FRIENDS IVORY FUNDS
ANNUAL REPORT
June 30, 2000
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TABLE OF CONTENTS
Page
Shareholders' Letter .................................................... 1
Managers' Discussion and Analysis ....................................... 3
StatementsofNetAssets
Social Awareness Fund ................................................ 8
European Social Awareness Fund ....................................... 11
Statements of Operations ................................................ 16
Statements of Changes in Net Assets ..................................... 17
Financial Highlights .................................................... 18
Notes to Financial Statements ........................................... 20
Report of Independent Accountants ....................................... 25
How to Obtain More Information About
Friends Ivory Funds ........................................... Back Cover
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LETTER TO SHAREHOLDERS
JUNE 30, 2000
Dear Fellow Shareholder:
[photo omitted]
GEORGE WALKER
It gives me great pleasure to begin this, my first annual report to
shareholders, by telling you that the Friends Ivory Social Awareness Fund and
the Friends Ivory European Social Awareness Fund combined, have assets of over
$52.6 million after only six months of operation.
As you know, our investment-led approach to social investing combines the wisdom
and experience of our European and U.S.-based investment teams with the skill
and vision of our dedicated 10-person ethics team. We strongly believe that our
efforts to combine rigorous financial analysis with enlightened social and
environmental screening will identify those companies that can deliver better
returns.
OUR MANAGER
Our manager, Friends Ivory & Sime, Inc. ("FIS"), has long been the leading
manager of socially aware funds in Europe so we are particularly pleased to have
them as managers of the first-ever European Socially Responsible Investment
("SRI") fund available here in the U.S., the Friends Ivory European Social
Awareness Fund. With roots going back to the 1800's, some $60 billion in assets
with over $30 billion of this in socially aware portfolios they are one of the
world's oldest and largest social investors.
SOCIAL SCREENING & ENGAGEMENT
The funds have seen a high level of activity this year. Our ethics team led by
Karina Litvack, in Europe and Elizabeth Elliott McGeveran, in the U.S.,
continually strive to:
1. Identify those companies that exhibit leadership in environmental and social
arenas.
2. Avoid companies with below-average records.
3. Engage companies in an ongoing constructive dialogue to improve their
standards and practices.
While we strive to provide a portfolio that reflects the values of our
investors, we also believe that ALL companies can and should improve. Using our
position as investors, our ethics experts speak directly with company managers
challenging them to help SOLVE social and environmental problems. In 2000, we
have focused our engagement work on several pressing areas of international
concern:
o Slowing global climate change
o Developing strong corporate systems for reducing environmental impacts
o Addressing human rights
o Stopping sweatshops
o Protecting forests
For example, FIS is currently working with some of the largest banks encouraging
them to pay closer attention to the environmental impacts of their underwriting
and lending decisions. Or, with other social investors, we have been
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LETTER TO SHAREHOLDERS (continued)
encouraging Coca-Cola to increase the amount of post-consumer recycled plastics
in their beverage containers. Following our first meeting with the company,
Coca-Cola raised the recycled content of its plastic bottles from less than 1%
to 2.5% in the U.S. Because of their size, small changes by big companies can
have enormous impacts on society and the environment. Although this is a solid
step in the right direction, we will continue to encourage Coca-Cola to reach
further over the coming months.
In Europe, FIS has persuaded Peacock, an up-and-coming British clothing company,
to adopt a code of practice on labor standards for its overseas suppliers. This
change should improve the conditions for some workers in developing nations,
helping to avoid sweatshops. Although Peacock is not part of our European Social
Awareness Fund, FIS refuses to limit its social and environmental engage to its
screened portfolios and works with holdings across the company.
We believe that constructive partnerships between investors and the companies
they own will contribute to improved long-term shareholder value as well as help
build a healthier, more humane world.
CHARITABLE GIVING
Finally, I am delighted to report that FIS has committed to use 10% of their
management fees to support charitable causes. For example, in 2000 they have
supported the Alliance for Young Artists and Writers, a national awards program
designed to encourage literacy and artistic endeavor in our school systems.
They have also supported the Coalition for Environmentally Responsible
Economies'(CERES) efforts to provide young graduate and undergraduate students
with first hand experience in environmental corporate responsibility through
the CERES Fellowship.
They have supported the Center for Artistry in Teaching (C.A.T.)
summer school program. This is designed to provide rigorous and interesting
learning experiences for at-risk students in Washington D.C. and to improve the
long-term effectiveness of teachers. Last year, C.A.T. staff had the difficult
task of chaperoning 30 students to and from summer school on the subway. By
providing a school bus, FIS made it possible for all students to attend the
program safely each day.
At Friends Ivory Funds we are always mindful of our commitment to your money,
your future and your values(TM), with this in mind we will continue to strive to
leverage the financial, social and environmental impact of your investment
dollars.
