N-CSRS 1 p1838_ncsrs.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 19482 Name and address of agent for service: Anna M. Bencrowsky, 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19482 Copies to: John McDonnell, 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19482 Registrant's telephone number, including area code: (484) 322-4300 Date of fiscal year end: October 31 Date of reporting period: November 1, 2003 - April 30, 2003 ITEM 1: Reports to Shareholders [LOGO OMITTED] INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- FELLOW SHAREHOLDER: For the six-month period ended April 30, 2004, the net total return of the Morgan Stanley Capital International Europe, Australia and Far East Index (the "EAFE") was 12.39%. For the same period, the net asset value per share of the 1838 International Equity Fund was up by 13.43%, outperforming the EAFE benchmark by 1.04%1. Major currencies put in a mixed performance against the US dollar. The Euro gained 4.25%, the British pound gained 4.86%, but the Japanese yen ended almost unchanged at 110.34. Inflation is creeping back into the news. Chinese demand for materials is pushing up commodity prices on some metals such as nickel to levels not seen in 15 years. Oil is up to a 13-year high. Gold is up 26% over the past 12 months to its highest level since 1988. While only a few commodities are affected so far, the potential return of some inflationary pressures, after 20 years of dormancy, may be worthy of renewed attention. PERFORMANCE BY REGION: All regions showed strong absolute returns with the European index showing a 13.07% total return, Japan 12.91% and non-Japan Asia 7.44%. In the Fund, very strong relative performance in Europe and Mexico was partly offset by underperformance in Japan, Canada and emerging markets. Underperformance in Japan was the result of underweighting this strong market and underexposure in its finance and banking industries. In emerging markets, the holdings in Taiwan Semiconductor and China Telecom suffered from profit taking, but continue to show solid growth. However, the Mexican mobile phone services provider, America Movil, was a star performer with a 42% gain. In Europe, strong performance came out of the UK not only by avoiding drug maker GlaxoSmithKline and international bank HSBC but also by having positions in investment management company Man Group and service company Capita and solid contributions from large cap stocks like BP and Vodafone. Ireland and Greece were other prominent contributors with the Fund's holdings in Anglo Irish Bank, Coca-Cola Hellenic and Public Power. PERFORMANCE BY SECTOR: On a Sector basis, limited underperformance came from the Fund's holdings in Materials (the paper producer Stora Enso, which was sold), Energy (Chinese energy company CNOOC suffered from profit taking in Chinese stocks) and Health Care. However, the Fund outperformed in seven of the ten sectors, with particularly strong results in Financials and Consumer Staples and Discretionary, with holdings such as Anglo Irish Bank, Erste Bank in Austria and Man Group, Coca Cola Hellenic and sports shoes and apparel producer Puma. 1 Past performance of the Fund is no guarantee of future results. The return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Please bear in mind that investing in foreign securities can involve special risks such as currency fluctuation, less extensive regulation of foreign brokers and possible political instability. The Fund's returns assume the reinvestment of all distributions. The MSCI EAFE Index is an unmanaged stock market index without any associated expenses and the returns assume reinvestment of all net dividends. You cannot invest directly in an index. 1 [LOGO OMITTED] INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- CONCLUSION: The six-months ended April 30, 2004 showed a continuation of the global stock market recovery, supported by improving economic growth and in many instances surprisingly strong corporate earnings. The first quarter of 2004 was the fourth consecutive quarter that the EAFE Index has posted positive results -- a streak last seen in 1999. For the first quarter, the year, 3-year and 5-year periods ending March 31st, the EAFE handily beat S&P 500 returns (by respectively 2.7%, 22.4%, 2.8% and 1.7%, the last two annualized). One needs to go back to 1988 to see the EAFE outperform the S&P 500 over all four chosen periods. At that time, the EAFE managed to do so for a 3-year stretch (from 1986 through 1988). Sincerely, /S/HANS VAN DEN BERG Hans van den Berg Vice President & Portfolio Manager May 14, 2004 2
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004 --------------------------------------------------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- COMMON STOCK -- 99.33% AUSTRIA -- 1.73% Erste Bank Der Oester Spark Banks............................... 4,800 $ 718,387 -------------- AUSTRALIA -- 1.59% BHP Billiton Ltd. Metal & Mining...................... 79,830 661,282 -------------- CANADA -- 3.44% Alcan Inc. Metal & Mining...................... 12,100 486,783 Bank of Nova Scotia Banks............................... 20,400 521,403 Encana Corporation Oil & Gas........................... 10,800 422,498 -------------- 1,430,684 -------------- DENMARK -- 1.52% Danske Bank A/S Banks............................... 28,200 633,703 -------------- FINLAND -- 1.65% Stora Enso Oyj-R Shs Paper & Related Products............ 61,400 688,191 -------------- FRANCE -- 7.70% Accor SA Hotels, Restaurants & Leisure....... 13,200 555,722 AXA, Inc. Insurance........................... 29,300 617,118 Essilor International Health Care Equipment & Supplies.... 10,400 608,514 LVMH Moet-Hennessy L. Vuitton SA Consumer Durables & Apparel......... 7,100 500,454 Total SA (B Shares) Oil & Gas........................... 5,000 924,836 -------------- 3,206,644 -------------- GERMANY -- 8.36% Continental AG Automobiles & Components............ 13,300 574,759 Deutsche Bank AG Banks............................... 6,200 509,109 E. ON AG Electric Utilities.................. 7,900 523,698 Puma AG Consumer Durables & Apparel......... 3,160 731,965 SAP AG Software............................ 3,100 474,177 Siemens AG Industrial Conglomerate............. 9,300 667,789 -------------- 3,481,497 GREECE -- 2.89% Coca-Cola Hellenic Bottling SA Beverages........................... 23,700 628,438 Public Power Corp. Electric Utilities.................. 22,600 573,261 -------------- 1,201,699 --------------
