File Nos. 333-29289 and 811-8255
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.
/X/ Post-Effective Amendment No. 4
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 4
(check appropriate box or boxes)
THE WORLD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1500 Forest Avenue, Suite 223, Richmond, VA 23229
(address of Principal Executive Offices: (Zip Code)
Registrant's Telephone Number, including Area Code (804) 285-8211
John Pasco, III 1500 Forest Ave., Suite 223, Richmond, VA 23229
(Name and Address of Agent for Service)
Please send copies of communications to
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pa. 19103-7098
Approximate Date of Proposed Public Offering: Upon effectiveness of this Post-
Effective Amendment.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) / / on (date) pursuant
to paragraph (b) / / 60 days after filing pursuant to paragraph (a)(1) / / on
(date) pursuant to paragraph (a)(1) /X/ 75 days after filing pursuant to
paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Tile of Securities Being Registered Common Stock of the New Market Fund series
and the Third Millennium Russia Fund series par value $.01 per share.
<PAGE>
CROSS-REFERENCE SHEET
PART A - Prospectuses for the
Third Millennium Russia Fund
And
New Market Fund
(This Post-Effective Amendment does not amend the existing
Prospectuses of other Series of The World Funds, Inc.)
Item No. Information Required in a Prospectus
1. Cover Page. Cover Page.
2. Synopsis. Prospectus Summary; Fund Expenses.
3. Condensed Financial Financial Highlights.
Information.
4. General Description of Prospectus Summary; Cover Page; General
Registrant Information About the Company; The Funds'
Investment and Policies; Additional
Information on Policies and Investments;
Special Risk Considerations; Investment
Restrictions. Condensed Financials
5. Management of the Fund Management of the Fund Prospectus Summary;
the Company's Management; General
Information about the Company; To Obtain
More Information.
5a. Management's Discussion N/A
of Fund Performance
6. Capital Stock and Prospectus Summary; Taxes; Dividends and
Other Securities Capital Gains Distributions; General
Information About the Company; To Obtain
More Information.
7. Purchase of Securities Prospectus Summary; How to Invest; How Net
Being Offered. Asset Value is Determined; Special Share-
holder Services; How to Transfer Shares.
8. Redemption or Repurchase How to Redeem Shares; Special Shareholder
Services; How to Transfer Shares.
9. Pending Legal Proceedings. Not Applicable.
<PAGE>
PART B - Statements of Additional Information for
Third Millennium Russia Fund
And
New Market Fund
(This Post-Effective Amendment does not amend the existing Statements of
Additional Information of other Series of The World Funds, Inc.)
Item No. Information Required in a Statement
Of Additional Information
10. Cover Page. Cover Page.
11. Table of Contents. Table of Contents.
12. General Information Not Applicable.
and History
13. Investment Objectives The World Funds, Inc.; Investment Policies;
and Policies. Special Investment Considerations for the
Funds; Investment Restrictions.
14. Management of the Directors and Officers.
Registrant.
15. Control Persons and Directors and Officers.
Principal Holders of
Securities.
16. Investment Advisory and Investment Advisor; Transfer Agent;
Other Services. Administrator; Distribution.
17. Brokerage Allocation and Portfolio Transactions.
Other Services.
18. Capital Stock and Other General Information and History; Dividends
Securities and Distributions.
19. Purchase, Redemption and Special Shareholder Services; Valuation and
Pricing of Securities Calculation of Net Asset Value.
Being Offered.
20. Tax Status. Taxes.
21. Underwriters. Distribution.
22. Calculation of Performance Performance.
Data.
23. Financial Statements. Financial Statements.
<PAGE>
PART C - Other Information
24. Financial Statements and Exhibits.
25. Persons Controlled By Or Under Common Control With Registrant.
26. Number of Holders of Securities.
27. Indemnification.
28. Business and Other Connections of Investment Advisor.
29. Principal Underwriters.
30. Location of Accounts and Records.
31. Management Services.
32. Undertakings.
<PAGE>
;~?; ;~;;~?;
1
THIRD MILLENNIUM RUSSIA FUND
OF
THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS DATED , 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 , 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
<PAGE>
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 Investments : Invests primarily in 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/Dividends: Paid annually from 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 $1000. 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 : Information 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
Adviser 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 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.
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
industry 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
dividends, 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 financial reporting 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.
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 , 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% of
the net assets of the Fund. This fee is 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 for the Fund are: John T. Connor, Jr. and
Alexei Moskvin. In addition they may retain the services of other full time
professionals in portfolio management. 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
their 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
8 Penn Center Plaza
Suite 800
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>
3
THE NEW MARKET FUND
A PORTFOLIO OF
THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS
Suite 223 Dated [ ], 1998
Richmond, Virginia 23229
Telephone: 1-800-527-9525
The World Funds, Inc. ("the "Company") is an open-end management
investment company commonly known as a "mutual fund". A "series" mutual 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. This Prospectus offers shares of the New Market Fund
series (the "Fund") of the Company.
The Fund seeks to achieve long-term growth of capital by investing in a
portfolio composed of common stocks and securities convertible into common
stock, such as, warrants, convertible bonds, debentures or convertible preferred
stock. The Fund is a non-diversified series for purposes of the Investment
Company Act of 1940, as amended. The Company is currently composed of five
series, which are offered in separate prospectuses.
SHARES IN THE FUNDS 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 FUND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Fund
that 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 [ ], 1998, which is available at no charge
upon written request to the Company. The Funds' 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 PON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS Page
PROSPECTUS SUMMARY
FUND EXPENSES
THE WORLD FUNDS, INC.
NEW MARKET FUND
Investment Objective
Investment Policies
INVESTMENT RISKS
INVESTMENT RESTRICTIONS
PERFORMANCE TERMS AND COMPUTATIONS
THE COMPANY'S MANAGEMENT
Investment Manager
Investment Advisor
Administrator
Custodian and Accounting Service Agents
Transfer and Dividend Disbursing Agent
Principal Underwriter/Distributor
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
TAXES
GENERAL INFORMATION ABOUT THE COMPANY
TO OBTAIN MORE INFORMATION
<PAGE>
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 Fund seeks to achieve long-term growth of capital by investing in a
portfolio composed of common stocks and securities convertible into
common stock, such as warrants, convertible bonds, debentures or
convertible preferred stock.
Principal Investments
The Funds' primary investments are in equity securities.
See "Investment Policies" on Page .
The Fund's Management
Virginia Management Investment Corporation (the "Manager") is the
investment manager and manages the investments of the Fund according to its
investment objective and policies. The Manager has employed The London Company
of Virginia (the "Investment Advisor") to render certain investment advisory
services to the Manager with respect to the Fund. The Manager is newly formed,
and neither the Manager nor the Investment Advisor have previously acted as
advisor to an investment company. See "The Company's Management" on Page .
Distributions/Dividends
Available income and capital gains, if any, are is paid annually from
the Fund. Capital gains, if any, are paid annually from the Fund. See
"Dividends and Capital Gains Distributions" on Page .
Reinvestment
Distributions may be reinvested automatically with no sales load. See
"Dividends and Capital Gains Distributions" on Page .
Purchases
Initial purchase is $5,000 minimum. Subsequent purchases must be a
minimum of $100. Shares of the Fund are offered for sale with a sales
charge through the distributor, First Dominion Capital Corp. (see "How
to Invest" on Page ).
Net Asset Value
Available by calling 1-800-527-9525. See "How the Net Asset Value is
Determined" on Page .
Investment Risks
There can be no assurance that the Fund will achieve its investment
objective. See "Investment Risks" on Page [ ]
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 Manager, the Investment Advisor (The London Company of Virginia), the
Company's distributor (First Dominion Capital Corp), the Company's Administrator
(Commonwealth Shareholder Services, Inc.) and the Company's transfer agent and
dividend disbursing agent (Fund Services, Inc.) have advised the Company that
they are reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000 to the extent necessary to
foreclose any such negative impact. In addition, the Company has been advised by
the Fund's custodian and accounting services agent, Star Bank, that it is also
in the process of reviewing its systems with the same goal. As of the date of
this Prospectus, the Company has no reason to believe that these goals will not
be achieved prior to January 1, 2000.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that shareholders
in the Fund will incur.
Shareholder
Transaction Expenses New Market Fund
Front End Sales Load Imposed on Purchases 2.75%
Front End Sales Load Imposed on Reinvested
Dividends None
Redemption Fees* 1.0%**
* A shareholder electing to redeem shares via a telephone request
will be charged $10 for each such redemption request.
** A one percent redemption fee is deducted from the proceeds of shares
redeemed less than one year after purchase.
Average Fund Operating Expenses
(as percentage of average daily
net assets) New Market Fund
Management 1.00%
12b-1 Fee .50
Other Operating Expenses .49%
Total Fund Operating Expenses 1.99%
The purpose of these tables is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly.
Management expects that, to the extent that the Fund increases in size, the
Other Operating Expenses will decline as an annual percentage rate reflecting
economies of scale.
Example
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.
Fund Name 1 Year 3 Years
New Market Fund [ ] [ ]
THE WORLD FUNDS, INC.
The Fund is a series of The World Funds, Inc. (the "Company"), an
open-end management investment company incorporated in Maryland in 1997. The
Company currently consists of five series, and the Board of Directors may elect
to add more series in the future. A minimum initial investment of $5,000 is
required to open a shareholder account in the Fund, and each subsequent
investment must be $100 or more.
The investment objective of the Fund is fundamental and may not be
changed without the approval of shareholders. However, the investment policies
of the Fund are not fundamental and may be changed with the approval of the
Company's Board of Directors. All investments entail some risks and there is no
assurance that the investment objective of the Fund can be achieved. See
"Investment Risks" on the page [ ].
NEW MARKET FUND
Investment Objective. The Fund seeks to achieve long-term growth of
capital by investing in a portfolio composed of common stocks and securities
convertible into common stock, such as warrants, convertible bonds, debentures
or convertible preferred stock.
Investment Policies. It is the Fund's policy to focus its investments
on profitable, financially stable growth companies. It is anticipated that such
companies will generate high returns on invested capital. The companies will
generally be unleveraged, characteristically have shareholder-oriented
management, and generally tend to have large market capitalizations.
Under normal market conditions, the Fund will have at least 65% of its
assets in common stocks or securities convertible into common stocks. The Fund's
portfolio will be non-diversified. The Fund will not be limited to investing in
the securities of companies of any particular size, or to securities traded in
any particular market. No more than 25% of the Fund's assets will be invested in
issuer's which operate in any single industry. The Fund may purchase and sell
exchange-listed and over-the-counter put and call options on securities.
When the Fund's Management 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 or certificates of deposits. When the Fund is in a
temporary defensive position, it is not pursuing its stated investment policies.
The Fund's Management decides when it is appropriate to be in a defensive
position. It is impossible to predict for how long such alternative strategies
will be utilized.
It is anticipated that portfolio turnover will not exceed 50% under
normal circumstances. A higher portfolio turnover rate may result in additional
brokerage commissions or expenses to the Fund.
INVESTMENT RISKS
An investment in the Fund is subject to all of the risks of an equity
investment, including the risk of declines in the value of the equity markets
generally. In addition, the Fund may invest a portion of its assets in smaller
companies that may involve greater risk than investments in larger, more mature
issuers. Smaller companies may have limited product lines, markets or financial
resources, and their securities may trade less frequently and in more limited
volume than those of larger, more mature companies. As a result, the prices of
their securities may fluctuate more than those of larger issuers.
The Fund is non-diversified and therefore its assets may be invested in
fewer securities than a diversified fund. This investment practice may cause the
market action of the Fund's larger portfolio positions to have a greater impact
on the Fund's net asset value, which could result in increased volatility.
The use of put and call options may result in losses to the Fund, force
the sale or purchase of portfolio securities at inappropriate times or for
prices higher than (in the case of put options) or lower than (in case of call
options) current market values, limit the amount of appreciation it can realize
on its investments or cause it to hold a security it might otherwise sell.
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 of the Fund, as that term is defined in the 1940
Act. (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, except as noted otherwise, that it may not:
* Purchase any security if, as a result of such purchase, less than 50%
of the assets of the Fund would consist of cash and cash items, U.S.
Government securities, securities of other investment companies, and
securities of issuers in which the Fund has not invested more than 5%
of its assets.
* Purchase stock or securities of an issuer (other than U.S. Government
securities or securities of other investment companies) if such
purchase would cause the Fund to own more than 10% of any class of the
outstanding voting securities of such issuer.
* Act as an underwriter of securities of other issuers, except (i) that
the Fund may invest up to 10% of the value of its total assets (at time
of investment) in portfolio securities which the Fund might not be free
to sell to the public without registration of such securities under the
Securities Act of 1933, as amended, or any foreign law restricting
distribution of securities in a country of a foreign issuer; and (ii)
to the extent that the Fund may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund.
* Buy or sell commodities or commodity contracts.
* Borrow money except as a temporary measure for extraordinary or
emergency purposes. 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 from banks to meet
redemptions, provided that the Fund may not make other investments
while such borrowings are outstanding.
* Make loans (other than by investment in repurchase agreements).
* Invest more than 25% of its total assets in securities of companies in
the same industry.
Percentage limitations in the foregoing description of the Funds'
investments and policies and this "Investment Restrictions" section are
determined at the time the Fund makes an investment subject to such percentage.
PERFORMANCE TERMS AND COMPUTATIONS
From time to time the Fund may advertise information regarding its
performance. All performance figures are historical, show the performance of a
hypothetical investment and are not intended to indicate future performance.
Advertising may include the following performance measurements.
"Average annual total return" refers to the average annual compound
rate of return of an investment in the Fund assuming that the investment has
been held for one, five and ten-year periods, as applicable, and/or the life of
the Fund.
"Cumulative total return" represents the cumulative change in value of
an investment in the Fund for various periods. These calculations assume that
dividends and capital gains distributions were reinvested.
"Capital change" measures return from capital, including reinvestment
of any capital gains distributions but not reinvestment of dividends.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Funds' expenses. Please refer to the Statement
of Additional Information for more information on Performance.
THE COMPANY'S MANAGEMENT
The Board of Directors of the Company is responsible for the
supervision of the general business of the Company. The Directors act as
fiduciaries for shareholders under the laws of the State of Maryland. The Board
has appointed John Pasco, III to serve as President of the Company. The Company
employs the following persons to provide it with investment advice and to
conduct its ongoing business:
Investment Manager - Virginia Management Investment Corporation (the
"Manager") manages the investment of the assets of the Fund pursuant to the
Investment Management Agreement (the "Management Agreement"). The Management
Agreement is in effective for a period of two years from [ ], 1998 and may be
renewed thereafter as long as such renewal and continuance is specifically
approved at least annually by the Company's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund, provided the
continuance is also approved by a majority of the Directors who are not
"interested persons" of the Company or the Manager by vote cast in person at a
meeting called for the purpose of voting on such approval. The Manager is a
newly formed Corporation and its only client is the Fund. The address of the
Manager is 7800 Rockfalls Dr, Richmond, Virginia 23225.
Pursuant to the Management Agreement, the Manager provides the Fund
with investment management services, subject to the supervision of the Board of
Directors of the Company, and with office space for investment activities, and
pays the ordinary and necessary office and clerical expenses relating to
investment research, statistical analysis, supervision of the Funds' portfolios
and certain other costs. The Manager also bears the cost of fees, salaries and
other remuneration of the Company's Directors, officers or employees who are
officers, Directors, or employees of the Manager. The Fund is responsible for
all other costs and expenses, such as, but not limited to, brokerage fees,
commissions and other transaction costs 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 filing notice of
or registration of its shares for sale under various state and Federal
securities laws. All expenses of the Fund not specifically assumed by the
Manager are assumed by the Fund.
Under the Management Agreement, the Manager is entitled to monthly
compensation accrued daily at an annual rate equal to 1% of the average daily
net assets of the Fund. This fee is higher than that charged to many other
investment companies. The fee is paid monthly, within five business days after
the end of the month.
Investment Advisor - The Manager has entered into an Investment
Advisory Agreement (the "Advisory Agreement") with The London Company of
Virginia (the "Investment Advisor"), dated [ ], 1998. Stephen Goddard is
President of the Investment Advisor and is portfolio manager of the Fund.
The Investment Advisor provides the Manager with investment analysis
and timing advice, research and statistical analysis relating to the management
of the portfolio securities of the Fund. The investment recommendations of the
Investment Advisor, while required to comport with the investment objective,
policies and restrictions of the Fund, are subject to the responsibility of the
Manager (acting under the supervision of the Company's Board of Directors).
The Advisory Agreement between the Investment Advisor and the Manager
contemplates the authority of the Investment 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
Investment Advisor will attempt to obtain the best price and execution for the
Fund's orders. The Investment Advisor may purchase and sell securities to and
from brokers and dealers who provide the Investment Advisor with research advice
or statistical services, and may be authorized to pay a commission for such
transactions which is higher than the commission which would be charged by
another broker. Any research advice or statistical information obtained by the
Investment Advisor may be used for the benefit of the Fund or any other client
of the Investment Advisor. From time to time, and subject to the Investment
Advisor obtaining the best price and execution, the Board of Directors may
authorize the Investment Advisor to allocate brokerage transactions to a broker
in consideration of: (1) payment of an obligation otherwise payable by the
Funds, or (2) in consideration of the sale of Fund shares.
The Manager, from its management fee, is obligated to pay the
Investment Advisor a fee equal to one-half of the management fee received from
the Fund with respect to the assets supervised by the Investment Advisor. The
amount so payable will be reduced by one-half of any voluntary reduction in the
Manager's fee on such assets, or reimbursements to the Fund pursuant to
agreements relating to organizational expenses. The address of the Investment
Advisor is Riverfront Plaza, West Tower, 901 East Byrd Street, Suite 1350A,
Richmond, Virginia, 23219.
Administrator - Commonwealth Shareholder Services, Inc. ("CSS"), serves
as Administrator to the Fund pursuant to Administrative Services Agreements. CSS
provides certain recordkeeping and shareholder servicing functions required of
registered investment companies, and will assist the Fund in preparing and
filing certain financial and other reports and performs certain daily functions
required for ongoing operations. CSS may furnish personnel to act as the
Company's officers to conduct the Company's business subject to the supervision
and instructions of the Company's Board of Directors. CSS also provides other
administrative and operational services required by the Fund on terms set and
for fees or reimbursements approved by the Company's Board of Directors.
The Administrative Services Agreements provide that CSS will be paid
monthly: (1) 0.20% 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. The address of CSS is 1500 Forest Avenue, Suite 223, Richmond, VA
23229.
Custodian and Accounting Services Agents - Star Bank, N.A. ("Star
Bank") is the Fund's custodian and accounting services agent. Star Bank collects
income when due and holds all of the portfolio securities and cash. Star Bank,
as the accounting services agent, maintains and keeps current the books,
accounts, records, journals or other records of original entry relating to the
Fund's business. The address of Star Bank is 425 Walnut Street, P.O. Box 1118,
Cincinnati, Ohio 45201-1118.
Transfer and Dividend Disbursing Agent - Fund Services, Inc. ("FSI" or
the "Transfer Agent") is the transfer and dividend disbursing agent for the
Company. John Pasco, III, President of the Company, owns one third of the stock
of FSI, and, therefore, FSI may be deemed to be an affiliate of the Company. FSI
provides all the necessary facilities, equipment and personnel to perform the
usual and ordinary services of the 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 Company's shares and all other confirmable
transactions in shareholders' accounts, recording reinvestment of dividends and
distribution of the Company's shares. Under the Agreement between the Company
and FSI, as in effect on [ ], 1998, FSI is compensated pursuant to a schedule of
services, and is reimbursed for out-of-pocket expenses. The schedule for the
Fund calls for a minimum payment of $16,500 per year. The address of the
Transfer 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 Company pursuant to an
agreement effective August 19, 1997. Mr. John Pasco, III, is the President,
Treasurer, Director and sole shareholder of the Distributor. Mr. Pasco is also
the Chairman and a Director of the Company. The address of the Distributor is
1500 Forest Avenue, Suite 223, Richmond, VA 23229.
HOW TO INVEST
Shares of the Fund may be purchased directly from the Distributor or
through brokers or dealers who are 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.
The public offering price ("POP") per share is equal to the net asset
value per share plus a sales charge, if applicable. A minimum initial investment
of $5,000 is required to open a shareholder account in the Fund, and each
subsequent investment must be $100 or more. The minimum initial investment may
be waived for purchases by officers, Directors and employees of the Company and
its affiliated entities and for certain related advisory accounts and retirement
accounts (such as IRAs). Please refer to the Statement of Additional Information
for further details. The Distributor retains the right to refuse to accept an
order.
Sales Charge as a Percentage of
Amount of Purchase Dealer Discount
At the Public Offering Net Amount as Percentage of
Offering Price Price Invested Offering Price
$5,000 but under $100,000 2.75% 2.83% 2.25%
$100,000 but under $250,000 2.25% 2.30% 1.75%
$250,000 but under $500,000 1.50% 1.52% 1.25%
$500,000 but under $1 million 1.00% 1.01% 0.75%
$1 million or over 0.00% 0.00% 0.00%
There is a 1% redemption fee on accounts held less than one year.
In addition to the sales charge listed above, up to 0.35% of average
net assets is paid annually to qualified dealers for providing certain services
(including services to retirement plans) pursuant to the Fund's Plan of
Distribution.
The Distributor may from time to time offer incentive compensation to
dealers (which sell shares of the Fund subject to sales charges) allowing such
dealers to retain an additional portion of the sales load. A dealer who receives
all of the sales load may be considered an underwriter of the Fund's shares.
When an investor acquires shares of a Fund from a securities broker or
dealer, the investor may be charged a transaction fee for shares purchased
and/or redeemed at net asset value through that broker or dealer.
A front end sales charge may not be imposed if a shareholder purchases
shares of the Fund with redemption proceeds from other mutual fund complexes on
which the shareholder previously paid a front end sales charge or a contingent
deferred sales charge.
Plan of Distribution - The Fund has a Plan of Distribution or "12b-1
Plan" under which it may finance activities primarily intended to sell shares,
provided the categories of expenses are approved in advance by the Board of
Directors of the Company and the expenses paid under the Plan were incurred
within the preceding 12 months and accrued while the Plan is in effect.
Right of Accumulation - Pursuant to the Right of Accumulation
privilege, investors are permitted to purchase shares at the sales charge
applicable to the total of (a) the dollar amount then being purchased plus (b)
an amount equal to the then current public offering price of the purchaser's
combined holdings of the shares of the Fund. To receive the Right of
Accumulation, shareholders must, at the time of purchase, give the Transfer
Agent or the Distributor sufficient information to permit confirmation of
qualification.
Statement of Intention - The reduced sales charge set forth above apply
immediately to all purchases where the purchaser has executed a Statement of
Additional Information calling for the purchase within a 13-month period of an
amount qualifying for a reduced sales charge. For a description of the Statement
of Intention, see the Statement of Additional Information.
To facilitate the handling of transactions with shareholders, the
Company uses an open account plan. The Transfer Agent will automatically
establish and maintain an open account for the Funds' shareholders. Under the
open account plan your shares are reflected in your open account. This service
facilitates the purchase, redemption or transfer of shares, eliminates the need
to issue or safeguard certificates and reduces time delays in executing
transactions. Stock certificates are not required and are not normally issued,
however a stock certificate 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.
