G R E E N B E R G
A T T O R N E Y S A
T L A W
T R A U R I G
2700 Two Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 988-7800
December 29, 2000
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street
Washington, DC 20549
Re: The World Funds, Inc.
SEC File Nos. 333-29289/811-8255
Ladies and Gentlemen:
On behalf of The World Funds, Inc. (the "Company"), attached herewith for
filing pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933,
as amended (the "1933 Act"), please find Post-Effective Amendment No. 14 to the
Company's Registration Statement on Form N-1A ("PEA No. 14"). PEA No. 14 is
being filed to: (i) update financial information; (ii) incorporate by reference
the audited financial information for the Company for its most recent fiscal
year ended August 31, 2000; (iii) make certain other non-material changes; and
(iv) add appropriate exhibits and consents. PEA No. 14 does not contain any
disclosures that would render it ineligible to become effective immediately
pursuant to paragraph (b) of Rule 485 under the 1933 Act.
Questions concerning PEA No. 14 may be directed to Terrance James Reilly at
(215) 988-7815, or in his absence, Steven M. Felsenstein at (215) 988-7837.
Very truly yours,
/s/ Terrance James Reilly
Terrance James Reilly
<PAGE>
PROSPECTUS
THE WORLD FUNDS, INC.
Sand Hill Portfolio Manager Fund
Prospectus dated ______________
This Prospectus describes the Sand Hill Portfolio Manager Fund (the "Fund"), a
series of shares offered by The World Funds, Inc. (the "Company"). A series fund
offers you a choice of investments, with each series having its own investment
objective and a separate portfolio. The Fund seeks to maximize total return by
investing in a diversified portfolio of equity securities, debt securities and
short-term investments on a global basis (within the U.S. and in other
countries).
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Maximize total return
Principal Investment
Strategies: The Fund seeks to achieve its objective by investing
in a diversified portfolio of equity securities, debt
securities and short term investments on a global basis
(within the United States ("U.S.") and in other
countries). Equity securities consist of common stocks
and securities convertible into common stocks. Debt
securities include obligations of governments,
instrumentalities and corporations. Short-term
instruments are generally used to protect the Fund
against movements in interest rates or currency
exchange rates and to provide the Fund with liquidity.
The Fund may invest in each of these three asset
classes without limit.
Principal Risks: The principal risk of investing in the Fund is that
the values of its investments are subject to
market, economic, interest rate and business risk
that may cause the Fund's net asset value ("NAV")
to fluctuate over time. Therefore, the value of your
investment in the Fund could decline and you could lose
money. There is no assurance that the investment adviser
will achieve the Fund's objective.
The Fund invests a varying portion of its assets in
foreign investments. These foreign investments may
involve financial, economic or political risks not
ordinarily associated with U.S. securities. With
foreign investments, the Fund's NAV may be affected by
changes in exchange rates between foreign currencies
and the U.S. dollar, less rigorous regulatory
standards, less liquidity in markets and more
volatility in prices than U.S. securities, higher
taxes, and adverse social or political developments.
An investment in the Fund is not a bank deposit and
is not insured or guaranteed by the FDIC or any other
government agency.
Investor Profile: You may want to invest in the Fund if you are seeking
to maximize total return and are willing to accept
share prices that may fluctuate, sometimes
significantly, over the short-term. The Fund will not
be appropriate if you are seeking current income
or are seeking safety of principal.
The bar chart and table below provide an indication of the risks of investing in
the Fund by showing past performances of the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. The bar chart shows how
the Fund's performance has varied from one year to another. The table compares
the Fund's average annual total returns for the periods ended December 31, 2000
to the Lipper Global Flexible Portfolio Index. Keep in mind that past
performance may not indicate how well the Fund will perform in the future.
[bar chart goes here]
Sand Hill Portfolio Manager Fund Total Return *
1995 11.60%
1996 19.57%
1997 17.87%
1998 (6.73%)
1999 23.22%
2000
* During the period shown in the bar chart, the highest return for a calendar
quarter was ___________% (quarter ending ____________) and the lowest
return for a calendar quarter was ____________ (quarter ending
____________)
[end bar chart]
Average Annual Total Return
(for the period ending December 31, 2000)
------------------------------------------------
Since Inception
One Year Three Years (January 2,1995)
-------- ----------- ----------------
Sand Hill Portfolio
Manager Fund
Lipper Global
Flexible Portfolio **
** Lipper Global Flexible Portfolio is an unmanaged index. The Lipper Global
Flexible Portfolio Index is a composite of the total return of mutual funds
with the stated objective of allocating investments across asset classes,
including stocks, bonds, and money market instruments with a focus on total
return, with at least 25% of their portfolios invested in securities
outside of the United States. The index is not adjusted to reflect expenses
that the SEC requires to be reflected in the Fund's performance.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. There are no sales
charges in connection with purchases or redemption of shares. The annual
operating expenses, which cover the costs of investment management,
administration, accounting and shareholder communications, are shown as an
annual percentage of the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees(1) None
Exchange Fees(2) None
Annual Operating Expenses (Expenses that are deducted from the Fund's assets)
Management Fee 1.00%
Distribution and Service (12b-1) Fees None
Other Operating Expenses (3) 0.84%
------
Total Annual Fund Operating Expenses 1.84%
(1) A shareholder may be charged $10 for each redemption requested by
telephone.
(2) A shareholder may be charged a $10 fee for each exchange requested by
telephone.
(3) In the interest of limiting expenses of the Fund, Sand Hill Advisor, Inc.
(the "Investment Adviser") has voluntarily agreed to waive its fees and to
assume other expenses so that the ratio of total annual operating expenses
of the Fund is limited to 1.90% through December 31, 2001 (see "Management
Organization and Capital Structure").
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that, to the extent the Fund increases in size, its Other Operating
Expenses will decline, reflecting economies of scale and its management fee rate
is reduced in one step as certain asset levels are reached. See "Management
Organization and Capital Structure".
EXAMPLE:
The following 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,
you reinvest all dividends and distributions in additional shares of the Fund
and then you redeem all of your shares at the end of the periods indicated.
Also, 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 5 Years 10 Years
------ ------- ------- --------
$187 $579 $996 $2,159
OBJECTIVES AND STRATEGIES
The investment objective of the Fund is to maximize total return (consisting of
realized and unrealized appreciation plus income) consistent with allocating its
investments among equity securities, debt securities and short term investments.
Within each asset class, the Fund may invest in domestic or foreign securities.
By allocating investments across broad asset classes, the Adviser seeks to
achieve over time a high total return, and a lower price volatility than might
be inherent in a more limited asset mix. The portfolio of the Fund will be
diversified. The Fund will not be limited to investing in securities of
companies of any size or to securities traded in any particular market.
The Fund seeks to take advantage of investment opportunities using a mix of
asset classes and markets throughout the world. The Fund allocates its
investments among equity securities, debt securities and short term investments
according to the Adviser's anticipation of risks and returns for each asset
class. The Fund may invest in each of these three asset classes without limit.
While broad representation in markets and asset classes is a primary asset
allocation policy of the Fund, the Investment Adviser intends to retain the
flexibility necessary to move among asset classes and markets as changing
conditions warrant.
Because the Fund invests in different types of securities in proportions which
will vary over time, investors should not expect the Fund to exhibit stable
asset allocations. Investors should also realize that the Fund's performance
will depend upon the skill of the Adviser to anticipate the relative risks and
returns of stocks, bonds and other securities and to adjust the Fund's portfolio
accordingly.
In determining which portfolio securities to sell, the Adviser considers
the following: (1) if a stock appreciates such that, as a total percentage of
our portfolio, it becomes too large; (2) if the sector or stock appears to be
under-performing; (3) if the company management appears to be engaging in
conduct not in the best interest of public shareholders; (4) to sell loss
positions in order to reduce taxable gains to our shareholders reflected in
earlier sales of positions with gains; and, (5) to raise funds to cover
redemptions.
Equity securities consist of common stocks as well as warrants, rights and
securities which are convertible into common stocks, such as convertible bonds.
The Investment Adviser screens the Fund's equity holdings primarily by analyzing
a company's cash flow return on investment. Specifically, the Adviser determines
the cash flow of a company and then applies a market derived discount rate to
the cash flow to evaluate the company. The Adviser also determines the free cash
flow that can be reinvested into the company and applies the same market derived
discount rate. The Adviser also identifies industries that are positioned to
participate in strong demographic, societal or economic trends and looks for
companies within those industries that have a particular competitive advantage
or niche.
Debt Securities consist of bonds, obligations and other evidences of
indebtedness denominated in U.S. or foreign currencies which are issued by
governments, companies or other issuers to borrow money from investors. Debt
securities may pay fixed or variable rates of interest, have varying maturity
dates at which the issuers must repay the debt, and have varying degrees of
risk. There is no limit on the maturities of the debt securities that the
Investment Adviser will select. Rather, the Adviser will select debt securities
for the Fund on the basis of, among other things, credit quality, yield,
potential for capital gains and the Investment Adviser's fundamental outlook for
currency and interest rate trends around the world.
The debt securities in which the Fund will invest will be almost entirely
investment grade debt securities. Investment grade debt securities are
securities that (1) bear the rating BBB or higher by Standard & Poor's Ratings
Group; (2) bear the rating Baa or higher by Moody's Investors Service, Inc.; or
(3) are unrated securities which the Adviser deems to be of comparable quality.
The Fund may invest in lower quality debt securities in order to avail itself of
the higher yields available from these securities or to seek to realize capital
gains. The Fund does not currently intend to invest more than 5% of its total
assets in securities that are rated below investment grade or are unrated. After
the Fund buys a debt security, the security may cease to be rated or its rating
may be reduced. Neither event would require the elimination of the debt security
from the Fund's portfolio.
Short-term investments are obligations denominated in U.S. or foreign currencies
consisting of bank deposits; bankers acceptances; certificates of deposit;
commercial paper; short-term government, government agency, supranational agency
and corporate obligations; and repurchase agreements. Depending on the Adviser's
assessment of the prospects for the various asset classes, all or a portion of
the Fund's assets may be invested in high quality short-term investments or cash
for investment, to protect against adverse movements of the market or interest
rates or to provide liquidity.
The Fund's assets will be invested on a global basis to take advantage of
investment opportunities both within the U.S. and outside the U.S. The foreign
securities which the Fund purchases may be bought directly in their principal
markets or may be acquired through the use of depositary receipts. Investments
in foreign securities may involve risks not ordinarily associated with U.S.
securities.
RISKS
Stock Market Risk.
The Fund is subject to stock market risk, which is the possibility that stock
prices overall will decline over short or even long periods. Stock markets tend
to move in cycles, with periods of rising prices and periods of falling prices.
Therefore, the value of your investment in the Fund may increase or decrease.
The Fund's investment success depends on the skill of the Adviser in evaluating,
selecting and monitoring the portfolio assets. If the Adviser's conclusions
about asset allocation are incorrect, the Fund may not perform as anticipated.
Debt Securities Risk.
The market values of debt securities are influenced primarily by credit risk and
interest rate risk. Credit risk is the risk that the issuer of the security will
not maintain the financial strength needed to pay principal and interest on its
debt securities. Generally, the market values of fixed-rate debt securities vary
inversely with the changes in prevailing interest rates. When interest rates
rise, the market values of such securities tend to decline and vice versa.
Although under normal market conditions longer term securities yield more than
short-term securities of similar quality, longer term securities are subject to
greater price fluctuations.
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 risk of foreign investments applicable to the underlying
securities, unsponsored Depositary Receipts may also be subject to the risks
that the foreign issuer may not be obligated to cooperate with the U.S. bank,
may not provide additional financial and other information to the bank or the
investor, or that such information in the U.S. market may not be current. Please
refer to the Statement of Additional Information (the "SAI") for more
information on Depositary Receipts.
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.
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 1940 Act and is commonly known as a "mutual fund".
The Company has retained an adviser to manage all aspects of the investments of
the Fund.
Investment Adviser.
Sand Hill Advisors, Inc. (the "Investment Adviser"), 3000 Sand Hill Road,
Building Three, Suite 150, Menlo Park, CA 94025, is the Fund's investment
adviser. The Investment Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 as amended. The Investment Adviser is a wholly
owned subsidiary of Boston Private Financial Holdings, Inc.
Jane H. Williams has been the portfolio manager of the Fund since its
inception in January of 1995. Ms. Williams is also the President of the Fund
and Vice President of the Company, and President and a Director of the
Investment Adviser, which was founded in September of 1982 by Ms. Williams.
Tim B. Barrett has served as co-manager of the Fund with Ms. Williams since
January of 1999. Mr. Barrett is also Director of Research for the Investment
Adviser. Prior to assuming the role of co-manager, Mr. Barrett was a research
analyst for the Investment Adviser and was actively involved in management
decisions and portfolio selection.
The Adviser is responsible for effecting all security transactions on behalf of
the Fund, including the allocation of principal business and portfolio brokerage
and the negotiation of commissions. In placing orders with brokers and dealers,
the Adviser will attempt to obtain the best price and execution of orders.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1% on the first $100 million of average net
assets of the Fund; and 0.75% on average net assets of the Fund over $100
million. For the year ended August 31, 2000, the Adviser received $ 178,818 in
advisory fees from the Fund.
In the interest of limiting the expense ratio of the Fund, the Adviser has has
voluntarily agreed to waive or limit its fees and to assume other expenses so
that the ratio of total annual operating expenses for the Fund is limited to
1.90% through December 31, 2001. 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.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
Time) on each business day ("Valuation Time") that the NYSE is open. As of the
date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets, subtracting any liabilities and then dividing by
the total number of shares outstanding.
Shares are bought, 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 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.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost. Other assets for which market prices are
not readily available are valued at their fair value as determined in good faith
under procedures set by the Board of Directors. Depositary Receipts will be
valued at the closing price of the instrument last determined prior to the
Valuation Time unless the Company is aware of a material change in value.
Securities for which such a value cannot be readily determined on any day will
be valued at the closing price of the underlying security adjusted for the
exchange rate. The value of a foreign security is determined as of the close of
trading on the foreign exchange on which it is traded or as of the scheduled
close of trading on the NYSE, whichever is earlier. Portfolio securities that
are listed on foreign exchanges may experience a change in value on days when
shareholders will not be able to purchase or redeem shares of the Fund.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times.
PURCHASING SHARES
Investors can purchase Fund shares either directly from First Dominion Capital
Corp. ("FDCC" or the "Distributor") or through brokers or dealers who are
members of the National Association of Securities Dealers, Inc.
Share Transactions.
You may purchase and redeem Fund shares, or exchange shares of the Fund for
those of another, by contacting the Fund, a broker or dealer authorized by the
Distributor to sell shares of the Fund or by contacting Fund Services, Inc., the
Company's transfer and dividend disbursing agent (the "Transfer Agent"), at 1500
Forest Avenue, Suite 111, Richmond, Virginia 23229 or by telephoning (800)
628-4077. There are no sales charges in connection with purchasing or redeeming
shares of the Fund. However, a broker or dealer may charge transaction fees for
the purchase or sale of Fund shares, depending on your arrangement with them.
Minimum Investments.
The minimum initial investment in the Fund is $25,000 and additional investments
must be in amounts of $50 or more. The Fund reserves the right to reject or
refuse, at their discretion, any order for the purchase of Fund shares in whole
or in part.
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 the Fund, c/o Fund
Services, Inc., 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229.
See "Proper Form." Third party checks are not accepted for the purchase
of Fund shares.
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Fund at (800) 527-9525 or
the Transfer Agent at (800) 628-4077 to advise the Fund of your investment and
to receive further instructions. Your bank may charge you a small fee for this
service. Once you have arranged to purchase shares by wire, please complete and
mail the account application form promptly to the Transfer Agent. This
application is required to complete the Fund's records. You will not have access
to your shares until the Fund's records are complete. Once your account is
opened, you may make additional investments using the wire procedure described
above. Be sure to include your name and account number in the wire instructions
you provide your bank.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. Investment professionals
who offer shares may require payments of fees from their individual clients. If
you invest through a third party, the policies and fees may be different than
those described in this Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
General.
The Company reserves the right in its sole discretion to withdraw all or any
part of the offering of shares of the Fund when, in the judgment of the Fund's
management, such withdrawal is in the best interest of the Fund. An order to
purchase shares is not binding on, and may be rejected by, the Fund until it has
been confirmed in writing by the Fund and payment has been received.
REDEEMING SHARES
You may redeem your shares at any time and in any amount by mail or telephone.
For your protection, the Transfer Agent will not redeem your shares until it has
received all the information and documents necessary for your request to be
considered in proper order (see "Signature Guarantees"). You will be notified
promptly by the Transfer Agent if your redemption request is not in proper
order.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. Payment will be
made promptly, but no later than the seventh day following the receipt of the
request in proper order. The Company may suspend the right to redeem shares for
any period during which the NYSE is closed or the U. S. Securities and Exchange
Commission (the "SEC") determines that there is an emergency. In such
circumstances you may withdraw your redemption request or permit your request to
be held for processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identity of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail.
To redeem shares by mail, send a written request for redemption, signed by the
registered owner(s) exactly as the account is registered. Certain written
requests to redeem shares may require signature guarantees. For example,
signature guarantees may be required if you sell a large number of shares, if
your address of record on the account application has been changed within the
last 30 days, or if you ask that the proceeds to be sent to a different person
or address. Signature guarantees are used to help protect you and the Fund. You
can obtain a signature guarantee from most banks or securities dealers, but not
from a Notary Public. Please call the Transfer Agent at (800) 628-4077 to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid any processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you request this service
on your initial account application. If you request this service at a later
date, you must send a written request along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
amount of this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help protect you and the Fund from fraud, signature guarantees are required
for: (1) all redemptions ordered by mail if you require that the check be
payable to another person or that the check be mailed to an address other than
the one indicated on the account registration; (2) all requests to transfer the
registration of shares to another owner; and, (3) all authorizations to
establish or change telephone redemption service, other than through your
initial account application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or, (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and, (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229. The Transfer Agent
cannot honor guarantees from notaries public, savings and loan associations, or
savings banks.
Proper Form.
Your order to buy shares is in proper form when your completed and signed
account application and check or wire payment is received. Your written request
to sell or exchange shares is in proper form when written instructions signed by
all registered owners, with a signature guarantee if necessary, is received.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Fund may
deduct $10 per year from your account or may redeem the shares in your account,
if it has a value of less than $25,000. The Fund will advise you in writing
sixty (60) 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 $25,000. The Fund will not close your account if it
falls below $25,000 solely because of a market decline. The Adviser and the
Distributor reserve the right to waive this fee for their clients.
Automatic Investment Plan.
Existing shareholders, who wish to make regular monthly investments in amounts
of $50 or more, may do so through the Automatic Investment Plan. Under the Plan,
your designated bank or other financial institution debits a pre-authorized
amount from your account on or about the 15th day of each month and applies the
amount to the purchase of shares. To use this service, you must authorize the
transfer of funds by completing the Automatic Investment Plan section of the
account application and sending a blank voided check.
Exchange Privileges.
You may exchange all or a portion of your shares for the shares of certain other
funds having different investment objectives, provided the shares of the fund
you are exchanging into are registered for sale in your state of residence.
Your account may be charged $10 for a telephone exchange fee. An exchange is
treated as a redemption and a purchase and may result in realization of a gain
or loss on the transaction.
Modification or Termination.
Excessive trading can adversely impact Fund performance and shareholders.
Therefore, the Company reserves the right to temporarily or permanently modify
or terminate the Exchange Privilege. The Company also reserves the right to
refuse exchange requests by any person or group if, in the Company's judgment, a
fund would be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The Company further reserves the right to restrict or refuse an
exchange request if the Company has received or anticipates simultaneous orders
affecting significant portions of a fund's assets or detects a pattern of
exchange requests that coincides with a "market timing" strategy. Although the
Company will attempt to give you prior notice when reasonable to do so, the
Company may modify or terminate the Exchange Privilege at any time.
Dividends and Capital Gain Distributions.
Dividends from net investment income, if any, are declared annually. The Fund
intends to distribute annually any net capital gains.
Distributions will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. There are no sales charges
or transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made within an IRA, all dividends and
capital gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend". To avoid buying a dividend, check the Fund's distribution
schedule before you invest.
DISTRIBUTIONS AND TAXES
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Other Fund distributions (including
distributions attributable to short-term capital gains of the Fund) will
generally be taxable to you as ordinary income. 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 the Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of the Fund for shares of a different fund
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. The one major exception to
these principles is that distributions on, and sales, exchanges and redemptions
of, shares held in an IRA (or other tax-deferred retirement account) will not be
currently taxable. Non-U.S. investors may be subject to U.S. withholding and
estate tax. You should consult with your tax adviser about the federal, state,
local or foreign tax consequences of your investment in the Fund.
By law, the Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the Internal Revenue Service (the "IRS") has
notified you that you are subject to backup withholding and instructs the Fund
to do so.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the periods presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon, along with the Fund's financial statements, are included in the
Fund's Annual Report to Shareholders (the "Annual Report") and are also
incorporated by reference into the SAI. Additional performance information for
the Fund is included in the Annual Report. The Annual Report and the SAI are
available at no cost from the Fund at the address and telephone number noted on
the back page of this Prospectus. The following information should be read in
conjunction with the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHTOUT EACH PERIOD
Period Years ended
Years ended August 31, ended December 31,
---------------------- August 31, --------------
2000 1999 1998*** 1997 1996
---- ---- ------- ---- ----
Net asset value, beginning
of period $15.73 $13.59 $14.57 $12.79 $11.11
------ ------ ------ ------ ------
Income from investment
operations-
Net investment income 0.08 0.02 0.06 0.09 0.14
Net realized and
unrealized gain
(loss) on investments 3.72 3.04 (1.04) 2.20 2.02
------ ------ ------ ------ ------
Total from investment 3.80 3.06 (0.98) 2.29 2.16
------ ------ ------ ------ ------
Less distributions-
Distributions from net
investment income (0.05) (0.07) -- (0.08) (0.15)
Distributions from
realized gains
on investments (0.23) (0.85) -- (0.43) (0.33)
------ ------- ------ ------ ------
Total distributions (0.28) (0.92) -- (0.51) (0.48)
------ ------- ------ ------ ------
Net asset value,
end of period $19.25 $15.73 $13.59 $14.57 $12.79
====== ====== ====== ====== ======
Total Return 24.24% 23.22% (6.73%) 17.87% 19.57%
====== ====== ======= ====== =======
Ratios/Supplemental Data
Net assets,
end of period (000s) $22,974 $14,190 $10,370 $10,566 $ 6,459
Ratio to average
net assets-(A)
Expenses (B) 1.84% 2.05% 2.08% 2.08% 2.50%
Expense ratio-net (C) 1.84% 1.90% 1.86% 1.90% 2.00%
Net investment income 0.34% 0.19% 0.62% 0.71% 1.29%
Portfolio turnover rate 45.85% 39.17% 30.19% 16.48% 32.97%
** Annualized
*** The Fund changed its year end from December 31st to August 31st. This
represents the period from January 1, 1998 to August 31, 1998.
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .64% in 1996.
(B) Expense ratios have been increased to include custodian fees which were
offset by custodian credits.
(C) Expense ratio - net reflects the effect of the custodian fee credits the
Fund received.
<PAGE>
You'll find more information about the Fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's SAI
dated _______________ which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
SAND HILL PORTFOLIO MANAGER FUND
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the current Prospectus of the Sand Hill
Portfolio Manager Fund (the "Fund") dated ___________. 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 or by calling (800) 527-9525.
The Fund's audited financial statements and notes thereto for the year ended
August 31, 2000 and the unqualified report of Tait, Weller & Baker, the Fund's
independent auditors, on such financial statements and are included in the
Fund's Annual Report to Shareholders for the year ended August 31, 2000 (the
"Annual Report") and are incorporated by reference into this SAI. No other parts
of the Annual Report are incorporated herein. A copy of the Annual Report
accompanies this SAI and an investor may obtain a copy of the Annual Report by
writing to the Fund or calling (800) 527-9525.
The date of this SAI is ________________________
<PAGE>
TABLE OF CONTENTS PAGE
General Information 1
Additional Information about the Fund's Investments 1
Investment Objectives 1
Strategies and Risks 1
Investment Programs 1
Depositary Receipts 1
Repurchase Agreements 2
Debt Securities 2
U.S. Government Securities 2
Zero Coupon Securities 2
International Bonds 3
Mortgage and Asset-backed Securities 3
Convertible Securities 3
Warrants 4
Investment Companies 4
Illiquid Securities 4
When-issued Securities 4
Strategic Transactions 5
Options 5
Currency Transactions 7
Use of Segregated and other Special Accounts 8
Restricted Securities 9
Indexed Securities 9
Other Securities 9
Investment Restrictions 9
Fundamental Policies or Restrictions 9
Non-fundamental Policies or Restrictions 10
Management of the Company 11
Principal Holders of Securities 14
Policies Concerning Personal Investment Activities 14
Investment Adviser and Advisory Agreements 14
Management-Related Services 15
Administration 15
Custodian and Accounting Services 15
Transfer Agent 16
Distributor 16
Independent Accountants 16
Portfolio Transactions 16
Portfolio Turnover 17
Capital Stock and Dividends 17
Additional Information About Purchases and Sales 18
Tax Status 20
Investment Performance 22
Financial Information 24
<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 the Sand Hill
Portfolio Manager Fund (the "Fund"). The Fund is a separate investment portfolio
or series of the Company. See "Capital Stock and Dividends" in this SAI. The
Fund is a "diversified" series as that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The following information supplements the discussion of the Fund's investment
objectives and policies. The Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, "majority of
outstanding voting shares" means the lesser of (1) 67% of the voting shares of
the Fund represented at a meeting of shareholders at which the holders of 50% or
more of the shares of the Fund are represented or (2) more than 50% of the
outstanding voting shares of the Fund. The investment programs, restrictions and
the operating policies of the Fund that are not fundamental policies can be
changed by the Board of Directors of the Company without shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is to maximize total return (consisting of
realized and unrealized appreciation plus income). All investments entail some
market and other risks and there is no assurance that the Fund will achieve its
investment objective. You should not rely on an investment in the Fund as a
complete investment program.
STRATEGIES AND RISKS
The Fund invests in three major categories of investment: equity securities,
debt securities and short-term investments. Each of these categories may include
securities of domestic or foreign issuers.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Depositary Receipts
The Fund invests on a global basis to take advantage of investment opportunities
both within the U.S. and other countries. The Fund may buy foreign securities
directly in their principal markets or indirectly through the use of depositary
receipts. The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDR's), and other similar
depositary receipts. ADRs are issued by an American bank or trust company and
evidence ownership of underlying securities of a foreign company. EDRs are
issued in Europe, usually by foreign banks, and evidence ownership of either
foreign or domestic underlying securities. The foreign country may withhold
taxes on dividends or distributions paid on the securities underlying the ADRs
and EDRs, thereby reducing the dividend or distribution amount received by the
Fund.
Unsponsored ADRs and EDRs are issued without the participation of the issuer of
the underlying securities. As a result, information concerning the issuer may
not be as current as for sponsored ADRs and EDRs. Holders of unsponsored ADRs
generally bear all the costs of the ADR facilities. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
Repurchase Agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. Under a repurchase agreement, the Fund acquires a security, subject
to the seller's agreement to repurchase that security at a specified time and
price. The Fund considers a purchase of securities under repurchase agreements
to be a loan by the Fund. The investment adviser monitors the value of the
collateral to ensure that its value always equals or exceeds the repurchase
price and also monitors the financial condition of the seller of the repurchase
agreement. If the seller becomes insolvent, the ability to dispose of the
securities held as collateral may be impaired and the Fund may incur extra
costs. Repurchase agreements for periods in excess of seven days may be deemed
to be illiquid.
Debt Securities
The Fund may invest in investment grade debt securities; which are securities
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or
higher by Standard & Poor's Ratings Group ("S&P") at the time of purchase or,
unrated securities which Sand Hill Advisors, Inc. (the "Adviser") believes to be
of comparable quality. The Fund does not currently intend to invest more than 5%
of its total assets in securities that are below investment grade or that are
unrated. Securities rated as Baa or BBB are generally considered to be
investment grade although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt securities.
Debt securities consist of bonds, notes, government and government agency
securities, zero coupon securities, convertible bonds, asset-backed and
mortgage-backed securities, and other debt securities whose purchase is
consistent with the Fund's investment objective. The Fund's investments may
include international bonds that are denominated in foreign currencies,
including the European Currency Unit or "Euro". International bonds are defined
as bonds issued in countries other than the United States. The Fund's
investments may include debt securities issued or guaranteed by supranational
organizations, corporate debt securities, bank or holding company debt
securities.
U.S. Government Securities
The Fund may invest in U.S. Government Securities that are obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as U.S. Treasury bills, notes and bonds, and
securities guaranteed by the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
U.S. Government securities include (1) securities that have no interest coupons
(see "Zero Coupon Securities" below) or have been stripped of their unmatured
interest coupons, (2) individual interest coupons from such securities that
trade separately, and (3) evidences of receipt of such securities. Such
securities that pay no cash income are purchased at a deep discount from their
value at maturity. Because interest on zero coupon and stripped securities is
not distributed on a current basis but is, in effect, compounded, such
securities tend to be subject to greater market risk than interest-payment
securities.
Zero Coupon Securities
The Fund may invest in zero coupon securities. Certain zero coupon securities
are convertible into common stock and offer the opportunity for capital
appreciation as increases (or decreases) in the market value of such securities
follows the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stock as they usually are issued with intermediate to
short maturities (15 years or less) and are issued with options and/or
redemption features exercisable by the holder of the securities entitling the
holder to redeem the securities and receive a defined cash payment.
Zero coupon securities also include securities issued directly as zero coupon
securities by the U.S. Treasury, and U.S. Treasury bonds or notes which have
their unmatured interest coupons separated by their holder, typically a
custodian bank or investment brokerage firm. The holder separates ("strips") the
interest coupons from the underlying principal of the U.S. Treasury security.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal is sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. Once the
U.S. Treasury obligation is stripped, the principal and coupons may be sold
separately. Typically, the coupons are sold individually or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discounted obligations that are similar
to zero coupon securities that the Treasury sells directly.
International Bonds
International bonds are defined as bonds issued in countries other than the
United States. The Fund's investments in international bonds may include debt
securities issued or guaranteed by a foreign national government, its agencies,
instrumentalities or political subdivisions, debt securities issued or
guaranteed by supranational organizations, foreign corporate debt securities,
bank or holding company debt securities and other debt securities including
those convertible into common stock.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities include, but are not limited to, securities issued by
the Government National Mortgage Association and the Federal Home Loan Mortgager
Association. Mortgage-backed securities represent ownership in specific pools of
mortgage loans. Unlike traditional bonds which pay principal only at maturity;
mortgage-backed securities make unscheduled principal payments to the investor
as principal payments are made on the underlying loans in each pool. Like other
fixed-income securities, when interest rates rise, the value of a
mortgage-backed security will decline. However, when interest rates decline, the
value of a mortgage-backed security with prepayment features may not increase as
much as other fixed-income securities.
Asset-backed securities participate in, or are secured by and payable from, a
stream of payments generated by particular assets, such as credit card, motor
vehicle or trade receivables. They may be pass-through certificates which are
similar to mortgage-backed commercial paper, which is issued by an entity
organized for the sole purpose of issuing the commercial paper and purchasing
the underlying assets. The credit quality of asset-backed securities depends
primarily on the quality of the underlying assets and the level of any credit
support provided. The weighted average lives of mortgage-backed and asset-backed
securities are likely to be substantially shorter than their stated final
maturity dates would imply because of the effect of scheduled and unscheduled
principal prepayments. Pay-downs of mortgage-backed and asset-backed securities
may result in income or loss being realized earlier than anticipated for tax and
accounting purposes.
Convertible Securities
The Fund may invest in convertible securities. Traditional convertible
securities include corporate bonds, notes and preferred stocks that may be
converted into or exchanged for common stock, and other securities that also
provide an opportunity for equity participation. These securities are
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other fixed income
securities, the price of a convertible security generally varies inversely with
interest rates. While providing a fixed income stream, a convertible security
also affords the investor an opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. As the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis and so they
may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock. To obtain such an opportunity for a higher yield
or capital appreciation, the Fund may have to pay more for a convertible
security than the value of the underlying common stock. The Fund will generally
hold common stock it acquires upon conversion of a convertible security for so
long as the Adviser anticipates such stock will provide the Fund with
opportunities that are consistent with its investment objective and policies.
Warrants
The Fund may invest up to 5% of its net assets (no more than 2% in securities
not listed on a national exchange) in warrants. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
have no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. Warrants are options to purchase equity
securities at a specific price for a specific period of time. If the Fund does
not exercise or dispose of a warrant prior to its expiration, it will expire
worthless. They do not represent ownership of the securities, but only the right
to buy them. Warrants differ from call options in that warrants are issued by
the underlying corporation, whereas call options may be written by anyone.
Investment Companies
The Fund may invest up to 10% of its assets in shares of closed-end investment
companies. Investments in such investment companies are subject to limitations
under the 1940 Act. Investment in closed-end funds is subject to the willingness
of investors to sell their shares in the open market and the Fund may have to
pay a substantial premium to acquire shares of closed-end funds in the open
market. The yield of such securities will be reduced by the operating expenses
of such companies. Under the 1940 Act limitations, the Fund may not own more
than 3% of the total outstanding voting stock of any other investment company
nor may it invest more than 5% of its assets in any one investment company or
invest more than 10% of its assets in securities of all investment companies
combined.
Investors in the Fund should recognize that by investing in investment companies
indirectly through the Fund, they will bear not only their proportionate share
of the Fund's expenses (including operating costs and investment advisory and
administrative fees) but also, indirectly, similar expenses of the underlying
investment company. Finally, investors should recognize that, as a result of the
Fund's policies of investing in other investment companies, they may receive
taxable capital gains distributions to a greater extent than would be the case
if they invested directly in the underlying investment companies.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities. The term
"illiquid securities" means securities that cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which the
Fund has valued the securities. Illiquid securities include generally, among
other things, certain written over-the-counter options, securities or other
liquid assets as cover for such options, repurchase agreements with maturities
in excess of seven days, certain loan participation interests and other
securities whose disposition is restricted under the federal securities laws.
When-Issued Securities
The Fund may purchase securities on a when-issued or forward delivery basis for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price. The
Fund's net asset value reflects gains or losses on such commitments each day,
and the Fund segregates liquid assets each day sufficient to meet the Fund's
obligations to pay for the securities.
Strategic Transactions
The Fund may, but is not required to, utilize various other investment
strategies described below which use derivative investments to hedge various
market risks (such as changes in interest rates, currency exchange rates, and
securities prices) or to enhance potential gain.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange listed put and call options on securities or securities indices,
and enter into various currency transactions such as currency forward contracts,
or options on currencies (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used (1) to attempt to protect
against possible changes in the market value of securities held in, or to be
purchased for, the Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, (2) to protect the Fund's unrealized gains
in the value of its portfolio securities, (3) to facilitate the sale of such
securities for investment purposes, or (4) to establish a position in the
options markets as a temporary substitute for purchasing or selling particular
securities. The Fund may use any or all of these investment techniques at any
time and there is no particular strategy that dictates the use of one technique
rather than another, as use of any Strategic Transaction is a function of
numerous variables, including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.
The risks associated with Strategic Transactions include possible default by the
other party to the transaction, illiquidity and, to the extent the investment
adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may (1) result in losses to the
Fund, (2) force the sale or purchase of portfolio securities at inopportune
times or for prices higher than (in the case of put options) or lower than (in
the case of call options) current market values, (3) limit the amount of
appreciation the Fund can realize on its investments or (4) cause the Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in the Fund incurring losses as a result of a number of factors,
including the imposition of exchange controls, suspension of settlements, or the
inability to deliver or receive a specified currency. Although the use of
options transactions for hedging should tend to minimize the risk of loss due to
a decline in the value of the hedged position, at the same time it tends to
limit any potential gain which might result from an increase in value of such
position. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized.
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (1) other complex foreign political, legal and economic factors,
(2) less availability than in the United States of data on which to make trading
decisions, (3) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States, (4)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (5) lower trading volume and
liquidity.
Put and Call Options
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
currency or other instrument at the exercise price. For instance, the Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. The purchase of a put option will
constitute a short sale for federal tax purposes. The purchase of a put at a
time when the substantially identical security held long has not exceeded the
long term capital gain holding period could have adverse tax consequences. The
holding period of the long position will be cut off so that even if the security
held long is delivered to close the put, short term gain will be recognized. If
substantially identical securities are purchased to close the put, the holding
period of the securities purchased will not begin until the closing date. The
holding period of the substantially identical securities not delivered to close
the short sale will commence on the closing of the short sale.
A call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. The Fund's purchase of a call option on a security,
securities index, currency or other instrument might be intended to protect the
Fund against an increase in the price of the underlying security.
An American style put or call option may be exercised at any time during the
option period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto. The Fund is authorized
to purchase and sell exchange listed options only. Exchange listed options are
issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties to
such options. The discussion below uses the OCC as an example, but is also
applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options are each settled for
the net amounts, if any, by which the option is "in the money" (i.e., where the
value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at the
time the option is exercised. Frequently, rather than taking or making delivery
of the underlying security through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (1) insufficient trading interest in certain options;
(2) restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (4) interruption of the normal operations of the OCC or an exchange; (5)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (6) a decision by one or more exchanges to discontinue the trading of
options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell exchange-listed call options on securities that
are traded in U.S. and foreign securities exchanges and on securities indices
and currencies. All calls sold by the Fund must be "covered" (i.e., the Fund
must own the securities subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
The Fund may purchase and sell exchange-listed put options on securities
(whether or not it holds the above securities in its portfolio), and on
securities indices and currencies. The Fund will not sell put options if, as a
result, more than 25% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options. In selling put options,
there is a risk that the Fund may be required to buy the underlying security at
a disadvantageous price above the market price. For tax purposes, the purchase
of a put is treated as a short sale which may cut off the holding period for the
security so it is treated as generating gain on securities held less than three
months or short term capital gain (instead of long term) as the case may be.
Options on Securities Indices and Other Financial Indices
The Fund may also purchase and sell call and put options on securities indices
and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement. This means an option on an index
gives the holder the right to receive, upon exercise of the option an amount of
cash if the closing level of the index upon which the option is based exceeds,
in the case of a call or is less than, in the case of a put, the exercise price
of the option. This amount of cash is equal to the excess of the closing price
of the index over the exercise price of the option, which also may be multiplied
by a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
Currency Transactions
The Fund may engage in currency transactions with counterparties in order to
hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value. The Fund's currency transactions may
include forward currency contracts and exchange listed options on currencies. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract.
The Fund's dealings in forward currency contracts will be limited to hedging
involving either specific transactions or portfolio positions. In specific
transaction hedging, the Fund enters into a currency transaction with respect to
specific assets or liabilities of the Fund, in connection with the purchase or
sale of its portfolio securities or the receipt of income therefrom. In position
hedging, the Fund enters into a currency transaction with respect to portfolio
security positions denominated or generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has, or in which the Fund
expects, to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the U.S. dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Adviser considers that the Japanese yen is
linked to the Euro, the Fund holds securities denominated in yen and the Adviser
believes that the value of yen will decline against the U.S. dollar, the Adviser
may enter into a contract to sell Euros and buy U.S. dollars. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to a fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Furthermore, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that a fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, it will comply with the asset segregation
requirements described below.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These government actions can result in
losses to a fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause the Fund's hedges to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Currency exchange rates for a country's currency may fluctuate based on
factors extrinsic to that country's economy.
Use of Segregated and Other Special Accounts
Many Strategic Transactions, in addition to other requirements, require that the
Fund segregate cash or liquid high grade securities with its custodian to the
extent Fund obligations are not otherwise "covered" through the ownership of the
underlying security, financial instruments or currency. In general, either the
full amount of any obligation by the Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid high grade securities sufficient
to purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio securities
which correlate with the index or segregate cash or liquid high grade securities
equal to the excess of the index value over the exercise price on a current
basis. A put option written by the Fund requires the Fund to segregate cash or
liquid, high grade securities equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid high grade securities equal to the amount of the Fund's
obligation.
OCC issued and exchange listed index options will generally provide for cash
settlement. As a result, when the Fund sells these instruments it will only
segregate an amount of assets equal to its accrued net obligations, as there is
no requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the Fund,
or the in-the-money amount plus any sell-back formula amount in the case of a
cash-settled put or call. In addition, when the Fund sells a call option on an
index at a time when the in-the-money amount exceeds the exercise price, the
Fund will segregate, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess. OCC issued and exchange listed
options sold by the Fund other than those that provide for cash settlement
generally settle with physical delivery, and the Fund will segregate an amount
of assets equal to the full value of the option.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund also enter into offsetting transactions
so that its combined position, coupled with any segregated assets, equals its
net outstanding obligation in related options and Strategic Transactions. For
example, the Fund could purchase a put option if the strike price of that option
is the same or higher than the strike price of a put option sold by the Fund.
Moreover, if the Fund held a forward contract instead of segregating assets, the
Fund could purchase a put option on the same forward contract with a strike
price as high or higher than the price of the contract held. Other Strategic
Transactions may also be offered in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction, no segregation is
required, but if the offsetting transaction terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
In order for the Fund to qualify as a regulated investment company, the Fund's
activities involving Strategic Transactions may be limited by the requirements
of Subchapter M of the Internal Revenue Code of 1986, as amended.
Restricted Securities
The Fund may invest in restricted securities. Generally, "restricted securities"
are securities which have legal or contractual restrictions on their resale. In
some cases, these legal or contractual restrictions may impair the liquidity of
a restricted security; in others, the legal or contractual restrictions may not
have a negative effect on the liquidity of the security. Restricted securities
which are deemed by the investment adviser to be illiquid will be included in
the Fund's policy which limits investments in illiquid securities.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators.
Indexed securities, or structured notes, are usually debt securities whose value
at maturity, or coupon rate, is determined by reference to a specific instrument
or index. Gold-indexed securities, for example, typically provide for a maturity
value that depends on the price of gold, resulting in a security whose price
tends to rise and fall together with gold prices.
Other Securities
The Board of Directors may, in the future, authorize the Fund to invest in
securities other than those listed in this SAI and in the Prospectus, provided
such investments would be consistent with the Fund's investment objective and
would not violate the Fund's fundamental investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions
The Fund has adopted the following fundamental investment restrictions which
cannot be changed without approval by vote of a "majority of the outstanding
voting securities" of the Fund. As a matter of fundamental policy, the Fund may
not:
(1) Purchase any security if, as a result of such purchase less than 75% of
its assets would consist of cash and cash items, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which it has not invested more than 5% of its assets;
(2) Purchase the securities of any issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund;
(3) Borrow money; except through reverse repurchase agreements, or from banks
for temporary or emergency purposes and then only in an amount not in
excess of 20% of the value of its net assets. The Fund may borrow money to
avoid the untimely disposition of assets to meet redemptions, in an amount
up to 20% of the value of its net assets, provided it maintains asset
coverage of 300% in connection with borrowings, and does not make other
investments while such outstanding borrowings exceed 5% of its total
assets;
(4) Invest more than 25% of its total assets in securities of
companies in the same industry;
(5) Act as an underwriter of securities of other issuers, except to the extent
that it may be deemed to be an underwriter in connection with the
disposition of its portfolio securities;
(6) Make loans, except (i) loans of its portfolio securities and (ii) it may
enter into repurchase agreements and purchase debt securities in
accordance with its investment objective;
(7) Issue senior securities, (except it may engage in transactions
such as those permitted by the SEC release IC-10666);
(8) Purchase or sell real estate, however liquid securities of companies which
deal in real estate or interests therein would not be deemed to be an
investment in real estate; and
(9) Purchase or sell commodities or commodity contracts;
In applying the fundamental and non-fundamental policy concerning concentration:
(1) Except with respect to the Fund's investment restrictions concerning
borrowings or senior securities, the percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made. A
later change in percentage resulting from changes in the value or the total
cost of the Fund's assets will not be considered a violation of the
restriction; and
(2) Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the end
users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; (ii)
technology companies will be divided according to their products and
services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; and
(iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry.
In order to satisfy certain state regulatory requirements the Fund has agreed
that, so long as its shares are offered for sale in such state(s), it will not:
(1) invest in interests in oil, gas, or other mineral exploration
or development programs;
(2) invest more than 5% of its total assets in the securities of any issuers
which have (together with their predecessors) a record of less than three
years continuous operations; and
(3) purchase or retain any securities if (i) one or more officers or Directors
of the Company or the Fund's investment adviser individually own or would
own, directly or beneficially, more than 1/2 of 1 per cent of the
securities of such issuer, and (ii) in the aggregate such persons own or
would own more than 5% of such securities.
Non-Fundamental Policies and Restrictions
In addition to the fundamental policies and investment restrictions described
above, and the various general investment policies described in the Prospectus
and elsewhere in the SAI, the Fund will be subject to the following investment
restrictions, which are considered non-fundamental and may be changed by the
Board of Directors without shareholder approval. As a matter of non-fundamental
policy, the Fund does not intend to:
(1) Purchase or sell futures contracts or options thereon;
(2) Make short sales of securities;
(3) Make loans of portfolio securities;
(4) Purchase or sell real estate limited partnership interests;
(5) Purchase or retain securities of any open-end investment company; purchase
securities of closed-end investment companies except by purchase in the
open market where no commission or profit to a sponsor or dealer results
from such purchase; however, it may acquire investment company securities
in connection with a plan of merger, consolidation, reorganization or
acquisition of assets; in any event, it may not purchase more than 3% of
the outstanding voting securities of another investment company, may not
invest more than 5% of its assets in another investment company, and may
not invest more than 10% of its assets in all investment companies
combined;
(6) Borrow, pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(7) Purchase securities on margin, except that it may obtain such short-term
credits as are necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts and options on
futures contracts, if any, shall not constitute purchasing securities on
margin;
(8) Invest more than 15% of its net assets in securities which are illiquid or
not readily marketable, including repurchase agreements which are not
terminable within 7 days (normally no more than 5% of its net assets will
be invested in such securities);
(9) Purchase put options on write covered call options if, as a result, more
than 25% of its total assets would be hedged with options;
(10) Write put options if, as a result, its total obligations upon exercise of
written put options would exceed 25% of its total assets;
(11) Purchase call options if, as a result, the current value of options
premiums for call options purchased would exceed 5% of its total assets;
and
(12) Purchase warrants, valued at the lower of cost or market, in excess of 5%
of the value of its net assets; provided that no more than 2% of its net
assets may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange.
NOTE: Items (9), (10) and (11) above do not apply to options
attached to, or purchased as a part of, their underlying
securities.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages 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 advisers and principal underwriter,
and officers of the Company, are noted with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
------------- ---------------- ----------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,
(55) the Company's Administrator,
since 1985; President and
Director of First Dominion
Capital Corp., the Company's
principal underwriter. Director
and shareholder of Fund Services,
Inc., the Company's Transfer and
Disbursing Agent, since 1987;
shareholder of Commonwealth Fund
Accounting, Inc. which provides
bookkeeping services; and Chairman,
Director and Treasurer of Vontobel
Funds, Inc., a registered
investment company since
March, 1997. Mr. Pasco is
also a certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations and
Potomac, MD. 20854 Accounting Division of the
(60) Potomac Electric Power Company
since August, 1978; and
Director of Vontobel Funds,
Inc., a registered investment
company since March, 1997. Mr.
Boyd is also a certified public
accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD. 20816 Management Consulting for
(64) Professionals since 1968;
Director of Vontobel Funds, Inc.,
a registered investment company
since March, 1997. Mr. Poist is
also a certified public
accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Drive Alfred J. Dickinson, Inc.
Richmond, VA 23229 Realtors since April, 1971; and
(53) Director of Vontobel Funds, Inc.
a registered investment company
since March, 1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive Commonwealth Shareholder
Suite 101 Services, Inc. and First
Richmond, VA 23229 Dominion Capital Corp. since
(57) 1986; Secretary of Vontobel
Funds, Inc., a registered
investment company since
March, 1997; and Partner in
the law firm Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the
3000 Sand Hill Road the Company and President of Sand Hill
Suite 150 President of the Advisors, Inc.since August, 2000
Menlo Park, CA 94025 Sand Hill Portfolio and was the Executive Vice
(52) Manager Fund series President of Sand Hill Advisors,
Inc. since 1982.
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a Partner
San Francisco, CA 94104 Fixed Income Fund in the law firm Taylor & Faust
(54) since December, 1975.
*Franklin A. Trice, III Vice President of Mr. Trice is President of Virginia
P.O. Box 8535 the Company and Management Investment Corp.
Richmond, VA 23226-0535 President of the since May, 1998; and a registered
(37) New Market Fund representative of First Dominion
series Capital Corp, the Company's
underwriter since September, 1998.
Mr.Trice was a broker with
Scott & Stringfellow from
March, 1996 to May, 1998
and with Craigie, Inc.
from March, 1992 to
January, 1996.
*John T. Connor, Jr. Vice President of President of Third Millennium
515 Madison Ave., the Company and Investment Advisors, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial
(59) Russia Fund series company and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 610 President of since July, 1990; and
Gaithersburg, MD 20878 GenomicsFund.com President of xGENx, LLC
(53) and Newby's ULTRA since November, 1999.
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994
Suite 200 series In his six years with IAAC he has
Winter Park, FL 32789 served as a Financial Adviser,
(40) 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 and officers who are officers or
employees of any investment adviser to a fund of the Company. 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, 2000, the Directors received the
following compensation from the Company:
Aggregate
Compensation Total Pension or
Name and From the Fund Retirement Benefits Compensation
Position Fiscal Year Ended Accrued as Part from the
Held August 31, 1999(1) Fund Expenses Company(2)
--------- -------------------- ------------------- ------------
John Pasco, III, 0 N/A 0
Director
Samuel Boyd, Jr., $2,000 N/A $12,933
Director
William E. Poist, $2,000 N/A $12,933
Director
Paul M. Dickinson, $2,000 N/A $12,933
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors for service on the Board of Directors for the Fund's fiscal year
ended August 31, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds offered by the Company for the fiscal year or
period ended August 31, 2000. The Company consisted of a total of eight
funds as of August 31, 2000.
CONTROL PERSONS - PRINCIPAL HOLDERS OF SECURITIES
The Directors and officers of the Company, as a group, do not own
1% or more of the Fund.
To the best knowledge of the Fund as of December 31, 2000, the following
persons own of record or beneficially own 5% or more of the Fund's shares and
own such amounts indicated:
[INSERT REQUIRED INFORMATION]
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES.
The fund, Adviser and principal underwriter have each adopted a Code of Ethics,
pursuant to Rule 17j-1 under the 1940 Act, that permit investment personnel,
subject to their particular Code of Ethics, to invest in securities, including
securities that may be purchased or held by the Fund, for their own accounts.
The Codes of Ethics are on file and can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. In addition, the Codes of Ethics are
also available on the EDGAR Database on the SEC's Internet website at
http://www.sec.gov.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Sand Hill Advisors, Inc. (the "Adviser"), 3000 Sand Hill Road, Building Three,
Suite 150, Menlo Park, CA 94025, is the Fund's investment adviser. The
Investment Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940 as amended. The Adviser is a wholly owned subsidiary of
Boston Private Financial Holdings, Inc.
The Adviser serves as investment adviser to the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement is
effective for a period of two years from October 25, 2000, and may be renewed
annually thereafter. The Advisory Agreement will automatically terminate in the
event of its "assignment" as that term is defined in the 1940 Act, and may be
terminated without penalty at any time upon 60 days' written notice to the other
party by: (i) the majority vote of all the Directors or by vote of a majority of
the outstanding voting securities of the Fund; or (ii) the Adviser. Under the
Advisory Agreement, the Adviser, subject to the supervision of the Directors,
provides a continuous investment program for the Fund, including investment
research and management with respect to securities, investments and cash
equivalents, in accordance with the Fund's investment objective, policies, and
restrictions as set forth in the Prospectus and this SAI. The Adviser is
responsible for effecting all security transactions on behalf of the Fund,
including the allocation of principal business and portfolio brokerage and the
negotiation of commissions. The Adviser also maintains books and records with
respect to the securities transactions of the Fund and furnishes to the
Directors such periodic or other reports as the Directors may request.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1.00% on the first $100 million of average
net assets of the Fund; and 0.75% on average net assets of the Fund over $100
million. The Adviser has voluntarily agreed to waive all or a portion of its
advisory fee or make payments to the Fund in order to maintain the Fund's total
operating expenses at an annual rate not to exceed 1.90%. The Adviser received
$80,675 from the Fund for the year ended December 31, 1997 and $80,943 from the
Fund for the period ended August 31, 1998. The Adviser received $126,902 and
$178,818 from the Fund for the years ended August 31, 1999 and August 31, 2000,
respectively. Pursuant to the terms of the Advisory Agreement, the Adviser pays
all expenses incurred by it in connection with its activities thereunder, except
the cost of securities (including brokerage commissions, if any) purchased for
the Fund. The services furnished by the Adviser under the Advisory Agreement are
not exclusive, and the Adviser is free to perform similar services for others.
MANAGEMENT-RELATED SERVICES
Administration
Pursuant to an Administrative Services Agreement with the Company dated August
19, 1997 (the "Administrative Agreement"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Fund and supervises all aspects of the operation of the
Fund except those performed by the Adviser. John Pasco, III, Chairman of the
Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% subject to a minimum amount of
$15,000 per year for a period of two years from the date of the Administrative
Agreement. Thereafter, the minimum administrative fee is $30,000 per year. CSS
also receives an hourly rate, plus certain out-of-pocket expenses, for
shareholder servicing and state securities law matters. CSS received fees of
$22,263 and $21,247 for the years ended December 31, 1997, and for the period
ended August 31, 1998, respectively. For the years ended August 31, 1999 and
August 31, 2000, CSS received fees of $42,731 and $35,850, respectively.
Custodian and Accounting Services
Pursuant to a Custodian Agreement with the Company dated October 28, 1998, as
amended 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. 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 which may be acquired and held by the Fund
outside the U.S. Such appointments are subject to appropriate review by the
Company's Board of Directors.
Pursuant to an Accounting Service Agreement dated July 1, 2000 (the
"Accounting Agreement"), Commonwealth Fund Accounting, Inc. ("CFA"), 1500 Forest
Avenue, Suite 100, Richmond, Virginia 23229, is responsible for accounting
relating to the Fund and its investment transactions; maintaining certain books
and records of the Fund; determining daily the net asset value per share of the
Fund; and preparing security position, transaction and cash position reports.
CFA also monitors periodic distributions of gains or losses on portfolio sales
and maintains a daily listing of portfolio holdings. CFA is responsible for
providing expenses accrued and payment reporting services, tax-related financial
information to the Company, and for monitoring compliance with the regulatory
requirements relating to maintaining accounting records. John Pasco, III,
Chairman of the Board of the Company, is a shareholder of of CFA, and is its
President and Chief Financial Officer. CFA received fees of $12,850 for fiscal
year ended August 31, 2000, .
Prior to July 1, 2000, Star Bank, 425 Walnut Street, P.O. Box 1118, Cincinnati,
Ohio 45201-1118, was the Fund's Custodian and Accounting Services Agent.
Transfer Agent
Pursuant to a Transfer Agency Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI" or the "Transfer Agent") acts as the Company's
transfer, dividend disbursing and redemption agent. FSI is located at 1500
Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco, III, Chairman of the
Board of the Company owns one-third of the voting shares of FSI, and therefore,
FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders for shares and
ensuring appropriate participation with the National Securities Clearing
Corporation for transactions in the Fund's shares. FSI receives and processes
redemption requests and administers distribution of redemption proceeds. FSI
also handles shareholder inquiries and provides routine account information. In
addition, FSI prepares and files appropriate tax related information concerning
dividends and distributions to shareholders.
Under the Transfer Agency Agreement, FSI is compensated pursuant to a schedule
of services, and is reimbursed for out-of-pocket expenses. The schedule calls
for a minimum payment of $16,500 per year. FSI received fees of $24,190, $19,313
and $11,535 for the years ended December 31,1996 and 1997, and for the period
ended August 31, 1998, respectively. FSI received fees of $21,565 and $21,551
for the years ended August 31, 1999 and August 31, 2000, respectively.
Distributor
First Dominion Capital Corp. ("FDCC" or the "Distributor"), located at 1500
Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as the principal
underwriter and national distributor for the shares of the Fund pursuant to a
Distribution Agreement dated August 19, 1997 (the "Distribution Agreement").
John Pasco, III, Chairman of the Board of the Company, owns 100% of FDCC, and is
its President, Treasurer and a Director. FDCC is registered as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc. The
offering of the Fund's shares is continuous. There are no sales charges in
connection with purchases and redemptions of Fund shares. FDCC does not receive
underwriting discounts and commissions, brokerage commission or other
compensation as a result of the sale of the Fund's shares.
Independent Accountants
The Company's independent auditors, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Adviser, in placing orders for the purchase and sale of
the Fund's securities, to seek to obtain the best price and execution for its
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of the Fund's
brokerage to persons or firms providing it with investment recommendations or
statistical, research or similar services useful in its decision making process.
