Annual Report
To Shareholders
Sand Hill
Portfolio Manager
Fund
A Series of
The World Funds, Inc.
A "Series" Investment Company
Annual Report
For the Period Ended
August 31, 1998
[GRAPH GOES HERE]
Sand Hill
Portfolio Manager
Fund S&P 500
---------- ----------
01/01/95 $10,000.00 $10,000.00
12/31/95 $11,160.09 $13,758.00
12/31/96 $13,344.01 $16,918.21
12/31/97 $15,728.59 $22,520.50
08/31/97 $14,670.00 $14,670.00
Sand Hill Portfolio Manager Fund
Schedule of Portfolio Investments
August 31, 1998
Number
of Market
Shares Security Description Value
------- --------
COMMON STOCK: 57.56%
BASIC MATERIALS: 0.76%
2,000 Hoechst AG ADR $ 79,125
---------
CAPITAL GOODS: 4.85%
3,900 Avery Dennison Corp. 209,381
4,800 Dover Corp. 130,800
3,800 Johnson Controls Inc. 162,688
-------
502,869
-------
COMMUNICATION SERVICES: 2.81%
2,600 Ameritech Corp. 122,525
2,000 Airtouch Communications* 112,500
3,400 Hong Kong Telecom Ltd ADR 56,312
------
291,337
-------
CONSUMER CYCLICALS: 6.45%
2,500 Gap (The), Inc. 127,656
8,600 Leggett & Platt, Inc. 172,538
5,300 Manpower, Inc. 107,988
500 Matsushita Electric Ind. Co. ADR 68,656
4,500 Sherwin-Williams Co. 107,438
1,200 Sony ADR 84,825
------
669,101
-------
CONSUMER STAPLES: 8.53%
6,200 Conagra, Inc. 153,450
2,000 Carlton Communications PLC ADR 72,250
3,700 Kimberly-Clark Corp. 141,063
2,800 Panamerican Beverages Inc. 44,625
5,200 Pepsico Inc. 143,975
3,300 Sara Lee Corp. 149,325
2,000 Walgreen Co. 77,000
2,500 Whole Foods Markets* 103,437
-------
885,125
-------
ENERGY: 4.53%
1,200 British Petroleum ADR 87,750
2,400 Mobil Corp. 165,900
9,000 Nabors Industries* 106,312
2,500 Schlumberger Ltd 109,531
-------
469,493
-------
Number
of Market
Shares Security Description Value
FINANCIALS: 5.79%
400 HSBC Hldgs PLC ADR 84,912
3,400 MBIA Inc. 190,825
4,000 MGIC Investment Corp. 166,000
4,600 Regions Financial Corp. 159,275
-------
601,012
-------
HEALTHCARE: 8.62%
2,900 Amgen Inc.* 176,537
7,000 Becton Dickinson Co. 233,187
5,600 Manor Care Inc. 134,400
800 Roche Hldg ADR 82,774
3,100 Schering-Plough Corp. 266,600
-------
893,498
-------
REIT: 2.94%
4,900 Apartment Invst/Mgmt Co 167,825
6,800 J P Realty Inc. 136,850
-------
304,675
-------
TECHNOLOGY: 10.22%
3,600 3Com Corp.* 85,275
5,000 EMC Corp.* 225,937
4,400 Ericsson Tel ADR 94,050
3,400 Grainger (W.W.) Inc. 133,238
2,200 Hewlett-Packard Co. 106,837
2,200 Intel Corp. 156,613
5,000 Sungard Data Systems* 158,438
2,500 Sun Microsystems* 99,063
------
1,059,451
---------
UTILITIES: 1.30%
4,600 Nipsco Industries 134,550
-------
VARIOUS OTHER HOLDINGS: 0.76%
10,000 Webs Japan Index Series 78,750
------
TOTAL COMMON STOCKS:
(Cost: $5,038,510) 5,968,986
---------
Principal
Amount U.S. GOVT. SECURITIES: 26.55%
- ------------
LONG TERM: 22.74%
$100,000 U.S. Treasury Note
maturity date 07/31/99; 5.875% 100,594
100,000 U.S. Treasury Note
maturity date 10/31/99; 7.5% 102,594
500,000 U.S. Treasury Note
maturity date 07/31/00; 6.125% 510,469
600,000 U.S. Treasury Note
maturity date 02/28/01; 5.625% 609,188
300,000 U.S. Treasury Note
maturity date 09/30/02; 5.875% 309,094
200,000 U.S. Treasury Note
maturity date 01/31/03; 5.5% 203,687
200,000 U.S. Treasury Note
maturity date 2/15/03; 6.25% 209,688
300,000 U.S. Treasury Note
maturity date 02/15/04; 5.875% 312,375
-------
TOTAL LONG TERM
U.S. GOVERNMENT SECURITIES: 2,357,689
---------
(COST:$2,302,857)
SHORT TERM: 3.81%
150,000 U.S. Treasury Bill
maturity date 09/17/98; 5.20% 149,657
250,000 U.S. Treasury Bill
maturity date 01/07/99; 4.75% 245,715
-------
TOTAL SHORT TERM
U.S. GOVERNMENT SECURITIES: 395,372
-------
(COST: $395,249)
TOTAL INVESTMENTS:
(Cost: $7,736,616)** 84.11% $ 8,722,047
Other assets, net 15.89% 1,647,847
----- ---------
NET ASSETS 100.00% $10,369,894
====== ===========
*Non-income producing
**Cost for Federal income tax purpose is $7,736,616 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 1,495,720
Gross unrealized depreciation (510,289)
