VONTOBEL EUROPACIFIC FUND - ANNUAL REPORT 1995
Dear Shareholder:
At year end, the fund's NAV was $17.13 and fund assets totaled $130,504,890,
down from $138,173,672 at the end of 1994. For the year, the fund produced
a total return of 10.9% return, vs. the 11.2% return of the MSCI EAFE Index
and the 9.4% return of the average international equity fund tracked by
Lipper Analytical Services. On December 27 the fund paid a per-share
distribution of $0.87 in income and capital gains to shareholders of record
as of December 26.
International equities turned in a surprisingly healthy performance in 1995
as investor fears of an overheating global economy and rising inflation
proved to be groundless. Inflation decelerated globally and interest rates
fell, confounding last year's forecasts of a capital shortage and strong
international growth.
The fund's performance benefitted from our disciplined approach to top-down
country allocation, which is based on the expected country returns produced
by our multi-factor model. Generally, we concentrated on investments in
large, more liquid markets, avoiding countries with low return visibility,
unclear monetary and fiscal policies, weak valuations, unstable macroeconomic
variables, or heavy government participation in the economy, such as France,
Italy, Spain, Austria, Mexico and Korea. We added aggressively to Japan and
the UK in the second and third quarters at a time when both markets were
trading at below fair market value. We reduced our Latin American holdings
after a recovery in the second quarter, maintaining only a 0.7% position in
Brazil. In Europe we sold out of Austria and Belgium when our models
signaled low expected returns, and we reduced France in favor of Switzerland,
the year's best-performing international market.
Also contributing to the fund's return was our 70% dollar/yen hedge, which
boosted performance in the 4th quarter when the dollar appreciated 4% against
the yen. On the negative side, performance was adversely impacted by
transaction costs resulting from our rebalancing of the portfolio and the
considerable number of redemptions by fund shareholders in the first half due
to the selloff in emerging markets and the strength of the U.S. equity
markets. Subscriptions totaling $20 million partially offset redemptions of
$40 million.
Throughout the year we reinforced our stock selection discipline by enlarging
our stock universe to 2800 names and by screening for companies with strong
and consistent price to sales ratios, consistent operating margins and
earnings growth, and a healthy return on equity. We focused on companies
that (i) achieve consistent returns by enhancing their core business, (Dutch
publisher Elsevier, French insurer Axa or Japanese electronics components
maker Omron); (ii) have a long-term track record of preserving market share
or unit volume growth (Germany's Bayer or Sweden's Astra, and Japan's Rohm);
and (iii) earn above average rates of return on invested capital
(Switzerland's Roche, Australian media conglomerate News Corp. and Hong
Kong's property company Sun Hung Kai). We continue to work on reducing the
number of fund holdings to under 100 names, which we believe is achievable
while preserving the benefits of diversification. At year end, the
fund held 120 positions in 18 countries.
Europe: European economies grew at a moderate pace in 1995. Exports
continued to be strong, particularly in the devaluing countries (Italy and
Spain), but manufacturing remained the driving force behind economic growth.
In the face of a softening economy, capacity utilization rates are sinking
and inventory levels are on the rise. Falling capital investment and
continued efforts by companies to rationalize their activities will
exacerbate an already soft economic picture. Greater competition among
European industries is exerting pressures on profit margins. U.K and German
corporations, helped by declining unit labor costs, have adapted best to the
changed competitive environment. The U.K. has experienced a wave of merger
activity, reminiscent of the 1980's, as corporations recognize that
in a slow growth, low inflation environment it will be difficult to sustain
adequate returns on invested capital. The present ratio of profits to GDP is
about 10%, the highest in over 15 years in most OECD countries. This has
largely come at the expense of the workforce. High unemployment rates are
eroding consumer confidence from already depressed levels, dashing hopes for
a sustainable, consumer-led recovery. Europe continues to stumble along the
road to European Monetary Union, a goal which is proving to be more difficult
than was originally anticipated. Inflexible labor markets, high rates of
structural unemployment, generous social welfare payments and the potential
for failure to fully fund pension liabilities weigh heavily on the process.
France, for example, has to reduce its public sector deficit from 5% to 3% of
GDP by 1997 in order to meet the Maastricht convergence criteria of 3%. With
25% of the workforce in the public sector, it has the highest ratio of
government spending to GDP in Europe. In the wake of a costly strike, it is
struggling to reduce its budget deficit, reduce unemployment, reform the
state welfare system and maintain a stable exchange rate, goals which are
mutually exclusive. Monetary easing was confined to the core countries,
including Germany, which cut its discount rate to 3% in December, and the
U.K., where the base rate was lowered to 6.5%. Spain, Portugal and Italy, on
the other hand, had to raise rates in defense of their weak currencies.
France is facing the risk of recession, growth is weakening in Germany, and
Belgium, after two consecutive quarters of negative GDP growth, is
technically in recession. Against this economic backdrop, we believe the
interest rate environment in Europe will continue to be favorable for the
equity markets.
Japan: 1995 was yet another difficult year for the Japanese economy as
witnessed by the Hanshin earthquake early in the year, disruptions in the
financial system and dramatic swings in the value of the yen, which rose to
post-WWII highs in the first half and sank back to January levels by year
end. Since 1990, the year in which the bubble economy burst, the Japanese
economy has been caught in a deflationary spiral. Japanese bond and equity
markets are now discounting a future growth rate of less than 1%. Japanese
authorities and the Bank of Japan have belatedly awakened to the perils of
deflation and are taking aggressive fiscal and monetary steps to remove the
economy from the danger zone. Corporate Japan continued to undertake
structural adjustments with uncharacteristic briskness, overcoming
deep-rooted resistance to change. Balance sheets were restructured as
production was cut back. Employment levels were slashed (Nippon T&T, Nippon
Steel, Toyota, Hitachi) and payrolls cut as workers were transferred to
subsidiaries at substantially lower salaries, and large-scale
early retirement schemes were implemented. If all else failed, bankruptcy
became the way out for a growing number of companies. Japanese households,
too, have retrenched. Bank deposits as a percentage of total houshold
financial assets have climbed to 64%, the highest level since 1987, despite
the fact that nominal interest rates are only 0.1%. Surging profits in the
manufacturing sector and an increase in year-end bonuses for the first time
in four years will help to restore consumer confidence.
The loss of credibility of the Japanese banks will remain an important issue
for investors. Bank loan deposit margins are thin and profits are unlikely
to improve. We continued to avoid that sector for the whole year. On the
other hand, Japan's top industrial companies, including Kyocera, Omron, Sony
and Canon, some of which we visited in 1995, have been successful in
re-engineering their activities and reducing costs. A prime rate which fell
to just 1.65% and a significantly weaker yen in the second half relieved
downward pressures on sales and operating profits. Gross margin improvement
was widespread in the entire manufacturing sector and operating profits rose
by 32% on a year on year basis.
Emerging Markets: These markets continued to disappoint in 1995. Latin
America provided another major downside surprise with a second precipitous
slide in the Mexican peso within 14 months. Nevertheless, our expected
returns for the next twelve months continue to be relatively high. The
euphoria of 1993 is now a distant memory and, after two consecutive losing
years, most of the froth in these markets has dissipated. With the major
central banks in an easing mode and a slowdown in the Asian economies,
conditions are favorable for a renewed flow of funds into these countries.
In the Far East, we increased our Malaysian weighting by adding to our
position in Telekom Malaysia. After two years of being overvalued, this
market is now selling at 16 times 1996 earnings, at the low end
of its historic range.
Currencies: We remain cautious about the US dollar. We do not buy the
argument that it will rise upon resolution of a budget deal. For one thing,
a deal has pretty much been discounted; for another, we have reservations
about the deficit in the U.S. current account. It fell in the second half
because of an improvement in the trade deficit with Japan and Europe, but not
enough to constitute a turnaround.
With a streamlined portfolio of 110 names, a disciplined top-down approach,
and systematic stock selection criteria, we maintain the benefits of
diversification while following more rigorous criteria for portfolio
construction. Even though our ten largest holdings represent almost 20% of
the portfolio, we make no concentrated country or sector bets. By employing
a disciplined method of calculating overall return expectations, we hope not
only to protect but continuously grow our shareholders' assets.
Fabrizio Pierallini
President
January 4, 1996
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN VONTOBEL EUROPACIFIC FUND VS.
