Exchange Commission on behalf of the Vontobel Funds, Inc. (the "Registrant"),
pursuant to Rule 485(b) under the Securities Act of 1933, as amended (the "1933
Act"), is Post-Effective Amendment No. 37 ("PEA 37") under the 1933 Act. PEA 37
also is filed pursuant to the Investment Company Act of 1940, as amended (the
"1940 Act").
PEA 37 contains updated financial information and financial statements
for purposes of the annual post-effective amendment of the Funds. As counsel to
the Registrant, we have assisted in preparing the 485(b) Amendment, and, in our
judgment, the 485(b) Amendment does not contain disclosures that would render it
ineligible to become effective pursuant to paragraph (b) of Rule 485. Should you
have any questions regarding this filing, please fee free to call the
undersigned at (215) 988-7837.
Sincerely,
/s/Steven M.Felsenstein
cc: John Pasco, III
Darryl Peay
<PAGE>
Prospectus
Vontobel U.S. Value Fund
Vontobel International Equity Fund
Vontobel Eastern European Equity Fund
Vontobel U.S. Equity Fund
Vontobel Greater European Bond Fund
Series of Vontobel Funds, Inc.
(the "Company")
A "Series" Investment Company
Prospectus Dated
May 1, 2000
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this prospectus.
It is a criminal offense to suggest otherwise.
<PAGE>
TABLE OF CONTENTS PAGE NUMBER
RISK/RETURN SUMMARY...................................
VONTOBEL U.S. VALUE FUND.........................
VONTOBEL INTERNATIONAL EQUITY FUND...............
VONTOBEL EASTERN EUROPEAN EQUITY FUND............
VONTOBEL U.S. EQUITY FUND........................
VONTOBEL GREATER EUROPEAN BOND FUND..............
FUND FEES AND EXPENSES................................
INVESTMENT OBJECTIVES/STRATEGIES AND RISKS............
OTHER PRINCIPAL RISKS.................................
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE.........
SHAREHOLDER INFORMATION...............................
PURCHASING SHARES.....................................
REDEEMING SHARES......................................
OTHER SHAREHOLDER SERVICES............................
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.............
DISTRIBUTIONS AND TAXES...............................
DISTRIBUTION ARRANGEMENTS.............................
FINANCIAL HIGHLIGHTS..................................
<PAGE>
RISK/RETURN SUMMARY
VONTOBEL U.S. VALUE FUND ("Value Fund")
Investment Objective: Long-term capital returns
Principal Investment
Strategies: Under normal circumstances, the
Value Fund will invest at least 65%
of its assets in equity securities
that are traded on U.S. exchanges.
The Fund also invests in
fixed-income securities and cash
equivalents, such as overnight
repurchase agreements and short-term
U.S. Treasuries.
Principal Investment Risks: The Value Fund's investments are
subject to market, economic and
business risks. These risks will
cause the Value Fund's net asset
value ("NAV") to fluctuate over
time. Therefore, the value of your
investment in the Value Fund could
decline. Also, there is no assurance
that the investment adviser will
achieve the Fund's objective.
The Value Fund operates as a non-diversified
fund for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act"). As such,
the Fund may invest a larger portion of its
assets in fewer issuers. Consequently, adverse
effects on the Fund's security holdings may
affect a larger portion of the Fund's total
assets and cause the value of your investment to
decline.
An investment in the Value Fund is not a bank
deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any
other government agency.
Investor Profile: You may want to invest in the Value
Fund if you are seeking long-term
capital returns, together with
relative safety of principal in the
long-term, and are willing to accept
share prices that may fluctuate,
sometimes significantly, over the
short term. You should not invest in
the Value Fund if you are seeking
current income.
Performance Information
The bar chart below shows how the Value Fund's performance has varied from one
year to another. The table below the chart shows what the return would equal if
you averaged actual performance over various lengths of time and provides a
comparison to a broad measure of market performance over the same lengths of
time. Please keep in mind that the Value Fund's past performance may not
indicate how it will perform in the future.
<PAGE>
[Bar chart goes here]
Value Fund
Year Total Return
1991 37.29%
1992 16.30%
1993 6.00%
1994 0.02%
1995 40.36%
1996 21.28%
1997 34.31%
1998 14.70%
1999 (14.07%)
Best Calendar Quarter 1st Q 1991 up 21.90%
Worst Calendar Quarter 3rd Q 1999 down 15.30%
The following table compares the performance of the Value Fund and the Standard
and Poor's 500 Index (the "S&P 500 Index"). The S&P 500 Index is an unmanaged
index of 500 stocks of a representative sampling of leading U.S. companies based
on market size, liquidity and industry group representation. Returns include
dividends and distributions and are expressed in U.S. dollars.
Average Annual Total Returns
(for the period ending December 31, 1999)
-----------------------------------------
Since Inception
1 Year 5 Years (March 30, 1990)
------ ------- ----------------
Value Fund (14.07%) 17.64% 13.45%
S&P 500 Index 21.04% 28.55% 19.06%
VONTOBEL INTERNATIONAL EQUITY FUND ("International Equity Fund")
Investment Objective: Capital appreciation
Principal Investment
Strategies: Under normal circumstances the International
Equity Fund will invest at least 65% of its
assets in equity securities of companies in
Europe and the Pacific Basin. The Fund intends
to diversify its investments broadly among
countries and normally to have represented in
the portfolio business activities of not
less than three different countries. The Fund
will hold primarily securities listed on a
security exchange or quoted on an established
over-the-the counter market.
Principal Investment Risks: The International Equity Fund's
investments are subject to market,
economic and business risks. These
risks may cause the International
Equity Fund's NAV to fluctuate over
time. Therefore, the value of your
investment in the Fund could
decline. Also, there is no
assurance that the Investment
Adviser will achieve the Fund's
objective.
The International Equity Fund will invest in
foreign countries. These investments may involve
financial, economic or political risks that are
not ordinarily associated with U.S. securities.
Hence, the International Equity Fund's NAV may
be affected by changes in exchange rates between
foreign currencies and the U.S. dollar,
different regulatory standards, less liquidity
and increased volatility, taxes and adverse
social or political developments.
The Fund may also invest in securities of
companies in emerging and developing markets. In
addition to the typical risks that are
associated with investing in foreign countries,
companies in developing countries generally do
not have lengthy operating histories.
Consequently, these markets may be subject to
more substantial volatility and price
fluctuations than securities traded in more
developed markets.
An investment in the International Equity Fund
is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Investor Profile: You may want to invest in the
International Equity Fund if you are
seeking capital appreciation and
wish to diversify your existing
investments. The International
Equity Fund may be particularly
suitable for you if you wish to take
advantage of opportunities in the
securities markets of Europe and the
Pacific Basin. You should not
invest in the International Equity
Fund if you are not willing to
accept the risks associated with
investing in foreign countries or if
you are seeking current income.
Performance Information
The bar chart below shows how the International Equity Fund's performance has
varied from one year to another. The table below the chart shows what the return
would equal if you averaged actual performance over various lengths of time and
provides a comparison to a broad measure of market performance over the same
lengths of time. Please keep in mind that the International Equity Fund's past
performance may not indicate how it will perform in the future.
[Bar chart goes here]
International Equity Fund
Year Total Return
1990* (12.42%)
1991 18.74%
1992 (2.37%)
1993 40.80%
1994 (5.28%)
1995 10.91%
1996 16.98%
1997 9.19%
1998 16.77%
1999 46.52%
Best Calendar Quarter 4th Q 1999 up 34.02%
Worst Calendar Quarter 3rd Q 1990 down 19.40%
* Represents a period during which the Fund was advised by other investment
advisers. On July 6, 1990, the Fund's current investment adviser was
appointed and the Fund's investment objective was changed to its current
status.
The following table compares the performance of the International Equity Fund
and Morgan Stanley Capital International's Europe, Australasia and Far East
Index ("MSCI EAFE Index"). The MSCI EAFE Index is an unmanaged index of more
than 1,100 common stock securities issued by foreign companies. Returns include
dividends and distributions and are expressed in U.S. dollars.
Average Annual Total Returns
(for the period ending December 31, 1999)
-----------------------------------------
Since Inception
1 Year 5 Years (July 6, 1990)
------ ------- --------------
International Equity Fund 46.52% 19.36% 13.26%
MSCI EAFE Index 27.28% 13.15% 9.20%
VONTOBEL EASTERN EUROPEAN EQUITY FUND ("E. European Equity Fund")
Investment Objective: Capital appreciation
Principal Investment
Strategies: Under normal circumstances, the E. European
Equity Fund will invest at least 65% of its
assets in equity securities of companies
located in Eastern Europe or which conduct a
significant portion of their business in
countries which are generally considered to
comprise Eastern Europe. The Fund
normally will have represented in the portfolio
business activities of not less than three
different countries.
Principal Investment Risks: The E. European Equity Fund's
investments are subject to market,
economic and business risks. These
risks may cause the Fund's NAV to
fluctuate over time. Therefore, the
value of your investment in the Fund
could decline. Also, there is no
assurance that the investment
adviser will achieve the E. European
Equity Fund's objective.
The E. European Equity Fund will invest in
foreign countries. These investments may involve
financial, economic or political risks that are
not ordinarily associated with U.S. securities.
Hence, the Fund's NAV may be affected by changes
in exchange rates between foreign currencies and
the U.S. dollar, different regulatory standards,
less liquidity and increased volatility, taxes
and adverse social or political developments.
The Fund also invests in securities of companies
that trade in emerging and developing markets.
In addition to the typical risks that are
associated with investing in foreign countries,
companies in developing countries generally do
not have lengthy operating histories.
Consequently, these markets may be subject to
more substantial volatility and price
fluctuations than securities traded in more
developed markets.
An investment in the E. European Equity Fund is
not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Investor Profile: You may wish to invest in the E.
European Equity Fund if you seek to
diversify your current equity
holdings and to take advantage of
opportunities in the newly
reorganized markets of Eastern
Europe. You should not invest in
the E. European Equity Fund if you
are not willing to accept the risk
associated with investing in foreign
and developing markets or if you are
seeking current income.
Performance Information
The bar chart below shows how the E. European Equity Fund's performance has
varied from one year to another. The table below the chart shows what the return
would equal if you averaged actual performance over various lengths of time and
provides a comparison to a broad measure of market performance over the same
lengths of time. Please keep in mind that the E. European Equity Fund's past
performance may not indicate how it will perform in the future.
[Bar chart goes here]
E. European Equity Fund
Year Total Return
1997 8.74%
1998 (46.62%)
1999 14.50%
Best calendar quarter 4th Q 1999 up 31.64%
Worst calendar quarter 3rd Q 1998 down 40.48%
The following table compares the performance of the E. European Equity Fund and
the Nomura Research Institute's Central and Eastern European Equity Index
("Nomura Composite-11 Index"). The Nomura Composite-11 Index is comprised of
equities traded on securities exchanges or established over-the-counter markets
in Poland, the Czech Republic, Hungary, Slovakia, Croatia, Romania, Slovenia,
Estonia, Latvia, Lithuania and Russia. Returns do not include dividends or
distributions and are expressed in U.S. dollars. The E. European Equity Fund's
returns include dividends and distributions and are expressed in U.S. dollars.
Average Annual Total Returns
(for the period ending December 31, 1999)
-----------------------------------------
Since Inception
1 Year 3 Years (February 15, 1996)
E. European Equity Fund 14.50% (12.73%) (0.27%)
Nomura Composite-11 Index 16.51% ( 2.85%) 5.61%
VONTOBEL U.S. EQUITY FUND ("U.S. Equity Fund")
Investment Objective: Long-term capital returns
Principal Investment Strategies: Under normal circumstances,
the U.S. Equity Fund will
invest at least 65% of its
total assets in equity
securities and securities
that are convertible into
equity securities. The Fund
typically invests in
securities that are traded
on U.S. exchanges.
Principal Investment Risks: The U.S. Equity Fund's
investments are subject to
market, economic and
business risks. These risks
will cause the U.S. Equity
Fund's net asset value
("NAV") to fluctuate over
time. Therefore, the value
of your investment in the
U.S. Equity Fund could
decline. Also, there is no
assurance that the
investment adviser will
achieve the U.S. Equity
Fund's objective.
An investment in the U.S. Equity Fund is not a
bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or
any other government agency.
Investor Profile: You may want to invest in
the U.S. Equity Fund if you
are seeking long-term
capital returns, and are
willing to accept share
prices that may fluctuate,
sometimes significantly,
over the short term. You
should not invest in the
U.S. Equity Fund if you are
seeking current income.
Performance Information
The bar chart and table below shows the U.S. Equity Fund's performance for one
year. The table below the chart shows what the return would equal if you
averaged actual performance over various lengths of time and provides a
comparison to a broad measure of market performance over the same lengths of
time. Please keep in mind that the U.S. Equity Fund's past performance may not
indicate how it will perform in the future.
[Bar chart goes here]
U.S. Equity Fund
Year Total Return
1998 (22.40%)
1999 32.56%
Best Calendar Quarter 4th Q 1999 up 22.50%
Worst Calendar Quarter 3rd Q 1998 down 24.77%
The following table compares the performance of the U.S. Equity Fund, the S&P
500 Index and Morgan Stanley Capital International's Emerging Markets Free Index
(the "MSCI EMF Index"). The MSCI EMF Index is a market-capitalization-weighted
index of equity securities traded on securities exchanges or established over
the counter markets in 25 emerging markets countries. Index returns include
dividends and distributions and are expressed in U.S. dollars. The S&P 500 Index
is an unmanaged index of 500 stocks of a representative sampling of leading U.S.
companies based on market size, liquidity and industry group representation.
Returns include dividends and distributions and are expressed in U.S. dollars.
As of December 27, 1999, the fund's investment strategy for achieving its
objective of long-term capital appreciation became to invest 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 Equity Fund, the Fund invested in equity securities of issuers
in developing countries around the world. Effective January 1, 2000, the Fund
began to compare itself against the S&P 500 Index.
Average Annual Total Returns
(for the period ending December 31, 1999)
-----------------------------------------
Since Inception
1 Year (September 1, 1997)
------ -------------------
U.S. Equity Fund 32.56% ( 1.34%)
MSCI EMF Index 63.70% 1.00%
S&P 500 Index 21.04% 23.56%
VONTOBEL GREATER EUROPEAN BOND FUND ("Bond Fund")
Investment Objective: To maximize total return from
capital growth and income.
Principal Investment
Strategies: Under normal circumstances, the Bond Fund will
invest at least 65% of its total assets in
fixed-income instruments that are issued by
borrowers located in Western and Eastern
European countries. The Fund will normally
invest at least 65% of its total assets in debt
instruments denominated in foreign currencies.
It generally will invest in securities rated
Baa3 or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB- or higher by Standard &
Poor's Ratings Group ("S&P") or unrated
securities which the Adviser believes are of
comparable quality.
The Fund will normally have investments in
securities of issuers from a minimum of three
different countries. Under certain
circumstances, the Bond Fund will hold a U.S.
dollar cash position up to 35% of its net
assets, hold foreign cash positions up to 25% of
its assets, and may hold up to 90% of its assets
in securitized money market instruments.
Principal Investment Risks: The Bond Fund's investments are
subject to interest rate risk.
Interest rate risk may cause the NAV
to fluctuate over time and the value
of the Bond Fund could decline or
increase. There is no assurance
that the Bond Fund will achieve its
objective.
The Bond Fund will invest in foreign countries
and its investments will be denominated in
foreign currencies. These investments may
involve financial, economic or political risks
that are not ordinarily associated with U.S.
securities. Hence, the Fund's investments may be
affected by changes in exchange rates between
foreign currencies and the U.S. dollar,
different regulatory standards, less liquidity,
taxes and adverse social or political
developments.
The Bond Fund operates as a non-diversified fund
for purposes of the 1940 Act. As such, the Fund
may invest a larger portion of its assets in
fewer issuers. Consequently, adverse effects on
the Fund's security holdings may affect a larger
portion of the Fund's total assets and cause the
value of your investment to decline.
An investment in the Bond Fund is not a bank
deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any
other government agency.
Investor Profile: You may wish to invest in the Bond
Fund if you are seeking to maximize
your total return and diversify your
investments. The Fund may be
especially suitable for you if you
are willing to take advantage of
opportunities in bond markets
throughout Europe. You should not
invest in the Bond Fund if you are
not willing to accept the risks
associated with investing in foreign
countries and developing markets.
Performance Information
The bar chart and table below shows the Bond Fund's performance for one year.
The table below the chart shows what the return would equal if you averaged
actual performance over various lengths of time and provides a comparison to a
broad measure of market performance over the same lengths of time. Please keep
in mind that the Bond Fund's past performance may not indicate how it will
perform in the future.
[Bar chart goes here]
Bond Fund
Year Total Return
1998 24.54%
1999 (9.01%)
Best calendar quarter 4th Q 1998 up 6.72%
Worst calendar quarter 1st Q 1999 down 9.70%
The following table compares the performance of the Bond Fund and a
market-weighted composite index as follows: For the period 8/29/97 through
8/31/99, the Bank Austria-Creditanstalt Eastern European Bond Index (BA/CA
Index). Effective 8/31/99, a composite index composed of the BA/CA Index (40%)
and the following J.P. Morgan (JPM) indices of government debt instruments
(60%): 5% JPM Sweden; 5% JPM Denmark; 15% JPM UK; 35% JPM European Monetary
Union. Returns for the composite indices for the period since inception include
income and are expressed in US$.
Average Annual Total Returns
(for the period ending December 31, 1999)
-----------------------------------------
Since Inception
1 Year (September 1, 1997)
------ -------------------
Bond Fund (9.01%) 5.26%
BA/CA-JPM Composite Index (5.86%) (16.54%)
FUND FEES AND EXPENSES
The following tables describe the fees and expenses that you will pay in
connection with purchases or redemption of shares of the Value Fund, the
International Equity Fund, the E. European Equity Fund, the U.S. Equity Fund and
the Bond Fund (collectively, the "Funds"). The annual operating expenses, which
cover the cost of investment management, administration, accounting and
shareholder communications, are shown as a percentage of the average daily net
assets.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly.
VALUE FUND
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other Distributions None
Redemption Fee (1) 2%(2)
Exchange Fee (4) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 0.93%
Distribution (12b-1 Fees) None
Other Expenses 0.94%
Total Annual Fund Operating Expenses 1.87%
----
Fee Waiver and/or Expense Reimbursements 0.12%
----
Net Expenses 1.75%(5)
INTERNATIONAL EQUITY FUND
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other Distributions None
Redemption Fee (1) 2.00%(2)
Exchange Fee (4) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 0.90%
Distribution (12b-1 Fees) None
Other Expenses 0.38%
Total Annual Fund Operating Expenses 1.28%
E. EUROPEAN EQUITY FUND
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other Distributions None
Redemption Fee (1) 2.00%(3)
Exchange Fee (4) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution (12b-1 Fees) None
Other Expenses 2.12%
Total Annual Fund Operating Expenses 3.37%
U.S. EQUITY FUND
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other Distributions None
Redemption Fee (1) 2.00%(2)
Exchange Fee (4) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 1.00%
Distribution (12b-1 Fees) None
Other Expenses 1.80%
-----
Total Annual Fund Operating Expenses 2.80%
Fee Waiver and/or Expense Reimbursements 1.05%
-----
Net Expenses 1.75%(5)
BOND FUND
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and other Distributions None
Redemption Fee (1) 2.00%(3)
Exchange Fee (4) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution (12b-1 Fees) None
Other Expenses 1.45%
----
Total Annual Fund Operating Expenses 2.70%
Fee Waiver and/or Expense Reimbursements 0.21%
----
Net Expenses 2.49%(6)
(1)A shareholder electing to redeem shares by telephone will be charged $10 for
each such redemption request.
(2) A 2% redemption fee is charged on shares held less than three (3) months.
(3) A 2% redemption fee is charged on shares held less than six (6) months.
(4) A shareholder may be charged a $10 fee for each telephone exchange.
(5)The expense information in the table has been restated to reflect current
expenses. These costs are net of fee waivers and reimbursements to maintain
total operating expenses to 1.75% pursuant to a contractual expense
limitation agreement (See Management Organization and Capital Structure
below).
(6)The expense information in the table has been restated to reflect current
expenses. These costs are net of fee waivers and reimbursements to maintain
total operating expenses to 2.49% pursuant to a contractual expense
limitation agreement (See Management Organization and Capital Structure
below).
EXAMPLES
The following expense examples show the expenses that you could pay over time.
They will help you compare the costs of investing in the Funds with the costs of
investing in other mutual funds. Each example assumes that you invest $10,000 in
the Fund and then redeem all of your shares at the end of the periods indicated.
Each example assumes that you earn a 5% annual return, with no change in Fund
expense levels. Because actual return and expenses will be different, the
examples are for comparison only. Based on these assumptions, your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ -------- ------- -------
Value Fund (1) $178 $ 551 $ 949 $2,062
International Equity Fund $130 $ 406 $ 702 $1,545
E. European Equity Fund $339 $1,036 $1,755 $3,658
U.S. Equity Fund (1) $178 $ 551 $ 949 $2,062
Bond Fund (2) $252 $ 776 $1,326 $2,826
(1)The expense information in the table has been restated to reflect current
expenses. These costs are net of fee waivers and reimbursements to maintain
total operating expenses to 1.75% pursuant to a contractual expense
limitation agreement (see Management Organization and Capital Structure
below).
(2)The expense information in the table has been restated to reflect current
expenses. These costs are net of fee waivers and reimbursements to maintain
total operating expenses to 2.49% pursuant to a contractual expense
limitation agreement (see Management Organization and Capital Structure
below).
<PAGE>
Absent these commitments, your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Value Fund $190 $588 $1,011 $2,190
U.S. Equity Fund $308 $942 $1,601 $3,365
Bond Fund $273 $838 $1,430 $3,032
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in the expenses can, over time, have a significant effect
on a Fund's performance.
INVESTMENT OBJECTIVES/STRATEGIES AND RISKS
Value Fund
The Value Fund's investment objective is to achieve long-term capital returns in
excess of the broad market by investing in common stocks and securities that are
convertible into common stocks, such as warrants, convertible bonds, debentures
or convertible preferred stock. Under normal circumstances the Fund will invest
at least 65% of its assets in common stocks or securities that are convertible
into common stock. The Value Fund typically invests in securities that are
traded on U.S. exchanges. The Value Fund also invests in fixed-income
instruments and cash equivalents, such as overnight repurchase agreements and
short-term U.S. Treasuries. The Adviser uses the S&P 500 Index as the benchmark
for the broad market against which the performance of the Value Fund is
measured.
Vontobel USA Inc. (the "Adviser"), the investment adviser for each of the Funds,
employs a bottom-up approach to stockpicking. (A bottom-up approach means that
securities are selected company by company rather than by identifying a suitable
industry or market sector for investments and then investing in companies in
that industry or market sector.) This bottom-up approach emphasizes qualitative
criteria in evaluating a company's potential as a prospective investment
opportunity. Although the Value Fund's return will be compared to that provided
by the broad market, the Adviser seeks to achieve attractive absolute returns
over the "risk-free" rate, defined as the rate of return available on 10-year
U.S. Government securities. The Adviser's utilization of an "absolute" rather
than a "relative" valuation yardstick is designed to achieve not only a
satisfactory return over the risk-free rate but at the same time ensure safety
of principal. The Adviser considers the riskiness of an investment to be a
function of the company's business rather than the volatility of its stock
price. Therefore, the Adviser seeks to identify companies whose businesses are
predictable or that exhibit elements of a franchise. Ideally, such companies
must have a history of competitive returns on invested capital, reliable growth
in earnings and free cash flow, low debt and effective management.
As noted above, the Adviser seeks to achieve its investment objective by
investing principally in equity securities. Nonetheless, the Adviser may
construct, and in fact has at times constructed, a portfolio in which cash and
cash equivalents (including, but not limited to, overnight repurchase agreements
and short-term U.S. Treasuries), and/or fixed-income instruments, comprise a
significant portion of the Value Fund's total assets. The Adviser views its
"cash position" as a residual investment that is a measure of the ability of its
investment personnel to identify enough stocks and convertible securities that
meet their rigorous investment criteria.
The Value Fund may invest more than 5% of its assets in government debt
securities of the U.S. However, because it intends to qualify as a "regulated
investment company" for purposes of Subchapter M of the Code, the Value Fund
must meet certain diversification requirements. These include the requirement
that at the end of each tax year quarter, at least 50% of the market value of
its total assets must be invested in cash, cash equivalents, U.S. government
securities, and securities of issuers (including foreign governments), in which
it has invested not more than 5% of its assets. A regulated investment company
is also limited in its purchases of voting securities of any issuer and may
invest no more than 25% of the value of its total assets in securities (other
than U.S. Government securities) of any one issuer or of two or more issuers
that the Value Fund controls and are engaged in the same, similar or related
trades or business.
The Value Fund's investment success depends on the skill of the Adviser in
evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the Value
Fund may not perform as anticipated.
International Equity Fund
The International Equity Fund's investment objective is to achieve capital
appreciation by investing in common stocks and securities that are convertible
into common stocks. Under normal circumstances the Fund will invest at least 65%
of its assets in equity securities of companies in Europe and the Pacific Basin.
The International Equity Fund will invest most of its assets in equity
securities of countries which are generally considered to have developed
markets, such as the United Kingdom, the eleven euro-zone countries (France,
Germany, Italy, Spain, Portugal, Finland, Ireland, Belgium, the Netherlands,
Luxembourg and Austria), Switzerland, Norway, Japan, Hong Kong, Australia, and
Singapore. The Adviser will decide when and how much to invest in each of those
markets. Investments may also be made in equity securities issued by companies
in "developing countries" or "emerging markets," such as Taiwan, Malaysia,
Indonesia, and Brazil, included in Morgan Stanley Capital International's
Emerging Markets Free Index ("EMF"). The portfolio of the International Equity
Fund will be diversified. The Fund typically invests in the securities of medium
to large capitalization companies, but is not limited to investing in securities
of companies of any size. Using a bottom-up investment approach, the Adviser
seeks to invest in companies that have a long record of successful operations in
their core business and earnings growth through increasing market share and unit
sales volumes. These companies are typically among the leaders in their
industry, having demonstrated consistent growth in cash flow, sales, operating
profits, returns on equity and returns on invested capital, and little or no
debt. The Fund generally holds its core positions for at least two years.
The International Equity Fund may select its investments from companies which
are listed on a securities exchange or from companies whose securities have an
established over-the-counter market, and may make limited investments in "thinly
traded" securities.
The International Equity Fund intends to diversify broadly investments among
countries and normally to have represented in the portfolio business activities
of not less than three different countries. The securities the International
Equity Fund purchases may not always be purchased on the principal market. For
example, Depositary Receipts may be purchased if trading conditions make them
more attractive than the underlying security (see Depositary Receipts below).
In addition to common stocks and securities that are convertible into common
stocks, the International Equity Fund invests in shares of closed-end investment
companies. These investment companies invest in securities that are consistent
with the International Equity Fund's objective and strategies. By investing in
other investment companies the Fund indirectly pays a portion of the expenses
and brokerage costs of these companies as well as its own expenses. Also,
federal and state securities laws impose limits on such investments, which may
affect the ability of the Fund to purchase or sell these shares.
The International Equity Fund has the authority to enter into forward contracts
to purchase or sell foreign currencies, purchase and write covered call options
on foreign currencies and enter into contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures").
The Fund's investment success depends on the skill of the Adviser in evaluating,
selecting and monitoring the portfolio assets. If the Adviser's conclusions
about growth rates or securities values are incorrect, the International Equity
Fund may not perform as anticipated.
E. European Equity Fund
The E. European Equity's Fund investment objective is to achieve capital
appreciation by investing in common stocks and securities that are convertible
into common stock. Under normal market conditions the Fund will invest at least
65% of its assets in securities of companies that are located in or conduct a
significant portion of their business in Eastern Europe. The Adviser's
investment universe consists of companies that are located in, or listed on the
exchanges of Central and Eastern European countries, as well as companies that
derive at least two-thirds of their sales from such countries. Not all these
countries have a functioning stock exchange and others still have an illiquid
securities market; consequently, the Adviser concentrates on the markets of
Hungary, Poland, Slovenia, the Czech Republic, Slovakia, Russia, Croatia and the
Baltic states (Estonia, Latvia and Lithuania). The Adviser can invest in local
shares in Poland, Hungary, the Czech Republic, Slovakia, the Baltic States,
Croatia, Romania and Slovenia. Elsewhere, due to the lack of local
sub-custodians or liquidity, the Adviser currently invests only through ADR ,
GDR or RDC programs.
