UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-08902
Name of Registrant: 1838 Investment Advisors Funds
Address of Registrant: 2701 Renaissance Blvd., 4th Fl.,
King of Prussia, PA 19406
Name and address of agent for service: Anna M. Bencrowsky,
2701 Renaissance Blvd., 4th Fl.,
King of Prussia, PA 19406
Copies to: John McDonnell,
2701 Renaissance Blvd., 4th Fl.,
King of Prussia, PA 19406
Registrant's telephone number, including area code: (484) 322-4300
Date of fiscal year end: October 31
Date of reporting period: November 1, 2002 - October 31, 2003
ITEM 1: Reports to Shareholders
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
FELLOW SHAREHOLDER:
The international equity markets showed exceptionally strong performances over
the six and twelve months ended October 31, 2003, with the MSCI EAFE Index
indicating net total returns of 24.77% and 27.03%, respectively. During these
periods, the net asset value per share for the 1838 International Equity Fund
(the "Fund") increased by 20.97% and 23.53%, respectively.
REGIONAL DEVELOPMENTS:
Compared with the consensus outlook a year ago, GDP growth beat expectations
this year in the US and Japan, but was lower than expected - now estimated at
only 0.5% versus 1.7% a year ago - in the Eurozone. The strength of the Euro,
which rose 16% against the dollar during the year, was one reason for this weak
economic performance. Lackluster economic growth did not have a large impact on
stock market performance expressed in the weaker dollar: The MSCI Europe index
gained nearly 21% during the year, most of it (17.6%) during the past six
months. The biggest recovery took place in the market that was previously the
most depressed: Germany. The MSCI Germany Index showed a total return of 33.2%
driven by hopes of a cyclical recovery for its industrial companies and by the
stock market rally itself improving the fortunes of its banks and insurance
companies. The Fund did not fully participate in this relief rally, which
initially boosted the shares of companies with weak balance sheets the most.
Particularly in Germany and France the Fund lost ground versus the benchmark as
the result of its more defensive style, which always emphasizes companies with
stronger balance sheets. A similar trend occurred in Japan, where an even
stronger equity market rally gained 31.7% during the year and 42.9% during the
past six months. This rally was led by stocks of nearly bankrupt construction
companies, banks and smaller technology companies. The Fund did gain ground
versus its benchmark in the markets of Asia outside Japan and in emerging
markets. Lastly, the small amount of cash held by the Fund to allow occasional
redemptions, or as a result of a switch in investments, which was on average
1.1% of the Fund's assets, "cost" the Fund some relative performance in the
equity markets rally.
SECTOR DEVELOPMENTS:
Shares of companies that benefit from a cyclical recovery performed best during
the year and particularly during the past six months. In terms of MSCI sector
benchmark performances, Technology showed a total return of 43.6%, closely
followed by Industrials (transportation, construction, business services etc.)
and Materials (metals, mining, chemicals, paper etc.). More stable growth
sectors, such as Consumer Staples, Health Care and Energy showed returns of
"only" 11.8% to 14.5%. The Fund lost ground in the powerful rally of lower
quality bank and insurance stocks and those of construction companies during the
past six months. For the full year, performance was hit hardest by our stock
selection in Consumer Cyclicals. The biggest stock performance laggards there
were Reed Elsevier (the world's largest science publisher), British Sky
Broadcasting (the UK market leader in pay-tv) and Wal Mart de Mexico. These blue
chip stocks had performed relatively well during the market declines during 2000
through 2002. Relative gains in half of the benchmark's sectors, including
Technology and Financials, were too small to offset the above mentioned losses.
In hindsight, we stayed defensive too long, although as importantly, when the
markets reward investments in smaller capitalization stocks and lower quality
stocks the most, our style of investments is bound to underperform.
1
<page>
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
OUTLOOK:
With the stock markets now anticipating a global economic and earnings recovery,
we believe that the broad liquidity driven major "snap-back" rally is most
likely behind us. We expect that investors will become more discriminating in
rewarding those stocks, where companies are able to produce continued revenue
and earnings growth. With our emphasis on market leaders with a proven record of
growth of both top and bottom line, we are confident that our style will once
again provide returns that may not be as large in absolute terms as the ones
experienced during the past year, but will compare more favorably to the EAFE
benchmark.
Sincerely,
/S/HANS VAN DEN BERG
Hans van den Berg
Vice President & Portfolio Manager
November 14, 2003
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT*
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEAR INCEPTION $10,000 INVESTMENT
------ ------ --------- ------------------
FUND 23.53% 1.84% 4.30% $14,147
EAFE 27.03% (0.22)% 2.19% 11,960
[LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:]
1838 INTERNATIONAL EQUITY FUND EAFE
3-Aug-95 10,000 10,000
OCT-95 9,610 9,544
OCT-96 10,485 10,544
OCT-97 12,082 11,032
OCT-98 12,916 12,096
OCT-99 16,675 14,882
OCT-00 17,519 14,451
OCT-01 13,326 10,848
OCT-02 11,453 9,415
OCT-03 14,147 11,960
*Past performance of the Fund is no guarantee of future results. The 1838
International Equity Fund commenced operations on August 3, 1995. The values
shown reflect a hypothetical initial investment of $10,000 with distributions
reinvested. Returns may be higher due to 1838 Investment Advisors, LLC
maintenance of the Fund's expense cap. Please bear in mind that investing in
foreign securities involves special risks such as currency fluctuation, less
extensive regulation of foreign brokers and possible political instability. The
EAFE is an unmanaged index representing the market value weighted price of
1,100 stocks of the major stock exchanges in Europe, Australia and the Far East
without any associated expenses and the returns assume reinvestment of all
distributions. You cannot invest directly in an index. Please read the
prospectus carefully before investing. Distributed by MBIA Capital Management
Corporation. See the Financial Highlights on page 19 for more details.
2
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
INDUSTRY SHARES (NOTE 2)
--------- -------- -----------
COMMON STOCK -- 99.11%
AUSTRIA -- 1.37%
Erste Bank AG Banks............................... 6,200 $ 685,505
---------------
AUSTRALIA -- 2.80%
BHP Billiton Ltd. Metal & Mining...................... 103,830 863,443
National Australia Bank Banks............................... 24,774 537,723
---------------
1,401,166
---------------
CANADA -- 2.28%
Bank of Nova Scotia Banks............................... 13,300 660,636
Encana Corp. Oil & Gas........................... 14,000 480,847
---------------
1,141,483
---------------
DENMARK -- 1.70%
Danske Bank A/S Banks............................... 42,200 851,319
---------------
FINLAND -- 2.87%
Fortum Oyj Electric Utilities.................. 79,900 736,568
Stora Enso Oyj - R Shares Paper & Related Products............ 51,500 700,464
---------------
1,437,032
---------------
FRANCE -- 7.66%
Accor SA Hotels, Restaurants & Leisure....... 20,500 806,211
AXA, Inc. Insurance........................... 38,100 721,947
Essilor International SA Health Care Equipment & Supplies.... 13,500 649,407
LVMH Moet-Hennessy L. Vuitton SA Consumer Durables & Apparel......... 9,200 635,818
Total SA (B Shares) Oil & Gas........................... 6,600 1,025,813
---------------
3,839,196
---------------
GERMANY -- 7.26%
BMW AG Automobiles & Components............ 10,600 425,126
Deutsche Bank AG Banks............................... 8,000 527,310
Puma AG Consumer Durables & Apparel......... 4,400 635,283
SAP AG Software............................ 4,400 637,841
Siemens AG Industrial Conglomerate............. 12,100 813,029
T-Online International AG* Software............................ 46,300 599,058
---------------
3,637,647
---------------
GREECE -- 2.58%
Coca-Cola Hellenic Bottling SA Beverages........................... 31,000 600,385
Public Power Corp. Electric Utilities.................. 32,000 689,688
---------------
1,290,073
---------------
See notes to financial statements.
