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
September 25, 1998
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 497 (c)
Gentlemen:
Transmitted herewith for electronic filing on behalf of The World Funds,
Inc. (the "Funds"), please find enclosed, pursuant to Rule 497 (c) under the
Securities Act of 1933, as amended, a copy of the Prospectus and Statement of
Additional Information of the Funds dated September 21, 1998 for the Third
Millennium Russia Fund series.
Should you have any questions regarding the filing of such documents,
please call the undersigned.
Sincerely,
/s/ John Pasco, III
John Pasco, III
THIRD MILLENNIUM RUSSIA FUND
OF
THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS DATED SEPTEMBER 21, 1998
Suite 223
Richmond, Virginia 23229
Telephone: 1-800-527-9525
This Prospectus offers shares of the Third Millennium Russia Fund
(the "Fund"), a series of The World Funds, Inc. (the "World Funds"), an open-end
management investment company commonly known as a "mutual fund." A "series" fund
offers investors a choice of investment objectives, with each series having its
own separate and distinct portfolio of investments and operating much like a
separate mutual fund. The objective of the Fund is to seek to achieve capital
appreciation by investing in a non-diversified portfolio consisting primarily of
equity securities (which includes securities convertible into equity securities,
such as warrants, convertible bonds, debentures or convertible preferred stock).
Shareholders redeeming shares held less than 360 days will be charged a 2%
redemption fee paid to the Fund to offset transaction costs of buying and
selling portfolio securities. The World Funds is currently composed of four
series. Investors will be able to exchange all or part of their investment from
one fund to another or to certain other mutual funds, under conditions set by
the Fund.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AMOUNTS INVESTED IN THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND WHICH
A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. MORE INFORMATION ABOUT THE FUND HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS CONTAINED IN THE "STATEMENT
OF ADDITIONAL INFORMATION," DATED SEPTEMBER 21, 1998 WHICH IS AVAILABLE AT NO
CHARGE UPON WRITTEN REQUEST TO THE FUND. THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION IS INCORPORATED HEREIN BY REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
PROSPECTUS SUMMARY
TABLE OF FUND EXPENSES
THE WORLD FUNDS, INC.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT RESTRICTIONS
PERFORMANCE
RISK CONSIDERATIONS
THE WORLD FUND'S MANAGEMENT
DISTRIBUTION PLAN
HOW TO INVEST
HOW TO REDEEM SHARES
HOW TO TRANSFER SHARES
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
SPECIAL SHAREHOLDER SERVICES
HOW NET ASSET VALUE IS DETERMINED
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXATION CONSIDERATIONS
GENERAL INFORMATION ABOUT THE WORLD FUNDS
MORE INFORMATION
THIRD MILLENNIUM RUSSIA FUND
P R O S P E C T U S S U M M A R Y
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus.
Investment Objective : The objective of the Fund is to seek to
achieve capital appreciation by investing in a non
diversified portfolio consisting primarily of equity
securities (which includes securities convertible into
equity securities, such as warrants, convertible
bonds, debentures or convertible preferred stock). See
"Investment Objective" and "Investment Policies" on
Page ___.
Principal : Invests primarily in
Investments equity securities of issuers in Russia.
See "Investment Objective" and
"Investment Policies" on Page ___.
The Advisor : Third Millennium Investment
Advisors LLC is the Advisor. See "The
World Fund's Management" on Page ___.
Distributions/ : Paid annually from
Dividends available capital gains and income. See
"Dividends and Capital Gains
Distributions" on Page ____.
Reinvestment : Distributions may be
reinvested automatically without a sales
charge. See "Dividends and Capital
Gains Distributions" on Page ____.
Initial Purchase : $1,000 minimum. See "How to
Invest" on Page ____.
Subsequent Purchase: Minimum $100. Shares of the Fund
are offered for sale
without a front-end sales load through
the distributor,
First Dominion Capital Corp.. See "How
to Invest" on Page ____.
Net Asset Value : nformation may also be
obtained by calling 1-800-527-9525. See
"How the Net Asset Value is Determined"
on Page ____.
Principal : Risk Factors : There can be no assurance that the Fund
will achieve its investment objective. Factors which
should be considered by an investor include: The Fund
invests in foreign securities and therefore may be
affected by foreign currency fluctuations or exchange
controls, differences in accounting procedures, and
other risks. The markets in which the Fund invests
include newly reorganized capital markets, which may
also involve added risk. See "Risk Considerations" on
Page ___. The Fund also may acquire shares of other
investment companies.
Year 2000 : Many computer software systems in
use today cannot properly process
date-related information from and after
January 1, 2000. Should any of the
computer systems employed by the Fund's
major service providers fail to process
this type of information properly, that
could have a negative impact on the
Fund's operations and the services that
are provided to the Fund's
shareholders. The Adviser, the Fund's
distributor (First Dominion Capital
Corp.), the Fund's administrator
(Commonwealth Shareholder Services,
inc.) and the Fund's Transfer Agent and
dividend disbursing agent (Fund
Services, Inc.) have each advised the
Fund that they are reviewing all of
their computer systems. They propose to
modify or replace such systems prior to
January 1, 2000 to the extent necessary
to seek to prevent any such negative
impact. In addition, the Fund has been
advised by the Fund's custodian and
accounting services agent, Brown
Brothers Harriman & Co. that it is also
in the process of reviewing its systems
with the same goal. As of the date of
this Prospectus, the Fund and the
Adviser have no reason to believe that
these goals will not be achieved prior
to January 1, 2000.
<PAGE>
TABLE OF FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses set forth are estimated below:
Shareholder Transaction Expenses Third Millennium Russia Fund
Front End Sales Load Imposed on Purchases None
Front End Sales Load Imposed on Reinvested Dividends None
Redemption Fees 2% on shares held less
than 360 days*
Exchange Fees None
* Shares held more than 360 days are not subject to the redemption
fee. A shareholder electing a wire transfer of funds or placing a
telephone redemption request will be charged $10 for each service.
Written requests do not incur any charges.
Estimated Annual Fund Operating Expenses (as % of average net
assets)
Management Fee 1.75%
12b-1 Fees .25%
Other Operating Expenses .75%
Total Fund Operating Expenses 2.75%*
*The Advisor has undertaken to keep the Fund's total expense
ratio at 2.75% for a period of two years from the Fund's date of inception.
The purpose of this table is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly.
The following examples illustrate the expenses that an investor would pay
on a $1,000 investment over various time periods assuming (1) a 5% annual rate
of return, and (2) redemption at the end of each time period.
1 Year 3 Years
$28.19 $88.86
These examples should not be considered a representation of past or future
expenses or performances. Actual expenses may be greater or lesser than those
shown.
<PAGE>
THE WORLD FUNDS, INC.
The Third Millennium Russia Fund (the "Fund") is a series of The World
Funds, Inc. (the "World Funds"), an open-end management investment company
incorporated in Maryland in 1997. The World Funds currently consists of five
series, and the Board of Directors may elect to add more series in the future. A
minimum initial investment of $1,000 is required to open a shareholder account
in the Fund, and each subsequent investment must be $100 or more.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to achieve capital
appreciation by investing in a non- diversified portfolio consisting primarily
of equity securities (which are securities convertible into equity securities,
such as warrants, convertible bonds, debentures or convertible preferred stock).
The investment objective of the Fund is a fundamental policy and may not
be changed without the approval of shareholders. All investments entail some
risks (see "Risk Considerations"), and there is no assurance that the investment
objective of the Fund can be achieved.
As the name implies, the Fund invests in Russian Securities. Under normal
circumstances, the Fund will be at least 65% invested in Russian Securities. As
used in this Prospectus, the term "Russian Company" means a legal entity (i)
that is organized under the laws of, or with a principal office and domicile in,
Russia, (ii) for which the principal equity securities trading market is in
Russia, or (iii) that derives at least 50% of its revenues or profits from goods
produced or sold, investments made, or services performed, in Russia or that has
at least 50% of its assets situated in Russia. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities of
Russian Companies. Under current conditions, the Advisor expects to maintain at
least 20% of the Fund in cash and liquid investments to maintain a degree of
liquidity and provide more stability. As the Russian equity markets develop and
grow, the Advisor may elect greater equity exposure.
As used in this Prospectus, "Russia" refers to the Russian Federation,
which does not include other countries that formerly comprised the Soviet Union.
Russian Company Equities. To achieve its objective, the Fund intends to
invest primarily in equity securities of Russian Companies. As used in this
Prospectus, equity securities means common or preferred stock (including
convertible preferred stock), bonds, notes or debentures convertible into common
or preferred stock, stock purchase warrants and rights, American Depository
Receipts or American Global Depository Receipts of Russian Equities.
The Fund intends to invest its assets over a broad economic spectrum of
Russian Companies including, as conditions warrant from time to time, issuers
from the following sectors: oil and gas, energy generation and distribution,
communications, mineral extraction, trade (including retail trade and
distribution) financial and business services, transportation, manufacturing,
real estate, textiles, food processing and construction. The Fund does not
concentrate its investments in any industry and therefore it does not invest
more than 25% of its assets in any one industry.
The Advisor's approach to selecting investments emphasizes fundamental
company-by-company analysis in conjunction with broader analysis of specific
sectors. Although, when relevant, the Advisor may consider historical value
measures, such as price/earnings ratios, operating profit margins and
liquidation values, the primary factor in selecting securities for investment by
the Fund will be the company's current price relative to its long-term earnings
potential, or intrinsic value as determined using discounted cash flow analysis
and other valuation techniques, whichever are appropriate. In addition, the
Advisor will consider overall growth prospects, competitive positions in export
markets, technologies, research and development, productivity, labor costs, raw
material costs and sources, profit margins, returns on investment, capital
resources, state regulation, management and other factors in comparison to other
companies around the world which the Advisor believes are comparable. The
Advisor in selecting investments will also consider macroeconomic factors such
as inflation, GDP growth, government spending and the government's support of
particular industries.
The Fund's investments will include investments in companies which,
while falling within the definition of Russian Companies, as stated above, have
characteristics and business relationships common to companies in a country or
countries other than Russia. As a result, the value of the securities of such
companies may reflect economic market forces applicable to other countries, as
well as to Russia. For example, the Fund may invest in companies organized and
located in countries other than Russia, including companies having their entire
production facilities outside of Russia, when securities of such companies meet
one or more elements of the Fund's definition of Russian Company.
Russian Government T-Bills ("GKOs"). To the extent that the Fund's assets
are not invested in Russian equity securities, and to provide liquidity, the
Fund's assets may be invested in (i) debt securities issued by Russian Companies
or issued or guaranteed by the Russian Government (such as its T-Bills or
so-called "GKOs") or a Russian governmental entity, as well as debt securities
and governmental issuers outside Russia, (ii) equity securities of issuers
outside Russia which the Advisor believes will experience growth in revenue and
profits from participation in the development of the economies of the
Commonwealth of Independent States ("CIS"), and (iii) short-term debt securities
of the type described below under "Investment Objective and Policies-Temporary
Investments." The Fund may invest in debt securities that the Advisor believes,
based upon factors such as relative interest rate levels and foreign exchange
rates, offer opportunities for long-term capital appreciation. It is likely that
many of the debt securities in which the Fund will invest will be unrated and,
whether or not rated, the debt securities may have speculative characteristics.
Under present economic and political conditions in Russia, the Fund does not
intend to invest in GKOs. See "Risk Considerations" on Page ____.
