<PAGE>
April 17, 2000
To The Shareholder:
The Fund ended the Fiscal Year March 31, 2000 with a Net Asset Value of $20.39
per share. This represents an 8.2% decrease from $22.20 per share at the end of
the March 31, 1999 Fiscal Year and a 2.5% increase from $19.90 per share at
December 31, 1999. On March 31, 2000 the Fund's closing stock price on the New
York Stock Exchange was $16.875 per share, representing an 17.2% 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 3/31/00 to 3/31/00 to 3/31/00 to 3/31/00 to 3/31/00
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 130.19% 42.36% 3.36% -1.50% 2.46%
Average of 18 Other
Closed-End Bond Funds(2) 126.96% 38.00% 5.41% 0.44% 1.57%
Salomon Bros.Bond Index(3) 133.50% 43.56% 3.24% -2.47% 2.41%
</TABLE>
(1) - This is historical information and should not be construed as indicative
of any 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.
The Federal Reserve Bank has raised the Federal Funds rate 0.25% five separate
times since June 1999, most recently on March 21, 2000, to bring the rate to
6%. In recent months, long-term US Treasury bond yields have diverged from the
general trend to higher interest rates. Benchmark 30-year Treasury bonds had a
yield of 5.62% at the end of the previous fiscal year and rose as high as 6.75%
in January 2000 before falling to 5.84% on March 31, 2000. Since January, the
Treasury yield curve has inverted such that long-term yields have become lower
than shorter yields, particularly between 10 and 30-year maturities. The use of
budget surpluses to repurchase long-term debt, thereby reducing available
supply, has been the primary catalyst for the divergence. Yields on other
sectors, including Corporate and Mortgage bonds, did not match Treasury yield
declines as factors including stock market volatility, temporary fears over
Y2K, merger activity, broker/dealer liquidity and the inverted yield curve made
investors demand relatively more yield compensation to purchase bonds in these
other sectors. The Fund's total return performance was negatively impacted by
its investment in longer-term corporate bonds during the past year. Conversely,
the higher yield now offered by these bonds affords a more attractive
reinvestment of any portfolio maturities and redemptions.
Looking forward, the Fund is still subject to the volatility in yield spreads.
A return to tighter yield spreads will positively impact overall total return,
while further widening will have the opposite effect. We do believe that the
Federal Reserve will continue to raise interest rates, perhaps another 0.50%
this calendar year, in response to the combination of the robust U.S. economy,
tight labor markets and concerns about possible inflation in the face of rising
energy prices. The Fund's portfolio remains sensitive to changes in bond prices
as dictated by the overall direction on long-term interest rates.
1
<PAGE>
The table below updates the portfolio quality of the Fund's assets compared to
the end of the two 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, 2000 16.8% 3.5% 29.8% 44.6% 5.0% 0.0% 0.3%
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%
</TABLE>
Among current portfolio holdings, Calpine, Niagara Mohawk Power, EOP, HSBC
America, Dell, Continental Cablevision and Worldcom were upgraded during the
past year by one or both of the rating agencies followed by the Fund. Smurfit
and Union Camp were downgraded while Ford was upgraded during the year, only to
be downgraded during April 2000. Please refer to the Schedule of Investments in
the financial statement for details on portfolio holdings.
On March 20, 2000 the Board of Directors declared a dividend payment of $0.3625
per share payable May 9, 2000 to shareholders of record on April 6, 2000.
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. The dividend reinvestment
plan affords shareholders a price advantage by allowing the purchase of shares
at the lower of NAV or market price. This means that the reinvestment is at
market price when the Fund is trading at a discount to Net Asset Value or at
Net Asset Value per share when market trading is at a premium to that value. To
participate in the plan, please contact EquiServe First Chicago, the Fund's
Transfer Agent and Dividend Paying Agent, at 201-324-0498.
Shareholders should have received information concerning the ability to have
dividend payments made through direct deposit and the availability of
information regarding the Fund via EquiServe First Chicago's Internet website.
Please contact EquiServe First Chicago, at the aforementioned telephone number
if there are any questions about these services.