3
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
INDUSTRY SHARES (NOTE 2)
-------- ------ ----------
HONG KONG -- 4.95%
CNOOC Ltd. Oil & Gas........................... 429,200 $ 809,686
Esprit Holdings Ltd. Retailing........................... 319,494 1,003,857
Johnson Electric Holdings Ltd. Electrical Equipment................ 510,900 664,472
---------------
2,478,015
---------------
IRELAND -- 2.32%
Anglo Irish Bank Corp. Banks............................... 96,895 1,163,576
---------------
ISRAEL -- 1.79%
TEVA Pharmaceutical Ind. - ADR Pharmaceuticals..................... 15,800 898,862
---------------
ITALY -- 1.87%
Unicredito Italiano SPA Banks............................... 190,000 936,510
---------------
JAPAN -- 19.16%
Asahi Kasei Corp. Chemicals - Diversified............. 175,000 834,129
Canon Inc. Office Electronics.................. 16,000 774,276
Honda Motor Co. Ltd. Automobiles & Components............ 18,900 746,132
Hoya Corp. Health Care Equipment & Services.... 7,100 642,607
Kubota Corp. Machinery........................... 224,000 806,877
Mitsubishi Tokyo Fin. Group, Inc. Banks............................... 80 574,885
Nichii Gakkan Co. Commercial Services & Supplies...... 12,430 676,140
Nomura Holdings, Inc. Diversified Financials.............. 37,000 635,430
NTT Docomo Inc. Telecommunications.................. 240 519,580
Omron Corp. Electronic Equipment & Instruments.. 37,000 811,116
Pioneer Corp. Household Durables.................. 29,700 740,237
Shin-Etsu Chemical Co. Ltd. Chemicals........................... 12,900 479,929
Sharp Corp. Household Durables.................. 47,000 740,046
SMC Corp. Machinery........................... 5,100 613,754
---------------
9,595,138
---------------
MEXICO -- 1.73%
America Movil SA (L Shares) - ADR Wireless Telecommunication Services. 36,400 866,320
---------------
NETHERLANDS -- 7.56%
ASM Lithography Holding NV* Semiconductor Equipment & Products.. 44,700 775,819
ING Groep NV Diversified Financial Services...... 50,634 1,051,276
Koninklijke KPN NV* Diversified Telecommunications Services 143,300 1,089,474
Reed Elsevier NV Media............................... 78,000 868,667
---------------
3,785,236
---------------
See notes to financial statements.
4
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
INDUSTRY SHARES (NOTE 2)
--------- -------- -----------
SINGAPORE -- 1.48%
DBS Group Holdings Banks............................... 90,155 $ 740,525
---------------
SPAIN -- 3.19%
Banco Popular Espanol SA Banks............................... 13,300 691,582
Grupo Ferrovial SA Construction & Engineering.......... 31,700 905,067
---------------
1,596,649
---------------
SWEDEN -- 2.51%
Ericsson (LM) Tel - Sponsored ADR* Wireless Telecommunication Services. 35,000 597,800
Getinge AB (B Shares) Health Care Equipment & Services.... 18,000 658,774
---------------
1,256,574
---------------
SWITZERLAND -- 3.81%
Nestle SA - Sponsored ADR Food Products....................... 9,100 500,500
Novartis AG - Registered Shares Pharmaceuticals..................... 19,100 728,041
SGS Soc Gen Surveillance SA Commercial Services................. 1,200 677,575
---------------
1,906,116
---------------
TAIWAN -- 1.18%
Taiwan Semiconductor - Sponsored ADR* Semiconductor Equipment & Products.. 53,999 597,229
---------------
UNITED KINGDOM -- 19.04%
Barclays PLC Banks............................... 122,134 1,031,094
BP Amoco PLC Oil & Gas........................... 193,808 1,344,306
British Sky Broadcasting Group PLC* Media............................... 54,600 592,982
Capita Group PLC Commercial Services & Supplies...... 132,000 553,273
Diageo PLC Beverages........................... 89,823 1,057,068
Man Group PLC Diversified Financials ............. 26,279 647,061
Reckitt Benckiser PLC Household Products.................. 39,235 824,258
Royal Bank of Scotland Group PLC Banks............................... 32,868 881,808
Scottish Power PLC Electric Utilities.................. 70,205 417,566
Tesco PLC Food & Drug Retailing............... 167,456 671,336
Vodafone Airtouch PLC Wireless Telecommunication Services. 723,745 1,519,846
---------------
9,540,598
---------------
TOTAL COMMON STOCK (Cost $44,655,148) .................................... 49,644,769
---------------
See notes to financial statements.
5
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
-------- -----------
SHORT-TERM INVESTMENT-- 2.01%
Evergreen Institutional Money Market Fund - I Shares (Cost $1,008,996)......... 1,008,996 $ 1,008,996
TOTAL INVESTMENTS (Cost $45,664,144)+ -- 101.12.................................. $ 50,653,765
===============
OTHER ASSETS AND LIABILITIES, NET-- (1.12%) .................................... (563,057)
---------------
NET ASSETS-- 100.00%............................................................... $ 50,090,708
===============
MARKET SECTOR DIVERSIFICATION
As a Percentage of Total Common Stocks
Consumer Discretionary -- 17.36% Industrials -- 11.50%
Consumer Staples -- 5.70% Information Technology -- 7.24%
Energy -- 8.23% Materials -- 5.80%
Financials -- 25.48% Telecommunication Services -- 9.25%
Health Care -- 7.21% Utilities -- 2.23%
* Non-income producing securities
ADR -- American Depositary Receipt
See notes to financial statements.
6
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
TO THE SHAREHOLDER:
During the fiscal year the bond market has struggled with two differing views.
Thoughts of an economic resurrection drove U.S. interest rates higher. However,
geopolitical risks and concerns over the sustainability of the economic recovery
kept interest rates fairly contained.
With the swift conclusion of Gulf War II, focus returned to assessing economic
fundamentals. The first few months of economic data after the war were almost
uniformly strong. This was not too surprising given that economic activity was
depressed by uncertainty ahead of the war and by the war itself. Strength in the
equity markets and strong third quarter earnings announcements have kept the
consumer confident in their outlook for the U.S. economy. Inflation's momentum
is still downward, though it's not falling as fast as in early 2003.
The economy has clearly moved onto a new, stronger growth path in the second
half of 2003. Real GDP surged at a 7.2% annual rate in the third quarter, the
strongest quarterly growth rate in 20 years. Upside was driven by a sharp gain
in private demand, with consumption, business investment, and residential
investment all surging. The question
FIXED INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT*
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEAR INCEPTION $10,000 INVESTMENT
------ ------ --------- ------------------
FUND 5.67% 6.11% 6.42% $14,679
LEHMAN
AGGREGATE 4.91% 6.54% 7.31% 15,452
[LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:]
1838 FIXED INCOME FUND LEHMAN AGGREGATE
2-Sept-97 10,000 10,000
OCT-97 10,270 10,295
OCT-98 10,913 11,257
OCT-99 10,999 11,316
OCT-00 11,696 12,142
OCT-01 13,375 13,910
OCT-02 13,892 14,729
OCT-03 14,679 15,452
*Past performance of the Fund is no guarantee of future results. The 1838 Fixed
Income Fund commenced operations on September 2, 1997. The values shown reflect
a hypothetical initial investment of $10,000 with distributions reinvested.
Returns are higher due to 1838 Investment Advisors, LLC maintenance of the
Fund's expense cap. The Lehman Aggregate Index is an unmanaged index which
consists of bond issues spread over the investment grade bond universe and does
not have any associated expenses and the returns assume reinvestment of all
interest income. You cannot invest in an index. Please read the prospectus
carefully before investing. Distributed by MBIA Capital Management Corporation.
See the Financial Highlights on page 20 for more details.
7
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
now becomes, is this positive news already reflected in current interest rates
and can this growth be sustained? A key to assessing the sustainability of the
economic recovery will be looking at employment statistics going forward.
Through most of the year the Federal Reserve has stayed on the sidelines, easing
monetary policy only once in 2003, moving the Fed Funds rate from 1.25% to 1.00%
in June. The Fed still describes the upside and downside risks to the economy as
"roughly equal" and continues to indicate that an accommodative policy can be
maintained for a "considerable period." This, in turn, has kept interest rates
in the very front end of the yield curve fairly stable.
The improving economic landscape has also carried over into an increase in the
market's appetite for risk. All the major sectors of the fixed income market
have posted positive returns year-to-date through October 31 with the Credit
sector (Corporate Bonds and Asset-Backed Bonds) posting the largest gains.
Within the credit markets, performance continues to be highly dependant on
quality and issue selection. Lower quality, higher beta issuers continue to
provide the highest absolute performance.
The 1838 Fixed Income Fund (the "Fund") picked up significant performance
relative to the benchmark during the year propelled by a core overweight to the
corporate bond sector and a modestly short duration relative to the Lehman
Aggregate Bond Index (the "Index"). The total return of the Fund was 5.67% (net
of fees & expenses) compared to the Index, which was up 4.91% for the year
ending October 31, 2003. Peer performance was also good with the Fund enjoying a
Four Star rating by Morningstar for both the three and five years ending October
31, 2003.
Going forward, we look for Fed Funds to remain at 1% through the first half of
2004. This will keep the yield curve historically steep with longer term
interest rates building in expectations of sustainable growth and diminished
deflationary pressures in the future. The Fund believes that bond yields most
likely reached their lows in early June and we look for moderately higher
interest rates in the coming months. Consequently, the Fund will maintain a
short duration relative to the Index. As the economic recovery continues to
expand, the markets appetite for riskier assets should continue. Therefore, the
Fund will remain overweight in the spread sectors of the fixed income market. We
expect the corporate market to continue to do well over the next few months, but
with the credit curves relatively flat, we choose to overweight exposure in the
front end of the Fund's portfolio while reducing security-specific risk in the
long end.
