WORLD FUNDS INC /MD/, POS AMI, 1998-12-30

WORLD FUNDS INC /MD/
POS AMI, 1998-12-30

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As filed with the Securities and Exchange Commission on December 30, 1998
File Nos. 333-29289 and 811-8255

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5 X
(check appropriate box or boxes)

THE WORLD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

1500 Forest Avenue, Suite 223, Richmond, VA 23229
(address of Principal Executive Offices: (Zip Code)

Registrant's Telephone Number, including Area Code (804) 285-8211

John Pasco, III, 1500 Forest Ave., Suite 223, Richmond, VA 23229
(Name and Address of Agent for Service)

Please send copies of communications to
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098

It is proposed that this filing will become effective immediately upon filing as
a filing solely under Section 8(b) of the Investment Company Act of 1940, as
amended.

<PAGE>

CSI EQUITY FUND
AND
CSI FIXED INCOME FUND
PORTFOLIOS OF
THE WORLD FUNDS, INC.A "SERIES" INVESTMENT COMPANY

1500 Forest Avenue PART A OF FORM N-1A
Suite 223 Dated December 30, 1998
Richmond, Virginia 23229
Telephone: 1-800-527-9525

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TABLE OF CONTENTS Page
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ITEMS 1, 2 AND 3. NOT APPLICABLE
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES,
AND RELATED RISKS
CSI EQUITY FUND
CSI FIXED INCOME FUND
INVESTMENT RISKS
ITEM 5. NOT APPLICABLE
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
THE COMPANY'S MANAGEMENT
ITEM 7. SHAREHOLDER INFORMATION
HOW NET ASSET VALUE IS DETERMINE
HOW TO INVEST
HOW TO REDEEM SHARE
HOW TO TRANSFER SHARES
ACCOUNT STATEMENTS AND SHAREHOLDER REPORT
SPECIAL SHAREHOLDER SERVICES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
ITEM 8. DISTRIBUTION ARRANGEMENTS
ITEM 9. NOT APPLICABLE
GENERAL INFORMATION ABOUT THE COMPANY
TO OBTAIN MORE INFORMATION
</TABLE>

<PAGE>
Items 1, 2 and 3. Not Applicable.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks

CSI EQUITY FUND

Investment Objective. The investment objective of the Equity Fund is to
achieve 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. In seeking to meet its
objective, the Fund will invest on a global basis.

Investment Policies. 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 will not be limited to investing in the securities
of companies of any particular size, or to securities traded in any particular
market. The Fund will invest its assets on a global basis to take advantage of
investment opportunities both within the U.S. and abroad. The foreign securities
which the Fund purchases may be bought directly in their principal markets or
may be acquired through the use of depository receipts. The Fund may invest in
sponsored and unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), and other similar depositary receipts. ADRs are
issued by an American bank or trust company and evidence ownership of underlying
securities of a foreign company. EDRs are issued in Europe, usually by foreign
banks, and evidence ownership of either foreign or domestic underlying
securities. Unsponsored ADRs and EDRs are issued without the participation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current as for sponsored ADRs and EDRs.

The Fund may purchase and sell currencies to facilitate securities
transactions and may enter into forward currency contracts to hedge against
changes in currency exchange rates. A forward transaction may minimize the risk
of loss due to a decline in the value of the hedged currency, but it may also
limit any potential gain which might result from an increase in the value of the
currency. Besides these transactions, the Fund generally will not attempt to
protect against potential changes in exchange rates.

Temporary Defensive Posture. When the Advisor believes that investments
should be deployed in a temporary defensive posture because of economic or
market conditions, the Fund may invest up to 100% of its assets in U.S.
Government securities (such as bills, notes, or bonds of the U.S. Government and
its agencies) or other forms of indebtedness such as bonds, certificates of
deposits or repurchase agreements (for the risks involved in investing in
repurchase agreements, see the Statement of Additional Information). When the
Fund is in a temporary defensive position, it is not pursuing its stated
investment policies. The Advisor 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.

All investments entail some risks and there is no assurance that the
investment objective of a Fund can be achieved. See "Investment Risks" below.

CSI FIXED INCOME FUND

Investment Objective. The Fixed Income Fund seeks current income by
investing in debt securities. The Fund seeks to achieve its objective by
investing in obligations issued or guaranteed by the U.S. Government, its
agencies, authorities, and instrumentalities ("U.S. Government Securities"),
municipal securities, corporate debt securities, zero coupon bonds, as well as
obligations of governments, instrumentalities and corporations outside the U.S.

Investment Policies. Under normal market conditions, at least 65% of
the Fund's assets will be invested in securities rated, at the time of purchase,
AA or higher by Moody's Investors Services, Inc. ("Moody's"), or Standard &
Poor's Corporation ("S&P"), or unrated securities which the Advisor believes to
be of comparable quality. The Fund may invest in lower rated securities in order
to avail itself of the higher yields available with these securities. No more
than 5% of the Fund's total assets, however, may be invested in securities rated
below investment grade or which are unrated but are of comparable quality as
determined by the Advisor. Securities rated below investment grade (i.e., below
BBB by S&P or Baa by Moody's) entail greater risks than investment grade debt
securities and not more than 1% of the Fund's assets may be invested in such
securities. After purchase by the Fund, a debt security may cease to be rated or
its rating may be reduced. Neither event would require the elimination of the
debt security from the portfolio.

The Fund does not intend to engage in a significant amount of
short-term trading, due to the fact that such practices would result in
increased commissions and transactions costs, but the Fund may dispose of a
security without regard to how long it has been held when such disposition is
appropriate. There are no restrictions on the maturity composition of the Fund.

The market values of fixed-income securities tend to vary inversely
with the level of interest rates (when interest rates rise, the market value of
such securities tends to decline and vice versa). Although under normal market
conditions longer term securities yield more than shorter term securities of
similar quality, they are subject to greater price fluctuations. Fluctuations in
the value of the Fund's investments will be reflected in its net asset value.
Repurchase Agreements. As a means of earning income for periods as short as
overnight, the Fixed Income Fund may without limit enter into repurchase
agreements, which will be required to be collateralized by U.S. government
securities in which it may otherwise invest, with selected banks and
broker/dealers. Under a repurchase agreement, a fund acquires a security,
subject to the seller's agreement to repurchase that security at a specified
time and price. Repurchase agreements are considered to be loans under the 1940
Act. The Fixed Income Fund may enter into repurchase commitments for investment
purposes for periods of 30 days or more. Such commitments involve investment
risk similar to that of debt securities in which it the Fund invests. Repurchase
agreements for periods in excess of seven days may be deemed to be illiquid. If
the seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the
securities before repurchase of the securities under a repurchase agreement, the
Fund may encounter delay and incur costs before being able to sell the
collateral. Also, the value of such securities may decline before it is able to
dispose of them.

INVESTMENT RISKS

As stated above, the Equity Fund and the Fixed Income Fund have the
ability to invest outside the U.S. Investing in foreign securities involves
risks which are not normally associated with investing in U.S. securities, such
as, exchange control regulations; costs incurred in connection with conversions
between various currencies; availability of less financial information than
comparable U.S. companies; lack of uniform accounting, auditing and financial
reporting requirements; less liquidity and more volatility than securities
listed on U.S. security markets; political or social instability, or diplomatic
developments which could affect U.S. investments in those countries; and various
administrative difficulties such as delays in clearing and settling portfolio
transactions or in receiving payments of dividends. It may be more difficult for
the Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities.

An investment in the Equity 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 Equity Fund will 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 Equity Fund may use forward currency contracts in an attempt to
hedge against changes in currency exchange rates. Hedging transactions involve
special risks. Although the Equity Fund may benefit from the use of such hedging
positions, unanticipated changes in interest or currency exchange rates may
result in poorer overall performance for the Equity Fund than if it had not
entered into the hedging position. If the correlation between a hedging position
and a portfolio position or anticipated portfolio transaction is not properly
constructed or protected, the Fund might not obtain the desired protection and
may be exposed to risk of financial loss. In addition, the Equity Fund pays
commissions and other costs in connection with such hedging transactions.

Item 5. Not Applicable

Item 6. Management, Organization, and Capital Structure

THE COMPANY'S MANAGEMENT

The Equity Fund and the Fixed Income Fund are 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 $1,000 is required to open a shareholder account in each
Fund, and each subsequent investment must be $50 or more.

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 Advisor - CSI Capital Management, Inc. (the "Advisor")
manages the investment of the assets of each Fund pursuant to an Investment
Advisory Agreement for each Fund (each, an "Advisory Agreement").

Prior to inception, the Advisor had no previous experience in managing an
investment company; however, the Adviser has been in existence since 1978. As of
December 18, 1998, the Advisor had approximately $117,196,000 under management,
The address of the Advisor is One Montgomery Street, Suite 2525, San Francisco,
CA 94104.

Mr. Leland Faust, who has been President of the Advisor since 1978, is
the President of each of the Funds, and is a portfolio manager for each Fund.
Mr. Donald P. Hill is also a portfolio manager for each Fund. Mr. Hill has been
President of D.P. Hill & Co., an investment counseling firm, since 1975. Mr.
Faust and Mr. Hill together are primarily responsible for the day-to-day
management of the Funds' portfolios. Pursuant to the Advisory Agreements, the
Advisor provides the Funds with investment management services, subject to the
supervision of the Board of Directors of the Company, and with office space for
investment activities. The Advisor also 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 Advisor also
bears the cost of fees, salaries and other remuneration of the Company's
Directors, officers or employees who are Directors, officers or employees of the
Advisor. Each Fund is responsible for all other costs and expenses, such as, but
not limited to, brokerage fees, commissions and other transaction costs in
connection with the purchase and sale of securities, legal, auditing,
bookkeeping and record keeping services, custodian and transfer agency fees and
fees and other costs of filing notice of or registration of its shares for sale
under various state and Federal securities laws. All expenses of each Fund not
specifically assumed by the Advisor are assumed by the Fund.

Under the Advisory Agreement with each Fund, the Advisor is entitled to
monthly compensation accrued daily at an annual rate equal to 1% of the average
daily net assets of the Fund. The fees are paid monthly, within five business
days after the end of the month.

Item 7. Shareholder Information

HOW NET ASSET VALUE IS DETERMINED

The net asset value ("NAV") of the shares of each Fund 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 no Fund share was tendered for
redemption and no order to purchase or sell a Fund share 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. Each 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 for each Fund is determined by dividing the total value
of the Fund's assets, less its liabilities, by the total number of shares of
that Fund then outstanding. Generally, securities owned by a 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.

Short-term debt securities (less than 60 days to maturity) are valued
at their fair market value using amortized cost pricing procedures set, and
determined to be fair, by the Board of Directors. Other assets for which market
prices are not readily available are valued at their fair value as determined in
good faith under procedures set by the Board of Directors.

ADR's and EDR's will be valued at the closing price of the instrument
last determined prior to the valuation time unless the Company is aware of a
material change in value. Items for which such a value cannot be readily
determined on any day will be valued at the closing price of the underlying
security adjusted for the exchange rate.

The Company's management may compute the NAV per share more frequently
in order to protect shareholders' interests.

HOW TO INVEST

Shares of the Funds 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 offering price per share is equal to the net
asset value per share next determined after receipt of a purchase order. A
minimum initial investment of $1,000 is required to open a shareholder account
in each Fund, and each subsequent investment must be $50 or more. Under certain
circumstances the Company or the Advisor may waive the minimum initial
investment 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). The Distributor retains the right to refuse to accept
an order.

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.

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.
Stock certificates for full shares will be issued by the Transfer Agent upon
written request but only after payment for the shares is collected by the
Transfer Agent.

Purchase by Mail - For initial purchases the account application form
(the "Account Application") which accompanies this Prospectus should be
completed, signed, and mailed to the Transfer Agent, together with your check or
other negotiable bank draft drawn on and payable by a U.S. Bank payable to the
applicable Fund. For subsequent purchases include with your check the tear-off
stub from a prior purchase confirmation, or otherwise identify the name(s) of
the registered owner(s) and the social security numbers.

Investing by Wire - You may purchase shares by requesting your bank to
transmit "Federal Funds" by wire directly to the Transfer Agent. To invest by
wire please call the Transfer Agent for instructions, then notify the
Distributor by calling 800-776-5455. Your bank may charge you a small fee for
this service. The Account Application which accompanies this Prospectus should
be completed and promptly forwarded to the Transfer Agent. This application is
required to complete the Funds' records in order to allow you access to your
shares. Once your account is opened by mail or by wire, additional investments
may be made at any time through the wire procedure described above. Be sure to
include your name and account number in the wire instructions you provide your
bank.

HOW TO REDEEM SHARES

Shares of the Funds 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. In
addition, a one percent redemption fee is deducted from the proceeds of shares
redeemed less than one year after purchase.

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.

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.

If it should become difficult to reach the Transfer Agent by telephone
during periods when market or economic conditions lead to an unusually large
volume of telephone requests, a shareholder may send a redemption request to the
Transfer Agent by overnight mail.

The 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 a 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 $1,000. Shareholders will
receive 60 days' written notice to increase the account value above $1,000
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 a Fund, you will
receive a written confirmation. You will also receive a year-end statement of
your account if any dividends or capital gains have been distributed, and an
annual and a semi-annual report.

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.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Dividends from net investment income, if any, are declared annually for
the Equity Fund and quarterly for the Fixed Income Fund. Unless you elect
otherwise, dividends and capital gains distributions will be reinvested in
additional shares of the Fund at no charge. Changes in your election regarding
receipt of dividends and distributions must be sent to the Transfer Agent. 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.

TAXES

Tax Considerations

In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of a Fund or receive them in cash. Any capital gains a Fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares.

Backup Withholding
By law, a Fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs a Fund to do so.

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
October, November or December but paid in January are taxable as if they were
paid in December.

When you sell your shares of a Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your shares of a Fund for shares of a different
fund of the Company is the same as a sale. The individual tax rate on any gain
from the sale or exchange of your shares depends on how long you have held your
shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Foreign exchange gains or
losses realized on the sale of debt securities generally are treated as ordinary
income or loss by a Fund and may increase or decrease Fund distributions to you.
Non-U.S. investors may be subject to U.S. withholding and estate tax. If you buy
Fund shares shortly before a Fund makes a distribution, part of your investment
will come back to you as a taxable distribution. You should
consult with your tax adviser about the federal, state, local or foreign tax
consequences of your investment in a Fund.

Item 8. Distribution Arrangements
The Funds do not have sales loads, Rule 12b-1 fees, multiple classes or
master-feeder arrangements.

Item 9. Not Applicable

GENERAL INFORMATION ABOUT THE COMPANY

A share of a Fund has priority in the assets of that Fund in the event
of a liquidation. The shares of a 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 that Fund at any time, as described above.

Each outstanding share of a Fund 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 a
Fund shall vote separately on matters that affect only such Fund's 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.

The Company is currently composed of five series, three of which are
offered in separate Parts A. Investors will be able to exchange all or part of
their investment from one Fund to another or to certain other mutual funds,
under conditions set by the Company.

Limitation on Use of Name - The Advisory Agreement for each Fund
authorizes the Company to utilize the name "CSI." The Company agrees that if an
Advisory Agreement is terminated it will submit to shareholders a proposal that
the related Fund redesignate its name to eliminate any reference to the name
"CSI" or any derivation thereof unless the Advisor waives this requirement in
writing.

TO OBTAIN MORE INFORMATION

For further information on the Funds, 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.

Investment Advisor: CSI Capital Management, Inc.
One Montgomery Street, Suite 2525
San Francisco, CA 94104

Distributor: First Dominion Capital Corp.
1500 Forest Avenue, Suite 223
Richmond, VA 23229

Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103

Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103

Marketing Services: For general information on the Funds and marketing
services, call the Distributor at (800) 776-5455
toll free.

Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Company's Transfer
Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free

More Information: For 24-hour, 7-days-a-week price information call
1-800-527-9525.

For information on any series of the Company, investment plans, or
other shareholder services, call 1-800-527-9525 during normal business hours, 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.

<PAGE>

THIRD MILLENNIUM RUSSIA FUND

THE WORLD FUNDS, INC.

A "SERIES" INVESTMENT COMPANY

PART A

DATED DECEMBER 30, 1998

1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
Telephone: 1-800-527-9525

This Part A offers shares of the Third Millennium Russia Fund (the
"Fund"), a series of The World Funds, Inc. (the "World Funds"), an open-end
management investment company commonly known as a "mutual fund." A "series" fund
offers investors a choice of investment objectives, with each series having its
own separate and distinct portfolio of investments and operating much like a
separate mutual fund. The objective of the Fund is to seek to achieve capital
appreciation by investing in a non-diversified portfolio consisting primarily of
equity securities (which includes securities convertible into equity securities,
such as warrants, convertible bonds, debentures or convertible preferred stock).

<PAGE>

TABLE OF CONTENTS
ITEMS 1, 2
AND 3. NOT APPLICABLE
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS
ITEM 5. NOT APPLICABLE
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
ITEM 7. SHAREHOLDER INFORMATION
ITEM 8. DISTRIBUTION ARRANGEMENTS
ITEM 9. NOT APPLICABLE
<PAGE>

Items 1, 2 and 3. Not Applicable.

Item 4. Investment Objectives, Principal Investment Strategies
and Related Risks

THE WORLD FUNDS, INC.

The Third Millennium Russia Fund (the "Fund") is a series of The World
Funds, Inc. (the "World Funds"), an open-end management investment company
incorporated in Maryland in 1997. The World Funds currently consists of five
series, and the Board of Directors may elect to add more series in the future.

The investment objective of the Fund is a fundamental policy and may
not be changed without the approval of shareholders. All investments entail some
risks, and there is no assurance that the investment objective of the Fund can
be achieved.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek to achieve capital
appreciation by investing in a non-diversified portfolio consisting primarily of
equity securities (which are securities convertible into equity securities, such
as warrants, convertible bonds, debentures or convertible preferred stock).

As the name implies, the Fund invests in Russian Securities. Under
normal circumstances, the Fund will be at least 65% invested in Russian
Securities. As used in this Part A, the term "Russian Company" means a legal
entity (i) that is organized under the laws of, or with a principal office and
domicile in, Russia, (ii) for which the principal equity securities trading
market is in Russia, or (iii) that derives at least 50% of its revenues or
profits from goods produced or sold, investments made, or services performed, in
Russia or that has at least 50% of its assets situated in Russia. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities of Russian Companies. Under current conditions, the Advisor
expects to maintain at least 20% of the Fund in cash and liquid investments to
maintain a degree of liquidity and provide more stability. As the Russian equity
markets develop and grow, the Advisor may elect greater equity exposure.

As used in this Part A, "Russia" refers to the Russian Federation,
which does not include other countries that formerly comprised the Soviet Union.

Russian Company Equities. To achieve its objective, the Fund intends to
invest primarily in equity securities of Russian Companies. As used in this Part
A, equity securities means common or preferred stock (including convertible
preferred stock), bonds, notes or debentures convertible into common or
preferred stock, stock purchase warrants and rights, American Depository
Receipts or American Global Depository Receipts of Russian Equities.

The Fund intends to invest its assets over a broad economic spectrum of
Russian Companies including, as conditions warrant from time to time, issuers
from the following sectors: oil and gas, energy generation and distribution,
communications, mineral extraction, trade (including retail trade and
distribution) financial and business services, transportation, manufacturing,
real estate, textiles, food processing and construction.

The Advisor's approach to selecting investments emphasizes fundamental
company-by-company analysis in conjunction with broader analysis of specific
sectors. Although, when relevant, the Advisor may consider historical value
measures, such as price/earnings ratios, operating profit margins and
liquidation values, the primary factor in selecting securities for investment by
the Fund will be the company's current price relative to its long-term earnings
potential, or intrinsic value as determined using discounted cash flow analysis
and other valuation techniques, whichever are appropriate. In addition, the
Advisor will consider overall growth prospects, competitive positions in export
markets, technologies, research and development, productivity, labor costs, raw
material costs and sources, profit margins, returns on investment, capital
resources, state regulation, management and other factors in comparison to other
companies around the world which the Advisor believes are comparable. The
Advisor in selecting investments will also consider macroeconomic factors such
as inflation, GDP growth, government spending and the government's support of
particular industries.

The Fund's investments will include investments in companies which,
while falling within the definition of Russian Companies, as stated above, have
characteristics and business relationships common to companies in a country or
countries other than Russia. As a result, the value of the securities of such
companies may reflect economic market forces applicable to other countries, as
well as to Russia. For example, the Fund may invest in companies organized and
located in countries other than Russia, including companies having their entire
production facilities outside of Russia, when securities of such companies meet
one or more elements of the Fund's definition of Russian Company.

Russian Government T-Bills ("GKOs"). To the extent that the Fund's
assets are not invested in Russian equity securities, and to provide liquidity,
the Fund's assets may be invested in (i) debt securities issued by Russian
Companies or issued or guaranteed by the Russian Government (such as its T-Bills
or so-called "GKOs") or a Russian governmental entity, as well as debt
securities and governmental issuers outside Russia, (ii) equity securities of
issuers outside Russia which the Advisor believes will experience growth in
revenue and profits from participation in the development of the economies of
the Commonwealth of Independent States ("CIS"), and (iii) short-term debt
securities of the type described below under "Investment Objective and
Policies-Temporary Investments." The Fund may invest in debt securities that the
Advisor believes, based upon factors such as relative interest rate levels and
foreign exchange rates, offer opportunities for long-term capital appreciation.
It is likely that many of the debt securities in which the Fund will invest will
be unrated and, whether or not rated, the debt securities may have speculative
characteristics.

The Fund will invest indirectly in securities through sponsored
American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and
other types of Depository Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depository Receipts"), to the extent
such Depository Receipts become available. ADRs are Depository Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. GDRs and other types of
Depository Receipts are typically issued by foreign banks or trust companies,
although they also may be issued by U.S. banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depository Receipts in registered form are designed for
use in the U.S. securities market and Depository Receipts in bearer form are
designed for use in securities markets outside the United States. Depository
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. For purposes of the
Fund's investment policies, the Fund's investments in Depository Receipts will
be deemed to be investments in the underlying securities.

Although the Fund does not generally intend to invest for the purpose
of seeking short-term profits, the Fund's investments may be changed when
circumstances warrant, without regard to the length of time a particular
security has been held. As more companies in Russia are privatized and as more
companies increase their capitalization and float, turnover may increase in
order to capitalize on these new opportunities. It is expected that the Fund
will have an annual portfolio turnover rate that will generally not exceed 150%.
A 100% turnover rate would occur if all the Fund's portfolio investments were
sold and either repurchased or replaced within a year. A high turnover rate
(100% or more) results in correspondingly greater brokerage commissions and
other transactional expenses which are borne by the Fund. High portfolio
turnover may result in the realization of net short-term capital gains by the
Fund which, when distributed to shareholders, will be taxable as ordinary
income.

Temporary Investments. During periods in which the Advisor believes
changes in economic, financial or political conditions make it advisable, the
Fund may reduce its holdings in equity securities and invest without limit in
short-term (less than twelve months to maturity) debt securities or hold cash.
The short-term and medium-term debt securities in which the Fund may invest
consist of (a) obligations of the U.S. or Russian governments, and their
respective agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. or foreign banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by various governments
or international development agencies; and (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S. or
Russian corporations. The Fund intends to invest for temporary defensive
purposes only in short-term and medium-term debt securities rated, at the time
of investment, A or higher by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated by either rating agency, of
equivalent credit quality to securities so rated as determined by the Advisor.
For purposes of the Fund's investment restriction prohibiting the investment of
25% or more of the total value of its assets in a particular industry, a foreign
government (but not the United States government) is deemed to be an "industry,"
and therefore investments in the obligations of any one foreign government may
not equal or exceed 25% of the Fund's assets. In addition, supranational
organizations are deemed to comprise an industry, and therefore investments in
the obligations of such organizations may not, in the aggregate, equal or exceed
25% of the Fund's assets.

RISK CONSIDERATIONS

Investing in Russian Companies involves significant risks and special
considerations not typically associated with investing in the United States
securities markets, and should be considered highly speculative, including:

Greater social, economic and political uncertainty in
general (including risk of regional war).

Delays in settling portfolio transactions and risk of
loss arising out of the system of share registration and
custody.

Risks in connection with the maintenance of Fund
portfolio securities and cash with Russian licensed
sub-custodians and securities depositories.

The risk that it may be more difficult or problematic to
obtain and/or enforce a legal judgment. The negative
effects of public corruption and crime. Greater price
volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets and
traded securities.

Currency exchange rates and lack of currency hedging
instruments.

Risks in use of derivative instruments, including forward
foreign currency exchange contracts, currency futures
contracts and related options, put and call options on
securities, indices and foreign currencies, stock index
futures contracts and related options, and interest rate
futures contracts and related options.

Return of period of high rate of inflation (and any
attendant social unrest).

The risk that, by investing significantly in a limited
number of industry sectors, the Fund may be more affected
by any single economic, political or regulatory
development relating to a specific sector.

Controls on foreign investment and local practices
disfavoring investors in general and/or foreign investors
in particular, and limitations on repatriation of invested
capital, profits and dividends, and the Fund's ability to
exchange rubles for hard currencies.

The risk that the Government of Russia may decide not to
continue to support the economic reform programs
implemented to date and to follow instead radically
different political and/or economic policies to the
detriment of investors, including non-market-oriented
policies such as the support of certain industries to the
detriment of other sectors or investors or a return to the
centrally planned economy that previously existed.

The financial condition of Russian Companies, including
large amounts of inter-company debt, the lack of
transparency and/or proper financial reporting based on
international accounting standards and the fact that
Russian Companies may be smaller, less seasoned and
experienced in financial reporting and in modern
management in general.

The difference in, or lack of, auditing and financial
reporting standards in general, which may result in the
unavailability of material information about issuers.

The risk that dividends may be withheld at the source.

Russia's dependency on export earnings and corresponding
importance of international trade and prospect of
declining hard currency earnings and reserves and pressure
on the ruble's exchange rate.

The risk that the Russian tax system will not be reformed
to prevent inconsistent, retroactive and/or exorbitant
taxation.

Statistical information may be inaccurate or not
comparable to statistical information regarding the U.S.
or other economies.

Less extensive regulation of the securities markets than
is the case in other countries. The risks associated with
the difficulties that may occur in pricing the Fund's
portfolio securities.

Possible difficulty in identifying a purchaser of the
Fund's securities due to the undeveloped nature of the
securities markets.

The risk of lawsuits or government intervention arising
from restrictive regulations and practices with respect to
foreign investment in particular industries.

The risk of nationalization or expropriation of assets or
confiscatory taxation, which may involve total loss.

Item 5. Not Applicable

Item 6. Management, Organization, and Capital Structure

THE WORLD FUNDS' MANAGEMENT

The World Funds' Board of Directors is responsible for the supervision
of the general business of the Fund. The Directors act as fiduciaries for
shareholders under the laws of the State of Maryland. The World Funds employs
the following persons to provide it with investment advice and to conduct its
on-going business:

Advisor - Third Millennium Investment Advisors LLC (the "Advisor")
manages the investments of the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement"), dated September 21, 1998. The Advisory Agreement is
effective for an initial term of two years and may be renewed thereafter as long
as such renewal and continuance is specifically approved at least annually by
the Board of Directors of World Funds or by a vote of a majority of the
outstanding voting securities of the Fund provided that the continuance is also
approved by a majority of the directors who are not interested persons of the
World Funds or the Advisor by vote cast in person at a meeting called for the
purpose of voting on such approval.

Pursuant to the Advisory Agreement, the Advisor provides the Fund with
investment management services, subject to the supervision of the World Funds'
Board of Directors, and with office space, and pays the ordinary and necessary
office and clerical expenses relating to investment research, statistical
analysis, supervision of its portfolio and certain other costs. The Advisor also
bears the cost of fees, salaries and other remuneration of the World Funds'
directors, officers or employees who are officers, directors, or employees of
the Advisor. The Fund is responsible for all other costs and expenses, such as,
but not limited to, brokerage fees and commissions in connection with the
purchase and sale of securities, legal, auditing, bookkeeping and record keeping
services, custodian and transfer agency fees and fees and other costs of
registration of its shares for sale under various state and Federal securities
laws.

Under the Advisory Agreement, the monthly compensation paid to the
Advisor is accrued daily at a rate equal to a fee at the annual rate of 1.75% of
the net assets of the Fund. This fee is higher than that charged to many other
investment companies, but is comparable to the fees paid by other investment
companies with investment policies and objectives similar to those of the Fund.
This fee may be waived or reduced by the Advisor at its discretion. The fee is
paid monthly, within five (5) business days after the end of the month. The
address of the Advisor is 515 Madison Avenue, 24th Floor, New York, NY 10022.

The Advisory Agreement contemplates the authority of the Advisor to
place orders for the Fund pursuant to its investment determinations either
directly with the issuer or with any broker or dealer. The Advisor may allocate
brokerage to an affiliated dealer in accordance with written policies and
procedures adopted by the Board of Directors. In placing orders with brokers or
dealers, the Advisor will attempt to obtain the best price and execution of its
orders. The Advisor may purchase and sell securities to and from brokers and
dealers who provide the Advisor with research advice and other services, or who
sell shares of the Fund. From time to time, and subject to the Advisor obtaining
the best price and execution for the Fund, the Board may authorize the Advisor
to allocate brokerage transactions to a broker in consideration: (i) of
investment research or statistical services, or (ii) in consideration of a
payment of an obligation otherwise payable by the Fund.

The Advisor has assembled an Advisory Committee to assist the Advisor
in evaluating the securities market environment and to provide the portfolio
manager with specific industry and company specific recommendations for their
consideration. The following persons are members of the Advisory Committee:

E. Wayne Nordberg, retired in September, 1998, from Lord, Abbott & Co.,
where he was a Partner since 1988, most recently in charge of Equity
Investments, and before that, in charge of Equity Research. A Member of the
Financial Analysts Federation and the New York Society of Security Analysts, he
received his BA in Economics from Lafayette College.

Oleg Yachnik, President and founder of OLMA, Moscow, Russia, ranked
among the top 25 Russian financial companies. Mr. Yachnik is a Ph.D. and a
member of the Board of Directors of NAUFOR and of the RTS (Russian Trading
System), as well as a member of the governing committee of MICEX .

Alexander Pevnitsky, General Director of the brokerage company "Pride",
located in Novosibirsk, Russia, ranked 7th among regional brokers. He is a Ph.D.
in mathematics and economics.

Yury Bovkun, General Director of "Pride Holding," ranked 5th among the
regional firms. He is a member of the Board of Directors of the RTS.

Charles C. Wilkes, Vice Chairman of the Exeter Trust Corporation,
Bethesda, Maryland, a member of the Bar of the District of Columbia and owner of
the Washington, D.C. real estate investment firm, The Wilkes Company.

John T. Connor, Jr. is Chairman of the Advisor and a portfolio manager
of the Fund. Since 1993, Mr. Connor has been chairman of ROSGAL, a Russian
financial company licensed by the Ministry of Finance of the Russian Federation,
and of its affiliate, Rosgal Insurance, an insurance company separately licensed
by the Ministry of Finance. Both companies are head-quartered in the same
premises in Moscow, Russia. A Phi Beta Kappa, highest honors graduate of
Williams College, and a graduate of Harvard Law School, Mr. Connor previously
chaired the pension committee of an NYSE-listed company and authored the lead
article in an American Bar Association journal on "Russia's Securities Markets"
(Fall 1996).

Alexei Moskvin, ROSGAL's Director of Equity Investment and a portfolio
manger of the Fund. Mr. Moskvin is a Ph.D. from Novosibirsk State University
and holds a Financial Broker and Money Manager Certificate.

The portfolio managers for the Fund are John T. Connor, Jr. and Alexei
Moskvin. The portfolio managers are primarily responsible for the day-to-day
management of the Fund's portfolio and have been the Fund's portfolio managers
since the Fund commenced operations on October 1, 1998. Mr. Conner has been
chairman of ROSGAL, a Russian financial company licensed by the Ministry of
Finance of the Russian Federation since 1993. Mr. Moskvin has been with ROSGAL
since 1994, and prior to that he was with ZAO Konvent, a brokerage
and investment management firm. In addition, the portfolio managers may retain
the services of other full time professionals in portfolio management. Each of
the above named individuals, except Mr. Nordberg, are principals, officers or
employees of the Advisor.

The Advisor has also established a Consultant Committee. The
Consultant Committee is comprised of former U.S. Ambassador to the Soviet Union
Jack F. Matlock, Jr. and Professor Marvin Zonis. The Committee will be
responsible for providing the Advisory Committee and the portfolio managers
periodic updates on political and macroeconomic conditions and trends in Russia
and their potential implications for the overall investment climate in Russia.
This will enhance their ability to oversee and safeguard the assets of the
Fund's shareholders.

Ambassador Matlock is currently the George F. Kennan Professor at the
Einstein Institute in Princeton, New Jersey. Ambassador in Moscow for four years
under President Bush, he previously served in the Reagan White House as Special
Assistant to the President for National Security Affairs and served three
previous tours of duty in Moscow for a total of eleven years duty in Russia. His
book, Autopsy of an Empire, was published by Random House in 1995 and he has
written extensively on Russia's modern history and politics. He is a summa cum
laude graduate of Duke University.

Marvin Zonis is a Professor at the Chicago Business School where he
teaches International Political Economy and is the Principal in an international
consulting firm bearing his name. Marvin Zonis + Associates created the
Political Stability Index, the first useful quantitative model for assessing
country risk. The index is used with clients to manage risk in political,
economic and investment decisions. It also serves as the basis for preparing
Country Analysis Reports, daily analyses of changing risk profiles in the major
developed and emerging markets. He was educated at Yale University and Harvard
Business School and received his Ph.D. in Political Science from MIT.

Item 7. Shareholder Information

HOW NET ASSET VALUE IS DETERMINED

The Fund's Net Asset Value ("NAV") is determined as of the close of
trading of the New York Stock Exchange (currently 4:00 P.M., Eastern Time) on
each business day from Monday to Friday or on each day (other than a day during
which no security was tendered for redemption and no order to purchase or sell
such security was received by the Fund) in which there is a sufficient degree of
trading in the portfolio securities of the Fund that the current NAV of the
shares might be materially affected by changes in the value of such portfolio
security. The Fund's NAV is calculated at the 4:00 p.m. time set by the Board of
Directors based upon a determination by the Board that this is the most
appropriate time to price the securities.

NAV per share is determined by dividing the total value of the assets,
less its liabilities, by the total number of shares then outstanding. Generally,
securities owned by the Fund are valued at market value.

Investments in securities traded on a national securities exchange or
included in the NASDAQ National Market System are valued at the last reported
sales price; other securities traded in the over-the-counter market and listed
securities for which no sale is reported on that date are valued at the last
reported bid price. Russian securities are also valued at the closing price on
the principal exchange on which the security is traded, or at the last reported
bid price in the over-the-counter market. The Fund reserves the right to value
securities at fair market value when events occur prior to the close of the
NYSE, and cause a change in value from the price determined as of the close of
Russian markets.

ADR's, EDR's, and GDRs will be valued at the closing price of the
instrument last determined prior to the valuation time unless the World Funds is
aware of a material change in value. Items for which such a value cannot be
readily determined on any day will be valued at the closing price of the
underlying security adjusted for the exchange rate.

The Fund's management may compute the NAV per share more frequently in
order to protect shareholders' interests.

HOW TO INVEST

Shares of the Fund may be purchased directly from the Distributor or
through members of the National Association of Securities Dealers, Inc. who are
registered, if required, in the state where the purchase is made and who have a
sales agreement with the Distributor. After a shareholder account is
established, subsequent orders for shares may be mailed directly to the Transfer
Agent. Such purchases of shares are made at the net asset value. A minimum
initial investment of $1,000 is required to open a shareholder account in the
Fund, and each subsequent investment must be $100 or more. Under certain
circumstances, the World Funds may waive the minimum initial investment for
purchases by officers, directors and employees of the World Funds and its
affiliated entities and for certain related advisory accounts. The offering
price per share is equal to the net asset value per share next determined after
receipt of a purchase order.

When an investor acquires shares of the Fund from a securities dealer,
the investor may be charged a transaction fee for shares purchased and/or
redeemed at net asset value through that broker.

To facilitate the handling of transactions with shareholders, the World
Funds uses an open account plan. The Transfer Agent will automatically establish
and maintain an open account for the Fund's shareholders. Under the open account
plan, your shares are reflected in your open account. This service facilitates
the purchase, redemption or transfer of shares, and eliminates the need to
safeguard certificates and reduces time delays in executing transactions.

Purchase by Mail. For initial purchases, the Account Application form
which accompanies this Part A should be completed, signed, and mailed to the
Transfer Agent, together with your check or other negotiable bank draft drawn on
and payable by a U.S. Bank payable to the Third Millennium Russia Fund. For
subsequent purchases include with your check the tear-off stub from a prior
purchase confirmation, or otherwise identify the name(s) of the registered
owner(s) and the social security number.

Investing by Wire. You may purchase shares by requesting your bank to
transmit "Federal Funds" by wire directly to the Transfer Agent. To invest by
wire, please call the Transfer Agent for instructions, then notify the
Distributor by calling 800-527-9525. Your bank may charge you a small fee for
this service. The Account Application which accompanies this Part A should be
completed and promptly forwarded to the Transfer Agent. This application is
required to complete the World Funds' records in order to allow you access to
your shares. Once your account is opened by mail or by wire, additional
investments may be made at any time through the wire procedure described above.
Be sure to include your name and account number in the wire instructions you
provide your bank.

Stock Certificates. Certificates for full shares will be issued by the
Transfer Agent upon written request but only after payment for the shares is
collected by the Transfer Agent.

HOW TO REDEEM SHARES

Shares may be redeemed at any time and in any amount by mail or
telephone. For your protection, the Transfer Agent will not redeem your shares
until it has received all information and documents necessary for your request
to be in "proper order." (See "Signature Guarantees.") You will be notified
promptly by the Transfer Agent if your redemption request is not in proper
order. If a shareholder redeems shares of the Fund which have been held less
than 360 days (including shares to be exchanged), the World Funds will deduct
from the proceeds a redemption charge of 2% of the amount of the redemption.
This amount is retained by the Fund to offset the Fund's costs of purchasing or
selling securities.

The World Funds' procedure is to redeem shares at the net asset value
next determined after receipt by the Transfer Agent of the redemption request in
proper order as described herein. Payment will be made promptly, but no later
than the seventh day following receipt of the request in proper order. Please
note that (i) the Transfer Agent cannot accept redemption requests which specify
a particular date for redemption, or which specify any special conditions; and
(ii) if the shares you are redeeming were purchased by you less than fifteen
(15) days prior to the receipt of your redemption request, the Transfer Agent
must ascertain that your check in payment of the shares you are redeeming has
cleared prior to disbursing the redemption proceeds. If you anticipate the need
to redeem before fifteen (15) days, you should make your purchase by Federal
Funds wire, or by a certified, treasurer's or cashier's check.

The World Funds may suspend the right to redeem shares for any period
during which the New York Stock Exchange is closed or the Securities and
Exchange Commission determines that there is an emergency. In such circumstances
you may withdraw your redemption request or permit your request to be held for
processing at the net asset value per share next computed after the suspension
is terminated.

Redemption by Mail. To redeem shares by mail, send the following
information to the Transfer Agent: (i) a written request for redemption signed
by the registered owner(s) of the shares, exactly as the account is registered;
(ii) the stock certificates for the shares you are redeeming, if any were
issued; (iii) any required signature guarantees (See "Signature Guarantees");
and (iv) any additional documents which might be required for redemption by
corporations, executors, administrators, trustees, guardians, etc. The Transfer
Agent will mail the proceeds to your currently registered address, payable to
the registered owner(s) unless you specify otherwise in your redemption request.
There is no charge to shareholders for redemptions by mail.

Redemption by Telephone. You may redeem your shares by telephone if you
request this service at the time you complete your initial Account Application.
If you do not request this service at that time, you must request approval of
telephone redemption privileges in writing (sent to the World Funds' Transfer
Agent) with a signature guarantee before you can redeem shares by telephone.
There is no charge for establishing this service, but the Transfer Agent will
charge your account a $10.00 service fee each time you make a telephone
redemption. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. By establishing this
service, you authorize the Transfer Agent to act upon any telephone instructions
it believes to be genuine, to (i) redeem shares from your account and (ii) mail
or wire redemption proceeds. There is a $10.00 service fee for making a
telephone redemption. The amount of these service charges may be changed at any
time, without notice, by the Transfer Agent.

