-----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, IfWDBBcJwuZRUkeOSr4AjhqcrAXbLWxjv7WbDJXPh1Aaw1lIVXqFZejVDe6Mqg6D oncdm46YoAkyJrP2CanRkg== 0001135428-02-000195.txt : 20020627 0001135428-02-000195.hdr.sgml : 20020627 20020627161751 ACCESSION NUMBER: 0001135428-02-000195 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020430 FILED AS OF DATE: 20020627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1838 INVESTMENT ADVISORS FUNDS CENTRAL INDEX KEY: 0000933996 IRS NUMBER: 232794406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08902 FILM NUMBER: 02689410 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 n30d_1838.txt SEMI-ANNUAL REPORT [1838 LOGO OMITTED] INVESTMENT ADVISORS FUNDS ------------------------- INTERNATIONAL EQUITY FUND FIXED INCOME FUND LARGE CAP EQUITY FUND SEMI-ANNUAL REPORT APRIL 30, 2002 [LOGO OMITTED] INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- FELLOW SHAREHOLDER: During the six months ended April 30, 2002, the stock markets recovered some of their previous losses: The Morgan Stanley Capital International Europe, Australia and Far East (the "EAFE") Index showed a net total return of 5.53% and the 1838 International Equity Fund (the "Fund") almost kept pace with a total return of 4.95%1. The recovery in the US economy as evidenced by the reported 5.8% annualized economic growth rate during the first quarter, and signals of improvement in economic growth in Europe and Asia (both boosted by exports to the US), improved investors confidence. REGIONAL PERFORMANCES: Some of the emerging markets showed exceptional strength, with Korea up 75%, Taiwan 46% and Mexico 28%, as investors were attracted by low valuations and a resumption of growth in exports, primarily to the US. Among the developed economies, Asia (ex-Japan) was the region with the strongest performing markets according to the MSCI Indices (in dollars): Singapore rose 32%, Australia 13% and Hong Kong 26%. The European Index was almost 6% higher, with Italy, Spain and Norway particularly strong. Sweden and Ireland lost ground due to losses in market heavyweights Ericsson and Elan. Japan's performance was relatively lackluster at almost 1%, partly caused by the 4.4% decline of the yen versus the dollar. The Fund's exposure to the Japanese market was close to the EAFE Index's weight of 21%. The Fund had on average 65% of its assets in Europe, which was 7% below the EAFE's weight. Most of this under weighting in Europe was invested in emerging markets. However, our caution in returning to Korean and Taiwanese investments - in Kookmin Bank and Taiwan Semiconductor Manufacturing - resulted in our only limited participation in the strong rallies described above. SECTORS: The Materials sector returned over 18%, and Consumers Discretionary nearly 14% - both boosted by the prospects of improving global economic growth due to restocking of inventories and a recovery in consumer spending. Lower interest rates and oil prices, fiscal stimulus and continued low inflation were all stimulating factors. Sectors with low or negative performance were Technology at 1%, Utilities at -4% and Telecommunications at -15%. In Technology and Telecommunications, the valuations are still seen to be too high considering the dismal revenue and earnings news coming out. The Fund performed relatively well in Financials, Technology, Industrials and Consumer Discretionary with our emphasis on companies with strong balance sheets and net earnings. However, the Fund did poorly in Health Care due to its holdings in Qiagen, Elan and Novo Nordisk. We sold Elan on concern about its accounting practices, but we view the earnings shortfall at Novo Nordisk as a temporary setback, mainly caused by the short-term setback of destocking of inventory at the wholesaler's level in Europe. Qiagen, a global biotech leader in DNA and RNA purification and separation tools, saw its stock price drop as a result of the slowdown of its competitors and a decline in the Nasdaq. 1 Past performance of the Fund is no guarantee of future results. The return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Please bear in mind that investing in foreign securities can involve special risks such as currency fluctuation, less extensive regulation of foreign brokers and possible political instability. The Fund's returns assume the reinvestment of all distributions. The EAFE Index is an unmanaged stock market index without any associated expenses and the returns assume reinvestment of all net dividends. You cannot invest directly in an index. 1 [LOGO OMITTED] INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- OUTLOOK: The improvement in the markets over the past six months suggests that the concerns about the global economy - given the September 11 attacks, and the recession in the US, Germany and Japan at the time - were excessive. The global economy has shown signs of improvement, and is likely to continue to do so. Inflation appears to remain low as excess capacity in almost every industry clamps down on corporate pricing power. However, valuations in most developed economies' equity markets remain high in a historic perspective, and seem to discount optimistic estimates of improvement in corporate earnings. We remain cautious in our approach, concentrating on stocks from companies with strong balance sheets and good defendable market positions. Those are companies we consider to be in the best position to grow earnings and dividends for years to come. Sincerely, /S/HANS VAN DEN BERG Hans van den Berg Vice President & Portfolio Manager May 20, 2002 2
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) ------- ------ ----------- COMMON STOCK -- 99.64% AUSTRALIA -- 3.74% BHP Billiton Ltd. Metals & Mining..................... 223,030 $ 1,293,485 National Australia Bank Banks............................... 80,177 1,496,163 ----------- 2,789,648 ----------- DENMARK -- 2.83% Danske Bank A/S Banks............................... 92,400 1,668,658 Novo Nordisk A/S Pharmaceuticals..................... 15,000 439,963 ----------- 2,108,621 ----------- FRANCE -- 14.26% Accor SA Hotels, Restaurants & Leisure....... 26,300 1,063,134 Aventis SA Pharmaceuticals..................... 16,900 1,200,774 AXA, Inc. Insurance........................... 48,800 1,035,580 BNP Paribas SA Banks............................... 30,800 1,609,725 Lafarge SA Construction Materials.............. 13,178 1,250,405 Schlumberger Ltd. Energy Equipment & Services......... 20,100 1,100,475 STMicroelectronics NV (NY Shares) Semiconductor Equipment & Products.. 30,000 923,700 Suez SA Multi-Utilities..................... 40,300 1,200,189 Total SA (B Shares) Oil & Gas........................... 8,200 1,242,833 ----------- 10,626,815 ----------- GERMANY -- 11.77% BMW AG Automobiles & Components............ 31,400 1,253,448 Gehe AG Health Care Providers & Services.... 21,300 892,495 Henkel KGAA Chemicals........................... 15,400 922,817 Muenchener Rueckversicherungs Insurance........................... 5,300 1,313,353 RWE AG Electric Utility.................... 22,000 832,616 SAP AG Software............................ 6,500 841,672 Schering AG Pharmaceuticals..................... 29,100 1,772,608 Siemens AG Industrial Conglomerates............ 15,500 942,916 ----------- 8,771,925 -----------
See notes to financial statements. 3