The Fund's exposure, based on long-term market value, compared to the Index at
October 31, 2003 was as follows:
1838 FIXED LEHMAN AGGREGATE
INCOME FUND BOND INDEX
------------- ---------------
Corporate Bonds......... 50% 25%
Mortgage-Backed......... 30% 35%
Asset-Backed............ 11% 5%
Agencies................ 5% 12%
Treasuries.............. 4% 23%
Sincerely,
/S/CLIFFORD D. CORSO
Clifford D. Corso
Vice President & Portfolio Manager
November 14, 2003
8
1838 FIXED INCOME FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
- --------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING+ AMOUNT (NOTE 2)
------------ -------- -----------
CORPORATE BONDS -- 46.66%
FINANCIAL -- 18.72%
Block Financial Corp., 6.75%, 11/01/04......................... A3/BBB+ $ 555,000 $ 581,841
Capital One Bank, 5.75%, 09/15/10.............................. Baa2/BBB- 495,000 519,185
Ford Motor Credit Co., 7.00%, 10/01/13......................... A3/BBB 380,000 373,556
General Electric Capital Corp., 6.75%, 03/15/32................ Aaa/AAA 380,000 421,368
General Electric Global Insurance Holding, 7.00%, 02/15/26..... A1/A- 760,000 803,371
General Motors Acceptance Corp., 6.15%, 04/05/07............... A3/BBB 925,000 975,985
Household Finance Corp., 6.40%, 06/17/08....................... A1/A 665,000 738,064
Huntington National Bank, 2.75%, 10/16/06...................... A1/A 815,000 811,098
International Lease Finance Corp., 4.35%, 09/15/08............. A1/AA- 855,000 866,056
New York Life Insurance Co., 5.875%, 05/15/33, 144A............ Aa3/AA- 655,000 642,216
Washington Mutual Inc., 4.375%, 01/15/08....................... A3/BBB+ 775,000 793,589
---------------
7,526,329
---------------
INDUSTRIAL & MISCELLANEOUS -- 18.80%
BAE Systems 2001 Asset Trust, 6.664%, 09/15/13, 144A*.......... Aaa/AAA 1,025,398 1,130,040
Centex Corp., 4.75%, 01/15/08.................................. Baa2/BBB 755,000 776,625
Delta Air Lines, Ser. 2002-1, Cl. G-2, 6.417%, 07/02/12*....... Aaa/AAA 720,000 751,299
Ford Motor Co., 7.45%, 07/16/31................................ Baa1/BBB 115,000 103,305
HRPT Properties Trust, 5.75%, 02/15/14......................... Baa2/BBB 595,000 595,833
Johnson & Johnson, 8.72%, 11/01/24............................. Aaa/AAA 530,000 587,089
SAB Miller PLC, 6.625%, 08/15/33, 144A......................... Baa1/BBB+ 1,125,000 1,178,415
Transocean Sedco Inc., 6.75%, 04/15/05......................... Baa2/A- 860,000 913,135
United Mexican States, 4.625%, 10/08/08........................ Baa2/BBB- 790,000 791,975
Weyerhaeuser Co., 6.00%, 08/01/06.............................. Baa2/BBB 685,000 734,488
---------------
7,562,204
---------------
TELECOMMUNICATIONS & MULTIMEDIA -- 9.14%
AT&T Wireless Services Inc., 7.50%, 05/01/07................... Baa2/BBB 690,000 773,952
AOL Time Warner, 7.625%, 04/15/31.............................. Baa1/BBB+ 370,000 413,444
British Telecom PLC, 7.625%, 12/15/05.......................... Baa1/A- 365,000 404,144
Comcast Corp., 7.05%, 03/15/33................................. Baa3/BBB 365,000 388,871
Deutsche Telekom International Finance, 7.75%, 06/15/05........ Baa3/BBB+ 860,000 939,610
France Telecom, 7.75%, 03/01/11................................ Baa3/BBB 625,000 754,012
---------------
3,674,033
---------------
TOTAL CORPORATE BONDS (Cost $18,377,904)................................................. 18,762,566
---------------
ASSET BACKED SECURITIES -- 12.31%
Bear Stearns Commercial Mortgage Sec., Ser. 1999-WF2, Cl. A2,
7.08%, 06/15/09............................................... Aaa/AAA 770,000 876,117
Franklin Auto Trust, Ser. 2003-1, Cl. A4, 2.27%, 05/20/11...... Aaa/AAA 795,000 780,815
See notes to financial statements.
9
1838 FIXED INCOME FUND
SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING+ AMOUNT (NOTE 2)
------------ -------- ---------
FHLMC Structured Pass Through Sec., Ser. H005, Cl. A2,
2.55%, 08/15/07................................................ Aaa/AAA $ 820,000 $ 819,100
JP Morgan Chase Commercial Mortgage Sec., Ser. 2001-CIBC, Cl. A1,
5.288%, 03/15/33............................................... Aaa/AAA 546,178 566,905
Long Beach Auto Receivables Trust, Ser. 2003-A, Cl. A3,
2.021%, 07/15/07............................................... Aaa/AAA 650,000 651,280
TF Auto Receivables Owner Trust, Ser. 2002-1, Cl. A3,
3.00%, 05/12/09, 144A.......................................... Aaa/AAA 905,000 918,032
Textron Financial Corp. Receivables Trust, Ser. 2000-B, Cl. A3,
6.99%, 03/15/06, 144A.......................................... Aaa/AAA 333,778 335,894
---------------
TOTAL ASSET BACKED SECURITIES (Cost $4,817,055).......................................... 4,948,143
---------------
MORTGAGE BACKED SECURITIES -- 31.96%
FGCI, Pool # E00617, 5.50%, 01/01/14........................... Aaa/AAA 375,453 388,669
FGCI, Pool # E92496, 5.50%, 11/01/17........................... Aaa/AAA 24,377 25,112
FGLMC, Pool # A00930, 10.00%, 05/01/20......................... Aaa/AAA 8,320 9,324
FGLMC, Pool # C80342, 6.50%, 09/01/25.......................... Aaa/AAA 306,795 320,269
FGLMC, Pool # D85515, 6.50%, 01/01/28.......................... Aaa/AAA 289,443 301,625
FGLMC, Pool # C16503, 6.50%, 10/01/28.......................... Aaa/AAA 4,005 4,171
FGLMC, Pool # C00967, 8.50%, 02/01/30.......................... Aaa/AAA 169,192 182,232
FGLMC, Pool # C01188, 7.00%, 06/01/31.......................... Aaa/AAA 214,787 225,984
FGLMC, Pool # C65864, 6.50%, 04/01/32.......................... Aaa/AAA 978,219 1,017,532
FGLMC, Pool # C01361, 6.00%, 05/01/32.......................... Aaa/AAA 529,420 543,449
FGLMC, Pool # C72047, 7.00%, 09/01/32.......................... Aaa/AAA 5,528 5,816
FGLMC, Pool # TBA, 6.00%, 06/01/33............................. Aaa/AAA 775,000 795,102
FGLMC, Pool # A14017, 5.50%, 10/01/33.......................... Aaa/AAA 1,188,772 1,199,276
FNCI, Pool # 303728, 6.00%, 01/01/11........................... Aaa/AAA 461,039 481,153
FNCI, Pool # 482515, 5.50%, 01/01/14........................... Aaa/AAA 117,902 122,001
FNCI, Pool # 252381, 5.50%, 04/01/14........................... Aaa/AAA 55,100 56,916
FNCI, Pool # 535003, 7.00%, 11/01/14........................... Aaa/AAA 431,066 457,924
FNCI, Pool # 357279, 6.00%, 05/01/17........................... Aaa/AAA 486,415 505,918
FNCI, Pool # 701353, 5.50%, 04/01/18........................... Aaa/AAA 460,835 474,665
FNCI, Pool # 695852, 5.00%, 05/01/18........................... Aaa/AAA 418,385 425,283
FNCI, Pool # 708835, 5.00%, 06/01/18........................... Aaa/AAA 622,857 633,126
FNCL, Pool # 481429, 6.00%, 01/01/29........................... Aaa/AAA 703,430 723,810
FNCL, Pool # 516898, 7.00%, 01/01/30........................... Aaa/AAA 14,871 15,672
FNCL, Pool # 522898, 8.00%, 01/01/30........................... Aaa/AAA 120,496 130,112
FNCL, Pool # 526025, 8.00%, 01/01/30........................... Aaa/AAA 170,826 184,266
FNCL, Pool # 704096, 5.50%, 05/01/33........................... Aaa/AAA 1,170,513 1,181,814
See notes to financial statements.
