Annual Report to Shareholders
SAND HILL PORTFOLIO MANAGER FUND
A Series of
The World Funds, Inc.
a "Series" Investment Comapny
For the Year Ended
August 31, 1999
<PAGE>
Dear Shareholders:
The Fund's total return for the fiscal year ended August 31, 1999 was
23.22%. This compares with the following relevant indices:
S&P 500.......................... 39.76%
MSCI EAFE (international index).. 25.67%
Salomon Treasury Bond Index...... 0.07%
U.S. Treasury Bills (cash surrogate) 4.91%
The composition of the Fund at fiscal year-end was 58.1% domestic stocks,
14.3% international stocks, 20.9% domestic bonds and 6.7% cash. The domestic
stock portfolio consisted of 31 companies from a cross-section of industries and
market capitalizations, although the majority of the firms had a market
capitalization well over $1 billion. Sectors represented in the Fund included
technology (25.1% of the stock portfolio), healthcare (13.7%), consumer staples
(13.4%), financials (12.9%) and consumer cyclicals (10.9%). Other sectors had
smaller weightings. The largest single equity position in the Fund was EMC at
2.6% of total assets.
The international stock allocation consisted of 8 positions. The
international holdings in the Fund were comprised of American Depository
Receipts (ADRs) of larger companies from a number of industries and countries.
Regions represented in the Fund included the U.K. (26.4% of the international
stock portfolio), Europe (20.8%), Japan (18.8%), Latin America (11.6%), Resource
Countries (11.3%) and Asia ex-Japan (11.0%).
The domestic bond allocation consisted of US Treasury bills and notes, as
well as obligations of government agencies. All had maturities between one and
ten years.
In recent years, investors have shown a pronounced bias for domestic over
foreign stocks, large cap over small cap companies and growth over value names.
The Fund typically holds securities from each of these groups. This
diversification strategy reduces volatility and risk, but it can also result in
underperformance versus an index like the S&P 500. This is especially true
during periods of extremely narrow market breadth, such as the current stock
market environment. The Fund adjusts its allocation based on a long-term
perspective of the relative attractiveness of the various asset classes and
types of stocks, with the ultimate goal of maintaining
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN SANDHILL PORTFOLIO MANAGER
FUND VS. LIPPER GLOBAL FLEXIBLE PORTFOLIO FUND INDEX
[graph goes here]
Date Sand Hill Portfolio Lipper Global Flexible
Manager Fund Portfolio Fund Index
1/1/95 $10,000 $10,000
12/31/95 $11,160 $11,720
12/31/96 $13,344 $13,437
12/31/97 $15,729 $15,070
8/31/98 $14,670 $14,361
8/31/99 $18,077 $17,930
Past performance is not predictive of future performance.
[end graph]
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Average Annual Total Return for Period ended August 31, 1999
1 Year 3 Years Since Inception
23.22% 15.10% 13.52%
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- --------------------------------------------------------------------------------
The Lipper Global Flexible Index is an equally-weighted performance indice,
adjusted for capital gains distributions and income dividends of the largest 10
qualifying funds that allocate their investments across various asset classes,
including both domestic and foreign stocks, bonds, and money market instruments
with a focus on total return. At least 25% of their portfolio is invested in
securities traded outside of the United States.
(The comparative index is not adjusted to reflect expenses that the SEC
requires to be reflected in the Fund's performance.)
