ANNUAL REPORT
CSI EQUITY FUND
CSI FIXED INCOME FUND
ANNUAL REPORT
FOR THE PERIOD ENDED
AUGUST 31, 1998
September 17, 1998
RE: CSI Equity Fund and CSI Fixed Income
Annual Report
Dear Shareholder:
As has been said many times, timing is everything (at least over the short
term). Our first fiscal year ended on August 31, 1998, the date that marked the
second largest daily point decline in the history of the U.S. stock market. For
the first time since 1990, we have witnessed a decline of over 20% in the major
domestic indexes (Dow Jones Industrial Average, Standard & Poors 500, etc.) As
we warned in our last report, this was not unexpected.
For most of the U.S. stock market, the decline in prices has been more
severe than the major averages would indicate. From its peak this year, the
Russell 2000 Index (which measures the stock prices of the 2,000 companies that
are ranked 1,001 through 3,000) is down over 30%. This is one of the three worst
performances in its 20 year history. For the year ending August 31, 1998, the
average NASDAQ stock is down an all-time record 48% from its 52-week high, while
the average price of the 500 stocks composing the S&P 500 Index is down 30% from
its 52-week high. This is also one of its largest drops in the last 50 years.
During the first eight months of 1998, declines in many equity markets
around the world have been substantial, with the exception of some of the
European markets. The Latin American equity markets are down approximately 45%
this year, while the Pacific equity markets (not including Japan are down
approximately 30%, and Japan itself is down almost 20%
In this environment, stock selection will become increasingly important as
stock prices should reflect the financial performance of individual companies,
as opposed to market trends in general. We believe companies that maintain their
earnings in the face of more difficult times will retain their values and
perform better than those whose earnings fluctuate significantly and show less
stability. We have constructed our portfolio with this in mind and believe our
equity fund reflects this as it has experienced less of a decline from its high
than the indexes referred to above. As the world situation stabilizes, we look
to a resumption of growth in general and in the stocks held in the CSI Equity
Fund in particular.
Sincerely,
Leland H. Faust
[GRAPH GOES HERE]
CSI EQUTY FUND LIPPER GLOBAL
FUNDS INDICES
10/15/97 $10,000 $10,000
08/31/98 $9,880 $9,202
Schedule of Portfolio Investments
August 31, 1998
Number Market
of Shares Description Value
Common Stocks: 93.03%
Airlines: 2.07%
17,917 KLM Royal Dutch Air $550,948
Banking: 6.32%
4,400 Citicorp 475,750
10,400 Deutsche Bank ADR 646,936
10,200 Ing Groep N.V. ADR 555,900
1,678,586
Beverages: 5.41%
22,500 Heineken N.V. ADR 988,146
16,200 Pepsico Inc 448,538
1,436,684
Chemicals: 9.70%
17,500 Bayer A.G. ADR 656,927
10,100 Du Pont (E.I.) De Nemours 582,644
12,200 Hoechst AG ADR 482,663
8,200 Minnesota Mining and Manufacturing Co. 561,700
3,400 Rohm and Haas Co. 293,463
2,577,397
Computer and Peripherals: 4.80%
23,100 Compaq Computer Corp. 645,356
7,700 Cisco Systems, Inc.* 630,437
1,275,793
Computer Software and Services: 2.52%
10,500 Automatic Data Processing 669,375
Drug and Medical: 7.69%
19,000 Abbott Laboratories 731,500
10,000 Johnson & Johnson 690,000
8,000 Novartis A.G. ADR 621,982
2,043,482
Electronics/Equipment: 10.57%
12,700 Emerson Electric Co. 723,900
12,400 Hewlett-Packard Co. 602,175
11,200 Nokia Corp. ADR 748,300
11,300 Siemens ADR 733,678
2,808,053
Food: 10.78%
17,300 Diageo PLC ADR 654,156
17,900 Groupe Danone ADR 908,425
8,200 Nestle S.A. ADR 760,276
12,000 Sarah Lee Corp 543,000
2,865,857
Household: 6.26%
9,600 International Flavors and Fragrances 372,000
15,300 Kimberly-Clark Corp. 583,313
11,200 Unilever N.V. 709,800
1,665,113
Insurance: 6.40%
16,100 AXA ADR 874,431
1,340 Zurich Insurance ADR 827,048
1,701,479
Metals: 1.95%
15,800 Crown Cork & Seal Co., Inc. 517,450
Oil: 5.14%
8,900 Chevron Corp. 659,156
6,700 Repsol S.A. ADR 294,381
9,400 Schlumberger 411,838
1,365,375
Retail: 3.96%
10,500 Borders Group Inc* 198,844
22,200 Home Depot Inc. 854,700
1,053,544
Semi-Conductors: 4.29%
8,700 Intel Corp. 619,331
10,000 S G S Thompson* 521,875
1,141,206
Telecommunications: 3.27%
