1838
SMALL CAP EQUITY FUND
---------------------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
Annual Report
October 31, 1996
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
December 3, 1996
TO THE SHAREHOLDER:
The Genesis
The 1838 Small Cap Equity Fund began operations on June 17, 1996. With uncanny
accuracy, that date marked a short term peak in the stock market. The subsequent
correction, nearly 10% for small cap averages, created a rather inauspicious
debut for your Fund. Fortunately, the short-lived market correction was
displaced by a market rebound from the mid-July bottom, and the market continued
to recover through the end of the Fund's fiscal year on October 31st.
The Investment Process
The 1838 Small Cap Equity Fund follows a very disciplined investment process
focused primarily upon a low price in relation to trailing 12 months' earnings
(low P/E) screen. Accordingly, all stocks purchased for the portfolio will be
small cap ($800 million of market float or less) and low P/E, defined as the
lowest 40% of all stocks contained in the Compustat North American Database. Why
has this small cap, low P/E investment style been adopted? Numerous studies have
confirmed that over the long term for North American stocks, the smaller the
company, the better the return, and the lower the P/E, the better the
performance in aggregate. In fact, a recent study by Prudential Securities
confirmed that over the last 20 years ending in 1995, the return of the lowest
P/E stocks exceeded that of the highest valued stocks by nearly four times.
In reviewing stocks for inclusion in the Fund's portfolio, other fundamental and
quantitative measures are observed and judged to be important (though not
necessarily critical) in aiding the decision making process. In fact, our
analysis of the holdings of the Fund's portfolio near the end of the third
calendar quarter leads us to believe that, overall, the fundamental
characteristics of the aggregate small cap portfolio holdings constitute a
portfolio valuation that is more attractive than the comparable small cap
portfolio benchmark.
<TABLE>
<CAPTION>
September 1996*
-------------------------------------------------------------------
Average Average Average
Market Average EPS Growth Return on Debt/Total
Cap** P/E Ratio 5 Year Equity Capitalization
-------- --------- ---------- --------- --------------
<C> <C> <C> <C> <C> <C>
1838 Small Cap Fund.............. $308.4MM 12.9x 15.4% 18.9% 31.4%
Russell 2000 Index............... $350.0MM 17.6x 11.6% 14.4% 37.1%
</TABLE>
* This chart represents the characteristics of the Fund's portfolio at
September 16, 1996.
** 1838 measures market float only (excluding closely held shares) in equity
capitalization.
An examination of 1838's small cap portfolios' multi-year results from this
value investing style shows that these characteristics appear to remain constant
in relation to the market over long periods.
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 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
The Outlook
The North American equity markets have enjoyed a period of extraordinary
prosperity in recent years. The positive results have been driven by subdued
inflation, flat to falling interest rates, strong and stable GDP growth, and an
unprecedented flood of funds into stocks and various equity products. Our
current view suggests that this favorable backdrop will remain constant. We
believe small cap companies, such as those held in the 1838 Small Cap Equity
Fund, may provide disproportionately positive returns in that attractive
setting.
/s/ Edwin B. Powell
Edwin B. Powell
Vice President & Portfolio Manager
12/30/96. Shares of the 1838 Small Cap 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.
