-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WYkabNtyoJrO8iaRBIJrygAU/FCOzufHofAzwejx//DyJSjx8Q7R9Q7G9X8qzald BXfo/q7NG9l7JDcBFuJXbA== 0000950115-97-002010.txt : 19971231 0000950115-97-002010.hdr.sgml : 19971231 ACCESSION NUMBER: 0000950115-97-002010 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971230 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1838 INVESTMENT ADVISORS FUNDS CENTRAL INDEX KEY: 0000933996 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 232794406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08902 FILM NUMBER: 97746903 BUSINESS ADDRESS: STREET 1: FIVE RADNOR CORPORATE CENTER SUITE 320 STREET 2: 100 MATSONFORD ROAD CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6102934300 MAIL ADDRESS: STREET 1: FIVE RADNOR CORPORATE CENTER SUITE 320 STREET 2: 100 MATSONFORD ROAD CITY: RADNOR STATE: PA ZIP: 19087 N-30D 1 ANNUAL REPORT 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- December 10, 1997 TO THE SHAREHOLDER: The net asset value per share of your Fund as of October 31, 1997 was $11.99 per share. Compared with the net asset value per share of $11.29 as of April 30, 1997, the return on your investment for the most recent half year period was 6.2%. During this period, the benchmark for the Fund, the EAFE index, which tracks the performance of the equity markets of Europe, Australia and the Far East, showed a total return of 3.0%. Also, over the last twelve months, the Fund's return compared favorably with its benchmark at 15.2% versus 4.6%. In the printed version there appears a line chart with the following plot points depicted:
8/3/95 10/31/95 4/30/96 10/31/96 4/30/97 10/31/97 ------ -------- ------- -------- ------- -------- 1838 International Equity Fund 10,000 9,610 10,817 10,490 11,377 12,082 EAFE Index 10,000 9,550 10,820 10,560 10,740 10,460
* Includes all expenses and/or charges, and thus represents a "net return". The Fund's returns are higher due to the Investment Advisor's maintenance of expenses. The 1838 International Equity Fund commenced operations on August 3, 1995. The overseas equity markets generally performed well from April through September, with exceptions in the Far East. A correction in August was short and was followed by a recovery in September. During October, however, currency and equity market weakness in the Far East affected investor confidence in Europe and the Americas negatively and the EAFE benchmark lost close to 8% in that one month. During the May through October period, your Fund's returns were again boosted primarily by its stock selection. In our investment process we closely follow and compare the equity valuations in terms of price earnings that market participants are applying, to the expected growth in earnings of the companies involved. Any reduction in earnings growth, or in the visibility of earnings - -------------- Past performance is not predictive of future results. Investment returns and principlal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 1 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- growth, reduces the attractiveness of a stock for the portfolio. Our expectation of a growth correction, as the result of the required political, fiscal, monetary, regulatory and corporate balance sheet adjustments in the Far East and Latin America, consequently led us to reduce the Fund's exposure to companies that are operating in these markets. Currently, we are re-investing most of the resulting stock sale proceeds in the European markets, where the economic recovery is well entrenched and growth continues to trend upwards. The global deregulation of capital, labor and product markets is proceeding faster than expected and is causing substantial losses in equity markets of countries that have resisted these changes. In today's corrections, we believe that growth will resume and investment opportunities for your Fund will be improved. Sincerely, /s/ Hans van den Berg Vice President and Portfolio Manager - -------------- 12/97. Shares of the 1838 International Equity Fund are distributed by Rodney Square Distributors, Inc. Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 2 1838 INTERNATIONAL EQUITY FUND SCHEDULE OF NET ASSETS OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Value Shares (Note 2) ------ -------- COMMON STOCK -- 96.2% ARGENTINA -- 0.8% Banco de Galicia Y Buenos Aires S.A. DE C.V. Banking........................... 17,000 $ 411,984 -------------- AUSTRALIA -- 1.7% Broken Hill Propriety Co. Metals - Diversified.............. 36,488 361,979 National Australia Bank, Ltd. Banking........................... 38,888 532,169 -------------- 894,148 -------------- BRAZIL -- 0.8% Centrais Eletricas Brasileiras S.A. Eletrobras ADR Electric Utilities................ 20,000 421,786 -------------- CANADA -- 1.2% Canadian Pacific, Ltd. Transportation.................... 20,000 596,250 -------------- FRANCE -- 7.7% Alcatel Alsthom Telecommunications................ 4,500 540,513 Compagnie Gen Des Eaux Service Company................... 90 10,453 Promodes Retail-Grocery.................... 1,500 486,151 Rhone Poulenc Chemicals......................... 11,693 507,514 Schlumberger, Ltd. Exploration Services.............. 10,000 875,000 SGS-Thomson Microelectronics N.V.* Electronics....................... 8,500 605,625 Societe Generale Banking & Financial Services...... 134 18,269 Total S.A. (B Shares) Oil & Gas Exploration............. 8,000 883,596 -------------- 3,927,121 -------------- GERMANY -- 8.8% Adidas AG Sportswear........................ 7,000 1,016,841 Deutsche Lufthansa AG Airlines.......................... 35,000 613,751 Mannesmann AG Machinery Manufacturer............ 2,000 844,956 SAP ADR Computers & Software.............. 14,200 1,410,761 Volkswagen AG Automobile Manufacturer........... 1,000 592,048 -------------- 4,478,357 -------------- HONG KONG -- 5.7% Cheung Kong Holdings, Ltd. Real Estate....................... 52,000 361,134 China Resources Enterprise, Ltd. Real Estate....................... 100,000 273,919 Citic Pacific, Ltd. Holding Company................... 90,000 430,260 HSBC Holdings Financial Services................ 42,125 952,500
See notes to financial statements. 3 1838 INTERNATIONAL EQUITY FUND SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Value Shares (Note 2) ------ -------- Huaneng Power Intl., Inc. ADR* Electric Utilities................ 22,000 $ 484,000 Hutchinson Whampoa, Ltd. Diversified....................... 56,000 387,105 -------------- 2,888,918 -------------- INDIA -- 0.7% Videsh Sanchar Nigam Ltd. Telecommunications................ 25,000 345,000 -------------- INDONESIA -- 0.3% PT Bank Intl. Indonesia Banking........................... 420 24 Telekomunik Indonesia ADR Telecommunications................ 7,500 145,781 -------------- 145,805 -------------- ITALY -- 4.3% ENI Oil Refining...................... 10,000 563,750 Gucci Group Apparel........................... 15,000 545,625 Telecom Italia Mobile Spa Telecommunications................ 300,000 1,109,760 -------------- 2,219,135 -------------- JAPAN -- 21.8% Advantest Corporation Electronics....................... 6,300 522,180 Autobacs Seven Co., Ltd. Auto Parts Distributor............ 10,000 522,305 Fuji Bank, Ltd. Banking........................... 50,000 433,171 Fujitsu, Ltd. Computer Manufacturer............. 45,000 494,815 Honda Motor Co. Automobile Manufacturer........... 16,000 539,798 Hoya Corp. Glass Manufacturer................ 13,000 452,664 Ibiden Company, Ltd. Electronics....................... 56,000 932,984 Mitsubishi Estate Co., Ltd. Real Estate....................... 45,000 569,787 Mitsui & Co., Ltd. Diversified - Wholesale........... 50,000 380,274 Nippondenso Company, Ltd. Electronics....................... 36,000 779,708 Promise Company, Ltd. Financial Services................ 18,100 1,061,469 Ricoh Company, Ltd. Office Equipment.................. 47,000 606,856 Rohm Company Ltd. Electronics....................... 5,000 495,648 Secom Company, Ltd. Securities Services............... 7,000 453,664 Sony Corp. Electronics....................... 12,000 998,626 Takeda Chemicals Industries Pharmaceuticals................... 44,000 1,202,217 TDK Corp. Electronic Components............. 8,000 665,084 -------------- 11,111,250 -------------- KOREA -- 1.0% Korea Mobile Telecom ADR Communications.................... 18,540 101,970 Pohang Iron & Steel Company, Ltd. ADR Iron & Steel Manufacturer......... 20,000 325,000 Samsung Electronics GDR* Electronics....................... 10,000 101,850 -------------- 528,820 --------------
