Post-Effective Amendment No. 5
Filed with the Securities and Exchange Commission on October 22, 1998.
1933 Act Registration File No. 33-87298
1940 Act File No. 811-8902
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 5 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 |X|
1838 INVESTMENT ADVISORS FUNDS
(Exact Name of Registrant as Specified in Charter)
Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 293-4300
Anna M. Bencrowsky, Vice President Copy to:
1838 Investment Advisors Funds Joseph V. Del Raso, Esq.
Five Radnor Corporate Center, Suite 320 Pepper Hamilton LLP
100 Matsonford Road 3000 Two Logan Square
Radnor, PA 19087 Eighteenth and Arch Streets
(Name and Address of Agent for Service) Philadelphia, PA 19103
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
[If appropriate, check the following box:]
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
THE DATE OF THIS PROSPECTUS IS _____________________
Five Radnor Corporate Center, Suite 320
100 Matsonford Road, Radnor, PA 19087
(610) 293-4300
1838 INTERNATIONAL EQUITY FUND. The investment objective of the 1838
International Equity Fund (the "International Equity Fund") is capital
appreciation, with a secondary objective of income. The International Equity
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.
1838 SMALL CAP EQUITY FUND. The investment objective of the 1838 Small Cap
Equity Fund (the "Small Cap Equity Fund") is long-term growth. The Small Cap
Equity Fund seeks to achieve its objective by investing primarily in the common
stock of U.S. companies with market capitalization of $1 billion or less (small
cap), which are believed to be undervalued and have good prospects for capital
appreciation.
1838 FIXED INCOME FUND. The investment objective of the 1838 Fixed Income
Fund (the "Fixed Income Fund") is maximum current income, with a secondary
objective of growth. The Fixed Income Fund seeks to achieve its objective by
investing, under normal circumstances, at least 65% of its assets in a
diversified portfolio of fixed income securities.
1838 LARGE CAP EQUITY FUND. The investment objective of the 1838 Large Cap
Equity Fund (the "Large Cap Equity Fund") is long-term total return. The Large
Cap Equity Fund seeks to achieve its objective by investing primarily in the
common stock of U.S. companies with market capitalizations greater than $5
billion.
1838 SPECIAL EQUITY FUND. The investment objective of the 1838 Special
Equity Fund (the "Special Equity Fund") is high total return. The Special Equity
Fund seeks to achieve its objective by investing at least 90% of its assets in a
select portfolio of the common stock of U.S. companies with market
capitalizations greater than $5 billion.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Page
----
FUND SUMMARIES.................................................................1
EXPENSES OF THE FUNDS..........................................................4
FINANCIAL HIGHLIGHTS...........................................................5
INVESTMENT OBJECTIVES, POLICIES AND RISKS......................................7
MANAGEMENT OF THE FUNDS.......................................................13
CALCULATION OF NET ASSET VALUE................................................16
HOW TO PURCHASE SHARES........................................................16
EXCHANGE OF SHARES............................................................18
HOW TO REDEEM SHARES..........................................................18
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................20
YEAR 2000.....................................................................21
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<PAGE>
FUND SUMMARIES
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the INTERNATIONAL EQUITY FUND 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. Investments may be
shifted among the various equity markets of the world outside of the U.S.,
depending upon management's opinion of prevailing trends and developments. A
substantial portion of the International Equity Fund's assets generally is
invested in the developed countries of Europe and the Far East. A portion of the
International Equity Fund's assets also may be invested in developing countries.
The investment objective of the SMALL CAP EQUITY FUND is long-term growth.
The Fund seeks to achieve its objective by investing primarily in the common
stock of U.S. companies with market capitalization of $1 billion or less (small
cap), which are believed to be undervalued and have good prospects for capital
appreciation. The Fund invests in small capitalization companies using a value
approach. This approach entails finding companies whose current stock prices are
(1) believed not to reflect adequately their underlying value as measured by
business prospects; and (ii) low in relation to current earnings, cash flow or
business franchises, and which, in the Fund adviser's opinion, seem capable of
recovering from any out-of-favor considerations.
The investment objective of the FIXED INCOME FUND is maximum current
income, with a secondary objective of growth. The Fund seeks to achieve its
objective by investing, under normal circumstances, at least 65% of its assets
in a diversified portfolio of all types of fixed income securities. The Fund
normally will invest in investment grade debt securities and unrated securities
determined to be of comparable quality by the Fund's adviser. Investment grade
debt securities are securities rated Baa or better by Moody's or BBB or better
by S&P. The Fund has no restriction on maturity; however, it generally maintains
a dollar-weighted average maturity of 7 to 12 years.
The investment objective of the LARGE CAP EQUITY FUND is long-term total
return. The Fund seeks to achieve its objective by investing primarily in the
common stock of U.S. companies with market capitalization greater than $5
billion. The Fund invests in large capitalization companies using a relative
value approach. This approach entails finding companies whose current stock
prices are believed not to reflect adequately their underlying value, measured
by the companies' price-to-earnings ratios as compared to the S&P 500 over a
long period of time.
The investment objective of the SPECIAL EQUITY FUND is high total return.
The Fund seeks to achieve its objective by investing at least 90% of its assets
in a select portfolio of the common stock of U.S. companies with market
capitalizations greater than $5 billion. The Fund's adviser generally intends to
use the same investment approach as is used for the Large Cap Equity Fund (see
above), except that the Fund's portfolio will consist of the stocks of only 10
to 20 large cap companies. Also, since the Fund attempts to achieve high total
return, returns are expected to be short-term and portfolio turnover is expected
to exceed 200% annually.
RISK FACTORS
INTERNATIONAL EQUITY FUND: Investments in foreign securities involve
certain risks not involved in domestic investment, including fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the existence or possible imposition of exchange controls or
other foreign or U.S. governmental laws or restrictions applicable to such
investments.
SMALL CAP EQUITY FUND: Due to the uncertainty of growth prospects of
smaller companies, investments in the securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation, but may also involve greater risks of depreciation than securities
of companies with larger market capitalizations.
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<PAGE>
FIXED INCOME FUND: Fixed income securities generally are affected by
changes in interest rates that may result in an increase or decrease in the
value of the obligations held by the Fixed Income Fund. The value of the
securities held by the Fund generally can be expected to vary inversely with the
changes in interest rates; as the rates decline, market value tends to increase
and vice versa.
LARGE CAP EQUITY AND SPECIAL EQUITY FUNDS: These funds invest in U.S.
equity stocks, and the portfolio stock prices will fluctuate up and down; which
means that you could lose money. Further, different types of stocks will shift
in and out of favor depending upon market and economic conditions, and the Funds
may underperform other types of funds if any or all of their portfolio stocks
fall out of favor with the stock market.
The Special Equity Fund anticipates an annual portfolio turnover rate of
200% or more. High portfolio turnover may involve additional transaction costs
(such as brokerage commissions) which are borne by the Fund, or adverse tax
effects, including more dividends from net investment income, which will result
in more ordinary income to shareholders, rather than capital gain. Further, in
seeking its objective, the Fund's assets may become concentrated in one industry
or a group of industries. A fund with concentrated investments may be more at
risk for loss than a fund with a more diversified portfolio.
ALL FUNDS: An investment in any Fund presents the risk of loss of part or
all of an investor's investment.
PERFORMANCE OF THE FUNDS
The bar chart and table below provide an indication of the risks of
investing in a Fund by showing changes in each Fund's performance from year to
year, and by showing how each Fund's performance over time compares to that of a
relevant broad-based securities market index. The past performance of a Fund is
not necessarily a prediction of how the Fund will perform in the future. The
Large Cap Equity and Special Equity Funds are not depicted because they are new
Funds.
INTERNATIONAL EQUITY FUND
Year-by-Year Total Return
as of 12/31 each year (%)
12 | During the periods shown in the bar
10 | 9.99 chart, and note under the chart, the
8 | 8.04 |----| highest return for a quarter was
6 | |----| | | 16.54% (quarter ending June 30,
4 | | | | | 1997) and the lowest return for a
2 | | | | | quarter was -16.81% (quarter
0 |_____|____|________|____|_____ ending Sept. 30, 1998)
1996 1997
The Fund's year-to-date total return as of September 30, 1998 was -3.00%.
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<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/97
INCEPTION
1 YEAR (8/3/95)
------ --------
International Fund 9.99 8.77
EAFE 1.78 6.28*
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*Annualized from 9/1/95-12/31/97
SMALL CAP EQUITY FUND
Year-by-Year Total Return
as of 12/31 each year (%)
35 | During the periods shown in the bar
30 | 29.85 chart, and note under the chart, the
25 | |----| highest return for a quarter was
20 | | | 16.31% (quarter ending June 30,
15 | | | 1997) and the lowest return for a
10 | | | quarter was -23.89% (quarter
5 | | | ending Sept. 30, 1998)
0 |________|____|_________
1997
The Fund's year-to-date total return as of September 30, 1998 was -19.14%.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/97
INCEPTION
1 YEAR (6/17/96)
------ ---------
Small Cap Fund 29.85 22.27
Russell 2000 22.33 18.60*
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*Annualized from 7/1/96-12/31/97
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<PAGE>
BAR CHART AND TABLE
The bar chart and tables required by Item 2(c)(2) of Form N-1A are depicted
here for the International Equity Fund and the Small Cap Equity Fund. The
International Equity Fund's bar chart shows year-by-year total return of 8.04%
for the year ended 12/31/96, and 9.99% for the year ended 12/31/97. The Fund's
table shows average annual total return of 9.99% for the year ended 12/31/97,
compared to the EAFE return of 1.78% for the same period, and 34.29% from
inception (8/3/95) to 12/31/97, compared to the EAFE return of 29.20% for the
period 9/1/95 to 12/31/97.
The Small Cap Equity Fund's bar chart shows year-by-year total return of
29.85% for the year ended 12/31/97. The Fund's table shows average annual total
return of 29.85% for the year ended 12/31/97, as compared to the Russell 2000
return of 22.33% for the same period, and 21.14% from the Fund's inception
(6/17/96) to 12/31/97, as compared to the Russell 2000 return of 15.26% for the
period 7/1/96 to 12/31/97.
FIXED INCOME FUND
A performance chart and table is not provided because the Fund has not yet
had a full calendar year of performance returns.
EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and
hold Fund shares.
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FIXED INCOME LARGE CAP SPECIAL
EQUITY FUND EQUITY FUND FUND EQUITY FUND EQUITY FUND
----------- ----------- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER FEES (1)
- ----------------
(paid directly from your investment) None None None None None
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(expenses that are deducted from Fund
assets)
Management Fees 0.75% 0.75% 0.50% 0.60% 1.00%
Other Expenses 0.69% 1.12% 0.41% 0.15% 0.25%
----- ----- ----- ----- -----
Total Annual Fund Operating Expenses (2) 1.44% 1.84% 0.91% 0.75% 1.25%
</TABLE>
(1) You may be charged a fee if you effect a purchase or redemption transaction
in a Fund through a broker or agent. If such a fee is charged, it will be
charged directly by the broker or agent, and not by the Fund.
(2) The Funds' investment adviser voluntarily has agreed to waive its fees
and/or reimburse each Fund so that each Fund's total operating expenses do
not exceed the following percentage of average daily net assets of the
Fund:
International Equity Fund: 1.25%
Small Cap Equity Fund: 1.25%
Fixed Income Fund: 0.60%
Large Cap Equity Fund: 0.75%
Special Equity Fund: 1.25%
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<PAGE>
During the fiscal year ended October 31, 1997, the adviser waived the
following amount of its fees to maintain the foregoing expense caps:
International Equity Fund: 0.19% fee waiver
Small Cap Equity Fund: 0.59% fee waiver
Fixed Income Fund: 1.37% fee waiver and expense reimbursements
(for a then current expense cap of 0.75%)
For the six-month period ended April 30, 1998, the adviser waived the
following amount of its fees to maintain the foregoing expense cap:
Fixed Income Fund: 0.31% fee waiver
Expense information for the Fixed Income Fund has been restated to reflect
current fees. The investment adviser's voluntary fee waivers and reimbursement
of Fund expenses will remain in effect until further notice, but may be
rescinded at any time.
The amount of "Other Expenses" is based on actual amounts incurred during
the most recently ended fiscal year for the International Equity Fund, and the
Small Cap Equity Fund, and during the period ended April 30, 1998 for the Fixed
Income Fund, but such amounts are estimated for the Large Cap Equity and Special
Equity Funds.
EXAMPLE
- -------
The following example illustrates the expenses that you would pay on a
$10,000 investment over various time periods assuming (1) a 5% annual rate of
return; (2) reinvestment of all dividends and distributions; (3) redemption at
the end of each time period, and (4) each Fund's operating expenses remain the
same:
1 yr. 3 yrs. 5 yrs. 10 yrs.
International Equity Fund $127 $397 $686 $1511
Small Cap Equity Fund $127 $397 $686 $1511
Fixed Income Fund $ 61 $192 $335 $ 750
Large Cap Equity Fund $ 77 $240 N/A N/A
Special Equity Fund $127 $397 N/A N/A
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown. The example is based upon actual expenses for the International Equity
Fund and Small Cap Equity Fund for the fiscal year ended October 31, 1997. The
Fixed Income Fund commenced operations on September 2, 1997, and the example is
based upon actual expenses of that Fund for the six-month period ended April 30,
1998. The Large Cap Equity and Special Equity Funds have not yet begun
operations.
FINANCIAL HIGHLIGHTS
The following tables describe the International Equity, Small Cap Equity
and Fixed Income Funds' performance for the periods presented. "Total Return"
shows how much your investment in a Fund would have increased (or decreased)
during each period, assuming you had reinvested all dividends and distributions.
The figures for the years or periods ended October 31 have been audited by
Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP), whose
report, along with the Funds' financial statements, are included in each Fund's
Annual Report, which is available without charge, upon request. The unaudited
figures are included in each Funds' Semi-Annual Report, also available without
charge.
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<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
For the Six-Month
Period Ended
April 30, 1998
(unaudited) For the Fiscal Years or Period Ended October 31,
1997 1996 1995+
----------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value-Beginning of Period ................................. $ 11.99 $ 10.44 $ 9.61 $ 10.00
---------- ----------------------------------------
Investment Operations:
Net investment income .......................................... (0.05) 0.02 0.07 0.02
Net realized and unrealized gain (loss) on investment
and foreign currency transactions .......................... 2.02 1.57 0.80 (0.41)
---------- ----------------------------------------
Total from investment operations ........................... 1.97 1.59 0.87 (0.39)
---------- ----------------------------------------
Distributions:
From net investment income ..................................... (0.01) (0.04) (0.04) --
From net realized capital gain ................................. (0.67) 0.00 0.00 0.00
---------- ----------------------------------------
Total distributions ........................................ (0.68) (0.04) (0.04) 0.00
---------- ----------------------------------------
NET ASSET VALUE - END OF PERIOD ..................................... $ 13.28 $ 11.99 $ 10.44 $ 9.61
========== ========================================
TOTAL RETURN ........................................................ 17.30% 15.23% 9.11% (3.90)%***
Ratios (to average net assets)/Supplemental Data:
Expenses(1) .................................................... 1.25% 1.25% 1.25% 1.25%*
Net investment income .......................................... (0.69)% 0.28% 0.70% 1.02%*
Portfolio turnover rate ............................................. 46.58% 92.33% 59.11% 42.21%*
Net assets at end of period (000's omitted) ......................... $ 61,938 $ 51,046 $ 41,209 $ 16,764
SMALL CAP EQUITY FUND
For the Six-Month
Period Ended For the Fiscal Years or
April 30, 1998 Period Ended October 31,
(unaudited) 1997 1996+
---------- -------------------------
Net Asset Value-Beginning of Period ................................. $ 13.08 $ 9.57 $ 10.00
---------- -------------------------
Investment Operations:
Net investment income (loss) ................................... (0.02) (0.02) (0.02)
Net realized and unrealized gain (loss) on investments ......... 1.94 3.62 (0.41)
---------- -------------------------
Total from investment operations ........................... 1.92 3.60 (0.43)
---------- -------------------------
Distributions:
From net investment income ..................................... (0.95) (0.09) --
---------- -------------------------
NET ASSET VALUE - END OF PERIOD ..................................... $ 14.05 $ 13.08 $ 9.57
========== =========================
TOTAL RETURN ........................................................ 17.60% 37.81% (4.30)%***
Ratios (to average net assets)/Supplemental Data:
Expenses(2) .................................................... 1.25% 1.25% 1.25%*
Net investment income .......................................... (0.31)% (0.27)% (0.52)%*
Portfolio turnover rate ............................................. 59.63% 67.66% 94.38%*
Net assets at end of period (000's omitted) ......................... $ 45,991 $ 28,923 $ 5,428
FIXED INCOME FUND
For the Six-Month
Period ended For the
April 30, 1998 Period Ended
(unaudited) October 31, 1997+
----------- -----------------
NET ASSET VALUE - BEGINNING OF PERIOD
INVESTMENT OPERATIONS: .............................................. $ 10.27 $ 10.00
---------- ----------
Net investment income .......................................... 0.29 0.06
Net realized and unrealized gain on investment ................. 0.00 0.21
---------- ----------
Total from investment operations ........................... 0.29 0.27
---------- ----------
DISTRIBUTIONS:
Net investment income .......................................... (0.32) 0.06
Net realized and unrealized gain on investment ................. (0.02) 0.00
---------- ----------
Total from investment operations ........................... (0.34) 0.00
---------- ----------
NET ASSET VALUE - END OF PERIOD ..................................... $ 10.22 $ 10.27
---------- ----------
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<PAGE>
TOTAL RETURN ........................................................ 2.88% 2.70%***
Ratios (to average net assets)/Supplemental Data:
Expenses(3) .................................................... 0.75% 0.75%*
Net investment income .......................................... 6.37% 5.83%*
Portfolio turnover rate ............................................. 25.03% 39.12%**
Net assets at end of period (000's omitted) ......................... $ 54,149 $ 32,537
</TABLE>
* Annualized.
** Not annualized.
*** Total return has not been annualized.
+ The International Equity Fund commenced operations on August 3, 1995. The
Small Cap Equity Fund commenced operations on June 17, 1996. The Fixed
Income Fund commenced operations on September 2, 1997.
(1) Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.36%, 1.44%, 1.80% and 2.60% for the six-months
ended April 30, 1998 and for the fiscal years ended October 31, 1997, 1996
and the period ended October 31, 1995, respectively.
(2) Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.27%, 1.84% and 4.63% for the six-months ended
April 30, 1998, and for the fiscal year ended October 31, 1997 and the
period ended October 31, 1996, respectively.
(3) Without waivers and reimbursements the annualized ratio of expenses to
average daily net assets would have been 0.91% and 2.12% for the six-month
period ended April 30, 1998 and for the period ended October 31, 1997,
respectively.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
INTERNATIONAL EQUITY FUND. The International Equity 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.
Under normal conditions, at least 65% of the Fund's total assets will be
invested in the equity securities of issuers from at least three different
foreign countries. The Fund may employ a variety of investment strategies and
techniques to hedge against market and currency risk. The Fund is designed for
investors seeking to complement their U.S. holdings through foreign equity
investments and should be considered as a vehicle for diversification and not as
a balanced investment program.
The Fund intends to reduce investment risk by diversifying its portfolio of
securities among the securities of foreign companies located throughout the
world. Specifically, the Fund intends to invest in the capital markets of more
than 20 countries, with emphasis on the largest markets of Japan, the United
Kingdom, France and Germany. The Fund's adviser anticipates that a substantial
portion of the Fund's assets will be invested in the developed countries of
Europe and the Far East. The Fund also may invest up to 20% of its assets in the
securities of developing countries. The Fund may invest up to 25% of its assets
in securities issued or guaranteed by non-U.S. governments, but will invest only
in securities issued or guaranteed by the governments of countries which are
members of the Organization for Economic Co-operation and Development (OECD).
For purposes of the Fund's investment objective, an issuer ordinarily will
be considered to be located in the country under the laws of which it is
organized or where the primary trading market of its securities is located. The
Fund, however, may consider a company to be located in a country, without
reference to its domicile or to the primary trading market of its securities,
when at least 50% of its non-current assets, capitalization, gross revenues or
profits in any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in such country.
The Fund also may consider closed-end investment companies to be located in the
country or countries in which they primarily make their portfolio investments.
Allocation of the Fund's assets is determined after the adviser examines
the phases in the business cycles and long-term growth potential of the various
foreign economies and the valuation of each foreign securities market currency,
taxation and other pertinent financial, social, national and political factors
are taken into account. The Fund's adviser seeks to identify equity investments
in each market which are expected to provide long-term capital appreciation that
equals or exceeds the performance benchmark of such market as a whole. Companies
considered for investment share the following characteristics:
o Industry leaders in their country, region or world
o Strong balance sheets
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<PAGE>
o Stocks widely followed by research analysts
o Large market capitalization (usually greater than $2 billion)
o Attractive price-to-earnings ratios compared with earnings growth
potential (PEG ratio)
Generally, the adviser sells Fund portfolio securities when:
o Company fundamentals deteriorate
o Stock valuation deteriorates dues to a rise in the PEG ratio
o The Fund's portfolio should be rebalanced to include a country or
industry in which prospects for capital appreciation are
determined to be better than others
The Fund's investments in developing countries generally focus on a small
number of leading or relatively actively traded companies in such countries'
capital markets, with the expectation that the investment experience of the
securities of such companies will substantially represent the investment
experience of the countries' capital markets as a whole.
The Fund primarily invests in common stock, but the Fund may also invest in
other equity securities. The Fund reserves the right, as a temporary defensive
measure and to provide for redemptions, to hold cash or cash equivalents in U.S.
dollars or foreign currencies and short-term securities including money market
securities. Under certain adverse investment conditions, the Fund may restrict
the markets in which its assets will be invested and may increase the proportion
of assets invested in temporary defensive obligations of U.S. issuers. When the
Fund maintains a temporary defensive position, it may not achieve its investment
objective.
RISKS. Investments in foreign securities involve certain risks not involved
in domestic investment, including fluctuations in foreign exchange rates, future
political and economic developments, different legal systems and the existence
or possible imposition of exchange controls or other foreign or U.S.
governmental laws or restrictions applicable to such investment. There may be
less publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those to which U.S.
companies are subject. Securities prices in different countries are subject to
different economic, financial, political and social factors. Because the Fund
may invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
securities in the Fund's portfolio and the unrealized appreciation or
depreciation of investments insofar as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand in the
foreign exchange markets. These forces are, in turn, affected by international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. In some countries there may be the
possibility of expropriation of assets, confiscatory taxation, high rate of
inflation, political or social instability or diplomatic developments which
could affect investment in those countries. In addition, certain foreign
investments may be subject to foreign withholding taxes. As a result, management
of the Fund may determine that, notwithstanding otherwise favorable investment
criteria, it may not be practicable or appropriate to invest in a particular
country.
Securities of many foreign companies are less liquid and their prices may
be more volatile than securities of comparable domestic companies. Such markets
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested so no return is earned.
Satisfactory custodial services for investment securities may not be
available in some countries having smaller capital markets, which may result in
the Fund incurring additional costs and delays in transporting and custodying
such
-8-
<PAGE>
securities outside such countries. Brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the U.S.
Investment risks are often heightened for investments in developing
countries. Economics of developing countries generally are heavily dependent
upon international trade and have been and may continue to be adversely affected
by trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade, as well as the economic conditions in the countries with
which they trade.
SMALL CAP EQUITY FUND. The Fund's investment objective is long-term growth.
The Fund seeks to achieve its objective by investing primarily in the stock of
U.S. companies with market capitalizations of $1 billion or less (small cap),
which are believed to be undervalued and have good prospects for capital
appreciation. During normal market conditions, at least 65% of the Fund's total
assets will be invested in the equity securities of companies considered to be
small cap at the time of initial purchase.
The Fund invests primarily in small capitalization companies using a value
approach. This approach entails finding companies whose current stock prices (i)
are believed not to reflect adequately their underlying value as measured by
business prospects; and (ii) are low in relation to current earnings, cash flow
or business franchises, and which, in the Fund adviser's opinion, seem capable
of recovering from any out-of-favor considerations. Companies with a market
capitalization of $1 billion or less may offer greater potential for capital
appreciation since they are often overlooked or undervalued by investors.
Because of their size, small cap stocks are less actively followed by stock
analysts and less information is available on which to base stock price
evaluations. As a result, greater discrepancies often exist between the current
stock price and its estimated underlying value, and may present greater
opportunity for long-term capital growth.
The Fund's adviser relies on its proprietary research to identify
undervalued, small cap stocks before their value is recognized by the investment
community. Stocks will be selected when the adviser believes (1) the current
stock price is undervalued in relation to current earnings, cash flow or
estimated asset value per share; and (2) the potential for a catalyst exists
(such as improved business prospects, increased investor attention, asset sales
or a change in management), which will cause the stock's price to increase to
reflect the company's underlying value.
The Fund's holdings generally will be traded in established
over-the-counter markets, but assets may also be invested in securities listed
on a national or regional securities exchange. The Fund's adviser expects that a
majority of Fund investments will be in U.S. based companies; however, from time
to time, the Fund may invest up to 20% of its total assets in securities
principally traded in markets outside the United States, if they meet the Fund's
investment criteria. Under normal circumstances, investments in foreign
securities will comprise no more than 10% of portfolio assets. While investments
in foreign securities are intended to reduce risk by providing further
diversification, such investments involve certain risks not involved in domestic
investment. The risks are discussed under "International Equity Fund" above.
While the Fund primarily invests in common stocks, it may, for temporary
defensive purposes, invest in reserves without limitation. Reserves in which the
Fund may invest are cash or short-term cash equivalents, including Treasury
obligations, direct obligations of federal agencies, and high quality, private
sector short-term instruments. The Fund may also establish and maintain reserves
as the adviser believes is advisable to facilitate the Fund's cash flow needs
(e.g., redemptions, expenses, and purchases of portfolio securities). The Fund's
reserves will be invested in domestic and foreign money market instruments rated
within the top two credit categories by a national rating organization or, if
unrated, of comparable quality. When the Fund maintains a temporary defensive
position, it may not achieve its investment objective.
RISKS. Higher risks are often associated with investment in the securities
of small capitalization companies. Among the reasons for the greater price
volatility of these securities are the less certain growth prospects of smaller
firms, a lower degree of liquidity in the markets for such stocks compared to
larger capitalization stocks, and the greater sensitivity of small companies to
changing economic conditions. Also, small company stocks may, to a degree,
fluctuate
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independently of larger company stocks. Small company stocks may decline in
price as large company stock prices rise, or rise in price as large company
stock prices decline. Investors should therefore expect that the value of the
Fund's shares may be more volatile than the shares of a fund that invests in
larger capitalization stocks.
FIXED INCOME FUND. The Fixed Income Fund's investment objective is maximum
current income, with a secondary objective of growth. The Fund seeks its
objective by investing, under normal circumstances, at least 65% of its assets
in a diversified portfolio of fixed income securities.
The Fund may invest in income-producing securities of all types, including
bonds, notes, mortgage and mortgage-backed securities, corporate debt
securities, commercial paper, government and government agency obligations, zero
coupon securities, convertible securities, bank certificates of deposit, fixed
time deposits and bankers' acceptances, foreign securities, indexed securities,
asset-backed securities, and inverse floater securities. The Fund normally will
invest in investment-grade debt securities (including convertible securities) or
unrated securities determined by the investment adviser to be of comparable
quality. Investment grade securities have a rating of Baa or better as
determined by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Ratings Group, or are of comparable quality. These are the
highest ratings or categories as defined by Moody's and S&P.
The Fund will buy securities perceived by the investment adviser to be
undervalued and to present an opportunity for yield enhancement and capital
appreciation or stability.
The Fund will not invest more than 25% of its total assets in
mortgage-related securities not guaranteed by the U.S. Government or by agencies
or instrumentalities of the U.S. Government. The Fund has no restriction on
maturity; however, it normally invests in a broad range of maturities and
generally maintains a dollar-weighted average maturity of 7 to 12 years. The
average maturity of the Fund's investments will vary depending on market
conditions. In making investment decisions for the Fund, the adviser will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. The adviser will monitor the Fund's investment in particular
securities or in types of debt securities in response to its appraisal of
changing economic conditions and trends, and may sell securities in anticipation
of a market decline or purchase securities in anticipation of a market rise.
RISKS. The market value of fixed-income securities will change in response
to interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the credit rating of any fixed-income security
and in the ability of an issuer to make payments of interest and principal also
affect the value of these investments. Changes in the value of portfolio
securities will not necessarily affect cash income derived from those securities
but will affect the net asset value of the Portfolio's shares.
The Fund may invest in mortgage-backed, asset-backed and mortgage
pass-through securities. Early repayment of principal on some mortgage-related
securities may expose the Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, the value of the premium would be lost in the event of prepayment. The
value of some mortgage-or asset-backed securities in which the Funds invest may
be sensitive to changes in prevailing interest rates, and, like the other
investments of the Fund, the ability of the Fund to successfully utilize these
instruments may depend in part upon the ability of the investment adviser to
forecast interest rates and other economic factors correctly. Like other fixed
income securities, when interest rates rise, the value of a mortgage-related
security generally will decline; however, when interest rates are declining, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed income securities.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was
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anticipated at the time of purchase. To the extent that unanticipated rates of
prepayment on underlying mortgages increase the effective maturity of a
mortgage-related security, the volatility of such security can be expected to
increase.
Commercial mortgage-backed securities reflect an interest in, and are
secured by, mortgage loans on commercial real property. Many of the risks of
investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
include the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage- or asset-backed securities.
Debt securities that are rated Baa by Moody's or BBB by S&P, or, if
unrated, are of comparable quality, may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher rated debt securities.
LARGE CAP EQUITY FUND. The Fund's investment objective is long-term total
return. The Fund seeks to achieve its objective by investing primarily in the
common stock of U.S. companies with market capitalizations greater than $5
billion (large cap). During normal market conditions, at least 90% of the Fund's
total assets will be invested in the equity securities of companies considered
to be large cap at the time of initial purchase. The Fund's holdings generally
will be listed on a national or regional securities exchange, but assets may
also be invested in securities traded in established over-the-counter markets.
The Fund invests primarily in large capitalization companies using a
relative value approach. This approach entails finding companies whose current
stock prices are believed not to reflect adequately their underlying value,
measured by the companies' price-to-earnings ratios as compared to the S&P 500
over a long period of time.
The Fund's adviser relies on its proprietary research to identify
undervalued, large cap stocks before their value is recognized by the investment
community. Stocks will be selected when the adviser believes (1) the current
stock price is undervalued in relation to the relative price-to-earnings ratio
range; and (2) the potential for a catalyst exists (such as accelerated
earnings-per-share growth or expanding price-to-earnings ratios), which will
cause the stock's price to increase to reflect the company's underlying value.
Fund portfolio will be sold when they reach analysts' relative
price-to-earnings ratio ranges and earning-per-share expectations. Stocks also
are sold when company fundamentals deteriorate or when a combination of
underperformance relative to its index, downward earnings revisions or negative
earnings occur.
While the Fund primarily invests in common stocks, it may, for temporary
defensive purposes, invest in reserves without limitation. Reserves in which the
Fund may invest are cash or short-term cash equivalents, including Treasury
obligations, direct obligations of federal agencies, and high quality, private
sector short-term instruments. The Fund may also establish and maintain reserves
as the adviser believes is advisable to facilitate the Fund's cash flow needs
(e.g., redemptions, expenses, and purchases of portfolio securities). The Fund's
reserves will be invested in domestic and foreign money market instruments rated
within the top two credit categories by a national rating organization or, if
unrated, of comparable quality. When the Fund maintains a temporary defensive
position, it may not achieve its investment objective.
RISKS. Stock prices do fluctuate, and the value of your investment in the
Fund will go up and down, which means that you could lose money. Further,
different types of stocks will shift in and out of favor depending on market and
economic conditions, so the Fund's performance may sometimes be lower or higher
than that of other types of funds (such as those emphasizing growth stocks).
While there is the risk that a value stock may never reach what the investment
adviser believes is its full value, or may even go down in value, the Fund's
emphasis on large company value stocks could potentially limit the downside risk
of the Fund, because value stocks in theory are already underpriced and large
company stocks tend to be less volatile than small company stocks. In the long
run, the Fund may produce more modest gains than riskier stock funds as a
trade-off for this potentially lower risk.
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SPECIAL EQUITY FUND. The Fund's investment objective is high total return.
The Fund seeks to achieve its objective by investing primarily in the common
stock of U.S. companies with market capitalizations greater than $5 billion
(large cap). During normal market conditions, at least 90% of the Fund's total
assets will be invested in a select portfolio of the equity securities of 10 to
20 companies considered to be large cap at the time of initial purchase. The
Fund's holdings generally will be listed on a national or regional securities
exchange, but assets may also be invested in securities traded in established
over-the-counter markets. Since the Fund's portfolio is limited to a highly
select group of stocks, the Fund may at times be concentrated (25% or more of
its assets) in one industry or a group of industries.
The Fund invests primarily in large capitalization companies using a
relative value approach. This approach entails finding companies whose current
stock prices are believed not to reflect adequately their underlying value,
measured by the companies' price-to-earnings ratios as compared to the S&P 500.
The Fund selects stocks to create a portfolio designed to attempt to produce
returns that are substantially higher than the S&P 500.
The Fund's adviser relies on its proprietary research to identify
undervalued, large cap stocks before their value is recognized by the investment
community. Stocks will be selected when the adviser believes (1) the current
stock price is undervalued in relation to the relative price-to-earnings ratio,
and (2) the potential for a catalyst exists (such as earnings announcements,
earnings revisions, near-term economic or political changes affecting an
industry and other industry conditions), which will cause the stock's price to
increase to reflect the company's underlying value.
The adviser will sell a stock to make room for one with a higher potential
for appreciation; when a stock is not meeting near-term objectives or when a
stock's near-term objectives are met.
