1838
INTERNATIONAL EQUITY FUND
-------------------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
Annual Report
October 31, 1996
<PAGE>
November 4, 1996
TO THE SHAREHOLDER:
The Net Asset Value of your Fund as of October 31, 1996 was $10.44 per share.
This represents a total return of 9.1% for the year ending October 31, 1996.
During the second half of this fiscal year, the net asset value per share lost
3.1%, while the first six months of the year showed a total return of 12.6%. The
number of shares outstanding rose by 126% to 3,945,864.
Comparison of Change in Value of 10,000 Investment
Average Annual Total Return*
for the Period Ended
October 31, 1996
----------------------------
1 Year Since Inception
- ------ ---------------
9.11% 3.86%
[The following information was depicted as a line graph in the printed material]
Date 1838 International Equity Fund EAFE Index
---- ------------------------------ ----------
Aug-03-95 $10,000 $10,000
Oct-31-95 9,610 9,550
Apr-30-96 10,820 10,820
Oct-31-96 10,490 10,560
* Includes all expenses and/or charges, and thus represents a "net return".
Total return for the period 12/31/95 to 10/31/96 is 2.9%. The Fund's
returns are higher due to the Investment Advisor's maintenance of expenses.
The 1838 International Equity Fund commenced operations on August 3, 1995.
The big difference between the two six-month periods was the turnaround in the
performance of the Japanese and a number of emerging equity markets,
particularly in South East Asia. After a strong start in 1996, these markets
lost their attraction to foreign investors for various reasons:
1. A slowdown in economic growth due to lower exports of electronics (South
East Asia);
2. Deteriorating current accounts and weak currencies (Thailand and Korea);
3. Perceived or actual political instability (Japan, Korea, Mexico and
Thailand); and
4. The potential for large issuance of new shares in privatizations and
restructuring of balance sheets (Japan, Korea and the Philippines).
Past performance is not predictive of future
results. Investment returns and principal values will fluctuate, so that, when
redeemed, shares may be worth less than their original cost.
1
<PAGE>
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
The European markets, however, continued their favorable development, with bond
yields continuing on a downward trend through October providing a key stimulus.
The Fund's investment strategy continues to focus on diversification over the
different regions, concentrating on market leaders within each region. During
the last six months, we invested the cash that resulted from the issuance of new
shares of the Fund primarily in emerging markets, and in Hong Kong and Europe.
Market corrections and high volatility are common in individual markets of
emerging economies and offer opportunities to increase the Fund's exposure to
the high growth that successful companies in these markets offer. We view Hong
Kong as one of the most attractive investment areas in the world, as we are
optimistic about next July's transfer of power to China, and its modest
valuations. In Europe, in addition to the beneficial effect of lower interest
rates, equity markets benefit from the increased attention of company managers
to creating shareholder value. A long term process of corporate restructuring is
under way to improve global competitiveness and raise returns on equity.
Our increased exposure in Europe benefitted the Fund's performance, but we would
have done better delaying raising our exposure in emerging markets to 10% at the
end of October. At 28%, the Fund is under-represented in Japan. We expect
further consolidation in this market.
We believe that at today's valuations, the share prices of the companies owned
by the Fund are attractive in relation to their expected earnings. This offers
good prospects for the coming year.
Sincerely,
/s/Hans van den Berg
Hans van den Berg
Vice President & Portfolio Manager
12/30/96. Shares of the 1838 International Equity Fund are distributed
by Rodney Square Distributors, Inc.
Past performance is not predictive of future results. Investment returns and
principal values will fluctuate, so that, when redeemed, shares may be worth
less than their original cost.