See notes to financial statements. 3
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- HONG KONG -- 4.36% CNOOC Ltd. Oil & Gas........................... 1,649,500 $ 597,430 Esprit Holdings Ltd. Retailing........................... 184,794 758,149 China Telecom Corp. Wireless Telecommunication Services. 1,537,100 458,186 -------------- 1,813,765 -------------- INDIA -- 1.30% ICICI Bank Ltd. - Sponsored ADR Banks............................... 34,890 540,795 -------------- IRELAND -- 2.97% Anglo Irish Bank Corp. Banks............................... 75,520 1,235,729 -------------- ISRAEL -- 1.46% TEVA Pharmaceutical Ind. - ADR Pharmaceuticals..................... 9,900 609,444 -------------- ITALY -- 1.22% Unicredito Italiano SPA Banks............................... 108,800 507,350 -------------- JAPAN -- 19.15% Asahi Kasei Corp. Chemicals - Diversified............. 100,000 546,418 Canon Inc. Office Electronics.................. 12,000 629,604 Hoya Corp. Health Care Equipment & Services.... 5,400 584,260 JSR Corp. Chemicals........................... 24,300 511,961 KDDI Corp. Wireless Telecommunication Services 97 581,007 Kubota Corporation Machinery........................... 172,000 746,572 Mitsubishi Tokyo Financial Group, Inc. Banks............................... 70 622,899 Nichii Gakkan Co. Commercial Services & Supplies...... 9,500 493,272 Omron Corp. Electronic Equipment & Instruments.. 24,400 594,771 Pioneer Corp. Household Durables.................. 22,800 650,809 Shin-Etsu Chemical Co. Ltd. Chemicals........................... 9,900 400,109 Sharp Corp. Household Durables.................. 36,000 649,178 SMC Corp. Machinery........................... 3,900 447,057 Sumitomo Realty & Dev. Co., Ltd. Real Estate......................... 46,000 516,461 -------------- 7,974,378 -------------- MEXICO -- 1.81% America Movil SA (L Shares) - ADR Wireless Telecommunication Services. 22,300 753,740 --------------
See notes to financial statements. 4
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- NETHERLANDS -- 5.12% ASML Holding NV Semiconductor Equipment & Products.. 21,100 $ 335,900 ING Groep NV Diversified Financial Services...... 34,334 735,903 Koninklijke Numico NV Food Products ...................... 18,000 498,440 Reed Elsevier NV Media............................... 39,900 560,569 -------------- 2,130,812 -------------- SINGAPORE -- 2.70% DBS Group Holdings Ltd. Banks............................... 69,355 582,901 Keppel Corp. Ltd. Diversified Financials.............. 129,000 542,096 -------------- 1,124,997 -------------- SPAIN -- 2.80% Banco Popular Espanol SA Banks............................... 10,200 562,821 Grupo Ferrovial SA Construction & Engineering.......... 15,100 602,225 -------------- 1,165,046 -------------- SWEDEN -- 2.72% Ericsson (LM) Tel - Sponsored ADR Wireless Telecommunication Services. 18,600 496,062 Getinge AB (B Shares) Health Care Equipment & Services.... 55,400 638,161 -------------- 1,134,223 -------------- SWITZERLAND -- 5.99% Actelion Ltd. Pharmaceuticals..................... 5,650 619,862 Nestle SA - Sponsored ADR Food Products....................... 11,700 742,365 Novartis AG - Registered Shares Pharmaceuticals..................... 16,500 735,539 SGS SA Commercial Services................. 754 395,434 -------------- 2,493,200 -------------- TAIWAN -- 0.76% Taiwan Semiconductor - Sponsored ADR* Semiconductor Equipment & Products.. 33,099 315,433 -------------- UNITED KINGDOM -- 18.09% Barclays PLC Banks............................... 93,934 847,049 BP PLC Oil & Gas........................... 138,497 1,197,933 British Sky Broadcasting Group PLC* Media............................... 42,000 496,414 Capita Group PLC Commercial Services & Supplies...... 101,400 558,784 Lloyds TSB Group PLC Banks............................... 69,200 517,554 Man Group PLC Diversified Financials.............. 20,387 610,630
See notes to financial statements. 5
[LOGO OMITTED] INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- UNITED KINGDOM -- (CONTINUED) Reckitt Benckiser PLC Household Products.................. 30,135 $ 783,964 Royal Bank of Scotland Group PLC Banks............................... 25,168 755,615 Tesco PLC Food & Drug Retailing............... 129,903 573,030 Vodafone Airtouch PLC Wireless Telecommunication Services. 489,045 1,190,299 -------------- 7,531,272 -------------- TOTAL COMMON STOCK (Cost $33,670,372) .................................... 41,352,271 -------------- SHORT-TERM INVESTMENT -- 0.04% Evergreen Institutional Money Market Fund - I Shares (Cost $17,535)............ 17,535 17,535 -------------- TOTAL INVESTMENTS (Cost $33,687,907)-- 99.37% .................................... $ 41,369,806 OTHER ASSETS AND LIABILITIES, NET-- 0.63% .................................... 264,030 -------------- NET ASSETS-- 100.00%............................................................... $ 41,633,836 =============
MARKET SECTOR DIVERSIFICATION As a Percentage of Total Common Stocks Consumer Discretionary -- 13.24% Industrials -- 9.58% Consumer Staples -- 7.79% Information Technology -- 8.28% Energy -- 7.60% Materials -- 6.30% Financials -- 26.69% Telecommunication Services -- 7.21% Health Care -- 8.96% Utilities -- 4.35% ADR -- American Depositary Receipt See notes to financial statements. 