Semi-Annual Report to Shareholders
THIRD MILLENNIUM RUSSIA FUND
A Series of
The World Fund, Inc.
a "Series" Investment Company
For the Period Ended
February 28, 1999
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
February 28, 1999 (Unaudited)
Number
of Market
Shares Security Description Value
- -------- ---------------------------------------- ----------
Common Stock: 80.64%
Beverages: 4.61%
10,540 Sun Breweries GDR * $21,080
-------
Cellular: 20.97%
6,400 Vimpel Communications Sponsored ADR *
96,000
-------
Gas: 4.79%
2,500 RAO Gazprom Sponsored ADR
21,937
-------
Oil: 24.60%
10,920 Surgutneftegaz Sponsored ADR 53,235
13,000 Tatneft Sponsored ADR 21,125
1,820 LUKoil Oil Company Sponsored ADR 38,220
----------
112,580
----------
Telecommunications: 5.06%
4,750 Rostelecom Sponsored ADR 23,156
----------
Utilities: 20.61%
10,550 AO Mosenergo Sponsored ADR 20,573
9,400 Irkutskenergo AO Sponsored ADR 22,560
10,240 RAO Unified Energy System Sponsored ADR 51,200
----------
94,333
----------
Total Investments:
(Cost: $344,466)** 80.64% 369,086
Other assets, net 19.36% 88,622
----- ------
Net Assets 100.00% $ 457,708
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* Non-income producing
** Cost for Federal income tax purpose is $344,466 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 41,087
Gross unrealized depreciation (16,467)
--------
Net unrealized appreciation $ 24,620
=========
ADR--Security represented is held by the custodian bank in the form of American
Depository Receipts.
GDR--Security represented is held by the custodian bank in the form of
Global Depository Receipts.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments at value
(identified cost of $344,466 )(Notes 1 & 3) $ 369,086
Cash 36,234
Capital stock purchased 1,000
Deferred organization costs(Note 1) 83,514
Other assets 5,000
---------
Total Assets 494,834
---------
Liabilities
Due to investment advisor 37,126
---------
Total Liabilities 37,126
---------
Net Assets $ 457,708
=========
Net Asset Value,
Offering and Redemption
Price Per Share
$457,708 / 45,177 shares outstanding) $10.13
=========
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 $ 434,638
Net realized loss on investments (51)
Net investment loss (1,499)
Net unrealized appreciation of investments 24,620
Net Assets $ 457,708
===========
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Period ended February 28, 1999 * (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Total income $ 0
--------
Expenses
Investment advisory fees (Note 2) 1,355
12b-1 fees 248
Transfer agent fees (Note 2) 2,174
Registration fees 868
Recordkeeping and administrative
services (Note 2) 4,808
Shareholder servicing
and reports (Note 2) 2,004
Organization expense amortization 1,312
Miscellaneous 1,398
-------
Total expenses 14,167
Management fee waiver and
expense reimbursements (12,668)
--------
Net expenses 1,499
--------
Net investment loss (1,499)
--------
Realized and Unrealized Gain on Investments
Net realized loss on investments (51)
Net increase in unrealized appreciation
on investments 24,620
--------
Net gain on investments 24,569
--------
Net increase in net assets resulting from operations $23,070
========
* Commencement of operations was October 1, 1998
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Period ended February 28, 1999 * (Unaudited)
- --------------------------------------------------------------------------------
Operations
Net investment loss $ (1,499)
Net realized loss on investments (51)
Unrealized appreciation of investments 24,620
----------
Net increase in net assets resulting from operations 23,070
Capital Share Transactions
Net increase in net assets resulting from
capital share transactions ** 424,638
----------
Net increase in net assets 447,708
Net assets at beginning of period 10,000
----------
Net Assets at the end of the period $ 457,708
==========
** A summary of capital share transactions follows:
Period ended February 28, 1999*
(Unaudited)
-----------------------------------------
Shares Value
--------------- --------------
Shares sold 46,478 $ 448,354
Shares reinvested from
dividends -- --
Shares redeemed (2,301) (23,716)
-------- ------------
Net increase 44,177 $ 424,638
======== ============
* Commencement of operation was October 1, 1998
See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
For A Share Outstanding Throughout The Period
- --------------------------------------------------------------------------------
Period Ended
February 28, 1999 *
