Annual Report to Shareholders
SAND HILL PORTFOLIO MANAGER FUND
A Series of
The World Funds, Inc.
A "Series"Investment Company
For the Year Ended
August 31, 2000
<PAGE>
Dear Shareholders:
The Fund's total return for the fiscal year ended August 31, 2000 was 24.24%.
This compares with the following relevant benchmarks:
-------------------------------------------- ----------------------------------
Lipper Global Flexible Index 16.09%
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S&P 500 16.29%
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-------------------------------------------- ----------------------------------
MSCI EAFE (international stocks) 12.68%
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Salomon Treasury Bond Index 8.04%
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-------------------------------------------- ----------------------------------
U.S. Treasury Bill Index (cash surrogate) 5.86%
-------------------------------------------- ----------------------------------
The composition of the Fund at fiscal year-end was 67.1% domestic stocks, 18.6%
international stocks, 10.7% bonds and 3.6% cash. The portfolio consisted of 38
stocks from a cross-section of industries and market capitalizations, although
the majority of holdings were companies with a market capitalization over $10
billion. Sectors represented in the Fund included technology (26.7% of the
equity allocation), financials (14.2%), healthcare (13.4%), consumer cyclicals
(9.7%), consumer staples (9.2%) and communications (8.3%). Other sectors had
smaller weightings. The largest single position in the Fund was Sun
Microsystems, at 5.2% of equities.
The international stock allocation consisted of 6 positions. These were
comprised of American Depositary Receipts (ADRs) of larger companies from a
number of industries and countries. Regions represented in the Fund included
Europe (5.2% of the equity allocation), Japan (4.9%), Canada (4.6%), Asia
ex-Japan (3.8%) and the United Kingdom (3.2%).
The domestic bond allocation consisted of US Treasury bills and notes, the
obligations of government agencies, and high quality corporate bonds. All fixed
income securities had maturities between one and ten years.
The last twelve months were marked by a pronounced increase in stock market
volatility. After crossing the Y2K threshold intact, investors focused their
attention on stocks with more reasonable valuations. This change manifested
itself in a preference for small- and mid-cap names over the large-cap issues
that have led the market's advance over the last few years. Additionally, the
Nasdaq's sell-off in early 2000 heralded a rotation out of technology and
communications and into more defensive sectors like healthcare and utilities.
Energy and financial stocks also outperformed due to the outlook for interest
rates, on the one hand, and record high prices for oil, on the other. Bonds
fared extremely well, as nervous investors fled to their relative security.
Such an environment has favored the Fund's investment style. Turbulent markets
often create excellent opportunities to buy quality companies at more attractive
prices. The Fund took advantage of several such opportunities over the last
year, upgrading the quality of our holdings and improving the portfolio's
risk-reward profile in the process. Furthermore, the Fund typically holds
securities from each of the major asset classes--stocks, bonds and cash--and is
diversified across style and size. As such, it holds a mixture of growth and
value stocks across the market capitalization spectrum. This diversification
strategy reduces volatility and risk, and allowed the Fund to benefit from the
asset and sector trends discussed above. We are pleased to have outperformed
both our peer group and the broader market, and look to continue to deliver
outstanding results going forward.
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN SAND HILL PORTFOLIO
MANAGER FUND VS. LIPPER GLOBAL FLEXIBLE FUND INDEX
[graph goes here]
Date Sand Hill Portfolio Lipper Global Flexible
Manager Fund Fund Index
1/5/95 $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 $16,967 $17,930
8/31/00 $22,435 $20,817
Past performance is not predictive of future performance.
[end graph]
-----------------------------------------------------------------------
Average Annual Total Return for Period Ended August 31, 2000
1 Year 3 Year Since Inception
24.24% 14.04% 15.31%
-----------------------------------------------------------------------
--------------------------------------------------------------------------------
The Lipper Global Flexible Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income dividends, of the 10 largest
qualifying funds that allocate their investments across various asset classes,
including both domestic and foreign stocks, bonds, and money market investments
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.)
--------------------------------------------------------------------------------
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Number
of Market
Shares Security Description Value
-------- -------------------- ------
COMMON STOCK: 85.76%
BASIC MATERIALS: 1.55%
9,600 Symyx Technologies* $ 356,400
-----------
CAPITAL GOODS: 4.53%
7,400 Dover Corp. 361,675
12,700 Johnson Controls Inc. 678,656
-----------
1,040,331
-----------
COMMUNICATIONS: 7.13%
19,000 AT&T 598,500
8,432 SBC Communications 352,036
12,500 Williams Communications* 367,188
8,800 Worldcom, Inc.* 321,200
-----------
1,638,924
-----------
CONSUMER CYCLICALS: 8.33%
36,500 Leggett & Platt, Inc. 645,594
8,400 Sony ADR 959,700
13,300 Target Corp. 309,225
-----------
1,914,519
-----------
CONSUMER STAPLES: 7.89%
12,500 Newell Rubbermaid Co. 324,219
9,000 Pepsico Inc. 383,625
11,900 Procter and Gamble Co. 735,569
7,300 Whole Foods Markets* 368,650
-----------
1,812,063
-----------
ENERGY: 5.97%
11,500 BP Amoco ADR 635,375
4,356 Exxon Mobil Corp 355,559
8,000 Nabors Industries* 380,500
-----------
1,371,434
-----------
FINANCIALS: 12.21%
4,650 American International Group 414,431
4,265 Citigroup 248,968
7,600 Equity Residential Property 364,800
10,300 HSBC Hldgs PLC ADR 746,106
11,000 MBIA Inc. 723,250
7,100 Wells Fargo & Co. 306,631
-----------
2,804,186
-----------
HEALTHCARE: 11.52%
7,400 Abbott Labs 323,750
9,400 Amgen Inc.* 712,638
10,200 Elan Corp. ADR* 594,787
7,350 Johnson & Johnson 675,741
8,450 Schering-Plough Corp. 339,056
-----------
2,645,972
-----------
TECHNOLOGY: 22.89%
10,200 EMC Corp.* 999,600
11,000 Intel Corp. 823,625
5,300 Microsoft Corp. * 370,006
11,200 Nortel Networks ADR 913,500
6,600 SAP ADR 423,638
7,400 Solectron* 335,312
8,000 Sun Microsystems* 1,015,500
10,500 Sungard Data Systems* 378,000
-----------
5,259,181
-----------
TRANSPORTATION: 1.45%
6,000 United Parcel Services 332,625
-----------
UTILITIES: 2.29%
6,200 Enron Corp. 526,225
-----------
TOTAL COMMON STOCKS:
(Cost: $12,651,971) 19,701,860
-----------
Principal
Amount FIXED INCOME SECURITIES: 10.67%
----------
$ 300,000 General Electric Capital Group
maturity date 04/15/02; 5.5% 293,283
300,000 Federal National Mortgage Association
maturity date 11/15/02; 6.25% 297,266
200,000 General Electric Capital Group
maturity date 02/03/03; 7.0% 200,370
300,000 U.S. Treasury Note
maturity date 02/15/04; 5.875% 298,219
200,000 U.S. Treasury Note
maturity date 11/15/05; 5.875% 198,813
380,000 Federal National Mortgage Association
maturity date 03/05/07; 6.66% 376,456
200,000 Federal National Mortgage Association
maturity date 05/01/08; 6.60% 192,503
200,000 Federal Home Loan Bank
maturity date 08/11/09; 6.8% 193,036
400,000 Federal Home Loan Bank
maturity date 01/28/10; 7.57% 401,625
-----------
TOTAL FIXED INCOME SECURITIES:
(Cost: $2,450,820) 2,451,571
-----------
TOTAL INVESTMENTS:
(Cost: $15,102,791)** 96.43% 22,153,431
Other assets, net 3.57% 820,732
----- -----------
NET ASSETS 100.00% $22,974,163
====== ===========
*Non-income producing
**Cost for Federal income tax purposes is $15,102,791 and net unrealized
appreciation consists of:
Gross unrealized appreciation $7,461,585
Gross unrealized depreciation (410,945)
----------
Net unrealized appreciation $7,050,640
----------
ADR --- Security represented is held by the custodian bank in the form of
American Depositary Receipts
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost of $15,102,791)
(Notes 1 & 3) $22,153,431
Cash 690,430
Receivables:
Dividends $26,705
Interest 55,436
Capital stock sold 80,503
162,644
Prepaid expenses 3,159
-----------
TOTAL ASSETS 23,009,664
-----------
LIABILITIES
Investment advisory fees 18,864
Accrued expenses 16,637
-----------
TOTAL LIABILITIES 35,501
-----------
NET ASSETS $22,974,163
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($22,974,163 / 1,193,332 shares
outstanding) $ 19.25
===========
At August 31, 2000, there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $16,263,042
Undistributed net investment income 35,753
Accumulated net realized loss (375,272)
Net unrealized appreciation of invests 7,050,640
-----------
Net Assets $22,974,163
===========
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
INVESTMENT INCOME
Interest $ 227,197
Dividend 162,887
----------
Total income $ 390,084
----------
EXPENSES
Investment advisory fees 178,818
Custody fees and accounting fees (Note 2) 37,757
Recordkeeping and administrative services (Note 2) 35,764
Legal and audit fees 13,112
Transfer agent fees (Note 2) 21,551
Shareholder servicing and reports (Note 2) 14,981
Organization expense amortization 4,603
Registration fees 4,333
Miscellaneous 18,846
----------
Total expenses 329,765
----------
Net investment income 60,319
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investments (76,402)
Net increase in unrealized appreciation 3,982,206
----------
Net gain on investments 3,905,804
----------
Net increase in net assets resulting from operations $3,966,123
==========
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Year ended
August 31, August 31,
2000 1999
----------- ----------
OPERATIONS
Net investment income $ 60,319 $ 24,808
Net realized gain (loss) on investments (76,402) 371,168
Change in unrealized appreciation
of investments 3,982,206 2,083,003
----------- ----------
Net increase in net assets resulting
from operations 3,966,123 2,478,979
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.05 and $.07
per share, respectively (45,386) (55,461)
Capital gains ($.23 and $.85 per share,
respectively) (263,639) (673,457)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* 5,126,999 2,070,111
----------- ----------
Net increase in net assets 8,784,097 3,820,172
Net assets at end of year 14,190,066 10,369,894
----------- ----------
NET ASSETS at the end of the year
(including undistributed net
investment income of $35,373 and
$20,820, respectively) $22,974,163 $14,190,066
=========== ===========
* A summary of capital share transactions follows:
Year ended Year ended
August 31, 2000 August 31, 1999
--------------- ---------------
Shares Value Shares Value
-------- ------- -------- -------
Shares sold 392,468 $6,872,129 160,793 $2,448,547
Shares reinvested
from distribution 16,869 304,977 48,380 692,324
Shares redeemed (117,909) (2,050,107) (70,273) (1,070,760)
------- --------- ------- ---------
Net increase 291,428 $5,126,999 138,900 $2,070,111
======= ========== ======= ==========
See Notes to Financial Statements
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Years ended Jan 2, 1995*
Year ended Year ended Period ended December 31, to
August 31, 2000 August 31, 1999 August 31,1998*** 1997 1996 Dec 31, 1995
--------------- --------------- ----------------- ------- ------- ------------
Per Share Operating Performance
Net asset value, beginning
of period $ 15.73 $ 13.59 $ 14.57 $ 12.79 $ 11.11 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations-
Net investment income 0.08 0.02 0.06 0.09 0.14 0.06
Net realized and unrealized gain
(loss) on investments 3.72 3.04 (1.04) 2.20 2.02 1.10
------- ------- ------- ------- ------- -------
Total from investment 3.80 3.06 (0.98) 2.29 2.16 1.16
------- ------- ------- ------- ------- -------
Less distributions-
Distributions from net
investment income (0.05) (0.07) -- (0.08) (0.15) (0.05)
Distributions from realized gains
on investments (0.23) (0.85) -- (0.43) (0.33) --
------- ------- ------- ------- ------- -------
Total distributions (0.28) (0.92) -- (0.51) (0.48) (0.05)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 19.25 $ 15.73 $ 13.59 $ 14.57 $ 12.79 $ 11.11
======= ======= ======= ======= ======= =======
Total Return 24.24% 23.22% (6.73%) 17.87% 19.57% 11.60%
======= ======= ======= ======= ======= =======
Ratios/Supplemental Data
Net assets, end of period (000s) $22,974 $14,190 $10,370 $10,566 $ 6,459 $ 4,025
Ratio to average net assets -(A)
Expenses (B) 1.84% 2.05% 2.08% 2.08% 2.50% 3.03%**
Expense ratio - net (C) 1.84% 1.90% 1.86% 1.90% 2.00% 1.90%**
Net investment income 0.34% 0.19% 0.62% 0.71% 1.29% 0.52%**
Portfolio turnover rate 45.85% 39.17% 30.19% 16.48% 32.97% 40.96%
</TABLE>
* Commencement of operations
** Annualized
*** The Fund 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, 2000
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 were 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,
$35,850 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 $21,551 for its services for the year ended
August 31, 2000.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSS and FSI.
NOTE 3 - INVESTMENTS
The cost of purchases and proceeds from sales of securities other than
short-term notes for the year ended August 31, 2000, were $12,839,822 and
$7,833,661, 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 Sand
Hill Portfolio Manager Fund, a series of The World Fund, Inc., including the
schedule of portfolio investments as of August 31, 2000, and the related
statement of operations for the year then ended and the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for 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, 2000, 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, 2000, the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended 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
September 22, 2000
<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.
<PAGE>
Annual Report to Shareholders
CSI Equity Fund
CSI Fixed Income Fund
CSI Capital Management
Financial Advisors
Investment Counsel
For the Year Ended
August 31, 2000
<PAGE>
October 16, 2000
RE: CSI Equity Fund
Dear Shareholder:
We are pleased to report that during the Fund's most recently completed
fiscal year (August 31, 2000), the net asset value increased by approximately
38%. This is significantly greater than the increase in the S&P 500 stock index
during that same period (about 15%) or the Morgan Stanley Capital International
World Index (about 12%).
