SEMI-ANNUAL REPORT TO SHAREHOLDERS
CSI EQUITY FUND
CSI FIXED INCOME FUND
CSI CAPITAL MANAGEMENT
Financial Advisors
Investment Counsel
For the Period Ended
February 28, 1999
March 30, 1999
Dear Shareholder:
As we reported six months ago, the world's stock markets experienced a
sharp downturn in August, 1998. However, beginning in September, 1998 and
continuing through January, 1999, the major domestic market indexes reversed
the temporary downward trend and regained much if not all of the earlier
declines.
From August 31, 1998 through February 28, 1999, our Equity Fund
increased in value by 24.9%. This compared to an increase in the average
global fund (as tracked by Lipper Analytical Services) of 16.2% for that same
time period.
During 1998, the stock market survived several negative shocks with the
Dow Jones Industrial Averages finishing up 16% for the year. However, the
broader market was less impressive as the average of all New York Stock
Exchange stocks declined 8%. Throughout the year, the effects of expanding
liquidity, low interest rates and robust investor confidence became more
narrowly focused and reached "mania" proportions in some market sectors
(e.g., Internet). The bond market, on the other hand, did quite well as the
total return of 17% on long-term Treasuries outperformed most stocks.
The economy finished its eighth consecutive year of expansion in 1998 as
unemployment reached its lowest level in 30 years. Inflation was virtually
nonexistent and consumer spending flourished. However, there is evidence
that the growth rate of capital spending and exports has peaked. These
factors, along with economic stress abroad and the probability of less
vigorous consumer spending at home, suggest a slow down in economic activity
during the upcoming year.
Historically, bull markets have ended with rising interest rates or
declining corporate profits. With global deflationary pressures still
present, it is unlikely that rising interest rates will pose a threat for the
markets over the near term. The outlook for corporate profits, on the other
hand, is less certain. However, investors seem to have chosen to focus more
on the long term case for stocks rather than on the immediate prospects for
earnings. Assessing the outlook of the markets in general raises the
question of whether the current level of investor confidence can be sustained
in a rapidly changing global environment.
Sincerely,
Leland H. Faust
Schedule of Portfolio
Investments
February 28, 1999
(Unaudited)
Number Market
of Shares Description Value
- ----------- ----------- ---------
Common Stocks: 95.90%
Banking: 5.42%
15,250 Citigroup $895,938
10,400 Deutsche Bank ADR 552,262
14,100 Ing Groep N.V. ADR 788,719
---------
2,236,919
---------
Beverages: 5.00%
22,500 Heineken N.V. ADR 1,168,688
23,800 Pepsico Inc. 895,475
---------
2,064,163
---------
Chemicals: 7.66%
17,500 Bayer A.G. ADR 615,013
12,900 Du Pont (E.I.) De Nemours 661,931
12,200 Hoechst AG ADR 573,400
8,200 Minnesota Mining and Manufacturing Co. 607,313
8,400 Monsanto Corp. 382,725
10,200 Rohm and Haas Co. 318,750
---------
3,159,132
---------
Computer and 5.47%
Peripherals:
23,100 Compaq Computer Corp. 814,275
14,750 Cisco Systems, Inc.* 1,442,734
---------
2,257,009
---------
Computer Software and 3.62%
Services:
25,600 Automatic Data Processing 1,017,600
14,800 SAP AG ADR 473,600
---------
1,491,200
---------
Drug and Medical: 8.28%
21,200 Abbott Laboratories 984,475
13,500 Johnson & Johnson 1,152,563
10,100 Novartis A.G. ADR 900,334
5,500 Warner Lambert 379,844
---------
3,417,216
---------
Electronics/Equipment: 12.04%
17,900 Emerson Electric Co. 1,028,131
12,400 Hewlett-Packard Co. 823,825
11,200 Nokia Corp. ADR 1,519,000
5,500 Sony Corp. 410,781
15,900 Texas Utilities 674,756
9,200 Xerox 507,725
---------
4,964,218
---------
Financials: 1.40%
7,500 Merrill Lynch 575,625
---------
Food: 9.60%
13,700 Campbell Soup Co. 550,569
19,700 Diageo PLC ADR 990,975
17,900 Groupe Danone ADR 983,769
8,200 Nestle S.A. ADR 781,895
24,000 Sara Lee Corp. 652,500
---------
---------
3,959,708
---------
Household: 4.91%
9,600 International Flavors and Fragrances 395,400
17,300 Kimberly-Clark Corp. 817,425
11,200 Unilever N.V. 811,300
---------
2,024,125
---------
Insurance: 6.03%
20,000 AXA ADR 1,330,000
1,740 Zurich Allied 1,157,587
---------
2,487,587
---------
Manufacturing: 4.76%
18,400 Corning Inc. 984,400
4,800 Daimler Chrysler 450,900
16,100 Deere & Co. 526,269
---------
1,961,569
---------
Metals: 1.06%
15,800 Crown Cork & Seal Co., Inc. 438,450
---------
Multimedia: 1.14%
13,400 Disney Walt Co. 471,513
---------
Oil: 2.95%
6,700 Repsol S.A. ADR 351,750
12,600 Schlumberger 611,888
4,900 Total S.A. 252,963
---------
1,216,601
---------
Retail: 3.87%
19,700 Borders Group Inc.* 272,106
22,200 Home Depot Inc. 1,325,062
---------
1,597,168
---------
Semi-Conductors: 3.34%
4,200 Intel 503,738
Corp.
