-----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, PjLssATnU1CEB5tJM3SiD5OkdUQyyJpsDxd9JJTYC3Q4GxE+3q0S8O2GsjKfmCen 0OntMyLRqmB/0H+j8jOFSw== 0001135428-04-000004.txt : 20040106 0001135428-04-000004.hdr.sgml : 20040106 20040106134818 ACCESSION NUMBER: 0001135428-04-000004 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031031 FILED AS OF DATE: 20040106 EFFECTIVENESS DATE: 20040106 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08902 FILM NUMBER: 04509203 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-CSR 1 ncsr_1838.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-08902 Name of Registrant: 1838 Investment Advisors Funds Address of Registrant: 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19406 Name and address of agent for service: Anna M. Bencrowsky, 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19406 Copies to: John McDonnell, 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19406 Registrant's telephone number, including area code: (484) 322-4300 Date of fiscal year end: October 31 Date of reporting period: November 1, 2002 - October 31, 2003 ITEM 1: Reports to Shareholders 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- FELLOW SHAREHOLDER: The international equity markets showed exceptionally strong performances over the six and twelve months ended October 31, 2003, with the MSCI EAFE Index indicating net total returns of 24.77% and 27.03%, respectively. During these periods, the net asset value per share for the 1838 International Equity Fund (the "Fund") increased by 20.97% and 23.53%, respectively. REGIONAL DEVELOPMENTS: Compared with the consensus outlook a year ago, GDP growth beat expectations this year in the US and Japan, but was lower than expected - now estimated at only 0.5% versus 1.7% a year ago - in the Eurozone. The strength of the Euro, which rose 16% against the dollar during the year, was one reason for this weak economic performance. Lackluster economic growth did not have a large impact on stock market performance expressed in the weaker dollar: The MSCI Europe index gained nearly 21% during the year, most of it (17.6%) during the past six months. The biggest recovery took place in the market that was previously the most depressed: Germany. The MSCI Germany Index showed a total return of 33.2% driven by hopes of a cyclical recovery for its industrial companies and by the stock market rally itself improving the fortunes of its banks and insurance companies. The Fund did not fully participate in this relief rally, which initially boosted the shares of companies with weak balance sheets the most. Particularly in Germany and France the Fund lost ground versus the benchmark as the result of its more defensive style, which always emphasizes companies with stronger balance sheets. A similar trend occurred in Japan, where an even stronger equity market rally gained 31.7% during the year and 42.9% during the past six months. This rally was led by stocks of nearly bankrupt construction companies, banks and smaller technology companies. The Fund did gain ground versus its benchmark in the markets of Asia outside Japan and in emerging markets. Lastly, the small amount of cash held by the Fund to allow occasional redemptions, or as a result of a switch in investments, which was on average 1.1% of the Fund's assets, "cost" the Fund some relative performance in the equity markets rally. SECTOR DEVELOPMENTS: Shares of companies that benefit from a cyclical recovery performed best during the year and particularly during the past six months. In terms of MSCI sector benchmark performances, Technology showed a total return of 43.6%, closely followed by Industrials (transportation, construction, business services etc.) and Materials (metals, mining, chemicals, paper etc.). More stable growth sectors, such as Consumer Staples, Health Care and Energy showed returns of "only" 11.8% to 14.5%. The Fund lost ground in the powerful rally of lower quality bank and insurance stocks and those of construction companies during the past six months. For the full year, performance was hit hardest by our stock selection in Consumer Cyclicals. The biggest stock performance laggards there were Reed Elsevier (the world's largest science publisher), British Sky Broadcasting (the UK market leader in pay-tv) and Wal Mart de Mexico. These blue chip stocks had performed relatively well during the market declines during 2000 through 2002. Relative gains in half of the benchmark's sectors, including Technology and Financials, were too small to offset the above mentioned losses. In hindsight, we stayed defensive too long, although as importantly, when the markets reward investments in smaller capitalization stocks and lower quality stocks the most, our style of investments is bound to underperform. 1 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- OUTLOOK: With the stock markets now anticipating a global economic and earnings recovery, we believe that the broad liquidity driven major "snap-back" rally is most likely behind us. We expect that investors will become more discriminating in rewarding those stocks, where companies are able to produce continued revenue and earnings growth. With our emphasis on market leaders with a proven record of growth of both top and bottom line, we are confident that our style will once again provide returns that may not be as large in absolute terms as the ones experienced during the past year, but will compare more favorably to the EAFE benchmark. Sincerely, /S/HANS VAN DEN BERG Hans van den Berg Vice President & Portfolio Manager November 14, 2003 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT* - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- SINCE FINAL VALUE OF A 1 YEAR 5 YEAR INCEPTION $10,000 INVESTMENT ------ ------ --------- ------------------ FUND 23.53% 1.84% 4.30% $14,147 EAFE 27.03% (0.22)% 2.19% 11,960 [LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:] 1838 INTERNATIONAL EQUITY FUND EAFE 3-Aug-95 10,000 10,000 OCT-95 9,610 9,544 OCT-96 10,485 10,544 OCT-97 12,082 11,032 OCT-98 12,916 12,096 OCT-99 16,675 14,882 OCT-00 17,519 14,451 OCT-01 13,326 10,848 OCT-02 11,453 9,415 OCT-03 14,147 11,960 *Past performance of the Fund is no guarantee of future results. The 1838 International Equity Fund commenced operations on August 3, 1995. The values shown reflect a hypothetical initial investment of $10,000 with distributions reinvested. Returns may be higher due to 1838 Investment Advisors, LLC maintenance of the Fund's expense cap. Please bear in mind that investing in foreign securities involves special risks such as currency fluctuation, less extensive regulation of foreign brokers and possible political instability. The EAFE is an unmanaged index representing the market value weighted price of 1,100 stocks of the major stock exchanges in Europe, Australia and the Far East without any associated expenses and the returns assume reinvestment of all distributions. You cannot invest directly in an index. Please read the prospectus carefully before investing. Distributed by MBIA Capital Management Corporation. See the Financial Highlights on page 19 for more details. 2
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2003 - -------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- COMMON STOCK -- 99.11% AUSTRIA -- 1.37% Erste Bank AG Banks............................... 6,200 $ 685,505 --------------- AUSTRALIA -- 2.80% BHP Billiton Ltd. Metal & Mining...................... 103,830 863,443 National Australia Bank Banks............................... 24,774 537,723 --------------- 1,401,166 --------------- CANADA -- 2.28% Bank of Nova Scotia Banks............................... 13,300 660,636 Encana Corp. Oil & Gas........................... 14,000 480,847 --------------- 1,141,483 --------------- DENMARK -- 1.70% Danske Bank A/S Banks............................... 42,200 851,319 --------------- FINLAND -- 2.87% Fortum Oyj Electric Utilities.................. 79,900 736,568 Stora Enso Oyj - R Shares Paper & Related Products............ 51,500 700,464 --------------- 1,437,032 --------------- FRANCE -- 7.66% Accor SA Hotels, Restaurants & Leisure....... 20,500 806,211 AXA, Inc. Insurance........................... 38,100 721,947 Essilor International SA Health Care Equipment & Supplies.... 13,500 649,407 LVMH Moet-Hennessy L. Vuitton SA Consumer Durables & Apparel......... 9,200 635,818 Total SA (B Shares) Oil & Gas........................... 6,600 1,025,813 --------------- 3,839,196 --------------- GERMANY -- 7.26% BMW AG Automobiles & Components............ 10,600 425,126 Deutsche Bank AG Banks............................... 8,000 527,310 Puma AG Consumer Durables & Apparel......... 4,400 635,283 SAP AG Software............................ 4,400 637,841 Siemens AG Industrial Conglomerate............. 12,100 813,029 T-Online International AG* Software............................ 46,300 599,058 --------------- 3,637,647 --------------- GREECE -- 2.58% Coca-Cola Hellenic Bottling SA Beverages........................... 31,000 600,385 Public Power Corp. Electric Utilities.................. 32,000 689,688 --------------- 1,290,073 ---------------
See notes to financial statements. 3
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) -------- ------ ---------- HONG KONG -- 4.95% CNOOC Ltd. Oil & Gas........................... 429,200 $ 809,686 Esprit Holdings Ltd. Retailing........................... 319,494 1,003,857 Johnson Electric Holdings Ltd. Electrical Equipment................ 510,900 664,472 --------------- 2,478,015 --------------- IRELAND -- 2.32% Anglo Irish Bank Corp. Banks............................... 96,895 1,163,576 --------------- ISRAEL -- 1.79% TEVA Pharmaceutical Ind. - ADR Pharmaceuticals..................... 15,800 898,862 --------------- ITALY -- 1.87% Unicredito Italiano SPA Banks............................... 190,000 936,510 --------------- JAPAN -- 19.16% Asahi Kasei Corp. Chemicals - Diversified............. 175,000 834,129 Canon Inc. Office Electronics.................. 16,000 774,276 Honda Motor Co. Ltd. Automobiles & Components............ 18,900 746,132 Hoya Corp. Health Care Equipment & Services.... 7,100 642,607 Kubota Corp. Machinery........................... 224,000 806,877 Mitsubishi Tokyo Fin. Group, Inc. Banks............................... 80 574,885 Nichii Gakkan Co. Commercial Services & Supplies...... 12,430 676,140 Nomura Holdings, Inc. Diversified Financials.............. 37,000 635,430 NTT Docomo Inc. Telecommunications.................. 240 519,580 Omron Corp. Electronic Equipment & Instruments.. 37,000 811,116 Pioneer Corp. Household Durables.................. 29,700 740,237 Shin-Etsu Chemical Co. Ltd. Chemicals........................... 12,900 479,929 Sharp Corp. Household Durables.................. 47,000 740,046 SMC Corp. Machinery........................... 5,100 613,754 --------------- 9,595,138 --------------- MEXICO -- 1.73% America Movil SA (L Shares) - ADR Wireless Telecommunication Services. 36,400 866,320 --------------- NETHERLANDS -- 7.56% ASM Lithography Holding NV* Semiconductor Equipment & Products.. 44,700 775,819 ING Groep NV Diversified Financial Services...... 50,634 1,051,276 Koninklijke KPN NV* Diversified Telecommunications Services 143,300 1,089,474 Reed Elsevier NV Media............................... 78,000 868,667 --------------- 3,785,236 ---------------
See notes to financial statements. 4
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- SINGAPORE -- 1.48% DBS Group Holdings Banks............................... 90,155 $ 740,525 --------------- SPAIN -- 3.19% Banco Popular Espanol SA Banks............................... 13,300 691,582 Grupo Ferrovial SA Construction & Engineering.......... 31,700 905,067 --------------- 1,596,649 --------------- SWEDEN -- 2.51% Ericsson (LM) Tel - Sponsored ADR* Wireless Telecommunication Services. 35,000 597,800 Getinge AB (B Shares) Health Care Equipment & Services.... 18,000 658,774 --------------- 1,256,574 --------------- SWITZERLAND -- 3.81% Nestle SA - Sponsored ADR Food Products....................... 9,100 500,500 Novartis AG - Registered Shares Pharmaceuticals..................... 19,100 728,041 SGS Soc Gen Surveillance SA Commercial Services................. 1,200 677,575 --------------- 1,906,116 --------------- TAIWAN -- 1.18% Taiwan Semiconductor - Sponsored ADR* Semiconductor Equipment & Products.. 53,999 597,229 --------------- UNITED KINGDOM -- 19.04% Barclays PLC Banks............................... 122,134 1,031,094 BP Amoco PLC Oil & Gas........................... 193,808 1,344,306 British Sky Broadcasting Group PLC* Media............................... 54,600 592,982 Capita Group PLC Commercial Services & Supplies...... 132,000 553,273 Diageo PLC Beverages........................... 89,823 1,057,068 Man Group PLC Diversified Financials ............. 26,279 647,061 Reckitt Benckiser PLC Household Products.................. 39,235 824,258 Royal Bank of Scotland Group PLC Banks............................... 32,868 881,808 Scottish Power PLC Electric Utilities.................. 70,205 417,566 Tesco PLC Food & Drug Retailing............... 167,456 671,336 Vodafone Airtouch PLC Wireless Telecommunication Services. 723,745 1,519,846 --------------- 9,540,598 --------------- TOTAL COMMON STOCK (Cost $44,655,148) .................................... 49,644,769 ---------------