The term "investment recommendations or statistical, research or similar
services" means (1) advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and (2) analyses and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. The Adviser may cause the Fund to pay a commission higher
than that charged by another broker in consideration of such research services.
Such services are one of the many ways the Adviser can keep abreast of the
information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions for the
Fund may be used by the Adviser for the benefit of the Fund and other clients,
and the Fund may benefit from such transactions effected for the benefit of
other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser is not authorized, when placing
portfolio transactions for the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on the basis of execution. Except for implementing the policy stated
above, there is no intention to place portfolio transactions with particular
brokers or dealers or groups thereof.
When two or more clients managed by the Adviser are simultaneously engaged in
the purchase or sale of the same security, the transactions are allocated in a
manner deemed equitable to each client. In some cases this procedure could have
a detrimental effect on the price or volume of the security as far as the Fund
is concerned. In other cases, however, the ability to participate in volume
transactions will be beneficial to the Fund. The Board of Directors of the
Company believes that these advantages, when combined with the other benefits
available because of the Adviser's organization, outweigh the disadvantages that
may exist from this treatment of transactions.
Aggregate brokerage for the last three fiscal years is as listed below:
2000 1999 1/1/98 - 8/31/98 1997
---- ---- ---------------- ----
$21,319 $12,778 $7,328 $6,474
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Adviser makes purchases and sales for the
Fund's portfolio whenever necessary, in its opinion, to meet the Fund's
objective. The Adviser anticipates that the Fund's average annual portfolio
turnover rate will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 750,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has currently allocated
50,000,000 shares to the Fund and 350,000,000 shares to other series of the
Company. Each share has equal dividend, voting, liquidation and redemption
rights. There are no preemptive rights and only such conversion or exchange
rights as the Board of Directors, in its discretion, may grant. Shares of the
Fund do not have cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can elect all of the
Directors if they choose to do so. In such event, the holders of the remaining
shares will not be able to elect any person to the Board of Directors. Shares
will be maintained in open accounts on the books of the Transfer Agent.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Directors. Upon the Company's liquidation, all shareholders of
a series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the Fund at their net
asset value as of the date of payment unless the shareholder elects to receive
such dividends or distributions in cash. The reinvestment date normally precedes
the payment date by about seven days although the exact timing is subject to
change. Shareholders will receive a confirmation of each new transaction in
their account. The Company will confirm all account activity, including the
payment of dividend and capital gain distributions and transactions made as a
result of the Automatic Investment Plan described below. Shareholders may rely
on these statements in lieu of stock certificates.
DISTRIBUTION
In connection with promotion of the sales of the Fund, the Distributor may, from
time to time, offer (to all broker dealers who have a sales agreement with the
Distributor) the opportunity to participate in sales incentive programs (which
may include non-cash concessions). The Distributor may also, from time to time,
pay expenses and fees required in order to participate in dealer sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with pre-approved seminars, conferences and advertising, and may, from time to
time, pay or allow additional promotional incentives to dealers as part of
pre-approved sales contests.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Purchasing Shares
The Fund reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund. Under certain circumstances the Company or the
Adviser may waive the minimum initial investment for purchases by officers,
Directors, and employees of the Company and its affiliated entities and for
certain related advisory accounts and retirement accounts (such as IRAs). The
Fund may also change or waive policies concerning minimum investment amounts at
any time.
Selling Shares
You may sell your shares by giving instructions to the Transfer Agent by mail or
by telephone.
The Board of Directors may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such exchange is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale of Fund shares or valuation of securities held by the Fund are not
reasonably practicable.
Small Accounts
Due to the relative higher cost of maintaining small accounts, the Fund may
deduct $10 per year from your account, if, as a result of redemption or exchange
of shares, the total investment remaining in the account has a value of less
than $25,000. Shareholders will receive 60 days written notice to increase the
account value above $25,000 before the fee is to be deducted. A decline in the
market value of your account alone would not require you to bring your
investment up to this minimum.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account
The regular account allows for voluntary investments to be made at any time.
Available to individuals, custodians, corporations, trusts, estates, corporate
retirement plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish. Simply use the
Account Application provided with the Prospectus to open your account.
Telephone Transactions
A shareholder may redeem shares or transfer into another fund by telephone if
this service is requested at the time the shareholder completes the initial
Account Application. If you do not elect this telephone service at that time,
you may do so at a later date by putting your request in writing to the Transfer
Agent and having your signature guaranteed.
The Fund employs reasonable procedures designed to confirm the authenticity of
instructions communicated by telephone and, if the procedures are followed the
Fund will not be liable for any losses due to unauthorized or fraudulent
transactions. As a result of this policy, a shareholder authorizing telephone
redemption bears the risk of loss which may result from unauthorized or
fraudulent transactions which the Fund believes to be genuine. When requesting a
telephone redemption or transfer, the shareholder will be asked to respond to
certain questions designed to confirm the shareholder's identify as a
shareholder of record. Cooperation with these procedures helps to protect the
account and the Fund from unauthorized transactions.
Automatic Investment Plan.
Any shareholder may utilize this feature, which provides for automatic monthly
investments into your account. Upon your request, the Transfer Agent will
withdraw a fixed amount each month from a checking or savings account for
investment into the Fund. This does not require a commitment for a fixed period
of time. A shareholder may change the monthly investment, skip a month or
discontinue the Automatic Investment Plan as desired by notifying the Transfer
Agent at (800) 628-4077.
Individual Retirement Account ("IRA")
Al wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000. A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employees under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements of establishing and maintaining a
corporate retirement plan trust.
If a shareholder has received a distribution from another qualified retirement
plan, all or part of that distribution may be rolled over into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer federal income taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a five-year period, beginning with the first tax year for which a
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year. An annual limit of $2,000 applies to
contributions to regular and Roth IRAs. For example, if a taxpayer contributes
$2,000 to a regular IRA for a year, he or she may not make any contribution to a
Roth IRA for that year.
How to Establish Retirements Accounts
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. A shareholder may wish to consult with an attorney or
other tax Adviser for specific advice concerning tax status and plans.
Exchange Privilege
Shareholders may exchange their shares for shares of any other series of the
Company, provided the shares of the fund the shareholder is exchanging into are
registered for sale in the shareholder's state of residence. The account must
meet the minimum investment requirements (currently $1,000 for the CSI Equity
Fund, the CSI Fixed Income Fund, the New Market Fund, the Third Millennium
Russia Fund, the Global e Fund and the Monument EuroNet Fund; and, $5,000 for
GenomicsFund.com). A written request must have been completed and be on file
with the Transfer Agent. To make an exchange, an exchange order must comply with
the requirements for a redemption or repurchase order and must specify dollar
amount or the number of shares to be exchanged. An exchange will take effect as
of the next determination of the Fund's NAV per share (usually at the close of
business on the same day). The Transfer Agent will charge the shareholder's
account a $10.00 service fee each telephone exchange. The Company reserves the
right to limit the number of exchanges or to otherwise prohibit or restrict
shareholders from making exchanges at any time, without notice, should the
Company determine that it would be in the best interest of its shareholders to
do so. For tax purposes an exchange constitutes the sale of the shares of the
fund from which you are redeeming and the purchase of shares of the fund into
which you are exchanging. Consequently, the sale may involve either a capital
gain or loss to the shareholder for federal income tax purposes.
TAX STATUS
Distributions and Taxes
Distributions of net investment income: The Fund receives income generally in
the form of interest and other income on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or reinvest them in additional shares.
Distribution of capital gains
The Fund may derive capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminated
excise or income taxes on the Fund.
Effect of foreign investments on distributions
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by the Fund. Similarly, foreign exchange losses realized by
the Fund on the sale of debt securities are generally treated as ordinary
losses. These gains when distributed will be taxable to you as ordinary
dividends, and any losses will reduce the Fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce the
Fund's ordinary income distributions to you, and may cause some or all of its
previously distributed income to be classified as return of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of its total assets at the end of the
fiscal year are invested in securities of foreign corporations, it may elect to
pass-through to you your pro rata share of foreign taxes paid by it. If this
election is made, the year-end statement you receive from the Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. The Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
the tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be 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 pay no federal income tax on
the income and gains it distributes to you. The Board reserves the right not to
maintain the qualifications of the Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
the Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the Fund's earnings and profits.
Excise tax distribution requirements
To avoid federal excise taxes, the Internal Revenue Code requires a fund to
distribute to shareholders by December 31 of each year, at a minimum the
following amounts: 98% of its taxable ordinary income earned during the twelve
month period ending October 31, and 100% of any undistributed amounts from the
prior year. The Fund intends to declare and pay these amounts in December (or in
January which must be treated by you as received in December) to avoid these
excise taxes, but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
Redemption of Fund shares
Redemption and exchanges of Fund shares are taxable transactions for federal and
state income tax purposes. If you redeem or exchange your Fund shares for shares
of a different fund within the Company, the IRS will require that you report a
gain or loss on your redemption or exchange. The gain or loss that you realize
will be either a long-term or short-term capital gain or loss depending on how
long you held your shares. Any loss incurred on the redemption or exchange of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gains distributed to you by the Fund on
those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. government obligations
Many states grant tax-free status to dividends paid to shareholders from
interest earned on direct obligations of the U.S. government, subject in some
states to minimum investment requirements that must be met by the Fund.
Investments in Government National Mortgage Association or Federal National
Mortgage Association securities, bankers' acceptances, commercial paper and
repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
Dividends received deduction for corporations
Because the Fund's income includes corporate dividends, if the shareholder is a
corporation, a portion of its distributions may qualify for the intercorporate
dividends-received deduction. You will be permitted in some circumstances to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculations.
Investment in complex securities
The Fund may invest in complex securities, such as original issue discount
obligations, the shares of passive foreign investment companies and others.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the Fund and/or defer the Fund's ability to recognize losses, and, in limited
cases, subject the Fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the Fund.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices, in advertisements or in reports to
shareholders, The Fund states performance in terms of total return or yield.
Both "total return" and "yield" figures are based on the historical performance
of the Fund, show the performance of a hypothetical investment and are not
intended to indicate future performance.
Yield Information
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
YIELD = 2[(a-b+1) -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The 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 the Fund's net asset value ("NAV") at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purpose
of calculating the Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
fund may differ from the rate of distributions the Fund paid over the same
period or the rate of income reported in the fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+ T) = ERV
Where:
P = a hypothetical initial payment $1,000 T = average annual total return
N = number of years (l, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by the Fund are assumed to have been reinvested
at NAV as described in the prospectus on the reinvestment dates during the
period. Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the prescribed periods (or
fractional portions thereof) that would equate the initial amount invested to
the ending redeemable value.
Based on the foregoing, the Fund's average annual returns for the periods
indicated would be:
One Year Five Years Ten Years Since
Period Ended Period Ended Period Ended Inception to
8/31/2000 8/31/2000 8/31/2000 8/31/2000
-------------------------------------------------------
24.24% 15.83% N/A 15.31%(1)
(1) Commencement of operations was January 2, 1995.
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specified periods of time by assuming the investment of $1,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Fund Performance Analysis, Intersec Research Survey of Non-U.S. Equity
Fund Returns, Frank Russell International Universe, and any other data which may
be reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's Fortune, Money Magazine, The New York Times, Financial World, Financial
Services Week, USA today and other national or regional publications.
FINANCIAL INFORMATION
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, VA 23229
Telephone: (800) 527-9525
e-mail: [email protected]
The Annual Report for the fiscal period ended August 31, 2000 has been filed
with the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Fund included in the Annual Report have been audited by the
Fund's independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual Report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
PROSPECTUS
THE WORLD FUNDS, INC.
CSI Equity Fund
CSI Fixed Income Fund
Prospectus dated _______________________
This Prospectus describes the CSI Equity Fund (the "Equity Fund") and the CSI
Fixed Income Fund (the "Fixed Income Fund" and collectively with the Equity Fund
as the "Funds"). The Funds are each a separate series of shares offered by 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 CSI Equity Fund seeks long term growth of capital by investing in
a diversified portfolio of equity securities. The CSI Fixed Income Fund seeks
current income by investing in debt 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
CSI EQUITY FUND
Investment Objective: Long-term Growth of Capital
Principal Investment
Strategies: The Fund seeks to achieve price appreciation by
investing in a portfolio consisting primarily of common
stocks. The primary selection of well-established, large
capitalized companies throughout the world is consistent
with the Equity Fund's focus on capital preservation.
The Fund utilizes both value and growth oriented
investment strategies in the security selection process.
Principal Risks: The principal risk of investing in the Equity Fund is
that the value of its investments are subject to market,
economic and business risk that may cause the Equity
Fund's net asset value ("NAV") to fluctuate over time.
Therefore, the value of your investment in the Equity
Fund could decline and you could lose money. There
is no assurance that the investment adviser will achieve
the Equity Fund's objective.
The Equity Fund's assets will be invested on a global
basis. These investments may involve financial, economic
or political risks not ordinarily associated with
U.S. securities. The Equity Fund's NAV may be affected
by changes in exchange rates between foreign currencies
and the U.S.dollar, different regulatory standards, less
liquidity and more volatility than U.S. securities,
taxes, and adverse social or political developments.
An investment in the Equity Fund is not a bank deposit
and is not insured or guaranteed by the FDIC or any
other government agency.
Investor Profile: You may want to invest in the Equity Fund if you
are seeking long-term capital growth and are willing to
accept share prices that may fluctuate, sometimes
significantly, over the short-term. The Equity Fund will
not be appropriate if you are seeking current income or
are seeking safety of principal.
The bar chart and table below provide an indication of
the risks of investing in the Equity Fund by showing
past performances of the Fund. Both assume that all
dividends and distributions are reinvested in the Fund.
The bar chart shows how the Equity Fund's performance
has varied from one year to another. The table
compares the Equity Fund's average annual total
returns for the periods ended December 31, 2000 to the
Lipper Global Funds Index. Keep in mind that past
performance may not indicate how well the Equity
Fund will perform in the future.
[bar chart goes here]
CSI Equity Fund Total Return *
1998 26.10%
1999 29.41%
2000
CSI Equity
[end bar chart]
* During the periods show in the bar chart, the highest return for a calendar
quarter was ________% (quarter ending __________) and the lowest return for a
calendar quarter was ___________ (quarter ending ___________).
Average Annual Total Return
(for the period ending December 31, 2000)
-----------------------------------------
One Since Inception
Year (October 15,
CSI Equity Fund _____% _____%
Lipper Global Fund Index (1) _____% _____%
(1) The Lipper Global Fund Index is an unmanaged index. The Lipper Global Funds
Index is a composite of the total return of mutual funds with the stated
objective of investing at least 25% of their portfolio securities outside
of the United States and may own U.S. securities as well. It is not
adjusted to reflect expenses that the SEC requires to be reflected in the
Fund's performance.
CSI FIXED INCOME FUND
Investment Objective: Current Income
Principal Investment
Strategies: The Fixed Income Fund seeks to achieve its objective by
investing primarily in obligations issued or
guaranteed by the United States Government, its
agencies, authorities, and instrumentalities
("U.S. Government Securities"), municipal securities,
corporate debt securities, zero coupon bonds, as well
as obligations of governments, instrumentalities and
corporations outside the U.S.
Principal Risk: The principal risk of investing in the Fixed Income Fund
is that the value of its investments are subject to
interest rate risk that may cause the NAV to
fluctuate over time. Therefore, the value of the Fixed
Income Fund could decline and you could lose money.
There is no assurance that the investment adviser will
achieve the Fixed Income Fund's objective.
An investment in the Fixed Income Fund is not a bank
deposit and is not insured or guaranteed by the FDIC
or any other government agency.
Investor Profile: You may want to invest in the Fixed Income
Fund if you are seeking current income and are willing
to accept share prices that may fluctuate over the
short-term. The Fixed Income Fund will not be
appropriate if you are seeking growth of capital over
the long-term.
The bar chart and table below provide an indication of
the risks of investing in the Fixed Income Fund by
showing past performances of the Fund. Both assume
that all dividends and distributions are reinvested in
the Fund. The bar chart shows how the Fixed Income
Fund's performance has varied from one year to
another. The table compares the Fixed Income Fund's
average annual total returns for the periods ended
August 31, 2000 to the Lipper Intermediate Investment
Grade Index. Keep in mind that past performance may
not indicate how well the Fixed Income Fund will
perform in the future.
[bar chart goes here]
CSI Fixed Income Fund Total Return *
1999 (3.74%)
2000
CSI Fixed Income Fund
[end bar chart]
* During the period shown in the bar chart, the highest return for a calendar
quarter was __________% (quarter ending ___________) and the lowest return
for a calendar quarter was ______% (quarter ending ______________).
Average Annual Total Return
for the period ending December 31, 2000
-----------------------------------------
One Since Inception
Year (January 27, 1998)
CSI Fixed Income Fund
Lipper Intermediate Investment
Grade Index (1)
(1) The Lipper Intermediate Investment Grade Index is an unmanaged index. The
Lipper Intermediate Investment Grade Index is an equally-weighted
performance indice, adjusted for capital gains distributions and income
dividends of the largest 30 qualifying funds that invest at least 65% of
their assets in investment grade issues with dollar-weighted average
maturities of five to ten years. It is not adjusted to reflect expenses
that the SEC requires to be reflected in the Fund's performance.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders are
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you will pay directly
or indirectly in connection with an investment in the Funds. There are no sales
charges in connection with purchases or redemption of shares. The annual
operating expenses, which cover the costs of investment management,
administration, accounting and shareholder communications, are shown as an
annual percentage of the average daily net assets.
Shareholder Transaction Fees (fees paid directly from your
investment)
Equity Fund Fixed Income Fund
----------- -----------------
Maximum Sales Charge (Load)
Imposed on Purchases None None
Sales Charge (Load) Imposed on
Reinvested Dividends None None
Redemption Fees(1) 1.00%(2) None
Exchange Fees(3) None None
(1) A shareholder electing to redeem shares via telephone request may be
charged $10 for each such redemption request.
(2) A 1.00% redemption fee is charged on shares held less than one year.
(3) A shareholder may be charged a $10 fee for each telephone
exchange.
Annual Operating Expenses (Expenses that are deducted from the
Funds' assets)
Equity Fund Fixed Income Fund
------------ -----------------
Management Fee 1.00% 1.00%(1)
Distribution and
Service (12b-1) Fees None None
Other Operating Expenses 0.44% 0.50%
----- -----
Total Fund Operating Expenses 1.44% 1.50%
Fee Waiver and/or
Expense Reimbursements 0.00% 0.51%(1)
----- -----
Net Expenses 1.44% 0.99%
(1) The management fee is 1.00%, however, the investment adviser has
voluntarily agreed to hold the ratio of total operating expenses to 1%,
for the Fixed Income Fund, through December 31, 2001 (see "Management
Organization and Capital Structure").
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that, as the Funds increase in size, their "Other Operating Expenses"
will decline as an annual percentage rate reflecting economies of scale.
EXAMPLE
The following example shows the expenses that you could pay over time. It will
help you compare the costs of investing in the Funds with the cost of investing
in other mutual funds. The example assumes that you invest $10,000 in a Fund,
you reinvest all dividends and distributions in additional shares of the Fund
and then you redeem all of your shares at the end of the periods indicated.
Also, 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 5 Years 10 Years
------ ------- ------- --------
Equity Fund $247 $456 $787 $1,724
Fixed Income Fund(1) $152 $471 $813 $1,779
(1) Should the investment adviser continue the voluntary operating expense
limitation for the periods shown below, your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$101 $315 $547 $1,213
<PAGE>
OBJECTIVES AND STRATEGIES
THE EQUITY FUND
The investment objective of the Equity Fund is to achieve long-term growth
of capital by investing in a diversified portfolio of equity securities. Under
normal market conditions, the Equity Fund will have at least 65% of its total
assets invested in common stocks or securities convertible into common stocks.
The Equity Fund will not be limited to investing in securities of companies of
any size or to securities traded in any particular market. In determining which
portfolio securities to sell, the investment adviser considers the following:
1) when, in investment adviser's opinion, the price of the shares is either not
likely to increase or may decline because of their views on the prospects for
the individual company or industry in which the company operates or general
economics conditions; or 2) when the investment adviser thinks that the company
fundamentals can no longer justify the price at which the stock trade.
The Equity Fund's assets will be invested on a global basis to take advantage of
investment opportunities both within the U.S. and outside the U.S. The foreign
securities which the Equity Fund purchases may be bought directly in their
principal markets or may be acquired through the use of depositary receipts.
Investments in foreign securities may involve risks not ordinarily associated
with U.S. securities. Foreign companies are not generally subject to the same
accounting, auditing and financial reporting standards as are domestic
companies. Therefore, there may be less information available about a foreign
company than about a domestic company. Certain countries do not honor legal
rights enjoyed in the U.S. In addition, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect the Equity Fund's investments in
those countries. Many foreign securities have substantially less trading volume
than in the U.S. market, and securities in some foreign issuers are less liquid
and more volatile in price than securities of domestic issuers.
It is more expensive for U.S. investors to trade in foreign markets than in
U.S. markets. Mutual funds offer an efficient way for individuals to invest
abroad, but the overall expense ratios of global mutual funds are usually higher
than those of mutual funds that invest only in U.S. securities.
THE FIXED INCOME FUND
The Fixed Income Fund seeks current income by investing in debt securities.
The Fixed Income Fund seeks to achieve its objective by investing primarily in
U.S. Government Securities, municipal securities, corporate debt securities,
zero coupon bonds, as well as obligations of governments, instrumentalities and
corporations outside the U.S. Under normal market conditions, at least 65% of
the Fixed Income Fund's total assets will be invested in securities rated, at
the time of purchase, AA or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Group ("S&P"), or unrated securities
which the investment adviser believes to be of comparable quality. The Fixed
Income Fund may invest in lower rated securities in order to avail itself of the
higher yields available with these securities. However, no more than 5% of the
total assets may be invested in securities rated below investment grade (i.e.,
below BBB by S&P or Baa by Moody's) or which are unrated but are of comparable
quality as determined by the investment adviser. Securities rated below
investment grade entail greater risk than investment grade securities. After
purchase by the Fixed Income Fund, a debt security may cease to be rated or its
rating may be reduced. Neither event would require the elimination of the debt
security from the portfolio.
The selection of debt securities for the Fixed Income Fund is dependent
upon the investment adviser's evaluation of those factors influencing interest
rates. The investment adviser considers the rates of return available for any
particular maturity and compares that to the rates for other maturities in order
to determine the relative and absolute differences as they relate to income and
the potential for market fluctuation. There are no restrictions on the maturity
composition of the Fixed Income Fund. Under normal economic and market
conditions, the Fixed Income Fund generally will hold its short-term securities
or debt obligations until maturity and its other securities or obligations until
market conditions, in the judgment of the investment adviser, make sale
advantageous to the Fixed Income Fund. In either case, the Fixed Income Fund may
sell such securities or obligations as required to meet requests for redemption
of shares of the Fixed Income Fund. In determining which portfolio securities to
sell, the investment adviser considers the following: 1) when, in investment
adviser's opinion, the price of the shares is either not likely to increase or
may decline because of their views on the prospects for the individual company
or industry in which the company operates or general economics conditions; or 2)
when the investment adviser thinks that the company fundamentals can no longer
justify the price at which the stock trade.
The market values of fixed income securities tend to vary inversely with the
level of interest rates. When interest rates rise, the market values of such
securities tend to decline and vice versa. Although under normal market
conditions longer term securities yield more than short-term securities of
similar quality, longer term securities are subject to greater price
fluctuations. Fluctuations in the value of the investments will be reflected in
the NAV of the Fixed Income Fund.
RISKS
Stock Market Risk.
The Equity Fund is subject to stock market risk, which is the possibility that
stock prices overall will decline over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and periods of falling
prices. Therefore, the value of your investment in the Equity Fund may increase
or decrease. The Equity Fund's investment success depends on the skill of CSI
Capital Management, Inc. (the "Adviser"), the Equity Fund's investment adviser,
in evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the Equity
Fund may not perform as anticipated.
The Adviser considers the Equity Fund's universe of recommended stock to be
worldwide in scope. Securities under consideration for purchase must meet a
variety of criteria. No particular formulas are used, but rather emphasis is
placed on those companies which the Adviser believes are most likely to prosper
under various economic conditions and which have demonstrated the ability to
produce reliable earnings or dividend growth over the years. Among other things,
balance sheet analysis, return on equity, price/earnings ratios and relative
strength are included in the Adviser's decision making process.
While the Equity Fund intends to remain substantially invested in common stocks
and securities convertible into common stocks, it may invest in high quality
money market instruments during times when excess cash is generated or when cash
is held pending investment in suitable securities. Such money market investments
include short-term U.S. Government securities or other forms of indebtedness,
such as bonds, certificates of deposit or repurchase agreements. The Equity Fund
has authority to invest up to 100% of its total assets in such short term
instruments for temporary or defensive purposes in response to extreme or
adverse market, economic or other conditions. The Adviser does not anticipate
exercising this authority, but reserves the right to do so. When the Equity Fund
is in a temporary defensive position, it might not achieve its investment
objective.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
CSI Capital Management, Inc. located at 445 Bush Street, 5th Floor, San
Francisco, CA 94108-3725, manages the assets of the Funds. Since the Funds'
inceptions on October 14, 1997, Leland Faust has been primarily responsible for
the day to day management of the Funds. The Adviser has two years experience in
managing a mutual fund. The Adviser has been in existence since 1978 and as of
December 30, 1999 has approximately $244 million under management. Mr. Faust has
been President of the Adviser since its formation.
The Adviser is responsible for effecting all security transactions on behalf of
the Funds, including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. In placing orders with brokers and
dealers, the Adviser will attempt to obtain the best price and execution of
orders.
Each Fund pays the Adviser a monthly investment advisory fee at an annual rate
of 1% of the average daily net assets. However, the Adviser has voluntarily
agreed to waive all or a portion of the advisory fee or make payments to the
Fixed Income Fund in order to maintain its total operating expenses at an annual
rate not to exceed 1%. This voluntary arrangement continues through December 31,
2001. During the fiscal year ended August 31, 2000, the Adviser received
investment advisory fees from the Equity Fund and Fixed Income Fund.
SHAREHOLDER INFORMATION
Each Fund's share price, called its NAV per share, is determined and shares are
priced 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 Funds are 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 a Fund's investments and other assets, subtracting any
liabilities of the Fund and then dividing by the total number of Fund shares
outstanding.
Shares are bought, sold or exchanged at the NAV 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 given 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 Funds.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times.
PURCHASING SHARES
Shares of the Fund may be purchased directly from First Dominion Capital Corp.
("FDCC" or the "Distributor") or through brokers or dealers who are members of
the National Association of Securities Dealers, Inc. There are no sales charges
in connection with purchasing shares of a Fund. However, when an investor
acquires shares of a Fund from a securities broker dealer, the investor may be
charged a transaction fee by that broker dealer. The minimum initial investment
in a Fund is $1,000 and additional investments must be in amounts of $50 or
more. The Funds retain the right to refuse to accept an order.
Purchases by Mail.
For initial purchases, the account application form, which accompanies the
prospectus, should be completed, signed and mailed to Fund Services, Inc. (the
"Transfer Agent") at 1500 Forest Avenue, Suite 111, Richmond, VA 23229, together
with your check(s) payable to the Fund(s) that you selected. For subsequent
purchases, include with your check the tear-off stub from a prior purchase
confirmation, or otherwise identify the name(s) of the registered owner(s) and
social security number(s).
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Transfer Agent for
instructions, then notify the Distributor by calling (800) 776-5455. Your bank
may charge you a small fee for this service. Once you have arranged to purchase
shares by wire, please complete and mail the account application form promptly
to the Transfer Agent. This application is required to complete the records of
the Fund(s). You will not have access to your shares until the records of the
Fund(s) are complete. Once your account is opened, you may make additional
investments using the wire procedure described above. Be sure to include your
name, account number and the name of the Fund(s) to receive the amount(s) you
are investing in the wire instructions you provide your bank.
REDEEMING SHARES
You may redeem your shares at any time and in any amount by mail or telephone.
For your protection, the Transfer Agent will not redeem your shares until it has
received all the information and documents necessary for your request to be
considered in proper order (see "Signature Guarantees"). You will be notified
promptly by the Transfer Agent if your redemption request is not in proper
order.
The Funds' procedure is to redeem shares at the NAV next determined after the
Transfer Agent receives the redemption request in proper order. A 1% redemption
fee is deducted from proceeds of shares of the Equity Fund which are redeemed
less than one year after purchase. Payment will be made promptly, but no later
than the seventh day following the receipt of the request in proper order. The
Funds 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(s) you designate
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 redemption request may be delayed until
the designated 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 designated Fund receives a completed account
application form 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 that designates
the Fund(s) you selected and is 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 form has been changed within the last 30 days, or if you ask that
the proceeds be sent to a different person or address. Signature guarantees are
used to help protect you and the Funds. You can obtain a signature guarantee
from most banks or securities dealers, but not from a Notary Public. Please call
the Transfer Agent at (800) 628-4077 to learn if a signature guarantee is needed
or to make sure that it is completed appropriately in order to avoid any
processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you requested this service
on your initial Account Application. If you request this service at a later
date, you must send a written request, along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
charge for this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help to protect you and the Funds 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 Funds may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and (f) foreign branches of any of the above. In addition, the Funds
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.
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 of the Fund(s) you designate.
To use this service, you must authorize the transfer of funds by completing the
Plan Section of the account application form and sending a blank voided check.
Exchange Privileges.
You may exchange all or a portion of your shares of a Fund for the shares of the
other Fund or certain other funds having different investment objectives,
provided the shares of the fund you are exchanging into are registered for sale
in your state of residence. Your account may be charged $10 for a telephone
exchange fee. An exchange is treated as a redemption and a purchase and may
result in realization of a gain or loss on the transaction.
Dividends and Capital Gain Distributions.
Dividends from net investment income, if any, are declared and paid annually.
Each of the Funds intends to distribute annually any net capital gains.
Distributions from a Fund will automatically be reinvested in additional shares
of the same Fund, unless you elect to have the distributions paid to you in
cash. There are no sales charges or transaction fees for reinvested dividends
and all shares will be purchased at NAV. If the investment in shares is made
within an IRA, all dividends and capital gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a Fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend". To avoid buying a dividend, check each Fund's distribution
schedule before you invest.
DISTRIBUTION AND TAXES
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of a Fund or receive them in cash. Any capital gains a Fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares. Other distributions (including distributions
attributable to short-term capital gains of a Fund) will generally be taxable to
you as ordinary income. 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. The one major exception to
these principles is that distributions on, and sales, exchanges and redemptions
of, shares held in an IRA (or other tax deferred retirement account) will not be
currently taxable. Foreign exchange gains or losses realized on the sale of
securities generally are treated as ordinary income or loss by a Fund and may
increase or decrease Fund distributions to you. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult with your tax
adviser about the federal, state, local or foreign tax consequences of your
investment in a Fund.
By law, a Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS has notified you that you are subject to
backup withholding and instructs a Fund to do so.
DISTRIBUTION ARRANGEMENTS
The Funds are offered directly through the Distributor and through third
parties, such as financial supermarkets, investment advisers and consultants,
financial planners, brokers, dealers and other investment professionals. The
shares are offered and sold without any sales charges imposed by the Funds or
the Distributor. However, third parties who offer shares may request fees from
their individual clients. If you invest through a third party, the policies and
fees may be different than those described in the Prospectus. For example, third
parties may charge transaction fees or set different minimum investment amounts.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in each Fund (assuming reinvestment of all dividends and
distributions). The Funds' financial highlights for the period presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon, along with the Funds' financial statements, are included in the
Funds' Annual Report to Shareholders (the "Annual Report") and are incorporated
by reference into the SAI. Additional performance information for the Funds are
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Funds at the address and telephone number noted on the back page
of this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
EQUITY FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Years ended August 31, Period ended
---------------------- August 31,
2000 1999 1998*
---- ---- ------------
Per Share Operating Performance
Net asset value,
beginning of period $13.36 $9.88 $10.00
Income from investment operations-
Net investment income (loss) (0.02) (0.02) 0.02
Net realized and unrealized
gain (loss) on investments 5.03 3.52 (0.14)
------- ------- -------
Total from investment
Operations 5.01 3.50 (0.12)
------- ------- -------
Less distributions-
Distributions from
net investment income -- (0.02) --
Distributions from
capital gains -- -- --
------- ------- -------
Total distributions -- (0.02)
--
------- ------- -------
Net asset value,
end of period $18.37 $13.36 $9.88
======= ======= =======
Total Return 37.50% 35.21% (1.20%)
Ratios/Supplemental Data
Net assets,
end of period (000's) $113,673 $52,924 $26,576
Ratio to average net assets-
Expenses (A) 1.44% 1.50% 1.50%**
Expenses-net (B) 1.44% 1.50% 1.49%**
Net investment income (0.14%) (0.15%) 0.42%**
Portfolio turnover rate 22.69% 12.91% 8.16%
* Commencement of operations was October 15, 1997
** Annualized
(A) Expense ratio has been increased to include custodian fees which were
offset by custodian credits for the period ended August 31, 1998.
(B) Expense ratio - net reflects the effect of the custodian fee credits
the Fund received for the period ended August 31, 1998.
FIXED INCOME FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Years ended August 31, Period ended
---------------------- August 31,*
2000 1999 1998
---- ---- -----------
Per Share Operating Performance
Net asset value, beginning of period $ 9.75 $10.48 $10.00
Income from investment operations-
Net investment income 0.43 0.39 0.22
Net realized and unrealized gain
(loss) on investments 0.18 (0.51) 0.26
------ ------ ------
Total from investment operations 0.61 (0.12) 0.48
------ ------ ------
Less distributions-
Distributions from net investment
income (0.44) (0.61) --
Distributions from capital gain -- -- --
------ ------ ------
Total distributions (0.44) (0.61) --
------ ------ ------
Net asset value, end of period $ 9.92 $ 9.75 $10.48
====== ====== ======
Total Return 6.39% (1.31%) 4.80%
====== ====== ======
Ratios/Supplemental Data
Net assets, end of period (000's) $64,671 $48,605 $33,900
Ratio to average net assets - (A)
Expenses (B) 0.99% 1.00% 1.00%**
Expenses- net (C) 0.99% 1.00% 1.00%**
Net investment income 4.43% 4.22% 4.34%**
Portfolio turnover rate 11.52% 1.38% 0.00%
* Commencement of operations was January 27, 1998
** Annualized
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .50% for the year ended year ended August 31,
2000 and .50% for the period ended August 31, 1998.
(B) Expense ratios have been increased to include custodian fees which were
offset by custodian credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers
and the custodian fee credits the fund received.
<PAGE>
You'll find more information about the Funds in the following documents:
The Funds' annual and semi-annual reports will contain more information about
the Funds and a discussion of the market conditions and investment strategies
that had a significant effect on the Funds' performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's
SAI dated _______________ which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
CSI Equity Fund
CSI Fixed Income Fund
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the CSI Equity Fund and
the CSI Fixed Income Fund dated ________________. You may obtain the Prospectus
of the Funds, free of charge, by writing to The World Funds, Inc. at 1500 Forest
Avenue, Suite 223, Richmond, VA 23229 or by calling (800) 527-9525.
The Funds' audited financial statements and notes thereto for the year ended
August 31, 2000 and the unqualified report of Tait, Weller & Baker, the Funds'
independent auditors, on such financial statements are included in the Funds'
Annual Report to Shareholders for the year ended August 31, 2000 (the "Annual
Report") and are incorporated by reference into this SAI. No other parts of the
Annual Report are incorporated herein. A copy of the Annual Report accompanies
this SAI and an investor may obtain a copy of the Annual Report by writing to
the Fund or calling (800) 527-9525.
The date of this SAI _______________________.
<PAGE>
TABLE OF CONTENTS PAGE
----------------- ----
General Information 1
Additional Information about the Funds' Investments 1
Investment Objectives 1
Strategies and Risks 1
Investment Programs 1
Convertible Securities 1
Warrants 2
Illiquid Securities 2
Depositary Receipts 2
U.S. Government Securities 2
Municipal Securities 2
Corporate Debt Securities 3
Zero-Coupon Securities 3
International Bonds 3
Repurchase Agreements 4
Other Investments 4
Investment Restrictions 4
Fundamental Policies or Restrictions 4
Non-fundamental Policies or Restrictions 5
Management of the Company 6
Principal Holders of Securities 8
Policies Concerning Personal Investment Activities 8
Investment Adviser and Advisory Agreements 8
Management-Related Services 9
Administration 9
Custodian and Accounting Services 9
Transfer Agent 10
Distributor 10
Independent Accountants 10
Portfolio Transactions 10
Portfolio Turnover 11
Capital Stock and Dividends 11
Additional Information About Purchases and Sales 12
Tax Status 14
Investment Performance 16
Financial Information 18
<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 the CSI
Equity Fund (the "Equity Fund") and the CSI Fixed Income Fund (the "Fixed Income
Fund"). As used in this SAI, the Equity Fund and the Fixed Income Fund are
collectively referred to as the "Funds" and individually as a "Fund". Each Fund
is a separate investment portfolio or series of the Company. See "Capital Stock
and Dividends" in this SAI. Each Fund is a "diversified" series as that term is
defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENTS
The following information supplements the discussion of each Fund's investment
objectives and policies. Each Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, "majority of
outstanding voting shares" means the lesser of: (1) 67% of the voting shares of
the Fund represented at a meeting of shareholders at which the holders of 50% or
more of the shares of the Fund are represented; or (2) more than 50% of the
outstanding voting shares of the Fund. The investment programs, restrictions and
the operating policies of the Funds that are not fundamental policies can be
changed by the Board of Directors of the Company without shareholder approval.
INVESTMENT OBJECTIVES
The Equity Fund's investment objective is to achieve long-term growth of
capital. The Fixed Income Fund's investment objective is to seek current income.
All investments entail some market and other risks and there is no assurance
that a Fund's investment objective will be realized. You should not rely on an
investment in a Fund as a complete investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Funds'
prospectus. In seeking to meet its investment objective, each Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Convertible Securities: The Funds may invest in convertible securities.
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are convertible either at a stated price or a stated rate (that is,
for a specific number of shares of common stock or other security). As with
other fixed income securities, generally the price of a convertible security
varies inversely with interest rates. While providing a fixed income stream, a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such an opportunity for a
higher yield or capital appreciation, the Funds have to pay more for a
convertible security than the value of the underlying common stock. The Equity
Fund will generally hold common stock it acquires upon conversion of a
convertible security for so long as the investment adviser anticipates such
stock will provide the Fund with opportunities that are consistent with the
Fund's investment objective and policies.
Warrants: The Equity Fund may invest in warrants. The value of warrants is
derived solely from capital appreciation of the underlying equity securities.
Warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. Warrants are options to purchase
equity securities at a specific price for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Warrants
differ from call options in that warrants are issued by the underlying
corporation, whereas call options may be written by anyone.
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Illiquid securities include generally, among other things, certain
written over-the-counter options, securities or other liquid assets as cover for
such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests and other securities whose disposition is
restricted under the federal securities laws.
Depositary Receipts: The assets of the Equity Fund will be invested on a global
basis to take advantage of investment opportunities both within the U.S. and
other countries. The Equity Fund may buy foreign securities directly in their
principal markets or indirectly through the use of depositary receipts. The
Equity Fund may invest in sponsored and unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDR's"), and other similar depositary
receipts. ADRs are issued by an American bank or trust company and evidence
ownership of underlying securities of a foreign company. EDRs are issued in
Europe, usually by foreign banks, and evidence ownership of either foreign or
domestic underlying securities. The foreign country may withhold taxes on
dividends or distributions paid on the securities underlying ADRs and EDRs,
thereby reducing the dividend or distribution amount received by shareholders.
Unsponsored ADRs and EDRs are issued without the participation of the issuer of
the underlying securities. As a result, information concerning the issuer may
not be as current as for sponsored ADRs and EDRs. Holders of unsponsored ADRs
generally bear all the costs of the ADR facilities. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
U.S. Government Securities: The Funds may invest in U.S. Government
Securities. U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. Some U.S. Government
securities, such as U.S. Treasury bills, notes and bonds, and securities
guaranteed by the Government National Mortgage Association ("GNMA"), are
supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
U.S. Government securities include: (1) securities that have no interest coupons
(see "Zero Coupon Securities" below) or have been stripped of their unmatured
interest coupons; (2) individual interest coupons from such securities that
trade separately; and, (3) evidences of receipt of such securities. Such
securities that pay no cash income are purchased at a deep discount from their
value at maturity. Because interest on zero coupon and stripped securities is
not distributed on a current basis but is, in effect, compounded, such
securities tend to be subject to greater market risk than interest-payment
securities.
Municipal Securities: The Fixed Income Fund may invest in municipal securities.
These securities are debt obligations issued by or on behalf of the government
of states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities. The
interest on municipal securities is exempt from federal income tax. The two
principal classifications of municipal securities are "general obligation" and
"revenue" securities. "General obligation" securities are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. "Revenue" securities are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved.
Within these principal classification of municipal securities there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, and municipal leases. Variable
rate securities bear rates of interest that are adjusted periodically according
to formula intended to reflect market rates of interest and include securities
who rates vary inversely with changes in market rates of interest. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities.
Corporate Debt Securities: The Funds may invest in Corporate debt
securities. The Fixed Income Fund will invest in securities rated AA or higher
by Moody's Investors Service, Inc. ("Moody's"), or Standard & Poor's Ratings
Group ("S&P") at the time of purchase, or unrated securities which CSI Capital
Management, Inc., the Funds' investment adviser (the "Adviser") believes to be
of comparable quality. The Equity Fund may invest, at the time of purchase, in
securities rated: Baa or higher by Moody's; BBB or higher by S & P; or foreign
securities not subject to standard credit ratings, which in the judgment of the
Adviser, will be "investment grade" issues. Securities rated as BBB are
generally considered to be investment grade although they have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated debt securities.
Zero Coupon Securities: The Funds may invest in zero coupon securities. Certain
zero coupon securities are convertible into common stock and offer the
opportunity for capital appreciation as increases (or decreases) in the market
value of such securities follows the movements in the market value of the
underlying common stock. Zero coupon convertible securities generally are
expected to be less volatile than the underlying common stock as they usually
are issued with intermediate to short maturities (15 years or less) and are
issued with options and/or redemption features exercisable by the holder of the
securities entitling the holder to redeem the securities and receive a defined
cash payment.
Zero coupon securities also include securities issued directly as zero coupon
securities by the U.S. Treasury, and U.S. Treasury bonds or notes which have
their unmatured interest coupons separated by their holder, typically a
custodian bank or investment brokerage firm. The holder separates ("strips") the
interest coupons from the underlying principal of the U.S. Treasury security.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal is sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. Once the
U.S. Treasury obligation is stripped, the principal and coupons may be sold
separately. Typically, the coupons are sold individually or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discounted obligations that are similar
to zero coupon securities that the Treasury sells directly.
International Bonds: International bonds are defined as bonds issued in
countries other than the United States. The Fixed Income Fund's investments in
international bonds may include debt securities issued or guaranteed by a
foreign national government, its agencies, instrumentalities or political
subdivisions, debt securities issued or guaranteed by supranational
organizations, corporate debt securities, bank or holding company debt
securities and other debt securities including those convertible into common
stock. The Fixed Income Fund will invest in investment grade instruments that
will bear the rating of AA or higher by S&P or by Moody's at the time of
purchase, or unrated securities which the Adviser believes to be of comparable
quality. However, the Fixed Income Fund reserves the right to invest its assets
in lower rated securities (including unrated securities which the Adviser
believes to be of such lower quality) as stated in the prospectus.
Repurchase Agreements: As a means of earning income for periods as short as
overnight, the Fixed Income Fund may enter into repurchase agreements that are
collateralized by U.S. Government Securities. The Fixed Income Fund may enter
into repurchase commitments for investment purposes for periods of 30 days or
more. Such commitments involve investment risks similar to those of debt
securities in which the Fixed Income Fund invests. Under a repurchase agreement,
a Fund acquires a security, subject to the seller's agreement to repurchase that
security at a specified time and price. A purchase of securities under
repurchase agreements is considered to be a loan by a Fund. The Adviser monitors
the value of the collateral to ensure that its value always equals or exceeds
the repurchase price and also monitors the financial condition of the seller of
the repurchase agreement. If the seller becomes insolvent, a Fund's right to
dispose of the securities held as collateral may be impaired and the Fund may
incur extra costs. Repurchase agreements for periods in excess of seven days may
be deemed to be illiquid.
OTHER INVESTMENTS
The Board of Directors may, in the future, authorize one or both of the Funds to
invest in securities other than those listed in this SAI and in the prospectus,
provided such investments would be consistent with the Fund's investment
objective and that such investment would not violate the Fund's fundamental
investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Funds have adopted the
following fundamental investment restrictions which cannot be changed without
approval by vote of a "majority of the outstanding voting securities" of each
Fund. As a matter of fundamental policy, each Fund may not:
(1) Invest in companies for the purpose of exercising management or control;
(2) Invest in securities of other investment companies except by purchase in
the open market involving only customary broker's commissions, or as part
of a merger, consolidation, or acquisition of assets;
(3) Purchase or sell commodities or commodity contracts;
(4) Invest in interests in oil, gas, or other mineral exploration or
development programs;
(5) Purchase securities on margin, except for use of short-term credits as
necessary for the clearance of purchase of portfolio securities;
(6) Issue senior securities, (except the Funds may engage in transactions such
as those permitted by the SEC release IC-10666);
(7) Act as an underwriter of securities of other issuers, except that each Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933, as amended (the "1933 Act"), or any foreign law
restricting distribution of securities in a country of a foreign issuer;
(8) Invest more than 25% of its total assets in securities of companies in the
same industry;
(9) Participate on a joint or a joint and several basis in any securities
trading account;
(10) Engage in short sales;
(11) Purchase or sell real estate, provided that liquid securities of companies
which deal in real estate or interests therein would not be deemed to be an
investment in real estate;
(12) Purchase any security if, as a result of such purchase less than 75% of the
assets of the Fund would consist of cash and cash items, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its assets;
(13) Purchase the securities of any issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund; and
(14) Make loans, except that the Fixed Income Fund may enter into repurchase
agreements secured by the U.S. Government or Agency securities.
(15) Except as specified below, the Funds may only borrow money for temporary or
emergency purposes and then only in an amount not in excess of 5% of the
lower of value or cost of its total assets, in which case the Fund may
pledge, mortgage or hypothecate any of its assets as security for such
borrowing but not to an extent greater than 5% of its total assets. A Fund
may borrow money to avoid the untimely disposition of assets to meet
redemptions, in an amount up to 33 1/3% of the value of its assets,
provided that the Fund maintains asset coverage of 300% in connection with
borrowings, and the Fund does not make other investments while such
borrowings are outstanding.
In applying the fundamental and policy concerning concentration:
(1) Except with respect to a Fund's investment restriction concerning
borrowing, if a percentage restriction on investment or utilization of
assets is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or the total cost of a
Fund's assets will not be considered a violation of the restriction; and
(2) Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank
finance and diversified finance will each be considered a separate
industry;
(ii) technology companies will be divided according to their products and
services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry;
and
(iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry.
Non-Fundamental Policies and Restrictions: In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectus and elsewhere in the SAI, the
Funds will be subject to the following investment restrictions, which are
considered non-fundamental and may be changed by the Board of Directors without
shareholder approval. As a matter of non-fundamental policy, a Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities;
(2) Engage in arbitrage transactions; or
(3) Purchase or sell options.
MANAGEMENT OF THE COMPANY
Directors and Officers: The Company is governed by a Board of Directors, which
is responsible for protecting the interest of shareholders. The Directors are
experienced business persons who meet throughout the year to oversee the
Company's activities, review contractual arrangements with companies that
provide services to the Funds, and review performance. The names, addresses and
ages 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 Adviser, any other
investment adviser to a fund of the Company, and the principal underwriter, and
officers of the Company, are noted with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
------------ ---------------- -----------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,("CSS")
(55) the Company's Administrator,
since 1985; President and
Director of First Dominion Capital
Corp., ("FDCC") the Company's
underwriter. Director
and shareholder of Fund
Services Inc., the Company's
Transfer and Disbursing Agent,
since 1987; shareholder of
Commonwealth Fund Accounting, Inc.
which provides bookkeeping
services; and Chairman, Director and
Treasurer of Vontobel Funds, Inc.,
a registered investment company
since March, 1997. Mr. Pasco is
also a certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations and
Potomac, MD 20854 Accounting Division of the Potomac
(60) Electric Power Company since
August, 1978; and Director of
Vontobel Funds, Inc., a registered
investment company since March,
1997. Mr. Boyd is also a certified
public accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD 20816 Management Consulting for
(64) Professionals since 1968; Director
of Vontobel Funds, Inc., a
registered investment company since
March, 1997. Mr. Poist is also a
certified public accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Dr. Alfred J. Dickinson, Inc. Realtors
Richmond, VA 23229 since April, 1971; and Director of
(53) Vontobel Funds, Inc. a
registered investment company
since March, 1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive CSS and FDCC since 1986;
Suite 101 Secretary of Vontobel
Richmond, VA 23229 Funds, Inc., a registered
(57) investment company since March,
1997; and Partner in the law firm
Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the President
3000 Sand Hill Road the Company and of Sand Hill Advisors, Inc.
Suite 150 President of the since August, 2000 and was
Menlo Park, CA 94025 Sand Hill Portfolio the Executive Vice President
(52) Manager Fund of Sand Hill Advisors, Inc. since
1982.
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a Partner
San Francisco, CA 94104 Fixed Income in the law firm Taylor & Faust (54)
Fund since September, 1975.
*Franklin A. Trice, III Vice President of Mr.Trice is President of Virginia
P.O. Box 8535 the Company and Management Investment Corp. since
Richmond, VA 23226-0535 President of the May, 1998; and a registered
(37) New Market Fund representative of FDCC, the
Company's underwriter since
September, 1998. Mr. Trice was
a broker with Scott &
Stringfellow from March,
1996 to May, 1998 and with
Craigie, Inc. from March, 1992
to January, 1996.
*John T. Connor, Jr. Vice President of President of Third Millennium
515 Madison Ave., the Company and Investment Advisers, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial
(59) Russia Fund series company and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 610 President of since July, 1990; and
Gaithersburg, MD 20878 GenomicsFund.com President of xGENx, LLC
(53) and Newby's ULTRA since November, 1999.
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994. In
Suite 200 series his six years with IAAc he has
Winter Park, FL 32789 served as a Financial Adviser, VP
(40) 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 or
officers who are officers or employees of any investment advisers to a fund of
the Company or any officers of the distributor of the Company. The other, or
"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. As of December 31,
2000 the officers and Directors, individually and as a group, owned beneficially
less than 1% of the outstanding shares of the Funds.
For the fiscal period ended August 31, 2000, the Directors received the
following compensation from the Company:
Aggregate
Compensation Total
From the Funds for Pension or Retirement Compensation
Name and Fiscal Year Ended Benefits Accrued as from the
Position Held August 31, 2000(1) Part of Fund Expenses Company(2)
-------------- ------------------ --------------------- ------------
John Pasco, III,
Director 0 N/A 0
Samuel Boyd, Jr.,
Director $4,000 N/A $12,933
William E. Poist,
Director $4,000 N/A $12,933
Paul M. Dickinson,
Director $4,000 N/A $12,933
(1) This amount represents the aggregate amount of compensation paid to the
Directors for: (a) service on the Board of Directors for the Funds' fiscal
year ended August 31, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds offered by the Company for the fiscal year or
period ended August 31, 2000. The Company consists of a total of eight
funds as of August 31, 2000.
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 2000 , the following persons own of record or beneficially
own 5% or more of the Fund's shares and own such amounts indicated:
[UPDATE INFO]
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Funds, Adviser and principal underwriter have each adopted a Code of Ethics,
pursuant to Rule 17j-1 under the 1940 Act that permit investment personnel,
subject to their particular Code of Ethics, to invest in securities, including
securities that may be purchased or held by a Fund, for their own accounts.
The Codes of Ethics are on file and can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. In addition, the Codes of Ethics are
also available on the EDGAR Database on the SEC's Internet website at
http://www.sec.gov.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
CSI Capital Management, Inc., 445 Bush Street, 5th Floor, San Francisco, CA
94108-3725, is the Funds' investment adviser. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended. The
Adviser is an independent, privately-owned firm. Leland Faust, a Vice President
of the Company, is the sole owner of the Adviser. Mr. Faust, who has been
President of the Adviser since 1978, is the President of each Fund, and is the
portfolio manager for each Fund.
The Adviser serves as investment adviser to the Funds pursuant to separate
Investment Advisory Agreements with the Company for each Fund (each an "Advisory
Agreement"). The Advisory Agreements are effective for a period of two years
from October 14, 1997, and may be renewed annually thereafter. The Advisory
Agreements will automatically terminate in the event of their "assignment" as
that term is defined in the 1940 Act, and may be terminated without penalty at
any time upon 60 days' written notice to the other party by: (i) the majority
vote of all the Directors or by vote of a majority of the outstanding voting
securities of the Fund; or (ii) the Adviser. Under the Advisory Agreements, the
Adviser, subject to the supervision of the Directors, provides a continuous
investment program for each Fund, including investment research and management
with respect to securities, investments and cash equivalents, in accordance with
the Funds' investment objectives, policies, and restrictions as set forth in
their prospectus and this SAI. The Adviser is responsible for effecting all
security transactions on behalf of the Funds, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions.
The Adviser also maintains books and records with respect to the securities
transactions of the Funds and furnishes to the Directors such periodic or other
reports as the Directors may request.
Each Fund is obligated to pay the Adviser a monthly fee equal to an annual rate
of 1.00% of the Fund's average daily net assets. With respect to the Fixed
Income Fund, the Adviser has voluntarily agreed to waive its advisory fee or
make payments to limit the Fund's expenses to the extent necessary to ensure
that the Fund's total operating expenses do not exceed 1.00% of average daily
net assets through December 31, 2000. During the fiscal period from October 15,
1997 (commencement of operations) to August 31, 1998, the Equity Fund paid the
Adviser $142,044. During the fiscal period from January 27, 1998 (commencement
of operations) to August 31, 1998, the Fixed Income Fund paid the Adviser
$164,495, and the Adviser waived payment of $83,263 of the Adviser's fee. During
the fiscal year ended August 31, 1999, $409,260 and $206,304 were paid to the
Adviser by the Equity Fund and Fixed Income Fund, respectively. During the
fiscal year ended August 31, 2000, $805,999 and $573,570 were paid to the
Adviser by the Equity Fund and Fixed Income Fund, respectively, and the Adviser
waived fees in the amount of $286,785 for the Fixed Income Fund.
Pursuant to the terms of the Advisory Agreements, the Adviser pays all expenses
incurred by it in connection with its activities thereunder, except the cost of
securities (including brokerage commissions, if any) purchased for the Funds.
The services furnished by the Adviser under the Advisory Agreements are not
exclusive, and the Adviser is free to perform similar services for others.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to separate Administration Agreements with the Company dated October
14, 1997 (the "Administrative Agreements"), Commonwealth Shareholder Services,
Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Funds and supervises all aspects of the operation of the
Funds except those performed by the Adviser. John Pasco, III, Chairman of the
Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Funds, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives asset-based fees, computed daily and paid
monthly, at the annual rates of; 0.20% on the first $50 million of average daily
net assets, 0.15% on the next $50 million of average daily net assets and 0.10%
on average daily net assets above $100 million, subject to a minimum amount of
$15,000 per year. CSS also receives an hourly rate, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters. From
October 15, 1997 (commencement of operations) to August 31, 1998, the Equity
Fund paid CSS $34,549. For the period from January 27, 1998 (commencement of
operations) to August 31, 1998, the Fixed Income Fund paid CSS fees of $39,366,
respectively. For the fiscal year ended August 31, 1999, CSS received fees of
$79,686 and $82,522 from the Equity Fund and the Fixed Income Fund,
respectively. For the fiscal year ended August 31, 2000, CSS received fees of
$137,623 and $105,416 from the Equity Fund and the Fixed Income Fund,
respectively.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to a Custodian Agreement with the Company dated October 28, 1998, as
amended June 1, 2000, Brown Brothers Harriman & Co. ("BBH"), 40 Water Street,
Boston, Massachusetts 02109, acts as the custodian of the Funds' securities and
cash. 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 Funds.
BBH is authorized to appoint other entities to act as sub-custodians to provide
for the custody of foreign securities which may be acquired and held by a Fund
outside the U.S. Such appointments are subject to appropriate review by the
Company's Board of Directors.
Pursuant to an Accounting Service Agreement dated July 1, 2000 (the
"Accounting Agreement"), Commonwealth Fund Accounting, Inc. ("CFA"), 1500 Forest
Avenue, Suite 100, Richmond, Virginia 23229, is responsible for accounting
relating to the Funds and its investment transactions; maintaining certain books
and records of the Funds; determining daily the net asset value per share of the
Funds; and preparing security position, transaction and cash position reports.
