THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223 * P. O. Box 8687 * Richmond, VA 23229
(804) 285-8211 * (800) 527-9525 * Fox (804) 285-8251
September 11, 2000
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 Global e Fund
series (the "Fund") 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 Prospectuses dated September 6, 2000.
Should you have any questions regarding the filing of such documents, please
call the undersigned.
Sincerely,
/s/ John Pasco, III
----------------------
John Pasco, III
<PAGE>
THE WORLD FUNDS, INC.
Global e Fund
PROSPECTUS
Prospectus Dated September 6, 2000
This Prospectus describes the 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. The Fund offers two classes of shares: Class A Shares with
a front-end sales charge and Class B Shares subject to a contingent deferred
sales charge.
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 Internet-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 (the "U.S.")
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. The Fund may
also invest in securities of companies in emerging and
developing markets.
The Fund will not be limited to investing in securities
of companies of any size, securities of any particular
market, or to hold particular securities for a stated
time period. The Fund may invest in companies with
small market capitalization 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").
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.
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.
The value of the Fund's shares is susceptible to factors
affecting the Internet such as heightened regulatory
oversight and possible changes in government policies
which may have a material effect on the products and
services of this sector. Securities of companies in
this sector tend to be more volatile than securities of
companies in other sectors. Competitive pressures and
changing demand may have a significant effect on the
financial condition of Internet companies. These
companies spend heavily on research and development and
are especially sensitive to the risk of product
obsolescence. The occurrence of any of these factors,
individually or collectively, may adversely affect the
value of the Fund's shares and could result in the loss
of your investment.
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. In addition, as investments may be
made utilizing foreign currencies, there is the risk of
currency devaluation that may effect this investment.
In addition to the typical risks that are associated
with investing in foreign countries, companies in
emerging and 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.
Because exchange rates for currencies fluctuate daily,
prices of the foreign securities in which the fund
invests are more volatile than prices of securities
traded exclusively in the U.S.
Because the small companies in which the Fund may invest
may have unproven track records, a limited product or
services base and limited access to capital, they may be
more likely to fail than larger companies.
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)
Class A Shares Class B Shares
-------------- --------------
Maximum Sales Charge (Load)(1) 5.50% None
Maximum Deferred Sales Charge (Load) None(2) 5.00%(3)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and Distributions None None
Redemption Fees (4) None None
Exchange Fees (5) None None
Estimated Annual Operating Expenses(expenses that are deducted from Fund
assets)
Class A Shares Class B Shares
-------------- --------------
Advisory Fee 1.25% 1.25%
Distribution (12b-1) Fees(6) 0.50% 1.00%
Other Expenses 1.74% 1.74%
----- -----
Total Annual Fund Operating Expenses (7) 3.49% 3.99%
1) As a percentage of offering price. Reduced rates apply to purchases over
$25,000, and the sales charge is waived for certain classes of investors.
See "Buying Fund Shares-Public Offering Price" and "Buying Fund
Shares-Rights of Accumulation."
2) If you are in a category of investors who may purchase shares without a
sales charge, you will be subject to a 1% contingent deferred sales charge
if you redeem your shares within 1 year of purchase.
3) A 5% deferred sales charge as a percentage of the original purchase price
will apply to any redemption made within the first year. During the second
year, redeemed shares will incur a 4% sales charge. During years three and
four you will pay 3%, during year five 2%, and during year six 1%. The
contingent deferred sales charge is eliminated after the sixth year. Class
B Shares automatically convert to Class A Shares eight years after the
calendar month end in which the Class B Shares were purchased.
4) A shareholder electing to redeem shares by telephone request may be charged
$10 for each such redemption request.
5) A shareholder may be charged a $10 fee for each telephone exchange.
6) The Company has approved a Plan of Distribution pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended, (the "1940 Act") providing
for the payment of distribution fees to the distributors for the Fund
("12b-1 Plan"). Class A Shares pay a maximum distribution fee of 0.50% of
average daily net assets, and Class B Shares pay a maximum distribution fee
of 1.00% of average daily net assets. See "Rule 12b-1 Fees." The higher
12b-1 fees borne by Class B Shares may cause long-term investors to pay
more than the economic equivalent of the maximum front end sales charge
permitted by the National Association of Securities Dealers (the "NASD").
7) 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 ratio of
total annual operating expenses of the Fund are limited to 3.49% for Class
A Shares and 3.99% for Class B Shares.
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 - Class A Shares (1) $882 $1,562
Total Expenses - Class B Shares (2) $901 $1,515
(1) With respect to Class A Shares, the above examples assume payment of the
maximum initial sales charge of 5.50% at the time of purchase. The sales
charge varies depending upon the amount of Fund shares that an investor
purchases. Accordingly, your actual expenses may vary.
(2) With respect to Class B Shares, the above examples assume payment of the
deferred sales charge applicable at the time of redemption.
