<PAGE>
DIRECTORS
-------------------------
W. THACHER BROWN
JOHN GILRAY CHRISTY
MORRIS LLOYD, JR.
J. LAWRENCE SHANE
OFFICERS
-------------------------
JOHN H. DONALDSON
President
ANNA M. BENCROWSKY
Vice President
and Secretary
CLIFFORD D. CORSO
Vice President
INVESTMENT ADVISOR 1838
-------------------------
1838 INVESTMENT ADVISORS, INC. BOND--DEBENTURE TRADING FUND
FIVE RADNOR CORPORATE CENTER, SUITE 320 -------------------------
100 MATSONFORD ROAD FIVE RADNOR CORPORATE CENTER,
RADNOR, PA 19087
SUITE 320
100 MATSONFORD ROAD
CUSTODIAN RADNOR, PA 19087
-------------------------
REPUBLIC NATIONAL BANK OF NEW YORK
452 FIFTH AVENUE LOGO
NEW YORK, NY 10018
Annual Report
TRANSFER AGENT March 31, 1999
-------------------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
COUNSEL
-------------------------
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & ARCH STREETS
PHILADELPHIA, PA 19103
AUDITORS
-------------------------
PRICEWATERHOUSECOOPERS LLP
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
<PAGE>
April 13, 1999
TO THE SHAREHOLDER:
The Fund ended the fiscal year March 31,1999 with a Net Asset Value of $22.20
per share. This represents a 2.3% decrease from $22.70 per share at the end of
the March 31, 1998 Fiscal Year and a 0.6% increase from $22.07 per share at
December 31,1998. On March 31,1999, the closing price on the New York Stock
Exchange for the Fund's stock was $20.6875 per share, representing a 6.8%
discount to Net Asset Value.
The performance of the Fund is compared below to the average of the 18 other
closed-end bond funds with which we have historically compared ourselves:
Total Return-Percentage Change in Net Asset Value
Per Share with All Distributions Reinvested(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Years 5 Years 2 Years 1 Year Quarter
to 3/31/99 to 3/31/99 to 3/31/99 to 3/31/99 to 3/31/99
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 159.28% 51.36% 24.08% 4.91% --1.11%
Average of 18 Other
Closed-End Bond Funds(2) 144.78% 47.57% 19.18% 4.86% --0.45%
Salomon Bros. Bond Index(3) 168.68% 55.08% 24.34% 5.86% --2.81%
</TABLE>
(1) - This is historical information and should not be construed as indicative
of likely future performance.
(2) - Source: Lipper Inc.
(3) - Comprised of long-term AAA and AA corporate bonds; series has been changed
to include mortgage-backed securities.
On March 18,1999 the Board of Directors declared a dividend payment of $0.38
per share payable May 4,1999 to shareholders of record on April 8,1999. Looking
forward, the Fund does have some bond holdings that have relatively high coupon
rates and are subject to redemption by their issuers. Holdings that are
potentially affected total 2.5% of the Fund's net assets within the next 12
months and 5.5% within the next 2 years. The quarterly dividend rate of the
Fund will be adversely affected by a reduction in the rate of income. The
precise level of impact on the Fund's dividend will not be known until the rate
of income on the reinvestment is known.
During the first quarter of 1999, yields on U.S. Treasury bonds rose in
response to a stronger than expected domestic economy and a reduction in fears
concerning various emerging markets. The benchmark 30-year Treasury bond yield
rose from 5.09% at year-end to 5.63% at March 31,1999. Corporate bond yields
did not rise as much as Treasury yields because the combination of the strength
in the economy coupled with the alleviation of fears resulted in narrower yield
premiums on most corporate bonds relative to the benchmark Treasury. We would
also cite the continuing low level of inflation as a key fundamental support
for the U.S. bond market.