Sincerely,
/s/ John H. Donaldson
------------------------------
John H. Donaldson, CFA
President
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of the 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, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted
in the United States, 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, 2000 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 27, 2000
3
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 2000
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal Identified Cost Value
Rating Amount (000's) (Note 1) (Note 1)
----------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
LONG-TERM DEBT SECURITIES (95.66%)
ELECTRIC UTILITIES (9.69%)
Calpine Corp., 7.75%, 04/15/09 ................................... Ba1/BB+ $ 500 $ 483,592 $ 461,875
Cleveland Electric Illum., 1st Mtge., 9.00%, 07/01/23 ............ Ba1/BB+ 1,800 1,662,876 1,832,879
CMS Energy Corp., 7.50%, 01/15/09 ................................ Ba3/BB 1,000 1,000,000 874,963
Hydro-Quebec, Gtd. Debs., 8.25%, 04/15/26 ........................ A2/A+ 1,550 1,475,994 1,655,385
Midamerican Funding LLC, 6.927%, 03/01/29 ........................ Baa1/BBB+ 500 500,000 433,922
Niagara Mohawk Power Co., 1st Mtge., 8.75%, 04/01/22 ............. Baa2/BBB+ 1,000 1,028,220 1,011,119
Utilicorp United Inc., Sr. Notes, 8.27%, 11/15/21 ................ Baa3/BBB 1,000 1,090,000 990,261
------------ ------------
7,240,682 7,260,404
------------ ------------
FINANCIAL (17.91%)
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ........ Aa3/A 2,000 2,012,070 1,891,922
EOP Operating LP, Notes, 7.25%, 02/15/18 ......................... Baa1/BBB+ 1,000 991,900 874,455
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ............... A1/BBB+ 2,000 1,993,370 1,882,050
HSBC America Capital II, 8.38%, 5/15/27 .......................... A1/A- 2,500 2,570,605 2,409,518
Liberty Property Trust, 7.50%, 01/15/18 .......................... Baa3/BBB- 1,000 998,430 877,309
Penn Central Corp., Sub Notes, 10.625%, 04/15/00 ................. Baa3/BBB 1,000 1,150,640 1,000,368
Penn Central Corp., Sub Notes, 10.875%, 05/01/11 ................. Baa3/BBB 1,500 1,634,965 1,664,402
Royal Bank of Scotland, 8.817%, 03/31/49 ......................... A1/A- 1,000 1,000,000 1,019,439
Spieker Properties, 7.875%, 12/01/16 ............................. Baa2/BBB 1,000 1,001,830 931,831
United Dominion Realty Trust, 8.625%, 03/15/03 ................... Baa2/BBB 500 499,380 499,777
West Deutsche LB, NY, 6.05%, 01/15/09 ............................ Aa1/AA+ 400 398,988 357,386
------------ ------------
14,252,178 13,408,457
------------ ------------
INDUSTRIAL & MISCELLANEOUS (35.18%)
Apache Corp., 7.70%, 03/15/26 .................................... Baa1/BBB+ 500 525,280 475,801
Dell Computer Corp., Sr. Debs, 7.10%, 04/15/28 ................... A3/BBB+ 1,500 1,503,520 1,393,745
Georgia-Pacific Corp., Debs., 9.625%, 03/15/22 ................... Baa2/BBB- 1,000 1,059,240 1,006,679
Harcourt General Inc., Sr. Debs, 8.875%, 06/01/22 ................ Baa2/BBB 2,000 2,157,020 2,098,582
K N Energy Inc., Debs., 8.75%, 10/15/24 .......................... Baa2/BBB- 1,150 1,263,799 1,155,868
Meritor Automotive Inc., 6.80%, 02/15/09 ......................... Baa2/BBB 500 465,740 422,116
News America Holdings Inc., Gtd. Sr. Debs., 10.125%, 10/15/12 .... Baa3/BBB- 2,050 2,163,503 2,171,561
News America Holdings Inc., Notes, 7.90%, 12/01/95 ............... Baa3/BBB- 1,400 1,298,624 1,218,505
NSTAR, Notes, 8.00%, 02/15/10 .................................... A2/BBB+ 500 497,965 512,456
Owens Corning, 7.70%, 05/01/08 ................................... Baa3/BBB- 500 482,890 464,257
Phillip Morris Co., Inc., Debs., 7.75%, 01/15/27 ................. A2/A 3,000 3,007,020 2,576,136
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ............. Baa2/BBB+ 2,000 1,990,780 1,805,852
Texaco Capital Inc., Gtd. Debs., 7.50%, 03/01/43 ................. A1/A+ 2,000 1,977,920 1,876,586