The World Funds employs reasonable procedures designed to confirm the
authenticity of your instructions communicated by telephone and, if it does not,
it may be liable for any losses due to unauthorized or fraudulent transactions.
As a result of this policy, a shareholder authorizing telephone redemption bears
the risk of loss which may result from unauthorized or fraudulent transactions
which the Fund believes to be genuine. When you request a telephone redemption
or transfer, you will be asked to respond to certain questions designed to
confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.

Signature Guarantees. To protect you and the Fund from fraud, signature
guarantees are required for: (i) all redemptions ordered by mail if you require
that the check be payable to another person or that the check be mailed to an
address other than the one indicated on the account registration; (ii) all
requests to transfer the registration of shares to another owner; and (iii) all
authorizations to establish or change telephone redemption service, other than
through your initial account application.

In the case of redemption by mail, signature guarantees must appear
either: (a) on the written request for redemption; (b) on a separate instrument
of assignment (usually referred to as a "stock power") specifying the total
number of shares being redeemed. If shares held by the Transfer Agent are being
redeemed, the signature guarantee must be on the written request or stock power.
The Fund may waive these requirements in certain instances.

The following institutions are acceptable guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934 that are authorized by
charter to provide signature guarantees; and (f) foreign branches on any of the
above. In addition, the Fund will guarantee your signature if you personally
visit its offices at 1500 Forest Avenue, Suite 223, Richmond, VA 23229. The
Transfer Agent cannot honor guarantees from notaries public, savings and loan
associations, or savings banks.

Small Accounts. Due to the relatively higher cost of maintaining small
accounts, the World Funds reserves the right to redeem shares in your account
if, as a result of redemption or transfer, the total investment remaining in the
account has a value less than the minimum initial investment. However, before
the World Funds redeems your shares and sends you the proceeds you will be
notified in writing that the value of your shares is less than the minimum and
that you have 60 days to make an additional investment to meet the required
minimum. A decline in market value alone would not require you to bring your
investment up to the minimum.

HOW TO TRANSFER SHARES

If you wish to transfer shares to another owner, send a written request
to the Transfer Agent. Your request should include (i) the name of the Fund and
existing account registration; (ii) signature(s) of the registered owner(s);
(iii) the new account registration, address, Social Security Number or taxpayer
identification number and how dividends and capital gains are to be distributed;
(iv) any stock certificates which have been issued for the shares being
transferred; (v) signature guarantees (See "Signature Guarantees"); and (vi) any
additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any questions
about transferring shares, call the Transfer Agent at (800) 628-4077.

ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS

Each time you purchase, redeem or transfer shares of the Fund, you will
receive a written confirmation. You will also receive a year-end statement of
your account if any dividends or capital gains have been distributed, and an
annual and a semi-annual report.

SPECIAL SHAREHOLDER SERVICES

The World Funds offers the following four (4) services for its
shareholders:

Regular Account - allows shareholders to make voluntary additions and
withdrawals to and from their account as often as they wish;

Invest-A-Matic - permits automatic monthly investments into the Fund
from your checking account on a fixed or flexible schedule;

Individual Retirement Accounts (IRA's); and

Exchange Privileges - allows the shareholder to exchange his or her
shares for shares of certain other funds having a different investment
objective from that of the Fund, provided the shares of the fund the
shareholder is exchanging into are registered for sale in the
shareholder's state of residence. An exchange is treated as a
redemption and a purchase, and may result in the realization of a gain
or loss on the transaction. More information on any of these services
is available upon written request to the World Funds.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

It is the policy of the World Funds to distribute substantially all of
its net investment income and all of its net profits realized from the sale of
portfolio securities. Income dividends received and capital gains realized, if
any, will be distributed to shareholders annually. The sale of securities held
by the Fund will be made with a view to the maintenance of a portfolio believed
by the Advisor to be the most likely to achieve its objective. Such sales, and
any resulting gains and losses may vary considerably from year to year. Unless
you elect otherwise, dividends and capital gain distributions will be reinvested
in additional shares of the Fund at no charge. Changes in your election must be
sent to the Transfer Agent.

TAXATION CONSIDERATIONS

In general, Fund distributions are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares.

<PAGE>

Backup Withholding

By law, the Fund must withhold 31% of your taxable distributions and
proceeds if you do not provide your correct taxpayer identification number (TIN)
or certify that your TIN is correct, or if the IRS instructs the Fund to do so.

When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your shares of the Fund for shares of a
different fund of the World Funds is the same as a sale. The individual tax rate
on any gain from the sale or exchange of your shares depends on how long you
have held your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Any foreign taxes paid by
the Fund on its investments may be passed through to you as a foreign tax
credit. Foreign exchange gains or losses realized on the sale of debt securities
generally are treated as ordinary income or loss by the Fund and may increase or
decrease Fund distributions to you. Non-U.S. investors may be subject to U.S.
withholding and estate tax. If you buy Fund shares shortly before a Fund makes
a distribution, part of your investment will come back to you as a taxable
distribution. You should consult with your tax adviser about the
federal, state, local or foreign tax consequences of your investment in the
Fund.

Item 8. Distribution Arrangements

DISTRIBUTION PLAN

The Fund bears some of the costs of selling its shares under a
Distribution Plan it has adopted pursuant to Rule 12b-1 under the 1940 Act. This
rule regulates the manner in which a mutual fund may assume costs of
distributing and promoting the sale of its shares.

Payments under the Distribution Plan are limited to a fee for
distribution related services at an annual rate of 0.25% of the Fund's average
daily net assets. This fee is used to reimburse the Distributor for the payment
of service and maintenance fees to selling dealers or institutional firms for
shareholder servicing and maintenance of shareholder accounts.

The Distribution Plan may be terminated at any time by a vote of a
majority of the Independent Directors or by vote of a majority of the Fund's
outstanding shares. Payments pursuant to the Distribution Plan are included in
the Fund's operating expenses.

Item 9. Not Applicable.

GENERAL INFORMATION ABOUT THE WORLD FUNDS

The World Funds is authorized to issue up to 500,000,000 shares of
$0.01 par value common stock, of which it has presently allocated 50,000,000
shares to the Third Millennium Russia Fund series, and 50,000,000 each to four
other series. The Board of Directors can allocate the remaining authorized but
unissued shares to any series of the World Funds or may create additional series
and allocate shares to such series. A share of the Fund has priority in the
assets of the Fund in the event of a liquidation. The shares of the Fund will be
fully paid and non-assessable, will have no preference over other shares of the
Fund as to conversion, dividends, or retirement, and will have no preemptive
rights. Shares of the Fund will be redeemable from the assets of the Fund at any
time.

Each outstanding share of the World Funds is entitled to one vote for
each full share of stock and a fractional vote for fractional shares of stock.
All shareholders vote on matters which concern the corporation as a whole. The
World Funds is not required to hold a meeting of shareholders each year, and may
elect not to hold a meeting in years when no meeting is necessary. The Fund
shall vote separately on matters which affect only the interest of the Fund. The
World Funds' shares do not have cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors if they choose to do so. Shareholders may utilize
procedures described in the Statement of Additional Information to call a
meeting.

Limitation on Use of Name. The Advisory Agreement for the Fund
authorizes the World Funds to utilize the name "Third Millennium." The World
Funds agrees that if the Advisory Agreement is terminated it will promptly
re-designate the name of the Fund to eliminate any reference to the name "Third
Millennium" or any derivation thereof unless the Advisor waives this requirement
in writing.

MORE INFORMATION

For further information on the Fund please contact Commonwealth Shareholder
Services, Inc., P.O. Box 8687, Richmond, VA 23226, telephone: (800) 527-9525.

Additional information may also be obtained by requesting a copy of the
Fund's Statement of Additional Information.

Advisor: Third Millennium Investment Advisors LLC,
515 Madison Avenue, 24th Floor New York, NY
10022.

Distributor: First Dominion Capital Corp., 1500 Forest Ave.,
Suite 223, Richmond, VA 23229.

Independent Auditors:
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800,
Philadelphia, PA 19102.

Legal Counsel:
Stradley, Ronon, Stevens & Young, LLP, 2600
One Commerce Square, Philadelphia, PA 19103.

Marketing Services:
For general information on the Fund and Marketing
Services, call the Distributor at (800) 527-9525 Toll
Free.

Transfer Agent:
For account information, wire purchase or
redemptions, call or write to the Fund's Transfer
Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23286-8172
(800) 628-4077 Toll Free

More Information: For 24 hour, 7 days a week price information call
1-800-527-9525.

For information on any series of the World Funds, investment plans, or
other shareholder services, call 1-800-527-9525 during normal business hours, or
write the World Funds at 1500 Forest Avenue, Suite 223, Richmond, VA 23229.

<PAGE>

THE NEW MARKET FUND
A PORTFOLIO OF

THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY

PART A
DATED DECEMBER 30, 1998

1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
Telephone: 1-800-527-9525

The World Funds, Inc. ("the "Company") is an open-end management
investment company commonly known as a "mutual fund". A "series" mutual fund
offers investors a choice of investment objectives, with each series having its
own separate and distinct portfolio of investments and operating much like a
separate mutual fund. This Part A 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.

This Part A 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 December 30, 1998, which is available at no
charge upon written request to the Company. The Funds' Statement of Additional
Information is incorporated herein by reference.

<PAGE>
TABLE OF CONTENTS
ITEMS 1, 2 AND 3. NOT APPLICABLE
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRTEGIES AND RELATED RISKS
ITEM 5. NOT APPLICABLE
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
ITEM 7. SHAREHOLDER INFORMATION
ITEM 8. DISTRIBUTION ARRANGEMENTS
ITEM 9. NOT APPLICABLE

<PAGE>
Items 1, 2 and 3. Not Applicable.

Item 4. Investment Objectives, Principal Investment Strtegies and Related Risks

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.

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.

Item 5. Not Applicable.

Item 6. Management, Organization, and Capital Structure

THE COMPANY'S MANAGEMENT

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. Prior to commencement
of operations of the Fund, the manager had no experience as an investment
adviser or investment manager. The address of the Manager is 7800 Rockfalls Dr.,
Richmond, VA 23225.

Pursuant to the Management Agreement, the Manager provides the Fund
with investment management services, subject to the supervision of the Board of
Directors of the Company, and with office space for investment activities, and
pays the ordinary and necessary office and clerical expenses relating to
investment research, statistical analysis, supervision of the Funds' portfolios
and certain other costs. The Manager also bears the cost of fees, salaries and
other remuneration of the Company's Directors, officers or employees who are
officers, Directors, or employees of the Manager. The Fund is responsible for
all other costs and expenses, such as, but not limited to, brokerage fees,
commissions and other transaction costs in connection with the purchase and sale
of securities, legal, auditing, bookkeeping and record keeping services,
custodian and transfer agency fees and fees and other costs of filing notice of
or registration of its shares for sale under various state and Federal
securities laws. All expenses of the Fund not specifically assumed by the
Manager are assumed by the Fund.

Under the Management Agreement, the Manager is entitled to monthly
compensation accrued daily at an annual rate equal to 1% of the average daily
net assets of the Fund. This fee is higher than that charged to many other
investment companies. The fee is paid monthly, within five business days after
the end of the month.

Investment Advisor - The Manager has entered into an Investment
Advisory Agreement (the "Advisory Agreement") with The London Company of
Virginia (the "Investment Advisor"), dated September 21, 1998. The Investment
Adviser manages over $130 million in assets. Mr. Stephen Goddard is President of
the Investment Advisor and is portfolio manager of the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolio. He has been
the portfolio's manager of the Fund since it commenced operations. Mr. Goddard
has served as President of The London Company of Virginia since March, 1994.

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.

Item 7. Shareholder Information

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.

The Company's management may compute the NAV per share more frequently
in order to protect shareholders' interests.

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.

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. A
stock certificate for full shares will be issued by the Transfer Agent, however,
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 Part A should be completed,
signed, and mailed to the Transfer Agent, together with your check or other
negotiable bank draft drawn on and payable by a U.S. Bank payable to the
applicable Fund. For subsequent purchases include with your check the tear-off
stub from a prior purchase confirmation, or otherwise identify the name(s) of
the registered owner(s) and the social security numbers.

Investing by Wire - You may purchase shares by requesting your bank to
transmit "Federal Funds" by wire directly to the Transfer Agent. To invest by
wire, please call the Transfer Agent for instructions, then notify the
Distributor by calling 800-776-5455. Your bank may charge you a small fee for
this service. The Account Application which accompanies this Part A 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.

There is a 1% redemption fee placed on orders redeemed less than one
year after purchased.

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

ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS

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.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Dividends from net investment income, if any, are declared annually.
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. 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.

TAXES

In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares.

Withholding

Backup Withholding

When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your shares of the Fund for shares of a
different fund of the Company is the same as a sale. The individual tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. If you buy Fund shares
shortly before the Fund makes a distribution, part of your investment will come
back to you as a taxable distribution. Non-U.S.investors may be subject to U.S.
withholding and estate tax. You should consult with your tax adviser about the
federal, state, local or foreign tax consequences of your investment in the
Fund.

Item 8. Distribution Arrangements
<TABLE>
<CAPTION>

Amount of Purchase At the Sales Charge as a Dealer Discount as
Public Offering Price Percentage of Net Amount Percentage of Offering Price
Offering Price Invested
<S> <C> <C> <C>
$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%

</TABLE>

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.

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.

Item 9. Not Applicable.

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.

Investment Manager: Virginia Management Investment Corporation
7800 Rockfalls Dr.
Richmond, Virginia 23225

Distributor: First Dominion Capital Corp.
1500 Forest Avenue, Suite 223
Richmond, VA 23229

Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103

Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103

Marketing Services: For general information on the Funds and
marketing services, call the Distributor at
(800) 776-5455 toll free.

Transfer Agent: For account information, wire purchase or
redemptions, call or write to the
Company's Transfer Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free

More Information: For 24-hour, 7-days-a-week price information call
1-800-527-9525.

For information on any series of the Company, investment plans, or other
shareholder services, call 1-800-527-9525, Monday through Friday, 9am to 5pm
Eastern Time, or write the Company at 1500 Forest Avenue, Suite 223, Richmond,
VA 23229.

<PAGE>

SAND HILL PORTFOLIO MANAGER FUND

A Series of The World Funds, Inc.
1500 Forest Avenue
Richmond, Virginia 23229
(800) 527-9525

PART A

DATED DECEMBER 30, 1998

This Part A to Form N-1A offers shares of the Sand Hill Portfolio
Manager Fund (the "Fund"), a no-load diversified series of The World Funds, Inc.
(the "Company"), an open-end management investment company. The Fund seeks to
maximize total return (consisting of realized and unrealized appreciation plus
income) consistent with allocating its investments among equity securities, debt
securities and short-term investments.

<PAGE>
TABLE OF CONTENTS

ITEMS 1, 2 AND 3. NOT APPLICABLE

ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES,
AND RELATED RISKS
INVESTMENT OBJECTIVES
ASSET ALLOCATION POLICIES
ADDITIONAL INFORMATION ON INVESTMENTS, POLICIES AND RISKS

ITEM 5. NOT APPLICABLE

ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
MANAGEMENT OF THE FUND

ITEM 7. SHAREHOLDER INFORMATION
HOW NET ASSET VALUE IS DETERMINED
HOW TO INVEST IN THE FUND
HOW TO REDEEM FUND SHARES

HOW TO TRANSFER SHARES
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
SPECIAL SHAREHOLDER SERVICES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

ITEM 8. DISTRIBUTION ARRANGEMENT

ITEM 9. NOT APPLICABLE

APPENDIX

<PAGE>
Items 1, 2 and 3. Not applicable.

Item 4. Investment Objectives, Principal Investment Strategies,
and Related Risks.

INVESTMENT OBJECTIVE

The Fund seeks to maximize total return (consisting of realized and
unrealized appreciation plus income) consistent with allocating its investments
among equity securities (e.g., stocks), debt securities (e.g., bonds) and short
term investments. By allocating investments across broad asset classes, the
Investment Advisor seeks to achieve over time a high total return, yet
experience lower price volatility than might be inherent in a more limited asset
mix. The investment objective of the Fund is fundamental and may not be changed
without the approval of shareholders. There is no assurance that the investment
objective can be achieved. Unless specifically stated otherwise, each of the
Fund's other investment policies may be changed by the Board of Directors,
without shareholder approval.

Because the value of the securities in which the Fund may invest may
fluctuate from day-to-day, the value of an investment in the Fund will vary
based upon the Fund's investment performance. When you sell your shares of the
Fund, they may be worth more or less than their cost to you.

ASSET ALLOCATION POLICIES

The Fund seeks to take advantage of investment opportunities using a
mix of asset classes and markets throughout the world. Investments will be
selected based not only upon the Investment Advisor's evaluation of the merits
of the particular investment, but also upon the Investment Advisor's evaluation
of the investment's relationship to other investments in the portfolio. National
economies and their investment markets change at varying rates and not
necessarily in tandem with one another. Many foreign markets do not have the
maturity, depth, or liquidity of the U.S. market. Therefore, the opportunity to
take advantage of their growth normally means acceptance of higher price
volatility than is usual in the U.S. The Investment Advisor believes that by
allocating investments among equity, debt and short term asset classes in
different markets, the Fund can seek to benefit from the faster growth of
several markets. In addition, investing assets in a number of markets may
provide less portfolio value volatility than might otherwise result from
investment in a single market.

The Fund's investments are allocated among equity securities, debt
securities and short term investments according to the Investment Advisor's
anticipation of risks and returns for each asset class. There are no limitations
on the amount of the Fund's assets that may be allocated to each of these three
asset classes. The Investment Advisor believes that, over time, common stocks
produce the greatest return among these asset classes. Therefore, common stocks
will normally comprise a large percentage of the invested assets. Bonds, or
other evidences of indebtedness, will be used to generate income, to seek
capital gains and to dampen portfolio volatility. While broad representation in
markets and asset classes is the purpose of the Fund, the Investment Advisor
intends to retain the flexibility necessary to move among asset classes and
markets as changing conditions of the United States and foreign economies
warrant. Asset classes will be considered both for their total return potential
as well as for the defensive or strategic aspects they offer the portfolio. To
that end, interest-earning short term investments will, in varying degrees, be a
component of the overall asset allocation.

Because the Fund invests in different types of securities in
proportions, which will vary over time, investors should not expect the Fund to
exhibit stable asset allocations. Investors should also realize that the Fund's
performance will depend upon the skill of the Investment Advisor to anticipate
the relative risks and returns of stocks, bonds and other securities and to
adjust the Fund's portfolio accordingly.

Equity Securities, Debt Securities and Short-Term Investments

The three major asset classes in which the Fund will invest, as defined
by the Investment Advisor, are equity securities, debt securities and short term
investments. Short term investments are debt securities with less than three
years to maturity, and are viewed as comprising a different type of investment
risk than longer term debt securities, that involve less risk of interest rate
volatility, but more risk of market value volatility.

Within each of these asset classes, the Fund may invest in foreign or
domestic securities.

Equity Securities -- consist of common stocks as well as warrants,
rights, and securities which are convertible into common stocks, such as
convertible bonds. The Investment Advisor uses valuation screens for the Fund's
equity holdings primarily involving an analysis of a company's cash flow return
on investment. Specifically, the Investment Advisor determines the cash flow of
a company and then applies a market derived discount rate to the cash flows.
Next the Investment Advisor determines the free cash flow that can be reinvested
into the company and applies the same market derived discount rate. The
Investment Advisor also identifies industries that are positioned to participate
in strong demographic, societal or economic trends and looks for companies
within those industries that have a particular competitive advantage or niche.

Stocks and other equity securities are subject to the risk that the
prices of specific stocks of equity securities in general will decline in value
over short or even extended periods of time.

Debt Securities -- consist of the following bonds, obligations and
other evidences of indebtedness denominated in U.S. or foreign currencies which
are issued by governments, companies or other issuers to borrow money from
investors:

obligations issued or guaranteed by the U.S. Government or a
foreign national government or the agencies, instrumentalities
or political subdivisions of the U.S. Government or a foreign
government;

obligations issued or guaranteed by supranational
organizations (e.g., the European Investment Bank,
Inter-American Development Bank and World Bank.

obligations of foreign or domestic corporations;

long term debt securities issued by banks or bank holding
companies; and

other debt securities whose purchase is consistent with the
investment objective of the Fund.

Debt securities may pay fixed or variable rates of interest, have varying
maturity dates at which the issuers must repay their debt, and have varying
degrees of risk. The market values of debt securities are influenced primarily
by credit risk (the risk that the issuer of the security will not maintain the
financial strength needed to pay principal and interest on its debt securities)
and interest rate risk (the risk that changes in prevailing interest rates will
increase or decrease the prices of outstanding debt securities.) Generally, the
market values of fixed-rate debt securities vary inversely with changes in
prevailing interest rates. When interest rates rise, fixed-rate debt securities
fall in market value. Conversely, when interest rates fall, fixed-rate debt
securities increase in market value.

There is no limit on the maturities of the debt securities that the
Investment Advisor will select. Rather, the Investment Advisor will select debt
securities for the Fund on the basis of, among other things, credit quality,
yield, potential for capital gains and the Investment Advisor's fundamental
outlook for currency and interest rate trends around the world.

The Fund will invest in investment grade debt securities, which are debt
securities that bear the rating BBB or higher by Standard & Poor's Ratings Group
("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or
unrated securities that the Investment Advisor deems to be of comparable
quality. However, the Fund reserves the right to invest its assets in lower
quality debt securities, which are commonly known as "junk bonds". It will do so
to avail itself of the higher yields available from these securities or to seek
to realize capital gains. The Fund does not currently intend to invest more than
5% of its total assets in securities that are rated below investment grade or
that are unrated but are of comparable quality as determined by the Investment
Advisor. If that policy should change, the Fund will revise its prospectus and
advise the Fund's shareholders.

After its purchase by the Fund, a debt security may cease to be rated
or its rating may be reduced. Neither event would require the elimination of the
debt security from the portfolio to meet the 5% limit discussed above.

Short Term Investments are obligations denominated in U.S. or foreign
currencies consisting of bank deposits, bankers' acceptances, certificates of
deposit, commercial paper, short-term government, government agency,
supranational agency and corporate obligations, and repurchase agreements.
Depending on the Investment Advisor's assessment of the prospects for the
various asset classes, all or a portion of the Fund's assets may be invested in
high quality short-term investments or cash to protect against adverse movements
of interest rates or to provide liquidity.

ADDITIONAL INFORMATION ON INVESTMENTS, POLICIES AND RISKS

The Fund may invest in the securities, and engage in the investment
practices, described below, each of which may involve the specific risks, which
are described. The Fund may not buy all of these securities or engage in all of
these investment practices at any one time or even over an extended period of
time. See the Statement of Additional Information for more detailed information
about these securities and investment practices, including limitations designed
to reduce related risks.

Foreign Securities and Depositary Receipts

Investing in foreign securities may involve special risks, such as:

Social or Political Risk -- Social or political instability,
limitations on the removal of funds from foreign countries,
expropriation, repudiation by a foreign government of its debt, or
confiscatory taxes could adversely affect the value of the Fund's
foreign investments.

Currency Risk -- The U.S. dollar value of a foreign security could
decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and could increase when
the U.S. dollar falls against that currency.

Market Risk -- Foreign securities may be less liquid and show greater
price volatility than domestic securities.

Regulatory Risk -- Foreign issuers of securities are not generally
subject to the regulatory controls or the accounting and financial
reporting standards imposed on U.S. issuers. There is generally less
publicly available information about foreign securities than about
domestic securities. Also, judicial or administrative judgments may be
more difficult to enforce abroad.

The foreign securities the Fund purchases may be bought directly in
their principal markets abroad or they may be acquired through the use of
depositary receipts. The Fund may invest in both sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other similar depositary receipts. ADRs are issued by an American bank or trust
company and evidence ownership of underlying securities of a foreign company.
EDRs are issued in Europe, usually by foreign banks, that evidence ownership of
either foreign or domestic underlying securities. Unsponsored ADRs and EDRs are
organized without the participation of the issuer of the underlying securities.
As a result, information concerning the issuer may not be as current as for
sponsored ADRs and EDRs.

Convertible Securities

The Fund may invest in convertible securities. A convertible security
is a fixed-income security (a bond or preferred stock) that may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Through their conversion
feature, convertible securities provide an opportunity to participate in capital
appreciation resulting from an increase in the value of a convertible security's
underlying common stock. The value of a convertible security is influenced by
the market value of the underlying common stock and tends to increase as the
market value of the underlying stock rises, and tends to decrease as the market
value of the underlying stock declines. For purposes of considering convertible
securities for purchase by the Fund, the Investment Advisor evaluates
convertible securities by standards applicable to equity securities and not by
debt securities ratings.

Investment Companies

The Fund may invest up to 10% of its total assets in shares of
closed-end investment companies. Because of restrictions on direct investment by
U.S. entities in certain countries, investment in other investment companies may
be the most practical or only manner in which the Fund can invest in the
securities markets of those countries. Investment in the shares of other
investment companies may involve duplicative investment advisory and
administrative expenses and is subject to limitations under the Investment
Company Act of 1940, as amended (the "1940 Act"). See The Statement of
Additional Information for a description of these limitations.

Zero Coupon Securities

The Fund may purchase zero coupon securities. Zero coupon securities
pay no income until maturity and are sold at substantial discounts from their
stated redemption price at maturity. When held to maturity, the entire return on
zero coupon securities, comes from the difference between the discounted issue
price and the stated redemption price at maturity. If a zero coupon security is
sold prior to maturity, the amount of income received will depend on the current
market value of the zero coupon security and the income received may be less
than the accretion in value to date of sale, between the discounted issue price
and the maturity value of the security. Zero coupon securities are subject to
greater market value fluctuations from changing interest rates than debt
obligations of comparable maturities which make periodic cash distributions of
interest prior to maturity.

Repurchase Agreements

As a means of earning income for periods as short as overnight, the
Fund may, without limit, enter into repurchase agreements, which are
collateralized by U.S. government securities, with selected banks and
broker/dealers. Under a repurchase agreement, a fund acquires securities,
subject to the seller's agreement to repurchase the securities at a specified
time and price. The Fund requires the party obligated to repurchase the
securities to provide it with collateral for that obligation.

If the seller under a repurchase agreement becomes insolvent, the
Fund's right to dispose of the securities may be restricted. In the event of
bankruptcy proceedings with respect to the seller of the securities, before the
seller repurchases the securities under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the securities held as
collateral. Also, the value of such securities may decline before the Fund is
able to dispose of them.

When-Issued Securities

The Fund may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield are
generally fixed on the date of commitment to purchase. During the period between
purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The Fund's net asset value reflects gains or losses on such
commitments each day, and the Fund segregates liquid assets each day sufficient
to meet the Fund's obligations to pay for the securities.

Illiquid Securities

Normally, the Fund will not invest more than 5% of its net assets in
securities that are illiquid or not readily marketable; however, the Fund is
permitted to invest up to 15% of its net assets in illiquid securities.

Strategic Transactions

The Fund may utilize various other investment strategies, including the
use of derivatives, as described below to hedge various market risks (such as
changes in security prices, interest rates and currency exchange rates), or to
enhance potential gain. Such strategies are generally accepted as modern
portfolio management techniques and are regularly utilized by many mutual funds
and other institutional investors. Techniques and instruments may change over
time as new instruments and strategies are developed or regulatory changes
occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed put and call options on securities and
securities indices, and enter into various currency transactions such as
currency forward contracts, and options on currencies (collectively, all of the
above are called "Strategic Transactions").

Strategic Transactions involving derivatives may be used to attempt (1)
to protect against possible changes in the market value of securities held in,
or to be purchased for, the Fund's portfolio resulting from securities markets
or currency exchange rate fluctuations, (2) to protect its unrealized gains in
the value of its portfolio securities, (3) to facilitate the sale of such
securities for investment purposes, (4) to establish a position in the options
markets as a temporary substitute for purchasing or selling particular
securities, or (5) as a means efficiently to change country and/or currency
allocations.

The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Investment Advisor's ability to predict, which
cannot be assured, pertinent market movements. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.

Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Investment Advisor's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than or lower than current market
values, limit the amount of appreciation the Fund can realize on its investments
or cause the Fund to hold a security it might otherwise sell. In addition,
options markets may not be liquid in all circumstances. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time hedging tends to limit any potential
gain that might result from an increase in value of such position. The use of
currency transactions can result in the Fund incurring losses as a result of a
number of factors, including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. Losses
resulting from the use of Strategic Transactions will reduce net asset value,
and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and the risks of these techniques are described more fully in the Statement
of Additional Information.

* * * * * *
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 Investment Advisor, the Fund's distributor, First Dominion Capital Corp.,
the Fund's Administrator, Commonwealth Shareholder Services, Inc., and the
Fund's transfer agent and dividend disbursing agent, Fund Services, Inc. have
advised the Fund 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
Investment Advisor has been advised by the Fund's custodian that it is also in
the process of reviewing its systems with the same goal. As of the date of this
Prospectus, the Fund and the Investment Advisor have no reason to believe that
these goals will not be achieved.

European Economic and Monetary Union

Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency on January 1, 1999. Additional European countries may elect to
participate after that date. Each Portfolio investing in securities of
participating countries could be adversely affected if the computer systems used
by its major service providers are not properly prepared to handle the
implementation of this single currency or the adoption of the Euro by additional
countries in the future. The Fund is taking steps to obtain satisfactory
assurances that the major service providers of the Fund are taking steps
reasonably designed to address these matters with respect to the computer
systems that such service providers use. There can be no assurances that these
steps will be sufficient to avoid any adverse impact on the business of the
Fund.

Item 5. Not Applicable.

Item 6. Management, Organization, and Capital Structure

MANAGEMENT OF THE FUND

The Board of Directors is responsible for the supervision of the
general business of the Company and the Fund. The Directors act as fiduciaries
for shareholders under the laws of the State of Maryland. The Board appointed
John Pasco, III to serve as President of the Company and appointed Jane H.
Williams to serve as President of the Fund.

Investment Advisor

Sand Hill Advisors, Inc. (the "Investment Advisor"), a registered
investment adviser, manages the investments of the Fund pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"), dated August 19, 1997.
The Advisory Agreement is effective for an initial term of two years and
thereafter may be renewed annually by the Board of Directors of the Fund. The
Investment Adviser is located at 3000 Sand Hill Road, Building 3, Suite 150,
Menlo Park, California, 94025.

The Investment Advisor is a privately held corporation. In addition to
the assets of the Fund, the Investment Advisor manages other assets of
approximately $300 million as of the date of this Prospectus. The Investment
Advisor has more than three years of experience managing a mutual fund
portfolio, and has approximately 16 years of experience managing investment
portfolios for private clients.

Pursuant to the Advisory Agreement, the Investment Advisor, subject to
the supervision of the Board of Directors, provides the Fund with investment
management services, office space, and pays the ordinary and necessary office
and clerical expenses relating to investment research, statistical analysis,
supervision of its portfolio and certain other costs. The Investment Advisor
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 Investment Advisor. The Fund is responsible for all other costs and
expenses, such as, but not limited to, brokerage fees and commissions in
connection with the purchase and sale of securities, legal, auditing,
bookkeeping and record keeping services, custodian and transfer agency fees and
other costs and fees of registration of, or filing of notice of, its shares for
sale under various state and Federal securities laws.

Under the Advisory Agreement, the Investment Advisor is entitled to be
paid monthly compensation that is accrued daily at an annual rate of 1.00% of
the average daily net assets of the Fund. This fee is higher than that paid by
many investment companies. If the assets of the Fund exceed $100,000,000, the
Investment Advisor is entitled to a fee for such assets computed at an annual
rate of 0.75% on such excess. The Advisory Agreement requires that the fee be
paid monthly, within five (5) business days after the end of the month. The
Investment Advisor has undertaken voluntarily to waive its advisory fee as
described in "Fee Table and Expenses" above. All expenses not specifically
assumed by the Investment Advisor are assumed by the Fund. For the fiscal year
ended December 31, 1997, the Investment Advisor received an investment advisory
fee of $80,675 and for the fiscal period from January 1, 1998 to August 31,
1998, the Fund's new fiscal year end, the Investment Advisor received an
investment advisory fee of $80,943.

The Advisory Agreement 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 for the Fund, 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 Fund or (2) in consideration of the sale of Fund
shares.

Portfolio Managers

Ms. Jane H. Williams has been the portfolio manager of the Fund since its
inception in January of 1995. Ms. Williams is also the President of the Fund,
Vice President of the Company, and Executive Vice President and a Director of
the Investment Advisor, which was founded in September of 1982 by Ms. Williams.
Ms. Williams owns 35.46% of the stock of the Investment Advisor. Mr. Gary K.
Conway has co-managed the Fund with Ms. Williams since June 1, 1996. Mr. Conway
has co-managed the Fund with Ms. Williams since June 1, 1982. He owns 35.46% of
the stock of the Investment Advisor. Prior to assuming the role of co-manager,
Mr. Conway was an advisor to the Fund and was actively involved in management
decisions and portfolio selection.

Item 7. Shareholder Information

HOW NET ASSET VALUE IS DETERMINED

The net asset value ("NAV") of the Fund's shares is determined as of
the close of trading on the New York Stock Exchange ("NYSE" or the "Exchange")
(currently 4:00 p.m., Eastern Time) on each business day from Monday to Friday
or on each day (other than a day during which no Fund share was tendered for
redemption and no order to purchase or sell a Fund share was received by the
Fund) in which there is a sufficient degree of trading in the portfolio
securities of the Fund that the current NAV of the shares might be materially
affected by changes in the value of such portfolio security. Currently, the NYSE
observes the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

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. The Fund's
management may compute the NAV per share more frequently in order to protect
shareholders' interests.

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. For example, the pricing agent may determine
that the price of a security listed on a foreign stock exchange that was fixed
by reason of a limit on the daily price change does not represent the fair
market value of the security. Similarly, the value of a security not traded or
dealt in upon an exchange may be valued at what the pricing agent determines is
fair market value if the pricing agent determines that the last sale does not
represent the value of the security, provided that such amount is not higher
than the current bid price.

Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the New York
Stock Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is not
calculated. The Fund calculates net asset value per share, and therefore,
effects sales, redemptions and repurchases of its shares, as of the close of the
Exchange once on each day on which that Exchange is open. Such calculation does
not take place contemporaneously with the determination of the prices of all of
the portfolio securities used in such calculation. If events materially
affecting the value of a portfolio security occur between the time when its
closing price is determined and the time when the Fund's net asset value is
calculated, such a security will be valued at fair value as determined in good
faith by the Board of Directors.

HOW TO INVEST IN THE FUND

A minimum initial investment of $25,000 is required to open a
shareholder account, and each subsequent investment must be $50 or more. Under
certain circumstances, the Fund may waive the minimum initial investment for
purchases by officers, Directors and employees of the Company and its affiliated
entities and for certain related advisory accounts and retirement accounts. The
offering price per share is equal to the net asset value per share next
determined after the receipt of a purchase order.

To facilitate the handling of transactions with shareholders, the
Company uses an open account plan. Fund Services, Inc. (the "Transfer Agent" or
"FSI"), the Fund's transfer and dividend disbursing agent, will automatically
establish and maintain an open account for the Fund's shareholders. Under the
open account plan, your shares are reflected in your open account. This service
facilitates the purchase, redemption or transfer of shares, and eliminates the
need to safeguard certificates and reduces time delays in executing
transactions. Stock certificates are not required and are not normally issued.
Stock certificates for full shares will be issued, however, 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 and payable to the "Sand Hill
Portfolio Manager Fund." For subsequent purchases, include with your check the
tear-off stub from a prior purchase confirmation, or otherwise identify the
name(s) of the registered owner(s) and the social security number(s).

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 at 1-800-628-4077. Your bank may charge you a
small fee for this service. The Account Application that accompanies this
Prospectus should be completed and promptly forwarded to the Transfer Agent.
This application is required to complete the Fund's 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 FUND SHARES

The Fund'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 below. Payment will be made promptly, but no later
than the seventh day following receipt of the request in proper order. Please
note that the Transfer Agent cannot accept redemption requests which specify a
particular date for redemption, or which specify any special conditions. 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, you should make your purchase by Federal Funds wire, or by a
certified, treasurer's or cashier's check. The Fund 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. In addition, the Company has reserved the
right to redeem in-kind, but it does not intend to do so under normal
circumstances.

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 by requesting this service on
your Account Application. Once your telephone authorization is in effect, you
may redeem shares by calling the Transfer Agent at 1-800- 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.

The Fund employs procedures reasonably 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;
however, a shareholder authorizing telephone redemption bears the risk of loss
which may result from unauthorized or fraudulent transactions which the Fund
believes to be genuine. When you request a telephone redemption or transfer, you
will be asked to respond to certain questions designed to confirm your identity
as a shareholder of record. Your cooperation with these procedures will protect
your account and the Fund from unauthorized transactions.

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 Fund (and its agents) 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
either: (a) on the written request for redemption; or (b) on a separate
instrument of assignment (usually referred to as a "stock power") specifying the
total number of shares being redeemed. The Fund 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; and (f) foreign branches
of any of the above. In addition, the Fund will guarantee your signature if you
personally visit its offices at 1500 Forest Avenue, Suite 223, Richmond, VA
23229. The Transfer Agent cannot honor guarantees from notaries public, savings
and loan associations, or savings banks.

Small Accounts

Due to the relatively higher cost of maintaining small accounts, the
Fund may deduct $10.00 per year from accounts valued at less than $25,000 unless
the account value has dropped below $25,000 solely as a result of share value
depreciation. Shareholders will receive 60 days' written notice to increase the
account value above $25,000 before the fee is deducted.

HOW TO TRANSFER SHARES

If you wish to transfer shares to another owner, you may send a written
request or call the Transfer Agent at 1-800-628-4077. 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.

ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS

SPECIAL SHAREHOLDER SERVICES

The Fund offers the following four services for its shareholders:

Regular Account - This allows shareholders to make voluntary additions
and withdrawals to and from their account as often as they wish

Invest-A-Matic Account - This type of account feature permits automatic
monthly investments into the Fund from your checking account on a fixed
or flexible schedule;

Individual Retirement Accounts (IRAs) -There are various types of IRA
accounts that you can set up including regular IRA accounts, a Roth
IRA, an Education IRA, a Simplified Employee Pension Plan (SEP), a
SIMPLE IRA, 403(b) Plans, and 401K and other Qualified Pension or
Profit Sharing Plans; and

Exchange Privileges Account - This account allows the shareholder to
exchange his or her shares for shares of certain other funds having a
different investment objective from the Fund.

Please call the Fund for more information on any of these services at
1-800-527-9525.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Dividends from net investment income, if any, are declared annually.
Unless you elect otherwise, dividends and capital gains distributions will be
reinvested in additional shares of the Fund at no charge. Changes in your
election regarding receipt of dividends and distributions must be sent to the
Transfer Agent. 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.

TAXES

Backup Withholding

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. If you buy Fund shares shortly
before the Fund makes a distribution, part of your investment wil come back to
you as a taxable distribution. You should consult with your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund.

Item 8. Distribution Arrangements

The Fund does not have sales loads, Rule 12b-1 fees, multiple classes
or master-feeder arrangements.

Item 9. Not Applicable.

<PAGE>
APPENDIX

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND RATINGS:

Aaa - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Moody's applies numerical modifiers 1,2 and 3 in the Aa and A rating categories.
The modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicated a mid-range rating, and the modifier 3 indicates
that the issue ranks at the lower end of the rating category.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations, i.e.
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements, their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

MOODY'S SHORT-TERM DEBT RATINGS:

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year. Obligations relying upon support mechanisms such as letters-of-credit
and bonds of indemnity are excluded unless explicitly rated. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:

Prime-1 - Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well established access
to range of financial markets and assured sources of alternate liquidity.

Prime-2 - Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Prime 3 - Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:

AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation, indicating an extremely strong capacity to pay principal and
interest.

AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from highest rated issues only to a small degree.

Plus(+) or Minus(-) - The ratings from AA to CCC may be modified by the
addition of a plus or a minus sign, which shows relative standing within the
major rating categories.

A - Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the higher rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.

BB, B, CCC, CC - Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB is the lowest and
CC is the highest degree of speculation. While such debt will have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

C - The rating C is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

<PAGE>

THE WORLD FUNDS, INC.
CSI EQUITY FUND
CSI FIXED INCOME FUND

PART B

STATEMENT OF ADDITIONAL INFORMATION

DATED DECEMBER 30, 1998

Item 10. Cover Page and Table of Contents

The World Funds, Inc. (the "Company") is an open-end management
investment company commonly known as a "mutual fund." This Statement of
Additional Information ("SAI") is not a prospectus but supplements the
information contained in the current Part A of Form N-1A of the CSI Equity Fund
and the CSI Fixed Income Fund, each, a "Fund", dated December 30, 1998. It
should be read in conjunction with the Part A of Form N-1A, and has been
designed to provide you with further information which is not contained in the
Part A of Form N-1A. The Part A of Form N-1A of the Funds may be obtained at no
charge upon request to the Company. Please retain this SAI for future reference.

