THE WORLD FUNDS
1500 Forest Avenue, Suite 223 * P. O. Box 8687 * Richmond, Virginia 23229
(804) 285-8211 * (800) 527-9525 * Fax (804) 285-8251
June 19, 2000
FILED VIA EDGAR
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Reference: The World Funds, Inc.
File Number 333-29289
Filed Pursuant to Rule 497(c)
Gentlemen:
Transmitted herewith for electronic filing on behalf of The World Funds, Inc.
(the "Company") please find enclosed, pursuant to Rule 497(c) under the
Securities Act of 1933, as amended, a copy of the Prospectus and Statement of
Additional Information of the Monument EuroNet Fund series of the Company dated
June 19, 2000.
Should you have any questions regarding the filing of such documents, please
call the undersigned.
Sincerely,
/s/ John Pasco, III
--------------------
John Pasco, III
enclosures
<PAGE>
Monument EuroNet Fund
THE WORLD FUNDS, INC.
PROSPECTUS
Prospectus Dated June 19, 2000
This Prospectus describes Monument EuroNet 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 offers three classes of shares: Class A Shares with a
front-end sales charge, Class B Shares subject to a contingent deferred sales
charge, and Class C Shares with a reduced front-end sales charge and a
contingent deferred sales charge. The Fund seeks to maximize long-term
appreciation of capital by investing primarily in a diversified portfolio of
Internet company equity securities.
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: The Fund's investment objective is to maximize
long-term appreciation of capital.
Principal Investment
Strategies: The Fund will seek to achieve its investment objective by investing
in a 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 is 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 in the European Union that are
principally engaged in Internet and Internet related
businesses. The European Union is a union of fifteen
independent states based on the European Communities and
founded to enhance political, economic and social
cooperation. The member states include Austria,
Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, Sweden and the United Kingdom of Great Britain and Northern
Ireland. The Fund normally will have business activities of not less than three
(3) different states represented in its portfolio.
The Fund may invest in shares of closed-end
investment companies which invest in securities that are consistent with the
Fund's objective and strategies. By investing in other investment companies the
Fund indirectly pays a portion of the expenses and brokerage costs of these
companies as well as its own expenses.
The Fund 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") and may engage in some short-term investing.
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 manager will achieve the
Fund's objective.
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 (including the Euro) 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 affect this
investment.
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.
Investments in a single region, even though representing a
number of different countries within the region, may be
affected by common economic forces and other factors. A
Fund is subject to greater risks of adverse events which
occur in the region and may experience greater volatility
than a Fund that is more broadly diversified
geographically. Political or economic disruptions in
European countries, even in countries in which a Fund is
not invested, may adversely affect security values and
thus, a Fund's holdings.
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.
From time to time, the Fund may engage in short-term
trading, which could produce higher brokerage costs and
larger taxable distributions than a fund with low portfolio
turnover. In addition, the manager has not acted as an
adviser to a registered investment company in the past,
although it is owned by firms which do advise other
registered investment 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
long-term appreciation of capital 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 Data: 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 Class B Class
C
Maximum Sales Charge (Load)(1) 5.75% None 1.00%
Maximum Deferred Sales Charge (Load) None(2) 5.00%(3)
1.00%(4)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and Distributions None None None
Redemption Fees None None None
Exchange Fees None None None
Estimated Annual Operating Expenses (expenses that are deducted from Fund
assets)
Class A Class B Class
C
Advisory Fee 1.50% 1.50% 1.50%
------------------------------------------------
Distribution (12b-1) Fees (5) 0.50% 1.00% 1.00%
------------------------------------------------
Other Expenses 1.49% 1.49% 1.49%
----- ----- -----
Total Annual Fund Operating Expenses (6) 3.49% 3.99% 3.99%
1) As a percentage of offering price. Reduced rates apply to purchases
over $50,000, 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 5.00% 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 4.00% sales
charge.
During years three and four you will pay 3.00%, during year five 2.00%,
and during year six 1.00%. 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 contingent deferred sales charge of 1% is imposed on the proceeds
of
Class C Shares redeemed within one year. The charge is a percentage of
the
net asset value at the time of purchase. The Fund retains this amount
to
offset market effects, taxes and expenses created by
short-term
investments in the Fund.
5) The Company has approved a Plan of Distribution Pursuant to Rule 12b-1 of
the 1940 Act providing for the payment of distribution fees to the
distributor 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 and
Class C 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.
6) In the interest of limiting expenses of the Fund, Vernes Asset
Management
LLC (the "Manager") has entered into a contractual expense
limitation
agreement with the Company. Pursuant to the agreement, the Manager
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 and Class C 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 $906 $1,584
Total Expenses - Class B Shares $901 $1,515
Total Expenses - Class C Shares $597 $1,303
With respect to Class A Shares, the above examples assume payment of the maximum
initial sales charge of 5.75% 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.
With respect to Class B and Class C 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 maximize long-term appreciation of
capital. There is no assurance that the Manager will achieve the Fund's
investment objective.
The Fund seeks to achieve its investment objectives by investing primarily in
common stocks and securities convertible into common stocks of companies located
in the European Union that are engaged in the Internet and Internet-related
activities or services. The European Internet market is considered to be two or
three years younger than the US Internet market, thus offering favorable growth
potential over the next several years. The companies selected by the Manager
derive a substantial portion of their revenue from Internet or Internet-related
businesses or are developing and expanding their Internet and Internet-related
business operations. Under normal circumstances, at least 65% of its total
assets will be invested in such companies.
The Internet is an emerging global communication, information and distribution
system. The Manager 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 Manager 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 Manager'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.