CFA also monitors periodic distributions of gains or losses on portfolio sales
and maintains a daily listing of portfolio holdings. CFA is responsible for
providing expenses accrued and payment reporting services, tax-related financial
information to the Company, and for monitoring compliance with the regulatory
requirements relating to maintaining accounting records. John Pasco, III,
Chairman of the Board of the Company, is a shareholder of of CFA, and is its
President and Chief Financial Officer. For the fiscal year ended August 31,
2000, CFA received fees of $19,363 and $16,352 from the Equity Fund and the
Fixed Income Fund, respectively.
Prior to July 1, 2000, Star Bank, 425 Walnut Street, P.O. Box 1118, Cincinnati,
Ohio 45201-1118, was the Fund's Custodian and Accounting Services Agent.
TRANSFER AGENT
Pursuant to a Transfer Agency Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI" or the "Transfer Agent") acts as the Company's
transfer, dividend disbursing and redemption agent. FSI is located at 1500
Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco, III, Chairman of the
Board of the Company owns one third of the voting shares of FSI, and therefore,
FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders for shares and
ensuring appropriate participation with the National Securities Clearing
Corporation for transactions in the Funds' shares. FSI receives and processes
redemption requests and administers distribution of redemption proceeds. FSI
also handles shareholder inquiries and provides routine account information. In
addition, FSI prepares and files appropriate tax related information concerning
dividends and distributions to shareholders.
Under the Transfer Agency Agreement, FSI is compensated pursuant to a schedule
of services, and is reimbursed for out-of-pocket expenses. The schedule calls
for a minimum payment of $16,500 per year. For the period ended August 31, 1998,
FSI received $7,384 and $7,464 for its services to the Equity Fund and the Fixed
Income Fund, respectively. For the fiscal year ended August 31, 1999, FSI
received $15,857 and $15,851 for its services to the Equity Fund and the Fixed
Income Fund, respectively. For the fiscal year ended August 31, 2000, FSI
received $19,848 and $18,771 for its services to the Equity Fund and the Fixed
Income Fund, respectively.
DISTRIBUTOR
First Dominion Capital Corp. ("FDCC" or the "Distributor"), located at 1500
Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as the principal
underwriter and national distributor for the shares of the Funds pursuant to a
Distribution Agreement dated August 19, 1997 (the "Distribution Agreement").
John Pasco, III, Chairman of the Board of the Company, owns 100% of FDCC, and is
its President, Treasurer and a Director. FDCC is registered as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc. The
offering of the Funds' shares is continuous. There are no sales charges in
connection with purchases of Fund shares. FDCC does not receive underwriting
discounts and commissions, brokerage commission or other compensation as a
result of the sale of the Funds' shares.
INDEPENDENT ACCOUNTANTS
The Company's independent auditors, Tait, Weller & Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the U.S. Securities and Exchange Commission (the "SEC"), and prepares the
Company's tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza,
Suite 800, Philadelphia, PA 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Adviser, in placing orders for the purchase and sale of
each Fund's securities, to seek to obtain the best price and execution for its
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for such Fund.
Exchange-listed securities are generally traded on their principal exchange
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities except for fixed price offerings and except where a
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of a Fund's
brokerage to persons or firms providing the Adviser with investment
recommendations or statistical, research or similar services useful to the
Adviser's investment decision making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) analyses and reports concerning issuers, industries,
securities, economic factors and trends, and portfolio strategy. The Adviser may
cause a Fund to pay a commission higher than that charged by another broker in
consideration of such research services. Such services are one of the many ways
the Adviser can keep abreast of the information generally circulated among
institutional investors by broker-dealers. While this information is useful in
varying degrees, its value is indeterminable. Such services received on the
basis of transactions for a Fund may be used by the Adviser for the benefit of
the Fund and other clients, and the Fund may benefit from such transactions
effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, a Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser is not authorized, when placing
portfolio transactions for a Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on the basis of execution. Except for implementing the policy stated
above, there is no intention to place portfolio transactions with particular
brokers or dealers or groups thereof. When two or more clients managed by the
Adviser are simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated in a manner deemed equitable to each client. In
some cases this procedure could have a detrimental effect on the price or volume
of the security as far as a Fund is concerned. In other cases, however, the
ability of such Fund to participate in volume transactions will be beneficial
for the Fund. The Board of Directors of the Company believes that these
advantages, when combined with the other benefits available because of the
Adviser's organization, outweigh the disadvantages that may exist from this
treatment of transactions.
The Funds paid brokerage commissions as follows:
Years ended August 31,
-------------------------
Fund 1998 1999 2000
---- ---- ---- ----
Equity Fund $36,802 $35,527 $61,495
Fixed Income Fund $ -0- $ -0- $ -0-
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Adviser makes purchases and sales for the
Funds' portfolio whenever necessary, in the Adviser's opinion, to meet such
Fund's objective. The Adviser anticipates that the average annual portfolio
turnover rate of each of the Funds will be less than 50%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 750,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has currently allocated
50,000,000 shares to the Equity Fund, 50,000,000 to the Fixed Income Fund and
300,000,000 shares to other series of the Company. Each share has equal
dividend, voting, liquidation and redemption rights. There are no preemptive
rights and only such conversion or exchange rights as the Board of Directors, in
its discretion, may grant. Shares of the Funds do not have cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect all of the Directors if they choose to do
so. In such event, the holders of the remaining shares will not be able to elect
any person to the Board of Directors. Shares will be maintained in open accounts
on the books of the Transfer Agent.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Directors. Upon the Company's liquidation, all shareholders of
a series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the applicable Fund at
its net asset value as of the date of payment unless the shareholder elects to
receive such dividends or distributions in cash. The reinvestment date normally
precedes the payment date by about seven days although the exact timing is
subject to change. Shareholders will receive a confirmation of each new
transaction in their account. The Company will confirm all account activity,
including the payment of dividend and capital gain distributions and
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
PURCHASING SHARES
The Funds reserve the right to reject any purchase order and to suspend the
offering of shares of one or both of the Funds. Under certain circumstances the
Company or the Adviser may waive the minimum initial investment for purchases by
officers, Directors, and employees of the Company and its affiliated entities
and for certain related advisory accounts and retirement accounts (such as
IRAs). The Funds may also change or waive policies concerning minimum investment
amounts at any time.
ELIGIBLE BENEFIT PLANS
An eligible benefit plan is an arrangement available to the employees of an
employer (or two or more affiliated employers) having not less than 10 employees
at the plan's inception, or such an employer on behalf of employees of a trust
or plan for such employees, their spouses and their children under the age of 21
or a trust or plan for such employees, which provides for purchases through
periodic payroll deductions or otherwise. There must be at least 5 initial
participants with accounts investing or invested in shares of one or more of the
Funds and/or certain other funds.
The initial purchase by the eligible benefit plan and prior purchases by or for
the benefit of the initial participants of the plan must aggregate not less than
$5,000 and subsequent purchases must be at least $50 per account and must
aggregate at least $250. Purchases by the eligible benefit plan must be made
pursuant to a single order paid for by a single check or federal funds wire and
may not be made more often than monthly. A separate account will be established
for each employee, spouse or child for which purchases are made. The
requirements for initiating or continuing purchases pursuant to an eligible
benefit plan may be modified and the offering to such plans may be terminated at
any time without prior notice.
SELLING SHARES
You may sell your shares by giving instructions to the Transfer Agent by mail or
by telephone. The Funds will use reasonable procedures to confirm that
instructions communicated by telephone are genuine and, if the procedures are
followed, will not be liable for any losses due to unauthorized or fraudulent
telephone transactions.
A one percent redemption fee is deducted from the proceeds of Equity Fund shares
redeemed less than one year after purchase. The redemption fee is not a sales
charge. The proceeds are applied to reduce the operating costs of the Equity
Fund. The Adviser reserves the right to waive the redemption fee for its
clients.
The Board of Directors may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such exchange is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale of Fund shares or valuation of securities held by the Fund are not
reasonably practicable.
SMALL ACCOUNTS
Due to the relative higher cost of maintaining small accounts, the Company may
deduct $10 per year from your account with a Fund, if, as a result of redemption
or exchange of shares, the total investment remaining in the account has a value
of less than $1,000. Shareholders will receive 60 days' written notice to
increase the account value above $1,000 before the fee is to be deducted. A
decline in the market value of your account alone would not require you to bring
your investment up to this minimum.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, each Fund offers the following
shareholder services:
Regular Account.
The Regular account allows for voluntary investments to be made at any time.
Available to individuals, custodians, corporations, trusts, estates, corporate
retirement plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish. Simply use the
Account Application provided with the Prospectus to open your account.
Telephone Transactions.
A shareholder may redeem shares or transfer into another fund if this service is
requested at the time the shareholder completes the initial Account Application.
If it is not elected at that time, it may be elected at a later date by making a
request in writing to the Transfer Agent and having the signature on the request
guaranteed.
Each Fund employs reasonable procedures designed to confirm the authenticity of
instructions communicated by telephone and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent transactions. As a result of this
policy, a shareholder authorizing telephone redemption bears the risk of loss
which may result from unauthorized or fraudulent transactions which the Fund
believes to be genuine. When requesting a telephone redemption or transfer, the
shareholder will be asked to respond to certain questions designed to confirm
the shareholder's identify as a shareholder of record. Cooperation with these
procedures helps to protect the account and the Fund from unauthorized
transactions.
Automatic Investment Plans.
Any shareholder may utilize this feature, which provides for automatic monthly
investments into your account. Upon your request, the Transfer Agent will
withdraw a fixed amount each month from a checking or savings account for
investment into the Fund. This does not require a commitment for a fixed period
of time. A shareholder may change the monthly investment, skip a month or
discontinue the Automatic Investment Plan as desired by notifying the Transfer
Agent at (800) 628-4077.
Individual Retirement Account ("IRA").
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000. A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employees under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements or establishing and maintaining a
corporate retirement plan trust.
If a shareholder has received a distribution from another qualified retirement
plan, all or part of that distribution may be rolled over into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer Federal Income taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA.
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a 5 year period, beginning with the first tax year for which
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year.
An annual limit of $2,000 applies to contributions to regular and Roth IRAs. For
example, if a taxpayer contributes $2,000 to a regular IRA for a year, he or she
may not make any contribution to a Roth IRA for that year.
How to Establish Retirements Accounts.
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. A shareholder may wish to consult with an attorney or
other tax Adviser for specific advice concerning tax status and plans.
Exchange Privilege.
Shareholders may exchange their shares for shares of any other series of the
Company, provided the shares of the fund the shareholder is exchanging into are
registered for sale in the shareholder's state of residence. Each account must
meet the minimum investment requirements. A written request must have been
completed and be on file with the Transfer Agent. To make an exchange, an
exchange order must comply with the requirements for a redemption or repurchase
order and must specify the value or the number of shares to be exchanged. An
exchange will take effect as of the next determination of the Fund's NAV per
share (usually at the close of business on the same day). The Transfer Agent
will charge the shareholder's account a $10.00 service fee each time there is a
telephone exchange. The Company reserves the right to limit the number of
exchanges or to otherwise prohibit or restrict shareholders from making
exchanges at any time, without notice, should the Company determine that it
would be in the best interest of its shareholders to do so. For tax purposes an
exchange constitutes the sale of the shares of the Fund from which you are
exchanging and the purchase of shares of the Fund into which you are exchanging.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes. The exchange privilege is available
only in states where it is legally permissible to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income.
The Funds receive income generally in the form of interest and other income on
their investments. This income, less expenses incurred in the operation of a
Fund, constitutes a Fund's net investment income from which dividends may be
paid to you. Any distributions by a Fund from such income will be taxable to you
as ordinary income, whether you take them in cash or reinvest them in additional
shares.
Distribution of capital gains.
The Funds may derive capital gains and losses in connection with sales or other
dispositions of their portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in a Fund. Any net capital
gains realized by a Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminated
excise or income taxes on the Fund.
Effect of foreign investments on distributions.
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by a Fund. Similarly, foreign exchange losses realized by a
Fund on the sale of debt securities are generally treated as ordinary losses by
a Fund. These gains when distributed will be taxable to you as ordinary
dividends, and any losses will reduce a Fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce a
Fund's ordinary income distributions to you, and may cause some or all of a
Fund's previously distributed income to be classified as return of capital.
A Fund may be subject to foreign withholding taxes on income from certain of its
foreign securities. If more than 50% of a Fund's total assets at the end of the
fiscal year are invested in securities of Foreign corporations, a Fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, the year-end statement you receive from a Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. A Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
Information on the tax character of distributions.
The Funds will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
their tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, a Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxes as a regulated investment company.
Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
regulated investment companies, the Funds generally pay no federal income tax on
the income and gains they distribute to you. The board reserves the right not to
maintain the qualifications of a Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
a Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires a Fund to
distribute to you by December 31 of each year, at a minimum the following
amounts 98% of its taxable ordinary income earned during the twelve month period
ending October 31 and 100% of any undistributed amounts from the prior year.
Each Fund intends to declare and pay these amounts in December (or in January
that are treated by you as received in December) to avoid these excise taxes,
but can give no assurances that its distributions will be sufficient to
eliminate all taxes.
Redemption of fund shares.
Redemption and exchanges of Fund shares are taxable transactions for federal and
state income tax purposes. If you redeem your Fund shares, or exchange your Fund
shares for shares of a different fund of the Company, the IRS will require that
you report a gain or loss on your redemption or exchange. If you hold your
shares as a capital asset, the gain or loss that you realize will be capital
gain or loss and will be long-term or short-term, generally depending on how
long you hold your shares. Any loss incurred on the redemption or exchange of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gains distributed to you by a Fund on
those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. government obligations.
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
Dividends received deduction for corporations.
Because the Fixed Income Fund's income consists of interest rather than
dividends, no portion of its distributions will generally be eligible for the
intercorporate dividends-received deduction. None of the dividends paid by the
Fixed Income Fund for the most recent calendar year qualified for such
deduction, and it is anticipated that none of the current year's dividends will
so qualify.
Because the Equity Fund's income may include corporate dividends, if the
shareholder is a corporation, a percentage of the dividends paid by the Equity
Fund may qualify for the dividends-received deduction. You will be permitted in
some circumstances to deduct these qualified dividends, thereby reducing the tax
that you would otherwise be required to pay on these dividends. The
dividends-received deduction will be available only with respect to dividends
designated by the Equity Fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculations.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Funds to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
Fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
YIELD INFORMATION
From time to time, the Funds may advertise a yield figure. A portfolio's yield
is a way of showing the rate of income the portfolio earns on its investments as
a percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
YIELD = 2[(a-b+ 1) -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
A Fund's yield, as used in advertising, is computed by dividing the Fund's
interest and dividend income for a given 30-day period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by a Fund's net asset value ("NAV") at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purpose
of calculating a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
Fund may differ from the rate of distributions the Fund paid over the same
period or the rate of income reported in the Fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+ T) = ERV
Where:
P = a hypothetical initial payment $1,000 T = average annual total return
N = number of years (l, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods (or
fractional portion thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
NAV as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the prescribed periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value.
Based on the foregoing, each Fund's average annual total return for the periods
or years indicated would be:
One Year Five Years Ten Years Since
Period ended Period ended Period ended Inception to
Fund 8/31/2000 8/31/2000 8/31/2000 8/31/2000
---- --------- --------- --------- ---------
Equity Fund 37.50% N/A N/A 23.55%(1)
Fixed Income Fund 6.39% N/A N/A 3.75%(2)
(1) Commencement of operations was 10/15/97.
(2) Commencement of operations was 1/27/98.
The Funds may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately each Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing each Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, each Fund calculates its aggregate total return
for the specified periods of time by assuming the investment of $1,000 in shares
of the applicable Fund and assuming the reinvestment of each dividend or other
distribution at NAV on the reinvestment date. Percentage increases are
determined by subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. To calculate its
average annual total return, the aggregate return is then annualized according
to the SEC's formula for total return quotes outlined above.
The Funds may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of Non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's Fortune, Money Magazine, The New York Times, Financial World, Financial
Services Week, USA today and other national or regional publications.
FINANCIAL INFORMATION
Financial Highlights, Statements and Reports of Independent Accountants. 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, VA 23229
Telephone: (800) 527-9525
e-mail: [email protected]
The Annual Report for the fiscal year ended August 31, 2000 has been filed with
the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Funds included in the Annual Report have been audited by the
Funds' independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual Report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
PROSPECTUS
THE WORLD FUNDS, INC.
The New Market Fund
Prospectus dated _______________
This Prospectus describes The New Market Fund (the "Fund"), a series of shares
offered by The World Funds, Inc. (the "Company"). A series fund offers you a
choice of investments, with each series having its own investment objective and
a separate portfolio. The Fund seeks long-term growth of capital by investing in
a non-diversified portfolio of common stocks and securities convertible into
common stock.
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: Long-term growth of capital
Principal Investment
Strategies: Under normal market conditions, the Fund will
invest at least 65% of its total assets in common
stocks or securities convertible into common stocks,
such as warrants, convertible bonds,
debentures or convertible preferred stock.
Principal Risk: 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 could decline.
There is no assurance that the investment
adviser will achieve the Fund's objective.
The Fund operates as a non-diversified fund.
As such, the Fund may invest a larger
portion of its assets in fewer securities.
This may cause the market action of the
Fund's larger portfolio positions to have a
greater impact on the Fund's NAV, which
could result in increased volatility.
An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation ("FDIC") or any other
government agency.
Investor Profile: You may want to invest in the Fund if you are seeking
long-term growth of capital and are willing to
accept share prices that may fluctuate, sometimes
significantly, over the short-term. The Fund
will not be appropriate if you are seeking
current income or are seeking safety of principal.
The bar chart and table below provide an
indication of the risks of investing in the Fund
by showing past performances of the Fund. Both
assume that all dividends and distributions are
reinvested in the Fund The bar chart shows how
the Fund's performance has varied from one year
to another. The table compares the Fund's average
annual total returns for the periods ended
December 31, 2000 to the Lipper Large Cap Value
Index. Keep in mind that past performance may not
indicate how well the Fund will perform in the
future.
[bar chart goes here]
The New Market Fund*
1999 (1.72%)
2000 _______%
* During the period shown in the bar chart, the highest return for a calendar
quarter was ___________% (quarter ending ____________) and the lowest
return for a calendar quarter was ____________ (quarter ending
____________)
[end bar chart]
Average Annual Total Return
for the periods ending December 31, 2000
----------------------------------------
Since Inception
One Year (October 1, 1998)
-------- -----------------
The New Market Fund
Lipper Large Cap Value Index**
** Lipper Large Cap Value Index is an unmanaged index. The index is not
adjusted to reflect expenses that the SEC requires to be reflected in the
Fund's performance. The Lipper Large Cap Value Index is an equally-weighted
performance indice, adjusted for capital gains distributions and income
dividends of the largest 30 qualifying equity funds that, by practice,
invest in at least 75% of their equity assets in companies with market
capitalization (on a three-year weighted basis) of greater than 300% of the
dollar-weighted median market capitalization of the S&P Mid-Cap 400 Index.
The comparative index is not adjusted to reflect expenses that the SEC
requires to be reflected in the Fund's performance.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. The annual operating
expenses, which cover the costs of investment management, administration,
accounting and shareholder communications, are shown as an annual percentage of
the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your
investment)
Maximum Sales Charge (load) Imposed on Purchases 2.75%
Sales Charge (load) Imposed on Reinvested Dividends None
Redemption Fees (1) 1.00%
(2)
Exchange Fees (3) None
Estimated Annual Operating Expenses (expenses that are deducted
from Fund
assets)
Management Fee 1.00%
Distribution and Service (12b-1) Fees(4) 0.50%
Other Operating Expenses 2.19%
-----
Total Annual Fund Operating Expenses 3.69%
Fee Waiver and/or Expense Reimbursements(5) 1.70%
-----
Net Expenses 1.99%
(1) A shareholder electing to redeem shares by telephone may be
charged $10 for each such redemption request.
(2) A one percent (1%) redemption fee is charged on shares held
less than one year.
(3) A shareholder may be charged a $10 fee for each telephone
exchange.
(4) The Company has approved a Plan of Distribution pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended (the "1940 Act") providing
for the payment of distribution fees to the distributor for the Fund. The
Fund pays a maximum distribution fee of 0.50% of average daily net assets.
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. See "Rule 12b-1 Fees".
(5) In the interest of limiting expenses of the Fund, Virginia Management
Investment Corporation (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 so that the ratio of total annual operating expenses of the Fund
is limited to 1.99% until October 1, 2001.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that as the Fund increases in size, its "Other Operating Expenses" will
decline as an annual percentage rate reflecting economies of scale.
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, you reinvest all dividends and distributions in additional shares
of the Fund and then you redeem all of your shares at the end of the periods
indicated. Also, 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 * 5 Years * 10 Years *
-------- --------- --------- ----------
$571 $882 $1,318 $2,528
* These costs are net of fee waivers and reimbursements to maintain total
operating expenses at 1.99% pursuant to a contractual expense limitation
agreement (see "Management Organization and Capital Structure").
Absent this commitment, your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$735 $1,373 $2,129 $4,108
OBJECTIVES AND STRATEGIES
The Fund's investment objective is to achieve long-term growth of capital by
investing in a non-diversified portfolio composed of common stocks and
securities convertible into common stock, such as warrants, convertible bonds,
debentures or convertible preferred stock.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in common stocks or securities convertible into common stocks. The
Fund's portfolio will be non-diversified. The Fund will not be limited to
investing in the securities of companies of any particular size, or to
securities traded in any particular market. It is the Fund's policy to focus its
investments on profitable, financially stable growth companies. It is
anticipated that such companies will generate high returns on invested capital.
The companies will generally be unleveraged, characteristically have
shareholder-oriented management, and generally tend to have large market
capitalizations. In determining which portfolio securities to sell, the Adviser
considers the following: (1) if a stock appreciates such that, as a total
percentage of our portfolio, it becomes too large; (2) if the sector or stock
appears to be under-performing; (3) if the company management appears to be
engaging in conduct not in the best interest of public shareholders; (4) to sell
loss positions in order to reduce taxable gains to our shareholders reflected in
earlier sales of positions with gains; and, (5) to raise funds to cover
redemptions.
RISKS
Stock Market Risk.
The Fund is subject to stock market risk, which is the possibility that stock
prices overall will decline over short or even long periods. Stock markets tend
to move in cycles, with periods of rising prices and periods of falling prices.
Therefore, the value of your investment in the Fund may increase or decrease.
The Fund's investment success depends on the skill of the investment adviser in
evaluating, selecting and monitoring the portfolio assets. If the investment
adviser's conclusions about asset allocation are incorrect, the Fund may not
perform as anticipated.
Small Companies Risk.
The Fund may invest a portion of its assets in smaller companies that may
involve greater risk than investments in larger, more mature issuers. Smaller
companies may have limited product lines, markets or financial resources, and
their securities may trade less frequently and in more limited volume than those
of larger, more mature companies. As a result, the prices of their securities
may fluctuate more than those of larger issuers.
Non-diversification.
The Fund is non-diversified under Federal securities laws and, therefore, may
invest a larger portion of its assets in fewer securities than a diversified
fund. This may cause the market action of the Fund's larger portfolio positions
to have a greater impact on the Fund's NAV, which could result in increased
volatility.
Temporary Defensive Positions.
When the Fund's investment adviser believes that investments should be deployed
in a temporary defensive posture because of economic or market conditions, the
Fund may invest up to 100% of its total 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 or certificates of deposits. When the
Fund is in a temporary defensive position, it may not achieve its investment
objective.
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 1940 Act and is commonly known as a "mutual fund".
The Company has retained an investment manager to manage all aspects of the
investments of the Fund.
Investment Manager.
Virginia Management Investment Corporation (the "Manager"), located 7800
Rockfalls Dr, Richmond, Virginia 23225, manages the assets of the Fund. Prior to
the Fund's inception, the Manager had no previous experience managing a mutual
fund. The Manager is responsible for selecting all of the Fund's investments and
effecting all security transactions on behalf of the Fund, including the
allocation of principal business and portfolio brokerage and the negotiation of
commissions. In placing orders with brokers and dealers, the Manager will
attempt to obtain the best price and execution of orders.
The Fund pays the Manager a monthly management fee at an annual rate equal to 1%
of the average daily net assets of the Fund. In the interest of limiting
expenses of the Fund, the Manager has entered into a contractual expense
limitation agreement with the Fund. The Manager has agreed to waive or limit its
fees and to assume other expenses so that the ratio of total annual operating
expenses of the Fund is limited to 1.99% until October 1, 2001. The limit does
not apply to interest, taxes, brokerage commissions, other expenditures
capitalized in accordance with generally accepted accounting principles and
other extraordinary expenses not incurred in the ordinary course of business.
For the fiscal year ended August 31, 2000, the Manager waived its fees.
The Manager will be entitled to reimbursement of fees waived or reimbursed 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
Reimbursed 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 must be
authorized by the Board of Directors.
The Manager has entered into an Investment Advisory Agreement (the "Advisory
Agreement") with The London Company of Virginia established in 1994 and located
at Riverfront Plaza, West Tower, 901 East Byrd Street, Suite 1350A, Richmond,
Virginia 23219 (the "Investment Adviser"). Stephen Goddard has been the
President and principal shareholder of the Investment Adviser since its
inception and has been the portfolio manager of the Fund since its inception on
October 1, 1998. Mr. Goddard is also a director and shareholder of the Manager.
Mr. Goddard has thirteen years experience in senior portfolio management,
security analysis and finance.
The Investment Adviser provides the Manager with investment analysis and timing
advice, research and statistical analysis relating to the management of the
portfolio securities of the Fund. The investment recommendations of the
Investment Adviser 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 Adviser one-half of the management fee
received from the Fund.
SHAREHOLDER INFORMATION
The Fund's share price, called its net asset value per share or 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 of the Fund and then dividing by the total number of Fund shares
outstanding.
Shares are bought at the public offering price per share next determined after a
request has been received in proper form. Shares are sold or exchanged at the
NAV per share next determined after a request has been received in proper form.
Any request received in proper form before the Valuation Time, will be processed
the same business day. Any request received in proper form after the Valuation
Time, will be processed the next business day.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a given 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.
PURCHASING SHARES
Shares of the Fund may be purchased directly from First Dominion Capital Corp.
(the "Distributor") or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. When an investor acquires
shares of the Fund from a securities broker-dealer, the investor may be charged
a transaction fee by that broker-dealer. The minimum initial investment in the
Fund is $5,000 and additional investments must be in amounts of $100 or more.
The public offering price is normally the share's NAV plus an initial sales
charge. However, if you purchase shares in amounts over a certain level, the
initial sales charge may be reduced, as the chart below shows. The Fund reserves
the right to refuse to accept an order.
Sales Charge as a Percentage of
Amount of Purchase ------------------------------- Dealer Discount
At the Public Offering Net Amount as Percentage of
Offering Price Price Invested Offering Price
$5,000 but under $100,000 2.75% 2.83% 2.25%
$100,000 but under $250,000 2.25% 2.30% 1.75%
$250,000 but under $500,000 1.50% 1.52% 1.25%
$500,000 but under $1 million 1.00% 1.01% 0.75%
$1 million or over 0.00% 0.00% 0.00%
A front-end sales charge may not be imposed if a shareholder purchases shares of
the Fund with redemption proceeds from other mutual fund complexes on which the
shareholder previously paid a front-end sales charge or a contingent deferred
sales charge.
Right of Accumulation.
Pursuant to the Right of Accumulation privilege, investors are permitted to
purchase shares at the sales charge applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current public
offering price of the purchaser's combined holdings of shares of the Fund
previously purchased. To receive the Right of Accumulation, shareholders must,
at the time of purchase, give the transfer agent or the Distributor sufficient
information to permit confirmation of qualification for such right.
Statement of Intention.
A reduced sales charge as set forth above applies immediately to all purchases
where the investor has executed a Statement of Intention calling for the
purchase within a 13-month period of an amount qualifying for the reduced sales
charge. The investor must actually purchase the amount stated in such statement
to avoid later paying the full sales charge on shares that are purchased. For a
description of the Statement of Intention, see the Statement of Additional
Information (the "SAI").
Purchases by Mail.
For initial purchases, the account application form, which accompanies the
prospectus, should be completed, signed and mailed to Fund Services, Inc. (the
"Transfer Agent") at 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229,
together with your check payable to the Fund. For subsequent purchases, include
with your check the tear-off stub from a prior purchase confirmation, or
otherwise identify the name(s) of the registered owner(s) and social security
number(s).
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Transfer Agent for
instructions, then notify the Distributor by calling (800) 776-5455. Your bank
may charge you a small fee for this service. Once you have arranged to purchase
shares by wire, please complete and mail the account application form promptly
to the Transfer Agent. This application is required to complete the Fund's
records. You will not have access to your shares until the Fund's records are
complete. Once your account is opened, you may make additional investments using
the wire procedure described above. Be sure to include your name and account
number in the wire instructions you provide your bank.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. Investment professionals
who offer shares may request fees from their individual clients. If you invest
through a third party, the policies and fees may be different than those
described in the Prospectus. For example, third parties may charge transaction
fees or set different minimum investment amounts.
Rule 12b-1 Fees.
The Board of Directors has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Rule 12b-1 Plan"). Pursuant to the Rule 12b-1 Plan, 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 Distributor. The Fund may pay
distribution fees (the "Rule 12b-1 Fee") at an annual rate of up to 0.50% of the
Fund's average daily net assets. 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 Fund may pay Rule 12b-1
fees for activities and expenses borne in the past 12 months 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.
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 next determined after the
Transfer Agent receives the redemption request in proper order. A one percent
(1%) redemption fee is deducted from proceeds of Fund shares redeemed less than
one year after purchase. Payment will be made promptly, but no later than the
seventh day following the receipt of the request in proper order. The Company
may suspend the right to redeem shares for any period during which the NYSE is
closed or the U.S. Securities and Exchange Commission determines that there is
an emergency. In such circumstances you may withdraw your redemption request or
permit your request to be held for processing after the suspension is
terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the 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 redemption 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 account application form 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 form has been changed within
the last 30 days, or if you ask that the proceeds to be sent to a different
person or address. Signature guarantees are used to help protect you and the
Fund. You can obtain a signature guarantee from most banks or securities
dealers, but not from a Notary Public. Please call the Transfer Agent at (800)
628-4077 to learn if a signature guarantee is needed or to make sure that it is
completed appropriately in order to avoid any processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you requested this service
on your initial account application form. If you request this service at a later
date, you must send a written request, along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
charge for this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help to protect you and the Company from fraud, signature guarantees are
required for: (1) all redemptions ordered by mail if you require that the check
be payable to another person or that the check be mailed to an address other
than the one indicated on the account registration; (2) all requests to transfer
the registration of shares to another owner; and, (3) all authorizations to
establish or change telephone redemption service, other than through your
initial account application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Proper Form.
Your order to buy shares is in proper form when your completed and signed
account application and check or wire payment is received. Your written request
to sell or exchange shares is in proper form when written instructions signed by
all registered owners, with a signature guarantee if necessary, is received.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Fund may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $5,000. 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 $5,000. The Fund will not close your account if it
falls below $5,000 solely because of a market decline. The Manager, Investment
Adviser and the Distributor reserve the right to waive this fee for their
clients.
Automatic Investment Plan.
Existing shareholders who wish to make regular monthly investments in amounts of
$100 or more may do so through the Automatic Investment Plan. Under the Plan,
your designated bank or other financial institution debits a pre-authorized
amount from your account on or about the 15th day of each month and applies the
amount to the purchase of shares. To use this service, you must authorize the
transfer of funds by completing the Plan section of the account application and
sending a blank voided check.
Exchange Privileges.
You may exchange all or a portion of your shares for the shares of certain other
funds having different investment objectives, provided the shares of the fund
you are exchanging into are registered for sale in your state of residence. Your
account may be charged $10 for a telephone exchange fee. An exchange is treated
as a redemption and a purchase and may result in realization of a gain or loss
on the transaction.
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 and paid annually.
The Fund intends to distribute annually any net capital gains.
Distributions will automatically be reinvested in additional shares of the Fund,
unless you elect to have the distributions paid to you in cash. There are no
sales charges or transaction fees for reinvested dividends and all shares will
be purchased at NAV. 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 the Fund shortly before the
next distribution, because doing so can cost you money in taxes. This is known
as "buying a dividend". To avoid buying a dividend, check the Fund's
distribution schedule before you invest.
DISTRIBUTION AND TAXES
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Other Fund distributions (including
distributions attributable to short-term capital gains of the Fund) will
generally be taxable to you as ordinary income. 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 the Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of the Fund for shares of a different fund
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. The one major exception to
these tax principles is that distributions on, and sales exchanges and
redemptions of, shares held in an IRA (or other tax-deferred retirement account)
will not be currently taxable. Non-U.S. investors may be subject to U.S.
withholding and estate tax. You should consult with your tax adviser about the
federal, state, local or foreign tax consequences of your investment in the
Fund.
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.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the periods presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report, along with the Fund's financial statements, are included in the Fund's
Annual Report to Shareholders (the "Annual Report") and are incorporated by
reference into the SAI. Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Period ended
August 31, 2000 August 31, 1999*
--------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $ 11.64 $ 10.00
Income from investment operations-
Net investment loss (0.03) (0.03)
Net realized and unrealized gain on
investments 0.10 1.67
-------- --------
Total from investment operations 0.07 1.64
-------- --------
Net asset value, end of period $ 11.71 $ 11.64
======== ========
Total Return 0.60% 13.20%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 5,347 $ 3,256
Ratio to average net assets (A)
Expenses (B) 1.99% 1.99%**
Expense ratio - net (C) 1.99% 1.99%**
Net investment loss (0.34%) (0.41%)**
Portfolio turnover rate 32.86% 8.31%
* Commencement of operations October 1, 1998
** Annualized
(A) Management fee waivers and reimbursements reduced the expense ratio and
increased net investment income ratio by 1.70% for the for the year ended
August 31, 2000 and 2.48% for period ended August 31, 1999.
(B) Expense ratio has been increased to include custodial fees which were
offset by custodian fee credits and before management fee waivers and
reimbursements.
(C) Expense ratio - net reflects the effect of the management fee waivers
and reimbursements and custodian fee credits the Fund received.
<PAGE>
You'll find more information about the Fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's SAI
dated _______________ which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
THE NEW MARKET FUND
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of The New Market Fund (the
"Fund") dated _________________. 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 or by calling (800) 527-9525.
The Fund's audited financial statements and notes thereto for the year ended
August 31, 2000 and the unqualified report of Tait, Weller & Baker, the Fund's
independent auditors, on such financial statements are included in the Fund's
Annual Report to Shareholders for the year ended August 31, 2000 (the "Annual
Report") and are incorporated by reference into this SAI. No other parts of the
Annual Report are incorporated herein. A copy of the Annual Report accompanies
this SAI and an investor may obtain a copy of the Annual Report, free of charge,
by writing to the Fund or calling (800) 527-9525.
The date of this SAI is ____________________________
<PAGE>
TABLE OF
CONTENTS PAGE
General Information
Investment Objective
Strategies and Risks
Investment Programs
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Policies Concerning Personal Investment Activities
Investment Manager,
Adviser and Agreements
Management-Related Services
Portfolio Transactions
Portfolio Turnover
Capital Stock and Dividends
Distribution
Plan of Distribution ("12b-1 Plan")
Sales at Net Asset Value
Additional Information about Purchases and Sales
Tax Status
Investment Performance
Financial Information
<PAGE>
GENERAL INFORMATION
The World Funds, Inc. (the "Company") was organized as a Maryland corporation in
May, 1997. The Company is an open-end, management investment company (commonly
known as a "mutual fund"), registered under the Investment Company Act of 1940,
as amended (the "1940 Act"). This SAI relates to The New Market Fund series of
shares (the "Fund")of the Company. The Fund is a series of the Company that
invests in a non-diversified portfolio of common stock and securities
convertible into common stock.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve long-term growth of capital
by investing in a non-diversified portfolio consisting primarily of equity
securities which includes securities convertible into equity securities, such
as, warrants, convertible bonds, debentures or convertible preferred stock.
All investments entail some market and other risks. For instance, there is no
assurance that the investment adviser will achieve the investment objective of
the Fund. You should not rely on an investment in the Fund as a complete
investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the 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
Convertible Securities.
The Fund may invest in convertible securities. Traditional convertible
securities include corporate bonds, notes and preferred stocks that may be
converted into or exchanged for common stock or other equity securities, and
other securities that also provide an opportunity for equity participation.
These securities are convertible either at a stated price or a stated rate (that
is, for a specific number of shares of common stock or other equity securities).
As with other fixed income securities, generally the price of a convertible
security varies inversely with interest rates. While providing a fixed income
stream, a convertible security also affords the investor an opportunity, through
its conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
higher yield or capital appreciation. In such circumstances, the price of a
convertible security may be greater than the underlying value of the common
stock.
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.
Debentures.
The Fund may invest in debentures which are general debt obligations backed only
by the integrity of the borrower and documented by an agreement called an
indenture. An unsecured bond is a debenture.
Convertible Preferred Stock.
The Fund may invest in preferred stock which is a class of capital stock that
pays dividends at a specified rate and that has preference over common stock in
the payment of dividends and the liquidation of assets. Preferred stock does not
ordinarily carry voting rights.
Most preferred stock is cumulative; if dividends are passed (not paid for any
reason), they accumulate and must be paid before common dividends. A passed
dividend on noncumulative preferred stock is generally gone forever.
Participating preferred stock entitles its holders to share in profits above and
beyond the declared dividend, along with common shareholders, as distinguished
from nonparticipating preferred, which is limited to the stipulated dividend.
Adjustable rate preferred stock pays a dividend that is adjustable, usually
quarterly, based on changes in the treasury bill rate or other money market
rates. Convertible preferred stock is exchangeable for a given number of common
shares and thus tends to be more volatile than nonconvertible preferred, which
behaves more like a fixed-income bond.
Illiquid Securities.
The Fund may invest up to 15% of its net assets in illiquid securities. For this
purpose, the term "illiquid securities" means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities. Illiquid securities include
generally, among other things, certain written over-the-counter options,
securities or other liquid assets as cover for such options, repurchase
agreements with maturities in excess of seven days, certain loan participation
interests and other securities whose disposition is restricted under the federal
securities laws.
Depositary Receipts.
American Depositary Receipts ("ADRs") are receipts typically issued in the U.S.
by a bank or trust company evidencing ownership of an underlying foreign
security. The Fund may invest in ADRs which are structured by a U.S. bank
without the sponsorship of the underlying foreign issuer. In addition to the
risks of foreign investment applicable to the underlying securities, such
unsponsored ADRs may also be subject to the risks that the foreign issuer may
not be obligated to cooperate with the U.S. bank, may not provide additional
financial and other information to the bank or the investor, or that such
information in the U.S. market may not be current.
Like ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Registered Depositary Certificates ("RDCs") represent receipts for
a foreign security. However, they are issued outside of the U.S. The Fund may
invest in ADRs, EDRs, GDRs or RDCs .
U.S. Government Securities.
The Fund may invest in U.S. Government securities. U.S. Government securities
are obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, and securities guaranteed by the Government National Mortgage
Association ("GNMA"), are supported by the full faith and credit of the United
States; others, such as those of the Federal Home Loan Banks, are supported by
the right of the issuer to borrow from the U.S. Treasury; others, such as those
of the Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.
U.S. Government securities include (1) securities that have no interest coupons
(see "Zero Coupon Securities" below) or have been stripped of their unmatured
interest coupons, (2) individual interest coupons from such securities that
trade separately, and (3) evidences of receipt of such securities. Such
securities that pay no cash income are purchased at a deep discount from their
value at maturity. Because interest on zero coupon and stripped securities is
not distributed on a current basis, but is, in effect, compounded, such
securities tend to be subject to greater market risk than interest-paying fixed
income securities.
Municipal Securities.
The Fund may invest in municipal securities. These securities are debt
obligations issued by or on behalf of the government of states, territories or
possessions of the United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities. The interest on municipal
securities is exempt from federal income tax. The two principal classifications
of municipal securities are "general obligation" and "revenue" securities.
"General obligation" securities are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. "Revenue"
securities are usually payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. Industrial development
bonds are usually revenue securities, the credit quality of which is normally
directly related to the credit standing of the industrial user involved.
Within these principal classifications of municipal securities there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, and municipal leases. Variable
rate securities bear rates of interest that are adjusted periodically according
to formula intended to reflect market rates of interest and include securities
who rates vary inversely with changes in market rates of interest. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities.
Corporate Debt Securities.
The Fund may invest in "investment grade" corporate debt securities. The Fund
will invest in securities rated Baa or higher by Moody's Investors Service, Inc.
("Moody's"), or Standard & Poor's Ratings Group ("S&P") at the time of purchase,
or unrated securities which Virginia Management Investment Corporation, the
Fund's investment manager (the "Manager"), believes to be of comparable quality.
Securities rated as BBB are generally regarded as having adequate capacity to
pay interest and repay principal.
Zero Coupon Securities.
The Fund may invest in zero coupon securities. Certain zero coupon securities
are convertible into common stock and offer the opportunity for capital
appreciation as increases (or decreases) in the market value of such securities
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stock as they usually are issued with intermediate to
short maturities (15 years or less) and are issued with options and/or
redemption features exercisable by the holder of the securities entitling the
holder to redeem the securities and receive a defined cash payment.
Zero coupon securities also include securities issued directly as zero coupon
securities by the U.S. Treasury, and U.S. Treasury bonds or notes which have
their unmatured interest coupons separated by their holder, typically a
custodian bank or investment brokerage firm. The holder separates ("strips") the
interest coupons from the underlying principal of the U.S. Treasury security.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal is sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. Purchasers
of stripped obligations acquire, in effect, discounted obligations that are
similar to zero coupon securities that the Treasury sells directly. Once the
U.S. Treasury obligation is stripped, the principal and coupons may be sold
separately. Typically, the coupons are sold individually or grouped with other
coupons with like maturity dates and sold bundled in such form.
Repurchase Agreements.
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements that are collateralized by U.S. Government
securities. Under a repurchase agreement, 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 repurchase agreements is considered to be
a loan by the 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, the 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.
Covered Call Options.
The Fund may write (sell) covered call options, including those that trade in
the over-the counter ("OTC") market, and will receive a premium that is designed
to increase its return on securities or to provide a partial hedge against
declines in the market value of its portfolio securities. The Fund will not
engage in such transactions for speculative purposes. A call option gives the
purchaser the right, and obligates the writer to sell, in return for a premium
paid to the writer by the purchases, a particular security at a predetermined or
"exercise" price during the period of the option. A call option is "covered" if
the writer owns the underlying security that is the subject of the call option.
The writing of call options is subject to risks, including the risk that the
Fund will not be able to participate in any appreciation in the value of the
securities above the exercise price. OTC call options are sold to securities
dealers, financial institutions or other parties (counterparty) through a direct
bilateral agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium, guarantees and security, are set by negotiation of the
parties. The Fund will sell only OTC call options that are subject to a buy-back
provision permitting the Fund to require the Counterparty to sell the option
back to the Fund at a formula price within seven days.
Unless the parties provide otherwise, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to take
delivery of the security underlying an OTC call option it has entered into with
the Fund or fails to make a cash settlement payment due in accordance with the
terms of that option, the Fund will lose any premium it paid for the option as
well as any anticipated benefit of the transaction. Accordingly, the Manager
must assess the creditworthiness of each such Counterparty or any guarantor or
credit enhancement of the Counterparty's credit to determine the likelihood that
the terms of the OTC option will be satisfied. The Fund will engage in OTC call
option transactions only with United States government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers," or
broker dealers, domestic or foreign banks or other financial institutions which
have received (or the guarantors of the obligation of which have received) a
short-term credit rating of A-1 from S&P or P-1 from Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO"). The staff of the SEC currently takes the position that portfolio
securities "covering" the amount of a Fund's obligation pursuant to an OTC call
option sold by it (the cost of the sell-back plus the in-the-money amount, if
any) are illiquid, and are subject to the Fund's limitation on investing no more
than 15% of its assets in illiquid securities.
Other Investments.
The Board of Directors may, in the future, authorize the Fund to invest in
securities other than those listed in this SAI and in the prospectus, provided
such investments would be consistent with the Fund's investment objective and
that such investments 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 used in this SAI, a "majority of the
outstanding voting securities" means the lesser of: 1) 67% of the voting
securities 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 securities of the Fund. As a matter of
fundamental policy, the Fund may not:
1) As to 50% of its assets, purchase the securities of any issuer (other than
obligations issued or guaranteed as to principal and interest by the
Government of the United States or any agency or instrumentality thereof),
if as a result of such purchase, more than 5% of its total assets would be
invested in the securities of such issuer.
2) Purchase stock or securities of an issuer (other than the obligations of
the United States or any agency or instrumentality thereof), if such
purchase would cause the Fund to own more than 10% of any class of the
outstanding voting securities of such issuer or, more than 10% of any class
of the outstanding stock or securities of such issuer.
3) 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, or any foreign law restricting
distribution of securities in a country of a foreign issuer.
4) Buy or sell commodities or commodity contracts.
5) Borrow money except 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. Notwithstanding the foregoing, to avoid the
untimely disposition of assets to meet redemptions, the Fund may borrow up
to 33 1/3%, of the value of its assets to meet redemptions, provided that
it may not make other investments while such borrowings are outstanding.
6) Make loans.
7) Invest more than 25% of its total assets in securities of one or more
issuers having their principal business activities in the same industry,
provided that there is no limitation with respect to investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
8) 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.
9) Invest in interests in oil, gas, or other mineral explorations or
development programs.
10) Issue senior securities.
11) Participate on a joint or a joint and several basis in any securities
trading account.
12) Purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities).
13) Invest in companies for the purpose of exercising control.
14) Purchase securities on margin, except that it may utilize such short-term
credits as may be necessary for clearance of purchases or sales of
securities.
15) Engage in short sales.
In applying the fundamental policy and restriction concerning concentration set
forth above (i.e., not investing more than 25% of total assets in one industry):
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.
Non-Fundamental Policies and Restrictions.
In addition to the fundamental policies and investment restrictions described
above, and the various general investment policies described in the Prospectus
and elsewhere in the SAI, the Fund will be subject to the following investment
restrictions, which are considered non-fundamental and may be changed by the
Board of Directors without shareholder approval. As a matter of non-fundamental
policy, the Fund may not:
1) Invest more than 15% of its net assets in illiquid securities.
2) Engage in arbitrage transactions.
3) Except with respect to restriction number 5 above, if a percentage
restriction on investment or utilization of assets as set forth under
"Investment Restrictions" and "Investment Programs" sections above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Fund's assets
will not be considered a violation of the restriction.
MANAGEMENT OF THE COMPANY
Directors and Officers.
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages 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 Director who is considered an
"interested person" as defined in Section 2(a)(19) of the 1940 Act, as well as
those persons affiliated with the Manager, the other investment advisors of the
Company and the 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 Ave. and Treasurer Director of Commonwealth Shareholder
Richmond, VA 23229 Services, Inc., ("CSS") the
(55) Company's Administrator, since
1985; President and Director of
First Dominion Capital Corp.,
("FDCC") the Company's underwriter.
Director and shareholder of
Fund Services Inc., the Company's
Transfer and Disbursing Agent,
since 1987; shareholder of
Commonwealth Fund Accounting, Inc.,
which provides bookkeeping services;
and Chairman, Director and Treasurer
of Vontobel Funds, Inc., a
registered investment company since
March, 1997. Mr. Pasco is also a
certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations and
Potomac, MD 20854 Accounting Division of the
(60) Potomac Electric Power Company since
August, 1978; and Directorof
Vontobel Funds, Inc., a registered
investment company since March,
1997. Mr. Boyd is also a certified
public accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD 20816 Management Consulting for
(64) Professionals since 1968; Director
of Vontobel Funds, Inc., a
registered investment company since
March, 1997. Mr. Poist is
also a certified public accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Drive Alfred J. Dickinson, Inc. Realtors
Richmond, VA 23229 since April, 1971; and Director
(53) of Vontobel Funds, Inc. a registered
investment company since March,1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive CSS and FDCC since 1986; Secretary
Suite 101 of Vontobel Funds, Inc., a
Richmond, VA 23229 registered investment company since
(57) March, 1997; and Partner in the law
firm Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the President
3000 Sand Hill Road the Company and of Sand Hill Advisors, Inc.
Suite 150 President of the since August, 2000 and was
Menlo Park, CA 94025 Sand Hill Portfolio Executive Vice President of
(52) Manager Fund series Sand Hill Advisors, Inc. since 1982.
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a
San Francisco, CA 94104 Fixed Income Fund Partner in the law firm Taylor &
(54) Faust since September, 1975.
*Franklin A. Trice,III Vice President of Mr. Trice is President of
P.O. Box 8535 the Company and Virginia Management Investment
Richmond, VA 23226-0535 President of the Corporation since May, 1998; and
(37) New Market Fund a registered representative of
FDCC, the Company's underwriter
since September, 1998. Mr. Trice
was a broker with Scott &
Stringfellow from March, 1996 to
May, 1998 and with Craigie, Inc.
from March, 1992 to January, 1996.
*John T. Connor, Jr. Vice President of President of Third Millennium
515 Madison Ave., the Company and Investment Advisors, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial
(59) Russia Fund company and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 610 President of since July, 1990; and
Gaithersburg, MD 20878 GenomicsFund.com President of xGENx, LLC
(53) and Newby's ULTRA since November, 1999.
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994.
Suite 200 series In his six years with IAAC, he has
Winter Park, FL 32789 served as a Financial Adviser, VP
(40) 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 company since
West Hartford, CT 06197 November, 1998. Prior to founding
(42) 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.
The Company does not compensate the Directors and officers who are officers or
employees of the Manager or any investment adviser to a fund of the Company. 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. As of December 31,
2000 the officers and Directors, individually and as a group, owned beneficially
less than 1% of the outstanding shares of the Funds.
For the fiscal year ended August 31, 2000, the Directors received the following
compensation from the Company:
Aggregate Compensation Total
Name and From the Fund, for Pension or Retirement Compensation
Position Fiscal Year Ended Benefits Accrued as from the
Held August 31, 2000(1) Part of Fund Expenses Company(2)
--------- --------------------- --------------------- -------------
John Pasco, III, $-0- N/A $-0-
Director
Samuel Boyd, Jr., $2,000 N/A $12,933
Director
William E. Poist, $2,000 N/A $12,933
Director
Paul M. Dickinson, $2,000 N/A $12,933
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors by the Fund for: a service on the Board of Directors for the
Fund's fiscal year ended August 31, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds offered by the Company for the fiscal year or
period ended August 31, 2000. The Company consists of a total of eight
funds as of August 31, 2000.
PRINCIPAL SECURITIES HOLDERS
To the best knowledge of the Fund, as of December 31, 2000, the following
persons owned of record or beneficially 5% or more of the shares of the Fund in
the amounts indicated for each:
[UPDATE INFORMATION]
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, investment adviser and principal underwriter have each adopted Codes
of Ethics pursuant to Rule 17j-1 under the 1940 Act that permit investment
personnel, subject to their particular Code of Ethics, to invest in securities,
including securities that may be purchased or held by the Fund, for their own
accounts.
The Codes of Ethics are on file with, and can be reviewed and copied at the
U. S. Securities and Exchange Commission's (the "SEC") Public Reference Room in
Washington, D.C. In addition, the Codes of Ethics are also available on the
EDGAR Database on the SEC's Internet website at http://www.sec.gov.
INVESTMENT MANAGER, ADVISER AND AGREEMENTS
Investment Manager.
Virginia Management Investment Corporation (the "Manager"), 7800 Rockfalls
Drive, Richmond, Virginia 23225 is the Fund's investment manager. The Manager is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"). The Manager is an independent, privately held
corporation. Mr. Franklin A. Trice, III, Vice President of the Company and
President of the Fund, is President of the Manager.
The Manager serves as investment manager pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The Advisory Agreement is effective for a
period of two years from September 21, 1998, and may be renewed annually
thereafter. The Advisory Agreement will automatically terminate in the event of
its "assignment" as that term is defined in the 1940 Act, and may be terminated
without penalty at any time upon 60 days' written notice to the other party by:
(i) the majority vote of all the Directors or by vote of a majority of the
outstanding voting securities of the Fund; or (ii) the Manager. Under the
Advisory 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.
The Fund is obligated to pay the Manager a monthly management fee at an annual
rate equal to 1% of the average daily net assets of the Fund. In the interest of
limiting expenses of the Fund, the Manager has entered into a contractual
expense limitation agreement with the Fund. The Manager has agreed to waive or
limit its fees and to assume other expenses so that the ratio of total annual
operating expenses of the Fund is limited to 1.99% of the Fund's average net
assets until October 1, 2001. The limit does not apply to interest, taxes,
brokerage commissions, other expenditures capitalized in accordance with
generally accepted accounting principles and other extraordinary expenses not
incurred in the ordinary course of business. For the period from October 1, 1998
(commencement of operations) through August 31, 1999, the Manager did not
receive any compensation, waived fees of $19,278 and reimbursed expenses of
$19,451. For the fiscal year ended August 31, 2000, the Manager did not receive
any compensation, waived fees of $43,177 and reimbursed expenses of $30,623.
Pursuant to the terms of the Advisory Agreement, the Manager pays all expenses
incurred by it in connection with its activities thereunder, except the cost of
securities (including brokerage commissions, if any) purchased for the Fund and
brokerage commissions and related costs for the sale of such securities. The
services furnished by the Manager under the Advisory Agreement are not
exclusive, and the Manager is free to perform similar services for others.
Investment Adviser.
The Manager has entered into an Investment Advisory Agreement (the "Sub-Advisory
Agreement") with The London Company of Virginia established in 1994 and located
at Riverfront Plaza, West Tower, 901 East Byrd Street, Suite 1350A, Richmond,
Virginia 23219 (the "Investment Adviser"). Stephen Goddard has been the
President and principal shareholder of the Investment Adviser since its
inception and has been the portfolio manager of the Fund since its inception on
October 1, 1998. Mr. Goddard is also a director and shareholder of the Manager.
Mr. Goddard has thirteen years experience in senior portfolio management,
security analysis and finance.
The Investment Adviser provides the Manager with investment analysis and timing
advice, research and statistical analysis relating to the management of the
portfolio securities of the Fund. The investment recommendations of the
Investment Adviser 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 Adviser one-half of the management fee
received from the Fund.
MANAGEMENT-RELATED SERVICES
Administration.
Pursuant to the Administrative Services Agreement with the Company, dated
September 21, 1998 (the "Service Agreements"), Commonwealth Shareholder
Services, Inc. ("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229,
serves as the administrator of the Fund. CSS supervises all aspects of the
operation of the Fund, except those performed by the Manager and Investment
Adviser. John Pasco III, Chairman of the Board of the Company, is the sole owner
of CSS. CSS provides certain administrative services and facilities for the
Fund, including preparing and maintaining certain books, records, and monitoring
compliance with state and federal regulatory requirements.
As administrator, CSS receives asset-based fees, computed daily and paid monthly
at annual rates of 0.20% of the average daily net assets of the Fund (for the
services of CSS, which include compliance with regulatory matters, backup of the
pricing of shares of the Fund, administrative duties in connection with
execution of portfolio trades, and certain services in connection with Fund
accounting). CSS also receives an hourly fee, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters. For the
period from October 1, 1998 (commencement of operations) through August 31,
1999, CSS received $18,283 from the Fund for its services as administrator. For
the year ended August 31, 2000, CSS received $15,890 from the Fund for its
services as administrator.
Custodian and Accounting Services
Pursuant to a Custodian Agreement with the Company dated October 28, 1998, as
amended 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. 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 which may be acquired and held by the Fund
outside the U.S. Such appointments are subject to appropriate review by the
Company's Board of Directors.
Pursuant to an Accounting Service Agreement dated July 1, 2000 (the "Accounting
Agreement"), Commonwealth Fund Accounting, Inc. ("CFA"), 1500 Forest Avenue,
Suite 100, Richmond, Virginia 23229, is responsible for accounting relating to
the Fund and its investment transactions; maintaining certain books and records
of the Fund; determining daily the net asset value per share of the Fund; and
preparing security position, transaction and cash position reports. CFA also
monitors periodic distributions of gains or losses on portfolio sales and
maintains a daily listing of portfolio holdings. CFA is responsible for
providing expenses accrued and payment reporting services, tax-related financial
information to the Company, and for monitoring compliance with the regulatory
requirements relating to maintaining accounting records. John Pasco, III,
Chairman of the Board of the Company, is a shareholder of of CFA, and is its
President and Chief Financial Officer. CFA received fees of $6,850 for the
fiscal year ended August 31, 2000.
Prior to July 1, 2000, Star Bank, 425 Walnut Street, P.O. Box 1118, Cincinnati,
Ohio 45201-1118, was the Fund's Custodian and Accounting Services Agent.
Transfer Agent.
Pursuant to a Transfer Agent Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI") acts as the Company's transfer and disbursing agent.
FSI is located at 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229. John
Pasco, III, Chairman of the Board of the Company and an officer and shareholder
of CSS (the Administrator of the Fund), owns one-third of the stock of FSI.