EUROPE, AUSTRALIA, FAR EAST ("EAFE") INDEX FROM 7/6/90 *
Vontobel EuroPacific Fund EAFE
07/06/90 $10,000 $10,000
12/31/90 8,709 8,564
12/31/91 10,343 9,401
12/31/92 10,097 8,096
12/31/93 14,216 10,570
12/31/94 13,461 11,396
12/31/95 14,927 12,673
Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 1995
1 YEAR 10.91%
5 YEARS 11.38%
1/1/85 ** 5.78%
* ON JULY 6, 1990, VONTOBEL USA INC BECAME THE INVESTMENT ADVISOR TO THE FUND
AND THE FUND'S INVESTMENT OBJECTIVE WAS CHANGED. PREVIOUS PERIODS DURING
WHICH THE FUND WAS ADVISED BY OTHER INVESTMENT ADVISORS ARE NOT SHOWN IN THIS
GRAPH.
** AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD SINCE JANUARY 1, 1985 INCLUDES
THAT OF THE FUND'S TWO PREDECESSORS, THE NICHOLSON GROWTH FUND (1/1/85-
12/31/86) AND THE TYNDALL-NEWPORT GLOBAL GROWTH FUND (1/1/87-7/6/90)
THE COMPARATIVE INDEX IS NOT ADJUSTED TO REFLECT EXPENSES THAT THE SEC
REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. PERFORMANCE FIGURES
ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
(THE ABOVE INFORMATION, CONTAINED WITHIN THE ANNUAL REPORT, WAS PRESENTED IN
GRAPH FORMAT)
<PAGE>
Vontobel EuroPacific Fund Industry Percentage
12/31/95 Based on Net Assets
Automobile and Automotive 6.12%
Banking/Finance 16.30
Brokerage/Investments/Financial Services 3.17
Chemicals 2.22
Conglomerate/Holding Company 2.73
Consumer/Retail 5.33
Electronics/Electronic Equipment/Electrical 8.57
Engineering/Manufacturing/Distribution 3.74
Entertainment/Broadcasting/Media/Publishing 5.43
Food-Process/Food 2.57
Insurance 5.78
Machinery/Machines 3.60
Miscellaneous 8.53
Pharmaceutical 9.14
Real Estate/Leisure Time 4.68
Shipyard/Shipping 2.72
Utilities/Telecommunications 7.50
98.13%
<PAGE>
Schedule of Portfolio Investments
December 31, 1995
Number
of Market
Shares Security Value
COMMON STOCKS: 97.34%
FINLAND: .79%
25,000 Cultor Oy Ser 2 (Food-Process) $ 1,034,536
FRANCE: 6.92%
50,000 AXA S A (Insurance) 3,373,543
5,100 Axime SA ex Segin (Software) 393,110
20,000 Credit Local de France (Banking) 1,602,944
11,254 Generale des Eaux (Utility-Water) 1,124,940
4,300 LVMH Moet Hennessy Louis Vitton (Consumer) 896,749
14,000 Total SA Class B (Oil) 946,023
15,000 Valeo (Automobile) 695,563
9,032,872
GERMANY: 6.84%
3,000 Bayer AG (Chemicals) 791,758
30,000 Bayer Hypo/Wech Bank (Banking) 756,197
1,400 BMW (Automobile) 717,498
14,000 Deutsche Bank AG (Banking) 663,515
8,000 Deutsche Bank-Part. Certs./Wts 6/30/97(Banking)* 7,631
1,320 GEHE AG(Pharmaceutical) 671,896
330 GEHE New E 6/95 (Pharmaceutical) 163,487
3,000 Mannesmann AG(Machinery) 955,339
27 Munchener Rueckvers New 12/95 (Insurance) 58,739
300 Munchener Ruckvers Part Pd Regd (Insurance) 652,651
20,000 SGL Carbon AG (Chemicals) 1,547,955
2,000 Siemens AG (Electronic Equipment) 1,094,725
20,000 VEBA AG (Utility) 849,284
8,930,675
Number
of Market
Shares Security
Value
GREAT BRITAIN: 14.86%
111,154 Barclays Bank Ord.(Banking) 1,274,361
1,090 Barclays Bank Restricted (Banking) 12,497
101,448 British Airport Authorities
(Transportation-Miscellaneous) 767,509
5,000 British Petroleum PLC Spons ADR (Petroleum) 510,625
250,000 BTR Ord. (Holding Company) 1,273,870
100,000 CRH ORD (Construction) 758,108
330,000 Dixons Group PLC (Retail) 2,276,187
140,000 General Accident Ord. (Insurance) 1,414,772
198,296 GKN ORD (Automobile) 2,399,731
1,704 GKN PLC Restricted (Automobile) 20,621
151,081 HSBC Holdings PLC (Banking) 2,359,951
175,000 Lloyds Abbey Life (Insurance) 1,223,381
76,862 Powergen Ord. (Utility-Electrical) 635,235
195,000 Powerscreen Int'l PLC(Manufacturing) 1,172,348
190,000 Rank Organization Ord. (Entertainment) 1,375,468
110,000 Reuters Holdings (Publishing) 1,007,367
254,240 Vodafone Group PLC (Telecommunications) 912,361
19,394,392
IRELAND: 1.54%
193,261 Allied Irish Banks PLC (Banking) 1,056,813
110,000 Greencore Group(Food-Process) 951,829
2,008,642
ITALY: .93%
250,000 Danieli & C Di Risp Savings (Engineering) 676,968
11,175 STET Societa Fin Tel Spn. ADR (Telecommunications)315,553
80,000 STET (Telecommunications) 226,202
1,218,723
NETHERLANDS: 3.19%
17,397 Aegon NV ADR(Insurance) 765,468
9,000 AKZO NV ADR (Chemical) 522,000
160,000 Elsevier NV (Publishing) 2,133,247
4,000 Polygram (Entertainment) 212,328
10,000 Polygram ADR (Entertainment) 525,000
4,158,043
SPAIN: 1.65%
5,000 BCO Popular ESP Reg. (Banking) 920,513
15,000 Empresa Nac'l. de Elec. ADR
(Utility-Utility) 858,750
90,000 OMSA Alimentacion(Food) 370,345
2,149,608
SWEDEN: 2.18%
55,000 Astra AB Ser B Free (Pharmaceutical) 2,177,721
12,000 Hennes & Mauritz B Free (Retail) 668,446
2,846,166
SWITZERLAND: 10.80%
110,000 Alusuisse Warrant 11/13/96 619,584
30,000 BZ Bank Vision 1/15/97 818,891
1,000 Nestle AG Reg. (Food) 1,105,719
420 Pharma Vision (Pharmaceuticals) 2,216,465
6,000 Pharma Vision Wts. 10/10/96 (Pharmaceuticals)613,518
5,000 Roche UBS Wts. (Pharmaceuticals) 435,442
550 Roche Holdings Genusscheine DRC (Pharmaceuticals)4,349,003
2,000 Swiss Bank Corp BR (Banking) 816,291
30,000 Swiss Re Wts. (Banking) 721,404
2,214 Union Bank of Switzerland Bearer (Banking) 2,398,180
14,094,497
AUSTRALIA: 3.38%
125,000 Broken Hill Proprietary Ltd. (Resources) 1,765,219
230,976 The News Corporation Ltd. (Media) 1,232,612
320,491 Westpac Banking Corp (Banking) 1,419,702
4,417,533
HONG KONG: 5.44%
504,408 Bank of East Asia (Banking) 1,810,194
200,000 Cheung Kong Holdings (Real Estate) 1,215,648
200,000 Hutchison Whampoa (Investments) 1,215,648
350,000 Sung Hung Kai Properties (Real Estate) 2,862,916
7,104,406
JAPAN: 29.70%
40,000 Amada Metrecs (Electronics) 639,225
100,000 Bridgestone Corp (Tire & Rubber) 1,588,378
6,000 Canon Inc ADR (Office Equipment) 548,250
80,000 Canon Inc (Office Equipment) 1,448,910
60,000 Futaba Industry (Automobile Parts) 982,082
275,000 Hitachi Ltd. (Electrical) 2,769,976
24,000 Ito Yokado Co Y50 (Retail) 1,478,354
50,000 JACCS Co(Finance) 518,160
60,000 Jusco Co (Retail) 1,563,196
17,000 Kyocera Corp(Electronics) 1,262,857
180,000 Marubeni Corporation (Distribution) 974,528
10,000 Mitsubishi Bank (Banking) 235,351
175,000 Mitsubishi Electronics Corp. (Electronics) 1,259,322
285,000 Mitsubishi Heavy Industries (Shipping) 2,271,719
100,000 Mitsui and Company (Trading) 877,482
32,500 Murata Mfg Co(Manufacturing) 1,196,126
50,000 Nikko Securities (Brokerage) 644,068
200,000 Nippon Steel Corp. (Steel) 685,714
290 Nippon Telephone and Telegraph (Telecommunications)2,345,278
70,000 Nomura Securities Co Ltd. (Brokerage) 1,525,424
125,000 Omron Corporation (Machinery) 2,881,356
15,000 Promise Co. (Financial Services) 722,034
40,000 Rohm Co. (Electronics) 2,258,596
Number
of Market
Shares Security
Value
15,000 SMC (Machines) 1,085,230
9,400 Sony Corp (Electronics) 563,545
9,400 Sony Corp ADR (Electronics) 576,925
45,000 Suzuki Motor Corp(Automotive) 501,211
60,000 Taisho Pharmaceutical(Pharmaceutical) 1,185,472
70,000 Toda Construction (Construction) 606,780
40,000 Tokyo Broadcasting (Broadcasting) 658,596
15,000 Tokyo Denpa Co. Ltd. (Manufacturing) 703,148
20,000 Tokyo Electron (Electronics) 774,818
120,000 Yamato Transport (Transportation) 1,429,540