6 [LOGO OMITTED] FIXED INCOME FUND -------------------------------------------------------------------------------- TO THE SHAREHOLDER: After seeing interest rates steadily decline over the last several years, the fixed income markets seem to be entering a period of transition. The Fed has kept a balanced assessment of the risks facing the US economy at each of its last 10 meetings, but hinted at its last meeting that it may need to tap on the brakes a little and tighten monetary policy in the future in response to strong economic growth. Economic fundamentals have continued to show signs of strength. Real GDP came in at a 4.2% annual rate in the first quarter. There are also signs that the slack in the labor markets is starting to dissipate with a large pick up in Non-Farm Payrolls for March and April and a jump in many of the employment cost indices. Interest rates have already begun to price in the prospects for continued underlying strength and a potential pick up in inflationary pressures. Since the beginning of the year the yield on the 10 year Treasury Benchmark has risen over 25 basis points to 4.50%, while yields on 2 year Treasuries are 50 basis points higher at 2.30%. All the major sectors of the fixed income market have posted positive returns for the six-month period ended April 30, 2004, with the Credit sector (Corporate Bonds and Asset-Backed Bonds) posting the largest gains, up 1.59% and 1.54%, respectively. 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 for the six-month period. The 1838 Fixed Income Fund (the "Fund") has been tracking the performance of its benchmark, the Lehman Aggregate Bond Index (the "Index") fairly closely during the first six months of the fiscal year. The total return of the Fund was 1.16% (net of fees & expenses) compared to the Index, which was up 1.25% for the six months ended April 30, 2004 1. Going forward, it is our belief interest rates will continue to rise. Although yields have risen already since the beginning of the year, interest rates are still historically very low. The Fed will most likely begin raising the Fed Funds rate later this year to mitigate the risk of inflation. Consequently, the Fund will maintain a short duration posture relative to the Index. As the economic recovery continues to expand, the market's 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. 1 Past performance of the Fund is no guarantee of future results. The return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's returns assume the reinvestment of all distributions. The Lehman Aggregate Bond Index is an unmanaged investment grade bond index without any associated expenses and the returns assume reinvestment of all interest income. You cannot invest directly in an index. 7 [LOGO OMITTED] FIXED INCOME FUND -------------------------------------------------------------------------------- The Fund's exposure, based on long-term market value, compared to the Index at April 30, 2004 was as follows:
1838 FIXED LEHMAN AGGREGATE INCOME FUND BOND INDEX ------------- --------------- Corporate Bonds................................. 41% 25% Mortgage-Backed................................. 31% 35% Asset-Backed.................................... 14% 5% Agencies........................................ 6% 12% Treasuries...................................... 8% 23%
Sincerely, /S/CLIFFORD D. CORSO Clifford D. Corso Vice President & Portfolio Manager May 14, 2004 8
[LOGO] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- CORPORATE BONDS -- 37.80% FINANCIAL -- 14.68% Chubb Corp., 3.95%, 04/01/08................................... A2/A $ 400,000 $ 399,911 Credit Suisse FB USA Inc., 3.875%, 01/15/09.................... Aa3/A+ 440,000 434,247 Ford Motor Credit Co., 7.00%, 10/01/13......................... A3/BBB- 235,000 241,681 GE Global Insurance Holding, 7.00%, 02/15/26................... A1/A- 415,000 444,492 General Motors Acceptance Corp., 4.375%, 12/10/07.............. A3/BBB 550,000 549,754 Goldman Sachs Group Inc., 6.125%, 02/15/33..................... Aa3/A+ 255,000 245,285 New York Life Insurance Co., 5.875%, 05/15/33, 144A............ Aa3/AA- 440,000 423,015 Washington Mutual Inc., 4.375%, 01/15/08....................... A3/A- 465,000 472,547 ------------- 3,210,932 ------------- INDUSTRIAL & MISCELLANEOUS -- 14.84% BAE Systems 2001 Asset Trust, 6.664%, 09/15/13, 144A*.......... Aaa/AAA 266,407 290,642 Centex Corp., 4.75%, 01/15/08.................................. Baa2/BBB 380,000 389,544 Delta Air Lines, Ser. 2002-1, CI. G-2, 6.417%, 07/02/12*....... Aaa/AAA 385,000 397,511 Ford Motor Co., 7.45%, 07/16/31................................ Baa1/BBB- 85,000 82,863 International Paper Co., 5.85%, 10/30/12....................... Baa2/BBB 345,000 356,165 SAB Miller PLC, 6.625%, 08/15/33, 144A......................... Baa1/BBB+ 400,000 416,678 Transocean Sedco Inc., 6.75%, 04/15/05......................... Baa2/A- 395,000 410,282 United Mexican States, 4.625%, 10/08/08........................ Baa2/BBB- 465,000 462,675 Weyerhaeuser Co., 6.00%, 08/01/06.............................. Baa2/BBB 415,000 440,144 ------------- 3,246,504 ------------- TELECOMMUNICATIONS & MULTIMEDIA -- 8.28% AT&T Wireless Services Inc., 7.50%, 05/01/07................... Baa2/BBB 190,000 210,985 AOL Time Warner, 6.125%, 04/15/06.............................. Baa1/BBB+ 180,000 190,895 AOL Time Warner, 7.625%, 04/15/31.............................. Baa1/BBB+ 260,000 284,540 British Telecom PLC, 7.625%, 12/15/05.......................... Baa1/A- 195,000 211,054 Comcast Corp., 7.05%, 03/15/33................................. Baa3/BBB 35,000 36,820 Deutsche Telekom International Finance, 7.75%, 06/15/05........ Baa2/BBB+ 195,000 207,571 France Telecom, 7.75%, 03/01/11................................ Baa2/BBB+ 370,000 437,413 GTE Corp. (Verizon), 6.94%, 04/15/28........................... A3/A+ 225,000 233,246 ------------- 1,812,524 ------------- TOTAL CORPORATE BONDS (Cost $8,228,437).................................................. 8,269,960 -------------
See notes to financial statements. 9