The Fund will invest indirectly in securities through sponsored
American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and
other types of Depository Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depository Receipts"), to the extent
such Depository Receipts become available. ADRs are Depository Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. GDRs and other types of
Depository Receipts are typically issued by foreign banks or trust companies,
although they also may be issued by U.S. banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depository Receipts in registered form are designed for
use in the U.S. securities market and Depository Receipts in bearer form are
designed for use in securities markets outside the United States. Depository
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. For purposes of the
Fund's investment policies, the Fund's investments in Depository Receipts will
be deemed to be investments in the underlying securities.
Although the Fund does not generally intend to invest for the purpose of
seeking short-term profits, the Fund's investments may be changed when
circumstances warrant, without regard to the length of time a particular
security has been held. As more companies in Russia are privatized and as more
companies increase their capitalization and float, turnover may increase in
order to capitalize on these new opportunities. It is expected that the Fund
will have an annual portfolio turnover rate that will generally not exceed 150%.
A 100% turnover rate would occur if all the Fund's portfolio investments were
sold and either repurchased or replaced within a year. A high turnover rate
(100% or more) results in correspondingly greater brokerage commissions and
other transactional expenses which are borne by the Fund. High portfolio
turnover may result in the realization of net short-term capital gains by the
Fund which, when distributed to shareholders, will be taxable as ordinary
income. See "Taxation Considerations" on Page ____.
Temporary Investments. During periods in which the Advisor believes
changes in economic, financial or political conditions make it advisable, the
Fund may reduce its holdings in equity securities and invest without limit in
short-term (less than twelve months to maturity) debt securities or hold cash.
The short-term and medium-term debt securities in which the Fund may invest
consist of (a) obligations of the U.S. or Russian governments, and their
respective agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. or foreign banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by various governments
or international development agencies; and (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S or
Russian corporations. The Fund intends to invest for temporary defensive
purposes only in short-term and medium-term debt securities rated, at the time
of investment, A or higher by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated by either rating agency, of
equivalent credit quality to securities so rated as determined by the Advisor.
For purposes of the Fund's investment restriction prohibiting the investment of
25% or more of the total value of its assets in a particular industry, a foreign
government (but not the United States government) is deemed to be an "industry,"
and therefore investments in the obligations of any one foreign government may
not equal or exceed 25% of the Fund's assets. In addition, supranational
organizations are deemed to comprise an industry, and therefore investments in
the obligations of such organizations may not, in the aggregate, equal or exceed
25% of the Fund's assets. See "Investment Restrictions" on Page ____.
Strategic Transactions. The Advisor does not, as a general rule,
intend to regularly enter into strategic transactions for the purpose of
reducing currency and market risk, for two reasons. First, since financial
derivatives in Russian markets currently must be tailor-made to the Fund's
specifications, they are extremely costly and illiquid instruments, and as such
do not offer a cost-effective way to minimize currency and market risk. Second,
the Fund is intended for investors with a long-term investment horizon and it is
the Advisor's hope that any short-term losses due to fluctuations in local
currencies or stock market values will be compensated over the long term by the
capital appreciation of the portfolio securities. Notwithstanding the foregoing,
the Advisor may, from time-to-time as circumstances dictate, engage in strategic
transactions as described below.
Currency risk is assessed separately from equity analysis. To balance
undesirable currency risk the Fund may enter into forward contracts to purchase
or sell foreign currencies in anticipation of the Fund's currency requirements,
and to protect against possible adverse movements in foreign exchange rates.
Although such contracts may reduce the risk of loss due to a decline in the
value of the currency which is sold, they also limit any possible gain which
might result should the value of the currency rise. Foreign investments which
are not U.S. dollar denominated may require the Fund to convert assets into
foreign currencies or convert assets and income from foreign currencies to
dollars. Normally, exchange transactions will be conducted on a spot or cash
basis at the prevailing rate in the foreign exchange market. However, the
investment policies permit the Fund to enter into forward foreign currency
exchange contracts in order to provide protection against changes in foreign
exchange rates. Any transactions in foreign currencies will be designed to
protect the dollar value of the assets composing or selected to be acquired or
sold for the investment portfolio of the Fund; the Fund will not speculate in
foreign currencies.
The Fund may purchase and write covered call options on foreign currencies
for the purpose of protecting against declines in the dollar value of foreign
securities. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, the Fund may forfeit the entire
amount of the premium plus related transaction costs. In connection with such
transactions, the Fund will segregate assets sufficient to meet its obligations:
when the Fund's obligation is denominated in a foreign currency, the Fund will
own that currency or assets denominated in that currency, or a currency or
securities which the Advisor anticipates will move along with the hedged
currency.
The Fund may enter into contracts for the purchase or sale for future
delivery of foreign currencies ("foreign currency futures"). This investment
technique will be used only to hedge against anticipated future changes in
exchange rates which otherwise might adversely affect the value of the portfolio
securities or adversely affect the prices of securities that the Fund intends to
purchase or sell at a later date. The successful use of currency futures will
usually depend on the Advisor's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of foreign currency futures or may
actually realize losses.
The Fund is authorized to use financial futures, currency futures, and
options on such futures for certain hedging purposes subject to conditions of
regulatory authorities (including margin requirements) and limits established by
the World Fund's Board of Directors to avoid speculative use of such techniques.
The investment restrictions set forth below under "Investment
Restrictions" are fundamental and may not be changed without the approval of a
majority of the Fund's outstanding voting securities. All other investment
policies and practices described in this Prospectus are not fundamental, meaning
that the Board of Directors may change them without the approval of
shareholders. As used herein, a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented and (ii) more
than 50% of the outstanding shares. There is no assurance the Fund will be able
to achieve its investment objective.
INVESTMENT RESTRICTIONS
The investments of the Fund are subject to investment limitations which
may not be changed without the approval of at least a majority of the
outstanding voting securities, as that term is defined in the Investment Company
Act of 1940. (See the Statement of Additional Information for the specific
definition.)
Certain of these policies are detailed below, while other policies which
prohibit or limit particular practices are set forth in the Statement of
Additional Information. The investment restrictions of the Fund specifically
provide that it may not:
* As to 50% of its assets, purchase the securities of any issuer (other
than obligations issued or guaranteed as to principal and interest by the
Government of the United States or any agency or instrumentality thereof)
if, as a result of such purchase, more than 5% of its total assets would
be invested in the securities of such issuer.
* Purchase stock or securities of an issuer (other than the obligations of
the United States or any agency or instrumentality thereof) if such
purchase would cause the Fund to own more than 10% of any class of the
outstanding stock or securities or more than 10% of any class of voting
securities of such issuer.
* Act as an underwriter of securities of other issuers, except that it may
invest up to 10% of the value of its total assets (at time of investment)
in portfolio securities which the Fund might not be free to sell to the
public without registration of such securities under the Securities Act of
1933 or any foreign law restricting distribution of securities in a
country of a foreign issuer ("restricted securities").
* Buy or sell commodities or commodity contracts provided, however, that
it may utilize not more than 1% of its assets for deposits or commissions
required to enter into a forward foreign security contract for hedging
purposes as described under "Investment Policies." (Such deposits or
commissions are not presently required in the markets the Fund will use.)
* Make loans, except that it may: (i) lend portfolio
securities; and (ii) enter into repurchase agreements
secured by the U.S. Government or Agency securities.
Percentage limitations in the "Investment Policies" and "Investment
Restrictions" sections are determined at the time the Fund makes a purchase or
loan subject to such percentage.
PERFORMANCE
From time to time, the World Funds may advertise information
regarding the performance of the Fund. Such statements of performance will
consist of the Fund's "total return." These performance figures are based upon
historical results and are not intended to indicate future performance. "Total
return" is the total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price.
Please refer to the Statement of Additional Information for more
information on Performance.
RISK CONSIDERATIONS
Investing in Russian Companies involves significant risks and special
considerations not typically associated with investing in the United States
securities markets, and should be considered highly speculative, including:
* Greater social, economic and political uncertainty in general
(including risk of regional war).
* Delays in settling portfolio transactions and risk of loss arising out
of the system of share registration and custody.
* Risks in connection with the maintenance of Fund portfolio securities
and cash with Russian licensed sub-custodians and securities
depositories.
* The risk that it may be more difficult or problematic to obtain and/or
enforce a legal judgment.
* The negative effects of public corruption and crime.
* Greater price volatility, substantially less liquidity
and significantly smaller market capitalization of
securities markets and traded securities.
* Currency exchange rates and dearth of currency hedging instruments.
* Risks in use of derivative instruments, including forward foreign
currency exchange contracts, currency futures contracts and related
options, put and call options on securities, indices and foreign
currencies, stock index futures contracts and related options, and
interest rate futures contracts and related options.
* Return of period of high rate of inflation (and any attendant social
unrest).
* The risk that, by investing significantly in a limited number of indus-
try sectors, the Fund may be more affected by any single economic,
political or regulatory development relating to a specific sector.
* Controls on foreign investment and local practices disfavoring
investors in general and/or foreign investors in particular, and
limitations on repatriation of invested capital, profits and divi-
dends, and the Fund's ability to exchange rubles for hard currencies.
* The risk that the Government of Russia may decide not to continue to
support the economic reform programs implemented to date and to follow
instead radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as
the support of certain industries to the detriment of other sectors or
investors or a return to the centrally planned economy that previously
existed.
* The financial condition of Russian Companies, including large amounts
of inter-company debt, the lack of transparency and/or proper
financial reporting based on international accounting standards and
the fact that Russian Companies may be smaller, less seasoned and
experienced in financialreporting and in modern management in
general.
* The difference in, or lack of, auditing and financial reporting
standards in general, which may result in the unavailability of
material information about issuers.
* The risk that dividends may be withheld at the source.
* Russia's dependency on export earnings and corresponding
importance of international trade and prospect of declining hard
currency earnings and reserves and pressure on the ruble's exchange
rate.
* The risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation.
* The fact that statistical information may be inaccurate
or not comparable to statistical information regarding the
U.S. or other economies.
* Less extensive regulation of the securities markets than is the case
in other countries.
* The risks associated with the difficulties that may occur in pricing
the Fund's portfolio securities.
* Possible difficulty in identifying a purchaser of the Fund's
securities due to the undeveloped nature of the securities markets.
* The risk of lawsuits or government intervention arising from
restrictive regulations and practices with respect to foreign
investment in particular industries.
* The risk of nationalization or expropriation of assets or confiscatory
taxation, which may involve total loss.
RISKS RELATED TO RECENT DEVELOPMENTS IN RUSSIA
Russia's transition from a communist to a democratic political system,
and from a planned economy to a market system, appears to have been set back.
Both political and economic instabilities have developed. Although the Adviser
believes that these risks offer an opportunity for long-range investment at
value-oriented levels, there is no guarantee that further adverse developments
will not follow. Russian currency markets have been unstable. Although runaway
inflation of the early 1990s had been controlled since 1996, it could restart as
a result of recent events. The fledging stock market has been extremely
volatile. After having risen dramatically in 1996, it was hit in late 1997 by
fallout from the Asian flu and in 1998 has fallen to levels comparable to or
below those in 1995.
Russia faces serious problems, such as lower prices for oil (its
major export), a persistent budget deficit, currency instability, and a
lackluster effort to complete the reform process. Russia had some earlier
success in stabilizing the currency, lowering inflation to single-digit levels,
and beginning to promote industry privatization, but other elements of the
reform program were left unimplemented, including tax reform and collection, and
reasonable federal budget planning and spending. The large deficit was financed
by ever-increasing amounts of short-term government financial obligations.
In the summer of 1998, the Russian government took overdue steps to
improve tax collection and to defend the value of the ruble. The International
Monetary Fund and the World Bank then approved loans to promote currency
stability and infrastructure development. These loans were not sufficient to
calm investors, who doubted the government's ability to "stay-the-course"
mandated by the IMF. In the summer of 1998, interest rates on short-term
obligations issued by the Russian government fluctuated widely, and the
Government took steps which effectively devalued the ruble. The response of the
currency markets to this development was unfavorable, and the ruble proceeded to
lose value to an even greater extent and may continue to lose value.
