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Rule 497(c)
File No. 333-47467
P R O S P E C T U S
June 26, 1998
THE NEVIS FUND, INC.
The Nevis Fund, Inc. (the "Fund") is a no-load mutual fund whose investment
objective is to provide long-term capital appreciation. The Fund seeks to
achieve its investment objective by investing in securities of public companies
experiencing dramatic earnings growth.
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated June 26, 1998, has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. The Statement of Additional Information is available upon request
and without charge by calling the Fund at (877) 44-NEVIS. The SEC also
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SUMMARY
THE FUND
The Nevis Fund, Inc. (the "Fund") is a no-load mutual fund. The investment
objective of the Fund is to provide long-term capital appreciation. The Fund
seeks to achieve its investment objective by investing in securities of public
companies experiencing dramatic earnings growth. See "Investment Objectives
and Policies."
RISKS TO CONSIDER
The Fund invests in equity securities which are subject to market risks
that may cause their prices to fluctuate. Equity securities held by the Fund
may not perform well during certain market cycles and may not respond to gen-
eral market movements to the same extent as other securities. Moreover, be-
cause the Fund is a "non-diversified" investment company, its portfolio may be
concentrated in the securities of relatively fewer issuers and, as a result,
shareholders may experience greater fluctuations in the value of their shares.
Thus, the Fund may be more suitable for long-term investors who can bear the
risk of short-term fluctuations. The Fund may invest up to 20% of its total
net assets in foreign securities and, accordingly, an investment in the Fund
will be subject to the risks associated with foreign investments. See "Risks
To Consider."
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Nevis Capital Management, Inc. (the "Adviser") is the Fund's investment ad-
viser. SEI Investments Mutual Fund Services serves as the Fund's administra-
tor, and SEI Investments Distribution Co. (the "Distributor") is the distribu-
tor of the Fund's shares. See "Management" and "General Information."
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase shares of the Fund by contacting Forum Shareholder
Services, LLC, the Fund's transfer agent (the "Transfer Agent"), on any Busi-
ness Day. Shares are sold at their current net asset value without any sales
charge. The minimum initial investment in the Fund is $25,000 (except for In-
dividual Retirement Accounts and automatic investment plans). Subsequent in-
vestments must be at least $500 (except for automatic investment plans).
Shareholders may redeem all or any portion of their shares at the net asset
value next determined after the Transfer Agent has received a redemption re-
quest. Shares redeemed within 90 days of their purchase are subject to a 1%
redemption fee. See "Purchase and Redemption of Shares."
INVESTOR INQUIRIES
Investors with questions regarding the Fund should call (877) 44-NEVIS.
Share purchase and redemption transactions should be made through the Transfer
Agent by calling (888) 263-5597.
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FEES AND EXPENSES
The following table provides a summary of expenses relating to purchases and
sales of Fund shares, and the annual operating expenses of the Fund as a per-
centage of average net assets. The expense summary format below was developed
for use by all mutual funds to assist investors in making investment decisions.
Investors should consider this information together with the other important
information included elsewhere in this Prospectus.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Redemption Fee(/1/)..................................................... 1.00%
Exchange Fee............................................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees(/2/).................................................... 1.50%
Other Expenses (after reimbursement)(/2/)............................... 0.00%
Total Fund Operating Expenses (after reimbursement)(/2/)................ 1.50%
</TABLE>
(1) Shares redeemed within 90 days of their purchase are subject to a 1% re-
demption fee. The Fund reserves the right to waive the redemption fee. See
"Purchase and Redemption of Shares."
(2) Pursuant to its investment management agreement with the Fund, the Adviser
has agreed to bear all ordinary expenses incurred in the conduct of the
Fund's operations. The Fund bears all extraordinary expenses incurred in
the course of its business. See "Investment Adviser" in the Statement of
Additional Information.
EXAMPLE
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period: $15 $47
</TABLE>
The expense table and example above are provided to assist investors in un-
derstanding the expenses they will bear directly or indirectly as a shareholder
of the Fund. For more information with respect to the expenses of the Fund, see
"Management." THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
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PERFORMANCE INFORMATION
PERFORMANCE OF NEVIS CAPITAL MANAGEMENT, INC.
The chart below shows the historical performance of all accounts having
substantially the same investment objectives, policies and strategies as the
Fund managed by Nevis Capital Management, Inc., the Fund's investment adviser.
The data, calculated on an average annual total return basis, is provided to
illustrate the Adviser's past performance in managing accounts in accordance
with the same investment objectives, policies, and strategies utilized for the
Fund. These accounts consist of separate and distinct portfolios and their
performance is not indicative of or a substitute for the past or future per-
formance of the Fund. As of the date of this Prospectus, the Fund had not com-
menced investment operations and therefore did not have a performance record
of its own.
<TABLE>
<CAPTION>
YEAR ENDED NEVIS S&P RUSSELL
DECEMBER 31 COMPOSITE(/1/) 500(/2/) 2000 (/3/)
- ----------- --------- ------ --------
<S> <C> <C> <C>
1991*................................... 10.2% 8.4% 5.4%
1992.................................... 13.0% 7.7% 16.6%
1993.................................... 32.3% 10.1% 17.0%
1994.................................... 15.8% 1.3% -3.1%
1995.................................... 57.4% 37.5% 26.3%
1996.................................... 35.0% 23.0% 14.8%
1997.................................... 10.1% 33.4% 20.5%
1998 (1st Quarter)...................... 16.2% 13.9% 10.0%
Cumulative Returns (since 9/30/91)...... 519.0% 234.2% 166.8%
Compound Annual Returns (since 9/30/91). 28.8% 20.4% 16.3%
Average Annual
Total Returns
One Year............................... 46.5% 48.0% 42.0%
Five Years............................. 32.3% 22.4% 17.7%
</TABLE>
*Period October 1, 1991 through December 31, 1991. On October 1, 1991, the Ad-
viser commenced the management of accounts that are included in the Nevis
Composite (as hereinafter defined).
(1) The Adviser's composite performance data (the "Nevis Composite") was de-
veloped from the aggregate performance of all accounts that are managed
with investment objectives, policies, and strategies substantially the
same as the Adviser will employ in managing the assets of the Fund. The
Nevis Composite includes all accounts for which the Adviser has full dis-
cretionary authority to manage in accordance with its investment objec-
tives, policies, and strategies. The composite performance data has been
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"), which differ from the SEC's
method of performance calculation. Investment advisory fees and other ex-
penses have been deducted. The fees and expenses deducted from the compos-
ite performance data generally are lower than the expenses incurred by the
Fund, and the composite performance figures would have been lower if they
had been subject to the higher fees and expenses incurred by the Fund. In
addition, if the accounts within the Nevis Composite had been regulated as
investment companies under the federal securities and tax laws, the com-
posite performance might have been adversely affected by the diversifica-
tion requirements, tax restrictions and investment limitations to which
the Fund is subject.
(2) The Standard & Poor's Composite Stock Price Index (the "S&P 500") is com-
posed of 500 selected common stocks, most of which are listed on the New
York Stock Exchange. The S&P 500 assigns relative weightings to the common
stocks included, and the value fluctuates with changes in the market val-
ues of those common stocks.
(3) The Russell 2000 Index is composed of the 2,000 smallest companies in the
Russell 3000 Index, representing 7% of the Russell 3000 total market capi-
talization. The Russell 3000 Index is composed of 3,000 large U.S. compa-
nies ranked by market capitalization, representing approximately 98% of
the U.S. equity market.
THE ADVISER'S PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE
FUND'S INVESTMENT OBJECTIVES, POLICIES AND STRATEGIES, AND MARKET CONDITIONS
DURING THE PERIODS
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FOR WHICH IT IS REPORTED. HISTORICAL PERFORMANCE INFORMATION SHOULD NOT BE
CONSIDERED AS REPRESENTATIVE OF THE FUTURE PERFORMANCE OF THE FUND.
PERFORMANCE OF THE FUND
The Fund may quote its yield and total return in advertisements and reports
to shareholders and prospective investors. The Fund's performance may also be
compared to that of other mutual funds with similar investment objectives and
to stock or other relevant indices, such as the S&P 500 and the Russell 2000,
that are referenced in the Statement of Additional Information. Standard total
return results reported by the Fund do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees.
The Fund's yield is calculated by dividing the net investment income earned
by the Fund over a specified 30-day period, by the average number of shares
entitled to receive dividends, and expressing the result as an annualized per-
centage rate based on the net asset value per share at the end of the 30-day
period. The effective yield is calculated similarly but, when annualized, the
income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the com-
pounding effect of this assumed reinvestment.
The Fund's average annual total return is computed by determining the aver-
age annual compounded rate of return for a specific period which, when applied
to a hypothetical $1,000 investment in the Fund at the beginning of the peri-
od, would produce the redeemable value of that investment at the end of the
period, assuming reinvestment of all dividends and distributions during the
period.
Further information concerning the Fund's yield and total return is in-
cluded in the Statement of Additional Information.
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to provide long-term capital appre-
ciation. The Fund seeks to achieve its investment objective by investing in
securities of public companies experiencing dramatic earnings growth. The in-
vestment objective of the Fund is not a fundamental policy and may be changed
after notice to, but without the approval of, the Fund's shareholders. There
can be no assurance that the Fund will achieve its investment objective. The
Fund's share price and investment return will fluctuate, and a shareholder's
investment in the Fund when redeemed may be worth more or less than the origi-
nal cost. See "Risks To Consider."