<PAGE>
SCHEDULE OF NET ASSETS
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCK -- 99.9%
ARGENTINA -- 0.7%
Yacimientos Petroliferos Fiscades S.A. Oil & Gas Exploration............. 13,000 $295,750
----------
AUSTRALIA -- 1.8%
Broken Hill Proprietary Co. Metals - Diversified.............. 35,404 469,977
News Corp. Ltd. Publishing, Broadcasting.......... 50,111 285,146
----------
755,123
----------
BRAZIL -- 0.9%
Cia Cervejaria Brahma Sponsor ADR Brewery........................... 32,000 390,000
----------
CHILE -- 0.8%
Compania Telecomunicacion Chile ADR Telecommunications................ 3,500 345,188
----------
FRANCE -- 6.8%
Accor Lodging........................... 3,361 422,817
Carrefour Supermarche Retail - Grocery.................. 600 333,549
Compagnie Gen Des Eaux Service Company................... 4,000 478,906
LVMH (Moet-Hennessy) Wines & Spirits................... 1,950 447,446
Rhone Poulenc Chemicals ........................ 21,318 632,861
Total SA (B Shares) Oil & Gas Exploration............. 6,000 470,166
----------
2,785,745
----------
GERMANY -- 5.9%
BASF AG Chemicals Manufacturer............ 15,000 480,445
Bayer AG Chemicals......................... 15,000 567,798
Mannesmann AG Machinery Manufacturer............ 1,300 507,577
SAP ADR Computers, Software............... 7,000 323,750
Veba AG Electric Utility.................. 10,000 534,908
----------
2,414,478
----------
HONG KONG -- 6.9%
Cheung Kong Holdings, Ltd. Real Estate....................... 52,000 417,103
Citic Pacific Ltd. Holding Company................... 90,000 437,803
Henderson Land Dev. Real Estate....................... 40,000 355,780
HSBC Holdings Financial Services................ 41,009 835,619
Hutchinson Whampoa Real Estate, Transportation
& Telecommunications............ 56,000 391,228
Sun Hung Kai Properties Real Estate....................... 35,000 398,473
----------
2,836,006
----------
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
INDONESIA -- 1.6%
PT Bank Intl. Indonesia Banking........................... 428,090 $344,685
Telekomunik Indonesia Sponsor ADR Telecommunications................ 10,000 300,000
----------
644,685
----------
ITALY -- 1.6%
Telecom Italia Mobile Spa Telecommunications................ 310,000 641,389
----------
JAPAN -- 28.0%
Asahi Glass Co., Ltd. Glass Manufacturer................ 44,000 465,159
Asatsu Inc. Advertising....................... 12,300 456,199
Canon Inc. ADR Manufacturing - Electronics....... 5,200 501,150
Industrial Bank of Japan Banking........................... 19,000 379,968
Japan Telecom Co., Ltd. Telecommunications................ 24 579,334
Konica Corp. Photography Equipment............. 58,000 388,848
Kyocera Corp. Bioceramics Manufacturer.......... 10,000 661,618
Marubeni Corp. Miscellaneous Distributor......... 111,000 515,348
Mitsubishi Trust & Banking Banking........................... 31,000 458,816
Mitsubishi Heavy Industries, Ltd. Heavy Machinery................... 55,000 423,973
Mitsubishi Estate Co., Ltd. Real Estate....................... 35,000 437,848
Mitsubishi Materials Corp. Metals - Diversified.............. 88,000 392,284
Mitsui Toatsu Chemicals Chemicals......................... 109,000 382,188
Nippon Steel Corp. Steel Manufacturer................ 140,000 409,481
Nippondenso Co. Ltd. Electronics....................... 25,000 519,780
Nomura Securities, Co., Ltd. Securities Dealer................. 27,000 447,187
Obayashi Corp. Construction...................... 60,000 464,102
Seven-Eleven Retail - Grocery.................. 6,300 367,423
Sharp Corp. Electronics....................... 43,000 655,363
Sumitomo Bank Banking........................... 30,000 528,590
Takeda Chemicals Industries Pharmaceuticals................... 30,000 515,375
TDK Corp. Magnetic Tapes, Floppy &
Optical Discs................... 12,000 706,196
Tokio Marine & Fire Insurance......................... 37,000 407,455
Toyota Motor Corp. Automobile Manufacturer........... 20,000 473,968
----------
11,537,653
----------
KOREA -- 1.1%
Korea Mobile Telecom ADR Communications.................... 18,000 225,000
Samsung Electronics GDR* Electronics....................... 10,000 215,000
----------
440,000
----------
MALAYSIA -- 2.6%
Genting Berhad Resorts - Plantation.............. 25,000 187,270
Malayan Banking Banking........................... 33,000 326,979
</TABLE>
See notes to financial statements.
