-----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, LjyElzBRRrfr7tQZszv4E9bKSAseUnGNtgEJSBYoZguVXAV4rkOl32+rwT333/Az 0Ymy/B8trmD5Az3cAKasZQ== 0001135428-05-000330.txt : 20050708 0001135428-05-000330.hdr.sgml : 20050708 20050708095638 ACCESSION NUMBER: 0001135428-05-000330 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041031 FILED AS OF DATE: 20050708 DATE AS OF CHANGE: 20050708 EFFECTIVENESS DATE: 20050708 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-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08902 FILM NUMBER: 05944728 BUSINESS ADDRESS: STREET 1: 2701 RENAISSANCE BOULEVARD STREET 2: FOURTH FLOOR CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 4843224284 MAIL ADDRESS: STREET 1: 2701 RENAISSANCE BOULEVARD STREET 2: FOURTH FLOOR CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 N-CSRS 1 ncsrs_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 Exact Name of Registrant as specified in charter: 1838 Investment Advisors Funds Address of principal executive offices: 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19406 Name and address of agent for service: Daniel N. Mullen, 2701 Renaissance Blvd. 4th Fl., King of Prussia, PA 19406 Copies to: Thomas E. Stabile, 113 King Street, Armonk, NY 10504 Registrant's telephone number, including area code: (484) 322-4300 Date of fiscal year end: October 31 Date of reporting period: November 1, 2004 - April 30, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. 1838 INVESTMENT ADVISORS FUNDS ------------------------- INTERNATIONAL EQUITY FUND FIXED INCOME FUND SEMI-ANNUAL REPORT APRIL 30, 2005 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- FELLOW SHAREHOLDER: The international equity markets showed strong performances over the past six months, with the MSCI EAFE Index indicating net total return of 8.71%. During this period, the net asset value per share for the 1838 International Equity Fund ("the Fund") increased by 9.47% outperforming its benchmark by 0.76%. REGIONAL DEVELOPMENTS: In spite of recent disappointing economic news, particularly from Europe, most of the world's stock markets posted impressive gains over the last six months. MSCI's Non-Japan Asia and Europe regions advanced 12.67% and 9.78%, respectively. Performance in our Emerging Market holdings were slightly positive in spite of the decline in Indonesian wireless provider IndoSat on news that the Indonesian government issued a permit for a fifth wireless license. While any competitive threat will not show itself for some time, the market regarded it unfavorably nonetheless. Fortunately our holdings of Teva Pharmaceuticals in Israel and ICICI Bank in India more than offset IndoSat's decline. On the positive side, the Non-Japan Asia/Pacific holdings had a good six months. Hong Kong-based women's sportswear company Esprit continues to execute well. Europe was also positive from bank holdings in Ireland's growing economy and from our holding in Spanish construction company Grupo Ferrovial. The company has been delivering positive results. SECTOR DEVELOPMENTS: With the exception of Information Technology, Consumer Discretionary and Telecommunications over the last six months, all of the MSCI sectors had double to near-double digit gains with Consumer Staples and Utilities leading the pack with gains of 12.61% and 11.89%, respectively. On a relative basis, the fund's holdings in the Financial Services lagged somewhat from lack of exposure to the large Swiss banks. Telecommunications also lagged from IndoSat. Consumer Discretionary had a good six months from Esprit and also German auto component manufacturer Continental - two of our best performing stocks for the period. Consumer Staples also registered good performance from Reckitt Benckiser, a leading household products maker that has both defensive and growth characteristics. 1 1838 INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- OUTLOOK: During the last months of 2004, the world's stock markets showed impressive performance. However, in the first four months of 2005 the EAFE Index has traded flat, partially due to disappointing economic news flow from Europe - the European Central Bank has not cut interest rates since June of 2003, French unemployment is at a five-year high, and German unemployment is at a post-WWII high. However, Japan brought some good news to the table at the end of 2004 as its stock market posted its first back-to-back annual gain since 1995 on the back of improved economic growth. The Japanese economy has expanded for four consecutive years, its longest streak since 1997 and unemployment is at its lowest in six years. Also, it appears that oil prices peaked in March and China's economy is slowing, thereby relieving commodity price pressures. This mixed bag of economic news still points to the possibility that any growth in the coming year or so could be somewhat muted. We anticipate this to favor larger companies that can deliver consistent, albeit perhaps more subdued, earnings growth in the near future. Sincerely, /S/Signature Hans van den Berg President & Portfolio Manager May 17, 2005 2
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- COMMON STOCK -- 97.50% AUSTRIA -- 1.97% Erste Bank Der Oester Spark Banks............................... 9,300 $ 450,101 -------------- AUSTRALIA -- 1.94% BHP Billiton Ltd. Metal & Mining...................... 35,300 442,098 -------------- CANADA -- 1.66% Encana Corporation Oil & Gas........................... 5,900 378,649 -------------- FINLAND -- 1.78% Fortum OYJ Electric-Intergrated................ 19,500 296,294 Neste Oil OYJ* Oil & Gas........................... 4,875 109,254 -------------- 405,548 -------------- FRANCE -- 8.20% AXA, Inc. Insurance........................... 16,100 394,695 BNP Paribas Banks............................... 4,500 295,693 Essilor International Health Care Equipment & Supplies.... 5,800 413,687 LVMH Moet-Hennessy L. Vuitton SA Consumer Durables & Apparel......... 3,960 278,614 Total SA (B Shares) Oil & Gas........................... 2,200 489,918 -------------- 1,872,607 -------------- GERMANY -- 11.14% Continental AG Automobiles & Components............ 6,700 493,881 Deutsche Bank AG Banks............................... 3,400 278,059 E. ON AG Utility............................. 5,400 454,868 Puma AG Consumer Durables & Apparel......... 1,550 357,775 SAP AG Software............................ 1,730 271,129 Siemens AG Industrial Conglomerate............. 4,560 334,250 Celesio AG Pharmaceuticals..................... 4,450 354,911 -------------- 2,544,873 -------------- GREECE -- 2.77% National Bank of Greece-Cstock Banks............................... 8,200 276,079 Coca-Cola Hellenic Bottling SA Beverages........................... 13,100 355,480 -------------- 631,559 --------------