INVESTMENT STRATEGY
The Fund's investment strategy is founded on the belief that over time the
performance of a company's stock will track the growth of its earnings. The
Adviser's goal is to produce equity rates of return for the Fund that are con-
sistently superior to the S&P 500 by investing in public companies experienc-
ing dramatic earnings growth. When analyzing the earnings growth of a company,
the Adviser attempts to determine its "real" operating earnings power. Accord-
ingly, the Adviser is not interested in companies that report unsustainable
earnings growth attributable to investment income, extraordinary gains or ac-
counting legerdemain. Rather, the Adviser will select investments for the Fund
characterized by businesses that generate high returns on invested cap-
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ital and have strong, positive cash flows.
In addition to emphasizing earnings growth, the Fund's investment strategy
demands that the Adviser exhibit sensitivity to valuation when selecting
stocks for the Fund's portfolio. Typically, the Fund expects to pay a price-
/earnings multiple no greater than 75% of a company's long-term sustainable
growth rate. The Adviser pays careful attention to a company's capital struc-
ture, preferring companies with conservatively capitalized balance sheets that
are self-financing.
The Adviser's investment professionals function both as security analysts
and portfolio managers. In order for a company to be included in the Fund's
portfolio, the portfolio managers must have firsthand knowledge of its busi-
ness derived from primary sources. In keeping with this belief, the Adviser's
investment professionals follow an internal discipline which states that they
will not purchase a stock for the Fund before meeting with senior management
of the company. When researching a target company, they compile thorough quan-
titative data from 10-Ks, 10-Qs and proxy statements. The Adviser's investment
professionals then add perspective to the numbers by interviewing company man-
agement, suppliers, customers, competitors and research analysts. In some
cases, the companies selected for investment by the Fund will not be followed
by large brokerage firms. This lack of research coverage often results in the
opportunity to purchase securities of outstanding companies at attractive
prices. The Adviser has amassed a solid track record over the last five years
in managing institutional accounts utilizing this investment strategy.
PORTFOLIO INVESTMENTS
EQUITY SECURITIES. The Fund expects to invest primarily in equity securi-
ties which include common stock as well as securities with characteristics of
common stock, such as preferred stock and securities convertible into common
stock.
RULE 144A SECURITIES. Subject to the Fund's limitations on investing in il-
liquid securities, the Fund may purchase Rule 144A securities. Rule 144A secu-
rities are restricted securities in that they have not been registered under
the Securities Act of 1933, but they may be traded between certain qualified
institutional investors, including investment companies. The presence or ab-
sence of a secondary market in these securities may affect their value. The
Fund's Board of Directors has established guidelines and procedures for deter-
mining the liquidity of Rule 144A securities.
MONEY MARKET INSTRUMENTS. The Adviser may invest a portion of the Fund's
assets in money market instruments to provide flexibility in meeting redemp-
tions and paying expenses of the Fund, and in the timing of new investments
for the Fund's portfolio. Money market instruments include U.S. government se-
curities, obligations of U.S. commercial banks, commercial paper, and repur-
chase agreements.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to U.S. Treasury securities. In a repurchase agreement, the Fund buys
a security and simultaneously agrees to sell it back at a higher price. In all
cases, the Adviser must find the creditworthiness of the other party to the
transaction to be satisfactory. In addition, all repurchase agreements entered
into by the Fund will be fully collateralized and marked to market daily. In
the event of a default by, or bankruptcy proceedings with respect to, the
other party to the repurchase agreement, the Fund could experience delays in
recovering its cash and a loss to the extent that, in the meantime, the value
of the securities repurchased has decreased.
HEDGING STRATEGIES. The Adviser, to the extent permitted by the Fund's in-
vestment policies
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and restrictions, may buy and sell options on securities, currencies, futures
contracts, and options on such contracts to manage exposure to changing secu-
rity prices and currency exchange rates. Some strategies using these instru-
ments tend to hedge the Fund's investments against price fluctuations. Other
strategies tend to increase market exposure. Hedging instruments may be used in
combination with each other to adjust the risk/return characteristics of the
overall strategy. These strategies may increase the volatility of the Fund and
may involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, the Fund may experience a loss if the counterparty in the
transaction does not perform as promised.
INVESTMENT LIMITATIONS. The Fund's investment program is subject to a number
of investment restrictions that reflect both self-imposed standards and regula-
tory limitations. Restriction 2 is a fundamental policy and may only be changed
with shareholder approval. Restrictions 1, 3 and 4 may be changed by the Fund's
Board of Directors. The Fund will not:
(1) Borrow money other than for temporary or emergency purposes in an
amount not exceeding 10% of the value of its total assets at the time
of such borrowing; provided that, while borrowings by the Fund equaling
5% or more of its total assets are outstanding, the Fund will not pur-
chase securities for investment;
(2) Concentrate its investments in any one industry (excluding securities
of the U.S. government and its agencies and instrumentalities);
(3) Invest more than 15% of its net assets in illiquid securities, includ-
ing repurchase agreements with maturities of greater than seven days;
or
(4) Invest more than 20% of its net assets in foreign securities.
The Statement of Additional Information contains additional information re-
garding the Fund's investment policies, including a complete listing of the in-
vestment restrictions applicable to the Fund.
PORTFOLIO TURNOVER
The Fund anticipates that its annual portfolio turnover rate will not exceed
40%, but the Fund's turnover rate will not be a limiting factor when the Ad-
viser deems portfolio changes appropriate.
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RISKS TO CONSIDER
INVESTMENT IN EQUITY SECURITIES
Investments in equity securities are subject to market risks which may cause
their prices to fluctuate. Accordingly, the Fund may be more suitable for long-
term investors who can bear the risk of short-term fluctuations. Changes in the
value of portfolio securities will not necessarily affect income derived from
the securities but will affect the net asset value of the Fund's shares. Equity
securities held by the Fund may not perform well during certain market cycles
and may not respond to general market movements to the same extent as other se-
curities. Equity securities of companies with relatively-small market capital-
izations frequently have experienced greater price volatility than equity secu-
rities of larger companies, and they may be expected to do so in the future.
The reliance of smaller companies on limited product lines, markets, financial
resources, or other factors may make them more susceptible to setbacks and
downturns. As a result, their stock prices may be particularly volatile. More-
over, if a special situ-
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ation is involved, such as a new product or service, or an acquisition or
merger with favorable implications, there is the risk that it will not develop
as favorably as expected. For example, a new product or service may not enjoy
the anticipated market acceptance, or an acquisition or merger may be blocked.
NON-DIVERSIFICATION
Investing in the Fund, which is a "non-diversified" company under the In-
vestment Company Act of 1940, may entail greater risk than investing in a di-
versified mutual fund. The Fund's portfolio may be concentrated in the securi-
ties of relatively fewer issuers and, as a result, shareholders may experience
greater fluctuations in the value of their shares. Any economic, political, or
regulatory development affecting the value of a security held in the Fund's
portfolio could have a greater impact on the net asset value of the Fund than
would be the case if the Fund's investments were diversified among a greater
number of issuers.
INVESTMENT IN FOREIGN SECURITIES
Investing in foreign securities involves considerations and possible risks
not typically associated with investing in domestic securities. The values of
foreign investments are affected by changes in currency rates or exchange con-
trol regulations, application of foreign tax laws, including withholding tax-
es, changes in governmental administration, or economic or monetary policy (in
the United States or abroad), or changed circumstances in dealings between na-
tions. Costs are incurred in connection with conversions between various cur-
rencies. In addition, foreign brokerage commissions are generally higher than
in the United States, and foreign securities markets may be less liquid, more
volatile, and less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by other factors
not present in the United States, including expropriation, confiscatory taxa-
tion, lack of uniform accounting and auditing standards, potential difficul-
ties in enforcing contractual obligations, and the possibility of extended
settlement periods.
YEAR 2000 ISSUE
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and individ-
uals around the world, the Fund could be adversely affected if the computer
systems used by its service providers do not properly process dates on and af-
ter January 1, 2000 and distinguish between the year 2000 and the year 1900.
The Fund has made inquiry of its service providers to determine whether they
expect to have their computer systems adjusted for the year 2000 transition,
and is seeking assurances from each service provider that it expects its sys-
tem to accommodate the year 2000 transition without material adverse conse-
quences to the Fund. While it is likely that such assurances will be obtained,
the Fund and its shareholders may experience losses if these assurances prove
to be incorrect or as a result of year 2000 computer difficulties experienced
by issuers of portfolio securities or custodians, banks, broker-dealers or
others with which the Fund does business.
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MANAGEMENT
The business and affairs of the Fund are managed under the supervision of
its Board of Directors. The Fund's Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to
the Fund, including the agreements with the Fund's investment adviser, dis-
tributor, administrator,
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transfer agent and custodian. The management of the Fund's day-to-day opera-
tions is delegated to its officers, investment adviser, and administrator,
subject always to the general supervision of the Board of Directors.
INVESTMENT ADVISER
Nevis Capital Management, Inc. (the "Adviser") serves as investment adviser
of the Fund pursuant to an investment management agreement with the Fund. Un-
der the agreement, the Adviser manages the Fund's portfolio in accordance with
its investment objective, policies and restrictions, makes investment deci-
sions for the Fund, places orders for the purchase and sale of securities and
other financial instruments on behalf of the Fund, and employs portfolio man-
agers and securities analysts who provide research services to the Fund. In
addition, the Adviser has agreed to pay all ordinary expenses incurred in the
conduct of the Fund's operations. For the services provided and the expenses
assumed by the Adviser under the agreement, the Adviser is entitled to receive
an investment advisory fee from the Fund, computed daily and paid monthly, at
the annual rate of 1.50% of the Fund's average daily net assets.