Since the Fund's investment objective is high total return, returns are
expected to be short-term, and portfolio turnover is expected to exceed 200%
annually. High portfolio turnover may result in additional transaction costs
(such as brokerage commissions), which are borne by the Fund. High portfolio
turnover may also have adverse tax effects, such as more dividends from net
investment income, which will result in more ordinary income to shareholders,
rather than capital gain.
While the Fund primarily invests in common stocks, it may, for temporary
defensive purposes, invest in reserves without limitation. Reserves in which the
Fund may invest are cash or short-term cash equivalents, including Treasury
obligations, direct obligations of federal agencies, and high quality, private
sector short-term instruments. The Fund may also establish and maintain reserves
as the adviser believes is advisable to facilitate the Fund's cash flow needs
(e.g., redemptions, expenses, and purchases of portfolio securities). The Fund's
reserves will be invested in domestic and foreign money market instruments rated
within the top two credit categories by a national rating organization or, if
unrated, of comparable quality. When the Fund maintains a temporary defensive
position, it may not achieve its investment objective.
RISKS. Stock prices do fluctuate, and the value of your investment in the
Fund will go up and down, which means that you could lose money. Further,
different types of stocks tend to shift in and out of favor depending on market
and economic conditions, so that Fund's performance may sometimes be lower or
higher than that of other types of funds (such as those emphasizing growth
stocks). While there is the risk that a value stock may never reach what the
investment adviser believes is its full value, or may even go down in value, the
Fund's emphasis on large company value stocks could potentially limit the
downside risk of the Fund, because value stocks in theory are already
underpriced and large company stocks tend to be less volatile than small company
stocks. In the long run, the Fund may produce more modest gains than riskier
stock funds as a trade-off for this potentially lower risk.
In seeking to achieve its investment objective, the Fund limits its
portfolio to a select group of securities. The Fund may, therefore, become
concentrated (25% or more of its assets) in one industry or industries. A fund
with concentrated investments may be more at risk for loss than a fund with a
more diversified portfolio.
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MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
The investment adviser for the Funds is 1838 Investment Advisors, Inc.,
(formerly 1838 Investment Advisors, L.P.), a direct, wholly-owned subsidiary of
MBIA, Inc., and an investment adviser registered under the Investment Advisers
Act of 1940. The investment adviser's offices are located at Five Radnor
Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087. The
investment adviser supervises the investment of the assets of each Fund in
accordance with its objective, policies and restrictions. Taking predecessor
firms into account, the investment adviser has over 10 years of investment
advisory experience, including management of the Funds, institutional investment
accounts, and investment accounts of high net-worth individuals.
For its services, the investment adviser is paid an annual fee on a monthly
basis as a percentage of the average daily net assets of the applicable Fund:
International Equity Fund 0.75%
Small Cap Equity Fund 0.75%
Fixed Income Fund 0.50%
Large Cap Equity Fund 0.60%
Special Equity Fund 1.00%
The investment adviser voluntarily has agreed to waive its fee to meet the
expense cap for each respective Fund as set forth under "Expenses of the Funds."
Johannes B. van den Berg, Managing Director with the investment adviser, is
principally responsible for the day- to-day management of the International
Equity Fund's portfolio. Mr. van den Berg has acted as portfolio manager of this
Fund since its inception. From 1993 to 1998, Mr. van den Berg was a principal of
1838 Investment Advisors, L.P. (the predecessor of the investment adviser), a
director of MeesPierson 1838 Investment Advisors (an indirect predecessor of the
investment predecessor of the investment adviser).
Edwin B. Powell, Managing Director with the investment adviser, is
principally responsible for the day-to-day management of the Small Cap Equity
Fund's portfolio. Since June of 1994, Mr. Powell has served as a money manager
with the investment adviser, managing a number of separate portfolios in the
small cap style. Prior to joining the investment adviser, Mr. Powell was
employed by Provident Capital Management (a subsidiary of PNC Bancorp) where for
seven years he managed a number of large and small cap portfolios in a value
style. While at Provident Capital Management, Mr. Powell managed two publicly
traded, open-end mutual funds: PNC Value Fund and PNC Small Cap Value Fund.
Clifford D. Corso, Managing Director and Head of Fixed Income Trading with
the investment adviser, is principally responsible for the day-to-day management
of the Fixed Income Fund's portfolio. Mr. Corso has acted as portfolio manager
for this Fund since August 1, 1998. Mr. Corso currently is Vice President and
Senior Portfolio Manager at MBIA Capital Management Corp. (since 1994). From
1992 to 1994, Mr. Corso was Vice President and Co- head of Fixed Income Trading
at Shields Alliance.
The Large Cap Equity and Special Equity Funds are managed day-to-day by the
same team of persons. Each person generally is responsible for overseeing one or
more specific investment strategies for these Funds. The portfolio management
team for these Funds is as follows:
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George W. Gephart, Jr., Senior Managing Director with the investment
adviser. Mr. Gephart was a Principal of the adviser's predecessor firm from 1988
to 1998. He specializes in the management of equity securities.
Robert W. Herz, Director with the investment adviser. Mr. Herz specializes
in equity securities and was an Equity Analyst with the adviser's predecessor
firm from 1989 to 1998.
James E. Moore, III, Director with the investment adviser. Mr. Moore
specializes in equity securities and was an equity portfolio manager with the
adviser's predecessor firm from 1994 to 1998. During 1993, Mr. Moore was an
intern at Taylor Investments, New London, NH.
Patricia J. Pierce, Director with the investment adviser. Ms. Pierce was a
Principal of the adviser's predecessor firm from 1988 to 1998. She specializes
in the management of equity securities.
INVESTMENT ADVISER'S HISTORICAL PERFORMANCE
Below are certain performance data provided by the investment adviser
pertaining to the composite of separately managed accounts of the investment
adviser that are managed with substantially similar (although not necessarily
identical) objectives, policies and strategies as those of the Large Cap Equity
Fund and Special Equity Fund, respectively. The performance data for the managed
accounts is net of all fees and expenses. The investment returns of the Large
Cap Equity and Special Equity Funds may differ from those of the separately
managed accounts because such separately managed accounts may have fees and
expenses that differ from those of the Funds. Further, the separately managed
accounts are not subject to investment limitations, diversification requirements
and other restrictions imposed by the Investment Company Act of 1940 and
Internal Revenue Code; such conditions, if applicable, may have lowered the
returns for separately managed accounts. The results presented are not intended
to predict or suggest the return to be experienced by the Large Cap Equity or
Special Equity Funds, or the return an investor might achieve by investing in
either Fund.
1838 INVESTMENT ADVISORS INC. - LARGE CAP EQUITY COMPOSITE
(Unaudited Percentage Returns Net of Management Fees)
1838 INVESTMENT S&P 500
ADVISORS INDEX
-------- -----
One year period through: 9/30/89 28.48% 32.73%
- ----------------------- 9/30/90 -7.73% -9.38%
9/30/91 33.80% 31.29%
9/30/92 10.15% 11.01%
9/30/93 15.46% 13.01%
9/30/94 4.25% 3.66%
9/30/95 23.95% 29.81%
9/30/96 22.22% 20.39%
9/30/97 37.31% 40.67%
9/30/98 15.03% 9.15%
Value of $1 during 10 years
(10/1/88-9/30/98) $5.03 $4.93
10 year mean 18.29% 18.23%
Cumulative 403.20% 392.74%
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1838 INVESTMENT S&P 500
ADVISORS INDEX
-------- -----
Annualized returns
1 Year 15.03% 9.15%
3 Year 24.51% 22.73%
5 Year 20.06% 19.99%
8 Year 19.81% 19.28%
10 Year 17.54% 17.29%
1838 INVESTMENT ADVISORS INC. - SPECIAL EQUITY COMPOSITE
(Unaudited Percentage Returns Net of Management Fees)
1838 INVESTMENT S&P 500
ADVISORS INDEX
-------- -----
4/1/96-9/30/98 22.76% 7.76%
One year period through: 9/30/97 47.47% 40.67%
- ----------------------- 9/30/98 24.05% 9.15%
2 year, 6 month annualized 38.21% 22.31%
Value of $1 invested during
2 years, six months (4/1/96-
9/30/98) $2.25 $1.65
2 year, 6 month mean 37.71% 23.03%
Cumulative 124.58% 65.45%
Notes:
1. The ANNUALIZED RETURN is calculated from monthly data, allowing for
compounding. The formula used is in accordance with the acceptable methods
set forth by the Bank Administration Institute and the Investment Counsel
Association of America. Market Value of the account was the sum of the
account's total assets, including cash, cash equivalents, short term
investments, and securities valued at current market prices.
2. The CUMULATIVE RETURN means that $1 invested in the composite account on
10/1/88 had grown to $5.03 by 9/30/98 for the Large Cap Equity Composite;
and $1 invested on 4/1/96 had grown to $2.25 by 9/30/98 for the Special
Equity Composite.
3. The Large Cap Equity 10 YEAR MEAN, and the Special Equity 2 YEAR, 6 MONTH
MEAN is the arithmetic average of the annual returns for the years listed,
for each respective composite.
4. The S&P 500 is an unmanaged index which assumes reinvestment of dividends
and is generally considered representative of securities similar to those
invested in by the investment adviser for the purpose of the composite
performance numbers set forth above.
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<PAGE>
5. The investment adviser's average annual management fee for Large Cap Equity
accounts over the periods shown was .45% or 45 basis points. During the
periods presented, fees on the investment adviser's individual accounts of
this type ranged from .35% to .60% (35 basis points to 60 basis points).
The investment adviser's average annual management fee for Special Equity
accounts over the periods shown was .65% or 65 basis points. During the
periods presented, fees on the investment adviser's individual accounts of
this type ranged from .60% to 1.0% (60 basis points to 100 basis points).
Net returns to investors vary depending on the management fee.
CALCULATION OF NET ASSET VALUE
The net asset value per share of each Fund is determined as of the close of
regular trading on each day that the New York Stock Exchange ("Exchange") is
open for unrestricted trading from Monday through Friday, and on which there is
a purchase or redemption of a Fund's shares. The net asset value is determined
by dividing the value of a Fund's securities, plus any cash and other assets,
less all liabilities, by the number of shares outstanding. Expenses and fees of
a Fund, including the advisory and administration fees, are accrued daily and
taken into account for the purpose of determining the net asset value.
In valuing each Fund's net assets, all securities for which representative
market quotations are available will be 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. 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. In determining fair value, the
Trustees may employ an independent pricing service.
Money market securities with less than sixty days remaining to maturity
when acquired by a Fund will be valued on an amortized cost basis by the Fund,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If a Fund acquires a money
market security with more than sixty days remaining to its maturity, it will be
valued at current market value until the 60th day prior to maturity, and will
then be valued on an amortized cost basis based upon the value on such date
unless the Trustees determine during such 60-day period that this amortized cost
value does not represent fair market value.
Those securities that are quoted in foreign currency will be valued daily
in U.S. dollars at the foreign currency exchange rates prevailing at the time a
Fund calculates the daily net asset value per share. Although each Fund values
its assets in U.S. dollars on a daily basis, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis.
HOW TO PURCHASE SHARES
Shares of each Fund are offered through the Fund's distributor, and may be
purchased at the net asset value next determined after receipt of a purchase
order in proper form by the distributor. Brokers and other intermediaries are
also authorized to accept purchase orders on behalf of the Funds. The Funds and
the distributor reserve the right to reject any purchase order, and a Fund and
the distributor may suspend the offering of any Fund's shares. The minimum
initial investment is $1,000, with no minimum subsequent investment. Each Fund
reserves the right to vary the initial and subsequent investment minimums at any
time. Shares of each Fund are available for use in certain tax-deferred plans
(such as Individual Retirement Accounts ("IRAs"), defined contribution, 401(k)
and 403(b)(7) plans). There is no minimum investment requirement for qualified
retirement plans.
Purchase orders for shares of a Fund which are received and accepted by the
Fund's distributor prior to the close of regular trading hours on the New York
Stock Exchange (generally 4:00 p.m. Eastern time) on any day that the Fund
calculates its net asset value, are priced according to the net asset value
determined on that day. Purchase orders received and accepted by the distributor
after the close of the Exchange on a particular day are priced as of the time
the net asset value per share is next determined.
Purchases may be made in one of the following ways:
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PURCHASES BY MAIL
You may purchase shares by sending a check drawn on a U.S. bank payable to
the Fund of your choice, along with a completed application (located at the back
of this Prospectus), to 1838 Investment Advisors Funds, c/o Declaration Service
Company, P.O. Box 844, Conshohocken, PA 19428. A purchase order sent by
overnight mail should be sent to 1838 Investment Advisors Funds, c/o Declaration
Service Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428. If a
subsequent investment is being made, the check should also indicate your Fund
account number.
When you purchase by check, payment on share redemptions will be mailed
upon clearance of the check (which may take up to 15 days). If you purchase
shares with a check that does not clear, your purchase will be canceled and you
will be responsible for any losses or fees incurred in that transaction.
PURCHASES BY WIRE
You may purchase shares by wiring federal funds. To advise the Trust of the
wire, and initially to obtain an account number, you must telephone Declaration
Service Company at (800) 884-1838. Once you have an account number, instruct
your bank to wire federal funds to:
Declaration Service Company
C/O CoreStates Bank, N.A.
Philadelphia, PA
ABA # 031000011
ATTENTION: [FUND NAME]
DDA # 1420560674
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
If you make an initial purchase by wire, you must promptly forward a
completed Application to Declaration at the address stated above under
"Purchases By Mail." Investors should be aware that some banks may impose a wire
service fee.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares of a Fund through an Automatic Investment
Plan (the "Plan"). The Plan provides a convenient method by which investors may
have monies deducted directly from their checking, savings or bank money market
accounts for investment in the Fund. Under the Plan, Declaration, at regular
intervals, will automatically debit a shareholder's bank checking account in an
amount of $50 or more (subsequent to the $1,000 minimum initial investment), as
specified by the shareholder. A shareholder may elect to invest the specified
amount monthly, bimonthly, quarterly, semi-annually or annually. The purchase of
a Fund's shares will be effected at the net asset value at the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on or
about the 20th day of the month. To obtain an Application for the Automatic
Investment Plan, check the appropriate box of the Application at the end of this
Prospectus or call Declaration at (800) 884-1838.
INDIVIDUAL RETIREMENT ACCOUNTS
Application forms and brochures for IRAs can be obtained from Declaration
by calling (800) 884-1838.
The IRA custodian receives an annual fee of $10.00 per account, which fee
is paid directly to the custodian by the IRA shareholder. If the fee is not paid
by the date due, shares of the Fund held in the IRA account will be redeemed
automatically for purposes of making the payment.
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<PAGE>
EXCHANGE OF SHARES
You may exchange all or a portion of your Fund shares for shares of any of
the other Funds in the 1838 Investment Advisors Funds' complex that currently
offer shares to investors. Shares of a Fund are available only in states in
which such shares may be lawfully sold.
A redemption of shares through an exchange will be effected at the net
asset value per share next determined after receipt by Declaration of the
request, and a purchase of shares through an exchange will be effected at the
net asset value per share determined at that time. Exchange transactions will be
subject to the minimum initial investment and other requirements of the Fund
into which the exchange is made. An exchange may not be made if the exchange
would leave a balance in a shareholder's account of less than $1,000.
To obtain more information about exchanges, or to place exchange orders,
contact Declaration at (800) 884- 1838. The Trust reserves the right to
terminate or modify the exchange offer described here and will give shareholders
sixty days' notice of such termination or modification as required by the
Securities and Exchange Commission.
HOW TO REDEEM SHARES
Shareholders may redeem their Fund shares without charge on any day that
the Fund calculates its net asset value (see "Calculation of Net Asset Value").
Brokers and other intermediaries also are authorized to accept redemption
requests on behalf of the Funds. Redemptions will be effective at the net asset
value per share next determined after receipt and acceptance by Declaration of a
redemption request meeting the requirements described below. Redemption proceeds
are normally sent on the next business day following receipt and acceptance by
Declaration of the redemption request but, in any event, redemption proceeds are
sent within seven calendar days of receipt and acceptance of the request.
Redemption requests should be accompanied by the Fund's name and your account
number. Corporations, other organizations, trusts, fiduciaries and other
institutional investors may be required to furnish certain additional
documentation to authorize redemptions.
Each Fund will honor redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds until reasonably
satisfied that the purchase check has cleared, which may take up to fifteen days
from the purchase date, at which time the redemption proceeds will be mailed to
the shareholder.
Except as noted below, redemption requests received and accepted by
Declaration prior to the close of regular trading hours on the Exchange on any
business day that a Fund calculates its per share net asset value are effective
that day. Redemption requests received and accepted by Declaration after the
close of the Exchange are effective as of the time the net asset value per share
is next determined.
IN-KIND REDEMPTION
Each Fund will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of the investment
adviser or the Board of Trustees, result in the necessity of a Fund selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Fund.
The Trust has the authority to pay for shares redeemed either in cash or
in-kind, or partly in cash and partly in-kind. However, the Trust will redeem
its shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of a Fund, during any 90-day period for any one shareholder. Payments in
excess of this limit also will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a payment
detrimental to the best interests of a Fund. Any portfolio securities paid or
distributed in-kind would be valued as described under "Calculation of Net Asset
Value."
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In the event that an in-kind distribution is made, a shareholder may incur
additional expenses, such as the payment of brokerage commissions, on the sale
or other disposition of the securities received from a Fund. In-kind payments
need not constitute a cross-section of a Fund's portfolio. When a shareholder
has requested redemption of all or a part of the shareholder's investment, and
the a Fund completes a redemption in-kind, such Fund will not recognize gain or
loss for federal tax purposes, on the securities used to complete the redemption
but the shareholder will recognize gain or loss equal to the difference between
the fair market value of the securities received and the shareholder's basis in
the Fund shares redeemed.
Shares may be redeemed in one of the following ways:
REDEMPTION BY MAIL
Shareholders redeeming their shares by mail should submit written
instructions with a guarantee of their signature by an "eligible guarantor
institution." Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
signature and a signature guarantee are required for each person in whose name
the account is registered.
Written redemption instructions should be submitted to 1838 Investment
Advisors Funds, c/o Declaration Service Company, P.O. Box 844, Conshohocken, PA
19428. A redemption order sent by overnight mail should be sent to 1838
Investment Advisors Funds, c/o Declaration, 555 North Lane, Suite 6160,
Conshohocken, PA 19428.
REDEMPTION BY TELEPHONE
Shareholders who prefer to redeem their shares by telephone must apply in
writing for telephone redemption privileges. For an Application for Telephone
Redemptions, check the appropriate box on the Application or call Declaration at
(800) 884-1838. The Application for Telephone Redemptions describes the
telephone redemption procedures in more detail and requires certain information
that will be used to identify the shareholder when a telephone redemption
request is made.
Neither the Funds nor their service contractors will be liable for any loss
or expense in acting upon any telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions are
genuine, each Fund will use procedures considered reasonable, including
requesting a shareholder to correctly state his or her Fund account number, the
name in which his or her account is registered, the number of shares to be
redeemed and certain other information necessary to identify you as the
shareholder. To the extent that a Fund fails to use reasonable procedures to
verify the genuineness of telephone instructions, it and/or its service
contractors may be liable for any instructions that prove to be fraudulent or
unauthorized.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to use. In the event that you are unable
to reach Declaration by telephone, you may make a redemption request by mail.
The Funds and Declaration reserve the right to refuse a wire or telephone
redemption if it is believed advisable to do so. Procedures for redeeming Fund
shares by wire or telephone may be modified or terminated at any time by the
Trust.
REDEMPTIONS BY WIRE
Redemption proceeds may be wired to your predesignated bank account at any
commercial bank in the United States if the amount is $1,000 or more. The
receiving bank may charge a fee for this service. Amounts redeemed by wire
normally are wired on the next business day after receipt and acceptance of
redemption instructions (if received before the close of regular trading on the
Exchange), but in no event later than seven days following such receipt and
acceptance.
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SYSTEMATIC WITHDRAWAL PLAN
Shareholders who own shares with a value of $10,000 or more may participate
in the Systematic Withdrawal Plan. For an Application for the Systematic
Withdrawal Plan, check the appropriate box on the Application or call
Declaration at (800) 884-1838. Under the Plan, shareholders may automatically
redeem a portion of their Fund shares monthly, bimonthly, quarterly,
semi-annually or annually. The minimum withdrawal available is $100. The
redemption of Fund shares will be effected at their net asset value at the close
of the Exchange on or about the 25th day of the month. If you expect to purchase
additional Fund shares, it may not be to your advantage to participate in the
Systematic Withdrawal Plan because contemporaneous purchases and redemptions may
result in adverse tax consequences.
ADDITIONAL REDEMPTION INFORMATION
Redemption proceeds may be mailed to your bank or, for amounts of $10,000
or less, mailed to your Fund account address of record if the address has been
established for a minimum of 60 days. In order to authorize a Fund to mail
redemption proceeds to your Fund account address of record, complete the
appropriate section of the Application for Telephone Redemptions or include your
Fund account address of record when you submit written instructions. You may
change the account which you have designated to receive amounts redeemed at any
time. Any request to change the account designated to receive redemption
proceeds should be accompanied by a guarantee of the shareholder's signature by
an eligible guarantor institution. Further documentation will be required to
change the designated account when shares are held by a corporation, other
organization, trust, fiduciary or other institutional investor.
Each Fund also reserves the right to involuntarily redeem an investor's
account where the account is worth less than the minimum initial investment
required when the account is established, presently $1,000. (Any redemption of
shares from an inactive account established with a minimum investment may reduce
the account below the minimum initial investment, and could subject the account
to redemption initiated by the Fund). A Fund will advise the shareholder of such
intention in writing at least sixty (60) days prior to effecting such
redemption, during which time the shareholder may purchase additional shares in
any amount necessary to bring the account back to $1,000. If the value of an
investor's account falls below the minimum initial investment requirement due to
market fluctuations, the fund will not redeem an investor's account except
pursuant to the instructions of the shareholder.
For more information on redemption services, contact Declaration.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The International Equity, Small Cap Equity, Large Cap Equity and Special
Equity Funds will declare and pay dividends annually to their shareholders of
substantially all of their net investment income, if any, earned during the year
from their investments. The Fixed Income Fund will declare and pay dividends
quarterly to its shareholders of substantially all of its net investment income,
if any, earned during each quarter from its investments. A Fund will distribute
net realized capital gains, if any, once each fiscal year. Expenses of each
Fund, including the advisory fee, are accrued each day. Reinvestments of
dividends and distributions in additional shares of each Fund will be made at
the net asset value determined on the record date of the dividend or
distribution unless the shareholder has elected in writing to receive dividends
or distributions in cash. An election may be changed by notifying Declaration in
writing thirty days prior to the record date.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains. Dividends from net investment income or net
short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. A Fund with a high portfolio turnover
rate, such as the Special Equity Fund, may have significantly more dividends
from net investment income, which will result in more ordinary income to
shareholders, rather than capital gain. For corporate investors, dividends from
net investment income will generally qualify in part for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by a Fund from
domestic (U.S.) sources.
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Distributions paid by a Fund from long-term capital gains, whether received
in cash or in additional shares, are taxable to those investors subject to
income tax as long-term capital gains, regardless of the length of time an
investor has owned shares in the Fund. A Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
byproduct of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Dividends which are declared in October, November or December to
shareholders of record in such a month but which, for operational reasons, may
not be paid to the shareholder until the following January, will be treated for
tax purposes as if paid by each Fund and received by the shareholder on December
31 of the calendar year in which they are declared.
A sale of shares or exchange of shares between two mutual funds, or a
redemption of Fund shares, is a taxable event and may result in a capital gain
or loss to shareholders subject to tax. The capital gain or loss will be
short-term capital gain or loss if shares were held for one year or less, and
long-term capital gain if shares were held more than one year. The ability of a
shareholder to deduct capital losses on the sale or redemption of a Fund's
shares may be limited to the amount of capital losses (plus $3,000 for
non-corporate shareholders). Any loss incurred on sale or exchange of a Fund's
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of a
Fund at the end of its fiscal year are invested in securities of foreign
corporations, a Fund may elect to pass-through to its shareholders their pro
rata share of foreign taxes paid by such Fund. If this election is made,
shareholders will be (i) required to include in their gross income their pro
rata share of foreign source income (including any foreign taxes paid by the
Fund), and (ii) entitled to either deduct (as an itemized deduction in the case
of individuals) their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code. Shareholders will be informed by
each Fund at the end of each calendar year regarding the availability of any
credits and the amount of foreign source income (including any foreign taxes
paid by the Fund) to be included on their income tax returns.
Under Code Section 988, foreign currency gains or losses, including those
from forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options, will generally be treated as ordinary
income or loss. Such Code Section 988 gains or losses will increase or decrease
the amount of a Fund's investment company taxable income available to be
distributed to shareholders as ordinary income. If Code Section 988 losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions, and any
distributions made before the losses were realized but in the same taxable year,
would be recharacterized as a return of capital to shareholders, thereby
reducing each shareholder's basis in Fund shares.
Each year, each Fund will mail information to shareholders on the tax
status of the Fund's dividends and distributions. Each Fund is required to
withhold 31% of taxable dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with Internal Revenue Service
taxpayer identification regulations. You may avoid this withholding requirement
by certifying on your account registration form your proper taxpayer
identification number and by certifying that you are not subject to backup
withholding.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. It is recommended that shareholders consult their
tax advisers regarding specific questions as to federal, state, local or foreign
taxes. The tax discussion set forth above is included for general information
only, prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Fund.
Additional information on tax matters relating to the Funds and to shareholders
is included in the Statement of Additional Information.
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Year 2000
The services provided to the Funds and their shareholders by the investment
adviser, the distributor, Declaration and the custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no adverse
impact on the Funds, the investment adviser, the distributor, Declaration, and
the custodian have advised the Funds that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will be
adapted in time for that event.
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PROSPECTUS BACK COVER
This Prospectus sets forth concisely the information that a prospective
investor should know before investing. Investors should read and retain this
Prospectus for future reference. More information about each Fund has been filed
with the Securities and Exchange Commission ("SEC"), and is contained in a
"Statement of Additional Information" for 1838 Investment Advisors Funds. The
Statement of Additional Information is incorporated herein by reference.
Additional information about each Fund's investments is also available in
the Fund's Annual and Semi-Annual Reports to shareholders. In the Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance during the last fiscal year.
Your questions, including requests for the Statement of Additional
Information and/or a Fund's Annual and Semi-Annual Report to shareholders, may
be directed to Declaration Services Company at 1-800-844-1838.
You may also review and copy information about the Funds (including the
Statement of Additional Information) at the SEC's Public Reference Room in
Washington, D.C. Call the SEC at 1-800-SEC-0330 for the hours of operation of
the Public Reference Room.
Reports and other information about the Funds are available on the SEC's
internet site at http://www.sec.gov. Copies of this information may be obtained
for a duplicating fee by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SEC File No. 811-8902
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1838 INVESTMENT ADVISORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION DATED _________
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Five Radnor Corporate Center, Suite 320, 100 Matsonford Road, Radnor, PA 19087
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1838 Investment Advisors Funds (the "Trust") has established five funds:
1838 International Equity Fund, 1838 Small Cap Equity Fund, 1838 Fixed Income
Fund, 1838 Large Cap Equity Fund, and 1838 Special Equity Fund, each with its
own investment objective. Information concerning each Fund is included in the
Trust's Prospectus dated , 1998. No investment in shares should be made without
first reading the Prospectus. A copy of the Prospectus may be obtained without
charge from Declaration Distributors, Inc., 555 North Lane, Suite 6160,
Conshohocken, PA 19428, (800) 884-1838.
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONNECTION WITH THE TRUST'S CURRENT PROSPECTUS DATED , 1998. RETAIN
THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
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<PAGE>
TABLE OF CONTENTS
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PAGE
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THE TRUST......................................................................3
INVESTMENT STRATEGIES, POLICIES AND RISKS......................................3
MANAGEMENT OF THE TRUST.......................................................17
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................19
SHARES OF BENEFICIAL INTEREST, VOTING RIGHTS AND SHAREHOLDER MEETINGS.........20
INVESTMENT ADVISORY AND OTHER SERVICES........................................21
ALLOCATION OF PORTFOLIO BROKERAGE.............................................22
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................23
TAXATION .....................................................................24
PERFORMANCE...................................................................26
FINANCIAL STATEMENTS..........................................................28
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THE TRUST
1838 Investment Advisors Funds was organized as a Delaware series business
trust on December 9, 1994, and is a diversified open-end, management investment
company. The Trust currently offers five Funds, each with its own investment
objective.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Each Fund seeks to achieve its respective investment objective by making
investments selected in accordance with its investment policies and
restrictions. Each Fund will vary its investment strategy as described in the
Trust's Prospectus to achieve its objectives. This Statement of Additional
Information contains further information concerning the strategies and
operations of each Fund, the securities in which each may invest, and the
policies each will follow.
SECURITIES LENDING
Each Fund may lend its investment securities to approved borrowers who need
to borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, a Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. Each Fund may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, the structure and the aggregate
amount of such loans are not inconsistent with the Investment Company Act of
1940, as amended, or the rules and regulations or interpretations of the
Securities and Exchange Commission (the "SEC") thereunder, which currently
require that (a) the borrower pledge and maintain with a Fund collateral
consisting of cash, an irrevocable letter of credit issued by a bank or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by a Fund at any time, and (d) the Fund receives
reasonable interest on the loan (which may include the Fund investing any cash
collateral in interest bearing short-term investments). All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Board of Trustees.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees. In addition, voting rights may pass with
the loaned securities, but if a material event occurs affecting an investment on
a loan, the loan must be called and the securities voted.
WHEN ISSUES SECURITIES
The Small Cap Equity, Large Cap Equity and Special Equity Funds may invest
in securities whose terms and characteristics are already known but which have
not yet been issued. These are called "when-issued" or "forward delivery"
securities. "Delayed settlements" occur when a Fund agrees to buy or sell
securities at some time in the future, making no payment until the transaction
is actually completed. Such transactions are limited to no more than 25% of a
Fund's assets. The Fund engages in these types of purchases in order to buy
securities that fit with its investment objective at attractive prices -- not to
increase its investment leverage. Securities purchased on a when-issued basis
may decline or appreciate in market value prior to their actual delivery to the
Fund.
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DEPOSITARY RECEIPTS
Each Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
foreign issuers such as convertible preferred stock, convertible bonds and
warrants or rights convertible into common stock. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. If a Fund determines that other securities convertible
into foreign securities are available on the market, that Fund will notify
Shareholders before investing in such securities.
ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world which
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradable both in
the U.S. and Europe and are designed for use throughout the world. The Fund may
invest in unsponsored ADRs, EDRs and GDRs. The issuers of unsponsored ADRs, EDRs
and GDRs are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of such securities.
RESTRICTED/ILLIQUID SECURITIES
Each Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended, but can be offered
and sold to "qualified institutional buyers" under Rule 144A under that Act.
However, a Fund will not invest more than 15% of its assets in illiquid
investments, which includes securities for which there is no readily available
market, securities subject to contractual restrictions on resale, and otherwise
restricted securities, unless the Fund's Board of Trustees continuously
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Board of Trustees has determined to treat as liquid Rule
144A securities which are freely tradable in their primary markets offshore. The
Board of Trustees may adopt guidelines and delegate to the Investment Adviser
the daily function of determining and monitoring liquidity of restricted
securities. The Board of Trustees, however, will retain sufficient oversight and
be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Trustees will carefully monitor each Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in a Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
REPURCHASE AGREEMENTS AND PURCHASE AND SALE CONTRACTS
Each Fund may invest in securities pursuant to repurchase agreements or
purchase and sale contracts. Repurchase agreements may be entered into only with
a member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Under such agreements, the other party agrees, upon entering into the contract
with a Fund, to repurchase the security at a mutually agreed upon time and price
in a specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement,
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as a purchaser, a Fund will require the seller to provide additional collateral
if the market value of the securities falls below the repurchase price at any
time during the term of the repurchase agreement; such Fund does not have the
right to seek additional in the case of purchase and sale contracts. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by a Fund but only
constitute collateral for the seller's obligation to pay the repurchase price.
Therefore, a Fund may suffer time delays and incur costs or possible losses in
connection with disposition of the collateral. A purchase and sale contract
differs from a repurchase agreement in that the contract arrangements stipulate
that the securities are owned by such Fund. In the event of a default under such
a repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to a Fund would be dependent upon
intervening fluctuations of the market values of such securities and the accrued
interest on the securities. In such event, a Fund would have rights against the
seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. Repurchase
agreements and purchase and sale concepts maturing in more than sever days are
deemed illiquid by the Securities and Exchange Commission and are therefore
subject to each Fund's investment restriction limiting investments in securities
that are not readily marketable to 15% of the Fund's total assets.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities. Convertible securities are
usually preferred stock or bond issues that may be converted or exchanged by the
holder into shares of the underlying common stock at a stated exchange ratio. A
convertible security may also be subject to redemption by the issuer but only
after a particular date and under certain circumstances (including a
specified-price) established upon issue. If a convertible security held by a
Fund is called for redemption, that Fund could be required to tender it for
redemption, convert it to the underlying common stock, or sell it to a third
party.
MUNICIPAL OBLIGATIONS
The Fixed Income Fund may invest in municipal obligations. Municipal
obligations are issued to raise money for a variety of public or private
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. They may be issued in
anticipation of future revenues, and may be backed by the full taxing power of a
municipality, the revenues from a specific project, or the credit of a private
organization. The value of some or all municipal securities may be affected by
uncertainties in the municipal market related to legislation or litigation
involving the taxation of municipal securities or the rights on municipal
securities holders. The Fixed Income Fund may own a municipal security directly
or through a participation interest.