Sincerely,
/s/signature omitted
George Walker
President of the Friends Ivory Funds
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MANAGERS' DISCUSSION AND ANALYSIS --
SOCIAL AWARENESS FUND
[photo omitted]
ANDREW PRINGLE
ECONOMIC & MARKET REVIEW - The series of interest rate increases by the Federal
Reserve since mid-1999 had begun to slow the U.S. economy by the first quarter
of 2000. GDP growth in the first quarter was 4.8%, down from the more than 7%
rate seen in the previous quarter. The economy in the second quarter was
expected to slow further, however, growth came in above forecasts, rising 5.2%,
due primarily to an increase in business investment. In this economic climate,
volatility in equity markets was present throughout the period under review,
especially in the second quarter, as investors remained cautious on the outlook
for interest rates and inflation. On a more positive note, corporate earnings
growth remained strong, continuing the growth rates in excess of 20% seen in
recent quarters.
In the half year, the S&P 500 Index declined 0.4% in dollar terms, which masks
the wide trading range that was seen in the six months to June. Smaller
companies, as measured by the Frank Russell 2000 Index, had the best performance
of the major indices, rising 3.0%, while the Dow Jones Industrial Average
declined 9.1%. The technology heavy NASDAQ Index ended just 2.5% lower, having
demonstrated enormous volatility.
FUND PERFORMANCE & STRATEGY - The Social Awareness Fund (the "Fund") declined by
0.41% to the end of June versus the 0.4% decline in the S&P 500 Index. The
strategy of the Fund was to maintain its focus on stocks and sectors that offer
attractive long-term earnings growth and consistency characteristics.
Accordingly, the portfolio remained overweight in the technology, healthcare and
communication services industries.
The underperformance of the Fund can be attributed to a market rotation into
more defensive oriented companies, especially in the second quarter, due to
fears of an economic slowdown. Fund performance was adversely affected by more
cautious investor sentiment towards high-growth companies, particularly those
representing the "new economy". However, the Fund maintained its weightings in
these areas as their long-term growth characteristics remain attractive,
particularly so, given the outlook for a slowing economy later in the year.
Likewise, the projected environment justifies the continued underweight stance
in cyclical industries which are more economically sensitive (e.g. capital goods
and basic industries).
The Fund's largest holdings registered mixed performances, particularly in the
technology sector. There were strong returns during the reporting period from
Intel, EMC and Texas Instruments while Microsoft and America Online declined,
the former partially reflecting concerns over the outcome of the anti-trust
case.
Consumer defensive companies also had mixed results with Procter & Gamble being
sold following a
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MANAGERS' DISCUSSION AND ANALYSIS --
SOCIAL AWARENESS FUND (CONCLUDED)
surprise negative earnings announcement while Bestfoods rose sharply as a result
of a takeover bid by Unilever.
The healthcare sector delivered strong performance in the first half of the year
with all current holdings performing well, particularly Medtronic, the leading
medical device company.
OUTLOOK - The near term environment for the U.S. equity market remains similar
to that seen in the first half of 2000. Despite good earnings news, further
volatility appears likely as investors continue to seek clearer evidence that an
end to the Federal Reserve's current round of interest rate increases is close
at hand. Confirmation of a controlled slowdown with subdued inflation would help
boost investor sentiment and likely enable the market to rise modestly (up
5-10%) by year-end; this would be in sharp contrast to the last five consecutive
years of annual returns in excess of 20% for the S&P 500 Index. Any signs of a
major deterioration in the inflation data would lead us to adopt a more cautious
stance on the outlook for U.S. equities.
Comparison of Change in the Value of a $10,000 Investment in the Friends Ivory
Social Awareness Fund, Advisor Class(1), versus the S&P 500 Index
[graphic chart omitted]
plot points follows:
Friends S&P
10/31/96 10000 10000
6/97 12606 12712
6/98 16546 16545
6/99 20466 20315
6/00 20550 21788
Annualized Annualized Cumulative
One Year 3 Year Inception Inception
Return* Return* to Date* to Date*
------- ---------- ---------- -----------
0.41% 17.69% 21.67% 108.60%
Past performance is not an indication of future performance.
(1) Commenced operations on 12/28/99.
* For periods prior to December 1999, when the Fund began operating,
performance quoted reflects performance of the Adviser's private account.
The private account commenced operations before the Fund's registration
statement became effective. Adviser shares have different expenses than the
private account, which will result in different performance. The Adviser's
private account was not a registered mutual fund, so it was not subject to
the same investment and tax restrictions as the Fund. If it had been, the
private account's performance may have been lower.