38,761,651
MALAYSIA: 3.31%
150,000 Genting Berhad ADR (Leisure Time) 1,252,110
96,000 Malayan Banking BHD(Banking) 808,914
230,000 Pilecon Engineering Berhad (Engineering) 230,933
228,000 Sime Darby Berhad ORD(Conglomerate) 605,977
100,000 Telekom Malaysia (Telecommunications) 779,620
100,000 United Engineers Malaysia Berhad (Conglomerate) 637,871
4,315,425
PHILIPPINES: .66%
105,000 Manila Electric B (Utility) 856,653
SINGAPORE: 4.32%
100,000 City Developments (Real Estate) 728,173
100,000 Cycle & Carriage Ltd (Automobile Parts) 996,819
150,000 Jardine Matheson (Holding Company) 1,027,500
60,000 Keppel Corp. (Shipyard) 534,464
40,000 Keppel Ltd Spon. ADR (Shipyard) 712,619
170,000 United Overseas Bank (Foreign)(Banking) 1,634,500
5,634,075
THAILAND: .83%
54,000 Bangkok Bank PCL (Banking) 655,975
7,600 Siam Cement PLC (Foreign) (Cement) 421,183
1,077,158
Total Common Stocks:
(Cost: $101,305,930) 127,035,055
PREFERRED STOCKS: .70%
BRAZIL: .70%
3,372 Electrobras Pfd Reg. B PNS (Utility) 912,430
Total Preferred Stock: (Cost: $468,201) 912,430
Principal
Amount
BONDS: .09%
FRANCE: .09%
$449,820**AXA SA Convertible Bond
4.5%; 01/01/99 118,538
Total Bonds:
(Cost: $92,852) 118,538
TOTAL INVESTMENTS:
(Cost: $101,866,983)*** 98.13% 128,066,023
Other assets, net 1.87% 2,438,867
NET ASSETS 100.00% $130,504,890
*Non-income producing securities.
**Stated in local currency
***Cost for Federal income tax purposes is $101,866,983
and consists of:
Gross unrealized appreciation $ 27,164,606
Gross unrealized depreciation (965,566)
Net unrealized appreciation $ 26,199,040
ADR-Security represented is held by the custodian bank in the form of
American Depository Receipt.
Forward Currency Contracts Outstanding
December 31, 1995
Face Value Contract DeliveryAppreciation
(U.S. Dollars) Price Date(Depreciation)
Japanese Yen (Sell) 9,113,278 98.757 01/26/96 $ 361,964
Japanese Yen (Sell) 16,129,032 99.200 01/26/96 571,141
Swiss Franc (Sell) 7,072,136 1.1312 02/16/96 103,495
Deutsche Mark (Sell)10,636,035 1.4103 02/16/96 150,190
Great Britain Pound(Sell) 10,907,750 0.6417 02/16/96 41,560
French Franc (Sell) 6,138,233 4.8874 02/16/96 (2,890)
$1,225,460
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
December 31, 1995
ASSETS
Investments at value (identified
cost of $101,866,983)(Notes 1 & 3) $ 128,066,023
Receivables
Capital stock sold 2,266,361
Dividends and interest 211,810
Receivable for forward currency contracts 59,996,464
Currencies sold 707,943 63,182,578
Other assets 67,978
TOTAL ASSETS 191,316,579
LIABILITIES
Cash overdraft 1,783,852
Payables
Forward currency contracts payable
at market value-proceeds $59,996,464 58,771,004
Investment management fees 102,341
Dividend 4,330 58,877,675
Accrued expenses 150,162
TOTAL LIABILITIES 60,811,689
NET ASSETS $130,504,890
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SHARE
($130,504,890 / 7,617,948 shares outstanding) $ 17.13
At December 31, 1995 there were 50,000,000 shares of $.01 par
value stock authorized and the components of net assets are:
Paid in capital $101,300,653
Net unrealized gain on investments and currency transactions 27,420,559
Undistributed net realized gains on investments
and foreign currencies 1,783,678
Net Assets $130,504,890
See Notes to Financial Statements
<PAGE>
Statement of Operations
Year ended December 31, 1995
INVESTMENT INCOME
Income:
Interest $ 2,796
Dividend (Net of foreign
tax withheld of $293,729) 2,454,259
Total income: 2,457,055
Expenses:
Investment management fees (Note 2) 1,154,541
Custodian and accounting fees (Note 3) 308,384
Transfer agent fees (Note 2) 32,088
Recordkeeping and administrative services (Note 2) 241,487
Legal and audit fees 51,881
Filing fees and registration (Note 2) 29,647
Shareholder servicing and reports (Note 2) 33,671
Other 115,636
Total expenses 1,967,335
Custodian fee waiver (122,858)
Expenses, net 1,844,477
Net investment income 612,578
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 4,623,988
Net realized gain on foreign currencies
conversions and forward currency contracts 1,562,786
Net realized gain (loss) on futures contracts (356,414)
Net increase in unrealized appreciation
on investments and foreign currencies 4,814,821
Increase in unrealized appreciation of
futures contracts 169,100
Net gain on investments 10,814,281
Net increase In net assets resulting from operations $11,426,859
See Notes to Financial Statements<PAGE>
Statement of Changes in Net Assets
Years ended December 31,
1995 1994
OPERATIONS
Net investment income $ 612,578$ 118,092
Net realized gain on investments
and foreign currencies 6,186,774 2,820,078
Net realized loss on futures (356,414) (1,454,570)
Net unrealized appreciation (depreciation)
of investments and currencies 4,814,821 (8,905,132)
Net appreciation (depreciation) of
futures contracts 169,100 (533,605)
Net increase (decrease) in net assets
resulting from operations 11,426,859 (7,955,137)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
($.17 and $.08 per share, respectively) (1,228,470) (636,145)
Net realized gain from investment transactions
($.70 and -0- per share, respectively) (5,058,407) -0-
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* (12,808,764) 9,833,109
Net increase (decrease) in net assets(7,668,782) 1,241,827
Net assets at beginning of period 138,173,672 136,931,845
NET ASSETS at the end of the period
(Includes undistributed net
investment income of $-0- and $95,730,
respectively.) $130,504,890 $138,173,672
* A summary of capital share transactions follows:
Years ended December 31,
1995 1994
Shares Value Shares Value
Shares sold 3,178,461 $51,928,675 3,665,831 $62,851,582
Shares reinvested
from distributions268,820 4,615,632 17,206 297,657
Shares redeemed (4,342,318) (69,353,071)(3,121,858) (53,316,130)
Net increase (decrease) (895,037) ($12,808,764) 561,179 $ 9,833,109
See Notes to Financial Statements<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
Years ended December 31
1995 1994 1993 1992 1991
Per Share Operating Performance
Net asset value, beginning of period $16.23 $17.22 $12.23 $12.67
$10.67
Income from investment operations-
Net investment income .16 .01 .08 .08 -0-
Net realized and unrealized
gain (loss) on investments 1.61 (.92) 4.91 (.38) 2.00
Total from investment operations 1.77 (.91) 4.99 (.30)
2.00
Less distributions-
Distributions from
net investment income (.17) (.08) -0- (.08) -0-
Distributions in excess
of realized gains (.70) -0- -0- (.06) -0-
Total distributions (.87) (.08) -0- (.14) -0-
Net asset value, end of period $17.13 $16.23 $17.22 $12.23 $12.67
Total Return 10.91% (5.28%) 40.80% (2.37%) 18.74%
Ratios/Supplemental Data
Net assets, end of period (000's) $130,505$138,174$136,932 $47,761
$25,611
Ratio to average net assets-
Expenses (B) 1.63% 1.54% 1.77% 1.98%2.71%(A)
Expenses-net (C) 1.53% 1.54% 1.77% 1.98%2.71%(A)
Net investment income (B).41% .08% .85% .79% .02%(A)
Portfolio turnover rate 68.43% 34.04% 10.66% 27.42% 3.40%
(A) Management fee waivers reduced the expense ratio and increased the net
investment income ratio by .07%.
