THE NEVIS FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
NOVEMBER 30, 1998
<PAGE>
LETTER TO SHAREHOLDERS THE NEVIS FUND, INC.
DEAR FELLOW SHAREHOLDER:
At December 31, 1998 The Nevis Fund NAV stood at $9.99 per share-one penny below
its initial issue price of $10.00 per share on July 1, 1998. Although we would
always like to see it higher, we are pleased with this result as the Russell
2000 Index (the most widely used benchmark for small-medium company performance)
fell 7.8% during this 6 month period.
The fourth quarter of 1998 began with a treacherous week that sent world markets
to yearly lows. Concerned about a global economic slowdown, the Federal Reserve
acted quickly, cutting rates by 3/4 percent in just one and a half months. In
response, the U.S. equity market showed tremendous resiliency, shrugging off a
third quarter that had been the second worst in 30 years to deliver a fourth
quarter that was the best in 20 years. For the three months ending December 31,
1998, the S&P 500 gained 21.3%, once again bettering the Russell 2000's return
of 16.1%.
The recent theme of bigger is better continued for the past year. An analysis of
the Russell 3000 Index, which includes both the S&P 500 and the Russell 2000,
shows that 1998 stock performance correlated directly with capitalization tiers:
U.S. STOCKS GROUPED BY CAPITALIZATION SIZE 1998 TOTAL RETURN
50 Largest Stocks by Capitalization 39.1%
Stocks ranked 51-200 by Capitalization 26.0%
Stocks ranked 201-500 by Capitalization 14.2%
Stocks ranked 501-1000 by Capitalization 3.3%
Stocks ranked 1001-3000 by Capitalization -2.5%
(the Russell 2000 Index)
Source: Russell Index data
Looking at the above numbers, one might rush to conclude that the most sensible
investment strategy would be to buy only the 50 largest stocks and then prepare
to count one's gains. An analysis of data over a longer period of time, however,
suggests a different approach. According to a study by Ibbotson Associates,
Inc., over the long-term, from 1926-1997, small cap stocks experienced a
compound annual growth rate (CAGR) of 12.7% compared to 11.0% for large cap
stocks. In the most recent decade, from 1988-1997, the margin of out-performance
has gone to large cap stocks with a CAGR of 18.0% versus 16.5% for small cap
stocks. It is important to understand that the strong performance of bigger
stocks is a relatively recent phenomenon. Since 1940, Ibbotson Associates, Inc.
shows the decade rates of return as follows:
<TABLE>
<CAPTION>
1940S 1950S 1960S 1970S 1980S 1990S**
<S> <C> <C> <C> <C> <C> <C>
Small Company 20.7% 16.9% 15.5% 11.5% 15.8% 16.5%
Large Company 9.2% 19.4% 7.8% 5.9% 17.5% 16.6%
** Based on the period 1990-1996
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED) THE NEVIS FUND, INC.
Clearly, small company stocks have moved in cycles in the past and it is logical
to assume that they will again in the future. It is interesting to note that
from October 8, 1998 (when most world market indices recorded their yearly lows)
through December 31, 1998 the Russell 2000 Index gained 36%, outpacing the S&P
500's increase of 28% over the same period.
Perhaps that week of selling capitulation in October marked a turning point from
which we will see smaller companies begin to outperform their larger brethren.
What we do know is that small stocks are currently selling at lower relative
valuations compared to large stocks than at any time in the last 40 years. The
companies in your portfolio are growing their earnings at a rate slightly in
excess of 35%. By comparison, the earnings for larger companies measured by the
S&P 500 have slowed down materially. After several years of profit growth
measured in double digits-almost five times their post-war average, the
companies that comprise the S&P 500 will likely show earnings growth in the low
single digits for 1998. Currently, Wall Street consensus estimates anticipate
that the S&P 500 earnings will grow only about 7% for the next several years.
With a P/E over 26, this Index is currently selling at almost 4x its growth
rate. In contrast, the companies in your portfolio are selling for a P/E that is
less than one half their growth rate.
As we enter 1999, we feel that uncontainable excitement that children feel on
Christmas Eve. We have a pretty good idea of what's under the tree but can't
wait to have our hunches confirmed.
Sincerely,
/S/Signature /S/Signature
David R. Wilmerding, III Jon C. Baker
<PAGE>
STATEMENT OF NET ASSETS THE NEVIS FUND, INC.