See notes to financial statements. 3
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- HONG KONG -- 5.09% CNOOC Ltd. Oil & Gas........................... 806,800 $ 437,252 Esprit Holdings Ltd. Retailing........................... 56,494 420,310 China Resources Power Holdings Electric-Generation................. 548,000 304,023 -------------- 1,161,585 -------------- INDIA -- 1.61% ICICI Bank Ltd. - Sponsored ADR Banks............................... 20,390 368,651 -------------- IRELAND -- 4.90% Allied Irish Bank PLC. Banks............................... 17,770 361,768 Anglo Irish Bank Corp. Banks............................... 39,900 471,309 CRH PLC Construction Materials.............. 11,520 286,728 -------------- 1,119,805 -------------- INDONESIA -- 0.91% PT Indonesian Satellite - ADR Telecommunication Services.......... 9,200 207,276 -------------- ISRAEL -- 1.35% TEVA Pharmaceutical Ind. - ADR Pharmaceuticals..................... 9,900 309,276 -------------- JAPAN -- 17.63% Canon Inc. Office Electronics.................. 6,400 334,290 Casio Computer CO Ltd Electronic Equipment & Instruments.. 20,400 279,415 Daiwa Securities Group Diversified Financial Services...... 39,000 247,200 Hoya Corp. Health Care Equipment & Services.... 3,000 313,683 JSR Corp. Rubber & Vinyl...................... 13,700 276,834 Kobe Steel Ltd. Steel Producers..................... 185,000 335,033 Kubota Corporation Machinery ........................ 65,000 335,795 Sharp Corp. Electric Products................... 20,000 312,253 SMC Corp. Machinery ........................ 2,700 284,373 Sumitomo Realty & Dev. Co., Ltd. Real Estate......................... 25,000 284,992 Terumo Corp. Hospital Supplies................... 11,100 330,096 Toray Industries Inc. Industrial Materials................ 70,000 312,253 Toyota Motor Corp. Automobiles & Components............ 10,400 380,651 -------------- 4,026,868 -------------- MEXICO -- 3.15% America Movil SA (L Shares) - ADR Wireless Telecommunication Services. 8,600 426,990 Wal-Mart De Mexico - Sponsored ADR Retail-Hypermarkets................. 8,100 292,815 -------------- 719,805 --------------
See notes to financial statements. 4
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- NETHERLANDS -- 4.79% ING Groep NV Diversified Financial Services...... 14,800 $ 403,140 Koninklijke Numico NV Food Products....................... 9,100 375,926 Reed Elsevier NV Media............................... 22,000 316,103 -------------- 1,095,169 -------------- NORWAY -- 1.38% Telenor ASA Telecommunication Services.......... 37,700 314,486 -------------- SINGAPORE -- 3.04% DBS Group Holdings Ltd. Banks............................... 32,255 282,194 Keppel Corp. Ltd. Construction &Engineering........... 62,900 411,765 -------------- 693,959 -------------- SPAIN -- 2.79% Banco Popular Espanol SA Banks............................... 4,750 296,177 Grupo Ferrovial SA Construction & Engineering.......... 6,000 341,200 -------------- 637,377 -------------- SWEDEN -- 2.84% Ericsson (LM) Tel - Sponsored ADR Telecommunications Equipment........ 10,300 303,335 Getinge AB (B Shares) Health Care Equipment & Services.... 24,200 346,452 -------------- 649,787 -------------- SWITZERLAND -- 4.27% Nestle SA - Sponsored ADR Food Products....................... 4,600 301,300 Novartis AG - Registered Shares Pharmaceuticals..................... 8,040 391,042 SGS SA Commercial Services................. 420 284,010 -------------- 976,352 -------------- UNITED KINGDOM -- 14.29% Barclays PLC Banks............................... 32,400 332,298 BP PLC Oil & Gas........................... 59,900 611,481 Capita Group PLC Commercial Services & Supplies...... 38,400 276,124 HSBC Holdings PLC Banks............................... 19,600 312,760 Reckitt Benckiser PLC Household Products.................. 10,700 345,979 Royal Bank of Scotland Group PLC Banks............................... 11,593 348,727 Sabmiller PLC Brewery............................. 21,950 324,268
See notes to financial statements. 5
1838 INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ VALUE INDUSTRY SHARES (NOTE 2) --------- -------- ----------- UNITED KINGDOM -- (CONTINUED) Tesco PLC Food & Drug Retailing............... 58,032 $ 340,540 Vodafone Airtouch PLC Wireless Telecommunication Services. ........................ 142,721 371,392 -------------- 3,263,569 -------------- TOTAL COMMON STOCK (Cost $16,703,805) .................................... 22,269,400 -------------- SHORT-TERM INVESTMENT -- 2.01 % Evergreen Institutional Money Market Fund - I Shares (Cost $460,367)........... 460,367 460,367 -------------- TOTAL INVESTMENTS (Cost $17,164,172) -- 99.51%.................................... $ 22,729,767 OTHER ASSETS AND LIABILITIES, NET-- 0.49% .................................... 111,070 -------------- NET ASSETS -- 100.00%.............................................................. $ 22,840,837 ==============
