THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223 * P.O. BOX 8687 * RICHMOND, VA. 23229
(804) 285-8211 (800) 527-9525 FAX (804) 285-8251
December 1, 1997
VIA EDGAR
Filing Desk
U.S. Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: The World Funds, Inc.
File Number 333-29289
Filed Pursuant to Rule 485(b)
Gentlemen:
Transmitted herewith for electronic filing on behalf of The
World Funds, Inc. (the "Funds"), please find enclosed, pursuant to
Rule 485(b) under the Securities Act of 1933, as amended, a copy of
Part C - Other Information for the Funds.
Should you have any questions, regarding the filing of such
documents, please call the undersigned.
Sincerely,
/s/ John Pasco, III
John Pasco, III
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
Pre-Effective Amendment No.
/_/
Post-Effective Amendment No. 2
/X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2
(Check appropriate box or boxes)
THE WORLD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1500 Forest Avenue, Suite 223, Richmond, VA 23229
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (804) 285-8211
John Pasco, III, 1500 Forest Ave., Suite 223, Richmond, VA 23229
(Name and Address of Agent for Service)
Please send copies of communications to
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering: Upon effectiveness
of this registration statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b).
[ ] on pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on pursuant to paragraph (a)(1).
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on pursuant to paragraph (a)(2).
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT
The Prospectus for the Sand Hill Portfolio Manager Fund
series, the CSI Equity Fund series and the CSI Fixed Income Fund
series of The World Funds, Inc. are not amended by this filing.
The Statement of Additional Information for the Sand Hill
Portfolio Manager Fund series, the CSI Equity Fund series and the
CSI Fixed Income Fund series of The World Funds, Inc. are not
amended by this filing.
PART C
Included herein.
<PAGE>
CROSS-REFERENCE SHEET
Part C
Item No. Other Information.
24. Financial Statements and Exhibits.
25. Persons Controlled By Or Under Common Control With
Registrant.
26. Number of Holders of Securities.
27. Indemnification.
28. Business and Other Connections of Investment Advisor.
29. Principal Underwriters.
30. Location of Accounts and Records.
31. Management Services.
32. Undertakings.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
(1) Financial Highlights for Registrant's Sand
Hill Portfolio Manager Fund is Incorporated
by Reference to the Registrant's original
Registration Statement as filed on EDGAR on
June 16, 1997.
(2) For Registrant's Sand Hill Portfolio Manager
Fund series - Incorporated by Reference to
the Registrant's original Registration
Statement as filed on EDGAR on June 16, 1997.
* Report of Independent Auditors dated
January 17, 1997
* Schedule of Portfolio Investments as of
December 31, 1996 (audited)
* Statement of Assets and Liabilities at
December 31, 1996 (audited)
* Statement of Operations for the years
ended December 31, 1995 and 1996
(audited)
* Financial Highlights (audited)
* Notes to Financial Statements dated
December 31, 1996 (audited)
For Registrant's CSI Fixed Income Fund and
CSI Equity Fund - not applicable.
(b) Exhibits.
(1) (a) Articles of Incorporation of Registrant,
Incorporated by Reference from the
Registration Statement, filed with the
SEC on June 16, 1997.
(b) Articles Supplementary of the
Registrant, creating the CSI Equity Fund
series and the CSI Fixed Income Fund
series, is Incorporated by Reference
from PEA #1, filed with the SEC on
August 1, 1997.
(2) By-Laws of Registrant, Incorporated by
Reference from the Registration Statement,
filed with the SEC on June 16, 1997.
(3) Not Applicable.
<PAGE>
(4) (a) Specimen of certificate of common stock
for the Sand Hill Portfolio Manager Fund
is Incorporated by Reference from the
Registration Statement filed June 16,
1997.
(b) Specimen of certificate of common stock
for the CSI Equity Fund series is
Incorporated by Reference from PEA #1,
filed with the SEC on August 1, 1997.
(c) Specimen of certificate of common stock
for the CSI Fixed Income Fund series is
Incorporated by Reference from PEA #1,
filed with the SEC on August 1, 1997.
(5) (a) Filed herewith as Exhibit A is the
Investment Advisory Agreement (dated
August 19, 1997) between Sand Hill
Advisors, Inc. and the Registrant on
behalf of the Sand Hill Portfolio
Manager Fund.
(b) Filed herewith as Exhibit B is the
Investment Advisory Agreement (dated
October 14, 1997) between CSI Capital
Management, Inc. and the Registrant on
behalf of the CSI Equity Fund.
(c) Filed herewith as Exhibit C is the
Investment Advisory Agreement (dated
October 14, 1997) between CSI Capital
Management, Inc. and the Registrant on
behalf of the CSI Fixed Income Fund.
(6) Filed herewith as exhibit D is the
Distribution Agreement (dated August 19,
1997) between First Dominion Capital Corp.
and the Registrant.
(7) Not Applicable.
(8) (a) Filed herewith as Exhibit E is the
Custody Agreement (dated August 19,
1997) between Star Bank, N.A. and the
Registrant on behalf of the Sand Hill
Portfolio Manager Fund.
(b) Filed herewith as Exhibit F is the
Custodian Agreement (dated October 14,
1997) between Star Bank, N.A. and the
Registrant.
(9) (a) Filed herewith as Exhibit G is the
Transfer Agency Agreement (dated August
19, 1997) between Fund Services, Inc.
and the Registrant.
<PAGE>
(b) Filed herewith as Exhibit H is the
Administrative Services Agreement (dated
August 19, 1997) between Commonwealth
Shareholder Services, Inc. and the
Registrant on behalf of the Sand Hill
Portfolio Manager Fund.
(c) Filed herewith as Exhibit I is the
Administrative Services Agreement (dated
October 14, 1997) between Commonwealth
Shareholder Services, Inc. and the
Registrant on behalf of the CSI Equity
Fund.
(d) Filed herewith as Exhibit J is the
Administrative Services Agreement
(dated October 14, 1997) between
Commonwealth Shareholder Services,
Inc. and the Registrant on behalf
of the CSI Fixed Income Fund.
(e) Filed herewith as Exhibit K is the Fund
Accounting Agreement (dated August 18,
1997) between Star Bank, N.A. and the
Registrant on behalf of the Sand Hill
Portfolio Manager Fund.
(f) Filed herewith as Exhibit L is the Fund
Accounting Servicing Agreement (dated
October 14, 1997) between Star Bank,
N.A. and the Registrant.
(g) Filed herewith as Exhibit M is the Fund
Expense Agreement (dated August 19,
1997) between Commonwealth Shareholder
Services, Inc. and the Registrant.
(h) Filed herewitha as Exhibit N is the
IRA Services Agreement between Star
Bank N.A. and the Registrant on behalf
of the Sand Hill Portfolio Manager
Fund.
(10) Opinion of Counsel (to be filed with
Registrant's Rule 24f-2 Notice).
(11) Not Applicable.
(12) Not applicable.
(13) Not applicable.
(14) Filed herewith as Exhibit N is the IRA
Service Agreement (dated August 19, 1997)
between Star Bank, N.A.and the Registrant on
behalf of the Sand Hill Portfolio Manager
Fund.
(15) Not Applicable.
(16) Not Applicable.
(17) Not Applicable.
(18) Not applicable.
<PAGE>
(19) Powers-of-Attorney for Samuel Boyd, Jr.,
William E. Poist, and Paul M. Dickinson and
Secretary's Certificate, Incorporated by
Reference from the Registration Statement
filed with the SEC on June 16, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES: As of October 31,
1997:
Number of
Title of Class Record Holders
Sand Hill Portfolio Manager Fund 135
CSI Fixed Income Fund 1
CSI Equity Fund 3
ITEM 27. INDEMNIFICATION.
The Registrant is incorporated under the General
Corporation Law (the "GCL") of the State of Maryland. The
Registrant's Articles of Incorporation provide for
indemnification of directors, officers and other agents of the
corporation to the fullest extent permitted under the GCL. The
Articles limit such indemnification so as to comply with the
prohibition against indemnifying such persons under Section 17 of
the 1940 Act for certain conduct set forth in that section
("Disabling Conduct"). Contracts between the Fund and various
service providers include provisions for indemnification, but
also forbid the Registrant to indemnify affiliates for Disabling
Conduct.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Sand Hill Advisors, Inc, the investment advisor to the
Sand Hill Portfolio Manager Fund series, provides
investment advisory services consisting of portfolio
management for a variety of individuals and
institutions and as of December 31, 1996, had
approximately $235 million in assets under management.
For information as to any other business, profession,
vocation or employment of a substantial nature in which
each director, officer or partner of Sand Hill
Advisors, Inc. is or has been, at any time during the
past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner
or trustee, reference is made to the Advisor's Form ADV
(File #801-17601), currently on file with the
Commission as required by the Investment Advisors Act
of 1940, as amended.
CSI Capital Management, Inc., the investment advisor to
the CSI Equity Fund series and the CSI Fixed Income
Fund series, provides investment advisory services
<PAGE>
consisting of portfolio management for a variety of
individuals and institutions and as of October 14,
1997, had approximately $124 million in assets under
management, and a principal of the Advisor acts as
trustee supervising an additional $30 million in
assets.
For information as to any other business, profession,
vocation or employment of a substantial nature in which
each director, officer or partner of CSI Capital
Management, Inc. is or has been, at any time during the
past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner
or trustee, reference is made to the Advisor's Form ADV
(File # 801-14549), currently on file with the
Commission as required by the Investment Advisors Act
of 1940, as amended.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Vontobel Funds, Inc.
(b)
Positions and Positions and
Name and Principal Offices With Offices with
Business Address Underwriter Registrant
John Pasco, III President, Chief Chairman,
1500 Forest Avenue Financial Officer, President, &
Suite 223 Treasurer, Director Treasurer
Richmond, VA 23229
Mary T. Pasco Director Assistant
1500 Forest Avenue Secretary
SUITE 223
Richmond, VA 23229
Lori J. Martin Vice President None
1500 Forest Ave. & Assistant Sec.
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
Two Paragon Place
Suite 100
6802 Paragon Place
Richmond, VA 23230
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the
Registrant required to be maintained by 31(a) of the
Investment Company Act of 1940, as amended, and the
rules promulgated thereunder are kept in several
locations:
<PAGE>
(a) Shareholder account records (including share
ledgers, duplicate confirmations, duplicate
account statements, and applications forms) of
each series of the Registrant are maintained by
its transfer agent, Fund Services, Inc., at 1500
Forest Avenue, Suite 111, Richmond, VA 23229.
(b) With respect to the Sand Hill Portfolio Manager
Fund series: 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 are
maintained at the series' investment advisor, Sand
Hill Advisors, Inc., at 3000 Sand Hill Road,
Building 3, Suite 150, Menlo Park, CA 94025.
(c) With respect to the CSI Equity Fund series and the
CSI Fixed Income Fund series: 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 are
maintained at the series' investment advisor, CSI
Capital Management, 1 Montgomery Street, Suite
2525, San Francisco, CA 94104.
(d) Accounts and records for portfolio securities and
other investment assets of each series, including
cash, are maintained in the custody of the
Registrant's custodian bank, Star Bank N.A., 425
Walnut Street, P.O. Box 1118, Cincinnati, Ohio
45201-1118.
(d) Accounting records, including general ledgers,
supporting ledgers, pricing computations, etc. of
each series are maintained by the Registrant's
accounting services agent, Star Bank N.A., 425
Walnut Street, P.O. Box 1118, Cincinnati, Ohio
45201-1118
(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
<PAGE>
distributor, First Dominion Capital Corp. at 1500
Forest Avenue, Suite 223, Richmond, VA 23229.
ITEM 31. MANAGEMENT SERVICES. There are no management-related
service contracts not discussed in Parts A or B of this
Form.
ITEM 32. UNDERTAKINGS.
(b) Registrant hereby undertakes to file a Post-
Effective Amendment, using financial statements
which need not be certified, within four to six
months from the effective date of the Registrant's
1933 Act Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that he meets all of the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the by the undersigned,
thereto duly authorized, in the City of Richmond, and the
Commonwealth of Virginia on the 1st day of December, 1997.
THE WORLD FUNDS, INC.
Registrant
By /s/ John Pasco, III
John Pasco, III, Chairman
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated
below.
(Signature) (Title)
(Date)
/s/ John Pasco, III Director, Chairman
John Pasco, III & Treasurer
/s/ Samuel Boyd, Jr.* Director
Samuel Boyd, Jr.
/s/ Paul M. Dickinson* Director
Paul M. Dickinson
/s/ William E. Poist* Director
William E. Poist
/s/ John Pasco, III
John Pasco, III
Attorney-in-Fact*
* Pursuant to Powers of Attorney on File
<PAGE>
EXHIBIT INDEX
Exhibit A Investment Advisory Agreement between Sand Hill
Advisors and the Registrant on behalf of the Sand
Hill Portfolio Manager Fund series.
Exhibit B Investment Advisory Agreement between CSI Capital
Management, Inc. and the Registrant on behalf of
CSI Equity Fund.
Exhibit C Investment Advisory Agreement between CSI Capital
Management, Inc. and the Registrant on behalf of
CSI Fixed Income Fund.
Exhibit D Distribution Agreement between First Dominion
Capital Corp. and the Registrant.
Exhibit E Custody Agreement between Star Bank N.A. and the
Registrant on behalf of the Sand Hill Portfolio
Manager Fund.
Exhibit F Custody Agreement between Star Bank, N.A. and the
Registrant.
Exhibit G Transfer Agency Agreement between Fund Services,
Inc. and the Registrant.
Exhibit H Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the Sand Hill Portfolio
Manager Fund.
Exhibit I Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the CSI Equity Fund.
Equity Fund and the CSI Fixed Income Fund
Exhibit J Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the CSI Fixed Income Fund.
Exhibit K Fund Accounting Agreement between Star Bank, N.A.
and the Registrant on behalf of the Sand Hill
Portfolio Manger Fund.
Exhibit L Fund Accounting Agreement between star Bank, N.A.
and the Registrant.
Exhibit M Fund Expense Agreement between Commonwealth
Shareholder Services, Inc. and Registrant.
Exhibit N IRA Service Agreement between Star Bank, N.A. and
the Registrant on behalf of the Sand Hill
Portfolio Manager Fund.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated this
19th day of August, 1997 by and between THE WORLD FUNDS, INC., a
Maryland corporation (herein called the "Fund"), and SAND HILL
ADVISERS, INC., a California corporation (the "Advisor") and a
registered investment adviser under the Investment Advisers Act
of 1940, as amended.
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), consisting of several series of shares,
each having its own investment policies; and
WHEREAS, the Fund desires to retain the Advisor to furnish
investment advisory and management services to certain portfolios
of the Fund, subject to the control of the Fund's Board of
Directors, and the Advisor is willing to so furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be bound, it is
agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to
act as the advisor to the SAND HILL PORTFOLIO MANAGER FUND series
of the Fund (the "Portfolio") for the period and on the terms set
forth in this Agreement. The Advisor accepts such appointment
and agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to
manage the investments and reinvestment of the assets of the
Portfolio, and to continuously review, supervise, and administer
the investment program of the Portfolio, to determine in its
discretion the securities to be purchased or sold, to provide the
Fund and Commonwealth Shareholder Services, Inc. (the
"Administrator") with records concerning the Advisor's activities
which the Fund is required to maintain, and to render regular
reports to the Fund's Officers and Board of Directors and to the
Administrator concerning the Advisor's discharge of the foregoing
responsibilities.
The Advisor shall discharge the foregoing
responsibilities subject to the control of the Fund's Board of
Directors and in compliance with such policies as the Board may
from time to time establish, and in compliance with the
objectives, policies, and limitations for the Portfolio as set
forth in its Prospectus and Statement of Additional Information,
as amended from time to time, and applicable laws and
regulations. The Fund will instruct each of its agents and
contractors to co-operate in the conduct of the business of the
Portfolio.
-2-
<PAGE>
The Advisor accepts such employment and agrees, at its
own expense, to render the services and to provide the office
space, furnishings, and equipment and the personnel required by
it to perform the services on the terms and for the compensation
provided herein.
3. Portfolio Transactions. The Advisor is authorized to
select the brokers and dealers that will execute the purchases
and sales of portfolio securities for the Portfolio and is
directed to use its best efforts to obtain the best price and
execution for the Portfolio's transactions in accordance with the
policies of the Fund as set forth from time to time in the
Portfolio's Prospectus and Statement of Additional Information.
The Advisor will promptly communicate to the Fund and to the
Administrator such information relating to portfolio transactions
as they may reasonably request.
It is understood that the Advisor will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to
the Fund or be in breach of any obligation owing to the Fund
under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Fund to an
unaffiliated broker-dealer in compliance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934 or as
described from time to time by the Portfolio's Prospectus and
Statement of Additional Information. Subject to the foregoing,
the Advisor may direct any transaction of the Portfolio to a
broker which is affiliated with the Advisor in accordance with,
and subject to, the policies and procedures approved by the Board
of Directors of the Fund pursuant to Rule 17e-1 under the 1940
Act. Such brokerage services are not deemed to be provided under
this Agreement.
4. Compensation of the Advisor. For the services to be
rendered by the Advisor under this Agreement, the Portfolio shall
pay to the Advisor, and the Advisor will accept as full
compensation a fee, accrued daily and payable within five (5)
business days after the last business day of each month, at an
annual rate of one percent on the first $100 million of the
average daily net assets of the Portfolio and 3/4 of one percent
on the Portfolio's average daily net assets over $100 million.
All rights of compensation under this Agreement for
services performed as of the termination date shall survive the
termination of this Agreement.
5. Expenses. During the term of this Agreement, the
Advisor will pay all expenses incurred by it in connection with
the management of the Fund. Notwithstanding the foregoing, the
-3-
Portfolio shall pay the expenses and costs of the Portfolio for
the following:
<PAGE>
( 1) Taxes;
( 2) Brokerage fees and commissions with regard to
portfolio transactions;
( 3) Interest charges, fees and expenses of the
custodian of the securities;
( 4) Fees and expenses of the Fund's transfer agent and
the Administrator;
( 5) Its proportionate share of auditing and legal
expenses;
( 6) Its proportionate share of the cost of maintenance
of corporate existence;
( 7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Advisor as that term is defined by
law;
( 8) Its proportionate share of the costs of corporate
meetings;
( 9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to
existing shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment
records required to be maintained by the Advisor),
and daily pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
-4-
company under the provisions of the Internal
Revenue Code of 1986, as amended, unless such
expenses and/or taxes arise from the negligence of
another party.
If the expenses projected to be borne by the Portfolio
(exclusive of interest, brokerage commissions, taxes and
extraordinary items, but inclusive of Advisory fees) in any
<PAGE>
fiscal year are expected to exceed any applicable state expense
limitation provision to which the Fund is subject, the Advisory
fee payable by the Portfolio to the Advisor shall be reduced on
each day such fee is accrued to the extent of that day's portion
of such excess expenses. The amount of such reduction shall not
exceed the actual amount of the Advisory fee otherwise payable in
such year. Accruals of expenses and adjustments to advisory fees
otherwise payable under this Agreement, and the amounts payable
monthly in accordance with this Agreement, shall be adjusted as
required from month to month.
It is understood that the Fund will register its shares
in states which impose expense limitations on mutual funds only
with the prior written consent of the Advisor and, if consent is
granted, the Advisor agrees to reimburse the Fund for any excess
expenses incurred over such states' limitation up to a maximum of
its Advisory fee.
6. Reports. The Fund and the Advisor agree to furnish to
each other, if applicable, current information required for the
preparation by such parties of prospectuses, statements of
additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and
to furnish to each other such other information and documents
with regard to their affairs as each may reasonably request.
7. Status of the Advisor. The services of the Advisor to
the Fund are not to be deemed exclusive, and the Advisor shall be
free to render similar services to others so long as its services
to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also
retain the services of the Advisor to serve as the investment
advisor of other series of the Fund.
8. Books and Records. In compliance with the requirements
of the 1940 Act, the Advisor hereby agrees that all records which
it maintains for the Fund are the property of the Fund, and
further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Advisor further agrees to
preserve for the
-5-
periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940
Act.
9. Limitation of Liability of Advisor. The duties of the
Advisor shall be confined to those expressly set forth herein,
and no implied duties are assumed by or may be asserted against
the Advisor hereunder. The Advisor shall not be liable for any
error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss
<PAGE>
resulting from willful misfeasance, bad faith or negligence on
the part of the Advisor in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement. (As used in this Paragraph 9, the term "Advisor"
shall include directors, officers, employees and other corporate
agents of the Advisor as well as that corporation itself).
10. Permissible Interests. Directors, agents, and
shareholders of the Fund are or may be interested in the Advisor
(or any successor thereof) as directors, officers, or
shareholders, or otherwise; directors, officers, agents, and
shareholders of the Advisor are or may be interested in the Fund
as directors, officers, shareholders or otherwise; and the
Advisor (or any successor) is or may be interested in the Fund as
a shareholder or otherwise. In addition, brokerage transactions
for the Fund may be effected through affiliates of the Advisor if
approved by the Fund's Board of Directors, subject to the rules
and regulations of the Securities and Exchange Commission, and
the policies and procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby
authorizes the Fund to use the name "Sand Hill" for the
Portfolio. The Fund agrees that if this Agreement is terminated
it will promptly redesignate the name of the Portfolio to
eliminate any reference to the name "Sand Hill" or any derivation
thereof unless the Advisor waives this requirement in writing.
12. Duration and Termination. This Agreement shall become
effective on the date first above written subject to its approval
by the shareholders of the Portfolio and unless sooner terminated
as provided herein, shall continue in effect for two (2) years
from that date. Thereafter, this Agreement shall be renewable
for successive periods of one year each, provided such
continuance is specifically approved annually (a) by the vote of
a majority of those members of the Fund's Board of Directors who
are not parties to this Agreement or interested persons of any
such party (as that term is defined in the 1940 Act), cast in
person at a meeting
-6-
called for the purpose of voting on such approval, and (b) by
vote of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the
1940 Act) of the Portfolio. Notwithstanding the foregoing, this
Agreement may be terminated by the Portfolio or by the Fund at
any time on sixty (60) days written notice, without the payment
of any penalty, provided that termination must be authorized
either by vote of the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Portfolio or
by the Advisor on sixty (60) days written notice. This Agreement
will automatically terminate in the event of its assignment (as
that term is defined in the 1940 Act).
13. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated
<PAGE>
orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a
majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act).
14. Notice. Any notice required or permitted to be given
by either party to the other shall be deemed sufficient if sent
by registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the address stated
below:
(a) To the Fund at: 1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Advisor at: 3000 Sand Hill Road
Building Three, Suite 150
Menlo Park, CA 94025-7111
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define
or limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Maryland, and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Maryland, or any
of
-7-
the provisions herein, conflict with the applicable provisions of
the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
<PAGE>
SAND HILL ADVISERS, INC.
BY:
Gary K. Conway
President
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated
October 14, 1997 by and between THE WORLD FUNDS, INC., a Maryland
corporation (herein called the "Fund"), and CSI CAPITAL
MANAGEMENT, INC., a California corporation (the "Advisor") and a
registered investment adviser under the Investment Advisers Act
of 1940, as amended.