10,000 STMicroelectronics 873,750
---------
1,377,488
---------
Telecommunications: 7.01%
10,900 Airtouch Communications, Inc.* 992,581
13,300 MCI World Communications 1,097,250
10,000 Tellabs Inc. 800,624
---------
2,890,455
---------
Transportation: 2.34%
10,100 FDX Corporation* 964,550
---------
Total Common
Stocks:
(Cost: $34,526,627) 39,554,696
---------
Short Term 2.52%
Investments:
1,039,009 Star Treasury Fund 1,039,009
---------
(Cost: $1,039,009)
Total Investments:
(Cost:$35,565,636)** 98.42% 40,593,705
Other assets, net 1.58% 652,449
----------- ---------
NET ASSETS 100.00% 41,246,154
=========== =========
* Non-income producing
**Cost for Federal income tax purposes is $35,565,636 and net unrealized
appreciation consists of:
Gross unrealized appreciation 7,574,948
Gross unrealized depreciation (2,546,879)
=========
Net unrealized appreciation $5,028,069
=========
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
February 28, 1999(Unaudited)
- ------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of
$35,565,636) (Notes 1 & 3) $40,593,705
Receivables:
Dividend $37,647
Interest 4,061
Capital stock purchased 609,555
----------
651,263
Deferred organization cost (Note 1) 38,368
Other assets 7,634
----------
TOTAL ASSETS 41,290,970
----------
LIABILITIES
Investment management fees 43,102
Administrative fees 1,714
----------
TOTAL LIABILITIES 44,816
----------
NET ASSETS
$41,246,154
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($41,246,154/3,341,906 shares
outstanding) $ 12.34
==========
At February 28, 1999 there were 50,000,000
shares of $.01 par value stock authorized and components of
net assets are:
Paid in capital $36,419,130
Accumulated net realized loss on investments (164,960)
Undistributed net investment income (loss) (36,085)
Net unrealized appreciation of investments 5,028,069
----------
Net $41,246,154
==========
See Notes to Financial Statements
CSI EQUITY FUND
STATEMENT OF OPERATIONS
Six months ended February 28, 1999
(Unaudited)
- ------------------------------------------------------------------------------
Investment Income
Dividend $136,821
Interest 19,057
---------
Total income $ 155,878
---------
Expenses
Investment management fees (Note 2) 168,518
Recordkeeping and administrative
services (Note 2) 33,703
Custodian fees 2,143
Audit and legal fees 12,866
Shareholder servicing and reports 5,363
Registration fees 6,409
Transfer agent fees 7,353
Organization expense amortization 4,840
Other expenses 11,582
---------
Total expense 252,777
---------
Net investment loss (96,899)
---------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss on investments (165,081)
Net change in unrealized depreciation on investments 7,010,794
---------
Net gain on investments 6,845,713
=========
Net increase in net assets resulting from operations $6,748,814
=========
See Notes to Financial Statements
CSI EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------
Six months Period
ended ended
Feb 28, 1999 Aug 31,1998*
(Unaudited)
------------- ------------
OPERATIONS
Net investment income (loss) $(96,899) $ 60,814
Net realized gain (loss) on investments (165,081) 121
Change in net unrealized appreciation
(depreciation)of investments 7,010,794 (1,982,725)
------------- ------------
Net increase (decrease) in net assets 6,748,814 (1,921,790)
resulting from operations
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** 7,921,097 28,498,033
------------- ------------
Net increase in net assets 14,669,911 26,576,243
Net assets at beginning of period 26,576,243 --
------------- ------------
NET ASSETS at the end of the period $41,246,154 $26,576,243
(including undistributed net investment ============= ============
income (loss) of ($36,085) and $60,814,respectively)
** A summary of capital share transactions follows:
Six months
ended
February 28,1999 Period ended
(Unaudited) August 31,1998*
--------------------- --------------------
Shares Value Shares Value
--------------------- -------------------
Sharessold 728,782 $8,825,834 2,758,858 $29,304,147
Shares reinvested
from dividends -- -- -- --
Shares redeemed (78,136) (904,737) 67,598) (806,114)
===================== ===================
Net increase 650,646 7,921,097 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
- --------------------------------------------------------------------------------
Six months
ended
February 28, 1999 Period ended
(Unaudited) August31,1998*
------------- --------------
Per Share Operating Performance
Net asset value, beginning of period $9.88 $10.00
------------- --------------
Income from investment
operations-
Net investment income (0.03) 0.02
Net realized and unrealized gain
(loss) on investments 2.49 0.14)
------------- --------------
Total from investment operations 2.46 (0.12)
------------- --------------
Less distributions-
Distributions from net investment -- --
income
Distributions from -- --
capital gains
------------- --------------
Total distributions -- --
------------- --------------
Net asset value, end of period $12.34 $9.88
============= ==============
Total Return 24.90% (1.20%)
Ratios/Supplemental Data
Net assets, end of period (000's) $41,246 $26,576
Ratio to average net assets-
Expenses (A) 1.49% ** 1.50% **
Expenses-net (B) 1.49% ** 1.49% **
Net investment income (.57%) ** 0.42% **
Portfolio turnover rate 7.17% 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 for the period ended August 31, 1998.
