Semi-Annual Report to Shareholders
SAND HILL PORTFOLIO MANAGER FUND
A Series of
The World Funds, Inc.
a "Series" Investment Company
For the Six Months Ended
June 30, 1998
<PAGE>
Schedule of Portfolio Investments
June 30, 1998 (Unaudited)
Number
of Market
Shares Security Value
------ -------- ------
COMMON STOCK: 94.37%
BASIC MATERIALS: 1.69%
2,455 Desc, SA De CV ADS $48,793
2,000 Hoechst AG ADR 99,250
-------
148,043
-------
CAPITAL GOODS: 6.77%
3,900 Avery Dennison 209,625
4,800 Dover 164,400
3,800 Johnson Controls 217,313
----- -------
591,338
-------
COMMUNICATION SERVICES: 3.41%
2,600 Ameritech 116,675
2,000 Airtouch Commun* 116,875
3,400 Hong Kong Telecom 64,175
----- ------
297,725
-------
CONSUMER CYCLICALS: 9.77%
2,500 Gap (The) 154,062
8,600 Leggett & Platt 215,000
5,300 Manpower 152,044
500 Matsushita Electric 80,375
4,500 Sherwin-Williams 149,063
1,200 Sony ADR 103,275
----- -------
853,819
-------
CONSUMER STAPLES: 11.85%
6,200 Conagra 196,462
2,000 Carlton Communic-ADS 90,000
3,700 Kimberly-Clark 169,738
2,800 Panamerican Beverage 88,025
800 Procter & Gamble 72,850
3,300 Sara Lee 184,594
2,000 Walgreen 82,625
2,500 Whole Foods Markets* 151,250
----- -------
1,035,544
---------
ENERGY: 9.14%
2,500 Atlantic Richfield 195,312
1,200 British Petroleum 105,900
2,400 Mobil 183,900
9,000 Nabors Industries* 178,313
2,500 Schlumberger 170,781
2,500 Western Atlas* 212,188
----- -------
1,046,394
---------
Number
of Market
Shares Security Value
------ -------- ------
FINANCIALS: 9.40%
10,000 Cheung Kong Hlds ADR 49,170
400 HSBC Hldgs Plc ADR* 97,824
3,400 MBIA 254,575
5,500 PXRE 165,000
4,600 Regions Financial 188,888
1,300 Banco de Santander ADS 65,894
----- ------
821,351
-------
HEALTHCARE: 13.27%
5,866 Astra AB 'A' ADR 120,253
2,900 Amgen* 189,587
3,500 Becton Dickinson 271,687
5,600 Manor Care 215,250
800 Roche Hldg ADR 78,560
3,100 Schering-Plough 284,038
----- -------
1,159,375
---------
REIT: 4.60%
4,900 Apartment Invst/Mgmt 193,550
5,000 Boston Properties 172,500
6,800 J P Realty 160,225
----- -------
526,275
-------
TECHNOLOGY: 16.98%
4,000 Adobe Systems 169,750
3,000 Applied Materials 88,500
3,600 3Com* 110,475
5,000 EMC Corp 224,062
4,400 Ericsson Tel ADR 125,950
3,400 Grainger (W.W.) 169,362
2,200 Hewlett-Packard 131,725
2,200 Intel 163,075
5,000 Sungard Data Systems* 191,875
2,500 Sun Microsystems* 108,594
----- -------
1,483,368
---------
UTILITIES: 2.11%
18,000 Hong Kong Electric ADR 55,751
4,600 Nipsco Industies 128,800
----- -------
184,551
-------
VARIOUS OTHER HOLDINGS: 1.12%
10,000 Webs Japan Index 98,125
------ ------
TOTAL COMMON STOCKS:
(Cost: $5,807,053) 8,245,908
---------- ---------
Principal
Amount U.S. GOVT. SECURITIES: 23.72%
- ------------ LONG TERM: 20.30%
$100,000 U.S. Treasury Note
maturity date 07/31/99; 5.875% 100,344
100,000 U.S. Treasury Note
maturity date 10/31/99; 7.5% 102,469
500,000 U.S. Treasury Note
maturity date 07/31/00; 6.125% 505,938
600,000 U.S. Treasury Note
maturity date 02/28/01; 5.625% 601,500
300,000 U.S. Treasury Note
maturity date 09/30/02; 5.875% 303,750
200,000 U.S. Treasury Note
maturity date 01/31/03; 5.5% 199,813
200,000 U.S. Treasury Note
maturity date 2/15/03; 6.25% 205,812
300,000 U.S. Treasury Note
maturity date 02/15/04; 5.875% 305,624
TOTAL LONG TERM
U.S. GOVERNMENT SECURITIES: 2,325,250
---------
(COST:$2,303,455)
SHORT TERM: 4.48%
150,000 U.S. Treasury Bill
maturity date 09/17/98 148,397
250,000 U.S. Treasury Bill
maturity date 01/07/99 243,337
-- -- -- -------
TOTAL SHORT TERM
U.S. GOVERNMENT SECURITIES: 391,734
(COST: $391,734) -------
TOTAL INVESTMENTS:
(Cost: $8,502,242)** 95.71% $10,962,892
Other assets, net 4.29% 491,895
---- -------
NET ASSETS 100.00% $11,454,787
====== ===========
*Non-income producing
**Cost for Federal income tax purpose is $8,502,242 and net
unrealized appreciation consists of:
Gross unrealized appreciation $ 2,635,598
Gross unrealized depreciation (174,948)
--------
Net unrealized appreciation $2,460,650
===========
ADR --- Security represented is held by the custodian bank in