10
18389 FIXED INCOME FUND
SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING+ AMOUNT (NOTE 2)
------------ -------- -----------
FNCL, Pool # 743430, 5.50%, 10/01/33........................... Aaa/AAA $ 595,000 $ 600,745
FNCX, Pool # 313411, 7.00%, 03/01/04........................... Aaa/AAA 8,663 8,716
FNCX, Pool # 250890, 7.00%, 04/01/04........................... Aaa/AAA 84,431 86,337
GNSF, Pool # 6937, 8.50%, 12/15/05............................. Aaa/AAA 1,006 1,050
GNSF, Pool # 780374, 7.50%, 12/15/23 .......................... Aaa/AAA 285,222 306,895
GNSF, Pool # 417239, 7.00%, 02/15/26........................... Aaa/AAA 470,043 499,292
GNSF, Pool # 528190, 7.50%, 04/15/30........................... Aaa/AAA 25,011 26,730
GNSF, Pool # 569684, 6.00%, 02/15/32........................... Aaa/AAA 837,007 865,034
GNSF, Pool # 588967, 6.00%, 11/15/32........................... Aaa/AAA 15,382 15,897
G2SF, Pool # 2038, 8.50%, 07/20/25............................. Aaa/AAA 28,311 30,731
---------------
TOTAL MORTGAGE BACKED SECURITIES (Cost $12,554,801)....................................... 12,852,648
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS-- 4.64%
FHLMC, 2.875% , 09/15/05....................................... Aaa/AAA 465,000 471,939
FHLMC, Sub. Notes, 6.25%, 03/05/12............................. Aa2/AA- 830,000 888,395
FNMA, 4.75%, 02/21/13.......................................... Aaa/AAA 515,000 504,498
---------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $1,835,081)................................ 1,864,832
---------------
U.S. TREASURY OBLIGATIONS**-- 3.22%
U.S. Treasury Notes, 1.625%, 09/30/05...................................... 235,000 234,284
U.S. Treasury Notes, 4.25%, 08/15/13....................................... 250,000 248,985
U.S. Treasury Bonds, 5.375%, 02/15/31...................................... 785,000 811,218
---------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $1,295,426)......................................... 1,294,487
---------------
SHARES
--------
SHORT-TERM INVESTMENTS -- 1.43%
Evergreen Institutional Money Market Fund - I Shares (Cost $576,332)....... 576,332 576,332
---------------
TOTAL INVESTMENTS (Cost $39,456,599)-- 100.22%................................................... $ 40,299,008
OTHER ASSETS AND LIABILITIES, NET-- (0.22%)...................................................... (89,851)
---------------
NET ASSETS-- 100.00%............................................................................. $ 40,209,157
===============
144A Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. As of October 31, 2003, these securities amounted
to 10.46% of net assets. These securities have been determined to be
liquid under guidelines approved by the Board of Trustees.
+ Unaudited
* The bond's principal and interest payments are insured by MBIA, Inc., the
parent company of 1838 Investment Advisors, LLC.
** While no ratings are shown for U.S. Treasury Obligations, they are
considered to be of the highest quality, comparable to Moody's Aaa rating
and S&P's AAA rating.
See notes to financial statements.
11
1838 LARGE CAP EQUITY FUND
- --------------------------------------------------------------------------------
TO THE SHAREHOLDER:
How refreshing to begin this report with news that, after three calendar years
of negative stock market returns, U.S. equities rebounded in 2003. In fact, the
S&P 500 Index is up about 37% from its October 9, 2002 low, at this writing.
For the fiscal year ended October 31, 2003 the 1838 Large Cap Fund (the "Fund")
gained 15.12% and the S&P 500 Index is up 20.82%. Most of the difference can be
assigned to two market effects. Smaller capitalization stocks handily
outperformed large cap stocks during the period. In addition, lower quality
issues also did much better than stocks of the better managed, market leading
firms. As you are aware, the Fund focuses on the larger companies that enjoy
market leadership positions in their respective industries. Both of these
attributes lagged during the last 12 months. However, we look forward to the
prospect of broader market participation that would also include these dominant
companies.
Within the various sectors the Fund had difficulty in the Consumer and Finance
arena. Despite very strong returns gained from its holdings of Carnival Corp.
and International Game Technology, they could not offset significant weakness in
Viacom and Kohl's. The latter stock has been sold, as of this writing. The Fund
avoided the poor returns experienced in food retailing and alcohol beverage
companies, but stumbled with its holdings of Kraft and Colgate-Palmolive. The
former stock has been sold, according to our discipline.
- --------------------------------------------------------------------------------
LARGE CAP EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT*
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SINCE FINAL VALUE OF A
1 YEAR INCEPTION $10,000 INVESTMENT
------ --------- ------------------
FUND 15.12% (8.60)% $6,922
S&P 500 20.82% (3.10)% 8,790
[LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:]
1838 LARGE CAP EQUITY FUND S&P 500
29-Sept-99 10,000 10,000
OCT-99 10,610 10,753
OCT-00 11,123 11,409
OCT-01 7,704 8,570
OCT-02 6,012 7,275
OCT-03 6,922 8,790
*Past performance is no guarantee of future results. The 1838 Large Cap Equity
Fund commenced operations on September 29, 1999. The values shown reflect a
hypothetical initial investment of $10,000 with distributions reinvested.
Returns are higher due to 1838 Investment Advisors, LLC maintenance of the
Fund's expense cap. The S&P 500 Index is an unmanaged stock market index
without any associated expenses and the returns assume reinvestment of all
dividends. You cannot invest directly in an index. Please read the prospectus
carefully before investing. Distributed by MBIA Capital Management Corporation.
See the Financial Highlights on page 21 for more details.
12
1838 LARGE CAP EQUITY FUND
- --------------------------------------------------------------------------------
In Finance, the Fund scored good returns in two nontraditional holdings, Morgan
Stanley and MBNA, the credit card issuer. However, they were more than offset by
losses experienced by its holdings of Fifth Third Bancorp and AIG. Fifth Third
was sold earlier in the year.
On a positive note, the Fund outperformed a very strong tech sector return of
more than 40% for the period. The Fund's best holdings were in the semiconductor
arena: Texas Instruments, Analog Devices and Intel. The Fund continues to hold
all three stocks, anticipating continuing strength in demand for their products.
The Fund's holding of Cisco also handily outperformed the sector. The only
significant loss experienced was in Motorola which was also sold when it
violated our discipline.
Looking forward, we are heartened by strength gathering in our economic
environment. However, there is still plenty of skepticism among market
forecasters, which points out that we do not appear to be in the heady,
optimistic market conditions that may have preceded the decline beginning in
2000. Investors are focusing on earnings growth, and more importantly, the
quality of earnings, especially after experiencing notable failures such as
Enron in the recent past. In sum, we are hopeful that the broad market averages
will continue to rise, and our style which focuses on high quality, large cap,
market leaders will participate.
Sincerely
/S/GEORGE W. GEPHART, JR.
George W. Gephart, Jr.
Vice President & Portfolio Manager
November 14, 2003
13
1838 LARGE CAP EQUITY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ -----------
COMMON STOCK -- 98.76%
BASIC INDUSTRIES -- 10.38%
Ecolab Inc................................................................. 5,800 $ 155,962
General Electric Co........................................................ 16,140 468,221
Illinois Tool Works........................................................ 4,500 330,975
Ingersoll-Rand Co. (A Shares).............................................. 5,300 320,120
United Technologies Corp................................................... 4,100 347,229
-------------
1,622,507
-------------
CONSUMER CYCLICAL -- 16.32%
Carnival Corp.............................................................. 5,400 188,514
Gannett Co. Inc............................................................ 2,700 227,097
Harley Davidson Inc........................................................ 3,300 156,453
Home Depot Inc............................................................. 8,600 318,802
International Game Technology.............................................. 5,800 189,950
Kohl's Corp.*.............................................................. 2,300 128,961
Lowe's Cos. Inc............................................................ 3,500 206,255
Target Corp................................................................ 5,340 212,212
Viacom Inc. (B Shares)..................................................... 10,630 423,818
Wal-Mart Stores Inc........................................................ 8,480 499,896
-------------
2,551,958
-------------
CONSUMER STAPLES -- 8.58%
Coca Cola Co............................................................... 6,900 320,160
Colgate-Palmolive Co....................................................... 2,700 143,613
Dean Foods Co.*............................................................ 5,000 151,250
Estee Lauder Cos. (A Shares)............................................... 4,300 160,777
Pepsico Inc................................................................ 6,600 315,612
Procter & Gamble Co........................................................ 2,550 250,640
-------------
1,342,052
-------------
ENERGY -- 5.09%
BP Amoco PLC - Sponsored ADR............................................... 6,600 279,708
Exxon Mobil Corp........................................................... 14,112 516,217
-------------
795,925
-------------
FINANCIAL -- 21.03%
American International Group............................................... 7,827 476,116
Citigroup Inc.............................................................. 14,415 683,271
Golden West Financial Corp................................................. 2,000 200,860
MBNA Corp.................................................................. 13,200 326,700
Morgan Stanley Dean Witter Co.............................................. 6,800 373,116
Travelers Property Casualty (A Shares)..................................... 12,627 205,820
US Bancorp................................................................. 14,500 394,690
See notes to financial statements.
14
1838 LARGE CAP EQUITY FUND
SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ -----------
Washington Mutual Inc...................................................... 7,400 $ 323,750
Wells Fargo Co............................................................. 5,400 304,128
--------------
3,288,451
--------------
HEALTHCARE-- 12.66%........................................................