See notes to financial statements. 5
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- VALUE SHARES (NOTE 2) -------- ----------- SHORT-TERM INVESTMENT-- 2.01% Evergreen Institutional Money Market Fund - I Shares (Cost $1,008,996)......... 1,008,996 $ 1,008,996 TOTAL INVESTMENTS (Cost $45,664,144)+ -- 101.12.................................. $ 50,653,765 =============== OTHER ASSETS AND LIABILITIES, NET-- (1.12%) .................................... (563,057) --------------- NET ASSETS-- 100.00%............................................................... $ 50,090,708 =============== MARKET SECTOR DIVERSIFICATION As a Percentage of Total Common Stocks Consumer Discretionary -- 17.36% Industrials -- 11.50% Consumer Staples -- 5.70% Information Technology -- 7.24% Energy -- 8.23% Materials -- 5.80% Financials -- 25.48% Telecommunication Services -- 9.25% Health Care -- 7.21% Utilities -- 2.23% * Non-income producing securities ADR -- American Depositary Receipt
See notes to financial statements. 6 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- TO THE SHAREHOLDER: During the fiscal year the bond market has struggled with two differing views. Thoughts of an economic resurrection drove U.S. interest rates higher. However, geopolitical risks and concerns over the sustainability of the economic recovery kept interest rates fairly contained. With the swift conclusion of Gulf War II, focus returned to assessing economic fundamentals. The first few months of economic data after the war were almost uniformly strong. This was not too surprising given that economic activity was depressed by uncertainty ahead of the war and by the war itself. Strength in the equity markets and strong third quarter earnings announcements have kept the consumer confident in their outlook for the U.S. economy. Inflation's momentum is still downward, though it's not falling as fast as in early 2003. The economy has clearly moved onto a new, stronger growth path in the second half of 2003. Real GDP surged at a 7.2% annual rate in the third quarter, the strongest quarterly growth rate in 20 years. Upside was driven by a sharp gain in private demand, with consumption, business investment, and residential investment all surging. The question FIXED INCOME FUND COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT* AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- SINCE FINAL VALUE OF A 1 YEAR 5 YEAR INCEPTION $10,000 INVESTMENT ------ ------ --------- ------------------ FUND 5.67% 6.11% 6.42% $14,679 LEHMAN AGGREGATE 4.91% 6.54% 7.31% 15,452 [LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:] 1838 FIXED INCOME FUND LEHMAN AGGREGATE 2-Sept-97 10,000 10,000 OCT-97 10,270 10,295 OCT-98 10,913 11,257 OCT-99 10,999 11,316 OCT-00 11,696 12,142 OCT-01 13,375 13,910 OCT-02 13,892 14,729 OCT-03 14,679 15,452 *Past performance of the Fund is no guarantee of future results. The 1838 Fixed Income Fund commenced operations on September 2, 1997. The values shown reflect a hypothetical initial investment of $10,000 with distributions reinvested. Returns are higher due to 1838 Investment Advisors, LLC maintenance of the Fund's expense cap. The Lehman Aggregate Index is an unmanaged index which consists of bond issues spread over the investment grade bond universe and does not have any associated expenses and the returns assume reinvestment of all interest income. You cannot invest in an index. Please read the prospectus carefully before investing. Distributed by MBIA Capital Management Corporation. See the Financial Highlights on page 20 for more details. 7 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- now becomes, is this positive news already reflected in current interest rates and can this growth be sustained? A key to assessing the sustainability of the economic recovery will be looking at employment statistics going forward. Through most of the year the Federal Reserve has stayed on the sidelines, easing monetary policy only once in 2003, moving the Fed Funds rate from 1.25% to 1.00% in June. The Fed still describes the upside and downside risks to the economy as "roughly equal" and continues to indicate that an accommodative policy can be maintained for a "considerable period." This, in turn, has kept interest rates in the very front end of the yield curve fairly stable. The improving economic landscape has also carried over into an increase in the market's appetite for risk. All the major sectors of the fixed income market have posted positive returns year-to-date through October 31 with the Credit sector (Corporate Bonds and Asset-Backed Bonds) posting the largest gains. Within the credit markets, performance continues to be highly dependant on quality and issue selection. Lower quality, higher beta issuers continue to provide the highest absolute performance. The 1838 Fixed Income Fund (the "Fund") picked up significant performance relative to the benchmark during the year propelled by a core overweight to the corporate bond sector and a modestly short duration relative to the Lehman Aggregate Bond Index (the "Index"). The total return of the Fund was 5.67% (net of fees & expenses) compared to the Index, which was up 4.91% for the year ending October 31, 2003. Peer performance was also good with the Fund enjoying a Four Star rating by Morningstar for both the three and five years ending October 31, 2003. Going forward, we look for Fed Funds to remain at 1% through the first half of 2004. This will keep the yield curve historically steep with longer term interest rates building in expectations of sustainable growth and diminished deflationary pressures in the future. The Fund believes that bond yields most likely reached their lows in early June and we look for moderately higher interest rates in the coming months. Consequently, the Fund will maintain a short duration relative to the Index. As the economic recovery continues to expand, the markets appetite for riskier assets should continue. Therefore, the Fund will remain overweight in the spread sectors of the fixed income market. We expect the corporate market to continue to do well over the next few months, but with the credit curves relatively flat, we choose to overweight exposure in the front end of the Fund's portfolio while reducing security-specific risk in the long end. The Fund's exposure, based on long-term market value, compared to the Index at October 31, 2003 was as follows: 1838 FIXED LEHMAN AGGREGATE INCOME FUND BOND INDEX ------------- --------------- Corporate Bonds......... 50% 25% Mortgage-Backed......... 30% 35% Asset-Backed............ 11% 5% Agencies................ 5% 12% Treasuries.............. 4% 23% Sincerely, /S/CLIFFORD D. CORSO Clifford D. Corso Vice President & Portfolio Manager November 14, 2003 8
1838 FIXED INCOME FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2003 - -------------------------------------------------------------------------------- MOODY'S/S&P PRINCIPAL VALUE RATING+ AMOUNT (NOTE 2) ------------ -------- ----------- CORPORATE BONDS -- 46.66% FINANCIAL -- 18.72% Block Financial Corp., 6.75%, 11/01/04......................... A3/BBB+ $ 555,000 $ 581,841 Capital One Bank, 5.75%, 09/15/10.............................. Baa2/BBB- 495,000 519,185 Ford Motor Credit Co., 7.00%, 10/01/13......................... A3/BBB 380,000 373,556 General Electric Capital Corp., 6.75%, 03/15/32................ Aaa/AAA 380,000 421,368 General Electric Global Insurance Holding, 7.00%, 02/15/26..... A1/A- 760,000 803,371 General Motors Acceptance Corp., 6.15%, 04/05/07............... A3/BBB 925,000 975,985 Household Finance Corp., 6.40%, 06/17/08....................... A1/A 665,000 738,064 Huntington National Bank, 2.75%, 10/16/06...................... A1/A 815,000 811,098 International Lease Finance Corp., 4.35%, 09/15/08............. A1/AA- 855,000 866,056 New York Life Insurance Co., 5.875%, 05/15/33, 144A............ Aa3/AA- 655,000 642,216 Washington Mutual Inc., 4.375%, 01/15/08....................... A3/BBB+ 775,000 793,589 --------------- 7,526,329 --------------- INDUSTRIAL & MISCELLANEOUS -- 18.80% BAE Systems 2001 Asset Trust, 6.664%, 09/15/13, 144A*.......... Aaa/AAA 1,025,398 1,130,040 Centex Corp., 4.75%, 01/15/08.................................. Baa2/BBB 755,000 776,625 Delta Air Lines, Ser. 2002-1, Cl. G-2, 6.417%, 07/02/12*....... Aaa/AAA 720,000 751,299 Ford Motor Co., 7.45%, 07/16/31................................ Baa1/BBB 115,000 103,305 HRPT Properties Trust, 5.75%, 02/15/14......................... Baa2/BBB 595,000 595,833 Johnson & Johnson, 8.72%, 11/01/24............................. Aaa/AAA 530,000 587,089 SAB Miller PLC, 6.625%, 08/15/33, 144A......................... Baa1/BBB+ 1,125,000 1,178,415 Transocean Sedco Inc., 6.75%, 04/15/05......................... Baa2/A- 860,000 913,135 United Mexican States, 4.625%, 10/08/08........................ Baa2/BBB- 790,000 791,975 Weyerhaeuser Co., 6.00%, 08/01/06.............................. Baa2/BBB 685,000 734,488 --------------- 7,562,204 --------------- TELECOMMUNICATIONS & MULTIMEDIA -- 9.14% AT&T Wireless Services Inc., 7.50%, 05/01/07................... Baa2/BBB 690,000 773,952 AOL Time Warner, 7.625%, 04/15/31.............................. Baa1/BBB+ 370,000 413,444 British Telecom PLC, 7.625%, 12/15/05.......................... Baa1/A- 365,000 404,144 Comcast Corp., 7.05%, 03/15/33................................. Baa3/BBB 365,000 388,871 Deutsche Telekom International Finance, 7.75%, 06/15/05........ Baa3/BBB+ 860,000 939,610 France Telecom, 7.75%, 03/01/11................................ Baa3/BBB 625,000 754,012 --------------- 3,674,033 --------------- TOTAL CORPORATE BONDS (Cost $18,377,904)................................................. 18,762,566 --------------- ASSET BACKED SECURITIES -- 12.31% Bear Stearns Commercial Mortgage Sec., Ser. 1999-WF2, Cl. A2, 7.08%, 06/15/09............................................... Aaa/AAA 770,000 876,117 Franklin Auto Trust, Ser. 2003-1, Cl. A4, 2.27%, 05/20/11...... Aaa/AAA 795,000 780,815
See notes to financial statements. 9 1838 FIXED INCOME FUND SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003 - --------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE RATING+ AMOUNT (NOTE 2) ------------ -------- --------- FHLMC Structured Pass Through Sec., Ser. H005, Cl. A2, 2.55%, 08/15/07................................................ Aaa/AAA $ 820,000 $ 819,100 JP Morgan Chase Commercial Mortgage Sec., Ser. 2001-CIBC, Cl. A1, 5.288%, 03/15/33............................................... Aaa/AAA 546,178 566,905 Long Beach Auto Receivables Trust, Ser. 2003-A, Cl. A3, 2.021%, 07/15/07............................................... Aaa/AAA 650,000 651,280 TF Auto Receivables Owner Trust, Ser. 2002-1, Cl. A3, 3.00%, 05/12/09, 144A.......................................... Aaa/AAA 905,000 918,032 Textron Financial Corp. Receivables Trust, Ser. 2000-B, Cl. A3, 6.99%, 03/15/06, 144A.......................................... Aaa/AAA 333,778 335,894 --------------- TOTAL ASSET BACKED SECURITIES (Cost $4,817,055).......................................... 4,948,143 --------------- MORTGAGE BACKED SECURITIES -- 31.96% FGCI, Pool # E00617, 5.50%, 01/01/14........................... Aaa/AAA 375,453 388,669 FGCI, Pool # E92496, 5.50%, 11/01/17........................... Aaa/AAA 24,377 25,112 FGLMC, Pool # A00930, 10.00%, 05/01/20......................... Aaa/AAA 8,320 9,324 FGLMC, Pool # C80342, 6.50%, 09/01/25.......................... Aaa/AAA 306,795 320,269 FGLMC, Pool # D85515, 6.50%, 01/01/28.......................... Aaa/AAA 289,443 301,625 FGLMC, Pool # C16503, 6.50%, 10/01/28.......................... Aaa/AAA 4,005 4,171 FGLMC, Pool # C00967, 8.50%, 02/01/30.......................... Aaa/AAA 169,192 182,232 FGLMC, Pool # C01188, 7.00%, 06/01/31.......................... Aaa/AAA 214,787 225,984 FGLMC, Pool # C65864, 6.50%, 04/01/32.......................... Aaa/AAA 978,219 1,017,532 FGLMC, Pool # C01361, 6.00%, 05/01/32.......................... Aaa/AAA 529,420 543,449 FGLMC, Pool # C72047, 7.00%, 09/01/32.......................... Aaa/AAA 5,528 5,816 FGLMC, Pool # TBA, 6.00%, 06/01/33............................. Aaa/AAA 775,000 795,102 FGLMC, Pool # A14017, 5.50%, 10/01/33.......................... Aaa/AAA 1,188,772 1,199,276 FNCI, Pool # 303728, 6.00%, 01/01/11........................... Aaa/AAA 461,039 481,153 FNCI, Pool # 482515, 5.50%, 01/01/14........................... Aaa/AAA 117,902 122,001 FNCI, Pool # 252381, 5.50%, 04/01/14........................... Aaa/AAA 55,100 56,916 FNCI, Pool # 535003, 7.00%, 11/01/14........................... Aaa/AAA 431,066 457,924 FNCI, Pool # 357279, 6.00%, 05/01/17........................... Aaa/AAA 486,415 505,918 FNCI, Pool # 701353, 5.50%, 04/01/18........................... Aaa/AAA 460,835 474,665 FNCI, Pool # 695852, 5.00%, 05/01/18........................... Aaa/AAA 418,385 425,283 FNCI, Pool # 708835, 5.00%, 06/01/18........................... Aaa/AAA 622,857 633,126 FNCL, Pool # 481429, 6.00%, 01/01/29........................... Aaa/AAA 703,430 723,810 FNCL, Pool # 516898, 7.00%, 01/01/30........................... Aaa/AAA 14,871 15,672 FNCL, Pool # 522898, 8.00%, 01/01/30........................... Aaa/AAA 120,496 130,112 FNCL, Pool # 526025, 8.00%, 01/01/30........................... Aaa/AAA 170,826 184,266 FNCL, Pool # 704096, 5.50%, 05/01/33........................... Aaa/AAA 1,170,513 1,181,814
