As filed with the Securities and Exchange Commission on April 20, 1999
Registration No. 333-29289
File No. 811-8255
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |__|
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Pre-Effective Amendment No. ______ |__|
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Post-Effective Amendment No. 7 | X|
and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |__|
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Amendment No. 8 | X|
(Check appropriate box or boxes)
THE WORLD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229
(Address of Principal Executive Offices)(Zip Code)
(800)-527-9525
Registrant's Telephone Number, Including Area Code
Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practical after this
post-effective amendment of this registration statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
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|__| immediately upon filing pursuant to paragraph (b)
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|_X| on April 30, 1999 pursuant to paragraph (b)
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| _| 60 days after filing pursuant to paragraph (a)(1)
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|__| on (date) pursuant to paragraph (a)(1)
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|__| 75 days after filing pursuant to paragraph (a)(2)
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|__| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
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|__| This post-effective amendment designates a new effective date for
a
previously filed post-effective amendment.
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TABLE OF CONTENTS
This Filing of a post-effective amendment to the Registrant's registration
statement on Form N-1A consists of the following:
1. Part A revising the prospectus of the Sand Hill Portfolio Manager
Fund series of the Registrant.
2. Part B revising the statement of additional information of the
Sand Hill Portfolio Manager Fund series of the Registrant; and
3. Part C
This filing of a post-effective amendment to the Registrant's registration
statement on Form N-1A does not in any way amend or modify the currently
effective prospectuses and statements of additional information of the
four other series of the Registrant, namely the CSI Equity Fund, CSI Fixed
Income Fund, Third Millennium Russia Fund and The New Market Fund series.
<PAGE>
Sand Hill Portfolio Manager Fund
PROSPECTUS
April 30, 1999
THE WORLD FUNDS, INC.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
(800) 527-9525
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Maximize total return.
Principal Investment The Sand Hill Portfolio Manager Fund (the "Fund"), a
Strategies: mutual fund, invests its assets in equity securities,
debt securities and short term investments on a global
basis (within the U.S. and in other countries). Equity
securities consist of common stocks and securities
convertible into common stocks. Debt securities
include obligations of governments, instrumentalities
and corporations. Short-term instruments are generally
used to protect the Fund against movements in interest
rates or currency exchange rates and to provide the
Fund with liquidity. The Fund may invest in each of
these three asset classes without limit.
Principal Risks: The principal risk of investing in the Fund is that the
values of its investments are subject to market,
economic, interest rate and business risk that may
cause the Fund's net asset value ("NAV") to fluctuate
over time. Therefore, the value of your investment in
the Fund could decline. There is no assurance that
Sand Hill Advisors, Inc., the Fund's investment
adviser, will achieve the objective of the Fund.
The Fund invests a varying portion of its assets in
foreign investments. These foreign investments may
involve financial, economic or political risks not
ordinarily associated with U.S. securities. With
foreign investments, the Fund's NAV may be affected
by changes in exchange rates between foreign
currencies and the U.S. dollar, less rigorous regulatory
standards, less liquidity in markets and more volatility
in prices than U.S. securities, higher taxes, and
adverse social or political developments.
You may want to invest in the Fund if you are seeking to
maximize total return and are willing to accept share
prices that may fluctuate, sometimes significantly, over
the short-term. The Fund will not be appropriate if you
are seeking current income or are seeking safety of
principal.
An investment in the Fund is not a bank deposit, nor is
it insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The bar chart and table below provide an indication of
the past performances of the Fund. The bar chart shows
how the Fund's performance has varied from one year to
another. The table compares the performance of the Fund
to the Lipper Global Flexible Portfolio. The Lipper
Global Flexible Portfolio is a composite of the total
return of mutual funds with the stated objective of
allocating investments across asset classes, including
stocks, bonds, and money market instruments with a
focus on total return, with at least 25% of their
portfolios invested in securities outside of the United
States. Keep in mind that past performance may not
indicate how well the Fund will perform in the future.
Graph Goes Here:
Sand Hill Portfolio Manager Fund Total Return for calendar years
Year Total Return
1995 11.60%
1995 19.57%
1996 17.87%
1997 8.11%
Best calendar quarter Q2 '97, up 10.55% Worst calendar quarter Q3
'98, down 7.24%
* The year-to-date return for the Fund's fiscal year from September 1, 1998 to
the end of the most recent calendar quarter, February 28, 1999 is 14.27%.
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Average Annual Total Past One Year Past Three Years Since Inception
Returns(1)
(January 2,1995)
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Sand Hill Portfolio 8.11% 15.04% 14.19%
Manager Fund
------------------------------------------------------------------------------
S&P 500(2) 28.57% 28.25% 30.52%
------------------------------------------------------------------------------
Lipper Global Flexible 8.99% 11.88% 9.43%
Portfolio(3)
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(1) For the periods ended December 31, 1998.
(2) The S&P 500 is an unmanaged index of the common stock of the 500 largest
publicly traded US companies. Returns include reinvestment of all dividends
and distributions, are expressed in US$ and do not reflect any asset-based
changes for investment management or other expenses..
(3) This index, described above, is an unmanaged index and returns include
reinvestment of all dividends and distributions.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. There are no sales
charges in connection with purchases or redemption of shares. The annual
operating expenses, which cover the costs of investment management,
administration, accounting and shareholder communications, are shown as an
annual percentage of the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (load) on Purchases None
Sales Charge (load) on Reinvested Dividends None
Redemption Fees* None
Exchange Fees** None
* A shareholder electing to redeem shares via telephone request will be charged
$10.00 for each such redemption request.
** A shareholder will be charged a $10.00 fee for each telephone exchange.
Estimated Annual Operating Expenses (expenses that are deducted from Fund
assets)
Management Fee 1.00%
Distribution and Service (12b-1) Fees None
Other Operating Expenses* 1.08**
Total Annual Fund Operating Expenses* 2.08%
* The manager has voluntarily agreed to waive its management fee or make
payments to limit the Fund's expenses to the extent necessary to ensure that
Total Annual Fund Operating Expenses do not exceed 1.90% of average daily net
assets through January 31, 2000.
** Expense credits reduced the Fund's expense ratio to 1.866 during the fiscal
period ended August 31, 1998.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that, to the extent the Fund increases in size, its Other Operating
Expenses will decline, reflecting economies of scale.
Example:
The following expense example shows the expenses that you could pay over time,
and will help you compare the costs of investing in the Fund with the cost of
investing in other mutual funds. The example assumes that you invest $10,000 and
that you earn a 5% annual return, with no change in expense levels. Because
actual return and expenses will be different, the example is for comparison
only.
Based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total expenses $ 211 $652 $1,119 $2,410
Net expenses* $ 189 $585 $1,006 $2,180
* Expenses reflect the effect of custodian credits to offset custodian fees.
INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RISKS
The investment objective of the Fund is 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.
Within each asset class, the Fund may invest in domestic or foreign securities.
By allocating investments across broad asset classes, Sand Hill Advisors, Inc.
(the "Investment Advisor") seeks to achieve over time a high total return, and a
lower price volatility than might be inherent in a more limited asset mix. The
portfolio of the Fund will be diversified. The Fund will not be limited to
investing in securities of companies of any size or to securities traded in any
particular market.
The Fund seeks to take advantage of investment opportunities using a mix of
asset classes and markets throughout the world. The Fund allocates its
investments among equity securities, debt securities and short term investments
according to the Investment Advisor's anticipation of risks and returns for each
asset class. The Fund may invest in each of these three asset classes without
limit. While broad representation in markets and asset classes is a primary
asset allocation policy of the Fund, the Investment Advisor intends to retain
the flexibility necessary to move among asset classes and markets as changing
conditions warrant.
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 consist of common stocks as well as warrants, rights and
securities which are convertible into common stocks, such as convertible bonds.
The Investment Advisor screens the Fund's equity holdings primarily by analyzing
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 flow to evaluate the company. The Investment Advisor also
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.
Debt Securities consist of 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. Debt
securities may pay fixed or variable rates of interest, have varying maturity
dates at which the issuers must repay the debt, and have varying degrees of
risk. 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 debt securities in which the Fund will invest will be almost entirely
investment grade debt securities. Investment grade debt securities are
securities that (1) bear the rating BBB or higher by Standard & Poor's Ratings
Group; (2) or Baa or higher by Moody's Investors Service, Inc.; or (3) unrated
securities which the Investment Advisor deems to be of comparable quality. The
Fund may invest in lower quality debt securities in order 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 are unrated. After
the Fund buys a debt security, the security may cease to be rated or its rating
may be reduced. Neither event would require the elimination of the debt security
from the Fund's portfolio.