A number of factors contributed to this performance. An important one was
our decision to decrease the portion of our portfolio devoted to technology.
Twice during the fiscal year we significantly reduced our holdings in the
technology sector prior to market declines in the sector. As we diminished our
holdings of technology sector stock, we increased our positions in stocks in the
"old" economy such as oils, financials, consumers, and drug manufacturers. The
result of this program can be seen in the relative weightings of our stocks. At
the end of our last fiscal year (August, 1999), seven of our top 10 holdings
were technology companies, while at the end of this fiscal year (August, 2000),
only three belonged to that sector.
As a global fund, we continue to invest a significant portion of our
assets in companies headquartered outside of the United States. At the end of
the fiscal year, approximately 28% of the Fund's assets were invested in such
companies. We believe this contributed to stability in the Fund's value during
periods of U.S. market decline. Although the Euro has declined significantly in
value against the U.S. dollar, and even though that affects the market value of
our international stocks, we have been able to maintain our performance as
indicated above. This is the result of our selection of individual securities
which have outperformed the market averages.
It is important that we have been able to achieve our results without
concentrating our assets into a very few stocks. At the end of the last fiscal
year, the largest single company accounted for approximately 3.3% of the
portfolio. This means that our performance is based upon the good showing of a
number of stocks and not because of the overwhelming success of one or two
companies.
We attempt to select companies that we believe will show sustained growth
in earnings, and we diversify our holdings among those companies across
international borders and across industries. This has served us well since the
inception of the Fund on October 15, 1997. Since that time, the S&P 500 Index
has increased approximately 57%, and the average global fund as tracked by
Lipper Analytical Services has increased approximately 47%. Our Fund has
increased approximately 84% during this same term.
With the year 2000 showing the possibility of being the first year in the
last five that has not seen an increase in the general market averages, we
believe that good stock selection will be more important than ever.
Sincerely,
Leland H. 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
8/31/2000 $18,396 $14,736
Past performance is not predictive of future performance.
[end graph]
--------------------------------------------------------------
Average Annual Total Return for Period ended August 31, 2000
1 Year Since Inception
37.50% 23.55%
--------------------------------------------------------------
--------------------------------------------------------------------------------
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 in 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, 2000
Number Market
of Shares Description Value
--------- ----------- -------
COMMON STOCKS: 96.52%
BANKING: 8.96%
35,900 Bank One Corp. $ 1,265,475
33,423 Citigroup 1,951,068
24,600 Deutsche Bank ADR 2,149,856
35,000 HSBC Holdings ADR 2,535,313
33,800 Ing Groep N.V. ADR 2,279,388
-----------
10,181,100
-----------
BEVERAGES: 2.91%
26,600 Heineken N.V. ADR 1,352,690
45,900 Pepsico Inc. 1,956,487
-----------
3,309,177
-----------
CHEMICALS: 4.19%
52,000 Du Pont (E.I.) De Nemours 2,333,500
24,700 Pharmacia Corp. 1,446,494
34,100 Rohm and Haas Co. 986,769
-----------
4,766,763
-----------
COMPUTER AND PERIPHERALS: 6.10%
52,500 Compaq Computer Corp. 1,788,281
34,000 Cisco Systems, Inc.* 2,329,000
28,800 EMC Corp* 2,822,400
-----------
6,939,681
-----------
COMPUTER SOFTWARE AND SERVI 6.30%
41,900 Automatic Data Processing 2,498,287
24,900 Microsoft Corp.* 1,738,331
32,200 ORACLE Corporation* 2,928,188
-----------
7,164,806
-----------
DRUG AND MEDICAL: 10.91%
22,779 Aventis 1,702,730
40,100 Abbott Laboratories 1,754,375
28,000 Bayer 1,186,156
25,600 Johnson & Johnson 2,353,600
50,325 Pfizer Inc. 2,176,556
17,400 Roche Holdings 1,557,789
41,600 Schering Plough 1,669,200
-----------
12,400,406
-----------
ELECTRONICS/EQUIPMENT: 6.24%
4,729 Agilent Technologies* 285,218
38,500 Emerson Electric Co. 2,548,219
12,400 Hewlett-Packard Co. 1,497,300
46,000 Nokia Corp. ADR 2,067,125
43,500 Xerox 698,719
-----------
7,096,581
-----------
FOOD: 3.25%
28,600 Diageo PLC ADR 984,913
57,600 Groupe Danone ADR 1,580,400
10,500 Nestle S.A. ADR 1,131,066
-----------
3,696,379
-----------
FOOTWARE AND APPAREL: 0.58%
24,400 Adidas ADR 656,199
-----------
HOUSEHOLD: 7.31%
56,000 Gillette 1,680,000
42,600 Kimberly-Clark Corp. 2,492,100
42,600 Proctor & Gamble 2,633,212
31,699 Unilever N.V. 1,497,778
-----------
8,303,090
-----------
INSURANCE: 2.57%
21,700 AXA ADR 1,525,781
4,900 Zurich Allied ADR 504,491
1,740 Zurich Allied (Underlying Security) 896,536
-----------
2,926,808
-----------
MANUFACTURING: 6.33%
11,400 Corning Inc. 3,738,487
21,100 Deere & Co. 694,981
29,700 Minnesota Mining and Manufacturing C 2,762,100
-----------
7,195,568
-----------
METALS: 1.44%
49,100 Alcoa Inc. 1,632,575
-----------
MULITMEDIA: 1.32%
38,600 Disney Walt Co. 1,502,988
-----------
OIL: 6.87%
34,100 Philips Petroleum 2,109,937
106,100 Repsol S.A. ADR 2,102,106
15,900 Schlumberger 1,356,469
30,100 Total Fina ADR 2,242,450
-----------
7,810,962
-----------
RETAIL: 7.32%
62,300 Albertson's Inc. 1,339,450
52,400 Borders Group Inc.* 697,575
67,800 Costco Wholesale* 2,334,862
74,000 Federated Department Stores* 2,044,250
39,300 Home Depot Inc. 1,888,856
-----------
8,304,993
-----------
SEMI-CONDUCTORS: 4.13%
33,000 Intel Corp. 2,470,875
36,000 STMicroelectronics 2,220,750
-----------
4,691,625
-----------
TELECOMMUNICATIONS: 4.37%
20,300 Lucent Technologies 848,794
20,000 Tellabs Inc.* 1,123,750
32,650 Vodafone Airtouch Communications 1,336,609
45,350 WorldCom, Inc.* 1,655,275
-----------
4,964,428
-----------
TRANSPORTATION: 3.57%
52,800 FDX Corporation* 2,130,480
48,600 Union Pacific 1,931,850
-----------
4,062,330
-----------
UTILITIES: 1.85%
60,300 TXU Corp. 2,106,731
-----------
TOTAL INVESTMENTS:
(Cost: $86,792,095)** 96.52% $109,713,190
Other assets, net 3.48% 3,959,663
------ ------------
NET ASSETS 100.00% $113,672,853
====== ============
* Non-income producing
**Cost for Federal income tax purposes is $86,792,095 and net unrealized
appreciation consists of:
Gross unrealized appreciation $28,726,960
Gross unrealized depreciation (5,805,865)
-----------
Net unrealized appreciation $22,921,095
===========
ADR- Security represented is held by the custodian bank in the form of American
Depositary Receipts.
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost
of $86,792,095) (Notes 1 & 3) $ 109,713,190
Cash 1,513,976
Receivables:
Dividend $ 137,474
Interest 11,775
Fund shares purchased 2,386,080
----------
2,535,329
Deferred organization cost (Note 1) 22,773
Other assets 16,261
------------
TOTAL ASSETS 113,801,529
------------
LIABILITIES
Investment management fees 93,343
Accrued expenses 35,333
------------
TOTAL LIABILITIES 128,676
------------
NET ASSETS $113,672,853
============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($113,672,853 / 6,186,425 shares
outstanding) $ 18.37
============
At August 31, 2000 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $ 81,381,124
Accumulated net realized gain on investments 9,370,634
Net unrealized appreciation of investments 22,921,095
------------
Net assets $113,672,853
============
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
INVESTMENT INCOME
Dividend $982,800
Interest 70,675
--------
Total income $ 1,053,475
------------
EXPENSES
Investment management fees (Note 2) 805,999
Recordkeeping and administrative services 143,819
Custodian and accounting fees 63,182
Audit and legal fees 17,994
Transfer agent fees 19,848
Registration fees 15,483
Shareholder servicing and reports 16,690
Organization expense amortization 10,379
Insurance 8,265
Other expenses 66,511
--------
Total expenses 1,168,170
------------
Net investment loss (114,695)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 9,965,395
Net change in unrealized appreciation on investments 13,918,985
------------
Net gain on investments 23,884,380
------------
Net increase in net assets resulting from operations $ 23,769,685
============
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Year ended
August 31, 2000 August 31, 1999
--------------- ---------------
OPERATIONS
Net investment loss $ (114,695) $ (61,940)
Net realized gain (loss) on investments 9,965,395 (570,895)
Change in net unrealized appreciation
(depreciation)of investments 13,918,985 10,984,834
------------ ------------
Net increase in net assets resulting
from operations 23,769,685 10,351,999
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income ($-- and $.02 per
share, respectively) -- (64,879)
Capital gains($.-- and $.-- share) -- --
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from
capital share transactions* 36,978,756 16,061,049
------------ ------------
Net increase in net assets 60,748,441 26,348,169
Net assets at beginning of year 52,924,412 26,576,243
------------ ------------
NET ASSETS at the end of year $113,672,853 $ 52,924,412
============ ============
* A summary of capital share transactions follows:
Year ended Year ended
August 31, 2000 August 31, 1999
----------------------- ------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 2,560,380 $42,600,004 1,470,603 $18,610,831
Shares reinvested from
distributions -- -- 4,869 64,657
Shares redeemed (334,341) (5,621,248) (206,346) (2,614,439)
--------- ----------- --------- -----------
Net increase 2,226,039 $36,978,756 1,269,126 $16,061,049
========= =========== ========= ===========
See Notes to Financial Statements
<PAGE>
CSI EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31,1998*
--------------- --------------- ---------------
Per Share Operating Performance
Net asset value, beginning of period $13.36 $9.88 $10.00
Income from investment operations-
Net investment income (loss) (0.02) (0.02) 0.02
Net realized and unrealized gain (loss) on investments 5.03 3.52 (0.14)
------- ------ ------
Total from investment operations 5.01 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 $18.37 $13.36 $9.88
======= ====== ======
Total Return 37.50% 35.21% (1.20%)
======= ====== ======
Ratios/Supplemental Data
Net assets, end of period (000's) $113,673 $52,924 $26,576
Ratio to average net assets-
Expenses (A) 1.44% 1.50% 1.50%**
Expenses-net (B) 1.44% 1.50% 1.49%**
Net investment income (0.14%) (0.15%) 0.42%**
Portfolio turnover rate 22.69% 12.91% 8.16%
</TABLE>
* 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>
CSI EQUITY FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
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. 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.
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,
$137,623 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 $19,848 for its services for the year ended
August 31, 2000.
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 $52,626,565 and $17,719,006, respectively.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
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, 2000, and the related statement of
operations for the year then ended, and the statements of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the two years in the period then ended and for the period October
15, 1997 (commencement of operations) through August 31, 1998. 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, 2000 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, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years then
ended and for the period October 15, 1997 through August 31, 1998, in conformity
with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<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 Investment Grade Index
1/27/1998 $10,000 $10,000
8/31/1998 $10,480 $10,478
8/31/1999 $10,343 $10,524
8/31/2000 $11,004 $11,217
Past performance is not predictive of future performance.