The Adviser is a registered investment adviser which as of March 31, 1998,
had approximately $720 million in assets under management. The Adviser, which
was founded in 1991 by David R. Wilmerding, III and Jon C. Baker, provides in-
vestment advice to high-net-worth individuals and institutional investors with
respect to investments in equity securities. Although the Adviser has not pre-
viously served as investment adviser to a registered investment company, its
investment team has experience in managing client accounts in accordance with
the same strategy utilized for the Fund. The Adviser utilizes the same re-
search, analytical models, and professional staff in managing the Fund and its
other client accounts.
The Adviser is a Maryland corporation with its principal office located at
1119 St. Paul Street, Baltimore, Maryland 21202.
Officers and employees of the Adviser are permitted to engage in personal
securities transactions subject to restrictions and procedures set forth in
the code of ethics adopted by the Fund.
PORTFOLIO MANAGERS
David R. Wilmerding, III and Jon C. Baker, the Adviser's President and Ex-
ecutive Vice-President, respectively, share responsibility for managing the
Fund's assets. Mr. Wilmerding has more than 14 years of investment experience
and has been a portfolio manager with the Adviser since July 1991. Mr. Baker
has more than 11 years of investment experience and has been a portfolio man-
ager with the Adviser since September 1991.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors of the Fund,
the Adviser is responsible for placing orders for securities transactions.
Transactions involving equity securities will normally be conducted through
broker-dealers who charge a commission for their services. The Fund has no ob-
ligation to enter into securities transactions with any particular broker-
dealer, issuer, underwriter, or other entity. In placing orders for the Fund,
it is the policy of the Adviser to obtain the best net results in terms of
price and execution. Where such execution may be obtained from more than one
firm, securities transactions may be directed to firms that provide research
to the Adviser. If more than one account managed by the Adviser is purchasing
or selling the same security, the orders may be aggregated in the interest of
achieving the most favorable execution.
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ADMINISTRATOR
SEI Investments Mutual Fund Services (the "Administrator"), One Freedom
Valley Drive, Oaks, Pennsylvania 19456, serves as the Fund's administrator
pursuant to an administration agreement with the Fund. The Administrator pro-
vides certain fund accounting and administrative services to the Fund, includ-
ing, among other services, accounting relating to the Fund and its investment
transactions, and computation of the net asset value of the Fund. The Adminis-
trator does not have any responsibility or authority for the management of the
assets of the Fund, the determination of its investment policies, or for any
matter pertaining to the distribution of its shares.
As compensation for the services and facilities provided by the Administra-
tor to the Fund, the Fund has agreed to pay a fee, computed daily and paid
monthly, at the annual rate of 0.12% of the first $100 million of the average
daily net assets of the Fund, 0.10% of the next $100 million of such assets,
and 0.08% of such assets in excess of $200 million (subject to a minimum an-
nual fee of $90,000) and to reimburse the Administrator for its out-of-pocket
expenses.
DISTRIBUTOR
Shares of the Fund are distributed through SEI Investments Distribution Co.
(the "Distributor"), One Freedom Valley Drive, Oaks, Pennsylvania 19456, the
principal underwriter and distributor of the Fund. The Distributor, a wholly-
owned subsidiary of SEI Investments Company, is a registered broker-dealer and
member firm of the National Association of Securities Dealers, Inc. No compen-
sation is paid to the Distributor for distribution services for the shares of
the Fund.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are sold on a continuous basis at the net asset value
next determined after receipt of a purchase order. Investors may purchase and
redeem shares of the Fund by mail, wire transfer, or through Automated Clear-
ing House ("ACH") transfer. Shareholders may place purchase and redemption or-
ders by telephone at (888) 263-5597. When market conditions are extremely
busy, it is possible that investors may experience difficulties placing orders
by telephone and may wish to place orders by mail. Purchases and redemptions
of shares of the Fund may be made on any day on which the Federal Reserve
Banks are open for business, except days on which the New York Stock Exchange
is closed (a "Business Day"). Shares of the Fund are offered only to residents
of states in which such shares are eligible for purchase.
MINIMUM INVESTMENTS
The minimum initial investment in the Fund is $25,000 (except for Individ-
ual Retirement Accounts ("IRAs") and Systematic Investment Plans where the
minimums are $2,000 and $15,000, respectively). Subsequent investments must be
at least $500 ($50 for Systematic Investment Plans). The Fund reserves the
right to accept smaller purchases at its sole discretion.
If the value of a shareholder account (other than a Systematic Withdrawal
Plan account) falls below the required minimum investment because of redemp-
tions, the Fund will notify the shareholder, and if the account value remains
below the required minimum for a continuous 60-day period, the shares in such
account will be subject to redemption by the Fund. Shares will not be redeemed
involuntarily as a result of a decline in
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10
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account value due solely to a decline in the Fund's net asset value. The Fund
reserves the right to modify or terminate the involuntary redemption features
of the shares at any time upon 60 days' notice to shareholders.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to The Nevis Fund, Inc.) for at least the applicable required minimum
initial investment, together with a completed Account Application to: The Nevis
Fund, Inc., P.O. Box 446, Portland, ME 04112. Subsequent investments may also
be mailed directly to the Transfer Agent. All purchases made by check should be
in U.S. dollars and made payable to The Nevis Fund, Inc. Third party checks,
credit card checks, and cash will not be accepted. When purchases are made by
check, redemption proceeds will be forwarded only upon collection of payment
for the shares purchased, which may take up to 15 days from the date of pur-
chase.
PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES. Before making an initial investment by wire, an investor
must first telephone (888) 263-5597 to be assigned an account number. The in-
vestor's name, account number, taxpayer identification number or Social Secu-
rity number, and address must be specified in the wire. In addition, the in-
vestor should promptly forward a completed Account Application to the Transfer
Agent at: The Nevis Fund, Inc., P.O. Box 446, Portland, ME 04112.
Shareholders having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of the Fund by requesting their
bank to transmit funds by wire to: First Union National Bank; ABA # 031000011
for Account Number 1421559309; Further Credit: The Nevis Fund, Inc. The share-
holder's name and account number must be specified in the wire.
SUBSEQUENT PURCHASES. Additional investments may be made at any time through
the wire procedures described above, which must include the shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH")
This service allows the purchase of additional shares through an electronic
transfer of money from a checking or savings account. When an additional pur-
chase is made by telephone, the Transfer Agent will automatically debit the
pre-designated bank account for the desired amount. Shareholders may call (888)
263-5597 to request an ACH transaction.
SYSTEMATIC INVESTMENT PLAN
Shareholders may also buy shares of the Fund through the Fund's Systematic
Investment Plan. Under this plan, shareholders may arrange for automatic month-
ly, quarterly, semi-annual, or annual investments in the Fund of $50 or more by
authorizing Forum Shareholder Services, LLC, the Fund's transfer agent, to
transfer funds from a checking account. The minimum initial investment under
the Systematic Investment Plan is $15,000.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders of the Fund may elect to make systematic withdrawals of at
least $50 from their Fund account if they are purchasing or already own shares
of the Fund with a net asset value of $25,000 or more. Under this plan, share-
holders may arrange systematic withdrawals on a monthly, quarterly, semi-annual
or annual basis.
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11
<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS
Individual shareholders may establish their own tax-sheltered Individual
Retirement Accounts ("IRAs"). The minimum initial investment for an IRA is
$2,000. There is currently no charge for establishing an IRA account, although
there is an annual maintenance fee of $20. (See the applicable IRA Custodial
Agreement and Disclosure Statement for a discussion of the annual maintenance
fee, eligibility requirements, and related tax consequences.)
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives the order and payment before 4:00 p.m.,
Eastern Time. Payment may be made by check or readily available funds. The
purchase price of shares of the Fund is the net asset value per share next de-
termined after a purchase order is received. Purchases will be made in full
and fractional shares of the Fund calculated to three decimal places. The Fund
will not issue certificates representing shares of the Fund.
The Fund reserves the right to reject a purchase order when it is deter-
mined that it is in the best interest of the Fund and/or its shareholders to
do so.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., East-
ern Time, on any Business Day will be effective that day. The redemption price
is the net asset value per share next determined after a redemption order is
received, less any applicable redemption fee. Shares redeemed within 90 days
of their purchase are subject to a redemption fee equal to 1% of the net asset
value per share next determined after the redemption order is received. The
Fund reserves the right to waive the redemption fee. Payment for redeemed
shares will be made as promptly as possible and, in any event, within seven
days after the redemption order is received. Redemption proceeds, however, are
not paid unless any check used for investment has been cleared by the share-
holder's bank, which may take up to 15 calendar days. Shareholders may not
close their accounts by telephone.
To protect shareholders and the Fund against fraud, signatures on certain
requests must have a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following transactions: (1) writ-
ten instruction to redeem shares whose value exceeds $50,000; (2) instructions
to change a shareholder's record name; (3) redemption in an account in which
the account address or account registration has changed within the last 30
days; (4) redemption proceeds to be sent to other than the address of record,
preauthorized bank account, or preauthorized brokerage firm account; (5) re-
demption proceeds to be paid to someone other than the record owners or to an
account with a different registration; or (6) change of systematic investment
or withdrawal, dividend election, telephone redemption option election, or any
other option election in connection with the shareholder's account. A signa-
ture guarantee may be obtained from domestic banks or trust companies, bro-
kers, dealers, clearing agencies, or savings associations who are participants
in a Medallion Program recognized by the Securities Transfer Association.