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) ------- ------ ----------- HONG KONG -- 2.99% China Unicom - ADR* Wireless Telecommunication Services. 50,400 $ 496,440 Espirit Holdings Ltd. Retailing........................... 530,394 1,020,093 Hutchison Whampoa Ltd. Industrial Conglomerates............ 81,000 711,419 ----------- 2,227,952 ----------- IRELAND -- 1.59% Ryanair Holdings PLC* Airlines............................ 218,000 1,182,568 ----------- ISRAEL -- 1.58% TEVA Pharmaceutical Ind. Pharmaceuticals..................... 21,000 1,176,210 ----------- ITALY -- 1.52% Unicredito Italiano SPA Banks............................... 243,500 1,130,002 ----------- JAPAN -- 20.23% Aeon Co. Ltd. Retailing........................... 44,000 1,137,695 Canon Inc. Office Electronics.................. 34,000 1,302,804 Dainippon Pharmaceutical Co. Pharmaceuticals..................... 80,000 814,953 Honda Motor Co. Ltd. Automobiles & Components............ 24,200 1,085,607 Hoya Corp. Health Care Equipment & Services.... 17,000 1,265,732 Japan Telecom Co. Ltd. Diversified Telecommunication Services ......................... 300 887,850 KAO Corp. Household Products.................. 50,000 977,414 Kubota Corp. Machinery........................... 327,000 985,584 Kyushu Electric Power Electric Utilities.................. 84,000 1,119,346 Murata Manufacturing Co. Ltd. Semiconductor Equipment & Products.. 8,000 506,542 Pioneer Co. Ltd. Household Durables.................. 38,000 750,234 Shin-Etsu Chemical Co. Ltd. Chemicals........................... 29,000 1,194,782 SMC Corp. Machinery........................... 11,300 1,353,536 Sony Corp. - Sponsored ADR Household Durables.................. 13,500 731,700 Takeda Chemical Inds. Pharmaceuticals..................... 22,000 962,928 ----------- 15,076,707 ----------- MEXICO -- 2.91% TV Azteca SA - Sponsored ADR Media............................... 112,700 907,235 Wal-Mart De Mexico - ADR (V Shares) Retailing........................... 37,800 1,263,654 ----------- 2,170,889 -----------
See notes to financial statements. 4
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) ------- ------ ----------- NETHERLANDS -- 9.71% Akzo Nobel Chemicals........................... 23,100 $ 993,103 ASM Lithography Holding NV* Semiconductor Equipment & Products.. 46,000 1,044,555 ING Groep NV Diversified Financial Services...... 61,092 1,612,965 Koninlijke Ahold NV Food & Drug Retailing............... 64,345 1,608,981 Reed Elsevier NV Media............................... 100,000 1,387,694 Qiagen NV Biotechnology ...................... 45,000 589,500 ----------- 7,236,798 ----------- NORWAY -- 1.64% Statoil ASA - Sponsored ADR Oil & Gas........................... 146,000 1,222,020 ----------- SINGAPORE -- 1.07% DBS Group Holdings Banks............................... 102,855 794,817 ----------- SOUTH KOREA -- 1.12% Kookmin Bank - Sponsored ADR Banks............................... 18,000 837,000 ----------- SPAIN -- 5.32% Banco Bilbao Vizcaya Argentaria Banks............................... 109,000 1,270,966 Grupo Ferrovial SA Construction & Engineering.......... 59,000 1,430,136 Telefonica SA - Sponsored ADR* Diversified Telecommunication Services ......................... 38,953 1,258,571 ----------- 3,959,673 ----------- SWITZERLAND -- 5.10% Adecco SA - Registered Shares Commercial Services & Supplies...... 22,000 2,411,304 Nestle SA - Sponsored ADR Food Products....................... 40,800 1,391,889 ----------- 3,803,193 ----------- TAIWAN -- 1.00% Taiwan Semiconducter - Sponsored ADR* Semiconductor Equipment & Products.. 42,100 745,170 ----------- UNITED KINGDOM -- 11.26% Barclays PLC Banks............................... 153,840 1,350,751 BP Amoco PLC Oil & Gas........................... 243,958 2,081,570 Diageo PLC Beverages........................... 115,123 1,527,534
See notes to financial statements. 5
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) ------- ------ ----------- UNITED KINGDOM-- (CONTINUED) Royal Bank of Scotland Group PLC Banks............................... 80,980 $ 2,322,479 Vodafone Airtouch PLC Wireless Telecommunication Services. 687,384 1,109,412 ------------ 8,391,746 ------------ TOTAL COMMON STOCKS (Cost $74,015,730) .................................... 74,251,754 ------------ SHORT-TERM INVESTMENT -- 1.00% Evergreen Select Money Market -I (Cost $746,272)............................... 746,272 746,272 ------------ TOTAL INVESTMENTS (Cost $74,762,002)-- 100.64%.................................... $ 74,998,026 OTHER ASSETS AND LIABILITIES, NET-- (0.64%) .................................... (478,524) ------------ NET ASSETS-- 100.00%.............................................................. $ 74,519,502 ============
MARKET SECTOR DIVERSIFICATION As a Percentage of Total Common Stocks Consumer Discretionary - 14.28% Industrials - 12.14% Consumer Staples - 7.41% Information Technology - 7.22% Energy - 7.61% Materials - 7.62% Financials - 22.14% Telecommunication Services - 5.05% Health Care - 12.28% Utilities - 4.25% * Non-income producing securities ADR -- American Depository Receipt See notes to financial statements. 6 [LOGO OMITTED] FIXED INCOME FUND - -------------------------------------------------------------------------------- TO THE SHAREHOLDER: With the U.S. economy on the road to recovery, the fixed income markets took it on the chin for the six months ended April 30, 2002. An expanding economy heightened fears over inflation (which typically erodes fixed income returns). While at this time, inflation is showing no signs of resurgence, the next move by the Fed will likely be a tightening of interest rate policy. The Fed moved their policy bias from weakness to neutral at the March 19th FOMC meeting sighting more balanced risks facing the economy in the coming months. Longer-term interest rates rose in response to the policy change while interest rates in the front end (one year and shorter) stayed relatively anchored. These moves resulted in a 2-year Treasury at 3.22% and a 30-year Treasury at 5.59%. Spread product (corporates, mortgages, and asset-backed bonds) put in mixed results. Event risk continues to dominate the corporate bond markets. The fallout related to Enron and the public's need for greater disclosure in financial statements has led to wider spreads on corporate bonds relative to Treasury securities. Mortgages have performed well, boosted by a range bound interest rate environment and a fall-off in prepayment activity. The Fund lagged the Lehman Aggregate Bond Index (the "Index") for the six months ended April 30, 2002, registering a total return of -1.14% compared to the Index, which was down 0.01%1. From inception (September 1997) to April 30, 2002, the Fund's average annual return was 6.18% vs. 7.33% for the Index. The Fund's under performance for the current six-month period was driven by an overweight in corporate bonds, which did worse than the market at large. The duration remained close to that of the Index, and was not a major determinant of performance vs. the Index. Going forward, we expect the economic recovery to gain some traction. The Fed should remain accommodative with inflation in check. As evidence of a pick up in economic activity takes hold, we believe credit quality will improve, which should carry over to tighter credit spreads relative to Treasuries. Consequently, we expect to hold our overweight in mortgages and corporate bonds while keeping close to home on duration. The Fund's exposure, based on long-term market value, compared to the Index at April 30, 2002 was as follows:
1838 FIXED LEHMAN AGGREGATE INCOME FUND BOND INDEX ------------- --------------- Corporate Bonds........................................ 38.8% 26.8% Mortgage-Backed........................................ 41.4% 35.5% Asset-Backed........................................... 10.8% 3.8% Agencies............................................... 2.7% 10.9% Treasuries............................................. 6.3% 23.0%
