VONTOBEL EASTERN EUROPEAN EQUITY FUND
OF
THE WORLD FUNDS, INC.
A "SERIES" INVESTMENT COMPANY
1500 Forest Avenue PROSPECTUS DATED JANUARY 22, 1996
Suite 223
Richmond, Virginia 23229
Telephone: 1-800-527-9500
This Prospectus offers shares of the Vontobel Eastern
European Equity Fund (the "Fund"), a series of The World Funds, Inc. (the
"World Funds"), an open-end diversified management investment company
commonly known as a "mutual fund." A "series" fund offers investors a choice
of investment objectives, with each series having its own separate and
distinct portfolio of investments and operating much like a separate mutual
fund. The objective of the Fund is to seek to achieve capital appreciation
by investing in a carefully selected and continuously managed diversified
portfolio consisting primarily of equity securities (which includes
securities convertible into equity securities, such as warrants, convertible
bonds, debentures or convertible preferred stock). Shareholders redeeming
shares held less than six months will be charged a 2% redemption fee paid to
the Fund to offset transaction costs of buying and selling portfolio
securities. The World Funds is currently composed of five series. Investors
will be able to exchange all or part of their investment from one fund to
another or to certain other mutual funds, under conditions set by the World
Funds.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND
WHICH A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE. MORE INFORMATION ABOUT THE FUND HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS CONTAINED IN THE
"STATEMENT OF ADDITIONAL INFORMATION," DATED JANUARY 22, 1996 WHICH IS
AVAILABLE AT NO CHARGE UPON WRITTEN REQUEST TO THE FUND. THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.<PAGE>
TABLE OF CONTENTS PAGE
PROSPECTUS SUMMARY 1
TABLE OF FUND EXPENSES 3
THE WORLD FUNDS, INC. 4
INVESTMENT OBJECTIVE 4
INVESTMENT POLICIES 4
SPECIAL RISK CONSIDERATIONS 6
INVESTMENT STRATEGY 6
INVESTMENT RESTRICTIONS 9
PERFORMANCE 10
THE WORLD FUNDS' MANAGEMENT 10
HOW TO INVEST 13
HOW TO REDEEM SHARES 14
HOW TO TRANSFER SHARES 16
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS 17
SPECIAL SHAREHOLDER SERVICES 17
HOW NET ASSET VALUE IS DETERMINED 17
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS 18
TAXATION CONSIDERATIONS 18
GENERAL INFORMATION ABOUT THE WORLD FUNDS 19
MORE INFORMATION 19
<PAGE>
VONTOBEL EASTERN EUROPEAN EQUITY FUND
P R O S P E C T U S S U M M A R Y
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus.
Investment Objective : The objective of the Fund is to
seek to achieve capital
appreciation by investing in a
carefully selected and
continuously managed diversified
portfolio consisting primarily of
equity securities (which includes
securities convertible into equity
securities, such as warrants,
convertible bonds, debentures or
convertible preferred stock). See
"Investment Objective" and
"Investment Policies" on Page 4.
Principal Investments : Invests primarily in equity securities of
issuers in Eastern Europe. See "Investment
Objective" and "Investment Policies" on
Page 4.
The Advisor : Vontobel USA Inc. is the Advisor.
See "The World Funds' Management"
on Page 10.
Distributions/Dividends : Paid annually from available capital gains
and income. See "Dividends and Capital
Gains Distributions" on Page 18.
Reinvestment : Distributions may be reinvested
automatically without a sales
charge. See "Dividends and
Capital Gains Distributions" on
Page 18.
Initial Purchase : $1,000 minimum. See "How to
Invest" on Page 13.
Subsequent Purchase : $100 minimum. See "How to Invest" on Page
13.
Net Asset Value : Information may be obtained by calling 1-
800-527-9500; and through most broker
dealers. See "How the Net Asset Value is
Determined" on Page 17.
Principal Risk Factors : There can be no assurance that the Fund
will achieve its investment objective.
Other factors which should be considered by
an investor include: The Fund invests in
foreign securities, and therefore may be
affected by foreign currency fluctuations
or exchange controls, differences in
accounting procedures, and other risks.
The markets in which the Fund invests
include newly reorganized capital markets,
which may also involve added risk. See
"Special Risk Considerations" on Page 6.
The Fund also may acquire repurchase
agreements, and shares of other investment
companies.
Shares of the Fund are offered for sale without a sales charge (see
"How to Invest" on Page 13) from the distributor, First Dominion Capital
Corp.
THE ADVISOR: Vontobel USA Inc. (the "Advisor") manages the investments of
the Fund according to its investment objective.
<PAGE>
TABLE OF FUND EXPENSES
The following table illustrates all expenses and fees that a
shareholder of the Fund will incur. The expenses set forth are estimated
below:
Shareholder Transaction Expenses Vontobel Eastern European
Equity Fund
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees 2% on shares held less than
six months*
Exchange Fees None
* Shares held more than six months are not subject to the
redemption fee. A shareholder electing a wire transfer of
funds or placing a telephone redemption request will be
charged $10 for each service.
Estimated Annual Fund Operating Expenses (as % of average net assets)
Management Fee 1.25%
12b-1 Fees None
Other Operating Expenses .74
Total Fund Operating Expenses 1.99%
The purpose of this table is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly.
The following examples illustrate the expenses that an investor would
pay on a $1,000 investment over various time periods assuming (1) a 5% annual
rate of return, and (2) redemption at the end of each time period.
1 Year 3 Years
$20 $62
These examples should not be considered a representation of past or
future expenses or performances. Actual expenses may be greater or lesser
than those shown.
<PAGE>
THE WORLD FUNDS, INC.
The Vontobel Eastern European Equity Fund (the "Fund") is a series
of The World Funds, Inc. (the "World Funds"), an open-end diversified
management investment company incorporated in Maryland in 1983. The World
Funds currently consists of five series, and the Board of Directors may elect
to add more series in the future. A minimum initial investment of $1,000 is
required to open a shareholder account in the Fund, and each subsequent
investment must be $100 or more.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek to achieve capital
appreciation by investing in a carefully selected and continuously managed
diversified portfolio consisting primarily of equity securities (which are
securities convertible into equity securities, such as warrants, convertible
bonds, debentures or convertible preferred stock). The investments of the
Fund will consist principally of equity securities of Eastern European
countries.
The investment objective of the Fund may not be changed without the
approval of shareholders. All investments entail some risks (see "Special
Risk Considerations"), and there is no assurance that the investment
objective of the Fund can be achieved.
INVESTMENT POLICIES
The Fund is designed for individuals and institutions who wish to
diversify their investment programs in international equities to take
advantage of opportunities in the newly reorganized capital and securities
markets of Central/Eastern Europe. The Fund normally will invest at least
65% of its assets in equity securities of companies located in or which
conduct a significant portion of their business in countries which are
generally considered to comprise Eastern Europe, i.e., the member countries
of the former Warsaw Pact, including the European successor states of the
former Soviet Union. It is expected that the Fund's initial investment
activities will be focused on Hungary, the Czech Republic, Poland and
Slovakia. These countries are already at a relatively advanced stage in
their transition to a market-based economy. The Adviser believes that their
relatively well developed capital and stock markets can handle transactions
of a large enough size to permit fund investment. However, trading volume of
the stock exchanges of these markets may be substantially lower than that in
developed markets, and the purchase and sale of portfolio securities may not
always be made at an advantageous price. The Advisor generally will decide
when and how much to invest in these developing markets based upon its
assessment of their continuing development.
As stock markets in the region develop and more investment
opportunities emerge, the Fund will broaden its portfolio to include
securities of companies located in or which conduct a significant portion of
their business in countries in this region. As noted above, investments in
equity securities issued by companies in these "developing countries" or
"emerging markets," involve exposure to economic structures that are
generally less diverse and mature, with political systems which may have less
stability than those of "developed countries."
The Advisor believes that economic and political developments in
Europe have helped to create new opportunities. In recent years a number of
economies in developed and developing countries have grown faster than the
U.S. economy, and the return on equity investments in these markets has often
been superior to similar investments in the U.S. In addition, the U.S. stock
market presently represents approximately 40% of the capitalization of the
world's stock markets compared to approximately two-thirds in 1970.
Significant growth of European securities markets, coupled with advances in
technology and lower cost of communications, have increased the globalization
of securities trading. Therefore, over the past few years, the number of
investment opportunities outside of the U.S. has grown rapidly. Despite this
trend, however, Central and Eastern European stocks are generally
underrepresented in investment portfolios. Therefore, the Fund offers a
means to achieve equity exposure to this region.
It is the policy of the Fund to invest primarily in equity securities
which may achieve capital appreciation by selecting companies with superior
potential based on a series of macro and micro economic analyses. 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 (please refer to the Investment Restrictions on Page 7 of the
Statement of Additional Information).
The Fund may invest in other investment companies which invest in
Eastern European stocks. By investing in shares of such investment companies
which invest exclusively in such countries, the Fund would indirectly pay a
portion of the operating expenses, management expenses, and brokerage costs
of such companies, as well as those of the Fund. Federal and state
securities laws impose limits on such investments with which the Fund will
comply, and may affect the ability of the Fund to acquire or dispose of such
shares.
The Fund intends to diversify investments broadly among countries and
normally will have represented in the portfolio business activities of not
less than three different countries. The securities the Fund purchases may
not always be purchased on the principal market. For example, American
Depository Receipts ("ADR's"), European Depository Receipts ("EDR's"), or
Global Depository Receipts ("GDR's") may be purchased if trading conditions
make them more attractive than the underlying security. ADR's 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 ADR's 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 ADR's 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. Similarly, EDR's and GDR's represent receipts for a foreign
security issued in a location outside the U.S., and may involve risks
comparable to ADR's, as well as the fact that the EDR or GDR is itself issued
outside the U.S. 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. Please refer to the Statement of Additional
Information for more information on ADR's, EDR's, and GDR's.
The selection of the securities in which the Fund will invest will
not be limited to companies of any particular size, or to securities traded
in any particular marketplace, and will be based only upon the expected
contribution such security will make to its investment objective.
Since the Fund seeks to achieve capital appreciation, it will dispose
of a security, regardless of the time it has been held, to establish gains,
to avoid anticipated reductions of value, or to reduce or eliminate a
position in a security which is no longer believed to offer the potential for
suitable gains. Portfolio turnover is expected not to exceed an annual rate
of 100% under normal circumstances. Such a turnover rate may reflect
substantial short term trading and corresponding brokerage costs which the
Fund must pay.
SPECIAL RISK CONSIDERATIONS
Investing in foreign securities involves special risk considerations
which normally are not associated with investing in United States securities.