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), consisting of several series of shares,
each having its own investment policies; and
WHEREAS, the Fund desires to retain the Advisor to furnish
investment advisory and management services to certain portfolios
of the Fund, subject to the control of the Fund's Board of
Directors, and the Advisor is willing to so furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be bound, it is
agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to
act as the advisor to the CSI EQUITY FUND series of the Fund (the
"Portfolio") for the period and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to
furnish the services herein set forth, for the compensation
herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to
manage the investments and reinvestment of the assets of the
Portfolio, and to continuously review, supervise, and administer
the investment program of the Portfolio, to determine in its
discretion the securities to be purchased or sold, to provide the
Fund and Commonwealth Shareholder Services, Inc. (the
"Administrator") with records concerning the Advisor's activities
which the Fund is required to maintain, and to render regular
reports to the Fund's Officers and Board of Directors and to the
Administrator concerning the Advisor's discharge of the foregoing
responsibilities.
The Advisor shall discharge the foregoing
responsibilities subject to the control of the Fund's Board of
Directors and in compliance with such policies as the Board may
from time to time establish and communicate in writing to the
Advisor, and in compliance with the objectives, policies, and
limitations for the Portfolio as set forth in its Prospectus and
Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will
instruct each of its agents and contractors to co-operate in the
conduct of the business of the Portfolio. The Fund shall provide
the Advisor with a copy of each amendment or supplement to the
Fund's Form N-1A registration statement promptly after the same
is filed with the U.S. Securities and Exchange Commission, and
the Fund shall not modify in any material respect any investment
20
<PAGE>
objective, policy or restriction of the Fund without providing
the Advisor with prior written notice of such proposed change.
For purposes of this paragraph only, a writing or a written
notice by or from the Fund to the Advisor shall include an oral
communication from the Fund to the Advisor that is reduced to
writing and provided to the Advisor promptly thereafter.
The Advisor accepts such employment and agrees, at its
own expense, to render the services and to provide the office
space, furnishings, and equipment and the personnel required by
it to perform the services on the terms and for the compensation
provided herein.
3. Portfolio Transactions. The Advisor is authorized to
select the brokers and dealers that will execute the purchases
and sales of portfolio securities for the Portfolio and is
directed to use its best efforts to obtain the best price and
execution for the Portfolio's transactions in accordance with the
policies of the Fund as set forth from time to time in the
Portfolio's Prospectus and Statement of Additional Information.
The Advisor will promptly communicate to the Fund and to the
Administrator such information relating to portfolio transactions
as they may reasonably request.
It is understood that the Advisor will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to
the Fund or be in breach of any obligation owing to the Fund
under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Fund to an
unaffiliated broker-dealer in compliance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934 or as
described from time to time by the Portfolio's Prospectus and
Statement of Additional Information. Subject to the foregoing,
the Advisor may direct any transaction of the Portfolio to a
broker which is affiliated with the Advisor in accordance with,
and subject to, the policies and procedures approved by the Board
of Directors of the Fund pursuant to Rule 17e-1 under the 1940
Act. Such brokerage services are not deemed to be provided under
this Agreement.
4. Compensation of the Advisor. For the services to be
rendered by the Advisor under this Agreement, the Portfolio shall
pay to the Advisor, and the Advisor will accept as full
compensation a fee, accrued daily and payable within five (5)
business days after the last business day of each month, at an
annual rate of one percent of the average daily net assets of the
Portfolio.
All rights of compensation under this Agreement for
services performed as of the termination date shall survive the
termination of this Agreement.
5. Expenses. During the term of this Agreement, the
Advisor will pay all expenses incurred by it in connection with
the management of the Fund. Notwithstanding the foregoing, the
Portfolio shall pay the expenses and costs of the Portfolio for
the following:
21
<PAGE>
( 1) Taxes;
( 2) Brokerage fees and commissions with regard to
portfolio transactions;
( 3) Interest charges, fees and expenses of the
custodian of the securities;
( 4) Fees and expenses of the Fund's transfer agent and
the Administrator;
( 5) Its proportionate share of auditing and legal
expenses;
( 6) Its proportionate share of the cost of maintenance
of corporate existence;
( 7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Advisor as that term is defined by
law;
( 8) Its proportionate share of the costs of corporate
meetings;
( 9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to
existing shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment
records required to be maintained by the Advisor),
and daily pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal
Revenue Code of 1986, as amended, unless such
expenses and/or taxes arise from the negligence of
another party.
If the expenses projected to be borne by the Portfolio
(exclusive of interest, brokerage commissions, taxes and
extraordinary items, but inclusive of Advisory fees) in any
fiscal year are expected to exceed any applicable state expense
limitation provision to which the Fund is subject, the Advisory
fee payable by the Portfolio to the Advisor shall be reduced on
each day such fee is accrued to the extent of that day's portion
of such excess expenses. The amount of such reduction shall not
22
<PAGE>
exceed the actual amount of the Advisory fee otherwise payable in
such year. Accruals of expenses and adjustments to advisory fees
otherwise payable under this Agreement, and the amounts payable
monthly in accordance with this Agreement, shall be adjusted as
required from month to month.
It is understood that the Fund will register its shares
in states which impose expense limitations on mutual funds only
with the prior written consent of the Advisor and, if consent is
granted, the Advisor agrees to reimburse the Fund for any excess
expenses incurred over such states' limitation up to a maximum of
its Advisory fee.
6. Reports. The Fund and the Advisor agree to furnish to
each other, if applicable, current information required for the
preparation by such parties of prospectuses, statements of
additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and
to furnish to each other such other information and documents
with regard to their affairs as each may reasonably request.
7. Status of the Advisor. The services of the Advisor to
the Fund are not to be deemed exclusive, and the Advisor shall be
free to render similar services to others so long as its services
to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also
retain the services of the Advisor to serve as the investment
advisor of other series of the Fund.
8. Books and Records. In compliance with the requirements
of the 1940 Act, the Advisor hereby agrees that all records which
it maintains for the Fund are the property of the Fund, and
further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Advisor further agrees to
preserve for the periods prescribed by the 1940 Act, and the
rules or orders thereunder, the records required to be maintained
by the 1940 Act.
9. Limitation of Liability of Advisor. The duties of the
Advisor shall be confined to those expressly set forth herein,
and no implied duties are assumed by or may be asserted against
the Advisor hereunder. The Advisor shall not be liable for any
error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or negligence on
the part of the Advisor in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement. (As used in this Paragraph 9, the term "Advisor"
shall include directors, officers, employees and other corporate
agents of the Advisor as well as that corporation itself). The
Fund shall indemnify, defend and hold the Advisor harmless from
and against any loss, damage, liability, settlement, expense or
claim, including, without limitation, attorneys' fees and
expenses (collectively, "Claims"), arising out of any actual or
alleged (a) untrue statement of a material fact contained in the
23
<PAGE>
Fund's Form N-1A registration statement, or in any other
communications, advertisements, sales literature, proxy
materials, reports, or statements made or furnished by or on
behalf of the Fund to any regulatory agency or to investors or
potential investors in the Fund (collectively, the "Reports"),
or (b) omission of a material fact required to be stated in any
Report or necessary to make the statements therein not
misleading; provided, however, that the foregoing indemnity shall
not apply to any Claim to the extent it is the result of (i) any
information furnished by the Advisor to the Fund for the purpose
of inclusion in any such Report, or (ii) a breach by the Advisor
of any provision of this Agreement. The Advisor shall indemnify,
defend and hold the Fund harmless from and against any Claim
arising out of the matters specified in clauses (i) or (ii)
above.
10. Permissible Interests. Directors, agents, and
shareholders of the Fund are or may be interested in the Advisor
(or any successor thereof) as directors, officers, or
shareholders, or otherwise; directors, officers, agents, and
shareholders of the Advisor are or may be interested in the Fund
as directors, officers, shareholders or otherwise; and the
Advisor (or any successor) is or may be interested in the Fund as
a shareholder or otherwise. In addition, brokerage transactions
for the Fund may be effected through affiliates of the Advisor if
approved by the Fund's Board of Directors, subject to the rules
and regulations of the Securities and Exchange Commission, and
the policies and procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby
authorizes the Fund to use the name "CSI" for the Portfolio. The
Fund agrees that if this Agreement is terminated it will promptly
redesignate the name of the Portfolio to eliminate any reference
to the name "CSI" or any derivation thereof unless the Advisor
waives this requirement in writing.
12. Duration and Termination. This Agreement shall become
effective on the date first above written subject to its approval
by the shareholders of the Portfolio and unless sooner terminated
as provided herein, shall continue in effect for two (2) years
from that date. Thereafter, this Agreement shall be renewable
for successive periods of one year each, provided such
continuance is specifically approved annually (a) by the vote of
a majority of those members of the Fund's Board of Directors who
are not parties to this Agreement or interested persons of any
such party (as that term is defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such
approval, and (b) by vote of either the Board of Directors or of
a majority of the outstanding voting securities (as that term is
defined in the 1940 Act) of the Portfolio. Notwithstanding the
foregoing, this Agreement may be terminated by the Portfolio or
by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination
must be authorized either by vote of the Fund's Board of
Directors or by vote of a majority of the outstanding voting
securities of the Portfolio or by the Advisor on sixty (60) days
written notice. This Agreement will automatically terminate in
24
<PAGE>
the event of its assignment (as that term is defined in the 1940
Act).
13. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a
majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act).
14. Notice. Any notice required or permitted to be given
by either party to the other shall be deemed sufficient if sent
by registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the address stated
below:
(a) To the Fund at: 1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Advisor at: One Montgomery Street
Suite 2525, Telesis Tower
San Francisco, CA 94104
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define
or limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Maryland, and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Maryland, or any
of the provisions herein, conflict with the applicable provisions
of the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
CSI CAPITAL MANAGEMENT, INC.
25
<PAGE>
BY:
Leland H. Faust
President
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
26
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated
October 14, 1997 by and between THE WORLD FUNDS, INC., a Maryland
corporation (herein called the "Fund"), and CSI CAPITAL
MANAGEMENT, INC., a California corporation (the "Advisor") and a
registered investment adviser under the Investment Advisers Act
of 1940, as amended.
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), consisting of several series of shares,
each having its own investment policies; and
WHEREAS, the Fund desires to retain the Advisor to furnish
investment advisory and management services to certain portfolios
of the Fund, subject to the control of the Fund's Board of
Directors, and the Advisor is willing to so furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be bound, it is
agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to
act as the advisor to the CSI FIXED INCOME FUND series of the
Fund (the "Portfolio") for the period and on the terms set forth
in this Agreement. The Advisor accepts such appointment and
agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to
manage the investments and reinvestment of the assets of the
Portfolio, and to continuously review, supervise, and administer
the investment program of the Portfolio, to determine in its
discretion the securities to be purchased or sold, to provide the
Fund and Commonwealth Shareholder Services, Inc. (the
"Administrator") with records concerning the Advisor's activities
which the Fund is required to maintain, and to render regular
reports to the Fund's Officers and Board of Directors and to the
Administrator concerning the Advisor's discharge of the foregoing
responsibilities.
The Advisor shall discharge the foregoing
responsibilities subject to the control of the Fund's Board of
Directors and in compliance with such policies as the Board may
from time to time establish and communicate in writing to the
Advisor, and in compliance with the objectives, policies, and
limitations for the Portfolio as set forth in its Prospectus and
Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will
instruct each of its agents and contractors to co-operate in the
conduct of the business of the Portfolio. The Fund shall provide
the Advisor with a copy of each amendment or supplement to the
Fund's Form N-1A registration statement promptly after the same
27
<PAGE>
is filed with the U.S. Securities and Exchange Commission, and
the Fund shall not modify in any material respect any investment
objective, policy or restriction of the Fund without providing
the Advisor with prior written notice of such proposed change.
For purposes of this paragraph only, a writing or a written
notice by or from the Fund to the Advisor shall include an oral
communication from the Fund to the Advisor that is reduced to
writing and provided to the Advisor promptly thereafter.
The Advisor accepts such employment and agrees, at its
own expense, to render the services and to provide the office
space, furnishings, and equipment and the personnel required by
it to perform the services on the terms and for the compensation
provided herein.
3. Portfolio Transactions. The Advisor is authorized to
select the brokers and dealers that will execute the purchases
and sales of portfolio securities for the Portfolio and is
directed to use its best efforts to obtain the best price and
execution for the Portfolio's transactions in accordance with the
policies of the Fund as set forth from time to time in the
Portfolio's Prospectus and Statement of Additional Information.
The Advisor will promptly communicate to the Fund and to the
Administrator such information relating to portfolio transactions
as they may reasonably request.
It is understood that the Advisor will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to
the Fund or be in breach of any obligation owing to the Fund
under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Fund to an
unaffiliated broker-dealer in compliance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934 or as
described from time to time by the Portfolio's Prospectus and
Statement of Additional Information. Subject to the foregoing,
the Advisor may direct any transaction of the Portfolio to a
broker which is affiliated with the Advisor in accordance with,
and subject to, the policies and procedures approved by the Board
of Directors of the Fund pursuant to Rule 17e-1 under the 1940
Act. Such brokerage services are not deemed to be provided under
this Agreement.
4. Compensation of the Advisor. For the services to be
rendered by the Advisor under this Agreement, the Portfolio shall
pay to the Advisor, and the Advisor will accept as full
compensation a fee, accrued daily and payable within five (5)
business days after the last business day of each month, at an
annual rate of one percent of the average daily net assets of the
Portfolio.
All rights of compensation under this Agreement for
services performed as of the termination date shall survive the
termination of this Agreement.
5. Expenses. During the term of this Agreement, the
Advisor will pay all expenses incurred by it in connection with
the management of the Fund. Notwithstanding the foregoing, the
28
<PAGE>
Portfolio shall pay the expenses and costs of the Portfolio for
the following:
( 1) Taxes;
( 2) Brokerage fees and commissions with regard to
portfolio transactions;
( 3) Interest charges, fees and expenses of the
custodian of the securities;
( 4) Fees and expenses of the Fund's transfer agent and
the Administrator;
( 5) Its proportionate share of auditing and legal
expenses;
( 6) Its proportionate share of the cost of maintenance
of corporate existence;
( 7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Advisor as that term is defined by
law;
( 8) Its proportionate share of the costs of corporate
meetings;
( 9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to
existing shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment
records required to be maintained by the Advisor),
and daily pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal
Revenue Code of 1986, as amended, unless such
expenses and/or taxes arise from the negligence of
another party.
If the expenses projected to be borne by the Portfolio
(exclusive of interest, brokerage commissions, taxes and
extraordinary items, but inclusive of Advisory fees) in any
fiscal year are expected to exceed any applicable state expense
limitation provision to which the Fund is subject, the Advisory
29
<PAGE>
fee payable by the Portfolio to the Advisor shall be reduced on
each day such fee is accrued to the extent of that day's portion
of such excess expenses. The amount of such reduction shall not
exceed the actual amount of the Advisory fee otherwise payable in
such year. Accruals of expenses and adjustments to advisory fees
otherwise payable under this Agreement, and the amounts payable
monthly in accordance with this Agreement, shall be adjusted as
required from month to month.
It is understood that the Fund will register its shares
in states which impose expense limitations on mutual funds only
with the prior written consent of the Advisor and, if consent is
granted, the Advisor agrees to reimburse the Fund for any excess
expenses incurred over such states' limitation up to a maximum of
its Advisory fee.
6. Reports. The Fund and the Advisor agree to furnish to
each other, if applicable, current information required for the
preparation by such parties of prospectuses, statements of
additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and
to furnish to each other such other information and documents
with regard to their affairs as each may reasonably request.
7. Status of the Advisor. The services of the Advisor to
the Fund are not to be deemed exclusive, and the Advisor shall be
free to render similar services to others so long as its services
to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also
retain the services of the Advisor to serve as the investment
advisor of other series of the Fund.
8. Books and Records. In compliance with the requirements
of the 1940 Act, the Advisor hereby agrees that all records which
it maintains for the Fund are the property of the Fund, and
further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Advisor further agrees to
preserve for the periods prescribed by the 1940 Act, and the
rules or orders thereunder, the records required to be maintained
by the 1940 Act.
9. Limitation of Liability of Advisor. The duties of the
Advisor shall be confined to those expressly set forth herein,
and no implied duties are assumed by or may be asserted against
the Advisor hereunder. The Advisor shall not be liable for any
error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or negligence on
the part of the Advisor in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement. (As used in this Paragraph 9, the term "Advisor"
shall include directors, officers, employees and other corporate
agents of the Advisor as well as that corporation itself). The
Fund shall indemnify, defend and hold the Advisor harmless from
and against any loss, damage, liability, settlement, expense or
30
<PAGE>
claim, including, without limitation, attorneys' fees and
expenses (collectively, "Claims"), arising out of any actual or
alleged (a) untrue statement of a material fact contained in the
Fund's Form N-1A registration statement, or in any other
communications, advertisements, sales literature, proxy
materials, reports, or statements made or furnished by or on
behalf of the Fund to any regulatory agency or to investors or
potential investors in the Fund (collectively, the "Reports"),
or (b) omission of a material fact required to be stated in any
Report or necessary to make the statements therein not
misleading; provided, however, that the foregoing indemnity shall
not apply to any Claim to the extent it is the result of (i) any
information furnished by the Advisor to the Fund for the purpose
of inclusion in any such Report, or (ii) a breach by the Advisor
of any provision of this Agreement. The Advisor shall indemnify,
defend and hold the Fund harmless from and against any Claim
arising out of the matters specified in clauses (i) or (ii)
above.
10. Permissible Interests. Directors, agents, and
shareholders of the Fund are or may be interested in the Advisor
(or any successor thereof) as directors, officers, or
shareholders, or otherwise; directors, officers, agents, and
shareholders of the Advisor are or may be interested in the Fund
as directors, officers, shareholders or otherwise; and the
Advisor (or any successor) is or may be interested in the Fund as
a shareholder or otherwise. In addition, brokerage transactions
for the Fund may be effected through affiliates of the Advisor if
approved by the Fund's Board of Directors, subject to the rules
and regulations of the Securities and Exchange Commission, and
the policies and procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby
authorizes the Fund to use the name "CSI" for the Portfolio. The
Fund agrees that if this Agreement is terminated it will promptly
redesignate the name of the Portfolio to eliminate any reference
to the name "CSI" or any derivation thereof unless the Advisor
waives this requirement in writing.
12. Duration and Termination. This Agreement shall become
effective on the date first above written subject to its approval
by the shareholders of the Portfolio and unless sooner terminated
as provided herein, shall continue in effect for two (2) years
from that date. Thereafter, this Agreement shall be renewable
for successive periods of one year each, provided such
continuance is specifically approved annually (a) by the vote of
a majority of those members of the Fund's Board of Directors who
are not parties to this Agreement or interested persons of any
such party (as that term is defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such
approval, and (b) by vote of either the Board of Directors or of
a majority of the outstanding voting securities (as that term is
defined in the 1940 Act) of the Portfolio. Notwithstanding the
foregoing, this Agreement may be terminated by the Portfolio or
by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination
must be authorized either by vote of the Fund's Board of
Directors or by vote of a majority of the outstanding voting
31
<PAGE>
securities of the Portfolio or by the Advisor on sixty (60) days
written notice. This Agreement will automatically terminate in
the event of its assignment (as that term is defined in the 1940
Act).
13. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a
majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act).
14. Notice. Any notice required or permitted to be given
by either party to the other shall be deemed sufficient if sent
by registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the address stated
below:
(a) To the Fund at: 1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Advisor at: One Montgomery Street
Suite 2525, Telesis Tower
San Francisco, CA 94104
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define
or limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Maryland, and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Maryland, or any
of the provisions herein, conflict with the applicable provisions
of the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more
counterparts, each of which, when so executed, shall be deemed to
be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
32
<PAGE>
CSI CAPITAL MANAGEMENT, INC.
BY:
Leland H. Faust
President
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
33
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this 19th day of August,
1997, by and between The World Funds, Inc. a Maryland corporation
(the "Fund") and First Dominion Capital Corporation ("FDCC"), a
Virginia corporation.
WITNESSETH:
1. DISTRIBUTION SERVICES
The Fund hereby engages FDCC as national distributor to
assist the Fund in promoting the sale and distribution to
investors of shares of common stock of each series of the Fund
("Shares"). In connection therewith, FDCC shall (i) promote the
sale of shares, (ii) act as principal underwriter of shares of
various series of the Fund, (iii) otherwise assist the Fund in
the distribution of shares directly to investors through dealers
or otherwise. For this purpose the Fund agrees to offer shares
for sale at all times when, and in such places as, such shares
are to be made available for sale and may lawfully be offered for
sale and sold. As and when necessary in connection therewith
FDCC may act as principal or agent for the sale of such shares.
2. SALE OF FUND SHARES
Such shares are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Fund. Any offer or sale
shall be conclusively presumed to have been accepted by the
Fund if the Fund shall fail to notify FDCC of the rejection
of such offer or sale prior to the computation of the net
asset value of the Fund's shares next following receipt by
the Fund of notice of such offer or sale.
(b) No share of the Fund shall be sold for any consideration
other than cash or, except in instances otherwise provided
for by the Fund's currently effective Prospectus, for any
amount less than the public offering price per share, which
shall be determined in accordance with the Fund's currently
effective Prospectus. No shares may be sold for less than
the net asset value thereof.
3. REGISTRATION OF SHARES
The Fund agrees to make prompt and reasonable efforts to
effect and to keep in effect the registration or qualification of
its shares for sale in such jurisdictions as the Fund may
designate. FDCC may serve as dealer of record to assist the Fund
in connection with any such registration or qualification. The
Fund acknowledges that FDCC may incur expenses in connection with
-2-
34
<PAGE>
assisting in the registration or qualification of Fund shares
which are sold at net asset value and the Fund will pay or
reimburse expenses of FDCC which are incurred in connection with
such registration or qualification.
4. INFORMATION TO BE FURNISHED TO FDCC
The Fund agrees that it will furnish FDCC with such
information with respect to the affairs and accounts of the Fund
as FDCC may from time to time reasonably require, and further
agrees that FDCC, at all reasonable times, shall be permitted to
inspect the books and records of the Fund.
5. ALLOCATION OF EXPENSES
During the period of this contract, the Fund shall pay or
cause to be paid all expenses, costs, and fees incurred by the
Fund which are not assumed by FDCC or any investment manager or
investment advisor to the Fund. FDCC shall pay advertising and
promotional expenses incurred by FDCC in connection with the
distribution of the Fund's shares which are sold subject to the
imposition of a sales charge including paying for prospectuses
for delivery to prospective shareholders.
6. COMPENSATION TO FDCC
It is understood and agreed by the parties hereto that FDCC
will receive compensation for services it performs hereunder in
accordance with Schedule A hereto.
7. LIMITATION OF FDCC'S AUTHORITY
FDCC shall be deemed to be an independent contractor and,
except as specifically provided or authorized herein, shall have
no authority to act for or represent the Fund. In the
performance of its duties hereunder, FDCC may solicit and enter
into selling dealer agreements with other broker-dealers in a
form approved by the Fund. Such selling dealer agreements shall
provide for the sale of shares of the Fund (or any series of the
Fund) on terms consistent with the registration statement of the
Fund as then if effect. Unless otherwise provided in a selling
dealer agreement, any selling dealer agreement of FDCC in effect
as of the date of this agreement shall be deemed to continue
hereunder upon delivery to the selling dealer of any amendment
required by the terms of the Fund's action eliminating the sales
load on sales of affected Fund shares.