2
<PAGE>
SCHEDULE OF NET ASSETS
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCK -- 98.7%
AGRICULTURE, FORESTRY & FISHERIES -- 1.4%
Sylvan, Inc. * ........................................ 5,780 $ 74,417
------------
COMMUNICATIONS & BROADCASTING -- 0.5%
All American Communications, Inc. (B Shares) * ........ 3,215 28,533
------------
FINANCE & INSURANCE -- 28.4%
INSURANCE CARRIERS -- 20.5%
Allmerica Financial Corporation ....................... 2,400 72,900
E.W. Blanch Holdings, Inc. ............................ 3,970 81,881
Capital Re Corp. ...................................... 800 31,000
Capmac Holdings, Inc. ................................. 1,450 48,394
Enhance Financial Services Group, Inc. ................ 1,890 63,079
Everest Re Holdings, Inc. ............................. 1,525 38,888
Executive Risk Inc. ................................... 2,090 86,212
FPIC Insurance Group, Inc. * .......................... 4,300 58,050
Gryphon Holdings, Inc. * .............................. 4,450 62,856
Home State Holdings, Inc. * ........................... 3,750 28,125
MMI Companies, Inc. ................................... 2,400 69,000
NAC Re Corp. .......................................... 805 28,276
The PMI Group, Inc. ................................... 1,700 97,113
Presidential Life Corp. ............................... 4,100 46,637
State Auto Financial Corp. ............................ 4,550 63,700
Travelers/Aetna, Property Casualty Corp. (A Shares) ... 2,195 65,850
Western National Corp. ................................ 4,150 74,700
Partnerre Holdings, Ltd. .............................. 1,495 42,981
Terra Nova (Bermuda) .................................. 2,700 57,375
------------
1,117,017
------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 5.0%
Affiliated Community Bancorp .......................... 1,825 37,184
Bank United Corp. (A Shares) * ........................ 2,500 66,563
Bankatlantic Bancorp, Inc. (A Shares) ................. 642 8,587
Bankatlantic Bancorp, Inc. (B Shares) ................. 2,568 33,705
BostonFed Bancorp, Inc. ............................... 1,800 24,525
Long Island Bancorp, Inc. ............................. 2,315 68,871
ML Bancorp, Inc. ...................................... 2,150 29,966
------------
269,401
------------
STATE & NATIONAL BANKS -- 2.9%
Century Bancorp Inc. (A Shares) ....................... 300 4,125
Riggs National Corp. .................................. 3,800 65,075
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
STATE & NATIONAL BANKS -- CONTINUED
Southern National Corp. ............................... 600 $ 20,775
United Security Bancorporation * ...................... 4,700 65,212
------------
155,187
------------
TOTAL FINANCE & INSURANCE ................................... 1,541,605
------------
MANUFACTURING -- 47.9%
CHEMICALS & ALLIED PRODUCTS -- 1.5%
General Chemical Group, Inc. .......................... 4,185 79,515
------------
COMPUTER & OFFICE EQUIPMENT -- 2.1%
Lexmark International Group, Inc. (A Shares) * ........ 3,600 85,050
Zycon Corp. * ......................................... 3,135 30,174
------------
115,224
------------
FOOD & BEVERAGE -- 1.6%
Smithfield Foods, Inc. * .............................. 3,000 87,000
------------
GLASS, CONCRETE & OTHER PRODUCTS -- 1.5%
Medusa Corp. .......................................... 2,490 81,859
------------
IRON & STEEL -- 0.8%
Schnitzer Steel Industries, Inc. (A Shares) ........... 1,625 43,266
------------
MISC. ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 5.4%
AVX Corp. ............................................. 4,100 75,850
Belden, Inc. .......................................... 2,800 80,500
Burr-Brown Corp. * .................................... 1,875 39,844
UCAR International, Inc. * ............................ 2,435 95,269
------------
291,463
------------
MISC. FABRICATED METAL PRODUCTS -- 1.8%
Wolverine Tube, Inc. * ................................ 2,475 98,691
------------
MISC. INDUSTRIAL MACHINERY & EQUIPMENT -- 1.4%
DT Industries, Inc. ................................... 975 38,513
Fedders Corp. (A Shares) .............................. 7,440 37,200
------------
75,713
------------
MISC. MANUFACTURING INDUSTRIES -- 11.9%
American Safety Razor Co. * ........................... 5,730 70,909
Aptargroup, Inc. ...................................... 600 19,350
Caraustar Industries, Inc. ............................ 925 27,056
Chase Brass Industries, Inc. * ........................ 2,000 37,750
D.R. Horton, Inc. * ................................... 3,982 36,336
Dal-Tile International, Inc. * ........................ 4,400 77,000
</TABLE>
See notes to financial statements.
