As filed with the Securities and Exchange Commission on January 29, 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. 5 | X|
and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |__|
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Amendment No. 6 | X|
(Check appropriate box or boxes)
THE WORLD FUNDS, INC. (THE "COMPANY")
(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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|__| on (date) pursuant to paragraph (b)
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| X| 60 days after filing pursuant to paragraph (a)(I)
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|__| on (date) pursuant to paragraph (a)(I)
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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 CSI Equity Fund series and
CSI Fixed Income Fund series of the Registrant.
2. Part B revising the statement of additional information of the CSI
Equity Fund series and CSI Fixed Income 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
three other series of the Registrant, namely the Sand Hill Portfolio
Manager Fund, Third Millennium Russia Fund and The New Market Fund series.
<PAGE>
CROSS-REFERENCE SHEET
Prospectus for the CSI Equity Fund and CSI Fixed Income Fund
Part A
Item No. Information Required in a Prospectus
Item 1. Front and Back Cover Pages Front and Back Cover Pages
Item 2. Risk/Return Summary : Investment Process, Principal Risks
Investments, Risks and Investing in the Fund
Performance
Item 3. Risk/Return Summary: Fee Table Fees and Expenses
Item 4. Investment Objectives, Principal Investment Process, Principal Risks of
Investment Strategies, and Investing in the Fund
Related Risks
Item 5. Management's Discussion of Adviser's Investment Performance
Fund Performance
Item 6. Management, Organization and Investment Adviser and Portfolio
Capital Structure Management Team
Item 7. Shareholder Information Purchasing Shares, Selling Shares,
Retirement Investing, Account Options,
Account Instructions, Marketing and
Distribution, Distribution & Taxation
Item 8. Distribution Arrangements Marketing and Distribution,
Distributions and Taxation
Item 9. Financial Highlights Information Not Applicable
<PAGE>
Statement of Additional Information
Part B Information Required in a Statement
Item No. of Additional Information___________
Item 10.Cover Page and Table of Cover Page and Table of Contents
Contents
Item 11.Fund History General Information
Item 12.Description of the Fund and Additional Information About the Funds'
Its Investments and Risks Investments, Investment Restrictions
Item 13.Management of the Fund Management of the Fund
Item 14.Control Persons and Management of the Fund
Principal Holders of
Securities
Item 15.Investment Advisory and Management of the Fund, Service
Other Services Agreements
Item 16.Brokerage Allocation and Service Agreements
Other Practices
Item 17.Capital Stock and Other Portfolio Transactions and Turnover
Securities
Item 18.Purchases, Redemption, and Additional Information About Purchases
Pricing of Shares and Sales, Pricing of Securities
Item 19.Taxation of the Fund Tax Status
Item 20.Underwriters Service Agreements
Item 21.Calculation of Performance Investment Performance
Data
Item 22.Financial Statements Financial Statements
<PAGE>
Part C
Item No. Other Information
Item 23.Exhibits Exhibits
Item 24.Persons Controlled by or Persons Controlled by or Under Common
under Common Control Control with the Fund
with the Fund
Item 25.Indemnification Indemnification
Item 26.Business and Other Connec- Business and Other Connections of the
tions of the Investment Investment Advisor
Advisor
Item 27.Principal Underwriters Principal Underwriters
Item 28.Location of Accounts and Location of Accounts and Records
Records
Item 29.Management Services Management Services
Item 30.Undertakings Undertakings
CSI Equity Fund
CSI Fixed Income Fund
PROSPECTUS
________________, 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 does not
guarantee the accuracy or completeness of this Prospectus and does not determine
whether a purchase in a fund is a good investment. It is a criminal offense to
suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
CSI EQUITY FUND (the "Equity Fund")
Investment Objective: Growth of Capital.
Principal Investment Under normal market conditions, the Equity Fund will
Strategies: invest at least 65% of its assets in common stocks or
securities convertible into common stocks, on a global
basis (within the U.S. and in other countries). With
respect to its foreign investments, the Equity Fund may
invest in American Depositary Receipts ("ADRs") or
directly in securities in the individual markets. The
Equity Fund will not concentrate in any one industry.
Principal Risks: The principal risk of investing in the Equity Fund is
that the value of its investments are subject to
market, economic and business risk that may cause the
Equity Fund's net asset value ("NAV") to fluctuate over
time. Therefore, the value of your investment in the
Equity Fund could decline. There is no assurance that
the investment adviser will achieve the objective of
the Equity Fund.
The Equity Fund's assets will be invested on a global
basis. These investments may involve financial, economic
or political risks not ordinarily associated with U.S.
securities. The Equity Fund's NAV may be affected by
changes in exchange rates between foreign currencies and
the U.S. dollar, different regulatory standards, less
liquidity and more volatility than U.S. securities,
taxes, and adverse social or political developments.
You may want to invest in the Equity Fund if you are
seeking long-term capital growth and are willing to
accept share prices that may fluctuate, sometimes
significantly, over the short-term. The Equity Fund will
not be appropriate if you are seeking current income or
are seeking safety of principal.
An investment in the Equity 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 risks of investing in the Equity Fund. The bar chart
shows the performance for the initial calendar year. The
table compares the performance of the Equity Fund and
the Lipper Global Funds Index. The Lipper Global Funds
Index is a composite of the total return of mutual funds
with the stated objective of investing at least 25% of
its portfolio securities outside of the United States
and may own U.S. securities as well. Keep in mind that
past performance may not indicate how well the Equity
Fund will perform in the future. During the period
shown in the bar chart, the highest return for a
calendar quarter was 12.30% (quarter ending 3/31/98)
and the lowest return for the quarter was -14.32%
(quarter ending 9/30/98).
[Graph goes here]
CSI Equity Fund
1998
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Total Return 26.10%
(End of Graph)
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Average Annual Total Past One Year Since Inception
Returns*
(for the period ending (October 15, 1997)
December 31, 1998)
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CSI Equity Fund 26.10% 21.11%
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Lipper Global Funds 14.63% 7.88%
Indices
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CSI FIXED INCOME FUND (the "Fixed Income Fund")
Investment Objective: Current Income
Principal Investment The Fixed Income Fund will invest in debt securities,
Strategies: including obligations issued or guaranteed by the U.S.
Government, its agencies, authorities, and
instrumentalities, municipal securities, corporate debt
securities, zero coupon bonds, as well as obligations
of governments instrumentalities and corporations
outside the U.S. Under normal market conditions, at
least 65% of the Fixed Income Fund's assets will be
invested in securities rated, at the time of purchase,
AA or higher by Moody's Investors Services, Inc. or
Standard & Poor's Corporation or unrated securities
which the Advisor believes to be of comparable quality.
Principal Risk: The principal risk of investing in the Fixed
Income Fund is that the value of its investments are
subject to interest rate risk that may cause the NAV to
fluctuate over time. Therefore, the value of the Fixed
Income Fund could decline as well as increase. There is
no assurance that the Fixed Income Fund will achieve its
objective.
You may want to invest in the Fixed Income Fund if you
are seeking current income and are willing to accept
share prices that may fluctuate over the short-term. The
Fixed Income Fund will not be appropriate if you are
seeking growth of capital over the long-term.
An investment in the Fixed Income Fund is not a bank
deposit, nor is it insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders are
responsible for paying 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 the expenses can, over time, have a significant effect
on a fund's performance.
The following table describes the fees and expenses that you will pay in
connection with an investment in the Equity Fund and the Fixed Income Fund
(collectively, the "Funds"). 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 a percentage of the average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Equity Fund Fixed Income Fund
Maximum Sales Charge (load) on Purchases None None
Sales Charge (load) on Reinvested Dividends None None
Redemption Fees* 1.0%** None
Exchange Fees*** None None
* A shareholder electing to redeem shares via telephone request will be charged
$10.00 for each such redemption request.
**A one percent redemption fee is deducted from the proceeds of Equity Fund
shares redeemed less than one year after purchase. This redemption fee is not a
sales charge. The proceeds are applied to reduce the operating costs of the
Equity Fund.
*** A shareholder will be charged a $10.00 fee for each telephone exchange.
Annual Operating Expenses (Expenses that are deducted from Fund's Assets)
Equity Fund Fixed Income Fund
Management Fee 1.00% 0.50%*
Distribution and Service (12b-1) Fees None None
Other Operating Expenses 0.50% 0.50%
Total Fund Operating Expenses 1.50% 1.00%
* The management fee is 1%, however the manager has voluntarily agreed to hold
the total expenses to 1% through December 31, 1999.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that, to the extent that a fund increases in size, its Other Operating
Expenses will decline as an annual percentage rate reflecting economies of
scale. The following expense example shows the expenses that you could pay over
time, and will help you compare the costs of investing in the Funds 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:
Example:
1 Year 3 Year 5 Year 10 Year
CSI Equity Fund $252.63 $474.10 $818.46 $1,790.52
Example:
1 Year 3 Year 5 Year 10 Year
CSI Fixed Income Fund $102.00 $318.40 $552.47 $1,224.63
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
THE EQUITY FUND
The investment objective of the Equity Fund is to achieve growth of capital by
investing in a portfolio of common stocks and securities convertible into common
stocks, such as warrants, convertible bonds, debentures or convertible preferred
stock. Under normal market conditions, the Equity Fund will have at least 65% of
its assets invested in common stocks or securities convertible into common
stocks. The portfolio of the Equity Fund will be diversified. The Equity Fund
will not be limited to investing in securities of companies of any size or to
securities traded in any particular market.
The Equity 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 Equity 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 U.S. investments in those countries.