See notes to financial statements. 4 1838 INTERNATIONAL EQUITY FUND SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Value Shares (Note 2) ------ -------- MALAYSIA -- 0.2% Malayan Banking Berhad Banking........................... 33,000 $ 124,539 -------------- MEXICO -- 1.9% Grupo Financiero Inbursa, S.A. de C.V. Financial Services................ 100,000 347,255 TV Azteca, S.A. de C.V. Television Broadcasting........... 1,000 19,125 Vitro S.A.* Glass Products.................... 50,000 596,875 -------------- 963,255 -------------- NETHERLANDS -- 8.0% Aegon N.V. Insurance......................... 10,307 809,533 Akzo N.V. Chemicals......................... 4,000 702,464 ASM Lithography Holdings N.V.* Electronics....................... 8,000 579,055 ING Groep, N.V. Financial Services................ 17,693 740,236 Koninklijke Ahold N.V. Retail Food Distributor........... 24,909 635,512 Philips Electronics N.V. Electronics....................... 7,700 603,489 -------------- 4,070,289 -------------- PHILIPPINES -- 0.6% Ionics Circuit Inc. Electronics....................... 375,000 219,685 Pilipino Telephone Corp. Telecommunications................ 500,000 108,696 -------------- 328,381 -------------- SINGAPORE -- 1.2% Singapore Press Holdings Publishing........................ 26,000 356,615 United O/S Bank Banking........................... 43,000 236,458 -------------- 593,073 -------------- SPAIN -- 3.6% Banco Santander S.A. Banking........................... 41,700 1,164,327 Telefonica de Espana ADR Telecommunication Equipment....... 8,000 658,000 -------------- 1,822,327 -------------- SWEDEN -- 2.3% Atlas Copco AB (A Shares) Machinery Manufacturer............ 20,000 585,021 Telefonaktiebolaget LM Ericsson ADR Telecommunication Equipment....... 13,500 597,375 -------------- 1,182,396 -------------- SWITZERLAND -- 7.5% Adecco SA Business Services................. 1,500 473,371 Ciba Specialty Chemicals AG* Chemicals......................... 6,000 585,065 Nestle S.A. ADR Food Processing................... 11,300 798,307 Novartis AG (Bearer Shares) Pharmacueticals................... 426 667,051 Novartis AG (Regular Shares) Pharmaceuticals................... 300 466,563 Zurich Versicherungsgesellschaft ADR* Insurance......................... 10,000 827,851 -------------- 3,818,208 --------------
See notes to financial statements. 5 1838 INTERNATIONAL EQUITY FUND SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Value Shares (Note 2) ------ -------- UNITED KINGDOM -- 16.1% British Aerospace plc Aerospace......................... 43,000 $ 1,135,849 Carlton Communications plc ADR Broadcasting...................... 15,000 631,875 Glaxo Wellcome plc Pharmaceuticals................... 18,000 770,625 Kingfisher plc Retail Department Stores.......... 55,000 787,945 Lloyds TSB Group plc Banking........................... 85,209 1,059,955 Prudential Corp. plc Insurance......................... 85,000 902,655 Reed Intl. plc Publishing........................ 66,000 649,641 Siebe plc Machinery Manufacturer............ 30,000 573,552 Smithkline Beecham plc Pharmaceuticals................... 111,246 1,049,491 Vodafone Group plc ADR Telecommunications................ 12,000 658,500 -------------- 8,220,088 -------------- TOTAL COMMON STOCK (COST $44,127,912).......................................................... 49,091,130 -------------- COMMERCIAL PAPER -- 3.7% Par --- American Express Credit Corp., 5.60%, 11/03/97 (COST $1,899,000).......... $1,899,000 1,899,000 -------------- TOTAL INVESTMENTS (COST $46,026,912)+--99.9%............................................ $ 50,990,130 OTHER ASSETS AND LIABILITIES, NET -- 0.1%............................................... 55,468 -------------- NET ASSETS -- 100.0%.................................................................... $ 51,045,598 ==============
* Non-income producing security. + Also the cost for Federal income tax purposes. At October 31, 1997, net unrealized appreciation was $4,963,218. This consisted of aggregate gross unrealized appreciation in which there was an excess of market value over tax cost of $8,649,065, and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $3,685,847. ADR - American Depository Receipt GDR - Global Depository Receipt See notes to financial statements. 6 1838 SMALL CAP EQUITY FUND - -------------------------------------------------------------------------------- December 10, 1997 TO THE SHAREHOLDER: The North American equities markets demonstrated continued strength during the 1838 Small Cap Equity Fund's fiscal year, November 1, 1996 through October 31, 1997. During the first half of the year, the Fund outperformed the small cap Russell 2000 Index by a healthy margin in an environment which was highlighted by substantial volatility. During the second half of the year, the Fund performed in line with the Index with a backdrop of generally steady appreciation. For the entire fiscal year, the Fund's return was 37.81%, while the Index appreciated 29.34%. The strong relative and absolute returns for the year illustrate the general characteristics of the value style which the 1838 Small Cap Equity Fund utilizes. The fund's aim is to capture the essence of a small cap appreciation phase, and then to hold on to those gains better than other small cap managers during periods of corrections or consolidations. This is accomplished by adhering to the disciplined investment process explained below. In the printed version there appears a line chart with the following plot points depicted: 6/17/96 10/31/96 10/31/97 ------- -------- -------- 1838 Small Cap Equity Fund 10,000 9,570 13,197 Russell 2000 Index 10,000 9,682 12,521 * Includes all expenses and/or charges, and thus represents a "net return". The Fund's returns are higher due to the Investment Advisor's maintenance of expenses. The 1838 Small Cap Equity Fund commenced operations on June 17, 1996. The Investment Process The 1838 Small Cap Equity Fund follows a very disciplined investment process focused primarily upon a low price in relation to trailing 12 months' earnings (low P/E) screen. Accordingly, all stocks purchased for the Fund's portfolio will be small cap ($900 million of market float or less) and low P/E, defined as the lowest 40% of all stocks contained in the Compustat North American Database. - -------------- Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 7 1838 SMALL CAP EQUITY FUND - -------------------------------------------------------------------------------- This small cap, low P/E investment style has been adopted because numerous studies have concluded that over the long-term for North American stocks, the smaller the company and the lower the P/E, the better the performance in aggregate. A Prudential Securities study updated through 1996 confirms that over the last 21 years, the return of the lowest P/E stocks in the small cap universe exceeded that of the highest valued stocks by 2.7 times. In reviewing stocks for inclusion in the Fund's portfolio, other fundamental and quantitative measures are observed and judged important in assisting with the decision making process. The following analysis of the stocks in the Fund at the end of the October 1997 fiscal year leads us to conclude that the fundamental characteristics of the holdings in aggregate are stronger than those for the comparable small cap benchmark.
