VONTOBEL EUROPACIFIC FUND
June 1996 Semi-Annual Report
Dear Shareholder:
At June 28, 1996 the Fund s NAV stood at $18.78 and net assets totaled
$141,956,585. The Fund gained 3.6% for the second quarter, vs. the EAFE
Index at 1.6%. For the first half of 1996, the Fund produced a total return
of 9.6%, outperforming the benchmark index at 4.5%.
Our top-down valuation model continued to indicate a shift in expected
returns as several markets approached fair value, like Japan, or experienced
a pronounced change in liquidity conditions, like Australia. Our large
weighting in Japan, and Asia/Pacific in general, was no longer justified from
a valuation perspective, especially with Europe continuing to offer good
value. We therefore shifted assets out of the Pacific region, and increased
our European weighting by 5%.
Europe: In the UK, Europe s largest market, we have been reducing our
overall allocation, in particular financial stocks, since January. Our
model s expected returns for this market fell in March, reflecting both the
impact of accelerating growth and a change in the direction of US interest
rates. Also a factor was the negative impact of pre-election politics. We
are now underweight the UK at 12% vs. 16% for the benchmark. Germany is
still an attractive market though liquidity conditions have been
deteriorating; we are comfortable with our core holdings and slightly
increased our weighting. Within the larger European markets we also
increased our weightings in France and the Netherlands. Since year end we ve
doubled our weighting in the latter to almost 8% on bottom-up considerations.
While the Dutch market is trading at fair value, we bought companies that
have solid growth profiles and earnings visibility. In the peripheral
markets, our model continues to signal attractive returns for Sweden and
Ireland from both a top-down and bottom-up perspective, and we increased our
positions in those markets. Ireland is an overlooked market that remains
cheap in absolute terms; liquidity conditions are positive and it s trading
at less than fair market value. In both markets we can find enough good-
quality companies with attractive growth rates to support increased country
weightings.
Japan: The question hanging over the market is the direction of interest
rates. Short-term, it s unlikely the BoJ will raise rates before the Fed
does; the banking sector is burdened by bad loans and the real estate sector
is still depressed. In May 1995 Japan was trading at a discount to fair
market value; one year later, valuations had largely caught up. We sold out
of companies that had recovered sharply from last year s depressed valuation
levels (Nomura) and trimmed some large weightings which are no longer
justified (Canon, Hitachi, Kyocera and Rohm). Our investment discipline
doesn t allow for any concentrated positions or sector bets. Hitachi, for
instance, had grown through market appreciation to 6% of our Japanese
allocation. Because of the cyclical slowdown in the semiconductor industry,
this holding s valuation was at risk; only 5% of Hitachi s business is in
DRAM chips, but the market s perception is otherwise. In absolute and
relative valuation terms Japan continues to be an attractive market. The
earnings yield, which represents the relationship between bond/equity
valuation, remains solid and earnings momentum is still positive. However,
our model s expected return is significantly lower than a year ago, and a lot
of the good news has already been discounted.
Asia/Pacific: The change in liquidity/monetary conditions wrought by the
upward climb of US interest rates has resulted in reduced return expectations
for this region. We eliminated our bank holding and reduced our exposure to
the property sector. Hong Kong now has a 2.7% weighting, vs. 5.4% at year
end. The market is still inexpensive in absolute terms -- earnings momentum
is still good and property demand remains high. We ve also been trimming our
Australian, Singaporean, Thailand and Malaysian weightings during the first
half. This is a shift from a year ago as we pare down from a large
overweight to a more neutral weight for this region.
Latin America: Our only exposure to this region is Brazil, where monetary
conditions are highly supportive; the inflation spiral is reversing and the
market is cheap. Brazil s good performance this year confirms our view that
it s the most attractive market in Latin America; it s supported by low
corporate debt levels and high productivity levels, which are not much in
evidence in the rest of the region.
Recent Purchases/Sales:
France - Bic, a maker of disposable pens, lighters and shavers, enjoys a
unique franchise in Europe. Thanks to a US management style, it has grown
market share not only in Europe but also in the US. It has a good franchise,
solid margins, high cash flow generation and no debt.
Netherlands - Hagemeyer specializes in the worldwide distribution of branded
products, e.g., Philips. It has a unique market position: 80% of Europe s
branded products pass through its distribution network. It has excellent
management, a proven track record, no inventory risk, a strong balance sheet
and stable earnings growth. Vendex has an unusual dual business in upscale
food retailing and temporary placement. While these are both cyclical,
Vendex has not behaved like a cyclical company. It is now benefitting from
secular restructuring in Europe and new legislation changing the status of
temporary workers. Vendex is #1 or #2 in the peripheral European markets it
serves, the Netherlands, Belgium, Norway and Spain. Oce-van der Grinten is
a maker of high end photocopiers and printers which is well recognized for
its high quality products and service. In Japan their products are sold
through Fuji Photo (another fund holding). With a strong market position,
plenty of cash on hand and a great management team, their growth pattern
should remain stable.
Germany - We sold our positions in Deutsche Bank and Mannesmann as they had
reached valuations that fully discounted expectations for future growth, and
shifted assets into Colonia Insurance and Adidas. The latter is a good
turnaround story, and has regained market share through the introduction of
innovative products and clever advertising. Its good product mix and new
management team bode well for the success of a company that already has
strong brand recognition. Colonia is the second-largest insurance company in
Germany, and sells at a discount to the market leader, Allianz. It has been
consistently growing insurance sales, aided by a remarkably stable sales
force, and has a large niche clientele of doctors and dentists.
Sweden - Ericsson, a telecommunications company with strong market share in
Sweden and throughout Europe, and a relatively small US presence. Earnings
per share and sales growth have risen steadily since 1989, resulting in an
average 16% ROE over the last 7 years. A high level of expenditure on R&D
enhances its growth prospects.
UK - Having reduced GKN, Accident and sold out of Barclays, we purchased
Smith Industries, a maker of manufacturing control systems, medical equipment
and aerospace instrumentation, which produces control panels for civilian
aircraft and the US Air Force. It has enjoyed 16% average annual earnings
growth over the last 10 years in an industry where volatility has
traditionally been very high. It has excellent market-driven R&D and no
debt.
Japan - Ezaki Glico, an ice cream and candy maker with slow but steady sales.
Selling at a 1997 P/E of 19X for a long-term growth rate of 18%, it s cheap
compared to both industry and market averages.
Hong Kong - We eliminated Bank of East Asia as a purely defensive move; from
a bottom-up viewpoint, the bank remains a good investment and is not
overvalued compared to its competitors. We added low-priced Dah Sing Bank, a
niche lender to the property development market. It has an excellent loan
portfolio and its low valuation provides a cushion against market
deterioration.
Currencies: With the exception of the pound sterling, European currencies
continued to depreciate against the US$, as did the yen. At the end of June
our portfolio was about 60% hedged. The change in the direction of the US
dollar following the correction in the US equity markets has forced us to
unhedge all positions for the time being.