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 Fund
seeks 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
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 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 Internet is an emerging global communication, information and distribution
system. The Adviser believes that the Internet offers favorable investment
opportunities because of its ever growing popularity among business and personal
users alike. Consequently, there are opportunities for continued growth in
demand for components, products, media, services, and systems to assist,
facilitate, enhance, store, process, record, reproduce, retrieve and distribute
information, products and services for use by businesses, institutions and
consumers. However, older technologies such as telephone, broadcast and cable
have entered the Internet world with a strong presence and may also be
represented when the Adviser believes that these companies may successfully
integrate existing technology with new technologies. Products and services
identified for investment include, but are not limited to, servers, routers,
search engines, portals, bridge and switches, network applications, software,
cable, satellite, fiber, modems, carriers, firewall and security, e-mail,
electronic commerce, video and publishing.
The Internet has exhibited and continues to demonstrate rapid growth, both
through increasing demand for existing products and services and the broadening
of the Internet market. This provides a favorable environment for investment in
small to medium capitalized companies. However, the Fund's investment policy is
not limited to any minimum capitalization requirement and the Fund may hold
securities without regard to the capitalization of the issuer. The Adviser's
overall stock selection for the Fund is not based on the capitalization or size
of the company but rather on an assessment of the company's fundamental
prospects.
Using a combination of top-down/bottom-up investment approach, the Adviser
analyzes foreign countries in relation to the U.S. 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 Fund may invest indirectly in securities through sponsored and unsponsored
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") 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, EDRs 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 U.S. corporation. Depositary Receipts may not necessarily
be denominated in the same currency of 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.
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.
The Fund may invest in securities involving special circumstances, such as
initial public offerings, companies with new management or management reliant on
one or a few key people, special products and techniques, limited or cyclical
product lines, markets or resources or unusual developments, such as mergers,
liquidations, bankruptcies or leveraged buyouts.
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 objectives 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.
Other Investments. In addition to the investment strategies described above, the
Fund may engage in other strategies such as derivatives. Investments in
derivatives, such as options, can significantly increase a fund's exposure to
market risk or credit risk of the counterparty, as well as improper valuation
and imperfect correlation.
RISKS
Stock Market Risk.
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.
Non-diversification; Industry concentration.
The Fund is non-diversified under the 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.
Sector Risk.
Internet and Internet-related companies are particularly vulnerable to rapidly
changing technology and relatively high risks of obsolescence caused by
progressive scientific and technological advances. The economic prospects of
Internet and Internet-related 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.
Foreign Investing.
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.
Investments in foreign companies often are made in the foreign currencies,
subjecting the investor to the risk of currency devaluation or exchange rate
risk. In addition, 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.
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, these markets may be subject to more
substantial volatility and price fluctuations than securities that are traded on
more developed markets.
Depositary Receipts.
In addition to the risk of foreign investments applicable to the underlying
securities, unsponsored Depositary Receipts 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 (the "SAI") for more
information on Depositary Receipts.
Small 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. 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. 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.
Investments in small or unseasoned companies or companies with special
circumstances often involve much greater risk than are inherent in other types
of investments, because securities of such companies may be more likely to
experience unexpected fluctuations in prices.
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 has pegged its existing currency with the Euro as of January 1, 1999 and
many transactions in these countries are valued and conducted in the Euro. The
majority of stock transactions in the major markets now are made in Euros.
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. The Fund invests in securities of
countries that have converted to the Euro or will convert in the future and
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 U.S. investment companies.
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 SAI). 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
The Company.
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") and is commonly known as a "mutual fund". The Company has retained
an adviser to manage all aspects of the investments of the Fund.
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. 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 1940 Act that is invested in a portfolio of global internet securities.
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 of the Fund; 1.00% on average net assets of the Fund in excess of
$500 million and not more than $1 billion; and 0.75% on average net assets of
the Fund over $1 billion. 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.
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% for Class A Shares and 3.99% for Class B Shares. 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
Share Class Alternatives. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities, but the classes are subject to different expenses and
may have different share prices. When you buy shares be sure to specify the
class of shares in which you choose to invest. If you do not select a class,
your money will be invested in Class A Shares. Because each share class has a
different combination of sales charges, expenses and other features, you should
consult your financial adviser to determine which class best meets your
financial objectives. Additional details about each of the share class
alternatives may be found below under "Distribution Arrangements."
Class A Shares Class B Shares
-------------- --------------
Max. initial sales charge. 5.50% None
(Subject to
reductions
beginning with
investments
of $25,000)
See "Distribution Arrangements"
for a schedule itemizing
reduced sales charges.
Contingent None Year 1 5%
deferred sales (Except for 1% Year 2 4%
charge ("CDSC") on redemptions Year 3 3%
imposed when within 1 year) Year 4 3%
shares are Year 5 2%
redeemed Year 6 1%
(percentage based Year 7 None
on purchase Year 8 None
price). Years
are based on a
twelve-month
period.
See below for information
regarding applicable waivers
of the CDSC.
Rule 12b-1 fees. 0.50% 1.00%
See "Distribution
Arrangements" for
important information
about Rule 12b-1 fees.