Summary Characteristics* Average Average Average Market Average EPS Growth Return on Debt/Total Cap** P/E Ratio 5 Year Equity Capitalization ----- --------- ------ ------ -------------- 1838 Small Cap Fund...................... $379MM 15.2x 22.5% 17.1% 34.1% Russell 2000 Index....................... $530MM 21.9x 14.1% 15.0% 37.2%
* This chart represents the characteristics of the Fund's portfolio at October 31, 1997. ** 1838 measures market float only (excluding closely held shares) only in calculating equity capitalization for the Fund's holdings. A comparison with similar studies in recent years suggests that these premium fundamental characteristics tend to be consistently maintained. During the 1838 Small Cap Equity Fund's 1997 fiscal year, five of the portfolio's top ten performing stocks were of companies operating in the financial sectors. The Fund's substantial weighting in that sector served it well throughout the period as it has over the last several years. In recent months, that sector has been de-emphasized on the margin based on historically high valuations. The portfolio at the end of the 1997 year continued to be well-diversified over a broad array of industry sectors. Fiscal 1997 was a successful period for the disciplined investment style employed by the 1838 Small Cap Equity Fund. - -------------- Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 8 1838 SMALL CAP EQUITY FUND - -------------------------------------------------------------------------------- The Outlook Early into fiscal 1998, investors seem distracted by the implications of ongoing volatility in various foreign exchange markets. As the presently unchallenged economic and political leader of the world community, the U.S. and its private sector remain well positioned to exploit opportunities as they presently exist. With inflation in control and growth continuing in the U.S. economy, we maintain a positive attitude. With some of the most obvious sectors having already demonstrated positive performance in the equities markets, it seems likely that stock selection will become of premier importance again. In such an environment, a highly-disciplined small cap style should accrue to the advantage of investors. Sincerely, /S/ Edwin B. Powell Vice President & Portfolio Manager - -------------- 12/97. Shares of the 1838 Small Cap Equity Fund are distributed by Rodney Square Distributors, Inc. Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 9 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Value Shares (Note 2) ------ -------- COMMON STOCK -- 95.8% AGRICULTURE, FORESTRY & FISHERIES -- 1.1% Sylvan, Inc.*............................................................. 20,680 $ 310,200 -------------- FINANCE & INSURANCE -- 16.8% INSURANCE CARRIERS -- 13.5% Allmerica Financial Corp.................................................. 6,000 281,250 Capmac Holdings, Inc...................................................... 9,550 286,500 E.W. Blanch Holdings, Inc................................................. 10,770 360,795 Enhance Financial Services Group, Inc..................................... 6,990 369,159 Everest Re Holdings, Inc.................................................. 5,625 211,641 Executive Risk, Inc....................................................... 3,090 203,554 FPIC Insurance Group, Inc.*............................................... 8,700 258,825 Harleysville Group, Inc................................................... 15,000 382,500 Life USA Holding, Inc..................................................... 18,900 311,850 Penn Treaty American Corp.*............................................... 4,600 147,775 Penncorp Financial Group, Inc............................................. 8,500 276,781 State Auto Financial Corp................................................. 15,050 421,400 The PMI Group, Inc........................................................ 2,900 175,269 W.R. Berkley Corp......................................................... 5,250 215,906 -------------- 3,903,205 -------------- SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 0.4% Long Island Bancorp, Inc.................................................. 3,015 134,168 -------------- STATE & NATIONAL BANKS -- 2.9% Century Bancorp, Inc. (A Shares).......................................... 7,400 136,900 Dime Community Banccorp, Inc.*............................................ 17,100 361,238 Riggs National Corp....................................................... 9,100 209,300 United Security Bancorporation*........................................... 6,710 124,135 -------------- 831,573 -------------- TOTAL FINANCE & INSURANCE............................................................. 4,868,946 -------------- MANUFACTURING -- 47.4% BUILDER - 1.0% Toll Brothers, Inc.*...................................................... 12,800 283,200 -------------- CHEMICALS & ALLIED PRODUCTS -- 2.6% General Chemical Group, Inc............................................... 15,385 451,934 OM Group, Inc............................................................. 7,600 286,900 -------------- 738,834 -------------- COMPUTER & OFFICE EQUIPMENT -- 0.4% Kentek Information Systems, Inc........................................... 14,800 117,475 -------------- See notes to financial statements. 10 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Value Shares (Note 2) ------ -------- CONSUMER PRODUCTS -- 3.2% American Safety Razor Co.*................................................ 10,630 $ 175,395 Block Drug Company, Inc.*................................................. 4,100 190,650 Libbey, Inc............................................................... 10,415 389,261 The First Years, Inc...................................................... 7,030 175,750 -------------- 931,056 -------------- FARM MACHINERY -- 0.6% CTB International Corp.*.................................................. 9,700 166,112 -------------- FOOD & BEVERAGE -- 0.6% M & F Worldwide Corp...................................................... 17,700 168,150 -------------- FURNITURE, FIXTURES & APPLIANCES -- 3.7% American Woodmark Corp.................................................... 7,000 148,750 Culp, Inc................................................................. 7,000 133,000 Fedders Corp. (A Shares).................................................. 26,540 155,923 Furniture Brands International, Inc.*..................................... 14,300 239,525 Holophane Corp.*.......................................................... 10,800 245,700 Royal Appliance Manufacturing Co.*........................................ 18,200 143,325 -------------- 1,066,223 -------------- GAMES & TOYS -- 0.2% DSI Toys, Inc.*........................................................... 13,400 60,300 -------------- MISC. CONTAINERS -- 2.0% Greif Brothers Corp. (A Shares)........................................... 765 26,679 Silgan Holdings, Inc...................................................... 8,800 310,200 US Can Corp.*............................................................. 15,165 244,536 -------------- 581,415 -------------- MISC. ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 6.6% AVX Corp.................................................................. 15,000 423,750 Belden, Inc............................................................... 7,600 260,300 Burr-Brown Corp.*......................................................... 14,412 435,963 General Cable Corp........................................................ 15,300 495,338 HMT Technology Corp.*..................................................... 17,600 297,000 -------------- 1,912,351 -------------- MISC. FABRICATED METAL PRODUCTS -- 3.2% Coastcast Corp.*.......................................................... 12,400 181,350 Doncasters plc ADR*....................................................... 7,300 196,644 Oregon Metallurgical Corp.*............................................... 11,700 274,219 Wolverine Tube, Inc.*..................................................... 8,775 272,025 -------------- 924,238 -------------- See notes to financial statements. 11 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Value Shares (Note 2) ------ -------- MISC. INSTRUMENTATION -- 0.8% Fluke Corp................................................................ 10,140 $ 243,994 -------------- MISC. MANUFACTURING INDUSTRIES -- 1.1% Velcro Industries N.V..................................................... 3,180 303,690 -------------- PAPER & PAPER PRODUCTS -- 4.9% American Pad & Paper Co.*................................................. 13,825 176,269 Buckeye Technology, Inc.*................................................. 12,490 518,335 Paragon Trade Brands, Inc.*............................................... 7,300 139,156 Schweitzer-Mauduit International, Inc..................................... 5,710 240,533 Shorewood Packaging Corp.................................................. 14,000 346,500 -------------- 1,420,793 -------------- PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 4.2% Del Global Technologies Corp.