Sincerely, /s/CLIFFORD D. CORSO Clifford D. Corso Vice President & Portfolio Manager May 20, 2002 1 Past performance of the Fund is no guarantee of future results. The return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's returns assume the reinvestment of all distributions. The Lehman Aggregate Bond Index is an unmanaged investment grade bond index without any associated expenses and the returns assume reinvestment of all interest income. You cannot invest directly in an index. 7
[LOGO OMITTED] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- CORPORATE BONDS -- 38.30% FINANCIAL -- 15.96% Canadian Imperial Bank, 7.262%, 04/10/32, 144A......................... Aa3/AA- $ 3,370,000 $ 3,425,942 ERAC USA Finance Co., 7.50%, 06/15/03, 144A............................ Baa1/BBB+ 3,035,000 3,139,735 Ford Motor Credit Co., 7.25%, 10/25/11................................. A3/BBB+ 2,415,000 2,405,963 General Motors Acceptance Corp., 6.75%, 01/15/06....................... A2/BBB+ 2,790,000 2,882,106 PNC Funding Corp., 5.75%, 08/01/06..................................... A2/A- 2,220,000 2,250,248 Principal Life Global, 6.25%, 02/15/12, 144A........................... Aa2/AA 2,305,000 2,283,870 Wells Fargo Co., 7.25%, 08/24/05....................................... Aa2/A+ 2,240,000 2,420,295 ------------- 18,808,159 ------------- INDUSTRIAL & MISCELLANEOUS -- 22.34% Anadarko Petroleum Corp., 5.375%, 03/01/07............................. Baa1/BBB+ 2,710,000 2,687,897 AOL Time Warner Inc., 7.625%, 04/15/31................................. Baa1/BBB+ 2,385,000 2,226,173 AT&T Corp., 8.00%,11/15/31, 144A....................................... A3/BBB+ 1,485,000 1,305,226 BAE Systems 2001 Asset Trust, 6.664%, 09/15/13, 144A*.................. Aaa/AAA 2,336,806 2,435,833 CSX Corp., 6.30%, 03/15/12............................................. Baa2/BBB 2,865,000 2,820,842 Delta Airlines, Ser. 02-1, Cl. G-2, 6.417%, 07/02/12*.................. Aaa/AAA 2,670,000 2,676,675 Lockheed Martin Corp., 6.50%, 04/15/03 ................................ Baa2/BBB 1,910,000 1,959,769 Tyco Int'l. Group SA, 6.25%, 06/15/03.................................. Baa2/BBB 2,955,000 2,666,888 Tyco Int'l. Group SA, 7.00%, 06/15/28.................................. Baa2/BBB 3,025,000 2,251,931 Weyerhaeuser Co., 5.50%, 03/15/05, 144A................................ Baa2/BBB 2,860,000 2,894,529 Weyerhaeuser Co., 7.375%, 03/15/32, 144A............................... Baa2/BBB 2,385,000 2,399,520 ------------- 26,325,283 ------------- TOTAL CORPORATE BONDS (Cost $46,328,933) ............................................................. 45,133,442 ------------- ASSET BACKED SECURITIES -- 10.61% Bear Stearns CMS, Ser. 1999-WF2, Cl. A2, 7.08%, 06/15/09............... Aaa/AAA 3,020,000 3,248,526 JP Morgan Chase CMS, Ser. 2001-CIBC, Cl. A1, 5.288%, 03/01/33.......... Aaa/AAA 1,832,817 1,873,663 Mortgage Lenders Network, Ser. 2000-1, Cl. A2, 7.605%, 06/25/21........ Aaa/AAA 1,502,079 1,532,099 Textron Financial Corp., Ser. 2000-B, Cl. A3, 6.99%, 03/15/06, 144A.... Aaa/AAA 2,598,186 2,694,721 Union Acceptance Corp., Ser. 1999-D, Cl. A4, 6.85%, 02/08/06........... Aaa/AAA 3,020,000 3,145,511 ------------- TOTAL ASSET BACK SECURITIES (Cost $11,968,558) ...................................................... 12,494,520 -------------
See notes to financial statements. 8
[LOGO OMITTED] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- MORTGAGE BACKED SECURITIES -- 40.89% FGCI, Pool # G10557, 6.50%, 07/01/11 ............................... Aaa/AAA $ 1,190,337 $ 1,238,143 FGCI, Pool # E00617, 5.50%, 01/01/14................................ Aaa/AAA 779,830 786,319 FGCI, Pool # E00765, 6.50%, 12/01/14................................ Aaa/AAA 1,348,463 1,395,364 FGLMC, Pool # C80342, 6.50%, 09/01/25 .............................. Aaa/AAA 1,070,380 1,094,038 FGLMC, Pool # D85515, 6.50%, 01/01/28............................... Aaa/AAA 1,415,551 1,443,480 FGLMC, Pool # C29190, 6.50%, 07/01/29............................... Aaa/AAA 1,723,062 1,752,196 FGLMC, Pool # C30260, 7.50%, 08/01/29............................... Aaa/AAA 563,549 589,153 FGLMC, Pool # C33014, 7.50%, 11/01/29............................... Aaa/AAA 444,859 465,070 FGLMC, Pool # C45726, 7.50%, 12/01/30............................... Aaa/AAA 969,143 1,012,681 FGLMC, Pool # C01188, 7.00%, 06/01/31............................... Aaa/AAA 954,810 985,503 FHLMC, Pool # A00930, 10.00%, 05/01/20.............................. Aaa/AAA 15,938 17,869 FHLMC, Pool # C36177, 8.00%, 02/01/30............................... Aaa/AAA 1,217,309 1,287,906 FHLMC, Pool # C00967, 8.50%, 02/01/30............................... Aaa/AAA 741,712 796,781 FNC, Pool # 250890, 7.00%, 04/01/04................................. Aaa/AAA 517,195 534,261 FNC, Pool # 303728, 6.00%, 01/01/11................................. Aaa/AAA 1,091,629 1,126,222 FNC, Pool # 190275, 8.00%, 11/01/26................................. Aaa/AAA 918,442 977,730 FNCL, Pool # 482515, 5.50%, 01/01/14................................ Aaa/AAA 248,405 250,219 FNCL, Pool # 252381, 5.50%, 04/01/14................................ Aaa/AAA 109,911 110,561 FNCL, Pool # 535003, 7.00%, 11/01/14................................ Aaa/AAA 1,184,608 1,240,537 FNCL, Pool # 481429, 6.00%, 01/01/29................................ Aaa/AAA 1,634,568 1,628,827 FNCL, Pool # 487830, 6.00%, 03/01/29................................ Aaa/AAA 3,121,969 3,107,926 FNCL, Pool # 498610, 6.00%, 05/01/29................................ Aaa/AAA 1,587,756 1,580,614 FNCL, Pool # 496524, 6.00%, 06/01/29................................ Aaa/AAA 324,807 323,346 FNCL, Pool # 491805, 6.50%, 06/01/29................................ Aaa/AAA 1,305,808 1,326,739 FNCL, Pool # 516898, 7.00%, 01/01/30................................ Aaa/AAA 123,517 127,671 FNCL, Pool # 522898, 8.00%, 01/01/30................................ Aaa/AAA 340,454 360,063 FNCL, Pool # 526025, 8.00%, 01/01/30................................ Aaa/AAA 1,008,565 1,064,837 FNCL, Pool # 583912, 6.50%, 05/01/31................................ Aaa/AAA 2,000,566 2,026,502 FNCL, Pool # 625465, 6.50%, 02/01/32................................ Aaa/AAA 3,014,310 3,053,120 FNCL, Pool # 254218, 7.00%, 02/01/32................................ Aaa/AAA 1,729,730 1,785,905 FNCL, Pool # 254239, 6.50%, 03/01/32................................ Aaa/AAA 2,158,331 2,186,120 FNCX, Pool # 313411, 7.00%, 03/01/04................................ Aaa/AAA 91,485 93,692 GN, Pool # 780374, 7.50%, 12/15/23 ................................. Aaa/AAA 771,073 817,382 GN, Pool # 443623, 6.50%, 02/15/28.................................. Aaa/AAA 1,315,911 1,338,225 GNMA I, Pool # 3545, 7.00%, 12/15/03................................ Aaa/AAA 548 555 GNMA I, Pool # 6937, 8.50%, 12/15/05................................ Aaa/AAA 2,109 2,223 GNSF, Pool # 417239, 7.00%, 02/15/26................................ Aaa/AAA 1,525,556 1,582,531 GNSF, Pool # 432664, 7.50%, 05/15/26................................ Aaa/AAA 1,912,037 2,018,668
See notes to financial statements. 9