MARKET SECTOR DIVERSIFICATION As a Percentage of Total Investments Consumer Discretionary -- 12.37% Information Technology -- 6.62% Consumer Staples -- 11.03% Materials -- 7.27% Energy -- 8.92% Other -- 2.02% Financials -- 25.59% Telecommunication Services -- 5.81% Health Care -- 6.18% Utilities -- 4.64% Industrials -- 9.55% * Non-income producing security ADR -- American Depositary Receipt See notes to financial statements. 6 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- TO THE SHAREHOLDER: Fixed income investors might look back to the first five years of the new millennium as somewhat of a golden age for the US bond market. The five year annualized return for the Lehman Aggregate Index through 2004 is 7.71%. Impressively, the index achieved this number with positive absolute returns in each of those five years. But momentum was slowing towards the end of 2004 and it appears to have reversed course in 2005. The trouble for the US bond market began with yet another 0.25% increase in the Fed Funds lending rate in February, 2005. The difference between this rate increase from the previous five rate increases during 2004 was the new hawkish tone from Chairman Greenspan concerning the rate of inflation. Year over year increases in consumer prices were a moderate 3.0% for January and February, but producer prices were a more than moderate 4.2% and 4.7% for those same months. Eventually, these inflationary producer costs will be passed to the consumer. The FOMC fortified the February hike and their hawkish jargon with another rate increase in March, which brings the FOMC rate to 2.75% as of April 29, 2005. The result in the bond market was a rapid sell off in treasury rates. Ten-year notes traded from 4.13% to 4.48% from the end of January to the end of March. Mortgage-backed securities took the brunt of the rapid sell off in February. This sector experienced its first month of underperformance since April 2004. Corporate credit had experienced positive performance right up until the last few weeks in March. But then General Motors Corporation roiled the markets by revising earnings, production guidance and operating cash flow downwards. Operating cash flow targets were reduced from positive $2 billion to negative $2 billion for 2005. This is a big number. AIG Insurance Company added to the malaise with their own earnings revisions, announcements of investigation by the attorney general's office and ratings agency downgrades. In sum, all fixed income sectors experienced negative absolute returns through the first quarter and corporate credit experienced negative duration adjusted returns, according to Lehman Brothers.
TABLE 1. TREASURY RATES. TSY MATURITY 10/31/2003 4/30/2004 10/29/2004 4/29/2005 ---------- -------- -------- ---------- --------- 2 Year 1.82 2.32 2.55 3.65 3 Year 2.24 2.77 2.76 3.71 5 Year 3.24 3.62 3.28 3.90 10 Year 4.29 4.51 4.02 4.20 30 Year 5.13 5.28 4.79 4.51
The Fund's exposure, based on long-term market value, compared to the Index at April 29, 2005 was as follows: 1838 FIXED LEHMAN AGGREGATE INCOME FUND BOND INDEX ----------- ------------- Corporate Bonds 37% 24% Mortgage-Backed 35% 35% Asset-Backed 11% 5% Agencies 8% 11% Treasuries 9% 25% 7 1838 FIXED INCOME FUND - -------------------------------------------------------------------------------- OUTLOOK From the volumes of statistics, data and indicators that can be used to interpret the fixed income markets, two existing fixed income relationships may serve as a guidepost of things to come. First as of March 31, 2005, the relationship between the Fed Funds futures contract and the current Fed Funds rate is pricing in a 4.0% lending rate by the end of 2005. This efficiently priced market therefore predicts another 1.25% of rate increases. So with the Federal Reserve still very much in play, we would predict that two-year treasury yields (most sensitive to Fed Funds) should be poised to go higher. To the extent that inflation continues to creep into the economy, or if the compensation received for the shorter maturity two-year outweighs what investors can earn on ten-year or thirty-year securities, we would expect longer maturity treasury yields to rise as well. The other significant data guidepost is the relationship between corporate credit spreads today versus their historical averages. Credit spreads, or the compensation received for taking corporate risk, remain at very low levels. We recently compared the credit spread (from Lehman Brothers) for A-rated corporate securities to their historical averages. As of March 28th that spread was 0.59%. Data calculated from October, 2001 and August, 1988 resulted in a historical mean of 1.15% and 1.20%. These results are also consistent with other ratings strata and industry sectors. So it appears that the path of least resistance is towards higher credit spreads, which would translate into further underperformance in the corporate credit sector. GM and AIG seem to be the catalyst for this inevitable revaluation. Although it appears that doom and gloom is on the horizon, opportunities will surface to invest at higher treasury rates and wider credit spreads. In addition to many other positives, US GDP growth remains moderate and unemployment appears to be declining. But like spring in the northeast, we will not count on those sunny 80-degree days until they actually get here. Sincerely, /S/Signature Clifford D. Corso Vice President & Portfolio Manager June 19, 2005 8
1838 FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- CORPORATE BONDS -- 36.21% FINANCIAL -- 13.04% Capital One Financial Corp, 8.75%, 02/01/07.................... Baa3/BBB- $ 185,000 $ 198,263 Chubb Corp., 3.95%, 04/01/08................................... A2/A 300,000 296,335 Credit Suisse FB USA Inc., 3.875%, 01/15/09.................... Aa3/A+ 365,000 357,970 Ford Motor Credit Co., 7.00%, 10/01/13......................... Baa2/BB+ 185,000 166,495 GE Global Insurance Holding, 7.00%, 02/15/26................... Baa1/BBB+ 180,000 192,855 General Motors Acceptance Corp., 4.375%, 12/10/07.............. Baa2/BB 350,000 322,654 Goldman Sachs Group Inc., 6.125%, 02/15/33..................... Aa3/A+ 180,000 190,325 Washington Mutual Inc., 4.375%, 01/15/08....................... A3/A- 370,000 370,094 -------------- 2,094,991 -------------- INDUSTRIAL & MISCELLANEOUS -- 16.01% BAE Systems 2001 Asset Trust, 6.664%, 09/15/13, 144A*.......... Aaa/AAA 234,147 255,545 Centex Corp., 4.75%, 01/15/08.................................. Baa2/BBB 280,000 280,533 Ford Motor Co., 7.45%, 07/16/31................................ Baa3/BB+ 85,000 69,848 International Paper Co., 5.85%, 10/30/12....................... Baa2/BBB 345,000 357,122 Reed Elsevier Capital, 6.125%, 08/01/06........................ A3/A- 335,000 341,951 SAB Miller PLC, 6.625%, 08/15/33, 144A......................... Baa1/BBB+ 175,000 196,251 Tyco International Group, 6.125%, 01/15/09..................... Baa3/BBB 340,000 359,223 United Mexican States, 4.625%, 10/08/08........................ Baa1/BBB 380,000 377,340 Weyerhaeuser Co., 6.00%, 08/01/06.............................. Baa2/BBB 325,000 333,463 -------------- 2,571,276 -------------- TELECOMMUNICATIONS & MULTIMEDIA -- 7.16% AT&T Wireless Services Inc., 7.50%, 05/01/07................... Baa2/A 190,000 201,680 AOL Time Warner, 6.125%, 04/15/06.............................. Baa1/BBB+ 180,000 183,671 AOL Time Warner, 7.625%, 04/15/31.............................. Baa1/BBB+ 160,000 194,976 British Telecom PLC, 8.125%, 12/15/10.......................... Baa1/A- 175,000 205,305 Comcast Corp., 7.05%, 03/15/33................................. Baa2/BBB 35,000 40,903 France Telecom, 8.00%, 03/01/11................................ Baa1/A- 280,000 322,684 -------------- 1,149,219 -------------- TOTAL CORPORATE BONDS (COST $5,815,210).................................................. 5,815,486 --------------
See notes to financial statements. 9
1838 FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- --------- ASSET BACKED SECURITIES -- 11.32% Bear Stearns Commercial Mortgage Sec., Ser. 1999-WF2, Cl. A2, 7.08%, 07/15/31.............................................. Aaa/AAA $ 285,000 $ 311,108 Carmax Auto Owner Trust, Ser. 2004-1, Cl. A3, 2.66%, 05/15/08.............................................. Aaa/AAA 425,000 420,136 Drivetime Auto Owner Trust, Ser. 2004-A, Cl. A3, 2.419%, 08/15/08, 144A....................................... Aaa/AAA 410,000 403,209 Franklin Auto Trust, Ser. 2003-1, Cl. A4, 2.27%, 05/20/11.............................................. Aaa/AAA 380,000 372,245 Long Beach Auto Receivables Trust, Ser. 2003-A, Cl. A3, 2.021%, 07/15/07............................................. Aaa/AAA 158,913 158,379 TF Auto Receivables Owner Trust, Ser. 2002-1, Cl. A3, 3.00%, 05/12/09, 144A........................................ Aaa/AAA 154,003 153,522 -------------- TOTAL ASSET BACKED SECURITIES (COST $1,807,528) 1,818,599 -------------- MORTGAGE BACKED SECURITIES -- 34.85% FGCI, Pool # E92496, 5.50%, 11/01/17........................... Aaa/AAA 14,267 14,624 FGCI Pool # E01602, 4.5%, 03/01/19............................. Aaa/AAA 146,320 144,988 FGCI, Pool # B13342, 5.50%, 04/01/19........................... Aaa/AAA 158,820 162,749 FGCI, Pool # B13580, 5.00%, 04/01/19........................... Aaa/AAA 178,368 179,854 FGLMC, Pool # C72047, 7.00%, 09/01/32.......................... Aaa/AAA 4,240 4,478 FGLMC, Pool # A00930, 10.00%, 05/01/20......................... Aaa/AAA 5,039 5,674 FGLMC, Pool # A22212, 5.50%, 05/01/34.......................... Aaa/AAA 302,313 305,863 FGLMC, Pool # C80342, 6.50%, 09/01/25.......................... Aaa/AAA 23,987 25,032 FGLMC, Pool # D85515, 6.50%, 01/01/28.......................... Aaa/AAA 165,993 173,076 FGLMC, Pool # C16503, 6.50%, 10/01/28.......................... Aaa/AAA 1,891 1,971 FGLMC, Pool # A14640, 5.00%, 10/01/33.......................... Aaa/AAA 614,781 610,457 FGLMC Pool # C01361, 6.00%, 05/01/32........................... Aaa/AAA 170,675 175,369 FGLMC Pool # C00967, 8.50%, 02/01/30........................... Aaa/AAA 77,501 84,600 FNCI, Pool # 303728, 6.00%, 01/01/11........................... Aaa/AAA 147,515 152,944 FNCI, Pool # 535003, 7.00%, 11/01/14........................... Aaa/AAA 82,000 86,369 FNCI, Pool # 357279, 6.00%, 05/01/17........................... Aaa/AAA 245,652 254,696 FNCI, Pool # 701353, 5.50%, 04/01/18........................... Aaa/AAA 131,842 135,074 FNCI, Pool # 780962, 4.50%, 05/01/19........................... Aaa/AAA 218,025 215,920 FNCI, Pool # 695852, 5.00%, 05/01/18........................... Aaa/AAA 271,540 273,844 FNCI, Pool # 722798, 5.00%, 06/01/18........................... Aaa/AAA 221,377 223,255 FNCL, Pool # 481429, 6.00%, 01/01/29........................... Aaa/AAA 386,653 398,281 FNCL, Pool # 522898, 8.00%, 01/01/30........................... Aaa/AAA 57,906 63,199 FNCL, Pool # 526025, 8.00%, 01/01/30........................... Aaa/AAA 38,021 41,512 FNCL, Pool # 704096, 5.50%, 05/01/33........................... Aaa/AAA 683,963 691,315 FNCL, Pool # 743430, 5.50%, 10/01/33........................... Aaa/AAA 348,079 351,820
See notes to financial statements. 10
1838 FIXED INCOME FUND SCHEDULE OF INVESTMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - ----------------------------------------------------------------------------------------------------------------- MOODY'S/S&P PRINCIPAL VALUE RATING AMOUNT (NOTE 2) ------------ -------- ----------- MORTGAGE BACKED SECURITIES -- (CONTINUED) FNCL, Pool # 809275, 5.00%, 02/01/35........................... Aaa/AAA $ 338,509 $ 335,445 GNSF, Pool # 6937, 8.50%, 12/15/05............................. Aaa/AAA 218 220 GNSF, Pool # 780374, 7.50%, 12/15/23 .......................... Aaa/AAA 146,665 158,522 GNSF, Pool # 417239, 7.00%, 02/15/26........................... Aaa/AAA 209,741 222,906 GNSF, Pool # 569684, 6.00%, 02/15/32........................... Aaa/AAA 97,484 100,659 GNSF, Pool # 588967, 6.00%, 11/15/32........................... Aaa/AAA 2,510 2,591 -------------- TOTAL MORTGAGE BACKED SECURITIES (COST $5,507,366)....................................... 5,597,307 -------------- U.S. AGENCY OBLIGATIONS-- 8.07% Freddie Mac MTN., 5%, 07/15/14................................. Aaa/AAA 210,000 217,019 FHLMC, 5.125%, 11/07/13........................................ Aaa/AAA 250,000 250,801 FHLMC, Sub. Notes, 6.25%, 03/05/12............................. Aa2/AA- 335,000 347,072 FNMA, 6.00%, 05/15/08.......................................... Aaa/AAA 170,000 179,451 FNMA, 3.125%, 03/16/09......................................... Aaa/AAA 145,000 139,600 Freddie Mac MTN., 3.60%, 05/07/08.............................. Aaa/AAA 165,000 162,860 -------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $1,300,998)............................... 1,296,803 -------------- U.S. TREASURY OBLIGATIONS**-- 8.29% U.S. Treasury Notes, 1.50%, 03/31/06...................................... 35,000 34,415 U.S. Treasury Notes, 2.75%, 06/30/06...................................... 225,000 223,198 U.S. Treasury Notes, 4.00%, 02/15/15...................................... 255,000 250,866 U.S.Treasury Bonds, 5.375%, 02/15/31...................................... 730,000 824,502 -------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $1,302,416)........................................ 1,332,981 -------------- SHORT-TERM INVESTMENTS-- 0.45% SHARES ------ Evergreen Institutional Money Market Fund - I Shares (Cost $71,883)........ 71,883 71,883 -------------- TOTAL INVESTMENTS (Cost $15,805,401)-- 99.19%................................... $ 15,933,059 OTHER ASSETS AND LIABILITIES, NET-- 0.81%....................................... 129,177 -------------- NET ASSETS-- 100.00%............................................................ $ 16,062,236 ==============
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, 2005, these securities amounted to 6.28% 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 the Fund's sub advisor, MBIA Capital Management Corp. ** 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 INVESTMENT ADVISORS FUNDS STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2005 - ------------------------------------------------------------------------------------------------------------------ INTERNATIONAL FIXED INCOME EQUITY FUND FUND ------------- ------------ ASSETS: Investments, at value (identified cost $17,164,172 and $15,805,401, respectively) (Note 2) ........................................ $22,729,767 $15,933,059 Receivables: Dividends, interest and foreign tax reclaims................... 136,011 141,352 Reimbursement due from advisor................................. 1,759 10,886 ----------- ----------- Total assets................................................. 22,867,537 16,085,297 ----------- ----------- LIABILITIES: Accrued expenses.................................................. 26,700 23,061 ----------- ----------- Total liabilities........................................... 26,700 23,061 ----------- ----------- NET ASSETS........................................................ $22,840,837 $16,062,236 =========== =========== NET ASSETS CONSIST OF: Shares of beneficial interest..................................... $ 1,660 $ 1,807 Additional capital paid-in........................................ 23,652,989 15,890,729 Undistributed net investment income .............................. 73,382 1,783 Accumulated net realized gain (loss) on investments............... (6,482,937) 40,259 Net unrealized appreciation (depreciation) on: Investments.................................................... 5,565,595 127,658 Translation of assets and liabilities in foreign currencies.... 30,148 -- ----------- ----------- NET ASSETS........................................................ $22,840,837 $16,062,236 =========== =========== Shares of beneficial interest outstanding......................... 1,659,570 1,807,337 ----------- ----------- NET ASSET VALUE, offering and redemption price per share (Net assets/Outstanding shares of beneficial interest)......... $ 13.76 $ 8.89 =========== ===========
See notes to financial statements. 12
1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2005(UNAUDITED) - ----------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME EQUITY FUND FUND ---------- ---------- INVESTMENT INCOME: Dividends...................................................... $ 282,838 $ -- Interest....................................................... 3,661 395,119 Foreign taxes withheld ........................................ (28,799) -- ----------- ----------- Total investment income.............................. 257,700 395,119 ----------- ----------- EXPENSES: Investment advisory fees (Note 4).............................. 110,659 42,214 Administration fees (Note 4)................................... 8,742 7,438 Accounting fees (Note 4)....................................... 29,587 19,725 Custodian fees ................................................ 11,546 963 Transfer agency fees (Note 4).................................. 9,862 9,862 Trustees' fees (Note 4)........................................ 15,302 9,800 Audit fees..................................................... 6,661 4,829 Legal fees..................................................... 15,806 12,961 Registration fees.............................................. 11,526 8,558 Reports to shareholders........................................ 5,662 1,885 Other.......................................................... 42,753 34,721 ----------- ----------- Total expenses............................................ 268,106 152,956 Advisory fees waived (Note 4)............................. (83,788) (42,214) Reimbursement from advisor (Note 4)....................... -- (60,090 ----------- ----------- Total expenses, net....................................... 184,318 50,652 ----------- ----------- Net investment income............................... 73,382 344,467 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain from: Investment transactions...................................... 4,747,843 54,159 Foreign currency transactions............................. (50,673) -- ----------- ----------- Total net realized gain ............................... 4,697,170 54,159 ----------- ----------- Change in unrealized depreciation of: Investments............................................... (1,309,774) (300,123) Translation of assets and liabilities in foreign currencies (703) -- ----------- ----------- Total change in unrealized depreciation................ (1,310,477) (300,123) ----------- ----------- Net realized gain (loss) on investments and foreign currency................................ 3,386,693 (245,964) ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 3,460,075 $ 98,503 =========== ===========