[end graph]
--------------------------------------------------------------
Average Annual Total Return for Period ended August 31, 2000
1 Year Since Inception
6.39% 3.75%
--------------------------------------------------------------
--------------------------------------------------------------------------------
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 FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Principal Market
Amount Description Value
---------- ----------- ----------
U.S. GOVERNMENT SECURITIES: 92.57%
MATURES IN OVER 10 YEARS: 19.27%
$5,750,000 U.S. Treasury Bond 6.00%; February 15, 2026 $ 5,829,063
4,250,000 U.S. Treasury Bond 6.75%; August 15, 2026 4,730,781
2,000,000 U.S. Treasury Bond 5.50%; August 15, 2028 1,905,000
-----------
12,464,844
-----------
MATURES IN 6-10 YEARS: 19.83%
2,750,000 U.S. Treasury Note 5.875%; November 15, 2005 2,733,673
2,750,000 U.S. Treasury Note 5.625%; February 15, 2006 2,700,156
2,500,000 U.S. Treasury Note 6.125%; August 15, 2007 2,520,313
4,000,000 U.S. Treasury Note 5.50%; February 15, 2008 3,890,000
1,000,000 U.S. Treasury Note 5.625%; May 15, 2008 980,313
-----------
12,824,455
-----------
MATURES IN 0-5 YEARS: 53.47%
7,500,000 U.S. Treasury Note 5.25%; January 31, 2001 7,467,188
2,750,000 U.S. Treasury Note 5.625%; May 15, 2001 2,736,250
1,000,000 U.S. Treasury Note 5.875%; November 30, 2001 995,000
2,000,000 U.S. Treasury Note 6.375%; August 15, 2002 2,005,626
3,000,000 U.S. Treasury Note 5.75%; October 31, 2002 2,973,750
3,000,000 U.S. Treasury Note 6.25%; February 15, 2003 3,006,564
2,000,000 U.S. Treasury Note 5.50%; May 31, 2003 1,969,376
2,000,000 U.S. Treasury Note 5.875%; February 15, 2004 1,988,126
2,000,000 U.S. Treasury Note 5.25%; May 15, 2004 1,946,875
2,500,000 U.S. Treasury Note 7.25%; August 15, 2004 2,603,125
4,750,000 U.S. Treasury Note 6.50%; May 15, 2005 4,845,000
2,000,000 U.S. Treasury Note 6.50%; August 15, 2005 2,040,000
-----------
34,576,880
-----------
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost:$60,387,038)* 92.57% 59,866,179
Other assets, net 7.43% 4,804,323
------ -----------
NET ASSETS 100.00% $64,670,502
====== ===========
* Cost for Federal income tax purposes is $60,387,038 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 265,511
Gross unrealized depreciation (786,370)
---------
Net unrealized depreciation $(520,859)
=========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost
of $60,387,038) (Notes 1 & 3) $59,866,179
Cash 2,749,448
Receivables:
Interest $ 479,700
Capital stock sold 1,689,205
----------
2,168,905
Deferred organization costs (Note 1) 22,888
Prepaid expenses 10,180
-----------
TOTAL ASSETS 64,817,600
-----------
LIABILITIES
Investment management fees 26,920
Accrued expenses 20,178
Payable for capital stock redeemed 100,000
-----------
TOTAL LIABILITIES 147,098
-----------
NET ASSETS $64,670,502
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($64,670,502/6,521,110 shares outstanding) $ 9.92
===========
At August 31, 2000 there were 50,000,000 shares of $.01 par
value stock authorized and components of net assets are:
Paid in capital $65,173,962
Undistributed net realized gain on investments 17,399
Net unrealized depreciation of investments (520,859)
-----------
Net Assets $64,670,502
===========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
INVESTMENT INCOME
Interest $3,116,129
-----------
EXPENSES
Investment management fees (Note 2) $573,570
Recordkeeping and administrative
services (Note 2) 110,984
Custodian and accounting fees 48,600
Audit and legal fees 18,717
Shareholder servicing and reports 14,788
Registration fees 14,851
Transfer agent fees 18,771
Organization expense amortization 10,378
Other expenses 45,888
--------
Total expenses 856,547
Fee waivers (Note 2) (286,785)
-----------
Net expenses 569,762
-----------
Net investment income 2,546,367
-----------
UNREALIZED GAIN ON INVESTMENTS
Net change in unrealized depreciation on investments 1,152,528
-----------
Net increase in net assets resulting from operations $3,698,895
===========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Year ended
August 31, 2000 August 31, 1999
--------------- ---------------
OPERATIONS
Net investment income $ 2,546,367 $ 1,741,045
Net realized gain on investments -- 17,399
Change in net unrealized appreciation
(depreciation) of investments 1,152,528 (2,548,398)
----------- -----------
Net increase(decrease) in net assets
resulting from operations 3,698,895 (789,954)
DISTRIBUTION TO SHAREHOLDERS FROM
Net investment income ($.44 and $.61
per share, respectively) (2,562,942) (2,452,926)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 14,929,069 17,948,035
----------- -----------
Net increase in net assets 16,065,022 14,705,155
Net assets at beginning of year 48,605,480 33,900,325
----------- -----------
NET ASSETS at the end of the year
(including undistributed net investment
income of $-- and $2,203, respectively) $64,670,502 $48,605,480
=========== ===========
** A summary of capital share transactions follows:
Year ended Year ended
August 31, 2000 August 31, 1999
-------------------------- --------------------------
Shares Value Shares Value
-------- ------- -------- --------
Shares sold 2,940,204 $28,619,513 2,734,375 $27,937,035
Shares reinvested
from distributions 258,811 2,520,178 239,692 2,447,668
Shares redeemed (1,662,329) (16,210,622) (1,223,411) (12,436,668)
--------- ----------- --------- -----------
Net increase 1,536,686 $14,929,069 1,750,656 $17,948,035
========= =========== ========= ===========
See Notes to Financial Statements
<PAGE>
CSI FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Period ended
August 31, 2000 August 31, 1999 August 31,1998*
--------------- --------------- ---------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.75 $10.48 $10.00
Income from investment operations-
Net investment income 0.43 0.39 0.22
Net realized and unrealized gain
(loss) on investments 0.18 (0.51) 0.26
------ ------ ------
Total from investment operations 0.61 (0.12) 0.48
------ ------ ------
Less distributions-
Distributions from net investment
income (0.44) (0.61) --
Distributions from capital gain -- -- --
------ ------ ------
Total distributions (0.44) (0.61) --
------ ------ ------
Net asset value, end of period $ 9.92 $ 9.75 $10.48
====== ====== ======
Total Return 6.39% (1.31%) 4.80%
====== ====== ======
Ratios/Supplemental Data
Net assets, end of period (000's) $64,671 $48,605 $33,900
Ratio to average net assets - (A)
Expenses (B) 0.99% 1.00% 1.00%**
Expenses- net (C) 0.99% 1.00% 1.00%**
Net investment income 4.43% 4.22% 4.34%**
Portfolio turnover rate 11.52% 1.38% 0.00%
</TABLE>
* Commencement of operations January 27, 1998
** Annualized
(A) Management fee waivers reduced the expense ratios and increased the net
investment income ratio by .50% for the year ended year ended August 31, 2000
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 Financial Statements
<PAGE>
CSI FIXED INCOME FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
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 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. CSI has voluntarily agreed to waive its
fees and reimburse the fund through December 31, 2000 for expenses in order to
limit the operating expenses to 1.0% of average net assets. For the year ended
August 31, 2000, the manager waived fees of $286,785.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its administrative agent,
$105,416 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 $18,771 for its services for the year ended
August 31, 2000.
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 maturities of securities other
than short-term notes aggregated $16,577,264 and $5,000,000 respectively.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
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, 2000, and the related statement of
operations for the year then ended, and the statements of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the two years in the period then ended and for the period January
27, 1998 (commencement of operations) through August 31, 1998. 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, 2000 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, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the two years in
the period then ended and for the period January 27, 1998 through August 31,
1998, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<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 Agents:
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.
<PAGE>
Annual Report to Shareholders
THE NEW MARKET FUND
A Series of
The World Funds, Inc.
A "Series" Investment Company
For the Year Ended
August 31, 2000
<PAGE>
Dear Shareholder:
The New Market Fund performance has been relatively consistent with its
value benchmark, up mildly since year-end. While the markets continued their
bias toward high risk, momentum stocks, we have begun to see a gradual shift to
well-managed, traditional non-tech "blue chips", where valuations have declined
far below their respective private market values. We believe this trend will
accelerate as knowledgeable strategic buyers take action to realize the sizable
discounts in the public markets. The fund has already been the beneficiary of
the arbitrage with the takeover of one of its largest positions, Financial
Security Assurance at a 70% premium to its public market value, confirming our
analysis of the gross undervaluations in these ignored companies.
As the economy slows and the Federal Reserve becomes more accommodating,
the Fund will also benefit from the performance of the interest-sensitive
financial services stocks, which the fund has nearly half of its assets invested
in (particularly the property/casualty insurers). Fundamentals have improved
dramatically with improved premium pricing, tighter underwriting standards, and
consolidation of the weaker competitors.
Berkshire Hathaway, the Fund's largest position, is trading at a 40%
discount to a conservative intrinsic value estimate. Next year's cash flow,
including new insurance float (excluding dividends and capital gains) is
estimated at nearly $3 billion ($2,000 per share) and expected to increase
significantly over the next five years. In addition, we have nearly $50,000 per
share in equities, bonds, and cash in the Company's portfolio. Excluding the
investment portfolio, we are paying less than three times cash flow for a
quality insurance conglomerate, growing at 26% per year and managed by one of
the most successful long-tern investors.
Another example of the gross undervaluation is Tredegar Corporation. If
you exclude the value of their venture capital portfolio at nearly $12 per
share, we are paying only 4x operating earnings for its core business in plastic
films and aluminum extrusions. Here is a well-managed company that has grown at
nearly 65% annually over the past five years.
We can't control market psychology and the short-term performance trends
of a casino-like trading environment, but we can reasonably determine
undervalued opportunities and well-managed companies that will grow their
intrinsic values consistently over time, generating low risk, above-average,
long-term returns for our shareholders. While our value investment style has
been out of favor over the past two years, we are confident our discipline will
regain momentum with the tremendous undervalued opportunities we currently see
in the market
Thank you for your continued confidence and patience.
Sincerely,
Stephen M. Goddard, CFA
Principal, The London Company
Portfolio Manager-The New Market Fund
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
THE NEW MARKET FUND VS. LIPPER LARGE CAP VALUE INDEX
[graph goes here]
Date The New Market Lipper Large Cap
Fund Value Index
10/1/98 $10,000 $10,000
8/31/99
8/31/00 $11,388 $13,830
Past performance is not predictive of future performance. Performance figures
include deduction of maximum applicable sales charges.
[end graph]
----------------------------------------------------------------------------
Average Annual Total Return for Period Ended August 31, 2000
1 Year Since Inception
-2.16% 7.00%
----------------------------------------------------------------------------
--------------------------------------------------------------------------------
The Lipper Large-Cap Value Index is an equally-weighted performance indice,
adjusted for capital gains distributions and income dividends of the largest
30 qualifying equity funds that, by practice, invest in at least 75% of their
equity assets in companies with market capitalizations (on a three-year weighted
basis) of greater than 300% of the dollar-weighted median capitalization of the
S&P Mid-Cap 400 Index.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
--------------------------------------------------------------------------------
<PAGE>
THE MEW MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Number of Market
Shares Security Description Value
-------------- -------------------- --------
COMMON STOCK: 96.86%
AEROSPACE/DEFENSE: 1.73%
2,400 Honeywell International $ 92,550
----------
COMPUTERS: 7.42%
2,000 International Business Machines Corp. 264,000
1,900 Microsoft Corp.* 132,644
----------
396,644
----------
CONSUMER GOODS: 12.67%
5,100 General Electric 299,306
4,900 Gillette Co. 147,000
2,400 Nike Inc. 94,950
3,200 Pepsico Inc. 136,400
----------
677,656
----------
DIVERSIFIED: 24.83%
2 Berkshire Hathaway Inc-Class A* 115,400
522 Berkshire Hathaway Inc-Class B* 998,586
8,500 Tredegar Industries Inc. 165,750
200 Wesco Financial Corp. 48,000
----------
1,327,736
----------
FINANCIALS: 21.35%
2,600 Ambac Financial Group 168,025
3,000 American Express Co. 177,375
2,600 Capital One Financial Corp. 156,812
2,600 Federal Home Loan Mortgage Corp. 109,525
3,100 Markel Corp.* 452,212
1,800 Wells Fargo Co. 77,738
----------
1,141,687
----------
MEDICAL: 1.39%
1,400 Bristol-Myers Squibb Co. 74,200
----------
DRILLING: 1.87%
2,200 Atwood Oceanics Inc.* 99,825
----------
ELECTRONICS: 9.54%
2,500 Emerson Electric 165,469
4,600 Intel Corp. 344,425
----------
509,894
----------
REITS: 6.75%
7,500 First Industrial Realty Trust 222,656
12,800 United Dominion Realty Trust 138,400
----------
361,056
----------
RETAIL: 1.16%
2,400 Circuit City Stores 62,250
----------
TELECOMMUNICATIONS: 4.16%
4,300 AT&T 135,450
2,600 Sprint 87,100
----------
222,550
----------
TRANSPORTATION - RAIL: 1.12%
2,500 CSX Corp. 59,688
----------
TRANSPORT SERVICES: 2.87%
3,800 Fedex Corp.* 153,330
----------
TOTAL INVESTMENTS:
(Cost: $4,973,475)** 96.86% $5,179,214
Other assets, net 3.14% 167,909
------ ----------
NET ASSETS 100.00% $5,346,975
====== ==========
*Non-income producing
**Cost for Federal income tax purpose is $4,973,475 and net unrealized
appreciation consists of:
Gross unrealized appreciation $677,214
Gross unrealized depreciation (471,623)
--------
Net unrealized appreciation $205,591
========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost of $4,973,475 )
(Notes 1 & 3) $5,179,066
Cash 136,234
Receivables:
Dividends $ 3,988
Interest 2,189
Capital stock sold 5,204
-------
11,381
Deferred organization costs (Note 1) 34,453
Prepaid expenses 802
----------
TOTAL ASSETS 5,361,936
----------
LIABILITIES
Accrued expenses 14,961
----------
NET ASSETS $5,346,975
==========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE ($5,346,975/456,593 shares outstanding) $ 11.71
==========
MAXIMUM OFFERING PRICE PER SHARE ($11.71 x 100 / 97.25) $ 12.04
==========
At August 31, 2000 there were 50,000,000 shares of $.01
par value stock authorized and components of net assets are:
Paid in capital $5,182,285
Net accumulated realized loss (40,901)
Net unrealized appreciation of investments 205,591
----------
Net Assets $5,346,975
==========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
INVESTMENT INCOME
Dividend $ 58,879
Interest 12,235
---------
Total income $71,114
----------
EXPENSES
Investment advisory fees (Note 2) 43,177
Legal and audit fees 11,782
12b-1 fee (Note 2) 21,588
Transfer agent fees (Note 2) 13,139
Recordkeeping and administrative services (Note 2) 15,000
Custodian and accounting fees 21,710
Organization expense amortization 10,768
Shareholder servicing and reports (Note 2) 6,523
Director fees 7,100
Miscellaneous 8,908
---------
Total expenses 159,695
Management fee waiver and reimbursed expenses (Note 2) (73,800)
----------
Net expenses 85,895
----------
Net investment loss (14,781)
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments 13,465
Net increase in unrealized appreciation on investments 83,151
----------
Net gain on investments 96,616
----------
Net increase in net assets resulting from operations $81,835
==========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Period ended
OPERATIONS August 31, 2000 August 31, 1999*
Net investment loss $ (14,781) $ (8,038)
Net accumulated realized gain(loss)
on investments 13,465 (54,366)
Change in unrealized appreciation of
investments 83,151 122,440
---------- ----------
Net increase in net assets resulting
from operations 81,835 60,036
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 2,008,878 3,196,226
---------- ----------
Net increase in net assets 2,090,713 3,256,262
Net assets at beginning of period 3,256,262 --
---------- ----------
NET ASSETS at the end of the period $5,346,975 $3,256,262
========== ==========
* Commencement of operations October 1, 1998
** A summary of capital share transactions follows:
Year ended Period ended
August 31, 2000 August 31, 1999*
------------------- -------------------
Shares Value Shares Value
-------- --------- -------- ---------
Shares sold 207,581 $2,362,816 282,806 $3,245,359
Shares redeemed (30,829) (353,938) (2,965) (49,133)
------- ---------- ------- ----------
Net increase 176,752 $2,008,878 279,841 $3,196,226
======= ========== ======= ==========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Period ended
August 31, 2000 August 31, 1999*
--------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $ 11.64 $ 10.00
Income from investment operations-
Net investment loss (0.03) (0.03)
Net realized and unrealized gain on
investments 0.10 1.67
-------- --------
Total from investment operations 0.07 1.64
-------- --------
Net asset value, end of period $ 11.71 $ 11.64
======== ========
Total Return 0.60% 13.20%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 5,347 $ 3,256
Ratio to average net assets (A)
Expenses (B) 1.99% 1.99%**
Expense ratio - net (C) 1.99% 1.99%**
Net investment loss (0.34%) (0.41%)**
Portfolio turnover rate 32.86% 8.31%
* Commencement of operations October 1, 1998
** Annualized
(A) Management fee waivers and reimbursements reduced the expense ratio and
increased net investment income ratio by 1.70% for the for the year ended
August 31, 2000 and 2.48% for period ended August 31, 1999.