Abbott Laboratories........................................................ 9,700 413,414
Guidant Corp............................................................... 4,100 209,141
Lilly (Eli) & Co. Inc...................................................... 5,300 353,086
Medtronic Inc.............................................................. 6,900 314,433
Merck & Co. Inc............................................................ 4,000 177,000
Wellpoint Health Networks Inc.*............................................ 1,600 142,240
Wyeth...................................................................... 8,400 370,776
--------------
1,980,090
--------------
TECHNOLOGY -- 18.17%
Analog Devices Inc.*....................................................... 4,700 208,351
Applied Materials Inc.*.................................................... 14,200 331,854
Cisco Systems Inc.*........................................................ 21,700 455,266
First Data Corp............................................................ 3,900 139,230
Intel Corp................................................................. 20,280 670,254
International Business Machines Corp....................................... 2,750 246,070
Microsoft Corp............................................................. 15,690 410,294
Symantec Corp.*............................................................ 3,200 213,280
Texas Instruments Inc...................................................... 5,730 165,712
--------------
2,840,311
--------------
DEREGULATED INDUSTRIES -- 6.53%
AT&T Wireless Group*....................................................... 24,900 180,525
Comcast Corp.*............................................................. 9,800 319,675
Dominion Resources Inc..................................................... 2,750 169,400
Entergy.................................................................... 2,800 150,920
Verizon Communications..................................................... 5,950 199,920
--------------
1,020,440
--------------
TOTAL COMMON STOCKS (Cost $14,121,286)................................. 15,441,734
--------------
SHORT-TERM INVESTMENT -- 4.25%
Evergreen Institutional Money Market Fund - I Shares (Cost $665,069)....... 665,069 665,069
--------------
TOTAL INVESTMENTS (Cost $14,786,355)-- 103.01%.................................. $ 16,106,803
OTHER ASSETS AND LIABILITIES, NET-- (3.01%)..................................... (471,009)
--------------
NET ASSETS-- 100.00%............................................................ $ 15,635,794
==============
* Non-income producing securities
ADR - American Depositary Receipt
See notes to financial
statements.
15
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2003
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME LARGE CAP
EQUITY FUND FUND EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost $45,664,144, $39,456,599
and $14,786,355, respectively) (Note 2)....................... $50,653,765 $40,299,008 $16,106,803
Receivables:
Dividends, interest and foreign tax reclaims................... 126,547 364,485 24,505
Investment securities sold..................................... -- 1,840,381 5,480,199
Other assets...................................................... 4,507 5,348 2,107
- ------------------------------------------------------------------------------------------------------------------
Total assets................................................. 50,784,819 42,509,222 21,613,614
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Management fees due to advisor (Note 4)........................... 30,714 5,432 340
Due to affiliates (Note 4)........................................ 9,300 7,079 6,222
Payable for investment securities purchased....................... 626,413 2,254,972 314,818
Payable for Fund shares redeemed.................................. -- -- 5,643,457
Other accrued expenses............................................ 27,684 32,582 12,983
- ------------------------------------------------------------------------------------------------------------------
Total liabilities............................................ 694,111 2,300,065 5,977,820
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS........................................................ $50,090,708 $40,209,157 $15,635,794
==================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest..................................... $ 4,769 $ 3,956 $ 2,291
Additional capital paid-in........................................ 62,173,790 36,632,568 27,588,453
Undistributed net investment income............................... -- 99,458 121,045
Accumulated net realized gain (loss) on investments............... (17,110,421) 2,630,766 (13,396,443)
Net unrealized appreciation on:
Investments.................................................... 4,989,621 842,409 1,320,448
Translation of assets and liabilities in foreign currencies.... 32,949 -- --
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS........................................................ $50,090,708 $40,209,157 $15,635,794
==================================================================================================================
Shares of beneficial interest outstanding......................... 4,768,635 3,955,746 2,290,596
NET ASSETS VALUE, offering and redemption price per share
(Net assets/Outstanding shares of beneficial interest)......... $ 10.50 $ 10.16 $ 6.83
==================================================================================================================
See notes to financial statements.
16
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME LARGE CAP
EQUITY FUND FUND EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends...................................................... $ 926,924 $ -- $ 310,447
Interest....................................................... 4,784 3,331,394 4,312
Foreign taxes withheld ........................................ (104,258) -- --
- ------------------------------------------------------------------------------------------------------------------
Total Investment Income.............................. 827,450 3,331,394 314,759
- ------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 4).............................. 347,332 320,891 134,622
Administration fee (Note 4).................................... 27,787 38,507 15,000
Accounting fee (Note 4)........................................ 60,314 44,539 40,000
Custodian fees ................................................ 33,720 12,606 5,181
Transfer agency fees (Note 4).................................. 20,000 20,000 20,000
Trustees' fees (Note 4)........................................ 13,175 20,220 5,658
Audit fees..................................................... 13,553 13,662 8,085
Legal fees..................................................... 21,440 16,299 16,084
Registration fees.............................................. 16,245 16,806 13,664
Reports to shareholders........................................ 5,425 8,148 2,605
Other.......................................................... 11,556 25,934 8,900
- ------------------------------------------------------------------------------------------------------------------
Total expenses............................................ 570,547 537,612 269,799
Advisory fees waived (Note 4)............................. -- (152,563) (114,472)
- ------------------------------------------------------------------------------------------------------------------
Total expenses, net.................................... 570,547 385,049 155,327
- ------------------------------------------------------------------------------------------------------------------
Net investment income............................... 256,903 2,946,345 159,432
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions.................................. (4,147,033) 2,753,015 (3,024,970)
Foreign currency transactions............................ (265,355) -- --
- ------------------------------------------------------------------------------------------------------------------
Total net realized gain (loss)......................... (4,412,388) 2,753,015 (3,024,970)
- ------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of:
Investments.............................................. 13,092,097 (1,582,276) 5,578,110
Translation of assets and liabilities in
foreign currencies ................................... 7,854 -- --
- ------------------------------------------------------------------------------------------------------------------
Total change in unrealized appreciation (depreciation). 13,099,951 (1,582,276) 5,578,110
- ------------------------------------------------------------------------------------------------------------------
Net gain on investments and foreign currency...... 8,687,563 1,170,739 2,553,140
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 8,944,466 $ 4,117,084 $ 2,712,572
==================================================================================================================
See notes to financial statements.
17
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME LARGE CAP
EQUITY FUND FUND EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2003
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ......................................... $ 256,903 $ 2,946,345 $ 159,432
Net realized gain (loss) from investment and
foreign currency transactions............................. (4,412,388) 2,753,015 (3,024,970)
Change in unrealized appreciation (depreciation)
of investments and foreign currency....................... 13,099,951 (1,582,276) 5,578,110
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations.............. 8,944,466 4,117,084 2,712,572
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income.......................................... -- (2,846,887) (99,491)
Long-term gains................................................ -- (499,526) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions......................................... -- (3,346,413) (99,491)
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets from Fund share transactions (Note 5)...... (15,360,896) (50,295,065) (8,072,977)
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets............................................ (6,416,430) (49,524,394) (5,459,896)
NET ASSETS:
Beginning of year................................................. 56,507,138 89,733,551 21,095,690
- --------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$0, $99,458 and $121,045, respectively)....................... $50,090,708 $40,209,157 $15,635,794
====================================================================================================================
FOR THE YEAR ENDED OCTOBER 31, 2002
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ......................................... $ 58,564 $ 6,338,057 $ 95,676
Net realized gain (loss) from investment and
foreign currency transactions............................... (11,551,103) 514,671 (7,328,678)
Change in unrealized appreciation (depreciation) of
investments and foreign currency............................ 1,936,115 (3,129,687) 1,069,356
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations... (9,556,424) 3,723,041 (6,163,646)
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income.......................................... -- (6,338,057) (102,259)
Short-term gains............................................... -- (1,885,738) --
Long-term gains................................................ -- (395,985) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions.......................................... -- (8,619,780) (102,259)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from Fund share transactions
(Note 5) (5,943,650) (34,040,564) 5,595,751
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets............................................ (15,500,074) (38,937,303) (670,154)
NET ASSETS:
Beginning of year.............................................. 72,007,212 128,670,854 21,765,844
- --------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$0, $0 and $61,104, respectively).......................... $56,507,138 $89,733,551 $21,095,690
====================================================================================================================
See notes to financial statements.
18
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each fiscal year and other performance information derived from the financial
statements. It should be read in conjuction with the financial statements and
notes thereto.
INTERNATIONAL EQUITY FUND
FOR THE FISCAL YEARS ENDED OCTOBER 31,
- --------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF YEAR................. $8.50 $9.89 $14.59 $14.57 $12.08
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income .......................... 0.05 0.01 0.03 0.01 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions.. 1.95 (1.40) (3.19) 0.78 3.34
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations............... 2.00 (1.39) (3.16) 0.79 3.37
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income....................... -- -- -- -- --
From net short-term realized gain on investments. -- -- (0.22) (0.45) --
From net long-term realized gain on investments.. -- -- (1.32) (0.32) (0.88)
- --------------------------------------------------------------------------------------------------------------------
Total distributions............................ -- -- (1.54) (0.77) (0.88)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF YEAR....................... $10.50 $8.50 $9.89 $14.59 $14.57
====================================================================================================================
TOTAL RETURN........................................ 23.53% (14.05)% (23.94)% 5.06% 29.10%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses......................................... 1.23% 1.10% 1.04% 1.10% 1.09%
Net investment income ........................... 0.55% 0.08% 0.26% 0.04% 0.23%
Portfolio turnover rate............................. 45.93% 31.51% 41.58% 51.99% 48.71%
Net assets, end of year (in 000's).................. $50,091 $56,507 $72,007 $101,686 $86,547
See notes to financial statements.