- --------------------------------------------------------------------------------
Sand Hill Portfolio Manager Fund
Schedule of Portfolio Investments
August 31, 1999
Number of Market
Shares Security Description Value
------ -------------------- -----
Common Stock: 72.37%
Capital Goods: 3.65%
5,800 Dover Corp. $ 224,387
4,300 Johnson Controls Inc. 294,013
-----------
518,400
-----------
Communication Services: 5.74%
3,900 Ameritech Corp 246,187
2,200 MCI Worldcom, Inc.* 166,650
2,000 Vodafone Airtouch 401,125
----------
813,962
----------
Consumer Cyclicals: 7.89%
14,100 Leggett & Platt, Inc. 311,962
7,600 Servicemaster Co. 125,400
12,300 Sherwin-Williams Co. 299,812
3,000 Sony ADR 381,938
----------
1,119,112
----------
Consumer Staples: 9.71%
5,700 Albertsons Inc. 273,244
6,650 Newell Rubbermaid Co. 272,650
12,500 Panamerican Beverages Inc. 235,156
8,200 Pepsico Inc. 279,825
8,800 Whole Foods Markets* 316,250
----------
1,377,125
----------
Energy: 6.44%
1,200 BP Amoco ADR 134,550
2,800 Mobil Corp. 286,650
12,000 Nabors Industries* 326,250
2,500 Schlumberger Ltd. 166,875
----------
914,325
----------
Financials: 7.18%
4,000 Radian Group 185,250
3,600 HSBC Hldgs PLC ADR 224,100
6,500 MBIA Inc. 337,188
7,700 Regions Financial Corp. 271,906
----------
1,018,444
----------
Healthcare: 9.93%
3,800 Abbott Labs 164,825
5,800 Amgen Inc.* 482,487
6,400 Elan Corp. 205,200
1,800 Johnson & Johnson 184,050
7,100 Schering-Plough Corp. 373,194
----------
1,409,756
----------
REIT: 2.14%
7,400 Apartment Invst/Mgmt Co. 303,400
----------
Technology: 18.16%
5,975 Cambridge Tech.* 81,783
7,000 EMC Corp.* 420,000
7,200 Grainger (W.W.) Inc. 313,650
6,100 Intel Corp. 501,344
2,100 Microsoft Corp.* 194,381
5,600 Nortel Networks 229,950
6,600 SAP ADR 217,800
6,200 Sun Microsystems* 492,900
5,000 Sungard Data Systems* 125,000
----------
2,576,808
----------
Transportation: 0.96%
4,100 Gatx Corp. 136,838
----------
Utilities: 0.57%
3,400 Nipsco Industries 80,750
----------
Total Common Stocks:
(Cost: $7,194,580) 10,268,920
----------
Principal
Amount U.S. Government Securities: 20.93%
- ------------
$ 100,000 U.S. Treasury Note
maturity date 10/31/99; 7.5% 100,406
500,000 U.S. Treasury Note
maturity date 07/31/00; 6.125% 502,969
600,000 U.S. Treasury Note
maturity date 02/28/01; 5.625% 599,250
300,000 U.S. Treasury Note
maturity date 09/30/02; 5.875% 300,094
200,000 U.S. Treasury Note
maturity date 01/31/03; 5.5% 197,500
200,000 U.S. Treasury Note
maturity date 2/15/03; 6.25% 201,938
300,000 U.S. Treasury Note
maturity date 02/15/04; 5.875% 299,344
200,000 U.S. Treasury Note
maturity date 11/15/05; 5.875% 197,500
380,000 Federal National Mortgage
maturity date 03/05/07; 6.66% 377,288
200,000 Federal Home Loan
maturity date 08/11/09; 6.8% 193,730
----------
Total U.S. Government Securities:
(COST:$2,975,925) 2,970,019
----------
Short Term Investment: 6.52%
925,589 Star Treasury Fund
(Cost: $925,589) 925,589
----------
Total Investments:
(Cost: $11,096,094)** 99.82% $14,164,528
Other assets, net 0.18% 25,538
-------- -----------
NET ASSETS 100.00% $14,190,066
======== ===========
* Non-income producing
** Cost for Federal income tax purpose is $11,096,094 and net unrealized
appreciation consists of:
Gross unrealized appreciation $3,074,341
Gross unrealized depreciation (5,907)
----------
Net unrealized appreciation $3,068,434
==========
ADR --- Security represented is held by the custodian bank in the form of
American Depository Receipts
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments at value (identified cost of $11,096,094)
(Notes 1 & 3) $14,164,528
Receivables
Dividends $ 8,430
Interest 34,848
-------
43,278
Deferred organization costs (Note 1) 4,605
-----------
TOTAL ASSETS 14,212,411
-----------
LIABILITIES
Investment advisory fees 12,100
Accrued expenses 10,245
-----------
TOTAL LIABILITIES 22,345
-----------
NET ASSETS $14,190,066
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($14,190,066 / 901,904 shares outstanding) $ 15.73
===========
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 $11,136,043
Undistributed net investment income 20,820
Accumulated net realized loss (35,231)