[LOGO] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- --------- ASSET BACKED SECURITIES -- 16.62% Bear Stearns Commercial Mortgage Sec., Ser. 1999-WF2, Cl. A2, 7.08%, 06/15/09................................................ Aaa/AAA $ 445,000 $ 500,356 Carmax Auto Owner Trust, Ser. 2004-1, Cl. A3, 2.66%, 05/15/08................................................ Aaa/AAA 425,000 424,990 Drivetime Auto Owner Trust, Ser. 2004-A, Cl. A3, 2.419%, 08/15/08, 144A......................................... Aaa/AAA 410,000 411,025 Franklin Auto Trust, Ser. 2003-1, Cl. A4, 2.27%, 05/20/11................................................ Aaa/AAA 575,000 564,221 FHLMC Structured Pass Through Sec., Ser. H005, Cl. A2, 2.55%, 08/15/07................................................ Aaa/AAA 195,812 195,947 JP Morgan Chase Commercial Mortgage Sec., Ser. 2001-CIBC, Cl. A1, 5.288%, 03/15/33............................................... Aaa/AAA 367,180 375,851 Long Beach Auto Receivables Trust, Ser. 2003-A, Cl. A3, 2.021%, 07/15/07............................................... Aaa/AAA 415,000 415,911 TF Auto Receivables Owner Trust, Ser. 2002-1, Cl. A3, 3.00%, 05/12/09, 144A.......................................... Aaa/AAA 555,000 560,723 Textron Financial Corp. Receivables Trust, Ser. 2000-B, Cl. A3, 6.99%, 03/15/06, 144A.......................................... Aaa/AAA 187,585 187,606 ------------- TOTAL ASSET BACKED SECURITIES (Cost $3,567,468).......................................... 3,636,630 ------------- MORTGAGE BACKED SECURITIES -- 30.02% FGCI, Pool # E92496, 5.50%, 11/01/17........................... Aaa/AAA 20,552 21,103 FGCI, Pool # B13342, 5.50%, 04/01/19........................... Aaa/AAA 172,316 176,939 FGLMC, Pool # C72047, 7.00%, 09/01/32.......................... Aaa/AAA 4,328 4,570 FGLMC, Pool # A00930, 10.00%, 05/01/20......................... Aaa/AAA 6,835 7,681 FGLMC, Pool # C80342, 6.50%, 09/01/25.......................... Aaa/AAA 35,151 36,718 FGLMC, Pool # D85515, 6.50%, 01/01/28.......................... Aaa/AAA 236,559 246,815 FGLMC, Pool # C16503, 6.50%, 10/01/28.......................... Aaa/AAA 2,941 3,067 FGLMC, Pool # C00967, 8.50%, 02/01/30.......................... Aaa/AAA 133,702 144,608 FGLMC, Pool # C01361, 6.00%, 05/01/32.......................... Aaa/AAA 429,090 439,179 FGLMC, Pool # A14640, 5.00%, 10/01/33.......................... Aaa/AAA 1,000,481 970,735 FNCI, Pool # 303728, 6.00%, 01/01/11........................... Aaa/AAA 233,616 244,597 FNCI, Pool # 535003, 7.00%, 11/01/14........................... Aaa/AAA 125,810 134,350 FNCI, Pool # 357279, 6.00%, 05/01/17........................... Aaa/AAA 370,771 386,918 FNCI, Pool # 701353, 5.00%, 04/01/18........................... Aaa/AAA 173,621 178,330 FNCI, Pool # 695852, 5.00%, 05/01/18........................... Aaa/AAA 365,465 368,040 FNCI, Pool # 722798, 5.00%, 06/01/18........................... Aaa/AAA 275,000 276,937 FNCL, Pool # 481429, 6.00%, 01/01/29........................... Aaa/AAA 564,056 578,053
See notes to financial statements. 10
[LOGO] FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- MORTGAGE BACKED SECURITIES -- (CONTINUED) FNCL, Pool # 522898, 8.00%, 01/01/30........................... Aaa/AAA $ 107,103 $ 115,997 FNCL, Pool # 526025, 8.00%, 01/01/30........................... Aaa/AAA 83,515 90,356 FNCL, Pool # 704096, 5.50%, 05/01/33........................... Aaa/AAA 974,655 973,142 FNCL, Pool # 743430, 5.50%, 10/01/33........................... Aaa/AAA 402,943 402,317 GNSF, Pool # 6937, 8.50%, 12/15/05............................. Aaa/AAA 759 785 GNSF, Pool # 780374, 7.50%, 12/15/23 .......................... Aaa/AAA 218,115 235,754 GNSF, Pool # 417239, 7.00%, 02/15/26........................... Aaa/AAA 350,119 373,602 GNSF, Pool # 569684, 6.00%, 02/15/32........................... Aaa/AAA 144,577 148,330 GNSF, Pool # 588967, 6.00%, 11/15/32........................... Aaa/AAA 7,832 8,036 ------------- TOTAL MORTGAGE BACKED SECURITIES (Cost $6,472,763)....................................... 6,566,959 ------------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.62% FHLMC, 5.125%, 11/07/13........................................ Aaa/AAA 250,000 246,017 FHLMC, Sub. Notes, 6.25%, 03/05/12............................. Aa2/AA- 535,000 565,310 FNMA, 3.50%, 10/15/07.......................................... Aaa/AAA 400,000 397,844 FNMA, 3.125%, 03/16/09......................................... Aaa/AAA 480,000 458,963 ------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $1,676,443)............................... 1,668,134 ------------- U.S. TREASURY OBLIGATIONS** -- 6.45% U.S. Treasury Notes, 1.50%, 03/31/06...................................... 250,000 246,514 U.S. Treasury Notes, 3.125%, 04/15/09..................................... 430,000 420,543 U.S. Treasury Notes, 4.000%, 02/15/14..................................... 220,000 211,338 U.S.Treasury Bonds, 5.375%, 02/15/31...................................... 525,000 531,890 ------------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $1,433,788)........................................ 1,410,285 ------------- SHORT-TERM INVESTMENTS-- 2.83% SHARES ------ Evergreen Institutional Money Market Fund - I Shares (Cost $619,403)....... 619,403 619,403 ------------- TOTAL INVESTMENTS (Cost $21,998,302)-- 101.34%.................................. $ 22,171,371 OTHER ASSETS AND LIABILITIES, NET-- (1.34%)..................................... (293,089) ------------- NET ASSETS-- 100.00%............................................................ $ 21,878,282 =============
144A Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. As of April 30, 2004, these securities amounted to 10.47% of net assets.These securities have been determined to be liquid under the guidelines approved by the Board of Trustees. * The bond's principal and interest payments are insured by MBIA, Inc., the parent company of 1838 Investment Advisors, LLC (See Note 4). ** While no ratings are shown for U.S. 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
[LOGO] INVESTMENT ADVISORS FUNDS STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004 ------------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME EQUITY FUND FUND ----------------------------------- ASSETS: Investments, at value (identified cost $33,687,907 and $21,998,302, respectively) (Note 2)......................................... $41,369,806 $22,171,371 Receivables: Dividends, interest and foreign tax reclaims.................. 302,486 167,493 Reimbursement due from advisor................................. -- 3,113 Other assets..................................................... 2,199 1,939 -------------------------------- Total assets................................................ 41,674,491 22,343,916 -------------------------------- LIABILITIES: Management fees due to Advisor (Note 4)........................... 21,905 -- Due to affiliates (Note 4)........................................ 2,112 1,239 Payable for investment securities purchased...................... -- 424,990 Other accrued expenses........................................... 