4
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
MALAYSIA -- CONTINUED
Sungei Way Holdings Berhad Manufacturing..................... 55,000 $313,900
United Engineers, Ltd. Engineering & Construction........ 30,000 237,802
----------
1,065,951
----------
MEXICO -- 1.5%
Grupo Casa Autrey ADR Pharmaceuticals................... 17,500 330,312
Transportation Maritima Mexicana SA Shipping.......................... 40,000 280,000
----------
610,312
----------
NETHERLANDS -- 6.0%
Aegon N.V. Insurance......................... 10,109 514,694
Akzo N.V. Chemicals......................... 4,000 504,543
Ing Groep, N.V. Financial Services................ 17,240 538,051
Koninklijke Ahold N.V. Retail Food Distributor........... 8,000 467,257
Stork N.V. Miscellaneous Manufacturing....... 14,837 464,805
----------
2,489,350
----------
PANAMA -- 1.0%
Banco Latinoamercano DE
Exportaciones S.A. ADR (E Shares) Banking........................... 8,000 418,000
----------
PHILIPPINES -- 0.5%
Pilipino Telephone Corp. Telecommunications................ 250,000 221,167
----------
SINGAPORE -- 0.9%
Singapore Press Holdings Publishing........................ 8,000 132,728
United O/S Bank Banking........................... 23,000 223,412
----------
356,140
----------
SPAIN -- 3.2%
Banco Santander SA Banking........................... 10,000 514,026
Empresa Nacional DE Electricidad SA Utility........................... 8,000 490,326
Repsol SA Oil & Gas Exploration............. 10,000 326,858
----------
1,331,210
----------
SWEDEN -- 2.7%
Astra AB (A Shares) Pharmaceuticals................... 11,000 506,233
Atlas Copco AB (A Shares) Machinery Manufacturer............ 30,000 621,743
----------
1,127,976
----------
</TABLE>
See notes to financial statements.
5
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
SWITZERLAND -- 4.0%
ABB AG Electrical Machinery.............. 500 $621,865
Ciba-Geigy AG Pharmaceuticals................... 400 493,670
Roche Holding AG-Genussshein Pharmaceuticals................... 70 532,845
----------
1,648,380
----------
TAIWAN -- 1.3%
Asia Cement Corp. Cement............................ 15,000 300,000
Siliconware Precision Industries Co. Manufactures Electronics.......... 30,000 246,000
----------
546,000
----------
THAILAND -- 0.9%
PTT Exploration and Production
Public Co. Oil & Gas Exploration............. 5,000 68,628
PTT Exploration and Production
Public Co. (Foreign Shares) Oil & Gas Exploration............. 10,000 143,531
Thai Farmers Warrants 09/15/03 Banking........................... 1,375 1,348
Thai Farmers Bank Co. Banking........................... 21,000 160,589
----------
374,096
----------
UNITED KINGDOM -- 19.2%
British Aerospace plc Aerospace......................... 43,000 815,819
British Airways plc Airlines.......................... 5,000 451,250
British Telecommunications plc
Sponsor ADR Telecommunications................ 7,000 403,375
Carlton Communications plc
Sponsor ADR Broadcasting...................... 15,000 611,250
Kingfisher plc Retail Department Stores.......... 55,000 585,677
Lloyds TSB Group plc Banking........................... 90,796 574,948
Pearson plc Publishing........................ 42,000 517,574
Prudential Corp. plc Insurance......................... 85,000 642,578
Reed International plc Publishing........................ 33,000 613,754
Reuters Holdings plc Sponsor ADR Publishing........................ 8,000 595,000
Shell Transport and Trading Co. plc Oil & Gas Exploration &
Distribution.................... 28,000 458,397
Siebe plc Machinery Manufacturer............ 28,000 438,823
Smithkline Beecham plc Pharmaceuticals................... 54,646 674,302
Unilever plc Sponsor ADR Manufacturer - Consumer Goods..... 6,000 514,500
----------
7,897,247
----------
TOTAL COMMON STOCK (COST $39,780,218) ........................................ 41,171,846
----------
</TABLE>
See notes to financial statements.