The result of this devaluation has been adverse to investors in
Russian companies. Equity investments, whether direct or in the form of American
Depository Receipts ("ADRs") or Global Depository Receipts, have declined
substantially in value. Although trading volumes in the United States markets
for exchange-traded ADRs have been substantial, the volumes on securities
markets in Russia have been small and underlying liquidity for even those stocks
with the largest market capitalizations is substantially reduced. Also,
currently, there is little currency trading on the Moscow Interbank Currency
Exchange (MICEX).
In response to this substantial devaluation of its currency, the
Government suspended repayment of its own short-term debt obligations. Also,
faced with the imminent insolvency of domestic financial institutions holding
government obligations and facing hard currency debt service obligations, the
Government extended the moratorium to cover such private sector obligations. The
reaction to these actions has been adverse, and Russian Government and private
debt has lost most of their market value.
In addition, structural inadequacies underlie the market economy in
Russia. The commercial banking sector does not play the role it serves in
free-market economies. Banks do not attract broad-based deposits from the
population and can not pursue significant commercial lending. Borrowers have
difficulty demonstrating a credit history and lenders have difficulty obtaining
and executing against collateral. As a result, banks invested substantially in
short-term government obligations, which had been paying high interest rates.
This not only contributed to their current distress, it drew capital away from
industrial development. Illiquidity on the enterprise level also causes a lot of
business to be transacted in the form of barter, which permits tax avoidance.
Furthermore, the lack of proper accounting practices and procedures makes it
difficult for enterprises to properly understand the costs and profitability of
various lines of business. As a result, many enterprises continue to demonstrate
an excess of costs higher than returns, a characteristic of the Soviet era.
The Adviser has advised the Board of the Fund that these factors may
offer the Fund an opportunity to obtain quality investments in a true emerging
market on very favorable terms. The Adviser has recommended that the Fund
position itself so that it can take advantage of such opportunities as and when
they develop. The Adviser believes that the Fund must be poised to take
advantage of these opportunities on short notice when they do arise. At the same
time, the Adviser recommends that the Fund avoid some of the risks associated
with these problems. To this end, the Adviser has recommended that:
(1) The capital raised by the Fund should not be invested in Russian
securities until the Adviser believes that the instability and risk
level has been controlled to a degree which merits the acceptance of the
investment risk. This may mean that the Fund will be in a defensive
posture following its commencement of business, and may invest
substantial portions of its assets in U.S. government securities and
similar high-quality domestic investments.
(2) Initial investments in Russia should be made via ADRs and GDRs, which
provide some ability to more effectively monitor the market in which
such securities trade, and generally represent interests in larger,
stable companies.
(3) The Fund should not invest in Russian GKO (government) securities
until the political and governmental problems have been addressed. This
may require the Fund to incur the expense and inconvenience of moving
uninvested capital out of Russia from time to time to assure its
security in more stable markets.
(4) If the Fund delays immediate investment in Russian equities, the
resulting portfolio would be expected to be less volatile than
securities of emerging market companies, but may also result in the Fund
achieving a lower return than that normally expected from investments in
an emerging market. The Adviser would take such a course with the aim of
preserving the Fund's assets during the present period of higher risk,
in order to facilitate prompt investment when suitable opportunities are
available.
Pending further developments in Russia, when direct and indirect Russian
investments are acquired, the Board has directed the Adviser to monitor
valuation of Fund assets to assure that the Fund is correctly valuing Russian
portfolio securities held by the Fund.
THE WORLD FUNDS' MANAGEMENT
The World Funds' Board of Directors is responsible for the supervision of
the general business of the Fund. The Directors act as fiduciaries for
shareholders under the laws of the State of Maryland. The World Funds employs
the following persons to provide it with investment advice and to conduct its
on-going business:
Advisor - Third Millennium Investment Advisors LLC (the "Advisor")
manages the investments of the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement" ), dated Septembeer 21, 1998. The Advisory Agreement
is effective for an initial term of two years and may be renewed thereafter as
long as such renewal and continuance is specifically approved at least annually
by the Board of Directors of World Funds or by a vote of a majority of the
outstanding voting securities of the Fund provided that the continuance is also
approved by a majority of the directors who are not interested persons of the
World Funds or the Advisor by vote cast in person at a meeting called for the
purpose of voting on such approval.
Pursuant to the Advisory Agreement, the Advisor provides the Fund
with investment management services, subject to the supervision of the World
Funds' Board of Directors, and with office space, and pays the ordinary and
necessary office and clerical expenses relating to investment research,
statistical analysis, supervision of its portfolio and certain other costs. The
Advisor also bears the cost of fees, salaries and other remuneration of the
World Funds' directors, officers or employees who are officers, directors, or
employees of the Advisor. The Fund is responsible for all other costs and
expenses, such as, but not limited to, brokerage fees and commissions in
connection with the purchase and sale of securities, legal, auditing,
bookkeeping and record keeping services, custodian and transfer agency fees and
fees and other costs of registration of its shares for sale under various state
and Federal securities laws.
Under the Advisory Agreement, the monthly compensation paid to the Advisor
is accrued daily at a rate equal to a fee at the annual rate of 1.75% on the
first $125 million of assets; 1.50% on assets in excess of $125 million and not
more than $250 million; and 1.25% on assets over $250 million. These fees are
higher than that charged to many other investment companies, but is comparable
to the fees paid by other investment companies with investment policies and
objectives similar to those of the Fund, and may be waived or reduced by the
Advisor at its discretion. The fee is paid monthly, within five (5) business
days after the end of the month. The address of the Advisor is 515 Madison
Avenue, 24th Floor, New York, N.Y. 10022.
The Advisory Agreement contemplates the authority of the Advisor to place
orders for the Fund pursuant to its investment determinations either directly
with the issuer or with any broker or dealer. The Advisor may allocate brokerage
to an affiliated dealer in accordance with written policies and procedures
adopted by the Board of Directors. In placing orders with brokers or dealers,
the Advisor will attempt to obtain the best price and execution of its orders.
The Advisor may purchase and sell securities to and from brokers and dealers who
provide the Advisor with research advice and other services, or who sell shares
of the Fund. From time to time, and subject to the Advisor obtaining the best
price and execution for the Fund, the Board may authorize the Advisor to
allocate brokerage transactions to a broker in consideration: (i) of investment
research or statistical services, or (ii) in consideration of a payment of an
obligation otherwise payable by the Fund.
The Advisor has assembled an Advisory Committee to assist the
Advisor in evaluating the securities market environment and to provide the
portfolio manager with specific industry and company specific recommendations
for their consideration. The following persons are members of the Advisory
Committee:
* E. Wayne Nordberg, retired in September, 1998, from Lord, Abbott & Co,.
where he was a Partner since 1988, most recently in charge of Equity
Investments, and before that, in charge of Equity Research. A Member of
the Financial Analysts Federation and the New York Society of Security
Analysts, he received his BA in Economics from Lafayette College.
* Oleg Yachnik, President and founder of OLMA, Moscow,
Russia, ranked among the top 25 Russian financial
companies. Mr. Yachnik is a PhD. and a member of the
Board of Directors of NAUFOR and of the RTS (Russian
Trading System), as well as a member of the governing
committee of MICEX .
* Alexander Pevnitsky, General Director of the brokerage company "Pride",
located in Novosibirsk, Russia, ranked 7th among regional brokers. He is
a PhD. in mathematics and economics.
* Yury Bovkun, General Director of "Pride Holding," ranked 5th among the
regional firms. He is a member of the Board of Directors of the RTS.
* Charles C. Wilkes, Vice Chairman of the Exeter Trust Corporation,
Bethesda, Maryland, a member of the Bar of the District of Columbia and
owner of the Washington, D.C. real estate investment firm, The Wilkes
Company.
* John T. Connor, Jr. is Chairman of the Advisor and a portfolio manager
of the Fund. Since 1993, Mr. Connor has been chairman of ROSGAL, a
Russian financial company licensed by the Ministry of Finance of the
Russian Federation, and of its affiliate, Rosgal Insurance, an insurance
company separately licensed by the Ministry of Finance. Both companies
are head-quartered in the same premises in Moscow, Russia. A Phi Beta
Kappa, highest honors graduate of Williams College, and a graduate of
Harvard Law School, Mr. Connor previously chaired the pension committee
of an NYSE-listed company and authored the lead article in an American
Bar Association journal on "Russia's Securities Markets" (Fall 1996).
* Alexei Moskvin, ROSGAL's Director of Equity Investment
and a portfolio manger of the Fund. Mr. Moskvin is a PhD.
from Novosibirsk State University and holds a Financial
Broker and Money Manager Certificate.
The Fund's Portfolio Managers are: John T. Connor, Jr. and
Alexei Moskvin. In addition they may retain the services of
other full time professionals in portfolio management. The
Portfolio Managers operate under the supervision of the
Investment Committee, which is comprised of the two Portfolio
Managers and Mr. Wilkes. Each of the above named individuals,
except Mr. Nordberg, are principals, officers or employees of the
Advisor.
The Advisor has also established a Consultant Committee.
The Consultant Committee is comprised of former U.S. Ambassador
to the Soviet Union Jack F. Matlock, Jr. and Professor Marvin
Zonis. The Committee will be responsible for providing the
Advisory Committee and the portfolio managers periodic updates on
political and macroeconomic conditions and trends in Russia and
their potential implications for the overall investment climate
in Russia. This will enhance the Adviser's ability to oversee
and safeguard the assets of the Fund's shareholders.
Ambassador Matlock is currently the George F. Kennan Professor at the
Einstein Institute in Princeton, New Jersey. Ambassador in Moscow for four years
under President Bush, he previously served in the Reagan White House as Special
Assistant to the President for National Security Affairs and served three
previous tours of duty in Moscow for a total of eleven years duty in Russia. His
book, Autopsy of an Empire, was published by Random House in 1995 and he has
written extensively on Russia's modern history and politics. He is a summa cum
laude graduate of Duke University.
Marvin Zonis is a Professor at the Chicago Business School where he
teaches International Political Economy and is the Principal in an international
consulting firm bearing his name. Marvin Zonis + Associates created the
Political Stability Index, the first useful quantitative model for assessing
country risk. The index is used with clients to manage risk in political,
economic and investment decisions. It also serves as the basis for preparing
Country Analysis Reports, daily analyses of changing risk profiles in the major
developed and emerging markets. He was educated at Yale University and Harvard
Business School and received his Ph D in Political Science from MIT.
Administrator - Commonwealth Shareholder Services, Inc. ("CSS"), serves as
Administrator to the Fund pursuant to an Administrative Services Agreement. CSS
provides certain recordkeeping and shareholder servicing functions required of
registered investment companies, and will assist the World Funds in preparing
and filing certain financial and other reports and performs certain daily
functions required for ongoing operations. CSS may furnish personnel to act as
the World Funds' officers to conduct its business subject to the supervision and
instructions of its Board of Directors.
The Administrative Services Agreement provides that CSS will be paid
monthly: (1) 0.20% per year of the average daily net assets of the Fund which
includes regulatory matters, backup of the pricing of shares of the Fund,
administrative duties in connection with the execution of portfolio trades, and
certain services in connection with Fund accounting; (2) an hourly fee for
shareholder servicing and state securities law matters; and (3) certain
out-of-pocket expenses. John Pasco, III, Chairman of the Board of the World
Funds, owns the stock of CSS, which , therefore, may be deemed to be an
affiliate of the World Funds. The address of CSS is 1500 Forest Avenue, Suite
223, Richmond, Va. 23229.