Many foreign securities have substantially less trading volume than in the U.S.
market, and securities in some foreign issuers are less liquid and more volatile
than securities of domestic issuers. It is more expensive for U.S. investors to
trade in foreign markets than in U.S. markets. Mutual funds offer an efficient
way for individuals to invest abroad, but the overall expense ratios of global
mutual funds are usually higher than those of mutual funds that invest only in
U.S. securities.
The Equity 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 Equity Fund may increase
or decrease. The Equity Fund's investment success depends on the skill of CSI
Capital Management (the "Advisor"), the Equity Fund's investment adviser, in
evaluating, selecting and monitoring the portfolio assets. If the Advisor's
conclusions about growth rates or securities values are incorrect, the Equity
Fund may not perform as anticipated.
The Advisor considers its universe of recommended stock to be worldwide in
scope. Securities under consideration for purchase must meet a variety of
criteria. No particular formulas are used, but rather emphasis is placed on
those companies which the Advisor believes are most likely to prosper under
various economic conditions and which have demonstrated the ability to produce
reliable earnings or dividend growth over the years. Among other things, balance
sheet analysis, return on equity, price/earnings ratios and relative strength
are included in the Advisor's decision making process.
While the Equity Fund intends to remain substantially invested in common stocks
and securities convertible into common stocks, it may invest in high quality
money market instruments during times when excess cash is generated or when cash
is held pending investment in suitable securities. Such money market investments
include short-term obligations of the U.S. Government (and its agencies) or
other forms of indebtedness, such as bonds, certificates of deposits or
repurchase agreements. The Equity Fund has authority to invest up to 100% of its
assets in such short term instruments for temporary or defensive purposes in
response to extreme or adverse market, economic or other conditions. The Advisor
does not anticipate exercising this authority, but reserves the right to do so.
When the Equity Fund is in a temporary defensive position, it may not achieve
its investment objective.
THE FIXED INCOME FUND
The Fixed Income Fund seeks current income by investing in debt securities. The
Fixed Income Fund seeks to achieve its objective by investing in obligations
issued or guaranteed by the U.S. Government, its agencies, authorities, and
instrumentalities ("U.S. Government Securities"), municipal securities,
corporate debt securities, zero coupon bonds, as well as obligations of
governments, instrumentalities and corporations outside the U.S.
Under normal market conditions, at least 65% of the Fixed Income Fund's assets
will be invested in securities rated, at the time of purchase, AA or higher by
Moody's Investment Services, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), or unrated securities which the Advisor believes to be of comparable
quality. The Fixed Income Fund may invest in lower rated securities in order to
avail itself of the higher yields available with these securities. However, no
more than 5% of the total assets may be invested in securities rated below
investment grade (i.e., below BBB by S&P or Baa by Moody's) or which are unrated
but are of comparable quality as determined by the Advisor. Securities rated
below investment grade entail greater risk than investment grade debt
securities. After purchase by the Fixed Income Fund, debt securities may cease
to be rated or their rating may be reduced. Neither event would require the
elimination of the debt security from the portfolio.
The selection of bonds for the Fixed Income Fund is dependent upon the Advisor's
evaluation of those factors influencing interest rates. The Advisor considers
the rates of return available for any particular maturity and compares that to
the rates for other maturities in order to determine the relative and absolute
differences as they relate to income and the potential for market fluctuation.
The market values of fixed income securities tend to vary inversely with the
level of 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). There are no restrictions on the maturity composition of the
Fixed Income Fund. Fluctuations in the value of the investments will be
reflected in the NAV of the Fixed Income Fund.
OTHER PRINCIPAL RISKS
Year 2000 Issue
Like other mutual funds and financial or business organizations around the
world, The World Funds, Inc. (the "Company") 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.
European Currency
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 either of the Funds 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 each of the Funds
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 Funds. To date the conversion of
the Euro has had negligible impact on the operations and investment returns of
the Funds.
MANAGEMENT'S DISCUSSION ON FUND PERFORMANCE
The CSI Equity Fund's total return for the fiscal year ending August 31, 1998
was -1.2%, as compared to -8.0% for the Lipper Global Funds Index.
At the end of the fiscal year, the composition of the Fund was approximately
48.2% domestic stock, 45.1% international stocks, and 6.7% cash. The domestic
stock portfolio consisted of 23 companies representing a cross section of
industries. Some of the sectors represented in the Fund include:
Electronics 10.6%
Insurance 6.4%
Drugs 7.7%
Food 10.8%
Chemicals 9.7%
Other sectors had smaller weightings. The largest single stock position in the
Fund represented 3.4% of the total assets.
The international stock allocation consisted of 18 companies headquartered in
seven different countries. The largest components were as follows:
Germany 9.5%
Netherlands 10.6%
Switzerland 8.3%
France 10.2%
The CSI Fixed Income Fund's total return for the fiscal year ending August 31,
1998 was 4.8%. Since the Fund commenced operations on January 27, 1998, this
represented a return for approximately seven months and compares to the
following index:
Lipper Intermediate Term Investment
Grade Index 4.8%
At the end of the fiscal year, the Fund was completely invested in U.S.
government securities. The total return for the fiscal year is attributable to
the interest earned on the Fund's bonds and appreciation of principal on the
value of the Fund's bonds caused by a general decline in interest rates
throughout the year. At the end of the fiscal year, the Fund was invested over a
range of maturities which can be summarized as follows:
Maturity Date Percentage of Fixed Income Fund
Less than one year 8.4%
One to five years 35.4%
Six to ten years 37.05
Over ten years 19.2%
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
CSI Capital Management, Inc. (the "Advisor") located at 445 Bush Street, 5th
Floor, San Francisco, CA 94108-3725, manages the assets of the Funds. Since the
Funds' inception on October 14, 1997, Leland Faust has been primarily
responsible for the day to day management of the Funds. Prior to inception, the
Advisor had no previous experience in managing a mutual fund. However, the
Advisor has been in existence since 1978 and as of December 30, 1998 has
approximately $175 million under management. Mr. Faust has been President of the
Advisor since its formation.
The Advisor is responsible for effecting all security transactions on behalf of
the Funds, including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. In placing orders with brokers and
dealers, the Advisor will attempt to obtain the best price and execution of
orders.
Each Fund pays the Advisor a monthly investment advisory fee at an annual rate
of 1% of the average daily net assets. However, the Advisor has voluntarily
agreed to waive all or a portion of the advisory fee or make payments to the
Fixed Income Fund in order to maintain the total operating expenses at an annual
rate not to exceed 1%. This voluntary arrangement continues through December 31,
1999.
SHAREHOLDER INFORMATION
Each Fund's share price, called its NAV, is determined and shares are priced 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 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 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 that date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost. 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. Depository 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 fund shares of the Funds.
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 time.
PURCHASING SHARES
Shares of the Funds 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 a fund from a securities broker dealer, the investor may be charged a
transaction fee through that broker dealer. The minimum initial investment in
the Funds is $1,000 and additional investments must be $50 or more. The Funds
retain 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 the
applicable Fund. For subsequent purchases, include with your check the tear-off
stub from a prior purchase confirmation, or otherwise identify the name(s) of
the registered owner(s) and social security number(s).
Investing by Wire - You may purchase shares by requesting your bank to transmit
by wire directly to the Transfer Agent. To invest by wire, please call the
Transfer Agent for instructions, then notify the Distributor by calling
800-776-5455. Your bank may charge you a small fee for this service. The account
application form which accompanies this prospectus should be completed and
promptly forwarded to the Transfer Agent. This application is required to
complete the Fund's records in order to allow you access to your shares. Once
your account is opened by mail or by wire, additional investments may be made at
any time through the wire procedure described above. Be sure to include your
name and account number in the wire instructions you provide your bank.
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 determined after the
receipt by the Transfer Agent of the redemption request in proper order. A one
percent redemption fee is deducted from proceeds of Equity Fund shares redeemed
less than one year after purchase. 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 applicable 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, redemption requests for accounts for
which purchases were made by wire may be delayed until the Fund receives a
completed application for the account.
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 to be sent
to a different person or address. Signature guarantees are used to help protect
you and the applicable Fund. You can obtain a signature guarantee from most
banks or securities dealers, but not from a Notary Public. Please call the
Transfer Agent 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 at the time you complete the initial account application. If you
request this service at a later date, your request must be in writing, 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.
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 the 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. To use
this service, you must authorize the transfer of funds 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 in each
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 $10
for a telephone exchange fee. An exchange is treated as a redemption and a
purchase and may result in realization of a gain or loss on the transaction.
Dividends and Capital Gain Distributions - Dividends from net investment income,
if any, are declared annually by the Equity Fund and monthly by the Fixed Income
Fund. Each of the Funds intends to distribute annually any net capital gains.
Distributions will automatically be reinvested in additional shares, 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. If the investment in shares is made within 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 a 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 each 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 a Fund or receive them in cash. Any capital gains a fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares. 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 a Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of a Fund for shares of a different fund of
the Company is the same as a sale. The individual tax rate on any gain from the
sale or exchange of your shares depends on how long you have held your shares.
By law, a 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 IRS instructs a 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 a Fund and may increase or decrease Fund distributions to you.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult with your tax adviser about the federal, state, local or foreign tax
consequences of your investment in a Fund.
DISTRIBUTION ARRANGEMENTS
The Funds are 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 Equity Fund, Fixed Income 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.
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CSI Equity Fund
CSI Fixed Income Fund
FINANCIAL HIGHLIGHTS SECTION - ITEM 9
The following table provides financial highlights for the Funds for the period
presented. The Funds' financial highlights for the period presented have been
audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon is included in the SAI. The Funds' financial statements, notes to
financial statements and report of independent accountants are included in the
SAI as well as in the Funds' Annual Report to Shareholders (the "Annual
Report"). Additional performance information for the Funds 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 card page of this
Prospectus. The following information should be read in conjunction with the
financial statements and notes thereto.