Please note that a notary public stamp or seal is not acceptable.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check
for redemption proceeds mailed. A wire charge up to $10 may be deducted from
the amount of a Federal Reserve wire redemption
- -------------------------------------------------------------------------------
12
<PAGE>
payment made at the request of a shareholder. Shareholders cannot redeem
shares of the Fund by Federal Reserve wire on federal holidays restricting
wire transfers. The Fund does not charge for ACH wire transactions; however,
such transactions will not be posted to a shareholder's bank account until the
second Business Day following the transaction.
Shareholders are granted telephone redemption privileges automatically.
Neither the Fund nor the Transfer Agent will be responsible for the authentic-
ity of the redemption instructions received by telephone if it reasonably be-
lieves those instructions are genuine. The Transfer Agent will employ reason-
able procedures to confirm that telephone instructions are genuine, and may be
liable for losses resulting from unauthorized or fraudulent telephone transac-
tions if it does not employ those procedures.
The right of redemption may be suspended or the date of payment of redemp-
tion proceeds postponed during certain periods as set forth in the Statement
of Additional Information.
NET ASSET VALUE
The net asset value per share of the Fund is determined by dividing the to-
tal market value of the Fund's investments and other assets, less any liabili-
ties, by the total outstanding shares of the Fund. Net asset value per share
is determined on each Business Day as of the close of regular trading on the
New York Stock Exchange, which normally occurs at 4:00 p.m., Eastern Time. The
Fund will use a pricing service to provide market quotations. Portfolio secu-
rities for which reliable market values are not available are valued at their
fair values determined in accordance with procedures established and monitored
by the Board of Directors of the Fund.
- -------------------------------------------------------------------------------
DIVIDENDS AND TAXES
DIVIDENDS
The Fund's policy is to distribute substantially all of its investment com-
pany taxable income and net capital gain (net long-term capital gain in excess
of net short-term capital loss), if any, in December of each year. The Fund's
investment company taxable income consists of all taxable income other than
the excess, if any, of net long-term capital gain over net short-term capital
loss, reduced by deductible expenses of the Fund.
Unless a shareholder elects payment by check, all dividends and capital
gain distributions, if any, will be reinvested in additional Fund shares at
net asset value as of the reinvestment date. Shareholders may elect to termi-
nate automatic reinvestment by giving written notice to the Transfer Agent (at
the address listed in this Prospectus) prior to the record date on which divi-
dends or distributions will be paid.
TAXES
The Fund intends to qualify for the special tax treatment afforded regu-
lated investment companies under the Internal Revenue Code so that it will be
relieved of federal income tax on its investment company taxable income and
net capital gain distributed to shareholders. In addition, the Fund expects to
make sufficient distributions prior to the end of each calendar year to avoid
liability for federal excise tax.
Dividends from the Fund's investment company taxable income are taxable to
shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Distributions of net
capital gain that are designated by the Fund as capital gain dividends are
taxable to shareholders as
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13
<PAGE>
long-term capital gain, regardless of how long shareholders have held their
shares and regardless of whether the distributions are received in cash or in
additional shares. Only a portion of the dividends paid by the Fund is ex-
pected to qualify for the dividends received deduction available to corporate
shareholders. The Fund provides shareholders annually with information regard-
ing the federal income tax status of its dividends and distributions.
The net asset value of the Fund's shares will be reduced by the amount of
any dividend or distribution on the record date for the distribution. An in-
vestor who purchases shares immediately prior to the record date will pay the
full net asset value for the shares and will receive a distribution which, al-
though in effect a return of capital to that shareholder, will be taxable as
described above.
The sale or redemption of Fund shares is a taxable event for the sharehold-
er.
Shareholders should consult their tax advisors regarding specific questions
as to federal, state, and local income taxes. The Statement of Additional In-
formation contains additional information regarding taxes.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is an open-end, non-diversified management investment company in-
corporated under the laws of the State of Maryland. Each share of the Fund has
one vote and is entitled to dividends and distributions when and if declared
by the Fund's Board of Directors. In the event of liquidation or dissolution
of the Fund, each share would be entitled to its pro rata portion of the
Fund's assets after all debts and expenses have been paid.
As of the date of this Prospectus, all shares of the Fund have been classi-
fied as Common Stock. Under the charter of the Fund, the Board of Directors is
authorized to establish "series" of shares of capital stock, each of which
would evidence interests in a separate portfolio of securities, and separate
classes of shares of each series. Different classes of the Fund's shares of
any series may be offered to certain investors. The Board of Directors of the
Fund may add additional series or classes of shares in the future. All classes
of a particular series would share a common investment objective and portfolio
of investments; however, the net asset values per share of the classes could
differ to the extent there are different fees and expenses applicable to the
classes. Additional information concerning the capital stock of the Fund may
be obtained by calling (877) 44-NEVIS.
ANNUAL MEETINGS
Unless required under applicable law, the Fund does not expect to hold an-
nual meetings of shareholders. However, shareholders of the Fund retain the
right, under certain circumstances, to request that a meeting of shareholders
be held for the purpose of considering the removal of a director from office,
and if such a request is made, the Fund will assist with the shareholder com-
munications in connection with the meeting.
SHAREHOLDER REPORTS
The Fund furnishes shareholders with semi-annual reports containing infor-
mation about the Fund and its operations, including a list of investments held
in the Fund's portfolio and financial statements. The annual financial state-
ments will be audited by the Fund's independent accountants, Arthur Andersen
LLP.
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14
<PAGE>
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
David R. Wilmerding, III* President and Director
Jon C. Baker* Senior Vice-President,
Treasurer, Secretary
and Director
Joseph R. Hardiman Director
Charles E. Noell Director
</TABLE>
*Messrs. Wilmerding and Baker are "interested persons" of the Fund within the
meaning of the Investment Company Act of 1940.
CUSTODIAN
First Union National Bank, 530 Walnut Street, Mezzanine Level, Philadelphia,
PA 19106, serves as custodian of the Fund, and holds cash, securities, and
other assets of the Fund as required by the Investment Company Act of 1940.
TRANSFER AGENT
Forum Shareholder Services, LLC, 3 Canal Plaza, Portland, Maine 04101 (the
"Transfer Agent"), serves as transfer agent and dividend paying agent for the
Fund's shares.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, 1601 Market Street, Philadelphia, PA 19103, has been
selected as independent public accountants for the Fund.
LEGAL COUNSEL
Piper & Marbury L.L.P., Baltimore, Maryland, serves as legal counsel to the
Fund.
INVESTOR INQUIRIES
Inquiries regarding the Fund should be directed as follows: The Nevis Fund,
Inc., c/o SEI Investments Mutual Fund Services, 530 East Swedesford Road,
Wayne, PA 14087. Shareholders may call the Fund at (877) 44-NEVIS. Share pur-
chase and redemption transactions should be made through the Transfer Agent.
See "Purchase and Redemption of Shares."
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15
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................................... 2
Fees and Expenses........................................................... 3
Performance Information..................................................... 4
Investment Objectives and Policies.......................................... 5
Risks to Consider........................................................... 7
Management.................................................................. 8
Purchase and Redemption of Shares........................................... 10
Dividends and Taxes......................................................... 13
General Information......................................................... 14
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION.
NEV-F-001-01000
THE NEVIS FUND
PROSPECTUS
June 26, 1998
- --------------------------------------------------------------------------------
<PAGE>
THE NEVIS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
June 26, 1998
This Statement of Additional Information is not a prospectus but
provides additional information that should be read in conjunction with the
Prospectus dated June 26, 1998 including any supplements thereto. To obtain
additional copies of the Prospectus, please call (877) 44-NEVIS.
TABLE OF CONTENTS
-----------------
Page
----
General Information B- 2
Investment Policies and Practices B- 2
Investment Restrictions B- 9
Portfolio Transactions and Brokerage B-11
Calculation of Net Asset Value B-12
Redemption of Shares B-12
Taxation B-12
Management B-14
Investment Adviser B-16
Administrator B-17
Distributor B-17
Performance Information B-18
Description of Capital Stock B-19
Experts B-20
Financial Statements B-21
<PAGE>
GENERAL INFORMATION
The Nevis Fund, Inc. (the "Fund") an open-end, non-diversified
management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information regarding the activities
of the fund being considered for investment. Important information concerning
the Fund is included in the Prospectus which may be obtained without charge from
the Fund. Some of the information required to be in this Statement of
Additional Information is also included in the Prospectus. To avoid unnecessary
repetition, references are made to related sections of the Prospectus.
As described in the Prospectus, the investment objective of the Fund
is to provide long-term capital appreciation. The Fund seeks to achieve its
investment objective by investing in securities of public companies experiencing
dramatic earnings growth.
The Fund was incorporated under the laws of the State of Maryland on
February 20, 1998. As of the date of this Statement of Additional Information,
the Fund had not yet commenced operations.
The name "Nevis" has been licensed to the Fund by the Adviser. Under
this arrangement, the Fund is required to cease using the name "Nevis" upon the
occurrence of certain events, including termination of the Adviser as investment
adviser of the Fund.