Purchase by Mail - For initial purchases the account application form
(the "Account Application") 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
applicable 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 numbers.
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 800-776-5455. 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 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.
HOW TO REDEEM SHARES
Shares of the Fund 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.
The Company's 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 (1) the Transfer Agent cannot accept redemption requests which specify
a particular date for redemption, or which specify any special conditions; and
(2) if the shares you are redeeming were purchased by you less than 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 that you may need
to redeem sooner than 15 days after purchase, you should make your purchase by
Federal Funds wire, or by a certified, treasurer's or cashier's check.
The Company may suspend the right to redeem shares for any period
during which the 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.
There is a 1% redemption fee placed on orders redeemed less than one
year after purchased.
Redemption by Mail - To redeem shares by mail, send the following
information to the Transfer Agent: (1) a written request for redemption signed
by the registered owner(s) of the shares, exactly as the account is registered;
(2) the stock certificates for the shares you are redeeming, if any stock
certificates were issued; (3) any required signature guarantees (see "Signature
Guarantees"); and (4) any additional documents that 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 on your Account Application 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 Company's Transfer Agent) with a signature guarantee (see
"Signature Guarantee") before you can redeem shares by telephone. 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 (1) redeem shares from your account and (2) mail or wire redemption
proceeds. 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. The amount of this service charge 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 Fund 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 Ave., Suite 111, Richmond, VA
23229.
The Company employs reasonable procedures designed to confirm the
authenticity of your instructions communicated by telephone and, if it does not,
it may be liable for any losses due to unauthorized or fraudulent transactions.
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 Company 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 help to protect your account and the Company from
unauthorized transactions.
Redemption by Wire - If you request by mail or telephone that your
redemption proceeds be wired to you, please call your bank for instructions
prior to writing or calling the Transfer Agent. Be sure to include your name,
Fund account number, your account number at your bank and wire information from
your bank in your request to redeem by wire.
Signature Guarantees - To help to protect you and the Company from
fraud, signature guarantees are required for: (1) all redemptions ordered by
mail if you require that the check be payable to another person or that the
check be mailed to an address other than the one indicated on the account
registration; (2) all requests to transfer the registration of shares to another
owner; and (3) all authorizations to establish or change telephone redemption
service, other than through your initial Account Application.
In the case of redemption by mail, signature guarantees must appear on
either: (a) the written request for redemption; or (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a)
participants in good standing of the Securities Transfer Agents Medallion
Program ("STAMP"); (b) commercial banks which are members of the Federal Deposit
Insurance Corporation ("FDIC"); (c) trust companies; (d) firms which are members
of a domestic stock exchange; (e) eligible guarantor institutions qualifying
under Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts - Due to the relatively higher cost of maintaining small
accounts, the Company may deduct $10 per year from an account of the Fund if, as
a result of redemption or transfer of shares, the total investment remaining in
the account for the Fund has a value of less than $5,000. Shareholders will
receive 60 days' written notice to increase the account value above $5,000
before the fee begins to be deducted. A decline in the market value of your
account 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 (1) the name of the Fund and
existing account registration; (2) signature(s) of the registered owner(s); (3)
the new account registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be distributed;
(4) any stock certificates which have been issued for the shares being
transferred; (5) signature guarantees (See "Signature Guarantees"); and (6) any
additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any questions
about transferring shares, call the Transfer Agent at (800) 628-4077.
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
Each time you purchase, redeem or transfer shares of 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 Company offers the following four 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 Account - permits automatic monthly investments into a
Fund from your checking account on a fixed or flexible schedule;
Individual Retirement Accounts (IRA's); and
Exchange Privileges Account - allows the shareholder to exchange his or
her shares for shares of certain other funds having different investment
objectives provided the shares of the fund the shareholder is exchanging into
are noticed for sale in the shareholder's state of residence. A shareholder's
account may be charged a $10.00 telephone exchange fee. 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 Company.
HOW NET ASSET VALUE IS DETERMINED
The Fund's net asset value ("NAV") per share is determined by its
pricing agent as of the close of trading on 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 the Funds share was tendered for
redemption and no order to purchase or sell shares was received by the Company)
in which there is a sufficient degree of trading in the portfolio securities
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 such time
as set by the Company's Board of Directors based upon the Board's determination
that this is the most appropriate time to price the securities.
NAV per share is determined by dividing the total value of the Fund's
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.
The Company's management may compute the NAV per share more frequently
in order to protect shareholders' interests.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income, if any, are declared annually.
The Fund intends to distribute annually realized net capital gains, after
utilization of capital loss carryforwards, if any, to prevent application of a
federal excise tax. However, the Fund may make an additional distribution any
time prior to the due date, including extensions, of filing its tax return, if
necessary to accomplish this result. Any dividends or capital gains distributed
pursuant to a dividend declaration declared in October, November or December
with a record date in such a month and paid during the following January will be
treated by shareholders for federal income tax purposes as if received on
December 31 of the calendar year declared. Unless you elect otherwise, dividends
and capital gains distributions will be reinvested in additional shares of the
Fund at no charge and without a sales charge. Changes in your election regarding
receipt of dividends and distributions must be sent to the Transfer Agent.
Shareholders will be subject to tax on all dividends and distributions, whether
paid to them or reinvested in shares of the Fund. If an investment in Fund
shares is made by a retirement plan, all dividends and capital gains
distributions must be reinvested into an account of such plan. Generally,
dividends from net investment income are taxable to investors as ordinary
income.
Long-term capital gains distributions, if any, are taxable as net
long-term capital gains when distributed regardless of the length of time
shareholders have owned their shares. Net short-term capital gains and any other
taxable income distributions are taxable as ordinary income.
The Fund sends detailed tax information about the amount and type of
its distributions to its shareholders by January 31 of the year following the
distributions.
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"). As a
regulated investment company under the Code, the Fund is not liable for federal
income taxes on income or net capital gains that are distributed to its
shareholders or imputed to shareholders under the Code, or for any excise tax,
to the extent its earnings are distributed as provided in the Code, and assuming
it meets the tax diversification test, 90% gross income test as required by the
Code.
The Fund will act and invest so as to comply with the requirements of
Subchapter M which are described in the Statement of Additional Information.
The distribution to shareholders each year of investment income and
capital gains will represent taxable income to the shareholders, who will be
advised of such amounts by the Fund. The Company is a series corporation. The
Fund is treated as a separate taxable entity under the Code.
On the account application, the shareholder must provide the
shareholder's taxpayer identification number ("TIN"), certify that it is correct
and certify that the shareholder is not subject to backup withholding under
Internal Revenue Service ("IRS") rules. If the shareholder fails to provide a
correct TIN or the proper certifications, the Fund will withhold 31% of all
distributions and redemption proceeds payable to the shareholder. The Fund will
also begin backup withholding on a shareholder's Fund account if the IRS
instructs the Fund to do so. The Fund reserves the right not to open a
shareholder's account or, if (i) an account is already opened, to redeem a
shareholder's shares at the current NAV, less any taxes withheld, if the
shareholder fails to provide a correct TIN, (ii) the shareholder fails to
provide the proper certifications, or (iii) the IRS advises the Fund to begin
backup withholding on the shareholder's Fund account.
GENERAL INFORMATION ABOUT THE COMPANY
The Company 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 to the other series of the Company.
The Board of Directors can allocate the remaining authorized but unissued shares
to any series of the Company or may create additional series and allocate shares
to such series.
A share of a 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 nonassessable,
will have no preference over other shares of the Fund as to conversion,
dividends, or retirement, and will have no preemptive rights. Shares of a Fund
will be redeemable from the assets of the Fund at any time, as described above.
Each outstanding share of the Company 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 Company as a whole. The Company
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 shareholders of the
Fund shall vote separately on matters that affect only its interest. The 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.
TO OBTAIN 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
Statement of Additional Information.
<PAGE>
Investment Manager: Virginia Management Investment Corporation
7800 Rockfalls Dr.
Richmond, Virginia 23225
Distributor: First Dominion Capital Corp.
1500 Forest Avenue, 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) 776-5455
toll free.
Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Company'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
Company, investment plans, or other
shareholder services, call 1-800-527-9525,
Monday through Friday, 9am to 5pm Eastern
Time, or write the Company at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229.
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer made by this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund or the Distributor. This Prospectus does
not constitute an offer by the Fund or the Distributor to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
1
<PAGE>
THE WORLD FUNDS, INC.
THIRD MILLENNIUM RUSSIA FUND
STATEMENT OF ADDITIONAL INFORMATION DATED ________, 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 _______, 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>
-32-
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 securiteis 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.
*JaneH. 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 __________ , 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.
The Advisor is compensated at the annual rate of 1.75% of the average
daily net assets of the Fund as described in the Prospectus.
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
_______, 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.
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 Pbusiness hours, or write to
the World Funds at 1500 Forest
Avenue, Suite 223, Richmond, VA
23229
<PAGE>
THE WORLD FUNDS, INC.
THE NEW MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION DATED [ ,1998]
The World Funds, Inc. (the "Company") 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 New Market Fund, (the "Fund"), dated
[ , 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 Company.
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
Investment Risks
Investment Restrictions
Taxes
Dividends and Distributions
Portfolio Transactions
Net Asset Value
Directors and Officers
Investment Manager
Investment Advisor
Transfer Agent
Administrator
Eligible Benefit Plans
Distribution
Plan of Distribution
Sales at Net Asset Value
Fund Expenses
Special Shareholder Services
General Information and History
Performance
Financial Statements
Appendix - Bond Ratings
<PAGE>
-29-
THE WORLD FUNDS, INC.
The New Market Fund (the "Fund") is a series of The World Funds, Inc.
(the "Company"), a Maryland corporation which is an open-end, management
investment company, commonly known as a "mutual fund." The Fund is a
non-diversified series.
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve long-term growth of
capital by investing in portfolio composed of common stocks and securities
convertible into common stock, such as, warrants, convertible bonds, debentures
or convertible preferred stock.
All investments entail some market risk and there is no assurance that
a Fund's investment objective will be realized.
INVESTMENT POLICIES
It is the Fund's policy to focus its investments on profitable,
financially stable growth companies. It is anticipated that such companies will
generally have shareholder-oriented management, and generally tend to have large
market capitalizations. Changes in portfolio securities are made on the basis of
investment considerations, and it is against the policy of management to make
changes for trading purposes. The portfolio turnover generally will not exceed
50% under normal circumstances.
Under normal market conditions, the Fund will have at least 65% of its
assets invested in common stocks or securities convertible into common stocks.
The Fund may also acquire fixed income investments which are convertible into
equity securities. Such convertible securities will generally be investment
grade (in the opinion of the manager).
The Fund may write (sell) covered call options, including those that
trade in the OTC market, to increase its return (through the receipt of
premiums) or to provide a partial hedge against declines in the market value of
its portfolio securities. The Fund will not engage in such transactions for
speculative purposes. A call option gives the purchaser the right, and obligates
the writer to sell, in return for a premium paid, a particular security at a
predetermined or "exercise" price during the period of the option. A call option
is "covered" if the writer owns the underlying security that is the subject of
the call option. The writing of call options is subject to risks, including the
risk that the Fund will not be able to participate in any appreciation in the
value of the securities above the exercise price.
The Fund will select its non-equity investments from 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
term "U.S. Government securities" refers to a variety of securities which are
issued or guaranteed by the United States Treasury, by various agencies of the
United States Government, and by various instrumentalities which have been
established or sponsored by the United States Government. U.S. Treasury
securities are backed by the "full faith and credit" of the United States.
Securities issued or guaranteed by Federal agencies and the U.S. Government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitment.
An instrumentality of the U.S. Government is a government agency organized under
Federal charter with government supervision.
The Fund's investments will be subject to the market
fluctuations and risks which are inherent in all investments. The Manager will
seek to attain the Fund's stated objective, however, there can be no assurance
that the objective will be achieved.
INVESTMENT RISKS
An investment in the Fund is subject to all of the risks of an equity
investment, including the risk of declines in the value of the equity markets
generally. In addition, the Fund may invest a portion of its assets in smaller
companies that may involve greater risk than investments in larger, more mature
issuers. Smaller companies may have limited product lines, markets or financial
resources, and their securities may trade less frequently and in more limited
volume than those of larger, more mature companies. As a result, the prices of
their securities may fluctuate more than those of larger issuers.
Investors should recognize that the Fund is a non-diversified Fund and
therefore its investments may be more concentrated than a diversified fund. Such
concentration could cause the market action of the Fund's larger portfolio
positions to have a greater impact on the Fund's net asset value, which could
result in increased volatility.
The use of put and call options may result in losses to the Fund, force
the sale or purchase of portfolio securities at inappropriate times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation it can
realize on its investments or cause it to hold a security it might otherwise
sell.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies and, along with
the Fund's investment objective, may not be changed without approval of a
majority of the outstanding voting securities of such Fund. As used in this
Statement of Additional Information a "majority of the outstanding voting
securities of a Fund" means the lesser 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, the 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.
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.
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 Company have voluntarily adopted certain
non-fundamental policies and restrictions which are observed in the conduct of
the Funds' 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:
1. Invest more than 15% of its net assets in illiquid securities.
2. Engage in arbitrage transactions.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Investment Policies" sections
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%
of gross income test 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. 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. 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 the Fund's 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 the Fund's 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 intend 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 Fund 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. 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 Fund's net asset
value of such 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 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 Fund.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of Fund shares. Each
investor should consult his or her own tax adviser as to the applicability of
these taxes.
In January of each year, the Company'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 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 and to distribute annually 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
The Management Agreement and the Investment Advisory Agreement
contemplates the authority of the Manager and the Investment Advisor (together,
the "Advisers")to place Fund orders either directly with the issuer or with any
broker or dealer. In placing orders for the purchase and sale of the
Fund'ssecurities, the Advisers will 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) size of order, difficulty of execution and
skill required of the executing broker/dealer. After a purchase or sale decision
is made by either of the Advisers, the Adviser 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 Advisers are authorized, when placing Fund transactions, to
allocate a portion of the Fund's brokerage to persons or firms providing
investment recommendations, statistical, research or similar services useful to
the 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. The Advisers are also
authorized 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 Advisers can keep abreast of the information generally
circulated among institutional investors by broker-dealers. While this
information is useful in varying degrees, its value is indeterminable. Such
services received on the basis of transactions for a Fund may be used by the
Advisers 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 Advisers are 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.
When two or more clients managed by either of the Advisers are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated in a manner deemed equitable to each client. It is
recognized that in some cases the procedure could have a detrimental effect on
the price or volume of the security as far as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions will be beneficial for the Fund.
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 to meet the Fund's objective. The Manager anticipates that the average
annual portfolio turnover rate of the Fund will not exceed 50% under normal
circumstances.
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 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 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 by the total number of shares then
outstanding.
The Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.
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.
The value of a security traded or dealt in upon an exchange may be
valued at what the Company'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. 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 Company, 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, 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.
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 Company's
Board, 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 a
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.
Any purchase order may be rejected by the Distributor or by the
Company.
DIRECTORS AND OFFICERS
The following is a list of the Company's Directors and Officers, 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 Company's Administrator, since 1985. Director and shareholder of Fund
Services, Inc., the Company'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 company). 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.
*JaneH. Williams (6/28/48) Vice President of the Company 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 Company 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.
*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.
*Franklin A.Trice, III (12/25/63)
Vice President of the Company and President of the New Market Fund series.
P.O. Box 8535, Richmond, VA 23226-0535
Mr. Trice has been a Broker with both Scott and Stringfellow, Inc. and
Craigie, Inc. since 1992.
*JohnT. Conner, Jr. (6/16/41) Vice President of the Company and President
of the Third Millennium Russia Fund series 515 Madison Ave., 24th
Floor, New York, NY 10022
Chairman of ROSCAL, a Russian financial company and of its affiliate,
ROSCAL Insurance since 1993.
* Persons deemed to be "interested" persons of the Company, Virginia
Management Investment Corporation or First Dominion Capital Corp. under the 1940
Act.
INVESTMENT MANAGER
Virginia Management Investment Corporation (the "Manager") manages the
investment of the assets of the Fund pursuant to an Investment Management
Agreement (the "Management Agreement"). The Management Agreement is effective
for a period of two years from [ ], 1998, and may be renewed thereafter only so
long as such renewal and continuance is specifically approved at least annually
by the Company's Board of Directors or by vote of a majority of the outstanding
voting securities of the Company, provided the continuance is also approved by a
majority of the Directors who are not "interested persons" of the Company or the
Manager by vote cast in person at a meeting called for the purpose of voting on
such approval. The Management Agreement is terminable without penalty on sixty
days notice by the Company's Board of Directors or by the Manager. The
Management Agreement provides that it will terminate automatically in the event
of its assignment. The address of the Manager is 7800 Rockfalls Dr., Richmond,
VA 23225.
The Manager is entitled to monthly compensation accrued daily at an
annual rate equal to 1% of the average daily net assets of the Fund as described
in the Prospectus.
INVESTMENT ADVISOR
The Manager has entered into an Investment Advisory Agreement (the
"Advisory Agreement") with The London Company of Virginia (the "Investment
Advisor"), date [ ], 1998. Stephen Goddard is President of the Investment
Advisor and is portfolio manager of the Fund.
The Investment Advisor provides the Manager with investment analysis and timing
advice, research and statistical analysis relating to the management of the
portfolio securities of the Fund. The investment recommendations of the
Investment Advisor, while required to comport with the investment objective,
policies and restrictions of the Fund, are subject to the responsibility of the
Manager (acting under the supervision of the Company's Board of Directors).
The Advisor Agreement between the Investment Advisor and the Manager
contemplates the authority of the Investment 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
Investment Advisor will attempt to obtain the best price and execution for the
Fund's orders. The Investment Advisor may purchase and sell securities to and
from brokers and dealers who provide the Investment Advisor with research advice
or statistical services, and may be authorized to pay a commission for such
transactions which is higher than the commission which would be charged by
another broker. From time to time, and subject to the Investment Advisor
obtaining the best price and execution, the Board of Directors may authorize the
Investment Advisor to allocate brokerage transactions to a broker in
consideration of: (1) payment of an obligation otherwise payable by the Funds,
or (2) in consideration of the sale of Fund shares. (See portfolio transactions
above).
The Manager, from its management fee, is obligated to pay the
Investment Advisor a fee equal to one-half of the management fee received from
the Fund with respect to the assets supervised by the Investment Advisor. The
amount so payable will be reduced by one-half of any voluntary reduction in the
Manager's fee, or reimbursements to the Fund pursuant to agreements relating to
organizational expenses. The address of the Investment Advisor is Riverfront
Plaza, West Tower, 901 East Byrd Street, Suite 1350A, Richmond, Virginia, 23219.
TRANSFER AGENT
Fund Services, Inc. (the "Transfer Agent" or "FSI") is the Company's
transfer and disbursing agent, pursuant to a Transfer Agent Agreement, dated
August 19, 1997. Pursuant to the Transfer Agent Agreement the minimum annual fee
charged to the Fund is $16,500.
John Pasco, III, President of the Company, an officer and shareholder
of Commonwealth Shareholder Services, Inc. (the Fund's Administrator), and an
officer and director 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 Company, Commonwealth Shareholder Services, Inc., and First
Dominion Capital Corp.
ADMINISTRATOR
Commonwealth Shareholder Services, Inc. is the Company's administrator
pursuant to an Administrative Services Agreement (the "Service Agreement"). 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 Company or the Administrator, approve the extension at least
annually. John Pasco, III owns 100% of the stock of Commonwealth Shareholder
Services.
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 Funds are offered for sale on a continuous basis at the
Net Asset Value plus the applicable sales load.
First Dominion Capital Corp. (the "Distributor"), 1500 Forest Avenue,
Suite 223, Richmond, VA 23229, is the Company's principal underwriter pursuant
to a Distribution Agreement between the Company 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.
The Distributor receives commissions consisting of that portion of the
sales load remaining after the discounts which it allows to investment dealers.
The distributor retains 0.25% of the offering price on sales through the dealer
involving the maximum sales load.
The Fund's public offering price ("POP") per share is equal to the net
asset value per share next determined after receipt of a purchase order plus a
sales load which is reduced on purchases involving large amounts and which may
be eliminated in certain circumstances described below.
Sales Load As Percentage Of
Amount of Purchase at Offering Net Amount Dealer Discount
The POP Price Invested as percentage of POP
$5,000 but under $100,000 2.75% 2.83% 2.25%
$100,000 but under $250,000 2.25% 2.30% 1.75%
$250,000 but under $500,000 1.50% 1.52% 1.25%
$500,000 but under $1 million 1.00% 1.01% 0.75%
$1 million or over 0.00% 0.00% 0.00%
There is a 1% redemption fee on account's held less than one year.
In addition to the sales charge listed above, up to 0.35% of average
net assets is paid annually to qualified dealers for providing certain services
(including services to retirement plans) pursuant to the Fund's Plan of
Distribution.
The Distributor may from time to time offer incentive compensation to
dealers (which sell shares of the Fund subject to sales charges) allowing such
dealers to retain an additional portion of the sales load. A dealer who receives
all of the sales load may be considered an underwriter of the Fund's shares.
In connection with promotion of the sales of the Fund, the Distributor
may, from time to time, offer (to all broker dealers who have a sales agreement
with the Distributor) the opportunity to participate in sales incentive programs
(which may include non-cash concessions). These non-cash concessions are in
addition to the sales load described in the Prospectus. The Distributor may
also, from time to time, pay expenses and fees required in order to participate
in dealer sponsored seminars and conferences, reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising,
and may, from time to time, pay or allow additional promotional incentives to
dealers as part of preapproved sales contests.
Statement of Intention - The reduced sales charges and public offering
price set forth above and in the prospectus apply to purchases of $250,000 or
more made within a 13-month period pursuant to the terms of a written Statement
of Intention in the form provided by the Distributor and signed by the
purchaser. The Statement of Intention is not a binding obligation to purchase
the indicated amount. Shares equal to 1.50% (declining to 0% after an aggregate
of $1,000,000 has been purchased under the Statement) of the dollar amount
specified in the Statement will be held in escrow and capital gain distributions
on these escrowed shares will be credited to the shareholder's account in shares
(or paid in cash, if requested). If the intended investment is not completed
within the specified 13-month period, the purchaser will remit to the
Distributor the difference between the sales charge actually paid and the sales
charge which would have been paid if the total purchases had been made at a
single time. If the difference is not paid within 20 days after written request
by the Distributor or the securities dealer, the appropriate number of escrowed
shares will be redeemed to pay such difference.
In the case of purchase orders by the trustees of certain employee
plans by payroll deduction, the sales charge for the investments made during the
13-month period will be based on the following: total investments made the first
month of the 13-month period times 13; as the period progresses the sales charge
will be based (1) on the actual investment made previously during the 13-month
period, plus (2) the current month's investments times the number of months
remaining in the 13-month period. There will be no retroactive adjustments in
sales charge on investments previously made during the 13-month period.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" under which it may
finance activities primarily intended to sell shares, Provided the categories of
expenses are approved in advance by the Board of Directors of the Company and
the expenses paid under the Plan were incurred within the preceding 12 months
and accrued while the Plan is in effect.