<PAGE>
CSI EQUITY FUND
FINANCIAL
HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD
- ------------------------------------------------------
Period
ended
August
31,1998*
-----------
Per Share Operating Performance
Net asset value,beginning of period $10.00
----------
Income from investment operations-
Net investment income 0.02
Net realized and unrealized
loss on investments (0.14)
----------
----------
Total from investment operations (0.12)
----------
Less distributions-
Distributions from net investment income --
Distributions from capital gains --
----------
Total distributions --
----------
==========
Net asset value, end of period $9.88
==========
Total Return (1.20%)
Ratios/Supplemental Data
Net assets, end of period (000's) $26,576
Ratio to average net assets-
Expenses (A) 1.50%**
Expenses-net (B) 1.49%**
Net investment income 0.42%**
Portfolio turnover rate 8.16%
- ------------------
* Commencement of operations October 15, 1997
** Annualized
(A) Expense ratio has been increased to include custodian fees which were offset
by custodian credits.
(B) Expense ratio - net reflects the effect of the custodian fee credits the
fund received.
CSI FIXED INCOME FUND
FINANCIAL
HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD
- ----------------------------------------------------------------
Period
Ended
August
31,1998*
-----------
Per Share Operating Performance
Net asset value, beginning of period $10.00
----------
Income from investment operations-
Net investment income 0.22
Net realized and unrealized
gain on investments 0.26
----------
----------
Total from investment operations 0.48
----------
Less distributions-
Distributions from net investment
income --
Distributions from capital gains --
----------
Total distributions --
----------
==========
Net asset value, end of period $10.48
==========
Total Return 4.80%
Ratios/Supplemental Data
Net assets, end of period (000's) $33,900
Ratio to average net assets - (A)
Expenses (B) 1.51%**
Expenses- net (C) 1.00%**
Net investment income 4.34%**
Portfolio turnover rate 0.00%**
- ------------------
* Commencement of operations January 27, 1998
** Annualized
(A) Management Fee waivers reduced the expense ratios and increased the net
investment income ratio by .50%
(B) Expense ratios have been increased to include custodian fees which were
offset by custodian credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers and
the custodian fee credits the fund received.
For investors who want more information about the Funds, the following documents
are available free upon request:
Annual & Semiannual Reports:
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In each Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Funds and is incorporated into this prospectus by
reference.
You can receive free copies of reports and SAI, request other information and
discuss your questions about the Funds by contacting the Funds 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 Funds' reports and SAIs 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
CSI EQUITY FUND
CSI FIXED INCOME FUND
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the prospectus of the CSI Equity Fund and the
CSI Fixed Income Fund dated March ____, 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 March ______, 1999.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENTS. . . . . . . . . . . .
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . .
STRATEGIES AND RISKS . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . .
CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . . . . .
WARRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ILLIQUID SECURITIES. . . . . . . . . . . . . . . . . . . . . .
DEPOSITARY RECEIPTS. . . . . .. . . . . . . . . . . . . . . . .
U.S. GOVERNMENT SECURITIES. . . . . . . . . . . . . . . . . .
MUNICIPAL SECURITIES. . . . . . . . . . . . . . . . . . . . .
CORPORATE DEBT SECURITIES. . . . . . . . . . . . . . . . . . .
ZERO-COUPON SECURITIES. . .. . . . . . . . . . . . . . . . . .
INTERNATIONAL BONDS. . . . . . . . . . . . . . . . . . . . . .
REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . . .
OTHER INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . .
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 CSI
Equity Fund (the "Equity Fund") and the CSI Fixed Income Fund (the "Fixed Income
Fund"). As used in this SAI, the Equity Fund and the Fixed Income Fund are
collectively the "Funds" and individually a "Fund". Each Fund is a separate
investment portfolio or series of the Company. See "Capital Stock" in this SAI.
Each Fund is a "diversified" series as that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENTS
The following information supplements the discussion of the Funds' investment
objectives and policies. Each 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 Funds that are not fundamental policies can be
changed by the Board of Directors of the Company (the "Directors") without
shareholder approval.
INVESTMENT OBJECTIVES
The Equity Fund's investment objective is to achieve growth of capital. The
Fixed Income Fund's investment objective is to seek current income. All
investments entail some market and other risks and there is no assurance that a
Fund's investment objective will be realized. You should not rely on an
investment in a Fund as a complete investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Funds'
prospectus. In seeking to meet its investment objective, each Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Convertible Securities: The Funds 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, generally the price of a convertible security
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 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 Funds have to pay more for a
convertible security than the value of the underlying common stock. The Equity
Fund will generally hold common stock it acquires upon conversion of a
convertible security for so long as the Advisor anticipates such stock will
provide the Fund with opportunities that are consistent with the Fund's
investment objective and policies.
Warrants: The Equity Fund may invest 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. 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.
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose 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.
American Depositary Receipts: The assets of the Equity Fund will be invested on
a global basis to take advantage of investment opportunities both within the
U.S. and other countries. The Equity Fund may buy foreign securities directly in
their principal markets or indirectly through the use of depositary receipts.
The Equity 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 ADRs and
EDRs, thereby reducing the dividend or distribution amount received by
shareholders.
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.
U.S. Government Securities: The Funds may invest in U.S. Government Securities.
U.S. Government securities 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.
Municipal Securities: The Fixed Income Fund may invest in municipal securities.
These securities are debt obligations issued by or on behalf of the government
of states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities. The
interest on municipal securities is exempt from federal income tax. The two
principal classifications of municipal securities are "general obligation" and
"revenue" securities. "General obligation" securities are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. "Revenue" securities are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved.
Within these principal classification of municipal securities there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, and municipal leases. Variable
rate securities bear rates of interest that are adjusted periodically according
to formula intended to reflect market rates of interest and include securities
who rates vary inversely with changes in market rates of interest. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities.
Corporate Debt Securities: The Funds may invest in Corporate debt securities.
The Fixed Income Fund will invest in securities rated AA or higher by Moody's
Investors Service, Inc. ("Moody's"), or Standard & Poor's Ratings Group ("S&P")
at the time of purchase, or unrated securities which CSI Capital Management,
Inc., the Funds' investment adviser (the "Advisor") believes to be of comparable
quality. The Equity Fund may invest, at the time of purchase, in securities
rated: Baa or higher by Moody's; BBB or higher by S&P; or foreign securities not
subject to standard credit ratings, which in the judgment of the Advisor, will
be "investment grade" issues. Securities rated as BBB are generally regarded as
having adequate capacity to pay interest and repay principal.
Zero Coupon Securities: The Funds 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.
International Bonds: International bonds are defined as bonds issued in
countries other than the United States. The Fixed Income 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, corporate debt securities, bank or holding company debt
securities and other debt securities including those convertible into common
stock. The Fixed Income Fund will invest in investment grade instruments that
will bear the rating of AA or higher by S&P or by Moody's at the time of
purchase, or unrated securities which the Advisor believes to be of comparable
quality. However, the Fixed Income Fund reserves the right to invest its assets
in lower rated securities (including unrated securities which the Advisor
believes to be of such lower quality) as stated in the prospectus.
Repurchase Agreements: As a means of earning income for periods as short as
overnight, the Fixed Income Fund may enter into repurchase agreements that are
collateralized by U.S. Government Securities. The Fixed Income Fund may enter
into repurchase commitments for investment purposes for periods of 30 days or
more. Such commitments involve investment risks similar to those of debt
securities in which the Fixed Income Fund invests. 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. A purchase of securities under
repurchase agreements is considered to be a loan by a fund. The Advisor monitors
the value of the collateral to ensure that its value always equals or exceeds
the repurchase price and also monitors the financial condition of the seller of
the repurchase agreement. If the seller becomes insolvent, a fund's right 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.
OTHER INVESTMENTS
The Board of Directors may, in the future, authorize one or both of the Funds 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 that such investment would not violate the Fund's fundamental
investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Funds have adopted the
following fundamental investment restrictions which cannot be changed without
approval by vote of a "majority of the outstanding voting securities" of each
Fund. As a matter of fundamental policy, each Fund may not:
(1) Invest in companies for the purpose of exercising management or control;
(2) Invest in securities of other investment companies except by purchase in
the open market involving only customary broker's commissions, or as part
of a merger, consolidation, or acquisition of assets;
(3) Purchase or sell commodities or commodity contracts;
(4) Invest in interests in oil, gas, or other mineral exploration or
development programs;
(5) Purchase securities on margin, except for use of short-term credits as
necessary for the clearance of purchase of portfolio securities;
(6) Issue senior securities, (except the Funds may engage in transactions such
as those permitted by the SEC release IC-10666);
(7) Act as an underwriter of securities of other issuers, except that each Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to sell
to the public without registration of such securities under the Securities
Act of 1933, as amended (the "1933 Act"), or any foreign law restricting
distribution of securities in a country of a foreign issuer;
(8) Invest more than 25% of its total assets in securities of companies in the
same industry;
(9) Participate on a joint or a joint and several basis in any securities
trading account;
(10)Engage in short sales;
(11)Purchase or sell real estate, provided that liquid securities of companies
which deal in real estate or interests therein would not be deemed to be an
investment in real estate;
(12)Purchase any security if, as a result of such purchase less than 75% of the
assets of the Fund would consist of cash and cash items, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its assets;
(13)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; and
(14)Make loans, except that the Fixed Income Fund may enter into repurchase
agreements secured by the U.S. Government or Agency securities.