The Fund filed a registration statement with the SEC registering as an
open-end, non-diversified management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and registering
an indefinite number of shares of the Fund under the Securities Act of 1933, as
amended (the "Securities Act"). The Prospectus and this Statement of Additional
Information, which constitute part of the registration statement, do not contain
all the information set forth in the registration statement, and the exhibits
and schedules to the registration statement filed with the SEC. Copies of the
registration statement, including those items omitted from this Statement of
Additional Information, may be examined and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington DC 20549
and at the SEC's Regional Offices at 7 World Trade Center, 13th Floor, New York,
NY 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
IL 60661-2511. The SEC also maintains a Web site (http://www.sec.gov) which
contains the registration statement and other information regarding the Fund.
INVESTMENT POLICIES AND PRACTICES
The Fund's investment objective is to provide long term capital
appreciation. The Fund seeks to achieve its investment objective by investing
in securities of public companies experiencing dramatic earnings growth. There
can be no assurance that the Fund will achieve its investment objective. The
following information supplements, and should be read in conjunction with, the
discussion in the Prospectus of the investment objective and policies of the
Fund.
FOREIGN INVESTMENTS
The Fund may invest in foreign securities denominated in foreign
currencies. Foreign investments can involve significant risks in addition to
the risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and
B-2
<PAGE>
operations. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that the Adviser will be able to anticipate
these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
HEDGING STRATEGIES
FUTURES TRANSACTIONS. The Fund may use futures contracts and options on
such contracts for bona fide hedging purposes within the meaning of regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). The Fund may
also establish positions for other purposes provided that the aggregate initial
margin and premiums required to establish such positions will not exceed 5% of
the liquidation value of the Fund after taking into account unrealized profits
and unrealized losses on any such instruments.
FUTURES CONTRACTS. When the Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When
the Fund sells a futures contract, it agrees to sell the underlying instrument
at a specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the S&P
500. A futures contract can be held until its delivery date, or can be closed
out prior to its delivery date if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant
B-3
<PAGE>
("FCM"), when the contract is entered into. Initial margin deposits are
typically equal to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In the
event of the bankruptcy of a FCM that holds margin on behalf of the Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
PURCHASING PUT AND CALL OPTIONS RELATING TO SECURITIES OR FUTURES
CONTRACTS. By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed price (strike
price). In return for this right, the Fund pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying security falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put-buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call-buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if the price of the underlying instrument does not rise
sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to a FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If the price of the underlying instrument rises, a put-writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If the price of the underlying instrument remains the
same over time, it is likely that the writer will also profit, because it should
be able to close out the option at a lower price. If the price of the
underlying instrument falls, the put-writer would expect to suffer a loss. This
loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing a call option is generally a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call-writer mitigates the effects of a price decline. At the same
time, because a call-writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call-writer gives up some ability to participate in security price increases.
B-4
<PAGE>
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts or forward contracts,
to adjust the risk and return characteristics of the overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower strike price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with different issuers, maturities or other
characteristics than those of the securities in which it typically invests --
for example, by hedging intermediate-term securities with a futures contract on
an index of long-term bond prices, or by hedging stock holdings with a futures
contract on a broad-based stock index such as the S&P 500 -- which involves a
risk that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect the price of the underlying security the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in the trading of options, futures and securities, or from
imposition of daily price fluctuation limits or trading halts. The Fund may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the Fund's options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or may result
in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance that a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively-low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if
the price of an option or futures contract moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require the Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, the Fund's
access to other assets held to cover its options or futures positions could also
be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of over-the-counter ("OTC") options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option. While this type of arrangement allows the Fund greater flexibility
to tailor an option to its needs, OTC options generally involve greater credit
risk than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges upon which they are traded. OTC options for which
no liquid secondary market exists will be subject to the Fund's policy regarding
investing in illiquid and restricted securities. See "--Illiquid and Restricted
Securities."
OPTIONS AND FUTURES CONTRACTS RELATING TO FOREIGN CURRENCIES. Currency
futures contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or
B-5
<PAGE>
delivery in U.S. dollars. The underlying instrument of a currency option may be
a foreign currency, which generally is purchased or delivered in exchange for
U.S. dollars, or may be a futures contract. The purchaser of a currency call
option obtains the right to purchase the underlying currency, and the purchaser
of a currency put option obtains the right to sell the underlying currency.
The uses and risks of currency options and futures contracts are similar to
options and futures contracts relating to securities or securities indices, as
discussed above. The Fund may purchase and sell currency futures and may
purchase and write currency options to increase or decrease its exposure to
different foreign currencies. The Fund may also purchase and write currency
options in conjunction with each other or with currency futures or forward
contracts. Currency futures and option values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
Fund's investments. A currency hedge, for example, should protect a yen-
denominated security from a decline in the yen, but will not protect the Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match exactly the amount of currency options and futures
held by the Fund to the value of its investments over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option position is outstanding, unless they are replaced with other
appropriate liquid assets. As a result, there is a possibility that segregation
of a large percentage of the Fund's assets could impede portfolio management or
the Fund's ability to meet redemption requests or other current obligations.
ILLIQUID AND RESTRICTED SECURITIES
As discussed in the Prospectus, the Fund may invest up to 15% of the value
of its net assets, measured at the time of investment, in illiquid securities.
Both restricted securities (other than Rule 144A securities that are deemed to
be liquid as discussed below), which may not be resold to the public without
registration under the Securities Act, and securities that, due to their market
or the nature of the security, have no readily available market for their
disposition are considered to be not readily marketable or "illiquid".
Limitations on resale and marketability may have the effect of preventing the
Fund from disposing of a security at the time desired or at a reasonable price.
In addition, in order to resell a restricted security, the Fund might have to
bear the expense and incur the delays associated with registration. In
purchasing illiquid securities, the Fund does not intend to engage in
underwriting activities, except to the extent the Fund may be deemed to be a
statutory underwriter under the Securities Act in purchasing or selling such
securities. Illiquid securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend on an efficient institutional market in
which such unregistered securities can readily be resold or on an issuer's
ability to honor a demand for repayment. Therefore, the fact that there are
contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of these investments.
Rule 144A under the Securities Act establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The Fund may invest in Rule 144A
securities which, as disclosed in the Prospectus, are restricted securities
which may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A and provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by the Fund could affect
adversely the
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marketability of the security. In such an instance, the Fund might be unable to
dispose of the security promptly or at a reasonable price.
Securities eligible for resale pursuant to Rule 144A will not be subject to
the Fund's limitations on investing in securities that are not readily
marketable, provided that the Adviser determines that a liquid market exists for
such securities under guidelines adopted and monitored by the Fund's Board of
Directors. In making this determination, the Adviser will consider the
following factors, among others: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
additional potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of market place
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfers).
INVESTMENT COMPANY SHARES
The Fund may invest up to 10% of its total assets in shares of other
investment companies that invest exclusively in those securities in which the
Fund may invest directly. These investment companies typically incur fees that
are separate from those fees incurred directly by the Fund. The Fund's purchase
of such investment company securities results in the layering of expenses, such
that shareholders would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees, in addition to
paying Fund expenses. Under applicable regulations, the Fund is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Fund owns more than 3% of the total voting stock of the
other company; (2) securities issued by any one investment company represent
more than 5% of the Fund's total assets; or (3) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
MONEY MARKET INSTRUMENTS
From time to time the Fund may purchase high quality, short-term debt
securities, commonly known as money market instruments. These securities
include U.S. government securities, obligations of U.S. commercial banks and
commercial paper.
U.S. government securities include direct obligations of the U.S.
government, which consist of bills, notes and bonds issued by the U.S. Treasury,
and obligations issued by agencies of the U.S. government which, while not
direct obligations of the U.S. government, are either backed by the full faith
and credit of the United States or are guaranteed by the U.S. Treasury or
supported by the issuing agency's right to borrow from the U.S. Treasury.
The obligations of U.S. commercial banks include certificates of deposit
and bankers' acceptances. Certificates of deposit are negotiable interest-
bearing instruments with a specific maturity. Certificates of deposit are
issued by banks in exchange for the deposit of funds and normally can be traded
in the secondary market prior to maturity. Bankers' acceptances typically arise
from short-term credit arrangements designed to enable businesses to obtain
funds to finance commercial transactions. Generally, an acceptance is a time
draft drawn on a bank by an exporter or importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then "accepted" by a bank
that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Commercial paper consists of short-term (usually from one to 270 days)
unsecured promissory notes issued by corporations to finance their current
operations. A variable amount master demand note (which is a type of commercial
paper) represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender pursuant to which the lender may
determine to invest in varying amounts.
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REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, deemed by the Adviser to be creditworthy under
criteria established by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, usually not more than seven days from the date of
purchase, thereby determining the yield during the purchaser's holding period.
The value of underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. The
Fund makes payment for such securities only upon physical delivery or evidence
of book-entry transfer to the account of its custodian bank or its agent. The
underlying securities, which in the case of the Fund must be issued by the U.S.
Treasury, may have maturity dates exceeding one year. The Fund does not bear
the risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible subnormal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement, the Fund sells a portfolio instrument to another party,
such as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, the Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. The Fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by the Adviser. These transactions
may increase fluctuations in the market value of the Fund's assets and may be
viewed as a form of leverage.
SECURITIES LENDING
The Fund may lend securities to parties such as broker-dealers or
institutional investors. The market value of loaned securities will not exceed
one-third of the Fund's total assets. Securities lending allows the Fund to
retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties whose creditworthiness has
been reviewed and found satisfactory by the Adviser.