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 for investment, to protect against adverse movements of the
market or interest rates or to provide liquidity.
The Fund's assets will be invested on a global basis to take advantage of
investment opportunities both within the U.S. and outside the U.S. The foreign
securities which the Fund purchases may be bought directly in their principal
markets or may be acquired through the use of depositary receipts. Investments
in foreign securities may involve risks not ordinarily associated with U.S.
securities. Foreign companies are not generally subject to the same accounting,
auditing and financial reporting standards as are domestic companies. Therefore,
there may be less information available about a foreign company than about a
domestic company. Certain countries do not honor legal rights enjoyed in the
U.S. In addition, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Fund's investments in those countries. Many foreign securities
have substantially less trading volume than securities traded on U.S. markets,
and securities in some foreign issuers are less liquid and more volatile in
price than securities of domestic issuers. It is more expensive to trade in
foreign markets than in U.S. markets.
The market values of debt securities are influenced primarily by credit risk and
interest rate risk. Credit risk is the risk that the issuer of the security will
not maintain the financial strength needed to pay principal and interest on its
debt securities. Generally, the market values of fixed-rate debt securities vary
inversely with the changes in prevailing interest rates. When interest rates
rise, the market values of such securities tend to decline and vice versa.
Although under normal market conditions longer term securities yield more than
short-term securities of similar quality, longer term securities are subject to
greater price fluctuations.
The Fund is subject to stock market risk, which is the possibility that stock
prices overall will decline over short or even long periods. Stock markets tend
to move in cycles, with periods of rising prices and periods of falling prices.
Therefore, the value of your investment in the Fund may increase or decrease.
The Fund's investment success depends on the skill of the Investment Advisor in
evaluating, selecting and monitoring the portfolio assets. If the Investment
Advisor's conclusions about asset allocation are incorrect, the Fund may not
perform as anticipated.
Like other mutual funds and financial or business organizations around the
world, The World Funds, Inc. (the "Company") and the Fund could be adversely
affected if its computer systems or the computer systems of its service
providers do not properly process and calculate date-related information and
data as of and after January 1, 2000. This is commonly known as the "Year 2000
Issue". The Company has taken steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to computer systems that it uses and to
obtain reasonable assurances that comparable steps are being taken by its major
service providers. These steps include identifying system problems, remediation
and testing the system fixes. The Company and each of its major service
providers are in the stage of testing the system fixes that have been
implemented. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Company. The Investment
Advisor has reviewed the types of securities and debt obligations held as
investments by the Fund to determine the impact of the Year 2000 Issue on the
returns and relative safety of principal of such securities and debt
obligations. Based on this review, the Advisor does not believe the Year 2000
Issue poses any substantial risk for such returns and safety of principal.
Several European countries are participating in the European Economic and
Monetary Union, which established a common European currency for participating
countries. This currency is commonly known as the "Euro". Each participating
country replaced its existing currency with the Euro as of January 1, 1999.
Additional European countries may elect to participate in the common currency in
the future. The conversion presents unique uncertainties, including, among
others: (1) whether the payment and operational systems of banks and other
financial institutions will function properly; (2) how certain outstanding
financial contracts that refer to existing currencies rather than the Euro will
be treated legally; (3) how exchange rates for existing currencies and the Euro
will be established; and (4) how suitable clearing and settlement payment
systems for the Euro will be managed. If the Fund invests in securities of
countries that have converted to the Euro or convert in the future, the Fund
could be adversely affected if these uncertainties cause adverse affects on
these securities. The Fund could also be adversely affected if the computer
systems used by its major service providers are not properly prepared to handle
the implementation. The Company has taken steps to obtain satisfactory
assurances that the major service providers of the Fund have taken steps
reasonably designed to address these matters. There can be no assurances that
these steps will be sufficient to avoid any adverse impact on the operations and
investment returns of the Fund. To date the conversion of the Euro has had
negligible impact on the operations and investment returns of the Fund.
MANAGEMENT'S DISCUSSION ON FUND PERFORMANCE
The Fund's total return for the year ended December 31, 1998 was 8.10%. This
compares with the
following relevant indices:
- --------------------------------------------------------------------------------
S&P 500 28.57%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
S&P 500 (equal-weighted) 12.79%
- -------------------------------------------------------------------------------
MSCI EAFE (international index) 20.00%
Salomon Treasury Bond Index 10.00%
U.S. Treasury Bills (cash surrogate) 5.38%
The composition of the Fund at year-end was 58.5% domestic stocks, 8.5%
international stocks, 23.5% domestic bonds and 9.5% cash. The domestic stock
portfolio consisted of 35 companies from a cross-section of industries and
market capitalizations, although the majority of the firms had a market
capitalization in excess of $1 billion. Sectors represented in the Fund included
technology (19.7% of the domestic stock portfolio), consumer staples (17.5%),
healthcare (14.75%), utilities/telephones (10.3%), financials (9.8%) and
consumer cyclicals (8.9%). Other sectors had smaller weightings. The largest
single equity position in the Fund was Amgen at 2.4% of total assets.
The international stock allocation consisted of 9 positions. The international
holdings in the Fund were comprised of American Depositary Receipts (ADRs) of
larger companies from a number of industries and countries. Regions represented
in the Fund (as a percentage of the international stock portfolio) included
Europe (50.7%), Japan (20.7%), Asia ex-Japan (18.6%) and Latin America
(10.0%).
The domestic bond allocation consisted entirely of US Treasury bills and notes
of varying maturities between one and ten years.
In recent years, investors have shown a pronounced bias for domestic over
foreign stocks, large cap over small cap companies, and growth over value names.
The Fund typically holds securities from each of these groups. This
diversification strategy reduces volatility and risk, but it can also result in
underperformance versus an index like the S&P 500. This is especially true
during periods of extremely narrow market breadth, such as the current stock
market environment. The Fund adjusts its allocation based on a long-term
perspective of the relative attractiveness of the various asset classes and
types of stocks and debt securities, with the ultimate goal of maintaining an
appropriate risk-reward profile.
In the Fund's Annual Report to Shareholders, you will find a line graph
comparing the Fund's performance to the performance of the S&P 500 composite
stock index.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
Sand Hill Advisors, Inc. (the "Investment Advisor") located at 3000 Sand Hill
Road, Building Three, Suite 150, Menlo Park, CA 94025, manages the assets of the
Fund. The Investment Advisor has been in existence since 1982 and as of December
31, 1998 had approximately $345 million under management. Since the Fund's
inception in January, 1995, Ms. Jane H. Williams, Executive Vice President of
the Investment Advisor, has been primarily responsible for the day to day
management of the Fund. Effective June 1, 1998, Gary K. Conway began co-managing
the Fund with Ms. Williams. Mr. Conway is President and co-founder 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.
The Investment Advisor is responsible for selecting all of the Fund's
investments and effecting all security transactions on behalf of the Fund,
including the allocation of principal business and portfolio brokerage and the
negotiation of commissions. In placing orders with brokers and dealers, the
Investment Advisor will attempt to obtain the best price and execution of
orders.
Under its investment advisory agreement with the Fund, the Investment Advisor is
entitled to receive a monthly investment advisory fee at an annual rate of 1% of
the first $100 million of the average daily net assets of the Fund and 0.75% of
the average daily net assets of the Fund over $100 million. The Investment
Advisor has voluntarily agreed to waive all or a portion of the advisory fee or
make payments to the Fund in order to maintain the Fund's total operating
expenses at an annual rate not to exceed 1.90% through January 31, 2000. For the
period ended August 31, 1998, the Investment Advisor received $80,943 in
advisory fees from the Fund.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (normally at 4:00 p.m.
Eastern Time) on each business day ("Valuation Time") that the NYSE is open. As
of the date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets, subtracting any liabilities and then dividing by
the number of shares outstanding.
Shares are bought, sold or exchanged at the NAV per share determined after a
request has been received in proper form. Any request received in proper form
before the Valuation Time, will be processed the same business day. Any request
received in proper form after the Valuation Time, will be processed the next
business day.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a 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. 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. Depositary receipts 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.
Securities 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 value of a foreign security is determined as of the close of
trading on the foreign exchange on which it is traded or as of the scheduled
close of trading on the NYSE, whichever is earlier. Portfolio securities that
are listed on foreign exchanges may experience a change in value on days when
shareholders will not be able to purchase or redeem shares of the Fund.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times.
PURCHASING SHARES
Shares of the Fund may be purchased directly from First Dominion Capital Corp.