During the 12-month period end March 31,1999, long term U.S. Treasury rates
fell from 5.93% a year ago to the 5.63% level, having reached a low of 4.72% in
October 1998. The period was also characterized by the extreme volatility in
relative yield spreads on Corporate and Emerging Market bonds resulting from
economic crises in Asia and Russia as well as the well-publicized difficulties
of several large hedge funds. The Fund's performance benefited from the general
rise in bond prices corresponding to the decline in interest rates and from the
reduction in exposure to overseas credits prior to the volatility as discussed
in previous quarterly reports.
1
<PAGE>
The table below updates the portfolio quality of the Fund's assets compared to
the end of recent prior fiscal years:
- --------------------------------------------------------------------------------
Percent of Total Investment (Standard & Poor's Ratings)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Treasuries,
Agencies & B and Not
Period Ended AAA Rated AA A BBB BB Lower Rated
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999 16.9% 3.4% 29.2% 44.6% 5.3% 0.3% 0.3%
March 31, 1998 19.9% 0.0% 31.9% 44.0% 3.0% 0.9% 0.3%
March 31, 1997 22.3% 1.3% 31.9% 34.5% 9.3% 0.4% 0.3%
March 31, 1996 31.4% 1.2% 26.2% 27.4% 9.6% 3.9% 0.3%
</TABLE>
Based upon a return to stability in the markets and a continued positive
outlook for the Corporate sector, management of the Fund is comfortable with
the level of credit exposure in the Fund's portfolio holdings. At this time, we
would anticipate reinvestment of the proceeds of any bond redemptions within
the Investment Grade corporate sector.
We would like to remind shareholders of the opportunities presented by the
Fund's dividend reinvestment plan as detailed in the Fund's prospectus and
referred to inside the back cover of this report. To participate in the plan,
please contact First Chicago Trust Co. of New York, the Fund's Transfer Agent
and Dividend Paying Agent, at 201-324-0498.
Sincerely,
/s/ John H. Donaldson
-----------------------------
John H. Donaldson CFA
President
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
1838 Bond-Debenture Trading Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 1838 Bond-Debenture Trading Fund
(the "Fund") at March 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at March 31, 1999 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 23, 1999
3
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1999
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal Identified Cost Value
Rating** Amount (000's) (Note 2) (Note 1)
----------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
LONG-TERM DEBT SECURITIES (97.06%)
ELECTRIC UTILITIES (9.53%)
Calpine Corp Sr. Notes, 7.75%, 04/15/09 ........................... Ba2/BB $ 250 $ 249,845 $ 250,938
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 ....... Ba1/BB+ 1,800 1,662,876 1,979,928
CMS Energy Cap Sr. Notes, 7.50%, 01/15/09 ......................... Ba3/BB 1,000 1,000,000 1,006,361
Hydro-Quebec Debs. 8.25%, 04/15/26 ................................ A2/A+ 1,550 1,475,994 1,820,599
Midamerican Funding LLC, 6.927%, 03/01/29 144A .................... Baa1/BBB+ 500 500,000 499,172
Niagara Mohawk Power, 1st Mtge., 8.75%, 04/01/22 .................. Baa3/BBB 1,000 1,028,220 1,082,050
Utilicorp United Inc., Sr. Note 8.27%, 11/15/21 ................... Baa3/BBB 1,000 1,090,000 1,134,550
------------ ------------
7,006,935 7,773,598
------------ ------------
FINANCIAL (17.18%)
Chrysler Financial Corp., Debs., 12.75%, 11/01/99 ................. A1/A+ 1,000 1,090,125 1,041,876
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ......... Aa3/A 2,000 2,012,070 2,084,994
EOP Operating LP, Sr. Notes 7.25%, 02/15/18 ....................... Baa1/BBB 1,000 991,900 967,520
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ................ A1/BBB+ 2,000 1,993,370 2,085,398
HSBC America Capital II, 8.38%, 05/15/27 144A ..................... A2/BBB+ 2,500 2,570,605 2,592,980