the form of American Depository Receipts.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
ASSETS
Investments at value (identified cost of $8,502,242)
Notes 1 & 3) $ 10,962,892
Cash 430,206
Receivable:
Dividend and interest $ 59,647
Other assets 12,671 72,318
------ ------
TOTAL ASSETS 11,465,416
----------
LIABILITIES
Investment management fees 9,875
Accrued expenses 754
---
TOTAL LIABILITIES 10,629
------
NET ASSETS $ 11,454,787
============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($11,454,788 / 740,328 shares
outstanding) $ 15.47
============
At June 30, 1998 there were 50,000,000 shares of $.01
par value stock authorized and components of net
assets are:
Paid in capital $ 8,722,303
Accumlated net realized gain on investments 232,767
Undistributed net investment income 39,067
Net unrealized appreciation of investments 2,460,650
---------
Net Assets $ 11,454,787
============
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Six months ended June 30, 1998 (Unaudited)
INVESTMENT INCOME:
Interest $ 78,145
Dividend 63,200
------
Total income $141,345
--------
EXPENSES:
Investment advisory fees (Note 2) 56,416
Transfer agent fees (Note 2) 8,057
Custodian and accounting fees 2,898
Legal and audit fees 9,889
Registration fees 4,062
Recordkeeping and administrative services 12,094
Shareholding servicing and reports (Note 2 1,964
Organization expense amortization 3,538
Miscellaneous 8,273
-----
Total expenses 107,191
-------
Net investment income 34,154
------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 174,482
Net increase in unrealized appreciation on investments 443,867
-------
Net gain on investments 618,349
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $652,503
========
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
Six months Year
ended ended
June 30, 1998 December 31,
(Unaudited) 1997
----------------------
OPERATIONS
Net investment income $ 34,154 $ 57,124
Net realized gain on investments 74,482 265,654
Change in unrealized appreciation of investments 443,867 984,658
------- -------
Net increase in net assets resulting from
operations 652,503 1,307,436
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.-- and $.08 per share
respectively) -- (52,211)
Capital gains ($.-- and $.43 per share
respectively) -- (280,635)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital
share transactions* 236,167 3,132,102
------- ---------
Net increase in net assets 888,670 4,106,692
Net assets at beginning of period 10,566,117 6,459,425
---------- ---------
NET ASSETS at the end of the period (including
undistributed net investment income of $39,067
and $-- respectively) $11,454,787 $10,566,117
= =========== ===========
* A summary of capital share transactions follows:
Six months ended
June 30, 1998 Year ended
(Unaudited) December 31, 1997
Shares Value Shares Value
Shares sold 138,198 $ 1,485,186 240,636 $ 3,384,487
Shares reinvested from
Dividends -- -- 21,704 318,619
Shares redeemed (82,330) (1,249,019) (42,017) (571,004)
------- ---------- ------- --------
Net increase 55,868 $ 236,167 220,323 $ 3,132,102
====== ============= ======= ===========
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Six months ended Jan 2, 1995*
June 30, 1998 Year ended December 31 to
(Unaudited) 1997 1998 Dec 31, 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $14.57 $12.79 $11.11 $10.00
Income from investment operations-
Net investment income 0.04 0.09 0.14 0.06
Net realized and unrealized gain on investment 0.86 2.20 2.02 1.10
Total from investment operations 0.90 2.29 2.16 1.16
Less distributions-
Distributions from net investment income -- (0.08) (0.15) (0.05)
Distributions from capital gains -- (0.43) (0.33) 0.00
Total distributions 0.00 (0.51) (0.48) (0.05)
Net asset value, end of period (000's) $15.47 $14.57 $12.79 $11.11
Total Return 6.18% 17.87% 19.57% 11.60%
Ratios/Supplemental Data
Net assets, end of period (000's) $11,455 $10,566 $6,459 $4,025
Ratio to average net assets - (A)