4
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
MISC. MANUFACTURING INDUSTRIES -- CONTINUED
Libbey, Inc. .......................................... 2,215 $ 53,160
Middleby Corp. * ...................................... 1,665 8,741
Mueller Industries, Inc. * ............................ 800 32,200
Paragon Trade Brands, Inc. * .......................... 3,400 89,250
Tracor, Inc. * ........................................ 2,100 47,775
US Can Corp. * ........................................ 5,965 95,440
Velcro Industries N.V ................................. 880 49,940
------------
644,907
------------
PAPER & PAPER PRODUCTS -- 3.9%
American Pad & Paper Co. * ............................ 2,825 52,969
Buckeye Cellulose Corp. * ............................. 3,290 85,951
Schweitzer-Mauduit International, Inc. ................ 2,310 71,032
------------
209,952
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 3.5%
Fisher Scientific International ....................... 2,750 123,406
Fluke Corp. ........................................... 770 30,800
OEC Medical Systems, Inc. * ........................... 2,830 37,144
------------
191,350
------------
RUBBER & PLASTICS -- 0.9%
Channell Commercial Corp. * ........................... 2,515 29,394
Greif Brothers Corp. (A Shares) ....................... 765 21,229
------------
50,623
------------
TELECOMMUNICATIONS EQUIPMENT -- 2.8%
Oak Industries, Inc. * ................................ 3,690 93,634
Superior Telecom Inc. * ............................... 3,300 58,575
------------
152,209
------------
TEXTILES & APPAREL -- 3.9%
The First Years, Inc. ................................. 2,830 43,865
Guess ?, Inc. * ....................................... 2,500 31,875
Hirsch International Corp. (A Shares) * ............... 2,862 51,516
Springs Industries, Inc. (A Shares) ................... 1,000 45,125
Worldtex, Inc. * ...................................... 5,300 41,737
------------
214,118
------------
TRANSPORTATION -- 3.5%
Airnet Systems, Inc. * ................................ 2,700 35,100
America West Airlines, Inc. * ......................... 1,520 17,480
Canadian National Railway Co. ......................... 2,500 68,750
Midwest Express Holdings, Inc. * ...................... 1,951 66,334
------------
187,664
------------
</TABLE>
See notes to financial statements.
5
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
TRANSPORTATION EQUIPMENT -- 1.4%
Mark IV Industries, Inc. .............................. 2,259 $ 48,851
Winnebago Industries, Inc. ............................ 3,750 27,656
------------
76,507
------------
TOTAL MANUFACTURING ......................................... 2,600,061
------------
MINING -- 1.8%
COAL -- 1.4%
Zeigler Coal Holding Co. .............................. 4,200 76,125
------------
CRUDE PETROLEUM & NATURAL GAS -- 0.4%
Willbros Group, Inc. * ................................ 2,300 21,563
------------
TOTAL MINING ................................................ 97,688
------------
SERVICES -- 8.0%
AMUSEMENT & RECREATION SERVICES -- 2.6%
Casino America, Inc. * ................................ 4,420 21,547
Harveys Casino Resorts ................................ 3,835 61,839
Royal Carribean Cruises Ltd. .......................... 2,100 56,438
------------
139,824
------------
BUSINESS SERVICES -- 0.8%
Cort Business Services Corp. * ........................ 2,100 44,100
------------
MEDICAL & HEALTH SERVICES -- 4.6%
Maxicare Health Plans, Inc. * ......................... 2,620 49,453
Medical Resources, Inc. * ............................. 3,600 31,050
Ornda Healthcorp * .................................... 1,220 33,245
Sierra Health Services, Inc. * ........................ 1,495 42,794
Summit Care Corp. * ................................... 2,100 33,338
Sun Healthcare Group, Inc. * .......................... 4,900 62,475
------------
252,355
------------
TOTAL SERVICES .............................................. 436,279
------------
WHOLESALE & RETAIL TRADE -- 10.7%
MISC. RETAIL STORES -- 2.1%
Duckwall-Alco Stores, Inc. * .......................... 2,100 27,562
Ruddick Corp. ......................................... 6,635 86,255
------------
113,817
------------
RETAIL APPAREL & ACCESSORY STORES -- 4.4%
Catherines Stores Corp. * ............................. 700 3,894
Dress Barn, Inc. * .................................... 4,040 53,025
Little Switzerland, Inc. * ............................ 8,095 39,463
Proffitt's, Inc. * .................................... 985 39,769
</TABLE>
See notes to financial statements.