Trading volume of the stock exchanges of these markets may be substantially
lower than that in developed markets and the purchase and sale of portfolio
securities may not always be made at an advantageous price. The Adviser
generally will decide when and how much to invest in these developing markets
based upon its assessment of their continuing development. As stock markets in
the region develop and more investment opportunities emerge, the Fund will
broaden its portfolio to include securities of companies located in or which
conduct a significant portion of their business in countries in this region.
The portfolio of the E. European Equity Fund will be diversified. Management
expects that the Fund will have a low turnover ratio (not exceeding 100%
annually). The selection of the securities in which the Fund will invest will
not be limited to companies of any particular size, or to securities traded in
any particular marketplace, and will be based only upon the expected
contribution such security will make to its investment objective. Currently, the
Adviser considers only about 250 stocks as suitable for investment, based upon
their market capitalization and liquidity. The Adviser expects this number to
increase dramatically in the years to come. Together, these 250 stocks represent
a market capitalization of approximately US$ 75 billion.
The Fund faces those same risks that are associated with investing in foreign
and developing markets (see "Other Principal Risks" below). The E. European
Equity Fund's investment success depends on the skill of the Adviser in
evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the E.
European Equity Fund may not perform as anticipated. Generally, the Fund holds
core positions for longer than one year.
The E. European Equity Fund also invests in shares of closed-end investment
companies. These investment companies invest in securities that are consistent
with the E. European Equity Fund's objective and strategies. By investing in
other investment companies the Fund indirectly pays a portion of the expenses
and brokerage costs of these companies in addition to its own expenses. Also,
federal laws impose limits on such investments, which may affect the ability of
the Fund to purchase or sell these shares. The Fund does not actively manage
currency risk.
U.S. Equity Fund
The U.S. Equity Fund's investment objective is to achieve long-term capital
returns in excess of the broad market by investing in equity securities and
securities that are convertible into equity securities, such as warrants,
convertible bonds, debentures or convertible preferred stock. Under normal
circumstances, the U.S. Equity Fund will invest at least 65% of its total assets
in equity securities or securities that are convertible into equity securities.
The U.S. Equity Fund typically invests in securities that are traded on U.S.
exchanges. As of January 1, 2000, the Adviser uses the S&P 500 Index as the
benchmark for the broad market against which the performance of the U.S. Equity
Fund is measured. Prior to January 1, 2000, the Adviser used the EMF Index.
The portfolio of the U.S. Equity Fund will be diversified. The U.S. Equity Fund
typically invests in the securities of medium to large capitalization companies,
but is not limited to investing in securities of companies of any size. Using a
bottom-up investment approach, the Adviser seeks to invest in companies that
have a long record of successful operations in their core business and earnings
growth through increasing market share and unit sales volumes. These companies
are typically among the leaders in their industry, having demonstrated
consistent growth in cash flow, sales, operating profits, returns on equity and
returns on invested capital, and little or no debt. The U.S. Equity Fund also
intends to diversify investments broadly among sectors.
The U.S. Equity Fund may invest more than 5% of its assets in U.S. Government
debt securities. However, because it intends to qualify as a "regulated
investment company" for purposes of Subchapter M of the Code, the U.S. Equity
Fund must meet certain diversification requirements. These include the
requirement that at the end of each tax year quarter, at least 50% of the market
value of its total assets must be invested in cash, cash equivalents, U.S.
Government securities, and securities of issuers (including foreign
governments), in which it has invested not more than 5% of its assets. A
regulated investment company is also limited in its purchases of voting
securities of any one issuer and may invest no more than 25% of that value of
its total assets in securities (other than U.S. Government securities) of any
one issuer.
The U.S. Equity Fund's investment success depends on the skill of the Adviser in
evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the U.S.
Equity Fund may not perform as anticipated.
Bond Fund
The Bond Fund's objective is to maximize total return from capital growth and
income. The Fund will seek to achieve its investment objective by investing in
fixed-income securities that are issued by borrowers in both Western and Eastern
European countries. Foreign government, governmental agency and supranational
agency obligations issued in local currencies represent the most common types of
investments used in the Fund's portfolio.
Under normal circumstances the Bond Fund will invest at least 65% of its total
assets in fixed-income instruments that are issued by borrowers located in
Western and Eastern European countries.
It generally will invest in securities rated Baa3 or higher by Moody's or BBB-
by S&P or unrated securities which the Adviser believes are of comparable
quality. The Fund reserves the right, however, to invest more than 5% of its
assets in lower rated securities (including unrated securities which the Adviser
believes to be of such lower quality). The Fund will invest no more than 10% in
securities rated Ba2 by Moody's or BB by S&P and no more than 5% in securities
rated B2 by Moody's or rated B by S&P, or securities which are unrated but are
of comparable quality as determined by the Adviser.
The Fund will normally have investments in securities of issuers from a minimum
of three different countries. The Fund's investment universe includes, but is
not limited to, Germany, the United Kingdom, France, Denmark, Norway, Sweden,
Belgium, Spain, Switzerland, Ireland, Portugal, Italy, Austria, Finland,
Luxembourg, Greece, Turkey, the Czech Republic, Slovakia, Hungary, Poland,
Slovenia, the Baltic states, Croatia, Romania and Russia.
Generally, the Fund will have up to a maximum of 50% of total assets invested in
debt instruments denominated in the currencies of developing European nations
(including Greece, Turkey and Portugal in addition to Eastern Europe), and 50%
of its total assets in debt instruments of Western Europe. When investments in
Eastern European debt instruments appear more volatile, the Adviser may reduce
its holdings in those instruments to 40%. Conversely, when market conditions in
Eastern European countries appear more favorable, total assets invested in debt
instruments may be increased to 60%. In extreme circumstances, the Fund may
invest up to 80% of its total assets in Western European debt instruments.
While the Bond Fund intends to invest primarily in foreign securities, it may
invest substantially all of its assets in securities of issuers located in the
U.S. for temporary or emergency purposes. Under normal circumstances the Bond
Fund will not invest more than 35% of its total assets in U.S. debt securities;
however, the Fund generally invests less than 10% of its total assets in U.S.
debt securities. In circumstances where the outlook for U.S. dollar cash returns
is more attractive than that for cash and bond returns in all other currencies,
the Fund will hold a U.S. dollar cash position of up to 35% of the Fund's total
assets. Conversely, if the outlook for Eastern European currency cash returns is
more attractive, the Fund will hold foreign cash positions of up to 25% of the
Fund's total assets. From time to time, the Adviser may hold up to 90% of the
Fund's total assets in securitized money market instruments, such as government
short-term paper, treasury bills issued by governments of European countries,
commercial paper and corporate short-term paper with maturities of up to one
year.
The selection of bonds for the Bond Fund is dependent upon the Adviser's
evaluation of those factors influencing interest rates. The Adviser considers
the rates of return available for any particular maturity and compares that to
the rates for other maturities in order to determine the relative and absolute
differences as they relate to income and the potential for market fluctuation.
The Adviser focuses on issuers of the highest available credit quality and uses
international and supranational issuers with credit ratings at least equal to
those of local borrowers. Quality and sector management are therefore not as
complex as for domestic U.S. bonds. Because the Adviser focuses its issue
selection on the highest available credit quality, opportunities to achieve
significant incremental returns in sector selection are limited.
Issue selection within the quality constraints referred to above is principally
aimed at achieving duration and yield curve targets determined in accordance
with the Adviser's top-down market allocation decision. The Adviser is conscious
of the need for liquidity and therefore invests only in issues within a sector
that the Adviser deems to have the greatest future marketability.
The market values of fixed income securities tend to vary inversely with the
level of interest rates. When interest rates rise, the market values of such
securities tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than short-term securities of
similar quality, longer term securities are subject to greater price
fluctuations. There are no restrictions on the maturity composition of the Bond
Fund. Maturity selection is based on the Adviser's total return forecasts.
Currently, most local currency debt instruments tend to have short-term
maturities of one year or less. Eurocurrency instruments, on the other hand,
that have short- to intermediate-term maturities, generally are priced at a
spread over the interest rate applicable to the same-maturity government bond of
the country in whose currency the debt instrument is issued.
To protect against adverse movements of interest rates and for liquidity, the
Fund may also invest all or a portion of its net assets in short-term
obligations, such as bank deposits, bankers' acceptances, certificates of
deposit, commercial paper, short-term government, government agency,
supranational agency and corporate obligations and repurchase agreements. The
Adviser also attempts to protect the Fund from rising interest rates by selling
interest rate future contracts or purchasing put options on interest rate
futures contracts.
OTHER PRINCIPAL RISKS
Stock Market Stock market risk is the risk is the
Risk possibility that stock prices overall will
decline over short or long periods. Because stock market
prices tend to fluctuate, the value of your investment in the
Funds may increase or decrease.
Interest Rate Interest rate risk is the risk that when Risk interest rates
rise, debt security prices
fall. The opposite is also true: debt
security prices rise when interest rates
fall. In general, securities with longer
maturities are more sensitive to these
price changes.
Geographic Investments in a single region, even though
Risks representing a number of different
countries within the region, may be affected by common
economic forces and other factors. A Fund is subject to
greater risks of adverse events which occur in the region and
may experience greater volatility than a Fund that is more
broadly diversified geographically. Political or economic
disruptions in European countries, even in countries in which
a Fund is not invested, may adversely affect security values
and thus, a Fund's holdings.
European Several European countries are
Currency participating in the European Economic and
Monetary Union, which established a common European currency
for participating countries. This currency is commonly known
as the "Euro." Each participating country replaced its
existing currency with the Euro as of January 1, 1999.
Additional European countries may elect to participate in the
common currency in the future. The conversion presents unique
uncertainties, including, among others: (1) whether the
payment and operational systems of banks and other financial
institutions will function properly; (2) how certain
outstanding financial contracts that refer to existing
currencies rather than the Euro will be treated legally; (3)
how exchange rates for existing currencies and the Euro will
be established; and (4) how suitable clearing and settlement
payment systems for the Euro will be managed. If any of the
Funds invest in securities of countries that have converted to
the Euro or convert in the future, that Fund could be
adversely affected if these uncertainties cause adverse
affects on these securities. The Fund could also be adversely
affected if the computer systems used by its major service
providers are not properly prepared to handle the
implementation. The Company has taken steps to obtain
satisfactory assurances that the major service providers of
each of the Funds have taken steps reasonably designed to
address these matters. There can be no assurances that these
steps will be sufficient to avoid any adverse impact on the
operations and investment returns of the Funds. To date the
conversion of the Euro has had negligible impact on the
operations and investment returns of the Funds.
Foreign A Fund's investments in foreign securities
Investing may involve risks that are not ordinarily
associated with U.S. securities. Foreign companies are not
generally subject to the same accounting, auditing and
financial reporting standards as are domestic companies.
Therefore, there may be less information available about a
foreign company than there is about a domestic company.
Certain countries do not honor legal rights enjoyed in the
U.S. In addition, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or
diplomatic developments, which could affect U.S. investments
in those countries. Many foreign securities have substantially
less trading volume than in the U.S. market, and securities in
some foreign issuers are less liquid and more volatile than
securities of domestic issuers. These factors make foreign
investment more expensive for U.S. investors. Mutual funds
offer an efficient way for individuals to invest abroad, but
the overall expense ratios of mutual funds that invest in
foreign markets are usually higher than those of mutual funds
that invest only in U.S. securities.
Emerging and A Fund's investments in emerging and
Developing developing countries involve those same
Markets risks that are associated with foreign
investing in general (see above). In addition to those risks,
companies in such countries generally do not have lengthy
operating histories. Consequently, theses markets may be
subject to more substantial volatility and price fluctuations
than securities that are traded on more developed markets.
Depositary Depositary Receipts are receipts typically
Receipts issued in the U.S. by a bank or trust
company evidencing ownership of an underlying foreign
security. The International Equity Fund and the E. European
Equity Fund may invest in Depositary Receipts which are
structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign
investment applicable to the underlying securities, such
unsponsored Depositary Receipts may also be subject to the
risks that the foreign issuer may not be obligated to
cooperate with the U.S. bank, may not provide additional
financial and other information to the bank or the investor,
or that such information in the U.S. market may not be
current. Please refer to the Statement of Additional
Information for more information on Depositary Receipts.
Temporary When the Adviser believes that investments
Defensive should be deployed in a temporary defensive
Positions posture because of economic or market
conditions, each of the Funds may invest up to 100% of its
assets in U.S. Government securities (such as bills, notes, or
bonds of the U.S. Government and its agencies) or other forms
of indebtedness such as bonds, certificates of deposits or
repurchase agreements (for the risks involved in repurchase
agreements see the Statement of Additional Information). For
temporary defensive purposes, each of the International Equity
Fund, E. European Equity Fund and the Bond Fund may hold cash
or debt obligations denominated in U.S. dollars or foreign
currencies. These debt obligations include U.S. and foreign
government securities and investment grade corporate debt
securities, or bank deposits of major international
institutions. When a Fund is in a temporary defensive
position, it is not pursuing its stated investment objective.
The Adviser decides when it is appropriate to be in a
defensive position. It is impossible to predict for how long
such alternative strategies will be utilized.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
Investment Adviser - Vontobel USA Inc., 450 Park Avenue, New York, N.Y. 10022,
manages the investments of each Fund pursuant to separate Investment Advisory
Agreements (each, an "Advisory Agreement"). The Adviser is a wholly owned and
controlled subsidiary of Vontobel Holding AG, a Swiss bank holding company,
having its registered offices in Zurich, Switzerland. As of December 31, 1999,
the Adviser manages in excess of $2.1 billion. The Adviser also acts as the
adviser to three series of a Luxembourg fund organized by an affiliate of the
Adviser. That fund does not accept investments from the U.S. The Adviser has
provided investment advisory services to mutual fund clients since 1990.
Pursuant to the Advisory Agreements, the Adviser provides the Funds with
investment management services and office space. The Adviser pays the office and
clerical expenses that are associated with investment research, statistical
analysis, and the supervision of the Fund's portfolios. The Adviser also pays
the salaries (and other forms of compensation) of the Company's directors and
officers or employees of the Company who are also officers, Directors or
employees of the Adviser. Each Fund is responsible for all other expenses that
are not specifically assumed by the Adviser. Such expenses include (but are not
limited to) brokerage fees and commissions, legal fees, auditing fees,
bookkeeping and record keeping fees, custodian and transfer agency fees and
registration fees.
As compensation for its service as investment adviser for each of the Funds, the
Adviser receives a fee. That fee is payable monthly an annualized rate that is
equal to a percentage of the Fund's average daily net assets. The percentages
are set forth below. These fees are higher than those charged to most other
investment companies, but are comparable to fees paid by investment companies
with investment objectives and policies similar to the Funds' investment
objectives and policies.
For the fiscal year ended December 31, 1999, the Adviser earned $1,224,969 for
the Value Fund, $1,474,217 for the International Equity Fund, $387,669 for the
E. European Equity Fund, $16,711 for the U.S. Equity Fund and $104,623 for the
Bond Fund. The Adviser waived fees of $22,500 for the Value Fund, $16,711 for
the U.S. Equity Fund and $104,623 for the Bond Fund.
In the interest of limiting expenses of the Value Fund, the U.S. Equity Fund and
the Bond Fund, the Adviser has entered into a contractual expense limitation
agreement with the Company. Pursuant to the agreement, the Adviser has agreed to
waive or limit its fees and to assume other expenses so that the total annual
operating expenses are limited to 1.75% for the Value Fund and the U.S. Equity
Fund; and 2.49% for the Bond Fund. These limits do not apply to interest, taxes,
brokerage commissions, other expenditures capitalized in accordance with
generally accepted accounting principles and other extraordinary expenses not
incurred in thee ordinary course of business.
Int'l. E.Eur. U.S.
Value Equity Equity Equity Bond
Amount of Assets Managed Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
$0-$100 million 1.00% 1.00% 1.25% 1.00% 1.25%
More than $100 million to $500 million 0.75% 0.75% 1.25% 1.00% 1.25%
More than $500 million to $1 billion 0.75% 0.75% 1.00% 0.875% 1.00%
More than $1 billion 0.75% 0.75% 1.00% 0.75% 1.00%
- --------------------------------------------------------------------------------
Mr. Edwin Walczak is a Senior Vice President of the Adviser. Mr.
Walczak joined the Adviser in 1988 and has been the President and
portfolio manager of the Value Fund since its inception in March,
1990.
Mr. Fabrizio Pierallini, who is the Chief Investment Officer and a Senior Vice
President of the Adviser, has been the President and portfolio manager of the
International Equity Fund since May, 1994 and the U.S. Equity Fund since its
inception on August 18, 1997. From September, 1988 to April, 1991, Mr.
Pierallini worked with Swiss Bank Corporation (now UBS), as a Vice
President/Portfolio Manager in its Zurich office and from May, 1991 to April,
1994 as an Associate Director/Portfolio Manager in its New York office.
Mr. Mark Robertson joined the Adviser in September, 1991. He is a
Vice President of the Adviser and the associate portfolio manager of
the U.S. Equity Fund. Prior to joining the Adviser, Mr. Robertson
was a securities analyst with the Value Line Investment Survey.
Mr. Rajiv Jain joined the Adviser in November, 1994. He is a First
Vice President of the Adviser and the associate portfolio manager of
the International Equity Fund. From 1993 to 1994, Mr. Jain worked
as an analyst with Swiss Bank Corporation, New York.
Mr. Luca Parmeggiani, who is a Vice President of the Adviser, has been the
portfolio manager of the E. European Equity Fund since October 1, 1997. Mr.
Parmeggiani is a First Vice President of Vontobel Asset Management, Switzerland,
which he joined in September, 1997 as head of Eastern European equity research
and management. He was formerly a Vice President of Lombard Odier & Cie, Geneva,
which he joined as a quantitative analyst in 1992, and was the portfolio manager
of Lombard Odier's closed-end Polish Investment Fund and its Luxembourg-based
Eastern Europe Fund. He is an EFFAS certified financial analyst (European
Federation of Financial Analysts and Statisticians).
Dr. Monica Mastroberardino, Vice President of the Adviser, has been the
portfolio manager of the Bond Fund since August, 1999. Dr. Mastroberardino has
been a macroeconomic analyst with Vontobel Asset Management, Zurich, since
February, 1998 and is the associate fund manger of its Luxembourg-based Eastern
European Debt Fund. From February, 1995 to January, 1998, she worked as a
macroeconomic and financial analyst for Credit Suisse, Zurich.
SHAREHOLDER INFORMATION
Each Fund's share price, called its NAV, is determined as of the close of
trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Time) on each business day ("Valuation Time") that the NYSE is open; however,
the Company's management may compute the NAV more frequently in order to protect
shareholders' interests. As of the date of this prospectus, the Fund is informed
that the NYSE will be closed on the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. NAV per share is computed by
adding the total value of the investments and other assets, subtracting any
liabilities and then dividing by the total number of shares outstanding.
The Fund's securities are generally valued at current market prices. Investments
in securities traded on the national securities exchanges or included in the
NASDAQ National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on that date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost pricing procedures. Other assets for
which market prices are not readily available are valued at their fair value as
determined in good faith under procedures set by the Board of Directors.
Depositary Receipts (i.e., ADRs, EDRs and GDRs) will be valued at the closing
price of the instrument last determined prior to the Valuation Time unless the
Company is aware of a material change in value. Securities for which such a
value cannot be readily determined on any day will be valued at the closing
price of the underlying security adjusted for the exchange rate.
PURCHASING SHARES
You may purchase shares of the Fund directly from Vontobel Fund Distributors
(the "Distributor") or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. When you acquire or redeem
shares through a securities broker or dealer, you may be charged a transaction
fee. The offering price per share is equal to the NAV next determined after the
Fund receives your purchase order.
The minimum initial investment for the Value Fund, E. European Equity Fund, U.S.
Equity Fund and Bond Fund is $1,000. The minimum initial investment in the
International Equity Fund is $200,000. Subsequent investments, for all Funds,
must be $50 or more. The Company may waive the minimum initial investment
requirement for purchases made by directors, officers and employees of the
Company. The Company may also waive the minimum investment requirement for
purchases by its affiliated entities and certain related advisory accounts and
retirement accounts (such as IRAs).
Purchase by Mail - To purchase shares of a Fund by mail complete and sign the
attached application form (the "Account Application") and mail it together with
your check to Fund Services, Inc., (the "Transfer Agent"), at P.O. Box 26305,
Richmond, VA 23260. All checks should be made payable to the applicable Fund.
For subsequent purchases, include the tear-off stub from a prior purchase
confirmation with your check. Otherwise, identify the name(s) of the registered
owner(s) and social security number(s).
Investing by Wire - You may purchase shares by requesting your bank to wire
funds directly to the Transfer Agent. To invest by wire please call the Transfer
Agent at (800) 628-4077 for instructions, then notify the Distributor by calling
(800) 776-5455. Your bank may charge you a small fee for this service. Once you
have arranged to purchase shares by wire, please complete and mail an Account
Application promptly to the Transfer Agent. This application is required to
complete the Fund's records. You will not have access to your shares until the
Fund's records are complete. Once your account is opened, you may make
additional investments using the wire procedure described above. Be sure to
include your name and account number in the wire instructions that you provide
your bank.
The Transfer Agent will automatically establish and maintain an open account for
the Funds' shareholders. The open account reflects a shareholder's shares. This
service facilitates the purchase, redemption or transfer of shares, eliminates
the need to issue or safeguard certificates and reduces time delays in executing
transactions. Stock certificates are not required and are not normally issued.
Stock certificates for full shares will be issued by the Transfer Agent upon
written request but only after payment for the shares is collected by the
Transfer Agent.
REDEEMING SHARES
You may redeem shares of the Funds at any time and in any amount by mail or
telephone. For your protection, the Transfer Agent will not redeem your shares
until it has received all information and documents necessary for your request
to be considered in "proper order." (See "Signature Guarantees.") The Transfer
Agent will promptly notify you if your redemption request is not in proper
order.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. The Company
deducts a 2% redemption fee from proceeds of the U.S. Value, U.S. Equity and
International Equity Fund shares redeemed less than three months after purchase
(including shares to be exchanged). The Company deducts a 2% redemption fee from
proceeds of the E. European Equity and Bond Fund shares redeemed less than six
months after purchase (including shares to be exchanged). The applicable Fund
retains this amount to offset the Fund's costs of purchasing or selling
securities. The Adviser reserves the right to waive the redemption fee for its
clients.
After receipt of your request in proper order, the Transfer Agent will mail
redemption proceeds to your registered address within seven days. The Transfer
Agent will make payments payable to the registered owner(s) unless you specify
otherwise in your redemption request.
Please note that: (1) the Transfer Agent cannot accept redemption requests which
specify a particular date for redemption, or which specify any special
conditions; and (2) if the shares you are redeeming were purchased less than 15
days prior to the receipt of your redemption request, the Transfer Agent must
determine the check you used to pay for the shares you are redeeming has cleared
before it disburses the redemption proceeds. If you anticipate that you may make
a redemption within 15 days after you purchase shares, you should make your
purchase by wire, or by a certified, treasurer's or cashier's check.
The Company may suspend the right to redeem shares for any period during which
the NYSE is closed or the Securities and Exchange Commission determines that
there is an emergency. In such circumstances you may withdraw your redemption
request or permit your request to be held for processing at the NAV per share
next computed after the suspension is terminated.
Redemption by Mail - To redeem shares by mail, send a written request for
redemption, signed by the registered owner(s) exactly as the account is
registered. Certain written requests to redeem shares may require signature
guarantees. For example, signature guarantees may be required if you sell a
large number of shares or if you ask that the proceeds be sent to a different
address or person. Signature guarantees are used to help protect you and the
Funds. You can obtain a signature guarantee from most banks or securities
dealers, but not from a Notary Public. Please call the Transfer Agent to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately. There is no charge to shareholders for redemptions by mail.
Redemption by Telephone - You may redeem your shares by telephone provided that
you requested this service on your initial Account Application. If you request
this service at a later date, you must send a written request along with a
signature guarantee to the Transfer Agent. Once your telephone authorization is
in effect, you may redeem shares by calling the Transfer Agent at (800)
628-4077. There is no charge for establishing this service, but the Transfer
Agent will charge your account a $10.00 service fee for each telephone
redemption. The Transfer Agent may change the amount of this service charge at
any time without prior notice.
You cannot redeem shares by telephone if you hold a stock certificate
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the books
of the Company for less than 15 days.
If it should become difficult to reach the Transfer Agent by telephone during
periods when market or economic conditions lead to an unusually large volume of
telephone requests, a shareholder may send a redemption request to the Transfer
Agent by overnight mail.
The Transfer Agent employs reasonable procedures designed to confirm the
authenticity of your instructions communicated by telephone and, if it does not,
it may be liable for any losses due to unauthorized or fraudulent transactions.
Redemption by Wire - If you request that your redemption proceeds be wired to
you, please call your bank for instructions prior to writing or calling the
Transfer Agent. Be sure to include your name, Fund account number, your account
number at your bank and wire information from your bank in your request to
redeem by wire.
Signature Guarantees - To help to protect you and the Company from fraud,
signature guarantees are required for: (1) all redemptions ordered by mail if
you require that the check be payable to another person or that the check be
mailed to an address other than the one indicated on the account registration;
(2) all requests to transfer the registration of shares to another owner; and,
(3) all authorizations to establish or change telephone redemption service,
other than through your initial Account Application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts - Due to the relatively higher cost of maintaining small
accounts, the Company may deduct $10 per year from your account or may redeem
the shares in your account, if it has a value of less than $1,000. The Company
will advise you in writing sixty (60) days prior to deducting the annual fee or
closing your account, during which time you may purchase additional shares in
any amount necessary to bring the account back to $1,000. The Company will not
close your account if it falls below $1,000 solely because of a market decline.
OTHER SHAREHOLDER SERVICES
Individual Retirement Accounts (IRA's) - IRA accounts are available. Please call
(800)-527-9500 for information and to request forms.
Invest-A-Matic Account - Existing shareholders, who wish to make regular monthly
investments in amounts of $50 or more, may do so through the Invest-A-Matic
Account.
Exchange Privileges Account - You may exchange all or a portion of your shares
in each Fund for the shares of certain other Funds having different investment
objectives, provided that the shares of the Fund you are exchanging into are
registered for sale in your state of residence. Your account may be charged $10
for a telephone exchange. An exchange is treated as a redemption and purchase
and may result in realization of a gain or loss on the transaction.
How To Transfer Shares
If you wish to transfer shares to another owner, send a written request to the
Transfer Agent. Your request should include (1) the name of the Fund and
existing account registration; (2) signature(s) of the registered owner(s); (3)
the new account registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be distributed;
(4) any stock certificates which have been issued for the shares being
transferred; (5) signature guarantees (See "Signature Guarantees"); and (6) any
additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any questions
about transferring shares, call the Transfer Agent at (800) 628-4077.
Account Statements and Shareholder Reports
Each time you purchase, redeem or transfer shares of a Fund, you will receive a
written confirmation. You will also receive a year-end statement of your account
if any dividends or capital gains have been distributed, and an annual and a
semi-annual report.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income, if any, are declared annually by each
Fund. Each of the Funds intends to distribute annually any net capital gains.
Dividends will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. If you do not wish to have
your dividends reinvested in additional shares, you should send a written
request to that effect to the Transfer Agent. There are no sales charges or
transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made with an IRA, all dividends and capital
gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a Fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend." To avoid buying a dividend, check each Fund's distribution
schedule before you invest. Shareholders will be subject to tax on all dividends
and distributions whether paid to them or reinvested in shares of the Fund.
DISTRIBUTIONS AND TAXES
Tax Considerations
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of a Fund or receive them in cash. Any capital gains a Fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares.
By law, a Fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS has notified you that you are subject to
backup withholding and instructs a Fund to do so.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your Fund shares, you may have a capital gain or loss. For tax
purposes, an exchange of your Fund shares for shares of a different series of
the Company is the same as a sale.
Fund distributions and gains from the sale or exchange of your Fund shares will
generally be subject to state and local income tax. Any foreign taxes paid by a
Fund that invests more than 50% of its assets in foreign securities may be
passed through to you as a foreign tax credit. Non-U.S. investors may be subject
to U.S. withholding and estate tax. You should consult with your tax adviser
about the federal, state, local or foreign tax consequences of your investment
in a Fund.
DISTRIBUTION ARRANGEMENTS
The Funds are offered through financial supermarkets, investment advisers and
consultants, financials planners, brokers, dealers and other investment
professionals and directly through First Dominion Capital Corp. ("FDCC"), the
Distributor for the Funds. The shares are offered and sold without any sales
charges imposed by the Funds or the Distributor. However, investment
professionals who offer shares may request fees from their individual clients.