19
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each fiscal year and other performance information derived from the financial
statements. It should be read in conjuction with the financial statements and
notes thereto.
FIXED INCOME FUND
FOR THE FISCAL YEARS ENDED OCTOBER 31,
- ------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF YEAR......... $10.11 $10.49 $9.75 $9.81 $10.24
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income1................... 0.48 0.56 0.61 0.63 0.53
Net realized and unrealized gain (loss)
on investments ....................... 0.08 (0.19) 0.75 (0.04) (0.45)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations1..... 0.56 0.37 1.36 0.59 0.08
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income............... (0.45) (0.56) (0.62) (0.65) (0.51)
Return of capital........................ -- -- -- -- --
From net short-term realized gain on
investments............................ -- (0.16) -- -- --
From net long-term realized gain on
investments........................... (0.06) (0.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions................... (0.51) (0.75) (0.62) (0.65) (0.51)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF YEAR............... $10.16 $10.11 $10.49 $9.75 $9.81
========================================================================================================================
TOTAL RETURN................................ 5.67% 3.86% 14.36% 6.33% 0.79%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of fee waivers)2........... 0.60% 0.60% 0.60% 0.60% 0.61%
Expenses (excluding fee waivers)......... 0.84% 0.74% 0.70% 0.75% 0.73%
Net investment income1 .................. 4.59% 5.58% 6.09% 6.57% 5.35%
Portfolio turnover rate..................... 234.92% 205.61% 199.43% 361.63% 834.18%
Net assets, end of year (in 000's).......... $40,209 $89,734 $128,671 $152,319 $94,221
1 Effective November 1, 2001, the Fixed Income Fund adopted the required
provisions of the AICPA Audit and Accounting Guide for Investment Companies.
The effect of this change for the year ended October 31, 2002 was to increase
net investment income per share by $0.01, decrease net realized and
unrealized gains and losses per share by $0.01 and increase the ratio of net
investment income to average net assets by 0.09%. Per share ratios and
supplemental data for periods prior to November 1, 2001 have not been
restated to reflect this change in accounting principle.
2 Effective March 1, 1999, 1838 Investment Advisors, LLC voluntarily agreed to
waive its fees and/or reimburse the Fund so the total operating expenses do
not exceed 0.60% of average daily net assets.
See notes to financial statements.
20
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements. It should be read in conjuction with the financial
statements and notes thereto.
LARGE CAP EQUITY FUND
FOR THE FISCAL YEAR OR PERIOD ENDED OCTOBER 31,
- ---------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999+
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF YEAR............... $5.96 $7.67 $11.09 $10.61 $10.00
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income.......................... 0.06 0.03 0.03 0.02 0.01
Net realized and unrealized gain on investments 0.84 (1.70) (3.43) 0.49 0.60
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations............ 0.90 (1.67) (3.40) 0.51 0.61
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income..................... (0.03) (0.04) (0.02) (0.01) --
From net short-term realized gain on investments -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions......................... (0.03) (0.04) (0.02) (0.03) --
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF YEAR..................... $6.83 $5.96 $7.67 $11.09 $10.61
=====================================================================================================================
TOTAL RETURN...................................... 15.12% (21.96)% (30.73)% 4.83% 6.10%*
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of fee waivers).................. 0.75% 0.75% 0.75% 0.75% 0.75%**
Expenses (excluding fee waivers)............... 1.30% 1.18% 1.17% 1.73% 4.98%**
Net investment income ......................... 0.77% 0.41% 0.32% 0.23% 1.55%**
Portfolio turnover rate........................... 55.00% 53.26% 45.82% 54.21% 5.58%
Net assets, end of year (in 000's)................ $15,636 $21,096 $21,766 $19,831 $4,923
+ The Large Cap Equity Fund commenced operations on September 29, 1999.
* Total return not annualized.
** Annualized.
See notes to financial statements.
21
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 1 -- DESCRIPTION OF THE FUNDS
The 1838 Investment Advisors Funds (the "Trust") was organized as a Delaware
series business trust on December 9, 1994, and is an open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust's Agreement and Declaration of Trust permits
the Trustees to issue an unlimited number of shares of beneficial interest. The
Trust consists of three Funds: the 1838 International Equity Fund, the 1838
Fixed Income Fund and the 1838 Large Cap Equity Fund (each a "Fund" and
collectively, the "Funds"). The investment objectives of each Fund are set forth
below.
The 1838 International Equity Fund (the "International Fund") commenced
operations on August 3, 1995. The Fund's investment objective is capital
appreciation, with a secondary objective of income. The Fund seeks to achieve
its objective by investing at least 80% of its total assets in a diversified
portfolio of equity securities of issuers located in countries other than the
United States.
The 1838 Fixed Income Fund (the "Fixed Income Fund") commenced operations on
September 2, 1997. The Fund's investment objective is maximum current income,
with a secondary objective of growth. The Fund seeks to achieve its objective by
investing, under normal circumstances, at least 80% of its assets in a
diversified portfolio of fixed income securities.
The 1838 Large Cap Equity Fund (the "Large Cap Fund") commenced operations on
September 29, 1999. The Fund's investment objective is long-term total return.
The Fund seeks to achieve its objective by investing at least 90% of its total
assets in the common stock of U.S. companies with market capitalizations greater
than $5 billion.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION. Each Fund's securities, except investments with remaining
maturities of 60 days or less, are valued at the last quoted sales price on the
security's principal exchange on that day. If there are no sales of the relevant
security on such day, the security will be valued at the bid price on that day,
if any. Debt securities having a maturity of 60 days or less are valued at
amortized cost. Securities for which market quotations are not readily available
and all other assets will be valued at their respective fair value as determined
in good faith by, or under procedures established by, the Board of Trustees. As
of October 31, 2003, there were no securities valued by, or under procedures
established by, the Board of Trustees.
FEDERAL INCOME TAXES. Each Fund is treated as a separate entity and intends to
remain qualified as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 and to distribute all of its taxable income to its
shareholders. Therefore, no federal income or excise tax provision is required.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the International Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The International Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the International Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities, resulting from changes in
exchange rates.
22
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the
International Fund may enter into forward foreign currency exchange contracts
("FFCEC"). Additionally, the International Fund may enter into these contracts
to hedge certain foreign currency assets. Foreign currency exchange contracts
are recorded at fair value. Certain risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts. Realized gains or losses arising from such transactions are
included in net realized gain (loss) from foreign currency transactions. There
were no FFCEC to hedge foreign currency assets outstanding at October 31, 2003.
TRANSFERS IN-KIND. Shareholders may periodically contribute marketable
securities to a respective Fund, upon approval of the Fund's management, in
exchange for capital shares of the respective Fund. The exchange is conducted on
a taxable basis, whereby any unrealized appreciation or depreciation on the
marketable securities on the date of transfer is recognized by the shareholder
and the Fund's basis in the securities is the market value as of the date of
transfer. The number of shares issued to the shareholder is calculated by
dividing the market value of the marketable securities, determined using the
last quoted sales price on the security's principal exchange on that day, by the
current net asset value per share of the respective Fund on the date of
transfer.
DISTRIBUTIONS TO SHAREHOLDERS AND BOOK/TAX DIFFERENCES. The Fixed Income Fund
distributes net investment income monthly. All other distributions by the Funds
will be made annually in December. Additional distributions may be made by each
Fund to the extent necessary. Distributions of net investment income and net
realized gains are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles in the United States of
America ("GAAP"). These differences are primarily due to differing treatments of
gains or losses on foreign currency transactions and losses deferred due to wash
sales. Net investment income, short-term gains and foreign currency gains are
taxed as ordinary income and long-term gains are taxed as capital gains.