16,638 39,405 -------------------------------- Total liabilities........................................... 40,655 465,634 -------------------------------- NET ASSETS....................................................... $41,633,836 $21,878,282 ================================ NET ASSETS CONSIST OF: Shares of beneficial interest.................................... $ 3,496 $ 2,372 Additional capital paid-in....................................... 47,613,423 21,076,770 Undistributed net investment income (loss)....................... (18,876) 42,908 Accumulated net realized gain (loss) on investments.............. (13,675,655) 583,163 Net unrealized appreciation on: Investments................................................... 7,681,899 173,069 Translation of assets and liabilities in foreign currencies... 29,549 -- -------------------------------- NET ASSETS........................................................ $41,633,836 $21,878,282 ================================ Shares of beneficial interest outstanding........................ 3,495,853 2,371,705 -------------------------------- NET ASSETS VALUE, offering and redemption price per share (Net assets/Outstanding shares of beneficial interest)......... $ 11.91 $ 9.22 ================================
See notes to financial statements. 12
[LOGO] INVESTMENT ADVISORS FUNDS STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004 (UNAUDITED) ------------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME EQUITY FUND FUND ------------------------------------ INVESTMENT INCOME: Dividends..................................................... $ 470,754 $ -- Interest...................................................... 2,111 703,174 Foreign taxes withheld ....................................... (48,986) -- ---------------------------------- Total Investment Income............................. 423,879 703,174 ---------------------------------- EXPENSES: Investment advisory fees (Note 4)............................. 172,786 72,891 Administration fee (Note 4)................................... 13,823 8,937 Accounting fee (Note 4)....................................... 29,895 19,900 Custodian fees ............................................... 16,829 6,034 Transfer agency fees (Note 4)................................. 9,945 9,945 Trustees' fees (Note 4)....................................... 7,216 8,820 Audit fees.................................................... 8,246 6,405 Legal fees.................................................... 11,001 7,822 Registration fees............................................. 8,290 8,455 Reports to shareholders....................................... 3,567 3,775 Other......................................................... 11,147 12,647 ---------------------------------- Total expenses........................................... 292,745 165,631 Advisory fees waived (Note 4)............................ (7,210) (72,891) Reimbursement from Advisor (Note 4)....................... -- (5,030) ---------------------------------- Total expenses, net................................... 285,535 87,710 ---------------------------------- Net investment income.............................. 138,344 615,464 ---------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) from: Investment transactions................................. 3,434,766 659,296 Foreign currency transactions........................... (157,220) -- ---------------------------------- Total net realized gain (loss)........................ 3,277,546 659,296 ---------------------------------- Change in unrealized appreciation (depreciation) of: Investments............................................. 2,692,278 (669,340) Translation of assets and liabilities in foreign currencies (3,400) -- ---------------------------------- Total change in unrealized appreciation (depreciation). 2,688,878 (669,340) ---------------------------------- Net gain (loss) on investments and foreign currency 5,966,424 (10,044) ---------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 6,104,768 $ 605,420 ==================================
See notes to financial statements. 13
[LOGO] INVESTMENT ADVISORS FUNDS STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME EQUITY FUND FUND ---------------------------------- FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ........................................ $ 138,344 $ 615,464 Net realized gain (loss) from investment and foreign currency transactions............................... 3,277,546 659,296 Change in unrealized appreciation (depreciation) of investments and foreign currency............................ 2,688,878 (669,340) ---------------------------------- Net increase in net assets resulting from operations............. 6,104,768 605,420 Distributions to shareholders from: Net investment income.......................................... -- (672,014) Short-term gains............................................... -- (1,390,264) Long-term gains................................................ -- (1,316,635) ---------------------------------- Total distributions......................................... -- (3,378,913) ---------------------------------- Decrease in net assets from Fund share transactions (Note 5)...... (14,561,640) (15,557,382) ---------------------------------- Decrease in net assets........................................... (8,456,872) (18,330,875) NET ASSETS: Beginning of period.............................................. 50,090,708 40,209,157 ---------------------------------- End of period (including undistributed net investment income of $0 and $42,908, respectively)............................... $ 41,633,836 $ 21,878,282 ================================= FOR THE YEAR ENDED OCTOBER 31, 2003 INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ........................................ $ 256,903 $ 2,946,345 Net realized gain (loss) from investment and foreign currency transactions...................................... (4,412,388) 2,753,015 Change in unrealized appreciation (depreciation) of investments and foreign currency............................ 13,099,951 (1,582,276) ---------------------------------- Net increase in net assets resulting from operations............. 8,944,466 4,117,084 ---------------------------------- Distributions to shareholders from: Net investment income.......................................... -- (2,846,887) Long-term gains................................................ -- (499,526) ---------------------------------- Total distributions......................................... -- (3,346,413) ---------------------------------- Decrease in net assets from Fund share transactions (Note 5)..... (15,360,896) (50,295,065) ---------------------------------- Decrease in net assets............................................ (6,416,430) (49,524,394) NET ASSETS: Beginning of year................................................. 56,507,138 89,733,551 ---------------------------------- End of year (including undistributed net investment income of $0 and $99,458, respectively)............................ $50,090,708 $ 40,209,157 ==================================