HIGH YIELD SECURITIES ("JUNK BONDS")
The Fixed Income Fund may invest in high yield securities. Investing in
high yield securities involves special risks in addition to the risks associated
with investments in higher rated fixed income securities. High yield securities
may be regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher quality debt securities, and the ability to achieve its
investment objective may, to the extent of its investments in high yield
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Fund were investing in higher quality services.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery. In the case
of high
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yield securities structured as zero coupon or payment-in-kind securities, the
market prices of such securities are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile than securities which pay
interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sale method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
investment adviser does not rely solely on credit ratings when selecting
securities for the Fund, and develops its own independent analysis of issuer
credit quality. If a credit rating agency changes the rating of a portfolio
security held by the Fund, the Fund may retain the portfolio security if the
Investment Adviser deems it in the best interest of shareholders.
HEDGING STRATEGIES
Each Fund may engage in various portfolio strategies to hedge against
adverse movements in the equity, debt and currency markets. Each Fund may buy or
sell futures contracts, write (i.e., sell) covered call and put options on its
portfolio securities, purchase put and call options on securities and engage in
transactions in related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions, the investment adviser believes that, because the
Funds will engage in options and futures transactions only for hedging purposes,
the options and futures portfolio strategies of a Fund will not subject it to
the risks frequently associated with the speculative use of options and futures
transactions. While a Fund's use of hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the Fund's net asset
value will fluctuate. There can be no assurance that a Fund's hedging
transactions will be effective. Also, a Fund may not necessarily be engaging in
hedging activities when movements in any equity, debt or currency market occur.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the Funds may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Funds may incur costs in connection with
conversions between various currencies. The Funds will conduct their foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for such trades.
The Funds may enter into forward foreign currency exchange contracts in
several circumstances. When a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when a Fund anticipates
the receipt in a foreign currency of dividends or interest payments on a
security which it holds, the Fund may desire to "lock-in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and
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the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when a Fund anticipates that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars, to sell the amount
of foreign currency approximating the value of some or all of such Fund's
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of securities in foreign currencies
will change as a consequence of market movements in the value of these
securities between the date on which the forward contract is entered into and
the date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. From time to time, each Fund may enter into
forward contracts to protect the value of portfolio securities and enhance Fund
performance. The Funds will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate such Fund to deliver an amount of foreign currency in excess of the
value of such Fund securities or other assets denominated in that currency.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may either
sell the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. A forward contract which obligates a Fund to buy or sell
currency will generally require the Trust's custodian to hold an amount of that
currency or liquid securities denominated in that currency equal to the Fund's
obligations, or to segregate liquid assets equal to the amount of the Fund's
obligation. If the value of the segregated assets declines, additional liquid
assets will be segregated on a daily basis so that the value of the segregated
assets will be equal to the amount of such Fund's commitments with respect to
such contracts.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between a Fund entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, such Fund will realize a gain
to the extent that the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
such Fund would suffer a loss to the extent that the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
Each of the Funds' dealings in forward foreign currency exchange contracts
will be limited to the transactions described above. Of course, the Funds are
not required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result
should the value of such currency increase.
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FUTURES CONTRACTS
Each Fund may enter into futures contracts for the purposes of hedging,
remaining fully invested and reducing transaction costs. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although most futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith initial margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. An initial margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish initial deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on initial margin that may range upward from less than 5% of
the value of the contract being traded. After a futures contract position is
opened, the value of the contract is marked to market daily. A second type of
deposit called variation margin is used to adjust the futures position account
for the daily marked to market variations. If the marked to market value
declines, additional deposits in cash are required to balance this decline
(variation margin). Conversely, if the marked to market value increases,
deposits in cash may be withdrawn from the account to the extent of the increase
(variation margin). Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Funds expect to earn
interest income on their initial margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require that all of its
futures transactions constitute bona fide hedging transactions or that the
Funds' commodity futures and option positions be for other purposes, to the
extent that the aggregate initial margins and premiums required to establish
such non-hedging positions do not exceed five percent of the liquidation value
of each Fund. Each Fund will only sell futures contracts to protect securities
it owns against price declines or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence of this
hedging interest, each Fund expects that approximately 75% of any futures
contracts purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
a Fund will incur commission expenses in both opening and closing out future
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
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RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS
Regulations of the Commodity Futures Trading Commission ("CFTC") applicable
to each Fund provide that the futures trading activities will not result in a
Fund being deemed a "commodity pool operator" under such regulations if the Fund
adheres to certain restrictions. In particular, a Fund may purchase and sell
futures contracts and options thereon (i) for bona fide hedging purposes, and
(ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed 5%
of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
When a Fund purchases a futures contract, or writes a put option or
purchases a call thereon, an amount of cash and liquid securities will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged. Each Fund will
not enter into futures contracts to the extent that its outstanding obligations
to purchase securities under these contracts exceed 50%, 20%, and 10% of the
total assets of the International Equity Fund, the Small Cap Equity Fund, and
the Fixed Income Fund, respectively.
OPTIONS
The Funds may purchase and sell put and call options on futures contracts
for hedging purposes. Investments in options involve some of the same
considerations that are involved in connection with investments in futures
contracts (e.g., the existence of a liquid market). In addition, the purchase of
an option also entails the risk that changes in the value of the underlying
security or contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract on which it is based or the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract or
securities.
WRITING COVERED OPTIONS
Each Fund is authorized to write (i.e., sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where a Fund in return for a premium gives another party a right to
buy specified securities owned by the Fund at a specified future date and price
set at the time of the contract. The general reason for writing call options is
to attempt to realize income. By writing covered call options, each Fund gives
up the opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price.
In addition, each Fund's ability to sell the underlying security will be
limited while the option is in effect unless the Fund effects a closing purchase
transaction. A closing purchase transaction cancels out the Fund's position as
the writer of an option by means of offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security declining. Each
Fund writes only covered options, which means that so long as a Fund is
obligated as the writer of the option it will, through its custodian, have
deposited the underlying security of the option or, if there is a commitment to
purchase the security, a segregated reserve of cash or liquid securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities.
Each Fund also may write covered put options which give the holder of the
option the right to sell the underlying security to the Fund at the stated
exercise price. Each Fund maintains liquid securities with its custodian equal
to or greater than the exercise price of the underlying security. A Fund will
receive a premium for writing a put option, which increases the Fund's return. A
Fund will not write put options if the aggregate value of
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the obligations underlying the put shall exceed 50% of the Fund's net assets. By
writing a put, a Fund will be obligated to purchase the underlying security at a
price that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. Each Fund may engage in
closing transactions in order to terminate put options that it has written.
PURCHASING OPTIONS
Each Fund is authorized to purchase put options to hedge against a decline
in the market value of its securities. A put option may be purchased to
partially limit the risks of the value of an underlying security or the value of
a commitment to purchase that security for forward delivery. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from a sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out a Fund's
position as purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, a Fund may purchase call options on securities held in
its investment portfolio on which it has written call options or on securities
which it intends to purchase.
A Fund will not purchase options on securities (including stock index
options discussed below) if, as a result of such purchase, the aggregate cost of
all outstanding options on securities held by the Fund would exceed 5% of the
market value of the Fund's total assets.
STOCK INDEX OPTIONS AND FUTURES
Each Fund may engage in transactions in stock index options and futures,
and related options on such futures. A Fund may purchase or write put and call
options on stock indices to hedge against the risks of market-wide stock price
movements in the securities in which the Fund invests. Options on indices are
similar to options on securities except that on exercise or assignment, the
parties to the contract pay or receive an amount of cash equal to the difference
between the closing value of the index and the exercise price of the option
times a specified multiple. Each Fund may invest in stock index options based on
a broad market index, or based on a narrow index representing an industry or
market segment.
Each Fund may also purchase and sell stock index futures contracts
("futures contracts") as a hedge against adverse changes in the market value of
its portfolio securities as described below. A futures contract is an agreement
between two parties which obligates the purchaser of the futures contract to buy
and the seller of a futures contract to sell a security for a set price on a
future date. Unlike most other futures contracts, a stock index futures contract
does not require actual delivery of securities, but results in cash settlement
based upon the difference in value of the index between the time the contract
was entered into and the time of its settlement. A Fund may effect transactions
in stock index futures contracts in connection with equity securities in which
it invests.
Each Fund may sell futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities that might otherwise result. When a Fund is not fully invested in the
securities markets and anticipates a significant market advance, it may purchase
futures in order to gain rapid market exposure that may in part or entirely
offset increases in the cost of securities that the Fund intends to purchase. As
such purchases are made, an equivalent amount of futures contracts will be
terminated by offsetting sales. The Investment Adviser does not consider
purchases of futures contracts to be a speculative practice under these
circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
long futures position, whether the long position is the purchase of a futures
contract or the purchase of a call option or the writing of a put option on a
future, but under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
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Each Fund also has authority to purchase and write call and put options on
stock indices in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. A Fund may purchase put options or write call
options on stock indices rather than selling the underlying futures contract in
anticipation of a decrease in the market value of its securities. Similarly, a
Fund may purchase call options, or write put options on stock indices, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Fund
intends to purchase.
Each Fund may engage in options and futures transactions on U.S. and
foreign exchanges and in options in the over-the-counter markets ("OTC
options"). Exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) which, in general, have standardized strike prices and expiration
dates. OTC options transactions are two-party contracts with price and terms
negotiated by the buyer and seller. See "Restrictions on OTC Options" below for
information as to restrictions on the use of OTC options.
RESTRICTIONS ON OTC OPTIONS
A Fund will engage in OTC options, including over-the-counter stock index
options, over-the-counter foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in United States Government securities or with affiliates of
such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million
or any other bank or dealer having capital of at least $150 million or whose
obligations are guaranteed by an entity having capital of at least $150 million.
A Fund will acquire only those OTC options for which the Investment Adviser
believes the Fund can receive on each business day at least two independent bids
or offers (one of which will be from an entity other than a party to the option)
or which can be sold at a formula price provided for in the OTC option
agreement.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that purchased OTC options and the assets used as cover for written
OTC options are illiquid securities. Therefore, each Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by a Fund and
margin deposits on a Fund's existing OTC options on futures contracts exceed 15%
of the net assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily marketable.
However, if the OTC option is sold by a Fund to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and the
Fund has the unconditional contractual right to repurchase such OTC option from
the dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Funds and may be amended by the Trustees of the Trust without the
approval of the Funds' shareholders. However, a Fund will not change or modify
this policy prior to the change or modification by the Securities and Exchange
Commission's staff of its position.
OPTIONS ON FOREIGN CURRENCIES
The Funds may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
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diminution in the value of portfolio securities, a Fund may purchase put options
on the foreign currency. If the value of the currency does decline, the Fund
will have the right to sell such currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to a Fund deriving from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, a Fund could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
Each Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where a Fund anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the anticipated decline occurs, the option will
most likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Each Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the Custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if a Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid securities in a
segregated account with the Custodian.
Each Fund may write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which a Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, a
Fund collateralized the option by maintaining in a segregated account with the
Custodian, cash or liquid securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily. A Fund will
not enter into any option if immediately thereafter the value of all the foreign
currencies underlying its foreign currency options would exceed 50% of the value
of its total assets.
RISK FACTORS IN FUTURES AND OPTIONS TRANSACTIONS
The primary risks associated with the use of futures and options are (i)
the failure to predict accurately the direction of stock prices, interest rates,
currency movements and other economic factors; (ii) the failure as hedging
techniques in cases where the price movements of the securities underlying the
options and futures
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do not follow the price movements of the portfolio securities subject to the
hedge; (iii) the potentially unlimited loss from investing in futures contracts;
and (iv) the likelihood of a Fund being unable to control losses by closing its
position where a liquid secondary market does not exist. The risk that a Fund
will be unable to close out a futures position or options contract will be
minimized by such Fund only entering into futures contracts or options
transactions on national exchanges and for which there appears to be a liquid
secondary market.
Positions in futures contracts may be closed out only on an exchange which
provides a market for such futures. However, there can be no assurance that a
liquid market will exist for any particular futures contract at any specific
time. Thus, it may not be possible to close a futures position. In the event of
adverse price movements, each Fund would continue to be required to make daily
cash payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close futures positions also could have an
adverse impact on a Fund's ability to effectively hedge.
A Fund will minimize the risk that it will be unable to close out a futures
position by only entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid market. There can be no
assurance, however, that a liquid market will exist for a particular futures
contract at any given time.
The risk of loss in trading futures contracts in some strategies can be
substantial due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in excess of the amount
invested in the contract. However, because the futures strategies of the Funds
are engaged in only for hedging purposes, the Investment Adviser does not
believe that a Fund is subject to the risks of loss frequently associated with
futures transactions. A Fund would presumably have sustained comparable losses
if, instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the Fund securities being hedged. It is
also possible that a Fund could both lose money on futures contracts and also
experience a decline in value of portfolio securities. There is also the risk of
loss on margin deposits in the event of bankruptcy of a broker with whom a Fund
has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and, therefore, does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
RISKS OF OPTIONS ON FORWARD CONTRACTS AND FOREIGN CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are
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also traded on certain national securities exchanges, such as the Philadelphia
Stock Exchange and the Chicago Board Options Exchange, subject to the regulation
of the SEC. Similarly, options on currencies may be traded over-the-counter. In
an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options of foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in a Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
PORTFOLIO TURNOVER
The International Equity Fund's annualized portfolio turnover rates for the
fiscal years ended October 31, 1996 and 1997 were 59.11% and 92.33%,
respectively. The increased portfolio turnover rate during 1997 was due to the
strong market environment that year, and the opportunistic repositioning of the
Fund's portfolio into sectors and regents with attractive fundamentals. The
portfolio turnover rates for the Small Cap Equity Fund for the period from June
17, 1996 (commencement of operations) to October 31, 1996 and the fiscal year
ended October 31, 1997 were 94.38% and 67.66%, respectively. The lower portfolio
turnover rate during 1997 was the result of the Fund's efforts to become fully
invested following its start-up. The portfolio turnover rate for the Fixed
Income Fund for the period September 2, 1997 (commencement of operations)
through October 31, 1997 was 39.12%.
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<PAGE>
INVESTMENT RESTRICTIONS
The Funds have adopted the investment restrictions set forth below, which
are fundamental policies of each Fund and cannot be changed without the approval
of a majority of the outstanding voting securities. As provided in the
Investment Company Act of 1940, a "vote of a majority of the outstanding voting
securities" means the affirmative vote of the lesser of (i) more than 50% of the
outstanding shares, or (ii) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. Each Fund may not:
1. As to 75% of its total assets, invest in the securities of any one
issuer if, immediately after and as a result of such investment, the
value of the holdings of the Fund in the securities of such issuer
exceeds 5% of the Fund's total assets, taken at market value, except
that such restriction shall not apply to cash and cash items, or
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.
2. Invest in the securities of any single issuer if, immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding voting securities of such issuer.
3. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any
particular industry, except for temporary defensive purposes.
Changes in values of particular assets of a Fund will not cause a violation
of the foregoing investment restrictions so long as percentage restrictions are
observed by such Fund at the time it purchases a security. Provided that a
dealer or institutional trading market in such securities exists, restricted
securities are not treated as illiquid securities for purposes of a Fund's
investment limitations.
4. Issue senior securities.
5. Make investments for the purpose of exercising control or management
of another company.
6. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market or securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than customary broker's commission, is
involved and any investments in the securities of other investment
companies will be in compliance with the Investment Company Act of
1940.
7. Purchase or sell real estate or interests therein; provided that a
Fund may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein.
8. Purchase or sell commodities or commodity contracts, except that a
Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and that the Fund may
purchase or sell stock index and currency options, stock index
futures, financial futures and currency futures contracts and related
options on such futures.
9. Purchase any securities on margin, except that a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, or make short sales of securities
or maintain a short position. The payment by a Fund of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the
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<PAGE>
purchase of a security on margin. Also, engaging in futures
transactions and related options will not be deemed a short sale or
maintenance of a short position in securities.
10. Make loans to other persons (except as provided in (11) below);
provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment
in government obligations, short-term commercial paper, certificates
of deposit, bankers' acceptances, repurchase agreements and any
fixed-income obligations in which the Fund may invest consistent with
its investment objective and policies shall not be deemed to be the
making of a loan.
11. Lend its portfolio securities in excess of 331/3% of its total assets,
taken at market value; provided that such loans shall be made in
accordance with the guidelines set forth under "Securities Lending"
above.
12. Borrow amounts in excess of 20% of its total assets, taken at market
value, and then only from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund
shares. Utilization of borrowings may exaggerate increases or
decreases in an investment company's net asset value. However, a Fund
will not purchase securities while borrowings exceed 5% of its total
assets, except to honor prior commitments and to exercise subscription
rights when outstanding borrowings have been obtained exclusively for
settlements of other securities transactions.
13. Mortgage, pledge, hypothecate or in any manner transfer as security
for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in (12)
above, and then such mortgaging, pledging or hypothecating may not
exceed 10% of the Fund's total assets, taken at market value. For the
purpose of this restriction and restriction (9) above, collateral
arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral arrangements
with respect to initial and variation margin are not deemed to be a
pledge of assets, and neither such arrangements nor the purchase and
sale of options, futures or related options are deemed to be the
issuance of a senior security.
14. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily
marketable if, regarding all such securities, more than 15% of its
total assets, taken at market value, would be invested in such
securities.
15. Underwrite securities of other issuers except insofar as a Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
16. Purchase or sell interests in oil, gas or other mineral exploration or
development programs or leases, except that a Fund may invest in
securities of companies which invest in or sponsor such programs.
Notwithstanding the foregoing, each Fund may purchase securities pursuant
to the exercise of subscription rights, subject to the condition that such
purchase will not result in the Fund ceasing to be a diversified investment
company. Japanese and European corporations frequently issue additional capital
stock by means of subscription rights offerings to existing shareholders at a
price substantially below the market price of the shares. The failure to
exercise such rights would result in a Fund's interest in the issuing company
being diluted. The market for such rights is not well developed and,
accordingly, a Fund may not always realize full value on the sale of rights.
Therefore, the exception applies when investment limits would otherwise be
exceeded by exercising rights or have already been exceeded as a result of
fluctuations in the market value of a Fund's portfolio securities, and the
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<PAGE>
Fund would otherwise be forced either to sell securities at a time when it might
not have done so, or to forego exercising the rights.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Board of Trustees of the Trust consists of four individuals, three of
whom are not "interested persons" of the Trust as defined in the Investment
Company Act. The members of the Board of Trustees are fiduciaries for the Funds'
shareholders and, in this regard, are governed by the laws of the State of
Delaware. The Trustees establish policy for the operation of each Fund, and
appoint the officers who conduct the daily business of the Funds.
The Trustees and principal executive officers of the Trust and its Funds
("Trust Complex"), and their principal occupations for the past five years are
listed below.
<TABLE>
<CAPTION>
Position(s) Held With Principal Occupation
Name and Address Age the Trust Complex During the Past Five Years
---------------- --- ------------------- --------------------------
<S> <C> <C> <C>
*W. Thacher Brown 50 President, Chairman and President and Director, 1838
Five Radnor Corporate Center, Trustee of each Fund in the Investment Advisors, Inc. (successor
Suite 320 Trust Complex company to 1838 Investment
100 Matsonford Road Advisors, L.P.) (1988 - Present);
Radnor, PA 19087 President and Chief Executive
Officer, 1838 Investment Advisors,
Inc. (1988 - 1998); and Director,
1838 Bond-Debenture Trading Fund;
Airgas, Inc. and Harleysville Mutual
Insurance Company
Charles D. Dickey, Jr. 79 Trustee of each Fund in the Retired. Formerly Chairman and
1 Tower Bridge Trust Complex CEO of Scott Paper Company
West Conshohocken, PA 19428 (retired as CEO 1983; retired as
Director, 1988); Formerly Director
of General Electric Company (retired
1991).
Frank B. Foster, III 63 Trustee of each Fund in the Managing Director, CIP, Inc.
20 Valley Stream Parkway Trust Complex (Investments) (1989-Present);
Suite 265 Consultant, DBH, Inc. (1987-1993);
Malvern, PA 19355 Director; Airgas Inc. (1986-present).
Robert P. Hauptfuhrer 66 Trustee of each Fund in the Chairman and CEO, Oryx Energy
100 Matsonford Road Trust Complex Company (1988-1994); Director,
Building 5, Suite 500 Oryx Energy Company (1988-1994),
Radnor, PA 19087 Director, Quaker Chemical Corp.
(1977-Present).
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<PAGE>
Position(s) Held With Principal Occupation
Name and Address Age the Trust Complex During the Past Five Years
---------------- --- ------------------- --------------------------
Johannes B. van den Berg 40 Vice President of the Managing Director, 1838 Investment
Five Radnor Corporate Center, International Equity Fund Advisors Inc. (successor company to
Suite 320 1838 Investment Advisors, L.P.)
100 Matsonford Road (1997 - Present); Managing Director
Radnor, PA 19087 and Portfolio Manager, MeesPierson
1838 Investment Advisors
(1994-1998); President, MeesPierson
Capital Management, Inc. (1993-
1998); Director and Chief Investment
Officer, MeesPierson Capital
Management, B.V. (1983 -1993);
and Director, Asian Selection Fund.
Edwin B. Powell 60 Vice President of the Managing Director, 1838 Investment
Five Radnor Corporate Center, Small Cap Equity Fund Advisors, Inc. (successor company to
Suite 320 1838 Investment Advisors, L.P.)
100 Matsonford Road (1994 - Present); Vice President and
Radnor, PA 19087 Portfolio Manager, Provident Capital
Management (1987 - 1994).
George W. Gephart, Jr. 45 Vice President of the Senior Managing Director, 1838
Five Radnor Corporate Center, Large Cap and Special Investment Advisors, Inc. (successor
Suite 320 Equity Funds company to 1838 Investment
100 Matsonford Road Advisors, L.P.), (1988 - Present);
Radnor, PA 19087 Chairman, Bryn Mawr Rehab
Hospital (Past); and Director, Main
Line Health Systems and Jefferson
Health Systems (Present).
Clifford D. Corso 36 Vice President of the Fixed Managing Director, 1838 Investment
MBIA Capital Management Corp. Income Fund Advisors, Inc. (successor company to
113 King Street 1838 Investment Advisors, L.P.
Armonk, NY 10504 (1998-Present); Vice President and
Senior Portfolio Manager, MBIA
Capital Management Corp. (1994-
1998); Vice President and co-head of
Fixed Income Trading, Shields
Alliance (1991-1994).
Anna M. Bencrowsky 46 Vice President, Treasurer Vice President-Operations Manager,
Five Radnor Corporate Center, and Secretary of each of 1838 Investment Advisors, Inc.,
Suite 320 the Funds in the Trust (successor company to 1838
100 Matsonford Road Complex Investment Advisors Funds, L.P.)
Radnor, PA 19087 (1988 - Present); and Vice President
and Secretary, 1838 Bond-Debenture
Trading Fund.
</TABLE>
*Trustees who are "interested persons" as defined in the Investment Company Act
of 1940.
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<PAGE>
Information relating to the compensation paid to the Trustees of the Trust
for the fiscal year ended October 31, 1997 is set forth below:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits from Trust and
Compensation Accrued Part of Trust Complex
Name and Position from the Trust1 Fund Expenses2 Paid to Trustees
----------------- -------------- ------------- ----------------
<S> <C> <C> <C>
W. Thacher Brown None $0 $0
Chairman of the Board and President
Charles D. Dickey, Jr. Trustee $10,500 $0 $10,500
Frank B. Foster, III Trustee $10,500 $0 $10,500
Robert P. Hauptfuhrer Trustee $10,500 $0 $10,500
</TABLE>
1 The interested Trustees of the Trust receive no compensation for their
service as Trustees. For their service as Trustees, the disinterested
Trustees receive a $6,000 annual fee and $500 per series per Trust meeting
attended, as well as reimbursement for out-of-pocket expenses. If any
special or additional meetings are held during a fiscal year, the
disinterested Trustees will be entitled to receive $500 per series per such
meeting attended. For the fiscal year ended October 31, 1997, such fees and
expenses amounted to $31,500. As of September 21, 1998, Trustees and
officers owned less than 1% of the outstanding shares of the Small Cap
Equity Fund, International Equity Fund and Fixed Income Fund.
2 The Trust has not adopted a pension plan or any other plan that would
afford benefits to its Trustees.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Persons or organizations beneficially owning 25% or more of the outstanding
shares of a Fund may be presumed to "control" the Fund. As a result, those
persons or organizations could have the ability to vote a majority of the shares
of the Fund on any matter requiring the approval of shareholders of that Fund.
As of September 21, 1998, the following shareholders were known to own of
record more than 5% of the outstanding shares of the International Equity Fund:
Name and Address Percentage Ownership
Patterson & Co. 62.98%
P.O. Box 7829
Philadelphia, PA 19101
Saxon & Company 8.40%
P.O. Box 7780-1888
Philadelphia, PA 19182
Fleet National Bank 7.64%
P.O. Box 92800
Rochester, NY 14692
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<PAGE>
As of September 21, 1998, the following shareholders were known to own of
record more than 5% of the outstanding shares of the Small Cap Equity Fund:
Name and Address Percentage Ownership
Trustees of Upper Darby Police Pension Plan 7.67%
KDB Resources
12 South Monroe Street, Suite 301
Media, PA 19063
Patterson & Co. 44.66%
c/o Corestates Bank, NA
530 Walnut Street
Philadelphia, PA 19106
Poolside & Co. 19.06%
1 Enterprise Drive
Quincy, MA 02171
As of September 21, 1998, the following shareholders were known to own of
record more than 5% of the outstanding shares of the Fixed Income Fund:
Name and Address Percentage Ownership
Patterson & Co. 73.17%
c/o Corestates Bank, N.A.
530 Walnut Street
Philadelphia, PA 19106
Saxon & Co. 8.70%
FBO Independence Seaport Museum
P.O. Box 7780-1888
Philadelphia, PA 19182
SHARES OF BENEFICIAL INTEREST, VOTING RIGHTS AND SHAREHOLDER MEETINGS
SHARES OF BENEFICIAL INTEREST AND VOTING RIGHTS
The Trust's Agreement and Declaration of Trust permits the Trustees to
issue an unlimited number of shares of beneficial interest with a $0.001 par
value per share. The Board of Trustees has the power to designate one or more
series or sub-series/classes of shares of beneficial interest and to classify or
reclassify any unissued shares with respect to such series.
The shares of each Fund, when issued, will be fully paid and non-assessable
and within each series or class, have no preference as to conversion, exchange,
dividends, retirement or other features. The shares of the Trust which the
trustees may, from time to time, establish, shall have no preemptive rights. The
shares of the Trust have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of trustees can
elect 100% of the trustees if they choose to do so. A shareholder is entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in his name on the books of the Trust. On any matter
submitted to a vote of shareholders, all shares of the Trust then issued and
outstanding and entitled to vote on a matter shall vote without differentiation
between separate series on a one-vote-per-share basis. Each whole share is
entitled to
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<PAGE>
one vote and each fractional share is entitled to a proportionate fractional
vote. If a matter to be voted on does not affect the interests of all series of
the Trust, then only the shareholders of the affected series shall be entitled
to vote on the matter. The Trust's Agreement and Declaration of Trust also gives
shareholders the right to vote (i) for the election or removal of trustees; (ii)
with respect to additional matters relating to the Trust as required by the
Investment Company Act of 1940; and (iii) on such other matters as the trustees
consider necessary or desirable.
SHAREHOLDER MEETINGS
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust does
not intend to hold shareholder meetings except when required to elect trustees,
or with respect to additional matters relating to the Trust as required under
the Investment Company Act. The trustees have, however, undertaken to the
Securities and Exchange Commission that the trustees will promptly call a
meeting for the purpose of voting upon the question of removal of any trustee
when requested to do so by not less than 10% of the outstanding shareholders of
the Trust. In addition, subject to certain conditions, shareholders of the Trust
may apply to the Trust to communicate with other shareholders to request a
shareholders' meeting to vote upon the removal of a trustee or trustees.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
1838 Investment Advisors, Inc. is a direct wholly-owned subsidiary of MBIA,
Inc. MBIA, Inc., through various subsidiaries, is an insurer of municipal bonds
and structured finance transactions, and is a provider of investment management
services to the public sector. MBIA, Inc. has principal offices at 113 King
Street, Armonk New York.
The Trust, on behalf of each Fund, entered into an Investment Advisory
Agreement with the investment adviser for the provision of investment advisory
services, subject to the supervision and direction of the Board of Trustees.
Pursuant to each Investment Advisory Agreement, the Funds are obligated to pay
the investment adviser the following annual fees on a monthly basis (as a
percentage of the average daily net assets of the applicable Fund):
International Equity Fund: 0.75%
Small Cap Equity Fund: 0.75%
Fixed Income Fund: 0.50%
Large Cap Equity Fund: 0.60%
Special Equity Fund: 1.00%
With respect to each Fund, the investment adviser has voluntarily agreed to
waive its advisory fee and/or reimburse the Fund monthly to the extent that the
Fund's total operating expenses exceed the following expense caps (as a
percentage of the average daily net assets of the applicable Fund):
International Equity Fund: 1.25%
Small Cap Equity Fund: 1.25%
Fixed Income Fund: 0.60%
Large Cap Equity Fund: 0.75%
Special Equity Fund: 1.25%
The advisory fees payable to the investment advisor for services provided
to the International Equity Fund for the fiscal years ended October 31, 1996 and
1997 was $218,232 and $372,918, respectively, of which $138,238 and $93,801,
respectively were waived. For the period August, 3, 1995 (commencement of
operations) through October 31, 1995, the advisory fee payable was $29,563, all
of which was waived. The advisory fee payable to the investment advisor for
services provided to the Small Cap Equity Fund for the period June 17, 1996
(commencement of operations)
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<PAGE>
through October 31, 1996 and for the fiscal year ended October 31, 1997 was
$12,641 and $142,555, respectively, $12,641 and $112,370 of which were waived.
The advisory fees payable to the Investment Advisor for services provided to the
Fixed Income Fund for the period September 2, 1997 (commencement of operation)
through October 31, 1997 was $15,545, all of which was waived.
DISTRIBUTOR
Declaration Distributors, Inc., 555 North Lane, Suite 6160, Conshohocken,
PA 19428, has been engaged pursuant to a distribution agreement, 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 distribution of shares of the Funds, except for
reimbursement of out-of-pocket expenses.
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND CUSTODIAN
Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken, PA
19428, serves as Administrator, Transfer Agent, Shareholder Servicing Agent and
Dividend Paying Agent of each Fund and also provides accounting services to the
Funds.
As Administrator, Declaration supplies office facilities, non-investment
related statistical and research data, stationery and office supplies, executive
and administrative services, internal auditing and regulatory compliance
services. Declaration also assists in the preparation of reports to
shareholders, prepares proxy statements, updates prospectuses and makes filings
with the Securities and Exchange Commission and state securities authorities.
Declaration performs certain budgeting and financial reporting and compliance
monitoring activities. For the services provided as Administrator, Declaration
receives an administration fee from the Trust payable monthly at the annual rate
of $20,000 for the Small Cap Equity Fund, $20,000 for the Fixed Income Fund and
$27,500 for the International Equity Fund. Additionally, Declaration receives an
annual fee based on the combined assets of all three Funds as follows: 0.0% of
the first $50 million of net assets; 0.04% of the next $50 million of net
assets; 0.02% of the next $100 million of net assets and 0.01% of net assets in
excess of $200 million.
As Accounting Agent, Declaration 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. For the services provided as Accounting
Agent, Declaration receives a fee from the Trust at the annual rate of $25,000
for the International Equity Fund and $17,500 for each of the Small Capital
Equity and Fixed Income Funds.
The custodian for each of the Funds is CoreStates Bank, N.A., located at
530 Walnut Street, Philadelphia, PA 19101. CoreStates has sub-contracted with
Morgan Stanley Trust Company, New York, NY for the custody of the International
Equity Fund's Assets. Morgan Stanley employs foreign sub-custodians to maintain
the Fund's foreign assets outside the United States subject to the Board of
Trustees' annual review of those foreign custody arrangements.
INDEPENDENT ACCOUNTANTS
The accounts of the Trust are audited each year by PricewaterhouseCoopers
LLP, independent certified public accountants. Shareholders receive unaudited
semi-annual and audited annual reports of their Fund including the annual
audited financial statements and a list of securities owned.
ALLOCATION OF PORTFOLIO BROKERAGE
The investment adviser, when effecting the purchases and sales of portfolio
securities for the account of a Fund, will seek execution of trades either (i)
at the most favorable and competitive rate of commission charged by any broker,
dealer or member of an exchange, or (ii) at a higher rate of commission charges
if reasonable in relation to
-22-
<PAGE>
brokerage and research services provided to the Fund, the investment adviser, by
such member, broker, or dealer when viewed in terms of either a particular
transaction or the investment adviser's overall responsibilities to the Fund.
Such services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale, statistical or factual information, or opinions pertaining to investments.
The investment adviser may use research and services provided to it by brokers
and dealers in servicing all its clients; however, not all such services will be
used by the investment adviser in connection with the Funds. Brokerage may also
be allocated to dealers in consideration of a Fund's share distribution, but
only when execution and price are comparable to that offered by other brokers.
The investment adviser is responsible for making the Fund's portfolio
decisions subject to instructions described in the Prospectus. The Board of
Trustees, however, imposes limitations on the allocation of portfolio brokerage.
During the period August 3, 1995 (commencement of operations) through October
31, 1995, the International Equity Fund paid $52,090 and for the fiscal years
ended October 31, 1996 and 1997 paid $124,675 and $190,009, respectively in
brokerage commissions. During the period June 17, 1996 through October 31, 1996,
the Small Cap Equity Fund paid $9,692 and for the fiscal year ended October 31,
1997 paid $60,836 in brokerage commissions. During the period September 2, 1997
(commencement of operations) through October 31, 1997, the Fixed Income Fund
paid $0 in brokerage commissions.