(B) Expense ratio has been increased and net investment income ratio has been
reduced to include additional custodian fees in 1995 which were offset by
custodian fee credits. Prior to 1995, custodian fee credits reduced expense
ratios.
(C) Expense ratio-net reflects the effect of the custodian fee credits the
fund received.
See Notes to Financial Statements<PAGE>
Notes to the Financial Statements
December 31, 1995
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel EuroPacific 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 December, 1984 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 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 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,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to U.S.
dollars based on the exchange rates at the end of the period. The cost of
such holdings is determined using historical exchange rates. Income and
expenses are translated at approximate rates prevailing when accrued or
incurred. Foreign securities and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
origin.
E. Forward Currency Contracts. Forward sales of currencies are undertaken
to hedge certain assets denominated in currencies that Vontobel USA,
Inc.("VUSA"), the Fund's investment advisor, expects to decline in value in
relation to other currencies. A forward currency contract is an agreement
between two parties to buy or sell a currency at a set price on a future
date. Forward contracts are marked to market daily and the change in market
value is recorded by the Fund as an unrealized gain or loss. When a contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The Fund could be at risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably.
F. Futures Contracts. Initial margin deposits required upon entering into
futures contracts are satisfied by the segregation of specific securities or
cash, as collateral, for the account of the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value
of the contract at the end of each day's trading. Variation margin payments
are made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in the value of the
contract may not correlate with changes in the securities being hedged.
G. 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 and futures, and post-October
capital losses.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA, Inc. ("VUSA")
provides investment services for an annual fee of 1.0% on the first $100
million of average daily net assets and .75% on average daily net assets over
$100 million.
VUSA will reimburse the Fund to the extent of its management fee to limit the
Fund's aggregate annual operating expenses (excluding taxes, brokerage
commissions and extraordinary expenses), to the lowest applicable percentage
limitation prescribed by any state in which the Fund's shares are qualified
for sale. For the year ended December 31, 1995, no reimbursement was
necessary.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $253,134 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 with a minimum fee
of $85,000. Effective January 1, 1996, the minimum
fee will be $42,500.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $32,088 for its services for the year ended December 31,
1995.
Certain officers and/or directors of the Fund are also officers and/or
directors of VUSA, CSS, and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sales of securities other than
short-term notes aggregated $80,242,831 and $90,501,180 respectively. The
Custodian has provided credits in the amount of $122,858 against custodian
and accounting charges based on credits on uninvested 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
Vontobel EuroPacific Fund including the schedule of portfolio investments as
of December 31, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in 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 audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatements. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, 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
Vontobel EuroPacific Fund as of December 31, 1995, 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 five years in the period then ended, in conformity with generally
accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
January 19, 1996<PAGE>
VONTOBEL U.S. VALUE FUND
Annual 1995 Report
Dear Shareholder:
We are pleased to report that during the year Fund net assets increased by
85% to $55,103,337, for a closing NAV of $13.25. On December 15 the Fund
paid a per-share distribution of $1.15 in income and long- and short-
term capital gains to shareholders of record as of December 14.
Strong earnings gains and a sharp drop in interest rates fueled a powerful
rally in U.S. equities in 1995. Despite its lack of any investments in the
white-hot technology sector, the Fund participated fully in the upturn,
providing a total return of 8.1% for the fourth quarter and 40.4% for the
year, vs. the S&P 500 at 37.6%. The Fund benefitted from its overweighting in
financial sectors, which vied with technology for the leadership position
throughout most of the year. Indeed, the Fund's top four performers in 1995
were two federal agencies that securitize and hold residential mortgages
(Fannie Mae and Freddie Mac), an insurer (Old Republic), and a bank (State
Street). Also fueling the market's rise last year was a burst of merger and
acquisition activity. Among the Fund 's holdings at the start of the year,
Geico, Shawmut National and Southern Pacific were acquired during 1995.
Given a slowdown in the rate of growth in corporate profits and the
possibility of a recession not too far down the road, it's highly unlikely
that the markets will reward investors in 1996 with the sort of profits
generated in 1995. The benign inflation environment and the possibility of
favorable tax legislation along with credible deficit reduction action all
are positives. On the negative side, earnings growth probably
peaked several quarters ago and concern about earnings produced a strong
rotation into "defensive" utilities and consumer nondurables in 1995's final
quarter. Other negatives are consumer debt levels that may preclude
strong growth in durable goods sectors, and the fact that low interest rates
may reflect not only encouraging fundamentals but also a speculative demand
spurred by interest rate arbitrage across markets.
Still, barring a full-blown recession, and respecting the power of declining
interest rates (unlikely, in the clear absence of inflationary pressures, to
be pushed up by the Fed or the markets), U.S. equities still
present some attractive investments. The most noticeable change in the
Fund's positioning over the past 12 months has been the sale of most bank
holdings and a reduction in the commitment to the federal agencies
as they approached our price targets. The Fund still holds large positions
in several insurers that, despite impressive gains over the past year, remain
undervalued given their strong fundamentals (including Torchmark,
Unum, and Reliastar). On the buy side, we made significant new investments
in several "growth" companies, including Coca-Cola, Gillette, Wrigley and
Capital Cities/ABC (soon to be acquired by Disney). Given the
low inflation, low interest rate environment, we feel that these steady
growers represent solid investments in good companies attained at reasonable
prices.
Ed Walczak
President
January 4, 1996<PAGE>
COMPARISON OF $10,000 INVESTMENT IN VONTOBEL
U.S. VALUE FUND VS. S&P 500
Vontobel US Value S&P 500
03/30/90 $10,000 $10,000
12/31/90 9,011 9,714
12/31/91 12,371 12,270
12/31/92 14,343 12,817
12/31/93 15,205 13,722
12/31/94 15,215 13,511
12/31/95 21,356 18,588
Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 1995
1 YEAR 40.36%
5 YEARS 18,84%
SINCE 3/30/90 14.11%
THE COMPARATIVE INDEX IS NOT ADJUSTED TO REFLECT EXPENSES THAT THE SEC
REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. PERFORMANCE FIGURES
ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
(THE ABOVE INFORMATION, CONTAINED WITHIN THE ANNUAL REPORT, WAS PRESENTED IN
GRAPH FORMAT)
<PAGE>
Schedule of Portfolio Investments
December 31, 1995
Number
of Market
Shares Security Value
COMMON STOCK: 86.62%
ADVERTISING: 1.75%
52,100 True North Communications $ 963,850
BANKING: 6.84%
35,800 California Center Bank 528,050
69,752 Hanmi Bank * 575,454
59,200 State Street Boston Corp. 2,664,000
3,767,504
BEVERAGE: 8.58%
63,700 Coca Cola Co. 4,729,725
COSMETIC/PERSONAL: 4.44%
46,900 Gillette Co. 2,444,663
CREDIT AND FINANCE: 2.99%
39,760 American Express 1,645,070
FOOD-PROCESSING: 2.95%
31,000 Wrigley Co. 1,627,500
INSURANCE-DIVERSIFIED: 13.05%
14,200 American International Group 1,313,500
15,900 Cleveland Cliffs 651,900
36,100 Horace Mann Educators Corp. 1,128,125
40,700 Lincoln National Corp. 2,187,625
53,800 Old Republic International Corp. 1,909,900
7,191,050
INSURANCE-PROPERTY/CASUALTY: 5.85%
10,900 Chubb Corp. 1,054,575
50,025 Orion Capital 2,169,834
3,224,409
INSURANCE-LIFE: 12.93%
31,100 Providian Corp. 1,267,325
22,400 Reliastar Financial Corp. 994,000