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MANAGERS' DISCUSSION AND ANALYSIS --
EUROPEAN SOCIAL AWARENESS FUND
[photo omitted]
DEBBIE CLARK
ECONOMIC & MARKET REVIEW - The U.K. economy continued to expand during the first
six months of the year, growing 3.0% versus the same period last year. Recently,
however, the rate of growth has slowed slightly in response to several interest
rate increases, with the last rise being 0.25% in February 2000. Accordingly,
growth is expected to slow to more sustainable levels and the pressure to
continue to raise rates has diminished with interest rates thought to be near
their peak. In this environment, the MSCI Europe Index declined 6.0% in local
currency terms, which translated into a decline of 11.7% in dollar terms due to
the depreciation of sterling against the dollar. There was great divergence in
performance as large companies, measured by the FSTE 100 Index have declined
7.9%, while the FTSE Small Cap Index (excluding investment trusts) increased
11.3% in local currency terms. The worst performing sectors were steel,
information technology and telecommunications which had declines in excess of
20%, while the best performing sectors were electronics and electrical
equipment, media and non-cyclical consumer goods such as household products.
Continental Europe continues to see strong economic activity boosted by the
weakness of the Euro. The recent interest rate rise in June was larger than
expected at 0.5%, taking rates to 4.25%. This was seen as a move, in part, to
prop up the ailing Euro and dampen inflationary pressures. Final figures for
Euro-zone economic growth to the end of June have not been finalized, but
estimates are in the range of 3.2% as business and consumer confidence levels
remain high and job creation in the region has recently rivaled that of the U.S.
Continental European markets had stronger performance than in the U.K. as the
MSCI Europe Index (excluding U.K.) returned 4.7%, which translated into an
increase of 0.6% in dollar terms. The best performing sector during the period
under review was information technology, which fell back in the second quarter
but still managed to increase 19.2% due to the large gains experienced in the
first part of the year.
FUND PERFORMANCE & STRATEGY - The European Social Awareness Fund (the "Fund")
outperformed the benchmark in a declining market as it fell 1.8% versus a
decline of 3.1% in the MSCI Europe Index in dollar terms. The Fund's strategy of
focusing on socially aware, good quality companies,
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MANAGERS' DISCUSSION AND ANALYSIS --
EUROPEAN SOCIAL AWARENESS FUND (CONCLUDED)
offering superior long-term growth characteristics and good consistency of
earnings had a positive contribution on performance, particularly in Continental
Europe. Strong stock selection across a range of sectors led to the
outperformance of the Fund.
The market rotation into cyclically oriented and defensive companies, away from
the more growth-oriented companies, particularly those representing the "new
economy", had a negative impact on performance in the first two months of the
second quarter. This was due to the overweight position of the Fund in the
technology, media, and telecommunication areas. However, the Fund's position in
these areas was generally maintained as they offer attractive long-term growth
prospects.
The Fund benefited from its largest holdings as they recorded excellent
performance. The most notable were life insurance company Skandia Forsakrings
(81%), mobile telephone company Ericsson (28%) and semiconductor company
STMicroelectronics (30%). In addition, Axa (insurance), Nokia Oyj
(telecommunications equipment) and Sanofi-Synthelabo (pharmaceuticals) also had
strong performances, as they all posted returns around 20%. Within the top ten
holdings in the Fund, only Vodafone AirTouch had a negative return over the
period.
OUTLOOK - The outlook for European equity markets remains positive, particularly
in Continental Europe, due to a number of factors including positive earnings
growth, structural reforms and favorable demographics. Structural reforms by
governments are enhancing shareholder value, with companies being encouraged to
restructure and reduce corporate cross-holdings. In addition, the introduction
of the single currency and competition for capital has also sped up reforms
within the region. While an initial glance at valuation may indicate demanding
multiples when compared to historic relatives, there are a significant number of
stocks with strong growth prospects and positive business momentum. The majority
of these remain in "growth" areas such as technology and telecommunications,
where the Fund remains well positioned.
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Comparison of Change in the Value of a $10,000 Investment in the
Friends Ivory European Social Awareness Fund, Advisor Class(1),
versus the Morgan Stanley MSCI Europe Index
[graphic chart omitted]
plot points follows
FRIENDS MORGAN
------- ------
12/31/99 10000 10000
6/00 9872 9744
CUMULATIVE
INCEPTION
TO DATE
----------
-1.80%
Past performance is not an indication of future performance.
(1) Commenced operations on 12/31/99.