-3-
8. SUBSCRIPTION FOR SHARES - REFUND FOR CANCELED ORDERS
35
<PAGE>
If FDCC elects to act as a principal, and not as agent, for
a sale of Fund shares, FDCC shall subscribe for the shares of the
Fund only for the purpose of covering purchase orders already
received by it or for the purpose of investment for its own
account. Whether acting as principal or agent, in the event that
an order for the purchase of shares of the Fund is placed with
FDCC by a customer or dealer and subsequently canceled, FDCC
shall forthwith cancel the subscription for such shares entered
on the books of the Fund, and, if FDCC has paid the Fund for such
shares, shall be entitled to receive from the Fund in refund of
such payments the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of
cancellation by FDCC.
9. INDEMNIFICATION OF THE FUND
FDCC agrees to indemnify the Fund against any and all
litigation and other legal proceedings of any kind or nature and
against any liability, judgment, cost, or penalty imposed as a
result of such litigation or proceedings in any way arising out
of or in connection with the sale or distribution of the shares
of the Fund by FDCC. In the event of the threat or institution
of any such litigation or legal proceedings against the Fund,
FDCC shall defend such action on behalf of the Fund at its own
expense, and shall pay any such liability, judgment, cost, or
penalty resulting therefrom, whether imposed by legal authority
on agreed upon by way of compromise and settlement; provided,
however, FDCC shall not be required to pay or reimburse the Fund
for any liability, judgment, cost, or penalty incurred as a
result of information supplied by, or as the result of the
omission to supply information by, the Fund to FDCC or to FDCC by
a director, officer, or employee of the Fund who is not an
interested person of FDCC, unless the information so supplied or
omitted was available to FDCC or the Fund's investment adviser
without recourse to the Fund or any such person referred to
above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
FDCC shall be free to render to others services of a nature
either similar to or different from those rendered under this
contract, except such as may impair its performance of the
services and duties to be rendered by it hereunder.
-4-
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
The effective date of this Agreement shall be the date first
set forth above. Wherever referred to in this Agreement, the
36
<PAGE>
vote or approval of the holders of a majority of the outstanding
voting securities of the Fund (or of any series of the Fund)
shall mean the vote of 67% or more of the securities of the Fund
(or of any affected series of the Fund) if the holders of more
than 50% of such securities are present in person or by proxy or
the vote of more than 50% of the securities of the Fund (or an
affected series of the Fund) whichever is the lesser.
Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect from year to year but only so
long as such continuance is specifically approved at least
annually by the Board of Directors of the Fund, including the
specific approval of a majority of the directors who are not
interested person of FDCC as defined by the Investment Company
Act of 1940, as amended, cast in person at a meeting called for
the purpose of voting on such approval, or by the vote of the
holders of a majority of the outstanding voting securities of the
Fund or an affected series of the Fund.
This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of
the Fund or by the vote of the holders of a majority of the
outstanding voting securities of the Fund, or by FDCC, upon 60
days' written notice to the other party.
This Agreement shall automatically terminate in the event of
its assignment (as defined by the provisions of the Investment
Company Act of 1940, as amended).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be effective
until approved by FDCC and by the affirmative vote of a majority
of the Board of Directors of the Fund (including a majority of
the directors who are not interested persons of FDCC or any
affiliate of FDCC).
13. NOTICES
Any notice under this Agreement shall be in writing,
addressed, delivered, or mailed, postage prepaid, to the other
party at such address as such other party may designate in
writing for receipt of such notice.
-5-
IN WITNESS WHEREOF, the Fund and FDCC have caused this
Agreement to be executed by their duly authorized officers
affixed hereto all as of the day and year first above written.
37
<PAGE>
THE WORLD FUNDS, INC.
By
John Pasco, III
Chairman
Attested by
FIRST DOMINION CAPITAL CORP.
By
John Pasco, III
President
Attested by
-6-
SCHEDULE A
FDCC shall receive, as compensation for its services
pursuant to this Distribution Agreement:
(a) With respect to any shares of the Fund sold subject to a
sales charge, FDCC shall be entitled to retain the underwriter's
portion of the sales charge for each investment in the Fund's
38
<PAGE>
shares, computed as a percentage of the offering price determined
in accordance with the Fund's currently effective Prospectus and
as otherwise provided in the Fund's registration statement.
(b) With respect to sales of shares of the Fund sold subject to
a sales charge for which FDCC is the selling dealer, FDCC shall
retain the dealer's sales charge for each investment in the
Fund's shares, computed as a percentage of the offering price
determined in accordance with the Fund's currently effective
Prospectus and as otherwise provided in the Fund's registration
statement.
(c) With respect to any shares of the Fund sold at net asset
value (without a sales charge), FDCC shall receive from the Fund
reimbursement at the rate of $30 per hour for the cost of
personnel involved with assistance in the promotion of sale of
such shares and for out-of-pocket costs incurred by FDCC.
39
<PAGE>
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the
19th day of August , 1997, by and between The World Funds,
Inc., (the "Fund"), an open-end diversified investment business
corporation organized under the laws of Maryland and having its
office at 1500 Forest Avenue, Suite 223, Richmond, Virginia,
23229 for the benefit of the Sand Hill Portfolio Manager Fund
series (the "Series"), and Star Bank, National Association, (the
"Custodian"), a national banking association having its principal
office at 425 Walnut Street, Cincinnati, Ohio, 45202.
WHEREAS, the Fund and the Custodian desire to enter into
this Agreement to provide for the custody and safekeeping of the
assets of the Series as required by the Investment Company Act of
1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian
of all the Series' Securities and moneys at any time owned by the
Series during the term of this Agreement (the "Series Assets").
WHEREAS, the Custodian hereby accepts such appointment as
Custodian and agrees to perform the duties thereof as hereinafter
set forth.
THEREFORE, in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
Definitions
The following words and phrases, when used in this
Agreement, unless the context otherwise requires, shall have the
following meanings:
Authorized Person - the Chairman, President, Secretary,
Treasurer, Controller, or Senior Vice President of the Fund, or
any other person, whether or not any such person is an officer or
employee of the Fund, duly authorized by the Board of Directors
of the Fund to give Oral Instructions and Written Instructions on
behalf of the Fund, and listed in the Certificate annexed hereto
as Appendix A, or such other Certificate as may be received by
the Custodian from time to time.
40
<PAGE>
Book-Entry System - the Federal Reserve Bank book-entry
system for United States Treasury securities and federal agency
securities.
Depository - The Depository Trust Company ("DTC"), a limited
purpose trust company its successor(s) and its nominee(s) or any
other person or clearing agent.
Dividend and Transfer Agent - the dividend and transfer
agent appointed, from time to time, pursuant to a written
agreement between the dividend and transfer agent and the Fund.
Foreign Securities - a) securities issued and sold primarily
outside of the United States by a foreign government, a national
of any foreign country, or a corporation or other organization
incorporated or organized under the laws of any foreign country
or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or
agency thereof, or by any entity organized under the laws of the
United States or of any state thereof, which have been issued and
sold primarily outside of the United States.
Money Market Security - debt obligations issued or
guaranteed as to principal and/or interest by the government of
the United States or agencies or instrumentalities thereof,
commercial paper, obligations (including certificates of deposit,
bankers' acceptances, repurchase agreements and reverse
repurchase agreements with respect to the same), and time
deposits of domestic banks and thrift institutions whose deposits
are insured by the Federal Deposit Insurance Corporation, and
short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or
their equivalent on the same day as such purchase and sale, all
of which mature in not more than thirteen (13) months.
Officers - the Chairman, President, Secretary, Treasurer,
Controller, and Senior Vice President of the Fund listed in the
Certificate annexed hereto as Appendix A, or such other
Certificate as may be received by the Custodian from time to
time.
Oral Instructions - verbal instructions received by the
Custodian from an Authorized Person (or from a person that the
Custodian reasonably believes in good faith to be an Authorized
Person) and confirmed by Written Instructions in such a manner
41
<PAGE>
that such Written Instructions are received by the Custodian not
later than the business day immediately following receipt of such
Oral Instructions.
Prospectus - the Fund's then currently effective prospectus
and Statement of Additional Information, as filed with and
declared effective from time to time by the Securities and
Exchange Commission.
Security or Securities - Money Market Securities, common
stock, preferred stock, options, financial futures, bonds, notes,
debentures, corporate debt securities, mortgages, and any
certificates, receipts, warrants, or other instruments
representing rights to receive, purchase, or subscribe for the
same or evidencing or representing any other rights or interest
therein, or any property or assets.
Written Instructions - communication received in writing by
the Custodian from an Authorized Person.
ARTICLE II
Documents and Notices to be Furnished by the Fund
A The following documents, including any amendments
thereto, will be provided contemporaneously with the execution of
the Agreement, to the Custodian by the Fund:
1. A copy of the Articles of Incorporation of the Fund
certified by the Secretary.
2. A copy of the By-Laws of the Fund certified by the
Secretary.
3. A copy of the resolution of the Board of Directors of
the Fund appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus of the Series.
5. A Certificate of the President and Secretary of the
Fund setting forth the names and signatures of the Officers of
the Fund.
B. The Fund agrees to notify the Custodian in writing of
the appointment of any Dividend and Transfer Agent.
ARTICLE III
Receipt of Fund Assets
42
<PAGE>
A. During the term of this Agreement, the Fund will
deliver or cause to be delivered to the Custodian all moneys
constituting Series Assets. The Custodian shall be entitled to
reverse any deposits made on the Fund's behalf where such
deposits have been entered and moneys are not finally collected
within 30 days of the making of such entry.
B. During the term of this Agreement, the Fund will
deliver or cause to be delivered to the Custodian all Securities
constituting Series Assets. The Custodian will not have any
duties or responsibilities with respect to such Securities until
actually received by the Custodian.
C. As and when received, the Custodian shall deposit to
the account(s) of the Series any and all payments for shares of
the Series issued or sold from time to time as they are received
from the Fund's distributor or Dividend and Transfer Agent or
from the Fund itself.
ARTICLE IV
Disbursement of Fund Assets
A. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund, certified by
the Fund's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of shares
of the Series, the date of payment thereof, the record date as of
which Fund shareholders entitled to payment shall be determined,
the amount payable per share to Series shareholders of record as
of that date, and the total amount to be paid by the Dividend and
Transfer Agent on the payment date, or (ii) authorizing the
declaration of dividends and distributions in respect of shares
of the Fund on a daily basis and authorizing the Custodian to
rely on a Certificate setting forth the date of the declaration
of any such dividend or distribution, the date of payment
thereof, the record date as of which Series shareholders entitled
to payment shall be determined, the amount payable per share to
Series shareholders of record as of that date, and the total
amount to be paid by the Dividend and Transfer Agent on the
payment date.
43
<PAGE>
On the payment date specified in such resolution or
Certificate described above, the Custodian shall segregate such
amounts from moneys held for the account of the Series so that
they are available for such payment.
B. Upon receipt of Written Instructions so directing it,
the Custodian shall segregate amounts necessary for the payment
of redemption proceeds to be made by the Dividend and Transfer
Agent from moneys held for the account of the Series so that they
are available for such payment.
C. Upon receipt of a Certificate directing payment and
setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, and the
purpose for which payment is to be made, the Custodian shall
disburse amounts as and when directed from the Series Assets.
The Custodian is authorized to rely on such directions and shall
be under no obligation to inquire as to the propriety of such
directions.
D. Upon receipt of a Certificate directing payment, the
Custodian shall disburse moneys from the Series Assets in payment
of the Custodian's fees and expenses as provided in Article VIII
hereof.
E. Upon receipt of a Certificate directing payment and
setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, and the
purpose for which payment is to be made, the Custodian shall
disburse amounts to any imprest account maintained for the Series
as and when directed from the Series Assets. The Custodian is
authorized to rely on such directions and shall be under no
obligation to inquire as to the propriety of such directions.
ARTICLE V
Custody of Fund Assets
A. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund
for the assets of the Series, subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, and
shall hold all cash received by it from or for the account of the
Series, other than cash maintained by the Fund in a bank account
44
<PAGE>
established and used by the Series in accordance with Rule 17f-3
under the Act. Moneys held by the Custodian on behalf of the
Series may be deposited by the Custodian to its credit as
Custodian in the banking department of the Custodian. Such
moneys shall be deposited by the Custodian in its capacity as
such, and shall be withdrawable by the Custodian only in such
capacity.
B. The Custodian shall hold all Securities delivered to
it in safekeeping in a separate account or accounts maintained at
Star Bank, N.A. for the benefit of the Series.
C. All Securities held which are issued or issuable only
in bearer form, shall be held by the Custodian in that form; all
other Securities held for the Series shall be registered in the
name of the Custodian or its nominee. The Fund agrees to furnish
to the Custodian appropriate instruments to enable the Custodian
to hold, or deliver in proper form for transfer, any Securities
that it may hold for the account of the Fund and which may, from
time to time, be registered in the name of the Series.
D. With respect to all Securities held for the Series, the
Custodian shall on a timely basis (concerning items 1 and 2
below, as defined in the Custodian's Standards of Service Guide,
as amended from time to time, annexed hereto as Appendix C):
1. Collect all income due and payable with
respect to such Securities;
2. Present for payment and collect amounts payable upon
all Securities which may mature or be called, redeemed,
or retired, or otherwise become payable;
3. Surrender Securities in temporary form for definitive
Securities; and
4. Execute, as agent, any necessary declarations or
certificates of ownership under the Federal income tax
laws or the laws or regulations of any other taxing
authority, including any foreign taxing authority, now
or hereafter in effect.
E. Upon receipt of a Certificate and not otherwise, the
Custodian shall:
1. Execute and deliver to such persons as may be
designated in such Certificate proxies, consents,
authorizations, and any other instruments whereby
45
<PAGE>
the authority of the Fund as beneficial owner of
any Securities may be exercised;
2. Deliver any Securities in exchange for other
Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing,
merger, consolidation, or recapitalization of any
corporation, or the exercise of any conversion
privilege;
3. Deliver any Securities to any protective
committee, reorganization committee, or other
person in connection with the reorganization,
refinancing, merger, consolidation,
recapitalization, or sale of assets of any
corporation, and receive and hold under the terms
of this Agreement such certificates of deposit,
interim receipts or other instruments or documents
as may be issued to it to evidence such delivery;
4. Make such transfers or exchanges of the assets of
the Fund and take such other steps as shall be
stated in said Certificate to be for the purpose
of effectuating any duly authorized plan of
liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
5. Deliver any Securities held for the Series to the
depository agent for tender or other similar
offers.
F. The Custodian shall promptly deliver to the Fund all
notices, proxy material and executed but unvoted proxies
pertaining to shareholder meetings of Securities held by the
Fund. The Custodian shall not vote or authorize the voting of
any Securities or give any consent, waiver or approval with
respect thereto unless so directed by a Certificate or Written
Instruction.
G. The Custodian shall promptly deliver to the Fund all
information received by the Custodian and pertaining to
Securities held by the Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of
rights.
46
<PAGE>
ARTICLE VI
Purchase and Sale of Securities
A. Promptly after each purchase of Securities by the Fund
for the Series, the Fund shall deliver to the Custodian (i) with
respect to each purchase of Securities which are not Money Market
Securities, Written Instructions, and (ii) with respect to each
purchase of Money Market Securities, Written Instructions or Oral
Instructions, specifying with respect to each such purchase the;
1. name of the issuer and the title of the
Securities,
2. principal amount purchased and accrued interest,
if any,
3. date of purchase and settlement,
4. purchase price per unit,
5. total amount payable, and
6. name of the person from whom, or the broker
through which, the purchase was made.
The Custodian shall, against receipt of Securities purchased by
or for the Series, pay out of the Series Assets, the total amount
payable to the person from whom or the broker through which the
purchase was made, provided that the same conforms to the total
amount payable as set forth in such Written Instructions or Oral
Instructions, as the case may be.
B. Promptly after each sale of Securities by the Fund for
the Series, the Fund shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market
Securities, Written Instructions, and (ii) with respect to each
sale of Money Market Securities, Written Instructions or Oral
Instructions, specifying with respect to each such sale the;
1. name of the issuer and the title of the
Securities,
2. principal amount sold and accrued interest, if
any,
3. date of sale and settlement,
4. sale price per unit,
5. total amount receivable, and
47
<PAGE>
6. name of the person to whom, or the broker through
which, the sale was made.
The Custodian shall deliver the Securities against receipt of the
total amount receivable, provided that the same conforms to the
total amount receivable as set forth in such Written Instructions
or Oral Instructions, as the case may be.
C. On contractual settlement date, the account of the
Series will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made.
Likewise, on contractual settlement date, proceeds from the sale
of Securities settling that day will be credited to the account
of the Series, irrespective of delivery.
D. Purchases and sales of Securities effected by the
Custodian will be made on a delivery versus payment basis. The
Custodian may, in its sole discretion, upon receipt of a
Certificate, elect to settle a purchase or sale transaction in
some other manner, but only upon receipt of acceptable
indemnification from the Fund.
E. The Custodian shall, upon receipt of a Written
Instructions so directing it, establish and maintain a segregated
account or accounts for and on behalf of the Series. Cash and/or
Securities may be transferred into such account or accounts for
specific purposes, to-wit:
1. in accordance with the provision of any agreement
among the Fund, the Custodian, and a broker-dealer
registered under the Securities and Exchange Act
of 1934, as amended, and also a member of the
National Association of Securities Dealers (NASD)
(or any futures commission merchant registered
under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing
Corporation and of any registered national
securities exchange, the Commodity Futures Trading
Commission, any registered contract market, or any
similar organization or organizations requiring
escrow or other similar arrangements in connection
with transactions by the Fund for the Series;
2. for purposes of segregating cash or government
securities in connection with options purchased,
48
<PAGE>
sold, or written by the Fund or commodity futures
contracts or options thereon purchased or sold by
the Fund for the Series;
3. for the purpose of compliance by the Series with
the procedures required for reverse repurchase
agreements, firm commitment agreements, standby
commitment agreements, and short sales by Act
Release No. 10666, or any subsequent release or
releases or rule of the Securities and Exchange
Commission relating to the maintenance of
segregated accounts by registered investment
companies; and
4. for other corporate purposes, only in the case of
this clause 4 upon receipt of a copy of a
resolution of the Board of Directors of the Fund,
certified by the Secretary of the Fund, setting
forth the purposes of such segregated account.
F. Except as otherwise may be agreed upon by the parties
hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on
behalf of the Series unless there is sufficient cash in the
account(s) at the time or to settle the sale of any Securities
from an account(s) unless such Securities are in deliverable
form. Notwithstanding the foregoing, if the purchase price of
such Securities exceeds the amount of cash in the account(s) at
the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to
settle the purchase of such Securities. The amount of any such
advance shall be deemed a loan from the Custodian to the Fund for
the respective Series payable on demand and bearing interest
accruing from the date such loan is made up to but not including
the date such loan is repaid at a rate per annum customarily
charged by the Custodian on similar loans.
ARTICLE VII
Fund Indebtedness
In connection with any borrowings by the Fund for the
Series, the Fund will cause to be delivered to the Custodian by a
49
<PAGE>
bank or broker requiring Securities as collateral for such
borrowings (including the Custodian if the borrowing is from the
Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of
collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a)
the name of the bank or broker, (b) the amount and terms of the
borrowing, which may be set forth by incorporating by reference
an attached promissory note duly endorsed by the Fund, or a loan
agreement, (c) the date, and time if known, on which the loan is
to be entered into, (d) the date on which the loan becomes due
and payable, (e) the total amount payable to the Series on the
borrowing date, and (f) the description of the Securities
securing the loan, including the name of the issuer, the title
and the number of shares or the principal amount. The Custodian
shall deliver on the borrowing date specified in the Certificate
the required collateral against the lender's delivery of the
total loan amount then payable, provided that the same conforms
to that which is described in the Certificate. The Custodian
shall deliver, in the manner directed by the Fund, such
Securities as additional collateral, as may be specified in a
Certificate, to secure further any transaction described in this
Article VII. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian and
the Custodian shall receive from time to time such return of
collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such
collateral in its possession, subject to all rights therein given
to the lender because of the loan. The Custodian may require
such reasonable conditions regarding such collateral and its
dealings with third-party lenders as it may deem appropriate.
ARTICLE VIII
Concerning the Custodian
A. Except as otherwise provided herein, the Custodian
shall not be liable for any loss or damage resulting from its
action or omission to act or otherwise, except for any such loss
or damage arising out of its own gross negligence or willful
50
<PAGE>
misconduct. The Fund shall defend, indemnify and hold harmless
the Custodian and its directors, officers, employees and agents
with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or
relating to the Fund's duties hereunder or any other action or
inaction of the Fund or its Directors, officers, employees or
agents, except such as may arise from the negligent action,
omission, willful misconduct or breach of this Agreement by the
Custodian. The Custodian may, with respect to questions of law,
apply for and obtain the advice and opinion of counsel, at the
expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity
with the advice or opinion of counsel. The provisions under this
paragraph shall survive the termination of this Agreement.
B. Without limiting the generality of the foregoing, the
Custodian, acting in the capacity of Custodian hereunder, shall
be under no obligation to inquire into, and shall not be liable
for:
1. The validity of the issue of any Securities
purchased by or for the account of the Fund,
the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2. The legality of the sale of any Securities by or
for the account of the Series, or the propriety of
the amount for which the same are sold;
3. The legality of the issue or sale of any shares of
the Series, or the sufficiency of the amount to be
received therefor;
4. The legality of the redemption of any shares of
the Series, or the propriety of the amount to be
paid therefor;
5. The legality of the declaration or payment of any
dividend by the Fund in respect of shares of the
Series;
6. The legality of any borrowing by the Series on
behalf of the Fund, using Securities as
collateral;
C. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount due to the
Series from any Dividend and Transfer Agent of the Fund nor to
51
<PAGE>
take any action to effect payment or distribution by any Dividend
and Transfer Agent of the Fund of any amount paid by the
Custodian to any Dividend and Transfer Agent of the Fund in
accordance with this Agreement.
D. Notwithstanding Section D of Article V, the Custodian
shall not be under any duty or obligation to take action to
effect collection of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused
after due demand or presentation, unless and until (i) it shall
be directed to take such action by a Certificate and (ii) it
shall be assured to its satisfaction (including prepayment
thereof) of reimbursement of its costs and expenses in connection
with any such action.
E. The Fund acknowledges and hereby authorizes the
Custodian to hold Securities through its various agents described
in Appendix B annexed hereto. The Fund hereby represents that
such authorization has been duly approved by the Board of
Directors of the Fund as required by the Act. The Custodian
acknowledges that although certain Series Assets are held by its
agents, the Custodian remains primarily liable for the
safekeeping of the Series Assets.
In addition, the Fund acknowledges that the Custodian may
appoint one or more financial institutions, as agent or agents or
as sub-custodian or sub-custodians, including, but not limited
to, banking institutions located in foreign countries, for the
purpose of holding Securities and moneys at any time owned by the
Series. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment
or activities of such agents or sub-custodians. Any such agent
or sub-custodian shall be qualified to serve as such for assets
of investment companies registered under the Act. Upon request,
the Custodian shall promptly forward to the Fund any documents it
receives from any agent or sub-custodian appointed hereunder
which may assist directors of registered investment companies
fulfill their responsibilities under Rule 17f-5 of the Act.
F. The Custodian shall not be under any duty or obligation
to ascertain whether any Securities at any time delivered to or
held by it for the account of the Fund are such as properly may
52
<PAGE>
be held by the Series under the provisions of the Articles of
Incorporation and the Fund's By-Laws.