It is anticipated that brokerage transactions involving securities of
companies domiciled in countries other than the U.S. will be conducted primarily
on the principal stock exchanges of such countries. Brokerage commissions and
other transaction costs on foreign stock exchange transactions are generally
higher than in the U.S., although the Funds will endeavor to achieve the best
net results in effecting their portfolio transactions. There is generally less
government supervision and regulation of foreign stock exchanges and brokers
than in the U.S.
Foreign equity securities may be held by a Fund in the form of ADRs, EDRs,
GDRs or other securities convertible into foreign equity securities. ADRs, EDRs
and GDRs may be listed on stock exchanges or traded in over-the-counter markets
in the U.S. or Europe, as the case may be. ADRs, like other securities traded in
the U.S., as well as GDRs traded in the U.S., will be subject to negotiated
commission rates.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE
Shares of each Fund are available to all types of tax-deferred retirement
plans such as IRAs, employer-sponsored defined contribution plans (including
401(k) plans) and tax-sheltered custodial accounts described in Section
403(b)(7) of the Internal Revenue Code of 1986, as amended. Qualified investors
benefit from the tax-free compounding of income dividends and capital gains
distributions.
Individuals who are not active participants (and, when a joint return is
filed, who do not have a spouse who is an active participant) in an employer
maintained retirement plan are eligible to contribute on a deductible basis to
an IRA account. The IRA deduction is also retained for individual taxpayers and
married couples with adjusted gross incomes not in excess of certain specified
limits. All individuals who have earned income may make nondeductible IRA
contributions to the extent that they are not eligible for a deductible
contribution. Income earned by an IRA account will continue to be tax deferred.
A special IRA program is available for employers under which the employers may
establish IRA accounts for their employees in lieu of establishing tax-qualified
retirement plans. Known as SEP-IRAs (Simplified Employee Pension-IRA), they free
the employer of many of the recordkeeping requirements of establishing and
maintaining a tax-qualified retirement plan trust.
If you are entitled to receive a distribution from a qualified retirement
plan, you may rollover all or part of that distribution into a Fund's IRA. Your
rollover contribution is not subject to the limits on annual IRA
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<PAGE>
contributions. You can continue to defer federal income taxes on your
contribution and on any income that is earned on that contribution.
With respect to purchase orders accepted by brokers or other
intermediaries, a Fund is deemed to have received a purchase order when an
authorized broker or other intermediary accepts the order. Shares of the Fund
may be purchased on any Business Day at the net asset value next determined
after the receipt of the order, in good order, by the authorized broker or other
intermediary. A "Business Day" means any day on which the New York Stock
Exchange ("NYSE") is open. For an investor who invests through a broker or other
intermediary, the broker or other intermediary must receive the investor's
purchase order before the close of regular trading on the NYSE and promptly
forward such order to the transfer agent for the Fund in order for the investor
to receive that day's net asset value. Brokers and designated intermediaries are
responsible for promptly forwarding such investors' purchase orders to the
transfer agent.
REDEMPTION
Under normal circumstances, you may redeem your shares at any time without
a fee. The redemption price will be based upon the net asset value per share
next determined after receipt of the redemption request, provided it has been
submitted in the manner described in the Prospectus of each Fund. See "How to
Redeem Shares" in the Prospectus. The redemption price may be more or less than
your cost, depending upon the net asset value per share at the time of
redemption.
With respect to redemption requests accepted by brokers or other
intermediaries, a Fund is deemed to have received a redemption order when an
authorized broker or other intermediary accepts the order. Shares of the Fund
may be redeemed on any Business Day at the net asset value next determined after
the receipt of the order, in good order, by the authorized broker or other
intermediary. A "Business Day" means any day on which the New York Stock
Exchange ("NYSE") is open. For an investor who invests through a broker or other
intermediary, the broker or other intermediary must receive the investor's
redemption order before the close of regular trading on the NYSE and promptly
forward such order to the transfer agent for the Fund in order for the investor
to receive that day's net asset value. Brokers and other intermediaries are
responsible for promptly forwarding such investors' redemption orders to the
Fund's transfer agent.
Payment for shares tendered for redemption is made by check within seven
days after receipt and acceptance of your redemption request by Declaration,
except that each Fund reserves the right to suspend the right of redemption, or
to postpone the date of payment upon redemption beyond seven days, (i) for any
period during which the New York Stock Exchange is restricted, (ii) for any
period during which an emergency exists as determined by the SEC as a result of
which disposal of securities owned by a given Fund is not reasonably predictable
or it is not reasonably practicable for such Fund fairly to determine the value
of its net assets, or (iii) for such other periods as the SEC may by order
permit for the protection of Fund shareholders.
TAXATION
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
In order to so qualify, a Fund must, among other things (i) derive at least
90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) distribute at least 90% of its
dividends, interest and certain other taxable income each year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of a Fund's total assets
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<PAGE>
and 10% of the outstanding voting securities of such issuer, and with no more
than 25% of its assets invested in the securities (other than those of the
government or other regulated investment companies) of any one issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar or related trades and businesses.
To the extent a Fund qualifies for treatment as a regulated investment
company, it will not be subject to federal income tax on income and net capital
gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of a
Fund's "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The Funds intend to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared by the Funds during October, November or
December to shareholders of record during such month and paid by January 31 of
the following year will be taxable to shareholders in the calendar year in which
they are declared, rather than the calendar year in which they are received.
Each Fund will provide an information return to shareholders describing the
federal tax status of the dividends paid by the Fund during the preceding year
within 60 days after the end of each year as required by present tax law.
Individual shareholders will receive Form 1099-DIV and Form 1099-B as required
by present tax law during January of each year. If the Fund makes a distribution
after the close of its fiscal year which is attributable to income or gains
earned in such earlier fiscal year, then the Fund shall send a notice to its
shareholders describing the amount and character of such distribution within 60
days after the close of the year in which the distribution is made. Shareholders
should consult their tax advisors concerning the state or local taxation of such
dividends, and the federal, state and local taxation of capital gains
distributions.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action at any time, and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisors.
FEDERAL TAX TREATMENT OF FORWARD CURRENCY AND FUTURES CONTRACTS
Except for transactions the Funds have identified as hedging transactions,
each Fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency and
futures contracts as of the end of each taxable year as well as those actually
realized during the year. In most cases, any such gain or loss recognized with
respect to a regulated futures contract is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss without regard to
the holding period of the contract. Realized gain or loss attributable to a
foreign currency forward contract is treated as 100% ordinary income.
Furthermore, foreign currency futures contracts which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
In order for each Fund to continue to qualify for federal income tax
treatment as a regulated investment company under the Code, at least 90% of each
Fund's gross income for a taxable year must be derived from certain qualifying
income, i.e., dividends, interest, income derived from loans of securities and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other related income, including gains from options, futures and
forward contracts, derived with respect to its business investing in stock,
securities or currencies. Any net gain realized from the closing out of futures
contracts will, therefore, generally be qualifying income for purposes of the
90% requirement.
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Each Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's taxable year) on futures transactions. Such
distribution will be combined with distributions of capital gains realized on a
Fund's other investments, and shareholders will be advised on the nature of the
payment.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes.
PERFORMANCE
Current yield and total return data for the Funds may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Yield is the ratio of income per share derived from a Fund's investments to a
current maximum offering price expressed in terms of percent. The yield is
quoted on the basis of earnings after expenses have been deducted. Total return
is the total of all income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Occasionally, a Fund may include its distribution rate in advertisements. The
distribution rate is the amount of distributions per share made by a Fund over a
12-month period divided by the current maximum offering price.
The SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and total return quotations used by a Fund
are based on the standardized methods of computing performance mandated by the
SEC. An explanation of those and other methods used by a Fund to compute or
express performance follows.
As indicated below, current yield is determined by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders
during the 30-day base period. According to the SEC formula:
6
Yield = 2 [(a-b +1) - 1]
cd
where
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The Fixed Income Fund's current yield for the 30-day period ended April 30,
1998 was 5.88%.
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load is
deducted from
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<PAGE>
the initial $1,000 purchase order and that all dividends and distributions are
reinvested at the public offering price on the reinvestment dates during the
period. The quotation assumes the account was completely redeemed at the end of
each one, five and ten-year period and assumes the deduction of all applicable
charges and fees. According to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10-year periods, determined at the
end of the 1, 5 or 10-year periods (or fractional portion
thereof).
The International Equity Fund's total return for the fiscal year ended
October 31, 1997 was 15.23%, and for the six months ended April 30, 1998 was
17.30%. The aggregate total return from inception of the Fund (August 3, 1995)
to April 30, 1998 was 41.99%, and the average annual return for the period was
15.33%. The Small Cap Fund's total return for the fiscal year ended October 31,
1997 was 37.81% and for the six months ended April 30, 1998 was 17.60%. The
Small Cap Fund's aggregate total returns for the period June 17, 1996
(commencement of operations) through April 30, 1998 was 53.01%, and the average
annual return for the period was 28.49%. The Fixed Income Fund's total return
for the period from September 2, 1997 through October 31, 1997 was 2.70%, and
for the six-month period ended April 30, 1998 was 2.88%.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.
COMPARISONS AND ADVERTISEMENTS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding a Fund may discuss yield or
total return for such Fund as reported by various financial publications.
Advertisements may also compare yield or total return to yield or total return
as reported by other investments, indices, and averages. The following
publications, indices, and averages may be used:
Financial Times Goldman Sachs Europe-Asia Index
Lehman Aggregate Index
Lehman Government Corporate Index
Lipper Mutual Fund Indices
Lipper Mutual Fund Performance Analysis
Morgan Stanley Capital International EAFE Index
Morningstar, Inc.
NASDAQ Industrial Index
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Russell 2000 Index
Standard & Poor's 500 Composite Stock Price Index
A Fund may also from time to time along with performance advertisements,
present its investments, as of a current date, in the form of the "Schedule of
Investments" included in the Semi-Annual and Annual Reports to the shareholders
of the Trust.
FINANCIAL STATEMENTS
The audited financial statements and the financial highlights for the
International Equity Fund, Small Cap Equity Fund and Fixed Income Fund for the
fiscal year ended October 31, 1997, as set forth in their respective Annual
Reports to shareholders, and the reports thereon of PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand LLP), the Funds' independent public accountants,
also appearing in the Annual Reports, are incorporated herein by reference. The
unaudited financial statements and financial highlights for these Funds for the
six-month period ended April 30, 1998, as set forth in their respective
Semi-Annual Reports to Shareholders, also are incorporated herein by reference.
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) AGREEMENT AND DECLARATION OF TRUST:
Incorporated by reference to Exhibit 1 to Registrant's
Registration Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on December 13, 1994.
(b) BY-LAWS:
Incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on December 13, 1994.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS:
See Articles III and V of Registrant's Agreement and
Declaration of Trust and Articles II and VII of Registrant's
By-Laws, located as noted in (a) and (b) above.
(d) DISTRIBUTION AGREEMENTS:
(i) Form of Investment Advisory Agreement with 1838 Investment
Advisors, Inc. re: 1838 International Equity Fund series.
(ii) Form of Investment Advisory Agreement with 1838 Investment
Advisors, Inc. re: 1838 Small Cap Equity Fund series.
(iii)Form of Investment Advisory Agreement with 1838 Investment
Advisors, Inc. re: 1838 Fixed Income Fund series.
(iv) Form of Investment Advisory Agreement with 1838 Investment
Advisors, Inc. re: 1838 Large Cap Equity Fund series.
(v) Form of Investment Advisory Agreement with 1838 Investment
Advisors, Inc. re: 1838 Special Equity Fund series.
Each Agreement is filed herewith.
(e) DISTRIBUTION AGREEMENTS:
Form of Distribution Agreement between the Registrant and
Declaration Distributors, Inc. Incorporated by reference to
Exhibit 6(a)(i) to Registrant's Registration Statement Form N-1A
filed with the U.S. Securities and Exchange Commission on
February 27, 1998.
(f) BONUS, PROFIT SHARING AND PENSION CONTRACTS:
Not Applicable.
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<PAGE>
(g) CUSTODIAN AGREEMENT:
Form of Custodial Agreement between the Registrant and CoreStates
Bank, N.A., filed herewith.
(h) OTHER MATERIAL CONTRACTS:
(i) Investment Company Services Agreement with The Declaration
Group, Inc. Incorporated by reference to Exhibit 9(a) to
Registrant's Registration Statement on Form N-1A filed with
the U.S. Securities and Exchange Commission on February 27,
1998.
(i) LEGAL OPINION:
Not applicable.
(j) OTHER OPINIONS:
Consent of Certified Public Accountants, filed herewith.
(k) Financial Statements:
Included in the Prospectus (Part A):
Financial Highlights for the 1838 International Equity Fund for
the period August 3, 1995 through October 31, 1995, for the
fiscal years ended October 31, 1996 and 1997 and for the
six-month period ended April 30, 1998; Financial Highlights for
the 1838 Small Cap Equity Fund for the period June 17, 1996
through October 31, 1996; for the fiscal year ended October 31,
1997 and for the six-month period ended April 30, 1998; and
Financial Highlights for the 1838 Fixed Income Fund for the
period September 2, 1997 through October 31, 1997 and for the
six-month period ended April 30, 1998.
(i) Report of Independent Public Accountants dated December 12,
1997. Incorporated by reference to the Registrant's Annual
Report to Shareholders filed with the U.S. Securities and
Exchange Commission in January 1998.
(ii) Audited Financial Statements of the 1838 International
Equity Fund for the year ended October 31, 1997.
Incorporated by reference to the Registrant's Annual Report
to Shareholders filed with the U.S. Securities and Exchange
Commission in January 1998.
(iii)Audited Financial Statements of the 1838 Fixed Income Fund
for the period ended October 31, 1997. Incorporated by
reference to the Registrant's Annual Report to Shareholders
filed with the U.S. Securities and Exchange Commission in
January 1998.
(iv) Audited Financial Statements of the 1838 Small Cap Equity
Fund for the year ended October 31, 1997. Incorporated by
reference to the Registrant's Annual Report to Shareholders
filed with the U.S. Securities and Exchange Commission in
January 1998.
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<PAGE>
(v) Unaudited Financial Statements of the 1838 International
Equity Fund, 1838 Small Cap Fund, 1838 Fixed Income Fund and
for the six-month period ended April 30, 1998. Incorporated
by reference to Registrant's Semi-Annual Report to
Shareholders filed with the U.S. Securities and Exchange
Commission in July 1998.
(l) INITIAL CAPITAL AGREEMENTS:
Incorporated by reference to Exhibit 13 to Registrant's
Registration Statement on Form N-1A filed with the U.S.
Securities and Exchange Commission on March 8, 1995.
(m) PLANS UNDER RULE 12b-1:
Not Applicable.
(n) FINANCIAL DATA SCHEDULES
Filed herewith.
(o) RULE 18f-3 PLAN:
Not Applicable.
ITEM 24. PERSONS CONTROLLED OR UNDER COMMON CONTROL WITH THE REGISTRANT:
None.
ITEM 25. INDEMNIFICATION
Under the terms of the Delaware Business Trust Act and the
Registrant's Agreement and Declaration of Trust and By-Laws, no officer or
trustee of the Fund shall have any liability to the Trust or its shareholders,
except to the extent such limitation of liability is precluded by Delaware law,
the Agreement and Declaration of Trust, or the By-Laws.
Subject to the standards and restrictions set forth in the Trust's
Agreement and Declaration of Trust, the Delaware Business Trust Act, section
3817, permits a business trust to indemnify and hold harmless any trustee,
beneficial owner, or other person from and against any and all claims and
demands whatsoever. Section 3803 protects a trustee, when acting in such
capacity, from personal liability to any person other than the business trust or
a beneficial owner for any act, omission, or obligation of the business trust or
any trustee thereof, except as otherwise provided in the Agreement and
Declaration of Trust.
The Agreement and Declaration of Trust provides that the Trustees
shall not be responsible or liable in any event for any neglect or wrong-doing
of any officer, agent, employee, Manager or Principal Underwriter of the Fund,
nor shall any Trustee be responsible for the act or omission of any other
Trustee. Subject to the provisions of the By-Laws, the Trust, out of its assets,
may indemnify and hold harmless each and every Trustee and officer of the Trust
from and against any and all claims, demands, costs, losses, expenses, and
damages whatsoever arising out of or related to such Trustees' performance of
his or her duties as a Trustee or officer of the Trust; provided that nothing in
the Declaration of Trust shall indemnify, hold harmless or protect any Trustee
or officer from or against any liability to the Trust or any Shareholder to
which he or she would otherwise be subject by reason
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<PAGE>
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
The By-Laws provide indemnification for each Trustee and officer who
was or is a party or is threatened to be made a party to any proceeding, by
reason of service in such capacity, to the fullest extent, if it is determined
that Trustee or officer acted in good faith and reasonably believed: (a) in the
case of conduct in his official capacity as an agent of the Fund, that his
conduct was in the Trust's best interests; (b) in all other cases, that his
conduct was at least not opposed to the Trust's best interests; and (c) in the
case of a criminal proceeding, that he had no reasonable cause to believe the
conduct of that person was unlawful. However, there shall be no right to
indemnification for any liability arising by reason of willful duties involved
in the conduct of the Trustee's or officer's office with the Trust. Further, no
indemnification shall be made:
(a) In respect of any proceeding as to which any Trustee or officer shall
have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or
(b) In respect of any proceeding as to which any Trustee or officer shall
have been adjudged to be liable in the performance of that person's
duty to the Trust, unless and only to the extent that the court in
which that action was brought shall determine upon application that in
view of all the relevant circumstances of the case, that person is
fairly and reasonably entitled to indemnity for the expenses which the
court shall determine; however, in such case, indemnification with
respect to any proceeding by or in the right of the Trust or in which
liability shall have been adjudged by reason of the disabling conduct
set forth in the preceding paragraph shall be limited to expenses; or
(c) Of amounts paid in settling or otherwise disposing of a proceeding,
with or without court approval, or of expenses incurred in defending a
proceeding which is settled or otherwise disposed of without court
approval, unless the required court approval set forth in the By-Laws
is obtained.
In any event, the Fund shall indemnify each officer and Trustee
against expenses actually and reasonably incurred in connection with the
successful defense of any proceeding to which each such officer or Trustee is a
party by reason of service in such capacity, provided that the Board of
Trustees, including a majority who are disinterested, non-party trustees, also
determines that such officer or Trustee was not liable by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties of office. The Trust shall advance to each officer and Trustee who is
made a party to a proceeding by reason of service in such capacity the expenses
incurred by such person in connection therewith, if (a) the officer or Trustee
affirms in writing that his good faith belief that he has met the standard of
conduct necessary for indemnification, and gives a written undertaking to repay
the amount of advance if it is ultimately determined that he has not met those
requirements, and (b) a determination that the facts then known to those making
the determination would not preclude indemnification.
The Trustees and officers of the Fund are entitled and empowered under
the Declaration of Trust and By-Laws, to the fullest extent permitted by law, to
purchase errors and omissions liability insurance with assets of the Fund,
whether or not the Fund would have the power to indemnify him against such
liability under the Declaration of Trust or By-Laws.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers, the underwriter
or control persons of the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is
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<PAGE>
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
1838 Investment Advisors, Inc.:
1838 Investment Advisors, Inc. ("Adviser") serves as investment
adviser of each Series of the Registrant. The Adviser is a direct,
wholly owned subsidiary of MBIA, Inc. Information as to the partners
and officers of the Adviser is included in its Form ADV, File No.
801-33025, filed on August 19, 1988 and most recently supplemented on
March 15, 1996, with the Securities and Exchange Commission. Such Form
ADV is incorporated by reference herein.
ITEM 27. PRINCIPAL UNDERWRITER:
(a) Declaration Distributors, Inc., the distributor for the
Registrant's securities, currently acts as distributor for the
following entities:
Declaration Fund
Henssler Funds, Inc.
Pauze Funds
Quaker Funds
The Noah Fund
The Santa Barbara Group of Mutual
Funds Shepard Street Funds
Stock Car Stocks Mutual Fund, Inc.
(b) The Distributor's officers are listed below. The address of each
person is 555 North Lane, Suite 6160, Conshohocken, PA 19428.
David F. Ganley, Vice President
Martin M. Whalen, Vice President
Linda K. Coyne, Secretary
Gregory J. Sanginiti, President
Terence P. Smith, Chief Executive Officer
Mr. Whalen is Assistant Secretary of each of the Funds of 1838
Investment Advisors Funds.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and the Rules (17 CFR 270-31a-1 to 31a-3) promulgated
thereunder, is maintained by the Registrant, except for those maintained by the
Fund's administrator, transfer agent, dividend paying agent and accounting
services agent, Declaration Services Company, 555 North Lane, Suite 6160,
Conshohocken, PA 19428.
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<PAGE>
ITEM 29. MANAGEMENT SERVICES:
There are no management related service contracts not discussed in Part A
or Part B.
ITEM 30. UNDERTAKINGS
(a) Inapplicable.
(b) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual
report for the fiscal year ended October 31, 1997 and semi-annual
report for the period ended April 30, 1998, upon request and
without charge.
(c) Registrant hereby undertakes, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares,
to call a meeting of shareholders for the purpose of voting upon
the question of removal of a trustee or trustees and to assist in
communication with other shareholders, as directed by Section
16(c) of the Investment Company Act of 1940.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, 1838 Investment Advisors Funds,
has duly caused this Post-Effective Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Radnor, and the State of Pennsylvania, on the 20th day of October, 1998.
1838 INVESTMENT ADVISORS FUNDS
By: /s/ W. Thacher Brown
-----------------------------------
W. Thacher Brown, President
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ------- ----
/s/ W. Thacher Brown President and Trustee October 20, 1998
- -----------------------------
W. Thacher Brown
/s/ Charles B. Dickey, Jr.
- ----------------------------- Trustee October 20, 1998
Charles D. Dickey, Jr. *
/s/ Frank B. Foster, III
- ----------------------------- Trustee October 20, 1998
Frank B. Foster, III*
/s/ Robert P. Hauptfurher
- ----------------------------- Trustee October 20, 1998
Robert P. Hauptfurher*
/s/ Anna M. Bencrowsky Vice President October 20, 1998
- ----------------------------- Secretary, Treasurer
Anna M. Bencrowsky (Principal Financial Officer)
* By: /s/ W. Thacher Brown
------------------------
W. Thacher Brown, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
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<PAGE>
File No. 33-87298
File No. 811-8902
EXHIBITS TO FORM N-1A POST-EFFECTIVE AMENDMENT NO. 5
Exhibit No. Description
- ----------- -----------
23(d) Investment Advisory Agreements for 1838 International Equity Fund,
1838 Small Cap Equity Fund, 1838 Fixed Income Fund, 1838 Large Cap
Equity Fund and 1838 Special Equity Fund
23(g) Custodian Agreement
23(j) Consent of Certified Public Accountants
23(k) Annual and Semi-Annual Reports
23(n) Financial Data Schedules
-8-
EXHIBIT 23(D)
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 INTERNATIONAL
EQUITY FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, INC., a Delaware
corporation (hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the
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<PAGE>
compensation herein provided. The Investment Adviser shall for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or to represent
the Trust or the Fund in any way, or in any way be deemed an agent of the Trust
or the Fund. The Investment Adviser shall regularly make decisions as to what
securities to purchase and sell on behalf of the Fund and shall record and
implement such decisions and shall furnish the Board of Trustees of the Trust
with such information and reports regarding the Fund's investments as the
Investment Adviser deems appropriate or as the Trustees of the Trust may
reasonably request. Subject to compliance with the requirements of the 1940 Act,
the Investment Adviser may retain as a sub-adviser to the Fund, at the
Investment Adviser's own expense, any investment adviser registered under the
Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Officers and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Officers and
employees of the Investment Adviser who are trustees, officers
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<PAGE>
and/or employees of the Trust shall not receive any compensation from the Trust
for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting
-11-
<PAGE>
that transaction, in such instances where the Investment Adviser has determined
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the Investment
Adviser's overall responsibilities with respect to the Fund and to other funds
for which the Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to .75% of the daily average net assets of the Fund, payable on a
monthly basis, subject to reduction to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale.
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its officers, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to
-12-
<PAGE>
any other corporation, association, firm or individual, and may render
underwriting services to the Trust on behalf of the Fund or to any other
investment company, corporation, association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for copyright and all
other purposes and that therefore such word may be freely used by the Investment
Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund and only if the
-13-
<PAGE>
terms and the renewal hereof have been approved by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. No amendment to this Agreement shall be effective unless the terms
thereof have been approved by the vote of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of Trustees of the Trust
who are not parties to the Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated by the Trust at
any time, without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to
be affixed and duly attested and their presents to be signed by their duly
authorized officers the day of , 199 .
Attest: 1838 INVESTMENT ADVISORS FUNDS
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, INC.
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
-15-
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 SMALL CAP
EQUITY FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, INC., a Delaware
corporation (hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the compensation
herein provided. The Investment Adviser shall for all purposes herein, be deemed
-16-
<PAGE>
to be an independent contractor, and shall, unless otherwise expressly provided
and authorized, have no authority to act for or to represent the Trust or the
Fund in any way, or in any way be deemed an agent of the Trust or the Fund. The
Investment Adviser shall regularly make decisions as to what securities to
purchase and sell on behalf of the Fund and shall record and implement such
decisions and shall furnish the Board of Trustees of the Trust with such
information and reports regarding the Fund's investments as the Investment
Adviser deems appropriate or as the Trustees of the Trust may reasonably
request. Subject to compliance with the requirements of the 1940 Act, the
Investment Adviser may retain as a sub-adviser to the Fund, at the Investment
Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Officers and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Officers and
employees of the Investment Adviser who are trustees, officers and/or employees
of the Trust shall not receive any compensation from the Trust for acting in
such dual capacity.
-17-
<PAGE>
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where the Investment Adviser has determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and
-18-
<PAGE>
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Investment Adviser's overall
responsibilities with respect to the Fund and to other funds for which the
Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to .75% of the daily average net assets of the Fund, payable on a
monthly basis, subject to reduction to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale.
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its officers, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, and may
render underwriting services to
-19-
<PAGE>
the Trust on behalf of the Fund or to any other investment company, corporation,
association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for copyright and all
other purposes and that therefore such word may be freely used by the Investment
Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund and only if the terms
and the renewal hereof have been approved by the vote of a majority of the
Trustees of the
-20-
<PAGE>
Trust who are not parties hereto or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval. No
amendment to this Agreement shall be effective unless the terms thereof have
been approved by the vote of a majority of the outstanding voting securities of
the Fund and by the vote of a majority of Trustees of the Trust who are not
parties to the Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. Notwithstanding
the foregoing, this Agreement may be terminated by the Trust at any time,
without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their
corporate seals to be affixed and duly attested and their presents to be signed
by their duly authorized officers the day of , 199 .
Attest: 1838 INVESTMENT ADVISORS FUNDS
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, INC.
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
-22-
<PAGE>
**
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 LARGE CAP
EQUITY FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, INC., a Delaware
corporation (hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the
-23-
<PAGE>
compensation herein provided. The Investment Adviser shall for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or to represent
the Trust or the Fund in any way, or in any way be deemed an agent of the Trust
or the Fund. The Investment Adviser shall regularly make decisions as to what
securities to purchase and sell on behalf of the Fund and shall record and
implement such decisions and shall furnish the Board of Trustees of the Trust
with such information and reports regarding the Fund's investments as the
Investment Adviser deems appropriate or as the Trustees of the Trust may
reasonably request. Subject to compliance with the requirements of the 1940 Act,
the Investment Adviser may retain as a sub-adviser to the Fund, at the
Investment Adviser's own expense, any investment adviser registered under the
Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Officers and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Officers and
employees of the Investment Adviser who are trustees, officers
-24-
<PAGE>
and/or employees of the Trust shall not receive any compensation from the Trust
for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting
-25-
<PAGE>
that transaction, in such instances where the Investment Adviser has determined
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the Investment
Adviser's overall responsibilities with respect to the Fund and to other funds
for which the Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to 0.60% of the daily average net assets of the Fund, payable on a
monthly basis, subject to reduction to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale.
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its officers, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to
-26-
<PAGE>
any other corporation, association, firm or individual, and may render
underwriting services to the Trust on behalf of the Fund or to any other
investment company, corporation, association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for copyright and all
other purposes and that therefore such word may be freely used by the Investment
Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund and only if the
-27-
<PAGE>
terms and the renewal hereof have been approved by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. No amendment to this Agreement shall be effective unless the terms
thereof have been approved by the vote of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of Trustees of the Trust
who are not parties to the Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated by the Trust at
any time, without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their
corporate seals to be affixed and duly attested and their presents to be signed
by their duly authorized officers the day of , 199 .
Attest: 1838 INVESTMENT ADVISORS FUNDS
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, INC.
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
-29-
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 SPECIAL
EQUITY FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, INC., a Delaware
corporation (hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the compensation
herein provided. The Investment Adviser shall for all purposes herein, be deemed
-30-
<PAGE>
to be an independent contractor, and shall, unless otherwise expressly provided
and authorized, have no authority to act for or to represent the Trust or the
Fund in any way, or in any way be deemed an agent of the Trust or the Fund. The
Investment Adviser shall regularly make decisions as to what securities to
purchase and sell on behalf of the Fund and shall record and implement such
decisions and shall furnish the Board of Trustees of the Trust with such
information and reports regarding the Fund's investments as the Investment
Adviser deems appropriate or as the Trustees of the Trust may reasonably
request. Subject to compliance with the requirements of the 1940 Act, the
Investment Adviser may retain as a sub-adviser to the Fund, at the Investment
Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Officers and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Officers and
employees of the Investment Adviser who are trustees, officers and/or employees
of the Trust shall not receive any compensation from the Trust for acting in
such dual capacity.
-31-
<PAGE>
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where the Investment Adviser has determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and
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<PAGE>
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Investment Adviser's overall
responsibilities with respect to the Fund and to other funds for which the
Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to 1.00% of the daily average net assets of the Fund, payable on a
monthly basis, subject to reduction to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale.
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its officers, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, and may
render underwriting services to
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<PAGE>
the Trust on behalf of the Fund or to any other investment company, corporation,
association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for copyright and all
other purposes and that therefore such word may be freely used by the Investment
Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund and only if the terms
and the renewal hereof have been approved by the vote of a majority of the
Trustees of the
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<PAGE>
Trust who are not parties hereto or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval. No
amendment to this Agreement shall be effective unless the terms thereof have
been approved by the vote of a majority of the outstanding voting securities of
the Fund and by the vote of a majority of Trustees of the Trust who are not
parties to the Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. Notwithstanding
the foregoing, this Agreement may be terminated by the Trust at any time,
without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to
be affixed and duly attested and their presents to be signed by their duly
authorized officers the day of , 199 .
Attest: 1838 INVESTMENT ADVISORS FUNDS
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, INC.
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
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<PAGE>
1838 INVESTMENT ADVISORS FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made by and between 1838 INVESTMENT ADVISORS FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of 1838 FIXED INCOME
FUND (the "Fund"), and 1838 INVESTMENT ADVISORS, INC., a Delaware corporation
(hereinafter called the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment company
registered under the Investment Company Act of 1940 (the "1940 Act") and engages
in the business of investing and reinvesting its assets in securities, and the
Investment Adviser is a registered Investment Adviser under the Investment
Advisers Act of 1940 (the "Advisers Act") and engages in the business of
providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the
investment adviser for the Fund effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and each of the parties hereto intending to be legally bound, it is agreed as
follows:
1. The Trust on behalf of the Fund hereby employs the Investment Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and officers of
the Trust for the period and on the terms hereinafter set forth. The Investment
Adviser hereby accepts such employment and agrees during such period to render
the services and assume the obligations herein set forth for the compensation
herein provided. The Investment Adviser shall for all purposes herein, be deemed
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<PAGE>
to be an independent contractor, and shall, unless otherwise expressly provided
and authorized, have no authority to act for or to represent the Trust or the
Fund in any way, or in any way be deemed an agent of the Trust or the Fund. The
Investment Adviser shall regularly make decisions as to what securities to
purchase and sell on behalf of the Fund and shall record and implement such
decisions and shall furnish the Board of Trustees of the Trust with such
information and reports regarding the Fund's investments as the Investment
Adviser deems appropriate or as the Trustees of the Trust may reasonably
request. Subject to compliance with the requirements of the 1940 Act, the
Investment Adviser may retain as a sub-adviser to the Fund, at the Investment
Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders meetings; miscellaneous office expenses; brokerage commissions;
custodian fees; legal and accounting fees; and taxes. Officers and employees of
the Investment Adviser may be trustees, directors, officers and employees of the
funds of which the Investment Adviser serves as investment adviser. Officers and
employees of the Investment Adviser who are trustees, officers and/or employees
of the Trust shall not receive any compensation from the Trust for acting in
such dual capacity.
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<PAGE>
In the conduct of the respective businesses of the parties hereto and in
the performance of this Agreement, the Trust and Investment Adviser may share
facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Fund orders for the
purchase and sale of portfolio securities with broker-dealers. Subject to the
primary objective of obtaining the best available prices and execution, the
Investment Adviser will place orders for the purchase and sale of portfolio
securities for the Fund with such broker-dealers as it may select from time to
time, including brokers who provide statistical, factual and financial
information and services to the Fund, to the Investment Adviser, or to any other
fund for which the Investment Adviser provides investment advisory services
and/or with broker-dealers who sell shares of the Fund or who sell shares of any
other fund for which the Investment Adviser provides investment advisory
services. Broker-dealers who sell shares of the funds of which the Investment
Adviser is investment adviser, shall only receive orders for the purchase or
sale of portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Adviser is authorized to pay
a member of an exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where the Investment Adviser has determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and
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<PAGE>
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Investment Adviser's overall
responsibilities with respect to the Fund and to other funds for which the
Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Adviser under the provisions of this Agreement, the Trust on behalf
of the Fund shall pay to the Investment Adviser from the Fund's assets an annual
fee equal to .50% of the daily average net assets of the Fund, payable on a
monthly basis, subject to reduction to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale.
