Annual Report to Shareholders
CSI Equity Fund
CSI Fixed Income Fund
CSI Capital Management
Financial Advisors
Investment Counsel
For the Year Ended
August 31, 1999
<PAGE>
Dear Shareholder:
During the Fund's most recently completed fiscal year (August 31, 1999),
the net asset value increased by approximately 35%.
A number of factors contributed to this performance, one of which was the
improvement in market conditions (as measured by the market indexes for large
capitalization stocks) in Western Europe and North America. In August 1998, the
markets experienced a substantial drop. Since then, the markets in general
throughout the developed countries in Europe and North America improved
significantly. (The Morgan Stanley Capital International World Index increased
approximately 31% in the year ending August 31, 1999.)
Further, individual securities selected by the Fund's management
contributed to overall performance. Emphasis has been placed on large companies
which management believes will show sustained growth in earnings. As the
globalization trend continues and as the world's economics become increasingly
linked, we believe that larger companies will be better able to leverage both
their technological and strategic advantages. We also believe that established,
large companies with a demonstrated track record provide a measure of stability
to the portfolio.
Also, while the Fund is diversified throughout a number of different
industries, emphasis has been placed on technology. Seven of the top ten
holdings in the Fund are companies belonging to that sector.
Finally, we believe that our low turnover which results in a more
tax-efficient management of the Fund is important to the Fund's performance.
Sincerely,
Leland Faust
CSI Capital Management
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
CSI EQUITY FUND VS. LIPPER GLOBAL FUND INDEX
[graph goes here]
Date CSI Equity Fund Lipper Global Fund Index
10/15/1997 $10,000 $10,000
8/31/1998 $ 9,880 $ 9,202
8/31/1999 $13,359 $11,810
Past performance is not predictive of future performance.
[end graph]
---------------------------------------------------------------
Average Annual Total Return for Period ended August 31, 1999
1 Year Since Inception
35.21% 16.68%
---------------------------------------------------------------
- --------------------------------------------------------------------------------
The Lipper Global Fund Index is an equally-weighted performance indice, adjusted
for capital gains distributions and income dividends of the largest 30
qualifying equity funds that invest at least 25% of their portfolio in
securities traded outside of the United States and that may own U.S. securities
as well.
(The comparative index is not adjusted to reflect expenses that the SEC
requires to be reflected in the Fund's performance.)
- --------------------------------------------------------------------------------
<PAGE>
CSI EQUITY FUND
Schedule of Portfolio Investments
August 31, 1999
Number of Market
Shares Description Value
------ ----------- -----
Common Stocks: 96.36%
Banking: 5.70%
25,075 Citigroup $ 1,114,270
13,600 Deutsche Bank ADR 906,339
18,110 Ing Groep N.V. ADR 993,786
----------
3,014,395
----------
