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PROSPECTUS
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September 25, 2000
THE NEVIS FUND, INC.
The Nevis Fund, Inc. is a no-load mutual fund
seeking long-term capital appreciation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS, ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Investment Adviser
Nevis Capital Management, Inc.
1119 St. Paul Street
Baltimore, MD 21202
Distributor
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
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ABOUT THIS PROSPECTUS
This prospectus gives you important information about The Nevis Fund, Inc.
(the "Fund") that you should know about before investing. Please read this
prospectus and keep it for future reference. This prospectus has been arranged
into different sections so that you can easily review this important
information. For more detailed information about the Fund, please see:
An Overview of the Fund............ 3
Fees and Expenses of the Fund....... 4
The Fund's Investments and Strategies 5
More About Risk..................... 5
Purchasing and Selling Fund Shares 6
Dividends, Distributions and Taxes.. 12
Fund Management..................... 13
Financial Highlights................ 14
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AN OVERVIEW OF THE FUND
This section describes the Fund's investment goals and strategies and the
principal risks of investing in the Fund.
INVESTMENT GOALS AND STRATEGIES OF THE FUND
The Fund's goal is long-term capital appreciation. The Fund generally
follows a growth strategy in selecting securities but may select stocks based
upon value-oriented criteria.
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
Fund's investment adviser will select investments for the Fund characterized by
businesses that generate high returns on invested capital and have strong,
positive cash flows. When analyzing a company's earnings growth, the investment
adviser attempts to determine its sustainable rate of growth of operating
earnings. The investment adviser is not interested in companies that report
unsustainable earnings growth attributable to investment income, extraordinary
gains or accounting legerdemain. The Fund generally invests in companies with
market capitalizations of more than $100 million, but may invest in companies of
any size.
The Fund's investment strategy also requires the investment adviser to be
sensitive to valuation when selecting stocks for the Fund's portfolio.
Typically, the stocks purchased by the Fund will have a price earnings (P/E)
multiple no greater than 75% of the company's long-term sustainable growth rate.
The Fund's investment adviser pays careful attention to a company's capital
structure, preferring companies with conservatively capitalized balance sheets
that are self-financing.
The Fund's investment adviser will generally sell a security when the
investment criteria no longer applies. The Fund takes a long-term approach to
investing, and as a result, the Fund expects it will generally experience
relatively low portfolio turnover.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You may lose money on your investment in the Fund, just as you could with
other investments. As with all mutual funds, Fund shares are not bank deposits
and are not insured or guaranteed by the FDIC or any government agency.
The value of your investment in the Fund is based on the market prices of
the securities the Fund holds. Since it purchases equity securities, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. These price movements, sometimes called volatility, may be greater or
lesser depending on the types of securities the Fund owns and the markets in
which they trade. Historically, the equity markets have moved in cycles, and the
value of the Fund's equity securities may fluctuate significantly from day to
day. Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response. These factors
contribute to price volatility, which is the principal risk of investing in the
Fund.
The smaller capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. These companies typically have relatively lower revenues, limited
product lines and lack of management depth, and may have a smaller share of the
market for their products or services, than larger capitalization companies.
The Fund may select a security based upon value-oriented criteria. The
principal risk of value investing is that the security may remain undervalued.
The Fund is non-diversified, which means that it may invest in the
securities of relatively few companies. As a result, the Fund may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these companies and may experience increased volatility due to its
investments in those securities.
The bar chart and the performance table below provide some indication of
the risks of an investment in the Fund by comparing the Fund's performance with
a broad measure of market
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performance. Of course, the Fund's past performance does not necessarily
indicate how the Fund will perform in the future.*+
[BAR CHART OMITTED]
1999 286.53%
BEST QUARTER WORST QUARTER
58.66% 21.47%
(03/31/1999) (09/30/1999)
* The performance information shown above is based on a calendar year. The
Fund's total return from January 1, 2000, to June 30, 2000 was 15.18%.
+ The investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost. In addition, investing in technology, science and small
capitalization companies entails specific risks, including increased
volatility and above average price fluctuations. Overall economic conditions
were very favorable to the Fund's performance in 1999 and may not be
sustainable in the future.
AVERAGE ANNUAL TOTAL RETURN (for the periods
ended December 31, 1999)
Since Inception
One Year (6/29/1998)
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Fund 286.53% 145.12%
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The Russell 2000 Index* 21.26% 8.25%**
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* 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.
**The inception date for The Russell 2000 Index is June 30, 1998.
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FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE FUND:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed
on Purchases (as a % of offering price) ......... None
Maximum Deferred Sales Charge
(Load) (as a % of net asset value) .............. None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a % of offering price) ........ None
Redemption Fee (as a % of
amount redeemed) ................................ 2.00%*
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees..................................... 1.50%
Distribution and Service (12b-1) Fees .............. .00%
Other Expenses...................................... .00%**
Total Annual Fund Operating Expenses ............... 1.50%**
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* Shares redeemed within 180 days of their purchase are subject to a 2%
redemption fee. See "Purchasing and Selling Fund Shares-Selling Shares."
**The Fund's investment adviser has contractually agreed to pay all ordinary
expenses of the Fund's operations. For more information about fees and
expenses, see "Fund Management - Investment Adviser."
EXAMPLE
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes that
you invest $10,000 in the Fund for the time periods indicated and that you sell
your shares at the end of the period.