Therefore, FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions,
prospectuses and SAIs to shareholders. FSI disburses income dividends and
capital distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders. For the period ended
August 31, 1999, FSI received $10,948 from the Fund. For the year ended August
31, 2000, FSI received $13,139 from the Fund.
Distributor.
First Dominion Capital Corp. ("FDCC" or the "Distributor"), 1500 Forest Avenue,
Suite 223, Richmond, Virginia 23229, serves as the principal underwriter and
national distributor for the shares of the Fund pursuant to a Distribution
Agreement dated August 19, 1997. John Pasco, III, Chairman of the Board of the
Company, owns 100% of the Distributor, and is its President, Treasurer and a
Director. The Distributor is registered as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc. The offering of the Fund's
shares is continuous.
The Distributor received the following compensation as a result of the sale of
Fund shares:
Fiscal Year
or Period Net Underwriting Compensation on
Ended Discounts and Redemption Brokerage Other
August 31, Commissions and Repurchases Commissions Compensation(1)
----------- ---------------- --------------- ----------- ---------------
1999 $10,623 None None None
2000 $11,166 None None $6,965
(1) Fees received pursuant to the Fund's Distribution (12b-1) Plan.
Independent Accountants.
The Company's independent auditors, Tait, Weller & Baker, audit the Company's
annual financial statements, assist in the preparation of certain reports to the
U.S. Securities and Exchange Commission (the "SEC"), and prepare the Company's
tax returns. Tait, Weller & Baker is located at 8 Penn Center Plaza, Suite 800,
Philadelphia, Pennsylvania 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Manager and the Investment Adviser (together "the
Advisers"), 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 Advisers, the Advisers arrange 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 Advisers, when placing transactions, may allocate a portion of the Fund's
brokerage to persons or firms providing the Advisers with investment
recommendations, statistical, research or similar services useful to the
Advisers' investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) analyses and reports concerning issuers, industries,
securities, economic factors and trends, and portfolio strategy. Such services
are one of the many ways the Advisers can keep abreast of the information
generally circulated among institutional investors by broker-dealers. While this
information is useful in varying degrees, its value is indeterminable. Such
services received on the basis of transactions for the Fund may be used by the
Advisers for the benefit of the Fund and other clients, and the Fund may benefit
from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Advisers may authorize, 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 investment recommendations, or statistical,
research or similar services. Except for implementing the policy stated above,
there is no intention to place portfolio transactions with particular brokers or
dealers or groups thereof.
When two or more clients managed by the Manager or Investment Adviser are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated in a manner deemed equitable to each client. In some
cases this procedure could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. In other cases, however, the
ability to participate in volume transactions will be beneficial to the Fund.
The Board of Directors of the Company believes that these advantages, when
combined with other benefits available because of the Manager's and Investment
Adviser's organizations outweigh the disadvantages that may exist from this
treatment of transactions.
The Board of Directors of the Company has adopted policies and procedures
governing the allocation of brokerage to affiliated brokers. The Adviser has
been instructed not to place transactions with an affiliated broker-dealer,
unless that broker-dealer can demonstrate to the Company that the Fund will
receive (1) a price and execution no less favorable than that available from
unaffiliated persons, and (2) a price and execution equivalent to that which
that broker-dealer would offer to unaffiliated persons in a similar transaction.
The Board reviews all transactions which have been placed pursuant to those
policies and procedures at its Board meetings.
The Fund paid brokerage commissions as follows:
Years or periods ended August 31,
---------------------------------
1999 2000
---- ----
$5,803 $4,889
The Fund paid brokerage commissions to Wheat First Securities (an affiliated
broker-dealer) as follows:
Years or periods ended August 31,
---------------------------------
1999 2000
---- ----
$5,803 $4,606
One hundred percent (100%) of the Fund's aggregate brokerage commissions were
paid to Wheat First Securities during the period October 1, 1998 (commencement
of operations) through August 31, 1999. One hundred percent (100%) of the Fund's
aggregate dollar amount of transactions involving the payment of commissions
were effected through Wheat First Securities during fiscal year ended August 31,
1999 and 94% for fiscal year ended August 31, 2000.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales
orpurchases 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 the Fund
and may result in the realization of net capital gains, which would be taxable
to shareholders when distributed. The Advisers make purchases and sales for the
Fund's portfolio whenever necessary, in the Advisers' opinion, to meet the
Fund's objective. The Advisers anticipate that the average annual portfolio
turnover rate of the Fund will be less than 50%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 750,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has currently allocated
50,000,000 shares to the Fund and 350,000,000 shares to other series of the
Company. Each share of the Fund has equal dividend, voting, liquidation and
redemption rights and there are no preemptive rights and only such conversion or
exchange rights as the Board of Directors, in its discretion, may grant. Shares
of the Fund and of the other series of the Company do not have cumulative voting
rights, which means that the holders of more than 50% of the shares of the
Company 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 of the
Company will not be able to elect any person to the Board of Directors. Shares
will be maintained in open accounts on the books of FSI.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If the Directors create
additional series or classes of shares, shares of each series or class are
entitled to vote as a series or class only to the extent required by the 1940
Act or as permitted by the Directors. Upon the Company's liquidation, all
shareholders of a series would share pro-rata in the net assets of such series
available for distribution to shareholders of the series, but, as shareholders
of such series, would not be entitled to share in the distribution of assets
belonging to any other series.
A shareholder of the Fund 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,
including the payment of dividend and capital gains distributions and
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
DISTRIBUTION
Shares of the Fund are offered for sale on a continuous basis at the net asset
value per share plus the applicable sales load.
First Dominion Capital Corp. receives commissions consisting of that portion of
the sales load remaining after the discounts which it allows to investment
dealers. The Distributor retains 0.25% of the offering price on sales through
the dealer involving the maximum sales load. The aggregate dollar amount of
underwriting commissions and the amount retained by the Distributor was
$11,166, and $7,269, for the fiscal year ended August 31, 2000, and the
period ended August 31, 1999, respectively.
The Fund's public offering price ("POP") per share is equal to the net
assetvalue per share next determined after receipt of a purchase order plus a
sales load. The sales load is reduced on purchases involving large amounts and
may be eliminated entirely in certain circumstances described below.
Sales Charge As Percentage Of
----------------------------- Dealer Discount
Amount of Purchase at Offering Net Amount as Percentage of
the Public Offering Price Invested Offering Price
--------------------------------------------------------------------------------
$5,000 but under $100,000 2.75% 2.83% 2.25%
$100,000 but under $250,000 2.25% 2.30% 1.75%
$250,000 but under $500,000 1.50% 1.52% 1.25%
$500,000 but under $1 million 1.00% 1.01% 0.75%
$1 million or over 0.00% 0.00% 0.00%
There is a 1% redemption fee on shares that are held less than one year after
purchase.
In addition to the sales charge listed above, up to 0.50% of the Fund's average
daily net assets is paid annually to qualified dealers for providing certain
services (including services to retirement plans) pursuant to the Fund's Plan of
Distribution.
The Distributor may from time to time offer incentive compensation to dealers
(which sell shares of the Fund subject to sales charges) allowing such dealers
to retain an additional portion of the sales load. A dealer who receives all of
the sales load may be considered an underwriter of the Fund's shares.
In connection with promotion of the sales of the Fund, the Distributor may, from
time to time, offer (to all broker dealers who have a sales agreement with the
Distributor) the opportunity to participate in sales incentive programs (which
may include non-cash concessions). These non-cash concessions are in addition to
the sales load described in the Prospectus. The Distributor may also, from time
to time, pay expenses and fees required in order to participate in dealer
sponsored seminars and conferences, reimburse dealers for expenses incurred in
connection with pre-approved seminars, conferences and advertising, and may,
from time to time, pay or allow additional promotional incentives to dealers as
part of pre-approved sales contests.
Computation of Offering Price.
A hypothetical illustration of the computation of the offering price per shares,
using the value of the Fund's net assets and the number of outstanding shares at
the close of business on August 31, 2000 and the maximum front-end sales load of
2.75%, is as follows:
Fund
Net Assets $5,346,975
Outstanding Shares 456,593
Net Asset Value Per Share $ 11.71
Sales Load (2.75% of the
Offering price) $ 0.33
Offering Price to Public $ 12.04
Statement of Intention.
The reduced sales charges and public offering price set forth above and in the
prospectus apply to purchases of $250,000 or more made within a 13-month period
pursuant to the terms of a written Statement of Intention ("Statement") in the
form provided by the Distributor and signed by the purchaser. The Statement is
not a binding obligation of the purchaser to purchase the indicated amount.
Shares equal to 1.50% (declining to 0% after an aggregate of $1,000,000 has been
purchased under the Statement) of the dollar amount specified in the Statement
will be held in escrow and capital gain distributions on these escrowed shares
will be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Distributor the difference
between the sales charge actually paid and the sales charge which would have
been paid if the total purchases had been made at a single time. If the
difference is not paid within 20 days after written request by the Distributor
or the securities dealer, the appropriate number of escrowed shares will be
redeemed to pay such difference and any remaining amount of the sales charge not
paid by the escrowed shares will remain due and payable to the Distributor.
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 charges
on investments previously made during the 13-month period.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" (the "Plan") in accordance
with Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may finance
activities primarily intended to sell shares, provided that the categories of
expenses are approved in advance by the Board of Directors of the Company and
the expenses paid under the Plan are 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 up to 0.50% of the Fund's average daily net assets. The fee is paid to
the Distributor as reimbursement for expenses incurred for distribution-related
activity. For the year ended August 31, 2000, $21,588 of allowable distribution
expenses were incurred, of which $14,623 were waived.
SALES AT NET ASSET VALUE
The front end sales charge is waived for purchases by the following types of
investors: any financial institution or investment adviser regulated by Federal
or state governmental authority when the institution or investment adviser is
purchasing shares for its own account or for an account for which the
institution or investment adviser is authorized to make investment decisions
(i.e., a discretionary account); Directors, Officers and employees of the
Company, the Manager, the Investment Adviser, the Distributor, including members
of the Distributor's, the Investment Adviser's, and the Manager immediate
families and their retirement accounts or plans); Directors, Officers and
employees of the Fund's service providers; customers, clients or accounts of the
Manager, the Investment Adviser, or other investment advisers or financial
planners who charge a fee for their services, provided that shares purchased are
held in the omnibus account of the broker or agent placing the order; retirement
accounts or plans, or deferred compensation plans and trusts funding such plans
for which a depository institution, trust company or other fiduciary holds
shares purchased through the omnibus account of the broker or agent placing the
order; and Eligible Benefit Plans (see "Eligible Benefit Plans" on page_______.
The front end sales charge is also waived for any registered representatives,
employees, or principals of securities dealers (including members of their
immediate families) having a sales agreement with the Distributor.
The front end sales charge may also be waived for purchases made with the
redemption proceeds from other mutual fund companies on which you have
previously paid a front end sales charge or 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 Directors reserve the right to make payments in whole
or in part using securities or other assets of the Fund (if there is an
emergency, or if a cash payment would be detrimental to the existing
shareholders of the Fund). In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net asset and you may
incur brokerage fees as a result of converting the securities to cash. The
Company does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
Purchasing Shares.
The Fund reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund. Under certain circumstances the Company, the
Manager or the Investment Adviser may waive the minimum initial investment for
purchases by officers, Directors, and employees of the Company and its
affiliated entities and for certain related advisory accounts and retirement
accounts (such as IRAs). The Fund may also change or waive policies concerning
minimum investment amounts at any time.
Exchanging Shares.
If you request the exchange of the total value of your account from one fund to
another, we will reinvest any declared but unpaid income dividends and capital
gain distributions in the new fund at its net asset value. Backup withholding
and information reporting may apply. Information regarding the possible tax
consequences of an exchange appears in the tax section in this SAI.
If a substantial number of shareholders sell their shares of the Fund under the
exchange privilege, within a short period, the Fund may have to sell portfolio
securities that it would otherwise have held, thus incurring additional
transactional costs. Increased use of the exchange privilege may also result in
periodic large inflows of money. If this occurs, it is the Fund's general policy
to initially invest in short-term, interest-bearing money market instruments.
However, if the Investment Adviser believes that attractive investment
opportunities (consistent with the Fund's investment objective and policies)
exist immediately, then it will invest such money in portfolio securities in as
orderly a manner as possible.
The proceeds from the sale of shares of the Fund may not be available until the
third business day following the sale. The Fund you are seeking to exchange into
may also delay issuing shares until that third business day. The sale of Fund
shares to complete an exchange will be effected at net asset value of the Fund
next computed after your request for exchange is received in proper form. See
Buying, Redeeming, and Exchanging shares in the Prospectus.
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, or (2) 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. The Company's
procedure is to redeem shares at the NAV per share next determined after the
Transfer Agent receives the redemption request in proper order. A one percent
(1%) redemption fee is deducted from proceeds of Fund shares redeemed less than
one year after purchase. Payment will be made promptly, but no later than the
seventh day following the receipt of the request in proper order. The Company
may suspend the right to redeem shares for any period during which the NYSE is
closed or the U.S. Securities and Exchange Commission determines that there is
an emergency. In such circumstances you may withdraw your redemption request or
permit your request to be held for processing after the suspension is
terminated. The Advisers reserve the right to waive the redemption fee for their
clients.
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 $5,000. The Company will advise you in writing
sixty (60) 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 $5,000. The Company will not close your account if it
falls below $5,000 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 FSI.
The Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Automatic Investment Plan.
Any shareholder may utilize this feature which allows shareholders to make
automatic monthly investments into their Fund account. Upon your request, FSI
will withdraw a fixed amount each month from a shareholder's checking or savings
account and apply that amount to the purchase of additional shares of the Fund.
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
Automatic Investment Plan as desired by notifying FSI at (800) 628-4077.
Individual Retirement Account ("IRA").
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000 (or $2,250 with a spouse who is not a wage
earner, for years prior to 1997). A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules that govern
contributions made by individuals with earned income. A special IRA program is
available for corporate employers under which the employers may establish IRA
accounts for their employees in lieu of establishing corporate retirement plans.
Known as SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate
employer of many of the recordkeeping requirements of establishing and
maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer Federal Income Taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA.
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a 5-year period, beginning with the first tax year for which
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year.
An annual limit of $2,000 applies to contributions to regular and Roth IRAs. For
example, if a taxpayer contributes $2,000 to a regular IRA for a year, he or she
may not make any contribution to a Roth IRA for that year.
How to Establish Retirement Accounts.
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. You may wish to consult with your attorney or other tax
adviser for specific advice concerning your tax status and plans.
Exchange Privilege.
Shareholders may exchange their shares for shares of any other series of
the Company, provided the shares of the series the shareholder is exchanging
into are noticed for sale in the shareholder's state of residence. Each account
must meet the minimum investment requirements. Also, to make an exchange, an
exchange order must comply with the requirements for a redemption or repurchase
order and must specify the value or the number of shares to be exchanged. Your
exchange will take effect as of the next determination of the Fund's NAV per
share (usually at the close of business on the same day). FSI will charge your
account a $10 service fee each time you make such an exchange. The Company
reserves the right to limit the number of exchanges or to otherwise prohibit or
restrict shareholders from making exchanges at any time, without notice, should
the Company determine that it would be in the best interest of its shareholders
to do so. For tax purposes, an exchange constitutes the sale of the shares of
the Fund from which you are exchanging and the purchase of shares of the Fund
into which you are exchanging. Consequently, the sale may involve either a
capital gain or loss to the shareholder for federal income tax purposes. The
exchange privilege is available only in states where it is legally permissible
to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES.
Distributions of net investment income.
The Fund receive income generally in the form of dividends and interest on its
investments. This income, less expenses incurred in the operation of the Fund,
constitutes the Fund's net investment income from which dividends may be paid to
you. Any distributions by the Fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains.
The Fund may derive capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on the Fund.
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, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be 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 it distributes to you. The Board reserves the right
not to maintain the qualification of the Fund as a regulated investment company
if it determines such course of action to be beneficial to shareholders. In such
case, the Fund will be subject to federal, and possibly state, corporate taxes
on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires the 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.
Dividends received deduction for corporations.
Because the Fund's income includes corporate dividends, if the shareholder is a
corporation, a portion of its distributions may qualify for the intercorporate
dividends-received deduction. You will be permitted in some circumstances to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculations.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that
ofother mutual funds and to relevant indices in advertisements or in reports
toshareholders, 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.
The 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 the 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 the
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 the 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.
Based on the foregoing, the average annual total returns for the Fund for the
years or periods ended August 31, 2000 are as follows:
One Year Since
Period Ended Inception to
8/31/2000 8/31/2000
------------ ------------
(2.16%) 7.00%(1)
(1) Commencement of operations was October 1, 1998.
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $10,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by the various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of Non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's, Fortune, Money Magazine, The New York Times, Financial World,
Financial Services Week, USA Today and other national or regional publications.
Comparisons and Advertisements
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss, total return, or Fund volatility as reported by various financial
publications. Advertisements may also compare total return or volatility (as
calculated above) to total return or volatility as reported by other
investments, indices, and averages. The following publications, indices, and
averages may be used:
(a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks. Comparisons of performance
assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks
listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index - represents the return on the market value of
all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
(e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Analysis,
and Lipper Mutual Fund Indices - measures total return and average current
yield for the mutual fund industry. Ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.
(f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
(g) Mutual Fund Source Book and other material, published by Morningstar, Inc.
- analyzes price, yield, risk, and total return for equity funds.
(h) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Barron's, Financial Times, Investor's Business Daily, New
York Times, The Wall Street Journal, and Money magazines publications that
rate fund performance over specified time periods.
(i) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services, in major expenditure groups.
(j) Standard & Poor's 100 Stock Index - an unmanaged index based on the price
of 100 blue-chip stocks, including 92 industrials, one utility, two
transportation companies, and 5 financial institutions. The S&P 100 Stock
Index is a smaller more flexible index for option trading.
(k) Morgan Stanley Capital International EAFE Index - an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index of government
bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, United Kingdom and
United States gross of withholding tax.
(m) IFC Global Total Return Composite Index - An unmanaged index of common
stocks that includes 18 developing countries in Latin America, East and
South Asia, Europe, the Middle East and Africa (net of dividends
reinvested).
(n) Nomura Research, Inc. Eastern Europe an Equity Index - comprised of those
equities which are traded on listed markets in Poland, the Czech Republic,
Hungary and Slovakia (returns do not include dividends).
In assessing such comparisons of total return or volatility, an investor should
keep in mind that the composition of the investments in the reported indices and
averages in not identical to the Fund's portfolio, that the averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. In addition, there can be no assurance that the Fund will continue its
performance as compared to such other averages.
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 Annual Report for the fiscal year ended August 31, 2000 has been filed with
the U.S. Securities and Exchange Commission. The financial statements contained
in the Annual Report are incorporated by reference into this SAI. The financial
statements and financial highlights for the Fund included in the Annual Report
have been audited by the Fund's independent auditors, Tait, Weller and Baker,
whose report thereon also appears in such Annual Report and is also incorporated
herein by reference. No other parts of the Annual Report are incorporated herein
by reference. The financial statements in such Annual Report have been
incorporated herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
<PAGE>
PROSPECTUS
THE WORLD FUNDS, INC.
Third Millennium Russia Fund
Prospectus dated _____________________
This Prospectus describes the Third Millennium Russia Fund (the "Fund"), a
series of shares offered by The World Funds, Inc. (the "Company"). A series fund
offers you a choice of investments, with each series having its own investment
objective and a separate portfolio. The Fund seeks capital appreciation by
investing in a non-diversified portfolio of equity securities.
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Capital appreciation.
Principal Investment
Strategies: The Fund will seek to achieve its investment objective
by investing in a non-diversified portfolio consisting
primarily of equity securities or securities convertible
into equity securities, such as warrants, convertible
bonds, debentures or convertible preferred stock.
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 and you could
lose money. There is no assurance that the investment
adviser will achieve the Fund's objective.
Investments in Russian companies involve significant
risk not typically associated with investing in U.S.
securities and should be considered highly speculative.
These investments may involve financial, economic or
political risks not ordinarily associated with U.S.
securities. The Fund's NAV may be affected by: less
developed and effective systems for custody and
transfer of securities, changes in exchange rates
between foreign currencies and the U.S. dollar,
different regulatory standards, less liquidity and more
volatility than U.S. securities, taxes, and adverse
social or political developments.
The Fund operates as a non-diversified fund. As such,
the Fund may invest a larger portion of its assets in
fewer securities. This may cause the market action of
the Fund's larger portfolio positions to have a greater
impact on the Fund's NAV, which could result in
increased volatility.
An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other
government agency.
Investor Profile: You may want to invest in the Fund if you are seeking
capital appreciation and are willing to accept share
prices that may fluctuate, sometimes significantly,
over the short-term. You should not invest in the Fund
if you are not willing to accept the additional risks
associated with the investment policies of the Fund. The
Fund will not be appropriate if you are seeking
current income or are seeking safety of principal.
The bar chart and table below provide an
indication of the risks of investing in the Fund
by showing past performance of the Fund. Both
assume that all dividends and distributions are
reinvested in the Fund. The bar chart shows how
the Fund's performance has varied from one year
to another. The table compares the Fund's average
annual total returns for the periods ended
December 31, 2000 to the Moscow Times Index. Keep
in mind that past performance may not indicate
how well the Fund will perform in the future.
[bar chart goes here]
Third Millennium Russia Fund Total Return*
1999 150.68%
2000 ______%
* During the period shown in the bar chart, the highest return for a calendar
quarter was _________% (quarter ending ______) and the lowest return for a
calendar quarter was ______% (quarter ending __________).
[end bar chart]
Average Annual Total Returns
for the period ended December 31, 2000
---------------------------------------
Past Past Since Inception
One Year Three Years (October 1, 1998)
--------- ----------- ----------------
N/A
[INSERT PERFORMANCE DATA]
The Moscow Times Index described above is an unmanaged index. The Moscow Times
Index is an unmanaged index of the 50 most liquid and most highly capitalized
Russian stocks. The index performance in Russia and actual performance can vary
widely because of illiquidity and the wide spreads in stock trading. The Moscow
Times Index does not take this factor into consideration. The Moscow Times Index
is not adjusted to reflect expenses that the SEC requires to be reflected in the
Fund's performance.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you will pay directly
or indirectly in connection with an investment in the Fund. There are no sales
charges in connection with purchases or redemption of shares. The annual
operating expenses, which cover the costs of investment management,
administration, accounting and shareholder communications, are shown as an
annual percentage of the average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases None
Sales Charge (load) Imposed on Reinvested Dividends None
Redemption Fees(1) 2.00%(2)
Exchange Fees(3) None
Annual Operating Expenses (Expenses that are deducted from the Fund's assets)
Management Fee 1.75%
Distribution and Service (12b-1) Fees(4) 0.25%
Other Operating Expenses 1.10%
-----
Total Annual Fund Operating Expenses 3.10%
Fee Waiver and/or Expense Reimbursements (5) 0.35%
-----
Net Expenses 2.75%
(1) A shareholder electing to redeem shares by telephone request may be charged
$10 for each such redemption request.
(2) A 2% redemption fee is charged on shares held less than 360 days.
(3) A shareholder may be charged a $10 fee for each telephone exchange.
(4) The Company has approved a Plan of Distribution pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended (the "1940 Act") providing
for the payment of distribution fees to the distributor for the Fund. The
Fund pays a maximum distribution fee of 0.25% of average daily net assets.
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. See "Rule 12b-1 Fees".
(5) In the interest of limiting expenses of the Fund, Third Millennium
Investment Advisers LLC (the "Adviser") has entered into a contractual
expense limitation agreement with the Company. Pursuant to the agreement,
the Adviser has agreed to waive or limit its fees and to assume other
expenses so that the ratio of total annual operating expenses of the Fund
is limited to 2.75% until October 1, 2001.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly. Management
expects that, as the Fund increases in size, its Other Operating Expenses will
decline as an annual percentage rate reflecting economies of scale and its
management fee rate is reduced in three steps as certain asset levels are
reached. See "Management Organization and Capital Structure".
EXAMPLE
The following 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,
you reinvest all dividends and distributions in additional shares of the Fund
and then you redeem all of your shares at the end of the periods indicated.
Also, 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 (1) 3 Years (1) 5 Years (1) 10 Years (1)
---------- ----------- ----------- ------------
$478 $853 $1,454 $3,080
(1) These costs are net of fee waivers and reimbursements to maintain the
ratio of total annual operating expenses at 2.75% pursuant to an expense
limitation agreement (see "Management Organization and Capital Structure"
below).
Absent this commitment, your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$513 $957 $1,625 $3,411
OBJECTIVES AND STRATEGIES
The investment objective of the Fund is to achieve capital appreciation by
investing in a non-diversified portfolio consisting primarily of equity
securities or securities convertible into equity securities, such as warrants,
convertible bonds, debentures or convertible preferred stock.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in securities of companies located in Russia. Russia refers to the
Russian Federation, which does not include other countries that formerly
comprised the Soviet Union. In determining which portfolio securities to sell,
the Adviser considers the following: (1) if a stock appreciates such that, as a
total percentage of our portfolio, it becomes too large; (2) if the sector or
stock appears to be under-performing; (3) if the company management appears to
be engaging in conduct not in the best interest of public shareholders; (4) to
sell loss positions in order to reduce taxable gains to our shareholders
reflected in earlier sales of positions with gains; and, (5) to raise funds to
cover redemptions.
As used in this Prospectus, the term "Russian Company" means a legal entity (1)
that is organized under the laws of, or with a principal office in, Russia, (2)
for which the principal equity securities trading market is in Russia, (3) that
derives at least 50% of its revenues or profits from goods produced or sold,
investments made, or services performed, in Russia , or (4) that has at least
50% of its assets situated in Russia. Under current conditions, the Adviser
expects to maintain at least 20% of the Fund in cash and liquid investments to
maintain a degree of liquidity and provide more stability. As the Russian equity
markets develop and grow, the Adviser may elect greater equity exposure.
The Fund invests its assets over a broad economic spectrum of Russian Companies,
including issuers from the following sectors: oil and gas, energy generation and
distribution, communications, mineral extraction, trade (including retail trade
and distribution) financial and business services, transportation,
manufacturing, real estate, textiles, food processing and construction. The Fund
does not concentrate its investments in any industry and therefore it does not
invest more than 25% of its assets in any one industry.
The Fund is non-diversified under Federal securities laws and, therefore, may
invest a larger portion of its assets in fewer securities than a diversified
fund. This may cause the market action of the Fund's larger portfolio positions
to have a greater impact on the Fund's NAV, which could result in increased
volatility.
The Adviser's approach to selecting investments emphasizes fundamental
company-by-company analysis in conjunction with broader analysis of specific
sectors. When relevant, however, the Adviser may consider historical value
measures, such as price/earnings ratios, operating profit margins and
liquidation values. The primary factor in selecting securities for investment by
the Fund will be the company's current price relative to its long-term earnings
potential, or intrinsic value as determined using discounted cash flow analysis
and other valuation techniques, whichever are appropriate. In addition, the
Adviser will consider overall growth prospects, competitive positions in export
markets, technologies, research and development, productivity, labor costs, raw
material costs and sources, profit margins, returns on investment, capital
resources, state regulation, management and other factors in comparison to other
companies around the world which the Adviser believes are comparable. The
Adviser, in selecting investments, will also consider macroeconomic factors such
as inflation, GDP growth in Russia, government spending and the government's
support of particular industries.
The Fund's investments will include investments in companies which, while
falling within the definition of Russian Companies, as stated above, have
characteristics and business relationships common to companies in a country or
countries other than Russia. As a result, the value of the securities of such
companies may reflect economic market forces applicable to other countries, as
well as to Russia. For example, the Fund may invest in companies organized and
located in countries other than Russia, including companies having their entire
production facilities outside of Russia, when securities of such companies meet
one or more elements of the Fund's definition of Russian Company.
RISKS
Investing in Russian Companies involves significant risks and special
considerations not typically associated with investing in the United States
securities, and should be considered highly speculative, including:
* Greater social, economic and political uncertainty in general (including
risk of regional war).
* Delays in settling portfolio transactions and risk of loss arising out of
the system of share registration and custody.
* Risks in connection with the maintenance of Fund portfolio securities and
cash with Russian licensed sub-custodians and securities depositories.
* The risk that it may be more difficult or problematic to obtain and/or
enforce a legal judgment.
* The negative effects of public corruption and crime.
* Greater price volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets and traded securities.
* Adverse currency exchange rates and dearth of currency hedging instruments.
* Return of period of high rate of inflation (and any attendant social
unrest).
* The risk that, by investing significantly in a limited number of industry
sectors, the Fund may be more affected by any single economic, political or
regulatory development relating to a specific sector.
* Controls on foreign investment and local practices disfavoring investors in
general and/or foreign investors in particular, and limitations on
repatriation of invested capital, profits and dividends, and the Fund's
ability to exchange rubles for other currencies.
* The risk that the Government of Russia may decide not to continue to
support the economic reform programs implemented to date and to follow
instead radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries to the detriment of other sectors or
investors or a return to the centrally planned economy that previously
existed.
* The financial condition of Russian Companies, including large amounts of
inter-company debt, the lack of transparency and/or proper financial
reporting based on international accounting standards and the fact that
Russian Companies may be smaller, less seasoned and experienced in
financial reporting and in modern management in general.
* The difference in, or lack of, auditing and financial reporting standards
in general, which may result in the unavailability of material information
about issuers.
* The risk that dividends may be withheld at the source.
* Russia's dependency on export earnings and the corresponding importance of
international trade and prospect of declining currency earnings and
reserves and devaluation pressure on the ruble's exchange rate.
* The risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation.
* The fact that statistical information may be inaccurate or not comparable
to statistical information regarding the U.S. or other economies.
* Less extensive regulation of the securities markets than is the case in
other countries.
* The risks associated with the difficulties that may occur in pricing the
Fund's portfolio securities.
* Possible difficulty in identifying a purchaser of the Fund's securities due
to the undeveloped nature of the securities markets.
* The risk of lawsuits or government intervention arising from restrictive
regulations and practices with respect to foreign investment in particular
industries.
* The risk of nationalization or expropriation of assets or confiscatory
taxation, which may involve total loss of investments.
Stock Market Risk.
The Fund is subject to stock market risk. Stock market risk is the possibility
that stock prices overall will decline over short or long periods. Because stock
prices tend to fluctuate, the value of your investment in the Fund may increase
or decrease. The Fund's investment success depends of the skill of the Adviser
in evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the Fund may
not perform as anticipated.
Non-diversification.
The Fund is non-diversified under the 1940 Act. Under the 1940 Act, the Fund may
invest its assets in the securities of a smaller number of investments. In
addition, the Fund may invest more than 25% of its assets in what may be
considered a single industry sector or several closely related industries.
Accordingly, the Fund may be more susceptible to the effects of adverse
economic, political or regulatory developments affecting a single issuer or
industry sector than funds that diversify to a greater extent.
Depositary Receipts.
The Fund may invest indirectly in securities through sponsored American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other
types of Depositary Receipts (collectively "Depositary Receipts"), to the extent
such Depositary Receipts become available. ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company evidencing ownership of
underlying foreign securities. GDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, evidencing ownership of underlying
securities issued by either a foreign or a United States corporation.
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. For purposes of the
Fund's investment policies, investments in Depositary Receipts will be deemed to
be investments in the underlying securities.
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.
Temporary Defensive Positions.
During periods in which the Adviser believes changes in economic, financial or
political conditions make it advisable, the Fund may reduce its holdings in
equity securities and invest without limit in short-term (less than twelve
months to maturity) debt securities or hold cash. The short-term and medium-term
debt securities in which the Fund may invest consist of (a) obligations of the
U.S. or Russian governments, and their respective agencies or instrumentalities;
(b) bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of U.S. or foreign banks denominated in any
currency; (c) floating rate securities and other instruments denominated in any
currency issued by various governments or international development agencies;
and (d) finance company and corporate commercial paper and other short-term
corporate debt obligations of U.S or Russian companies. The Fund intends to
invest for temporary defensive purposes only in short-term and medium-term debt
securities rated, at the time of investment, A or higher by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Rating Group ("S&P") or, if
unrated by either rating agency, of equivalent credit quality to securities so
rated as determined by the Adviser. For purposes of the Fund's investment
restriction prohibiting the investment of 25% or more of the total value of its
assets in a particular industry, a foreign government (but not the United States
government) is deemed to be an "industry," and therefore investments in the
obligations of any one foreign government may not equal or exceed 25% of the
Fund's total assets. In addition, supranational organizations are deemed to
comprise an industry, and therefore investments in the obligations of such
organizations may not, in the aggregate, equal or exceed 25% of the Fund's total
assets.
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 1940 Act and is commonly known as a "mutual fund".
The Company has retained an adviser to manage all aspects of the investments of
the Fund.
Investment Adviser.
Third Millennium Investment Advisors LLC (the "Adviser"), 1185 Avenue of the
Americas, New York, New York 10036, manages the investments of the Fund pursuant
to an Investment Advisory Agreement (the "Advisory Agreement" ), dated December
21, 1999. The Adviser is responsible for effecting all security transactions on
behalf of the Fund, including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. In placing orders with brokers and
dealers, the Adviser will attempt to obtain the best price and execution of
orders. Prior to the Fund's inception, the Adviser had no previous experience
managing a mutual fund.
Under the Advisory Agreement, the Adviser provides the Fund with investment
management services, subject to the supervision of the Board of Directors, and
with office space, and pays the ordinary and necessary office and clerical
expenses relating to investment research, statistical analysis, supervision of
the Fund's portfolio and certain other costs. The Adviser also bears the cost of
fees, salaries and other remuneration of Company's directors, officers or
employees who are officers, directors, or employees of the Adviser. The Fund is
responsible for all other costs and expenses, such as, but not limited to,
brokerage fees and commissions in connection with the purchase and sale of
securities, legal, auditing, bookkeeping and recordkeeping services, custodian
and transfer agency fees and fees and other costs of registration of the Fund's
shares for sale under various state and federal securities laws.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1.75% on the first $125 million of average
net assets of the Fund; 1.50% on average net assets of the Fund in excess of
$125 million and not more than $250 million; and 1.25% on average net assets of
the Fund over $250 million. For the fiscal year ended August 31, 2000, the
Adviser waived fees of $39,287 and reimbursed expenses in the amount of $89,684.
In the interest of limiting the expense ratio of the Fund, the Adviser has
entered into a contractual expense limitation agreement with the Company.
Pursuant to the agreement, the Adviser has agreed to waive or limit its fees and
to assume other expenses so that the ratio of total annual operating expenses
for the Fund is limited to 2.75%. The limit does not apply to interest, taxes,
brokerage commissions, other expenditures capitalized in accordance with
generally accepted accounting principles or other extraordinary expenses not
incurred in the ordinary course of business.
The Adviser will be entitled to reimbursement of fees waived or reimbursed by
the Adviser to the Fund. The total amount of reimbursement recoverable by the
Adviser (the "Reimbursement Amount") is the sum of all fees previously waived or
reimbursed by the Adviser to the Fund during any of the previous five (5) years,
less any reimbursement previously paid by the Fund to the Adviser with respect
to any waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount. Such reimbursement must be
authorized by the Board of Directors.
The Fund's portfolio managers , since the inception of the Fund on October 1,
1998, are John T. Connor, Jr. and Alexei Moskvin. John T. Connor, Jr. is
Chairman of the Adviser, Vice President of the Company and a portfolio manager
of the Fund. Since 1993, Mr. Connor has been Chairman of ROSGAL, a Russian
financial company licensed by the Ministry of Finance of the Russian Federation,
and of its affiliate, Rosgal Insurance, an insurance company separately licensed
by the Ministry of Finance. Both companies have their principal business offices
on the same premises in Moscow, Russia. A Phi Beta Kappa, highest honors
graduate of Williams College, and a graduate of Harvard Law School, Mr. Connor
previously chaired the pension committee of a NYSE-listed company and authored
the lead article in an American Bar Association journal on "Russia's Securities
Markets" (Fall 1996). Alexei Moskvin, ROSGAL's Director of Equity Investment
since 1993 and a portfolio manager of the Fund. Mr. Moskvin received a PhD in
1985 from Novosibirsk State University and holds a Financial Broker and Money
Manager Certificate granted by the Ministry of Finance of the Russian
Federation. In addition, the Adviser may retain the services of other full-time
professionals in portfolio management. The portfolio managers operate under the
supervision of the Investment Committee, which is comprised of the two portfolio
managers and Mr. Melcher.
The Adviser also retains a consultant. The consultant is the former U.S.
Ambassador to the Soviet Union, Jack F. Matlock, Jr. The consultant will be
responsible for providing the portfolio managers with periodic updates on
political and macroeconomic conditions and trends in Russia and their potential
implications for the overall investment climate in Russia. These updates will
enhance the Adviser's ability to oversee and invest the assets of the Fund.
Ambassador Matlock is currently the George F. Kennan Professor at the Institute
for Advanced Study in Princeton, New Jersey. Ambassador in Moscow for four years
under Presidents Reagan and Bush, he earlier served in the Reagan White House as
Special Assistant to the President for National Security Affairs and served
three previous tours of duty in Moscow for a total of eleven years duty in the
Soviet Union. His book, Autopsy on an Empire, was published by Random House in
1995 and he has written extensively on Russia's modern history and politics. He
is a summa cum laude graduate of Duke University.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
Time) on each business day ("Valuation Time") that the NYSE is open. As of the
date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets, subtracting any liabilities and then dividing by
the total number of shares outstanding.
Shares are bought, 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 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.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost. Other assets for which market prices are
not readily available are valued at their fair value as determined in good faith
under procedures set by the Board of Directors. Depositary Receipts will be
valued at the closing price of the instrument last determined prior to the
Valuation Time unless the Company is aware of a material change in value.
Securities for which such a value cannot be readily determined on any day will
be valued at the closing price of the underlying security adjusted for the
exchange rate. The value of a foreign security is determined as of the close of
trading on the foreign exchange on which it is traded or as of the scheduled
close of trading on the NYSE, whichever is earlier. Portfolio securities that
are listed on foreign exchanges may experience a change in value on days when
shareholders will not be able to purchase or redeem shares of the Fund.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times.
PURCHASING SHARES
Investors can purchase Fund shares either directly from First Dominion Capital
Corp. ("FDCC" or the "Distributor") or through brokers or dealers who are
members of the National Association of Securities Dealers, Inc.
Share Transactions.
You may purchase and redeem Fund shares, or exchange shares of the Fund for
those of another, by contacting the Fund, a broker or dealer authorized by the
Distributor to sell shares of the Fund or by contacting Fund Services, Inc., the
Company's transfer and dividend disbursing agent (the "Transfer Agent"), at 1500
Forest Avenue, Suite 111, Richmond, Virginia 23229 or by telephoning (800)
628-4077. There are no sales charges in connection with purchasing shares of the
Fund. However, a broker or dealer may charge transaction fees for the purchase
or sale of Fund shares, depending on your arrangement with them.
Minimum Investments.
The minimum initial investment in the Fund is $1,000 and additional investments
must be in amounts of $100 or more. The Fund reserves the right to reject or
refuse, at their discretion, any order for the purchase of Fund shares in whole
or in part.
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 the Third Millennium Russia
Fund, c/o Fund Services, Inc., 1500 Forest Avenue, Suite 111, Richmond, Virginia
23229. See "Proper Form." Third party checks are not accepted for the purchase
of Fund shares.
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Fund at (800) 527-9525 or
the Transfer Agent at (800) 628-4077 to advise the Fund of your investment and
to receive further instructions. Your bank may charge you a small fee for this
service. Once you have arranged to purchase shares by wire, please complete and
mail the account application form promptly to the Transfer Agent. This
application is required to complete the Fund's records. You will not have access
to your shares until the Fund's records are complete. Once your account is
opened, you may make additional investments using the wire procedure described
above. Be sure to include your name and account number in the wire instructions
you provide your bank.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. Investment professionals
who offer shares may require payments of fees from their individual clients. If
you invest through a third party, the policies and fees may be different than
those described in this Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
Rule 12b-1 Fees.
The Board of Directors has adopted a Plan of Distribution for the Fund's shares
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan"). Pursuant to
the Rule 12b-1 Plan, 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 Distributor. The Fund
may pay distribution fees (the "rule 12b-1 Fee") at an annual rate of up to
0.25% of the Fund's average daily net assets. The Fund 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
expense 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.
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. A two percent
(2%) redemption fee is deducted from proceeds of Fund shares redeemed less than
three hundred sixty (360) days after purchase. Payment will be made promptly,
but no later than the seventh day following the receipt of the request in proper
order. The Company may suspend the right to redeem shares for any period during
which the NYSE is closed or the U. S. Securities and Exchange Commission (the
"SEC") determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identity of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail.
To redeem shares by mail, send a written request for redemption, signed by the
registered owner(s) exactly as the account is registered. Certain written
requests to redeem shares may require signature guarantees. For example,
signature guarantees may be required if you sell a large number of shares, if
your address of record on the account application has been changed within the
last 30 days, or if you ask that the proceeds to be sent to a different person
or address. Signature guarantees are used to help protect you and the Fund. You
can obtain a signature guarantee from most banks or securities dealers, but not
from a Notary Public. Please call the Transfer Agent at (800) 628-4077 to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid any processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you request this service
on your initial account application. If you request this service at a later
date, you must send a written request along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
amount of this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help protect you and the Fund from fraud, signature guarantees are required
for: (1) all redemptions ordered by mail if you require that the check be
payable to another person or that the check be mailed to an address other than
the one indicated on the account registration; (2) all requests to transfer the
registration of shares to another owner; and, (3) all authorizations to
establish or change telephone redemption service, other than through your
initial account application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or, (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and, (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229. The Transfer Agent
cannot honor guarantees from notaries public, savings and loan associations, or
savings banks.
Proper Form.
Your order to buy shares is in proper form when your completed and signed
account application and check or wire payment is received. Your written request
to sell or exchange shares is in proper form when written instructions signed by
all registered owners, with a signature guarantee if necessary, is received.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Fund may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Fund will advise you in writing
thirty (30) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Fund will not close your account if it
falls below $1,000 solely because of a market decline. The Adviser and the
Distributor reserve the right to waive this fee for their clients.
Automatic Investment Plan.
Existing shareholders, who wish to make regular monthly investments in amounts
of $100 or more, may do so through the Automatic Investment Plan. Under the
Plan, your designated bank or other financial institution debits a
pre-authorized amount from your account on or about the 15th day of each month
and applies the amount to the purchase of shares. To use this service, you must
authorize the transfer of funds by completing the Plan Section of the account
application and sending a blank voided check.
Exchange Privileges.
You may exchange all or a portion of your shares for the shares of certain other
funds having different investment objectives, provided the shares of the fund
you are exchanging into are registered for sale in your state of residence.
Your account may be charged $10 for a telephone exchange fee. An exchange is
treated as a redemption and a purchase and may result in realization of a gain
or loss on the transaction.
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 the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Other distributions (including distributions
attributable to short-term capital gains of the Fund) will generally be taxable
to you as ordinary income. 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 the Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of the Fund for shares of a different fund
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. The one major exception to
these principles is that distributions on, and sales, exchanges and redemptions
of, shares held in an IRA (or other tax deferred retirement account) will not be
currently taxable. Non-U.S. investors may be subject to U.S. withholding and
estate tax. You should consult with your tax adviser about the federal, state,
local or foreign tax consequences of your investment in the Fund.
By law, the Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the Internal Revenue Service (the "IRS") has
notified you that you are subject to backup withholding and instructs the Fund
to do so.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the period presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon, along with the Fund's financial statements, are included in the
Fund's Annual Report to Shareholders (the "Annual Report") and are incorporated
by reference into the SAI. Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHTOUT EACH PERIOD
Year ended Period ended
August 31, 2000 August 31, 1999*
--------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $14.17 $10.00
------ ------
Income from investment operations-
Net investment loss (0.40)
(0.16)
Net realized and unrealized gain 12.93 4.33
------ ------
Total from investment operations 12.53 4.17
------ ------
Less distributions-
Distributions from net investment -- --
Distributions from realized gains (0.33) --
------ ------
Total distributions (0.33) --
------ ------
Net asset value, end of period $26.37 $14.17
====== ======
Total Return 90.33%
41.70%
====== ======
Ratios/Supplemental Data
Net assets, end of period (000's) $2,871 $1,313
Ratio of expenses to average net assets
Ratio to average net assets (A)
Expenses (B) 3.10% 2.75%**
Expense ratio - net (C) 2.75% 2.75%**
Net investment loss (1.96%) (2.08%)**
Portfolio turnover rate 68.88% 14.43%
* Commencement of operations was October 1, 1998
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net
investment income ratio by 5.75% for the year ended August 31, 2000 and
13.18% for the period ended August 31, 1999.
(B) Expense ratio has been increased to include custodial fees which were
offset by custodian fee credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers and
custodian fee credits the Fund received.
<PAGE>
You'll find more information about the Fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Fund's SAI
dated _______________, which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
THIRD MILLENNIUM RUSSIA FUND
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of the Third Millennium
Russia Fund (the "Fund") dated _________________. 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 or by calling (800) 527-9525.
The Fund's audited financial statements and notes thereto for the year ended
August 31, 2000 and the unqualified report of Tait, Weller & Baker, the Fund's
independent auditors, on such financial statements are included in the Fund's
Annual Report to Shareholders for the year ended August 31, 2000 (the "Annual
Report") and are incorporated by reference into this SAI. No other parts of the
Annual Report are incorporated herein. A copy of the Annual Report accompanies
this SAI and an investor may obtain a copy of the Annual Report, free of charge,
by writing to the Fund or calling (800) 527-9525
The date of this SAI is ________________________.
<PAGE>
TABLE OF CONTENTS
PAGE
General Information
Investment Objective
Strategies and Risks
Investment Programs
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Policies Concerning Personal Investment Activities
Investment Adviser and Advisory Agreement
Management-Related Services
Portfolio Transactions
Portfolio Turnover
Capital Stock and Dividends
Additional Information about Purchases and Sales
Tax Status
Investment Performance
Financial Information
<PAGE>
GENERAL INFORMATION
The World Funds, Inc. (the "Company") was organized as a Maryland corporation in
May, 1997. The Company is an open-end, management investment company (commonly
known as a "mutual fund"), registered under the Investment Company Act of 1940,
as amended (the "1940 Act"). This SAI relates to the Third Millennium Russia
Fund (the "Fund"). The Fund is a separate investment portfolio or series of the
Company that invests in a non-diversified portfolio of securities and other
assets.
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 without shareholder approval.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve capital appreciation by
investing in a non-diversified portfolio consisting primarily of equity
securities or securities convertible into equity securities, such as, warrants,
convertible bonds, debentures or convertible preferred stock. Under normal
conditions, the Fund will invest at least 65% of its total assets in securities
of companies located in Russia or securities of a "Russian Company" as that term
is defined in the Prospectus.
All investments entail some market and other risks. For instance, there is no
assurance that the investment adviser will achieve the investment objective of
the Fund. You should not rely on an investment in the Fund as a complete
investment program.
STRATEGIES AND RISKS
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the 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
Convertible Securities.
The Fund may invest in convertible securities. Traditional convertible
securities include corporate bonds, notes and preferred stocks that may be
converted into or exchanged for common stock or other equity securities, and
other securities that also provide an opportunity for equity participation.
These securities are convertible either at a stated price or a stated rate (that
is, for a specific number of shares of common stock or other equity securities).
As with other fixed income securities, the price of a convertible security
generally varies inversely with interest rates. While providing a fixed income
stream, a convertible security also affords the investor an opportunity, through
its conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
higher yield or capital appreciation. In such situations, the price of a
convertible security may be greater than the value of the underlying common
stock.
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.
Debentures.
Debentures are a general debt obligation backed only by the integrity of the
borrower and documented by an agreement called an Indenture. An unsecured bond
is a debenture.
Preferred Stock.
Preferred stock is a class of capital stock that pays dividends at a specified
rate and that has preference over common stock in the payment of dividends and
the liquidation of assets. Preferred stock does not ordinarily carry voting
rights. Most preferred stock is cumulative; if dividends are passed (not paid
for any reason), they accumulate and must be paid before common stock dividends.
Passed dividend on non-cumulative preferred stock is generally gone forever.
Participating preferred stock entitles its holders to share in profits above and
beyond the declared dividend, along with common shareholders, as distinguished
from nonparticipating preferred, which is limited to stipulated dividend.
Adjustable rate preferred stock pays a dividend that is adjustable, usually
quarterly, based on changes in the Treasury bill rate or other money market
rates. Convertible preferred stock is exchangeable for a given number of common
shares and thus tends to be more volatile than non-convertible preferred, which
behaves more like a fixed-income bond.
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.
Debt Securities.
The Fund may invest in debt securities. It generally will invest in securities
rated Baa or higher by Moody's Investor Service, Inc. ("Moody's") or BBB or
higher by Standard & Poor's Rating Group ("S&P") or foreign securities not
subject to standard credit ratings, which the investment adviser believes are of
comparable quality. Under normal circumstances, the Fund will have at least 65%
of its assets invested in common stocks or securities convertible into common
stocks.
Debt securities consist of bonds, notes, government and government agency
securities, zero coupon securities, convertible bonds, asset-backed and
mortgage-backed securities, and other debt securities whose purchase is
consistent with the Fund's investment objective. The Fund's investments may
include international bonds that are denominated in foreign currencies,
including the European Currency Unit or "Euro." International bonds are defined
as bonds issued in countries other than the United States. The Fund's
investments may include debt securities issued or guaranteed by supranational
organizations, corporate debt securities, and bank or holding company debt
securities.
Strategic Transactions.
The investment adviser does not, as a general rule, intend to regularly enter
into strategic transactions for the purpose of reducing currency and market
risk, for two reasons. First, since financial derivatives in Russian markets
currently must be tailor-made to the Fund's specifications, they are extremely
costly and illiquid instruments, and as such do not offer a cost-effective way
to minimize currency and market risk. Second, the Fund is intended for investors
with a long-term investment horizon and it is the investment adviser's hope that
any short-term losses due to fluctuations in local currencies or stock market
values will be compensated over the long term by the capital appreciation of the
portfolio securities. Notwithstanding the foregoing, the investment adviser may,
from time-to-time as circumstances dictate, engage in strategic transactions as
described below.
Currency Transactions.
Currency risk is assessed separately from equity analysis. To balance
undesirable currency risk the Fund may enter into forward contracts to purchase
or sell foreign currencies in anticipation of the Fund's currency requirements,
and to protect against possible adverse movements in foreign exchange rates.
Although such contracts may reduce the risk of loss due to a decline in the
value of the currency which is sold, they also limit any possible gain which
might result should the value of the currency rise. Foreign investments which
are not U.S. dollar denominated may require the Fund to convert assets into
foreign currencies or convert assets and income from foreign currencies to
dollars. Normally, exchange transactions will be conducted on a spot or cash
basis at the prevailing rate in the foreign exchange market.
However, the investment policies permit the Fund to enter into forward foreign
currency exchange contracts and other currency transactions in order to provide
protection against changes in foreign exchange rates, as further described
below. Any transactions in foreign currencies will be designed to protect the
dollar value of the assets composing or selected to be acquired or sold for the
investment portfolio of the Fund; the Fund will not speculate in foreign
currencies.
If the Fund enters into a currency hedging transaction, it will comply with the
asset segregation requirements described below.
The Fund may purchase and write covered call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
securities. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, the Fund may forfeit the entire
amount of the premium plus related transaction costs. In connection with such
transactions, the Fund will segregate assets sufficient to meet its obligations.
When the Fund's obligation is denominated in a foreign currency, the Fund will
own that currency or assets denominated in that currency, or a currency or
securities which the investment adviser anticipates will move along with the
hedged currency.
The Fund may enter into contracts for the purchase or sale for future delivery
of foreign currencies ("foreign currency futures"). This investment technique
will be used only to hedge against anticipated future changes in exchange rates
which otherwise might adversely affect the value of the portfolio securities or
adversely affect the prices of securities that the Fund intends to purchase or
sell at a later date. The successful use of currency futures will usually depend
on the investment adviser's ability to forecast currency exchange rate movements
correctly. Should exchange rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of foreign currency futures or may actually
realize losses.
The Fund is authorized to use financial futures, currency futures, and options
on such futures for certain hedging purposes subject to conditions of regulatory
authorities (including margin requirements) and limits established by the
Company's Board of Directors to avoid speculative use of such techniques.
The Fund may engage in currency transactions with counterparties in order to
hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value. The Fund's currency transactions may
include forward currency contracts, exchange-listed currency futures,
exchange-listed and over-the-counter ("OTC") options on currencies and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a specified price set at the time of the
contract.
The Fund's dealings in forward currency contracts will be limited to hedging
involving either specific transactions or portfolio positions. In specific
transaction hedging, the Fund enters into a currency transaction with respect to
specific assets or liabilities of the Fund, in connection with the purchase or
sale of its portfolio securities or the receipt of income therefrom. In position
hedging, the Fund enters into a currency transaction with respect to portfolio
security positions denominated or generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Cross Hedging.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Proxy Hedging.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the U.S. dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and buying U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the investment adviser concludes that the Japanese
yen is linked to the Euro, the Fund holds securities denominated in yen and the
investment adviser believes that the value of yen will decline against the U.S.
dollar, the investment adviser may enter into a contract to sell Euros and buy
U.S. dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions are subject to certain risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These government actions can result in
losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause the Fund's hedges to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Currency exchange rates for a country's currency may fluctuate based on
factors extrinsic to that country's economy.
Use of Segregated and Other Special Accounts.
Many strategic transactions and currency transactions, in addition to other
requirements, require that the Fund segregate cash or liquid high grade
securities with its custodian to the extent the Fund's obligations are not
otherwise "covered" through the ownership of the underlying security, financial
instruments or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund on foreign
currencies will require the Fund to hold the currencies subject to the call or
to segregate cash or liquid high grade securities sufficient to purchase and
deliver the currencies if the call is exercised. A currency contract which
obligates the Fund to buy or sell currency will generally require the Fund to
hold an amount of that currency or to segregate cash or liquid high grade
securities equal to the amount of the Fund's obligation.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund also enter into offsetting transactions
so that its combined position, coupled with any segregated assets, equals its
net outstanding obligation in related options and strategic transactions. For
example, if the Fund held a forward contract, instead of segregating assets, the
Fund could purchase a put option on the same forward contract with a strike
price as high or higher than the price of the contract held. Other strategic
transactions may also be offered in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction, no segregation is
required, but if the offsetting transaction terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Russian Government T-Bills ("GKOs").
To the extent that the Fund's assets are not invested in Russian equity
securities, and to provide liquidity, the Fund's assets may be invested in: (i)
debt securities issued by Russian companies or issued or guaranteed by the
Russian Government (such as its T-Bills or so-called "GKOs") or a Russian
governmental entity, as well as debt securities of governmental issuers outside
Russia; (ii) equity securities of issuers outside Russia which the Adviser
believes will experience growth in revenue and profits from participation in the
development of the economies of the Commonwealth of Independent States ("CIS");
and (iii) short-term debt securities of the type described under Other Principal
Risks-Temporary Investments in the Fund's Prospectus. The Fund may invest in
debt securities that the investment adviser believes, based upon factors such as
relative interest rate levels and foreign exchange rates, offer opportunities
for long-term capital appreciation. It is likely that many of the debt
securities in which the Fund will invest will be unrated and, whether or not
rated, the debt securities may have speculative characteristics. Under present
economic and political conditions in Russia, the Fund does not intend to invest
in GKOs.
Initial Public Offerings.
The Fund may participate in the initial public offering ("IPO") market, and a
portion of the Fund's returns may be attributed to IPO investments; the impact
on the Fund's performance of IPO investments will be magnified if the Fund has a
small asset base. Although the IPO market in recent years has been strong, there
is no guarantee that it will continue to be so or that suitable IPO's will be
available and, as the Fund's assets grow, there is no guarantee that the impact
of IPO investing will produce positive performance.
Other Investments.
The Board of Directors may, in the future, authorize the Fund to invest in
securities other than those listed in this SAI and in the Prospectus, provided
that such investments would be consistent with the Fund's investment objective
and that such investments 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. All other investment policies and practices
described in this Prospectus are not fundamental, meaning that the Board of
Directors may change them without the approval of shareholders. As a matter of
fundamental policy, the Fund may not:
1. As to 50% of its assets, purchase the securities of any issuer (other than
obligations issued or guaranteed as to principal and interest by the
Government of the United States or any agency or instrumentality thereof),
if as a result of such purchase, more than 5% of its total assets would be
invested in the securities of such issuer.
2. Purchase stock or securities of an issuer (other than the obligations of
the United States or any agency or instrumentality thereof), if such
purchase would cause the Fund to own more than 10% of any class of the
outstanding voting securities of such issuer or, more than 10% of any class
of the outstanding stock or securities of such issuer.
3. 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, or any foreign law restricting
distribution of securities in a country of a foreign issuer.
4. Buy or sell commodities or commodity contracts, provided that the Fund may
utilize not more than 1% of its assets for deposits or commissions required
to enter into forward foreign currency contracts, and financial futures
contracts for hedging purposes as described in the Prospectus. (Such
deposits or commissions are not required for forward foreign currency
contracts).