*............................................ 22,000 222,750 Haemonetics Corp.*........................................................ 13,200 199,650 Hologic, Inc.*............................................................ 11,600 297,250 Marquette Medical Systems (A Shares)*..................................... 11,400 293,550 OEC Medical Systems, Inc.*................................................ 11,830 215,897 -------------- 1,229,097 -------------- PRINTING & PUBLISHING -- 0.6% Journal Register Co....................................................... 10,200 177,863 -------------- RUBBER & PLASTICS -- 0.4% Channell Commercial Corp.*................................................ 8,215 101,661 -------------- TELECOMMUNICATIONS EQUIPMENT -- 1.3% Oak Industries, Inc.*..................................................... 13,490 386,994 -------------- TEXTILES & APPAREL -- 2.7% Hirsch International Corp. (A Shares)*.................................... 4,862 91,770 Quaker Fabric Corp.*...................................................... 10,300 196,344 Quiksilver, Inc.*......................................................... 5,900 181,425 Tropical Sportswear International*........................................ 16,100 193,200 Worldtex, Inc.*........................................................... 14,600 122,275 -------------- 785,014 -------------- TRANSPORTATION -- 5.0% Alaska Air Group, Inc.*................................................... 12,100 403,838 America West Holdings Corp.*.............................................. 22,400 331,800 Canadian National Railway Co.............................................. 5,700 307,444 Rollins Truck Leasing Corp................................................ 23,700 394,012 -------------- 1,437,094 -------------- See notes to financial statements. 12 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Value Shares (Note 2) ------ -------- TRANSPORTATION EQUIPMENT -- 2.3% Avondale Industries, Inc.*................................................ 12,500 $ 337,500 Coachmen Industries, Inc.................................................. 16,100 319,988 -------------- 657,488 -------------- TOTAL MANUFACTURING................................................................... 13,693,042 -------------- MINING -- 4.3% COAL -- 0.7% Zeigler Coal Holding Co................................................... 10,800 193,050 -------------- CRUDE PETROLEUM & NATURAL GAS -- 3.6% Belco Oil & Gas Corp.*.................................................... 8,700 188,137 Santa Fe International Corp............................................... 7,400 363,988 Seacor Smit, Inc.......................................................... 5,400 351,675 Willbros Group, Inc.*..................................................... 7,900 154,050 -------------- 1,057,850 -------------- TOTAL MINING.......................................................................... 1,250,900 -------------- REAL ESTATE INVESTMENT TRUSTS -- 3.4% Brandywine Realty Trust................................................... 10,000 234,375 Burnham Pacific Properties, Inc........................................... 17,900 261,787 Healthcare Realty Trust, Inc.............................................. 9,400 261,437 Pacific Gulf Properties, Inc.............................................. 9,400 212,675 -------------- TOTAL REAL ESTATE INVESTMENT TRUSTS.................................................... 970,274 -------------- SERVICES -- 10.4% AMUSEMENT & RECREATION SERVICES -- 1.0% Harveys Casino Resorts.................................................... 14,735 278,123 -------------- BUSINESS SERVICES -- 1.2% Layne Christensen Co...................................................... 13,600 270,300 Obie Media Corp.*......................................................... 10,300 79,825 -------------- 350,125 -------------- COMPUTER SERVICES -- 2.8% Galileo International, Inc................................................ 10,100 253,762 The Learning Company, Inc.*............................................... 21,900 413,363 Wall Data, Inc............................................................ 9,000 147,375 -------------- 814,500 -------------- MEDICAL & HEALTH SERVICES -- 4.8% Grancare, Inc.*........................................................... 17,600 198,000 Integrated Health Services, Inc........................................... 15,300 485,775 See notes to financial statements. 13 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Value Shares (Note 2) ------ -------- Maxicare Health Plans, Inc.*.............................................. 10,520 $ 147,280 Sun Healthcare Group, Inc.*............................................... 11,700 232,537 Trigon Healthcare, Inc.................................................... 12,700 310,356 -------------- 1,373,948 -------------- PERSONAL SERVICES -- 0.6% CPI Corp.................................................................. 7,100 184,600 -------------- TOTAL SERVICES........................................................................ 3,001,296 -------------- WHOLESALE & RETAIL TRADE -- 12.4% RETAIL STORES -- 4.9% Brylane, Inc.*............................................................ 6,900 299,719 Duckwall-Alco Stores, Inc.*............................................... 6,900 102,637 Finlay Enterprises, Inc.*................................................. 9,300 195,300 Little Switzerland, Inc.*................................................. 19,595 127,367 Ruddick Corp.............................................................. 24,035 375,547 Zale Corp.*............................................................... 13,275 335,194 -------------- 1,435,764 -------------- RETAIL BUILDING MATERIALS -- 1.5% Building Materials Holding Corp.*......................................... 23,815 297,688 Cameron Ashley Building Products*......................................... 8,200 142,475 -------------- 440,163 -------------- RESTAURANTS -- 0.7% O' Charley's, Inc.*....................................................... 11,000 203,500 -------------- WHOLESALE ELECTRONIC EQUIP. & COMPUTERS -- 2.3% Marshall Industries.*..................................................... 9,745 341,684 Pioneer-Standard Electronics, Inc......................................... 19,700 322,588 -------------- 664,272 -------------- WHOLESALE MISCELLANEOUS -- 3.0% Day Runner, Inc.*......................................................... 6,700 270,093 Pameco Corp.*............................................................. 8,100 137,700 Pilgrim's Pride Corp...................................................... 10,000 131,250 United Stationers, Inc.*.................................................. 7,800 315,900 -------------- 854,943 -------------- TOTAL WHOLESALE & RETAIL TRADE......................................................... 3,598,642 -------------- TOTAL COMMON STOCK (COST $23,997,784).................................................. 27,693,300 -------------- See notes to financial statements. 14 1838 SMALL CAP EQUITY FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Value Par (Note 2) --- -------- MISCELLANEOUS ASSETS -- 4.4% Scudder Managed Cash Fund (COST $1,278,051)............................... $1,278,051 $ 1,278,051 -------------- COMMERCIAL PAPER -- 1.2% American Express Credit Corp., 5.60%, 11/03/97 (COST $350,000)............ 350,000 350,000 -------------- TOTAL INVESTMENTS (COST $25,625,835)+ -- 101.4%................................................. $ 29,321,351 OTHER ASSETS AND LIABILITIES, NET -- (1.4)%..................................................... (398,814) -------------- NET ASSETS -- 100.0%............................................................................ $ 28,922,537 ==============
* Non-income producing security. + The cost for Federal income tax purposes was $25,541,736. At October 31,1997, net unrealized appreciation was $3,779,615. This consisted of aggregate gross unrealized appreciation in which there was an excess of market value over tax cost of $4,434,983, and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $655,368 See notes to financial statements. 