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The example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 Year 3 Years 5 Years 10 Years
$353 $474 $818 $1,791
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THE FUND'S INVESTMENTS AND STRATEGIES
The Fund's primary investments and strategies are described above under "An
Overview of the Fund." The Fund will normally invest at least 65% of its assets
in the types of securities described in this prospectus. However, the Fund also
may invest in other securities, use other strategies and engage in other
investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information. Of course there is no guarantee that the Fund will
achieve its investment goal.
EQUITY SECURITIES
Equity securities are the fundamental unit of ownership in a company. They
represent a share of the company's earnings and assets, after it pays its
liabilities. Equity securities offer greater potential for appreciation than
other types of securities because their value increases directly with the value
of the company's business. Equity securities include publicly and privately
issued common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices.
Common stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the company's earnings and assets
after the company pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Holders of preferred stocks have the right to receive specified dividends
before the company makes payments on its common stock. Some preferred stocks
also participate in dividends and other distributions paid on common stock.
Preferred stocks may permit the company to redeem the stock.
Warrants give the Fund the option to buy a company's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing shareholders.
TEMPORARY INVESTMENTS
The investments and strategies described in this prospectus are those that
we use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash and short-term securities that may not ordinarily be
consistent with the Fund's goals. The Fund may not achieve its investment goal
when so invested. The Fund will make such investments if the investment adviser
believes that the risk of loss outweighs the opportunity for gains.
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MORE ABOUT RISK
There are risks associated with investing in the types of securities in
which the Fund invests. As a result, the Fund is a suitable investment only for
those investors who have long-term investment goals. Prospective investors who
are uncomfortable with an investment that will fluctuate in value should not
invest in the Fund.
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MARKET RISK
Investments in equity securities are subject to market risks that may cause
their prices to fluctuate over time. The value of securities convertible into
equity securities, such as warrants or convertible debt, also is affected by
prevailing interest rates, the credit quality of the issuer and any call
provision. From time to time "value" investing falls out of favor with
investors. When it does, there is the risk that the market will not recognize a
company's improving fundamentals as quickly as it normally would.
During these periods, the Fund's relative performance may suffer.
Fluctuations in the value of equity securities in which the Fund invests
will cause the Fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
SMALLER CAPITALIZATION
COMPANY RISK
The Fund may invest in smaller capitalization companies. These companies
may be more vulnerable to adverse business or economic events than larger, more
established companies. Smaller capitalization companies typically have
relatively lower revenues, limited product lines and lack of management depth,
and may have a smaller share of the market for their products or services, than
larger capitalization companies. Therefore, small-cap stocks may be more
volatile than those of larger companies. The stocks of smaller capitalization
companies tend to have less trading volume than the stocks of larger companies.
Less trading volume may make it more difficult for the Fund to sell a small-cap
stock at its quoted market price. Finally, there are periods when investing in
small-cap stocks falls out of favor with investors and these stocks
underperform.
NON-DIVERSIFICATION RISK
The Fund is a non-diversified investment company. As such it likely will
invest in the securities of relatively fewer companies than diversified funds
and its performance may be more volatile. If the securities in which the Fund
invests perform poorly, the Fund could incur greater losses than it would have
incurred had it invested in a greater number of companies.
PERFORMANCE RISK
The Fund participates in the initial public offering (IPO) market. During
1999, there were a large number of IPOs, and many of these IPOs were very
successful. The Fund participated in a number of these IPOs, and as a result,
the IPOs had a significant impact on the Fund's performance, especially because
of the Fund's relatively small asset size during much of 1999. There is no
guarantee that the Fund will benefit from these types of gains in the future. In
addition, if the Fund's assets remain at or near current level, or if they
increase, IPOs will have a diminishing effect on the Fund's performance.
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PURCHASING AND SELLING FUND SHARES
HOW TO CONTACT THE FUND
Write to us at:
The Nevis Fund, Inc.
P.O. Box 446
Portland, ME 04112
Telephone us toll-free at:
(877) 44-NEVIS
Wire investments (or ACH payments)
to us at:
First Union National Bank
ABA #031201467
For Credit to:
Account # 2014215593095
The Nevis Fund, Inc.
(Your name)
(Your account number)
(Your Social Security number or tax
identification number)
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GENERAL INFORMATION
You pay no sales charge to purchase or sell (redeem) shares of the Fund.
The Fund purchases and sells shares at the net asset value per share (NAV) next
calculated after the Fund's transfer agent receives your transaction request in
proper form. For instance, if the transfer agent receives your transaction
request in proper form prior to 4:00 p.m., your transaction will be priced at
that day's NAV. If the transfer agent receives your request after 4:00 p.m.,
your transaction will be priced at the next day's NAV. Purchases and redemptions
of Fund shares may be made on any day on which both the Federal Reserve Bank and
the New York Stock Exchange are open. The Fund will not accept orders that
request a particular day or price for the transaction or any other special
conditions.
Shares purchased and redeemed within 180 days of their purchase are subject
to a redemption fee equal to 2% of the NAV next calculated after receipt of the
redemption request in proper form.
The Fund does not issue share certificates.
You will receive quarterly statements and a confirmation of each
transaction. You should verify the accuracy of all transactions in your account
as soon as you receive your confirmation.