These considerations include: changes in currency rates; exchange control
regulations; costs incurred in connection with conversions between various
currencies; availability of less financial information than comparable United
States companies; lack of uniform accounting, auditing and financial
reporting requirements; less liquidity and more volatility than securities
listed on the New York Stock Exchange due to substantially lower trading
volume; possibly lower sales prices in the event of forced liquidation of
securities in order to meet unanticipated cash requirements; fixed
commissions on foreign stock exchanges which are generally higher than
negotiated commissions on United States exchanges, in addition to less
supervision and regulation of such exchanges; difficulty in enforcing
judgments abroad; and the possibility of expropriation of assets,
confiscatory taxation, imposition of withholding of taxes prior to payment of
dividends or other distributions, political or social instability, or
diplomatic developments which could affect United States investments in those
countries. Many of the countries in which the Fund invests include former
communist countries which now are developing free-market economies. There
can be no assurance that the development of such economies will take a
particular course, or that the development of such economies will be
successful. Please refer to the section on "Special Considerations" in the
Statement of Additional Information.
INVESTMENT STRATEGY
The Advisor will seek to identify those countries in the
Central/Eastern European region where economic and political factors are
likely to produce above average long term returns, as well as those companies
in such countries that are best positioned to take advantage of such
developments or are most attractively valued. The Fund's assets will be
allocated primarily to the equity markets of those countries whose economies
are likely to benefit from strengthening macroeconomic forces as a result of
their transition from a centrally planned to a market-based economy, the
orderly functioning of democratized political institutions, flexible and
viable economic policies, persistent privatization efforts, modernized legal,
banking and regulatory frameworks, as well as from widespread domestic and
foreign support for their respective national policies.
The equity selections of the Fund will be based on a combination of
macro- and micro- economic analysis. The Advisor combines macro-economic
forecasts for GDP growth, industrial production, interest rates, and exchange
rates, among other factors, with fundamental analysis of specific securities
to shape its viewpoint about where investment opportunity presents itself in
Eastern European securities markets. These markets present analysts with
several problems which normally are not encountered in developed markets,
foremost among them the scarcity of reliable financial information. Another
problem involves accounting methods and reporting standards, which may vary
widely from country to country, and even within an individual country.
Company financial data must be converted so that it corresponds to either
U.S. generally accepted accounting principles ("U.S. GAAP") or International
Accounting Standards ("IAS"). Although macroeconomic data often paint a
more reliable picture of these markets than that provided by company data,
selecting the most attractive stocks still requires detailed stock analysis.
Fundamental analysis is particularly important since these markets are not
very efficient and may be relatively unaffected by developments in other
markets. The performance of individual stocks shows a greater deviation from
the general market performance than in developed markets, and price/earnings
multiples or price/book value ratios are not always calculated in a uniform
manner across country markets.
From the micro-economic viewpoint, equity selection is not tied to
any particular strict "style." The Advisor will usually tend to focus on a
company's ability to generate strong cash flow, rather than earnings, as a
more meaningful valuation measure. This is of particular importance when
evaluating investment opportunities within a particular industry across
country borders.
Aside from traditional valuation methods based on earnings ratios and
book values, equity selection will be based on thorough bottom-up analysis of
individual companies, with an emphasis on the following:
- Viable products and services in a growing market.
- Sizable domestic market share and/or export prospects.
- Substantial free-cash-flow-generating capacity.
- Rising return on equity.
- Experienced, shareholder-oriented management.
In selecting investments for the Fund, the Advisor will usually
include large capitalization companies in attractive markets, with positive
industry fundamentals and capable management. The Advisor will also include
faster growing, medium- and small-sized companies that offer higher potential
returns at a slightly higher risk level, either because of their smaller size
or because they are not as widely researched. Subject to the policies and
limitations governing the investments of the Fund, the Adviser may also
select investment opportunities in other markets. Please refer to the
section on "Investment Restrictions" in the Statement of Additional
Information for more information.
Strategic Transactions
The Advisor 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 Eastern
European 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 reduce currency and market risk. Second, the Fund is
intended for investors with a long-term investment horizon and it is the
Advisor's view 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 Adviser may, from time to time as circumstances dictate,
engage in strategic transactions as described below.
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 in order to provide
protection against changes in foreign exchange rates. 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. In addition,
because the exchange rate of some Eastern European currencies may be linked
to a basket of convertible currencies including the U.S. dollar and the
deutschemark, the Adviser may elect, from time to time as circumstances
dictate, to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings or sales proceeds of portfolio securities by
proxy hedging. For more information, see sections on forward foreign
currency contracts and proxy hedging in the Statement of Additional
Information.
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 Advisor determines
will move along with the hedged currency or portfolio securities.
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 Advisor'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 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 World Funds' Board of Directors to avoid
speculative use of such techniques.
INVESTMENT RESTRICTIONS
The investments of the Fund are subject to investment limitations
which may not be changed without the approval of at least a majority of the
outstanding voting securities, as that term is defined in the Investment
Company Act of 1940. (See the Statement of Additional Information for the
specific definition.)
Certain of these policies are detailed below, while other policies
which prohibit or limit particular practices are set forth in the Statement
of Additional Information. The investment restrictions of the Fund
specifically provide that it may not:
* As to 75% 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.
* 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 stock or securities or more than 10%
of any class of voting securities of such issuer.
* Act as an underwriter of securities of other issuers, except
that it may invest up to 10% of the value of its total assets (at
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 or any foreign law restricting
distribution of securities in a country of a foreign issuer
("restricted securities").
* Buy or sell commodities or commodity contracts provided,
however, that it may utilize not more than 1% of its assets for
deposits or commissions required to enter into a financial futures
contract for hedging purposes as described under "Investment
Policies." (Such deposits or commissions are not presently required
in the markets the Fund will use.)
* 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 it 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.
* Make loans, except that it may: (1) lend portfolio
securities; and (2) enter into repurchase agreements secured by the
U.S. Government or Agency securities.
Percentage limitations in the "Investment Policies" and "Investment
Restrictions" sections are determined at the time the Fund makes a purchase
or loan subject to such percentage.
PERFORMANCE
From time to time the World Funds may advertise information regarding
the performance of the Fund. Such statements of performance will consist of
the Fund's current "yield," "distribution rate" (to be included in sales
literature only), and "total return." These performance figures are based
upon historical results and are not intended to indicate future performance.
"Yield" is the ratio of income per share derived from the portfolio
investments to the current maximum offering price expressed in terms of a
percentage. "Distribution rate" is the amount of distribution per share made
over a twelve-month period divided by a current maximum offering price.
"Total return" is the total of all income and capital gains paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of
the purchase price.
Please refer to the Statement of Additional Information for more
information on Performance.
THE WORLD FUNDS' MANAGEMENT
The World Funds' Board of Directors is responsible for the
supervision of the general business of the Fund. The Directors act as
fiduciaries for shareholders under the laws of the State of Maryland. The
Board has appointed Arpad Pongracz to serve as President of the Fund. The
World Funds employs the following persons to provide it with investment
advice and to conduct its on-going business:
Advisor - Vontobel USA Inc. (the "Advisor") manages the investments
of the Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement" ), dated February 14, 1996. The Advisory Agreement is effective
for an initial term of two years and thereafter may be continued annually by
a majority of the Board of Directors of the World Funds or the shareholders
of the Fund, and by a majority of the directors who are not interested
persons of the World Funds.
The Advisor is a wholly owned and controlled subsidiary of Vontobel
Holding Ltd., a Swiss bank holding company, having its registered offices in
Zurich, Switzerland. The Advisor currently manages in excess of $900 million
(which includes the assets of the Fund, the Vontobel U.S. Value Fund, the
Vontobel EuroPacific Fund, and the Vontobel International Bond Fund series of
the Fund, and an International Equity series of an unaffiliated fund). The
Advisor also acts as the investment advisor to three series of a Luxembourg
fund organized by an affiliate of the Advisor. That fund does not accept
investments from the U.S.
Mr. Arpad Pongracz, who is a Vice President of the Advisor, is the
President and portfolio manager of the Fund. Pursuant to the Advisory
Agreement the Advisor provides the Fund with investment management services,
subject to the supervision of the World Funds' 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 its portfolio and certain other costs. The Advisor also bears the cost of
fees, salaries and other remuneration of the World Funds' directors, officers
or employees who are officers, directors, or employees of the Advisor. 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 its shares for sale under various state and Federal
securities laws.
Under the Advisory Agreement the monthly compensation paid to the
Advisor is accrued daily at a rate equal to a fee at the annual rate of 1.25%
of the net assets of the Fund. This fee is higher than that charged to many
other investment companies. If the assets of the Fund exceed $500,000,000,
the fee for such assets will be computed at the annual rate of 1% on such
excess. The fee is paid monthly, within five (5) business days after the end
of the month. The Advisory Agreement provides that the fee paid by the Fund
will be reduced to the extent necessary to comply with any applicable state
expense limitation provision to which the Fund may be subject. All expenses
not specifically assumed by the Advisor are assumed by the Fund. The address
of the Advisor is 450 Park Avenue, New York, N.Y. 10022.
The Advisory Agreement contemplates the authority of the Advisor to
place orders for the Fund pursuant to its investment determinations either
directly with the issuer or with any broker or dealer. The Advisor may
allocate brokerage to an affiliated dealer in accordance with written
policies and procedures adopted by the Board of Directors. In placing orders
with brokers or dealers, the Advisor will attempt to obtain the best price
and execution of its orders. The Advisor may purchase and sell securities to
and from brokers and dealers who provide the Advisor with research advice and
other services, or who sell shares of the Fund. From time to time, and
subject to the Advisor obtaining the best price and execution for the Fund,
the Board may authorize the Advisor to allocate brokerage transactions to a
broker in consideration: (1) of investment research or statistical services,
or (2) in consideration of a payment of an obligation otherwise payable by
the Fund.
Administrator - Commonwealth Shareholder Services, Inc. ("CSS"),
serves as Administrator to the Fund pursuant to an Administrative Services
Agreement. CSS provides certain recordkeeping and shareholder servicing
functions required of registered investment companies, and will assist the
World Funds in preparing and filing certain financial and other reports and
performs certain daily functions required for ongoing operations. CSS may
furnish personnel to act as the World Funds' officers to conduct its business
subject to the supervision and instructions of its Board of Directors.
The Administrative Services Agreement provides that CSS will be paid
a monthly fee: (1) of $30 per hour for shareholder servicing; (2) $30 per
hour for blue sky matters; (3) the greater of 20 basis points of the average
daily net assets of the Fund or $42,500 per year for administration (which
includes regulatory matters, backup of the pricing of the Fund,
administrative duties in connection with the execution of portfolio trades,
and certain services in connection with Fund accounting); and (4) certain
out-of-pocket expenses. CSS has agreed to reduce the minimum amount
specified in clause three above to $22,250 during the first two fiscal years
of the Fund's operations. John Pasco, III, Chairman of the Board of the
World Funds, owns the stock of CSS, which therefore may be deemed to be an
affiliate of the World Funds. The address of CSS is 1500 Forest Avenue,
Suite 223, Richmond, VA 23229.