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STATEMENT OF NET ASSETS (000)
Friends Ivory Funds -- June 30, 2000
VALUE
SOCIAL AWARENESS FUND SHARES (000)
--------------------------------------------------------------------------------
COMMON STOCKS (97.3%)
BASIC MATERIALS (0.9%)
Alcoa ................................................ 8,680 $ 252
------
CAPITAL GOODS (7.1%)
Applied Materials* ................................... 6,500 589
Colgate-Palmolive .................................... 8,500 509
Johnson & Johnson .................................... 8,660 882
------
1,980
------
COMMUNICATION SERVICES (11.4%)
AT&T ................................................. 10,900 345
BellSouth ............................................ 10,700 456
Lucent Technologies .................................. 9,000 533
SBC Communications ................................... 14,736 637
Viacom, Cl B* ........................................ 7,450 508
Worldcom* ............................................ 14,900 684
------
3,163
------
COMPUTER SOFTWARE (7.8%)
America Online* ...................................... 14,525 766
Microsoft* ........................................... 11,700 936
Veritas Software* .................................... 4,075 461
------
2,163
------
CONSUMER CYCLICALS (7.0%)
Costco Wholesale* .................................... 7,700 254
Home Depot ........................................... 16,000 799
McDonald's ........................................... 12,500 412
Target ............................................... 8,100 470
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1,935
------
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VALUE
SHARES (000)
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CONSUMER STAPLES (5.5%)
Bestfoods ............................................ 4,200 $ 291
Coca-Cola ............................................ 10,500 603
PepsiCo .............................................. 14,100 627
------
1,521
------
ENERGY (6.9%)
Enron ................................................ 9,000 580
Nabors Industries* ................................... 8,000 332
Royal Dutch Petroleum, New York Shares ............... 10,000 616
Schlumberger ......................................... 5,125 382
------
1,910
------
ENTERTAINMENT (1.7%)
Walt Disney .......................................... 12,220 474
------
FINANCE (12.5%)
American Express ..................................... 12,060 629
American International Group ......................... 8,975 1,055
Fannie Mae ........................................... 7,550 394
JP Morgan ............................................ 2,850 314
Mellon Financial ..................................... 14,000 510
Wells Fargo .......................................... 14,700 570
------
3,472
------
PHARMACEUTICALS (9.6%)
Amgen* ............................................... 6,000 422
Medtronic ............................................ 14,000 697
Merck ................................................ 11,600 889
Schering-Plough ...................................... 12,500 631
------
2,639
------
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STATEMENT OF NET ASSETS (000)
Friends Ivory Funds -- June 30, 2000
--------------------------------------------------------------------------------
VALUE
SOCIAL AWARENESS FUND (CONCLUDED) SHARES (000)
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SERVICES (3.4%)
Automatic Data Processing ......................... 6,700 $ 359
Omnicom Group ..................................... 6,485 578
-------
937
-------
TECHNOLOGY (23.5%)
Cisco Systems* .................................... 25,050 1,592
Dell Computer* .................................... 10,700 528
EMC* .............................................. 13,220 1,017
Intel ............................................. 11,350 1,517
Solectron* ........................................ 8,080 338
Sun Microsystems* ................................. 8,975 816
Texas Instruments ................................. 10,300 707
-------
6,515
-------
Total Common Stocks
(Cost $26,559) 26,961
-------
Total Investments (97.3%)
(Cost $26,559) 26,961
-------
OTHER ASSETS AND LIABILITIES, NET (2.7%) 754
-------
NET ASSETS:
Portfolio capital of Advisor Shares (unlimited
authorization -- no par value) based on 2,858,875
outstanding shares of beneficial interest ........................ 28,487
Accumulated net realized loss on investments ........................ (1,174)
Net unrealized appreciation on investments .......................... 402
-------
Total Net Assets (100.0%) $27,715
=======
Net Asset Value, Offering and Redemption Price
Per Share -- Advisor Shares $9.70
=======
* NON-INCOME PRODUCING SECURITY
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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VALUE
EUROPEAN SOCIAL AWARENESS FUND SHARES (000)
--------------------------------------------------------------------------------
FOREIGN COMMON STOCKS (96.3%)
BELGIUM (1.0%)
Dexia ............................................... 1,600 $ 235
------
DENMARK (1.5%)
Vestas Wind Systems ................................. 10,350 379
------
FINLAND (5.1%)
Nokia Oyj ........................................... 20,836 1,060
Sonera Oyj .......................................... 4,637 211
------
1,271
------
FRANCE (18.3%)
Axa ................................................. 4,658 732
Cap Gemini .......................................... 2,288 402
L'OREAL ............................................. 650 561
Pinault-Printemps-Redoute ........................... 1,500 332
Sanofi-Synthelabo ................................... 15,000 713
Societe Generale, Cl A .............................. 6,200 372
STMicroelectronics .................................. 13,800 867
Vivendi ............................................. 6,400 563
------
4,542
------
GERMANY (2.5%)
Allianz, Reg Shares ................................. 1,060 384
Deutsche Telekom .................................... 4,000 227
------
611
------
IRELAND (1.2%)
CRH ................................................. 16,000 288
------
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STATEMENT OF NET ASSETS (000)
Friends Ivory Funds -- June 30, 2000
--------------------------------------------------------------------------------
EUROPEAN SOCIAL AWARENESS VALUE
FUND (CONTINUED) SHARES (000)
--------------------------------------------------------------------------------
ITALY (4.2%)
ACEA ................................................. 10,483 $ 167
Enel ................................................. 91,000 402
TIM .................................................. 47,000 479
------
1,048
------
NETHERLANDS (10.1%)
ING Groep ............................................ 11,475 774
Royal Dutch Petroleum ................................ 9,600 595
Royal KPN ............................................ 8,500 379