Beverages: 4.20%
22,500 Heineken N.V. ADR 1,121,708
32,200 Pepsico Inc. 1,098,825
----------
2,220,533
----------
Chemicals: 7.35%
22,100 Bayer A.G. ADR 950,041
12,900 Du Pont (E.I.) De Nemours 817,538
12,200 Hoechst AG ADR 513,163
19,900 Monsanto Corp. 817,144
21,200 Rohm and Haas Co. 792,350
----------
3,890,236
----------
Computer and Peripherals: 6.61%
23,100 Compaq Computer Corp. 535,631
29,500 Cisco Systems, Inc.* 2,000,469
16,000 EMC Corp* 960,000
----------
3,496,100
----------
Computer Software and Services: 4.97%
25,600 Automatic Data Processing 1,006,400
31,100 ORACLE Corporation* 1,135,150
14,800 SAP AG ADR 488,400
----------
2,629,950
----------
Drug and Medical: 8.68%
21,200 Abbott Laboratories 919,550
14,600 Johnson & Johnson 1,492,850
15,500 Novartis A.G. ADR 1,115,144
16,100 Warner Lambert 1,066,625
----------
4,594,169
----------
Electronics/Equipment: 10.87%
17,900 Emerson Electric Co. 1,120,988
12,400 Hewlett-Packard Co. 1,306,650
22,400 Nokia Corp. ADR* 1,867,600
5,500 Sony Corp. 700,219
15,900 Xerox 759,225
----------
5,754,682
----------
Food: 5.27%
21,900 Diageo PLC ADR 907,481
21,600 Groupe Danone ADR 1,071,900
8,200 Nestle S.A. ADR 809,148
----------
2,788,529
----------
Footware and Apparel: 0.89%
10,200 Adidas ADR* 472,686
----------
Household: 3.90%
9,600 International Flavors and Fragrances 391,200
17,300 Kimberly-Clark Corp. 985,019
10,000 Unilever N.V. 688,750
----------
2,064,969
----------
Insurance: 4.50%
21,700 AXA ADR 1,358,963
1,740 Zurich Allied* 1,022,111
----------
2,381,074
----------
Manufacturing: 7.21%
18,400 Corning Inc. 1,223,600
10,300 Daimler Chrysler* 774,431
16,100 Deere & Co. 625,888
12,600 Minnesota Mining and Manufacturing Co. 1,190,700
----------
3,814,619
----------
Multimedia: 1.08%
20,700 Disney Walt Co. 574,425
----------
Oil: 3.40%
20,100 Repsol S.A. ADR 419,588
15,900 Schlumberger 1,061,325
4,900 Total Fina ADR 318,806
----------
1,799,719
----------
Retail: 4.92%
20,500 Albertsons Inc. 982,719
19,700 Borders Group Inc.* 262,256
22,200 Home Depot Inc. 1,356,975
----------
2,601,950
----------
Semi-Conductors: 5.81%
21,200 Intel Corp. 1,742,375
20,000 STMicroelectronics 1,335,000
----------
3,077,375
----------
Telecommunications: 7.81%
18,700 AT&T 841,500
13,300 MCI World Communications* 1,007,475
20,000 Tellabs Inc.* 1,191,250
5,450 Vodafone Airtouch Communications 1,093,065
----------
4,133,290
----------
Transportation: 1.62%
20,200 FDX Corporation* 857,237
----------
Utilities: 1.57%
20,500 Texas Utilities 828,969
----------
Total Common Stocks:
(Cost: $41,992,798) 50,994,907
----------
Short Term Investments: 1.38%
732,071 Star Treasury Fund
(Cost: $732,071) 732,071
----------
Total Investments:
(Cost: $42,724,869)** 97.74% $51,726,978
Other assets, net 2.26% 1,197,434
------- -----------
NET ASSETS 100.00% $52,924,412
======= ===========
* Non-income producing
** Cost for Federal income tax purposes is $42,724,869 and net
unrealized appreciation consists of:
Gross unrealized appreciation $11,014,025
Gross unrealized depreciation (2,011,916)
-----------
Net unrealized appreciation $ 9,002,109
===========
ADR- Security represented is held by the custodian bank in the form of American
Depository Receipts.