If you invest through a third party, the policies and fees may be different than
those described in the Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years [or, if shorter, the period of the
Fund's operations]. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned [or lost] on an investment in the Fund (assuming reinvestment
of all dividends and distributions). The Funds' financial highlights for the
period presented have been audited by Tait, Weller and Baker, independent
auditors, whose unqualified report thereon is included in the SAI. The Funds'
financial statements, notes to financial statements and report of independent
accountants are included in the SAI as well as in the Funds' Annual Report to
Shareholders (the "Annual Report"). Additional performance information for the
Funds is included in the Annual Report. The Annual Report and the SAI are
available at no cost from the Fund at the address and telephone number noted on
the back page of this Prospectus. The following information should be read in
conjunction with the financial statements and notes thereto.
<PAGE>
Vontobel U.S. Value Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
Years ended December 31,
-----------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value,
beginning of period $16.73 $16.51 $13.78 $13.25 $10.26
------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.07 0.22 0.10 0.17 0.05
Net realized and
unrealized gain (loss)
on investments (2.42) 2.06 4.61 2.65 4.09
------ ----- ----- ----- -----
Total from investment operations (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 $14.27 $16.73 $16.51 $13.78 $13.25
====== ====== ====== ======= =====
Total Return (14.07%)14.70% 34.31% 21.28% 40.36%
Ratios/Supplemental Data
Net assets, end of
Period (000's) $71,480 $200,463 $203,120 $69,552 $55,103
Ratio to average
net assets - (A)
Expenses - (B) 1.87% 1.46% 1.61% 1.48% 1.65%
Expenses - net (C) 1.87% 1.45% 1.58% 1.43% 1.50%
Net investment income 0.40% 0.93% 0.72% 0.63% 0.38%
Portfolio turnover rate 66.62%122.71% 89.76%108.36% 95.93%
(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.
<PAGE>
Vontobel International Equity FundFinancial HighlightsFor a Share
-----------
Outstanding Throughout Each Period
Years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value, beginning $20.18$18.15 $18.22 $17.13 $16.23
Income from investment
operations-
Net investment income 0.06 0.01 (0.03) 0.03 0.16
Net realized and unrealized
gain (loss) on investments 9.07 2.98 1.74 2.85 1.61
Total from investment
operations 9.13 2.99 1.71 2.88 1.77
Less distributions-
Distributions from net
investment income (0.05) 0.00 0.00 (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 period $28.01 $20.18 $18.15 $18.22 $17.13
Total Return 46.52% 16.77% 9.19% 16.98% 10.91%
Ratios/Supplemental Data
Net assets,
end of period (000s) $192,537 $161,933 $160,821 $151,710 $130,505
Ratio to average net assets-
Expenses (A) 1.28% 1.40% 1.56% 1.60% 1.63%
Expenses-net (B) 1.27% 1.36% 1.50% 1.39% 1.53%
Net investment income (loss) 0.03% 0.06% (0.17%) 0.15% 0.41%
Portfolio turnover rate 37.91% 41.51% 38.45% 54.58% 68.43%
(A) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits.
(B) Expense ratio-net reflects the effect of the custodian fee credits the Fund
received.
<PAGE>
Vontobel Eastern European Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
February 15,*
Years ended December 31, to December 31,
------------------------
1999 1998 1997 1996
---- ---- ---- ----
Per Share Operating Performance
Net asset value,
beginning of period $ 8.14 $15.25 $14.89 $10.00
Income from investment
operations-
Net investment loss (0.20) (0.31) (0.19) (0.06)
Net realized and unrealized
gain (loss) on investments 1.38 (6.80) 1.47 4.95
Total from investment
operations 1.18 (7.11) 1.28 4.89
Less distributions-
Distributions from realized
gains on investments 0.00 0.00 (0.92) 0.00
Total distributions 0.00 0.00 (0.92) 0.00
Net asset value, end
of period $9.32 $8.14 $15.25 $14.89
Total Return 14.50% (46.62)% 8.74% 48.90%
Ratios/Supplemental Data
Net assets, end of
Period (000s) $33,644 $36,154 $139,408 $61,853
Ratio to average net assets-
Expense 3.37% 2.57% 1.94% 2.02%**
Expense 3.26% 2.41% 1.66% 1.71%**
Net investment loss (2.35%) (1.67%) (1.30%) (1.07)**
Portfolio turnover 103.80% 135.35% 105.86% 38.69%
* Commencement of operations
** Annualized
(A) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits.
(B) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
<PAGE>
Vontobel U.S. Equity Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
Years ended December 31, September 1,* to
------------------------
1999 1998 December 31, 1997
---- ---- -----------------
Per Share Operating
Performance
Net asset value,
beginning of period $7.31 $9.42 $10.00
Income from investment
operations-
Net investment income
(loss) (0.02) 0.00 (0.04)
Net realized and
unrealized gain
(loss) on investments 2.40 (2.11) (0.54)
Total from investment
operations 2.38 (2.11) (0.58)
Net asset value,
end of period $9.69 $7.31 $9.42
Total Return 32.56% (22.40%) (5.80%)
Ratios/Supplemental Data
Net assets, end of period $10,946 $1,611 $3,601
Ratio to average net assets- (A)
Expenses (B) 3.05% 2.38% 2.41%**
Expenses-net (C) 3.02% 2.07% 2.20%**
Net investment loss (1.68%) (0.02%) (1.42)**
Portfolio turnover rate 128.26% 130.59% 16.36%
(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.
* Commencement of operations
** Annualized
<PAGE>
Vontobel Greater European Bond Fund
Financial Highlights
For a Share Outstanding Throughout Each Period
Years ended December 31, September 1* to
------------------------
1999 1998 December 31, 1997
---- ---- -----------------
Per Share Operating Performance
Net asset value,
beginning of period $10.21 $9.70 $10.00
Income from investment
operations
Net investment income 0.71 1.27 0.26
Net realized and
unrealized gain (loss)
on investments (1.63) 1.09 (0.32)
Total from investment
operations (0.92) 2.36 (0.06)
Less distributions
Distributions from
net investment income - (1.64) (0.24)
Distributions from
capital gains - (0.21) -
Total Distributions 0.00 (1.85) (0.24)
Net asset value, end of period $9.29 $10.21 $9.70
Total Return (9.01%) 24.54% (0.55%)
Ratios/Supplemental Data
Net assets,
end of period (000's) $9,336 $7,882 $14,438
Ratio to average net assets -(A)
Expenses - (B) 2.70%** 1.98% 2.38%**
Expenses - net (C) 2.49%** 1.98% 2.19%**
Net investment income 8.73%** 12.03% 8.28%**
Portfolio turnover rate 61.37% 21.36% 0.00%
*Commencement of operations
**Annualized
(A) Management fee waivers reduced the expense ratio and increased the ratio of
net investment income by 1.28% and .41% in 1999 and 1998, 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.
<PAGE>
Information about the Company, including the SAI, can be reviewed and copied at
the SEC's Public Reference Room, 450 Fifth Street NW, Washington, D.C.
Information about the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Annual and semi-annual reports and other
information regarding the Funds are available on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: [email protected], or by writing the Commission's Public
Reference Section, Washington D.C. 20549-0102. For more information about the
Funds, you may wish to refer to the Company's SAI dated May 1, 2000, which is on
file with the SEC and incorporated by reference into this Prospectus. You can
obtain a free copy of the SAI by writing to Vontobel Funds, Inc., 1500 Forest
Avenue, Suite 223, Richmond, Virginia 23229, by calling toll free (800) 527-9500
or by e-mail at: [email protected]. General inquiries regarding the
Funds may also be directed to the above address or telephone number. This
prospectus is also available on-line at our website (www.vontobelfunds.com).
(Investment Company Act File No. 811-3551)
<PAGE>
VONTOBEL FUNDS, INC.
(THE "COMPANY")
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
1-800-527-9500
STATEMENT OF ADDITIONAL INFORMATION
VONTOBEL U.S. VALUE FUND
VONTOBEL INTERNATIONAL EQUITY FUND
VONTOBEL EASTERN EUROPEAN EQUITY FUND
VONTOBEL U.S. EQUITY FUND
VONTOBEL GREATER EUROPEAN BOND FUND
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the Vontobel U.S. Value
Fund, Vontobel International Equity Fund, Vontobel Eastern European Equity Fund,
Vontobel U.S. Equity Fund (formerly named Vontobel Emerging Markets Equity Fund)
and Vontobel Greater European Bond Fund (collectively, the "Funds"), dated May
1, 2000. You may obtain the Prospectus of the Funds, free of charge, by writing
to Vontobel Funds, Inc. at 1500 Forest Avenue, Suite 223, Richmond, VA 23229 or
by calling 1-800-527-9500.
The Funds' audited financial statements and notes thereto for the year ended
December 31, 1999 and the unqualified report of Tait, Weller & Baker, on such
financial statements (the "Report") are incorporated by reference in this SAI
and are included in the Funds' 1999 annual report to shareholders (the "Annual
Report"). A copy of the Annual Report accompanies this SAI and an investor may
obtain a copy of the Annual Report by writing to the Company or calling
(800)-527-9500.
The date of this SAI is May 1, 2000.
<PAGE>
TABLE OF CONTENTS PAGE
General Information
Investment Objectives
Strategies and Risks
Investment Programs
Convertible Securities
Warrants
Illiquid Securities
Debt Securities
International Bonds
Strategic Transactions
Options
Futures
Currency Transactions
Combined Transactions
Eurocurrency Instruments
Use of Segregated and Other Special Accounts
Depositary Receipts
Temporary Defensive Positions
U.S. Government Securities
Repurchase Agreements
Reverse Repurchase Agreements
When-Issued Securities
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Investment Adviser and Advisory Agreement Management-Related Services Portfolio
Transactions Portfolio Turnover Capital Stock and Dividends Dividends and
Distributions Additional Information about Purchases and Sales Eligible Benefit
Plans Tax Status Investment Performance Financial Information
<PAGE>
GENERAL INFORMATION
Vontobel Funds, Inc. (the "Company") was organized as a Maryland
corporation on October 28, 1983. The Company is an open-end,
management investment company (commonly known as a "mutual fund"),
registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). This SAI relates to the Vontobel U.S. Value
Fund ("Value Fund"), Vontobel International Equity Fund
("International Equity Fund"), Vontobel Eastern European Equity
Fund ("E. European Equity Fund"), Vontobel U.S. Equity Fund ("U.S.
Equity Fund") and Vontobel
Greater European Bond Fund ("Bond Fund") (individually, a "Fund,"
collectively, the "Funds"). Each Fund is a separate investment
portfolio or series of the Company (see "Capital Stock" below).
Each of the International Equity, E. European Equity and U. S.
Equity Funds is a "diversified" series," as that term is defined in
the 1940 Act. The Value and Bond Funds are "non-diversified" series.
INVESTMENT OBJECTIVES
The Value Fund's investment objective is to achieve long-term capital returns.
The investment objective of each of the International Equity and E. European
Equity Funds is to achieve capital appreciation and the investment objective of
the U.S. Equity Fund is to achieve long-term capital appreciation. The
investment objective of the Bond Fund is to maximize total return from capital
growth and income.
All investments entail some market and other risks. For instance, there is no
assurance that a Fund will achieve its investment objective. You should not rely
on an investment in a Fund as a complete investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Funds'
Prospectus. In seeking to meet its investment objective, each Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Convertible Securities: Each of the Value, International Equity, E. European
Equity and U.S. Equity Funds may invest in convertible securities. Traditional
convertible securities include corporate bonds, notes and preferred stocks that
may be converted into or exchanged for common stock, and other securities that
also provide an opportunity for equity participation. These securities are
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other fixed income
securities, the price of a convertible security generally varies inversely with
interest rates. While providing a fixed income stream, a convertible security
also affords the investor an opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. As the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of higher yield or
capital appreciation. In such situations, the Funds have to pay more for a
convertible security than the value of the underlying common stock.
Warrants: Each of the Value, International Equity, E. European Equity and U.S.
Equity Funds may invest in warrants. Warrants are options to purchase equity
securities at a specific price for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Hence,
warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
differ from call options in that the underlying corporation issues warrants,
whereas call options may be written by anyone.
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. For this purpose, the term "illiquid securities" means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount which the Fund has valued the
securities. Illiquid securities include generally, among other things, certain
written over-the-counter options, securities or other liquid assets as cover for
such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests and other securities whose disposition is
restricted under the federal securities laws.
Debt Securities: The Bond Fund intends to invest primarily in debt securities.
It generally will invest in securities rated Baa3 or higher by Moody's Investor
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Rating Group ("S&P") or
unrated securities which the Adviser believes are of comparable quality. The
Fund reserves the right, however, to invest more than 5% of its assets in lower
rated securities (including unrated securities which the Adviser believes to be
of such lower quality). The Fund will invest no more than 10% in securities
rated Ba2 and no more than 5% in securities rated B2 by Moody's or,
respectively, securities rated BB and B by S&P, or securities which are unrated
but are of comparable quality as determined by the Adviser. The Fund may invest
substantial amounts in issuers from one or more countries and will normally have
investments in securities of issuers from a minimum of three different
countries. Under normal circumstances, the Value Fund and the U.S. Equity Fund
will have at least 65% of its assets invested in common stocks or securities
convertible into common stocks. The Value Fund and U.S. Equity Fund may also
acquire fixed income investments where these fixed income securities are
convertible into equity securities. The fixed income securities in which the
Value Fund and the U.S. Equity Fund may invest will be rated at the time of
purchase Baa or higher by Moody's, or BBB or higher by S&P, or foreign
securities not subject to standard credit ratings, which the Adviser believes
are of comparable quality.
International Bonds: International bonds are bonds issued in countries other
than the United States. The investments of the Bond Fund may include debt
securities issued or guaranteed by Western and Eastern European national
governments, their agencies, instrumentalities or political subdivisions,
corporate debt securities issued by borrowers in Western and Eastern European
countries and Western and Eastern European bank holding company debt securities.
Strategic Transactions
Each of the Funds may utilize a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates, and broad
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities, or to enhance potential gain
(strategies described in more detail below). Such strategies are generally
accepted as modern portfolio management and are regularly utilized by many
mutual funds and institutional investors. Techniques and instruments may change
over time as new instruments and strategies develop and regulatory changes
occur.
In the course of pursuing these investment strategies, each Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as they are in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities,
currencies and other instruments. The value of such positions could also be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability than in the United States of data on which to
make trading decisions, (3) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lower
trading volume and liquidity.
Options
Each of the Funds may purchase and sell options as described in the Prospectus
and herein.
Put and Call Options
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. A Fund may
purchase a put option on a security to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in market value by giving the Fund the right to sell such instrument at
the option exercise price. Such protection is, of course, only provided during
the life of the put option when the Fund is able to sell the underlying security
at the put exercise price regardless of any decline in the underlying security's
market price. By using put options in this manner, the Fund will reduce any
profit it might otherwise have realized in its underlying security by the
premium paid for the put option and by transaction costs.
A call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. The Fund's purchase of a call option on a security,
financial future, index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying instrument.
When writing a covered call option, the Fund, in return for the premium, gives
up the opportunity to profit from a market increase in the underlying security
above the exercise price, but conversely retains the risk of loss should the
price of the security decline. If a call option which the Fund has written
expires, it will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, the Fund will realize a gain
or loss from the sale of the underlying security.
The premium received is the market value of an option. The premium the Fund will
receive from writing a call option, or, which it will pay when purchasing a put
option, will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, the general supply and demand for credit conditions, and the
general interest rate environment. The premium received by the Fund for writing
covered call options will be recorded as a liability in its statement of assets
and liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the
Fund's net asset value ("NAV") per share is computed (close of the New York
Stock Exchange ("NYSE")), or, in the absence of such sale, the latest asked
price. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option.
The premium paid by the Fund when purchasing a put option will be recorded as an
asset in its statement of assets and liabilities. This asset will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the Fund's NAV per share is computed (close of the NYSE),
or, in the absence of such sale, the latest bid price. The asset will be
extinguished upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the underlying
security upon the exercise of the option.
The purchase of a put option will constitute a short sale for federal tax
purposes. The purchase of a put at a time when the substantially identical
security held long has not exceeded the long term capital gain holding period
could have adverse tax consequences. The holding period of the long position
will be cut off so that even if the security held long is delivered to close the
put, short term gain will be recognized. If substantially identical securities
are purchased to close the put, the holding period of the securities purchased
will not begin until the closing date. The holding period of the substantially
identical securities not delivered to close the short sale will commence on the
closing of the short sale.
The Fund will purchase a call option only to close out a covered call option it
has written. It will write a put option only to close out a put option it has
purchased. Such closing transactions will be effected in order to realize a
profit on an outstanding call or put option, to prevent an underlying security
from being called or put, or, to permit the sale of the underlying security.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option, or purchase another put option, on the underlying security
with either a different exercise price or expiration date or both. If the Fund
desires to sell a particular security from its portfolio on which it has written
a call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security. There is,
of course, no assurance that the Fund will be able to effect such closing
transactions at a favorable price. If it cannot enter into such a transaction,
it may be required to hold a security that it might otherwise have sold, in
which case it would continue to be at market risk on the security. This could
result in higher transaction costs, including brokerage commissions. The Fund
will pay brokerage commissions in connection with the writing or purchase of
options to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
Options written by the Fund will normally have expiration dates between three
and nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, the Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional brokerage commissions will be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different call or put option. Also, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
An American style put or call option may be exercised at any time during the
option period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto. The Fund is authorized
to purchase and sell exchange-listed options and over-the-counter options ("OTC
options"). Exchange-listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although cash
settlement may become available in the future. Index options and Eurocurrency
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange-listed put or call option is dependent, in part, upon liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (1) insufficient trading interest in certain options;
(2) restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (4) interruption of the normal operations of the OCC or an exchange; (5)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (6) a decision by one or more exchanges to discontinue the trading of
options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through a direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days.
Although it is not required to do so, the Fund generally expects to enter into
OTC options that have cash settlement provisions.
Unless the parties provide otherwise, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers," or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that OTC options purchased by a Fund and portfolio securities
"covering" the amount of a Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to a fund's limitation on investing no more than 10%
of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge against a decrease in the value of the underlying securities or
instruments in its portfolio. The premium may also increase the Fund's income.
The sale of put options can also provide income.
The Funds may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, and Eurocurrency instruments (see "Eurocurrency Instruments" below
for a description of such instruments) that are traded in U.S. and foreign
securities exchanges and in the over-the-counter markets, and futures contracts.
Each of the International Equity, E. European Equity and the Bond Fund
(collectively, the International Funds) may purchase and sell call options on
currencies. All calls sold by the Fund must be "covered" (i.e., the Fund must
own the securities or futures contract subject to the call) or must meet the
asset segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.
The Funds may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, convertible securities, and Eurocurrency
instruments (whether or not it holds the above securities in its portfolio), and
futures contracts (except the Bond Fund) may not purchase or sell futures
contracts on individual corporate debt securities.) The International Funds may
purchase and sell put options on currencies. The Fund will not sell put options
if, as a result, more than 50% of the Fund's assets would be required to be
segregated to cover its potential obligations under such put options other than
those with respect to futures and options thereon. In selling put options, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price. For tax purposes, the purchase of
a put is treated as a short sale, which may cut off the holding period for the
security. Consequently, the purchase of a put is treated as generating gain on
securities held less than three months or short term capital gain (instead of
long term) as the case may be.
Options on Securities Indices and Other Financial Indices
The Funds may also purchase and sell call and put options on securities indices
and other financial indices. By doing so, the Funds can achieve many of the same
objectives that they would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement. For example, an option on an index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the index upon which the option is based exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option. This amount of cash is equal to the excess of the closing price
of the index over the exercise price of the option, which also may be multiplied
by a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or any other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
Futures
The International Funds may enter into financial futures contracts or purchase
or sell put and call options on such futures as a hedge against anticipated
interest rate or currency market changes and for risk management purposes. The
Bond Fund may enter into financial futures contracts or purchase or sell put and
call options on such futures for duration management. The use of futures for
hedging is intended to protect an International Fund from (1) the risk that the
value of its portfolio of investments in a foreign market may decline before it
can liquidate its interest, or (2) the risk that a foreign market in which it
proposes to invest may have significant increases in value before it actually
invests in that market. In the first instance, the International Fund will sell
a future based upon a broad market index which it is believed will move in a
manner comparable to the overall value of securities in that market. In the
second instance, the International Fund will purchase the appropriate index as
an "anticipatory" hedge until it can otherwise acquire suitable direct
investments in that market. As with the hedging of foreign currencies, the
precise matching of financial futures on foreign indices and the value of the
cash or portfolio securities being hedged may not have a perfect correlation.
The projection of future market movement and the movement of appropriate indices
is difficult, and the successful execution of this short-term hedging strategy
is uncertain.
Regulatory policies governing the use of such hedging techniques require the
International Funds to provide for the deposit of initial margin and the
segregation of suitable assets to meet their obligations under futures
contracts. Futures are generally bought and sold on the commodities exchanges
where they are listed with payment of initial and variation margin as described
below. The sale of a futures contract creates a firm obligation by an
International Fund, as seller, to deliver to the buyer the specific type of
financial instrument called for in the contract at a specific future time for a
specified price (or, with respect to index futures and Eurocurrency instruments,
the net cash amount). Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position.
The International Funds' use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements, particularly
the rules and regulations of the Commodity Futures Trading Commission. The
International Funds will use such techniques only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option thereon
requires the International Fund to deposit an amount of cash or other specified
assets (initial margin), which initially is typically 1% to 10% of the face
amount of the contract (but may be higher in some circumstances) with a
financial intermediary as security for its obligations. Additional cash or
assets (variation margin) may be required to be deposited thereafter on a daily
basis as the mark to market value of the contract fluctuates. The purchase of an
option on financial futures involves payment of a premium for the option without
any further obligation on the part of the International Fund. If the
International Fund exercises an option on a futures contract, it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction, but there can be
no assurance that the position can be offset prior to settlement at an advantage
price or that delivery will occur.
An International Fund will not enter into a futures contract or related option
(except for closing transactions) if immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the International Fund's total assets (taken at
current value); however, in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The segregation requirements with respect to futures contracts
and options thereon are described below.
Currency Transactions
Each of the International Funds may engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange-listed currency
futures, exchange-listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract between the
parties, at a specified price. These contracts are traded in the interbank
market and conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward foreign currency contract
generally has no deposit requirement or commissions charges. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies. Currency swaps operate similarly to an interest rate swap
(described below). The International Funds may enter into currency transactions
with Counterparties which have received (or the guarantors of the obligations of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from a NRSRO, or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Furthermore, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time an International Fund is engaging in proxy
hedging (see "Proxy Hedging," below). If an International Fund enters into a
currency hedging transaction, it will comply with the asset segregation
requirements described below. Cross currency hedges may not be considered
"directly related" to the International Funds' principal business of investing
in stock or securities (or options and futures thereon), resulting in gains
therefrom not qualifying under the "less than 30% of gross income" test of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to an
International Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges the International Fund has
entered into to be rendered useless, resulting in full currency exposure and
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Furthermore, settlement
of a currency futures contract for the purchase of most currencies must occur at
a bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy. Although forward foreign currency contracts and currency
futures tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they tend to limit any potential gain which might result should
the value of such currency increase.
The International Funds' dealings in forward currency contracts and other
currency transactions such as futures, options on futures, options on currencies
and swaps will be limited to hedging involving either specific transactions
("Transaction Hedging") or portfolio positions ("Position Hedging").
Transaction Hedging
Transaction Hedging occurs when a fund enters into a currency transaction with
respect to specific assets or liabilities. These specific assets or liabilities
generally arise in connection with the purchase or sale of a fund's portfolio
securities or the receipt of income therefrom. The International Funds may use
transaction hedging to preserve the United States dollar price of a security
when they enter into a contract for the purchase or sale of a security
denominated in a foreign currency. An International Fund will be able to protect
itself against possible losses resulting from changes in the relationship
between the U.S. dollar and foreign currencies during the period between the
date the security is purchased or sold and the date on which payment is made or
received by entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of the foreign currency involved in the
underlying security transactions.
Position Hedging
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
The International Funds may use position hedging when the Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar. The International Funds may enter into a forward
foreign currency contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. The precise matching of the
forward foreign currency contract amount and the value of the portfolio
securities involved may not have a perfect correlation since the future value of
the securities hedged will change as a consequence of market movements between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is difficult, and the
successful execution of this short-term hedging strategy is uncertain.
The International Funds will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.
Cross Hedging
The International Funds may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the International Funds
have or expect to have portfolio exposure.
Proxy Hedging
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the International Funds may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the fund's portfolio securities
are or are expected to be denominated, and buying U.S. dollars. The amount of
the contract would not exceed the value of the International Fund's securities
denominated in linked currencies. For example, if the Adviser considers that the
Swedish krona is linked to the euro, the International Funds hold securities
denominated in Swedish krona and the Adviser believes that the value of Swedish
krona will decline against the U.S. dollar, the Adviser may enter into a
contract to sell euros and buy U.S. dollars.
Combined Transactions
The Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward foreign currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction or when the Adviser believes that it is in the Fund's best interests
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on the Adviser's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
Eurocurrency Instruments
The International Funds may make investments in Eurocurrency instruments.
Eurocurrency instruments are futures contracts or options thereon which are
linked to the London Interbank Offered Rate ("LIBOR") or to the interbank rates
offered in other financial centers. Eurocurrency futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. The International Funds might use Eurocurrency
futures contracts and options thereon to hedge against changes in LIBOR and
other interbank rates, to which many interest rate swaps and fixed income
instruments are linked.
Segregated and Other Special Accounts
In addition to other requirements, many transactions require a Fund to segregate
liquid high grade assets with its custodian to the extent Fund obligations are
not otherwise "covered" through the ownership of the underlying security,
financial instruments or currency. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by a Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate liquid high grade securities sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by a Fund on an index
will require the Fund to own portfolio securities which correlate with the index
or segregate liquid high grade assets equal to the excess of the index value
over the exercise price industry or other on a current basis. A put option
written by a Fund requires the Fund to segregate liquid, high grade assets equal
to the exercise price. A currency contract which obligates an International Fund
to buy or sell currency will generally require the Fund to hold an amount of
that currency or liquid securities denominated in that currency equal to the
Fund's obligations or to segregate liquid high grade assets equal to the amount
of the Fund's obligation.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange-listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange-listed options sold by the Fund other than those
generally settle with physical delivery, and the Fund will segregate an amount
of liquid assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
sufficient liquid assets. Such assets may consist of cash, cash equivalents,
liquid debt securities or other liquid assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. An International Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the International Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. Moreover, instead of segregating assets,
if the International Fund held a futures or forward contract, it could purchase
a put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other Strategic Transactions may
also be offered in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to such time, liquid assets equal to any remaining obligation
would need to be segregated.
An International Fund's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Code for qualification as a
regulated investment company.
Depositary Receipts
American Depositary Receipts ("ADRs") are receipts typically issued in the U.S.
by a bank or trust company evidencing ownership of an underlying foreign
security. The International Equity and the E. European Equity Funds may invest
in ADRs which are structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign investment
applicable to the underlying securities, such unsponsored ADRs may also be
subject to the risks that the foreign issuer may not be obligated to cooperate
with the U.S. bank, may not provide additional financial and other information
to the bank or the investor, or that such information in the U.S. market may not
be current.
Like ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Registered Depositary Certificates ("RDCs") represent receipts for
a foreign security. However, they are issued outside of the U.S. The
International Equity and E. European Equity Funds may also invest in EDRs, GDRs
and RDCs.
EDRs, GDRs and RDCs involve risks comparable to ADRs, as well as the fact that
they are issued outside of the U.S. Furthermore, RDCs involve risks associated
with securities transactions in Russia.
Temporary Defensive Positions
When the Adviser believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, each of the Funds
may invest up to 100% of its assets in U.S. Government securities (such as
bills, notes, or bonds of the U.S. Government and its agencies) or other forms
of indebtedness such as bonds, certificates of deposits or repurchase
agreements. For temporary defensive purposes, each of the International Equity,
E. European Equity and the Bond Funds may hold cash or debt obligations
denominated in U.S. dollars or foreign currencies. These debt obligations
include U.S. and foreign government securities and investment grade corporate
debt securities, or bank deposits of major international institutions. When a
Fund is in a temporary defensive position, it is not pursuing its stated
investment policies. The Adviser decides when it is appropriate to be in a
defensive position. It is impossible to predict for how long such alternative
strategies will be utilized.