TNT Post Group ....................................... 12,000 323
VNU .................................................. 8,309 428
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2,499
------
SPAIN (5.6%)
Banco Bilbao Vizcaya Argentaria ...................... 35,000 522
Banco Santander Central Hispano ...................... 35,000 368
Telefonica ........................................... 16,015 343
Telefonica Publicidad y Informacion .................. 16,500 155
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1,388
------
SWEDEN (9.2%)
Ericsson, Cl B ....................................... 49,850 990
Nordic Baltic Holding ................................ 43,000 325
Skandia Forsakrings .................................. 36,588 970
------
2,285
------
SWITZERLAND (3.4%)
Adecco, Reg Shares ................................... 400 340
Credit Suisse Group, Reg Shares ...................... 2,600 517
------
857
------
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VALUE
SHARES (000)
--------------------------------------------------------------------------------
UNITED KINGDOM (34.2%)
ARM Holdings* ...................................... 20,000 $ 215
Barclays ........................................... 28,000 698
BG Group ........................................... 28,000 181
BP Amoco ........................................... 61,800 594
British Telecom .................................... 45,000 583
Cadbury Schweppes .................................. 69,000 454
CMG ................................................ 18,000 256
Glaxo Wellcome ..................................... 27,000 789
Hays ............................................... 64,000 358
Invensys ........................................... 70,000 263
Kingfisher ......................................... 37,800 345
Lloyds TSB Group ................................... 52,000 492
Ocean Group ........................................ 10,000 165
Prudential ......................................... 30,000 440
Sage Group ......................................... 32,600 265
SmithKline Beecham ................................. 69,000 905
Vodafone AirTouch .................................. 280,000 1,134
WPP Group .......................................... 25,000 366
-------
8,503
-------
Total Foreign Common Stocks
(Cost $24,113) 23,906
-------
FOREIGN PREFERRED STOCK (2.2%)
GERMANY (2.2%)
SAP ................................................ 3,000 553
-------
Total Foreign Preferred Stock
(Cost $562) 553
-------
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STATEMENT OF NET ASSETS (000)
Friends Ivory Funds -- June 30, 2000
--------------------------------------------------------------------------------
EUROPEAN SOCIAL AWARENESS VALUE
FUND (CONCLUDED) SHARES (000)
--------------------------------------------------------------------------------
Foreign Rights (0.0%)
Belgium (0.0%)
Dexia* ................................................ 400 $ 3
-------
Total Foreign Rights
(Cost $--) 3
-------
Total Investments (98.5% )
(Cost $24,675) 24,462
-------
OTHER ASSETS AND LIABILITIES, NET (1.5%) 380
-------
Portfolio capital of Advisor Shares (unlimited
authorization -- no par value) based on 2,529,609
outstanding shares of beneficial interest ........................... 25,295
Undistributed net investment income .................................... 86
Accumulated net realized loss on investments ........................... (329)
Net unrealized appreciation on forward foreign currency
contracts, foreign currency, and translation of
other assets and liabilities in foreign currency .................... 3
Net unrealized depreciation on investments ............................. (213)
--------
Total Net Assets (100.0%) $24,842
========
Net Asset Value, Offering and Redemption Price
Per Share -- Advisor Shares $9.82
========
* NON-INCOME PRODUCING SECURITY
CL -- CLASS
REG -- REGISTERED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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At June 30, 2000, sector diversification of the Portfolio was as follows:
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (000)
---------------------- ---------- -------
FOREIGN COMMON STOCKS
Banking 17.3% $ 4,303
Telecommunications 15.6 3,874
Insurance 10.2 2,526
Pharmaceuticals 9.7 2,407
Electronics 6.6 1,651
Telephone 6.2 1,532
Oil & Gas 5.5 1,371
Services 5.0 1,240
Diversified Operations 4.8 1,184
Computers 3.7 922
Retail 2.7 677
Cosmetics & Toiletries 2.3 561
Transportation 2.0 488
Food, Beverage & Tobacco 1.8 454
Publishing 1.7 428
Construction Materials 1.2 288
----- -------
TOTAL FOREIGN COMMON STOCKS 96.3 23,906
FOREIGN PREFERRED STOCK 2.2 553
FOREIGN RIGHTS -- 3
----- -------
TOTAL INVESTMENTS 98.5 24,462
OTHER ASSETS AND LIABILITIES, NET 1.5 380
----- -------
NET ASSETS 100.0% $24,842
===== =======
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STATEMENTS OF OPERATIONS (000)
Friends Ivory Funds -- For the Period Ended June 30, 2000
European
Social Social
Awareness Awareness
Fund Fund
--------- ---------
2000 (1) 2000 (2)
--------- ---------
INVESTMENT INCOME:
Interest Income ................................... $ 7 $ 18
Dividend Income ................................... 103 241
Less: Foreign Taxes Withheld ...................... -- (26)
------- -----
Total Investment Income ........................... 110 233
------- -----
EXPENSES:
Investment Advisory Fee ........................... 103 105
Less: Investment Advisory Fees Waived ............. (81) (59)
Administration Fee ................................ 43 42
Custodian Fee ..................................... 2 23
Transfer Agent Fee ................................ 14 14
Professional Fees ................................. 21 20
Registration Fees ................................. 11 10
Printing Fees ..................................... 16 15
Trustee Fees ...................................... 7 6
Distribution Fees ................................. 34 31
Other Fees ........................................ 1 3
------- -----
Total Expenses .................................... 171 210
------- -----
NET INVESTMENT INCOME/(LOSS) ...................... (61) 23
------- -----
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net Realized Loss on Investments .................. (1,174) (329)
Net Realized Gain on Forward Foreign Currency
Contracts and Foreign Currency Transactions ... -- 63
Net Change in Unrealized Appreciation/
Depreciation on Foreign Currency and
Translation of Other Assets and Liabilities in
Foreign Currency .............................. -- 3
Net Change in Unrealized Appreciation/
Depreciation on Investments ..................... 402 (213)
------- -----
Total Net Realized and Unrealized Loss
on Investments .................................. (772) (476)
------- -----
NET DECREASE IN NET ASSETS
FROM OPERATIONS ................................. $ (833) $(453)
======= =====
(1) SOCIAL AWARENESS FUND COMMENCED OPERATIONS 12/28/99.
