THE WORLD FUNDS
1500 Forest Avenue, Suite 223 * P. O. Box 8687 * Richmond, Virginia 23229
(804) 285-8211 * (800) 527-9525 * Fax (804) 285-8251
May 5, 2000
FILED VIA EDGAR
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Reference: The World Funds, Inc.
File Number 333-29289
Filed Pursuant to Rule 497(c)
Gentlemen:
Transmitted herewith for electronic filing on behalf of The World Funds, Inc.
(the "Company") please find enclosed, pursuant to Rule 497(c) under the
Securities Act of 1933, as amended, a copy of the Prospectus and Statement of
Additional Information of the Global e Fund series of the Company dated
May 1, 2000.
Should you have any questions regarding the filing of such documents, please
call the undersigned.
Sincerely,
/s/ John Pasco, III
- --------------------
John Pasco, III
enclosures
<PAGE>
THE WORLD FUNDS, INC.
Global e-Fund
PROSPECTUS
Prospectus Dated May 1, 2000
This Prospectus describes Global e-Fund (the "Fund"), a series of The World
Funds, Inc. (the "Company"). A series fund offers you a choice of investments,
with each series having its own investment objective and a separate portfolio.
The Fund seeks capital appreciation by investing in a non-diversified portfolio
of equity securities.
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Capital appreciation
Principal Investment
Strategies: The Fund will seek to achieve its investment objective
by investing in a non-diversified portfolio consisting
primarily of equity securities, securities convertible
into common stock and warrants of companies principally
engaged in Internet and Internet-related businesses.
A company is considered principally engaged in Internet
or Internet-related business if it is engaged in the
research, design, development, manufacturing or engaged
to a significant extent in the business of distributing
products, processes or services for use with the
Internet or Intranet related businesses.
Under normal market conditions, the Fund will invest at
least 65% of its assets in securities of companies
located outside of the United States principally engaged
in Internet and Internet related businesses. The Fund
intends to invest its assets in many countries and
normally will have business activities of not less than
three (3) different countries represented in its
portfolio.
Principal Risks: The principal risk of investing in the Fund is that
the value of its investments are subject to market,
economic and business risk that may cause the Net Asset
Value ("NAV") to fluctuate over time. Therefore, the
value of your investment in the Fund could decline.
There is no assurance that the investment adviser
will achieve the Fund's objective of capital
appreciation.
Investments in foreign countries may involve
financial, economic or political risks that are not
ordinarily associated with U. S. securities. Hence, the
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
increased volatility, taxes and adverse social or
political developments. 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 there is about
a domestic company.
The Fund may also invest in securities of companies
in emerging and developing markets. In addition to
the typical risks that are associated with investing
in foreign countries, companies in developing
countries generally do not have lengthy operating
histories. Consequently, these markets may be subject
to more substantial volatility and price fluctuation
than securities traded in more developed markets.
The Fund may invest in shares of closed-end investment
companies which invest in securities that are consistent
with the Fund's objective and strategies. By
investing in other investment companies the Fund
indirectly pays a portion of the expenses and brokerage
costs of these companies as well as its own expenses.
The Fund may invest in companies with small market
capitalization (i.e., less than $250 million) or
companies that have relatively small revenues, limited
product lines, and a small share of the market for their
products or services (collectively, "small companies").
Small companies may suffer significant losses, as
well as realize substantial growth. Thus,
securities of small companies present greater risks
than securities of larger, more established companies.
Historically, stocks of small companies have been more
volatile than stocks of larger companies and are,
therefore, more speculative than investments in larger
companies.
The Fund operates as a non-diversified fund. As such the
Fund may invest a larger portion of its assets in fewer
securities. This may cause the market action of the
Fund's larger portfolio positions to have a greater
impact on the Fund's NAV, which could result in
increased volatility.
An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit
Insurance Corporation ("FDIC") or any other government
agency.
Investor Profile: You may want to invest in the Fund if you are seeking
capital appreciation and are willing to accept share
prices that may fluctuate, sometimes significantly, over
the short-term. The Fund may be particularly suitable
for you if you wish to take advantage of opportunities
in the securities markets located outside of the U.S.
You should not invest in the Fund if you are not willing
to accept the risks associated with investing in foreign
countries. The Fund will not be appropriate if you are
seeking current income or are seeking safety of
principal.
Performance
Information: Because the Fund is new, it does not have historical
performance data and is not presenting historical
information at this time.
FEES AND EXPENSES
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. The annual operating
expenses, which cover the costs of investment management, administration,
accounting and shareholder communications, are shown as an annual percentage of
the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge (load) Imposed on Purchases 5.50%
Sales Charge (load) Imposed on Reinvested Dividends None
Redemption Fees (1) None
Exchange Fees (2) None
Estimated Annual Operating Expenses
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fee 1.25%
Distribution and Service (12b-1) Fees 0.50%
Other Operating Expenses 1.74%
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Total Annual Fund Operating Expenses 3.49% (3)
(1) A shareholder electing to redeem shares by telephone request may be
charged $10 for each such redemption request.
(2) A shareholder may be charged a $10 fee for each telephone exchange.
(3) In the interest of limiting expenses of the Fund, Global Assets Advisors,
Inc. (the "Adviser") has entered into a contractual expense limitation
agreement with the Company. Pursuant to the agreement, the Adviser has
agreed to waive or limit its fees and to assume other expenses for the
first three years following commencement of operations so that the total
annual operating expenses for the Fund are limited to 3.49%.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly.
EXAMPLE:
The following expense example shows the expenses that you could pay over time.
It will help you compare the costs of investing in the Fund with the cost of
investing in other mutual funds. The example assumes that you invest $10,000 in
the Fund and then redeem all of your shares at the end of the periods indicated.
The example assumes that you earn a 5% annual return, with no change in Fund
expense levels. Because actual return and expenses will be different, the
example is for comparison only.
Based on these assumptions, your costs would be:
1 Year 3 Years
------ -------
Total expenses $ 882 $1,562
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
OBJECTIVES AND STRATEGIES
The Fund's investment objective is to achieve capital appreciation. The
Fundseeks to achieve its objective by investing in common stocks and securities
that are convertible into common stocks and warrants. Under normal
circumstances, the Fund will invest at least 65% of its total assets in
securities of companies which are principally engaged in Internet and Internet
related businesses which are: located outside of the U.S.; have a majority of
their operations outside the U.S.; or have securities primarily traded on a
foreign exchange. The Fund may select its investments from companies which are
listed on a securities exchange or from companies whose securities have an
established over-the-counter market, and may make limited investments in "thinly
traded" securities.
The Fund is not limited to investing in securities of companies of any size.