See notes to financial statements. 13
1838 INVESTMENT ADVISORS FUNDS STATEMENTS OF CHANGES IN NET ASSETS - ----------------------------------------------------------------------------------------------------------------- INTERNATIONAL FIXED INCOME EQUITY FUND FUND ---------- ------------ FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2005 (UNAUDITED) DECREASE IN NET ASSETS: Operations: Net investment income ......................................... $ 73,382 $ 344,467 Net realized gain from investment and foreign currency transactions................................ 4,697,170 54,159 Change in unrealized depreciation of investments and foreign currency............................. (1,310,477) (300,123) ----------- ------------ Net increase in net assets resulting from operations...... 3,460,075 98,503 ----------- ------------ Distributions to shareholders from: Net investment income.......................................... -- (342,684) Short-term gains............................................... -- (129,647) Long-term gains................................................ -- (459,657) ----------- ------------ Total distributions....................................... -- (931,988) ----------- ------------ Decrease in net assets from Fund share transactions (Note 5)...... (10,659,501) (2,638,082) ----------- ------------ Decrease in net assets............................................ (7,199,426) (3,471,567) NET ASSETS: Beginning of period............................................... 30,040,263 19,533,803 ----------- ------------ End of period (including undistributed net investment income of $73,382 and $1,783, respectively)............................ $22,840,837 $1 6,062,236 =========== ============ FOR THE YEAR ENDED OCTOBER 31, 2004 INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ......................................... $ 247,748 $ 1,009,681 Net realized gain from investment and foreign currency transactions................................ 5,679,915 651,975 Change in unrealized appreciation (depreciation) of investments and foreign currency............................. 1,883,650 (414,628) ----------- ------------ Net increase in net assets resulting from operations.............. 7,811,313 1,247,028 ----------- ------------ Distributions to shareholders from: Net investment income.......................................... -- (1,109,577) Short-term gains............................................... -- (1,390,264) Long-term gains................................................ -- (1,316,635) ----------- ------------ Total distributions....................................... -- (3,816,476) ----------- ------------ Decrease in net assets from Fund share transactions (Note 5)...... (27,861,758) (18,105,906) ----------- ------------ Decrease in net assets............................................ (20,050,445) (20,675,354) NET ASSETS: Beginning of period............................................... 50,090,708 40,209,157 ----------- ------------ End of period (including undistributed net investment income of $0 and $0, respectively)..................................... $30,040,263 $ 19,533,803 =========== ============
See notes to financial statements. 14 1838 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, 2005 -------------------------------------------------- (UNAUDITED) 2004 2003 2002 2001 2000 ----------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD........ $12.57 $10.50 $8.50 $9.89 $14.59 $14.57 ----------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income ................... 0.04 0.10 0.05 0.01 0.03 0.01 Net realized and unrealized gain (loss) on investments and foreign currency transactions............................ 1.15 1.97 1.95 (1.40) (3.19) 0.78 ----------------------------------------------------------------- Total from investment operations........ 1.19 2.07 2.00 (1.39) (3.16) 0.79 ----------------------------------------------------------------- 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) ----------------------------------------------------------------- Total distributions..................... -- -- -- -- (1.54) (0.77) ----------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD.............. $13.76 $12.57 $10.50 $8.50 $9.89 $14.59 ================================================================= TOTAL RETURN................................. 9.47%* 19.71% 23.53% (14.05)% (23.94)% 5.06% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)(1).......... 1.24%** 1.25% 1.23% 1.10% 1.04% 1.10% Expenses (excluding fee waivers).......... 1.81%** 1.48% N/A N/A N/A N/A Net investment income..................... 0.49% 0.63% 0.55% 0.08% 0.26% 0.04% Portfolio turnover rate...................... 9.39% 36.70% 45.93% 31.51% 41.58% 51.99% Net assets, end of period (in 000's)......... $22,841 $30,040 $50,091 $56,507 $72,007 $101,686
* Total return not annualized. ** Annualized 1 1838 Investment Advisors, LP has voluntarily agreed to waive its fees and/or reimbuse the Fund so the total operating expenses do not exceed 1.25% of average daily net assets. See notes to financial statements. 15 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. FIXED INCOME FUND