(B) Expense ratio - net reflects the effect of the custodian fee
credits the fund received for the period ended August 31, 1998.
See Notes to FinancialStatements
Notes to the Financial Statements
February 28, 1999 (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 seek 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 federal income tax provision is required.
C. Security Transactions and Income. 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.
. 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.
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, $40,064 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 $7,353 for its services for the period ended February 28,
1999.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3-INVESTMENTS-Purchases and sales of securities other than short-term
notes aggregated $10,309,134 and $2,325,471 respectively.
CSI Fixed Income Schedule of Portfolio Investments
February 28, 1999
(Unaudited)
Principal Market
Amount Description Value
- --------- ------------------- ----------
Long Term U.S. Government 24.06%
Securities:
Matures in Over 10 Years: 24.06%
$5,750,000 U.S. Treasury Note 6.00%; February 15, 2026 $5,915,312
4,250,000 U.S. Treasury Note 6.75%; August 15, 2026 4,805,156
----------
Total Long Term U.S. Government
Securities:
(Cost:$10,842,596) 10,720,468
----------
Medium Term U.S. Government 61.33%
Securities:
Matures in 6-10 Years: 31.11%
2,500,000 U.S. Treasury Note 7.25%; August 15, 2004 2,721,875
2,750,000 U.S. Treasury Note 6.50%; May 15, 2005 2,911,563
2,750,000 U.S. Treasury Note 5.875%; November 15, 2005 2,822,188
2,750,000 U.S. Treasury Note 5.625%; February 15, 2006 2,787,812
2,500,000 U.S. Treasury Note 6.125%; August 15, 2007 2,616,408
----------
13,859,846
----------
Matures in 1-5 Years: 30.22%
2,000,000 U.S. Treasury Note 6.875%; March 31, 2000 2,038,126
2,750,000 U.S. Treasury Note 5.625%; May 15, 2001 2,777,500
2,500,000 U.S. Treasury Note 5.25%; January 31, 2001 2,504,688
3,000,000 U.S. Treasury Note 5.75%; October 31, 2002 3,045,939
3,000,000 U.S. Treasury Note 6.25%; February 15, 2003 3,100,313
----------
13,466,566
----------
Total Medium Term U.S. Government
Securities:
(Cost:$27,312,613) 27,326,412
----------
Short Term Investments: 9.75%
Short Term U.S. Government 6.77%
Securities:
2,000,000 U.S. Treasury Note 5.625%; November 30, 1999 2,010,000
1,000,000 U.S. Treasury Note 5.625%; December 31, 1999 1,005,625
----------
Total Short Term U.S. Government
Securities:
(Cost:$3,012,154) 3,015,625
----------
Money Market Investment: 2.98%
1,325,000 Star Treasury Fund
(Cost:$1,325,000) 1,325,000
----------
Total Short Term Investments:
(Cost:$4,337,154) 4,340,625
----------
Total Investments:
(Cost:$42,492,363)* 95.14% $42,387,505
Other assets,net 4.86% 2,166,748
------ ----------
NET ASSETS 100.00% $44,554,253
====== ==========
* Cost for Federal income tax purposes is $42,492,363 and net
unrealized appreciation consists of:
Gross unrealized appreciation $ 271,835
Gross unrealized depreciation (376,693)
==========
Net unrealized depreciation $(104,858)
==========
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (Unaudited)
- -----------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $42,387,505
$42,492,363) (Notes 1 & 3)
Receivables:
Interest $363,184
Capital stock purchased 1,789,350
----------
2,152,534
Deferred organization costs (Note 1) 38,455
----------
TOTAL ASSETS 44,578,494
----------
LIABILITIES
Investment management fees 18,806
Administrative fees 1,859
Accrued expenses 3,576
----------
TOTAL LIABILITIES 24,241
----------
NET ASSETS $44,554,253
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($44,554,253/4,382,076
shares outstanding)
$ 10.17
==========
At February 28, 1999 there were 50,000,000
shares of $.01 par value stock authorized and
components of net assets are:
Paid in capital $44,370,926
Undistributed net investment income 270,402
Undistributed net realized gain on investments 17,783
Net unrealized depreciation of investments (104,858)
----------
Net Assets $44,554,253
==========
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF OPERATIONS
Six months ended February 28, 1999(Unaudited)
- -------------------------------------------------------------------------------
Investment Income
Interest $952,372
----------
Expenses
Investment management fees (Note 2) $ 186,548
Recordkeeping and administrative