--------
Net unrealized appreciation $ 985,431
===========
ADR --- Security represented is held by the custodian bank in the form
of American Depository Receipts
See Notes to Financial Statements
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
ASSETS
Investments at value (identified cost of $7,736,616)
(Notes 1 & 3) $ 8,722,047
Cash 1,245,085
Receivable for:
Dividends and interest $ 26,496
Investment securities sold 326,904
Capital stock sold 50,000
------
403,400
Deferred organization costs (Note 1) 11,505
Other assets 3,000
-----
TOTAL ASSETS 10,385,037
----------
LIABILITIES
Investment management fees 9,843
Accrued expenses 5,300
TOTAL LIABILITIES 15,143
------
NET ASSETS $10,369,894
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($10,369,894 / 763,003 shares
outstanding) $13.59
======
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 $ 9,065,932
Accumulated net realized gain on investments 267,058
Undistributed net investment income 51,473
Net unrealized appreciation of investments 985,431
-------
Net Assets $10,369,894
===========
See Notes to Financial Statements
<TABLE>
<CAPTION>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C>
Period ended Year Ended
August 31, 1998(A) December 31, 1997
------------------ ------------------
INVESTMENT INCOME:
Interest $104,175 $113,189
Dividend 83,184 98,335
------ ------
Total income $187,359 $211,524
-------- --------
EXPENSES:
Investment advisory fees (Note 2) 80,943 80,675
Transfer agent fees (Note 2) 11,535 19,313
Custodian and accounting fees 19,705 16,800
Legal and audit fees 11,355 12,371
Registration fees 2,122 3,572
Recordkeeping and
administrative services (Note 2) 19,860 22,365
Shareholder servicing
and reports (Note 2) 2,736 5,327
Organization expense amortization 4,704 7,096
Miscellaneous 4,647 326
----- ---
Total expenses 157,607 167,845
Custodian fee credits (Note 3) (16,807) (13,445)
------- -------
Net expenses 140,800 154,400
------- -------
Net investment income 46,559 57,124
------ ------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on investments 208,774 265,654
Net increase/(decrease) in
unrealized appreciation on investment (1,031,352) 984,658
---------- -------
Net gain/(loss) on investments (822,578) 1,250,312
-------- ---------
Net increase/(decrease) in net assets
resulting from operations ($776,019) $1,307,436
========= ==========
<FN>
(A) The Fund has changed its year end from December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C> <C>
Period Years ended December 31,
ended
August 31,1998(A) 1997 1996
------------------ -------- -----
OPERATIONS
Net investment income $ 46,559 $ 57,124 $ 68,634
Net realized gain on investments 208,774 265,654 230,479
Change in unrealized appreciation
of investments (1,031,352) 984,658 740,807
---------- ------- -------
Net increase (decrease) in net
assets resulting (776,019) 1,307,436 1,039,920
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income($.--, $.08 and
$.15 per share, respectively) -- (52,211) (72,905)
Capital gains ($.--, $.43 and
$.33 per share, respectively -- (280,635) (155,461)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* 579,796 3,132,102 1,622,851
------- --------- ---------
Net increase/(decrease) in net
assets (196,223) 4,106,692 2,434,405
Net assets at beginning of period 10,566,117 6,459,425 4,025,020
---------- --------- ---------
NET ASSETS at the end of the period
(including undistributed net
investment income of $51,473,$4,913
and $0, respectively) $10,369,894 $10,566,117 $6,459,425
=== =========== =========== ==========
* A summary of capital share transactions follows:
<S> <C> <C> <C> <C> <C> <C>
Period ended Year ended Year ended
August 31, 1998 (A) December 31, 1997 December 31, 1996
------------------- ----------------- ------------------
Shares Value Shares Value Shares Value
------- -------- -------- --------- -------- ------
Shares sold 121,845 $1,852,309 240,636 $3,384,487 199,556 $2,332,804