FOR THE SIX-MONTH PERIOD ENDED FOR THE FISCAL YEARS ENDED OCTOBER 31, APRIL 30, 2005 -------------------------------------------------- (UNAUDITED) 2004 2003 2002 2001 2000 ----------------------------------------------------------------- NET ASSET VALUE - BEGINNING OF PERIOD....... $9.33 $10.16 $10.11 $10.49 $9.75 $9.81 ----------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income(1)................. 0.18 0.39 0.48 0.56 0.61 0.63 Net realized and unrealized gain (loss) on investments ..................... (0.12) 0.04 0.08 (0.19) 0.75 (0.04) ----------------------------------------------------------------- Total from investment operations(1)... 0.06 0.43 0.56 0.37 1.36 0.59 ----------------------------------------------------------------- DISTRIBUTIONS: From net investment income............... (0.18) (0.42) (0.45) (0.56) (0.62) (0.65) From net short-term realized gain on investments......................... (0.07) (0.43) -- (0.16) -- -- From net long-term realized gain on investments........................... (0.25) (0.41) (0.06) (0.03) -- -- ----------------------------------------------------------------- Total distributions................... (0.50) (1.26) (0.51) (0.75) (0.62) (0.65) ----------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD............. $8.89 $9.33 $10.16 $10.11 $10.49 $9.75 ================================================================= TOTAL RETURN................................ 0.62%* 4.63% 5.67% 3.86% 14.36% 6.33% RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA: Expenses (net of fee waivers)(2)......... 0.60%** 0.60% 0.60% 0.60% 0.60% 0.60% Expenses (excluding fee waivers)......... 1.80%** 1.25% 0.84% 0.74% 0.70% 0.75% Net investment income1 .................. 4.06%** 4.11% 4.59% 5.58% 6.09% 6.57% Portfolio turnover rate..................... 13.85% 82.95% 234.92% 205.61% 199.43% 361.63% Net assets, end of period (in 000's)........ $16,062 $19,534 $40,209 $89,734 $128,671 $152,319
* 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 prior to November 1, 2001 have not been restated to reflect this change in accounting principle. 2 1838 Investment Advisors, LP has 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 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2005 - -------------------------------------------------------------------------------- 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 currently 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, 2005, 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. 17 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio purchases and sales of securities denominated in a foreign currency, the International Fund may enter into forward foreign currency exchange contracts ("FFCEC"). Additionally, the International Fund may enter into these contracts to hedge certain foreign currency assets. Foreign currency exchange contracts are recorded at fair value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Realized gains or losses arising from such transactions are included in net realized gain (loss) from foreign currency transactions. There were no FFCEC to hedge foreign currency assets outstanding at April 30, 2005. 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, 2004 were characterized as follows for tax purposes: ORDINARY CAPITAL TOTAL FUND INCOME GAIN DISTRIBUTION ---- ----------- ----------- ----------- International Fund......... -- -- -- Fixed Income Fund.......... $2,499,841 $1,316,635 $3,816,476 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, 2004, 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....................... $ -- $ -- $(11,090,458) $6,816,571 Fixed Income Fund........................ 128,629 460,538 -- 414,018
18 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - -------------------------------------------------------------------------------- NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) As of October 31, 2004, 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.............. $6,950,076 10/31/2010 4,140,382 10/31/2011
At October 31, 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.................. $23,220,543 $6,785,720 $7,342,257 $556,537 Fixed Income Fund................... 19,176,955 414,018 447,861 33,843
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 period ended April 30, 2005, purchases and sales of investment securities, other than short-term investments, were as follows: INTERNATIONAL FIXED INCOME FUND FUND ------------ ------------- Purchases......................... $2,750,926 $2,279,306 Sales............................. 9,437,865 4,949,634 Purchases, sales and maturities of U.S. Government securities, during the period ended April 30, 2005, were as follows: INTERNATIONAL FIXED INCOME FUND FUND ------------ ------------- Purchases......................... $ -- $1,378,431 Sales............................. -- 1,500,500 19 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - -------------------------------------------------------------------------------- NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Trust, on behalf of each Fund, employs 1838 Investment Advisors, LP (the "Investment Advisor"), a 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 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. MBIA CMC acts as sub-adviser to the 1838 Fixed Income Fund. Pursuant to a sub-advisory agreement with the Investment Adviser, MBIA CMC receives a monthly fee at an annual rate of 0.05% of the Fixed Income Fund's net asset value at the end of each month. The following table summarizes the advisory fees incurred by the Funds for the period ended April 30, 2005:
GROSS ADVISORY FEE NET ADVISOR ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENT ------------ ------------ ------------ ------------- International Fund.............. $110,659 $83,788 $26,871 $ 0 Fixed Income Fund............... 42,214 42,214 -- 60,090