6
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par (Note 2)
------ --------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.1%
Federal Home Loan Banks, 5.50%,
11/01/96 (COST $868,000) .............................................. 868,000 $868,000
-----------
TOTAL INVESTMENTS (COST $40,648,218)+-- 102.0%.......................................... $42,039,846
OTHER ASSETS AND LIABILITIES, NET-- (2.0)%.............................................. (830,916)
-----------
NET ASSETS-- 100.0%..................................................................... $41,208,930
===========
</TABLE>
* Non-income producing security.
+ Also the cost for Federal income tax purposes. At October 31, 1996, net
unrealized appreciation was $1,391,628. This consisted of aggregate gross
unrealized appreciation in which there was an excess of market value over
tax cost of $3,072,239, and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,680,611.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
See notes to financial statements.
7
<PAGE>
FINANCIAL STATEMENTS -- STATEMENT OF ASSETS AND LIABILITIES
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments, at market (identified cost $40,648,218) ..................... $ 42,039,846
Cash...................................................................... 224
Forward foreign currency exchange contract held, at market
(identified cost $516,140)............................................. 513,503
Receivables:
Dividends and interest ................................................ 80,614
Foreign taxes recoverable ............................................. 21,248
Investment securities sold ............................................ 452,145
Forward foreign currency exchange contracts sold (Note 6) ............. 6,549
Deferred organizational costs (Note 2).................................... 96,971
-------------
Total Assets ....................................................... 43,211,100
Liabilities:
Payables:
Investment securities purchased........................................ $1,388,965
Due to Advisor......................................................... 28,857
Accrued expenses (Note 4) ............................................. 61,653
Forward foreign currency exchange contract (Note 6) ................... 516,140
Foreign currencies to deliver (Note 6) ................................ 6,555
----------
Total Liabilities .................................................. 2,002,170
-------------
Net Assets .............................................................. $41,208,930
=============
Net Assets consist of:
Common stock ............................................................. $3,946
Additional capital paid in ............................................... 40,009,495
Undistributed net investment income....................................... 203,214
Accumulated net realized loss on:
Investments ........................................................... (330,346)
Foreign currency transactions ......................................... (63,127)
Net unrealized appreciation (depreciation) on:
Investments ........................................................... 1,391,628
Translation of assets and liabilities in foreign currencies ........... (5,880)
-------------
Net Assets, for 3,945,864 shares outstanding ............................. $41,208,930
=============
NetAsset Value offering price and redemption price per share ($41,208,930 /
3,945,864 outstanding shares of common stock, $0.001 par value) ....... $10.44
=============
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Fiscal Year Ended
October 31, 1996
------------------------------
<S> <C> <C>
Investment Income:
Dividends .......................................................... $532,282
Interest ........................................................... 84,531
-------------
616,813
Less foreign taxes withheld ........................................ (48,451)
-------------
568,362
Expenses:
Investment advisory fee (Note 4) ................................... $218,232
Administration fee (Note 4) ........................................ 50,000
Accounting fee (Note 4) ............................................ 60,000
Custodian fees ..................................................... 37,677
Amortization of organizational expenses (Note 2) ................... 25,924
Reports to shareholders ............................................ 12,739
Legal .............................................................. 11,747
Audit .............................................................. 26,800
Registration fees .................................................. 21,516
Directors' fees and expenses (Note 4) .............................. 21,750
Transfer agency fees ............................................... 17,647
Other .............................................................. 21,085
----------
Total expenses before fee waivers ............................... 525,117
Advisory fee waived (Note 4) .................................... (138,238)
Administration fee waived (Note 4) .............................. (9,358)
Accounting fee waived (Note 4) .................................. (11,229)
Transfer agency fee waived (Note 4) ............................. (2,573)
----------
Total Expenses, net .......................................... 363,719
-------------
Net investment income .............................................. 204,643
-------------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized loss from:
Investments ........................................................ (306,807)
Foreign currency transactions ...................................... (63,127)
Net unrealized appreciation (depreciation) during the year on:
Investments ........................................................ 2,071,153
Translation of assets and liabilities in foreign currencies ........ (5,836)
-------------
Net realized and unrealized gain from investments and
foreign currency.................................................... 1,695,383
-------------
Net increase in net assets resulting from operations ..................... $1,900,026
=============
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
August 3, 1995
For the Fiscal (Commencement of
Year Ended Operations) through
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income.................................................. $204,643 $40,266
Net realized gain (loss) on:
Investments ........................................................ (306,807) (23,539)
Foreign currency transactions ...................................... (63,127) 36,990
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ 2,071,153 (679,525)
Translation of assets and liabilities in foreign currencies ........ (5,836) (44)
----------- -----------
Net increase (decrease) in net assets resulting from operations ....... 1,900,026 (625,852)
----------- -----------
Distributions to shareholders from:
Net investment income ($0.043 and $0, respectively).................... (78,685) 0
----------- -----------
Increase in net assets from Fund share transactions (Note 5) ............. 22,623,847 17,289,594
----------- -----------
Increase in net assets ................................................ 24,445,188 16,663,742
Net Assets:
Beginning of period.................................................... 16,763,742 100,000
----------- -----------
End of period.......................................................... $41,208,930 $16,763,742
=========== ===========
</TABLE>
See notes to financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
For the Period
August 3, 1995
For the Fiscal (Commencement of
Year Ended Operations) through
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Asset Value - Beginning of Period ............ $9.61 $10.00
------ ------
Investment Operations:
Net investment income ......................... 0.07 0.02
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ............................... 0.80 (0.41)
------ ------
Total from investment operations ........ 0.87 (0.39)
------ ------
Distributions:
From net investment income .................... (0.04) --
------ ------
Net Asset Value - End of Period .................. $10.44 $9.61
====== ======
Total Return ..................................... 9.11% (3.90)%
Ratios (to average net assets) - Supplemental Data:
Expenses1 ..................................... 1.25% 1.25%*
Net investment income ......................... 0.70% 1.02%*
Portfolio turnover rate .......................... 59.11% 42.21%*
Average commission rate paid ..................... $0.0211 --
Net assets at end of period (000's omitted)....... $41,209 $16,764
</TABLE>
1 Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.80% and 2.60% for the periods ended October 31,
1996, and 1995, respectively.
* Annualized.
See notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1838 INTERNATIONAL EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Note 1 -- Description of the Fund -- The 1838 Investment Advisors Funds (the
"Trust"), a diversified, open-end management investment company, was established
as a series Delaware business trust on December 9, 1994, and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust's
Agreement and Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest. The Trust has established two series:
the 1838 International Equity Fund and the 1838 Small Cap Equity Fund. The 1838
International Equity Fund (the "Fund"), the first of the two series currently
offered by the Trust, commenced operations on August 3, 1995. The Fund's
investment objective is capital appreciation, with a secondary objective of
income. The Fund seeks to achieve its objective by investing in a diversified
portfolio of equity securities of issuers located in countries other than the
United States. The 1838 International Equity Fund is presented in this report.
Note 2 -- Significant Accounting Policies.
Security Valuation. The Fund's securities, except investments with remaining
maturities of 60 days or less, are valued at the last quoted sales price on the
security's principal exchange on that day. If there are no sales of the relevant
security on such day, the security will be valued at the mean between the
closing bid and asked price on that day, if any. Debt securities having a
maturity of 60 days or less are valued at amortized cost. Securities for which
market quotations are not readily available and all other assets will be valued
at their respective fair market value as determined in good faith by, or under
procedures established by, the Board of Trustees. At October 31, 1996 there were
no securities valued by the Board of Trustees.
Federal Income Taxes. The Fund intends to qualify annually and elect to be
treated 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.
At October 31, 1996, the Fund had a net tax basis capital loss carryforward
available to offset future capital gains, if any, of approximately $330,000, of
which $24,000 will expire on October 31, 2003, and $306,000 will expire on
October 31, 2004.