(Unaudited)
--------------------
Per Share Operating Performance
Net asset value, beginning of period $10.00
-------
Income from investment operations-
Net investment loss (0.03)
Net realized and unrealized gain on investments .16
-------
Total from investment operations 0.13
-------
Less distributions-
Distributions from net investment income 0.00
Distributions from capital gains 0.00
-------
Total distributions 0.00
-------
Net asset value, end of period $10.13
=======
Total return 1.30%
Ratios/Supplemental Data
Net assets, end of period (000's) $458
Ratio to average net assets - (A) 18.30%**
Expenses
Expense ratio - net 1.94%**
Net investment loss (1.94)%**
Portfolio turnover rate 13.13%
* Commencement of operations was October 1, 1998
** Annualized
(A) Management fee waivers reduced the expense ratio and increased the net
investment income ratio.
See Notes to Financial Statements
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Third Millennium Russia 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 non-diversified open-end
management company. The Fund was established in June, 1998 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. Initial outside investors purchased shares of the
Fund on June 29, 1998. However, investment operations of the Fund did not
commence until October 1, 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 seek to achieve capital appreciation
by investing in a non-diversified portfolio consisting primarily of equity
securities (which includes securities convertible into equity securities, such
as warrants, convertible bonds, debentures or convertible preferred stock).
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. Russian securities are also valued at
the closing price on the principal exchange on which the security is traded,
or at the last reported bid price in the over-the-counter market. The Fund
reserves the right to value securities at fair market value when events occur
prior to the close of the NYSE, and cause a change in value from the price
determined as of the close of Russian markets.
Short-term debt securities (less than 60 days to maturity) are valued at
their fair market value using amortized cost pricing procedures set, and
determined to be fair, by the Board of Directors. Other assets for which
market prices are not readily available are valued at their fair value as
determined in good faith under procedures set by the Board of Directors.
ADR's, EDR's and GDR's will be valued at the closing price of the instrument
last determined prior to the valuation time unless TWF is aware of a material
change in value. Items for which such a value cannot be readily determined on
any day will be valued at the closing price of the underlying security
adjusted for the 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. 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 the Fund incurred
in connection with its organization and the public offering of its shares
have been assumed by the Fund. The organization expenses allocable to the
Fund are being amortized over a period of fifty-six (56) 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, DISTRIBUTION AGREEMENTS AND OTHER--Pursuant to an
Investment Advisory Agreement, the Advisor, Third Millennium Investment Advisors
LLC ("TMIA") provides investment services for an annual fee of 1.75% on the
first $125 million of assets; 1.50% on assets in excess of $125 million and not
more than $250 million; and, 1.25% on assets over $250 million of average daily
net assets of the Fund.
First Dominion Capital Corp. ("FDCC") acts as the Fund's principal
underwriter in the continuous public offering of the Fund's shares.
The Fund has adopted a Distribution Plan (the "Plan") in accordance with Rule
12b-1 under the 1940 Act. The Plan provides that the Fund will pay a fee to the
Distributor at an annual rate of 0.25% of the Fund's average daily net assets.
The fee is paid to the Distributor as reimbursement for expenses incurred for
distribution-related activity. For the period ended February 28, 1999, the
Distributor waived fees of $248.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $5,971 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, with a minimum fee of
$15,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $2,174 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 CSS and FSI.
NOTE 3- INVESTMENTS--Purchases and sales of securities other than
short-term notes aggregated $367,695 and $23,178, respectively.