G. The Custodian shall treat all records and other
information relating to the Fund and the Series Assets as
confidential and shall not disclose any such records or
information to any other person unless (i) the Fund shall have
consented thereto in writing or (ii) such disclosure is required
by law.
H. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian from the assets of the Series such
compensation as shall be determined pursuant to Appendix D
attached hereto, or as shall be determined pursuant to amendments
to such Appendix D. The Custodian shall be entitled to charge
against any money held by it for the account of the Series, the
amount of any of its fees, any loss, damage, liability or
expense, including counsel fees relating to such Series. The
expenses which the Custodian may charge against the account of
the Series include, but are not limited to, the expenses of
agents or sub-custodians incurred in settling transactions
involving the purchase and sale of Securities of the Fund.
I. The Custodian shall be entitled to rely upon any Oral
Instructions and any Written Instructions. The Fund agrees to
forward to the Custodian Written Instructions confirming Oral
Instructions in such a manner so that such Written Instructions
are received by the Custodian, whether by hand delivery,
facsimile or otherwise, not later than the following business
day on which such Oral Instructions were given. The Fund agrees
that the failure of the Custodian to receive such confirming
instructions shall in no way affect the validity of the
transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall
incur no greater liability to the Fund for acting upon Oral
Instructions given to the Custodian hereunder concerning such
transactions than would arise as to a similar transaction
pursuant to a Written Instruction.
J. The Custodian will (i) set up and maintain proper books
of account and complete records of all transactions in the
accounts maintained by the Custodian hereunder in such manner as
will meet the obligations of the Fund under the Act, with
53
<PAGE>
particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder and those records are the property of the Fund,
and (ii) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so
preserved. All such books and records shall be the property of
the Fund, and shall be open to inspection and audit at reasonable
times and with prior notice by Officers and auditors employed by
the Fund.
K. The Custodian shall send to the Fund any report
received on the systems of internal accounting control of the
Custodian, or its agents or sub-custodians, as the Fund may
reasonably request from time to time.
L. The Custodian performs only the services of a custodian
and shall have no responsibility for the management, investment
or reinvestment of the Securities from time to time owned by the
Fund. The Custodian is not a selling agent for shares of the
Series and performance of its duties as custodian shall not be
deemed to be a recommendation to the Fund's depositors or others
of shares of the Series as an investment.
M. The Custodian shall take all reasonable action, that
the Fund may from time to time request, to assist the Fund in
obtaining favorable opinions from the Fund's independent
accountants, with respect to the Custodian's activities
hereunder, in connection with the preparation of the Fund's Form
N-1A, Form N-SAR, or other annual reports to the Securities and
Exchange Commission.
N. The Fund hereby pledges to and grants the Custodian a
security interest in any Series Assets to secure the payment of
any liabilities of the Series to the Custodian, whether acting in
its capacity as Custodian or otherwise, or on account of money
borrowed from the Custodian. This pledge is in addition to any
other pledge of collateral by the Fund to the Custodian.
ARTICLE X
Termination
A. Either of the parties hereto may terminate this
Agreement for any reason by giving to the other party a notice in
54
<PAGE>
writing specifying the date of such termination, which shall be
not less than ninety (90) days after the date of giving of such
notice. If such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors
of the Fund, certified by the Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or
custodians. In the event such notice is given by the Custodian,
the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Directors of the
Fund, certified by the Secretary, designating a successor
custodian or custodians to act on behalf of the Fund. In the
absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust
company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such
notice this Agreement shall terminate, and the Custodian,
provided that it has received a notice of acceptance by the
successor custodian, shall deliver, on that date, directly to the
successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian. Upon termination of this
Agreement, the Fund shall pay to the Custodian on behalf of the
Fund such compensation as may be due as of the date of such
termination. The Fund agrees on behalf of the Fund that the
Custodian shall be reimbursed for its reasonable costs in
connection with the termination of this Agreement.
B. If a successor custodian is not designated by the Fund,
or by the Custodian in accordance with the preceding paragraph,
or the designated successor cannot or will not serve, the Fund
shall, upon the delivery by the Custodian to the Fund of all
Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and moneys then owned by
the Fund, be deemed to be the custodian for the Fund, and the
Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System, which
cannot be delivered to the Fund, which shall be held by the
Custodian in accordance with this Agreement.
ARTICLE XI
55
<PAGE>
MISCELLANEOUS
A. Appendix A sets forth the names and the signatures of
all Authorized Persons, as certified by the Secretary of the
Fund. The Fund agrees to furnish to the Custodian a new Appendix
A in form similar to the attached Appendix A, if any present
Authorized Person ceases to be an Authorized Person or if any
other or additional Authorized Persons are elected or appointed.
Until such new Appendix A shall be received, the Custodian shall
be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or signatures of the then
current Authorized Persons as set forth in the last delivered
Appendix A.
B. No recourse under any obligation of this Agreement or
for any claim based thereon shall be had against any organizer,
shareholder, Officer, Director, past, present or future as such,
of the Fund or of any predecessor or successor, either directly
or through the Fund or any such predecessor or successor, whether
by virtue of any constitution, statute or rule of law or equity,
or be the enforcement of any assessment or penalty or otherwise;
it being expressly agreed and understood that this Agreement and
the obligations thereunder are enforceable solely against the
Fund, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the organizers, shareholders,
Officers, Directors of the Fund or of any predecessor or
successor, or any of them as such. To the extent that any such
liability exists, it is hereby expressly waived and released by
the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
C. The obligations set forth in this Agreement as having
been made by the Fund have been made by the Board of Directors,
acting as such Directors for and on behalf of the Fund, pursuant
to the authority vested in them under the laws of the State of
Maryland, the Articles of Incorporation and the By-Laws of the
Fund. This Agreement has been executed by Officers of the Fund
as officers, and not individually, and the obligations contained
herein are not binding upon any of the Directors, Officers,
agents or holders of shares, personally, but bind only the
Fund.
56
<PAGE>
D. Provisions of the Prospectus and any other documents
(including advertising material) specifically mentioning the
Custodian (other than merely by name and address) shall be
reviewed with the Custodian by the Fund prior to publication
and/or dissemination or distribution, and shall be subject to the
consent of the Custodian.
E. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Custodian, shall
be sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at Star Bank Center, 425 Walnut
Street, M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund
Custody Department, or at such other place as the Custodian may
from time to time designate in writing.
F. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Fund shall be
sufficiently given when delivered to the Fund or on the second
business day following the time such notice is deposited in the
U.S. mail postage prepaid and addressed to the Fund at its office
at 1500 Forest Avenue, Suite 223, Richmond, Virginia, 23229 or
at such other place as the Fund may from time to time designate
in writing.
G. This Agreement, with the exception of the
Appendices,may not be amended or modified in any manner except by
a written agreement executed by both parties with the same
formality as this Agreement, and authorized and approved by a
resolution of the Board of Directors of the Fund.
H. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund or by the Custodian, and no attempted
assignment by the Fund or the Custodian shall be effective
without the written consent of the other party hereto.
I. This Agreement shall be construed in accordance with
the laws of the State of Ohio.
J. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto
duly authorized as of the day and year first above written.
The World Funds, Inc.
ATTEST: By: _________________________
John Pasco, III
________________ Chairman
Star Bank, N.A.
ATTEST: By: _________________________
Marsha A. Croxton
_______________ Vice President
58
<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
Chairman:
President:
Secretary:
Treasurer:
Controller:
Adviser Employees:
Transfer Agent/Fund Accountant
Employees:
59
<PAGE>
APPENDIX B
The following agents are employed currently by Star Bank, N.A. for securities
processing nd control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
60
<PAGE>
APPENDIX C
Standards of Service Guide
61
<PAGE>
APPENDIX D
Schedule of Compensation
62
<PAGE>
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the
14th day of October, 1997, by and between The World Funds, Inc.,
(the "Fund"), an open-end diversified investment business
corporation organized under the laws of Maryland and having its
office at 1500 Forest Avenue, Suite 223, Richmond, Virginia,
23229 on behalf of the CSI Equity Fund series and the CSI Fixed
Income Fund series and any other series (the "Series") as may
from time to time be created and designated by the Fund and which
becomes subject to this Agreement by the mutual consent of the
parties hereto, and Star Bank, National Association, (the
"Custodian"), a national banking association having its principal
office at 425 Walnut Street, Cincinnati, Ohio, 45202.
WHEREAS, the Fund and the Custodian desire to enter into
this Agreement to provide for the custody and safekeeping of the
assets of the Series as required by the Investment Company Act of
1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian
of all the Series' Securities and moneys at any time owned by the
Series during the term of this Agreement (the "Series Assets").
WHEREAS, the Custodian hereby accepts such appointment as
Custodian and agrees to perform the duties thereof as hereinafter
set forth.
THEREFORE, in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
Definitions
The following words and phrases, when used in this
Agreement, unless the context otherwise requires, shall have the
following meanings:
Authorized Person - the Chairman, President, Secretary,
Treasurer, Controller, or Senior Vice President of the Fund, or
any other person, whether or not any such person is an officer or
employee of the Fund, duly authorized by the Board of Directors
of the Fund to give Oral Instructions and Written Instructions on
63
<PAGE>
behalf of the Fund, and listed in the Certificate annexed hereto
as Appendix A, or such other Certificate as may be received by
the Custodian from time to time.
Book-Entry System - the Federal Reserve Bank book-entry
system for United States Treasury securities and federal agency
securities.
Depository - The Depository Trust Company ("DTC"), a limited
purpose trust company its successor(s) and its nominee(s) or any
other person or clearing agent.
Dividend and Transfer Agent - the dividend and transfer
agent appointed, from time to time, pursuant to a written
agreement between the dividend and transfer agent and the Fund.
Foreign Securities - a) securities issued and sold primarily
outside of the United States by a foreign government, a national
of any foreign country, or a corporation or other organization
incorporated or organized under the laws of any foreign country
or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or
agency thereof, or by any entity organized under the laws of the
United States or of any state thereof, which have been issued and
sold primarily outside of the United States.
Money Market Security - debt obligations issued or
guaranteed as to principal and/or interest by the government of
the United States or agencies or instrumentalities thereof,
commercial paper, obligations (including certificates of deposit,
bankers' acceptances, repurchase agreements and reverse
repurchase agreements with respect to the same), and time
deposits of domestic banks and thrift institutions whose deposits
are insured by the Federal Deposit Insurance Corporation, and
short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or
their equivalent on the same day as such purchase and sale, all
of which mature in not more than thirteen (13) months.
Officers - the Chairman, President, Secretary, Treasurer,
Controller, and Senior Vice President of the Fund listed in the
Certificate annexed hereto as Appendix A, or such other
Certificate as may be received by the Custodian from time to
time.
64
<PAGE>
Oral Instructions - verbal instructions received by the
Custodian from an Authorized Person (or from a person that the
Custodian reasonably believes in good faith to be an Authorized
Person) and confirmed by Written Instructions in such a manner
that such Written Instructions are received by the Custodian not
later than the business day immediately following receipt of such
Oral Instructions.
Prospectus - the Fund's then currently effective prospectus
and Statement of Additional Information, as filed with and
declared effective from time to time by the Securities and
Exchange Commission.
Security or Securities - Money Market Securities, common
stock, preferred stock, options, financial futures, bonds, notes,
debentures, corporate debt securities, mortgages, and any
certificates, receipts, warrants, or other instruments
representing rights to receive, purchase, or subscribe for the
same or evidencing or representing any other rights or interest
therein, or any property or assets.
Written Instructions - communication received in writing by
the Custodian from an Authorized Person.
Certificate - A written certificate signed by the Secretary
of the Fund certifying the actions taken by the Board of
Directors.
ARTICLE II
Documents and Notices to be Furnished by the Fund
A The following documents, including any amendments
thereto, will be provided contemporaneously with the execution of
the Agreement, to the Custodian by the Fund:
1. A copy of the Articles of Incorporation of the Fund
certified by the Secretary.
2. A copy of the By-Laws of the Fund certified by the
Secretary.
3. A copy of the resolution of the Board of Directors of
the Fund appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus of the Series.
65
<PAGE>
5. A Certificate of the President and Secretary of the
Fund setting forth the names and signatures of the Officers of
the Fund.
B. The Fund agrees to notify the Custodian in writing of
the appointment of any Dividend and Transfer Agent.
ARTICLE III
Receipt of Fund Assets
A. During the term of this Agreement, the Fund will
deliver or cause to be delivered to the Custodian all moneys
constituting Series Assets. The Custodian shall be entitled to
reverse any deposits made on the Fund's behalf where such
deposits have been entered and moneys are not finally collected
within 30 days of the making of such entry.
B. During the term of this Agreement, the Fund will
deliver or cause to be delivered to the Custodian all Securities
constituting Series Assets. The Custodian will not have any
duties or responsibilities with respect to such Securities until
actually received by the Custodian.
C. As and when received, the Custodian shall deposit to
the account(s) of the Series any and all payments for shares of
the Series issued or sold from time to time as they are received
from the Fund's distributor or Dividend and Transfer Agent or
from the Fund itself.
ARTICLE IV
Disbursement of Fund Assets
A. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund, certified by
the Fund's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of shares
of the Series, the date of payment thereof, the record date as of
which Fund shareholders entitled to payment shall be determined,
the amount payable per share to Series shareholders of record as
66
<PAGE>
of that date, and the total amount to be paid by the Dividend and
Transfer Agent on the payment date, or (ii) authorizing the
declaration of dividends and distributions in respect of shares
of the Fund on a daily basis and authorizing the Custodian to
rely on a Certificate setting forth the date of the declaration
of any such dividend or distribution, the date of payment
thereof, the record date as of which Series shareholders entitled
to payment shall be determined, the amount payable per share to
Series shareholders of record as of that date, and the total
amount to be paid by the Dividend and Transfer Agent on the
payment date.
On the payment date specified in such resolution or
Certificate described above, the Custodian shall segregate such
amounts from moneys held for the account of the Series so that
they are available for such payment.
B. Upon receipt of Written Instructions so directing it,
the Custodian shall segregate amounts necessary for the payment
of redemption proceeds to be made by the Dividend and Transfer
Agent from moneys held for the account of the Series so that they
are available for such payment.
C. Upon receipt of a Written Instruction directing payment
and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, and the
purpose for which payment is to be made, the Custodian shall
disburse amounts as and when directed from the Series Assets.
The Custodian is authorized to rely on such directions and shall
be under no obligation to inquire as to the propriety of such
directions.
D. Upon receipt of a Written Instruction directing
payment, the Custodian shall disburse moneys from the Series
Assets in payment of the Custodian's fees and expenses as
provided in Article VIII hereof.
E. Upon receipt of a Written Instruction directing payment
and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, and the
purpose for which payment is to be made, the Custodian shall
disburse amounts to any imprest account maintained for the Series
as and when directed from the Series Assets. The Custodian is
67
<PAGE>
authorized to rely on such directions and shall be under no
obligation to inquire as to the propriety of such directions.
ARTICLE V
Custody of Fund Assets
A. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund
for the assets of the Series, subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, and
shall hold all cash received by it from or for the account of the
Series, other than cash maintained by the Fund in a bank account
established and used by the Series in accordance with Rule 17f-3
under the Act. Moneys held by the Custodian on behalf of the
Series may be deposited by the Custodian to its credit as
Custodian in the banking department of the Custodian. Such
moneys shall be deposited by the Custodian in its capacity as
such, and shall be withdrawable by the Custodian only in such
capacity.
B. The Custodian shall hold all Securities delivered to
it in safekeeping in a separate account or accounts maintained at
Star Bank, N.A. for the benefit of the Series.
C. All Securities held which are issued or issuable only
in bearer form, shall be held by the Custodian in that form; all
other Securities held for the Series shall be registered in the
name of the Custodian or its nominee. The Fund agrees to furnish
to the Custodian appropriate instruments to enable the Custodian
to hold, or deliver in proper form for transfer, any Securities
that it may hold for the account of the Fund and which may, from
time to time, be registered in the name of the Series.
D. With respect to all Securities held for the Series, the
Custodian shall on a timely basis (concerning items 1 and 2
below, as defined in the Custodian's Standards of Service Guide,
as amended from time to time, annexed hereto as Appendix C):
1. Collect all income due and payable with
respect to such Securities;
2. Present for payment and collect amounts payable upon
all Securities which may mature or be called, redeemed,
or retired, or otherwise become payable;
68
<PAGE>
3. Surrender Securities in temporary form for definitive
Securities; and
4. Execute, as agent, any necessary declarations or
certificates of ownership under the Federal income tax
laws or the laws or regulations of any other taxing
authority, including any foreign taxing authority, now
or hereafter in effect.
E. Upon receipt of a Written Instruction and not
erwise, the Custodian shall:
1. Execute and deliver to such persons as may be
designated in such Written Instruction proxies,
consents, authorizations, and any other
instruments whereby the authority of the Fund as
beneficial owner of any Securities may be
exercised;
2. Deliver any Securities in exchange for other
Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing,
merger, consolidation, or recapitalization of any
corporation, or the exercise of any conversion
privilege;
3. Deliver any Securities to any protective
committee, reorganization committee, or other
person in connection with the reorganization,
refinancing, merger, consolidation,
recapitalization, or sale of assets of any
corporation, and receive and hold under the terms
of this Agreement such certificates of deposit,
interim receipts or other instruments or documents
as may be issued to it to evidence such delivery;
4. Make such transfers or exchanges of the assets of
the Fund and take such other steps as shall be
stated in said Written Instruction to be for the
purpose of effectuating any duly authorized plan
of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
5. Deliver any Securities held for the Series to the
depository agent for tender or other similar
offers.
69
<PAGE>
F. The Custodian shall promptly deliver to the Fund all
notices, proxy material and executed but unvoted proxies
pertaining to shareholder meetings of Securities held by the
Fund. The Custodian shall not vote or authorize the voting of
any Securities or give any consent, waiver or approval with
respect thereto unless so directed by a Certificate or Written
Instruction.
G. The Custodian shall promptly deliver to the Fund all
information received by the Custodian and pertaining to
Securities held by the Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of
rights.
ARTICLE VI
Purchase and Sale of Securities
A. Promptly after each purchase of Securities by the Fund
for the Series, the Fund shall deliver to the Custodian (i) with
respect to each purchase of Securities which are not Money Market
Securities, Written Instructions, and (ii) with respect to each
purchase of Money Market Securities, Written Instructions or Oral
Instructions, specifying with respect to each such purchase the;
1. name of the issuer and the title of the
Securities,
2. principal amount purchased and accrued interest,
if any,
3. date of purchase and settlement,
4. purchase price per unit,
5. total amount payable, and
6. name of the person from whom, or the broker
through which, the purchase was made.
The Custodian shall, against receipt of Securities purchased by
or for the Series, pay out of the Series Assets, the total amount
payable to the person from whom or the broker through which the
purchase was made, provided that the same conforms to the total
amount payable as set forth in such Written Instructions or Oral
Instructions, as the case may be.
70
<PAGE>
B. Promptly after each sale of Securities by the Fund for
the Series, the Fund shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market
Securities, Written Instructions, and (ii) with respect to each
sale of Money Market Securities, Written Instructions or Oral
Instructions, specifying with respect to each such sale the;
1. name of the issuer and the title of the
Securities,
2. principal amount sold and accrued interest, if
any,
3. date of sale and settlement,
4. sale price per unit,
5. total amount receivable, and
6. name of the person to whom, or the broker through
which, the sale was made.
The Custodian shall deliver the Securities against receipt of the
total amount receivable, provided that the same conforms to the
total amount receivable as set forth in such Written Instructions
or Oral Instructions, as the case may be.
C. On contractual settlement date, the account of the
Series will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made.
Likewise, on contractual settlement date, proceeds from the sale
of Securities settling that day will be credited to the account
of the Series, irrespective of delivery.
D. Purchases and sales of Securities effected by the
Custodian will be made on a delivery versus payment basis. The
Custodian may, in its sole discretion, upon receipt of a Written
Instruction, elect to settle a purchase or sale transaction in
some other manner, but only upon receipt of acceptable
indemnification from the Fund.
E. The Custodian shall, upon receipt of a Written
Instructions so directing it, establish and maintain a segregated
account or accounts for and on behalf of the Series. Cash and/or
Securities may be transferred into such account or accounts for
specific purposes, to-wit:
1. in accordance with the provision of any agreement
among the Fund, the Custodian, and a broker-dealer
registered under the Securities and Exchange Act
71
<PAGE>
of 1934, as amended, and also a member of the
National Association of Securities Dealers (NASD)
(or any futures commission merchant registered
under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing
Corporation and of any registered national
securities exchange, the Commodity Futures Trading
Commission, any registered contract market, or any
similar organization or organizations requiring
escrow or other similar arrangements in connection
with transactions by the Fund for the Series;
2. for purposes of segregating cash or government
securities in connection with options purchased,
sold, or written by the Fund or commodity futures
contracts or options thereon purchased or sold by
the Fund for the Series;
3. for the purpose of compliance by the Series with
the procedures required for reverse repurchase
agreements, firm commitment agreements, standby
commitment agreements, and short sales by Act
Release No. 10666, or any subsequent release or
releases or rule of the Securities and Exchange
Commission relating to the maintenance of
segregated accounts by registered investment
companies; and
4. for other corporate purposes, only in the case of
this clause 4 upon receipt of a copy of a
resolution of the Board of Directors of the Fund,
certified by the Secretary of the Fund, setting
forth the purposes of such segregated account.
F. Except as otherwise may be agreed upon by the parties
hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on
behalf of the Series unless there is sufficient cash in the
account(s) at the time or to settle the sale of any Securities
from an account(s) unless such Securities are in deliverable
form. Notwithstanding the foregoing, if the purchase price of
such Securities exceeds the amount of cash in the account(s) at
the time of such purchase, the Custodian may, in its sole
72
<PAGE>
discretion, advance the amount of the difference in order to
settle the purchase of such Securities. The amount of any such
advance shall be deemed a loan from the Custodian to the Fund for
the respective Series payable on demand and bearing interest
accruing from the date such loan is made up to but not including
the date such loan is repaid at a rate per annum customarily
charged by the Custodian on similar loans.
ARTICLE VII
Fund Indebtedness
In connection with any borrowings by the Fund for the
Series, the Fund will cause to be delivered to the Custodian by a
bank or broker requiring Securities as collateral for such
borrowings (including the Custodian if the borrowing is from the
Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of
collateral. The Fund shall promptly deliver to the Custodian a
Written Instruction specifying with respect to each such
borrowing: (a) the name of the bank or broker, (b) the amount and
terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note duly endorsed by the
Fund, or a loan agreement, (c) the date, and time if known, on
which the loan is to be entered into, (d) the date on which the
loan becomes due and payable, (e) the total amount payable to the
Series on the borrowing date, and (f) the description of the
Securities securing the loan, including the name of the issuer,
the title and the number of shares or the principal amount. The
Custodian shall deliver on the borrowing date specified in the
Written Instruction the required collateral against the lender's
delivery of the total loan amount then payable, provided that
the same conforms to that which is described in the Written
Instruction. The Custodian shall deliver, in the manner directed
by the Fund, such Securities as additional collateral, as may be
specified in a Written Instruction, to secure further any
transaction described in this Article VII. The Fund shall cause
all Securities released from collateral status to be returned
directly to the Custodian and the Custodian shall receive from
time to time such return of collateral as may be tendered to it.