The audited financial statements of the Funds, including the report of
independent accountants, for the fiscal year ended August 31, 1998, are
incorporated in this SAI by reference to the Funds' annual report to
shareholders (the "Annual Report"). The Annual Report may be obtained at
no charge upon request to the Company by calling (800) 527-9525.

<PAGE>

TABLE OF CONTENTS

ITEM 10. COVER PAGE AND TABLE OF CONTENTS
ITEM 11. FUND HISTORY
THE WORLD FUNDS, INC.
ITEM 12. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISK
INVESTMENT OBJECTIVE
INVESTMENT POLICIES
CSI EQUITY FUND
CSI FIXED INCOME FUND
INVESTMENT RISKS
INVESTMENT RESTRICTIONS

ITEM 13. MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
COMPENSATION TABLE

ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
DISTRIBUTOR
CUSTODIAN AND ACCOUNTING SERVICES AGENTS
TRANSFER AND DIVIDEND DISBURSING AGENT
ADMINISTRATOR

ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICE

ITEM 17. CAPITAL STOCK AND OTHER SECURITIES

ITEM 18. PURCHASE, REDEMPTION, AND PRICING OF SHARES
ELIGIBLE BENEFIT PLANS
FUND EXPENSES
SPECIAL SHAREHOLDER SERVICES
NET ASSET VALUE

ITEM 19. TAXATION OF THE FUN

ITEM 20. UNDERWRITERS

ITEM 21. CALCULATION OF PERFORMANCE DATA
COMPARISONS AND ADVERTISEMENTS

ITEM 22. FINANCIAL STATEMENTS
APPENDIX

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND RATINGS:
MOODY'S SHORT-TERM DEBT RATINGS:
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
<PAGE>

Item 11. Fund History.

The World Funds, Inc.
The Funds are series of The World Funds, Inc. (the "Company"), a Maryland
corporation which was organized on May 9, 1997.

Item 12. Description of the Fund and Its Investments and Risks.

The Company is an open-end, management investment company, commonly
known as a "mutual fund." Each of the CSI Equity Fund (the "Equity Fund") and
the CSI Fixed Income Fund (the "Fixed Income Fund", and each, a "Fund") is a
no-load series of the Company, and each Fund is a diversified series.

Investment Objective

The investment objective of the Equity Fund is to achieve 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.

The investment objective of the Fixed Income Fund is to seek current
income by investing in debt securities.

Each Fund may invest a significant portion of its assets in foreign
securities, as described in the Part A to Form N-1A and below.

All investments entail some market risk and there is no assurance that
a Fund's investment objective will be realized.

Investment Policies

The investment policies of each Fund are intended to provide the
flexibility to take advantage of opportunities while accepting only what CSI
Capital Management, Inc. (the "Advisor") believes to be reasonable risks.
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.

CSI Equity Fund

Under normal market conditions, the Equity 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 where these fixed
income securities are convertible into equity securities. The fixed income
securities in which the Fund may invest will be rated at the time of purchase
Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher
by Standard and Poor's Ratings Group ("S&P"), or if they are foreign securities
which are not subject to standard credit ratings the fixed income securities
will be "investment grade" issues (in the judgement of the Advisor) based on
available information. Securities rated as BBB are regarded as having adequate
capacity to pay interest and repay principal.

The Fund will select its non-equity investments from money market
investments (such as U.S. Government securities (see the description below)
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 may invest a significant portion of its assets overseas, and
therefore may be subject to some of the risks described in the section titled
"Investment Risks" below.

The Fund's investments will be subject to the market fluctuations and
risks which are inherent in all investments. The Advisor will seek to attain the
Fund's stated objective, however, there can be no assurance that the objective
will be achieved.

CSI Fixed Income Fund

In order to seek its objective of current income, the Fund will invest
in U.S. Government Securities, municipal securities, corporate debt securities,
zero coupon bonds, and international bonds.

U.S. Government securities. U.S. Government Securities are described
above.

Municipal Securities. Tax-exempt municipal securities are debt
obligations issued by or on behalf of the governments of states, territories or
possessions of the United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities, certain interstate agencies and
certain territories of the United States, the interest on which, in the opinion
of bond counsel or other counsel to the issuer of such securities, is exempt
from federal income tax. The two principal classifications of municipal
securities are "general obligation" and "revenue" securities. "General
obligation" securities are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. "Revenue" securities
are usually payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. Industrial development bonds are usually
revenue securities, the credit quality of which is normally directly related to
the credit standing of the industrial user involved.

Within these principal classification of municipal securities there are
a variety of categories of municipal securities, including fixed and variable
rate securities, municipal bonds, municipal notes, and municipal leases.
Variable rate securities bear rates of interest that are adjusted periodically
according to formula intended to reflect market rates of interest and include
securities whose rates vary inversely with changes in market rates of interest.
Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain temporary
funds for various public purposes. Municipal leases are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities.

Corporate Debt Securities. The Fund may invest in Corporate debt
securities which are rated AA or higher by Moody's Investors Services, Inc.
("Moody's"), or Standard & Poor's Corporation ("S&P") at the time of purchase,
or unrated securities which the Advisor believes to be of comparable quality.

Zero Coupon Securities. The Fund may invest in zero coupon securities
as described in the Prospectus. Zero coupon securities, which are convertible
into common stock, offer the opportunity for capital appreciation as increases
(or decreases) in market value of such securities closely follows the movements
in the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder of
the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.

Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including Treasury
Income Growth Receipts (TIGRS-TM) and Certificate of Accrual on Treasuries
(CATS-TM). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates, or other evidences of ownership of the U.S.
Treasury securities, has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act; therefore, the Fund
intends to adhere to this staff position and will not treat such privately
stripped obligations to be U.S. Government securities for the purpose of
determining the Fund's "diversification."

When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "Taxes").

International Bonds. International bonds are defined as bonds issued in
countries other than the United States. The Fund's investments may include debt
securities issued or guaranteed by a foreign national government, its agencies,
instrumentalities or political subdivisions, debt securities issued or
guaranteed by supranational organizations, corporate debt securities, bank or
holding company debt securities and other debt securities including those
convertible into common stock. The Fund will invest in very high investment
grade instruments that will bear the rating of A or higher by Standard & Poor's
Ratings Group ("S&P") or A or higher by Moody's Investor Service, Inc.
("Moody's") at the time of purchase, or unrated securities which the Advisor
believes to be of comparable quality. However, the Fund reserves the right to
invest its assets in lower rated securities (including unrated securities which
the Advisor believes to be of such lower quality). (See the Appendix for Bond
Ratings).

The Fund does not engage in a significant amount of short-term trading
due to the fact that such practices would result in increased commissions and
transactions costs, but reserves the right to dispose of any security when
deemed appropriate for the Fund.

Repurchase Agreements. The Fixed Income Fund may enter into repurchase
agreements with member banks of the Federal Reserve System, any foreign bank or
with any domestic or foreign broker/dealer which is a reporting government
securities dealer or its equivalent which may be a foreign bank whose
creditworthiness is equal to the standards set for the Fund's direct investment
in debt obligations, if the creditworthiness of the bank or broker/dealer has
been determined by the Advisor to be at least as high as that of other
obligations the Fund may purchase.

A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a debt security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities is kept at least equal to
the repurchase price plus any accrued interest on a daily basis. The repurchase
price may be higher than the purchase price, the difference being income to the
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to the Fund together with the repurchase price on repurchase. In
either case, the income to the Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be physically held by the Fund's custodian
or in the Federal Reserve Book Entry system. Repurchase agreements are
considered securities issued by the seller for purposes of the diversification
test under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and not cash, a cash item, or a U.S. Government security.

For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from a fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the fund's investment restrictions applicable to loans. It is not
clear whether a court would consider the Obligation purchased by a fund subject
to a repurchase agreement as being owned by the fund or as being collateral for
a loan by the fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, a fund may encounter
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and a fund has not perfected a security
interest in the Obligation, the fund may be required to return the Obligation to
the seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, a fund would be at risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities. A repurchase agreement
with foreign banks may be available with respect to government securities of the
particular foreign jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.

If the Fixed Income Fund enters into repurchase agreements, it will do
so with selected banks and securities dealers, depending upon the availability
of the most favorable yields. The Fund will always seek to perfect its security
interest in the collateral. If the seller of a repurchase agreement defaults,
the Fund may incur a loss if the value of the collateral securing the repurchase
agreement declines. The Advisor monitors the value of the collateral to ensure
that its value always equals or exceeds the repurchase price and also monitors
the financial condition of the issuer of the repurchase agreement. If the seller
defaults, the Fund may incur disposition costs in connection with liquidating
the collateral of that seller. If bankruptcy proceedings are commenced with
respect to the seller, realization upon the collateral by the Fund may be
delayed or limited.

Currency Transactions. The Equity Fund may engage in currency
transactions with counterparties in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. The Fund's currency transactions may include forward currency contracts.
A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract.

The Fund's dealings in forward currency contracts will be limited to
hedging involving either specific transactions or portfolio positions. Specific
transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities or the receipt
of income therefrom. Position hedging is entering into a currency transaction
with respect to portfolio security positions denominated or generally quoted in
that currency.

The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below. The Fund
may also cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can result
in losses to a fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a fund is engaging in proxy hedging.

Investment Risks

Investors should recognize that the Funds may invest in both domestic
and foreign securities and that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in United States securities and which may favorably or
unfavorably affect the performance of the Fund.

As foreign companies are not generally subject to the same uniform
standards, practices and requirements, with respect to accounting, auditing and
financial reporting, as are domestic companies, there may be less publicly
available information about a foreign company than about a domestic company.
Many foreign securities markets, while growing in volume of trading activity,
have substantially less volume in the U.S. market, and securities of some
foreign issuers are less liquid and more volatile than securities of domestic
issuers. Similarly, volume and liquidity in most foreign bond markets is less
than in the United States and, at times, volatility of price can be greater than
in the United States. Furthermore, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although a Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. Furthermore, a Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, securities exchanges, brokers and listed
companies than in the United States. Communications between the United States
and foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The Advisor seeks to mitigate the risks associated with the foregoing
considerations through continuous professional management.

Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of a Fund, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Fund may incur costs in connection with conversions between
various currencies. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while
offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. The Funds will conduct their foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into the forward or
futures contracts (or option thereon) to purchase or sell foreign currencies.

Foreign securities may be subject to foreign government taxes which
could reduce the yield on such securities, although a shareholder of the Fund
may, subject to certain limitations, be entitled to claim a credit or deduction
for U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Funds (see "Taxes"). U.S. and foreign securities
markets do not always move in step with each other and the total returns from
different markets may vary significantly.

Securities rated BB by S&P or Ba by Moody's and below are commonly
known as "high-yield," "high-risk" or "junk bonds" and involve a high degree of
speculation with respect to the payment of principal and interest.

Investment Restrictions

The policies set forth below that are fundamental policies of each of
the Funds, along with the investment objective of each Fund, 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, each of the Funds will not:

Invest in companies for the purpose of exercising control;

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;

Purchase or sell commodities or commodity contracts;

Invest in interests in oil, gas, or other mineral explorations or
development programs;

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;

Issue senior securities (except that the Fund may engage in
transactions such as those permitted by SEC release IC-10666);

Act as an underwriter of securities of other issuers, except that each
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;

Concentrate its investments in any industry;

Participate on a joint or a joint and several basis in any securities
trading account;

Engage in short sales;

Purchase or sell real estate, provided that liquid securities of
companies which deal in real estate or interests therein will not be
deemed to be investment in real estate;

Purchase any security if, as a result of such purchase, less than 75%
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 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; and

Except for the Fixed Income Fund, make loans, except that it may enter
into repurchase agreements secured by the U.S. Government or Agency
securities.

Except as specified below, each of the Funds may only borrow money 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. A Fund may borrow money to avoid the untimely
disposition of assets to meet redemptions, in an amount up to 33 1/3%
of the value of its assets, provided that the Fund maintains asset
coverage of 300% in connection with borrowings, and the Fund may not
make other investments while such borrowings are outstanding.

The Directors of the Company have voluntarily adopted certain
nonfundamental 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 nonfundamental policy, neither the Equity Fund or the
Fixed Income Fund may:

Invest more than 15% of its net assets in illiquid securities;

Engage in arbitrage transactions; or

Purchase or sell options.

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.

Item 13. Management of the Fund

Directors and Officers

Under Maryland law and the Company's Articles of Incorporation, as
amended or restated, the Board of Directors has overall responsibility for
managing the business and affairs of the Company and the Funds. The Directors
elect the officers of the Company, who are responsible for administering the
day-to-day operations of the Funds.

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. 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.

- ---------------------
*Persons deemed to be "interested" persons of the Company, CSI Capital
Management, Inc. or First Dominion Capital Corp. under the 1940 Act.

<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C>

Aggregate Compensation From Pension or Retirement Total Compensation From
Company for Fiscal Year Benefits Accrued As Part Company and Fund Complex
Name and Position Held ended August 31, 19981 of Fund Expenses Paid to Directors
- ---------------------- ---------------------- ----------------------- -----------------
John Pasco, III, Director $0 N/A $0
Samuel Boyd, Jr., Director $2,200 N/A $3,700
William E. Poist, Director $2,200 N/A $3,700
Paul M. Dickinson, Director $2,200 N/A $3,700
- ----------------------

</TABLE>

1 This amount represents the aggregate amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Company's fiscal
year ended August 31, 1998.

Item 14. Control Persons and Principal Holders of Securities

As of August 31, 1998, Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94101-4122 owned of record and beneficially 2,916,793.987
outstanding shares (or 99.139%) of the Equity Fund, and 3,639,629.140
outstanding shares (or 99.935%) of the Fixed Income Fund.

Item 15. Investment Advisory and Other Services

Investment Advisor

CSI Capital Management, Inc. (the "Advisor") manages the investment of
the assets of the Funds pursuant to Investment Advisory Agreements (each, an
"Advisory Agreement"). The Advisory Agreements are effective for a period of two
years from October 14, 1997, 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
Advisor by vote cast in person at a meeting called for the purpose of voting on
such approval. Each Advisory Agreement is terminable without penalty on sixty
days notice by the Company's Board of Directors or by the Advisor. Each Advisory
Agreement provides that it will terminate automatically in the event of its
assignment. The address of the Advisor is One Montgomery Street, Suite 2525,
San Francisco, CA 94104.

The Advisor is compensated at the annual rate of 1% of the average daily
net assets of each Fund as described in the Prospectus of the Funds. The Fixed
Income Fund has voluntarily agreed to waive fees or make payments to the extent
that its total would not exceed 1% of the average daily net assets through
August 31, 1999. the fiscal year ended August 31, 1998 the Fund paid the Advisor
$142,044 for the Equity Fund and $164,495 for the Fixed Income Fund. During
1998, the Advisor voluntarily waived $83,263 of the Fixed Income Fund's
management fee.

The Advisory Agreements contemplate the authority of the Advisor to
place orders pursuant to its investment determinations for each Fund either
directly with the issuer or with any broker or dealer. In placing orders with
brokers or dealers, the Advisor will attempt to obtain the best price and
execution of its orders. The Advisor may purchase and sell securities to and
from brokers and dealers who provide a Fund with research advice and other
services, or who sell shares of the Fund. See "Portfolio Transactions" above.

Distributor

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 that became
effective August 19, 1997. John Pasco, III, Chairman of the Board and Director
of the Company owns 100% of the Distributor, and is its President, Treasurer and
a Director.

Custodian and Accounting Services Agents.

Star Bank ("Star") is the Company's custodian and accounting services
agent. Star collects income when due and holds all of the portfolio securities
and cash. Star, 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. For the fiscal year ended August 31,
1998, the Fund paid Star $13,824 for the Equity Fund and $12,488 for the Fixed
Income Fund. Star voluntarily waived custodian fees of $1,034 for the Equity
Fund and $251 for the Fixed Income Fund.

Transfer and Dividend Disbursing Agent

Fund Services, Inc. ("FSI" or the "Transfer Agent") is the transfer and
dividend disbursing agent for 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, 1997, FSI is compensated pursuant to a schedule of services, and is
reimbursed for out-of-pocket expenses. The schedule for each 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. For the fiscal year ended August 31, 1998, the
Fund paid FSI $7,384 for the Equity Fund and $7,464 for the Fixed Income Fund.

John Pasco, III, President of the Company and an officer and
shareholder of Commonwealth Shareholder Services, Inc (the Administrator of the
Funds) owns one third of the stock of FSI, and, therefore, FSI may be deemed to
be an affiliate of the Company and Commonwealth Shareholder Services, Inc.

Administrator

Commonwealth Shareholder Services, Inc. ("CSS") is the Company's
administrator for each Fund pursuant to Administrative Services Agreements (the
"Service Agreements"). Each of the Service Agreements 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. CSS provides certain
recordkeeping and shareholder servicing functions required of registered
investment companies, and will assist each 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 Funds on terms set and for fees or
reimbursements approved by the Company's Board of Directors. The Administrative
Services Agreements provide that CSS will be paid monthly: (1) 0.20% of the
average daily net assets of the Funds on the first $50 million, 0.15% per annum
of the average daily net assets from $50 million to $100 million, and 0.10% per
annum of the average daily net assets over $100 million (which includes
regulatory matters, backup of the pricing of shares of each 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. For the fiscal year ended August 31, 1998, the Fund paid CSS $34,549 for
the Equity Fund and $39, 366 for the Fixed Income Fund.

Item 16. Brokerage Allocation and Other Practices.

The Advisory Agreements contemplate the authority of the Advisor to
place orders for each of the Funds pursuant to its investment determinations
either directly with the issuer or with any broker or dealer. The Advisor may
allocate brokerage to an affiliated dealer in accordance with written policies
and procedures adopted by the Company's Board of Directors. It is the policy of
the Advisor, in placing orders for the purchase and sale of each Fund's
securities, to seek to obtain the best price and execution for its securities
transactions, taking into account such factors as price, commission, where
applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the Advisor then arranges for execution of the transaction
in a manner deemed to provide the best price and execution for the Fund.

Exchange-listed securities are generally traded on their principal
exchange unless another market offers a better result. Securities traded only in
the over-the-counter market may be executed on a principal basis with primary
market makers in such securities except for fixed price offerings and except
where a Fund may obtain better prices or executions on a commission basis or by
dealing with other than a primary market maker.

The Fund paid $36,802 in brokerage commissions during the last fiscal
year, none of which was paid to an affiliated broker-dealer.

The Fund may authorize the Advisor, when placing Fund transactions, to
allocate a portion of the Fund's brokerage to persons or firms providing the
Advisor with investment recommendations, statistical, research or similar
services useful to the Advisor's investment decision making process. The term
"investment recommendations, statistical, research or similar services" means
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analysis and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. It also may authorize the Advisor to cause the Fund to pay a
commission higher than that charged by another broker in consideration of such
research services. Such services are one of the many ways the Advisor can keep
abreast of the information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions for a
Fund may be used by the Advisor for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.

From time to time, and subject to the Advisor obtaining the best price
and execution for each Fund, the Board of Directors may authorize the 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. While there is no formula, agreement or undertaking to do
so, and when it can be done consistent with the policy of obtaining best price
and execution, a Fund may consider sales of its shares as a factor in the
selection of brokers to execute portfolio transactions. The Advisor is not
authorized, when placing portfolio transactions for a Fund, to pay a brokerage
commission in excess of that which another broker might have charged for
executing the same transaction solely on account of Except for implementing the
policy stated above, there is no intention to place portfolio transactions with
particular brokers or dealers or groups thereof. There were no transactions and
related commissions for last fiscal year.

When two or more clients managed by the Advisor 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 a Fund is concerned. In other cases, however, it is
believed that the ability of such Fund to participate in volume transactions
will be beneficial for the Fund. It is the opinion of the Board of Directors of
the Company that these advantages, when combined with the other benefits
available because of the Advisor's organization, outweigh the disadvantages that
may be said to exist from this treatment of transactions.

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 a 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 a Fund's portfolio whenever
necessary, in the Advisor's opinion, to meet the Fund's objective. The Advisor
anticipates that the average annual portfolio turnover rate of each of the Funds
will be less than 50%.

Item 17. Capital Stock and Other Securities

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 Equity Fund, 50,000,000 shares to the Fixed Income Fund,
50,000,000 shares to the Sand Hill Portfolio Manager Fund, 50,000,000 shares to
the Third Millennium Russia Fund and 50,000,000 shares to The New Market Fund.
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 advisory fees payable to the Advisor by each
Fund will be based upon the separate assets of each Fund. The shareholders of
each of the Funds have the right to vote with respect to the investment advisor
of such Fund, respectively.

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.

Dividends and Distributions - As stated previously, it is the policy of
the Equity Fund to distribute substantially all of its net investment income
annually and the policy of the Fixed Income Fund to distribute substantially all
of its net investment income quarterly and each Fund will distribute its net
realized capital gains, if any, shortly before the close of the fiscal year
(December 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.

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 Advisor governing personal securities
activities and investments of those persons and has instituted procedures to its
Code of Ethics to require such investment personnel to report such activities to
the compliance officer. The Code is reviewed and updated annually.

Item 18. Purchase, Redemption, and Pricing of Shares

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.

Fund Expenses

Each Fund will pay its expenses not assumed by the Advisor, including,
but not limited to, the following: custodian; stock transfer and dividend
disbursing fees and expenses; taxes; expenses of the issuance and redemption of
Fund shares (including stock certificates, registration and qualification fees
and expenses); legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Fund.

The allocation of the general expenses to each Fund is made on a basis
that the Company's Board of Directors deems fair and equitable, which may be
based on the relative net assets of the series of the Company or the nature of
the services performed and relative applicability to each series of the Company.

Under the Fixed Income Fund's Advisory Agreement, the Advisor has
agreed to reimburse the Fund if the annual ordinary operating expenses of the
Fund exceeds the most stringent limits prescribed by any state in which the
Fund's shares are offered for sale. This expense limitation is calculable based
on the aggregate net assets of the Fund. Expenses which are not subject to this
limitation are interest, taxes and extraordinary expenses. Expenditures,
including costs incurred in connection with the purchase or sale of portfolio
securities, which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, are accounted for as
capital items and not as expenses. Reimbursement, if any, will be on a monthly
basis, subject to year-end adjustment and limited to the amount of the advisory
fee due from the Fund.

Investors should understand that the Funds' expense ratios can be
expected to be higher than investment companies investing in domestic securities
since the cost of maintaining the custody of foreign securities and the rates of
advisory fees paid by the Funds are higher.

Special Shareholder Services

As described briefly in the Prospectus, each 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.

Each 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). Starting in 1997, even a
spouse who does not earn compensation can contribute up to $2,000 per year to
his or her own IRA. The deductibility of such contributions will be determined
under the same rules as for contributions made by individuals with earned
income. A special IRA program is available for corporate employers under which
the employers may establish IRA accounts for their employees in lieu of
establishing corporate retirement plans. Known as SEP-IRA's (Simplified Employee
Pension-IRA), they free the corporate employer of many of the recordkeeping
requirements of establishing and maintaining a corporate retirement plan trust.

If a shareholder has received a lump sum distribution from another
qualified retirement plan, all or part of that distribution may be rolled over
into your Fund IRA. A rollover contribution is not subject to the limits on
annual IRA contributions. By acting within applicable time limits of the
distribution you can continue to defer Federal Income Taxes on your lump sum
contribution and on any income that is earned on that contribution.

How to Establish Retirement Accounts: Please call the Company to obtain
information regarding the establishment of individual retirement plan accounts.
Each plan's custodian charges nominal fees in connection with plan establishment
and maintenance. These fees are detailed in the plan documents. 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 $1,000). 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). The Transfer Agent will charge the
shareholder's account a $10.00 service fee each time there is an exchange. The
Company reserves the right to limit the number of exchanges or to otherwise
prohibit or restrict shareholders from making exchanges at any time, without
notice, should the Company determine that it would be in the best interest of
its shareholders to do so. For tax purposes an exchange constitutes the sale of
the shares of the Fund from which you are exchanging and the purchase of shares
of the Fund into which you are exchanging. Consequently, the sale may involve
either a capital gain or loss to the shareholder for federal income tax
purposes. The exchange privilege is available only in states where it is legally
permissible to do so.

Net Asset Value

Each 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. Each 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 each Fund's NAV be
calculated as of the close of trading of the Exchange (currently 4:00 p.m.,
Eastern Time) on each business day from Monday to Friday or on each day (other
than a day during which no security was tendered for redemption and no order to
purchase or sell such security was received by the Fund) in which there is a
sufficient degree of trading in the Fund's portfolio securities that the current
NAV of the Fund's shares might be materially affected by changes in the value of
such portfolio security.

NAV per share is determined by dividing the total value of a Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.

Each Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.

Generally, securities owned by each Fund are valued at market value. In
valuing a Fund's assets, portfolio securities, including ADRs and EDRs, which
are traded on the Exchange, will be valued at the last sale price prior to the
close of regular trading on the Exchange. Lacking any sales, the security will
be valued at the last bid price prior to the close of regular trading on the
Exchange. ADRs and EDRs for which such a value cannot be readily determined on
any day will be valued at the closing price of the underlying security adjusted
for the exchange rate. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated in accordance
with procedures approved by the Board of Directors of the Company as the primary
market.

Unlisted securities which are quoted on the NASD's National Market
System, for which there have been sales of such securities, shall be valued at
the last sale price reported on such system. If there are no such sales, the
value shall be the high or "inside" bid, which is the bid supplied by the NASD
on its NASDAQ Screen for such securities in the over-the-counter market. The
value of such securities quoted on the NASDAQ System, but not listed on the
NASD's National Market System, shall be valued at the high or "inside" bid.
Unlisted securities which are not quoted on the NASDAQ System and for which the
over-the-counter market quotations are readily available will be valued at the
last reported bid price for such securities in the over-the-counter market.
Other unlisted securities (and listed securities subject to restriction on sale)
will be valued at their fair value as determined in good faith by the Board of
Directors. Open futures contracts are valued at the most recent settlement
price, unless such price does not reflect the fair value of the contract, in
which case such positions will be valued by or under the direction of the Board
of Directors.

The value of a security traded or dealt in upon an exchange may be
valued at what the 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. For example, the pricing
agent may determine that the price of a security listed on a foreign stock
exchange that was fixed by reason of a limit on the daily price change does not
represent the fair market value of the security. Similarly, the value of a
security not traded or dealt in upon an exchange may be valued at what the
pricing agent determines is fair market value if the pricing agent determines
that the last sale does not represent the value of the security, provided that
such amount is not higher than the current bid price.

Notwithstanding the foregoing, money market investments with a
remaining maturity of less than sixty days shall be valued by the amortized cost
method; debt securities are valued by appraising them at prices supplied by a
pricing agent approved by the 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, futures contracts and options on futures listed or admitted to
trading on a national exchange shall be valued at their last sale on such
exchange prior to the time of determining NAV; or if no sales are reported on
such exchange on that day, at the mean between the most recent bid and asked
price; and forward contracts shall be valued at their last sale as reported by
the Company's pricing service, or lacking a report by the service, at the value
of the underlying currencies at the prevailing currency rates.

U.S. Treasury bills, and other short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, with
original or remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, are valued at the mean of representative quoted bid
and asked prices for securities of comparable maturity, quality and type.
Short-term securities, with 60 days or less to maturity, are amortized to
maturity based on their cost if acquired within 60 days of maturity or, if
already held, on the 60th day, based on the value determined on the 61st day.

The value of a security which is subject to legal or contractual delays
in or restrictions on resale by a 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.

Following the calculation of security values in terms of currency in
which the market quotation used is expressed ("local currency"), the pricing
agent shall, prior to the next determination of the NAV of a Fund's shares,
calculate these values in terms of United States dollars on the basis of the
conversion of the local currencies (if other than U.S.) into United States
dollars at the rates of exchange prevailing at the value time as determined by
the pricing agent.

Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the New York
Stock Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which a Fund's NAV is not calculated. Each Fund
calculates NAV per share, and therefore, effects sales, redemptions and
repurchases of its shares, as of the close of the Exchange once on each day on
which that Exchange is open. Such calculation may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculations. If events materially affecting the value of a
portfolio security occur between the time when its price is determined and the
time when a Fund's NAV is calculated, such a security will be valued at fair
value as determined in good faith by the Board of Directors.

Any purchase order may be rejected by the Distributor or by the
Company.

Item 19. Taxation of the Fund

DISTRIBUTIONS AND TAXES

Distributions of net investment income The Funds receive income
generally in the form of interest and other income on their investments. This
income, less expenses incurred in the operation of a Fund, constitutes a Fund's
net investment income from which dividends may be paid to you. Any distributions
by a Fund from such income will be taxable to you as ordinary income, whether
you take them in cash or in additional shares.

Distributions of capital gains The Funds may derive capital gains and
losses in connection with sales or other dispositions of their portfolio
securities. Distributions from net short-term capital gains will be taxable to
you as ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in a Fund. Any net capital gains realized by a Fund generally will
be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the Fund.

Effect of foreign investments on distributions Most foreign exchange
gains realized on the sale of debt securities are treated as ordinary income by
a Fund. Similarly, foreign exchange losses realized by a Fund on the sale of
debt securities are generally treated as ordinary losses by the Fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce a Fund's ordinary income otherwise available for distribution
to you. This treatment could increase or reduce a Fund's ordinary income
distributions to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.

A Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of a Fund's total assets at
the end of the fiscal year are invested in securities of foreign corporations, a
Fund may elect to pass-through to you your pro rata share of foreign taxes paid
by the Fund. If this election is made, the year-end statement you receive from a
Fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. A Fund will provide
you with the information necessary to complete your individual income tax return
if it makes this election.

Information on the tax character of distributions The Funds will inform
you of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax status
for federal income tax purposes shortly after the close of each calendar year.
If you have not held Fund shares for a full year, a Fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the period
of your investment in the Fund.

<PAGE>

Election to be taxed as a regulated investment company Each Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code, has qualified as such for its most recent fiscal
year, and intends to so qualify during the current fiscal year. As regulated
investment companies, the Funds generally pay no federal income tax on the
income and gains they distribute to you. The board reserves the right not to
maintain the qualification of a Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
a Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of such Fund's earnings and profits.

Excise tax distribution requirements To avoid federal excise taxes, the
Internal Revenue Code requires a Fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. Each Fund intends to declare and pay
these amounts in December (or in January that are treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.

Redemption of fund shares Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your Fund shares, or exchange your Fund shares for shares of a different fund of
the Company, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by a Fund on those shares.

All or a portion of any loss that you realize upon the redemption of
your Fund shares will be disallowed to the extent that you buy other shares in
such Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you purchase.

U.S. government obligations Many states grant tax-free status to
dividends paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by the Fund. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities do not generally qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.

Dividends-received deduction for corporations Because the Fixed Income
Fund's income consists of interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the Fixed Income
Fund for the most recent calendar year qualified for such deduction, and it is
anticipated that none of the current year's dividends will so qualify.

As a corporate shareholder, you should note that 100% of the dividends
paid by the Equity Fund for the most recent fiscal year qualified for the
dividends-received deduction. You will be permitted in some circumstances to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Equity Fund as eligible for such treatment. All dividends (including the
deducted portion) must be included in your alternative minimum taxable income
calculations.

Investment in complex securities The Funds may invest in complex
securities. These investments may be subject to numerous special and complex tax
rules. These rules could affect whether gains and losses recognized by a Fund
are treated as ordinary income or capital gain, accelerate the recognition of
income to a Fund and/or defer a Fund's ability to recognize losses, and, in
limited cases, subject a Fund to U.S. federal income tax on income from certain
of its foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by a Fund.

Item 20. Underwriters

Shares of the Funds are sold at NAV on a continuous basis, without a
sales charge. The Distributor is required to distribute the Funds' shares on a
best efforts basis. The following table sets forth the commissions and other
compensation received by the principal underwriter, which is an affiliated
person of the Funds, directly or indirectly, from the Funds during the Funds'
most recent fiscal year:

<PAGE>

(1) (2) (3) (4) (5)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Name of Net Compensation Brokerage Other
Principal Underwriting on Redemptions Commissions Compensation
Underwriter Discounts and and Repurchases
Commissions
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
First Dominion Capital None None None None
Corp.
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------

</TABLE>

Item 21. Calculation of Performance Data
Current yield and total return are the two primary methods of measuring
investment performance. Occasionally, however, a Fund may include its
distribution rate in sales literature. Yield, in its simplest form, is the ratio
of income per share derived from the Fund's portfolio investments to the current
maximum offering price expressed in terms of percent. The yield is quoted on the
basis of earnings after expenses have been deducted. Total return, on the other
hand, 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. Current yield and total
return quotations used by a Fund are based on the standardized methods of
computing performance mandated by the Commission.

Yield. As indicated below, current yield is determined by dividing the
net investment income per share earned during the period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders
during the 30-day base period. According to the Commission formula:

YIELD = 2 [ ( a-b + 1 )6 - 1 ]
------
cd

where:
a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

Total Return. 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:

P(1 + T)n = 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).

The average annual total returns for the Funds are as follows:

Fund From Inception
10/14/97 to 8/31/98
Equity Fund -1.20%
Fixed Income Fund 4.80%

Sales literature pertaining to a Fund may quote a distribution rate in
addition to the yield or 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 differs from the yield
because it measures what the Fund paid to shareholders rather than what the Fund
earned from investments. It also differs from the yield because it 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 a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
NAV or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a Fund relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicates volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure variability of NAV
or total return around an average, over a specified period of time. The premise
is that greater volatility connotes greater risk undertaken in achieving
performance.

Sales literature referring to the use of a Fund as a potential
investment for IRAs, Business Retirement Plans, and other tax-advantaged
retirement plans may quote a total return based upon compounding of dividends on
which it is presumed no federal income tax applies.

Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.

Comparisons and Advertisements

To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss yield, total return, or Fund volatility as reported by various financial
publications. Advertisements may also compare yield, total return, or volatility
(as calculated above) to yield, total return, or volatility as reported by other
investments, indices, and averages. The following publications, indices, and
averages may be used:

(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance
assume reinvestment of dividends.

(b) Standard & Poor's 500 Stock Index or its component indices an
unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks, and 20 transportation
stocks.
Comparisons of performance assume reinvestment of dividends.

(c) The New York Stock Exchange composite or component indices
-unmanaged indices of all industrial, utilities,
transportation, and finance stocks listed on the New York
Stock Exchange.

(d) Wilshire 5000 Equity Index - represents the return on the
market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume
reinvestment of dividends.

(e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed
Income Analysis, and Lipper Mutual Fund Indices - measures
total return and average current yield for the mutual fund
industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.

(f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.

(g) Mutual Fund Source Book and other material, published by
Morningstar, Inc. - analyzes price, yield, risk, and total
return for equity funds.

(h) Financial publications: Business Week, Changing Times,
Financial World, Forbes, Fortune, Barron's, Financial Times,
Investor's Business Daily, New York Times, The Wall Street
Journal, and Money magazines - publications that rate fund
performance over specified time periods.

(i) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services, in
major expenditure groups.

(j) Standard & Poor's 100 Stock Index - an unmanaged index based
on the price of 100 blue-chip stocks, including 92
industrials, one utility, two transportation companies, and 5
financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for option trading.

(k) Morgan Stanley Capital International EAFE Index - an
arithmetic, market value-weighted average of the performance
of over 1,000 securities on the stock exchanges of countries
in Europe, Australia and the Far East.

(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index
of government bond issues and includes Australia, Belgium,
Canada, Denmark, France, Germany, Italy, Japan, The
Netherlands, Spain, Sweden, United Kingdom and United States
gross of withholding tax.

(m) IFC Global Total Return Composite Index - An unmanaged index
of common stocks that includes 18 developing countries in
Latin America, East and South Asia, Europe, the Middle East
and Africa (net of dividends reinvested).

(n) Nomura Research, Inc. Eastern Europe an Equity Index comprised
of those equities which are traded on listed markets in
Poland, the Czech Republic, Hungary and Slovakia (returns do
not include dividends).

In assessing such comparisons of yield, return, or volatility, an
investor should keep in mind that the composition of the investments in the
reported indices and averages in not identical to a 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.

Item 22. Financial Statements

The books of each Fund will be audited at least once each year by Tait,
Weller and Baker, of Philadelphia, PA, independent public accountants. The
Funds' audited financial statements, including the notes thereon and the Report
of Independent Accountants, for the Funds' fiscal year ended August 31, 1998 are
incorporated by reference in this Item 22 by reference to the Funds' Annual
Report[s] to Shareholders for such fiscal year.

<PAGE>

APPENDIX

DESCRIPTION OF CORPORATE BOND RATINGS

Moody's Investors Service, Inc. ("Moody's") Corporate Bond Ratings:

Aaa - Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1,2 and 3 in the Aa and A rating categories.
The modifier 1 indicates that the security ranks at a higher end of the rating
category, modified 2 indicated a mid-range rating, and the modifier 3 indicates
that the issue ranks at the lower end of the rating category.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements,
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's Short-Term Debt Ratings:

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

Prime-1 - Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics, lending market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and well
established access to range of financial markets and assured sources of
alternate liquidity.

Prime-2 - Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Prime 3 - Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Standard & Poor's Ratings Group Corporate Bond Ratings:

AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation indicate an extremely strong capacity to pay
principal and interest.

AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from highest rated issues only to a small degree.
Plus(+) or Minus(-) - The ratings from AA to CCC may be modified by the addition
of a plus or a minus sign, which shows relative standing within the major rating
categories.

A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the higher rated
categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in categories than for debt in higher rated categories.

BB, B, CCC, CC - Debt rated BB, B, CCC, and CC is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation which indicates BB the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

C - The rating C is reserved for income bonds on which no interest is
being paid.

D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears .

<PAGE>

Investment Advisor: CSI Capital Management, Inc.
One Montgomery Street
Suite 2525
San Francisco, CA 94104

Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229

Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103

Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103

Marketing Services: For general information on the Funds and marketing
services, call the Distributor at
(800) 527-9525 toll free.

Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Fund's
Transfer Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free

More Information: For 24-hour, 7-days-a-week price
information call 1-527-9525. For information on any
series of the Company, investment plans, or other
shareholder services, call the Company at 527-9525
during normal business hours, or write the Company at
1500 Forest Avenue, Suite 223, Richmond, VA 23229.

<PAGE>

THE WORLD FUNDS, INC.

THIRD MILLENNIUM RUSSIA FUND

PART B

STATEMENT OF ADDITIONAL INFORMATION

DATED DECEMBER 30, 1998

The World Funds, Inc. (the "World Funds") is an open-end management
investment company commonly known as a "mutual fund." This Statement of
Additional Information ("SAI") is not a prospectus but supplements the
information contained in the current Part A to Form N-1A of the Third Millennium
Russia Fund, (the "Fund"), dated December 30, 1998. This SAI should be read in
conjunction with the Part A to Form N-1A, and has been designed to provide you
with further information which is not contained in the Part A to Form N-1A. The
Fund's Part A to Form N-1A may be obtained at no charge upon request to the
World Funds. Please retain this SAI for future reference.

<PAGE>

TABLE OF CONTENTS
ITEM 11. FUND HISTORY
ITEM 12. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
ITEM 13. MANAGEMENT OF THE FUND
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
ITEM 18. PURCHASE, REDEMPTION, AND PRICING OF SHARES
ITEM 19. TAXATION OF THE FUND
ITEM 20. UNDERWRITER
ITEM 21. CALCULATION OF PERFORMANCE DATA
ITEM 22. FINANCIAL STATEMENT

<PAGE>

Item 11. Fund History

THE WORLD FUNDS, INC.

The Fund is a series of World Funds, a Maryland corporation which is
was organized on May 9, 1997.

Item 12. Description of the Fund and Its Investments and Risks.

The World Funds is an open-end, management investment company, commonly
known as a "mutual fund." The Fund is a nondiversified series of the World
Funds.

INVESTMENT OBJECTIVE

The Fund's investment objective is to seek to achieve capital
appreciation by investing in a non-diversified portfolio consisting primarily of
equity securities which includes securities convertible into equity securities,
such as, warrants, convertible bonds, debentures or convertible preferred stock.