U.S. Government Securities
The Funds may invest in U.S. Government Securities. The term "U.S. Government
Securities" refers to a variety of securities which are issued or guaranteed by
the U.S. Treasury, by various agencies of the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government. U.S. Treasury securities are backed by the full faith and credit of
the United States. Securities issued or guaranteed by U.S. Government agencies
or U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
directly against the United States in the event the agency or instrumentality
does not meet its commitment. An instrumentality of the U.S. Government is a
government agency organized under Federal charter with government supervision.
Repurchase Agreements
As a means of earning income for periods as short as overnight, the Funds may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. The Funds may enter into repurchase commitments for investment
purposes for periods of 30 days or more. Such commitments involve investment
risks similar to those of the debt securities in which the Funds invest. Under a
repurchase agreement, a Fund acquires a security, subject to the seller's
agreement to repurchase that security at a specified time and price. A purchase
of securities under a repurchase agreement is considered to be a loan by a Fund.
The Adviser monitors the value of the collateral to ensure that its value always
equals or exceeds the repurchase price and also monitors the financial condition
of the seller of the repurchase agreement. If the seller becomes insolvent, a
Fund's right to dispose of the securities held as collateral may be impaired and
the Fund may incur extra costs. Repurchase agreements for periods in excess of
seven days may be deemed to be illiquid.
Reverse Repurchase Agreements
As a means of enhancing income, the Bond Fund may enter into reverse repurchase
agreements with selected banks and broker/dealers. Under a reverse repurchase
agreement, a Fund sells securities subject to an obligation to repurchase those
securities at a specified time and price. In order to comply with U.S.
regulatory conditions applicable to investment companies, the Fund will
recognize gains or losses on such obligations each day, and will segregate cash,
U.S. government securities, or other high-grade debt instruments in an amount
sufficient to satisfy its repurchase obligation. The Fund will also mark the
value of the assets to market daily, and post additional collateral if
necessary. The Fund may invest the payment received for such securities prior to
fulfilling its obligation to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. Therefore, the
Fund's investment in reverse repurchase agreements is subject to the borrowing
limitations of the 1940 Act (See "Investment Restrictions").
If the buyer under a repurchase agreement becomes insolvent, the Fund's right to
reacquire its securities may be impaired. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the buyer of the securities
before repurchase of the securities under a reverse repurchase agreement, it may
encounter delay and incur costs before being able to apply the cash held to
purchase replacement securities. Also, the value of such securities may increase
before it is able to purchase them.
When-issued Securities
The Bond Fund may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield of the
securities are generally fixed on the date of commitment to purchase. During the
period between purchase and settlement, no interest accrues to the Fund. At the
time of settlement, the market value of the security may be more or less than
the purchase price. The Fund reflects gains or losses on such commitments each
day, and segregates assets sufficient to meet its obligation pending payment for
the securities.
OTHER INVESTMENTS
The Board of Directors may, in the future, authorize one or more of the Funds to
invest in securities other than those listed in this SAI and in the Prospectus,
provided such investments would be consistent with the Fund's investment
objective and that such investment would not violate the Fund's fundamental
investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Funds have adopted the
following fundamental investment restrictions. The fundamental investment
restrictions cannot be changed without approval by the vote of a "majority of
the outstanding voting securities" of each Fund.
As a matter of fundamental policy, a Fund will not:
1) Except for the Value and Bond Funds, as to 75% of its assets, purchase the
securities of any issuer (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States or any agency
or instrumentality thereof) if, as a result of such purchase, more than 5%
of its total assets would be invested in the securities of such issuer.
2) Except for the Value and Bond Funds, purchase stock or securities of an
issuer (other than the obligations of the United States or any agency or
instrumentality thereof) if such purchase would cause the Fund to own more
than 10% of any class of the outstanding voting securities of such issuer
or, except for the Emerging Markets Fund, more than 10% of any class of the
outstanding stock or securities of such issuer.
3) Act as an underwriter of securities of other issuers, except that each of
the International Equity and E. European Equity Funds may invest up to 10%
of the value of its total assets (at time of investment) in portfolio
securities which the Fund might not be free to sell to the public without
registration of such securities under the Securities Act of 1933, as
amended, or any foreign law restricting distribution of securities in a
country of a foreign issuer.
4) Buy or sell commodities or commodity contracts, provided that each of the
International Equity and E. European Equity Funds may utilize not more than
1% of its assets for deposits or commissions required to enter into, for
the International Equity Fund, forward foreign currency contracts, and for
the E. European Equity Fund, financial futures contracts, for hedging
purposes as described under "Investment Policies" and "Additional
Information on Policies and Investments Strategic Transactions." (Such
deposits or commissions are not required for forward foreign currency
contracts.)
5) As to the International Equity and E. European Equity Funds, borrow money
except for temporary or emergency purposes and then only in an amount not
in excess of 5% of the lower of value or cost of its total assets, in which
case the Fund may pledge, mortgage or hypothecate any of its assets as
security for such borrowing but not to an extent greater than 5% of its
total assets. As to the Value, U. S. Equity and Bond Funds, borrow money,
except as a temporary measure for extraordinary or emergency purposes, or
except in connection with reverse repurchase agreements, provided that the
Fund maintains asset coverage of 300% in connection with the issuance of
senior securities. Notwithstanding the foregoing, to avoid the untimely
disposition of assets to meet redemptions, the Value, U.S. Equity and Bond
Funds may borrow up to 33 1/3% of the value of the Fund's assets to meet
redemptions, provided that the Fund may not make other investments while
such borrowings are outstanding.
6) Make loans, except that a Fund may (1) lend portfolio securities; and (2)
enter into repurchase agreements secured by U.S. Government securities and,
with respect to the Bond Fund, except to the extent that the entry into
repurchase agreements and the purchase of debt securities in accordance
with its investment objective and policies may be deemed to be loans.
7) Invest more than 25% of a Fund's total assets in securities of one or more
issuers having their principal business activities in the same industry,
provided that, for the Bond Fund, there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and, for the purpose of this restriction:
telephone companies are considered to be in a separate industry from gas
and electric public utilities, and wholly owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
8) Except for the Bond Fund, invest in securities of other investment
companies except by purchase in the open market involving only customary
broker's commissions, or as part of a merger, consolidation, or acquisition
of assets.
9) Invest in interests in oil, gas, or other mineral explorations or development
programs.
10) Issue senior securities.
11) Participate on a joint or a joint and several basis in any
securities trading account.
12) Purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities).
13) Invest in companies for the purpose of exercising control.
14) Purchase securities on margin, except that it may utilize such short-term
credits as may be necessary for clearance of purchases or sales of
securities.
15) Engage in short sales.
Non-Fundamental Policies and Restrictions: In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectus and elsewhere in the SAI, the
Funds will be subject to the following investment restrictions. Theses
restrictions are considered non-fundamental and may be changed by the Board of
Directors without shareholder approval.
As a matter of non-fundamental policy, a Fund may not:
1) Invest more than 15% of its net assets in illiquid securities.
In applying the fundamental investment policies and restrictions:
(a) Restrictions with respect to repurchase agreements shall be construed
to be for repurchase agreements entered into for the investment of
available cash consistent with the Fund's repurchase agreement
procedures, not repurchase commitments entered into for general
investment purposes.
(b) The Funds adhere to the percentage restrictions on investment or
utilization of assets set forth above at the time an investment is
made. A later change in percentage resulting from changes in the value
or the total cost of the Fund's assets will not be considered a
violation of the restriction.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Company is governed by a Board of Directors, which is responsible for
protecting the interests of shareholders. The Directors are experienced
businesspersons who meet throughout the year to oversee the Company's
activities, review contractual arrangements with companies that provide services
to the Funds, and review performance. The names and addresses of the Directors
and officers of the Company, together with information as to their principal
occupations during the past five years, are listed below. The Directors who are
considered "interested persons" as defined in Section 2(a)(19) of the 1940 Act,
as well as those persons affiliated with the Adviser and principal underwriter,
and officers of the Company, are noted with an asterisk (*).
Principal
Occupation(s)
Name, Address and Position(s) Held With During the Past 5
Age Company Years
*John Pasco, III Chairman, Director Mr. Pasco has served
1500 Forest Ave, Suite and Treasurer as Treasurer and
223 Richmond, VA 23229 Director of
(55) Commonwealth
Shareholder Services,
Inc. ("CSS"), the
Company's
Administrator, since
1985; Director,
President and
Treasurer of
Commonwealth Capital
Management, Inc. (a
registered investment
adviser) since 1983;
Director and
shareholder of Fund
Services, Inc., the
Company's Transfer and
Disbursing Agent,
since 1987;
shareholder of
Commonwealth Fund
Accounting, Inc.,
which provides
bookkeeping services
to Star Bank; and
Chairman, Director and
Treasurer of the World
Funds, Inc., a
registered investment
company, since May
1997. Mr. Pasco is
also a certified
public accountant.
*Henry Schlegel Director Mr. Schlegel has
450 Park Avenue served as a Director,
New York, NY 10022 the President and the
(47) Chief Executive
Officer of Vontobel USA
Inc., a registered
investment adviser,
since 1988.
Samuel Boyd, Jr. Director Mr. Boyd has served as
10808 Hob Nail Court the Manager of the
Potomac, MD 20854 Customer Services
(59) Operations and
Accounting Division of
the Potomac Electric
Power Company
since 1978 and as
Director of
World Funds, Inc.,
a registered
investment company,
since May 1997. Mr.
Boyd is also a
certified public
accountant.
William E. Poist Director Mr. Poist has served
5272 River Road as a financial and tax
Bethesda, MD 20816 consultant through his
(60) firm Management
Consulting for
Professionals since
1968 and as Director
of World Funds, Inc.,
a registered
investment company,
since May 1997. Mr.
Poist is also a
certified public
accountant.
Paul M. Dickinson Director Mr. Dickinson has
8704 Berwickshire Drive served as President of
Richmond, VA 23229 Alfred J. Dickinson,
(52) Inc., Realtors since
April 1971 and as a
Director of
World Funds, Inc., a
registered
investment company,
since May 1997.
*Edwin D. Walczak Vice President of the Mr. Walczak has served
450 Park Avenue Company and as Senior Vice President
New York, NY 10022 President of the Portfolio Manager of
(46) Vontobel U.S. Value Fund Vontobel USA Inc., a
registered investment
adviser,since July 1988.
*Fabrizio Pierallini Vice President of the Mr. Pierallini has
450 Park Avenue Company and served as Senior
New York, N.Y. 10022 President of the Vice President and
(40) Vontobel Portfolio Manager
International Equity of Vontobel
Fund and the USA Inc., a registered
Vontobel U.S. Equity investment adviser,
Fund since April 1994.
*Monica Mastroberardino Vice President of the Dr. Mastroberardino
450 Park Avenue Company and President has served as Vice
New York, NY 10022 of the Vontobel President and
(41) Greater European Bond Portfolio Manager of
Fund Vontobel USA Inc., a
registered investment
adviser, since
February 1999. Dr.
Mastroberardino is a
macroeconomic
analyst with
Vontobel Asset
Management,
Switzerland, and serves
as the associate
portfolio manager of the
Vontobel group's
Luxembourg-registered
Eastern European Debt
Fund. From February
1995 to January 1998 she
was a macroeconomic
analyst with Credit
Suisse, Switzerland.
*Luca Parmeggiani Vice President of the Mr. Parmeggiani has
450 Park Avenue Company and President served as Vice President
New York, NY 10022 of the Vontobel and Portfolio Manager
(38) Eastern European of Vontobel USA Inc.,
Equity Fund a registered investment
adviser, since October
1997. Mr. Parmeggiani
is a First Vice
President and the head
of European equity
management of
Vontobel Asset
Management,
Switzerland. From 1992
to 1997 he was a
portfolio manager with
Lombard Odier & Cie,
Geneva. Mr. Parmeggiani
is an EFFAS certified
financial analyst
(European Federation
of Financial Analysts
and Statisticians).
F. Byron Parker, Jr. Secretary Mr. Parker has served
810 Lindsay Court as Secretary of
Richmond, VA 23229 Commonwealth
(57) Shareholder Services,
Inc. since 1986. He is
also a Partner in the
law firm Mustian &
Parker.
Compensation of Directors: The Company does not compensate the Directors who are
officers or employees of the Adviser. The "independent" Directors receive an
annual retainer of $1,000 and a fee of $200 for each meeting of the Directors
which they attend in person or by telephone. Directors are reimbursed for travel
and other out-of-pocket expenses. The Company does not offer any retirement
benefits for Directors. For the fiscal year ended December 31, 1999, the
Directors received the following compensation from the Company:
Aggregate
Compensation Pension or
From the Retirement
Funds Fiscal Benefits Total
Year Ended Accrued as Compensation
Name and December 31, Part of Fund from the Fund
Position Held 1999(1) Expenses Company
- --------------------------------------------------------------------------------
John Pasco, III, Director N/A N/A N/A
Henry Schlegel, Director N/A N/A N/A
Samuel Boyd, Jr., Director $10,800 N/A $10,800
William E. Poist, Director $12,000 N/A $12,000
Paul M. Dickinson, Director $12,000 N/A $12,000
(1) This amount represents the aggregate amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Funds for the
fiscal year ended December 31, 1999.
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, its Investment Adviser and Principal Underwriter have each adopted a
Codes of Ethics, as required by federal securities laws. Under the Funds' Code
of Ethics, persons who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the Funds or that are currently held by the Funds, subject
to general restrictions and procedures. The personal securities transactions of
access persons of the Funds, its Adviser and Principal Underwriter will be
governed by the Funds' Code of Ethics.
The Code of Ethics is on file with, and can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. In addition, the Code of Ethics are
also available on the EDGAR Database on the SEC's Internet website at
http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL SECURITIES PERSONS
As of April 1, 2000 the following persons owned of record or beneficially shares
of the Funds in the following amounts.
Value Fund
Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco, CA 94104,
owned of record 1,210,828.761 outstanding shares (or 31.079%); and Bank Vontobel
AG and its affiliates for the benefit of its customers, Bahnhofstrasse #3
CH-8022 Zurich, Switzerland, owned of record 550,459.081 outstanding shares (or
14.129%).
International Equity Fund
Bank Vontobel AG and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich, Switzerland, owned of record 2,362,703.922
outstanding shares (or 34.203%); EAMCO, c/o Riggs Bank P.O. Box 96211,
Washington, D.C. 20090-6211, owned of record 453,250.064 outstanding shares (or
6.561%); and Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco,
CA 94104, owned of record 1,604,500.673 outstanding shares (or 23.227%).
E. European Equity Fund
Charles Schwab Reinvestment, 101 Montgomery Street, San Francisco, CA 94104,
owned of record 839,542.223 outstanding shares (or 24.775%); Bank Vontobel AG
and its affiliates for the benefit of its customers, Bahnhofstrasse #3 CH-8022
Zurich, Switzerland, owned of record 416,385.638 outstanding shares (or
12.288%); and National Investors Services Corp. for the exclusive benefit of its
customers, 55 Water Street, New York, NY 10041, owned of record 290,146.581
outstanding shares (or 8.562%).
U.S. Equity Fund
Charles Schwab Reinvestment 101 Montgomery Street, San Francisco, CA 94104,
owned of record 201,095.419 outstanding shares (or 14.993%); Bank Vontobel AG
and its affiliates for the benefit of its customers Banhhofstrasse #3 CH-8022
Zurich, Switzerland, owned of record 273,295.746 outstanding shares (or
20.376%); and Vontobel USA Inc. 450 Park Avenue, New York, NY 10022, for Acct. #
V042-007 owned of record 217,951.674 outstanding shares (or 16.25%).
Bond Fund
Bank Vontobel AG and its affiliates for the benefit of its customers,
Bahnhofstrasse #3 CH-8022 Zurich, Switzerland, owned of record 592,935.706
outstanding shares (or 79.087%); and Palenzona Ingeborg of Bahnhofstrasse 33
Ch-8022 Zurich, Switzerland, owned of record 43,347.922 outstanding shares (or
5.782%).
MANAGEMENT OWNERSHIP
As of April 1, 2000, the Officers and Directors, individually and as a group,
owned beneficially less than 1% of the outstanding shares of the Funds.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Vontobel USA Inc. (the "Adviser"), 450 Park Avenue, New York, N.Y. 10022, is
each Fund's investment adviser. The Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, (the "Advisers
Act"). The Adviser is a wholly owned subsidiary of Vontobel Holding AG, a Swiss
bank holding company which is traded on the Swiss Stock Exchange.
The Adviser serves as investment adviser to the Funds pursuant to separate
Investment Advisory Agreements with the Company for each Fund (each an "Advisory
Agreement"). The Advisory Agreements for the Value Fund, International Equity
Fund, E. European Equity Fund , U.S. Equity and Bond Funds are dated July 14,
1992, July 14, 1992, February 14, 1996, August 18, 1997 and August 18, 1997,
respectively. The Advisory Agreement for each such Fund may be renewed annually
provided such renewal is approved annually by: 1) the Company's Board of
Directors; or 2) by a majority vote of the outstanding voting securities of the
Company and a majority of the Directors who are not "interested persons" of the
Company. The Advisory Agreements will automatically terminate in the event of
their "assignment," as that term is defined in the 1940 Act, and may be
terminated without penalty at any time upon 60 days' written notice to the other
party by: (i) the majority vote of all the Directors or by vote of a majority of
the outstanding voting securities of the Fund; or (ii) the Adviser.
Under the Advisory Agreements, the Adviser, subject to the supervision of the
Directors, provides investment management advice with respect to securities and
other instruments. The Adviser makes all decisions and performs all duties in
accordance with the Funds' investment objectives, policies, and investment
restrictions.
The Adviser is responsible for effecting all security transactions on behalf of
the Funds, including the allocation of principal business and portfolio
brokerage and negotiation of commissions. In placing orders with brokers or
dealers, the Adviser will attempt to obtain the best price and execution for the
Fund's orders. The Adviser may allocate brokerage to an affiliated dealer in
accordance with written policies adopted by the Company's Board of Directors.
The Adviser is also permitted to purchase and sell securities to and from
brokers and dealers who provide the Adviser with research advice and other
statistical services. In such instances, the Adviser may be authorized to pay a
commission, which is higher than the commission that would be charged by another
broker. From time to time, and subject to the Adviser obtaining the best price
and execution for each Fund, the Board of Directors may authorize the Adviser to
allocate brokerage transactions to a broker in consideration of: (1) the sale of
Fund shares; or (2) payment of an obligation otherwise payable by the Funds.
Each Fund is obligated to pay the Adviser an advisory fee. That fee is payable
monthly at an annual rate that is equal to a percentage of the Fund's average
daily net assets. Both the Value and International Equity Funds pay the Adviser
at a rate of 1.00% on the first $100 million and 0.75% on assets in excess of
$100 million. The U.S. Equity Fund pays the Adviser at a rate of 1.00% on the
first $500 million, 0.875% on the next $500 million and 0.75% on assets in
excess of $1 billion. Both the E. European Equity and Bond Funds pay the Adviser
at a rate of 1.25% on the first $500 million and 1.00% on assets in excess of
$500 million. The table below shows the total amount of advisory fees that each
Fund paid the Adviser for the last three fiscal years. The table also shows the
amount of investment advisory fees that the Adviser waived during the last three
fiscal years.
Years Ended December 31,
Fund 1997 Fee 1998 Fee 1999 Fee
Payable/Waived Payable/Waived Payable/Waived
Value Fund $ 986,164/22,500 $1,903,694/22,500 $1,224,969/22,500
International
Equity Fund 1,443,062/ -0- 1,505,510/ -0- 1,474,217/ -0-
E. European
Equity Fund 2,113,314/ -0- 1,003,342/ -0- 387,669/ -0-
U.S. Equity Fund* 14,720/14,720 35,051/35,051 16,711/16,711
Bond Fund* 57,164/ -0- 154,111/50,475 104,623/104,623
* Fees paid and/or waived in 1997 reflect payments for the period from
September 1, 1997, the commencement of operations, to December 31, 1997.
In the interest of limiting expenses of the Value Fund, the U.S. Equity Fund and
the Bond Fund, the Adviser has entered into a contractual expense limitation
agreement with the Company. Pursuant to the agreement, the Adviser has agreed to
waive or limit its fees and to assume other expenses so that the total annual
operating expenses are limited to 1.75% for the Value Fund and the U.S. Equity
Fund; and 2.49% for the Bond Fund. These limits do not apply to interest, taxes,
brokerage commissions, other expenditures capitalized in accordance with
generally accepted accounting principles and other extraordinary expenses not
incurred in the ordinary course of business.
Pursuant to the terms of the Advisory Agreements, the Adviser pays all expenses
it incurs in connection with rendering its management services. Each Fund is
responsible for all other expenses that are not specifically assumed by the
Adviser. Such expenses include (but are not limited to) brokerage fees and
commissions, legal fees, auditing fees, fees for bookkeeping and record keeping
services, custodian and transfer agency fees and registration fees. The services
furnished by the Adviser under the Advisory Agreements are not exclusive, and
the Adviser is free to perform similar services for others.
ADMINISTRATION
Pursuant to the Administrative Services Agreement with the Company, dated
January 7, 1999 (the "Service Agreements"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
the administrator of the Funds. CSS supervises all aspects of the operation of
the Funds, except those performed by the Adviser. John Pasco III, Chairman of
the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Funds, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives asset-based fees, computed daily and paid monthly
at annual rates of 0.20% of the average daily net assets of the Funds on the
first $500 million and 0.15% on assets in excess of $500 million (which includes
regulatory matters, backup of the pricing of shares of each Fund, administrative
duties in connection with execution of portfolio trades, and certain services in
connection with Fund accounting). CSS receives an hourly fee, plus certain
out-of-pocket expenses, for shareholder servicing and state securities law
matters.
The table below shows the total amount of administrative fees that each Fund
paid CSS for the last three fiscal years.
Years Ended December 31,
Fund 1997 1998 1999
Value Fund $318,571 $504,371 $402,108
International Equity Fund 419,496 328,563 381,099
E. European Equity Fund 432,860 205,758 122,727
U.S. Equity Fund* 11,074 18,245 1,889
Bond Fund* 14,359 36,769 23,728
* Fees paid in 1997 reflect payments for the period from September 1, 1997,
the commencement of operations, to December 31, 1997.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to the Custodian Agreement and Accounting Agency Agreement with the
Company dated November 1,1998, Brown Brothers Harriman & Co. ("BBH"), 40 Water
Street, Boston Massachusetts, 02109, acts as the custodian of the Funds'
securities and cash and as the Funds' accounting services agent. With the
consent of the Company, BBH has designated The Depository Trust Company of New
York, as its agent to secure a portion of the assets of the International Funds.
BBH is authorized to appoint other entities to act as sub-custodians to provide
for the custody of foreign securities which may be acquired and held by the
International Funds outside the U.S. Such appointments are subject to
appropriate review by the Company's Board of Directors. As the accounting
services agent of the International Funds, BBH maintains and keeps current the
books, accounts, records, journals or other records of original entry relating
to such Funds' business.
TRANSFER AGENT
Pursuant to a Transfer Agent Agreement with the Company dated January 1, 1999,
Fund Services, Inc. ("FSI") acts as the Company's transfer and disbursing agent.
FSI is located at 1500 Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco,
III, Chairman of the Board of the Company and an officer and shareholder of CSS
(the Administrator of the Funds), owns one-third of the stock of FSI; therefore,
FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. FSI disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
DISTRIBUTOR
Vontobel Fund Distributors, a division of First Dominion Capital Corp. (the
"Distributor"), 1500 Forest Avenue, Suite 223, Richmond, VA 23229, serves as the
principal underwriter of the Funds' shares pursuant to a Distribution Agreement
dated August 18, 1997. John Pasco, III, Chairman of the Board of the Company,
owns 100% of the Distributor, and is its President, Treasurer and a Director.
INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Adviser, in placing orders for the purchase and sale of
each Fund's securities, to seek to obtain the best price and execution for
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange,
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of a Fund's
brokerage to persons or firms providing the Adviser with investment
recommendations, statistical, research or similar services useful to the
Adviser's investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Adviser can keep abreast of the
information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received, on the basis of transactions for a
Fund, may be used by the Adviser for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, a Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser may be authorized, when placing
portfolio transactions for a Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Board of Directors of the Company has adopted policies and procedures
governing the allocation of brokerage to affiliated brokers. The Adviser has
been instructed not to place transactions with an affiliated broker-dealer,
unless that broker-dealer can demonstrate to the Company that the Fund will
receive (1) a price and execution no less favorable than that available from
unaffiliated persons, and (2) a price and execution equivalent to that which
that broker-dealer would offer to unaffiliated persons in a similar transaction.
The Board reviews all transactions which have been placed pursuant to those
policies and procedures at its Board meetings.
When two or more Funds that are managed by the Adviser are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated in a manner deemed equitable to each Fund. In some cases this
procedure could have a detrimental effect on the price or volume of the security
as far as a Fund is concerned. In other cases, however, the ability of such Fund
to participate in volume transactions will be beneficial for the Fund. The Board
of Directors of the Company believes that these advantages, when combined with
the other benefits available because of the Adviser's organization, outweigh the
disadvantages that may exist from this treatment of transactions.
The Funds paid brokerage commissions as follows:
Years Ended December 31,
Fund 1997 1998 1999
Value Fund $290,165 $496,553 $357,993
International Equity Fund 292,194 146,822 367,230
E. European Equity Fund 932,733 374,114 123,675
U.S. Equity Fund 4,604 17,928 11,962
Bond Fund -0- -0- -0-
The Funds paid brokerage commissions to Vontobel Securities, Ltd.
(an affiliated broker-dealer) as follows:
Years ended December 31,
Fund 1997 1998 1999
Value Fund -0- -0- -0-
International Equity Fund -0- -0- -0-
E. European Equity Fund -0- -0- -0-
U.S. Equity Fund -0- -0- -0-
Bond Fund -0- -0- -0-
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Adviser makes purchases and sales for a
Fund's portfolio whenever necessary, in the Adviser's opinion, to meet the
Fund's objective. The Adviser anticipates that the average annual portfolio
turnover rate of each of the Funds will be less than 100%. As a result of
negative investment performance, there were increased transactions (due to Fund
redemptions) in the U.S. Value Fund for fiscal year end December 31, 1998 which
caused the portfolio turnover to exceed 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 500,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has presently allocated
50,000,000 shares to each of the Funds. Each share has equal dividend, voting,
liquidation and redemption rights and there are no conversion or preemptive
rights. Shares of the Funds do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect all of the directors if they choose to do so. In such event,
the holders of the remaining shares will not be able to elect any person to the
Board of Directors. Shares will be maintained in open accounts on the books of
FSI.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If the Directors create
additional series or classes of shares, shares of each series or class are
entitled to vote as a series or class only to the extent required by the 1940
Act or as permitted by the Directors. Upon the Company's liquidation, all
shareholders of a series would share pro-rata in the net assets of such series
available for distribution to shareholders of the series, but, as shareholders
of such series, would not be entitled to share in the distribution of assets
belonging to any other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the applicable Fund at
its NAV as of the date of payment unless the shareholder elects to receive such
dividends or distributions in cash. The reinvestment date normally precedes the
payment date by about seven days although the exact timing is subject to change.
Shareholders will receive a confirmation of each new transaction in their
account. The Company will confirm all account activity transactions made as a
result of the Automatic Investment Plan described below. Shareholders may rely
on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Each Fund's share price, called its NAV, is determined as of the close of
trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Time) on each business day ("Valuation Time") that the NYSE is open; however,
the Company's management may compute the NAV more frequently in order to protect
shareholders' interests. As of the date of this SAI, the Fund is informed that
the NYSE will be closed on the following holidays: New Year's Day, Martin Luther
King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. NAV per share is computed by adding the
total value of the investments and other assets, subtracting any liabilities and
then dividing by the total number of shares outstanding.
The Funds' securities are generally valued at current market prices. Investments
in securities traded on the national securities exchanges or included in the
NASDAQ National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on that date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost pricing procedures. Other assets for
which market prices are not readily available are valued at their fair value as
determined in good faith under procedures set by the Board of Directors.
Depositary Receipts (i.e., ADRs, EDRs and GDRs) will be valued at the closing
price of the instrument last determined prior to the Valuation Time unless the
Company is aware of a material change in value. Securities for which such a
value cannot be readily determined on any day will be valued at the closing
price of the underlying security adjusted for the exchange rate.
PURCHASING SHARES
You may purchase shares of the Funds directly from the Distributor or through
brokers or dealers who are members of the National Association of Securities
Dealers, Inc. When you acquire or redeem shares through a securities broker or
dealer, you may be charged a transaction fee. The offering price per share is
equal to the NAV next determined after the Fund receives your purchase order.