73
<PAGE>
The Custodian may, at the option of the lender, keep such
collateral in its possession, subject to all rights therein given
to the lender because of the loan. The Custodian may require
such reasonable conditions regarding such collateral and its
dealings with third-party lenders as it may deem appropriate.
ARTICLE VIII
Concerning the Custodian
A. Except as otherwise provided herein, the Custodian
shall not be liable for any loss or damage resulting from its
action or omission to act or otherwise, except for any such loss
or damage arising out of its own negligence or willful
misconduct. The Fund shall defend, indemnify and hold harmless
the Custodian and its directors, officers, employees and agents
with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or
relating to the Fund's duties hereunder or any other action or
inaction of the Fund or its Directors, officers, employees or
agents, except such as may arise from the negligent action,
omission, willful misconduct or breach of this Agreement by the
Custodian. The Custodian may, with respect to questions of law,
apply for and obtain the advice and opinion of counsel, at the
expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity
with the advice or opinion of counsel. The provisions under this
paragraph shall survive the termination of this Agreement.
B. Without limiting the generality of the foregoing, the
Custodian, acting in the capacity of Custodian hereunder, shall
be under no obligation to inquire into, and shall not be liable
for:
1. The validity of the issue of any Securities
purchased by or for the account of the Fund,
the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2. The legality of the sale of any Securities by or
for the account of the Series, or the propriety of
the amount for which the same are sold;
74
<PAGE>
3. The legality of the issue or sale of any shares of
the Series, or the sufficiency of the amount to be
received therefor;
4. The legality of the redemption of any shares of
the Series, or the propriety of the amount to be
paid therefor;
5. The legality of the declaration or payment of any
dividend by the Fund in respect of shares of the
Series;
6. The legality of any borrowing by the Series on
behalf of the Fund, using Securities as
collateral;
C. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount due to the
Series from any Dividend and Transfer Agent of the Fund nor to
take any action to effect payment or distribution by any Dividend
and Transfer Agent of the Fund of any amount paid by the
Custodian to any Dividend and Transfer Agent of the Fund in
accordance with this Agreement.
D. Notwithstanding Section D of Article V, the Custodian
shall not be under any duty or obligation to take action to
effect collection of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused
after due demand or presentation, unless and until (i) it shall
be directed to take such action by a Written Instruction and (ii)
it shall be assured to its satisfaction (including prepayment
thereof) of reimbursement of its costs and expenses in connection
with any such action. Upon notification of default, the
Custodian shall be obligated to provide prompt notification to
the Fund.
E. The Fund acknowledges and hereby authorizes the
Custodian to hold Securities through its various agents described
in Appendix B annexed hereto. The Fund hereby represents that
such authorization has been duly approved by the Board of
Directors of the Fund as required by the Act. The Custodian
acknowledges that although certain Series Assets are held by its
agents, the Custodian remains primarily liable for the
safekeeping of the Series Assets.
75
<PAGE>
In addition, the Fund acknowledges that the Custodian may
appoint one or more financial institutions, as agent or agents or
as sub-custodian or sub-custodians, including, but not limited
to, banking institutions located in foreign countries, for the
purpose of holding Securities and moneys at any time owned by the
Series. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment
or activities of such agents or sub-custodians. Any such agent
or sub-custodian shall be qualified to serve as such for assets
of investment companies registered under the Act. Upon request,
the Custodian shall promptly forward to the Fund any documents it
receives from any agent or sub-custodian appointed hereunder
which may assist directors of registered investment companies
fulfill their responsibilities under Rule 17f-5 of the Act.
F. The Custodian shall not be under any duty or obligation
to ascertain whether any Securities at any time delivered to or
held by it for the account of the Fund are such as properly may
be held by the Series under the provisions of the Articles of
Incorporation and the Fund's By-Laws.
G. The Custodian shall treat all records and other
information relating to the Fund and the Series Assets as
confidential and shall not disclose any such records or
information to any other person unless (i) the Fund shall have
consented thereto in writing or (ii) such disclosure is required
by law.
H. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian from the assets of the Series such
compensation as shall be determined pursuant to Appendix D
attached hereto, or as shall be determined pursuant to amendments
to such Appendix D. The Custodian shall be entitled to charge
against any money held by it for the account of the Series, the
amount of any of its fees, any loss, damage, liability or
expense, including counsel fees relating to such Series. The
expenses which the Custodian may charge against the account of
the Series include, but are not limited to, the expenses of
agents or sub-custodians incurred in settling transactions
involving the purchase and sale of Securities of the Fund.
I. The Custodian shall be entitled to rely upon any Oral
Instructions and any Written Instructions. The Fund agrees to
76
<PAGE>
forward to the Custodian Written Instructions confirming Oral
Instructions in such a manner so that such Written Instructions
are received by the Custodian, whether by hand delivery,
facsimile or otherwise, not later than the following business
day on which such Oral Instructions were given. The Fund agrees
that the failure of the Custodian to receive such confirming
instructions shall in no way affect the validity of the
transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall
incur no greater liability to the Fund for acting upon Oral
Instructions given to the Custodian hereunder concerning such
transactions than would arise as to a similar transaction
pursuant to a Written Instruction.
J. The Custodian will (i) set up and maintain proper books
of account and complete records of all transactions in the
accounts maintained by the Custodian hereunder in such manner as
will meet the obligations of the Fund under the Act, with
particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder and those records are the property of the Fund,
and (ii) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so
preserved. All such books and records shall be the property of
the Fund, and shall be open to inspection and audit at reasonable
times and with prior notice by Officers and auditors employed by
the Fund.
K. The Custodian shall send to the Fund any report
received on the systems of internal accounting control of the
Custodian, or its agents or sub-custodians, as the Fund may
reasonably request from time to time.
L. The Custodian performs only the services of a custodian
and shall have no responsibility for the management, investment
or reinvestment of the Securities from time to time owned by the
Fund. The Custodian is not a selling agent for shares of the
Series and performance of its duties as custodian shall not be
deemed to be a recommendation to the Fund's depositors or others
of shares of the Series as an investment.
M. The Custodian shall take all reasonable action, that
the Fund may from time to time request, to assist the Fund in
obtaining favorable opinions from the Fund's independent
77
<PAGE>
accountants, with respect to the Custodian's activities
hereunder, in connection with the preparation of the Fund's Form
N-1A, Form N-SAR, or other annual reports to the Securities and
Exchange Commission.
N. The Fund hereby pledges to and grants the Custodian a
security interest in any Series Assets to secure the payment of
any liabilities of the Series to the Custodian, whether acting in
its capacity as Custodian or otherwise, or on account of money
borrowed from the Custodian. This pledge is in addition to any
other pledge of collateral by the Fund to the Custodian.
ARTICLE X
Termination
A. Either of the parties hereto may terminate this
Agreement for any reason by giving to the other party a notice in
writing specifying the date of such termination, which shall be
not less than ninety (90) days after the date of giving of such
notice. If such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors
of the Fund, certified by the Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or
custodians. In the event such notice is given by the Custodian,
the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Directors of the
Fund, certified by the Secretary, designating a successor
custodian or custodians to act on behalf of the Fund. In the
absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust
company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such
notice this Agreement shall terminate, and the Custodian,
provided that it has received a notice of acceptance by the
successor custodian, shall deliver, on that date, directly to the
successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian. Upon termination of this
Agreement, the Fund shall pay to the Custodian on behalf of the
Fund such compensation as may be due as of the date of such
termination. The Fund agrees on behalf of the Fund that the
78
<PAGE>
Custodian shall be reimbursed for its reasonable costs in
connection with the termination of this Agreement.
B. If a successor custodian is not designated by the Fund,
or by the Custodian in accordance with the preceding paragraph,
or the designated successor cannot or will not serve, the Fund
shall, upon the delivery by the Custodian to the Fund of all
Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and moneys then owned by
the Fund, be deemed to be the custodian for the Fund, and the
Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System, which
cannot be delivered to the Fund, which shall be held by the
Custodian in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
A. Appendix A sets forth the names and the signatures of
all Authorized Persons, as certified by the Secretary of the
Fund. The Fund agrees to furnish to the Custodian a new Appendix
A in form similar to the attached Appendix A, if any present
Authorized Person ceases to be an Authorized Person or if any
other or additional Authorized Persons are elected or appointed.
Until such new Appendix A shall be received, the Custodian shall
be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or signatures of the then
current Authorized Persons as set forth in the last delivered
Appendix A.
B. No recourse under any obligation of this Agreement or
for any claim based thereon shall be had against any organizer,
shareholder, Officer, Director, past, present or future as such,
of the Fund or of any predecessor or successor, either directly
or through the Fund or any such predecessor or successor, whether
by virtue of any constitution, statute or rule of law or equity,
or be the enforcement of any assessment or penalty or otherwise;
it being expressly agreed and understood that this Agreement and
the obligations thereunder are enforceable solely against the
Fund, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the organizers, shareholders,
79
<PAGE>
Officers, Directors of the Fund or of any predecessor or
successor, or any of them as such. To the extent that any such
liability exists, it is hereby expressly waived and released by
the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
C. The obligations set forth in this Agreement as having
been made by the Fund have been made by the Board of Directors,
acting as such Directors for and on behalf of the Fund, pursuant
to the authority vested in them under the laws of the State of
Maryland, the Articles of Incorporation and the By-Laws of the
Fund. This Agreement has been executed by Officers of the Fund
as officers, and not individually, and the obligations contained
herein are not binding upon any of the Directors, Officers,
agents or holders of shares, personally, but bind only the
Fund.
D. Provisions of the Prospectus and any other documents
(including advertising material) specifically mentioning the
Custodian (other than merely by name and address) shall be
reviewed with the Custodian by the Fund prior to publication
and/or dissemination or distribution, and shall be subject to the
consent of the Custodian.
E. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Custodian, shall
be sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at Star Bank Center, 425 Walnut
Street, M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund
Custody Department, or at such other place as the Custodian may
from time to time designate in writing.
F. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Fund shall be
sufficiently given when delivered to the Fund or on the second
business day following the time such notice is deposited in the
U.S. mail postage prepaid and addressed to the Fund at its office
at 1500 Forest Avenue, Suite 223, Richmond, Virginia, 23229 or
at such other place as the Fund may from time to time designate
in writing.
G. This Agreement, with the exception of the
Appendices,may not be amended or modified in any manner except by
a written agreement executed by both parties with the same
80
<PAGE>
formality as this Agreement, and authorized and approved by a
resolution of the Board of Directors of the Fund.
H. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund or by the Custodian, and no attempted
assignment by the Fund or the Custodian shall be effective
without the written consent of the other party hereto.
I. This Agreement shall be construed in accordance with
the laws of the State of Ohio.
J. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto
duly authorized as of the day and year first above written.
The World Funds, Inc.
81
<PAGE>
ATTEST: By: _________________________
John Pasco, III
__________________ Chairman
Star Bank, N.A.
ATTEST: By: _________________________
Marsha A. Croxton
__________________ Vice President
82
<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
Chairman:
President:
Secretary:
Treasurer:
Controller:
Adviser Employees:
Transfer Agent/Fund Accountant
Employees:
83
<PAGE>
APPENDIX B
The following agents are employed currently by Star Bank, N.A. for securities
processing and control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
84
<PAGE>
APPENDIX C
Standards of Service Guide
85
<PAGE>
APPENDIX D
Schedule of Compensation
86
<PAGE>
FUND SERVICES, INC.
TRANSFER AGENT AGREEMENT
THIS AGREEMENT, dated August 19, 1997, between THE WORLD FUNDS, INC.
(the "Fund"), a corporation operating as an open-end investment company under
the Investment Company Act of 1940, duly organized and existing under the laws
of the State of Maryland, and FUND SERVICES, INC., a corporation organized
under the laws of the State of Virginia ("FSI"), provides as follows:
WHEREAS, FSI has agreed to act as transfer agent for the purpose of
recording the transfer, issuance and redemption of Shares of the Fund,
transferring the Shares of the Fund, disbursing dividends and other
distributions to Shareholders, filing various tax forms, mailing shareholder
information and receiving and responding to various shareholder inquiries;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the parties do hereby agree as follows:
SECTION 1. The Fund hereby appoints FSI as its transfer agent and FSI
agrees to act in such capacity upon the terms set forth in this Agreement.
SECTION 2. The Fund shall furnish to FSI a supply of blank Share
Certificates of each Series and, from time to time, will renew such supply
upon FSI's request. Blank Share Certificates shall be signed manually or by
facsimile signatures of officers of the Fund and, if required by FSI, shall
bear the Fund's seal or a facsimile thereof.
SECTION 3. FSI shall make original issues of Shares of each Series in
accordance with SECTIONS 13 and 14 below and the Fund's then current
prospectus, upon receipt of (i) Written Instructions requesting the issuance,
(ii) a certified copy of a resolution of the Fund's Board of Directors
authorizing the issuance, (iii) necessary funds for the payment of any
original issue tax applicable to such additional Shares, (iv) an opinion of
the Fund's counsel as to the legality and validity of the issuance, which
opinion may provide that it is contingent upon the filing by the Fund of an
appropriate notice with the Securities and Exchange Commission, as required by
Rule 24f-2 of the Investment Company Act of 1940, as amended from time to
time. If the opinion described in (iv) above is contingent upon a filing
under such rule, the Fund shall fully indemnify FSI for any liability arising
from the failure of the Fund to comply with such rule.
SECTION 4. Transfers of Shares of each Series shall be registered and,
subject to the provisions of SECTION 10, new Share Certificates shall be
<PAGE>
issued by FSI upon surrender of outstanding Share Certificates in the form
deemed by FSI to be properly endorsed for transfer, which form shall include
(i) all necessary endorsers' signatures guaranteed by a member firm of a
national securities exchange or a domestic commercial bank, (ii) such
assurances as FSI may deem necessary to evidence the genuineness and
effectiveness of each endorsement and (iii) satisfactory evidence of
compliance with all applicable laws relating to the payment or collection of
taxes. FSI shall take reasonable measures as instructed by the Fund and
agreed upon by FSI to enable the Fund to identify proposed transfers that, if
effected, will likely cause the Fund to fall within the Internal Revenue Code
definitions of a personal holding company and shall not make such transfers
contrary to the Fund's instructions without the prior written approval of the
Fund and its counsel.
SECTION 5. FSI shall forward Share Certificates in "non-negotiable"
form by first-class or registered mail, or by whatever means FSI deems equally
reliable and expeditious. While in transit to the addressee, all deliveries
of Share Certificates shall be insured by FSI as it deems appropriate. FSI
shall not mail Share Certificates in "negotiable" form, unless requested in
writing by the Fund and fully indemnified by the Fund to FSI's satisfaction.
SECTION 6. In registering transfers of Shares of each Series, FSI may
rely upon the Uniform Commercial Code or any other statutes that, in the
opinion of FSI's counsel, protect FSI and the Fund from liability arising from
(i) not requiring complete documentation, (ii) registering a transfer without
an adverse claim inquiry, (iii) delaying registration for purposes of such
inquiry, or (iv) refusing registration whenever an adverse claim requires such
refusal.
SECTION 7.FSI may issue new Share Certificates in place of those lost,
destroyed or stolen, upon receiving indemnity satisfactory to FSI and may
issue new Share Certificates in exchange for, and upon surrender of, mutilated
Share Certificates as FSI deems appropriate.
SECTION 8. Unless otherwise directed by the Fund, FSI may issue or
register Share Certificates reflecting the signature, or facsimile thereof, of
an officer who has died, resigned or been removed by the Fund. The Fund shall
file promptly with FSI any approvals, adoptions, or ratifications of such
actions as may be required by law or FSI.
88
<PAGE>
SECTION 9.FSI shall maintain customary stock registry records for each
Series in the Fund, noting the issuance, transfer or redemption of Shares and
the issuance and transfer of Share Certificates. FSI may also maintain for
each Series an account entitled "Unissued Certificate Account," in which it
will record the Shares, and fractions thereof, issued and outstanding from
time to time for which issuance of Share Certificates has not been requested.
FSI is authorized to keep records for each Series, containing the names and
last known addresses of Shareholders and Planholders, and the number of
Shares, and fractions thereof, from time to time owned by them for which no
Share Certificates are outstanding. Each Shareholder or Planholder will be
assigned a single account number for each Series, even though Shares held
under each Plan and Shares for which Certificates have been issued will be
accounted for separately. Whenever a Shareholder deposits Shares represented
by Share Certificates in a Plan that permits the deposit of Shares thereunder,
FSI upon receipt of the Share Certificates registered in the name of the
Shareholder (or if not registered, in proper form for transfer), shall cancel
such Share Certificates, debit the Shareholder's individual account, credit
the Shares to the Unissued Share Certificate Account pursuant to SECTION 10
below and credit the deposited Shares to the proper Plan account.
SECTION 10.FSI shall issue Share Certificates for Shares of each Series
only upon receipt of a written request from a Shareholder. If Shares are
purchased without such request, FSI shall merely note on its stock registry
records the issuance of the Shares and fractions thereof and credit the
Unissued Certificate Account and the respective Shareholders' accounts with
the Shares. Whenever Shares, and fractions thereof, owned by Shareholders are
surrendered for redemption, FSI may process the transactions by making
appropriate entries in the stock transfer records, and debiting the Unissued
Certificate Account and the record of issued Shares outstanding; it shall be
unnecessary for FSI to reissue Share Certificates in the name of the Fund.
SECTION 11. FSI shall also perform the usual duties and functions
required of a stock transfer agent for a corporation, including but not
limited to (i) issuing Share Certificates as Treasury Shares, as directed by
Written Instructions, and (ii) transferring Share Certificates from one
Shareholder to another in the usual manner. FSI may rely conclusively and act
without further investigation upon any list, instruction, certification,
89
<PAGE>
authorization, Share Certificate or other instrument or paper reasonably
believed by it in good faith to be genuine and unaltered, and to have been
signed, countersigned or executed or authorized by a duly-authorized person or
persons, or by the Fund, upon the advice of counsel for the Fund or for FSI,
or upon the net asset value quotation of the Service Agent, as hereinafter
defined. FSI may record any transfer of Share Certificates which it
reasonably believes in good faith to have been duly-authorized, or may refuse
to record any transfer of Share Certificates if, in good faith, it deems such
refusal necessary in order to avoid any liability on the part of either the
Fund or FSI. The Fund agrees to indemnify and hold harmless FSI from and
against any and all losses, costs, claims, and liability that it may suffer or
incur by reason of such good faith reliance, action or failure to act.
SECTION 12. FSI shall notify the Fund of any request or demand for the
inspection of the Fund's share records. FSI shall abide by the Fund's
instructions for granting or denying the inspection; provided, however, FSI
may grant the inspection without such instructions if it is advised by its
counsel that failure to do so will result in liability to FSI.
SECTION 13. For purposes of this Section, the Fund hereby instructs FSI
to consider Shareholder and Planholder payments as federal funds on the day
indicated below:
(a) for a wire received prior to 12:00 noon Eastern time, on the same
day;
(b) for a wire received on or after 12:00 noon Eastern time, on the
next business day;
(c) for a check received prior to 12:00 noon Eastern time, on the
second business day following receipt; and
(d) for a check received on or after 12:00 noon Eastern time, on the
third business day following receipt.
Immediately after 4:00 p.m. Eastern time or such other time as the Fund may
reasonably specify for any Series (the "Valuation Time") on each day that the
Fund and FSI are open for business, FSI shall obtain from the Fund's service
agent, as specified by the Fund in writing to FSI (the "Service Agent"), a
quotation (on which it may conclusively rely) of the net asset value,
determined as of the Valuation Time on that day. On each day FSI is open for
business, it shall use the net asset value determined by the Service Agent to
90
<PAGE>
compute the number of Shares and fractional Shares to be purchased and the
aggregate purchase proceeds to be deposited with the Custodian. As necessary
but no more frequently than daily (unless a more frequent basis is agreed to
by FSI), FSI shall place a purchase order with the Custodian for the proper
number of Shares and fractional Shares to be purchased and promptly thereafter
shall send written confirmation of such purchase to the Custodian and the
Fund.
SECTION 14. Having made the calculations required by SECTION 13, FSI
shall thereupon pay the Custodian the aggregate net asset value of Shares of
each Series purchased. The aggregate number of Shares and fractional Shares
purchased shall then be issued daily and credited by FSI to the Unissued
Certificate Account. FSI shall also credit each Shareholder's separate
account with the number of shares purchased by such Shareholder. FSI shall
promptly thereafter mail written confirmation of the purchase to each
Shareholder or Planholder, and if requested, to a specified broker-dealer and
the Fund. Each confirmation shall indicate the prior Share balance, the new
Share balance, the Shares held under a Plan (if any), the Shares for which
Share Certificates are outstanding (if any), the amount invested and the price
paid for the newly-purchased Shares.
SECTION 15. Prior to the Valuation Time on each business day, as
specified in accordance with SECTION 13 above, FSI shall process all requests
to redeem Shares of each Series and advise the Custodian of (i) the total
number of Shares of each Series available for redemption and (ii) the number
of Shares and fractional Shares of each Series requested to be redeemed. Upon
confirmation of the net asset value, FSI shall notify the Fund and the
Custodian of the redemption, apply the redemption proceeds in accordance with
SECTION 16 and the Fund's prospectus, record the redemption in the stock
registry books, and debit the redeemed Shares from the Unissued Certificate
Account and the individual account of the Shareholder or Planholder.
In lieu of carrying out the redemption procedures described in the
preceding paragraph, FSI may, at the request of the Fund, sell Shares of each
Series to the Fund as repurchases from Shareholders and/or Planholders,
provided that the sales price is not less than the applicable redemption
price. The redemption procedures shall then be appropriately modified.
91
<PAGE>
SECTION 16. The proceeds of redemption shall be remitted by FSI in
accordance with the Fund's then current prospectus as follows:
(a) By check mailed to the Shareholder or Planholder at his last known
address. The request and stock certificates, if any, for Shares being
redeemed must reflect a guarantee of the owner's signature by a domestic
commercial bank or trust company or a member firm of a national securities
exchange. If Share Certificates have not been issued to the redeeming
Shareholder or Planholder, the signature of the Shareholder or Planholder on
the redemption request must be similarly guaranteed. The Fund may authorize
FSI in writing to waive the signature guarantee for any specific transaction
or classes of transactions;
(b) By wire to a designated bank or broker upon telephone request,
without signature guarantee, if such redemption procedure has been elected on
the Shareholder's or Planholder's account information form. Any change in the
designated bank or broker account will be acted upon by FSI only if made in
writing by the Planholder or Shareholder, with signature guaranteed as
required by paragraph (a) above;
(c) In case of an expedited telephone redemption, by check payable to
the Shareholder or Planholder of record and mailed for deposit to the bank
account designated in the Shareholder account information form;
(d) By other procedures commonly followed by mutual funds,as set forth
in Written Instructions from the Fund and mutually agreed upon by the Fund and
FSI.
For purposes of redemption of shares of any Series that have been
purchased by check within fifteen (15) days prior to receipt of the redemption
request, the Fund shall provide FSI with Written Instructions concerning the
time within which such requests may be honored.
The authority of FSI to perform its responsibilities under SECTIONS 15
and 16 shall be suspended if FSI receives notice of the suspension of the
determination of the Fund's net asset value.