[LOGO OMITTED] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- MORTGAGE BACKED SECURITIES -- (CONTINUED) GNSF, Pool # 462556, 6.50%, 02/15/28....................................... Aaa/AAA $ 1,787,018 $ 1,819,435 GNSF, Pool # 377671, 6.50%, 03/15/28....................................... Aaa/AAA 280,655 285,746 GNSF, Pool # 528190, 7.50%, 04/15/28....................................... Aaa/AAA 118,280 124,089 GNSF, Pool # 491223, 7.00%, 03/15/29....................................... Aaa/AAA 1,967,965 2,034,545 GNSF, Pool # 509609, 7.00%, 07/15/29....................................... Aaa/AAA 1,117,272 1,155,071 GNSF, Pool # 544849, 7.00%, 11/15/30....................................... Aaa/AAA 1,132,578 1,170,669 G2SF, Pool # 2038, 8.50%, 07/20/25......................................... Aaa/AAA 65,189 70,385 --------------- TOTAL MORTGAGE BACKED SECURITIES (Cost $46,331,465) 48,188,919 --------------- U.S. GOVERNMENT AGENCY OBLIGATIONS** -- 2.70% FNMA, 5.50%, 05/02/06...................................................... 1,535,000 1,566,773 FHLMC, 6.25%, 03/05/12..................................................... 1,625,000 1,612,856 --------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $3,169,228) 3,179,629 --------------- U.S. TREASURY OBLIGATIONS** -- 6.20% U.S. Treasury Notes, 3.50%, 11/15/06....................................... 2,465,000 2,373,719 U.S. Treasury Notes, 5.00%, 08/15/11....................................... 1,895,000 1,880,640 U.S. Treasury Bonds, 5.375%, 02/15/31...................................... 3,155,000 3,054,927 --------------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $7,319,030) 7,309,286 --------------- SHARES -------- SHORT-TERM INVESTMENTS -- 0.46% Evergreen Select Money Market - I (Cost $544,740).......................... 544,740 544,740 --------------- TOTAL INVESTMENTS (Cost $115,661,954)-- 99.16%.................................. $116,850,536 OTHER ASSETS AND LIABILITIES, NET-- 0.84%....................................... 989,177 --------------- NET ASSETS-- 100.00%............................................................ $117,839,713 =============== 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 April 30, 2002, these securities amounted to 17.46% of net assets. * The bond's principal and interest payments are insured by MBIA, Inc., the parent company of 1838 Investment Advisors, LLC (See Note 4). ** While no ratings are shown for U.S. Government Agency Obligations and 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. 10 [LOGO OMITTED] LARGE CAP EQUITY FUND - -------------------------------------------------------------------------------- TO THE SHAREHOLDER: The U.S. economy slipped into and then out of recession over the past six months, and most indicators forecast a continuing recovery. In the past, stocks have also signaled recoveries with strong increases, such as those we experienced in 1991 and 1995 after similar shallow recessions. Therefore, it is puzzling to observe such an anemic response as we have had year-to-date and over the past six months. The Standard and Poor's 500 Index is up only 2.34% for the six months ended April 30th, and is actually down 5.80% so far this calendar year1. Why such a disconnect? A prominent reason could be the current wave of corporate distrust ignited by the insolvency and alleged accounting and legal vagaries of Enron, and the resulting scrutiny many other firms are receiving. This skepticism is exacerbated by several other bankruptcies, notably Kmart and Global Crossing, as well as concerns about the high price earnings ratios the various market indices currently have. These factors not only hold us equity investors at bay, but also intensify the risky nature of each stock investment. One slight disappointment in a corporate announcement can send any stock tumbling, despite its fundamental strength and market presence. This very unstable environment has also been difficult for us to operate within, as the 1838 Large Cap Equity Fund (the "Fund") lost 3.76% for the six months ending April 30th. For the calendar year to date, the Fund is down 11.34%1. We have remained fully invested and sector neutral during the period, as is our style. Our shortcomings have all related to stock selection. Specifically, our holding Tyco International accounted for a significant portion of the deficit. We originally invested in this company based on its array of businesses owned, savvy management, and growth prospects that exceeded those of more prominent companies like General Electric, despite a much lower valuation. In January, we were surprised when the stock acted negatively to its CEO's announcement that, in order to boost its valuation, Tyco would spin-off pieces of its conglomerate. Accounting and credit concerns then surfaced as investors reacted to misreading Enron by scrutinizing all companies with complicated balance sheets and income statements. Despite the fact that no hard evidence regarding any irregularities was revealed, the stock remained under pressure. In late April, Tyco's CEO abruptly reversed course and shelved his plans to do spin-outs, and the stock plummeted once again. We sold the stock at that time because we had lost confidence in management and remain perplexed about why the company reversed course without substantive explanation. Finance stocks also underperformed that sector by a wide margin. Our focus has been on owning the investment banks, and remaining underweighted in banks and insurers, based on the prospect of a stronger economy. Despite good economic news, investors are shying away from the brokers because of worries surrounding transactions and investment banking volume. In addition, the insurance stocks have done extremely well during the past six months as premiums for most lines have shot upward. Our AIG holding has not yet participated. We have recently added Travelers Corp. to our finance holdings to fortify the insurance exposure. 1 Past performance is no guarantee of future results. The return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's returns assume the reinvestment of all distributions. 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. 11 [LOGO OMITTED] LARGE CAP EQUITY FUND - -------------------------------------------------------------------------------- There were a few bright lights in the Fund, notably in the healthcare and energy sectors. The former industry is undergoing a shift in sentiment away from the pharmaceuticals and toward medical technology, hospital companies and insurers. We have continuously lowered our exposure to the big drug firms and bought new positions in companies like Guidant and Cardinal Health. Our exposure to oil service companies bore fruit as oil prices rose through the period because of turmoil in the Middle East and Afghanistan. The market remains directionless, but our economy appears resilient. Even though there may be a valuation contraction occurring, eventually, rising earnings will propel stock prices and this portfolio. Meanwhile we continue to focus on companies with sound fundamental prospects that may ultimately be manifested in future stock appreciation. Sincerely /S/GEORGE W. GEPHART, JR. George W. Gephart, Jr. Vice President & Portfolio Manager May 20, 2002 12