The minimum initial investment for the Value Fund, E. European Equity Fund, U.S.
Equity Fund and Bond Fund is $1,000. The minimum initial investment in the
International Equity Fund is $200,000. Subsequent investments for all Funds must
be $50 or more. The Company may waive the minimum initial investment requirement
for purchases made by directors, officers and employees of the Company. The
Company may also waive the minimum investment requirement for purchases by its
affiliated entities and certain related advisory accounts and retirement
accounts (such as IRAs). You may purchase shares of a Fund by mail or wire.
ELIGIBLE BENEFIT PLANS
An eligible benefit plan is an arrangement available to the (1) employees of an
employer (or two or more affiliated employers) having not less than ten
employees at the plan's inception (2) or such an employer on behalf of employees
of a trust or plan for such employees, their spouses and their children under
the age of 21 or a trust or plan for such employees, which provides for
purchases through periodic payroll deductions or otherwise. There must be at
least five initial participants with accounts investing or invested in shares of
one or more of the Funds and/or certain other funds.
The initial purchase by the eligible benefit plan along with prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $5,000. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
SELLING SHARES
You may redeem shares of the Funds at any time and in any amount by mail or
telephone. The Transfer Agent will use reasonable procedures to confirm that
instructions communicated by telephone are genuine and, if the procedures are
followed, will not be liable for any losses due to unauthorized or fraudulent
telephone transactions.
The Company's procedure is to redeem shares at the NAV determined after FSI
receives the redemption request in proper order. The Company deducts a 2%
redemption fee from proceeds of the Value Fund, U.S. Equity Fund and
International Equity Fund shares redeemed less than three months after purchase
(including shares to be exchanged). The Company deducts a 2% redemption fee from
proceeds of the E. European Equity Fund and Bond Fund shares redeemed less than
six months after purchase (including shares to be exchanged). The applicable
Fund retains this amount to offset the Fund's costs of purchasing or selling
securities. The Adviser reserves the right to waive the redemption fee for its
clients.
The Company may suspend the right to redeem shares for any period during which
the NYSE is closed or the SEC determines that there is an emergency. In such
circumstances you may withdraw your redemption request or permit your request to
be held for processing at the NAV next computed after the suspension is
terminated.
SMALL ACCOUNTS
Due to the relatively higher cost of maintaining small accounts, the Company may
deduct $10 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Company will advise you in writing
sixty (60) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Company will not close your account if it
falls below $1,000 solely because of a market decline.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, each Fund offers the following
shareholder services:
Regular Account: A regular account allows a shareholder to make voluntary
investments and/or withdrawals at any time. Regular accounts are available to
individuals, custodians, corporations, trusts, estates, corporate retirement
plans and others. You may use the Account Application provided with the
Prospectus to open a regular account.
Telephone Transactions: You may redeem shares or transfer into another Fund if
you request this service on your initial Account Application. If you do not
elect this service at that time, you may do so at a later date by sending a
written request and signature guarantee to FSI.
Each Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Invest-A-Matic Account: Invest-A-Matic Accounts allow shareholders to make
automatic monthly investments into their account. Upon request, FSI will
withdraw a fixed amount each month from a shareholder's checking account and
apply that amount to additional shares. This feature does not require you to
make a commitment for a fixed period of time. You may change the monthly
investment, skip a month or discontinue your Invest-A-Matic Plan as desired by
notifying FSI at (800) 628-4077.
Individual Retirement Account ("IRA"): All wage earners under 70-1/2, even those
who participate in a company sponsored or government retirement plan, may
establish their own IRA. You can contribute 100% of your earnings up to $2,000
(or $2,250 with a spouse who is not a wage earner, for years prior to 1997). A
spouse who does not earn compensation can contribute up to $2,000 per year to
his or her own IRA. The deductibility of such contributions will be determined
under the same rules that govern contributions made by individuals with earned
income. A special IRA program is available for corporate employers under which
the employers may establish IRA accounts for their employees in lieu of
establishing corporate retirement plans. Known as SEP-IRA's (Simplified Employee
Pension-IRA), they free the corporate employer of many of the recordkeeping
requirements of establishing and maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer Federal Income Taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA: A Roth IRA permits certain taxpayers to make a non-deductible
investment of up to $2,000 per year. Provided an investor does not withdraw
money from his or her Roth IRA for a 5 year period, beginning with the first tax
year for which contribution was made, deductions from the investor's Roth IRA
would be tax free after the investor reaches the age of 59-1/2. Tax free
withdrawals may also be made before reaching the age of 59-1/2 under certain
circumstances. Please consult your financial and/or tax professional as to your
eligibility to invest in a Roth IRA. An investor may not make a contribution to
both a Roth IRA and a regular IRA in any given year.
An annual limit of $2,000 applies to contributions to regular and Roth IRAs. For
example, if a taxpayer contributes $2,000 to a regular IRA for a year, he or she
may not make any contribution to a Roth IRA for that year.
How to Establish Retirement Accounts: Please call the Company to obtain
information regarding the establishment of individual retirement plan accounts.
Each plan's custodian charges nominal fees in connection with plan establishment
and maintenance. These fees are detailed in the plan documents. You may wish to
consult with your attorney or other tax adviser for specific advice concerning
your tax status and plans.
Exchange Privilege: Shareholders may exchange their shares for shares of any
other series of the Company, provided the shares of the Fund the shareholder is
exchanging into are noticed for sale in the shareholder's state of residence.
Each account must meet the minimum investment requirements (currently $1,000 for
all funds except the International Equity Fund which is $200,000). Your exchange
will take effect as of the next determination of the Fund's NAV per share
(usually at the close of business on the same day, if received by the Company
prior to 4:00 p.m. EST). FSI will charge your account a $10.00 service fee each
time you make such an exchange. The Company reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict shareholders from
making exchanges at any time, without notice, should the Company determine that
it would be in the best interest of its shareholders to do so. For tax purposes,
an exchange constitutes the sale of the shares of the Fund from which you are
exchanging and the purchase of shares of the Fund into which you are exchanging.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes. The exchange privilege is available
only in states where it is legally permissible to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income
The Funds receive income generally in the form of dividends and interest on
their investments. This income, less expenses incurred in the operation of a
Fund, constitutes a Fund's net investment income from which dividends may be
paid to you. Any distributions by a Fund from such income will be taxable to you
as ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains
The Funds may derive capital gains and losses in connection with sales or other
dispositions of their portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in a Fund. Any net capital
gains realized by a Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on the Fund.
Effect of foreign investments on distributions
Most foreign exchange gains realized on the sale of securities are treated as
ordinary income by a Fund. Similarly, foreign exchange losses realized by a Fund
on the sale of securities are generally treated as ordinary losses by the Fund.
These gains when distributed will be taxable to you as ordinary dividends, and
any losses will reduce a Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce a Fund's ordinary
income distributions to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.
A Fund may be subject to foreign withholding taxes on income from certain of its
foreign securities. If more than 50% of a Fund's total assets at the end of the
fiscal year are invested in securities of foreign corporations, a Fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, the year-end statement you receive from a Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. A Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions
The Funds will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
their tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, a Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxed as a regulated investment company
Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
regulated investment companies, the Funds generally pay no federal income tax on
the income and gains they distribute to you. The board reserves the right not to
maintain the qualification of a Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
a Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements
To avoid federal excise taxes, the Internal Revenue Code requires a Fund to
distribute to you by December 31st of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31; and 100% of any undistributed amounts from the prior year. Each Fund
intends to declare and pay these amounts in December (or in January that are
treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
Redemption of Fund shares
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares, or exchange your
Fund shares for shares of a different series of the Company, the IRS will
require that you report a gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, the gain or loss that you realize will be
capital gain or loss and will be long-term or short-term, generally depending on
how long you hold your shares. Any loss incurred on the redemption or exchange
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains distributed to you by the Fund
on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. Government Obligations
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
Dividends-received deduction for corporations
If you are a corporate shareholder, you should note that 5.9% of the dividends
paid by the Value Fund, for the most recent fiscal year, qualified for the
dividends-received deduction. In some circumstances, you will be allowed to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Value Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculation. The U.S. Equity Fund was not eligible for the intercorporate
dividends-received deduction for fiscal year ended December 31, 1999.
Because the income of the International Equity Fund, E. European Equity Fund and
Bond Fund is derived primarily from investments in foreign rather than domestic
U.S securities, no portion of its distributions will generally be eligible for
the intercorporate dividends-received deduction. None of the dividends paid by
such Funds for the most recent calendar year qualified for such deduction, and
it is anticipated that none of the current year's dividends will so qualify.
Investment in complex securities
The Funds may invest in complex securities. These investments may be subject to
numerous special and complex tax rules. These rules could affect whether gains
and losses recognized by a Fund are treated as ordinary income or capital gain,
accelerate the recognition of income to a Fund and/or defer a Fund's ability to
recognize losses, and, in limited cases, subject a Fund to U.S. federal income
tax on income from certain of its foreign securities. In turn, these rules may
affect the amount, timing or character of the income distributed to you by a
Fund.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Funds to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
Fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
YIELD INFORMATION
From time to time, the Funds may advertise a yield figure. A portfolio's yield
is a way of showing the rate of income the portfolio earns on its investments as
a percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
Yield = 2[(a-b +1) -1]
---
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
A Fund's yield, as used in advertising, is computed by dividing the Fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period
dividing this figure by a Fund's NAV at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond mutual
funds. Dividends from equity investments are treated as if they were accrued on
a daily basis solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are excluded
from the calculation. Income calculated for the purpose of calculating a Fund's
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a Fund may differ from the rate of
distributions the fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1,5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods(or fractional portion thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
NAV as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the prescribed periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value.
One-Year Five-Years Ten-Years Since
Period Ended Period Ended Period Ended Inception to
Fund 12/31/99 12/31/99 12/31/99 12/31/99
Value Fund (14.07%) 17.64% N/A 13.45% (1)
International
Equity Fund 46.52% 19.36% N/A 13.26% (2)
E. European
Equity Fund 14.50% N/A N/A (0.27%)(3)
U.S. Equity Fund 32.56% N/A N/A (1.34%)(4)
Bond Fund (9.01%) N/A N/A 5.26% (4)
(1) Commencement of operations was March 30, 1990.
(2) Commencement of operations was July 6, 1990.
(3) Commencement of operations was February 15, 1996.
(4) Commencement of operations was September 1, 1997.
The Funds may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately each Fund's performance with other measures of investment return. The
Funds may quote an aggregate total return figure in comparing each Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australasia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, each Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $1,000 in shares
of the applicable Fund and assuming the reinvestment of each dividend or other
distribution at NAV on the reinvestment date. Percentage increases are
determined by subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. To calculate its
average annual total return, the aggregate return is then annualized according
to the SEC's formula for total return quotes outlined above.
The Funds may also advertise the performance rankings assigned by the various
publications and statistical services, including but not limited to, Capital
Resource Advisors, Lipper Mutual Performance Analysis, Intersec Research Survey
of non-U.S. Equity Fund Returns, Frank Russell International Universe, and any
other data which may be reported from time to time by Dow Jones & Company,
Morningstar, Inc., Chase Investment Performance, Wilson Associates, Stanger, CDA
Investment Technologies, Inc., the Consumer Price Index ("CPI"), The Bank Rate
Monitor National Index, or IBC/Donaghue's Average U.S. Government and Agency, or
as appears in various publications, including but not limited to, The Wall
Street Journal, Forbes, Barron's, Fortune, Money Magazine, The New York Times,
Financial World, Financial Services Week, USA Today and other national or
regional publications.
FINANCIAL INFORMATION
Financial Highlights, Statements and Reports of Independent Accountants. You can
receive free copies of reports, request other information and discuss your
questions about the Funds by contacting the Company directly at:
VONTOBEL FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
(800) 527-9500
The books of each Fund will be audited at least once each year by Tait, Weller
and Baker, of Philadelphia, PA, independent public accountants.
The Fund's audited financial statements and notes thereto for the year ended
December 31, 1999 and the unqualified report of Tait, Weller & Baker, on such
financial statements (the "Report") are incorporated by reference in this SAI
and are included in the Fund's 1999 annual report to shareholders (the "Annual
Report"). A copy of the Annual Report accompanies this SAI and an investor may
obtain a copy of the Annual Report by writing to the Fund or calling
(800)-527-9500.
A prospectus and additional information may also be obtained from our website at
www.vontobelfunds.com.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation.
(1) Articles of Incorporation of The Commonwealth Group, Inc. (the
"Registrant") dated October 14, 1983 as filed with the Maryland Department of
Assessments and Taxation on October 28, 1983 are herein incorporated by
reference to Exhibit (a)(1) to Item 23 of Post-Effective Amendment No. 36 (File
Nos. 2-78931 and 811-3551) as filed with the Securities and Exchange Commission
(the "Commission") on April 27, 1999.
(2) Articles Supplementary of the Registrant dated October 24, 1984 as
filed with the Maryland Department of Assessments and Taxation on November 7,
1984 dissolving the Commonwealth Emerging Growth Fund series and creating the
Nicholson Growth Fund series and Newport Far East series are herein incorporated
by reference to Exhibit (a)(3) to Item 23 of Post-Effective Amendment No. 36
(File Nos. 2-78931 and 811-3551 as filed with the Commission on April 27, 1999.
(3) Articles of Amendment of the Registrant dated December 29, 1988, as
filed with the Maryland Department of Assessments and Taxation on December 30,
1988, changing the name of the Corporation to Tyndall-Newport Fund and deleting
all references to the Bowser Growth Fund series are herein incorporated by
reference to Exhibit (a)(10) to Item 23 of Post-Effective Amendment No. 36 to
the Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on April 27, 1999.
(4) Articles Supplementary of the Registrant dated January 12, 1990 as
filed with the Maryland Department of Assessments and Taxation on January 24,
1990 creating the Vontobel U.S. Value Fund series are herein incorporated by
reference to Exhibit (a)(4) to Item 23 of Post-Effective Amendment No. 36 (File
Nos. 2-78931 and 811-3551) as filed with the Commission on April 27, 1999.
(5) Articles of Amendment of the Registrant dated January 8, 1991, as filed
with the Maryland Department of Assessments and Taxation on March 5, 1991,
deleting all references to Tyndall Fund are herein incorporated by reference to
Exhibit (a)(11) to Item 23 of Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on April 27, 1999.
(6) Articles Supplementary of the Registrant, as filed with the Maryland
Department of Assessments and Taxation on October 27, 1993 creating the Vontobel
International Bond Fund series are herein incorporated by reference to Exhibit
(a)(5) to Item 23 of Post-Effective Amendment No. 36 (File Nos. 2-78931 and
811-3551 as filed with the Commission on April 27, 1999.
(7) Articles Supplementary of the Registrant dated December 2, 1993 as
filed with the Maryland Department of Assessments and Taxation on December 8,
1993 designating shares of each series are herein incorporated by reference to
Exhibit (a)(6) to Item 23 of Post-Effective Amendment No. 36 (File Nos. 2-78931
and 811-3551) as filed with the Commission on April 27, 1999.
(8) Articles Supplementary of the Registrant dated July 7, 1994 as filed
with the Maryland Department of Assessments and Taxation on August 9, 1994
creating the Sand Hill Portfolio Manager Fund (f/k/a Sand Hill Allocated Growth
Fund) are herein incorporated by reference to Exhibit (a)(7) to Item 23 of
Post-Effective Amendment No. 36 (File Nos. 2-78931 and 811-3551 as filed with
the Commission on April 27, 1999.
(9) Articles of Amendment of the Registrant dated October 12, 1994 as filed
with the Maryland Department of Assessments and Taxation on October 14, 1994
renaming the Sand Hill Portfolio Manager Fund are herein incorporated by
reference to Exhibit (a)(12) to Item 23 of Post-Effective Amendment No. 36 to
the Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on April 27, 1999.
(10)Articles Supplementary of the Registrant dated February 26, 1997
creating the Vontobel Emerging Markets Fund and the Vontobel Eastern European
Debt Fund with the Maryland Department of Assessments and Taxation on April 22,
1997 are herein incorporated by reference to Exhibit (b)(1)(b) to Item 24 of
Post-Effective Amendment No. 34 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on June
3, 1997.
(11)Articles of Amendment of the Registrant dated May 12, 1997 as filed
with the Maryland Department of Assessments and Taxation on May 21, 1997 re:
changing the Vontobel Emerging Markets Fund series to the Vontobel Emerging
Markets Equity Fund series-are incorporated herein by reference to Exhibit
(b)(1)(d) to Item 24 of Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the Commission on June 3, 1997.
(12)Articles Supplementary, as filed with the Maryland Department of
Assessments and Taxation on September 9, 1997 re: the liquidation of the Sand
Hill Portfolio Manager Fund is filed herewith as Exhibit No. EX-99.(a)(12)
(13) Articles of Amendment, as filed with the Maryland Department of
Assessments and Taxation on December 27, 1999 changing the name of the Vontobel
Emerging Markets Equity Fund to the Vontobel U.S. Equity Fund is filed herewith
as Exhibit No. EX-99.(a)(13).
(14)Articles Supplementary dated December 31, 1999 regarding the Agreement
and Plan of Reorganization of the Vontobel International Bond Fund and the
liquidation of the Vontobel International Bond Fund is filed herewith as Exhibit
No. EX-99.(a)(14).
(15)Articles of Amendment dated January 5, 2000, as filed with the Maryland
Department of Assessments and Taxation on January 6, 2000 changing the name of
the Vontobel Eastern European Debt Fund to the Vontobel Greater European Bond
Fund is filed herewith as Exhibit No. EX-99.(a)(15).
(b) By-Laws of the Registrant
(1) By-Laws of the Registrant (f/k/a The Commonwealth Group, Inc.) dated
August 3, 1988 are herein incorporated by reference to Exhibit (b) to Item 23 of
Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(2) Amendment to By-Laws of the Registrant is herein incorporated by
reference to Exhibit (b)(1) to Item 23 of Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on April 27, 1999.
(c) Instruments Defining Rights of Security Holders.
(1) Specimen Share Certificates.
Not applicable
(2) a. Articles of Incorporation
See above exhibits in Item 23 (a).
b. By-Laws.
See above exhibits in Item 23(b).
(d) Investment Advisory Contracts
(1) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel International Equity Fund dated July 14,
1992 is herein incorporated by reference to Exhibit (d)(1) of Item 23 of
Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(2) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel U.S. Value Fund dated July 14, 1992 is
herein incorporated by reference to Exhibit (d)(2) of Item 23 of Post-Effective
Amendment No. 36 to the Registrant's Registration Statement on Form N-1A (File
Nos. 2-78931 and 811-3551) as filed with the Commission on April 27, 1999.
(3) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel International Bond Fund dated February 10,
1994 is herein incorporated by reference to Exhibit (d)(3) of Item 23 of
Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(4) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel Eastern European Equity Fund dated February
14, 1996 is herein incorporated by reference to Exhibit (d)(4) to Item 23 of
Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(5) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel Eastern European Debt Fund dated August 18,
1997 is herein incorporated by reference to Exhibit (d)(5) to Item 23 of
Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(6) Investment Advisory Agreement between Vontobel USA Inc. and the
Registrant on behalf of the Vontobel Emerging Markets Equity Fund dated August
18, 1997 is herein incorporated by reference to Exhibit (d)(6) to Item 24 of
Post-Effective Amendment No. 34 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on June
3, 1997.
(e) Underwriting Agreement.
(1) Distribution Agreement between Vontobel Funds, Inc. and First Dominion
Capital Corp. dated August 18, 1997 is herein incorporated by reference to
Exhibit (e) to Item 23 of Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the Commission on April 27, 1999.
(f) Bonus or Profit Sharing Contracts.
Not applicable.
(g) Custodian Agreement.
(1) Custodian Agreement between Brothers Harriman & Co. and the Registrant
dated November 11, 1998 is herein incorporated by reference to Exhibit (g) to
Item 23 of Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the
Commission on April 27, 1999.
(h) Other Material Contracts.
(1) Transfer Agency Agreement between Fund Services, Inc. and the
Registrant dated January 1, 1999 is herein incorporated by reference to Exhibit
(h)(1) to Item 23 of Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A (File Nos. 2-78931 and 811-3551) as filed
with the Commission on April 27, 1999.
(2) Administrative Services Agreement between CSS and the Registrant dated
January 1, 1999 is herein incorporated by reference to Exhibit (h)(2) to Item 23
of Post-Effective Amendment No. 36 to the Registrant's Registration Statement on
Form N-1A (File Nos. 2-78931 and 811-3551) as filed with the Commission on April
27, 1999.
(3) Accounting Agency Agreement between Brown Brothers Harriman & Co. and
the Registrant dated November 1, 1998 is filed herewith as Exhibit No.
EX-99.(h)(3).
(i) Legal Opinion.
(1) Opinion of Stradley, Ronon, Stevens & Young, LLP is filed herewith as
Exhibit No. EX-23.(i)(1).
(j) Other Opinions.
(1) Consent of Tait, Weller & Baker is filed herewith as Exhibit
EX-23.(j)(1).
(k) Omitted Financial Statements.
Not Applicable.
(l) Initial Capital Agreements.
Not Applicable.
(m) Rule 12b-1 Plan.
Not Applicable.
(n) Rule 18f-3 Plan.
Not Applicable.
(o) Reserved.
(p) Code of Ethics.
(1) The Code of Ethics of the Registrant and Underwriter is filed herewith
as Exhibit EX-99.(p)(1).
(2) The Code of Ethics of the Registrant's advisor, Vontobel USA, Inc. is
filed herewith as Exhibit EX-99.(p)(2).
(q) Powers of Attorney for:
(1) Samuel Boyd, Jr. dated May 13, 1997 is incorporated herein by reference
to Exhibit 19(a)(1) of Item 24(b) of Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on June 3, 1997.
(2) Paul M. Dickinson dated May 13, 1997 is incorporated herein by
reference to Exhibit 19(a)(2) of Item 24(b) of Post-Effective Amendment No. 34
to the Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on June 3, 1997.
(3) Henry Schlegel dated May 13, 1997 is incorporated herein by reference
to Exhibit 19(a)(3) of Item 24(b) of Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on June 3, 1997.
(4) William E. Poist dated May 13, 1997 is incorporated herein by reference
to Exhibit 19(a)(4) of Item 24(b) of Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File Nos. 2-78931 and
811-3551) as filed with the Commission on June 3, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the
"GCL") of the State of Maryland. The Registrant's Articles of Incorporation
provide the indemnification of directors, officers and other agents of the
Registrant to the fullest extent permitted under the GCL. The Articles limit
such indemnification so as to comply with the prohibition against indemnifying
such persons under Section 17 of the Investment Company Act of 1940, as amended,
for certain conduct set forth in that section ("Disabling Conduct"). Contracts
between the Registrant and various service providers include provisions for
indemnification, but also forbid the Registrant to indemnify affiliates for
Disabling Conduct.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISOR.
Vontobel USA Inc., the Investment Advisor to the Vontobel U.S. Value Fund
series, the Vontobel International Equity Fund series, the Vontobel U.S. Equity
Fund series, the Vontobel Eastern European Equity Fund series and the Vontobel
Greater European Bond Fund series provides investment advisory services
consisting of portfolio management for a variety of individual and institutions
and as of April 1, 2000 had approximately $2.2 billion in assets under
management.
For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or partner of
Vontobel USA Inc. (the "Advisor") is or has been at any time during the past two
fiscal years, engaged for his own accord or in his capacity of director,
officer, employee, partner or trustee, reference is made to the Advisor's Form
ADV (File #801-21953), currently on file with the SEC as required by the
Investment Advisers Act of 1940, as amended.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The World Funds, Inc.
(b) Name and Principal Position and Office Positions and
Business Address with Underwriter Offices
with Fund
John Pasco, III President, Chief Chairman, President
1500 Forest Avenue Financial Officer, and Treasurer
Suite 223 Treasurer and
Richmond VA 23229 Director
Mary T. Pasco Director Assistant Secretary
1500 Forest Avenue
Suite 223
Richmond, VA 23229
Darryl S. Peay Vice President Assistant Secretary
1500 Forest Avenue Assistant
Suite 223 Compliance Officer
Richmond, VA 23229
Lori J. Martin Vice President & None
1500 Forest Avenue Assistant Secretary
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by Section 31 (a) of the Investment Company Act of 1940, as amended,
and the rules promulgated thereunder are kept in several locations:
(a) Shareholder account records (including share ledgers, duplicate
confirmations, duplicate account statements and application forms) of the
Registrant are maintained by its transfer agent, Fund Services, Inc., at 1500
Forest Avenue, Suite 111, Richmond, VA. 23229.
(b) Investment records including research information, records relating to
the placement of brokerage transactions, memorandums regarding investment
recommendations for supporting and/or authorizing the purchase or sale of
assets, information relating to the placement of securities transactions, and
certain records concerning investment recommendations of the Vontobel
International Equity Fund, Vontobel U.S. Value Fund, Vontobel U. S. Equity Fund,
Vontobel Eastern European Equity Fund, and the Vontobel Greater European Bond
Fund series of the Registrant are maintained at each series' investment advisor,
Vontobel USA Inc., at 450 Park Avenue, New York, N.Y. 10022.
(c) Accounts and records for portfolio securities and other investment
assets, including cash of the Vontobel International Equity Fund, Vontobel U.S.
Value Fund, Vontobel U. S. Equity Fund, Vontobel Eastern European Equity Fund,
and the Vontobel Greater European Bond Fund series are maintained in the custody
of the Registrant's custodian bank, Brown Brothers Harriman & Co., at 40 Water
Street, Boston, MA 02109.
(d) Accounting records, including general ledgers, supporting ledgers,
pricing computations, etc. of the Vontobel International Equity Fund, Vontobel
U.S. Value Fund, Vontobel U. S. Equity Fund, Vontobel Eastern European Equity
Fund, and the Vontobel Greater European Bond Fund series are maintained by the
Registrant's accounting services agent, Brown Brothers Harriman & Co., at 40
Water Street, Boston, MA 02109.
(e) Administrative records, including copies of the charter, by-laws,
minute books, agreements, compliance records and reports, certain shareholder
communications, etc., are kept at the Registrant's principal office, at 1500
Forest Avenue, Suite 223, Richmond, VA 23229, by the Registrant's Administrator,
Commonwealth Shareholder Services, Inc., whose address is the same as
Registrant's.
(f) Records relating to distribution of shares of the Registrant are
maintained by the Registrant's distributor, First Dominion Capital Corp. at 1500
Forest Avenue, Suite 223, Richmond, VA 23229.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in
Parts A or B of this Form.
ITEM 30. UNDERTAKINGS.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized in the City of Richmond,
and the Commonwealth of Virginia on the 28th day of April, 2000.
VONTOBEL FUNDS, INC.
By /s/ John Pasco, III
John Pasco, III, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated below.
Signature Title Date
John Pasco, III Director, Chairman April 28, 2000
Chief Executive
Officer and Chief
Financial Officer
Henry Schlegel* Director April 28, 2000
Samuel Boyd, Jr.* Director April 28, 2000
Paul M. Dickinson* Director April 28, 2000
William E. Poist* Director April 28, 2000
/s/John Pasco, III
- -------------------
John Pasco, III
* Pursuant to Powers-of-Attorney on File
<PAGE>
Exhibit No. Exhibit Index EDGAR Exhibit
No.
Item 23(a)(12) Articles EX-99.(a)(12)
Supplementary
Item 23(a)(13) Articles of EX-99.(a)(13)
Amendment
Item 23(a)(14) Articles EX-99.(a)(14)
Supplementary
Item 23(a)(15) Articles of EX-99.(a)(15)
Amendment
Item 23(h)(3) Accounting EX-99.(h)(3)
Agency
Agreement
Item 23(i)(1) Consent of EX-23.(i)(1)
Counsel
Item 23(j)(1) Consent of EX-23.(j)(1)
Auditors
Item 23(p)(1) Code of Ethics EX-99.(p)(1)
Item 23(p)(2) Code of Ethics EX-99.(p)(2)
<PAGE>
EXHIBIT EX-99.(a)(12)
---------------------
VONTOBEL FUNDS, INC.
(formerly, The World Funds, Inc.)