The Fund intends to invest its assets in many European Union states and normally
will have business activities of not less than three (3) different states
represented in its portfolio. The securities the Fund purchases may not always
be purchased on the principal market. For example, Depositary Receipts may be
purchased if trading conditions and liquidity make them more attractive than the
underlying security (please see "Depositary Receipts" below).
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. 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.
In addition to common stocks and securities that are convertible into
commonstocks, the Fund may invest in shares of closed-end investment companies
which invest in securities that are consistent with the Fund's objective and
strategies. By investing in other investment companies the Fund indirectly pays
a portion of the expenses and brokerage costs of these companies as well as its
own expenses. Also, federal and state securities laws impose limits on such
investments, which may affect the ability of the Fund to purchase or sell these
shares.
The Fund may invest 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 United States corporation. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. For purposes of the Fund's investment
policies, investments in Depositary Receipts will be deemed to be investments in
the underlying securities.
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").
Other Investments. In addition to the investment strategies described above,
theFund may engage in other strategies such as derivatives. Investments
inderivatives, such as options, can significantly increase a Fund's exposure
tomarket risk or credit risk of the counterparty, as well as improper valuation
and imperfect correlation.
RISKS
Sector Risks.
Internet and Internet-related companies are particularly vulnerable to
rapidlychanging 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.
Stock Market Risk.
The Fund is subject to stock market risk. Stock market risk is the
possibilitythat 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 Manager in evaluating, selecting and monitoring the portfolio assets. If the
Manager's conclusions about growth rates or securities values are incorrect, the
Fund may not perform as anticipated.
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.
Depositary Receipts.
In addition to the risks of foreign investment applicable to the
underlyingsecurities, unsponsored Depositary Receipts may also be subject to the
risksthat the foreign issuer may not be obligated to cooperate with the U.S.
bank, may not provide additional financial and other information to the bank or
the investor, or that such information in the U.S. market may not be current.
Please refer to the Statement of Additional Information for more information on
Depositary Receipts.
Small Companies.
Small companies may lack depth of management; 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 they may be developing
or marketing new products or services for which markets are not yet established
and may never become established. Due to these and other factors, small
companies may suffer significant losses, as well as realize substantial growth.
Thus, securities of small companies present greater risks than securities of
larger, more established companies.
Historically, stocks of small companies have been more volatile than stocks of
larger companies and are, therefore, more speculative than investments in larger
companies. Among the reasons for the greater price volatility are the following:
(1) the less certain growth prospects of smaller companies; (2) the lower degree
of liquidity in the markets for such stocks; and (3) the greater sensitivity of
small companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. You
should therefore expect that the value of Fund shares to be more volatile than
the shares of mutual fund investing primarily in larger company stocks.
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 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 Manager believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, the Fund may invest
up to 100% of its assets in U.S. Government securities (such as bills, notes, or
bonds of the U.S. Government and its agencies) or other forms of indebtedness
such as bonds, certificates of deposits or repurchase agreements (for the risks
involved in repurchase agreements see the Statement of Additional Information).
For temporary defensive purposes, the Fund may hold cash or debt obligations
denominated in U.S. dollars or foreign currencies. These debt obligations
include U.S. and foreign government securities and investment grade corporate
debt securities, or bank deposits of major international institutions. When a
Fund is in a temporary defensive position, it is not pursuing its stated
investment policies. The Manager 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 a Manager to manage all aspects of the
investments of the Fund.
The Manager. Vernes Asset Management, LLC (the "Manager"), located at 993
Farmington Avenue, Suite 205, Hartford, CT 06107, manages the Fund. The
Manager is owned by: Vernes & Associates, of Geneva, Switzerland (50.5%); The
Monument Group, LLC, of Bethesda, Maryland (16%); Commonwealth Capital
Management, Inc. of Richmond, Virginia (16%); Cornerstone Partners, LLC, of
West Hartford, Connecticut (11.25%); Patrick Vernes, of Chappaqua, New York
(5%) and Norman A. Smith of Longmeadow, Massachusetts (1.25%)
Vernes & Associes, a Swiss Holding Company founded in 1982, wholly owns
investment management companies in Switzerland, France, and Luxembourg,
including SA Financiere Rembrandt in Paris, France. The collective assets under
management by Vernes & Associes exceed $2 billion. Vernes & Associes was founded
and is owned by Cyrille Vernes through his company Financiere C. Vernes, located
in Geneva, Switzerland. Cyrille Vernes serves as the Chairman and Senior Partner
of Vernes & Associes and Chairman of SA Financiere Rembrandt. Mr. Vernes
continues a long and distinguished history of asset management, investment
management, and banking by the Vernes Family. The Vernes Family first began
managing assets on behalf of select private investors over 250 years ago when
the family founded Vernes Private Bank. The Bank and its product offerings grew
in both stature and size for more than two centuries until the family sold the
principal operation in Paris in 1996. This tradition now continues through the
Vernes & Associes domiciled in Geneva, Switzerland with wholly owned
subsidiaries in Geneva, Paris, Luxembourg and Spain. Vernes Asset Management,
LLC, domiciled in the US, is majority owned and controlled by Vernes & Associes.
The Monument Group, LLC, a limited liability company, is owned by the
principals of Monument Advisors, Ltd., (investment adviser to Monument Series
Fund, an open-end investment company, and private clients); Monument
Distributors, Inc., a broker-dealer and distributor of Monument Series Trust;
and Monument Shareholder Services, Inc., a transfer agent. David A. Kugler
controls The Monument Group, LLC.
Commonwealth Capital Management, Inc. is a financial services firm.
Commonwealth is an associated company of Commonwealth Shareholder Services,
Inc., a full service fund administrator and First Dominion Capital Corp.