The Fund reserves the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED. The Fund calculates its NAV as of the close
of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each
weekday except days when either the New York Stock Exchange or the Federal
Reserve Bank is closed. The time at which NAV is calculated may be changed in
case of an emergency. The Fund's NAV is determined by taking the market value of
all securities owned by the Fund (plus all other assets such as cash),
subtracting all liabilities and then dividing the result (net assets) by the
number of shares outstanding. The Fund values securities for which market
quotations are readily available at current market value. If market quotations
are not readily available, the Fund values securities at fair value using
methods approved by the Fund's board of directors.
TRANSACTIONS THROUGH THIRD PARTIES. You may purchase and redeem shares of
the Fund through a broker or an agent, including banks, retirement plans and
financial advisers. You may be charged a fee if you make a purchase or
redemption of shares of the Fund through a broker or an agent. Such fees may
vary among brokers and agents but in all cases will be retained by the broker or
agent and not remitted to the Fund or the Fund's investment adviser. The Fund
may authorize one or more brokers, financial institutions or other service
providers (Processing Intermediaries), who may designate other Processing
Intermediaries, to accept purchase and redemption orders on behalf of the Fund.
In such event, the Fund will be deemed to have received a purchase or redemption
order when accepted by the Processing Intermediary and the order will be priced
at the Fund's NAV next calculated after the order is accepted by the Processing
Intermediary. Consult a representative of your financial institution or
retirement plan for further information.
RETIREMENT ACCOUNTS. The Fund offers IRA accounts, including traditional
and Roth IRAs. Fund shares may also be an appropriate investment for other
retirement plans. Before investing in any IRA or other retirement plan, you
should consult your tax adviser. Whenever making an investment in an IRA, be
sure to indicate the year in which the contribution is made.
PURCHASING SHARES
All investments must be in U.S. dollars and checks must be drawn on U.S.
banks.
CHECKS. For individual or UGMA/UTMA accounts, the check must be made
payable to "The Nevis Fund, Inc." or to one or more owners of the account and
endorsed to "The Nevis Fund, Inc." For all other accounts, the check must be
made payable on its face to "The Nevis Fund, Inc." No other method of check
payment is acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE (ACH). This service allows the
purchase of additional shares through an electronic transfer of
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money from a checking or savings account. When an additional purchase is made by
telephone, the Fund's transfer agent will automatically debit the pre-designated
bank account for the desired amount. Shareholders may call (877) 44-NEVIS to
request an ACH transaction.
WIRES. Instruct your financial institution to wire payment to us. Your
financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS. The Fund accepts payments in the following minimum
amounts:
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MINIMUM MINIMUM
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
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Standard Accounts $10,000 $500
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Traditional and Roth
IRA Accounts $2,000 None
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Automatic Investment
Plans $10,000 $50
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Automatic Redemption
Plans $25,000 $50
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Management of the Fund may choose to waive the investment minimum.
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ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT
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INDIVIDUAL, SOLE PROPRIETORSHIP AND
JOINT ACCOUNTS
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REQUIREMENTS
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o Individual accounts are owned by one person, as are sole proprietorship
accounts
o Joint accounts can have two or more owners (tenants)
o Instructions must be signed by all persons required to sign (you choose who
must sign) exactly as each name appears on the account
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TYPE OF ACCOUNT
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GIFTS OR TRANSFERS TO A MINOR
(UGMA, UTMA)
These custodial accounts provide a way to give money to a child and obtain tax
benefits. You can give up to $10,000 a year per child without paying Federal
gift tax.
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REQUIREMENTS
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o Depending on state laws, you can set up a custodial account under the
Uniform Gift to Minors Act or the Uniform Transfers to Minors Act
o The trustee must sign instructions in a manner indicating trustee capacity
o To the extent the investment income of a child under 14 exceeds $1,400 for
the tax year, it may be subject to taxation at the parent's top marginal
rate.
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TYPE OF ACCOUNT
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BUSINESS ENTITIES
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REQUIREMENTS
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o For entities with officers, provide an original or certified copy of a
resolution that identifies the authorized signers for the account
o For entities with partners or similar parties, provide a certified
partnership agreement or organizational document, or certified pages from
the partnership agreement or organizational document, that identify the
partners or similar parties
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TYPE OF ACCOUNT
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TRUSTS
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REQUIREMENTS
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o The trust must be established before an account can be opened
o Provide a certification for trust, or the pages from the trust document that
identify the trustees
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INVESTMENT PROCEDURES
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TO OPEN AN ACCOUNT
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BY CHECK
o Call or write us for an account application
o Complete the application
o Mail us your application and a check
BY WIRE
o Call or write us for an account application
o Complete the application
o Call us and fax the account application and you will be assigned an account
number
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT
o Call or write us for an account application
o Complete the application
o Call us and fax the account application and you will be assigned an account
number
o Mail us your application
o Call transfer agent to place ACH purchase
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TO ADD TO YOUR ACCOUNT
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BY CHECK
o Fill out an investment slip from a confirmation statement OR write a letter
to us
o Write your account number on your check
o Mail us the slip (or your
letter) and a check
BY WIRE
o Call to notify us of your incoming wire
o Instruct your bank to wire your money to us
BY AUTOMATIC INVESTMENT
o Complete the Automatic Investment Plan (AIP) section on your account
application
o Complete the application
o Attach a voided check to your application
o Mail us the application and the voided check
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AUTOMATIC INVESTMENTS. You may invest a specified amount of money in the
Fund once or twice a month on specified dates. These payments are taken from
your bank account by ACH payment. Automatic investments must be for at least
$50.