Conversion
to Class A Shares N/A Automatically
after about 8
years, at which
time applicable
Rule 12b-1 fees
are reduced.
Appropriate for: All investors, Investors who
particularly plan to hold
those who intend their shares at
to hold their least 6 years.
shares for a long
period of time
and/or invest a
substantial
amount in the
Fund.
Share Transactions.
You may purchase and redeem Fund shares, or exchange shares of the Fund for
those of another, by contacting any broker authorized by the distributors to
sell shares of the Fund or by contacting Fund Services, Inc., the Company's
transfer and dividend disbursing agent (the "Transfer Agent"), at 1500 Forest
Avenue, Suite 111, Richmond, Virginia 23229 or by telephoning (800) 628-4077. A
sales charge may apply to your purchase. Brokers may charge transaction fees for
the purchase or sale of Fund shares, depending on your arrangement with the
broker.
Minimum Investments.
The following table provides you with information on the various investment
minimums, sales charges and expenses that apply to each class. Under certain
circumstances the Fund may waive the minimum initial investment for purchases by
officers, directors, employees or agents of the Company, and its affiliated
entities and for certain related advisory accounts, retirement accounts,
custodial accounts for minors and automatic investment accounts as detailed on
page ___ under "Waiver of Sales Charges."
Class A Shares Class B Shares
Minimum Initial Investment $1,000 $1,000
Minimum Subsequent Investment $ 50* $ 50*
* For automatic investments made at least quarterly, the minimum
subsequent investment is $100.
By Mail.
You may buy shares of the Fund by sending a completed application along
with a check drawn on a U.S. bank in U.S. funds, to Global e Fund, c/o Fund
Services, Inc., 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229. See
"Proper Form." Third party checks are not accepted for the purchase of Fund
shares.
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 Fund at (800) 527-9525 or
the Transfer Agent at (800) 628-4077 to advise the Fund of your investment and
to receive further instructions. 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.
Public Offering Price.
When you buy shares of the Fund, you will receive the public offering price per
share as determined after your order is received in proper form, as defined on
page ___ under the section entitled "Proper Form." The public offering price of
Class A Shares is equal to the Fund's net asset value plus the initial sales
charge. The public offering price of Class B Shares is equal to the Fund's net
asset value. 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.
Net Asset Value.
The Fund's share price is equal to the NAV per share of the Fund. The Fund
calculates its NAV per share by valuing and totaling its assets, subtracting any
liabilities, and dividing the remainder, called net assets, by the number of
Fund shares outstanding. The value of the Fund's portfolio securities is
generally based on market quotes if they are readily available. If they are not
readily available, the Adviser will determine their market value in accordance
with procedures adopted by the Board of Directors. For information on how the
Fund values its assets, see "Valuation of Fund Shares" in the SAI.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund may be purchased directly from the distributors or through
brokers or dealers which have a sales agreement with the distributors and who
are members of the NASD. 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 Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the distributors. 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 this Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
If you purchase your shares through a broker-dealer, the broker-dealer firm is
entitled to receive a percentage of the sales charge you pay in order to
purchase Fund shares. The following schedule governs the percentage to be
received by the selling broker-dealer firm.
Class A Sales Charge and Broker-Dealer Commission and Service Fee
--------------------------------------------------------------------
Sales Charge as a Percentage of
-------------------------------- Dealer Discount
Amount of Purchase at Offering Net Amount as Percentage of
the Public 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%
After a one-year holding period, broker-dealers will be entitled to receive an
ongoing service fee at an annual rate of 0.25%, payable quarterly.
Class B Broker-Dealer Commission and Service Fee
---------------------------------------------------
Broker-Dealer Percentage
------------------------
Up to $250,000 4.00%
After a one-year holding period, broker-dealers will be entitled to receive an
ongoing service fee at an annual rate of 0.25%, payable quarterly.
Rule 12b-1 Fees.
The Board of Directors has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1 Plan") for each class of shares. Pursuant
to the Rule 12b-1 Plans, the Fund may finance certain activities or expenses
that are intended primarily to result in the sale of its shares. The Fund
finances these distribution activities through payments made to the
distributors. The fee ("Rule 12b-1 fee") paid to the distributors by each class
is computed on an annualized basis reflecting the average daily net assets of a
class, up to a maximum of 1% for Class B Shares, payable to First Dominion
Capital Corp.; and 0.50% for Class A Share expenses, payable to International
Assets Advisory Corp. (each a "Distributor"; collectively, the "Distributors").
Up to 0.25% of the total Rule 12b-1 fee may be used to pay for certain
shareholder services provided by institutions that have agreements with a
distributor of shares to provide those services. The Company may pay Rule 12b-1
fees for activities and expenses borne in the past in connection with the
distribution of its shares as to which no Rule 12b-1 fee was paid because of the
maximum limitation. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost more than paying other types of sales charges.
Right Of Accumulation.