Fabrizio Pierallini
President
July 25, 1996
Schedule of Portfolio Investments
June 30, 1996 (Unaudited)
Number
of Market
Shares Security Value
COMMON STOCKS: 95.25%
FINLAND: .90%
25,000 Cultor Oy Ser 2 (Food-Process) $ 1,273,566
FRANCE: 8.80%
31,666 AXA S A (Insurance) 1,733,422
724 AXA Temp. Non-tradeable Certs. '96 (Insurance) 39,632
15,000 Bic (Consumer Goods) 2,131,506
3,300 Carrefour (Merchandising) 1,850,066
19,500 Dassault Systemes SA
(Aerospace & Military Technology) 611,013
11,254 Generale des Eaux (Utility-Water) 1,257,919
4,550 Grandoptical Photo Service (Health & Personal Care) 586,412
6,000 LVMH Moet Hennessy Louis Vitton (Consumer) 1,424,114
8,900 Marine Wendel SA Bearer (Multi-Industry) 737,017
17,000 Total SA Class B (Oil) 1,261,719
315 Total SA Temp. Non-tradeable Certs. (Oil) 23,379
15,000 Valeo (Automobile) 803,324
135 Valeo Temp. Non-tradeable Certs. (Automobile) 7,230
12,466,753
GERMANY: 7.88%
18,000 Adidas AG (Consumer Goods) 1,513,958
50,000 Bayer AG (Chemicals) 1,767,336
1,400 Bayer Motoren Werk (Automobile) 812,482
790 Ckag Colonia Konzern AG (Insurance) 639,003
8,000 Deutsche Bank-Part. Certs./Wts 6/30/97(Banking)* 7,450
1,650 GEHE AG(Pharmaceutical) 1,108,934
327 Munchener Ruckvers Part Pd Regd (Insurance) 675,224
21,400 SGL Carbon AG (Chemicals) 2,504,981
20,000 Siemens AG (Electronic Equipment) 1,069,280
20,000 VEBA AG (Utility) 1,063,624
11,162,272
GREAT BRITAIN: 12.58%
3,539 Barclays Bank Restricted (Banking) 42,471
126,448 British Airport Authorities
(Transportation-Miscellaneous) 916,378
5,090 British Petroleum PLC Spons ADR (Petroleum) 543,994
101,194 CRH ORD (Construction) 1,024,976
250,000 Dixons Group PLC (Retail) 2,046,736
130,000 General Accident Ord. (Insurance) 1,317,756
141,574 GKN ORD (Automobile) 2,172,960
1,704 GKN PLC Restricted (Automobile) 26,154
77,815 HSBC Holdings PLC (Banking) 1,218,527
111,862 Powergen Ord. (Utility - Electric & Gas) 815,017
195,000 Powerscreen Int'l. (Industrial Components) 1,387,431
190,000 Rank Organization Ord. (Entertainment) 1,468,447
110,000 Reuters Holdings (Publishing) 1,331,194
80,000 Siebe (Multi-Industry) 1,137,162
90,000 Smiths Industries Ord. (Machinery & Engineering) 985,696
50,000 Thorn Emi Ord. (Consumer Goods) 1,393,490
Number
of Market
Shares Security Value
17,828,389
IRELAND: 1.72%
4,351 Allied Irish Banks Restricted (Banking) 22,779
193,261 Allied Irish Banks PLC (Banking) 1,011,778
270,000 Greencore Group(Food-Process) 1,405,141
2,439,698
ITALY: 1.09%
250,000 Danieli & C Di Risp Savings (Engineering) 889,549
80,000 STET (Telecommunications) 270,554
11,175 STET Societa Fin Tel Spn. ADR
(Telecommunications) 379,023
1,539,126
NETHERLANDS: 7.71%
17,397 Aegon NV ADR(Insurance) 802,437
14,274 Aegon NV (Insurance) 657,884
22,000 Ahrend NV (Appliances & Household Durables) 986,882
160,000 Elsevier NV (Publishing) 2,429,970
15,000 Hagemeyer (Wholesale & International Trade) 1,069,562
16,000 Oce - Van der Grinten NV (Data Processing) 1,696,288
16,000 Polygram (Entertainment) 945,718
10,000 Polygram ADR (Entertainment) 586,250
50,000 Vendex Int'l NV (Merchandising) 1,744,489
10,919,480
SPAIN: 1.51%
5,000 BCO Popular ESP Reg. (Banking) 892,289
15,000 Empresa Nac'l. de Elec. ADR(Utility-Utility) 939,375
90,000 OMSA Alimentacion(Food) 303,784
2,135,448
SWEDEN: 3.48%
55,000 Astra AB Ser B Free (Pharmaceutical) 2,400,177
40,000 Ericsson (LM) Tele. Series B Free
(Electrical & Electronics) 863,731
12,000 Hennes & Mauritz B Free (Merchandising) 1,114,394
20,000 OM Gruppen AB (Financial Services) 549,647
4,927,949
SWITZERLAND: 8.01%
30,000 BZ Bank Vision 1/15/97 (Banking) 522,000
1,000 Nestle AG Reg. (Food) 1,143,200
420 Pharma Vision (Pharmaceuticals) 1,958,880
60,000 Pharma Vision Wts. 10/10/96 (Pharmaceuticals) 441,600
600 Roche Holdings Genusscheine DRC
(Pharmaceuticals) 4,581,600
600 Roche Holdings AG Wts. 5/5/98
(Pharmaceuticals) 18,840
8,700 Union Bank of Switzerland Wts. 12/18/98
(Banking) 515,040
2,214 Union Bank of Switzerland Bearer (Banking) 2,169,720
11,350,880
Number
of Market
Shares Security Value
AUSTRALIA: 1.92%
76,435 Broken Hill Proprietary Ltd. (Resources) 1,055,502
275,000 MIM Holdings Ltd. (Metals Non-Ferrous) 354,463
231,490 The News Corporation Ltd. (Media) 1,311,784
2,721,749
HONG KONG: 2.68%
200,000 Cheung Kong Holdings (Real Estate) 1,440,429
345,000 Dah Sing Financial Services (Financial Services) 1,045,151
130,000 Sung Hung Kai Properties (Real Estate) 1,314,149
3,799,729
JAPAN: 28.88%
10,500 Bank of Tokyo-Mitsubishi (Banking) 243,706
115,000 Bridgestone Corp (Tire & Rubber) 2,196,281
65,000 Canon Inc (Office Equipment) 1,354,229
114,000 Ezaki Glico Co. (Food & Household Products) 1,270,891
48,000 Fuji Photo Film Co. (Consumer Goods) 1,517,613
125,000 Hitachi Ltd. (Electrical) 1,165,075
35,000 Hitachi Maxell (Consumer Goods) 732,398
24,000 Ito Yokado Co Y50 (Retail) 1,449,628
65,000 Jusco Co. (Retail) 2,132,316
110,000 Komatsu Ltd. (Machinery & Engineering) 1,085,576
17,000 Kyocera Corp(Electronics) 1,203,911
60,000 Kyushu Electric Power
(Utilities/Electrical & Gas) 1,354,229
175,000 Mitsubishi Electronics Corp. (Electronics) 1,221,730
370,000 Mitsubishi Heavy Industries (Shipping) 3,222,095
160,000 Mitsui and Company (Trading) 1,451,821
32,500 Murata Mfg Co(Manufacturing) 1,232,467
520,000 Nippon Steel Corp. (Steel) 1,786,631
190 Nippon Telephone and Telegraph
(Telecommunications) 1,409,787
125,000 Omron Corporation (Machinery) 2,661,397
15,000 Promise Co. (Financial Services) 740,165
28,000 Rohm Co. (Electronics) 1,852,424
15,000 SMC (Machines) 1,162,334
9,400 Sony Corp (Electronics) 619,308
9,400 Sony Corp ADR (Electronics) 621,575
45,000 Suzuki Motor Corp(Automotive) 592,132
90,000 Taisho Pharmaceutical(Pharmaceutical) 1,949,102
70,000 Toda Construction (Construction) 684,425
60,000 Tokyo Broadcasting (Broadcasting) 1,063,645
200,000 Tokyu Corp. (Transportation/Road & Rail) 1,526,020
120,000 Yamato Transport (Transportation) 1,414,538
40,917,449
MALAYSIA: 3.41%
150,000 Genting Berhad ADR(Leisure Time) 1,172,580
150,000 Malayan Banking BHD(Banking) 1,443,175
228,000 Sime Darby Berhad ORD(Conglomerate) 630,668