LIMITATIONS ON PURCHASES. The Fund reserves the right to refuse any
purchase request, particularly requests that could adversely affect the Fund or
its operations. This includes those from any individual or group who, in the
Fund's view, are likely to engage in excessive trading (usually defined as more
than four transactions out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS. The Fund accepts checks and ACH transfers at
full value subject to collection. If your payment for shares is not received or
you pay with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses incurred by the
Fund or its transfer agent, and the Fund may redeem shares you own in the
account as reimbursement. The Fund and its agents have the right to reject or
cancel any purchase or redemption due to nonpayment.
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SELLING SHARES
The Fund processes redemption orders promptly and you will generally
receive redemption proceeds within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, however, it
may delay sending redemption proceeds for up to 15 calendar days.
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TO SELL SHARES FROM YOUR ACCOUNT
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BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if:
o You did not decline wire redemption privileges on your account application
AND
o Your request is for $5,000 or more
o Call us with your request (unless you have declined telephone redemption
privileges -- See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
o Your proceeds will be:
o Mailed to you OR
o Wired to you (unless amount is under $5,000 or you have declined telephone
redemption privileges -- See "By Wire")
AUTOMATICALLY
o Complete the Automatic Redemption Plan (ARP) section on your account
application
o Attach a voided check to your form
o Mail us your form and the voided check
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TELEPHONE REDEMPTION PRIVILEGES. You may redeem your shares by telephone
unless you declined redemption privileges on your account application or a
separate form. You may be responsible for any fraudulent telephone order as long
as the Fund's transfer agent takes reasonable measures to verify the order.
WIRE REDEMPTION PRIVILEGES. You may redeem shares by wire unless you
declined wire redemption privileges on your account application or a separate
form. The minimum amount you may request by wire is $5,000. If you wish to make
your wire request by telephone, you must also elect telephone redemption
privileges.
AUTOMATIC REDEMPTION. If you own shares of the Fund with an aggregated
value of at least $25,000, you may request a specified amount of money from your
account once a month or quarter or semi-annual or annual period on a specified
date. These payments are sent from your account to a designated bank account by
ACH payment. Automatic requests must be for at least $50.
SIGNATURE GUARANTEE REQUIREMENTS. To protect you and the Fund against
fraud, signatures on certain requests must have a "signature guarantee." For
requests made in writing, a signature guarantee is required for any of the
following:
o Redeeming shares worth over $50,000
o Redeeming shares from your account if you have changed the address or
account registration within the last 30 days
o Sending proceeds to any person, address, brokerage firm or bank account not
on record
o Sending proceeds to an account with a different registration (name or
ownership) from yours
o Changing wire or ACH instructions on an account
o Changing the distribution, telephone requests or exchange option or any
other election in connection with your account
A signature guarantee verifies the authenticity of your signature. You can
obtain one from most banking institutions or securities brokers, but not from a
notary public.
SMALL ACCOUNTS. If the value of your account falls below $10,000 (with the
exception of an IRA account), the Fund may ask you to increase your balance. If
the account value is still below $10,000 after 60 days, the Fund may close your
account and send you the proceeds. The Fund will not close your account if it
falls below these amounts solely as a result of a reduction in your account's
market value.
REDEMPTION IN KIND. The Fund reserves the right to make redemptions "in
kind" -- payment of redemption proceeds in portfolio securities rather than cash
-- if the amount requested is large enough to affect the Fund's operations (for
example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS. The Fund's transfer agent will consider your account "lost"
if correspondence to your address of record is returned as undeliverable, unless
the transfer agent determines your new address. When an account is "lost," all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the Fund's transfer agent
will be reinvested and the checks will be canceled.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes substantially all of its investment income and capital
gains annually.
Your dividends and capital gains distributions will be automatically
reinvested in additional Fund shares, unless you elect to receive payment in
cash. To elect cash payment, you must notify the Fund in writing prior to the
date of distribution. Your election will be effective for dividends and
distributions paid after the Fund receives your written notice. To cancel your
election, simply send the Fund written notice.
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TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL, AND FOREIGN INCOME TAXES. Below we have summarized
some important tax issues that affect the Fund and its shareholders. This
summary is based on current tax laws, which may change.
At least annually the Fund will distribute substantially all of its net
investment income and net realized capital gains, if any. The dividends and
distributions you receive may be subject to Federal, state and local taxation,
depending upon your tax situation. Distributions you receive from the Fund may
be taxable whether or not you reinvest them in additional Fund shares. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains, regardless of how long you have held your shares. Each sale, exchange, or
redemption of shares is a taxable event. The individual tax rate on any gain
from the sale or exchange of your shares depends upon your marginal tax rate and
on the length of time you have held your shares.
More information about taxes is in the Statement of Additional Information.
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FUND MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the supervision of
its board of directors. The board approves all significant agreements between
the Fund and its service providers, including agreements with the Fund's
investment adviser, distributor, administrator, transfer agent and custodian. A
majority of the Fund's directors are not affiliated with the investment adviser
or the distributor of the Fund.
INVESTMENT ADVISER
Nevis Capital Management, Inc. (the Adviser) is the Fund's investment
adviser. As investment adviser to the Fund, the Adviser manages the Fund's
investment portfolio. It makes decisions as to which securities to buy and which
securities to sell.
During the last fiscal year, the Fund paid the Adviser an annual investment
advisory fee equal to 1.50% of the Fund's average daily net assets. The Adviser
has contractually agreed to pay all ordinary expenses incurred in the conduct of
the Fund's operations. The Fund will bear any extraordinary expenses incurred in
the course of its business.