Net unrealized appreciation of investments 3,068,434
-----------
Net assets $14,190,066
===========
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1999
- --------------------------------------------------------------------------------
Investment Income
Interest $157,374
Dividend 108,734
--------
Total income $ 266,108
----------
Expenses
Investment advisory fees (Note 2) 126,902
Transfer agent fees (Note 2) 21,565
Legal and audit fees 22,644
Recordkeeping and administrative services (Note 2) 25,381
Custodian and accounting fees 19,865
Shareholder servicing and reports (Note 2) 17,350
Organization expense amoritization 6,901
Miscellaneous 20,557
---------
Total expenses 261,165
Custody fee credits (19,865)
----------
Net expenses 241,300
----------
Net investment income 24,808
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 371,168
Net increase in unrealized appreciation on investments 2,083,003
----------
Net gain on investments 2,454,171
----------
Net increase in net assets resulting from operations $2,478,979
==========
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year ended Period ended Year ended
August 31, August 31, December 31,
1999 1998(A) 1997
--------- ------------ ------------
OPERATIONS
Net investment income $ 24,808 $ 46,559 $ 57,124
Net realized gain on
investments 371,168 208,774 265,654
Change in unrealized
appreciation (depreciation
of investments 2,083,003 (1,031,352) 984,658
Net increase (decrease)
in net assets
resulting from
operations 2,478,979 (776,019) 1,307,436
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
($.07, $ -- and $.08
per share, respectively) (55,461) -- (52,211)
Capital gains ($.85, $ --
and $.43 per share
respectively) (673,457) -- (280,635)
CAPITAL SHARE TRANSACTIONS
Net increase in net
assets resulting from
capital share
transactions* 2,070,111 579,796 3,132,102
Net increase(decrease)
in net assets 3,820,172 (196,223) 4,106,692
Net assets at
beginning of period 10,369,894 10,566,117 6,459,425
NET ASSETS at the end of
the period (including
undistributed net
investment income of
$20,820, $51,473 and
$4,913, respectively) $14,190,066 $10,369,894 $10,566,117
=========== =========== ===========
* A summary of capital share transactions follows:
Year ended Period ended Year ended
August 31, 1999 August 31,1998(A) December 31, 1997
-------------------- -------------------- --------------------
Shares Value Shares Value Shares Value
------ ----- ------ ----- ------ -----
Shares sold 160,793 $ 2,448,547 121,845 $1,852,309 240,636 $ 3,384,487
Shares
reinvested
from
distribution 48,380 692,324 -- -- 21,704 318,619
Shares
redeemed (70,273) (1,070,760) (83,865) (1,272,513) (42,017) (571,004)
-------- ------------ -------- ----------- -------- -----------
Net increase 138,900 $ 2,070,111 37,980 $ 579,796 220,323 $ 3,132,102
======= =========== ======= =========== ======= ===========
(A) The Fund has changed its year end from December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Year Period
ended ended Years ended Jan. 2,
August August December 31, 1995* to
31, 31, ---------------- Dec. 31,
1999 1998*** 1997 1996 1995
------- -------- ---- ---- --------
Per Share
Operating Performance
Net asset value,
beginning of period $13.59 $14.57 $12.79 $11.11 $10.00
------ ------ ------ ------ ------
Income from
investment operations-
Net investment income 0.02 0.06 0.09 0.14 0.06
Net realized and
unrealized gains on
investments 3.04 (1.04) 2.20 2.02 1.10
------ ------- ------ ------ ------
Total from
investment operations 3.06 (0.98) 2.29 2.16 1.16
------ ------- ------ ------ ------
Less distributions-
Distributions from
net investment
income (0.07) -- (0.08) (0.15) (0.05)
Distributions from
realized gains on
investments (0.85) -- (0.43) (0.33) --
------- -------- ------- ------- -------
Total distributions (0.92) 0.00 (0.51) (0.48) (0.05)
Net asset value,
end of period $ 15.73 $13.59 $14.57 $12.79 $11.11
======= ====== ====== ====== ======
Total Return 23.22% (6.73%) 17.87% 19.57% 11.60%
Ratios/Supplemental Data
Net assets, end of
period (000's) $14,190 $10,370 $10,566 $6,459 $4,025
Ratio to average
net assets - (A)