Custodian and Accounting Services Agent - Brown Brothers Harriman &
Co. ("BBH") is the World Funds' Custodian and Accounting Services Agent. BBH
collects income when due and holds all of the World Funds' portfolio
securities and cash. (BBH, with the World Funds' consent, has designated The
Depository Trust Company of New York, as its agent to secure some 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 World Funds outside the U.S. Such appointments are
subject to appropriate review by the World Funds' Board of Directors. BBH as
the Accounting Services Agent maintains and keeps current the books,
accounts, records, journals or other records of original entry relating to
the World Funds' business. The address of BBH is 40 Water Street, Boston,
Massachusetts 02109.
Transfer and Dividend Disbursing Agent - Fund Services, Inc. ("FSI")
is the World Funds' Transfer and Dividend Disbursing Agent. John Pasco, III,
Chairman of the Board of the World Funds, owns one third of the stock of FSI,
and, therefore, FSI may be deemed to be an affiliate of the World Funds. FSI
provides all the necessary facilities, equipment and personnel to perform the
usual and ordinary services of Transfer and Dividend Disbursing Agent,
including: administrative receipt and processing of orders and payments for
purchases of shares, opening shareholder accounts, preparing shareholder
meeting lists, mailing proxy material, receiving and tabulating proxies,
mailing shareholder reports and prospectuses, withholding certain taxes on
non-resident alien accounts, disbursing income dividends and capital
distributions, preparing and filing U.S. Treasury Department Form 1099 (or
equivalent) for all shareholders, preparing and mailing confirmation forms to
shareholders for all purchases and redemptions of the Fund's shares and all
other confirmable transactions in shareholders' accounts, recording
reinvestment of dividends and distribution of the Fund's shares. Under the
Agreement between the World Funds and FSI, as in effect on January 1, 1996,
FSI is compensated pursuant to a schedule of services and out-of-pocket
expenses. The schedule calls for a minimum payment of $16,500 per year for
each series. The address of the Transfer and Dividend Disbursing Agent is
P.O. Box 26305, Richmond, VA 23260.
Principal Underwriter/Distributor - First Dominion Capital Corp.
(the "Distributor") acts as the Principal Underwriter for the World Funds
pursuant to an agreement dated January 1, 1994. Mr. John Pasco, III, who is
the President, Treasurer, and a Director of the Distributor, owns 100% of the
stock of the Distributor. Mr. Pasco is also the Chairman and a director of
the World Funds. The address of the Distributor is 1500 Forest Avenue, Suite
223, Richmond, VA 23229.
HOW TO INVEST
Shares of the Fund may be purchased directly from the Distributor or
through members of the National Association of Securities Dealers, Inc. who
are registered, if required, in the state where the purchase is made and who
have a sales agreement with the Distributor. After a shareholder account is
established, subsequent orders for shares may be mailed directly to the
Transfer Agent. Such purchases of shares are made at the net asset value.
A minimum initial investment of $1,000 is required to open a shareholder
account in the Fund, and each subsequent investment must be $100 or more.
Under certain circumstances the World Funds may waive the minimum initial
investment for purchases by certain retirement accounts (such as IRA's), and
for purchases by officers, directors and employees of the World Funds and its
affiliated entities and for certain related advisory accounts. The offering
price per share is equal to the net asset value per share next determined
after receipt of a purchase order.
When an investor acquires shares of the Fund from a securities
dealer, the investor may be charged a transaction fee for shares purchased
and/or redeemed at net asset value through that broker.
To facilitate the handling of transactions with shareholders, the
World Funds uses an open account plan. The Transfer Agent will automatically
establish and maintain an open account for the Fund's shareholders. Under
the open account plan your shares are reflected in your open account. This
service facilitates the purchase, redemption or transfer of shares, and
eliminates the need to safeguard certificates and reduces time delays in
executing transactions.
Purchase by Mail. For initial purchases the Account Application form
which accompanies this Prospectus should be completed, signed, and mailed to
the Transfer Agent, together with your check or other negotiable bank draft
drawn on and payable by a U.S. Bank payable to the Vontobel Eastern European
Equity 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 the social security number.
Investing by Wire. You may purchase shares by requesting your bank
to transmit "Federal Funds" 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) 527-9500. Your bank may charge you a small
fee for this service. The Account Application which accompanies this
Prospectus should be completed and promptly forwarded to the Transfer Agent.
This application is required to complete the World Funds' records in order to
allow you access to your shares. Once your account is opened by mail or by
wire, additional investments may be made at any time through the wire
procedure described above. Be sure to include your name and account number
in the wire instructions you provide your bank.
Stock Certificates - Certificates for full shares will be issued by
the Transfer Agent upon written request but only after payment for the shares
is collected by the Transfer Agent.
HOW TO REDEEM SHARES
Shares may be redeemed 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 information and documents necessary for your
request to be in "proper order." (See "Signature Guarantees.") You will be
notified promptly by the Transfer Agent if your redemption request is not in
proper order. If a shareholder redeems shares of the Fund which have been
held less than six months (including shares to be exchanged), the World Funds
will deduct from the proceeds a redemption charge of 2% of the amount of the
redemption. This amount is retained by the Fund to offset the Fund's costs
of purchasing or selling securities.
The World Funds' procedure is to redeem shares at the net asset value
next determined after receipt by the Transfer Agent of the redemption request
in proper order as described herein. Payment will be made promptly, but no
later than the seventh day following receipt of the request in proper order.
Please note that (1) the Transfer Agent cannot accept redemption requests
which specify a particular date for redemption, or which specify any special
conditions; and (2) if the shares you are redeeming were purchased by you
less than fifteen (15) days prior to the receipt of your redemption request,
the Transfer Agent must ascertain that your check in payment of the shares
you are redeeming has cleared prior to disbursing the redemption proceeds.
If you anticipate the need to redeem before fifteen (15) days, you should
make your purchase by Federal Funds wire, or by a certified, treasurer's or
cashier's check.
The World Funds may suspend the right to redeem shares for any period
during which the New York Stock Exchange is closed or the 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 at the net asset value per share next computed
after the suspension is terminated.
Redemption by Mail - To redeem shares by mail, send the following
information to the Transfer Agent: (1) a written request for redemption
signed by the registered owner(s) of the shares, exactly as the account is
registered; (2) the stock certificates for the shares you are redeeming, if
any were issued; (3) any required signature guarantees (See "Signature
Guarantees"); and (4) any additional documents which might be required for
redemption by corporations, executors, administrators, trustees, guardians,
etc. The Transfer Agent will mail the proceeds to your currently registered
address, payable to the registered owner(s) unless you specify otherwise in
your redemption request. There is no charge to shareholders for redemptions
by mail.
Redemption by Telephone - You may redeem your shares by telephone if
you request this service at the time you complete your initial Account
Application. If you do not request this service at that time, you must
request approval of telephone redemption privileges in writing (sent to the
World Funds' Transfer Agent) with a signature guarantee before you can redeem
shares by telephone. There is no charge for establishing this service, but
the Transfer Agent will charge your account a $10.00 service fee each time
you make a telephone redemption. Once your telephone authorization is in
effect, you may redeem shares by calling the Transfer Agent at (800) 628-
4077. By establishing this service, you authorize the Transfer Agent to act
upon any telephone instructions it believes to be genuine, to (1) redeem
shares from your account and (2) mail or wire redemption proceeds. If you
request that your redemption proceeds be wired to you, the Transfer Agent
will charge your account with a wire service charge, currently $10.00. This
charge is in addition to the $10.00 service fee for making a telephone
redemption. The amount of these service charges may be changed at any time,
without notice, by the Transfer Agent.
You cannot redeem shares by telephone if you hold a stock certificate
representing the shares you are redeeming or if you paid for the shares with
a personal, corporate, or government check and your payment has been on the
books of the World Funds for less than 15 days.
If it should become difficult to reach the Transfer Agent by
telephone during periods when market or economic conditions lead to an
unusually large volume of telephone requests, a shareholder may send a
redemption request to the Transfer Agent by overnight mail.
The World Funds employs reasonable procedures designed to confirm the
authenticity of your 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 World Funds believes to be
genuine. When you request a telephone redemption or transfer, you will be
asked to respond to certain questions designed to confirm your identity as a
shareholder of record. Your cooperation with these procedures will protect
your account and the Fund from unauthorized transactions.
Signature Guarantees - To 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
either: (a) on the written request for redemption; (b) on a separate
instrument of assignment (usually referred to as a "stock power") specifying
the total number of shares being redeemed. If shares held by the Transfer
Agent are being redeemed, the signature guarantee must be on the written
request or stock power. The World Funds may waive these requirements in
certain instances.
The following institutions are acceptable 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 ("F.D.I.C."); (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 that are authorized by charter to provide signature guarantees; and (f)
foreign branches on any of the above. In addition, the World 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.
Small Accounts - Due to the relatively higher cost of maintaining
small accounts, the World Funds reserves the right to redeem shares in your
account if, as a result of redemption or transfer, the total investment
remaining in the account has a value less than the minimum initial
investment. However, before the World Funds redeems your shares and sends
you the proceeds, you will be notified in writing that the value of your
shares is less than the minimum and that you have 60 days to make an
additional investment to meet the required minimum. A decline in market
value alone would not require you to bring your investment up to the minimum.
HOW TO TRANSFER SHARES
If you wish to transfer shares to another owner, send a written
request to the Transfer Agent. Your request should include (1) the name of
the Fund and existing account registration; (2) signature(s) of the
registered owner(s); (3) the new account registration, address, Social
Security Number or taxpayer identification number and how dividends and
capital gains are to be distributed; (4) any stock certificates which have
been issued for the shares being transferred; (5) signature guarantees (See
"Signature Guarantees"); and (6) any additional documents which are required
for transfer by corporations, administrators, executors, trustees, guardians,
etc. If you have any questions about transferring shares, call the Transfer
Agent at (800) 628-4077.
ACCOUNT STATEMENTS AND SHAREHOLDER REPORTS
Each time you purchase, redeem or transfer shares of the Fund, you
will receive a written confirmation. You will also receive a year-end
statement of your account if any dividends or capital gains have been
distributed, and an annual and a semi-annual report.
SPECIAL SHAREHOLDER SERVICES
The World Funds offers the following four services for its
shareholders:
Regular Account - allows shareholders to make voluntary additions and
withdrawals to and from their account as often as they wish;
Invest-A-Matic - permits automatic monthly investments into the Fund
from your checking account on a fixed or flexible schedule;
Individual Retirement Accounts (IRA's); and
Exchange Privileges - allows the shareholder to exchange his or her
shares for shares of certain other funds having a different investment
objective from that of the Fund, provided the shares of the fund the
shareholder is exchanging into are registered for sale in the shareholder's
state of residence. A shareholder's account may be charged a ten dollar
exchange fee. An exchange is treated as a redemption and a purchase, and may
result in the realization of a gain or loss on the transaction. More
information on any of these services is available upon written request to the
World Funds.
