Semi-Annual Report
CSI Equity Fund
CSI Fixed Income Fund
CSI Capital Management
Financial Advisers
Investment Counsel
Semi-Annual Report
For the Period Ended
February 28, 1998
April 20, 1998
Dear Shareholder:
We are pleased to enclose our first semi-annual report for the CSI Equity
Fund and the CSI Fixed Income Fund. Although these are called "semi-annual"
reports, they actually cover the period from October 15, 1997, when the Funds
became effective with the Securities and Exchange Commission, through February
28, 1998. Due to market fluctuations in October and November, the Funds did not
become fully invested until January 1998. During the time period covered, market
conditions were good, and our Equity Fund posted a gain from a beginning price
of $10 per share to a closing NAV of $10.84 on February 28, 1998, or an increase
of 8.4%.
At this time, the domestic stock market as measured by the commonly
accepted indices (e.g. the S&P 500, the Dow Jones Industrials, etc.) is at an
all-time high. Therefore, a short-term reversal of the almost straight upward
movement in market prices which the market has experienced recently may occur.
Any disappointment in corporate earnings, the rate of inflation, or interest
rates could be a factor which would result in lower stock prices. Despite the
possibility of a downturn in stock prices, we believe the long-term prospects
for equities to be very good. We have included in the Equity Fund a mix of
stocks whose earnings we think will remain strong even in the face of economic
conditions less favorable than today. As you review the semi-annual report,
please note that our holdings are diversified across a broad range of
industries, and the companies are headquartered in many different countries
throughout Europe and the U.S.
Sincerely,
Leland H. Faust
<PAGE>
SCHEDULE OF PORTFOLIO
INVESTMENTS
February 28, 1998
(Unaudited)
Number of Market
shares Description Value
- --------- -------------------------- -------------
Common Stocks: 96.46%
Banking: 3.45%
8,400 Deutsche Bank ADR $576,969
-------------
Beverages: 3.21%
2,900 Heinekin ADR 538,095
-------------
Chemicals: 6.84%
14,000 Bayer 590,160
6,500 Minnesota Mining 554,531
-------------
1,144,691
-------------
Computer and Peripherals: 6.78%
17,300 Compaq 554,681
8,800 Cisco * 579,700
-------------
1,134,381
-------------
Computer Software and 2.99%
Services:
8,200 Automatic Data Processing 500,713
-------------
Drug and Medical: 10.21%
7,400 Abbott Labs 553,613
7,800 Johnson & Johnson 588,900
6,200 Novartis ADR 565,462
-------------
1,707,975
-------------
Electronics/Equipment: 14.05%
8,600 Emerson Electric 548,787
8,500 Hewlett Packard Co. 569,500
6,800 Nokia ADR 685,100
8,900 Siemens ADR 547,557
-------------
2,350,944
-------------
Food: 10.41%
14,000 Diageo Plc ADR 581,875
14,600 Group Danone ADR 582,174
6,600 Nestle 577,883
-------------
1,741,932
-------------
Household: 6.82%
10,100 Kimberly Clark 562,444
9,000 Unilever 578,813
-------------
1,141,257
-------------
Insurance: 7.30%
13,100 Axa ADR 633,713
5,400 Zurich Insurance ADR 588,717
-------------
1,222,430
-------------
Metals: 3.55%
11,000 Crown Cork & Seal 594,000
-------------
Oil: 6.73%
7,000 Chevron Corp. 567,875
7,400 Schlumberger 557,775
-------------
1,125,650
-------------
Retail: 3.32%
8,700 Home Depot 555,169
-------------
Semi-Conductors: 7.23%
6,700 Intel Corp. 600,906
8,000 S G S Thompson * 609,000
-------------
1,209,906
-------------
Telecommunications: 3.57%
14,700 Corning 597,188
-------------
Total Common Stocks:
(Cost: $15,017,363) 16,141,300
-------------
Short Term Investments: 3.52%
588,065 Star Treasury Fund 588,065
-------------
Total Short Term
Investments:
(Cost: $588,065) 588,065
-------------
Total Investments:
(Cost: $15,605,428)** 99.98% 16,729,365
Other assets, net 0.02% 3,668
-------- -----------
100.00% $16,733,033
======== ===========
*Non-income producing
** Cost for Federal income tax purposes is $15,605,428 and
net unrealized appreciation consists of:
Gross unrealized appreciation $1,127,693