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments at value
(identified cost of $42,724,869) (Notes 1 & 3) $51,726,978
Receivables
Dividend $ 40,369
Interest 3,127
Fund shares purchased 1,178,945
----------
1,222,441
Deferred organization cost (Note 1) 33,152
----------
TOTAL ASSETS 52,982,571
-----------
LIABILITIES
Investment management fees 44,400
Fund shares sold 10,000
Accrued expenses 3,759
----------
TOTAL LIABILITIES 58,159
----------
NET ASSETS $52,924,412
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
($52,924,412/3,960,386 shares outstanding) $ 13.36
===========
At August 31, 1999 there were 50,000,000 shares of $.01 par value stock
authorized and components of net assets are:
Paid in capital $44,517,064
Accumulated net realized loss on investments (594,761)
Net unrealized appreciation of investments 9,002,109
-----------
Net assets $52,924,412
===========
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1999
- --------------------------------------------------------------------------------
Investment Income
Dividend $ 511,325
Interest 40,521
-----------
Total income $ 551,846
-----------
Expenses
Investment management fees (Note 2) 409,260
Recordkeeping and administrative services (Note 2) 79,686
Custodian and accounting fees 26,710
Audit and legal fees 27,999
Shareholder servicing and reports 14,878
Registration fees 14,170
Transfer agent fees 15,857
Organization expense amortization 10,056
Other expenses 15,170
-----------
Total expenses 613,786
-----------
Net investment loss (61,940)
-----------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on investments (570,895)
Net change in unrealized depreciation on investments 10,984,834
-----------
Net gain on investments 10,413,939
-----------
Net increase in net assets resulting from operations $10,351,999
===========
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Period ended
Year ended August 31,
August 31, 1999 1998*
--------------- -------------
OPERATIONS
Net investment income (loss) $( 61,940) $ 60,814
Net realized gain (loss)
on investments (570,895) 121
Change in net unrealized
appreciation (depreciation)
of investments 10,984,834 (1,982,725)
---------- -----------
Net increase (decrease)
in net assets resulting
from operations 10,351,999 (1,921,790)
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income
($.02 and $.-- per share) (64,879) ---
Capital gains --- ---
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share
transactions** 16,061,049 28,498,033
---------- -----------
Net increase in net assets 26,348,169 26,576,243
Net assets at beginning
of period 26,576,243 ---
---------- -----------
NET ASSETS at the end of the
period (including undistributed
net investment income of $0 and
$60,814, repsectively) $52,924,412 $26,576,243
=========== ===========
** A summary of capital share transactions follows:
Year ended Period ended
August 31, 1999 August 31,1998*
----------------------- -------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 1,470,603 $18,610,831 2,758,858 $29,304,147
Shares
reinvested
from
distributions 4,869 64,657 --- ---
Shares redeemed (206,346) (2,614,439) (67,598) (806,114)
--------- ------------ ---------- ----------
Net increase 1,269,126 $16,061,049 2,691,260 $28,498,033
========= =========== ========== ===========
* Commencement of operations October 15, 1997
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Year ended Period ended
August 31, 1999 August 31,1998*
--------------- ---------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.88 $10.00
Income from investment operations-
Net investment income (0.02) 0.02
Net realized and unrealized gain
(loss) on investments 3.52 (0.14)
------ ------
Total from investment operations 3.50 (0.12)
------ ------
Less distributions-
Distributions from net investment income (0.02) ---
Distributions from capital gains --- ---
------ ------
Total distributions- (0.02) ---
------ ------
Net asset value, end of period $13.36 $ 9.88
====== ======
Total Return 35.21% (1.20%)
Ratios/Supplemental Data
Net assets, end of period (000's) $52,924 $26,576
Ratio to average net assets-
Expenses (A) 1.50% 1.50%**
Expenses-net (B) 1.50% 1.49%**
Net investment income (0.15%) 0.42%**
Portfolio turnover rate 12.91% 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 Financial Statements
<PAGE>
Notes to the Financial Statements
August 31, 1999
- --------------------------------------------------------------------------------
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 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.
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.
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,
$79,686 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 $15,857 for its services for the year ended August 31, 1999.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3-INVESTMENTS
The cost of purchases and the proceeds from sales of securities other than
short-term notes aggregated $20,649,067 and $4,793,461 respectively.
<PAGE>
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, 1999, and the related statements of
operations, changes in net assets and financial highlights for each of the
periods presented 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 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, 1999 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 audits provide 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, 1999, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented herein, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
October 1, 1999
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
CSI FIXED INCOME VS. LIPPER INTERMEDIATE INVESTMENT GRADE INDEX
[graph goes here]
Date CSI Fixed Income Lipper Intermediate
Fund Investment Grade Index
1/27/1998 $10,000 $10,000
8/31/1998 $10,480 $10,478
8/31/1999 $10,343 $10,524
Past performance is not predictive of future performance.