See notes to financial statements. 10 18389 FIXED INCOME FUND SCHEDULE OF INVESTMENTS-- CONTINUED OCTOBER 31, 2003 - --------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE RATING+ AMOUNT (NOTE 2) ------------ -------- ----------- FNCL, Pool # 743430, 5.50%, 10/01/33........................... Aaa/AAA $ 595,000 $ 600,745 FNCX, Pool # 313411, 7.00%, 03/01/04........................... Aaa/AAA 8,663 8,716 FNCX, Pool # 250890, 7.00%, 04/01/04........................... Aaa/AAA 84,431 86,337 GNSF, Pool # 6937, 8.50%, 12/15/05............................. Aaa/AAA 1,006 1,050 GNSF, Pool # 780374, 7.50%, 12/15/23 .......................... Aaa/AAA 285,222 306,895 GNSF, Pool # 417239, 7.00%, 02/15/26........................... Aaa/AAA 470,043 499,292 GNSF, Pool # 528190, 7.50%, 04/15/30........................... Aaa/AAA 25,011 26,730 GNSF, Pool # 569684, 6.00%, 02/15/32........................... Aaa/AAA 837,007 865,034 GNSF, Pool # 588967, 6.00%, 11/15/32........................... Aaa/AAA 15,382 15,897 G2SF, Pool # 2038, 8.50%, 07/20/25............................. Aaa/AAA 28,311 30,731 --------------- TOTAL MORTGAGE BACKED SECURITIES (Cost $12,554,801)....................................... 12,852,648 --------------- U.S. GOVERNMENT AGENCY OBLIGATIONS-- 4.64% FHLMC, 2.875% , 09/15/05....................................... Aaa/AAA 465,000 471,939 FHLMC, Sub. Notes, 6.25%, 03/05/12............................. Aa2/AA- 830,000 888,395 FNMA, 4.75%, 02/21/13.......................................... Aaa/AAA 515,000 504,498 --------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $1,835,081)................................ 1,864,832 --------------- U.S. TREASURY OBLIGATIONS**-- 3.22% U.S. Treasury Notes, 1.625%, 09/30/05...................................... 235,000 234,284 U.S. Treasury Notes, 4.25%, 08/15/13....................................... 250,000 248,985 U.S. Treasury Bonds, 5.375%, 02/15/31...................................... 785,000 811,218 --------------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $1,295,426)......................................... 1,294,487 --------------- SHARES -------- SHORT-TERM INVESTMENTS -- 1.43% Evergreen Institutional Money Market Fund - I Shares (Cost $576,332)....... 576,332 576,332 --------------- TOTAL INVESTMENTS (Cost $39,456,599)-- 100.22%................................................... $ 40,299,008 OTHER ASSETS AND LIABILITIES, NET-- (0.22%)...................................................... (89,851) --------------- NET ASSETS-- 100.00%............................................................................. $ 40,209,157 ===============
144A Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. As of October 31, 2003, these securities amounted to 10.46% of net assets. These securities have been determined to be liquid under guidelines approved by the Board of Trustees. + Unaudited * The bond's principal and interest payments are insured by MBIA, Inc., the parent company of 1838 Investment Advisors, LLC. ** While no ratings are shown for U.S. Treasury Obligations, they are considered to be of the highest quality, comparable to Moody's Aaa rating and S&P's AAA rating. See notes to financial statements. 11 1838 LARGE CAP EQUITY FUND - -------------------------------------------------------------------------------- TO THE SHAREHOLDER: How refreshing to begin this report with news that, after three calendar years of negative stock market returns, U.S. equities rebounded in 2003. In fact, the S&P 500 Index is up about 37% from its October 9, 2002 low, at this writing. For the fiscal year ended October 31, 2003 the 1838 Large Cap Fund (the "Fund") gained 15.12% and the S&P 500 Index is up 20.82%. Most of the difference can be assigned to two market effects. Smaller capitalization stocks handily outperformed large cap stocks during the period. In addition, lower quality issues also did much better than stocks of the better managed, market leading firms. As you are aware, the Fund focuses on the larger companies that enjoy market leadership positions in their respective industries. Both of these attributes lagged during the last 12 months. However, we look forward to the prospect of broader market participation that would also include these dominant companies. Within the various sectors the Fund had difficulty in the Consumer and Finance arena. Despite very strong returns gained from its holdings of Carnival Corp. and International Game Technology, they could not offset significant weakness in Viacom and Kohl's. The latter stock has been sold, as of this writing. The Fund avoided the poor returns experienced in food retailing and alcohol beverage companies, but stumbled with its holdings of Kraft and Colgate-Palmolive. The former stock has been sold, according to our discipline. - -------------------------------------------------------------------------------- LARGE CAP EQUITY FUND COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT* - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- SINCE FINAL VALUE OF A 1 YEAR INCEPTION $10,000 INVESTMENT ------ --------- ------------------ FUND 15.12% (8.60)% $6,922 S&P 500 20.82% (3.10)% 8,790 [LINE GRAPH OMITTED, PLOT POINTS AS FOLLOWS:] 1838 LARGE CAP EQUITY FUND S&P 500 29-Sept-99 10,000 10,000 OCT-99 10,610 10,753 OCT-00 11,123 11,409 OCT-01 7,704 8,570 OCT-02 6,012 7,275 OCT-03 6,922 8,790 *Past performance is no guarantee of future results. The 1838 Large Cap Equity Fund commenced operations on September 29, 1999. The values shown reflect a hypothetical initial investment of $10,000 with distributions reinvested. Returns are higher due to 1838 Investment Advisors, LLC maintenance of the Fund's expense cap. The S&P 500 Index is an unmanaged stock market index without any associated expenses and the returns assume reinvestment of all dividends. You cannot invest directly in an index. Please read the prospectus carefully before investing. Distributed by MBIA Capital Management Corporation. See the Financial Highlights on page 21 for more details. 12 1838 LARGE CAP EQUITY FUND - -------------------------------------------------------------------------------- In Finance, the Fund scored good returns in two nontraditional holdings, Morgan Stanley and MBNA, the credit card issuer. However, they were more than offset by losses experienced by its holdings of Fifth Third Bancorp and AIG. Fifth Third was sold earlier in the year. On a positive note, the Fund outperformed a very strong tech sector return of more than 40% for the period. The Fund's best holdings were in the semiconductor arena: Texas Instruments, Analog Devices and Intel. The Fund continues to hold all three stocks, anticipating continuing strength in demand for their products. The Fund's holding of Cisco also handily outperformed the sector. The only significant loss experienced was in Motorola which was also sold when it violated our discipline. Looking forward, we are heartened by strength gathering in our economic environment. However, there is still plenty of skepticism among market forecasters, which points out that we do not appear to be in the heady, optimistic market conditions that may have preceded the decline beginning in 2000. Investors are focusing on earnings growth, and more importantly, the quality of earnings, especially after experiencing notable failures such as Enron in the recent past. In sum, we are hopeful that the broad market averages will continue to rise, and our style which focuses on high quality, large cap, market leaders will participate. Sincerely /S/GEORGE W. GEPHART, JR. George W. Gephart, Jr. Vice President & Portfolio Manager November 14, 2003 13 1838 LARGE CAP EQUITY FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2003 - --------------------------------------------------------------------------------
VALUE SHARES (NOTE 2) ------ ----------- COMMON STOCK -- 98.76% BASIC INDUSTRIES -- 10.38% Ecolab Inc................................................................. 5,800 $ 155,962 General Electric Co........................................................ 16,140 468,221 Illinois Tool Works........................................................ 4,500 330,975 Ingersoll-Rand Co. (A Shares).............................................. 5,300 320,120 United Technologies Corp................................................... 4,100 347,229 ------------- 1,622,507 ------------- CONSUMER CYCLICAL -- 16.32% Carnival Corp.............................................................. 5,400 188,514 Gannett Co. Inc............................................................ 2,700 227,097 Harley Davidson Inc........................................................ 3,300 156,453 Home Depot Inc............................................................. 8,600 318,802 International Game Technology.............................................. 5,800 189,950 Kohl's Corp.*.............................................................. 2,300 128,961 Lowe's Cos. Inc............................................................ 3,500 206,255 Target Corp................................................................ 5,340 212,212 Viacom Inc. (B Shares)..................................................... 10,630 423,818 Wal-Mart Stores Inc........................................................ 8,480 499,896 ------------- 2,551,958 ------------- CONSUMER STAPLES -- 8.58% Coca Cola Co............................................................... 6,900 320,160 Colgate-Palmolive Co....................................................... 2,700 143,613 Dean Foods Co.*............................................................ 5,000 151,250 Estee Lauder Cos. (A Shares)............................................... 4,300 160,777 Pepsico Inc................................................................ 6,600 315,612 Procter & Gamble Co........................................................ 2,550 250,640 ------------- 1,342,052 ------------- ENERGY -- 5.09% BP Amoco PLC - Sponsored ADR............................................... 6,600 279,708 Exxon Mobil Corp........................................................... 14,112 516,217 ------------- 795,925 ------------- FINANCIAL -- 21.03% American International Group............................................... 7,827 476,116 Citigroup Inc.............................................................. 14,415 683,271 Golden West Financial Corp................................................. 2,000 200,860 MBNA Corp.................................................................. 13,200 326,700 Morgan Stanley Dean Witter Co.............................................. 6,800 373,116 Travelers Property Casualty (A Shares)..................................... 12,627 205,820 US Bancorp................................................................. 14,500 394,690
See notes to financial statements. 14 1838 LARGE CAP EQUITY FUND SCHEDULE OF INVESTMENTS -- CONTINUED OCTOBER 31, 2003 - --------------------------------------------------------------------------------
VALUE SHARES (NOTE 2) ------ ----------- Washington Mutual Inc...................................................... 7,400 $ 323,750 Wells Fargo Co............................................................. 5,400 304,128 -------------- 3,288,451 -------------- HEALTHCARE-- 12.66%........................................................ Abbott Laboratories........................................................ 9,700 413,414 Guidant Corp............................................................... 4,100 209,141 Lilly (Eli) & Co. Inc...................................................... 5,300 353,086 Medtronic Inc.............................................................. 6,900 314,433 Merck & Co. Inc............................................................ 4,000 177,000 Wellpoint Health Networks Inc.*............................................ 1,600 142,240 Wyeth...................................................................... 8,400 370,776 -------------- 1,980,090 -------------- TECHNOLOGY -- 18.17% Analog Devices Inc.*....................................................... 4,700 208,351 Applied Materials Inc.*.................................................... 14,200 331,854 Cisco Systems Inc.*........................................................ 21,700 455,266 First Data Corp............................................................ 3,900 139,230 Intel Corp................................................................. 20,280 670,254 International Business Machines Corp....................................... 2,750 246,070 Microsoft Corp............................................................. 15,690 410,294 Symantec Corp.*............................................................ 3,200 213,280 Texas Instruments Inc...................................................... 5,730 165,712 -------------- 2,840,311 -------------- DEREGULATED INDUSTRIES -- 6.53% AT&T Wireless Group*....................................................... 24,900 180,525 Comcast Corp.*............................................................. 9,800 319,675 Dominion Resources Inc..................................................... 2,750 169,400 Entergy.................................................................... 2,800 150,920 Verizon Communications..................................................... 5,950 199,920 -------------- 1,020,440 -------------- TOTAL COMMON STOCKS (Cost $14,121,286)................................. 15,441,734 -------------- SHORT-TERM INVESTMENT -- 4.25% Evergreen Institutional Money Market Fund - I Shares (Cost $665,069)....... 665,069 665,069 -------------- TOTAL INVESTMENTS (Cost $14,786,355)-- 103.01%.................................. $ 16,106,803 OTHER ASSETS AND LIABILITIES, NET-- (3.01%)..................................... (471,009) -------------- NET ASSETS-- 100.00%............................................................ $ 15,635,794 ==============