Using a combination of top-down/bottom-up investment approach, the Adviser
analyzes foreign countries in relation to the United States to determine their
level of Internet "Evolution" . When selecting investments for the Fund, the
Adviser will seek to identify Internet companies that it believes are likely to
benefit from new or innovative products, services or processes that can enhance
the companies' prospects for future earnings growth. Some of these companies may
not have an established history of revenue or earnings at the time of purchase
and any dividend income is likely to be incidental.
The value of this type of company is particularly vulnerable to rapidly changing
technology and relatively high risks of obsolescence caused by scientific and
technological advances. The economic prospects of Internet companies can
dramatically fluctuate due to the competitive environment in which these
companies operate. Therefore, the Fund may experience greater volatility than
funds whose portfolio are not subject to these types of risks.
The Fund intends to invest its assets in many countries and normally will have
business activities of not less than three (3) different countries represented
in its portfolio. The securities the Fund purchases may not always be purchased
on the principal market. For example, American Depositary Receipts ("ADRs") may
be purchased if trading conditions and liquidity make them more attractive than
the underlying security.
The Fund may purchase and sell options, although it does not intend to do so at
this time.
RISKS
The Fund's investments in foreign securities may involve risks that are 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 there is 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 markets have substantially less trading volume than the
U.S. markets, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. These factors make foreign
investment more expensive for U.S. investors. Mutual funds offer an efficient
way for individuals to invest abroad, but the overall expense ratios of mutual
funds that invest in foreign markets are usually higher than those of mutual
funds that invest only in U.S. securities.
The Fund is subject to stock market risk. Stock market risk is the possibility
that stock prices overall will decline over short or long periods. Because stock
prices tend to fluctuate, the value of your investment in the Fund may increase
or decrease. The Fund's investment success depends on the skill of the Adviser
in evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the Fund may
not perform as anticipated.
In addition to common stocks and securities that are convertible into common
stocks, the Fund may invest in shares of closed-end investment companies which
invest in securities that are consistent with the Fund's objective and
strategies. By investing in other investment companies the Fund indirectly pays
a portion of the expenses and brokerage costs of these companies as well as its
own expenses. Also, federal and state securities laws impose limits on such
investments, which may affect the ability of the Fund to purchase or sell these
shares.
The Fund may invest in companies with small market capitalization (i.e., less
than $250 million) or companies that have relatively small revenues, limited
product lines, and a small share of the market for their products or services
(collectively, "small companies"). Small companies are also characterized by the
following: (1) they may lack depth of management; (2) they may be unable to
internally generate funds necessary for growth or potential development or to
generate such funds through external financing on favorable terms; and (3) they
may be developing or marketing new products or services for which markets are
not yet established and may never become established. Due to these and other
factors, small companies may suffer significant losses, as well as realize
substantial growth. Thus, securities of small companies present greater risks
than securities of larger, more established companies.
Historically, stocks of small companies have been more volatile than stocks of
larger companies and are, therefore, more speculative than investments in larger
companies. Among the reasons for the greater price volatility are the following:
(1) the less certain growth prospects of smaller companies; (2) the lower degree
of liquidity in the markets for such stocks; and (3) the greater sensitivity of
small companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. You
should therefore expect that the value of Fund shares to be more volatile than
the shares of mutual fund investing primarily in larger company stocks.
OTHER PRINCIPAL RISKS
Non-diversification; Industry concentration
The Fund is non-diversified under the Investment Company Act of 1940 ("1940
Act"). Under the 1940 Act, the Fund may invest its assets in the securities of a
smaller number of investors. In addition, the Fund may invest more than 25% of
its assets in what may be considered a single industry sector or several closely
related industries. Accordingly, the Fund may be more susceptible to the effects
of adverse economic, political or regulatory developments affecting a single
issuer or industry sector than funds that diversify to a greater extent.
Emerging and Developing Markets
A Fund's investments in emerging and developing countries involve those same
risks that are associated with foreign investing in general (see above). In
addition to those risks, companies in such countries generally do not have
lengthy operating histories. Consequently, theses markets may be subject to more
substantial volatility and price fluctuations than securities that are traded on
more developed markets.
Depositary Receipts
The Fund may invest indirectly in securities through sponsored and unsponsored
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
other types of Depositary Receipts (collectively "Depositary Receipts"), to the
extent such Depositary Receipts become available. ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company evidencing ownership of
underlying foreign securities. GDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, evidencing ownership of underlying
securities issued by either a foreign or a United States corporation. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. For purposes of the
Fund's investment policies, investments in Depositary Receipts will be deemed to
be investments in the underlying securities.
In addition to the risks of foreign investment applicable to the underlying
securities, unsponsored ADRs may also be subject to the risks that the foreign
issuer may not be obligated to cooperate with the U.S. bank, may not provide
additional financial and other information to the bank or the investor, or that
such information in the U.S. market may not be current. Please refer to the
Statement of Additional Information for more information on ADRs.
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 effects on these securities. To date the conversion of the Euro has had
negligible impact on the operations and investment returns of the Funds.
Portfolio Turnover
Although the Fund does not generally intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed when circumstances
warrant, without regard to the length of time a particular security has been
held. It is expected that the Fund will have an annual portfolio turnover rate
that will generally not exceed 100%. A 100% turnover rate would occur if all the
Fund's portfolio investments were sold and either repurchased or replaced within
a year. A high turnover rate (100% or more) results in correspondingly greater
brokerage commissions and other transactional expenses which are borne by the
Fund. High portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to shareholders, will be
taxable as ordinary income.
Temporary Defensive Positions
When the Adviser believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, the Fund may invest
up to 100% of its assets in U.S. Government securities (such as bills, notes, or
bonds of the U.S. Government and its agencies) or other forms of indebtedness
such as bonds, certificates of deposits or repurchase agreements (for the risks
involved in repurchase agreements see the Statement of Additional Information).
For temporary defensive purposes, the Fund may hold cash or debt obligations
denominated in U.S. dollars or foreign currencies. These debt obligations
include U.S. and foreign government securities and investment grade corporate
debt securities, or bank deposits of major international institutions. When a
Fund is in a temporary defensive position, it is not pursuing its stated
investment policies. The Adviser decides when it is appropriate to be in a
defensive position. It is impossible to predict for how long such defensive
strategies will be utilized.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
Investment Adviser - Global Assets Advisors, Inc. (the "Adviser") manages the
investment of the assets of the Fund pursuant to the Investment Advisory
Agreement (the "Advisory Agreement"). The address of the Adviser is 250 Park
Avenue South, Suite 200, Winter Park, Florida 32789.