It is the current view of the SEC that the Fund may engage in loan
transactions only under the following conditions: (1) the Fund must receive
100% of collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the Fund must
be able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Fund must be able to
vote proxies on the securities loaned, either by terminating the loan or by
entering into an alternative arrangement with the borrower. Cash received
through loan transactions may be invested in any security in which the Fund is
authorized to invest. Investing this cash subjects that investment, as well as
the security loaned, to market forces (i.e., capital appreciation or
depreciation).
SHORT SALES
The Fund may enter into short sales with respect to securities it owns, or
with respect to stocks underlying its convertible bond holdings (short sales
"against the box"). For example, if the Adviser anticipates a decline in the
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price of the stock underlying a convertible security it holds, the Fund may sell
the stock short. If the stock price substantially declines, the proceeds of the
short sale could be expected to offset all or a portion of the effect of the
stock's decline on the value of the convertible security.
When the Fund enters into a short sale against the box, it will be required
to set aside securities equivalent in kind and amount to those sold short (or
securities convertible or exchangeable into such securities) and will be
required to continue to hold them while the short sale is outstanding. The Fund
will incur transaction costs, including interest expense, in connection with
opening, maintaining and closing short sales against the box.
THE FUND'S RIGHTS AS A SHAREHOLDER
The Fund does not intend to direct or administer the day-to-day operations
of any company whose shares it holds. However, the Fund may exercise its rights
as a shareholder and may communicate its views on important matters of policy to
management, the board of directors and shareholders of a company when the
Adviser determines that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that the Fund may
engage in, either individually or in conjunction with other shareholders, may
include, among others: supporting or opposing proposed changes in a company's
corporate structure or business activities; seeking changes in a company's board
of directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a portion of its
assets; or supporting or opposing third-party takeover efforts. This area of
corporate activity is increasingly prone to litigation and it is possible that
the Fund could be involved in lawsuits related to such activities. The Adviser
will monitor such activities with a view to mitigating, to the extent possible,
the risk of litigation against the Fund and the risk of actual liability if the
Fund is involved in litigation. There is no guarantee, however, that litigation
against the Fund will not be undertaken or liabilities incurred.
WARRANTS
Warrants are securities that give the Fund the right to purchase equity
securities from an issuer at a specific price (the "strike price") for a limited
period of time. The strike price of a warrant is typically much lower than the
current market price of the underlying securities, yet a warrant is subject to
greater price fluctuations. As a result, warrants may be more volatile
investments than the underlying securities and may offer greater potential for
capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date. These factors can make
warrants more speculative than other types of investments.
INVESTMENT RESTRICTIONS
The Fund's investment programs are subject to a number of restrictions that
reflect self-imposed standards as well as regulatory limitations. The
investment restrictions recited below are in addition to those described in the
Prospectus.
Investment restrictions which are designated as matters of fundamental
policy may only be changed with the approval of a "majority of the outstanding
voting securities" of the Fund. Under the Investment Company Act, the vote of a
majority of the outstanding voting securities of a company means the vote, at an
annual or a special meeting of the security holders of the company duly called,
(i) of 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of such company
are present or represented by proxy; or (ii) of more than 50% of the outstanding
voting securities of such company, whichever is the less.
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The Fund may not as a matter of fundamental policy:
(1) Issue senior securities, except as permitted under the Investment
Company Act;
(2) Effect short sales of securities or sell any security which it does
not own unless by virtue of its ownership of other securities it has, at the
time of sale, a right to obtain securities, without payment of further
consideration, equivalent in kind and amount to the securities sold and,
provided that if such right is conditional, the sale is made upon the same
conditions; or purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
(3) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 33 1/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than borrowings);
(4) Act as an underwriter of securities within the meaning of the U.S.
federal securities laws, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of illiquid securities;
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Fund's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry;
(6) Purchase or sell real estate, provided that the Fund may invest in
securities of companies in the real estate industry and may purchase securities
secured or otherwise supported by interests in real estate;
(7) Purchase or sell commodities or commodities contracts, provided that
the Fund may invest in financial futures and options on such futures; or
(8) Make loans, except that the Fund may lend portfolio securities in
accordance with its investment policies and may enter into, purchase or invest
in repurchase agreements, debt instruments or other securities, whether or not
the purchase is made upon the original issuance of the securities.
The Fund does not intend to invest in or to enter into financial futures
contracts or purchase options on such futures or to lend portfolio securities
during the current fiscal year.
The following investment restrictions are not fundamental policies and may
be changed by the Fund's Board of Directors without shareholder approval. The
Fund will not as a matter of operating policy:
(i) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 10% of the value of its total
assets at the time of such borrowing, provided that, while borrowings by the
Fund equaling 5% or more of its total assets are outstanding, the Fund will not
purchase securities for investment;
(ii) Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law;
(iii) Invest for the purpose of exercising control or management; or
(iv) Invest more than 20% of its total assets in foreign securities.
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To meet federal tax requirements for qualification as a "regulated
investment company," the Fund will limit its investments so that at the close of
each quarter of its taxable year: (a) with regard to at least 50% of total
assets, no more than 5% of total assets are invested in the securities of a
single issuer; and (b) no more than 25% of total assets are invested in the
securities of a single issuer. Limitations (a) and (b) do not apply to
"Government securities" as defined for federal tax purposes.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, for the selection of brokers and dealers to execute securities
transactions and for negotiation of commission rates. Purchases and sales of
securities on a securities exchange will be effected through broker-dealers
which charge a commission for their services. The Adviser may direct purchase
and sale orders to any registered broker-dealer. In the over-the-counter
market, transactions are effected on a "net" basis with dealers acting as
principal for their own accounts without charging a stated commission, although
the price of the security usually includes a profit to the dealer based on the
spread between the bid and asked price for the security. The prices of
securities purchased from underwriters include a commission or concession paid
by the issuer to the underwriter. On occasion, certain money market instruments
may be purchased directly from an issuer without payment of a commission or
concession.
The Adviser's primary consideration in effecting securities transactions is
to obtain the most favorable execution of orders on an overall basis. As
described below, the Adviser may, in its discretion, effect agency transactions
with broker-dealers that furnish research deemed by the Adviser to be beneficial
to the Fund's investment program. Certain research services furnished by broker-
dealers may be useful to the Adviser with clients other than the Fund.
Similarly, any research services received by the Adviser through placement of
portfolio transactions of other clients may be of value to the Adviser in
fulfilling its obligations to the Fund. No specific value can be determined for
research services furnished without cost to the Adviser by a broker-dealer. The
Adviser is of the opinion that because the material must be analyzed and
reviewed by its staff, its receipt does not tend to reduce expenses, but may be
beneficial in supplementing the Adviser's research and analysis. Therefore, it
may tend to benefit the Fund by improving the Adviser's investment advice.
The Adviser's policy is to pay a broker-dealer commissions for particular
transactions that are higher than might be charged if a different broker-dealer
had been chosen when, in the Adviser's opinion, this policy furthers the overall
objective of obtaining the most favorable execution. The Adviser is also
authorized to pay broker-dealers higher commissions on brokerage transactions
for the Fund in order to secure research services described above.
The Adviser manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If
the purchase or sale of securities consistent with the investment policies of
the Fund or one or more of these accounts is considered at or about the same
time, transactions in such securities will be allocated among the accounts in a
manner deemed equitable by the Adviser.
The allocation of orders among broker-dealers and the commission rates paid
by the Fund will be reviewed periodically by the Board of Directors. The
foregoing policy under which the Fund may pay higher commissions to certain
broker-dealers in the case of agency transactions does not apply to transactions
effected on a principal basis.
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CALCULATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading hours on the New York Stock Exchange (the "NYSE"), which is
normally 4:00 p.m. (Eastern time), any day on which the Federal Reserve Banks
are open for business, except Good Friday (a "Business Day"). The Federal
Reserve Banks are open for business on all weekdays except for the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Portfolio securities traded on a national exchange on the valuation date
are valued at the last quoted sale price. Exchange traded securities for which
there have been no reported sales on the valuation date and securities traded
primarily in the over-the-counter market are valued at the last quoted bid
prices. Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established and monitored by the Fund's Board of Directors. These
procedures may include the use of an independent pricing service which
calculates prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to value from dealers; and
general market conditions. Debt obligations with maturities of 60 days or less
are valued at amortized cost.
REDEMPTION OF SHARES
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the NYSE is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC so that
valuation of the net assets of the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem shares by check as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders to make payment
of the redemption price in whole or in part by a distribution in kind of
portfolio securities in lieu of cash, in conformity with applicable rules of the
SEC, the Fund will make such distributions in kind. If shares are redeemed in
kind, the redeeming shareholder will incur brokerage costs in later converting
the assets into cash. The method of valuing portfolio securities is described
under "Calculation of Net Asset Value" and such valuation will be made as of the
same time the redemption price is determined. The Fund has elected to be
governed by Rule 18f-1 under the Investment Company Act pursuant to which the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
The Board of Directors of the Fund may cause the redemption of a share
account with a balance of less than $25,000, provided (1) the value of the
account has been reduced for reasons other than market action below the minimum
initial investment in such shares at the time the account was established, (2)
the account has remained below the minimum level for 60 days, and (3) 60 days'
prior written notice of the proposed redemption has been sent to the
shareholder. Shares will be redeemed at the net asset value on the date fixed
for redemption by the Board of Directors. Prompt payment will be made by mail
to the last known address of the shareholder.