15 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- December 11, 1997 TO THE SHAREHOLDER: Fixed Income Market Review Interest rates declined over the past two months, mostly as a result of a flight to quality into the U.S. bond market. As the Southeast Asian markets fell, investors turned to dollar markets as a safe haven. In addition, inflation news continued to show positive results, with consumer prices averaging only a 2% rise over the past year, and prices at the producer level showing no increase. The overall U.S. economy still shows signs of strength, however, as evidenced by favorable indicators in the housing and jobs market. Although the Asian crisis is expected to have some negative impact on U.S. growth in the months ahead, the net effect will likely be a small decline in the rate of growth from 3+% to 2.5+%. The Federal Reserve could not have asked for more. As long as economic growth remains at or around the targeted 2.5% level, there will be no apparent need to raise interest rates, however, they will undoubtedly remain alert to any signs of wage pressures. With the unemployment rate touching a 24-year low at 4.6%, employers may find stretching employee productivity more and more challenging at current wage levels. The 1838 Fixed Income Fund Since its inception on 9/2/97, the unit value of the Fixed Income Fund has risen from $10.00 per share to $10.27 per share. This represents a total return of 2.70%, versus the Lehman Aggregate Index return of 2.65%. Currently, the Fund is positioned for a continuation of the flight to quality. The Fund has an average duration of 5.13 years, versus 4.58 years for the Index. The weighting in corporate bonds has been increased as a result of better valuations stemming from the declining U.S. equity market. Also, the portfolio holds 36% in mortgage-backed securities due to favorable valuation. Looking ahead, the duration of the Fund will likely be reduced as long-term interest rates approach 6%. - -------------- Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 16 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- A summary of the Fund profile is as follows: 1838 Fixed Lehman Income Fund Aggregate Index ----------- --------------- Average Maturity.......................... 11.57 years 8.43 years Average Duration.......................... 5.13 years 4.58 years Average Quality........................... AA1 AAA Yield to Maturity......................... 6.73% 6.49% Sincerely, /s/ Marcia Zercoe Vice President & Portfolio Manager - -------------- 12/97. Shares of the 1838 International Equity Fund are distributed by Rodney Square Distributors, Inc. Past performance is not predictive of future results. Investment returns and principal values will fluctuate, so that, when redeemed, shares may be worth less than their original cost. 17 1838 FIXED INCOME FUND SCHEDULE OF NET ASSETS OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Moody's/S&P Principal Value Rating* Amount (Note 2) ----------- --------- -------- CORPORATE BONDS -- 38.5% ELECTRIC UTILITIES -- 7.5% Korea Electric Power Co., 7.00%, 10/01/02...................... A1/AA- $ 1,000,000 $ 975,000 Korea Electric Power Co., 7.00%, 02/01/27...................... A1/A+ 600,000 569,250 Utilicorp United Inc., 9.00%, 11/15/21......................... Baa3/BBB 800,000 885,974 ------------ 2,430,224 ------------ FINANCIAL -- 18.9% Associates Corp. of N.A., 6.50%, 10/15/02...................... Aa3/AA- 1,000,000 1,006,580 Citicorp Capital II, Capital Securities, 8.015%, 02/15/27...... Aaa3/A- 1,125,000 1,186,875 FBS Capital I, Capital Securities, 8.09%, 11/15/26............. A2/BBB+ 300,000 316,125 Ford Motor Credit Global, 7.20%, 06/15/07...................... A1/A 1,000,000 1,041,800 JPM Capital Trust II, Capital Securities, 7.95%, 02/01/27...... Aa2/AA- 625,000 655,469 Keycorp Institutional Capital - A, 7.826%, 12/01/20............ A1/BBB 900,000 920,250 Salomon, Inc., 6.75%, 02/15/03................................. Baa1/BBB 1,000,000 1,010,790 ------------ 6,137,889 ------------ FOREIGN -- 1.4% Republic of Indonesia, 7.75%, 08/01/06......................... Baa3/BBB- 500,000 461,250 ------------ INDUSTRIAL & MISCELLANEOUS -- 7.2% Harcourt General Inc., 7.30%, 08/01/20......................... Baa1/BBB+ 1,000,000 1,002,500 News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95........ Baa3/BBB- 925,000 926,156 Societe Generale (NY), 7.40%, 06/01/20......................... A1/A+ 400,000 419,500 ------------ 2,348,156 ------------ MANUFACTURING -- 3.1% Raytheon Co., 6.75%, 08/15/07.................................. Baa1/BBB 1,000,000 1,017,500 ------------ TRANSPORTATION -- 0.4% Union Pacific Co., Debs., 8.625%, 05/15/20..................... Baa2/BBB 125,000 132,500 ------------ TOTAL CORPORATE BONDS (COST $12,383,158) .............................................. 12,527,519 ------------ MORTGAGE BACKED SECURITIES -- 35.8% FHLMC, Ser. T-8, Class A6, 7.00%, 01/15/19..................... NR/NR 1,000,000 1,015,900 FHLMC Pool #C80340, 6.50%, 08/01/25............................ NR/NR 90,650 89,205 FHLMC Pool #C80342, 6.50%, 09/01/20............................ NR/NR 1,033,607 1,017,134 FHLMC Pool #G10557, 6.50%, 07/01/20............................ NR/NR 1,624,088 1,623,581 FNMA Pool #250890, 7.00%, 04/01/04............................. NR/NR 1,741,045 1,762,808 FNMA Pool #313411, 7.00%, 03/01/04............................. NR/NR 472,409 478,314 FNMA Pool #303728, 6.00%, 01/01/20............................. NR/NR 1,409,649 1,384,099
See notes to financial statements. 18 1838 FIXED INCOME FUND SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997 - --------------------------------------------------------------------------------
Moody's/S&P Principal Value Rating* Amount (Note 2) ----------- --------- -------- GNMA Pool #780312, 6.00%, 01/15/20............................. NR/NR $ 1,099,230 $ 1,061,787 GNMA Pool #417239, 7.00%, 02/15/20............................. NR/NR 1,661,180 1,670,005 GNMA Pool #2038, 8.50%, 07/20/20............................... NR/NR 66,569 69,294 GNMA Pool #780374, 7.50%, 12/15/20............................. NR/NR 1,452,371 1,490,495 ------------ TOTAL MORTGAGE BACKED SECURITIES (COST $11,567,430) ................................... 11,662,622 ------------ U.S. TREASURY OBLIGATIONS -- 24.7% U.S. TREASURY BONDS -- 1.6% U.S. Treasury Bonds, 7.25%, 08/12/22........................... NR/NR 25,000 28,145 U.S. Treasury Bonds, 6.25%, 08/15/23........................... NR/NR 500,000 500,905 ------------ 529,050 ------------ U.S. TREASURY NOTES -- 23.1% U.S. Treasury Inflation Index Note, 3.375%, 01/15/07........... NR/NR 900,000 887,337 U.S. Treasury Notes, 6.375%, 5/15/99.......................... NR/NR 1,200,000 1,212,744 U.S. Treasury Notes, 5.625%, 11/30/00.......................... NR/NR 1,400,000 1,394,274 U.S. Treasury Notes, 5.875%, 02/15/00.......................... NR/NR 850,000 852,873 U.S. Treasury Notes, 6.25%, 04/30/01........................... NR/NR 1,500,000 1,522,455 U.S. Treasury Notes, 6.625%, 06/30/01.......................... NR/NR 1,000,000 1,027,070 U.S. Treasury Notes, 5.875%, 06/30/20.......................... NR/NR 600,000 602,646 ------------ 7,499,399 ------------ TOTAL U.S. TREASURY OBLIGATIONS (COST $7,977,389) ..................................... 8,028,449 ------------ MISCELLANEOUS ASSETS -- 1.9% Scudder Managed Cash Fund (COST $611,437)...................... NR/NR 611,437 611,437 ------------ TOTAL INVESTMENTS (COST $32,539,414)+ -- 100.9%................................................. 32,830,027 OTHER ASSETS AND LIABILITIES, NET -- (0.9)%..................................................... (292,858) ------------ NET ASSETS -- 100.0%............................................................................ $ 32,537,169 ============
* Although certain securities are not rated (NR) by either Moody's or S&P, they have been determined to be of comparable quality to investment grade securities by the Portfolio Adviser. The Moody's/S&P rating for debt securities is not covered by the report of independent accountants. + The cost for federal income tax purposes. At October 31, 1997, net unrealized appreciation was $290,613. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $324,905 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $34,292. See notes to financial statements. 19 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 1997 - --------------------------------------------------------------------------------
International Equity Small Cap Equity Fixed Income Fund Fund Fund -------------------- --------------- -------------- Assets: Investments, at market (identified cost $46,026,912, $25,625,835, $32,539,414) (Note 2)..................... $ 50,990,130 $ 29,321,351 $ 32,830,027 Receivables: Dividends and interest ................................. 100,667 16,867 444,252 Foreign taxes recoverable............................... 31,036 -- -- Fund shares sold........................................ 1,377 2,832 17 Investment securities sold.............................. -- -- 734,851 Reimbursement due from adviser............................. -- -- 27,100 Deferred organizational costs (Note 2)..................... 71,119 -- -- Other assets............................................... 166 -- -- -------------- --------------- -------------- Total assets ........................................... 51,194,495 29,341,050 34,036,247 -------------- --------------- -------------- Liabilities: Payables: Due to Adviser ......................................... 46,045 27,106 -- Accrued expenses (Note 4) .............................. 84,602 52,439 34,376 Investment securities purchased......................... 18,250 338,968 1,010,790 Overdraft payable....................................... -- -- 453,912 -------------- --------------- -------------- Total liabilities ...................................... 148,897 418,513 1,499,078 -------------- --------------- -------------- Net Assets ................................................ $ 51,045,598 $ 28,922,537 $ 32,537,169 ============== =============== ============== Net Assets consist of: Common Stock .............................................. $ 4,258 $ 2,212 $ 3,169 Additional capital paid in................................. 43,221,459 23,243,163 31,969,708 Undistributed net investment income (loss)................. 1,262 -- 181,298 Accumulated realized gain (loss) on: Investments ............................................ 2,853,031 1,981,646 92,381 Foreign currency transactions........................... -- -- -- Net unrealized appreciation on: Investments............................................. 4,963,218 3,695,516 290,613 Translation of assets and liabilities in foreign currencies ........................................... 2,370 -- -- -------------- --------------- -------------- Net Assets, for 4,257,803, 2,211,888, and 3,169,065 shares outstanding, respectively ............................. $ 51,045,598 $ 28,922,537 $ 32,537,169 ============== =============== ============== Net Asset Value, offering and redemption price per share... $11.99(1) $13.08(2) $10.273(3) ============== =============== ============== 1 $51,045,598 (divided by) 4,257,803 outstanding shares of beneficial interest, no par value 2 $28,922,537 (divided by) 2,211,888 outstanding shares of beneficial interest, no par value 3 $32,537,169 (divided by) 3,169,065 outstanding shares of beneficial interest, no par value