HOW NET ASSET VALUE IS DETERMINED
The Fund's Net Asset Value ("NAV") is determined as of the close of
trading of the New York Stock Exchange (currently 4:00 P.M., Eastern Time) on
each business day from Monday to Friday or on each day (other than a day
during which no security was tendered for redemption and no order to purchase
or sell such security was received by the Fund) in which there is a
sufficient degree of trading in the portfolio securities of the Fund that the
current NAV of the shares might be materially affected by changes in the
value of such portfolio security. The Fund's NAV is calculated at the 4:00
p.m. time set by the Board of Directors based upon a determination by the
Board that this is the most appropriate time to price the securities.
NAV per share is determined by dividing the total value of the
assets, less its liabilities, by the total number of shares then outstanding.
Generally, securities owned by the Fund are valued at market value.
Investments in securities traded on a national securities exchange
or included in the NASDAQ National Market System are valued at the last
reported sales price; other securities traded in the over-the-counter market
and listed securities for which no sale is reported on that date are valued
at the last reported bid price.
Short-term debt securities (less than 60 days to maturity) are valued
at their fair market value using amortized cost pricing procedures set, and
determined to be fair, by the Board of Directors. 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.
ADR's, EDR's, and GDR's will be valued at the closing price of the
instrument last determined prior to the valuation time unless the World Funds
is aware of a material change in value. Items 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 World Funds' management may compute the NAV per share more
frequently in order to protect shareholders' interests.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
It is the policy of the World Funds to distribute substantially all
of its net investment income and all of its net profits realized from the
sale of portfolio securities. Income dividends received and capital gains
realized, if any, will be distributed to shareholders annually.
The sale of securities held by the Fund will be made with a view to
the maintenance of a portfolio believed by the Advisor to be the most likely
to achieve its objective. Such sales, and any resulting gains and losses may
vary considerably from year to year.
Although the Fund does not intend generally to trade for short-term
profits, its portfolio securities will be sold whenever the Advisor believes
that it is appropriate to do so, without regard to the length of time a
particular security may have been held.
Unless you elect otherwise, dividends and capital gain distributions
will be reinvested in additional shares of the Fund at no charge. Changes in
your election must be sent to the Transfer Agent.
TAXATION CONSIDERATIONS
The Fund will seek to qualify under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"). As a regulated investment company under
the Code, the Fund is not liable for federal income taxes on income or gains
which are distributed to its shareholders or imputed to shareholders under
the Code. The distribution to shareholders each year of investment income
and capital gains will represent taxable income to the shareholders. The
Fund is a series corporation. Each series is taxed as a separate taxable
entity under the Code. Shareholders will receive a written advice from the
World Funds within sixty (60) days after the end of the year furnishing them
with the information required under the Code.
GENERAL INFORMATION ABOUT THE WORLD FUNDS
The World Funds is authorized to issue up to 500,000,000 shares of
$0.01 par value common stock, of which it has presently allocated 50,000,000
shares to the Vontobel EuroPacific Fund series, 50,000,000 to the Vontobel
U.S. Value Fund series, 50,000,000 to the Vontobel International Bond Fund
series, 50,000,000 to the Sand Hill Portfolio Manager Fund series, and
50,000,000 to the Vontobel Eastern European Equity Fund series. The Board of
Directors can allocate the remaining authorized but unissued shares to any
series of the World Funds or may create additional series and allocate shares
to such series. A share of the Fund has priority in the assets of the Fund
in the event of a liquidation. The shares of the Fund will be fully paid and
non-assessable, will have no preference over other shares of the Fund as to
conversion, dividends, or retirement, and will have no preemptive rights.
Shares of the Fund will be redeemable from the assets of the Fund at any
time.
Each outstanding share of the World Funds is entitled to one vote for
each full share of stock and a fractional vote for fractional shares of
stock. All shareholders vote on matters which concern the corporation as a
whole. The World Funds is not required to hold a meeting of shareholders
each year, and may elect not to hold a meeting in years when no meeting is
necessary. The Fund shall vote separately on matters which affect only the
interest of the Fund. The World Funds' shares 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. Shareholders may utilize procedures described in the Statement of
Additional Information to call a meeting.
Limitation on Use of Name - The Advisory Agreement for the Fund
authorizes the World Funds to utilize the name "Vontobel." The World Funds
agrees that if the Advisory Agreement is terminated it will promptly
redesignate the name of the Fund to eliminate any reference to the name
"Vontobel" or any derivation thereof unless the Advisor waives this
requirement in writing.
MORE INFORMATION
For further information on the Fund please contact Commonwealth
Shareholder Services, Inc., P.O. Box 8687, Richmond, VA 23226, telephone:
(800) 527-9500.
Additional information may also be obtained by requesting a copy of
the Fund's Statement of Additional Information.
<PAGE>
Advisor: Vontobel USA Inc.
450 Park Avenue
New York, N.Y. 10022
Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229
Independent Auditors: Tait, Weller & Baker
2 Penn Center Plaza
Suite 700
Philadelphia, PA 19102
Marketing Services: For general information on the
Fund and Marketing Services, call the
Distributor at (800) 527-9500 Toll Free
Transfer Agent: For account information, wire purchase or
redemptions, call or write to the World Funds'
Transfer Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23286-8172
(800) 628-4077 Toll Free
More Information: For 24 hour, 7 days a week price information call 1-
800-527-9500.
For information on any series of the World Funds,
investment plans, or other shareholder services,
call 1-800-527-9500 during normal business hours,
or write the World Funds at 1500 Forest Avenue,
Suite 223, Richmond, VA 23229.
<PAGE>
NEW ACCOUNT APPLICATION - THE WORLD FUNDS, INC.
VONTOBEL EASTERN EUROPEAN EQUITY FUND
1. NAME:
Individual
First
Middle Last
Joint Owner
First
Middle Last
Gift to Minors as
custodian for
Name of Custodian
Name of Minor
under the Uniform Gifts to Minors Act (show
minor's Soc. Sec. # below)
State
Other
Name of Corporation , Partnership or other Organization.
(NOTE: These accounts require additional
information.
Please call Fund Services, Inc. at 1-800-628-4077)
To open a Trust account please include the pages of the Trust document
which shows the date
the Trust was established, the name(s) of the Trustee(s), and the dated
signature page.
ADDRESS AND CITIZENSHIP:
( )
Street
Area Code Daytime Telephone
City State
Zip Code
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:
CITIZENSHIP OF OWNER, MINOR OR TRUST BENEFICIARY: U.S. Citizen
Resident Alien Non-Resident Alien:
Country of Residence
CITIZENSHIP OF JOINT OWNER: U.S. Citizen Resident Alien
Non-Resident Alien: Country of
Residence
2. INITIAL INVESTMENT (Minimum $1,000) $ (Please make
check
payable to Vontobel Eastern European Equity Fund and mail your
investment to
P.O. Box 26305, Richmond, VA 23286-8172)
3. DISTRIBUTION OPTION: Income dividends and capital gains are
automatically
reinvested, unless you check one of the following: Dividends in
cash,
with capital gains reinvested in shares. All distributions
in cash.
4. TELEPHONE PRIVILEGES: To use the telephone to authorize the transactions
below,
please check the appropriate box(es):
I (we) hereby authorize Fund Services, Inc. to honor telephone
instructions for my
(our) account. Neither the World Funds nor Fund Services, Inc. will
be liable for properly
acting upon telephone instructions believed to be genuine which are
confirmed in
accordance with the World Funds' procedures described in this
prospectus. I (we) understand
that redemptions authorized by telephone are paid by check and
mailed to me (us).
To exchange into shares of other World Funds series. If an exchange
is the initial
investment, the new fund account will automatically carry the same
account
registration, and these telephone privileges will apply.
5. AUTOMATIC INVESTMENT PLAN: To make automatic monthly investments from
your bank account, check the box below (Minimum monthly investment is
$100.00)
This plan allows me (us) to make automatic monthly investments
from my (our)
bank account. Fund Services, Inc. will transfer money from my (our)
bank account
into the Fund. There is no charge, and I may cancel at any time.
Invest $
into my (our) account of the 15th day of each month by transfer from my
(our) bank
account. (Please include a blank voided check.)
6. EMPLOYMENT INFORMATION: We are required by the National Association of
Securities Dealers (NASD) to ask for this information.
Owner's Occupation, Employer & Employer's Address:
I am affiliated with, or work for, a member firm of the NASD.
Joint Owner's Occupation, Employer & Employer's Address:
I am affiliated with, or work for, a member firm of the NASD.
7. SIGNATURES: Each Owner Must Sign This Section.
The undersigned warrants(s) that I (we) have full authority to make
this application, am
(are) of legal age, and have received and read a current prospectus and
agree to be bound
by its terms. I (we) understand that all shares will be held in
uncertificated form. Share
certificates may be requested, but Telephone Privileges will not then
be available. I (we)
understand that it is my (our) responsibility to read the prospectus of
any fund into which
I (we) exchange and that all information provided in sections 1 and 7
will apply to any
new fund into which my (our) shares may be exchanged. I (we)
understand that neither
the World Funds nor First Dominion Capital Corp. is a bank, and shares
of the Fund
are not backed or guaranteed by any bank or insured by the FDIC. I
(we) ratify any instructions
(including telephone instructions) given on this account and agree that
neither the Fund, First
Dominion Capital Corp. or Fund Services, Inc. will be liable for any
loss, cost or expense for
acting upon any instruction (including telephone instructions)
believed to be genuine which
are confirmed in accordance with the procedures described in the
prospectus. If I (we) am a
(are) U.S. Citizen(s) or Resident Alien(s), as indicated above, I (we)
certify under penalties of
perjury that (1) the Social Security or taxpayer identification number
provided above is
correct, and (2) I (we) are not subject to IRS backup withholding
because (a) I (we)
am (are) exempt from backup withholding, or (b) I (we) have not been
notified by the
IRS that I (we) am (are) subject to backup withholding, or (c) I (we)
have been notified
by the IRS that I (we) am (are) no longer subject to backup
withholding. (Please cross
out item 2 if it does not apply to you.) If I (we) am a (are) Non-
Resident Alien(s), as
indicated above, I (we) certify under penalties of perjury that I (we)
am not (are not) a
U.S. Citizen(s) or Resident Alien(s), and that I (we) am an (are)
"exempt foreign
person(s)" as defined under IRS regulations.
This application is not effective until it is received and accepted by
the Fund.
SIGN HERE: DATE:
19
Signature of Individual (or Custodian)
DATE: 19
Signature of Joint Registrant, if any
PLEASE SEND YOUR COMPLETED APPLICATION AND CHECK, MADE PAYABLE
TO VONTOBEL EASTERN EUROPEAN EQUITY FUND, TO:
FUND SERVICES, INC.
P.O. BOX 26305
RICHMOND, VA 23286-8172
Registered Rep. Name REP. Number
Branch Wire Code
( )
Branch Address Telephone
Number
CORRESPONDENT FIRM IDENTIFICATION:
Firm Name and Address
Authorized Signature
<PAGE>
THE WORLD FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 22, 1996
VONTOBEL EASTERN EUROPEAN EQUITY FUND
The World Funds, Inc. ("TWF") is a diversified, open-end,
management investment company commonly known as a "mutual fund." This
Statement of Additional Information is not a prospectus but supplements the
information contained in the current Prospectus of the Vontobel Eastern
European Equity Fund (the "Fund"), which is dated January 22, 1996. This
Statement of Additional Information has been designed to provide you with
further information which is not contained in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS STATEMENT OF ADDITIONAL INFORMATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS, DATED JANUARY 22,
1996. A PROSPECTUS OF THE FUND MAY BE OBTAINED AT NO CHARGE UPON REQUEST
TO THE FUND. RETAIN THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE
REFERENCE.