SALES AT NET ASSET VALUE
The front end sales charge is waived for purchases by the following
types of investors: any financial institution or advisor regulated by Federal or
state governmental authority when the institution or adviser is purchasing
shares for its own account or for an account for which the institution or
adviser is authorized to make investment decisions (i.e., a discretionary
account); Directors, Officers and employees of the Company, the Manager, the
Investment Advisor, the Distributor, including members of the Distributor's, the
Investment Advisor's, and the Manager immediate families and their retirement
accounts or plans); Directors, Officers and employees of the Fund's service
providers; customers, clients or accounts of the Manager, the Investment
Advisor, or other investment advisers or financial planners who charge a fee for
their services, provided that shares purchased are held in the omnibus account
of the broker or agent placing the order; retirement accounts or plans, or
deferred compensation plans and trusts funding such plans for which a depository
institution, trust company or other fiduciary holds shares purchased through the
omnibus account of the broker or agent placing the order; and Eligible Benefit
Plans (see "Eligible Benefit Plans" on page [ ].
The front end sales charge is also waived for any registered
representatives, employees, or principals of securities dealers (including
members of their immediate families) having a sales agreement with the
Distributor.
The front end sales charge may also be waived for purchases made with
the redemption proceeds from other mutual fund companies on which you have
previously paid a front end sales charge or contingent deferred sales charge.
FUND EXPENSES
The Fund will pay its expenses not assumed by the Manager, 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 Company's general expenses is made to the Fund on
the basis that the Company's Board of Directors deems fair and equitable, which
may be based on the relative net assets of each series of the Company or the
nature of the services performed and relative applicability to each series of
the Company.
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 Transfer Agent
will charge the shareholder account a $10 service fee each time there is a
telephone transaction.
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: Any shareholder may utilize this feature, which
provides for automatic monthly investments into your 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 offices of the Company.
Individual Retirement Account ("IRA") - All wage earners under 70-1/2,
even those who participate in a company sponsored or government retirement plan,
may establish their own IRA. You can contribute 100% of your earnings up to
$2,000 (or $2,250 with a spouse who is not a wage earner, for years prior to
1997). A spouse who does not earn compensation can contribute up to $2,000 per
year to his or her own IRA. The deductibility of such contributions will be
determined under the same rules 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 Company 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 Company, provided the shares of the fund the
shareholder is exchanging into are noticed for sale in the shareholder's state
of residence. Each account must meet the minimum investment requirements
(currently $5,000). Exchange Privilege Authorization Forms are available by
calling the Company. 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) plus the applicable sales charge. The Company
reserves the right to limit the number of exchanges or to otherwise prohibit or
restrict shareholders from making exchanges at any time, without notice, should
the Company determine that it would be in the best interest of its shareholders
to do so. For tax purposes an exchange constitutes the sale of the shares of the
Fund from which you are exchanging and the purchase of shares of the fund into
which you are exchanging. Consequently, the sale may involve either a capital
gain or loss to the shareholder for federal income tax purposes. The exchange
privilege is available only in states where it is legally permissible to do so.
GENERAL INFORMATION AND HISTORY
The Company is authorized to issue up to 500,000,000 shares of common
stock, par value $0.01 per share, of which it has allocated 50,000,000 shares to
the Fund and 200,000,000 shares to other series of the Company. The Board of
Directors can allocate the remaining authorized but unissued shares to any
series of the Company, 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
Company'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 management fees payable to the Manager of each series of
the company and will be based upon the separate assets of each of the company's
series. The shareholders of each series have the right to vote with respect to
the investment manager of such fund.
Voting and Control - Each outstanding share of the Company 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 Company is not required to hold a meeting of
shareholders each year. The Company 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 Company has adopted a Code of Ethics which imposes
certain restrictions on the authority of portfolio managers and certain other
personnel of the Company and the Manager 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 of measuring investment performance.
Occasionally, however, the Fund may include its distribution rate in sales
literature. 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. The distribution rate is the amount of distributions per share
made by the Fund over a twelve-month period divided by the current maximum
offering 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. Total return quotations used
by the 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 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).
Sales literature pertaining to the Fund may quote a distribution rate
in addition to the total return. The distribution rate is the amount of
distributions per share made by the Fund over a twelve-month period divided by
the current maximum offering price. The distribution rate measures what the Fund
paid to shareholders. The distribution rate may include dividends paid from
premium income from option writing, if applicable, and short-term capital gains
in addition to dividends from investment income. Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the distributions paid over the period such policies were in effect, rather than
using the distributions paid during the past twelve months.
Occasionally statistics may be used to specify the 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 the 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 the 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 the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss, total return, or Fund volatility as reported by various financial
publications. Advertisements may also compare total return or volatility (as
calculated above) to 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 total 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.
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 Manager: Virginia Management Investment Corporation
7800 Rockfalls Dr.
Richmond, VA 23225
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 Company,
investment plans, or other
shareholder services, call the
Company at 1-800-527-9525 during
normal business hours, or write the
Company at 1500 Forest Avenue, Suite
223, Richmond, VA 23229
26
PART C OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
1) Not Applicable. This Amendment does not relate to
the Sand Hill Portfolio Manager Fund.
2) Not Applicable. This Amendment does not relate to
the CSI Fixed Income Fund.
3) Not Applicable. This Amendment does not relate to
the CSI Equity Fund.
4) Not Applicable. The New Market Fund has not
commenced operations.
5) Not Applicable. The Third Millennium Russia Fund has
not commenced operations.
(b) Exhibits
(1)(a) Articles of Incorporation of the Registrant are
herein Incorporated by reference to the Registrant's
Initial Registration from the Statements on Form N-1A
(File Nos. 333-29289 and 811-8255) filed with the
Securities and Exchange Commission (the "SEC") on
June 16, 1997.
(b) Articles Supplementary of the Registrant creating the
CSI Equity Fund series and the CSI Fixed Income Fund
series are incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Initial
Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255).
(c) Articles Supplementary of the Registrant creating the
Third Millennium Russia Fund series and the New
Market Fund series are filed herewith as Exhibit
24(b)(1)(c).
(d) Articles Supplementary of the Registrant increasing
the amount of authorized shares are filed herewith as
Exhibit 24(b)(1)(d).
(2) By-Laws of the Registrant are incorporated by
reference to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-29289 and 811-8255) filed
with the SEC on June 16, 1997.
(3) Not Applicable.
(4)(a) Specimen of certificate of common stock for the Sand
Hill Portfolio Manager Fund is incorporated by
reference to the Registrant's Initial Registration
Statement on Form N-1A (File Nos. 333-28289 and
811-8255) as filed with the SEC on June 16, 1997.
(b) Specimen of certificate of common stock for the CSI
Equity Fund series is incorporated by reference
to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255) filed with the SEC on August
1, 1997.
(c) Specimen of certificate of common stock for the CSI
Fixed Income Fund series is hereby incorporated by
reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255) filed with the SEC
on August 1, 1997.
(d) Specimen of certificate of common stock for the Third
Millennium Russia Fund series is filed herewith as
Exhibit 24(b)(4)(d).
(e) Specimen of certificate of common stock for the New
Market Fund series is filed herewith as Exhibit
24(b)(4)(e).
(5)(a) Investment Advisory Agreement dated August 19, 1997
between Sand Hill Advisors, Inc. and the Registrant on
behalf of the Sand Hill Portfolio Manager Fund is
herein incorporation by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (File Nos. 333-29289 and 811-8255) as
filed with the SEC on December 1, 1997.
(b) Investment Advisory Agreement dated October 14, 1997
between CSI Capital Management, Inc. and the Registrant
on behalf of the CSI Equity Fund is herein incorporated
by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) as filed with the SEC on
December 1, 1997.
(c) Investment Advisory Agreement dated October 14, 1997
between CSI Capital Management Inc. and the Registrant
on behalf of the CSI Fixed Income Fund is herein
incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255) as filed with
the SEC on December 1, 1997.
(d) Form of Investment Advisory Agreement between Third
Millennium Investment Advisors LLC and the Registrant
on behalf of the Third Millennium Russia Fund series
is filed herewith as Exhibit 24(b)(5)(d).
(e) Form of Investment Management Agreement between
Virginia Management Investment Corporation and the
Registrant on behalf of New Market Fund series is
filed herewith as Exhibit 24(b)(5)(e).
(f) Form of Investment Advisory Agreement between Virginia
Management Investment Corporation and the London
Company of Virginia on behalf of New Market Fund
series is filed herewith as Exhibit 24(b)(5)(f).
(6)(a)Distribution Agreement dated August 19, 1997 between
First Dominion Capital Corp. and the Registrant is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (File Nos. 333-29289 and 811-8255) as filed
with the SEC on December 1, 1997.
(b)Form of Broker-Dealer Selling Agreement is filed
herewith as Exhibit 24(b)(6)(b).
(7) Not Applicable.
(8)(a) Custody Agreement dated August 19, 1997 between Star
Bank, N.A. and the Registrant on behalf of the Sand
Hill Portfolio Manager Fund is herein incorporated by
reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) as filed with the SEC on
December 1, 1997.
(b) Custody Agreement dated October 14, 1997 between Star
Bank, N.A. and the Registrant is herein incorporated by
reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) as filed with the SEC on
December 1, 1997.
(c) Form of Custody Agreement between Brown Brothers
Harriman & Co. and the Registrant is filed herewith as
Exhibit 24(b)(8)(c).
(9)(a)Transfer Agency Agreement dated August 19, 1997 between
Fund Services, Inc. and the Registrant is herein
incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form
N-1A (file Nos. 333-29289 and 811-8255) as filed with
the SEC on December 1, 1997.
(b) Administrative Services Agreement dated August 19, 1997
between Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the Sand Hill Portfolio Manager
Fund is herein incorporated by reference to Post-
Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (file Nos. 333-29289 and
811-8255) as filed with the SEC on December 1, 1997.
(c)Administrative Services Agreement dated October 14,
1997 between Commonwealth Shareholder Services, Inc.
and the Registrant on behalf of the CSI Equity Fund is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (file Nos. 333-29289 and 811-8255) as filed
with the SEC on December 1, 1997.
(d) Administrative Services Agreement dated October 14, 1997
between Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the CSI Fixed Income Fund is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (file Nos. 333-29289 and 811-8255) as filed
with the SEC on December 1, 1997.
(e)Form of Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the Third Millennium Russia Fund
series is filed herewith as Exhibit 24(b)(9)(e).
(f)Form of Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the New Market Fund series is
filed herewith as Exhibit 24(b)(9)(f).
(g)Fund Accounting Servicing Agreement dated October 14,
1997 between Star Bank, N.A. and the Registrant on
behalf of the Sand Hill Portfolio Manager Fund is herein
incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (file Nos. 333-29289 and 811-8255) as
filed with the SEC on December 1, 1997.
(h)Fund Accounting Servicing Agreement dated October 14,
1997 between Star Bank N.A. and the Registrant is herein
incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form
N-1A (file Nos. 333-29289 and 811-8255) as filed with
the SEC on December 1, 1997.
(10) Opinion of Counsel is attached hereto as Exhibit
24(b)(10)
(11) Not Applicable. Neither the New Market Fund nor the
Third Millennium Russia Fund series have commenced
operations.
(12) Not applicable.
(13) Not applicable. (Seed money is not necessary for the
New Market Fund series or the Third Millennium Russia
Fund series).
(14)(a) IRA Service Agreement dated August 19, 1997 between Star
Bank, N.A. and the Registrant is herein incorporated by
reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File
Nos. 333-28289 and 811-8255) as filed with the SEC
on December 1, 1997.
(b) Form of IRA Services Agreement between Brown Brothers
Harriman Trust Company and the Registrant is filed
herewith as Exhibit 24(b)14(b).
(15)(a)Form of Distribution Plan pursuant to Rule 12b-1 on
behalf of the Third Millennium Russia Fund series is
filed herewith as Exhibit 24(b)15(a).
(b)Form of Distribution Plan pursuant to Rule 12b-1 on
behalf of the New Market Fund series is filed herewith
as Exhibit 24(b)(15)(b).
(16) Not applicable.
(17) Not Applicable. No Financial Statements for the New
Market Fund series or Third Millennium Russia Fund
series are being filed.
(18) Not applicable.
(19) Powers-of-Attorney for Samuel Boyd, Jr., William E.
Poist and Paul M. Dickinson are incorporated by
reference to the Registrant's Initial Registration
Statement on Form N-1A (File Nos.333-29289 and 811-8255)
as filed with the SEC on June 16, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES: As of June 30, 1998:
Title of Class Number of Record Holders
Sand Hill Portfolio Manager Fund 178
CSI Equity Fund 10
CSI Fixed Income Fund 11
Third Millennium Russia Fund 2
New Market Fund 1
ITEM 27. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation
Law (the "GCL") of the State of Maryland. The Registrant's Articles of
Incorporation provide the indemnification of directors, officers and other
agents of the corporation to the fullest extent permitted under the GCL. The
Articles limit such indemnification so as to comply with the prohibition against
indemnifying such persons under Section 17 of the Investment Company Act of
1940, as amended, for certain conduct set forth in that section ("Disabling
Conduct"). Contracts between the Registrant and various service providers
include provisions for indemnification, but also forbid the Registrant to
indemnify affiliates for Disabling Conduct.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Sand Hill Advisors, Inc., the investment advisor to the Sand
Hill Portfolio Manager Fund series, provides investment
advisory services consisting of portfolio management for a
variety of individuals and institutions and as of December 31,
1997, had approximately $311 million in assets under
management.
For information as to any other business, profession, vocation
or employment of a substantial nature in which each director,
officer or partner of Sand Hill Advisors, Inc. (the "Advisor")
is or has been, at any time during the past two fiscal years,
engaged for his own account or in the capacity of director,
officer, employee, partner or trustee, reference is made to
the Advisor's Form ADV (File #801-17601), currently on file
with the Commission as required by the Investment Advisers Act
of 1940, as amended.
CSI Capital Management, Inc., the investment advisor to the
CSI Equity Fund series and the CSI Fixed Income Fund series,
provides investment advisory services consisting of portfolio
management for a variety of individuals and institutions and
as of November 30, 1997 had approximately $143 in assets under
management, and a principal of the Advisor acts as trustee
supervising an additional $30 million in assets.
For information as to any other business, profession, vocation
or employment of a substantial nature in which each director,
officer or partner of CSI Capital Management Inc. (the
"Advisor") is or has been, at any time during the past two
fiscal years, engaged for his own account or in the capacity
of director, officer, employee, partner or trustee, reference
is made to the Advisor's Form ADV (File #801-14549), currently
on file with the Commission as required by the Investment
Advisors Act of 1940, as amended.
Third Millennium Investment Advisors, LLC, the Investment
Advisor to the Third Millennium Russia Fund, is a newly formed
advisor formed for the purpose of advising Registered
Investment Companies. The Advisor's Form ADV (File # _______)
is currently on file with the Commission as required by the
Investment Advisors Act of 1940, as amended.
Virginia Management Investment Corporation, the Investment
Manager to the New Market Fund series is a newly formed
advisor formed for the purpose of advising Registered
Investment Companies. The Advisor's Form ADV (File #
801-55697) is currently on file with the Commission as
required by the Investment Advisors Act of 1940, as amended.
The London Company of Virginia is the investment advisor to
the New Market Fund, pursuant to an Investment Advisory
Agreement between Virginia Management Investment Corporation
and The London Company.
For information as to any other business, profession, vocation
or employment of a substantial nature in which each director,
officer or partner of The London Company of Virginia (the
"Advisor") is or has been, at any time during the past two
fiscal years, engaged for his own account or in the capacity
of director, officer, employee, partner or trustee, reference
is made to the Advisor's Form ADV (File #801-46604), currently
on file with the Commission as required by the Investment
Advisors Act of 1940, as amended.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Vontobel Funds, Inc.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
John Pasco, III President, Chief Chairman,
1500 Forest Avenue Financial Officer, President, &
Suite 223 Treasurer, Director Treasurer
Richmond, VA 23229
Mary T. Pasco Director Assistant
1500 Forest Avenue Secretary
Suite 223
Richmond, VA 23229
Lori J. Martin Vice President None
1500 Forest Avenue & Assistant Sec.
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant
required to be maintained by $31(1) of the Investment Company
Act of 1940, as amended, and the rules promulgated thereunder
are kept in several locations:
(a) Shareholder account records (including share ledgers,
duplicate confirmations, duplicate account statements
and applications forms) of the Registrant are maintained
by its transfer agent, Fund Services, Inc., at 1500
Forest Avenue, Suite 111, Richmond, VA. 23229.
(b) With respect to Sand Hill Portfolio Manager Fund series:
Investment records including research information,
records relating to the placement of brokerage
transactions, memorandums regarding investment
recommendations for supporting and/or authorizing the
purchase or sale of assets, information relating to the
placement of securities transactions, and certain
records concerning investment recommendations of the
Sand Hill Portfolio Manager Fund series are maintained
at the series' investment advisor, Sand Hill Advisors,
Inc., at 3000 Sand Hill Road, Building 3, Suite 150,
Menlo Park, CA 94025.
(c) With respect to CSI Fixed Income Fund series and CSI
Equity Fund Series: Investment records including
research information, records relating to the placement
of brokerage transactions, memorandums regarding
investment recommendations for supporting and/or
authorizing the purchase or sale of assets, information
relating to the placement of securities transactions,
and certain records concerning investment
recommendations of the CSI Fixed Income Fund and CSI
Equity Fund series are maintained at the series'
investment advisor, CSI Capital Management, 1
Montgomery Street, Suite 2525, San Francisco, CA 94104.
(d) With respect to Third Millennium Russia Fund series:
Investment records including research information,
records relating to the placement of brokerage
transactions, memorandums regarding investment
recommendations for supporting and/or authorizing the
purchase or sale of assets, information relating to
the placement of securities transactions, and certain
records concerning investment recommendations of the
Third Millennium Russia Fund series are maintained at
the series' investment advisor, Third Millennium
Investment Advisors, LLC.
(e) With respect to the New Market Fund series: Investment
records including research information, records relating
to the placement of brokerage transactions, memorandums
regarding investment recommendations for supporting
and/or authorizing the purchase or sale of assets,
information relating to the placement of securities
transactions, and certain records concerning investment
recommendations of the New Market Fund series are
maintained at the series' Investment Advisor, The London
Company.
(f) Accounts and records for portfolio securities and other
investment assets, including cash of the Sand Hill
Portfolio Manager Fund, the CSI Fixed Income Fund, the
CSI Equity Fund and the New Market Fund series are
maintained in the custody of the Registrant's
custodian bank, Star Bank, N.A., 425 Walnut Street,
P.O. Box 1118, Cincinnati, Ohio 45201-1118.
(g) Accounts and records for portfolio securities and other
investment assets, including cash of the Third
Millennium Russia Fund series are maintained in the
custody of the Registrant's custodian bank, Brown
Brothers Harriman & Co., 40 Water Street, Boston, MA.
02109.
(h) Accounting records, including general ledgers,
supporting ledgers, pricing computations, etc. of the
Sand Hill Portfolio Manager Fund, the CSI Fixed Income
Fund, the CSI Equity Fund and the New Market Fund series
are maintained by the Registrant's accounting services
agent, Star Bank, N.A., 425 Walnut Street, P.O. Box
1118, Cincinnati, Ohio 45201-1118.
(i) Accounting records, including general ledgers,
supporting ledgers, pricing computations, etc. of the
Third Millennium Russia Fund series are maintained by
the Registrant's accounting services agent, Brown
Brothers Harriman & Co., 40 Water Street, Boston, MA.
02109.
(j) Administrative records, including copies of the charter,
by-laws, minute books, agreements, compliance records
and reports, certain shareholder communications, etc.,
are kept at the Registrant's principal office, at 1500
Forest Avenue, Suite 223, Richmond, Va 23229, by the
Registrant's Administrator, Commonwealth Shareholder
Services, Inc., whose address is the same as
Registrant's.
(k) Records relating to distribution of shares of the
Registrant are maintained by the Registrant's
distributor, First Dominion Capital Corp. at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229.
ITEM 31. MANAGEMENT SERVICES There are no management-related service
contracts not discussed in Parts A or B of this Form.
ITEM 32. UNDERTAKINGS.
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Richmond, and the Commonwealth of Virginia on the 8th day of
July, 1998.
THE WORLD FUNDS, INC.
Registrant
By /s/John Pasco, III
John Pasco, III, Chairman,
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated below.
(Signature) (Title) (Date)
/s/ John Pasco III Director, Chairman July 8, 1998
John Pasco, III
/s/ Samuel Boyd, Jr.* Director July 8, 1998
Samuel Boyd, Jr.
/s/ Paul M. Dickinson* Director July 8, 1998
Paul M. Dickinson
/s/ William E. Poist* Director July 8, 1998
William E. Poist
/s/ John Pasco, III
- ----------------
John Pasco, III
Pursuant to Powers of Attorney on File
<PAGE>
Form N-1A Exhibit No. EXHIBIT INDEX EDGAR Exhibit No.
Exhibit 24(b)(1)(c) Articles Supplementary Creating Ex-99.B1(c)
2 New Series
Exhibit 24(b)(1)(d) Articles Supplementary Increasing Ex-99.B1(d)
Authorized Shares
Exhibit 24(b)(4)(d) Specimen of Certificate for Third Ex-99.B4(d)
Millennium Russia Fund
Exhibit 24(b)(4)(e) Specimen of Certificate for New Ex-99.B4(e)
Market Fund
Exhibit 24(b)(5)(d) Form of Investment Advisory Ex-99.B5(d)
Agreement for Third Millennium
Russia Fund
Exhibit 24(b)(5)(e) Form of Investment Management Ex-99.B5(e)
Agreement for New Market Fund
Exhibit 24(b)(5)(f) Form of Investment Advisory Ex-99.B5(f)
Agreement for the New Market Fund
(Between Virginia Management Investment
Corporation and the London Company)
Exhibit 24(b)(6)(b) Form of Broker-Dealer Selling Ex-99.B6(b)
Agreement
Exhibit 24(b)(8)(c) Form of Custody Agreement for Ex-99.B8(c)
Third Millennium Russia Fund
Exhibit 24(b)(9)(e) Form of Administrative Services Ex-99.B9(e)
Agreement for Third Millennium
Russia Fund
Exhibit 24(b)(9)(f) Form of Administrative Services Ex-99.B9(f)
Agreement for New Market Fund
Exhibit 24((b)(10) Opinion of Counsel Ex99.B10
Exhibit 24(b)(14)(b) Form of IRA Services Agreement Ex-99.B14(b)
With Brown Brothers Harriman
Trust Co.
Exhibit 24(b)(15)(a) Form of Distribution Plan for Ex-99.B15(a)
Third Millennium Russia Fund
Exhibit 24(b)(15)(b) Form of Distribution Plan for Ex-99.B15(b)
New Market Fund
<PAGE>
4
THE WORLD FUNDS, INC.