See notes to financial statements. 20 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED OCTOBER 31, 1997 - --------------------------------------------------------------------------------
International Equity Small Cap Equity Fixed Income Fund Fund Fund++ -------------------- ---------------- -------------- Investment Income: Dividends............................................... $ 776,927 $ 126,079 $ 20,957 Interest................................................ 48,032 60,813 183,658 -------------- --------------- -------------- 824,959 186,892 204,615 -------------- --------------- -------------- Less foreign taxes withheld............................. (65,995) -- -- -------------- --------------- -------------- 758,964 186,892 204,615 -------------- --------------- -------------- Expenses: Investment advisory fee (Note 4) .......................... 372,918 142,555 15,545 Administration fee (Note 4)................................ 58,580 42,416 3,974 Accounting fee (Note 4) ................................... 62,304 40,000 6,575 Custodian fees ............................................ 49,457 21,107 1,000 Amortization of organizational expenses (Note 2) .......... 25,853 -- -- Legal ..................................................... 37,269 5,244 15,171 Audit ..................................................... 16,125 15,025 10,000 Registration fees ......................................... 13,180 17,508 3,966 Directors' fees and expenses (Note 4)...................... 14,250 14,250 3,000 Transfer agency fees....................................... 23,180 19,819 3,000 Reports to shareholders ................................... 21,031 24,991 2,800 Other ..................................................... 21,631 7,046 931 -------------- --------------- -------------- Total expenses before fee waivers ......................... 715,778 349,961 65,962 -------------- --------------- -------------- Advisory fee waived (Note 4)......................... (93,801) (112,370) (15,545) Reimbursement from Investment Advisor (Note 4)....... -- -- (27,100) -------------- --------------- -------------- Total expenses, net.................................. 621,977 237,591 23,317 -------------- --------------- -------------- Net investment income (loss)............................ 136,987 (50,699) 181,298 -------------- --------------- -------------- Realized gain on investments and foreign currency: Net realized gain (loss) on: Investments.......................................... 3,183,377 2,095,990 92,381 Foreign currency transactions........................ (126,955) -- -- Net unrealized appreciation during the period on: Investments.......................................... 3,571,590 3,538,690 290,613 Translation of assets and liabilities in foreign currencies................................. 8,250 -- -- -------------- --------------- -------------- Net gain on investments and foreign currency............ 6,636,262 5,634,680 382,994 -------------- --------------- -------------- Net increase in net assets resulting from operations ...... $ 6,773,249 $ 5,583,981 $ 564,292 ============== =============== ==============
++ The Fixed Income Fund commenced operations on September 2, 1997. See notes to financial statements. 21 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF CHANGES IN NET ASSETS OCTOBER 31, 1997 - --------------------------------------------------------------------------------
International Equity Small Cap Equity Fixed Income Fund Fund+ Fund++ -------------------- ---------------- -------------- For the Period Ended October 31, 1997 Increase in Net Assets Operations: Net investment income (loss) ........................... $ 136,987 $ (50,699) $ 181,298 Net realized gain (loss) on: Investments ......................................... 3,183,377 2,095,990 92,381 Foreign currency transactions........................ (126,955) -- -- -------------- --------------- -------------- Net unrealized appreciation during the period on: Investments ......................................... 3,571,590 3,538,690 290,613 Translation of assets and liabilities in foreign currencies......................................... 8,250 -- -- -------------- --------------- -------------- Net increase in net assets resulting from operations....... 6,773,249 5,583,981 564,292 -------------- --------------- -------------- Distributions to shareholders from: Net investment income ($0.04, $0, and $0 per share, respectively) ....................................... (148,857) -- -- Net realized gain ($0, $0.09 and $0 per share, respectively) ....................................... -- (67,511) -- -------------- --------------- -------------- Total Distributions........................................ (148,857) (67,511) -- -------------- --------------- -------------- Increase in net assets from Fund share transactions (Note 5)................................................. 3,212,276 17,978,416 31,972,877 -------------- --------------- -------------- Increase in net assets .................................... 9,836,668 23,494,886 32,537,169 Net Assets: Beginning of period ................................... 41,208,930 5,427,651 -- -------------- --------------- -------------- End of period........................................... $ 51,045,598 $ 28,922,537 $ 32,537,169 ============== =============== ============== For the Period Ended October 31, 1996 Increase in Net Assets Operations: Net investment income (loss) .......................... $ 204,643 $ (8,741) $ -- Net realized loss on: Investments ......................................... (306,807) (46,833) -- Foreign currency transactions........................ (63,127) -- -- Net unrealized appreciation (depreciation) during the period on: Investments ......................................... 2,071,153 156,826 -- Translation of assets and liabilities in foreign currencies......................................... (5,836) -- -- -------------- --------------- -------------- Net increase in net assets resulting from operations....... 1,900,026 101,252 -- -------------- --------------- -------------- Distribution to shareholders from: Net investment income ($0.04, $0 and $0 per share, respectively) ....................................... (78,685) -- -- -------------- --------------- -------------- Increase in net assets from Fund share transactions (Note 5)................................................. 22,623,847 5,326,399 -- -------------- --------------- -------------- Increase in net assets .................................... 24,445,188 5,427,651 -- Net Assets: Beginning of period..................................... 16,763,742 -- -- -------------- --------------- -------------- End of period .......................................... $ 41,208,930 $ 5,427,651 $ -- ============== =============== ==============
+ The Small Cap Equity Fund commenced operations on June 17, 1996. ++ The Fixed Income Fund commenced operations on September 2, 1997. See notes to financial statements. 22 1838 INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- The following tables include selected data for a share outstanding throughout each fiscal year or period and other performance information derived from the financial statements. They should be read in conjunction with the financial statements and notes thereto. INTERNATIONAL EQUITY FUND