The Adviser was founded in 1991 by David R. Wilmerding, III and Jon C.
Baker to provide a vehicle for investing in superior growth companies in a
focused manner. The Adviser provides investment advisory services to
institutional investors, as well as high net worth individual investors. The
Adviser acts as investment adviser to private accounts and investment company
portfolios with aggregate assets of approximately $1.3 billion as of August 31,
2000.
Messrs. Wilmerding and Baker, as portfolio managers, are primarily
responsible for the day-to-day management of the Fund's portfolio. Mr.
Wilmerding is President of the Adviser. He has more than 15 years of investment
experience and has been a portfolio manager with the Adviser since July 1991.
Mr. Baker is Senior Vice President of the Adviser. He has more than 12 years of
investment experience and has been a portfolio manager with the Adviser since
September 1991.
--------------------------------------------------------------------------------
13
<PAGE>
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed through SEI Investments Distribution Co.
The Fund's distributor markets shares of the Fund to institutions and
individuals, directly or through brokers and other financial institutions that
have an agreement with the distributor. The Fund does not pay the distributor or
others for distribution services. The Adviser may pay fees to brokers and other
financial institutions selling Fund shares to compensate them for services they
provide to their customers.
The Fund's distributor may from time to time, in its sole discretion,
institute one or more promotional incentive programs for dealers, which will be
paid for by the distributor from any source available to it. Under any such
program, the distributor may provide incentives, in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages, to dealers selling shares of the Fund.
================================================================================
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund
shares and is intended to help you understand the Fund's financial performance
for the period of its operations. Some information reflects financial results
for a single Fund share. The total returns in the table represent the rate of
return that an investor would have experienced (loss or gain respectively) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions. This information has been audited by Arthur Andersen LLP, whose
report, along with the Fund's financial statements, are included in the Fund's
annual report which is available upon request.
FOR THE FOR THE
PERIOD ENDING PERIOD ENDED
MAY 31, 2000 MAY 31, 1999*
Net Asset Value,
Beginning of Period ......... $19.01 $10.00
------------------------------------------------------------
INCREASE/DECREASE FROM OPERATIONS:
Net Investment Income
(Loss) ...................... (0.19) (0.01)
Net Realized and Unrealized
Gains on Securities ......... 14.81 9.02
Total From Investment
Operations .................. 33.63 19.01
------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) .......... -- --
Distributions (from
capital gains) .............. (2.65) --
Total Distributions ........... (2.65) --
Net Asset Value,
End of Period ............... 30.98 19.01
Total Return................... 77.91% 90.10%
------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period . $197,497,000 $9,975,000
Ratio of Expenses to
Average Net Assets(1) ....... 1.50% 1.50%
Ratio of Net Investment
Income (Loss) to Average
Net Assets(2) ............... (1.24)% (1.03)%
Portfolio Turnover Rate ....... 56.50% 251.60%
---------
*For the period June 29, 1998 (commencement of operations) through May 31, 1999.
All ratios for the period have been annualized. Total return for the period has
not been annualized.
(1)The annualized expense ratio without waivers and reimbursements for the
period ended May 31, 2000 would have been 1.83%.
(2)The annualized net investment income (loss) ratio without waivers and
reimbursements for the period ended May 31, 2000 would have been (1.57)%.
--------------------------------------------------------------------------------
14
<PAGE>
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<PAGE>
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<PAGE>
================================================================================
WHERE TO FIND MORE INFORMATION
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated September 25, 2000, includes detailed information about the
Fund. The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the
Fund's investment adviser about strategies and recent market conditions and
trends that significantly affected the Fund's performance during the year. The
reports also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION
BY TELEPHONE: Call toll-free at (877) 44-NEVIS
BY MAIL: Write to us:
The Nevis Fund, Inc.
c/o SEI Investments Mutual
Fund Services
530 East Swedesford Road
Wayne, PA 19087
BY INTERNET: www.nevisfund.com
FROM THE SEC: You also can obtain the SAI or the annual and semi-annual
reports, as well as other information about the Fund, from the EDGAR Database
on the SEC's website ("http://www.sec.gov"). You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information
on the operation of the Public Reference Room call 202-942-8090). You may
request documents by mail from the SEC, upon payment of a duplicating fee,
by writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-0102. You may also obtain this information, upon payment
of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number
is 811-08689.
[LOGO OMITTED]
THE NEVIS FUND
PROSPECTUS
September 25, 2000
NEV-F-001-03
<PAGE>
THE NEVIS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
September 25, 2000
This Statement of Additional Information is not a prospectus but provides
additional information that should be read in conjunction with the Fund's
prospectus dated September 25, 2000 including any supplements thereto. The
Fund's annual report (including financial statements for the fiscal year ended
May 31, 2000) is incorporated by reference. To obtain additional copies of the
prospectus or the annual report, please call toll-free at (877) 44-NEVIS.
TABLE OF CONTENTS
PAGE
General Information........................................................B-2
The Fund's Investments and Strategies......................................B-2
Portfolio Transactions and Brokerage.......................................B-11
Purchasing and Selling Fund Shares.........................................B-12
Taxation...................................................................B-13
Fund Management............................................................B-15
Fund Performance...........................................................B-19
Description of Capital Stock...............................................B-21
Financial Statements.......................................................B-22
Nevis Capital Management, Inc.
