Semi-Annual Report to Shareholders
THE NEW MARKET FUND
A Series of
The World Funds, Inc.
A "Series" Investment Company
For the Period Ended
February 29, 2000
<PAGE>
THE NEW MARKET FUND
Schedule of Portfolio Investments (Unaudited)
February 29, 2000
Number of Market
Shares Security Description Value
--------- -------------------- --------
COMMON STOCK: 84.79%
AEROSPACE/DEFENSE: 2.79%
2,400 Honeywell Int. $115,500
--------
CHEMICALS: 1.78%
4,900 Albemarle Corp. 73,806
--------
COMPUTERS: 6.84%
4,700 Perot Systems 119,556
1,600 International Business Machines Corp. 163,200
--------
282,756
--------
CONSUMER GOODS: 9.62%
3,800 Gillette Co. 133,950
700 General Electric 92,531
2,400 Nike Inc. 68,250
3,200 Pepsico Inc. 103,200
--------
397,931
--------
DIVERSIFIED: 13.97%
2 Berkshire Hathaway Inc-Cl A* 88,000
142 Berkshire Hathaway Inc-Cl B* 204,480
8,500 Tredegar Industries Inc. 240,125
200 Wesco Financial 44,950
--------
577,555
--------
FINANCIALS: 17.37%
1,000 American Express Co. 134,188
1,000 Bank America 46,063
2,600 Capital One Financial Corp. 95,712
2,400 Financial Security Assurance Holdings Ltd. 108,000
2,600 Federal Home Loan Mortgage Corp. 108,550
600 Merrill Lynch & Co. 61,500
800 Markel Corp.* 104,600
1,800 Wells Fargo Co. 59,513
--------
718,126
--------
MEDICAL: 3.56%
1,400 Bristol-Myers Squibb Co. 79,537
600 Johnson & Johnson 43,050
400 Merck & Co. 24,625
--------
147,212
--------
DRILLING: 2.83%
2,200 Atwood Oceanics Inc.* 116,875
--------
ELECTRONICS: 6.28%
2,300 Intel Corp. 259,900
--------
OIL: 1.38%
1,200 Texaco 56,925
--------
REITS: 6.87%
12,800 United Dominion Realty Trust 128,000
6,000 First Industrial Realty Trust 156,000
--------
284,000
--------
RETAIL: 3.26%
1,200 McDonald's Corporation 37,875
2,400 Circuit City Stores 96,900
--------
134,775
--------
TELECOMMUNICATIONS: 6.90%
2,000 Sprint 122,000
3,300 AT&T 163,144
--------
285,144
--------
TRANSPORTATION - RAIL: 1.34%
2,500 CSX Corp. 55,469
--------
TOTAL COMMON STOCK:
(Cost: $3,656,071) 3,505,974
---------
SHORT-TERM INVESTMENTS: 9.64%
398,611 Star Treasury Fund
(Cost: $398,611) 398,611
---------
TOTAL INVESTMENTS:
(Cost: $4,054,682)** 94.43% $3,904,585
Other assets, net 5.57% 230,378
------ ---------
NET ASSETS 100.00% $4,134,963
====== =========
*Non-income producing
**Cost for Federal income tax purpose is $4,054,682 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 378,103
Gross unrealized depreciation (528,200)
---------
Net unrealized depreciation $(150,097)
=========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000 (Unaudited)
- -----------------------------------
ASSETS
Investments at value
(identified cost of $4,054,682 ) (Notes 1 & 3) $3,904,585
Receivable
Dividends $ 3,474
Interest 1,099
Investment securities sold 189,683
---------
194,256
Deferred organization costs (Note 1) 39,883
TOTAL ASSETS ----------
4,138,724
----------
LIABILITIES
Accrued expenses 3,761
----------
NET ASSETS $4,134,963
==========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE ($4,134,963 / 390,941 shares outstanding) $10.58
==========
OFFERING PRICE ($11.64 x 100 / 97.25) $10.88
==========
At February 29, 2000 there were 50,000,000 shares of $.01 par value stock
authorized and components of net assets are:
Paid in capital $4,427,649
Net accumulated realized loss (142,589)
Net unrealized depreciation of investments (150,097)
----------
Net Assets $4,134,963
----------
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF OPERATIONS
Six months ended February 29, 2000 (Unaudited)
- ----------------------------------------------
INVESTMENT INCOME
Dividend $26,981
Interest 4,803
--------
Total income $31,784
--------
EXPENSES
Investment advisory fees (Note 2) 17,851
Legal and audit 11,782
12b-1 fee 8,925
Transfer agent fees (Note 2) 7,676
Recordkeeping and administrative services
(Note 2) 7,590
Custodian and accounting fees 5,553
Organization expense amortization 5,338
Shareholder servicing and reports (Note 2) 3,753
Director fees 2,000
Miscellaneous 7,828
--------
Total expenses 78,296
Management fee waiver and reimbursed expenses (42,776)