(the "Distributor") or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. When an investor acquires
shares of the Fund from a securities broker- dealer, the investor may be charged
a transaction fee through that broker-dealer. The minimum initial investment in
the Fund is $25,000 and additional investments must be $50 or more. The Fund
reserves the right to refuse to accept an order.
Purchases by Mail - For initial purchases, the account application form which
accompanies the prospectus should be completed, signed and mailed to Fund
Services, Inc. (the "Transfer Agent") together with your check payable to "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 social security number(s) as stated in
your completed account application.
Investing by Wire - You may purchase shares by requesting your bank to transmit
funds by wire directly to the Transfer Agent. To invest by wire, please call the
Transfer Agent at 800-628-4077 for instructions, then notify the Distributor by
calling 1-800-776-5455. Your bank may charge you a small fee for this service.
The account application form which accompanies this prospectus should be
completed and promptly forwarded to the Transfer Agent. The Transfer Agent's
receipt of 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.
REDEEMING SHARES
You may redeem your shares 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 the information and documents necessary for your request to be in
proper order. 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 NAV per share next determined
after the receipt by the Transfer Agent of the redemption request in proper
order. Payment will be made promptly, but no later than the seventh day
following the receipt of the request in proper order. The Company may suspend
the right to redeem shares for any period during which the NYSE is closed or the
U.S. 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 after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check, which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identity of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail - To redeem shares by mail, send a written request for
redemption, signed by the registered owner(s) exactly as the account is
registered. Certain written requests to redeem shares may require signature
guarantees. For example, signature guarantees may be required if you sell a
large number of shares, if your address of record on the account application has
been changed within the last 30 days, or if you ask that the proceeds be sent to
a different person or address than as stated on your account application.
Signature guarantees are used to help protect you and the Fund. You can obtain a
signature guarantee from most banks or securities dealers, but not from a Notary
Public. If you are uncertain about this requirement, please call the Transfer
Agent at 1-800-528-4077 to learn if a signature guarantee is needed or to make
sure that it is completed appropriately in order to avoid any processing delays.
Redemption by Telephone - You may redeem your shares by telephone if you request
this service on your initial account application when you complete it. If you
request this service at a later date, your request must be in writing and sent
to the Transfer Agent with a signature guarantee. Once your telephone
authorization is in effect, you may redeem shares by calling the Transfer Agent
at 800-628-4077. There is no charge for establishing this service, but the
Transfer Agent will charge your account a $10 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.
Redemption by Wire - Should you wish your redemption proceeds to be wired, you
must provide the following information to the Transfer Agent: your name, Fund
account number, your account number at your bank and wire information from your
bank.
Automatic Investment Plan - Existing shareholders who wish to make regular
monthly investments in amounts of $50 or more, may do so through the Automatic
Investment Plan. Under this Plan, your designated bank or other financial
institution debits a pre-authorized amount from your account on or about the
15th day of each month and applies the amount to the purchase of shares of the
Fund. To use this service, you must authorize the transfer by completing the
Plan section of the account application and sending a blank voided check.
Exchange Privileges - You may exchange all or a portion of your shares of the
Fund for the shares of certain other funds having different investment
objectives, provided the shares of the fund you are exchanging into are
registered for sale in your state of residence. Your account may be charged a
$10 fee for a telephone exchange. An exchange is treated as a redemption and a
purchase and may result in realization of a gain or loss on the redemption
transaction.
Dividends and Capital Gain Distributions - Dividends from net investment income,
if any, are declared annually by the Fund. The Fund intends to distribute
annually any net capital gains.
Distributions will automatically be reinvested in additional shares of the Fund,
unless you elect to have the distributions paid to you in cash. There are no
sales charges or transaction fees for reinvested dividends and all shares will
be purchased at NAV per share. If the investment in shares is made by an IRA,
all dividends and capital gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of the Fund shortly before the
next distribution, because doing so can cost you money in taxes. This is known
as "buying a dividend". To avoid buying a dividend, check the Fund's
distribution schedule before you invest.
DISTRIBUTION AND 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. 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 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
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.
By law, the Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number ("TIN") or
certify that your TIN is correct, or if the Internal Revenue Service instructs
the Fund to do so.
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 the Fund and may increase or decrease distributions to you.
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.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. The shares are offered and
sold without any sales charges imposed by the Fund or the Distributor. However,
investment professionals who offer shares may request fees from their individual
clients. If you invest through a third party, the policies and fees may be
different than those described in the Prospectus. For example, third parties may
charge transaction fees or set different minimum investment amounts.
FINANCIAL HIGHLIGHTS
The following table provides financial highlights for the Fund for the periods
presented. Certain information reflects financial result for a single Fund
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The Fund's financial highlights for the periods
presented have been audited by Tait, Weller and Baker, independent auditors,
whose unqualified report thereon is included in the SAI. The Fund's financial
statements, notes to financial statements and report of independent accountants
are included in the SAI as well as in the Fund's Annual Report to Shareholders
(the "Annual Report"). Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
Years ended Jan 2, 1995*
Period ended December 31 to
August 31, 1998*** 1997 1996 December 31, 1995
Per Share
Operating Performance
Net asset value,
beginning of period $ 14.57 $ 12.79 $11.11 $ 10.00
- ----- -------
Income from investment
operations -
Net investment income 0.06 0.09 0.14 0.06
Net realized and
unrealized gain(loss)
on investments (1.04) 2.20 2.02 1.10
Total from investment
operations (0.98) 2.29 .16 1.16
Less distributions -
Distributions from net
investment income ----- (0.08) (0.15) (0.05)
Distributions from
capital gains ----- (0.43) (0.33) ------
Total distributions ----- (0.51) (0.48) (0.05)
Net asset value,
end of period $ 13.59 $ 14.57 $12.79 $ 11.11
Total Return (6.73%) 17.87% 19.57% 11.60%
Ratios/Supplemental Data
Net assets, end of
period (000's) $10,370 $10,566 $ 6,459 $ 4,025
Ratio to average net
assets - (A)
Expenses (B) 2.08%** 2.08% 2.50% 3.03%**
Expense ratio - net (C) 1.86%** 1.90% 2.00% 1.90%**
Net investment income 0.62%** 0.71% 1.29% 0.52%**
Portfolio turnover rate 30.19% 16.48% 32.97% 40.96%
* Commencement of operations
** Annualized
*** The Fund has changed its fiscal year end fom December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by.64% in 1996 and 1.00% in 1995.
(B) Expense ratios has been increased to include custodian fees which were
offset by custodian credits.
(C) Expense ratio - net reflects the effect of the custodian fee credits the
Fund received.
<PAGE>
For investors who want more information about the Fund, the following documents
are available free upon request:
Annual & Semiannual Reports:
Additional information about the Fund's investments is available in the Fund's
Annual and Semiannual Reports to Shareholders. In the Fund's Annual Report to
Shareholders, you will find performance information for the Fund.
Statement of Additional Information (SAI): The SAI provides additional detailed
information about the Fund and is incorporated into this prospectus by
reference.
You can receive free copies of reports and the SAI, request other information
and discuss your questions about the Fund by contacting the Fund directly at:
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223
RICHMOND, VIRGINIA 23229
TELEPHONE: 1-800-527-9525
E-MAIL: [email protected]
You can review the Fund's reports and SAI at the Public Reference Room of the
SEC. You can receive text-only copies:
For a fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009 or call 1-800-SEC-0330
Free from the SEC's Internet Website at http://www.sec.gov.
(Investment Company Act file No. 811-8255)
THE WORLD FUNDS, INC.
(THE "COMPANY")
1500 FOREST AVENUE, SUITE 223 RICHMOND, VA 23229
1-800-527-9525
STATEMENT OF ADDITIONAL INFORMATION
SAND HILL PORTFOLIO MANAGER FUND
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the current Prospectus of the Sand Hill
Portfolio Manager Fund (the "Fund") dated April 30, 1999. The Prospectus may be
obtained by writing to The World Funds, Inc. 1500 Forest Avenue, Suite 223,
Richmond, VA 23229 or by calling 1-800-527-9525.
The date of this SAI is April 30, 1999.
The audited financial statements and notes thereto for the Fund for the fiscal
year ended August 31, 1998 and the unqualified Report of Independent Certified
Public Accountants of Tait, Weller and Baker, the Fund's independent public
accountants, on such financial statements, which are included in the Fund's 1998
Annual Report to Shareholders, (the "Report") is incorporated by reference in
this SAI. The Report is available, without charge, upon request at the above
address and telephone number.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS. . . . . . . . . . . .
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . .
STRATEGIES AND RISKS . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . .
DEPOSITARY RECEIPTS . . . . . . . . . . . . . . . . . . . . .
REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . .
DEBT SECURITIES . . . . . . . . . . . . . . . . . . . . . . .
U.S. GOVERNMENT SECURITIES. .. . . . . . . . . . . . .
ZERO COUPON SECURITIES . . . . . . . . . . . . . . . .
INTERNATIONAL BONDS. . . . . . . . . . . . . . . . . .
MORTGAGE AND ASSET-BACKED SECURITIES. . . . . . . . . .
CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . . . . .
WARRANTS. . . . . . .. . . . . . . . . . . . . . . . . . . . .
INVESTMENT COMPANIES. . . . . . . . . . . . . . . . . . . . . .
ILLIQUID SECURITIES. . . . . . . . . . . . . . . . . . . . . . .
WHEN-ISSUED SECURITIES. . . . . . . . . . . . . . . . . . . . . .
STRATEGIC TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .
OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENCY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. . . . . . . . . . .
RESTRICTED SECURITIES. . . . . . . . . . . . . . . . . . . . . . .
INDEXED SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . .
OTHER SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . .
FUNDAMENTAL POLICIES OR RESTRICTIONS . . . . . . . . . . . . . . .
NON-FUNDAMENTAL POLICIES OR RESTRICTIONS . . . . . . . . . . . . .
MANAGEMENT OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT ADVISOR AND ADVISORY AGREEMENTS. . . . . . . . . . . . . . . . . . .
.
MANAGEMENT-RELATED SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .
ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSTODIAN AND ACCOUNTING SERVICES . . . . . . . . . . . . . . . . . . . .
TRANSFER AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . .
.
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TURNOVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAPITAL STOCK AND DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES. . . . . . . . . . . . . . . .
.
TAX STATUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
INVESTMENT PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
GENERAL INFORMATION
The World Funds, Inc. (the "Company") was organized under the laws of the
State of Maryland in May, 1997. The Company is an open-end management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act") commonly known as a "mutual fund". This SAI relates to the Sand Hill
Portfolio Manager Fund (the "Fund"). The Fund is a separate investment portfolio
or series of the Company. See "Capital Stock and Dividends" in this SAI. The
Fund is a "diversified" series as that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The following information supplements the discussion of the Fund's investment
objectives and policies. The Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, "majority of
outstanding voting shares" means the lesser of (1) 67% of the voting shares of
the Fund represented at a meeting of shareholders at which the holders of 50% or
more of the shares of the Fund are represented or (2) more than 50% of the
outstanding voting shares of the Fund. The investment programs, restrictions and
the operating policies of the Fund that are not fundamental policies can be
changed by the Board of Directors of the Company (the "Directors") without
shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is to maximize total return (consisting of
realized and unrealized appreciation plus income). All investments entail some
market and other risks and there is no assurance that the Fund will achieve its
investment objective. You should not rely on an investment in the Fund as a
complete investment program.
STRATEGIES AND RISKS
The Fund invests in three major categories of investment: equity securities,
debt securities and short-term investments. Each of these categories may include
securities of domestic or foreign issuers.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Depositary Receipts The Fund invests on a global basis to take advantage of
investment opportunities both within the U.S. and other countries. The Fund may
buy foreign securities directly in their principal markets or indirectly through
the use of depositary receipts. The Fund may invest in sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDR's),
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. The foreign
country may withhold taxes on dividends or distributions paid on the securities
underlying the ADRs and EDRs, thereby reducing the dividend or distribution
amount received by the Fund.
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. Holders of unsponsored ADRs
generally bear all the costs of the ADR facilities. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
Repurchase Agreements: As a means of earning income for periods as short as
overnight, the Fund may enter into repurchase agreements that are collateralized
by U.S. Government Securities. 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. The Fund considers a purchase of securities under
repurchase agreements to be a loan by the Fund. 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 seller of
the repurchase agreement. If the seller becomes insolvent, the ability to
dispose of the securities held as collateral may be impaired and the Fund may
incur extra costs. Repurchase agreements for periods in excess of seven days may
be deemed to be illiquid.
Debt Securities
The Fund may invest in investment grade debt securities; which are securities
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or
higher by Standard & Poor's Ratings Group ("S&P") at the time of purchase or,
unrated securities which Sand Hill Advisors, Inc. (the "Investment Advisor")
believes to be of comparable quality. The Fund does not currently intend to
invest more than 5% of its total assets in securities that are below investment
grade or that are unrated. Securities rated as Baa or BBB are generally regarded
as having adequate capacity to pay interest and repay principal.
Debt securities consist of bonds, notes, government and government agency
securities, zero coupon securities, convertible bonds, asset-backed and
mortgage-backed 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 or "Euro". 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 suprarnational
organizations, corporate debt securities, bank or holding company debt
securities.
U.S. Government Securities: The Fund may invest in U.S. Government Securities
that are obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, and securities guaranteed by the Government National Mortgage
Association ("GNMA"), are supported by the full faith and credit of the United
States; others, such as those of the Federal Home Loan Banks, are supported by
the right of the issuer to borrow from the U.S. Treasury; others, such as those
of the Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.
U.S. Government securities include (1) securities that have no interest coupons
(see "Zero Coupon Securities" below) or have been stripped of their unmatured
interest coupons, (2) individual interest coupons from such securities that
trade separately, and (3) evidences of receipt of such securities. Such
securities that pay no cash income are purchased at a deep discount from their
value at maturity. Because interest on zero coupon and stripped securities is
not distributed on a current basis but is, in effect, compounded, such
securities tend to be subject to greater market risk than interest-payment
securities.
Zero Coupon Securities: The Fund may invest in zero coupon securities. Certain
zero coupon securities are convertible into common stock and offer the
opportunity for capital appreciation as increases (or decreases) in the market
value of such securities 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 stock as they usually
are issued with intermediate to short maturities (15 years or less) and are
issued with options and/or redemption features exercisable by the holder of the
securities entitling the holder to redeem the securities and receive a defined
cash payment.
Zero coupon securities also include securities issued directly as zero coupon
securities by the U.S. Treasury, and U.S. Treasury bonds or notes which have
their unmatured interest coupons separated by their holder, typically a
custodian bank or investment brokerage firm. The holder separates ("strips") the
interest coupons from the underlying principal of the U.S. Treasury security.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal 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 the
U.S. Treasury obligation is stripped, the principal and coupons may be sold
separately. Typically, the coupons are sold individually or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discounted obligations that are similar
to zero coupon securities that the Treasury sells directly.
Convertible Securities: The Fund may invest in convertible securities.
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are convertible either at a stated price or a stated rate (that is,
for a specific number of shares of common stock or other security). As with
other fixed income securities, the price of a convertible security generally
varies inversely with interest rates. While providing a fixed income stream, a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so they 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 price of a convertible security tends to rise as a
reflection of the value of the underlying common stock. To obtain such an
opportunity for a higher yield or capital appreciation, the Fund may have to pay
more for a convertible security than the value of the underlying common stock.
The Fund will generally hold common stock it acquires upon conversion of a
convertible security for so long as the Investment Advisor anticipates such
stock will provide the Fund with opportunities that are consistent with its
investment objective and policies.
International Bonds: International bonds are defined as bonds issued in
countries other than the United States. The Fund's investments in international
bonds 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, foreign
corporate debt securities, bank or holding company debt securities and other
debt securities including those convertible into common stock.
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 Mortgager 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.
Warrants: The Fund may invest up to 5% of its net assets (no more than 2% in
securities not listed on a national exchange) in warrants. The value of warrants
is derived solely from capital appreciation of the underlying equity securities.
Warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. Warrants are options to purchase
equity securities at a specific price for a specific period of time. If the Fund
does not exercise or dispose of a warrant prior to its expiration, it will
expire worthless. They do not represent ownership of the securities, but only
the right to buy them. Warrants differ from call options in that warrants are
issued by the underlying corporation, whereas call options may be written by
anyone.
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.
Investors in the Fund should recognize that by investing in investment companies
indirectly through the Fund, they will bear not only their 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, investors should recognize that, as a result of the
Fund's policies of investing in other investment companies, they may receive
taxable capital gains distributions to a greater extent than would be the case
if they invested directly in the underlying investment companies.
Illiquid Securities: The Fund may invest up to 15% of its net assets in illiquid
securities. The term "illiquid securities" means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities include generally, among other things, certain written
over-the-counter options, securities or other liquid assets as cover for such
options, repurchase agreements with maturities in excess of seven days, certain
loan participation interests and other securities whose disposition is
restricted under the federal securities laws.