(15)Except as specified below, the Funds may only borrow money for temporary or
emergency purposes and then only in an amount not in excess of 5% of the
lower of value or cost of its total assets, in which case the Fund may
pledge, mortgage or hypothecate any of its assets as security for such
borrowing but not to an extent greater than 5% of its total assets. A Fund
may borrow money to avoid the untimely disposition of assets to meet
redemptions, in an amount up to 33 1/3% of the value of its assets, provided
that the Fund maintains asset coverage of 300% in connection with
borrowings, and the Fund does not make other investments while such
borrowings are outstanding.
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
Funds 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, a Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities;
(2) Engage in arbitrage transactions; or
(3) Purchase or sell options.
In applying the fundamental and 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 a 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.
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 Funds, 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 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
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,
(4/10/45) ("CSS")the Company's Administrator,
since 1985; President and Director of
First Dominion Capital Corp.,
("FDCC") 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
10808 Hob Nail Court Customer Services Operations and
Potomac, MD. 20854 Accounting Division of the
(9/18/40) Potomac Electric 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 Vice President of Mr. Faust is President of CSI
One Montgomery St. the Company and Capital Management, Inc. since
Suite 2525 President of the 1978. Mr. Faust is also a Partner
San Francisco, CA the CSI Equity in the law firm Taylor & Faust
94104 (8/30/46) Fund and the CSI since September, 1975.
Fixed Income Fund
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
810 Lindsay Court CSS and FDCC since 1986;
Richmond, VA 23229 Secretary of Vontobel
(1/26/43) 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 FDCC, the
0535 (12/25/63) series Company's underwriter since
September, 1998. Mr. Trice has been
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 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 December 31, 1998 the officers and
Directors, individually and as a group, owned beneficially less than 1% of the
outstanding shares of the Funds.
For the fiscal period ended August 31, 1998, the Directors received the
following compensation from the Company:
Aggregate Compensation Total
Name and From the Funds Pension or Regirement 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., 2,200 N/A 3,700
Director
William E. Poist, 2,200 N/A 3,700
Director
Paul M. Dickinson, 2,200 N/A 3,700
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Fund's fiscal year
ended August 31, 1998.
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1998 Charles Schwab & Co., 101 Montgomery Street, San
Francisco, CA 94101-4122 owned of record 37,277,202.18 outstanding shares (or
99.151%) of the Equity Fund, and 38,718,905.14 outstanding shares (or 99.936%)
of the Fixed Income Fund.
INVESTMENT ADVISOR AND ADVISORY AGREEMENT
CSI Capital Management, Inc. (the "Advisor), 445 Bush Street, 5th Floor, San
Francisco, CA 94108-3725, is the Funds' investment adviser. The Advisor is
registered as an investment adviser under the Investment Advisers Act of 1940
(as amended, the "Advisers Act"). The Advisor is an independent, privately-owned
firm. Leland Faust, a Vice President of the Company, is the sole owner of the
Advisor. Mr. Faust, who has been President of the Advisor since 1978, is the
President of each Fund, and is the portfolio manager for each Fund.
The Advisor serves as investment adviser to the Funds pursuant to separate
Investment Advisory Agreements with the Company for each Fund (each an "Advisory
Agreement"). The Advisory Agreements are effective for a period of two years
from October 14, 1997, and may be renewed annually thereafter. The Advisory
Agreements will automatically terminate in the event of their "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 Advisor. Under the Advisory Agreements, the
Advisor, subject to the supervision of the Directors, provides a continuous
investment program for each Fund, including investment research and management
with respect to securities, investments and cash equivalents, in accordance with
the Funds' investment objectives, policies, and restrictions as set forth in
their prospectus and this SAI. The Advisor is responsible for effecting all
security transactions on behalf of the Funds, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions.
The Advisor also maintains books and records with respect to the securities
transactions of the Funds and furnishes to the Directors such periodic or other
reports as the Directors may request.
Each Fund is obligated to pay the Advisor a monthly fee equal to an annual rate
of 1.00% of the Fund's average daily net assets. With respect to the Fixed
Income Fund, the Advisor has voluntarily agreed to waive its advisory fee or
make payments to limit the Fund's expenses to the extent necessary to ensure
that the Fund's total operating expenses do not exceed 1.00% of average daily
net assets through December 31, 1999. During the fiscal year ended August 31,
1998, $142,044 and $164,495 were paid to the Advisor by the Equity Fund and
Fixed Income Fund, respectively. During 1998 the Advisor voluntarily waived
$83,263 of the Fixed Income Fund's advisory fee.
Pursuant to the terms of the Advisory Agreements, the 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 Funds.
The services furnished by the Advisor under the Advisory Agreements are not
exclusive, and the Advisor is free to perform similar services for others.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to separate Administration Agreements with the Company dated October
14, 1997 (the "Administrative Agreements"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Funds and supervises all aspects of the operation of the
Funds except those performed by the 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 Funds, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives asset-based fees, computed daily and paid
monthly, at the annual rates of; 0.20% on the first $50 million of average daily
net assets, 0.15% on the next $50 million of average daily net assets and 0.10%
on average daily net assets above $100 million, subject to a minimum amount of
$15,000 per year. CSS receives an hourly rate, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters. For the
period ended August 31, 1998, CSS received fees of $34,549 and $39,366 from the
Equity Fund and the Fixed Income Fund, respectively.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to a Custodian Agreement with the Company dated October 17, 1997, Star
Bank acts as the custodian of the Funds' securities and cash. Portfolio
securities purchased for the Funds 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 separate accounts in the name of each Fund. Star Bank is responsible
for holding and making payments of all cash received for the account of the
relevant Fund.
Star Bank may make payments from each 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 each 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 Funds
and their investment transactions; maintaining certain books and records of the
Funds; determining daily the net asset values per share of the Funds; 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.
For the period ended August 31, 1998, Star Bank received fees of $13,824 and
$12,488 from the Equity Fund and the Fixed Income Fund, respectively.
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 third
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 Funds' 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. During the period from commencement
of operations through August 31, 1998, FSI received $7,384 and $7,464 for its
services to the Equity Fund and the Fixed Income Fund, respectively.
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 Funds 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 Funds' 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.
PORTFOLIO TRANSACTIONS
It is the policy of the Advisor, in placing orders for the purchase and sale of
each Fund's securities, to seek to obtain the best price and execution for its
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Advisor, the 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 a
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Advisor, when placing transactions, may allocate a portion of the Fund's
brokerage to persons or firms providing the Advisor with investment
recommendations or statistical, research or similar services useful to the
Advisor's investment 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 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 Advisor can keep abreast of the information generally circulated among
institutional investors by broker-dealers. While this information is useful in
varying degrees, its value is indeterminable. Such services received on the
basis of transactions for a Fund may be used by the Advisor for the benefit of
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, a Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Advisor is not authorized, when placing
portfolio transactions for a Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on 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 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 a Fund is
concerned. In other cases, however, the ability of such Fund to participate in
volume transactions will be beneficial for the Fund. The Board of Directors of
the Company believes that these advantages, when combined with the other
benefits available because of the 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 Advisor makes purchases and sales for the
Fund's portfolio whenever necessary, in the Advisor's opinion, to meet the
Fund's objective. The Advisor anticipates that the average annual portfolio
turnover rate of each of the Funds will be less than 50%.
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 Equity Fund, 50,000,000 to the Fixed Income Fund and
150,000,000 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 Funds 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 applicable Fund at
its 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 Funds reserve the right to reject any purchase order and to suspend the
offering of shares of one or both of the Funds. Under certain circumstances the
Company or the Advisor may waive the minimum initial investment for purchases by
officers, Directors, and employees of the Company and its affiliated entities
and for certain related advisory accounts and retirement accounts (such as
IRAs). The Funds may also change or waive policies concerning minimum investment
amounts at any time.
ELIGIBLE BENEFIT PLANS
An eligible benefit plan is an arrangement available to the employees of an
employer (or two or more affiliated employers) having not less than 10 employees
at the plan's inception, or such an employer on behalf of employees of a trust
or plan for such employees, their spouses and their children under the age of 21
or a trust or plan for such employees, which provides for purchases through
periodic payroll deductions or otherwise. There must be at least 5 initial
participants with accounts investing or invested in shares of one or more of the
Funds and/or certain other funds.
The initial purchase by the eligible benefit plan and prior purchases by or for
the benefit of the initial participants of the plan must aggregate not less than
$5,000 and subsequent purchases must be at least $50 per account and must
aggregate at least $250. Purchases by the eligible benefit plan must be made
pursuant to a single order paid for by a single check or federal funds wire and
may not be made more often than monthly. A separate account will be established
for each employee, spouse or child for which purchases are made. The
requirements for initiating or continuing purchases pursuant to an eligible
benefit plan may be modified and the offering to such plans may be terminated at
any time without prior notice.
SELLING SHARES
You may sell your shares by giving instructions to the Transfer Agent by mail or
by telephone. The Funds will use reasonable procedures to confirm that
instructions communicated by telephone are genuine and, if the procedures are
followed, will not be liable for any losses due to unauthorized or fraudulent
telephone transactions.
A one percent redemption fee is deducted from the proceeds of Equity Fund shares
redeemed less than one year after purchase. The redemption fee is not a sales
charge. The proceeds are applied to reduce the operating costs of the Equity
Fund. The Advisor reserves the right to waive the redemption fee for its
clients.