(B) Expense ratio has been increased to include custodial fees which were offset
by custodian fee credits and before management fee waivers and reimbursements.
(C) Expense ratio - net reflects the effect of the management fee waivers and
reimbursements and custodian fee credits the fund received.
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The New Market 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 30, 1998.
However, operations of the Fund did not commence until October 1, 1998.
The investment objective of the Fund is to achieve long-term growth of
capital by investing in a portfolio composed of common stocks and securities
convertible into common stock, such as warrants, convertible bonds, debentures
or convertible preferred 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.
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. Money market investments
with a remaining maturity of sixty days or less are valued at amortized cost,
which 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
The New Market 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 AND DISTRIBUTION AGREEMENTS AND OTHER
Pursuant to an Investment Management Agreement, the Manager, Virginia
Management Investment Corporation ("VMIC"), provides investment management
services for an annual fee of 1.0% of the average daily net assets of the Fund.
VMIC has contractually agreed to waive its fees and reimburse the fund through
September 30, 2001 for expenses in order to limit the operating expenses to
1.99% of average net assets. For the year ended August 31, 2000, the manager
waived fees of $43,177 and reimbursed expenses of $16,000.
The Advisor will be entitled to reimbursement of fees waived or remitted
by the Advisor to the Fund. The total amount of reimbursement recoverable by the
Advisor is the sum of all fees previously waived or remitted by the Advisor to
the Fund during any of the previous five years, less any reimbursement
previously paid by the Fund to the Advisor with respect to any waivers,
reductions, and payments made with respect to the Fund. The total amount of
recoverable reimbursements as of August 31, 2000 was $122,168.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, whereby the Fund or VMIC may finance activities
which are primarily intended to result in the sale of the Fund's shares,
including, but not limited to, advertising, printing of prospectuses and reports
for other than existing shareholders, preparation and distribution of
advertising materials and sales literature, and payments to dealers and
shareholder servicing agents who enter into agreements with the Fund or VMIC.
The Fund or VMIC may incur such distribution expenses at the rate of .50% per
annum on the Fund's average net assets. For the year ended August 31, 2000,
there were $21,588 of distribution expenses incurred of which $14,623 were
waived by VMIC.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its Administrative Agent,
$15,890 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.
Wheat First Union is an affiliated broker of the Fund. Wheat First Union
received as commission $4,656 from the Fund in connection with the purchases and
sales of securities in the Fund's portfolio.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend
Disbursing Agent. FSI received $13,139 for its services for the year ended
August 31, 2000.
Certain officers and/or directors of the Fund are also officers and/or
directors of VMIC, CSS and FSI.
NOTE 3 --INVESTMENTS
The cost of purchases and the proceeds from sales of securities other than
short-term notes for the year ended August 31, 2000, aggregated $3,373,761 and
$1,310,331, respectively.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of The New
Market Fund, a series of The World Funds, Inc., including the schedule of
portfolio investments as of August 31, 2000, and the related statements of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the year then ended and for the period October 1,
1998 (commencement of operations) through August 31, 1999. 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, 2000 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
New Market Fund as of August 31, 2000, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the year then ended and for the period October 1, 1998 through August 31, 1999,
in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<PAGE>
Investment Adviser:
Virginia Management Investment Corporation
7800 Rockfalls Drive
Richmond, Virginia 23225
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 The New
Market Fund'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.
<PAGE>
Annual Report to Shareholders
THIRD MILLENIUM RUSSIA FUND
A Series of
The World Funds, Inc.
A "Series"Investment Company
For the Year Ended
August 31, 2000
<PAGE>
TO OUR SHAREHOLDERS: September 2000
Year End Report: RUSSIAN EQUITIES --
STELLAR PERFORMANCE; STILL SHAKY FOUNDATION.
Your Fund this past year has performed in the top 10% of Emerging Markets
Funds and we anticipate continued superior year-on-year performance. One week in
August 2000, we were America's single best performing mutual fund and one week
in August 1999 we were the country's second worst performer...Volatility
continues to denote the Russian stock market which is almost entirely driven by
foreign investors.
Reading the daily press, of course, one is struck by Russia's continuing
troubles: a nuclear sub disaster, a fire disabling Moscow's main TV transmission
tower....it seems each week there is more bad news.
On the economic front, though, real progress is also evident. Inflation is
lower than feared, foreign currency reserves (about $20 billion) have built up
smartly and the Government enjoys a substantial trade surplus (almost $50
billion over the past year) and even a budget surplus, such that IMF support
becomes problematic. The ruble has strengthened as a result. The debt burden
assumed from Soviet days now seems serviceable. (One wonders if those critics
who argue that we can unilaterally alter the ABM Treaty since it was concluded
with a now-defunct nation, the USSR, also would concede that foreign debt from
that era should be forgiven.)
GDP is growing in the 7% range. Outstanding. From a low base though. And
the current economic strength is, of course, built upon a $35-a-barrell oil
price and the still beneficial effects of the dramatic ruble devaluation whereby
domestic producers are able to import substitute. The real question is whether
thousands of enterprises can become really profitable, supporting an ongoing
Growth Economy, coming out of these temporary conditions....The verdict is still
out on prospects for the overall economy long term.
YOUR COMPANIES. As you know, our diversification philosophy is limited to the
most liquid, market-leading, audited companies which show an understanding of
the role of public shareholders. For the year ended August, 1999, except for
taking a profit on Sun Brewing after its merger with Interbrew as a result of
which its price doubled and it became too high a percentage of the Fund, we
followed a Buy & Hold approach.
Telecoms (about 25% of the Fund). This past year presented a more complex
situation. Early in 2000 both Rostelecom and Golden Telecom enjoyed substantial
price run ups, it seemed based upon false assessments of each's "internet"
strategy. We took profits here since we did not share any thought of Rostelecom
having an internet strategy at all and felt that perception was overplayed for
Golden Telecom. We have since returned to both stocks at lower price levels.
MTS, Russia's leading cell phone company, half owned by Deutsche Telecom,
had a strong IPO and we have enjoyed the ride up since; choosing it over
Vimpelcom where we took a profit due to its relative lack of fundamental and
market performance.
Russia telecoms in general have under performed among emerging markets. We
did move into a few regional telecoms, a tactic that has not as yet been proven
out.
Oils (about 30%). The Fund is heavy in oil stocks, a strategy that has
worked well this past year. Even here, though, we took a profit in
Surgutneftegas which undertook a reorganization disadvantaging public
shareholders and the company did not care to explain otherwise. A strong
performer, Surgutneftegas is once again on our list. LUKOIL and Tatneft both had
very strong years. LUKOIL is Russia's truly world class company and Tatneft
enjoyed a $450 million net income for the first half of 2000, a nearly five-fold
increase over the same period in 1999....In the related pipeline manufacturing
business, Severstal had a strong year.
Utilities (about 20%). Our largest holding overall is the national power
grid and electricity wholesaler, RAO UES, which has had a dramatic year of
public confrontation with its foreign shareholders, although we stuck
throughout. It well poses the overall dilemma in Russia: when first privatized,
the Russian utility sector (and telecoms too, for that matter) looked to be
ideal from a capital markets perspective: about 40 financiable-sized companies
with the UES overlay. But then the Russian economy, in effect, went through an
orderly liquidation throughout the 1990s, and these entities became so small in
dollar terms as to be unable to attract capital, each on its own.
Unfortunately, the strategy developed by UES' management to "rationalize"
its holdings (ranging from 20% - 60%) in these local utilities appeared, quite
rightly, to UES shareholders to constitute giveaways of company assets. Hence,
the protests. UES have revised its strategy, but the problem remains.
Other sectors (about 25%). We lost courage in retail. Despite very fine
fundamentals for the Central Department Store chain (12% of retail in the Moscow
region), which enjoyed a 40% year-on-year increase in net earnings, due to a
complete lack of investor interest in TsUM - keep in mind that Russians are not
as yet themselves investing in their own stock market - we sold out our
position. Aeroflot should do better given its strong fundamentals, now that the
scandal, which turned out to be unfounded, over diversion of its funds has been
resolved and it has retained Chase Bank as its lock-box. GAZ autos continues to
under-perform. However, Norilsk Nickel had a good year and Sun Brewing continues
its excellent performance.
PUTIN ADMINSTRATION. Anchoring all of this of course, has been the
surprisingly strong performance by Russia's new President, Vladimir Putin.
Looks like Boris Yeltsin knew best after all.
The markets did not anticipate that he would be able to push through
administrative and tax reforms to the extent he has. The new, lower taxes
reinforce the excellent collections the Government is now experiencing. (Much of
the maneuvering with the so-called Oligarchs is aimed at their becoming tax
payers too.)
Earlier many of us welcomed the governmental de-centralization brought
about under President Yeltsin and it certainly worked wonders in Samara, Nizhny
Novgorod and other regions. Unfortunately, though, in too many regions, the
governors stripped assets in true oligarch fashion and local enterprises focused
on seeking rents from the regional governments, not on becoming profitable. At
this time, Russian national interest seems upheld in President Putin's
re-centralization moves. The Government does have an important regulatory role;
and an as yet unrealized goal of getting Russia's game players to play a
different game: making a profit.
Our bet is that President Vladimir Putin's State of the State message, a
paean to free markets and the benefits of competition and economic growth, as
well as building on the progress already made in the political system in Russia,
will be implemented to a surprising extent....We'll see. In the meantime, as
mentioned, we believe you will continue to enjoy superior returns from the
companies selected for your Fund. Thank you for your continuing support.
John T. Connor, Jr.
Portfolio Manager
Third Millennium Russia Fund
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
THIRD MILLENNIUM RUSSIA FUND VS. THE MOSCOW TIMES INDEX
[begin graph]
Date Third Millennium The Moscow
Russia Fund Times Index
10/1/98 $10,000 $10,000
8/31/99 $14,170 $30,507
8/31/00 $26,970 $72,681
Past performance is not predictive of future performance.
[end graph]
-------------------------------------------------------------------------------
Average Annual Total Return for Period Ended August 31, 2000
1 Year Since Inception
90.33% 67.63%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
The Moscow Times Index is an unmanaged Index of the 50 most liquid and most
highly capitalized Russian Stocks.
The Index performance in Russia and actual performance can vary widely because
of illiquidity and the wide spreads in stock trading. The Moscow Times Index
does not take this factor into consideration.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
-------------------------------------------------------------------------------
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Number
of Market
Shares Security Description Value
----------- -------------------- ----------
COMMON STOCK: 95.55%
AIRLINES/TRANSPORATION: 1.11%
157,000 Aeroflot $ 31,949
----------
BEVERAGES: 1.48%
8,690 Sun Breweries GDR* 24,984
8,690 Sun Interbrew Ltd GDR* 17,380
----------
42,364
----------
NATURAL RESOURCES: 5.22%
15,000 Norilsk Nickel 150,000
----------
OIL: 30.74%
3,570 Lukoil Oil Co Sponsored ADR 232,050
8,200 Oil Co. Lukoil Sp ADR F/PFD SHS 194,750
10,000 Surgutneftegaz Sponsored ADR* 193,750
20,000 Tatneft Sponsored ADR 262,000
----------
882,550
----------
STEEL: 6.35%
8,000 Severstal 182,400
----------
RETAIL: 4.02%
3,500 Gaz Auto Plant 115,500
----------
TELECOMMUNICATIONS: 26.57%
2,700 Chelyabinsksvyazinform 76,950
4,400 Golden Telecom Inc 135,300
100,000 Irkutskelectrosvyaz 57,000
4,800 Mobile Telesystems Sponsored ADR 141,000
17,000 Nizhnovsvyazinform Sponsored ADR* 56,100
5,000 Rostelecom Long Distance & International Telecom ADR* 71,875
1,300 Samarasvyazinform 65,000
20,000 Tyumentelecom Sponsored ADR* 25,000
37,000 Uralsvyasinform Sponsored ADR* 134,680
----------
762,905
----------
UTILITIES: 20.06%
23,520 AO Mosenergo Sponsored ADR 105,840
21,550 Irkutskenergo AO Sponsored ADR 99,669
100 Moscow Oblast Electosvy* 22,500
19,990 RAO Unified Energy System ADR 337,331
10,000 Rostovenergo Sponsored ADR* 10,500
----------
575,840
----------
TOTAL INVESTMENTS:
(Cost: $1,743,501)** 95.55% 2,743,508
Other assets, net 4.45% 127,884
------ ----------
NET ASSETS 100.00% $2,871,392
====== ==========
* Non-income producing
** Cost for Federal income tax purpose is $1,743,501 and net unrealized
appreciation consists of:
Gross unrealized appreciation $1,090,158
Gross unrealized depreciation (90,151)
----------
Net unrealized appreciation $1,000,007
==========
ADR--Security represented is held by the custodian bank in the form of American
Depositary Receipts. GDR--Security represented is held by the custodian bank in
the form of Global Depositary Receipts.