Gross unrealized depreciation (3,756)
-------------
Net unrealized appreciation $1,123,937
=============
<PAGE>
Statement of Assets and Liabilities
February 28,1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments at value (identified
cost of $15,605,428) (Notes 1 & 3) $16,729,365
Receivables
Dividends $ 18,159
Interest 3,247
-----------
21,406
Deferred organization costs 48,520
--------------
TOTAL ASSETS 16,799,291
--------------
LIABILITIES
Payables
Investment management fees 13,743
Organizational expense 48,520
-----------
62,263
Accrued expenses 3,995
---------------
TOTAL LIABILITIES 66,258
---------------
NET ASSETS $16,733,033
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($16,733,033/1,543,539 shares outstanding) $10.84
===============
At February 28, 1998 there were 50,000,000 shares of $.01 par
value stock authorized and the components of net assets are:
Paid in capital $15,596,600
Undistributed net investment income 12,496
Net unrealized appreciation on investments 1,123,937
---------------
Net Assets $16,733,033
===============
See Notes to Financial Statements
<PAGE>
Statement of Operations
October 15, 1997 * to February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividend $20,434
Interest 9,800
------------
Total income $ 30,234
Expenses:
Investment management fees (Note 2) 13,743
Recordkeeping and administrative
services (Note 2) 1,820
Transfer agent fees (Note 2) 2,175
------------
Total expenses 17,738
------------
Net investment income 12,496
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net unrealized gain on investments 1,123,937
------------
Net gain on investments 1,123,937
------------
Net increase in net assets
resulting from operations $ 1,136,433
============
* Commencement of operations
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
October 15, 1997*
to
February 28, 1998
(Unaudited)
----------------
OPERATIONS
Net investment income $ 12,496
Net unrealized gain on investments 1,123,937
---------------
Net increase (decrease) in net assets resulting
from operations 1,136,433
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital
share transactions** 15,596,600
----------------
Net increase in net assets 16,733,033
Net assets at beginning of period _
----------------
NET ASSETS at the end of the period $ 16,733,033
================
**A summary of capital share transactions follows:
October 15, 1997* to
February 28, 1998
(Unaudited)
---------------------------------
Shares Value
------------ ----------
Shares sold 1,543,539 $15,596,600
Shares redeemed --- ---
------------ ----------
Net increase 1,543,539 $15,596,600
============ ==========
* Commencement of operations
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout The Period
- --------------------------------------------------------------------------------
October 15, 1997 *
to
February 28, 1998
(Unaudited)
------------------
Per Share Operating Performance
Net asset value, beginning of period $10.00
------------------
Income from investment operations
Net unrealized gain on investments 0.84
------------------
Total from investment operations 0.84
------------------
Net asset value, end of period $10.84
==================
Total Return 8.40%
Ratios/Supplemental Data
Net assets, end of period (000's) $16,733
Ratio to average net assets-
Expenses 1.50% **
Net investment income 1.06% **
Portfolio turnover rate 0.00%
Average broker commission rate per share $0.0600
* Commencement of operations.
** Annualized
See Notes to Financial Statements
<PAGE>
Notes to the Financial Statements
February 28, 1998 (Unaudited)
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 250,000,000 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.
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. Distribution 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, $1,820 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 $2,175 for its services for the period ended February 28,
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 $15,017,363.