("FDCC"), a registered broker-dealer. John Pasco III controls Commonwealth
Capital Management, Inc.
Cornerstone Partners, LLC, is a financial services company located in West
Hartford, Connecticut. Cornerstone serves as a U.S. representative office for
international fund managers seeking to conduct business in the United States as
well as providing comprehensive administrative and strategic support to both
domestic and international fund managers. Cornerstone Partners, LLC is
controlled by Brian W. Clarke.
The Manager manages all aspects of the Fund, seeking at all times to maximize
capital appreciation of the Fund's investments on behalf of its
shareholders. The Manager is assisted in its management of the Fund's
portfolio by two sub-advisers: SA Financiere Rembrandt, of Paris, France; and
Monument Advisors, Ltd., of Bethesda, Maryland.
SA Financiere Rembrandt located at 4, rue Rembrandt, Paris, France, was founded
in November, 1997, is wholly owned by Vernes Participations, a French holding
company, which in turn is wholly owned by Vernes & Associes. SA Financiere
Rembrandt, while established as an investment management operation under the
aegis of the Commission des Operation de Bourses (COB) in 1997, had previously
held a license from the Central Bank of France to invest in treasury securities.
In France, investment operations are able to hold only one license, either from
the Central Bank of France or from the COB. Although SA Financiere Rembrandt has
not previously served as the investment adviser of a US open-end investment
company, it serves as the adviser to FR Networld Fund, a Fund that invests in
the different sub sectors of the Internet in Europe and is marketed and sold in
Europe. FR Networld was the first-ever European Internet Fund launched in
Europe. In addition, SA Financiere Rembrandt manages 10 other European open-end
investment funds as well as numerous separately managed accounts in Europe. As
of May 30, 2000, SA Financiere Rembrandt managed approximately 0.4 billion Euros
or the equivalent of $0.36 billion U.S. Dollars.
Monument Advisors, Ltd. ("Monument Advisors"), located at 7920 Norfolk Avenue,
Suite 500, Bethesda, Maryland 20814, is a wholly owned subsidiary of The
Monument Group, Inc., which in turn is principally owned and controlled by David
A. Kugler, its President. Monument Advisors manages the assets of Monument
Series Fund, an open-end management investment company registered with the
Securities and Exchange Commission ("SEC"), including the Monument Internet
Fund, launched in November 1998. In addition, Monument Advisors manages
portfolios of investments of qualified individuals, retirement plans, and
trusts. As of June 8, 2000, Monument Advisors managed or supervised in excess of
$225 million in assets.
SA Financiere Rembrandt performs research and analysis on securities that are
potential investments in the Fund's portfolio and recommends to the Manager
which securities will be purchased and sold. Monument Advisors, Ltd. provides
timing advice, research, statistical and other analysis on Internet securities
to SA Financiere Rembrandt, and provides portfolio management oversight and
control. SA Financiere Rembrandt makes the final portfolio purchases and sales
recommendations. Pursuant to agreements between the Manager and its
sub-advisers, Financiere Rembrandt, S.A. and Monument Advisors, Ltd. each may
effect portfolio securities transactions for the Fund, under the management of
the Manager.
Although the Manager, as a new company, had no experience managing a mutual fund
prior to managing the Fund, collectively the owners of the Manager have had
significant experience in management of mutual funds and other pooled investment
vehicles in the U.S. and Europe.
The Fund pays the Manager a twice-monthly management fee at an annual rate equal
to 1.5% of the average daily net assets of the Fund. As stated above, the
Manager has entered into sub-advisory contracts with SA Financiere Rembrandt and
Monument Advisors, Ltd. To compensate these advisers appropriately the Manager
pays from its fee to SA Financiere Rembrandt 50% of the management fee and
Monument Advisors, Ltd. 16%. The management fee is higher than the fees paid by
some other investment companies, but is comparable to fees paid by investment
companies with investment objectives and policies similar to the Fund's
investment objective and policies. In the interest of limiting expenses of the
Fund, the Manager has entered into an expense limitation agreement with the
Fund. The Manager has agreed to waive or limit its fees and to assume other
expenses so that the total operating expenses of the Fund are limited to 3.49%
for Class A Shares and 3.99% for Class B and C Shares for the first three years
of operations. The limit does not apply to interest, taxes, brokerage
commissions, and other expenditures capitalized in accordance with generally
accepted accounting principles or other extraordinary expenses not incurred in
the ordinary course of business.
Portfolio Managers. The Manager uses a team approach to manage the Fund.
The
team serves under the direction of Jean Fournier, the Managing Director of
SA
Financiere Rembrandt. Prior to joining SA Financiere Rembrandt, Mr. Fournier
served as managing director of Morgan Stanley's Paris operations where he
oversaw extensive investment operations. He is joined by Ricaldo Zavala, who was
formerly the chief proprietary trader for Bank Paribas in Paris, France. The
principal portfolio manager of the Fund is Thierry Roussilhe, senior portfolio
manager at SA Financiere Rembrandt and manager of the FR Networld Fund. Bob
Grandhi, CFA, Chief Investment Officer of Monument Series Trust and principal
portfolio manager of the Monument Internet Fund, a U.S. open-ended investment
fund investing in U.S. Internet companies and Tyler Defibaugh, Head of Trading
and Administration at Monument, assist Mr. Roussilhe by providing guidance
regarding the management of the portfolio, execution of trades, and research and
analysis regarding security selection and sector analysis.
Under the Advisory Agreement, the twice-monthly compensation paid to the Manager
is accrued daily at an annual rate of 1.50% on the first $250 million of average
net assets; 1.25% of the average net assets between $250 and $500 million; 1.00%
of the average net assets between $500 million and $750 million; 0.875% of the
average net assets between $750 and $1 billion; and 0.75% of the average net
assets over $1 billion.