After making an initial purchase in the Fund, you may reduce the sales charge
applied to any subsequent purchases. Your shares in a Fund previously purchased
will be taken into account on a combined basis at the current net asset value
per share of a Fund in order to establish the aggregate investment amount to be
used in determining the applicable sales charge. Only previous purchases of Fund
shares that are still held in the Fund and that were sold subject to the sales
charge will be included in the calculation. To take advantage of this privilege,
you must give notice at the time you place your initial order and subsequent
orders that you wish to combine purchases. When you send your payment and
request to combine purchases, please specify your account number.
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 SAI.
Waiver of Front-End Sales Charges.
No sales charge shall apply to:
(1) reinvestment of income dividends and capital gain distributions;
(2) exchanges of one Fund's shares for those of another Fund;
(3) purchases of Fund shares made by current or former directors, officers, or
employees, or agents of the Company, the adviser, the distributors and by
members of their immediate families, and employees (including immediate
family members) of a broker-dealer distributing Fund shares;
(4) purchases of Fund shares by the distributors for their own investment
account for investment purposes only;
(5) a "qualified institutional buyer," as that term is defined under Rule 144A
of the Securities Act of 1933, including, but not limited to, insurance
companies, investment companies registered under the 1940 Act, business
development companies registered under the 1940 Act, and small business
investment companies;
(6) a charitable organization, as defined in Section 501(c)(3) of the Internal
Revenue Code (the "Code"), as well as other charitable trusts and
endowments, investing $50,000 or more;
(7) a charitable remainder trust, under Section 664 of the Code, or a life
income pool, established for the benefit of a charitable organization as
defined in Section 501(c)(3) of the Code;
(8) investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of those investment
advisers or financial planners who place trades for their own accounts if
the accounts are linked to the master account of the investment adviser or
financial planner on the books and records of the broker or agent;
(9) institutional retirement and deferred compensation plans and trusts used to
fund those plans, including, but not limited to, those defined in section
401(a), 403(b) or 457 of the Code and "rabbi trusts"; and
(10) the purchase of Fund shares, if available, through certain third-party fund
"supermarkets." Some fund supermarkets may offer Fund shares without a
sales charge or with a reduced sales charge. Other fees may be charged by
the service-provider sponsoring the fund supermarket, and transaction
charges may apply to purchases and sales made through a broker-dealer.
Waiver Of Contingent Deferred Sales Charge.
The contingent deferred sales charge is waived for:
(1) certain post-retirement withdrawals from an IRA or other retirement plan if
you are over 70 1/2;
(2) redemptions by certain eligible 401 (a) and 401(k) plans and certain
retirement plan rollovers;
(3) withdrawals resulting from shareholder death or disability provided that
the redemption is requested within one year of death or disability; and
(4) withdrawals through Systematic Monthly Investment (systematic withdrawal
plan).
Additional information regarding the waiver of sales charges may be obtained by
calling (800) 432-0000. All account information is subject to acceptance and
verification by the Distributors.
General.
The Company reserves the right in its sole discretion to withdraw all or any
part of the offering of shares of the Fund when, in the judgment of the Fund's
management, such withdrawal is in the best interest of the Fund. An order to
purchase shares is not binding on, and may be rejected by, the Fund until it has
been confirmed in writing by the Fund and payment has been received.
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 (the "SEC") determines that there is an emergency. In such
circumstances you may withdraw your redemption request or permit your request to
be held for processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identity of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail.
To redeem shares by mail, send a written request for redemption, signed by the
registered owner(s) exactly as the account is registered. Certain written
requests to redeem shares may require signature guarantees. For example,
signature guarantees may be required if you sell a large number of shares, if
your address of record on the account application has been changed within the
last 30 days, or if you ask that the proceeds 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, Virginia 23229. The Transfer Agent
cannot honor guarantees from notaries public, savings and loan associations, or
savings banks.
Proper Form.
Your order to buy shares is in proper form when your completed and signed
Account Application and check or wire payment is received. Your written request
to sell or exchange shares is in proper form when written instructions signed by
all registered owners, with a signature guarantee if necessary, is received.
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 the
Distributors 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.
Modification or Termination.
Excessive trading can adversely impact Fund performance and shareholders.
Therefore, the Company reserves the right to temporarily or permanently modify
or terminate the Exchange Privilege. The Company also reserves the right to
refuse exchange requests by any person or group if, in the Company's judgment, a
Fund would be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The Company further reserves the right to restrict or refuse an
exchange request if the Company has received or anticipates simultaneous orders
affecting significant portions of a Fund's assets or detects a pattern of
exchange requests that coincides with a "market timing" strategy. Although the
Company will attempt to give you prior notice when reasonable to do so, the
Company may modify or terminate the Exchange Privilege at any time.
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 Internal Revenue Service (the "IRS") has
notified you that you are subject to backup withholding and instructs the Fund
to do so.
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 (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 September 6, 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
(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
September 6, 2000. You may obtain the Prospectus of the Fund, free of charge, by
writing to The World Funds, Inc. at 1500 Forest Avenue, Suite 223, Richmond,
Virginia 23229 or by calling (800) 527-9525.