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 Company may deduct $10 per year from your account with a Fund, if, as a
result of redemption or exchange of shares, the total investment remaining in
the account has a value of less than $1,000. Shareholders will receive 60 days'
written notice to increase the account value above $1,000 before the fee 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, each Fund offers the following
shareholder services:
Regular Account: The Regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. Simply
use the Account Application provided with the Prospectus to open your account.
Telephone Transactions: A shareholder may redeem shares or transfer into another
fund if this service is requested at the time the shareholder completes the
initial Account Application. If it is not elected at that time, it may be
elected at a later date by making a request in writing to the Transfer Agent and
having the signature on the request guaranteed.
Each Fund employs reasonable procedures designed to confirm the authenticity of
instructions communicated by telephone and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent transactions. As a result of this
policy, a shareholder authorizing telephone redemption bears the risk of loss
which may result from unauthorized or fraudulent transactions which the Fund
believes to be genuine. When requesting a telephone redemption or transfer, the
shareholder will be asked to respond to certain questions designed to confirm
the shareholder's 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
account for investment into the Fund. This does not require a commitment for a
fixed period of time. A shareholder may change the monthly investment, skip a
month or discontinue the Invest-A-Matic Plan as desired by notifying the
Transfer Agent. This feature requires a separate Plan application, in addition
to the Account Application. To obtain an application, or to receive more
information, please call the offices of the Company.
Individual Retirement Account ("IRA"): All wage earners under 70-1/2, even those
who participate in a company sponsored or government retirement plan, may
establish their own IRA. You can contribute 100% of your earnings up to $2,000.
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 or 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 5 year period, beginning with the first tax
year for which 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.
Each account must meet the minimum investment requirements (currently $1,000). 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 the value or the number of
shares to be exchanged. An exchange will take effect as of the next
determination of the Fund's NAV per share (usually at the close of business on
the same day). The Transfer Agent will charge the shareholder's account a $10.00
service fee each time there is a 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 exchanging and the purchase of shares of the Fund into
which you are exchanging. Consequently, the sale may involve either a capital
gain or loss to the shareholder for federal income tax purposes. The exchange
privilege is available only in states where it is legally permissible to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income: The Funds receive income generally in
the form of interest and other income on their investments. This income, less
expenses incurred in the operation of a Fund, constitutes a Fund's net
investment income from which dividends may be paid to you. Any distributions by
a Fund from such income will be taxable to you as ordinary income, whether you
take them in cash or reinvest them in additional shares.
Distribution of capital gains: The Funds may derive capital gains and losses in
connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in a Fund. Any net capital gains realized by a Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or 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 a
Fund. Similarly, foreign exchange losses realized by a Fund on the sale of debt
securities are generally treated as ordinary losses by a Fund. These gains when
distributed will be taxable to you as ordinary dividends, and any losses will
reduce a Fund's ordinary income otherwise available for distribution to you.
This treatment could increase or reduce a Fund's ordinary income distributions
to you, and may cause some or all of a Fund's previously distributed income to
be classified as return of capital.
A Fund may be subject to foreign withholding taxes on income from certain of its
foreign securities. If more than 50% of a Fund's total assets at the end of the
fiscal year are invested in securities of Foreign corporations, a Fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, the year-end statement you receive from a Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. A Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions: The Funds will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, a Fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.
Election to be taxes as a regulated investment company: Each Fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As regulated investment companies,
the Funds generally pay no federal income tax on the income and gains they
distribute to you. The board reserves the right not to maintain the
qualifications of a Fund as a regulated investment company if it determines such
course of action to be beneficial to shareholders. In such case, a Fund will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains, and distributions to you will be taxed as ordinary dividend income to
the extent of such Fund's earnings and profits.
Excise tax distribution requirements: To avoid federal excise taxes, the
Internal Revenue Code requires a Fund to distribute to you by December 31 of
each year, at a minimum the following amounts 98% of its taxable ordinary income
earned during the twelve month period ending October 31 and 100% of any
undistributed amounts from the prior year. Each Fund intends to declare and pay
these amounts in December (or in January that are treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
Redemption of fund shares: Redemption and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your Fund
shares, or exchange your Fund shares for shares of a different fund of the
Company, the IRS will require that you report a gain or loss on your redemption
or exchange. If you hold your shares as a capital asset, the gain or loss that
you realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by a Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. government obligations: Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
Dividends received deduction for corporations: Because the Fixed Income Fund's
income consists of interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the Fixed Income
Fund for the most recent calendar year qualified for such deduction, and it is
anticipated that none of the current year's dividends will so qualify.
The Equity Fund did not pay a dividend for the most recent fiscal year end. In
the future, if the shareholder is a corporation, a percentage of the dividends
paid by the Equity Fund may qualify for the dividends-received deduction. You
will be permitted in some circumstances to deduct these qualified dividends,
thereby reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with respect
to dividends designated by the Equity Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculations.
Investment in complex securities: The Funds may invest in complex securities,
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 a Fund are treated as ordinary income or capital gain, accelerate
the recognition of income to Fund and/or defer a Fund's ability to recognize
losses, and, in limited cases, subject a Fund to U.S. federal income tax on
income from certain of its foreign securities. In turn, these rules may affect
the amount, timing or character of the income distributed to you by a Fund.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Funds to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
Fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
YIELD INFORMATION
From time to time, the Funds 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 a 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 Funds are as follows:
Fund Commencement of Operations
Equity Fund -1.20% (10/14/97 to 8/31/98)
Fixed Income Fund 4.80% (1/27/98 to 8/31/98)
The Funds 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 each Fund's performance with other measures of investment return. The
Funds may quote an aggregate total return figure in comparing each 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, each Fund calculates its aggregate total return
for the specified periods of time by assuming the investment of $1,000 in shares
of the applicable 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 Funds may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual 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
Financial Highlights, Statements and Report of Independent Accountants. You can
receive free copies of reports, request other information and discuss your
questions about the CSI Equity Fund and CSI Fixed Income Fund (together, the
"Funds") by contacting the Funds 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 refeence to Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and
811-8255) as filed with the SEC on July 8, 1998.
(b) By-Laws of the Registrant are incorporated by reference herein
to the Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) filed ith 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.333-29289 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.B11.
(k) Not Applicable.
(l) Not applicable.
(m) (1) Distribution Plan pursuant to Rule 12b-1 dated
September 21, 1998 on behalf of the Third Millennium
Russia Fund series is 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 CSI Equity Fund is
filed herewith as Exhibit EX-27.2.
(2) Financial data schedule for the CSI Fixed Income
Fund is filed herewith as Exhibit EX-27.3.
(o) Not Applicable.
(p) Powers-of-Attorney for Samuel Boyd, Jr., William E. Poist and
Paul M. Dickinson are incorporated by reference to the
Registrant's Initial Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255) as filed with the SEC on June 16,
1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the
"GCL") of the State of Maryland. The Registrant's Articles of
Incorporation provide the indemnification of directors, officers and
other agents of the corporation to the fullest extent permitted under
the GCL. The Articles limit such indemnification so as to comply with
the prohibition against indemnifying such persons under Section 17 of
the Investment Company Act of 1940, as amended, for certain conduct set
forth in that section ("Disabling Conduct"). Contracts between the
Registrant and various service providers include provisions for
indemnification, but also forbid the Registrant to indemnify affiliates
for Disabling Conduct.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISOR.
Sand Hill Advisors, Inc., the investment advisor to the Sand Hill
Portfolio Manager Fund series, provides investment advisory services
consisting of portfolio management for a variety of individuals and
institutions and as of December 31, 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 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 ??? 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 has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Richmond, and the Commonwealth of Virginia on the 29th day of
January 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 January 29, 1999
John Pasco, III Chief Executive
Officer and Chief
Financial officer
/s/ Samuel Boyd, Jr.* Director January 29, 1999
Samuel Boyd, Jr.
/s/ Paul M. Dickinson* Director January 29, 1999
Paul M. Dickinson
/s/ William E. Poist* Director January 29, 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(g)(4) Foreign Custody Manager Ex.99.85.1
Delegation Agreement
Exhibit 23(h)(9) Accounting Agency Agreement Ex.99.85.2
Exhibit 23(n)(2) Financial Data Schedule for the
CSI Equity Fund EX-27.1
Exhibit 23(n)(3) Financial Data Schedule for the
CSI Fixed Income Fund EX-27.2
Page 1
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AGREEMENT made as of this _____ day of ______ 1998 between THE
WORLD FUNDS, INC., a management investment company registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940, as amended, (the "Act"), acting through its Board of
Directors/Trustees or its duly appointed representative (the "Fund"), and BROWN
BROTHERS HARRIMAN & CO., a New York limited partnership with an office in
Boston, Massachusetts (the "Delegate").
WITNESSETH
WHEREAS the Fund has appointed the Delegate as custodian (the
"Custodian") of the Fund's Assets pursuant to a Custodian Agreement dated
November 19, 1992 (as amended) (the "Custodian Agreement");
WHEREAS the Fund may, from time to time, determine to invest and
maintain some or all of the Fund's Assets outside the United States;
WHEREAS the Board of Directors/Trustees of the Fund (the "Board")
wishes to delegate to the Delegate certain functions with respect to the custody
of Fund's Assets outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Fund and the Delegate agree as follows.
Capitalized terms shall have the meaning indicated in Section 12 unless
otherwise indicated .