<PAGE>
CONTENTS PAGE
VONTOBEL EASTERN EUROPEAN EQUITY FUND
Investment Policies 1
Special Considerations 3
Hedging with Forward Foreign Currency Contracts
and Futures 5
INVESTMENT RESTRICTIONS 7
VALUATION AND CALCULATION OF NET ASSET VALUE 9
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
DIRECTORS AND OFFICERS 14
ADVISOR 16
TRANSFER AGENT 17
ADMINISTRATOR 17
ELIGIBLE BENEFIT PLANS 17
DISTRIBUTION 18
EXPENSES OF THE FUND 18
SPECIAL SHAREHOLDER SERVICES 18
ALLOCATION OF PORTFOLIO BROKERAGE 21
GENERAL INFORMATION AND HISTORY 22
PERFORMANCE 23
FINANCIAL STATEMENTS 27
<PAGE>
THE WORLD FUNDS, INC.
VONTOBEL EASTERN EUROPEAN EQUITY FUND
There is some market risk inherent in any investment, due in part
to changes in general economic and market conditions, and therefore there
is no assurance that the Fund's investment objective will be realized.
However, the investment policies of the Fund are intended to provide the
flexibility to take advantage of opportunities while accepting only what
Vontobel USA Inc. (the "Advisor") believes to be reasonable risks.
Investment Policies
The Fund will select its non-equity investments from among
securities and obligations of all kinds including preferred stocks, warrant
rights, bonds (of any class or rating), repurchase agreements, money market
investments (such as U.S. Government securities [see the description below]
issued by the U.S. Treasury, agencies or other instrumentalities) and other
evidences of indebtedness.
Under normal circumstances the Fund will have at least 65% of its
assets invested in a portfolio of common stocks or securities convertible
into common stocks of issuers from not less than three countries....
However, when the Advisor 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 deposit or
repurchase agreements.
The Fund may also acquire fixed income investments where these
fixed income securities are convertible into equity securities (and which
may therefore reflect appreciation in the underlying equity security), and
where anticipated interest rate movements, or factors affecting the degree
of risk inherent in a fixed income security are expected to change
significantly so as to produce appreciation in the security consistent with
the Fund's objective. The fixed income securities in which the Fund may
invest will be rated at the time of purchase Baa or higher by Moody's
Investor Service, Inc., or BBB or higher by Standard and Poor's
Corporation, or if they are foreign securities which are not subject to
standard credit ratings the fixed income securities will be "investment
grade" issues (in the judgement of the Advisor) based on available
information. Securities rated as BBB are regarded as having adequate
capacity to pay interest and repay principal.
The Fund may enter into repurchase agreements (which enables it to
employ its assets pending investment) during very short periods of time.
Ordinarily these agreements permit the Fund to maintain liquidity and earn
higher rates of return than would normally be available from other short-
term money market instruments.
Under a repurchase agreement, a fund buys a money market
instrument and obtains a simultaneous commitment from the seller to
repurchase the investment at a specified time and at an agreed upon yield
to the fund. The seller is required to pledge cash and or collateral which
is equal to at least 100 percent of the value of the commitment to
repurchase. The collateral is held by the fund's custodian. The Fund will
only enter into repurchase agreements involving U.S. Government securities
in which it may otherwise invest.
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 United States Government, and by various
instrumentalities which have been established or sponsored by the United
States Government. U.S. Treasury securities are backed by the "full faith
and credit" of the United States. Securities issued or guaranteed by
Federal agencies and the 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 against the United States
itself 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.
It is the Fund's practice to enter into repurchase agreements with
selected banks and securities dealers, depending upon the availability of
the most favorable yields. The Fund will always seek to perfect its
security interest in the collateral. If the seller of a repurchase
agreement defaults, the Fund may incur a loss if the value of the
collateral securing the repurchase agreement declines. The Advisor
monitors the value of the collateral to ensure that its value always equals
or exceeds the repurchase price and also monitors the financial condition
of the issuer of the repurchase agreement. If the seller defaults, the
Fund may incur disposition costs in connection with liquidating the
collateral of that seller. If bankruptcy proceedings are commenced with
respect to the seller, realization upon the collateral by the Fund may be
delayed or limited.
The Fund is designed to take advantage of the opportunities
provided by the ability to invest overseas, and therefore may be subject to
some of the special risks described below.
As noted in the Prospectus, the Fund has the right to invest in
securities which may be considered to be "thinly traded" if they are deemed
to offer the potential for appreciation, but it does not presently intend
to invest more than 15% of its assets in such securities. The trading
volume of such securities is generally lower and their prices may be more
volatile as a result, and such securities are less likely to be exchange-
listed securities. The Fund may also invest, subject to certain
restrictions described below, in options (puts and calls) and, to a limited
extent, in restricted securities.
The Fund may invest in the shares of ... closed-end investment
companies which acquire equity securities of Eastern/Central European
countries in which the Fund may invest. By investing in shares of such
investment companies, the Fund would indirectly pay a portion of the
operating expenses, management expenses, and brokerage costs of such an
investment company as well as the expenses of the Fund. The Advisor will
recommend such investments when it believes that this would allow the Fund
to achieve a greater diversification at an economically more advantageous
price than through the acquisition of individual securities, or when such
company is able to achieve an investment in a country which the Fund cannot
acquire for legal or economic reasons.
The Fund may utilize American Depository Receipts ("ADR's"),
European Depository Receipts ("EDR's") and Global Depository Receipts
("GDR's"). Generally, ADR's are dollar denominated securities issued in
registered form and designed for use in the United States securities
markets. They represent and may be converted into the underlying foreign
security. EDR's, in bearer form, are similarly designed for use in the
European securities markets. For purposes of determining the country of
origin, ADR's and closed-end investment companies will not be deemed to be
domestic securities.
It is the Fund's policy not to lend its portfolio securities at
the present time, although it is not restricted from so doing.
The Fund's investments will be subject to the market fluctuations
and risks which are inherent in all investments, and although the Advisor
will seek to attain the Fund's stated objective there can be no assurance
that the objective will be achieved.
Special Considerations Regarding Investments In Foreign Securities
Investment in securities of issuers domiciled outside the United
States involves investment risks different from those encountered in
investing in securities of United States issuers. Elements of risk and
opportunity which must be recognized and evaluated by the Advisor include
trade balances and imbalances, and related economic policies; currency
exchange rate fluctuations; foreign exchange control policies;
expropriation or confiscatory taxation; limitation on the removal of funds
or other assets of the Fund; political or social instability; the diverse
structure and liquidity of securities markets in various countries and
regions; policies of governments with respect to possible nationalization
of their own industries; and other specific local political and economic
considerations. Investment decisions made in the context of the Fund's
objective and policies necessarily require particular attention to
opportunities and risks presented by probable future currency
relationships, especially during periods of broad adjustments in such
relationships.
It is contemplated that most foreign securities will be purchased
on stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if
that is the best available market. Foreign securities markets may not be as
developed or as efficient as those in the United States. While growing in
volume, foreign exchanges usually have substantially less volume than the
New York Stock Exchange, and securities of some foreign companies are less
liquid and more volatile than securities of comparable United States
companies. Similarly, there is less volume and less liquidity in most
foreign bond markets than in the United States, and at times, volatility of
price can be greater in the United States.
Additional costs may be incurred which are related to the Fund's
international investment policy. Foreign brokerage commissions are
generally higher than in the United States and the custodial costs
associated with maintaining foreign portfolio securities are higher. Fee
expense may also be incurred on currency exchanges when the Fund changes
investments from one country to another. Foreign companies and foreign
investment practices are not generally subject to uniform accounting,
auditing and financial reporting standards and practices or regulatory
requirements comparable to those applicable to United States companies.
There may be less public information available about foreign companies.
At various times United States Government policies, through
imposition of interest equalization taxes and other restrictions, have
discouraged certain investments abroad by United States investors such as
the Fund. While such taxes or restrictions are not presently in effect,
they may be reinstituted from time to time as a means of fostering a
favorable United States balance of payments. In addition, foreign
countries may impose withholding and taxes on dividends and interest
received by the Fund.
Hedging with Forward Foreign Currency Contracts and Futures
The Fund's investment objective (as described in the Prospectus)
contemplates investment in securities of issuers domiciled or operating
outside the United States. Such foreign investments may require the Fund
to temporarily hold funds in foreign currencies prior to, during or
following the completion of investment programs. In such circumstances the
value of the Fund's assets, as measured in United States dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations.
The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market or, when deemed necessary to "hedge" the Fund's
anticipated cash movements, through entering into forward contracts to
purchase or sell foreign currencies. A forward foreign currency contract
involves an obligation to purchase or sell 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.
These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their
customers. A forward foreign currency contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
The Fund's custodian bank segregates cash or equity or debt
securities in an amount not less than the value of the Fund's assets
committed to forward foreign currency exchange contracts entered into under
this second type of transaction. If the value of the securities segregated
declines, additional cash or securities is added so that the segregated
amount is not less than the amount of the Fund's commitments with respect
to such contracts. Under normal circumstances, the Fund expects that any
appreciation (depreciation) on such forward exchange contracts will be
approximately offset by the depreciation (appreciation) in translation of
the underlying foreign investment arising from fluctuations in foreign
currency exchange rates. Where the Advisor determines a hedge is no longer
necessary the Fund may enter into a closing transaction.
The Fund may enter into forward foreign currency contracts for two
reasons. First, a desire to preserve the United States dollar price of a
security when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency. The Fund will be able to
protect itself against possible losses resulting from changes in the
relationship between the United States dollar and foreign currencies during
the period between the date the security is purchased or sold and the date
on which payment is made or received by entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
the foreign currency involved in the underlying security transactions.
Second, when the Advisor believes that the currency of a particular foreign
country may suffer a substantial decline against the United States dollar,
the Fund may enter into a forward foreign currency contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of its portfolio securities denominated in such
foreign currency. The precise matching of the forward foreign currency
contract amount and the value of the portfolio securities involved may not
have a perfect correlation since the future value of the securities hedged
will change as a consequence of market movements between the date the
forward contract is entered into and the date it matures. The projection
of short-term currency market movement is difficult, and the successful
execution of this short-term hedging strategy is uncertain.
Although forward foreign currency contracts tend to reduce the
risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain which might result should
the value of such currency increase.