Mr. Michael M. Ward is the Portfolio Manager of the Fund since it's
inception on May 1, 2000. Mr. Ward, a Chartered Financial Analyst
(CFA), has been Vice President and Director of Equity Research at International
Assets Advisory Corporation ("IAAC") since 1997. IAAC originated and maintains
the "NETDEX", an index of international internet companies. As a portfolio
manager of the Adviser, Mr. Ward manages and/or oversees more than $50 million
in global investments for a wide variety of clients. Prior to joining IAAC, he
was a Financial Analyst at Grande Journeys and a consultant with Winter Park
Capital Assets. Mr. Mido Shammaa and Mr. Stefan Spath are Assistant Portfolio
Managers of the Fund since its inception. Mr. Shammaa, regional strategist
for Asia and Internet analyst, joined IAAC in 1998. He specializes in the
equity analysis of both developed and emerging markets securities in
Southeast Asia and the Pacific Rim. Prior to joining IAAC, Mr. Shammaa
worked in the Risk Management division of Banco Popular. At Banco Popular,
Mr. Shammaa helped develop financial products and quantitative risk management
tools. Mr. Spath joined IAAC in 1997 and specializes in international
securities analysis, global macroeconomics and geo-political risk. Prior to
his work at IAAC, Mr. Spath was an investment analyst with RMC Group plc, a
British conglomerate. Mr. Spath was responsible for all capital budgeting and
investment analysis for international projects.
Under the Advisory Agreement, the Adviser provides the Fund with investment
management services, subject to the supervision of the Board of Directors, and
with office space, and pays the ordinary and necessary office and clerical
expenses relating to investment research, statistical analysis, supervision of
the Fund's portfolio and certain other costs. The Adviser also bears the cost of
fees, salaries and other remuneration of The World Funds' directors, officers or
employees who are officers, directors, or employees of the Adviser. The Fund is
responsible for all other costs and expenses, such as, but not limited to,
brokerage fees and commissions in connection with the purchase and sale of
securities, legal, auditing, bookkeeping and record keeping services, custodian
and transfer agency fees and fees and other costs of registration of the Fund's
shares for sale under various state and federal securities laws.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1.25% on the first $500 million of average
net assets; 1.00% on average net assets in excess of $500 million and not more
than $1 billion; and 0.75% on average net assets over 1 billion of the Fund's
average daily net assets. These fees are higher than those charged by most other
investment companies, but are comparable to investment companies with investment
objectives and policies similar to the Fund's investment objectives and
policies.
Although the Adviser has not previously served as the investment adviser for an
open-end investment company, it has served as the adviser to The Global Internet
Trust, a unit investment trust registered under the Investment Company Act of
1940 that is invested in a portfolio of global internet securities.
In the interest of limiting the expense ratio of the Fund, the Adviser has
entered into an expense limitation agreement with the Company. Pursuant to the
agreement, the Adviser has agreed to waive or limit its fees and to assume other
expenses so that the ratio of total annual operating expenses for the Fund is
limited to 3.49%. The limit does not apply to interest, taxes, brokerage
commissions, other expenditures capitalized in accordance with generally
accepted accounting principles or other extraordinary expenses not incurred in
the ordinary course of business.
The Adviser will be entitled to reimbursement of fees waived or remitted by the
Adviser to the Fund. The total amount of reimbursement recoverable by the
Adviser (the "Reimbursement Amount") is the sum of all fees previously waived or
remitted by the Adviser to the Fund during any of the previous five (5) years,
less any reimbursement previously paid by the Fund to the Adviser with respect
to any waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount. Such reimbursement will be
authorized by the Board of Directors.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
Time) on each business day ("Valuation Time") that the NYSE is open. As of the
date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets, subtracting any liabilities and then dividing by
the total number of shares outstanding.
Shares are bought at the public offering price per share next determined after a
request has been received in proper form. Shares are sold or exchanged at the
NAV per share next determined after a request has been received in proper form.
Any request received in proper form before the Valuation Time, will be processed
the same business day. Any request received in proper form after the Valuation
Time, will be processed the next business day.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost. Other assets for which market prices are
not readily available are valued at their fair value as determined in good faith
under procedures set by the Board of Directors. Depositary receipts will be
valued at the closing price of the instrument last determined prior to the
Valuation Time unless the Company is aware of a material change in value.
Securities for which such a value cannot be readily determined on any day will
be valued at the closing price of the underlying security adjusted for the
exchange rate. The value of a foreign security is determined as of the close of
trading on the foreign exchange on which it is traded or as of the scheduled
close of trading on the NYSE, whichever is earlier. Portfolio securities that
are listed on foreign exchanges may experience a change in value on days when
shareholders will not be able to purchase or redeem shares of the Fund.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times.
PURCHASING SHARES
Shares of the Fund may be purchased directly from International Assets Advisory
Corporation ("IAAC" or the "Distributor") or through brokers or dealers who are
members of the National Association of Securities Dealers, Inc. When an investor
acquires shares of the Fund from a securities broker-dealer, the investor may be
charged a transaction fee by that broker-dealer. The minimum initial investment
in the Fund is $1,000 and additional investments must be $50 or more.
The public offering price is normally the share's NAV plus an initial sales
charge. However, if you purchase shares in amounts over a certain level, the
initial sales charge may be reduced, as the chart below shows. The Fund reserves
the right to refuse to accept an order in certain circumstances, such as, but
not limited to, orders from short-term investors such as market timers, or
orders without proper documentation.
Sales Charge as a Percentage of
Amount of Purchase ------------------------------- Dealer Discount
At the Public Offering Net Amount as Percentage of
Offering Price Price Invested Offering Price
- --------------- -------- ---------- -----------------
$1,000 but under $25,000 5.50% 5.82% 5.00%
$25,000 but under $50,000 5.25% 5.54% 4.75%
$50,000 but under $100,000 4.50% 4.71% 4.00%
$100,000 but under $250,000 3.50% 3.63% 3.25%
$250,000 but under $500,000 2.50% 2.56% 2.25%
$500,000 but under $1 million 1.50% 1.52% 1.25%
$1 Million or more 0.00% 0.00% 0.00%
The Fund will waive any sales charge arising from the purchase of shares by a
director, officer or employee of the Fund or of service providers to the Fund
and their immediate family or trusts for their benefit.
Plan of Distribution - The Fund has a Plan of Distribution or "12b-1 Plan" under
which it may finance activities primarily intended to sell shares, provided the
categories of expenses are approved in advance by the Board of Directors of the
Company and the expenses paid under the Plan were incurred within the preceding
12 months and accrued while the Plan is in effect.
Right of Accumulation - Pursuant to the Right of Accumulation privilege,
investors are permitted to purchase shares at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) an amount equal to
the then current public offering price of the purchaser's combined holdings of
shares of the Fund previously purchased. To receive the Right of Accumulation,
shareholders must, at the time of purchase, give the Transfer Agent or the
Distributor sufficient information to permit confirmation of qualification for
such right.
Statement of Intention - A reduced sales charge as set forth above applies
immediately to all purchases where the investor has executed a Statement of
Intention calling for the purchase within a 13-month period of an amount
qualifying for the reduced sales charge. The investor must actually purchase the
amount stated in such statement to avoid later paying the full sales charge on
shares that are purchased. For a description of the Statement of Intention, see
the Statement of Additional Information.