In the interest of limiting expenses of the Fund, the Manager has entered into
an expense limitation agreement with the Fund. The Manager has agreed to waive
or limit its fees and to assume other expenses so that the total operating
expenses of the Fund are limited to 3.49% for Class A Shares and 3.99% for Class
B and C Shares for the first three years of operations. 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 Manager will be entitled to reimbursement of fees waived or remitted by the
Manager to the Fund. The total amount of reimbursement recoverable by the
Manager (the "Reimbursement Amount") is the sum of all fees previously waived or
remitted by the Manager to the Fund during any of the previous five (5) years,
less any reimbursement previously paid by the Fund to the Manager 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 value of a Fund share, 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. Due to the fact that different expenses
may be charged against shares of different classes of the Fund, the NAV of
various classes of the Fund may vary.
Shares are bought at the public offering price per share next determined after a
request has been received in proper form. Shares held by you 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.
BUYING FUND SHARES
Share Class Alternatives. The Fund offers investors three 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 Class C Shares
Max. initial 5.75% None 1%
sales charge. (Subject to
reductions
See "Distribution beginning with Arrangements" for investments of a schedule
$50,000) itemizing reduced sales charges.
Contingent None Year 1 5% Year 1 1%
deferred sales (Except for 1% Year 2 4% Year 2+ None
charge ("CDSC") on redemptions Year 3 3%
imposed when with 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% 1.00%
See "Distribution Arrangements" for important information about Rule 12b-1 fees.
Conversion to N/A Automatically No conversion
Class A after about 8 feature. Rule
years, at which 12b-1 fees
time applicable remain higher
Rule 12b-1 fees than those of
are reduced. Class A Shares
for the life of
account.
Appropriate for: All investors, Investors who Investors who
particularly plan to hold intend to hold
those who intend their shares at their shares for
to hold their least 6 years. at least 1 year,
shares for a but less than 6
long period of years.
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
distributor to sell shares of the Fund, by contacting the Fund at (800) 527-9525
or by contacting PFPC, Inc., the Fund's transfer and dividend disbursing agent,
at 400 Bellevue Parkway, Wilmington, Delaware 19809, or by telephoning (877)
808-5111. 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 and employees 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 below under "Waiver of Sales Charges."
Class A Class B Class C
---------------- ---------------------------------
Minimum Initial $1,000 $1,000 $1,000
Investment
Minimum Subsequent $250* $250* $250*
Investment
* 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 "Monument EuroNet
Fund," c/o PFPC, Inc., P. O. Box 61503, King of Prussia, Pennsylvania
19406-0903. PFPC, Inc. is the Company's transfer and dividend disbursing
agent. See "Proper Form." Third party checks are not accepted for the
purchase of Fund shares.
By Wire. You may also wire payments for Fund shares to the wire bank account
for the Fund. Before wiring funds, please call the Fund at (800) 527-9525 or
PFPC, Inc. at (877) 808-5111 to advise the Fund of your investment and to
receive further instructions. Please remember to return your completed and
signed application to PFPC, Inc. at P. O. Box 61503, King of Prussia,
Pennsylvania 19406-0903 See "Proper Form."
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 below under the section entitled "Proper Form." The
public offering price of Class A and Class C 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 Manager will determine their market value in
accordance with procedures adopted by the Board. For information on how the Fund
values its assets, see "Valuation of Fund Shares" in the SAI.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the 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 the 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 Broker-Dealer
Percentage
Less than $50,000 5.75% 5.00%
$50,000 but less than $100,000 4.50% 3.75%
$100,000 but less than $250,000 3.50% 2.75%
$250,000 but less than $500,000 2.50% 2.00%
$500,000 but less than $1,000,000 2.00% 1.75%
$1,000,000 or more 1.00% 1.00%
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.
Class C Broker-Dealer Commission and Service
Fee
Sales Charge Broker-Dealer Percentage
All purchases 1% 1.00%
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 1.00% for Class B and Class C Shares, and 0.50%
for Class A Share expenses. 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 Statement of Additional Information.
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 Manager, First Dominion Capital
Corp, Monument 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 ("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 the Fund at (800) 527-9525, or by calling PFPC, Inc. at (877) 808-5111.
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 determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identify of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail. To redeem shares by mail, send a written request for
redemption, signed by the registered owner(s) exactly as the account is
registered. Certain written requests to redeem shares may require signature
guarantees. For example, signature guarantees may be required if you sell a
large number of shares, if your address of record on the account application has
been changed within the last 30 days, or if you ask that the proceeds to be sent
to a different person or address. Signature guarantees are used to help protect
you and the Fund. You can obtain a signature guarantee from most banks or
securities dealers, but not from a Notary Public. Please call the Transfer Agent
at (877) 808-5111 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 (877)
808-5111.
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, if your
investment is made through First Dominion Capital Corp., the Company will
guarantee your signature if you personally visit its offices at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot honor
guarantees from notaries public, savings and loan associations, or savings
banks.
Proper Form. Your order to buy shares is in proper form when your completed and
signed shareholder 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.
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. 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 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 June 19, 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], or by writing to Monument EuroNet Fund, c/o
----------------------------
PFPC, Inc., P. O. Box 61503, King of Prussia, Pennsylvania 19406-0903, by
calling toll free (877) 808-5111 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
Monument EuroNet Fund
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the Monument EuroNet Fund,
dated June 19, 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,
VA 23229, by calling (800) 527-9525, by writing to PFPC, Inc., P. O. Box 61503,
King of Prussia, Pennsylvania 19406-0903 or by calling (877) 808-5111.