Liberty Property Trust, 7.50%, 01/15/18 ........................... Baa3/BBB- 1,000 998,430 881,400
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 ................. Baa3/BBB 1,000 1,150,640 1,040,430
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ................. Baa3/BBB 1,500 1,634,965 1,900,020
Spieker Properties Inc., Notes, 7.875%, 12/01/16 .................. Baa2/BBB 1,000 1,001,830 1,026,330
West Deutsche LB, Sub. Notes, 6.05%, 01/15/09 ..................... Aa1/AA+ 400 398,988 390,577
------------ ------------
13,842,923 14,011,525
------------ ------------
INDUSTRIAL & MISCELLANEOUS (37.32%)
Apache Corp., Notes, 7.70%, 03/15/26 .............................. Baa1/BBB+ 500 525,280 519,853
Chiquita Brands Int'l, Inc., Sr. Notes, 10.25%, 11/01/06 .......... B1/B+ 250 255,625 263,750
Dell Computer Corp., Sr. Debs., 7.10%, 04/15/28 ................... Baa1/BBB+ 1,500 1,503,520 1,495,014
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 .................... Baa2/BBB 1,000 1,059,240 1,116,804
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ................ Baa2/BBB 2,000 2,157,020 2,247,836
Harcourt General Inc., Debs. 7.30%, 08/01/97 ...................... Baa2/BBB 1,500 1,488,886 1,379,809
K N Energy Inc., Debs., 8.75%, 10/15/24 ........................... Baa2/BBB- 1,150 1,263,799 1,277,029
Mark IV Industries, Inc., Sr. Sub. Notes, 7.75%, 04/01/06 ......... Ba2/BB- 500 462,650 482,908
May Department Stores Co., Debs., 10.75%, 06/15/18 ................ A1/A 150 154,385 158,298
News America Holdings Inc., Gtd. Sr. Debs., 10.125%, 10/15/12 ..... Baa3/BBB- 2,050 2,163,503 2,347,840
News America Holdings Inc., Notes, 7.90%, 12/01/95 ................ Baa3/BBB- 1,400 1,298,624 1,464,632
Phillip Morris Co., Inc., Debs., 7.75%, 01/15/27 .................. A2/A 3,000 3,007,020 3,225,390
Smurfit Capital Funding, Gtd., Debs., 7.50%, 11/20/25 ............. Baa1/A- 2,000 1,990,780 1,934,362
Texaco Capital Inc., Gtd. Debs., 7.50%, 03/01/43 .................. A1/A+ 2,000 1,977,920 2,106,174
Time Warner Inc., Debs., 9.15%, 02/01/23 .......................... Baa3/BBB 3,000 3,159,700 3,753,042
Tricon Global Restaurant, Sr. Notes, 7.65%, 05/15/08 .............. Ba1/BB 500 498,875 519,450
TRW Inc., Medium Term Notes, 9.25%, 12/30/11 ...................... Baa1/BBB 275 326,324 331,254
TRW Inc., Sr. Notes, 9.375%, 04/15/21 ............................. Baa1/BBB 303 320,893 367,254
Union Camp Corp., Debs., 9.25%, 02/01/11 .......................... A2/A- 1,500 1,486,305 1,784,099
Union Pacific Resources Notes 7.00%, 10/15/06 ..................... Baa3/BBB- 750 728,985 732,757
Western Atlas Inc., Debs., 8.55%, 06/15/24 ........................ A2/A 2,539 2,651,998 2,934,475
------------ ------------
28,481,332 30,442,030
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SCHEDULE OF INVESTMENTS--continued MARCH 31, 1999
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal Identified Cost Value
Rating** Amount (000's) (Note 2) (Note 1)
----------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
TELEPHONE & COMMUNICATIONS (7.84%)
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ........ Baa3/BBB $ 1,000 $ 1,120,000 $ 1,189,292
MCI Worldcom Inc., Sr. Note., 6.95%, 08/15/28 .............. Baa2/BBB+ 1,500 1,485,975 1,529,508
New York Telephone Co. Debs., 9.375%, 07/15/31 ............. A2/A+ 1,250 1,426,113 1,401,423
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ....... A2/AA- 2,000 1,991,940 2,275,460
----------- -----------
6,024,028 6,395,683
----------- -----------
TRANSPORTATION (8.78%)
AMR Corp., Debs., 10.00%, 04/15/21 ......................... Baa2/BBB- 2,000 2,148,940 2,484,180
Auburn Hills Trust, Gtd. Ctfs., 12.00%, 05/01/20 ........... A1/A+ 1,000 1,000,000 1,577,387
Ford Holdings, Inc., Gtd. 9.30%, 03/01/20 .................. A1/A 1,000 1,117,790 1,266,285
Ford Motor Co., Debs., 8.90%, 02/15/32 ..................... A1/A 1,500 1,480,350 1,830,471
----------- -----------
5,747,080 7,158,323
----------- -----------
MORTGAGE BACKED SECURITIES (3.84%)