Custodian and Accounting Services Agent - Brown Brothers Harriman & Co.
("BBH") is the World Funds' Custodian and Accounting Services Agent. BBH
collects income when due and holds all of the World Funds' portfolio securities
and cash. (BBH, with the World Funds' consent, has designated The Depository
Trust Company of New York, as its agent to secure some of the assets of the
Fund.) BBH is authorized to appoint other entities to act as sub-custodians to
provide for the custody of foreign securities which may be acquired and held by
the World Funds outside the U.S. Such appointments are subject to appropriate
review by the World Funds' Board of Directors. BBH as the Accounting Services
Agent maintains and keeps current the books, accounts, records, journals or
other records of original entry relating to the World Funds' business. The
address of BBH is 40 Water Street, Boston, Massachusetts 02109.
Transfer and Dividend Disbursing Agent - Fund Services, Inc. ("FSI") is
the World Funds' Transfer and Dividend Disbursing Agent. John Pasco, III,
Chairman of the Board of the World Fund owns one third of the stock of FSI, and,
therefore, FSI may be deemed to be an affiliate of the World Fund. FSI provides
all the necessary facilities, equipment and personnel to perform the usual and
ordinary services of Transfer and Dividend Disbursing Agent, including:
administrative receipt and processing of orders and payments for purchases of
shares, opening shareholder accounts, preparing shareholder meeting lists,
mailing proxy material, receiving and tabulating proxies, mailing shareholder
reports and prospectuses, withholding certain taxes on non-resident alien
accounts, disbursing income dividends and capital distributions, preparing and
filing U.S. Treasury Department Form 1099 (or equivalent) for all shareholders,
preparing and mailing confirmation forms to shareholders for all purchases and
redemptions of the Fund's shares and all other confirmable transactions in
shareholders' accounts, recording reinvestment of dividends and distribution of
the Fund's shares. Under the Agreement between the Fund and FSI, as in effect on
May 1, 1991, FSI is compensated pursuant to a schedule of services and
out-of-pocket expenses. The schedule calls for a minimum payment of $16,500 per
year. The address of the Transfer and Dividend Disbursing Agent is P.O. Box
26305, Richmond, VA 23260.
Principal Underwriter/Distributor - First Dominion Capital Corp. (the
"Distributor") acts as the Principal Underwriter for the Fund pursuant to an
agreement dated August 19, 1997 Mr. John Pasco, III, who is the President,
Treasurer, and a Director, and sole shareholder of the Distributor. Mr. Pasco is
also the Chairman and a director of the World Funds. The address of the
Distributor is 1500 Forest Avenue, Suite 223, Richmond, VA 23229.
DISTRIBUTION PLAN
The Fund bears some of the costs of selling its shares under a
Distribution Plan it has adopted pursuant to Rule 12b-1 under the 1940 Act. This
rule regulates the manner in which a mutual fund may assume costs of
distributing and promoting the sale of its shares.
Payments under the Distribution Plan are limited to a fee for distribution
related services at an annual rate of 0.25% of the Fund's average daily net
assets. This fee is used to reimburse the Distributor for the payment of service
and maintenance fees to selling dealers or institutional firms for shareholder
servicing and maintenance of shareholder accounts.
The Distribution Plan may be terminated at any time by a vote of a
majority of the Independent Directors or by vote of a majority of the Fund's
outstanding shares. Payments pursuant to the Distribution Plan are included in
the Fund's operating expenses.
HOW TO INVEST
Shares of the Fund may be purchased directly from the Distributor or
through members of the National Association of Securities Dealers, Inc. who are
registered, if required, in the state where the purchase is made and who have a
sales agreement with the Distributor. After a shareholder account is
established, subsequent orders for shares may be mailed directly to the Transfer
Agent. Such purchases of shares are made at the net asset value. A minimum
initial investment of $1,000 is required to open a shareholder account in the
Fund, and each subsequent investment must be $100 or more. Under certain
circumstances, the World Funds may waive the minimum initial investment for
purchases by officers, directors and employees of the World Funds and its
affiliated entities and for certain related advisory accounts. The offering
price per share is equal to the net asset value per share next determined after
receipt of a purchase order.
When an investor acquires shares of the Fund from a securities dealer, the
investor may be charged a transaction fee for shares purchased and/or redeemed
at net asset value through that broker.
To facilitate the handling of transactions with shareholders, the World
Funds uses an open account plan. The Transfer Agent will automatically establish
and maintain an open account for the Fund's shareholders. Under the open account
plan, your shares are reflected in your open account. This service facilitates
the purchase, redemption or transfer of shares, and eliminates the need to
safeguard certificates and reduces time delays in executing transactions.
Purchase by Mail. For initial purchases, the Account Application form
which accompanies this Prospectus should be completed, signed, and mailed to the
Transfer Agent, together with your check or other negotiable bank draft drawn on
and payable by a U.S. Bank payable to the Third Millennium Russia Fund. For
subsequent purchases include with your check the tear-off stub from a prior
purchase confirmation, or otherwise identify the name(s) of the registered
owner(s) and the social security number.
Investing by Wire. You may purchase shares by requesting your bank to
transmit "Federal Funds" by wire directly to the Transfer Agent. To invest by
wire, please call the Transfer Agent for instructions, then notify the
Distributor by calling 800-527-9525. Your bank may charge you a small fee for
this service. The Account Application which accompanies this Prospectus should
be completed and promptly forwarded to the Transfer Agent. This application is
required to complete the World Funds' records in order to allow you access to
your shares. Once your account is opened by mail or by wire, additional
investments may be made at any time through the wire procedure described above.
Be sure to include your name and account number in the wire instructions you
provide your bank.
Stock Certificates. Certificates for full shares will be issued by the
Transfer Agent upon written request but only after payment for the shares is
collected by the Transfer Agent.
HOW TO REDEEM SHARES
Shares may be redeemed at any time and in any amount by mail or telephone.
For your protection, the Transfer Agent will not redeem your shares until it has
received all information and documents necessary for your request to be in
"proper order." (See "Signature Guarantees.") You will be notified promptly by
the Transfer Agent if your redemption request is not in proper order. If a
shareholder redeems shares of the Fund which have been held less than 360 days
(including shares to be exchanged), the World Funds will deduct from the
proceeds a redemption charge of 2% of the amount of the redemption. This amount
is retained by the Fund to offset the Fund's costs of purchasing or selling
securities.
The World Funds' procedure is to redeem shares at the net asset value next
determined after receipt by the Transfer Agent of the redemption request in
proper order as described herein. Payment will be made promptly, but no later
than the seventh day following receipt of the request in proper order. Please
note that (i) the Transfer Agent cannot accept redemption requests which specify
a particular date for redemption, or which specify any special conditions; and
(ii) if the shares you are redeeming were purchased by you less than fifteen
(15) days prior to the receipt of your redemption request, the Transfer Agent
must ascertain that your check in payment of the shares you are redeeming has
cleared prior to disbursing the redemption proceeds. If you anticipate the need
to redeem before fifteen (15) days, you should make your purchase by Federal
Funds wire, or by a certified, treasurer's or cashier's check.
The World Funds may suspend the right to redeem shares for any period
during which the New York Stock Exchange is closed or the Securities and
Exchange Commission determines that there is an emergency. In such circumstances
you may withdraw your redemption request or permit your request to be held for
processing at the net asset value per share next computed after the suspension
is terminated.
Redemption by Mail. To redeem shares by mail, send the following
information to the Transfer Agent: (i) a written request for redemption signed
by the registered owner(s) of the shares, exactly as the account is registered;
(ii) the stock certificates for the shares you are redeeming, if any were
issued; (iii) any required signature guarantees (See "Signature Guarantees");
and (iv) any additional documents which might be required for redemption by
corporations, executors, administrators, trustees, guardians, etc. The Transfer
Agent will mail the proceeds to your currently registered address, payable to
the registered owner(s) unless you specify otherwise in your redemption request.
There is no charge to shareholders for redemptions by mail.
Redemption by Telephone. You may redeem your shares by telephone if you
request this service at the time you complete your initial Account Application.
If you do not request this service at that time, you must request approval of
telephone redemption privileges in writing (sent to the World Funds' Transfer
Agent) with a signature guarantee before you can redeem shares by telephone.
There is no charge for establishing this service, but the Transfer Agent will
charge your account a $10.00 service fee each time you make a telephone
redemption. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. By establishing this
service, you authorize the Transfer Agent to act upon any telephone instructions
it believes to be genuine, to (i) redeem shares from your account and (ii) mail
or wire redemption proceeds. There is a $10.00 service fee for making a
telephone redemption. The amount of these service charges may be changed at any
time, without notice, by the Transfer Agent.
You cannot redeem shares by telephone if you hold a stock certificate
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the books
of the World Funds for less than 15 days.
If it should become difficult to reach the Transfer Agent by telephone
during periods when market or economic conditions lead to an unusually large
volume of telephone requests, a shareholder may send a redemption request to the
Transfer Agent by overnight mail to 1500 Forest Avenue, Suite 111, Richmond, VA
23229.
The World Funds employs reasonable procedures designed to confirm the
authenticity of your instructions communicated by telephone and, if it does not,
it may be liable for any losses due to unauthorized or fraudulent transactions.
As a result of this policy, a shareholder authorizing telephone redemption bears
the risk of loss which may result from unauthorized or fraudulent transactions
which the Fund believes to be genuine. When you request a telephone redemption
or transfer, you will be asked to respond to certain questions designed to
confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Signature Guarantees. To protect you and the Fund from fraud, signature
guarantees are required for: (i) all redemptions ordered by mail if you require
that the check be payable to another person or that the check be mailed to an
address other than the one indicated on the account registration; (ii) all
requests to transfer the registration of shares to another owner; and (iii) all
authorizations to establish or change telephone redemption service, other than
through your initial account application.
In the case of redemption by mail, signature guarantees must appear
either: (a) on the written request for redemption; (b) on a separate instrument
of assignment (usually referred to as a "stock power") specifying the total
number of shares being redeemed. If shares held by the Transfer Agent are being
redeemed, the signature guarantee must be on the written request or stock power.
The Fund may waive these requirements in certain instances.
The following institutions are acceptable guarantors: (a) participants in
good standing of the Securities Transfer Agents Medallion Program ("STAMP"); (b)
commercial banks which are members of the Federal Deposit Insurance Corporation
("FDIC"); (c) trust companies; (d) firms which are members of a domestic stock
exchange; (e) eligible guarantor institutions qualifying under Rule 17Ad-15 of
the Securities Exchange Act of 1934 that are authorized by charter to provide
signature guarantees; and (f) foreign branches on any of the above. In addition,
the Fund will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts - Due to the relatively higher cost of maintaining small
accounts, the World Funds reserves the right to redeem shares in your account
if, as a result of redemption or transfer, the total investment remaining in the
account has a value less than the minimum initial investment. However, before
the World Funds redeems your shares and sends you the proceeds you will be
notified in writing that the value of your shares is less than the minimum and
that you have 60 days to make an additional investment to meet the required
minimum. A decline in market value alone would not require you to bring your
investment up to the minimum.
HOW TO TRANSFER SHARES
If you wish to transfer shares to another owner, send a written request to
the Transfer Agent. Your request should include (i) the name of the Fund and
existing account registration; (ii) signature(s) of the registered owner(s);
(iii) the new account registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be distributed;
(iv) any stock certificates which have been issued for the shares being
transferred; (v) signature guarantees (See "Signature Guarantees"); and (vi) any
additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any questions
about transferring shares, call the Transfer Agent at (800) 628-4077.
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
Each time you purchase, redeem or transfer shares of the Fund, you will
receive a written confirmation. You will also receive a year-end statement of
your account if any dividends or capital gains have been distributed, and an
annual and a semi-annual report.