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") at 1500 Forest Avenue, Suite 111,
Richmond, Virginia 23229, together with your check payable to the 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 at 800-628-4077, then notify the Distributor by
calling 800-432-0000. Your bank may charge you a small fee for this service.
Once you have arranged to purchase shares by wire, please complete and mail the
account application form promptly to the Transfer Agent. This application is
required to complete the Fund's records. You will not have access to your shares
until the Fund's records are complete. Once your account is opened, you may make
additional investments using 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
considered in proper order (see "Signature Guarantees"). You will be notified
promptly by the Transfer Agent if your redemption request is not in proper
order.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. Payment will be
made promptly, but no later than the seventh day following the receipt of the
request in proper order. The Company may suspend the right to redeem shares for
any period during which the NYSE is closed or the U.S. Securities and Exchange
Commission determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identify of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail - To redeem shares by mail, send a written request for
redemption, signed by the registered owner(s) exactly as the account is
registered. Certain written requests to redeem shares may require signature
guarantees. For example, signature guarantees may be required if you sell a
large number of shares, if your address of record on the account application has
been changed within the last 30 days, or if you ask that the proceeds to be sent
to a different person or address. Signature guarantees are used to help protect
you and the Fund. You can obtain a signature guarantee from most banks or
securities dealers, but not from a Notary Public. Please call the Transfer Agent
at 800-628-4077 to learn if a signature guarantee is needed or to make sure that
it is completed appropriately in order to avoid any processing delays.
Redemption by Telephone - You may redeem your shares by telephone provided that
you request this service on your initial Account Application. If you request
this service at a later date, you must send a written request along with a
signature guarantee to the Transfer Agent. 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 for each telephone redemption. The
Transfer Agent may change the amount of this service at any time without prior
notice.
Redemption by Wire - If you request that your redemption proceeds be wired to
you, please call your bank for instructions prior to writing or calling the
Transfer Agent. Be sure to include your name, Fund account number, your account
number at your bank and wire information from your bank in your request to
redeem by wire.
Signature Guarantees - To help protect you and the Fund from fraud, signature
guarantees are required for: (1) all redemptions ordered by mail if you require
that the check be payable to another person or that the check be mailed to an
address other than the one indicated on the account registration; (2) all
requests to transfer the registration of shares to another owner; and, (3) all
authorizations to establish or change telephone redemption service, other than
through your initial Account Application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or, (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and, (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts - Due to the relatively higher cost of maintaining small
accounts, the Fund may deduct $50 per year from your account or may redeem the
shares in your account, if it has a value of less than $1,000. The Fund will
advise you in writing thirty (30) days prior to deducting the annual fee or
closing your account, during which time you may purchase additional shares in
any amount necessary to bring the account back to $1,000. The Fund will not
close your account if it falls below $1,000 solely because of a market decline.
The Adviser and Distributor reserve the right to waive this fee for their
clients.
Automatic Investment Plan - Existing shareholders, who wish to make regular
monthly investments in amounts of $100 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 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. The Fund 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 the Fund's distribution
schedule before you invest.
DISTRIBUTIONS 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 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.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult with your tax
adviser about the federal, state, local or foreign tax consequences of your
investment in a Fund.
By law, the Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS has notified you that you are subject to
backup withholding and instructs the Fund to do so.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. Investment professionals
who offer shares may require payments of 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>
Information about the Company, including the SAI, can be reviewed and copied at
the SEC's Public Reference Room, 450 Fifth Street NW, Washington, D.C.
Information about the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Reports and other information regarding the
Fund are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, after paying
a duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington D.C. 20549-0102.
For more information about the Fund, you may wish to refer to the Company's SAI
dated May 1, 2000 which is on file with the SEC and incorporated by reference
into this Prospectus. You can obtain a free copy of the SAI by writing to The
World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, by
calling toll free (800) 527-9525 or by e-mail at: [email protected].
General inquiries regarding the Fund may also be directed to the above address
or telephone number.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
(THE "COMPANY")
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
1-800-527-9525
STATEMENT OF ADDITIONAL INFORMATION
Global e-Fund
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the Global e-Fund, dated
May 1, 2000. You may obtain the Prospectus of the Fund, free of charge, by
writing to World Funds, Inc. at 1500 Forest Avenue, Suite 223, Richmond, VA
23229 or by calling 1-800-527-9525.
The date of this SAI is May 1, 2000.
<PAGE>
TABLE OF CONTENTS PAGE
General Information
Additional Information About The Fund's Investments
Investment Objectives
Strategies and Risks
Investment Programs
Warrants
Illiquid Securities
Depositary Receipts
Temporary Defensive Positions
U.S. Government Securities
Repurchase Agreements
Restricted Securities
Options
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Investment Adviser and Advisory Agreement
Management-Related Services
Portfolio Transactions
Portfolio Turnover
Capital Stock and Dividends
Dividends and Distributions
Additional Information about Purchases and Sales
Eligible Benefit Plans
Tax Status
Investment Performance
Financial Information
<PAGE>
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 Globale-Fund
(the "Fund"). The Fund is a separate investment portfolio or series of the
Company. See "Capital Stock and Dividends" in this SAI. The Fund is a
"non-diversified" series as that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The following information supplements the discussion of the Fund's investment
objectives and policies. The Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, "majority of
outstanding voting shares" means the lesser of (1) 67% of the voting shares of
the Fund represented at a meeting of shareholders at which the holders of 50% or
more of the shares of the Fund are represented; or (2) more than 50% of the
outstanding voting shares of the Fund. The investment programs, restrictions and
the operating policies of the Fund that are not fundamental policies can be
changed by the Board of Directors of the Company (the "Directors") without
shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is capital appreciation. All investments entail
some market and other risks and there is no assurance that the Fund will achieve
its investment objective. You should not rely on an investment in the Fund as a
complete investment program.
STRATEGIES AND RISKS
The Fund invests in equity securities and securities convertible into equity
securities, such as warrants, convertible bonds, debentures or convertible
preferred.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Warrants
The Fund may invest in warrants. 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. Hence,
warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
differ from call options in that the underlying corporation issues warrants,
whereas call options may be written by anyone.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities. For this
purpose, the term "illiquid securities" means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities. Illiquid securities include
generally, among other things, certain written over-the-counter options,
securities or other liquid assets as cover for such options, repurchase
agreements with maturities in excess of seven days, certain loan participation
interests and other securities whose disposition is restricted under the federal
securities laws.