See Notes to Financial Statements
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost of $1,743,501)
(Notes 1 & 3) $2,743,508
Cash 1,190
----------
Receivables:
Dividends receivable 12,661
Capital stock sold 31,009
Due from investment advisor (Note 2) 34,072
----------
77,742
Deferred organization costs (Note 1) 56,054
Other assets 3,674
----------
TOTAL ASSETS 2,882,168
----------
LIABILITIES
Accrued expenses 10,776
----------
TOTAL LIABILITIES 10,776
----------
NET ASSETS $2,871,392
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE ($2,871,392 / 108,896 shares outstanding) $ 26.37
==========
At August 31, 2000 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $1,417,583
Net accumulated realized gain on investments 453,802
Net unrealized appreciation of investments 1,000,007
----------
Net assets $2,871,392
==========
See Notes to Financial Statements
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
INVESTMENT INCOME
Dividend $11,069
Interest 6,675
-------
Total income $ 17,744
----------
EXPENSES
Investment advisory fees (Note 2) 39,287
12b-1 fees (Note 2) 5,612
Custodian and accounting fees 59,563
Legal and audit fees 16,001
Registration fees 14,408
Organization expense amortization 18,230
Recordkeeping and administrative services (Note 2) 14,918
Transfer agent fees (Note 2) 10,222
Shareholder servicing and reports (Note 2) 10,358
Director fees 8,300
Miscellaneous 1,740
-------
Total expenses 198,639
Management fee waiver and expense reimbursements (Note 2) (128,971)
Custody credits (Note 3) (7,962)
----------
Expenses, net 61,706
----------
Net investment loss (43,962)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 501,312
Net increase in unrealized appreciation on investments 765,733
Net gain on investments 1,267,045
----------
Net increase in net assets resulting from operations $1,223,083
==========
See Notes to Financial Statements
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended Period ended
August 31, 2000 August 31, 1999*
OPERATIONS --------------- ----------------
Net investment loss $ 943,962) $ (14,827)
Net realized gain on investments 501,312 43,564
Unrealized appreciation of investments 765,733 234,274
---------- ----------
Net increase in net assets resulting
from operations 1,223,083 263,011
DISTRIBUTION TO SHAREHOLDERS FROM
Net realized gain from investment
transactions ($0.33 and, $.-- per share,
respectively) (32,285) --
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from
capital share transactions** 367,991 1,049,592
---------- ----------
Net increase in net assets 1,558,789 1,312,603
Net assets at beginning of period 1,312,603 --
---------- ----------
NET ASSETS at the end of the period $2,871,392 $1,312,603
========== ==========
** A summary of capital share transactions follows:
Year ended Period ended
August 31, 2000 August 31, 1999*
------------------- --------------------
Shares Value Shares Value
Shares sold 62,592 $1,374,188 101,353 $1,172,886
Shares reinvested from
Dividends 2,237 31,959 -- --
Shares redeemed (48,560) (1,038,156) (8,726) (123,294)
------ ---------- ------ ----------
Net increase 16,269 $ 367,991 92,627 $1,049,592
====== ========== ====== ==========
* Commencement of operation was October 1, 1998
See Notes to Financial Statements
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHTOUT EACH PERIOD
Year ended Period ended
August 31, 2000 August 31, 1999*
--------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $14.17 $10.00
------ ------
Income from investment operations-
Net investment loss (0.40) (0.16)
Net realized and unrealized gain 4.33
Total from investment operations 12.53 4.17
------ ------
Less distributions-
Distributions from net investment -- --
Distributions from realized gains (0.33) --
------ ------
Total distributions (0.33) --
------ ------
Net asset value, end of period $26.37 $14.17
====== ======
Total Return 90.33% 41.70%
====== ======
Ratios/Supplemental Data
Net assets, end of period (000's) $2,871 $1,313
Ratio of expenses to average net assets
Ratio to average net assets (A)
Expenses (B) 3.10% 2.75%**
Expense ratio - net (C) 2.75% 2.75%**
Net investment loss (1.96%) (2.08%)**
Portfolio turnover rate 68.88% 14.43%
* Commencement of operations was October 1, 1998
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net investment
income ratio by 5.75% for the year ended August 31, 2000 and 13.18% for the
period ended August 31, 1999.
(B) Expense ratio has been increased to include custodial fees which were offset
by custodian fee credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers and
custodian fee credits the fund received.
See Notes to Financial Statements
<PAGE>
THIRD MILLENNIUM RUSSIA FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
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 the 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 AND DISTRIBUTION AGREEMENTS
Pursuant to an Investment Advisory Agreement, the Advisor, Third
Millennium Investment Advisors LLC ("TMIA") provides investment services for an
annual fee of 1.75% of the first $125 million of average daily net 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.
The Advisor will be entitled to reimbursement of fees waived or remitted
by the Advisor to the Fund. The total amount of reimbursement recoverable by the
Advisor is the sum of all fees previously waived or remitted by the Advisor to
the Fund during any of the previous five years, less any reimbursement
previously paid by the Fund to the Advisor with respect to any waivers,
reductions, and payments made with respect to the Fund. The total amount of
recoverable reimbursements as of August 31, 2000 was $222,829.
TMIA has contractually agreed to waive its fees and reimburse the fund for
expenses in order to limit operating expenses to 2.75% of average net assets
through September 30, 2001. For the year ended August 31, 2000, the Advisor
waived fees of $39,287 and reimbursed expenses of $84,072.
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 year ended August 31, 2000,
the Distributor waived fees of $5,612.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its Administrative Agent,
$18,899 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 $10,222 for its services for the year ended
August 31, 2000.
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 year ended August 31, 2000, were $1,693,931 and
$1,360,736, respectively.
The custodian has provided credits in the amount of $7,962 against
custodian and accounting charges based on credits on cash balances of the Fund.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of TheWorld Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
Third Millennium Russia Fund, a series of The World Funds, Inc., including the
schedule of portfolio investments as of August 31, 2000, and the related
statement of operations for the year then ended, and the statement of changes in
net assets and financial highlights for the year then ended and for the period
October 1, 1998 (commencement of operations) through August 31, 1999. 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, 2000 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
Third Millennium Russia Fund as of August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and for the period October 1, 1998
through August 31, 1999, in conformity with generally accepted accounting
principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<PAGE>
Investment Adviser:
Third Millennium Investments Advisors LLC
1185 Avenue of the Americas
New York, New York 10036
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 Third
Millennium Russia Fund'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.
<PAGE>
Annual Report to Shareholders
GenomicsFund.com
investing in life(tm)
A Series of
The World Funds, Inc.
a "Series" Investment Company
For the Period Ended
August 31, 2000
<PAGE>
Dear Shareholder:
Welcome, and thank you for the confidence you've shown in us by your
investment in GenomicsFund.com (GENEX).
GENEX had quite a roller coaster ride in its initial six months of
operation. We commenced operations on March 1, 2000, just in time to see the
genomics stocks tumble after a strong late winter run-up. The Fund declined
33.9% in the first month of operation. The June quarter (April- June) showed a
sharp rebound, climbing 39.18%. Your Fund was ranked #1 in performance by both
Lipper and Morningstar for that period. At our August 31st fiscal year end,
GENEX shares stood at $10.54. Our roller coaster ride left us with a modest
increase of 5.4% at fiscal year end. During the same period the NASDAQ Composite
Average declined 10.4% while the S&P 500 Index advanced 11.1%.
We're optimistic about the future of genomics in general, and in our
individual genomics stocks. The pace of genomic discoveries is accelerating, and
a multitude of genomic based pharmaceuticals and therapeutics are now proceeding
through clinical trials. Investor interest in this field could heighten, as the
general public becomes aware of the profound effect genomics will have on our
lives, and on the lives of generations to come.
As of August 31, 2000 the Fund was 92.5% invested in a portfolio of 22
genomic companies. Total assets of the Fund stood at $28,821,857. We had no
investments outside the field. Most of our holdings have high levels of cash,
little or no debt, substantial intellectual property, and are considered leaders
in the genomics industry. We believe GENEX is quite strategically positioned to
participate in this emerging market.
In conclusion, we expect the roller coaster ride will continue. We'll have
our ups and we'll certainly have our downs. Hopefully, at the end of the day,
the ups will outweigh the downs, and be fully reflected in the value of your
holdings. We are keenly aware of our responsibilities, and are working
diligently to achieve that goal.
Thank you again for investing in GenomicsFund.com, the World's first and
(still the) only genomics mutual fund. You are truly a pioneer.
Sincerely,
Steven Newby, Chief Investment Officer
Mebane Faber, Chief Technology Officer
P.S. We will be adding some neat features to our website in the weeks ahead.
Please visit us often.
<PAGE>
COMPARISION OF $10,000 INVESTMENT IN
GENOMICSFUND.COM VS. NASDAQ COMPOSITE INDEX
[begin graph]
Date GenomicsFund.com NASDAQ Composite
Index
3/1/00 $10,000 $10,000
8/31/00 $10,540 $ 8,792
Past performance is not predictive of future performance.
[end graph]
--------------------------------------------------------
Total Return for Period Ended August 31, 2000
Since Inception
5.40%
--------------------------------------------------------
-------------------------------------------------------------------------------
The NASDAQ Composite Index is a broad-based capitalization-weighted index of all
NASDAQ National Market and SmallCap stocks.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
-------------------------------------------------------------------------------
<PAGE>
GENOMICSFUND.COM
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Number
of Market
Shares Security Description Value
------- -------------------- --------
COMMON STOCKS: 92.46%
PHARMAGENOMICS: 45.16%
9,800 Abgenix, Inc.* $ 736,685
30,000 Corixa Corporation* 1,535,625
16,500 Human Genome Sciences, Inc.* 2,754,468
13,000 Hyseq, Inc.* 545,187
25,500 Medarex, Inc.* 2,817,750
20,700 Millennium Pharmaceuticals, Inc.* 2,962,687
13,500 Protein Design Labs, Inc.* 1,026,000
19,100 Tularik, Inc.* 637,463
-----------
13,015,865
-----------
BIOINFORMATICS: 13.91%
24,000 Celera Genomics Group* 2,602,500
9,000 CuraGen Corporation* 399,375
41,000 Gene Logic, Inc.* 1,007,063
-----------
4,008,938
-----------
ANALYSIS TECHNOLOGIES: 27.31%
15,500 Affymetrix Inc.* 1,224,500
14,500 Aurora Biosciences* 991,437
36,500 Diversa Corporation* 1,040,250
13,300 Dyax Corporation* 465,500
16,000 Exelixis, Inc.* 720,000
30,500 Lexicon Genetics Inc.* 1,014,125
18,000 Maxygen Inc.* 967,500
8,000 PE Corp PE Biosystems 787,000
13,800 Visible Genetics Inc.* 660,675
-----------
7,870,987
-----------
DELIVERY TECHNOLOGIES: 6.08%
37,000 Cell Genesys, Inc.* 1,140,063
34,600 Transgene ADR* 614,150
-----------
1,754,213
-----------
TOTAL INVESTMENTS:
(Cost: $21,253,833)** 92.46% $26,650,003
Other assets, net 7.54% 2,171,854
------ -----------
NET ASSETS 100.00% $28,821,857
====== ===========
*Non-income producing
**Cost for Federal income tax purpose is $21,253,833 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 6,036,856
Gross unrealized depreciation (640,686)
-----------
Net unrealized appreciation $ 5,396,170
===========
ADR --- Security represented is held by the custodian bank in the form of
American Depositary Receipts
See Notes to Financial Statements
<PAGE>
GENOMICSFUND.COM
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost of
$21,253,833) (Notes 1 & 3) $26,650,003
Cash 996,339
Receivables:
Dividends $ 340
Interest 7,500
Capital stock sold 1,964,208
----------
1,972,048
Other assets 13,791
-----------
TOTAL ASSETS 29,632,181
-----------
LIABILITIES
Accrued 12b-1 fees 4,069
Accrued expenses 14,693
Securities purchased 791,562
-----------
TOTAL LIABILITIES 810,324
-----------
NET ASSETS $28,821,857
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($28,821,857 / 2,734,324
shares outstanding) $10.54
===========
At August 31, 2000 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $22,822,452
Accumulated net realized gain 603,235
Net unrealized appreciation of investments 5,396,170
-----------
Net Assets $28,821,857
===========
See Notes to Financial Statements
<PAGE>
GENOMICSFUND.COM
STATEMENT OF OPERATIONS
PERIOD ENDED AUGUST 31, 2000*
INVESTMENT INCOME
Interest $ 7,500
Dividend 638
-------
Total income $ 8,138
-----------
EXPENSES
Investment advisory fees 52,715
12b-1 fee (Note 2) 13,179
Custody and accounting fees 20,600
Recordkeeping and administrative services (Note 2) 10,543
Registration fees 9,265
Transfer agent fees (Note 2) 15,427
Shareholder servicing and reports (Note 2) 10,105
Organization expense 30,028
Miscellaneous 15,122
-------
Total expenses 176,984
Management fee waiver and reimbursed expenses (76,825)
-----------
Net expenses 100,159
-----------
Net investment loss (92,021)
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 695,256
Net increase in unrealized appreciation 5,396,170
-----------
Net gain on investments 6,091,426
-----------
Net increase in net assets resulting from operations $5,999,405
===========
* Commencement of operation was March 1, 2000.