November 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
-------------- ------------
COMMON STOCKS (74.3%)
BROADCASTING, NEWSPAPERS, & ADVERTISING (6.2%)
<S> <C> <C>
Clear Channel Communications* 1,500 $ 70,125
- ----------------------------------------------------------------------------------------------------------------------------------
70,125
- ----------------------------------------------------------------------------------------------------------------------------------
DEFENSE EQUIPMENT (4.8%)
Armor Holdings* 5,100 54,188
- ----------------------------------------------------------------------------------------------------------------------------------
54,188
- ----------------------------------------------------------------------------------------------------------------------------------
ENERGY & POWER (3.1%)
Calenergy* 1,100 34,444
- ----------------------------------------------------------------------------------------------------------------------------------
34,444
- ----------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (26.6%)
Access Health Marketing* 1,100 39,462
Hyperion Solutions* 2,100 67,987
Integrated Systems* 7,500 75,469
Rational Software* 3,700 83,944
Sterling Commerce* 900 32,625
- ----------------------------------------------------------------------------------------------------------------------------------
299,487
- ----------------------------------------------------------------------------------------------------------------------------------
PROFESSIONAL SERVICES (10.0%)
Caliber Learning Network* 9,400 44,650
Sylvan Learning Systems* 2,350 68,297
- ----------------------------------------------------------------------------------------------------------------------------------
112,947
- ----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (6.7%)
Building One Services* 4,400 74,800
- ----------------------------------------------------------------------------------------------------------------------------------
74,800
- ----------------------------------------------------------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS (4.7%)
Vicor* 5,950 52,806
- ----------------------------------------------------------------------------------------------------------------------------------
52,806
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY MACHINERY (1.6%)
Recovery Engineering* 2,550 17,531
- ----------------------------------------------------------------------------------------------------------------------------------
17,531
- ----------------------------------------------------------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION (10.6%)
American Tower Systems* 5,150 119,094
- ----------------------------------------------------------------------------------------------------------------------------------
119,094
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $878,013) 835,422
- ----------------------------------------------------------------------------------------------------------------------------------
*NON-INCOME PRODUCING SECURITY
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE NEVIS FUND, INC.
November 30, 1998 (concluded) (unaudited)
<TABLE>
<CAPTION>
Market
Value
--------
TOTAL INVESTMENTS (74.3%)
(Cost $878,013) $ 835,422
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (25.7%)
<S> <C>
Cash 315,530
Investment Securities Sold 10,937
Investment Securities Purchased (21,245)
Accrued Expenses and other Accounts Payable (16,709)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets and Liabilities, Net 288,513
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares ($.01 par value -- 100,000,000
shares authorized) based on 131,390 outstanding shares 1,186,157
Distribution in excess of net investment income (3,867)
Accumulated net realized loss on investments (15,764)
Net unrealized depreciation on investments (42,591)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS (100.0%) $1,123,935
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 8.55
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE NEVIS FUND, INC.
For the Period Ended November 30, 1998 (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
6/29/98*
to
11/30/98
-----------------
INVESTMENT INCOME:
<S> <C>
Interest Income $ --
Dividend Income --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income --
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administrator Fees 37,973
Investment Advisory Fees 3,695
Registration Fees 11,451
Amortization of Deferred Organizational Costs 4,642
Custodian Fees 2,096
Transfer Agent Fees 10,904
Professional Fees 9,916
Director Fees 10,562
Printing Fees 4,220
Miscellaneous Fees 293
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses before Fee Waivers and Contribution from Advisor 95,752
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Advisory Fee Waiver and Contribution from Advisor (91,885)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses, Net 3,867
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Loss (3,867)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Loss on Investments (15,764)
Change in Net Unrealized Depreciation of Investments (42,591)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments (58,355)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations $(62,222)
====================================================================================================================================
* COMMENCEMENT OF OPERATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE NEVIS FUND, INC.
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
6/29/98*
to
11/30/98
-----------------
INVESTMENT ACTIVITIES:
<S> <C>
Net Investment Loss $ (3,867)
Net Realized Loss on Investments (15,764)
Change in Net Unrealized Depreciation of Investments (42,591)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting From Operations (62,222)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income: --
Realized Capital Gains: --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Proceeds from Shares Issued 1,086,157
Reinvestment of Cash Distributions --
Cost of Shares Repurchased --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets from Capital Share Transactions 1,086,157
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,023,935
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
End of Period $1,123,935
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS
Shares Issued 131,390
Shares Issued in Lieu of Cash Distributions --
Shares Redeemed --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CAPITAL SHARES TRANSACTIONS 131,390
====================================================================================================================================
* COMMENCEMENT OF OPERATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE NEVIS FUND, INC.