SECTION 17.Upon the declaration of each dividend and each capital gains
distribution by the Fund's Board of Directors, the Fund shall notify FSI of
the date of such declaration, the amount payable per share, the record date
for determining the Shareholders entitled to payment, the payment and the
reinvestment date price.
92
<PAGE>
SECTION 18. On or before each payment date the Fund will transfer, or
cause the Custodian to transfer, to FSI the total amount of the dividend or
distribution currently payable. FSI will, on the designated payment date,
reinvest all dividends in additional shares and shall thereupon pay the
Custodian the aggregate net asset value of the additional shares and shall
promptly mail to each Shareholder or Planholder at his last known address, a
statement showing the number of full and fractional shares (rounded to three
decimal places) then owned by the Shareholder or Planholder and the net asset
value of such shares; provided, however, that if a Shareholder or Planholder
elects to receive dividends in cash, FSI shall prepare a check in the
appropriate amount and mail it to him at his last known address within five
(5) business days after the designated payment date.
SECTION 19. FSI shall maintain records regarding the issuance and
redemption of Shares of each Series and dividend reinvestments. Such records
will list the transactions effected for each Shareholder and Planholder and
the number of Shares and fractional Shares owned by each for which no Share
Certificates are outstanding. FSI agrees to make available upon request and
to preserve for the periods prescribed in Rule 31a-2 of the Investment Company
Act of 1940 any records related to services provided under this Agreement and
required to be maintained by Rule 31a-1 of such Act. FSI acknowledges that
these records are the property of the Fund and will surrender same to the Fund
promptly on request.
SECTION 20. FSI shall maintain those records necessary to enable the
Fund to file, in a timely manner, Form N-SAR (Semi-annual report) or any
successor monthly, quarterly or annual report required by the Investment
Company Act of 1940, or rules and regulations thereunder.
SECTION 21. FSI shall cooperate with the Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to such accountants for the performance of their duties.
SECTION 22. In addition to the services described above, FSI will
perform other services for the Fund as mutually agreed upon in writing from
time to time, including but not limited to preparing and filing federal tax
forms with the Internal Revenue Service, mailing federal tax information to
Shareholders, mailing semi-annual Shareholder reports, preparing the annual
list of Shareholders and mailing notices of Shareholders' meetings, proxies
93
<PAGE>
and proxy statements. FSI shall answer Shareholder inquiries related to their
share accounts and other correspondence requiring an answer from the Fund.
FSI shall maintain dated copies of written communications from Shareholders,
and replies thereto.
SECTION 23. Nothing contained in this Agreement is intended to or shall
require FSI, in any capacity hereunder, to perform any functions or duties on
any holiday, weekend or weekday on which day FSI or the New York Stock
Exchange is closed. Functions or duties normally scheduled to be performed on
such days shall be performed on, and as of, the next business day on which
both the New York Stock Exchange and FSI are open, unless otherwise required
by law; provided, however, that all purchase or redemption requests received
by the Fund for a date on which the Exchange is open but FSI is not shall be
priced and executed "as of" such date on the next business day FSI is open,
unless otherwise required by law.
SECTION 24. The Fund agrees to pay FSI compensation for its services as
set forth in Schedule A attached hereto, or as shall be set forth in written
amendments to such Schedule approved by the Fund and FSI from time to time.
SECTION 25. FSI shall not be liable for any taxes, assessments or
governmental charges that may be levied or assessed on any basis whatsoever in
connection with the Fund, or any Plan thereof, Shareholder or Planholder,
excluding taxes assessed against FSI for compensation received by it
hereunder.
SECTION 26. FSI shall not be liable for any non-negligent action taken
in good faith and reasonably believed by FSI to be within the powers conferred
upon it by this Agreement. The Fund shall indemnify FSI and hold it harmless
from and against any and all losses, claims, damages, liabilities or expenses
(including reasonable expenses for legal counsel) arising directly or
indirectly out of or in connection with this Agreement; provided such loss,
claim, damage, liability or expense is not the direct result of FSI's
negligence or willful misconduct, and provided further that FSI shall give the
Fund notice and reasonable opportunity to defend any such loss, claim, etc. in
the name of the Fund or FSI, or both. Without limiting the foregoing:
(a) FSI may rely upon the advice of the Fund or counsel to the Fund or
FSI, and upon statements of accountants, brokers and other persons believed by
FSI in good faith to be experts in the matters upon which they are consulted.
94
<PAGE>
FSI shall not be liable for any action taken in good faith reliance upon such
advice or statements;
(b) FSI shall not be liable for any action reasonably taken in good
faith reliance upon any Written Instructions, Oral Instructions, including the
Service Agent's net asset value quotation, or certified copy of any resolution
of the Fund's Board of Directors; provided, however, that upon receipt of a
Written Instruction countermanding a prior Written or Oral Instruction that
has not been fully executed by FSI, FSI shall verify the content of the second
Written Instruction and honor it, to the extend possible. FSI may rely upon
the genuineness of any such document, or copy thereof, reasonably believed by
FSI in good faith to have been validly executed; and
(c) FSI may rely,and shall be protected by the Fund in acting upon any
signature, instruction, request, letter of transmittal, certificate, opinion
of counsel, statement, instrument, report, notice, consent, order, or other
paper or document reasonably believed by it in good faith to be genuine and to
have been signed or presented by the purchaser, Fund or other proper party or
parties.
(d) The Fund shall, as soon as possible, amend its prospectus to
conform with the provisions of this Agreement and make all necessary filings
of the amended prospectus, and shall indemnify FSI for any loss, claim or
expense resulting from FSI's reliance upon the Fund's representations in this
Agreement, notwithstanding a contrary representation in its prospectus.
SECTION 27. Upon receipt of Written Instructions, FSI is authorized to
make payment upon redemption of Shares without a signature guarantee. The
Fund hereby agrees to indemnify and hold FSI harmless from any and all
expenses, damages, claims, suits, liabilities, action, demands or losses
whatsoever arising out of or in connection with a payment by FSI for
redemption of Shares without a signature guarantee. Upon the request of FSI,
the Fund shall assume the entire defense of any such action, suit or claim.
FSI shall notify the Fund in a timely manner of any such action, suit or
claim.
SECTION 28. The Fund shall deliver or cause to be delivered over to FSI
(i) an accurate list of Shareholders of the Fund, showing each Shareholder's
last known address, number of Shares owned and whether such shares are
represented by outstanding Share Certificates or by non-certificated share
95
<PAGE>
accounts, (ii) all records relating to Plans of the Fund, including original
applications signed by the Planholders and original plan accounts recording
payment, deductions, reinvestments, withdrawals and liquidations and (iii) all
shareholder records, files, and other materials necessary or appropriate for
proper performance of the functions assumed by FSI under this Agreement
(collectively referred to as the "Materials"). The Fund shall indemnify and
hold FSI harmless from any and all expenses, damages, claims, suits,
liabilities, actions, demands and losses arising out of or in connection with
any error, omission, inaccuracy or other deficiency of such Materials, or out
of the failure of the Fund to provide any portion of the Materials or to
provide any information needed by FSI to knowledgeably perform its functions.
SECTION 29. FSI shall, at all times, act in good faith and shall use
whatever methods it deems appropriate to ensure the accuracy of all services
performed under this Agreement. FSI shall be liable only for loss or damage
due to errors caused by FSI's negligence, bad faith or willful misconduct or
that of its employees.
SECTION 30.This Agreement may be amended from time to time by a written
supplemental agreement executed by the Fund and FSI and without notice to or
approval of the Shareholders or Planholders; provided the intent and purposes
of any Plan, as stated from time to time in the Fund's prospectus, are
observed. The parties hereto may adopt procedures as may be appropriate or
practical under the circumstances, and FSI may conclusively rely on the
determination of the Fund that any procedure that has been approved by the
Fund does not conflict with or violate any requirement of its Articles of
Incorporation, By-Laws or prospectus, or any rule, regulation or requirement
of any regulatory body.
SECTION 31. The Fund shall file with FSI a certified copy of the
operative resolution of its Board of Directors authorizing the execution of
Written Instructions or the transmittal of Oral Instructions.
SECTION 32.The terms, as defined in this Section, whenever used in this
Agreement or in any amendment or supplement hereto, shall have the meanings
specified below, insofar as the context will allow:
(a) The Fund: The term Fund shall mean The World Funds, Inc.
(b) Custodian: The term Custodian shall mean Star Bank, NA
96
<PAGE>
(c) Series: The term Series shall mean The Sand Hill Portfolio
Managers Fund and any series that the Fund shall subsequently establish.
(d) Securities: The term Securities shall mean bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from time to time owned by the Fund.
(e) Share Certificates: The term Share Certificates shall mean the
stock certificates for the Shares of the Fund.
(f) Shareholders: The term Shareholders shall mean the registered
owners from time to time of the Shares of the Fund, as reflected on the stock
registry records of the Fund.
(g) Shares: The term Shares shall mean the issued and outstanding
shares of common stock of the Fund.
(h) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to FSI in person or by telephone, vocal telegram or other
electronic means, by a person or person reasonably believed in good faith by
FSI to be a person or person authorized by a resolution of the Board of
Directors of the Fund to give Oral Instructions on behalf of the Fund. Each
Oral Instruction shall specify whether it is applicable to the entire Fund or
a specific Series of the Fund.
(i) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to FSI in original writing containing original
signatures, or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or documentary means, at
the request of a person or persons reasonably believed in good faith by FSI to
be a person or persons authorized by a resolution of the Board of Directors of
the Fund to give Written Instructions on behalf of the Fund. Each Written
Instruction shall specify whether it is applicable to the entire Fund or a
specific Series of the Fund.
(j) Plan: The term Plan shall include such investment plan, dividends
or capital gains reinvestment plans, systematic withdrawal plans or other
types of plans set forth in the then current prospectus of the Fund (excluding
any qualified retirement plan that is a Shareholder of the Fund) in form
acceptable to FSI, adopted by the Fund from time to time and made available to
97
<PAGE>
its Shareholders, including plans or accounts by self-employed individuals or
partnerships.
(k) Planholder: The term Planholder shall mean a Shareholder who, at
the time of reference, is participating in a Plan, including any underwriter,
representative or broker-dealer.
SECTION 33. In the event that any check or other order for the payment
of money is returned unpaid for any reason, FSI shall promptly notify the Fund
of the non-payment.
SECTION 34. Either party may give sixty (60) days written notice to the
other of the termination of this Agreement, such termination to take effect at
the time specified in the notice.
SECTION 35. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall
be delivered in person or sent by first-class mail, postage prepaid, to the
respective parties.
Notice to the Fund shall be given as follows until further notice:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
Attention: Mr. John Pasco, III, Chairman
Notice to FSI shall be given as follows until further notice:
FUND SERVICES, INC.
1500 Forest Avenue, Suite 111
Richmond, Virginia 23229
Attention: Mr. William R. Carmichael, Jr., President
SECTION 36. The Fund represents and warrants to FSI that the execution
and delivery of this Transfer Agent Agreement by the undersigned officer of
the Fund has been duly and validly authorized by resolution of the Fund's
Board of Directors. FSI represents and warrants to the Fund that the
execution and delivery of this Agreement by the undersigned officer of FSI has
also been duly and validly authorized.
SECTION 37.This Agreement may be executed in more than one counterpart,
each of which shall be deemed to be an original.
SECTION 38.This Agreement shall extend to and shall bind the parties
hereto and their respective successors and assigns; provided, however, that
98
<PAGE>
this Agreement shall not be assignable by the Fund without the written consent
of FSI or by FSI without the written consent of the Fund, authorized or
approved by a resolution of the Fund's Board of Directors.
SECTION 39.This Agreement shall be governed by the laws of the State of
Virginia.
WITNESS the following signatures:
THE WORLD FUNDS, INC.
By:
Title:
Date:
FUND SERVICES, INC.
By:
Title:
Date:
99
<PAGE>
ATTACHMENT A
FEE SCHEDULE
I. Account Maintenance Fees - Per Fund:
0 - 5,000 Accounts - $11.00 per account per year
5,001 - 15,000 Accounts - $10.00 per account per year
Over 15,000 Accounts - $ 9.50 per account per year
Applicable fees billed monthly at 1/12 the annual rate
for each month the account is open. Accounts in each
fund that exceeds minimum billing will be aggregated to
determine pricing break points.
II. Transaction/Processing Fees:
Open New Account - $2.50
Partial or Total Redemption - $2.50
Tax Statement or other Transaction - $1.00
Addition to Account - $1.00
Dividend/Distribution - $1.00
(In excess of two per year)
(Plus statement charges)
Fees incurred will be billed monthly
III. Other Specified Charges:
Blue Sky Reports (Under 1,000 S/H) - $10.00
Blue Sky Reports (Under 5,000 S/H) - $15.00
Blue Sky Reports (Over 5,000 S/H) - $25.00
Shareholder List (Under 2,500 S/H) - $15.00
Shareholder List (Over 2,500 S/H) - $25.00
IV. Minimum Fee:
The minimum annual fee is $16,500.00 per fund and is
payable at the rate $1,375.00 per month. The minimum covers
account maintenance fees and regular purchase/redemption
transaction fees only. Any new funds started by The World Funds,
Inc., will receive a reduced minimum of $12,000.00 for the first
twelve months of operation.
V. Conversion Fees:
Conversion Fees for acquired funds will be billed at the new
account rate per account converted plus programming and out of
pocket costs.
V. Out of Pocket Costs:
The cost of forms, postage, stationery, outside mailing
services, microfilm or magnetic tape data transfer etc.
will be in addition to the fees listed above.
A-1
<PAGE>
ATTACHMENT A
VI. Term of Agreement
Notwithstanding the Notice of Termination provisions of SECTION 34 of
the Basic Agreement, the Initial term of this contract will be 24
months from the date of execution. The above fees are guaranteed for
the initial term. This contract may be extended beyond such initial
term upon mutual agreement of the Funds and FSI.
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated August 19, 1997,
by and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the SAND HILL PORTFOLIO MANAGER FUND series (the
"Portfolio"), to perform certain recordkeeping and shareholder servicing
functions required of a duly registered investment company to comply with
certain provisions of federal, state and local law, rules and regulations,
and, as is required, to assist the Fund in preparing and filing certain
financial reports, and further to perform certain daily functions in
connection with on-going operations of the Fund and the Portfolio, and provide
ministerial services to implement the investment decisions of the Fund and the
investment advisor of the Portfolio, Sand Hill Advisers, Inc. (the "Advisor");
and
WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall examine and review all records and documents of the
Portfolio pertaining to its duties under this Agreement in order to determine
and/or recommend how such records and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the Fund and
its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from
any discrepancy in the information received by CSS and used in the performance
by CSS of its duties.
-2-
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of
any dividends or income and any other special actions required concerning each
of its securities.
SS shall maintain such shareholder records above mentioned as required by
regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive
from the Fund's Transfer Agent daily reports of share purchases, redemptions,
and total shares outstanding, and shall be accountable for the information
contained in such reports of purchases and redemptions when received. It is
agreed by the parties that the net asset value per share of the Fund will be
102
<PAGE>
calculated in accordance with Rule 22c-1 under the Investment Company Act of
1940 and as otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.
Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.
Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's
independent auditors, or any other person authorized by the Fund or, upon
demand, any regulatory body as authorized by law or regulation, in any
requested review of the Fund's accounts and records but shall be reimbursed
for all reasonable and documented expenses and employee time invested in any
such review outside of routine and normal periodic reviews. Upon receipt from
the Fund of any necessary information, CSS shall assist the Fund in organizing
necessary data for the Fund's completion of any necessary tax returns,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Fund and CSS shall agree upon from time to time.
-3-
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS
of any changes in regulations or rules which might necessitate changes in the
Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon statements of
the Fund's lawyers, accountants and other persons believed by it in good faith
to be expert in matters upon which they are consulted, and CSS shall not be
liable for any actions taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof
by the Fund.
The Fund shall indemnify and hold CSS harmless from any and all expenses,
damages, claims, suits, liabilities, actions, demands and losses whatsoever
arising out of or in connection with any error, omission, inaccuracy or other
deficiency of any information provided to CSS by the Fund, or the failure of
the Fund to provide any information needed by CSS knowledgeably to perform its
functions hereunder. Also, the Fund shall indemnify and hold harmless CSS
from all claims and liabilities (including reasonable documented expenses for
legal counsel) incurred by or assessed against CSS in connection with the
performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that
before confessing any claim against it, CSS shall give the Fund reasonable
103
<PAGE>
opportunity to defend against such claim in the name of the Fund or CSS or
both.
Section 9. The Fund agrees to pay CSS compensation for its services and to
reimburse it for expenses, as set forth in the Schedule attached hereto, or as
shall be set forth in amendments
-4-
to such schedule approved by the Fund's Board of Directors and CSS.
Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or
duties on any holiday or other day of special observance on which CSS is
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which both the Fund
and CSS are open. CSS will be open for business on days when the Fund is open
for business and/or as otherwise set forth in the Fund's Prospectuses and
Statements of Additional Information.
Section 11. Either the Fund or CSS may give written notice to the other of
the termination of this Agreement, such termination to take effect at the time
specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.
Section 12. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 14. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and
-5-
assigns; provided, however, that this Agreement shall not be assignable by the
Fund without the written consent of CSS, or by CSS without the written consent
of the Fund, authorized or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
104
<PAGE>
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in person or by telephone, telegram, telecopy, or
other mechanical or documentary means lacking a signature, by a person or
persons believed in good faith by CSS to be a person or persons authorized by
a resolution of the Board of Directors of the Fund, to give Oral Instructions
on behalf of the Fund.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in original writing containing original signatures
or a copy of such document transmitted by telecopy including transmission of
such signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give
Written Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State of
Maryland.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
THE WORLD FUNDS, INC.
By:
John Pasco, III
Chairman
105
<PAGE>
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
President
-7-
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
SAND HILL PORTFOLIO MANAGER FUND
Pursuant to Section 9 of the Administrative Services Agreement, dated
, 1997, by and between The World Funds, Inc. (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the Sand Hill Portfolio
Manager Fund series of the Fund shall pay CSS a fee calculated and paid
monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at the
rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of $30 per
hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the rate of
0.2% per annum of the average daily net assets of the Sand Hill
Portfolio Manager Fund series of the Fund, payable monthly, with a
minimum fee of $30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS, from the
assets of the Portfolio, for the Portfolio's proportionate share of
general expenses incurred for the Fund and for all expenses incurred
by the Portfolio individually. Such out-of-pocket expenses shall
include, but not be limited to: documented fees and costs of
obtaining advice of counsel or accountants in connection with its
services to the Fund; postage; long distance telephone; special forms
required by the Fund; any travel which may be required in the
106
<PAGE>
performance of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the Fund.
107
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated October 14, 1997,
by and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the CSI EQUITY FUND series (the "Portfolio"),
to perform certain recordkeeping and shareholder servicing functions required
of a duly registered investment company to comply with certain provisions of
federal, state and local law, rules and regulations, and, as is required, to
assist the Fund in preparing and filing certain financial reports, and further
to perform certain daily functions in connection with on-going operations of
the Fund and the Portfolio, and provide ministerial services to implement the
investment decisions of the Fund and the investment advisor of the Portfolio,
CSI Capital Management, Inc. (the "Advisor"); and
WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall perform for the Fund all administrative services
required for the Fund to operate as a diversified, open-end management
investment company registered as such with the Securities and Exchange
Commission; provided, however, that CSS shall not be required to provide under
this Agreement any service that CSS or another person clearly is required to
provide to the Fund pursuant to a written agreement with the Fund other than
this Agreement; and provided further, however, that in no event shall this
sentence require CSS to provide transfer agency, custodian, distribution, or
investment advisory services to the Fund. CSS shall examine and review all
records and documents of the Portfolio pertaining to its duties under this
Agreement in order to determine and/or recommend how such records and
documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the Fund and
its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from
any discrepancy in the information received by CSS and used in the performance
by CSS of its duties.
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of
any dividends or income and any other special actions required concerning each
of its securities.
CSS shall maintain such shareholder records above mentioned as required by
regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive
from the Fund's Transfer Agent daily reports of share purchases, redemptions,
and total shares outstanding, and shall be accountable for the information
108
<PAGE>
contained in such reports of purchases and redemptions when received. It is
agreed by the parties that the net asset value per share of the Fund will be
calculated in accordance with Rule 22c-1 under the Investment Company Act of
1940 and as otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.
Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.
Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's
independent auditors, or any other person authorized by the Fund or, upon
demand, any regulatory body as authorized by law or regulation, in any
requested review of the Fund's accounts and records but shall be reimbursed
for all reasonable and documented expenses and employee time invested in any
such review outside of routine and normal periodic reviews. Upon receipt from
the Fund of any necessary information, CSS shall assist the Fund in organizing
necessary data for the Fund's completion of any necessary tax returns,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Fund and CSS shall agree upon from time to time.
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS
of any changes in regulations or rules which might necessitate changes in the
Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon statements of
the Fund's lawyers, accountants and other persons believed by it in good faith
to be expert in matters upon which they are consulted, and CSS shall not be
liable for any actions taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof
by the Fund.
The Fund shall indemnify and hold CSS harmless from any and all expenses,
damages, claims, suits, liabilities, actions, demands and losses whatsoever
arising out of or in connection with any error, omission, inaccuracy or other
deficiency of any information provided to CSS by the Fund, or the failure of
the Fund to provide any information needed by CSS knowledgeably to perform its
functions hereunder. Also, the Fund shall indemnify and hold harmless CSS
from all claims and liabilities (including reasonable documented expenses for
legal counsel) incurred by or assessed against CSS in connection with the
performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that
before confessing any claim against it, CSS shall give the Fund reasonable
opportunity to defend against such claim in the name of the Fund or CSS or
both.
CSS shall indemnify and hold the Fund harmless from any and all expenses,
damages, claims, suits, liabilities, actions, demands, and losses whatsoever
109
<PAGE>
(including, without limitation, reasonable documented expenses for legal
counsel) arising out of or in connection with (a) any breach by CSS of any of
its representations, warranties or covenants contained in this Agreement, or
(b) CSS's negligence. CSS shall comply in all material respects with all
applicable laws and regulations in performing its obligations under this
Agreement.
Section 9. The Fund agrees to pay CSS compensation for its services and to
reimburse it for expenses, as set forth in the Schedule attached hereto, or as
shall be set forth in amendments to such schedule approved by the Fund's Board
of Directors and CSS.
Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or
duties on any holiday or other day of special observance on which CSS is
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which both the Fund
and CSS are open. CSS will be open for business on days when the Fund is open
for business and/or as otherwise set forth in the Fund's Prospectuses and
Statements of Additional Information.
Section 11. Either the Fund or CSS may give written notice to the other of
the termination of this Agreement, such termination to take effect at the time
specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.
Section 12. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 14. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of CSS, or by CSS without the written consent of the Fund, authorized
or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in person or by telephone, telegram, telecopy, or
other mechanical or documentary means lacking a signature, by a person or
persons believed in good faith by CSS to be a person or persons authorized by
a resolution of the Board of Directors of the Fund, to give Oral Instructions
on behalf of the Fund.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in original writing containing original signatures
110
<PAGE>
or a copy of such document transmitted by telecopy including transmission of
such signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give
Written Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
THE WORLD FUNDS, INC.