TAXATION
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes, or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The Fund expects to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. In order to qualify as a RIC for any taxable year,
the Fund must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement"). In addition, at the close
of each quarter of the Fund's taxable year, (1) at least 50% of the value of its
assets must consist of cash and cash items, U.S. government securities,
securities of other RICs, and securities of other issuers (as to which the Fund
has not invested more than 5% of the value of its total assets in securities of
such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and (2) no more than 25% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. government securities and securities of other RICs), or in two
or more issuers that the Fund controls and that are engaged in the same or
similar trades or businesses or related trades or businesses (the "Asset
Diversification Test"). Generally, the Fund will not lose its status as a RIC
if it fails to meet the Asset Diversification Test solely as a result of a
fluctuation in value of portfolio assets not attributable to a purchase.
Under Subchapter M of the Code, the Fund is exempt from federal income tax
on its taxable net investment income and net capital gains that it distributes
to shareholders, provided generally that it distributes at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital loss) for the year (the
"Distribution Requirement") and complies with the other requirements of the Code
described above. The Distribution Requirement for any year may be waived if a
RIC establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax
(discussed below).
If for any taxable year the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends".
The Code imposes a nondeductible 4% excise tax on RICs that do not
distribute in each calendar year an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gains net income for the one-
year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a RIC will include in the amount distributed any amount taxed to the
RIC as investment company taxable income or capital gains for any taxable year
ending in such calendar year. The Fund intends to make sufficient distributions
of its ordinary income and capital gains net income prior to the end of each
calendar year to avoid liability for excise tax. However, the Fund may in
certain circumstances be required to liquidate portfolio investments in order to
make sufficient distributions to avoid excise tax liability.
If the Fund acquires stock in certain non-U.S. corporations ("passive
foreign investment companies" or "PFICs") that receive at least 75% of their
annual gross income from passive sources (such as interest, dividends, rents,
royalties or capital gains) or at least 50% of whose average assets produce or
are held for the production of such passive income, the Fund indirectly through
its interest in the PFIC could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if the Fund distributes its share
of the PFIC income as a taxable dividend to its shareholders.
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A certain election (treating the PFIC as a "qualified electing fund") filed with
the Fund's federal income tax return may, if available, ameliorate these adverse
tax consequences, but any such election would require the Fund to recognize
ordinary taxable income and net capital gain of the PFIC without the
corresponding receipt of cash which may need to be distributed by the Company to
satisfy the Distribution Requirement.
Pursuant to proposed regulations, open-end regulated investment companies
such as the Fund would be entitled to avoid or substantially reduce the tax
consequences described in the preceding paragraph by electing to mark-to-market
their stock in certain PFICs. Marking to market in this context means
recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market value of each PFIC's stock over the owner's adjusted
basis in that stock (including mark-to-market gains of a prior year for which an
election was in effect). Making the election could result in the recognition of
gain without the corresponding receipt of cash which may need to be distributed
by the Fund to satisfy the Distribution Requirement.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long the shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. Under recent legislation, net
"long-term capital gain" has been broken down into additional categories of
gain, taxable at different rates for individual taxpayers. These categories
include 20% rate gain and 28% rate gain and certain other categories of gain
that the Fund does not expect to realize. Twenty-eight percent rate gain on
assets held longer than 12 months but not longer than 18 months is taxed at the
taxpayer's marginal federal income tax rate, but not higher than 28%. Twenty
percent rate gain on assets held longer than 18 months is taxed at a maximum
rate of 20%. Not later than 60 days after the close of its taxable year, the
Fund will provide its shareholders with a written notice designating the
amounts of any ordinary income dividends or capital gain dividends as well as
the portions of its capital gain dividends that constitute 28% rate gain and
20% rate gain. Distributions of earnings and profits of the Fund other than
distributions of net long-term capital gains are taxable to shareholders as
ordinary income.
If capital gain distributions have been made with respect to shares of the
Fund that are sold at a loss after being held for six months or less, then the
loss is treated as a long-term capital loss to the extent of the capital gain
distributions. Any gain or loss recognized on a sale or redemption of shares of
the Fund by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of distributions payable to any shareholder who (i) has
provided the Fund either an incorrect tax identification number or no number at
all, (ii) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (iii) has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund and also as to the application of the rules set forth
above to a shareholder's particular circumstances.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of the Fund consists of four directors. The
directors and officers of the Fund, their ages and their principal occupations
during the last five years are set forth below. Each director who is an
"interested person" of the Fund (as defined in the Investment Company Act) is
indicated by an asterisk (*). The addresses of each of the directors is 1119 St.
Paul St., Baltimore, MD 21202.
B-14
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATIONS(S)
NAME AND ADDRESS AGE WITH REGISTRANT DURING THE PAST FIVE YEARS
- ---------------- --- --------------- --------------------------
<S> <C> <C> <C>
David R. Wilmerding, III* 36 President and Director President of Nevis Capital
Management, Inc.
Jon C. Baker* 34 Senior Vice President, Executive Vice President of Nevis
Treasurer, Secretary and Capital Management, Inc.
Director
Joseph R. Hardiman 61 Director Retired; President and Chief Executive
Officer and a member of the Board of
Directors and the Executive Committees
of the National Association of Securities
Dealers, Inc. and its wholly owned sub-
sidiary, The Nasdaq Stock Market, Inc.
from September 1987 to January 1997.
Charles E. Noell 46 Director General partner of JMI Equity Fund, L.P.
Mr. Noell is currently on the boards of
Expert Software, Inc.; Peregrine Systems,
Inc.; and Transaction System Architects,
Inc.
</TABLE>
The Fund's Articles of Incorporation require the Fund to indemnify its
directors and officers to the full extent permitted by Maryland law. Nothing in
the charter or bylaws of the Fund protects any director or officer against any
liability to the Fund or its shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The officers and directors of the Fund who are "interested persons" of the
Fund within the meaning of the Investment Company Act do not receive
compensation directly from the Fund for serving in the capacities described
above. However, those officers and directors who are affiliated with the
Adviser may receive remuneration indirectly from the Fund for services provided
in their respective capacities with the Adviser. Each of the non-interested
directors is expected to receive for his service on the Board of Directors an
annual fee of $6,000, a fee of $1,500 for each board meeting attended, plus
reimbursement for out-of-pocket expenses incurred in connection with attendance
at board meetings. The following table sets forth the information concerning the
compensation anticipated to be paid by the Fund to directors in the current
fiscal year. The Fund does not offer any pension or retirement benefits to its
directors.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGGREGATE COMPENSATION FROM THE FUND (1)
---------------- ----------------------------------------
<S> <C>
David R. Wilmerding, III $0
Jon C. Baker $0
Joseph R. Hardiman $12,000
Charles E. Noell $12,000
</TABLE>
(1) The Fund commenced operations in June 1998. The amounts indicated are
estimates of the compensation expected to be paid to directors of the
Fund during the Fund's first fiscal year ending May 31, 1999.
As of the date of this Statement of Additional Information, the officers
and directors of the Fund, as a group, owned of record and beneficially less
than 1% of the outstanding shares of the Fund.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a code of ethics pursuant to
Rule 17j-1 under the Investment Company Act. The code of ethics applies to the
personal investing activities of all directors and officers of the Fund, as well
as to designated officers, directors, and employees of the Adviser and the
Distributor. As described below, the code of ethics imposes significant
restrictions on the Adviser's investment personnel, including
B-15
<PAGE>
the portfolio managers and employees who execute or help execute a portfolio
Adviser's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The code of ethics requires that covered employees of the Adviser and all
Fund directors who are "interested persons" preclear personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases that are part of an automatic dividend reinvestment plan). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities, and special preclearance of the
acquisition of securities in private placements. Furthermore, the code of
ethics provides for trading "blackout periods" that prohibit trading by
investment personnel and certain other employees within periods of trading by
the Fund in the same security. Officers, directors, and employees of the
Adviser and the Distributor may comply with codes instituted by those entities
so long as they contain similar requirements and restrictions.
INVESTMENT ADVISER
The Board of Directors of the Fund has approved an investment management
agreement between the Fund and the Adviser. Under the agreement, the Adviser
manages the Fund's investments subject to the supervision and direction of the
Board of Directors of the Fund. The Adviser is responsible for providing a
continuous investment program for the Fund, including the provision of
investment research and management with respect to all securities and
investments and cash equivalents purchased, sold, or held in the Fund, and the
selection of brokers-dealers through which securities transactions for the Fund
will be executed. In carrying out its responsibilities, the Adviser is required
to act in conformance with the Fund's charter, the Investment Company Act and
the Investment Advisers Act of 1940, as amended.
The investment management agreement will remain in effect for two years
from the date of its initial execution and from year to year thereafter, so long
as such continuance is specifically approved at least annually by the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund (as defined in the Investment Company Act) and by the
vote of a majority of the directors who are not parties to the agreement or
"interested persons" of any such party (as defined in the Investment Company
Act), cast in person at a meeting called for the purpose of voting on such
approval. The agreement may be terminated by either the Fund or the Adviser on
60 days' written notice. It will terminate automatically in the event of its
assignment (as defined by the Investment Company Act).