[end graph]
-------------------------------------------------------------
Average Annual Total Return for Period ended August 31, 1999
1 Year Since Inception
(1.31%) 2.14%
-------------------------------------------------------------
- --------------------------------------------------------------------------------
The Lipper Intermediate Investment Grade Index is an equally-weighted
performance indice, adjusted for capital gains distributions and income
dividends of the largest 30 qualifying funds that invest at least 65% of their
assets in investment grade debt issues with dollar-weighted average maturities
of five to ten years.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
- --------------------------------------------------------------------------------
<PAGE>
CSI Fixed Income
Schedule of Portfolio Investments
August 31, 1999
Principal Market
Amount Description Value
------ ----------- -----
U.S. Government Securities: 87.12%
Matures in Over 10 Years: 22.21%
$5,750,000 U.S. Treasury Bond 6.00%; February 15, 2026 $ 5,466,094
4,250,000 U.S. Treasury Bond 6.75%; August 15, 2026 4,435,938
1,000,000 U.S. Treasury Bond 5.50%; August 15,2028 893,438
-----------
10,795,470
-----------
Matures in 6-10 Years: 23.97%
2,750,000 U.S. Treasury Note 6.50%; May 15, 2005 2,802,423
2,750,000 U.S. Treasury Note 5.875%; November 15, 2005 2,715,625
2,750,000 U.S. Treasury Note 5.625%; February 15, 2006 2,677,813
2,500,000 U.S. Treasury Note 6.125%; August 15, 2007 2,490,625
1,000,000 U.S. Treasury Note 5.625%; May 15, 2008 965,625
-----------
11,652,111
-----------
Matures in 0-5 Years: 40.94%
2,000,000 U.S. Treasury Note 5.625%; November 30, 1999 2,002,500
2,000,000 U.S. Treasury Note 6.875%; March 31, 2000 2,017,500
1,000,000 U.S. Treasury Note 5.375%; July 31, 2000 998,750
2,500,000 U.S. Treasury Note 5.25%; January 31, 2001 2,485,937
2,750,000 U.S. Treasury Note 5.625%; May 15, 2001 2,743,125
1,000,000 U.S. Treasury Note 5.875%; November 30, 2001 1,001,875
3,000,000 U.S. Treasury Note 5.75%; October 31, 2002 2,989,689
3,000,000 U.S. Treasury Note 6.25%; February 15, 2003 3,029,064
2,500,000 U.S. Treasury Note 7.25%; August 15, 2004 2,629,687
-----------
19,898,127
-----------
Total U.S. Government Securities:
(Cost:$44,019,095) 42,345,708
-----------
Short Term Investments: 6.63%
3,221,494 Star Treasury Fund
(Cost:$3,221,494) 3,221,494
-----------
Total Investments:
(Cost:$47,240,589)* 93.75% $45,567,202
Other assets, net 6.25% 3,038,278
------ -----------
Net assets 100.00% $48,605,480
======= ===========
* Cost for Federal income tax purposes is $47,240,589 and net
unrealized depreciation consists of:
Gross unrealized appreciation $ 2,397
Gross unrealized depreciation (1,675,784)
------------
Net unrealized depreciation $(1,673,387)
============
See Notes to Financial Satements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments at value
(identified cost of $47,240,589) (Notes 1 & 3) $45,567,202
Receivables
Interest $ 409,539
Capital stock sold 2,632,800
----------
3,042,339
Deferred organization costs (Note 1) 33,266
-----------
TOTAL ASSETS 48,642,807
-----------
LIABILITIES
Investment management fees 19,735
Accrued expenses 17,592
-----------
TOTAL LIABILITIES 37,327
-----------
NET ASSETS $48,605,480
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($48,605,480/4,984,424 shares outstanding) $ 9.75
===========
At August 31, 1999 there were 50,000,000 shares of $.01 par value stock
authorized and components of net assets are:
Paid in capital $50,259,265
Undistributed net investment income 2,203
Undistributed net realized gain on investments 17,399
Net unrealized depreciation of investments (1,673,387)
-----------
Net Assets $48,605,480
===========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1999
- --------------------------------------------------------------------------------
Investment Income
Interest $ 2,152,118
-----------
Expenses
Investment management fees (Note 2) $ 206,304
Recordkeeping and administrative services (Note 2) 82,522
Custodian and accounting fees 25,723
Audit and legal fees 27,457
Shareholder servicing and reports 13,029
Registration fees 14,193
Transfer agent fees 15,851
Organization expense amortization 10,028
Other 15,966
---------
Total expenses 411,073
-----------
Net investment income 1,741,045
-----------
Realized and Unrealized Gains (Losses) on Investments
Net realized gain on investment 17,399
Net change in unrealized depreciation on investments (2,548,398)
-----------
Net loss on investments (2,530,999)
-----------