60,200 Torchmark 2,724,050
38,900 UNUM Corp. 2,139,500
7,124,875
OTHER FINANCIAL: 6.62%
16,056 Federal National Mtg. 1,992,951
19,800 Federal Home Loan Mtg. 1,653,300
3,646,251
PACKAGING & CONTAINERS: 1.00%
38,100 Owens-Illinois * 552,450
PUBLISHING AND BROADCAST: 17.13%
37,000 Capital Cities/ABC Inc. 4,564,875
65,700 Gannett Co. 4,032,338
28,500 New York Times A 844,313
9,441,526
RESTAURANTS: 2.49%
30,360 McDonald's Corp. 1,369,994
TOTAL COMMON STOCKS:
(Cost: $41,346,490) 47,728,867
Principal
Amount
SHORT TERM INVESTMENTS: 12.70%
$7,000,000 Westdeutsche Landesbank
Girozenteale Grand Cayman
maturity date 1/02/96; 5.85% 7,000,000
TOTAL SHORT TERM INVESTMENTS:
(Cost: $7,000,000) 7,000,000
TOTAL INVESTMENTS:
(Cost: $48,346,490) 99.32% 54,728,867
Other assets
net of liabilities 0.68% 374,470
NET ASSETS 100.00% $55,103,337
* Non-income producing security
** Cost for Federal income tax purpose is $48,346,490 and net
unrealized appreciation consists of:
Gross unrealized appreciation $ 6,426,372
Gross unrealized depreciation (43,995)
Net unrealized appreciation $ 6,382,377
See Notes to Financial Statements<PAGE>
Statement of Assets and Liabilities
December 31, 1995
ASSETS
Investments at value (Identified
cost of $48,346,490)(Notes 1 & 3) $54,728,867
Cash 69,089
Receivables:
Dividend and interest $ 59,718
Capital stock sold 603,070
Securities sold 1,141,825 1,804,613
Deferred organization costs 72,725
Prepaid expenses 21,428
Other assets 31,199
TOTAL ASSETS 56,727,921
LIABILITIES
Investment management fees payable 38,871
Securities purchased 1,556,343
Capital stock redeemed 29,281
Dividend 89
TOTAL LIABILITIES 1,624,584
NET ASSETS $55,103,337
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($55,103,337 / 4,159,600 shares outstanding) $ 13.25
At December 31, 1995 there were 50,000,000 shares of $.01
par value stock authorized and components of net assets are:
Paid in capital $44,981,069
Undistributed net realized gain on investments 3,667,350
Net unrealized appreciation of investments 6,382,377
Undistributed net income 72,541
Net Assets $55,103,337
See Notes to Financial Statements<PAGE>
Statement of Operations
Year ended December 31, 1995
INVESTMENT INCOME
Income:
Interest $ 52,601
Dividend 672,351
Total income $ 724,952
Expenses:
Investment management fees (Note 2) 385,289
Transfer agent fees (Note 2) 35,652
Recordkeeping and administrative services (Note 2) 74,903
Legal and audit fees 26,596
Filing fees and registration (Note 2) 21,821
Shareholder servicing and reports (Note 2)18,199
Custodian fees (Note 3) 59,211
Amortization of organization cost 25,765
Other 12,423 659,859
Management fee waiver (22,500)
Custodian fee waiver (59,211)
Total expenses 578,148
Net investment income 146,804
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 5,377,553
Net change in unrealized appreciation on investments 7,554,055
Net gain on investments 12,931,608
Net increase in net assets resulting from operations $13,078,412
See Notes to Financial Statements<PAGE>
Statement of Changes in Net Assets
Years ended December 31
1995 1994
OPERATIONS
Net investment income $ 146,804$ 246,096
Net realized gain on investments 5,377,553 1,950,166
Change in unrealized appreciation
(depreciation) of investments 7,554,055 (2,211,281)
Net increase (decrease) in net assets
resulting from operations 13,078,412 (15,019)
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
($.04 and $.23 per share, respectively) (74,261) (617,683)
Net realized gain from investment transaction
($1.11 and $2.16 per share, respectively) (2,060,752) (4,736,395)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions* 14,307,777 501,135
Net increase (decrease) in net assets 25,251,176 (4,867,962)
Net assets at beginning of period 29,852,161 34,720,123
NET ASSETS at the end of the period
(including undistributed net investment
income of $72,541 and $-0-, respectively) $55,103,337 $29,852,161
*A summary of capital share transactions follows:
Years ended December 31,
1995 1994
Shares Value Shares Value
Shares sold 3,591,066 $ 46,834,241 999,528 $10,728,775
Shares reinvested from dividend 149,1471,974,662 360,234 3,910,763
Shares issued in acquisition
of Fund (Note 4) -0- -0- 730,811 7,490,812
Shares redeemed (2,489,941) (34,501,126)(1,927,709) (21,629,215)
Net increase 1,250,272 $ 14,307,777 162,864 $ 501,135
See Notes to Financial Statements<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
Mar.30* to
Years ended December 31, Dec. 31,
1995 1994 1993 1992 1991 1990
Per Share Operating
Performance
Net asset value,
beginning of period $10.26 $12.64 $12.00 $11.36 $ 8.86 $10.00
Income from
investment operations-
Net investment income.05 .09 .16 .10 .07 .14
Net realized and unrealized
gain (loss) on investments 4.09 (.08) .56 1.70 3.23
(1.13)
Total from investment
operations 4.14 .01 .72 1.80 3.30 (.99)
Less distributions-
Distributions from net
investment income (.04) (.23) (.02) (.10) (.06) (.15)
Distributions from realized
gains on investments (1.11) (2.16) (.06) (1.06) (.74) -0-
Total distributions (1.15) (2.39) (.08) (1.16) (.80) (.15)
Net asset value,
end of period $13.25 $10.26 $12.64 $12.00 $11.36 $ 8.86
Total Return 40.36% .02% 6.00% 16.30% 37.29% (9.90%)
Ratios/Supplemental Data
Net assets,
end of period (000) $55,103$29,852 $34,720$31,335 $22,315 $9,488
Ratio to average
net assets-(A)
Expenses (B) 1.65% 1.62% 1.82% 1.96% 2.54% 1.94%*
Expenses-net (C) 1.50% 1.62% 1.82% 1.96% 2.54% 1.94%
Net investment
income (B) 0.23% .76% 1.23% .76% .92% 1.48%*
Portfolio
turnover rate 95.93% 98.80%137.32% 99.66%166.46% 87.29%
* Commencement of Operations was March 31, 1990; ratios are annualized.
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .06% in 1995 and .09% in 1990.
(B) Expense ratio has been increased and net investment income has been
reduced to include additional custodian fees in 1995 which were offset by
custodian fee credits, prior to 1995 custodian fee credits reduced expense
ratios.
(C) Expense ratio-net reflects the effect of the custodian fee credits the
fund received
See Notes to Financial Statements<PAGE>
Notes to the Financial Statements
December 31, 1995
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--Vontobel U.S. Value 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 March 30, 1990, 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.
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 Dividends. As is common in the industry,
security transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date.
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 Vontobel U.S. Value Fund are being amortized over a period of
fifty-seven (57) months. Reorganization costs assumed in the acquisition of
Centurion Growth Fund (see Note 4) amounted to $90,899 and will be amortized
over a period of five (5) years.
E. 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.
F. 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.
NOTE 2-INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS--Pursuant to an
Investment Advisory Agreement, the Advisor, Vontobel USA Inc. ("VUSA")
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. VUSA will reimburse the Fund to the extent of its
advisory fee to limit the Fund's aggregate annual operating expenses
(excluding taxes, brokerage commissions and extraordinary expenses), to the
lowest applicable percentage limitation prescribed by any state in which the
Fund's shares are qualified for sale. VUSA has agreed to reduce its
management fee by $22,500 per year for four years commencing January 1, 1995.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $85,256 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 $60,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $35,652 for its services for the year ended December 31,
1995.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES--Purchases and sales of securities
other than short-term notes aggregated $39,636,907 and $32,328,718
respectively. The Custodian has provided credits in the amount of
$59,211 against custodian and accounting charges based on credits on
uninvested cash balances of the Fund.
NOTE 4-ACQUISITION OF CENTURION GROWTH FUND-On December 27, 1994, Vontobel
U.S. Value Fund acquired all of the assets and liabilities of Centurion
Growth Fund. The acquisition was accomplished by the tax-free
exchange of 730,811 shares(valued at $7,490,812) of Vontobel U.S. Value Fund
for 902,983 shares of Centurion Growth Fund. The manager has agreed to limit
expenses for the Vontobel U.S. Value Fund to 1.5% for the period of December
27, 1994 through December 31, 1996. The net assets of the acquired fund as of
December 27, 1994 consisted of paid in capital of $7,490,812.
The net assets of Vontobel U.S. Value Fund immediately after the acquisition
amounted to $33,546,177.
<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
Vontobel U.S. Value Fund, a series of The World Funds, Inc., including the
schedule of portfolio investments as of December 31, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended
and for the period March 30, 1990 (commencement of operations) to December
31, 1990.