SPECIAL SHAREHOLDER SERVICES
The World Funds offers the following four (4) services for its
shareholders:
Regular Account - allows shareholders to make voluntary additions and
withdrawals to and from their account as often as they wish;
Invest-A-Matic - permits automatic monthly investments into the Fund from
your checking account on a fixed or flexible schedule;
Individual Retirement Accounts (IRA's); and
Exchange Privileges - allows the shareholder to exchange his or her shares
for shares of certain other funds having a different investment objective from
that of the Fund, provided the shares of the fund the shareholder is exchanging
into are registered for sale in the shareholder's state of residence. An
exchange is treated as a redemption and a purchase, and may result in the
realization of a gain or loss on the transaction. More information on any of
these services is available upon written request to the World Funds.
HOW NET ASSET VALUE IS DETERMINED
The Fund's Net Asset Value ("NAV") is determined as of the close of
trading of the New York Stock Exchange (currently 4:00 P.M., Eastern Time) on
each business day from Monday to Friday or on each day (other than a day during
which no security was tendered for redemption and no order to purchase or sell
such security was received by the Fund) in which there is a sufficient degree of
trading in the portfolio securities of the Fund that the current NAV of the
shares might be materially affected by changes in the value of such portfolio
security. The Fund's NAV is calculated at the 4:00 p.m. time set by the Board of
Directors based upon a determination by the Board that this is the most
appropriate time to price the securities.
NAV per share is determined by dividing the total value of the assets,
less its liabilities, by the total number of shares then outstanding. Generally,
securities owned by the Fund are valued at market value.
Investments in securities traded on a national securities exchange or
included in the NASDAQ National Market System are valued at the last reported
sales price; other securities traded in the over-the-counter market and listed
securities for which no sale is reported on that date are valued at the last
reported bid price. Russian securities are also valued at the closing price on
the principal exchange on which the security is traded, or at the last reported
bid price in the over-the-counter market. The Fund reserves the right to value
securities at fair market value when events occur prior to the close of the
NYSE, and cause a change in value from the price determined as of the close of
Russian markets.
Short-term debt securities (less than 60 days to maturity) are valued at
their fair market value using amortized cost pricing procedures set, and
determined to be fair, by the Board of Directors. Other assets for which market
prices are not readily available are valued at their fair value as determined in
good faith under procedures set by the Board of Directors.
ADR's, EDR's, and GDRs will be valued at the closing price of the
instrument last determined prior to the valuation time unless the World Funds is
aware of a material change in value. Items for which such a value cannot be
readily determined on any day will be valued at the closing price of the
underlying security adjusted for the exchange rate.
The Fund's management may compute the NAV per share more frequently in
order to protect shareholders' interests.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
It is the policy of the World Funds to distribute substantially all of its
net investment income and all of its net profits realized from the sale of
portfolio securities. Income dividends received and capital gains realized, if
any, will be distributed to shareholders annually.
The sale of securities held by the Fund will be made with a view to the
maintenance of a portfolio believed by the Advisor to be the most likely to
achieve its objective. Such sales, and any resulting gains and losses may vary
considerably from year to year.
Unless you elect otherwise, dividends and capital gain distributions will
be reinvested in additional shares of the Fund at no charge. Changes in your
election must be sent to the Transfer Agent.
TAXATION CONSIDERATIONS
The Fund will seek to qualify under Subchapter M of the Internal Revenue
Code of 1986 (the "Code"). As a regulated investment company under the Code, the
Fund is not liable for federal income taxes on income or gains which are
distributed to its shareholders or imputed to shareholders under the Code. The
distribution to shareholders each year of investment income and capital gains
will represent taxable income to the shareholders. The Fund is a series
corporation. Each series is taxed as a separate taxable entity under the Code.
Shareholders will receive a written advice from the World Funds within sixty
(60) days after the end of the year furnishing them with the information
required under the Code.
GENERAL INFORMATION ABOUT THE WORLD FUNDS
The World Funds is authorized to issue up to 500,000,000 shares of $0.01
par value common stock, of which it has presently allocated 50,000,000 shares to
the Third Millennium Russia Fund series, and 50,000,000 each to four other
series. The Board of Directors can allocate the remaining authorized but
unissued shares to any series of the World Funds or may create additional series
and allocate shares to such series. A share of the Fund has priority in the
assets of the Fund in the event of a liquidation. The shares of the Fund will be
fully paid and non-assessable, will have no preference over other shares of the
Fund as to conversion, dividends, or retirement, and will have no preemptive
rights. Shares of the Fund will be redeemable from the assets of the Fund at any
time.
Each outstanding share of the World Funds is entitled to one vote for each
full share of stock and a fractional vote for fractional shares of stock. All
shareholders vote on matters which concern the corporation as a whole. The World
Funds is not required to hold a meeting of shareholders each year, and may elect
not to hold a meeting in years when no meeting is necessary. The Fund shall vote
separately on matters which affect only the interest of the Fund. The World
Funds' shares do not have cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of directors can elect
all of the directors if they choose to do so. Shareholders may utilize
procedures described in the Statement of Additional Information to call a
meeting.
Limitation on Use of Name. The Advisory Agreement for the Fund authorizes
the World Funds to utilize the name "Third Millennium." The World Funds agrees
that if the Advisory Agreement is terminated it will promptly re-designate the
name of the Fund to eliminate any reference to the name "Third Millennium" or
any derivation thereof unless the Advisor waives this requirement in writing.
MORE INFORMATION
For further information on the Fund please contact
Commonwealth Shareholder Services, Inc., P.O. Box 8687, Richmond,
VA 23226, telephone: (800) 527-9525.
Additional information may also be obtained by requesting a copy of the
Fund's Statement of Additional Information.
<PAGE>
Advisor: Third Millennium Investment Advisors LLC
515 Madison Avenue, 24th Floor
New York, N.Y. 10022
Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229
Independent Auditors:Tait, Weller & Baker
2 Penn Center Plaza
Suite 700
Philadelphia, PA 19102
Legal Counsel: Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Marketing Services: For general information on the Fund and
Marketing Services, call the Distributor
at (800) 527-9525 Toll Free
Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Fund's
Transfer Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23286-8172
(800) 628-4077 Toll Free
More Information: For 24 hour, 7 days a week price information
- -----------------
call 1-800-527-9525.
For information on any series of the World Funds, investment
plans, or other shareholder services, call 1-800-527-9525 during
normal business hours, or write the World Funds at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229.
<PAGE>
27
THE WORLD FUNDS, INC.
THIRD MILLENNIUM RUSSIA FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 21, 1998
The World Funds, Inc. (the "World Funds") is an open-end management
investment company commonly known as a "mutual fund." This Statement of
Additional Information is not a prospectus but supplements the information
contained in the current Prospectus of the Third Millennium Russia Fund, (the
"Fund"), dated September 21, 1998. It should be read in conjunction with the
Prospectus, and has been designed to provide you with further information which
is not contained in the Prospectus. The Fund's Prospectus may be obtained at no
charge upon request to the World Funds. Please retain this Statement of
Additional Information for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS STATEMENT OF ADDITIONAL INFORMATION. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
The World Funds, Inc.
Investment Objective
Investment Policies
Third Millennium Russia Fund
Currency Transactions
Investment Risks
Investment Restrictions
Taxes
Dividends and Distributions
Portfolio Transactions
Net Asset Value
Directors and Officers
Investment Advisor
Transfer Agent
Administrator
Eligible Benefit Plans
Distribution
Fund Expenses
Special Shareholder Services
General Information and History
Performance
Financial Statements
<PAGE>
THE WORLD FUNDS, INC.
The Fund is a series of World Funds, a Maryland corporation which is an
open-end, management investment company, commonly known as a "mutual fund." The
Fund is a non-diversified series of the World Funds.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek to achieve capital appreciation
by investing in a non-diversified portfolio consisting primarily of equity
securities which includes securities convertible into equity securities, such
as, warrants, convertible bonds, debentures or convertible preferred stock.
All investments entail some market risk and there is no assurance that the
Fund's investment objective will be realized.
INVESTMENT POLICIES
Under normal circumstances the Fund will have at least 65% of its assets
invested in a portfolio of common stocks or securities convertible into common
stock of issuers located in Russia. However, when the Advisor believes that
investments should be deployed in a temporary defensive posture because of
economic or market conditions, the Fund may invest up to 100% of its assets in
U.S. Government securities (such as bills, notes, or bonds of the U.S.
Government and its agencies) or other forms of indebtedness such as bonds,
certificates of deposit or repurchase agreements.
The Fund may also acquire fixed income investments where these fixed
income securities are convertible into equity securities (and which may
therefore reflect appreciation the underlying equity security), and where
anticipated interest rate movements, or factors affecting the degree of risk
inherent in a fixed income security are expected to change significantly so as
to produce appreciation in the security consistent with the Fund's objective.
The fixed income securities in which the Fund may invest will be rated at the
time of purchase BAA or higher by Moody's or BBB or higher by Standard & Poors
Rating Group ("S&P"), or if they are foreign securities which are not subject to
standard credit ratings the fixed income securities will be "investment grade"
issues (in the judgement of the Advisor) based on available information.
Securities rated as BBB are regarded as having adequate capacity to pay interest
and repay principal.
The Fund will select its non-equity investment from among securities and
obligations of all kinds including preferred stocks, warrant rights, bonds (of
any class or rating), money market investments (such as U.S. Government
securities issued by the U.S. Treasury, agencies or other instrumentalities) and
other evidences of indebtedness.
The Fund's investments will be subject to the market fluctuations and
risks which are inherent in all investments. The Advisor will seek to attain the
Fund's stated objective, however, there can be no assurance that the objective
will be achieved.
Currency Transactions. The Fund may engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. The Fund's
currency transactions may include forward currency contracts. A forward currency
contract involves a privately negotiated obligation to purchase or sell (with
delivery generally required) a specific currency at a future date, which may be
any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract.
The Fund's dealings in forward currency contracts will be limited to
hedging involving either specific transactions or portfolio positions. Specific
transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities or the receipt
of income therefrom. Position hedging is entering into a currency transaction
with respect to portfolio security positions denominated or generally quoted in
that currency.
The Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can result
in losses to a fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a fund is engaging in proxy hedging.
INVESTMENT RISKS
Investors should recognize that the Fund invests in foreign securities and
that investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in United States securities and which may favorably or unfavorably
affect the performance of the Fund.
As foreign companies are not generally subject to the same uniform
standards, practices and requirements, with respect to accounting, auditing and
financial reporting, as are domestic companies, there may be less publicly
available information about a foreign company than about a domestic company.
Many foreign securities markets, while growing in volume of trading activity,
have substantially less volume in the U.S. market, and securities of some
foreign issuers are less liquid and more volatile than securities of domestic
issuers. Similarly, volume and liquidity in most foreign bond markets is less
than in the United States and, at times, volatility of price can be greater than
in the United States. Furthermore, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although a Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. Furthermore, a Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, securities exchanges, brokers and listed
companies than in the United States. Communications between the United States
and foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The Advisor seeks to mitigate the risks associated with the foregoing
considerations through continuous professional management.
Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund, as measured in U.S. dollars, may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Fund may incur costs in connection with conversions
between various currencies. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one
rate, while offering a lesser rate of exchange should the fund desire to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into the forward or
futures contracts (or option thereon) to purchase or sell foreign currencies.
Foreign securities may be subject to foreign government taxes which could
reduce the yield on such securities, although a shareholder of the Fund may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Funds (see "Taxes"). U.S. and foreign securities
markets do not always move in step with each other and the total returns from
different markets may vary significantly.