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.
rategic TransactionsStrategic TransactionsStrategic 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 (1) 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, (2) to protect the Fund's unrealized gains
in the value of its portfolio securities, (3) to facilitate the sale of such
securities for investment purposes, or (4) to establish a position in the
options markets as a temporary substitute for purchasing or selling particular
securities. The Fund may use any or all of these investment techniques 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.
The risks associated with Strategic Transactions include 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 (1) result in losses to the
Fund, (2) 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, (3) limit the amount of
appreciation the Fund can realize on its investments or (4) 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.
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: (1) other complex foreign political, legal and economic factors,
(2) less availability than in the United States of data on which to make trading
decisions, (3) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States, (4)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (5) lower trading volume and
liquidity.
Put and Call Options: 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: (1) insufficient trading interest in certain options;
(2) restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (4) interruption of the normal operations of the OCC or an exchange; (5)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (6) 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. This means 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.
The Fund's dealings in forward currency contracts will be limited to hedging
involving either specific transactions or portfolio positions. In specific
transaction hedging, the Fund enters into a currency transaction with respect to
specific assets or liabilities of the Fund, in connection with the purchase or
sale of its portfolio securities or the receipt of income therefrom. In position
hedging, the Fund enters 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 U.S. 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 Japanese
yen is linked to the Euro, the Fund holds securities denominated in yen and the
Investment Advisor believes that the value of yen will decline against the U.S.
dollar, the Investment Advisor may enter into a contract to sell Euros and buy
U.S. 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.
Furthermore, 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.
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 government actions 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 the Fund's hedges to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Currency exchange rates for a country's currency may fluctuate based on
factors extrinsic to that country's economy.
Use of Segregated and Other Special Accounts: Many Strategic Transactions, in
addition to other requirements, require that a fund segregate cash or liquid
high grade securities 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 cash or
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
cash or liquid high grade securities 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 cash or liquid, high grade securities 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
cash or liquid high grade securities 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 that provide for cash settlement
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 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, if the Fund held a forward contract instead of segregating assets, the
Fund 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 the offsetting transaction terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
In order for the Fund to qualify as a regulated investment company, the Fund's
activities involving Strategic Transactions may be limited by the requirements
of Subchapter M of the Internal Revenue Code of 1986, as amended.
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.
Other Securities: The Board of Directors may, in the future, authorize the Fund
to invest in securities other than those listed in this SAI and in the
Prospectus, provided such investments would be consistent with the Fund's
investment objective and would not violate the Fund's fundamental investment
policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Fund has adopted the
following fundamental investment restrictions which cannot be changed without
approval by vote of a "majority of the outstanding voting securities" of the
Fund. As a matter of fundamental policy, the Fund may not:
(1) Purchase any security if, as a result of such purchase less than 75% of its
assets would consist of cash and cash items, U.S. Government securities,
securities of other investment companies, and securities of issuers in which
it has not invested more than 5% of its assets;
(2) Purchase the securities of any issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund;
(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 its net assets. The Fund may borrow money to avoid
the untimely disposition of assets to meet redemptions, in an amount up to
20% of the value of its net assets, provided it maintains asset coverage of
300% in connection with borrowings, and does not make other investments
while such outstanding borrowings exceed 5% of its total assets;
(4) Invest more than 25% of its total assets in securities of companies in the
same industry;
(5) Act as an underwriter of securities of other issuers, except to the extent
that it may be deemed to be an underwriter in connection with the
disposition of its portfolio securities;
(6) Make loans, except (i) loans of its portfolio securities and (ii) it may
enter into repurchase agreements and purchase debt securities in accordance
with its investment objective;
(7) Issue senior securities, (except it may engage in transactions such as
those permitted by the SEC release IC-10666);
(8) Purchase or sell real estate, however liquid securities of companies which
deal in real estate or interests therein would not be deemed to be an
investment in real estate; and
(9) Purchase or sell commodities or commodity contracts;
Non-Fundamental Policies and Restrictions: In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectus and elsewhere in the SAI, the
Fund will be subject to the following investment restrictions, which are
considered non-fundamental and may be changed by the Board of Directors without
shareholder approval. As a matter of non-fundamental policy, the Fund does not
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, it may acquire investment company securities in
connection with a plan of merger, consolidation, reorganization or
acquisition of assets; in any event, it 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 all investment companies combined;
(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 it 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 its net assets will be
invested in such securities);
(9)Purchase put options on write covered call options if, as a result, more
than 25% of its total assets would be hedged with options;
(10)Write put options if, as a result, its total obligations upon exercise of
written put options would exceed 25% of its total assets;
(11)Purchase call options if, as a result, the current value of options
premiums for call options purchased would exceed 5% of its total assets; and
(12)Purchase warrants, valued at the lower of cost or market, in excess of 5% of
the value of its net assets; provided that no more than 2% of its 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.
In applying the fundamental and non-fundamental policy concerning concentration:
(1) The percentage restriction on investment or utilization of assets 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; and
(2) Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the end
users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; (ii)
technology companies will be divided according to their products and
services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; and
(iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry.
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; and
(3) purchase or retain any securities if (i) one or more officers or Directors
of the Company or the Fund's 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.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Company is governed by a Board of Directors, which is 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 Fund, and
review performance. The names and 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" as defined in Section 2(a)(19) of the 1940 Act, as well as those
persons affiliated with the Investment Advisor and principal underwriter, and
officers of the Company, are noted with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Birthdate With Registrant During the Past 5 Years
- -----------------------------------------------------------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and Director
1500 Forest Avenue and Treasurer of DiCommonwealth Shareholder Services
Richmond, VA 23229 Inc., the Company's Administrator,
(4/10/45) since 1988; President and Director of
First Dominion Capital Corp., the
Company's principal underwriter.
Director and shareholder of Fund
Services Inc., the Company's Transfer
and Disbursing Agent, since 1987;
shareholder of Commonwealth Fund
Accounting, Inc. which provides
bookkeeping services to Star Bank; and
Chairman, Director and Treasurer of
Vontobel Funds, Inc., a registered
investment company since March, 1997.
Mr. Pasco is also a certified public
accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the Customer
10808 Hob Nail Court Services Operations and Accounting
Potomac, MD. 20854 Division of the Potomac Electric
(9/18/40) Power Company since August, 1978;
and Director of Vontobel Funds, Inc.,
a registered investment company since
March, 1997. Mr. Boyd is also a
certified public accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD. 20816 Management Consulting for
(6/11/36) Professionals since 1968; Director
of Vontobel Funds, Inc., a registered
investment company since March,
1997. Mr. Poist is also a certified
public accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Alfred J. Dickinson, Inc. Realtors
Drive since April, 1971; and Director of
Richmond, VA 23229 Vontobel Funds, Inc. a
(11/11/47) registered investment company
since March, 1997.
*Jane H. Williams Vice President of Ms. Williams is the Executive
3000 Sand Hill Road the Company and Vice President of Sand Hill
Suite 150 President of the Advisors, Inc. since 1982.
Menlo Park, CA 94025 Sand Hill
(6/28/48) Portfolio Manager
Fund series
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a Partner
San Francisco, CA Fixed Income Fund in the law firm Taylor & Faust
94104 (8/30/46) since September, 1975.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
810 Lindsay Court Commonwealth Shareholder Services,
Richmond, Virginia 23229 Inc. and First Dominion Capital
(1/26/43) Corp. since 1986; Secretary of
Vontobel Funds, Inc., a registered
investment company since March, 1997;
and Partner in the law firm Mustian &
Parker.
*Franklin A. Trice, Vice President of Mr. Trice is President of Virginia
III the Company and Management Investment Corp. since
P.O. Box 8535 President of the May, 1998; and a registered
Richmond, VA 23226- New Market Fund representative of First Dominion
0535 (12/25/63) series Capital Corp, the Company's
underwriter since September, 1998.
Mr. Trice was a broker with Scott &
Stringfellow from March, 1996 to May,
1998 and with Craigie, Inc. from
March, 1992 to January, 1996.
*John T. Connor, Jr. Vice President of President of Third Millennium
515 Madison Ave., the Company and Investment Advisors, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial company
(6/16/41) Russia Fund series and of its affiliated ROSGAL
Insurance since 1993.
Compensation of Directors: The Company does not compensate the Directors who are
officers or employees of the Investment Advisor. The "independent" Directors
receive an annual retainer of $1,000.00 and a fee of $200.00 for each meeting of
the Directors which they attend in person or by telephone. Directors are
reimbursed for travel and other out-of-pocket expenses. The Company does not
offer any retirement benefits for Directors. As of March 30, 1999 the officers
and Directors, individually and as a group, owned beneficially less than 1% of
the outstanding shares of the Fund.