Investment Adviser
NEV-F-003-03 B-1
<PAGE>
GENERAL INFORMATION
The Nevis Fund, Inc. is an open-end, non-diversified management investment
company. Under the rules and regulations of the Securities and Exchange
Commission (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 (SAI) is
also included in the prospectus. To avoid unnecessary repetition, references are
made to related sections of the prospectus.
The Fund was incorporated under the laws of the State of Maryland on February
20, 1998.
The name "Nevis" has been licensed to the Fund by Nevis Capital Management,
Inc., the Fund's investment adviser. Under this arrangement, the Fund is
required to cease using the name "Nevis" upon the occurrence of certain events,
including termination of Nevis Capital Management, Inc. 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 1940 Act), and registering an indefinite number of
shares of the Fund under the Securities Act of 1933, as amended (the Securities
Act). The Fund's prospectus and this SAI, 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 SAI, 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.
THE FUND'S INVESTMENTS AND STRATEGIES
The following information supplements, and should be read in conjunction with,
the discussion in the prospectus of the Fund's investments and strategies.
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 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.
B-2
<PAGE>
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 Fund's investment adviser will be
able to anticipate these potential events or counter their effects.
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 Index. 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 (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.
B-3
<PAGE>
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.
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 Index - which involves
a risk that the options or futures position will not track the performance of
the Fund's other investments.
B-4
<PAGE>
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"
below.
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 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.
B-5
<PAGE>
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
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 are restricted securities and 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 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 Fund's investment 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 investment 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).
B-6
<PAGE>
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.
Repurchase Agreements
The Fund may enter into repurchase agreements with financial institutions, such
as banks and broker-dealers, deemed by the Fund's investment 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
B-7
<PAGE>
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 Fund's investment 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 Fund's investment 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
A short sale is a sale of stock that one does not own. The short seller expects
the market price of the security to fall, enabling him to purchase, at lower
price, shares to be delivered against the sale. A short sale against the box is
a form of short sale in which the seller owns a sufficient number of shares to
cover the sale, but borrows from a broker or other person the shares to be
delivered against the sale. The seller may elect to replace the borrowed stock
with shares purchased in the open market or with shares already owned.
The Fund may enter into short sales against the box with respect to securities
it owns, or with respect to stocks underlying its convertible bond holdings. For
example, if the Fund's investment adviser anticipates a decline in the 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.
B-8
<PAGE>
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 Fund's
investment 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 Fund's investment 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 strategies 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 Fund's
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.
The Fund may not as a matter of fundamental policy:
(1) Issue senior securities, except as permitted under the 1940 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);
B-9
<PAGE>
(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 1940 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.
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.
B-10
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Fund's investment 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 investment
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 investment adviser's primary consideration in effecting securities
transactions is to obtain the most favorable price and execution of orders on an
overall basis. As described below, the investment adviser may, in its
discretion, effect agency transactions with broker-dealers that furnish research
deemed by the investment adviser to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
the investment adviser with clients other than the Fund. Similarly, any research
services received by the investment adviser through placement of portfolio
transactions of other clients may be of value to the investment adviser in
fulfilling its obligations to the Fund. No specific value can be determined for
research services furnished without cost to the investment adviser by a
broker-dealer. The Fund's investment 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 investment
adviser's research and analysis. Therefore, it may tend to benefit the Fund by
improving the investment adviser's investment advice.
The investment 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 investment adviser's opinion, this
policy furthers the overall objective of obtaining the most favorable execution.
The investment 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 investment 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 investment 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.
For the fiscal years ended May 31, 1999 and 2000, the Fund paid brokerage
commissions of $10,417 and $97,470, respectively. The Fund is required to
identify any securities of its "regular brokers or dealers" (as such term is
defined in the 1940 Act) which the Fund has acquired during its most recent
fiscal year. As of May 31, 2000, the Fund held $8,298,789 in a repurchase
agreement with Morgan Stanley.
B-11
<PAGE>
PURCHASING AND SELLING FUND SHARES
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), on each weekday except days when either the NYSE or the
Federal Reserve Bank is closed (a Business Day). The NYSE is 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.
SELLING 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 as described in the
prospectus. However, if the Fund's 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 1940 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 Fund's board of directors may cause the redemption of a share account with a
balance of less than $10,000, 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.
General Information
The Fund and its 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 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.
B-12
<PAGE>
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.
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 SAI. 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.
So long as the Fund otherwise qualifies under Subchapter M of the Code for a tax
year, the Fund is not subject to 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.
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 dividend distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends". The board reserves the
right not to maintain the qualification of a Fund as a RIC if it determines such
course of action to be beneficial to shareholders.
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, but can give no assurances that its
distributions will be sufficient to eliminate all taxes. However, the Fund may
in certain circumstances liquidate portfolio investments in order to make
sufficient distributions to avoid excise tax liability.
B-13
<PAGE>
The Fund's transactions in futures contracts, options, and certain other
investment activities (including investments in passive foreign investment
companies (PFICs), may be subject to special tax rules. In a given case, these
rules may accelerate income to the Fund, defer its losses, cause adjustments in
the holding periods of the Fund's assets, convert short-term capital losses into
long-term capital losses, or otherwise affect the character of the Fund's net
income. These rules could therefor affect the amount, timing, and character of
distributions to shareholders. The Fund will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of a Fund and its shareholders.