The date of this SAI is June 19, 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
Futures
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Investment Manager 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 Monument
EuroNet Fund (the "Fund"). The Fund is a separate investment portfolio or series
of the Company. The Fund is authorized to issue three classes of shares: Class A
Shares imposing a front-end sales charge up to a maximum of 5.75%, and a sales
charge of 1% if shares are redeemed within the first year after purchase; 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; and
Class C Shares charging a front-end sales charge of 1%, and a sales charge of 1%
if share are redeemed within the first year after purchase, and carrying a
higher rule 12b-1 fee than Class A Shares with no conversion feature. See
"Capital Stock and Dividends" in this SAI. The Fund is a "diversified" series as
that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The following information supplements the discussion of the Fund's investment
objectives and policies. The Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, "majority of
outstanding voting shares" means the lesser of (1) 67% of the voting shares of
the Fund represented at a meeting of shareholders at which the holders of 50% or
more of the shares of the Fund are represented; or (2) more than 50% of the
outstanding voting shares of the Fund. The investment programs, restrictions and
the operating policies of the Fund that are not fundamental policies can be
changed by the Board of Directors of the Company (the "Directors") without
shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is to maximize long-term appreciation of
capital. All investments entail some market and other risks and there is no
assurance that the Manager will achieve the Fund's investment objective. You
should not rely on an investment in the Fund as a complete investment program.
STRATEGIES AND RISKS
Under normal circumstances, the Fund invests in equity securities and securities
convertible into equity securities, such as warrants, convertible bonds,
debentures or convertible preferred.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Warrants. The Fund may invest in warrants. Warrants are options to purchase
equity securities at a specific price for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Hence,
warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
differ from call options in that the underlying corporation issues warrants,
whereas call options may be written by anyone.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities. For this purpose, the term "illiquid securities" means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the securities.
Illiquid securities include generally, among other things, certain written
over-the-counter options, securities or other liquid assets as cover for such
options, repurchase agreements with maturities in excess of seven days, certain
loan participation interests and other securities whose disposition is
restricted under the federal securities laws.
Depositary Receipts. American Depositary Receipts ("ADRs") are receipts
typically issued in the U.S. by a bank or trust company evidencing ownership of
an underlying foreign security. The Fund may invest in ADRs which are structured
by a U.S. bank without the sponsorship of the underlying foreign issuer. In
addition to the risks of foreign investment applicable to the underlying
securities, such unsponsored ADRs may also be subject to the risks that the
foreign issuer may not be obligated to cooperate with the U.S. bank, may not
provide additional financial and other information to the bank or the investor,
or that such information in the U.S. market may not be current.
Like ADRs, European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") represent receipts for a foreign security. However, they are issued
outside of the U.S. The Fund may invest in ADRs, EDRs or GDRs. EDRs and GDRs
involve risks comparable to ADRs, as well as the fact that they are issued
outside of the U.S.
Temporary Defensive Positions. When the Manager 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 Manager 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 Manager 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 Manager 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 ("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 Manager'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 Manager'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 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 Funds may engage in transactions such
as those permitted by the SEC release IC-10666 as applied by the SEC from
time to time);
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) 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;
10) Purchase any security if, as a result of such purchase less than 75% of
the assets of the Fund would consist of cash and cash items, U.S.
Government securities, securities of other investment companies, and
securities of issuers in which the Fund has not invested more than 5% of
its assets;
11) 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;
12) Make loans, except that the Fund may lend securities, and enter into
repurchase agreements secured by U.S. Government Securities; and
13) 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 20% 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 a Fund's assets will not be considered
a violation of the restriction; and
Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the end users
of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry;
(ii) technology companies will be divided according to their products and
services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; and
(iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry.
MANAGEMENT OF THE COMPANY
Directors and Officers. The Company is governed by a Board of Directors, which
is responsible for protecting the interest of shareholders. The Directors are
experienced businesspersons 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 Manager
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,
(55) Inc., the Company's
Administrator, since1985; President
and Director of First
Dominion Capital
Corp.,
the Company's principal
underwriter. Director and
shareholder of Fund
Services Inc., the
Company's Transfer and
Disbursing Agent, since
1987; shareholder of
Commonwealth
Fund Accounting, Inc. which
Provides bookkeeping
services to StarBank; 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
Potomac, MD 20854 Operations and Accounting
(59) Division 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
5272 River Road and tax consultant through
Bethesda, MD 20816 his firm Management
(60) Consulting for
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
8704 Berwickshire Drive of Alfred J. Dickinson,
Richmond, VA 23229 Inc., Realtors since
(52) April, 1971; andDirector of Vontobel
Funds,
Inc., a registered
investment
company since March, 1997.
*Jane H. Williams Vice President of Ms. Williams is the
3000 Sand Hill Road the Company Executive Vice President
Suite 150 and President of Sand Hill Advisors,
Menlo Park, CA 94025 of the Sand Hill Inc., since 1982.
(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,
Suite 2525 and the CSI Fixed Inc. since 1978. Mr. Faust
San Francisco, CA 94104 Income Fund is also a Partner in the
(53) law firm Taylor & Faust
since December, 1975.*F. Byron Parker,
Jr. Secretary Mr. Parker is Secretary of810 Lindsay
Court Commonwealth ShareholderRichmond, VA
23229 Services, Inc., and First
(57) Dominion Capital Corp. since 1986; Secretary ofVontobel Funds, Inc.,
aregistered investment company since
March, 1997; and Partner in the law firm
Mustian & Parker.*Franklin A.