If this Agreement is terminated prior to the end of any calendar month, the
management fee shall be prorated for the portion of any month in which this
Agreement is in effect according to the proportion which the number of calendar
days, during which the Agreement is in effect, bears to the number of calendar
days in the month, and shall be payable within 10 days after the date of
termination.
5. The services to be rendered by the Investment Adviser to the Trust on
behalf of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Investment Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its officers, employees, and agents may engage
in other businesses, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, and may
render underwriting services to
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<PAGE>
the Trust on behalf of the Fund or to any other investment company, corporation,
association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a
reckless disregard of the performance of duties of the Investment Adviser to the
Fund, the Investment Adviser shall not be subject to liabilities to the Fund or
to any shareholder of the Fund for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases
to be the Fund's investment adviser for any reason, the Trust will (unless the
Investment Adviser otherwise agrees in writing) promptly take all necessary
steps to propose to the Fund's shareholders at the next regular meeting that the
Fund change to a name not including the word "1838." The Trust agrees that the
word "1838" in the Fund's name is derived from the name of the Investment
Adviser and is the property of the Investment Adviser for copyright and all
other purposes and that therefore such word may be freely used by the Investment
Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date
written below if approved by the vote of a majority of the outstanding voting
securities of the Fund. It shall continue in effect for a period of two years
and may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund and only if the terms
and the renewal hereof have been approved by the vote of a majority of the
Trustees of the
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<PAGE>
Trust who are not parties hereto or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval. No
amendment to this Agreement shall be effective unless the terms thereof have
been approved by the vote of a majority of the outstanding voting securities of
the Fund and by the vote of a majority of Trustees of the Trust who are not
parties to the Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. Notwithstanding
the foregoing, this Agreement may be terminated by the Trust at any time,
without the payment of a penalty, on sixty days' written notice to the
Investment Adviser of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to a vote of a majority of the
outstanding voting securities of the Fund. The Investment Adviser may terminate
this Agreement at any time, without the payment of penalty on sixty days'
written notice to the Trust of its intention to do so. Upon termination of this
Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust to pay to the Investment Adviser the fee
provided in Paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities"; "interested persons"; and "assignment" shall
have the meaning defined in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to
be affixed and duly attested and their presents to be signed by their duly
authorized officers the day of , 199 .
Attest: 1838 INVESTMENT ADVISORS FUNDS
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
Attest: 1838 INVESTMENT ADVISORS, INC.
By:
- -------------------------------- -------------------------------
W. Thacher Brown
President
-43-
EXHIBIT 23(G)
CUSTODIAN AGREEMENTS
THE 1838 INVESTMENT ADVISOR FUNDS
This agreement dated as of the day of by and between The 1838 Investment
Advisors Funds (the "Trust"), a business trust duly organized under the laws of
the State of Delaware and CoreStates Bank, N.A. (the "Bank").
WHEREAS, the Trust desires to appoint the Bank to act as Custodian of its
portfolio securities, cash and other property from time to time deposited with
or collected by the Bank for the Trust;
WHEREAS, the Bank is qualified and authorized to act as Custodian for the
Trust and the separate series thereof (each a "Fund" and collectively, the
"Funds"), and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto, intending to be legally bound, do hereby
agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean the Bank in its capacity as
Custodian under this Agreement.
DEPOSITORY: The term Depository means any depository service which acts as
a system for the central handling of securities where all securities of any
particular class or series of an issuer deposited within the system are treated
as tangible and may be transferred by bookkeeping entry without physical
delivery.
PROPER INSTRUCTIONS: For purposes of this Agreement, the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals or facsimile
transmissions), telephone or telegraphic instructions from a person or persons
authorized from time to time by the Trustees of the Trust to give the particular
class of instructions. Telephone or telegraphic instructions shall be confirmed
in writing by such persons as said Trustees shall have from time to time
authorized to give the particular class of instructions in question. The
Custodian may act upon telephone or telegraphic instructions that the Custodian
reasonably believes to have been given by an authorized person
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<PAGE>
without awaiting receipt of written confirmation, and shall not be liable for
the Trust's failure to confirm such instructions in writing.
SECURITIES: The term Securities means stocks, bonds, rights, warrants and
all other negotiable or non-negotiable paper issued in certificated or
book-entry form commonly known as "Securities" in banking custom or practice.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from
time to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.
SECTION 2. The Trust hereby appoints the Custodian as Custodian of the
Trust's cash. Securities and other property, to be held by the Custodian as
provided in this Agreement. The Custodian hereby accepts such appointment
subject to the terms and conditions hereinafter provided. The Bank shall open
and maintain a separate custodial account in the name of the Trust on the books
and records of the Bank to hold the Securities of the Trust deposited with,
transferred to or collected by the Bank for the account of each Fund of the
Trust. Each Fund's Securities shall be physically segregated at all times from
the Securities of any other Bank customer. The Bank shall open and maintain a
separate cash account to which the Bank shall credit monies received by the Bank
for the account of or from each Fund of the Trust. Such cash shall be segregated
from the assets of others and shall be and remain the sole property of the
Trust.
SECTION 3. The Trust shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions and specifying the class of
instructions that may be given by each person to the Custodian under this
Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Trust.
SECTION 4. The Trust will cause to be deposited with the Custodian
hereunder the applicable net asset value of Shares sold from time to time
whether representing initial issue, other stock or reinvestments of dividends
and/or distributions payable to Shareholders.
SECTION 5. The Bank, acting as agent for the Trust, is authorized, directed
and instructed subject to the further provisions of this Agreement.
(a) to hold Securities issued only in bearer form in bearer form;
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<PAGE>
(b) to register in the name of the nominee of the Bank, the Bank's
Depositories, or sub-custodians, (i) Securities issued only in registered form,
and (ii) Securities issued in both bearer and registered form, which are freely
inter-changeable without penalty;
(c) to deposit any securities which. are eligible for deposit (i) with
any domestic or foreign Depository on such terms and conditions as such
Depository may require, including provisions for limitation or exclusion of
liability on the part of the Depository; and (ii) with any sub-custodian which
the Bank uses, including any subsidiary or affiliate of the Bank; provided that
the appointment of an such agent or sub-custodian will not relieve the Custodian
of any of its responsibilities or liabilities hereunder;
(d) (i) to credit for the account of the Trust all proceeds received
and payable on or in respect of the assets maintained hereunder.
(ii) to debit the account of the Trust for the cost of acquiring
Securities the Bank has received for the Trust, only against delivery of such
Securities to the Bank,
(iii) to present for payment Securities and other obligations
(including coupons) upon maturity, when called for redemption, and when income
payments are due, and
(iv) to make exchanges of Securities which, in the Bank's
opinion, are purely ministerial as, for example, the exchange of Securities in
temporary form for Securities in definitive form or the mandatory exchange of
certificates;
(e) to forward to the Trust, and/or any other person designated by the
Trust, all proxies and proxy materials received by the Bank in connection with
Securities held in the Trust's account, which have been registered in the name
of the Bank's nominee, or are being held by any Depository, or sub-custodian, on
behalf of the Bank;
(f) to sell any fractional interest of any Securities which the Bank
has received resulting from any stock dividend, stock split, distribution,
exchange, conversion or similar activity;
(g) to release the Trust's name, address and aggregate share position
to the issuers of any domestic Securities in the account of the Trust;
(h) to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of or from the Trust;
(i) at the direction of the Trust, to enroll designated Securities
belonging to the Trust and held hereunder in a program for the automatic
reinvestment of all
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<PAGE>
income and capital gains distributions on those Securities in new shares (an
"Automatic Reinvestment Program"), or instruct any Depository holding such
Securities to enroll those Securities in an Automatic Reinvestment Program;
(j) at the direction of the Trust, to receive, deliver and transfer
Securities and make payments and collections of monies in connection therewith,
enter purchase and sale orders and perform any other acts incidental or
necessary to the performance of the above acts with brokers, dealers or similar
agents selected by the Trust, including any broker, dealer or similar agent
affiliated with the Bank, for the account and risk of the Trust in accordance
with accepted industry practice in the relevant market;
(k) to notify the Trust and/or any other person designated by the
Trust upon receipt of notice by the Bank of any call for redemption, tender
offer, subscription rights, merger, consolidation, reorganization or
recapitalization which (i) appears in The Wall Street Journal (New York
edition), The Standard & Poor's Called Bond Record for Preferred Stocks,
Financial Daily Called Bond Service, The Kenny Services. any official
notifications from The Depository Trust Company and such other publications or
services to which the Bank may from time to time subscribe, (ii) requires the
Bank to act in response thereto, and (iii) pertain to Securities belonging to
the Trust and held hereunder which have been registered in the name of the
Bank's nominee or are being held by a Depository or sub-custodian on behalf of
the Bank. Notwithstanding anything contained herein to the contrary, the Trust
shall have the sole responsibility for monitoring the applicable dates on which
Securities with put option features must be exercised. All solicitation fees
payable to the Bank as agent in connection herewith will be retained by the Bank
unless expressly agreed to the contrary in writing by the Bank;
(l) to establish and maintain segregated accounts on its books for or
on behalf of a Fund to assist the Fund in complying with the requirements of the
1940 Act and the rules and regulations thereunder with respect to segregation of
assets. Notwithstanding anything in this Section to the contrary, the Bank is
authorized to hold Securities for the Trust which have transfer limitations
imposed upon them by the Securities Act of 1993, as amended, or represent shares
of mutual funds (i) in the name of the Trust, (ii) in the name of the Bank's
nominee, or (iii) with any Depository or sub-custodian.
SECTION 6. The Custodian's compensation shall be as set forth in Section 25
herein, or as shall be set forth in amendments to such section approved by the
Trust and to the extent such compensation relates to services provided hereunder
to such Fund. All expenses and taxes payable with respect to the Securities in
the account of the Trust including, without limitation, commission charges on
purchases and sales and the amount of any loss or liability for stockholders'
assessments or otherwise, claimed or asserted against the bank or against the
Bank's nominee by reason of any registration hereunder shall be charged to the
Trust.
SECTION 7. In connection with its functions under this Agreement, the
Custodian shall:
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<PAGE>
(a) render to the Trust a daily report of all monies received or paid
on behalf of the Trust; and
(b) create, maintain and retain all records relating to its activities
arid obligations under this Agreement in such manner as will meet the
obligations of the Trust with respect to said Custodian's activities in
accordance with generally accepted accounting principles and in accordance with
the requirements of the Investment Company Act of 1940, as amended (the "1940
Act"). All records maintained by the Custodian in connection with the
performance of its duties under this Agreement will remain the property of the
Trust and in the event of termination of this Agreement will be relinquished to
the Trust.
SECTION 8. Any Securities deposited with any Depository or with any
sub-custodian will be represented in separate accounts int he name of the Bank
which include only property held by the Bank as Custodian for customers in which
the Bank acts in a fiduciary or agency capacity.
Should any Securities which are forwarded to the Bank by the Trust, and
which are subsequently deposited to the Bank's account in any Depository or with
any sub-custodian, or which the Trust may arrange to deposit in the Bank's
account in any Depository or with any sub-custodian, not be deemed acceptable
for deposit by such Depository or sub-custodian, for any reason, and as a result
thereof there is a short position in the account of the Bank with the Depository
for such Security, the Trust agrees to furnish the Bank immediately with like
Securities in acceptable form.
SECTION 9. The Trust represents and warrants that: (i) it has the legal
right, power and authority to execute, deliver and perform this Agreement and to
carry out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Trust is a party or which
is otherwise known to the Trust; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which the Trust has obtained; (v) the execution and delivery of
this Agreement by the Trust will not violate any law, regulation, charter,
by-law, order of any court or governmental agency or judgment applicable to the
Trust; and (vi) all persons executing this Agreement on behalf of the Trust and
carrying out the transactions contemplated hereby on behalf of the Trust are
duly authorized to do so.
In the event any of the foregoing representations should become untrue,
incorrect or misleading, the Trust agrees to notify the Bank immediately in
writing thereof.
SECTION 10. The Bank represents and warrants that: (i) it has the legal
right, power and authority to execute, deliver and perform this Agreement and to
carry out all of.'the
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<PAGE>
transactions contemplated hereby; (ii) it has obtained all necessary
authorizations; (iii) the execution, delivery and performance of this Agreement
and the carrying out of any of the transactions contemplated hereby will not be
in conflict with, result in a breach of or constitute a default under any
agreement or other instrument to which the Bank is a party or which is otherwise
known to the Bank; (iv) it does not require the consent or approval of any
governmental agency or instrumentality, except any such consents and approvals
which the Bank has obtained; (v) the execution and delivery of this Agreement by
the Bank will not violate any law, regulation, charter, by-law, order of any
court or governmental agency or judgment applicable to the Bank; and (vi) all
persons executing this Agreement on behalf of the Bank and carrying out the
transactions contemplated hereby on behalf of the Bank are duly authorized to do
so. In the event that any of the foregoing representations should become untrue,
incorrect or misleading, the Bank agrees to notify the Trust immediately in
writing thereof.
SECTION 11. All cash and Securities held pursuant to this Agreement by the
Bank, or any sub-custodian which the Bank uses shall be kept with the care
exercised as to the Bank's own similar property. The Bank may at its option
insure itself against loss from any cause but shall be under no obligation to
insure for the benefit of the Trust.
The Custodian shall comply with all applicable provisions and requirements
of the Investment Company Act of 1940, the Securities Act of 1933, the
Securities Exchange Act of 1934, and any laws, rules and regulations of
Governmental authorities having Jurisdiction with respect to provisions which
directly apply to the services provided to the Trust hereunder.
SECTION 12. No liability of any kind shall be attached to or incurred by
the Custodian by reason of its custody of the Trust's assets held by it from
time to time under this Agreement, or otherwise by reason of its position as
Custodian hereunder except only for negligence, bad faith, or willful misconduct
by Custodian, or by its agents or sub-custodians in the performance of the
duties as specifically set forth in the Custodian Agreement. Without limiting
the generality for the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel for the Trust; and for any
action taken or suffered in good faith based upon such advice or statements the
Custodian shall not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in
good faith in accordance with any request or advice of, or based upon
information furnished by, the Trust or its authorized officers or agents;
(c) is authorized to accept a certificate of the Secretary or
Assistant Secretary of the Trust, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of Trustees
or by the Shareholders, as conclusive evidence that such resolution has been
duly adopted and is in full force and effect; and
-49-
<PAGE>
(d) may rely and shall be protected in acting upon any signature,
written (including telegraph or other mechanical) instructions, request, letter
of transmittal, certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other paper or document reasonably believed by it to
tie genuine and to have been signed, forwarded or presented by the purchaser,
Trust or other proper party or parties.
SECTION 13. The Trust, its successors and assigns do hereby fully indemnify
and hold harmless the Custodians, its successors and assigns, from any and all
loss, liability, claims, demand, actions, suits and expenses of any nature as
the same may arise from the failure of the Trust to comply with any law, rule
regulation or order of the United States, any state or any other jurisdiction,
governmental authority, body, or board relating to the sale, registration,
qualification of units of beneficial interest in the Trust, or from the failure
of the Trust to perform any duty or obligation under this Agreement.
Upon written request of the Custodian, the Trust shall assume the entire
defense of any claim subject to the foregoing indemnity, or the joint defense
with the Custodian of such claim, as the Custodian shall request. The
indemnities and defense provisions of this Section 13 shall indefinitely survive
termination of this Agreement.
SECTION 14. This Agreement may be amended from time to time without notice
to or approval of the Shareholders by a supplemental agreement executed by the
Trust and the Bank and amending and supplementing this Agreement in the manner
mutually agreed.
SECTION 15. Either the Trust or the Custodian may give on ninety 90 days'
written notice to the other of the termination of this Agreement, such
termination to take effect it the time specified in the notice. In case such
notice of termination is given either by the Trust or by the Custodian, the
Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
successor Custodian (the "Successor Custodian") which Successor Custodian shall
be a bank, trust company, or a bank and trust company in good standing, with
legal capacity to accept custody of the cash and Securities of a mutual fund.
Upon receipt of written notice from the Trust of the appointment of such
Successor Custodian and upon receipt of Proper Instructions, the Custodian shall
deliver such cash and Securities as it may then be holding hereunder directly
and only to the Successor Custodian. Unless or until a Successor Custodian has
been appointed as above provided, the Custodian then acting shall continue to
act as Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
Trust and the Successor Custodian and upon ]payment of its charges and
disbursements, execute an instrument in a form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
-50-
<PAGE>
Subject to the provisions of Section 21 hereof, in case the Custodian shall
consolidate with or merge into any other corporation, the corporation remaining
after or resulting from such consolidation or merger shall ipso facto without
the execution or filing of any papers or other documents, succeed to and be
substituted for the Custodian with like effect as though originally named as
such, provided, however, in every case that said Successor corporation maintains
the qualifications set out in Section 17(f) of the 1940 Act.
SECTION 16. This Agreement shall take effect when assets of the Trust are
first delivered to the Custodian.
SECTION 17. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
SECTION 18. A copy of the agreement and Declaration of Trust of the Trust
is on file with the Secretary of State of Delaware and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees, officers or Shareholders of the Trust
individually, but binding only upon the assets and property of the Trust. No
Fund of the Trust shall be liable for the obligations of any other Fund of the
Trust.
SECTION 19. The Custodian shall create and maintain all records relating to
its activities and obligations under this Agreement in such manner as will meet
the obligations of the Trust under the 1940 Act, with particular attention to
Section 31 thereof and Rules 3la-1 and 3la-2 thereunder, applicable Federal and
state tax laws and any other law or administrative rules or procedures which may
be applicable to the Trust.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian, the books and
records of the Custodian pertaining to this Agreement shall be open to
inspection and audit at any reasonable times by officers of, attorneys for, and
auditors employed by, the Trust.
At the request of the Trust, the Custodian shall deliver to the Trust a
written report prepared by the Custodian's independent certified public
accountants with respect to the serve provided by the Custodian under this
Agreement, including without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash and Securities
including cash and Securities deposited and/or maintained with a sub-custodian.
Such report shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Trust to provide reasonable assurance that M
material inadequacies would be disclosed by such examination.
-51-
<PAGE>
SECTION 20. Any sub-custodian appointed hereunder shall be qualified under
Section 17(f) of the 1940 Act and will perform its duties in accordance with the
requirements of this Agreement.
SECTION 21. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform any functions or
duties on any holiday or other day of special observance on which the Custodian
is closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day the Custodian is open.
SECTION 22. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided , however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of the
Trust, authorized or approved by a resolution of its Board of Trustees.
SECTION 23. All communications (other than Proper instructions which are to
be furnished hereunder to either party), or under any amendment hereto, shall be
sent by mail to the address listed below, provided that in the event that the
Bank, in its sole discretion, shall determine that an emergency exists, the Bank
may use such other means of communications as the Bank deems advisable.
To the Trust:
To the Bank: CoreStates Bank N.A.
530 Walnut St.
Philadelphia PA, 19101-7618
SECTION 24. This Agreement, and any amendments hereto, shall be governed,
construed and interpreted in accordance with the laws of The Commonwealth of
Pennsylvania applicable to agreements made and to be performed entirely within
such Commonwealth.
SECTION 25. Fees and Expenses
As compensation for its services under this Agreement, the Bank may retain
those fees which are specified in the fee schedule in effect at the time its
services are being rendered. Customer recognizes that this schedule might be
changed from time to time with prior notice to Customer. This contract is in
force for two (2) years.
-52-
<PAGE>
Mutual Fund Custody Administrative Fee
--------------------------------------
1.00 basis points on the first $2.5 billion
.75 basis points on the next $2.5 billion
.50 basis points on the next $5.0 billion
.40 basis points on the remainder
Transaction Fees
----------------
$ 4.00 per trade and maturity through Depository Trust Company via DepLink
$10.00 per trade and maturity through Depository Trusty Company via non
DepLink
$10.00 per trade and maturity clearing book entry through Federal Reserve
$30.00 per transaction for GIC contracts/Physical Securities
$10.00 per trade and maturity clearing through Participants Trust Company
$ 4.00 paydowns on mortgage backed securities
$ 5.50 Fed wire charge on Repo collateral in/out
$ 5.50/$7.50 other wired transfers in/out
$ 5.50 Dividend reinvestment
$ 2.50 Fed charge for sale/return of collateral
$ 8.00 Futures contracts
$15.00 Options
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement
to be signed by their respective officers as of the day and year first above
written.
By: THE 1838 INVESTMENT ADVISORS FUNDS
-----------------------------------
Name:
Title:
By: CORESTATES BANK, N.A.
-----------------------------------
Name: Paul T. Cahill
Title: Vice President
-53-
EXHIBIT 23(J)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 5
(File No. 33-87298) under the Securities Act of 1933 and Post-Effective
Amendment No. 6 (File No. 811-8902) under the Investment Company Act of 1940 to
the Registration Statement on Form N-1A of 1838 Investment Advisors Funds of our
report for the 1838 International Equity Fund, 1838 Small Cap Equity Fund and
1838 Fixed Income Fund (the "Funds") of 1838 Investment Advisors Funds dated
December 12, 1997 on our audit of the financial statements and financial
highlights of the Funds as of October 31, 1997 and for the respective periods
then ended, which report is included in the Annual Report to Shareholders.
We also consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 16, 1998
-54-
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
June 25, 1998
TO THE SHAREHOLDER:
The net asset value per share of your Fund was $13.28 as of April 30, 1998. This
represents an appreciation of 10.76% for the six month period since October 31,
1997. Including the distributions of dividend and capital gains during December
1997, the total return on shares in the Fund was 17.3%. This return compares
favorably with the EAFE benchmark return of 15.4% for the six month period
ending April 30, 1998. Over the 12 month period ending April 30, 1998, the total
return for shares in the Fund was 24.6%, while the benchmark return was 18.9%.
Overseas markets were quite volatile during the last six months, particularly so
in the Far East, where economic weaknesses were exposed. After decades of high
economic growth in the region, large current account deficits, inflated property
and equity markets, pegged exchange rate regimes co-existed with weak financial
management and oversight. The crisis of confidence, which started with the
devaluation of the Thai Baht in July 1997, eventually led to dramatic declines
of the currencies and stock markets in the Far East. Combined losses from a
dollar investors' perspective of investments in local equities were up to 70-90%
of values a year before. Starting in January this year, a rapid bounce in the
currency and stock markets provided short term gains of close to 100%, before a
second decline set in during April on the realization that economic recovery
will take years. Requirements for recovery include restructuring and
recapitalizing of the financial sectors, restructuring of corporate balance
sheets and stabilization of local currencies, including the Yen. Although
convinced of the long term growth potential of the region, we have held --
relative to the benchmark -- low exposure to stock markets in the area, as we
believe it will take time for local companies' earnings to show a sustainable
recovery. We also feel that through investments in selected European and
American based multinationals, we have a lower risk-entry into the recovery of
economic growth in the East.
Over 70% of the Fund's assets are held in the European markets, where earnings
growth is exceeding expectations. We expect this earnings growth to continue for
several more years, driven by corporate restructuring, the strength of the
dollar and lowering of taxes. Europe is the source of high absolute returns for
your Fund at this time. We reduced our exposure to Latin American markets, which
suffered from the contagion effect of the crisis in the Far East. Investors shy
away from emerging markets in general. We maintain our policy of investing in
market leaders with strong management and solid balance sheets. We see plenty of
opportunities for growth in today's markets.
Sincerely,
Hans van den Berg
Vice President and Portfolio Manager
- ------------------------------------
6/98. Shares of the 1838 International Equity Fund are distributed by
Declaration Distributors, Inc.
1
<PAGE>
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
2
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
COMMON STOCK -- 98.26%
<S> <C> <C>
ARGENTINA -- 0.79%
Banco de Galicia Y Buenos Aires S.A.
DE C.V. Banking........................... 19,975 $ 489,388
-----------
AUSTRALIA--0.92%
National Australia Bank, Ltd. Banking........................... 39,873 566,739
-----------
BRAZIL -- 0.98%
Telecomunicacoes Brasileiras S.A. ADR Telecommunications................ 5,000 609,062
-----------
CANADA -- 0.95%
Canadian Pacific, Ltd. Transportation.................... 20,000 588,750
-----------
CHILE -- 0.81%
Cia DE Telecommunicaciones DE Chile
S.A. Telecommunications................ 20,000 501,250
-----------
FINLAND -- 1.62%
Nokia Corp. ADR Telecommunications................ 15,000 1,003,125
-----------
FRANCE -- 11.26%
Accor FF 100 Lodging........................... 2,500 680,897
Alcatel Alsthom Telecommunications................ 4,500 833,776
AXA, Inc. Insurance......................... 8,500 997,208
Cap Gemini IT Services....................... 5,000 648,908
Lafarge Cement............................ 7,500 707,900
Rhone Poulenc Chemicals......................... 11,693 571,457
Schlumberger, Ltd. Exploration Services.............. 10,000 828,750
Societe Generale Banking & Financial Services...... 3,634 756,052
Total S.A. (B Shares) Oil & Gas Exploration............. 8,000 950,513
-----------
6,975,461
-----------
GERMANY -- 7.93%
Adidas AG Sportswear........................ 4,000 663,137
Deutsche Lufthansa AG Airlines.......................... 35,000 832,822
GEA ADR Engineering....................... 1,800 728,225
Mobilcom AG Telecommunications................ 750 552,940
SAP ADR Computers & Software.............. 7,000 1,162,579
Veba AG Electric Utility.................. 8,000 528,727
Volkswagen AG Automobile Manufacturer........... 750 445,110
-----------
4,913,540
-----------
</TABLE>
See notes to financial statements.
3
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
HONG KONG -- 4.62%
China Resources Enterprise, Ltd. Real Estate....................... 200,000 $ 343,399
Citic Pacific, Ltd. Holding Company................... 90,000 276,526
HSBC Holdings Financial Services................ 42,125 1,201,847
Huaneng Power Int'l., Inc. ADR* Electric Utilities................ 22,000 484,000
Hutchinson Whampoa, Ltd. Diversified....................... 90,000 556,538
-----------
2,862,310
-----------
INDIA -- 0.46%
Videsh Sanchar Nigam, Ltd. Telecommunications................ 25,000 284,375
-----------
INDONESIA -- 0.00%
PT Bank Int'l. Indonesia Banking........................... 420 5
-----------
IRELAND -- 1.07%
Allied Irish Banks Banking........................... 8,000 664,000
-----------
ITALY -- 5.10%
Credit Italiano Banking........................... 150,000 788,115
ENI Oil Refining...................... 10,000 661,250
Telecom Italia Mobile Spa Telecommunications................ 300,000 1,709,980
-----------
3,159,345
-----------
JAPAN -- 17.09%
Advantest Corp. Electronics....................... 6,930 466,790
Aiful Corp. Consumer Finance.................. 11,000 729,282
Denny's Japan, Inc. Restaurants....................... 22,000 566,109
Fuji Photo Film Photo Film Manufacturer........... 13,000 472,875
Honda Motor Corp. Automobile Manufacturer........... 16,000 581,246
KAO Corp. Household Goods................... 44,000 647,695
Mineba Co. Bearings Manufacturer............. 100,000 1,120,109
Nintendo Company, Ltd. Entertainment..................... 5,000 459,396
Nomura Securities Co. Securities Broker................. 37,000 452,244
Rohm Co., Ltd. Electronics....................... 5,000 565,352
Sony Corp. Electronics....................... 17,000 1,416,560
Takeda Chemicals Industries Pharmaceuticals................... 44,000 1,258,760
TDK Corp. Electronic Components............. 3,634 633,316
Toyo Trust & Banking Co., Ltd. Banking........................... 3,634 436,502
Toppan Forms Printing.......................... 3,634 300,840
Yamoto Transport Co., Ltd. Transport......................... 8,000 474,987
-----------
10,582,063
-----------
</TABLE>
See notes to financial statements.
4
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
KOREA -- 0.01%
Korea Mobile Telecom ADR Communications.................... 556 $ 4,135
-----------
MEXICO -- 1.29%
Panamerican Beverages (A Shares) Bottling.......................... 20,000 797,500
-----------
NETHERLANDS -- 8.69%
Aeogon N.V. Insurance......................... 10,307 1,336,518
Akzo N.V. Chemicals......................... 4,000 813,660
ASM Lithography Holdings N.V. Electronics....................... 10,000 907,696
ING Group, N.V. Financial Services................ 10,000 649,839
Koninklijke Ahold N.V. Retail Food Distributor........... 24,909 776,673
Phillips Electronics N.V. Electronics....................... 10,000 900,000
-----------
5,384,386
-----------
PORTUGAL -- 1.05%
BPI-SGPS S.A. Banking........................... 14,000 650,720
-----------
SINGAPORE -- 0.62%
Singapore Press Holdings Publishing........................ 26,000 385,854
-----------
SPAIN -- 3.75%
Banco Santander S.A. Banking........................... 25,000 1,320,408
Telefonica de Espana ADR Telecommunication Equipment....... 8,000 999,500
-----------
2,319,908
-----------
SWEDEN -- 2.48%
Nordbanken Holdings AB Banking........................... 90,000 662,893
Telefonaktiebolaget LM Ericsson ADR Telecommunication Equipment....... 17,000 874,438
-----------
1,537,331
-----------
SWITZERLAND -- 9.66%
Adecco S.A. Business Services................. 2,500 1,091,740
Ciba Specialty Chemicals AG* Chemicals......................... 6,000 726,048
Nestle S.A. ADR Food Processing................... 11,300 1,096,143
Novartis AG (Bearer Shares) Pharmaceuticals................... 300 496,033
Novartis AG (Regular Shares) Pharmaceuticals................... 426 706,639
Schweizerische Bankgesellschaft Banking........................... 400 644,310
Zurich Versicherungsgesellschaft ADR* Insurance......................... 10,000 1,218,715
-----------
5,979,628
-----------
</TABLE>
See notes to financial statements.
5
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
TAIWAN -- 0.99%
Taiwan Semiconductor Manufacturing Co. Electronics....................... 25,000 $ 614,062
-----------
UNITED KINGDOM -- 16.12%
Barratt DEV plc Building & Construction........... 125,000 669,845
British Aerospace plc Aerospace......................... 43,000 1,440,796
British Telecommunications ADR Telecommunications................ 8,000 867,500
Kingfisher plc Retail Department Stores.......... 55,419 1,001,661
Lloyds TSB Group plc Banking........................... 55,209 828,477
Prudential Group plc Insurance......................... 65,000 921,607
Reed Int'l plc Publishing........................ 66,000 583,210
Siebe plc Machinery Manufacturer............ 53,000 1,203,405
Smithkline Beecham plc Pharmaceuticals................... 96,000 1,150,072
Vodafone Group plc ADR Telecommunications................ 12,000 1,319,250
-----------
9,985,823
-----------
TOTAL COMMON STOCK
(COST $46,075,536) -- 98.26%............................................................. 60,858,760
-----------
COMMERCIAL PAPER -- 3.49%
Par
---------
American Express Credit Corp., 5.51%, 05/01/98 (Cost $2,160,000)............. 2,160,000 2,160,000
-----------
TOTAL INVESTMENTS (Cost $48,235,536)+ -- 101.75%.................................................. $63,018,760
OTHER ASSETS AND LIABILITIES, NET -- (1.75%)...................................................... (1,080,632)
-----------
NET ASSETS -- 100.00%............................................................................. $61,938,128
===========
</TABLE>
* Non-income producing security.
+ The cost for federal income tax purposes. At April 30, 1998, net unrealized
appreciation was $14,783,224.
ADR -- American Depository Receipt.
See notes to financial statements.
6
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
June 25, 1998
TO THE SHAREHOLDER:
In the 1838 Small Cap Equity Fund's first six months of fiscal 1998 (November 1,
1997 through April 30, 1998) the North American equity market demonstrated a
strong rebound from the Fall 1997 correction. During this period the Fund
substantially outperformed its small cap benchmark, the Russell 2000 Index,
appreciating 17.6% compared with 11.8% for the benchmark. The strong absolute
and relative results persisted in both the first and second fiscal quarters.
Although market leadership resided, substantially, in the broad technology and
communications categories, which are sectors where the Fund, by virtue of its
strict value disciplines, invests only on a limited basis, the broad sector
diversification strategy which the Fund employs produced positive returns
through strong stock selection. The Fund's aim is to capture the essence of a
small cap appreciation phase, which it accomplished in the recent six month
period, and then to hold on to those gains better than other small cap managers
during sustained periods of correction or consolidations. This may be
accomplished by adhering to the disciplined investment process explained below.
THE INVESTMENT PROCESS
The 1838 Small Cap Equity Fund employs a very disciplined investment process
focused primarily upon a low price in relation to trailing twelve months'
earnings (low P/E) screen. Accordingly, all stocks purchased for the Fund's
portfolio will be small cap ($900 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.
This small cap, low P/E investment style has been adopted because numerous
studies have concluded that over the long term in North American equities
markets, the smaller the company and the lower the trailing twelve months' P/E
ratio, the better the performance will be in aggregate. A Prudential Securities
study updated through 1997 confirms that over the last 22 years, the return of
the lowest P/E stocks in the small cap universe exceeded that of the highest
valued stocks by 2.6 times.
In reviewing stocks for inclusion in the Fund's portfolio, other fundamental and
quantitative measures are observed and judged to be important in assisting with
the decision-making process. The following aggregate analysis of the stocks held
in the Fund at the end of April 1998 leads us to conclude that the fundamental
characteristics of the holdings are stronger than those for the small cap
benchmark in aggregate.