See notes to financial statements. 14 [LOGO OMITTED] INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each fiscal year or period and other performance information derived from the financial statements. It should be read in conjuction with the financial statements and notes thereto.
INTERNATIONAL EQUITY FUND FOR THE SIX-MONTH PERIOD ENDED FOR THE FISCAL YEARS ENDED OCTOBER 31, APRIL 30, 2004 ----------------------------------------------------- (UNAUDITED) 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD........ $10.50 $8.50 $9.89 $14.59 $14.57 $12.08 ---------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income ................... 0.04 0.05 0.01 0.03 0.01 0.03 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.37 1.95 (1.40) (3.19) 0.78 3.34 --------------------------------------------------------------- Total from investment operations........ 1.41 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 PERIOD.............. $11.91 $10.50 $8.50 $9.89 $14.59 $14.57 =============================================================== TOTAL RETURN................................. 13.43%* 23.53 % (14.05) (23.94)% 5.06% 29.10% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)............. 1.25%** 1.23% 1.10% 1.04% 1.10% 1.09% Expenses (excluding fee waivers).......... 1.28%** N/A N/A N/A N/A N/A Net investment income..................... 0.60%** 0.55% 0.08% 0.26% 0.04% 0.23% Portfolio turnover rate...................... 17.86% 44.66% 31.51% 41.58% 51.99% 48.71% Net assets, end of period (in 000's)......... $41,634 $40,867 $56,507 $72,007 $101,686 $86,547
* Total return not annualized. ** Annualized See notes to financial statements. 15 [LOGO] INVESTMENT ADVISORS FUNDS FINANCIAL HIGHLIGHTS -- CONTINUED -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each fiscal year or period and other performance information derived from the financial statements. It should be read in conjuction with the financial statements and notes thereto. FIXED INCOME FUND
FOR THE SIX-MONTH PERIOD ENDED FOR THE FISCAL YEARS ENDED OCTOBER 31, APRIL 30, 2004 ---------------------------------------------------------- (UNAUDITED) 2003 2002 2001 2000 1999 ------------------------------------------------------------------------ NET ASSET VALUE - BEGINNING OF PERIOD....... $10.16 $10.11 $10.49 $9.75 $9.81 $10.24 --------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income1................... 0.21 0.48 0.56 0.61 0.63 0.53 Net realized and unrealized gain (loss) on investments ..................... (0.09) 0.08 (0.19) 0.75 (0.04) (0.45) --------------------------------------------------------------------- Total from investment operations 1.... 0.12 0.56 0.37 1.36 0.59 0.08 --------------------------------------------------------------------- DISTRIBUTIONS: From net investment income............... (0.22) (0.45) (0.56) (0.62) (0.65) (0.51) Return of capital........................ -- -- -- -- -- -- From net short-term realized gain on investments......................... (0.43) -- (0.16) -- -- -- From net long-term realized gain on investments........................... (0.41) (0.06) (0.03) -- -- -- --------------------------------------------------------------------- Total distributions................... (1.06) (0.51) (0.75) (0.62) (0.65) (0.51) --------------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD............. $9.22 $10.16 $10.11 $10.49 $9.75 $9.81 ===================================================================== TOTAL RETURN................................ 1.16%* 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% 0.60% 0.61% Expenses (excluding fee waivers)......... 1.14%** 0.84% 0.74% 0.70% 0.75% 0.73% Net investment income1 .................. 4.22%** 4.59% 5.58% 6.09% 6.57% 5.35% Portfolio turnover rate..................... 59.29% 234.92% 205.61% 199.43% 361.63% 834.18% Net assets, end of period (in 000's)........ $21,878 $40,209 $89,734 $128,671 $152,319 $94,221
* Total return not annualized. ** Annualized 1 Effective November 1, 2001, the Fixed Income Fund adopted the required provisions of the AICPA Audit and Accounting Guide for Investment Companies. The effect of this change for the 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. 16 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 -------------------------------------------------------------------------------- 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 two Funds: the 1838 International Equity Fund and the 1838 Fixed Income Fund (each a "Fund" and collectively, the "Funds"). The investment objectives of each Fund are set forth below. The 1838 International Equity Fund (the "International 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. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION. Each Fund's securities, except investments with remaining maturities of 60 days or less, for which representative market quotations are available will be valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the security's principal market or exchange on which it trades. Prices for securities traded in the over-the-counter market, including listed debt and preferred securities, whose primary market is believed to be over-the-counter, normally are supplied by independent pricing services. If market quotations or official closing prices are not readily available or do not accurately reflect fair value for a security or if a security's value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but prior to the NAV calculation, then that security may be valued by another method that the Board of Trustees believes accurately reflects fair value. 