6
<PAGE>
SCHEDULE OF NET ASSETS -- CONTINUED
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
RETAIL APPAREL & ACCESSORY STORES -- CONTINUED
Stage Stores, Inc. * .................................. 1,500 $ 27,375
Zale Corp. * .......................................... 3,875 75,078
------------
238,604
------------
WHOLESALE ELECTRONIC EQUIPMENT & COMPUTERS -- 0.7%
Marshall Industries * ................................. 1,345 40,519
------------
WHOLESALE MISC. -- 3.5%
BMC West Corp. * ...................................... 6,315 75,780
Dimon, Inc. ........................................... 2,200 41,800
TBC Corp. * ........................................... 10,800 71,550
------------
189,130
------------
TOTAL WHOLESALE & RETAIL TRADE .............................. 582,070
------------
TOTAL COMMON STOCK (COST $5,203,827) ........................ 5,360,653
------------
MISCELLANEOUS ASSETS -- 1.1%
Scudder Managed Cash Fund (COST $58,000) .............. 58,000 58,000
------------
TOTAL INVESTMENTS (COST $5,261,827)+ -- 99.8% ........................ $5,418,653
OTHER ASSETS AND LIABILITIES, NET -- 0.2% ............................ 8,998
------------
NET ASSETS -- 100.0% ................................................. $5,427,651
============
</TABLE>
* Non-income producing security.
+ The cost for Federal income tax purposes was $5,085,026. At October 31, 1996,
net unrealized appreciation was $333,627. This consisted of aggregate gross
unrealized appreciation in which there was an excess of market value over tax
cost of $542,473, and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$208,846.
See notes to financial statements.
7
<PAGE>
FINANCIAL STATEMENTS -- STATEMENT OF ASSETS AND LIABILITIES
1838 SMALL CAP EQUITY FUND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market (identified cost $5,261,827) (Note 2) .............. $ 5,418,653
Cash ...................................................................... 3,335
Receivables:
Interest ............................................................... 271
Dividends .............................................................. 1,502
Investment securities sold ............................................. 1,597
Reimbursement due from Investment Adviser ................................. 16,025
-----------
Total Assets ........................................................ 5,441,383
Liabilities:
Accrued expenses payable (Note 4) ...................................... 13,732
-----------
Net Assets ................................................................ $ 5,427,651
===========
Net Assets consist of:
Common stock .............................................................. $ 567
Additional capital paid in ................................................ 5,317,091
Accumulated net realized loss on investments .............................. (46,833)
Net unrealized appreciation on investments ................................ 156,826
-----------
Net Assets, for 566,969 shares outstanding ................................ $ 5,427,651
===========
Net Asset Value offering price and redemption price per share ($5,427,651 /
566,969 outstanding shares of common stock,
$0.001 par value) ...................................................... $ 9.57
===========
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period June 17, 1996
(Commencement of Operations)
through October 31, 1996
----------------------------
<S> <C> <C>
Investment Income:
Dividends ................................................... $ 9,624
Interest .................................................... 2,704
--------
Total Investment Income .................................. 12,328
--------
Expenses:
Investment advisory fee (Note 4) ............................ $ 12,641
Administration fee (Note 4) ................................. 18,768
Accounting fee (Note 4) ..................................... 15,014
Custodian fees .............................................. 7,505
Legal ....................................................... 7,109
Audit ....................................................... 5,000
Registration fees ........................................... 1,662
Directors' fees and expenses (Note 4) ....................... 3,750
Transfer agency fees ........................................ 6,064
Other ....................................................... 625
--------
Total expenses before fee waiver and reimbursement ....... 78,138
Advisory fee waived (Note 4) ............................. (12,641)
Reimbursement from Investment Adviser (Note 4) ........... (44,428)
--------
Total Expenses, net ................................... 21,069
--------
Net investment loss ......................................... (8,741)
--------
Realized and unrealized gain (loss) from investments:
Net realized loss on investments during the period .......... (46,833)
Net unrealized appreciation of investments during the period 156,826
--------
Net gain on investments .................................. 109,993
--------
Net increase in net assets resulting from operations ........... $101,252
========
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
For the Period June 17, 1996
(Commencement of Operations)
through October 31, 1996
----------------------------
Increase in Net Assets:
Operations:
Net investment loss ..................................... $ (8,741)
Net realized loss on investments during the period ...... (46,833)
Net unrealized appreciation on investments during
the period ........................................... 156,826
-----------
Net increase in net assets resulting from operations .... 101,252
-----------
Increase in net assets from Fund share transactions (Note 5) 5,326,399
-----------
Increase in net assets .................................. 5,427,651
Net Assets:
Beginning of period ..................................... 0
-----------
End of period ........................................... $ 5,427,651
===========
See notes to financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period June 17, 1996 (Commencement of Operations) through October 31, 1996.