(2) EUROPEAN SOCIAL AWARENESS FUND COMMENCED OPERATIONS 12/31/99.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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STATEMENTS OF CHANGES IN NET ASSETS (000)
Friends Ivory Funds -- For the Period Ended June 30, 2000
Social European Social
Awareness Fund Awareness Fund
---------------- ----------------
12/28/99 (1)- 12/31/99 (2)-
06/30/00 06/30/00
------------- -------------
OPERATIONS:
Net Investment Income/(Loss) ..... $ (61) $ 23
Net Realized Loss on
Investments .................. (1,174) (329)
Net Realized Gain on Foreign
Currency Transactions ........ -- 63
Net Change in Unrealized
Appreciation/Depreciation
on Foreign Currency and
Translation of Other Assets and
Liabilities in Foreign Currency. -- 3
Net Change in Unrealized
Appreciation/Depreciation
on Investments ................. 402 (213)
------- -------
Net Decrease in Net Assets
from Operations ................ (833) (453)
------- -------
CAPITAL SHARE TRANSACTIONS (A):
ADVISOR SHARES:
Proceeds from Shares Issued .... 28,512 25,324
Cost of Repurchased
Shares ..................... (14) (79)
------- -------
INCREASE IN NET ASSETS FROM
ADVISOR SHARE TRANSACTIONS ....... 28,498 25,245
------- -------
Net Increase in Net Assets .......... 27,665 24,792
------- -------
NET ASSETS:
Beginning of Period .............. 50 50
End of Period .................... $27,715 $24,842
======= =======
(A) SHARES ISSUED AND REDEEMED:
ADVISOR SHARES:
Shares Issued .................. 2,855 2,532
Shares Redeemed ................ (1) (7)
------- -------
Net Change in Capital Shares ..... 2,854 2,525
======= =======
(1) SOCIAL AWARENESS FUND COMMENCED OPERATIONS 12/28/99.
(2) EUROPEAN SOCIAL AWARENESS FUND COMMENCED OPERATIONS 12/31/99.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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18 ----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Friends Ivory Funds -- For the Period Ended June 30, 2000 For a share
outstanding throughout each period
<TABLE>
<CAPTION>
DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS FROM
VALUE INVESTMENT AND FROM NET REALIZED NET ASSET
BEGINNING OF INCOME UNREALIZED INVESTMENT CAPITAL VALUE END
PERIOD (LOSS) GAINS (LOSSES) INCOME GAINS OF PERIOD
------------ ---------- -------------- ------------- ------------- ---------
SOCIAL AWARENESS FUND
---------------------
Advisor Shares
<S> <C> <C> <C> <C> <C> <C>
2000(1) $10.00 $(0.02) $(0.28) $-- $-- $ 9.70
EUROPEAN SOCIAL AWARENESS FUND
------------------------------
Advisor Shares
2000(2) $10.00 $ 0.03 $(0.21) $-- $-- $ 9.82
<FN>
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) SOCIAL AWARENESS FUND COMMENCED OPERATIONS ON 12/28/99. ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(2) EUROPEAN SOCIAL AWARENESS FUND COMMENCED OPERATIONS ON 12/31/99.
ALL RATIOS FOR THE PERIOD HAVE BEEN ANNUALIZED.