Articles Supplementary
Vontobel Funds, Inc., a Maryland corporation having its principal office in
Baltimore, Maryland (the "Corporation") an open-end investment company
registered under the Investment Company Act of 1940, as amended, hereby
certifies, in accordance with Section 2-105 (c) of the Maryland general
Corporation Law, to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting held on May
13, 1997, adopted an Agreement and Plan of Reorganization (the "Plan") with
respect to the Sand Hill Portfolio Manager Fund series, a duly organized and
validly existing series of the Corporation, and authorized the Corporation's
Officers to take any actions in furtherance of the Plan. The Plan provides for
the liquidation of the Sand Hill Portfolio Manager Fund series promptly after
its assets have been transferred to a newly-created series of The World Funds,
Inc. Since such transfer of assets occurred on August 18, 1997l leaving the Sand
Hill Portfolio Manager fund series with no assets, the Corporation hereby
terminates the Sand Hill Portfolio Manager Fund series. The Fifty Million
(50,000,000) shares of the Corporation's Common Stock (par value $.0l per share)
which were classified and allocated to the Sand Hill Portfolio Manager Fund
Series now revert to unclassified and unallocated shares of Common Stock of the
Corporation.
SECOND: (a) The total number of shares of stock which the Corporation was
authorized to issue prior to the aforesaid action was Five Hundred Million
(500,000,000) shares of Common Stock, with a par value of One Cent ($.01) per
share, having an aggregate par value of Five Million Dollars ($5,000,000):
One series of shares was designated as the Vontobel International Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Sand Hill Portfolio Manager Fund
series and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per
share) were classified and allocated to such series, with an aggregate par value
of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel U. S. Value Fund series
and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
were classified and allocated to such series, with an aggregate par value of
Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel International Bond Fund
series and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per
share) were classified and allocated to such series, with an aggregate par value
of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Eastern European Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Emerging Markets Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Eastern European Debt
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
(b) The total number of shares of stock which the Corporation is authorized to
issue, following the aforesaid actions, is Five Hundred Million (500,000,000)
shares of Common Stock, with a par value of One Cent ($.01) per share, having an
aggregate par value of Five Million Dollars ($5,000,000):
One series of shares is designated as the Vontobel International Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel U.S. Value Fund series
and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
are classified and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel International Bond Fund
series and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per
share) are classified and allocated to such series, with an aggregate par value
of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Eastern European Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Emerging Markets Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Eastern European Debt
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
IN WITNESS WHEREOF, Vontobel funds, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf this 4th day of
September, 1997.
Vontobel Funds, Inc.
By: /s/ John Pasco, III
John Pasco, III
Chairman and Chief Executive Officer
WITNESS:
/s/ Mary T. Pasco
Name: Mary T. Pasco
Title: Assistant Secretary
THE UNDERSIGNED, Chairman and Chief Executive Officer of Vontobel Funds,
Inc., who executed on behalf of said Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, he foregoing Articles to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
s/s John Pasco, III
John Pasco, III
Chairman and Chief Executive Officer
Attest:
s/s Mary T. Pasco
Mary T. Pasco
Assistant Secretary
<PAGE>
EXHIBIT EX-99.(a)(13)
---------------------
VONTOBEL FUNDS, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Vontobel Funds, Inc., a Maryland corporation having its
principal office in Baltimore, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended.
SECOND: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name
of the Vontobel Emerging Markets Equity Fund series of the
Corporation's Common Stock to the Vontobel U.S. Equity Fund series
of the Corporation's Common Stock.
THIRD: The amendment to the Articles of Incorporation of the Corporation as
set forth above have been duly approved by a majority of the entire Board of
Directors of the Corporation as required by law and are limited to changes
expressly permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
FOURTH: The amendment to the Articles of Incorporation of the Corporation
as set forth above do not change the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of the series of stock that is the subject of
the amendment.
FIFTH: These Articles of Amendment shall become effective at
9:00 a.m. (Eastern time) on December _____, 1999.
<PAGE>
IN WITNESS WHEREOF, VONTOBEL FUNDS, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by
its President and attested by its Assistant Secretary on this
_______ day of December 1999.
VONTOBEL FUNDS, INC.
By:
John Pasco, III
President
ATTEST:
By: _______________________________
Mary T. Pasco
Assistant Secretary
THE UNDERSIGNED, President of VONTOBEL FUNDS, INC., who executed on
behalf of said Corporation the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the corporate act of
said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
John Pasco, III
President
<PAGE>
EXHIBIT EX-99.(a)(14)
---------------------
VONTOBEL FUNDS, INC.
Articles Supplementary
Vontobel Funds, Inc., a Maryland corporation having its principal office in
Baltimore, Maryland (the "Corporation") an open-end investment company
registered under the Investment Company Act of 1940, as amended, hereby
certifies, in accordance with Section 2-105 (c) of the Maryland General
Corporation Law, to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting held on July
28, 1999, adopted an Agreement and Plan of Reorganization (the "Plan") with
respect to the Vontobel International Bond Fund series, a duly organized and
validly existing series of the Corporation, and authorized the Corporation's
Officers to take any actions in furtherance of the Plan. The Plan provides for
the transfer of the assets of the Vontobel International Bond Fund into the
Vontobel Eastern European Debt Fund on August 27, 1999. Since such transfer of
assets occurred on August 27, 1999, leaving the Vontobel International Bond Fund
with no assets, the Corporation hereby terminates the Vontobel International
Bond Fund series. The Fifty Million (50,000,000) shares of the Corporation's
Common Stock (par value $.0l per share) which were classified and allocated to
the Vontobel International Bond Fund series now revert to unclassified and
unallocated shares of Common Stock of the Corporation.
SECOND: (a) The total number of shares of stock which the Corporation was
authorized to issue prior to the aforesaid action was Five Hundred Million
(500,000,000) shares of Common Stock, with a par value of One Cent ($.01) per
share, having an aggregate par value of Five Million Dollars ($5,000,000):
One series of shares was designated as the Vontobel International Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel U. S. Value Fund series
and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
were classified and allocated to such series, with an aggregate par value of
Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel International Bond Fund
series and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per
share) were classified and allocated to such series, with an aggregate par value
of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Eastern European Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Emerging Markets Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares was designated as the Vontobel Eastern European Debt
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
(c) The total number of shares of stock which the Corporation is authorized to
issue, following the aforesaid actions, is Five Hundred Million (500,000,000)
shares of Common Stock, with a par value of One Cent ($.01) per share, having an
aggregate par value of Five Million Dollars ($5,000,000):
One series of shares is designated as the Vontobel International Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel U.S. Value Fund series
and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
are classified and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Eastern European Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Emerging Markets Equity
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Vontobel Eastern European Debt
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) are classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000);
THIRD: The Board of Directors adopted resolutions to change the name of the
vontobel Eastern European Debt Fund to the Vontobel Greater European Bond Fund.
IN WITNESS WHEREOF, Vontobel Funds, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf this 31st day of
December, 1999.
Vontobel Funds, Inc.
By: /s/ John Pasco, III
John Pasco, III
Chairman and Chief Executive Officer
WITNESS:
/s/ Darryl S. Peay
Darryl S. Peay
Assistant Secretary
THE UNDERSIGNED, Chairman and Chief Executive Officer of Vontobel Funds,
Inc., who executed on behalf of said Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the foregoing Articles to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
s/s John Pasco, III
John Pasco, III
Chairman and Chief Executive Officer
Attest:
s/s Darryl S. Peay
Assistant Secretary
<PAGE>
EXHIBIT EX-99.(a)(15)
---------------------
VONTOBEL FUNDS, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Vontobel Funds, Inc., a Maryland corporation having its principal office in
Baltimore, Maryland (the "Corporation"), hereby certifies, in accordance with
Section 2-605 and 2-607 and related sections of the Maryland General Corporation
law, to the State Department of Assessments and taxation of Maryland that:
First: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended.
Second: The Articles of Incorporation of the Corporation, as amended and
supplemented to date, are further amended by terminating the Vontobel
International Bond Fund series and changing the Fifty Million (50,000,000)
shares of the Corporation's Common Stock (par value $.01 per share), which were
classified and allocated to the Vontobel International Bond Fund series, to
unclassified and unallocated shares of Common Stock of the Corporation.
Third: The Articles of Incorporation of the Corporation, as amended and
supplemented to date, are further amended by changing the name of the Vontobel
Eastern European Debt Fund series of the Corporation's Common Stock to the
Vontobel Greater European Bond Fund series of the Corporation's Common Stock.
Fourth: The amendments to the Articles of Incorporation of the Corporation
as set forth above have been duly approved by a majority of the entire Board of
Directors of the Corporation as required by law and are limited to changes
expressly permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
Fifth: The amendments to the Articles of Incorporation of the Corporation
as set forth above do not change the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of the series of stock that is the subject of
the amendment.
IN WITNESS WHEREOF, VONTOBEL FUNDS, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by
its President and attested by its Assistant Secretary on this 5th
day of January 2000.
VONTOBEL FUNDS, INC.
By: ________________________
John Pasco, III
President
ATTEST:
By: _________________________
Darryl S. Peay
Assistant Secretary
THE UNDERSIGNED, President of VONTOBEL FUNDS, INC., who executed on behalf
of said Corporation the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the corporate act of
said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
-----------------------
John Pasco, III
President
<PAGE>
EXHIBIT EX-99.(h)(3)
ACCOUNTING AGENCY AGREEMENT
THIS ACCOUNTING AGENCY AGREEMENT is made as of November 1, 1998 by and
between BROWN BROTHERS HARRIMAN & CO.,, a limited partnership organized under
the laws of the State of New York (the "Accounting Agent"), and VONTOBEL FUNDS,
INC. (the "Fund").
WHEREAS, the Fund is registered as management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Accounting Agent to perform certain
accounting and recordkeeping services on behalf of the Fund, and the Accounting
Agent is willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment of Accounting Agent . The Fund hereby employs and appoints
the Accounting Agent to act as its fund accounting agent on the terms set forth
in this Agreement, and the Accounting Agent accepts such appointment.
2. Delivery of Documents. The Fund will (i) furnish the Accounting Agent
with properly certified or authenticated copies of resolutions of the Fund's
Board of Directors or Trustees authorizing the appointment of the Accounting
Agent to provide certain fund accounting services to the Fund and approving this
Agreement; (ii) provide the Accounting Agent with any other documents or
resolutions (including but not limited to directions or resolutions of the
Fund's Board of Directors or Trustees) which relate to or affect the Accounting
Agent 's performance of its duties hereunder or which the Accounting Agent may
reasonably request; and (iii) notify the Accounting Agent promptly of any matter
affecting the performance by the Accounting Agent of its services under this
Agreement.
3. Recordkeeping and Calculation of Net Asset Value. - The Accounting Agent
shall compute and determine the net asset value per share of the Fund as of the
close of business on the New York Stock Exchange on each day on which such
Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (1) the
provisions of the Fund's Declaration of Trust or Certificate of Incorporation
and By-Laws, as they may from time to time be amended and delivered to the
Accounting Agent, (2) the votes of the Board of Trustees or Directors of the
Fund at the time in force and applicable, as they may from time to time be
delivered to the Accounting Agent, and (3) Proper Instructions. On each day that
the Accounting Agent shall compute the net asset value per share of the Fund,
the Accounting Agent shall provide the Fund's investment adviser with written
reports which the investment adviser will use to verify that portfolio
transactions have been recorded in accordance with the Fund's instructions and
are reconciled with the Fund's trading records.
In computing the net asset value, the Accounting Agent may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Accounting Agent,
(2) as to the existence, status and proper treatment of reserves, if any,
authorized by the Fund, (3) as to the sources of quotations to be used in
computing the net asset value, including those listed in Appendix B, (4) as to
the fair value to be assigned to any securities or other property for which
price quotations are not readily available, and (5) as to the sources of
information with respect to "corporate actions" affecting portfolio securities
of the Fund, including those listed in Appendix B. (Information as to "corporate
actions" shall include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
the ex- and record dates and the amounts or other terms thereof.) The Fund may
instruct the Accounting Agent to utilize a particular source for the valuation
of a specific Security or other Property and the Accounting Agent shall
protected in utilizing the valuation provided by such source without further
inquiry in order to effect calculation of the Fund's net asset value.
Notwithstanding anything in this Agreement to the contrary, the Accounting Agent
shall not be responsible for the failure of the Fund or its investment adviser
to provide the Accounting Agent with Proper Instructions regarding liabilities
which ought to be included in the calculation of the Fund's net asset value.
In like manner, the Accounting Agent shall compute and determine the net
asset value as of such other times as the Board of Trustees or Directors of the
Fund from time to time may reasonably request.
4. Expenses and Compensation. For the services to be rendered and the
facilities to be furnished by the Accounting Agent as provided for in this
Agreement, the Fund shall pay the Accounting Agent for its services rendered
pursuant to this Agreement a fee based on such fee schedule as may from time to
time be agreed upon in writing by the Fund and the Accounting Agent. In addition
to such fee, the Accounting Agent shall bill the Fund separately for any
out-of-pocket disbursements of the Accounting Agent. Out-of-pocket disbursements
shall include, but shall not be limited to, postage, including courier services;
telephone; telecommunications; printing, duplicating and photocopying charges;
forms and supplies; filing fees; legal expenses; and travel expenses. The
foregoing fees and disbursements shall be billed to the Fund by the Accounting
Agent and shall be paid promptly by wire transfer or other appropriate means to
the Accounting Agent.
5. Standard of Care. The Accounting Agent shall be held only to the exercise
of reasonable care in computing and determining net asset value as provided in
this Agreement, but shall not be held accountable or liable for any losses or
damages the Fund or any shareholder or former shareholder of the Fund or any
other person may suffer or incur arising from or based upon errors or delays in
the determination of such net asset value resulting from any event beyond the
reasonable control of the Accounting Agent unless such error or delay was due to
the Accounting Agent's negligence or reckless or willful misconduct in
determination of such net asset value. (The parties hereto acknowledge, however,
that the Accounting Agent's causing an error or delay in the determination of
net asset value may, but does not in and of itself, constitute negligence or
reckless or willful misconduct.) In no event shall the Accounting Agent be
liable or responsible to the Fund, any present or former shareholder of the Fund
or any other person for any error or delay which continued or was undetected
after the date of an audit performed by the certified public accountants
employed by the Fund if, in the exercise of reasonable care in accordance with
generally accepted accounting standards, such accountants should have become
aware of such error or delay in the course of performing such audit. The
Accounting Agent's liability for any such negligence or reckless or willful
misconduct which results in an error in determination of such net asset value
shall be limited exclusively to the direct, out-of-pocket loss the Fund,
shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value, and
any expenses the Fund shall incur in connection with correcting the records of
the Fund affected by such error (including charges made by the Fund's registrar
and transfer agent for making such corrections) or communicating with
shareholders or former shareholders of the Fund affected by such error.
Without limiting the foregoing, the Accounting Agent shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or losses, damages or expenses any of them
may suffer or incur resulting from (1) the Accounting Agent's failure to receive
timely and suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the Fund or (2) any errors in
the computation of the net asset value based upon or arising out of quotations
or information as to corporate actions if received by the Accounting Agent
either (i) from a source which the Accounting Agent was authorized pursuant to
the third paragraph of this Section to rely upon, (ii) from a source which in
the Administrator's reasonable judgment was as reliable a source for such
quotations or information as the sources authorized pursuant to that third
paragraph, or (iii) relevant information known to the Fund or the Investment
Adviser which would impact the calculation of net asset value but which is not
communicated by the Fund or the investment adviser to the Accounting Agent.
In the event of any error or delay in the determination of such net asset
value for which the Accounting Agent may be liable, the Fund and the Accounting
Agent will consult and make good faith efforts to reach agreement on what
actions should be taken in order to mitigate any loss suffered by the Fund or
its present or former shareholders, in order that the Accounting Agent's
exposure to liability shall be reduced to the extent possible after taking into
account all relevant factors and alternatives. Such actions might include the
Fund or the Accounting Agent taking reasonable steps to collect from any
shareholder or former shareholder who has received any overpayment upon
redemption of shares such overpaid amount or to collect from any shareholder who
has underpaid upon a purchase of shares the amount of such underpayment or to
reduce the number of shares issued to such shareholder. It is understood that in
attempting to reach agreement on the actions to be taken or the amount of the
loss which should appropriately be borne by the Accounting Agent, the Fund and
the Accounting Agent will consider such relevant factors as the amount of the
loss involved, the Fund's desire to avoid loss of shareholder good will, the
fact that other persons or entities could have been reasonably expected to have
detected the error sooner than the time it was actually discovered, the
appropriateness of limiting or eliminating the benefit which shareholders or
former shareholders might have obtained by reason of the error, and the
possibility that other parties providing services to the Fund might be induced
to absorb a portion of the loss incurred.
6. Limitation of Liability.
-----------------------
(a) The Accounting Agent shall incur no liability with respect to any
telecommunications, equipment or power failures, or any failures to perform or
delays in performance by postal or courier services or third-party information
providers. The Accounting Agent shall also incur no liability under this
Agreement if the Accounting Agent or any agent or entity utilized by the
Accounting Agent shall be prevented, forbidden or delayed from performing, or
omits to perform, any act or thing which this Agreement provides shall be
performed or omitted to be performed, by reason of causes or events beyond its
control, including but not limited to (x) any Sovereign Risk, or (y) any
provision of any present or future law, regulation or order of the United States
or any state thereof, or of any foreign country or political subdivision
thereof, or of any securities depository or clearing agency, or (z) any
provision of any order or judgment of any court of competent jurisdiction. A
"Sovereign Risk" shall mean any nationalization; expropriation; devaluation;
revaluation; confiscation; seizure; cancellation; destruction; strike; act of
war, terrorism, insurrection or revolution; or any other act or event beyond the
Accounting Agent's control.
(b) Notwithstanding any other provision of this Agreement, the
Accounting Agent shall not be held accountable or liable for any losses, damages
or expenses the Fund or any shareholder or former shareholder of the Fund or any
other person may suffer or incur arising from acts, omissions, errors or delays
of the Accounting Agent in the performance of its obligations and duties
hereunder, including without limitation any error of judgment or mistake of law,
except a damage, loss or expense resulting from the Accounting Agent's willful
malfeasance, bad faith or negligence in the performance of such obligations and
duties. The Accounting Agent shall in no event be required to take any action
which is in contravention of any applicable law, rule or regulation or any order
or judgment of any court of competent jurisdiction. The Fund hereby agrees to
indemnify the Accounting Agent against and hold it harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any act, omission, error or delay or any
claim, demand, action or suit, in connection with or arising out of performance
of its obligations and duties under this Agreement, not resulting from the
willful malfeasance, bad faith or negligence of the Accounting Agent in the
performance of such obligations and duties.
The Accounting Agent shall in no event be liable or responsible to the
Fund, any present or former shareholder of the Fund or any other person for any
error or delay which continued or was undetected after the date of an audit
performed by the certified public accountants employed by the Fund if, in the
exercise of reasonable care in accordance with generally accepted accounting
standards, such accountants should have become aware of such error or delay in
the course of performing such audit. It is also agreed that, in the event of an
act, omission, error or delay which leads to losses, costs or expenses for which
the Accounting Agent may be liable, the Fund and the Accounting Agent will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the Accounting Agent's exposure to liability
shall be reduced to the extent possible after taking into account all relevant
factors and alternatives. It is understood that in attempting to reach agreement
on the actions to be taken or the amount of the loss which should appropriately
be borne by the Accounting Agent, the Fund and the Accounting Agent will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have been reasonably expected to have detected the error sooner
than the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.
(c) Notwithstanding anything else in this Agreement to the contrary,
the Accounting Agent's entire liability to the Fund for any loss or damage
arising or resulting from its performance hereunder or for any other cause
whatsoever, and regardless of the form of action, shall be limited to the Fund's
actual and direct out-of-pocket expenses and losses which are reasonably
incurred by the Fund. In no event and under no circumstances shall the
Accounting Agent or a Fund be held liable to the other party for consequential
or indirect damages, loss of profits, damage to reputation or business or any
other special damages arising under or by reason of any provision of this
Agreement or for any act or omission hereunder.
7. Reliance by the Accounting Agent on Proper Instructions and
-----------------------------------------------------------
Opinions of Counsel and Opinions of Certified Public Accountants.
- ----------------------------------------------------------------
(a) The Accounting Agent shall not be liable for, and shall be
indemnified by the Fund against any and all losses, costs, damages or expenses
arising from or as a result of, any action taken or omitted in reliance upon
Proper Instructions or upon any other written notice, request, direction,
instruction, certificate or other instrument believed by it to be genuine and
signed or authorized by the proper party or parties.
Proper Instructions shall include a written request, direction, instruction
or certification signed or initialed on behalf of the Fund by one or more
persons as the Board of Trustees or Directors of the Fund shall have from time
to time authorized. Those persons authorized to give Proper Instructions may be
identified by the Board of Trustees or Directors by name, title or position and
will include at least one officer empowered by the Board to name other
individuals who are authorized to give Proper Instructions on behalf of the
Fund. Telephonic or other oral instructions or instructions given by telefax
transmission may be given by any one of the above persons and will also be
considered Proper Instructions if the Accounting Agent believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved.
With respect to telefax transmissions, the Fund hereby acknowledges that
(i) receipt of legible instructions cannot be assured, (ii) the Accounting Agent
cannot verify that authorized signatures on telefax instructions are original,
and (iii) the Accounting Agent shall not be responsible for losses or expenses
incurred through actions taken in reliance on such telefax instructions. The
Fund agrees that such telefax instructions shall be conclusive evidence of the
Fund's Proper Instruction to the Accounting Agent to act or to omit to act.
Proper Instructions given orally will be confirmed by written instructions
in the manner set forth above, including by telefax, but the lack of such
confirmation shall in no way affect any action taken by the Accounting Agent in
reliance upon such oral instructions. The Fund authorizes the Accounting Agent
to tape record any and all telephonic or other oral instructions given to the
Accounting Agent by or on behalf of the Fund (including any of its officers,
Directors, Trustees, employees or agents or any investment manager or adviser or
person or entity with similar responsibilities which is authorized to give
Proper Instructions on behalf of the Fund to the Accounting Agent.)
(b) The Accounting Agent may consult with its counsel or the Fund's
counsel in any case where so doing appears to the Accounting Agent to be
necessary or desirable. The Accounting Agent shall not be considered to have
engaged in any misconduct or to have acted negligently and shall be without
liability in acting upon the advice of its counsel or of the Fund's counsel.
(c) The Accounting Agent may consult with a certified public accountant
or the Fund's Treasurer in any case where so doing appears to the Accounting
Agent to be necessary or desirable. The Accounting Agent shall not be considered
to have engaged in any misconduct or to have acted negligently and shall be
without liability in acting upon the advice of such certified public accountant
or of the Fund's Treasurer.
8. Termination of Agreement.
------------------------
(a) This Agreement shall continue in full force and effect until
terminated by the Accounting Agent or the Fund by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect not sooner than ninety (90) days after the date of such delivery or
mailing. In the event a termination notice is given by a party hereto, all
expenses associated with the movement of records and materials and the
conversion thereof shall be paid by the Fund for which services shall cease to
be performed hereunder. The Accounting Agent shall be responsible for completing
all actions in progress when such termination notice is given unless otherwise
agreed.
Notwithstanding anything in the foregoing provisions of this clause, if it
appears impracticable in the circumstances to effect an orderly delivery of the
necessary and appropriate records of the Accounting Agent to a successor within
the time specified in the notice of termination as aforesaid, the Accounting
Agent and the Fund agree that this Agreement shall remain in full force and
effect for such reasonable period as may be required to complete necessary
arrangements with a successor.
(b) If a party hereto shall fail to perform its duties and obligations
hereunder (a "Defaulting Party") resulting in material loss to another party
("the "Non-Defaulting Party"), the Non-Defaulting Party may give written notice
thereof to the Defaulting Party, and if such material breach shall not have been
remedied within thirty (30) days after such written notice is given, then the
Non-Defaulting Party may terminate this Agreement by giving thirty (30) days'
written notice of such termination to the Defaulting Party. If the Accounting
Agent is the Non-Defaulting Party, its termination of this Agreement shall not
constitute a waiver of any other rights or remedies of the Accounting Agent with
respect to payment for services performed prior to such termination or rights of
the Accounting Agent to be reimbursed for out-of-pocket expenses. In all cases,
termination by the Non-Defaulting Party shall not constitute a waiver by the
Non-Defaulting Party of any other rights it might have under this Agreement or
otherwise against the Defaulting Party.
(c) This Section 7 shall survive any termination of this Agreement,
whether for cause or not for cause.
9. Amendment of this Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment or termination is sought.
In connection with the operation of this Agreement, the Fund and the
Accounting Agent may agree in writing from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
The section headings and the use of defined terms in the singular or plural
tenses in this Agreement are for the convenience of the parties and in no way
alter, amend, limit or restrict the contractual obligations of the parties set
forth in this Agreement.
10. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES HERETO
IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF
MANHATTAN.
11. Notices. Notices and other writings delivered or mailed postage prepaid
to a Fund addressed to the Fund at 1500 Forest Avenue Suite 223, Richmond,
Virginia 23226 or to such other address as the Fund may have designated to the
Accounting Agent in writing, or to the Accounting Agent at 40 Water Street,
Boston, MA 02109, Attention: Manager, Fund Accounting Department, or to such
other address as the Accounting Agent may have designated to the Fund in
writing, shall be deemed to have been properly delivered or given hereunder to
the respective addressee.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Fund and the Accounting Agent and their respective successors and
assigns, provided that no party hereto may assign this Agreement or any of its
rights or obligations hereunder without the written consent of the other party.
13. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an
original, and which collectively shall be deemed to constitute only
one instrument. This Agreement shall become effective when one or
more counterparts have been signed and delivered by each of the
parties.
14. Exclusivity. The services furnished by the Accounting
-----------
Agent hereunder are not to be deemed exclusive, and the Accounting
Agent shall be free to furnish similar services to others.
15. Authorization. The Fund hereby represents and warrants
--------------
that the execution and delivery of this Agreement have been
authorized by the Fund's Board of Directors or Trustees and that
this Agreement has been signed by an authorized officer of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
BROWN BROTHERS HARRIMAN & CO. VONTOBEL FUNDS, INC.
By: /s/ Kristen F. Giarrusso By: /s/ John Pasco, III
------------------------------------- ------------------
Name: Kristen F. Giarrusso Name: John Pasco, III
------------------------------ ---------------
Title: Partner Title: Chairman
---------------------------- --------
<PAGE>
EXHIBIT EX-23.(i)(1)
STRADLEY Stradley, Ronon Stevens & Young, LLP
RONON 2600 One Commerce Square
Attorneys At Law Philadelphia, PA 19103-7098
Telephone (215) 564-8000
Fax (215) 564-8120
Steven M. Felsenstein
(215) 564-8074
[email protected]
April 20, 2000
Vontobel Funds, Inc.
Suite 223
1500 Forest Avenue
Richmond, Virginia 23226
Re: Legal Opinion-Securities Act of 1933
Ladies and Gentlemen:
We have examined the Articles of Incorporation (the "Articles") of Vontobel
Funds, Inc. (the "Corporation"), a corporation organized under the laws of the
State of Maryland on October 28, 1983, the By-Laws of the Corporation, and the
resolutions adopted by the Corporation's Board of Directors organizing the
business of the Corporation, all as amended to date, and the various pertinent
proceedings we deem material. We have also examined the Notification of
Registration and the Registration Statements filed under the Investment Company
Act of 1940 (the "Investment Company Act") and the Securities Act of 1933 (the
"Securities Act"), all as amended to date, as well as other items we deem
material to this opinion.
The Corporation is authorized by its Articles to issue five hundred million
(500,000,000) shares of common stock at a par value of $0.01 per share. The
Corporation issues shares of the Vontobel U.S. Value Fund, Vontobel
International Equity Fund, Vontobel U.S. Equity Fund, Vontobel Eastern European
Equity Fund and Vontobel Greater European Bond Fund. The Articles designate, or
authorize the Directors to allocate, shares of common stock to each such series.
The Articles also empower the Directors to designate any additional series or
classes and allocate shares to such series or classes.
Malvern, PA * Wilmington, DE * Cherry Hill, NJ * Washington, DC
A Pennsylvania Limited Liability Partnership
<PAGE>
Vontobel Funds, Inc.
April 20, 2000
Page Two
The Corporation has filed with the U.S. Securities and Exchange Commission
(the "Commission"), a Registration Statement under the Securities Act, which
Registration Statement is deemed to register an indefinite number of shares of
the Corporation pursuant to the provisions of Rule 24f-2 under the Investment
Company Act. You have advised us that the Corporation has filed, and each year
hereafter will timely file, a Notice pursuant to Rule 24f-2 perfecting the
registration of the shares sold by the Corporation during each fiscal year
during which such registration of an indefinite number of shares remains in
effect.
You have also informed us that the shares of the Corporation have
been, and will continue to be, sold in accordance with the Corporation's usual
method of distributing its registered shares, under which prospectuses are made
available for delivery to offerees and purchasers of such shares in accordance
with Section 5(b) of the Securities Act.