For the Fiscal Years or Period Ended October 31, -------------------------------------------------- 1997 1996 1995+ -------------------------------------------------- Net Asset Value - Beginning of Period ............ $10.44 $9.61 $10.00 -------- -------- ------- Investment Operations: Net investment income ......................... 0.02 0.07 0.02 Net realized and unrealized gain (loss) on investment and foreign currency transactions 1.57 0.80 (0.41) -------- -------- ------- Total from investment operations ........ 1.59 0.87 (0.39) -------- -------- ------- Distributions: From net investment income .................... (0.04) (0.04) -- -------- -------- ------- Net Asset Value - End of Period .................. $11.99 $10.44 $9.61 ======== ======== ======= Total Return ..................................... 15.23% 9.11% (3.90)%*** Ratios (to average net assets)/Supplemental Data: Expenses1 .................................. 1.25% 1.25% 1.25%* Net investment income ...................... 0.28% 0.70% 1.02%* Portfolio turnover rate .......................... 92.33% 59.11% 42.21%* Average commission rate paid ..................... $0.0308 $0.0211 -- Net assets at end of period (000's omitted) ...... $51,046 $41,209 $16,764
SMALL CAP EQUITY FUND
For the Fiscal Year or Period Ended October 31, ----------------------------------------------- 1997 1996+ ----------------------------------------------- Net Asset Value - Beginning of Period ............ $9.57 $10.00 ------- ------- Investment Operations: Net investment income (loss) .................. (0.02) (0.02) Net realized and unrealized gain (loss) on investment and foreign currency transactions 3.62 (0.41) ------- ------- Total from investment operations ........ 3.60 (0.43) ------- ------- Distributions: From net realized gains ....................... (0.09) -- ------- ------- Net Asset Value - End of Period .................. $13.08 $9.57 ======= ======= Total Return ..................................... 37.81% (4.30)%*** Ratios (to average net assets)/Supplemental Data: Expenses2 .................................. 1.25% 1.25%* Net investment income ...................... (0.27)% (0.52)%* Portfolio turnover rate .......................... 67.66% 94.38%* Average commission rate paid ..................... $0.0595 $0.0512 Net assets at end of period (000's omitted) ...... $28,923 $5,428
See notes to financial statements. 23 1838 INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS--CONTINUED - -------------------------------------------------------------------------------- FIXED INCOME FUND For the Period ended October 31, 1997+ ----------------- Net Asset Value - Beginning of Period ...................... $10.00 ------ Investment Operations: Net investment income ................................... 0.06 Net realized and unrealized gain on investment ........................................... 0.21 ------ Total from investment operations .................. 0.27 ------ Net Asset Value - End of Period ............................ $10.27 ====== Total Return ............................................... 2.70%*** Ratios (to average net assets)/Supplemental Data: Expenses3 ............................................ 0.75%* Net investment income ................................ 5.83%* Portfolio turnover rate .................................... 39.12%** Net assets at end of period (000's omitted) ................ $32,537 * Annualized. ** Not annualized. ***The total return has not been annualized. + The International Equity Fund commenced operations on August 3, 1995. The Small Cap Equity Fund commenced operations on June 17, 1996. The Fixed Income Fund commenced operations on September 2, 1997. 1 Without waivers the annualized ratio of expenses to average daily net assets would have been 1.44%, 1.80% and 2.60% for the fiscal years ended October 31, 1997, 1996 and the period ended October 31, 1995, respectively. 2 Without waivers the annualized ratio of expenses to average daily net assets would have been 1.84% and 4.63% for the fiscal year ended October 31, 1997 and the period ended October 31, 1996, respectively. 3 Without waivers and reimbursements the annualized ratio of expenses to average daily net assets would have been 2.12% for the period ended October 31, 1997. See notes to financial statements. 24 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Note 1--Description of the Funds The 1838 Investment Advisors Funds (the "Trust"), a diversified, open-end management investment company, was established as a series Delaware business trust on December 9, 1994, and is 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 has established three series: the 1838 International Equity Fund, the 1838 Small Cap Equity Fund and the 1838 Fixed Income 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 Equity Fund"), the first of the series currently offered by the Trust, 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 in a diversified portfolio of equity securities of issuers located in countries other than the United States. The 1838 Small Cap Equity Fund (the "Small Cap Equity Fund") commenced operations on June 17, 1996. The Fund's investment objective is long-term growth. The Fund seeks to achieve its objective by investing primarily in the common stock of domestic companies with relatively small market capitalization, those with a market value of $1 billion or less (small cap), which are believed to be undervalued and have good prospects for capital appreciation. The Fund will invest in small capitalization companies using a value approach. 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 65% of its assets in a diversified portfolio of fixed income securities. 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 mean between the closing bid and asked 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 market value as determined in good faith by, or under procedures established by, the Board of Trustees. At October 31, 1997, there were no securities valued by the Board of Trustees. Federal Income Taxes. Each Fund is treated as a separate entity and intends to continue to qualify 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. Dividends and Capital Gain Distributions. 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. These differences are primarily due to differing treatments for foreign currency transactions for the International Equity Fund and differing cost basis for securities sold for the Small Cap Equity Fund, since certain securities were transferred to the Fund at its inception. These distributions by each Fund will be made annually in 25 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997 - ------------------------------------------------------------------------------- Note 2--Significant Accounting Policies--continued December. Additional distributions may be made by each Fund to the extent necessary. Deferred Organizational Costs. Costs incurred by the International Equity Fund in connection with the initial registration and public offering of shares have been deferred and are being amortized on a straight-line basis over a five-year period beginning on the date that the Fund commenced operations. Foreign Currency Translations. The books and records of the International Equity 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 Equity 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 Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses at the end of the fiscal year arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. Forward Foreign Currency Exchange Contracts. In connection with portfolio purchases and sales of securities denominated in a foreign currency, the International Equity Fund may enter into forward foreign currency exchange contracts. Additionally, the International Equity Fund may enter into these contracts to hedge certain foreign currency assets. Foreign currency exchange contracts are recorded at market 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. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles 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. Each Fund uses the specific identification method 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 ax-dividend date. Interest income is recorded on an accrual basis. 26 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Note 3--Purchases and Sales of Investment Securities During the period ended October 31, 1997, purchases and sales of investment securities (excluding short-term investments) aggregated as follows: International Small Cap Fixed Income Equity Fund Equity Fund Fund ------------- ----------- ------------ Purchases ............. $46,613,096 $28,770,272 $ 5,925,481 Sales ................. 