The Fund may also seek to use certain financial futures for
"hedging" purposes. The use of futures for hedging is intended to protect
the Fund from (i) the risk that the value of its portfolio of investments
in a foreign market may decline before it can liquidate its interest, or
(ii) the risk that a foreign market in which it proposes to invest may have
significant increases in value before it can cause its cash to be invested
in that market. In the first instance, the Fund will sell a future based
upon a broad market index which it is believed will move in a manner
comparable to the overall value of securities in that market. In the
second instance, the Fund will purchase the appropriate index as an
"anticipatory" hedge until it can otherwise acquire suitable direct
investments in that market. As with the hedging of foreign currencies, the
precise matching of financial futures on foreign indices and the value of
the cash or portfolio securities being hedged may not have a perfect
correlation. The projection of future market movement and the movement of
appropriate indices is difficult, and the successful execution of this
short-term hedging strategy is uncertain. Regulatory policies governing
the use of such hedging techniques require the Fund to provide for the
deposit of initial margin and the segregation of suitable assets to meet
its obligation under futures contracts.
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 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
Advisor considers that the Austrian schilling is linked to the German
deutschemark (the "D-mark"), the Fund holds securities denominated in
schillings and the Advisor believes that the value of schillings will
decline against the U.S. dollar, the Advisor may enter into a contract to
sell D-marks and buy 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. 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 a fund is engaging in proxy hedging. If a fund enters
into a currency hedging transaction, the fund will comply with the asset
segregation requirements described above. Cross currency hedges may not be
considered "directly related" to the Fund's principal business of investing
in stock or securities (or options and futures thereon), resulting in gains
therefrom not qualifying under the less that 30% of gross income test of
Subchapter M of the Internal Revenue Code of l986, as amended (the "Code").
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the
current Prospectus, the Fund has adopted the investment restrictions set
forth below which, along with the investment objective, cannot be changed
without the approval of a majority of the outstanding voting securities of
the Fund. As provided in the Investment Company Act of 1940 a "vote of a
majority of the outstanding voting securities" means the affirmative vote
of the lesser of (i) more than 50% of the outstanding shares of the Fund or
(ii) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment restrictions provide that the Fund will not:
* Invest in companies for the purpose of exercising control.
* 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, or in connection
with the purchase of not more than three percent of the
shares of a "country fund" which invests in a country in
which the Fund may invest.
* Purchase or sell commodities or commodity contracts.
* Invest in interests in oil, gas, or other mineral
explorations or development programs.
* 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.
* Issue senior securities.
* Act as an underwriter of securities of other issuers.
* Concentrate its investments in any industry.
* Participate on a joint or a joint and several basis in any
securities trading account.
* Engage in short sales.
* Purchase or sell real estate, provided that liquid
securities of companies which deal in real estate or
interests therein will not be deemed to be investment in
real estate.
In order to satisfy certain state regulatory requirements the Fund
has agreed that, so long as shares of the Fund are offered for sale in such
state(s), it will not:
1. Purchase restricted securities (securities of issuers
which the Fund would be restricted from selling to the
public without registration under the Securities Act of
1933), if such purchase would cause the aggregate value
of restricted issues to exceed 10% of the Fund's total
assets;
2. Purchase the securities of foreign issuers which are not
listed on a recognized domestic or foreign securities
exchange, restricted securities referred to in 1 above,
and issues which are not readily marketable, if such
purchase would cause the Fund to own such securities in
excess of 15% of its net assets;
3. Purchase warrants if the portion of the Fund's assets held
in warrants following such purchase would exceed 5% of the
Fund's net assets, including, within that limitation, 2%
of the Fund's net assets of warrants not listed on the New
York or American Stock Exchanges. For the purpose of this
limitation, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value;
4. Engage in arbitrage transactions;
5. Purchase restricted securities referred to in 1 above, and
securities of unseasoned issuers, if such purchase would
cause the value of all such securities to exceed 15% of
the Fund's net assets;
6. Purchase restricted securities, securities which are not
readily marketable or repurchase agreements maturing in
more than seven days if more than 15% of the Fund's assets
would be invested in such securities;
7. Purchase or sell options (puts or calls written by others)
unless the following conditions are met: (a) the value of
its investment in puts, calls, straddles, spreads or any
combination thereof is limited to 5% of the Fund's net
assets and the premiums paid therefore may not exceed 2%
of the Fund's net assets; and (b) options must be listed
on a national securities exchange or, for foreign
securities, on comparable exchanges in the country of
issuance of the underlying security;
8. Purchase or retain the securities of any issuer if, to the
knowledge of TWF, the officers and/or directors of TWF or
its advisors who individually own beneficially more than
one-half of one percent of the securities of such issuer,
together beneficially own more than 5% of the securities
of such issuers;
9. Purchase the securities of any issuer(s), if such purchase
at the time thereof would cause more than ten percent of
the voting securities of such issuer(s) to be held by TWF;
10. Borrow money, or pledge, mortgage, or hypothecate the
assets of the Fund in excess of one-third of the total
assets of the Fund.
VALUATION AND CALCULATION OF NET ASSET VALUE
The Fund's Net Asset Value ("NAV") per share is calculated daily
each business day from Monday through Friday. The New York Stock Exchange
is currently closed on weekends and on the following holidays: New Years
Day, Washington's Birthday, Good Friday, Memorial Day, July 4th, Labor Day,
Thanksgiving Day and Christmas Day, and the NAV is not computed those days.
The NAV is calculated at the time set by the Board of Directors based upon
a determination of the most appropriate time to price the Fund's
securities.
The NAV is determined as of the close of trading of the New York
Stock Exchange (currently 4:00 P.M., Eastern Time) on each business day
from Monday to Friday or on each day (other than a day during which no
security was tendered for redemption and no order to purchase or sell such
security was received) in which there is a sufficient degree of trading in
the Fund's portfolio securities that the current NAV of the shares might be
materially affected by changes in the value of such portfolio security.
NAV per share is determined by dividing the total value of the
Fund's securities and other assets, less liabilities, by the total number
of shares then outstanding. Generally, the Fund's securities are valued at
market value.
Portfolio securities, including ADR's, EDR's and GDR's, which are
traded on stock exchanges, are valued at the last sale price, prior to the
Fund's valuation time, on the exchange on which such securities are traded,
unless the Fund is aware of a material change in the value prior to the
time it values its securities, or, lacking any sales, at the last available
bid price. ADR's, EDR's and GDR's, 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. Shares of other open-
end investment companies will be valued at the net asset value of such
shares each day, and shares of closed-end investment companies will be
valued at the closing market price of the shares on such day.
In cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated by TWF's Board of
Directors as the primary market. Securities traded on a national
securities exchange are valued at the last reported sales price.
Securities traded in the over-the-counter market and listed securities for
which no sale is reported on that date are valued at the last reported bid
price. Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations
as to their sale) are valued at fair market value as determined in good
faith by or under the direction of TWF's Board of Directors.
U.S. Treasury bills, and other short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, with
original or remaining maturities in excess of 60 days are valued at the
mean of representative quoted bid and asked prices for such securities or,
if such prices are not available, are valued at the mean of representative
quoted bid and asked prices for securities of comparable maturity, quality
and type. Short-term securities, with 60 days or less to maturity, are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held, on the 60th day, based on the value
determined on the 61st day.
Trading in securities on European securities exchanges and over-
the-counter markets is normally completed well before the close of the
business day in New York. Furthermore, trading may take place in a
foreign market on a Saturday or Sunday which is not a business day in New
York and on which the Fund's NAV is not calculated.
The calculation of NAV may not take place contemporaneously with
the determination of the prices of portfolio securities used in such
calculations. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the Fund's calculation of NAV
unless TWF's Board of Directors deems that the particular event would
materially affect the NAV, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies
are translated prior to the next determination of the NAV of the Fund's
shares into U.S. dollars at the prevailing market rates. The fair value of
all other assets is added to the value of securities to arrive at the total
assets.
The Fund's liabilities, including proper accruals of taxes and
other expenses, are deducted from its total assets and the net assets so
obtained are then divided by the total number of shares outstanding, and
the result, rounded to the nearer cent, is the NAV per share.
The Fund's management may compute its NAV per share more
frequently if necessary to protect shareholders' interests.
Any purchase order may be rejected by the Distributor or by the
Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
It is the policy of the Fund to distribute substantially all of
its net investment income and net realized capital gains, if any, shortly
before the close of the fiscal year (December 31st).
All dividend and capital gains distributions, if any, will be
reinvested in full and fractional shares based on NAV (without a sales
charge) as determined on the ex-dividend date for such distributions.
Shareholders may, however, elect to receive all such payments, or the
dividend or distribution portion thereof, in cash, by sending written
notice to this effect to the Transfer Agent. This written notice will be
effective as to any subsequent payment if received by the Transfer Agent
prior to the record date used for determining the shareholders' entitlement
to such payment. Such an election will remain in effect unless or until
the Transfer Agent is notified by the shareholder in writing to the
contrary.
The Fund must withhold 31% from dividends or redemptions that
occur in certain shareholder accounts if the shareholder has not properly
furnished a correct Taxpayer Identification Number or a properly completed
claim for exemption of IRS Form W-8 or W-9. Amounts withheld are applied
against the shareholder's tax liability and a refund may be obtained from
the Internal Revenue Service, if withholding results in overpayment of
taxes. A shareholder should contact the Fund or the Transfer Agent if
he/she is uncertain whether a proper Taxpayer Identification Number is on
file with the Transfer Agent.
Status As a "Regulated Investment Company": The Fund seeks to be
treated under the Internal Revenue Code of 1986 ("IRC") as a "regulated
investment company" for purposes of the IRC. To qualify for the tax
treatment afforded a "regulated investment company" under the IRC, the Fund
must annually distribute at least 90% of its investment company taxable
income and meet certain diversification of assets and other requirements of
the IRC. If the Fund qualifies for such tax treatment it will not be
subject to Federal income tax on the part of its ordinary income and its
net realized capital gains which are distributed to shareholders, provided
that it pays at least 98% of its investment company taxable income and net
capital gains in order to avoid any excise tax.
Distributions of Net Investment Income: Dividends from net
investment income (including net short-term capital gains) are taxable as
investment company taxable income to shareholders who are citizens and
residents of the United States. If, as anticipated, the Fund does not
receive any dividend income from U.S. corporations, dividends from the Fund
will not be eligible for the dividends received deduction allowed to
corporations. Dividends will be taxed for Federal income tax purposes in
the same manner, whether they are received as shares or in cash.
Net Realized Long-Term Capital Gains: Any distributions
designated as being made from the Fund's net realized long-term capital
gains will be taxable to shareholders who are citizens or residents of the
United States as long-term capital gains, regardless of the holding period
of the shareholders of the Fund's shares.
Foreign Tax Credit to Shareholders: Dividends and interests
received by the Fund may give rise to withholding and other taxes imposed
by foreign countries, generally at rates 10% to 40%. Tax conventions
between certain countries and the United States may reduce or eliminate
such taxes. Foreign countries generally do not impose taxes on capital
gains in respect of investments by non-resident investors.
