THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223 * P.O. BOX 8687 * RICHMOND, VA 23229
(804) 285-8211 (800) 527-9525 FAX (804) 285-8251
September 25, 1998
VIA EDGAR
Filing Desk
U.S. Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: The World Funds, Inc.
File Number 333-29289
Filed Pursuant to Rule 497(c)
Gentlemen:
Transmitted herewith for electronic filing on behalf of The World Funds,
Inc. (the "Funds"), please find enclosed, pursuant to Rule 497(c) under the
Securities Act of 1933, as amended, a copy of the Prospectus and Statement of
Additional Information of the Fund dated September 21, 1998 for The New Market
Fund.
Should you have any questions, regarding the filing of such documents,
please call the undersigned.
Sincerely,
/s/John Pasco, III
John Pasco, III
13
THE NEW MARKET FUND
A PORTFOLIO OF
THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS
Suite 223 September 21, 1998
Richmond, Virginia 23229
Telephone: 1-800-673-0550
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 September 21, 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 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 1-800-673-0550. 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 Fee 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 $47 $88
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 September 21, 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 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 September 21, 1998. Stephen Goddard is the
President and principal shareholder of the Investment Advisor and is portfolio
manager of the Fund. Mr. Goddard is also a director and shareholder of the
Manager.
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 Agreement. 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 Agreement 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 Agent - 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 August 19, 1997, 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
Intention 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 New
Market 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 1-800-673-0550.
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.
;~?;
THE WORLD FUNDS, INC.
THE NEW MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 21, 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 September 21,
1998. It should be read in conjunction with the Prospectus, and has been
designed to provide you with further information which is not contained in the
Prospectus. The Fund's Prospectus may be obtained at no charge upon request to
the 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
<PAGE>
-2-
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.
*Jane H. 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.
*John T. 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 September 21, 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 September 21, 1998. Stephen Goddard is the President and
principal shareholder of the Investment Advisor and is portfolio manager of the
Fund. Mr. Goddard is also a director and shareholder of the Manager.
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 DealerDiscount
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) 776-5455 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 1-800-673-0550. 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