See Notes to Financial Statements
<PAGE>
GENOMICSFUND.COM
STATEMENT OF CHANGES IN NET ASSETS
Period ended
August 31, 2000*
--------------------
OPERATIONS
Net investment loss $ (92,021)
Net realized gain on investments 695,256
Change in unrealized appreciation of investments 5,396,170
-----------
Net increase in net assets resulting from operations 5,999,405
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share
transactions** 22,822,452
-----------
Net increase in net assets 28,821,857
Net assets at beginning of period --
-----------
NET ASSETS at the end of the period $28,821,857
===========
* Commencement of operation was March 1, 2000.
** A summary of capital share transactions follows:
Period ended
August 31, 2000*
------------------------
Shares Value
---------- -----------
Shares sold 2,902,261 $24,336,092
Shares redeemed (167,937) (1,513,640)
--------- -----------
Net increase 2,734,324 $22,822,452
========= ===========
See Notes to Financial Statements
<PAGE>
GENOMICSFUND.COM
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended
August 31, 2000*
----------------
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 0.57
-------
Total from investment operations 0.54
-------
Net asset value, end of period $ 10.54
=======
Total Return 5.40%
=======
Ratios/Supplemental Data
Net assets, end of period $28,822
Ratio to average net assets (A)
Expenses (B) 1.89%**
Expense ratio - net (C) 1.89%**
Net investment loss (1.73%)**
Portfolio turnover rate 85.25%
* Commencement of operation was March 1, 2000.
** Annualized
(A) Management fee waivers and reimbursements reduced the expense ratio and
increased net investment income ratio by 1.44% for the for the period ended
August 31, 2000.
(B) Expense ratio has been increased to include custodial fees which were offset
by custodian fee credits and before management fee waivers and reimbursements.
(C) Expense ratio - net reflects the effect of the management fee waivers and
reimbursements and custodian fee credits the Fund received.
See Notes to Financial Statements
<PAGE>
GENOMICSFUND.COM
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The GenomicsFund.com (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 March, 2000 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 capital appreciation by
investing in a non-diversified portfolio consisting primarily of equity
securities of companies principally engaged in genomics or genomics-related
businesses.
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.
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. Distribution to Shareholders. Distributions 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 reatments for net
operating losses and post-October capital.
E. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
F. 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 and expensed by the Fund.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS AND OTHER
Pursuant to an Investment Advisory Agreement, the Advisor, xGENx, LLC
provides investment services for an annual fee of 1.00% on the first $250
million average daily net assets of the Fund; 0.875% on average daily net assets
of the Fund in excess of $250 million and not more than $500 million; and, 0.75%
on average daily net assets of the Fund over $500 million. Pursuant to the
agreement, the Advisor has agreed to waive or limit its fees and to assume other
expenses for the first three years of operations so that the total annual
operating expenses for the Fund are limited to 1.90%. For the period ended
August 31, 2000, the Advisor waived fees of $52,715 and reimbursed expenses of
$15,000.
The Advisor will be entitled to reimbursement of fees waived or remitted
by the Advisor to the Fund. The total amount of reimbursement recoverable by the
Advisor is the sum of all fees previously waived or remitted by the Advisor to
the Fund during any of the previous five years, less any reimbursement
previously paid by the Fund to the Advisor with respect to any waivers,
reductions, and payments made with respect to the Fund. The total amount of
recoverable reimbursements as of August 31, 2000 was $67,715.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, whereby the Fund may finance activities which
are primarily intended to result in the sale of the Fund's shares, including,
but not limited to, advertising, printing of prospectuses and reports for other
than existing shareholders, preparation and distribution of advertising
materials and sales literature, and payments to dealers and shareholder
servicing agents who enter into agreements with the Fund. The Fund may incur
such distribution expenses at the rate of 0.25% per annum on the Fund's average
net assets. For the period ended August 31, 2000, there were $13,179 of
distribution expenses incurred by the Fund of which $9,110 were waived.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its administrative agent,
$19,569 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 an annual fee of 0.20% on the first $250 million average
daily net assets of the Fund; 0.175% on average daily net assets in excess of
$250 million and not more than $500 million; 0.15% on average daily net assets
in excess of $500 million and not more than $1 billion; and 0.10% on average
daily net assets over $1 billion, with a minimum fee of $15,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend
Disbursing Agent. FSI received $15,427 for its services for the period ended
August 31, 2000.
Certain officers and/or directors of the Fund are also officers and/or
directors of xGENx, LLC, CSS, and FSI.
NOTE 3-INVESTMENTS
The cost of purchases and the proceeds from sales of securities other than
short-term notes aggregated $30,679,402 and $10,120,825, respectively.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
GenomicsFund.com, a series of The World Funds, Inc., including the schedule of
portfolio investments as of August 31, 2000, and the related statement of
operations, changes in net assets and financial highlights for the period then
ended. 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
audit.
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, 2000 by
correspondence with the custodian and brokers. 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 audit provides 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
GenomicsFund.com as of August 31, 2000, the results of its operations, changes
in its net assets and the financial highlights for the period then ended, in
conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<PAGE>
Investment Adviser:
xGENx, LLC
555 Quince Orchard Road
Suite 610
Gaithersburg, Maryland 20878
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 191-3
Transfer Agent:
For Account information, wire purchase or redemptions, call or write to the
GenomicsFund.com 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.
877.433.GENE
<PAGE>
GLOBAL eFUND
A series of "The World Funds, Inc."
Annual Report to Shareholders
For the Period Ended
August 31, 2000
<PAGE>
Dear Shareholder:
For the fiscal year ended August 31st, 2000, the Net Asset Value of the Global
e-Fund declined by 14.18% since its May 4th inception. By comparison, over the
same period the Bloomberg European Internet Index lost 14%, the Bloomberg Asia
Pacific Internet Index declined 31.31% and The Goldman Sachs Latin America
Internet Index declined 43%.
Over the past few months we have seen volatility in both the domestic and
international technology and Internet sectors. Throughout this period we have
kept a fairly large cash position (currently 9.04%) making relatively small
purchases to take advantage of short-term trends. The strategy and objective of
the fund remains, investing in foreign companies that we feel will benefit from
Internet growth outside the United States. With representation in over 20
countries across the globe, we feel that we are well positioned for the future.
The majority of the fund's investments are located in the developed markets of
Europe, Canada and Japan. We have also made smaller allocations to the higher
growth markets of China, India, Latin America and the Middle East.
We are keeping with our low turnover/tax efficient strategy, as we believe the
majority of the companies in the fund are quality, long-term investments.
Additionally, no one holding represents more than 5% of the fund, keeping with
our diversification strategy.
Sincerely,
Michael Ward, CFA
Portfolio Manager
The Global e-Fund
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
GLOBAL e-FUND VS. THE INTERNATIONAL ASSETS NET INDEX AND
THE NASDAQ COMPOSITE INDEX
[begin graph]
THE INTERNATIONAL THE NASDAQ
Date GLOBAL e-FUND ASSETS NET INDEX COMPOSITE INDEX
5/4/00 $10,000 $10,000 $10,000
8/31/00 $ 8,110 $ 7,396 $11,307
Past performance is not predictive of future performance. Performance figures
include deduction of maximum applicable sales charge.
[end graph]
-------------------------------------------------------------
Total Return for Period Ended August 31, 2000
Since Inception
-18.90%
-------------------------------------------------------------
-------------------------------------------------------------------------------
The International Assets Net Index was created to describe the progress of the
Internet evolution outside the United States. The Index measures the average
performance of 40 Internet companies headquartered outside of the United States
with a minimum market capitalization of $500 million. Included in the Index are
telecommunication companies, as well as companies that Integrate physical
equipment and develop software and design web pages.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of all
NASDAQ National Market and SmallCap stocks.
(The comparative Index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's Performance.)
-------------------------------------------------------------------------------
<PAGE>
GLOBAL e-FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Number
of Market
Shares Security Description Value
----------- ------------------------------------------------------ ------------
COMMON STOCKS: 90.96%
ARGENTINA: 3.32%
10,000 El Sitio, Inc. (Internet)* $ 41,250
25,000 Impsat Corporation (Networking)* 387,500
-----------
428,750
-----------
Australia: 1.12%
100,000 Ecorp(Internet)* 144,882
-----------
Brazil: 1.25%
7,400 Embratel Participacoes Sponsored ADR(Telecommunications) 161,875
-----------
Canada: 8.51%
3,800 724 Solutions Incorporated (Internet)* 176,937
6,000 BCE Emergis, Inc. (Software)* 366,835
6,800 Nortel Networks Corporation (Networking) 554,625
-----------
1,098,397
-----------
China: 1.62%
5,900 China.Com Corp CL "A"(Internet)* 103,987
4,900 Sina.Com (Internet)* 105,350
-----------
209,337
-----------
Egypt: 0.20%
1,000 Egyptian Mobile Phone (Mobile)* 25,633
-----------
Finland: 2.67%
3,000 Nokia ADR (Telecommunications) 134,812
6,200 Sonera Corp Sponsored ADR (Networking) 209,637
-----------
344,449
-----------
France: 4.92%
13,900 Integra (Internet)* 226,949
5,000 Vivendi SA (Media) 408,181
-----------
635,130
-----------
Germany: 10.35%
1,600 Adva AG Optical Network (Networking)* 191,668
5,000 Brokat Infosystems AG (Software)* 530,192
5,000 Intershop Communications (Internet)* 454,767
6,000 T Online International (Internet)* 160,255
-----------
1,336,882
-----------
Great Britain: 12.72%
2,400 Autonomy Corporation PLC (Internet)* 120,840
60,000 Energis PLC (Telecommunications)* 547,419
8,000 Logica PLC (Software) 250,066
23,000 Marconi Electronics Systems (Telecommunications) 407,678
6,400 Psion PLC (Software) 81,692
20,000 Scoot.Com PLC (Internet)* 36,915
20,000 Telewest Communications PLC (Telecommunications)* 49,897
3,600 Vodafone Group PLC ADR (Mobile) 147,375
-----------
1,641,882
-----------
Hong Kong: 3.54%
9,000 Asia Satellite Telecom ADR (Satellite) 271,125
100,000 Pacific Century Cyberworks (Internet)* 185,917
-----------
457,042
-----------
India: 2.47%
1,650 Infosys Technologies Sponsored ADR (Software) 257,426
4,000 Satyam Infoway Ltd. (Internet)* 61,000
-----------
318,426
-----------
Israel: 6.51%
2,000 Audiocodes Ltd. (Telecommunications)* 224,750
5,000 Breezecom Limited (Telecommunications)* 216,563
1,070 Check Point Software Techs (Software)* 156,019
16,000 Orckit Communications Ltd. (Telecommunications)* 158,000
11,000 Tioga Technologies Ltd. (Electronics/Equipment)* 85,938
-----------
841,270
-----------
Ireland: 1.78%
14,000 Eircom PLC Euro Sponsored ADR (Telecommunications) 121,625
4,000 Trintech Group PLC ADR (Software)* 108,000
-----------
229,625
-----------
Japan: 6.06%
10,000 NEC Corp. (Electronics/Equipment) 285,969
2,000 NTT Docomo Inc. Sponsored ADR (Mobile) 272,000
1,700 Softbank Corp. (Internet) 224,584
-----------
782,553
-----------
Korea: 1.98%
5,000 Korea Elect Power Sponsored ADR/RP1/2 (Utilities) 84,375
2,100 Korea Thrunet Company Ltd. "A" (Internet)* 17,718
6,000 SK Telecom Ltd. Sponsored ADR (Mobile) 153,750
-----------
255,843
-----------
Mexico: 1.50%
3,000 Grupo Telavisa GDR Rep 144A (Media)* 194,250
-----------
Netherlands: 7.89%
10,000 Equant N V Registered Shares (Networking)* 384,375
6,900 KPNQWEST NV (Telecommunications)* 228,994
4,500 StMicroelectronics NV NY SHS (Electronics/Equipment) 277,594
5,300 United Pan Europe Com Sponsored ADR (Telecommunications)* 127,200
-----------
1,018,163
-----------
Philippines: 0.72%
5,500 Philippine Long Dist Tel Sponsored ADR (Telecommunications) 92,812
-----------
Singapore: 2.90%
41,600 Datacraft Asia Ltd. (Networking)* 349,440
1,700 Pacific Internet Ltd. (Internet)* 24,862
-----------
374,302
-----------
Spain: 1.79%
5,750 Terra Networks SA Sponsored ADR (Internet)* 230,719
-----------
Sweden: 7.14%
17,200 Ericsson LM Tel Co ADR "B" (Telecommunications) 352,600
23,500 Icon Medilab Int AB (Internet)* 447,761
10,000 Switchcore AB (Networking) 121,203
-----------
921,564
-----------
Total Investments:
(Cost: $13,075,252) ** 90.96% $11,743,786
Other assets, net 9.04% 1,167,787
------ -----------
Net Assets 100.00% $12,911,573
====== ===========
* Non-income producing
** Cost for Federal income tax purposes is $13,075,252 and net unrealized
depreciation consists of:
Gross unrealized appreciation $ 702,883
Gross unrealized depreciation (2,034,349)
----------
Net unrealized depreciation ($1,331,466)
==========
ADR--Security represented is held by the custodian bank in the form of American
Depositary Receipts.