It should be read in conjunction with the financial statements and notes
thereto.
Net Asset Value - Beginning of Period ............ $10.00
------
Investment Operations:
Net investment loss ........................... (0.02)
Net realized and unrealized loss
on investment .............................. (0.41)
------
Total from investment operations ........ (0.43)
------
Net Asset Value - End of Period .................. $9.57
======
Total Return ..................................... (4.30)%
Ratios (to average net assets) - Supplemental Data:
Expenses(1) ................................... 1.25%*
Net investment loss ........................... (0.52)%*
Portfolio turnover rate .......................... 94.38%*
Average commission rate paid ..................... $0.0512
Net assets at end of period (000's omitted)....... $5,428
(1) Without waivers the annualized ratio of expenses to average daily net
assets would have been 4.63% for the period.
* Annualized.
See notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1838 SMALL CAP 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
Small Cap Equity Fund (the "Fund") commenced operations on June 17, 1996. The
Fund's investment objective is long-term growth. The Fund seeks to achieve its
objective by investing primarily in the common stock of domestic companies with
relatively small market capitalization, those with a market value of $800
million or less (small cap), which are believed to be undervalued and have good
prospects for capital appreciation. The Fund will invest in small capitalization
companies using a value approach. The 1838 Small Cap 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.
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 cost basis for securities sold.
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.
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 period ending
October 31, 1996 were $6,844,486 and $1,593,826, respectively. For the period
ending October 31, 1996, purchases include $2,764,058 of investment securities
received from shareholders in exchange for 280,834 shares of the Fund.
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 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 and reimburse the Fund monthly to
the extent that the Fund's total operating expenses will exceed 1.25% of the
average daily net assets of the Fund. This undertaking may be rescinded at any
time in the
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
Note 4 -- Advisory Fee and Other Transactions with Affiliates -- continued
future. The advisory fee for the period ended October 31, 1996 amounted to
$12,641, all of which was waived, and an additional $44,428 was reimbursed to
the Fund by the Investment Adviser.
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 each series and $15,000
minimum per year for each additional portfolio added to a series. For the period
ending October 31, 1996, RSMC's administration fee amounted to $18,768. At
October 31, 1996 Administration fees payable to RSMC amounted to $4,247.
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 $3,397.
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 $1,500.
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.
There are no fees or expenses payable to the "non-interested" Trustees.
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:
For the Period June 17, 1996
(Commencement of Operations)
through October 31, 1996
-----------------------------
Shares Amount
--------- ----------
Shares sold......................... 596,571 $5,598,237
Shares redeemed..................... (29,602) (271,838)
------- ----------
Net increase ....................... 566,969 $5,326,399
==========
Shares outstanding:
Beginning of period.............. 0
-------
End of period.................... 566,969
=======
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
1838 SMALL CAP 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 the 1838 Small Cap Equity Fund, a series of
the 1838 Investment Advisors Funds, as of October 31, 1996 and the related
statements of operations, changes in net assets and the financial highlights for
the period June 17, 1996 (commencement of operations) through October 31, 1996.
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 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 Small Cap Equity Fund as of October 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for the
period June 17, 1996 (commencement of operations) through October 31, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 6, 1996
14
<PAGE>
TAX INFORMATION (UNAUDITED)
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
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.
15
<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
EDWIN B. POWELL
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
CUSTODIAN
------------------------
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890
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
ES06