100,000 Telekom Malaysia (Telecommunications) 889,958
100,000 United Engineers Malaysia Berhad
(Conglomerate) 693,526
4,829,907
Number
of Market
Shares Security Value
PHILIPPINES: .78%
105,000 Manila Electric B (Utility) 1,102,099
SINGAPORE: 2.28%
100,000 City Developments (Real Estate) 779,589
100,000 Cycle & Carriage Ltd(Automobile Parts) 1,070,163
85,000 Keppel Corp. (Shipyard) 710,843
40,000 Keppel Ltd Spon. ADR (Shipyard) 669,029
3,229,624
THAILAND: .78%
54,000 Bangkok Bank PCL (Foreign)(Banking) 731,684
7,600 Siam Cement PLC (Foreign)(Cement) 372,995
1,104,679
BRAZIL: .84%
17,000 Telebras Sponsored ADR (Telecommunications) 1,183,625
Total Common Stocks:
(Cost: $106,565,481) 134,932,422
PREFERRED STOCKS: .68%
BRAZIL: .68%
3,372,000 Electrobras Pfd Reg. B PNS (Utility) 963,764
Total Preferred Stock:
(Cost: $468,201) 963,764
TOTAL INVESTMENTS:
(Cost: $107,033,682)** 95.93% 135,896,186
Other assets, net 4.07% 5,772,018
NET ASSETS 100.00% $141,668,204
* Non-income producing securities.
** Cost for Federal income tax purposes is $107,033,682 and consists of:
Gross unrealized appreciation $31,860,640
Gross unrealized depreciation (2,998,136)
Net unrealized appreciation $28,862,504
ADR-Security represented is held by the custodian bank in the form of
American Depository Receipt.
Forward Currency Contracts Outstanding
June 30, 1996 (Unaudited)
Unrealized
Face Value Contract Delivery Appreciation
(U.S. Dollars) Price Date (Depreciation)
Swiss Franc (Sell) 4,755,489 1.2617 08/23/96 $ (67,564)
Deutsche Mark (Sell) 5,209,520 1.5357 08/23/96 (68,764)
French Franc (Sell) 960,301 5.2067 08/23/96 (14,303)
Great Britain
Pound (Sell) 6,036,600 1.5092 08/23/96 (176,909)
Japanese Yen (Sell) 31,293,265 105.454 08/28/96 874,256
Swiss Franc (Sell) 3,207,698 1.247 09/06/96 (11,410)
Deutsche Mark (Sell) 4,926,108 1.5225 09/06/96 (26,590)
French Franc (Sell) 2,903,319 5.1665 09/06/96 (22,402)
Great Britain
Pound (Sell) 5,409,250 1.5455 09/06/96 (27,300)
$ 459,014
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
ASSETS
Investments at value (identified
cost of $107,033,682)(Notes 1 & 3) $135,896,186
Cash (including foreign currencies) 3,107,471
Receivables
Securities sold 2,185,954
Capital stock sold 186,800
Dividends and interest 558,363
Receivable for forward currency contracts 64,701,552 67,632,669
Prepaid expenses 61,915
Other assets 33,412
TOTAL ASSETS 206,731,653
LIABILITIES
Payables
Securities purchased 221,405
Capital stock redeemed 362,343
Forward currency contracts payable
at market value-proceeds $64,701,552 64,242,538
Investment management fees 106,242
Dividend 488 64,933,016
Accrued expenses 130,433
TOTAL LIABILITIES 65,063,449
NET ASSETS $141,668,204
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($141,668,204 / 7,542,441 shares outstanding)$ 18.78
At June 30, 1996 there were 50,000,000 shares of $.01 par
value stock authorized and the components of net assets are:
Paid in capital 100,434,575
Net unrealized gain on investments and currency transactions
28,851,212
Undistributed net realized gains on investments
and foreign currencies 12,032,427
Undistributed net investment income 349,990
Net Assets $141,668,204
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
INVESTMENT INCOME
Income:
Interest $ 3,576
Dividend (Net of foreign
tax withheld of $179,665) 1,408,940
Total income: $1,412,516
Expenses:
Investment management fees (Note 2) 638,842
Custodian and accounting fees (Note 3) 163,440
Transfer agent fees (Note 2) 17,314
Recordkeeping and administrative
services (Note 2) 134,345
Legal and audit fees 29,828
Filing fees and registration (Note 2) 5,642
Shareholder servicing and reports (Note 2) 22,062
Other 53,337 1,064,810
Custodian fee waiver (2,284)
Total expenses 1,062,526
Net investment income 349,990
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments 7,488,912
Net realized gain on foreign currencies
conversions and forward currency contracts 2,759,837
Net increase in unrealized appreciation
on investments and foreign currencies 1,430,653
Net gain on investments 11,679,402
Net increase In net assets resulting from operations $12,029,392
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
Six months ended Year ended
June 30, 1996 Dec.31,
(Unaudited) 1995
OPERATIONS
Net investment income $ 349,990 $ 612,578
Net realized gain on
investments and foreign currencies 10,248,749 6,186,774
Net realized loss on futures -0- (356,414)
Net unrealized appreciation of
investments and currencies 1,430,653 4,814,821
Net appreciation of futures contracts -0- 169,100
Net increase in net assets
resulting from operations 12,029,392 11,426,859
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
($-0- and $.17 per share, respectively) -0- (1,228,470)
Net realized gain from investment transactions
($-0- and $.70 per share, respectively) -0- (5,058,407)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets resulting
from capital share transactions * (866,078) (12,808,764)
Net increase (decrease) in net assets 11,163,314 (7,668,782)
Net assets at beginning of period 130,504,890 138,173,672
NET ASSETS at the end of the period
(Includes undistributed
net investment income of
$349,990 and $-0-, respectively.) $141,668,204 $130,504,890
* A summary of capital share transactions follows:
Six months ended June 30, Year ended
December 31,
1996 1995
Shares Value Shares Value
Shares sold 1,191,626 $21,164,982 3,178,461 $51,928,675
Shares reinvested
from
distributions -0- -0- 268,820 4,615,632
Shares
redeemed (1,267,133) (22,031,060) (4,342,318) (69,353,071)
Net decrease (75,507) ($866,078) (895,037) ($12,808,764)
See Notes to Financial Statements
<PAGE>
<TABLE>
Financial Highlights
For a Share Outstanding Throughout Each Period
<CAPTION>
Six months ended
June 30, 1996 Years ended December 31,
(Unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $17.13 $16.23 $17.22 $12.23 $12.67 $10.67
Income from
investment operations
Net investment income 0.06 0.16 0.01 0.08 0.08 -0-
Net realized and
unrealized gain
(loss) on
investments 1.59 1.61 (0.92) 4.91 (0.38) 2.00
Total from investment