<TABLE>
<CAPTION>
Summary Characteristics*
----------------------------------------------------------------------
Average Average
Average Average EPS Growth Return on Debt/Total
Market Cap** P/E Ratio 5 years Equity*** Capitalization
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
1838 Small Cap Fund................. $437 MM 16.8x 22.6% 15.6% 34.5%
Russell 2000 Index.................. $660 MM 20.7x 15.0% 15.0% 38.9%
</TABLE>
* This chart represents the characteristics of the Fund's portfolio at April
1998.
** 1838 measures market float (excluding closely held shares) only in
calculating equity capitalization for the Fund's holdings.
*** Past performance is not predictive of future results.
7
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
A comparison with similar studies in recent years suggests that these premium
fundamental characteristics tend to be consistently maintained, relatively, over
time.
During the first half of fiscal 1998, the Small Cap Equity Fund's list of top 10
performing stocks included a variety of companies in a broad number of industry
sectors. That contrasts substantially with previous periods, when the various
financial sectors provided substantial and persistent outperformance. Over the
last year and a half the Fund has slowly reduced its exposure to the financial
sectors due to their full valuations. Presently the largest relative,
incremental new exposure in the portfolio can be found in the consumer sector.
That increased exposure reflects the fact that stocks of companies that deal
with the consumer are relatively inexpensive, and that consumer real income and
the economy as a whole remain strong.
THE OUTLOOK
Through the first half of the Fund's 1998 fiscal year, investors seemed to shrug
off the potential for earnings problems in U.S. companies. Such unbridled
optimism would appear to be unwarranted as the domestic economy has experienced
eight years of unrelenting though maturing expansion, and substantial economic
contraction that has caused our Asian/Pacific trading partners to compete in a
more aggressive manner. Within that framework the operating margins of U.S.
companies seem likely to come under substantial pressure for the first time
since the expansion began back in the early 1990s. The result is likely to
include greater stock market volatility, as investors sort out the real and
imagined winners and losers on a frequent basis. Recent studies have suggested
that the valuation for small cap companies remains relatively depressed in
relation to the biggest companies. In this confusing environment for many
investors, you should know that the highly-disciplined, low P/E, value style
implemented by the 1838 Small Cap Equity Fund will continue to search out
quality companies at the lowest valuations in the same consistent manner it has
employed since its inception in 1996.
Sincerely,
Edwin B. Powell
Vice President and Portfolio Manager
- ------------------------------------
6/98. Shares of the 1838 Small Cap Equity Fund are distributed by Declaration
Distributors, Inc.
8
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
COMMON STOCK -- 90.83%
<S> <C> <C>
AGRICULTURE, FORESTRY & FISHERIES -- 0.92%
Sylvan, Inc.*........................................... 27,980 $ 423,198
-----------
AMUSEMENT/RECREATION -- 1.86%
Primadonna Resorts, Inc................................. 33,200 593,450
Royal Olympic Cruise Lines.............................. 14,300 262,762
-----------
856,212
-----------
FINANCE & INSURANCE -- 15.59%
Insurance Carriers -- 12.57%
Allamerica Financial Corp............................... 7,900 494,737
E.W. Blanch Holdings, Inc............................... 14,670 513,450
Enhance Financial Services Group, Inc................... 7,690 527,726
ESG Re, Ltd............................................. 14,000 360,500
Everest Re Holdings, Inc................................ 7,625 314,531
FPIC Insurance Group, Inc.*............................. 13,300 458,850
Harleysville Group, Inc................................. 19,600 529,200
HCC Insurance Holdings, Inc............................. 16,300 354,525
Life USA Holding, Inc................................... 25,400 384,175
Penn Treaty American Corp.*............................. 6,600 201,300
Penncorp Financial Group, Inc........................... 9,800 254,800
State Auto Financial Corp............................... 7,550 274,631
Stirling Cooke Brown Holdings, Ltd...................... 10,700 302,275
The PMI Group, Inc...................................... 5,300 430,625
W.R. Berkley Corp....................................... 6,850 319,381
Zenith National Insurance............................... 2,100 59,062
-----------
5,779,768
-----------
Savings, Credit & Other Financial Institutions -- 0.82%
Long Island Bancorp, Inc................................ 3,015 198,990
Southern Pacific Funding Corp........................... 10,100 178,012
-----------
377,002
-----------
State & National Banks -- 2.20%
Dime Community Bancorp, Inc.*........................... 17,100 483,075
Riggs National Corp..................................... 12,600 363,038
United Security Bancorporation*......................... 7,381 165,150
-----------
1,011,263
-----------
TOTAL FINANCE & INSURANCE............................................ 7,168,033
-----------
</TABLE>
See notes to financial statements.
9
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
MANUFACTURING -- 49.68%
Builder -- 1.55%
Engle Homes............................................. 16,000 $ 246,000
Toll Brothers, Inc.*.................................... 16,700 465,513
-----------
711,513
-----------
Chemical & Allied Products -- 2.13%
General Chemical Group, Inc............................. 20,885 582,169
OM Group, Inc........................................... 9,000 398,813
-----------
980,982
-----------
Computer & Office Equipment -- 1.02%
Genicom Corp............................................ 31,000 277,063
Kentek Information Systems, Inc......................... 22,000 192,500
-----------
469,563
-----------
Consumer Products -- 3.55%
American Safety Razor Co.*.............................. 15,930 288,731
Block Drug Company, Inc.*............................... 5,623 236,869
Global-Tech Appliance, Inc.............................. 14,200 278,675
Libbey, Inc............................................. 13,615 513,966
Maxwell Shoe Company.................................... 17,800 315,950
-----------
1,634,191
-----------
Farm Machinery -- 0.47%
CTB International Corp.................................. 14,400 216,000
-----------
Food & Beverage -- 0.51%
M & F Worldwide Corp.................................... 24,500 232,750
-----------
Furniture, Fixtures & Appliances -- 3.76%
American Woodmark Corp.................................. 10,300 311,575
Culp, Inc............................................... 9,900 188,100
Fedders Corp. (A Shares)................................ 36,040 193,715
Furniture Brands International, Inc.*................... 18,600 546,375
Holophane Corp.*........................................ 14,100 387,750
Royal Appliance Manufacturing Co.*...................... 18,200 100,100
-----------
1,727,615
-----------
Misc. Containers -- 2.80%
Sea Containers, Ltd..................................... 12,600 475,650
Silgan Holdings, Inc.................................... 13,000 455,000
US Can Corp.*........................................... 20,365 357,660
-----------
1,288,310
-----------
</TABLE>
See notes to financial statements.
10
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
Misc. Electrical Machinery, Equipment & Supplies -- 6.33%
AVX Corp................................................ 20,300 $ 417,419
Belden, Inc............................................. 10,000 414,375
Burr-Brown Corp.*....................................... 27,318 831,492
General Cable Corp...................................... 20,900 947,031
HMT Technology Corp.*................................... 23,000 299,000
-----------
2,909,317
-----------
Misc. Fabricated Metal Products -- 4.01%
Coastcast Corp.*........................................ 22,900 492,350
Delco Remy International, Inc........................... 23,400 374,400
Doncasters plc ADR*..................................... 9,300 285,975
Quanex Corp............................................. 8,200 240,362
Wolverine Tube, Inc.*................................... 11,475 451,828
-----------
1,844,915
-----------
Misc. Instrumentation -- 0.79%
Fluke Corp.............................................. 11,440 363,220
-----------
Misc. Manufacturing Industries -- 1.04%
Velcro Industries N.V................................... 4,180 478,610
-----------
Paper & Paper Products -- 4.24%
American Pad & Paper Co.*............................... 15,125 108,711
Buckeye Technology, Inc.*............................... 32,680 759,810
Paragon Trade Brands, Inc.*............................. 16,184 302,439
Schweitzer-Mauduit International, Inc................... 8,710 289,608
Shorewood Packaging Corp................................ 18,900 490,219
-----------
1,950,787
-----------
Precision Instruments & Medical Supplies -- 3.61%
Del Global Technologies Corp.*.......................... 32,600 399,350
Haemonetics Corp.*...................................... 23,200 411,800
Hologic, Inc.*.......................................... 17,800 418,300
Marquette Medical Systems (A Shares)*................... 15,900 429,300
-----------
1,658,750
-----------
Printing & Publishing -- 0.71%
Journal Register Co..................................... 14,500 327,156
-----------
Telecommunications Equipment -- 1.40%
Oak Industries, Inc.*................................... 17,690 642,368
-----------
Textiles & Apparel -- 6.46%
Burlington Industries, Inc.............................. 30,800 539,000
Dan River, Inc.......................................... 25,500 492,469
Galey & Lord, Inc....................................... 5,700 148,912
Guilford Mills, Inc..................................... 18,100 511,325
</TABLE>
See notes to financial statements.
11
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
Quaker Fabric Corp.*.................................... 13,500 $ 386,438
Quiksilver, Inc.*....................................... 16,600 312,287
Tropical Sportswear International*...................... 26,700 453,900
Worldtex, Inc.*......................................... 16,800 128,100
-----------
2,972,431
-----------
Transportation -- 3.21%
America West Holding Corp.*............................. 6,500 196,625
Canadian National Railway Co............................ 5,700 370,856
Indigo Aviation AB-Sponsor ADR.......................... 19,800 264,825
Rollins Truck Leasing Corp.............................. 48,450 641,963
-----------
1,474,269
-----------
Transportation Equipment -- 2.09%
Avondale Industries, Inc.*.............................. 16,300 438,063
Coachmen Industries, Inc................................ 21,100 524,863
-----------
962,926
-----------
TOTAL MANUFACTURING.................................................. 22,845,673
-----------
MINING -- 1.82%
Crude Petroleum & Natural Gas
Belco Oil & Gas Corp.*.................................. 11,300 198,456
Seacor Smit, Inc........................................ 7,400 433,825
Willbros Group, Inc.*................................... 12,300 204,487
-----------
TOTAL MINING......................................................... 836,768
-----------
REAL ESTATE INVESTMENT TRUSTS -- 2.52%
Brandywine Realty Trust................................. 13,000 295,750
Burnham Pacific Properties, Inc......................... 19,900 281,088
Healthcare Realty Trust, Inc............................ 12,200 343,125
Pacific Gulf Properties, Inc............................ 10,900 239,800
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS.................................. 1,159,763
-----------
SERVICES -- 5.74%
Business Services -- 0.27%
Obie Media Corp.*....................................... 11,330 122,506
-----------
Computer Services -- 3.41%
Galileo International, Inc.............................. 12,900 520,837
The Learning Company, Inc.*............................. 28,700 821,538
Wall Data, Inc.......................................... 14,700 226,012
-----------
1,568,387
-----------
</TABLE>
See notes to financial statements.
12
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- -----------
<S> <C> <C>
Medical & Health Services -- 2.06%
Retirement Care Association, Inc........................ 20,700 $ 160,425
Sun Healthcare Group, Inc.*............................. 16,300 273,025
Trigon Healthcare, Inc.................................. 16,900 513,338
-----------
946,788
-----------
TOTAL SERVICES....................................................... 2,637,681
-----------
WHOLESALE & RETAIL TRADE -- 12.71%
Retail Stores -- 7.49%
BJ's Wholesale Club, Inc................................ 14,700 588,919
Bon-Ton Stores, Inc..................................... 15,700 257,087
Brylane, Inc............................................ 7,500 440,625
Cole National Corp...................................... 9,400 349,562
Duckwall-Alco Stores, Inc.*............................. 10,500 191,625
Finlay Enterprises, Inc.*............................... 11,900 325,763
Little Switzerland, Inc.*............................... 19,595 156,760
Ruddick Corp............................................ 32,635 585,390
Zale Corp............................................... 18,175 547,522
-----------
3,443,253
-----------
Retail Building Materials -- 1.50%
Building Materials Holding Corp.*....................... 31,115 451,168
Cameron Ashley Building Products*....................... 12,100 240,487
-----------
691,655
-----------
Restaurants -- 0.62%
O'Charley's, Inc........................................ 14,100 283,763
-----------
Wholesale Electronic Equip. & Computers -- 1.17%
Marshall Industries*.................................... 12,745 413,416
Pioneer-Standard Electronics, Inc....................... 9,900 124,369
-----------
537,785
-----------
Wholesale Electronic Equip. & Computers -- 1.93%
Day Runner, Inc.*....................................... 9,500 228,000
Pameco Corp.*........................................... 10,600 206,700
United Stationers, Inc.................................. 7,200 454,500
-----------
889,200
-----------
TOTAL WHOLESALE & RETAIL TRADE....................................... 5,845,656
-----------
TOTAL COMMON STOCK (Cost $34,170,065)................................ 41,772,984
-----------
</TABLE>
See notes to financial statements.
13
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par (Note 2)
---------- -----------
<S> <C> <C>
MISCELLANEOUS ASSETS -- 5.09%
Corefund Elite Cash Fund (Cost $2,341,240).............. $2,341,240 $ 2,341,240
-----------
COMMERCIAL PAPER -- 12.07%
American Express Credit Corp., 5.51%, 05/01/98 (Cost
$5,550,000)............................................ 5,550,000 5,550,000
-----------
TOTAL INVESTMENTS (Cost $42,061,306)+ -- 107.99%............................ $49,664,224
OTHER ASSETS AND LIABILITIES, NET -- (7.99%)................................ (3,673,702)
-----------
NET ASSETS -- 100.00%....................................................... $45,990,522
===========
</TABLE>
* Non-income producing security.
+ The cost for federal income tax purposes. At April 30, 1998, net unrealized
appreciation was $7,602,918.
See notes to financial statements.
14
<PAGE>
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
June 25, 1998
TO THE SHAREHOLDER:
Bond yields declined over the six months ended April 30, with short-term yields
falling by only five basis points, but 30-year yields declining by 20 basis
points. In the fourth quarter of 1997, the bond market experienced a flight to
quality as a result of the deterioration in Asian currencies, and declining
goods inflation. Meanwhile, economic growth continued unfettered, but
economists' views on how the Asian situation would impact future growth covered
a fairly wide range. Some economists expected the impact to be only a .5% drag
on 1998 GDP, while others saw a much larger impact. Our view has been that the
impact would fall at the lower end of the range, and that growth might slow from
the projected 3% level, to perhaps 2 1/2%. We continue to believe this scenario
will present the best possible outcome for the Federal Reserve, which had become
increasingly concerned that the strong labor market, combined with higher than
3% growth, would ultimately lead to higher wage inflation and force it to
tighten credit conditions. Since the Asian crisis would undoubtedly lead to even
stiffer price competition in the goods market, higher imports, and lower
exports, the resultant interim drag on growth, and downward pressure on goods
prices gives the Fed "breathing room" to stand pat on monetary policy, for now.
If the slowdown in Asia spreads to other continents, the Fed may even have to
consider lowering interest rates in order to stimulate growth. The early read on
this possible outcome seems to warrant a fairly low probability, however. Even
those economists with the most pessimistic forecasts have backed off from their
gloomy projections. As we enter the second quarter of 1998, we believe bond
investors will continue shifting between the flight-to-quality strategy, and the
higher growth/tight labor market strategy. This implies a trading range on
domestic yields that could be as wide as 5.5% to 6.25% on 30-year Treasuries.
Because current rates are toward the upper end of this range, the duration of
the 1838 Fixed Income Fund is 4.7 years, or 106% of the Lehman Aggregate Index.
If rates drift upward, the duration will likely be extended, while a decline in
yields toward 5.5% would initiate a shortening in duration.
The Fund has increased exposure to the corporate bond market, particularly as
opportunities have arisen from short-term sell-offs in the equity markets.
Mortgage-backed securities remain neutral-weight versus the Index on an absolute
basis, but overweight slightly on a duration-weighted basis. Portfolio exposure
to government securities is underweight relative to the Index:
<TABLE>
<CAPTION>
1838 Fixed Lehman
Income Fund Aggregate Index
----------- ---------------
<S> <C> <C>
Corporate Bonds.................................... 37% 22%
Mortgage-Backed.................................... 32% 30%
Governments........................................ 27% 48%
Cash............................................... 4% 0%
--- ---
TOTAL.............................................. 100% 100%
--- ---
</TABLE>
15
<PAGE>
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
The total return for the 1838 Fixed Income Fund for the six months ended 4/30/98
was 2.88%. Year-to-date through April, the Fund returned 2.56%, versus 2.09% for
the Lehman Aggregate Index.
Sincerely,
Marcia Zercoe
Vice President & Portfolio Manager
- ------------------------------------
6/98. Shares of the 1838 Fixed Income Fund are distributed by Declaration
Distributors, Inc.
16
<PAGE>
1838 FIXED INCOME FUND
SCHEDULE OF NET ASSETS (UNAUDITED) APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's/S&P Principal Value
Rating* Amount (Note 2)
----------- ---------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- 35.47%
ELECTRIC UTILITIES -- 6.15%
Korea Electric Power Co., 7.00%, 10/01/02............................... Ba1/BB+ $1,950,000 $ 1,778,185
Korea Electric Power Co., 7.00%, 02/01/27............................... Ba1/BB+ 800,000 681,600
Utilicorp United, Inc., 9.00%, 11/15/21................................. Baa3/BBB 800,000 872,796
-----------
3,332,581
-----------
FINANCIAL -- 16.76%
Associates Corp. of N.A., 6.50%, 10/15/02............................... Aa3/AA- 1,700,000 1,721,818
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27............... Aaa3/A- 1,350,000 1,416,485
FBS Capital I, Capital Securities, 8.09%, 11/15/26...................... A1/BBB+ 600,000 635,512
Ford Motor Credit Global, 7.20%, 06/15/07............................... A1/A 1,050,000 1,106,882
JPM Capital Trust II, Capital Securities, 7.95%, 02/01/27............... A1/BBB+ 1,200,000 1,248,563
Keycorp Institutional Capital - A, 7.826%, 12/01/20..................... A1/BBB 900,000 934,267
Lehman Brothers, 6.25%, 04/01/03........................................ Baa1/A 1,000,000 994,381
Salomon, Inc., 6.75%, 02/15/03.......................................... A2/A 1,000,000 1,016,095
-----------
9,074,003
-----------
FOREIGN -- 0.74%
Republic of Indonesia, 7.75%, 08/01/06.................................. B3/B- 500,000 400,000
-----------
INDUSTRIAL & MISCELLANEOUS -- 9.95%
Harcourt General, Inc., 7.30%, 08/01/20................................. Baa1/BBB+ 1,850,000 1,824,710
News America Holdings, Inc., Gtd. Debs., 7.90%, 12/01/95................ Baa3/BBB- 1,875,000 1,989,330
Societe Generale (NY), 7.40%, 06/01/20.................................. A1/A+ 1,500,000 1,572,412
-----------
5,386,452
-----------
MANUFACTURING -- 1.87%
Raytheon Co., 6.75%, 08/15/07........................................... Baa1/BBB 1,000,000 1,013,967
-----------
TOTAL CORPORATE BONDS (COST $19,192,234)........................................................... 19,207,003
-----------
MORTGAGE BACKED SECURITIES -- 32.33%
FHLMC, Ser. T-8, Class A6, 7.00%, 01/15/19.............................. NR/NR 1,000,000 1,018,020
FHLMC Pool #G10557, 6.50%, 07/01/20..................................... NR/NR 2,176,354 2,189,325
FHLMC Pool #C80342, 6.50%, 09/01/20..................................... NR/NR 1,448,003 1,439,126
FNMA Pool #250890, 7.00%, 04/01/04...................................... NR/NR 2,218,966 2,249,632
FNMA Pool #303728, 6.00%, 01/01/20...................................... NR/NR 1,925,652 1,898,905
GNMA Pool #780312, 6.00%, 01/15/20...................................... NR/NR 1,679,176 1,626,618
GNMA Pool #417239, 7.00%, 02/15/20...................................... NR/NR 2,348,133 2,377,766
</TABLE>
See notes to financial statements.
17
<PAGE>
1838 FIXED INCOME FUND
SCHEDULE OF NET ASSETS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's/S&P Principal Value
Rating* Amount (Note 2)
----------- ---------- -----------
<S> <C> <C> <C>
GNMA Pool #2038, 8.50%, 07/20/20........................................ NR/NR 261,676 273,773
GNMA Pool #780374, 7.50%, 12/15/20...................................... NR/NR 1,445,009 1,487,261
GNMA Pool #462556, 6.50%, 03/15/28...................................... NR/NR 2,970,001 2,944,014
TOTAL MORTGAGE BACKED SECURITIES (COST $17,344,717)................................................ 17,504,440
-----------
U.S TREASURY OBLIGATIONS -- 26.48%
U.S. Treasury Notes, 5.875%, 02/15/00................................... NR/NR 2,000,000 2,008,750
U.S. Treasury Notes, 5.500%, 04/15/00................................... NR/NR 800,000 798,500
U.S. Treasury Notes, 5.625%, 11/30/00................................... NR/NR 1,500,000 1,500,000
U.S. Treasury Notes, 6.250%, 04/30/01................................... NR/NR 2,400,000 2,440,500
U.S. Treasury Notes, 6.625%, 06/30/01................................... NR/NR 2,050,000 2,107,017
U.S. Treasury Notes, 6.000%, 07/31/02................................... NR/NR 2,000,000 2,023,750
U.S. Treasury Notes, 5.750%, 08/15/03................................... NR/NR 2,000,000 2,005,626
U.S. Treasury Notes, 3.375%, 01/15/07................................... NR/NR 1,500,000 1,452,657
-----------
TOTAL U.S TREASURY OBLIGATIONS (COST $14,340,933).................................................. 14,336,800
-----------
MISCELLANEOUS ASSETS -- 4.24%
Corefund Elite Cash Fund (Cost $2,297,993).............................. NR/NR 2,297,993 2,297,993
-----------
COMMERCIAL PAPER -- 0.92%
American Express Credit Corp., 5.51%, 05/01/98 (Cost $500,000).......... A1/P1 500,000 500,000
-----------
TOTAL INVESTMENTS (COST $53,675,877)+ -- 99.44%.......................................................... $53,846,236
===========
OTHER ASSETS AND LIABILITIES, NET -- 0.56%............................................................... 302,587
-----------
NET ASSETS -- 100.00%.................................................................................... $54,148,823
===========
</TABLE>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Adviser. The Moody's/S&P rating for debt
securities is not covered by the report of independent accountants.
+ The cost for federal income tax purposes. At April 30, 1998, net unrealized
appreciation was $170,359.
See notes to financial statements.
18
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Small Cap Fixed Income
Equity Fund Equity Fund Fund
--------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at market (identified cost $48,235,536, $42,061,306,
$53,675,877) (Note 2).................................................. $63,018,760 $49,664,224 $ 53,846,236
Cash..................................................................... 33,233 -- --
Receivables:
Dividends and interest................................................. 67,376 8,177 772,230
Foreign taxes recoverable.............................................. 3,699 -- --
Investment securities sold............................................. 737,046 201,553 --
Reimbursement due from Adviser........................................... -- -- 31,207
Other assets............................................................. 64,938 -- --
--------------------------------------------
Total assets......................................................... 63,925,052 49,873,954 54,649,673
--------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased........................................ $ 1,824,859 $ 3,802,112 $ --
Income distributions................................................... -- -- 326,038
Accrued expenses (Note 4).............................................. 161,731 81,320 109,910
Other liabilities........................................................ 334 -- 64,902
--------------------------------------------
Total liabilities.................................................... 1,986,924 3,883,432 500,850
--------------------------------------------
NET ASSETS............................................................... $61,938,128 $45,990,522 $ 54,148,823
============================================
NET ASSETS CONSIST OF:
Common stock............................................................. $ 4,664,877 $ 3,272,250 $ 5,299,959
Additional capital paid in............................................... 43,079,295 34,026,432 48,532,555
Undistributed net investment income (loss)............................... (209,983) (266,609) 57,182
Accumulated realized gain (loss) on:
Investments............................................................ 54,569 1,355,531 88,768
Foreign currency transactions.......................................... (433,854) -- --
Net unrealized appreciation on:
Investments............................................................ 15,952,072 7,602,918 170,359
Translation of assets and liabilities in foreign currencies............ (1,168,848) -- --
--------------------------------------------
NET ASSETS, for 4,664,877, 3,272,250, and 5,299,959 shares outstanding,
respectively........................................................... $61,938,128 $45,990,522 $ 54,148,823
============================================
Net Asset Value, offering and redemption price per share................. $ 13.281 $ 14.052 $ 10.223
============================================
</TABLE>
1 $61,938,128 divided by 4,664,877 outstanding shares of beneficial interest,
no par value.
2 $45,990,522 divided by 3,272,250 outstanding shares of beneficial interest,
no par value.
3 $54,148,823 divided by 5,299,959 outstanding shares of beneficial interest,
no par value.
See notes to financial statements.
19
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Small Cap Fixed Income
Equity Fund Equity Fund Fund++
--------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................................... $ 108,067 $ 96,095 $ --
Interest................................................................ 42,700 58,226 1,610,091
--------------------------------------------
Total Investment Income............................................... 150,767 154,321 1,610,091
--------------------------------------------
EXPENSES:
Investment advisory fee (Note 4).......................................... 204,712 124,713 116,854
Administration fee (Note 4)............................................... 28,500 17,231 24,631
Accounting fee (Note 4)................................................... 30,565 19,146 19,307
Custodian fees............................................................ 24,421 5,467 3,017
Transfer agency fees...................................................... 11,740 9,605 8,600
Directors' fees and expenses (Note 4)..................................... 5,439 3,951 4,050
Audit..................................................................... 10,186 5,236 5,430
Legal..................................................................... 15,474 5,493 5,430
Registration fees......................................................... 6,811 8,082 7,607
Report to shareholders.................................................... 11,917 5,423 7,447
Amortization of organizational expense.................................... 12,820 -- --
Other..................................................................... 11,656 3,333 3,091
--------------------------------------------
Total expenses before fee waivers......................................... 374,241 207,680 205,464
Advisory fee waived (Note 4).......................................... (33,918) (2,313) (36,897)
--------------------------------------------
Total expenses, net................................................... 340,323 205,367 168,567
--------------------------------------------
Net investment (income) loss............................................ (189,556) (51,046) 1,441,524
--------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments........................................................... 54,569 1,355,531 88,768
Foreign currency transactions......................................... (433,853) -- --
Net unrealized appreciation (depreciation) during the period on:
Investments........................................................... 10,988,854 3,907,402 (120,254)
Translation of assets and liabilities in foreign currencies........... (1,171,218) -- --
--------------------------------------------
Net gain on investments and foreign currency............................ 9,438,352 5,262,933 (31,486)
--------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $ 9,248,795 $5,211,887 $1,410,038
============================================
</TABLE>
++ The Fixed Income Fund commenced operations on September 2, 1997.
See notes to financial statements.
20
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Small Cap Fixed Income
Equity Fund Equity Fund Fund++
------------------------------------------
FOR THE PERIOD ENDED APRIL 30, 1998 (UNAUDITED)
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss).............................. $ (189,556) $ (51,046) $ 1,441,524
Net realized gain (loss) on:
Investments............................................. 54,569 1,355,531 88,768
Foreign currency transactions........................... (433,853) -- --
Net unrealized appreciation during the period on:
Investments............................................. 10,988,854 3,907,402 (120,254)
Translation of assets and liabilities in foreign
currencies............................................ (1,171,218) -- --
------------------------------------------
Net increase in net assets resulting from operations........ 9,248,796 5,211,887 1,410,038
------------------------------------------
Distributions to shareholders from:
Net investment income ($0.004, $0, and $0.319 per share,
respectively)......................................... (17,086) -- (1,565,972)
Net realized gain ($0.669, $0.948, and $0.021 per share,
respectively)......................................... (2,857,635) (2,137,768) (92,049)
------------------------------------------
Total Distributions......................................... (2,874,721) (2,137,768) (1,658,021)
------------------------------------------
Increase in net assets from Fund share transactions (Note
5)........................................................ 4,518,455 13,993,866 21,859,637
------------------------------------------
Increase in net assets...................................... 10,892,530 17,067,985 21,611,654
NET ASSETS:
Beginning of period....................................... 51,045,598 28,922,537 32,537,169
------------------------------------------
End of period............................................. $61,938,128 $45,990,522 $54,148,823
==========================================
FOR THE PERIOD ENDED OCTOBER 31, 1997
INCREASE IN NET ASSETS
Operations:
Net investment income (loss).............................. $ 136,987 $ (50,699) $ 181,298
Net realized gain (loss) on:
Investments............................................. 3,183,377 2,095,990 92,381
Foreign currency transactions........................... (126,955) -- --
Net unrealized appreciation during the period on:
Investments............................................. 3,571,590 3,538,690 290,613
Translation of assets and liabilities in foreign
currencies............................................ 8,250 -- --
------------------------------------------
Net increase in net assets resulting from operations........ 6,773,249 5,583,981 564,292
------------------------------------------
Distributions to shareholders from:
Net investment income ($0.04, $0, and $0 per share,
respectively)......................................... (148,857) -- --
Net realized gain ($0, $0.09, and $0 per share,
respectively)......................................... -- (67,511) --
------------------------------------------
Total Distributions......................................... (148,857) (67,511) --
------------------------------------------
Increase in net assets from Fund share transactions (Note
5)........................................................ 3,212,276 17,978,416 31,972,877
------------------------------------------
Increase in net assets...................................... 9,836,668 23,494,886 32,537,169
NET ASSETS:
Beginning of period....................................... 41,208,930 5,427,651 --
------------------------------------------
End of period............................................. $51,045,598 $28,922,537 $32,537,169
==========================================
</TABLE>
++ The Fixed Income Fund commenced operations on September 2, 1997.
See notes to the financial statements
21
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables include selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from
financial statements. They should be read in conjunction with the financial
statements and notes thereto.
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Six Months
Ended For the Fiscal Year or Period
April 30, Ended October 31,
1998 ---------------------------------
(Unaudited) 1997 1996 1995+
-----------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD.................. $ 11.99 $ 10.44 $ 9.61 $ 10.00
-----------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income (loss)......................... (0.05) 0.02 0.07 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency transactions...... 2.02 1.57 0.80 (0.41)
-----------------------------------------------------------
Total from investment operations................. 1.97 1.59 0.87 (0.39)
-----------------------------------------------------------
Distributions:
From net investment income........................... (0.01) (0.04) (0.04) 0.00
From net realized capital gain....................... (0.67) 0.00 0.00 0.00
-----------------------------------------------------------
Total distributions.............................. (0.68) (0.04) (0.04) 0.00
-----------------------------------------------------------
NET ASSET VALUE - END OF PERIOD........................ $ 13.28 $ 11.99 $ 10.44 $ 9.61
===========================================================
TOTAL RETURN........................................... 17.30% 15.23% 9.11% (3.90)%***
Ratios (to average net assets)/Supplemental Data:
Expenses1.......................................... 1.25% 1.25% 1.25% 1.25%*
Net investment income.............................. (0.69)% 0.28% 0.70% 1.02%*
Portfolio turnover rate................................ 46.58% 92.33% 59.11% 42.21%*
Average commission rate paid........................... $0.0304 $0.0308 $0.0211 --
Net assets at end of period (000's omitted)............ $61,938 $51,046 $41,209 $16,764
</TABLE>
See notes to financial statements.
22
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Six Months
Ended For the Fiscal Year or Period
April 30, Ended October 31,
1998 ------------------------------
(Unaudited) 1997 1996+
--------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD................ $ 13.08 $ 9.57 $ 10.00
--------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment (loss).............................. (0.02) (0.02) (0.02)
Net realized and unrealized gain (loss) on
investments...................................... 1.94 3.62 (0.41)
--------------------------------------------------------------
Total from investment operations............... 1.92 3.60 (0.43)
--------------------------------------------------------------
Distributions:
From net realized capital gains.................... (0.95) (0.09) 0.00
--------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD...................... $ 14.05 $ 13.08 $ 9.57
==============================================================
TOTAL RETURN......................................... 17.60% 37.81% (4.30%)***
Ratios (to average net assets)/Supplemental Data:
Expenses2.......................................... 1.25% 1.25% 1.25%*
Net investment income.............................. (0.31)% (0.27)% (0.52%)*
Portfolio turnover rate.............................. 59.63% 67.66% 94.38%*
Average commission rate paid......................... $0.0602 $0.0595 $0.0512
Net assets at end of period (000's omitted).......... $45,991 $28,923 $ 5,428
</TABLE>
See notes to financial statements.
23
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
FIXED INCOME FUND
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
1998 For the Period Ended
(Unaudited) October 31, 1997+
--------------------------------------------
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD....................... $ 10.27 $ 10.00
--------------------------------------------
INVESTMENT OPERATIONS:
Net investment income..................................... 0.29 0.06
Net realized and unrealized gain on investment............ 0.00 0.21
--------------------------------------------
Total from investment operations...................... 0.29 0.27
--------------------------------------------
Distributions:
From net investment income................................ (0.32) 0.00
From net realized capital gain............................ (0.02) 0.00
--------------------------------------------
Total distributions................................... (0.34) 0.00
--------------------------------------------
NET ASSET VALUE - END OF PERIOD............................. $ 10.22 $ 10.27
============================================
TOTAL RETURN................................................ 2.88% 2.70%***
Ratios (to average net assets)/Supplemental Data:
Expenses3................................................. 0.75% 0.75%*
Net investment income..................................... 6.37% 5.83%*
Portfolio turnover rate..................................... 25.03% 39.12%**
Net assets at end of period (000's omitted)................. $54,149 $ 32,537
</TABLE>
* Annualized.
** Not annualized.
*** Total return not annualized.
+ The International Equity Fund commenced operations on August 3, 1995. The
Small Cap Equity Fund commenced operations on June 17, 1996. The Fixed
Income Fund commenced operations on September 2, 1997.
1 Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.36%, 1.44%, 1.80% and 2.60% for the six-month
period ended April 30, 1998, for the fiscal years ended October 31, 1997,
1996 and the period ended October 31, 1995, respectively.