1. Maintenance of Fund's Assets Abroad. The Fund, acting through
its Board or its duly authorized representative, hereby instructs Delegate
pursuant to the terms of the Custodian Agreement to place and maintain the
Fund's Assets within the countries listed in Schedule 1 attached hereto (as such
Schedule may be amended from time to time in accordance herewith). Such
instruction shall be deemed to include an instruction to use any Compulsory
Securities Depository in any such country and shall represent a Proper
Instruction under the terms of the Custodian Agreement. Countries may be added
to Schedule 1 by written instruction of the Fund that is accepted in writing by
the Delegate as an amendment to Schedule 1. With respect to amendments adding
countries to Schedule 1, the Fund acknowledges that - (a) the Delegate shall
perform services hereunder only with respect to the countries where it provides
custodial services to the Fund under the Custodian Agreement; (b) depending on
conditions in the particular country, advance notice may be required before the
Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Agreement shall require the Delegate to provide delegated or
custodial services in any country not listed in Schedule 1 until such amended
Schedule 1 has been accepted by the Delegate in accordance herewith.
2. Delegation. Pursuant to the provisions of Rule 17f-5 under the
Act as amended, the Board hereby delegates to the Delegate, and the Delegate
hereby accepts such delegation and agrees to perform, only those duties set
forth in this Agreement concerning the safekeeping of the Fund's Assets in each
of the countries set forth in Schedule 1 hereto as amended from time to time.
The Delegate is hereby authorized to take such actions on behalf of or in the
name of the Fund as are reasonably required to discharge its duties under this
Agreement, including, without limitation, to cause the Fund's Assets to be
placed with a particular Eligible Foreign Custodian in accordance herewith. The
Fund confirms to the Delegate that the Fund or its investment adviser has
considered the Sovereign Risk and prevailing country risk as part of its
continuing investment decision process, including such factors as may be
reasonably related to the systemic risk of maintaining the Fund's Assets in a
particular country, including, but not limited to, financial infrastructure,
prevailing custody and settlement systems and practices (including the use of
any Compulsory Securities Depository), and the laws relating to the safekeeping
and recovery of the Fund's Assets held in custody pursuant to the terms of the
Custodian Agreement.
3. Selection of Eligible Foreign Custodian and Contract Administration. The
Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of certain contracts governing
the Fund's foreign custodial arrangements:
(a) Selection of Eligible Foreign Custodian. The Delegate shall
place and maintain the Fund's Assets with an Eligible Foreign Custodian;
provided that the Delegate shall have determined that the Fund's Assets will be
subject to reasonable care based on the standards applicable to custodians in
the relevant market after considering all factors relevant to the safekeeping of
such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if applicable), the
controls and procedures for dealing with any Securities Depository, the
method of keeping custodial records, and the security and data
protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite
financial strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and
standing and, in the case of a Securities Depository, the depository's
operating history and number of participants; and
(iv) Whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of such Eligible Foreign
Custodian in the United States or such Eligible Foreign Custodian's
appointment of an agent for service of process in the United States or
consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determination to the best
of its knowledge and belief based only on information reasonably available to
it.
(b) Contract Administration. In the case of an Eligible Foreign
Custodian that is not a Securities Depository or a U.S. Bank, the Delegate shall
cause that the foreign custody arrangements shall be governed by a written
contract that the Delegate has determined will provide reasonable care for Fund
assets based on the standards applicable to custodians in the relevant market.
Each such contract shall, except as set forth in the last paragraph of this
subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be adequately
protected against the risk of loss of assets held in accordance with
such contract;
(ii) That the Fund's Assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of the
Eligible Foreign Custodian or its creditors except a claim of payment
for their safe custody or administration or, in the case of cash
deposits, liens or rights in favor of creditors of such Custodian
arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of the Fund's Assets will be
freely transferable without the payment of money or value other than
for safe custody or administration;
(iv) That adequate records will be maintained identifying the
Fund's Assets as belonging to the Fund or as being held by a third
party for the benefit of the Fund;
(v) That the Fund's independent public accountants will be given
access to those records described in (iv) aboveor confirmation of the
contents of such records; and
(vi) That the Delegate will receive sufficient and timely periodic
reports with respect to the safekeeping of the Fund's Assets,
including, but not limited to, notification of any transfer to or from
the Fund's account or a third party account containing the Fund's
Assets.
Such contract may contain, in lieu of any or all of the provisions
specified in this Section 3 (b), such other provisions that the
Delegate determines will provide, in their entirety, the same or a
greater level of care and protection for the Fund's Assets as the
specified provisions, in their entirety.
(c) Limitation to Delegated Selection. Notwithstanding anything in this
Agreement to the contrary, the duties under this Section 3 shall apply only to
Eligible Foreign Custodians selected by the Delegate and shall not apply to
Compulsory Securities Depositories or to any Eligible Foreign Custodian that the
Delegate is directed to use pursuant to Section 7.
4. Monitoring. The Delegate shall establish a system to monitor at
reasonable intervals (but at least annually) the appropriateness of maintaining
the Fund's Assets with each Eligible Foreign Custodian that has been selected by
the Delegate pursuant to Section 3 of this Agreement. The Delegate shall monitor
the continuing appropriateness of placement of the Fund's Assets in accordance
with the criteria established under Section 3(a) of this Agreement. The Delegate
shall monitor the continuing appropriateness of the contract governing the
Fund's arrangements in accordance with the criteria established under Section
3(b) of this Agreement.
5. Reporting. At least annually and more frequently as mutually
agreed between the parties, the Delegate shall provide to the Board written
reports specifying placement of the Fund's Assets with each Eligible Foreign
Custodian selected by the Delegate pursuant to Section 3 of this Agreement and
shall promptly report as to any material changes to such foreign custody
arrangements. Delegate will prepare such a report with respect to any Eligible
Foreign Custodian that the Delegate has been instructed to use pursuant to
Section 7 only to the extent specifically agreed with respect to the particular
situation.
6. Withdrawal of Fund's Assets. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; provided, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Proper Instructions of the Fund or its Investment
Advisor with respect to such liquidation or other withdrawal.
7. Direction as to Eligible Foreign Custodian. Notwithstanding
this Delegation Agreement, the Fund, acting through its Board, its Investment
Adviser or its other authorized representative, may direct the Delegate to place
and maintain the Fund's Assets with a particular Eligible Foreign Custodian. In
such event, the Delegate shall be entitled to rely on any such instruction as a
Proper Instruction under the terms of the Custodian Agreement and shall have no
duties under this Delegation Agreement with respect to such arrangement save
those that it may undertake specifically in writing with respect to each
particular instance.
8. Standard of Care. In carrying out its duties under this Agreement, the
Delegate agrees to exercise reasonable care, prudence and diligence such as a
person having responsibility for safekeeping the Fund's Assets would exercise.
9. Representations. The Delegate hereby represents and warrants that it is
a U.S. Bank and that this Agreement has been duly authorized, executed and
delivered by the Delegate and is a legal, valid and binding agreement of the
Delegate.
The Fund hereby represents and warrants that its Board of
Directors has determined that it is reasonable to rely on the Delegate to
perform the delegated responsibilities provided for herein and that this
Agreement has been duly authorized, executed and delivered by the Fund and is a
legal, valid and binding agreement of the Fund.
10. Effectiveness; termination. This Agreement shall be effective
as of the date on which this Agreement shall have been accepted by the Delegate,
as indicated by the date set forth below the Delegate's signature. This
Agreement may be terminated at any time, without penalty, by written notice from
the terminating party to the non-terminating party. Such termination shall be
effective on the 30th day following the date on which the non-terminating party
shall receive the foregoing notice. The foregoing to the contrary
notwithstanding, this Agreement shall be deemed to have been terminated
concurrently with the termination of the Custodian Agreement.
11. Notices. Notices and other communications under this Agreement are to
be made in accordance with the arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
12. Definitions. Capitalized terms in this agreement have the following
meanings:
a. Compulsory Securities Depository - shall mean a Securities
Depository the use of which is mandatory (i) under applicable law
or regulation; (ii) because securities cannot be withdrawn from
the depository; or, (iii) because maintaining securities outside
the Securities Depository is not consistent with prevailing
custodial practices.
b. Eligible Foreign Custodian - shall have the meaning set
forth in Rule 17f-5(a)(1) and shall also include a U.S. Bank.
c. Fund's Assets - shall mean any of the Fund's investments
(including foreign currencies) for which the primary market is
outside the United States, and such cash and cash equivalents as
are reasonably necessary to effect the Fund's transactions in such
investments.
d.Proper Instructions - shall have the meaning set forth in the
Custodian Agreement.
e.Securities Depository - shall have the meaning set forth in Rule
17f-5(a)(6).
f.Sovereign Risk - shall have the meaning set forth in Section
[6.3] of the Custodian Agreement.
g.U.S. Bank - shall mean a bank which qualifies to serve as a
custodian of assets of investment companies under Section 17(f)
of the Act.
13.Governing Law and Jurisdiction. This Agreement shall be
construed in accordance with the laws of the State of New York.
The parties hereby submit to the exclusive jurisdiction of the
Federal courts sitting in the State of New York or the
Commonwealth of Massachusetts or of the state courts of either
such State or such Commonwealth.
14. Fees. Delegate shall perform its functions under this
agreement for the compensation determined under the Custodian
Agreement.
15. Integration. This Agreement sets forth all of the Delegate's
duties with respect to the selection and monitoring of
Eligible Foreign Custodians, the administration of
contracts with Eligible Foreign Custodians, the withdrawal
of assets from Eligible Foreign Custodians and the issuance
of reports in connection with such duties. The terms of the
Custodian Agreement shall apply generally as to matters not
expressly covered in this Agreement,oncluding dealings
with the Eligible Foreign Custodians in the course of
discharge of the Delegate's obligations under the Custodian
Agreement.
<PAGE>
NOW THEREFORE, the parties have caused this Agreement to be executed by its duly
authorized representatives, effective as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. THE WORLD FUNDS, INC.