Time Warner Inc., Debs., 9.15%, 02/01/23 ......................... Baa3/BBB 3,000 3,159,700 3,332,373
Tricon Global Restaurant, Sr. Notes, 7.65%, 05/15/08 ............. Ba1/BB 500 498,875 478,954
TRW Inc., Sr. Notes, 9.375%, 04/15/21 ............................ Baa1/BBB 303 320,893 340,606
Tyco Int'l. Group SA, Yankee, 6.875%, 01/15/29 ................... Baa1/A- 750 651,998 645,127
Union Camp Corp., 9.25%, 02/01/11 ................................ A3/BBB+ 1,500 1,486,305 1,657,368
Western Atlas Inc., Debs., 8.55%, 06/15/24 ....................... A2/A 2,539 2,651,998 2,713,896
------------ ------------
27,163,070 26,346,468
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SCHEDULE OF INVESTMENTS--continued March 31, 2000
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal Identified Cost Value
Rating Amount (000's) (Note 1) (Note 1)
----------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
TELEPHONE & COMMUNICATIONS (9.11%)
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ...... Baa2/BBB $ 1,000 $ 1,120,000 $ 1,081,466
New York Telephone, Debs., 9.375%, 07/15/31 .............. A2/A+ 1,250 1,426,113 1,313,494
Sprint Capital Corp., 6.875%, 11/15/28 ................... Baa1/BBB+ 1,000 992,220 896,251
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ..... A2/AA- 2,000 1,991,940 2,157,802
Worldcom, Inc., 6.95%, 08/15/28 .......................... A3/A- 1,500 1,485,975 1,370,290
------------- -----------
7,016,248 6,819,303
------------- -----------
TRANSPORTATION (8.73%)
AMR Corp., Debs., 10.00%, 04/15/21 ....................... Baa2/BBB- 2,000 2,148,940 2,266,126
Auburn Hills Trust, Gtd. Ctfs., 12.00%, 05/01/20 ......... A1/A+ 1,000 1,000,000 1,465,640
Ford Holdings, Inc., Gtd. Debs., 9.375%, 03/01/20 ........ A1/A+ 1,000 1,117,790 1,135,847
Ford Motor Co., Debs., 8.90%, 01/15/32 ................... A1/A+ 1,500 1,480,350 1,671,045
------------- -----------
5,747,080 6,538,658
------------- -----------
MORTGAGE-BACKED SECURITIES (3.25%)
FNMA Pool #313411, 7.00%, 03/01/04 ....................... NR/NR 659 666,350 651,258
GNMA Pool # 780374, 7.50%, 12/15/23 ...................... NR/NR 463 459,524 461,895
GNMA Pool # 417239, 7.00%, 02/15/26 ...................... NR/NR 1,360 1,379,192 1,320,802
------------- -----------
2,505,066 2,433,955
------------- -----------
TAXABLE MUNICIPAL BONDS (0.68%)
Greater Orlando Aviation Authority, 8.20%, 10/01/12 ...... Aaa/AAA 500 551,875 512,021
------------- -----------
U.S. GOVERNMENT & AGENCIES (11.11%)
U.S. Treasury Bonds, 10.75%, 08/15/05 .................... NR/NR 1,600 2,120,750 1,911,000
U.S. Treasury Notes, 6.875%, 05/15/06 .................... NR/NR 500 501,875 513,594
U.S. Treasury Bonds, 7.875%, 02/15/21 .................... NR/NR 3,900 4,051,031 4,670,250
U.S. Treasury Bonds, 8.125%, 08/15/21 .................... NR/NR 1,000 1,016,406 1,229,063
------------- -----------
7,690,062 8,323,907
------------- -----------
TOTAL LONG-TERM DEBT SECURITIES .......................... 72,166,261 71,643,173
------------- -----------
COMMERCIAL PAPER (1.34%)
General Electric Capital Corp., 5.90%, 04/05/00 .......... Aaa/AAA 1,000 1,000,000 1,000,000
------------- -----------
Shares
--------
INVESTMENT COMPANIES (1.00%)
High Yield Plus Fund ..................................... 33,333 223,875 206,248
Republic U.S. Govt. Money Market Fund .................... 539,385 539,385 539,385
------------- -----------
763,260 745,633
------------- -----------
TOTAL INVESTMENTS (98.00%) ............................... $ 73,929,521* 73,388,806
=============
OTHER ASSETS AND LIABILITIES (2.00%) ..................... 1,503,458
-----------
NET ASSETS (100.00%) ..................................... $74,892,264
===========
</TABLE>
* The cost for federal income tax purposes was $73,929,521. At March 31, 2000,
net unrealized depreciation was $540,715. This consisted of aggregate gross
unrealized appreciation for all securities for which there was an excess of
market value over tax cost of $2,649,968 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $3,190,683.