For the fiscal period ended August 31, 1998, the Directors received the
following compensation from the Company:
Aggregate Compensation Total
Name and From the Fund Pension or Retirement Compensation
Position Fiscal Year Ended Benefits Accrued as from the
Held August 31, 1998(1) Part of Fund Expenses Company
- -------------------------------------------------------------------------------
John Pasco, III, 0 N/A 0
Director
Samuel Boyd, Jr., 1,100 N/A 2,600
Director
William E. Poist, 1,100 N/A 2,600
Director
Paul M. Dickinson, 1,100 N/A 2,600
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for service on the Board of Directors for the Fund's fiscal year ended
August 31, 1998.
CONTROL PERSONS - PRINCIPAL HOLDERS OF SECURITIES
The Directors and officers of the Company, as a group, do not own 1% or more of
the Fund.
To the best knowledge of the Fund as of March 30, 1999, the following persons
own of record or beneficially own 5% or more of the Fund's shares and own such
amounts indicated:
(1) Kaplan Co., 5300 Stevens Creek #380, San Jose, CA 95129 (5.391%);
(2) Arthur and Anna Kull 280 West Market Run, Idaho Falls, ID 83404
(6.274%).
INVESTMENT ADVISOR AND ADVISORY AGREEMENT
Sand Hill Advisors, Inc. (the "Investment Advisor"), 3000 Sand Hill Road,
Building Three, Suite 150, Menlo Park, CA 94025, is the Fund's investment
adviser. The Investment Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940 as amended, the "Advisers Act". The Investment
Advisor is an independent, privately-held corporation.
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.
Effective June 1, 1998, Gary K. Conway began co-managing the Fund with Ms.
Williams. Mr. Conway is President and co-founder of the Investment Advisor.
He owns 35.46% of the stock of the Investment Advisor.
The Investment Advisor serves as investment adviser to the Fund pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
is effective for a period of two years from August 19, 1997, and may be renewed
annually thereafter. The Advisory Agreement will automatically terminate in the
event of its "assignment" as that term is defined in the 1940 Act, and may be
terminated without penalty at any time upon 60 days' written notice to the other
party by: (i) the majority vote of all the Directors or by vote of a majority of
the outstanding voting securities of the Fund; or (ii) the Investment Advisor.
Under the Advisory Agreement, the Investment Advisor, subject to the supervision
of the Directors, provides a continuous investment program for the Fund,
including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies, and restrictions as set forth in the Prospectus and this
SAI. The Investment Advisor is responsible for effecting all security
transactions on behalf of the Fund, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions. The
Investment Advisor also maintains books and records with respect to the
securities transactions of the Fund and furnishes to the Directors such periodic
or other reports as the Directors may request.
The Fund is obligated to pay the Investment Advisor a monthly fee equal to an
annual rate of 1.00% of the Fund's average daily net assets. If the average
daily net assets of the Fund exceed $100 million, the Investment Advisor is
entitled to a fee of an annual rate of 0.75% on such excess. The Investment
Advisor has voluntarily agreed to waive all or a portion of its advisory fee or
make payments to the Fund in order to maintain the Fund's total operating
expenses at an annual rate not to exceed 1.90%. The Investment Advisor earned
fees of $53,649 from the Fund and waived $34,043 of its fees 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.
Pursuant to the terms of the Advisory Agreement, the Investment Advisor pays all
expenses incurred by it in connection with its activities thereunder, except the
cost of securities (including brokerage commissions, if any) purchased for the
Fund. The services furnished by the Investment Advisor under the Advisory
Agreement are not exclusive, and the Investment Advisor is free to perform
similar services for others.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to an Administrative Services Agreement with the Company dated August
19, 1997 (the "Administrative Agreement"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Fund and supervises all aspects of the operation of the
Fund except those performed by the Investment Advisor. John Pasco, III, Chairman
of the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% subject to a minimum amount of
$15,000 per year for a period of two years from the date of the Administrative
Agreement. Thereafter, the minimum administrative fee is $30,000 per year. CSS
receives an hourly rate, plus certain out-of-pocket expenses, for shareholder
servicing and state securities law matters. CSS received fees of $17,681 and
$22,263 for the years ended December 31, 1996 and 1997, respectively. For the
period ended August 31, 1998, CSS received fees of $21,247.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to a Custodian Agreement with the Company dated August 19, 1997, Star
Bank acts as the custodian of the Fund's securities and cash. Portfolio
securities purchased for the Fund are maintained in the custody of the custodian
and may be entered into the Federal Reserve Book Entry System of the security
depository system of the Depository Trust Corporation. Star Bank maintains a
separate account in the name of the Fund. Star Bank is responsible for holding
and making payments of all cash received for the account of the Fund.
Star Bank may make payments from the Fund for the purchase of securities,
payment of interest, taxes, fees and other operating expenses. As the custodian,
Star Bank is authorized to endorse and collect checks, drafts or other orders
for payment and is responsible for the release or delivery of portfolio
securities and monitoring compliance with the regulatory requirements of the
Treasury Department, Internal Revenue Service and the laws of the states. Star
Bank is compensated on the basis of an annual fee based on the market value of
assets of the Fund and fees for certain transactions.
Pursuant to an Accounting Service Agreement dated October 14, 1997 (the
"Accounting Agreement"), Star Bank, 425 Walnut Street, P.O. Box 1118,
Cincinnati, Ohio 45201-1118, is responsible for accounting relating to the Fund
and its investment transactions; maintaining certain books and records of the
Fund; determining daily the net asset value per share of the Fund; and preparing
security position, transaction and cash position reports. Star Bank also
monitors periodic distributions of gains or losses on portfolio sales and
maintains a daily listing of portfolio holdings. Star Bank is responsible for
providing expenses accrued and payment reporting services, tax-related financial
information to the Company, and for monitoring compliance with the regulatory
requirements relating to maintaining accounting records.
Star Bank received fees of $51,123 and $16,800 for the years ended December 31,
1996 and 1997, respectively. For the period ended August 31, 1998, Star Bank
received fees of $19,705.
TRANSFER AGENT
Pursuant to a Transfer Agency Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI") acts as the Company's transfer, dividend disbursing
and redemption agent. FSI is located at 1500 Forest Avenue, Suite 111, Richmond,
VA 23229. John Pasco, III, Chairman of the Board of the Company owns one-hird of
the voting shares of FSI, and therefore, FSI may be deemed to be an affiliate of
the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders for shares and
ensuring appropriate participation with the National Securities Clearing
Corporation for transactions in the Fund's shares. FSI receives and processes
redemption requests and administers distribution of redemption proceeds. FSI
also handles shareholder inquiries and provides routine account information. In
addition, FSI prepares and files appropriate tax related information concerning
dividends and distributions to shareholders.
Under the Transfer Agency Agreement, FSI is compensated pursuant to a schedule
of services, and is reimbursed for out-of-pocket expenses. The schedule calls
for a minimum payment of $16,500 per year. FSI received fees of $24,190 and
$19,313 for the years ended December 31,1996 and 1997, respectively. For the
period ended August 31, 1998, FSI received fees of $11,535.
DISTRIBUTOR
First Dominion Capital Corp. ("FDCC"), located at 1500 Forest Avenue, Suite 223,
Richmond, Virginia 23229, serves as the principal underwriter and national
distributor for the shares of the Fund pursuant to a Distribution Agreement
dated August 19, 1997 (the "Distribution Agreement"). John Pasco, III, Chairman
of the Board of the Company, owns 100% of FDCC, and is its President, Treasurer
and a Director. FDCC is registered as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. (the "NASD").
The offering of the Fund's shares is continuous.
INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103. Aggregate brokerage for the last three fiscal
years is as listed below:
1/1/98 - 8/31/98 1997 1996
- ---------------- ---- ----
$7.328.26 $6,473.80 $7,068.40
PORTFOLIO TRANSACTIONS
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 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 the skill required of the executing broker/dealer. After a purchase or sale
decision is made by the Investment Advisor, the Investment Advisor 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 Investment Advisor, when placing transactions, may allocate a portion of the
Fund's brokerage to persons or firms providing it with investment
recommendations or statistical, research or similar services useful in its
decision making process. The term "investment recommendations or statistical,
research or similar services" means (1) 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 (2)
analyses and reports concerning issuers, industries, securities, economic
factors and trends, and portfolio strategy. The Investment Advisor may 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 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 the Fund and 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 Investment 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 the basis of execution. 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 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 client. In some cases this
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, the ability to
participate in volume transactions will be beneficial to the Fund. The Board of
Directors of the Company believes that these advantages, when combined with the
other benefits available because of the Investment Advisor's organization,
outweigh the disadvantages that may exist from this treatment of transactions.