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. In determining fair value, the Trustees may employ an independent pricing service. As of April 30, 2004, 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. 17 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 -------------------------------------------------------------------------------- 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 April 30, 2004. 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 six-month period ended April 30, 2004 were characterized as follows for tax purposes: ORDINARY CAPITAL TOTAL FUND INCOME GAIN DISTRIBUTION ---- ----------- ----------- ----------- International Fund......... -- -- -- Fixed Income Fund.......... $2,062,278 $1,316,635 $3,378,913 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 At October 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG TERM CAPITAL LOSS UNREALIZED FUND ORDINARY INCOME CAPITAL GAIN CARRYFORWARD APPRECIATION ---- ------------- ----------- ----------- ----------- International Fund....................... $ -- $ -- $(17,020,772) $4,899,972 Fixed Income Fund........................ 1,427,725 1,312,262 -- 828,646
As of October 31, 2003, the following table shows the capital loss carryovers available to offset possible future capital gains for the following Fund: FUND AMOUNT EXPIRATION DATE ---- ------------ --------------- International Fund.............. $ 1,643,063 10/31/2009 11,237,327 10/31/2010 4,140,382 10/31/2011 18 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) At April 30, 2004, 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.................. $33,777,557 $7,592,249 $8,900,421 $1,308,172 Fixed Income Fund................... 21,999,963 171,408 348,304 176,896
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. OTHER. Investment security transactions are accounted for on a trade date basis. The specific identification method is utilized for determining realized gain or loss on investments for both financial and federal income tax reporting purposes. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recorded on an accrual basis. NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES During the six-month period ended April 30, 2004, purchases and sales of investment securities, other than short-term investments, were as follows: INTERNATIONAL FIXED INCOME FUND FUND ------------ ------------- Purchases......................... $ 8,067,591 $17,041,780 Sales............................. 22,487,134 35,114,580 Purchases, sales and maturities of U.S. Government securities, during the six-month period ended April 30, 2004, were as follows: INTERNATIONAL FIXED INCOME FUND FUND ------------ ------------- Purchases......................... $ -- $ 6,890,687 Sales............................. -- 13,328,345 NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES As of April 30, 2004, the Trust, on behalf of each Fund, employed 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. 19 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 -------------------------------------------------------------------------------- NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED) 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 and 0.50% for the Fixed Income 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 and 0.60% for the Fixed Income Fund. This undertaking may be rescinded at any time in the future. The following table summarizes the advisory fees incurred by the Funds for the six-month period ended April 30, 2004:
GROSS ADVISORY FEE NET ADVISOR ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENT ----------- ----------- ----------- ------------ International Fund.............. $172,786 $ 7,210 $165,576 $ 0 Fixed Income Fund............... 72,891 72,891 -- 5,030
As of April 30, 2004, 1838 Investment Advisors, LLC ("1838 LLC") also served as Administrator to the Trust pursuant to an Administration Agreement with the Trust on behalf of each Fund. The Administrator is responsible for services such as financial reporting, compliance monitoring and corporate management. The Trust paid 1838 LLC a monthly asset-based fee at the annual rate of 0.06% of each Fund's average daily net assets, with a minimum annual fee per Fund of $15,000. For the six-month period ended April 30, 2004, 1838 LLC's administration fees amounted to $13,823 for the International Fund and $8,937 for the Fixed Income Fund. 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 the Fund's average daily net assets in excess of $50 million for the Fixed Income 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 six-month period ended April 30, 2004, MBIA MISC's accounting fees amounted to $29,895 for the International Fund and $19,900 for the Fixed Income Fund. MBIA MISC also serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement with the Trust. For these services, MBIA MISC receives an annual fee per Fund of $20,000, and is reimbursed for out-of-pocket expenses. For the six-month period ended April 30, 2004, MBIA MISC's transfer agent fees amounted to $9,945 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. 20 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 -------------------------------------------------------------------------------- NOTE 5 -- FUND SHARE TRANSACTIONS At April 30, 2004, there were an unlimited number of shares of beneficial interest with a $0.001 par value, authorized. The following table summarizes the activity in shares of each Fund: INTERNATIONAL FUND
FOR THE SIX-MONTH PERIOD FOR THE FISCAL YEAR ENDED APRIL 30, 2004 ENDED OCTOBER 31, 2003 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold..................................... 189,857 $2,177,522 319,488 $2,920,560 Shares redeemed................................. (1,462,639) (16,739,162) (2,195,911) (18,281,456) --------- ----------- --------- ----------- Net increase.................................... (1,272,782) $(14,561,640) (1,876,423) $(15,360,896) =========== =========== Shares outstanding: Beginning of period..................... 4,768,635 6,645,058 --------- --------- End period............................. 3,495,853 4,768,635 ========= =========