[LOGO OMITTED] LARGE CAP EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE SHARES (NOTE 2) ------ ----------- COMMON STOCK -- 94.49% BASIC INDUSTRIES -- 6.62% General Electric Co. .................................................................. 37,400 $ 1,179,970 Raytheon Co............................................................................ 12,800 541,440 --------------- 1,721,410 --------------- CONSUMER CYCLICAL -- 14.37% AOL Time Warner Inc.*.................................................................. 20,980 399,040 CVS Corp............................................................................... 14,800 495,504 Starwood Hotels & Resorts Worldwide Inc................................................ 7,600 287,280 Target Corp............................................................................ 16,940 739,431 Viacom Inc. (B Shares)*................................................................ 16,930 797,403 Wal-Mart Stores Inc. .................................................................. 18,200 1,016,652 --------------- 3,735,310 --------------- CONSUMER STAPLES -- 10.21% Coca-Cola Co........................................................................... 14,700 815,997 Pepsico Inc............................................................................ 10,600 550,140 Procter & Gamble Co.................................................................... 6,600 595,716 Safeway Inc.*.......................................................................... 16,500 692,175 --------------- 2,654,028 --------------- ENERGY -- 8.05% Exxon Mobil Corp....................................................................... 22,564 906,396 Schlumberger Ltd....................................................................... 8,325 455,794 Transocean Inc......................................................................... 20,467 726,579 --------------- 2,088,769 --------------- FINANCIAL -- 17.49% American International Group........................................................... 15,982 1,104,676 Charter One Financial Inc.............................................................. 9,600 339,648 Citigroup Inc.......................................................................... 22,982 995,121 Fifth Third Bancorp.................................................................... 15,900 1,090,581 Goldman Sachs Group Inc................................................................ 6,350 500,063 Morgan Stanley Dean Witter & Co........................................................ 10,800 515,376 --------------- 4,545,465 --------------- HEALTHCARE -- 14.92% Abbott Laboratories.................................................................... 10,700 577,265 Baxter International Inc............................................................... 7,000 398,300 Cardinal Health Inc. .................................................................. 6,100 422,425 Guidant Corp. *........................................................................ 6,600 248,160 Johnson & Johnson...................................................................... 12,300 785,478
See notes to financial statements. 13
[LOGO OMITTED] LARGE CAP EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ VALUE SHARES (NOTE 2) ------ ----------- HEALTHCARE -- (CONTINUED) Lilly (Eli) & Co. Inc....................................................................... 7,300 $ 482,165 Medtronic Inc............................................................................... 10,600 473,714 Wyeth....................................................................................... 8,600 490,200 --------------- 3,877,707 --------------- TECHNOLOGY -- 15.77% Cisco Systems Inc.*......................................................................... 44,500 651,925 Flextronics International Ltd.*............................................................. 18,700 258,995 Intel Corp.................................................................................. 28,180 806,230 International Business Machines Corp........................................................ 5,950 498,372 JDS Uniphase Corp.*......................................................................... 27,200 118,048 Micron Technology Inc.*..................................................................... 17,800 421,860 Microsoft Corp.*............................................................................ 12,145 634,698 Texas Instruments Inc....................................................................... 16,630 514,366 Veritas Software Corp.*..................................................................... 7,000 198,380 --------------- 4,102,874 --------------- DEREGULATED INDUSTRIES -- 7.06% Dominion Resources, Inc..................................................................... 6,350 421,767 Entergy Corp. .............................................................................. 6,300 292,320 Mirant Corp.*............................................................................... 14,155 170,992 SBC Communications Inc...................................................................... 14,500 450,370 Verizon Communications...................................................................... 12,450 499,367 --------------- 1,834,816 --------------- TOTAL COMMON STOCKS (Cost $28,200,930).................................................... 24,560,379 --------------- SHORT-TERM INVESTMENT -- 3.44% Evergreen Select Money Market - I (Cost $895,290)........................................... 895,290 895,290 --------------- TOTAL INVESTMENTS (Cost $29,096,220)-- 97.93%.................................................... $ 25,455,669 OTHER ASSETS AND LIABILITIES, NET-- 2.07%........................................................ 537,461 --------------- NET ASSETS-- 100.00%............................................................................. $ 25,993,130 ===============
* Non-income producing securities. ADR -- American Depository Receipt See notes to financial statements. 14
[LOGO OMITTED] INVESTMENT ADVISORS FUNDS STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at value (identified cost $74,762,002, $115,661,954 and $29,096,220, respectively) (Note 2)........................ $ 74,998,026 $116,850,536 $25,455,669 Receivables: Dividends, interest and foreign tax reclaims.................... 262,863 1,054,261 18,200 Investment securities sold...................................... 250,875 -- 533,959 Other assets....................................................... 2,699 3,675 411 --------------------------------------------------------- Total assets ................................................ 75,514,463 117,908,472 26,008,239 --------------------------------------------------------- LIABILITIES: Management fees due to advisor (Note 4)............................ 45,531 36,185 5,746 Due to affliates (Note 4).......................................... 10,764 12,459 6,301 Payable for investment securities purchased........................ 915,471 -- -- Other accrued expenses............................................. 23,195 20,115 3,062 --------------------------------------------------------- Total liabilities ........................................... 994,961 68,759 15,109 --------------------------------------------------------- NET ASSETS......................................................... $ 74,519,502 $117,839,713 $25,993,130 ========================================================= NET ASSETS CONSIST OF: Shares of beneficial interest...................................... $ 7,181 $ 11,916 $ 3,536 Additional capital paid-in......................................... 82,578,209 117,346,757 35,644,589 Undistributed net investment income (loss)......................... (31,115) (34,739) (1,300) Accumulated net realized gain (loss) on investments: Short-term and foreign currency gain (loss)..................... (1,601,508) (550,307) (702,952) Long-term gain (loss)........................................... (6,681,204) (122,496) (5,310,192) Net unrealized appreciation (depreciation) on: Investments..................................................... 236,024 1,188,582 (3,640,551) Translation of assets and liabilities in foreign currencies..... 11,915 -- -- --------------------------------------------------------- NET ASSETS......................................................... $ 74,519,502 $117,839,713 $25,993,130 ========================================================= Shares of beneficial interest outstanding.......................... 7,180,917 11,915,613 3,535,702 --------------------------------------------------------- NET ASSETS VALUE, offering and redemption price per share (Net assets/Outstanding shares of beneficial interest)............................................ $ 10.38 $ 9.89 $ 7.35 =========================================================