If at the close of the Fund's fiscal year more than 50% of its
total assets consists of securities of foreign corporations, it will be
eligible to, and may, file elections with the Internal Revenue Service
pursuant to which its shareholders will be required to include its pro rata
portion as taxes paid by it, and deduct such pro rata portion in computing
its taxable income or, alternatively, use them as a foreign tax credit
against its United States income taxes.
Non-U.S. Shareholders: It is anticipated that the Fund, under
normal conditions, will derive more than 80% of its gross income from
sources outside the United States, so that dividends out of net investment
income and any distributions of net realized long-term capital gains to
shareholders who are non-resident aliens and foreign corporations and which
dividends are not effectively connected with their United States trade or
business, if any, will not be subject to United States Federal income tax.
Similarly, undistributed net realized long-term capital gains allocable to
such shareholders will not be included in their long-term gains from U.S.
sources, and such shareholders will be entitled to a refund or credit, as
the case may be, for the tax paid by the Fund on the undistributed gains.
In the event that 20% or more of the Fund's income is derived from U.S.
sources, distributions of net investment income to non-resident aliens and
foreign corporations (which are deemed to include, for this purpose, each
shareholder's pro rata share of foreign taxes paid by the Fund - see the
discussion above of the "pass through" of the foreign tax credit to U.S.
shareholders), will be subject to U.S. tax. For shareholders who are not
engaged in a trade or business in the U.S. to which the distribution is
effectively connected, this tax would be imposed at the rate of 30% upon
the gross amount of the distribution in the absence of a Tax Treaty
providing for a reduced rate or exemption from U.S. taxation.
Distributions of net long-term capital gains realized by the Fund are not
subject to tax unless the distribution is effectively connected with the
conduct of the shareholder's trade or business within the United States, or
the foreign shareholder is a non-resident alien individual who was
physically present in the U.S. during the tax year for more than 182 days.
General: Forward Contracts that are subject to section 1256 of
the Code (other than Forward Contracts that are part of a "mixed straddle")
("Section 1256 Forward Contracts") and that are held by the Fund at the end
of its taxable year generally will be required to be "marked to market" for
federal income tax purposes, that is deemed to have been sold at market
value. Sixty percent of any net gain or loss recognized on these deemed
sales and 60% of any net realized gain or loss from any actual sales of
section 1256 Forward Contracts, will be treated as long-term capital gain
or loss, and the balance will be treated as short-term capital gain or
loss.
Code section 988 also may apply to Forward Contracts and options
on foreign currencies. Under section 988, each foreign currency gain or
loss generally is computed separately and treated as ordinary income or
loss. In the case of overlap between sections 1256 and 988, special
provisions determine the character and timing of any income, gain, or loss.
The Fund attempts to monitor section 988 transactions to avoid any adverse
tax impact.
The foregoing is a general abbreviated summary of present Federal
income taxes on dividends and distribution. Investors are urged to consult
their own counsel for more detailed information and for information
regarding any state and local taxes applicable to dividends and
distributions received.
DIRECTORS AND OFFICERS
The following is a list of TWF's Directors and Officers and a brief
statement of their present positions and principal occupations during the
past five years.
*John Pasco, III;
Chairman, Director, and Treasurer
1500 Forest Ave, Suite 223; Richmond, VA 23229
Mr. Pasco is Treasurer and Director of Commonwealth Shareholder
Services, Inc., TWF's Administrator, since 1985. Director and
Shareholder of Fund Services, Inc., TWF's Transfer and Disbursing
Agent, since 1987. Mr. Pasco is also a certified public
accountant.
Samuel Boyd, Jr.
Director
10808 Hob Nail Court, Potomac, MD 20854
Mr. Boyd is presently the Manager of the Customer Services
Operations and Accounting Division of the Potomac Electric Power
Company. Mr. Boyd is also a certified public accountant.
William E. Poist
Director
5272 River Road, Bethesda, MD 20816
Mr. Poist is a financial and tax consultant through his firm
Management Consulting for Professionals. Mr. Poist is also a
certified public accountant.
Paul M. Dickinson
Director
8704 Berwickshire Drive, Richmond, VA 23229
Mr. Dickinson is presently the President of Alfred J. Dickinson,
Inc., Realtors.
*Edwin D. Walczak
Vice President of TWF and President of the Vontobel U.S. Value
Fund
450 Park Avenue, New York, N.Y. 10022
First Vice President and Chief Investment Officer of Vontobel USA
Inc. since July 1988. From 1984 to 1988 Mr. Walczak was an
institutional portfolio manager at Lazard Freres Asset Management,
New York.
*Sven Rump
Vice President of TWF and President of the Vontobel International
Bond Fund
Vice President of Vontobel USA Inc. since October 1993. Mr. Rump
is also a Vice President of Vontobel Asset Management,
Switzerland, and is responsible for managing fixed income mutual
funds. From October 1990 to October 1991 he was a Vice President
of Bank Vontobel (Switzerland) and a fixed income specialist for
the private banking group. From September 1988 to October 1990 he
was an Associate with J.P. Morgan Securities (Switzerland) Ltd.
Mr. Rump is a Chartered Financial Analyst.
*Fabrizio Pierallini
Vice President of TWF and President of the Vontobel EuroPacific
Fund
450 Park Avenue, New York, N.Y. 10022
Vice President of Vontobel USA Inc. since April 1994. From 1991
to 1994 Mr. Pierallini was Associate-Director/Portfolio Manager
with Swiss Bank Corporation in New York; from 1988 to 1991 he was
a Vice-President/Portfolio Manager with SBC Portfolio Management
Ltd. in Zurich, Switzerland; and from 1986 to 1988 he was an
Associate/Institutional Consultant with Bank Julius Baer in
Zurich, Switzerland.
*Arpad Pongracz
Vice President of TWF and President of the Vontobel Eastern
European Equity Fund
450 Park Avenue, New York, N.Y. 10022
Vice President of Vontobel USA Inc. since January 1996. Mr.
Pongracz joined Vontobel Asset Management, Switzerland, in 1990 as
an equity analyst. He was subsequently appointed portfolio
manager for all European equity institutional accounts and mutual
funds. Since 1995 he has been head of Vontobel Asset Management's
international equities team. Prior to joining the Vontobel group,
he worked at Union Bank of Switzerland in Canada and in
Switzerland as an equity analyst. Mr. Pongracz is a Chartered
Financial Analyst.
*F. Byron Parker, Jr.
Secretary
810 Lindsay Court, Richmond, VA 23229
Secretary of Commonwealth Shareholder Services, Inc. since 1986.
Partner in the Law Firm Mustian & Parker.
* Persons deemed to be "interested" persons of TWF, Vontobel USA Inc. or
First Dominion Capital Corp. under the Investment Company Act of 1940.
The directors and officers of TWF, as a group, do not own 1% or more of the
Fund. ______% of the shares of record are held by Bank J. Vontobel for
the benefit of its customers.
THE ADVISOR
Vontobel USA Inc. (the "Advisor") manages the investment of the
assets of the Fund pursuant to an Investment Advisory Agreement (the
"Advisory Agreement"). The Advisory Agreement is described in the Fund's
Prospectus.
The Advisory Agreement is effective for a period of two years from
February 14, 1996. The Advisory Agreement will be renewed thereafter only
so long as such renewal and continuance is specifically approved at least
annually by TWF's Board of Directors or by vote of a majority of the
outstanding voting securities of TWF, provided the continuance is also
approved by a majority of the Directors who are not "interested persons" of
TWF or the Advisor by vote cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement is terminable
without penalty on sixty days notice by TWF's Board of Directors or by the
Advisor. The Advisory Agreement provides that it will terminate
automatically in the event of its assignment.
The Advisor is a wholly owned subsidiary of Vontobel Holding Ltd.,
a Swiss bank holding company. TWF has designated Mr. Arpad Pongracz, a
Vice President of the Advisor, as a Vice President of TWF and President of
the Fund.
The Advisor is compensated at the annual rate of 1.25% of the
average daily net assets of the Fund on the first $500 million of assets
and at the annual rate of 1% of the average daily net assets of the Fund
over that level. This fee is subject to reduction in accordance with state
expense limitation provisions.
The Advisory Agreement contemplates the authority of the Advisor
to place Fund orders, pursuant to its investment determinations, either
directly with the issuer or with any broker or dealer. See "Allocation of
Portfolio Brokerage" below.
The address of the Advisor is 450 Park Avenue, New York, N.Y.
10022.
TRANSFER AGENT
Fund Services, Inc. ("FSI") is TWF's Transfer and Disbursing
Agent, pursuant to a Transfer Agent Agreement. The Transfer Agent
Agreement is dated September 1, 1987, and has been renewed each year
thereafter by the Board of Directors, including a majority of the directors
who are not interested persons of World Funds or the Transfer Agent.
John Pasco, III, Chairman of the Board of TWF and an officer and
shareholder of Commonwealth Shareholder Services, Inc. (the Administrator
of the Fund) owns one third of the stock of FSI, and, therefore, FSI may be
deemed to be an affiliate of TWF and Commonwealth Shareholder Services,
Inc. Pursuant to the Transfer Agent Agreement the minimum annual fee for
the Fund is $16,500.
ADMINISTRATOR
Commonwealth Shareholder Services, Inc. is the Fund's
Administrator pursuant to an Administrative Services Agreement described in
the Fund's Prospectus. The agreement is initially effective for one year
from its effective date, and may be continued thereafter only if the Board
of Directors, including a majority of the directors who are not interested
persons of TWF or the Administrator, approve the extension at least
annually.
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 the Fund 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.
DISTRIBUTION
Shares of the Fund are sold at net asset value on a continuous
basis, without a sales charge.
First Dominion Capital Corp. (the "Distributor"), 1500 Forest
Avenue, Suite 223, Richmond, VA 23229, is the Fund's principal underwriter
pursuant to a Distribution Agreement between TWF and the Distributor.
EXPENSES OF THE FUND
The Fund will pay its expenses not assumed by the Advisor,
including, but not limited to, the following: custodian; stock transfer and
dividend disbursing fees and expenses; taxes; expenses of the issuance and
redemption of Fund shares (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; and the cost
of stationery and forms prepared exclusively for the Fund.
The allocation of TWF's general expenses is made on a basis that
the Board of Directors deems fair and equitable, which may be based on the
relative net assets of each series of TWF or the nature of the services
performed and relative applicability to each series.
Under the Advisory Agreement, the Advisor agreed to reimburse the
Fund if its annual ordinary operating expenses exceed the most stringent
limits prescribed by any state in which the Fund's shares are offered for
sale. This expense limitation is calculable based on the Fund's aggregate
net assets. Expenses which are not subject to this limitation are
interest, taxes and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities,
which are capitalized in accordance with generally accepted accounting
principles applicable to investment companies, are accounted for as capital
items and not as expenses. Reimbursement, if any, will be on a monthly
basis, subject to year-end adjustment and limited to the amount of the
advisory fee due from the Fund.
Investors should understand that the Fund's expense ratio can be
expected to be higher than that of investment companies investing in
domestic securities since the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Fund is higher.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, TWF 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 Fund's Prospectus to open your account.