services (Note 2) 37,310
Custodian fees 2,058
Audit and legal fees 12,866
Shareholder servicing and reports 4,460
Registration fees 12,855
Transfer agent fees 7,480
Organization expense amortization 4,840
Other expenses 11,405
-----------
Total expenses 279,822
Management fee waiver (93,274)
-----------
Net expenses 186,548
-----------
Net investment income 765,824
-----------
Realized and Unrealized Gains on
Investments
Net realized gain on investments 17,783
Net change in unrealized appreciation on investments (979,869)
-----------
Net loss on investments (962,086)
===========
Net decrease in net assets resulting from operations $ (196,262)
===========
See Notes to Financial Statements
CSI FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------
Six months Period
ended ended
February 28, 1999 August 31, 1998*
(Unaudited)
------------------------
OPERATIONS
Net investment income $765,824 $714,084
Net realized gain on
investments 17,783 --
Change in net unrealized
depreciation(appreciation) of
investments (979,869) 875,011
------------------------
Net increase(decrease) in net
assets resulting from operations (196,262) 1,589,095
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.33 (1,209,506) --
per share)
Capital gains ($.-- -- --
per share)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from
capital share tranactions** 12,059,696 32,311,230
------------------------
Net increase in net assets 10,653,928 33,900,325
Net assets at beginning of period 33,900,325 --
------------------------
NET ASSETS at the end of the $44,554,253 $33,900,325
period (including undistributed =========== ==========
net investment income of $270,402 and
$714,084, respectively)
** A summary of capital share transactions
follows:
Six months ended
February 28, 1999 Period ended
(Unaudited) August 31, 1998*
------------------------ ---------------------
Shares Value Shares Value
--------- ------------ ---------------------
Shares sold 1,392,844 $14,644,512 3,708,324 $37,115,913
Shares reinvested from
dividends 115,521 1,209,506 -- --
Shares redeemed (360,057) (3,794,322) (474,556) (4,804,683)
========= ============ ========= ==========
Net increase 1,148,308 $12,059,696 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
- --------------------------------------------------------------------------------
Six months
ended
February 28, Period
1999 ended
(Unaudited) August 31,1998*
---------------- -----------------
Per Share Operating
Performance
Net asset value,
beginning of period $10.48 $10.00
---------------- ----------
Income from investment
operations-
Net investment income 0.17 0.22
Net realized and unrealized
gain (loss) on investments (0.15) 0.26
---------------- ----------
Total from investment operations 0.02 0.48
---------------- ----------
Less distributions-
Distributions from net
investment income (0.33) --
Distributions from
capital gains -- --
---------------- ----------
Total distributions (0.33) --
---------------- ----------
Net asset value, end of period $10.17 $10.48
================ ==========
Total Return 0.10% 4.80%
Ratios/Supplemental Data
Net assets, end of period (000's) $44,554 $33,900
Ratio to average net assets - A
Expenses (B) 1.49% ** 1.51% **
Expenses-net (C) 1.00% ** 1.00% **
Net investment income 4.07% ** 4.34% **
Portfolio turnover rate 1.55% 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 .49% for the period ended February 28, 1999 and .50%
for the period ended August 31, 1998. (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 FinancialStatements
Notes to the Financial Statements
February 28, 1999 (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 federal income tax provision is required.
C. Security Transactions and Interest Income. Security transactions are
accounted for on the trade date. The cost of securities sold is
determined on a first-in, first-out basis. Interest income is recorded
on the accrual 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.
. 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.
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, $42,503 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 $7,480 for its services for the period ended February 28,
1999.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3-INVESTMENTS-Purchases and sales of securities other than short-term
notes aggregated $11,550,939 and $526,250, respectively.