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
confirmations of securities owned as of December 31, 1995, 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 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
Vontobel U.S. Value Fund as of December 31, 1995, 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 five years in the period then ended and for the period March 30, 1990
(commencement of operations) to December 31, 1990, in conformity with
generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
January 19, 1996<PAGE>
VONTOBEL INTERNATIONAL BOND FUND
Annual 1995 Report
Dear Shareholder:
The fund's net asset value per share at December 31, 1995 stood at $10.60,
producing a net return of 3.2% for the quarter. For the year the fund
produced a total return of 17.6%, vs. the J.P. Morgan Global Government Bond
Index (ex US) at 21.1 %. Net assets grew by 59% during the year to
$16,243,747. The fund paid an income dividend of $0.55 on December 27 to
shareholders of record as of December 26.
During the first half of 1995, U.S. dollar weakness contributed to over half
of international bond market returns. In the second half, particularly the
last quarter, international bond markets were propelled by falling yields as
inflation remained subdued not only in Europe and Japan but the U.S. Thanks
to signs of an improving U.S. trade deficit, the dollar held its own against
the German mark and gained strength aginst the Japanese yen. The benign
inflation outlook allowed the Bundesbank, followed by other European central
banks, to cut interest rates in the face of a slowdown in European economic
growth. Overall, the European bond market was up 25.5% in U.S. dollar terms,
led by Sweden, Denmark, Spain, the Netherlands and France. In contrast, the
Japanese market, the best-performer in the first quarter, ended the year with
the lowest U.S. dollar return in the benchmark index, 10.4%. An added factor
in the European markets was the re-commitment of the European Union to
introduce a single European currency within the 1999 timetable. Importantly,
EU members agreed that this is to be done without watering down the stringent
Maastricht criteria that requires each member to put its financial house in
order, notwithstanding near-recessionary conditions in some countries. The
reaffirmation of this goal pushed up the currencies and bond prices of those
markets which will tend to benefit most from the European Monetary
Union -- France, Ireland and Denmark.
During the quarter the fund invested cash inflows by adding positions in
Irish punt and deutschemark 8-year bonds. At year end, the fund's currency
allocation was as follows: German mark (21.0%), French franc (5.4%),
Netherlands guilder (4.0%), Danish krone (5.7%), British pound sterling
(4.8%), Irish punt (4.5%), Italian lira (5.1%), Spanish peseta
(4.9%), ECUs (7.6%), Canadian dollar (4.4%) and Australian dollar (6.4%).
About 23% of fund assets were held in U.S. dollar and foreign cash and
short-term instruments. Some 11% of the fund's non-dollar-related assets
were hedged to safeguard against possible further dollar appreciation. At
year end, the portfolio holdings had an average credit quality rating
of AA1, an average coupon of 7.45% and an average duration of 3.38.
The fund's investment strategy is to remain overweight in the European
markets of Denmark, Germany and Ireland. We are also overweight the
Australian market, given our positive outlook for both the Australian
currency and bond market. With the yen back at its year-ago levels after
plunging to post-WWII lows at mid-year, Japanese bonds remain
overpriced and, as far as we can see, will continue to be so for some time.
If, as it appears, the economy has bottomed, any signs of a sustainable
turnaround will put upward pressure on interest rates, especially given the
current record low discount rate of 0.5% and excessive growth in the public
sector deficit.
In the short term, the prospect of continued moderate inflation and slow
growth throughout the major industrialized economies point to a favorable
interest rate environment for international bonds. For the long term, we
believe they offer an excellent vehicle for diversification and return
potential in a US dollar-based portfolio.
Sven Rump, CFA
President
January 4, 1996<PAGE>
COMPARISON OF $10,000 INVESTMENT IN VONTOBEL
INTERNATIONAL BOND FUND VS. J.P. MORGAN GLOBAL GOVT. BOND INDEX EX USA-U$
International Bond
Fund JP Morgan
03/01/94 $10,000 $10,000
12/31/94 10,200 10,418
12/31/95 11,951 12,618
Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 1995
1 YEAR 17.60%
SINCE 3/31/94 10.21%
THE COMPARATIVE INDEX IS NOT ADJUSTED TO REFLECT EXPENSES THAT THE SEC
REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. PERFORMANCE FIGURES
ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
(THE ABOVE INFORMATION, CONTAINED WITHIN THE ANNUAL REPORT, WAS PRESENTED IN
GRAPH FORMAT)
<PAGE>
Schedule of Portfolio Investments
December 31, 1995
Principal Market
Amount* Security Description Value
BONDS: 74.74%
AUSTRALIAN DOLLAR: 6.38%
1,500,000 Mobil Australia
Finance 6.625% 15 Mar 2001
Corporate Bond $ 1,036,212
BRITISH POUND: 4.74%
460,000 DSL Bank 9.25% 19 Aug 2002
Corporate Bond 770,235
CANADIAN DOLLAR: 4.45%
1,000,000 Government of
Canada 5.75% 1 Mar 1999
Government Bond 722,107
DANISH KRONE: 5.68%
4,700,000 Kingdom of
Denmark 9% 15 Nov 1998
Government Bond 922,441
DEUTSCHE MARK: 22.02%
1,200,000 Finlande 7.5%
27 Jan 2000
Foreign Government Bond 910,783
1,400,000 United Kingdom
7.125% 28 Oct 1997
Foreign Government Bond 1,031,245
1,200,000 European
Investment Bank 7.5% 4 Nov 2002
Supranational Entities 914,130
1,000,000 Republic of
Germany 6.5% 14 Oct 2005
Foreign Government Bond 720,636
3,576,794
EUROPEAN CURRENCY: 7.56%
350,000 EuroFima 8.5% 4 Jun 2007
Supranational Entities 487,862
500,000 France O.A.T. 10% 26 Feb 2001
Foreign Government Bond 739,634
1,227,496
Principal Market
Amount* Security
Description Value
FRENCH FRANC; 5.41%
4,000,000 France Telecom
7.875% 3 Mar 2003
Agency 878,593
IRISH PUNT: 4.54%
500,000 Republic of Ireland 6.25% 18 Oct 2004
Government Bond 737,828
ITALIAN LIRA: 5.06%
1,300,000,000 LKB Bad-Wurt FIN 10.75% 14 Apr 2003
Corporate Bond 821,217
NETHERLAND GUILDER: 3.99%
900,000 Government of Netherlands 9% 15 May 2000
Government Bond 648,479
SPANISH PESETA: 4.91%
90,000,000 Spanish
Government 11.3% 15 Jan 2002
Government Bond 797,797
Total Bonds:
(Cost: $11,098,705) 12,139,199
Principal
Amount SHORT TERM INVESTMENTS: 13.54%
2,200,000 Westdeutsche Landesbank
Girozenteale Grand Cayman
Maturity date 1/02/96, yield 5.85% 2,200,000
TOTAL SHORT
TERM INVESTMENTS:
(Cost: $2,200,000) 2,200,000
TOTAL INVESTMENTS:
(Cost: $13,298,705)** 88.28% 14,339,199
Other Assets, net 11.72% 1,904,548
NET ASSETS 100.00% $16,243,747
* Stated in local currencies
** Cost for Federal income tax purposes is $13,298,705 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 1,096,609
Gross unrealized depreciation (56,115)
Net unrealized appreciation $ 1,040,494
Forward Currency Contracts Outstanding
December 31, 1995
Unrealized
Face Value Contract DeliveryAppreciation
(U.S. Dollars) Price Date(Depreciation)
European Currency Unit (Sell) 1,785,655 1.2755 02/27/96 $ (7,378)
See Notes to Financial Statements<PAGE>
Statement of Assets and Liabilities
December 31, 1995
ASSETS
Investments at value (Identified
cost of $13,298,705)(Notes 1 & 3) $14,339,199
Cash (including foreign currencies) 1,322,813
Receivables:
Interest 525,168
Capital stock sold 7,500
Receivable for forward currency contracts 1,785,655 2,318,323
Prepaid expenses 3,113
Other assets 2,112
Organization expense 51,220
TOTAL ASSETS 18,036,780
LIABILITIES
Forward currency contract
payable at market value-proceeds $1,785,655 1,793,033
TOTAL LIABILITIES 1,793,033
NET ASSETS $16,243,747
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($16,243,747 / 1,532,193 shares outstanding) $ 10.60
At December 31, 1995 there were 50,000,000 shares of
$.01 par value stock authorized and components of net assets are:
Paid in capital $15,264,200
Accumulated loss on investments and foreign currencies (160,644)
Undistributed net investment income 92,421
Net unrealized appreciation of investments and foreign currencies
1,047,770
Net Assets $16,243,747
See Notes to Financial Statements<PAGE>
Statement of Operations
Year ended December 31, 1995
INVESTMENT INCOME
Income:
Interest $867,992
Total income 867,992
Expenses:
Investment management fees (Note 2) 128,371
Organization 16,440
Custodian fees (Note 3) 78,403
Transfer agent fees (Note 2) 17,313
Recordkeeping and administrative services (Note 2) 61,169
Legal and audit fees 12,354
Filing and registration fees (Note 2) 15,806
Shareholder servicing and reports (Note 2)16,696
Other 9,232 355,784
Management fee waiver (128,371)
Custodian fee waiver (53,348)
Total expenses 174,065
Net investment income 693,927
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (70,159)
Net realized gain on currencies 147,425
Net change in unrealized
appreciation on investments and foreign currencies 1,199,649
Net gain on investments 1,276,915
Net increase in net assets resulting from operations $1,970,842
See Notes to Financial Statements<PAGE>
Statement of Changes in Net Assets
Jan.