Articles Supplementary
The World Funds, Inc., a Maryland corporation having an office in
Baltimore, Maryland (the "Corporation") and an open-end investment company
registered under the Investment Company Act of 1940, as amended, hereby
certifies, in accordance with Section 2-208 of the Maryland General Corporation
Law, to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting held on
June 19, 1998, adopted resolutions classifying and allocating unallocated and
unissued Common Stock of the Corporation as follows: (i) Fifty Million
(50,000,000) shares of Common Stock with a par value of One Cent ($.01) per
share to the Third Millennium Russia Fund series of the Corporation; and (ii)
Fifty Million (50,000,000) shares of Common Stock with a par value of One Cent
($.01) per share to the New Market Fund series of the Corporation.
SECOND: (a) The total number of shares of stock which the Corporation
was authorized to issue prior to the aforesaid action was Two Hundred Fifty
Million (250,000,000) shares of Common Stock, with a par value of One Cent
($.01) per share, having an aggregate value of Two Million Five Hundred Thousand
Dollars ($2,500,000):
One series of shares was designated as the Sand Hill Portfolio Manager
Fund series and Fifty Million (50,000,000) shares of Common Stock (par value
$.01 per share) were classified and allocated to such series, with an aggregate
par value of Five Hundred Thousand Dollars ($500,000); and
One series of shares was designated as the CSI Equity Fund series and
Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
were classified and allocated to such series, with an aggregate par value of
Five Hundred Thousand Dollars ($500,000); and
One series of shares was designated as the CSI Fixed Income Fund series
and Fifty Million (50,000,000) shares of Common Stock
(par value $.01 per share) were classified and allocated to such series, with an
aggregate par value of Five Hundred Thousand Dollars ($500,000); and
(b) The total number of shares of stock which the Corporation is
authorized to issue, following the aforesaid actions, is Two Hundred Fifty
Million (250,000,000) shares of Common Stock, with a par value of One Cent
($.01) per share, having an aggregate par value of Two Million Five Hundred
Thousand Dollars ($2,500,000):
One series of shares is designated as the Sand Hill Portfolio
Management Fund series and Fifty Million (50,000,000) shares of Common Stock
(par value $.01 per share) are classified and allocated to such series, with an
aggregate par value of Five Hundred Thousand Dollars ($500,000).
One series of shares is designated as the CSI Equity Fund series and
Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share) are
classified and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the CSI Fixed Income Fund series
and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share)
are classified and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
One series of shares is designated as the Third Millennium Russia Fund
series and Fifty Million (50,000,000) shares of Common Stock (par value $.01 per
share) are classified and allocated to such series, with an aggregate par value
of Five Hundred Thousand Dollars ($500,000);
One series of shares is designated as the New Market Fund series and
Fifty Million (50,000,000) shares of Common Stock (par value $.01 per share) are
classified and allocated to such series, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000);
THIRD: The shares of the Third Millennium Russia Fund series and the
shares of the New Market Fund series shall have such preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other characteristics as
are stated in Article FIFTH of the Articles of Incorporation of the Corporation.
FOURTH: The aforesaid shares of the Third Millennium Russia Fund series
and the New Market Fund series have been duly classified and allocated by the
Board of Directors pursuant to the authority and power contained in the charter
of the Corporation.
IN WITNESS WHEREOF, The World Funds, Inc., has caused these Articles
Supplementary to be signed in its name and on its behalf this 19 day of June,
1998.
The World Funds, Inc.
By ______________________________
John Pasco, III
Chairman and Chief Executive Officer
WITNESS:
- -----------------
Name: Mary T. Pasco
Title: Assistant Secretary
<PAGE>
THE UNDERSIGNED, Chairman and Chief Executive Officer of The World
Funds, Inc., who executed on behalf of said Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the foregoing Articles to be the
corporate act of said Corporation and further certifies, that, to the best of
his knowledge, information and belief, the matters and facts set forth herein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
---------------------------------
John Pasco, III
Chairman and Chief Executive Officer
Attest:
- ---------------------
Assistant Secretary
<PAGE>
THE WORLD FUNDS, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
The World Funds, Inc, a Maryland corporation having its principal
office in Baltimore, Maryland (the "Corporation"), hereby certifies, in
accordance with Section 2-208 and Section 2-208.1 of the Maryland General
Corporation Law, to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Corporation has authority to issue a total of Two Hundred
Fifty Million (250,000,000) shares of common stock with a par value of One Cent
($.01) per share of the Corporation (the "Common Stock"), having an aggregate
par value of Two Million Five Hundred Thousand Dollars ($2,500,000). Of such Two
Hundred Fifty Million (250,000,000) shares of Common Stock, Fifty Million
(50,000,000) shares have been allocated to the Sand Hill Portfolio Manager Fund
series of the Common Stock, Fifty Million (50,000,000) shares have been
allocated to the CSI Equity Fund series of the Common Stock, Fifty Million
(50,000,000) shares have been allocated to the CSI Fixed Income Fund series of
the Common Stock, Fifty Million (50,000,000) shares have been allocated to the
Third Millennium Russia Fund series of the Common Stock and Fifty Million
(50,000,000) shares have been allocated to the New Market Fund series of the
Common Stock.
SECOND: The Board of Directors of the Corporation, at a meeting held on
June 22, 1998, adopted resolutions increasing the aggregate number of shares of
Common Stock that the Corporation has authority to issue from Two Hundred Fifty
Million (250,000,000) shares to Five Hundred Million (500,000,000) shares.
THIRD: As a result of the aforesaid increase in the authorized Common
Stock, the Corporation has authority to issue Five Hundred Million (500,000,000)
shares of Common Stock with a par value of One Cent ($.01) per share, having an
aggregate par value of Five Million Dollars($5,000,000). Of such Five Hundred
Million (500,000,000) shares of Common Stock, Two Hundred Fifty Million
(250,000,000)shares of the Common Stock have been allocated as follows: (1)
Fifty Million (50,000,000) shares have been allocated to the Sand Hill Portfolio
Manager Fund series, (2) Fifty Million (50,000,000) shares have been allocated
to the CSI Equity Fund series, (3) Fifty Million (50,000,000) shares have been
allocated to the CSI Fixed Income Fund series, (4) Fifty Million (50,000,000)
shares have been allocated to the Third Millennium Russia Fund series, and (5)
Fifty Million (50,000,000) shares have been allocated to the New Market Fund
series.
FOURTH: The shares of the Sand Hill Portfolio Manager Fund series, the
CSI Equity Fund series, the CSI Fixed Income Fund series, the Third Millennium
Russia Fund series and the New Market Fund series shall have the same
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption, all as set forth in the Articles of Incorporation of the
Corporation.
FIFTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended.
SIXTH: The total number of shares of Common Stock that the Corporation
has authority to issue has been increased by the Board of Directors in
accordance with Section 2-105(c)of the Maryland General Corporation Law.
SEVENTH: These Articles Supplementary shall become effective
immediately upon filing.
IN WITNESS WHEREOF, The World Funds, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf by its Chairman and
attested by its Assistant Secretary on this 22nd day of June, 1998.
THE WORLD FUNDS, INC.
BY:___________________
Chairman
ATTEST:
- -------------------
Assistant Secretary
THE UNDERSIGNED, Chairman and Chief Executive Officer of The World Funds, Inc.,
who executed on behalf of said Corporation the foregoing Articles Supplementary
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said Corporation, the foregoing Articles to be the corporate act of
said Corporation and further certifies, that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the approval thereof are true in all material respects, under penalties of
perjury.
--------------------
John Pasco, III
Chairman and Chief Executive Officer
Attest:
- ----------------------
Assistant Secretary
Below is the text of a sample of the Stock Certificate for Third Millennium
Russia Fund Series of The World Funds, Inc.
CAPITAL STOCK OF CUSIP
THE WORLD FUNDS, INC.
THIRD MILLENNIUM RUSSIA FUND
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01
EACH OF THE CAPITAL STOCK OF
THE WORLD FUNDS, INC. THIRD MILLENNIUM RUSSIA FUND
(hereinafter called the "Corporation") transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation and the bylaws of the Corporation and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This certificate is not valid until countersigned by the Transfer
Agent.
Witness the facsimile signatures of the duly authorized officers of the
Corporation
Dated Attest By
Secretary Chairman
<PAGE>
Below is the text of a sample of the Stock Certificate for The New Market Fund
Series of The World Funds, Inc.
CAPITAL STOCK OF CUSIP
THE WORLD FUNDS, INC.
THE NEW MARKET FUND
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01
EACH OF THE CAPITAL STOCK OF
THE WORLD FUNDS, INC. THE NEW MARKET FUND
(hereinafter called the "Corporation") transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation and the bylaws of the Corporation and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This certificate is not valid until countersigned by the Transfer
Agent.
Witness the facsimile signatures of the duly authorized officers of the
Corporation
Dated Attest By
Secretary Chairman
PAGE>
<PAGE>
<PAGE>
<PAGE>
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement (the "Agreement") dated , 1998 by and
between THE WORLD FUNDS, INC., a Maryland corporation (herein called the
"Fund"), and THIRD MILLENNIUM INVESTMENT ADVISORS LLC, a Delaware Limited
Liability Company (the "Advisor") a registered investment adviser under the
Investment Advisers Act of 1940, as amended.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Fund desires to retain the Advisor to furnish investment
advisory and management services to certain portfolios of the Fund, subject to
the control of the Fund's Board of Directors, and the Advisor is willing to so
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be bound, it is agreed between the parties
hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor to act as the advisor
to the THIRD MILLENNIUM RUSSIA FUND series of the Fund (the "Portfolio") for the
period and on the terms set forth in this Agreement. The Advisor accepts such
appointment and agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Duties of the Advisor. The Fund employs the Advisor to manage the
investments and reinvestment of the assets of the Portfolio, and to continuously
review, supervise, and administer the investment program of the Portfolio, to
determine in its discretion the securities to be purchased or sold, to provide
the Fund and Commonwealth Shareholder Services, Inc. (the "Administrator") with
records concerning the Advisor's activities which the Fund is required to
maintain, and to render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Advisor's discharge of the
foregoing responsibilities.
The Advisor shall discharge the foregoing responsibilities
subject to the control of the Fund's Board of Directors and in compliance with
such policies as the Board may from time to time establish, and in compliance
with the objectives, policies, and limitations for the Portfolio as set forth in
its Prospectus and Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will instruct each of its
agents and contractors to co-operate in the conduct of the business of the
Portfolio.
The Advisor accepts such employment and agrees, at its own
expense, to render the services and to provide the office space, furnishings,
and equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.
3. Portfolio Transactions. The Advisor is authorized to select the
brokers and dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best efforts to obtain
the best price and execution for the Portfolio's transactions in accordance with
the policies of the Fund as set forth from time to time in the Portfolio's
Prospectus and Statement of Additional Information. The Advisor will promptly
communicate to the Fund and to the Administrator such information relating to
portfolio transactions as they may reasonably request.
It is understood that the Advisor will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to an unaffiliated broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described from time to time
by the Portfolio's Prospectus and Statement of Additional Information. Subject
to the foregoing, the Advisor may direct any transaction of the Portfolio to a
broker which is affiliated with the Advisor in accordance with, and subject to,
the policies and procedures approved by the Board of Directors of the Fund
pursuant to Rule 17e-1 under the 1940 Act. Such brokerage services are not
deemed to be provided under this Agreement.
4. Compensation of the Advisor. For the services to be rendered by the
Advisor under this Agreement, the Portfolio shall pay to the Advisor, and the
Advisor will accept as full compensation a fee, accrued daily and payable within
five (5) business days after the last business day of each month, at an annual
rate of 1.75% of the net assets of the portfolio.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of this
Agreement.
5. Expenses. During the term of this Agreement, the Advisor
will pay all expenses incurred by it in connection with the management of
the Fund. Notwithstanding the foregoing, the Portfolio shall pay the expenses
and costs of the Portfolio for the following:
( 1) Taxes;
( 2) Brokerage fees and commissions with regard to
portfolio transactions;
( 3) Interest charges, fees and expenses of the
custodian of the securities;
( 4) Fees and expenses of the Fund's transfer agent and
the Administrator;
( 5) Its proportionate share of auditing and legal
expenses;
( 6) Its proportionate share of the cost of maintenance
of corporate existence;
( 7) Its proportionate share of compensation of
directors of the Fund who are not interested persons
of the Advisor as that term is defined by law;
( 8) Its proportionate share of the costs of corporate
meetings;
( 9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for
the Portfolio's shares, reports and notices to
existing shareholders;
(11) The Advisory fee payable to the Advisor, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investmentrecords
required to be maintained by the Advisor), and daily
pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal Revenue
Code of 1986, as amended, unless such expenses and/or
taxes arise from the negligence of another party.
6. Reports. The Fund and the Advisor agree to furnish to each other, if
applicable, current information required for the preparation by such parties of
prospectuses, statements of additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to their affairs as
each may reasonably request.
7. Status of the Advisor. The services of the Advisor to the Fund are
not to be deemed exclusive, and the Advisor shall be free to render similar
services to others so long as its services to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also retain
the services of the Advisor to serve as the investment advisor of other series
of the Fund.
8. Books and Records. In compliance with the requirements of the 1940
Act, the Advisor hereby agrees that all records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Advisor further agrees to
preserve for the periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.
9. Limitation of Liability of Advisor. The duties of the Advisor shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Advisor hereunder. The Advisor shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Advisor in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. (As used in this Paragraph 9, the term
"Advisor" shall include directors, officers, employees and other corporate
agents of the Advisor as well as that corporation itself).
10. Permissible Interests. Directors, agents, and shareholders of the
Fund are or may be interested in the Advisor (or any successor thereof) as
directors, officers, or shareholders, or otherwise; directors, officers, agents,
and shareholders of the Advisor are or may be interested in the Fund as
directors, officers, shareholders or otherwise; and the Advisor (or any
successor) is or may be interested in the Fund as a shareholder or otherwise. In
addition, brokerage transactions for the Fund may be effected through affiliates
of the Advisor if approved by the Fund's Board of Directors, subject to the
rules and regulations of the Securities and Exchange Commission, and the
policies and procedures adopted by the Fund.
11. License of Advisor's Name. The Advisor hereby authorizes the Fund
to use the name "Third Millennium Russia Fund" for the Portfolio. The Fund
agrees that if this Agreement is terminated it will promptly redesignate the
name of the Portfolio to eliminate any reference to the name "Third Millennium
Russia Fund" or any derivation thereof unless the Advisor waives this
requirement in writing.
12. Duration and Termination. This Agreement shall become effective on
the date first above written subject to its approval by the shareholders of the
Portfolio and unless sooner terminated as provided herein, shall continue in
effect for two (2) years from that date. Thereafter, this Agreement shall be
renewable for successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of those members of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons of any such party (as that term is defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by vote of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940 Act) of the
Portfolio. Notwithstanding the foregoing, this Agreement may be terminated by
the Portfolio or by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination must be authorized
either by vote of the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio or by the Advisor on sixty (60)
days written notice. This Agreement will automatically terminate in the event of
its assignment (as that term is defined in the 1940 Act).
13. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act).
14. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the address stated below, or at such other address as either party may advise
in writing:
(a) To the Fund at:
1500 Forest Avenue, Suite 223
Richmond, VA 23229
(b) To the Advisor at:
515 Madison Avenue, 24th Floor
New York, N.Y. 10022
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors.
16. Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Maryland, and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of Maryland, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
17. This Agreement may be executed in two or more counterparts, each of
which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THIRD MILLENNIUM INVESTMENT ADVISORS LLC
BY:
John T. Connor, Jr.
Chairman
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement (the "Agreement") dated , 1998 by and
between THE WORLD FUNDS, INC., a Maryland corporation (herein called the
"Fund"), and VIRGINIA MANAGEMENT INVESTMENT CORPORATION, a Virginia corporation
(the "Manager") and a registered investment adviser under the Investment
Advisers Act of 1940, as amended.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Fund desires to retain the Manager to furnish investment
advisory and management services to certain portfolios of the Fund, subject to
the control of the Fund's Board of Directors, and the Manager is willing to so
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be bound, it is agreed between the parties
hereto as follows:
1. Appointment. The Fund hereby appoints the Manager to act as the Manager
to the NEW MARKET FUND series of the Fund (the "Portfolio") for the period and
on the terms set forth in this Agreement. The Manager accepts such appointment
and agrees to furnish the services herein set forth, for the compensation herein
provided.
2. Duties of the Manager. The Fund employs the Manager to manage the
investments and reinvestment of the assets of the Portfolio, and to continuously
review, supervise, and administer the investment program of the Portfolio, to
determine in its discretion the securities to be purchased or sold, to provide
the Fund and Commonwealth Shareholder Services, Inc. (the "Administrator") with
records concerning the Manager's activities which the Fund is required to
maintain, and to render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Manager's discharge of the
foregoing responsibilities.
The Manager shall discharge the foregoing responsibilities
subject to the control of the Fund's Board of Directors and in compliance with
such policies as the Board may from time to time establish, and in compliance
with the objectives, policies, and limitations for the Portfolio as set forth in
its Prospectus and Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will instruct each of its
agents and contractors to co-operate in the conduct of the business of the
Portfolio.
The Manager accepts such employment and agrees, at its own
expense, to render the services and to provide the office space, furnishings,
and equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.
3. Portfolio Transactions. The Manager is authorized to select the
brokers and dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best efforts to obtain
the best net price and most favorable execution for the Portfolio's transactions
in accordance with the policies of the Fund as set forth from time to time in
the Portfolio's Prospectus and Statement of Additional Information. The Manager
will promptly communicate to the Fund and to the Administrator such information
relating to portfolio transactions as they may reasonably request.
It is understood that the Manager will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to an unaffiliated broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described from time to time
by the Portfolio's Prospectus and Statement of Additional Information. Subject
to the foregoing, the Manager may direct any transaction of the Portfolio to a
broker which is affiliated with the Manager in accordance with, and subject to,
the policies and procedures approved by the Board of Directors of the Fund
pursuant to Rule 17e-1 under the 1940 Act. Such brokerage services are not
deemed to be provided under this Agreement.
4. Compensation of the Manager. For the services to be rendered by the
Manager under this Agreement, the Portfolio shall pay to the Manager, and the
Manager will accept as full compensation a fee, accrued daily and payable within
five (5) business days after the last business day of each month, at an annual
rate of one percent of the average daily net assets of the Portfolio.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of this
Agreement.
5. Expenses. During the term of this Agreement, the Manager will pay all
expenses incurred by it in connection with the management of the Fund.
Notwithstanding the foregoing, the
Portfolio shall pay the expenses and costs of the Portfolio for the following:
( 1) Taxes;
( 2) Brokerage fees and commissions with regard to
portfolio transactions;
( 3) Interest charges, fees and expenses of the custodian
of the securities;
( 4) Fees and expenses of the Fund's transfer agent and
the Administrator;
( 5) Its proportionate share of auditing and legal
expenses;
( 6) Its proportionate share of the cost of maintenance of
corporate existence;
( 7) Its proportionate share of compensation of
directors of the Fund who are not interested
persons of the Manager as that term is defined by law;
( 8) Its proportionate share of the costs of corporate
meetings;
( 9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;
(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to existing
shareholders;
(11) The Management fee payable to the Manager, as
provided in paragraph 4 herein;
(12) Costs of recordkeeping (other than investment records
required to be maintained by the Manager), and daily
pricing;
(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and
(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal Revenue
Code of 1986, as amended, unless such expenses and/or
taxes arise from the negligence of another party.
6. Reports. The Fund and the Manager agree to furnish to each other, if
applicable, current information required for the preparation by such parties of
prospectuses, statements of additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to their affairs as
each may reasonably request.
7. Status of the Manager. The services of the Manager to the Fund are
not to be deemed exclusive, and the Manager shall be free to render similar
services to others so long as its services to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also retain
the services of the Manager to serve as the investment Manager of other series
of the Fund.
8. Books and Records. In compliance with the requirements of the 1940
Act, the Manager hereby agrees that all records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Manager further agrees to
preserve for the periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.
9. Limitation of Liability of Manager. The duties of the Manager shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Manager hereunder. The Manager shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Manager in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. (As used in this Paragraph 9, the term
"Manager" shall include directors, officers, employees and other corporate
agents of the Manager as well as that corporation itself).
10. Permissible Interests. Directors, agents, and shareholders of the Fund
are or may be interested in the Manager (or any successor thereof) as directors,
officers, or shareholders, or otherwise; directors, officers, agents, and
shareholders of the Manager are or may be interested in the Fund as directors,
officers, shareholders or otherwise; and the
Manager (or any successor) is or may be interested in the Fund as a shareholder
or otherwise. In addition, brokerage transactions for the Fund may be effected
through affiliates of the Manager if approved by the Fund's Board of Directors,
subject to the rules and regulations of the Securities and Exchange Commission,
and the policies and procedures adopted by the Fund.
11. Duration and Termination. This Agreement shall become effective on
the date first above written subject to its approval by the shareholders of the
Portfolio and unless sooner terminated as provided herein, shall continue in
effect for two (2) years from that date. Thereafter, this Agreement shall be
renewable for successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of those members of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons of any such party (as that term is defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by vote of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940 Act) of the
Portfolio. Notwithstanding the foregoing, this Agreement may be terminated by
the Portfolio or by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination must be authorized
either by vote of the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio or by the Manager on sixty (60)
days written notice. This Agreement will automatically terminate in the event of
its assignment (as that term is defined in the 1940 Act).
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act).
13. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
address stated below:
(a) To the Fund at:
1500 Forest Avenue
Suite 223
Richmond, VA 23229
(b) To the Manager at:
Post Office Box 8535
Richmond, Virginia 23226-0535
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors.
15. Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Maryland, and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of Maryland, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
16. This Agreement may be executed in two or more counterparts, each of
which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
VIRGINIA MANAGEMENT INVESTMENT CORPORATION
BY:
Franklin A. Trice, III
President
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
INVESTMENT ADVISORY AGREEMENT
between
Virginia Management Investment Corporation
and
The London Company of Virginia
INVESTMENT ADVISORY AGREEMENT (the "Agreement") made this [ ] day of [
], 1998, by and between Virginia Management Investment Corporation (hereinafter
referred to as the "Manager") and The London Company of Virginia (hereinafter
referred to as the "Investment Advisor"), which Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute but one instrument.
WITNESSETH
WHEREAS, the Board of Directors (the "Directors") of the Manager wishes
to enter into a contract with the Investment Advisor to render the following
services to the Manager:
To furnish research, analysis, advice and recommendations with respect
to the purchase and sale of securities and the making of investment commitments;
to place at the disposal of the Manager such statistical information and reports
as may be required and, in general, to superintend such portions of the
investments of the New Market Fund series (hereinafter the "Fund") of The World
Funds, Inc. (hereinafter "TWF") as may be made subject to the oversight of the
Investment Advisor by the Manager.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, and intending to be bound, the parties agree as follows:
1. During the term of this Agreement, or any extension thereof, the
Investment Advisor will, to the best of its ability, furnish the foregoing
services.