Trice, III Vice President of Mr. Trice is PresidentP.O. Box
8535 the Company and of Virginia ManagementRichmond, VA
23226-0535 President of the Investment Corp. since
(36) New Market Fund May,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 & 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
515 Madison Ave., the Company and Third Millennium
24th Floor President of the Investment Advisors, LLC
New York, NY 10022 Third Millennium since April, 1998; and
(58) Russia Fund series Chairman of ROSGAL, a
Russian financial company and of
its affiliated ROSGAL Insurance since
1993.*Steven T. Newby Vice
President of Mr. Newby is President of
555 Quince Orchard Rd. the Company and Newby & Co. Inc., a NASD
Suite 606 President of broker/dealer since July,
Gaithersburg, MD 20878 GenomicsFund.com 1990; President of xGENx,
(53) series LLC since November, 1999.
* Todd A. Boren President of the Mr. Boren joined
250 Park Avenue, So. Global e-Fund International Assets
Suite 200 series Advisory in May of 1994. Winter
Park, FL 32789 In his six years
(40) with IAAC he has served as a
Financial Adviser, VP of Sales, Branch
Manager, Training Manager, and currently
as Senior Vice President and Managing
Director of Private Client Operations for
both International Assets Advisory and
Global Assets Advisors. He is responsible
for overseeing its International
Headquarters in Winter Park Florida as
well as its New York operation and joint
venture.
*Brian W. Clarke President of the Mr. Clarke is President of
993 Farmington Avenue Monument EuroNet Cornerstone Partners LLC,
Suite 205 Fund series a financial services
West Hartford, CT 06197 company, since November,
(42) 1998. Prior to founding
Cornerstone, Mr. Clarke worked for
Lowrey Capital management from 1997
to 1998. Mr.
Clarke
served
for 13 years as
the
Vice President
for
Advancement at St.
Mary's
College of
Maryland.
Prior to joining
St.
Mary's, Mr. Clarke served
as
Press Secretary
to
Congressman Henry S. Reuss.
Compensation of Directors. The Company does not compensate the Directors who are
officers or employees of the Investment Manager. 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 Pension or Total
Name and From the Fund Retirement Compensation
Position Fiscal Year Benefits Accrued from the
Held Ended August as Part of Fund Company (1)
31, 1999 Expenses
John Pasco, III, 0 N/A 0
Director
Samuel Boyd, Jr., 0 N/A $9,000
Director
William E. Poist, 0 N/A $9,000
Director
Paul M. Dickinson, 0 N/A $9,000
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for service on the Directors for the Fund's fiscal year ended
August 31, 1999.
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, Investment Manager, Advisers and Principal Underwriters have each
adopted a Codes of Ethics, as required by federal securities laws. Under the
Funds' 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 Funds or that are currently held by the Funds,
subject to general restrictions and procedures. The personal securities
transactions of access persons of the Funds, its Manager, Adviser and Principal
Underwriters will be governed by the Funds' Code of Ethics.
The Code of Ethics is on file with, and can be reviewed and copied at, the SEC's
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.
CONTROL PERSONS AND PRINCIPAL SECURITIES PERSONS
The Directors and officers of the Company, as a group, do not own 1% or more of
the Fund.
INVESTMENT MANAGER AND ADVISORY AGREEMENT
Vernes Asset Management, LLC (the "Manager"), located at 993 Farmington Avenue,
Suite 205, West Hartford, CT 06197, manages the investments of the Fund pursuant
to an Investment Management Agreement (the "Management Agreement" ), dated June
19, 2000. After the initial term of two years, the Management 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 Management Agreement will automatically
terminate in the event of its "assignment," as that term is defined in the 1940
Act, and may be terminated without penalty at any time upon 60 days' written
notice to the other party by: (i) the majority vote of all the Directors or by
vote of a majority of the outstanding voting securities of the Fund; or (ii) the
Manager. The Investment Manager is registered as an investment Manager under the
Investment Advisers Act of 1940 as amended, the "Advisers Act".
The Manager has entered into two Investment Advisory Agreements that delegate
portions of the investment management responsibility to SA Financiere Rembrandt
and Monument Advisors, Ltd. (collectively, the " Investment Advisers"). The
Investment Advisers provide the Manager with investment analysis and timing
advice, research and statistical analysis relating to the management of
portfolio securities of the Fund. The investment recommendations of the
Investment Advisers are subject to the review and approval of the Manager
(acting under the supervision of the Company's Board of Directors). The Manager,
from its management fee, pays the Investment Advisers 66% of the management fee
received from the Fund.
SA Financiere Rembrandt located at 4, rue Rembrandt, Paris, France, founded in
November, 1997, is held by Vernes & Associes, a Swiss holding company and was
founded in 1982 by Mister Cyrille Vernes, who is the first senior partner of
Vernes & Associes and Vernes Gestion, S. A., a Swiss asset management company
established in Geneva. Although SA Financiere Rembrandt has not previously
served as the investment adviser of a US open-end investment company, it serves
as the adviser to FR Networld Fund, a Fund that invests in the different sub
sectors of the internet in Europe and is marketed and sold in Europe. In
addition, SA Financiere Rembrandt manages 10 other European open-end investment
funds as well as numerous separately managed accounts in Europe. As of May 30,
2000, SA Financiere Rembrandt managed approximately 0.4 billion Euros or the
equivalent of $0.36 billion U.S. Dollars.
Monument Advisors, Ltd. ("Monument Advisors"), located at 7920 Norfolk Avenue,
Suite 500, Bethesda, Maryland 20814, is a wholly owned subsidiary of The
Monument Group, Inc., which in turn is principally owned and controlled by David
A. Kugler, its President. Monument Advisors also manages the assets of The
Monument Series Fund, Inc., an open-end management investment company registered
with the Securities and Exchange Commission ("SEC"). In addition, Monument
Advisors manages portfolios of investments of qualified individuals, retirement
plans, and trusts. As of June 8, 2000, Monument Advisors managed or supervised
in excess of $225 million in assets.