The date of this SAI is September 6, 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
Policies Concerning Personal Investment Activities
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 Global e Fund
(the "Fund"). The Fund is a separate investment portfolio or series of the
Company. The Fund is authorized to issue two classes of shares: Class A Shares
imposing a front-end sales charge up to a maximum of 5.50%, and a sales charge
of 1% if shares are redeemed within the first year after purchase; and Class B
Shares charging a maximum back-end sales charge of 5%, if redeemed within six
years of purchase, carrying a higher 12b-1 fee then Class A Shares, but
converting to Class A Shares in approximately eight years after purchase. 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
programs 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 investment 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 investment 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.
The Fund may purchase put and call options and engage in the writing of covered
call options and put options on securities that meet the Fund's investment
criteria, and may employ a variety of other investment techniques, such as
options on futures. The Fund will engage in options transactions only to hedge
existing positions, and not for purposes of speculation or leverage. As
described below, the Fund may write "covered options" on securities in standard
contracts traded on national exchanges, or in individually-negotiated contracted
traded over-the-counter for the purpose of receiving the premiums from options
that expire and to seek net gains from closing purchase transactions with
respect to such options.
Buying Call and Put Options. The Fund may purchase call options. Such
transactions may be entered into in order to limit the risk of a substantial
increase in the market price of the security that the Fund intends to purchase.
Prior to its expiration, a call option may be sold in a closing sale
transaction. Any profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the call option plus the
related transaction costs.
The Fund may purchase Put Options. By buying a put, the Fund has the right to
sell the security at the exercise price, thus limiting its risk of loss through
a decline in the market value of the security until the put expires. The amount
of any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and any profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs.
Writing (Selling) Call and Put Options. The Fund may write covered options on
equity and debt securities and indices. This means that, in the case of call
options, so long as the Fund is obligated as the writer of a call option, it
will own the underlying security subject to the option and, in the case of put
options, it will, through its custodian, deposit and maintain either cash or
securities with a market value equal to or greater than the exercise price of
the option.
Covered call options written by a fund give the holder the right to buy the
underlying securities from the fund at a stated exercise price. A call option
written by a fund is "covered" if the fund owns the underlying security that is
subject to the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian bank) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if a fund holds a call on the same security and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the fund in cash and high grade debt securities in a segregated
account with its custodian bank. The Fund may purchase securities which may be
covered with call options solely on the basis of considerations consistent with
the investment objectives and policies of the Fund. The Fund's turnover may
increase through the exercise of a call option; this will generally occur if the
market value of a "covered" security increases and the Fund has not entered in
to a closing purchase transaction.
As a writer of an option, the Fund receives a premium less a commission, and in
exchange foregoes the opportunity to profit from any increase in the market
value of the security exceeding the call option price. The premium serves to
mitigate the effect of any depreciation in the market value of the security. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price, the volatility of the
underlying security, the remaining term of the option, the existing supply and
demand, and the interest rates.
The writer of a call option may have no control over when the underlying
securities must be sold because the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Exercise of a call option
by the purchaser will cause the Fund to forego future appreciation of the
securities covered by the option. Whether or not an option expires unexercised,
the writer retains the amount of the premium. This amount may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer experiences a profit or loss from the sale of the underlying security.
Thus, during the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of loss should the price
of the underlying security or foreign currency decline. Writing call options
also involves risks relating to a fund's ability to close out options it has
written.
The Fund may write exchange-traded call options on its securities. Call options
may be written on portfolio securities, securities indices, or foreign
currencies. With respect to securities and foreign currencies, the Fund may
write call and put options on an exchange or over-the-counter. Call options on
portfolio securities will be covered since the Fund will own the underlying
securities. Call options on securities indices will be written only to hedge in
an economically appropriate way portfolio securities that are not otherwise
hedged with options or financial futures contracts and will be "covered" by
identifying the specific portfolio securities being hedged. Options on foreign
currencies will be covered by securities denominated in that currency. Options
on securities indices will be covered by securities that substantially replicate
the movement of the index.
A put option on a security, security index, or foreign currency gives the
purchaser of the option, in return for the premium paid to the writer (seller),
the right to sell the underlying security, index, or foreign currency at the
exercise price at any time during the option period. When the Fund writes a
secured put option, it will gain a profit in the amount of the premium, less a
commission, so long as the price of the underlying security remains above the
exercise price. However, the Fund remains obligated to purchase the underlying
security from the buyer of the put option (usually in the event the price of the
security falls below the exercise price) at any time during the option period.
If the price of the underlying security falls below the exercise price, the Fund
may realize a loss in the amount of the difference between the exercise price
and the sale price of the security, less the premium received. Upon exercise by
the purchaser, the writer of a put option has the obligation to purchase the
underlying security or foreign currency at the exercise price. A put option on a
securities index is similar to a put option on an individual security, except
that the value of the option depends on the weighted value of the group of
securities comprising the index and all settlements are made in cash.