Depositary Receipts
American Depositary Receipts ("ADRs") are receipts typically issued in the U.S.
by a bank or trust company evidencing ownership of an underlying foreign
security. The Fund may invest in ADRs which are structured by a U.S. bank
without the sponsorship of the underlying foreign issuer. In addition to the
risks of foreign investment applicable to the underlying securities, such
unsponsored ADRs may also be subject to the risks that the foreign issuer may
not be obligated to cooperate with the U.S. bank, may not provide additional
financial and other information to the bank or the investor, or that such
information in the U.S. market may not be current.
Like ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Registered Depositary Certificates ("RDCs") represent receipts for
a foreign security. However, they are issued outside of the U.S. The Fund may
invest in ADRs, EDRs, GDRs or RDCs. EDRs, GDRs and RDCs involve risks comparable
to ADRs, as well as the fact that they are issued outside of the U.S.
Furthermore, RDCs involve risks associated with securities transactions in
Russia.
Temporary Defensive Positions
When the Adviser believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, the Fund may invest
up to 100% of its assets in U.S. Government securities (such as bills, notes, or
bonds of the U.S. Government and its agencies) or other forms of indebtedness
such as bonds, certificates of deposits or repurchase agreements. For temporary
defensive purposes, the Fund may hold cash or debt obligations denominated in
U.S. dollars or foreign currencies. These debt obligations include U.S. and
foreign government securities and investment grade corporate debt securities, or
bank deposits of major international institutions. When the Fund is in a
temporary defensive position, it is not pursuing its stated investment policies.
The Adviser decides when it is appropriate to be in a defensive position. It is
impossible to predict for how long such alternative strategies will be utilized.
U.S. Government Securities
The Fund may invest in U.S. Government Securities. The term "U.S. Government
Securities" refers to a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the U.S. Government, and by
various instrumentalities which have been established or sponsored by the U.S.
Government. U.S. Treasury securities are backed by the full faith and credit of
the United States. Securities issued or guaranteed by U.S. Government agencies
or U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
directly against the United States in the event the agency or instrumentality
does not meet its commitment. An instrumentality of the U.S. Government is a
government agency organized under Federal charter with government supervision.
Repurchase Agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. The 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 the debt securities in which the Fund invests. Under a
repurchase agreement, the 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 a repurchase agreement is considered to be a loan by a fund.
The Adviser 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.
Restricted Securities
The Fund may invest in restricted securities. Generally, "restricted securities"
are securities which have legal or contractual restrictions on their resale. In
some cases, these legal or contractual restrictions may impair the liquidity of
a restricted security; in others, the legal or contractual restrictions may not
have a negative effect on the liquidity of the security. Restricted securities
which are deemed by the Investment Adviser to be illiquid will be included in
the Fund's policy which limits investments in illiquid securities.
Options
Put and Call Options: A put option gives the purchaser of the option, upon
payment of a premium, the right to sell, and the writer the obligation to buy,
the underlying security, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. The purchase of
a put option will constitute a short sale for federal tax purposes. The purchase
of a put at a time when the substantially identical security held long has not
exceeded the long term capital gain holding period could have adverse tax
consequences. The holding period of the long position will be cut off so that
even if the security held long is delivered to close the put, short term gain
will be recognized. If substantially identical securities are purchased to close
the put, the holding period of the securities purchased will not begin until the
closing date. The holding period of the substantially identical securities not
delivered to close the short sale will commence on the closing of the short
sale.
A call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. The Fund's purchase of a call option on a security,
securities index, currency or other instrument might be intended to protect the
Fund against an increase in the price of the underlying security.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund's ability to close out its position as a purchaser or seller of an
option is dependent, in part, upon liquidity of the option market. Among the
possible reasons for the absence of a liquid option market on an exchange are:
(1) insufficient trading interest in certain options; (2) restrictions on
transactions imposed by an exchange; (3) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities including reaching daily price limits; (4) interruption of
the normal operations of the or an exchange; (5) inadequacy of the facilities of
an exchange or to handle current trading volume; or (6) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
OTHER INVESTMENTS
The Directors may, in the future, authorize the Fund to invest in securities
other than those listed in this SAI and in the prospectus, provided such
investments would be consistent with 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) Participate on a joint or a joint and several basis in any securities trading
account;
9) Engage in short sales;
10)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;
11)Purchase any security if, as a result of such purchase less than 50% of the
assets of the Fund would consist of cash and cash items, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its assets;
12)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
13)Make loans, except that the Fund may lend securities, and enter into
repurchase agreements secured by U.S. Government Securities.
14)Except as specified below, the Fund 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 Directors without
shareholder approval. As a matter of non-fundamental policy, the Fund may not:
1) Invest more than 15% of its net assets in illiquid securities; or
2) Engage in arbitrage transactions.
In applying the fundamental and policy concerning concentration:
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
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 Fund, and
review performance. The names and addresses of the Directors and officers of the
Company, together with information as to their principal occupations during the
past five years, are listed below. The Directors who are considered "interested
persons" as defined in Section 2(a)(19) of the 1940 Act, as well as those
persons affiliated with the Investment Adviser and principal underwriter, and
officers of the Company, are noted with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age 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., the
(55) Company's Administrator, since
1985; President and Director
of First Dominion Capital Corp.,
the Company's principal
underwriter. Director and
shareholder of Fund Services
Inc., the Company's Transfer and
Disbursing Agent, since 1987;
shareholder of Commonwealth Fund
Accounting, Inc. which provides
bookkeeping services to Star
Bank; and Chairman, Director
and Treasurer of Vontobel Funds,
Inc., a registered investment
company since March, 1997.
Mr. Pasco is also a
certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations
Potomac, MD 20854 and Accounting Division
(59) of the 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
(60) 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 Drive Alfred J. Dickinson, Inc.
Richmond, VA 23229 Realtors since April, 1971; and
(52) Director or Vontobel Funds,
Inc., a registered investment
company since March, 1997.
*Jane H. Williams Vice President of Ms. Williams is the Executive
3000 Sand Hill Road the Company Vice President of and Sand Hill
Suite 150 and President Advisors, Inc. since 1982.
Menlo Park, CA 94025 of the Sand Hill
(51) Portfolio Manager
Fund series
*Leland H. Faust President of the Mr. Faust is President of
One Montgomery St. CSI Equity Fund CSI Capital Management, Inc.
Suite 2525 and the CSI Fixed since 1978. Mr. Faust is also
San Francisco, CA 94104 Income Fund a Partner in the law firm
(53) Taylor & Faust since December,
1975.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
810 Lindsay Court Commonwealth Shareholder
Richmond, VA 23229 Services, Inc., and First
(57) Dominion Capital Corp.
since 1986; Secretary of
Vontobel Funds, Inc., a
registered investment company
since March, 1997; and
Partner in the law firm
Mustian & Parker.