</FN>
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
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<PAGE>
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<TABLE>
<CAPTION>
RATIO OF
RATIO OF RATIO OF NET INVESTMENT
NET EXPENSES INCOME (LOSS)
RATIO OF INVESTMENT TO AVERAGE TO AVERAGE
NET ASSETS EXPENSES INCOME (LOSS) NET ASSETS NET ASSETS PORTFOLIO
TOTAL END OF TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
RETURN+ PERIOD (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
--------- -------------- ------------ ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(3.00)% $27,715 1.24% (0.44)% 1.83% (1.03)% 26%
(1.80)% $24,842 1.70% 0.19% 2.18% (0.29)% 11%
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
Friends Ivory Funds -- June 30, 2000
1. ORGANIZATION
Friends Ivory Funds (the "Trust") was organized as a Delaware business trust
on September 29, 1999. The Trust is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company consisting of
two Funds: the Social Awareness Fund and the European Social Awareness Fund
(collectively the "Funds", and each of these, a "Fund"). The Funds' prospectus
provides a description of each Fund's investment objectives, policies and
strategies. The assets of each Fund are segregated, and a shareholder's interest
is limited to the Fund in which shares are held. The Funds are authorized to
offer an unlimited number of shares of beneficial interest with no par value.
Friends Ivory & Sime, Inc. (the "Adviser") absorbed all expenses of organizing
the Trust.
The Trust offers Advisor shares. Advisor shares are subject to a distribution
fee of 0.25% per year.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Funds are as follows:
SECURITY VALUATION: Securities listed on an exchange are valued at the last
quoted sales price as of the close of the New York Stock Exchange on the
valuation date. Securities not traded or securities not listed on an exchange
are valued at the mean of the last quoted bid and ask prices. Securities listed
on a foreign exchange are valued at the last quoted sales price before the Fund
is valued. Long-term debt securities are valued by an independent pricing
service and such prices are believed to reflect the fair value of such
securities. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Trustees.
Securities listed on a foreign exchange may trade on weekends or other days
when the Fund does not calculate an NAV. As a result, the market value of these
fund investments may change on days when you cannot buy and hold shares of the
Fund.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
re-corded on the trade date. Realized gains and losses on investments sold are
recorded on the identified cost basis. Interest income is accrued on a daily
basis. Dividends are recorded on the ex-dividend date. Expenses common to all of
the Funds in the Trust are allocated among the Funds on the basis of average net
assets.
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<PAGE>
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income of the Funds are declared and paid at least annually. Any net realized
capital gains will be distributed at least annually for the Funds.
FEDERAL INCOME TAXES: Each of the Funds is classified as a separate taxable
entity for federal income tax purposes. Each Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of taxable income and
gains to its shareholders which will be sufficient to relieve it from all
federal income taxes. Therefore, no provision for federal income tax has been
made.
NET ASSET VALUE PER SHARE: The net asset value per share of each Fund is
calculated on each business day by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
FOREIGN CURRENCY TRANSLATION: The books and records of the European Social
Awareness Fund are maintained in U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective date of such
transaction.
The European Social Awareness Fund does not isolate that portion of gains and
losses on investments in equity securities that is due to changes in the foreign
exchange rates from that which is due to changes in market prices of equity
securities.
The European Social Awareness Fund reports certain foreign currency related
transactions as components of realized and unrealized gains and losses for
financial reporting purposes, whereas such components are treated as ordinary
income for Federal income tax purposes.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS: The timing and characterization of
certain income and capital gains distributions are determined annually in
accordance with federal tax regulations which may differ from accounting
principles generally accepted in the United States. As a result, net investment
income (loss) and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such period.
These book/tax differences
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22 -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Friends Ivory Funds -- June 30, 2000
may be temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated net
realized gain, as appropriate, in the period that the differences arise.
Accordingly, the following permanent differences, primarily attributable to net
operating losses and the classification of short-term capital gains and ordinary
income for tax purposes, have been reclassified to/from the following accounts:
Undistributed
Net Investment
Paid-in-Capital Income/(Loss)
(000) (000)
--------------- --------------
Social Awareness
Fund ............ $(61) $61
These reclassification have no effect on net assets or net asset values per
share.
USE OF ESTIMATES: The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
3. INVESTMENT ADVISORY AND OTHER AGREEMENTS
Under an Investment Advisory Agreement with the Trust, Friends Ivory & Sime,
Inc. will act as investment adviser to each Fund. Friends Ivory & Sime plc, an
affiliate of the Adviser, serves as the sub-adviser to the European Social
Awareness Fund and administers the Fund's investment program under the
supervision of the Adviser. For its investment advisory services to the Trust,
the Adviser receives an annual fee which is calculated daily and paid monthly
based on the aggregate average daily net assets of the Trust as follows: Social
Awareness Fund, 0.75%; and European Social Awareness Fund, 0.85%. The
Sub-Adviser receives a sub-advisory fee from the Adviser for its services
calculated at the rate of 0.15% of the aggregate average daily net assets of the
European Social Awareness Fund. The Adviser has agreed, on a voluntary basis, to
waive all or a portion of its investment advisory fee and to reimburse expenses
in order to keep total operating expenses from exceeding 1.25% and 1.70%,
respectively. Fee waivers and expense reimbursements are voluntary and may be
terminated at anytime.