2 Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.27%, 1.84% and 4.63% for the six-month period
ended April 30, 1998, for the fiscal year ended October 31, 1997 and the
period ended October 31, 1996, respectively.
3 Without waivers and reimbursements the annualized ratio of expenses to
average daily net assets would have been 0.91% and 2.12% for the six-month
period ended April 30, 1998 and the period ended October 31, 1997,
respectively.
See notes to financial statements.
24
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 -- DESCRIPTION OF THE FUNDS
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 three series: the 1838 International Equity
Fund, the 1838 Small Cap 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 Equity Fund"), the first
of the 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 Small Cap Equity Fund (the "Small Cap Equity 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 $1 billion 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 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 65% 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, 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 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 April 30, 1998, there were no
securities valued under procedures established by the Board.
Federal Income Taxes. Each Fund is treated as a separate entity and intends to
continue to qualify 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 treatments for foreign currency
transactions for the International Equity Fund and differing cost basis for
securities sold for the Small Cap Equity Fund, since certain securities were
transferred to the Fund at its inception. These distributions by each Fund will
be made annually in December. Additional distributions may be made by each Fund
to the extent necessary.
25
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Deferred Organizational Costs. Costs incurred by the International Equity 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 International Equity
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 Equity 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 at the end of the fiscal year 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 Equity Fund may enter into forward foreign currency exchange
contracts. Additionally, the International Equity 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.
Each 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
During the period ended April 30, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated as follows:
26
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES -- (CONTINUED)
<TABLE>
<CAPTION>
International Small Cap Fixed Income
Equity Fund Equity Fund Fund
------------- ----------- ------------
<S> <C> <C> <C>
Purchases................................. $ 6,368,228 $ 9,777,772 $8,977,898
Sales..................................... 6,509,598 8,771,841 8,052,868
</TABLE>
NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust, on behalf of each Fund, employs 1838 Investment Advisors, L.P. (the
"Investment Advisor"), a Delaware limited partnership and registered investment
adviser under the 1940 Act, to furnish investment advisory services to the Funds
pursuant to an Investment Advisory Agreement with the Trust. The Investment
Adviser supervises the investments of the assets of each Fund in accordance with
each Fund's investment objective, policies and restrictions.
The Trust pays the Investment Adviser a monthly fee at the following annual
rates of each Fund's average daily net assets: 0.75% for the International
Equity Fund, 0.75% for the Small Cap Equity Fund and 0.50% for the Fixed Income
Fund. The Investment Adviser has voluntarily agreed to waive its advisory fee or
reimburse each Fund monthly to the extent that the total operating expenses will
exceed the following annual rates of each Fund's average daily net assets: 1.25%
for the International Equity Fund, 1.25% for the Small Cap Equity Fund and 0.75%
for the Fixed Income Fund. This undertaking may be rescinded at any time in the
future.
The following table summarizes the advisory fees for the period ended April 30,
1998:
<TABLE>
<CAPTION>
Gross Advisory Fee Reimbursement
Advisory Fee Waiver From Advisor
------------ ------------ -------------
<S> <C> <C>
International Equity Fund................... $204,712 $ 33,918 --
Small Cap Equity Fund....................... 124,713 2,313 --
Fixed Income Fund........................... 116,854 36,897 --
</TABLE>
Declaration Service Company, Inc. ("DSC"), serves as Administrator to the Trust
pursuant to an Administration Agreement with the Trust on behalf of each Fund.
As Administrator, DSC is responsible for services such as financial reporting,
compliance monitoring and corporate management. For the services provided, DSC
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. For the period ended April 30, 1998, DSC's administration fees amounted
to $28,500, $17,231 and $24,631, for the International Equity Fund, the Small
Cap Equity Fund and the Fixed Income Fund, respectively. At April 30, 1998,
administration fees payable to DSC amounted to $2,162, $1,542 and $1,921, for
the International Equity Fund, the Small Cap Equity Fund, and the Fixed Income
Fund, respectively.
Declaration Distributors, Inc. ("DDI"), has been engaged pursuant to a
Distribution Agreement with the Trust to assist in securing purchasers for
shares of each Fund. DDI also directly, or through its affiliates, provides
investor support services. DDI receives no compensation for distribution of
shares of the Funds, except for reimbursement
27
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
NOTE 4 -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES -- (CONTINUED)
of out-of-pocket expenses. There are no expenses payable to DDI by the Funds for
the period ended April 30, 1998.
DSC serves as Accounting Agent to the Funds. As Accounting Agent, DSC 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. For the
period ended April 30, 1998, Accounting service fees payable to DSC amounted to
$1,922, $1,371 and $1,708, for the International Equity Fund, the Small Cap
Equity Fund and the Fixed Income Fund, respectively.
DSC also serves as the Fund's transfer agent pursuant to a Transfer Agency
Agreement with the Trust. For these services, DSC receives a monthly fee
computed on the basis of the number of shareholder accounts that the Transfer
Agent maintains for each Fund during the month, and is reimbursed for
out-of-pocket expenses. For the period ended April 30, 1998, Transfer Agent fees
payable to DSC amounted to $1,621, $976 and $1,017 the International Equity
Fund, the Small Cap Equity Fund and the Fixed Income Fund, respectively.
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 April 30, 1998, 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 EQUITY FUND
<TABLE>
<CAPTION>
For the Six-Months
Ended April 30, 1998 For the Fiscal Year
(Unaudited) Ended October 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 286,174 $ 3,354,605 891,866 $10,719,953
Shares issued to shareholders in
reinvestment of distributions............ 234,719 2,586,605 12,343 133,064
Shares redeemed............................ (113,819) (1,422,755) (592,270) (7,640,741)
---------- ----------- ---------- -----------
Net increase............................... 407,074 $ 4,518,455 311,939 $ 3,212,276
=========== ===========
Shares outstanding:
Beginning of period...................... 4,257,803 3,945,864
End of period............................ 4,664,877 4,257,803
========== ==========
</TABLE>
28
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED APRIL 30, 1998
- --------------------------------------------------------------------------------
NOTE 5 -- FUND SHARE TRANSACTIONS -- (CONTINUED) SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
For the Six-Months
Ended April 30, 1998 For the Fiscal Year
(Unaudited) Ended October 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 915,707 $12,282,279 1,708,267 $18,663,076
Shares issued to shareholders in
reinvestment of distributions............ 167,293 1,995,798 6,771 67,511
Shares redeemed............................ (22,638) (284,211) (70,119) (752,171)
---------- ----------- ---------- -----------
Net increase............................... 1,060,362 $13,993,866 1,644,919 $17,978,416
=========== ===========
Shares outstanding:
Beginning of period...................... 2,211,888 566,969
---------- ----------
End of period............................ 3,272,250 2,211,888
========== ==========
</TABLE>
FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Period
For the Six-Months September 2, 1997
Ended April 30, 1998 (Commencement of Operations)
(Unaudited) Through October 31, 1997
--------------------------- -----------------------------
Shares Amount Shares Amount
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................ 2,292,312 $23,530,400 3,209,597 $32,384,250
Shares issued to shareholders in
reinvestment of distributions............ 116,533 1,183,970 0 0
Shares redeemed............................ (277,951) (2,854,733) (40,532) (411,373)
---------- ----------- ---------- -----------
Net increase............................... 2,130,894 $21,859,637 3,169,065 $31,972,877
=========== ===========
Shares outstanding:
Beginning of period...................... 3,169,065 0
---------- ----------
End of period............................ 5,299,959 3,169,065
========== ==========
</TABLE>
NOTE 6 -- COMMITMENTS
As of April 30, 1998, the International Equity Fund had no forward foreign
currency exchange contracts.
29
<PAGE>
I N V E S T M E N T A D V I S E R
- --------------------------------------------------------------------------------
1838 Investment Advisors, L.P.
Five Radnor Corporate Center
Suite 320
100 Matsonford Road
Radnor, PA 19087
U N D E R W R I T E R
- --------------------------------------------------------------------------------
Declaration Distributors, Inc.
555 North Lane
Suite 6160
Conshohocken, PA 19428
S H A R E H O L D E R S E R V I C E S
- --------------------------------------------------------------------------------
Declaration Service Company, Inc.
555 North Lane
Suite 6160
Conshohocken, PA 19428
C U S T O D I A N S
- --------------------------------------------------------------------------------
Bankers Trust Company
280 Park Avenue
New York, NY 10017
CoreStates Bank, N.A.
530 Walnut Street
Philadelphia, PA 19101
L E G A L C O U N S E L
- --------------------------------------------------------------------------------
Pepper Hamilton L.L.P.
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103
A U D I T O R S
- --------------------------------------------------------------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
1838
INVESTMENT ADVISORS FUNDS
- --------------------------------------------------------------------------------
International Equity Fund
Small Cap Equity Fund
Fixed Income Fund
Semi-Annual Report
April 30, 1998
<PAGE>
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
December 10, 1997
TO THE SHAREHOLDER:
The net asset value per share of your Fund as of October 31, 1997 was $11.99 per
share. Compared with the net asset value per share of $11.29 as of April 30,
1997, the return on your investment for the most recent half year period was
6.2%. During this period, the benchmark for the Fund, the EAFE index, which
tracks the performance of the equity markets of Europe, Australia and the Far
East, showed a total return of 3.0%. Also, over the last twelve months, the
Fund's return compared favorably with its benchmark at 15.2% versus 4.6%.
In the printed version there appears a line chart with the following plot points
depicted:
<TABLE>
<CAPTION>
8/3/95 10/31/95 4/30/96 10/31/96 4/30/97 10/31/97
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1838 International Equity Fund 10,000 9,610 10,817 10,490 11,377 12,082
EAFE Index 10,000 9,550 10,820 10,560 10,740 11,046
</TABLE>
* Includes all expenses and/or charges, and thus represents a "net return".
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 overseas equity markets generally performed well from April through
September, with exceptions in the Far East. A correction in August was short and
was followed by a recovery in September. During October, however, currency and
equity market weakness in the Far East affected investor confidence in Europe
and the Americas negatively and the EAFE benchmark lost close to 8% in that one
month.
During the May through October period, your Fund's returns were again boosted
primarily by its stock selection. In our investment process we closely follow
and compare the equity valuations in terms of price earnings that market
participants are applying, to the expected growth in earnings of the companies
involved. Any reduction in earnings growth, or in the visibility of earnings
- --------------
Past performance is not predictive of future results. Investment returns and
principlal values will fluctuate, so that, when redeemed, shares may be worth
less than their original cost.
1
<PAGE>
1838 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
growth, reduces the attractiveness of a stock for the portfolio. Our expectation
of a growth correction, as the result of the required political, fiscal,
monetary, regulatory and corporate balance sheet adjustments in the Far East and
Latin America, consequently led us to reduce the Fund's exposure to companies
that are operating in these markets. Currently, we are re-investing most of the
resulting stock sale proceeds in the European markets, where the economic
recovery is well entrenched and growth continues to trend upwards.
The global deregulation of capital, labor and product markets is proceeding
faster than expected and is causing substantial losses in equity markets of
countries that have resisted these changes. In today's corrections, we believe
that growth will resume and investment opportunities for your Fund will be
improved.
Sincerely,
/s/ Hans van den Berg
Vice President and Portfolio Manager
- --------------
12/97. 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.
2
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C> <C>
COMMON STOCK -- 96.2%
ARGENTINA -- 0.8%
Banco de Galicia Y Buenos Aires S.A.
DE C.V. Banking........................... 17,000 $ 411,984
--------------
AUSTRALIA -- 1.7%
Broken Hill Propriety Co. Metals - Diversified.............. 36,488 361,979
National Australia Bank, Ltd. Banking........................... 38,888 532,169
--------------
894,148
--------------
BRAZIL -- 0.8%
Centrais Eletricas Brasileiras S.A.
Eletrobras ADR Electric Utilities................ 20,000 421,786
--------------
CANADA -- 1.2%
Canadian Pacific, Ltd. Transportation.................... 20,000 596,250
--------------
FRANCE -- 7.7%
Alcatel Alsthom Telecommunications................ 4,500 540,513
Compagnie Gen Des Eaux Service Company................... 90 10,453
Promodes Retail-Grocery.................... 1,500 486,151
Rhone Poulenc Chemicals......................... 11,693 507,514
Schlumberger, Ltd. Exploration Services.............. 10,000 875,000
SGS-Thomson Microelectronics N.V.* Electronics....................... 8,500 605,625
Societe Generale Banking & Financial Services...... 134 18,269
Total S.A. (B Shares) Oil & Gas Exploration............. 8,000 883,596
--------------
3,927,121
--------------
GERMANY -- 8.8%
Adidas AG Sportswear........................ 7,000 1,016,841
Deutsche Lufthansa AG Airlines.......................... 35,000 613,751
Mannesmann AG Machinery Manufacturer............ 2,000 844,956
SAP ADR Computers & Software.............. 14,200 1,410,761
Volkswagen AG Automobile Manufacturer........... 1,000 592,048
--------------
4,478,357
--------------
HONG KONG -- 5.7%
Cheung Kong Holdings, Ltd. Real Estate....................... 52,000 361,134
China Resources Enterprise, Ltd. Real Estate....................... 100,000 273,919
Citic Pacific, Ltd. Holding Company................... 90,000 430,260
HSBC Holdings Financial Services................ 42,125 952,500
</TABLE>
See notes to financial statements.
3
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C> <C>
Huaneng Power Intl., Inc. ADR* Electric Utilities................ 22,000 $ 484,000
Hutchinson Whampoa, Ltd. Diversified....................... 56,000 387,105
--------------
2,888,918
--------------
INDIA -- 0.7%
Videsh Sanchar Nigam Ltd. Telecommunications................ 25,000 345,000
--------------
INDONESIA -- 0.3%
PT Bank Intl. Indonesia Banking........................... 420 24
Telekomunik Indonesia ADR Telecommunications................ 7,500 145,781
--------------
145,805
--------------
ITALY -- 4.3%
ENI Oil Refining...................... 10,000 563,750
Gucci Group Apparel........................... 15,000 545,625
Telecom Italia Mobile Spa Telecommunications................ 300,000 1,109,760
--------------
2,219,135
--------------
JAPAN -- 21.8%
Advantest Corporation Electronics....................... 6,300 522,180
Autobacs Seven Co., Ltd. Auto Parts Distributor............ 10,000 522,305
Fuji Bank, Ltd. Banking........................... 50,000 433,171
Fujitsu, Ltd. Computer Manufacturer............. 45,000 494,815
Honda Motor Co. Automobile Manufacturer........... 16,000 539,798
Hoya Corp. Glass Manufacturer................ 13,000 452,664
Ibiden Company, Ltd. Electronics....................... 56,000 932,984
Mitsubishi Estate Co., Ltd. Real Estate....................... 45,000 569,787
Mitsui & Co., Ltd. Diversified - Wholesale........... 50,000 380,274
Nippondenso Company, Ltd. Electronics....................... 36,000 779,708
Promise Company, Ltd. Financial Services................ 18,100 1,061,469
Ricoh Company, Ltd. Office Equipment.................. 47,000 606,856
Rohm Company Ltd. Electronics....................... 5,000 495,648
Secom Company, Ltd. Securities Services............... 7,000 453,664
Sony Corp. Electronics....................... 12,000 998,626
Takeda Chemicals Industries Pharmaceuticals................... 44,000 1,202,217
TDK Corp. Electronic Components............. 8,000 665,084
--------------
11,111,250
--------------
KOREA -- 1.0%
Korea Mobile Telecom ADR Communications.................... 18,540 101,970
Pohang Iron & Steel Company, Ltd. ADR Iron & Steel Manufacturer......... 20,000 325,000
Samsung Electronics GDR* Electronics....................... 10,000 101,850
--------------
528,820
--------------
</TABLE>
See notes to financial statements.
4
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C> <C>
MALAYSIA -- 0.2%
Malayan Banking Berhad Banking........................... 33,000 $ 124,539
--------------
MEXICO -- 1.9%
Grupo Financiero Inbursa, S.A. de C.V. Financial Services................ 100,000 347,255
TV Azteca, S.A. de C.V. Television Broadcasting........... 1,000 19,125
Vitro S.A.* Glass Products.................... 50,000 596,875
--------------
963,255
--------------
NETHERLANDS -- 8.0%
Aegon N.V. Insurance......................... 10,307 809,533
Akzo N.V. Chemicals......................... 4,000 702,464
ASM Lithography Holdings N.V.* Electronics....................... 8,000 579,055
ING Groep, N.V. Financial Services................ 17,693 740,236
Koninklijke Ahold N.V. Retail Food Distributor........... 24,909 635,512
Philips Electronics N.V. Electronics....................... 7,700 603,489
--------------
4,070,289
--------------
PHILIPPINES -- 0.6%
Ionics Circuit Inc. Electronics....................... 375,000 219,685
Pilipino Telephone Corp. Telecommunications................ 500,000 108,696
--------------
328,381
--------------
SINGAPORE -- 1.2%
Singapore Press Holdings Publishing........................ 26,000 356,615
United O/S Bank Banking........................... 43,000 236,458
--------------
593,073
--------------
SPAIN -- 3.6%
Banco Santander S.A. Banking........................... 41,700 1,164,327
Telefonica de Espana ADR Telecommunication Equipment....... 8,000 658,000
--------------
1,822,327
--------------
SWEDEN -- 2.3%
Atlas Copco AB (A Shares) Machinery Manufacturer............ 20,000 585,021
Telefonaktiebolaget LM Ericsson ADR Telecommunication Equipment....... 13,500 597,375
--------------
1,182,396
--------------
SWITZERLAND -- 7.5%
Adecco SA Business Services................. 1,500 473,371
Ciba Specialty Chemicals AG* Chemicals......................... 6,000 585,065
Nestle S.A. ADR Food Processing................... 11,300 798,307
Novartis AG (Bearer Shares) Pharmacueticals................... 426 667,051
Novartis AG (Regular Shares) Pharmaceuticals................... 300 466,563
Zurich Versicherungsgesellschaft ADR* Insurance......................... 10,000 827,851
--------------
3,818,208
--------------
</TABLE>
See notes to financial statements.
5
<PAGE>
1838 INTERNATIONAL EQUITY FUND
SCHEDULE OF NET ASSETS--CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C> <C>
UNITED KINGDOM -- 16.1%
British Aerospace plc Aerospace......................... 43,000 $ 1,135,849
Carlton Communications plc ADR Broadcasting...................... 15,000 631,875
Glaxo Wellcome plc Pharmaceuticals................... 18,000 770,625
Kingfisher plc Retail Department Stores.......... 55,000 787,945
Lloyds TSB Group plc Banking........................... 85,209 1,059,955
Prudential Corp. plc Insurance......................... 85,000 902,655
Reed Intl. plc Publishing........................ 66,000 649,641
Siebe plc Machinery Manufacturer............ 30,000 573,552
Smithkline Beecham plc Pharmaceuticals................... 111,246 1,049,491
Vodafone Group plc ADR Telecommunications................ 12,000 658,500
--------------
8,220,088
--------------
TOTAL COMMON STOCK
(COST $44,127,912).......................................................... 49,091,130
--------------
COMMERCIAL PAPER -- 3.7%
Par
---
American Express Credit Corp., 5.60%, 11/03/97 (COST $1,899,000).......... $1,899,000 1,899,000
--------------
TOTAL INVESTMENTS (COST $46,026,912)+--99.9%............................................ $ 50,990,130
OTHER ASSETS AND LIABILITIES, NET -- 0.1%............................................... 55,468
--------------
NET ASSETS -- 100.0%.................................................................... $ 51,045,598
==============
</TABLE>
* Non-income producing security.
+ Also the cost for Federal income tax purposes. At October 31, 1997, net
unrealized appreciation was $4,963,218. This consisted of aggregate gross
unrealized appreciation in which there was an excess of market value over
tax cost of $8,649,065, and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,685,847.
ADR - American Depository Receipt
GDR - Global Depository Receipt
See notes to financial statements.
6
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
December 10, 1997
TO THE SHAREHOLDER:
The North American equities markets demonstrated continued strength during the
1838 Small Cap Equity Fund's fiscal year, November 1, 1996 through October 31,
1997. During the first half of the year, the Fund outperformed the small cap
Russell 2000 Index by a healthy margin in an environment which was highlighted
by substantial volatility. During the second half of the year, the Fund
performed in line with the Index with a backdrop of generally steady
appreciation. For the entire fiscal year, the Fund's return was 37.81%, while
the Index appreciated 29.34%. The strong relative and absolute returns for the
year illustrate the general characteristics of the value style which the 1838
Small Cap Equity Fund utilizes. The fund's aim is to capture the essence of a
small cap appreciation phase, and then to hold on to those gains better than
other small cap managers during periods of corrections or consolidations. This
is accomplished by adhering to the disciplined investment process explained
below.
In the printed version there appears a line chart with the following plot points
depicted:
6/17/96 10/31/96 10/31/97
------- -------- --------
1838 Small Cap Equity Fund 10,000 9,570 13,197
Russell 2000 Index 10,000 9,682 12,521
* Includes all expenses and/or charges, and thus represents a "net return".
The Fund's returns are higher due to the Investment Advisor's maintenance
of expenses. The 1838 Small Cap Equity Fund commenced operations on June
17, 1996.
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 Fund's portfolio
will be small cap ($900 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.
- --------------
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.
7
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
This small cap, low P/E investment style has been adopted because numerous
studies have concluded that over the long-term for North American stocks, the
smaller the company and the lower the P/E, the better the performance in
aggregate. A Prudential Securities study updated through 1996 confirms that over
the last 21 years, the return of the lowest P/E stocks in the small cap universe
exceeded that of the highest valued stocks by 2.7 times.
In reviewing stocks for inclusion in the Fund's portfolio, other fundamental and
quantitative measures are observed and judged important in assisting with the
decision making process. The following analysis of the stocks in the Fund at the
end of the October 1997 fiscal year leads us to conclude that the fundamental
characteristics of the holdings in aggregate are stronger than those for the
comparable small cap benchmark.
<TABLE>
<CAPTION>
Summary Characteristics*
Average Average Average
Market Average EPS Growth Return on Debt/Total
Cap** P/E Ratio 5 Year Equity Capitalization
----- --------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
1838 Small Cap Fund...................... $379MM 15.2x 22.5% 17.1% 34.1%
Russell 2000 Index....................... $530MM 21.9x 14.1% 15.0% 37.2%
</TABLE>
* This chart represents the characteristics of the Fund's portfolio at
October 31, 1997.
** 1838 measures market float only (excluding closely held shares) only in
calculating equity capitalization for the Fund's holdings.
A comparison with similar studies in recent years suggests that these premium
fundamental characteristics tend to be consistently maintained.
During the 1838 Small Cap Equity Fund's 1997 fiscal year, five of the
portfolio's top ten performing stocks were of companies operating in the
financial sectors. The Fund's substantial weighting in that sector served it
well throughout the period as it has over the last several years. In recent
months, that sector has been de-emphasized on the margin based on historically
high valuations. The portfolio at the end of the 1997 year continued to be
well-diversified over a broad array of industry sectors. Fiscal 1997 was a
successful period for the disciplined investment style employed by the 1838
Small Cap Equity Fund.
- --------------
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.
8
<PAGE>
1838 SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
The Outlook
Early into fiscal 1998, investors seem distracted by the implications of ongoing
volatility in various foreign exchange markets. As the presently unchallenged
economic and political leader of the world community, the U.S. and its private
sector remain well positioned to exploit opportunities as they presently exist.
With inflation in control and growth continuing in the U.S. economy, we maintain
a positive attitude. With some of the most obvious sectors having already
demonstrated positive performance in the equities markets, it seems likely that
stock selection will become of premier importance again. In such an environment,
a highly-disciplined small cap style should accrue to the advantage of
investors.
Sincerely,
/S/ Edwin B. Powell
Vice President & Portfolio Manager
- --------------
12/97. 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.
9
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCK -- 95.8%
AGRICULTURE, FORESTRY & FISHERIES -- 1.1%
Sylvan, Inc.*............................................................. 20,680 $ 310,200
--------------
FINANCE & INSURANCE -- 16.8%
INSURANCE CARRIERS -- 13.5%
Allmerica Financial Corp.................................................. 6,000 281,250
Capmac Holdings, Inc...................................................... 9,550 286,500
E.W. Blanch Holdings, Inc................................................. 10,770 360,795
Enhance Financial Services Group, Inc..................................... 6,990 369,159
Everest Re Holdings, Inc.................................................. 5,625 211,641
Executive Risk, Inc....................................................... 3,090 203,554
FPIC Insurance Group, Inc.*............................................... 8,700 258,825
Harleysville Group, Inc................................................... 15,000 382,500
Life USA Holding, Inc..................................................... 18,900 311,850
Penn Treaty American Corp.*............................................... 4,600 147,775
Penncorp Financial Group, Inc............................................. 8,500 276,781
State Auto Financial Corp................................................. 15,050 421,400
The PMI Group, Inc........................................................ 2,900 175,269
W.R. Berkley Corp......................................................... 5,250 215,906
--------------
3,903,205
--------------
SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 0.4%
Long Island Bancorp, Inc.................................................. 3,015 134,168
--------------
STATE & NATIONAL BANKS -- 2.9%
Century Bancorp, Inc. (A Shares).......................................... 7,400 136,900
Dime Community Banccorp, Inc.*............................................ 17,100 361,238
Riggs National Corp....................................................... 9,100 209,300
United Security Bancorporation*........................................... 6,710 124,135
--------------
831,573
--------------
TOTAL FINANCE & INSURANCE............................................................. 4,868,946
--------------
MANUFACTURING -- 47.4%
BUILDER - 1.0%
Toll Brothers, Inc.*...................................................... 12,800 283,200
--------------
CHEMICALS & ALLIED PRODUCTS -- 2.6%
General Chemical Group, Inc............................................... 15,385 451,934
OM Group, Inc............................................................. 7,600 286,900
--------------
738,834
--------------
COMPUTER & OFFICE EQUIPMENT -- 0.4%
Kentek Information Systems, Inc........................................... 14,800 117,475
--------------
See notes to financial statements.
10
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
CONSUMER PRODUCTS -- 3.2%
American Safety Razor Co.*................................................ 10,630 $ 175,395
Block Drug Company, Inc.*................................................. 4,100 190,650
Libbey, Inc............................................................... 10,415 389,261
The First Years, Inc...................................................... 7,030 175,750
--------------
931,056
--------------
FARM MACHINERY -- 0.6%
CTB International Corp.*.................................................. 9,700 166,112
--------------
FOOD & BEVERAGE -- 0.6%
M & F Worldwide Corp...................................................... 17,700 168,150
--------------
FURNITURE, FIXTURES & APPLIANCES -- 3.7%
American Woodmark Corp.................................................... 7,000 148,750
Culp, Inc................................................................. 7,000 133,000
Fedders Corp. (A Shares).................................................. 26,540 155,923
Furniture Brands International, Inc.*..................................... 14,300 239,525
Holophane Corp.*.......................................................... 10,800 245,700
Royal Appliance Manufacturing Co.*........................................ 18,200 143,325
--------------
1,066,223
--------------
GAMES & TOYS -- 0.2%
DSI Toys, Inc.*........................................................... 13,400 60,300
--------------
MISC. CONTAINERS -- 2.0%
Greif Brothers Corp. (A Shares)........................................... 765 26,679
Silgan Holdings, Inc...................................................... 8,800 310,200
US Can Corp.*............................................................. 15,165 244,536
--------------
581,415
--------------
MISC. ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES -- 6.6%
AVX Corp.................................................................. 15,000 423,750
Belden, Inc............................................................... 7,600 260,300
Burr-Brown Corp.*......................................................... 14,412 435,963
General Cable Corp........................................................ 15,300 495,338
HMT Technology Corp.*..................................................... 17,600 297,000
--------------
1,912,351
--------------
MISC. FABRICATED METAL PRODUCTS -- 3.2%
Coastcast Corp.*.......................................................... 12,400 181,350
Doncasters plc ADR*....................................................... 7,300 196,644
Oregon Metallurgical Corp.*............................................... 11,700 274,219
Wolverine Tube, Inc.*..................................................... 8,775 272,025
--------------
924,238
--------------
See notes to financial statements.
11
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
MISC. INSTRUMENTATION -- 0.8%
Fluke Corp................................................................ 10,140 $ 243,994
--------------
MISC. MANUFACTURING INDUSTRIES -- 1.1%
Velcro Industries N.V..................................................... 3,180 303,690
--------------
PAPER & PAPER PRODUCTS -- 4.9%
American Pad & Paper Co.*................................................. 13,825 176,269
Buckeye Technology, Inc.*................................................. 12,490 518,335
Paragon Trade Brands, Inc.*............................................... 7,300 139,156
Schweitzer-Mauduit International, Inc..................................... 5,710 240,533
Shorewood Packaging Corp.................................................. 14,000 346,500
--------------
1,420,793
--------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES -- 4.2%
Del Global Technologies Corp.*............................................ 22,000 222,750
Haemonetics Corp.*........................................................ 13,200 199,650
Hologic, Inc.*............................................................ 11,600 297,250
Marquette Medical Systems (A Shares)*..................................... 11,400 293,550
OEC Medical Systems, Inc.*................................................ 11,830 215,897
--------------
1,229,097
--------------
PRINTING & PUBLISHING -- 0.6%
Journal Register Co....................................................... 10,200 177,863
--------------
RUBBER & PLASTICS -- 0.4%
Channell Commercial Corp.*................................................ 8,215 101,661
--------------
TELECOMMUNICATIONS EQUIPMENT -- 1.3%
Oak Industries, Inc.*..................................................... 13,490 386,994
--------------
TEXTILES & APPAREL -- 2.7%
Hirsch International Corp. (A Shares)*.................................... 4,862 91,770
Quaker Fabric Corp.*...................................................... 10,300 196,344
Quiksilver, Inc.*......................................................... 5,900 181,425
Tropical Sportswear International*........................................ 16,100 193,200
Worldtex, Inc.*........................................................... 14,600 122,275
--------------
785,014
--------------
TRANSPORTATION -- 5.0%
Alaska Air Group, Inc.*................................................... 12,100 403,838
America West Holdings Corp.*.............................................. 22,400 331,800
Canadian National Railway Co.............................................. 5,700 307,444
Rollins Truck Leasing Corp................................................ 23,700 394,012
--------------
1,437,094
--------------
See notes to financial statements.
12
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
TRANSPORTATION EQUIPMENT -- 2.3%
Avondale Industries, Inc.*................................................ 12,500 $ 337,500
Coachmen Industries, Inc.................................................. 16,100 319,988
--------------
657,488
--------------
TOTAL MANUFACTURING................................................................... 13,693,042
--------------
MINING -- 4.3%
COAL -- 0.7%
Zeigler Coal Holding Co................................................... 10,800 193,050
--------------
CRUDE PETROLEUM & NATURAL GAS -- 3.6%
Belco Oil & Gas Corp.*.................................................... 8,700 188,137
Santa Fe International Corp............................................... 7,400 363,988
Seacor Smit, Inc.......................................................... 5,400 351,675
Willbros Group, Inc.*..................................................... 7,900 154,050
--------------
1,057,850
--------------
TOTAL MINING.......................................................................... 1,250,900
--------------
REAL ESTATE INVESTMENT TRUSTS -- 3.4%
Brandywine Realty Trust................................................... 10,000 234,375
Burnham Pacific Properties, Inc........................................... 17,900 261,787
Healthcare Realty Trust, Inc.............................................. 9,400 261,437
Pacific Gulf Properties, Inc.............................................. 9,400 212,675
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.................................................... 970,274
--------------
SERVICES -- 10.4%
AMUSEMENT & RECREATION SERVICES -- 1.0%
Harveys Casino Resorts.................................................... 14,735 278,123
--------------
BUSINESS SERVICES -- 1.2%
Layne Christensen Co...................................................... 13,600 270,300
Obie Media Corp.*......................................................... 10,300 79,825
--------------
350,125
--------------
COMPUTER SERVICES -- 2.8%
Galileo International, Inc................................................ 10,100 253,762
The Learning Company, Inc.*............................................... 21,900 413,363
Wall Data, Inc............................................................ 9,000 147,375
--------------
814,500
--------------
MEDICAL & HEALTH SERVICES -- 4.8%
Grancare, Inc.*........................................................... 17,600 198,000
Integrated Health Services, Inc........................................... 15,300 485,775
See notes to financial statements.
13
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
------ --------
Maxicare Health Plans, Inc.*.............................................. 10,520 $ 147,280
Sun Healthcare Group, Inc.*............................................... 11,700 232,537
Trigon Healthcare, Inc.................................................... 12,700 310,356
--------------
1,373,948
--------------
PERSONAL SERVICES -- 0.6%
CPI Corp.................................................................. 7,100 184,600
--------------
TOTAL SERVICES........................................................................ 3,001,296
--------------
WHOLESALE & RETAIL TRADE -- 12.4%
RETAIL STORES -- 4.9%
Brylane, Inc.*............................................................ 6,900 299,719
Duckwall-Alco Stores, Inc.*............................................... 6,900 102,637
Finlay Enterprises, Inc.*................................................. 9,300 195,300
Little Switzerland, Inc.*................................................. 19,595 127,367
Ruddick Corp.............................................................. 24,035 375,547
Zale Corp.*............................................................... 13,275 335,194
--------------
1,435,764
--------------
RETAIL BUILDING MATERIALS -- 1.5%
Building Materials Holding Corp.*......................................... 23,815 297,688
Cameron Ashley Building Products*......................................... 8,200 142,475
--------------
440,163
--------------
RESTAURANTS -- 0.7%
O' Charley's, Inc.*....................................................... 11,000 203,500
--------------
WHOLESALE ELECTRONIC EQUIP. & COMPUTERS -- 2.3%
Marshall Industries.*..................................................... 9,745 341,684
Pioneer-Standard Electronics, Inc......................................... 19,700 322,588
--------------
664,272
--------------
WHOLESALE MISCELLANEOUS -- 3.0%
Day Runner, Inc.*......................................................... 6,700 270,093
Pameco Corp.*............................................................. 8,100 137,700
Pilgrim's Pride Corp...................................................... 10,000 131,250
United Stationers, Inc.*.................................................. 7,800 315,900
--------------
854,943
--------------
TOTAL WHOLESALE & RETAIL TRADE......................................................... 3,598,642
--------------
TOTAL COMMON STOCK (COST $23,997,784).................................................. 27,693,300
--------------
See notes to financial statements.