* Non-income producing securities ADR - American Depositary Receipt See notes to financial statements. 15 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2003 - --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND - ------------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at value (identified cost $45,664,144, $39,456,599 and $14,786,355, respectively) (Note 2)....................... $50,653,765 $40,299,008 $16,106,803 Receivables: Dividends, interest and foreign tax reclaims................... 126,547 364,485 24,505 Investment securities sold..................................... -- 1,840,381 5,480,199 Other assets...................................................... 4,507 5,348 2,107 - ------------------------------------------------------------------------------------------------------------------ Total assets................................................. 50,784,819 42,509,222 21,613,614 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES: Management fees due to advisor (Note 4)........................... 30,714 5,432 340 Due to affiliates (Note 4)........................................ 9,300 7,079 6,222 Payable for investment securities purchased....................... 626,413 2,254,972 314,818 Payable for Fund shares redeemed.................................. -- -- 5,643,457 Other accrued expenses............................................ 27,684 32,582 12,983 - ------------------------------------------------------------------------------------------------------------------ Total liabilities............................................ 694,111 2,300,065 5,977,820 - ------------------------------------------------------------------------------------------------------------------ NET ASSETS........................................................ $50,090,708 $40,209,157 $15,635,794 ================================================================================================================== NET ASSETS CONSIST OF: Shares of beneficial interest..................................... $ 4,769 $ 3,956 $ 2,291 Additional capital paid-in........................................ 62,173,790 36,632,568 27,588,453 Undistributed net investment income............................... -- 99,458 121,045 Accumulated net realized gain (loss) on investments............... (17,110,421) 2,630,766 (13,396,443) Net unrealized appreciation on: Investments.................................................... 4,989,621 842,409 1,320,448 Translation of assets and liabilities in foreign currencies.... 32,949 -- -- - ------------------------------------------------------------------------------------------------------------------ NET ASSETS........................................................ $50,090,708 $40,209,157 $15,635,794 ================================================================================================================== Shares of beneficial interest outstanding......................... 4,768,635 3,955,746 2,290,596 NET ASSETS VALUE, offering and redemption price per share (Net assets/Outstanding shares of beneficial interest)......... $ 10.50 $ 10.16 $ 6.83 ==================================================================================================================
See notes to financial statements. 16 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003 - --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND - ------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends...................................................... $ 926,924 $ -- $ 310,447 Interest....................................................... 4,784 3,331,394 4,312 Foreign taxes withheld ........................................ (104,258) -- -- - ------------------------------------------------------------------------------------------------------------------ Total Investment Income.............................. 827,450 3,331,394 314,759 - ------------------------------------------------------------------------------------------------------------------ EXPENSES: Investment advisory fees (Note 4).............................. 347,332 320,891 134,622 Administration fee (Note 4).................................... 27,787 38,507 15,000 Accounting fee (Note 4)........................................ 60,314 44,539 40,000 Custodian fees ................................................ 33,720 12,606 5,181 Transfer agency fees (Note 4).................................. 20,000 20,000 20,000 Trustees' fees (Note 4)........................................ 13,175 20,220 5,658 Audit fees..................................................... 13,553 13,662 8,085 Legal fees..................................................... 21,440 16,299 16,084 Registration fees.............................................. 16,245 16,806 13,664 Reports to shareholders........................................ 5,425 8,148 2,605 Other.......................................................... 11,556 25,934 8,900 - ------------------------------------------------------------------------------------------------------------------ Total expenses............................................ 570,547 537,612 269,799 Advisory fees waived (Note 4)............................. -- (152,563) (114,472) - ------------------------------------------------------------------------------------------------------------------ Total expenses, net.................................... 570,547 385,049 155,327 - ------------------------------------------------------------------------------------------------------------------ Net investment income............................... 256,903 2,946,345 159,432 - ------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) from: Investment transactions.................................. (4,147,033) 2,753,015 (3,024,970) Foreign currency transactions............................ (265,355) -- -- - ------------------------------------------------------------------------------------------------------------------ Total net realized gain (loss)......................... (4,412,388) 2,753,015 (3,024,970) - ------------------------------------------------------------------------------------------------------------------ Change in unrealized appreciation (depreciation) of: Investments.............................................. 13,092,097 (1,582,276) 5,578,110 Translation of assets and liabilities in foreign currencies ................................... 7,854 -- -- - ------------------------------------------------------------------------------------------------------------------ Total change in unrealized appreciation (depreciation). 13,099,951 (1,582,276) 5,578,110 - ------------------------------------------------------------------------------------------------------------------ Net gain on investments and foreign currency...... 8,687,563 1,170,739 2,553,140 - ------------------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 8,944,466 $ 4,117,084 $ 2,712,572 ==================================================================================================================
See notes to financial statements. 17 1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME LARGE CAP EQUITY FUND FUND EQUITY FUND - -------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED OCTOBER 31, 2003 INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ......................................... $ 256,903 $ 2,946,345 $ 159,432 Net realized gain (loss) from investment and foreign currency transactions............................. (4,412,388) 2,753,015 (3,024,970) Change in unrealized appreciation (depreciation) of investments and foreign currency....................... 13,099,951 (1,582,276) 5,578,110 - -------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations.............. 8,944,466 4,117,084 2,712,572 - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income.......................................... -- (2,846,887) (99,491) Long-term gains................................................ -- (499,526) -- - -------------------------------------------------------------------------------------------------------------------- Total distributions......................................... -- (3,346,413) (99,491) - -------------------------------------------------------------------------------------------------------------------- Decrease in net assets from Fund share transactions (Note 5)...... (15,360,896) (50,295,065) (8,072,977) - -------------------------------------------------------------------------------------------------------------------- Decrease in net assets............................................ (6,416,430) (49,524,394) (5,459,896) NET ASSETS: Beginning of year................................................. 56,507,138 89,733,551 21,095,690 - -------------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $0, $99,458 and $121,045, respectively)....................... $50,090,708 $40,209,157 $15,635,794 ==================================================================================================================== FOR THE YEAR ENDED OCTOBER 31, 2002 INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ......................................... $ 58,564 $ 6,338,057 $ 95,676 Net realized gain (loss) from investment and foreign currency transactions............................... (11,551,103) 514,671 (7,328,678) Change in unrealized appreciation (depreciation) of investments and foreign currency............................ 1,936,115 (3,129,687) 1,069,356 - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations... (9,556,424) 3,723,041 (6,163,646) - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income.......................................... -- (6,338,057) (102,259) Short-term gains............................................... -- (1,885,738) -- Long-term gains................................................ -- (395,985) -- - -------------------------------------------------------------------------------------------------------------------- Total distributions.......................................... -- (8,619,780) (102,259) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from Fund share transactions (Note 5) (5,943,650) (34,040,564) 5,595,751 - -------------------------------------------------------------------------------------------------------------------- Decrease in net assets............................................ (15,500,074) (38,937,303) (670,154) NET ASSETS: Beginning of year.............................................. 72,007,212 128,670,854 21,765,844 - -------------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $0, $0 and $61,104, respectively).......................... $56,507,138 $89,733,551 $21,095,690 ====================================================================================================================
See notes to financial statements. 18 1838 INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each fiscal year and other performance information derived from the financial statements. It should be read in conjuction with the financial statements and notes thereto. INTERNATIONAL EQUITY FUND
FOR THE FISCAL YEARS ENDED OCTOBER 31, - -------------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF YEAR................. $8.50 $9.89 $14.59 $14.57 $12.08 - -------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income .......................... 0.05 0.01 0.03 0.01 0.03 Net realized and unrealized gain (loss) on investments and foreign currency transactions.. 1.95 (1.40) (3.19) 0.78 3.34 - -------------------------------------------------------------------------------------------------------------------- Total from investment operations............... 2.00 (1.39) (3.16) 0.79 3.37 - -------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: From net investment income....................... -- -- -- -- -- From net short-term realized gain on investments. -- -- (0.22) (0.45) -- From net long-term realized gain on investments.. -- -- (1.32) (0.32) (0.88) - -------------------------------------------------------------------------------------------------------------------- Total distributions............................ -- -- (1.54) (0.77) (0.88) - -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - END OF YEAR....................... $10.50 $8.50 $9.89 $14.59 $14.57 ==================================================================================================================== TOTAL RETURN........................................ 23.53% (14.05)% (23.94)% 5.06% 29.10% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses......................................... 1.23% 1.10% 1.04% 1.10% 1.09% Net investment income ........................... 0.55% 0.08% 0.26% 0.04% 0.23% Portfolio turnover rate............................. 45.93% 31.51% 41.58% 51.99% 48.71% Net assets, end of year (in 000's).................. $50,091 $56,507 $72,007 $101,686 $86,547