See notes to financial statements. 15
[LOGO OMITTED] INVESTMENT ADVISORS FUNDS STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2002 (UNAUDITED) INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND --------------------------------------------------- INVESTMENT INCOME: Dividends............................................................... $ 406,611 -- $ 116,486 Interest................................................................ 8,364 $ 3,844,152 5,840 Foreign taxes withheld ................................................. (52,218) -- (277) --------------------------------------------------- Total Investment Income....................................... 362,757 3,844,152 122,049 --------------------------------------------------- EXPENSES: Invesment advisory fees (Note 4)........................................ 271,507 304,372 76,930 Administration fee (Note 4)............................................. 21,721 36,525 7,512 Accounting fee (Note 4)................................................. 33,175 30,658 19,836 Custodian fees ......................................................... 17,162 9,955 3,013 Transfer agency fees (Note 4)........................................... 9,917 9,917 9,917 Trustees' fees (Note 4)................................................. 5,786 9,691 1,676 Audit fees.............................................................. 7,350 8,241 4,681 Legal fees.............................................................. 5,730 6,775 1,592 Registration fees....................................................... 8,415 10,299 6,501 Reports to shareholders................................................. 2,936 4,960 885 Other................................................................... 10,173 11,243 2,630 --------------------------------------------------- Total expenses..................................................... 393,872 442,636 135,173 Advisory fee waived (Note 4)....................................... -- (77,388) (46,396) --------------------------------------------------- Total expenses, net............................................. 393,872 365,248 88,777 --------------------------------------------------- Net investment income........................................ (31,115) 3,478,904 33,272 --------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized loss from: Investment transactions........................................... (6,554,137) (550,307) (2,970,349) Foreign currency transactions..................................... (85,512) -- -- --------------------------------------------------- Total net realized loss......................................... (6,639,649) (550,307) (2,970,349) --------------------------------------------------- Change in unrealized appreciation (depreciation) of: Investments....................................................... 10,244,211 (4,365,790) 1,686,467 Translation of assets and liabilities in foreign currencies....... 17,224 -- -- --------------------------------------------------- Total change in unrealized appreciation (depreciation).......... 10,261,435 (4,365,790) 1,686,467 --------------------------------------------------- Net gain (loss) on investments and foreign currency.......... 3,621,786 (4,916,097) (1,283,882) --------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............ $ 3,590,671 $(1,437,193) $(1,250,610) ===================================================
See notes to financial statements. 16
[LOGO OMITTED] INVESTMENT ADVISORS FUNDS STATEMENTS OF CHANGES IN NET ASSETS INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND ----------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2002 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ............................................... $ (31,115) $ 3,478,904 $ 33,272 Net realized gain (loss) from investment and foreign currency transactions...................................... (6,639,649) (550,307) (2,970,349) Change in unrealized appreciation (depreciation) of investments and foreign currency................................... 10,261,435 (4,365,790) 1,686,467 ----------------------------------------------------------- Net increase (decrease) in net assets resulting from operations......... 3,590,671 (1,437,193) (1,250,610) ----------------------------------------------------------- Distributions to shareholders: Net investment income................................................ -- (3,513,643) (102,259) Short-term and foreign currency gains................................ -- (1,885,738) -- Long-term gains...................................................... -- (381,087) -- ----------------------------------------------------------- Total distributions............................................... -- (5,780,468) (102,259) ----------------------------------------------------------- Increase (decrease) in net assets from Fund share transactions (Note 5). (1,078,381) (3,613,480) 5,580,155 ----------------------------------------------------------- Increase (decrease) in net assets....................................... 2,512,290 (10,831,141) 4,227,286 NET ASSETS: Beginning of period................................................ 72,007,212 128,670,854 21,765,844 ----------------------------------------------------------- End of period...................................................... $ 74,519,502 $117,839,713 $25,993,130 =========================================================== FOR THE YEAR ENDED OCTOBER 31, 2001 INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ............................................... $ 226,757 $ 8,802,705 $ 73,978 Net realized gain (loss) from investment and foreign currency transactions...................................... (1,894,823) 5,438,023 (2,654,360) Change in unrealized appreciation (depreciation) of investments and foreign currency................................... (22,093,077) 5,081,813 (5,800,758) ----------------------------------------------------------- Net increase (decrease) in net assets resulting from operations......... (23,761,143) 19,322,541 (8,381,140) ----------------------------------------------------------- Distributions to shareholders: Net investment income................................................ -- (8,812,830) (30,318) Short-term and foreign currency gains................................ (1,501,746) (14,190) -- Long-term gains...................................................... (9,145,990) -- -- ----------------------------------------------------------- Total distributions............................................... (10,647,736) (8,827,020) (30,318) ----------------------------------------------------------- Increase (decrease) in net assets from Fund share transactions (Note 5). 4,730,496 (34,143,514) 10,346,554 ----------------------------------------------------------- Increase (decrease) in net assets....................................... (29,678,383) (23,647,993) 1,935,096 NET ASSETS: Beginning of year.................................................. 101,685,595 152,318,847 19,830,748 ----------------------------------------------------------- End of year (including undistributed net investment income of $0, $0 and $67,687, respectively)................................ $ 72,007,212 $128,670,854 $21,765,844 ===========================================================
See notes to financial statements. 17 [LOGO OMITTED] INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- 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.