FNMA Pool #313411, 7.00%, 03/01/04 ......................... NR/NR 917 927,883 938,915
GNMA Pool #780374, 7.50%, 12/15/23 ......................... NR/NR 575 569,947 592,399
GNMA Pool #417239, 7.00%, 02/15/26 ......................... NR/NR 1,579 1,602,051 1,604,144
----------- -----------
3,099,881 3,135,458
----------- -----------
TAXABLE MUNICIPAL BONDS (1.92%)
Greater Orlando Aviation Authority, 8.20%, 10/01/12 ........ Aaa/AAA 500 551,875 540,000
North Dakota State Municipal Bond Bank, Water Sys. Rev.,
10.50%, 04/01/14 .......................................... Aaa/AAA 1,000 1,159,780 1,025,530
----------- -----------
1,711,655 1,565,530
----------- -----------
U.S. GOVERNMENT (10.65%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ...................... NR/NR 1,600 2,120,750 2,057,000
U.S. Treasury Bonds, 8.125%, 05/15/21 ...................... NR/NR 1,000 1,016,406 1,270,313
U.S. Treasury Bonds, 6.25%, 08/15/23 ....................... NR/NR 500 548,125 523,594
U.S. Treasury Bonds, 7.875%, 02/15/21 ...................... NR/NR 3,900 4,051,031 4,831,125
----------- -----------
7,736,312 8,682,032
----------- -----------
TOTAL LONG-TERM DEBT SECURITIES ............................ 73,650,146 79,164,179
----------- -----------
Shares
--------
INVESTMENT COMPANIES (1.02%)
High Yield Plus Fund ....................................... 33,333 228,425 239,581
Republic US Govt Money Market Fund-Reg ..................... 591,860 591,860 591,860
----------- -----------
820,285 831,441
----------- -----------
TOTAL INVESTMENTS (98.08%) ................................. $74,470,431* $79,995,620
============ ===========
OTHER ASSETS AND LIABILITIES (1.92%) ....................... 1,563,878
-----------
NET ASSETS (100.00%) ....................................... $81,559,498
-----------
</TABLE>
* The cost for federal income tax purposes was $74,522,618. The aggregate gross
unrealized appreciation in which there was an excess of fair value over tax
cost was $6,220,634 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over fair value was
$747,632.
**Ratings for debt securities are unaudited.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the year, these securities amounted
to 3.8% of net assets.
Legend
- ------
Ctfs -- Certificates
Debs -- Debentures
Gtd -- Guaranteed
Sr -- Senior
Sub -- Subordinated
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
<TABLE>
<S> <C>
Assets:
Investment in securities at value (identified cost $74,470,431) (Note 1) $ 79,995,620
Interest receivable ..................................................... 1,657,865
------------
TOTAL ASSETS .......................................................... 81,653,485
------------
Liabilities:
Due to Advisor .......................................................... 26,177
Accrued expenses payable ................................................ 67,810
------------
TOTAL LIABILITIES ..................................................... 93,987
------------
Net assets: (equivalent to $22.20 per share based on 3,673,258 shares
of capital stock outstanding) ........................................... $ 81,559,498
============
NET ASSETS consisted of:
Par value ............................................................... $ 3,673,258
Capital paid-in ......................................................... 72,405,142
Undistributed net investment income ..................................... 8,096
Accumulated net realized loss on investments ............................ (52,187)
Net unrealized appreciation on investments .............................. 5,525,189
------------
$ 81,559,498
============
</TABLE>
<TABLE>
<S> <C> <C>
STATEMENT OF OPERATIONS
For the year ended March 31, 1999
Investment Income:
Interest ............................................................ $ 6,149,546
Dividends ........................................................... 47,989
------------
Total Investment Income ........................................... 6,197,535
------------
Expenses: ..............................................................