Legend
Ctfs -- Certificates
Debs -- Debentures
Gtd -- Guaranteed
Sr -- Senior
Sub -- Subordinated
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
<TABLE>
<S> <C>
Assets:
Investment in securities at value (identified cost $73,929,521) (Note 1) $ 73,388,806
Interest receivable ..................................................... 1,574,841
Dividends receivable .................................................... 2,417
Other assets ............................................................ 5,633
------------
TOTAL ASSETS .......................................................... 74,971,697
------------
Liabilities:
Due to Advisor .......................................................... 34,261
Accrued expenses payable ................................................ 45,172
------------
TOTAL LIABILITIES ..................................................... 79,433
------------
Net assets: (equivalent to $20.39 per share based on 3,673,258 shares
of capital stock outstanding) ............................................ $ 74,892,264
============
NET ASSETS consisted of:
Par value ............................................................... $ 3,673,258
Capital paid-in ......................................................... 72,405,142
Undistributed net investment income ..................................... 35,032
Accumulated net realized loss on investments ............................ (680,453)
Net unrealized depreciation on investments .............................. (540,715)
------------
$ 74,892,264
============
</TABLE>
<TABLE>
<S> <C> <C>
STATEMENT OF OPERATIONS
For the year ended March 31, 2000
Investment Income:
Interest ............................................................... $ 5,994,966
Dividends .............................................................. 82,832
-------------
Total Investment Income .............................................. 6,077,798
-------------
Expenses:
Investment advisory fees (Note 4) ...................................... $ 428,897
Transfer agent fees .................................................... 43,338
NYSE fee ............................................................... 32,340
Directors' fees ........................................................ 27,000
Audit fees ............................................................. 25,000
State and local taxes .................................................. 23,234
Legal fees and expenses ................................................ 25,129
Reports to shareholders ................................................ 27,304
Custodian fees ......................................................... 6,548
Miscellaneous .......................................................... 35,052
----------
Total Expenses ....................................................... 673,842
-------------
Net Investment Income ............................................. 5,403,956
-------------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized loss from security transactions ........................... (614,780)
-------------
Unrealized appreciation (depreciation) of investments:
Beginning of year .................................................... 5,525,189
End of year .......................................................... (540,715)
----------
Change in unrealized appreciation (depreciation) of investments ... (6,065,904)
-------------
Net realized and unrealized loss of investments ................. (6,680,684)
-------------
Net decrease in net assets resulting from operations ............ $ (1,276,728)
=============
</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, 2000 March 31, 1999
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 5,403,956 $ 5,560,689
Net realized gain (loss) from security transactions (Note 2) ................ (614,780) 340,192
Change in unrealized appreciation (depreciation) of investments ............. (6,065,904) (1,825,507)
------------ ------------
Net increase (decrease) in net assets resulting from operations ........... (1,276,728) 4,075,374
------------ ------------
Dividends to shareholders from net investment income ......................... (5,390,506) (5,472,586)
Distributions to shareholders from net realized gain ......................... -- (422,993)
------------ ------------
(5,390,506) (5,895,579)
------------ ------------
Decrease in net assets ...................................................... (6,667,234) (1,820,205)
Net Assets:
Beginning of year ........................................................... 81,559,498 83,379,703
------------ ------------
End of year (including undistributed net investment income of $35,032 and
$8,096, respectively)...................................................... $ 74,892,264 $ 81,559,498
============ ============
</TABLE>
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,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year ................ $ 22.20 $ 22.70 $ 20.61 $ 21.15 $ 20.64
-------- -------- -------- -------- --------
Net investment income ............................ 1.47 1.52 1.51 1.51 1.58
Net realized and unrealized gain (loss) on
investments .................................... (1.81) (0.41) 2.11 (0.49) 0.61
-------- --------- -------- --------- --------
Total from investment operations .................. (0.34) 1.11 3.62 1.02 2.19
-------- --------- -------- --------- --------
Less distributions
Dividends from net investment income ............. (1.47) (1.48) (1.51) (1.51) (1.58)
Dividends in excess of net investment