2. As compensation, the Manager will pay the Investment Advisor for its
services an annual fee, which fee shall be payable monthly in accordance with
the following formula:
The amount of such fee shall be one half of the investment management
fee received by the Manager on the assets which are subject to the supervision
of the Investment Advisor (the "Base Fee") less one half the sum of any
reduction in such Base Fee resulting from:
a. Any reduction of the fee paid by the Fund on such assets pursuant to any
agreement relating to the reimbursement of organizational expenses of the Fund
initially advanced by and repayable to the Investment Advisor; or
b. Any voluntary reduction of the fee paid by the Fund on such assets, if
the voluntary reduction is agreed to by the Investment Advisor in writing in
advance of such reduction.
3. This Agreement shall become effective concurrently with the
Investment Management Agreement between the Manager and the Fund, pursuant to
the approval of the shareholders of the Fund according to the provisions of the
Investment Company Act of 1940 (the "Act").
4. This Agreement shall continue for a two year period ending [ ],
2000. It may be renewed thereafter for successive periods not exceeding one year
only so long as such renewal and continuance is specially approved at least
annually by the Director's of TWF or by a vote of the majority of the
outstanding voting securities of the Fund as prescribed by the Act and provided
further that such continuance is approved at least annually thereafter by a vote
of a majority of TWF's Directors, who are not parties to such Agreement or
interested persons of such a party, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisor shall provide the
Manager such information as reasonably may be necessary to assist the Directors
of TWF to evaluate the terms of this Agreement. This Agreement will terminate
automatically without the payment of any penalty upon termination of the
Investment Management Agreement or upon sixty days' written notice by the Fund
to the Investment Advisor that the Directors of TWF or the shareholders, by vote
of a majority of the outstanding voting securities of the Fund, as provided by
the act, has terminated the Investment Management Agreement. This Agreement may
also be terminated by the Investment Advisor without penalty upon sixty days'
written notice to the Fund.
This Agreement shall automatically terminate in the event of its
assignment or the assignment of the Investment Management Agreement unless its
continuation thereafter is approved by the Directors of TWF or the Shareholders
of the Fund as hereinbefore provided or as otherwise permitted under applicable
laws or regulations unless an exemption is obtained from the U.S. Securities and
Exchange Commission from the provisions of the Act pertaining to the subject
matter of this paragraph.
5. Subject to the supervision of TWF's Board of Directors and the
Manager, the Investment Advisor will provide a continuous investment program for
assets of the Fund under its supervision, including investment research and
management with respect to all securities and investments and cash and cash
equivalents. The Investment Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Fund. The Investment Advisor will provide the services under this Agreement in
accordance with the Fund's investment objective, policies and restrictions as
stated in the Prospectus. The Investment Advisor further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
SEC and will, in addition, conduct its activities under this
Agreement in accordance with regulations of any other Federal
and State agencies which may now or it the future have
jurisdiction over its activities;
(b) will 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 Investment Advisor will attempt
to obtain the best net price and the most favorable execution of its
orders. Consistant with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Investment
Advisor may, in its discretion, purchase and sell portfolio securities to
and from brokers and dealers who provide the Fund with research advice and
other services, or who sell Fund shares. In no instance will portfolio
securities be purchased from or sold to the Investment Advisor or any
affiliated person of the Investment Advisor as principal. Notwithstanding
the foregoing sentence, the Investment Advisor may arrange for the
execution of brokered transactions through an affiliated broker dealer in
conformity with policies and procedures for such purpose if, when, and as
established by the Board of TWF;
(c) will provide, at its own cost, all office space and facilities
necessary to furnish the foregoing services to the Fund.
6. It is expressly understood and agreed that the services to be
rendered by the Investment Advisor to the Manager under the provisions of this
Agreement are not to be deemed exclusive, and the Investment Advisor shall be
free to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby, and provided further that the services to be rendered by the Investment
Advisor to the Manager under this Agreement and the compensation provided for in
Paragraph 2 hereof shall be limited solely to services with reference to the
Fund.
7. The Manager agrees that it will furnish currently to the Investment
Advisor all information reasonably necessary to permit the Investment Advisor to
give the advice called for under this Agreement and such information with
reference to the Fund that is reasonably necessary to permit the Investment
Advisor to carry out its responsibilities under this Agreement, and the parties
agreed that they will from time to time consult and make appropriate
arrangements as to specific information that is required under this paragraph
and frequency and manner with which it shall be supplied.
8. The Investment Advisor shall not be liable for any error of
judgement or mistake at law or for any loss suffered by the Manager or the Fund
in connection with any matters to which this Agreement relates except that
nothing herein contained shall be construed to protect the Investment Advisor
against any liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of duties or by reckless disregard of its
obligations or duties under this Agreement.
9. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
10. Any notice to be given hereunder may be given by personal
notification or by first class mail, postage prepaid, to the party specified at
the address stated below:
a. To the Manager at:
Virginia Management Investment Corporation
Post Office Box 8535
Richmond, Virginia 23226-0535
b. To the Investment Advisor:
The London Company of Virginia
Riverfront Plaza, West Tower
901 East Byrd Street
Richmond, Virginia 23219
c. To the Fund:
1500 Forest Ave., Suite 223
Richmond, Virginia 23229
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above written.
VIRGINIA MANAGEMENT INVESTMENT CORPORATION
BY: ________________________
Franklin A. Trice, III
President
THE LONDON COMPANY OF VIRGINIA
BY: _________________________
Stephen Goddard
President
Solely for the purpose of evidencing the approval of the effectiveness
of this Agreement by the Fund in accordance with Section 15 of the
Investment Company Act of 1940, as amended, the Fund has caused this
instrument to be executed by the officer designated below as of the day
and year first above written.
THE WORLD FUNDS, INC.
BY:
John Pasco, III
Chairman
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this day of , 1998, by and between The
World Funds, Inc. a Maryland corporation (the "Fund") and First Dominion Capital
Corporation ("FDCC"), a Virginia corporation.
WITNESSETH:
1. DISTRIBUTION SERVICES
The Fund hereby engages FDCC as national distributor to assist the Fund
in promoting the sale and distribution to investors of shares of common stock of
each series of the Fund ("Shares"). In connection therewith, FDCC shall (i)
promote the sale of shares, (ii) act as principal underwriter of shares of
various series of the Fund, (iii) otherwise assist the Fund in the distribution
of shares directly to investors through dealers or otherwise. For this purpose
the Fund agrees to offer shares for sale at all times when, and in such places
as, such shares are to be made available for sale and may lawfully be offered
for sale and sold. As and when necessary in connection therewith FDCC may act as
principal or agent for the sale of such shares.
2. SALE OF FUND SHARES
Such shares are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to acceptance or
rejection by the Fund. Any offer or sale shall be conclusively presumed
to have been accepted by the Fund if the Fund shall fail to notify FDCC
of the rejection of such offer or sale prior to the computation of the
net asset value of the Fund's shares next following receipt by the Fund
of notice of such offer or sale.
(b) No share of the Fund shall be sold for any consideration other than
cash or, except in instances otherwise provided for by the Fund's
currently effective Prospectus, for any amount less than the public
offering price per share, which shall be determined in accordance with
the Fund's currently effective Prospectus. No shares may be sold for
less than the net asset value thereof.
3. REGISTRATION OF SHARES
The Fund agrees to make prompt and reasonable efforts to effect and to
keep in effect the registration or qualification of its shares for sale in such
jurisdictions as the Fund may designate. FDCC may serve as dealer of record to
assist the Fund in connection with any such registration or qualification. The
Fund acknowledges that FDCC may incur expenses in connection with
-2-
assisting in the registration or qualification of Fund shares which are sold at
net asset value and the Fund will pay or reimburse expenses of FDCC which are
incurred in connection with such registration or qualification.
4. INFORMATION TO BE FURNISHED TO FDCC
The Fund agrees that it will furnish FDCC with such information with
respect to the affairs and accounts of the Fund as FDCC may from time to time
reasonably require, and further agrees that FDCC, at all reasonable times, shall
be permitted to inspect the books and records of the Fund.
5. ALLOCATION OF EXPENSES
During the period of this contract, the Fund shall pay or cause to be
paid all expenses, costs, and fees incurred by the Fund which are not assumed by
FDCC or any investment manager or investment advisor to the Fund. FDCC shall pay
advertising and promotional expenses incurred by FDCC in connection with the
distribution of the Fund's shares which are sold subject to the imposition of a
sales charge including paying for prospectuses for delivery to prospective
shareholders.
6. COMPENSATION TO FDCC
It is understood and agreed by the parties hereto that FDCC will
receive compensation for services it performs hereunder in accordance with
Schedule A hereto.
7. LIMITATION OF FDCC'S AUTHORITY
FDCC shall be deemed to be an independent contractor and, except as
specifically provided or authorized herein, shall have no authority to act for
or represent the Fund. In the performance of its duties hereunder, FDCC may
solicit and enter into selling dealer agreements with other broker-dealers in a
form approved by the Fund. Such selling dealer agreements shall provide for the
sale of shares of the Fund (or any series of the Fund) on terms consistent with
the registration statement of the Fund as then if effect. Unless otherwise
provided in a selling dealer agreement, any selling dealer agreement of FDCC in
effect as of the date of this agreement shall be deemed to continue hereunder
upon delivery to the selling dealer of any amendment required by the terms of
the Fund's action eliminating the sales load on sales of affected Fund shares.
-3-
8. SUBSCRIPTION FOR SHARES - REFUND FOR CANCELED ORDERS
If FDCC elects to act as a principal, and not as agent, for a sale of
Fund shares, FDCC shall subscribe for the shares of the Fund only for the
purpose of covering purchase orders already received by it or for the purpose of
investment for its own account. Whether acting as principal or agent, in the
event that an order for the purchase of shares of the Fund is placed with FDCC
by a customer or dealer and subsequently canceled, FDCC shall forthwith cancel
the subscription for such shares entered on the books of the Fund, and, if FDCC
has paid the Fund for such shares, shall be entitled to receive from the Fund in
refund of such payments the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of
cancellation by FDCC.
9. INDEMNIFICATION OF THE FUND
FDCC agrees to indemnify the Fund against any and all litigation and
other legal proceedings of any kind or nature and against any liability,
judgment, cost, or penalty imposed as a result of such litigation or proceedings
in any way arising out of or in connection with the sale or distribution of the
shares of the Fund by FDCC. In the event of the threat or institution of any
such litigation or legal proceedings against the Fund, FDCC shall defend such
action on behalf of the Fund at its own expense, and shall pay any such
liability, judgment, cost, or penalty resulting therefrom, whether imposed by
legal authority on agreed upon by way of compromise and settlement; provided,
however, FDCC shall not be required to pay or reimburse the Fund for any
liability, judgment, cost, or penalty incurred as a result of information
supplied by, or as the result of the omission to supply information by, the Fund
to FDCC or to FDCC by a director, officer, or employee of the Fund who is not an
interested person of FDCC, unless the information so supplied or omitted was
available to FDCC or the Fund's investment adviser without recourse to the Fund
or any such person referred to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
FDCC shall be free to render to others services of a nature either
similar to or different from those rendered under this contract, except such as
may impair its performance of the services and duties to be rendered by it
hereunder.
-4-
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
The effective date of this Agreement shall be the date first set forth
above. Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities of the Fund (or of
any series of the Fund) shall mean the vote of 67% or more of the securities of
the Fund (or of any affected series of the Fund) if the holders of more than 50%
of such securities are present in person or by proxy or the vote of more than
50% of the securities of the Fund (or an affected series of the Fund) whichever
is the lesser.
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect from year to year but only so long as such continuance is
specifically approved at least annually by the Board of Directors of the Fund,
including the specific approval of a majority of the directors who are not
interested person of FDCC as defined by the Investment Company Act of 1940, as
amended, cast in person at a meeting called for the purpose of voting on such
approval, or by the vote of the holders of a majority of the outstanding voting
securities of the Fund or an affected series of the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by the vote of the
holders of a majority of the outstanding voting securities of the Fund, or by
FDCC, upon 60 days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment (as defined by the provisions of the Investment Company Act of 1940,
as amended).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be effective until
approved by FDCC and by the affirmative vote of a majority of the Board of
Directors of the Fund (including a majority of the directors who are not
interested persons of FDCC or any affiliate of FDCC).
13. NOTICES
Any notice under this Agreement shall be in writing, addressed,
delivered, or mailed, postage prepaid, to the other party at such address as
such other party may designate in writing for receipt of such notice.
-5-
IN WITNESS WHEREOF, the Fund and FDCC have caused this Agreement to be
executed by their duly authorized officers affixed hereto all as of the day and
year first above written.
THE WORLD FUNDS, INC.
By
John Pasco, III
Chairman
Attested by
FIRST DOMINION CAPITAL CORP.
By
John Pasco, III
President
Attested by
-6-
SCHEDULE A
FDCC shall receive, as compensation for its services pursuant to this
Distribution Agreement:
(a) With respect to any shares of the Fund sold subject to a sales charge, FDCC
shall be entitled to retain the underwriter's portion of the sales charge for
each investment in the Fund's shares, computed as a percentage of the offering
price determined in accordance with the Fund's currently effective Prospectus
and as otherwise provided in the Fund's registration statement.
(b) With respect to sales of shares of the Fund sold subject to a sales charge
for which FDCC is the selling dealer, FDCC shall retain the dealer's sales
charge for each investment in the Fund's shares, computed as a percentage of the
offering price determined in accordance with the Fund's currently effective
Prospectus and as otherwise provided in the Fund's registration statement.
(c) With respect to any shares of the Fund sold at net asset value (without a
sales charge), FDCC shall receive from the Fund reimbursement at the rate of $30
per hour for the cost of personnel involved with assistance in the promotion of
sale of such shares and for out-of-pocket costs incurred by FDCC.
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT, dated as of this ______ day of ______________, 1998,
between THE WORLD FUNDS, INC., an open-end management investment company
incorporated in Maryland and registered with the Commission under the 1940 Act
(the Fund), on behalf of each of the series listed on the attached Appendix A as
the same may from time to time be updated (each a Series), and BROWN BROTHERS
HARRIMAN & CO., a limited partnership formed under the laws of the State of New
York (BBH&Co. or the Custodian),
W I T N E S S E T H: WHEREAS, the Fund wishes to employ BBH&Co. to act as
custodian for the Fund and to provide related services, all as provided herein,
and BBH&Co. is willing to accept such employment, subject to the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and BBH&Co. hereby agree, as follows:
1. Appointment of Custodian. The Fund hereby appoints BBH&Co. as the Fund's
custodian, and BBH&Co. hereby accepts such appointment. All Investments of the
Fund delivered to the Custodian or its agents or Subcustodians shall be dealt
with as provided in this Agreement. The duties of the Custodian with respect to
the Fund's Investments shall be only as set forth expressly in this Agreement
which duties are generally comprised of safekeeping and various administrative
duties that will be performed in accordance with Instructions and as reasonably
required to effect Instructions.
2. Representations, Warranties and Covenants of the Fund. The Fund hereby
represents, warrants and covenants each of the following:
2.1 This Agreement has been, and at the time of delivery of
each Instruction such Instruction will have been, duly authorized,
executed and delivered by the Fund. This Agreement does not violate any
Applicable Law or conflict with or constitute a default under the
Fund's prospectus or other organic document, agreement, judgment, order
or decree to which the Fund is a party or by which it or its
Investments is bound.
2.2 By providing an Instruction with respect to the first
acquisition of an Investment in a jurisdiction other than the United
States of America, the Fund shall be deemed to have confirmed to the
Custodian that the Fund has (a) assessed and accepted all material
Country or Sovereign Risks and accepted responsibility for their
occurrence, (b) made all determinations required to be made by the Fund
under the 1940 Act, and (iii) appropriately and adequately disclosed to
its shareholders, other investors and all persons who have rights in or
to such Investments, all material investment risks, including those
relating to the custody and settlement infrastructure or the servicing
of securities in such jurisdictions.
2.3 The Fund shall safeguard and shall solely be responsible
for the safekeeping of any testkeys, identification codes, passwords,
other security devices or statements of account with which the
Custodian provides it. In furtherance and not limitation of the
foregoing, in the event the Fund utilizes any on-line service offered
by the Custodian, the Fund and the Custodian shall be fully responsible
for the security of its respective connecting terminal, access thereto
and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards in respect thereof.
3. Representation and Warranty of BBH&Co. BBH&Co. hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered by
BBH&Co. and does not and will not violate any Applicable Law or conflict with or
constitute a default under BBH&Co.'s limited partnership agreement or any
agreement, instrument, judgment, order or decree to which BBH&Co. is a party or
by which it is bound.
4. Instructions. Unless otherwise explicitly indicated herein, the Custodian
shall perform its duties pursuant to Instructions. As used herein, the term
Instruction shall mean a directive initiated by the Fund, acting directly or
through its board of directors, officers or other Authorized Persons, which
directive shall conform to the requirements of this Section 4.
4.1 Authorized Persons. For purposes hereof, an Authorized Person shall
be a person or entity authorized to give Instructions for or on behalf of the
Fund by written notices to the Custodian or otherwise in accordance with
procedures delivered to and acknowledged by the Custodian, including without
limitation the Fund's Investment Adviser or Foreign Custody Manager. The
Custodian may treat any Authorized Person as having full authority of the Fund
to issue Instructions hereunder unless the notice of authorization contains
explicit limitations as to said authority. The Custodian shall be entitled to
rely upon the authority of Authorized Persons until it receives appropriate
written notice from the Fund to the contrary.
4.2 Form of Instruction. Each Instruction shall be transmitted by such
secured or authenticated electro-mechanical means as the Custodian shall make
available to the Fund from time to time unless the Fund shall elect to transmit
such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this
Section.
4.2.1 Fund Designated Secured-Transmission Method. Instructions
may be transmitted through a secured or tested electro-mechanical means
identified by the Fund or by an Authorized Person entitled to give
Instruction and acknowledged and accepted by the Custodian; it being
understood that such acknowledgment shall authorize the Custodian to
receive and process Instructions received by such means of delivery but
shall not represent a judgment by the Custodian as to the
reasonableness or security of the method determined by the Authorized
Person.
4.2.2 Written Instructions. Instructions may be
transmitted in a writing that bears the manual signature of
Authorized Persons.
4.2.3 Other Forms of Instruction. Instructions may also be
transmitted by another means determined by the Fund or Authorized
Persons and acknowledged and accepted by the Custodian (subject to the
same limits as to acknowledgements as is contained in Subsection 4.2.1,
above) including Instructions given orally or by SWIFT, telex or
telefax (whether tested or untested).
When an Instruction is given by means established under Subsections 4.2.1
through 4.2.3, it shall be the responsibility of the Custodian to use reasonable
care to adhere to any security or other procedures established in writing
between the Custodian and the Authorized Person with respect to such means of
Instruction, but such Authorized Person shall be solely responsible for
determining that the particular means chosen is reasonable under the
circumstances. Oral Instructions shall be binding upon the Custodian only if and
when the Custodian takes action with respect thereto. With respect to telefax
instructions, the parties agree and acknowledge that receipt of legible
instructions cannot be assured, that the Custodian cannot verify that authorized
signatures on telefax instructions are original or properly affixed, and that
the Custodian shall not be liable for losses or expenses incurred through
actions taken in reliance on inaccurately stated, illegible or unauthorized
telefax instructions. The provisions of Section 4A of the Uniform Commercial
Code shall apply to funds transfers performed in accordance with Instructions.
In the event that a Funds Transfer Services Agreement is executed between the
Fund or and Authorized Person and the Custodian, such an agreement shall
comprise a designation of form of a means of delivering Instructions for
purposes of this Section 4.2.
` 4.3 Completeness and Contents of Instructions. The Authorized Person
shall be responsible for assuring the adequacy and accuracy of Instructions.
Particularly, upon any acquisition or disposition or other dealing in the Fund's
Investments and upon any delivery and transfer of any Investment or moneys, the
person initiating such Instruction shall give the Custodian an Instruction with
appropriate detail, including, without limitation:
4.3.1 The transaction date and the date and location of
settlement;
4.3.2 The specification of the type of transaction;
4.3.4 A description of the Investments or moneys in question,
including, as appropriate, quantity, price per unit, amount of money to
be received or delivered and currency information. Where an Instruction
is communicated by electronic means, or otherwise where an Instruction
contains an identifying number such as a CUSIP, SEDOL or ISIN number,
the Custodian shall be entitled to rely on such number as controlling
notwithstanding any inconsistency contained in such Instruction,
particularly with respect to Investment description;
4.3.5 The name of the broker or similar entity concerned with
execution of the transaction.
If the Custodian shall determine that an Instruction is either unclear or
incomplete, the Custodian may give prompt notice of such determination to the
Fund, and the Fund shall thereupon amend or otherwise reform such Instruction.
In such event, the Custodian shall have no obligation to take any action in
response to the Instruction initially delivered until the redelivery of an
amended or reformed Instruction
4.4 Timeliness of Instructions. In giving an Instruction, the Fund
shall take into consideration delays which may occur due to the involvement of a
Subcustodian or agent, differences in time zones, and other factors particular
to a given market, exchange or issuer. When the Custodian has established
specific timing requirements or deadlines with respect to particular classes of
Instruction, or when an Instruction is received by the Custodian at such a time
that it could not reasonably be expected to have acted on such instruction due
to time zone differences or other factors beyond its reasonable control, the
execution of any Instruction received by the Custodian after such deadline or at
such time (including any modification or revocation of a previous Instruction)
shall be at the risk of the Fund.
5. Safekeeping of Fund Assets. The Custodian shall hold Investments delivered
to it or Subcustodians for the Fund in accordance with the provisions of this
Section. The Custodian shall not be responsible for (a) the safekeeping of
Investments not delivered or that are not caused to be issued to it or its
Subcustodians; or, (b) pre-existing faults or defects in Investments that are
delivered to the Custodian, or its Subcustodians. The Custodian is hereby
authorized to hold with itself or a Subcustodian, and to record in one or more
accounts, all Investments delivered to and accepted by the Custodian, any
Subcustodian or their respective agents pursuant to an Instruction or in
consequence of any corporate action. The Custodian shall hold Investments for
the account of the Fund and shall segregate Investments from assets belonging to
the Custodian and shall cause its Subcustodians to segregate Investments from
assets belonging to the Subcustodian in an account held for the Fund or in an
account maintained by the Subcustodian generally for non-proprietary assets of
the Custodian.
5.1 Use of Securities Depositories. The Custodian may deposit and
maintain Investments in any Securities Depository, either directly or through
one or more Subcustodians appointed by the Custodian. Investments held in a
Securities Depository shall be held (a) subject to the agreement, rules,
statement of terms and conditions or other document or conditions effective
between the Securities Depository and the Custodian or the Subcustodian, as the
case may be, and (b) in an account for the Fund or in bulk segregation in an
account maintained for the non-proprietary assets of the entity holding such
Investments in the Depository. If market practice or the rules and regulations
of the Securities Depository prevent the Custodian, the Subcustodian or (any
agent of either) from holding its client assets in such a separate account, the
Custodian, the Subcustodian or other agent shall as appropriate segregate such
Investments for benefit of the Fund or for benefit of clients of the Custodian
generally on its own books.
5.2 Certificated Assets. Investments which are certificated may be held
in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of
a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account
maintained by the Custodian, Subcustodian or agent at a Securities Depository;
all in accordance with customary market practice in the jurisdiction in which
any Investments are held.