5. Borrow money except 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. Notwithstanding the foregoing, to avoid the
untimely disposition of assets to meet redemptions, the Fund may borrow up
to 33 1/3%, of the value of its assets to meet redemptions, provided that
it may not make other investments while such borrowings are outstanding.
6. Make loans, except that the Fund may (1) lend portfolio securities; and (2)
enter into repurchase agreements secured by U.S. Government securities.
7. Invest more than 25% of its total assets in securities of one or more
issuers having their principal business activities in the same industry,
provided that there is no limitation with respect to investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
8. 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.
9. Invest in interests in oil, gas, or other mineral explorations or
development programs.
10. Issue senior securities.
11. Participate on a joint or a joint and several basis in any securities
trading account.
12. Purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities).
13. Invest in companies for the purpose of exercising control.
14. Purchase securities on margin, except that it may utilize such short-term
credits as may be necessary for clearance of purchases or sales of
securities.
15. Engage in short sales.
In applying the fundamental policy and restriction concerning concentration set
forth above (i.e., not investing more than 25% of total assets in one industry):
(1) 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.
Non-Fundamental Policies and Restrictions.
In addition to the fundamental policies and investment restrictions described
above, and the various general investment policies described in the Prospectus
and elsewhere in the SAI, the Fund will be subject to the following investment
restrictions, which are considered non-fundamental and may be changed by the
Board of Directors without shareholder approval. As a matter of non-fundamental
policy, the Fund may not:
1. Invest more than 15% of its net assets in illiquid securities.
Except with respect to the Fund's investment restriction concerning borrowing,
if a percentage restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Investment Programs" above is adhered to at
the time an investment is made, a later change in percentage resulting from
changes in the value or the total cost of the Fund's assets will not be
considered a violation of the restriction.
MANAGEMENT OF THE COMPANY
Directors and Officers.
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages 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 Director who is considered "
an interested person" as defined in Section 2(a)(19) of the 1940 Act, as well as
those persons affiliated with any investment manager or adviser to a fund of the
Company, and the principal underwriter, and officers of the Company, are noted
with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
--------------------------------------------------------------------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,
(55) ("CSS") the Company's Administrator,
since 1985; President and Director
of First Dominion Capital Corp.,
("FDCC") the Company's underwriter.
Director and shareholder of Fund
Services Inc., the Company's
Transfer and Disbursing Agent,
since 1987; shareholder of
Commonwealth Fund Accounting, Inc.,
which provides bookkeeping services;
and Chairman, Director and Treasurer
of Vontobel Funds, Inc., a
registered investment company
since March, 1997. Mr. Pasco is
also a certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations and
Potomac, MD 20854 Accounting Division of the
(60) Potomac Electric Power Company
since August, 1978; and Director of
Vontobel Funds, Inc., a registered
investment company since March,
1997. Mr. Boyd is also a certified
public accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm
Bethesda, MD 20816 Management Consulting for
(64) Professionals since 1968; Director
of Vontobel Funds, Inc., a
registered investment company since
March, 1997. Mr. Poist is also a
certified public accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Drive Alfred J. Dickinson, Inc. Realtors
Richmond, VA 23229 since April, 1971; and Director of
(53) Vontobel Funds, Inc. a registered
investment company since March,
1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of CSS and
8002 Discovery Drive FDCC since 1986; Secretary of
Suite 101 Vontobel Funds, Inc., a registered
Richmond, VA 23229 investment company since March,
(57) 1997; and Partner in the law firm
Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the President
3000 Sand Hill Road the Company and of Sand Hill Advisors, Inc.
Suite 150 President of the since August, 2000 and was the
Menlo Park, CA 94025 Sand Hill Portfolio Executive Vice President
(52) Manager Fund series of Sand Hill Advisors, Inc. since
1982.
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a
San Francisco, CA 94104 Fixed Income Fund Partner in the law firm Taylor &
(54) Faust since September, 1975.
*Franklin A.Trice,III Vice President of Mr. Trice is President of
P.O. Box 8535 the Company and Virginia Management Investment
Richmond, VA 23226-0535 President of the Corp. since May, 1998; and a
(37) New Market Fund registered representative of
series FDCC, the Company's underwriter
since September, 1998. Mr. Trice
was a broker with Scott &
Stringfellow from March, 1996 to
May, 1998 and with Craigie, Inc.
from March, 1992 to January, 1996.
*John T. Connor, Jr. Vice President of President of Third Millennium
515 Madison Ave., the Company and Investment Advisors, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial
(59) Russia Fund series company and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 610 President of since July, 1990; and President
Gaithersburg, MD 20878 GenomicsFund.com of xGENx, LLC since November, 1999.
(54) and Newby's ULTRA
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994.
Suite 200 series In his six years with IAAC, he has
Winter Park, FL 32789 served as a Financial Adviser, VP
(41) 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 company since
West Hartford, CT 06197 November, 1998. Prior to founding
(42) 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.
The Company does not compensate the Directors and officers who are officers
or employees of any investment adviser to a fund of the Company. 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. As of December 31,
2000 the officers and Directors, individually and as a group, owned beneficially
less than 1% of the outstanding shares of the Funds.
For the fiscal year ended August 31, 2000, the Directors received the following
compensation from the Company:
Aggregate Compensation Total
Name and From the Fund for Pension or Retirement Compensation
Position Fiscal Year Ended Benefits Accrued as from the
Held August 31, 2000(1) Part of Fund Expenses Company(2)
-------- ---------------------- --------------------- -------------
John Pasco,III, $-0- N/A $-0-
Director
Samuel Boyd, Jr., $2,400 N/A $12,933
Director
William E. Poist, $2,400 N/A $12,933
Director
Paul M. Dickinson, $2,400 N/A $12,933
Director
(1) This amount represents the aggregate amount of compensation paid to the
Directors by the Fund for service on the Board of Directors for the Fund's
fiscal year ended August 31, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds of the Company for the fiscal year ended August 31,
2000. The Company consists of a total of eight funds as of August 31, 2000.
PRINCIPAL SECURITIES HOLDERS
As of December 31, 2000 the following persons owned of record or beneficially
shares of the Fund in the following amounts:
[UPDATE INFORMATION]
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, investment adviser and principal underwriter have each adopted a Codes
of Ethics, pursuant to Rule 17j-1 under the 1940 Act that permit investment
personnel, subject to their particular code of ethics, to invest in securities,
including securities that may be purchased or held by the Fund, for their own
accounts.
The Codes of Ethics are on file with, and can be reviewed and copied at the
U. S. Securities and Exchange Commission's (the "SEC") Public Reference Room in
Washington, D.C. In addition, the Codes of Ethics are also available on the
EDGAR Database on the SEC's Internet website at http://www.sec.gov.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Third Millennium Investment Advisors LLC (the "Adviser"), 1185 Avenue of
the Americas, New York, New York 10036, manages the investments of the Fund. The
Adviser is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended. The Adviser is an independent, privately-held corporation.
Mr. John T. Connor, Jr., Vice President of the Company and President of the
Fund, is President of the Adviser. The Adviser provides investment advisory
services pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
dated December 21, 1999. The Advisory Agreement is effective for a period of two
years from December 21, 1999, and may be renewed annually provided such renewal
is approved annually by: 1) the Company's Board of Directors; or 2) by a
majority vote of the outstanding voting securities of the Fund and a majority of
the Directors who are not "interested persons" of the Company. The Advisory
Agreements will automatically terminate in the event of their "assignment," as
that term is defined in the 1940 Act, and may be terminated without penalty at
any time upon 60 days' written notice to the other party by: (i) the majority
vote of all the Directors or by vote of a majority of the outstanding voting
securities of the Fund; or (ii) the Adviser.
Under the Advisory Agreement, the Adviser, subject to the supervision of the
Directors, provides a continuous investment program for the Fund, including
investment research and management with respect to securities, investments and
cash equivalents, in accordance with the Fund's investment objective, policies,
and restrictions as set forth in the Prospectus and this SAI. The Adviser is
responsible for effecting all security transactions on behalf of the Fund,
including the allocation of principal business and portfolio brokerage and the
negotiation of commissions. The Adviser also maintains books and records with
respect to the securities transactions of the Fund and furnishes to the
Directors such periodic or other reports as the Directors may request.
Under the Advisory Agreement, the monthly compensation paid to the Adviser
is accrued daily at an annual rate of 1.75% on the first $125 million of average
daily net assets of the Fund; 1.50% on average daily net assets of the Fund in
excess of $125 million and not more than $250 million; and, 1.25% on average
daily net assets of the Fund over $250 million. For the period from October 1,
1998 (commencement of operations) through August 31, 1999, the Adviser did not
receive any compensation, waived fees of $12,305 and reimbursed expenses of
$81,553. For the fiscal year ended August 31, 2000, the Adviser did not receive
any compensation, waived fees of $39,287 and reimbursed expenses of $89,684.
In the interest of limiting expenses of the Fund, the Adviser has entered into a
contractual expense limitation agreement with the Company. Pursuant to the
agreement, the Adviser has agreed to waive or limit its fees and to assume other
expenses, until October 1, 2001, so that the ratio of total annual operating
expenses of the Fund is limited 2.75%. The limit does not apply to interest,
taxes, brokerage commissions, other expenditures capitalized in accordance with
generally accepted accounting principles or other extraordinary expenses not
incurred in the ordinary course of business. The Adviser will be entitled to
reimbursement of fees waived or reimbursed by the Adviser to the Fund. The total
amount of reimbursement recoverable by the Adviser (the "Reimbursement Amount")
is the sum of all fees previously waived or reimbursed by the Adviser to the
Fund during any of the previous five (5) years, less any reimbursement
previously paid by the Fund to the Adviser with respect to any waivers,
reductions, and payments made with respect to the Fund. The Reimbursement Amount
may not include any additional charges or fees, such as interest accruable on
the Reimbursement Amount. Such reimbursement must be authorized by the
Directors.
Pursuant to the terms of the Advisory Agreement, the Adviser pays all expenses
incurred by it in connection with its activities thereunder, except the cost of
securities (including brokerage commissions, if any) purchased for the Fund. The
services furnished by the Investment Adviser under the Advisory Agreement are
not exclusive, and the Investment Adviser is free to perform similar services
for others.
MANAGEMENT-RELATED SERVICES
Administration.
Pursuant to an Administrative Services Agreement with the Company dated
September 21, 1998 (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 Adviser. John Pasco, III, Chairman of
the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% of average daily net assets of the
Fund. CSS also receives an hourly rate, plus certain out-of-pocket expenses, for
shareholder servicing and state securities law matters.
As provided in the Administrative Agreement, the Fund reimbursed CSS $18,899 and
$18,584 for the fiscal year ended August 31, 2000 and for the period from
October 1, 1998 (commencement of operations) through August 31 1999,
respectively.
Custodian and Accounting Services.
Pursuant to the Custodian Agreement and Accounting Agency Agreement with the
Company dated August 19, 1997, 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 ("DTC") as its agent to secure a portion of the assets of the Fund. BBH is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities acquired and held by the Fund outside the U.S.
Such appointments are subject to appropriate review by the Company's Directors.
As the accounting services agent of the Fund, BBH maintains and keeps current
the books, accounts, records, journals or other records of original entry
relating to the Fund's business.
Transfer Agent.
Pursuant to a Transfer Agent Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI" or the "Transfer Agent") acts as the Company's
transfer and disbursing agent. FSI is located at 1500 Forest Avenue, Suite 111,
Richmond, Virginia 23229. John Pasco, III, Chairman of the Board of the Company
and an officer and shareholder of CSS (the Administrator of the Funds), owns
one-third of the stock of FSI; therefore, FSI may be deemed to be an affiliate
of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. FSI disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
As provided in the Transfer Agent Agreement, the Fund reimbursed FSI $10,222 and
$5,541 for the year ended August 31, 2000 and for the period from October 1,
1998 (commencement of operations) through August 31 1999, respectively.
Distributor.
First Dominion Capital Corp. ("FDCC" or the "Distributor"), located at 1500
Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as the principal
underwriter and national distributor of the Fund's shares pursuant to a
Distribution Agreement dated August 19, 1997. John Pasco, III, Chairman of the
Board of the Company, owns 100% of FDCC, and is it President, Treasurer and a
Director. FDCC is registered as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. The offering of the Fund's shares is
continuous.
FDCC does not receive underwriting discounts and commissions, brokerage
commissions or other compensation as a result of the sale of the Fund's shares.
Independent Accountants.
The Company's independent auditors, Tait, Weller and Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the SEC, and prepares the Company's tax returns. Tait, Weller & Baker is located
at 8 Penn Center Plaza, Suite 800, Philadelphia, Pennsylvania 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Adviser, in placing orders for the purchase and sale of
the Fund's securities, to seek to obtain the best price and execution for
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange,
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of the Fund's
brokerage to persons or firms providing the Adviser with investment
recommendations, statistical, research or similar services useful to the
Adviser's investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) furnishing analysis and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Adviser can keep abreast of the
information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions for the
Fund may be used by the Adviser for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser may be authorized, when placing
portfolio transactions for the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Directors of the Company have adopted policies and procedures governing the
allocation of brokerage to affiliated brokers. The Adviser has been instructed
not to place transactions with an affiliated broker-dealer, unless that
broker-dealer can demonstrate to the Company that the Fund will receive (1) a
price and execution no less favorable than that available from unaffiliated
persons; and (2) a price and execution equivalent to that which that
broker-dealer would offer to unaffiliated persons in a similar transaction. The
Directors review all transactions which have been placed pursuant to those
policies and procedures at its meetings.
When two or more clients managed by the Adviser are simultaneously engaged in
the purchase or sale of the same security, the transactions are allocated in a
manner deemed equitable to each client. In some cases this procedure could have
a detrimental effect on the price or volume of the security as far as the Fund
is concerned. In other cases, however, the ability to participate in volume
transactions will be beneficial to the Fund. The Board of Directors of the
Company believes that these advantages, when combined with the other benefits
available because of the Adviser's organization, outweigh the disadvantages that
may exist from this treatment of transactions.
The Fund paid broker commissions of $2,087 and $2,565 for the fiscal years ended
August 31, 2000 and for the period from October 1, 1998 (commencement of
operations) through August 31, 1999, respectively.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Adviser makes purchases and sales for the
Fund's portfolio whenever necessary, in the Adviser's opinion, to meet the
Fund's objective. The Adviser anticipates that the average annual portfolio
turnover rate of the Fund will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is authorized to issue 750,000,000 shares of common stock, with a
par value of $0.01 per share. The Company has presently allocated 50,000,000
shares to the Fund and 350,000,000 shares to other series of the Company. Each
share has equal dividend, voting, liquidation and redemption rights and there
are no preemptive rights and only such conversion or exchanges rights as the
Board of Directors, in its discretion, may grant. Shares of the Fund do not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect all of the Directors if
they choose to do so. In such event, the holders of the remaining shares will
not be able to elect any person to the Board of Directors. Shares will be
maintained in open accounts on the books of FSI.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If the Directors create
additional series or classes of shares, shares of each series or class are
entitled to vote as a series or class only to the extent required by the 1940
Act or as permitted by the Directors. Upon the Company's liquidation, all
shareholders of a series would share pro-rata in the net assets of such series
available for distribution to shareholders of the series, but, as shareholders
of such series, would not be entitled to share in the distribution of assets
belonging to any other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the applicable fund at
its net asset value as of the date of payment unless the shareholder elects to
receive such dividends or distributions in cash. The reinvestment date normally
precedes the payment date by about seven days although the exact timing is
subject to change. Shareholders will receive a confirmation of each new
transaction in their account. The Company will confirm all account activity
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
DISTRIBUTION
In connection with promotion of the sales of the Fund, the Distributor may, from
time to time, offer (to all broker dealers who have a sales agreement with the
Distributor) the opportunity to participate in sales incentive programs (which
may include non-cash concessions). The Distributor may also, from time to time,
pay expenses and fees required in order to participate in dealer sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with pre-approved seminars, conferences and advertising, and may, from time to
time, pay or allow additional promotional incentives to dealers as part of
pre-approved sales contests.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
certain activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the Directors of the Company and the
expenses paid under the Plan were incurred within the preceding 12 months and
accrued while the Plan is in effect.
The Plan provides that the Fund will pay a fee to FDCC at an annual rate of
0.25% of the Fund's average daily net assets. The fee is paid to FDCC as
reimbursement for expenses incurred for distribution-related activities. The
Distributor waived fees of $5,612 for the fiscal year ended August 31, 2000.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Redemptions In Kind.
The Company, on behalf of the Fund, will pay in cash (by check) all requests for
redemption by any shareholder of record of the Fund. The amount is limited,
however, during any 90-day period, to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior permission of the SEC. If redemption requests
exceed these amounts, the Directors reserve the right to make payments in whole
or in part using securities or other assets of the Fund (if there is an
emergency, or if a cash payment would be detrimental to the existing
shareholders of the Fund). In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net asset and you may
incur brokerage fees as a result of converting the securities to cash. The
Company does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
Exchanging Shares.
If you request the exchange of the total value of your account from one fund to
another, we will reinvest any declared but unpaid income dividends and capital
gain distributions in the new fund at its net asset value. Backup withholding
and information reporting may apply. Information regarding the possible tax
consequences of an exchange appears in the tax section in this SAI.
If a substantial number of shareholders sell their shares of the Fund under the
exchange privilege, within a short period, the Fund may have to sell portfolio
securities that it would otherwise have held, thus incurring additional
transactional costs. Increased use of the exchange privilege may also result in
periodic large inflows of money. If this occurs, it is the Fund's general policy
to initially invest in short-term, interest-bearing money market instruments.
However, if the Adviser believes that attractive investment opportunities
(consistent with the Fund's investment objective and policies) exist
immediately, then it will invest such money in portfolio securities in as
orderly a manner as possible.
The proceeds from the sale of shares of the Fund may not be available until the
third business day following the sale. The fund you are seeking to exchange into
may also delay issuing shares until that third business day. The sale of Fund
shares to complete an exchange will be effected at net asset value of the Fund
next computed after your request for exchange is received in proper form. See
Buying, Redeeming, and Exchanging shares in the Prospectus.
Eligible Benefit Plans.
An eligible benefit plan is an arrangement available to the (1) employees of an
employer (or two or more affiliated employers) having not less than ten
employees at the plan's inception (2) or such an employer on behalf of employees
of a trust or plan for such employees, their spouses and their children under
the age of 21 or a trust or plan for such employees, which provides for
purchases through periodic payroll deductions or otherwise. There must be at
least five initial participants with accounts investing or invested in shares of
one or more of the Fund and/or certain other funds.
The initial purchase by the eligible benefit plan along with prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $500. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
Selling Shares.
You may redeem shares of the Fund at any time and in any amount by mail or
telephone. The Fund will use reasonable procedures to confirm that instructions
communicated by telephone are genuine and, if the procedures are followed, will
not be liable for any losses due to unauthorized or fraudulent telephone
transactions.
The Company's procedure is to redeem shares at the Net Asset Value (the "NAV")
determined after the Transfer Agent receives the redemption request in proper
order. A two percent (2%) redemption fee is deducted from proceeds of Fund
shares redeemed less than three hundred sixty (360) days after purchase. Payment
will be made promptly, but no later than the seventh day following the receipt
of the request in proper order. The Company may suspend the right to redeem
shares for any period during which the New York Stock Exchange (the "NYSE") is
closed or the U. S. Securities and Exchange Commission (the "SEC") determines
that there is an emergency. In such circumstances you may withdraw your
redemption request or permit your request to be held for processing after the
suspension is terminated.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Company may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Company will advise you in writing
thirty (30) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Company will not close your account if it
falls below $1,000 solely because of a market decline. The Adviser and the
Distributor reserve the right to waive this fee for their clients.
Special Shareholder Services.
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account.
A regular account allows a shareholder to make voluntary investments and/or
withdrawals at any time. Regular accounts are available to individuals,
custodians, corporations, trusts, estates, corporate retirement plans and
others. You may use the Account Application provided with the Prospectus to open
a regular account.
Telephone Transactions.
You may redeem shares or transfer into another fund by telephone if you request
this service on your initial account application. If you do not elect this
service at that time, you may do so at a later date by sending a written request
and signature guarantee to FSI.
The Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Automatic Investment Plan.
The Automatic Investment Plan allows shareholders to make automatic monthly
investments into their account. Upon request, FSI will withdraw a fixed amount
each month from a shareholder's checking account and apply that amount to
additional shares. This feature does not require you to make a commitment for a
fixed period of time. You may change the monthly investment, skip a month or
discontinue your Automatic Investment Plan as desired by notifying FSI. To
receive more information, please call the offices of the Company at (800)
527-9525 or FSI at (800) 628-4077. Any shareholder may utilize this feature.
Individual Retirement Account ("IRA").
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000 (or $2,250 with a spouse who is not a wage
earner, for years prior to 1997). A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules that govern
contributions made by individuals with earned income. A special IRA program is
available for corporate employers under which the employers may establish IRA
accounts for their employees in lieu of establishing corporate retirement plans.
Known as SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate
employer of many of the recordkeeping requirements of establishing and
maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer federal income taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA.
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a 5 year period, beginning with the first tax year for which
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year. An annual limit of $2,000 applies to
contributions to regular and Roth IRAs. For example, if a taxpayer contributes
$2,000 to a regular IRA for a year, he or she may not make any contribution to a
Roth IRA for that year.
How to Establish Retirement Accounts.
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. You may wish to consult with your attorney or other tax
adviser for specific advice concerning your tax status and plans.
Exchange Privilege.
Shareholders may exchange their shares for shares of any other series of the
Company, provided the shares of the fund the shareholder is exchanging into are
registered for sale in the shareholder's state of residence. Each account must
meet the minimum investment requirements. Also, to make an exchange, an exchange
order must comply with the requirements for a redemption or repurchase order and
must specify the value or the number of shares to be exchanged. Your exchange
will take effect as of the next determination of the Fund's NAV per share
(usually at the close of business on the same day). FSI will charge your account
a $10 service fee each time you make such an exchange. The Company reserves the
right to limit the number of exchanges or to otherwise prohibit or restrict
shareholders from making exchanges at any time, without notice, should the
Company determine that it would be in the best interest of its shareholders to
do so. For tax purposes, an exchange constitutes the sale of the shares of the
fund from which you are exchanging and the purchase of shares of the fund into
which you are exchanging. Consequently, the sale may involve either a capital
gain or loss to the shareholder for federal income tax purposes. The exchange
privilege is available only in states where it is legally permissible to do so.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income.
The Fund receives income generally in the form of dividends and interest on
their investments. This income, less expenses incurred in the operation of the
Fund, constitutes the Fund's net investment income from which dividends may be
paid to you. Any distributions by the Fund from such income will be taxable to
you as ordinary income, whether you take them in cash or 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 the Fund. Similarly, foreign exchange losses realized by the
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 the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's ordinary
income distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the Fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the 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 the
Fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The Fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
Information on the tax character of distributions.
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
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, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxed as a regulated investment company.
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, the Fund generally does not pay federal income
tax on the income and gains they distribute to you. The Directors reserve the
right not to maintain the qualification of the Fund as a regulated investment
company if it determines such course of action to be beneficial to shareholders.
In such case, the Fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires the Fund to
distribute to you by December 31st of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31st; and 100% of any undistributed amounts from the prior year. The
Fund intends to declare and pay these amounts in December (or in January that
are treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
Redemption of Fund shares.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares, or exchange your
Fund shares for shares of a different series of the Company, the IRS will
require that you report a gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, the gain or loss that you realize will be
capital gain or loss and will be long-term or short-term, generally depending on
how long you hold your shares. Any loss incurred on the redemption or exchange
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains distributed to you by the Fund
on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. Government Obligations
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
Yield Information.
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
Yield = 2[(a-b +1)-1]
----
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The 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 the 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 the
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 the 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.
Based on the foregoing, the Fund's average annual total returns for the periods
ended august 31, 2000 are as follows:
One Year Five Years Ten Years Since
Period Ended Period Ended Period Ended Inception to
8/31/2000 8/31/2000 8/31/2000 8/31/2000
--------------------------------------------------------
90.33% N/A N/A 67.63%(1)
(1) Commencement of operations was October 1, 1998.
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $10,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by the various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's, Fortune, Money Magazine, The New York Times, Financial World,
Financial Services Week, USA Today and other national or regional publications.
FINANCIAL INFORMATION
You can receive free copies of reports, request other information and discuss
your questions about the Fund by contacting the Fund directly at:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
TELEPHONE: (800) 527-9525
E-MAIL: [email protected]
The Annual Report for the fiscal period ended August 31, 2000 has been filed
with the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Fund included in the Annual Report have been audited by the
Fund's independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual Report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
GenomicsFund.com
a series of
THE WORLD FUNDS, INC.
PROSPECTUS
Prospectus dated ___________________
This Prospectus describes GenomicsFund.com (the "Fund"), a series of shares
offered by The World Funds, Inc. (the "Company"). A series fund offers you a
choice of investments, with each series having its own investment objective and
a separate portfolio. The Fund seeks capital appreciation by investing in a
non-diversified portfolio of equity securities.
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Capital appreciation
Principal Investment
Strategies: The Fund will seek to achieve its
investment objective by investing in a
non-diversified portfolio consisting
primarily of equity securities of
companies principally engaged in genomics
or genomic-related businesses.
Under normal market conditions, the Fund will invest
at least 75% of its assets in securities of companies
principally engaged in genomics or genomic-related
businesses.
Genomics is a broad term referring to the study of
genes. A company is considered principally engaged in
genomic or genomic-related business if at least 50% of
its assets, gross income, or net profits are committed
to, or derived from, the research, design,
development, manufacture, or distribution of products,
processes or services for use with genomics or
genomic-related businesses. A company will also be
considered to be engaged in genomic related businesses
if it provides goods or services which benefit from
genomics, provides goods or services to genomics or
genomics-related businesses.
Genomics-related activities in which the Fund will
invest include biological technologies, bioinformation
technologies, gene mapping and sequencing
technologies, and gene delivery technologies
(collectively, "technology sectors").
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 per share ("NAV") to
fluctuate over time. Therefore, the value
of your investment in the Fund could
decline. There is no assurance that the
investment adviser will achieve the
Fund's objective.
The Fund operates as a non-diversified fund. As such
the Fund may invest a larger portion of its assets in
fewer securities. This may cause the price movements
in the Fund's larger portfolio positions to have a
greater impact on the Fund's NAV, which could result
in increased volatility.
An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other
government agency.
Investor Profile: You may want to invest in the Fund if you are seeking
capital appreciation and are willing to accept share
prices that may fluctuate, sometimes significantly, over
the short-term. The Fund will not be appropriate if
you are seeking current income or are seeking safety of
principal.
Performance
Information: This Fund has not yet completed one full calendar year
of operations. Accordingly, no performance information
is being presented.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling portfolio securities. These costs will reduce
a portion of the gross income or capital appreciation a fund achieves. Even
small differences in these expenses can, over time, have a significant effect on
a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. There are no sales
charges in connection with purchases or redemption of shares. The annual
operating expenses, which cover the costs of investment management,
administration, accounting and shareholder communications, are shown as an
annual percentage of the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases None
Sales Charge (load) Imposed on Reinvested Dividends None
Redemption Fees (1) 2.00% (2)
Exchange Fees (3) None
Estimated Annual Operating Expenses(expenses that are deducted from Fund assets)
Management Fee 1.00%
Distribution (12b-1) and Service Fees (4) 0.25%
Other Operating Expenses 2.08%
-----
Total Annual Fund Operating Expenses 3.33%
Fee Waivers and/or Expense Reimbursements (5) 1.44%
-----
Net Expenses 1.89%
(1) A shareholder electing to redeem shares by telephone request may be charged
$10 for each such redemption request.
(2) A two percent (2.00%) redemption fee is charged on shares held less than
one year and retained by the Fund to defray markets effects, taxes, and
expenses created by short-term investments in the Fund.
(3) A shareholder may be charged a $10 fee for each telephone exchange.
(4) The Company has approved a Plan of Distribution pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended (the "1940 Act") providing
for the payment of distribution fees to the distributor for the Fund
("12b-1 Plan"). The Fund pays a maximum distribution fee of 0.25% of
average daily net assets. 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.
See "Rule 12b-1 Fees".
(5) In the interest of limiting expenses of the Fund, the xGENx LLC (the
"Investment Adviser") has entered into a contractual expense limitation
agreement with the Fund. Pursuant to the agreement, the Investment Adviser
has agreed to waive or limit its fees and to assume other expenses for the
first three years of operations so that the ratio of total annual operating
expenses for the Fund is limited to 1.90%.
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, you reinvest all dividends and distributions in additional shares of
the Fund and then you redeem all of your shares at the end 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 (1) 3 Years (1) 5 Years (1) 10 Years (1)
---------- ----------- ----------- ------------
$392 $594 $1,021 $2,212
(1) These costs are net of fee waivers and reimbursements to maintain total
operating expenses at 1.90% pursuant to an expense limitation agreement
(see "Management Organization and Capital Structure").
Absent this commitment, your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$536 $1,024 $1,736 $3,622
OBJECTIVES AND STRATEGIES
The investment objective of the Fund is to achieve capital appreciation. The
Fund seeks to achieve this objective by investing in a non-diversified portfolio
consisting primarily of equity securities, such as common stock, or securities
convertible into equity securities, such as warrants, convertible bonds,
debentures or convertible preferred stock. Under normal circumstances, the Fund
will invest at least 75% of its total assets in securities of companies
principally engaged in genomics or genomic-related businesses.
The human body contains 75 trillion cells and each cell nucleus contains 46
chromosomes. Each chromosome is a twisted strand of DNA which can measure up to
nine feet in length, but is only about 20 atoms across. Genes are segments of
DNA and contain the instructions to make proteins, the building blocks of life.
The Human Genome Project was begun by the Federal government in 1986 to identify
all genes, their location on the chromosome (mapping), their chemical
composition (sequencing), and their function. Some people believe identifying
the entire human genome may be the greatest challenge ever undertaken by man. In
the past few years, private companies have joined with the government and
universities in the search to unravel the basic genomic code. These efforts have
accelerated the discovery process and experts predict the entire human genome
sequence may be identified as early as 2001.
When selecting investments for the Fund, the Investment Adviser will seek to
identify companies that it believes are likely to benefit from new or innovative
genomics products, services or processes that can enhance the companies'
prospects for future earnings growth. Some of these companies may not have an
established history of revenue or earnings at the time of purchase. Dividend
income, if any, is likely to be incidental. The Investment Adviser may decide to
sell securities given a variety of circumstances, such as when a security no
longer appears to the adviser to offer capital appreciation, when an investment
opportunity arises that the adviser believes is more compelling, or to realize
gains or limit losses.
RISKS
Sector Risk.
The Fund invests primarily in companies engaged in genomics and genomics-related
activities. The value of this type of company is particularly vulnerable to
rapidly changing technology, extensive government regulation, inconsistent
regulation in different countries or markets, and relatively high risks of
obsolescence caused by scientific and technological advances. Technology sectors
historically have been volatile, and securities of companies in these sectors
may be subject to abrupt or erratic price movements. For such reasons, the Fund
may experience greater volatility than funds with portfolio investments which
are not subject to these types of risks.
The economic prospects of genomics companies can dramatically fluctuate due to
changes in the regulatory and competitive environment in which these companies
operate. A substantial portion of services and research is funded or subsidized
by the government, so changes in government policy at the federal or state level
may affect the demand for these products or services, and the continuation or
success of research and development efforts. Regulatory approvals often entail
lengthy application and testing procedures and are generally required before new
products may be introduced. The Investment Adviser will seek to reduce such
risks through extensive research, and emphasis on more globally-competitive
companies.
The Fund will seek to identify securities of companies conducting these
activities. Typically, these companies' products or services compete on a
global, rather than a predominately domestic or regional basis, and the
securities of these companies may be subject to fluctuations in value due to the
effect of changes in the relative values of currencies where the companies
conduct their businesses. The history of these markets reflect both decreases
and increases in worldwide currency valuations, and these may reoccur
unpredictably in the future.
Stock Market Risk.
The Fund is subject to stock market risk, which is the possibility that stock
prices overall will decline over short or even long periods. Stock markets tend
to move in cycles, with periods of rising prices and periods of falling prices.
Therefore, the value of your investment in the Fund may increase or decrease.
The Fund's investment success depends on the skill of the Investment Adviser in
evaluating, selecting and monitoring the portfolio assets. If the Investment
Adviser's conclusions about asset allocation or selection are incorrect, the
Fund may not perform as anticipated.
Small Companies Risk.
The Fund may invest in companies with small market capitalization (i.e., less
than $250 million) or companies that have relatively small revenues, limited
product lines, and a small share of the market for their products or services
(collectively, "small companies"). Small companies are also characterized by the
following: (1) they may lack depth of management; (2) they may be unable to
internally generate funds necessary for growth or potential development or to
generate such funds through external financing on favorable terms; and (3) they
may be developing or marketing new products or services for which markets are
not yet established and may never become established. Due to these and other
factors, small companies may suffer significant losses, as well as realize
substantial growth. Thus, securities of small companies present greater risks
than securities of larger, more established companies.
Historically, stocks of small companies have been more volatile than stocks of
larger companies and are, therefore, more speculative than investments in larger
companies. Among the reasons for the greater price volatility are the following:
(1) the less certain growth prospects of smaller companies; (2) the lower degree
of liquidity in the markets for such stocks; and (3) the greater sensitivity of
small companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. To the
extent that securities of small companies are not liquid, the Fund will limit
its investments in such securities to not more than 15% of assets. You should
expect that the value of Fund shares may be more volatile than the shares of a
mutual fund investing primarily in larger company stocks.
Non-diversification Risk; Industry Concentration.
The Fund is non-diversified under the 1940 Act, which means that the Fund may
invest more of its assets in a smaller number of issuers. Under normal
circumstances, the Fund will be concentrating its investments in genomics
companies such as those described above, and will always have not less than 25%
of its assets in this industry. Accordingly, the Fund may be more susceptible to
the effects of adverse economic, political or regulatory developments affecting
a single issuer or industry sector than funds that diversify to a greater
extent.
Temporary Defensive Positions.
When the Fund's management 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 or certificates of deposits. When the Fund is in a
temporary defensive position it may not achieve its investment objective of
capital appreciation.
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 1940 Act and is commonly known as a "mutual fund".
The Company has retained an adviser to manage all aspects of the investments of
the Fund.
Investment Adviser.
xGENx, LLC (the "Investment Adviser") manages the investment of the assets of
the Fund pursuant to the Investment Advisory Agreement (the "Advisory
Agreement"). The Investment Adviser is a newly formed company and its only
client is the Fund. The address of the Investment Adviser is 555 Quince Orchard
Road, Suite 610, Gaithersburg, Maryland 20878. Steve Newby is President of the
Investment Adviser and is the portfolio manager of the Fund since its inception
on March 1, 2000. Since July 1990, Mr. Newby has been President of Newby &
Company, a securities broker/dealer firm located in Gaithersburg, Maryland.
Newby & Company is a member firm of the National Association of Securities
Dealers and the Securities Investor Protection Corporation.
The Investment Adviser provides the Fund with investment management services,
subject to the supervision of the Board of Directors, and with office space for
investment activities, and pays the ordinary and necessary office and clerical
expenses relating to investment research, statistical analysis, supervision of
the Fund's portfolio and certain other costs. The Investment Adviser also bears
the cost of fees, salaries and other remuneration of the Company's directors,
officers or employees who are officers, directors, or employees of the
Investment Adviser. The Fund is responsible for all other costs and expenses,
such as, but not limited to, brokerage fees and commissions in connection with
the purchase and sale of securities, legal, auditing, bookkeeping and record
keeping services, custodian and transfer agency fees and fees and other costs of
registration of the fund's shares for sale under various state and federal
securities laws.
Under the Advisory Agreement, the monthly compensation paid to the Investment
Adviser is accrued daily at an annual rate of 1.00% on the first $250 million of
average daily net assets of the Fund; 0.875% on average daily net assets of the
Fund in excess of $250 million and not more than $500 million; and , 0.75% on
average daily net assets of the Fund over $500 million. For the fiscal period
ended August 31, 2000, the Investment Adviser waived its fees.
In the interest of limiting expenses of the Fund, the Investment Adviser has
entered into a contractual expense limitation agreement with the Company.
Pursuant to the agreement, the Investment Adviser has agreed to waive or limit
its fees and to assume other expenses so that the total annual operating
expenses for the Fund will not exceed 1.90% of net assets. 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 Investment Adviser will be entitled to reimbursement of fees waived or
reimbursed by the Investment Adviser to the Fund. The total amount of
reimbursement recoverable by the Investment Adviser (the "Reimbursement Amount")
is the sum of all fees previously waived or reimbursed by the Investment Adviser
to the Fund during any of the previous five (5) years, less any reimbursement
previously paid by the Fund to the Investment Adviser with respect to any
waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount. Such reimbursement must be
authorized by the Directors.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
Time) on each business day ("Valuation Time") that the NYSE is open. As of the
date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets, subtracting any liabilities and then dividing by
the total number of shares outstanding.
Shares are bought, sold or exchanged at the NAV determined after a request has
been received in proper form. Any request received in proper form before the
Valuation Time will be processed the same business day. Any request received in
proper form after the Valuation Time will be processed the next business day.
The Fund 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.
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 Directors.
PURCHASING SHARES
Shares of the Fund may be purchased directly from First Dominion Capital Corp.
(the "Distributor") or through brokers or dealers who are members of the
National Association of Securities Dealers, Inc. There are no sales charges in
connection with purchasing or redeeming shares of the Fund When an investor
acquires shares of the Fund from a securities broker-dealer, the investor may be
charged a transaction fee by that broker dealer. The minimum initial investment
in the Fund is $5,000 and additional investments must be in amounts of $100 or
more. The Fund retains the right to refuse to accept any order.
Purchases by Mail.
For initial purchases, the account application form, which accompanies the
prospectus, should be completed, signed and mailed to Fund Services, Inc. (the
"Transfer Agent") P.O. Box 26305, Richmond, VA 23260 together with your check
payable to the GenomicsFund.com. For subsequent purchases, include with your
check the tear-off stub from a prior purchase confirmation, or otherwise
identify the name(s) of the registered owner(s) and social security number(s).
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Transfer Agent at (800)
628-4077 for instructions, then notify the Distributor by calling (800)
776-5455. Your bank may charge you a small fee for this service. Once you have
arranged to purchase shares by wire, please complete and mail the account
application promptly to the Transfer Agent. This application is required to
complete the Fund's records. You will not have access to your shares until the
Fund's records are complete. Once your account is opened, you may make
additional investments using the wire procedure described above. Be sure to
include your name and account number in the wire instructions you provide your
bank.
DISTRIBUTION ARRANGEMENTS
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the Distributor. Investment professionals
who offer shares may require payments of fees from their individual clients. If
you invest through a third party, the policies and fees may be different than
those described in this Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
Rule 12b-1 Fees.
The Board of Directors has adopted a Plan of Distribution for the Fund's shares
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan"). Pursuant to
the Rule 12b-1 Plan, 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 Distributor. The Fund
may pay distribution fees (the "Rule 12b-1 Fee") at an annual rate of up to
0.25% of the fund's average daily net assets. The Fund may pay Rule 12b-1 fees
for activities and expenses borne in the past 12 months in connection with the
distribution of its shares as to which no Rule 12b-1 fee was paid because of the
expense 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.
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. A two percent (2.00%) redemption fee is deducted from proceeds of Fund
shares redeemed less than one year after purchase and such fees are retained by
the Fund.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order. Payment will be
made promptly, but no later than the seventh day following the receipt of the
request in proper order. The Company may suspend the right to redeem shares for
any period during which the NYSE is closed or the U.S. Securities and Exchange
Commission determines that there is an emergency. In such circumstances you may
withdraw your redemption request or permit your request to be held for
processing after the suspension is terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identify of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail.
To redeem shares by mail, send a written request for redemption, signed by the
registered owner(s) exactly as the account is registered. Certain written
requests to redeem shares may require signature guarantees. For example,
signature guarantees may be required if you sell a large number of shares, if
your address of record on the account application has been changed within the
last 30 days, or if you ask that the proceeds to be sent to a different person
or address. Signature guarantees are used to help protect you and the Fund. You
can obtain a signature guarantee from most banks or securities dealers, but not
from a Notary Public. Please call the Transfer Agent at (800) 628-4077 to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid any processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you request this service
on your initial Account application. If you request this service at a later
date, you must send a written request along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
amount of this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help protect you and the Company from fraud, signature guarantees are
required for: (1) all redemptions ordered by mail if you require that the check
be payable to another person or that the check be mailed to an address other
than the one indicated on the account registration; (2) all requests to transfer
the registration of shares to another owner; and, (3) all authorizations to
establish or change telephone redemption service, other than through your
initial Account application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or, (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and, (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, VA 23229. The Transfer Agent cannot
honor guarantees from notaries public, savings and loan associations, or savings
banks.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the 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 $5,000. 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 $5,000. The Company will not charge or close your
account if it falls below $5,000 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 a suitable
money market fund. Please contact the Transfer Agent for details. Your account
may be charged $10 for a telephone exchange fee. An exchange is treated as a
redemption and a purchase and may result in realization of a gain or loss on the
transaction.
Dividends and Capital Gain Distributions.
Dividends from net investment income, if any, are declared annually. The Fund
intends to distribute annually any net capital gains.
Distributions will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. There are no sales charges
or transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made within an IRA, all dividends and
capital gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend". To avoid buying a dividend, check the Fund's distribution
schedule before you invest.
DISTRIBUTION AND TAXES
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Other Fund distributions (including
distributions attributable to short-term capital gains of the fund) will
generally be taxable to you as ordinary income. 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. The one major exception to
these principles is that distributions on, and sales, exchanges and redemptions
of, shares held in an IRA (or other tax deferred retirement account) will not be
currently taxable. Non-U.S. investors may be subject to U.S. withholding and
estate tax. You should consult with your tax adviser about the federal, state,
local or foreign tax consequences of your investment in the Fund. 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.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the period presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon, along with the Fund's financial statements, are included in the
Fund's Annual Report to Shareholders (the "Annual Report") and are incorporated
by reference into the SAI. Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHTOUT EACH PERIOD
Period ended
August 31, 2000*
----------------
Per Share Operating Performance
Net asset value, beginning of period $ 10.00
Income from investment operations-
Net investment loss (0.03)
Net realized and unrealized gain on investments 0.57
-------
Total from investment operations 0.54
-------
Net asset value, end of period $ 10.54
=======
Total Return 5.40%
=======
Ratios/Supplemental Data
Net assets, end of period $28,822
Ratio to average net assets (A)
Expenses (B) 1.89%**
Expense ratio - net (C) 1.89%**
Net investment loss (1.73%)**
Portfolio turnover rate 85.25%
* Commencement of operation was March 1, 2000.
** Annualized
(A) Management fee waivers and reimbursements reduced the expense ratio and
increased net investment income ratio by 1.44% for the for the period ended
August 31, 2000.
(B) Expense ratio has been increased to include custodial fees which were
offset by custodian fee credits and before management fee waivers and
reimbursements.
(C) Expense ratio - net reflects the effect of the management fee waivers and
reimbursements and custodian fee credits the Fund received.
<PAGE>
You'll find more information about the fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's SAI
dated _______________ which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
GenomicsFund.com
a series of
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223 RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current Prospectus of GenomicsFund.com (the
"Fund") dated _____________. The Prospectus may be obtained by writing to The
World Funds, Inc. 1500 Forest Avenue, Suite 223, Richmond, VA 23229 or by
calling (800) 527-9525.
The Fund's audited financial statements and notes thereto for the fiscal period
ended August 31, 2000 and the unqualified report of Tait, Weller and Baker, the
Fund's independent auditors, on such financial statements are included in the
Fund's Annual Report to Shareholders for the fiscal period ended August 31, 2000
(the "Annual Report") and are incorporated by reference into this SAI. No other
parts of the Annual Report are incorporated herein. A copy of the Annual Report
accompanies this SAI and an investor may obtain a copy of the Annual Report,
free of charge, by writing the Fund or calling (800) 527-9525.
The date of this SAI is _______________.
<PAGE>
TABLE OF CONTENTS PAGE NUMBER
-----------
GENERAL INFORMATION 1
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS 1
INVESTMENT OBJECTIVES 1
STRATEGIES AND RISKS 1
INVESTMENT PROGRAMS 1
DEPOSITARY RECEIPTS 1
REPURCHASE AGREEMENTS 1
DEBT SECURITIES 2
U.S. GOVERNMENT SECURITIES 2
CONVERTIBLE SECURITIES 2
WARRANTS 2
ILLIQUID SECURITIES 3
RESTRICTED SECURITIES 3
OTHER SECURITIES 3
INVESTMENT RESTRICTIONS 3
FUNDAMENTAL POLICIES OR RESTRICTIONS 3
NON-FUNDAMENTAL POLICIES OR RESTRICTIONS 4
MANAGEMENT OF THE COMPANY 4
PRINCIPAL HOLDERS OF SECURITIES 7
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES 7
INVESTMENT ADVISER AND ADVISORY AGREEMENTS 7
MANAGEMENT-RELATED SERVICES 8
ADMINISTRATION 8
CUSTODIAN 8
ACCOUNTING SERVICES 8
TRANSFER AGENT 8
DISTRIBUTOR 9
INDEPENDENT ACCOUNTANTS 9
PORTFOLIO TRANSACTIONS 9
PORTFOLIO TURNOVER 10
CAPITAL STOCK AND DIVIDENDS 10
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES 10
DISTRIBUTION AND TAXES 12
INVESTMENT PERFORMANCE 14
FINANCIAL INFORMATION 15
<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
GenomicsFund.com (the "Fund"). The Fund is a separate investment portfolio or
series of the Company. See "Capital Stock and Dividends" in this SAI. The Fund
is "non-diversified" 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 restrictions 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 without
shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is capital appreciation. All investments entail
some market and other risks and there is no assurance that the Fund will achieve
its investment objective. You should not rely on an investment in the Fund as a
complete investment program.
STRATEGIES AND RISKS
Under normal circumstances, the Fund invests primarily in a non-diversified
portfolio of equity securities and securities convertible into equity
securities.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
program described below.
INVESTMENT PROGRAMS
Depositary Receipts.
The Fund may invest on a global basis to take advantage of investment
opportunities both within the U.S. and other countries. The Fund may buy foreign
securities directly in their principal markets or indirectly through the use of
depositary receipts. The Fund may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDR's), and other
similar depositary receipts. ADRs are issued by an American bank or trust
company and evidence ownership of underlying securities of a foreign company.
EDRs are issued in Europe, usually by foreign banks, and evidence ownership of
either foreign or domestic underlying securities. The foreign country may
withhold taxes on dividends or distributions paid on the securities underlying
the ADRs and EDRs, thereby reducing the dividend or distribution amount received
by the Fund.
Unsponsored ADRs and EDRs are issued without the participation of the issuer of
the underlying securities. As a result, information concerning the issuer may
not be as current as for sponsored ADRs and EDRs. Holders of unsponsored ADRs
generally bear all the costs of the ADR facilities. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
Repurchase Agreements.
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. Under a repurchase agreement, the Fund acquires a security, subject
to the seller's agreement to repurchase that security at a specified time and
price. The Fund considers a purchase of securities under repurchase agreements
to be a loan by the Fund. The investment adviser monitors the value of the
collateral to ensure that its value always equals or exceeds the repurchase
price and also monitors the financial condition of the seller of the repurchase
agreement. If the seller becomes insolvent, the ability to dispose of the
securities held as collateral may be impaired and the Fund may incur extra
costs. Repurchase agreements for periods in excess of seven days may be deemed
to be illiquid.
Debt Securities.
The Fund may invest in investment grade debt securities; which are securities
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or
higher by Standard & Poor's Ratings Group ("S&P") at the time of purchase or,
unrated securities which xGENx. LLC (the "Investment Adviser") believes to be of
comparable quality. The Fund does not currently intend to invest more than 5% of
its total assets in securities that are below investment grade or that are
unrated. Securities rated as Baa or BBB are generally considered to be
investment grade although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt securities.
Debt securities consist of bonds, notes, government and government agency
securities, zero coupon securities, convertible bonds, asset-backed and
mortgage-backed securities, and other debt securities whose purchase is
consistent with the Fund's investment objective. The Fund's investments may
include international bonds that are denominated in foreign currencies,
including the European Currency Unit or "Euro". International bonds are defined
as bonds issued in countries other than the United States. The Fund's
investments may include debt securities issued or guaranteed by supranational
organizations, corporate debt securities, bank or holding company debt
securities.
U.S. Government Securities.
The Fund may invest in U.S. Government Securities that are obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as U.S. Treasury bills, notes and bonds, and
securities guaranteed by the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Convertible Securities.
The Fund may invest in convertible securities. Traditional convertible
securities include corporate bonds, notes and preferred stocks that may be
converted into or exchanged for common stock, and other securities that also
provide an opportunity for equity participation. These securities are
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other fixed income
securities, the price of a convertible security generally varies inversely with
interest rates. While providing a fixed income stream, a convertible security
also affords the investor an opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. As the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis and so they
may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock. To obtain such an opportunity for a higher yield
or capital appreciation, the Fund may have to pay more for a convertible
security than the value of the underlying common stock. The Fund will generally
hold common stock it acquires upon conversion of a convertible security for so
long as the Investment Adviser anticipates such stock will provide the Fund with
opportunities that are consistent with its investment objective and policies.
Warrants.
The value of warrants is derived solely from capital appreciation of the
underlying equity securities. Warrants have no voting rights, pay no dividends
and have no rights with respect to the assets of the corporation issuing them.
Warrants are options to purchase equity securities at a specific price for a
specific period of time. If the Fund does not exercise or dispose of a warrant
prior to its expiration, it will expire worthless. They do not represent
ownership of the securities, but only the right to buy them. Warrants differ
from call options in that warrants are issued by the underlying corporation,
whereas call options may be written by anyone.
Debentures.
The Fund may invest in debentures which are general debt obligations backed only
by the integrity of the borrower and documented by an agreement called an
indenture. An unsecured bond is a debenture.
Convertible Preferred Stock.
The Fund may invest in preferred stock which is a class of capital stock that
pays dividends at a specified rate and that has preference over common stock in
the payment of dividends and the liquidation of assets. Preferred stock does not
ordinarily carry voting rights.
Most preferred stock is cumulative; if dividends are passed (not paid for any
reason), they accumulate and must be paid before common dividends. A passed
dividend on noncumulative preferred stock is generally gone forever.
Participating preferred stock entitles its holders to share in profits above and
beyond the declared dividend, along with common shareholders, as distinguished
from nonparticipating preferred, which is limited to the stipulated dividend.
Adjustable rate preferred stock pays a dividend that is adjustable, usually
quarterly, based on changes in the treasury bill rate or other money market
rates. Convertible preferred stock is exchangeable for a given number of common
shares and thus tends to be more volatile than nonconvertible preferred, which
behaves more like a fixed-income bond.
Illiquid Securities.
The Fund may invest up to 15% of its net assets in illiquid securities. The term
"illiquid securities" means securities that cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which the
Fund has valued the securities. Illiquid securities include generally, among
other things, certain written over-the-counter options, securities or other
liquid assets as cover for such options, repurchase agreements with maturities
in excess of seven days, certain loan participation interests and other
securities whose disposition is restricted under the federal securities laws.
Restricted Securities.
The Fund may invest in restricted securities. Generally, "restricted securities"
are securities which have legal or contractual restrictions on their resale. In
some cases, these legal or contractual restrictions may impair the liquidity of
a restricted security; in others, the legal or contractual restrictions may not
have a negative effect on the liquidity of the security. Restricted securities
which are deemed by the Investment Adviser to be illiquid will be included in
the Fund's policy which limits investments in illiquid securities.
Other Securities.
The Board of Directors may, in the future, authorize the Fund to invest in
securities other than those listed in this SAI and in the Prospectus, provided
such investments would be consistent with the Fund's investment objective and
would not violate the Fund's fundamental investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions.
The Fund has adopted the following fundamental investment restrictions which
cannot be changed without approval by vote of a "majority of the outstanding
voting securities" of the Fund. As a matter of fundamental policy, the Fund may
not:
(1) Invest in companies for the purpose of exercising management or control;
(2) Invest in securities of other investment companies except by purchase in
the open market involving only customary broker's commissions, or as part
of a merger, consolidation, or acquisition of assets;
(3) Purchase or sell commodities or commodity contracts;
(4) Invest in interests in oil, gas, or other mineral exploration or
development programs;
(5) Purchase securities on margin, except for use of short-term credits as
necessary for the clearance of purchase of portfolio securities;
(6) Issue senior securities, (except the Fund may engage in transactions such
as those permitted by SEC release IC-10666);
(7) Act as an underwriter of securities of other issuers, except that the Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933, as amended (the "1933 Act"), or any foreign law
restricting distribution of securities in a country of a foreign issuer;
(8) Participate on a joint or a joint and several basis in any securities
trading account;
(9) Engage in short sales;
(10) Purchase or sell real estate, provided that liquid securities of companies
which deal in real estate or interests therein would not be deemed to be an
investment in real estate;
(11) Purchase 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.
(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 33 1/3% of the value of its assets,
provided that the Fund maintains asset coverage of 300% in connection with
borrowings, and the Fund does not make other investments while such
borrowings are outstanding; and
(14) Concentrate its investments in any industry, except that the Fund may
concentrate in securities of companies which are genomic and
genomic-related companies as described in the Prospectus.
In applying its investment policies and restrictions:
(1) Except with respect to the Fund's investment restriction concerning
borrowing, percentage restriction on investment or utilization of assets is
determined at the time an investment is made. A later change in percentage
resulting from changes in the value or the total cost of the Fund's assets
will not be considered a violation of the restriction; and
(2) Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the end
users of their services, for example, automobile finance, bank
finance and diversified finance will each be considered a separate
industry;
(ii) technology companies will be divided according to
their products and services, for example,
hardware, software, information services and
outsourcing, or telecommunications will each be a
separate industry; and
(iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry.
Non-Fundamental Policies and Restrictions.
In addition to the fundamental investment restrictions described above, and the
various general investment policies described in the Prospectus and elsewhere in
the SAI, the Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of
Directors without shareholder approval.
As a matter of non-fundamental policy, the Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities;
(2) Engage in arbitrage transactions; or
(3) Purchase or sell options.
MANAGEMENT OF THE COMPANY
Directors and Officers.
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages of the Directors and officers
of the Company, together with information as to their principal occupations
during the past five years, are listed below. The Directors who are considered
"interested persons" as defined in Section 2(a)(19) of the 1940 Act, as well as
those persons affiliated with the Investment Adviser, any other investment
adviser to a Fund of the Company, the principal underwriter and officers of the
Company are noted with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
-------------- ----------------- -----------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,
(55) the Company's Administrator,
since 1985; President and
Director of First Dominion
Capital Corp., the Company's
underwriter. Director and
shareholder of Fund Services Inc.,
the Company's Transfer and
Disbursing Agent, since 1987;
shareholder of Commonwealth
Fund Accounting, Inc. which
provides bookkeeping services;
and Chairman, Director and Treasurer
of Vontobel Funds, Inc., a
registered investment company
since March, 1997. Mr. Pasco
is also a certified public
accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations and
Potomac, MD. 20854 Accounting Division of the
(60) Potomac Electric Power
Company since August, 1978;
and Director of Vontobel
Funds, Inc., a registered
investment company since
March, 1997. Mr. Boyd is
also a certified public
accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD. 20816 Management Consulting for
(64) 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. Dickenson Director Mr. Dickenson is President of
8704 Berwickshire Drive Alfred J. Dickenson, Inc. Realtors
Richmond, VA 23229 since April, 1971; and Director of
(53) Vontobel Funds, Inc. a
registered investment company
since March, 1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive Commonwealth Shareholder
Suite 101 Services, Inc., and First
Richmond, VA 23229 Dominion Capital Corp.
(57) since 1986; Secretary of
Vontobel Funds, Inc., a
registered investment company
since March, 1997; and Partner in
the law firm Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the President
3000 Sand Hill Road the Company and of Sand Hill Advisors, Inc.
Suite 150 President of the since August, 2000 and
Menlo Park, CA 94025 Sand Hill Portfolio was the Executive Vice President
(52) Manager Fund series of Sand Hill Advisors since 1982.
*Leland H. Faust President of Mr. Faust is President of CSI
One Montgomery St. the CSI Equity Capital Management, Inc. since
Suite 2525 Fund and the CSI 1978. Mr. Faust is also a Partner
San Francisco, CA 94104 Fixed Income Fund in the law firm Taylor & Faust (54)
since December, 1975.