*Franklin A. Trice, III Vice President of Mr. Trice is President
P.O. Box 8535 the Company and of Virginia Management
Richmond, VA 23226-0535 President of the Investment Corp. since May,
(36) New Market Fund 1998; and a registered
series representative of First
Dominion Capital Corp., the
Company's underwriter since
September, 1998. Mr.
Mr.Trice was a broker with Scott
& Stringfellow from March, 1996
to May, 1998 and with Craigie,
Inc. from March, 1992 to
January, 1996.
*John T. Connor, Jr. Vice President of Mr. Connor is President of Third
515 Madison Ave., the Company and Millennium Investment Advisors,
24th Floor President of the LLC since April, 1998; and
New York, NY 10022 Third Millennium Chairman of ROSGAL,
(58) Russia Fund series a Russian financial company
and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 606 President of since July, 1990; and
Gaithersburg, MD 20878 GenomicsFund.com President of xGENx, LLC
(53) series since November, 1999.
*Todd A. Boren President of the Mr. Boren joined
250 Park Avenue, So. Global e-Fund International Assets Advisory in
Suite 200 series May of 1994. In his six years
Winter Park, FL 32789 with IAAC he has served as a
(40) Financial Adviser, VP of Sales,
Branch Manager, Training
Manager, and currently as Senior
Vice President and Managing
Director of Private Client
Operations for both
International Assets Advisory
and Global Assets Advisors. He
is responsible for overseeing
its International Headquarters
in Winter Park Florida as well
as its New York operation and
joint venture.
Compensation of Directors: The Company does not compensate the Directors who are
officers or employees of the Investment Adviser. The "independent" Directors
receive an annual retainer of $1,000 and a fee of $200 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.
For the fiscal period ended August 31, 1999, the Directors received the
following compensation from the Company:
Aggregate
Compensation
From the Fund Total
Name and Fiscal Year Pension or Retirement Compensation
Position Ended August Benefits Accrued as from the
Held 31, 1999 Part of Fund Expenses Company(1)
- ---- ------------ --------------------- ----------
John Pasco, III, 0 N/A 0
Director
Samuel Boyd, Jr., 0 N/A $9,000
Director
William E. Poist, 0 N/A $9,000
Director
Paul M. Dickinson, 0 N/A $9,000
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for service on the Directors for the Fund's fiscal year ended
August 31, 1999.
CONTROL PERSONS - PRINCIPAL HOLDERS OF SECURITIES
The Directors and officers of the Company, as a group, do not own 1% or more of
the Fund.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Global Assets Advisors, Inc. (the "Investment Adviser" or "Adviser"), located at
250 Park Avenue South, Suite 200, Winter Park, Florida 32789, manages the
investments of the Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement" ), dated May 1, 2000. After the initial term of two years,
the Advisory Agreement may be renewed annually provided such renewal is approved
annually by: 1) the Company's Directors; or 2) by a majority vote of the
outstanding voting securities of the Company and, in either case, by a majority
of the Directors who are not "interested persons" of the Company. 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 Adviser. The Investment Adviser is
registered as an investment adviser under the Investment Advisers Act of 1940 as
amended, the "Advisers Act". The Investment Adviser is a wholly owned subsidiary
of International Assets Holding Corporation and is a related corporation of
International Assets Advisory Corporation ("IAAC").
International Assets Holding Corporation is an independent financial-services
firm dedicated to the concept of global diversification and the long-term value
of global investing. Founded in 1987 and publicly traded since in 1994, the
Company's business is conducted through two principal operating subsidiaries:
International Assets Advisory Corp. (IAAC) and Global Assets Advisors Inc.
(GAA). IAAC is a dealer of global securities offering institutions and retail
investors access to financial markets around the world. GAA is a registered
investment adviser specializing in professional global money management for high
net worth individuals and institutions. In addition, the Company recently formed
a third subsidiary, INTLTRADER.COM, to execute its previously announced strategy
to provide investors with 24-hour online trading of foreign and domestic
securities using the Internet.
The Adviser has not previously served as the investment adviser to an open-end
investment company, but has served as the adviser to The Global Internet Trust,
a unit investment trust registered under the 1940 Act. IAAC created the NETDEX
Index in March 1999 to track the performance of a basket of publicly traded
international companies which are internet related, the first U.S. index
established for that purpose.
Under the Advisory Agreement, the Investment Adviser, subject to the supervision
of the Directors, provides a continuous investment program for the Fund,
including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies, and restrictions as set forth in the Prospectus and this
SAI. The Investment Adviser is responsible for effecting all security
transactions on behalf of the Fund, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions. The
Investment Adviser also maintains books and records with respect to the
securities transactions of the Fund and furnishes to the Directors such periodic
or other reports as the Directors may request.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1.25% on the first $500 million of average
daily net assets of the Fund; 1.00% on average daily net assets of the Fund in
excess of $500 million and not more than $1 billion; and , 0.75% on average
daily net assets of the Fund over $1 billion.
In the interest of limiting expenses of the Fund, the Adviser has entered into
an expense limitation agreement with the Company. Pursuant to the agreement, the
Adviser has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses for the Fund is limited to 3.49%. The
limit does not apply to interest, taxes, brokerage commissions, other
expenditures capitalized in accordance with generally accepted accounting
principles or other extraordinary expenses not incurred in the ordinary course
of business. The Adviser will be entitled to reimbursement of fees waived or
remitted by the Adviser to the Fund. The total amount of reimbursement
recoverable by the Adviser (the "Reimbursement Amount") is the sum of all fees
previously waived or remitted by the Adviser to the Fund during any of the
previous five (5) years, less any reimbursement previously paid by the Fund to
the Adviser with respect to any waivers, reductions, and payments made with
respect to the Fund. The Reimbursement Amount may not include any additional
charges or fees, such as interest accruable on the Reimbursement Amount. Such
reimbursement will be authorized by the Directors.
Pursuant to the terms of the Advisory Agreement, the Investment Advisor pays all
expenses incurred by it in connection with its activities thereunder, except the
cost of securities (including brokerage commissions, if any) purchased for the
Fund. The services furnished by the Investment Adviser under the Advisory
Agreement are not exclusive, and the Investment Adviser is free to perform
similar services for others.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to an Administrative Services Agreement with the Company dated May 1,
2000 (the "Administrative Agreement"), Commonwealth Shareholder Services, Inc.
("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Fund and supervises all aspects of the operation of the
Fund except those performed by the Investment Adviser. John Pasco, III, Chairman
of the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% on the first $500 million of
average daily net assets of the Fund; 0.175% on average daily net assets of the
Fund in excess of $500 million and not more than $1 billion; and 0.15% on
average daily net assets of the Fund in excess of $1 billion, subject to a
minimum amount of $15,000 per year for a period of two years from the date of
the Administrative Agreement. Thereafter, the minimum administrative fee is
$30,000 per year. CSS receives an hourly rate, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to the Custodian Agreement and Accounting Agency Agreement with the
Company dated April 12, 2000, Brown Brothers Harriman & Co. ("BBH"), 40 Water
Street, Boston Massachusetts, 02109, acts as the custodian of the Fund's
securities and cash and as the Fund's accounting services agent. With the
consent of the Company, BBH has designated The Depository Trust Company of New
York, as its agent to secure a portion of the assets of the Fund. BBH is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities acquired and held by the Fund outside the U.S.