During the option period, the writer of a put option has assumed the risk that
the price of the underlying security or foreign currency will decline below the
exercise price. However, the writer of the put option has retained the
opportunity for an appreciation above the exercise price should the market price
of the underlying security or foreign currency increase. Writing put options
also involves risks relating to a fund's ability to close out options it has
written.
The writer of an option who wishes to terminate his or her obligation may effect
a "closing purchase transaction" by buying an option of the same series as the
option previously written. The effect of the purchase is that the writer's
position will be cancelled by the clearing corporation. However, a writer may
not effect a closing purchase transaction after being notified of the exercise
of an option. There is also no guarantee that a fund will be able to effect a
closing purchase transaction for the options it has written.
Effecting a closing purchase transaction in the case of a written call option
will permit a fund to write another call option on the underlying security with
either a different exercise price, expiration date, or both. Effecting a closing
purchase transaction will also permit the Fund to use cash or proceeds from the
concurrent sale of any securities subject to the option to make other
investments. If a fund desires to sell a particular security from its portfolio
on which it has written a call option, it will effect a closing purchase
transaction before or at the same time as the sale of the security.
A fund will realize a profit from a closing purchase transaction if the price of
the transaction is less than the premium received from writing the option. A
fund will realize a loss from a closing purchase transaction if the price of the
transaction is more than the premium received from writing the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by a fund.
Writing Over-the-Counter ("OTC") Options. A fund may engage in options
transactions that trade on the OTC market to the same extent that it intends to
engage in exchange traded options. Just as with exchange traded options, OTC
options give the holder the right to buy an underlying security from, or sell an
underlying security to, an option writer at a stated exercise price.
However, OTC options differ from exchange traded options in certain material
respects. OTC options are arranged directly with dealers and not, as is the case
with exchange traded options, through a clearing corporation. Thus, there is a
risk of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. Since OTC options
are available for a greater variety of securities and in a wider range of
expiration dates and exercise prices, the writer of an OTC option is paid the
premium in advance by the dealer.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. There can be no assurance that a
continuously liquid secondary market will exist for any particular option at any
specific time. Consequently, a fund may be able to realize the value of an OTC
option it has purchased only by exercising it or entering into a closing sale
transaction with the dealer that issued it. Similarly, when a fund writes an OTC
option, it generally can close out that option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which it
originally wrote the option. If a covered call option writer cannot effect a
closing transaction, it cannot sell the underlying security or foreign currency
until the option expires or the option is exercised. Therefore, the writer of a
covered OTC call option may not be able to sell an underlying security even
though it might otherwise be advantageous to do so. Likewise, the writer of a
secured OTC put option may be unable to sell the securities pledged to secure
the put for other investment purposes while it is obligated as a put writer.
Similarly, a purchaser of an OTC put or call option might also find it difficult
to terminate its position on a timely basis in the absence of a secondary
market.
The staff of the U. S. Securities and Exchange Commission (the "SEC") has been
deemed to have taken the position that purchased OTC options and the assets used
to "cover" written OTC options are illiquid securities. The Fund will adopt
procedures for engaging in OTC options transactions for the purpose of reducing
any potential adverse effect of such transactions on the liquidity of the Fund.
Futures Contracts.
Even though the Fund has no current intention to invest in futures contracts,
the Fund may buy and sell stock index futures contracts traded on domestic stock
exchanges to hedge the value of its portfolio against changes in market
conditions. The Fund will amend its Prospectus before engaging in such
transactions.
A stock index futures contract is an agreement between two parties to take or
make delivery of an amount of cash equal to a specified dollar amount, times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck. A
stock index futures contract does not involve the physical delivery of the
underlying stocks in the index. Although stock index futures contracts call for
the actual taking or delivery of cash, in most cases the Fund expects to
liquidate its stock index futures positions through offsetting transactions,
which may result in a gain or a loss, before cash settlement is required.
A fund will incur brokerage fees when it purchases and sells stock index futures
contracts, and at the time a fund purchases or sells a stock index futures
contract, it must make a good faith deposit known as the "initial margin".
Thereafter, a fund may need to make subsequent deposits, known as "variation
margin," to reflect changes in the level of the stock index. A fund may buy or
sell a stock index futures contract so long as the sum of the amount of margin
deposits on open positions with respect to all stock index futures contracts
does not exceed 5% of the Fund's net assets.
To the extent a fund enters into a stock index futures contract, it will
maintain with its custodian bank (to the extent required by the rules of the
SEC) assets in a segregated account to cover its obligations. Such assets may
consist of cash, cash equivalents, or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contract and the aggregate value of the initial and
variation margin payments.
Risks Associated With Options and Futures. Although the Fund may write covered
call options and purchase and sell stock index futures contracts to hedge
against declines in market value of its portfolio securities, the use of these
instruments involves certain risks. As the writer of covered call options, a
fund receives a premium but loses any opportunity to profit from an increase in
the market price of the underlying securities above the exercise price during
the option period. A fund also retains the risk of loss if the price of the
security declines, though the premium received may partially offset such loss.