Investment advisory fees (Note 4) ................................... $ 465,542
Transfer agent fees ................................................. 35,507
Insurance ........................................................... 13,000
Directors' fees and expenses ........................................ 24,000
Audit fees .......................................................... 25,000
State and local taxes ............................................... 16,910
Legal fees and expenses ............................................. 8,847
Reports to shareholders ............................................. 15,044
Custodian fees ...................................................... 7,025
Miscellaneous ....................................................... 25,971
----------
Total Expenses .................................................... 636,846
------------
Net Investment Income .......................................... 5,560,689
------------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized gain from security transactions ........................ 340,192
------------
Unrealized appreciation of investments:
Beginning of year ................................................. 7,350,696
End of year ....................................................... 5,525,189
----------
Change in unrealized appreciation of investments ............... (1,825,507)
------------
Net realized and unrealized loss on investments .............. (1,485,315)
------------
Net increase in net assets resulting from operations ......... $ 4,075,374
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1999 March 31, 1998
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 5,560,689 $ 5,528,166
Net realized gain from security transactions (Note 2) ....................... 340,192 164,027
Change in unrealized appreciation of investments ............................ (1,825,507) 7,586,669
------------ ------------
Net increase in net assets resulting from operations ........................ 4,075,374 13,278,862
------------ ------------
Dividends to shareholders from net investment income ......................... (5,472,586) (5,528,166)
Dividends to shareholders in excess of net investment income ................. -- (86,494)
Distributions to shareholders from net realized gain ......................... (422,993) (5,422)
------------ ------------
(5,895,579) (5,620,082)
------------ ------------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5) ....................................... 0 0
------------ ------------
Increase (decrease) in net assets ........................................... (1,820,205) 7,658,780
Net Assets:
Beginning of year ........................................................... 83,379,703 75,720,923
------------ ------------
End of year ................................................................. $ 81,559,498 $ 83,379,703
============ ============
</TABLE>
================================================================================
HOW TO ENROLL IN THE DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan
for the automatic investment of dividends and distributions which all
shareholders of record are eligible to join. The method by which shares
are obtained is explained on page 11. The Fund has appointed First
Chicago Trust Company of New York to act as the Agent of each
shareholder electing to participate in the plan. Information and
application forms are available from First Chicago Trust Company of New
York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
================================================================================
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year ................ $ 22.70 $ 20.61 $ 21.15 $ 20.64 $ 21.45
------- ------- ------- ------- -------
Net investment income ............................ 1.52 1.51 1.51 1.58 1.58
Net unrealized and realized gain (loss) on
investments .................................... ( 0.41) 2.11 (0.49) 0.61 (0.67)
------- ------- ------- ------- -------
Total from investment operations .................. 1.11 3.62 1.02 2.19 0.91
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income ............. (1.48) (1.51) (1.51) (1.58) (1.58)
Dividends in excess of net investment income 0.00 (0.02) (0.02) 0.00 (0.01)
Distributions from net realized gain ............. (0.13) (0.00) 0.00 (0.06) 0.00
Distributions from tax return of capital ......... 0.00 0.00 (0.03) (0.04) (0.13)
------- ------- ------- ------- -------
Total distributions ............................... (1.61) (1.53) (1.56) (1.68) (1.72)
------- ------- ------- ------- -------