7,400 Airtouch Communications, Inc* 416,250
18,400 Corning Inc. 453,100
869,350
Transportation: 1.90%
10,100 FDX Corporation* 505,631
Total Common Stocks:
(Cost: $26,708,048) 24,725,323
Short Term Investments: 6.74%
1,790,590 Star Treasury Fund
(Cost: $1,790,590) 1,790,590
Total Investments:
(Cost: $28,498,638)** 99.77% 26,515,913
Other assets, net 0.23% 60,330
NET ASSETS 100.00%$26,576,243
* Non-income producing
**Cost for Federal income tax purposes is $28,498,638 and net unrealized
depreciation consists of:
Gross unrealized appreciation 1,607,662
Gross unrealized depreciation (3,590,387)
Net unrealized depreciation $(1,982,725)
ADR- Security represented is held by the custodian bank in the form of American
Depository Receipts.
See Notes to Financial Statements
CSI EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
ASSETS
Investments at value(identified
cost of $28,498,638) (Notes 1 & 3) $26,515,913
Receivables:
Dividend $ 43,287
Interest 4,287
47,574
Deferred organization cost (Note 1) 43,208
TOTAL ASSETS 26,606,695
LIABILITIES
Investment management fees 24,784
Accrued expenses 5,668
TOTAL LIABILITIES 30,452
NET ASSETS $26,576,243
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($26,576,243 / 2,691,260 shares outstanding) $ 9.88
At August 31, 1998 there were 50,000,000 shares of $.01
par value stock authorized and components of net assets are:
Paid in capital $28,498,033
Accumulated net realized gain on investments 121
Undistributed net investment income 60,814
Net unrealized depreciation of investments (1,982,725)
Net Assets $26,576,243
See Notes to Financial Statements
CSI EQUITY FUND
STATEMENT OF OPERATIONS
For the period ended August 31, 1998*
INVESTMENT INCOME:
Dividend $239,290
Interest 36,444
Total income $275,734
EXPENSES:
Investment management fees (Note 2) 42,044
Recordkeeping and administrative services 33,589
Custodian fees 13,824
Legal fees 2,423
Shareholder service and reports 2,598
Registration fees 2,943
Transfer agent fees 7,384
Organization expense amortization 5,332
Other expenses 5,817
Total expenses 215,954
Custodian fee waiver (Note 3) (1,034)
Net expenses 214,920
Net investment income 60,814
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on investments 121
Net unrealized depreciation on investments (1,982,725)
Net loss on investments (1,982,604)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,921,790)
*Commencement of operations October 15, 1997
See Notes to Financial Statements
CSI EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
Period
Ended
August 31,
1998*
OPERATIONS
Net investment income $ 60,814
Net realized gain on investments 121
Change in unrealized depreciation of investment (1,982,725)
Net decrease in net assets resulting from operations (1,921,790)
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income ($.-- per share) --
Capital gains ($.-- share) --
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share
transactions** 28,498,033
Net increase in net assets 26,576,243
Net assets at beginning of period --
NET ASSETS at the end of the period $26,576,24
** A summary of capital share transactions follows:
Period ended
August 31,1998*
Shares Value
Shares sold 2,758,858 $ 29,304,147
Shares reinvested from dividends -- --
Shares redeemed (67,598) (806,114)
Net increase 2,691,260 $ 28,498,033
*Commencement of operations October 15, 1997
See Notes to Financial Statements
CSI EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended
August 31,1998*
Per Share Operating Performance
Net asset value, beginning of period $10.00
------
Income from investment operations-
Net investment income 0.02
Net realized and unrealized loss on (0.14)
-----
Total from investment operations (0.12)
-----
Less distributions-
Distributions from net investment in --
Distributions from capital gains --
------
Total distributions --
------
Net asset value, end of period $9.88
=====
Total Return (1.20%)
Ratios/Supplemental Data
Net assets, end of period (000's) $26,576
Ratio to average net assets-
Expenses (A) 1.50%**
Expenses-net (B) 1.49%**
Net investment income 0.42%**
Portfolio turnover rate 8.16%
* Commencement of operations October 15, 1997
** Annualized
(A) Expense ratio has been increased to include custodian fees which were
offset by custodian credits.