All investments entail some market risk and there is no assurance that
the Fund's investment objective will be realized.

INVESTMENT POLICIES

Under normal circumstances the Fund will have at least 65% of its
assets invested in a portfolio of common stocks or securities convertible into
common stock of issuers located in Russia. However, when the Advisor believes
that investments should be deployed in a temporary defensive posture because of
economic or market conditions, the Fund may invest up to 100% of its assets in
U.S. Government securities (such as bills, notes, or bonds of the U.S.
Government and its agencies) or other forms of indebtedness such as bonds,
certificates of deposit or repurchase agreements.

The Fund may also acquire fixed income investments where these fixed
income securities are convertible into equity securities (and which may
therefore reflect appreciation the underlying equity security), and where
anticipated interest rate movements, or factors affecting the degree of risk
inherent in a fixed income security are expected to change significantly so as
to produce appreciation in the security consistent with the Fund's objective.
The fixed income securities in which the Fund may invest will be rated at the
time of purchase BAA or higher by Moody's or BBB or higher by Standard & Poors
Rating Group ("S&P"), or if they are foreign securities which are not subject to
standard credit ratings the fixed income securities will be "investment grade"
issues (in the judgement of the Advisor) based on available information.
Securities rated as BBB are regarded as having adequate capacity to pay interest
and repay principal.

The Fund will select its non-equity investment from among securities
and obligations of all kinds including preferred stocks, warrant rights, bonds
(of any class or rating), money market investments (such as U.S. Government
securities issued by the U.S. Treasury, agencies or other instrumentalities) and
other evidences of indebtedness.

Strategic Transactions. The Advisor does not, as a general rule, intend
to regularly enter into strategic transactions for the purpose of reducing
currency and market risk, for two reasons. First, since financial derivatives in
Russian markets currently must be tailor-made to the Fund's specifications, they
are extremely costly and illiquid instruments, and as such do not offer a
cost-effective way to minimize currency and market risk. Second, the Fund is
intended for investors with a long-term investment horizon and it is the
Advisor's hope that any short-term losses due to fluctuations in local
currencies or stock market values will be compensated over the long term by the
capital appreciation of the portfolio securities. Notwithstanding the foregoing,
the Advisor may, from time-to-time as circumstances dictate, engage in strategic
transactions as described below.

Currency risk is assessed separately from equity analysis. To balance
undesirable currency risk the Fund may enter into forward contracts to purchase
or sell foreign currencies in anticipation of the Fund's currency requirements,
and to protect against possible adverse movements in foreign exchange rates.
Although such contracts may reduce the risk of loss due to a decline in the
value of the currency which is sold, they also limit any possible gain which
might result should the value of the currency rise. Foreign investments which
are not U.S. dollar denominated may require the Fund to convert assets into
foreign currencies or convert assets and income from foreign currencies to
dollars. Normally, exchange transactions will be conducted on a spot or cash
basis at the prevailing rate in the foreign exchange market. However, the
investment policies permit the Fund to enter into forward foreign currency
exchange contracts in order to provide protection against changes in foreign
exchange rates. Any transactions in foreign currencies will be designed to
protect the dollar value of the assets composing or selected to be acquired or
sold for the investment portfolio of the Fund; the Fund will not speculate in
foreign currencies.

The Fund may purchase and write covered call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
foreign securities. The purchase of an option on foreign currency may constitute
an effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In connection with
such transactions, the Fund will segregate assets sufficient to meet its
obligations: when the Fund's obligation is denominated in a foreign currency,
the Fund will own that currency or assets denominated in that currency, or a
currency or securities which the Advisor anticipates will move along with the
hedged currency.

The Fund may enter into contracts for the purchase or sale for future
delivery of foreign currencies ("foreign currency futures"). This investment
technique will be used only to hedge against anticipated future changes in
exchange rates which otherwise might adversely affect the value of the portfolio
securities or adversely affect the prices of securities that the Fund intends to
purchase or sell at a later date. The successful use of currency futures will
usually depend on the Advisor's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of foreign currency futures or may
actually realize losses.

The Fund is authorized to use financial futures, currency futures, and
options on such futures for certain hedging purposes subject to conditions of
regulatory authorities (including margin requirements) and limits established by
the World Fund's Board of Directors to avoid speculative use of such techniques.

Currency Transactions. The Fund may engage in currency transactions
with counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value. The
Fund's currency transactions may include forward currency contracts. A forward
currency contract involves a privately negotiated obligation to purchase or sell
(with delivery generally required) a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract.

The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can result
in losses to a fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a fund is engaging in proxy hedging.

INVESTMENT RISKS

Investors should recognize that the Fund invests in foreign securities
and that investing in foreign securities involves certain special
considerations, including those set forth below, which are not typically
associated with investing in United States securities and which may favorably or
unfavorably affect the performance of the Fund.

Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund, as measured in U.S. dollars, may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Fund may incur costs in connection with conversions
between various currencies. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one
rate, while offering a lesser rate of exchange should the fund desire to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into the forward or
futures contracts (or option thereon) to purchase or sell foreign currencies.

INVESTMENT RESTRICTIONS

The policies set forth below that are identified as fundamental
policies of the Fund, along with the investment objective of the Fund, may not
be changed without approval of a majority of the outstanding voting securities
of the Fund. As used in this SAI, a "majority of the outstanding voting
securities of a Fund" means the lessor of (1) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (2) more than 50% of the outstanding voting securities of the Fund.

As a matter of fundamental policy, a Fund will not:

As to 50% of its assets, purchase the securities of any
issuer (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States
or any agency or instrumentality thereof), if as a result of
such purchase, more than 5% of its total assets would be
invested in the securities of such issuer.

Purchase stock or securities of an issuer (other than the
obligations of the United States or any agency or
instrumentality thereof), if such purchase would cause the
Fund to own more than 10% of any class of the outstanding
voting securities of such issuer or, more than 10% of any
class of the outstanding stock or securities of such issuer.

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.

Buy or sell commodities or commodity contracts, provided that
the Fund may utilize not more than 1% of its assets for
deposits or commissions required to enter into forward foreign
currency contracts, and financial futures contracts for
hedging purposes as described in the Part A. (Such deposits or
commissions are not required for forward foreign currency
contracts).

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.

Make loans, except that a Fund may (1) lend portfolio
securities; and (2) enter into repurchase agreements secured
by U.S. Government securities.

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.

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.

Invest in interests in oil, gas, or other mineral
explorations or development programs.

Issue senior securities.

Participate on a joint or a joint and several basis in any
securities trading account.

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).

Invest in companies for the purpose of exercising control.

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.

Engage in short sales.

The Directors of the World Fund's have voluntarily adopted
certain policies and restrictions which are observed in the
conduct of the Fund's affairs. These represent intentions of
the Directors based upon current circumstances. They differ
from fundamental investment policies in that they may be
changed or amended by action of the Directors without
requiring prior notice to or approval of shareholders.

As a matter of non-fundamental policy, the Fund may not:

Invest more than 15% of its net assets in illiquid
securities.

If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Investment Policies" above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.

DIVIDENDS AND DISTRIBUTIONS

As stated previously, it is the policy of the Fund to distribute
substantially all of its net investment income annually and to distribute its
net realized capital gains, if any, shortly before the close of the fiscal year
(August 31st).

Item 13. Management of the Fund

DIRECTORS AND OFFICERS

The Company is governed by a Board of Directors which is primarily
responsible for protecting the interest of shareholders. The Directors are
experienced business persons who meet throughout the year to oversee the
Company's activities, review contractual arrangements with companies that
provide services to the Funds, and review performance. The names and business
addresses of the Directors and officers of the Company, together with the
information as to their principal occupations during the past five years, are
listed below. The Directors who are considered "interested persons" of the
Advisor, the Distributor or of the Company, as defined in Section 2(a)(19) of
the 1940 Act, as noted with an asterisk (*).

The following is a list of the Directors and Officers of the World
Funds, their birth date and a brief statement of their present positions and
principal occupations during the past five years.

*John Pasco, III (4/10/45)
Chairman, Director, and Treasurer
1500 Forest Ave, Suite 223; Richmond, VA 23229

Mr. Pasco is Treasurer and Director of Commonwealth Shareholder Services,
Inc., the World Fund's Administrator, since 1985. Director and shareholder of
Fund Services, Inc., the World Fund's Transfer and Disbursing Agent, since 1987
and shareholder of Commonwealth Fund Accounting, Inc. which provides bookkeeping
services to Star Bank (the custodian to other series of the World Funds).
Chairman, Director, and Treasurer of Vontobel Funds, Inc., a registered
investment company. Mr. Pasco is also a certified public accountant.

Samuel Boyd, Jr. (9/18/40)
Director
10808 Hob Nail Court, Potomac, MD 20854

Mr. Boyd is currently the Manager of the Customer Services Operations and
Accounting Division of the Potomac Electric Power Company. Director of Vontobel
Funds, Inc., a registered investment company. Mr. Boyd is also a certified
public accountant.

William E. Poist (6/11/39)
Director
5272 River Road, Bethesda, MD 20816

Mr. Poist is a financial and tax consultant through his firm Management
Consulting for Professionals. Director of Vontobel Funds, Inc., a registered
investment company. Mr. Poist is also a certified public accountant.

Paul M. Dickinson (11/11/47)
Director
8704 Berwickshire Drive, Richmond, VA 23229

Mr. Dickinson is currently the President of Alfred J. Dickinson, Inc.,
Realtors. Director of Vontobel Funds, Inc., a registered investment company.

*Jane H. Williams (6/28/48)
Vice President of the World Funds and
President of the Sand Hill Portfolio Manager Fund series
3000 Sand Hill Road, Suite 150, Menlo Park, CA 94025

Ms. Williams is the Executive Vice President of Sand Hill Advisors, Inc.
since 1982.

*Leland H. Faust (8/30/46)
Vice President of the World Funds and
President of the CSI Equity Fund and the CSI Fixed Income Fund
One Montgomery Street, Suite 2525, San Francisco, CA 94104

Mr. Faust has served as President of CSI Capital Management, Inc. since
1978. Mr. Faust is also a Partner in the law firm Taylor & Faust.

*Franklin A. Trice III (12/25/63)
Vice President of the Company and President of the New Market Fund
P.O. Box 8535, Richmond, VA 23226-0535

Since 1992 Mr. Trice has been a broker with both Scott & Stringfellow, Inc.
and Craigie, Inc.

*F. Byron Parker, Jr. (1/26/43)
Secretary
810 Lindsay Court, Richmond, VA 23229

Secretary of Commonwealth Shareholder Services, Inc. since 1986. Secretary
of Vontobel Funds, Inc., a registered investment company. Partner in the law
firm Mustian & Parker.

*John T. Connor, Jr., (6/16/41)
Vice President of the World Funds and President of Third Millennium Russia Fund.
515 Madison Avenue, 24th Floor, New York, NY 10022

Chairman of ROSGAL, a Russian financial company, and of its affiliate,
Rosgal Insurance, since 1993.

<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE

<S> <C> <C> <C>
Aggregate Compensation From Pension or Retirement Total Compensation From
Company for Fiscal Year ended Benefits Accrued As Part of Company and Fund Complex Paid
Name and Position Held August 31, 19981 Fund Expenses to Directors
- ----------------------
Samuel Boyd, Jr., Director $1,800.00 N/A $9,000.00

William E. Poist, Director $1,800.00 N/A $9,000.00

Paul M. Dickinson, Director $1,800.00 N/A $9,000.00
- ----------------------
</TABLE>

1 This amount represents the estimated amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Company's fiscal
year ended August 31, 1999; and (b) service on the Board of Directors/Trustees
of 4 other investment companies managed by the Advisor for the year ending
August 31, 1999.

Item 14. Control Persons and Principal Holders of Securities

(1) Lauer & Co. FBO John T. Conner, Jr., c/o Glenmede Trust Co., P.O. Box
58997, Philadelphia, PA 19102-8997 (10.509%).

(2) Lauer & Co. FBO Susan Schoke Connor Trust/IRA, ., c/o Glenmede
Trust Co., P.O. Box 58997, Philadelphia, PA 19102-8997 (14.712%).

(3) Barry J. Hershey, 381 Garfield Road, Concord, MA 01742 (42.675%).

(4) Bull & Co., P.O. box 3073, 301 N. Main Street, MC NC 31057,
Winston Salem, NC 27150 (6.305%).

(5) U.S. Clearing Corp. FBO Stires ODonnell Capital, 26 Broadway,
New York, NY 10004 (9.668%).

Item 15. Investment Advisory and Other Services

INVESTMENT ADVISOR

Third Millennium Investment Advisors, LLC (the "Advisor") manages the
investment of the assets of the Fund pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The Advisory Agreement is effective for a
period of two years from September 21, 1998, and may be renewed thereafter only
so long as such renewal and continuance is specifically approved at least
annually by the Board of Directors of the World Funds or by vote of a majority
of the outstanding voting securities of the World Funds, provided the
continuance is also approved by a majority of the Directors who are not
"interested persons" of the World Funds or the Advisor by vote cast in person at
a meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable without penalty on sixty days notice by the World Fund's
Board of Directors or by the Advisor. The Advisory Agreement provides that it
will terminate automatically in the event of its assignment. The address of the
Advisor is 515 Madison Avenue, 24th Floor, New York, N.Y. 10022.

The Advisor is compensated at the annual rate of 1.75% of the average
daily net assets of the Fund as described in the Part A to Form N-1A.

The Advisory Agreement contemplate the authority of the Advisor to
place orders pursuant to its investment determinations for the Fund either
directly with the issuer or with any broker or dealer. In placing orders with
brokers or dealers, the Advisor will attempt to obtain the best price and
execution of its orders. The Advisor may purchase and sell securities to and
from brokers and dealers who provide the Fund with research advice and other
services, or who sells shares of the Fund. See "Portfolio Transactions" above.

Custodian and Accounting Services Agent - Brown Brothers Harriman & Co.
("BBH") is the World Funds' Custodian and Accounting Services Agent. BBH
collects income when due and holds all of the World Funds' portfolio securities
and cash. (BBH, with the World Funds' consent, has designated The Depository
Trust Company of New York, as its agent to secure some of the assets of the
Fund.) BBH is authorized to appoint other entities to act as sub-custodians to
provide for the custody of foreign securities which may be acquired and held by
the World Funds outside the U.S. Such appointments are subject to appropriate
review by the World Funds' Board of Directors. BBH as the Accounting Services
Agent maintains and keeps current the books, accounts, records, journals or
other records of original entry relating to the World Funds' business. The
address of BBH is 40 Water Street, Boston, MA 02109.

DISTRIBUTION

Shares of the Fund are sold at NAV on a continuous basis, without a
sales charge. Shares of the Fund are subject to asset-based charges pursuant to
a Plan of Distribution adopted by the Fund.

First Dominion Capital Corp. (the "Distributor"), 1500 Forest Avenue,
Suite 223, Richmond, VA 23229, is the World Fund's principal underwriter
pursuant to a Distribution Agreement between the World Funds and the Distributor
effective on August 19, 1997. John Pasco, III, Chairman of the Board and a
director of the Company owns 100% of the Distributor, and is its President,
Treasurer and a Director.

TRANSFER AND DIVIDEND DISBURSING AGENT

Fund Services, Inc. (the "Transfer Agent" or "FSI") is the World Funds
transfer and disbursing agent, pursuant to a Transfer Agent Agreement, dated
August 19, 1997. FSI provides all the necessary facilities, equipment and
personnel to perform the usual and ordinary services of Transfer and Dividend
Disbursing Agent, including: administrative receipt and processing of orders and
payments for purchases of shares, opening shareholder accounts, preparing
shareholder meeting lists, mailing proxy material, receiving and tabulating
proxies, mailing shareholder reports and prospectuses, withholding certain taxes
on non-resident alien accounts, disbursing income dividends and capital
distributions, preparing and filing U.S. Treasury Department Form 1099 (or
equivalent) for all shareholders, preparing and mailing confirmation forms to
shareholders for all purchases and redemptions of the Fund's shares and all
other confirmable transactions in shareholders' accounts, recording reinvestment
of dividends and distribution of the Fund's shares. Under the Agreement between
the Fund and FSI, as in effect on May 1, 1991, FSI is compensated pursuant to a
schedule of services and out-of-pocket expenses. The address of the Transfer and
Dividend Disbursing Agent is P.O. Box 26305, Richmond, VA 23260. Pursuant to the
Transfer Agent Agreement the minimum annual fee for the Fund is $16,500.

John Pasco, III, President of the World Funds and an officer and
shareholder of Commonwealth Shareholder Services, Inc (the Fund's Administrator)
and an officer and sold shareholder of First Dominion Capital Corp. (the Fund's
distributor) owns one third of the stock of FSI, and, therefore, FSI may be
deemed to be an affiliate of the World Funds and Commonwealth Shareholder
Services, Inc.

ADMINISTRATOR

Commonwealth Shareholder Services, Inc. ("CSS") is the Fund's
administrator pursuant to an Administrative Services Agreement (the "Service
Agreement") dated September 21, 1998. The Service Agreement is described in the
Funds' Part A to Form N-1A. The Service Agreement continues in effect from year
to year for a term of one year only if the Board of Directors, including a
majority of the directors who are not interested persons of the World Fund's or
the Administrator, approves the extension at least annually. CSS provides
certain recordkeeping and shareholder servicing functions required of registered
investment companies, and will assist the World Funds in preparing and filing
certain financial and other reports and performs certain daily functions
required for ongoing operations. CSS may furnish personnel to act as the World
Funds' officers to conduct its business subject to the supervision and
instructions of its Board of Directors.

The Administrative Services Agreement provides that CSS will be paid
monthly: (1) 0.20% per year of the average daily net assets of the Fund which
includes regulatory matters, backup of the pricing of shares of the Fund,
administrative duties in connection with the execution of portfolio trades, and
certain services in connection with Fund accounting; (2) an hourly fee for
shareholder servicing and state securities law matters; and (3) certain
out-of-pocket expenses. John Pasco, III, Chairman of the Board of the World
Funds, owns 100 percent of the stock of CSS, which , therefore, may be deemed to
be an affiliate of the World Funds. The address of CSS is 1500 Forest Avenue,
Suite 223, Richmond, VA 23229.

Item 16. Brokerage Allocation and Other Practices

PORTFOLIO TRANSACTIONS

It is the policy of the Advisor, in placing orders for the purchase and
sale of the Fund's securities, to seek to obtain the best price and execution
for its securities transactions, taking into account such factors as price,
commission, where applicable, (which is negotiable in the case of U.S. national
securities exchange transactions but which is generally fixed in the case of
foreign exchange transactions), size of order, difficulty of execution and skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the Advisor then arranges for execution of the transaction
in a manner deemed to provide the best price and execution for the Fund.

Exchange-listed securities are generally traded on their principal
exchange unless another market offers a better result. Securities traded only in
the over-the-counter market may be executed on a principal basis with primary
market makers in such securities except for fixed price offerings and except
where the Fund may obtain better prices or executions on a commission basis or
by dealing with other than a primary market maker.

The Fund may authorize the Advisor, when placing Fund transactions, to
allocate a portion of the Fund's brokerage to persons or firms providing the
Advisor with investment recommendations, statistical, research or similar
services useful to the Advisor's investment decision making process. The term
"investment recommendations, statistical, research or similar services" means
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analysis and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. It also may authorize the Advisor to cause the Fund to pay a
commission higher than that charged by another broker in consideration of such
research services. Such services are one of the many ways the Advisor can keep
abreast of the information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions may be
used by the Advisor for the benefit of other clients, and the Fund may benefit
from such transactions effected for the benefit of other clients.

While there is no formula, agreement or undertaking to do so, and when
it can be done consistent with the policy of obtaining best price and execution,
the Fund may consider sales of its shares as a factor in the selection of
brokers to execute portfolio transactions. The Advisor is not authorized, when
placing portfolio transactions for the Fund, to pay a brokerage commission in
excess of that which another broker might have charged for executing the same
transaction solely on account of the receipt of research, market, or statistical
information. Except for implementing the policy stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof.

Average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Advisor's opinion, to meet the Fund's objective. The Advisor
anticipates that the average annual portfolio turnover rate of the Fund will
generally not exceed 150%.

Item 17. Capital Stock and Other Securities

GENERAL INFORMATION AND HISTORY

The World Funds is authorized to issue up to 500,000,000 shares of
common stock, par value $0.01 per share, of which it has presently allocated
50,000,000 shares to the Fund, and 200,000,000 shares among four other Series.
The Board of Directors can allocate the remaining authorized but unissued shares
to any series of the World Funds, or may create additional series and allocate
shares to such series. Each series is required to have a suitable investment
objective, policies and restrictions, to maintain a separate portfolio of
securities suitable to its purposes, and to generally operate in the manner of a
separate investment company as required by the 1940 Act. If additional series
were to be formed, the rights of existing series shareholders would not change,
and the objective, policies and investments of each series would not be changed.
A share of any series would continue to have a priority in the assets of that
series in the event of a liquidation.

The shares of each series when issued will be fully paid and
nonassessable, will have no preference over other shares of the same series as
to conversion, dividends, or retirement, and will have no preemptive rights. The
shares of any series will be redeemable from the assets of that series at any
time at a shareholder's request at the current NAV of that series determined in
accordance with the provisions of the 1940 Act and the rules thereunder. The
World Fund's general corporate expenses (including administrative expenses) will
be allocated among the series in proportion to net assets or as determined in
good faith by the Board.

The investment advisory fees payable to the Advisor by the Fund will be
based upon the assets of the Fund. The shareholders of the Fund have the right
to vote with respect to the investment advisor of the Fund.

Voting and Control - Each outstanding share of the World Funds is
entitled to one vote for each full share of stock and a fractional share of
stock. All shareholders vote on matters which concern the corporation as a
whole. Election of Directors or ratification of the auditor are examples of
matters to be voted upon by all shareholders. The World Funds is not required to
hold a meeting of shareholders each year. The World Funds intends to hold annual
meetings when it is required to do so by the Maryland General Corporate Law or
the 1940 Act. Shareholders have the right to call a meeting to consider the
removal of one or more of the Directors and will be assisted in Shareholder
communication in such matter. Each series shall vote separately on matters (1)
when required by the General Corporation Law of Maryland, (2) when required by
the 1940 Act and (3) when matters affect only the interest of the particular
series. An example of a matter affecting only one series might be a proposed
change in an investment restriction of one series. The shares will not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of directors can elect all of the directors if
they choose to do so.

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.

Code of Ethics - The World Funds has adopted a Code of Ethics which
imposes certain restrictions on the authority of portfolio managers and certain
other personnel of the World Funds and the Advisor governing personal securities
activities and investments of those persons and has instituted procedures to its
Code of Ethics to require such investment personnel to report such activities to
the compliance officer. The Code is reviewed and updated annually.

Item 18. Purchase, Redemption, and Pricing of Shares

ELIGIBLE BENEFIT PLANS

FUND EXPENSES

The Fund will pay its expenses not assumed by the Advisor, including,
but not limited to, the following: custodian; stock transfer and dividend
disbursing fees and expenses; taxes; expenses of the issuance and redemption of
Fund shares (including stock certificates, registration and qualification fees
and expenses); legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Fund.

The allocation of the general expenses of the World Funds is made to
the Fund on a basis that the Board of Directors of the World Funds deems fair
and equitable, which may be based on the relative net assets of the series of
the World Funds or the nature of the services performed and relative
applicability to each series of the World Funds.

Investors should understand that the Fund's expense ratio can be
expected to be higher than investment companies investing in domestic securities
since the cost of maintaining the custody of foreign securities and the rate of
the advisory fee paid by the Fund is higher.

SPECIAL SHAREHOLDER SERVICES

As described briefly in the Part A to Form N-1A, the Fund offers the
following shareholder services:

The Fund employs reasonable procedures designed to confirm the
authenticity of instructions communicated by telephone and, if it does not, it
may be liable for any losses due to unauthorized or fraudulent transactions. As
a result of this policy, a shareholder authorizing telephone redemption bears
the risk of loss which may result from unauthorized or fraudulent transactions
which the Fund believes to be genuine. When requesting a telephone redemption or
transfer, the shareholder will be asked to respond to certain questions designed
to confirm the shareholder's identity as a shareholder of record. Cooperation
with these procedures helps to protect the account and the Fund from
unauthorized transactions.

Invest-A-Matic Account: A shareholder may utilize this feature, which
provides for automatic monthly investments into an account. Upon your request,
the Transfer Agent will withdraw a fixed amount each month from a checking
account for investment into the Fund. This does not require a commitment for a
fixed period of time. A shareholder may change the monthly investment, skip a
month or discontinue the Invest-A-Matic Plan as desired by notifying the
Transfer Agent. This feature requires a separate Plan application, in addition
to the Account Application. To obtain an application, or to receive more
information, please call the Fund.

Individual Retirement Account ("IRA") - All wage earners under 70 1/2,
even those who participate in a company sponsored or government retirement plan,
may establish their own IRA. You can contribute 100% of your earnings up to
$2,000 (or $2,250 with a spouse who is not a wage earner, for years prior to
1997). Starting in 1997, even a spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employers under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements of establishing and maintaining a
corporate retirement plan trust.

How to Establish Retirement Accounts: Please call the World Fund to
obtain information regarding the establishment of individual retirement plan
accounts. The plan's custodian charges nominal fees in connection with plan
establishment and maintenance. These fees are detailed in the plan documents. A
shareholder may wish to consult with an attorney or other tax advisor for
specific advice concerning tax status and plans.

Exchange Privilege: Shareholders may exchange their shares for shares
of any other series of the World Funds, provided the shares of the fund the
shareholder is exchanging into are noticed for sale in the shareholder's state
of residence. Each account must meet the minimum investment requirements
(currently $1,000). Exchange Privilege Authorization Forms are available by
calling the World Funds. A special authorization form must have been completed
and must be on file with the Transfer Agent. To make an exchange, an exchange
order must comply with the requirements for a redemption or repurchase order and
must specify the value or the number of shares to be exchanged. An exchange will
take effect as of the next determination of the Fund's NAV per share (usually at
the close of business on the same day). The Transfer Agent will charge the
shareholder's account a $10.00 service fee each time there is an exchange. The
World Funds reserves the right to limit the number of exchanges or to otherwise
prohibit or restrict shareholders from making exchanges at any time, without
notice, should the World Funds determine that it would be in the best interest
of its shareholders to do so. For tax purposes an exchange constitutes the sale
of the shares of the fund from which you are exchanging and the purchase of
shares of the fund into which you are exchanging. Consequently, the sale may
involve either a capital gain or loss to the shareholder for federal income tax
purposes. The exchange privilege is available only in states where it is legally
permissible to do so.

NET ASSET VALUE

The Fund's net asset value ("NAV") per share is calculated daily from
Monday through Friday on each business day on which the New York Stock Exchange
(the "Exchange") is open. The Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas
Day, and the preceding Friday or subsequent Monday when any of these holidays
falls on a Saturday or Sunday, respectively. The Fund's NAV is calculated at the
time set by the Board of Directors based upon a determination of the most
appropriate time to price the Fund's securities.

The Board of Directors has determined that the Fund's NAV be calculated
as of the close of trading of the Exchange (currently 4:00 p.m., Eastern Time)
on each business day from Monday to Friday or on each day (other than a day
during which no security was tendered for redemption and no order to purchase or
sell such security was received by the Fund) in which there is a sufficient
degree of trading in the Fund's portfolio securities that the current NAV of the
Fund's shares might be materially affected by changes in the value of such
portfolio security.

The Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.

Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including ADRs, EDRs and GDRs,
which are traded on the Exchange, will be valued at the last sale price prior to
the close of regular trading on the Exchange. Lacking any sales, the security
will be valued at the last bid price prior to the close of regular trading on
the Exchange. ADRs, EDRs and GDRs for which such a value cannot be readily
determined on any day will be valued at the closing price of the underlying
security adjusted for the exchange rate. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange designated in
accordance with procedures approved by the Board of Directors of the World Funds
as the primary market.

The value of a security traded or dealt in upon an exchange may be
valued at what the Fund's pricing agent determines is fair market value on the
basis of all available information, including the last determined value, if the
pricing agent determines that the last bid does not represent the value of the
security, or if such information is not available. For example, the pricing
agent may determine that the price of a security listed on a foreign stock
exchange that was fixed by reason of a limit on the daily price change does not
represent the fair market value of the security. Similarly, the value of a
security not traded or dealt in upon an exchange may be valued at what the
pricing agent determines is fair market value if the pricing agent determines
that the last sale does not represent the value of the security, provided that
such amount is not higher than the current bid price.

Notwithstanding the foregoing, money market investments with a
remaining maturity of less than sixty days shall be valued by the amortized cost
method; debt securities are valued by appraising them at prices supplied by a
pricing agent approved by the Fund, which prices may reflect broker-dealer
supplied valuations and electronic data processing techniques and are
representative of market values at the close of the Exchange; options on
securities, futures contracts and options on futures listed or admitted to
trading on a national exchange shall be valued at their last sale on such
exchange prior to the time of determining NAV; or if no sales are reported on
such exchange on that day, at the mean between the most recent bid and asked
price; and forward contracts shall be valued at their last sale as reported by
the Fund's pricing service, or lacking a report by the service, at the value of
the underlying currencies at the prevailing currency rates.

The value of a security which is subject to legal or contractual delays
in or restrictions on resale by the Fund shall be taken to be the fair value
thereof as determined in accordance with procedures established by the Board of
the World Fund, on the basis of such relevant factors as the following: the cost
of such security to the Fund, the market price of unrestricted securities of the
same class at the time of purchase and subsequent changes in such market price,
potential expiration or release of the restrictions affecting such security, the
existence of any registration rights, the fact that the Fund may have to bear
part or all of the expense of registering such security, and any potential sale
of such security to another investor. The value of other property owned by the
Fund shall be determined in a manner which, in the discretion of the pricing
agent of the Fund, most fairly reflects fair market value of the property on
such date.

Following the calculation of security values in terms of currency in
which the market quotation used is expressed ("local currency"), the pricing
agent shall, prior to the next determination of the NAV of the Fund's shares,
calculate these values in terms of United States dollars on the basis of the
conversion of the local currencies (if other than U.S.) into United States
dollars at the rates of exchange prevailing at the value time as determined by
the pricing agent.

Trading in securities on European securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open). In addition, European securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's NAV is not calculated.
The Fund calculates NAV per share, and therefore, effects sales, redemptions and
repurchases of its shares, as of the close of the Exchange once on each day on
which that Exchange is open. Such calculation may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculations. If events materially affecting the value of a
portfolio security occur between the time when its price is determined and the
time when the Fund's NAV is calculated, such a security will be valued at fair
value as determined in good faith by the Board of Directors.

Any purchase order may be rejected by the Distributor or by the Fund.

Item 19. Taxation of the Fund

TAXES

Distributions of net investment income The Fund receives income
generally in the form of dividends and interest on its investments. This income,
less expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which dividends may be paid to you. Any distributions by
the Fund from such income will be taxable to you as ordinary income, whether you
take them in cash or in additional shares.

Distributions of capital gains The Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions from net short-term capital gains will be taxable to
you as ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the Fund. Any net capital gains realized by the Fund generally
will be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the Fund.

Effect of foreign investments on distributions Most foreign exchange
gains realized on the sale of debt securities are treated as ordinary income by
the Fund. Similarly, foreign exchange losses realized by the Fund on the sale of
debt securities are generally treated as ordinary losses by the Fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's ordinary
income distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital.

The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the Fund's total assets
at the end of the fiscal year are invested in securities of foreign
corporations, the Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by the Fund. If this election is made, the year-end statement
you receive from the Fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share of
such taxes in computing your taxable income or (subject to limitations) claim a
foreign tax credit for such taxes against your U.S. federal income tax. The Fund
will provide you with the information necessary to complete your individual
income tax return if it makes this election.

Information on the tax character of distributions The Fund will inform
you of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax status
for federal income tax purposes shortly after the close of each calendar year.
If you have not held Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the period
of your investment in the Fund.

Election to be taxed as a regulated investment company The Fund plans to
elect to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. As a regulated investment company, the Fund generally
pays no federal income tax on the income and gains it distributes to you. The
board reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines such course of action to be
beneficial to shareholders. In such case, the Fund will be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the Fund's earnings and profits.

Excise tax distribution requirements To avoid federal excise taxes, the
Internal Revenue Code requires the Fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. The Fund intends to declare and pay
these amounts in December (or in January that are treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.

All or a portion of any loss that you realize upon the redemption of
your Fund shares will be disallowed to the extent that you buy other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you purchase.

Dividends-received deduction for corporations. Because the Fund's
income is derived primarily from investments in foreign rather than domestic U.S
securities, no portion of its distributions will generally be eligible for the
intercorporate dividends-received deduction.

Investment in complex securities The Fund may invest in complex
securities. These investments may be subject to numerous special and complex tax
rules. These rules could affect whether gains and losses recognized by the Fund
are treated as ordinary income or capital gain, accelerate the recognition of
income to the Fund and/or defer the Fund's ability to recognize losses, and, in
limited cases, subject the Fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the amount,
timing or character of the income distributed to you by the Fund.

Item 20. Underwriters
Not Applicable.

Item 21. Calculation of Performance Data

PERFORMANCE

Total return is the primary method used to measure investment
performance. Total return is the total of all income and capital gains paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.

Generally, performance quotations by investment companies are subject
to certain rules adopted by the Securities and Exchange Commission (the
"Commission"). These rules require the use of standardized performance
quotations, or alternatively, that every non-standardized performance quotation
furnished by a fund be accompanied by certain standardized performance
information computed as required by the Commission. The total return quotations
used by a fund are based on the standardized methods of computing performance
mandated by the Commission.

As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load, if any,
is deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year or since inception period
and the deduction of all applicable charges and fees. According to the
Commission formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
periods (or fractional portion thereof).

Occasionally statistics may be used to specify a fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
NAV or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicates volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure variability of NAV
or total return around an average, over a specified period of time. The premise
is that greater volatility connotes greater risk undertaken in achieving
performance.

Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.

COMPARISONS AND ADVERTISEMENTS

To help investors better evaluate how an investment in a fund might
satisfy their investment objective, advertisements regarding the fund may
discuss yield, total return, or fund volatility as reported by various financial
publications. Advertisements may also compare yield, total return, or volatility
(as calculated above) to yield, total return, or volatility as reported by other
investments, indices, and averages. The following publications, indices, and
averages may be used:

(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.

(g) Mutual Fund Source Book and other material, published by
Morningstar, Inc. - analyzes price, yield, risk, and total
return for equity funds.

(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.

(n) Nomura Research, Inc. Eastern Europe an Equity Index -
comprised of those equities which are traded on listed markets
in Poland, the Czech Republic, Hungary and Slovakia (returns
do not include dividends).

In assessing such comparisons of yield, return, or volatility, an
investor should keep in mind that the composition of the investments in the
reported indices and averages in not identical to the Fund's portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its figures. In addition, there can be no assurance that the
Fund will continue its performance as compared to such other averages.

Item 22. Financial Statements

FINANCIAL STATEMENTS

The books of the Fund will be audited at least once each year by Tait,
Weller and Baker, of Philadelphia, PA, independent public accountants.

<PAGE>

Investment Advisor: Third Millennium Investment Advisors LLC
515 Madison Avenue, 24th Floor
New York, N.Y. 10022

Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229

Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103

Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103

Marketing Services: For general information on the Funds
and marketing services, call the
Distributor at (800) 527-9525 toll
free.

Transfer Agent: For account information, wire
purchase or redemptions, call or
write to the Fund's Transfer Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free

More Information: For 24-hour,
7-days-a-week price information call
1-800-527-9525. For information on
any series of the World Funds,
investment plans, or other
shareholder services, call the World
Funds at 1-800-527-9525 during
normal business hours, or write to
the World Funds at 1500 Forest
Avenue, Suite 223, Richmond, VA
23229

<PAGE>

THE WORLD FUNDS, INC.

THE NEW MARKET FUND

PART B

STATEMENT OF ADDITIONAL INFORMATION

DATED DECEMBER 30, 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 ("SAI") is not a prospectus but supplements the
information contained in the current Part A to Form N-1A of the New Market Fund,
(the "Fund"), dated December 30, 1998. It should be read in conjunction with the
Part A to Form N-1A, and has been designed to provide you with further
information which is not contained in the Part A to Form N-1A. The Fund's Part A
to Form N-1A may be obtained at no charge upon request to the Company. Please
retain this SAI for future reference.

<PAGE>
TABLE OF CONTENTS
ITEM 11. FUND HISTORY
ITEM 12. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISK
ITEM 13. MANAGEMENT OF THE FUND
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
ITEM 18. PURCHASE, REDEMPTION, AND PRICING OF SHARES
ITEM 19. TAXATION OF THE FUND
ITEM 20. UNDERWRITERS
ITEM 21. CALCULATION OF PERFORMANCE DATA
ITEM 22. FINANCIAL STATEMENT

<PAGE>

Item 11. Fund History

THE WORLD FUNDS, INC.

The New Market Fund (the "Fund") is a series of The World Funds, Inc.
(the "Company"), a Maryland corporation which was organized on May 9, 1997.

Item 12. Description of the Fund and Its Investments and Risks.

The Company is an open-end, management investment company, commonly
known as a "mutual fund." The Fund is a non-diversified series of the Company.

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

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 that are identified as fundamental
policies of the Fund, 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 SAI 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:

Buy or sell commodities or commodity contracts.

Make loans.

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.

Invest in interests in oil, gas, or other mineral
explorations or development programs.

Issue senior securities.

Participate on a joint or a joint and several basis in any
securities trading account.

Invest in companies for the purpose of exercising control.

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.

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:

Invest more than 15% of its net assets in illiquid
securities.

Engage in arbitrage transactions.

Item 13. Management of the Fund

DIRECTORS AND OFFICERS

The Company is governed by a Board of Directors, which is responsible
for protecting the interests of shareholders. The Directors are experienced
business persons who meet throughtout the year to oversee the Company's
activities, review contractual arrangements with companies that provide services
to the Fund, and review performance. The names and business addresses of the
Directors and officers of the Company, together with information as to their
principal occupations during the past five years, are listed below. The
Directors who are considered "interested persons" of the Advisor, the
Distributor or of the Company, as defined in Section2(a)(19) of the 1940 Act are
noted with an asterisk (*).

*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

William E. Poist (6/11/39)
Director
5272 River Road, Bethesda, MD 20816

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.

<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C>
Aggregate Compensation From Pension or Retirement Total Compensation From
Company for Fiscal Year Benefits Accrued As Part Company and Fund Complex
Name and Position Held ended August 31, 19991 of Fund Expenses Paid to Directors
Samuel Boyd, Jr., Director $1,800.00 N/A $9,000.00

William E. Poist, Director $1,800.00 N/A $9,000.00

Paul M. Dickinson, Director $1,800.00 N/A $9,000.00
- ----------------------
</TABLE>

Item 14. Control Persons and Principal Holders of Securities

(1) George G. Phillips, Jr., Rt. 1, Box 221, Millboro, VA 24460 (5.797%).

(2) James E. Rogers, 101 Shockoe Slip, Suite O, Richmond, VA 23219 (8.698%).

Item 15. Investment Advisory and Other Services

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 Part A to Form N-1A.

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 President of the
Investment Advisor and is portfolio manager of the Fund, and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Goddard
has served as President of the Investment Advisor since March 1994.

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.

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.

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 effective on
August 19, 1997. John Pasco, III, Chairman of the Board of the Company owns 100%
of the Distributor, and is its President, Treasurer and a Director.

Custodian and Accounting Services Agents - Star Bank, N.A. ("Star
Bank") is the Fund's custodian and accounting services agent. Star Bank collects
income when due and holds all of the portfolio securities and cash. Star Bank,
as the accounting services agent, maintains and keeps current the books,
accounts, records, journals or other records of original entry relating to the
Fund's business. The address of Star Bank is 425 Walnut Street, P.O. Box 1118,
Cincinnati, Ohio 45201-1118.

TRANSFER AND DIVIDEND DISBURSING AGENT

Fund Services, Inc. (the "Transfer Agent" or "FSI") is the Company's
transfer and disbursing agent, pursuant to a Transfer Agent Agreement, dated
August 19, 1997. 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, 1998, FSI is
compensated pursuant to a schedule of services, and is reimbursed for
out-of-pocket expenses. The address of the Transfer Agent is P.O. Box 26305,
Richmond, VA 23260. 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. ("CSS") is the Company's
administrator pursuant to an Administrative Services Agreement (the "Service
Agreement"). 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 CSS. CSS provides certain recordkeeping and shareholder servicing functions
required of registered investment companies, and will assist the Fund in
preparing and filing certain financial and other reports and performs certain
daily functions required for ongoing operations. CSS may furnish personnel to
act as the Company's officers to conduct the Company's business subject to the
supervision and instructions of the Company's Board of Directors. CSS also
provides other administrative and operational services required by the Fund on
terms set and for fees or reimbursements approved by the Company's Board of
Directors.