*Franklin A. Trice,III Vice President of Mr. Trice is President of
P.O. Box 8535 the Company and Virginia Management Investment
Richmond, VA 23226-0535 President of the Corp. since May, 1998; and a
(37) New Market Fund registered representative of
series. 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 President of Third Millennium
515 Madison Ave., the Company and Investment Advisors, LLC since
24th Floor President of the April, 1998; and Chairman of
New York, NY 10022 Third Millennium ROSGAL, a Russian financial
(59) Russia Fund series company and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of President of Newby & Co., a NASD
555 Quince Orchard Rd. the Company and broker/dealer since July, 1990;
Suite 610 President of President of xGENx, LLC since
Gaithersburg, MD 20878 GenomicsFund.com November, 1999.
(53) and Newby's ULTRA
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994. In
Suite 200 series his six years with IAAC, he has
Winter Park, FL 32789 served as a Financial Adviser, VP
(40) 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 and
officers who are officers or employees of any investment adviser to a fund of
the Company. 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 from March 1, 2000 (commencement of operations) through
August 31, 2000, the Directors received the following compensation from the
Company:
Aggregate Compensation Total
From the Fund Pension or Retirement Compensation
Name and Fiscal Year Ended Benefits Accrued as from the
Position Held August 31, 2000(1) Part of Fund Expenses Company(2)
--------------------------------------------------------------------------------
John Pasco, III,
Director $-0- N/A $-0-
Samuel Boyd, Jr.,
Director $833 N/A $12,933
William E. Poist,
Director $833 N/A $12,933
Paul M. 1Dickinson,
Director $833 N/A $12,933
(1) This amount represents the aggregate amount of compensation paid to the
Directors for service on the Board of Directors for the Fund's fiscal year
ended August 31, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds offered by the Company for the fiscal year or period
ended August 31, 2000. The Company consists of a total of 8 funds as of
August 31, 2000.
PRINCIPAL SECURITIES HOLDERS
As of December 31, 2000, the following persons owned of record or beneficially
shares of the Fund in the following amounts. [officers and directors]
[INSERT INFORMATION]
As of August 31, 2000, the Directors and executive officers of the World Funds
beneficially owned the following amounts of the Fund's outstanding shares of
common stock, par value $0.01 per share:
Number of Shares
Beneficially Owned and
Name Nature of Ownership Percentage of Fund
---- ---------------------- ------------------
Steven Newby 360,761.366 13.84%
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, investment adviser and principal underwriter have each adopted a Code
of Ethics, pursuant to Rule 17j-1 under the 1940 Act that permit investment
personnel, subject to their particular Code of Ethics, to invest in securities,
including securities that may be purchased or held by the Fund, for their own
accounts.
The Codes of Ethics are on file with, and can be reviewed and copied at the
U. S. Securities and Exchange Commission's (the "SEC") Public Reference Room in
Washington, D.C. In addition, the Codes of Ethics are also available on the
EDGAR Database on the SEC's Internet website at http://www.sec.gov.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
xGENx, LLC (the "Investment Adviser"), 555 Quince Orchard Road, Suite 610,
Gaithersburg, Maryland 20878 manages the investments of the Fund pursuant to an
Investment Advisory Agreement (the "Advisory Agreement" ), dated March 1,2000.
The Advisory Agreement has an initial term of two years, and may be renewed
annually thereafter provided such renewal is approved by: 1) the Company's Board
of Directors; or 2) by a majority vote of the outstanding voting securities of
the Fund, and in either event by and a majority of the Directors who are not
"interested persons" of the Company. The Advisory Agreement will automatically
terminate in the event of its "assignment," as that term is defined in the 1940
Act, and may be terminated without penalty at any time upon 60 days' written
notice to the other party by: (i) the majority vote of all the Directors or by
vote of a majority of the outstanding voting securities of the Fund; or (ii) the
Investment Adviser.
The Investment Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 as amended, the "Advisers Act". The Investment
Adviser is an independent, privately-held corporation.
Steven T. Newby is President of the Investment Adviser and is the portfolio
manager of the Fund since its inception on March 1, 2000. Since July 1990, Mr.
Newby has been President of Newby & Company, a securities broker/dealer firm
located in Gaithersburg, Maryland. Newby & Company is a member firm of the
National Association of Securities Dealers and the Securities Investor
Protection Corporation.
Under the Advisory Agreement, the Investment Adviser, subject to the supervision
of the Directors, provides a continuous investment program for the Fund,
including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies, and restrictions as set forth in the Prospectus and this
SAI. The Investment Adviser is responsible for effecting all security
transactions on behalf of the Fund, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions. The
Investment Adviser also maintains books and records with respect to the
securities transactions of the Fund and furnishes to the Directors such periodic
or other reports as the Directors may request.
Under the Advisory Agreement, the monthly compensation paid to the Investment
Adviser is accrued daily at an annual rate of 1.00% on the first $250 million of
average daily net assets of the Fund; 0.875% on average daily net assets of the
Fund in excess of $250 million and not more than $500 million; and , 0.75% on
average daily net assets of the Fund over $500 million.
For the fiscal period from March 1, 2000 (commencement of operations) through
August 31, 2000, the Investment Adviser earned $52,715 from the Fund. During
this same period, the Investment Adviser waived it's fees and reimbursed
operating expenses in the amount of $76,825.
In the interest of limiting expenses of the Fund, the Investment Adviser has
entered into a contractual expense limitation agreement with the Company.
Pursuant to the agreement, the Investment Adviser has agreed to waive or limit
its fees and to assume other expenses so that the ratio of total annual
operating expenses for the Fund is limited to 1.90%. 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 Investment Adviser
will be entitled to reimbursement of fees waived or reimbursed by the Investment
Adviser to the Fund. The total amount of reimbursement recoverable by the
Investment Adviser (the "Reimbursement Amount") is the sum of all fees
previously waived or reimbursed by the Investment Adviser to the Fund during any
of the previous five (5) years, less any reimbursement previously paid by the
Fund to the Investment Adviser with respect to any waivers, reductions, and
payments made with respect to the Fund. The Reimbursement Amount may not include
any additional charges or fees, such as interest accruable on the Reimbursement
Amount. Such reimbursement must be authorized by the Directors.
Pursuant to the terms of the Advisory Agreement, the Investment Advisor pays all
expenses incurred by it in connection with its activities thereunder, except the
cost of securities (including brokerage commissions, if any) purchased for the
Fund. The services furnished by the Investment Adviser under the Advisory
Agreement are not exclusive, and the Investment Adviser is free to perform
similar services for others.
MANAGEMENT-RELATED SERVICES
ADMINISTRATION
Pursuant to an Administrative Services Agreement with the Company dated March 1,
2000 (the "Administrative Agreement"), Commonwealth Shareholder Services, Inc.
("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Fund and supervises all aspects of the operation of the
Fund except those performed by the Investment Adviser. John Pasco, III, Chairman
of the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% on the first $250 million of
average daily net assets of the Fund; 0.175% on average daily net assets of the
Fund in excess of $250 million and not more than $500 million; 0.15% on average
daily net assets of the Fund in excess of $500 million and not more than $1
billion; and 0.10% on average daily net assets of the Fund in excess of $1
billion, subject to a minimum amount of $15,000 per year for a period of two
years from the date of the Administrative Agreement. Thereafter, the minimum
administrative fee is $30,000 per year. CSS also receives an hourly rate, plus
certain out-of-pocket expenses, for shareholder servicing and state securities
law matters. For the period from March 1, 2000 (commencement of operations)
through August 31, 2000, CSS received $19,569 from the Fund for its services as
administrator.
CUSTODIAN AND ACCOUNTING SERVICES
Pursuant to a Custodian Agreement with the Company dated October 28, 1998, Brown
Brothers Harriman & Co. ("BBH"), 40 Water Street, Boston Massachusetts, 02109,
acts as the custodian of the Fund's securities and cash. 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 which may be acquired and held by the Fund outside the U.S.
Such appointments are subject to appropriate review by the Company's Board of
Directors.
Pursuant to an Accounting Service Agreement dated March 1, 2000 (the
"Accounting Agreement"), Commonwealth Fund Accounting, Inc. ("CFA"), is
responsible for accounting relating to the Fund and its investment transactions;
maintaining certain books and records of the Fund; determining daily the net
asset value per share of the Fund; and preparing security position, transaction
and cash position reports. CFA also monitors periodic distributions of gains or
losses on portfolio sales and maintains a daily listing of portfolio holdings.
CFA is responsible for providing expenses accrued and payment reporting
services, tax-related financial information to the Company, and for monitoring
compliance with the regulatory requirements relating to maintaining accounting
records. John Pasco, III, Chairman of the Board of the Company, is a shareholder
of of CFA, and is its President and Chief Financial Officer. For the period from
March 1, 2000 (commencement of operations) through August 31, 2000, CFA received
$4,458 from the Fund for its services.
TRANSFER AGENT
Pursuant to a Transfer Agency Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI" or the "Transfer Agent") acts as the Company's
transfer, dividend disbursing and redemption agent. FSI is located at 1500
Forest Avenue, Suite 111, Richmond, VA 23229. John Pasco, III, Chairman of the
Board of the Company owns one-third of the voting shares of FSI, and therefore,
FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders for shares and
ensuring appropriate participation with the National Securities Clearing
Corporation for transactions in the Fund's shares. FSI receives and processes
redemption requests and administers distribution of redemption proceeds. FSI
also handles shareholder inquiries and provides routine account information. In
addition, FSI prepares and files appropriate tax related information concerning
dividends and distributions to shareholders.
Under the Transfer Agency Agreement, FSI is compensated pursuant to a schedule
of services, and is reimbursed for out-of-pocket expenses. The schedule calls
for a minimum payment of $12,000 for the first year and $16,500 per year
thereafter.
For the fiscal period from March 1, 2000 (commencement of operations) through
through August 31, 2000, FSI received $15,427/ from the Fund for its services
as transfer agent.
DISTRIBUTOR
First Dominion Capital Corp. ("FDCC" or the "Distributor"), located at 1500
Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as the principal
underwriter and national distributor for the shares of the Fund pursuant to a
Distribution Agreement dated August 19, 1997 (the "Distribution Agreement").
John Pasco, III, Chairman of the Board of the Company, owns 100% of FDCC, and is
its President, Treasurer and a Director. FDCC is registered as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc. The
offering of the Fund's shares is continuous. There are no sales charges in
connection with purchases and redemptions of Fund shares. FDCC does not receive
underwriting discounts and commissions, brokerage commissions or other
compensation as a result of the sale of the Fund's shares.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" (the "Plan") in accordance
with Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may finance
activities primarily intended to sell shares, provided that the categories of
the expenses are approved in advance by the Board of Directors of the Company
and the expenses paid under the Plan are 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 0.25% of the Fund's average daily net assets. The fee is paid to
the Distributor as reimbursement for expenses incurred for distribution-related
activity. For the period from March 1, 2000 (commencement of operations) through
August 31, 2000, there were $13,179 of allowable distribution expenses incurred,
of which $9,110 were waived. The expenses incurred were for printing. FDCC is
the underwriter for the Fund. John Pasco, III, Chairman of the World Funds, Inc.
is President and sole shareholder of the underwriter.
INDEPENDENT ACCOUNTANTS
The Company's independent auditors, 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 Investment Adviser, in placing orders for the purchase
and sale of the Fund's securities, to seek to obtain the best price and
execution for its securities transactions, taking into account such factors as
price, commission, where applicable, (which is negotiable in the case of U.S.
national securities exchange transactions but which is generally fixed in the
case of foreign exchange transactions), size of order, difficulty of execution
and the skill required of the executing broker/dealer. After a purchase or sale
decision is made by the Investment Adviser, the Investment Adviser arranges for
execution of the transaction in a manner deemed to provide the best price and
execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Investment Adviser, when placing transactions, may allocate a portion of the
Fund's brokerage to persons or firms providing it with investment
recommendations or statistical, research or similar services useful in its
decision making process. The term "investment recommendations or statistical,
research or similar services" means (1) advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and (2)
analyses and reports concerning issuers, industries, securities, economic
factors and trends, and portfolio strategy. The Investment Adviser may cause the
Fund to pay a commission higher than that charged by another broker in
consideration of such research services. Such services are one of the many ways
the Investment Adviser can keep abreast of the information generally circulated
among institutional investors by broker-dealers. While this information is
useful in varying degrees, its value is indeterminable. Such services received
on the basis of transactions for the Fund may be used by the Investment Adviser
for the benefit of the Fund and other clients, and the Fund may benefit from
such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Investment Adviser is not authorized, when
placing portfolio transactions for the Fund, to pay a brokerage commission in
excess of that which another broker might have charged for executing the same
transaction solely on the basis of execution. Except for implementing the policy
stated above, there is no intention to place portfolio transactions with
particular brokers or dealers or groups thereof.
The Fund paid no brokerage commissions for the fiscal period from March 1,
2000 (commencement of operations) through August 31, 2000.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Investment Adviser makes purchases and sales
for the Fund's portfolio whenever necessary, in its opinion, to meet the Fund's
objective. The Investment Adviser anticipates that the Fund's average annual
portfolio turnover rate will be 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is a series investment company that currently offers one class of
shares. The Company is authorized to issue 750,000,000 shares of common stock,
with a par value of $0.01 per share. The Company has currently allocated
50,000,000 shares to the Fund and 350,000,000 shares to other series of the
Company. Each share has equal dividend, voting, liquidation and redemption
rights. There are no preemptive rights and only such conversion or exchange
rights as the Board of Directors, in its discretion, may grant. Shares of the
Fund do not have cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Directors can elect all of the
Directors if they choose to do so. In such event, the holders of the remaining
shares will not be able to elect any person to the Board of Directors. Shares
will be maintained in open accounts on the books of the Transfer Agent.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Directors. Upon the Company's liquidation, all shareholders of
a series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the Fund at their net
asset value as of the date of payment unless the shareholder elects to receive
such dividends or distributions in cash. The reinvestment date normally precedes
the payment date by about seven days although the exact timing is subject to
change. Shareholders will receive a confirmation of each new transaction in
their account. The Company will confirm all account activity, including the
payment of dividend and capital gain distributions and transactions made as a
result of the Automatic Investment Plan described below. Shareholders may rely
on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
PURCHASING SHARES.
The Fund reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund. Under certain circumstances the Company or the
Investment Adviser may waive the minimum initial investment for purchases by
officers, Directors, and employees of the Company and its affiliated entities
and for certain related advisory accounts and retirement accounts (such as
IRAs). The Fund may also change or waive policies concerning minimum investment
amounts at any time.
SELLING SHARES.
You may sell your shares by giving instructions to the Transfer Agent by mail or
by telephone.
The Board of Directors may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such exchange is closed for other than
weekends and holidays, (b) the SEC has by order permitted such suspension, or
(c) an emergency, as defined by rules of the SEC, exists during which time the
sale of Fund shares or valuation of securities held by the Fund are not
reasonably practicable.
SMALL ACCOUNTS.
Due to the relative higher cost of maintaining small accounts, the Fund may
deduct $50 per year from your account, if, as a result of redemption or exchange
of shares, the total investment remaining in the account has a value of less
than $5,000. Shareholders will receive 30 days' written notice to increase the
account value above $5,000 before the fee is to be deducted. A decline in the
market value of your account alone would not require you to bring your
investment up to this minimum.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account.
The regular account allows for voluntary investments to be made at any time.
Available to individuals, custodians, corporations, trusts, estates, corporate
retirement plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish. Simply use the
Account Application provided with the Prospectus to open your account.
Telephone Transactions.
A shareholder may redeem shares or transfer into another fund by telephone if
this service is requested at the time the shareholder completes the initial
Account Application. If you do not elect this telephone service at that time,
you may do so at a later date by putting your request in writing to the Transfer
Agent and having your signature guaranteed.
The Fund employs reasonable procedures designed to confirm the authenticity of
instructions communicated by telephone and, if the procedures are followed the
Fund will not be liable for any losses due to unauthorized or fraudulent
transactions. As a result of this policy, a shareholder authorizing telephone
redemption bears the risk of loss which may result from unauthorized or
fraudulent transactions which the Fund believes to be genuine. When requesting a
telephone redemption or transfer, the shareholder will be asked to respond to
certain questions designed to confirm the shareholder's identify as a
shareholder of record. Cooperation with these procedures helps to protect the
account and the Fund from unauthorized transactions.
Automatic Investment Plan.
Any shareholder may utilize this feature, which provides for automatic monthly
investments into your account. Upon your request, the Transfer Agent will
withdraw a fixed amount each month from a checking or savings account for
investment into the Fund. This does not require a commitment for a fixed period
of time. A shareholder may change the monthly investment, skip a month or
discontinue the Automatic Investment Plan as desired by notifying the Transfer
Agent.
Individual Retirement Account ("IRA").
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000. A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules as for contributions
made by individuals with earned income. A special IRA program is available for
corporate employees under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate employer of
many of the recordkeeping requirements of establishing and maintaining a
corporate retirement plan trust.
If a shareholder has received a distribution from another qualified retirement
plan, all or part of that distribution may be rolled over into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer federal income taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA.
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a five-year period, beginning with the first tax year for which a
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year. An annual limit of $2,000 applies to
contributions to regular and Roth IRAs. For example, if a taxpayer contributes
$2,000 to a regular IRA for a year, he or she may not make any contribution to a
Roth IRA for that year.
How to Establish Retirements Accounts.
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. A shareholder may wish to consult with an attorney or
other tax adviser for specific advice concerning tax status and plans.
Exchange Privilege.
Shareholders may exchange their shares for shares of a suitable money market
fund. The account must meet the minimum investment requirements. A written
request must have been completed and be on file with the Transfer Agent. To make
an exchange, an exchange order must comply with the requirements for a
redemption or repurchase order and must specify dollar amount or the number of
shares to be exchanged. An exchange will take effect as of the next
determination of the Fund's NAV per share (usually at the close of business on
the same day). The Transfer Agent may charge the shareholder's account a $10
service fee each telephone exchange. The Company reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict shareholders from
making exchanges at any time, without notice, should the Company determine that
it would be in the best interest of its shareholders to do so. For tax purposes
an exchange constitutes the sale of the shares of the fund from which you are
redeeming and the purchase of shares of the fund into which you are exchanging.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income.
The Fund receives income generally in the form of interest and other income on
their investments. This income, less expenses incurred in the operation of the
Fund, constitutes net investment income from which dividends may be paid to you.
Any distributions by the Fund from such income will be taxable to you as
ordinary income, whether you take them in cash or reinvest them in additional
shares.
Distribution of capital gains.
The Fund may derive capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or eliminated
excise or income taxes on the Fund.
Information on the tax character of distributions.
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
the tax status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be 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 pay no federal income tax on
the income and gains it distributes to you. The Board reserves the right not to
maintain the qualifications of the Fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such case,
the Fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires a fund to
distribute to shareholders by December 31 of each year, at a minimum the
following amounts: 98% of its taxable ordinary income earned during the twelve
month period ending October 31, and 100% of any undistributed amounts from the
prior year. The Fund intends to declare and pay these amounts in December (or in
January which must be treated by you as received in December) to avoid these
excise taxes, but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
Redemption of Fund shares.
Redemption and exchanges of Fund shares are taxable transactions for federal and
state income tax purposes. If you redeem or exchange your Fund shares for shares
of a different fund within the Company, the IRS will require that you report a
gain or loss on your redemption or exchange. The gain or loss that you realize
will be either a long-term or short-term capital gain or loss depending on how
long you held your shares. Any loss incurred on the redemption or exchange of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gains distributed to you by the Fund on
those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. government obligations.
Many states grant tax-free status to dividends paid to shareholders from
interest earned on direct obligations of the U.S. government, subject in some
states to minimum investment requirements that must be met by the Fund.
Investments in Government National Mortgage Association or Federal National
Mortgage Association securities, bankers' acceptances, commercial paper and
repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
Dividends received deduction for corporations.
Because the Fund's income includes corporate dividends, if the shareholder is a
corporation, a portion of its distributions may qualify for the intercorporate
dividends-received deduction. You will be permitted in some circumstances to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculations.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to relevant indices, in advertisements or in reports to
shareholders, The Fund states performance in terms of total return or yield.
Both "total return" and "yield" figures are based on the historical performance
of the Fund, show the performance of a hypothetical investment and are not
intended to indicate future performance.
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
YIELD = 2[(a-b + 1) -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
The 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 the 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 the
Fund's yield differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the compounding
assumed in yield calculations, the yield quoted for a fund may differ from the
rate of distributions the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
TOTAL RETURN PERFORMANCE
Under the rules of the SEC, fund advertising performance must include total
return quotes, "T" below, calculated according to the following formula:
n
P(1+ T) = ERV
Where:
P = a hypothetical initial payment $1,000 T = average annual total return
n = number of years (l, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
The average annual total return will be calculated under the foregoing formula
and the time periods used in advertising will be based on rolling calendar
quarters, updated to the last day of the most recent quarter prior to submission
of the advertising for publication, and will cover prescribed periods. When the
period since inception is less than one year, the total return quoted will be
the aggregate return for the period. In calculating the ending redeemable value,
all dividends and distributions by the Fund are assumed to have been reinvested
at NAV as described in the prospectus on the reinvestment dates during the
period. Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the prescribed periods (or
fractional portions thereof) that would equate the initial amount invested to
the ending redeemable value.
Based on the foregoing, the Fund's aggregate total return for the period
March 1, 2000 (commencement of operations) through August 31, 2000 was 5.40%.
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specified periods of time by assuming the investment of $1,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Fund Performance Analysis, Intersec Research Survey of Non-U.S. Equity
Fund Returns, Frank Russell International Universe, and any other data which may
be reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's Fortune, Money Magazine, The New York Times, Financial World, Financial
Services Week, USA today and other national or regional publications.
FINANCIAL INFORMATION
You can receive free copies of reports, request other information and discuss
your questions about GenomicsFund.com (the "Fund") by contacting the Fund
directly at:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
TELEPHONE: 1-800-527-9525
E-MAIL: [email protected]
The Annual Report for the fiscal period ended August 31, 2000 has been filed
with the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Fund included in the Annual Report have been audited by the
Fund's independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
THE WORLD FUNDS, INC.
Global e Fund
PROSPECTUS
Prospectus Dated _______________________
This Prospectus describes the Global e Fund (the "Fund"), a series of shares
offered by The World Funds, Inc. (the Company"). A series fund offers you a
choice of investments, with each series having its own investment objective and
a separate portfolio. The Fund seeks capital appreciation by investing in a
non-diversified portfolio of equity securities. The Fund offers two classes of
shares: Class A Shares with a front-end sales charge and Class B Shares which
are subject to a contingent deferred sales charge.
As with all mutual funds, the U.S. Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the accuracy or
completeness of this Prospectus. It is a criminal offense to suggest otherwise.
<PAGE>
RISK RETURN SUMMARY
Investment Objective: Capital appreciation
Principal Investment
Strategies: The Fund will seek to achieve its investment
objective by investing in a non-diversified portfolio
consisting primarily of equity securities, such as
common stocks, securities convertible into common stock
and warrants of companies principally engaged in
Internet and Internet-related businesses.
A company is considered principally engaged in Internet
or Internet-related business if it is engaged in the
research, design, development, manufacturing or
engaged to a significant extent in the business of
distributing products, processes or services for use
with the Internet or Internet-related businesses.
Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities of companies
located outside of the U.S. principally engaged in
Internet and Internet-related businesses. The Fund
intends to invest its assets in many countries and
normally will have business activities of not less than
three (3)different countries represented in its
portfolio. The Fund may also invest in securities of
companies in emerging and developing markets.
The Fund will not be limited to investing in securities
of companies of any size, securities of any particular
market, or to hold particular securities for a stated
time period. The Fund may invest in companies with
small market capitalization or companies that have
relatively small revenues, limited product lines, and a
small share of the market for their products or
services (collectively, "small companies").
Principal Risks: The principal risk of investing in the Fund is that the
value of its investments are subject to market,
economic and business risk that may cause the Net Asset
Value ("NAV") to fluctuate over time. Therefore, the
value of your investment in the Fund could decline and
you could lose money. There is no assurance that the
investment adviser will achieve the Fund's objective of
capital appreciation.
The Fund operates as a non-diversified fund. As such
the Fund may invest a larger portion of its assets in
fewer securities. This may cause the market action of
the Fund's larger portfolio positions to have a greater
impact on the Fund's NAV, which could result in
increased volatility.
The value of the Fund's shares is susceptible to factors
affecting the Internet such as heightened regulatory
oversight and possible changes in government policies
which may have a material effect on the products and
services of this sector. Securities of companies in
this sector tend to be more volatile than securities of
companies in other sectors. Competitive pressures and
changing demand may have a significant effect on the
financial condition of Internet companies. These
companies spend heavily on research and development and
are especially sensitive to the risk of product
obsolescence. The occurrence of any of these factors,
individually or collectively, may adversely affect the
value of the Fund's shares and could result in the loss
of your investment.
Investments in foreign countries may involve financial,
economic or political risks that are not ordinarily
associated with U.S. securities. Hence, the Fund's
NAV may be affected by changes in exchange rates between
foreign currencies and the U.S. dollar, different
regulatory standards, less liquidity and increased
volatility, taxes and adverse social or political
developments. Foreign companies are not generally
subject to the same accounting, auditing and
financial reporting standards as are domestic companies.
Therefore, there may be less information available about
a foreign company than there is about a domestic
company. In addition, as investments may be made
utilizing foreign currencies, there is the risk of
currency devaluation that may effect this investment.
In addition to the typical risks that are associated
with investing in foreign countries, companies in
emerging and developing countries generally do not have
lengthy operating histories. Consequently, these markets
may be subject to more substantial volatility and price
fluctuation than securities traded in more developed
markets.
Because exchange rates for currencies fluctuate daily,
prices of the foreign securities in which the Fund
invests are more volatile than prices of securities
traded exclusively in the U.S.
Because the small companies in which the Fund may invest
may have unproven track records, a limited product or
services base and limited access to capital, they may be
more likely to fail than larger companies.
An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other
government agency.
Investor Profile: You may want to invest in the Fund if you are seeking
capital appreciation and are willing to accept share
prices that may fluctuate, sometimes significantly,
over the short-term. The Fund may be particularly
suitable for you if you wish to take advantage of
opportunities in the securities markets located outside
of the U.S. You should not invest in the Fund if you are
not willing to accept the risks associated with
investing in foreign countries. The Fund will not be
appropriate if you are seeking current income or are
seeking safety of principal.
Performance
Information: The Fund has not yet completed one full calendar year
of operations. Accordingly, no performance information
is being presented.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. The annual operating
expenses, which cover the costs of investment management, administration,
accounting and shareholder communications, are shown as an annual percentage of
the Fund's average daily net assets.
Shareholder Transaction Fees (fees paid directly from your investment)
Class A Shares Class B Shares
-------------- --------------
Maximum Sales Charge (Load)(1) 5.50% None
Maximum Deferred Sales Charge (Load) None(2) 5.00%(3)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and Distributions None None
Redemption Fees (4) None None
Exchange Fees (5) None None
Estimated Annual Operating Expenses(expenses that are deducted from Fund
assets)
Class A Shares Class B Shares
-------------- --------------
Advisory Fee 1.25% 1.25%
Distribution (12b-1) Fees(6) 0.50% 1.00%
Other Expenses 1.98% 1.74%(7)
----- --------
Total Annual Fund Operating Expenses 3.73% 3.99%
Fee Waivers and/or Expense Reimbursements(8) 0.24% None
----- --------
Net Expenses 3.49% 3.99%
1) As a percentage of offering price. Reduced rates apply to purchases over
$25,000, and the sales charge is waived for certain classes of investors.
See "Buying Fund Shares-Public Offering Price" and "Buying Fund
Shares-Rights of Accumulation."
2) If you are in a category of investors who may purchase shares without a
sales charge, you will be subject to a 1% contingent deferred sales charge
if you redeem your shares within 1 year of purchase.
3) A 5% deferred sales charge as a percentage of the original purchase price
will apply to any redemption made within the first year. During the second
year, redeemed shares will incur a 4% sales charge. During years three and
four you will pay 3%, during year five 2%, and during year six 1%. The
contingent deferred sales charge is eliminated after the sixth year. Class
B Shares automatically convert to Class A Shares eight years after the
calendar month end in which the Class B Shares were purchased.
4) A shareholder electing to redeem shares by telephone request may be charged
$10 for each such redemption request.
5) A shareholder may be charged a $10 fee for each telephone exchange.
6) The Company has approved a Plan of Distribution pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended, (the "1940 Act") providing
for the payment of distribution fees to the distributors for the Fund.
Class A Shares pay a maximum distribution fee of 0.50% of average daily net
assets, and Class B Shares pay a maximum distribution fee of 1.00% of
average daily net assets. See "Rule 12b-1 Fees." The higher 12b-1 fees
borne by Class B Shares may cause long-term investors to pay more than the
economic equivalent of the maximum front end sales charge permitted by the
National Association of Securities Dealers (the "NASD").
7) Because Class B Shares are new, "Other Expenses" are based on estimated
amounts for the current fiscal year.
8) In the interest of limiting expenses of the Fund, Global Assets Advisors,
Inc. (the "Adviser") has entered into a contractual expense limitation
agreement with the Company. Pursuant to the agreement, the Adviser has
agreed to waive or limit its fees and to assume other expenses for the
first three years following commencement of operations so that the ratio of
total annual operating expenses of the Fund are limited to 3.49% for Class
A Shares and 3.99% for Class B Shares.
The purpose of these tables is to assist investors in understanding the various
costs and expenses that they will bear directly or indirectly.
EXAMPLE:
The following expense example shows the expenses that you could pay over time.
It will help you compare the costs of investing in the Fund with the cost of
investing in other mutual funds. The example assumes that you invest $10,000 in
the Fund, you reinvest all dividends and distributions in additional shares of
the Fund and then you 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
------ -------
Class A Shares (1)(2) $882 $1,562
Class B Shares (3) $901 $1,515
(1) With respect to Class A Shares, the above examples assume payment of the
maximum initial sales charge of 5.50% at the time of purchase. The sales
charge varies depending upon the amount of Fund shares that an investor
purchases. Accordingly, your actual expenses may vary.
(2) These costs are net of fee waivers and reimbursements to maintain total
operating expenses at 3.49% pursuant to a contractual expense limitation
agreement (see "Management Organization and Capital Structure").
(3) With respect to Class B Shares, the above examples assume payment of the
deferred sales charge applicable at the time of redemption.
Absent this commitment, your costs would be:
1 Year 3 Years
------ -------
Class A Shares $905 $1,628
Class B Shares $901 $1,515
OBJECTIVES AND STRATEGIES
The Fund's investment objective is to achieve capital appreciation. The
Fund seeks to achieve its objective by investing in a non-diversified portfolio
consisting primarily of equity securities such as common stocks, securities that
are convertible into common stocks and warrants. Under normal circumstances, the
Fund will invest at least 65% of its total assets in securities of companies
which are principally engaged in Internet and Internet-related businesses which
are: located outside of the U.S.; have a majority of their operations outside
the U.S.; or have securities primarily traded on a foreign exchange. The Fund
intends to invest its assets in many countries and normally will have business
activities of not less than three (3) different countries represented in its
portfolio. The securities the Fund purchases may not always be purchased on the
principal market. For example, American Depositary Receipts ("ADRs") may be
purchased if trading conditions and liquidity make them more attractive than the
underlying security. The Fund may select its investments from companies which
are listed on a securities exchange or from companies whose securities have an
established over-the-counter market, and may make limited investments in "thinly
traded" securities. In determining which portfolio securities to sell, the
Adviser considers the following: (1) if a stock appreciates such that, as a
total percentage of our portfolio, it becomes too large; (2) if the sector or
stock appears to be under-performing; (3) if the company management appears to
be engaging in conduct not in the best interest of public shareholders; (4) to
sell loss positions in order to reduce taxable gains to our shareholders
reflected in earlier sales of positions with gains; and, (5) to raise funds to
cover redemptions.
The Internet is an emerging global communication, information and distribution
system. The Adviser believes that the Internet offers favorable investment
opportunities because of its ever growing popularity among business and personal
users alike. Consequently, there are opportunities for continued growth in
demand for components, products, media, services, and systems to assist,
facilitate, enhance, store, process, record, reproduce, retrieve and distribute
information, products and services for use by businesses, institutions and
consumers. However, older technologies such as telephone, broadcast and cable
have entered the Internet world with a strong presence and may also be
represented in the portfolio when the Adviser believes that these companies may
successfully integrate existing technology with new technologies. Products and
services identified for investment include, but are not limited to, servers,
routers, search engines, portals, bridge and switches, network applications,
software, cable, satellite, fiber, modems, carriers, firewall and security,
e-mail, electronic commerce, video and publishing.
The Internet has exhibited and continues to demonstrate rapid growth, both
through increasing demand for existing products and services and the broadening
of the Internet market. This provides a favorable environment for investment in
small to medium capitalized companies. However, the Fund's investment policy is
not limited to any minimum capitalization requirement and the Fund may hold
securities without regard to the capitalization of the issuer. The Adviser's
overall stock selection for the Fund is not based on the capitalization or size
of the company but rather on an assessment of the company's fundamental
prospects.
Using a combination of top-down/bottom-up investment approach, the Adviser
analyzes foreign countries in relation to the U.S. to determine their level of
Internet "Evolution" . When selecting investments for the Fund, the Adviser will
seek to identify Internet companies that it believes are likely to benefit from
new or innovative products, services or processes that can enhance the
companies' prospects for future earnings growth. Some of these companies may not
have an established history of revenue or earnings at the time of purchase and
any dividend income is likely to be incidental.
The Fund may invest indirectly in securities through sponsored and
unsponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other types of Depositary
Receipts (collectively "Depositary Receipts"), to the extent such Depositary
Receipts become available. ADRs are Depositary Receipts typically issued by a
U.S. bank or trust company evidencing ownership of underlying foreign
securities.
GDRs, EDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by U.S. banks
or trust companies, evidencing ownership of underlying securities issued by
either a foreign or a U.S. corporation. Depositary Receipts may not necessarily
be denominated in the same currency of the underlying securities into which they
may be converted. For purposes of the Fund's investment policies, investments in
Depositary Receipts will be deemed to be investments in the underlying
securities.
The Fund may invest in companies with small market capitalization (i.e., less
than $250 million) or companies that have relatively small revenues, limited
product lines, and a small share of the market for their products or services
(collectively, "small companies"). Small companies are also characterized by the
following: (1) they may lack depth of management; (2) they may be unable to
internally generate funds necessary for growth or potential development or to
generate such funds through external financing on favorable terms; and (3) they
may be developing or marketing new products or services for which markets are
not yet established and may never become established.
The Fund may invest in securities involving special circumstances, such as
initial public offerings, companies with new management or management reliant on
one or a few key people, special products and techniques, limited or cyclical
product lines, markets or resources or unusual developments, such as mergers,
liquidations, bankruptcies or leveraged buyouts.
In addition to common stocks and securities that are convertible into common
stocks, the Fund may invest in shares of closed-end investment companies which
invest in securities that are consistent with the Fund's objectives and
strategies. By investing in other investment companies, the Fund indirectly pays
a portion of the expenses and brokerage costs of these companies as well as its
own expenses. Also, federal securities laws impose limits on such investments,
which may affect the ability of the Fund to purchase or sell these shares.
Other Investments. In addition to the investment strategies described above, the
Fund may engage in other strategies such as derivatives. Investments in
derivatives, such as options, can significantly increase the Fund's exposure to
market risk or credit risk of the counterparty, as well as improper valuation
and imperfect correlation.
RISKS
Stock Market Risk.
The Fund is subject to stock market risk. Stock market risk is the possibility
that stock prices overall will decline over short or long periods. Because stock
prices tend to fluctuate, the value of your investment in the Fund may increase
or decrease. The Fund's investment success depends on the skill of the Adviser
in evaluating, selecting and monitoring the portfolio assets. If the Adviser's
conclusions about growth rates or securities values are incorrect, the Fund may
not perform as anticipated.
Non-diversification; Industry Concentration.
The Fund is non-diversified under the 1940 Act. Under the 1940 Act, the Fund may
invest its assets in the securities of a smaller number of investors. In
addition, the Fund may invest more than 25% of its assets in what may be
considered a single industry sector or several closely related industries.
Accordingly, the Fund may be more susceptible to the effects of adverse
economic, political or regulatory developments affecting a single issuer or
industry sector than funds that diversify to a greater extent.
Sector Risk.
Internet and Internet-related companies are particularly vulnerable to rapidly
changing technology and relatively high risks of obsolescence caused by
progressive scientific and technological advances. The economic prospects of
Internet and Internet-related companies can dramatically fluctuate due to the
competitive environment in which these companies operate. Therefore, the Fund
may experience greater volatility than funds whose portfolio are not subject to
these types of risks.
Foreign Investing.
The Fund's investments in foreign securities may involve risks that are not
ordinarily associated with U.S. securities. Foreign companies are not generally
subject to the same accounting, auditing and financial reporting standards as
are domestic companies. Therefore, there may be less information available about
a foreign company than there is about a domestic company. Certain countries do
not honor legal rights enjoyed in the U.S. In addition, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments, which could affect U.S. investments in those countries.
Investments in foreign companies often are made in the foreign currencies,
subjecting the investor to the risk of currency devaluation or exchange rate
risk. In addition, many foreign securities markets have substantially less
trading volume than the U.S. markets, and securities of some foreign issuers are
less liquid and more volatile than securities of domestic issuers. These factors
make foreign investment more expensive for U.S. investors. Mutual funds offer an
efficient way for individuals to invest abroad, but the overall expense ratios
of mutual funds that invest in foreign markets are usually higher than those of
mutual funds that invest only in U.S. securities.
Emerging and Developing Markets.
A Fund's investments in emerging and developing countries involve those same
risks that are associated with foreign investing in general (see above). In
addition to those risks, companies in such countries generally do not have
lengthy operating histories. Consequently, these markets may be subject to more
substantial volatility and price fluctuations than securities that are traded on
more developed markets.
Depositary Receipts.
In addition to the risk of foreign investments applicable to the underlying
securities, unsponsored Depositary Receipts may also be subject to the risks
that the foreign issuer may not be obligated to cooperate with the U.S. bank,
may not provide additional financial and other information to the bank or the
investor, or that such information in the U.S. market may not be current. Please
refer to the Statement of Additional Information (the "SAI") for more
information on Depositary Receipts.
Small Companies.
Historically, stocks of small companies have been more volatile than stocks of
larger companies and are, therefore, more speculative than investments in larger
companies. Among the reasons for the greater price volatility are the following:
(1) the less certain growth prospects of smaller companies; (2) the lower degree
of liquidity in the markets for such stocks; and (3) the greater sensitivity of
small companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. Due to
these and other factors, small companies may suffer significant losses, as well
as realize substantial growth. Thus, securities of small companies present
greater risks than securities of larger, more established companies. You should
therefore expect that the value of Fund shares to be more volatile than the
shares of mutual fund investing primarily in larger company stocks.
Investments in small or unseasoned companies or companies with special
circumstances often involve much greater risk than are inherent in other types
of investments, because securities of such companies may be more likely to
experience unexpected fluctuations in prices.
European Currency.
Several European countries are participating in the European Economic and
Monetary Union, which established a common European currency for participating
countries. This currency is commonly known as the "Euro". Each participating
country has pegged its existing currency with the Euro as of January 1, 1999 and
many transactions in these countries are valued and conducted in the Euro. The
majority of stock transactions in the major markets now are made in Euros.
Additional European countries may elect to participate in the common currency in
the future. The conversion presents unique uncertainties, including, among
others: (1) whether the payment and operational systems of banks and other
financial institutions will function properly; (2) how certain outstanding
financial contracts that refer to existing currencies rather than the Euro will
be treated legally; (3) how exchange rates for existing currencies and the Euro
will be established; and (4) how suitable clearing and settlement payment
systems for the Euro will be managed. The Fund invests in securities of
countries that have converted to the Euro or will convert in the future and
could be adversely affected if these uncertainties cause adverse effects on
these securities.
Portfolio Turnover.
Although the Fund does not generally intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed when circumstances
warrant, without regard to the length of time a particular security has been
held. It is expected that the Fund will have an annual portfolio turnover rate
that will generally not exceed 100%. A 100% turnover rate would occur if all the
Fund's portfolio investments were sold and either repurchased or replaced within
a year. A high turnover rate (100% or more) results in correspondingly greater
brokerage commissions and other transactional expenses which are borne by the
Fund. High portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to shareholders, will be
taxable as ordinary income.
Temporary Defensive Positions.
When the Adviser believes that investments should be deployed in a temporary
defensive posture because of economic or market conditions, the Fund may invest
up to 100% of its assets in U.S. Government securities (such as bills, notes, or
bonds of the U.S. Government and its agencies) or other forms of indebtedness
such as bonds, certificates of deposits or repurchase agreements (for the risks
involved in repurchase agreements see the SAI). For temporary defensive
purposes, the Fund may hold cash or debt obligations denominated in U.S. dollars
or foreign currencies. These debt obligations include U.S. and foreign
government securities and investment grade corporate debt securities, or bank
deposits of major international institutions. When a Fund is in a temporary
defensive position, it is not pursuing its stated investment policies and may
not achieve its investment objective. The Adviser decides when it is appropriate
to be in a defensive position. It is impossible to predict for how long such
defensive strategies will be utilized.
MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
The Company.
The 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
1940 Act and is commonly known as a "mutual fund". The Company has retained an
adviser to manage all aspects of the investments of the Fund.
Investment Adviser.
Global Assets Advisors, Inc. (the "Adviser") manages the investment of the
assets of the Fund pursuant to the Investment Advisory Agreement (the "Advisory
Agreement"). The address of the Adviser is 250 Park Avenue South, Suite 200,
Winter Park, Florida 32789. Although the Adviser has not previously served as
the investment adviser for an open-end investment company, it has served as the
adviser to The Global Internet Trust, a unit investment trust registered under
the 1940 Act that is invested in a portfolio of global internet securities.
Mr. Michael M. Ward is the Portfolio Manager of the Fund since it's
inception on May 1, 2000. Mr. Ward, a Chartered Financial Analyst (CFA), has
been Vice President and Director of Equity Research at International Assets
Advisory Corporation ("IAAC"), the distributor of the Fund's Class A Shares,
since 1997. The Adviser and IAAC are both subsidiaries of International Assets
Holding Corporation. IAAC originated and maintains the "NETDEX", an index of
international internet companies. As a portfolio manager of the Adviser, Mr.
Ward manages and/or oversees more than $50 million in global investments for a
wide variety of clients. Prior to joining IAAC, he was a Financial Analyst at
Grande Journeys and a consultant with Winter Park Capital Assets. Mr. Mido
Shammaa and Mr. Stefan Spath are Assistant Portfolio Managers of the Fund since
its inception. Mr. Shammaa, regional strategist for Asia and Internet analyst,
joined IAAC in 1998. He specializes in the equity analysis of both developed and
emerging markets securities in Southeast Asia and the Pacific Rim. Prior to
joining IAAC, Mr. Shammaa worked in the Risk Management division of Banco
Popular. At Banco Popular, Mr. Shammaa helped develop financial products and
quantitative risk management tools. Mr. Spath joined IAAC in 1997 and
specializes in international securities analysis, global macroeconomics and
geo-political risk. Prior to his work at IAAC, Mr. Spath was an investment
analyst with RMC Group plc, a British conglomerate. Mr. Spath was responsible
for all capital budgeting and investment analysis for international projects.
Under the Advisory Agreement, the Adviser provides the Fund with investment
management services, subject to the supervision of the Board of Directors, and
with office space, and pays the ordinary and necessary office and clerical
expenses relating to investment research, statistical analysis, supervision of
the Fund's portfolio and certain other costs. The Adviser also bears the cost of
fees, salaries and other remuneration of the Company's directors, officers or
employees who are officers, directors, or employees of the Adviser. The Fund is
responsible for all other costs and expenses, such as, but not limited to,
brokerage fees and commissions in connection with the purchase and sale of
securities, legal, auditing, bookkeeping and record keeping services, custodian
and transfer agency fees and fees and other costs of registration of the Fund's
shares for sale under various state and federal securities laws.
Under the Advisory Agreement, the monthly compensation paid to the Adviser
is accrued daily at an annual rate of 1.25% on the first $500 million of average
net assets of the Fund; 1.00% on average net assets of the Fund in excess of
$500 million and not more than $1 billion; and 0.75% on average net assets of
the Fund over $1 billion. For the fiscal period from May 4, 2000 (commmencement
of operations) through August 31, 2000, the Adviser earned fees of $45,238 and
waived fees of $9,067.
In the interest of limiting the expense ratio of the Fund, the Adviser has
entered into an expense limitation agreement with the Company. Pursuant to the
agreement, the Adviser has agreed to waive or limit its fees and to assume other
expenses so that the ratio of total annual operating expenses for the Fund is
limited to 3.49% for Class A Shares and 3.99% for Class B Shares. The limit does
not apply to interest, taxes, brokerage commissions, other expenditures
capitalized in accordance with generally accepted accounting principles or other
extraordinary expenses not incurred in the ordinary course of business.
The Adviser will be entitled to reimbursement of fees waived or remitted by the
Adviser to the Fund. The total amount of reimbursement recoverable by the
Adviser (the "Reimbursement Amount") is the sum of all fees previously waived or
reimbursed by the Adviser to the Fund during any of the previous five (5) years,
less any reimbursement previously paid by the Fund to the Adviser with respect
to any waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount. Such reimbursement must be
authorized by the Board of Directors.
SHAREHOLDER INFORMATION
The Fund's share price, called its NAV per share, is determined as of the close
of trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
Time) on each business day ("Valuation Time") that the NYSE is open. As of the
date of this prospectus, the Fund is informed that the NYSE observes the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV per share is computed by adding the total value of the Fund's
investments and other assets attributable to Class A Shares or Class B Shares,
subtracting any liabilities attributable to Class A Shares or Class B Shares and
then dividing by the total number of Class A Shares or Class B Shares
outstanding.
Shares are bought at the public offering price per share next determined after a
request has been received in proper form. Shares are sold or exchanged at the
NAV per share next determined after a request has been received in proper form.
Any request received in proper form before the Valuation Time, will be processed
the same business day. Any request received in proper form after the Valuation
Time, will be processed the next business day.
The Fund's securities are valued at current market prices. Investments in
securities traded on the national securities exchanges or included in the NASDAQ
National Market System are valued at the last reported sale price. Other
securities traded in the over-the-counter market and listed securities for which
no sales are reported on a date are valued at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued at their
fair market value using amortized cost. Other assets for which market prices are
not readily available are valued at their fair value as determined in good faith
under procedures set by the Board of Directors. Depositary Receipts will be
valued at the closing price of the instrument last determined prior to the
Valuation Time unless the Company is aware of a material change in value.
Securities for which such a value cannot be readily determined on any day will
be valued at the closing price of the underlying security adjusted for the
exchange rate. The value of a foreign security is generally determined as of the
close of trading on the foreign exchange on which it is traded and those values
are then translated into U.S. dollars at the current exchange rate. Portfolio
securities that are listed on foreign exchanges may experience a change in value
on days when shareholders will not be able to purchase or redeem shares of the
Fund. Generally, trading in corporate bonds, U.S. government securities and
money market instruments is substantially completed each day at various times
before the scheduled close of the NYSE. The value of these securities used in
computing the NAV is determined as of such times.
PURCHASING SHARES
Share Class Alternatives. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities, but the classes are subject to different expenses and
may have different share prices. When you buy shares be sure to specify the
class of shares in which you choose to invest. If you do not select a class,
your money will be invested in Class A Shares. Because each share class has a
different combination of sales charges, expenses and other features, you should
consult your financial adviser to determine which class best meets your
financial objectives. Additional details about each of the share class
alternatives may be found below under "Distribution Arrangements."
Class A Shares Class B Shares
-------------- --------------
Max. initial sales charge. 5.50% None
(Subject to
reductions
beginning with
investments
of $25,000)
See "Distribution Arrangements" for a schedule itemizing reduced sales charges.
Contingent None Year 1 5%
deferred sales (Except for 1% Year 2 4%
charge ("CDSC") on redemptions Year 3 3%
imposed when within 1 year) Year 4 3%
shares are Year 5 2%
redeemed Year 6 1%
(percentage based Year 7 None
on purchase Year 8 None
price). Years
are based on a
twelve-month
period.
See below for information regarding applicable waivers of the CDSC.
Rule 12b-1 fees. 0.50% 1.00%
See "Distribution Arrangements" for important information about Rule 12b-1 fees.
Conversion
to Class A Shares N/A Automatically
after about 8
years, at which
time applicable
Rule 12b-1 fees
are reduced.
Appropriate for: All investors, Investors who
particularly plan to hold
those who intend their shares at
to hold their least 6 years.
shares for a long
period of time
and/or invest a
substantial
amount in the
Fund.
Share Transactions.
You may purchase and redeem Fund shares, or exchange shares of the Fund for
those of another, by contacting any broker authorized by the distributors to
sell shares of the Fund or by contacting Fund Services, Inc., the Company's
transfer and dividend disbursing agent (the "Transfer Agent"), at 1500 Forest
Avenue, Suite 111, Richmond, Virginia 23229 or by telephoning (800) 628-4077. A
sales charge may apply to your purchase. Brokers may charge transaction fees for
the purchase or sale of Fund shares, depending on your arrangement with the
broker.
Minimum Investments.
The following table provides you with information on the various investment
minimums, sales charges and expenses that apply to each class. Under certain
circumstances the Fund may waive the minimum initial investment for purchases by
officers, directors, employees or agents of the Company, and its affiliated
entities and for certain related advisory accounts, retirement accounts,
custodial accounts for minors and automatic investment accounts as detailed on
page ___ under "Waiver of Sales Charges."
Class A Shares Class B Shares
-------------- --------------
Minimum Initial Investment $1,000 $1,000
Minimum Subsequent Investment $ 50* $ 50*
* For automatic investments made at least quarterly, the minimum subsequent
investment is $100.
By Mail.
You may buy shares of the Fund by sending a completed application along
with a check drawn on a U.S. bank in U.S. funds, to Global e Fund, c/o Fund
Services, Inc., 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229. See
"Proper Form." Third party checks are not accepted for the purchase of Fund
shares.
Investing by Wire.
You may purchase shares by requesting your bank to transmit by wire directly to
the Transfer Agent. To invest by wire, please call the Fund at (800) 527-9525 or
the Transfer Agent at (800) 628-4077 to advise the Fund of your investment and
to receive further instructions. Your bank may charge you a small fee for this
service. Once you have arranged to purchase shares by wire, please complete and
mail the account application form promptly to the Transfer Agent. This
application is required to complete the Fund's records. You will not have access
to your shares until the Fund's records are complete. Once your account is
opened, you may make additional investments using the wire procedure described
above. Be sure to include your name and account number in the wire instructions
you provide your bank.
Public Offering Price.
When you buy shares of the Fund, you will receive the public offering price per
share as determined after your order is received in proper form, as defined on
page ___ under the section entitled "Proper Form." The public offering price of
Class A Shares is equal to the Fund's net asset value plus the initial sales
charge. The public offering price of Class B Shares is equal to the Fund's net
asset value. The Fund reserves the right to refuse to accept an order in certain
circumstances, such as, but not limited to, orders from short-term investors
such as market timers, or orders without proper documentation.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund may be purchased directly from the distributors or through
brokers or dealers which have a sales agreement with the distributors and who
are members of the NASD. When an investor acquires shares of the Fund from a
securities broker-dealer, the investor may be charged a transaction fee by that
broker-dealer. The minimum initial investment in the Fund is $1,000 and
additional investments must be $50 or more.
The Fund is offered through financial supermarkets, investment advisers and
consultants, financial planners, brokers, dealers and other investment
professionals, and directly through the distributors. Investment professionals
who offer shares may require payments of fees from their individual clients. If
you invest through a third party, the policies and fees may be different than
those described in this Prospectus. For example, third parties may charge
transaction fees or set different minimum investment amounts.
If you purchase your shares through a broker-dealer, the broker-dealer firm is
entitled to receive a percentage of the sales charge you pay in order to
purchase Fund shares. The following schedule governs the percentage to be
received by the selling broker-dealer firm.
Class A Sales Charge and Broker-Dealer Commission and Service Fee
-----------------------------------------------------------------
Sales Charge as a Percentage of
--------------------------------
Dealer Discount
Amount of Purchase at Offering Net Amount as Percentage of
the Public Offering Price Price Invested Offering Price
------------------------- ----- -------- -----------------
$1,000 but under $25,000 5.50% 5.82% 5.00%
$25,000 but under $50,000 5.25% 5.54% 4.75%
$50,000 but under $100,000 4.50% 4.71% 4.00%
$100,000 but under $250,000 3.50% 3.63% 3.25%
$250,000 but under $500,000 2.50% 2.56% 2.25%
$500,000 but under $1 million 1.50% 1.52% 1.25%
$1 Million or more 0.00% 0.00% 0.00%
After a one-year holding period, broker-dealers will be entitled to receive an
ongoing service fee at an annual rate of 0.25%, payable quarterly.
Class B Broker-Dealer Commission and Service Fee
---------------------------------------------------
Broker-Dealer Percentage
------------------------
Up to $250,000 4.00%
After a one-year holding period, broker-dealers will be entitled to receive an
ongoing service fee at an annual rate of 0.25%, payable quarterly.
Rule 12b-1 Fees.
The Board of Directors has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "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. Class B
Shares can pay distribution fees (the "Rule 12b-1 Fee") at an annual rate of up
to a maximum of 1%, payable to First Dominion Capital Corp.; and Class A Shares
can pay Rule 12b-1 Fees at an annual rate of 0.50%, payable to International
Assets Advisory Corp. (each a "Distributor"; collectively, the "Distributors").
Up to 0.25% of the total Rule 12b-1 fees for each class of shares 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 Fund may
pay Rule 12b-1 fees for activities and expenses borne in the past 12 months in
connection with the distribution of its shares as to which no Rule 12b-1 fee was
paid because of the maximum limitation. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost more than paying other types of sales charges.
Right Of Accumulation.
After making an initial purchase in the Fund, you may reduce the sales charge
applied to any subsequent purchases. Your shares in a Fund previously purchased
will be taken into account on a combined basis at the current net asset value
per share of a Fund in order to establish the aggregate investment amount to be
used in determining the applicable sales charge. Only previous purchases of Fund
shares that are still held in the Fund and that were sold subject to the sales
charge will be included in the calculation. To take advantage of this privilege,
you must give notice at the time you place your initial order and subsequent
orders that you wish to combine purchases. When you send your payment and
request to combine purchases, please specify your account number.
Statement of Intention.
A reduced sales charge as set forth above applies immediately to all purchases
where the investor has executed a Statement of Intention calling for the
purchase within a 13-month period of an amount qualifying for the reduced sales
charge. The investor must actually purchase the amount stated in such statement
to avoid later paying the full sales charge on shares that are purchased. For a
description of the Statement of Intention, see the SAI.
Waiver of Front-End Sales Charges.
No sales charge shall apply to:
(1) reinvestment of income dividends and capital gain distributions;
(2) exchanges of one Fund's shares for those of another fund offered by the
Company;
(3) purchases of Fund shares made by current or former directors, officers, or
employees, or agents of the Company, the Adviser, the Distributors and by
members of their immediate families, and employees (including immediate
family members) of a broker-dealer distributing Fund shares;
(4) purchases of Fund shares by the Distributors for their own investment
account for investment purposes only;
(5) a "qualified institutional buyer," as that term is defined under Rule 144A
of the Securities Act of 1933, including, but not limited to, insurance
companies, investment companies registered under the 1940 Act, business
development companies registered under the 1940 Act, and small business
investment companies;
(6) a charitable organization, as defined in Section 501(c)(3) of the Internal
Revenue Code (the "Code"), as well as other charitable trusts and
endowments, investing $50,000 or more;
(7) a charitable remainder trust, under Section 664 of the Code, or a life
income pool, established for the benefit of a charitable organization as
defined in Section 501(c)(3) of the Code;
(8) investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of those investment
advisers or financial planners who place trades for their own accounts if
the accounts are linked to the master account of the investment adviser or
financial planner on the books and records of the broker or agent;
(9) institutional retirement and deferred compensation plans and trusts used to
fund those plans, including, but not limited to, those defined in section
401(a), 403(b) or 457 of the Code and "rabbi trusts"; and
(10) the purchase of Fund shares, if available, through certain third-party fund
"supermarkets." Some fund supermarkets may offer Fund shares without a
sales charge or with a reduced sales charge. Other fees may be charged by
the service-provider sponsoring the fund supermarket, and transaction
charges may apply to purchases and sales made through a broker-dealer.
Waiver Of Contingent Deferred Sales Charge.
The contingent deferred sales charge is waived for:
(1) certain post-retirement withdrawals from an IRA or other retirement plan if
you are over 70 1/2;
(2) redemptions by certain eligible 401 (a) and 401(k) plans and certain
retirement plan rollovers;
(3) withdrawals resulting from shareholder death or disability provided that
the redemption is requested within one year of death or disability; and
(4) withdrawals through Systematic Monthly Investment (systematic withdrawal
plan).
Additional information regarding the waiver of sales charges may be obtained by
calling (800) 432-0000. All account information is subject to acceptance and
verification by the Distributors.
General.