1, 1995 Mar. 1, 1994*
to to
Dec. 31, 1995Dec. 31, 1994
OPERATIONS
Net investment income $ 693,927 $ 587,806
Net realized gain (loss) on
investments and foreign currencies 77,266 (35,867)
Change in unrealized appreciation (depreciation)
of investments and currencies 1,199,649 (151,878)
Net increase in net assets resulting from operations1,970,842 400,061
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (817,314) (587,806)
($.55 and $.70 per share, respectively)
Distribution in excess of net investment income -0- (13,106)
($.02 per share)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 4,855,108 10,435,962
Net increase in net assets 6,008,636 10,235,111
Net asset at beginning of period 10,235,111 -0-
NET ASSETS at the end of the period
(including undistributed net investment
income of $92,421 and $-0-, respectively) $16,243,747$10,235,111
* Commencement of operations
** A summary of capital share transactions follows:
Jan. 1, 1995 Mar. 1, 1994*
to to
Dec. 31, 1995 Dec. 31, 1994
Shares Value Shares Value
Shares sold 652,031 $6,844,265 2,368,525 $23,606,361
Shares reinvested
from distributions 45,939 487,867 26,932 256,123
Shares redeemed (244,864)(2,477,024) (1,316,369)(13,426,522)
Net increase 453,106$ 4,855,108 1,079,088 $ 10,435,962
See Notes to Financial Statements<PAGE>
Financial Highlights
For a Share Outstanding Throughout the Period
Jan. 1 March 1*
to to
Dec. 31, Dec. 31,
1995 1994 Per
Share
Operating Performance
Net asset value, beginning of period $ 9.48 $10.00
Income from investment operations-
Net investment income .61 .70
Net realized and unrealized gain (loss) on investments 1.06 (.50)
Total from investment operations 1.67 .20
Less distributions-
Distributions from net investment income (.55) (.70)
Distributions in excess of net investment income -0- (.02)
Total distributions (.55) (.72)
Net asset value, end of period $10.60 $ 9.48
Total Return 17.60% 1.98%
Ratios/Supplemental Data
Net assets, end of period (000) $16,253 $10,235
Ratio to average net assets-(A)
Expenses (B) 1.76% 1.35% *
Expense ratio-net (C) 1.35% 1.35% *
Net investment income (B) 4.97% 3.99% *
Portfolio turnover rate 18.63% 19.00%
* Commencement of Operations was March 1, 1994, ratios are annualized
(A) Management fee waivers reduced the expense ratios and increased the
ratios of net investment
income by 1.00% in 1995 and 0.19% in 1994.
(B) Expense ratio has been increased and net investment income has been
reduced to include
additional custodian fees in 1995 that were offset by custodian fee
credits, prior to 1995
custodian fee credits reduced the expense ratio.
(C) Expense ratio-net reflects the effect of the custodian fee credits the
fund
See Notes to Financial Statements<PAGE>
Notes to the Financial Statements
December 31, 1995
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES--The Vontobel International Bond 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 February, 1994 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 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. 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. Security transactions are accounted for on the
trade date. The cost of securities sold is determined on a first-in,
first-out basis.
D. Currency Translation. The market values of foreign securities, currency
holdings, other assets and liabilities initially expressed in foreign
currencies are recorded in the financial statements after translation to U.S.
dollars based on the exchange rates at the end of the period. The cost of
such holdings is determined using historical exchange rates. Income and
expenses are translated at approximate rates prevailing when accrued or
incurred. Foreign securities and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
origin.
E. Forward sales of currencies are undertaken to hedge certain assets
denominated in currencies that Vontobel USA, Inc.("VUSA), the Fund's
investment advisor, expects to decline in value in relation to other
currencies. A forward currency contract is an agreement between two parties
to buy or sell a currency at a set price on a future date. Forward contracts
are marked to market daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. When a contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed. The Fund could be at risk if the counterparties are unable to meet
the terms of the contracts or if the value of the currency changes
unfavorably.
F. Futures Contracts. Initial margin deposits required upon entering into
futures contracts are satisfied by the segregation of specific securities or
cash, as collateral, for the account of the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value
of the contract at the end of each day's trading. Variation margin payments
are made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in the value of the
contract may not correlate with changes in the securities being hedged.
G. 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
Vontobel International Bond Fund are being amortized over a period of
fifty-seven (57) months.
H. 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, forwards and post-October
capital losses.
I. 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, Vontobel USA, Inc.("VUSA")
provides investment services for an annual fee of 1.0% on the first $100
million of average daily net assets.
VUSA will reimburse the Fund to the extent of its management fee to limit the
Fund's aggregate annual operating expenses (excluding taxes, brokerage
commissions and extraordinary expenses ), to the lowest applicable percentage
limitation prescribed by any state in which the Fund's shares are qualified
for sale. For the year ended December 31, 1995, a reimbursement of
$128,371 was made. The manager has agreed to reimburse the Fund for any
expense in excess of 1.35% for the first two years of operation.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $63,907 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 with a minimum
annual fee of $85,000. For the first eight months of 1995, the minimum fee
was at the annual rate of $42,500.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $17,313 for its services for the year ended December 31,
1995.
Certain officers and/or directors of the Fund are also officers and/or
directors of VUSA, CSS and FSI.