5.3 Registered Assets. Investments which are registered may be
registered in the name of the Custodian, a Subcustodian, or in the name of the
Fund or a nominee for any of the foregoing, and may be held in any manner set
forth in paragraph 5.2 above with or without any identification of fiduciary
capacity in such registration.
5.4 Book Entry Assets. Investments which are represented by book
- -entry may be so held in an account
maintained by the Book-Entry Agent on behalf of the Custodian, a Subcustodian
or another agent of the Custodian, or a Securities Depository.
5.5 Replacement of Lost Investments. In the event of a loss of
Investments for which the Custodian is responsible under the terms of this
Agreement, the Custodian shall replace such Investment, or in the event that
such replacement cannot be effected, the Custodian shall pay to the Fund the
fair market value of such Investment based on the last available price as of the
close of business in the relevant market on the date that a claim was first made
to the Custodian with respect to such loss, or, if less, such other amount as
shall be agreed by the parties as the date for settlement.
6. Administrative Duties of the Custodian. The Custodian shall perform the
following administrative duties with respect to Investments of the Fund.
6.1 Purchase of Investments. Pursuant to Instruction, Investments
purchased for the account of the Fund shall be paid for (a) against delivery
thereof to the Custodian or a Subcustodian, as the case may be, either directly
or through a Clearing Corporation or a Securities Depository (in accordance with
the rules of such Securities Depository or such Clearing Corporation), or (b)
otherwise in accordance with an Instruction, Applicable Law, generally accepted
trade practices, or the terms of the instrument representing such Investment.
6.2 Sale of Investments. Pursuant to Instruction, Investments sold for
the account of the Fund shall be delivered (a) against payment therefor in cash,
by check or by bank wire transfer, (b) by credit to the account of the Custodian
or the applicable Subcustodian, as the case may be, with a Clearing Corporation
or a Securities Depository (in accordance with the rules of such Securities
Depository or such Clearing Corporation), or (c) otherwise in accordance with an
Instruction, Applicable Law, generally accepted trade practices, or the terms of
the instrument representing such Investment.
6.3 Delivery in Connection with Borrowings of the Fund or other
Collateral and Margin Requirements. Pursuant to Instruction, the Custodian may
deliver Investments or cash of the Fund in connection with borrowings and other
collateral and margin requirements.
6.4 Futures and Options. If, pursuant to an Instruction, the Custodian
shall become a party to an agreement with the Fund and a futures commission
merchant regarding margin (Tri-Party Agreement), the Custodian shall (a) receive
and retain, to the extent the same are provided to the Custodian, confirmations
or other documents evidencing the purchase or sale by the Fund of
exchange-traded futures contracts and commodity options, (b) when required by
such Tri-Party Agreement, deposit and maintain in an account opened pursuant to
such Agreement (Margin Account), segregated either physically or by book-entry
in a Securities Depository for the benefit of any futures commission merchant,
such Investments as the Fund shall have designated as initial, maintenance or
variation "margin" deposits or other collateral intended to secure the Fund's
performance of its obligations under the terms of any exchange-traded futures
contracts and commodity options; and (c) thereafter pay, release or transfer
Investments into or out of the margin account in accordance with the provisions
of the such Agreement. Alternatively, the Custodian may deliver Investments, in
accordance with an Instruction, to a futures commission merchant for purposes of
margin requirements in accordance with Rule 17f-6 under the 1940 Act. The
Custodian shall in no event be responsible for the acts and omissions of any
futures commission merchant to whom Investments are delivered pursuant to this
Section; for the sufficiency of Investments held in any Margin Account; or, for
the performance of any terms of any exchange-traded futures contracts and
commodity options.
6.5 Contractual Obligations and Similar Investments. From time to time,
the Fund's Investments may include Investments that are not ownership interests
as may be represented by certificate (whether registered or bearer), by entry in
a Securities Depository or by book entry agent, registrar or similar agent for
recording ownership interests in the relevant Investment. If the Fund shall at
any time acquire such Investments, including without limitation deposit
obligations, loan participations, repurchase agreements and derivative
arrangements, the Custodian shall (a) receive and retain, to the extent the same
are provided to the Custodian, confirmations or other documents evidencing the
arrangement; and (b) perform on the Fund's account in accordance with the terms
of the applicable arrangement, but only to the extent directed to do so by
Instruction. The Custodian shall have no responsibility for agreements running
to the Fund as to which it is not a party other than to retain, to the extent
the same are provided to the Custodian, documents or copies of documents
evidencing the arrangement and, in accordance with Instruction, to include such
arrangements in reports made to the Fund.
6.6 Exchange of Securities. Unless otherwise directed by Instruction,
the Custodian shall: (a) exchange securities held for the account of the Fund
for other securities in connection with any reorganization, recapitalization,
conversion, split-up, change of par value of shares or similar event, and (b)
deposit any such securities in accordance with the terms of any reorganization
or protective plan.
6.7 Surrender of Securities. Unless otherwise directed by Instruction,
the Custodian may surrender securities: (a) in temporary form for definitive
securities; (b) for transfer into the name of an entity allowable under Section
5.3; and (c) for a different number of certificates or instruments representing
the same number of shares or the same principal amount of indebtedness.
6.8 Rights, Warrants, Etc. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, and (b) deposit securities in
response to any invitation for the tender thereof.
6.9 Mandatory Corporate Actions. Unless otherwise directed by
Instruction, the Custodian shall: (a) comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions or similar rights of
securities ownership affecting securities held on the Fund's account and
promptly notify the Fund of such action, and (b) collect all stock dividends,
rights and other items of like nature with respect to such securities.
6.10 Income Collection. Unless otherwise directed by Instruction, the
Custodian shall collect any amount due and payable to the Fund with respect to
Investments and promptly credit the amount collected to a Principal or Agency
Account; provided, however, that the Custodian shall not be responsible for: (a)
the collection of amounts due and payable with respect to Investments that are
in default, or (b) the collection of cash or share entitlements with respect to
Investments that are not registered in the name of the Custodian or its
Subcustodians. The Custodian is hereby authorized to endorse and deliver any
instrument required to be so endorsed and delivered to effect collection of any
amount due and payable to the Fund with respect to Investments.
6.11 Ownership Certificates and Disclosure of the Fund's Interest. The
Custodian is hereby authorized to execute on behalf of the Fund ownership
certificates, affidavits or other disclosure required under Applicable Law or
established market practice in connection with the receipt of income, capital
gains or other payments by the Fund with respect to Investments, or in
connection with the sale, purchase or ownership of Investments.
6.12 Proxy Materials. The Custodian shall deliver, or cause to be
delivered, to the Fund proxy forms, notices of meeting, and any other notices or
announcements materially affecting or relating to Investments received by the
Custodian or any nominee.
6.13. Taxes. The Custodian shall, where applicable, assist the Fund in
the reclamation of taxes withheld on dividends and interest payments received by
the Fund. In the performance of its duties with respect to tax withholding and
reclamation, the Custodian shall be entitled to rely on the advice of counsel
and upon information and advice regarding the Fund's tax status that is received
from or on behalf of the Fund without duty of separate inquiry.
6.14 Other Dealings. The Custodian shall otherwise act as directed by
Instruction, including without limitation effecting the free payments of moneys
or the free delivery of securities, provided that such Instruction shall
indicate the purpose of such payment or delivery and that the Custodian shall
record the party to whom such payment or delivery is made.
The Custodian shall attend to all nondiscretionary details in
connection with the sale or purchase or other administration of Investments,
except as otherwise directed by an Instruction, and may make payments to itself
or others for minor expenses of administering Investments under this Agreement;
provided that the Fund shall have the right to request an accounting with
respect to such expenses.
In fulfilling the duties set forth in Sections 6.6 through 6.10 above,
the Custodian shall provide to the Fund all material information pertaining to a
corporate action which the Custodian actually receives; provided that the
Custodian shall not be responsible for the completeness or accuracy of such
information. Any advance credit of cash or shares expected to be received as a
result of any corporate action shall be subject to actual collection and may,
when the Custodian deems collection unlikely, be reversed by the Custodian.
The Custodian may at any time or times in its discretion appoint (and
may at any time remove) agents (other than Subcustodians) to carry out some or
all of the administrative provisions of this Agreement (Agents), provided,
however, that the appointment of such agent shall not relieve the Custodian of
its administrative obligations under this Agreement. 7. Cash Accounts, Deposits
and Money Movements. Subject to the terms and conditions set forth in this
Section 7, the Fund hereby authorizes the Custodian to open and maintain, with
itself or with Subcustodians, cash accounts in United States Dollars, in such
other currencies as are the currencies of the countries in which the Fund
maintains Investments or in such other currencies as the Fund shall from time to
time request by Instruction.
7.1 Types of Cash Accounts. Cash accounts opened on the books of the
Custodian (Principal Accounts) shall be opened in the name of the Fund. Such
accounts collectively shall be a deposit obligation of the Custodian and shall
be subject to the terms of this Section 7 and the general liability provisions
contained in Section 9. Cash accounts opened on the books of a Subcustodian may
be opened in the name of the Fund or the Custodian or in the name of the
Custodian for its customers generally (Agency Accounts). Such deposits shall be
obligations of the Subcustodian and shall be treated as an Investment of the
Fund. Accordingly, the Custodian shall be responsible for exercising reasonable
care in the administration of such accounts but shall not be liable for their
repayment in the event such Subcustodian, by reason of its bankruptcy,
insolvency or otherwise, fails to make repayment.
7.2 Payments and Credits with Respect to the Cash Accounts. The
Custodian shall make payments from or deposits to any of said accounts in the
course of carrying out its administrative duties, including but not limited to
income collection with respect to the Fund's Investments, and otherwise in
accordance with Instructions. The Custodian and its Subcustodians shall be
required to credit amounts to the cash accounts only when moneys are actually
received in cleared funds in accordance with banking practice in the country and
currency of deposit. Any credit made to any Principal or Agency Account before
actual receipt of cleared funds shall be provisional and may be reversed by the
Custodian in the event such payment is not actually collected. Unless otherwise
specifically agreed in writing by the Custodian or any Subcustodian, all
deposits shall be payable only at the branch of the Custodian or Subcustodian
where the deposit is made or carried.
7.3 Currency and Related Risks. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be required to repay
any deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 9 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in writing
to repay the deposit under such circumstances. All currency transactions in any
account opened pursuant to this Agreement are subject to exchange control
regulations of the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes, costs, charges or
fees imposed on the convertibility of a currency held by the Fund shall be for
the account of the Fund.
7.4 Foreign Exchange Transactions. The Custodian shall, subject to the
terms of this Section, settle foreign exchange transactions (including
contracts, futures, options and options on futures) on behalf and for the
account of the Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to Instructions. The
Custodian may act as principal in any foreign exchange transaction with the Fund
in accordance with Section 7.4.2 of this Agreement. The obligations of the
Custodian in respect of all foreign exchange transactions (whether or not the
Custodian shall act as principal in such transaction) shall be contingent on the
free, unencumbered transferability of the currency transacted on the actual
settlement date of the transaction.
7.4.1 Third Party Foreign Exchange Transactions. The
Custodian shall process foreign exchange transactions
(including without limitation contracts, futures, options, and
options on futures), where any third party acts as principal
counterparty to the Fund on the same basis it performs duties
as agent for the Fund with respect to any other of the Fund's
Investments. Accordingly the Custodian shall only be
responsible for delivering or receiving currency on behalf of
the Fund in respect of such contracts pursuant to
Instructions. The Custodian shall not be responsible for the
failure of any counterparty (including any Subcustodian) in
such agency transaction to perform its obligations thereunder.
The Custodian (a) shall transmit cash and Instructions to and
from the currency broker or banking institution with which a
foreign exchange contract or option has been executed pursuant
hereto, (b) may make free outgoing payments of cash in the
form of United States Dollars or foreign currency without
receiving confirmation of a foreign exchange contract or
option or confirmation that the countervalue currency
completing the foreign exchange contract has been delivered or
received or that the option has been delivered or received,
and (c) shall hold all confirmations, certificates and other
documents and agreements received by the Custodian and
evidencing or relating to such foreign exchange transactions
in safekeeping. The Fund accepts full responsibility for its
use of third-party foreign exchange dealers and for execution
of said foreign exchange contracts and options and understands
that the Fund shall be responsible for any and all costs and
interest charges which may be incurred by the Fund or the
Custodian as a result of the failure or delay of third parties
to deliver foreign exchange.
7.4.2 Foreign Exchange with the Custodian as
Principal. The Custodian may undertake foreign exchange
transactions with the Fund as principal as the Custodian and
the Fund may agree from time to time. In such event, the
foreign exchange transaction will be performed in accordance
with the particular agreement of the parties, or in the event
a principal foreign exchange transaction is initiated by
Instruction in the absence of specific agreement, such
transaction will be performed in accordance with the usual
commercial terms of the Custodian.
7.5 Delays. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. The
Custodian shall not be liable for delays in carrying out such Instructions to
transfer cash which are not due to the Custodian's own negligence or willful
misconduct.
7.6 Advances. If, for any reason in the conduct of its safekeeping
duties pursuant to Section 5 hereof or its administration of the Fund's assets
pursuant to Section 6 hereof, the Custodian or any Subcustodian advances monies
to facilitate settlement or otherwise for benefit of the Fund (whether or not
any Principal or Agency Account shall be overdrawn either during, or at the end
of, any Business Day), the Fund hereby does:
7.6.1 acknowledge that the Fund shall have no right or title to any
Investments purchased with such Advance save a right to receive such
Investments upon: (a) the debit of the Principal or Agency Account; or,
(b) if such debit would produce an overdraft in such account, other
reimbursement of the associated Advance;
7.6.2 grant to the Custodian a security interest in all Investments;
and,
7.6.3 agree that the Custodian may secure the resulting Advance by
perfecting a security interest in all Investments under Applicable Law.
Neither the Custodian nor any Subcustodian shall be obligated to advance monies
to the Fund, and in the event that such Advance occurs, any transaction giving
rise to an Advance shall be for the account and risk of the Fund and shall not
be deemed to be a transaction undertaken by the Custodian for its own account
and risk. If such Advance shall have been made by a Subcustodian or any other
person, the Custodian may assign the security interest and any other rights
granted to the Custodian hereunder to such Subcustodian or other person. If the
Fund shall fail to repay when due the principal balance of an Advance and
accrued and unpaid interest thereon, the Custodian or its assignee, as the case
may be, shall be entitled to utilize the available cash balance in any Agency or
Principal Account and to dispose of any Investments to the extent necessary to
recover payment of all principal of, and interest on, such Advance in full. The
Custodian may assign any rights it has hereunder to a Subcustodian or third
party. Any security interest in Investments taken hereunder shall be treated as
financial assets credited to securities accounts under Articles 8 and 9 of the
Uniform Commercial Code as currently in effect in New York. Accordingly, the
Custodian shall have the rights and benefits of a secured creditor that is a
securities intermediary under such Articles 8 and 9.
7.7 Integrated Account. For purposes hereof, deposits maintained in
all Principal Accounts (whether or not denominated in United States Dollars)
shall collectively constitute a single and indivisible current account with
respect to the Fund's obligations to the Custodian, or its assignee,
and balances in such Principal Accounts shall be available for satisfaction
of the Fund's obligations under this Section 7. The Custodian shall further
have a right of offset against the balances in any Agency Account maintained
hereunder to the extent that the aggregate of all Principal Accounts is
overdrawn.
8. Subcustodians and Securities Depositories. Subject to the provisions
hereinafter set forth in this Section 8, the Fund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of the Fund and to
appoint from time to time and to utilize Subcustodians. With respect to
securities and funds held by a Subcustodian, either directly or indirectly
(including by a Securities Depository or Clearing Corporation), notwithstanding
any provisions of this Agreement to the contrary, payment for securities
purchased and delivery of securities sold may be made prior to receipt of
securities or payment, respectively, and securities or payment may be received
in a form, in accordance with (a) governmental regulations, (b) rules of
Securities Depositories and clearing agencies, (c) generally accepted trade
practice in the applicable local market, (d) the terms and characteristics of
the particular Investment, or (e) the terms of Instructions.
8.1 Domestic Subcustodians and Securities Depositories. The Custodian
may deposit and/or maintain, either directly or through one or more agents
appointed by the Custodian, Investments of the Fund in any Securities Depository
in the United States, including The Depository Trust Company, provided such
Depository meets applicable requirements of the Federal Reserve Bank or of the
Securities and Exchange Commission. The Custodian may, at any time and from time
to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940 Act and the
rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian
for purposes of holding Investments of the Fund in the United States.
8.2 Foreign Subcustodians and Securities Depositories. The Custodian
may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S.
Securities Depository provided such Securities Depository meets the requirements
of an "eligible foreign custodian" under Rule 17f-5 promulgated under the 1940
Act, or any successor rule or regulation ("Rule 17f-5") or which by order of the
Securities and Exchange Commission is exempted therefrom. Additionally, the
Custodian may, at any time and from time to time, appoint (a) any bank, trust
company or other entity meeting the requirements of an Eligible Foreign
Custodian under Rule 17f-5 or which by order of the Securities and Exchange
Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a Subcustodian for purposes of holding Investments of the Fund outside
the United States. Such appointment of foreign Subcustodians shall be subject to
approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2.
8.2.1 Board Approval of Foreign Subcustodians. Unless and
except to the extent that review of certain matters concerning the
appointment of Subcustodians shall have been delegated to the Custodian
pursuant to Subsection 8.2.2, the Custodian shall, prior to the
appointment of any Subcustodian for purposes of holding Investments of
the Fund outside the United States, obtain written confirmation of the
approval of the Board of Trustees or Directors of the Fund with respect
to (a) the identity of a Subcustodian, (b) the country or countries in
which, and the Securities Depositories, if any, through which, any
proposed Subcustodian is authorized to hold Investments of the Fund,
and (c) the Subcustodian agreement which shall govern such appointment.
Each such duly approved country, Subcustodian and Securities Depository
shall be listed on Appendix A attached hereto as the same may from time
to time be amended.
8.2.2 Delegation of Board Review of Subcustodians. From time
to time, the Custodian may offer to perform, and the Fund may accept to
perform, that the Custodian perform certain reviews of Subcustodians
and of Subcustodian Contracts as delegate of the Fund's Board. Any such
duties shall be established by separate agreement.
8.3 Responsibility for Subcustodians. Except as set forth in the
following sentence, the Custodian shall be liable to the Fund for any loss or
damage to the Fund caused by or resulting from the acts or omissions of any
Subcustodian to the extent that such acts or omissions would be deemed to be
negligence, gross negligence or willful misconduct in accordance with the terms
of the relevant subcustodian agreement under the laws, circumstances and
practices prevailing in the place where the act or omission occurred. In the
countries indicated in Exhibit [ ] to this Agreement, the liability of the
Custodian shall be subject to the additional condition that the Custodian
actually recovers such loss or damage from the Subcustodian and shall be limited
to the amount of such recovery.
8.4 New Countries. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Subcustodian is authorized to act in order that the
Custodian shall, if it deems appropriate to do so, have sufficient time to
establish a subcustodial arrangement in accordance herewith. In the event,
however, the Custodian is unable to establish such arrangements prior to the
time such investment is to be acquired, the Custodian is authorized to designate
at its discretion a local safekeeping agent, and the use of such local
safekeeping agent shall be at the sole risk of the Fund, and accordingly the
Custodian shall be responsible to the Fund for the actions of such agent if and
only to the extent the Custodian shall have recovered from such agent for any
damages caused the Fund by such agent.
9. Responsibility of the Custodian. In performing its duties and obligations
hereunder, the Custodian shall use reasonable care under the facts and
circumstances prevailing in the market where performance is effected. Subject to
the specific provisions of this Section, the Custodian shall be liable for any
direct damage incurred by the Fund in consequence of the Custodian's negligence,
bad faith or willful misconduct. In no event shall the Custodian be liable
hereunder for any special, indirect, punitive or consequential damages arising
out of, pursuant to or in connection with this Agreement even if the Custodian
has been advised of the possibility of such damages. It is agreed that the
Custodian shall have no duty to assess the risks inherent in the Fund's
Investments or to provide investment advice with respect to such Investments and
that the Fund as principal shall bear any risks attendant to particular
Investments such as failure of counterparty or issuer.
9.1 Limitations of Performance. The Custodian shall not be responsible
under this Agreement for any failure to perform its duties, and shall not liable
hereunder for any loss or damage in association with such failure to perform,
for or in consequence of the following causes:
9.1.1 Force Majeure. Force Majeure shall mean any circumstance
or event which is beyond the reasonable control of the Custodian, a
Subcustodian or any agent of the Custodian or a Subcustodian and which
adversely affects the performance by the Custodian of its obligations
hereunder, by the Subcustodian of its obligations under its Subcustody
Agreement or by any other agent of the Custodian or the Subcustodian,
including any event caused by, arising out of or involving (a) an act
of God, (b) accident, fire, water damage or explosion, (c) any
computer, system or other equipment failure or malfunction caused by
any computer virus or the malfunction or failure of any communications
medium, (d) any interruption of the power supply or other utility
service, (e) any strike or other work stoppage, whether partial or
total, (f) any delay or disruption resulting from or reflecting the
occurrence of any Sovereign Risk, (g) any disruption of, or suspension
of trading in, the securities, commodities or foreign exchange markets,
whether or not resulting from or reflecting the occurrence of any
Sovereign Risk, (h) any encumbrance on the transferability of a
currency or a currency position on the actual settlement date of a
foreign exchange transaction, whether or not resulting from or
reflecting the occurrence of any Sovereign Risk, or (i) any other cause
similarly beyond the reasonable control of the Custodian.
9.1.2 Country Risk. Country Risk shall mean, with respect to
the acquisition, ownership, settlement or custody of Investments in a
jurisdiction, all risks relating to, or arising in consequence of,
systemic and market factors affecting the acquisition, payment for or
ownership of Investments including (a) the prevalence of crime and
corruption, (b) the inaccuracy or unreliability of business and
financial information, (c) the instability or volatility of banking and
financial systems, or the absence or inadequacy of an infrastructure to
support such systems, (d) custody and settlement infrastructure of the
market in which such Investments are transacted and held, (e) the acts,
omissions and operation of any Securities Depository, (f) the risk of
the bankruptcy or insolvency of banking agents, counterparties to cash
and securities transactions, registrars or transfer agents, and (g) the
existence of market conditions which prevent the orderly execution or
settlement of transactions or which affect the value of assets.
9.1.3 Sovereign Risk. Sovereign Risk shall mean, in respect of
any jurisdiction, including the United States of America, where
Investments is acquired or held hereunder or under a Subcustody
Agreement, (a) any act of war, terrorism, riot, insurrection or civil
commotion, (b) the imposition of any investment, repatriation or
exchange control restrictions by any Governmental Authority, (c) the
confiscation, expropriation or nationalization of any Investments by
any Governmental Authority, whether de facto or de jure, (iv) any
devaluation or revaluation of the currency, (d) the imposition of
taxes, levies or other charges affecting Investments, (vi) any change
in the Applicable Law, or (e) any other economic or political risk
incurred or experienced.