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
February 28, 1998 (Unaudited)
Principle Market
Amount Description Value
- --------- ---------------------------------------- ---------------
U. S. Government Securities: 94.22%
Matures in 1-5 Years: 33.52%
$1,500,000 U. S. Treasury Note 5.625%; November 30, 1999 $1,500,938
1,000,000 U. S. Treasury Note 6.875%; March 31, 2000 1,025,312
1,500,000 U. S. Treasury Note 5.25%; January 31, 2001 1,487,345
1,500,000 U. S. Treasury Note 5.75%; October 31, 2002 1,507,500
1,500,000 U. S. Treasury Note 6.25%; February 15, 2003 1,540,313
---------------
7,061,408
---------------
Matures in 6-10 Years: 39.31%
1,500,000 U. S. Treasury Note 7.25%; August 15, 2004 1,628,437
2,000,000 U. S. Treasury Note 6.50%; May 15, 2005 2,098,126
1,500,000 U. S. Treasury Note 5.875%; November 15, 2005 1,515,937
1,500,000 U. S. Treasury Note 5.625%; February 15, 2006 1,492,500
1,500,000 U. S. Treasury Note 6.125%; August 15, 2007 1,546,407
---------------
8,281,407
---------------
Matures in Over 10 Years: 21.39%
4,500,000 U. S. Government Bond 6.00%; February 15, 2026 4,507,034
---------------
Total U. S. Government Securities:
(Cost: $20,019,798) 19,849,849
---------------
Short Term Investment: 4.85%
1,021,624 Star Treasury Fund
(Cost: $1,021,624) 1,021,624
---------------
Total Investments:
(Cost: $21,041,422)* 99.07% 20,871,473
Other assets, net 0.93% 196,819
------- -----------
Net assets 100.00% $21,068,292
======= ===========
* Cost for Federal income tax purposes is $21,041,422 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 0
Gross unrealized depreciation (169,949)
---------------
Net unrealized depreciation $ (169,949)
===============
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $20,871,473
$21,041,422)(Notes 1 & 3)
Receivables
Interest $ 192,138
Subscription 20,000
-----------
212,138
Deferred organization costs 48,520
------------
TOTAL ASSETS 21,132,131
------------
LIABILITIES
Payables
Investment management fees 8,788
Organization expense 48,520
-----------
57,308
Accrued expenses 6,531
------------
TOTAL LIABILITIES 63,839
------------
NET ASSETS $21,068,292
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($21,068,292/2,118,347 shares outstanding) $ 9.95
============
At February 28, 1998 there were 50,000,000 shares
of $.01 par value stock authorized and the
components of net assets are:
Paid in capital $21,173,883
Undistributed net investment income 64,358
Net unrealized depreciation of investments (169,949)
-------------
Net Assets $21,068,292
=============
See Notes to Financial Statements
<PAGE>
Statement of Operations
October 15, 1997 * to February 28, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Investment Income:
Interest $ 79,678
------------
Expenses:
Investment management fees (Note 2) $ 17,576
Recordkeeping and administrative
services (Note 2) 3,064
Transfer agent fees (Note 2) 2,755
Other 713
------------
Total expenses 24,108
Less: Management fee waiver (Note 2) (8,788)
------------
Expenses, net 15,320
------------
Net investment income 64,358
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net unrealized loss on investments (169,949)
------------
Net loss on investments (169,949)
------------
Net decrease in net assets resulting from
operations $ (105,591)
============
* Commencement of operations
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
October 15, 1997 * to
February 28, 1998
(Unaudited)
---------------------
OPERATIONS
Net investment income $ 64,358
Net unrealized loss on investments (169,949)
--------------
Net decrease in net assets resulting from
operations (105,591)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital
share transactions 21,173,883
-------------
Net increase in net assets 21,068,292
Net assets beginning of period _
-------------
NET ASSETS at the end of period $ 21,068,292
=============
**A summary of capital share transactions follows:
October 15, 1997 * to
February 28, 1998
(Unaudited)
----------------------------------
Shares Value
--------- ----------
Shares sold 2,124,528 $21,235,579
Shares redeemed 26,587 (61,696)
--------- -----------
Net increase 2,118,347 $21,173,883
========= ===========
*Commencement of operations
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout The Period
- --------------------------------------------------------------------------------
October 15, 1997 * to
February 28, 1998
(Unaudited)
----------------------
Per Share Operating Performance
Net asset value, beginning of period $10.00
--------
Income from investment operations
Net unrealized loss on investments (0.05)
--------
Total from investment operations (0.05)
--------
Net asset value, end of period $9.95
========
Total Return (0.50)%
Ratios/Supplemental Data
Net assets, end of period (000's) $21,068
Ratio to average net assets-
Expenses (Net of 0.50% management fee waiver) 1.00% **
Net investment income (Net of 0.50% management 4.20% **
fee waiver)
Portfolio turnover rate 0.00%
* Commencement of operations
** Annualized
See Notes to Financial Statements
<PAGE>
Notes to the Financial Statements
February 28, 1998 (Unaudited)
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 250,000,000 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.
A. 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, which prices may reflect broker-dealer
supplied valuations and electronic data processing techniques.
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 on a
first-in, first-out basis.
D. Distribution to Shareholders. Distribution 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.
E. 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.
F. 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. Fee waivers are voluntary and may be terminated at any
time.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $3,064 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 $2,755 for its services for the period ended February 28,
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 $20,023,476.