See notes to financial statements. 19 1838 INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS -- CONTINUED - -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each fiscal year and other performance information derived from the financial statements. It should be read in conjuction with the financial statements and notes thereto. FIXED INCOME FUND
FOR THE FISCAL YEARS ENDED OCTOBER 31, - ------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE - BEGINNING OF YEAR......... $10.11 $10.49 $9.75 $9.81 $10.24 - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS: Net investment income1................... 0.48 0.56 0.61 0.63 0.53 Net realized and unrealized gain (loss) on investments ....................... 0.08 (0.19) 0.75 (0.04) (0.45) - ------------------------------------------------------------------------------------------------------------------------ Total from investment operations1..... 0.56 0.37 1.36 0.59 0.08 - ------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: From net investment income............... (0.45) (0.56) (0.62) (0.65) (0.51) Return of capital........................ -- -- -- -- -- From net short-term realized gain on investments............................ -- (0.16) -- -- -- From net long-term realized gain on investments........................... (0.06) (0.03) -- -- -- - ------------------------------------------------------------------------------------------------------------------------ Total distributions................... (0.51) (0.75) (0.62) (0.65) (0.51) - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE - END OF YEAR............... $10.16 $10.11 $10.49 $9.75 $9.81 ======================================================================================================================== TOTAL RETURN................................ 5.67% 3.86% 14.36% 6.33% 0.79% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)2........... 0.60% 0.60% 0.60% 0.60% 0.61% Expenses (excluding fee waivers)......... 0.84% 0.74% 0.70% 0.75% 0.73% Net investment income1 .................. 4.59% 5.58% 6.09% 6.57% 5.35% Portfolio turnover rate..................... 234.92% 205.61% 199.43% 361.63% 834.18% Net assets, end of year (in 000's).......... $40,209 $89,734 $128,671 $152,319 $94,221
1 Effective November 1, 2001, the Fixed Income Fund adopted the required provisions of the AICPA Audit and Accounting Guide for Investment Companies. The effect of this change for the year ended October 31, 2002 was to increase net investment income per share by $0.01, decrease net realized and unrealized gains and losses per share by $0.01 and increase the ratio of net investment income to average net assets by 0.09%. Per share ratios and supplemental data for periods prior to November 1, 2001 have not been restated to reflect this change in accounting principle. 2 Effective March 1, 1999, 1838 Investment Advisors, LLC voluntarily agreed to waive its fees and/or reimburse the Fund so the total operating expenses do not exceed 0.60% of average daily net assets. See notes to financial statements. 20 1838 INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS -- CONTINUED - -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each fiscal year or period and other performance information derived from the financial statements. It should be read in conjuction with the financial statements and notes thereto. LARGE CAP EQUITY FUND
FOR THE FISCAL YEAR OR PERIOD ENDED OCTOBER 31, - --------------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999+ - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF YEAR............... $5.96 $7.67 $11.09 $10.61 $10.00 - --------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income.......................... 0.06 0.03 0.03 0.02 0.01 Net realized and unrealized gain on investments 0.84 (1.70) (3.43) 0.49 0.60 - --------------------------------------------------------------------------------------------------------------------- Total from investment operations............ 0.90 (1.67) (3.40) 0.51 0.61 - --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: From net investment income..................... (0.03) (0.04) (0.02) (0.01) -- From net short-term realized gain on investments -- -- -- (0.02) -- - --------------------------------------------------------------------------------------------------------------------- Total distributions......................... (0.03) (0.04) (0.02) (0.03) -- - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - END OF YEAR..................... $6.83 $5.96 $7.67 $11.09 $10.61 ===================================================================================================================== TOTAL RETURN...................................... 15.12% (21.96)% (30.73)% 4.83% 6.10%* RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers).................. 0.75% 0.75% 0.75% 0.75% 0.75%** Expenses (excluding fee waivers)............... 1.30% 1.18% 1.17% 1.73% 4.98%** Net investment income ......................... 0.77% 0.41% 0.32% 0.23% 1.55%** Portfolio turnover rate........................... 55.00% 53.26% 45.82% 54.21% 5.58% Net assets, end of year (in 000's)................ $15,636 $21,096 $21,766 $19,831 $4,923
+ The Large Cap Equity Fund commenced operations on September 29, 1999. * Total return not annualized. ** Annualized. See notes to financial statements. 21 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 1 -- DESCRIPTION OF THE FUNDS The 1838 Investment Advisors Funds (the "Trust") was organized as a Delaware series business trust on December 9, 1994, and is an open-end, management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust's Agreement and Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest. The Trust consists of three Funds: the 1838 International Equity Fund, the 1838 Fixed Income Fund and the 1838 Large Cap Equity Fund (each a "Fund" and collectively, the "Funds"). The investment objectives of each Fund are set forth below. The 1838 International Equity Fund (the "International Fund") commenced operations on August 3, 1995. The Fund's investment objective is capital appreciation, with a secondary objective of income. The Fund seeks to achieve its objective by investing at least 80% of its total assets in a diversified portfolio of equity securities of issuers located in countries other than the United States. The 1838 Fixed Income Fund (the "Fixed Income Fund") commenced operations on September 2, 1997. The Fund's investment objective is maximum current income, with a secondary objective of growth. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of its assets in a diversified portfolio of fixed income securities. The 1838 Large Cap Equity Fund (the "Large Cap Fund") commenced operations on September 29, 1999. The Fund's investment objective is long-term total return. The Fund seeks to achieve its objective by investing at least 90% of its total assets in the common stock of U.S. companies with market capitalizations greater than $5 billion. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION. Each Fund's securities, except investments with remaining maturities of 60 days or less, are valued at the last quoted sales price on the security's principal exchange on that day. If there are no sales of the relevant security on such day, the security will be valued at the bid price on that day, if any. Debt securities having a maturity of 60 days or less are valued at amortized cost. Securities for which market quotations are not readily available and all other assets will be valued at their respective fair value as determined in good faith by, or under procedures established by, the Board of Trustees. As of October 31, 2003, there were no securities valued by, or under procedures established by, the Board of Trustees. FEDERAL INCOME TAXES. Each Fund is treated as a separate entity and intends to remain qualified as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986 and to distribute all of its taxable income to its shareholders. Therefore, no federal income or excise tax provision is required. FOREIGN CURRENCY TRANSLATIONS. The books and records of the International Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The International Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the International Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. 22 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio purchases and sales of securities denominated in a foreign currency, the International Fund may enter into forward foreign currency exchange contracts ("FFCEC"). Additionally, the International Fund may enter into these contracts to hedge certain foreign currency assets. Foreign currency exchange contracts are recorded at fair value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Realized gains or losses arising from such transactions are included in net realized gain (loss) from foreign currency transactions. There were no FFCEC to hedge foreign currency assets outstanding at October 31, 2003. TRANSFERS IN-KIND. Shareholders may periodically contribute marketable securities to a respective Fund, upon approval of the Fund's management, in exchange for capital shares of the respective Fund. The exchange is conducted on a taxable basis, whereby any unrealized appreciation or depreciation on the marketable securities on the date of transfer is recognized by the shareholder and the Fund's basis in the securities is the market value as of the date of transfer. The number of shares issued to the shareholder is calculated by dividing the market value of the marketable securities, determined using the last quoted sales price on the security's principal exchange on that day, by the current net asset value per share of the respective Fund on the date of transfer. DISTRIBUTIONS TO SHAREHOLDERS AND BOOK/TAX DIFFERENCES. The Fixed Income Fund distributes net investment income monthly. All other distributions by the Funds will be made annually in December. Additional distributions may be made by each Fund to the extent necessary. Distributions of net investment income and net realized gains are determined in accordance with income tax regulations which may differ from generally accepted accounting principles in the United States of America ("GAAP"). These differences are primarily due to differing treatments of gains or losses on foreign currency transactions and losses deferred due to wash sales. Net investment income, short-term gains and foreign currency gains are taxed as ordinary income and long-term gains are taxed as capital gains. Distributions during the fiscal year ended October 31, 2003 were characterized as follows for tax purposes: ORDINARY CAPITAL TOTAL FUND INCOME GAIN DISTRIBUTION ---- --------- -------- ------------ International Fund......... $ -- $ -- $ -- Fixed Income Fund.......... 2,846,887 499,526 3,346,413 Large Cap Fund............. 99,491 -- 99,491 Distributions during the fiscal year ended October 31, 2002 were characterized as follows for tax purposes: ORDINARY CAPITAL TOTAL FUND INCOME GAIN DSTRIBUTION ---- ---------- -------- ----------- International Fund......... $ -- $ -- $ -- Fixed Income Fund.......... 8,233,795 395,985 8,619,780 Large Cap Fund............. 102,259 -- 102,259 At October 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED CAPITAL ORDINARY LONG TERM LOSS UNREALIZED FUND INCOME CAPITAL GAIN CARRYFORWARD APPRECIATION ---- ---------- ------------ ------------ ------------ International Fund.......... $ -- $ -- $(17,020,772) $4,899,972 Fixed Income Fund........... 1,427,725 1,312,262 -- 828,646 Large Cap Fund.............. 121,045 -- (13,036,446) 960,451
23 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) As of October 31, 2003, the following table shows the capital loss carryovers available to offset possible future capital gains for the following Funds: FUND AMOUNT EXPIRATION DATE ---- ----------- --------------- International Fund.............. $ 1,643,063 10/31/2009 11,237,327 10/31/2010 4,140,382 10/31/2011 Large Cap Fund.................. $ 341,572 10/31/2008 2,609,791 10/31/2009 7,065,447 10/31/2010 3,019,636 10/31/2011 At October 31, 2003, the following table shows for federal tax purposes the aggregate cost of investments, the net unrealized appreciation/(depreciation) of those investments, the aggregate gross unrealized appreciation of all securities with an excess of market value over tax cost and the aggregate gross unrealized depreciation of all securities with an excess of tax cost over market value.