The Administrative Services Agreements provide that CSS will be paid
monthly: (1) 0.20% of the average daily net assets of the Fund (which includes
regulatory matters, backup of the pricing of shares of the Fund, administrative
duties in connection with the execution of portfolio trades, and certain
services in connection with Fund accounting); (2) an hourly fee for shareholder
servicing and state securities law matters; and (3) certain out-of-pocket
expenses. The address of CSS is 1500 Forest Avenue, Suite 223, Richmond, VA
23229.

Item 16. Brokerage Allocation and Other Practices

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's
securities, 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.

Item 17. Capital Stock and Other Securities

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.

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.

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.

Item 18. Purchase, Redemption, and Pricing of Shares

ELIGIBLE BENEFIT PLANS

NET ASSET VALUE

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.

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.

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.

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.

<TABLE>
<CAPTION>
Sales Load As Percentage Of
Amount of Purchase at Offering Net Amount Invested Dealer Discount as
The POP Price percentage of POP
<S> <C> <C> <C>
$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%

</TABLE>

There is a 1% redemption fee on account's held less than one year.

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 Part A. 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 12).

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 Part A to Form N-1A, the Fund offers the
following shareholder services:

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.

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.

Item 19. Taxation of the Fund

TAXES

Deferral of basis. If you redeem some or all of your shares in the
Fund, and then reinvest the sales proceeds in the Fund or in another fund of the
Company within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The IRS
will require you to report gain or loss on the redemption of your original
shares in the Fund. In so doing, all or a portion of the sales charge that you
paid for your original shares in the Fund will be excluded from your tax basis
in the shares sold (for the purpose of determining gain or loss upon the sale of
such shares). The portion of the sales charge excluded will equal the amount
that the sales charge is reduced on your reinvestment. Any portion of the sales
charge excluded from your tax basis in the shares sold will be added to the tax
basis of the shares you acquire from your reinvestment.

Dividends-received deduction for corporations As a corporate shareholder,
you should note that a percentage of the dividends paid by the Fund may qualify
for the dividends-received deduction. You will be permitted in some
circumstances to deduct these qualified dividends, thereby reducing the tax that
you would otherwise be required to pay on these dividends. The
dividends-received deduction will be available only with respect to dividends
received by the Fund from U.S. corporations that are designated by the Fund as
eligible for such treatment. All dividends (including the deducted portion) must
be included in your alternative minimum taxable income calculations.

Item 20. Underwriters
Not Applicable.

Item 21. Calculation of Performance Data

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:

(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.

(g) Mutual Fund Source Book and other material, published by
Morningstar, Inc. - analyzes price, yield, risk, and total
return for equity funds.

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.

Item 22. Financial Statements

FINANCIAL STATEMENTS

The books of the Fund will be audited at least once each year by Tait,
Weller and Baker, of Philadelphia, PA, independent public accountants.

<PAGE>
Investment Manager: Virginia Management Investment Corporation
7800 Rockfalls Dr.
Richmond, VA 23225

Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229

Independent Auditors: Tait, Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103

Fund Counsel: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103

Marketing Services: For general information on the Funds and
marketing services, call the Distributor
at (800) 527-9525 toll free.

Transfer Agent: For account information, wire purchase or
redemptions, call or write to the Fund's
Transfer Agent:

Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260-6305
(800) 628-4077 Toll Free

More Information For 24-hour, 7-days-a-week price
information call 1-800-527-9525.
For information on any series of the
Company, investment plans, or other
shareholder services, call the
Company at 1-800-527-9525 during normal
business hours, or write the Company at
1500 Forest Avenue, Suite 223, Richmond,
VA 23229

<PAGE>

THE WORLD FUNDS, INC.
SAND HILL PORTFOLIO MANAGER FUND

PART B

STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 30, 1998

Item 10. Cover Page and Table of Contents

The World Funds, Inc. (the "Company") is an open-end management
investment company commonly known as a "mutual fund". This Statement of
Additional Information ("SAI") is not a Prospectus but supplements the
information contained in the Part A to Form N-1A of the Sand Hill Portfolio
Manager Fund (the "Fund"), dated December 30, 1998. It should be read in
conjunction with the Part A to Form N-1A and has been designed to provide you
with further information which is not contained in the Part A to Form N-1A. The
Part A to Form N-1A of the Fund may be obtained at no charge upon request to the
Fund. Please retain this SAI for future reference.

The audited financial statements of the Fund, including the notes
thereto and the report of independent accountants, for the fiscal year ended
August 31, 1998, are incorporated in this SAI by reference to the Fund's annual
report to shareholders (the "Annual Report"). The Annual Report may be obtained
at no charge upon request to the Company by calling (800) 527-9525.

<PAGE>

TABLE OF CONTENTS

ITEM 10. COVER PAGE AND TABLE OF CONTENT

ITEM 11. FUND HISTORY

ITEM 12. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
INVESTMENT OBJECTIVE AND POLICIES
SPECIAL INVESTMENT CONSIDERATIONS
INVESTMENT TECHNIQUES
INVESTMENT RESTRICTIONS

ITEM 13. MANAGEMENT OF THE FUND

ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
.

ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
TRANSFER AGENT
ADMINISTRATOR
CUSTODIAN AND ACCOUNTING SERVICES AGENT
AUDITOR
DISTRIBUTOR
EXPENSES OF THE FUND

ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES

ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
. DIVIDENDS AND DISTRIBUTIONS

ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW TO INVEST IN THE FUND
HOW TO REDEEM FUND SHARES
SPECIAL SHAREHOLDER SERVICES
NET ASSET VALUE

ITEM 19. TAXATION OF THE FUND

ITEM 20. UNDERWRITERS

ITEM 21. CALCULATION OF PERFORMANCE DATA

ITEM 22. FINANCIAL STATEMENT

APPENDIX

<PAGE>

THE WORLD FUNDS, INC.

SAND HILL PORTFOLIO MANAGER FUND

Item 11. Fund History.

The Fund is a series of The World Funds, Inc. (the "Company"), a
Maryland corporation which was organized on May 9, 1997. The Fund is a no-load
diversified series of the Company. Pursuant to a Plan of Reorganization, the
Sand Hill Fund transferred all of its assets to the Fund in exchange for shares
of common stock of the Fund and the Fund's assumption of all liabilities of the
Sand Hill Fund (the "Reorganization"). On August 18, 1997, the effective date of
the Reorganization, Fund shares were distributed on a pro rata basis to the
Fund's shareholders.

Limitation on Use of Name - The Advisory Agreement for the Fund
authorizes the Company to utilize the name "Sand Hill". The Company agrees that
if the Advisory Agreement is terminated it will promptly redesignate the name of
the Sand Hill Portfolio Manager Fund to eliminate any reference to the name
"Sand Hill" or any derivation thereof unless the Investment Advisor waives this
requirement in writing.

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 Fund and its advisors 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, as deemed necessary
annually.

Item 12. Description of the Fund and Its Investments and Risks.

Investment Objective and Policies

The Fund's investment objective is to seek to maximize total return
(consisting of realized and unrealized appreciation plus income) consistent with
allocating its investments among equity securities (e.g., stocks), debt
securities (e.g., bonds) and short term investments.

The asset allocation and investment policies of the Fund are described
in the Fund's Prospectus. The following discussion supplements the information
in the Fund's Prospectus with respect to the types of securities in which the
Fund may invest and the investment techniques it may use in pursuit of its
investment objective.

Special Investment Considerations

Investors should recognize that the Fund may invest in both domestic
and foreign securities. Investing in foreign securities involves certain special
considerations, including those set forth below, which are not typically
associated with investing in United States securities and which may favorably or
unfavorably affect the performance of the Fund. As foreign companies are not
generally subject to the same uniform standards, practices and requirements with
respect to accounting, auditing and financial reporting as are domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the United States and, at times,
volatility of price can be greater than in the United States. Furthermore,
foreign markets have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of a fund are uninvested and no return is earned thereon. Inability to
dispose of portfolio securities due to settlement problems either could result
in losses to a fund due to subsequent declines in value of the portfolio
security or, if a fund has entered into a contract to sell the security, could
result in possible liability to the purchaser. Fixed commissions on some foreign
securities exchanges and bid-to- asked spreads in foreign bond markets are
generally higher than negotiated commissions on U.S. exchanges and bid-to-asked
spreads in the U.S. bond market, although the Fund will endeavor to achieve the
most favorable net results on its portfolio transactions. Furthermore, a fund
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers and
listed companies than in the United States. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Sand Hill Advisors, Inc. (the "Investment Advisor") seeks
to mitigate the risks associated with the foregoing considerations through
continuous professional management.

Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund, as measured in U.S. dollars, may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Fund may incur costs in connection with conversions
between various currencies. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one
rate, while offering a lesser rate of exchange should the fund desire to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. The Fund may, for hedging purposes,
purchase foreign currencies in the form of bank deposits.

Because the Fund may be invested in both U.S. and foreign securities
markets, changes in its share price may have a low correlation with movements in
the U.S. markets. The Fund's share price will reflect the movements of the
markets in which it is invested and of the currencies in which the investments
are denominated; the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. Foreign
securities such as those purchased by the Fund may be subject to foreign
government taxes which could reduce the yield on such securities, although a
shareholder of the Fund may, subject to certain limitations, be entitled to
claim a credit or deduction for U.S. federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund (see "Taxes"). U.S.
and foreign securities markets do not always move in step with each other and
the total returns from different markets may vary significantly.

The Fund cannot guarantee a gain or eliminate the risk of loss. The
Fund's net asset value per share will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's investment objective will be achieved.

Investment Techniques

Asset Allocation Categories. The Fund invests in three major categories of
investments: equity securities, debt securities and short-term investments. Each
of these categories may include securities of domestic or foreign issuers.

Equity securities consist of common stocks, securities which are
convertible into common stocks, such as convertible bonds, preferred stocks,
depository receipts, securities of investment companies, rights and warrants.
The Investment Advisor allocates the Fund's equity investments to industries it
believes will benefit from major trends and to individual stocks which exhibit
superior prospects for enhancing the Fund's total return.

Debt securities consist of bonds, notes, convertible bonds,
asset-backed and mortgage-backed securities, government and government agency
securities, zero coupon securities, and other debt securities whose purchase is
consistent with the Fund's investment objective. The Fund's investments may
include international bonds that are denominated in foreign currencies,
including the European Currency Unit. International bonds are defined as bonds
issued in countries other than the United States. The Fund's investments may
include debt securities issued or guaranteed by supranational organizations,
corporate debt securities, bank or holding company debt securities.

The Fund may purchase "investment-grade" bonds, which are those rated
Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's Ratings Group ("S&P"), or unrated securities which the
Investment Advisor believes are of comparable quality. The Fund may also invest
up to 10% of its assets in lower rated securities or securities which are
unrated but are of comparable quality as determined by the Investment Advisor.
Bonds rated Baa or BBB may have speculative elements as well as investment-grade
characteristics. The Fund may invest in debt securities which are rated as low
as C by Moody's or D by S&P. Securities rated D may be in default with respect
to payment of principal or interest. See the Appendix for a description of bond
ratings.

Short-term investments are debt obligations. For purposes of the Fund's
asset allocation policies, short-term investments are differentiated from debt
securities. Short-term investments are generally used to protect the Fund
against adverse movements of interest rates or currency exchange rates or to
provide the Fund with liquidity. Debt securities, on the other hand, are
generally used to seek superior total return by taking advantage of yield
differentials between different securities.

Zero Coupon Securities. The Fund may invest in zero coupon securities
as described in the Prospectus. Zero coupon securities which are convertible
into common stock offer the opportunity for capital appreciation as increases
(or decreases) in market value of such securities closely follows the movements
in the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder of
the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.

Investment Companies. The Fund may invest up to 10% of its assets in
shares of closed-end investment companies. Investments in such investment
companies are subject to limitations under the Investment Company Act of 1940,
as amended (the "1940 Act"). Investment in closed-end funds is subject to the
willingness of investors to sell their shares in the open market and the Fund
may have to pay a substantial premium to acquire shares of closed-end funds in
the open market. The yield of such securities will be reduced by the operating
expenses of such companies. Under the 1940 Act limitations, the Fund may not own
more than 3% of the total outstanding voting stock of any other investment
company nor may it invest more than 5% of its assets in any one investment
company or invest more than 10% of its assets in securities of all investment
companies combined. An investor in the Fund should recognize that he may invest
directly in other investment companies and that, by investing in investment
companies indirectly through the Fund, he will bear not only his proportionate
share of the Fund's expenses (including operating costs and investment advisory
and administrative fees) but also, indirectly, similar expenses of the
underlying investment company. Finally, an investor should recognize that, as a
result of the Fund's policies of investing in other investment companies, he may
receive taxable capital gains distributions to a greater extent than would be
the case if he invested directly in the underlying investment companies.

Depository Receipts. The Fund may utilize depository receipts, as
described in the Prospectus. For purposes of determining the country of origin,
depository receipts and closed-end investment companies which invest primarily
in foreign securities will be deemed to be foreign securities.

Warrants. The Fund may invest up to 5% of its net assets in warrants,
provided that no more than 2% of its net assets may be invested in warrants that
are not listed on the New York Stock Exchange or the American Stock Exchange. A
warrant is a long-term option issued by a corporation that generally gives the
investor the right of buying a specified number of shares of the underlying
common stock of the issuer at a specified exercise price at any time on or
before an expiration date. If the Fund does not exercise or dispose of a warrant
prior to its expiration, it will expire worthless.

Mortgage-Backed and Asset-Backed Securities. Mortgage-backed securities
include, but are not limited to, securities issued by the Government National
Mortgage Association and The Federal Home Loan Mortgage Association.
Mortgage-backed securities represent ownership in specific pools of mortgage
loans. Unlike traditional bonds which pay principal only at maturity,
mortgage-backed securities make unscheduled principal payments to the investor
as principal payments are made on the underlying loans in each pool. Like other
fixed-income securities, when interest rates rise, the value of a
mortgage-backed security will decline. However, when interest rates decline, the
value of a mortgage-backed security with prepayment features may not increase as
much as other fixed-income securities.

Asset-backed securities participate in, or are secured by and payable
from, a stream of payments generated by particular assets, such as credit card,
motor vehicle or trade receivables. They may be pass-through certificates which
are similar to mortgage-backed commercial paper, which is issued by an entity
organized for the sole purpose of issuing the commercial paper and purchasing
the underlying assets. The credit quality of asset-backed securities depends
primarily on the quality of the underlying assets and the level of any credit
support provided. The weighted average lives of mortgage-backed and asset-backed
securities are likely to be substantially shorter than their stated final
maturity dates would imply because of the effect of scheduled and unscheduled
principal prepayments. Pay-downs of mortgage-backed and asset-backed securities
may result in income or loss being realized earlier than anticipated for tax and
accounting purposes.

Strategic Transactions. The Fund may, but is not required to, utilize
various other investment strategies described below which use derivative
investments to hedge various market risks (such as changes in interest rates,
currency exchange rates, and securities prices) or to enhance potential gain.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed put and call options on securities or
securities indices, and enter into various currency transactions such as
currency forward contracts, or options on currencies (collectively, all the
above are called "Strategic Transactions"). Strategic Transactions may be used
to attempt to protect against possible changes in the market value of securities
held in, or to be purchased for, the Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, or to establish a position in the options
markets as a temporary substitute for purchasing or selling particular
securities. Any or all of these investment techniques may be used at any time
and there is no particular strategy that dictates the use of one technique
rather than another, as use of any Strategic Transaction is a function of
numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.

Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Investment Advisor's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune 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 the Fund can realize on its investments or cause the Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in the Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. Although the use of options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it tends to limit
any potential gain which might result from an increase in value of such
position. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized.

General Characteristics of Options. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of the Fund's assets in
special accounts, as described below under "Use of Segregated and Other Special
Accounts".

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, currency or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. The purchase of a put
option will constitute a short sale for federal tax purposes. The purchase of a
put at a time when the substantially identical security held long has not
exceeded the long term capital gain holding period could have adverse tax
consequences. The holding period of the long position will be cut off so that
even if the security held long is delivered to close the put, short term gain
will be recognized. If substantially identical securities are purchased to close
the put, the holding period of the securities purchased will not begin until the
closing date. The holding period of the substantially identical securities not
delivered to close the short sale will commence on the closing of the short
sale.

A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, securities index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying security.

An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options only. Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options are
each settled for the net amounts, if any, by which the option is "in the money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying security through the process of exercising
the option, listed options are closed by entering into offsetting purchase or
sale transactions that do not result in ownership of the new option.

The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell exchange-listed call options on
securities that are traded in U.S. and foreign securities exchanges and on
securities indices and currencies. All calls sold by the Fund must be "covered"
(i.e., the Fund must own the securities subject to the call) or must meet the
asset segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.

The Fund may purchase and sell exchange-listed put options on
securities (whether or not it holds the above securities in its portfolio), and
on securities indices and currencies. The Fund will not sell put options if, as
a result, more than 25% of the Fund's assets would be required to be segregated
to cover its potential obligations under such put options. In selling put
options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price. For tax purposes,
the purchase of a put is treated as a short sale which may cut off the holding
period for the security so it is treated as generating gain on securities held
less than three months or short term capital gain (instead of long term) as the
case may be.

Options on Securities Indices and Other Financial Indices. The Fund may
also purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call or is
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to the excess of the closing price of the index over the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount. The gain or loss on an option on an index depends
on price movements in the instruments making up the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.

Currency Transactions. The Fund may engage in currency transactions
with counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value. The
Fund's currency transactions may include forward currency contracts and exchange
listed options on currencies. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Investment Advisor considers that the Austrian
schilling is linked to the German deutschemark (the "D-mark"), the Fund holds
securities denominated in schillings and the Investment Advisor believes that
the value of schillings will decline against the U.S. dollar, the Investment
Advisor may enter into a contract to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that a fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, it will comply with the asset segregation
requirements described below.

Risks of Currency Transactions. Currency transactions are subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments.
These can result in losses to a fund if it is unable to deliver or receive
currency or funds in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Currency exchange rates may fluctuate based
on factors extrinsic to that country's economy.

Risks of Strategic Transactions Outside the United States. When
conducted outside the United States, Strategic Transactions may not be regulated
as rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in a fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.

Use of Segregated and Other Special Accounts. Many Strategic
Transactions, in addition to other requirements, require that a fund segregate
liquid high grade assets with its custodian to the extent fund obligations are
not otherwise "covered" through the ownership of the underlying security,
financial instruments or currency. In general, either the full amount of any
obligation by a fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by a fund
will require the fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate liquid high-grade securities sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by a fund on an index
will require the fund to own portfolio securities which correlate with the index
or segregate liquid high grade assets equal to the excess of the index value
over the exercise price on a current basis. A put option written by a fund
requires the fund to segregate liquid, high grade assets equal to the exercise
price.

Except when a fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a fund to buy or sell currency
will generally require the fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the fund's obligations or to
segregate liquid high grade assets equal to the amount of the fund's obligation.

OCC issued and exchange listed index options will generally provide for
cash settlement. As a result, when the Fund sells these instruments it will only
segregate an amount of assets equal to its accrued net obligations, as there is
no requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the Fund,
or the in-the-money amount plus any sell-back formula amount in the case of a
cash-settled put or call. In addition, when the Fund sells a call option on an
index at a time when the in-the-money amount exceeds the exercise price, the
Fund will segregate, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess. OCC issued and exchange listed
options sold by the Fund other than those generally settle with physical
delivery, and the Fund will segregate an amount of assets equal to the full
value of the option.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
forward contract, it could purchase a put option on the same forward contract
with a strike price as high or higher than the price of the contract held. Other
Strategic Transactions may also be offered in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction no
segregation is required, but if it terminates prior to such time, assets equal
to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "Taxes".)

Convertible Securities. The Fund may invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can
provide an opportunity for capital appreciation and/or income through interest
and dividend payments by virtue of their conversion or exchange features. The
Fund will limit its purchases of convertible securities to debt securities
convertible into common stocks.

The convertible securities in which the Fund may invest are either
fixed income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.

Convertible securities generally are subordinated to other similar but
non-convertible securities of same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment on all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs").

Repurchase Agreements. The Fund may enter into repurchase agreements
(which enables it to employ its assets pending investment) during very short
periods of time. Ordinarily these agreements permit the Fund to maintain
liquidity and earn higher rates of return than would normally be available from
other short-term money-market instruments.

Under a repurchase agreement, a fund buys a money-market instrument and
obtains a simultaneous commitment from the seller to repurchase the investment
at a specified time and at an agreed upon yield to the fund. The seller is
required to pledge cash and/or collateral which is equal to at least 100 percent
of the value of the commitment to repurchase. The collateral is held by the
fund's custodian. The Fund will only enter into repurchase agreements involving
U.S. Government securities in which it may otherwise invest. Repurchase
agreements are considered securities issued by the seller for purposes of the
diversification test under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and not cash, a cash item or a U.S. Government security.

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 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.

It is the Fund's practice to enter into repurchase agreements with
selected banks and securities dealers, depending upon the availability of the
most favorable yields. The Fund will always seek to perfect its security
interest in the collateral. If the seller of a repurchase agreement defaults,
the Fund may incur a loss if the value of the collateral securing the repurchase
agreement declines. The Investment Advisor monitors the value of the collateral
to ensure that its value always equals or exceeds the repurchase price and also
monitors the financial condition of the issuer of the repurchase agreement. If
the seller defaults, the Fund may incur disposition costs in connection with
liquidating the collateral of that seller. If bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
Fund may be delayed or limited.

Illiquid Securities. Normally, the Fund will not invest more than 5% of
its net assets in securities which are illiquid or not readily marketable;
however, the Fund is permitted to invest up to 15% of its net assets in such
securities. Illiquid securities are securities that cannot be sold in the
ordinary course of business at approximately the prices at which they are
carried on the Fund's books. The Fund will treat as illiquid repurchase
agreements with maturities in excess of seven days. Illiquid securities do not
include those securities that meet the requirements of Rule 144A under the
Securities Act of 1933, and that have been determined to be liquid by the
Investment Advisor under the supervision of the Fund's Board of Directors.

In determining the liquidity of the Fund's portfolio securities, the
Investment Advisor will consider all appropriate factors, such as: the frequency
of trading in the security; the number of dealers in, and potential purchasers
of, the security; dealer undertakings to maintain a market in the security;
whether the security is subject to demand or tender features which enhance its
marketability; and the nature of the marketplace for trading. If market
quotations are not available, illiquid securities are valued at fair value as
determined in good faith by the Fund's Board of Directors or a committee
thereof.

Restricted Securities. The Fund may invest in restricted securities.
Generally, "restricted securities" are securities which have legal or
contractual restrictions on their resale. In some cases, these legal or
contractual restrictions may impair the liquidity of a restricted security; in
others, the legal or contractual restrictions may not have a negative effect on
the liquidity of the security. Restricted securities which are deemed by the
Investment Advisor to be illiquid will be included in the Fund's policy which
limits investments in illiquid securities.

Indexed Securities. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies, or
other financial indicators. Indexed securities, or structured notes, are usually
debt securities whose value at maturity or coupon rate is determined by
reference to a specific instrument or index. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices.

The performance of indexed securities depends to a great extent on the
performance of the security, index, currency or other instrument to which they
are indexed, and may also be influenced by changes in interest rates. Indexed
securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
credit-worthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations, and certain U.S. government agencies. Indexed
securities may be more volatile than their underlying instruments.

Investment Restrictions

The policies set forth below are fundamental policies of the Fund and
may not be changed without approval of a majority of the outstanding voting
securities of the Fund. As used in this Statement of Additional Information a
"majority of the outstanding voting securities of the 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 may not:

1. as to 75% of its assets, purchase the securities of any issuer
(other than obligations issued or guaranteed as to principal
and interest by the Government of the United States or any
agency or instrumentality thereof) if, as a result of such
purchase, more than 5% of its total assets would be invested
in the securities of such issuer;

2. purchase stock or securities of an 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 such purchase would cause the Fund
to own more than 10% of any class of the outstanding stock or
securities or more than 10% of any class of voting securities
of such issuer;

3. borrow money, except through reverse repurchase agreements or
from banks for temporary or emergency purposes, and then only
in an amount not in excess of 20% of the value of the Fund's
net assets at the time the borrowing is made (borrowings in
excess of 5% will be subject to 300% asset coverage
requirements of the 1940 Act), provided that the Fund will not
purchase portfolio securities when its borrowings exceed 5% of
its total assets;

4. purchase the securities of any issuer (other than obligations
issued or guaranteed by the Government of the United States or
any agency or instrumentality thereof) if, as a result of such
purchase, more than 25% of the Fund's total assets would be
invested in any one industry;

5. act as an underwriter of securities issued by others,
except to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of
the Fund;

6. make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent that the entry into
repurchase agreements and the purchase of debt securities in
accordance with its investment objective and investment
policies may be deemed to be loans;

7. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the corporation of
which the Fund is a series; provided that the segregation of
assets or other collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction, and
obligations for which the Fund segregates assets in accordance
with securities regulatory requirements will not be deemed to
be senior securities;

8. 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) or purchase or sell
physical commodities or contracts relating to physical
commodities.

The Fund has voluntarily adopted certain policies and restrictions
which are observed in the conduct of its 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.

The following policies are not fundamental policies and may be changed
without shareholder approval. The Fund does not currently intend to:

1. purchase or sell futures contracts or options thereon;

2. make short sales of securities;

3. make loans of portfolio securities;

4. purchase or sell real estate limited partnership interests;

5. purchase or retain securities of any open-end investment
company; purchase securities of closed-end investment
companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such
purchase; however, the Fund may acquire investment company
securities in connection with a plan of merger, consolidation,
reorganization or acquisition of assets; in any event, the
Fund may not purchase more than 3% of the outstanding voting
securities of another investment company, may not invest more
than 5% of its assets in another investment company, and may
not invest more than 10% of its assets in other investment
companies;

6. borrow, pledge, mortgage or hypothecate its assets in
excess, together with permitted borrowings, of 1/3
of its total assets;

7. purchase securities on margin, except that the Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection
with futures contracts and options on futures contracts, if
any, shall not constitute purchasing securities on margin.
8. invest more than 15% of its net assets in securities which are
illiquid or not readily marketable, including repurchase
agreements which are not terminable within 7 days (normally,
no more than 5% of the Fund's net assets will be invested in
such securities).

9.* purchase put options or write covered call options if,
as a result, more than 25% of the Fund's total
assets would be hedged with options;

10.* write put options if, as a result, the Fund's total
obligations upon exercise of written put options would exceed
25% of the Fund's total assets;

11.* purchase call options if, as a result, the current value of
options premiums for call options purchased by the Fund would
exceed 5% of the Fund's total assets;

12. purchase warrants, valued at the lower of cost or market, in
excess of 5% of the value of the Fund's net assets; provided
that no more than 2% of the Fund's net assets may be warrants
that are not listed on the New York Stock Exchange or the
American Stock Exchange.

*NOTE: items (9), (10) and (11) above do not apply to options
attached to, or purchased as a part of, their underlying securities.

If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.

In order to satisfy certain state regulatory requirements the Fund has
agreed that, so long as its shares are offered for sale in such state(s), it
will not:

1. invest in interests in oil, gas, or other mineral exploration
or development programs;

2. invest more than 5% of its total assets in the securities of
any issuers which have (together with their predecessors) a
record of less than three years continuous operations;

3. purchase or retain any securities if (i) one or more officers
or directors of the Fund or its investment advisor
individually own or would own, directly or beneficially, more
than 1/2 of 1 per cent of the securities of such issuer, and
(ii) in the aggregate such persons own or would own more than
5% of such securities.

Portfolio Turnover

Average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to a fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Investment Advisor's opinion, to meet the Fund's objective.
The Investment Advisor anticipates that the Fund's average annual portfolio rate
will be less than 100%.

Item 13. Management of the Fund

Directors and Officers

The following is a list of the Company's Directors and Officers, their
dates of birth 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, President and Treasurer
of Commonwealth Capital Management, Inc. (a registered investment advisor) since
1983. 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. 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. 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. 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.

*Jane H. Williams (6/28/48)
Vice President of the Company and President of the Sand Hill Portfolio
Manager Fund 3000 Sand Hill Blvd. Suite 150, Menlo Park, California 94025-7111.

Ms. Williams is Executive Vice President and a Director of Sand Hill
Advisors, Inc. which was founded in September 1982 by Ms. Williams.

*F. Byron Parker, Jr. (1/26/43)
Secretary
810 Lindsay Court, Richmond, VA 23229
Secretary of Commonwealth Shareholder Services, Inc. since 1986. Partner in
the law firm Mustian & Parker.

* Persons deemed to be "interested" persons of the Company under the 1940 Act.

During the fiscal year ended August 31, 1998, the Directors of the
Company received compensation from the Company, as follows:

- -------------------------------------- --------------------------- --------------------------- ---------------------------
Name and Position Aggregate Compensation Pension or Retirement Total Compensation From
from the Fund for the Benefits Accrued as Part the Fund and Fund Complex
Fiscal Year Ended August of Fund Expenses Paid to Director
31, 1998
- -------------------------------------- --------------------------- --------------------------- ---------------------------
- -------------------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>

John Pasco, III $0 None $0
Director
Samuel Boyd, Jr. $1,100 None $3,700
Director
William E. Poist $1,100 None $3,700
Director
Paul M. Dickinson $1,100 None $3,700
Director
- -------------------------------------- --------------------------- --------------------------- ---------------------------
</TABLE>

The Directors and officers of the Company, as a group, do not own 1% or
more of the Fund.

Item 14. Control Persons and Principal Holders of Securities

To the best knowledge of the Fund, as of December 28, 1998 the
following persons own of record or beneficially 5% or more of the Fund's shares
and own such amounts indicated:

(1) Kaplan Co., 5300 Stevens Creek #380, San Jose, CA 95129 (5.467%);

(2) Arthur and Anna Kull 280 West Market Run, Idaho Falls, ID 83404
(6.362%) and

Item 15. Investment Advisory and Other Services

Investment Advisor

Sand Hill Advisors, Inc. (the "Investment Advisor") manages the
investment of the assets of the Fund pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The Investment Advisor is located at 3000
Sand Hill Road, Building Three, Suite 150, Menlo Park, California 94025. The
Advisory Agreement will be effective for a period of two years from August 19,
1997 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 Fund,
provided the continuance is also approved by a majority of the Directors who are
not "interested persons" of the Company or the Investment Advisor by vote cast
in person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement is terminable without penalty on sixty days notice by the
Company's Board of Directors or by the Investment Advisor. The Advisory
Agreement provides that it will terminate automatically in the event of its
assignment.

The Company has designated Jane H. Williams, Executive Vice President
and a Director of the Investment Advisor, as a Vice President of the Company and
President of the Fund.

Under the Advisory Agreement the monthly compensation paid to the
Investment Advisor is accrued daily at an annual rate of 1.00% of the average
daily net assets of the Fund. If the average daily net assets of the Fund exceed
$100,000,000, the fee for such assets will be computed at the annual rate of
0.75% on such excess. The fee is paid monthly within five (5) business days
after the end of the month. The Investment Advisor received $53,649 from the
Fund and waived $34,043 of its fee in the year ended December 31, 1996. The
Investment Advisor received $80,675 from the Fund in the year ended December 31,
1997. For the period ended August 31, 1998 the Investment Advisor received $80,
943 from the Fund.

Transfer Agent

Fund Services, Inc. ("FSI") is the Company's Transfer and Disbursing
Agent, pursuant to a Transfer Agent Agreement dated August 19, 1997. The address
of the Transfer Agent is P.O. Box 26305, Richmond, VA 23260. John Pasco, III,
Chairman of the Board of the Company and an officer and shareholder of
Commonwealth Shareholder Services, Inc. (the Administrator of the Fund) owns
one-third of the stock of FSI, and, therefore, FSI may be deemed to be an
affiliate of the Company and Commonwealth Shareholder Services Inc.

FSI provides all the necessary facilities, equipment and personnel to
perform the usual and ordinary services of transfer and dividend disbursing
agent, including: receiving and processing orders and payments for purchases of
the Fund's 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 shares and all other confirmable transactions in
shareholders' accounts, and recording reinvestment of dividends and
distributions of the Company's shares. Under an Agreement between the Company
and FSI, dated August 19, 1997, FSI is compensated pursuant to a schedule of
services, and receives reimbursement for out-of-pocket expenses. Pursuant to the
Transfer Agent Agreement the minimum annual fee for the Fund is $16,500. In
1996, and 1997 the Fund paid FSI $24,190, and $19,313, respectively. For the
fiscal year ended August 31, 1998, the Fund paid $11,535.

Administrator

Commonwealth Shareholder Services, Inc. is the Company's Administrator
pursuant to an Administrative Services Agreement (the "Service Agreement"),
which is dated August 19, 1997. CSS provides certain recordkeeping,
administrative and shareholder servicing functions required of registered
investment companies. CSS may furnish personnel to act as the Fund's officers to
conduct the Fund's business subject to the supervision and instructions of the
Board of Directors.

The Administrative Services Agreement provides that CSS will be paid
monthly: (1) .20% of the average daily net assets of the Fund for administration
(which includes regulatory matters, backup of the pricing of the Fund,
administrative duties in connection with the execution of portfolio trades, and
certain services in connection with fund accounting); (2) certain out-of-pocket
expenses; and (3) an hourly fee for shareholder servicing and blue sky matters.
In 1996, and 1997 the Fund paid $17,681, and $22,263, respectively in
administrative fees. For the fiscal year ended August 31, 1998, the Fund paid
$21,247 in administrative fees.

This agreement continues in effect from year to year for a period 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. The address of CSS is 1500 Forest Avenue, Suite
223, Richmond, VA 23229.

Custodian and Accounting Services Agent

Star Bank (the "Custodian"), located at 425 Walnut Street, P.O. Box
1118, Cincinnati, Ohio,45201-1118, is the custodian and accounting services
agent for the Fund. The Custodian collects income when due and holds all of the
Fund's portfolio securities and cash. The Custodian is authorized to appoint
other entities to act as sub-custodians to provide for the custody of foreign
securities which may be acquired and held by the Fund outside the U.S. Such
appointments are subject to appropriate review by the Board of Directors. Star
Bank, as the accounting service agent, maintains and keeps current the books,
accounts, records, journals or other records of original entry relating to the
Fund's business.

Auditor

Tait, Weller & Baker, located at 8 Penn Center, Suite 800,
Philadelphia, PA 19103, serves as the Fund's independent auditor. The books of
the Fund will be audited at least once a year by the independent auditor.

Distributor

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 dated August 19, 1997, between the Company and the
Distributor. John Pasco, III, Chairman of the Board of the Company owns 100% of
the stock of the Distributor, and is its President, Treasurer and a Director.

Expenses of the Fund

The Fund will pay its expenses not assumed by the Investment Advisor,
including, but not limited to, the following: custodian; stock transfer and
dividend disbursing fees and expenses; taxes; expenses of the issuance and
redemption of Fund shares (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; and the cost of
stationery and forms prepared exclusively for the Fund.

The allocation of the general expenses of the Fund is made on a basis
that the Company's Board of Directors deems fair and equitable, which may be
based on the relative net assets of the series of the Company or the nature of
the services performed and relative applicability to each series of the Company.

Item 16. Brokerage Allocation and Other Practices

It is the policy of the Investment Advisor, in placing orders for the
purchase and sale of the Fund's securities, to seek to obtain the best net price
and most favorable execution for securities transactions taking into account
such factors as price, commission, where applicable (which is negotiable in the
case of U.S. national securities exchange transactions but which is generally
fixed in the case of foreign exchange transactions), size of order, difficulty
of execution and skill required of the executing broker/dealer. After a purchase
or sale decision is made by the Investment Advisor, the Investment Advisor then
arranges for execution of the transaction in a manner deemed to provide the best
net price and most favorable execution for the Fund.

The Fund has authorized the Investment Advisor to allocate a portion of
its brokerage commissions to persons or firms providing the Investment Advisor
with investment recommendations, statistical, research or similar services
useful to the Investment Advisor's investment decision making process for the
Fund or other clients. 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 analyses and reports concerning issuers, industries, securities,
economic factors and trends, and portfolio strategy. Such services are one of
the many ways the Fund's Investment Advisor can keep abreast of the information
generally circulated among institutional investors by broker-dealers. While this
information is useful in varying degrees, its value is indeterminable. Such
services received on the basis of transactions for the Fund may be used by the
Investment Advisor for the benefit of other clients, and the Fund may benefit
from such transactions effected for the benefit of other clients. While there is
no specific agreement or formula to do so, and subject to obtaining best net
price and most favorable execution the Fund may consider sales of its shares as
a factor in the selection of brokers to execute portfolio transactions. The
Investment Advisor generally does not, when placing portfolio transactions for
the Fund, pay a brokerage commission in excess of that which another broker
might have charged for executing the same transaction 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 accounts managed by the Investment Advisor are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated in a manner deemed equitable to each account. 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. It is the opinion of the
Board of Directors of the Company that these advantages, when combined with the
other benefits available because of the Investment Advisor's organization,
outweigh the disadvantages that may be said to exist from this treatment of
transactions.

Exchange-listed securities are generally traded on their principal
exchange unless another market offers a better result. Securities traded only in
the over-the-counter market may be executed on a principal basis with primary
market makers in such securities except for fixed price offerings and except
where the Fund may obtain better prices or executions on a commission basis or
by dealing with other than a primary market maker.

The Fund paid $7,086, and $6,474 in brokerage commissions for the years
ended December 31, 1996, and 1997, respectively. For the fiscal year ended
August 31, 1998, the Fund paid $13,698in brokerage commissions.

Item 17. Capital Stock and Other Securities

The Company is authorized to issue up to 500,000,000 shares of common
stock, par value $0.01 per share, of which the Company has presently allocated
50,000,000 shares to the Fund. The Board of Directors can allocate the remaining
authorized but unissued shares to the Fund or may create additional series and
allocate shares to such series. A share of the Fund has priority in the assets
of the Fund in the event of a liquidation. The shares of the Fund will be fully
paid and nonassessable, will have no preference over other shares of the Fund as
to conversion, dividends or retirement, and will have no preemptive rights. 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 are fully paid and nonassessable,
will have no preference over other shares of the same series as to conversion,
dividends, or retirement, and have no preemptive rights. The shares of any
series are redeemable from the assets of that series at any time at a
shareholder's request at the current net asset value 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.

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. 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.
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 communications in such
matter.
Dividends and Distributions

As stated previously, it is the policy of the Fund to distribute
substantially all of its net investment income and net realized capital gains,
if any, shortly before the close of the fiscal year (December 31st).

Item 18. Purchase, Redemption and Pricing of Shares

How to Invest in the Fund

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 Fund's shareholders. Under the
open account plan, your shares are reflected in your open account. This service
facilitates the purchase, redemption or transfer of shares, and eliminates the
need to safeguard certificates and reduces time delays in executing
transactions. Stock certificates are not required and are not normally issued.
Stock certificates for full shares will be issued, however, by the Transfer
Agent upon written request but only after payment for the shares is collected by
the Transfer Agent.

Purchase by Mail

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 at 1-800-628-4077. 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 Fund's 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 Fund Shares

Shares may be redeemed at any time 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 Fund'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 below. Payment will be made promptly, but no later than the seventh
day following receipt of the request in proper order. Please note that the
Transfer Agent cannot accept redemption requests which specify a particular date
for redemption, or which specify any special conditions. 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, you
should make your purchase by Federal Funds wire, or by a certified, treasurer's
or cashier's check. The Fund may suspend the right to redeem shares for any
period during which the New York Stock Exchange is closed or the Securities and
Exchange Commission determines that there is an emergency. In such circumstances
you may withdraw your redemption request or permit your request to be held for
processing at the net asset value per share next computed after the suspension
is terminated.

Redemption by Mail

Redemption by Telephone

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.

Redemption by Wire

Signature Guarantees

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; and (f) foreign branches
of any of the above. In addition, the Fund will guarantee your signature if you
personally visit its offices at 1500 Forest Avenue, Suite 223, Richmond, VA
23229. The Transfer Agent cannot honor guarantees from notaries public, savings
and loan associations, or savings banks.