9.2. Limitations on Liability. The Custodian shall not be liable for
any loss, claim, damage or other liability arising from the following causes:
9.2.1 Failure of Third Parties. The failure of any third party
including: (a) any issuer of Investments or book-entry or other agent
of any issuer; (b) any counterparty with respect to any Investment,
including any issuer of exchange-traded or other futures, option,
derivative or commodities contract; (c) failure of an Investment
Advisor, Foreign Custody Manager or other agent of the Fund; or (d)
failure of other third parties similarly beyond the control or choice
of the Custodian.
9.2.2 Information Sources. The Custodian may rely upon
information received from issuers of Investments or agents of such
issuers, information received from Subcustodians and from other
commercially reasonable sources such as commercial data bases and the
like, but shall not be responsible for specific inaccuracies in such
information, provided that the Custodian has relied upon such
information in good faith, or for the failure of any commercially
reasonable information provider.
9.2.3 Reliance on Instruction. Action by the Custodian or the
Subcustodian in accordance with an Instruction, even when such action
conflicts with, or is contrary to any provision of, the Fund's
declaration of trust, certificate of incorporation or by-laws,
Applicable Law, or actions by the trustees, directors or shareholders
of the Fund.
9.2.4 Restricted Securities. The limitations inherent in
the rights, transferability or similar investment characteristics
of a given Investment of the Fund.
10. Indemnification. The Fund hereby indemnifies the Custodian and each
Subcustodian, and their respective agents, nominees and their partners,
employees, officers and directors, and agrees to hold each of them harmless from
and against all claims and liabilities, including counsel fees and taxes,
incurred or assessed against any of them in connection with the performance of
this Agreement and any Instruction. If a Subcustodian or any other person
indemnified under the preceding sentence, gives written notice of claim to the
Custodian, the Custodian shall promptly give written notice to the Fund. Not
more than thirty days following the date of such notice, unless the Custodian
shall be liable under Section 8 hereof in respect of such claim, the Fund will
pay the amount of such claim or reimburse the Custodian for any payment made by
the Custodian in respect thereof.
11. Reports and Records. The Custodian shall:
11.1 create and maintain records relating to the performance of its
obligations under this Agreement;
11.2 make available to the Fund, its auditors, agents
and employees, during regular business hours of the Custodian, upon
reasonable request and during normal business hours of the Custodian,
all records maintained by the Custodian pursuant to paragraph (a)
above, subject, however, to all reasonable security requirements of the
Custodian then applicable to the records of its custody customers
generally; and
11.3 make available to the Fund all electronic
reports; it being understood that the Custodian shall not be liable
hereunder for the inaccuracy or incompleteness thereof or for errors in
any information included therein.
The Fund shall examine all records, howsoever produced or transmitted,
promptly upon receipt thereof and notify the Custodian promptly of any
discrepancy or error therein. Unless the Fund delivers written notice of any
such discrepancy or error within a reasonable time after its receipt thereof,
such records shall be deemed to be true and accurate. It is understood that the
Custodian now obtains and will in the future obtain information on the value of
assets from outside sources which may be utilized in certain reports made
available to the Fund. The Custodian deems such sources to be reliable but it is
acknowledged and agreed that the Custodian does not verify nor represent nor
warrant as to the accuracy or completeness of such information and accordingly
shall be without liability in selecting and using such sources and furnishing
such information.
12. Miscellaneous.
12.1 Proxies, etc. The Fund will promptly execute and deliver,
upon request, such proxies, powers of attorney or other instruments as may be
necessary or desirable for the Custodian to provide, or to cause any
Subcustodian to provide, custody services.
12.2 Entire Agreement. Except as specifically provided herein,
this Agreement constitutes the entire agreement between the Fund and the
Custodian with respect to the subject matter hereof. Accordingly, this Agreement
supersedes any custody agreement or other oral or written agreements heretofore
in effect between the Fund and the Custodian with respect to the custody of the
Fund's Investments.
12.3 Waiver and Amendment. No provision of this Agreement may
be waived, amended or modified, and no addendum to this Agreement shall be or
become effective, or be waived, amended or modified, except by an instrument in
writing executed by the party against which enforcement of such waiver,
amendment or modification is sought; provided, however, that an Instruction
shall, whether or not such Instruction shall constitute a waiver, amendment or
modification for purposes hereof, shall be deemed to have been accepted by the
Custodian when it commences actions pursuant thereto or in accordance therewith.
12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OF SUCH STATE. THE PARTIES
HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH
OF MANHATTAN.
12.5 Notices. Notices and other writings contemplated by this
Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first
class registered or certified mail, postage prepaid, return receipt requested,
(c) by a nationally recognized overnight courier or (d) by facsimile
transmission, provided that any notice or other writing sent by facsimile
transmission shall also be mailed, postage prepaid, to the party to whom such
notice is addressed. All such notices shall be addressed, as follows:
If to the Fund:
[
Attn: ]
Telephone: [ ]
Facsimile [ ]
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone: (617) 772-1818
Facsimile: (617) 772-2263,
or such other address as the Fund or the Custodian may from time to
time designate in writing to the other.
12.6 Headings. Paragraph headings included herein are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
12.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by the Fund and the Custodian.
12.8 Confidentiality. The parties hereto agree that each shall
treat confidentially the terms and conditions of this Agreement and all
information provided by each party to the other regarding its business and
operations. All confidential information provided by a party hereto shall be
used by any other party hereto solely for the purpose of rendering or obtaining
services pursuant to this Agreement and, except as may be required in carrying
out this Agreement, shall not be disclosed to any third party without the prior
consent of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach of this Agreement, or that is
required to be disclosed by or to any bank examiner of the Custodian or any
Subcustodian, any regulatory authority, any auditor of the parties hereto, or by
judicial or administrative process or otherwise by Applicable Law.
13. Definitions. The following defined terms will have the respective
meanings set forth below.
13.1 Advance shall mean any extension of credit by or through the
Custodian or by or through any Subcustodian and shall include amounts paid to
third parties for account of the Fund or in discharge of any expense, tax or
other item payable by the Fund.
13.2 Agency Account shall mean any deposit account opened on the books
of a Subcustodian or other banking institution in accordance with Section 7.1.
13.3 Agent shall have the meaning set forth in the last system of
Section 6.
13.4 Applicable Law shall mean with respect to each jurisdiction, all
(a) laws, statutes, treaties, regulations, guidelines (or their equivalents);
(b) orders, interpretations licenses and permits; and (c) judgments, decrees,
injunctions writs, orders and similar actions by a court of competent
jurisdiction; compliance with which is required or customarily observed in such
jurisdiction.
13.5 Authorized Person shall mean any person or entity authorized to
give Instructions on behalf of the Fund in accordance with Section 4.1.
13.6 Book-entry Agent shall mean an entity acting as agent for the
issuer of Investments for purposes of recording ownership or similar entitlement
to Investments, including without limitation a transfer agent or registrar.
13.7 Clearing Corporation shall mean any entity or system established
for purposes of providing securities settlement and movement and associated
functions for a given market.
13.8 Delegation Agreement shall mean any separate agreement entered
into between the Custodian and the Fund or its authorized representative with
respect to certain matters concerning the appointment and administration of
Subcustodians delegated to the Custodian pursuant to Rule 17f-5.
13.9 Foreign Custody Manager shall mean the Fund's foreign custody
manager appointed pursuant to Rule 17f-5 of the 1940 Act.
13.10 Funds Transfer Services Agreement shall mean any separate
agreement entered into between the Custodian and the Fund or its authorized
representative with respect to certain matters concerning the processing of
payment orders from Principal Accounts of the Fund.
13.11 Instruction(s) shall have the meaning assigned in Section 4.
13.12 Investment Advisor shall mean any person or entity who is an
Authorized Person to give Instructions with respect to the investment and
reinvestment of the Fund's Investments.
13.13 Investments shall mean any investment asset of the Fund,
including without limitation securities, bonds, notes, and debentures as well as
receivables, derivatives, contractual rights or entitlements and other
intangible assets.
13.14 Margin Account shall have the meaning set forth in Section 6.4
hereof.
13.15 Principal Account shall mean deposit accounts of the Fund
carried on the books of BBH&Co. as principal in accordance with Section 7.
13.16 Safekeeping Account shall mean an account established on the
books of the Custodian or any Subcustodian for purposes of segregating the
interests of the Fund (or clients of the Custodian or Subcustodian) from the
assets of the Custodian or any Subcustodian.
13.17 Securities Depository shall mean a central or book entry system
or agency established under Applicable Law for purposes of recording the
ownership and/or entitlement to investment securities for a given market.
13.18 Subcustodian shall mean each foreign bank appointed by the
Custodian pursuant to Section 8, but shall not include Securities Depositories.
13.19 Tri-Party Agreement shall have the meaning set forth in
Section 6.4 hereof.
13.20 1940 Act shall mean the Investment Company Act of 1940, as
amended.
14. Compensation. The Fund agrees to pay to the Custodian (a) a fee in an
amount set forth in the fee letter between the Fund and the Custodian in effect
on the date hereof or as amended from time to time, and (b) all out-of-pocket
expenses incurred by the Custodian, including the fees and expenses of all
Subcustodians, and payable from time to time. Amounts payable by the Fund under
and pursuant to this Section 14 shall be payable by wire transfer to the
Custodian at BBH&Co. in New York, New York.
15. Termination. This Agreement may be terminated by either party in
accordance with the provisions of this Section. The provisions of this Agreement
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
15.1 Notice and Effect. This Agreement may be terminated by
either party by written notice effective no sooner than seventy-five
days following the date that notice to such effect shall be delivered
to other party at its address set forth in paragraph 12.5 hereof.
15.2 Successor Custodian. In the event of the appointment of a
successor custodian, it is agreed that the Investments of the fund held
by the Custodian or any Subcustodian shall be delivered to the
successor custodian in accordance with reasonable Instructions. The
Custodian agrees to cooperate with the Fund in the execution of
documents and performance of other actions necessary or desirable in
order to facilitate the succession of the new custodian. If no
successor custodian shall be appointed, the Custodian shall in like
manner transfer the Fund's Investments in accordance with Instructions.
15.3 Delayed Succession. If no Instruction has been given as
of the effective date of termination, Custodian may at any time on or
after such termination date and upon ten days written notice to the
Fund either (a) deliver the Investments of the Fund held hereunder to
the Fund at the address designated for receipt of notices hereunder; or
(b) deliver any investments held hereunder to a bank or trust company
having a capitalization of $2 million United States Dollars equivalent
and operating under the Applicable law of the jurisdiction where such
Investments are located, such delivery to be at the risk of the Fund.
In the event that Investments or moneys of the Fund remain in the
custody of the Custodian or its Subcustodians after the date of
termination owing to the failure of the Fund to issue Instructions with
respect to their disposition or owing to the fact that such disposition
could not be accomplished in accordance with such Instructions despite
diligent efforts of the Custodian, the Custodian shall be entitled to
compensation for its services with respect to such Investments and
moneys during such period as the Custodian or its Subcustodians retain
possession of such items and the provisions of this Agreement shall
remain in full force and effect until disposition in accordance with
this Section is accomplished.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed as of the date first above written.
THE WORLD FUNDS INC.
By:_______________________________
By: BROWN BROTHERS HARRIMAN & CO.
By: ________________________________
T:\CUSTODY\WORLD FUNDS
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated , 1998, by
and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the THIRD MILLENNIUM RUSSIA FUND series (the
"Portfolio"), to perform certain recordkeeping and shareholder servicing
functions required of a duly registered investment company to comply with
certain provisions of federal, state and local law, rules and regulations, and,
as is required, to assist the Fund in preparing and filing certain financial
reports, and further to perform certain daily functions in connection with
on-going operations of the Fund and the Portfolio, and provide ministerial
services to implement the investment decisions of the Fund and the investment
advisor of the Portfolio, Third Millennium Investment Advisors LLC (the
"Advisor"); and
WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall examine and review all records and documents of
the Portfolio pertaining to its duties under this Agreement in order to
determine and/or recommend how such records and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the Fund
and its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from any
discrepancy in the information received by CSS and used in the performance by
CSS of its duties.
-2-
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of any
dividends or income and any other special actions required concerning each of
its securities.
CSS shall maintain such shareholder records above mentioned as required
by regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive from
the Fund's Transfer Agent daily reports of share purchases, redemptions, and
total shares outstanding, and shall be accountable for the information contained
in such reports of purchases and redemptions when received. It is agreed by the
parties that the net asset value per share of the Fund will be calculated in
accordance with Rule 22c-1 under the Investment Company Act of 1940 and as
otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.
Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.
Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's independent
auditors, or any other person authorized by the Fund or, upon demand, any
regulatory body as authorized by law or regulation, in any requested review of
the Fund's accounts and records but shall be reimbursed for all reasonable and
documented expenses and employee time invested in any such review outside of
routine and normal periodic reviews. Upon receipt from the Fund of any necessary
information, CSS shall assist the Fund in organizing necessary data for the
Fund's completion of any necessary tax returns, questionnaires, periodic reports
to shareholders and such other reports and information requests as the Fund and
CSS shall agree upon from time to time.
-3-
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS of
any changes in regulations or rules which might necessitate changes in the
Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon statements
of the Fund's lawyers, accountants and other persons believed by it in good
faith to be expert in matters upon which they are consulted, and CSS shall not
be liable for any actions taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof by
the Fund.
The Fund shall indemnify and hold CSS harmless from any and all
expenses, damages, claims, suits, liabilities, actions, demands and losses
whatsoever arising out of or in connection with any error, omission, inaccuracy
or other deficiency of any information provided to CSS by the Fund, or the
failure of the Fund to provide any information needed by CSS knowledgeably to
perform its functions hereunder. Also, the Fund shall indemnify and hold
harmless CSS from all claims and liabilities (including reasonable documented
expenses for legal counsel) incurred by or assessed against CSS in connection
with the performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that before
confessing any claim against it, CSS shall give the Fund reasonable opportunity
to defend against such claim in the name of the Fund or CSS or both.
Section 9. The Fund agrees to pay CSS compensation for its services and
to reimburse it for expenses, as set forth in the Schedule attached hereto, or
as shall be set forth in amendments
-4-
to such schedule approved by the Fund's Board of Directors and CSS.
Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or duties
on any holiday or other day of special observance on which CSS is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day on which both the Fund and CSS
are open. CSS will be open for business on days when the Fund is open for
business and/or as otherwise set forth in the Fund's Prospectuses and Statements
of Additional Information.
Section 11. Either the Fund or CSS may give written notice to the other
of the termination of this Agreement, such termination to take effect at the
time specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.
Section 12. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 14. This Agreement shall extend to and shall be binding
upon the parties hereto and their respective successors and
-5-
assigns; provided, however, that this Agreement shall not be assignable by the
Fund without the written consent of CSS, or by CSS without the written consent
of the Fund, authorized or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in person or by telephone, telegram, telecopy, or other
mechanical or documentary means lacking a signature, by a person or persons
believed in good faith by CSS to be a person or persons authorized by a
resolution of the Board of Directors of the Fund, to give Oral Instructions on
behalf of the Fund.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in original writing containing original signatures or a
copy of such document transmitted by telecopy including transmission of such
signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give Written
Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State
of Maryland.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
THE WORLD FUNDS, INC.
By:
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
President
-7-
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
THIRD MILLENNIUM RUSSIA FUND
Pursuant to Section 9 of the Administrative Services Agreement, dated ,
1998, by and between The World Funds, Inc. (the "Fund"), and Commonwealth
Shareholder Services, Inc. ("CSS"), the Third Millennium Russia Fund series of
the Fund shall pay CSS a fee calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at the
rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of $30 per
hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the rate of
0.2% per annum of the average daily net assets of the Third Millennium
Russia Fund series of the Fund, payable monthly, with a minimum fee of
$30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS, from the
assets of the Portfolio, for the Portfolio's proportionate share of
general expenses incurred for the Fund and for all expenses incurred by
the Portfolio individually. Such out-of-pocket expenses shall include,
but not be limited to: documented fees and costs of obtaining advice of
counsel or accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by the Fund;
any travel which may be required in the performance of its duties to
the Fund; and any other extraordinary expenses it may incur in
connection with its services to the Fund.
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement (the "Agreement") dated , 1998, by
and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the NEW MARKET FUND series (the "Portfolio"), to
perform certain recordkeeping and shareholder servicing functions required of a
duly registered investment company to comply with certain provisions of federal,
state and local law, rules and regulations, and, as is required, to assist the
Fund in preparing and filing certain financial reports, and further to perform
certain daily functions in connection with on-going operations of the Fund and
the Portfolio, and provide ministerial services to implement the investment
decisions of the Fund and the investment advisor of the Portfolio, Virginia
Management Investment Company (the "Manager"); and
WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall examine and review all records and documents of
the Portfolio pertaining to its duties under this Agreement in order to
determine and/or recommend how such records and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the Fund
and its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from any
discrepancy in the information received by CSS and used in the performance by
CSS of its duties.
-2-
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of any
dividends or income and any other special actions required concerning each of
its securities.
CSS shall maintain such shareholder records above mentioned as required
by regulation and as agreed upon between the Fund and CSS.
Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive from
the Fund's Transfer Agent daily reports of share purchases, redemptions, and
total shares outstanding, and shall be accountable for the information contained
in such reports of purchases and redemptions when received. It is agreed by the
parties that the net asset value per share of the Fund will be calculated in
accordance with Rule 22c-1 under the Investment Company Act of 1940 and as
otherwise directed by the Board of Directors of the Fund.
CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.
Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.
Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's independent
auditors, or any other person authorized by the Fund or, upon demand, any
regulatory body as authorized by law or regulation, in any requested review of
the Fund's accounts and records but shall be reimbursed for all reasonable and
documented expenses and employee time invested in any such review outside of
routine and normal periodic reviews. Upon receipt from the Fund of any necessary
information, CSS shall assist the Fund in organizing necessary data for the
Fund's completion of any necessary tax returns, questionnaires, periodic reports
to shareholders and such other reports and information requests as the Fund and
CSS shall agree upon from time to time.
-3-
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS of
any changes in regulations or rules which might necessitate changes in the
Fund's procedures.
Section 7. CSS may rely upon the advice of the Fund and upon statements
of the Fund's lawyers, accountants and other persons believed by it in good
faith to be expert in matters upon which they are consulted, and CSS shall not
be liable for any actions taken in good faith upon such statements.
Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof by
the Fund.
The Fund shall indemnify and hold CSS harmless from any and all
expenses, damages, claims, suits, liabilities, actions, demands and losses
whatsoever arising out of or in connection with any error, omission, inaccuracy
or other deficiency of any information provided to CSS by the Fund, or the
failure of the Fund to provide any information needed by CSS knowledgeably to
perform its functions hereunder. Also, the Fund shall indemnify and hold
harmless CSS from all claims and liabilities (including reasonable documented
expenses for legal counsel) incurred by or assessed against CSS in connection
with the performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that before
confessing any claim against it, CSS shall give the Fund reasonable opportunity
to defend against such claim in the name of the Fund or CSS or both.
Section 9. The Fund agrees to pay CSS compensation for its services and
to reimburse it for expenses, as set forth in the Schedule attached hereto, or
as shall be set forth in amendments
-4-
to such schedule approved by the Fund's Board of Directors and CSS.
Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or duties
on any holiday or other day of special observance on which CSS is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day on which both the Fund and CSS
are open. CSS will be open for business on days when the Fund is open for
business and/or as otherwise set forth in the Fund's Prospectuses and Statements
of Additional Information.
Section 11. Either the Fund or CSS may give written notice to the other
of the termination of this Agreement, such termination to take effect at the
time specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.
Section 12. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.
Notices to the Fund shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 14. This Agreement shall extend to and shall be binding
upon the parties hereto and their respective successors and
-5-
assigns; provided, however, that this Agreement shall not be assignable by the
Fund without the written consent of CSS, or by CSS without the written consent
of the Fund, authorized or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in person or by telephone, telegram, telecopy, or other
mechanical or documentary means lacking a signature, by a person or persons
believed in good faith by CSS to be a person or persons authorized by a
resolution of the Board of Directors of the Fund, to give Oral Instructions on
behalf of the Fund.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in original writing containing original signatures or a
copy of such document transmitted by telecopy including transmission of such
signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give Written
Instructions on behalf of the Fund.
The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State
of Maryland.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
THE WORLD FUNDS, INC.
By:
John Pasco, III
Chairman
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:
John Pasco, III
President
-7-
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
NEW MARKET FUND
Pursuant to Section 9 of the Administrative Services Agreement, dated ,
1998, by and between The World Funds, Inc. (the "Fund"), and Commonwealth
Shareholder Services, Inc. ("CSS"), the New Market Fund series of the Fund shall
pay CSS a fee calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at the
rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of $30 per
hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the rate of
0.2% per annum of the average daily net assets of the New Market Fund
series of the Fund, payable monthly, with a minimum fee of $30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS, from the
assets of the Portfolio, for the Portfolio's proportionate share of
general expenses incurred for the Fund and for all expenses incurred by
the Portfolio individually. Such out-of-pocket expenses shall include,
but not be limited to: documented fees and costs of obtaining advice of
counsel or accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by the Fund;
any travel which may be required in the performance of its duties to
the Fund; and any other extraordinary expenses it may incur in
connection with its services to the Fund.
<PAGE> 1
Law Offices
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8074
April 22, 1998
The World Funds, Inc.
Suite 223
1500 Forest Avenue
Richmond, Virginia 23226
Re: Legal Opinion-Securities Act of 1933
Ladies and Gentlemen:
We have examined the Articles of Incorporation (the "Articles") of The World
Funds, Inc. (the "Fund"), a series corporation organized under Maryland law, the
By-Laws of the Fund, the resolutions adopted by the Fund's Board of Directors
organizing the business of the Fund, and its proposed form of Share Certificates
(if any), all as amended to date, and the various pertinent corporate
proceedings we deem material. We have also examined the Notification of
Registration and the Registration Statements filed under the Investment Company
Act of 1940 (the "Investment Company Act") and the Securities Act of 1933 (the
"Securities Act"), all as amended to date, as well as other items we deem
material to this opinion.
The Fund is authorized by the Articles to issue five hundred million
(500,000,000) shares of common stock at a par value of $0.01 per share. The
Articles designated the Sand Hill Portfolio Manager Fund series of the Fund, and
authorized the issuance of fifty million (50,000,000) shares of common stock of
such series. Articles Supplementary also authorized the issuance of fifty
million (50,000,000) shares of common stock of the CSI Fixed Income Fund series,
and the issuance of fifty million (50,000,000) shares of common stock of the CSI
Equity Fund series. Finally, Articles Supplementary have now authorized the
issuance of fifty million (50,000,000) shares of common stock of the New Market
Fund series, and the issuance of fifty million (50,000,000) shares of common
stock of the Third Millenium Russia Fund series.
The Fund has filed with the U.S. Securities and Exchange Commission, a
registration statement under the Securities Act, which registration statement is
deemed to register an indefinite number of shares of the Fund pursuant to the
provisions of Rule 24f-2 under the Investment Company Act. You have advised us
that the Fund each year hereafter will timely file, a Notice pursuant to Rule
24f-2 perfecting the registration of the shares sold by the Fund during each
fiscal year during which such registration of an indefinite number of shares
remains in effect.