Shares reinvested from
dividends -- -- 21,704 318,619 17,744 225,708
Shares redeemed (83,865) (1,272,513) (42,017) (571,004) (75,044) (935,661)
------- ---------- ------- -------- ------- --------
Net increase 37,980 $579,796 220,323 $3,132,102 142,256 $1,622,851
====== ======== ======= ========== ======= ==========
<FN>
(A) The Fund has changed its year end from December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
SAND HILL PORTFOLIO MANAGER FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<S> <C> <C> <C> <C>
Years ended Jan 2, 1995*
Period ended December 31, to
August 31,1998 1997 1996 Dec 31, 1995
-------------- ------ ------ -------------
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 0.06 0.09 0.14 0.06
Net realized and unrealized gain on (1.04) 2.20 2.02 1.10
----- ---- ---- ----
Total from investment operations (0.98) 2.29 2.16 1.16
----- ---- ---- ----
Less distributions-
Distributions from net investment in -- (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 $13.59 $14.57 $12.79 $11.11
====== ====== ====== ======
Total Return (6.73%) 17.87% 19.57% 11.60%
Ratios/Supplemental Data
Net assets, end of period (000's) $10,370 $10,566 $6,459 $4,025
Ratio to average net assets - (A)
Expenses (B) 2.08%** 2.08% 2.50% 3.03%**
Expense ratio - net (C) 1.86%** 1.90% 2.00% 1.90%**
Net investment income 0.62%** 0.71% 1.29% 0.52%**
Portfolio turnover rate 30.19% 16.48% 32.97% 40.96%
<FN>
* Commencement of operations
** Annualized
*** The Fund has changed its year end from December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .64% in 1996 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
August 31, 1998
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 Fund has changed its
fiscal year end from December 31, to August 31, commencing with August 31,
1998. 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
market 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. Interest income is recorded on an
accrual basis.
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, $21,247 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 $11,535 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 CSS and FSI.
NOTE 3- INVESTMENTS/CUSTODY-The cost of purchases and the proceeds from sales
of securities, excluding short-term securities and U.S. Government
securities, for the period ended August 31, 1998, were $1,924,650 and
$1,988,330, respectively.
The cost of purchases and the proceeds from sales of U.S. Government
obligations for the period ended August 31, 1998, excluding short-term
securities, were $1,348,504 and $1,191,719, respectively.
The custodian has provided credits against custodian charges based on credits
on uninvested cash balances of the Fund in the amounts of $16,807 and $13,445
for the periods ended August 31, 1998 and December 31, 1997, respectively.
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
Sand Hill Portfolio Manager Fund, a series of The World Funds, Inc.,
including the schedule of portfolio investments as of August 31, 1998, and
the related statement of operations for the period then ended and the
statement of changes in net assets and the financial highlights for each of
the periods indicated herein. 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 audits 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
and brokers. 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
Sand Hill Portfolio Manager Fund as of August 31, 1998, the results of its
operations for the period then ended, and the changes in its net assets and
the financial highlights for each of the periods referred to above, in
conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 25, 1998
Investment Advisor:
Sand Hill Advisors, Inc.
3000 Sand Hill Road
Building Tree, 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 hours, 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) 527-9525
Toll Free.