By:
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
President
111
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
CSI EQUITY FUND
Pursuant to Section 9 of the Administrative Services Agreement, dated
October 14, 1997, by and between The World Funds, Inc. (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the CSI Equity Fund series of
the Fund shall pay CSS a fee calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at the
rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of $30 per
hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the rate of
0.2% per annum of the average daily net assets on the first $50
million (with a minimum fee of $30,000), 0.15% per annum of the
average daily net assets from $50 million to $100 million, and 0.1%
per annum of the average daily net assets over $100 million.
D. In addition to the foregoing, the Fund shall reimburse CSS, from the
assets of the Portfolio, for the Portfolio's proportionate share of
general expenses incurred for the Fund and for all expenses incurred
by the Portfolio individually. Such out-of-pocket expenses shall
include, but not be limited to: documented fees and costs of
obtaining advice of counsel or accountants in connection with its
services to the Fund; postage; long distance telephone; special forms
required by the Fund; any travel which may be required in the
performance of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the Fund.
112
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated October 14, 1997,
by and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the CSI FIXED INCOME FUND series (the
"Portfolio"), to perform certain recordkeeping and shareholder servicing
functions required of a duly registered investment company to comply with
certain provisions of federal, state and local law, rules and regulations,
and, as is required, to assist the Fund in preparing and filing certain
financial reports, and further to perform certain daily functions in
connection with on-going operations of the Fund and the Portfolio, and provide
ministerial services to implement the investment decisions of the Fund and the
investment advisor of the Portfolio, CSI Capital Management, Inc. (the
"Advisor"); and
WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall perform for the Fund all administrative services
required for the Fund to operate as a diversified, open-end management
investment company registered as such with the Securities and Exchange
Commission; provided, however, that CSS shall not be required to provide under
this Agreement any service that CSS or another person clearly is required to
provide to the Fund pursuant to a written agreement with the Fund other than
this Agreement; and provided further, however, that in no event shall this
sentence require CSS to provide transfer agency, custodian, distribution, or
investment advisory services to the Fund. CSS shall examine and review all
records and documents of the Portfolio pertaining to its duties under this
Agreement in order to determine and/or recommend how such records and
documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the Fund and
its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from
any discrepancy in the information received by CSS and used in the performance
by CSS of its duties.
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of
any dividends or income and any other special actions required concerning each
of its securities.
CSS shall maintain such shareholder records above mentioned as required by
regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive
from the Fund's Transfer Agent daily reports of share purchases, redemptions,
113
<PAGE>
and total shares outstanding, and shall be accountable for the information
contained in such reports of purchases and redemptions when received. It is
agreed by the parties that the net asset value per share of the Fund will be
calculated in accordance with Rule 22c-1 under the Investment Company Act of
1940 and as otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.
Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.
Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's
independent auditors, or any other person authorized by the Fund or, upon
demand, any regulatory body as authorized by law or regulation, in any
requested review of the Fund's accounts and records but shall be reimbursed
for all reasonable and documented expenses and employee time invested in any
such review outside of routine and normal periodic reviews. Upon receipt from
the Fund of any necessary information, CSS shall assist the Fund in organizing
necessary data for the Fund's completion of any necessary tax returns,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Fund and CSS shall agree upon from time to time.
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS
of any changes in regulations or rules which might necessitate changes in the
Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon statements of
the Fund's lawyers, accountants and other persons believed by it in good faith
to be expert in matters upon which they are consulted, and CSS shall not be
liable for any actions taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof
by the Fund.
The Fund shall indemnify and hold CSS harmless from any and all expenses,
damages, claims, suits, liabilities, actions, demands and losses whatsoever
arising out of or in connection with any error, omission, inaccuracy or other
deficiency of any information provided to CSS by the Fund, or the failure of
the Fund to provide any information needed by CSS knowledgeably to perform its
functions hereunder. Also, the Fund shall indemnify and hold harmless CSS
from all claims and liabilities (including reasonable documented expenses for
legal counsel) incurred by or assessed against CSS in connection with the
performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that
before confessing any claim against it, CSS shall give the Fund reasonable
opportunity to defend against such claim in the name of the Fund or CSS or
both.
114
<PAGE>
CSS shall indemnify and hold the Fund harmless from any and all expenses,
damages, claims, suits, liabilities, actions, demands, and losses whatsoever
(including, without limitation, reasonable documented expenses for legal
counsel) arising out of or in connection with (a) any breach by CSS of any of
its representations, warranties or covenants contained in this Agreement, or
(b) CSS's negligence. CSS shall comply in all material respects with all
applicable laws and regulations in performing its obligations under this
Agreement.
Section 9. The Fund agrees to pay CSS compensation for its services and to
reimburse it for expenses, as set forth in the Schedule attached hereto, or as
shall be set forth in amendments to such schedule approved by the Fund's Board
of Directors and CSS.
Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or
duties on any holiday or other day of special observance on which CSS is
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which both the Fund
and CSS are open. CSS will be open for business on days when the Fund is open
for business and/or as otherwise set forth in the Fund's Prospectuses and
Statements of Additional Information.
Section 11. Either the Fund or CSS may give written notice to the other of
the termination of this Agreement, such termination to take effect at the time
specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.
Section 12. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 14. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of CSS, or by CSS without the written consent of the Fund, authorized
or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in person or by telephone, telegram, telecopy, or
other mechanical or documentary means lacking a signature, by a person or
persons believed in good faith by CSS to be a person or persons authorized by
a resolution of the Board of Directors of the Fund, to give Oral Instructions
on behalf of the Fund.
115
<PAGE>
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to CSS in original writing containing original signatures
or a copy of such document transmitted by telecopy including transmission of
such signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give
Written Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
THE WORLD FUNDS, INC.
By:
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
President
116
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
CSI FIXED INCOME FUND
Pursuant to Section 9 of the Administrative Services Agreement, dated
October 14, 1997, by and between The World Funds, Inc. (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the CSI Fixed Income Fund
series of the Fund shall pay CSS a fee calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at the
rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of $30 per
hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the rate of
0.2% per annum of the average daily net assets on the first $50
million (with a minimum fee of $30,000), 0.15% per annum of the
average daily net assets from $50 million to $100 million, and 0.1%
per annum of the average daily net assets over $100 million.
D. In addition to the foregoing, the Fund shall reimburse CSS, from the
assets of the Portfolio, for the Portfolio's proportionate share of
general expenses incurred for the Fund and for all expenses incurred
by the Portfolio individually. Such out-of-pocket expenses shall
include, but not be limited to: documented fees and costs of
obtaining advice of counsel or accountants in connection with its
services to the Fund; postage; long distance telephone; special forms
required by the Fund; any travel which may be required in the
performance of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the Fund.
117
<PAGE>
FUND ACCOUNTING SERVICE AGREEMENT
This agreement (the "Agreement") is entered into as of the 18th day of
August, 1997 by and between The World Funds, Inc., (the "Fund"), an open-end
diversified investment business corporation organized under the laws of
Maryland and having its office at 1500 Forest Avenue, Suite 223, Richmond,
Virginia, 23229, for the benefit of the Sand Hill Portfolio Manager Fund
series (the "Series") and Star Bank, National Association, (the "Star Bank"),
a national banking association having its principal office at 425 Walnut
Street, Cincinnati, Ohio, 45202.
WHEREAS, the Fund desires to appoint Star Bank as an Accounting Services
Agent to maintain and keep current the books, accounts, records, journals or
other records of original entry relating to the business of the Series as set
forth in this Agreement; and
WHEREAS, the Fund will cause to be provided certain information to Star
Bank as set forth below:
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereafter contained, the parties hereto agree as follows:
Section 1. DEFINITIONS
For purposes of this Agreement, the terms Oral Instructions and Written
Instructions shall mean:
(a) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to Star Bank in person or by telephone, telegram,
telecopy or other mechanical or documentary means lacking an original
signature, by a person or persons believed in good faith by Star Bank to be a
person or persons authorized by a resolution of the Board of Directors of the
Fund, to give Oral Instructions on behalf of the Fund.
(b) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data or information of
any kind transmitted to Star Bank bearing an original signature of an
authorized person, or a copy of such document transmitted by telecopy
including transmission of such signature believed in good faith by Star Bank
to be the signature of a person authorized by a resolution of the Board of
Directors of the Fund to give Written Instructions of behalf of the Fund.
(c) The Fund shall file with Star Bank a certified copy of each
resolution of its Board of Directors authorizing execution of Written
Instructions or the transmittal of Oral Instructions as provided above.
Section 2. SCOPE OF DUTIES OF STAR BANK
(a) Upon receipt of the necessary information from the Fund or its agents
by Written or Oral Instructions, Star Bank shall maintain and keep current the
following Accounts and Records relating to the business of the Series, in such
form as may be mutually agreed to between the Fund and Star Bank, and as may
be required by the Investment Company Act of 1940 (the "Act"):
118
<PAGE>
(1) Cash Receipts Journal
(2) Cash Disbursements Journal
(3) Dividends Paid and Payable Schedule
(4) Purchase and Sales Journals - Portfolio Securities
(5) Subscription and Redemption Journals
(6) Security Ledgers - Transaction Report and Tax Lot Report
(7) Broker Ledger - Commission Report
(8) Daily Expense Accruals
(9) Daily Interest Accruals
(10) Daily Trial Balance
(11) Portfolio Interest Receivable and Income Journal
(12) Listing of Portfolio Holdings showing cost, market value
and percentage of portfolio comprised of each security.
(b) Star Bank shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
Section 3. LIMITATION OF LIABILITY OF STAR BANK
(a) Unless necessary information to perform the above functions is
furnished by Written or Oral Instructions to Star Bank in a timely manner to
enable the daily calculation of the Fund's net asset value at the time set by
the Fund pursuant to Rule 22c-1 under the Act, Star Bank shall incur no
liability, and the Fund shall indemnify and hold harmless Star Bank from and
against any liability arising from any failure to provide complete information
or from any discrepancy between the information received by Star Bank and used
in such calculations and any subsequent information received from the Fund or
any of its designated Agents.
(b) Star Bank may rely upon the advice of the Fund, or of counsel for the
Fund and upon statements of the Fund's independent accountants, brokers and
other persons reasonably believed by it in good faith to be expert in the
matters upon which they are consulted and for any actions reasonably taken in
good faith reliance upon such statements and without negligence or willful
misconduct, Star Bank shall not be liable to anyone.
Section 4. REPORTS
(a) The Fund shall provide to Star Bank on a quarterly basis a report of
a duly authorized officer of the Fund representing that all information
furnished to Star Bank during the preceding quarter was true, complete and
correct in all material respects. Star Bank shall not be responsible for the
accuracy of any information furnished to it by the Fund or its authorized
agents, and the Fund shall hold Star Bank harmless in regard to any liability
incurred by reason of the inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this
Agreement, Star Bank determines, on the basis of information supplied to Star
Bank by the Fund or its authorized agents, that a violation of applicable law
has occurred or that, to its knowledge, a possible violation of applicable law
may have occurred or, with the passage of time, would occur, Star Bank shall
promptly notify the Fund and its counsel of such violation.
119
<PAGE>
Section 5. PRICING
(a) Star Bank shall perform ministerial calculations necessary to
calculate the Fund's net asset value daily, in accordance with the Fund's
current prospectus and utilizing the information described in this Section.
(b) Portfolio investments for which market value is to be determined by
the use of an automated financial service (a "Pricing Service") approved by
the Fund shall be valued based on the prices of the portfolio investment
reported by such Pricing Service except where the Fund has given or caused to
be given specific Written or Oral Instructions to utilize a different value.
Notwithstanding any information obtained from a Pricing Service, all portfolio
securities shall be given such values as the Fund shall direct by Written or
Oral Instructions, including all restricted securities and other securities
requiring valuation not readily ascertainable solely by the use of such a
Pricing Service.
(c) Star Bank shall have no responsibility or liability for the accuracy
of prices quoted by any recognized Pricing Service used by it pursuant to the
preceding paragraph; for the accuracy of the information supplied by the Fund;
or for any loss, liability, damage, or cost arising out of any inaccuracy of
such data, unless Star Bank is itself negligent with respect thereto.
Section 6. RELIANCE UPON INSTRUCTIONS
(a) For all purposes under this Agreement, Star Bank is authorized to act
upon receipt of the first of any Written or Oral Instructions it receives from
the Fund or authorized agents of the Fund. In cases where the first
instruction is an Oral Instruction that is not in the form of a document or
written record, a confirmatory Written Instruction or Oral Instruction in the
form of a document or written record shall be delivered, and in cases where
Star Bank receives an Instruction, whether Written or Oral, to enter a
portfolio transaction on the records, the Fund shall cause the broker-dealer
to send a written confirmation to Star Bank.
(b) Star Bank shall be entitled to rely on the first Instruction received
by it, and for any act or omission undertaken in compliance therewith shall be
free of liability and fully indemnified and held harmless by the Fund. If
additional Instructions are received by the bank prior to complying with the
original Instruction, the sole obligation of Star Bank with respect to any
follow-up or confirmatory Written Instruction, Oral Instruction in documentary
or written form, or broker-dealer written confirmation shall be to make
reasonable efforts to detect any such discrepancy between the original
Instruction and such confirmation and to report such discrepancy to the Fund.
The Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any discrepancy or error.
Section 7. OWNERSHIP OF AND ACCESS TO FUND RECORDS
(a) It is agreed that the Accounts and Records maintained by Star Bank
for the Fund are the property of the Fund, and shall be made available to the
Fund promptly upon request and shall be maintained for the periods prescribed
in Rule 31(a)-2 under the Act.
120
<PAGE>
(b) Star Bank shall assist the Fund's independent auditors or, upon
lawful demand, any authorized regulatory body, in any authorized inspection or
review of the Fund's Accounts and Records.
Section 8. PROCEDURES AND COMPLIANCE
Star Bank and the Fund may from time to time adopt such procedures as they
agree upon in writing, and Star Bank may conclusively assume that any
procedure approved or directed by the Fund does not conflict with or violate
any requirements of its Prospectus, Articles of Incorporation, By-Laws, or any
rule or regulation of any regulatory body or governmental agency. The Fund
shall be responsible for notifying Star Bank of any changes in regulations or
rules which might necessitate changes in Star Bank's procedures, and for
working out such changes with Star Bank.
Section 9. COMPENSATION
In consideration of the services to be performed by Star Bank, the Fund
agrees to pay Star Bank the fees and reimbursement of out-of-pocket expenses
as set forth in the fee schedule attached hereto as Schedule A.
Section 10. HOLIDAYS
Nothing contained in this Agreement is intended to or shall require Star
Bank, in any capacity hereunder, to perform any functions or duties on any
holiday, day of special observance or any other day on which the Custodian or
the New York Stock Exchange is closed. Functions or duties normally scheduled
to be performed on such days shall be performed, and as of, the next
succeeding business day on which both the New York Stock Exchange and the
Custodian are open. Not withstanding the foregoing, Star Bank shall compute
the net asset value of the Fund on each day required pursuant to Rule 22c-1
promulgated under the Act.
Section 11. AGENTS
Star Bank reserves the right to appoint, in its sole discretion, agents who
may serve as accounting service agents, or perform any part of the duties and
responsibilities of Star Bank under this Agreement, provided, that no
appointment under this section shall become effective as to the Fund until
approved by the Fund in writing.
Section 12. TERMINATION
Either Party hereto may give written notice to the other party (the
"Termination Notice") of the termination of this Agreement. Such Termination
Notice shall state a date upon which the termination is effective (the
"Termination Date"), which shall be not less than sixty (60) days after the
date of the giving of the notice unless otherwise agreed by the parties hereto
in writing.
121
<PAGE>
Section 13. NOTICE
Any notice or other communication required by or permitted to be given in
connection with this Agreement shall be in writing, and shall be delivered in
person or sent by first class mail, postage prepaid to the respective parties
as follows:
If to the Fund:
The World Funds, Inc.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
If to Star Bank:
Star Bank, N.A.
425 Walnut Street ML 6118
Cincinnati, OH 45202
Section 14. AMENDMENTS TO BE IN WRITING
This Agreement may be amended from time to time by a writing executed by
the Fund and Star Bank. The compensation stated in Schedule A attached hereto
may be adjusted from time to time by the execution of a new schedule signed by
both of the parties.
Section 15. CONTROLLING LAW
This Agreement shall be construed in accordance with the laws of the State
of Ohio.
Section 16. JURISDICTION
Any legal action, suit or proceeding to be instituted by either party with
respect to this Agreement shall be brought by such party exclusively in the
courts of the State of Ohio or in courts of the United States for the Southern
District of Ohio, and each party, by its execution of this Agreement,
irrevocably (i) submits to such jurisdiction and (ii) consents to the service
of any process or pleadings by first class U.S. mail, postage prepaid and
return receipt requested, or by any other means from time to time authorized
by the laws of such jurisdiction.
Section 17. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
Section 18. HEADINGS
The headings of paragraphs in this Agreement are for convenience of
reference only and shall not affect the meaning or construction of any
provision of this Agreement.
122
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
The World Funds, Inc.
ATTEST:
By: ___________________________
__________________ John Pasco III
Title: Chairman
Star Bank, N.A.
ATTEST:
By: ____________________________
_______________ Marsha A. Croxton
Title: Vice President
123
<PAGE>
SCHEDULE A
1. Domestic and ADR Securities Annual Basic Fee per portfolio (1/12
payable monthly)
$12,000 Minimum up to $5 Million Average Net Assets
$18,000 Minimum up to $10 Million Average Net Assets
$24,000 Minimum up to $25 Million Average Net Assets
.0002 on Next $75 Million of Average Net Assets
Should total assets exceed $100 Million/Fund the fee schedule
will be renegotiated.
2. Should the Series security trading activity exceed an average of 100
trades per month per portfolio, and additional fee of $2.50 will be
charged per trade.
124
<PAGE>
FUND ACCOUNTING SERVICE AGREEMENT
This agreement (the "Agreement") is entered into as of the 14th day of
October, 1997 by and between The World Funds, Inc., (the "Fund"), an open-end
diversified investment business corporation organized under the laws of Maryland
and having its office at 1500 Forest Avenue, Suite 223, Richmond, Virginia,
23229, on behalf of the CSI Equity Fund series and the CSI Fixed Income Fund
series and any other series (the "Series") as may from time to time be created
and designated by the Fund and which becomes subject to this Agreement by the
mutual consent of the parties hereto, and Star Bank, National Association, (the
"Star Bank"), a national banking association having its principal office at 425
Walnut Street, Cincinnati, Ohio, 45202. WHEREAS, the Fund desires to appoint
Star Bank as an Accounting Services Agent to maintain and keep current the
books, accounts, records, journals or other records of original entry relating
to the business of the Series as set forth in this Agreement; and WHEREAS, the
Fund will cause to be provided certain information to Star Bank as set forth
below: NOW, THEREFORE, in consideration of the premises and mutual covenants
hereafter contained, the parties hereto agree as follows:
Section 1. DEFINITIONS For purposes of this Agreement, the terms Oral
Instructions and Written Instructions shall mean:
(a) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to Star Bank in person or by telephone, telegram, telecopy or
other mechanical or documentary means lacking an original signature, by a person
or persons reasonably believed in good faith by Star Bank to be a person or
persons authorized by a resolution of the Board of Directors of the Fund, to
give Oral Instructions on behalf of the Fund. (b) Written Instructions: The term
Written Instructions shall mean an authorization, instruction, approval, item or
set of data or information of any kind transmitted to Star Bank bearing an
original signature of an authorized person, or a copy of such document
transmitted by telecopy including transmission of such signature
125
<PAGE>
reasonably believed in good faith by Star Bank to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give Written
Instructions of behalf of the Fund.
(c) The Fund shall file with Star Bank a certified copy of each resolution
of its Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 2. SCOPE OF DUTIES OF STAR BANK (a) Upon receipt of the necessary
information from the Fund or its agents by Written or Oral Instructions, Star
Bank shall maintain and keep current the following Accounts and Records relating
to the business of the Series, in such form as may be mutually agreed to between
the Fund and Star Bank, and as may be required by the Investment Company Act of
1940 (the "Act"):
(1) Cash Receipts Journal
(2) Cash Disbursements Journal
(3) Dividends Paid and Payable Schedule
(4) Purchase and Sales Journals - Portfolio Securities
(5) Subscription and Redemption Journals
(6) Security Ledgers - Transaction Report and Tax Lot Report
(7) Broker Ledger - Commission Report
(8) Daily Expense Accruals
(9) Daily Interest Accruals
(10) Daily Trial Balance
(11) Portfolio Interest Receivable and Income Journal
(12) Listing of Portfolio Holdings showing cost, market value
percentage of portfolio comprised of each security.
(b) Star Bank shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
Section 3. LIMITATION OF LIABILITY OF STAR BANK (a) Unless necessary
information to perform the above functions is furnished by Written or Oral
Instructions to Star Bank in a timely manner to enable the daily calculation of
the Fund's net asset value at the time set by the Fund pursuant to Rule 22c-1
under the Act, Star Bank shall incur no liability, and the Fund shall indemnify
and hold harmless Star Bank from and against any liability arising from any
failure by the
126
<PAGE>
Fund to provide complete information or from any discrepancy between the
information received by Star Bank from the Fund and used in such calculations
and any subsequent information received by Star Bank from the Fund or any of its
designated Agents. (b) Star Bank may rely upon the advice of the Fund, or of
counsel for the Fund and upon statements of the Fund's independent accountants,
brokers and other persons reasonably believed by it in good faith to be expert
in the matters upon which they are consulted and for any actions reasonably
taken in good faith reliance upon such statements and without negligence or
willful misconduct, Star Bank shall not be liable to anyone.
Section 4. REPORTS (a) The Fund shall provide to Star Bank on a quarterly
basis a report of a duly authorized officer of the Fund representing that all
information furnished to Star Bank during the preceding quarter was true,
complete and correct in all material respects. Star Bank shall not be
responsible for the accuracy of any information furnished to it by the Fund or
its authorized agents, and the Fund shall hold Star Bank harmless in regard to
any liability incurred by reason of the inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this Agreement,
Star Bank determines, on the basis of information supplied to Star Bank by the
Fund or its authorized agents, that a violation of applicable law has occurred
or that, to its knowledge, a possible violation of applicable law may have
occurred or, with the passage of time, would occur, Star Bank shall promptly
notify the Fund and its counsel of such violation.
Section 5. PRICING (a) Star Bank shall perform ministerial calculations
necessary to calculate the Fund's net asset value daily, in accordance with the
Fund's current prospectus and utilizing the information described in this
Section.
(b) Portfolio investments for which market value is to be determined by the
use of an automated financial service (a "Pricing Service") approved by the Fund
shall be valued based on the prices of the portfolio investment reported by such
Pricing Service except where the Fund has given or caused to be given specific
Written or Oral Instructions to utilize a different value. Notwithstanding any
information obtained from a Pricing Service, all portfolio securities shall be
given such values as the Fund shall
127
<PAGE>
direct by Written or Oral Instructions, including all restricted securities
and other securities requiring valuation not readily ascertainable solely by the
use of such a Pricing Service. (c) Star Bank shall have no responsibility or
liability for the accuracy of prices quoted by any recognized Pricing Service
used by it pursuant to the preceding paragraph; for the accuracy of the
information supplied by the Fund; or for any loss, liability, damage, or cost
arising out of any inaccuracy of such data, unless Star Bank is itself negligent
with respect thereto.