Small Accounts

Special Shareholder Services

Telephone Transactions: You may redeem shares or transfer into another
fund by telephone if you request this service at the time you complete the
initial Account Application. If you do not elect this service at that time, you
may do so at a later date by putting your request in writing to the Transfer
Agent and having your signature guaranteed.

The Fund employs reasonable procedures designed to confirm the
authenticity of your instructions communicated by telephone and, if it does not,
it may be liable for any losses due to unauthorized or fraudulent transactions.
As a result of this policy, a shareholder authorizing telephone redemption bears
the risk of loss which may result from unauthorized or fraudulent transactions
which the Fund believes to be genuine. When you request a telephone redemption
or transfer, you will be asked to respond to certain questions designed to
confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.

Individual Retirement Account (IRA) - All wage earners under 70-1/2,
even those who participate in a company sponsored or government retirement plan,
may establish their own IRA. You can contribute 100% of your earnings up to
$2,000 (or $2,250 with a spouse who is not a wage earner, for years prior to
1997). Starting in 1997, even a spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employers under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements of establishing and maintaining a
corporate retirement plan trust.

If you have received a lump sum distribution from another qualified
retirement plan, you may rollover all or part of that distribution into your
Fund IRA. Your 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 custodian charges nominal fees in connection with plan establishment
and maintenance. These fees are detailed in the plan documents. You may wish to
consult with your attorney or other tax advisor for specific advice concerning
your tax status and plans.

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, Jr. 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.

NAV per share is determined by dividing the total value of the Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.

The Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.

Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including ADRs and EDRs, which
are traded on the Exchange, will be valued at the last sale price prior to the
close of regular trading on the Exchange. Lacking any sales, the security will
be valued at the last bid price prior to the close of regular trading on the
Exchange. ADRs and EDRs for which such a value cannot be readily determined on
any day will be valued at the closing price of the underlying security adjusted
for the exchange rate. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated in accordance
with procedures approved by the Board of Directors of the Fund as the primary
market. Securities will be valued using quotations on the exchange and lacking
any sales, securities will be valued at the last reported bid price prior to the
Fund's valuation time, unless the Fund is aware of a material change in the
value prior to the time it values its securities.

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
current bid prices for such securities in the over-the-counter market. Other
unlisted securities (and listed securities subject to restriction on sale) may
be valued at their fair value as determined in good faith by the Board of
Directors.

Notwithstanding the foregoing, money market investments with a
remaining maturity of less than sixty days shall be valued by the amortized cost
method described below; debt securities are valued by appraising them at prices
supplied by a pricing agent approved by the Fund, which prices may reflect
broker-dealer supplied valuations and electronic data processing techniques and
are representative of market values at the close of the Exchange; options on
securities listed or admitted to trading on a national exchange shall be valued
at their last sale on such exchange prior to the time of determining net asset
value; or if no sales are reported on such exchange on that day, at the mean
between the most recent bid and asked price; and forward contracts shall be
valued at their last sale as reported by the Fund's pricing service, or lacking
a report by the service, at the value of the underlying currencies at the
prevailing currency rates.

The value of an illiquid 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 Fund'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 the Fund shall be determined in a manner which, in the discretion of
the pricing agent of the Fund, most fairly reflects fair market value of the
property on such date.

Following the calculation of security values in terms of currency in
which the market quotation used is expressed ("local currency"), the pricing
agent shall, prior to the next determination of the NAV of the Fund's shares,
calculate these values in terms of United States dollars on the basis of the
conversion of the local currencies (if other than U.S. dollars) into United
States dollars at the rates of exchange prevailing at the value time as
determined by the pricing agent.

Any purchase order may be rejected by the Distributor or by the Fund.
The Company has reserved the right to redeem in-kind but does not intend to do
so under normal circumstances.

Item 19. Taxation of the Fund

Distributions and Taxes

Distributions of net investment income. The Fund receives income
generally in the form of dividends and interest on its investments. This income,
less expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which dividends may be paid to you. Any distributions by
the Fund from such income will be taxable to you as ordinary income, whether you
take them in cash or in additional shares.

<PAGE>

Election to be taxed as a regulated investment company The Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code, has qualified as such for its most recent fiscal
year, and intends to so qualify during the current fiscal year. As a regulated
investment company, the Fund generally pays no federal income tax on the income
and gains it distributes to you. The board reserves the right not to maintain
the qualification of the Fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the Fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the Fund's earnings and profits.

Redemption of fund shares. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your Fund shares, or exchange your Fund shares for shares of a different fund of
the Company, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the Fund on those shares.

U.S. government obligations. Many states grant tax-free status to
dividends paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by the Fund. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities do not generally qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.

Dividends-received deduction for corporations. As a corporate
shareholder, you should note that 100% of the dividends paid by the Fund for the
most recent fiscal year qualified for the dividends-received deduction. You will
be permitted in some circumstances to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the Fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculations.

Investment in complex securities. The Fund may invest in complex
securities. These investments may be subject to numerous special and complex tax
rules. These rules could affect whether gains and losses recognized by the Fund
are treated as ordinary income or capital gain, accelerate the recognition of
income to the Fund and/or defer the Fund's ability to recognize losses, and, in
limited cases, subject the Fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the amount,
timing or character of the income distributed to you by the Fund.

Item 20. Underwriters

Shares of the Fund are sold at NAV on a continuous basis, without a
sales charge. The Distributor is required to distribute the Fund's shares on a
best efforts basis. The aggregate dollar amount of underwriting commissions and
the amount retained by the principal underwriter for each of the Fund's last
three fiscal years are as follows: for the fiscal year ended December 31, 1996,
$0; for the fiscal year ended December 31, 1997, $0; and for the fiscal period
ended August 31, 1998, $0. The following table sets for the commissions and
other compensation received by the principal underwriter, who is an affiliated
person of the Fund, directly or indirectly, from the Fund during the Fund's most
recent fiscal year:

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------

Item 21. Calculation of Performance Data

Current yield and total return are the two primary methods of measuring
investment performance. Occasionally, however, the Fund may include its
distribution rate in sales literature. Yield, in its simplest form, is the ratio
of income per share derived from the Fund's portfolio investments to the current
maximum offering price expressed in terms of percent. The yield is quoted on the
basis of earnings after expenses have been deducted. Total return, on the other
hand, 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.

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
the Fund be accompanied by certain standardized performance information computed
as required by the Commission. Current yield and total return quotations used by
the Fund are based on the standardized methods of computing performance mandated
by the Commission.

YIELD = 2 [ (
a-b + 1 )6 - 1 ]
------
cd

where:

a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

Total Return. The composite average annual total returns for t
Sand Hill Fund and the Fund for the periods indicated are as follows:

Fund Name One-Year Period From Inception to
Ended 8/31/98 8/31/98
Sand Hill Portfolio Manager Fund (6.73%) 11.02%%

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-year or since inception period and the deduction
of all applicable charges and fees. According to the Commission formula:

P(1 + T)n = 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 yield or 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 differs from the yield
because it measures what the Fund paid to shareholders rather than what the Fund
earned from investments. It also differs from the yield because it 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
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market as represented by the Standard & Poor's 500 Stock Index. A beta of more
than 1.00 indicates volatility greater than the market, and a beta of less than
1.00 indicates volatility less than the market. Another measure of volatility or
risk is standard deviation. Standard deviation is used to measure variability of
net asset value 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.

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 yield, total return, or Fund volatility as reported by various financial
publications. Advertisements may also compare yield, total return, or volatility
(as calculated above) to yield, total return, or volatility as reported by other
investments, indices, and averages. The following publications, indices, and
averages may be used:

(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks. Comparisons of performance
assume reinvestment of dividends.

(b) Standard & Poor's 500 Stock Index or its component indices
-an unmanaged index composed of 400 industrial stocks, 40 financial stocks,
40 utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.

(c) The New York Stock Exchange composite or component indices
- -unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.

(d) Wilshire 5000 Equity Index - represents the return on the market
value of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.

(e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income
Analysis, and Lipper Mutual Fund Indices - measures total return and average
current yield for the mutual fund industry. Ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.

(f) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc. - analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.

(g) Mutual Fund Source Book and other material, published by
Morningstar, Inc. - provides proprietary ratings and analyzes price, yield,
risk, and total return for equity funds.

(h) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, and Money magazines - 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, 1 utility, 2
transportation companies, and 5 financial institutions. The S&P 100 Stock Index
is a smaller more flexible index for option trading.

(k) In assessing such comparisons of yield, total return, or
volatility, an investor should keep in mind that the composition of the
investments in the reported indices and averages is 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 this performance as compared to such other
averages.

Item 22. Financial Statements

Tait, Weller and Baker, of Philadelphia, PA, independent public
accountants, serve as independent auditors for the Fund, and in its capacity as
such, audits the financial statements contained the Fund's Annual Report to
Shareholders. The financial statements, financial highlights, the notes relating
thereto and the Report of Independent Accountants for the fiscal period ended
August 31, 1998 are incorporated by reference into this Statement of Additional
Information from the Fund's Annual Report to Shareholders for the fiscal period
ended August 31, 1998.

<PAGE>

APPENDIX

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND RATINGS:

Moody's applies numerical modifiers 1,2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicated a mid-range rating, and the modifier 3
indicates that the issue ranks at the lower end of the rating category.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

MOODY'S SHORT-TERM DEBT RATINGS:

Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:

AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation, indicating an extremely strong capacity to pay principal and
interest.

AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from highest rated issues only to a small degree.

Plus(+) or Minus(-) - The ratings from AA to CCC may be modified by the
addition of a plus or a minus sign, which shows relative standing within the
major rating categories.

C - The rating C is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in default, and payment of interest and/or repaymen
of principal is in arrears.

<PAGE>
PART C - OTHER INFORMATION

ITEM 23. EXHIBITS

(a) (1) Articles of Incorporation of the Registrant are
herein Incorporated by reference to the Registrant's
Initial Registration from the Statements on Form N-1A
(File Nos. 333-29289 and 811-8255) filed with the
Securities and Exchange Commission (the "SEC") on
June 16, 1997.

(2) Articles Supplementary of the Registrant creating the
CSI Equity Fund series and the CSI Fixed Income Fund
series are incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Initial
Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255).

(3) Articles Supplementary of the Registrant creating the
Third Millennium Russia Fund series and the New
Market Fund series are incorporated by reference to
Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255) as filed with the SEC on July
8, 1998.

(4) Articles Supplementary of the Registrant increasing
the amount of authorized shares are incorporated by
reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255) as filed with the
SEC on July 8, 1998.

(b) By-Laws of the Registrant are incorporated by reference to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255) filed with the SEC on June 16, 1997.

(d) (1) Investment Advisory Agreement dated August 19,
1997 between Sand Hill Advisors, Inc. and the
Registrant on behalf of the Sand Hill Portfolio
Manager Fund is herein incorporation by reference to
Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255) as filed with the SEC on
December 1, 1997.

(2) Investment Advisory Agreement dated October 14, 1997
between CSI Capital Management, Inc. and the
Registrant on behalf of the CSI Equity Fund is herein
incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255) as filed with
the SEC on December 1, 1997.

(3) Investment Advisory Agreement dated October 14, 1997
between CSI Capital Management Inc. and the
Registrant on behalf of the CSI Fixed Income Fund is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and
811-8255) as filed with the SEC on December 1, 1997.

(4) Investment Advisory Agreement between Third
Millennium Investment Advisors LLC and the Registrant
on behalf of the Third Millennium Russia Fund series
is filed herewith as Exhibit EX-99.B5.1.

(5) Investment Management Agreement between Virginia
Management Investment Corporation and the Registrant
on behalf of New Market Fund series is filed herewith
as Exhibit EX-99.B5.2.

(6) Investment Advisory Agreement between Virginia
Management Investment Corporation and the London
Company of Virginia on behalf of New Market Fund
series is filed herewith as Exhibit EX-99.B5.3.

(e) (1) Distribution Agreement dated August 19, 1997 between
First Dominion Capital Corp. and the
Registrant is herein incorporated by reference to
Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255) as
filed with the SEC on December 1, 1997.

(2) Distribution Agreement dated September 21, 1998
between First Dominion Capital Corporation and the
Registrant is filed herewith as Exhibit EX-99.B6.

(3) FORM OF Broker-Dealer Selling Agreement is
incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and
811-8255) as filed with the SEC on July 8, 1998.

(f) Not Applicable.

(g) (1) Custody Agreement dated August 19, 1997 between
Star Bank, N.A. and the Registrant on behalf of the
Sand Hill Portfolio Manager Fund is herein
incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255) as filed with
the SEC on December 1, 1997.

(2) Custody Agreement dated October 14, 1997 between Star
Bank, N.A. and the Registrant is herein incorporated
by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255) as filed with the
SEC on December 1, 1997.

(3) Custody Agreement dated October 28, 1998 between
Brown Brothers Harriman & Co. and the Registrant on
behalf of the Third Millenium Russia Fund is filed
herewith as Exhibit EX-99.B8.

(h) (1) Transfer Agency Agreement dated August 19, 1997
between Fund Services, Inc. and the
Registrant is herein incorporated by reference to
Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A
(file Nos. 333-29289 and 811-8255) as
filed with the SEC on December 1, 1997.

(2) Administrative Services Agreement dated August 19,
1997 between Commonwealth Shareholder Services, Inc.
and the Registrant on behalf of the Sand Hill
Portfolio Manager Fund is herein incorporated by
reference to Post- Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A
(file Nos. 333-29289 and 811-8255) as filed with the
SEC on December 1, 1997.

(3) Administrative Services Agreement dated October 14,
1997 between Commonwealth Shareholder Services, Inc.
and the Registrant on behalf of the CSI Equity Fund
is herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (file Nos. 333-29289 and
811-8255) as filed with the SEC on December 1, 1997.

(4) Administrative Services Agreement dated October 14,
1997 between Commonwealth Shareholder Services, Inc.
and the Registrant on behalf of the CSI Fixed Income
Fund is herein incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (file Nos.
333-29289 and 811-8255) as filed with the SEC on
December 1, 1997.

(5) Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the Third Millennium Russia
Fund series is filed herewith as Exhibit EX-99.B9.1.

(6) Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the New Market Fund series
is filed herewith as Exhibit EX-99.B9.2.

(7) Fund Accounting Servicing Agreement dated October 14,
1997 between Star Bank, N.A. and the Registrant on
behalf of the Sand Hill Portfolio Manager Fund is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (file Nos. 333-29289 and
811-8255) as filed with the SEC on December 1, 1997.

(8) Fund Accounting Servicing Agreement dated October 14,
1997 between Star Bank N.A. and the Registrant is
herein incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (file Nos. 333-29289 and
811-8255) as filed with the SEC on December 1, 1997.

(i) Not Applicable.

(j) Consent of Independent Accountants is filed herewith as
Exhibit EX-99.B11.

(k) Not Applicable.

(l) Not applicable.

(m) (1) Distribution Plan pursuant to Rule 12b-1 dated
September 21, 1998 on behalf of the Third Millennium
Russia Fund series is filed herewith as Exhibit
EX-99.B15.1.

(2) Distribution Plan pursuant to Rule 12b-1 dated
September 21, 1998 on behalf of the New Market Fund
series is filed herewith as Exhibit EX-99.B15.2.

(n) (1) Financial data schedule for the Sand Hill Portfolio
Manager Fund is filed herewith as Exhibit EX-27.1.

(2) Financial data schedule for the CSI Equity Fund is
filed herewith as Exhibit EX-27.2.

(3) Financial data schedule for the CSI Fixed Income
Fund is filed herewith as Exhibit EX-27.3.

(o) Not Applicable.

(p) Powers-of-Attorney for Samuel Boyd, Jr., William E. Poist and
Paul M. Dickinson are incorporated by reference to the
Registrant's Initial Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) as filed with the SEC on June 16,
1997.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 25. INDEMNIFICATION.

The Registrant is incorporated under the General Corporation Law (the
"GCL") of the State of Maryland. The Registrant's Articles of
Incorporation provide the indemnification of directors, officers and
other agents of the corporation to the fullest extent permitted under
the GCL. The Articles limit such indemnification so as to comply with
the prohibition against indemnifying such persons under Section 17 of
the Investment Company Act of 1940, as amended, for certain conduct set
forth in that section ("Disabling Conduct"). Contracts between the
Registrant and various service providers include provisions for
indemnification, but also forbid the Registrant to indemnify affiliates
for Disabling Conduct.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISOR.

Sand Hill Advisors, Inc., the investment advisor to the Sand Hill
Portfolio Manager Fund series, provides investment advisory services
consisting of portfolio management for a variety of individuals and
institutions and as of December 31, 1997, had approximately $311
million in assets under management.

For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or
partner of Sand Hill Advisors, Inc. (the "Advisor") is or has been, at
any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee,
reference is made to the Advisor's Form ADV (File #801-17601),
currently on file with the Commission as required by the Investment
Advisers Act of 1940, as amended.

CSI Capital Management, Inc., the investment advisor to the CSI Equity
Fund series and the CSI Fixed Income Fund series, provides investment
advisory services consisting of portfolio management for a variety of
individuals and institutions and as of November 30, 1997 had
approximately $143 in assets under management, and a principal of the
Advisor acts as trustee supervising an additional $30 million in
assets.

For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or
partner of CSI Capital Management Inc. (the "Advisor") is or has been,
at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee, reference is made to the Advisor's Form ADV (File #801-14549),
currently on file with the Commission as required by the Investment
Advisors Act of 1940, as amended.

Third Millennium Investment Advisors, LLC, the Investment Advisor to
the Third Millennium Russia Fund, is a newly formed advisor formed for
the purpose of advising Registered Investment Companies. The Advisor's
Form ADV (File # 801-55720) is currently on file with the Commission as
required by the Investment Advisors Act of 1940, as amended.

Virginia Management Investment Corporation, the Investment Manager to
the New Market Fund series is a newly formed advisor formed for the
purpose of advising Registered Investment Companies. The Advisor's Form
ADV (File # 801-55697) is currently on file with the Commission as
required by the Investment Advisors Act of 1940, as amended. The London
Company of Virginia is the investment advisor to the New Market Fund,
pursuant to an Investment Advisory Agreement between Virginia
Management Investment Corporation and The London Company.

For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or
partner of The London Company of Virginia (the "Advisor") is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee, reference is made to the Advisor's Form ADV (File #801-46604),
currently on file with the Commission as required by the Investment
Advisors Act of 1940, as amended.

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Vontobel Funds, Inc.

(b)

------------------------------------ ------------------------------------ -------------------------------
Name and Principal Business Address Positions and Offices with Positions and Offices with
Underwriter Fund
------------------------------------ ------------------------------------ -------------------------------
<S> <C> <C>

John Pasco, III President, Chief Financial Chairman, President, and
1500 Forest Avenue Officers, Treasurer and Director Treasurer
Suite 223
Richmond, VA 23229

Mary T. Pasco Director Assistant Secretary
1500 Forest Avenue
Suite223
Richmond, VA 23229

Lori J. Martin Vice President and Assistant None
1500Forest Avenue Secretary
Suite 223
Richmond, VA 23229

F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229

</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

The accounts, books or other documents of the Registrant required to be
maintained by $31 (1) of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder are kept in several
locations:

(a) Shareholder account records (including share ledgers,
duplicate confirmations, duplicate account statements and
applications forms) of the Registrant are maintained by its
transfer agent, Fund Services, Inc., at 1500 Forest Avenue,
Suite 111, Richmond, VA. 23229.

(b) With respect to Sand Hill Portfolio Manager Fund series:
Investment records including research information, records
relating to the placement of brokerage transactions,
memorandums regarding investment recommendations for
supporting and/or authorizing the purchase or sale of assets,
information relating to the placement of securities
transactions, and certain records concerning investment
recommendations of the Sand Hill Portfolio Manager Fund series
are maintained at the series' investment advisor, Sand Hill
Advisors, Inc., at 3000 Sand Hill Road, Building 3, Suite 150,
Menlo Park, CA 94025.

(c) With respect to CSI Fixed Income Fund series and CSI Equity
Fund Series: Investment records including research
information, records relating to the placement of brokerage
transactions, memorandums regarding investment recommendations
for supporting and/or authorizing the purchase or sale of
assets, information relating to the placement of securities
transactions, and certain records concerning investment
recommendations of the CSI Fixed Income Fund and CSI Equity
Fund series are maintained at the series' investment advisor,
CSI Capital Management, 1 Montgomery Street, Suite 2525, San
Francisco, CA 94104.

(d) With respect to Third Millennium Russia Fund series:
Investment records including research information, records
relating to the placement of brokerage transactions,
memorandums regarding investment recommendations for
supporting and/or authorizing the purchase or sale of assets,
information relating to the placement of securities
transactions, and certain records concerning investment
recommendations of the Third Millennium Russia Fund series are
maintained at the series' investment advisor, Third Millennium
Investment Advisors, LLC.

(e) With respect to the New Market Fund series: Investment records
including research information, records relating to the
placement of brokerage transactions, memorandums regarding
investment recommendations for supporting and/or authorizing
the purchase or sale of assets, information relating to the
placement of securities transactions, and certain records
concerning investment recommendations of the New Market Fund
series are maintained at the series' Investment Advisor, The
London Company.

(f) Accounts and records for portfolio securities and other
investment assets, including cash of the Sand Hill Portfolio
Manager Fund, the CSI Fixed Income Fund, the CSI Equity Fund
and the New Market Fund series are maintained in the custody
of the Registrant's custodian bank, Star Bank, N.A., 425
Walnut Street, P.O. Box 1118, Cincinnati, Ohio 45201-1118.

(g) Accounts and records for portfolio securities and other
investment assets, including cash of the Third Millennium
Russia Fund series are maintained in the custody of the
Registrant's custodian bank, Brown Brothers Harriman & Co., 40
Water Street, Boston, MA. 02109.

(h) Accounting records, including general ledgers, supporting
ledgers, pricing computations, etc. of the Sand Hill Portfolio
Manager Fund, the CSI Fixed Income Fund, the CSI Equity Fund
and the New Market Fund series are maintained by the
Registrant's accounting services agent, Star Bank, N.A., 425
Walnut Street, P.O. Box 1118, Cincinnati, Ohio 45201-1118.

(i) Accounting records, including general ledgers, supporting
ledgers, pricing computations, etc. of the Third Millennium
Russia Fund series are maintained by the Registrant's
accounting services agent, Brown Brothers Harriman & Co., 40
Water Street, Boston, MA. 02109.

(j) Administrative records, including copies of the charter,
by-laws, minute books, agreements, compliance records and
reports, certain shareholder communications, etc., are kept at
the Registrant's principal office, at 1500 Forest Avenue,
Suite 223, Richmond, Va 23229, by the Registrant's
Administrator, Commonwealth Shareholder Services, Inc., whose
address is the same as Registrant's.

(k) Records relating to distribution of shares of the Registrant
are maintained by the Registrant's distributor, First Dominion
Capital Corp. at 1500 Forest Avenue, Suite 223, Richmond, VA
23229.

ITEM 29. MANAGEMENT SERVICES

There are no management-related service contracts not discussed in
Parts A or B of this Form.

ITEM 30. UNDERTAKINGS.

The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized in the City of Richmond, and
the Commonwealth of Virginia on the 29th day of December 1998.

THE WORLD FUNDS, INC.
Registrant

By /s/John Pasco, III
John Pasco, III,

Chairman, Chief Executive Officer &
Chief Financial Officer

<PAGE>
<TABLE>
<S> <C> <C>
Exhibit No. EXHIBIT INDEX EDGAR Exhibit No.
Exhibit 23(d)(4) Investment Advisory Agreement for Third Millennium EX-99.B5.1.
Russia Fund
Exhibit 23(d)(5) Investment Management Agreement for New Market Fund EX-99.B5.2.
Exhibit 23(d)(6) Investment Advisory Agreement for the New Market Fund EX-99.B5.3.
(Between Virginia Management Investment Corporation
and the London Company)
Exhibit 23(g)(3) Custody Agreement for Third Millennium Russia Fund EX-99.B8
Exhibit 23(e)(2) Distribution Agreement EX-99.B6
Exhibit 23(h)(5) Administrative Services Agreement for Third Millennium EX-99.B9.1.
Russia Fund
Exhibit 23(h)(6) Administrative Services Agreement for New Market Fund EX-99.B9.2.
Exhibit 23(j) Consent of Auditors EX-99.B11
Exhibit 23(m)(1) Distribution Plan for Third Millenium Russia Fund EX-99.B15.1.
Exhibit 23(m)(2) Distribution Plan for New Market Fund EX-99.B15.2.
Exhibit 23(n)(1) Financial Data Schedule for the Sand Hill Portfolio EX-27.1
Manager Fund
Exhibit 23(n)(2) Financial Data Schedule for the CSI Equity Fund EX-27.2
Exhibit 23(n)(3) Financial Data Schedule for the CSI Fixed Income Fund EX-27.3
</TABLE>

INVESTMENT ADVISORY AGREEMENT

Investment Advisory Agreement (the "Agreement") dated September 21,
1998 by and between THE WORLD FUNDS, INC., a Maryland corporation (herein called
the "Fund"), and THIRD MILLENNIUM INVESTMENT ADVISORS LLC, a Delaware Limited
Liability Company (the "Advisor") a registered investment adviser under the
Investment Advisers Act of 1940, as amended.

WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of several series of shares, each having its own investment policies;
and

WHEREAS, the Fund desires to retain the Advisor to furnish investment
advisory and management services to certain portfolios of the Fund, subject to
the control of the Fund's Board of Directors, and the Advisor is willing to so
furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be bound, it is agreed between the parties
hereto as follows:

1. Appointment. The Fund hereby appoints the Advisor to act as the
advisor to the THIRD MILLENNIUM RUSSIA FUND series of the Fund (the "Portfolio")
for the period and on the terms set forth in this Agreement. The Advisor accepts
such appointment and agrees to furnish the services herein set forth, for the
compensation herein provided.

2. Duties of the Advisor. The Fund employs the Advisor to manage the
investments and reinvestment of the assets of the Portfolio, and to continuously
review, supervise, and administer the investment program of the Portfolio, to
determine in its discretion the securities to be purchased or sold, to provide
the Fund and Commonwealth Shareholder Services, Inc. (the "Administrator") with
records concerning the Advisor's activities which the Fund is required to
maintain, and to render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Advisor's discharge of the
foregoing responsibilities.

The Advisor shall discharge the foregoing responsibilities
subject to the control of the Fund's Board of Directors and in compliance with
such policies as the Board may from time to time establish, and in compliance
with the objectives, policies, and limitations for the Portfolio as set forth in
its Prospectus and Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will instruct each of its
agents and contractors to co-operate in the conduct of the business of the
Portfolio.

The Advisor accepts such employment and agrees, at its own
expense, to render the services and to provide the office space, furnishings,
and equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.

3. Portfolio Transactions. The Advisor is authorized to select the
brokers and dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best efforts to obtain
the best price and execution for the Portfolio's transactions in accordance with
the policies of the Fund as set forth from time to time in the Portfolio's
Prospectus and Statement of Additional Information. The Advisor will promptly
communicate to the Fund and to the Administrator such information relating to
portfolio transactions as they may reasonably request.

It is understood that the Advisor will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to an unaffiliated broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described from time to time
by the Portfolio's Prospectus and Statement of Additional Information. Subject
to the foregoing, the Advisor may direct any transaction of the Portfolio to a
broker which is affiliated with the Advisor in accordance with, and subject to,
the policies and procedures approved by the Board of Directors of the Fund
pursuant to Rule 17e-1 under the 1940 Act. Such brokerage services are not
deemed to be provided under this Agreement.

4. Compensation of the Advisor. For the services to be rendered by the
Advisor under this Agreement, the Portfolio shall pay to the Advisor, and the
Advisor will accept as full compensation a fee, accrued daily and payable within
five (5) business days after the last business day of each month, at an annual
rate of 1.75% of the net assets of the portfolio.

All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of this
Agreement.

5. Expenses. During the term of this Agreement, the Advisor will pay
all expenses incurred by it in connection with the management of the Fund.
Notwithstanding the foregoing, the Portfolio shall pay the expenses and costs of
the Portfolio for the following:

(1) Taxes;

(2) Brokerage fees and commissions with regard to
portfolio transactions;

(3) Interest charges, fees and expenses of the custodian of the
securities;

(4) Fees and expenses of the Fund's transfer agent and the
Administrator;

(5) Its proportionate share of auditing and legal expenses;

(6) Its proportionate share of the cost of maintenance of
corporate existence;

(7) Its proportionate share of compensation of directors of
the Fund who are not interested persons of the Advisor as
that term is defined by law;

(8) Its proportionate share of the costs of corporate meetings;

(9) Federal and State registration fees and expenses incident
to the sale of shares of the Portfolio;

(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to existing
shareholders;

(11) The Advisory fee payable to the Advisor, as provided in
paragraph 4 herein;

(12) Costs of recordkeeping (other than investment records
required to be maintained by the Advisor), and daily
pricing;

(13) Distribution expenses in accordance with any Distribution
Plan as and if approved by the shareholders of the
Portfolio; and

(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment company
under the provisions of the Internal Revenue Code of 1986,
as amended, unless such expenses and/or taxes arise from
the negligence of another party.

6. Reports. The Fund and the Advisor agree to furnish to each other, if
applicable, current information required for the preparation by such parties of
prospectuses, statements of additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to their affairs as
each may reasonably request.

7. Status of the Advisor. The services of the Advisor to the Fund are
not to be deemed exclusive, and the Advisor shall be free to render similar
services to others so long as its services to the Fund are not impaired thereby.
Pursuant to comparable agreements, the Fund may also retain the services of the
Advisor to serve as the investment advisor of other series of the Fund.

8. Books and Records. In compliance with the requirements of the 1940
Act, the Advisor hereby agrees that all records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Advisor further agrees to
preserve for the periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.

9. Limitation of Liability of Advisor. The duties of the Advisor shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Advisor hereunder. The Advisor shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Advisor in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. (As used in this Paragraph 9, the term
"Advisor" shall include directors, officers, employees and other corporate
agents of the Advisor as well as that corporation itself).

10. Permissible Interests. Directors, agents, and shareholders of the
Fund are or may be interested in the Advisor (or any successor thereof) as
directors, officers, or shareholders, or otherwise; directors, officers, agents,
and shareholders of the Advisor are or may be interested in the Fund as
directors, officers, shareholders or otherwise; and the Advisor (or any
successor) is or may be interested in the Fund as a shareholder or otherwise. In
addition, brokerage transactions for the Fund may be effected through affiliates
of the Advisor if approved by the Fund's Board of Directors, subject to the
rules and regulations of the Securities and Exchange Commission, and the
policies and procedures adopted by the Fund.

11. License of Advisor's Name. The Advisor hereby authorizes the Fund
to use the name "Third Millennium Russia Fund" for the Portfolio. The Fund
agrees that if this Agreement is terminated it will promptly redesignate the
name of the Portfolio to eliminate any reference to the name "Third Millennium
Russia Fund" or any derivation thereof unless the Advisor waives this
requirement in writing.

12. Duration and Termination. This Agreement shall become effective on
the date first above written subject to its approval by the shareholders of the
Portfolio and unless sooner terminated as provided herein, shall continue in
effect for two (2) years from that date. Thereafter, this Agreement shall be
renewable for successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of those members of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons of any such party (as that term is defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by vote of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940 Act) of the
Portfolio. Notwithstanding the foregoing, this Agreement may be terminated by
the Portfolio or by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination must be authorized
either by vote of the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio or by the Advisor on sixty (60)
days written notice. This Agreement will automatically terminate in the event of
its assignment (as that term is defined in the 1940 Act).

13. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act).

14. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the address stated below, or at such other address as either party may advise
in writing:

(a) To the Fund at:
1500 Forest Avenue, Suite 223
Richmond, VA 23229

(b) To the Advisor at:
515 Madison Avenue, 24th Floor
New York, N.Y. 10022

15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors.

16. Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Maryland, and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of Maryland, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.

17. This Agreement may be executed in two or more counterparts, each of
which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

THIRD MILLENNIUM INVESTMENT ADVISORS LLC

By: /s/ John T. Connor, Jr.
John T. Connor, Jr.
Chairman

THE WORLD FUNDS, INC.

By: /s/ John Pasco, III
John Pasco, III
Chairman

INVESTMENT MANAGEMENT AGREEMENT

Investment Management Agreement (the "Agreement") dated September 21,
1998 and between THE WORLD FUNDS, INC., a Maryland corporation (herein called
the "Fund"), and VIRGINIA MANAGEMENT INVESTMENT CORPORATION, a Virginia
corporation (the "Manager") and a registered investment adviser under the
Investment Advisers Act of 1940, as amended.

WHEREAS, the Fund desires to retain the Manager to furnish investment
advisory and management services to certain portfolios of the Fund, subject to
the control of the Fund's Board of Directors, and the Manager is willing to so
furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be bound, it is agreed between the parties
hereto as follows:

1. Appointment. The Fund hereby appoints the Manager to act as the
Manager to the NEW MARKET FUND series of the Fund (the "Portfolio") for the
period and on the terms set forth in this Agreement. The Manager accepts such
appointment and agrees to furnish the services herein set forth, for the
compensation herein provided.

2. Duties of the Manager. The Fund employs the Manager to manage the
investments and reinvestment of the assets of the Portfolio, and to continuously
review, supervise, and administer the investment program of the Portfolio, to
determine in its discretion the securities to be purchased or sold, to provide
the Fund and Commonwealth Shareholder Services, Inc. (the "Administrator") with
records concerning the Manager's activities which the Fund is required to
maintain, and to render regular reports to the Fund's Officers and Board of
Directors and to the Administrator concerning the Manager's discharge of the
foregoing responsibilities.

The Manager shall discharge the foregoing responsibilities
subject to the control of the Fund's Board of Directors and in compliance with
such policies as the Board may from time to time establish, and in compliance
with the objectives, policies, and limitations for the Portfolio as set forth in
its Prospectus and Statement of Additional Information, as amended from time to
time, and applicable laws and regulations. The Fund will instruct each of its
agents and contractors to co-operate in the conduct of the business of the
Portfolio.

The Manager accepts such employment and agrees, at its own
expense, to render the services and to provide the office space, furnishings,
and equipment and the personnel required by it to perform the services on the
terms and for the compensation provided herein.

3. Portfolio Transactions. The Manager is authorized to select the
brokers and dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best efforts to obtain
the best net price and most favorable execution for the Portfolio's transactions
in accordance with the policies of the Fund as set forth from time to time in
the Portfolio's Prospectus and Statement of Additional Information. The Manager
will promptly communicate to the Fund and to the Administrator such information
relating to portfolio transactions as they may reasonably request.

It is understood that the Manager will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to an unaffiliated broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described from time to time
by the Portfolio's Prospectus and Statement of Additional Information. Subject
to the foregoing, the Manager may direct any transaction of the Portfolio to a
broker which is affiliated with the Manager in accordance with, and subject to,
the policies and procedures approved by the Board of Directors of the Fund
pursuant to Rule 17e-1 under the 1940 Act. Such brokerage services are not
deemed to be provided under this Agreement.

4. Compensation of the Manager. For the services to be rendered by the
Manager under this Agreement, the Portfolio shall pay to the Manager, and the
Manager will accept as full compensation a fee, accrued daily and payable within
five (5) business days after the last business day of each month, at an annual
rate of one percent of the average daily net assets of the Portfolio.

All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of this
Agreement.

5. Expenses. During the term of this Agreement, the Manager will pay
all expenses incurred by it in connection with the management of the Fund.
Notwithstanding the foregoing, the Portfolio shall pay the expenses and costs of
the Portfolio for the following:

(1) Taxes;

(2) Brokerage fees and commissions with regard to portfolio
transactions;

(3) Interest charges, fees and expenses of the custodian of the
securities;

(4) Fees and expenses of the Fund's transfer agent and the
Administrator;

(5) Its proportionate share of auditing and legal expenses;

(6) Its proportionate share of the cost of maintenance of
corporate existence;

(7) Its proportionate share of compensation of directors
of the Fund who are not interested persons of the
Manager as that term is defined by law;

(8) Its proportionate share of the costs of corporate meetings;

(9) Federal and State registration fees and expenses
incident to the sale of shares of the Portfolio;

(10) Costs of printing and mailing Prospectuses for the
Portfolio's shares, reports and notices to existing
shareholders;

(11) The Management fee payable to the Manager, as provided in
Paragraph 4 herein;

(12) Costs of recordkeeping (other than investment records
required to be maintained by the Manager), and daily
pricing;

(13) Distribution expenses in accordance with any
Distribution Plan as and if approved by the
shareholders of the Portfolio; and

(14) Expenses and taxes incident to the failure of the
Portfolio to qualify as a regulated investment
company under the provisions of the Internal Revenue
Code of 1986, as amended, unless such expenses and/or
taxes arise from the negligence of another party.

6. Reports. The Fund and the Manager agree to furnish to each other, if
applicable, current information required for the preparation by such parties of
prospectuses, statements of additional information, proxy statements, reports to
shareholders, certified copies of their financial statements, and to furnish to
each other such other information and documents with regard to their affairs as
each may reasonably request.

7. Status of the Manager. The services of the Manager to the Fund are
not to be deemed exclusive, and the Manager shall be free to render similar
services to others so long as its services to the Fund are not impaired thereby.

Pursuant to comparable agreements, the Fund may also retain
the services of the Manager to serve as the investment Manager of other series
of the Fund.

8. Books and Records. In compliance with the requirements of the 1940
Act, the Manager hereby agrees that all records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Manager further agrees to
preserve for the periods prescribed by the 1940 Act, and the rules or orders
thereunder, the records required to be maintained by the 1940 Act.

9. Limitation of Liability of Manager. The duties of the Manager shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Manager hereunder. The Manager shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Manager in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. (As used in this Paragraph 9, the term
"Manager" shall include directors, officers, employees and other corporate
agents of the Manager as well as that corporation itself).

10. Permissible Interests. Directors, agents, and shareholders of the
Fund are or may be interested in the Manager (or any successor thereof) as
directors, officers, or shareholders, or otherwise; directors, officers, agents,
and shareholders of the Manager are or may be interested in the Fund as
directors, officers, shareholders or otherwise; and the Manager (or any
successor) is or may be interested in the Fund as a shareholder or otherwise. In
addition, brokerage transactions for the Fund may be effected through affiliates
of the Manager if approved by the Fund's Board of Directors, subject to the
rules and regulations of the Securities and Exchange Commission, and the
policies and procedures adopted by the Fund.

11. Duration and Termination. This Agreement shall become effective on
the date first above written subject to its approval by the shareholders of the
Portfolio and unless sooner terminated as provided herein, shall continue in
effect for two (2) years from that date. Thereafter, this Agreement shall be
renewable for successive periods of one year each, provided such continuance is
specifically approved annually (a) by the vote of a majority of those members of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons of any such party (as that term is defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by vote of either the Board of Directors or of a majority of the
outstanding voting securities (as that term is defined in the 1940 Act) of the
Portfolio. Notwithstanding the foregoing, this Agreement may be terminated by
the Portfolio or by the Fund at any time on sixty (60) days written notice,
without the payment of any penalty, provided that termination must be authorized
either by vote of the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio or by the Manager on sixty (60)
days written notice. This Agreement will automatically terminate in the event of
its assignment (as that term is defined in the 1940 Act).

12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act).

13. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the address stated below:

(a) To the Fund at:
1500 Forest Avenue
Suite 223
Richmond, VA 23229

(b) To the Manager at:
Post Office Box 8535
Richmond, Virginia 23226-0535

14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of the Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors.

15. Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Maryland, and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of Maryland, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.

16. This Agreement may be executed in two or more counterparts, each of
which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

VIRGINIA MANAGEMENT INVESTMENT CORPORATION

BY: /s/ Franklin A. Trice, III
Franklin A. Trice, III
President

THE WORLD FUNDS, INC.

BY: /s/ John Pasco, III
John Pasco, III
Chairman

INVESTMENT ADVISORY AGREEMENT
between
Virginia Management Investment Corporation
and
The London Company of Virginia

INVESTMENT ADVISORY AGREEMENT (the "Agreement") made this 21st day of
September, 1998, by and between Virginia Management Investment Corporation
(hereinafter referred to as the "Manager") and The London Company of Virginia
(hereinafter referred to as the "Investment Advisor"), which Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one instrument.

WITNESSETH

WHEREAS, the Board of Directors (the "Directors") of the Manager wishes
to enter into a contract with the Investment Advisor to render the following
services to the Manager:

To furnish research, analysis, advice and recommendations with respect
to the purchase and sale of securities and the making of investment commitments;
to place at the disposal of the Manager such statistical information and reports
as may be required and, in general, to superintend such portions of the
investments of the New Market Fund series (hereinafter the "Fund") of The World
Funds, Inc. (hereinafter "TWF") as may be made subject to the oversight of the
Investment Advisor by the Manager.