See Notes to Financial Statements
<PAGE>
GLOBAL e-FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AUGUST 31, 2000
Electronics/Equipment 5.03%
Internet 21.41%
Media 4.67%
Mobile 4.64%
Networking 17.03%
Satellite 2.10%
Software 13.56%
Telecommunications 21.87%
Utilities 0.65%
------
90.96%
Other assets, net 9.04%
------
Net Assets 100.00%
======
<PAGE>
GLOBAL e-FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
ASSETS
Investments at value (identified cost of $13,075,252) (Notes 1 & 3) $11,743,786
Cash 1,090,725
Receivables:
Dividends $ 1,727
Capital stock sold 104,918
Investments sold 110,921
--------
217,566
Other assets 11,167
-----------
TOTAL ASSETS 13,063,244
-----------
LIABILITIES
Payables:
Investments purchased 90,825
Capital stock redeemed 869
Investment management fees 36,171
12b-1 fees 18,095
--------
145,960
Accrued expenses 5,711
-----------
TOTAL LIABILITIES 151,671
-----------
NET ASSETS $12,911,573
===========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE ($12,911,573/1,591,150 shares outstanding) $ 8.11
===========
MAXIMUM OFFERING PRICE PER SHARE ($8.11 x 100/94.50) $ 8.58
===========
At August 31, 2000 there were 50,000,000 shares of $.01 par
value stock authorized and components of net assets are:
Paid in capital $14,355,840
Accumulated net realized loss on investment and foreign currency (112,346)
Net unrealized loss on investments and foreign currency
transacttions (1,331,921)
-----------
Net Assets $12,911,573
===========
See Notes to Financial Statements
<PAGE>
GLOBAL e-FUND
STATEMENT OF OPERATIONS
PERIOD ENDED AUGUST 31, 2000*
INVESTMENT INCOME
Dividend (net of foreign tax withheld of $66) $ 3,582
EXPENSES
Investment advisory fees (Note 2) $45,238
12b-1 fee (Note 2) 18,095
Transfer agent fees (Note 2) 4,890
Recordkeeping and administrative services (Note 2) 7,238
Custodian and accounting fees 9,796
Organization expense 41,099
Shareholder servicing and reports (Note 2) 1,065
Registration fees 9,101
Miscellaneous 8,797
-------
Total expenses 145,319
Management fee waiver (Note 2) (9,067)
Custody credits (Note 3) (8,986)
---------
Net expenses 127,266
---------
Net investment loss (123,684)
---------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCIES
Net realized loss on investments (94,554)
Net realized loss on foreign currency conversions (17,792)
Change in unrealized loss on investments and foreign currencies (1,331,921)
---------
Net loss on investments (1,444,267)
---------
Net decrease in net assets resulting from operations ($1,567,951)
==========
* Commencement of operations May 4, 2000.
See Notes to Financial Statements
<PAGE>
GLOBAL e-FUND
STATEMENT OF CHANGES IN NET ASSETS
Period ended
August 31, 2000*
----------------
OPERATIONS
Net investment loss $ (123,684)
Net unrealized loss of investments and currencies (1,331,921)
Net realized loss on investments and foreign currency transactions (112,346)
----------
Net decrease in net assets resulting from operations (1,567,951)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital
share transactions** 14,479,524
Net increase in net assets 12,911,573
Net assets at beginning of period --
-----------
NET ASSETS at end of period $12,911,573
===========
* Commencement of operations May 4, 2000.
** A summary of capital share transactions follows:
Period ended
August 31, 2000*
----------------------------
Shares Value
---------- -----------
Shares sold 1,642,578 $14,881,043
Shares redeemed (51,428) (401,519)
--------- -----------
Net increase 1,591,150 $14,479,524
========= ===========
See Notes to Financial Statements
<PAGE>
GLOBAL e-FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended
August 31, 2000*
----------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.45
Income from investment operations-
Net investment loss (0.08)
Net realized and unrealized loss (1.26)
--------
Total from investment operations (1.34)
--------
Net asset value, end of period $ 8.11
========
Total Return (14.18%)
========
Ratios/Supplemental Data
Net assets, end of period (000's) $12,912
Ratio to average net assets (A)
Expenses (B) 3.73%**
Expense ratio - net (C) 3.49%**
Net investment loss (3.39%)**
Portfolio turnover rate 6.23%
* Commencement of operations May 4, 2000.
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net investment
income ratio by 0.25% for the for the period ended August 31, 2000.
(B) Expense ratio has been increased to include custodial fees which were offset
by custodian fee credits and before management fee waivers.
(C) Expense ratio - net reflects the effect of the management fee waivers and
custodian fee credits the fund received.
See Notes to Financial Statements
<PAGE>
GLOBAL e-FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The Global e-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 May, 2000
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 achieve capital appreciation by investing
in a non-diversified portfolio consisting of equity securities, securities
convertible into common stock and warrants of companies principally engaged in
Internet and Internet-related businesses.
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. Securities for which market
quotations are not readily available are valued on a consistent basis at fair
value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund. 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 Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is determined
generally on a first-in, first-out basis. Dividends are recorded on the
ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments. Foreign securities and currency
transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Distribution 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 that 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. 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 and expensed by the Fund.
G. 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, Global Assets
Advisors, Inc.("GAA") provides investment services for an annual fee of 1.25% on
the first $500 million of average daily net assets; 1.00% on average daily net
assets in excess of $500 million and not more than $1 billion; and 0.75% on
average daily net assets of the Fund over $1 billion. Pursuant to the agreement,
the Advisor has agreed to waive or limit its fees and to assume other expenses
for the first three years following commencement of operations so that the total
annual operating expenses for the Fund are limited to 3.49%. For the period
ended August 31, 2000, the Advisor waived fees of $9,067.
The Advisor will be entitled to reimbursement of fees waived or remitted
by the Advisor to the Fund. The total amount of reimbursement recoverable by the
Advisor is the sum of all fees previously waived or remitted by the Advisor to
the Fund during any of the previous five (5) years, less any reimbursement
previously paid by the Fund to the Advisor with respect to any waivers,
reductions and payments made with respect to the Fund. The total amount of
recoverable reimbursements as of August 31, 2000 was $9,067.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, whereby the Fund may finance activities which
are primarily intended to result in the sale of the Fund's shares, including,
but not limited to, advertising, printing of prospectuses and reports for other
than existing shareholders, preparation and distribution of advertising
materials and sales literature, and payments to dealers and shareholder
servicing agents who enter into agreements with the Fund . The Fund may incur
such distribution expenses at the rate of .50% per annum on the Fund's average
net assets. For the period ended August 31, 2000, there were $18,095 of
distribution expenses incurred by the fund.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its administrative agent,
$8,054 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.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend
Disbursing Agent. FSI received $4,890 for its services for the period ending
August 31, 2000.
Certain officers and/or directors of the Fund are also officers and/or
directors of GAA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY
Purchases and sales of securities other than short-term notes aggregated
$13,806,469 and $642,601, respectively.
The custodian has provided credits in the amount of $8,986 against
custodian and accounting charges based on credits on cash balances of the Fund.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
Global e-Fund, a series of The World Funds, Inc., including the schedule of
portfolio investments as of August 31, 2000, and the related statement of
operations, changes in net assets and financial highlights for the period then
ended. 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
audit.
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, 2000 by
correspondence with the custodian and brokers. 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 audit provides 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
Global e-Fund as of August 31, 2000, the results of its operations, changes in
its net assets and the financial highlights for the period then ended, in
conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<PAGE>
Investment Advisor:
Global Assets Advisors, Inc
250 Park Avenue South
Suite 200
Winter Park, Florida 32789
Distributor:
International Assets Advisory Corp.
250 Park Avenue South
Suite 200
Winter Park, Florida 32789
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 the
Global e-Fund's Transfer Agent:
Fund Services, Inc.
Post Office Box 26305
Richmond, Virginia 23260
(800) 628-4077 Toll Free
More Information:
For 24 hours, 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.
<PAGE>
Monument
EuroNet Fund
Annual Report to Shareholders
For the Period Ended
August 31, 2000
<PAGE>
VERNES ASSET MANAGEMENT, LLC
Dear Shareholder:
Our great thanks for your investment in the Monument EuroNet Fund this past
year. As you know, we launched the Fund on July 1, 2000 with great expectation
of what the emergence of the European Internet sector may offer our U.S.
investors. To date, we have not been disappointed. As you know, with only two
months investing, we had already captured a 3.72% return to close our first
fiscal year. These gains came even given that we prudently positioned our
investments slowly, thus preventing us from being fully invested until nearly
the end of this time period.
We continue to be very excited about the investment opportunities afforded us in
Europe. As many of you know, the Internet sector in both the U.S. and Europe has
made a severe reversal since the early part of this year. This means that assets
in this sector are available at very reasonable values, thus offering the
investor excellent current buying opportunities. In addition, the value of the
Euro, the new European currency at which the majority of our investments are
priced, has reduced significantly against the U.S. Dollar. From its high of 1.22
Dollars to the Euro, the Euro has fallen sharply and is currently trading at
prices below 90 cents. This means that our U.S. investor's Dollar investment can
go much further now allowing them to buy cheaper assets with a stronger Dollar.
This combination presents an excellent buying opportunity for all U.S.
investors.
The longer term-prospect for our Fund continues to be strong. Quite a bit of
activity has taken place in the European Internet sector since we launched our
fund. M-Commerce, or Mobile-Commerce has taken significant strides recently with
significant capital invested in this area combined with some very exciting new
technological developments. Several landmark alliances and mergers have taken
place between U.S. and European companies, as well as numerous leading U.S.
Internet companies expanding directly into Europe. Similarly, some major
European Internet companies have taken significant strides expanding their
business into the U.S. as well as globally. Clearly, the level of recent
activity points to a burgeoning European Internet market in the future.
We are honored that you have allowed us to assist you in seeking real capital
appreciation for your investment portfolio. Our team in Paris and in the U.S.
continues to work diligently to identify excellent investment opportunities for
you and our Fund. We will continue to work on your behalf to best serve your
investment goals and aspirations.
Again, our thanks for your faith and trust in our investment products.
Our best,
Brian W. Clarke
President
<PAGE>
MONUMENT EURONET FUND
CLASS A SHARES
[begin graph]
Date Monument Bloomberg European
EuroNet Fund Internet Index
7/3/00 $10,000 $10,000
8/31/00 $ 9,775 $11,177
Past performance is not predictive of future performance. Performance figures
include deduction of maximum applicable sales charges.
[end graph]
---------------------------------------------
Total Return for Period Ended August 31, 2000
Since Inception
-2.25%
---------------------------------------------
-------------------------------------------------------------------------------
The Bloomberg European Internet Index is a capitalization-weighted index. The
index is comprised of European Internet companies with a minimum market
capitalization of 100 million Euro.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
-------------------------------------------------------------------------------
<PAGE>
MONUMENT EURONET FUND
CLASS B SHARES
[begin graph]
Date Monument Bloomberg European
EuroNet Fund Internet Index
7/6/00 $10,000 $10,000
8/31/00 $ 9,903 $11,501
Past performance is not predictive of future performance. Performance figures
include deduction of maximum applicable sales charges assuming all redemptions
at the end of the period.
[end graph]
---------------------------------------------
Total Return for Period Ended August 31, 2000
Since Inception
-0.97%
---------------------------------------------
-------------------------------------------------------------------------------
The Bloomberg European Internet Index is a capitalization-weighted index. The
index is comprised of European Internet companies with a minimum market
capitalization of 100 million Euro.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
-------------------------------------------------------------------------------
<PAGE>
MONUMENT EURONET FUND
CLASS C SHARES
[begin graph]
Date Monument Bloomberg European
EuroNet Fund Internet Index
7/6/00 $10,000 $10,000
8/31/00 $10,157 $11,501
Past performance is not predictive of future performance. Performance figures
include deduction of maximum applicable sales charges, including deferred sales
charges assuming all redemptions at the end of the period.
[end graph]
---------------------------------------------
Total Return for Period Ended August 31, 2000
Since Inception
1.57%
---------------------------------------------
-------------------------------------------------------------------------------
The Bloomberg European Internet Index is a capitalization-weighted index. The
index is comprised of European Internet companies with a minimum market
capitalization of 100 million Euro.
(The comparative index is not adjusted to reflect expenses that the SEC requires
to be reflected in the Fund's performance.)