Such appointments are subject to appropriate review by the Company's Directors.
As the accounting services agent of the Fund, BBH maintains and keeps current
the books, accounts, records, journals or other records of original entry
relating to the Fund's business.
TRANSFER AGENT
Pursuant to a Transfer Agent Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI") acts as the Company's transfer and disbursing agent.
FSI is located at 1500 Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco,
III, Chairman of the Board of the Company and an officer and shareholder of CSS
(the Administrator of the Funds), owns one-third of the stock of FSI; 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 and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. FSI disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
DISTRIBUTOR
International Assets Advisory Corporation (the "Distributor"), 250 Park Avenue
South, Suite 200, Winter Park, Florida 32789, serves as the principal
underwriter of the Fund's shares pursuant to a Distribution Agreement dated May
1, 2000. The Distributor was formed as a Florida corporation in 1981 and
registered as a broker/dealer in 1982. The firm has focused on the sale of
global debt and equity securities to its clients and has developed an
experienced team specializing in the selection, research, trading, currency
exchange and execution of individual equity and fixed-income products. Members
of this team are also affiliated with the Investment Adviser and have many years
of experience in the global marketplace.
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 Adviser, in placing orders for the purchase and sale of
the Fund's securities, to seek to obtain the best price and execution for
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange,
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of a fund's
brokerage to persons or firms providing the Adviser with investment
recommendations, statistical, research or similar services useful to the
Adviser'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) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Adviser 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 Adviser for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser may be authorized, when placing
portfolio transactions for the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Board of Directors of the Company has adopted policies and procedures
governing the allocation of brokerage to affiliated brokers. The Adviser has
been instructed not to place transactions with an affiliated broker-dealer,
unless that broker-dealer can demonstrate to the Company that the Fund will
receive (1) a price and execution no less favorable than that available from
unaffiliated persons, and (2) a price and execution equivalent to that which
that broker-dealer would offer to unaffiliated persons in a similar transaction.
The Board reviews all transactions which have been placed pursuant to those
policies and procedures at its Board meetings.
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 Adviser makes purchases and sales for the
Fund's portfolio whenever necessary, in the Adviser's opinion, to meet the
Fund's objective. The Adviser anticipates that the average annual portfolio
turnover rate of the Fund will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 500,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has presently allocated
50,000,000 shares to each of the Funds. Each share has equal dividend, voting,
liquidation and redemption rights and 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
FSI.
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 the Directors create
additional series or classes of shares, 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,
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
DISTRIBUTION
Shares of the Fund are offered for sale on a continuous basis at the Net Asset
Value plus the applicable sales load.
International Assets Advisory Corporation (the "Distributor") receives
commissions consisting of that portion of the sales load remaining after the
discounts which it allows to investment dealers. The distributor retains 0.50%
of the offering price on sales through the dealer involving the maximum sales
load.
The Fund's public offering price ("POP") per share is equal to the net asset
value per share next determined after receipt of a purchase order plus a sales
load which is reduced on purchases involving large amounts and which may be
eliminated in certain circumstances described below.
Amount of Purchase Sales Charge as a Percentage of
At the Public ------------------------------- Dealer Discount
Offering Price Offering Net Amount as Percentage of
Price Invested Offering Price
$1,000 but under $25,000 5.50% 5.82% 5.00%
$25,000 but under $50,000 5.25% 5.54% 4.75%
$50,000 but under $100,000 4.50% 4.71% 4.00%
$100,000 but under $250,000 3.50% 3.63% 3.25%
$250,000 but under $500,000 2.50% 2.56% 2.25%
$500,000 but under $1 million 1.50% 1.52% 1.25%
Over $1 Million 0.00% 0.00% 0.00%
In addition to the sales charge listed above, up to 0.50% of average net assets
is paid annually to qualified dealers for providing certain services (including
services to retirement plans) pursuant to the Fund's Plan of Distribution.
The Distributor may from time to time offer incentive compensation to dealers
(which sell shares of the Fund subject to sales charges) allowing such dealers
to retain an additional portion of the sales load. A dealer who receives all of
the sales load may be considered an underwriter of the Fund's shares.
In connection with promotion of the sales of the Fund, the Distributor may, from
time to time, offer (to all broker dealers who have a sales agreement with the
Distributor) the opportunity to participate in sales incentive programs (which
may include non-cash concessions). These non-cash concessions are in addition to
the sales load described in the Prospectus. The Distributor may also, from time
to time, pay expenses and fees required in order to participate in dealer
sponsored seminars and conferences, reimburse dealers for expenses incurred in
connection with pre-approved seminars, conferences and advertising, and may,
from time to time, pay or allow additional promotional incentives to dealers as
part of pre-approved sales contests.
Statement of Intention - The reduced sales charges and public offering price set
forth above and in the prospectus apply to purchases of $25,000 or more made
within a 13-month period pursuant to the terms of a written Statement of
Intention in the form provided by the Distributor and signed by the purchaser.
The Statement of Intention is not a binding obligation to purchase the indicated
amount. Shares equal to 5.50% (declining to 0% after an aggregate of $1,000,000
has been purchased under the Statement) of the dollar amount specified in the
Statement will be held in escrow and capital gain distributions on these
escrowed shares will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Distributor the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total purchases had been made at a single time. If
the difference is not paid within 20 days after written request by the
Distributor or the securities dealer, the appropriate number of escrowed shares
will be redeemed to pay such difference.
In the case of purchase orders by the trustees of certain employee plans by
payroll deduction, the sales charge for the investments made during the 13-month
period will be based on the following: total investments made the first month of
the 13-month period times 13; as the period progresses the sales charge will be
based (1) on the actual investment made previously during the 13-month period,
plus (2) the current month's investments times the number of months remaining in
the 13-month period. There will be no retroactive adjustments in sales charge on
investments previously made during the 13-month period.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the Board of Directors of the Company and
the expenses paid under the Plan were incurred within the preceding 12 months
and accrued while the Plan is in effect.
The Plan provides that the Fund will pay a fee to the Distributor at an annual
rate of 0.50% of the Fund's average daily net assets. The fee is paid to the
Distributor as reimbursement for expenses incurred for distribution-related
activity.