Under the Management Agreement, the Manager, 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 Manager 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 Manager 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.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to an Administrative Services Agreement with the Company dated June 19,
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 Manager.
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 twice monthly, at the annual rate of 0.20% on the first $250 million of
average net assets of the Fund; 0.175% of the average net assets between $250
and $500 million; 0.15% of the average net assets between $500 million and $750
million; 0.125% of the average net assets between $750 and $1 billion; and 0.10%
of the average net assets over $1 billion, subject to a minimum amount of
$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 June 1, 2000, Brown Brothers Harriman & Co. ("BBH"), 40 Water
Street, Boston Massachusetts, 02109, acts as the custodian of the Fund's
securities and cash and as the Fund's accounting services agent. With the
consent of the Company, BBH has designated The Depository Trust Company of New
York, as its agent to secure a portion of the assets of the Fund. BBH is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities acquired and held by the Fund outside the U.S.
Such appointments are subject to appropriate review by the Company's Directors.
As the accounting services agent of the Fund, BBH maintains and keeps current
the books, accounts, records, journals or other records of original entry
relating to the Fund's business.
TRANSFER AGENT
Pursuant to a Transfer Agent Agreement with the Company dated June 19, 2000,
PFPC, Inc. acts as the Company's transfer and disbursing agent. PFPC, Inc. is
located at 400 Bellevue Parkway, Wilmington, Delaware 19809. PFPC, Inc. provides
certain shareholder and other services to the Fund, including furnishing account
and transaction information and maintaining shareholder account records. PFPC,
Inc. is responsible for processing orders and payments for share purchases.
PFPC, Inc. mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. PFPC, Inc. disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
DISTRIBUTOR
First Dominion Capital Corp. ("FDCC"), located at 1500 Forest Avenue,
Suite 223, Richmond, Virginia 23229, and Monument Distributors, Inc.
("MDI"), located at 7920 Norfolk Avenue, Suite 500, Bethesda, Maryland
20814, serve as principal underwriters and national distributors for
the shares of the Fund pursuant to a Distribution Agreement dated
June 19, 2000, (the "Distribution Agreement"). John Pasco, III,
Chairman of the Board of the
Company, owns 100% of FDCC, and is its President, Treasurer and
a Director. MDI is a wholly-owned subsidiary of The Monument Group,
Inc., which in turn is principally owned and controlled by David A.
Kugler, its President. FDCC and MDI are registered as a broker-dealer and
are members of the National Association of Securities Dealers,
Inc. (the "NASD"). Mr. Pasco and Mr. Kugler each have an indirect
ownership interest in the Manager. The offering of the Fund's shares is
continuous.
INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Manager, 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 Manager, the Manager 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 Manager, when placing transactions, may allocate a portion of a fund's
brokerage to persons or firms providing the Manager with investment
recommendations, statistical, research or similar services useful to the
Manager's investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Manager 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 Manager 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 Manager may be authorized, when placing
portfolio transactions for the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Board of Directors of the Company has adopted policies and procedures
governing the allocation of brokerage to affiliated brokers. The Manager and
Advisers have been instructed not to place transactions with an affiliated
broker-dealer, unless that broker-dealer can demonstrate to the Company that the
Fund will receive (1) a price and execution no less favorable than that
available from unaffiliated persons, and (2) a price and execution equivalent to
that which that broker-dealer would offer to unaffiliated persons in a similar
transaction. The Board reviews all transactions which have been placed pursuant
to those policies and procedures at its Board meetings.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Manager makes purchases and sales for the
Fund's portfolio whenever necessary, in the Manager's opinion, to meet the
Fund's objective. The Manager anticipates that the average annual portfolio
turnover rate of the Fund will be greater than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is authorized to issue 500,000,000 shares of common stock, with a
par value of $0.01 per share. The Company has presently allocated 50,000,000
shares to the Fund, and has further reclassified those shares as follows: Twenty
Million (20,000,000) shares for Class A Shares of the series; Fifteen Million
(15,000,000) shares for Class B Shares of the series; and Fifteen Million
(15,000,000) shares for Class C 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 PFPC.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series and classes of shares, each of which
represents interests in a separate portfolio of investments and is subject to
separate liabilities. 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 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 $50,000 or more made within a
13-month period pursuant to the terms of a written Statement of Intention in the
form provided by the Distributor and signed by the purchaser. The Statement of
Intention is not a binding obligation to purchase the indicated amount. Shares
equal to 4.50% (declining to 1% after an aggregate of $1,000,000 has been
purchased under the Statement) of the dollar amount specified in the Statement
will be held in escrow and capital gain distributions on these escrowed shares
will be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Distributor the difference
between the sales charge actually paid and the sales charge which would have
been paid if the total purchases had been made at a single time. If the
difference is not paid within 20 days after written request by the Distributor
or the securities dealer, the appropriate number of escrowed shares will be
redeemed to pay such difference.
In the case of purchase orders by the trustees of certain employee plans by
payroll deduction, the sales charge for the investments made during the 13-month
period will be based on the following: total investments made the first month of
the 13-month period times 13; as the period progresses the sales charge will be
based (1) on the actual investment made previously during the 13-month period,
plus (2) the current month's investments times the number of months remaining in
the 13-month period. There will be no retroactive adjustments in sales charge on
investments previously made during the 13-month period.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
certain activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the Board of Directors of the Company and
the expenses paid under the Plan were incurred within the preceding 12 months
and accrued while the Plan is in effect.