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by the Fund. Similarly, foreign exchange losses realized by
the Fund on the sale of debt securities are generally treated as ordinary losses
by the Fund. These gains when distributed will be taxable to shareholders as an
ordinary dividend, and any losses will reduce the Fund's ordinary income
otherwise available for distribution to shareholders. This treatment could
increase or reduce the Fund's ordinary income distributions, and may cause some
or all of the Fund's previously distributed income to be classified as a return
of capital.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities, which may reduce the return on such investments. It is
not expected that the Fund will be able to pass-through to shareholders their
pro rata shares of foreign taxes paid by the Fund.
Any distributions by the Fund may be taxable to shareholders regardless of
whether they are received in cash or additional shares. The Fund may derive
capital gains and losses in connection with sales or other dispositions of its
portfolio securities. Distributions of net short-term capital gains will be
taxable to shareholders as ordinary income.
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. Capital gains distributions are not eligible for the
dividends received deduction. 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 net investment income dividends or net
capital gain dividends as well as the portions of its capital gain dividends
that constitute net long-term capital 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.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by the Fund in the year in which the dividends were declared.
Shareholders who have not held Fund shares for a full year should be aware that
the Fund may designate and distribute, as ordinary income, or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of investment in the Fund.
If a Fund's distributions exceed its taxable income and capital gains realized
during a taxable year, all or a portion of the distributions made in the same
taxable year may be recharacterized as a return of capital to shareholders. A
return of capital distribution will generally not be taxable, but will reduce
each shareholder's cost basis in a Fund and result in a higher reported capital
gain or lower reported capital loss when those shares on which the distribution
was received are sold.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. In general, gain or loss realized will be capital
in nature and will be classified as long-term or short-term, depending on the
length of the time shares have been held.
B-14
<PAGE>
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 12 months and otherwise generally will be treated as a short-term
capital gain or loss.
All or a portion of any loss realized upon the redemption of Fund shares will be
disallowed to the extent that others shares in the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after a share
redemption. Any loss disallowed under these rules will be added to the tax basis
in the newly purchased shares.
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.
FUND MANAGEMENT
Directors and Officers
The Fund's board of directors consists of five directors. The Fund's business is
managed under the direction of its board of directors. The board meets on a
regularly scheduled basis during the Fund's fiscal year to review significant
developments affecting the Fund and to act on matters requiring board approval.
The board of directors also holds special meetings when an important matter
requires board action between scheduled meetings.
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 1940 Act) is indicated by
an asterisk (*). The address of each director is 1119 St. Paul Street,
Baltimore, Maryland 21202. The principal address for each officer is One Freedom
Valley Drive, Oaks, PA 19456, except as noted below.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupations(s)
Name and Address Age With Registrant During the Past Five Years
---------------- --- ---------------- --------------------------
<S> <C> <C>
David R. Wilmerding, III* 39 President and Director President of Nevis Capital Management,
Inc.
Jon C. Baker* 36 Senior Vice President and Director Senior Vice President of Nevis Capital
Management, Inc.
Joseph R. Hardiman 63 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 subsidiary, The Nasdaq
Stock Market, Inc. from September 1987
to January 1997.
B-15
<PAGE>
Bailey Morris-Eck 57 Director Senior Associate of the Reuters
Foundation and Director of
Reuters/Carnegie Public Policy Series.
Served as Vice President of the
Brookings Institution from April 1997
through April 1999. Served as a Senior
Advisor to the U.S. President on
Economic Policy and Summit Coordination
from 1994-1997.
Charles E. Noell 48 Director General Partner of JMI Equity Fund, L.P.
Christopher F. Salfi 36 Controller, Treasurer and Chief Fund Accounting, SEI Investments since
530 East Swedesford Road Financial Officer January 1998; Fund Accounting Manager
Wayne, PA 19087-1693 of SEI Investments, (1994-1997)
Richard W. Grant 54 Secretary Partner, Morgan, Lewis & Bockius LLP
1701 Market Street (law firm), counsel to the Trust, SEI
Philadelphia, PA 19103 Investments, the Administrator and the
Distributor.
Timothy D. Barto 32 Vice President and Assistant Secretary Employed by SEI Investments since
October 1999. Vice President and
Assistant Secretary of the
Administrator and Distributor since
December 1999. Associate at Dechert
Price & Rhoads (law firm), 1997-1999.
Associate at Richter, Miller & Finn,
(law firm), 1994-1997.
Todd B. Cipperman 34 Vice President and Assistant Secretary Senior Vice President and General
Counsel of SEI Investments; Senior Vice
President, General Counsel and
Secretary of the Administrator and the
Distributor since 2000. Vice President
and Assistant Secretary of SEI
Investments, the Administrator and the
Distributor, 1995-2000. Associate,
Dewey Ballantine (law firm),
1994-1995. Associate, Winston & Strawn
(law firm), 1991-1994.
James R. Foggo 36 Vice President and Assistant Secretary Vice President and Assistant Secretary
of SEI Investments since January 1998.
Vice President and Secretary of the
Administrator and Distributor since May
1999. Associate, Paul, Weiss, Rifkind,
Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm),
1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995.
Operations Manager, The Shareholder
Services Group, Inc., 1986-1990.
Lydia M. Gavalis 36 Vice President and Assistant Secretary Vice President and Assistant Secretary
of SEI Investments, the Administrator
and the Distributor since 1998.