MBIA Municipal Investors Services Corporation ("MBIA MISC"), a direct, wholly-owned subsidiary of MBIA, Inc., serves as Administrator to the Trust pursuant to an Administration Agreement with the Trust on behalf of each Fund. As Administrator, MBIA MISC is responsible for services such as financial reporting, compliance monitoring and corporate management. The Trust MBIA MISC pays 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 period ended April 30, 2005, administration fees amounted to $8,742 and $7,438, for the International Fund and the Fixed Income 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 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 period ended April 30, 2005, MBIA MISC's accounting fees amounted to $60,059 and $40,009 for the International Fund and the Fixed Income Fund, respectively. MBIA MISC also serves as the Fund's transfer agent pursuant to a Transfer Agency Agreement with the Trust. For these services, MBIA MISC receives an annual fee per Fund of $20,000, and is reimbursed for out-of-pocket expenses. For the period ended April 30, 2005, MBIA MISC's transfer agent fees amounted to $9,862 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 1838 INVESTMENT ADVISORS FUNDS NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)-- CONTINUED APRIL 30, 2005 - -------------------------------------------------------------------------------- NOTE 5 -- FUND SHARE TRANSACTIONS At April 30, 2005, 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, 2005 ENDED OCTOBER 31, 2004 ------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ------------ Shares sold..................................... 275,916 $3,875,060 250,288 $2,908,449 Shares redeemed................................. (1,006,782) (14,534,561) (2,628,487) (30,770,207) ---------- ------------ ---------- ------------ Net increase................................... (730,866) $(10,659,501) (2,378,199) $(27,861,758) ============ ============ Shares outstanding: Beginning of year....................... 2,390,436 4,768,635 ---------- ---------- End of period.......................... 1,659,570 2,390,436 ========== ========== FIXED INCOME FUND FOR THE SIX-MONTH PERIOD FOR THE FISCAL YEAR ENDED APRIL 30, 2005 ENDED OCTOBER 31, 2004 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ------------ Shares sold..................................... 12,152 $108,496 254,198 $2,422,201 Shares issued to shareholders in reinvestment of distributions............................. 86,869 782,304 360,135 3,379,515 Shares redeemed................................. (384,924) (3,528,882) (2,476,839) (23,907,622) ---------- ------------ ---------- ------------ Net decrease................................... (285,903) ($2,638,082) (1,862,506) $(18,105,906) ============ ============ Shares outstanding: Beginning of year....................... 2,093,240 3,955,746 ---------- ---------- End of period.......................... 1,807,337 2,093,240 ========== ==========
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 - POSSIBLE LIQUIDATION OF THE 1838 FIXED INCOME FUND At a meeting held on June 13, 2005, the Board of Trustees of the Trust unanimously determined that the 1838 Fixed Income Fund was not economically viable and directed the orderly liquidation of its investments in order to meet redemption requests. The Board also requested the Fund's officers to develop a plan of liquidation. 21 [This Page Intentional Left Blank] [This Page Intentional Left Blank] INVESTMENT ADVISER AND ADMINISTRATOR ---------- 1838 INVESTMENT ADVISORS, LLC 2701 RENAISSANCE BOULEVARD FOURTH FLOOR KING OF PRUSSIA, PA 19406 SUB-ADVISER AND 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 SAR 4/05 ITEM 2. CODE OF ETHICS. Applicable only to an annual filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Applicable only to an annual filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Applicable only to an annual filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Applicable only to an annual filing. ITEM 6. SCHEDULE OF INVESTMENTS. Attached as part of ITEM 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Applicable only to Closed-End Management Investment Companies. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Applicable only to Closed-End Management Investment Companies. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Applicable only to Closed-End Management Investment Companies. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No material changes. ITEM 11. 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 are effective, as of a 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 12. EXHIBITS. (a) Not applicable. (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/ Hans van den Berg ---------------------- Hans van den Berg President Date: July 8, 2005 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/ Hans van den Berg ------------------------------ Hans van den Berg President (Principal Executive Officer) Date: July 8, 2005 BY: /s/ Daniel N. Mullen ----------------------------- Daniel N. Mullen Secretary and Treasurer (Principal Financial Officer) Date: July 8, 2005 EX-99.CERT 2 ex-cert.txt CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Hans van den Berg, certify that: 1. I have reviewed this report on Form N-CSR of 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 8, 2005 /s/ Hans van den Berg ----------------------------- ---------------------------- Hans van den Berg President (Principal Executive Officer) CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Daniel N. Mullen, certify that: 1. I have reviewed this report on Form N-CSR of 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 8, 2005 /s/ Daniel N. Mullen ----------------------------- ---------------------------- Daniel N. Mullen Secretary and Treasurer (Principle Financial Officer) EX-99.906CERT 3 ex-906cert.txt CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the President of the 1838 Investment Advisors Funds (the "Funds") hereby certifies, with respect to the Fund's Form N-CSR for the period ended October 31, 2004 as filed with the Securities and Exchange Commission 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. Date: July 8, 2005 /s/ Hans van den Berg --------------------------- ---------------------------- Hans van den Berg President (Principal Executive Officer) CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the Secretary and Treasurer of the 1838 Investment Advisors Funds (the "Funds") hereby certifies, with respect to the Fund's Form N-CSR for the period ended October 31, 2004 as filed with the Securities and Exchange Commission 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. Date: July 8, 2005 /s/ Daniel N. Mullen -------------------------- ---------------------------- Daniel N. Mullen Secretary and Treasurer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----