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
portfolio turnover 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. The Investment Advisor makes purchases and sales
for the Fund's portfolio whenever necessary, in its opinion, to meet the Fund's
objective. The Investment Advisor anticipates that the Fund's average annual
portfolio turnover rate will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 500,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has currently allocated
50,000,000 shares to the Fund and 200,000,000 shares to other series of the
Company. Each share has equal dividend, voting, liquidation and redemption
rights. There are no conversion or preemptive rights. Shares of the Fund 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. In such event, the holders of the remaining shares will
not be able to elect any person to the Board of Directors. Shares will be
maintained in open accounts on the books of the Transfer Agent.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Directors. Upon the Company's liquidation, all shareholders of
a series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the Fund at their net
asset value as of the date of payment unless the shareholder elects to receive
such dividends or distributions in cash. The reinvestment date normally precedes
the payment date by about seven days although the exact timing is subject to
change. Shareholders will receive a confirmation of each new transaction in
their account. The Company will confirm all account activity, including the
payment of dividend and capital gain distributions and transactions made as a
result of the Automatic Investment Plan described below. Shareholders may rely
on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
PURCHASING SHARES
The Fund reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund. Under certain circumstances the Company or the
Investment 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 Fund may also change or waive policies concerning minimum investment
amounts at any time.
SELLING SHARES
You may sell your shares by giving instructions to the Transfer Agent by mail or
by telephone.
The Board of Directors may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such exchange is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale of Fund shares or valuation of securities held by the Fund are not
reasonably practicable.
SMALL ACCOUNTS: Due to the relative higher cost of maintaining small accounts,
the Fund may deduct $10 per year from your account, if, as a result of
redemption or exchange of shares, the total investment remaining in the account
has a value of less than $25,000. Shareholders will receive 60 days' written
notice to increase the account value above $25,000 before the fee is to be
deducted. A decline in the market value of your account alone would not require
you to bring your investment up to this minimum.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account: The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. Simply
use the Account Application provided with the Prospectus to open your account.
Telephone Transactions: A shareholder may redeem shares or transfer into another
fund by telephone if this service is requested at the time the shareholder
completes the initial Account Application. If you do not elect this telephone
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
instructions communicated by telephone and, if the procedures are followed the
Fund will not 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 identify as a
shareholder of record. Cooperation with these procedures helps to protect the
account and the Fund from unauthorized transactions.
Invest-A-Matic Accounts: 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 or
savings 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.
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.
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 employees 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 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 rollover contribution and on any income that
is earned on that contribution.
Roth IRA: A Roth IRA permits certain taxpayers to make a non-deductible
investment of up to $2,000 per year. Provided an investor does not withdraw
money from his or her Roth IRA for a five-year period, beginning with the first
tax year for which a contribution was made, deductions from the investor's Roth
IRA would be tax free after the investor reaches the age of 59-1/2. Tax free
withdrawals may also be made before reaching the age of 59-1/2 under certain
circumstances. Please consult your financial and/or tax professional as to your
eligibility to invest in a Roth IRA. An investor may not make a contribution to
both a Roth IRA and a regular IRA in any given year. An annual limit of $2,000
applies to contributions to regular and Roth IRAs. For example, if a taxpayer
contributes $2,000 to a regular IRA for a year, he or she may not make any
contribution to a Roth IRA for that year.
How to Establish Retirements 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 registered for sale in the shareholder's state of residence.
The account must meet the minimum investment requirements (currently $25,000). A
written request must have been completed and 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 dollar amount 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 telephone 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
redeeming 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.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income: The Fund receives income generally in
the form of interest and other income on their investments. This income, less
expenses incurred in the operation of the Fund, constitutes 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 reinvest them in additional shares.
Distribution 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 eliminated 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. 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 its previously distributed income to be
classified as 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 its total assets at the end of the
fiscal year are invested in securities of foreign corporations, it may elect to
pass-through to you your pro rata share of foreign taxes paid by it. 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 the 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 taxes 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 pay no federal income tax on the income and gains it
distributes to you. The Board reserves the right not to maintain the
qualifications 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 a fund to distribute to shareholders by December
31 of each year, at a minimum the following amounts: 98% of its taxable ordinary
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 which must be 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: Redemption and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes. If you redeem or
exchange your Fund shares for shares of a different fund within the Company, the
IRS will require that you report a gain or loss on your redemption or exchange.
The gain or loss that you realize will be either a long-term or short-term
capital gain or loss depending on how long you held 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.
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 shareholders 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 Fund's income
includes corporate dividends, if the shareholder is a corporation, a portion of
its distributions may qualify for the intercorporate 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,
such as original issue discount obligations, the shares of passive foreign
investment companies and others. 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.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices, in advertisements or in reports to
shareholders, The Fund states performance in terms of total return or yield.
Both "total return" and "yield" figures are based on the historical performance
of the Fund, show the performance of a hypothetical investment and are not
intended to indicate future performance.
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
YIELD = 2[( A-B + 1) -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.
A fund's yield, as used in advertising, is computed by dividing the fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by a fund's net asset value ("NAV") at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purpose
of calculating a fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
fund may differ from the rate of distributions the fund paid over the same
period or the rate of income reported in the fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+ T) = ERV
Where:
P = a hypothetical initial payment $1,000 T = average annual total return
n = number of years (l, 5 or 10)
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 return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by the Fund are assumed to have been reinvested
at NAV as described in the prospectus on the reinvestment dates during the
period. Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the prescribed periods (or
fractional portions thereof) that would equate the initial amount invested to
the ending redeemable value.
The average annual total returns for the period ended August 31, 1998, are
as follows:
One Year -6.73%
Commencement of Operations 11.02%
(January 1, 1995)
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specified periods of time by assuming the investment of $1,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Fund Performance Analysis, Intersec Research Survey of Non-U.S. Equity
Fund Returns, Frank Russell International Universe, and any other data which may
be reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's Fortune, Money Magazine, The New York Times, Financial World, Financial
Services Week, USA today and other national or regional publications.
FINANCIAL INFORMATION
The financial statements, including notes to financial statements, and report of
independent public accountants of the Company with respect to the Sand Hill
Portfolio Manager Fund (the "Fund") for the fiscal year ended August 31, 1998
are hereby incorporated into this SAI by reference to the Annual Report to
Shareholders of the Company with respect to the Fund as filed with the U.S.
Securities and Exchange Commission on October 31, 1998. You can receive free
copies of reports, request other information and discuss your questions about
the Sand Hill Portfolio Manager Fund (the "Fund") by contacting the Fund
directly at:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
TELEPHONE: 1-800-527-9525
E-MAIL: [email protected]
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 herein 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 herein 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 herein
incorporated by reference to Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form
N-1A to (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
herein 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.
(c) Not Applicable.
(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 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) 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 herein incorporated by reference to Post
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 811-
8255) as filed with the SEC on December 29, 1998.
(5) Investment Management Agreement between Virginia
Management Investment Corporation and the Registrant
on behalf of New Market Fund series is herein
incorporated by reference to Post Effective
Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 811-8255) as filed
with the SEC on December 29, 1998.
(6) Investment Advisory Agreement between Virginia
Management Investment Corporation and the London
Company of Virginia on behalf of New Market Fund
series is herein incorporated by reference to Post
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 811-
8255) as filed with the SEC on December 29, 1998.
(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 deleted and is no longer filed.
(3 FORM OF Broker-Dealer Selling Agreement is herein
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 Millennium Russia Fund is
herein incorporated by reference to Post Effective
Amendment No. 5 to Registrant's Registration
Statement on Form N-1A File No. 811-8255) as filed
with the SEC on December 28, 1998.
(4) Foreign Custody Manager Delegation Agreement between
Brown Brothers Harriman & Co. and the Registrant
dated June 26, 1998 on behalf of the Third Millennium
Russia Fund is filed herewith as Exhibit 23 (g) (4).
(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-
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 herein incorporated by reference to
Post Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 811
-8255) as filed with the SEC on December 29, 1998.
(6) Administrative Services Agreement between
Commonwealth Shareholder Services, Inc. and the
Registrant on behalf of the New Market Fund series
in herein incorporated by reference to Post
Effective Amendment No 5 to Registrant's Registration
Statement on Form N-1A (File No. 8255) as filed with
the SEC on December 29, 1998.
(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.