Net decrease in net assets resulting from operations $ (789,954)
===========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Period ended
Year ended August 31,
August 31, 1999 1998*
--------------- ------------
OPERATIONS
Net investment income $1,741,045 $ 714,084
Net realized gain on investments 17,399 ---
Change in net unrealized
depreciation(appreciation) of
investments (2,548,398) 875,011
----------- -----------
Net increase(decrease) in net
assets resulting from operations (789,954) 1,589,095
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income
($.61and $0 per share, respectively) (2,452,926) ---
Capital gains --- ---
CAPITAL SHARE TRANSACTIONS
Net increase in net assets
resulting from capital share
transactions** 17,948,035 32,311,230
------------ -----------
Net increase in net assets 14,705,155 33,900,325
Net assets at beginning of period 33,900,325 ---
------------ -----------
NET ASSETS at the end of the period
(including undistributed net
investment income of $2,203
and $714,084, respectively) $48,605,480 $33,900,325
=========== ===========
** A summary of capital share transactions follows:
Year ended Period ended
August 31, 1999 August 31, 1998*
--------------- ----------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 2,734,375 $27,937,035 3,708,324 $37,115,913
Shares reinvested
from distributions 239,692 2,447,668 --- ---
Shares redeemed (1,223,411) (12,436,668) (474,556) (4,804,683)
----------- ------------ ---------- -----------
Net increase 1,750,656 $17,948,035 3,233,768 $32,311,230
=========== ============ ========= ===========
* Commencement of operations January 27, 1998
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Year ended Period ended
August 31, 1999 August 31,1998*
--------------- ---------------
Per Share Operating Performance
Net asset value, beginning of period $10.48 $10.00
Income from investment operations-
Net investment income 0.39 0.22
Net realized and unrealized gain
(loss) on investments (0.51) 0.26
-------- ------
Total from investment operations (0.12) 0.48
-------- ------
Less distributions-
Distributions from net
investment income (0.61) ---
Distributions from capital gains --- ---
-------- ------
Total distributions (0.61) ---
-------- ------
Net asset value, end of period $ 9.75 $10.48
======== ======
Total Return (1.31%) 4.80%
Ratios/Supplemental Data
Net assets, end of period (000's) $48,605 $33,900
Ratio to average net assets - (A)
Expenses (B) 1.00% 1.51%**
Expenses- net (C) 1.00% 1.00%**
Net investment income 4.22% 4.34%**
Portfolio turnover rate 1.38% 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 0.50% for the period ended Augusut 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 managment fee waivers and the
custodian fee credits the fund received.
See Notes to Finanical Statements
<PAGE>
Notes to the Financial Statements
August 31, 1999
- --------------------------------------------------------------------------------
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.
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.
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.
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,
$82,522 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 $15,851 for its services for the period ended August 31,
1999.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSI, CSS, and FSI.
NOTE 3-INVESTMENTS
The cost of purchases and the proceeds from sales of securities other than
short-term notes aggregated $14,509,688 and $526,250, respectively.
<PAGE>
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, 1999, and the related statements of
operations, changes in net assets and financial highlights for each of the
periods presented 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, 1999 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 audits provide 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, 1999, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented herein, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
October 1, 1999
<PAGE>
Investment Adviser:
CSI Capital Management, Inc.
445 Bush Street, 5th Floor
San Francisco, California 94108-3725
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 CSI
Equity and CSI Fixed Income Funds' Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
More Information:
For 24 hour, 7 days a week price information, and for information on any
series of The World Funds, Inc., investment plans, and other shareholder
services, call Commonwealth Shareholder Services at (800) 527-9525 Toll
Free.