Based upon the foregoing information and examination, so long as
the Corporation remains a valid and subsisting entity under the laws of State of
Maryland, and the registration of an indefinite number of shares of the
Corporation remains effective, the authorized shares of the Corporation, when
issued for the consideration set by the Board of Directors pursuant to the
Articles, and subject to compliance with Rule 24f-2, will be legally
outstanding, fully-paid, and non-assessable shares, and the holders of such
shares will have all the rights provided for with respect to such holding by the
Articles and the laws of the State of Maryland.
We hereby consent to the use of this opinion, as an exhibit to the
Registration Statement of the Corporation, along with any amendments thereto,
covering the registration of the shares of the Corporation under the Securities
Act and the applications, registration statements or notice filings, and
amendments thereto, filed in accordance with the securities laws of the several
states in which shares of the Corporation are offered, and we further consent to
reference in the Registration Statement of the Corporation to the fact that this
opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /S/ STEVEN M. FELSENSTEIN
Steven M. Felsenstein
<PAGE>
EXHIBIT EX-23.(j)(1)
--------------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to
the Registration Statement on Form N-1A of the Vontobel Funds, Inc. and to the
use of our reports each dated January 22, 1999 on the financial statements and
financial highlights of Vontobel U.S. Value Fund, Vontobel International Equity
Fund, Vontobel Eastern European Equity Fund, Vontobel U.S. Equity Fund, and
Vontobel Greater European Bond Fund, each a series of Vontobel Funds, Inc. Such
financial statements, financial highlights and reports of independent certified
public accountants appear in the 1999 Annual Report to Shareholders and are
incorporated by reference in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 28, 2000
<PAGE>
EXHIBIT EX-99.(p)(1)
--------------------
First Dominion Capital Corp. (the "Distributor") a registered
broker/dealer hereby adopts the attached Code of Ethics and where
there is reference to the Advisor it shall also be deemed to refer
to the distributor.
/s/ John Pasco, III
-------------------
John Pasco, III
President
<PAGE>
VONTOBEL FUNDS, INC.
CODE OF ETHICS
AND
STATEMENT ON INSIDER TRADING
<PAGE>
CODE OF ETHICS
Vontobel Funds, Inc.
Rule 17j-1 under the Investment Company Act of 1940 (the "Act") requires
registered investment companies, ("investment companies") and their investment
advisors, and principal underwriters to adopt written codes of ethics designed
to prevent fraudulent trading by those persons covered under Rule 17j-1. Rule
17j-1 also makes it unlawful for certain persons, including any officer or
director of an investment company, in connection with the purchase or sale by
such person of a security held or to be acquired by an investment company to:
1. employ any device, scheme or artifice to defraud the
investment company;
2. make to the investment company any untrue statement of a material fact
or omit to state to the investment company a material fact necessary in
order to make the statements made, in light of the circumstances under
which they are made, not misleading;
3. engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the
investment company; or
4. engage in any manipulative practice with respect to the
investment company.
Rule 17j-1 also requires that each investment company and its affiliates
use reasonable diligence, and institute procedures reasonably necessary, to
prevent violations of its code of ethics.
In addition to Rule 17j-1 of the Act, the Insider Trading and Securities
Fraud Enforcement Act of 1988 ("ITSFEA") requires that all investment advisors
and broker-dealers establish, maintain, and enforce written policies and
procedures designed to detect and prevent the misuse of material non-public
information by such investment advisor and/or broker-dealer. Section 204A of the
Investment Advisors Act of 1940 (the "Advisors Act") states that an investment
advisor must adopt and disseminate written policies with respect to ITSFEA, and
an investment advisor must also vigilantly review, update, and enforce them.
Section 204A provides that every person subject to Section 204 of the Advisors
Act shall be required to establish procedures to prevent insider trading.
Attached to this Code of Ethics (the "Code"), as Exhibit A, is a Statement
on Insider Trading. Any investment advisor who acts as such for any series of
Vontobel Funds, Inc. (the "Fund") and any broker-dealer who acts as the
principal underwriter for any series of the Fund must comply with the policy and
procedures outlined in the Statement on Insider Trading unless such investment
advisor or principal underwriter has adopted a similar policy and procedures
with respect to insider trading which are determined by the Fund's Board of
Directors to comply with ITSFEA's requirements.
This Code is being adopted by the Fund, (1) for implementation with respect
to covered persons of the Fund; and (2) for implementation by any investment
advisor to the Fund as that term is defined under the Act (each such investment
advisor being deemed an "Investment Advisor" for purposes of this Code), and for
any principal underwriter for the Fund, unless such investment advisor or
principal underwriter has adopted a code of ethics and plan of implementation
thereof which is determined by the Fund's Board of Directors to comply with the
requirements of Rule 17j-1 and to be sufficient to effectuate the purpose and
objectives of Rule 17j-1.
STATEMENT OF GENERAL PRINCIPLES
This Code is based on the principle that the officers, directors, and
employees of the Fund and the officers, directors, and employees of the Fund's
investment advisor(s) owe a fiduciary duty to the shareholders of the Fund and,
therefore, the Fund's and investment advisor's personnel must place the
shareholders' interests ahead of their own. The Fund's and investment advisor's
personnel must also avoid any conduct which could create a potential conflict of
interest, and must ensure that their personal securities transactions do not in
any way interfere with the Fund's portfolio transactions and that they do not
take inappropriate advantage of their positions. All persons covered by this
Code must adhere to these general principles as well as the Code's specific
provisions, procedures, and restrictions.
DEFINITIONS
For purposes of this Code:
"Access Person" means any director officer, employee, or advisory person of
the Fund, or those persons who have an active part in the management, portfolio
selection, or underwriting functions of the Fund, or who, in the course of their
normal duties, obtain prior information about the Fund's purchases or sales of
securities (i.e. traders and analysts).
"Advisory Person". With respect to an Investment Advisor, an Advisory
Person means any director, officer, general partner, or employee who, in
connection with his/her regular functions or duties, makes, participates in, or
obtains current information regarding the purchase or sale of a security by the
Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales, including any natural person in a control
relationship to the Fund who obtains current information concerning
recommendations made with regard to the purchase or sale of a security by the
Fund.
"Investment Personnel" shall mean any securities analyst, portfolio
manager, or a member of an investment committee who is directly involved in the
decision making process as to whether or not to purchase or sell a portfolio
security and those persons who provide information and advice to a Portfolio
Manager or who help execute a Portfolio Manager's decisions.
"Fund Personnel" shall mean an Access Person, Advisory Person, and/or
Investment Personnel.
"Portfolio Manager" shall mean an employee of an Investment Advisor
entrusted with the direct responsibility and authority to make investment
decisions affecting the Fund.
"Beneficial Ownership" shall be as defined in Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, which, generally
speaking, encompass those situations where the beneficial owner has the right to
enjoy some economic benefits which are substantially equivalent to ownership
regardless of who is the registered owner. This would include:
(i) securities which a person holds for his or her own benefit either in
bearer form, registered in his or her own name or otherwise, regardless of
whether the securities are owned individually or jointly;
(ii) securities held in the name of a member of his or her
immediate family sharing the same household;
(iii) securities held by a trustee, executor, administrator,
custodian or broker;
(iv) securities owned by a general partnership of which the
person is a member or a limited partnership of which such
person is a general partner;
(v) securities held by a corporation which can be regarded as a
personal holding company of a person; and
(vi) securities recently purchased by a person and awaiting
transfer into his or her name.
"Security" shall have the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include shares of registered open-end investment
companies, securities issued by the Government of the United States or by
Federal agencies which are direct obligations of the United States, bankers'
acceptances, bank certificates of deposits, and commercial paper. A future or an
option on a future will be deemed to be a security subject to this Code.
"Purchase or sale of a security" includes the writing of an option to
purchase or sell a security.
A security is "being considered for purchase or sale" or is "being
purchased or sold" when a recommendation to purchase or sell the security has
been made by an Investment Advisor and such determination has been communicated
to the Fund. With respect to the Investment Advisor making the recommendation, a
security is being considered for purchase or sale when an officer, director or
employee of such Investment Advisor seriously considers making such a
recommendation.
Solely for purposes of this Code, any agent of the Fund charged with
arranging the execution of a transaction shall be subject to the reporting
requirements of this Code as to any such security as and from the time the
security is identified to such agent as though such agent was an Investment
Advisor hereunder.
NOTE: An officer or employee of the Fund or an Investment Advisor whose
duties do not include the advisory functions described above, who does not
have access to the advisory information contemplated above, and whose
assigned place of employment is at a location where no investment advisory
services are performed for the Fund, is not an "Advisory Person" or an
"Access Person" unless actual advance knowledge of a covered transaction is
furnished to such person.
PROHIBITED TRANSACTIONS
Fund Personnel shall not engage in any act, practice or course of conduct
which would violate the provisions of Rule 17j-1 set forth above. No Access
Person or Advisory Person shall purchase or sell, directly or indirectly any
security in which he/she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership and which, to his/her actual knowledge,
at the time of such purchase or sale (i) is being considered for purchase or
sale by the Fund; or (ii) is being purchased or sold by the Fund; except that
the prohibitions of this section shall not apply to:
(1) purchases or sales affected in any account over which the Access Person
or Advisory Person has no direct or indirect influence or control;
(2) purchases or sales which are non-volitional on the part of
either the Access Person, the Advisory Person, or the Fund;
(3) purchases which are part of an automatic dividend reinvestment or other
plan established by Fund Personnel prior to the time the security
involved came within the purview of this Code; and
(4) purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
PROHIBITED TRANSACTIONS BY INVESTMENT PERSONNEL
No Investment Personnel shall:
(a) acquire any securities in an initial public offering; or
(b) acquire securities in a private placement without prior written
-------------
approval of the Fund's compliance officer or other officer
---------
designated by the Board of Directors.
In considering a request to invest in a private placement, the Fund's
compliance officer will take into account, among other factors, whether the
investment opportunity should be reserved for the Fund, and whether the
opportunity is being offered to Investment Personnel by virtue of their/his/her
position with the Fund. Should Investment Personnel be authorized to acquire
securities through a private placement, they/he/she shall, in addition to
reporting the transaction on the quarterly report to the Fund, disclose the
interest in that investment to other Investment Personnel participating in that
investment decision if and when they/he/she plays a part in the Fund's
subsequent consideration of an investment in that issuer. In such a case, the
Fund's decision to purchase securities of that issuer will be
subject to an independent review by Investment Personnel who have no
personal interest in the issuer.
BLACKOUT PERIODS
No Access Person or Advisory Person shall execute a securities transaction
on a day during which the Fund has a pending "buy" or "sell" order in that same
security until that order is executed or withdrawn. In addition, a Portfolio
Manager is expressly prohibited from purchasing or selling a security within
seven (7) calendar days before or after the Fund that he/she manages trades in
that security.
The foregoing prohibition of personal transactions during the seven day
period following the execution of a transaction for the Fund shall not apply
with respect to a security when the portfolio manager certifies in writing to
the Compliance Officer that the Fund's trading program in that security is
complete. Each transaction authorized by the Compliance Officer pursuant to this
provision shall be reported to the Board by the Compliance Officer at the
Board's next regular meeting.
Should Fund Personnel trade within the proscribed period, such trade should
be canceled if possible. If it is not possible to cancel the trade, all profits
from the trade must be disgorged and the profits will be paid to a charity
selected by the Fund Personnel and approved by the officers of the Fund.
The prohibitions of this section shall not apply to:
(1) purchases or sales affected in any account over which the Access Person
or Advisory Person has no direct or indirect influence or control if
the person making the investment decision with respect to such account
has no actual knowledge about the Fund's pending "buy" or "sell" order;
(2) purchases or sales which are non-volitional on the part of
either the Access Person, the Advisory Person, or the Fund;
(3) purchases which are part of an automatic dividend reinvestment or other
plan established by Fund Personnel prior to the time the security
involved came within the purview of this Code; and
(4) purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
SHORT-TERM TRADING
No Investment Personnel shall profit from the purchase and sale, or sale
and purchase, of the same (or equivalent) securities which are owned by the Fund
or which are of a type suitable for purchase by the Fund, within sixty (60)
calendar days. Any profits realized on such short-term trades must be disgorged
and the profits will be paid to a charity selected by the Investment Personnel
and approved by the officers of the Fund. The compliance officer or other
officer designated by the Board of Directors may Permit in writing exemptions to
the prohibition of this section, on a case-by-case basis, when no abuse is
involved and the equities of the circumstances support an exemption.
GIFTS
No Investment Personnel shall accept a gift or other thing of more than de
minimis value ("gift") from any person or entity that does business with or on
behalf of the Fund if such gift is in relation to the business of the employer
of the recipient of the gift. In addition, any Investment Personnel who receives
an unsolicited gift or a gift with an unclear status under this section shall
promptly notify the compliance officer and accept the gift only upon written
approval of the compliance officer.
SERVICE AS A DIRECTOR
No Investment Personnel shall serve as a director of a publicly traded
company absent prior written authorization from the Board of Directors based
upon a determination that such board service would not be inconsistent with the
interests of the Fund and its shareholders.
COMPLIANCE PROCEDURES
1. All Fund Personnel shall pre-clear their personal securities
transactions prior to executing an
order. A written request must be submitted to the Fund's compliance
officer, and the compliance officer must give his/her written authorization
prior to Fund Personnel placing a purchase or sell order with a broker.
Should the compliance officer deny the request, he/she will give a reason
for the denial.
Approved request will remain valid for two (2) business days
from the date of the approval.1
2. Fund Personnel shall instruct their broker(s) to supply the compliance
officer, on a timely basis, with duplicate copies of confirmations of all
personal securities transactions and copies of all periodic statements for
all securities accounts.
3. Fund Personnel, other than directors or officers required to report their
securities transactions to a registered investment advisor pursuant to Rule
204-2(a)(12) or (13) under the Investment Advisors Act, shall submit
reports showing all transactions in securities as defined herein in which
the person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership.
4. Each director, who is not an interested person of the Fund as
defined in the Act, shall submit reports as required under
subparagraph 3 above, but only for transactions in reportable
securities where at the time of the transaction the director
knew, or in the ordinary course of fulfilling his/her official
duties as a director should have known, that during the seven
(7) day period immediately preceding the date of the
transaction by the director, such security was purchased or
sold by the Fund or was being considered for purchase or sale
by the Fund.
5. Every report required to be made under subparagraphs 3 and 4 above shall be
made not later than ten (10) days after the end of the calendar quarter in
which the transaction to which the report relates was effected. The report
shall contain the following information concerning any transaction required
to be reported therein:
(a) the date of the transaction;
(b) the title and number of shares;
(c) the principal amount involved;
(d) the nature of the transaction (i.e. purchase, sale, or
other type of acquisition or disposition);
(e) the price at which the transaction was effected; and
(f) the name of the broker, dealer or bank with or through whom
the transaction was effected.
6. The compliance officer shall identify all Fund Personnel who have a duty to
make the reports required hereunder and shall inform each such person of
such duty, and shall receive all reports required hereunder.
7. The compliance officer shall promptly report to the Fund's Board of
Directors (a) any apparent violation of the prohibitions contained in this
Code, and (b) any reported transactions in a security which was purchased
or sold by the Fund within seven (7) days before or after the date of the
reported transaction.
8. The Fund's Board of Directors, or a Committee of Directors created by the
Board of Directors for that purpose, shall consider reports made to the
Board of Directors hereunder and shall determine whether or not this Code
has been violated and what sanctions, if any, should be imposed.
9. This Code, a list of all persons required to make reports hereunder from
time to time, a copy of each report made by Fund Personnel, each memorandum
made by the compliance officer hereunder, and a record of any violation
hereof and any action taken as a result of such violation, shall be
maintained by the Fund as required under Rule 17j-1.
10. Upon the commencement of employment of a person who would be deemed to fall
within the definition of "Fund Personnel", that person must disclose all
personal securities holdings to the compliance officer.
11. All Fund Personnel must report, on an annual basis, all
personal securities holdings.
12. At least annually, all Fund Personnel will be required to certify that they
(a) have read and understand the Code; (b) recognize that they are subject
to the requirements outlined therein; (c) have complied with the
requirements of the Code; (d) have disclosed and reported all personal
securities transactions required to be disclosed; and (e) have disclosed
all personal securities holdings.
13. The Fund's compliance officer shall prepare an annual report to the Fund's
Board of Directors. Such report shall (a) include a copy of the Fund's
Code; (b) summarize existing procedures concerning personal investing and
any changes in the Code's policies or procedures during the past year; (c)
identify any violations of the Code; and (d) identify any recommended
changes in existing restrictions, policies or procedures based upon the
Fund's experience under the Code, any evolving industry practices, or
developments in applicable laws or regulations.
<PAGE>
EXHIBIT A
STATEMENT ON INSIDER TRADING
The Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA")
requires that all investment advisors and broker-dealers establish, maintain,
and enforce written policies and procedures designed to detect and prevent the
misuse of material non-public information by such investment advisor and/or
broker-dealer, or any person associated with the investment advisor and/or
broker-dealer.
Section 204A of the Investment Advisers Act of 1940 (the "Advisers Act")
states that an investment advisor must adopt and disseminate written policies
with respect to ITSFEA, and an investment advisor must also vigilantly review,
update, and enforce them. Section 204A provides that every person subject to
Section 204 of the Advisers Act shall be required to establish procedures to
prevent insider trading.
Each investment advisor who acts as such for any series of Vontobel Funds,
Inc. (the "Fund") and each broker-dealer which acts as principal underwriter to
any series of the Fund has adopted the following policy, procedures, and
supervisory procedures in addition to the Fund's Code of Ethics. Throughout this
document the investment advisor(s) and principal underwriter(s) shall
collectively be called the "Providers".
SECTION I - POLICY
The purpose of this Section 1 is to familiarize the officers, directors,
and employees of the Providers with issues concerning insider trading and to
assist them in putting into context the policy and procedures on insider
trading.
Policy Statement:
No person to whom this Statement on Insider Trading applies, including officers,
directors, and employees, may trade, either personally or on behalf of others
(such as mutual funds and private accounts managed by a Provider) while in
possession of material, non-public information; nor may any officer, director,
or employee of a Provider communicate material, non-public information to others
in violation of the law. This conduct is frequently referred to as "insider
trading." This policy applies to every officer, director, and employee of a
Provider and extends to activities within and outside their duties as a
Provider. It covers not only personal transactions of covered persons, but
indirect trading by family, friends and others, or the non-public distribution
of inside information from you to others. Every officer, director, and employee
must read and retain this policy statement. Any questions regarding the policy
and procedures should be referred to the compliance officer.
The term "insider trading" is not defined in the Federal securities laws,
but generally is used to refer to the use of material non-public information to
trade in securities (whether or not one is an "insider") or the communications
of material nonpublic information to others who may then seek to benefit from
such information.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(a) trading by an insider, while in possession of material
non-public information, or
(b) trading by a non-insider, while in possession of material non-public
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated, or
(c) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed below.
1. Who is an Insider? The concept of "insider" is broad. It includes officers,
directors, and employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential relationship in the
conduct of a company's affairs and as a result is given access to information
solely for the company's purposes. A temporary insider can include, among
others, a company's attorneys, accountants, consultants, bank lending officers,
and the employees of such organizations. In addition, an investment advisor may
become a temporary insider of a company it advises or for which it performs
other services. According to the Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
2. What is Material Information? Trading on inside information can be the basis
for liability when the information is material. In general, information is
"material" when there is a substantial likelihood that a reasonable investor
would consider it important in making his or her investment decisions, or
information that is reasonably certain to have a substantial effect on the price
of a company's securities. Information that officers, directors, and employees
should consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
3. What is Non-Public Information? Information is non-public until it has been
effectively communicated to the market place. One must be able to point to some
fact to show that the information is generally public. For example, information
found in a report filed with the SEC, or appearing in Dow Jones, Reuters
Economic Services, the Wall Street Journal or other publications of general
circulation would be considered public. (Depending on the nature of the
information, and the type and timing of the filing or other public release, it
may be appropriate to allow for adequate time for the information to be
"effectively" disseminated.)
4. Reason for Liability. (a) Fiduciary duty theory - in 1980 the Supreme Court
found that there is no general duty to disclose before trading on material
non-public information, but that such a duty arises only where there is a direct
or indirect fiduciary relationship with the issuer or its agents. That is, there
must be a relationship between the parties to the transaction such that one
party has a right to expect that the other party will disclose any material
non-public information or refrain from trading. (b) Misappropriation theory -
another basis for insider trading liability is the ,'misappropriation" theory,
where liability is established when trading occurs on material non-public
information that was stolen or misappropriated from any other person.
5. Penalties for Insider Trading. Penalties for trading on or
-----------------------------------
communicating material non-public information are severe, both for
individuals and their employers. A person can be subject to some or
all of the penalties below even if he or she does not personally
benefit from the violation. Penalties include:
o civil injunctions
o treble damages
o disgorgement of profits
o jail sentences
o fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefited, and
o fines for the employer or other controlling person of up to the
greater of $1 million or three times the amount of the profit gained
or loss avoided.
In addition, any violation of this policy statement can be expected to
result in serious sanctions by a Provider, including dismissal of the persons
involved.
SECTION II - PROCEDURES
The following procedures have been established to aid the officers,
directors, and employees of a Provider in avoiding insider trading, and to aid
in preventing, detecting, and imposing sanctions against insider trading. Every
officer, director, and employee of a Provider must follow these procedures or
risk serious sanctions, including dismissal, substantial personal liability,
and/or criminal penalties. If you have any questions about these procedures you
should consult the compliance officer.
1. Identifying Inside Information. Before trading for yourself or
-----------------------------------
others, including investment companies or private accounts managed
by a Provider, in the securities of a company about which you may
have potential inside information, ask yourself the following
questions:
i. Is the information material? Is this information that an investor would
consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the
securities if generally disclosed?
ii. Is the information non-public? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal or
other publications of general circulation?
If, after consideration of the above, you believe that the information is
material and non-public, or if you have questions as to whether the information
is material and non-public, you should take the following steps:
(a) Report the matter immediately to the compliance officer.
(b) Do not purchase or sell the security on behalf of yourself or others,
including investment companies or private accounts managed by a
Provider.
(c) Do not communicate the information to anybody, other than
to the compliance official.
(d) After the compliance official has reviewed the issue, you will be
instructed to either continue the prohibitions against trading and
communication, or you will be allowed to communicate the information
and then trade.
2. Personal Security Trading. Ail officers, directors, and employees of a
Provider (other than officers, directors and employees who are required to
report their securities transactions to a registered investment company in
accordance with a Code of Ethics) shall submit to the compliance officer, on a
quarterly basis, a report of every securities transaction in which they, their
families (including the spouse, minor children, and adults living in the same
household as the officer, director, or employee), and trusts of which they are
trustees or in which they have a beneficial interest have participated, or at
such lesser intervals as may be required from time to time. The report shall
include the name of the security, date of the transaction, quantity, price, and
broker-dealer through which the transaction was effected. All officers,
directors and employees must also instruct their broker(s) to supply the
compliance officer, on a timely basis, with duplicate copies of confirmations of
all personal securities transactions and copies of all periodic statements for
all securities accounts.
3. Restricting Access to Material Non-public Information. Any information in
your possession that you identify as material and non-public may not be
communicated other than in the course of performing your duties to anyone,
including persons within your company, except as provided in paragraph I above.
In addition, care should be taken so that such information is secure. For
example, files containing material non-public information should be sealed;
access to computer files containing material non-public information should be
restricted.
4. Resolving Issues Concerning Insider Trading. If, after consideration of the
items set forth in paragraph 1, doubt remains as to whether information is
material or non-public, or if there is any unresolved question as to the
applicability or interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with the compliance officer before
trading or communicating the information to anyone.
SECTION III - SUPERVISION
The role of the compliance officer is critical to the implementation and
maintenance of this Statement on Insider Trading. These supervisory procedures
can be divided into two classifications, (1) the prevention of insider trading,
and (2) the detection of insider trading.
1. Prevention of Insider Trading:
------------------------------
To prevent insider trading the compliance official should:
(a) answer promptly any questions regarding the Statement on
Insider Trading;
(b) resolve issues of whether information received by an
officer, director, or employee is material and nonpublic;
(c) review and ensure that officers, directors, and employees review, at
least annually, and update as necessary, the Statement on Insider
Trading; and
(d) when it has been determined that an officer, director, or employee has
material non-public information, (i) implement measures to prevent
dissemination of such
information, and
(ii) if necessary, restrict officers, directors, and
employees from trading the securities.
2. Detection of Insider Trading:
-----------------------------
To detect insider trading, the Compliance Officer should:
(a) review the trading activity reports filed by each officer, director,
and employee, to ensure no trading took place in securities in which
the Provider has material non-public information;
(b) review the trading activity of the mutual funds managed by the
investment advisor and the mutual funds which the broker-dealer acts as
principal underwriter;
(c) coordinate, if necessary, the review of such reports with other
appropriate officers, directors, or employees of a Provider and
Vontobel Funds, Inc.
3. Special Reports to Management:
------------------------------
Promptly, upon learning of a potential violation of the Statement on
Insider Trading, the Compliance Officer must prepare a written report to
management of the Provider, and provide a copy of such report to the Board of
Directors of Vontobel Funds, Inc., providing full details and recommendations
for further action.
4. Annual Reports:
---------------
On an annual basis, the Compliance Officer of each Provider will prepare a
written report to the management of the Provider, and provide a copy of such
report to the Board of Directors of Vontobel Funds, Inc., setting forth the
following:
(a) a summary of the existing procedures to detect and prevent
insider trading;
(b) full details of any investigation, either internal or by a
regulatory agency, of any suspected insider trading and the
results of such investigation;
(c) an evaluation of the current procedures and any
recommendations for improvement.
<PAGE>
EXHIBIT B
VONTOBEL FUNDS, INC.
CODE OF ETHICS
INITIAL REPORT
To the Compliance Officer of Vontobel Funds, Inc.:
1. I hereby acknowledged receipt of a copy of the Code of
Ethics for Vontobel Funds, Inc.
2. I have read and understand the Code and recognize that I am subject
thereto in the capacity of "Fund Personnel."
3. Except as noted below, I hereby certify that I have no knowledge of the
existence of any personal conflict of interest relationship which may involve
the Fund, such as any economic relationship between my transactions and
securities held or to be acquired by the Fund.
4. As of the date below I had a direct or indirect beneficial
ownership in the following securities:
Name of Security Number of Shares Type of Interest
(Direct or Indirect)
Date:______________________________________
Signature:________________________________
___________________________________________ Print
Name:_______________________________
<PAGE>
EXHIBIT C
VONTOBEL FUNDS, INC.
CODE OF ETHICS
ANNUAL REPORT
To the Compliance Officer of Vontobel Funds, Inc.:
1. I have read and understand the Code and recognize that I am subject
thereto in the capacity of "Fund Personnel."
2. I hereby certify that, during the year ended December 31, _______ , I
have complied with the requirements of the Code and I have reported all
securities transactions required to be reported pursuant to the Code.
3. Except as noted below, I hereby certify that I have no knowledge of the
existence of any personal conflict of interest relationship which may involve
the Fund, such as any economic relationship between my transactions and
securities held or to be acquired by the Fund.
4. As of December 31, _______ , I had a direct or indirect
beneficial ownership in the following securities:
Name of Security Number of Shares Type of Interest
(Direct or Indirect)
Date:___________________________________
Signature:___________________________
_________________________________________ Print
Name:___________________________
<PAGE>
EXHIBIT D
VONTOBEL FUNDS, INC.
Securities Transactions Report
For the Calendar Quarter
Ended:___________________________________________________________
To the Compliance officer of Vontobel Funds, Inc.:
During the quarter referred to above, the following transactions were
effected in securities of which I had, or by reason of such transaction
acquired, direct or indirect beneficial ownership and which are required to be
reported pursuant to the Code of Ethics adopted by Vontobel Funds, Inc.
SECURITY DATE OF NO. OF DOLLAR
NATURE OF PRICE BROKER-DEALER
TRANS. SHARES AMOUNT
OF TRANSACTION OR BANK
TRANS.
(Purchase, THROUGH
Sale, WHOM
Other) EFFECTED
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
This report (i) excludes transactions with respect to which I had no direct
or indirect influence or control, (ii) other transactions not required to be
reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.
Except as noted on the reverse side of this report, I hereby certify that I
have no knowledge of the existence of any personal conflict of interest
relationship which may involve the Fund, such as the existence of any economic
relationship between my transactions and securities held or to be acquired by
the Fund.