(B) Expense ratio - net reflects the effect of the custodian fee credits
the fund received.
See Notes to Financial Statements
Notes to the Financial Statements
August 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES --- The CSI Equity 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 1997 as a series of TWF
which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The objective of the Fund is to achieve growth of capital by investing in a
portfolio composed of common stocks and securities convertible into common
stocks, such as, warrants, convertible bonds, debentures or convertible
preferred stock. In seeking to meet its objective, the Fund will invest on a
global basis.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments traded on stock exchanges are valued at
the last quoted sales price on the exchange on which the securities are
traded as of the close of business on the last day of the period or,
lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued
on the exchange designated by or under the authority of the Fund's Board of
Directors. Securities traded in the over-the-counter market are valued at
the last available sale price in the over-the-counter market prior to time
of valuation. Temporary investments in U.S. dollar denominated short-term
investments are valued at amortized cost, which approximates market.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the closing price on the exchange on which they are
traded, and those values are then translated into U.S. dollars at the
current exchange rate.
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 provision for federal income taxes is required.
C. Security Transactions and Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is determined
generally on a first-in, first-out basis. Dividends are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to
U.S. dollars based on the exchange rates at the end of the period. The
cost of such holdings is determined using historical exchange rates.
Income and expenses are translated at approximate rates prevailing when
accrued or incurred. Foreign securities and currency transactions may
involve certain considerations and risks not typically associated with
those of domestic origin.
E. Distribution to Shareholders. Distributions from 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 differences are primarily due to differing
treatments for foreign currency transactions, net operating losses and
post-October capital and currency losses.
F. Use of 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.
G. 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 The CSI Equity Fund are being amortized over a period of
fifty-five (55) months from March 1998.
NOTE 2 - INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER-
Pursuant to an Investment Advisory Agreement, the Advisor, CSI Capital
Management, Inc. ("CSI") provides investment services for an annual fee of
1.00% of average daily net assets of the Fund.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $34,549 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives 0.20% of average daily net assets of the Fund on the
first $50 million, 0.15% per annum of the average daily net assets from $50
million to $100 million, and 0.10% per annum of the average daily net assets
over $100 million, with a minimum fee of $15,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $7,384 for its services for the period ended August 31,
1998.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3 - INVESTMENTS/CUSTODY- Purchases and sales of securities other than
short-term notes aggregated $28,514,172 and $1,806,246, respectively. The
custodian has provided credits in the amount of $1,034 against custodian
charges based on credits on uninvested cash balances of the Fund.
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Inc.