operations 1.65 1.77 (0.91) 4.99 (0.30) 2.00
Less distributions-
Distributions from net
investment income -0- (0.17) (0.08) -0- (0.08) -0-
Distributions in excess
of realized gains -0- (0.70) -0- -0- (0.06) -0-
Total distributions -0- (0.87) (0.08) -0- (0.14) -0-
Net asset value,
end of period $18.78 $17.13 $16.23 $17.22 $12.23 $12.67
Total Return 9.64% 10.91% (5.28%) 40.80% (2.37%) 18.74%
Ratios/Supplemental Data
Net assets,
end of
period (000's) $141,668 $130,505 $138,174 $136,932 $47,761 $25,611
Ratio to
average net assets-
Expenses (B) 1.56%* 1.63% 1.54% 1.77% 1.98% 2.71% (A)
Expenses-net (C) 1.55%* 1.53% 1.54% 1.77% 1.98% 2.71% (A)
Net investment
income (B) 0.51%* 0.41% 0.08% 0.85% 0.79% 0.02% (A)
Portfolio turnover rate36.45% 68.43% 34.04% 10.66% 27.42% 3.40%
<FN>
* Annualized
(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
</TABLE>
<PAGE>
Notes to the Financial Statements
June 30, 1996 (Unaudited)
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 six months ended June 30, 1996, no reimbursement was necessary.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its administrative agent, $134,345 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 $42,500.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $17,314 for its services for the six months ended June 30,
1996.
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 $41,585,982 and $43,071,658, respectively. The
Custodian has provided credits in the amount of $2,284 against custodian and
accounting charges based on credits on uninvested cash balances of the Fund.
<PAGE>
VONTOBEL U.S. VALUE FUND
June 1996 Semi-Annual Report
Dear Shareholder:
The consensus forecast called for clear sailing at the start of 1996 in an
investment environment characterized by falling interest rates, continued
strong earnings growth, and an increasing flow of new funds into U.S.
equities. Given the market's propensity to confuse the consensus, it's not
too surprising that market-determined interest rates moved sharply higher in
the first half of 1996, reflecting bond investors' concerns regarding
commodity and wage inflation. Nor is it overly shocking that the rate of
earnings growth has decelerated to the point that some companies actually are
failing to meet analysts' estimates; after several periods of heady earnings
growth due in part to vigilant cost-containment, many companies are finding
profit growth more difficult in an era of consumer frugality. So, despite
the tide of new money into stock mutual funds (over $20 billion a month
through May, and about $15 billion in June - more in the first half of this
year than in any other full year), the sailing got increasingly choppy as the
year progressed.
We're not in a maelstrom yet: Equities posted solid gains through June 28,
reflecting strong current earnings in a growing, non-inflationary economy.
Still, the trends in earnings and interest rates warrant a cautious approach.
The change in outlook is apparent in the market's increasing volatility (50-
point moves that activate trading collars have occurred frequently this year,
at least once the market moved both up 50 points and down 50 points on the
same day), as well as in its deteriorating breadth (i.e., the ratio of
advancing stocks to declining stocks). Investor caution is also evident in
the flight to safety that pummeled various high-flying issues and that has
pundits once again discussing a "nifty fifty" group of stocks that can
produce expected gains even as the great majority of stocks disappoint.
Shareholders in the Vontobel U.S. Value Fund have benefited somewhat from
this move in favor of consistent, less speculative companies: Coca-Cola
shares, which represented over 8.5% of fund assets at January 1st, moved
sharply higher as the year progressed -- so high, in fact, that we sold the
entire stake over the past six months. McDonald's shares, too, advanced at
the start of the year, leading us to sell the approximately 2.5% position
that we held at the start of the year. A subsequent decline in the price of
McDonald's stock permitted us to get back in again; we've also traded in and
out of Wrigley and Fannie Mae shares over the past two quarters. Coke shares,
unfortunately, have remained stubbornly high, above our re-entry point.
Our experience with Coke illustrates the downside to the flight to quality:
Shares of many top-quality companies don't offer enough potential reward, in
our opinion, to justify our investing your money in those shares. As we took
profits over the course of the past several months we found few compelling
new buy ideas. As a result, your fund has been, and remains, "under-
invested", holding at quarter end almost one-third of total assets in cash
and U.S. Treasury notes. It's not that there's no value in the market;
indeed, we continue to feel that Disney, Gannett, Fannie Mae, and several
insurers, including Chubb and AIG, represent solid investments. These are
large positions in your fund. It's just that new ideas have been scarce, a
fact that's not overly surprising given the tremendous bull run over the past
several quarters. By being patient, we expect to invest the fund's cash
prudently over time.
Stock declines in July have given us the opportunity to put more cash to
work; about 75% of fund assets is in stocks as of this writing. Investors
should note, though, that our employment of valuation techniques that
highlight the potential for absolute returns given the prevailing level of
interest rates, rather than relative returns versus the broad universe of
U.S. equities, will occasionally result in an under-invested position vis-a-
vis competing funds. Such a position may hinder relative performance, but is
consistent with our fiduciary responsibility to invest with an eye toward
both satisfactory returns and the preservation of capital. In the second
quarter of 1996, the Vontobel U.S. Value Fund provided investors with a total
return of 2.9%, versus the S&P 500's total return of 4.5%. For the six-month
period, the fund has generated a total return of 7.7%, trailing the benchmark
S&P 500's 10.1% total return.