The Company reserves the right in its sole discretion to withdraw all or any
part of the offering of shares of the Fund when, in the judgment of the Fund's
management, such withdrawal is in the best interest of the Fund. An order to
purchase shares is not binding on, and may be rejected by, the Fund until it has
been confirmed in writing by the Fund and payment has been received.
REDEEMING SHARES
You may redeem your shares at any time and in any amount by mail or telephone.
For your protection, the Transfer Agent will not redeem your shares until it has
received all the information and documents necessary for your request to be
considered in proper order (see "Signature Guarantees"). You will be notified
promptly by the Transfer Agent if your redemption request is not in proper
order.
The Company's procedure is to redeem shares at the NAV determined after the
Transfer Agent receives the redemption request in proper order, less any
applicable contingent deferred sales chare in the case of Class B Shares.
Payment will be made promptly, but no later than the seventh day following the
receipt of the request in proper order. The Company may suspend the right to
redeem shares for any period during which the NYSE is closed or the U.S.
Securities and Exchange Commission (the "SEC") determines that there is an
emergency. In such circumstances you may withdraw your redemption request or
permit your request to be held for processing after the suspension is
terminated.
If you sell shares through a securities dealer or investment professional, it is
such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for by
check shortly before the receipt of the request may be delayed until the Fund
determines that the Transfer Agent has completed collection of the purchase
check which may take up to 14 days. Also, payment of the proceeds of a
redemption request for an account for which purchases were made by wire may be
delayed until the Fund receives a completed application for the account to
permit the Fund to verify the identity of the person redeeming the shares, and
to eliminate the need for backup withholding.
Redemption by Mail.
To redeem shares by mail, send a written request for redemption, signed by the
registered owner(s) exactly as the account is registered. Certain written
requests to redeem shares may require signature guarantees. For example,
signature guarantees may be required if you sell a large number of shares, if
your address of record on the account application has been changed within the
last 30 days, or if you ask that the proceeds to be sent to a different person
or address. Signature guarantees are used to help protect you and the Fund. You
can obtain a signature guarantee from most banks or securities dealers, but not
from a Notary Public. Please call the Transfer Agent at (800) 628-4077 to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid any processing delays.
Redemption by Telephone.
You may redeem your shares by telephone provided that you request this service
on your initial Account Application. If you request this service at a later
date, you must send a written request along with a signature guarantee to the
Transfer Agent. Once your telephone authorization is in effect, you may redeem
shares by calling the Transfer Agent at (800) 628-4077. There is no charge for
establishing this service, but the Transfer Agent will charge your account a $10
service fee for each telephone redemption. The Transfer Agent may change the
amount of this service at any time without prior notice.
Redemption by Wire.
If you request that your redemption proceeds be wired to you, please call your
bank for instructions prior to writing or calling the Transfer Agent. Be sure to
include your name, Fund account number, your account number at your bank and
wire information from your bank in your request to redeem by wire.
Signature Guarantees.
To help protect you and the Fund from fraud, signature guarantees are required
for: (1) all redemptions ordered by mail if you require that the check be
payable to another person or that the check be mailed to an address other than
the one indicated on the account registration; (2) all requests to transfer the
registration of shares to another owner; and, (3) all authorizations to
establish or change telephone redemption service, other than through your
initial Account Application.
In the case of redemption by mail, signature guarantees must appear on either:
(a) the written request for redemption; or, (b) a separate instrument of
assignment (usually referred to as a "stock power") specifying the total number
of shares being redeemed. The Company may waive these requirements in certain
instances.
The following institutions are acceptable signature guarantors: (a) participants
in good standing of the Securities Transfer Agents Medallion Program ("STAMP");
(b) commercial banks which are members of the Federal Deposit Insurance
Corporation ("FDIC"); (c) trust companies; (d) firms which are members of a
domestic stock exchange; (e) eligible guarantor institutions qualifying under
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, that are
authorized by charter to provide signature guarantees (e.g., credit unions,
securities dealers and brokers, clearing agencies and national securities
exchanges); and, (f) foreign branches of any of the above. In addition, the
Company will guarantee your signature if you personally visit its offices at
1500 Forest Avenue, Suite 223, Richmond, Virginia 23229. The Transfer Agent
cannot honor guarantees from notaries public, savings and loan associations, or
savings banks.
Proper Form.
Your order to buy shares is in proper form when your completed and signed
Account Application and check or wire payment is received. Your written request
to sell or exchange shares is in proper form when written instructions signed by
all registered owners, with a signature guarantee if necessary, is received.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Fund may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Fund will advise you in writing
thirty (30) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Fund will not close your account if it
falls below $1,000 solely because of a market decline. The Adviser and the
Distributors reserve the right to waive this fee for their clients.
Automatic Investment Plan.
Existing shareholders, who wish to make regular monthly investments in amounts
of $100 or more, may do so through the Automatic Investment Plan. Under the
Plan, your designated bank or other financial institution debits a
pre-authorized amount from your account on or about the 15th day of each month
and applies the amount to the purchase of shares. To use this service, you must
authorize the transfer of funds by completing the Plan Section of the Account
Application and sending a blank voided check.
Exchange Privileges.
You may exchange all or a portion of your shares for the shares of certain other
funds having different investment objectives, provided the shares of the fund
you are exchanging into are registered for sale in your state of residence.
Your account may be charged $10 for a telephone exchange fee. An exchange is
treated as a redemption and a purchase and may result in realization of a gain
or loss on the transaction.
Modification or Termination.
Excessive trading can adversely impact Fund performance and shareholders.
Therefore, the Company reserves the right to temporarily or permanently modify
or terminate the Exchange Privilege. The Company also reserves the right to
refuse exchange requests by any person or group if, in the Company's judgment, a
fund would be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The Company further reserves the right to restrict or refuse an
exchange request if the Company has received or anticipates simultaneous orders
affecting significant portions of a fund's assets or detects a pattern of
exchange requests that coincides with a "market timing" strategy. Although the
Company will attempt to give you prior notice when reasonable to do so, the
Company may modify or terminate the Exchange Privilege at any time.
Dividends and Capital Gain Distributions.
Dividends from net investment income, if any, are declared annually. The Fund
intends to distribute annually any net capital gains.
Distributions will automatically be reinvested in additional shares, unless you
elect to have the distributions paid to you in cash. There are no sales charges
or transaction fees for reinvested dividends and all shares will be purchased at
NAV. If the investment in shares is made within an IRA, all dividends and
capital gain distributions must be reinvested.
Unless you are investing through a tax deferred retirement account, such as an
IRA, it is not to your advantage to buy shares of a fund shortly before the next
distribution, because doing so can cost you money in taxes. This is known as
"buying a dividend". To avoid buying a dividend, check the Fund's distribution
schedule before you invest.
DISTRIBUTIONS AND TAXES
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Every January, you will receive a statement
that shows the tax status of distributions you received for the previous year.
Distributions declared in December but paid in January are taxable as if they
were paid in December.
When you sell shares of the Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of the Fund for shares of a different fund
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. The one major exception to
these tax principles is that distributions on, and sales, exchanges and
redemptions of, shares held in an IRA (or other tax-deferred retirement
accounts) will not be currently taxable. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult with your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund.
By law, the Fund must withhold 31% of your taxable distribution and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the Internal Revenue Service (the "IRS") has
notified you that you are subject to backup withholding and instructs the Fund
to do so.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the period presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report, along with the Fund's financial statements, are included in the Fund's
Annual Report to Shareholders (the "Annual Report") and are incorporated by
reference into the SAI. Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Period ended
August 31, 2000*
----------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.45
Income from investment operations-
Net investment loss (0.08)
Net realized and unrealized loss (1.26)
--------
Total from investment operations (1.34)
--------
Net asset value, end of period $ 8.11
========
Total Return (14.18%)
========
Ratios/Supplemental Data
Net assets, end of period (000's) $12,912
Ratio to average net assets (A)
Expenses (B) 3.73%**
Expense ratio - net (C) 3.49%**
Net investment loss (3.39%)**
Portfolio turnover rate 6.23%
* Commencement of operations May 4, 2000.
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net
investment income ratio by 0.25% for the for the period ended August 31,
2000.
(B) Expense ratio has been increased to include custodial fees which were
offset by custodian fee credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers and
custodian fee credits the fund received.
<PAGE>
You'll find more information about the Fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's SAI
dated _______________, 2001 which is on file with the SEC and incorporated by
reference into this Prospectus. You can obtain a free copy of the SAI by writing
to The World Funds, Inc. , 1500 Forest Avenue, Suite 223, Richmond, Virginia
23229, by calling toll free (800) 527-9525 or by e-mail at:
[email protected]. General inquiries regarding the Fund may also be
directed to the above address or telephone number.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
1500 FOREST AVENUE, SUITE 223, RICHMOND, VA 23229
(800) 527-9525
STATEMENT OF ADDITIONAL INFORMATION
Global e Fund
This Statement of Additional Information ("SAI") is not a Prospectus. It should
be read in conjunction with the current Prospectus of the Global e Fund, dated
___________. You may obtain the Prospectus of the Fund, free of charge, by
writing to The World Funds, Inc. at 1500 Forest Avenue, Suite 223, Richmond,
Virginia 23229 or by calling (800) 527-9525.
The Fund's audited financial statements and notes thereto for the fiscal period
ended August 31, 2000 and the unqualified report of Tait, Weller and Baker, the
Fund's independent auditors, on such financial statements are included in the
Fund's Annual Report to Shareholders for the period ended August 31, 2000 (the
"Annual Report") and are incorporated by reference into this SAI. No other parts
of the Annual Report are incorporated herein. A copy of the Annual Report
accompanies this SAI and an investor may obtain a copy of the Annual Report,
free of charge, by writing to the Fund or calling (800) 527-9525.
The date of this SAI is _________________
<PAGE>
TABLE OF CONTENTS PAGE
General Information
Additional Information About The Fund's Investments
Investment Objectives
Strategies and Risks
Investment Programs
Warrants
Illiquid Securities
Depositary Receipts
Temporary Defensive Positions
U.S. Government Securities
Repurchase Agreements
Restricted Securities
Options
Other Investments
Investment Restrictions
Management of the Company
Principal Securities Holders
Policies Concerning Personal Investment Activities
Investment Adviser and Advisory Agreement
Management-Related Services
Portfolio Transactions
Portfolio Turnover
Capital Stock and Dividends
Dividends and Distributions
Additional Information about Purchases and Sales
Eligible Benefit Plans
Tax Status
Investment Performance
Financial Information
<PAGE>
GENERAL INFORMATION
The World Funds, Inc. (the "Company") was organized as a Maryland corporation in
May, 1997. The Company is an open-end management investment company registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") commonly
known as a "mutual fund". This SAI relates to Global e Fund (the "Fund"). The
Fund is a separate investment portfolio or series of the Company. The Fund is
authorized to issue two classes of shares: Class A Shares imposing a front-end
sales charge up to a maximum of 5.50%, and a sales charge of 1% if shares are
redeemed within the first year after purchase; and Class B Shares charging a
maximum back-end sales charge of 5%, if redeemed within six years of purchase,
carrying a higher 12b-1 fee then Class A Shares, but converting to Class A
Shares in approximately eight years after purchase. See "Capital Stock and
Dividends" in this SAI. The Fund is a "non-diversified" series as that term is
defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The following information supplements the discussion of the Fund's investment
objectives and policies. The Fund's investment objective and fundamental
investment policies may not be changed without approval by vote of a majority of
the outstanding voting shares of the Fund. As used in this SAI, a "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 without shareholder approval.
INVESTMENT OBJECTIVES
The Fund's investment objective is capital appreciation. All investments entail
some market and other risks and there is no assurance that the Fund will achieve
its investment objective. You should not rely on an investment in the Fund as a
complete investment program.
STRATEGIES AND RISKS
The Fund invests in a non-diversified portfolio consisting primarily of equity
securities, such as common stocks and securities convertible into equity
securities, such as warrants, convertible bonds, debentures or convertible
Preferred stock.
The following discussion of investment techniques and instruments supplements,
and should be read in conjunction with, the investment information in the Fund's
Prospectus. In seeking to meet its investment objective, the Fund may invest in
any type of security whose characteristics are consistent with its investment
programs described below.
INVESTMENT PROGRAMS
Warrants.
The Fund may invest in warrants. Warrants are options to purchase equity
securities at a specific price for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Hence,
warrants have no voting rights, pay no dividends and have no rights with respect
to the assets of the corporation issuing them. The value of warrants is derived
solely from capital appreciation of the underlying equity securities. Warrants
differ from call options in that the underlying corporation issues warrants,
whereas call options may be written by anyone.
Debentures.
The Fund may invest in debentures which are general debt obligations backed only
by the integrity of the borrower and documented by an agreement called an
indenture. An unsecured bond is a debenture.
Convertible Preferred Stock.
The Fund may invest in preferred stock which is a class of capital stock that
pays dividends at a specified rate and that has preference over common stock in
the payment of dividends and the liquidation of assets. Preferred stock does not
ordinarily carry voting rights.
Most preferred stock is cumulative; if dividends are passed (not paid for any
reason), they accumulate and must be paid before common dividends. A passed
dividend on non-cumulative preferred stock is generally gone forever.
Participating preferred stock entitles its holders to share in profits above and
beyond the declared dividend, along with common shareholders, as distinguished
from nonparticipating preferred, which is limited to the stipulated dividend.
Adjustable rate preferred stock pays a dividend that is adjustable, usually
quarterly, based on changes in the treasury bill rate or other money market
rates. Convertible preferred stock is exchangeable for a given number of common
shares and thus tends to be more volatile than nonconvertible preferred, which
behaves more like a fixed-income bond.
Illiquid Securities.
The Fund may invest up to 15% of its net assets in illiquid securities. For this
purpose, the term "illiquid securities" means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities. Illiquid securities include
generally, among other things, certain written over-the-counter options,
securities or other liquid assets as cover for such options, repurchase
agreements with maturities in excess of seven days, certain loan participation
interests and other securities whose disposition is restricted under the federal
securities laws.
Depositary Receipts.
American Depositary Receipts ("ADRs") are receipts typically issued in the U.S.
by a bank or trust company evidencing ownership of an underlying foreign
security. The Fund may invest in ADRs which are structured by a U.S. bank
without the sponsorship of the underlying foreign issuer. In addition to the
risks of foreign investment applicable to the underlying securities, such
unsponsored ADRs may also be subject to the risks that the foreign issuer may
not be obligated to cooperate with the U.S. bank, may not provide additional
financial and other information to the bank or the investor, or that such
information in the U.S. market may not be current.
Like ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Registered Depositary Certificates ("RDCs") represent receipts for
a foreign security. However, they are issued outside of the U.S. The Fund may
invest in ADRs, EDRs, GDRs or RDCs. EDRs, GDRs and RDCs involve risks comparable
to ADRs, as well as the fact that they are issued outside of the U.S.
Furthermore, RDCs involve risks associated with securities transactions in
Russia.
Temporary Defensive Positions.
When the investment adviser believes that investments should be deployed in a
temporary defensive posture because of economic or market conditions, the Fund
may invest up to 100% of its assets in U.S. Government securities (such as
bills, notes, or bonds of the U.S. Government and its agencies) or other forms
of indebtedness such as bonds, certificates of deposits or repurchase
agreements. For temporary defensive purposes, the Fund may hold cash or debt
obligations denominated in U.S. dollars or foreign currencies. These debt
obligations include U.S. and foreign government securities and investment grade
corporate debt securities, or bank deposits of major international institutions.
When the Fund is in a temporary defensive position, it is not pursuing its
stated investment policies.
The investment adviser decides when it is appropriate to be in a defensive
position. It is impossible to predict for how long such alternative strategies
will be utilized.
U.S. Government Securities.
The Fund may invest in U.S. Government Securities. The term "U.S.
Government Securities" refers to a variety of securities which are issued or
guaranteed by the United States Treasury, by various agencies of the U.S.
Government, and by various instrumentalities which have been established or
sponsored by the U.S. Government. U.S. Treasury securities are backed by the
full faith and credit of the United States. Securities issued or guaranteed by
U.S. Government agencies or U.S. Government sponsored instrumentalities may or
may not be backed by the full faith and credit of the United States. In the case
of securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim directly against the United States in the event the agency or
instrumentality does not meet its commitment. An instrumentality of the U.S.
Government is a government agency organized under Federal charter with
government supervision.
Repurchase Agreements.
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements that are collateralized by U.S. Government
Securities. The Fund may enter into repurchase commitments for investment
purposes for periods of 30 days or more. Such commitments involve investment
risks similar to those of the debt securities in which the Fund invests. Under a
repurchase agreement, the Fund acquires a security, subject to the seller's
agreement to repurchase that security at a specified time and price. A purchase
of securities under a repurchase agreement is considered to be a loan by the
Fund.
The investment adviser monitors the value of the collateral to ensure that its
value always equals or exceeds the repurchase price and also monitors the
financial condition of the seller of the repurchase agreement. If the seller
becomes insolvent, the Fund's right to dispose of the securities held as
collateral may be impaired and the Fund may incur extra costs. Repurchase
agreements for periods in excess of seven days may be deemed to be illiquid.
Restricted Securities.
The Fund may invest in restricted securities. Generally, "restricted securities"
are securities which have legal or contractual restrictions on their resale. In
some cases, these legal or contractual restrictions may impair the liquidity of
a restricted security; in others, the legal or contractual restrictions may not
have a negative effect on the liquidity of the security. Restricted securities
which are deemed by the investment adviser to be illiquid will be included in
the Fund's policy which limits investments in illiquid securities.
Options.
The Fund may purchase put and call options and engage in the writing of covered
call options and put options on securities that meet the Fund's investment
criteria, and may employ a variety of other investment techniques, such as
options on futures. The Fund will engage in options transactions only to hedge
existing positions, and not for purposes of speculation or leverage. As
described below, the Fund may write "covered options" on securities in standard
contracts traded on national exchanges, or in individually-negotiated contracted
traded over-the-counter for the purpose of receiving the premiums from options
that expire and to seek net gains from closing purchase transactions with
respect to such options.
Buying Call and Put Options.
The Fund may purchase call options. Such transactions may be entered into in
order to limit the risk of a substantial increase in the market price of the
security that the Fund intends to purchase.
Prior to its expiration, a call option may be sold in a closing sale
transaction. Any profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the call option plus the
related transaction costs.
The Fund may purchase Put Options. By buying a put, the Fund has the right to
sell the security at the exercise price, thus limiting its risk of loss through
a decline in the market value of the security until the put expires. The amount
of any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and any profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs.
Writing (Selling) Call and Put Options.
The Fund may write covered options on equity and debt securities and indices.
This means that, in the case of call options, so long as the Fund is obligated
as the writer of a call option, it will own the underlying security subject to
the option and, in the case of put options, it will, through its custodian,
deposit and maintain either cash or securities with a market value equal to or
greater than the exercise price of the option.
Covered call options written by the Fund give the holder the right to buy the
underlying securities from the Fund at a stated exercise price. A call option
written by the 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 the 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 the 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 the 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 the 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 the 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 the 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.
The 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.
The 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 the Fund.
Writing Over-the-Counter ("OTC") Options.
The 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, the 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 the Fund writes an
OTC option, it generally can close out that option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which it
originally wrote the option. If a covered call option writer cannot effect a
closing transaction, it cannot sell the underlying security or foreign currency
until the option expires or the option is exercised. Therefore, the writer of a
covered OTC call option may not be able to sell an underlying security even
though it might otherwise be advantageous to do so. Likewise, the writer of a
secured OTC put option may be unable to sell the securities pledged to secure
the put for other investment purposes while it is obligated as a put writer.
Similarly, a purchaser of an OTC put or call option might also find it difficult
to terminate its position on a timely basis in the absence of a secondary
market.
The staff of the U. S. Securities and Exchange Commission (the "SEC") has been
deemed to have taken the position that purchased OTC options and the assets used
to "cover" written OTC options are illiquid securities. The Fund will adopt
procedures for engaging in OTC options transactions for the purpose of reducing
any potential adverse effect of such transactions on the liquidity of the Fund.
Futures Contracts.
Even though the Fund has no current intention to invest in futures contracts,
the Fund may buy and sell stock index futures contracts traded on domestic stock
exchanges to hedge the value of its portfolio against changes in market
conditions. The Fund will amend its Prospectus before engaging in such
transactions.
A stock index futures contract is an agreement between two parties to take or
make delivery of an amount of cash equal to a specified dollar amount, times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck. A
stock index futures contract does not involve the physical delivery of the
underlying stocks in the index. Although stock index futures contracts call for
the actual taking or delivery of cash, in most cases the Fund expects to
liquidate its stock index futures positions through offsetting transactions,
which may result in a gain or a loss, before cash settlement is required.
The Fund will incur brokerage fees when it purchases and sells stock index
futures contracts, and at the time the Fund purchases or sells a stock index
futures contract, it must make a good faith deposit known as the "initial
margin". Thereafter, the 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 the 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, the 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 the 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 the 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 the 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 the Fund's initial investment in such a contract.
Successful use of futures contracts depends upon the investment adviser's
ability to correctly predict movements in the securities markets generally or of
a particular segment of a securities market. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are imposed on the number of contracts that any person may trade on a particular
trading day. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose sanctions or restrictions. These
trading and positions limits will not have an adverse impact on the Fund's
strategies for hedging its securities.
OTHER INVESTMENTS
The Directors may, in the future, authorize the Fund to invest in securities
other than those listed in this SAI and in the Prospectus, provided such
investments would be consistent with the Fund's investment objective and that
such investment would not violate the Fund's fundamental investment policies or
restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Fund has adopted the
following fundamental investment restrictions which cannot be changed without
approval by vote of a "majority of the outstanding voting securities" of the
Fund. As a matter of fundamental policy, the Fund may not:
1) invest in companies for the purpose of exercising management or control;
2) invest in securities of other investment companies except by purchase in
the open market involving only customary broker's commissions, or as part
of a merger, consolidation, or acquisition of assets;
3) purchase or sell commodities or commodity contracts;
4) invest in interests in oil, gas, or other mineral exploration or
development programs;
5) purchase securities on margin, except for use of short-term credits as
necessary for the clearance of purchase of portfolio securities;
6) issue senior securities, (except the Fund may engage in transactions such
as those permitted by the SEC release IC-10666);
7) act as an underwriter of securities of other issuers, except that the Fund
may invest up to 10% of the value of its total assets (at the time of
investment) in portfolio securities which the Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933, as amended (the "1933 Act"), or any foreign law
restricting distribution of securities in a country of a foreign issuer;
8) participate on a joint or a joint and several basis in any securities
trading account;
9) engage in short sales;
10) purchase or sell real estate, provided that liquid securities of companies
which deal in real estate or interests therein would not be deemed to be an
investment in real estate;
11) purchase any security if, as a result of such purchase less than 50% of the
assets of the Fund would consist of cash and cash items, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its assets;
12) purchase the securities of any issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund;
13) make loans, except that the Fund may lend securities, and enter into
repurchase agreements secured by U.S. Government Securities; and
14) except as specified below, the Fund may only borrow money for temporary or
emergency purposes and then only in an amount not in excess of 5% of the
lower of value or cost of its total assets, in which case the Fund may
pledge, mortgage or hypothecate any of its assets as security for such
borrowing but not to an extent greater than 5% of its total assets. The
Fund may borrow money to avoid the untimely disposition of assets to meet
redemptions, in an amount up to 33 1/3% of the value of its assets,
provided that the Fund maintains asset coverage of 300% in connection with
borrowings, and the Fund does not make other investments while such
borrowings are outstanding.
In applying the fundamental and policy concerning concentration:
Except with respect to the Fund's investment restrictions concerning borrowing,
the percentage restriction on investment or utilization of assets is adhered to
at the time an investment is made. A later change in percentage resulting from
changes in the value or the total cost of the Fund's assets will not be
considered a violation of the restriction; and
Investments in certain categories of companies will not be considered to be
investments in a particular industry. Examples of these categories include:
(i) financial service companies will be classified according to the end users
of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry;
(ii) technology companies will be divided according to their products and
services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; and
(iii)utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry.
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.
MANAGEMENT OF THE COMPANY
Directors and Officers.
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages 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 any investment adviser to a fund of the Company,
and the principal underwriter, and officers of the Company, are noted with an
asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
------------- ----------------- -----------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc., the
(55) Company's Administrator, since
1985; President and Director
of First Dominion Capital Corp.,
the Company's underwriter.
Director and shareholder of Fund
Services, Inc., the Company's
Transfer and Disbursing Agent,
since 1987; shareholder of
Commonwealth Fund Accounting,
Inc., which provides bookkeeping
services; and Chairman, Director
and Treasurer of Vontobel Funds,
Inc., a registered investment
company since March, 1997.
Mr. Pasco is also a certified
public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services Operations
Potomac, MD 20854 and Accounting Division
(59) of the Potomac Electric Power
Company since August, 1978;
and Director of Vontobel Funds,
Inc., a registered investment
company since March, 1997. Mr.
Boyd is also a certified public
accountant.
William E. Poist Director Mr. Poist is a financial and tax
5272 River Road consultant through his firm,
Bethesda, MD 20816 Management Consulting for
(60) Professionals since 1968;
Director of Vontobel Funds, Inc.,
a registered investment company
since March, 1997. Mr. Poist is
also a certified public accountant.
Paul M. Dickinson Director Mr. Dickinson is President of
8704 Berwickshire Drive Alfred J. Dickinson, Inc.
Richmond, VA 23229 Realtors since April, 1971; and
(52) Director of Vontobel Funds, Inc.,
a registered investment company
since March, 1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive Commonwealth Shareholder
Suite 101 Services, Inc., and First
Richmond, VA 23229 Dominion Capital Corp.
(57) since 1986; Secretary of
Vontobel Funds, Inc., a
registered investment company
since March, 1997; and
Partner in the law firm
Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is President
3000 Sand Hill Road the Company of Sand Hill Advisors, Inc.
Suite 150 and President since August, 2000 and was
Menlo Park, CA 94025 of the Sand Hill the Executive Vice President
(51) Portfolio Manager of Sand Hill Advisors, Inc.
Fund series since 1982.
*Leland H. Faust President of the Mr. Faust is President of
One Montgomery St. CSI Equity Fund CSI Capital Management, Inc.
Suite 2525 and the CSI Fixed since 1978. Mr. Faust is also
San Francisco, CA 94104 Income Fund series a Partner in the law firm
(53) Taylor & Faust since December,
1975.
*Franklin A. Trice,III Vice President of Mr. Trice is President
P.O. Box 8535 the Company and of Virginia Management
Richmond, VA 23226-0535 President of the Investment Corp. since May,
(36) New Market Fund 1998; and a registered
series representative of First
Dominion Capital Corp., the
Company's underwriter since
September, 1998. Mr. Trice was
a broker with Scott & Stringfellow
from March, 1996 to May, 1998 and
with Craigie, Inc. from March, 1992
to January, 1996.
*John T. Connor, Jr. Vice President of Mr. Connor is President of Third
515 Madison Ave., the Company and Millennium Investment Advisors,
24th Floor President of the LLC since April, 1998; and
New York, NY 10022 Third Millennium Chairman of ROSGAL,
(58) Russia Fund series a Russian financial company
and of its affiliated
ROSGAL Insurance since 1993.
*Steven T. Newby Vice President of Mr. Newby is President of Newby
555 Quince Orchard Rd. the Company and & Co., a NASD broker/dealer
Suite 606 President of since July, 1990; and
Gaithersburg, MD 20878 GenomicsFund.com President of xGENx, LLC
(53) and Newby's ULTRA since November, 1999.
Fund series
*Todd A. Boren President of the Mr. Boren joined International
250 Park Avenue, So. Global e Fund Assets Advisory in May, 1994. In
Suite 200 series his six years with IAAC, he has
Winter Park, FL 32789 served as a Financial Adviser, VP
(40) of Sales, Branch Manager, Training
Manager, and currently as Senior
Vice President and Managing
Director of Private Client
Operations for both International
Assets Avisory and Global Assets
Advisors. He is responsible for
overseeing its International
Headquarters in Winter Park,
Florida as well as its New York
operation and joint venture.
Compensation of Directors: The Company does not compensate the Directors
and officers who are officers or employees of any investment adviser to a fund
of the Company. 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. As
of December 31, 2000 the officers and Directors, individually and as a group,
owned beneficially less than 1% of the outstanding shares of the Funds.
For the fiscal period from May 4, 2000 (commencement of operations) through
August 31, 2000, the Directors received the following compensation from the
Company:
Aggregate
Compensation
From the Fund Total
Fiscal Period Pension or Retirement Compensation
Name and Ended August Benefits Accrued as from the
Position Held 31, 2000(1) Part of Fund Expenses Company(2)
-------------- -------------- --------------------- ------------
John Pasco, III,
Director $-0- N/A $-0-
Samuel Boyd, Jr.,
Director $950 N/A $12,933
William E. Poist,
Director $950 N/A $12,933
Paul M. Dickinson,
Director $950 N/A $12,933
(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, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds offered by the Company for the fiscal year or period
ended August 31, 2000. The Company consists of a total of eight funds as of
August 31, 2000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Fund as of December 31, 2000, the following
persons own of record or beneficially own 5% or more of the Fund's shares and
own such amounts indicated:
[INSERT INFORMATION]
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, investment adviser and principal underwriters have each adopted a Code
of Ethics, pursuant to Rule 17j-1 under the 1940 Act that permit investment
personnel, subject to their particular Code of Ethics, to invest in securities,
including securities that may be purchased or held by the Fund, for their own
accounts.
The Codes of Ethics are on file with, and can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. In addition, the Codes of Ethics
are also available on the EDGAR Database on the SEC's Internet website at
http://www.sec.gov.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Global Assets Advisors, Inc. (the "Investment Adviser" or "Adviser"), located at
250 Park Avenue South, Suite 200, Winter Park, Florida 32789, manages the
investments of the Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement" ), dated May 1, 2000. After the initial term of two years,
the Advisory Agreement may be renewed annually provided such renewal is approved
annually by: 1) the Company's Directors; or 2) by a majority vote of the
outstanding voting securities of the Fund and, in either case, by a majority of
the Directors who are not "interested persons" of the Company. The Advisory
Agreement will automatically terminate in the event of its "assignment," as that
term is defined in the 1940 Act, and may be terminated without penalty at any
time upon 60 days' written notice to the other party by: (i) the majority vote
of all the Directors or by vote of a majority of the outstanding voting
securities of the Fund; or (ii) the Adviser. The Investment Adviser is
registered as an investment adviser under the Investment Advisers Act of 1940 as
amended (the "Advisers Act"). The Investment Adviser is a wholly owned
subsidiary of International Assets Holding Corporation (the "Corporation") and
is a related corporation of International Assets Advisory Corporation ("IAAC").
The Corporation is an independent financial-services firm dedicated to the
concept of global diversification and the long-term value of global investing.
Founded in 1987 and publicly traded since in 1994, the Corporation's business is
conducted through two principal operating subsidiaries: the Adviser and IAAC.
The Adviser is a registered investment adviser specializing in professional
global money management for high net worth individuals and institutions. IAAC is
a dealer of global securities offering institutions and retail investors access
to financial markets around the world. In addition, the Corporation recently
formed a third subsidiary, INTLTRADER.COM, to execute its previously announced
strategy to provide investors with 24-hour online trading of foreign and
domestic securities using the Internet.
The Adviser has not previously served as the investment adviser to an
open-end investment company, but has served as the adviser to The Global
Internet Trust, a unit investment trust registered under the 1940 Act. IAAC
created the NETDEX Index in March 1999 to track the performance of a basket of
publicly traded international companies which are internet related, the first
U.S. index established for that purpose.
Under the Advisory Agreement, the Investment Adviser, subject to the supervision
of the Directors, provides a continuous investment program for the Fund,
including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies, and restrictions as set forth in the Prospectus and this
SAI. The Investment Adviser is responsible for effecting all security
transactions on behalf of the Fund, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions. The
Investment Adviser also maintains books and records with respect to the
securities transactions of the Fund and furnishes to the Directors such periodic
or other reports as the Directors may request.
Under the Advisory Agreement, the monthly compensation paid to the Adviser is
accrued daily at an annual rate of 1.25% on the first $500 million of average
daily net assets of the Fund; 1.00% on average daily net assets of the Fund in
excess of $500 million and not more than $1 billion; and, 0.75% on average daily
net assets of the Fund over $1 billion.
For the fiscal period from May 4, 2000 (commencement of operations) through
August 31, 2000, the Adviser earned fees in the amount of $45,238, and waived
fees of $9,067.
In the interest of limiting expenses of the Fund, the Adviser has entered into a
contractual expense limitation agreement with the Company. Pursuant to the
agreement, the Adviser has agreed to waive or limit its fees and to assume other
expenses, for the first three years following commencement of operations, so
that the ratio of total annual operating expenses of the Fund are limited to
3.49% for Class A Shares and 3.99% for Class B Shares. The limit does not apply
to interest, taxes, brokerage commissions, other expenditures capitalized in
accordance with generally accepted accounting principles or other extraordinary
expenses not incurred in the ordinary course of business. The Adviser will be
entitled to reimbursement of fees waived or reimbursed by the Adviser to the
Fund. The total amount of reimbursement recoverable by the Adviser (the
"Reimbursement Amount") is the sum of all fees previously waived or reimbursed
by the Adviser to the Fund during any of the previous five (5) years, less any
reimbursement previously paid by the Fund to the Adviser with respect to any
waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount. Such reimbursement will be
authorized by the Directors.
Pursuant to the terms of the Advisory Agreement, the Investment Adviser pays all
expenses incurred by it in connection with its activities thereunder, except the
cost of securities (including brokerage commissions, if any) purchased for the
Fund. The services furnished by the Investment Adviser under the Advisory
Agreement are not exclusive, and the Investment Adviser is free to perform
similar services for others.
MANAGEMENT-RELATED SERVICES
Administration.
Pursuant to an Administrative Services Agreement with the Company dated May 1,
2000 (the "Administrative Agreement"), Commonwealth Shareholder Services, Inc.
("CSS"), 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
administrator of the Fund and supervises all aspects of the operation of the
Fund except those performed by the Investment Adviser. John Pasco, III, Chairman
of the Board of the Company, is the sole owner of CSS. CSS provides certain
administrative services and facilities for the Fund, including preparing and
maintaining certain books, records, and monitoring compliance with state and
federal regulatory requirements.
As administrator, CSS receives an asset-based administrative fee, computed daily
and paid monthly, at the annual rate of 0.20% on the first $500 million of
average daily net assets of the Fund; 0.175% on average daily net assets of the
Fund in excess of $500 million and not more than $1 billion; and 0.15% on
average daily net assets of the Fund in excess of $1 billion, subject to a
minimum amount of $15,000 per year for a period of two years from the date of
the Administrative Agreement. Thereafter, the minimum administrative fee is
$30,000 per year. CSS also receives an hourly rate, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters.
For the fiscal period from May 4, 2000 (commencement of operations) through
August 31, 2000, CSS received $8,054 from the Fund for its services as
administrator.
Custodian and Accounting Services.
Pursuant to the Custodian Agreement and Accounting Agency Agreement with the
Company dated April 12, 2000, Brown Brothers Harriman & Co. ("BBH"), 40 Water
Street, Boston , Massachusetts 02109, acts as the custodian of the Fund's
securities and cash and as the Fund's accounting services agent. With the
consent of the Company, BBH has designated The Depository Trust Company of New
York as its agent to secure a portion of the assets of the Fund. BBH is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities acquired and held by the Fund outside the U.S.
Such appointments are subject to appropriate review by the Company's Directors.
As the accounting services agent of the Fund, BBH maintains and keeps current
the books, accounts, records, journals or other records of original entry
relating to the Fund's business.
Transfer Agent.
Pursuant to a Transfer Agent Agreement with the Company dated August 19, 1997,
Fund Services, Inc. ("FSI") acts as the Company's transfer and disbursing agent.
FSI is located at 1500 Forest Avenue, Suite 111, Richmond, Virginia 23229. John
Pasco, III, Chairman of the Board of the Company and an officer and shareholder
of CSS (the Administrator of the Funds), owns one-third of the stock of FSI;
therefore, FSI may be deemed to be an affiliate of the Company and CSS.
FSI provides certain shareholder and other services to the Company, including
furnishing account and transaction information and maintaining shareholder
account records. FSI is responsible for processing orders and payments for share
purchases. FSI mails proxy materials (and receives and tabulates proxies),
shareholder reports, confirmation forms for purchases and redemptions and
prospectuses to shareholders. FSI disburses income dividends and capital
distributions and prepares and files appropriate tax-related information
concerning dividends and distributions to shareholders.
For the fiscal period from May 4, 2000 (commencement of operations) through
August 31, 2000, FSI received $4,890 from the Fund for its services as transfer
agent.
Distributors.
IAAC, located at 250 Park Avenue South, Suite 200, Winter Park, Florida 32789,
serves as the principal underwriter of the Fund's Class A Shares pursuant to a
Distribution Agreement dated May 1, 2000. First Dominion Capital Corp. ("FDCC"),
located at 1500 Forest Avenue, Suite 223, Richmond, Virginia 23229, serves as
the principal underwriter of the Fund's Class B Shares pursuant to a
Distribution Agreement dated September 6, 2000 (IAAC and FDCC are referred to
herein each as a "Distributor"; and collectively as the "Distributors"). IAAC
was formed as a Florida corporation in 1981 and registered as a broker/dealer in
1982. The firm has focused on the sale of global debt and equity securities to
its clients and has developed an experienced team specializing in the selection,
research, trading, currency exchange and execution of individual equity and
fixed-income products. Members of IAAC's team are also affiliated with the
Investment Adviser and have many years of experience in the global marketplace.
John Pasco, III, Chairman of the Board of the Company, owns 100% of FDCC, and is
it President, Treasurer and a Director. IAAC and FDCC are each registered as a
broker-dealer and are members of the National Association of Securities Dealers,
Inc. (the NASD"). The offering of the Fund's shares is continuous.
IAAC received the following compensation as a result of the sale of Fund shares:
Fiscal
Period Net Underwriting Compensation on
Ended Discounts and Redemption Brokerage Other
August 31, Commissions and Repurchases Commissions Compensation
---------- ---------------- --------------- ----------- ------------
2000 $63,953 None None None
FDCC does not receive underwriting discounts and commissions, brokerage
commission or other compensation as a result of the sale of the Fund's shares.
Independent Accountants.
The Company's independent auditors, Tait, Weller and Baker, audit the Company's
annual financial statements, assists in the preparation of certain reports to
the SEC, and prepares the Company's tax returns. Tait, Weller & Baker is located
at 8 Penn Center Plaza, Suite 800, Philadelphia, Pennsylvania 19103.
PORTFOLIO TRANSACTIONS
It is the policy of the Adviser, in placing orders for the purchase and sale of
the Fund's securities, to seek to obtain the best price and execution for
securities transactions, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and the skill
required of the executing broker/dealer. After a purchase or sale decision is
made by the Adviser, the Adviser arranges for execution of the transaction in a
manner deemed to provide the best price and execution for the Fund.
Exchange-listed securities are generally traded on their principal exchange,
unless another market offers a better result. Securities traded only in the
over-the-counter market may be executed on a principal basis with primary market
makers in such securities, except for fixed price offerings and except where the
Fund may obtain better prices or executions on a commission basis or by dealing
with other than a primary market maker.
The Adviser, when placing transactions, may allocate a portion of the Fund's
brokerage to persons or firms providing the Adviser with investment
recommendations, statistical, research or similar services useful to the
Adviser's investment decision-making process. The term "investment
recommendations or statistical, research or similar services" means (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and (2) furnishing analysis and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy.
Such services are one of the many ways the Adviser can keep abreast of the
information generally circulated among institutional investors by
broker-dealers. While this information is useful in varying degrees, its value
is indeterminable. Such services received on the basis of transactions for a
fund may be used by the Adviser for the benefit of other clients, and the Fund
may benefit from such transactions effected for the benefit of other clients.
While there is no formula, agreement or undertaking to do so, and when it can be
done consistent with the policy of obtaining best price and execution, the Fund
may consider sales of its shares as a factor in the selection of brokers to
execute portfolio transactions. The Adviser may be authorized, when placing
portfolio transactions for the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.
The Directors of the Company have adopted policies and procedures governing the
allocation of brokerage to affiliated brokers. The Adviser has been instructed
not to place transactions with an affiliated broker-dealer, unless that
broker-dealer can demonstrate to the Company that the Fund will receive (1) a
price and execution no less favorable than that available from unaffiliated
persons; and (2) a price and execution equivalent to that which that
broker-dealer would offer to unaffiliated persons in a similar transaction. The
Directors review all transactions which have been placed pursuant to those
policies and procedures at its meetings.
The Fund paid brokerage commissions of $16,058 for the fiscal period from
May 4, 2000 (commencement of operations) through August 31, 2000.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. A higher
portfolio turnover rate involves greater transaction expenses to a fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. The Adviser makes purchases and sales for the
Fund's portfolio whenever necessary, in the Adviser's opinion, to meet the
Fund's objective. The Adviser anticipates that the average annual portfolio
turnover rate of the Fund will be less than 100%.
CAPITAL STOCK AND DIVIDENDS
The Company is authorized to issue 750,000,000 shares of common stock, with a
par value of $0.01 per share. The Company has presently allocated 50,000,000
shares to the Fund, and has further reclassified those shares as follows:
Twenty-five Million (25,000,000) shares for Class A Shares of the series, which
includes those shares issued and outstanding prior to commencing the offering of
other classes of shares; and Twenty-five Million (25,000,000) shares for Class B
Shares of the series. Each share has equal dividend, voting, liquidation and
redemption rights and there are no preemptive rights and only such conversion or
exchange rights as the Board of Directors, in its discretion, may grant. Shares
of the Funds do not have cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Directors can elect
all of the Directors if they choose to do so. In such event, the holders of the
remaining shares will not be able to elect any person to the Board of Directors.
Shares will be maintained in open accounts on the books of FSI.
If they deem it advisable and in the best interests of shareholders, the
Directors may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If the Directors create
additional series or classes of shares, shares of each series or class are
entitled to vote as a series or class only to the extent required by the 1940
Act or as permitted by the Directors. Upon the Company's liquidation, all
shareholders of a series would share pro-rata in the net assets of such series
available for distribution to shareholders of the series, but, as shareholders
of such series, would not be entitled to share in the distribution of assets
belonging to any other series.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the applicable fund at
its net asset value as of the date of payment unless the shareholder elects to
receive such dividends or distributions in cash. The reinvestment date normally
precedes the payment date by about seven days although the exact timing is
subject to change. Shareholders will receive a confirmation of each new
transaction in their account. The Company will confirm all account activity
transactions made as a result of the Automatic Investment Plan described below.
Shareholders may rely on these statements in lieu of stock certificates.
DISTRIBUTION
The Distributors may from time to time offer incentive compensation to dealers
(which sell shares of the Fund subject to sales charges) allowing such dealers
to retain an additional portion of the sales load. A dealer who receives all of
the sales load may be considered an underwriter of the Fund's shares.
In connection with promotion of the sales of the Fund, the Distributors may,
from time to time, offer (to all broker dealers who have a sales agreement with
the Distributors) the opportunity to participate in sales incentive programs
(which may include non-cash concessions). These non-cash concessions are in
addition to the sales load described in the Prospectus. The Distributors may
also, from time to time, pay expenses and fees required in order to participate
in dealer sponsored seminars and conferences, reimburse dealers for expenses
incurred in connection with pre-approved seminars, conferences and advertising,
and may, from time to time, pay or allow additional promotional incentives to
dealers as part of pre-approved sales contests.
Statement of Intention.
The reduced sales charges and public offering price set forth in the Prospectus
apply to purchases of $25,000 or more made within a 13-month period pursuant to
the terms of a written Statement of Intention in the form provided by the
Distributors and signed by the purchaser.
The Statement of Intention is not a binding obligation to purchase the indicated
amount. Shares equal to 5.50% (declining to 0% after an aggregate of $1,000,000
has been purchased under the Statement of Intention) of the dollar amount
specified in the Statement of Intention will be held in escrow and capital gain
distributions on these escrowed shares will be credited to the shareholder's
account in shares (or paid in cash, if requested). If the intended investment is
not completed within the specified 13-month period, the purchaser will remit to
the Distributor the difference between the sales charge actually paid and the
sales charge which would have been paid if the total purchases had been made at
a single time. If the difference is not paid within 20 days after written
request by the Distributor or the securities dealer, the appropriate number of
escrowed shares will be redeemed to pay such difference.
In the case of purchase orders by the trustees of certain employee plans by
payroll deduction, the sales charge for the investments made during the 13-month
period will be based on the following: total investments made the first month of
the 13-month period times 13; as the period progresses the sales charge will be
based (1) on the actual investment made previously during the 13-month period,
plus (2) the current month's investments times the number of months remaining in
the 13-month period. There will be no retroactive adjustments in sales charge on
investments previously made during the 13-month period.
PLAN OF DISTRIBUTION
The Fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
certain activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the Directors of the Company and the
expenses paid under the Plan were incurred within the preceding 12 months and
accrued while the Plan is in effect.
The Plan provides that the Fund will pay a fee to IAAC at an annual rate of
0.50% for Class A Shares and will pay a fee to FDCC at an annual rate of 1.00%
for Class B Shares of the Fund's average daily net assets. The fee is paid to
the respective Distributor as reimbursement for expenses incurred for
distribution-related activity.
For the fiscal year ended August 31, 2000, $18,095 of allowable distribution
expenses were incurred for Class A Shares.
RULE 18f-3 PLAN
At a meeting held on April 14, 2000, the Directors adopted a Rule 18f-3 Multiple
Class Plan on behalf of the Company for the benefit of each of its series. The
key features of the Rule 18f-3 Plan are as follows: (i) shares of each class of
the Fund represent an equal pro rata interest in the Fund and generally have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations qualifications, terms and conditions, except that each
class bears certain specific expenses and has separate voting rights on certain
matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of the Fund may be exchanged for shares of the same class
of another fund; and (iii) the Fund's Class B Shares will convert automatically
into Class A Shares of the Fund after a period of eight years, based on the
relative net asset value of such shares at the time of conversion. At present,
the Fund offers Class A Shares charging a front-end sales charge and Class B
Shares imposing a back-end sales charge upon the sale of shares within six years
of purchase.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Redemptions In Kind.
The Company, on behalf of the Fund, will pay in cash (by check) all requests for
redemption by any shareholder of record of the Fund. The amount is limited,
however, during any 90-day period, to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior permission of the SEC. If redemption requests
exceed these amounts, the Directors reserve the right to make payments in whole
or in part using securities or other assets of the Fund (if there is an
emergency, or if a cash payment would be detrimental to the existing
shareholders of the Fund). In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net asset and you may
incur brokerage fees as a result of converting the securities to cash. The
Company does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
Exchanging Shares.
If you request the exchange of the total value of your account from one fund to
another, we will reinvest any declared but unpaid income dividends and capital
gain distributions in the new fund at its net asset value. Backup withholding
and information reporting may apply. Information regarding the possible tax
consequences of an exchange appears in the tax section in this SAI.
If a substantial number of shareholders sell their shares of the Fund under the
exchange privilege, within a short period, the Fund may have to sell portfolio
securities that it would otherwise have held, thus incurring additional
transactional costs. Increased use of the exchange privilege may also result in
periodic large inflows of money. If this occurs, it is the Fund's general policy
to initially invest in short-term, interest-bearing money market instruments.
However, if the Adviser believes that attractive investment opportunities
(consistent with the Fund's investment objective and policies) exist
immediately, then it will invest such money in portfolio securities in as
orderly a manner as possible.
The proceeds from the sale of shares of the Fund may not be available until the
third business day following the sale. The Fund you are seeking to exchange into
may also delay issuing shares until that third business day. The sale of Fund
shares to complete an exchange will be effected at net asset value of the Fund
next computed after your request for exchange is received in proper form. See
Buying, Redeeming, and Exchanging shares in the Prospectus.
Conversion of Class B Shares to Class A Shares.
Class B Shares of the Fund will automatically convert to Class A Shares of the
Fund, based on the relative net asset value per share of the aforementioned
classes, eight years after the end of the calendar month in which your Class B
share order was accepted. For the purpose of calculating the holding period
required for conversion of Class B Shares, order acceptance shall mean: (1) the
date on which such Class B Shares were issued, or (2) for Class B Shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B Shares) the date on which the original Class B Shares
were issued. For purposes of conversion of Class B Shares, Class B Shares
purchased through the reinvestment of dividends and capital gain distribution
paid in respect of Class B Shares will be held in a separate sub-account. Each
time any Class B Shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B Shares in the sub-account will also convert to Class A Shares. The
portion will be determined by the ratio that the shareholder's Class B Shares
converting to Class A Shares bears to the shareholder's total Class B Shares not
acquired through the reinvestment of dividends and capital gain distributions.
The conversion of Class B to Class A is not a taxable event for federal income
tax purposes.
Whether a Contingent Deferred Sales Charge Applies.
In determining whether a Contingent Deferred Sales Charge ("CDSC") is applicable
to a redemption, the calculation will be made in a manner that results in the
lowest possible rate. It will be assumed that the redemption is made first of
amounts representing (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held for over six years, and (3) shares
held the longest during the six-year period.
Eligible Benefit Plans.
An eligible benefit plan is an arrangement available to the (1) employees of an
employer (or two or more affiliated employers) having not less than ten
employees at the plan's inception (2) or such an employer on behalf of employees
of a trust or plan for such employees, their spouses and their children under
the age of 21 or a trust or plan for such employees, which provides for
purchases through periodic payroll deductions or otherwise. There must be at
least five initial participants with accounts investing or invested in shares of
one or more of the Fund and/or certain other funds.
The initial purchase by the eligible benefit plan along with prior purchases by
or for the benefit of the initial participants of the plan must aggregate not
less than $500. Subsequent purchases must be at least $50 per account and must
aggregate at least $250. The eligible benefit plan must make purchases using a
single order and a single check or federal funds wire. The eligible benefit plan
may not make purchases more often than monthly. The Company will establish a
separate account for each employee, spouse or child for which purchases are
made. The Company may modify the requirements for initiating or continuing
purchases or stop offering shares to such a plan at any time without prior
notice.
Selling Shares.
You may redeem shares of the Fund at any time and in any amount by mail or
telephone. The Fund will use reasonable procedures to confirm that instructions
communicated by telephone are genuine and, if the procedures are followed, will
not be liable for any losses due to unauthorized or fraudulent telephone
transactions.
The Company's procedure is to redeem shares at the Net Asset Value (the "NAV")
determined after the Transfer Agent receives the redemption request in proper
order, less any applicable contingent deferred sales charge in the case of Class
B Shares. Payment will be made promptly, but no later than the seventh day
following the receipt of the request in proper order. The Company may suspend
the right to redeem shares for any period during which the New York Stock
Exchange (the "NYSE") is closed or the SEC determines that there is an
emergency. In such circumstances you may withdraw your redemption request or
permit your request to be held for processing after the suspension is
terminated.
Small Accounts.
Due to the relatively higher cost of maintaining small accounts, the Company may
deduct $50 per year from your account or may redeem the shares in your account,
if it has a value of less than $1,000. The Company will advise you in writing
thirty (30) days prior to deducting the annual fee or closing your account,
during which time you may purchase additional shares in any amount necessary to
bring the account back to $1,000. The Company will not close your account if it
falls below $1,000 solely because of a market decline. The Adviser and the
Distributors reserve the right to waive this fee for their clients.
Special Shareholder Services.
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account.
A regular account allows a shareholder to make voluntary investments and/or
withdrawals at any time. Regular accounts are available to individuals,
custodians, corporations, trusts, estates, corporate retirement plans and
others. You may use the Account Application provided with the Prospectus to open
a regular account.
Telephone Transactions.
You may redeem shares or transfer into another fund by telephone if you request
this service on your initial Account Application. If you do not elect this
service at that time, you may do so at a later date by sending a written request
and signature guarantee to FSI.
The Fund employs reasonable procedures designed to confirm the authenticity of
your telephone instructions and, if it does not, it may be liable for any losses
caused by unauthorized or fraudulent transactions. As a result of this policy, a
shareholder that authorizes telephone redemption bears the risk of losses, which
may result from unauthorized or fraudulent transactions which the Fund believes
to be genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions. The Company has designed these questions
to confirm your identity as a shareholder of record. Your cooperation with these
procedures will protect your account and the Fund from unauthorized
transactions.
Automatic Investment Plan.
The Automatic Investment Plan allows shareholders to make automatic monthly
investments into their account. Upon request, FSI will withdraw a fixed amount
each month from a shareholder's checking account and apply that amount to
additional shares. This feature does not require you to make a commitment for a
fixed period of time. You may change the monthly investment, skip a month or
discontinue your Automatic Investment Plan as desired by notifying FSI. To
receive more information, please call the offices of the Company at (800)
527-9525. Any shareholder may utilize this feature.
Individual Retirement Account ("IRA").
All wage earners under 70-1/2, even those who participate in a company sponsored
or government retirement plan, may establish their own IRA. You can contribute
100% of your earnings up to $2,000 (or $2,250 with a spouse who is not a wage
earner, for years prior to 1997). A spouse who does not earn compensation can
contribute up to $2,000 per year to his or her own IRA. The deductibility of
such contributions will be determined under the same rules that govern
contributions made by individuals with earned income. A special IRA program is
available for corporate employers under which the employers may establish IRA
accounts for their employees in lieu of establishing corporate retirement plans.
Known as SEP-IRA's (Simplified Employee Pension-IRA), they free the corporate
employer of many of the recordkeeping requirements of establishing and
maintaining a corporate retirement plan trust.
If you have received a lump sum distribution from another qualified retirement
plan, you may rollover all or part of that distribution into your Fund IRA. A
rollover contribution is not subject to the limits on annual IRA contributions.
By acting within applicable time limits of the distribution you can continue to
defer federal income taxes on your rollover contribution and on any income that
is earned on that contribution.
Roth IRA.
A Roth IRA permits certain taxpayers to make a non-deductible investment of up
to $2,000 per year. Provided an investor does not withdraw money from his or her
Roth IRA for a 5 year period, beginning with the first tax year for which
contribution was made, deductions from the investor's Roth IRA would be tax free
after the investor reaches the age of 59-1/2. Tax free withdrawals may also be
made before reaching the age of 59-1/2 under certain circumstances. Please
consult your financial and/or tax professional as to your eligibility to invest
in a Roth IRA. An investor may not make a contribution to both a Roth IRA and a
regular IRA in any given year. An annual limit of $2,000 applies to
contributions to regular and Roth IRAs. For example, if a taxpayer contributes
$2,000 to a regular IRA for a year, he or she may not make any contribution to a
Roth IRA for that year.
How to Establish Retirement Accounts.
Please call the Company to obtain information regarding the establishment of
individual retirement plan accounts. Each plan's custodian charges nominal fees
in connection with plan establishment and maintenance. These fees are detailed
in the plan documents. You may wish to consult with your attorney or other tax
adviser for specific advice concerning your tax status and plans.
Exchange Privilege.
Shareholders may exchange their shares for shares of any other series of the
Company, provided the shares of the fund the shareholder is exchanging into are
registered for sale in the shareholder's state of residence. Each account must
meet the minimum investment requirements. Also, to make an exchange, an exchange
order must comply with the requirements for a redemption or repurchase order and
must specify the value or the number of shares to be exchanged. Your exchange
will take effect as of the next determination of the Fund's NAV per share
(usually at the close of business on the same day). FSI will charge your account
a $10 service fee each time you make such an exchange. The Company reserves the
right to limit the number of exchanges or to otherwise prohibit or restrict
shareholders from making exchanges at any time, without notice, should the
Company determine that it would be in the best interest of its shareholders to
do so. For tax purposes, an exchange constitutes the sale of the shares of the
fund from which you are exchanging and the purchase of shares of the fund into
which you are exchanging. Consequently, the sale may involve either a capital
gain or loss to the shareholder for federal income tax purposes.
Computation of Offering Price.
A hypothetical illustration of the computation of the offering price per share
of a Class A Share, using the value of the Fund's net assets and the number of
outstanding shares of each Fund at the close of business on August 31, 2000 and
the maximum front-end sales load of 5.50%, is as follows:
Fund
Net Assets $12,911,573
Outstanding Shares 1,591,150
Net Asset Value Per Share $ 8.11
Sales Charge (5.50% of
the Offering Price) $ 0.47
Offering Price to Public $ 8.58
TAX STATUS
DISTRIBUTIONS AND TAXES
Distributions of net investment income.
The Fund receives income generally in the form of dividends and interest on its
investments. This income, less expenses incurred in the operation of the Fund,
constitutes the Fund's net investment income from which dividends may be paid to
you. Any distributions by the Fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains.
The Fund may derive capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions from net short-term
capital gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net capital
gains realized by the Fund generally will be distributed once each year, and may
be distributed more frequently, if necessary, in order to reduce or 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 the Fund. Similarly, foreign exchange losses realized by the
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 the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's ordinary
income distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the Fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the 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 the
Fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The Fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
Information on the tax character of distributions.
The Fund will inform you of the amount of your ordinary income dividends and
capital gains distributions at the time they are paid, and will advise you of
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, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxed as a regulated investment company.