Date:________________________________
Signature:_______________________________________
____________________________________ Print
Name:______________________________________
<PAGE>
- --------
1 The Board has determined that placement of a limit order constitutes a
transaction requiring approval, and the limit order must be placed within two
days from the date of approval. Implementation of a limit order in accordance
with its approved terms is a ministerial act which occurs in the future by the
terms of the limit order, and does not require approval. A change of terms in,
or withdrawal of, a standing limit order is an investment decision for which
clearance must be obtained.
<PAGE>
EXHIBIT EX-99.(p)(2)
--------------------
VONTOBEL USA INC.
CODE OF ETHICS
1. STATEMENT OF GENERAL PRINCIPLES
-------------------------------
1.1 Adherence to Ethical Standards of Vontobel Group
The emphasis placed on the observance of the highest ethical standards by
the Vontobel Group's management is well known to the Swiss financial
marketplace. The cornerstones of its standing in the financial community
are its integrity and, as a predominantly family-controlled organization,
its independence from commercial considerations that could lead it to place
its own interest before that of its clients. As a subsidiary of Vontobel
Holding, Vontobel USA is held to the same standards of ethical conduct that
govern the business activities of the Vontobel Group. The Company Charter
of the Vontobel Group is attached hereto as Appendix A and incorporated
herein by reference.
1.2 Compliance with Applicable US Legislation
As an investment adviser registered with the US Securities and Exchange
Commission (SEC), Vontobel USA is subject to the provisions of the
Investment Advisers Act of 1940 (the "Advisers Act"). Section 206 of the
Advisers Act provides that it is unlawful for any investment adviser:
(1)to employ any device, scheme, or artifice to defraud
any client or prospective client;
(2)to engage in any transaction, practice, or course of business which
operates as a fraud or deceit upon any client or prospective client;
(3)acting as principal for his own account, knowingly to sell any security
to or purchase any security from a client, or acting as broker for a
person other than such client, knowingly to effect any sale or purchase
of any security for the account of such client, without disclosing to
such client in writing before the completion of such transaction the
capacity in which he is acting and obtaining the consent of the client
to such transaction;
(4)to engage in any act, practice, or course of business which is
fraudulent, deceptive, or manipulative.
Vontobel USA is also subject to certain provisions of the Investment
Company Act of 1940 with respect to fraudulent trading, as discussed in
Section 4 hereunder, and the Insider Trading and Securities Fraud
Enforcement Act of 1988, as discussed in Section 5 hereunder.
Vontobel Personnel shall at all times comply with these and all other laws
and regulations that may be applicable to Vontobel USA's business. In some
instances, where such laws and regulations may be ambiguous and difficult
to interpret, Vontobel Personnel shall seek the advice of Vontobel USA's
management, who shall obtain the advice of outside counsel as is necessary
to comply with this policy of observance of all applicable laws and
regula-tions. Excerpts from the securities legislation cited above are
provided in Appendix B.
<PAGE>
1.3 General Principles
This Code of Ethics is based on the following principles:
(a) The officers, directors and employees of Vontobel USA owe a fiduciary
duty to all Vontobel Clients and, therefore, must at all times place
the interests of Vontobel Clients ahead of their own.
(b) Vontobel Personnel shall avoid any conduct that could create any actual
or potential conflict of interest, and must ensure that their personal
securities transactions do not in any way interfere with, or appear to
take advantage of, the portfolio transactions undertaken on behalf of
Vontobel Clients.
(c) Vontobel Personnel shall not take inappropriate advantage of their
positions with Vontobel USA to secure personal benefits that would
otherwise be unavailable to them.
It is imperative that all Vontobel Personnel avoid any situation that might
compromise, or call into question, the exercise of fully independent
judgment in the interests of Vontobel Clients. All Vontobel Personnel are
expected to adhere to these general principles in the conduct of the firm's
business, even in situations that are not specifically addressed in this
Code's provisions, procedures and restrictions. Serious and/or repeated
violations of this Code may constitute grounds for dismissal.
2. Definitions
For purposes of this Code:
"Beneficial Ownership" and "Beneficial Owner(s)" shall be as defined in
Section 16 of the Securities Exchange Act of 1934, which, generally
speaking, encompasses those situations where the Beneficial Owner has the
right to enjoy some economic benefits which are substantially equivalent to
ownership regardless of who is the registered owner (see Appendix B). This
would include:
(a) securities which a person holds for his or her own benefit either in
bearer form, registered in his or her own name or otherwise, regardless
of whether the securities are owned individually or jointly;
(b) securities held in the name of a member of his or her
immediate family or any adult living in the same
household;
(c) securities held by a trustee, executor,
administrator, custodian or broker;
(d) securities owned by a general partnership of which the person is a
member or a limited partnership of which such person is a general
partner;
(e) securities held by a corporation which can be
regarded as a personal holding company of a person;
and
(f) securities recently purchased by a person and
awaiting transfer into his or her name.
The "Corporation" shall mean Vontobel USA Inc.
"Security" shall have the meaning set forth in Section 202(a)(18)of the
Investment Advisers Act of 1940 (see Appendix B), irrespective of whether
the issuer is a US or non-US entity and whether the security is being held
by a US or non-US custodian or, directly or indirectly, in personal
custody; except that it shall not include:
<PAGE>
- - shares of registered open-end investment companies
(mutual funds),
- - shares of an investment club account
- - securities issued by the US Government or US federal
agencies that are direct obligations of the US
- - bankers' acceptances, bank certificates of deposits
and commercial paper.
The following are expressly deemed to be securities subject to this Code:
- securities issued by any foreign government or
agency thereof
- futures or options on futures - corporate bonds - closed-end
investment funds.
"Purchase or sale of a security" shall include the writing of an option to
purchase or sell a security.
A security is "being considered for purchase or sale" or is "being
purchased or sold" when a recommendation to purchase or sell the
security by a Vontobel USA portfolio manager is under serious
consideration or has already been made and the transaction executed.
"Vontobel Client(s)" shall mean both individual and institutional clients
(including corporations, investment companies, trusts, endowments,
foundations and other legal entities), whether resident or non-US-resident,
for whom Vontobel USA provides investment supervisory services
(discretionary management) or manages investment advisory accounts not
involving investment supervisory services (non-discretionary management).
"Vontobel Employee(s)" shall include officers and employees of Vontobel USA
Inc.
"Vontobel Personnel" shall include officers, employees and directors of
Vontobel USA Inc.
3. PRINCIPLES FOR DOING BUSINESS
-----------------------------
3.1 Confidentiality
Confidentiality is a fundamental principle of the investment management
business. Vontobel Employees must maintain the confidential relationship
between the Corporation and each of its Clients. Confidential information
such as the identity of Vontobel Clients and the exent of their account
relationship, must be held inviolate by those to whom it is entrusted and
must never be discussed outside the normal and necessary course of the
Corporation's business. To the extent possible, all information concerning
Vontobel Clients and their accounts shall be shared among Vontobel
Employees on a strictly need-to-know basis. In this regard, Vontobel
Employees shall be careful not to divulge to their colleagues or any third
party any information concerning a Vontobel Client that could be considered
"inside information", as that term is defined in Section 5 hereof.
3.2 Conflicts of Interest
It shall be the first obligation of every Vontobel Employee to fulfill his
or her fiduciary duty to Vontobel Clients. No Vontobel Employee shall
undertake any outside employment, or engage in any personal business
interest, that would interfere with the performance of this fiduciary duty.
No Vontobel Employee may act on behalf of the Corporation in any
transaction involving persons or organizations with whom he or she, or his
or her family, have any significant connection or financial interest. In
any closely held enterprise, even a modest financial interest held by the
Vontobel Employee, or any member of his or her family, should be viewed as
significant.
3.3 Service as a Director
No Vontobel Employee shall become a director or any official of a business
organized for profit without first obtaining written approval from the
Board of Directors of the Corporation based upon its determination that
such board service would not be inconsistent with the interests of the
Corporation and its Clients.
3.4 Personal Fiduciary Appointments
No Vontobel Employee shall accept a personal fiduciary appointment without
first obtaining the written approval of the Board of Directors of the
Corporation, unless such appointment results from a close family
relationship.
3.5 Service on Civic and Charitable Organizations
The Corporation encourages its employees to participate in local civic and
charitable activities. In some cases, however, it may be improper for a
Vontobel Employee to serve as a member, director, officer or employee of a
municipal corporation, agency, school board, or library board. Such service
is appropriate when adequate assurances, in writing, are first given to the
Corporation that business relationships between the Corporation and such
entities would not be prohibited or limited because of statutory or
administrative requirements regarding conflicts of interest.
3.6 Fees to Consultants and Agents
Any and all fees and payments, direct or indirect, to consultants, agents,
solicitors and other third-party providers of professional services must be
approved by the Chief Executive Officer prior to conclusion of any formal
arrangements for services. No remuneration or consideration of any type
shall be given by any Vontobel Employee to any person or organization
outside of a contractual relationship that has received the prior approval
of the Chief Executive Officer.
3.7 Personal Benefits
No Vontobel Employee, or member of his or her family, may accept a personal
gift, benefit, service, form of entertainment or anything of more than de
minimis value ("gift") from Vontobel Clients, suppliers, service providers,
brokers and all other parties with whom the Corporation has contractual or
other business arrangements if such gift is made because of the recipient's
affiliation with the Corporation or with a Vontobel Employee. Any Vontobel
Employee who receives a gift of more than de minimis value, or a gift with
an unclear status under this Section 3.7, shall promptly notify the
Compliance Officer and may accept the gift only upon the latter's written
approval. The Compliance Officer shall determine whether the gift shall be
retained by the Vontobel Employee or member of his or her family, returned
to the donor, or donated without tax deduction to a charitable organization
selected by the Compliance Officer, subject to the approval of the Chief
Executive Officer.
3.8 Personal Fees and Commissions
No Vontobel Employee shall accept personal fees, commissions or any other
form of remu-neration in connection with any transactions on behalf of the
Corporation or any of its Clients.
3.9 Dealings with Suppliers
Vontobel Employees shall award orders or contracts to outside suppliers on
behalf of the Corporation solely on the basis of merit and competitive
pricing, without regard to favoritism or nepotism.
<PAGE>
3.10 Borrowing
No Vontobel Employee, or member of his or her family, may borrow money from
any Vontobel Client or any of the Corporation's suppliers, service
providers, brokers and all other parties with whom the Corporation has
contractual or other business arrangements under any circumstances.
3.11 Political Contributions
Vontobel USA shall make no contributions to political parties or candidates
for public office.
3.12 Duty to Report Violations or Potential Conflicts of
Interest
The Corporation's management and Board of Directors must be informed at all
times of matters that may constitute violations of this Code of Ethics, or
that may be considered of fraudulent or illegal nature, or potentially
injurious to the good reputation of the Corporation or the Vontobel Group.
Vontobel Employees shall have a duty to report such events immediately to
the Compliance Officer or the Chief Executive Officer or, if such events
concern the Corporation's management, they should be reported to the
Chairman.
3.13 Full Disclosure
In responding to requests for information concerning the Corporation's
business practices from the Corporation's internal or independent
accountants and auditors, counsel, regulatory agencies or other third
parties, Vontobel Employees shall be truthful in their communications and
shall make full disclosure at all times.
4. PERSONAL SECURITIES TRANSACTIONS
--------------------------------
4.1 Summary
This Section 4 of the Code of Ethics is based on the recommendations of the
Advisory Group on Personal Investing of the Investment Company Institute in
its May 1994 report. The key provisions of this Code with respect to
personal trading are summarized as follows:
Prohibition on investing in initial public offerings Restrictions on
investing in private placements Prior written clearance of personal
trades Seven-day blackout period Sixty-day ban on short-term trading
profits of securities held, or likely to be held, in portfolios of
Vontobel Clients Full disclosure of all securities trades and
securities holdings
4.2 Prohibited and Restricted Transactions
4.2.1In addition to the prohibitions of Section 206 of the Advisers Act cited
in Section 1.2 above, Vontobel USA is subject to the provisions of Rule
17j-1 under the Investment Company Act of 1940 (the "Company Act"). Rule
17j-1 requires investment advisers to investment companies to adopt written
codes of ethics designed to prevent fraudulent trading and, further, to use
reasonable diligence and institute procedures reasonably necessary to
prevent violations of their code of ethics. Vontobel Employees shall not
engage in any act, practice or course of conduct that would violate the
provisions of Rule 17j-1.
With respect to Vontobel's function as investment adviser to mutual funds,
certain Vontobel Employees are considered "access persons" as that term is
defined under Rule 17j-1 of the Company Act. Access persons of Vontobel are
listed in Appendix C. As may be required by the investment companies for
which it acts as adviser or subadviser, Vontobel provides periodic reports
with respect to the personal securities transactions of its access persons,
as well as an annual compliance report.
No Vontobel Employee shall purchase or sell, directly or indirectly, any
security in which he/she has, or by reason of such transaction acquires,
Beneficial Ownership and which, to his/her actual knowledge at the time of
such purchase or sale, (i) is being considered for purchase or sale on
behalf of a Vontobel Client; or (ii) is being purchased or sold by a
Vontobel Client; except that the prohibitions of this section shall not
apply to:
(a) purchases or sales which are nonvolitional on the
part of any Vontobel Employee;
(b) purchases which are part of an automatic dividend reinvestment or other
plan established by any Vontobel Employee prior to the time the
security involved came within the purview of this Code; and
(c) purchases effected upon the rights issued by an issuer pro rata to all
holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
4.2.2No Vontobel Employee shall acquire any securities in an initial public
offering.
4.2.3No Vontobel Employee shall acquire securities in a private placement
without the prior written approval of the Compliance Officer or other
officer designated by the Chief Executive Officer. In considering a request
to invest in a private placement, the Compliance Officer will take into
account, among other factors, whether the investment opportunity should be
reserved for a Vontobel Client, and whether the opportunity is being
offered to a Vontobel Employee by virtue of his or her position with the
Corporation.
4.3 Blackout Period*
---------------
4.3.1No Vontobel Employee shall execute a securities transaction on a day
during which Vontobel USA has a pending "buy" or "sell" order in that same
security for a Vontobel Client or its own account until that order is
executed or withdrawn.
4.3.2Vontobel Employees are prohibited from purchasing or selling a security
within seven (7) calendar days before or after the date on which a
transaction in the same security is effected for a Vontobel Client. Should
any Vontobel Employee make an authorized personal trade within such
blackout period, the Compliance Officer (or, in his absence, any officer
authorized to approve trades), shall, in his sole discretion and based on
his assessment of the facts and circumstances surrounding such personal
trade, determine whether it can be deemed to have benefited, or appear to
have benefited, from the market effect of the trade for the Vontobel
Client. If such officer so determines, the Vontobel Employee shall cancel
the trade or promptly disgorge the imputed profit, if any, from his or her
personal trade that shall have accrued between the date thereof and the
trade date of the transaction in the same security for the Vontobel Client.
Imputed profit shall in all cases mean the difference between the price at
which the Vontobel Employee transacted and the price at which the trade for
the Vontobel Client was transacted. The prohibitions of this section shall
not apply to:
(a) purchases or sales which are nonvolitional on the
part of either the Vontobel Employee or the Vontobel
Client account;
(b) purchases or sales which are part of an automatic dividend reinvestment
or other plan established by Vontobel Employees prior to the time the
security involved came within the purview of this Code; and
(c) purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
4.4 Short-Term Trading
No Vontobel Employee shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities which are owned by a
Vontobel Client or which are of a type suitable for purchase on behalf of
Vontobel Clients, within sixty (60) calendar days. Any profits realized on
such short-term trades must be disgorged and the profits will be paid to a
charity selected by the Compliance Officer and the Chief Executive Officer.
The Compliance Officer and any other officer authorized by the Chief
Executive Officer to approve trades (see Appendix C) may permit exemptions
to the prohibition of this section in writing, on a case-by-case basis,
when no abuse is involved and the circumstances of the subject trades, as
they are best able to determine, support an exemption.
4.5 Prior Written Clearance of Personal Securities Trades
and Full Disclosure of Securities Holdings
4.5.1All Vontobel Employees shall obtain written authorization of their
personal securities transactions prior to executing an order. A written
request must be submitted to one of the officers listed in Appendix D, and
such officer must give his written authorization prior to the Vontobel
Employee's placing a purchase or sell order with a broker. Should such
officer deny the request, he will give a reason for the denial. An approved
request will remain valid for two (2) business days from the date of the
approval.
Should any Vontobel Employee make an unauthorized personal trade in a
security, he or she shall be obliged, without benefit of tax deduction, to
promptly sell the position and/or disgorge any imputed or realized profit
that shall have accrued between the date of such unauthorized personal
trade and the date of disgorgement. Profits disgorged by Vontobel Employees
pursuant to this Code shall be paid to a charity selected by the Compliance
Officer and approved by the Chief Executive Officer.
Attached hereto as Appendix D is the personal securities trading
authorization form.
4.5.2Vontobel Employees shall instruct their broker(s), including the
Corporation's affiliate brokers, to supply the Compliance Officer, on a
timely basis, with duplicate copies of confirmations of all personal
securities transactions and copies of all periodic statements for all
securities accounts containing securities in which Vontobel Employees have
Beneficial Ownership.
4.5.3Vontobel Personnel shall submit written reports on a quarterly basis (or
at such lesser intervals as may be required from time to time) showing all
transactions in securities as defined herein in which they and their
families have, or by reason of such transaction acquire, Beneficial
Ownership.
4.5.4Every report to be made under subparagraph 4.6.3 above shall be made not
later than ten (10) days after the end of the calendar quarter in which the
transaction to which the report relates was effected. The report shall
contain the following information concerning any transaction required to be
reported therein:
(a) the date of the transaction;
(b) the title and number of shares;
(c) the principal amount involved;
(d) the nature of the transaction (i.e., purchase, sale
or other type of acquisition or disposition);
(e) the price at which the transaction was effected; and
(f) the name of the broker, dealer or bank with or
through whom the transaction was effected.
4.5.5 The Compliance Officer shall receive all reports
required hereunder.
4.5.6The Compliance Officer shall promptly report to the Corporation's Board of
Directors (a) any apparent violation of the prohibitions contained in this
Section 4 and (b) any reported transactions in a security which was
purchased or sold by the Corporation for a Vontobel Client account within
seven (7) days before or after the date of the reported transaction.
4.5.7The Corporation's Board of Directors shall consider reports made to the
Board of Directors hereunder and shall determine whether or not this
Section 4 has been violated and what sanctions, if any, should be imposed.
4.5.8This Code of Ethics, a copy of each report made by Vontobel Personnel,
each memorandum made by the Compliance Officer hereunder, and a record of
any violation hereof and any action taken as a result of such violation,
shall be maintained by the Compliance Officer, as required by Rule 17j-1 of
the Company Act.
4.5.9Upon the commencement of employment, all Vontobel Personnel shall disclose
all personal securities holdings to the Compliance Officer.
4.5.10 Annually, all Vontobel Personnel shall be required to certify that they
have (a) read and understand the Code, and recognize that they are subject
thereto; (b) instructed each financial institution through which they, or
any member of their household, effect securities transactions to send
duplicate copies of their account statements and trading confirmations to
Vontobel; (c) complied with the requirements of the Code; (d) disclosed and
reported all personal securities transactions required to be disclosed; and
(e) disclosed all personal securities holdings.
4.5.11 The Compliance Officer shall prepare an annual report to the
Corporation's Board of Directors. Such report shall (a) include a copy of
the Code of Ethics; (b) summarize existing procedures concerning personal
investing and any changes in the Code's policies or procedures during the
past year; (c) identify any violations of the Code; and (d) identify any
recommended changes in existing restrictions, policies or procedures based
upon the Corporation's experience under the Code, any evolving practices,
or developments in applicable laws or regulations.
5. INSIDER TRADING
---------------
The Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA")
requires that all investment advisers and broker-dealers establish,
maintain and enforce written policies and procedures designed to detect and
prevent the misuse of material nonpublic information by such investment
adviser and/or broker-dealer, or any person associated with the investment
adviser and/or broker-dealer.
Section 204A of the Advisers Act states that an investment adviser must
adopt and disseminate written policies with respect to ITSFEA, and an
investment adviser must also vigilantly review, update and enforce them.
Accordingly, Vontobel USA has adopted the following policy, procedures and
supervisory procedures as an integral part of its Code of Ethics applicable
to all of its officers, employees and directors (sometimes referred to
herein as Vontobel Personnel).
<PAGE>
5.1 Policy
The purpose of this Section 5 is to familiarize Vontobel Personnel with
issues concerning insider trading and assist them in putting into context
the policy and procedures on insider trading.
Policy Statement:
----------------
No Vontobel Personnel may trade in a security, either personally or on
behalf of Vontobel Clients, while in possession of material, nonpublic
information regarding that security; nor may any officer, employee or
director communicate material, nonpublic information to others in violation
of the law. This conduct is commonly referred to as "insider trading". This
policy extends to activities within and without the individual job
functions of Vontobel Personnel and covers not only their personal
transactions, but indirect trading by family, friends and others, or the
nonpublic distribution of inside information from them to others. Any
questions regarding the policy and procedures should be referred to the
Compliance Officer.
The term "insider trading" is not defined in federal securities laws, but
generally is used to refer to the use of material nonpublic information to
trade in securities (whether or not one is an "insider") or the
communication of material nonpublic information to others who may then seek
to benefit from such information.
While the law concerning insider trading is not static and may undergo
revisions from time to time, it is generally understood that the law
prohibits:
(a) trading by an insider, while in possession of
material nonpublic information, or
(b) trading by a non-insider, while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated, or
(c) communicating material nonpublic information to
others.
5.2 Elements of Insider Trading
5.2.1 Who Is an Insider?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider"
if he or she enters into a special confidential relationship in the conduct
of a company's affairs and as a result is given access to information
solely for the company's purposes. A temporary insider can include, among
others, a company's attorneys, accountants, consultants, bank lending
officers, and the employees of such service providers. In addition, an
investment adviser may become a temporary insider of a company it advises
or for which it performs other services. According to the Supreme Court,
the company must expect the outsider to keep the disclosed nonpublic
information confidential and the relationship must at least imply such a
duty before the outsider will be considered an insider.
5.2.2 What Is Material Information?
-----------------------------
Trading on inside information can be the basis for liability when the
information is material. In general, information is "material" when there
is a substantial likelihood that a reasonable investor would consider it
important in making his or her investment decisions, or information that is
reasonably certain to have a substantial effect on the price of a company's
securities. Information that officers, directors and employees should
consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major
litigation, liquidation problems and extraordinary management developments.
5.2.3 What Is Nonpublic Information?
------------------------------
Information is nonpublic until it has been effectively communicated to the
marketplace. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Bloomberg electronic news reports, or
in The Wall Street Journal or other publications of general circulation
would be considered public. (Depending on the nature of the information,
and the type and timing of the filing or other public release, it may be
appropriate to allow for adequate time for the information to be
"effectively" disseminated.)
5.2.4 Legal Bases for Liability
(a) Fiduciary Duty Theory: In 1980 the Supreme Court found that there is no
general duty to disclose before trading on material nonpublic
information, but that such a duty arises only where there is a direct
or indirect fiduciary relationship with the issuer or its agents. That
is, there must be a relationship between the parties to the transaction
such that one party has a right to expect that the other party will
disclose any material nonpublic information or refrain from trading.
(b) Misappropriation Theory: Another basis for insider trading liability is
the "misappropriation theory", where liability is established when
trading occurs on material on nonpublic information that was stolen or
misappropriated from any other person.
5.3 Penalties for Insider Trading
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals and their employers. An individual can be
subject to some or all of the penalties below even if he or she does not
personally benefit from the violation:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefitted, and fines for the employer or other controlling person of
up to the greater of $1 million or three times the amount of the profit
gained or loss avoided.
5.4. Procedures
The following procedures have been established to aid Vontobel Personnel in
avoiding insider trading, and to aid in preventing, detecting and imposing
sanctions against insider trading. Vontobel Personnel must follow these
procedures or risk serious sanctions, including dismissal, substantial
personal liability and/or criminal penalties. If you have any questions
about these procedures, you should consult the Compliance Officer.
5.4.1Identifying Inside Information. Before trading for yourself or others,
including Vontobel Clients, in the securities of a company about which you
may have potential inside information, ask yourself the following
questions:
(a) Is the information material? Is this information that an investor would
consider important in making his or her investment decisions? If this
information that would substantially affect the market price of the
securities if generally disclosed?
(b) Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace, e.g., by being published electronically by Bloomberg, or
in The Wall Street Journal or other publications of general
circulation?
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should report the matter
immediately to the Compliance Officer. Until he has had an opportunity to
review the matter, you should not (i) purchase or sell the security on
behalf of yourself or others, including Vontobel Clients, and (ii)
communicate the information to anyone, other than to the Compliance
Officer. After the Compliance Officer has reviewed the issue, you will be
instructed to either continue the prohibitions against trading and
communication, or you will be allowed to communicate the information and
then trade.
5.4.2Personal Security Trading. Each officer, director and employee shall
submit to the Compliance Officer, on a quarterly basis (or at such lesser
intervals as may be required from time to time) a report of every
securities transaction in which they, their families (including the spouse,
minor children, and adults living in the same household), and trusts of
which they are trustees or in which they have beneficial ownership have
participated. The report shall include the name of the security, date of
the transaction, quantity, price and broker-dealer through which the
transaction was effected. Each officer, director and employee must also
instruct their broker(s) to supply the Compliance Officer, on a timely
basis, with duplicate copies of confirmations of all personal securities
transactions and copies of all periodic statements for all securities
accounts.
5.4.3Restricting Access to Material Nonpublic Information. Any information in
your possession that you identify as material and nonpublic may not be
communicated other than in the course of performing your duties to anyone,
including your colleagues at Vontobel USA, with the exception of the
Compliance Officer as provided in subparagraph 5.4.1 above. In addition,
care should be taken so that such information is secure. For example, files
containing material nonpublic information should be locked; access to
computer files containing material nonpublic information should be
restricted.
5.4.4Resolving Issues Concerning Insider Trading. If, after considerations of
the items set forth in Section 5.2, doubt remains as to whether information
is material or nonpublic, or if there is any unresolved question as to the
applicability or interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with the Compliance Officer
before trading or communicating the information to anyone.
5.5 Supervision
The supervisory role of the Compliance Officer is critical to the
implementation and maintenance of this Statement on Insider Trading, and
encompasses the following.
5.5.1 Prevention of Insider Trading
To prevent insider trading, the Compliance Officer shall:
answer promptly any questions regarding the
Statement on Insider Trading
resolve issues of whether information received by
any officer, employee or director is material and
nonpublic
update the Statement on Insider Trading and
distribute amendments thereto, as necessary, to all
officers, employees and directors
obtain an annual written acknowledgement from all officers, employees
and directors that they have reviewed the Corporation's Code of Ethics,
including the Statement on Insider Trading contained in this Section 5
when it has been determined that any officer, director or employee has
material nonpublic information:
(i) implement measures to prevent dissemination of
such information, and
(ii) if necessary, restrict officers, directors and
employees from trading the securities.
5.5.2 Detection of Insider Trading
To detect insider trading, the Compliance Officer shall:
review the trading activity reports filed quarterly by each officer,
director and employee, as well as the duplicate confirmations and
periodic account statements forwarded by their brokers, to ensure that
no trading took place in securities in which the Corporation was in
possession of material nonpublic information;
review the trading activity of the mutual funds and
private account portfolios managed by the
Corporation quarterly
coordinate, if necessary, the review of such reports with other
appropriate officers, directors or employees of the Corporation.
5.5.3 Special Reports to Management
Promptly upon learning of a potential violation of the Statement on Insider
Trading, the Compliance Officer shall prepare a written report to the Chief
Executive Officer and the Board of Directors of the Corporation and, if the
violation occurred with respect to an investment company client, provide a
copy of such report to the Board of Directors of the investment company
concerned.
5.5.4 Annual Reports
On an annual basis, the Compliance Officer shall prepare a written report
to the Corporation's Board of Directors setting forth the following:
a summary of the existing procedures to detect and
prevent insider trading;
full details of any investigation, either internal
or by a regulatory agency, of any suspected insider
trading and the results of such investigation;
an evaluation of the current procedures and any
recommendations for improvement.
An annual compliance report shall be furnished to the Board of Directors of
the investment companies to which the Corporation acts as investment
adviser.
- --------
*The purpose of the blackout period before a client trade is to address
front-running violations that occur when personal trades are made shortly
before a client trade and benefit from the market effect of that trade. The
blackout period after a client trade is intended to allow dissipation of the
market effect of the client trade. It is also designed to prevent individuals
from benefiting from a trade that is opposite the client trade (e.g., selling a
security shortly after a purchase of the same security for a client boosted its
price, or purchasing a security shortly after a sale of the same security for a
client lowered its price).