Section 6. RELIANCE UPON INSTRUCTIONS (a) For all purposes under this
Agreement, Star Bank is authorized to act upon receipt of the first of any
Written or Oral Instructions it receives from the Fund or authorized agents of
the Fund. In cases where the first instruction is an Oral Instruction that is
not in the form of a document or written record, a confirmatory Written
Instruction or Oral Instruction in the form of a document or written record
shall be delivered, and in cases where Star Bank receives an Instruction,
whether Written or Oral, to enter a portfolio transaction on the records, the
Fund shall cause the broker- dealer to send a written confirmation to Star Bank.
(b) Star Bank shall be entitled to rely on the first Instruction received
by it, and for any act or omission undertaken in compliance therewith shall be
free of liability and fully indemnified and held harmless by the Fund unless
such act or omission was negligent. If additional Instructions are received by
the bank prior to complying with the original Instruction, the sole obligation
of Star Bank with respect to any follow-up or confirmatory Written Instruction,
Oral Instruction in documentary or written form, or broker-dealer written
confirmation shall be to make reasonable efforts to detect any such discrepancy
between the original Instruction and such confirmation and to report such
discrepancy to the Fund. The Fund shall be responsible, at the Fund's expense,
for taking any action, including any reprocessing, necessary to correct any
discrepancy or error.
Section 7. OWNERSHIP OF AND ACCESS TO FUND RECORDS (a) It is agreed that
the Accounts and Records maintained by Star Bank for the Fund are the property
of the Fund, and shall be made available to the Fund promptly
128
<PAGE>
upon request and shall be maintained for the periods prescribed in Rule
31(a)-2 under the Act.
(b) Star Bank shall assist the Fund's independent auditors or, upon lawful
demand, any authorized regulatory body, in any authorized inspection or review
of the Fund's Accounts and Records.
Section 8. PROCEDURES AND COMPLIANCE Star Bank and the Fund may from time
to time adopt such procedures as they agree upon in writing, and Star Bank may
conclusively assume that any procedure approved or directed by the Fund does not
conflict with or violate any requirements of its Prospectus, Articles of
Incorporation, By-Laws, or any rule or regulation of any regulatory body or
governmental agency. The Fund shall be responsible for notifying Star Bank of
any changes in regulations or rules which might necessitate changes in Star
Bank's procedures, and for working out such changes with Star Bank.
Section 9. COMPENSATION In consideration of the services to be performed by
Star Bank, the Fund agrees to pay Star Bank the fees and reimbursement of
out-of-pocket expenses as set forth in the fee schedule attached hereto as
Schedule A.
Section 10. HOLIDAYS Nothing contained in this Agreement is intended to or
shall require Star Bank, in any capacity hereunder, to perform any functions or
duties on any holiday, day of special observance or any other day on which Star
Bank or the New York Stock Exchange is closed. Functions or duties normally
scheduled to be performed on such days shall be performed, and as of, the next
succeeding business day on which both the New York Stock Exchange and the
Custodian are open. Not withstanding the foregoing, Star Bank shall compute the
net asset value of the Fund on each day required pursuant to Rule 22c-1
promulgated under the Act.
Section 11. AGENTS Star Bank reserves the right to appoint, in its sole
discretion, agents who may serve as accounting service agents, or perform any
part of the duties and responsibilities of Star
129
<PAGE>
Bank under this Agreement, provided, that no appointment under this section
shall become effective as to the Fund until approved by the Fund in writing.
Section 12. TERMINATION Either Party hereto may give written notice to the
other party (the "Termination Notice") of the termination of this Agreement.
Such Termination Notice shall state a date upon which the termination is
effective (the "Termination Date"), which shall be not less than sixty (60) days
after the date of the giving of the notice unless otherwise agreed by the
parties hereto in writing.
Section 13. NOTICE Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in writing, and
shall be delivered in person or sent by first class mail, postage prepaid to the
respective parties as follows:
If to the Fund:
The World Funds, Inc.
1500 Forest Avenue, Suite 223
Richmond, VA 23229
If to Star Bank:
Star Bank, N.A.
425 Walnut Street ML 6118
Cincinnati, OH 45202
Section 14. AMENDMENTS TO BE IN WRITING This Agreement may be amended from
time to time by a writing executed by the Fund and Star Bank. The compensation
stated in Schedule A attached hereto may be adjusted from time to time by the
execution of a new schedule signed by both of the parties.
Section 15. CONTROLLING LAW This Agreement shall be construed in accordance
with the laws of the State of Ohio.
130
<PAGE>
Section 16. JURISDICTION Any legal action, suit or proceeding to be
instituted by either party with respect to this Agreement shall be brought
by such party exclusively in the courts of the State of Ohio or in courts
of the United States for the Southern District of Ohio, and each party, by
its execution of this Agreement, irrevocably (i) submits to such
jurisdiction and (ii) consents to the service of any process or pleadings
by first class U.S. mail, postage prepaid and return receipt requested, or
by any other means from time to time authorized by the laws of such
jurisdiction.
Section 17. COUNTERPARTS This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
Section 18. HEADINGS The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
The World Funds, Inc.
ATTEST:
By: ___________________________
____________________ John Pasco III
Title: Chairman
Star Bank, N.A.
ATTEST:
By: ____________________________
____________________ Marsha A. Croxton
Title: Vice President
131
<PAGE>
132
<PAGE>
SCHEDULE A
1. Domestic and ADR Securities Annual Basic Fee per portfolio (1/12
payable monthly)
$12,000 Minimum up to $5 Million Average Daily Net Assets
$18,000 Minimum up to $10 Million Average Daily Net Assets
$24,000 Minimum up to $25 Million Average Daily Net Assets
.0002 on Next $75 Million of Average Daily Net Assets
Should total assets exceed $100 Million/Fund the fee schedule will be
renegotiated.
2. Should the Series security trading activity exceed an average of 100
trades per month per portfolio, and additional fee of $2.50 will be
charged per trade.
133
<PAGE>
FUND EXPENSE AGREEMENT
Agreement dated August 19, 1997.
WHEREAS, The World Funds, Inc. (the "Fund") is a registered investment
company which is obligated to pay from its assets the just and proper
debts of the Fund, and
WHEREAS, Commonwealth Shareholder Services, Inc. ("CSS") serves as
Administrator for the Fund, and
WHEREAS, as Administrator for the Fund, CSS is charged with arranging for
the payment by the Fund of the Fund's just and proper debts, and
WHEREAS, the Fund and CSS wish to provide for the efficient and
economical payment of the debts of the Fund, and
WHEREAS, the Fund and CSS wish to revise the procedures for the lawful
and efficient payment of the Fund's debts,
NOW THEREFORE, in furtherance of the Administrative Agreements currently in
effect between the Fund and CSS, the Fund and CSS, for good and valid
consideration, and intending to be legally bound, have entered into this
Agreement (the "Agreement") that:
1. CSS shall arrange for the payment on behalf of the Fund of the debts of the
Fund. In connection therewith:
1.1 CSS may require and direct the Fund or any duly authorized custodian
of, or agent acting for, the Fund to deliver a check or draft payable by or from
the
134
<PAGE>
assets of the Fund, or otherwise transfer monies, to make payment of any
debt of the Fund.
1.2 CSS may elect to advance monies for the purpose of making any payment
of a debt of the Fund, subject to the right of CSS promptly to be made whole for
such advance.
1.3 Any payment made by or at the instance of CSS under this paragraph
shall only be effected as and when the payment of the debt in question has been
authorized by, and duly approved in accordance with, procedures set and approved
by the Board of Directors of the Fund.
1.4 Subject to written modification by agreement of the Fund and CSS, CSS
shall arrange for payment of the debts of
-2-
the Fund twice each calendar month, or more frequently as the Fund's
payment needs may dictate.
1.5 CSS shall deliver to the Fund's custodian a schedule of such payments
by CSS of debts of the Fund (a "Certification"), indicating whether such payment
has been made from assets of the Fund, or from amounts advanced by CSS. Each
Certification shall set forth a written breakdown of the expense category of
each item for which payment has been made, and for which reimbursement is
requested by such certification, indicating the form of payment thereof.
2. Upon receipt of a Certification from CSS, the Fund shall promptly
reimburse CSS for amounts advanced by CSS for the payment of the just debts of
the Fund. Such reimbursement shall be made by a wire or comparable transfer of
monies from the Fund to CSS, such transfer in good funds to be effective five
business days following the payment of the expenses for such Certification.
135
<PAGE>
IN WITNESS WHEREOF, the undersigned, each being duly authorized, has
executed this Agreement on the date first set forth above:
THE WORLD FUNDS, INC.
By: __________________________________
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By: ___________________________________
John Pasco, III
President
136
<PAGE>
THE WORLD FUNDS, INC. - INDIVIDUAL RETIREMENT ACCOUNTS
SERVICE AGREEMENT
This Agreement is made as of the 1st day of January, 1997, between Star
Bank N.A. ("Star Bank"), a national bank incorporated under Ohio law having a
place of business at 425 Walnut Street, Cincinnati, Ohio 45202; The World Funds,
Inc. (the "World Funds"), a Maryland corporation having its principal place of
business at 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229; and Fund
Services, Inc. ("FSI"), a Virginia corporation having its principal place of
business at 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229.
WHEREAS, World Funds desires to retain Star Bank as custodian
under World Funds's model Individual Retirement Account ("IRA") plan
for exclusive investment in shares of certain World Funds-sponsored
mutual funds (the "IRA Plan"); and
WHEREAS, FSI is the transfer agent for the Sand Hill Portfolio
Manager Fund series and the Vontobel U. S. Value Fund series,
hereinafter referred to as the "Funds", and any future funds
established as a series of World Funds; and
WHEREAS, Star Bank wishes to retain FSI to provide administrative and
recordkeeping services for the IRA Accounts (as hereafter defined); and
WHEREAS, FSI, as the World Funds' transfer agent, has agreed that
it can, and will, furnish the necessary administrative and
recordkeeping services applicable to the IRA Accounts on behalf of
Star Bank;
NOW, THEREFORE, in consideration of the respective undertakings and consents set
forth herein, and intending to be legally bound, the parties do hereby agree as
follows:
1. Star Bank will act as custodian under the terms of the Individual
Retirement Account Custodial Account Agreement, a copy of which is attached
hereto, as said agreement may from time to time hereafter be amended with Star
Bank's prior written consent (the "Custodial Account Agreement") for World
Funds' IRA accounts which are invested exclusively in shares of the Funds and
for which Star Bank is appointed the custodian by the Depositor (as defined in
the Custodian Account Agreement, which term shall accordingly mean the
individual depositor identified in an IRA application) (the aforesaid accounts
being hereinafter referred to as the "IRA Accounts") and as otherwise provided
under such agreement. Under no circumstances shall Star Bank be required to
provide any other services to the IRA Accounts. Star Bank shall act as such
custodian under the terms of and with the benefit of this Service Agreement.
137
<PAGE>
-2-
2. Star Bank hereby designates FSI as its agent to service the IRA
Accounts. FSI agrees to perform the services set forth in this Service
Agreement, including in Schedule A attached hereto, on behalf of Star Bank.
3. FSI is responsible for all recordkeeping with respect to the IRA Plan
and IRA Accounts, including existing and new IRA Accounts, all payment and
withdrawal activity, dividend processing, data changes and file maintenance and
the preparation, reporting and filing on behalf of, and with the consent and
review by, Star Bank of all informational tax returns and reports and all other
filing and reporting requirements imposed on a custodian pursuant to tax,
securities, labor, banking or any other applicable laws or regulations.
Without limiting the generality of the preceding paragraph, FSI is
responsible for the preparation and filing of all special tax reports relating
to IRA plans and accounts, for delivering to Depositors information as to the
withholding options available to holders of IRA accounts and for withholding and
paying over to appropriate tax authorities any amounts to be withheld in respect
of any IRA Accounts.
Prior to filing or delivering any of the aforesaid documents to any
Depositors or to tax, securities, labor, banking or other applicable regulatory
authorities, FSI shall provide drafts of such documents to Star Bank for its
examination, it being understood that this requirement shall not, however, in
any way reduce FSI's responsibility for the accuracy and completeness of such
documents and their compliance with all applicable laws and regulations relating
thereto.
Upon request of Star Bank, FSI shall confirm in writing to Star Bank, from
time to time, performance by FSI of its aforesaid responsibilities, including
compliance with all such filing and reporting requirements, and FSI shall make
such records available to Star Bank from time to time as Star Bank shall
request, in order to allow Star Bank to satisfy itself as to such performance
and compliance as well as compliance with sound auditing practices. FSI also
agrees to provide at its expense to Star Bank not less frequently than annually
an audit of compliance of the IRA Plan and IRA Accounts with all recordkeeping,
reporting and filing requirements imposed by applicable laws or regulations,
such audit to be performed by an accounting firm satisfactory to Star Bank.
FSI represents that it has received assurances from previous custodians of
the IRA Accounts (together World Funds's former IRA custodians), that all
reports and filings required by applicable law or regulation or by agreement
with Depositors have been made in a timely fashion as of the effective date of
this Agreement and as of the date of actual execution hereof.
138
<PAGE>
-3-
4. World Funds is responsible for preparing and maintaining up to date,
including in connection with any changes in applicable law or regulation, the
Individual Retirement Account Disclosure Statement and the Custodial Account
Agreement and any other documentation pursuant to which the IRA Plan or the IRA
Accounts have been or shall be established, as well as all prospectuses,
statements of additional information, registration statements and other
materials provided to shareholders of the Funds generally, including to the
Depositors. World Funds is responsible for distribution to the Depositors of
prospectuses, statements of additional information, registration statements and
other materials to be provided to shareholders of the Funds generally, including
to new or existing Depositors.
World Funds shall promptly notify Star Bank and FSI in writing of any
amendments and/or modifications to the IRA Plan documents and promptly provide
both Star Bank and FSI with copies of the same. World Funds shall also promptly
deliver to Star Bank and FSI copies of any and all annual or semiannual reports
for the Funds or other communications or documents generally distributed to
shareholders of the Funds, as well as copies of all prospectuses, statements of
additional information, registration statements and amendments thereto relating
to the Funds.
5. FSI agrees to fully indemnify, protect and hold harmless Star Bank from
and against any and all losses, damages, costs, expenses, claims, liabilities
and responsibilities of whatever kind and nature, including reasonable
attorney's fees and costs, which Star Bank may suffer or incur arising from
FSI's failure to perform its duties under this Agreement or FSI's failure to
perform its duties under any other agreement or document relating to the IRA
Plan or the IRA Accounts (collectively referred to as "FSI-Caused Losses"),
including FSI-Caused Losses which Star Bank may suffer or incur arising from
Star Bank's performance hereunder as custodian of the IRA Accounts (except in
respect of Star Bank's negligence or willful default), such as but not limited
to responsibilities imposed by law on Star Bank as custodian or liabilities
incurred in respect of the inaccuracy or incompleteness of, or the misstatement
of material fact or failure to state a material fact in, or noncompliance with
applicable law or regulation of, any IRA Plan documents, IRA Account documents
or tax or informational returns, or other documents delivered or required to be
delivered to Depositors.
FSI hereby agrees to fully indemnify, protect and hold harmless World Funds
from and against any and all losses, damages, costs, expenses, claims,
liabilities and responsibilities of whatever kind and nature, including
reasonable attorney's fees and costs, which World Funds may suffer or incur
arising from the failure of FSI to properly perform its duties under the
Agreement.
139
<PAGE>
-4-
FSI hereby represents and warrants that as of the effective date of this
Agreement and as of the date of execution hereof, it has no knowledge, direct or
indirect, of any outstanding claims or liabilities relating to prior acts or
omissions of any prior custodian of the IRA Plans and any IRA Account or of any
prior acts or omissions of FSI or World Funds for which Star Bank might as
custodian be asserted to be responsible or liable.
Without limiting the foregoing in any way, FSI agrees that it shall
maintain in effect errors and omissions insurance in the amount of One Million
($1,000,000) Dollars during the term of this Agreement and any renewals hereof.
FSI shall at least annually provide Star Bank with written proof that such
insurance is in effect.
6. World Funds agrees to fully indemnify, protect and hold harmless Star
Bank and FSI from and against any and all losses, damages, costs, expenses,
claims, liabilities and responsibilities of whatever kind and nature, including
reasonable attorney's fees and costs, which Star Bank or FSI may suffer or incur
arising from World Funds' failure to perform its duties under this Agreement or
World Funds' failure to perform its duties under any other agreement or document
relating to the IRA Plan or the IRA Accounts (collectively referred to as "World
Funds-Caused Losses"), such obligations to indemnify shall include World
Funds-Caused Losses which Star Bank may suffer or incur arising from Star Bank's
performance hereunder or under the Custodial Account Agreement or its status as
custodian of the IRA Accounts (except in respect of Star Bank's negligence or
willful default), such as but not limited to responsibilities imposed by law on
Star Bank as custodian or liabilities incurred in respect of the inaccuracy or
incompleteness of, or the misstatement of material fact or failure to state a
material fact in, or noncompliance with applicable law or regulation of, any IRA
Plan documents, IRA Account documents or tax or informational returns, or World
Funds or Fund prospectuses, statements of additional information, registration
statements or other documents delivered or required to be delivered to
Depositors.
World Funds hereby represents and warrants that as of the effective date of
this Agreement and as of the date of execution hereof, it has no knowledge,
direct or indirect, of any outstanding claims or liabilities relating to prior
acts or omissions of any prior custodian of the IRA Plans and any IRA Account or
of any prior acts or omissions of FSI or World Funds for which Star Bank might
as custodian be asserted to be responsible or liable.
7. Within one month of the date of this Agreement, FSI shall deliver to
Star Bank a copy of its disaster recovery plan and FSI shall promptly deliver to
Star Bank, from time to time, copies of any amendments and/or modifications to
the disaster recovery plan.
140
<PAGE>
-5-
8. FSI shall promptly deliver to Star Bank copies of all written
correspondence received by FSI from the U.S. Securities and Exchange Commission,
the Internal Revenue Service or any other governmental agencies regarding any
act, transaction, duty or failure to perform any act or duty which is the
subject matter of or is related to the IRA Accounts, this Agreement or the
performance thereof.
9. FSI shall promptly deliver to Star Bank copies of any letters or
correspondence concerning FSI's performance or responsibilities under this
Agreement received by FSI from its independent accountants who audit or review
FSI's books and records or from any Depositor.
10. As compensation for its custodial services for the IRA Accounts, Star
Bank will receive from each Depositor an annual maintenance fee of $20.00 per
fund account, per year. This fee will remain in effect for a three (3) year
period and thereafter may be increased upon thirty days' notice from Star Bank
to World Funds.
11. For its services to Star Bank under this Agreement, FSI shall be
entitled to retain from the aforesaid annual maintenance fee $10.00 per fund
account, per year. Reimbursements for forms, postage and other out-of-pocket
expenses incurred by FSI in executing its responsibilities under this Agreement
will be billable to the respective Fund as an expense incurred on behalf of Star
Bank chargeable to the Fund.
12. FSI agrees to collect the published annual maintenance fees from the
Depositors (pursuant to Paragraph 10 above) and to remit to Star Bank the net
amount due Star Bank (after deduction of the fee due FSI pursuant to Paragraph
11) within ten (10) business days after the end of each month in which such fees
are collected. The annual maintenance fees will ordinarily be collected during
the month of September and remitted to Star Bank in October. Fees from a
complete distribution, exchange or roll- over/transfer, or similar transaction,
will be collected as part of the transaction processing and remitted within ten
(10) business days after the end of the month in which the transaction occurred.
13. This Agreement may be terminated by any party, without prejudice to any
obligations or liabilities of a party which have arisen prior to or relate to a
period prior to termination, upon thirty days' prior written notice to the other
parties, provided that if termination is by FSI or World Funds and Star Bank so
advises them within said thirty- day period, termination of this Agreement shall
not become effective until, and shall occur simultaneously with, termination of
Star Bank's position as custodian for the IRA Accounts provided that Star Bank
shall promptly notify the Depositors of its determination to cease acting as
custodian.
141
<PAGE>
-6-
This Agreement may not be amended except by written agreement executed by
all of the parties hereto. No provision of this Agreement shall be deemed waived
unless said waiver is evidenced by a writing executed by the party to be bound.
14. The books, records, information and operations of FSI under this
Agreement shall be subject to inspection or audit by Star Bank, its independent
auditors, its agents and appropriate supervisory authorities, including the
National Association of Securities Dealers and the Securities and Exchange
Commission.
15. As of the end of each calendar month, FSI will promptly supply a report
to Star Bank as to the account number, short name, tax ID number, blue sky
state, number of shares held on a Fund-by-Fund basis, and value of each IRA
Account open as of the end of the month and each IRA Account closed during the
month, as well as the total activity for the month.
In addition, as of June 30th and December 31st, FSI will promptly supply a
similar report for the six months ended that date, provided that the six-month
report shall include the full name and address of each IRA Account.
16. This Agreement shall be governed by and construed in accordance with
the law of the State of Ohio, without giving effect to conflicts of laws
principles.
17. All notices, requests, consents and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been given when
sent by first class mail, or by personal delivery.
(a) Notices to World Funds shall be directed to:
World Funds, Inc.
1500 Forest Avenue
Suite 223
Richmond, VA 23229
Attention: John Pasco, III, Chairman
(b) Notices to FSI shall be directed to:
Fund Services, Inc.
1500 Forest Avenue
Suite 111
Richmond, VA 23229
Attention: William R. Carmichael, President
142
<PAGE>
-7-
(c) Notices to Star Bank shall be directed to:
Star Bank N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Marsha A. Croxton
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered by their proper officers as of the day and year first
above written.
ATTEST: THE WORLD FUNDS, INC.
_____________________________ ________________________________________
John Pasco, III
Chairman
ATTEST: FUND SERVICES, INC.
_____________________________ ________________________________________
William R. Carmichael
President
ATTEST: STAR BANK N.A.
_____________________________ ________________________________________
Name:
Title:
143
<PAGE>
SCHEDULE A
SERVICES TO BE PERFORMED BY FUND SERVICES, INC.
FOR RETIREMENT PLAN ACCOUNTS OF
WORLD FUNDS, INC.
Account Processing:
Opening new accounts
Processing all payments, including transfers and rollovers
Issuing and canceling certificates
Processing partial and complete redemptions and systematic withdrawal
plans
Regular and legal transfers of accounts
Mailing up to four reports; prospectus and proxy annually
Processing dividends and capital gain distributions annually, if any.
This includes mailing of cash dividends and/or preparing statements
to Depositors for reinvested distributions
TEFRA withholdings, as applicable
Blue Sky Reports. This includes shares sold to Depositors in various
states
Establish and maintain dealer file
Wire order services
Create purchase or redemption trade confirmations
Provide reports on status of trades
Cashier payments received
Post trades to Depositor accounts to include any dividends due
Sell shares to collect unpaid IRA maintenance fees
Advise Depositors of withdrawal requirements necessary to avoid tax
penalties
Account Maintenance/Tax Reporting
1. Maintaining Depositor records of certificate and whole and fractional
unissued ("Book") shares.
2. Changing Depositors' addresses.
3. Daily or periodic reports on numbers of shares, accounts, etc.
4. Addressing and tabulating annual proxy cards.
5. Supplying an annual stockholder list.
6. Preparation and reporting of federal tax information (1099 DIV, 1099R,
W-2P, 5498, and 1042S as appropriate) to Depositors and IRS.
7. Issuance of year end annual valuation confirmations for IRA accounts.
8. Replying to Depositor correspondence other than that for Fund-related
inquiries.
144
<PAGE>