--------
Net expenses 35,520
--------
Net investment loss (3,736)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net decrease in unrealized depreciation on investments (272,537)
Net accumulated realized loss (88,223)
--------
Net loss on investments (360,760)
--------
Net decrease in net assets resulting from operations ($364,496)
========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
Period ended
February 29, 2000 Period ended
(Unaudited) August 31, 1999*
----------------- ----------------
OPERATIONS
Net investment loss $ (3,736) $ (8,038)
Net accumulated realized loss (88,223) (54,366)
Change in unrealized appreciation
(depreciation) of investment (272,537) 122,440
Net decrease in net assets resulting --------- --------
from operations (364,496) 60,036
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 1,243,197 3,196,226
---------- ----------
Net increase in net assets 878,701 3,256,262
Net assets at beginning of period 3,256,262 --
---------- ----------
NET ASSETS at the end of the period $4,134,963 $3,256,262
========== ==========
* Commencement of operations October 1, 1998 ** A summary of capital share
transactions follows:
For the period ended
February 29, 2000 For the period ended
(Unaudited) August 31, 1999*
--------------------- ---------------------
Shares Value Shares Value
-------- ------- -------- -------
Shares sold 132,294 $1,485,493 282,806 $3,245,359
Shares reinvested
from distribution -- -- -- --
Shares redeemed (21,199) (242,296) (2,965) (49,133)
------- --------- ------- ---------
Net increase 111,095 $1,243,197 279,841 $3,196,226
======= ========= ======= =========
See Notes to Financial Statements
<PAGE>
THE NEW MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- ---------------------------------------------
Six months ended
February 29, 2000 Period ended
(Unaudited) August 31, 1999*
----------------- ----------------
Per Share Operating Performance
Net asset value, beginning of period $ 11.64 $ 10.00
------- -------
Income from investment operations-
Net investment loss (0.01) (0.03)
Net realized and unrealized gain on (1.05) 1.67
------- -------
Total from investment operations (1.06) 1.64
------- -------
Less distributions-
Distributions from net investment in -- --
Distributions from capital gains -- --
------- -------
Total distributions -- --
------- -------
Net asset value, end of period $ 10.58 $ 11.64
======= =======
Total Return (9.11%)*** 13.20%***
======= =======
Ratios/Supplemental Data
Net assets, end of period (000's) $ 4,135 $ 3,256
Ratio to average net assets
Expenses 4.38%** 4.47%**
Expense ratio - net 1.99%** 1.99%**
Net investment loss (0.21%)** (0.41%)**
Portfolio turnover rate 4.75% 8.31%
* Commencement of operations October 1, 1998
** Annualized
*** Non-annualized
See Notes to Financial Statements
<PAGE>
The New Market Fund
Notes to the Financial Statements
February 29, 2000 (Unaudited)
- ----------------------------------
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 period ended February 29, 2000, the manager
waived fees of $26,776 and reimbursed expenses of $16,000.
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 period ended February 29, 2000,
there were $8,925 of distribution expenses incurred which were waived by VMIC.
As provided in the Administrative Agreement, the Fund reimbursed
Commonwealth Shareholder Services, Inc. ("CSS"), its Administrative Agent,
$8,589 for providing shareholder services, recordkeeping, administrative
services and blue-sky filings. The Fund compensates CSS for blue-sky filings and
certain shareholder servicing on an hourly rate basis. For other administrative
services, CSS receives .20% of average daily net assets, with a minimum fee of
$15,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend
Disbursing Agent. FSI received $7,676 for its services for the period ended
February 29, 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 period ended February 29, 2000, aggregated $1,013,004
and $156,227 respectively.
<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.