Edwin D. Walczak, President
Mark O. Robertson, Analyst
July 25, 1996
<PAGE>
Schedule of Portfolio Investments
June 30, 1996 (Unaudited)
Number
of Market
Shares Security Value
COMMON STOCK: 67.95%
BANKING: 2.36%
51,146 California Center Bank $ 690,471
84,332 Hanmi Bank * 695,739
1,386,210
COSMETIC/PERSONAL: 2.59%
24,400 Gillette Co. 1,521,950
CREDIT AND FINANCE: 2.23%
29,360 American Express 1,310,190
FOOD-PROCESSING: 4.88%
56,700 Wrigley Co. 2,863,350
INSURANCE-DIVERSIFIED: 13.34%
31,700 American International Group 3,126,413
54,400 Horace Mann Educators Corp. 1,727,200
18,100 Lincoln National Corp. 837,125
99,450 Old Republic International Corp. 2,138,175
7,828,913
INSURANCE-PROPERTY/CASUALTY: 8.77%
74,000 Chubb Corp. 3,690,750
5,000 IPC Holdings Ltd. 100,625
26,625 Orion Capital 1,357,875
5,149,250
INSURANCE-LIFE: 10.50%
27,500 Reliastar Financial Corp. 1,185,937
61,200 Torchmark 2,677,500
36,900 UNUM Corp. 2,297,025
7,124,875
OTHER FINANCIAL: 7.23%
46,224 Federal National Mtg. 1,548,504
31,500 Federal Home Loan Mtg. 2,693,250
4,241,754
PUBLISHING AND BROADCAST: 12.57%
68,824 Walt Disney Co. 4,327,309
43,100 Gannett Co. 3,049,325
7,376,634
RESTAURANTS: 3.48%
43,700 McDonald's Corp. 2,042,975
TOTAL COMMON STOCKS:
(Cost: $37,067,681) 39,881,688
Principal
Amount
LONG TERM INVESTMENTS: 13.13%
$7,550,000 U.S. Treasury Note
maturity date 10/15/98; 7.125% 7,701,000
LONG TERM INVESTMENTS:
(Cost: $7,781,219) 7,701,000
TOTAL INVESTMENTS:
(Cost: $44,848,900)** 81.08% 47,582,688
Other assets
net of liabilities 18.92% 11,106,098
NET ASSETS 100.00% $58,688,786
* Non-income producing security
** Cost for Federal income tax purpose is $44,848,900 and net
unrealized appreciation consists of:
Gross unrealized appreciation $ 3,009,521
Gross unrealized depreciation (275,732)
Net unrealized appreciation $ 2,733,789
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
ASSETS
Investments at value (Identified
cost of $44,848,900)(Notes 1 & 3) $47,582,688
Cash 10,945,668
Receivables:
Dividend and interest 155,576
Capital stock sold 92,470
Securities sold 350,196 598,242
Deferred organization costs 63,759
Prepaid expenses 47,633
Other assets 56,718
TOTAL ASSETS 59,294,708
LIABILITIES
Investment management fees 57,031
Securities purchased 520,520
Capital stock redeemed 28,371
TOTAL LIABILITIES 605,922
NET ASSETS $58,688,786
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($58,688,786/4,113,870 shares outstanding) $ 14.27
At June 30, 1996 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $44,319,167
Undistributed net realized
gain on investments 11,503,273
Undistributed net income 132,557
Net unrealized appreciation of investments 2,733,789
Net Assets $58,688,786
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
INVESTMENT INCOME
Income:
Interest $164,990
Dividend 368,976
Total income $ 533,966
Expenses:
Investment management fees (Note 2) 316,661
Transfer agent fees (Note 2) 37,649
Recordkeeping and
administrative services (Note 2) 75,453
Legal and audit fees 8,495
Filing fees and registration (Note 2) 4,956
Shareholder servicing and reports (Note 2) 26,554
Custodian fees (Note 3) 28,266
Amortization of organization cost 8,966
Other 6,271 513,271
Management fee waiver (11,095)
Custodian fee waiver (28,226)
Total expenses 473,950
Net investment income 60,016
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 7,835,921
Net change in unrealized appreciation on investments (3,648,588)
Net gain on investments 4,187,333
Net increase in net assets resulting from operations $ 4,247,349
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
Six months Year
ended ended
June 30, 1996 Dec 31, 1995
OPERATIONS
Net investment income $ 60,016 $ 146,804
Net realized gain on investments 7,835,921 5,377,553
Change in unrealized appreciation
(depreciation) of investments (3,648,588) 7,554,055
Net increase in net assets
resulting from operations 4,247,349 13,078,412
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
($0 and $.04 per share,
respectively) - (74,261)
Net realized gain from
investment transaction
($0 and $1.15 per share,
respectively) - (2,060,752)
CAPITAL SHARE TRANSACTIONS
Net increase (decrease)
in net assets resulting
from capital share transactions* (661,900) 14,307,777
Net increase in net assets 3,585,449 25,251,176
Net assets at beginning of period 55,103,337 29,852,161
NET ASSETS at the end of the period
(including undistributed
net investment
income of $132,557
and $72,541, respectively) $58,688,786 $55,103,337
*A summary of capital share transactions follows:
Six months ended Year ended
June 30, 1996 Dec 31, 1995
Shares Value Shares Value
Shares sold 2,169,531 $29,780,108 3,591,066 $46,834,241
Shares
reinvested
from
dividend - - 149,147 1,974,662
Shares
redeemed (2,215,262) (30,442,008) (2,489,941) (34,501,126)
Net increase
(decrease) (45,731) $ (661,900) 1,250,272 $ 14,307,777
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
June 30,1996 Years ended December 31,
(Unaudited) 1995 1994 1993 1992 1991
Per Share Operating
Performance
Net asset value,
beginning
of period $13.25 $10.26 $12.64 $12.00 $11.36 $ 8.86
Income from
investment
operations-
Net investment
income .01 .05 .09 .16 .10 .07
Net realized
and unrealized
gain (loss)
on investments 1.01 4.09 (.08) .56 1.70 3.23
Total from
investment
operations 1.02 4.14 .01 .72 1.80 3.30
Less
distributions-
Distributions
from net
investment income - (.04) (.23) (.02) (.10) (.06)
Distributions
from realized
gains on
investments - (1.11) (2.16) (.06) (1.06) (.74)
Total
distributions - (1.15) (2.39) (.08) (1.16) (.80)
Net asset value,
end of period $14.27 $13.25 $10.26 $12.64 $12.00 $11.36
Total Return 7.70% 40.36% 0.02% 6.00% 16.30% 37.29%
Ratios/Supplemental Data
Net assets,
end of
period (000) $58,689 $55,103 $29,852 $34,720 $31,335 $22,315
Ratio to average
net assets-(A)
Expenses(B) 1.59%* 1.65% 1.62% 1.82% 1.96% 2.54%
Expenses-net(C) 1.50%* 1.50% 1.62% 1.82% 1.96% 2.54%
Net investment
income(B) .19%* .38% .76% 1.23% .76% .92%
Portfolio
turnover rate 62.41% 95.93% 98.80% 137.32% 99.66% 166.46%
* Annualized
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .11% in 1996, and .06% in 1995.