You have also informed us that the shares of the Fund have been, and will
continue to be, sold in accordance with the Fund's usual method of distributing
its registered shares, under which prospectuses are made available for delivery
to offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.
Based upon the foregoing information and examination, so long as the Fund
remains a valid and subsisting entity under the laws of Maryland, and the
registration of an indefinite number of shares of the Fund remains effective,
the authorized shares of the five series of the Fund identified above, when
issued for the consideration set by the Board of Directors pursuant to the
Articles, and subject to compliance with Rule 24f-2, will be legally
outstanding, fully-paid, and non-assessable shares, and the holders of such
shares will have all the rights provided for with respect to such holding by the
Articles and the laws of the State of Maryland.
We hereby consent to the use of this opinion, in lieu of any other, as an
exhibit to the Registration Statement of the Fund, along with any amendments
thereto, covering the registration of the shares of the Fund under the
Securities Act and the applications, registration statements or notice filings,
and amendments thereto, filed in accordance with the securities laws of the
several states in which shares of the Fund are offered, and we further consent
to reference in the registration statement of the Fund to the fact that this
opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: _______________________________________
Steven M. Felsenstein
8884
3
1
WORLD FUNDS, INC. - INDIVIDUAL RETIREMENT ACCOUNTS
SERVICE AGREEMENT
This Agreement is made as of the day of , 1998, between Brown Brothers
Harriman Trust Company ("BBHTC"), a trust company incorporated under New York
law having a place of business at 63 Wall Street, New York, New York 10005;
World Funds, Inc. ("World"), a Maryland corporation having its principal place
of business at 1500 Forrest Avenue, Suite 223, Richmond, Virginia 23229; and
Fund Services, Inc. ("FSI"), a Virginia corporation having its principal place
of business at 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229.
WHEREAS, World desires to retain BBHTC as custodian under World's model
Individual Retirement Account ("IRA") plan for exclusive investment in shares of
the World sponsored mutual fund (the "IRA Plan"); and
WHEREAS, FSI is the transfer agent for the Third Millennium Russia
Fund, hereinafter referred to as the "Fund", and any future funds established as
a series of World; and
WHEREAS, BBHTC wishes to retain FSI to provide administrative and
recordkeeping services for the IRA Accounts (as hereafter defined); and
WHEREAS, FSI, as the Fund's transfer agent, has agreed that it can, and
will, furnish the necessary administrative and recordkeeping services applicable
to the IRA Accounts on behalf of BBHTC; and
WHEREAS, the parties will establish in writing the standards for IRA
processing that will insure timely services on the terms hereinafter set forth.
Now, THEREFORE, in consideration of the respective undertakings and
consents set forth herein, and intending to be legally bound, the parties do
hereby agree as follows:
1. BBHTC will act as custodian under the terms of the Individual
Retirement Account Custodial Account Agreement, a copy of which is attached
hereto, as said agreement may from time to time hereafter be amended with
BBHTC's prior written consent (the "Custodial Account Agreement") for World's
IRA accounts which are invested exclusively in shares of the fund and for which
BBHTC is appointed the Custodian by the Depositor (as defined in the Custodian
Account Agreement, which term shall accordingly mean the individual depositor
identified in an IRA application) (The aforesaid accounts being hereinafter
referred to as the "IRA Accounts"). Under no circumstances shall BBHTC be
required to provide any other services to the IRA Accounts. BBHTC shall act as
such custodian under the terms of and with the benefit of this Service
Agreement.
2. BBHTC hereby designates FSI as its agent to service the IRA
Accounts. FSI agrees to perform the services set forth in this Service
Agreement, including in schedule A attached hereto, on behalf of BBHTC.
3. FSI is responsible for all recordkeeping with respect to the IRA
Plan and IRA Accounts, including existing and new IRA Accounts, all payment and
withdrawal activity, dividend processing, data changes and file maintenance and
the preparation, reporting and filing on behalf of, and with the consent and
review by, BBHTC of all informational tax returns and reports and all other
filing and reporting requirements imposed on a custodian pursuant to tax,
securities, labor, banking or any other applicable laws or regulations.
Without limiting the generality of the preceding paragraph,
FSI is responsible for the preparation and filing of all special tax reports
relating to IRA Plans and Accounts, for delivering to Depositors information as
to the withholding options available to holders of IRA Accounts and for
withholding and paying over to appropriate tax authorities any amounts to be
withheld in respect of any IRA Accounts.
Prior to filing or delivering any of the aforesaid documents to any
Depositors or to tax, securities, labor, banking or other applicable regulatory
authorities, FSI shall provide drafts of such documents to BBHTC for its
examination, it being understood that this requirement shall not, however, in
any way reduce FSI's responsibility for the accuracy and completeness of such
documents and their compliance with all applicable laws and regulations relating
thereto.
Upon request of BBHTC, FSI shall confirm in writing to BBHTC, from time
to time, performance by FSI of its aforesaid responsibilities, including
compliance with all such filing and reporting requirements, and FSI shall make
such records available to BBHTC from time to time as BBHTC shall request, in
order to allow BBHTC to satisfy itself as to such performance and compliance as
well as compliance with sound auditing practices. FSI also agrees to provide at
its expense to BBHTC not less frequently than annually an audit of compliance of
the IRA Plan and IRA Accounts with all recordkeeping, reporting and filing
requirements imposed by applicable laws or regulations, such audit to be
performed by an accounting firm satisfactory to BBHTC.
4. World is responsible for preparing and maintaining up to date,
including in connection with any changes in applicable law or regulation, the
Individual Retirement Account Disclosure Statement and the Custodial Account
Agreement and any other documentation pursuant to which the IRA Plan or the IRA
Accounts have been or shall be established, as well as all prospectuses,
statements of additional information, registration statements and other
materials provided to shareholders of the Funds generally, including to the
Depositors. World is responsible for distribution to the Depositors of
prospectuses, statements of additional information, registration statements and
other materials to be provided to shareholders of the Funds generally, including
to new or existing Depositors.
World shall promptly notify BBHTC and FSI in writing of any amendments
and/or modifications to the IRA Plan documents and promptly provide both BBHTC
and FSI with copies of the same. World shall also promptly deliver to BBHTC and
FSI copies of any and all annual or semiannual reports for the Fund or other
communications or documents generally distributed to shareholders of the Fund,
as well as copies of all prospectuses, statements of additional information,
registration statements and amendments thereto relating to the Fund.
5. FSI agrees to fully indemnify, protect and hold harmless BBHTC from
and against any and all losses, damages, costs, expenses, claims liabilities and
responsibilities of whatever kind and nature, including reasonable attorney's
fees and costs, which BBHTC may suffer or incur arising from FSI's failure to
perform its duties under this Agreement or FSI's failure to perform its duties
under any other agreement or document relating to the IRA Plan or the IRA
Accounts (collectively referred to as "FSI-Caused Losses"), including FSI-Caused
Losses which BBHTC may suffer or incur arising from BBHTC's performance
hereunder as custodian of the IRA Accounts (except in respect of BBHTC's
negligence or willful default), such as but not limited to responsibilities
imposed by law on BBHTC as custodian or liabilities incurred in respect of the
inaccuracy or incompleteness of, or the misstatement of material fact or failure
to state a material fact in noncompliance with applicable law or regulation of,
any IRA Plan documents, IRA Account documents or tax or informational returns,
or other documents delivered or required to be delivered to Depositors.
Without limiting the foregoing in any way, FSI agrees that it shall
maintain in effect errors and omissions insurance in the amount of One Million
($1,000,000) Dollars during the term of this Agreement and any renewals hereof.
FSI shall at least annually provide BBHTC with written proof that such insurance
is in effect.
FSI hereby agrees to fully indemnify, protect and hold harmless World
from and against any and all losses, damages, costs, expenses, claims,
liabilities and responsibilities of whatever kind and nature, including
reasonable attorney's fees and costs, which World may suffer or incur arising
from World's obligation under Section 6 of this Agreement to fully indemnify,
protect and hold harmless BBHTC under certain circumstances as stated in said
Section 6 from and against any and all FSI-Caused Losses.
6. World agrees to fully indemnify, protect and hold harmless BBHTC
from and against any and all losses, damages, costs, expenses, claims,
liabilities and responsibilities of whatever kind and nature, including
reasonable attorney's fees and costs, which BBHTC may suffer or incur arising
from World's failure to perform its duties under this agreement or World's
failure to perform its duties under any other agreement or document relating to
the IRA Plan or the IRA Accounts (collectively referred to as "World-Caused
Losses"), including World-Caused Losses which BBHTC may suffer or incur arising
from BBHTC's performance hereunder or under the Custodial Account Agreement or
its status as custodian of the IRA Accounts (except in respect of BBHTC's
negligence or willful default), such as but not limited to responsibilities
imposed by law on BBHTC as custodian or liabilities incurred in respect of the
inaccuracy or incompleteness of, or the misstatement of material fact or failure
to state a material fact in, or non compliance with applicable law or regulation
of any IRA Plan documents, IRA Account documents or tax or informational
returns, or World or Fund prospectus, statements of additional information,
registration statements or other documents delivered or required to be delivered
to Depositors.
7. FSI shall promptly deliver to BBHTC copies of all written
correspondence received by FSI from the Securities and Exchange Commission, the
Internal Revenue Service or any other government agencies regarding any act,
transaction, duty or failure to perform any act or duty which is the subject
matter of or is related to the IRA Accounts, this Agreement or the performance
thereof.
8. FSI shall promptly deliver to BBHTC copies of any letters or correspondence
concerning FSI's performance or responsibilities under this Agreement received
by FSI from its independent accountants who audit or review FSI's books and
records or from any depositor.
9. As compensation for its custodial services for the IRA Accounts,
BBHTC will receive from each Depositor an annual maintenance fee of $20.00 per
fund account, per year. This fee will remain in effect for a three- (3) year
period and thereafter may be increased upon thirty days' notice from BBHTC to
World.
10. For its services to BBHTC under this Agreement, FSI shall be
entitled to retain from the aforesaid annual maintenance fee $10.00 per fund
account, per year. Reimbursement for forms, postage and other out-of-pocket
expenses incurred by FSI in executing its responsibilities under this agreement
will be billable to the Fund as a expense incurred on behalf of BBHTC chargeable
to the Fund.
11. FSI agrees to collect the published annual maintenance fees from
the Depositors (pursuant to paragraph 10 above) and to remit to BBHTC the net
amount due BBHTC (after deduction of the fee due FSI pursuant to paragraph 11)
within ten (10) business days after the end of each month in which such fees are
collected. The annual maintenance fees will ordinarily be collected during the
month of September and remitted to BBHTC in October. Fees from a complete
distribution, exchange or roll-over/transfer, or similar transaction, will be
collected as part of the transaction processing and remitted within ten (10)
business days after the end of the month in which the transaction occurred.
12. This Agreement may be terminated by any party, without prejudice to
any obligations or liabilities of a party which have arisen prior to or relate
to a period prior to termination, upon thirty days' prior written notice to the
other parties, provided that if termination is by FSI or World and BBHTC so
advises them within said thirty-day period, termination of this Agreement shall
not become effective until, and shall occur simultaneously with, termination of
BBHTC's position as custodian for the IRA Accounts provided that BBHTC shall
promptly notify the Depositors of its determination to cease acting as a
custodian.
This Agreement may not be amended except by written agreement executed
by all of the parties hereto. No provision of this Agreement shall be deemed
waived unless said waiver is evidenced by a writing executed by the party to be
bound.
13. The books, records, information and operations of FSI under this
Agreement shall be subject to inspection or audit by BBHTC, its independent
auditors, its agents and appropriate supervisory authorities, including the
National Association of Securities Dealers and the Securities and Exchange
Commission.
14. As of the end of each calendar month, FSI will promptly supply a
report to BBHTC as to the account number, short name, tax ID number, blue sky
state, number of shares held, in this fund, and value of each IRA Account closed
during the month, as well as the total activity for the month.
In addition, as of June 30th and December 31st, FSI will promptly
supply a similar report for the six months ended that date, provided that the
six-month report shall include the full name and address of each IRA Account.
15. This Agreement shall be governed by and construed in accordance
with the law of the State of New York, without giving effect to conflicts of
laws principles.
16. All notices, requests, consents and other communications pursuant
to this Agreement shall be in writing and shall be deemed to have been given
when sent by first class mail, or by personal delivery.
(a) Notices to World shall be addressed to:
World Funds, Inc.
1500 Forrest Avenue
Suite 223
Richmond, VA 23229
Attention: John Pasco, III, Chairman
(b) Notices to FSI shall be directed to:
Fund Services, Inc.
1500 Forrest Avenue
Suite 111
Richmond, VA 23229
Attention: William R. Carmichael, President
(c) Notices to BBHTC shall be directed to:
Brown Brothers Harriman Trust Company
63 Wall Street
New York, NY 10005
Attention: Gerard F. Joyce, Jr.
With a copy to:
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Attention: Manager, Securities Department
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered by their proper officers as of the day and year
first above written.
ATTEST: WORLD FUNDS, INC.
- ------------------------- ------------------------------
FUND SERVICES, INC.
- ------------------------- ------------------------------
William R. Carmichael
President
Brown Brothers Harriman Trust Company
- ------------------------- -------------------------------
Gerard F. Joyce, Jr.
<PAGE>
SCHEDULE A
SERVICES TO BE PERFORMED BY FUND SERVICES, INC.
FOR RETIREMENT PLAN ACCOUNTS OF
WORLD FUNDS, INC.
Account Processing:
Opening new accounts
Processing all payments, including transfers and rollovers Issuing and
cancelling certificates Processing partial and complete redemptions and
systematic
withdrawal plans
Regular and legal transfers of accounts
Mailing applicable reports, prospectus and proxies
Processing dividends and capital gain distributions annually, if any.
This includes mailing of cash dividends and/or preparing
statements to Depositors for reinvested distributions
TEFRA withholdings, as applicable
Blue Sky Reports. This includes shares sold to Depositors in
various states
Establish and maintain dealer file
Wire order services
Create purchase or redemption trade confirmations Provide
reports on status of trades Cashier payments received Post
trades to Depositor accounts to include any
dividends due
Sell shares to collect unpaid IRA maintenance fees
Advise Depositors of withdrawal requirements necessary to avoid tax
penalties
Account Maintenance/Tax Reporting
1. Maintaining Depositor records of certificate and whole and fractional
unissued ("Book") shares.
2. Changing Depositors' addresses.
3. Daily or periodic reports on numbers of shares, accounts, etc.
4. Addressing and tabulating annual proxy cards.
5. Supplying an annual stockholder list.
6. Preparation and reporting of federal tax information (1099 DIV, 1099R,
W-2P, 5498, and 1042S as appropriate) to Depositors and IRS.
7. Issuance of year end annual valuation confirmations for IRA accounts.
8. Replying to Depositor correspondence other than that for Fund-related
inquiries.
<PAGE>
-4-
THE WORLD FUNDS, INC.
Distribution Plan
Of
THIRD MILLENNIUM RUSSIA FUND
This Plan of Distribution (the "Plan") has been adopted
pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act") by The World Funds, Inc. (the "Fund") for the Class B
shares of the Fund's Third Millennium Russia Fund series (the "Series"). The
Plan has been approved by a majority of the Fund's Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan (the
"12b-1 Directors"), by votes cast in person at a meeting called for the purpose
of voting on the Plan.1 The Fund contemplates that the Plan shall operate as a
compensation Plan.
The Plan provides that:
1. Subject to the limits on payments under the Plan set forth
herein, or in any annual budget approved by the Fund and the Distributor, the
Fund shall pay to the Distributor, or others through the Distributor, the
amounts called for under the Plan. Such payments shall be applied by the
Distributor for all expenses incurred by such parties in the promotion and
distribution of the Series' shares. For this purpose, expenses authorized under
the Plan include, but are not limited to, printing of prospectuses and reports
used for sales purposes, expenses of preparation of sales literature and related
expenses, advertisements, salaries and benefits of employees involved in sales
of shares, telephone expenses, meeting and space rental expenses, underwriter's
spreads, interest charges on funds used to finance activities under this Plan,
and other distribution-related expenses, as well as any service fees paid to
securities dealers or others who have executed an agreement with the Fund or its
affiliates.
2. The following agreements are deemed to be "agreements under
the Plan" and the form of each such agreement, and any material amendments
thereto, shall be approved as required under the Rule:
a. Any Distribution Agreement between the Fund and its National
Distributor, or any other distributor of shares in privity
with the Fund.
b. The National Distributor's Selling Dealer Agreement.
Purchase orders for goods and services acquired from persons who are not
affiliates of the Fund are not deemed to be agreements under this Plan.
3. The maximum aggregate amount which may be reimbursed by the
Fund under this Plan is 0.25% per annum of the average daily net assets of the
Series' shares. The amount so paid shall be accrued daily, and payment thereon
shall be made monthly by the Fund.
4. It is anticipated that amounts paid by the Fund under this
Plan shall be used to pay service and maintenance fees for shareholder servicing
and maintenance of shareholder accounts by other providers.
5. The Distributor shall collect and disburse payments made
under this Plan, and shall furnish to the Board of Directors of the Fund for its
review on a quarterly basis, a written report of the monies reimbursed to the
Distributor and others under the Plan, and shall furnish the Board of Directors
of the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan in order to enable the Board to
make an informed determination of whether the Plan should be continued.
6. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically approved at least
annually by the Fund's Board of Directors, including the non-interested
Directors, cast in person at a meeting called for the purpose of voting on the
Plan.
7. The Plan, or any agreements entered into pursuant to the
Plan, may be terminated at any time, without penalty, by vote of a majority of
the outstanding voting securities of the Fund, or by vote of a majority of the
non-interested Directors, on not more than sixty (60) days' written notice, and
shall terminate automatically in the event of any act that constitutes an
assignment of the management agreement between the Fund and the Fund's
investment adviser.
8. The Plan and any agreements entered into pursuant to the
Plan may not be amended to increase materially the amount to be spent by the
Fund for distribution pursuant to paragraph 3 of this Plan without approval by a
majority of the Fund's outstanding voting securities.
9. All material amendments to the Plan, or any agreements
entered into pursuant to the Plan, shall be approved by the Board, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on any such amendment.
10. So long as the Plan is in effect, the selection and
nomination of the Fund's 12b-1 Directors shall be committed to the discretion of
such 12b-1 Directors.
11. This Plan shall take effect on the ___ day of
_____, 1998.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Fund and the Distributor as evidenced by their
execution hereof.
The World Funds, Inc.
By:
First Dominion Capital Corp.
By:
1 In its consideration of the Plan, the Board of Directors considered the
proposed schedule and nature of payments under the Plan. The Board of Directors
concluded that the proposed reimbursement of the Company's principal
underwriter, First Dominion Capital Corp. (the "Distributor"), for distribution
expenses under the Plan is fair and not excessive. Accordingly, the Board
determined that the Plan should provide for such reimbursement and that adoption
of the Plan would be prudent and in the best interests of the Fund and the
Series' shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the Fund,
the Series and the Series' shareholders. <PAGE>
-3-
THE WORLD FUNDS, INC.
Distribution Plan
Of
THE NEW MARKET FUND
This Plan of Distribution (the "Plan") has been adopted
pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act") by The World Funds, Inc. (the "Fund") for the shares of
the Fund's New Market Fund series (the "Series"). The Plan has been approved by
a majority of the Fund's Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan (the "12b-1
Directors"), by votes cast in person at a meeting called for the purpose of
voting on the Plan.1 The Fund contemplates that the Plan shall operate as a
compensation Plan.
The Plan provides that:
1. Subject to the limits on payments under the Plan set forth
herein, or in any annual budget approved by the Fund and the Distributor, the
Fund shall pay to the Distributor, or others through the Distributor, the
amounts called for under the Plan. Such payments shall be applied by the
Distributor for all expenses incurred by such parties in the promotion and
distribution of the Series' shares. For this purpose, expenses authorized under
the Plan include, but are not limited to, printing of prospectuses and reports
used for sales purposes, expenses of preparation of sales literature and related
expenses, advertisements, salaries and benefits of employees involved in sales
of shares, telephone expenses, meeting and space rental expenses, underwriter's
spreads, interest charges on funds used to finance activities under this Plan,
and other distribution-related expenses, as well as any service fees paid to
securities dealers or others who have executed an agreement with the Fund or its
affiliates.
2. The following agreements are deemed to be "agreements under
the Plan" and the form of each such agreement, and any material amendments
thereto, shall be approved as required under the Rule:
a. Any Distribution Agreement between the Fund and its National
Distributor, or any other distributor of shares in privity
with the Fund.
b. The National Distributor's Selling Dealer Agreement.
Purchase orders for goods and services acquired from persons who are not
affiliates of the Fund are not deemed to be agreements under this Plan.
3. The maximum aggregate amount which may be reimbursed by the
Series under this Plan is 0.50% per annum of the average daily net assets of the
Series' shares. The amount so paid shall be accrued daily, and payment thereon
shall be made monthly by the Fund.
4. It is anticipated that amounts paid by the Series under
this Plan shall be used to pay service and maintenance fees for shareholder
servicing and maintenance of shareholder accounts by other providers.
5. The Distributor shall collect and disburse payments made
under this Plan, and shall furnish to the Board of Directors of the Fund for its
review on a quarterly basis, a written report of the monies reimbursed to the
Distributor and others under the Plan, and shall furnish the Board of Directors
of the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan in order to enable the Board to
make an informed determination of whether the Plan should be continued.
6. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically approved at least
annually by the Fund's Board of Directors, including the non-interested
Directors, cast in person at a meeting called for the purpose of voting on the
Plan.
7. The Plan, or any agreements entered into pursuant to the
Plan, may be terminated at any time, without penalty, by vote of a majority of
the outstanding voting securities of the Fund, or by vote of a majority of the
non-interested Directors, on not more than sixty (60) days' written notice, and
shall terminate automatically in the event of any act that constitutes an
assignment of the management agreement between the Fund and the Fund's
investment manager.
8. The Plan and any agreements entered into pursuant to the
Plan may not be amended to increase materially the amount to be spent by the
Series for distribution pursuant to paragraph 3 of this Plan without approval by
a majority of the Fund's outstanding voting securities.
9. All material amendments to the Plan, or any agreements
entered into pursuant to the Plan, shall be approved by the Board, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on any such amendment.
10. So long as the Plan is in effect, the selection and
nomination of the Fund's 12b-1 Directors shall be committed to the discretion
of such 12b-1 Directors.
11. This Plan shall take effect on the ___ day of
_____, 1998.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Fund and the Distributor as evidenced by their
execution hereof.
The World Funds, Inc.
By:
First Dominion Capital Corp.
By:
1 In its consideration of the Plan, the Board of Directors considered the
proposed schedule and nature of payments under the Plan. The Board of Directors
concluded that the proposed reimbursement of the Company's principal
underwriter, First Dominion Capital Corp. (the "Distributor"), for distribution
expenses under the Plan is fair and not excessive. Accordingly, the Board
determined that the Plan should provide for such reimbursement and that adoption
of the Plan would be prudent and in the best interests of the Fund and the
Series' shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the Fund,
the Series and the Series' shareholders. <PAGE>