Assistant General Counsel and Director
of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
Christine M. McCullough 39 Vice President and Assistant Secretary Employed by SEI Investments since
November 1, 1999. Vice President and
Assistant Secretary of the
Administrator and the Distributor since
1999. Associate at White and Williams
LLP, 1991-1999. Associate at
Montgomery, McCracken, Walker & Rhoads,
1990-1991.
</TABLE>
The Fund's charter requires 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 or she 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 or her office.
B-16
<PAGE>
The officers and directors of the Fund who are "interested persons" of the Fund
within the meaning of the 1940 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 Fund's investment adviser may receive
remuneration indirectly from the Fund for services provided in their respective
capacities with the investment adviser. Each of the non-interested directors
receives for his or her service on the board of directors a fee of $2,500 for
each board meeting attended in person, a fee of $1,500 for each telephone board
meeting, plus reimbursement for out-of-pocket expenses incurred in connection
with attendance in person at board meetings. The following table sets forth the
information concerning the compensation paid by the Fund to directors during the
fiscal year ended May 31, 2000. The Fund does not offer any pension or
retirement benefits to its directors.
NAME OF DIRECTOR AGGREGATE COMPENSATION FROM THE FUND
---------------- ------------------------------------
David R. Wilmerding, III $0
Jon C. Baker $0
Joseph R. Hardiman $10,000
Bailey Morris-Eck $10,000
Charles E. Noell $3,000
Code of Ethics
The board of directors of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. In addition, the Fund's investment adviser, Nevis
Capital Management, Inc. (the "Adviser") and SEI Investments Distribution Co.
(the "Distributor") have adopted Codes of Ethics pursuant to Rule 17j-1. These
Codes of Ethics apply to the personal investing activities of directors,
officers and certain employees ("access persons"). Rule 17j-1 and the Codes are
designed to prevent unlawful practices in connection with the purchase or sale
of securities by access persons. Under each Code of Ethics, access persons are
permitted to engage in personal securities transactions but are required to
report their personal securities transactions for monitoring purposes. In
addition, certain access persons are required to obtain approval before
investing in initial public offerings or private placements. Copies of these
Codes of Ethics are on file with the SEC, and are available to the public.
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
Fund's board of directors. 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 1940 Act and the Investment Advisers
Act of 1940, as amended.
B-17
<PAGE>
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 Fund's board of
directors or by vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 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 1940 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 1940 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
and the 1940 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 incurred in the course of its
business.
David R. Wilmerding, III and Jon C. Baker are principal stockholders of the
Adviser. Further, Mr. Wilmerding serves as President of the Adviser and Mr.
Baker serves as, among other positions, Senior Vice President of the Adviser.
The Adviser receives an investment advisory fee equal to 1.50% of Fund assets in
connection with the performance of services under the investment management
agreement with the Fund. For the fiscal years ended May 31, 1999 and 2000, the
investment advisory fee paid by the Fund to the Adviser was $32,842 and
$1,415,568, respectively.
In addition to receiving its advisory fee, the Adviser may also act and be
compensated as investment manager for its clients with respect to assets that
are invested in the Fund. In some instances the Adviser may elect to credit
against any investment management fee received from a client that is also a
shareholder of the Fund an amount equal to all or a portion of the fee received
by the Adviser from the Fund with respect to the client's assets invested in the
Fund.
Administrator
SEI Investments Mutual Funds Services (the "Administrator"), One Freedom Valley
Drive, Oaks, PA 19456, serves as the administrator for the Fund. SEI Investments
Management Corporation, a wholly-owned subsidiary of SEI Investments Company, 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 Fund's investment adviser and 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 1940 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.
B-18
<PAGE>
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.
For the fiscal years ended May 31, 1999 and May 31, 2000, the administration
fees paid to the Administrator were $82,851 and $156,272, respectively.
Distributor
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 Fund's board of directors. 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 Fund's board of
directors or by vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 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 1940 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 1940 Act).
FUND PERFORMANCE
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 in terms of total return.
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)
B-19
<PAGE>
Under the above 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 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.
Based on the foregoing, the average total returns for the Fund from inception
through May 31, 2000 were as follows:
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------------------------------------------
FUND ONE YEAR SINCE (6/29/98) INCEPTION
--------------------------------------------------------------------------------
The Nevis Fund, Inc. 77.91% 88.43%
--------------------------------------------------------------------------------
B-20
<PAGE>
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 charter provides 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 Fund's board of directors. 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.
As of September 1, 2000, to Fund management's knowledge, the officers and
directors of the Fund, as a group (12 persons), owned less than 1% of the total
outstanding shares of the Fund and the following person owned of record or
beneficially more than 5% of the Fund's outstanding
shares:
Charles Schwab & Co., Inc., as custodian 39.67%
101 Montgomery Street
San Francisco, CA 94104
TRANSFER AGENT
Forum Shareholder Services, LLC, Two Portland Square, Portland, ME 04101, serves
as the transfer agent for the Fund.
CUSTODIAN
First Union National Bank located at 123 South Broad Street, Philadelphia, PA
19103, serves as the custodian to the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, serves
as counsel to the Fund.
B-21
<PAGE>
EXPERTS
The financial statements of the Fund, incorporated by reference into this
Statement of Additional Information, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The Fund's audited financial statements and the notes thereto and the report of
the Independent Public Accountants dated July 7, 2000 for the fiscal year ended
May 31, 2000, relating to the financial statements and financial highlights of
the Fund are incorporated by reference herein. A copy of the Fund's 2000 Annual
Report to Shareholders must accompany delivery of this Statement of Additional
Information.
B-22