The Adviser bears all expenses in connection with the performance of
services under the investment management agreement with the Fund. In addition,
the Adviser bears all ordinary expenses incurred in the conduct of the Fund's
operations, including, without limitation, the following: the expenses of
directors and officers of the Fund; fees for administrative services; expenses
of organizing the Fund and continuing its existence; fees and expenses of
preparing and filing the Fund's registration statement under the Securities Act
of 1933 and the Investment Company Act, and any amendments thereto; fees and
expenses of directors and officers of the Fund; fees for administrative
services; expenses of preparing, printing and distributing prospectuses,
shareholder reports and other materials to shareholders; interest; brokerage
commissions; taxes and governmental fees; expenses of issue, purchase,
repurchase and redemption of shares; charges and expenses of custodians,
transfer agents, dividend disbursing agents and registrars; printing and mailing
costs; expenses of auditing, accounting and legal services; expenses of meetings
of the Board of Directors and shareholders and proxy solicitations; insurance
expenses; and association membership dues. The Fund bears all extraordinary
expenses (as determined by use of generally accepted accounting principles)
incurred in the course of its business.
B-16
<PAGE>
<PAGE>
ADMINISTRATOR
SEI Fund Resources (the "Administrator"), One Freedom Valley Drive, Oaks,
PA 19456, serves as the administrator for the Fund. SEI Financial Management
Corporation, a wholly-owned subsidiary of SEI Corp., is the owner of all
beneficial interest in the Administrator.
Pursuant to an administration agreement between the Administrator and the
Fund, the Administrator has agreed to provide certain fund accounting and
administrative services to the Fund, including among other services, accounting
relating to the Fund and its investment transactions; computing daily net asset
values; monitoring the investments and income of the Fund for compliance with
applicable tax laws; preparing for execution and filing federal and state tax
returns, and semi-annual and annual shareholder reports; preparing monthly
financial statements including a schedule of investments; assisting in the
preparation of registration statements and other filings related to the
registration of shares; coordinating contractual relationships and
communications between the Adviser and the Fund's custodian; preparing and
maintaining the Fund's books of account, records of securities transactions, and
all other books and records in accordance with applicable laws, rules and
regulations (including, but not limited to, those records required to be kept
pursuant to the Investment Company Act); and performing such other duties
related to the administration of the Fund as may be agreed upon in writing by
the parties to the respective agreements.
Compensation for the services and facilities provided by the Administrator
under its administration agreement with the Fund includes payment of the
Administrator's out-of-pocket expenses. The Administrator's reimbursable out-
of-pocket expenses include, but are not limited to, postage and mailing,
telephone, telex, Federal Express, independent pricing service charges, and
record retention/storage.
Because the Fund will commence operations in June 1998, the Fund has
not paid any fees to the Administrator as of the date of this Statement of
Additional Information.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), located at One
Freedom Valley Drive, Oaks, PA 19456, serves as the principal underwriter and
distributor for the Fund's shares pursuant to a distribution agreement with the
Fund. The distribution agreement was initially approved by the Board of
Directors of the Fund. The Distributor is a registered broker-dealer and a
member of the National Association of Securities Dealers, Inc. The Distributor
is an indirect wholly-owned subsidiary of SEI Investments Company.
The Distributor offers shares of the Fund continuously and has agreed to
use its best efforts to solicit purchase orders for shares. The Distributor is
not obligated to sell any specific amount of shares of the Fund. The
Distributor bears all expenses of providing services pursuant to its
distribution agreement with the Fund. The Fund bears the expenses of
registering its shares with the SEC and with applicable state regulatory
authorities.
The distribution agreement will remain in effect for two years from the
date of its initial execution and from year to year thereafter, so long as such
continuance is specifically approved at least annually by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities of the
Fund (as defined in the Investment Company Act), and by the vote of a majority
of the directors who are not parties to the agreement or "interested persons" of
any such party (as defined in the Investment Company Act), cast in person at a
meeting called for the purpose of voting on such approval. The agreement may be
terminated by either the Fund or the Distributor on 60 days' written notice. It
will terminate automatically in the event of its assignment (as defined by the
Investment Company Act).
The Fund and the Distributor reserve the right to reject any purchase order
and to suspend the offering of shares of the Fund. The Fund reserves the right
to vary the minimums for initial and subsequent investments in the
B-17
<PAGE>
Fund's shares at any time. In addition, the Fund may waive the minimum
investment requirement for any investor. The factors to be considered in the
waiver or variation of such minimum investments include, but are not limited to,
the relationship of the investor to the Fund, the amount of the proposed
investment, and the type of investor.
PERFORMANCE INFORMATION
The Fund may compare its performance to other funds or to relevant indices,
such as the Standard & Poor's Composite Stock Price Index (the "S&P 500") and
the Russell 2000. The S&P 500 is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value fluctuates
with changes in the market values of those common stocks. The Russell 2000 Index
is composed of the 2,000 smallest companies in the Russell 3000 Index,
representing 7% of the Russell 3000 total market capitalization. The Russell
3000 Index is composed of 3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S. equity market.
For purposes of quoting and comparing the performance of the Fund to that
of other mutual funds and to stock or other relevant indices or averages in
advertisements or in certain reports to shareholders, performance will generally
be stated both in terms of total return and in terms of yield. However, the
Fund may also from time to time state its performance solely in terms of total
return.
TOTAL RETURN CALCULATIONS
The total return quotations, under the rules of the SEC, must be calculated
according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of the hypothetical $1,000
payment made at the beginning of the designated period
(or fractional portion thereof)
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement (or the later commencement of
operations of the Fund). In calculating the ending redeemable value for the
Fund's shares, all dividends and distributions by the Fund are assumed to have
been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. "T" in the formula above is calculated by
finding the average annual compounded rate of return over the period that would
equate an assumed initial payment of $1,000 to the ending redeemable value. Any
recurring account charges that might be imposed by the Fund in the future would
be included.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formulate set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA/Weisenberger or Morningstar
Inc., the Fund calculates its aggregate and average annual total return for the
specified periods of time by assuming the investment of $10,000 in shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date.
Alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules, and all
advertisements containing performance data will include a legend
B-18
<PAGE>
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
YIELD CALCULATIONS
The yield of Fund shares is computed by dividing the Fund's net investment
income per share during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of such base period in accordance with
the following formula:
YIELD = 2[(a - b + 1)/6/ - 1 ]
-----
cd
Where: a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share
Net investment income will be determined in accordance with rules
established by the SEC.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100,000,000 shares of Common Stock, par
value $.01 per share. The Board of Directors may increase or decrease the number
of authorized shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of shares by the Board of Directors at any
time. In the event series of shares are established, each series would be
managed separately and shareholders of each series would have an undivided
interest in the net assets of that series. For tax purposes, the series will be
treated as separate entities. In the event additional classes of shares are
established, each class of shares issued generally will be identical to every
other class and expenses of the Fund or a series thereof (other than any fees or
expenses attributable a particular class) would be prorated among all classes
based upon relative net assets.
All shares of the Fund, regardless of class or series, have equal rights
with respect to voting, except that the holders of a particular class or series
of shares are not entitled to vote on any matter which does not affect any
interest of that class or series. All classes and series of Fund shares vote
together as a single class, except as otherwise required by applicable law.
Shareholders of the Fund do not have cumulative voting rights, and therefore the
holders of more than 50% of the outstanding shares voting together for election
of directors may elect all the members of the Board of Directors of the Fund.
In such event, the remaining holders cannot elect any members of the Board of
Directors.
There are no preemptive, conversion, or exchange rights applicable to any
shares of the Fund. The outstanding shares are fully paid and non-assessable.
In the event of liquidation or dissolution of the Fund, each share is entitled
to its portion of the Fund's assets (or the assets allocated to a separate
series of shares if there is more than one series) after all debts and expenses
have been paid.
B-19
<PAGE>
EXPERTS
The Statement of Assets and Liabilities of the Fund at June 24, 1998 has
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto and is included in reliance upon
such report and upon the authority of such firm as experts in accounting and
auditing.
B-20
<PAGE>
THE NEVIS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 24, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash........................................................................... $100,000
Deferred Organization Expenses................................................. 61,500
Total Assets................................................................. $161,500
LIABILITIES:
Organization Expenses Payable to the Adviser 61,500
NET ASSETS:..................................................................... $100,000
========
NET ASSETS CONSIST OF:
Common Stock, par value $.01 per share, 100,000,000 shares authorized.......... $ 100
Additional paid-in capital..................................................... 99,900
--------
Total........................................................................ $100,000
========
NET ASSETS VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($100,000 / 10,000 shares outstanding).......................................... $10.00
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. ORGANIZATION
The Nevis Fund, Inc. (the "Fund"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end non-
diversified management investment company. The Fund has not commenced
operations except those relating to organizational matters and the sale of
shares in the amount of $100,000 to Nevis Capital Management, Inc. the
Fund's sponsor.
2. SIGNIFICANT ACCOUNTING POLICIES
Organization expenses will be amortized on a straight-line basis over a
period not to exceed five years from the commencement date of operations.
In the event Nevis Capital Management, Inc. redeems all or part of its
initial investment in shares of the Fund, the proceeds will be reduced by
the product of any unamortized organization expenses and the proportion of
the number of shares redeemed to the initial shares invested.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND
OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into (1) an investment management agreement with Nevis
Capital Management, Inc. (the "Adviser"), (2) an administration agreement
with SEI Investments Mutual Fund Services ("SIM") under which SIM provides
administration and accounting services to the Fund, and (3) a distribution
agreement with SEI Investments Distribution Co. ("SDC") under which SDC
will distribute shares of the Fund and provide information to shareholders.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of The Nevis Fund, Inc.:
We have audited the accompanying Statement of Assets and Liabilities of The
Nevis Fund, Inc. (the "Fund") as of June 24, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of The Nevis Fund, Inc. as of
June 24, 1998 in conformity with generally accepted accounting principles.
June 24, 1998
/s/ Arthur Andersen LLP