NET UNREALIZED GROSS GROSS AGGREGATE APPRECIATION/ UNREALIZED UNREALIZED FUND TAX COST (DEPRECIATION) APPRECIATION DEPRECIATION ---- ----------- -------------- ------------ ------------ International Fund....................... $45,753,793 $4,899,972 $7,868,755 $2,968,783 Fixed Income Fund........................ 39,470,362 828,646 948,850 120,204 Large Cap Fund........................... 15,146,352 960,451 1,719,259 758,808
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. OTHER. Investment security transactions are accounted for on a trade date basis. The specific identification method is utilized for determining realized gain or loss on investments for both financial and federal income tax reporting purposes. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recorded on an accrual basis. NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES During the fiscal year ended October 31, 2003, purchases and sales of investment securities, other than short-term investments, were as follows:
INTERNATIONAL FIXED INCOME LARGE CAP FUND FUND FUND ------------ ------------- ----------- Purchases......................... $20,760,679 $148,934,535 $10,958,419 Sales............................. 35,863,860 197,686,902 18,822,696
24 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES -- (CONTINUED) Purchases, sales and maturities of U.S. Government securities, during the fiscal year ended October 31, 2003, were as follows:
INTERNATIONAL FIXED INCOME LARGE CAP FUND FUND FUND ------------ ------------- ------------- Purchases......................... $ -- $51,917,738 $ -- Sales............................. -- 54,875,663 --
NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Trust, on behalf of each Fund, employs 1838 Investment Advisors, LLC (the "Investment Advisor"), a wholly-owned subsidiary of MBIA, Inc., and registered investment adviser under the 1940 Act, to furnish investment advisory services to the Funds pursuant to an Investment Advisory Agreement with the Trust. The Investment Advisor supervises the investment of the assets of the Funds in accordance with each Fund's investment objective, policies and restrictions. The Trust pays the Investment Advisor a monthly fee at the following annual rates of each Fund's average daily net assets: 0.75% for the International Fund, 0.50% for the Fixed Income Fund and 0.65% for the Large Cap Fund. The Investment Advisor has voluntarily agreed to waive its advisory fee and/or reimburse each Fund monthly to the extent that the total operating expenses (excluding taxes, extraordinary expenses, brokerage commissions and interest) will exceed the following annual rates of each Fund's average daily net assets: 1.25% for the International Fund, 0.60% for the Fixed Income Fund and 0.75% for Large Cap Fund. This undertaking may be rescinded at any time in the future. The following table summarizes the advisory fees incurred by the Funds for the fiscal year ended October 31, 2003:
GROSS ADVISORY FEE NET ADVISORY FEE WAIVER ADVISORY FEE ------------ ----------- ------------ International Fund.............. $347,332 $ -0- $347,332 Fixed Income Fund............... 320,891 152,563 168,328 Large Cap Fund.................. 134,622 114,472 20,150
1838 Investment Advisors, LLC ("1838") also serves as Administrator to the Trust pursuant to an Administration Agreement with the Trust on behalf of each Fund. As Administrator, 1838 is responsible for services such as financial reporting, compliance monitoring and corporate management. The Trust pays 1838 a monthly asset-based fee at the annual rate of 0.06% of each Fund's average daily net assets, with a minimum annual fee per Fund of $15,000. For the fiscal year ended October 31, 2003, 1838's administration fees amounted to $27,787, $38,507 and $15,000, for the International Fund, the Fixed Income Fund and the Large Cap Fund, respectively. MBIA Municipal Investors Services Corporation ("MBIA MISC"), a direct, wholly-owned subsidiary of MBIA, Inc., serves as Accounting Agent to the Trust. As Accounting Agent, MBIA MISC determines each Fund's net asset value per share and provides accounting services to the Funds pursuant to an Accounting Services Agreement with the Trust. The Trust pays MBIA MISC a monthly asset-based fee at the annual rate of $40,000, plus 0.03% of each Fund's average daily net assets in excess of $50 million for the Fixed Income Fund and the Large Cap Fund. For the International Fund the Trust pays at the annual rate of $60,000, plus 0.03% of average daily net assets in excess of $50 million. For the fiscal year ended October 31, 2003, MBIA MISC's accounting fees amounted to $60,314, $44,539 and $40,000, for the International Fund, the Fixed Income Fund and the Large Cap Fund, respectively. 25 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED) MBIA MISC also serves as the Fund's transfer agent pursuant to a Transfer Agency Agreement with the Trust. For these services, MBIA MISC receives an annual fee per Fund of $20,000, and is reimbursed for out-of-pocket expenses. For fiscal year ended October 31, 2003, MBIA MISC's transfer agent fees amounted to $20,000 for each Fund. MBIA Capital Management Corporation (the "distributor"), a direct, wholly-owned subsidiary of MBIA, Inc., entered into a Distribution Agreement with the Trust to assist in securing purchasers for shares of each Fund. The distributor also directly or through its affiliates, provides investor support services. The distributor receives no compensation for distributing the Funds' shares, except for reimbursement of its out-of-pocket expenses. The Trustees of the Trust who are "interested persons" of the Trust, the Investment Advisor or its affiliates and all personnel of the Trust or the Investment Advisor performing services related to research, statistical and investment activities are paid by the Investment Advisor or its affiliates. NOTE 5 -- FUND SHARE TRANSACTIONS At October 31, 2003, there were an unlimited number of shares of beneficial interest with a $0.001 par value, authorized. The following table summarizes the activity in shares of each Fund: INTERNATIONAL FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002 ----------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ----------- ----------- ------------ Shares sold..................................... 319,488 $ 2,920,560 447,668 $ 4,408,467 Shares redeemed................................. (2,195,911) (18,281,456) (1,086,733) (10,352,117) --------- ----------- --------- ----------- Net decrease.................................... (1,876,423) $(15,360,896) (639,065) $ (5,943,650) =========== ============ Shares outstanding: Beginning of year....................... 6,645,058 7,284,123 --------- --------- End of year............................ 4,768,635 6,645,058 ========= =========
FIXED INCOME FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold..................................... 255,303 $ 2,619,947 448,482 $ 4,505,566 Shares issued to shareholders in reinvestment of distributions............................. 297,492 3,031,642 778,386 7,754,268 Shares redeemed................................. (5,472,108) (55,946,654) (4,621,456) (46,300,398) --------- ----------- --------- ----------- Net decrease.................................... (4,919,313) $(50,295,065) (3,394,588) $(34,040,564) ============ ============ Shares outstanding: Beginning of year....................... 8,875,059 12,269,647 --------- ---------- End of year............................ 3,955,746 8,875,059 ========= ==========
26 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS-- CONTINUED OCTOBER 31, 2003 - -------------------------------------------------------------------------------- NOTE 5 -- FUND SHARE TRANSACTIONS -- (CONTINUED) LARGE CAP FUND
FOR THE FISCAL YEAR FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003 ENDED OCTOBER 31, 2002 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold........................................... 446,054 $ 2,712,563 1,200,399 $ 9,403,633 Shares issued to shareholders in reinvestment of distributions................................... 12,078 72,347 11,406 93,074 Shares redeemed....................................... (1,705,353) (10,857,887) (511,391) (3,900,956) --------- ---------- -------- ---------- Net increase (decrease)............................... (1,247,221) $(8,072,977) 700,414 $ 5,595,751 =========== ============ Shares outstanding: Beginning of year.............................. 3,537,817 2,837,403 --------- -------- End of year................................... 2,290,596 3,537,817 ========= =========
NOTE 6 -- CONCENTRATION OF RISKS The International Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the U.S., as a result of, among other factors, the possibility of future political and economical developments and the level of government supervision and regulation of securities markets in the various countries. NOTE 7 -- CHANGE OF FUND AUDITOR On December 19, 2002, the Board of Trustees of the Trust approved changing the Trust's independent auditors from PricewarterhouseCoopers LLP ("PWC") to Tait, Weller & Baker for the fiscal year ending October 31, 2003. During the Trust's most recent two fiscal years, PWC's report on the financial statements did not contain an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles and the Trust did not have any disagreements with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure. 27 1838 INVESTMENT ADVISORS FUNDS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OCTOBER 31, 2003 TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF 1838 INVESTMENT ADVISORS FUNDS We have audited the accompanying statements of assets and liabilities of International Equity Fund, Large Cap Equity Fund and Fixed Income Fund, each a series of 1838 Investment Advisors Funds, including the schedules of investments, as of October 31, 2003, and the related statements of operations, the statements of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the four years in the period ended October 31, 2002 and the statements of changes in net assets for the year ended October 31, 2002 were audited by other auditors whose report dated December 12, 2002 expressed an unqualified opinion on those statements and financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2003 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of International Equity Fund, Large Cap Equity Fund, and Fixed Income Fund as of October 31, 2003, the results of their operations, the changes in their net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER &BAKER Philadelphia, PA November 26, 2003 28 1838 INVESTMENT ADVISORS FUNDS - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION (UNAUDITED) TAX INFORMATION The 1838 Fixed Income Fund paid distributions of $0.0604 per share from net long-term capital gains during the fiscal year ended October 31, 2003. Pursuant to section 852 of the Internal Revenue Code, the 1838 Fixed Income Fund designated $499,526 as capital gain distributions for the fiscal year ended October 31, 2003. 29
1838 INVESTMENT ADVISORS FUNDS - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONAL INFORMATION REGARDING THE TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED) POSITION(S) LENGTH OF HELD WITH THE PRINCIPAL OCCUPTION TIME SERVED; NAME, ADDRESS AND AGE TRUST COMPLEX AND DIRECTORSHIPS DURING THE PAST FIVE YEARS TERM OF OFFICE - ------------------------------------------------------------------------------------------------------------------------------------ W. Thacher Brown (55) President, Chairman President and Director, 1838 Investment Advisors, LLC 1995 to 2701 Renaissance and Trustee of each (successor company to 1838 Investment Advisors, Inc. present; Boulevard, Fourth Floor, Fund in the Trust and 1838 Investment Advisors, L.P.) (1988 - Present); indefinite King of Prussia, PA 19406 Complex President and Chief Executive Officer, 1838 Investment Advisors, Inc. (1988 - 1998); President, MBIA Asset Management, LLC (successor company to MBIA Asset Management Corp.); Director, 1838 Bond-Debenture Trading Fund; Airgas, Inc. and Harleysville Mutual Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Charles D. Dickey, Jr. (85) Trustee of each Retired. Formerly Chairman and CEO of Scott Paper 1995 to 2701 Renaissance Fund in the Trust Company (retired as CEO 1983; retired as Director, 1988); present; Boulevard, Fourth Floor, Complex Formerly Director of General Electric Company (retired indefinite King of Prussia, PA 19406 1991). - ------------------------------------------------------------------------------------------------------------------------------------ Frank B. Foster, III (68) Trustee of each Chairman, DBH Assoc. (1987-Present); Director, OAO 1995 to 2701 Renaissance Fund in the Trust Technology Solutions Inc. (NASDAQ) (1997-Present); present; Boulevard, Fourth Floor, Complex Director; Airgas Inc. (1986-Present). indefinite King of Prussia, PA 19406 - ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Hauptfuhrer (71) Trustee of each Director, Quaker Chemical Corp. (1977-Present). 1995 to 2701 Renaissance Fund in the Trust present; Boulevard, Fourth Floor, Complex indefinite King of Prussia, PA 19406 - ------------------------------------------------------------------------------------------------------------------------------------ Johannes B. van den Berg (46) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1995 to 2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present; Boulevard, Fourth Floor, of the International Investment Advisors, L.P.) (1997 - Present); Managing indefinite King of Prussia, PA 19406 Equity Fund Director and Portfolio Manager, MeesPierson 1838 Investment Advisors (1994-1998); President, MeesPierson Capital Management, Inc. (1994-1998).
30
1838 INVESTMENT ADVISORS FUNDS - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONAL INFORMATION REGARDING THE TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED) POSITION(S) LENGTH OF HELD WITH THE PRINCIPAL OCCUPTION TIME SERVED; NAME, ADDRESS AND AGE TRUST COMPLEX AND DIRECTORSHIPS DURING THE PAST FIVE YEARS TERM OF OFFICE - ------------------------------------------------------------------------------------------------------------------------------------ Clifford D. Corso (40) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1997 to 2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present; Boulevard, Fourth Floor, of the Fixed Income Investment Advisors, L.P.) (1998-Present); Vice President indefinite King of Prussia, PA 19406 Fund and Senior Portfolio Manager, MBIA Capital Management Corp (1994-1998). - ------------------------------------------------------------------------------------------------------------------------------------ George W. Gephart, Jr. (50) Vice President & Managing Director, 1838 Investment Advisors, LLC (successor 1999 to 2701 Renaissance Portfolio Manager company to 1838 Investment Advisors, Inc. and 1838 present; Boulevard, Fourth Floor, of the Large Cap Investment Advisors, L.P.), (1988 - Present) Chairman, Bryn indefinite King of Prussia, PA 19406 Equity Fund Mawr Rehab Hospital (Past); and Director, Main Line Health Systems and Jefferson Health Systems (Present). - ------------------------------------------------------------------------------------------------------------------------------------ Anna M. Bencrowsky (52) Vice President, Vice President-Chief Compliance Officer, 1838 Investment 1995 to 2701 Renaissance Treasurer and Advisors, LLC (successor company to 1838 Investment present; Boulevard, Fourth Floor, Secretary of each of Advisors, Inc. and 1838 Investment Advisors Funds, L.P.) indefinite King of Prussia, PA 19406 the Funds in the (1988 - Present) Vice President and Secretary, 1838 Bond- Trust Complex Debenture Trading Fund.