NOW THEREFORE, in consideration of the mutual agreements herein
contained, and intending to be bound, the parties agree as follows:

1. During the term of this Agreement, or any extension thereof, the
Investment Advisor will, to the best of its ability, furnish the foregoing
services.

2. As compensation, the Manager will pay the Investment Advisor for its
services an annual fee, which fee shall be payable monthly in accordance with
the following formula:

The amount of such fee shall be one half of the investment
management fee received by the Manager on the assets which are subject to the
supervision of the Investment Advisor (the "Base Fee") less one half the sum of
any reduction in such Base Fee resulting from:

a. Any reduction of the fee paid by the Fund on such assets
pursuant to any agreement relating to the reimbursement of organizational
expenses of the Fund initially advanced by and repayable to the Investment
Advisor; or

b. Any voluntary reduction of the fee paid by the Fund on such
assets, if the voluntary reduction is agreed to by the Investment Advisor in
writing in advance of such reduction.

3. This Agreement shall become effective concurrently with the
Investment Management Agreement between the Manager and the Fund, pursuant to
the approval of the shareholders of the Fund according to the provisions of the
Investment Company Act of 1940 (the "Act").

4. This Agreement shall continue for a two year period ending [ ],
2000. It may be renewed thereafter for successive periods not exceeding one year
only so long as such renewal and continuance is specially approved at least
annually by the Director's of TWF or by a vote of the majority of the
outstanding voting securities of the Fund as prescribed by the Act and provided
further that such continuance is approved at least annually thereafter by a vote
of a majority of TWF's Directors, who are not parties to such Agreement or
interested persons of such a party, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisor shall provide the
Manager such information as reasonably may be necessary to assist the Directors
of TWF to evaluate the terms of this Agreement. This Agreement will terminate
automatically without the payment of any penalty upon termination of the
Investment Management Agreement or upon sixty days' written notice by the Fund
to the Investment Advisor that the Directors of TWF or the shareholders, by vote
of a majority of the outstanding voting securities of the Fund, as provided by
the act, has terminated the Investment Management Agreement. This Agreement may
also be terminated by the Investment Advisor without penalty upon sixty days'
written notice to the Fund.

This Agreement shall automatically terminate in the event of
its assignment or the assignment of the Investment Management Agreement unless
its continuation thereafter is approved by the Directors of TWF or the
Shareholders of the Fund as hereinbefore provided or as otherwise permitted
under applicable laws or regulations unless an exemption is obtained from the
U.S. Securities and Exchange Commission from the provisions of the Act
pertaining to the subject matter of this paragraph.

5. Subject to the supervision of TWF's Board of Directors and the
Manager, the Investment Advisor will provide a continuous investment program for
assets of the Fund under its supervision, including investment research and
management with respect to all securities and investments and cash and cash
equivalents. The Investment Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Fund. The Investment Advisor will provide the services under this Agreement in
accordance with the Fund's investment objective, policies and restrictions as
stated in the Prospectus. The Investment Advisor further agrees that it:

(a) will conform with all applicable Rules and Regulations of
the SEC and will, in addition, conduct its activities under
this Agreement in accordance with regulations of any other
Federal and State agencies which may now or it the future
have jurisdiction over its activities;

(b) will place orders pursuant to its investment determinations
for the Fund either directly with the issuer or with any
broker or dealer. In placing orders with brokers or dealers,
the Investment Advisor will attempt to obtain the best net
price and the most favorable execution of its orders.
Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are
comparable, the Investment Advisor may, in its discretion,
purchase and sell portfolio securities to and from brokers
and dealers who provide the Fund with research advice and
other services, or who sell Fund shares. In no instance will
portfolio securities be purchased from or sold to the
Investment Advisor or any affiliated person of the
Investment Advisor as principal. Notwithstanding the
foregoing sentence, the Investment Advisor may arrange for
the execution of brokered transactions through an affiliated
broker dealer in conformity with policies and procedures for
such purpose if, when, and as established by the Board of
TWF;

(c) will provide, at its own cost, all office space and
facilities necessary to furnish the foregoing services to
the Fund.

6. It is expressly understood and agreed that the services to be
rendered by the Investment Advisor to the Manager under the provisions of this
Agreement are not to be deemed exclusive, and the Investment Advisor shall be
free to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby, and provided further that the services to be rendered by the Investment
Advisor to the Manager under this Agreement and the compensation provided for in
Paragraph 2 hereof shall be limited solely to services with reference to the
Fund.

7. The Manager agrees that it will furnish currently to the Investment
Advisor all information reasonably necessary to permit the Investment Advisor to
give the advice called for under this Agreement and such information with
reference to the Fund that is reasonably necessary to permit the Investment
Advisor to carry out its responsibilities under this Agreement, and the parties
agreed that they will from time to time consult and make appropriate
arrangements as to specific information that is required under this paragraph
and frequency and manner with which it shall be supplied.

8. The Investment Advisor shall not be liable for any error of
judgement or mistake at law or for any loss suffered by the Manager or the Fund
in connection with any matters to which this Agreement relates except that
nothing herein contained shall be construed to protect the Investment Advisor
against any liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of duties or by reckless disregard of its
obligations or duties under this Agreement.

9. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.

10. Any notice to be given hereunder may be given by personal
notification or by first class mail, postage prepaid, to the party specified at
the address stated below:

a. To the Manager at:

Virginia Management Investment Corporation
Post Office Box 8535
Richmond, Virginia 23226-0535

b. To the Investment Advisor:

The London Company of Virginia
Riverfront Plaza, West Tower
901 East Byrd Street
Richmond, Virginia 23219

c. To the Fund:

1500 Forest Ave., Suite 223
Richmond, Virginia 23229

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

VIRGINIA MANAGEMENT INVESTMENT CORPORATION

BY: /s/ Franklin A. Trice, III
Franklin A. Trice, III
President

THE LONDON COMPANY OF VIRGINIA

BY: /s/ Stephen Goddard
Stephen Goddard
President

Solely for the purpose of evidencing the approval of the effectiveness of this
Agreement by the Fund in accordance with Section 15 of the Investment Company
Act of 1940, as amended, the Fund has caused this instrument to be executed by
the officer designated below as of the day and year first above written.

THE WORLD FUNDS, INC.

BY: /s/ John Pasco, III
John Pasco, III
Chairman

DISTRIBUTION AGREEMENT

DISTRIBUTION AGREEMENT, made this 21st day of September, 1998, by and
between The World Funds, Inc. a Maryland corporation (the "Fund") and First
Dominion Capital Corporation ("FDCC"), a Virginia corporation.

WITNESSETH:

1. DISTRIBUTION SERVICES

The Fund hereby engages FDCC as national distributor to assist
the Fund in promoting the sale and distribution to investors of shares of common
stock of each series of the Fund ("Shares"). In connection therewith, FDCC shall
(i) promote the sale of shares, (ii) act as principal underwriter of shares of
various series of the Fund, (iii) otherwise assist the Fund in the distribution
of shares directly to investors through dealers or otherwise. For this purpose
the Fund agrees to offer shares for sale at all times when, and in such places
as, such shares are to be made available for sale and may lawfully be offered
for sale and sold. As and when necessary in connection therewith FDCC may act as
principal or agent for the sale of such shares.

2. SALE OF FUND SHARES

Such shares are to be sold only on the following terms:

(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Fund. Any offer or sale shall
be conclusively presumed to have been accepted by the Fund if
the Fund shall fail to notify FDCC of the rejection of such
offer or sale prior to the computation of the net asset value
of the Fund's shares next following receipt by the Fund of
notice of such offer or sale.

(b) No share of the Fund shall be sold for any consideration other
than cash or, except in instances otherwise provided for by
the Fund's currently effective Prospectus, for any amount less
than the public offering price per share, which shall be
determined in accordance with the Fund's currently effective
Prospectus. No shares may be sold for less than the net asset
value thereof.

3. REGISTRATION OF SHARES

The Fund agrees to make prompt and reasonable efforts to
effect and to keep in effect the registration or qualification of its shares for
sale in such jurisdictions as the Fund may designate. FDCC may serve as dealer
of record to assist the Fund in connection with any such registration or
qualification. The Fund acknowledges that FDCC may incur expenses in connection
with assisting in the registration or qualification of Fund shares which are
sold at net asset value and the Fund will pay or reimburse expenses of FDCC
which are incurred in connection with such registration or qualification.

4. INFORMATION TO BE FURNISHED TO FDCC

The Fund agrees that it will furnish FDCC with such
information with respect to the affairs and accounts of the Fund as FDCC may
from time to time reasonably require, and further agrees that FDCC, at all
reasonable times, shall be permitted to inspect the books and records of the
Fund.

5. ALLOCATION OF EXPENSES

During the period of this contract, the Fund shall pay or
cause to be paid all expenses, costs, and fees incurred by the Fund which are
not assumed by FDCC or any investment manager or investment advisor to the Fund.
FDCC shall pay advertising and promotional expenses incurred by FDCC in
connection with the distribution of the Fund's shares which are sold subject to
the imposition of a sales charge including paying for prospectuses for delivery
to prospective shareholders.

6. COMPENSATION TO FDCC

It is understood and agreed by the parties hereto that FDCC
will receive compensation for services it performs hereunder in accordance with
Schedule A hereto.

7. LIMITATION OF FDCC'S AUTHORITY

FDCC shall be deemed to be an independent contractor and,
except as specifically provided or authorized herein, shall have no authority to
act for or represent the Fund. In the performance of its duties hereunder, FDCC
may solicit and enter into selling dealer agreements with other broker-dealers
in a form approved by the Fund. Such selling dealer agreements shall provide for
the sale of shares of the Fund (or any series of the Fund) on terms consistent
with the registration statement of the Fund as then if effect. Unless otherwise
provided in a selling dealer agreement, any selling dealer agreement of FDCC in
effect as of the date of this agreement shall be deemed to continue hereunder
upon delivery to the selling dealer of any amendment required by the terms of
the Fund's action eliminating the sales load on sales of affected Fund shares.

8. SUBSCRIPTION FOR SHARES - REFUND FOR CANCELED ORDERS

If FDCC elects to act as a principal, and not as agent, for a
sale of Fund shares, FDCC shall subscribe for the shares of the Fund only for
the purpose of covering purchase orders already received by it or for the
purpose of investment for its own account. Whether acting as principal or agent,
in the event that an order for the purchase of shares of the Fund is placed with
FDCC by a customer or dealer and subsequently canceled, FDCC shall forthwith
cancel the subscription for such shares entered on the books of the Fund, and,
if FDCC has paid the Fund for such shares, shall be entitled to receive from the
Fund in refund of such payments the lesser of:

(a) the consideration received by the Fund for said shares; or

(b) the net asset value of such shares at the time of cancellation by
FDCC.

9. INDEMNIFICATION OF THE FUND

FDCC agrees to indemnify the Fund against any and all
litigation and other legal proceedings of any kind or nature and against any
liability, judgment, cost, or penalty imposed as a result of such litigation or
proceedings in any way arising out of or in connection with the sale or
distribution of the shares of the Fund by FDCC. In the event of the threat or
institution of any such litigation or legal proceedings against the Fund, FDCC
shall defend such action on behalf of the Fund at its own expense, and shall pay
any such liability, judgment, cost, or penalty resulting therefrom, whether
imposed by legal authority on agreed upon by way of compromise and settlement;
provided, however, FDCC shall not be required to pay or reimburse the Fund for
any liability, judgment, cost, or penalty incurred as a result of information
supplied by, or as the result of the omission to supply information by, the Fund
to FDCC or to FDCC by a director, officer, or employee of the Fund who is not an
interested person of FDCC, unless the information so supplied or omitted was
available to FDCC or the Fund's investment adviser without recourse to the Fund
or any such person referred to above.

10. FREEDOM TO DEAL WITH THIRD PARTIES

FDCC shall be free to render to others services of a nature
either similar to or different from those rendered under this contract, except
such as may impair its performance of the services and duties to be rendered by
it hereunder.

11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT

The effective date of this Agreement shall be the date first
set forth above. Wherever referred to in this Agreement, the vote or approval of
the holders of a majority of the outstanding voting securities of the Fund (or
of any series of the Fund) shall mean the vote of 67% or more of the securities
of the Fund (or of any affected series of the Fund) if the holders of more than
50% of such securities are present in person or by proxy or the vote of more
than 50% of the securities of the Fund (or an affected series of the Fund)
whichever is the lesser.

Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect from year to year but only so long as such
continuance is specifically approved at least annually by the Board of Directors
of the Fund, including the specific approval of a majority of the directors who
are not interested person of FDCC as defined by the Investment Company Act of
1940, as amended, cast in person at a meeting called for the purpose of voting
on such approval, or by the vote of the holders of a majority of the outstanding
voting securities of the Fund or an affected series of the Fund.

This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of the Fund or by
the vote of the holders of a majority of the outstanding voting securities of
the Fund, or by FDCC, upon 60 days' written notice to the other party.

This Agreement shall automatically terminate in the event of
its assignment (as defined by the provisions of the Investment Company Act of
1940, as amended).

12. AMENDMENTS TO AGREEMENT

No material amendment to this Agreement shall be effective
until approved by FDCC and by the affirmative vote of a majority of the Board of
Directors of the Fund (including a majority of the directors who are not
interested persons of FDCC or any affiliate of FDCC).

13. NOTICES

Any notice under this Agreement shall be in writing,
addressed, delivered, or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.

IN WITNESS WHEREOF, the Fund and FDCC have caused this Agreement to be
executed by their duly authorized officers affixed hereto all as of the day and
year first above written.

THE WORLD FUNDS, INC.

By: /s/ John Pasco, III
John Pasco, III
Chairman

Attested by:

FIRST DOMINION CAPITAL CORP.

By: /s/ John Pasco, III
John Pasco, III
President

Attested by:

<PAGE>
SCHEDULE A

FDCC shall receive, as compensation for its services pursuant to this
Distribution Agreement:

(a) With respect to any shares of the Fund sold subject to a sales
charge, FDCC shall be entitled to retain the underwriter's portion of the sales
charge for each investment in the Fund's shares, computed as a percentage of the
offering price determined in accordance with the Fund's currently effective
Prospectus and as otherwise provided in the Fund's registration statement.

(b) With respect to sales of shares of the Fund sold subject to a sales
charge for which FDCC is the selling dealer, FDCC shall retain the dealer's
sales charge for each investment in the Fund's shares, computed as a percentage
of the offering price determined in accordance with the Fund's currently
effective Prospectus and as otherwise provided in the Fund's registration
statement.

(c) With respect to any shares of the Fund sold at net asset value
(without a sales charge), FDCC shall receive from the Fund reimbursement at the
rate of $30 per hour for the cost of personnel involved with assistance in the
promotion of sale of such shares and for out-of-pocket costs incurred by FDCC.

CUSTODIAN AGREEMENT

THIS AGREEMENT dated as of this 28th day of October, 1998, between THE
WORLD FUNDS, INC., an open-end management investment company incorporated in
Maryland and registered with the Commission under the 1940 Act (the Fund), on
behalf of each of the series listed on the attached Appendix C as the same may
from time to time be updated (each a Series). and BROWN BROTHERS HARRIMAN & CO.,
a limited partnership formed under the laws of the State of New York (BBH&Co. or
the Custodian).

W I T N E S S E T H:

WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the Fund
and to provide related services, all as provided herein, and BBH&Co. is
willing to accept such employment, subject to the terms and conditions
herein set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and BBH&Co. hereby agree, as follows:

1. Appointment of Custodian. The Fund hereby appoints BBH&Co. as the Fund's
custodian, and BBH&Co. hereby accepts such appointment. All Investments of the
Fund delivered to the Custodian or its agents or Subcustodian shall be dealt
with as provided in this Agreement. The duties of the Custodian with respect to
the Fund's Investments shall be only as set forth expressly in this Agreement
which duties are generally comprised of safekeeping and various administrative
duties that will be performed in accordance with Instructions and as reasonably
required to effect Instructions.

2. Representations, Warranties and Covenants of the Fund. The Fund
hereby represents, warrants and covenants each of the following:

2.1 This Agreement has been, and at the time of delivery of
each Instruction such Instruction will have been, duly authorized,
executed and delivered by the Fund. This Agreement does not violate any
Applicable Law or conflict with or constitute a default under the
Fund's prospectus or other organic document, agreement, judgment, order
or decree to which the Fund is a party or by which it or its
Investments is bound.

2.2 By providing an Instruction with respect to the first
acquisition of an Investment in a jurisdiction other than the United
States of America, the Fund shall be deemed to have confirmed to the
Custodian that the Fund has (a) assessed and accepted all material
Country or Sovereign Risks and accepted responsibility for their
occurrence, (b) made all determinations required to be made by the fund
under the 1940 Act, and (c) appropriately and adequately disclosed to
its shareholders, other investors and all persons who have rights in or
to such investments, all material investment risks, including those
relating to the custody and settlement infrastructure or the servicing
of securities in such jurisdictions.

2.3 The Fund shall safeguard and shall solely be responsible
for the safekeeping of any testkeys, identification codes, passwords,
other security devices or statements of account with which the
Custodian provides it. In furtherance and not limitation of the
foregoing, in the event the Fund utilizes any on-line service offered
by the Custodian, the Fund and the Custodian shall be fully responsible
for the security of its respective connecting terminal, access thereto
and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards in respect thereof.

3. Representation and Warranty of BBH&Co. BBH&Co. hereby represents and warrants
that this Agreement has been duly authorized, executed and delivered by BBH&Co.
and does not and will not violate any Applicable Law or conflict with or
constitute a default under BBH&Co.'s limited partnership agreement or any
agreement, instrument, judgment, order or decree to which BBH&Co. is a party or
by which it is bound.

4. Instructions. Unless otherwise explicitly indicated herein, the Custodian
shall perform its duties pursuant to Instructions. As used herein, the term
Instruction shall mean a directive initiated by the Fund, acting directly or
through its board of directors, officers or other Authorized Persons, which
directive shall conform to the requirements of this Section 4.

4.1 Authorized Persons. For purposes hereof, an Authorized Person shall
be a person or entity authorized to give Instructions for or on behalf of the
Fund by written notices to the Custodian or otherwise in accordance with
procedures delivered to and acknowledged by the Custodian, including without
limitation the Fund's Investment Adviser or Foreign Custody Manager. The
Custodian may treat any Authorized Person as having full authority of the Fund
to issue Instructions hereunder unless the notice of authorization contains
explicit limitations as to said authority. The Custodian shall be entitled to
rely upon the authority of Authorized Person until it receives appropriate
written notice from the Fund to the contrary.

4.2 Form of Instruction. Each Instruction shall be transmitted by such
secured or authenticated electro-mechanical means as the Custodian shall make
available to the Fund from time to time unless the Fund shall elect to transmit
such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this
Section.
4.2.1 Fund Designated Secured-Transmission Method.
Instructions may be transmitted from time to time through a secured or
tested electro-mechanical means which has been previously approved by
the parties; it is being understood that such acknowledgment shall
authorize the Custodian to receive and process Instructions received by
such means of delivery but shall not represent a judgment by the
Custodian as to the reasonableness or security of the method determined
by the Authorized Person.

4.2.2 Written Instructions. Instructions may be trans-
mitted in a writing that bears the manual signature of Authorized Persons.

4.2.3 Other Forms of Instructions. Instructions may also be
transmitted by another means determined by the Fund or Authorized
Persons and acknowledged and accepted by the Custodian (subject to the
same limits as to acknowledgments as is contained in Subsection 4.2.1,
above) including Instructions given orally or by SWIFT, telex or
telefax (whether tested or untested).

When an Instruction is given by means established under Subsections 4.2.1
through 4.2.3, it shall be the responsibility of the Custodian to use reasonable
care to adhere to any security or other procedures established in writing
between the Custodian and the Authorized Person with respect to such means of
Instruction, but such Authorized person shall be solely responsible for
determining that the particular means chosen is reasonable under the
circumstances. Oral Instructions shall be binding upon the Custodian only if and
when the Custodian takes action with respect thereto. With respect to telefax
instruction, the parties agree and acknowledge that receipt of legible
instructions cannot be assured, that the Custodian cannot verify that authorized
signatures on telefax instructions are original or properly affixed, and that
the Custodian shall not be liable for losses or expenses incurred through
actions taken in reliance on inaccurately stated, illegible or unauthorized
telefax instructions. The provisions of Section 4A of the Uniform Commercial
Code shall apply to funds transfers performed in accordance with Instructions.
In the event that a Funds Transfer Services Agreement is executed between the
Fund or an Authorized Person and the Custodian, such an agreement shall comprise
a designation of form of a means of delivering Instructions for purposes of this
Section 4.2.

4.3 Completeness and Contents of Instructions. The Authorized Person
shall be responsible for assuring the adequacy and accuracy of Instructions.
Particularly, upon any acquisition or disposition or other dealing in the Fund's
Investments and upon any delivery and transfer of any Investment or moneys, the
person initiating such Instruction shall give the Custodian an Instruction with
appropriate detail, including, without limitation:

4.3.1 The transaction date and the date and location of the
settlement;

4.3.2 The specification of the type of transaction;

4.3.3 A description of the Investments or moneys in question,
including, as appropriate, quantity, price per unit, amount of money to
be received or delivered and currency information. Where an Instruction
is communicated by electronic means, or otherwise where an Instruction
contains an identifying number such as a CUSIP, SEDOL or ISIN number,
the Custodian shall be entitled to rely on such number as controlling
notwithstanding any inconsistency contained in such Instruction,
particularly with respect to Investment description;

4.3.4 The name of the broker or similar entity concerned with
execution of the transaction.

If the Custodian shall determine that an Instruction is either unclear or
incomplete, the Custodian may give prompt notice of such determination to the
Fund, and the Fund shall thereupon amend or otherwise reform such Instruction.
In such event, the Custodian shall have no obligation to take any action in
response to the Instruction initially delivered until the redelivery of an
amended or reformed Instruction.

4.4 Timeliness of Instructions. In giving an Instruction, the Fund
shall take into consideration delays which may occur due to the involvement of a
Subcustodian or agent, differences in time zones, and other factors particular
to a given market, exchange or issuer. When the Custodian has established
specific timing requirements or deadlines with respect to particular classes of
Instruction, or when an Instruction is received by the Custodian at such a time
that it could not reasonably be expected to have acted on such instruction due
to time zone differences or other factors beyond its reasonable control, the
execution of any Instruction received by the Custodian after such deadline or at
such time (including any modification or revocation of a previous Instruction)
shall be at the risk of the Fund.

5. Safekeeping of Fund Assets. The Custodian shall hold Investments delivered to
it or Subcustodians for the Fund in accordance with the provisions of this
Section. The Custodian shall not be responsible for (a) the safekeeping of
Investments not delivered or that are not caused to be issued to it or its
Subcustodians; or, (b) pre-existing faults or defects in Investments that are
delivered to the Custodian, or its Subcustodians. The Custodian is hereby
authorized to hold with itself or a Subcustodian, and to record in one or more
accounts, all Investments delivered to and accepted by the Custodian, any
Subcustodian or their respective agents pursuant to an Instruction or in
consequence of any corporate action. The Custodian shall hold Investments for
the account of the Fund and shall segregate Investments from assets belonging to
the Custodian and shall cause its Subcustodians to segregate Investments from
assets belonging to the Subcustodian in an account held for the Fund or in an
account maintained by the Subcustodian generally for non-proprietary assets of
the Custodian.

5.1 Use of Securities Depositories. The Custodian may deposit and
maintain Investments in any Securities Depository approved on Appendix A, either
directly or through one or more Subcustodians appointed by the Custodian.
Investments held in a Securities Depository shall be held (a) subject to the
agreement, rules, statement of terms and conditions or other document or
conditions effective between the Securities Depository and the Custodian or the
Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk
segregation in an account maintained for the non-proprietary assets of the
entity holding such Investments in the Depository. If market practice or the
rules and regulations of the Securities Depository prevent the Custodian, the
Subcustodian or (any agent of either) from holding its client assets in such a
separate account, the Custodian, the Subcustodian or other agent shall as
appropriate segregate such Investments for benefit of the Fund or for benefit of
clients of the Custodian generally on its own books.

5.2 Certificated Assets. Investments which are certificated may be held
in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of
a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account
maintained by the Custodian, Subcustodian or agent at a Securities Depository;
all in accordance with customary market practice in the jurisdiction in which
any Investments are held.

5.3 Registered Assets. Investments which are registered may be
registered in the name of the Custodian, a Subcustodian, or in the name of the
Fund or a nominee for any of the foregoing, and may be held in any manner set
forth in paragraph 5.2 above with or without any identification of fiduciary
capacity in such registration.

5.4 Book Entry Assets. Investments which are represented by book-entry
may be so held in an account maintained by the Book-Entry Agent on behalf of the
Custodian, a Subcustodian or another agent of the Custodian, or a Securities
Depository.

5.5 Replacement of Lost Investments. In the event of a loss of
Investments for which the Custodian is responsible under the terms of this
Agreement, the Custodian shall replace such Investment, or in the event that
such replacement cannot be effected, the Custodian shall pay to the fund the
fair market value of such Investment based on the last available price as of the
close of business in the relevant market on the date that a claim was first made
to the Custodian with respect to such loss, or, if less, such other amount as
shall be agreed by the parties as the date for settlement.

6. Administrative Duties of the Custodian. The Custodian shall perform the
following administrative duties with respect to Investments of the Fund.

6.1 Purchase of Investments. Pursuant to Instructions, Investments
purchased for the account of the Fund shall be paid for (a) against delivery
thereof to the Custodian or a Subcustodian, as the case may be, either directly
or through a Clearing Corporation or a Securities Depository (in accordance with
the rules of such Securities Depository or such Clearing Corporation), or (b)
otherwise in accordance with an Instruction, Applicable Law, generally accepted
trade practices, or the terms of the instrument representing such Investment.

6.2 Sale of Investments. Pursuant to Instruction, Investments sold for
the account of the Fund shall be delivered (a) against payment therefor in cash,
by check or by bank wire transfer, (b) by credit to the account of the Custodian
or the applicable Subcustodian, as the case may be, with a Clearing Corporation
or a Securities Depository (in accordance with the rules of such Securities
Depository or such Clearing Corporation), or (c) otherwise in accordance with an
Instruction, Applicable Law, generally accepted trade practices, or the terms of
the instrument representing such Investment.

6.3 Delivery in Connection with Borrowings of the Fund or other
Collateral and Margin Requirements. Pursuant to Instruction, the Custodian may
delivery Investments or cash of the Fund in connection with borrowings and other
collateral and margin requirements, provided that the Fund shall give no
instructions that would result in the Fund, or an affiliate of the Fund known to
the custodian, obtaining custody of Fund assets. The Fund shall be responsible
for (i) notifying its investment advisor or any party authorized to give
instructions on behalf of the Fund that deliveries to an affiliate of the Fund
are prohibited, and (ii) notifying any such party as to entities which may be
considered affiliates of the Fund.

6.4 Futures and Options. If, pursuant to an Instruction, the Custodian
shall become a party to an agreement with the Fund and a futures commission
merchant regarding margin (Tri-Party Agreement), the Custodian shall (a) receive
and retain, to the extent the same are provided to the Custodian, confirmations
or other documents evidencing the purchase or sale by the Fund of
exchange-traded futures contracts and commodity options, (b) when required by
such Tri-Party Agreement, deposit and maintain in an account opened pursuant to
such Agreement (Margin Account), segregated either physically or by book-entry
in a Securities Depository for the benefit of any futures commission merchant,
such Investments as the Fund shall have designated as initial, maintenance or
variation "margin" deposits or other collateral intended to secure the Fund's
performance of its obligations under the terms of any exchange-traded futures
contracts and commodity options; and (c) thereafter pay, release or transfer
Investments into or out of the margin account in accordance with the provisions
of the such Agreement. Alternatively, the Custodian may deliver Investments, in
accordance with an Instruction, to a futures commission merchant for purposes of
margin requirements in accordance with Rule 17f-6 under the 1940 Act. The
Custodian shall in no event be responsible for the acts and omissions of any
futures commission merchant to whom Investments are delivered pursuant to this
Section; for the sufficiency of Investments held in any Margin Account; or, for
the performance of any terms of any exchange-traded futures contracts and
commodity options.

6.5 Contractual Obligations and Similar Investments. From time to time,
the Fund's Investments may include Investments that are not ownership interests
as may be represented by certificate (whether registered or bearer), by entry in
a Securities Depository or by book entry agent, registrar or similar agent for
recording ownership interests in the relevant Investment. If the Fund shall at
any time acquire such Investments, including without limitation deposit
obligations, loan participations, repurchase agreements and derivative
arrangements, the Custodian shall (a) receive and retain, to the extent the same
are provided to the Custodian, confirmations or other documents evidencing the
arrangement; and (b) perform on the Fund's account in accordance with the terms
of the applicable arrangement, but only to the extent directed to do so by
Instruction. The Custodian shall have no responsibility for agreements running
to the Fund as to which it is not a party other than to retain, to the extent
the same are provided to the Custodian, documents or copies of documents
evidencing the arrangement and, in accordance with Instruction, to include such
arrangements in reports made to the Fund.

6.6 Exchange of Securities. Unless otherwise directed by Instruction,
the Custodian shall: (a) exchange securities held for the account of the Fund
for other securities in connection with any reorganization, recapitalization,
conversion, split-up, change of par value of shares or similar event, and (b)
deposit any such securities in accordance with the terms of any reorganization
or protective plan.

6.7 Surrender of Securities. Unless otherwise directed by Instruction,
the Custodian may surrender securities: (a) in temporary form for definitive
securities; (b) for transfer into the name of an entity allowable under Section
5.3; and (c) for a different number of certificates or instruments representing
the same number of shares or the same principal amount of indebtedness.

6.8 Rights, Warrants, Etc. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, and (b) deposit securities in
response to any invitation for the tender thereof.

6.9 Mandatory Corporate Actions. Unless otherwise directed by
Instruction, the Custodian shall: (a) comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions or similar rights of
securities ownership affecting securities held on the Fund's account and
promptly notify the Fund of such action, and (b) collect all stock dividends,
rights and other items of like nature with respect to such securities.

6.10 Income Collection. Unless otherwise directed by Instruction, the
Custodian shall collect any amount due and payable to the Fund with respect to
Investments and promptly credit the amount collected to a Principal or Agency
Account; provided, however, that the Custodian shall not be responsible for: (a)
the collection of amounts due and payable with respect to Investments that are
in default, or (b) the collection of cash or share entitlements with respect to
Investments that are not registered in the name of the Custodian or its
Subcustodians. The Custodian is hereby authorized to endorse and delivery any
instrument required to be so endorsed and delivered to effect collection of any
amount due and payable to the Fund with respect to Investments.

6.11 Ownership Certificates and Disclosure of the Fund's Interest. The
Custodian is hereby authorized to execute on behalf of the Fund ownership
certificates, affidavits or other disclosure required under Applicable Law or
established market practice in connection with the receipt of income, capital
gains or other payments by the Fund with respect to Investments, or in
connection with the sale, purchase of ownership of Investments.

6.12 Proxy Materials. The Custodian shall deliver, or cause to be
delivered, to the Fund proxy forms, notices of meeting, and any other notices or
announcements materially affecting or relating to Investments received by the
Custodian or any nominee.

6.13 Taxes. The Custodian shall, where applicable, assist the Fund in
the reclamation of taxes withheld on dividends and interest payments received by
the Fund. In the performance of its duties with respect to tax withholding and
reclamation, the Custodian shall be entitled to rely on the advice of counsel
and upon information and advice regarding the Fund's tax status that is received
from or on behalf of the Fund without duty of separate inquiry.

6.14 Other Dealings. The Custodian shall otherwise act as directed by
Instruction, including without limitation effecting the free payments of moneys
or the free delivery of securities, provided that such Instruction shall
indicate the purpose of such payment or delivery and that the Custodian shall
record the party to whom such payment or delivery is made.

The Custodian shall attend to all nondiscretionary details in
connection with the sale or purchase or other administration of Investments,
except as otherwise directed by an Instruction, and may make payments to itself
or others for minor expenses of administering Investments under this Agreement;
provided that the Fund shall have the right to request an accounting with
respect to such expenses.

In fulfilling the duties set forth in Sections 6.6 through 6.10 above,
the Custodian shall provide to the Fund all material information pertaining to a
corporate action which the Custodian actually receives; provided that the
Custodian shall not be responsible for the completeness or accuracy of such
information. Any advance credit of cash or shares expected to be received as a
result of any corporate action shall be subject to actual collection and may,
when the Custodian deems collection unlikely, be reversed by the Custodian.

The Custodian may at any time or times in its discretion appoint (and
may at any time remove) agents (other than Subcustodians) to carry out some or
all of the administrative provisions of this Agreement (Agents), provided,
however, that the appointment of such agent shall not relieve the Custodian of
its administrative obligations under this Agreement.

7. Cash Accounts, Deposits and Money Movements. Subject to the terms and
conditions set forth in this Section 7, the Fund hereby authorizes the Custodian
to open and maintain, with itself or with Subcustodians, cash accounts in United
States Dollars, in such other currencies as are the currencies of the countries
in which the Fund maintains Investments or in such other currencies as the Fund
shall from time to time request by Instruction.

7.1 Types of Cash Accounts. Cash accounts opened on the books of the
Custodian (Principal Accounts) shall be opened in the name of the Fund. Such
accounts collectively shall be a deposit obligation of the Custodian and shall
be subject to the terms of this Section 7 and the general liability provisions
contained in Section 9. Cash accounts opened on the books of a Subcustodian may
be opened in the name of the Fund or the Custodian or in the name of the
Custodian for its customers generally (Agency Accounts). Such deposits shall be
obligations of the Subcustodian and shall be treated as an Investment of the
Fund. Accordingly, the Custodian shall be responsible for exercising reasonable
care in the administration of such accounts but shall not be liable for their
repayment in the event such Subcustodian, by reason of its bankruptcy,
insolvency or otherwise, fails to make repayment.

7.2 Payments and Credits with Respect to the Cash Accounts. The
Custodian shall make payments from or deposits to any of said accounts in the
course of carrying out its administrative duties, including but not limited to
income collection with respect to the Fund's Investments, and otherwise in
accordance with Instructions. The Custodian and its Subcustodians shall be
required to credit amounts to the cash accounts only when moneys are actually
received in cleared funds in accordance with banking practice in the country and
currency of deposit. Any credit made to any Principal or Agency Account before
actual receipt of cleared funds shall be provisional and may be reversed by the
Custodian in the event such payment is not actually collected. Unless otherwise
specifically agreed in writing by the Custodian or any Subcustodian, all
deposits shall be payable only at the branch of the Custodian or Subcustodian
where the deposit is made or carried.

7.3 Currency and Related Risks. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be required to repay
any deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 9 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in writing
to repay the deposit under such circumstances. All currency transactions in any
account opened pursuant to this Agreement are subject to exchange control
regulations of the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes, costs, charges or
fees imposed on the convertibility of a currency held by the Fund shall be for
the account of the Fund.

7.4 Foreign Exchange Transactions. The Custodian shall, subject to the
terms of this Section, settle foreign exchange transactions (including
contracts, futures, options and options on futures) on behalf and for the
account of the Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to Instructions. The
Custodian may act as principal in any foreign exchange transaction with the Fund
in accordance with Section 7.4.2 of this Agreement. The obligations of the
Custodian in respect of all foreign exchange transactions (whether or not the
Custodian shall act as principal in such transaction) shall be contingent on the
free, unencumbered transferability of the currency transacted on the actual
settlement date of the transaction.

7.4.1 Third Party Foreign Exchange Transactions. The Custodian
shall process foreign exchange transactions (including without
limitation contracts, futures, options, and options on futures), where
any third party acts as principal counterparty to the Fund on the same
basis it performs duties as agent for the Fund with respect to any
other of the Fund's Investments. Accordingly the Custodian shall only
be responsible for delivering or receiving currency on behalf of the
Fund in respect of such contracts pursuant to Instructions. The
Custodian shall not be responsible for the failure of any counterparty
(including any Subcustodian) in such agency transaction to perform its
obligations thereunder. The Custodian (a) shall transmit cash and
Instructions to and from the currency broker or banking institution
with which a foreign exchange contract or option has been executed
pursuant hereto, (b) may make free outgoing payments of cash in the
form of United States Dollars or foreign currency without receiving
conformation of a foreign exchange contract or option or confirmation
that the countervalue currency completing the foreign exchange contract
has been delivered or received or that the option has been delivered or
received, and (c) shall hold all conformations, certificates and other
documents and agreements received by the Custodian and evidencing or
relating to such foreign exchange transactions in safekeeping. The Fund
accepts full responsibility for its use of third-party foreign exchange
dealers and for execution of said foreign exchange contracts and
options and understands that the Fund shall be responsible for any and
all costs and interest charges which may be incurred by the Fund or the
Custodian as a result of the failure or delay of third parties to
deliver foreign exchange.

7.4.2 Foreign Exchange with the Custodian as Principal. The
Custodian may undertake foreign exchange transactions with the fund as
principal as the Custodian and the Fund may agree from time to time. In
such event, the foreign exchange transaction will be performed in
accordance with the particular agreement of the parties, or in the
event a principal foreign exchange transaction is initiated by
Instruction in the absence of specific agreement, such transaction will
be performed in accordance with the usual commercial terms of the
Custodian.

7.5 Delays. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. The
Custodian shall not be liable for delays in carrying out such Instructions to
transfer cash which are not due to the Custodian's own negligence or willful
misconduct.

7.6 Advances. If, for any reason in the conduct of its safekeeping
duties pursuant to Section 5 hereof or its administration of the Fund's assets
pursuant to Section 6 hereof, the Custodian or any Subcustodian advances monies
to facilitate settlement or otherwise for benefit of the Fund (whether or not
any Principal or Agency Account shall be overdrawn either during, or at the end
of, any Business Day), the Fund hereby does:

7.6.1 acknowledge that the Fund shall have no right
or title to any Investments purchased with such Advance save a
right to receive such Investments upon: (a) the debit of the
Principal or Agency Account; or, (b) if such debit would
produce an overdraft in such account, other reimbursement of
the associated Advance;

7.6.2 grant to the Custodian a security interest
in all Investments; and

7.6.3 agree that the Custodian may secure the
resulting Advance by perfecting a security interest in all
Investments under Applicable Law. With respect to obligations
and liabilities which occur to each series under the Fund,
such obligations and liabilities shall apply only to the
respective series and not to any other series under the Fund.

Neither the Custodian nor any Subcustodian shall be obligated to advance monies
to the Fund, and in the event that such Advance occurs, any transaction giving
rise to an Advance shall be for the account and risk of the Fund and shall not
be deemed to be a transaction undertaken by the Custodian for its own account
and risk. If such Advance shall have been made by a Subcustodian or any other
person, the Custodian may assign the security interest and any other rights
granted to the Custodian hereunder to such Subcustodian or other person. If the
Fund shall fail to repay when due the principal balance of an Advance and
accrued and unpaid interest thereon, the Custodian or its assignee, as the case
may be, shall be entitled to utilize the available cash balance in any Agency or
Principal Account and to dispose of any Investments to the extent necessary to
recover payment of all principal of, and interest on, such Advance in full. The
Custodian may assign any rights it has hereunder to a Subcustodian or third
party. Any security interest in Investments taken hereunder shall be treated as
financial assets credited to securities accounts under Articles 8 and 9 of the
Uniform Commercial Code as currently effect in New York. Accordingly, the
Custodian shall have the rights and benefits of a secured creditor that is a
securities intermediary under such Articles 8 and 9.

7.7 Integrated Account. For purposes hereof, deposits maintained in all
Principal Accounts (whether or not denominated in the United States Dollar)
shall collectively constitute a single and indivisible current account with
respect to the Fund's obligations to the Custodian, or its assignee, and
balances in such Principal Accounts shall be available for satisfaction of the
Fund's obligations under this Section 7. The Custodian shall further have a
right of offset against the balances in any Agency Account maintained hereunder
to the extent that the aggregate of all Principal Accounts is overdrawn. With
respect to obligations and liabilities which occur to each series under the
Fund, such obligations and liabilities shall apply only to the respective series
and not to any other series under the Fund.