By: ____________________________ By: ______________________
Name: _____________________ Name: ___________________
Title: ____________________ Title ___________________
Date: ___________________ Date: ___________________
1
ACCOUNTING AGENCY AGREEMENT
THIS ACCOUNTING AGENCY AGREEMENT is made as of [ ] by and between BROWN
BROTHERS HARRIMAN & CO.,, a limited partnership organized under the laws of the
State of New York (the "Accounting Agent"), and THE WORLD FUNDS, INC. (the
"Fund").
WHEREAS, the Fund is registered as management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Accounting Agent to perform
certain accounting and recordkeeping services on behalf of the Fund, and the
Accounting Agent is willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment of Accounting Agent . The Fund hereby employs and appoints
the Accounting Agent to act as its fund accounting agent on the terms set forth
in this Agreement, and the Accounting Agent accepts such appointment.
2. Delivery of Documents. The Fund will (i) furnish the Accounting
Agent with properly certified or authenticated copies of resolutions of the
Fund's Board of Directors or Trustees authorizing the appointment of the
Accounting Agent to provide certain fund accounting services to the Fund and
approving this Agreement; (ii) provide the Accounting Agent with any other
documents or resolutions (including but not limited to directions or resolutions
of the Fund's Board of Directors or Trustees) which relate to or affect the
Accounting Agent 's performance of its duties hereunder or which the Accounting
Agent may reasonably request; and (iii) notify the Accounting Agent promptly of
any matter affecting the performance by the Accounting Agent of its services
under this Agreement.
3. Recordkeeping and Calculation of Net Asset Value. - The Accounting
Agent shall compute and determine the net asset value per share of the Fund as
of the close of business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (1) the
provisions of the Fund's Declaration of Trust or Certificate of Incorporation
and By-Laws, as they may from time to time be amended and delivered to the
Accounting Agent, (2) the votes of the Board of Trustees or Directors of the
Fund at the time in force and applicable, as they may from time to time be
delivered to the Accounting Agent, and (3) Proper Instructions. On each day that
the Accounting Agent shall compute the net asset value per share of the Fund,
the Accounting Agent shall provide the Fund's investment adviser with written
reports which the investment adviser will use to verify that portfolio
transactions have been recorded in accordance with the Fund's instructions and
are reconciled with the Fund's trading records.
In computing the net asset value, the Accounting Agent may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Accounting Agent,
(2) as to the existence, status and proper treatment of reserves, if any,
authorized by the Fund, (3) as to the sources of quotations to be used in
computing the net asset value, including those listed in Appendix B, (4) as to
the fair value to be assigned to any securities or other property for which
price quotations are not readily available, and (5) as to the sources of
information with respect to "corporate actions" affecting portfolio securities
of the Fund, including those listed in Appendix B. (Information as to "corporate
actions" shall include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
the ex- and record dates and the amounts or other terms thereof.) The Fund may
instruct the Accounting Agent to utilize a particular source for the valuation
of a specific Security or other Property and the Accounting Agent shall
protected in utilizing the valuation provided by such source without further
inquiry in order to effect calculation of the Fund's net asset value.
Notwithstanding anything in this Agreement to the contrary, the Accounting Agent
shall not be responsible for the failure of the Fund or its investment adviser
to provide the Accounting Agent with Proper Instructions regarding liabilities
which ought to be included in the calculation of the Fund's net asset value.
In like manner, the Accounting Agent shall compute and determine the net
asset value as of such other times as the Board of Trustees or Directors of the
Fund from time to time may reasonably request.
4. Expenses and Compensation. For the services to be rendered and the
facilities to be furnished by the Accounting Agent as provided for in this
Agreement, the Fund shall pay the Accounting Agent for its services rendered
pursuant to this Agreement a fee based on such fee schedule as may from time to
time be agreed upon in writing by the Fund and the Accounting Agent. In addition
to such fee, the Accounting Agent shall bill the Fund separately for any
out-of-pocket disbursements of the Accounting Agent. Out-of-pocket disbursements
shall include, but shall not be limited to, postage, including courier services;
telephone; telecommunications; printing, duplicating and photocopying charges;
forms and supplies; filing fees; legal expenses; and travel expenses. The
foregoing fees and disbursements shall be billed to the Fund by the Accounting
Agent and shall be paid promptly by wire transfer or other appropriate means to
the Accounting Agent.
5. Standard of Care. The Accounting Agent shall be held only to the
exercise of reasonable care in computing and determining net asset value as
provided in this Agreement, but shall not be held accountable or liable for any
losses or damages the Fund or any shareholder or former shareholder of the Fund
or any other person may suffer or incur arising from or based upon errors or
delays in the determination of such net asset value resulting from any event
beyond the reasonable control of the Accounting Agent unless such error or delay
was due to the Accounting Agent's negligence or reckless or willful misconduct
in determination of such net asset value. (The parties hereto acknowledge,
however, that the Accounting Agent's causing an error or delay in the
determination of net asset value may, but does not in and of itself, constitute
negligence or reckless or willful misconduct.) In no event shall the Accounting
Agent be liable or responsible to the Fund, any present or former shareholder of
the Fund or any other person for any error or delay which continued or was
undetected after the date of an audit performed by the certified public
accountants employed by the Fund if, in the exercise of reasonable care in
accordance with generally accepted accounting standards, such accountants should
have become aware of such error or delay in the course of performing such audit.
The Accounting Agent's liability for any such negligence or reckless or willful
misconduct which results in an error in determination of such net asset value
shall be limited exclusively to the direct, out-of-pocket loss the Fund,
shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value, and
any expenses the Fund shall incur in connection with correcting the records of
the Fund affected by such error (including charges made by the Fund's registrar
and transfer agent for making such corrections) or communicating with
shareholders or former shareholders of the Fund affected by such error.
Without limiting the foregoing, the Accounting Agent shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or losses, damages or expenses any of them
may suffer or incur resulting from (1) the Accounting Agent's failure to receive
timely and suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the Fund or (2) any errors in
the computation of the net asset value based upon or arising out of quotations
or information as to corporate actions if received by the Accounting Agent
either (i) from a source which the Accounting Agent was authorized pursuant to
the third paragraph of this Section to rely upon, (ii) from a source which in
the Administrator's reasonable judgment was as reliable a source for such
quotations or information as the sources authorized pursuant to that third
paragraph, or (iii) relevant information known to the Fund or the Investment
Adviser which would impact the calculation of net asset value but which is not
communicated by the Fund or the investment adviser to the Accounting Agent.
In the event of any error or delay in the determination of such net
asset value for which the Accounting Agent may be liable, the Fund and the
Accounting Agent will consult and make good faith efforts to reach agreement on
what actions should be taken in order to mitigate any loss suffered by the Fund
or its present or former shareholders, in order that the Accounting Agent's
exposure to liability shall be reduced to the extent possible after taking into
account all relevant factors and alternatives. Such actions might include the
Fund or the Accounting Agent taking reasonable steps to collect from any
shareholder or former shareholder who has received any overpayment upon
redemption of shares such overpaid amount or to collect from any shareholder who
has underpaid upon a purchase of shares the amount of such underpayment or to
reduce the number of shares issued to such shareholder. It is understood that in
attempting to reach agreement on the actions to be taken or the amount of the
loss which should appropriately be borne by the Accounting Agent, the Fund and
the Accounting Agent will consider such relevant factors as the amount of the
loss involved, the Fund's desire to avoid loss of shareholder good will, the
fact that other persons or entities could have been reasonably expected to have
detected the error sooner than the time it was actually discovered, the
appropriateness of limiting or eliminating the benefit which shareholders or
former shareholders might have obtained by reason of the error, and the
possibility that other parties providing services to the Fund might be induced
to absorb a portion of the loss incurred.
6. Limitation of Liability.
(a) The Accounting Agent shall incur no liability with respect
to any telecommunications, equipment or power failures, or any failures to
perform or delays in performance by postal or courier services or third-party
information providers. The Accounting Agent shall also incur no liability under
this Agreement if the Accounting Agent or any agent or entity utilized by the
Accounting Agent shall be prevented, forbidden or delayed from performing, or
omits to perform, any act or thing which this Agreement provides shall be
performed or omitted to be performed, by reason of causes or events beyond its
control, including but not limited to (x) any Sovereign Risk, or (y) any
provision of any present or future law, regulation or order of the United States
or any state thereof, or of any foreign country or political subdivision
thereof, or of any securities depository or clearing agency, or (z) any
provision of any order or judgment of any court of competent jurisdiction. A
"Sovereign Risk" shall mean any nationalization; expropriation; devaluation;
revaluation; confiscation; seizure; cancellation; destruction; strike; act of
war, terrorism, insurrection or revolution; or any other act or event beyond the
Accounting Agent's control.
(b) Notwithstanding any other provision of this Agreement, the
Accounting Agent shall not be held accountable or liable for any losses, damages
or expenses the Fund or any shareholder or former shareholder of the Fund or any
other person may suffer or incur arising from acts, omissions, errors or delays
of the Accounting Agent in the performance of its obligations and duties
hereunder, including without limitation any error of judgment or mistake of law,
except a damage, loss or expense resulting from the Accounting Agent's willful
malfeasance, bad faith or negligence in the performance of such obligations and
duties. The Accounting Agent shall in no event be required to take any action
which is in contravention of any applicable law, rule or regulation or any order
or judgment of any court of competent jurisdiction. The Fund hereby agrees to
indemnify the Accounting Agent against and hold it harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any act, omission, error or delay or any
claim, demand, action or suit, in connection with or arising out of performance
of its obligations and duties under this Agreement, not resulting from the
willful malfeasance, bad faith or negligence of the Accounting Agent in the
performance of such obligations and duties.