INVESTMENT RESTRICTIONS
The policies set forth below that are identified as fundamental policies of
the Fund, and along with the investment objective of the Fund, may not be
changed without approval of a majority of the outstanding voting securities of
the Fund. As used in this SAI a "majority of the outstanding voting securities
of a Fund" means the lessor of (1) 67% or more of the voting securities present
at such meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or (2) more than 50%
of the outstanding voting securities of the Fund.
As a matter of fundamental policy, a Fund will not:
o As to 50% of its assets, purchase the securities of any issuer (other than
obligations issued or guaranteed as to principal and interest by the
Government of the United States or any agency or instrumentality thereof), if
as a result of such purchase, more than 5% of its total assets would be
invested in the securities of such issuer.
o Purchase stock or securities of an issuer (other than the obligations of the
United States or any agency or instrumentality thereof), if such purchase
would cause the Fund to own more than 10% of any class of the outstanding
voting securities of such issuer or, more than 10% of any class of the
outstanding stock or securities of such issuer.
o Act as an underwriter of securities of other issuers, except that the Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to sell
to the public without registration of such securities under the Securities
Act of 1933, as amended, or any foreign law restricting distribution of
securities in a country of a foreign issuer.
o Buy or sell commodities or commodity contracts, provided that the Fund may
utilize not more than 1% of its assets for deposits or commissions required
to enter into forward foreign currency contracts, and financial futures
contracts for hedging purposes as described in the Prospectus. (Such deposits
or commissions are not required for forward foreign currency contracts).
o Borrow money except for temporary or emergency purposes and then only in an
amount not in excess of 5% of the lower of value or cost of its total assets,
in which case the Fund may pledge, mortgage or hypothecate any of its assets
as security for such borrowing but not to an extent greater than 5% of its
total assets. Notwithstanding the foregoing, to avoid the untimely
disposition of assets to meet redemptions, the Fund may borrow up to 33 1/3%,
of the value of its assets to meet redemptions, provided that it may not
make other investments while such borrowings are outstanding.
o Make loans, except that a Fund may (1) lend portfolio securities; and (2)
enter into repurchase agreements secured by U.S. Government securities.
o Invest more than 25% of its total assets in securities of one or more issuers
having their principal business activities in the same industry, provided
that there is no limitation with respect to investments in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
o Invest in securities of other investment companies except by purchase in the
open market involving only customary broker's commissions, or as part of a
merger, consolidation, or acquisition of assets.
o Invest in interests in oil, gas, or other mineral explorations or development
programs.
o Issue senior securities.
o Participate on a joint or a joint and several basis in any securities trading
account.
o Purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities).
o Invest in companies for the purpose of exercising control.
o Purchase securities on margin, except that it may utilize such short-term
credits as may be necessary for clearance of purchases or sales of
securities.
o Engage in short sales.
The Directors of the World Fund's have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs.
These represent intentions of the Directors based upon current circumstances.
They differ from fundamental investment policies in that they may be changed
or amended by action of the Directors without requiring prior notice to or
approval of shareholders.
As a matter of non-fundamental policy, the Fund may not:
o Invest more than 15% of its net assets in illiquid securities.
If a percentage restriction on investment or utilization of assets as set
forth under "Investment Restrictions" and "Investment Policies" above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or the total cost of the Fund's assets will not be
considered a violation of the restriction.
TAXES
The Fund will seek to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain) and generally is
not subject to federal income tax (assuming the Fund meets the 90% and 30% of
gross income tests and the tax diversification test of Subchapter M) to the
extent that it distributes annually its investment company taxable income and
net realized capital gains in the manner required under the Code. Subchapter M
requires that the Fund realize less than 30% of its annual gross income from the
sale or other disposition of stock, securities and certain options, futures and
forward contracts held for less than three months. The Fund intends to
distribute at least annually all of its investment company taxable income and
will distribute annually its net realized capital gains and therefore generally
does not expect to pay federal income taxes.
In order to meet the tax diversification test, at the close of each
quarter of its fiscal year, (i) at least 50% of the value of the Fund's total
assets must be represented by cash and cash items including receivables (for
these purposes, currency and demand deposits denominated in a currency other
than the U.S. dollar will not be considered cash, a cash item or a receivable),
U.S. Government securities, and securities of other regulated investment
companies, and other securities limited in respect of any one issuer to an
amount not greater than 5% of the value of its total assets, and to not more
than 10% of the outstanding voting securities of such issuer; and (ii) not more
than 25% of the value of its total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
The Fund will meet the 90% of gross income test if 90% of its gross income
is derived from dividends, interest, payments with respect to certain securities
loans, and gain from the sale or disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities, or currencies.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but which are not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's investment company taxable income for
the calendar year, at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses prescribed by the Code) realized
during the one-year period ending October 31 during such year, and all ordinary
income and capital gains for prior years that were not previously distributed.
Investment company taxable income generally includes dividends, interest,
net short-term capital gains in excess of net long-term capital losses, and net
foreign currency gains, if any, less expenses. Realized net capital gains for a
fiscal year are computed by taking into account any capital loss carryforward of
a Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon, the Fund intends to elect to treat such
capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim his/her share of federal income taxes paid by the Funds on such
gains as a credit against his/her own federal income tax liability, and will be
entitled to increase the adjusted tax basis of his/her Fund shares by the
difference between his/her pro rata share of such gains and his/her tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for a dividends-received
deduction for corporate investors. Any loss realized upon the redemption of
shares held at the time of redemption for six months or less from the date of
their purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and realized net
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another fund, may
result in tax consequences (gain or loss) to the shareholder and are also
subject to information reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000 or,
if less, the amount of the individual's earned income for any taxable year if
(i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,000 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,000 and
$50,000; $25,000 for a single individual, with a phase-out for adjusted gross
income between $25,000 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000, or 100% of taxable
compensation if less, to an IRA for that year. Starting in 1997, even a spouse
who does not earn compensation can contribute up to $2,000 per year to his or
her own IRA. The deductibility of such contributions will be determined under
the same rules as for contributions made by individuals with earned income.
There are special rules for determining how withdrawals are to be taxed if an
IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value of
such Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
may be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code.
If the Fund invests in stock of certain foreign investment companies, it
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year, other than the taxable year of the excess
distribution or disposition, would be taxed to the Fund at the highest ordinary
income rate in effect for such year, and the tax would be further increased by
an interest charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent it is
distributed by the Fund as a dividend to its shareholders.
The Fund may be able to make an election, in lieu of being taxable in the
manner described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the Fund
as ordinary or capital gain dividends, as the case may be, would not be taxable
to the Fund. In order to make this election, the Fund would be required to
obtain certain annual information from the foreign investment companies in which
it invests, which in many cases may be difficult to obtain. The Fund may make an
election with respect to those foreign investment companies which provide the
Fund with the required information.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues interest or other
receivables, or accrues expenses or other liabilities, denominated in a foreign
currency and the time the Fund actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures and forward contracts, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition are also
treated as ordinary gain or loss. These gains or losses, referred to under the
Code as "Section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
The Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld. Amounts withheld
are applied against the shareholder's tax liability and a refund may be obtained
from the Internal Revenue Service, if withholding results in overpayment of
taxes. A shareholder should contact the Fund or the Transfer Agent if the
shareholder is uncertain whether a proper Taxpayer Identification Number is on
file with the series.
The Fund's shareholders may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each investor should consult his or her own tax adviser as to the applicability
of these taxes.
In January of each year, the Fund's Transfer Agent issues to each
shareholder a statement of the federal income tax status of all distributions.
Non-U.S. Shareholders. The foregoing discussion of U.S. federal income tax
law relates solely to the application of that law to U.S. persons, i.e., U.S.
citizens and residents and U.S. corporations, partnerships, trusts and estates.
Each shareholder who is not a U.S. person should consider the U.S. and foreign
tax consequences of the ownership of Fund shares. Each shareholder who is not a
U.S. person should also consider the U.S. estate tax implications of holding
Fund shares at death. The U.S. estate tax may apply to such holdings if an
investor dies while holding shares of the Fund. Each investor should consult his
or her own tax adviser about the applicability of these taxes. Distributions of
net investment income to non-resident aliens and foreign corporations that are
not engaged in a trade or business in the U.S. to which the distribution is
effectively connected, will be subject to a withholding tax imposed at the rate
of 30% upon the gross amount of the distribution in the absence of a Tax Treaty
providing for a reduced rate or exemption from U.S. taxation. Distributions of
net long-term capital gains realized by the Fund are not subject to tax unless
the distribution is effectively connected with the conduct of the shareholder's
trade or business within the United States, or the foreign shareholder is a
non-resident alien individual who was physically present in the U.S. during the
tax year for more than 182 days.
The foregoing is a general abbreviated summary of present Federal income
taxes on dividends and distributions. Shareholders should consult their tax
advisers about the application of the provisions of the tax law described in
this Statement of Additional Information in light of their particular tax
situations and about any state and local taxes applicable to dividends and
distributions received.
DIVIDENDS AND DISTRIBUTIONS
As stated previously, it is the policy of the Fund to distribute
substantially all of its net investment income annually and to distribute its
net realized capital gains, if any, shortly before the close of the fiscal year
(August 31st).
All dividend and capital gains distributions, if any, will be reinvested
in full and fractional shares based on net asset value (without a sales charge)
as determined on the ex-dividend date for such distributions. Shareholders may,
however, elect to receive all such payments, or the dividend or distribution
portion thereof, in cash, by sending written notice to this effect to the
Transfer Agent. This written notice will be effective as to any subsequent
payment if received by the Transfer Agent prior to the record date used for
determining the shareholders' entitlement to such payment. Such an election will
remain in effect unless or until the Transfer Agent is notified by the
shareholder in writing to the contrary.
PORTFOLIO TRANSACTIONS
It is the policy of the Advisor, in placing orders for the purchase and
sale of the Fund's securities, to seek to obtain the best price and execution
for its securities transactions, taking into account such factors as price,
commission, where applicable, (which is negotiable in the case of U.S. national
securities exchange transactions but which is generally fixed in the case of
foreign exchange transactions), size of order, difficulty of execution and skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the Advisor then arranges for execution of the transaction
in a manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal
exchange unless another market offers a better result. Securities traded only in
the over-the-counter market may be executed on a principal basis with primary
market makers in such securities except for fixed price offerings and except
where the Fund may obtain better prices or executions on a commission basis or
by dealing with other than a primary market maker.
The Fund may authorize the Advisor, when placing Fund transactions, to
allocate a portion of the Fund's brokerage to persons or firms providing the
Advisor with investment recommendations, statistical, research or similar
services useful to the Advisor's investment decision making process. The term
"investment recommendations, statistical, research or similar services" means
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analysis and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. It also may authorize the Advisor to cause the Fund to pay a
commission higher than that charged by another broker in consideration of such
research services. Such services are one of the many ways the Advisor can keep
abreast of the information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions may be
used by the Advisor for the benefit of other clients, and the Fund may benefit
from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it
can be done consistent with the policy of obtaining best price and execution,
the Fund may consider sales of its shares as a factor in the selection of
brokers to execute portfolio transactions. The Advisor is not authorized, when
placing portfolio transactions for the Fund, to pay a brokerage commission in
excess of that which another broker might have charged for executing the same
transaction solely on account of the receipt of research, market, or statistical
information. Except for implementing the policy stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof.
Average annual portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Advisor's opinion, to meet the Fund's objective. The Advisor
anticipates that the average annual portfolio turnover rate of the Fund will
generally not exceed 150%.