8. Subcustodians and Securities Depositories. Subject to the provisions
hereinafter set forth in this Section 8, the Fund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of the Fund and to
appoint from time to time and to utilize Subcustodians. With respect to
securities and funds held by a Subcustodian, either directly or indirectly
(including by a Securities Depository or Clearing Corporation), notwithstanding
any provisions of this Agreement to the contrary, payment for securities
purchased and delivery of securities sold may be made prior to receipt of
securities or payment, respectively, and securities or payment may be received
in a form, in accordance with (a) governmental regulations, (b) rules of
Securities Depositories and clearing agencies, (c) generally accepted trade
practice in the applicable local market, (d) the terms and characteristics of
the particular Investment, or (e) the terms of Instructions.

8.1 Domestic Subcustodians and Securities Depositories. The Custodian
may deposit and/or maintain, either directly or through one or more agents
appointed by the Custodian, Investments of the Fund in any Securities Depository
in the United States, including The Depository Trust Company, provided such
Depository meets applicable requirements of the Federal Reserve Bank or of the
Securities and Exchange Commission. The Custodian may, at any time and from time
to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940 Act and the
rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian
for purposes of holding Investments of the Fund in the United States.

8.2 Foreign Subcustodians and Securities Depositories. The Custodian
may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S.
Securities Depository provided such Securities Depository meets the requirements
of an "eligible foreign custodian" under Rule 17f-5 promulgated under the 1940
Act, or any successor rule or regulation ("Rule 17f-5") or which by order of the
Securities and Exchange Commission is exempted therefrom. Additionally, the
Custodian may, at any time and from time to time, appoint (a) any bank, trust
company or other entity meeting the requirements of an Eligible Foreign
Custodian under Rule 17f-5 or which by order of the Securities and Exchange
Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a Subcustodian for purposes of holding Investments of the Fund outside
the United States. Such appointment of foreign Subcustodians shall be subject to
approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2.

8.2.1 Board Approval of Foreign Subcustodians. Unless and
except to the extent that review of certain matters concerning the
appointment of Subcustodians shall have been delegated to the Custodian
pursuant to Subsection 8.2.2, the Custodian shall, prior to the
appointment of any Subcustodian for purposes of holding Investments of
the Fund outside the United States, obtain written confirmation of the
approval of the Board of Trustees or Directors of the Fund with respect
to (a) the identity of a Subcustodian, (b) the country or countries in
which, and the Securities Depositories, if any, through which, any
proposed Subcustodian is authorized to hold Investments of the Fund,
and (c) the Subcustodian agreement which shall govern such appointment.
Each such duly approved country, Subcustodian and Securities Depository
shall be listed on Appendix A attached hereto as the same may from time
to time be amended.

8.2.2 Delegation of Board Review of Subcustodians. From time
to time, the Custodian may offer to perform, and the Fund may accept to
perform, that the Custodian perform certain reviews of Subcustodians
and of Subcustodian Contracts as delegate of the Fund's Board. Any such
duties shall be established by separate agreement.

8.3 Responsibility for Subcustodians. Except as set forth in the
following sentence, the Custodian shall be liable to the Fund for any loss or
damage to the Fund caused by or resulting from the acts or omissions of any
Subcustodian to the extent that such acts or omissions would be deemed to be
negligence, gross negligence or willful misconduct in accordance with the terms
of the relevant subcustodian agreement under the laws, circumstances and
practices prevailing in the place where the act or omission occurred. In the
countries indicated in Appendix A-1 to this Agreement, the liability of the
Custodian shall be subject to the additional condition that the Custodian
actually recovers such loss or damage from the Subcustodian and shall be limited
to the amount of such recovery.

8.4 New Countries. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Subcustodian is authorized to act in order that the
Custodian shall, if it deems appropriate to do so, have sufficient time to
establish a subcustodial arrangement in accordance herewith. In the event,
however, the Custodian is unable to establish such arrangements prior to the
time such investment is to be acquired, the Custodian is authorized to designate
at its discretion a local safekeeping agent, and the use of such local
safekeeping agent shall be at the sole risk of the Fund, and accordingly the
Custodian shall be responsible to the Fund for the actions of such agent if and
only to the extent the Custodian shall have recovered from such agent for any
damages caused the Fund by such agent.

9. Responsibility of the Custodian. In performing its duties and obligations
hereunder, the Custodian shall use reasonable care under the facts and
circumstances prevailing in the market where performance is effected. Subject to
the specific provisions of this Section, the Custodian shall be liable for any
direct damage incurred by the Fund in consequence of the Custodian's negligence,
bad faith or willful misconduct. In no event shall the Custodian be liable
hereunder for any special, indirect, punitive or consequential damages arising
out of, pursuant to or in connection with this Agreement even if the Custodian
has been advised of the possibility of such damages. It is agreed that the
Custodian shall have no duty to assess the risks inherent in the Fund's
Investments or to provide investment advice with respect to such Investments and
that the Fund as principal shall bear any risks attendant to particular
Investments such as failure of counterparty or issuer.

9.1 Limitations of Performance. The Custodian shall not be responsible
under this Agreement for any failure to perform its duties, and shall not be
liable hereunder for any loss or damage in association with such failure to
perform, for or in consequence of the following causes:

9.1.1 Force Majeure. Force Majeure shall mean any
circumstance or event which is beyond the reasonable control
of the Custodian, a Subcustodian or any agent of the Custodian
or a Subcustodian and which adversely affects the performance
by the Custodian of its obligations hereunder, by the
Subcustodian of its obligations under its Subcustody Agreement
or by any other agent of the Custodian or the Subcustodian,
including any event caused by, arising out of or involving (a)
an act of God, (b) accident, fire, water damage or explosion,
(c) any computer, system or other equipment failure or
malfunction caused by any computer virus or the malfunction or
failure of any communications medium, provided that the
Custodian shall take reasonable actions to prevent the
occurrence of failures or malfunctions within its reasonable
control, (d) any interruption of the power supply or other
utility service, (e) any strike or other work stoppage,
whether partial or total, (f) any delay or disruption
resulting from or reflecting the occurrence of any Sovereign
Risk, (g) any disruption of, or suspension of trading in, the
securities, commodities or foreign exchange markets, whether
or not resulting from or reflecting the occurrence of any
Sovereign Risk, (h) any encumbrance on the transferability of
a currency or a currency position on the actual settlement
date of a foreign exchange transaction, whether or not
resulting from or reflecting the occurrence of any Sovereign
Risk, or (i) any other cause similarly beyond the reasonable
control of the Custodian.

9.1.2 Country Risk. Country Risk shall mean, with
respect to the acquisition, ownership, settlement or custody
of Investments in a jurisdiction, all risks relating to, or
arising in consequence of, systemic and market factors
affecting the acquisition, payment for or ownership of
Investments including (a) the prevalence of crime and
corruption, (b) the inaccuracy or unreliability of business
and financial information, (c) the instability or volatility
of banking and financial systems, or the absence or inadequacy
of an infrastructure to support such systems, (d) custody and
settlement infrastructure of the market in which such
Investments are transacted and held, (e) the acts, omissions
and operation of any Securities Depository, (f) the risk of
the bankruptcy or insolvency of banking agents, counterparts
to cash and securities transactions, registrars or transfer
agents, and (g) the existence of market conditions which
prevent the orderly execution or settlement of transactions or
which affect the value of assets.

9.1.3 Sovereign Risk. Sovereign Risk shall mean, in
respect of any jurisdiction, including the United States of
America, where Investments is acquired or held hereunder or
under a Subcustody Agreement, (a) any act of war, terrorism,
riot, insurrection or civil commotion, (b) the imposition of
any investment, repatriation or exchange control restrictions
by any Governmental Authority, (c) the confiscation,
expropriation or nationalization of any Investments by any
Governmental Authority, whether de facto or de jure, (iv) any
devaluation or revaluation of the currency, (d) the imposition
of taxes, levies or other charges affecting Investments, (vi)
any change in the Applicable Law, or (e) any other economic or
political risk incurred or experience.

9.2 Limitations on Liability. The Custodian shall not be liable for any
loss, claim, damage or other liability arising from the following causes:

9.2.1 Failure of Third Parties. The failure of any third party
including: (a) any issuer of Investments or book-entry or other agent
of any issuer; (b) any counterparty with respect to any Investment,
including any issuer of exchange-traded or other futures, option,
derivative or commodities contract; (c) failure of an Investment
Advisor, Foreign Custody Manager or other agent of the Fund; or (c)
failure of other third parties similarly beyond the control or choice
of the Custodian.

9.2.2 Information Sources. The Custodian may rely upon
information received from issuers of Investments or agents of such
issuers, information received from Subcustodians and from other
commercially reasonable sources such as commercial data bases and the
like, but shall not be responsible for specific inaccuracies in such
information, provided that the Custodian has relied upon such
information in good faith, or for the failure of any commercially
reasonable information provider.

9.2.3 Reliance on Instruction. Action by the Custodian or the
Subcustodian in accordance with an Instruction, even when such action
conflicts with, or is contrary to any provision of, the Fund's
declaration of trust, certificate of incorporation or by-laws,
Applicable Law, or actions by the trustees, directors or shareholders
of the Fund.

9.2.4 Restricted Securities. The limitations inherent in the
rights, transferability or similar investment characteristics of a
given Investment of the Fund.

10. Indemnification. The Fund hereby indemnifies the Custodian and each
Subcustodian, and their respective agents, nominees and their partners,
employees, officers and directors, and agrees to hold each of them harmless from
and against all claims and liabilities, including counsel fees and taxes,
incurred or assessed against any of them in connection with the performance of
this Agreement and any Instruction. If a Subcustodian or any other person
indemnified under the preceding sentence, gives written notice of claim to the
Custodian, the Custodian shall promptly give written notice to the Fund. Not
more than thirty days following the date of such notice, unless the Custodian
shall be liable under Section 8 hereof in respect of such claim, the Fund will
pay the amount of such claim or reimburse the Custodian for any payment made by
the Custodian in respect thereof. The custodian shall consult with the Fund
prior to making payments under this section.

11. Reports and Records. The Custodian shall:

11.1 create and maintain records relating to the performance
of its obligations under this Agreement;

11.2 make available to the Fund, its auditors, agents and
employees, during regular business hours of the Custodian, upon
reasonable request and during normal business hours of the Custodian,
all records maintained by the Custodian pursuant to paragraph (a)
above, subject, however, to all reasonable security requirements of the
Custodian then applicable to the records of its customer customers
generally; and

11.3 make available to the Fund all electronic reports; it
being understood that the Custodian shall not be liable hereunder for
the inaccuracy or incompleteness thereof or for errors in any
information included therein.

The Fund shall examine all records, howsoever produced or transmitted,
promptly upon receipt thereof and notify the Custodian promptly of any
discrepancy or error therein. Unless the Fund delivers written notice of any
such discrepancy or error within a reasonable time after its receipt thereof,
such records shall be deemed to be true and accurate. It is understood that the
Custodian now obtains and will in the future obtain information on the value of
assets from outside sources which may be utilized in certain reports made
available to the Fund. The Custodian deems such sources to be reliable but it is
acknowledged and agreed that the Custodian does not verify nor represent nor
warrant as to the accuracy or completeness of such information and accordingly
shall be without liability in selecting and using such sources and furnishing
such information.

12. Miscellaneous.
12.1 Proxies, etc. The Fund will promptly execute and deliver, upon
request, such proxies, powers of attorney or other instruments as may be
necessary or desirable for the Custodian to provide, or to cause any
Subcustodian to provide, custody services.

12.2 Entire Agreement. Except as specifically provided herein, this
Agreement constitutes the entire agreement between the Fund and the Custodian
with respect to the subject matter hereof. Accordingly, this Agreement
supersedes any custody agreement or other oral or written agreements heretofore
in effect between the Fund and the Custodian with respect to the custody of the
Fund's Investments.

12.3 Waiver and Amendment. No provision of this Agreement may be
waived, amended or modified, and no addendum to this Agreement shall be or
become effective, or be waived, amended or modified, except by an instrument in
writing executed by the party against which enforcement of such waiver,
amendment or modification is sought; provided, however, that an Instruction
shall, whether or not such Instruction shall constitute a waiver, amendment or
modification for purposes hereof, be deemed to have been accepted by the
Custodian when it commences actions pursuant thereto or in accordance therewith.

12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OF SUCH STATE. THE PARTIES HERETO
IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF
MANHATTAN.

12.5 Notices. Notices and other writings contemplated by this
Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first
class registered or certified mail, postage prepaid, return receipt requested,
(c) by a nationally recognized overnight courier or (d) by facsimile
transmission, provided that any notice or other writing sent by facsimile
transmission shall also be mailed, postage prepaid, to the party to whom such
notice is addressed. All such notices shall be addressed, as follows:

If to the Fund:

John Pasco III
Commonwealth Shareholder Services, Inc.
1500 Forest Avenue, Suite 223
Richmond, VA 23226

Telephone: 1-800-527-9500
Facsimile: 1-804-285-8251

If to the Custodian:

Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department

Telephone: (617) 772-1818
Facsimile: (617) 772-2263,

or such other address as the Fund or the Custodian may from time to
time designate in writing to the other.

12.6 Headings. Paragraph headings included herein are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof.

12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
the Fund and the Custodian.

12.8 Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purposes of rendering or obtaining services pursuant
to this Agreement and, except as may be required in carrying out this Agreement,
shall not be disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any information that
is publicly available when provided or thereafter becomes publicly available
other than through a breach of this Agreement, or that is required to be
disclosed by or to any bank examiner of the Custodian or any Subcustodian, any
regulatory authority, any auditor of the parties hereto, or by judicial or
administrative process or otherwise by Applicable Law.

13. Definitions. The following defined terms will have the respective
meanings set forth below.

13.1 Advance shall mean any extension of credit by or
through the Custodian or by or through any Subcustodian and shall include
amounts paid to third parties for account of the Fund or in discharge of any
expense, tax or other item payable by the Fund.

13.2 Agency Account shall mean any deposit account opened on
the books of a Subcustodian or other banking institution in accordance
with Section 7.1.

13.3 Agent shall have the meaning set forth in the last system
of Section 6.

13.4 Applicable Law shall mean the respect to each
jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines
(or their equivalents); (b) orders, interpretations licenses and
permits; and (c) judgments, decrees, injunctions writs, orders and
similar actions by a court of competent jurisdiction; compliance with
which is required or customarily observed in such jurisdiction.

13.5 Authorized Person shall mean any person or entity
authorized to give Instructions on behalf of the Fund in accordance
with Section 4.1.

13.6 Book-entry Agent shall mean an entity acting as agent for
the issuer of Investments for purposes of recording ownership or
similar entitled to Investments, including without limitation a
transfer agent or registrar.

13.7 Clearing Corporation shall mean any entity or system
established for purposes of providing securities settlement and
movement and associated functions for a given market.

13.8 Delegation Agreement shall mean any separate agreement
entered into between the Custodian and the Fund or its authorized
representative with respect to certain matters concerning the
appointment and administration of Subcustodians delegated to the
Custodian pursuant to Rule 17f-5.

13.9 Foreign Custody Manager shall mean the Fund's foreign
custody manager appointed pursuant to Rule 17f-5 of the 1940 Act.

13.10 Funds Transfer Services Agreement shall mean any
separate agreement entered into between the Custodian and the Fund or
its authorized representative with respect to certain matters
concerning the processing of payment orders from Principal Accounts of
the Fund.

13.11 Instruction(s) shall have the meaning assigned in
Section 4.

13.12 Investment Advisor shall mean any person or entity who
is an Authorized Person to give Instructions with respect to the
investment and reinvestment of the Fund's Investments.

13.13 Investments shall mean any investment asset of the Fund,
including without limitation securities, bonds, notes, and debentures,
as well as receivables, derivatives, contractual rights or entitlements
and other intangible assets.

13.14 Margin Account shall have the meaning set forth in
Section 6.4 hereof.

13.15 Principal Account shall mean deposit accounts of the
Fund carried on the books of BBH&Co. as principal in accordance with
Section 7.

13.16 Safekeeping Account shall mean an account established on
the books of the Custodian or any Subcustodian for purposes of
segregating the interests of the Fund (or clients of the Custodian or
Subcustodian) from the assets of the Custodian or any Subcustodian.

13.17 Securities Depository shall mean a central or book entry
system or agency established under Applicable Law for purposes of
recording the ownership and/or entitlement to investment securities for
a given market.

13.18 Subcustodian shall mean each foreign bank appointed by
the Custodian pursuant to Section 8, but shall not include Securities
Depositories.

13.19 Tri-Party Agreement shall have the meaning set forth
in Section 6.4 hereof.

13.20 1940 Act shall mean the Investment Company Act of
1940, as amended.

14. Compensation. The Fund agrees to pay to the Custodian (a) a fee in an amount
set forth in the fee letter between the Fund and the Custodian in effect on the
date hereof or as amended from time to time, and (b) all authorized, customary
or reasonable out-of-pocket expenses incurred by the Custodian, including the
fees and expenses of all Subcustodians, and payable from time to time. Amounts
payable by the Fund under and pursuant to this Section 14 shall be payable by
wire transfer to the Custodian at BBH&Co. in New York, New York.

15. Termination. This Agreement may be terminated by either party in accordance
with the provisions of this Section. The provisions of this Agreement and any
other rights or obligations incurred or accrued by any party hereto prior to
termination of this Agreement shall survive any termination of this Agreement.
15.1 Notice and Effect. This Agreement may be terminated by
either party by written notice effective no sooner than seventy-five
days following the date that notice to such effect shall be delivered
to other party at its address set forth in paragraph 12.5 hereof.

15.2 Successor Custodian. In the event of the appointment of a
successor custodian, it is agreed that the Investments of the Fund held
by the Custodian or any Subcustodian shall be delivered to the
successor custodian in accordance with reasonable Instructions. The
Custodian agrees to cooperate with the Fund in the execution of
documents and performance of other actions necessary or desirable in
order to facilitate the succession of the new custodian. If no
successor custodian shall be appointed, the Custodian shall in like
manner transfer the Fund's Investments in accordance with Instructions.

15.3 Delayed Succession. If no Instruction has been given as
of the effective date of termination, Custodian may at any time on or
after such termination date and upon ten days written notice to the
Fund either (a) deliver the Investments of the Fund held hereunder to
the Fund at the address designated for receipt of notices hereunder, or
(b) delivery any investments held hereunder to a bank or trust company
having a capitalization of $2 million United States Dollars equivalent
and operating under the Applicable law of the jurisdiction where such
Investments are located, such delivery to be at the risk of the Fund.
In the event that Investments or moneys of the Fund remain in the
custody of the Custodian or its Subcustodians after the date of
termination owing to the failure of the Fund to issue Instructions with
respect to their disposition or owing to the fact that such disposition
could not be accomplished in accordance with such Instructions despite
diligent efforts of the Custodian, the Custodian shall be entitled to
compensation for its services with respect to such Investments and
moneys during such period as the Custodian or its subcustodians retain
possession of such items and the provisions of this Agreement shall
remain in full force and effect until disposition in accordance with
this Section is accomplished.

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first above written.

THE WORLD FUNDS, INC.
By: /S/ John Pasco, III

By: BROWN BROTHERS HARRIMAN & CO.
By: /S/ Kristen F. Giarrusso

<PAGE>
APPENDIX "C"
TO
CUSTODIAN AGREEMENT

BETWEEN
THE WORLD FUNDS, INC. and BROWN BROTHERS HARRIMAN & CO.

Dated as of 10/28/98

The following is a list of Funds for which the Custodian shall
serve under a Custodian Agreement dated as of 1/28/98 (the
"Agreement"):

THIRD MILLENNIUM RUSSIA FUND

IN WITNESS WHEREOF, each of the parties hereto has caused this
Appendix to be executed in its name and on behalf of each such Fund.

THE WORLD FUNDS, INC. BROWN BROTHERS HARRIMAN & CO.

/S/ John Pasco, III /S/ Kristen F. Giarrusso
Name: John Pasco, III Name: Kristen F. Giarrusso
Title: CFO, Treasurer Title: Partner

<PAGE>
<TABLE>
<CAPTION>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK

THE WORLD FUNDS, INC.

APPENDIX A
<S> <C> <C>

- --------------------------- ------------------------------------------------------------ ----------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- --------------------------- ------------------------------------------------------------ ----------------------------
RUSSIA BANK CREDIT SUISSE FIRST BOSTON AO for CREDIT SUISS
Credit VTB Suisse, Zurich Agreement 4/30/96 Requires
Board approval of Amendment to Custodian Agreement
- --------------------------- ------------------------------------------------------------ ----------------------------
RUSSIA CITIBANK T/O FOR CITIBANK, N.A. VTB
Citibank, N.A., New York Agreement 7/16/81 NDC
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96 Citibank, N.A.
Subsidiary Amendment 10/19/95 Citibank N.A./Citibank
T/O Agreement 6/16/97 A side letter agreement
Requires Board approval of Amendment to Custodian
Agreement
- --------------------------- ------------------------------------------------------------ ----------------------------
</TABLE>
I HEREBY CERTIFY THAT AT ITS MEETING ON 7/2/98 THE BOARD APPROVED THE COUNTRIES
AND CENTRAL DEPOSITORIES LISTED ON THIS APPENDIX

Brown Brothers Harriman & Co. acting as delegate of the Board under Rule 17f-5
has reviewed and approved the subcustodians listed above and the Agreements
associated with these subcustodians and the list above is intended to confirm
placement of assets with these subcustodians.

/S/ John Pasco, III 10/28/98
(SIGNATURE) (DATE)

CFO, Treasurer
(TITLE)

<PAGE>
APPENDIX A-1

IN THE FOLLOWING COUNTRIES THE LIABILITY OF THE CUSTODIAN UNDER THE
ATTACHED CUSTODIAN AGREEMENT SHALL BE SUBJECT TO THE ADDITIONAL
CONDITION THAT THE CUSTODIAN ACTUALLY RECOVERS FROM THE SUBCUSTODIAN IN
THE RELEVANT MARKET.1

LITHUANIA

<PAGE>

APPENDIX B
THE WORLD FUNDS, INC.

THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING AND FOREIGN
EXCHANGE QUOTATIONS, CORPORATE ACTIONS, DIVIDENDS AND RIGHTS OFFERINGS:

AUTHORIZED SOURCES
BLOOMBERG
EXTEL (LONDON)
FUND MANAGERS
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS

SUBCUSTODIAN BANKS
TELEKURS
VALORINFORM (GENEVA)
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
FINANCIAL INFORMATION INC. CARD
JJ KENNY
FRI CORPORATION
MERRILL LYNCH PRICING SERVICE
MULLER

APPROVED: /S/ John Pasco, III October 28, 1998
------------------------ DATE

- --------
1 This list of countries is subject to change from time to time. Certain
countries may be removed from this list while new markets may be added.

ADMINISTRATIVE SERVICES AGREEMENT

Administrative Services Agreement (the "Agreement") dated September 21,
1998, by and between THE WORLD FUNDS, INC. (the "Fund"), a diversified, open-end
management investment company, duly organized as a corporation in accordance
with the laws of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES,
INC. ("CSS"), a corporation duly organized as a corporation in accordance with
the laws of the Commonwealth of Virginia.

WITNESSETH THAT:

WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the THIRD MILLENNIUM RUSSIA FUND series (the
"Portfolio"), to perform certain recordkeeping and shareholder servicing
functions required of a duly registered investment company to comply with
certain provisions of federal, state and local law, rules and regulations, and,
as is required, to assist the Fund in preparing and filing certain financial
reports, and further to perform certain daily functions in connection with
on-going operations of the Fund and the Portfolio, and provide ministerial
services to implement the investment decisions of the Fund and the investment
advisor of the Portfolio, Third Millennium Investment Advisors LLC (the
"Advisor"); and

WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:

Section 1. CSS shall examine and review all records and documents of
the Portfolio pertaining to its duties under this Agreement in order to
determine and/or recommend how such records and documents shall be maintained.

Section 2. CSS shall, as necessary for such purposes, advise the Fund
and its agents of the information which is deemed to be "necessary" for the
performance of its duties under this Agreement, and upon receipt of necessary
information and Written or Oral Instructions from the Fund, shall maintain and
keep current such shareholder relations records.

Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Fund or its agents (such as Custodians,
Transfer Agents, etc.), CSS shall incur no liability and the Fund shall
indemnify and hold harmless CSS from and against any liability arising from any
discrepancy in the information received by CSS and used in the performance by
CSS of its duties.

<PAGE>
It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of any
dividends or income and any other special actions required concerning each of
its securities.

CSS shall maintain such shareholder records above mentioned as required
by regulation and as agreed upon between the Fund and CSS.

Section 3. The Fund shall confirm to the Fund's Transfer Agent all
purchases and redemptions of shares of the Portfolio effected through the Fund
or its distributor, as and when such orders are accepted by the Fund or an
authorized agent of the Fund designated for that purpose. CSS shall receive from
the Fund's Transfer Agent daily reports of share purchases, redemptions, and
total shares outstanding, and shall be accountable for the information contained
in such reports of purchases and redemptions when received. It is agreed by the
parties that the net asset value per share of the Fund will be calculated in
accordance with Rule 22c-1 under the Investment Company Act of 1940 and as
otherwise directed by the Board of Directors of the Fund.

CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.

Section 4. CSS shall provide assistance to the Fund in the servicing of
shareholder accounts, which may include telephone and written conversations,
assistance in redemptions, exchanges, transfers and opening accounts as may be
required from time to time. CSS shall, in addition, provide such additional
administrative non-advisory management services as CSS and the Fund may from
time to time agree.

Section 5. The accounts and records maintained by CSS shall be the
property of the Fund, and shall be made available to the Fund, within a
reasonable period of time, upon demand. CSS shall assist the Fund's independent
auditors, or any other person authorized by the Fund or, upon demand, any
regulatory body as authorized by law or regulation, in any requested review of
the Fund's accounts and records but shall be reimbursed for all reasonable and
documented expenses and employee time invested in any such review outside of
routine and normal periodic reviews. Upon receipt from the Fund of any necessary
information, CSS shall assist the Fund in organizing necessary data for the
Fund's completion of any necessary tax returns, questionnaires, periodic reports
to shareholders and such other reports and information requests as the Fund and
CSS shall agree upon from time to time.

<PAGE>
Section 6. CSS and the Fund may from time to time adopt procedures they
agree upon, and, absent knowledge to the contrary, CSS may conclusively assume
that any procedure approved by the Fund or directed by the Fund, does not
conflict with or violate any requirements of Fund's Prospectuses, Articles of
Incorporation, By-Laws, registration statements, orders, or any rule or
regulation of any regulatory body or governmental agency. The Fund (acting
through its officers or other agents) shall be responsible for notifying CSS of
any changes in regulations or rules which might necessitate changes in the
Fund's procedures.

Section 7. CSS may rely upon the advice of the Fund and upon statements
of the Fund's lawyers, accountants and other persons believed by it in good
faith to be expert in matters upon which they are consulted, and CSS shall not
be liable for any actions taken in good faith upon such statements.

Section 8. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Fund or any
other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.

CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof by
the Fund.

The Fund shall indemnify and hold CSS harmless from any and all
expenses, damages, claims, suits, liabilities, actions, demands and losses
whatsoever arising out of or in connection with any error, omission, inaccuracy
or other deficiency of any information provided to CSS by the Fund, or the
failure of the Fund to provide any information needed by CSS knowledgeably to
perform its functions hereunder. Also, the Fund shall indemnify and hold
harmless CSS from all claims and liabilities (including reasonable documented
expenses for legal counsel) incurred by or assessed against CSS in connection
with the performance of this Agreement, except such as may arise from CSS's own
negligent action, omission or willful misconduct; provided, however, that before
confessing any claim against it, CSS shall give the Fund reasonable opportunity
to defend against such claim in the name of the Fund or CSS or both.

Section 9. The Fund agrees to pay CSS compensation for its services and
to reimburse it for expenses, as set forth in the Schedule attached hereto, or
as shall be set forth in amendments

<PAGE>
to such schedule approved by the Fund's Board of Directors and CSS.

Section 10. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to perform any functions or duties
on any holiday or other day of special observance on which CSS is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day on which both the Fund and CSS
are open. CSS will be open for business on days when the Fund is open for
business and/or as otherwise set forth in the Fund's Prospectuses and Statements
of Additional Information.

Section 11. Either the Fund or CSS may give written notice to the other
of the termination of this Agreement, such termination to take effect at the
time specified in the notice, which time shall be not less than 90 days from the
giving of such notice. Such termination shall be without penalty.

Section 12. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Fund and preceded by a
certificate from the Fund's secretary so attesting.

Notices to the Fund shall be directed to:

1500 Forest Ave.
Suite 223
Richmond, VA 23229

Notices to CSS shall be directed to:

1500 Forest Ave.
Suite 223
Richmond, VA 23229

Section 13. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.

Section 14. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and

<PAGE>
assigns; provided, however, that this Agreement shall not be assignable
by the Fund without the written consent of CSS, or by CSS without the written
consent of the Fund, authorized or approved by a resolution of its Board of
Directors.

Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:

Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in person or by telephone, telegram, telecopy, or other
mechanical or documentary means lacking a signature, by a person or persons
believed in good faith by CSS to be a person or persons authorized by a
resolution of the Board of Directors of the Fund, to give Oral Instructions on
behalf of the Fund.

Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in original writing containing original signatures or a
copy of such document transmitted by telecopy including transmission of such
signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Fund to give Written
Instructions on behalf of the Fund.

The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.

Section 16. This Agreement shall be governed by the laws of the State
of Maryland.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.

THE WORLD FUNDS, INC.

By: /s/ John Pasco, III
John Pasco, III
Chairman

COMMONWEALTH SHAREHOLDER SERVICES, INC.

By: /s/ John Pasco, III
John Pasco, III
President

<PAGE>

SCHEDULE A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
THIRD MILLENNIUM RUSSIA FUND

Pursuant to Section 9 of the Administrative Services Agreement, dated
September 21, 1998, by and between The World Funds, Inc. (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the Third Millennium Russia
Fund series of the Fund shall pay CSS a fee calculated and paid monthly as
follows:

A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.

B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.

C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Third Millennium Russia Fund series of the Fund, payable
monthly, with a minimum fee of $30,000.

D. In addition to the foregoing, the Fund shall reimburse CSS,
from the assets of the Portfolio, for the Portfolio's
proportionate share of general expenses incurred for the Fund
and for all expenses incurred by the Portfolio individually.
Such out-of-pocket expenses shall include, but not be limited
to: documented fees and costs of obtaining advice of counsel
or accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.

<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT

WITNESSETH THAT:

WHEREAS, the Fund desires to appoint CSS as its Administrative Services
Agent, for and on behalf of the NEW MARKET FUND series (the "Portfolio"), to
perform certain recordkeeping and shareholder servicing functions required of a
duly registered investment company to comply with certain provisions of federal,
state and local law, rules and regulations, and, as is required, to assist the
Fund in preparing and filing certain financial reports, and further to perform
certain daily functions in connection with on-going operations of the Fund and
the Portfolio, and provide ministerial services to implement the investment
decisions of the Fund and the investment advisor of the Portfolio, Virginia
Management Investment Company (the "Manager"); and

WHEREAS, CSS is willing to perform such functions upon the terms and
conditions herein set forth;

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:

<PAGE>

It shall be the responsibility of the Fund to furnish CSS with the net
asset value per share, declaration, record and payment dates and amounts of any
dividends or income and any other special actions required concerning each of
its securities.

CSS shall maintain such shareholder records above mentioned as required
by regulation and as agreed upon between the Fund and CSS.

CSS shall reconcile its records of outstanding shares and shareholder
accounts with the Fund's Transfer Agent periodically, and not less frequently
than monthly.

CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Fund until receipt of notification thereof by
the Fund.

Section 9. The Fund agrees to pay CSS compensation for its services and
to reimburse it for expenses, as set forth in the Schedule attached hereto, or
as shall be set forth in amendments

<PAGE>

to such schedule approved by the Fund's Board of Directors and CSS.

Notices to the Fund shall be directed to:

1500 Forest Ave.
Suite 223
Richmond, VA 23229

Notices to CSS shall be directed to:

1500 Forest Ave.
Suite 223
Richmond, VA 23229

Section 14. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and

<PAGE>
assigns; provided, however, that this Agreement shall not be assignable by the
Fund without the written consent of CSS, or by CSS without the written consent
of the Fund, authorized or approved by a resolution of its Board of Directors.

Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:

The Fund shall file with CSS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.

Section 16. This Agreement shall be governed by the laws of the State
of Maryland.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.

THE WORLD FUNDS, INC.

By: /s/ John Pasco, III
John Pasco, III
Chairman

COMMONWEALTH SHAREHOLDER SERVICES, INC.

By: John Pasco, III
John Pasco, III
President

<PAGE>

SCHEDULE A
TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
THE WORLD FUNDS, INC. AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR THE
NEW MARKET FUND

Pursuant to Section 9 of the Administrative Services Agreement, dated
September 21, 1998, by and between The World Funds, Inc. (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the New Market Fund series of
the Fund shall pay CSS a fee calculated and paid monthly as follows:

A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.

B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.

C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
New Market Fund series of the Fund, payable monthly, with a
minimum fee of $30,000.

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the references to our firm in the Amendment to
the Registration Statement on Form N-1A of The World Funds, Inc. and to the
use of our reports dated September 25, 1998 on the financial statements and
financial highlights of Sand Hill Portfolio Manager Fund, CSI Equity Fund and
CSI Fixed Income Fund, each a series of shares of The World Funds, Inc.
Such financial statements and financial highlights appear in the 1998 Annual
Report to Shareholders which are incorporated by reference in the Registration
Statement and Part B of Form N-1A.

Tait, Weller & Baker
TAIT, WELLER & BAKER

Philadelphia, Pennsylvania
December 29, 1998

<PAGE>

THE WORLD FUNDS, INC.

Distribution Plan
Of
THIRD MILLENNIUM RUSSIA FUND

This Plan of Distribution (the "Plan") has been adopted pursuant to
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") by The World Funds, Inc. (the "Fund") for the Class B shares of
the Fund's Third Millennium Russia Fund series (the "Series"). The Plan has been
approved by a majority of the Fund's Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan (the "12b-1
Directors"), by votes cast in person at a meeting called for the purpose of
voting on the Plan.1 The Fund contemplates that the Plan shall operate as a
compensation Plan.

The Plan provides that:

1. Subject to the limits on payments under the Plan set forth herein,
or in any annual budget approved by the Fund and the Distributor, the Fund shall
pay to the Distributor, or others through the Distributor, the amounts called
for under the Plan. Such payments shall be applied by the Distributor for all
expenses incurred by such parties in the promotion and distribution of the
Series' shares. For this purpose, expenses authorized under the Plan include,
but are not limited to, printing of prospectuses and reports used for sales
purposes, expenses of preparation of sales literature and related expenses,
advertisements, salaries and benefits of employees involved in sales of shares,
telephone expenses, meeting and space rental expenses, underwriter's spreads,
interest charges on funds used to finance activities under this Plan, and other
distribution-related expenses, as well as any service fees paid to securities
dealers or others who have executed an agreement with the Fund or its
affiliates.

2. The following agreements are deemed to be "agreements under the
Plan" and the form of each such agreement, and any material amendments thereto,
shall be approved as required under the Rule:

a. Any Distribution Agreement between the Fund and its
National Distributor, or any other distributor of
shares in privity with the Fund.

b. The National Distributor's Selling Dealer Agreement.

Purchase orders for goods and services acquired from persons who are not
affiliates of the Fund are not deemed to be agreements under this Plan.

3. The maximum aggregate amount which may be reimbursed by the Fund
under this Plan is 0.25% per annum of the average daily net assets of the
Series' shares. The amount so paid shall be accrued daily, and payment thereon
shall be made monthly by the Fund.

4. It is anticipated that amounts paid by the Fund under this Plan
shall be used to pay service and maintenance fees for shareholder servicing and
maintenance of shareholder accounts by other providers.

5. The Distributor shall collect and disburse payments made under this
Plan, and shall furnish to the Board of Directors of the Fund for its review on
a quarterly basis, a written report of the monies reimbursed to the Distributor
and others under the Plan, and shall furnish the Board of Directors of the Fund
with such other information as the Board may reasonably request in connection
with the payments made under the Plan in order to enable the Board to make an
informed determination of whether the Plan should be continued.

6. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Fund's Board of Directors, including the non-interested Directors, cast in
person at a meeting called for the purpose of voting on the Plan.

7. The Plan, or any agreements entered into pursuant to the Plan, may
be terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund, or by vote of a majority of the
non-interested Directors, on not more than sixty (60) days' written notice, and
shall terminate automatically in the event of any act that constitutes an
assignment of the management agreement between the Fund and the Fund's
investment adviser.

8. The Plan and any agreements entered into pursuant to the Plan may
not be amended to increase materially the amount to be spent by the Fund for
distribution pursuant to paragraph 3 of this Plan without approval by a majority
of the Fund's outstanding voting securities.

9. All material amendments to the Plan, or any agreements entered into
pursuant to the Plan, shall be approved by the Board, including a majority of
the 12b-1 Directors, cast in person at a meeting called for the purpose of
voting on any such amendment.

10. So long as the Plan is in effect, the selection and nomination of
the Fund's 12b-1 Directors shall be committed to the discretion of such 12b-1
Directors.

11. This Plan shall take effect on the 21st day of September, 1998.

This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Fund and the Distributor as evidenced by their execution
hereof.

The World Funds, Inc.

By: /s/ John Pasco, III

First Dominion Capital Corp.

By: John Pasco, III

In its consideration of the Plan, the Board of Directors considered the
proposed schedule and nature of payments under the Plan. The Board of Directors
concluded that the proposed reimbursement of the Company's principal
underwriter, First Dominion Capital Corp. (the "Distributor"), for distribution
expenses under the Plan is fair and not excessive. Accordingly, the Board
determined that the Plan should provide for such reimbursement and that adoption
of the Plan would be prudent and in the best interests of the Fund and the
Series' shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the Fund,
the Series and the Series' shareholders.

THE WORLD FUNDS, INC.

Distribution Plan
Of
THE NEW MARKET FUND

This Plan of Distribution (the "Plan") has been adopted pursuant to
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") by The World Funds, Inc. (the "Fund") for the shares of the
Fund's New Market Fund series (the "Series"). The Plan has been approved by a
majority of the Fund's Board of Directors, including a majority of the Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan (the "12b-1 Directors"), by
votes cast in person at a meeting called for the purpose of voting on the Plan.1
The Fund contemplates that the Plan shall operate as a compensation Plan.

The Plan provides that:

2. The following agreements are deemed to be "agreements under the
Plan" and the form of each such agreement, and any material amendments thereto,
shall be approved as required under the Rule:

a. Any Distribution Agreement between the Fund and its
National Distributor, or any other distributor of
shares in privity with the Fund.

b. The National Distributor's Selling Dealer Agreement.

Purchase orders for goods and services acquired from persons who are not
affiliates of the Fund are not deemed to be agreements under this Plan.

3. The maximum aggregate amount which may be reimbursed by the Series
under this Plan is 0.50% per annum of the average daily net assets of the
Series' shares. The amount so paid shall be accrued daily, and payment thereon
shall be made monthly by the Fund.

4. It is anticipated that amounts paid by the Series under this Plan
shall be used to pay service and maintenance fees for shareholder servicing and
maintenance of shareholder accounts by other providers.

8. The Plan and any agreements entered into pursuant to the Plan may
not be amended to increase materially the amount to be spent by the Series for
distribution pursuant to paragraph 3 of this Plan without approval by a majority
of the Fund's outstanding voting securities.

10. So long as the Plan is in effect, the selection and nomination of
the Fund's 12b-1 Directors shall be committed to the discretion of such 12b-1
Directors.

11. This Plan shall take effect on the 21st day of September, 1998.

<PAGE>
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Fund and the Distributor as evidenced by their execution
hereof.

The World Funds, Inc.

By: John Pasco, III

First Dominion Capital Corp.

By: John Pasco, III

<ARTICLE> 6
<CIK> 0001040674
<NAME> THE WORLD FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> CSI Equity Fund

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 28,498,638
<INVESTMENTS-AT-VALUE> 26,515,913
<RECEIVABLES> 47,574
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 43,208
<TOTAL-ASSETS> 26,606,695
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,452
<TOTAL-LIABILITIES> 30,452
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,498,033
<SHARES-COMMON-STOCK> 595,957
<SHARES-COMMON-PRIOR> 0
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<ARTICLE> 6
<CIK> 0001040674
<NAME> THE WORLD FUNDS, INC.
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<NAME> CSI Fixed Income

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<CIK> 0001040674
<NAME> THE WORLD FUNDS, INC.
<SERIES>
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<NAME> Sand Hill Portfolio

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