Additional information about the Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and available upon request without charge by calling 877-367-1838. PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED) - -------------------------------------------------------------------------------- The Funds have adopted Portfolio Proxy Voting Policies and Procedures under which the Funds vote proxies relating to securities ("portfolio proxies") held by the Funds. A description of the Funds' Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling toll free 1-800-232-1838 and (ii) on the SEC's website, www.sec.gov. 31 INVESTMENT ADVISER AND ADMINISTRATOR ----------- 1838 INVESTMENT ADVISORS, LLC 2701 RENAISSANCE BOULEVARD FOURTH FLOOR KING OF PRUSSIA, PA 19406 DISTRIBUTOR ----------- MBIA CAPITAL MANAGEMENT CORPORATION 113 KING STREET ARMONK, NY 10504 ACCOUNTING AND TRANSFER AGENT ----------- MBIA MUNICIPAL INVESTORS SERVICE CORPORATION 113 KING STREET ARMONK, NY 10504 CUSTODIAN ----------- WACHOVIA NATIONAL BANK 123 S. BROAD STREET PHILADELPHIA, PA 19109 LEGAL COUNSEL ----------- PEPPER HAMILTON LLP 3000 TWO LOGAN SQUARE EIGHTEENTH & ARCH STREETS PHILADELPHIA, PA 19103 AUDITORS ----------- TAIT, WELLER & BAKER 1818 MARKET STREET SUITE 2400 PHILADELPHIA, PA 19103 AR 10/03 1838 INVESTMENT ADVISORS FUNDS ------------------------- INTERNATIONAL EQUITY FUND FIXED INCOME FUND LARGE CAP EQUITY FUND ANNUAL REPORT OCTOBER 31, 2003 ITEM 2: Code of Ethics The Board of Trustees has adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller of the Registrant, 1838 Investment Advisors, LLC and MBIA Capital Management Corporation, and to persons performing similar functions. ITEM 3: Audit Committee Financial Expert The Board of Trustees of the registrant has determined that Frank B. Foster, III, the Chairman of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Mr. Foster as the Audit Committee's financial expert. Mr. Foster is an "independent" Director pursuant to paragraph (a)(2)of Item 3 to Form N-CSR. ITEM 4: Principal Accountant Fees and Services Not applicable at this time. ITEM 5-6: (Reserved) ITEM 7: Disclosure of Proxy Voting Policies and Procedures for Closed- End Management Investment Companies Not applicable. ITEM 8: (Reserved) ITEM 9: CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) Internal Controls over Financial Reporting. There were no significant changes in Registrant's internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10: EXHIBITS. The following exhibits are attached hereto: (a)code of ethics (b)certifications Signatures Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 1838 Investment Advisors Funds BY: /s/ W. Thacher Brown -------------------- W. Thacher Brown Chairman and President Date: January 5, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. BY: /s/ W. Thacher Brown -------------------- W. Thacher Brown Chairman and President (Principal Executive Officer) Date: January 5, 2003 BY: /s/ Anna M. Bencrowsky ---------------------- Anna M. Bencrowsky Secretary and Treasurer (Principal Financial Officer) Date: January 5, 2003 EX-99.CODE 3 ex-99code.txt JOINT CODE OF ETHICS OF 1838 INVESTMENT ADVISORS FUNDS 1838 BOND-DEBENTURE TRADING FUND 1838 INVESTMENT ADVISORS, LLC MBIA CAPITAL MANAGEMENT CORPORATION PREAMBLE This Code of Ethics has been adopted by o the Board of Trustees of 1838 Investment Advisors Funds (the "Trust")on behalf of each series of the Trust listed on Appendix A hereto; o the Board of Directors of 1838 Bond-Debenture Trading Fund (the "Fund"); o 1838 Investment Advisors, LLC ("1838 Advisors"), insofar as 1838 Advisors serves as investment adviser to the Trust and the Fund; and o MBIA Capital Management Corporation ("MBIA"), insofar as MBIA serves as principal underwriter for the Trust. The Code has been adopted in accordance with the requirements of Rule 17j-1 (the "Rule") under the Investment Company Act of 1940 (the "Act"). The Rule requires the Trust, the Fund, 1838 Advisors, and MBIA to adopt a written code of ethics containing provisions reasonably necessary to prevent persons from engaging in acts in violation of the Code and the Rule, and to use reasonable diligence to prevent violations of the Code. Violations of sub-paragraph (b) of the Rule may constitute grounds for the imposition of significant administrative and civil injunctive, as well as criminal, sanctions by the U.S. Securities and Exchange Commission or the federal courts. In addition, the Trust or Fund may impose internal sanctions for violations of this Code. All persons that are or that are about to become covered by this Code are expected to be familiar with the proscriptions of this Rule. To that end, a summary of Rule 17j-1(b) is included as Appendix B to this Code. Set forth below is the Code of Ethics adopted by the Trust, the Fund, 1838 Advisors, and MBIA in compliance with the Rule. This Code of Ethics is based upon the principle that the trustees and officers of the Trust, the directors and officers of the Fund, and certain affiliated persons of the Trust, the Fund, 1838 Advisors and MBIA owe a fiduciary duty to, among others, the shareholders of the Trust and/or the Fund to conduct their affairs, including their personal securities transactions, in such manner to avoid (i) serving their own personal interests ahead of shareholders; (ii) taking inappropriate advantage of their position with the Trust or the Fund; and (iii) any actual or potential conflicts of interest or any abuse of their position of trust and responsibility. 1. DEFINITIONS The definitions of the terms used throughout this Code are set forth in Appendix C. 2. PROHIBITED TRANSACTIONS (a) No Access Person shall engage in any act, practice or course of conduct, which would violate the provisions of Rule 17j-1 set forth in Appendix B. (b) No Access Person shall: (i) purchase or sell, directly or indirectly, any security in which he or she has or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to his or her actual knowledge at the time of such purchase or sale: (A) is being considered for purchase or sale by Trust or Fund, as the case may be, or (B) is being purchased or sold by the Trust or Fund; (ii) disclose to other persons the securities activities engaged in or contemplated for the various portfolios of the Trust or Fund; (iii) seek or accept anything of value, either directly or indirectly, from broker-dealers or other persons providing services to the Trust or Fund because of such person's association with the Trust or Fund. For the purposes of this provision, the following gifts from broker-dealers or other persons providing services to the Trust or Fund will not be considered to be in violation of this section: (A) an occasional meal; (B) an occasional ticket to a sporting event, the theater or comparable entertainment, for which the Access Person will reimburse the host; (C) a holiday gift of fruit or other foods; provided, however, that such gift is made available to all members of the recipient's department. (c) No Investment Personnel and no Access Person of 1838 Advisors shall: (i) acquire directly or indirectly any beneficial ownership in any securities in an IPO or in a Limited Offering without prior approval of the Compliance Officer or other person designated by the Trust's Board of Trustees or Fund's Board of Directors, as the case may be. Any person authorized to purchase securities in an IPO or Limited Offering shall disclose that investment when involved in the Trust's or Fund's subsequent consideration of an investment in the issuer. In such circumstances, the Trust's or Fund's decision to purchase securities of the issuer shall be subject to independent review by the Trust's or Fund's officers, as the case may be, with no personal interest in the issuer; (ii) unless an exception is granted, profit in the purchase and sale, or sale and purchase, of the same (or equivalent) securities within sixty (60) calendar days. Any profits realized on such short-term trades shall be subject to disgorgement, except that the provisions in this paragraph 2(c)(ii) shall not apply to the purchase and sale, or sale and purchase, of MBIA, Inc. stock options. (iii) serve on the board of directors of any publicly traded company without prior authorization of the Chairman and/or President of the Trust or Fund, as the case may be. Any such authorization shall be based upon a determination that the board service would be consistent with the interests of the Trust or the Fund and the shareholders of the Trust or Fund, as the case may be; (iv) buy or sell a Covered Security within at least seven (7) calendar days before and after any portfolio of the Trust or the Fund trades in that security. Any profits realized on trades within the proscribed period are required to be disgorged. 3. EXEMPTED TRANSACTIONS The prohibitions of Sections 2(b) and 2(c) of the Act shall not apply to: (a) purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control; (b) purchases or sales which are non-volitional on the part of either the Access Person or the Trust or Fund; (c) purchases which are part of an automatic dividend reinvestment plan; (d) purchases effected upon the exercise of rights issued by an issuer pro -rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; and (e) purchases or sales of shares of any series of the Trust. 4. COMPLIANCE PROCEDURES (a) Pre-clearance (i) With the exception of the Independent Trustees and the Independent Directors, all Access Persons generally shall receive prior approval from the Compliance Officer or other officer designated by the Board of Trustees or Board of Directors, as the case may be, before purchasing or selling securities. (ii) The following transactions are exempt from prior clearance requirements: o Mutual Funds - purchases or redemptions of shares of any open-end investment company, including 1838 Investment Advisors Funds and any of its series. o U.S. Government Obligations - purchases or sales of direct obligations of the U.S. government. o Municipal Bonds. (b) Initial and Annual Holdings Reports All Access Persons shall disclose to the Compliance Officer within 10 days of becoming an Access Person, and thereafter on an annual basis as of December 31, (i) the name, number of shares and principal amount of each Covered Security in which the Access Person has any direct or indirect beneficial ownership and (ii) the name of any broker, dealer or bank with whom the Access Person maintains a securities account. The initial and annual reports shall be made on the appropriate forms attached under Appendix D. (c) Quarterly Reports (i) Every Access Person shall report to the Compliance Officer the information described below with respect to transactions in any Covered Security in which such person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security; provided, however, that an Access Person shall not be required to make a report with respect to transactions effected for any account over which such person has no direct or indirect influence or control. (ii) Each Independent Trustee or Independent Director, as the case may be, need only report a transaction in a security if such Trustee or Director, at the time of that transaction knew, or, in the ordinary course of fulfilling his official duties as a Trustee or Director, should have known that, during the 15-day period immediately preceding or after the date of the transaction by the Trustee or Director, such security was purchased or sold by the Trust or the Fund, as the case may be, or was being considered for purchase by the Trust or the Fund or by 1838 Advisors on behalf of the Trust or Fund. (iii) Reports required to be made under this Paragraph (c) shall be made not later than 10 days after the end of the calendar quarter. Every Access Person shall be required to submit a report for all periods, including those periods in which no securities transactions were effected. A report shall be made on the Securities Transaction Report form attached hereto under Appendix D or on any other form containing the following information: With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership: (A) the date of the transaction, the name, the interest rate and maturity date (if applicable), the number of shares, and the principal amount of each Covered Security involved; (B) the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (C) the price at which the transaction in the Covered Security was effected; (D) the name of the broker, dealer or bank with or through which the transaction was effected; and (E) the date that the report is submitted by the Access Person. With respect to any securities account established at a broker, dealer or bank during the quarter for the director or indirect benefit of the Access Person: (A) the name of the broker, dealer or bank with whom the Access Person established the account; (B) the date the account was established; and (C) the date that the report is submitted by the Access Person. (iv) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. (d) Broker Confirms With the exception of the Independent Trustees and the Independent Directors, every Access Person shall direct his or her brokers to supply to the Compliance Officer, on a timely basis, duplicate copies of the confirmation of all personal securities transactions and copies of all periodic statements for all securities accounts. (e) Notification of Reporting Obligation The Compliance Officer shall notify each Access Person that he or she is subject to these reporting requirements, and shall deliver a copy of this Code of Ethics to each such person upon request. .. (f) Certification of Compliance with Code of Ethics (i) With the exception of the Independent Trustees and Independent Directors, Access Persons shall certify annually that: (A) they have read and understand (B) they have complied with the requirements of the Code of Ethics; and (C) they have reported all personal securities transactions required to be reported pursuant to the requirements of the Code of Ethics. (g) Conflict of Interest Every Access Person shall notify the Compliance Officer of any personal conflict of interest relationship which may involve the Trust or the Fund, such as the existence of any economic relationship between transactions and securities held or to be acquired by any series of the Trust or the Fund. Such notification shall occur in the pre-clearance process. (h) Review of Reports The Compliance Officer or a designate immediately shall review all holdings reports submitted by each Access Person, including confirmations of personal securities transactions, to ensure that no trading has taken place in violation of the Rule or this Code of Ethics. Any violations of this Code shall be reported to the Board of Trustees of the Trust, or the Board of Directors of the Fund, as the case may be, in accordance with Section 5 of this Code. The Compliance Officer shall maintain a list of the persons responsible for reviewing the transactions and holdings reports. 5. REPORTING OF VIOLATIONS (a) The Compliance Officer shall promptly report to the Board of Trustees or the Board of Directors, as the case may be: (i) all apparent violations of this Code of Ethics and the reporting requirements thereunder; and (ii) any reported transaction in a Covered Security which was purchased or sold by the Trust or Fund within fifteen (15) days before or after the date of the reported transactions. (b) When the Compliance Officer finds that a transaction otherwise reportable to the Board of Trustees or the Board of Directors under Paragraph (a) of this Section could not reasonably be found to have resulted in a fraud, deceit or manipulative practice in violation of Rule 17j-l(b), it may, in its discretion, lodge a written memorandum of such finding and the reasons therefor with the reports made pursuant to this Code of Ethics, in lieu of reporting the transaction to the Board. (c) The Board of Trustees or the Board of Directors, as the case may be, or a Committee created by a Board for that purpose, shall consider reports made to the Board hereunder and shall determine whether or not this Code of Ethics has been violated and what sanctions, if any, should be imposed. 