NET ASSET VALUE
The Fund's net asset value ("NAV") per share is calculated daily from
Monday through Friday on each business day on which the New York Stock Exchange
(the "Exchange") is open. The Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas
Day, and the preceding Friday or subsequent Monday when any of these holidays
falls on a Saturday or Sunday, respectively. The Fund's NAV is calculated at the
time set by the Board of Directors based upon a determination of the most
appropriate time to price the Fund's securities.
The Board of Directors has determined that the Fund's NAV be calculated as
of the close of trading of the Exchange (currently 4:00 p.m., Eastern Time) on
each business day from Monday to Friday or on each day (other than a day during
which no security was tendered for redemption and no order to purchase or sell
such security was received by the Fund) in which there is a sufficient degree of
trading in the Fund's portfolio securities that the current NAV of the Fund's
shares might be materially affected by changes in the value of such portfolio
security.
NAV per share is determined by dividing the total value of a Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.
The Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.
Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including ADRs, EDRs and GDRs,
which are traded on the Exchange, will be valued at the last sale price prior to
the close of regular trading on the Exchange. Lacking any sales, the security
will be valued at the last bid price prior to the close of regular trading on
the Exchange. ADRs, EDRs and GDRs for which such a value cannot be readily
determined on any day will be valued at the closing price of the underlying
security adjusted for the exchange rate. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange designated in
accordance with procedures approved by the Board of Directors of the World Funds
as the primary market.
Unlisted securities which are quoted on the NASD's National Market System,
for which there have been sales of such securities, shall be valued at the last
sale price reported on such system. If there are no such sales, the value shall
be the high or "inside" bid, which is the bid supplied by the NASD on its NASDAQ
Screen for such securities in the over-the-counter market. The value of such
securities quoted on the NASDAQ System, but not listed on the NASD's National
Market System, shall be valued at the high or "inside" bid. Unlisted securities
which are not quoted on the NASDAQ System and for which the over-the-counter
market quotations are readily available will be valued at the last reported bid
price for such securities in the over-the-counter market. Other unlisted
securities (and listed securities subject to restriction on sale) will be valued
at their fair value as determined in good faith by the Board of Directors. Open
futures contracts are valued at the most recent settlement price, unless such
price does not reflect the fair value of the contract, in which case such
positions will be valued by or under the direction of the Board of Directors.
The value of a security traded or dealt in upon an exchange may be valued
at what the Fund's pricing agent determines is fair market value on the basis of
all available information, including the last determined value, if the pricing
agent determines that the last bid does not represent the value of the security,
or if such information is not available. For example, the pricing agent may
determine that the price of a security listed on a foreign stock exchange that
was fixed by reason of a limit on the daily price change does not represent the
fair market value of the security. Similarly, the value of a security not traded
or dealt in upon an exchange may be valued at what the pricing agent determines
is fair market value if the pricing agent determines that the last sale does not
represent the value of the security, provided that such amount is not higher
than the current bid price.
Notwithstanding the foregoing, money market investments with a remaining
maturity of less than sixty days shall be valued by the amortized cost method;
debt securities are valued by appraising them at prices supplied by a pricing
agent approved by the Fund, which prices may reflect broker-dealer supplied
valuations and electronic data processing techniques and are representative of
market values at the close of the Exchange; options on securities, futures
contracts and options on futures listed or admitted to trading on a national
exchange shall be valued at their last sale on such exchange prior to the time
of determining NAV; or if no sales are reported on such exchange on that day, at
the mean between the most recent bid and asked price; and forward contracts
shall be valued at their last sale as reported by the Fund's pricing service, or
lacking a report by the service, at the value of the underlying currencies at
the prevailing currency rates.
U.S. Treasury bills, and other short-term obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, with original or
remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, are valued at the mean of representative quoted bid
and asked prices for securities of comparable maturity, quality and type.
Short-term securities, with 60 days or less to maturity, are amortized to
maturity based on their cost if acquired within 60 days of maturity or, if
already held, on the 60th day, based on the value determined on the 61st day.
The value of a security which is subject to legal or contractual delays in
or restrictions on resale by the Fund shall be taken to be the fair value
thereof as determined in accordance with procedures established by the Board of
the World Fund, on the basis of such relevant factors as the following: the cost
of such security to the Fund, the market price of unrestricted securities of the
same class at the time of purchase and subsequent changes in such market price,
potential expiration or release of the restrictions affecting such security, the
existence of any registration rights, the fact that the Fund may have to bear
part or all of the expense of registering such security, and any potential sale
of such security to another investor. The value of other property owned by the
Fund shall be determined in a manner which, in the discretion of the pricing
agent of the Fund, most fairly reflects fair market value of the property on
such date.
Following the calculation of security values in terms of currency in which
the market quotation used is expressed ("local currency"), the pricing agent
shall, prior to the next determination of the NAV of the Fund's shares,
calculate these values in terms of United States dollars on the basis of the
conversion of the local currencies (if other than U.S.) into United States
dollars at the rates of exchange prevailing at the value time as determined by
the pricing agent.
Trading in securities on European securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open). In addition, European securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's NAV is not calculated.
The Fund calculates NAV per share, and therefore, effects sales, redemptions and
repurchases of its shares, as of the close of the Exchange once on each day on
which that Exchange is open. Such calculation may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculations. If events materially affecting the value of a
portfolio security occur between the time when its price is determined and the
time when the Fund's NAV is calculated, such a security will be valued at fair
value as determined in good faith by the Board of Directors.
Any purchase order may be rejected by the Distributor or by the Fund.
DIRECTORS AND OFFICERS
The following is a list of the Directors and Officers of the World Funds,
their birth date and a brief statement of their present positions and principal
occupations during the past five years.
*John Pasco, III (4/10/45)
Chairman, Director, and Treasurer
1500 Forest Ave, Suite 223; Richmond, VA 23229
Mr. Pasco is Treasurer and Director of Commonwealth
Shareholder Services, Inc., the World Fund's Administrator,
since 1985. Director and shareholder of Fund Services,
Inc., the World Fund's Transfer and Disbursing Agent, since
1987 and shareholder of Commonwealth Fund Accounting, Inc.
which provides bookkeeping services to Star Bank (the
custodian to other series of the World Funds). Chairman,
Director, and Treasurer of Vontobel Funds, Inc., a
registered investment company. Mr. Pasco is also a
certified public accountant.
Samuel Boyd, Jr. (9/18/40)
Director
10808 Hob Nail Court, Potomac, MD 20854
Mr. Boyd is currently the Manager of the Customer Services
Operations and Accounting Division of the Potomac Electric
Power Company. Director of Vontobel Funds, Inc., a
registered investment company. Mr. Boyd is also a certified
public accountant.
William E. Poist (6/11/39)
Director
5272 River Road, Bethesda, MD 20816
Mr. Poist is a financial and tax consultant through his firm
Management Consulting for Professionals. Director of
Vontobel Funds, Inc., a registered investment company. Mr.
Poist is also a certified public accountant.
Paul M. Dickinson (11/11/47)
Director
8704 Berwickshire Drive, Richmond, VA 23229
Mr. Dickinson is currently the President of Alfred J.
Dickinson, Inc., Realtors. Director of Vontobel Funds,
Inc., a registered investment company.
*Jane H. Williams (6/28/48)
Vice President of the World Funds and President of the Sand
Hill Portfolio Manager Fund series
3000 Sand Hill Road, Suite 150, Menlo Park, CA 94025
Ms. Williams is the Executive Vice President of Sand Hill
Advisors, Inc. since 1982.
*Leland H. Faust (8/30/46)
Vice President of the World Funds and President of the CSI
Equity Fund and the CSI Fixed Income Fund
One Montgomery Street, Suite 2525, San Francisco, CA 94104
President of CSI Capital Management, Inc. since 1978. Mr.
Faust is also a Partner in the law firm Taylor & Faust.
*Franklin A. Trice III (12/25/63)
Vice President of the Company and President of the New
Market Fund
P.O. Box 8535, Richmond, VA 23226-0535
Since 1992 Mr. Trice has been a broker with both Scott &
Stringfellow, Inc. and Craigie, Inc.
*F. Byron Parker, Jr. (1/26/43)
Secretary
810 Lindsay Court, Richmond, VA 23229
Secretary of Commonwealth Shareholder Services, Inc. since
1986. Secretary of Vontobel Funds, Inc., a registered
investment company. Partner in the law firm Mustian &
Parker.
*John T. Connor, Jr., (6/16/41)
Vice President of the World Funds and President of Third
Millennium Russia Fund.
515 Madison Avenue, 24th Floor, New York, N.Y. 10022
Chairman of ROSGAL, a Russian financial company, and of its affiliate,
Rosgal Insurance, since 1993.
* Persons deemed to be "interested" persons of the World Funds, Third Millennium
Investment Advisors, LLC or First Dominion
Capital Corp. under the 1940 Act.
INVESTMENT ADVISOR
Third Millennium Investment Advisors, LLC (the "Advisor") manages the
investment of the assets of the Fund pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The Advisory Agreement is effective for a
period of two years from September 21, 1998, and may be renewed thereafter only
so long as such renewal and continuance is specifically approved at least
annually by the Board of Directors of the World Funds or by vote of a majority
of the outstanding voting securities of the World Funds, provided the
continuance is also approved by a majority of the Directors who are not
"interested persons" of the World Funds or the Advisor by vote cast in person at
a meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable without penalty on sixty days notice by the World Fund's
Board of Directors or by the Advisor. The Advisory Agreement provides that it
will terminate automatically in the event of its assignment. The address of the
Advisor is 515 Madison Avenue, 24th Floor, New York, N.Y. 10022.
Under the Advisory Agreement, the monthly compensation paid to the Advisor
is accrued daily at a rate equal to a fee at the annual rate of 1.75% on the
first $125 million of assets; 1.50% on assets in excess of $125 million and not
more than $250 million; and 1.25% on assets over $250 million.
The Advisory Agreement contemplate the authority of the Advisor to place
orders pursuant to its investment determinations for the Fund either directly
with the issuer or with any broker or dealer. In placing orders with brokers or
dealers, the Advisor will attempt to obtain the best price and execution of its
orders. The Advisor may purchase and sell securities to and from brokers and
dealers who provide the Fund with research advice and other services, or who
sells shares of the Fund. See "Portfolio Transactions" above.
TRANSFER AGENT
Fund Services, Inc. (the "Transfer Agent" or "FSI") is the World Funds
transfer and disbursing agent, pursuant to a Transfer Agent Agreement, dated
August 19, 1997. Pursuant to the Transfer Agent Agreement the minimum annual fee
for the Fund is $16,500.
John Pasco, III, President of the World Funds and an officer and
shareholder of Commonwealth Shareholder Services, Inc (the Fund's Administrator)
and an officer and sold shareholder of First Dominion Capital Corp. (the Fund's
distributor) owns one third of the stock of FSI, and, therefore, FSI may be
deemed to be an affiliate of the World Funds and Commonwealth Shareholder
Services, Inc.
ADMINISTRATOR
Commonwealth Shareholder Services, Inc. is the Fund's administrator
pursuant to an Administrative Services Agreement (the "Service Agreement") dated
September 21, 1998. The Service Agreement is described in the Funds' Prospectus.
The Service Agreement continues in effect from year to year for a term of one
year only if the Board of Directors, including a majority of the directors who
are not interested persons of the World Fund's or the Administrator, approves
the extension at least annually. Mr. Pasco owns 1005 of the stock of
Commonwealth Shareholder Services, Inc.
ELIGIBLE BENEFIT PLANS
An eligible benefit plan is an arrangement available to the employees of
an employer (or two or more affiliated employers) having not less than 10
employees at the plan's inception, or such an employer on behalf of employees of
a trust or plan for such employees, their spouses and their children under the
age of 21 or a trust or plan for such employees, which provides for purchases
through periodic payroll deductions or otherwise. There must be at least 5
initial participants with accounts investing or invested in shares of one or
more of the Funds and/or certain other funds.