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
CSI Equity Fund, a series of The World Funds, Inc., including the schedule of
portfolio investments as of August 31, 1998, and the related statements of
operations, changes in net assets and financial highlights for the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
CSI Equity Fund as of August 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the period then
ended, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 25, 1998
[GRAPH GOES HERE]
CSI FIXED LIPPER INTERMEDIATE
INCOME INVESTMENT INDICE
01/27/98 $10,000 $10,000
08/31/98 $10,480 $10,478
Schedule of Portfolio Investments
August 31, 1998
Principal Market
Amount Description Value
U.S. Government Securities: 91.68%
Matures in 1-5 Years: 35.43%
$2,000,000 U.S. Treasury Note 5.625%; November 30, 1999 $ 2,012,500
2,000,000 U.S. Treasury Note 6.875%; March 31, 2000 2,055,000
750,000 U.S. Treasury Note 5.625%; May 15, 2001 764,766
2,500,000 U.S. Treasury Note 5.25%; January 31, 2001 2,515,625
2,500,000 U.S. Treasury Note 5.75%; October 31, 2002 2,566,407
2,000,000 U.S. Treasury Note 6.25%; February 15, 2003 2,096,876
12,011,174
Matures in 6-10 Years: 37.05%
2,500,000 U.S. Treasury Note 7.25%; August 15, 2004 2,778,125
2,250,000 U.S. Treasury Note 6.50%; May 15, 2005 2,431,406
3,250,000 U.S. Treasury Note 5.875%; November 15, 2005 3,402,344
1,750,000 U.S. Treasury Note 5.625%; February 15, 2006 1,806,875
2,000,000 U.S. Treasury Note 6.125%; August 15, 2007 2,140,626
12,559,376
Matures in Over 10 Years: 19.20%
5,750,000 U.S. Treasury Note 6.00%; February 15, 2026 6,213,594
250,000 U.S. Treasury Note 6.75%; August 15, 2026 296,719
6,510,313
Total U.S. Government Securities:
(Cost:$30,205,852) 31,080,863
Short Term Investment: 7.37%
2,498,039 Star Treasury Fund 2,498,039
(Cost:$2,498,039)
Total Investments:
(Cost:$32,703,891)* 99.05% $33,578,902
Other assets, net 0.95% 321,423
NET ASSETS 100.00% $33,900,325
* Cost for Federal income tax purposes is $32,703,891 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 875,011
Gross unrealized depreciation --
Net unrealized appreciation $ 875,011
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
ASSETS
Investments at value (identified cost of
$32,703,891) (Notes 1&3) $33,578,902
Interest receivable 303,169
Deferred organization costs (Note 1) 43,295
TOTAL ASSETS 33,925,366
LIABILITIES
Investment management fees 13,632
Accrued expenses 11,409
TOTAL LIABILITIES 25,041
NET ASSETS $ 33,900,325
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($33,900,325 / 3,233,768 shares outstanding) $10.48
At August 31, 1998 there were 50,000,000 shares
of $.01 par value stock authorized and
components of net assets are:
Paid in capital $32,311,230
Undistributed net investment income 714,084
Net unrealized appreciation of investments 875,011
Net Assets $33,900,325
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF OPERATIONS
For the period ended August 31, 1998*
INVESTMENT INCOME:
Interest $ 878,228
EXPENSES:
Investment management fees (Note 2) $ 164,495
Recordkeeping and administrative services 38,803
Custody fees 12,488
Legal fees 2,189
Shareholder servicing and reports 2,201
Registration fees 3,179
Transfer agent fees 7,464
Organization expense amortization 5,245
Other expenses 11,594
Total expenses 247,658
Management fee waiver (Note 2) (83,263)
Custodian fee waiver (Note 3) (251)
Net expenses 164,144
Net investment income 714,084
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net increase in unrealized gain on investments 875,011
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,589,095
* Commencement of operations January 27, 1998
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Period
ended
August 31,1998*
OPERATIONS
Net investment income $ 714,084
Change in unrealized appreciation of investments 875,011
Net increase in net assets resulting from
operations 1,589,095
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.-- per share) --
Capital gains ($.-- per share) --
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital
share transactions** 32,311,230
Net increase in net assets 33,900,325
Net assets at beginning of period --
NET ASSETS at the end of the period $33,900,325
** A summary of capital share transactions follows:
Period ended
August 31,1998*
Shares Value
Shares sold 3,708,324 $ 37,115,913
Shares reinvested from dividends -- --
Shares redeemed (474,556) (4,804,683)
Net increase 3,233,768 $ 32,311,230
*Commencement of operations January 27, 1998
See Notes to Financial Statements
CSI FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended
August 31,1998*
Per Share Operating Performance
Net asset value, beginning of period $10.00
------
Income from investment operations-
Net investment income 0.22
Net realized and unrealized gain on investment 0.26