6. ANNUAL REPORTING (a) The Compliance Officer, 1838 Advisors and MBIA shall furnish the Board of Trustees or the Board of Directors, as the case may be, an annual report relating to this Code of Ethics. Such annual report shall: (i) describe any issues arising under the Code of Ethics or procedures during the past year; (ii) identify any material violations of this Code or procedures, including sanctions imposed in response to such violations, during the past year; (iii) identify any recommended changes in the existing restrictions or procedures based upon the Trust's or Fund's experience under its Code of Ethics, evolving industry practices or developments in applicable laws or regulations; and (iv) certify that the Trust, Fund, 1838 Advisors and MBIA have adopted procedures reasonably necessary to prevent Access Persons from violating the Code of Ethics. 7. SANCTIONS Upon discovering a violation of this Code, the Board of Trustees or Board of Directors, as the case may be, may impose such sanctions as they deem appropriate, including, among other things, a letter of censure or suspension or termination of the employment of the violator. 8. RETENTION OF RECORDS This Code of Ethics, a list of all persons required to make reports hereunder from time to time, a copy of each report made by an access person hereunder, a list of all persons responsible for reviewing the reports required hereunder, a record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel of securities in an IPO or Limited Offering, each memorandum made by the Compliance Officer hereunder and a record of any violation hereof and any action taken as a result of such violation, shall be maintained by the Trust and Fund as required under Rule 17j-l. 9. ADOPTION AND APPROVAL The Board of Trustees of the Trust and Board of Directors of the Fund, including a majority of the Independent Trustees or Independent Directors, as the case may be, shall approve the Code of Ethics of the Trust or the Fund, 1838 Advisors and MBIA, and any material changes to these Codes. The Board shall approve any material change to a Code no later than six (6) months after the adoption of the material change. Before approving any code of ethics or any amendment to such code, the Board shall have received a certification from the Trust or Fund, as the case may be, 1838 Advisors and MBIA that it has adopted procedures reasonably necessary to prevent Access Persons from violating 1838 Advisors' or MBIA's Code of Ethics. Dated: _______________, 2000 APPENDIX A Series of 1838 Investment Advisors Funds 1838 International Equity Fund 1838 Small Cap Equity Fund 1838 Fixed Income Fund 1838 Large Cap Equity Fund APPENDIX B Summary of Rule 17j-1(b) It shall be unlawful for o any affiliated person of, or principal underwriter for, a registered investment company, or o any affiliated person of an investment adviser of, or principal underwriter for, a registered investment company in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired [see Note below] . . . by such registered investment company: (1) to employ any device, scheme or artifice to defraud such registered investment company; (2) to make to such registered investment company o any untrue statement of a material fact or o omit to state to such registered investment company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any such registered investment company; or (4) to engage in any manipulative practice with respect to such registered investment company. NOTE: For purposes of Rule 17j-1, a "security held or to be acquired" by a registered investment company means" (i) any Covered Security within the meaning of the Rule (see the definition of the term "Covered Security" in Appendix C to this Code) which, within the most recent fifteen (15) calendar days: o is or has been held by the investment company; or o is being or has been considered by such company, or its investment adviser, for purchase by the company (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described above. APPENDIX C Definitions of Terms Used Within The Joint Code of Ethics (a) "Access Person" means: (i) Any director, trustee, officer, general partner or Advisory Person of the Trust, the Fund or of 1838 Advisors. (ii) Any director, officer, or general partner of MBIA who, in the ordinary course of business, makes, participates in or obtains information regarding the purchase or sale of Covered Securities by the Trust, or whose functions relate to the making of any recommendations to the Trust regarding the purchase or sale of Covered Securities. (b) "Advisory Person" means (i) any employee of the Trust, Fund or 1838 Advisors (or of any company in a control relationship to the Trust, Fund or 1838 Advisors) who, in connection with his regular functions or duties, makes, participates in, or obtains current information regarding the purchase or sale of a Covered Security by the Trust or Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Trust, Fund or 1838 Advisors, who obtains information concerning recommendations made to the Trust or Fund with regard to the purchase or sale of a Covered Security by the Trust or Fund. (c) A security is "being considered for purchase or sale" or is "being purchased or sold" when a recommendation to purchase or sell the security has been made and communicated to the Trading Desk, which includes when the Trust or Fund has a pending "buy" or "sell" order with respect to a security, and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. (d) "Beneficial ownership" shall be as defined in, and interpreted in the same manner as it would be in determining whether a person is subject to the provisions of, Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder which, generally speaking, encompasses those situations where the beneficial owner has the right to enjoy some economic benefit from the ownership of the security regardless of who is the registered owner. This would include: (i) securities which a person holds for his or her own benefit either in bearer form, registered in his or her own name or otherwise regardless of whether the securities are owned individually or jointly; (ii) securities held in the name of a member of his or her immediate family (spouse, minor child and adults) sharing the same household; (iii) securities held by a trustee, executor, administrator, custodian or broker; (iv) securities owned by a general partnership of which the person is a member or a limited partnership of which such person is a general partner; (v) securities held by a corporation which can be regarded as a personal holding company of a person; and (vi) securities recently purchased by a person and awaiting transfer into his or her name. (e) "Compliance Officer" means the officer or employee of the Trust or Fund, as the case may be, who is authorized and appointed by the Trust or Fund to perform, or procure the performance of, the various responsibilities assigned to such Compliance Officer by this Code. (f) "Control" has the same meaning as that set forth in Section 2(a)(9) of the Act. (g) "Covered Security" means a security as defined in Section 2(a)(36) of the Act, except that it shall not include (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by registered open-end investment companies. (h) "Independent Trustee" and "Independent Director" means a Trustee of the Trust and Director of the Fund, respectively, who is not an "interested person" of the Trust or Fund, respectively, within the meaning of Section 2(a)(19) of the Act. (i) "Initial Public Offering" ("IPO") means an offering of securities registered under the Securities Act of 1933 ("Securities Act"), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. (j) "Investment Personnel" means: (i) any employee of the Trust, the Fund, or 1838 Advisors (or of any company in a control relationship to the Trust, the Fund or 1838 Advisors), who, in connection with his regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Trust or the Fund; and (ii) any natural person who controls the Trust, the Fund, or 1838 Advisors and who obtains information concerning recommendations made to the Trust or Fund regarding the purchase or sale of securities by the Trust or Fund. (k) "Limited Offering" means an offering that is exempt from registration under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act. (l) "Purchase or Sale of a Covered Security" includes the writing of an option to purchase or sell a Covered Security. (m) "Security Held or to be Acquired" by the Trust or Fund means: (i) any Covered Security which, within the most recent fifteen (15) days: (A) is or has been held by the Trust or Fund; or (B) is being or has been considered by the Trust, Fund or 1838 Advisors for purchase by the Trust or the Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (m)(i) of this section. (n) "Security" as defined in Section 2(a)(36) of the Act means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into in a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. APPENDIX D 1838 INVESTMENT ADVISORS FUNDS 1838 BOND-DEBENTURE TRADING FUND 1838 INVESTMENT ADVISORS, LLC MBIA CAPITAL MANAGEMENT CORPORATION JOINT CODE OF ETHICS INITIAL HOLDINGS REPORT To the Compliance Officer of 1838 Investment Advisors Funds, 1838 Bond-Debenture Trading Fund, 1838 Investment Advisors, LLC or MBIA Capital Management Corporation. 1. I hereby acknowledge receipt of a copy of the Joint Code of Ethics for 1838 Investment Advisors Funds (the "Trust") and 1838 Bond-Debenture Trading Fund (the "Fund"). 2. I have read and understand the Code and recognize that I am subject thereto in the capacity of an "Access Person." 3. Except as noted below, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Trust or Fund, such as any economic relationship between my transactions and securities held or to be acquired by the Trust or any of its series, or by the Fund. 4. As of the date below I had a direct or indirect beneficial ownership interest in the following securities: Name of Securities Number of Shares Type of Interest (Direct or Indirect) 5. As of the date below, the following is a list of all brokers, dealers or banks with whom I maintain an account in which securities are held for my direct or indirect benefit: Firm Account Type of Interest (Direct or Indirect) Date: ------------------------------------- Signature: -------------------------------- Print Name: Title: Employer's Name: 1838 INVESTMENT ADVISORS FUNDS 1838 BOND-DEBENTURE TRADING FUND 1838 INVESTMENT ADVISORS, LLC MBIA CAPITAL MANAGEMENT CORPORATION JOINT CODE OF ETHICS ANNUAL HOLDINGS REPORT To the Compliance Officer of 1838 Investment Advisors Funds (the "Trust"), 1838 Bond-Debenture Trading Fund (the "Fund"), 1838 Investment Advisors, LLC, or MBIA Capital Management Corporation. 1. I have read and understand the Joint Code of Ethics and recognize that I am subject thereto in the capacity of an "Access Person." 2. I hereby certify that, during the year ended December 31, ___, I have complied with the requirements of the Code and I have reported all securities transactions required to be reported pursuant to the Code. 3. Except as noted below, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Trust or Fund, such as any economic relationship between my transactions and securities held or to be acquired by the Trust or any of its Series, or by the Fund. 4. As of December 31, _____, I had a direct or indirect beneficial ownership interest in the following securities: Name of Securities Number of Shares Type of Interest (Direct or Indirect) 5. As of December 31, ___, the following is a list of all brokers, dealers, or banks with whom I maintain an account in which securities are held for my direct or indirect benefit: Firm Account Type of Interest (Direct or Indirect) Date: Signature: Print Name: Title: Employer's Name: 1838 INVESTMENT ADVISORS FUNDS 1838 BOND-DEBENTURE TRADING FUND 1838 INVESTMENT ADVISORS, LLC MBIA CAPITAL MANAGEMENT CORPORATION Securities Transactions Report For the Calendar Quarter Ended:______________ To the Compliance Officer of 1838 Investment Advisors Funds ("the Trust"), 1838 Bond-Debenture Trading Fund (the "Fund"), 1838 Investment Advisors, LLC, or MBIA Capital Management: During the quarter referred to above, the following transactions were effected in securities of which I had, or by reason of such transaction acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Joint Code of Ethics adopted by the Trust and the Fund.
- ------------------------------------------------------------------------------------------------------------------------------------ SECURITY DATE OF NO. OF SHARES DOLLAR AMOUNT OF NATURE OF TRANSACTION PRICE BROKER/DEALER OR (including TRANSACTION TRANSACTION (Purchase, Sale, BANK THROUGH WHOM interest rate and Other) EFFECTED maturity date, if applicable) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
During the quarter referred to above, the following accounts were established by me in which securities were held for my direct or indirect benefit:
-------------------------------------------------------------------------------- FIRM NAME DATE ACCOUNT WAS ESTABLISHED ACCOUNT NUMBER (broker, dealer or bank) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above. Except as noted on the reverse side of this report, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Trust or Fund, such as the existence of any economic relationship between my transactions and securities held or to be acquired by the Trust or any of its Series, or by the Fund. Date: Signature: Print Name: Title: Employer's Name: EX-99.CERT 4 ex-99cert.txt CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, W. Thacher Brown, certify that: 1. I have reviewed this report on Form N-CSR of the 1838 Investment Advisors Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ W. Thacher Brown Date: 01/05/04 ----------------------------------- --------------- W. Thacher Brown Chairman and President (Principal Executive Officer) CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Anna M. Bencrowsky, certify that: 1. I have reviewed this report on Form N-CSR of the 1838 Investment Advisors Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Anna M. Bencrowsky Date: 01/05/04 ----------------------------------- --------------- Anna M. Bencrowsky Secretary and Treasurer (Principal Financial Officer) EX-99.906CERT 5 ex-906cert.txt CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Chairman, President and Chief Executive Officer of the 1838 Investment Advisors Funds (the "Funds"), with respect to the Funds' Form N-CSR for the year ended October 31, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Funds. Dated: 01/05/04 /s/ W. Thacher Brown ----------------------------- W. Thacher Brown Chairman and President (Principal Executive Officer) CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Secretary, Treasurer and Chief Financial Officer of the 1838 Investment Advisors Funds (the "Funds"), with respect to the Funds' Form N-CSR for the year ended October 31, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Funds. Dated: 01/05/04 /s/ Anna M. Bencrowsky ----------------------------- Anna M. Bencrowsky Secretary and Treasurer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----