(9) Accounting Agency Agreement between Brown Brothers
Harriman & Co. and the Registrant dated October 28,
1998 on behalf of the Third Millennium Russia Fund
is filed herewith as Exhibit 23(h)(9).
(i) Not Applicable.
(j) Consent of Independent Accountants is filed herewith as
Exhibit EX-99.23(j).
(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 herein incorporated by
reference to Post Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A
(File No. 8255) as filed with the SEC on December 29,
1998.
(2) Distribution Plan pursuant to Rule 12b-1 dated
September 21, 1998 on behalf of the New Market Fund
series is herein incorporated by reference to Post
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 8255)
as filed with the SEC on December 29, 1998.
(n) (1) Financial data schedule for the Sand Hill
Portfolio Manager Fund is filed herewith as
Exhibit EX-27.2.
(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, 1998, had approximately $340
million in assets under management.
CSI Capital Management, Inc., ("CSI") 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 December 31,
1998 had approximately $175 million in assets under management. A
principal of CSI acts as trustee supervising an additional $30 million
in assets.
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.
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 London
Company of Virginia (The London Company") 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 of the foregoing
investment advisors, and each director, officer or partner of such
investment advisors, is or has been engaged within the last two fiscal
years for his or her own account or in the capacity of director,
officer, employee, partner or trustee, reference is made to the
investment advisor's Form ADV listed opposite the investment advisor's
name below, which is currently on file with the SEC as required by the
Investment Advisors Act of 1940, as amended.
Name of Investment Adviser Form ADV File Number
Sand Hill Advisors, Inc. 801-17601
CSI Capital Management, Inc. 801-14549
Third Millennium Investment Advisors, LLC 801-55720
Virginia Management Investment Corporation 801-55697
The London Company of Virginia 801-46604
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Vontobel Funds, Inc.
(b)
Name and Principal Position and Office Positions and
Business Address with Underwriter Offices with Fund
John Pasco, III President, Chief Chairman, President
1500 Forest Avenue Financial Officer, and Treasurer
Suite 223 Treasurer and
Richmond VA 23229 Director
Mary T. Pasco Director Assistant Secretary
1500 Forest Avenue
Suite 223
Richmond, VA 23229
Darryl S. Peay Vice President Assistant Secretary
1500 Forest Avenue Assistant Compliance
Suite 223 Officer
Richmond, VA 23229
Lori J. Martin Vice President and None
1500 Forest Avenue Assistant Secretary
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by Section 31 (a) 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, 445 Bush Street, 5th Floor, San
Francisco, CA 94108.
(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, 515 Madison Avenue, 24th Floor, New
York, N.Y. 10022.
(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 Riverfront Plaza, West Tower, 901 E. Byrd
Street, Suite 1350A, Richmond, Virginia 23219.
(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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act of 1933 and 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 20th day of April
1999.
THE WORLD FUNDS, INC.
Registrant
By /s/John Pasco, III
John Pasco, III, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated below.
(Signature) (Title) (Date)
/s/John Pasco, III Director, Chairman April 20, 1999
John Pasco, III Chief Executive
Officer and Chief
Financial officer
/s/ Samuel Boyd, Jr.* Director April 20, 1999
Samuel Boyd, Jr.
/s/ Paul M. Dickinson* Director April 20, 1999
Paul M. Dickinson
/s/ William E. Poist* Director April 20, 1999
William E. Poist
/s/ John Pasco, III
John Pasco, III
* Pursuant to Powers-of-Attorney on File
Exhibit No. EXHIBIT INDEX EDGAR EXHIBIT #
Exhibit 23(j) Accountant's Consent EX-99.23j
Exhibit 23(n)(1) Financial Data Schedule for the
Sand Hill Portfolio Manager Fund EX-27.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to
the Registration Statement on Form N-1A of The World Funds, Inc. and to the use
of our report dated September 25, 1998 on the financial statements and financial
highlights of Sand Hill Portfolio Manager Fund, a series of The World Funds,
Inc. Such financial statements, financial highlights and report of independent
certified public accountants appear in the 1998 Annual Report to Shareholders
and are incorporated by reference in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 19, 1999
<PAGE>
EX-27.2
FDS for Sand Hill Portfolio Manager Fund
[PERIOD-TYPE] 8-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 7,736.616
[INVESTMENTS-AT-VALUE] 8,722.047
[RECEIVABLES] 403,400
[ASSETS-OTHER] 3,000
[OTHER-ITEMS-ASSETS] 1,256,590
[TOTAL-ASSETS] 10,385,037
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 15,143
[TOTAL-LIABILITIES] 15,143
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9,065.932
[SHARES-COMMON-STOCK] 174,300
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 51,413
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 267,058
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 985,431
[NET-ASSETS] 10,369.894
[DIVIDEND-INCOME] 83,184
[INTEREST-INCOME] 104,175
[OTHER-INCOME] 0
[EXPENSES-NET] 140,800
[NET-INVESTMENT-INCOME] 46,559
[REALIZED-GAINS-CURRENT] 208,774
[APPREC-INCREASE-CURRENT] (1,031,352)
[NET-CHANGE-FROM-OPS] (766,019)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 121,845
[NUMBER-OF-SHARES-REDEEMED] 83,865
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (196,223)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 80,943
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 157,607
[AVERAGE-NET-ASSETS] 0
[PER-SHARE-NAV-BEGIN] 14.57
[PER-SHARE-NII] .06
[PER-SHARE-GAIN-APPREC] (1.04)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] (6.73)
[PER-SHARE-NAV-END] 13.59
[EXPENSE-RATIO] 1.86
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
Filing Desk
April 19, 1999
Page 2
Doc. #158526 v.02
Doc. #158526 v.02
STRADLEY
RONON
STEVENS
& YOUNG, LLP
Attorneys At Law 2600 One Commerce Square Malvern, Pennsylvania
Philadelphia, PA 19103-7098 Cherry Hill, New Jersey
Merrill R. Steiner Wilmington, Delaware
(215) 564-8039 Fax: (215) 564-8120
[email protected] Limited Liability Partnership
April 19, 1999
VIA EDGAR
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The World Funds, Inc.
File Numbers: 811-8255 and 333-29289
Post-Effective Amendment No. 7 to Registration Statement
Gentlemen:
Transmitted herewith for electronic filing with the U.S. Securities and
Exchange Commission (the "Commission") on behalf of The World Funds, Inc. (the
"Fund"), pursuant to Rule 485(b) under the Securities Act of 1933, as amended
(the "1933 Act"), is Post-Effective Amendment No. 7 (Amendment No. 8 under the
Investment Company Act of 1940, as amended (the "1940 Act"), referred to herein
as the "485(b) Amendment") to the registration statement of the Fund.
The 485(b) Amendment contains the revised prospectus and statement of
additional information ("Sand Hill Prospectus and SAI") of the Sand Hill
Portfolio Manager Fund series of the Fund intended to comply with the new Form
N-1A simplified prospectus requirements and the plain English requirements. The
Sand Hill Prospectus and SAI are modeled on the prospectus and statement of
additional information of the CSI Fixed Income Fund series and CSI Equity Fund
series of the Fund (the "CSI Prospectus and SAI"), which were previously filed
and are now effective. The CSI Prospectus and SAI were filed in a Rule 485(a)
post-effective amendment of the Fund on January 29, 1999, permitting a 60-day
SEC staff review and comments, and in a Rule 485(b) post-effective amendment of
the Fund filed on March 30, 1999 that incorporated the responses to the SEC
staff's comments.
The Sand Hill Prospectus and SAI filed in this 485(b) Amendment are
substantially similar to the CSI Prospectus and SAI with respect to the new Form
N-1A simplified prospectus requirements and the plain English requirements and
with the intention of incorporating the applicable SEC staff's comments on the
CSI Prospectus and SAI. The Fund requests that, due to this substantial
similarity, the 485(b) Amendment receive selective review to permit the 485(b)
Amendment to be effective on April 30, 1999, in time to meet the 1933 Act,
Section 10(a) requirement for the Sand Hill Portfolio Manager Fund.
The other two series of the Fund, the Third Millennium Russia Fund and The
New Market Fund, commenced operations after the beginning of the Fund's current
fiscal year on September 1, 1998, and the Fund is not amending the prospectuses
and statements of additional information for these two series at this time.
Should you have any questions regarding the filing of the foregoing
documents, please feel free to call or e-mail the undersigned.
Sincerely,
/s/ Merrill R. Steiner
Merrill R. Steiner
MRS/ktb
cc: Carolyn Gail Gilheany, Esq.
John Pasco, III
Darryl Peay
Steven M. Felsenstein, Esq.
Diane J. Drake, Esq.