----
Total from investment operations 0.48
Less distributions-
Distributions from net investment income --
Distributions from capital gains --
----
Total distributions --
----
Net asset value, end of period $10.48
======
Total Return 4.80%
Ratios/Supplemental Data
Net assets, end of period (000's) $33,900
Ratio to average net assets - (A)
Expenses (B) 1.51%**
Expenses- net (C) 1.00%**
Net investment income 4.34%**
Portfolio turnover rate 0.00%
* Commencement of operations January 27, 1998
** Annualized
(A) Management Fee waivers reduced the expense ratios and increased the
net
investment income ratio by .50%
(B) Expense ratios have been increased to include custodian fees which
were
offset by custodian credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers
and
the custodian fee credits the fund received.
See Notes to Financial Statements
Notes to the Financial Statements
August 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES --- The CSI Fixed Income 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 1997 as a series of TWF
which has allocated to the Fund 50,000,000 of its 500,000,000 shares of $.01
par value common stock.
The objective of the Fund is to seek current income by investing in debt
securities. The Fund seeks to achieve its objective by investing in
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities, and instrumentalities ("U.S. Government Securities"), municipal
securities, corporate debt securities, zero coupon bonds, as well as
obligations of governments, instrumentalities and corporations outside the
U.S.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
H. Security Valuation. Money market investments with a remaining maturity
of less than sixty days are valued using the amortized cost method; debt
securities are valued by appraising them at prices supplied by a pricing
agent approved by the Fund, whose prices may reflect broker-dealer supplied
valuations and electronic data processing techniques and are representative
of market values at the close of the exchange.
I. 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 provision for federal income taxes is required.
J. Security Transactions and Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is determined
generally on a first-in, first-out basis. Interest income is recorded on
an accrual basis.
K. Distribution to Shareholders. Distributions from 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 differences are primarily due to net
operating losses and post-October capital and currency losses.
L. Use of 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.
M. 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 The CSI Fixed Income Fund are being amortized over a period of
fifty-five (55) months from March 1998.
NOTE 2 - INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER-
Pursuant to an Investment Advisory Agreement, the Advisor, CSI Capital
Management, Inc. ("CSI") provides investment services for an annual fee of
1.00% of average daily net assets of the Fund.
CSI has voluntarily agreed to waive all or a portion of its fees in order to
limit operating expenses to 1.00% of average net assets. Fee waivers are
voluntary and may be terminated at any time. For the period ended August 31,
1998, fees waived were $83,263.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $39,366 for
providing shareholder services, recordkeeping, administrative services and
blue-sky filings. The Fund compensates CSS for blue-sky and certain
shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives 0.20% of average daily net assets of the Fund on the
first $50 million, 0.15% per annum of the average daily net assets from $50
million to $100 million, and 0.10% per annum of the average daily net assets
over $100 million, with a minimum fee of $15,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $7,464 for its services for the period ended August 31,
1998.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3 - INVESTMENTS/CUSTODY- Purchases of securities other than short-term
notes aggregated $30,267,832. The custodian has provided credits in the
amount of $251 against custodian charges based on credits on uninvested cash
balances of the Fund.
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Inc.
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
CSI Fixed Income Fund, a series of The World Funds, Inc., including the
schedule of portfolio investments as of August 31, 1998, and the related
statements of operations, changes in net assets and financial highlights for
the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
CSI Fixed Income Fund as of August 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the period
then ended, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 25, 1998