INTERNATIONAL EQUITY FUND FOR THE SIX-MONTH PERIOD ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31, APRIL 30, 2002 -------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997 -------------------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD.. $9.89 $14.59 $14.57 $12.08 $11.99 $10.44 -------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income ............. -- 0.03 0.01 0.03 0.01 0.02 Net realized and unrealized gain (loss) on investments and foreign currency transactions...................... 0.49 (3.19) 0.78 3.34 0.75 1.57 -------------------------------------------------------------------------- Total from investment operations.. 0.49 (3.16) 0.79 3.37 0.76 1.59 -------------------------------------------------------------------------- Distributions: From net investment income.......... -- -- -- -- -- (0.04) From net realized gain on investments ...................... -- (1.54) (0.77) (0.88) (0.67) -- -------------------------------------------------------------------------- Total distributions............... -- (1.54) (0.77) (0.88) (0.67) (0.04) -------------------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD........ $10.38 $9.89 $14.59 $14.57 $12.08 $11.99 ========================================================================== TOTAL RETURN........................... 4.95%* (23.94)% 5.06% 29.10% 6.90% 15.23% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)... 1.09%** 1.04% 1.10% 1.09% 1.13% 1.25% Expenses (excluding fee waivers) N/A N/A N/A N/A N/A 1.44% Net investment income (loss) ... (0.09)%** 0.26% 0.04% 0.23% 0.10% 0.28% Portfolio turnover rate................ 12.31% 41.58% 51.99% 48.71% 166.77% 92.33% Net assets, end of period (in 000's)... $74,520 $72,007 $101,686 $86,547 $57,875 $51,046
* Total return not annualized. ** Annualized. See notes to financial statements. 18 [LOGO OMITTED] 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.
FIXED INCOME FUND FOR THE SIX-MONTH PERIOD ENDED FOR THE FISCAL YEAR OR PERIOD ENDED OCTOBER 31, APRIL 30, 2002 ------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997+ ---------------------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD.. $10.49 $9.75 $9.81 $10.24 $10.27 $10.00 ---------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income1.............. 0.29 0.61 0.63 0.53 0.54 0.06 Net realized and unrealized gain (loss) on investments1 ........... (0.41) 0.75 (0.04) (0.45) 0.08 0.21 ---------------------------------------------------------------------------- Total from investment operations. (0.12) 1.36 0.59 0.08 0.62 0.27 ---------------------------------------------------------------------------- DISTRIBUTIONS: From net investment income.......... (0.29) (0.62) (0.65) (0.51) (0.59) -- Return of capital................... -- -- -- -- (0.04) -- From net realized gain on investments ..................... (0.19) -- -- -- (0.02) -- ---------------------------------------------------------------------------- Total distributions.............. (0.48) (0.62) (0.65) (0.51) (0.65) -- ---------------------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD........ $9.89 $10.49 $9.75 $9.81 $10.24 $10.27 ============================================================================ TOTAL RETURN........................... (1.14)%* 14.36% 6.33% 0.79% 6.26% 2.70%* RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)2...... 0.60%** 0.60% 0.60% 0.61% 0.75% 0.75%** Expenses (excluding fee waivers).... 0.73%** 0.70% 0.75% 0.73% 0.88% 2.12%** Net investment income1 ............. 5.71%** 6.09% 6.57% 5.35% 5.60% 5.83%** Portfolio turnover rate................ 111.21% 199.43% 361.63% 834.18% 92.65% 39.12%** Net assets, end of period (in 000's)... $117,840 $128,671 $152,319 $94,221 $71,723 $32,537 + The Fixed Income Fund commenced operations on September 2, 1997. * Total return not annualized. ** Annualized. 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 six-month period ended April 30, 2002 was to increase net investment income per share by $0.0058, decrease net realized and unrealized gains and losses per share by $0.0058 and increase the ratio of net investment income to average net assets by 0.12%. Per share ratios and supplemental data for periods prior to November 1, 2001 have not been restated to reflect this change in presentation. 2 Effective March 1, 1999, 1838 Investment Advisors 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. 19 [LOGO OMITTED] 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 SIX-MONTH FOR THE FISCAL YEAR PERIOD ENDED OR PERIOD ENDED OCTOBER 31, APRIL 30, 2002 ----------------------------------- (UNAUDITED) 2001 2000 1999+ ---------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD............... $7.67 $11.09 $10.61 $10.00 ---------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income ........................... 0.01 0.03 0.02 0.01 Net realized and unrealized gain on investments.. (0.29) (3.43) 0.49 0.60 ---------------------------------------------------------- Total from investment operations................. (0.28) (3.40) 0.51 0.61 ---------------------------------------------------------- Distributions: From net investment income....................... (0.04) (0.02) (0.01) -- From net realized gain on investments............ -- -- (0.02) -- ---------------------------------------------------------- Total distributions.............................. (0.04) (0.02) (0.03) -- ---------------------------------------------------------- NET ASSET VALUE - END OF PERIOD..................... $7.35 $7.67 $11.09 $10.61 ========================================================== TOTAL RETURN........................................ (3.76)%* (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%** Expenses (excluding fee waivers) ................ 1.14%** 1.17% 1.73% 4.98%** Net investment income ........................... 0.28%** 0.32% 0.23% 1.55%** Portfolio turnover rate............................. 29.55% 45.82% 54.21% 5.58% Net assets, end of period (in 000's)................ $25,993 $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. 20 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- 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 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 value as determined in good faith by, or under procedures established by, the Board of Trustees. As of April 30, 2002, 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 21 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) 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. 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 April 30, 2002. 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 that may differ from generally accepted accounting principles in the United States of America ("GAAP"). These differences are primarily due to differing treatments of 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 six-month period ended April 30, 2002 were characterized as follows for tax purposes: FUND ORDINARY INCOME CAPITAL GAIN TOTAL DISTRIBUTION ---- ------------- ----------- --------------- International Fund........ -- -- -- Fixed Income Fund......... $5,399,381 $381,087 $5,780,468 Large Cap Fund............ 102,259 -- 102,259 At October 31, 2001, the components of distributable earnings on a tax basis were as follows: ACCUMULATED ACCUMULATED FUND ORDINARY INCOME (LOSS) CAPITAL GAIN (LOSS) ---- ------------------- ---------------- International Fund........ $ (25,003) $ (1,643,063) Fixed Income Fund......... 1,885,738 381,087 Large Cap Fund............ 67,687 (2,951,363) 22 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) As of October 31, 2001, 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 Large Cap Fund............ 341,572 10/31/2008 2,609,791 10/31/2009 At April 30, 2002, 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 AGGREGATE APPRECIATION/ GROSS UNREALIZED GROSS UNREALIZED FUND TAX COST (DEPRECIATION) APPRECIATION DEPRECIATION ---- ------------ ------------ -------------- -------------- International Fund .... $ 74,762,002 $ 236,024 $ 8,772,378 $ (8,536,354) Fixed Income Fund ..... 115,784,450 1,066,086 2,835,919 (1,769,833) Large Cap Fund ........ 29,187,652 (3,731,983) 1,273,213 (5,005,196)