Although stock index futures contracts may be useful in hedging against adverse
changes in the value of a fund's portfolio securities, they are derivative
instruments that are subject to a number of risks. During certain market
conditions, purchases and sales of stock index futures contracts may not
completely offset a decline or rise in the value of a fund's Portfolio. In the
futures markets, it may not always be possible to execute a buy or sell order at
the desired price, or to close out an open position due to market conditions,
limits on open positions and/or daily price fluctuations. Changes in the market
value of a fund's portfolio may differ substantially from the changes
anticipated by the Fund when it established its hedged positions, and
unanticipated price movements in a futures contract may result in a loss
substantially greater than a fund's initial investment in such a contract.
Successful use of futures contracts depends upon the investment adviser's
ability to correctly predict movements in the securities markets generally or of
a particular segment of a securities market. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are imposed on the number of contracts that any person may trade on a particular
trading day. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose sanctions or restrictions. These
trading and positions limits will not have an adverse impact on a fund's
strategies for hedging its securities.
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 the Fund's investment objective and that
such investment would not violate the Fund's fundamental investment policies or
restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Fund has adopted the
following fundamental investment restrictions which cannot be changed without
approval by vote of a "majority of the outstanding voting securities" of the
Fund. As a matter of fundamental policy, the Fund may not:
1) 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 Fund 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 the Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933, as amended (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;
13) make loans, except that the Fund may lend securities, and enter into
repurchase agreements secured by U.S. Government Securities; and
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. The
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
Fund 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 the 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;
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 of Vontobel Funds,
Inc., a registered investment
company since March, 1997.
*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.
*Jane H. Williams Vice President of Ms. Williams is the Executive
3000 Sand Hill Road the Company Vice President of 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 series a Partner in the law firm
(53) Taylor & Faust since December,
1975.
*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. Trice was
a broker with Scott and
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
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
Fiscal Year Pension or Retirement Compensation
Name and Ended August Benefits Accrued as from the
Position Held 31, 1999 Part of Fund Expenses Company(1)
------------------------- ------------ --------------------- ------------
John Pasco, III, Director - 0 - N/A - 0 -
Samuel Boyd, Jr., Director - 0 - N/A $9,000
William E. Poist, Director - 0 - N/A $9,000
Paul M. Dickinson, Director - 0 - N/A $9,000
(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.
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, investment adviser and principal underwriters have each adopted a
Codes of Ethics, as required by federal securities laws. Under the Fund's Code
of Ethics, persons who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the Fund or that are currently held by the Fund, subject to
general restrictions and procedures. The personal securities transactions of
access persons of the Fund, its investment adviser and principal underwriters
will be governed by the Fund's Code of Ethics.
The Code of Ethics is on file with, and can be reviewed and copied at the U.
S. Securities and Exchange Commission's (the "SEC") Public Reference Room in
Washington, D.C. In addition, the Code of Ethics are also available on the
EDGAR Database on the SEC's Internet website at http://www.sec.gov.
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 (the "Corporation") and
is a related corporation of International Assets Advisory Corporation ("IAAC").
The 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 Corporation's business is
conducted through two principal operating subsidiaries: the Adviser and IAAC.
The Adviser is a registered investment adviser specializing in professional
global money management for high net worth individuals and institutions. IAAC is
a dealer of global securities offering institutions and retail investors access
to financial markets around the world. In addition, the Corporation 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 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 ratio of total annual operating expenses of the Fund are limited to
3.49% for Class A Shares and 3.99% for Class B Shares. 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 Adviser 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.
<PAGE>
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, Virginia 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.
Distributors.
IAAC, located at 250 Park Avenue South, Suite 200, Winter Park, Florida 32789,
serves as the principal underwriter of the Fund's Class A Shares pursuant to a
Distribution Agreement dated May 1, 2000. First Dominion Capital Corp. ("FDCC"),
located at 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
the principal underwriter of the Fund's Class B Shares pursuant to a
Distribution Agreement dated September 6, 2000. (Each a "Distributor";
collectively, the "Distributors"). IAAC 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 IAAC's team are also affiliated with the Investment Adviser and have many
years of experience in the global marketplace. John Pasco, III, Chairman of the
Board of the Company, owns 100% of FDCC, and is it President, Treasurer and a
Director. IAAC and FDCC are registered as a broker-dealer and are members of the
National Association of Securities Dealers, Inc. (the NASD"). The offering of
the Fund's shares is continuous.
Independent Accountants.