Dividends and Capital Gain Distributions. Distributions of net investment income
and net realized gains are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for foreign currency
transactions. These distributions will be made annually in December. Additional
distributions may be made to the extent necessary to avoid the payment of a 4%
excise tax.
Deferred Organizational Costs. Costs incurred by the Fund in connection with the
initial registration and public offering of shares have been deferred and are
being amortized on a straight-line basis over a five-year period beginning on
the date that the Fund commenced operations.
Foreign Currency Translations. The books and records of the 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Note 2 -- Significant Accounting Policies -- continued
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at the end of the fiscal
period, 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 Fund
may enter into forward foreign currency exchange contracts. Additionally, the
Fund may enter into these contracts to hedge certain foreign currency assets.
Foreign currency exchange contracts are recorded at market value. Certain risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized gains or losses
arising from such transactions are included in net realized gain (loss) from
foreign currency transactions.
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that may affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Other. Investment security transactions are accounted for on a trade date basis.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
Note 3 -- Purchases and Sales of Investment Securities -- Purchases and sales of
investment securities (excluding short-term investments) for the fiscal year
ended October 31, 1996 were $40,144,412 and $16,404,096, respectively.
Note 4 -- Advisory Fee and Other Transactions with Affiliates -- The Trust, on
behalf of the Fund, employs 1838 Investment Advisors, L.P. (the "Investment
Adviser"), a Delaware limited partnership and registered investment adviser
under the 1940 Act, to furnish investment advisory services to the Fund pursuant
to an Investment Advisory Agreement with the Trust. The Investment Adviser
supervises the investments of the assets of the Fund in accordance with its
investment objective, policies and restrictions. The Fund's assets are managed
by MeesPierson 1838 Investment Advisors (the "Sub-Adviser") pursuant to a
Sub-Investment Advisory Agreement between the Investment Adviser and the
Sub-Adviser. The Sub-Adviser is compensated by the Investment Adviser for the
services it provides.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Note 4 -- Advisory Fee and Other Transactions with Affiliates -- continued
The Fund pays the Investment Adviser a monthly fee at the annual rate of 0.75%
of the average daily net assets of the Fund. The Investment Adviser has
voluntarily agreed to waive its advisory fee or reimburse the Fund monthly to
the extent that the Fund's total operating expenses, after waivers from
affiliates, will exceed 1.25% of the average daily net assets of the Fund. This
undertaking may be rescinded at any time in the future. The advisory fee for the
year ending October 31, 1996 amounted to $218,232, of which $138,238 was waived.
Rodney Square Management Corporation ("RSMC"), a wholly owned subsidiary of
Wilmington Trust Company ("WTC"), serves as Administrator to the Fund pursuant
to an Administration Agreement with the Trust. As Administrator, RSMC is
responsible for services such as financial reporting, compliance monitoring and
corporate management. For the services provided, RSMC receives a monthly
administration fee from the Trust at the annual rate of 0.15% of the average
daily net assets of the Trust on the first $50 million; 0.10% of such assets in
excess of $50 million to $100 million; 0.07% of such assets in excess of $100
million to $200 million; and 0.05% of such assets in excess of $200 million.
Each series pays its pro-rata portion based upon total Trust assets. Such fees
are subject to a minimum fee of $50,000 per year for one series and $15,000
minimum per year for each additional portfolio added to a series. RSMC has
agreed to waive a portion of its fees. For the fiscal year ended October 31,
1996, RSMC's administration fees amounted to $50,000, of which $9,358 was
waived. At October 31, 1996, Administration fees payable to RSMC amounted to
$8,334.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of WTC, has
been engaged pursuant to a Distribution Agreement with the Trust to assist in
securing purchasers for shares of the Fund. RSD also directly, or through its
affiliates, provides investor support services. RSD receives no compensation for
distribution of shares of the Fund, except for reimbursement of out-of-pocket
expenses. There are no expenses payable to RSD at October 31, 1996.
RSMC serves as Accounting Agent to the Fund. As Accounting Agent, RSMC
determines the Fund's net asset value per share and provides accounting services
to the Fund pursuant to an Accounting Services Agreement with the Trust. At
October 31, 1996, Accounting service fees payable to RSMC amounted to $10,000.