Distributions during the fiscal year ended October 31, 2003 were characterized
as follows for tax purposes:
ORDINARY CAPITAL TOTAL
FUND INCOME GAIN DISTRIBUTION
---- --------- -------- ------------
International Fund......... $ -- $ -- $ --
Fixed Income Fund.......... 2,846,887 499,526 3,346,413
Large Cap Fund............. 99,491 -- 99,491
Distributions during the fiscal year ended October 31, 2002 were characterized
as follows for tax purposes:
ORDINARY CAPITAL TOTAL
FUND INCOME GAIN DSTRIBUTION
---- ---------- -------- -----------
International Fund......... $ -- $ -- $ --
Fixed Income Fund.......... 8,233,795 395,985 8,619,780
Large Cap Fund............. 102,259 -- 102,259
At October 31, 2003, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED CAPITAL
ORDINARY LONG TERM LOSS UNREALIZED
FUND INCOME CAPITAL GAIN CARRYFORWARD APPRECIATION
---- ---------- ------------ ------------ ------------
International Fund.......... $ -- $ -- $(17,020,772) $4,899,972
Fixed Income Fund........... 1,427,725 1,312,262 -- 828,646
Large Cap Fund.............. 121,045 -- (13,036,446) 960,451
23
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
As of October 31, 2003, the following table shows the capital loss carryovers
available to offset possible future capital gains for the following Funds:
FUND AMOUNT EXPIRATION DATE
---- ----------- ---------------
International Fund.............. $ 1,643,063 10/31/2009
11,237,327 10/31/2010
4,140,382 10/31/2011
Large Cap Fund.................. $ 341,572 10/31/2008
2,609,791 10/31/2009
7,065,447 10/31/2010
3,019,636 10/31/2011
At October 31, 2003, the following table shows for federal tax purposes the
aggregate cost of investments, the net unrealized appreciation/(depreciation) of
those investments, the aggregate gross unrealized appreciation of all securities
with an excess of market value over tax cost and the aggregate gross unrealized
depreciation of all securities with an excess of tax cost over market value.
NET UNREALIZED GROSS GROSS
AGGREGATE APPRECIATION/ UNREALIZED UNREALIZED
FUND TAX COST (DEPRECIATION) APPRECIATION DEPRECIATION
---- ----------- -------------- ------------ ------------
International Fund....................... $45,753,793 $4,899,972 $7,868,755 $2,968,783
Fixed Income Fund........................ 39,470,362 828,646 948,850 120,204
Large Cap Fund........................... 15,146,352 960,451 1,719,259 758,808
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that may affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
OTHER. Investment security transactions are accounted for on a trade date basis.
The specific identification method is utilized for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
During the fiscal year ended October 31, 2003, purchases and sales of investment
securities, other than short-term investments, were as follows:
INTERNATIONAL FIXED INCOME LARGE CAP
FUND FUND FUND
------------ ------------- -----------
Purchases......................... $20,760,679 $148,934,535 $10,958,419
Sales............................. 35,863,860 197,686,902 18,822,696
24
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES -- (CONTINUED)
Purchases, sales and maturities of U.S. Government securities, during the fiscal
year ended October 31, 2003, were as follows:
INTERNATIONAL FIXED INCOME LARGE CAP
FUND FUND FUND
------------ ------------- -------------
Purchases......................... $ -- $51,917,738 $ --
Sales............................. -- 54,875,663 --
NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust, on behalf of each Fund, employs 1838 Investment Advisors, LLC (the
"Investment Advisor"), a wholly-owned subsidiary of MBIA, Inc., and registered
investment adviser under the 1940 Act, to furnish investment advisory services
to the Funds pursuant to an Investment Advisory Agreement with the Trust. The
Investment Advisor supervises the investment of the assets of the Funds in
accordance with each Fund's investment objective, policies and restrictions.
The Trust pays the Investment Advisor a monthly fee at the following annual
rates of each Fund's average daily net assets: 0.75% for the International Fund,
0.50% for the Fixed Income Fund and 0.65% for the Large Cap Fund. The Investment
Advisor has voluntarily agreed to waive its advisory fee and/or reimburse each
Fund monthly to the extent that the total operating expenses (excluding taxes,
extraordinary expenses, brokerage commissions and interest) will exceed the
following annual rates of each Fund's average daily net assets: 1.25% for the
International Fund, 0.60% for the Fixed Income Fund and 0.75% for Large Cap
Fund. This undertaking may be rescinded at any time in the future.
The following table summarizes the advisory fees incurred by the Funds for the
fiscal year ended October 31, 2003:
GROSS ADVISORY FEE NET
ADVISORY FEE WAIVER ADVISORY FEE
------------ ----------- ------------
International Fund.............. $347,332 $ -0- $347,332
Fixed Income Fund............... 320,891 152,563 168,328
Large Cap Fund.................. 134,622 114,472 20,150
1838 Investment Advisors, LLC ("1838") also serves as Administrator to the Trust
pursuant to an Administration Agreement with the Trust on behalf of each Fund.
As Administrator, 1838 is responsible for services such as financial reporting,
compliance monitoring and corporate management. The Trust pays 1838 a monthly
asset-based fee at the annual rate of 0.06% of each Fund's average daily net
assets, with a minimum annual fee per Fund of $15,000. For the fiscal year ended
October 31, 2003, 1838's administration fees amounted to $27,787, $38,507 and
$15,000, for the International Fund, the Fixed Income Fund and the Large Cap
Fund, respectively.
MBIA Municipal Investors Services Corporation ("MBIA MISC"), a direct,
wholly-owned subsidiary of MBIA, Inc., serves as Accounting Agent to the Trust.
As Accounting Agent, MBIA MISC determines each Fund's net asset value per share
and provides accounting services to the Funds pursuant to an Accounting Services
Agreement with the Trust. The Trust pays MBIA MISC a monthly asset-based fee at
the annual rate of $40,000, plus 0.03% of each Fund's average daily net assets
in excess of $50 million for the Fixed Income Fund and the Large Cap Fund. For
the International Fund the Trust pays at the annual rate of $60,000, plus 0.03%
of average daily net assets in excess of $50 million. For the fiscal year ended
October 31, 2003, MBIA MISC's accounting fees amounted to $60,314, $44,539 and
$40,000, for the International Fund, the Fixed Income Fund and the Large Cap
Fund, respectively.
25
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED)
MBIA MISC also serves as the Fund's transfer agent pursuant to a Transfer Agency
Agreement with the Trust. For these services, MBIA MISC receives an annual fee
per Fund of $20,000, and is reimbursed for out-of-pocket expenses. For fiscal
year ended October 31, 2003, MBIA MISC's transfer agent fees amounted to $20,000
for each Fund.
MBIA Capital Management Corporation (the "distributor"), a direct, wholly-owned
subsidiary of MBIA, Inc., entered into a Distribution Agreement with the Trust
to assist in securing purchasers for shares of each Fund. The distributor also
directly or through its affiliates, provides investor support services. The
distributor receives no compensation for distributing the Funds' shares, except
for reimbursement of its out-of-pocket expenses.
The Trustees of the Trust who are "interested persons" of the Trust, the
Investment Advisor or its affiliates and all personnel of the Trust or the
Investment Advisor performing services related to research, statistical and
investment activities are paid by the Investment Advisor or its affiliates.
NOTE 5 -- FUND SHARE TRANSACTIONS
At October 31, 2003, there were an unlimited number of shares of beneficial
interest with a $0.001 par value, authorized. The following table summarizes the
activity in shares of each Fund:
INTERNATIONAL FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002
----------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ------------
Shares sold..................................... 319,488 $ 2,920,560 447,668 $ 4,408,467
Shares redeemed................................. (2,195,911) (18,281,456) (1,086,733) (10,352,117)
--------- ----------- --------- -----------
Net decrease.................................... (1,876,423) $(15,360,896) (639,065) $ (5,943,650)
=========== ============
Shares outstanding:
Beginning of year....................... 6,645,058 7,284,123
--------- ---------
End of year............................ 4,768,635 6,645,058
========= =========
FIXED INCOME FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------
Shares sold..................................... 255,303 $ 2,619,947 448,482 $ 4,505,566
Shares issued to shareholders in reinvestment
of distributions............................. 297,492 3,031,642 778,386 7,754,268
Shares redeemed................................. (5,472,108) (55,946,654) (4,621,456) (46,300,398)
--------- ----------- --------- -----------
Net decrease.................................... (4,919,313) $(50,295,065) (3,394,588) $(34,040,564)
============ ============
Shares outstanding:
Beginning of year....................... 8,875,059 12,269,647
--------- ----------
End of year............................ 3,955,746 8,875,059
========= ==========
26
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
NOTE 5 -- FUND SHARE TRANSACTIONS -- (CONTINUED)
LARGE CAP FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------
Shares sold........................................... 446,054 $ 2,712,563 1,200,399 $ 9,403,633
Shares issued to shareholders in reinvestment
of distributions................................... 12,078 72,347 11,406 93,074
Shares redeemed....................................... (1,705,353) (10,857,887) (511,391) (3,900,956)
--------- ---------- -------- ----------
Net increase (decrease)............................... (1,247,221) $(8,072,977) 700,414 $ 5,595,751
=========== ============
Shares outstanding:
Beginning of year.............................. 3,537,817 2,837,403
--------- --------
End of year................................... 2,290,596 3,537,817
========= =========
NOTE 6 -- CONCENTRATION OF RISKS
The International Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the U.S., as a result of, among other
factors, the possibility of future political and economical developments and the
level of government supervision and regulation of securities markets in the
various countries.
NOTE 7 -- CHANGE OF FUND AUDITOR
On December 19, 2002, the Board of Trustees of the Trust approved changing the
Trust's independent auditors from PricewarterhouseCoopers LLP ("PWC") to Tait,
Weller & Baker for the fiscal year ending October 31, 2003. During the Trust's
most recent two fiscal years, PWC's report on the financial statements did not
contain an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope, or accounting principles and the Trust
did not have any disagreements with PWC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope of procedure.