The Plan provides that the Fund will pay a fee to the Distributor at an annual
rate of 0.50% for Class A Shares and 1.00% for Class B and Class C Shares of the
Fund's average daily net assets. The fee is paid to the Distributor as
reimbursement for expenses incurred for distribution-related activity.
RULE 18f-3 PLAN
At a meeting held on April 14, 2000, the Board adopted a Rule 18f-3 Multiple
Class Plan on behalf of the Fund 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, Class B Shares
imposing a back-end sales charge upon the sale of shares within six years of
purchase, and Class C Shares charging a reduced sales charge and a contingent
deferred sales charge.
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 Board of Directors reserves the right to make payments
in whole or in part using securities or other assets of a 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 by 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 shareholder sell their share of a 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 Manager 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 an
orderly a manner as is 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, 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 $5,000. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
Selling Shares. You may redeem shares of the Fund at any time and in any amount
by mail or telephone. The Fund will use reasonable procedures to confirm that
instructions communicated by telephone are genuine and, if the procedures are
followed, will not be liable for any losses due to unauthorized or fraudulent
telephone transactions.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. Payment will be
made promptly, but no later than the seventh day following the receipt of the
request in proper order. The Company may suspend the right to redeem shares for
any period during which the NYSE is closed or the U.S. Securities and Exchange
Commission determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
Small Accounts. Due to the relatively higher cost of maintaining small accounts,
the Company may deduct $50 per year from your account or may redeem the shares
in your account, if it has a value of less than $1,000. The Company will advise
you in writing thirty (30) days prior to deducting the annual fee or closing
your account, during which time you may purchase additional shares in any amount
necessary to bring the account back to $1,000. The Company will not close your
account if it falls below $1,000 solely because of a market decline.
Special Shareholder Services
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account. A regular account allows a shareholder to make voluntary
investments and/or withdrawals at any time. Regular accounts are available to
individuals, custodians, corporations, trusts, estates, corporate retirement
plans and others. You may use the Account Application provided with the
Prospectus to open a regular account.
Telephone Transactions. You may redeem shares or transfer into another fund if
you request this service on your initial Account Application. If you do not
elect this service at that time, you may do so at a later date by sending a
written request and signature guarantee to PFPC. 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, PFPC 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 PFPC. To receive more information, please call the offices of the
Company at 1-800-527-9525. Any shareholder may utilize this feature.
Individual Retirement Account ("IRA"). All wage earners under 70-1/2, even those
who participate in a company sponsored or government retirement plan, may
establish their own IRA. You can contribute 100% of your earnings up to $2,000
(or $2,250 with a spouse who is not a wage earner, for years prior to 1997). A
spouse who does not earn compensation can contribute up to $2,000 per year to
his or her own IRA. The deductibility of such contributions will be determined
under the same rules that govern contributions made by individuals with earned
income. A special IRA program is available for corporate employers under which
the employers may establish IRA accounts for their employees in lieu of
establishing corporate retirement plans. Known as SEP-IRA's (Simplified Employee
Pension-IRA), they free the corporate employer of many of the recordkeeping
requirements of establishing and maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer Federal Income Taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA. A Roth IRA permits certain taxpayers to make a non-deductible
investment of up to $2,000 per year. Provided an investor does not withdraw
money from his or her Roth IRA for a 5 year period, beginning with the first tax
year for which contribution was made, deductions from the investor's Roth IRA
would be tax free after the investor reaches the age of 59-1/2. Tax free
withdrawals may also be made before reaching the age of 59-1/2 under certain
circumstances. Please consult your financial and/or tax professional as to your
eligibility to invest in a Roth IRA. An investor may not make a contribution to
both a Roth IRA and a regular IRA in any given year. An annual limit of $2,000
applies to contributions to regular and Roth IRAs. For example, if a taxpayer
contributes $2,000 to a regular IRA for a year, he or she may not make any
contribution to a Roth IRA for that year.
How to Establish Retirement Accounts
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. You may wish to consult with your attorney or other tax
adviser for specific advice concerning your tax status and plans.
Exchange Privilege
Shareholders may exchange their shares for shares of any other series of the
Monument Series Fund, Inc. ("MSF"). You should call MSF at 1-888-420-9950 and
obtain a Prospectus prior to initiating the exchange. 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). 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 board reserves the right not to maintain the
qualification of a fund as a regulated investment company if it determines such
course of action to be beneficial to shareholders. In such case, a fund will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains, and distributions to you will be taxed as ordinary dividend income to
the extent of such Fund's earnings and profits.
Excise tax distribution requirements. To avoid federal excise taxes, the
Internal Revenue Code requires a fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. The Fund intends to declare and pay
these amounts in December (or in January that are treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
Redemption of Fund shares. Redemptions and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your Fund
shares, or exchange your Fund shares for shares of a different series of the
Company, the IRS will require that you report a gain or loss on your redemption
or exchange. If you hold your shares as a capital asset, the gain or loss that
you realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. Government Obligations. Many states grant tax-free status to
dividends paid to you from interest earned on direct obligations of the
U.S. government, subject in some states to minimum investment
requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage
Association securities, bankers' acceptances, commercial paper and
repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
Yield Information
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
Yield = 2[(a-b +1) -1]
---
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
A fund's yield, as used in advertising, is computed by dividing the Fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period
dividing this figure by a fund's NAV at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond mutual
funds. Dividends from equity investments are treated as if they were accrued on
a daily basis solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are excluded
from the calculation. Income calculated for the purpose of calculating a fund's
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a fund may differ from the rate of
distributions the fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Total Return Performance
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1,5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by a fund are assumed to have been reinvested at
NAV as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the prescribed periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value.
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australasia, 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.