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<PAGE>
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Under an Administration Agree-ment with the Trust, SEI Investments Mutual
Funds Services (the "Adminis-trator") will provide the Trust with overall
administrative and accounting services. For its services, the Administrator
will receive an annual fee which is calculated daily and paid monthly based on
the aggregate average daily net assets of the Trust as follows:
0.15% up to $100 million; 0.12% from $100 million to $300 million; 0.10%
from $300 million to $600 million; and 0.08% in excess of $600 million. Each
Fund pays the Administrator a minimum annual fee of $85,000 with a minimum of
$10,000 per each additional class.
Under a Distribution Agreement with the Trust, SEI Investments Distribution
Co. (the "Distributor") will provide the Trust with distribution services.
The Social Awareness Fund has directed certain portfolio trades to brokers
who paid a portion of its expenses. For the period ended June 30, 2000, the
Fund's expenses were reduced by $294 under this arrangement.
DISTRIBUTION OF FUND SHARES: Each Fund has adopted a distribution plan for
Advisor Shares that allows the Fund to pay distribution fees for the sale and
distribution of Advisor Shares.
Distributions fees for Advisor Shares, as a percentage of average daily net
assets, are 0.25% for each Fund.
Under a Custodian Agreement with the Trust, Chase Manhattan Bank will serve
as custodian for the assets of the Trust.
Each Trustee receives an annual fee of $8,000 ($2,000 per board meeting) and
reimbursement of out-of-pocket expenses. Such fees are paid for services
rendered to all of the Funds and are allocated accordingly. No person who is an
officer, director, trustee, or employee of the Investment Adviser, Distributor,
or any parent or subsidiary thereof, who serves as an officer, trustee, or
employee of the Trust receives any compensation from the Trust.
4. INVESTMENT TRANSACTIONS
Subsequent to October 31, 1999, the Funds recognized net capital losses for
tax purposes of $1,164,628 and $328,669 in the Social Awareness Fund and
European Social Awareness Fund, respectively, that have been deferred to 2000
and can be used to offset future capital gains at June 30, 2000.
During the period ended June 30, 2000, purchases and sales of securities,
other than short-term investments or U.S. government obligations, aggregated:
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24 ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Friends Ivory Funds -- June 30, 2000
PURCHASES SALES
(000) (000)
--------- -----
Social Awareness
Fund .............. $35,300 $7,000
European Social
Awareness Fund .... 27,795 $2,791
At June 30, 2000, the total cost of securities for federal income tax
purposes was not materially different from amounts reported for financial
reporting purposes. The aggregate gross unrealized appreciation and depreciation
for securities held by the Funds at June 30, 2000 is as follows:
AGGREGATE AGGREGATE
GROSS GROSS
APPRECIATION DEPRECIATION NET
(000) (000) (000)
------------- ------------ -----
Social
Awareness
Fund ..... $2,688 $(2,286) $402
European
Social
Awareness
Fund ..... 1,826 (2,039) (213)
5. MARKET AND CREDIT RISK
Some countries in which the European Social Awareness Fund may invest,
require government approval for the repatriation of investment income, capital
or the proceeds of sales of securities by foreign investors. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose temporary restrictions on foreign capital
remittances abroad.
The securities exchange of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities exchanges in the United
States. Consequently, acquisition and disposition of securities by the Fund may
be inhibited. In addition, a significant proportion of the aggregate market
value of equity securities listed on the major securities exchanges in emerging
markets are held by a smaller number of investors. This may limit the number of
shares available for acquisition or disposition of the Fund.
6. IN-KIND TRANSFERS OF SECURITIES
During the period ended June 30, 2000, the Social Awareness Fund issued
2,771,792 shares of beneficial interest in exchange for securities from an
account managed by Friends Ivory & Sime, Inc. fair valued at $27,717,923.
7. NOTICE TO SHAREHOLDERS (Unaudited)
The European Social Awareness Fund intends to pass through to its
shareholders the foreign taxes paid of $25,684 on foreign income of $102,883.
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<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
Friends Ivory Funds -- Social Awareness Fund
Friends Ivory Funds -- European Social Awareness Fund
We have audited the accompanying statements of net assets of Social Awareness
Fund and European Social Awareness Fund (the "Funds") as of June 30, 2000, and
the related statements of operations, the statements of changes in net assets,
and the financial highlights for the period ended June 30, 2000. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2000, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds at June 30, 2000, and the results of their operations, the changes in
their net assets, and their financial highlights for the period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ERNEST & YOUNG LLP
Philadelphia, Pennsylvania
July 21, 2000
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<PAGE>
FUND
Friends Ivory Funds
P.O. Box 446
Portland, ME 04112
INVESTMENT ADVISER
Friends Ivory & Sime, Inc.
One World Trade Center
Suite 2101
New York, New York 10048
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI Investments Mutual Funds Services
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP
Two Commerce Square
Suite 4000
2001 Market St.
Philadelphia, PA 19103
TO OBTAIN MORE INFORMATION:
Call 1-800-481-4404
This annual report and the financial statements contained herein are submitted
for the general information of the shareholders of the Trust and must be
preceded or accompanied by a current prospectus.
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FIS-F-004-01