SALES AT NET ASSET VALUE
The front end sales charge is waived for purchases by the following types of
investors: any financial institution or adviser regulated by federal or state
governmental authority when the institution or adviser is purchasing shares for
its own account or for an account for which the institution or adviser is
authorized to make investment decisions (i.e., a discretionary account);
Directors, Officers and employees of the Company, the Investment Adviser and the
Distributor, (including members of the Distributor's and the Investment
Adviser's immediate families and their retirement accounts or plans); Directors,
Officers and employees of the Fund's service providers; customers, clients or
accounts of the Investment Adviser, or other investment advisers or financial
planners who charge a fee for their services, provided that shares purchased are
held in the omnibus account of the broker or agent placing the order; retirement
accounts or plans, or deferred compensation plans and trusts funding such plans
for which a depository institution, trust company or other fiduciary holds
shares purchased through the omnibus account of the broker or agent placing the
order; and Eligible Benefit Plans (see "Eligible Benefit Plans").
The front end sales charge is also waived for any registered representatives,
employees, or principals of securities dealers (including members of their
immediate families) having a sales agreement with the Distributor.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
The Fund's share price, called its NAV, is determined as of the close of trading
on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern Time) on
each business day ("Valuation Time") that the NYSE is open; however, the
Company's management may compute the NAV more frequently in order to protect
shareholders' interests. As of the date of this prospectus, the Fund is informed
that the NYSE will be closed on 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 total number of shares outstanding.
The Fund's securities are generally 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 pricing procedures. 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 Directors. Depositary
Receipts (i.e., ADRs, EDRs, GDRs and RDCs) 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.
Eligible Benefit Plans
An eligible benefit plan is an arrangement available to the (1) employees of an
employer (or two or more affiliated employers) having not less than ten
employees at the plan's inception (2) 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 five initial participants with accounts investing or invested in shares of
one or more of the Fund and/or certain other funds.
The initial purchase by the eligible benefit plan along with prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $500. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
Selling Shares
You may redeem shares of the Fund at any time and in any amount by mail or
telephone. The Fund 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.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. Payment will be
made promptly, but no later than the seventh day following the receipt of the
request in proper order. The Company may suspend the right to redeem shares for
any period during which the NYSE is closed or the U.S. Securities and Exchange
Commission determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
Small Accounts
Due to the relatively higher cost of maintaining small accounts, the Company may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Company will advise you in writing
thirty (30) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Company will not close your account if it
falls below $1,000 solely because of a market decline. The Adviser and
Distributor reserve the right to waive this fee for their clients.
Special Shareholder Services
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account
A regular account allows a shareholder to make voluntary investments and/or
withdrawals at any time. Regular accounts are available to individuals,
custodians, corporations, trusts, estates, corporate retirement plans and
others. You may use the Account Application provided with the Prospectus to open
a regular account.
Telephone Transactions
You may redeem shares or transfer into another fund if you request this service
on your initial Account Application. If you do not elect this service at that
time, you may do so at a later date by sending a written request and signature
guarantee to FSI.
The Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Invest-A-Matic Account
Invest-A-Matic Accounts allow shareholders to make automatic monthly investments
into their account. Upon request, FSI will withdraw a fixed amount each month
from a shareholder's checking account and apply that amount to additional
shares. This feature does not require you to make a commitment for a fixed
period of time. You may change the monthly investment, skip a month or
discontinue your Invest-A-Matic Plan as desired by notifying FSI. To receive
more information, please call the offices of the Company at 1-800-527-9525. Any
shareholder may utilize this feature.
Individual Retirement Account ("IRA")
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000 (or $2,250 with a spouse who is not a wage
earner, for years prior to 1997). A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules that govern
contributions made by individuals with earned income. A special IRA program is
available for corporate employers under which the employers may establish IRA
accounts for their employees in lieu of establishing corporate retirement plans.
Known as SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate
employer of many of the recordkeeping requirements of establishing and
maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. 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 Retirement Accounts
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. You may wish to consult with your attorney or other tax
adviser for specific advice concerning your 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 $25,000 for the Sand Hill
Portfolio Manager Fund; $1,000 for the CSI Equity Fund, the CSI Fixed Income
Fund, the New Market Fund and Third Millennium Russia Fund; and, $5,000 for
GenomicsFund.com). Also, 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. Your 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). FSI will charge your account a $10 service fee each
time you make such an exchange. The Company reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict shareholders from
making exchanges at any time, without notice, should the Company determine that
it would be in the best interest of its shareholders to do so. For tax purposes,
an exchange constitutes the sale of the shares of the Fund from which you are
exchanging and the purchase of shares of the Fund into which you are exchanging.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes. The exchange privilege is available
only in states where it is legally permissible to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income
the Fund receive income generally in the form of dividends and interest on their
investments. This income, less expenses incurred in the operation of a fund,
constitutes a fund's net investment income from which dividends may be paid to
you. Any distributions by a fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains
The Fund 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 the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on the Fund.
Effect of foreign investments on distributions
Most foreign exchange gains realized on the sale of securities are treated as
ordinary income by a fund. Similarly, foreign exchange losses realized by a fund
on the sale of securities are generally treated as ordinary losses by the Fund.
These gains when distributed will be taxable to you as ordinary dividends, and
any losses will reduce a fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce a fund's ordinary
income distributions to you, and may cause some or all of a fund's previously
distributed income to be classified as a return of capital.
A fund may be subject to foreign withholding taxes on income from certain of its
foreign securities. If more than 50% of a fund's total assets at the end of the
fiscal year are invested in securities of foreign corporations, a fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, the year-end statement you receive from a fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. A fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
their tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, 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 taxed as a regulated investment company
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, the Fund generally does not pay federal income
tax on the income and gains they distribute to you. The board reserves the right
not to maintain the qualification of a fund as a regulated investment company if
it determines such course of action to be beneficial to shareholders. In such
case, a fund will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements
To avoid federal excise taxes, the Internal Revenue Code requires a fund to
distribute to you by December 31 of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31; and 100% of any undistributed amounts from the prior year. The Fund
intends to declare and pay these amounts in December (or in January that are
treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
Redemption of Fund shares
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares, or exchange your
Fund shares for shares of a different series of the Company, the IRS will
require that you report a gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, the gain or loss that you realize will be
capital gain or loss and will be long-term or short-term, generally depending on
how long you hold your shares. Any loss incurred on the redemption or exchange
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains distributed to you by the Fund
on those shares.
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.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, 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 Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
Yield = 2[(a-b +1)-1]
----
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
A fund's yield, as used in advertising, is computed by dividing the Fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period
dividing this figure by a fund's 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 of $1,000
T = average annual total return
n = number of years (1,5 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 Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $10,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by the 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
You can receive free copies of reports, request other information and discuss
your questions about the Fund by contacting the Fund directly at:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
TELEPHONE: 1-800-527-9525
E-MAIL: [email protected]
The books of the Fund will be audited at least once each year by Tait, Weller
and Baker, of Philadelphia, PA, independent public accountants.