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, the Fund generally does not pay federal income
tax on the income and gains they distribute to you. The Directors reserve the
right not to maintain the qualification of the Fund as a regulated investment
company if it determines such course of action to be beneficial to shareholders.
In such case, the Fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires the Fund to
distribute to you by December 31st of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income earned during the calendar year; 98%
of its capital gain net income earned during the twelve month period ending
October 31st; and 100% of any undistributed amounts from the prior year. The
Fund intends to declare and pay these amounts in December (or in January that
are treated by you as received in December) to avoid these excise taxes, but can
give no assurances that its distributions will be sufficient to eliminate all
taxes.
Redemption of Fund shares.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares, or exchange your
Fund shares for shares of a different series of the Company, the IRS will
require that you report a gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, the gain or loss that you realize will be
capital gain or loss and will be long-term or short-term, generally depending on
how long you hold your shares. Any loss incurred on the redemption or exchange
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains distributed to you by the Fund
on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you purchase.
U.S. Government Obligations
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association or Federal National Mortgage Association
securities, bankers' acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
Dividends received deduction for corporations.
Because the Fund's income includes corporate dividends, if the shareholder is a
corporation, a portion of its distributions may qualify for the intercorporate
dividends-received deduction. You will be permitted in some circumstances to
deduct these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by the
Fund as eligible for such treatment. All dividends (including the deducted
portion) must be included in your alternative minimum taxable income
calculations.
INVESTMENT 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.
The 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 the 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 the
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 the 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.
Based on the foregoing, the Fund's aggregate total return for the period
May 4, 2000 (commencement of operations) through August 31, 2000 was (14.18%).
The Fund may also from time to time include in such advertising an aggregate
total return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, the
Value Line Composite Index, the Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency Index,
Merrill Lynch Intermediate Agency Index, Morgan Stanley Capital International
Europe, Australia, Far East Index or the Morgan Stanley Capital International
World Index. For such purposes, the Fund calculates its aggregate total return
for the specific periods of time by assuming the investment of $10,000 in shares
of the Fund and assuming the reinvestment of each dividend or other distribution
at NAV on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. To calculate its average annual
total return, the aggregate return is then annualized according to the SEC's
formula for total return quotes outlined above.
The Fund may also advertise the performance rankings assigned by the various
publications and statistical services, including but not limited to, SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
reported from time to time by Dow Jones & Company, Morningstar, Inc., Chase
Investment Performance, Wilson Associates, Stanger, CDA Investment Technologies,
Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, or
IBC/Donaghue's Average U.S. Government and Agency, or as appears in various
publications, including but not limited to, The Wall Street Journal, Forbes,
Barron's, Fortune, Money Magazine, The New York Times, Financial World,
Financial Services Week, USA Today and other national or regional publications.
FINANCIAL INFORMATION
You can receive free copies of reports, request other information and discuss
your questions about the Fund by contacting the Fund directly at:
THE WORLD FUNDS, INC.
1500 Forest Avenue, Suite 223
Richmond, Virginia 23229
TELEPHONE: (800) 527-9525
E-MAIL: [email protected]
The Annual Report for the fiscal period ended August 31, 2000 has been filed
with the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Fund included in the Annual Report have been audited by the
Fund's independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual Report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
Monument EuroNet Fund
a series of
THE WORLD FUNDS, INC.
PROSPECTUS
Prospectus Dated _________________
This Prospectus describes Monument EuroNet Fund (the "Fund"), a series of shares
offered by 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
equity securities of companies principally engaged in internet and
internet-related businesses.
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,
such as common stocks and 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 European Union 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 and you could lose money. 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.
The 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 the
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 investment 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 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: This Fund has not yet completed one full calendar year
of operations. Accordingly, no performance information
is being presented.
FEES AND EXPENSES
Costs are an important consideration in choosing a mutual fund. Shareholders
indirectly pay the costs of operating a fund, plus any transaction costs
associated with buying and selling the securities a fund holds. These costs will
reduce a portion of the gross income or capital appreciation a fund achieves.
Even small differences in these expenses can, over time, have a significant
effect on a fund's performance.
The following table describes the fees and expenses that you may pay directly or
indirectly in connection with an investment in the Fund. 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 2.24% 2.24% 2.24%
----- ----- -----
Total Annual Fund Operating Expenses(6) 4.24% 4.74% 4.74%
Fee Waivers and/or Expense Reimbursements 0.77% 0.77% 0.77%
----- ----- -----
Net Expenses 3.47% 3.97% 3.97%
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 1.00% 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, you reinvest all dividends and distributions in additional shares of
the Fund and then you 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 (1) 3 Years (1)
---------- -----------
Class A Shares (2) $905 $1,579
Class B Shares (3) $899 $1,510
Class C Shares (3) $595 $1,297
(1) These costs are net of fee waivers and expense reimbursements to maintain
the ratio of total operation expenses at 3.49% for Class A Shares and 3.99%
for Class B and Class C Shares.
(2) 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.
(3) 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.
Absent the commitment to limit the expenses of the Fund, your costs would be:
1 Year 3 Years
------ -------
Class A Shares $976 $1,788
Class B Shares $975 $1,728
Class C Shares $669 $1,513
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 A diversified portfolio of equity securities, such as 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. In determining which portfolio
securities to sell, the Adviser considers the following: (1) if a stock
appreciates such that, as a total percentage of our portfolio, it becomes too
large; (2) if the sector or stock appears to be under-performing; (3) if the
company management appears to be engaging in conduct not in the best interest of
public shareholders; (4) to sell loss positions in order to reduce taxable gains
to our shareholders reflected in earlier sales of positions with gains; and, (5)
to raise funds to cover redemptions.
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 a 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 European
Union 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 Common
stocks, the Fund may invest in shares of closed-end investment companies which
invest in securities that are consistent with the Fund's objective and
strategies. By investing in other investment companies the Fund indirectly pays
a portion of the expenses and brokerage costs of these companies as well as its
own expenses. Also, federal 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, The
Fund may engage in other strategies such as derivatives. Investments in
derivatives, such as options, can significantly increase a Fund's exposure to
market risk or credit risk of the counterparty, as well as improper valuation
and imperfect correlation.
RISKS
Sector Risks.
Internet and Internet-related companies are particularly vulnerable to Rapidly
changing technology and relatively high risks of obsolescence caused by
progressive scientific and technological advances. The economic prospects of
Internet and Internet-related companies can dramatically fluctuate due to the
competitive environment in which these companies operate. Therefore, the Fund
may experience greater volatility than funds whose portfolio are not subject to
these types of risks.
Stock Market Risk.
The Fund is subject to stock market risk. Stock market risk is the Possibility
that stock prices overall will decline over short or long periods.
Because stock prices tend to fluctuate, the value of your investment in the Fund
may increase or decrease. The Fund's investment success depends on the skill of
the 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 Risk.
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 Underlying
securities, unsponsored Depositary Receipts may also be subject to the risks
that the foreign issuer may not be obligated to cooperate with the U.S. bank,
may not provide additional financial and other information to the bank or the
investor, or that such information in the U.S. market may not be current. Please
refer to the Statement of Additional Information 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.
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, 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.
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.
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.
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. For the fiscal period ended August 31, 2000, the Adviser
did not receive any compensation, waived fees in the amount of $21,995 and
reimbursed operating expenses in the amount of $14,086.
As stated above, the Manager has entered into sub-advisory contracts with SA
Financiere Rembrandt and Monument Advisors, Ltd. The Manager, and not the fund,
pays the fees of the sub-advisers. To compensate these sub-advisers
appropriately the Manager pays from its fee to SA Financiere Rembrandt 50% of
the management fee and Monument Advisors, Ltd. 16% of the management fees. 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.
The Manager will be entitled to reimbursement of fees waived or reimbursed 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
reimbursed 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.
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.
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 attributable to Class A Shares, Class B Shares or
Class C Shares, subtracting any liabilities attributable to Class A Shares,
Class B Shares or Class C Shares, and then dividing by the total number of
shares of each class 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, less any applicable contingent deferred sales charge in the case
of Class B or Class C Shares. 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 or redemption. 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.
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% of the average daily net assets
of the Class A Shares, 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% of the average daily net assets
of the Class B Shares, payable quarterly.
Class C Broker-Dealer Commission and Service Fee
Sales Charge Broker-Dealer Percentage
------------ ------------------------
All purchases 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% of the average daily net assets
of the Fund's Class C Shares, 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 Fund's distributors. The
fee ("Rule 12b-1 fee") paid to the Fund's 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 12 months 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 of Class A Shares in the Fund, you may reduce
the sales charge applied to any subsequent purchases. Your Class A Shares in a
Fund previously purchased will be taken into account on a combined basis at the
current net asset value per share of the Fund in order to establish the
aggregate investment amount to be used in determining the applicable sales
charge. Only previous purchases of Class A 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 on Class A Shares 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 Fund's 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 on Class B and Class C Shares 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 Fund's
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, less any
applicable CDSC in the case of Class B or Class C Shares. 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,
the 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 the Fund or receive them in cash. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Other Fund distributions (including
distributions attributable to short-term capital gains of the Fund) will
generally be taxable to you as ordinary income. 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 the Fund, you may have a capital gain or loss. For tax
purposes, an exchange of your shares of the Fund for shares of a different fund
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. The one major exception to
these tax principles is that distributions on, and sales, exchanges and
redemptions of, shares held in an IRA (or other tax deferred retirement account)
will not be currently taxable. 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.
SHAREHOLDER COMMUNICATIONS.
The Fund may eliminate duplicate mailings of portfolio materials to shareholders
who reside at the same address, unless instructed to the contrary. Investors may
request that the Fund send these documents to each shareholder individually by
calling the Fund at (800) 527-9525.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Fund's financial highlights for the period presented have
been audited by Tait, Weller and Baker, independent auditors, whose unqualified
report thereon, along with the Fund's financial statements, are included in the
Fund's Annual Report to Shareholders (the "Annual Report") and are incorporated
by reference into the SAI. Additional performance information for the Fund is
included in the Annual Report. The Annual Report and the SAI are available at no
cost from the Fund at the address and telephone number noted on the back page of
this Prospectus. The following information should be read in conjunction with
the financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A Shares Class B Shares Class C Shares
--------------- --------------- ----------------
Period ended Period ended Period ended
August 31, 2000* August 31, 2000* August 31, 2000*
---------------- ---------------- ----------------
Per Share
Operating Performance
Net asset value,
beginning of period $ 9.42 $ 9.42 $ 9.42
------- ------- -------
Income from
investment operations-
Net investment loss (0.04) (0.03) (0.04)
Net realized and
unrealized gain
on investments 0.39 0.41 0.38
------- ------- -------
Total from
investment operations 0.35 0.38 0.34
------- ------- --------
Net asset value,
end of period $ 9.77 $ 9.80 $ 9.76
======= ======= =======
Total Return 3.72% 4.03% 3.61%
Ratios/Supplemental Data
Net assets,
end of period (000's) $10,406 $1,159 $ 186
Ratio to average
net assets (A)
Expenses (B) 4.24%** 4.74%** 4.74%**
Expense ratio-net (C) 3.47%** 3.97%** 3.97%**
Net investment loss (3.47%)** (3.97%)** (3.97%)**
Portfolio turnover rate 8.60% 8.60% 8.60%
* Commencement of operations was July 3, 2000 for Class A shares and July 6,
2000 for Class B & C shares.
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net
investment income ratio by 2.42% for the period ended August 31, 2000.
(B) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
<PAGE>
You'll find more information about the Fund in the following documents:
The Fund's annual and semi-annual reports will contain more information about
the Fund and a discussion of the market conditions and investment strategies
that had a significant effect on the Fund's performance during the last fiscal
year.
For more information about the Fund, you may wish to refer to the Company's
SAI dated _______________ 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, by e-mail at:
[email protected], 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 addresses or telephone
numbers.
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.
(Investment Company Act File No. 811-8255)
<PAGE>
THE WORLD FUNDS, INC.
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 ______________. 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 Fund's audited financial statements and notes thereto for the fiscal period
ended August 31, 2000 and the unqualified report of Tait, Weller and Baker, the
Fund's independent auditors, on such financial statements are included in the
Fund's Annual Report to Shareholders for the period ended August 31, 2000 (the
"Annual Report") and are incorporated by reference into this SAI. No other parts
of the Annual Report are incorporated herein. A copy of the Annual Report
accompanies this SAI and an investor may obtain a copy of the Annual Report,
free of charge, by writing to the Fund or calling (800) 527-9525.
The date of this SAI is _________________________.
<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
Policies Concerning Personal Investment Activity
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%; 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 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 a diversified portfolio of
equity securities, such as common stocks and securities convertible into equity
securities, such as warrants, convertible bonds, debentures or convertible
preferred. The Fund's investments are limited to equity securities of companies
principally engaged in internet and internet-related businesses, as described in
the Fund's prospectus.
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 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 the Fund give the holder the right to buy the
underlying securities from the Fund at a stated exercise price. A call option
written by the 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 the 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 the 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 the 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 the 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 the 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.
The 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.
The 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 the Fund.
Writing Over-the-Counter ("OTC") Options.
The 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, the 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 the 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.
The Fund will incur brokerage fees when it purchases and sells stock index
futures contracts, and at the time the Fund purchases or sells a stock index
futures contract, it must make a good faith deposit known as the "initial
margin". Thereafter, the Fund may need to make subsequent deposits, known as
"variation margin," to reflect changes in the level of the stock index. The 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 the 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, the 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. The 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 the 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 the 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 the Fund's portfolio may differ substantially from the changes
anticipated by the Fund when it established its hedged positions, and
unanticipated price movements in a futures contract may result in a loss
substantially greater than a Fund's initial investment in such a contract.
Successful use of futures contracts depends upon the 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 the
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 the 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 Fund 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.
In applying the fundamental and policy concerning concentration:
Except with respect to the Fund's restriction concerning borrowing, if 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
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.
MANAGEMENT OF THE COMPANY
Directors and Officers.
The Company is governed by a Board of Directors, which is responsible for
protecting the interest of shareholders. The Directors are experienced business
persons who meet throughout the year to oversee the Company's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names, addresses and ages 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 any investment manager or adviser to a fund of the
Company, and the principal underwriters, and officers of the Company, are noted
with an asterisk (*).
Name, Address Position(s) Held Principal Occupation(s)
and Age With Registrant During the Past 5 Years
------------- --------------- -----------------------
*John Pasco, III Chairman, Director Mr. Pasco is Treasurer and
1500 Forest Avenue and Treasurer Director of Commonwealth
Richmond, VA 23229 Shareholder Services, Inc.,
(55) the Company's Administrator,
since 1985; President
and Director of First
Dominion Capital Corp.,
the Company's underwriter.
Director and shareholder of Fund
Services Inc., the
Company's Transfer and
Disbursing Agent, since
1987; shareholder of
Commonwealth Fund
Accounting, Inc. which
Provides bookkeeping
services; and Chairman,
Director and
Treasurer of Vontobel Funds,
Inc., a registered
investment company since March,
1997. Mr. Pasco is also a
certified public accountant.
Samuel Boyd, Jr. Director Mr. Boyd is Manager of the
10808 Hob Nail Court Customer Services
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; and Director of
Vontobel Funds, Inc., a registered
investment company since March,
1997.
*F. Byron Parker, Jr. Secretary Mr. Parker is Secretary of
8002 Discovery Drive Commonwealth Shareholder
Suite 101 Services, Inc., and First
Richmond, VA 23229 Dominion Capital Corp. since 1986;
(57) Secretary of Vontobel Funds, Inc.,
a registered investment company
since March, 1997; and Partner in
the law firm Mustian & Parker.
*Jane H. Williams Vice President of Ms. Williams is the
3000 Sand Hill Road the Company President of Sand Hill
Suite 150 and President Advisors, Inc. since
Menlo Park, CA 94025 of the Sand Hill August, 2000 and was
(51) Portfolio Manager the Executive Vice
Fund series President of Sand Hill
Advisors, Inc. since 1982.
*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.
*Franklin A.Trice, III Vice President of Mr. Trice is President
P.O. Box 8535 the Company and of Virginia Management
Richmond, VA 23226-0535 President of the Investment Corp. since
(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 610 President of broker/dealer since July,
Gaithersburg, MD 20878 GenomicsFund.com 1990; President of xGENx,
(53) and Newby's LLC since November, 1999.
ULTRA Fund series
* 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 and officers who are officers
or employees of the any investment manager or adviser to a fund of the Company.
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. As of December
31, 2000 the officers and Directors, individually and as a group, owned
beneficially less than 1% of the outstanding shares of the Funds.
For the fiscal period from July 3, 2000 (commencement of operations) through
August 31, 2000, 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 (2)
31, 2000(1) Expenses
John Pasco, III, $-0- N/A $-0-
Director
Samuel Boyd, Jr., $750 N/A $12,933
Director
William E. Poist, $750 N/A $12,933
Director
Paul M. Dickinson, $750 N/A $12,933
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, 2000.
(2) This amount represents the aggregate amount of compensation paid to the
Directors by all funds of the Company for the fiscal year or period ended
August 31, 2000. The Company consisted of a total of eight funds as of
August 31, 2000.
POLICIES CONCERNING PERSONAL INVESTMENT ACTIVITIES
The Fund, Manager, advisers and principal underwriters have each adopted a Code
of Ethics, pursuant to Rule 17j-1 under the 1940 Act that permit investment
personnel, subject to their particular Code of Ethics, to invest in securities,
including securities that may be purchased or held by the Fund, for their own
account.
The Codes of Ethics are on file with, and can be reviewed and copied at, the
SEC's Public Reference Room in Washington, D.C. In addition, the Codes 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
To the best knowledge of the Fund as of December 31, 2000, the following
persons own of record or beneficially own 5% or more of the Fund's shares and
own such amounts indicated:
[INSERT INFORMATION]
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
Fund 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 SA Financiere Rembrandt 66% of the management fee
received from the Fund and pays Monument Advisors, Ltd. 16% of the mnagement fee
receive 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.
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.
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 also receives an hourly rate, plus certain out-of-pocket
expenses, for shareholder servicing and state securities law matters. For the
period from July 3, 2000 (commencement of operations) through August 31, 2000,
CSS received $2,809 from the Fund for administrative services.
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.
DISTRIBUTORS
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
each are members of the National Association of Securities Dealers, Inc. 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 auditors, 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, Pennsylvania 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 the 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 the
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
investment 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.
The Fund paid $23,818 in brokerage commissions for the period from July 3,2000
(commencement of operations) through August 31, 2000.
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 750,000,000 shares of common stock, with a
par value of $0.01 per share. The Company has presently allocated 50,000,000
shares to the Fund, and has further reclassified those shares as follows: Twenty
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 preemptive
rights, and only such conversion or exchange rights as the Board of Directors,
in its discretion, may grant. Shares of the Fund do not have cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect all of the directors if they choose to do
so. In such event, the holders of the remaining shares will not be able to elect
any person to the Board of Directors. Shares will be maintained in open accounts
on the books of 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.
Computation of Offering Price.
A hypothetical illustration of the computation of the offering price per Class A
Share of the Fund, using the value of the Fund's net assets attributable to
Class A Shares and the number of outstanding Class A Shares of the Fund at the
close of business on August 31, 2000 and the maximum front-end sales charge of
5.75%, is as follows:
Class A Shares
--------------
Net Assets $10,405,604
Outstanding Shares 1,065,454
Net Asset Value Per Share $ 9.77
Sales Charge (5.75% of
the offering price) $ 0.60
Offering Price to Public $ 10.37
Statement of Intention.
The reduced sales charges and public offering price applicable to Class A Shares
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.
The Fund incurred $6,796 of allowable distribution expenses for Class A Shares,
$865 for Class B Shares and $207 for Class C Shares for for the fiscal period
from July 3, 2000 (commencement of operations) through August 31, 2000.
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 the Fund (if there is an
emergency, or if a cash payment would be detrimental to the existing
shareholders of the Fund). In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net asset and you may
incur brokerage fees as a result of converting the securities to cash. The
Company does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
Exchanging Shares.
If you request the exchange of the total value of your account from one fund to
another, we will reinvest any declared 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 the Fund under the
exchange privilege, within a short period, the Fund may have to sell portfolio
securities that it would otherwise have held, thus incurring additional
transactional costs. Increased use of the exchange privilege may also result in
periodic large inflows of money. If this occurs, it is the Fund's general policy
to initially invest in short-term, interest-bearing money market instruments.
However, if the 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, less any
applicable CDSC fee with respect to Class B and Class C Shares. 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.
Automatic Investment Plan.
The Automatic Investment Plan allows 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 the
Fund, constitutes the Fund's net investment income from which dividends may be
paid to you. Any distributions by the Fund from such income will be taxable to
you as ordinary income, whether you take them in cash or 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 the 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 the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's ordinary
income distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of 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, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be 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 the Fund as a regulated investment company
if it determines such course of action to be beneficial to shareholders. In such
case, the Fund will be subject to federal, and possibly state, corporate taxes
on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of such Fund's earnings and profits.
Excise tax distribution requirements.
To avoid federal excise taxes, the Internal Revenue Code requires the 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 MSF, 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
the Fund, show the performance of a hypothetical investment and are not intended
to indicate future performance.
Yield Information
From time to time, the Fund may advertise a yield figure. A portfolio's yield is
a way of showing the rate of income the portfolio earns on its investments as a
percentage of the portfolio's share price. Under the rules of the SEC, yield
must be calculated according to the following formula:
6
Yield = 2[(a-b +1) -1]
---
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The 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 the 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 the
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 the 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.
Based upon the foregoing, the Fund's aggregate total return for the period July
3, 2000 (commencement of operations) through August 31, 2000 was 3.72%.
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 Annual Report for the fiscal period ended August 31, 2000 has been filed
with the SEC. The financial statements contained in the Annual Report are
incorporated by reference into this SAI. The financial statements and financial
highlights for the Fund included in the Annual Report have been audited by the
Fund's independent auditors, Tait, Weller and Baker, whose report thereon also
appears in such Annual report and is also incorporated herein by reference. No
other parts of the Annual Report are incorporated by reference herein. The
financial statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a) ARTICLES OF INCORPORATION.
(1) Articles of Incorporation of the Registrant are herein incorporated by
reference to the Registrant's Initial Registration Statement on Form
N-1A(File Nos. 333-29289 and 811-8255), as filed with the Securities and
Exchange Commission (the "SEC") on June 16, 1997.
(2) Articles Supplementary. a. Re: the creation of the CSI Equity Fund and CSI
Fixed Income Fund dated July 29, 1997 are herein incorporated by reference
to Post-Effective Amendment Nos. 1/1 to the Registrant's Initial
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 1, 1997.
b. Re: the creation of the Third Millennium Russia Fund and New Market Fund
dated June 19, 1998 are herein incorporated by reference to Post-Effective
Amendment Nos. 4/4 to the Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255), as filed with the SEC on July 8, 1998.
c. Re: increasing the amount of authorized shares are herein incorporated by
reference to Post-Effective Amendment Nos. 4/4 to the Registrant's
Registration Statement on Form N-1A(File Nos. 333-29289 and 811-8255), as
filed with the SEC on July 8, 1998.
d. Re: The creation of the GenomicsFund.com dated December 9, 1999 are herein
incorporated by reference to Post-Effective Amendment Nos. 9/11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on January 7, 2000.
e. Re: The creation of the Global e Fund dated April 14, 2000 are Herein
incorporated by reference to Post-Effective Amendment Nos. 10/12 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on February 24, 2000
f. Re: The creation of the Monument EuroNet Fund dated April 14, 2000 are
herein incorporated by reference to Post-Effective Amendment Nos. 11/13 to
the Registrant's Registration Statement on Form N-1A (File Nos. 333-29289
and 811-8255), as filed with the SEC on May 12, 2000.
g. Re: Increasing the amount of authorized shares of the Registrant dated May
24, 2000 and reallocating such shares among these series are herein
incorporated by reference to Post-Effective Amendment Nos. 12/14 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on August 18, 2000.
h. Re: Articles reclassifying the existing shares of the Global e Fund dated
October 4, 2000 are herein incorporated by reference to Post-Effective
Amendment Nos. 13/15 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on October
24 2000.
i. RE FORM OF: The creation of the Newby's ULTRA Fund series of the Registrant
are herein incorporated by reference to Post-Effective Amendment Nos. 13/15
to the Registrant's Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255), as filed with the SEC on October 24 2000.
(b) BY-LAWS.
By-Laws of the Registrant are herein incorporated by reference to the
Registrant's Initial Registration Statement on Form N-1A (File Nos. 333-29289
and 811-8255), as filed with the SEC on June 16, 1997.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS.
Specimen Share Certificate
a. 1/ Re: Sand Hill Portfolio Manager Fund is herein incorporated by reference
to the Registrant's Initial Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255) as filed with the SEC on June 16, 1997.
2/ Re: CSI Equity Fund and CSI Fixed Income Fund is herein incorporated by
reference to Post-Effective Amendment Nos. 1/1 to the Registrant's Initial
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 1, 1997.
3/ Re: Third Millennium Russia Fund and New Market Fund. Is herein
incorporated by reference to Post-Effective Amendment Nos. 4/4 of the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255) as filed with the SEC on July 8, 1998.
4/ Re: GenomicsFund.com is herein incorporated by reference to Post-Effective
Amendment Nos. 9/11 of the Registrant's Registration Statement on Form N-1A
(File Nos. 333-29289 and 811-8255) as filed with the SEC on January 7,
2000.
5/ Re: Global e-Fund is herein incorporated by reference to Post-Effective
Amendment Nos. 10/12 of the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255) as filed with the SEC on February
24, 2000.
6/ Re: Monument EuroNet Fund is herein incorporated by reference to
Post-Effective Amendment Nos. 11/13 of the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
7/ RE FORM OF: The Newby's ULTRA Fund is herein incorporated by reference to
Post-Effective Amendment Nos. 13/15 of the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on October 24, 2000.
b. Applicable sections of Articles and By-Laws to be referenced in future
Post-Effective Amendment.
(d) INVESTMENT ADVISORY CONTRACTS.
(1) Re: Sand Hill Portfolio Manager Fund. Agreement dated August 19, 1997
between Sand Hill Advisors, Inc. and the Registrant is herein incorporated
by reference to Post-Effective Amendment Nos. 2/2 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on December 1, 1997.
(2) Re: CSI Equity Fund. Agreement dated October 14, 1997 between CSI Capital
Management, Inc. and the Registrant is herein incorporated by reference to
Post-Effective Amendment Nos. 2/2 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on December 1, 1997.
(3) Re: CSI Fixed Income Fund. Agreement dated October 14, 1997 between CSI
Capital Management Inc. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 2/2 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on December 1, 1997.
(4) Re: Third Millennium Russia Fund. Agreement dated September 21, 1998
between Third Millennium Investment Advisors LLC and the Registrant is
herein incorporated by reference to Post-Effective Amendment No.5 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on December 30, 1998.
(5) Re: New Market Fund. a. Agreement dated September 21, 1998 between Virginia
Management Investment Corporation and the Registrant is herein incorporated
by reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on December 30, 1998.
b. Agreement dated September 21, 1998 between Virginia Management Investment
Corporation and the London Company of Virginia is herein incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on December 30, 1998.
(6) Re: GenomicsFund.com. Agreement dated March 1, 2000 between xGENx, LLC and
the Registrant is herein incorporated by reference to Post- Effective
Amendment Nos. 11/13 to the Registrant's Registration Statement on Form
N-1A (File Nos.333-29289 and 811-8255), as filed with the SEC on May 12,
2000.
(7) Re: Global e-Fund. Agreement dated May 1, 2000 between Global Assets
Advisors and the Registrant is herein incorporated by reference to
Post-Effective Amendment Nos. 11/13 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
(8) Re: Monument EuroNet Fund. a. Agreement dated June 19,2000 between Vernes
Asset Management, LLC and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
b. Agreement dated June 19, 2000 between Vernes Asset Management, LLC and
Financiere Rembrandt is herein incorporated by reference to Post-Effective
Amendment Nos. 11/13 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on May 12,
2000.
c. Agreement dated June 19,2000 between Vernes Asset Management, LLC and
Monument Advisors, Ltd. is herein incorporated by reference to
Post-Effective Amendment Nos. 11/13 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
(9) Re: Newby's ULTRA Fund. FORM OF Agreement between xGENx, LLC and the
Registrant is herein incorporated by reference to Post-Effective Amendment
Nos. 13/15 to the Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255), as filed with the SEC on October 24, 2000.
(e) UNDERWRITING CONTRACTS.
(1) Distribution Agreements. Distribution Agreement dated September 21, 1998
between First Dominion Capital Corp. and the Registrant is herein
incorporated by reference to Post-Effective Amendment No.5 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on December 30, 1998.
(2) Distribution Agreement dated May 1, 2000 between International Assets
Advisory Corporation and the Registrant is herein incorporated by reference
to Post-Effective Amendment No.10/12 to the Registrant's Registration
Statement on Form N-1A (File No.811-8255), as filed with the SEC on
February 24, 2000.
(3) Not Applicable
(4) Not Applicable
(5) Joint Distribution Agreement on behalf of the Monument EuroNet Fund series
of the Registrant, dated June 19, 2000 between the Registrant, First
Dominion Capital Corp. and Monument Distributors, Inc. is herein
incorporated by reference to Post-Effective Amendment No.12/14 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on August 18, 2000.
(6) FORM OF: Joint Distribution Agreement on behalf of the Global e Fund series
of the Registrant, between the Registrant, First Dominion Capital Corp. and
International Assets Advisors Corp. is herein incorporated by reference to
Post-Effective Amendment No.12/14 to the Registrant's Registration
Statement on Form N-1A (File No.811-8255), as filed with the SEC on August
18, 2000.
(f) BONUS OR PROFIT SHARING CONTRACTS.
Not Applicable.
(g) CUSTODIAN AGREEMENTS.
(1) Custodian Agreement dated August 19, 1997 between Star Bank, N.A. and the
Sand Hill Portfolio Manager Fund series of the Registrant is deleted and is
no longer filed.
(2) Custodian Agreement dated October 14, 1997 between Star Bank, N.A. and the
CSI Equity Fund series and the CSI Fixed Income Fund series of the
Registrant is deleted and is no longer filed.
(3) Re: Third Millennium Russia Fund. Agreement dated October 28, 1998 between
Brown Brothers Harriman & Co. and the Registrant is herein incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A (File No. 811-8255), as filed with the
SEC on December 30, 1998.
(4) Custodian Agreement dated August 21, 1998 between Star Bank, N.A. and The
New Market Fund series of the Registrant is deleted and is no longer filed.
(5) Re: CSI Equity Fund, CSI Fixed Income Fund, GenomicsFund.com, Global e
Fund, Monument EuroNet Fund, Sand Hill Portfolio Manager Fund and The New
Market Fund.
a. Appendix dated June 1, 2000 to Agreement dated October 28, 1998 between
Brown Brothers Harriman & Co. and the Registrant are herein incorporated by
reference to Post-Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 18, 2000.
(6) FOREIGN CUSTODY ARRANGEMENTS.
a. Re: Third Millennium Russia Fund. Foreign Custody Manager Delegation
Agreement dated October 28, 1998 between Brown Brothers Harriman & Co. and
the Registrant is herein incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form N-1A
(File No. 811-8255), as filed with the SEC on December 30, 1998.
b. Re: CSI Equity Fund, CSI Fixed Income Fund, GenomicsFund.com, Global e
Fund, Monument EuroNet Fund, Sand Hill Portfolio Manager Fund and The New
Market Fund.
1. Appendix dated June 1, 2000 to Foreign Custody Manager Delegation Agreement
dated October 28, 1998 between Brown Brothers Harriman & Co. and the
Registrant are herein incorporated by reference to Post-Effective Amendment
Nos. 12/14 to the Registrant's Registration Statement on Form N-1A (File
Nos. 333-29289 and 811-8255), as filed with the SEC on August 18, 2000.
(h) OTHER MATERIAL CONTRACTS.
(1) Transfer Agency.
a. Agreement dated August 19, 1997 between Fund Services, Inc. and the
Registrant is herein incorporated by reference to Post-Effective Amendment
Nos. 2/2 to the Registrant's Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255), as filed with the SEC on December 1, 1997.
b. Agreement between PFPC, Inc. and the Registrant on behalf of the Monument
EuroNet Fund series are herein incorporated by reference to Post-Effective
Amendment Nos. 12/14 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on August
18, 2000.
(2) Administrative Services.
a. Re: Sand Hill Portfolio Manager Fund. Agreement dated August 19, 1997
between Commonwealth Shareholder Services, Inc. and the Registrant is
herein incorporated by reference to Post-Effective Amendment No. 2/2 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on December 1, 1997.
b. Re: CSI Equity Fund. Agreement dated October 14, 1997 between Commonwealth
Shareholder Services, Inc. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 2/2 to the Registrant's
Registration Statement on Form N-1A(File Nos. 333-29289 and 811-8255), as
filed with the SEC on December 1, 1997.
c. Re: CSI Fixed Income Fund. Agreement dated October 14, 1997 between
Commonwealth Shareholder Services, Inc. and the Registrant is herein
incorporated by reference to Post-Effective Amendment Nos. 2/2 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on December 1, 1997.
d. Re: Third Millennium Russia Fund. Agreement dated September 21, 1998
between Commonwealth Shareholder Services, Inc. and the Registrant is
herein incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No. 811-8255), as
filed with the SEC on December 30, 1998.
e. Re: New Market Fund. Agreement dated September 21, 1998 between
Commonwealth Shareholder Services, Inc. and the Registrant is herein
incorporated by reference to Post Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on December 29, 1998.
f. Re: GenomicsFund.com. Agreement dated March 1,2000 between Commonwealth
Shareholder Services, Inc. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos.333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
g. Re: Global e-Fund. Agreement dated May 1, 2000, between Commonwealth
Shareholder Services, Inc. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos.333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
h. Re: Monument EuroNet Fund. Agreement dated June 19,2000 between
Commonwealth Shareholder Services, Inc. and the Registrant is herein
incorporated by reference to Post-Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File Nos.333-29289 and
811-8255), as filed with the SEC on May 12, 2000.
i. Re: Newby's ULTRA Fund. FORM OF Agreement between Commonwealth Shareholder
Services, Inc. and the Registrant is herein incorporated by reference to
Post-Effective Amendment Nos. 13/15 to the Registrant's Registration
Statement on Form N-1A (File Nos.333-29289 and 811-8255), as filed with the
SEC on October 24, 2000.
(3) Fund Accounting Service.
a. Fund Accounting Services Agreement dated August 18, 1997 between Star Bank,
N.A. and the Sand Hill Portfolio Manager Fund series of the Registrant is
deleted and is no longer filed.
b. Fund Accounting Services Agreement dated October 14, 1997 between Star
Bank, N.A. and the CSI Equity Fund series and the CSI Fixed Income Fund
series of the Registrant is deleted and is no longer filed.
c. Fund Accounting Services Agreement dated August 21, 1998 between Star Bank,
N.A. and The New Market Fund series of the Registrant is deleted and is no
longer filed.
d. Re: CSI Equity Fund, CSI Fixed Income Fund, GenomicsFund.com, Monument
EuroNet Fund, Sand Hill Portfolio Manager Fund and The New Market Fund.
i. Agreement dated July 1, 2000 between Commonwealth Fund Accounting ("CFA")
and the Registrant are herein incorporated by reference to Post-Effective
Amendment Nos. 12/14 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on August
18, 2000.
(4) Accounting Agency.
a. Re: Third Millennium Russia Fund. Agreement dated October 28, 1998 between
Brown Brothers Harriman & Co. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 5/6 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on January 29, 1999.
b. Re: Global e Fund. Addendum to Agreement dated October 28, 1998 between
Brown Brothers Harriman & Co. and the Registrant is herein incorporated by
reference to Post-Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 18, 2000.
(5) Retirement Plans.
a. IRA Service Agreement between Brown Brothers Harriman & Co. and the
Registrant is herein incorporated by reference to Post-Effective Amendment
Nos. 4/4 to the Registrant's Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255), as filed with the SEC on July 8, 1998.
(6) Expense Limitations Agreements.
a. Agreement dated October 1, 1998 between the New Market Fund series of the
Registrant and Virginia Management Investment Corporation is herein
incorporated by reference to Post-Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on May 12, 2000.
b. Agreement dated October 1, 1998 between the Third Millennium Russia Fund
series of the Registrant and Third Millennium Investment Advisors LLC is
herein incorporated by reference to Post-Effective Amendment Nos. 11/13 to
the Registrant's Registration Statement on Form N-1A (File Nos. 333-29289
and 811-8255), as filed with the SEC on May 12, 2000.
c. Agreement dated March 1, 2000 between the GenomicsFund.com Fund series of
the Registrant and xGENx, LLC is herein incorporated by reference to
Post-Effective Amendment Nos. 11/13 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
d. Agreement dated May 1, 2000 between the Global e Fund series of the
Registrant and Global Assets Advisors is herein incorporated by reference
to Post-Effective Amendment Nos. 11/13 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
e. Agreement dated June 19,2000 between the Monument EuroNet Fund series of
the Registrant and Vernes Asset Management, LLC is herein incorporated by
reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
f. Agreement between the Global e Fund series of the Registrant and Global
Assets Advisors is herein incorporated by reference to Post-Effective
Amendments Nos. 12/14 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on August
18, 2000.
g. FORM OF: Agreement between the Newby's ULTRA Fund series of the Registrant
and the distributor is herein incorporated by reference to Post-Effective
Amendments Nos. 13/15 to the Registrant's Registration Statement on Form
N-1A (File Nos. 333-29289 and 811-8255), as filed with the SEC on October
24, 2000.
(i) LEGAL OPINION.
(1) Deleted
(2) Deleted
(3) Deleted
(4) Opinion of Counsel dated May 12, 2000 is herein incorporated by reference
to Post-Effective Amendment Nos. 11/13 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on May 12, 2000.
a. Consent of Counsel is filed herewith as Exhibit EX-23(a).
(j) AUDITORS CONSENT.
Consent of Tait Weller and Baker dated is filed herewith as Exhibit EX-23(b).
(k) OMITTED FINANCIAL STATEMENTS.
Not Applicable.
(l) INITIAL CAPITAL AGREEMENTS.
Not Applicable.
(m) RULE 12b-1 PLAN.
(1) Re: Third Millennium Russia Fund. Plan of Distribution dated September 21,
1998 is herein incorporated by reference to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form N-1A (File No.
811-8255), as filed with the SEC on December 30, 1998.
(2) Re: New Market Fund. Plan of Distribution dated September 21, 1998 is
herein Incorporated by reference to Post Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on December 30, 1998.
(3) Re: GenomicsFund.com Plan of Distribution dated March 1, 2000 is herein
incorporated by reference to Post Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on May 12, 2000.
(4) Re: Global e-Fund. Plan of Distribution dated May 1, 2000 is herein
incorporated by reference to Post Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on May 12, 2000.
(5) Re: Monument EuroNet Fund. a. Plan of Distribution for Class A Shares dated
June 19,2000 is herein incorporated by reference to Post Effective
Amendment Nos. 11/13 to the Registrant's Registration Statement on Form
N-1A (File No.811-8255), as filed with the SEC on May 12, 2000.
b. Plan of Distribution for Class B Shares dated June 19,2000 is herein
incorporated by reference to Post Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on May 12, 2000.
c. Plan of Distribution for Class C Shares dated June 19,2000 is herein
incorporated by reference to Post Effective Amendment Nos. 11/13 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on May 12, 2000.
(6) Re: Global e Fund.
a. FORM OF Plan of Distribution for Class A Shares is herein incorporated by
reference to Post Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File No.811-8255), as filed with the
SEC on August 18, 2000. b. FORM OF Plan of Distribution for Class B Shares
is incorporated by reference to Post Effective Amendment Nos. 12/14 to the
Registrant's Registration Statement on Form N-1A (File No.811-8255), as
filed with the SEC on August 18, 2000.
(7) Re: Newby's ULTRA Fund.
a. FORM OF Plan of Distribution is herein incorporated by reference to Post
Effective Amendment Nos. 13/15 to the Registrant's Registration Statement
on Form N-1A (File No.811-8255), as filed with the SEC on October 24, 2000
b. FORM OF Shareholder Services Contract is herein incorporated by reference
to Post Effective Amendment Nos. 13/15 to the Registrant's Registration
Statement on Form N-1A (File No.811-8255), as filed with the SEC on October
24, 2000
(n) RULE 18F-3 PLAN
1. Re: Monument EuroNet Fund. Rule 18f-3 Multiple Class Plan dated June
19,2000 is herein incorporated by reference to Post Effective Amendment
Nos. 11/13 to the Registrant's Registration Statement on Form N-1A (File
No.811-8255), as filed with the SEC on May 12, 2000.
2. Re: Global e Fund. Rule 18f-3 Multiple Class Plan is incorporated by
reference to Post Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File No.811-8255), as filed with the
SEC on August 18, 2000
(o) RESERVED.
(p) CODES OF ETHICS.
1. The Code of Ethics of the Registrant, CSI Capital Management, Virginia
Management Investment Corporation and Third Millennium Investment Advisors
LLC are herein incorporated by reference to Post-Effective Amendment Nos.
11/13 to the Registrant's Registration Statement on Form N-1A (File Nos.
333-29289 and 811-8255), as filed with the SEC on May 12, 2000.
2. The Code of Ethics of Vernes Asset Management, LLC is herein incorporated
by reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
3. The Code of Ethics of First Dominion Capital Corp. is herein incorporated
by reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
4. The Code of Ethics of Monument Distributors, Inc. is herein incorporated by
reference to Post-Effective Amendment Nos. 11/13 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on May 12, 2000.
5. The Code of Ethics of xGENx, LLC is herein incorporated by reference to
Post-Effective Amendment Nos. 12/14 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on August 18, 2000.
6. The Code of Ethics of International Assets Advisory Corp. is herein
incorporated by reference to Post-Effective Amendment Nos. 12/14 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-29289 and
811-8255), as filed with the SEC on August 18, 2000.
7. The Code of Ethics of Global Assets Advisory Corp. is herein incorporated
by reference to Post-Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 18, 2000.
8. The Code of Ethics of Sand Hill Advisors, Inc. is herein incorporated by
reference to Post-Effective Amendment Nos. 12/14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as
filed with the SEC on August 18, 2000.
q. POWERS-OF-ATTORNEY.
1. Re: Samuel Boyd, Jr., William E. Poist and Paul M. Dickinson are herein
incorporated by reference to the Registrant's Initial Registration
Statement on Form N-1A (File Nos. 333-29289 and 811-8255), as filed with
the SEC on June 16, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
ITEM 25. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the "GCL") of
the State of Maryland. The Registrant's Articles of Incorporation provide the
indemnification of directors, officers and other agents of the corporation to
the fullest extent permitted under the GCL. The Articles limit such
indemnification so as to comply with the prohibition against indemnifying such
persons under Section 17 of the Investment Company Act of 1940, as amended, for
certain conduct set forth in that section ("Disabling Conduct"). Contracts
between the Registrant and various service providers include provisions for
indemnification, but also forbid the Registrant to indemnify affiliates for
Disabling Conduct.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
a.) Sand Hill Advisors, Inc., the investment adviser to the Sand Hill Portfolio
Manager Fund series, provides investment advisory services consisting of
portfolio management for a variety of individuals and institutions.
b.) CSI Capital Management, Inc.,("CSI") the investment adviser to the CSI
Equity Fund series and the CSI Fixed Income Fund series, Provides
investment advisory services consisting of portfolio management for a
variety of individuals and institutions.
c.) Third Millennium Investment Advisors, LLC, the investment adviser to the
Third Millennium Russia Fund, is a newly formed adviser formed for the
purpose of advising Registered Investment Companies.
d.) Virginia Management Investment Corporation, the investment manager To the
New Market Fund is a newly formed Adviser formed for the purpose of
advising Registered Investment Companies. The London Company of Virginia is
the investment Adviser to the New Market Fund pursuant to an Investment
Advisory Agreement between Virginia Management Investment Corporation and
The London Company.
e.) xGENx, LLC, the investment adviser to the GenomicsFund.com and Newby's
ULTRA Fund series, is a newly formed adviser for the purpose of advising
Registered Investment Companies.
f.) Global Assets Advisors, Inc., the investment adviser to the Global e Fund
series, provides investment advisory services consisting of portfolio
management for a variety of individuals and institutions.
g.) Vernes Asset Management, LLC, the investment manager to the Monument
EuroNet Fund series, is a newly formed manager for the purpose of advising
Registered Investment Companies.
For information as to any other business, profession, vocation or employment of
a substantial nature in which each of the foregoing investment advisers, and
each director, officer or partner of such investment advisers, is or has been
engaged within the last two fiscal years for his or her own account or in the
capacity of director, officer, employee, partner or trustee, reference is made
to the Investment Adviser's Form ADV listed opposite the investment adviser's
name below, which is currently on file with the SEC as required by the
Investment Advisors Act of 1940, as amended.
Name of Investment Adviser Form ADV File Number
Sand Hill Advisors, Inc. 801-17601
CSI Capital Management, Inc. 801-14549
Third Millennium Investment Advisors, LLC 801-55720
Virginia Management Investment Corporation 801-55697
The London Company of Virginia 801-46604
xGENx, LLC 801-57224
Global Assets Advisors, Inc. 801-46753
Vernes Asset Management, LLC 801-57651
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) (1) First Dominion Capital Corp., also acts as underwriter
to Vontobel Funds, Inc.
(2) International Assets Advisory Corp.
(3) Monument Distributors, Inc. also acts as underwriter to
Monument Series Fund, Inc.
(b) (1) First Dominion Capital Corp.
Position and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Fund
John Pasco, III President, Chief Chairman,
1500 Forest Avenue Financial Officer President
Suite 223 and Treasurer and Director
Richmond VA 23229
Mary T. Pasco Director, Assistant
1500 Forest Avenue Secretary
Suite 223
Richmond, VA 23229
Darryl S. Peay Vice President Assistant
1500 Forest Avenue Assistant Compliance Secretary
Suite 223 Officer
Richmond, VA 23229
Lori J. Martin Vice President and None
1500 Forest Avenue Assistant Secretary
Suite 223
Richmond, VA 23229
F. Byron Parker, Jr. Secretary Secretary
Mustian & Parker
8002 Discovery Drive
Suite 101
Richmond, VA 23229
(b) (2) International Assets Advisory Corporation
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Fund
Diego J. Veitia Director, Chairman None
250 Park Ave., So. Of the Board,
Suite 200 President and Chief
Winter Park, FL 32789 Executive Officer
Stephen A. Saker Director and Exec. None
250 Park Ave., So. Vice President
Suite 200
Winter Park, FL 32789
Jerome F. Misceli Director None
250 Park Ave., So.
Suite 200
Winter Park, FL 32789
Jeffrey L. Rush, MD Director None
250 Park Ave., So.
Suite 200
Winter Park, FL 32789
Robert A. Miller Director None
250 Park Ave., So.
Suite 200
Winter Park, FL 32789
Jonathan C. Hinz Chief Financial None
250 Park Ave., So. Officer and Treasurer
Suite 200
Winter Park, FL 32789
Todd A. Boren Sr. Vice President None
250 Park Ave., So. & Managing Director
Suite 200 of Private Client
Winter Park, FL 32789 Operations
Gerard A. Mastrianni Sr. Vice President None
250 Park Ave., So.
Suite 200
Winter Park, FL 32789
Sheri Ann Cuff Vice President- None
250 Park Ave., So. Operations
Suite 200
Winter Park, FL 32789
Nancy M. McMurtry Vice President- None
250 Park Ave., So. Compliance
Suite 200
Winter Park, FL 32789
(b) (3) Monument Distributors, Inc.
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Fund
David A. Kugler President, Treasurer None
7920 Norfolk Avenue and Director
Suite 500
Bethesda, Maryland 20814
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by Section 31 (a) of the Investment Company Act of 1940, as amended,
and the rules promulgated thereunder are kept in several locations:
(a) Investment records, including research information, records relating to the
placement of brokerage transactions, memorandums regarding investment
recommendations for supporting and/or authorizing the purchase or sale of
assets, information relating to the placement of securities transactions,
and certain records concerning investment recommendations of the Fund are
maintained at each Fund's investment adviser, as follows:
Fund: Sand Hill Portfolio Manager Fund
Adviser: Sand Hill Advisors, Inc., located at:
Location: 3000 Sand Hill Road
Building 3, Suite 150
Menlo Park, CA 94025
Fund: CSI Equity Fund and CSI Fixed Income Fund
Adviser: CSI Capital Management
Location: 445 Bush Street, 5th Floor
San Francisco, CA 94108
Fund: Third Millennium Russia Fund
Adviser: Third Millennium Investment Advisors, LLC:
Location: 515 Madison Avenue, 24th Floor
New York, NY 10022
Fund: New Market Fund
Adviser: The London Company
Location: Riverfront Plaza, West Tower
901 E. Byrd Street, Suite 350A
Richmond, VA 23219
Fund: GenomicsFund.com and Newby's ULTRA Fund
Adviser: xGENx, LLC
Location: 555 Quince Orchard Road, Suite 610
Gaithersburg, MD 20878
Fund: Global e-Fund
Adviser: Global Assets Advisors, Inc.
Location: 250 Park Avenue South, Suite 200
Winter Park, FL 32789
Fund: Monument EuroNet Fund
Adviser: Vernes Asset Management, LLC
Location: 993 Farmington Avenue, Suite 205
Hartford, CT 06107(b)
(b) Accounts and records for portfolio securities and other investment assets,
including cash of each of the Funds, as well as applicable accounting
records, general ledgers, supporting ledgers, pricing computations, etc.
are maintained in the custody of each Fund's custodian bank and accounting
services agent, as follows:
Custodian Bank/Accounting
Services Agent: Brown Brothers Harriman & Co.
Location: 40 Water Street
Boston, MA 02109
(c) (1) Shareholder Account Records (including share ledgers, duplicate
confirmations, duplicate account statements and applications forms)
pertaining to The CSI Equity Fund, CSI Fixed Income Fund, GenomicsFund.com,
Global e Fund, Newby's ULTRA Fund, Sand Hill Portfolio Manager Fund, The
New Market Fund and Third Millennium Russia Fund are maintained by their
transfer agent, Fund Services, Inc.:
1500 Forest Avenue, Suite 111
Richmond, Virginia 23229
(2) Shareholder Account Records (including share ledgers,duplicate
confirmations, duplicate account statements and application forms)
pertaining to the Monument EuroNet Fund are maintained by its transfer
agent, PFPC, Inc.:
400 Bellevue Parkway
Wilmington, Delaware 19809
(d) Administrative records, including copies of the charter, by-laws, minute
books, agreements, compliance records and reports, certain shareholder
communications, etc. pertaining to each of the Funds are kept at their
administrator, Commonwealth Shareholder Services, Inc., located at:
1500 Forest Avenue, Suite 223
Richmond, VA 23229
(e) Records relating to distribution of shares of Sand Hill Portfolio Manager
Fund, CSI Equity Fund, CSI Fixed Income Fund, New Market Fund, Third
Millennium Russia Fund, GenomicsFund.com, Monument EuroNet Fund, Global e
Fund B shares and Newby's ULTRA Fund are kept at their distributor, First
Dominion Capital Corp., located at:
1500 Forest Avenue, Suite 223
Richmond, VA 23229.
(f) Records relating to distribution of shares of Global e-Fund A shares are
kept at their distributor, International Assets Advisory Corporation,
located at:
250 Park Avenue, South
Suite 200
Winter Park, Florida 32789
(g) Records relating to distribution of shares of Monument EuroNet Fund are
kept at their distributor, Monument Distributors, Inc., Located at:
7920 Norfolk Avenue, Suite 500
Bethesda, Maryland 20814
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A or B
of this Form.
ITEM 30. UNDERTAKINGS.
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Richmond, and Commonwealth of Virginia on the 29th day of December, 2000.
THE WORLD FUNDS, INC.
By /s/ John Pasco, III
------------------------
(Signature and Title)
John Pasco, III,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities and on the
date(s) indicated.
(Signature) (Title) (Date)
/s/ John Pasco, III Director, Chairman December 29, 2000
John Pasco, III Chief Executive
Officer and Chief
Financial Officer
/s/ SAMUEL BOYD, JR.* Director December 29, 2000
Samuel Boyd, Jr.
/s/ PAUL M. DICKENSON* Director December 29, 2000
Paul M. Dickinson
/s/ WILLIAM E. POIST* Director December 29, 2000
William E. Poist
/s/ John Pasco, III
------------------------
John Pasco, III
* By John Pasco, III, Attorney-in-Fact Pursuant to Powers-of-Attorney.
<PAGE>
EXHIBIT INDEX EDGAR EXHIBIT #
------------- ---------------
Legal Opinion EX-23(a)
Consent of Independent Certified Public Accountants EX-23(b)
<PAGE>
EXHIBIT EX-23(a)
------------------
GREENBERG
TRAURIG, LLP
ATTORNEYS
AT
LAW
2700 Two Commerce Square
2001 Market Street
Philadelphia, Pennsylvania 19103
Direct Dial: (215) 988-7800
December 28, 2000
The World Funds, Inc.
Suite 223
1500 Forest Avenue
Richmond, Virginia 23226
Re: Legal Opinion - Securities Act of 1933
Ladies and Gentlemen:
We have been asked to provide to The World Funds, Inc. (the "Company"), a
series corporation organized under Maryland law, an opinion respecting shares of
common stock of the Company registered under the Securities Act of 1933, as
amended (the "Securities Act"). In connection with this opinion, we have
examined the Articles of Incorporation (the "Articles") of the Company, the
By-Laws of the Company, the resolutions adopted by the Company's Board of
Directors organizing the business of the Company, and its proposed form of Share
Certificates (if any), all as amended to date, and the various pertinent
corporate proceedings we deem material. We also have examined the Notification
of Registration and the Registration Statements filed under the Investment
Company Act of 1940 (the "Investment Company Act") and the Securities Act, all
as amended to date, as well as other items we deemed material to that opinion.
The Company is authorized to issue seven hundred and fifty million
(750,000,000) shares of common stock (the "Shares"), with a par value of $0.01
per share. The Board of Directors of the Company has the power to designate one
or more series ("Funds") of Shares and to designate separate classes of Shares
within the same Fund. The Board of Directors have previously authorized the
issuance of Shares to the public. Currently, the Company is offering Shares of
Funds as follows:
NUMBER OF SHARES
NAME OF SERIES OF COMMON STOCK
ALLOCATED
Sand Hill Portfolio Manager 50,000,000
Fund
CSI Fixed Income Fund 50,000,000
CSI Equity Fund 50,000,000
New Market Fund 50,000,000
Third Millennium Russia Fund 50,000,000
GenomicsFund.com 50,000,000
Global e Fund
Class A Shares 25,000,000
Class B Shares 25,000,000
Monument EuroNet Fund
Class A Shares 25,000,000
Class B Shares 15,000,000
Class C Shares 15,000,000
Newby's ULTRA Fund
Investor Class Shares 25,000,000
Service Class Shares 25,000,000
Unclassified Shares 285,000,000
-----------
TOTAL 750,000,000
The Company has filed with the U.S. Securities and Exchange Commission, a
registration statement under the Securities Act, which registration statement is
deemed to register an indefinite number of Shares of the Funds pursuant to the
provisions of Rule 24f-2 under the Investment Company Act. You have advised us
that the Company each year hereafter will timely file, a Notice pursuant to Rule
24f-2 perfecting the registration of the Shares sold by each Fund during each
fiscal year during which such registration of an indefinite number of Shares
remains in effect.
You have also informed us that the Shares of the Funds have been, and will
continue to be, sold in accordance with each Fund's usual method of distributing
its registered Shares, under which prospectuses are made available for delivery
to offerees and purchasers of such Shares in accordance with Section 5(b) of the
Securities Act.
This opinion is based exclusively on the Maryland General Corporation Law
and the federal law of the United States of America.
Based upon the foregoing information and examination, so long as the
Company remains a valid and subsisting entity under the laws of Maryland, and
the registration of an indefinite number of Shares of the Funds remains
effective, the authorized Shares of the Funds identified above, when issued for
the consideration set by the Board of Directors pursuant to the Articles, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable Shares, and the holders of such Shares will have all the
rights provided for with respect to such holding by the Articles and the laws of
the State of Maryland.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 14 to the Company's Registration Statement on Form
N-1A.
Very truly yours,
GREENBERG TRAURIG, LLP
/s/ Greenberg Traurig, LLP
<PAGE>
EXHIBIT EX-23(b)
----------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our Firm in the Post-Effective Amendment to
the Registration Statement on Form N-1A of The World Funds, Inc. and to the use
of our reports each dated September 22, 2000 on the financial statements and
financial highlights of Sand Hill Portfolio Manager Fund, The New Market Fund,
Third Millennium Russia Fund, CSI Equity Fund, CSI Fixed Income Fund,
GenomicsFund.com, Global e-Fund, and Monument EuroNet Fund, each a series of The
World Funds, Inc. Such financial statements, financial highlights and reports of
independent certified public accountants appear in the 2000 Annual Reports to
Shareholders and are incorporated by reference in the Registration Statement and
Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 28, 2000