The initial purchase by the eligible benefit plan and prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $5,000 and subsequent purchases must be at least $50 per account and
must aggregate at least $250. Purchases by the eligible benefit plan must be
made pursuant to a single order paid for by a single check or federal funds wire
and may not be made more often than monthly. A separate account will be
established for each employee, spouse or child for which purchases are made. The
requirements for initiating or continuing purchases pursuant to an eligible
benefit plan may be modified and the offering to such plans may be terminated at
any time without prior notice.
DISTRIBUTION
Shares of the Fund are sold at NAV on a continuous basis, without a sales
charge. Shares of the Fund are subject to asset-based charges pursuant to a Plan
of Distribution adopted by the Fund.
First Dominion Capital Corp. (the "Distributor"), 1500 Forest Avenue,
Suite 223, Richmond, VA 23229, is the World Fund's principal underwriter
pursuant to a Distribution Agreement between the World Funds and the
Distributor. John Pasco, III, Chairman of the Board of the Company owns 100% of
the Distributor, and is its President, Treasurer and a Director.
FUND EXPENSES
The Fund will pay its expenses not assumed by the Advisor, including, but
not limited to, the following: custodian; stock transfer and dividend disbursing
fees and expenses; taxes; expenses of the issuance and redemption of Fund shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Fund.
The allocation of the general expenses of the World Funds is made to the
Fund on a basis that the Board of Directors of the World Funds deems fair and
equitable, which may be based on the relative net assets of the series of the
World Funds or the nature of the services performed and relative applicability
to each series of the World Funds.
Investors should understand that the Fund's expense ratio can be
expected to be higher than investment companies investing in domestic securities
since the cost of maintaining the custody of foreign securities and the rate of
the advisory fee paid by the Fund is higher.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account: The regular account allows for voluntary investments to
be made at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. Simply
use the Account Application provided with the Prospectus to open your account.
Telephone Transactions: A shareholder may redeem shares or transfer into
another fund if this service is requested at the time the shareholder completes
the initial Account Application. If it is not elected at that time, it may be
elected at a later date by making a request in writing to the Transfer Agent and
having the signature on the request guaranteed.
The Fund employs reasonable procedures designed to confirm the
authenticity of instructions communicated by telephone and, if it does not, it
may be liable for any losses due to unauthorized or fraudulent transactions. As
a result of this policy, a shareholder authorizing telephone redemption bears
the risk of loss which may result from unauthorized or fraudulent transactions
which the Fund believes to be genuine. When requesting a telephone redemption or
transfer, the shareholder will be asked to respond to certain questions designed
to confirm the shareholder's identity as a shareholder of record. Cooperation
with these procedures helps to protect the account and the Fund from
unauthorized transactions.
Invest-A-Matic Account: A shareholder may utilize this feature, which
provides for automatic monthly investments into an account. Upon your request,
the Transfer Agent will withdraw a fixed amount each month from a checking
account for investment into the Fund. This does not require a commitment for a
fixed period of time. A shareholder may change the monthly investment, skip a
month or discontinue the Invest-A-Matic Plan as desired by notifying the
Transfer Agent. This feature requires a separate Plan application, in addition
to the Account Application. To obtain an application, or to receive more
information, please call the Fund.
Individual Retirement Account ("IRA") - All wage earners under 70-1/2,
even those who participate in a company sponsored or government retirement plan,
may establish their own IRA. You can contribute 100% of your earnings up to
$2,000 (or $2,250 with a spouse who is not a wage earner, for years prior to
1997). Starting in 1997, even a spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employers under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements of establishing and maintaining a
corporate retirement plan trust.
If a shareholder has received a lump sum distribution from another
qualified retirement plan, all or part of that distribution may be rolled over
into your Fund IRA. A rollover contribution is not subject to the limits on
annual IRA contributions. By acting within applicable time limits of the
distribution you can continue to defer Federal Income Taxes on your lump sum
contribution and on any income that is earned on that contribution.
How to Establish Retirement Accounts: Please call the World Fund to obtain
information regarding the establishment of individual retirement plan accounts.
The plan's custodian charges nominal fees in connection with plan establishment
and maintenance. These fees are detailed in the plan documents. A shareholder
may wish to consult with an attorney or other tax advisor for specific advice
concerning tax status and plans.
Exchange Privilege: Shareholders may exchange their shares for shares of
any other series of the World Funds, provided the shares of the fund the
shareholder is exchanging into are noticed for sale in the shareholder's state
of residence. Each account must meet the minimum investment requirements
(currently $1,000). Exchange Privilege Authorization Forms are available by
calling the World Funds. A special authorization form must have been completed
and must be on file with the Transfer Agent. To make an exchange, an exchange
order must comply with the requirements for a redemption or repurchase order and
must specify the value or the number of shares to be exchanged. An exchange will
take effect as of the next determination of the Fund's NAV per share (usually at
the close of business on the same day). The Transfer Agent will charge the
shareholder's account a $10.00 service fee each time there is an exchange. The
World Funds reserves the right to limit the number of exchanges or to otherwise
prohibit or restrict shareholders from making exchanges at any time, without
notice, should the World Funds determine that it would be in the best interest
of its shareholders to do so. For tax purposes an exchange constitutes the sale
of the shares of the fund from which you are exchanging and the purchase of
shares of the fund into which you are exchanging. Consequently, the sale may
involve either a capital gain or loss to the shareholder for federal income tax
purposes. The exchange privilege is available only in states where it is legally
permissible to do so.
GENERAL INFORMATION AND HISTORY
The World Funds is authorized to issue up to 500,000,000 shares of common
stock, par value $0.01 per share, of which it has presently allocated 50,000,000
shares to the Fund, and 200,000,000 shares among four other Series. The Board of
Directors can allocate the remaining authorized but unissued shares to any
series of the World Funds, or may create additional series and allocate shares
to such series. Each series is required to have a suitable investment objective,
policies and restrictions, to maintain a separate portfolio of securities
suitable to its purposes, and to generally operate in the manner of a separate
investment company as required by the 1940 Act.
If additional series were to be formed, the rights of existing series
shareholders would not change, and the objective, policies and investments of
each series would not be changed. A share of any series would continue to have a
priority in the assets of that series in the event of a liquidation.
The shares of each series when issued will be fully paid and
nonassessable, will have no preference over other shares of the same series as
to conversion, dividends, or retirement, and will have no preemptive rights. The
shares of any series will be redeemable from the assets of that series at any
time at a shareholder's request at the current NAV of that series determined in
accordance with the provisions of the 1940 Act and the rules thereunder. The
World Fund's general corporate expenses (including administrative expenses) will
be allocated among the series in proportion to net assets or as determined in
good faith by the Board.
The investment advisory fees payable to the Advisor by the Fund will be
based upon the assets of the Fund. The shareholders of the Fund have the right
to vote with respect to the investment advisor of the Fund.
Voting and Control - Each outstanding share of the World Funds is entitled
to one vote for each full share of stock and a fractional share of stock. All
shareholders vote on matters which concern the corporation as a whole. Election
of Directors or ratification of the auditor are examples of matters to be voted
upon by all shareholders. The World Funds is not required to hold a meeting of
shareholders each year. The World Funds intends to hold annual meetings when it
is required to do so by the Maryland General Corporate Law or the 1940 Act.
Shareholders have the right to call a meeting to consider the removal of one or
more of the Directors and will be assisted in Shareholder communication in such
matter. Each series shall vote separately on matters (1) when required by the
General Corporation Law of Maryland, (2) when required by the 1940 Act and (3)
when matters affect only the interest of the particular series. An example of a
matter affecting only one series might be a proposed change in an investment
restriction of one series. The shares will not have cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors if they choose to do so.
Code of Ethics - The World Funds has adopted a Code of Ethics which
imposes certain restrictions on the authority of portfolio managers and certain
other personnel of the World Funds and the Advisor governing personal securities
activities and investments of those persons and has instituted procedures to its
Code of Ethics to require such investment personnel to report such activities to
the compliance officer. The Code is reviewed and updated annually.
PERFORMANCE
Total return is the primary method used to measure investment performance.
Total return is the total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price.
Generally, performance quotations by investment companies are subject to
certain rules adopted by the Securities and Exchange Commission (the
"Commission"). These rules require the use of standardized performance
quotations, or alternatively, that every non-standardized performance quotation
furnished by a fund be accompanied by certain standardized performance
information computed as required by the Commission. The total return quotations
used by a fund are based on the standardized methods of computing performance
mandated by the Commission.
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load, if any,
is deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year or since inception period
and the deduction of all applicable charges and fees. According to the
Commission formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods (or fractional portion
thereof).
Occasionally statistics may be used to specify a fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
NAV or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicates volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure variability of NAV
or total return around an average, over a specified period of time. The premise
is that greater volatility connotes greater risk undertaken in achieving
performance.
Sales literature referring to the use of a Fund as a potential investment
for IRAs, Business Retirement Plans, and other tax-advantaged retirement plans
may quote a total return based upon compounding of dividends on which it is
presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.
Comparisons and Advertisements
To help investors better evaluate how an investment in a fund might
satisfy their investment objective, advertisements regarding the fund may
discuss yield, total return, or fund volatility as reported by various financial
publications. Advertisements may also compare yield, total return, or volatility
(as calculated above) to yield, total return, or volatility as reported by other
investments, indices, and averages. The following publications, indices, and
averages may be used:
(a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment
of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index - represents the return on the market value of
all common equity securities for which daily pricing is available. Comparisons
of performance assume reinvestment of dividends.
(e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Analysis,
and Lipper Mutual Fund Indices - measures total return and average current yield
for the mutual fund industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all distributions, exclusive of
sales charges.
(f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
(g) Mutual Fund Source Book and other material, published by Morningstar, Inc.
- analyzes price, yield, risk, and total return for equity funds.
(h) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Barron's, Financial Times, Investor's Business Daily, New York
Times, The Wall Street Journal, and Money magazines - publications that rate
fund performance over specified time periods.
(i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
(j) Standard & Poor's 100 Stock Index - an unmanaged index based on the price of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for option trading.
(k) Morgan Stanley Capital International EAFE Index - an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index of government
bond issues and includes Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, The Netherlands, Spain, Sweden, United Kingdom and United States
gross of withholding tax.
(m) IFC Global Total Return Composite Index - An unmanaged index of common
stocks that includes 18 developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(n) Nomura Research, Inc. Eastern Europe an Equity Index comprised of those
equities which are traded on listed markets in Poland, the Czech Republic,
Hungary and Slovakia (returns do not include dividends).
In assessing such comparisons of yield, return, or volatility, an investor
should keep in mind that the composition of the investments in the reported
indices and averages in not identical to the Fund's portfolio, that the averages
are generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. In addition, there can be no assurance that the Fund will continue its
performance as compared to such other averages.
<PAGE>
FINANCIAL STATEMENTS
The books of the Fund will be audited at least once each year by Tait,
Weller and Baker, of Philadelphia, PA, independent public accountants.
<PAGE>
Investment Advisor: Third Millennium Investment Advisors LLC
515 Madison Avenue, 24th Floor
New York, N.Y. 10022
Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229
Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103
Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Marketing Services: For general information on the Funds
and marketing services, call the
Distributor at (800) 527-9525 toll free.
Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Fund's
Transfer Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free
More Information: For 24-hour, 7-days-a-week price
- -----------------
information call 1-800-527-9525. For
information on any series of the World
Funds, investment plans, or other
shareholder services, call the World
Funds at 1-800-527-9525 during normal
business hours, or write to the World
Funds at 1500 Forest Avenue, Suite 223,
Richmond, VA 23229