(B) Expense ratio has been increased to include additional custodian fees in
1995 and 1996 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
Six months ended June 30, 1996 (Unaudited)
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, $75,286 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 $30,000.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $23,013 for its services for the six months ended June
30, 1996.
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 $29,234,590 and $39,057,408
respectively. The Custodian has provided credits in the amount of $28,226
against custodian and accounting charges based on credits on uninvested cash
balances of the Fund.
<PAGE>
VONTOBEL INTERNATIONAL BOND FUND
June 1996 Semi-Annual Report
Dear Shareholder:
At June 30, 1996 the fund's net asset value per share stood at $10.65,
producing a net return of 1.04% for the quarter. Year to date the fund
earned a total return of 0.47%, vs. the J.P. Morgan Global Government Bond
Index (ex US), which lost 0.99%. Net assets grew by 50% during the first
half to $24,409,164.
Bond markets started the new year with strong price gains, and then corrected
sharply in response to the Fed s reduction of its discount rate. The loose
monetary policies of central banks have raised fears of a resurgence in
inflation. The yield curve has steepened considerably as a result,
especially in Europe s hard currency countries. We believe these inflation
worries are overblown and that bond market corrections have been excessive.
Although we anticipate an upturn in economic activity in the second half of
this year, inflation rates are likely to remain low due to stiff competitive
pressure around the world and high levels of unemployment. In Japan and in
Europe the risk of deflation is actually greater than the risk of inflation.
At current prices, the upside potential is not yet completely exhausted,
especially for European bonds.
In Japan, the bad debt problems of the banking system suggest that low
interest rates are still required and that monetary policy is likely to
reverse only gradually. Owing to the improved economic environment, we
expect the BoJ to modestly tighten in the second half of the year. We remain
bearish on Japanese bonds and expect a significant rise in yields over the
next 12 months.
European bond yields rose less sharply owing to the sluggish pace of economic
growth. In Germany subdued inflationary pressures and high unemployment will
keep inflation growth at 2.0% for the current year. The Bundesbank will most
probably not be raising key rates in the foreseeable future, which should
enable its European trade partners to lower their key rates without
unleashing a monetary crisis. In the second quarter French long-term
interest rates fell below Germany s, evidence that the French government s
restrictive budgetary policy seems to be working. We expect the French
central bank to cut rates further.
Since the beginning of the year the premium on bonds issued by EU member
states versus D-mark investments shrank consistently. This trend reveals the
financial markets prevailing confidence regarding monetary union in 1999,
following a two-speed formula. The members of the D-mark bloc will avoid
being placed at a competitive disadvantage in the export markets, while the
possible candidates for an expanded monetary union (especially, Spain, Italy
and Sweden) will not be subject to inflationary pressures due to higher
import prices. Given our optimistic assessment of planned monetary union, we
see a firmer Ecu and strengthening in the Ecu bond market, where we have
doubled our weighting to 14% since December.
In the European component of the portfolio, the soft currency markets were
the best performers year to date: Italy + 15.1% and Spain + 3.2% in US
dollar terms. The diminishing risk premiums in Italy and Spain are in part
due to the resolution of political uncertainty following elections in these
two countries. We are maintaining an overweight in the Irish punt market, up
2.9% year to date. In US dollar terms, the Australian bond market was
another strong performer, up 6.9% for the half.
The D-mark bloc markets were all in negative territory in dollar terms.
While we maintained our 36% weighting in the hard currency bloc, we have
reduced our exposure to the D-mark by 5% in favor of increased weightings in
the Danish krone and the Dutch guilder. About 20% of fund assets were held
in US dollar and foreign cash and short-term instruments.
At June end, the portfolio holdings had an average triple-A credit quality
rating, an average coupon of 7.71% and an average duration of 3.76.
Sven Rump, CFA
President
July 25, 1996
<PAGE>
Schedule of Portfolio Investments
June 30, 1996 (Unaudited)
Principal Market
Amount* Security Description Value
BONDS: 79.82%
AUSTRALIAN DOLLAR: 4.69%
1,500,000 Queensland Treasury Corp. 8% 14 Aug 2001
Corporate Bond $ 1,144,603
BRITISH POUND: 3.06%
460,000 DSL Bank 9.25% 19 Aug 2002
Corporate Bond 747,175
CANADIAN DOLLAR: 2.95%
1,000,000 Government of Canada 5.75% 1 Mar 1999
Government Bond 721,023
DANISH KRONE: 7.03%
4,700,000 Kingdom of Denmark 9% 15 Nov 1998
Government Bond 870,166
5,000,000 Kingdom of Denmark 7% 15 Dec 2004
Government Bond 846,007
1,716,173
DEUTSCHE MARK: 16.23%
1,200,000 Finlande 7.5% 27 Jan 2000
Government Bond 846,229
1,400,000 United Kingdom 7.125% 28 Oct 1997
Government Bond 957,946
1,200,000 European Investment Bank 7.5% 4 Nov 2002
Supranational Entities 842,403
2,000,000 Republic of Germany 6.5% 14 Oct 2005
Government Bond 1,315,490
EUROPEAN CURRENCY: 13.67%
1,000,000 EuroFima 8.5% 4 Jun 2007
Supranational Entities 1,364,384
500,000 France O.A.T. 10% 26 Feb 2001
Government Bond 721,068
1,000,000 Republic of France 6% 16 Mar 2001
Government Bond 1,250,125
3,335,577
FRENCH FRANC: 7.67%
4,000,000 France Telecom 7.875% 3 Mar 2003
Government Bond 847,819
5,000,000 France O.A.T. 7.25% 25 Apr 2006
Government Bond 1,023,862
1,871,681
IRISH PUNT: 3.03%
500,000 Republic of Ireland 6.25% 18 Oct 2004
Government Bond 739,722
ITALIAN LIRA: 9.76%
1,300,000,000 LKB Bad-Wurt FIN 10.75% 14 Apr 2003
Corporate Bond 920,463
2,000,000,000 American Int'l Group 11.7% 4 Dec 2001
Corporate Bond 1,461,145
2,381,608
NETHERLAND GUILDER: 4.90%
1,800,000 Government of Netherlands 9% 15 May 2000
Government Bond 1,196,502
SPANISH PESETA: 6.83%
190,000,000 Spanish Government 11.3% 15 Jan 2002
Government Bond 1,668,330
Total Bonds:
(Cost: $19,004,026) 19,484,462
(Cost: $19,004,026)** 79.82% 19,484,462
Other Assets, net 20.18% 4,924,702
NET ASSETS 100.00% $24,409,164