27
1838 INVESTMENT ADVISORS FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OCTOBER 31, 2003
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF 1838 INVESTMENT ADVISORS FUNDS
We have audited the accompanying statements of assets and liabilities of
International Equity Fund, Large Cap Equity Fund and Fixed Income Fund, each a
series of 1838 Investment Advisors Funds, including the schedules of
investments, as of October 31, 2003, and the related statements of operations,
the statements of changes in net assets and the financial highlights for the
year then ended. 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. The financial highlights for each of the four years in the period ended
October 31, 2002 and the statements of changes in net assets for the year ended
October 31, 2002 were audited by other auditors whose report dated December 12,
2002 expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 October 31, 2003 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
International Equity Fund, Large Cap Equity Fund, and Fixed Income Fund as of
October 31, 2003, the results of their operations, the changes in their net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER &BAKER
Philadelphia, PA
November 26, 2003
28
1838 INVESTMENT ADVISORS FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION (UNAUDITED)
TAX INFORMATION
The 1838 Fixed Income Fund paid distributions of $0.0604 per share from net
long-term capital gains during the
fiscal year ended October 31, 2003. Pursuant to section 852 of the Internal
Revenue Code, the 1838 Fixed Income Fund designated $499,526 as capital gain
distributions for the fiscal year ended October 31, 2003.
29
1838 INVESTMENT ADVISORS FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
POSITION(S) LENGTH OF
HELD WITH THE PRINCIPAL OCCUPTION TIME SERVED;
NAME, ADDRESS AND AGE TRUST COMPLEX AND DIRECTORSHIPS DURING THE PAST FIVE YEARS TERM OF OFFICE
- ------------------------------------------------------------------------------------------------------------------------------------
W. Thacher Brown (55) President, Chairman President and Director, 1838 Investment Advisors, LLC 1995 to
2701 Renaissance and Trustee of each (successor company to 1838 Investment Advisors, Inc. present;
Boulevard, Fourth Floor, Fund in the Trust and 1838 Investment Advisors, L.P.) (1988 - Present); indefinite
King of Prussia, PA 19406 Complex President and Chief Executive Officer, 1838 Investment
Advisors, Inc. (1988 - 1998); President, MBIA Asset
Management, LLC (successor company to MBIA Asset Management
Corp.); Director, 1838 Bond-Debenture Trading Fund; Airgas,
Inc. and Harleysville Mutual Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Charles D. Dickey, Jr. (85) Trustee of each Retired. Formerly Chairman and CEO of Scott Paper 1995 to
2701 Renaissance Fund in the Trust Company (retired as CEO 1983; retired as Director, 1988); present;
Boulevard, Fourth Floor, Complex Formerly Director of General Electric Company (retired indefinite
King of Prussia, PA 19406 1991).
- ------------------------------------------------------------------------------------------------------------------------------------
Frank B. Foster, III (68) Trustee of each Chairman, DBH Assoc. (1987-Present); Director, OAO 1995 to
2701 Renaissance Fund in the Trust Technology Solutions Inc. (NASDAQ) (1997-Present); present;
Boulevard, Fourth Floor, Complex Director; Airgas Inc. (1986-Present). indefinite
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
Robert P. Hauptfuhrer (71) Trustee of each Director, Quaker Chemical Corp. (1977-Present). 1995 to
2701 Renaissance Fund in the Trust present;
Boulevard, Fourth Floor, Complex indefinite
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
Johannes B. van den Berg (46) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1995 to
2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present;
Boulevard, Fourth Floor, of the International Investment Advisors, L.P.) (1997 - Present); Managing indefinite
King of Prussia, PA 19406 Equity Fund Director and Portfolio Manager, MeesPierson 1838
Investment Advisors (1994-1998); President, MeesPierson
Capital Management, Inc. (1994-1998).
30
<page>
1838 INVESTMENT ADVISORS FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING THE TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
POSITION(S) LENGTH OF
HELD WITH THE PRINCIPAL OCCUPTION TIME SERVED;
NAME, ADDRESS AND AGE TRUST COMPLEX AND DIRECTORSHIPS DURING THE PAST FIVE YEARS TERM OF OFFICE
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford D. Corso (40) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1997 to
2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present;
Boulevard, Fourth Floor, of the Fixed Income Investment Advisors, L.P.) (1998-Present); Vice President indefinite
King of Prussia, PA 19406 Fund and Senior Portfolio Manager, MBIA Capital Management Corp
(1994-1998).
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Gephart, Jr. (50) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1999 to
2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present;
Boulevard, Fourth Floor, of the Large Cap Investment Advisors, L.P.), (1988 - Present) Chairman, Bryn indefinite
King of Prussia, PA 19406 Equity Fund Mawr Rehab Hospital (Past); and Director, Main Line Health
Systems and Jefferson Health Systems (Present).
- ------------------------------------------------------------------------------------------------------------------------------------
Anna M. Bencrowsky (52) Vice President, Vice President-Chief Compliance Officer, 1838 Investment 1995 to
2701 Renaissance Treasurer and Advisors, LLC (successor company to 1838 Investment present;
Boulevard, Fourth Floor, Secretary of each of Advisors, Inc. and 1838 Investment Advisors Funds, L.P.) indefinite
King of Prussia, PA 19406 the Funds in the (1988 - Present) Vice President and Secretary, 1838 Bond-
Trust Complex Debenture Trading Fund.
Additional information about the Board of Trustees and Officers can be found in
the Statement of Additional Information (SAI) and available upon request without
charge by calling 877-367-1838.
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED)
- --------------------------------------------------------------------------------
The Funds have adopted Portfolio Proxy Voting Policies and Procedures under
which the Funds vote proxies relating to securities ("portfolio proxies") held
by the Funds. A description of the Funds' Portfolio Proxy Voting Policies and
Procedures is available (i) without charge, upon request, by calling toll free
1-800-232-1838 and (ii) on the SEC's website, www.sec.gov.
31
INVESTMENT ADVISER
AND ADMINISTRATOR
-----------
1838 INVESTMENT ADVISORS, LLC
2701 RENAISSANCE BOULEVARD
FOURTH FLOOR
KING OF PRUSSIA, PA 19406
DISTRIBUTOR
-----------
MBIA CAPITAL MANAGEMENT CORPORATION
113 KING STREET
ARMONK, NY 10504
ACCOUNTING AND
TRANSFER AGENT
-----------
MBIA MUNICIPAL INVESTORS SERVICE CORPORATION
113 KING STREET
ARMONK, NY 10504
CUSTODIAN
-----------
WACHOVIA NATIONAL BANK
123 S. BROAD STREET
PHILADELPHIA, PA 19109
LEGAL COUNSEL
-----------
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & ARCH STREETS
PHILADELPHIA, PA 19103
AUDITORS
-----------
TAIT, WELLER & BAKER
1818 MARKET STREET
SUITE 2400
PHILADELPHIA, PA 19103
AR 10/03
1838
INVESTMENT ADVISORS FUNDS
-------------------------
INTERNATIONAL EQUITY FUND
FIXED INCOME FUND
LARGE CAP EQUITY FUND
ANNUAL REPORT
OCTOBER 31, 2003
ITEM 2: Code of Ethics
The Board of Trustees has adopted a code of ethics that applies to
the principal executive officer, principal financial officer, principal
accounting officer or controller of the Registrant, 1838 Investment Advisors,
LLC and MBIA Capital Management Corporation, and to persons performing similar
functions.
ITEM 3: Audit Committee Financial Expert
The Board of Trustees of the registrant has determined that Frank B.
Foster, III, the Chairman of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert," and has designated Mr. Foster
as the Audit Committee's financial expert. Mr. Foster is an "independent"
Director pursuant to paragraph (a)(2)of Item 3 to Form N-CSR.
ITEM 4: Principal Accountant Fees and Services
Not applicable at this time.
ITEM 5-6: (Reserved)
ITEM 7: Disclosure of Proxy Voting Policies and Procedures for Closed-
End Management Investment Companies
Not applicable.
ITEM 8: (Reserved)
ITEM 9: CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Principal Executive and
Financial Officers concluded that the Registrant's Disclosure Controls and
Procedures are effective based on their evaluation of the Disclosure Controls
and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Controls over Financial Reporting. There were no
significant changes in Registrant's internal controls over financial reporting
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10: EXHIBITS. The following exhibits are attached hereto:
(a)code of ethics
(b)certifications
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
1838 Investment Advisors Funds
BY: /s/ W. Thacher Brown
--------------------
W. Thacher Brown
Chairman and President
Date: January 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
BY: /s/ W. Thacher Brown
--------------------
W. Thacher Brown
Chairman and President
(Principal Executive Officer)
Date: January 5, 2003
BY: /s/ Anna M. Bencrowsky
----------------------
Anna M. Bencrowsky
Secretary and Treasurer
(Principal Financial Officer)
Date: January 5, 2003