CHANGE IN ACCOUNTING PRINCIPLE. Effective November 1, 2001, the Funds adopted provisions required by the new AICPA Audit and Accounting Guide for Investment Companies issued in November 2000. The Fixed Income Fund began classifying gains and losses from paydown transactions on mortgage and asset backed securities as investment income or loss for financial reporting purposes. During the six-month period ended April 30, 2002 net investment income increased $70,727 and net realized and unrealized gain (loss) decreased $70,727 due to the classification of net paydown gains as net investment income. 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 six-month period ended April 30, 2002, purchases and sales of investment securities, other than short-term investments, were as follows: INTERNATIONAL FIXED INCOME LARGE CAP FUND FUND FUND ------------ ------------ ------------ Purchases................. $9,817,830 $133,986,775 $11,728,851 Sales..................... 8,860,892 138,442,630 6,849,888 23 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES -- (CONTINUED) Purchases and sales of U.S. Government securities, during the six-month period ended April 30, 2002, were as follows: INTERNATIONAL FIXED INCOME LARGE CAP FUND FUND FUND ------------ ------------ ------------ Purchases........... $-- $ 48,743,362 $-- Sales............... -- 61,366,432 -- 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 Fund 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 six-month period ended April 30, 2002: GROSS ADVISORY FEE NET ADVISORY FEE WAIVER ADVISORY FEE ----------- ----------- ----------- International Fund...... $271,507 $ -- $271,507 Fixed Income Fund....... 304,372 77,388 226,984 Large Cap Fund.......... 76,930 46,396 30,534 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 six-month period ended April 30, 2002, 1838's administration fees amounted to $21,721, $36,525 and $7,512, 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 Fixed Income Fund and the Large Cap Fund pay 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. The International Fund pays an annual rate of $60,000, plus 0.03% of average daily net assets in excess of $50 million. For the six-month period ended April 30, 2002, MBIA MISC's accounting fees amounted to $33,175, $30,658 and $19,836, for the International Fund, the Fixed Income Fund and the Large Cap Fund, respectively. 24 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- 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 the six-month period ended April 30, 2002, MBIA MISC's transfer agent fees amounted to $9,917 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 April 30, 2002, 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 SIX-MONTH PERIOD ENDED APRIL 30, 2002 FOR THE FISCAL YEAR (UNAUDITED) ENDED OCTOBER 31, 2001 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold........................................... 290,676 $ 2,921,764 1,123,435 $12,597,230 Shares issued to shareholders in reinvestment of distributions................................... -- -- 787,298 9,927,833 Shares redeemed....................................... (393,882) (4,000,145) (1,593,990) (17,794,567) --------- ----------- ---------- ----------- Net increase (decrease)............................... (103,206) $(1,078,381) 316,743 $ 4,730,496 =========== =========== Shares outstanding: Beginning of period............................ 7,284,123 6,967,380 --------- ---------- End of period................................. 7,180,917 7,284,123 ========= ==========
25 [LOGO OMITTED] INTERNATIONAL EQUITY FUND NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2002 - -------------------------------------------------------------------------------- NOTE 5 -- FUND SHARE TRANSACTIONS -- (CONTINUED)
FIXED INCOME FUND FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2002 FOR THE FISCAL YEAR (UNAUDITED) ENDED OCTOBER 31, 2001 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold........................................... 356,279 $3,587,526 1,405,850 $14,099,324 Shares issued in exchange for securities transferred in-kind (Note 2)....................... -- -- 210,897 2,125,846 Shares issued to shareholders in reinvestment of distributions................................... 519,620 5,176,416 778,799 7,836,255 Shares redeemed....................................... (1,229,933) (12,377,422) (5,747,770) (58,204,939) ---------- ----------- ---------- ------------ Net decrease.......................................... (354,034) $(3,613,480) (3,352,224) $(34,143,514) =========== ============ Shares outstanding: Beginning of period............................ 12,269,647 15,621,871 ---------- ---------- End of period................................. 11,915,613 12,269,647 ========== ==========
LARGE CAP FUND FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2002 FOR THE PERIOD (UNAUDITED) ENDED OCTOBER 31, 2001 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold........................................... 1,059,408 $8,451,464 1,103,475 $10,888,302 Shares issued in exchange for securities transferred in-kind (Note 2)....................... -- -- 85,246 783,410 Shares issued to shareholders in reinvestment of distributions................................... 11,406 93,074 2,661 27,329 Shares redeemed....................................... (372,515) (2,964,383) (142,092) (1,352,487) --------- ---------- --------- ----------- Net increase.......................................... 698,299 $5,580,155 1,049,290 $10,346,554 ========== =========== Shares outstanding: Beginning of period............................ 2,837,403 1,788,113 --------- --------- End of period................................. 3,535,702 2,837,403 ========= =========
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. 26 This Page is Left Intentionally Blank 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 -------- FIRST UNION NATIONAL BANK 123 S. BROAD STREET PHILADELPHIA, PA 19101 LEGAL COUNSEL -------- PEPPER HAMILTON LLP 3000 TWO LOGAN SQUARE EIGHTEENTH & ARCH STREETS PHILADELPHIA, PA 19103 AUDITORS -------- PRICEWATERHOUSECOOPERS LLP TWO COMMERCE SQUARE, SUITE 1700 2001 MARKET STREET PHILADELPHIA, PA 19103 SAR 4/02 -----END PRIVACY-ENHANCED MESSAGE-----