For the Period Ended November 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Realized
Net and Net Ratio
Asset Unrealized Distributions Distributions Asset Net Ratio of Net
Value Net Gains or from Net From Value Assets of Expenses Income
Beginning Investment Losses on Investment Capital End Total End to Average to Average
of Period Income Securities Income Gains of Period Return of Period Net Assets Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998* $10.00 (0.03) (1.42) 0.00 0.00 $8.55 (14.50)% $1,123,935 1.50% (1.50)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of Expenses of Net Income
to Average to Average
Net Assets Net Assets
(Excluding (Excluding Portfolio
Waivers and Waivers and Turnover
Contributions) Contributions) Rate
==================================================
1998* 38.81% (38.81)% 11%
- --------------------------------------------------
<FN>
* FOR THE PERIOD JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH NOVEMBER 30,
1998. ALL RATIOS FOR THE PERIOD HAVE BEEN ANNUALIZED.
TOTAL RETURN FOR THE PERIOD HAS NOT BEEN ANNUALIZED.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE NEVIS FUND, INC.
November 30, 1998 (unaudited)
1. ORGANIZATION:
THE NEVIS FUNDS, INC. (the "Fund") was incorporated in Maryland on February 20,
1998. The Fund is registered under the Investment Company Act of 1940, as
amended, as a non-diversified open-end management investment company. The Fund's
prospectus provides a description of the Fund's investment objectives, policies
and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- Investments in equity securities which are traded on a
national exchange (or reported on the NASDAQ national market system) are stated
at the last quoted sales price if readily available for such equity securities
on each business day; other equity securities traded in the over-the-counter
market and listed equity securities for which no sale was reported on that date
are stated at the last quoted bid price.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provision for federal income
taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining realized gains and losses on the sales of investment
securities are those of the specific securities sold, adjusted for the accretion
and amortization of purchase discounts or premiums during the respective holding
period which is calculated using the effective interest method. Interest income
is recognized on the accrual basis. Dividend income is recorded on the ex-date.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated on each business day by dividing the total value of assets, less
liabilities, by the number of shares outstanding.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are
declared and paid to shareholders annually. Any net realized capital gains are
distributed to shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. federal income tax regulations, which may
differ from those amounts determined under generally accepted accounting
principles. These book/tax differences are either temporary or permanent in
nature. To the extent these differences are permanent, they are charged or
credited to paid-in capital in the period that the differences arise. These
reclassifications have no effect on net assets or net asset value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. ORGANIZATIONAL COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Fund and are being amortized
over sixty months commencing on the date of inception of the Fund. In the event
the initial shares of the Fund are redeemed by any holder thereof during the
period that the Fund is amortizing its organizational costs, the redemption
proceeds payable to the holder thereof by the Fund will be reduced by the
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of redemption.
4. INVESTMENT MANAGEMENT ARRANGEMENTS:
The Fund and Nevis Capital Management, Inc. (the "Adviser") are parties to an
Investment Management Agreement under which the Adviser receives an annual fee
equal to 1.50% of the average daily net assets. 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. The Adviser has,
on a voluntary basis, agreed to waive and/or reimburse its fee in order to limit
the Fund's total operating expenses to a maximum of 1.50% of the average daily
net assets. The Adviser reserves the right to terminate this arrangement at any
time in its sole discretion.
5. ADMINISTRATION, TRANSFER AGENCY AND SERVICES, CUSTODIAN AND
DISTRIBUTION AGREEMENTS:
The Fund and SEI Investments Mutual Funds Services (the "Administrator") are
parties to an Administration Agreement under which the Administrator provides
administrative services for an annual 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 annual fee of
$90,000.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) THE NEVIS FUND, INC.
November 30, 1998 (unaudited)
Forum Shareholder Services, LLC (the "Transfer Agent") serves as the transfer
agent and dividend disbursing agent for the Fund under a transfer agency and
services agreement with the Fund.
The Fund and SEI Investments Distribution Co.(the "Distributor") are parties to
a Distribution Agreement. The Distributor receives no fees for its distribution
services under this agreement.
First Union National Bank serves as custodian (the "Custodian") for the Fund.
The Custodian plays no role in determining the investment policies of the Fund
or which securities are to be purchased and sold by the Fund.
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended November 30, 1998 are as follows:
Purchases
U.S. Gov't .................................. $ --
Other ....................................... 995,685
Sales
U.S. Gov't .................................. $ --
Other ....................................... 61,908
At November 30, 1998, the total cost of securities and the net realized gains or
losses on securities sold for federal income tax purposes were not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at November 30, 1998, is as follows:
Aggregate gross unrealized
appreciation ................................ $ 67,059
Aggregate gross unrealized
depreciation ................................ (109,650)
---------
Net unrealized appreciation ................... $ (42,591)
=========
<PAGE>
NEV-F-002-01