* Stated in local currencies
** Cost for Federal income tax purposes is $19,004,026 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 795,282
Gross unrealized depreciation (314,846)
Net unrealized appreciation $ 480,436
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
ASSETS
Investments at value (Identified
cost of $19,004,026)(Notes 1 & 3) $19,484,462
Cash (including foreign currencies) 4,142,498
Receivables:
Interest 656,133
Capital stock sold 78,115 734,248
Deferred organization costs 33,211
Prepaid expenses 54,107
Other assets 4,112
TOTAL ASSETS 24,452,638
LIABILITIES
Investment management fees 43,474
TOTAL LIABILITIES 43,474
NET ASSETS $24,409,164
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($24,409,164/2,291,994 shares outstanding) $ 10.65
At June 30, 1996 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $23,404,880
Accumulated loss on investments
and foreign currencies (33,005)
Undistributed net investment income 604,729
Net unrealized appreciation of investments
and foreign currencies 432,560
Net Assets $24,409,164
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
INVESTMENT INCOME
Income:
Interest (Net of foreign tax withheld of $14,323) $693,193
Total income $ 693,193
Expenses:
Investment management fees (Note 2) 122,707
Organization 6,404
Custodian fees (Note 3) 23,147
Transfer agent fees (Note 2) 9,214
Recordkeeping and administrative services (Note 2) 27,300
Legal and audit fees 4,013
Filing and registration fees (Note 2) 4,012
Shareholder servicing and reports (Note 2) 3,278
Other 3,957 204,032
Custodian fee waiver (23,147)
Total expenses 180,885
Net investment income 512,308
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 138,519
Net realized loss on currencies (10,880)
Net change in unrealized
appreciation on investments and foreign currencies (615,210)
Net loss on investments (487,571)
Net increase in net assets resulting from operations $ 24,737
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year
ended ended
June 30, 1996 Dec 31, 1995
<S> <C>
OPERATIONS
Net investment income $ 512,308 $ 693,927
Net realized gain (loss) on
investments and foreign
currencies 127,639 77,266
Change in unrealized appreciation
(depreciation) of investments and
currencies (615,210) 1,199,649
Net increase in net assets resulting
from operations 24,737 1,970,842
DISTRIBUTION TO SHAREHOLDERS
FROM:
Net investment income - (817,314)
($0 and $.55 per share, respectively)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 8,140,680 4,855,108
Net increase in net assets 8,165,417 6,008,636
Net asset at beginning of period 16,243,747 10,235,111
NET ASSETS at the end of the period
(including undistributed net
investment income of $604,729
and $92,421, respectively) $ 24,409,164 $ 16,243,747
** A summary of capital share transactions follows:
Six months ended Year ended
June 30, 1996 Dec. 31, 1995
Shares Value Shares Value
Shares sold 1,028,746 $10,977,251 652,031 $6,844,265
Shares
reinvested
from
distributions - - 45,939 487,867
Shares redeemed (268,946) (2,836,571) (244,864) (2,477,024)
Net increase 759,800 $ 8,140,680 453,106 $ 4,855,108
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
Year ended Mar 1* to
June 30,1996 Dec 31, Dec 31,
(Unaudited) 1995 1994
Per Share Operating
Performance
Net asset value,
beginning of period $10.60 $ 9.48 $10.00
Income from
investment operations-
Net investment income .16 .61 .70
Net realized and unrealized
gain (loss) on investments (.11) 1.06 (.50)
Total from investment
operations .05 1.67 .20
Less distributions-
Distributions from net
investment income - (.55) (.70)
Distributions from realized
gains on investments - - (.02)
Total distributions - (.55) (.72)
Net asset value,
end of period $10.65 $10.60 $ 9.48
Total Return .47% 17.60% 1.98%
Ratios/Supplemental Data
Net assets,
end of period (000) $24,409 $16,253 $10,235
Ratio to average
net assets-(A)
Expenses (B) 1.85%** 1.76% 1.35%**
Expenses-net (C) 1.64%** 1.35% 1.35%**
Net investment
income (B) 4.30%** 5.38% 3.99%**
Portfolio
turnover rate 6.00% 18.63% 19.00%
</TABLE>
* Commencement of operations was March 1, 1994
** Annualized
(A) Management fee waivers reduced the expense ratios and increased net
investment income ratios by .18% in 1996, 1.00% in 1995 and .19% in 1994.
(B) Expense ratio has been increased to include additional custodian fees in
1995 and 1996 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
Six months ended June 30, 1996 (Unaudited)
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 six months ended June 30, 1996, no reimbursement was
necessary. 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, $30,330 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 $42,500.
Fund Services, Inc. ("FSI") is the Fund's Transfer and Dividend Disbursing
Agent. FSI received $9,214 for its services for the six months ended June 30,
1996.
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 $8,821,284 and $1,063,120 respectively. The
Custodian has provided credits in the amount of $23,147 against custodian and
accounting charges based on credits on uninvested cash balances of the Fund.
<PAGE>
SAND HILL PORTFOLIO MANAGER FUND
Schedule of Portfolio Investments
June 30, 1996 (Unaudited)
Number
of Market
Shares Security Value
COMMON STOCK: 72.28%
BASIC INDUSTRY: 1.52%
6,100 Material Sciences* $ 105,225
CAPITAL GOODS: 5.30%
1,100 Dover Corp. 50,737
200 Matsushita Electric ADR 37,200
1,800 Parker Hannifin 76,275
200 Sumitomo Electric ADR 28,693
1,200 W.W. Grainger 93,000
285,905
CLOSED END MUTUAL FUND: 1.52%
1,800 Chile Fund 44,100
2,500 Mexico Fund 38,125
52,988
CONGLOMERATE: 1.37%
5,900 Cheung Kong Holdings ADR 41,761
1,531 Desc, S.A. De C.V. ADR* 32,151
73,912
CONSUMER DURABLES: 5.60%
700 Johnson Controls 48,650
2,500 Leggett & Platt Inc. 69,375
2,000 Sherwin Williams 93,000
13,800 Sime Darby BHD ADR 38,172
800 Sony Corp ADR 52,900
302,097
CONSUMER NON-DURABLES: 6.76%
1,700 Avery Dennison 93,287
1,100 Colgate Palmolive 93,225
800 Procter & Gamble 72,500
2,700 Sara Lee Corp 87,413
100 Yamazaki Baking ADR 18,550
364,975
CONSUMER SERVICES: 4.48%
600 Carlton Communications ADR 24,525
1,000 May Dept Stores 43,750
3,200 Walgreen 107,200
2,500 Whole Foods Markets* 66,250
241,725
ENERGY: 7.56%
800 Atlantic Richfield 94,800
500 British Petroleum ADR 53,437
1,000 Mobil 112,125
3,700 Nabors Industries* 60,125
1,500 Western Atlas Inc.* 87,375
407,862
FINANCE: 8.18%
900 Banco de Santander ADR 41,737
400 Deutsche Bank ADR 18,992
800 Development Bank of Singapore ADR 39,915
4,000 Hang Seng Bank Ltd ADR 40,306
1,700 MBIA Inc. 132,388