FIXED INCOME FUND
FOR THE SIX-MONTH PERIOD FOR THE FISCAL YEAR ENDED APRIL 30, 2004 ENDED OCTOBER 31, 2003 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ---------- Shares sold..................................... 206,366 $1,985,626 255,303 $2,619,947 Shares issued to shareholders in reinvestment of distributions............................. 319,615 3,006,019 297,492 3,031,642 Shares redeemed................................. (2,110,022) (20,549,027) (5,472,108) (55,946,654) --------- ----------- --------- ----------- Net increase................................... (1,584,041) $(15,557,382) (4,919,313) $(50,295,065) =========== =========== Shares outstanding: Beginning of period..................... 3,955,746 8,875,059 --------- --------- End of period.......................... 2,371,705 3,955,746 ========== =========
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. 21 [LOGO] INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2004 -------------------------------------------------------------------------------- NOTE 7 -- CHANGE OF CONTROL OF THE INVESTMENT ADVISOR On May 13, 2004, 1838 LLC sold its business to Andover Acquisition Co., LP, an affiliate of Orca Bay Partners, together with 1838 LLC management ("Sale"). After the Sale, Andover Acquisition Co., LP changed its name to 1838 Investment Advisors, LP ("1838 LP"). The Sale resulted in an assignment and automatic termination of the investment advisory agreements between 1838 LLC and the Funds (the "Prior Agreements") on May 13, 2004. For the period May 13, 2004 to July 19, 2004, 1838 LP will serve as investment advisor pursuant to interim investment advisory agreement as permitted by Rule 15a-4 under the 1940 Act. On July 20, 2004, each Fund's shareholders will vote on a proposal to approve a new investment advisory agreement between the Funds and 1838 LP that is substantially identical to the Prior Agreements. 1838 LP is owned by management of 1838 LP together with an investment group led by Orca Bay Partners. Orca Bay Partners, founded in 1998, is based in Seattle, Washington and is an affiliate of Orca Bay Capital. Richard D. Hughes, an operating professional with Orca Bay Partners, is chief executive officer of 1838 LP. 1838 LLC's investment advisory team was retained by 1838 LP with the same personnel. It is expected that the Sale will result in the augmentation of the investment advisory team's investment resources and capabilities from an infusion of new capital. In order to retain the services of the Fixed Income Fund's portfolio manager (Clifford D. Corso who is not employed with 1838 LP), the Fund also entered into an interim sub-investment advisory agreement with MBIA Capital Management Corp. On July 20, 2004, the Fixed Income Fund shareholders will vote on a proposal to approve a new sub-investment advisory agreement between that Fund, 1838 LP and MBIA Capital Management Corp. Prior to the Sale, Mr. Corso was an officer of 1838 LLC and MBIA Capital Management Corp. He currently is the Managing Director of MBIA Capital Management Corp. For the period May 13, 2004 to December 31, 2004 the sub-advisor receives no compensation for its services. After December 31, 2004, 1838 LP will pay the Fixed Income Fund's sub-investment advisor out of its own income an annual fee of 0.05% of the Fixed Income Fund's average daily net assets, payable on a monthly basis. Effective May 13, 2004, 1838 LP serves as Administrator to the Trust pursuant to an Administration Agreement with the Trust on behalf of each Fund. The Administrator is responsible for services such as financial reporting, compliance monitoring and corporate management. The Trust will pay 1838 LP 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. NOTE 8 -- LIQUIDATION AND TERMINATION OF THE 1838 LARGE CAP EQUITY FUND At a meeting held on March 31, 2004, the Board of Trustees of 1838 Investment Advisors Funds (the "Trust") unanimously approved the liquidation and termination of the 1838 Large Cap Equity Fund (the "Large Cap Fund"). The Large Cap Fund's assets were liquidated as of April 1, 2004, and a final liquidating net asset value per share of $7.12 was established. All outstanding shares of the Large Cap Fund were redeemed and operations were terminated as of the close of business on April 19, 2004. 22 [This Page Intentional Left Blank] INVESTMENT ADVISER AND ADMINISTRATOR ------------ 1838 INVESTMENT ADVISORS, LLC 2701 RENAISSANCE BOULEVARD FOURTH FLOOR KING OF PRUSSIA, PA 19406 DISTRIBUTOR ------------ MBIA CAPITAL MANAGEMENT CORPORATION 113 KING STREET ARMONK, NY 10504 ACCOUNTING AND TRANSFER AGENT ------------ MBIA MUNICIPAL INVESTORS SERVICE CORPORATION 113 KING STREET ARMONK, NY 10504 CUSTODIAN ------------ 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 [LOGO OMITTED] INVESTMENT ADVISORS FUNDS INTERNATIONAL EQUITY FUND FIXED INCOME FUND SEMI-ANNUAL REPORT APRIL 30, 2004 SAR 4/04 ITEM 2: Code of Ethics A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions is filed as an exhibit to the registrant's annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrant's most recent fiscal half-year. ITEM 3: Audit Committee Financial Expert Not applicable at this time. ITEM 4: Principal Accountant Fees and Services Not applicable at this time. ITEM 5: Audit Committee of Listed Registrants Not applicable at this time. ITEM 6: Schedule of Investments Not applicable. ITEM 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. ITEM 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. ITEM 9: Submission of Matters to a Vote of Security Holders. Not applicable. ITEM 10: CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11: Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed with the registrant's annual Form N-CSR. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. 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: June 29, 2004 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: June 29, 2004 BY: /s/ Anna M. Bencrowsky ---------------------- Anna M. Bencrowsky Secretary and Treasurer (Principal Financial Officer) Date: June 29, 2004