-------------------------------------------------------------------------------
<PAGE>
MONUMENT EURONET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
August 31, 2000
Number of Market
Shares Security Description Value
Common Stock: 66.61%
Belgium: 0.99%
4,000 Lernout & Hauspie* (Application Service Provider) $ 116,750
---------------
Denmark: 1.53%
25,000 Euro909.com Sponsored ADR* 179,298
(Services/Domain naming/Applications) ---------------
Finland: 4.35%
22,000 F-Secure LTD* (Computer Data Security) 158,126
3,500 Nokia AB OYJ (Infrastructure) 153,330
6,000 Sonera OYJ (Infrastructure) 200,186
---------------
511,642
---------------
France: 20.02%
4,652 Aubay* (Services/Domain naming/Applications) 125,283
4,000 Consodata SA* (Services/Domain naming/Applications) 188,118
3,000 Europstat* (Web Design & Consulting) 99,028
3,200 FI Systems* (Web Design & Consulting) 191,668
1,989 GL Trade SA (E-Commerce) 96,189
4,000 Groupe Ares (Services/Domain naming/Applications) 187,408
7,000 IB Group.com* (Services/Domain naming/Applications) 149,013
11,000 Infosources* (Internet Service Provider) 158,126
4,000 NetGem SA* (Services/Domain naming/Applications) 178,535
5,000 NetValue* (Services/Domain naming/Applications) 103,776
3,000 Team Partners Group* (Services/Domain naming/Applications) 159,457
2,000 Thomson Multimedia* (Infrastructure) 121,389
8,000 Valtech* (Web Design & Consulting) 169,661
2,500 Vivendi SA (Services/Domain naming/Applications) 204,091
12,000 Wanadoo* (Internet Service Provider) 220,950
---------------
2,352,692
---------------
Germany: 8.82%
2,000 Articon Integralis AG* (Computer Data Security) 169,484
2,000 Brokat Infosystems AG* (Application Service Provider) 212,077
2,500 Infineon Technologies AG* (Infrastructure) 166,090
1,750 Intershop Communications* (Application Service Provider) 159,168
1,200 Pandatel AG* (Infrastructure) 142,654
7,000 Trintech Group PLC ADR* (Application Service Providider) 186,965
---------------
1,036,438
---------------
Great Britain: 9.82%
32,000 Baltimore Technologies PLC* (Computer Data Security) 411,710
13,000 Cable & Wireless (Infrastructure) 240,043
10,000 Kewill Systems PLC* (Application Service Provider) 154,188
40,000 Parthus Technologies PLC* (Application Service Provider) 186,244
40,000 Vodafone Group PLC (Infrastructure) 161,441
---------------
1,153,626
---------------
Italy: 1.22%
3,500 Tiscali SPA* (Internet Service Provider) 143,019
---------------
Netherlands: 1.42%
5,000 KPNQwest NV Series C* (Infrastructure) 167,265
---------------
Portugal: 106%
12,000 Portugal Telecom SA (Infrastructure) 124,797
---------------
Spain: 3.14%
13,000 Amadeus Global Travel (E-Commerce) 132,659
5,000 Terra Networks* (Internet Service Provider) 235,148
5,000 Terra Networks SA RP EXP 9/12/00*
(Internet Service Provider) 665
---------------
368,472
---------------
Sweden: 3.92%
8,000 Ericsson (LM) Tele Series B Free (Infrastructure) 161,321
14,000 Framtidsfabriken AB* (Web Design/Consulting) 156,346
20,000 Telia AB* (Internet Service Provider) 142,902
---------------
460,569
---------------
United States: 10.32%
5,400 Agile Software Corporation* (Business to Business) 374,962
4,000 America Online Inc. Del* (Internet Service Provider) 234,500
11,500 Broadvision Inc* (Business to Business) 396,750
3,000 Cisco Systems Inc.* (Infrastructure) 205,875
---------------
1,212,087
---------------
Total Investments:
(Cost: $7,460,291) ** 66.61% $ 7,826,655
Other assets, net 33.39% 3,923,669
---------- ---------------
Net Assets 100.00% $ 11,750,324
========== ===============
* Non-income producing
** Cost for Federal income tax purposes is $7,460,291 and net unrealized
appreciation consists of:
Gross unrealized appreciation $735,573
Gross unrealized depreciation (369,209)
---------------
Net unrealized appreciation $366,364
===============
ADR--Security represented is held by the custodian bank in the form of American
Depositary Receipts.
See Notes to Financial Statements
<PAGE>
Monument EuroNet Fund
August 31, 2000
INDUSTRY PERCENTAGE BASED ON NET ASSETS
Applications Service Provider 8.64%
Business to Business 6.57%
Computer Data Security 6.29%
E-Commerce 1.95%
Infrastructure 15.70%
Internet Service Provider 9.66%
Services/Domain naming/Application 12.55%
Web Design & Consulting 5.25%
------
66.61%
Other assets, net 33.39%
------
Net assets 100.00%
======
<PAGE>
MONUMENT EURONET FUND
Statement of Assets and Liabilities
August 31, 2000
ASSETS
Investments at value (identified cost of $7,460,291) (Notes 1 & 3) $ 7,826,655
Cash 4,696,651
Receivables:
Capital stock sold $ 235,773
Investments sold 510,416
Due from investment advisor (Note 2) 36,081
---------
782,270
Other assets 28,068
-----------
TOTAL ASSETS 13,333,644
-----------
LIABILITIES
Payables:
Investments purchased 1,512,942
Capital stock redeemed 45,521
Investment management fees 7,015
12b-1 fees 5,044
---------
1,570,522
Accrued expenses 12,798
-----------
TOTAL LIABILITIES 1,583,320
-----------
NET ASSETS $11,750,324
===========
Class A Shares
Net assets (1,065,454 shares outstanding) $10,405,604
===========
Net Asset Value and Redemption Price per class A share
($10,405,604 / 1,065,454 shares outstanding) $ 9.77
===========
Maximum Offering Price Per Share ($9.77 X 100 / 94.25) $ 10.37
===========
Class B Shares
Net assets (118,285 shares outstanding) $ 1,158,845
===========
Net Asset Value and Offering Price per class B share
($1,158,845 / 118,285 shares outstanding) $ 9.80
===========
Redemption Price Per Share ($9.80 X 0.95) $ 9.31
===========
Class C Shares
Net assets (19,046 shares outstanding) $ 185,875
===========
Net Asset Value and Redemption* Price per class C share
($185,875 / 19,046 shares outstanding) $ 9.76
===========
Maximum Offering Price Per Share ($9.76 X 100 / 99) $ 9.86
===========
* A contingent deferred sales charge of 1% is imposed on shares redeemed within
one year.
At August 31, 2000, there were 50,000,000 shares of $.01 par value stock
authorized and the components of net assets are:
Paid in capital $11,253,627
Accumulated net realized gain on investment and
foreign currency transaction 124,680
Net unrealized gain on investments and foreign
currency transactions 372,017
-----------
Net Assets $11,750,324
===========
See Notes to Financial Statements
<PAGE>
Monument EuroNet Fund
Statement of Operations
For the period ended August 31, 2000*
INVESTMENT INCOME $ --
-----------
EXPENSES
Investment management fees (Note 2) $21,995
12b-1 fee - Class A (Note 2) 6,796
12b-1 fee - Class B (Note 2) 865
12b-1 fee - Class C (Note 2) 207
Recordkeeping and administrative services (Note 2) 2,933
Custodian and accounting fees (Note 3) 11,452
Shareholder servicing and reports (Note 2) 112
Transfer agent fees 10,000
Organization expense 23,408
Filing and registration fees (Note 2) 9,566
Other 12,379
-------
Total expenses 99,713
Less expense reimbursements (Note 2) (36,081)
Less custodian credits (Note 3) (11,452)
-----------
Expenses, net 52,180
-----------
Net investment loss (52,180)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES
Net realized gain on investments 127,038
Net realized loss on foreign currency conversions (2,359)
Change in unrealized gain on investments and foreign currencies 372,018
-----------
Net gain on investments 496,697
-----------
Net increase in net assets resulting from operations $ 444,517
===========
* Commencement of operations July 3, 2000 for Class A shares and July 6, 2000
for Class B & C shares.
See Notes to Financial Statements
<PAGE>
Monument EuroNet Fund
Statement of Changes in Net Assets
Period ended
August 31, 2000*
-----------------
OPERATIONS
Net investment loss $ (52,180)
Net realized gain on investments and foreign currency transactions 124,679
Net unrealized gain on investments and currencies 372,018
-----------
Net increase in net assets resulting from operations 444,517
-----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share
transactions** 11,305,807
-----------
Net increase in net assets 11,750,324
Net assets at beginning of period --
-----------
NET ASSETS at end of period $11,750,324
===========
* Commencement of operations July 3, 2000 for Class A shares and July 6, 2000
for Class B & C shares.
**A summary of capital share transactions follows:
For the period ended
August 31, 2000*
-------------------------
Shares Value
---------- ---------
Class A Shares
Shares sold 1,095,848 $10,302,154
Shares redeemed (30,394) (281,214)
--------- -----------
Net increase 1,065,454 $10,020,940
========= ===========
Class B Shares
Shares sold 123,081 $ 1,150,463
Shares redeemed (4,796) (44,415)
--------- -----------
Net increase 118,285 $ 1,106,048
========= ===========
Class C Shares
Shares sold 21,697 $ 202,891
Shares redeemed (2,651) (24,072)
--------- -----------
Net increase 19,046 $ 178,819
========= ===========
* Commencement of operations July 3, 2000 for Class A shares and July 6, 2000
for Class B & C shares.
See Notes to Financial Statements
<PAGE>
Monument EuroNet Fund
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<S> <C> <C> <C>
Class A Shares Class B Shares Class C Shares
---------------- ---------------- ----------------
Period ended Period ended Period ended
August 31, 2000* August 31, 2000* August 31, 2000*
---------------- ---------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.42 $ 9.42 $ 9.42
------- ------- -------
Income from investment operations-
Net investment loss (0.04) (0.04) (0.04)
Net realized and unrealized gain
on investments 0.39 0.41 0.38
------- ------- -------
Total from investment operations 0.35 0.38 0.34
------- ------- -------
Net asset value, end of period $ 9.77 $ 9.80 $ 9.76
======= ======= =======
Total Return 3.72% 4.03% 3.61%
======= ======= =======
Ratios/Supplemental Data
Net assets, end of period (000's) $10,406 $ 1,159 $ 186
Ratio to average net assets (A)
Expenses (B) 4.24%** 4.74%** 4.74%**
Expense ratio - net (C) 3.47%** 3.97%** 3.97%**
Net investment loss (3.47%)** (3.97%)** (3.97%)**
Portfolio turnover rate 8.60% 8.60% 8.60%
</TABLE>
* Commencement of operations July 3, 2000 for Class A shares and July 6, 2000
for Class B & C shares.
** Annualized
(A) Management fee waiver reduced the expense ratio and increased net investment
income ratio by 2.42% for the period ended August 31, 2000.
(B) Expense ratio has been increased to include additional custodian fees which
were offset by custodian fee credits.
(C) Expense ratio-net reflects the effect of the custodian fee credits the fund
received.
See Notes to Financial Statements
<PAGE>
MONUMENT EURONET FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The Monument EuroNet 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 July, 2000 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 Fund also has Class B
shares and Class C shares that have contingent deferred sales charges ("CDSC").
The objective of the Fund is to achieve capital appreciation by investing
in a diversified portfolio consisting of equity securities, securities
convertible into common stock and warrants of companies principally engaged in
Internet and Internet-related businesses.
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. Securities for which market
quotations are not readily available are valued on a consistent basis at fair
value as determined in good faith by or under the direction of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund. 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 Dividends. Security transactions are
accounted for on the trade date. The cost of securities sold is determined
generally on a first-in, first-out basis. Dividends are recorded on the
ex-dividend date.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign currencies
are recorded in the financial statements after translation to U.S. dollars based
on the exchange rates at the end of the period. The cost of such holdings is
determined using historical exchange rates. Income and expenses are translated
at approximate rates prevailing when accrued or incurred. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in market prices of
the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments. Foreign securities and currency
transactions may involve certain considerations and risks not typically
associated with those of domestic origin.
E. Distribution 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 that 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. 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 and expensed by the Fund.
G. 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, Vernes Asset
Management, LLC ("VAM") provides investment services for an annual fee of 1.50%
on the first $250 million average daily net assets of the Fund; 1.25% on average
daily net assets of the Fund in excess of $250 million and not more than $500
million; 1.00% on average daily net assets of the Fund over $500 million and not
more than $750 million; 0.875% on average daily net assets of the Fund over $750
million and $1 billion; and 0.75% on the average daily net assets of the Fund
over $1 billion. The Advisor is assisted in its management of the Fund's
portfolio by two sub-advisors: SA Financiere Rembrandt and Monument Advisors,
Ltd. To compensate these advisors, VAM pays from its fee to SA Financiere
Rembrandt 50% of the management fee and Monument Advisors, Ltd. 16%
Pursuant to the agreement, the Advisor has agreed to waive or limit its
fees and to assume other expenses for the first three years following
commencement of operations so that the ratio of total annual operating expenses
for the Fund are limited to 3.49% for the Class A shares and 3.99% for the Class
B shares and Class C shares. As of August 31, 2000, the Fund was due $36,081
from the Advisor.
The Advisor will be entitled to reimbursement of fees waived or remitted
by the Advisor to the Fund. The total amount of reimbursement recoverable by the
Advisor is the sum of all fees previously waived or remitted by the Advisor to
the Fund during any of the previous five years, less any reimbursement
previously paid by the Fund to the Advisor with respect to any waivers,
reductions, and payments made with respect to the Fund. The total amount of
recoverable reimbursements as of August 31, 2000 was $36,081
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, whereby the Fund may finance activities which
are primarily intended to result in the sale of the Fund's shares, including,
but not limited to, advertising, printing of prospectuses and reports for other
than existing shareholders, preparation and distribution of advertising
materials and sales literature, and payments to dealers and shareholder
servicing agents who enter into agreements with the Fund . The Fund may incur
such distribution expenses up to the rate of .50% per annum on the Fund's
average net assets for its Class A shares and up to 1.00% for its Class B shares
and Class C shares. For the period ended August 31, 2000, there were $6,795,
$865, and $207 of distribution expenses incurred for Class A, B, and C shares,
respectively.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its administrative agent $2,809
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.
Certain officers and/or directors of the Fund are also officers and/or directors
of VAM and CSS.
NOTE 3-INVESTMENTS/CUSTODY
Purchases and sales of securities other than short-term notes aggregated
$7,847,628 and $514,376, respectively.
The custodian has provided credits in the amount of $11,452 against
custodian and accounting charges based on credits on cash balances of the Fund.
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors of The World Funds, Incorporated
Richmond, Virginia
We have audited the accompanying statement of assets and liabilities of the
Monument EuroNet Fund, a series of The World Funds, Inc., including the schedule
of portfolio investments as of August 31, 2000, and the related statement of
operations, changes in net assets and financial highlights for the period year
then ended. 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
audit.
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, 2000 by
correspondence with the custodian and brokers. 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 audit provides 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
Monument EuroNet Fund as of August 31, 2000, the results of its operations,
changes in its net assets and the financial highlights for the period then
ended, in conformity with generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
September 22, 2000
<PAGE>
Investment Adviser:
Vernes Asset Management, LLC
993 Farmington Avenue
Suite 205
West Hartford, Connecticut 06107
Distributors:
First Dominion Capital Corp.
1500 Forest Avenue
Suite 223
Richmond, Virginia 23229
Monument Distributors, Inc.
7920 Norfolk Avenue
Suite 500
Bethesda, Maryland 20814
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 the
Monument EuroNet Fund's Transfer Agent:
PFPC, Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(302) 791-1700
More Information:
For 24 hours, 7 days a w 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.