2,500 PXRE Corp. 60,625
2,300 Regions Financial Corp. 107,525
441,488
HEALTH CARE: 9.46%
2,200 Astra AB ADR 96,250
400 Becton Dickinson & Co. 32,100
2,600 Manor Care 102,375
600 Roche Holdings ADR 45,600
2,200 Schering Plough Corp. 138,050
1,900 United Healthcare 95,950
510,325
TECHNOLOGY: 9.94%
600 3Com* 27,450
1,700 Adaptec* 80,538
1,000 Adobe Systems Inc. 35,875
2,000 E M C Corp.* 37,250
1,930 Ericsson ADR 41,495
1,000 Intel 73,438
400 Hewlett Packard 39,850
400 Motorola Inc. 25,150
2,300 Sungard Data Systems* 92,288
1,300 Tektronix 58,175
500 Texas Instruments 24,938
536,447
R E I T: 3.02%
3,000 Apartment Investment & Management Co. 56,250
5,000 J P Realty 106,875
163,125
UTILITIES: 7.14%
1,800 Ameritech 106,875
14,000 Hong Kong Electric ADR 41,440
2,300 Hong Kong Telecom 41,400
3,100 Frontier Corp. 94,937
2,500 Nipsco Industries 100,625
385,277
TOTAL COMMON STOCKS:
(Cost: $3,349,891) 3,900,588
Principal
Amount
U.S. GOVERNMENT SECURITIES: 20.29%
$ 100,000 U.S. Treasury Note
maturity date 08/31/96; 7.25% 100,250
100,000 U.S. Treasury Note
maturity date 10/31/99; 7.50% 103,297
150,000 U.S. Treasury Note
maturity date 02/28/01; 5.625% 144,984
150,000 U.S. Treasury Note
maturity date 02/15/03; 6.25% 147,375
300,000 U.S. Treasury Note
maturity date 05/15/05; 6.50% 295,781
300,000 U.S. Treasury Note
maturity date 05/15/06; 6.875% 303,375
TOTAL U.S. GOVERNMENT SECURITIES:
(Cost: $1,105,629) 1,095,062
TOTAL INVESTMENTS:
(Cost: $4,455,520)** 92.57% 4,995,650
Other assets, net 7.43% 400,843
NET ASSETS 100.00% $5,396,493
* Non-income producing security
** Cost for Federal income tax purpose is $4,455,520 and net unrealized
appreciation consists of:
Gross unrealized appreciation $ 593,858
Gross unrealized depreciation (53,728)
Net unrealized appreciation $ 540,130
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
ASSETS
Investments at value (Identified
cost of $4,455,520)
(Notes 1 & 3) $4,995,650
Cash 399,052
Receivables
Dividend and interest 20,535
Deferred organization costs 26,882
Prepaid expenses 6,521
Other assets 25,745
TOTAL ASSETS 5,474,385
LIABILITIES
Investment management fees 24,072
Securities purchased 43,810
Capital stock redeemed 10,010
TOTAL LIABILITIES 77,892
NET ASSETS $5,396,493
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER SHARE
($5,396,493/450,033 shares outstanding) $ 11.99
At June 30, 1996 there were 50,000,000 shares
of $.01 par value stock authorized and components
of net assets are:
Paid in capital $4,731,182
Undistributed net investment income 33,466
Undistributed net realized gain on investments 91,715
Net unrealized appreciation of investments 540,130
Net Assets $5,396,493
See Notes to Financial Statements
<PAGE>
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Income:
Interest $30,301
Dividend 35,054
Total income $ 65,355
Expenses:
Investment management fees (Note 2) 24,072
Transfer agent fees (Note 2) 7,890
Custodian fees (Note 3) 20,405
Legal and audit fees 3,351
Registration fees 1,279
Recordkeeping and administrative services (Note 2) 8,617
Shareholder servicing and reports (Note 2) 1,491
Organization expense amortization 3,538
Other 6,491
77,134
Reimbursement by manager (24,072)
Custodian fee waiver (7,095)
Total expenses 45,967
Net investment income 19,388
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 106,018
Net increase in unrealized appreciation of investments 248,812
Net gain on investments 354,830
Net increase in net assets resulting from operations $ 374,218
</TABLE>
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Jan 2, 1995*
ended to
June 30,1996 Dec 31,1995
(Unaudited)
<S> <C>
OPERATIONS
Net investment income $ 19,388 $ 14,079
Net realized gain on investments 106,018 3,594
Change in unrealized appreciation
of investments 248,812 291,318
Net increase in net assets
resulting from operations 374,218 308,991
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
($0 and $.05 per share, respectively) - (17,898)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets resulting
from capital share transactions** 997,255 3,733,927
Net increase in net assets 1,371,473 4,025,020
Net assets at beginning of period 4,025,020 0
NET ASSETS at the end of the period
(including undistributed net investment
income of $33,466 and $4,270, respectively)$ 5,396,493 $ 4,025,020
*Commencement of operations
**A summary of capital share transactions follows:
<CAPTION>
Six months Jan 2, 1995
ended to
June 30, 1996 Dec 31,1995
Shares Value Shares Value
Shares sold 113,457 $ 1,297,100 384,304 $3,964,257
Shares
reinvested
from
dividend - - 1,554 17,229
Shares redeemed (25,872) (299,845) (23,410) (247,559)
Net increase 87,585 $ 997,255 362,448 $ 3,733,927
</TABLE>
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Share Outstanding Throughout the Period
Jan. 1 Jan 2*
to
to June 30, 1996 Dec 31,
(Unaudited) 1995
Per Share Operating Performance
Net asset value, beginning of period $ 11.11 $ 10.00
Income from investment operations-
Net investment income .06 .06
Net realized and unrealized gain
(loss) on investments .82 1.10
Total from investment operations .88 1.16
Less distributions-
Distributions from net
investment income - (.05)
Distributions in excess
of net investment income - (.05)
Total distributions - (.10)
Net asset value, end of period $ 11.99 $ 11.11
Total Return 7.92% 11.60%
Ratios/Supplemental Data
Net assets, end of period (000) $5,396 $4,025
Ratio to average net assets-(A)
Expenses (B) 2.25%** 3.03%**
Expense ratio-net (C) 1.95%** 1.90%**
Net investment income (B) .80%** .52%**
Portfolio turnover rate 17.83% 40.96%
* Commencement of operations
** Annualized
(A) Management fee waivers reduced the expense ratios and increased the
ratios of net investment income by 1.00%.
(B) Expense ratio has been increased to include additional custodian fees
that were offset by custodian fee credits.
(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
Six months ended June 30, 1996 (Unaudited)
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 six months ended June 30, 1996, a voluntary reimbursement of $24,072
was made.
As provided in the Administrative Agreement, the Fund reimbursed Commonwealth
Shareholder Services, Inc. ("CSS"), its Administrative Agent, $9,420 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 $7,889 for its services for the six months ended June
30, 1996.
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 $1,253,614 and $609,428, respectively.
The Custodian has provided credits in the amount of $7,095 against custodian
and accounting charges based on credits on uninvested cash balances of the
Fund.