Expenses (B) 1.90%** 2.08% 2.50% 3.03%**
Expense ratio - net (C) 1.90%** 1.90% 2.00% 1.90%**
Net investment income 0.61%** 0.71% 1.29% 0.52%**
Portfolio turnover rate 10.19% 16.48% 32.97% 40.96%
Average brokerage commission per share $0.0510 $0.0459 $0.0581 ---
<FN>
* Commencement of operations
** Annualized
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .64% in 1996 and 1.00% in 1995.
(B) Expense ratios has been increased to include custodian fees which were
offset by custodian credits.
(C) Expense ratio - net reflects the effect of the custodian fee credits the
fund received.
See Notes to Financial Statements
</FN>
</TABLE>
Sand Hill Portfolio Manager Fund
Notes to the Financial Statements
June 30, 1998 (Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Sand Hill Portfolio Manager Fund
(the "Fund") is a series of The World Funds, Inc. ("TWF") which is registered
under The Investment Company Act of 1940, as amended, as a diversified open-end
management company. The Fund was established in January 2, 1995 as a series of
TWF which has allocated to the Fund 50,000,000 shares of its 500,000,000 shares
of $.01 par value common stock. The following is a summary of significant
accounting policies consistently followed by the Fund. The policies are in
conformity with generally accepted accounting principles.
The investment objective of the Fund is to maximize total return by investing in
equity securities, debt securities and short term investments.
A. Security Valuation. 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 investments (securities with a remaining
maturity of sixty days or less) are valued at cost which, when combined with
accrued interest, approximates m arket value.
B. Federal Income Taxes. The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions and Dividends. As is common in the industry, security
transactions are accounted for on the trade date. Dividend income is recorded on
the ex-dividend date.
D. Deferred Organizational Expenses. All of the expenses of TWF incurred in
connection with its organization and the public offering of its shares have been
assumed by the series funds of TWF. The organization expenses allocable to Sand
Hill Portfolio Manager Fund are being amortized over a period of fifty-seven
(57) months.
E. Distributions to Shareholders. Distributions from net investment income and
realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences primarily result from different
treatments of equalization and post-October capital losses.
F. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
Investment Advisory Agreement, the Advisor, Sand Hill Advisors ("SHA") provides
investment services for an annual fee of 1.0% of the first $100 million of
average daily net assets and .75% on average daily net assets over $100 million.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $14,083 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky filings and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $8,057 for its services for the six months ended June 30,
1998.
Certain officers and/or directors of the Fund are also officers and/or directors
of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES--Purchases and sales of securities
other than short-term notes aggregated $1,558,090 and $818,935, respectively.
<PAGE>
Investment Advisor:
Sand Hill Advisors, Inc.
3000 Sand Hill Road
Building Three, Suite 150
Menlo Park, California 94025-7111
Distributor:
First Dominion Capital Corp.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
Independent Auditors:
Tait, Weller and Baker
Eight Penn Center Plaza
Suite 800
Philadelphia, Pennsylvania 19103
Transfer Agent:
For account information, wire purchase or redemptions, call or write to Sand
Hill's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
More Information:
For 24 hour, 7 days a week price information, and for information on
any series of The World Funds, Inc., investment plans, and other
shareholder services, call Commonwealth Shareholder Services at (800)
527-9500 Toll Free.