The Accounting Agent shall in no event be liable or responsible to the
Fund, any present or former shareholder of the Fund or any other person for any
error or delay which continued or was undetected after the date of an audit
performed by the certified public accountants employed by the Fund if, in the
exercise of reasonable care in accordance with generally accepted accounting
standards, such accountants should have become aware of such error or delay in
the course of performing such audit. It is also agreed that, in the event of an
act, omission, error or delay which leads to losses, costs or expenses for which
the Accounting Agent may be liable, the Fund and the Accounting Agent will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the Accounting Agent's exposure to liability
shall be reduced to the extent possible after taking into account all relevant
factors and alternatives. It is understood that in attempting to reach agreement
on the actions to be taken or the amount of the loss which should appropriately
be borne by the Accounting Agent, the Fund and the Accounting Agent will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have been reasonably expected to have detected the error sooner
than the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.
(c) Notwithstanding anything else in this Agreement to the
contrary, the Accounting Agent's entire liability to the Fund for any loss or
damage arising or resulting from its performance hereunder or for any other
cause whatsoever, and regardless of the form of action, shall be limited to the
Fund's actual and direct out-of-pocket expenses and losses which are reasonably
incurred by the Fund. In no event and under no circumstances shall the
Accounting Agent or a Fund be held liable to the other party for consequential
or indirect damages, loss of profits, damage to reputation or business or any
other special damages arising under or by reason of any provision of this
Agreement or for any act or omission hereunder.
7. Reliance by the Accounting Agent on Proper Instructions and Opinions of
Counsel and Opinions of Certified Public Accountants.
(a) The Accounting Agent shall not be liable for, and shall be
indemnified by the Fund against any and all losses, costs, damages or expenses
arising from or as a result of, any action taken or omitted in reliance upon
Proper Instructions or upon any other written notice, request, direction,
instruction, certificate or other instrument believed by it to be genuine and
signed or authorized by the proper party or parties.
Proper Instructions shall include a written request, direction,
instruction or certification signed or initialed on behalf of the Fund by one or
more persons as the Board of Trustees or Directors of the Fund shall have from
time to time authorized. Those persons authorized to give Proper Instructions
may be identified by the Board of Trustees or Directors by name, title or
position and will include at least one officer empowered by the Board to name
other individuals who are authorized to give Proper Instructions on behalf of
the Fund. Telephonic or other oral instructions or instructions given by telefax
transmission may be given by any one of the above persons and will also be
considered Proper Instructions if the Accounting Agent believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved.
With respect to telefax transmissions, the Fund hereby acknowledges
that (i) receipt of legible instructions cannot be assured, (ii) the Accounting
Agent cannot verify that authorized signatures on telefax instructions are
original, and (iii) the Accounting Agent shall not be responsible for losses or
expenses incurred through actions taken in reliance on such telefax
instructions. The Fund agrees that such telefax instructions shall be conclusive
evidence of the Fund's Proper Instruction to the Accounting Agent to act or to
omit to act.
Proper Instructions given orally will be confirmed by written
instructions in the manner set forth above, including by telefax, but the lack
of such confirmation shall in no way affect any action taken by the Accounting
Agent in reliance upon such oral instructions. The Fund authorizes the
Accounting Agent to tape record any and all telephonic or other oral
instructions given to the Accounting Agent by or on behalf of the Fund
(including any of its officers, Directors, Trustees, employees or agents or any
investment manager or adviser or person or entity with similar responsibilities
which is authorized to give Proper Instructions on behalf of the Fund to the
Accounting Agent.)
(b) The Accounting Agent may consult with its counsel or the
Fund's counsel in any case where so doing appears to the Accounting Agent to be
necessary or desirable. The Accounting Agent shall not be considered to have
engaged in any misconduct or to have acted negligently and shall be without
liability in acting upon the advice of its counsel or of the Fund's counsel.
(c) The Accounting Agent may consult with a certified public
accountant or the Fund's Treasurer in any case where so doing appears to the
Accounting Agent to be necessary or desirable. The Accounting Agent shall not be
considered to have engaged in any misconduct or to have acted negligently and
shall be without liability in acting upon the advice of such certified public
accountant or of the Fund's Treasurer.
8. Termination of Agreement.
(a) This Agreement shall continue in full force and effect
until terminated by the Accounting Agent or the Fund by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect not sooner than ninety (90) days after the date of such delivery or
mailing. In the event a termination notice is given by a party hereto, all
expenses associated with the movement of records and materials and the
conversion thereof shall be paid by the Fund for which services shall cease to
be performed hereunder. The Accounting Agent shall be responsible for completing
all actions in progress when such termination notice is given unless otherwise
agreed.
Notwithstanding anything in the foregoing provisions of this clause, if
it appears impracticable in the circumstances to effect an orderly delivery of
the necessary and appropriate records of the Accounting Agent to a successor
within the time specified in the notice of termination as aforesaid, the
Accounting Agent and the Fund agree that this Agreement shall remain in full
force and effect for such reasonable period as may be required to complete
necessary arrangements with a successor.
(b) If a party hereto shall fail to perform its duties and
obligations hereunder (a "Defaulting Party") resulting in material loss to
another party ("the "Non-Defaulting Party"), the Non-Defaulting Party may give
written notice thereof to the Defaulting Party, and if such material breach
shall not have been remedied within thirty (30) days after such written notice
is given, then the Non-Defaulting Party may terminate this Agreement by giving
thirty (30) days' written notice of such termination to the Defaulting Party. If
the Accounting Agent is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of the
Accounting Agent with respect to payment for services performed prior to such
termination or rights of the Accounting Agent to be reimbursed for out-of-pocket
expenses. In all cases, termination by the Non-Defaulting Party shall not
constitute a waiver by the Non-Defaulting Party of any other rights it might
have under this Agreement or otherwise against the Defaulting Party.
(c) This Section 7 shall survive any termination of this
Agreement, whether for cause or not for cause.
9. Amendment of this Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment or termination is sought.
In connection with the operation of this Agreement, the Fund and the
Accounting Agent may agree in writing from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
The section headings and the use of defined terms in the singular or
plural tenses in this Agreement are for the convenience of the parties and in no
way alter, amend, limit or restrict the contractual obligations of the parties
set forth in this Agreement.
10. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES HERETO
IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF
MANHATTAN.
11. Notices. Notices and other writings delivered or mailed postage
prepaid to a Fund addressed to the Fund at 1500 Forest Avenue Suite 223,
Richmond, Virginia 23226 or to such other address as the Fund may have
designated to the Accounting Agent in writing, or to the Accounting Agent at 40
Water Street, Boston, MA 02109, Attention: Manager, Fund Accounting Department,
or to such other address as the Accounting Agent may have designated to the Fund
in writing, shall be deemed to have been properly delivered or given hereunder
to the respective addressee.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Fund and the Accounting Agent and their respective successors and
assigns, provided that no party hereto may assign this Agreement or any of its
rights or obligations hereunder without the written consent of the other party.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and which
collectively shall be deemed to constitute only one instrument. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties.
14. Exclusivity. The services furnished by the Accounting Agent hereunder
are not to be deemed exclusive, and the Accounting Agent shall be free to
furnish similar services to others.
15. Authorization. The Fund hereby represents and warrants that the
execution and delivery of this Agreement have been authorized by the Fund's
Board of Directors or Trustees and that this Agreement has been signed by an
authorized officer of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
BROWN BROTHERS HARRIMAN & CO. THE WORLD FUNDS, INC.
By: __________________________________ By: _______________________________
Name: _________________ Name: _________________
Title: ________________ Title:_________________
EX-27.2
FDS for CSI Equity Fund
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 28,498,638
[INVESTMENTS-AT-VALUE] 26,515,913
[RECEIVABLES] 47,574
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 43,208
[TOTAL-ASSETS] 26,606,695
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 30,452
[TOTAL-LIABILITIES] 30,452
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 28,498,033
[SHARES-COMMON-STOCK] 595,957
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 60,814
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 121
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (1,982,725)
[NET-ASSETS] 26,576,243
[DIVIDEND-INCOME] 239,290
[INTEREST-INCOME] 36,444
[OTHER-INCOME] 0
[EXPENSES-NET] 214,920
[NET-INVESTMENT-INCOME] 60,814
[REALIZED-GAINS-CURRENT] 121
[APPREC-INCREASE-CURRENT] (1,982,725)
[NET-CHANGE-FROM-OPS] (1,921,790)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,758,858
[NUMBER-OF-SHARES-REDEEMED] 67,598
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (1,921,790)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 142,044
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 215,954
[AVERAGE-NET-ASSETS] 0
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] .02
[PER-SHARE-GAIN-APPREC] (.14)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] (1.20)
[PER-SHARE-NAV-END] 9.88
[EXPENSE-RATIO] 1.49
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001040674
<NAME> THE WORLD FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> CSI Fixed Income
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 32,703,891
<INVESTMENTS-AT-VALUE> 33,578,902
<RECEIVABLES> 303,169
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 43,295
<TOTAL-ASSETS> 33,925,366
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,041
<TOTAL-LIABILITIES> 25,041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,311,230
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 714,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 875,011
<NET-ASSETS> 33,900,325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 878,228
<OTHER-INCOME> 0
<EXPENSES-NET> 164,144
<NET-INVESTMENT-INCOME> 714,084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 875,011
<NET-CHANGE-FROM-OPS> 1,589,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,708,324
<NUMBER-OF-SHARES-REDEEMED> 474,556
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,589,095
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 164,465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,658
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 4.80
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