14
<PAGE>
1838 SMALL CAP EQUITY FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Value
Par (Note 2)
--- --------
MISCELLANEOUS ASSETS -- 4.4%
Scudder Managed Cash Fund (COST $1,278,051)............................... $1,278,051 $ 1,278,051
--------------
COMMERCIAL PAPER -- 1.2%
American Express Credit Corp., 5.60%, 11/03/97 (COST $350,000)............ 350,000 350,000
--------------
TOTAL INVESTMENTS (COST $25,625,835)+ -- 101.4%................................................. $ 29,321,351
OTHER ASSETS AND LIABILITIES, NET -- (1.4)%..................................................... (398,814)
--------------
NET ASSETS -- 100.0%............................................................................ $ 28,922,537
==============
</TABLE>
* Non-income producing security.
+ The cost for Federal income tax purposes was $25,541,736. At October
31,1997, net unrealized appreciation was $3,779,615. This consisted of
aggregate gross unrealized appreciation in which there was an excess of
market value over tax cost of $4,434,983, and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $655,368
See notes to financial statements.
15
<PAGE>
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
December 11, 1997
TO THE SHAREHOLDER:
Fixed Income Market Review
Interest rates declined over the past two months, mostly as a result of a flight
to quality into the U.S. bond market. As the Southeast Asian markets fell,
investors turned to dollar markets as a safe haven. In addition, inflation news
continued to show positive results, with consumer prices averaging only a 2%
rise over the past year, and prices at the producer level showing no increase.
The overall U.S. economy still shows signs of strength, however, as evidenced by
favorable indicators in the housing and jobs market. Although the Asian crisis
is expected to have some negative impact on U.S. growth in the months ahead, the
net effect will likely be a small decline in the rate of growth from 3+% to
2.5+%. The Federal Reserve could not have asked for more. As long as economic
growth remains at or around the targeted 2.5% level, there will be no apparent
need to raise interest rates, however, they will undoubtedly remain alert to any
signs of wage pressures. With the unemployment rate touching a 24-year low at
4.6%, employers may find stretching employee productivity more and more
challenging at current wage levels.
The 1838 Fixed Income Fund
Since its inception on 9/2/97, the unit value of the Fixed Income Fund has risen
from $10.00 per share to $10.27 per share. This represents a total return of
2.70%, versus the Lehman Aggregate Index return of 2.65%.
Currently, the Fund is positioned for a continuation of the flight to quality.
The Fund has an average duration of 5.13 years, versus 4.58 years for the Index.
The weighting in corporate bonds has been increased as a result of better
valuations stemming from the declining U.S. equity market. Also, the portfolio
holds 36% in mortgage-backed securities due to favorable valuation.
Looking ahead, the duration of the Fund will likely be reduced as long-term
interest rates approach 6%.
- --------------
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.
16
<PAGE>
1838 FIXED INCOME FUND
- --------------------------------------------------------------------------------
A summary of the Fund profile is as follows:
1838 Fixed Lehman
Income Fund Aggregate Index
----------- ---------------
Average Maturity.......................... 11.57 years 8.43 years
Average Duration.......................... 5.13 years 4.58 years
Average Quality........................... AA1 AAA
Yield to Maturity......................... 6.73% 6.49%
Sincerely,
/s/ Marcia Zercoe
Vice President & Portfolio Manager
- --------------
12/97. 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.
17
<PAGE>
1838 FIXED INCOME FUND
SCHEDULE OF NET ASSETS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's/S&P Principal Value
Rating* Amount (Note 2)
----------- --------- --------
<S> <C> <C> <C>
CORPORATE BONDS -- 38.5%
ELECTRIC UTILITIES -- 7.5%
Korea Electric Power Co., 7.00%, 10/01/02...................... A1/AA- $ 1,000,000 $ 975,000
Korea Electric Power Co., 7.00%, 02/01/27...................... A1/A+ 600,000 569,250
Utilicorp United Inc., 9.00%, 11/15/21......................... Baa3/BBB 800,000 885,974
------------
2,430,224
------------
FINANCIAL -- 18.9%
Associates Corp. of N.A., 6.50%, 10/15/02...................... Aa3/AA- 1,000,000 1,006,580
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27...... Aaa3/A- 1,125,000 1,186,875
FBS Capital I, Capital Securities, 8.09%, 11/15/26............. A2/BBB+ 300,000 316,125
Ford Motor Credit Global, 7.20%, 06/15/07...................... A1/A 1,000,000 1,041,800
JPM Capital Trust II, Capital Securities, 7.95%, 02/01/27...... Aa2/AA- 625,000 655,469
Keycorp Institutional Capital - A, 7.826%, 12/01/20............ A1/BBB 900,000 920,250
Salomon, Inc., 6.75%, 02/15/03................................. Baa1/BBB 1,000,000 1,010,790
------------
6,137,889
------------
FOREIGN -- 1.4%
Republic of Indonesia, 7.75%, 08/01/06......................... Baa3/BBB- 500,000 461,250
------------
INDUSTRIAL & MISCELLANEOUS -- 7.2%
Harcourt General Inc., 7.30%, 08/01/20......................... Baa1/BBB+ 1,000,000 1,002,500
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95........ Baa3/BBB- 925,000 926,156
Societe Generale (NY), 7.40%, 06/01/20......................... A1/A+ 400,000 419,500
------------
2,348,156
------------
MANUFACTURING -- 3.1%
Raytheon Co., 6.75%, 08/15/07.................................. Baa1/BBB 1,000,000 1,017,500
------------
TRANSPORTATION -- 0.4%
Union Pacific Co., Debs., 8.625%, 05/15/20..................... Baa2/BBB 125,000 132,500
------------
TOTAL CORPORATE BONDS (COST $12,383,158) .............................................. 12,527,519
------------
MORTGAGE BACKED SECURITIES -- 35.8%
FHLMC, Ser. T-8, Class A6, 7.00%, 01/15/19..................... NR/NR 1,000,000 1,015,900
FHLMC Pool #C80340, 6.50%, 08/01/25............................ NR/NR 90,650 89,205
FHLMC Pool #C80342, 6.50%, 09/01/20............................ NR/NR 1,033,607 1,017,134
FHLMC Pool #G10557, 6.50%, 07/01/20............................ NR/NR 1,624,088 1,623,581
FNMA Pool #250890, 7.00%, 04/01/04............................. NR/NR 1,741,045 1,762,808
FNMA Pool #313411, 7.00%, 03/01/04............................. NR/NR 472,409 478,314
FNMA Pool #303728, 6.00%, 01/01/20............................. NR/NR 1,409,649 1,384,099
</TABLE>
See notes to financial statements.
18
<PAGE>
1838 FIXED INCOME FUND
SCHEDULE OF NET ASSETS -- CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's/S&P Principal Value
Rating* Amount (Note 2)
----------- --------- --------
<S> <C> <C> <C>
GNMA Pool #780312, 6.00%, 01/15/20............................. NR/NR $ 1,099,230 $ 1,061,787
GNMA Pool #417239, 7.00%, 02/15/20............................. NR/NR 1,661,180 1,670,005
GNMA Pool #2038, 8.50%, 07/20/20............................... NR/NR 66,569 69,294
GNMA Pool #780374, 7.50%, 12/15/20............................. NR/NR 1,452,371 1,490,495
------------
TOTAL MORTGAGE BACKED SECURITIES (COST $11,567,430) ................................... 11,662,622
------------
U.S. TREASURY OBLIGATIONS -- 24.7%
U.S. TREASURY BONDS -- 1.6%
U.S. Treasury Bonds, 7.25%, 08/12/22........................... NR/NR 25,000 28,145
U.S. Treasury Bonds, 6.25%, 08/15/23........................... NR/NR 500,000 500,905
------------
529,050
------------
U.S. TREASURY NOTES -- 23.1%
U.S. Treasury Inflation Index Note, 3.375%, 01/15/07........... NR/NR 900,000 887,337
U.S. Treasury Notes, 6.375%, 5/15/99.......................... NR/NR 1,200,000 1,212,744
U.S. Treasury Notes, 5.625%, 11/30/00.......................... NR/NR 1,400,000 1,394,274
U.S. Treasury Notes, 5.875%, 02/15/00.......................... NR/NR 850,000 852,873
U.S. Treasury Notes, 6.25%, 04/30/01........................... NR/NR 1,500,000 1,522,455
U.S. Treasury Notes, 6.625%, 06/30/01.......................... NR/NR 1,000,000 1,027,070
U.S. Treasury Notes, 5.875%, 06/30/20.......................... NR/NR 600,000 602,646
------------
7,499,399
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $7,977,389) ..................................... 8,028,449
------------
MISCELLANEOUS ASSETS -- 1.9%
Scudder Managed Cash Fund (COST $611,437)...................... NR/NR 611,437 611,437
------------
TOTAL INVESTMENTS (COST $32,539,414)+ -- 100.9%................................................. 32,830,027
OTHER ASSETS AND LIABILITIES, NET -- (0.9)%..................................................... (292,858)
------------
NET ASSETS -- 100.0%............................................................................ $ 32,537,169
============
</TABLE>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Adviser. The Moody's/S&P rating for debt
securities is not covered by the report of independent accountants.
+ The cost for federal income tax purposes. At October 31, 1997, net
unrealized appreciation was $290,613. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost of $324,905 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $34,292.
See notes to financial statements.
19
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Small Cap Equity Fixed Income
Fund Fund Fund
-------------------- --------------- --------------
<S> <C> <C> <C>
Assets:
Investments, at market (identified cost $46,026,912,
$25,625,835, $32,539,414) (Note 2)..................... $ 50,990,130 $ 29,321,351 $ 32,830,027
Receivables:
Dividends and interest ................................. 100,667 16,867 444,252
Foreign taxes recoverable............................... 31,036 -- --
Fund shares sold........................................ 1,377 2,832 17
Investment securities sold.............................. -- -- 734,851
Reimbursement due from adviser............................. -- -- 27,100
Deferred organizational costs (Note 2)..................... 71,119 -- --
Other assets............................................... 166 -- --
-------------- --------------- --------------
Total assets ........................................... 51,194,495 29,341,050 34,036,247
-------------- --------------- --------------
Liabilities:
Payables:
Due to Adviser ......................................... 46,045 27,106 --
Accrued expenses (Note 4) .............................. 84,602 52,439 34,376
Investment securities purchased......................... 18,250 338,968 1,010,790
Overdraft payable....................................... -- -- 453,912
-------------- --------------- --------------
Total liabilities ...................................... 148,897 418,513 1,499,078
-------------- --------------- --------------
Net Assets ................................................ $ 51,045,598 $ 28,922,537 $ 32,537,169
============== =============== ==============
Net Assets consist of:
Common Stock .............................................. $ 4,258 $ 2,212 $ 3,169
Additional capital paid in................................. 43,221,459 23,243,163 31,969,708
Undistributed net investment income (loss)................. 1,262 -- 181,298
Accumulated realized gain (loss) on:
Investments ............................................ 2,853,031 1,981,646 92,381
Foreign currency transactions........................... -- -- --
Net unrealized appreciation on:
Investments............................................. 4,963,218 3,695,516 290,613
Translation of assets and liabilities in foreign
currencies ........................................... 2,370 -- --
-------------- --------------- --------------
Net Assets, for 4,257,803, 2,211,888, and 3,169,065 shares
outstanding, respectively ............................. $ 51,045,598 $ 28,922,537 $ 32,537,169
============== =============== ==============
Net Asset Value, offering and redemption price per share... $11.99(1) $13.08(2) $10.273(3)
============== =============== ==============
</TABLE>
1 $51,045,598 (divided by) 4,257,803 outstanding shares of beneficial
interest, no par value
2 $28,922,537 (divided by) 2,211,888 outstanding shares of beneficial
interest, no par value
3 $32,537,169 (divided by) 3,169,065 outstanding shares of beneficial
interest, no par value
See notes to financial statements.
20
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Small Cap Equity Fixed Income
Fund Fund Fund++
-------------------- ---------------- --------------
<S> <C> <C> <C>
Investment Income:
Dividends............................................... $ 776,927 $ 126,079 $ 20,957
Interest................................................ 48,032 60,813 183,658
-------------- --------------- --------------
824,959 186,892 204,615
-------------- --------------- --------------
Less foreign taxes withheld............................. (65,995) -- --
-------------- --------------- --------------
758,964 186,892 204,615
-------------- --------------- --------------
Expenses:
Investment advisory fee (Note 4) .......................... 372,918 142,555 15,545
Administration fee (Note 4)................................ 58,580 42,416 3,974
Accounting fee (Note 4) ................................... 62,304 40,000 6,575
Custodian fees ............................................ 49,457 21,107 1,000
Amortization of organizational expenses (Note 2) .......... 25,853 -- --
Legal ..................................................... 37,269 5,244 15,171
Audit ..................................................... 16,125 15,025 10,000
Registration fees ......................................... 13,180 17,508 3,966
Directors' fees and expenses (Note 4)...................... 14,250 14,250 3,000
Transfer agency fees....................................... 23,180 19,819 3,000
Reports to shareholders ................................... 21,031 24,991 2,800
Other ..................................................... 21,631 7,046 931
-------------- --------------- --------------
Total expenses before fee waivers ......................... 715,778 349,961 65,962
-------------- --------------- --------------
Advisory fee waived (Note 4)......................... (93,801) (112,370) (15,545)
Reimbursement from Investment Advisor (Note 4)....... -- -- (27,100)
-------------- --------------- --------------
Total expenses, net.................................. 621,977 237,591 23,317
-------------- --------------- --------------
Net investment income (loss)............................ 136,987 (50,699) 181,298
-------------- --------------- --------------
Realized gain on investments and foreign currency:
Net realized gain (loss) on:
Investments.......................................... 3,183,377 2,095,990 92,381
Foreign currency transactions........................ (126,955) -- --
Net unrealized appreciation during the period on:
Investments.......................................... 3,571,590 3,538,690 290,613
Translation of assets and liabilities in
foreign currencies................................. 8,250 -- --
-------------- --------------- --------------
Net gain on investments and foreign currency............ 6,636,262 5,634,680 382,994
-------------- --------------- --------------
Net increase in net assets resulting from operations ...... $ 6,773,249 $ 5,583,981 $ 564,292
============== =============== ==============
</TABLE>
++ The Fixed Income Fund commenced operations on September 2, 1997.
See notes to financial statements.
21
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Small Cap Equity Fixed Income
Fund Fund+ Fund++
-------------------- ---------------- --------------
<S> <C> <C> <C>
For the Period Ended October 31, 1997
Increase in Net Assets
Operations:
Net investment income (loss) ........................... $ 136,987 $ (50,699) $ 181,298
Net realized gain (loss) on:
Investments ......................................... 3,183,377 2,095,990 92,381
Foreign currency transactions........................ (126,955) -- --
-------------- --------------- --------------
Net unrealized appreciation during the period on:
Investments ......................................... 3,571,590 3,538,690 290,613
Translation of assets and liabilities in foreign
currencies......................................... 8,250 -- --
-------------- --------------- --------------
Net increase in net assets resulting from operations....... 6,773,249 5,583,981 564,292
-------------- --------------- --------------
Distributions to shareholders from:
Net investment income ($0.04, $0, and $0 per share,
respectively) ....................................... (148,857) -- --
Net realized gain ($0, $0.09 and $0 per share,
respectively) ....................................... -- (67,511) --
-------------- --------------- --------------
Total Distributions........................................ (148,857) (67,511) --
-------------- --------------- --------------
Increase in net assets from Fund share transactions
(Note 5)................................................. 3,212,276 17,978,416 31,972,877
-------------- --------------- --------------
Increase in net assets .................................... 9,836,668 23,494,886 32,537,169
Net Assets:
Beginning of period ................................... 41,208,930 5,427,651 --
-------------- --------------- --------------
End of period........................................... $ 51,045,598 $ 28,922,537 $ 32,537,169
============== =============== ==============
For the Period Ended October 31, 1996
Increase in Net Assets
Operations:
Net investment income (loss) .......................... $ 204,643 $ (8,741) $ --
Net realized loss on:
Investments ......................................... (306,807) (46,833) --
Foreign currency transactions........................ (63,127) -- --
Net unrealized appreciation (depreciation) during the
period on:
Investments ......................................... 2,071,153 156,826 --
Translation of assets and liabilities in foreign
currencies......................................... (5,836) -- --
-------------- --------------- --------------
Net increase in net assets resulting from operations....... 1,900,026 101,252 --
-------------- --------------- --------------
Distribution to shareholders from:
Net investment income ($0.04, $0 and $0 per share,
respectively) ....................................... (78,685) -- --
-------------- --------------- --------------
Increase in net assets from Fund share transactions
(Note 5)................................................. 22,623,847 5,326,399 --
-------------- --------------- --------------
Increase in net assets .................................... 24,445,188 5,427,651 --
Net Assets:
Beginning of period..................................... 16,763,742 -- --
-------------- --------------- --------------
End of period .......................................... $ 41,208,930 $ 5,427,651 $ --
============== =============== ==============
</TABLE>
+ The Small Cap Equity Fund commenced operations on June 17, 1996.
++ The Fixed Income Fund commenced operations on September 2, 1997.
See notes to financial statements.
22
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following tables include selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements. They should be read in conjunction with the financial
statements and notes thereto.
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
For the Fiscal Years or Period Ended October 31,
--------------------------------------------------
1997 1996 1995+
--------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - Beginning of Period ............ $10.44 $9.61 $10.00
-------- -------- -------
Investment Operations:
Net investment income ......................... 0.02 0.07 0.02
Net realized and unrealized gain (loss) on
investment and foreign currency transactions 1.57 0.80 (0.41)
-------- -------- -------
Total from investment operations ........ 1.59 0.87 (0.39)
-------- -------- -------
Distributions:
From net investment income .................... (0.04) (0.04) --
-------- -------- -------
Net Asset Value - End of Period .................. $11.99 $10.44 $9.61
======== ======== =======
Total Return ..................................... 15.23% 9.11% (3.90)%***
Ratios (to average net assets)/Supplemental Data:
Expenses1 .................................. 1.25% 1.25% 1.25%*
Net investment income ...................... 0.28% 0.70% 1.02%*
Portfolio turnover rate .......................... 92.33% 59.11% 42.21%*
Average commission rate paid ..................... $0.0308 $0.0211 --
Net assets at end of period (000's omitted) ...... $51,046 $41,209 $16,764
</TABLE>
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
For the Fiscal Year or Period Ended October 31,
-----------------------------------------------
1997 1996+
-----------------------------------------------
<S> <C> <C>
Net Asset Value - Beginning of Period ............ $9.57 $10.00
------- -------
Investment Operations:
Net investment income (loss) .................. (0.02) (0.02)
Net realized and unrealized gain (loss) on
investment and foreign currency transactions 3.62 (0.41)
------- -------
Total from investment operations ........ 3.60 (0.43)
------- -------
Distributions:
From net realized gains ....................... (0.09) --
------- -------
Net Asset Value - End of Period .................. $13.08 $9.57
======= =======
Total Return ..................................... 37.81% (4.30)%***
Ratios (to average net assets)/Supplemental Data:
Expenses2 .................................. 1.25% 1.25%*
Net investment income ...................... (0.27)% (0.52)%*
Portfolio turnover rate .......................... 67.66% 94.38%*
Average commission rate paid ..................... $0.0595 $0.0512
Net assets at end of period (000's omitted) ...... $28,923 $5,428
</TABLE>
See notes to financial statements.
23
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
FINANCIAL HIGHLIGHTS--CONTINUED
- --------------------------------------------------------------------------------
FIXED INCOME FUND
For the Period
ended
October 31, 1997+
-----------------
Net Asset Value - Beginning of Period ...................... $10.00
------
Investment Operations:
Net investment income ................................... 0.06
Net realized and unrealized gain on
investment ........................................... 0.21
------
Total from investment operations .................. 0.27
------
Net Asset Value - End of Period ............................ $10.27
======
Total Return ............................................... 2.70%***
Ratios (to average net assets)/Supplemental Data:
Expenses3 ............................................ 0.75%*
Net investment income ................................ 5.83%*
Portfolio turnover rate .................................... 39.12%**
Net assets at end of period (000's omitted) ................ $32,537
* Annualized.
** Not annualized.
*** The total return has not been annualized.
+ The International Equity Fund commenced operations on August 3, 1995. The
Small Cap Equity Fund commenced operations on June 17, 1996. The Fixed
Income Fund commenced operations on September 2, 1997.
1 Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.44%, 1.80% and 2.60% for the fiscal years ended
October 31, 1997, 1996 and the period ended October 31, 1995, respectively.
2 Without waivers the annualized ratio of expenses to average daily net
assets would have been 1.84% and 4.63% for the fiscal year ended October
31, 1997 and the period ended October 31, 1996, respectively.
3 Without waivers and reimbursements the annualized ratio of expenses to
average daily net assets would have been 2.12% for the period ended October
31, 1997.
See notes to financial statements.
24
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Note 1--Description of the Funds
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 three series: the 1838 International Equity
Fund, the 1838 Small Cap 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 Equity Fund"), the first
of the 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 Small Cap Equity Fund (the "Small Cap Equity 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 $1 billion 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 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 65% 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, 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, 1997, there
were no securities valued by the Board of Trustees.
Federal Income Taxes. Each Fund is treated as a separate entity and intends to
continue to qualify 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 treatments for foreign currency
transactions for the International Equity Fund and differing cost basis for
securities sold for the Small Cap Equity Fund, since certain securities were
transferred to the Fund at its inception. These distributions by each Fund will
be made annually in
25
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997
- -------------------------------------------------------------------------------
Note 2--Significant Accounting Policies--continued
December. Additional distributions may be made by each Fund to the extent
necessary.
Deferred Organizational Costs. Costs incurred by the International Equity 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 International Equity
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 Equity 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 at the end of the fiscal year 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 Equity Fund may enter into forward foreign currency exchange
contracts. Additionally, the International Equity 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.
Each 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
ax-dividend date. Interest income is recorded on an accrual basis.
26
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Note 3--Purchases and Sales of Investment Securities
During the period ended October 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated as follows:
International Small Cap Fixed Income
Equity Fund Equity Fund Fund
------------- ----------- ------------
Purchases ............. $46,613,096 $28,770,272 $ 5,925,481
Sales ................. 44,516,503 12,069,906 8,178,793
Note 4--Advisory Fee and Other Transactions with Affiliates
The Trust, on behalf of each 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 Funds
pursuant to an Investment Advisory Agreement with the Trust. The Investment
Adviser supervises the investments of the assets of each Fund in accordance with
each Fund's investment objective, policies and restrictions.
The Trust pays the Investment Adviser a monthly fee at the following annual
rates of each Fund's average daily net assets: 0.75% for the International
Equity Fund, 0.75% for the Small Cap Equity Fund and 0.50% for the Fixed Income
Fund. The Investment Adviser has voluntarily agreed to waive its advisory fee or
reimburse each Fund monthly to the extent that the total operating expenses will
exceed the following annual rates of each Fund's average daily net assets: 1.25%
for the International Equity Fund, 1.25% for the Small Cap Equity Fund and 0.75%
for the Fixed Income Fund. This undertaking may be rescinded at any time in the
future.
The following table summarizes the advisory fees for the period ended October
31, 1997:
Gross Advisory Fee Reimbursement
Advisory Fee Waiver From Advisor
------------ ------------ -------------
International Equity Fund $ 372,918 $ 93,801 --
Small Cap Equity Fund 142,555 112,370 --
Fixed Income Fund 15,545 15,545 $27,100
Rodney Square Management Corporation ("RSMC"), a wholly owned subsidiary of
Wilmington Trust Company ("WTC"), serves as Administrator to the Trust pursuant
to an Administration Agreement with the Trust on behalf of each Fund. 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; plus 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. For the period ended October 31,1997, RSMC's administration fees
amounted to $58,580, $42,416 and $3,974, for the International Equity Fund, the
Small Cap Equity Fund and the Fixed Income Fund, respectively. At October
31,1997, administration fees payable to RSMC amounted to $11,145, $5,687 and
$3,981, for the International Equity Fund, the Small Cap Equity Fund, and the
Fixed Income Fund, respectively.
27
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Note 4--Advisory Fee and Other Transactions with Affiliates--continued
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 each Fund. RSD also directly, or through its
affiliates, provides investor support services. RSD receives no compensation for
distribution of shares of the Funds, except for reimbursement of out-of-pocket
expenses. There are no expenses payable to RSD by the Funds for the period ended
October 31, 1997.
RSMC serves as Accounting Agent to the Funds. As Accounting Agent, RSMC
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. For the period ended October 31, 1997, Accounting service fees payable to
RSMC amounted to $10,729, $6,685 and $6,575, for the International Equity Fund,
the Small Cap Equity Fund and the Fixed Income Fund, respectively.
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 each Fund during the month, and is reimbursed for
out-of-pocket expenses. For the period ended October 31, 1997, Transfer Agent
fees payable to RSMC amounted to $3,816, $3,911 and $3,000, for the
International Equity Fund, the Small Cap Equity Fund and the Fixed Income Fund,
respectively.
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 "noninterested" Trustees.
Note 5--Fund Share Transactions
At October 31, 1997, 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 Equity Fund
<TABLE>
<CAPTION>
For the Fiscal Year For the Fiscal Year
Ended October 31, 1997 Ended October 31, 1996
---------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................... 891,866 $ 10,719,953 2,653,604 $ 27,246,882
Shares issued to shareholders in
reinvestment of distributions .. 12,343 133,064 7,882 78,427
Shares redeemed ................ (592,270) (7,640,741) (460,886) (4,701,462)
-------- ------------ --------- ------------
Net increase ................... 311,939 $ 3,212,276 2,200,600 $ 22,623,847
============ ============
Shares outstanding:
Beginning of period ............ 3,945,864 1,745,264
--------- ---------
End of period .................. 4,257,803 3,945,864
========= =========
</TABLE>
28
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED OCTOBER 31, 1997
- -------------------------------------------------------------------------------
Small Cap Equity Fund
<TABLE>
<CAPTION>
For the Period June 17, 1996
For the Fiscal Year (Commencement of Operations)
Ended October 31, 1997 Through October 31, 1996
---------------------- ----------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................... 1,708,267 $ 18,663,076 596,571 $ 5,598,237
Shares issued to shareholders in
reinvestment of distributions .. 6,771 67,511 0 0
Shares redeemed ................ (70,119) (752,171) (29,602) (271,838)
--------- ------------ ------- ------------
Net increase ................... 1,644,919 $ 17,978,416 566,969 $ 5,326,399
============ ============
Shares outstanding:
Beginning of period ............ 566,969 0
--------- -------
End of period .................. 2,211,888 566,969
========= =======
</TABLE>
Fixed Income Fund
For the Period September 2, 1997
(Commencement of Operations)
Through October 31, 1997
--------------------------------
Shares Amount
------ ------
Shares sold .................... 3,209,597 $ 32,384,250
Shares issued to shareholders in
reinvestment of distributions .. 0 0
Shares redeemed ................ (40,532) (411,373)
--------- ------------
Net increase ................... 3,169,065 $ 31,972,877
============
Shares outstanding:
Beginning of period ............ 0
---------
End of period .................. 3,169,065
=========
Note 6--Commitments
As of October 31, 1997, the International Equity Fund had no forward foreign
currency exchange contracts.
29
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS OCTOBER 31, 1997
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the 1838 Investment Advisors Funds
We have audited the accompanying statements of assets and liabilities, including
the schedules of net assets of the 1838 International Equity Fund, the 1838
Small Cap Equity Fund and the 1838 Fixed Income Fund, each a series of the 1838
Investment Advisors Funds, as of October 31, 1997 and the related statements of
operations for the year or period then ended, and the statements of changes in
net assets for each of the two years or periods then ended, 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 on our audits.
We conducted our audits 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, 1997, by correspondence with custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
1838 International Equity Fund, the 1838 Small Cap Equity Fund and the 1838
Fixed Income Fund as of October 31, 1997, the results of their operations for
the year or period then ended, the changes in their net assets for each of the
two years or periods then ended, and their financial highlights for the periods
presented in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 12, 1997
30
<PAGE>
1838 INVESTMENT ADVISORS FUNDS
TAX INFORMATION (UNAUDITED) OCTOBER 31, 1997
- --------------------------------------------------------------------------------
The 1838 International Equity Fund recognizes $191,164 as foreign source income
for the fiscal year ended October 31, 1997.
The 1838 Small Cap Equity Fund paid distributions of $0.089 per share from net
long-term capital gains during the fiscal year ended October 31, 1997. Pursuant
to section 852 of the Internal Revenue Code, the 1838 Small Cap Equity Fund
designated $67,511 as capital gain distributions for the fiscal year ended
October 31, 1997.
31
<PAGE>
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
UNDERWRITER
- --------------------------------------------------------------------------------
RODNEY SQUARE DISTRIBUTORS, INC.
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
RODNEY SQUARE MANAGEMENT CORPORATION
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890
CUSTODIANS
- --------------------------------------------------------------------------------
BANKERS TRUST COMPANY
280 PARK AVENUE
NEW YORK, NY 10017
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890
LEGAL COUNSEL
- --------------------------------------------------------------------------------
STRADLEY, RONON, STEVENS & YOUNG L.L.P.
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
AUDITORS
- --------------------------------------------------------------------------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
ET06
1838
INVESTMENT ADVISORS FUNDS
INTERNATIONAL EQUITY FUND
SMALL CAP EQUITY FUND
FIXED INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> 1838 Small Cap Equity Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 42,061,306
<INVESTMENTS-AT-VALUE> 49,664,224
<RECEIVABLES> 209,730
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,873,954
<PAYABLE-FOR-SECURITIES> 3,802,112
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,320
<TOTAL-LIABILITIES> 3,883,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,026,432
<SHARES-COMMON-STOCK> 3,272,250
<SHARES-COMMON-PRIOR> 2,211,888
<ACCUMULATED-NII-CURRENT> 266,609
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,355,531
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,602,918
<NET-ASSETS> 45,990,522
<DIVIDEND-INCOME> 96,095
<INTEREST-INCOME> 58,226
<OTHER-INCOME> 0
<EXPENSES-NET> 205,367
<NET-INVESTMENT-INCOME> (51,043)
<REALIZED-GAINS-CURRENT> 1,355,531
<APPREC-INCREASE-CURRENT> 3,907,402
<NET-CHANGE-FROM-OPS> 5,211,887
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,137,768
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 915,707
<NUMBER-OF-SHARES-REDEEMED> 22,638
<SHARES-REINVESTED> 167,293
<NET-CHANGE-IN-ASSETS> 13,993,866
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,981,646
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 207,680
<AVERAGE-NET-ASSETS> 32,858,060
<PER-SHARE-NAV-BEGIN> 13.08
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.95)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> 1838 International Equity Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 48,235,536
<INVESTMENTS-AT-VALUE> 63,018,760
<RECEIVABLES> 808,121
<ASSETS-OTHER> 98,191
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,925,052
<PAYABLE-FOR-SECURITIES> 1,824,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 162,065
<TOTAL-LIABILITIES> 1,986,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,079,295
<SHARES-COMMON-STOCK> 4,664,877
<SHARES-COMMON-PRIOR> 4,257,803
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (209,983)
<ACCUMULATED-NET-GAINS> (379,285)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,783,224
<NET-ASSETS> 61,938,128
<DIVIDEND-INCOME> 108,067
<INTEREST-INCOME> 42,700
<OTHER-INCOME> 0
<EXPENSES-NET> 340,323
<NET-INVESTMENT-INCOME> (189,556)
<REALIZED-GAINS-CURRENT> (379,284)
<APPREC-INCREASE-CURRENT> 9,817,636
<NET-CHANGE-FROM-OPS> 9,248,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,086)
<DISTRIBUTIONS-OF-GAINS> (2,857,635)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 286,174
<NUMBER-OF-SHARES-REDEEMED> 113,819
<SHARES-REINVESTED> 234,719
<NET-CHANGE-IN-ASSETS> 4,518,455
<ACCUMULATED-NII-PRIOR> 1,262
<ACCUMULATED-GAINS-PRIOR> 2,853,031
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204,712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 374,241
<AVERAGE-NET-ASSETS> 54,451,680
<PER-SHARE-NAV-BEGIN> 13.08
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.95)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> 1838 Fixed Income Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 53,675,877
<INVESTMENTS-AT-VALUE> 53,846,236
<RECEIVABLES> 803,437
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,649,673
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 500,850
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,532,555
<SHARES-COMMON-STOCK> 5,299,959
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 57,182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 88,768
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 170,359
<NET-ASSETS> 54,148,823
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,610,091
<OTHER-INCOME> 0
<EXPENSES-NET> 168,567
<NET-INVESTMENT-INCOME> 1,441,524
<REALIZED-GAINS-CURRENT> 88,768
<APPREC-INCREASE-CURRENT> 120,254
<NET-CHANGE-FROM-OPS> 1,410,038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,565,972
<DISTRIBUTIONS-OF-GAINS> 92,049
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,292,312
<NUMBER-OF-SHARES-REDEEMED> 277,951
<SHARES-REINVESTED> 116,533
<NET-CHANGE-IN-ASSETS> 21,859,637
<ACCUMULATED-NII-PRIOR> 181,298
<ACCUMULATED-GAINS-PRIOR> 92,381
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 116,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,464
<AVERAGE-NET-ASSETS> 44,951,200
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.22
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