Net asset value, end of year ...................... $ 22.20 $ 22.70 $ 20.61 $ 21.15 $ 20.64
======= ======= ======= ======= =======
Per share market price, end of year ............... $ 20.69 $ 20.81 $ 19.75 $ 21.25 $ 20.13
======= ======= ======= ======= =======
Total Investment Return
Based on market value ............................ 7.28% 13.11% 0.28% 13.91% 3.41%
Ratios/Supplemental Data
Net assets, end of period (in 000's) .............. $81,559 $83,380 $75,721 $77,581 $75,384
Ratio of expenses to average net assets .......... 0.77% 0.85% 0.87% 0.86% 0.86%
Ratio of net investment income to average net
assets ......................................... 6.70% 6.89% 7.27% 7.37% 7.83%
Portfolio Turnover Rate .......................... 17.89% 18.88% 32.83% 43.25% 35.38%
Number of shares outstanding at the end of year
(in 000's) ....................................... 3,673 3,673 3,673 3,668 3,653
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Significant Accounting Policies -- The 1838 Bond-Debenture Trading
Fund ("the Fund") is registered under the Investment Company Act of 1940, as
amended, as a diversified closed-end management investment company. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security Valuation -- Securities which are primarily traded in the
over-the-counter market are valued at the mean of the bid prices on the
last business day of the period generally obtained from at least two
dealers regularly making a market in the security. Securities which are
primarily traded on a national securities exchange are valued at the last
reported sales price. The Fund believes that, because of the size of its
position in securities, the primary market for the listed debt securities
in its portfolio is the over-the-counter market. Short-term money market
instruments which have a maturity of more than 60 days are valued at the
mean bid prices for securities of a similar type, yield and maturity
obtained from at least two dealers. Short-term money market instruments
which have a maturity of 60 days or less are valued at amortized cost which
approximates market value. At March 31, 1999, the Fund had invested 37.33%
of its portfolio in long-term debt obligations of issuers engaged in
industrial and other miscellaneous activities. The issuers' ability to meet
these obligations may be affected by economic developments in their
respective industries.
B. Determination of Gains or Losses on Sale of Securities -- Gains or losses on
the sale of securities are calculated for accounting and tax purposes on
the identified cost basis.
C. Federal Income Taxes -- It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
D. Other -- Security transactions are accounted for on the date the securities
are purchased or sold. The Fund records interest income on the accrual basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
E. Distributions to Shareholders -- Distributions of net investment income will
be made quarterly. Distributions of net capital gains realized will be made
annually. Income distributions and capital gain distributions are
determined in accordance with U.S. Federal Income Tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments in market discount and mortgage
backed securities.
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions for the year ended March 31, 1999:
Proceeds
Cost of from Sales
Purchases or Maturities
------------- --------------
U.S. Government Securities .......... $ 1,946,736 $ 1,912,814
Other Investment Securities ......... 14,195,127 12,515,483
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NOTES TO FINANCIAL STATEMENTS--continued
Note 3 -- Capital Stock -- At March 31, 1999, there were 10,000,000 shares of
capital stock ($1.00 par value) authorized, with 3,673,258 shares issued and
outstanding.
Note 4 -- Investment Advisory Contract and Payments to Affiliated
Persons -- Under the terms of the current contract with 1838 Investment
Advisors, Inc. (the "Advisor"), advisory fees are paid monthly to the Advisor
at an annual rate of 5/8 of 1% on the first $40 million of the Fund's month end
net assets and 1/2 of 1% on the excess. Effective July 31, 1998, the Advisor
became a wholly-owned subsidiary of MBIA, Inc. The terms of the Investment
Advisory Agreement have not changed.
Certain directors and officers of the Fund are also directors, officers and/or
employees of the Advisor. None of the directors so affiliated receives
compensation for services as a director of the Fund. Similarly, none of the
Fund's officers receive compensation from the Fund.