Expenses (B) 2.05% 2.08** 2.08% 2.50% 3.03%**
Expense ratio-net(C ) 1.90% 1.86** 1.90% 2.00% 1.90%**
Net investment income 0.19% 0.62** 0.71% 1.29% 0.52%**
Portfolio turnover rate 39.17% 30.19% 16.48% 32.97% 40.96%
* Commencement of operations
** Annualized
*** The Fund has changed its year end from December 31st to August 31st.
This represents the period from January 1, 1998 to August 31, 1998.
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .64% in 1996 and 1.00% in 1995.
(B) Expense ratios have been increased to include custodian fees which were
offset by custodian credits.
(C) Expense ratio - net reflects the effect of the custodian fee credits
the fund received.
See Notes to Financial Statements
<PAGE>
Sand Hill Portfolio Manager Fund
Notes to the Financial Statements
August 31, 1999
- --------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The Sand Hill Portfolio Manager Fund (the "Fund") is a series of The World
Funds, Inc. ("TWF") which is registered under The Investment Company Act of
1940, as amended, as a diversified open-end management company. The Fund was
established in January 2, 1995 as a series of TWF which has allocated to the
Fund 50,000,000 shares of its 500,000,000 shares of $.01 par value common stock.
The following is a summary of significant accounting policies consistently
followed by the Fund. The policies are in conformity with generally accepted
accounting principles.
The investment objective of the Fund is to maximize total return by
investing in equity securities, debt securities and short-term investments.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System are valued
at the last reported sales price; other securities traded in the
over-the-counter market and listed securities for which no sale is reported on
that date are valued at the last reported bid price. Short-term investments
(securities with a remaining maturity of sixty days or less) are valued at cost
which, when combined with accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions and 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 TWF incurred in
connection with its organization and the public offering of its shares have been
assumed by the series funds of TWF. The organization expenses allocable to Sand
Hill Portfolio Manager Fund are being amortized over a period of fifty-seven
(57) months.
E. Distributions to Shareholders. Distributions from net investment income
and realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distribution differences primarily result from different
treatments of equalization and post-October capital losses.
F. Accounting Estimates. In preparing financial statements in conformity
with generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS
Pursuant to an Investment Advisory Agreement, the Advisor, Sand Hill
Advisors ("SHA") provides investment services for an annual fee of 1.0% of the
first $100 million of average daily net assets and .75% on average daily net
assets over $100 million.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its Administrative Agent,
$42,731 for providing shareholder services, recordkeeping, administrative
services and blue-sky filings. The Fund compensates CSS for blue-sky filings and
certain shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $21,565 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 CSS and FSI.
NOTE 3- INVESTMENTS/CUSTODY
The cost of purchases and proceeds from sales of securities other than
short-term notes for the period ended August 31, 1999, were $6,480,813 and
$4,420,727, respectively.
The custodian has provided credits against custodian charges based on
credits on uninvested cash balances of the Fund in the amounts of $19,865 and
$16,807 for the periods ended August 31, 1999 and August 31, 1998, respectively.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of World Funds, Inc.
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
Sand Hill Portfolio Manager Fund, a series of World Funds, Inc., including the
schedule of portfolio investments as of August 31, 1999, and the related
statement of operations for the year then ended and the statement of changes in
net assets and the financial highlights for each of the periods indicated
herein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 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
Sand Hill Portfolio Manager Fund as of August 31, 1999, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
October 1, 1999
<PAGE>
Investment Adviser:
Sand Hill Advisors, Inc.
3000 Sand Hill Road
Building Three, Suite 150
Menlo Park, California 94025-7111
Distributor:
First Dominion Capital Corp.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
Independent Auditors:
Tait, Weller and Baker
Eight Penn Center Plaza
Suite 800
Philadelphia, Pennsylvania 19103
Transfer Agent:
For account information, wire purchase or redemptions, call or
write to Sand Hill's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
More Information:
For 24 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.