44,516,503 12,069,906 8,178,793 Note 4--Advisory Fee and Other Transactions with Affiliates The Trust, on behalf of each Fund, employs 1838 Investment Advisors, L.P. (the "Investment Adviser"), a Delaware limited partnership 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 Adviser supervises the investments of the assets of each Fund in accordance with each Fund's investment objective, policies and restrictions. The Trust pays the Investment Adviser a monthly fee at the following annual rates of each Fund's average daily net assets: 0.75% for the International Equity Fund, 0.75% for the Small Cap Equity Fund and 0.50% for the Fixed Income Fund. The Investment Adviser has voluntarily agreed to waive its advisory fee or reimburse each Fund monthly to the extent that the total operating expenses will exceed the following annual rates of each Fund's average daily net assets: 1.25% for the International Equity Fund, 1.25% for the Small Cap Equity Fund and 0.75% for the Fixed Income Fund. This undertaking may be rescinded at any time in the future. The following table summarizes the advisory fees for the period ended October 31, 1997: Gross Advisory Fee Reimbursement Advisory Fee Waiver From Advisor ------------ ------------ ------------- International Equity Fund $ 372,918 $ 93,801 -- Small Cap Equity Fund 142,555 112,370 -- Fixed Income Fund 15,545 15,545 $27,100 Rodney Square Management Corporation ("RSMC"), a wholly owned subsidiary of Wilmington Trust Company ("WTC"), serves as Administrator to the Trust pursuant to an Administration Agreement with the Trust on behalf of each Fund. As Administrator, RSMC is responsible for services such as financial reporting, compliance monitoring and corporate management. For the services provided, RSMC receives a monthly administration fee from the Trust at the annual rate of 0.15% of the average daily net assets of the Trust on the first $50 million; 0.10% of such assets in excess of $50 million to $100 million; plus 0.07% of such assets in excess of $ 100 million to $200 million; and 0.05% of such assets in excess of $200 million. Each series pays its pro-rata portion based upon total Trust assets. Such fees are subject to a minimum fee of $50,000 per year for one series and $15,000 minimum per year for each additional portfolio added to a series. For the period ended October 31,1997, RSMC's administration fees amounted to $58,580, $42,416 and $3,974, for the International Equity Fund, the Small Cap Equity Fund and the Fixed Income Fund, respectively. At October 31,1997, administration fees payable to RSMC amounted to $11,145, $5,687 and $3,981, for the International Equity Fund, the Small Cap Equity Fund, and the Fixed Income Fund, respectively. 27 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997 - -------------------------------------------------------------------------------- Note 4--Advisory Fee and Other Transactions with Affiliates--continued Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of WTC, has been engaged pursuant to a Distribution Agreement with the Trust to assist in securing purchasers for shares of each Fund. RSD also directly, or through its affiliates, provides investor support services. RSD receives no compensation for distribution of shares of the Funds, except for reimbursement of out-of-pocket expenses. There are no expenses payable to RSD by the Funds for the period ended October 31, 1997. RSMC serves as Accounting Agent to the Funds. As Accounting Agent, RSMC 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. For the period ended October 31, 1997, Accounting service fees payable to RSMC amounted to $10,729, $6,685 and $6,575, for the International Equity Fund, the Small Cap Equity Fund and the Fixed Income Fund, respectively. RSMC also serves as the Fund's transfer agent pursuant to a Transfer Agency Agreement with the Trust. For these services, RSMC receives a monthly fee computed on the basis of the number of shareholder accounts that the Transfer Agent maintains for each Fund during the month, and is reimbursed for out-of-pocket expenses. For the period ended October 31, 1997, Transfer Agent fees payable to RSMC amounted to $3,816, $3,911 and $3,000, for the International Equity Fund, the Small Cap Equity Fund and the Fixed Income Fund, respectively. The Trustees of the Trust who are "interested persons" of the Trust, the Investment Adviser or its affiliates and all personnel of the Trust or the Investment Adviser performing services related to research, statistical and investment activities are paid by the Investment Adviser or its affiliates. There are no fees or expenses payable to the "noninterested" Trustees. Note 5--Fund Share Transactions At October 31, 1997, 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 Equity Fund
For the Fiscal Year For the Fiscal Year Ended October 31, 1997 Ended October 31, 1996 ---------------------- ---------------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold .................... 891,866 $ 10,719,953 2,653,604 $ 27,246,882 Shares issued to shareholders in reinvestment of distributions .. 12,343 133,064 7,882 78,427 Shares redeemed ................ (592,270) (7,640,741) (460,886) (4,701,462) -------- ------------ --------- ------------ Net increase ................... 311,939 $ 3,212,276 2,200,600 $ 22,623,847 ============ ============ Shares outstanding: Beginning of period ............ 3,945,864 1,745,264 --------- --------- End of period .................. 4,257,803 3,945,864 ========= =========
28 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997 - ------------------------------------------------------------------------------- Small Cap Equity Fund
For the Period June 17, 1996 For the Fiscal Year (Commencement of Operations) Ended October 31, 1997 Through October 31, 1996 ---------------------- ---------------------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold .................... 1,708,267 $ 18,663,076 596,571 $ 5,598,237 Shares issued to shareholders in reinvestment of distributions .. 6,771 67,511 0 0 Shares redeemed ................ (70,119) (752,171) (29,602) (271,838) --------- ------------ ------- ------------ Net increase ................... 1,644,919 $ 17,978,416 566,969 $ 5,326,399 ============ ============ Shares outstanding: Beginning of period ............ 566,969 0 --------- ------- End of period .................. 2,211,888 566,969 ========= =======
Fixed Income Fund For the Period September 2, 1997 (Commencement of Operations) Through October 31, 1997 -------------------------------- Shares Amount ------ ------ Shares sold .................... 3,209,597 $ 32,384,250 Shares issued to shareholders in reinvestment of distributions .. 0 0 Shares redeemed ................ (40,532) (411,373) --------- ------------ Net increase ................... 3,169,065 $ 31,972,877 ============ Shares outstanding: Beginning of period ............ 0 --------- End of period .................. 3,169,065 ========= Note 6--Commitments As of October 31, 1997, the International Equity Fund had no forward foreign currency exchange contracts. 29 1838 INVESTMENT ADVISORS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS OCTOBER 31, 1997 - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of the 1838 Investment Advisors Funds We have audited the accompanying statements of assets and liabilities, including the schedules of net assets of the 1838 International Equity Fund, the 1838 Small Cap Equity Fund and the 1838 Fixed Income Fund, each a series of the 1838 Investment Advisors Funds, as of October 31, 1997 and the related statements of operations for the year or period then ended, and the statements of changes in net assets for each of the two years or periods then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1997, by correspondence with custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the 1838 International Equity Fund, the 1838 Small Cap Equity Fund and the 1838 Fixed Income Fund as of October 31, 1997, the results of their operations for the year or period then ended, the changes in their net assets for each of the two years or periods then ended, and their financial highlights for the periods presented in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania December 12, 1997 30 1838 INVESTMENT ADVISORS FUNDS TAX INFORMATION (UNAUDITED) OCTOBER 31, 1997 - -------------------------------------------------------------------------------- The 1838 International Equity Fund recognizes $191,164 as foreign source income for the fiscal year ended October 31, 1997. The 1838 Small Cap Equity Fund paid distributions of $0.089 per share from net long-term capital gains during the fiscal year ended October 31, 1997. Pursuant to section 852 of the Internal Revenue Code, the 1838 Small Cap Equity Fund designated $67,511 as capital gain distributions for the fiscal year ended October 31, 1997. 31 INVESTMENT ADVISER - -------------------------------------------------------------------------------- 1838 INVESTMENT ADVISORS, L.P. FIVE RADNOR CORPORATE CENTER SUITE 320 100 MATSONFORD ROAD RADNOR, PA 19087 UNDERWRITER - -------------------------------------------------------------------------------- RODNEY SQUARE DISTRIBUTORS, INC. RODNEY SQUARE NORTH 1100 N. MARKET STREET WILMINGTON, DE 19890 SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- RODNEY SQUARE MANAGEMENT CORPORATION RODNEY SQUARE NORTH 1100 N. MARKET STREET WILMINGTON, DE 19890 CUSTODIANS - -------------------------------------------------------------------------------- BANKERS TRUST COMPANY 280 PARK AVENUE NEW YORK, NY 10017 WILMINGTON TRUST COMPANY RODNEY SQUARE NORTH 1100 N. MARKET STREET WILMINGTON, DE 19890 LEGAL COUNSEL - -------------------------------------------------------------------------------- STRADLEY, RONON, STEVENS & YOUNG L.L.P. 2600 ONE COMMERCE SQUARE PHILADELPHIA, PA 19103 AUDITORS - -------------------------------------------------------------------------------- COOPERS & LYBRAND L.L.P. 2400 ELEVEN PENN CENTER PHILADELPHIA, PA 19103 ET06 1838 INVESTMENT ADVISORS FUNDS INTERNATIONAL EQUITY FUND SMALL CAP EQUITY FUND FIXED INCOME FUND ANNUAL REPORT OCTOBER 31, 1997 -----END PRIVACY-ENHANCED MESSAGE-----