The Company's independent accountants, Tait, Weller and Baker, audit the
Company's annual financial statements, assists in the preparation of certain
reports to the SEC, and prepares the Company's tax returns. Tait, Weller & Baker
is located at 8 Penn Center Plaza, Suite 800, Philadelphia, Pennsylvania 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 the 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 analysis 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 Directors of the Company have 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
Directors review all transactions which have been placed pursuant to those
policies and procedures at its 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 authorized to issue 750,000,000 shares of common stock, with a
par value of $0.01 per share. The Company has presently allocated 50,000,000
shares to the Fund, and has further reclassified those shares as follows:
Twenty-five Million (25,000,000) shares for Class A Shares of the series, which
includes those shares issued and outstanding prior to commencing the offering of
other classes of shares; and Twenty-five Million (25,000,000) shares for Class B
Shares of the series. 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
The Distributors 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 Distributors may,
from time to time, offer (to all broker dealers who have a sales agreement with
the Distributors) 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 Distributors 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 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
Distributors 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 Intention) of the dollar amount
specified in the Statement of Intention 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
certain activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the 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 IAAC at an annual rate of
0.50% for Class A Shares and will pay a fee to FDCC at an annual rate of 1.00%
for Class B Shares of the Fund's average daily net assets. The fee is paid to
the respective Distributor as reimbursement for expenses incurred for
distribution-related activity.
RULE 18f-3 PLAN
At a meeting held on April 14, 2000, the Directors adopted a Rule 18f-3 Multiple
Class Plan on behalf of the Company for the benefit of each of its series. The
key features of the Rule 18f-3 Plan are as follows: (i) shares of each class of
the Fund represent an equal pro rata interest in the Fund and generally have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations qualifications, terms and conditions, except that each
class bears certain specific expenses and has separate voting rights on certain
matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of the Fund may be exchanged for shares of the same class
of another fund; and (iii) the Fund's Class B Shares will convert automatically
into Class A Shares of the Fund after a period of eight years, based on the
relative net asset value of such shares at the time of conversion. At present,
the Fund offers Class A Shares charging a front-end sales charge and Class B
Shares imposing a back-end sales charge upon the sale of shares within six years
of purchase.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Redemptions In Kind.
The Company, on behalf of the Fund, will pay in cash (by check) all requests for
redemption by any shareholder of record of the Fund. The amount is limited,
however, during any 90-day period, to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior permission of the SEC. If redemption requests
exceed these amounts, the Directors reserve the right to make payments in whole
or in part using securities or other assets of the Fund (if there is an
emergency, or if a cash payment would be detrimental to the existing
shareholders of the Fund). In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net asset and you may
incur brokerage fees as a result of converting the securities to cash. The
Company does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
Exchanging Shares.
If you request the exchange of the total value of your account from one fund to
another, we will reinvest any declared but unpaid income dividends and capital
gain distributions in the new fund at its net asset value. Backup withholding
and information reporting may apply. Information regarding the possible tax
consequences of an exchange appears in the tax section in this SAI.
If a substantial number of shareholders sell their shares of the Fund under the
exchange privilege, within a short period, the Fund may have to sell portfolio
securities that it would otherwise have held, thus incurring additional
transactional costs. Increased use of the exchange privilege may also result in
periodic large inflows of money. If this occurs, it is the Fund's general policy
to initially invest in short-term, interest-bearing money market instruments.
However, if the Adviser believes that attractive investment opportunities
(consistent with the Fund's investment objective and policies) exist
immediately, then it will invest such money in portfolio securities in as
orderly a manner as possible.
The proceeds from the sale of shares of the Fund may not be available until the
third business day following the sale. The Fund you are seeking to exchange into
may also delay issuing shares until that third business day. The sale of Fund
shares to complete an exchange will be effected at net asset value of the Fund
next computed after your request for exchange is received in proper form. See
Buying, Redeeming, and Exchanging shares in the Prospectus.
Conversion of Class B Shares to Class A Shares.
Class B Shares of the Fund will automatically convert to Class A Shares of the
Fund, based on the relative net asset value per share of the aforementioned
classes, eight years after the end of the calendar month in which your Class B
share order was accepted. For the purpose of calculating the holding period
required for conversion of Class B Shares, order acceptance shall mean: (1) the
date on which such Class B Shares were issued, or (2) for Class B Shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B Shares) the date on which the original Class B Shares
were issued. For purposes of conversion of Class B Shares, Class B Shares
purchased through the reinvestment of dividends and capital gain distribution
paid in respect of Class B Shares will be held in a separate sub-account. Each
time any Class B Shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B Shares in the sub-account will also convert to Class A Shares. The
portion will be determined by the ratio that the shareholder's Class B Shares
converting to Class A Shares bears to the shareholder's total Class B Shares not
acquired through the reinvestment of dividends and capital gain distributions.
The conversion of Class B to Class A is not a taxable event for federal income
tax purposes.
Whether a Contingent Deferred Sales Charge Applies.
In determining whether a Contingent Deferred Sales Charge ("CDSC") is applicable
to a redemption, the calculation will be made in a manner that results in the
lowest possible rate. It will be assumed that the redemption is made first of
amounts representing (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held for over six years, and (3) shares
held the longest during the six-year period.
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 Net Asset Value (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 New York Stock
Exchange (the "NYSE") is closed or the SEC 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 the
Distributors 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 by telephone 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 (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, the Third Millennium Russia Fund and the Monument
EuroNet 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 receives 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 Directors reserve 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 31st 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 31st; 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: (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.