Telephone Transactions: You may redeem shares or transfer into
another fund if you request this service at the time you complete the
initial Account Application. If you do not elect this 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 your 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 you request a telephone redemption or transfer, you will be
asked to respond to certain questions designed to confirm your identity as
a shareholder of record. Your cooperation with these procedures will
protect your account and the Fund from unauthorized transactions.
Invest-A-Matic Account: 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 your checking account for investment into your account. This 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 the Transfer Agent. This feature
requires a separate Plan application, in addition to the Account
Application. To obtain an application, or to receive more information,
please call the 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 (or $2,250 with a spouse who is not a wage
earner). 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. Your 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 lump sum contribution and on any income that is earned on
that contribution.
How to Establish Retirement Accounts: Please call TWF to obtain
information regarding the establishment of individual retirement plan
accounts. The plan 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 advisor
for specific advice concerning your tax status and plans.
Exchange Privilege: Shareholders may exchange shares of the Fund
for shares of any other series of TWF, provided the shares of the fund the
shareholder is exchanging into are registered for sale in the shareholders
state of residence. Each account must meet the minimum investment
requirements (currently $1,000). Exchange Privilege Authorization Forms
are available by calling TWF's offices. Your special authorization form
must have been completed and must 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. However, an investment dealer or the Principal
Underwriter who has been authorized by a shareholder in writing acceptable
to and delivered to the Principal Underwriter, to make exchanges of Fund
shares on behalf of the shareholder may place exchange orders with the
Principal Underwriter by telephone or in writing without a signature
guarantee, or simply call the Transfer Agent at (800) 628-4077 before noon
(Eastern Time). Your exchange will take effect as of the next determination
of the net asset value per share of each fund involved (usually at the
close of business on the same day). The Transfer Agent will charge your
account a $10.00 service fee each time you make such an exchange. TWF
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 TWF determine that it would be in the best interest
of its shareholders to do so. An exchange constitutes the sale of the
shares of one fund and the purchase of those of the second fund.
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.
ALLOCATION OF PORTFOLIO BROKERAGE
It is the Fund's policy to seek the best possible price and
execution for its securities transactions taking into account both the
costs and the ability to complete the order in a manner which will achieve
the Fund's goals. After a purchase or sale decision is made by the
Advisor, the Advisor then arranges for execution of the transaction in a
manner deemed to provide the best result 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.
While there is no formula, agreement or undertaking to do so, the
Fund may allocate a portion of its brokerage commissions to persons or
firms providing the Advisor with investment recommendations, statistical,
research or similar services useful to the daily operation of the Fund or
other clients of these persons. Such services are one of the many ways the
Fund and its Advisor can keep abreast of the information generally
circulated among institutional investors by broker-dealers. While this
information is useful in varying degrees, its value is indeterminable.
Such services received on the basis of transactions for the Fund may be
used by the Advisor for the benefit of other clients, and the Fund may
benefit from such transactions effected for the benefit of other clients.
Subject to 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 Advisor is authorized to place Fund transactions with a
broker-dealer with which it is affiliated (Vontobel Securities, Ltd.)
provided that Vontobel Securities, Ltd. stands ready to demonstrate to TWF
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 offered to unaffiliated persons by that broker-dealer,
in each case on transactions of a like size and nature. In this regard,
TWF's Board of Directors has adopted policies and procedures which govern
such allocation of brokerage transactions, and the Board reviews at its
meetings details of all transactions which have been placed pursuant to
those policies.
When two or more funds managed by the Advisor are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated in a manner deemed equitable to each fund. It is recognized that
in some cases the 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, it is believed that the ability of the Fund to participate in
volume transactions will be beneficial for the Fund. It is the opinion of
the Board of Directors that these advantages, when combined with the other
benefits available because of the Advisor's organization, outweigh the
disadvantages that may be said to exist from exposure to simultaneous
transactions.
GENERAL INFORMATION AND HISTORY
TWF is authorized to issue up to 500,000,000 shares of $0.01 par
value common stock, of which it has presently allocated 50,000,000 shares
to the Fund, 50,000 to the Vontobel EuroPacific Fund series, 50,000,000 to
the Vontobel U.S. Value Fund series, 50,000,000 to the Vontobel
International Bond Fund series, and 50,000,000 to the Sand Hill Portfolio
Manager Fund series. The Board of Directors can allocate the remaining
authorized but unissued shares to any series or may create additional
series and allocate shares to such series. Each series is required to have
suitable investment objectives, policies and restrictions, to maintain a
separate portfolio of securities suitable to its purposes, and to generally
operate in the manner of a separate investment company as required by the
Investment Company Act of 1940.
If additional series were to be formed, the rights of existing Fund
shareholders would not change, and the Fund's objective, policies and
investments would not be changed. A share of the Fund would continue to
have a priority in the assets of the Fund in the event of a liquidation.
The shares of the Fund when issued will be fully paid and non-
assessable, will have no preference over other shares of the Fund as to
conversion, dividends, or retirement, and will have no preemptive rights.
The shares of the Fund will be redeemable from the assets of the Fund at
any time at a shareholder's request at the current net asset value
determined in accordance with the provisions of the Investment Company Act
of 1940 and the rules thereunder. TWF's general corporate expenses
(including administrative expenses) will be allocated among the series in
proportion to net assets or as determined in good faith by the Board of
Directors.
The advisory fees payable to the Advisor by the Fund and the Fund's
expense limitation guarantee formula will be based upon the Fund's assets.
The Fund's shareholders will have the right to choose or remove the Advisor
of the investments of the Fund.
Voting and Control - Each outstanding share of TWF is entitled to one
vote for each full share of stock and a fractional share of stock. All
shareholders vote on matters which concern the corporation as a whole.
Election of Directors or ratification of the auditor are examples of
matters to be voted upon by all shareholders. TWF is not required to hold
a meeting of shareholders each year. TWF intends to hold annual meetings
when it is required to do so by the Maryland General Corporate Law or the
Investment Company Act of 1940. Shareholders have the right to call a
meeting to consider the removal of one or more of the Directors and will be
assisted in shareholder communication in such matter.
The Fund shall vote separately on matters (1) when required by the
General Corporation Law of Maryland, (2) when required by the Investment
Company Act of 1940 and (3) when matters affect only the interest of the
Fund. An example of a matter affecting only the Fund might be a proposed
change in an investment restriction. The shares will 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.
Limitation on Use of Name - The Advisory Agreement authorizes TWF to
utilize the name "Vontobel." TWF agrees that if the Advisory Agreement
were to terminate it will promptly redesignate the Fund's name to eliminate
any reference to the name "Vontobel" or any derivation thereof unless the
Advisor waives this requirement in writing.
Code of Ethics - TWF has adopted a Code of Ethics which imposes
certain restrictions on the authority of the portfolio manager and certain
other personnel of the Fund and its advisors governing personal securities
activities and investments of those persons and has instituted procedures
to its Code of Ethics to require such investment personnel to report such
activities to the compliance officer.
PERFORMANCE
Current yield and total return are the two primary methods of
measuring investment performance. Occasionally, however, the Fund may
include its distribution rate in sales literature. Yield, in its simplest
form, is the ratio of income per share derived from the Fund's portfolio
investments to a current maximum offering price expressed in terms of
percent. The yield is quoted on the basis of earnings after expenses have
been deducted. Total return, on the other hand, is the total of all income
and capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price. The
distribution rate is the amount of distributions per share made by the Fund
over a twelve-month period divided by the current maximum offering price.
Generally, performance quotations by investment companies are
subject to certain rules adopted by the Securities and Exchange Commission.
These rules require the use of standardized performance quotations, or
alternatively, that every non-standardized performance quotation furnished
by the Fund be accompanied by certain standardized performance information
computed as required by the Commission. Current yield and total return
quotations used by the Fund are based on the standardized methods of
computing performance mandated by the Commission.
As indicated below current yield is determined by dividing the net
investment income per share earned during the period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholder during the 30 day base period. According to the new Securities
and Exchange formula:
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.
As the following formula indicates, the average annual total
return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and
reinvested) for the stated period less any fees charged to all shareholder
accounts and annualizing the result. The calculation assumes that all
dividends and distributions are reinvested on the reinvestment dates during
the period. The quotation assumes the account was completely redeemed at
the end of each one, five and ten year period and the deduction of all
applicable charges and fees. According to the Securities and Exchange
Commission formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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).
Sales literature pertaining to the Fund may quote a distribution
rate in addition to the yield or total return. The distribution rate is
the amount of distributions per share made by the Fund over a twelve-month
period divided by the current maximum offering price. The distribution
rate differs from the yield because it measures what the Fund paid to
shareholders rather than what the Fund earned from investments. It also
differs from the yield because it may include dividends paid from premium
income from option writing, if applicable, and short-term capital gains in
addition to dividends from investment income. Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to
annualize the distributions paid over the period such policies were in
effect, rather than using the distributions paid during the past twelve
months.
Occasionally statistics may be used to specify the Fund's
volatility or risk. Measures of volatility or risk are generally used to
compare the Fund's net asset value or performance relative to a market
index. One measure of volatility is beta. Beta is the volatility of a
fund relative to the total market as represented by the Standard & Poor's
500 Stock Index. A beta of more than 1.00 indicates volatility greater
than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of net asset
value or total return around an average, over a specified period of time.
The premise is that greater volatility connotes greater risk undertaken in
achieving performance.
Sales literature referring to the use of the Fund as a potential
investment for Individual Retirement Accounts (IRAs), Business Retirement
Plans, and other tax-advantaged retirement plans may quote a total return
based upon compounding of dividends on which it is presumed no federal
income tax applies.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
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 yield, total return, or volatility as reported by various
financial publications. Advertisements may also compare yield, total
return, or volatility (as calculated above) to yield, 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, and Money magazines - rates 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.
In assessing such comparisons of yield, 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 this performance as compared to such
other averages.
FINANCIAL STATEMENTS
The Fund's books will be audited at least once each year by Tait,
Weller and Baker, of Philadelphia, PA, independent public accountants. The
Annual Report to Shareholders is incorporated by reference to this
Statement of Additional Information.
<PAGE>
Advisor: Vontobel USA Inc.
450 Park Ave.
New York, N.Y. 10022
Distributor: First Dominion Capital Corp.
1500 Forest Ave., Suite 223
Richmond, VA 23229
Independent Auditors: Tait, Weller & Baker
2 Penn Center Plaza
Suite 700
Philadelphia, PA 19102
Marketing Services: For general information on the Fund and
Marketing Services, call the Distributor
at (800) 527-9500 Toll Free.
Transfer Agent: For account information, wire purchase or
redemptions, call or write to TWF's Transfer
Agent:
Fund Services, Inc.
P.O. Box 26305
Richmond, VA 23260
(800) 628-4077 Toll Free
More Information: For 24 hour, 7 days a week price
information call 1-800-527-9500.
For information on any series of
TWF, investment plans, or other
shareholder services, call TWF at 1-
800-527-9500 during normal business
hours, or write TWF at 1500
Forest Avenue, Suite 223,
Richmond, VA 23229.
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