RSMC also serves as the Fund's transfer agent pursuant to a Transfer Agency
Agreement with the Trust. For these services, RSMC receives a monthly fee
computed on the basis of the number of shareholder accounts that the Transfer
Agent maintains for the Fund during the month, and is reimbursed for
out-of-pocket expenses. At October 31, 1996, Transfer Agent fees payable to RSMC
amounted to $1,561.
The Trustees of the Trust who are "interested persons" of the Trust, the
Investment Adviser or its affiliates and all personnel of the Trust or the
Investment Adviser performing services related to research, statistical and
investment activities are paid by the Investment Adviser or its affiliates. The
fees and expenses payable to the "non-interested" Trustees amounted to $3,750 on
October 31, 1996.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Note 5 -- Fund Share Transactions -- At October 31, 1996, there were an
unlimited number of shares of beneficial interest with a $0.001 par value,
authorized. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
For the Fiscal Year For the Period
Ended October 31, 1996 Ended October 31, 1995
---------------------------- --------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold......................... 2,653,604 $27,246,882 1,742,436 $17,357,801
Shares issued to shareholders in
reinvestment of distributions
from net investment income....... 7,882 78,427 0 0
Shares redeemed..................... (460,886) (4,701,462) (7,172) (68,207)
--------- ----------- --------- -----------
Net increase ....................... 2,200,600 $22,623,847 1,735,264 $17,289,594
=========== ===========
Shares outstanding:
Beginning of period.............. 1,745,264 10,000
--------- ---------
End of period.................... 3,945,864 1,745,264
========= =========
</TABLE>
Note 6 -- Commitments -- As of October 31, 1996, the Fund had entered into
forward foreign currency exchange contracts which contractually obligates the
Fund to deliver currencies at specified future dates. The open contracts are as
follows:
Net Unrealized
Depreciation
Contracts to Deliver In Exchange For Settlement Date U.S. $
- -------------------- --------------- --------------- ------------
British Pound 4,032 U.S. Dollar 6,549 11/04/96 (6)
U.S. Dollar 516,140 British Pound 315,856 11/04/96 (2,637)
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the 1838 Investment Advisors Funds
We have audited the accompanying statement of assets and liabilities, including
the schedule of net assets of the 1838 International Equity Fund, a series of
the 1838 Investment Advisors Funds, as of October 31, 1996 and the related
statement of operations for the year then ended, and the statements of changes
in net assets and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based upon on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
1838 International Equity Fund as of October 31, 1996, the results of its
operations for the year then ended, the changes in its net assets and its
financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 6, 1996
16
<PAGE>
TAX INFORMATION (UNAUDITED)
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
During the fiscal year ended October 31, 1996, the Fund recognized $218,409 of
foreign source income.
In January 1997, shareholders will receive federal income tax information on all
distributions paid to their accounts in the calendar year 1996. Please consult a
tax advisor if you have any questions about federal or state income tax laws, or
how to prepare your tax return.
17
<PAGE>
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<PAGE>
TRUSTEES
---------------------------
W. THACHER BROWN
CHARLES D. DICKEY, JR.
FRANK B. FOSTER, III
GEORGE W. GEPHART, JR.
ROBERT P. HAUPTFUHRER
OFFICERS
---------------------------
W. THACHER BROWN
President
GEORGE W. GEPHART, JR.
Vice President
JOHANNES B. van den BERG
Vice President
ANNA M. BENCROWSKY
Vice President, Treasurer
and Secretary
JOHN J. KELLEY
Assistant Treasurer
LAURIE V. BROOKS
Assistant Secretary
INVESTMENT ADVISOR
---------------------------
1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
SUB-ADVISOR
---------------------------
MEESPIERSON 1838 INVESTMENT ADVISORS
FIVE RADNOR CORPORATE CENTER
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN
---------------------------
BANKERS TRUST COMPANY
280 PARK AVENUE
NEW YORK, NY 10017
COUNSEL
---------------------------
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
AUDITORS
---------------------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