Note 5 -- Dividend and Distribution Reinvestment -- In accordance with the
terms of the Automatic Dividend Investment Plan, for shareholders who so elect,
dividends and distributions are made in the form of previously unissued Fund
shares at the net asset value if on the Friday preceding the payment date (the
"Valuation Date") the closing New York Stock Exchange price per share, plus the
brokerage commissions applicable to one such share equals or exceeds the net
asset value per share. However, if the net asset value is less than 95% of the
market price on the Valuation Date, the shares issued will be valued at 95% of
the market price. If the net asset value per share exceeds market price plus
commissions, the dividend or distribution proceeds are used to purchase Fund
shares on the open market for participants in the Plan. During the years ended
March 31, 1999 and 1998, the Fund issued zero shares under this Plan.
________________________________________________________________________________
SPECIAL TAX INFORMATION (Unaudited)
This information for the fiscal year ended March 31, 1999, is included pursuant
to provisions of the Internal Revenue Code.
The fund distributed $265,626 as capital gain dividends (from net long-term
capital gains) to shareholders during the fiscal year ended March 31, 1999, all
of which is designated as a 20% rate gain distribution.
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DIVIDEND REINVESTMENT PLAN (Unaudited)
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan for the
automatic investment of dividends and distributions (the "Plan") pursuant to
which dividends and capital gain distributions to shareholders will be paid in
or reinvested in additional shares of the Fund. All shareholders of record are
eligible to join the Plan. First Chicago Trust Company of New York acts as the
agent (the "Agent") for participants under the Plan.
Shareholders whose shares are registered in their own names may elect to
participate in the Plan by completing an authorization form and returning it to
the Agent. Shareholders whose shares are held in the name of a broker or
nominee should contact such broker or nominee to determine whether or how they
may participate in the Plan.
Dividends and distributions are reinvested under the Plan as follows. If the
market price per share on the Friday before the payment date for the dividend
or distribution (the "Valuation Date"), plus the brokerage commissions
applicable to one such share, equals or exceeds the net asset value per share
on that date, the Fund will issue new shares to participants valued at the net
asset value or, if the net asset value is less than 95% of the market price on
the Valuation Date, then valued at 95% of the market price. If net asset value
per share on the Valuation Date exceeds the market price per share on that
date, plus the brokerage commissions applicable to one such share, the Agent
will buy shares on the open market, the New York Stock Exchange, for the
participants' accounts. If before the Agent has completed its purchases, the
market price exceeds the net asset value of shares, the average per share
purchase price paid by the Agent may exceed the net asset value of shares,
resulting in the acquisition of fewer shares than if the dividend or
distribution has been paid in shares issued by the Fund at net asset value.
There is no charge to participants for reinvesting dividends or distributions
payable in either shares or cash. The Agent's fees for handling of reinvestment
of such dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or distributions payable either in shares or cash. However,
each participant will be charged by the Agent a pro rata share of brokerage
commissions incurred with respect to Agent's open market purchases in
connection with the reinvestment of dividends or distributions payable only in
cash.
For purposes of determining the number of shares to be distributed under the
Plan, the net asset value is computed on the Valuation Date and compared to the
market value of such shares on such date. The Plan may be terminated by a
participant by delivery of written notice of termination to the Agent at the
address shown below. Upon termination, the Agent will cause a certificate or
certificates for the full shares held for a participant under the Plan and a
check for any fractional shares to be delivered to the former participant.
Distributions of investment company taxable income that are invested in
additional shares generally are taxable to shareholders as ordinary income. A
capital gain distribution that is reinvested in shares is taxable to
shareholders as long-term capital gain, regardless of the length of time a
shareholder has held the shares or whether such gain was realized by the Fund
before the shareholder acquired such shares and was reflected in the price paid
for the shares.
Plan information and authorization forms are available from First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey, 07303-2500.
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HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS
Contact Your Transfer Agent, First Chicago Trust Company of New York,
P.O. Box 2500, Jersey City, New Jersey 07303-2500, or call 201-324-0498
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