income ......................................... 0.00 0.00 (0.02) (0.02) 0.00
Distributions from net realized gain ............. 0.00 (0.13) 0.00 0.00 (0.06)
Distributions from tax return of capital ......... 0.00 0.00 0.00 (0.03) (0.04)
-------- --------- --------- --------- ---------
Total distributions ............................... (1.47) (1.61) (1.53) (1.56) (1.68)
-------- --------- --------- --------- ---------
Net asset value, end of year ...................... $ 20.39 $ 22.20 $ 22.70 $ 20.61 $ 21.15
======== ========= ========= ========= =========
Per share market price, end of year ............... $ 16.88 $ 20.69 $ 20.81 $ 19.75 $ 21.25
======== ========= ========= ========= =========
Total Investment Return
Based on market value ............................ (11.67)% 7.28% 13.11% 0.28% 13.91%
Ratios/Supplemental Data
Net assets, end of year (in 000's) ................ $ 74,892 $ 81,559 $ 83,380 $ 75,721 $ 77,581
Ratio of expenses to average net assets .......... 0.88% 0.77% 0.85% 0.87% 0.86%
Ratio of net investment income to average net
assets ......................................... 7.09% 6.70% 6.89% 7.27% 7.37%
Portfolio turnover rate .......................... 10.21% 17.89% 18.88% 32.83% 43.25%
Number of shares outstanding at the end of the
year (in 000's) .................................. 3,673 3,673 3,673 3,673 3,668
</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"), a Delaware Corporation, is registered under the Investment
Company Act of 1940, as amended, as a diversified closed-end management
investment company. 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 -- In valuing the 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 the day of
valuation. If there are no sales of the relevant security on such day, the
security will be valued at the bid price at the time of computation. Prices
for securities traded in the over-the-counter market, including listed debt
and preferred securities, whose primary market is believed to be
over-the-counter, normally are supplied by independent pricing services.
Securities for which market quotations are not readily available will be
valued at their respective fair values as determined in good faith by, or
under procedures established by the Board of Directors. At March 31, 2000
there were no securities valued by the Board of Directors.
At March 31, 2000, the Fund had invested 35.18% 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. As of
March 31, 2000, the Fund had a tax basis capital loss carryover of
approximately $159,409 available to offset future capital gains, if any,
until fully utilized or until its expiration on March 31, 2008, whichever
occurs first. Under the current tax law, capital losses realized after
October 31, may be deferred and treated as occurring on the first day of
the following fiscal year. For the year ended March 31, 2000, the Fund
elected to defer losses occurring between November 1, 1999 and March 31,
2000 in the amount of $521,044.
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. The Fund does not amortize market premium or accrete
market discount.
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.
F. 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions, other than short-term investments, for the year ended March 31,
2000:
<TABLE>
<CAPTION>
Proceeds
Cost of from Sales
Purchases or Maturities
------------ --------------
<S> <C> <C>
U.S. Government Securities .......... $ 501,875 $ 987,175
Other Investment Securities ......... 7,059,141 7,447,499
</TABLE>
Note 3 -- Capital Stock -- At March 31, 2000, 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"), a wholly-owned subsidiary of MBIA, Inc., 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.
MBIA Municipal Investors Services Corporation, a direct, wholly-owned
subsidiary of MBIA, Inc., provides accounting services to the Fund and is
compensated for these services by the Advisor.
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 year ended
March 31, 2000, the Fund issued no shares under this Plan.
- --------------------------------------------------------------------------------
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 Equiserve,
First Chicago Trust Division, to act as the Agent of each shareholder
electing to participate in the plan. Information and application forms
are available from Equiserve, First Chicago Trust Division, P.O. Box
2500, Jersey City, New Jersey 07303-2500.
(Unaudited Information)
10
<PAGE>
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. Equiserve, First Chicago Trust Division, 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, on 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 Equiserve, First
Chicago Trust Division, P.O. Box 2500, Jersey City, New Jersey, 07303-2500.
HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS
Contact Your Transfer Agent, Equiserve, First Chicago Trust Division,
P.O. Box 2500, Jersey City, New Jersey 07303-2500, or call 201-324-0498
11
<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 INVESTMENT ADVISORS, INC.
FIVE RADNOR CORPORATE CENTER, SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN
---------------
HSBC BANK USA
452 FIFTH AVENUE
NEW YORK, NY 10018
TRANSFER AGENT
---------------
EQUISERVE, FIRST CHICAGO TRUST DIVISION
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
1177 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
<PAGE>
1838
BOND--DEBENTURE TRADING FUND
---------------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
[LOGO]
ANNUAL REPORT
MARCH 31, 2000