NOTE 3-INVESTMENTS/CUSTODY--Purchases and sales of securities other than
short-term notes aggregated $3,267,644 and $1,914,794 respectively. The
Custodian has provided credits in the amount of $53,348 against custodian and
accounting charges based on credits on uninvested 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
Vontobel International Bond Fund, a series of The World Funds, Inc.,
including the schedule of portfolio investments as of December 31, 1995,
the related statements of operations for the year then ended, the statement
of changes in net assets and the financial highlights for the year then ended
and for the period March 1, 1994 (commencement of operations) to December 31,
1994. 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 December 31, 1995, 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 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
Vontobel International Bond Fund as of December 31, 1995,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 the period March 1, 1994
(commencement of operations) to December 31, 1994, in conformity with
generally accepted accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
January 19, 1996<PAGE>
COMPARISON OF $10,000 INVESTMENT IN
SAND HILL PORTFOLIO MANAGER FUND VS. S&P 500
Sand Hill Portfolio
Manager Fund S&P 500
01/01/95 $10,000 $10,000
12/31/95 11,160 13,758
Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 1995
1 YEAR 11.60%
Inception 01/01/95
THE COMPARATIVE INDEX IS NOT ADJUSTED TO REFLECT EXPENSES THAT THE SEC
REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. PERFORMANCE FIGURES
ASSUME THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
(THE ABOVE INFORMATION, CONTAINED WITHIN THE ANNUAL REPORT, WAS PRESENTED IN
GRAPH FORMAT)
<PAGE>
Schedule of Portfolio Investments
December 31, 1995
Number
of Market
Shares Security Value
COMMON STOCK: 71.23%
BASIC INDUSTRY: 1.52%
4,100 Material Sciences $ 60,988
CAPITAL GOODS: 6.19%
1,600 Dover Corp. 59,000
100 Matsushita Electric ADR 16,450
2,400 Parker Hannifin 82,200
100 Sumitomo Electric ADR 12,010
1,200 W.W. Grainger 79,500
249,160
CLOSED END MUTUAL FUND: 1.32%
800 Chile Fund 20,800
2,500 Mexico Fund 32,188
52,988
CONGLOMERATE: 1.05%
3,500 Cheung Kong Holdings ADR 21,000
1,500 Desc, S.A. De C.V. ADR 21,375
42,375
CONSUMER DURABLES: 6.30%
700 Johnson Controls 48,125
400 Philips Electric ADR 14,350
2,000 Sherwin Williams 81,500
400 Sony Corp ADR 24,550
1,100 TRW 85,250
253,775
CONSUMER NON-DURABLES: 7.89%
1,700 Avery Dennison 85,213
1,100 Colgate Palmolive 77,275
800 Procter & Gamble 66,400
2,200 Sara Lee Corp 70,125
100 Yamazaki Baking ADR 18,596
317,609
CONSUMER SERVICES: 6.97%
600 Carlton Communications ADR 18,225
1,500 May Dept Stores 63,375
2,400 Walgreen 71,700
3,200 Wal Mart Stores Inc. 71,600
4,000 Whole Foods Markets 55,500
280,400
ENERGY: 7.21%
800 Atlantic Richfield 88,600
200 British Petroleum ADR 20,425
800 Mobil 89,600
3,700 Nabors Industries 41,163
1,000 Western Atlas Inc. 50,500
290,288
FINANCE: 5.55%
500 Banco de Santander ADR 24,625
400 Deutsche Bank ADR 19,007
500 Development Bank of Singapore ADR 24,885
1,900 KeyCorp 68,875
2,000 Regions Financial Corp. 86,000
223,392
HEALTH CARE: 5.75%
600 Astra AB ADR 23,850
2,600 Manor Care 91,000
300 Roche Holdings ADR 23,662
1,700 Schering Plough Corp. 93,075
231,587
TECHNOLOGY: 12.56%
600 3Com 27,975
1,800 Adaptec 73,800
500 Adobe Systems Inc. 31,000
3,000 E M C Corp. 46,125
1,430 Ericsson ADR 27,885
1,000 Intel 56,750
600 Hewlett Packard 50,250
400 Motorola Inc. 22,800
3,100 Sungard Data Systems 88,350
800 Tektronix 39,300
800 Texas Instruments 41,400
505,635
R E I T: 3.20%
2,000 Apartment Investment & Management Co. 39,000
4,100 J P Realty 89,687
128,687
UTILITIES: 5.72%
1,200 A T & T 77,700
5,800 Hong Kong Electric ADR 18,560
2,300 Hong Kong Telecom 40,824
3,100 Frontier Corp. 93,000
230,084
TOTAL COMMON STOCKS:
(Cost: $2,596,618) 2,866,968
Principal
Amount U.S. GOVERNMENT SECURITIES: 18.71%
$100,000 U.S. Treasury Note
maturity date 08/31/96; 7.25% 101,219
200,000 U.S. Treasury Note
maturity date 07/31/98; 5.25% 200,063
Principal
Amount
125,000 U.S. Treasury Note
maturity date 08/31/99; 6.875% 131,348
100,000 U.S. Treasury Note
maturity date 10/31/99; 7.50% 107,359
200,000 U.S. Treasury Note
maturity date 05/15/05; 6.5% 212,969
752,958
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost: $731,990) 752,958
SHORT TERM INVESTMENTS: 4.97%
200,000 Westdeutsche Landesbank
Girozentrale Grand Cayman
maturity date 1/02/96; 5.85% 200,000
TOTAL SHORT TERM INVESTMENTS:
(Cost: $200,000) 200,000
TOTAL INVESTMENTS:
(Cost: $3,528,608)* 94.91% 3,819,926
Other assets, net 5.09% 205,094
NET ASSETS 100.00% $4,025,020
* Cost for Federal income tax purpose is $3,528,608 and net unrealized
appreciation consists
of:
Gross unrealized appreciation $ 340,097
Gross unrealized depreciation (48,779)
Net unrealized appreciation $ 291,318
See Notes to Financial Statements<PAGE>
Statement of Assets and Liabilities
December 31, 1995
ASSETS
Investments at value (Identified
cost of $3,528,608)(Notes 1 & 3) $3,819,926
Cash 97,915
Receivables:
Dividend and interest $15,609
Capital stock sold 47,102
Receivable from manager 13,317 76,028
Deferred organization costs 30,420
Prepaid expenses 731
TOTAL ASSETS 4,025,020
NET ASSETS $4,025,020
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($4,025,020 / 362,448 shares outstanding) $ 11.11
At December 31, 1995 there were 50,000,000 shares of $.01 par value stock
authorized and components of net
assets are:
Paid in capital $3,731,184
Undistributed net investment income 4,270
Undistributed net realized loss on investments (1,752)
Net unrealized appreciation of investments 291,318
Net Assets $4,025,020
See Notes to Financial Statements<PAGE>
Statement of Operations
January 2, 1995* to December 31, 1995
INVESTMENT INCOME
Income:
Interest $32,799
Dividend 32,873
Total income $ 65,672
Expenses:
Investment management fees (Note 2) 27,452
Transfer agent fees (Note 2) 12,579
Custodian fees (Note 3) 37,703
Legal and audit fees 1,153
Recordkeeping and administrative services (Note 2) 24,766
Shareholder servicing and reports (Note 2) 2,972
Organization expense amortization 2,743 109,368
Reimbursement by manager (27,452)
Custodian fee waiver (30,323)
Total expenses 51,593
Net investment income 14,079
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 3,594
Net increase in unrealized appreciation of investments 291,318
Net gain on investments 294,912
Net increase in net assets resulting from operations $308,991
* Commencement of operations
See Notes to Financial Statements<PAGE>
Statement of Changes in Net Assets
January 2, 1995 *
to
December 31, 1995
OPERATIONS
Net investment income $ 14,079
Net realized gain on investments 3,594
Change in unrealized appreciation of investments 291,318
Net increase in net assets resulting from operations 308,991
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income ($.05 per share) (17,898)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting from capital share transactions**
3,733,927
Net increase in net assets 4,025,020
Net asset at beginning of period -0-
NET ASSETS at the end of the period (including undistributed
$4,025,020
net investment income of $4,270)
* Commencement of operations
** A summary of capital share transactions follows:
January 2, 1995*
to
December 31, 1995
Shares Value
Shares sold 384,304 $3,964,257
Shares reinvested from dividend 1,554 17,229
Shares redeemed (23,410) (247,559)
Net increase 362,448 $3,733,927
See Notes to Financial Statements<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
January 2, 1995*
to
December 31, 1995
Per Share Operating Performance
Net asset value, beginning of period $10.00
Income from investment operations-
Net investment income .06
Net realized and unrealized gain on investments 1.10
Total from investment operations 1.16
Less distributions-
Distributions from net investment income (.05)
Total distributions (.05)
Net asset value, end of period $11.11
Total Return 11.60%
Ratios/Supplemental Data
Net assets, end of period (000's) $4,025
Ratio to average net assets-(A)
Expenses (B) 3.03%
Expense ratio-net (C) 1.90%
Net investment income (B) (.61%)
Portfolio turnover rate 40.96%
* Commencement of operations
(A) Management fee waivers reduced the expense ratios and increased the net
investment income
ratio by 1.00%.
(B) Expense ratio has been increased and net investment income has been
reduced 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>
Notes to the Financial Statements
December 31, 1995
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.
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 Dividends. As is common in the industry,
security transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date.
D. Deferred Organizational Expenses. All of the expenses of TWF incurred
in connection with its organization and the public offering of its shares
have been assumed by the series funds of TWF. The organization expenses
allocable to Sand Hill Portfolio Manager Fund are being amortized over a
period of fifty-seven (57) months.
E. Distributions to Shareholders. Distributions from net investment income
and realized gains, if any, are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
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. SHA will reimburse the Fund to the extent of its advisory
fee to limit the Fund's aggregate annual operating expenses (excluding taxes
and brokerage commissions), to the lowest applicable percentage limitation
prescribed by any state in which the Fund's shares are qualified for sale.
For the year ended December 31, 1995, a voluntary reimbursement of $27,452
was made.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $28,757 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 $60,000, of which $35,234 has been waived.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $12,579 for its services for the year ended December 31,
1995.
Certain officers and/or directors of the Fund are also officers and/or
directors of CSS and FSI.
NOTE 3-PURCHASES AND SALES OF SECURITIES--Purchases and sales of securities
other than short-term notes aggregated $4,168,883 and $845,230, respectively.
The Custodian has provided credits in the amount of $30,323 against custodian
and accounting charges based on credits on uninvested 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
Sand Hill Portfolio Manager Fund, a series of The World Funds, Inc.,
including the schedule of portfolio investments as of December 31,
1995, and the related statements of operations, statement of changes in net
assets, and the financial highlights for the year ended December 31, 1995.
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 December 31, 1995, 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 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
Sand Hill Portfolio Manager Fund as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
January 19, 1996
