<PAGE>
January 10, 2000
To The Shareholder:
The Fund ended the quarter December 31, 1999 with a Net Asset Value of $19.90
per share. This represents a 10.4% decrease from $22.20 per share at the end of
the March 31, 1999 Fiscal Year and an 11.4% decrease from $22.45 per share at
December 31, 1998. On December 31, 1999, the Fund's closing stock price on the
New York Stock Exchange was $16.1875 per share, representing an 18.7% 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 12/31/99 to 12/31/99 to 12/31/99 to 12/31/99 to 12/31/99
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 119.55% 41.53% 3.15% -5.04% 0.43%
Average of 18 Other
Closed-End Bond Funds(2) 121.36% 43.00% 5.49% -1.56% -0.07%
Salomon Bros. Bond Index(3) 123.13% 49.33% 2.50% -7.46% -0.79%
</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.
Long-term U.S. bond yields have risen for most of 1999. The benchmark U.S.
Treasury 30-year bond began the year at 5.09% and rose to 6.48% at year-end. The
price of the Fund's largest Treasury holding, 7.875% bonds due 2/15/21,
correspondingly fell 15.2%. The Fund's shares have traded on the New York Stock
Exchange at a wider discount to Net Asset Value per share than has been typical
compared to the last few years. The Fund's assets have declined less in value
(11.4%) than the prices on long-term Treasury bonds (15.2%), yet the stock price
of the Fund has declined more (23.8%) than either bond prices or the value of
the underlying assets since December 31, 1998.
During November, the Federal Reserve Bank raised the Federal Funds rate by 0.25%
for the third time since June, but adjusted their tightening bias for future
moves to a neutral posture. In a year when the Federal Funds rate has increased
by 0.75%, Treasury yields have increased substantially more. The 2-year yield
has increased by 1.70%, the 10-year by 1.78% and the 30-year by 1.39%. The
continued strength of the U.S. economy, particularly the robust employment
situation has been the impetus for the Fed's vigilance against any threat of
future inflation. At this writing, the economy appears to have weathered Y2K
without any visible negative impact.
Looking forward, we expect the Federal Reserve to keep its attention focused on
the potential for any inflation and to continue to act to raise rates if it
believes that would be necessary. The market level of interest rates would seem
to expect further tightenings, perhaps as soon as the February FOMC meeting. The
Fund's Net Asset Value and its stock price will continue to be heavily
influenced by the overall direction of interest rates.
<PAGE>
The table below updates the portfolio quality of the Fund's assets compared to
the end of the two prior fiscal years as well as the September 1999 quarter-end:
- --------------------------------------------------------------------------------
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>
December 31, 1999 15.3% 3.5% 31.5% 44.4% 4.8% 0.2% 0.3%
September 30, 1999 15.4% 3.4% 28.9% 46.9% 4.8% 0.3% 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>
Changes in the composition of ratings was influenced by the upgrading of several
credits, Continental Cablevision, Dell Computer, Ford Motor and HSBC America, by
either S&P or Moody's during the past quarter. Please refer to the Schedule of
Net Assets for details on portfolio holdings.
On December 16, 1999, the Fund's Board of Directors declared a dividend payment
of $0.3625 per share payable January 25, 2000 to shareholders of record on
December 30, 1999.
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 purchasing shares at the lower of Net
Asset Value 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 Trust Division, the Fund's
Transfer Agent and Dividend Paying Agent, at 201-324-0498.
Sincerely,
/s/ JOHN H. DONALDSON
John H. Donaldson, CFA
President
<PAGE>
SCHEDULE OF NET ASSETS
(unaudited) December 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 (97.39%)
ELECTRIC UTILITIES (9.54%)
Calpine Corp., 7.75%, 04/15/09 .................................... Ba1/BB+ $ 250 $ 249,845 $ 236,250
Cleveland Electric Illum., 1st Mtge., 9.00%, 07/01/23 ............. Ba1/BB+ 1,800 1,662,876 1,807,852
CMS Energy Corp., 7.50%, 01/15/09 ................................. Ba3/BB 1,000 1,000,000 902,731
Hydro-Quebec Debs., 8.25%, 04/15/26 ............................... A2/A+ 1,550 1,475,994 1,613,628
Niagara Mohawk Power Co., 1st Mtge., 8.75%, 04/01/22 .............. Baa2/BBB+ 1,000 1,028,220 999,618
Midamerican Funding LLC, 6.927%, 03/01/29, 144A ................... Baa1/BBB+ 500 500,000 432,682
Utilicorp United Inc., Sr. Notes, 8.27%, 11/15/21 ................. Baa3/BBB 1,000 1,090,000 982,621
------------ ------------
7,006,935 6,975,382
FINANCIAL (16.10%) ------------ ------------
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ......... Aa3/A 2,000 2,012,070 1,879,123
EOP Operating LP, Notes, 7.25%, 02/15/18 .......................... Baa1/BBB+ 1,000 991,900 875,123
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ................ A1/BBB+ 2,000 1,993,370 1,879,156
HSBC America Capital II, 8.38%, 05/15/27, 144A .................... A1/A- 2,500 2,570,605 2,351,935
Liberty Property Trust, 7.50%, 01/15/18 ........................... Baa3/BBB- 1,000 998,430 847,737
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 ................. Baa3/BBB 1,000 1,150,640 1,006,250
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ................. Baa3/BBB 1,500 1,634,965 1,647,165
Spieker Properties, 7.875%, 12/01/16 .............................. Baa2/BBB 1,000 1,001,830 923,439
West Deutsche LB, NY, 6.05%, 01/15/09 ............................. Aa1/AA+ 400 398,988 357,754
------------ ------------
12,752,798 11,767,682
INDUSTRIAL & MISCELLANEOUS (38.57%) ------------ ------------
Apache Corp., 7.70%, 03/15/26 ..................................... Baa1/BBB+ 500 525,280 481,181
Chiquita Brands Int'l. Inc., Sr. Notes, 10.25%, 11/01/06 .......... B1/B+ 250 255,625 181,250
Dell Computer Corp., Sr. Debs., 7.10%, 04/15/28 ................... A3/BBB+ 1,500 1,503,520 1,349,508
Georgia-Pacific Corp., Debs., 9.625%, 03/15/22 .................... Baa2/BBB- 1,000 1,059,240 1,049,231
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ................ Baa2/BBB 2,000 2,157,020 2,099,084
Harcourt General Inc., Debs., 7.30%, 08/01/97 ..................... Baa2/BBB 1,500 1,488,886 1,236,759
K N Energy Inc., Debs., 8.75%, 10/15/24 ........................... Baa2/BBB- 1,150 1,263,799 1,149,292
Meritor Automotive Inc., 6.08%, 02/15/09 .......................... Baa2/BBB 500 465,740 455,923
News America Holdings Inc., Gtd. Sr. Debs., 10.125%, 10/15/12 ..... Baa3/BBB- 2,050 2,163,503 2,255,424
News America Holdings Inc., Notes, 7.90%, 12/01/95 ................ Baa3/BBB- 1,400 1,298,624 1,277,731
Owens Corning, 7.70%, 05/01/08 .................................... Baa3/BBB- 500 482,890 466,111
Phillip Morris Co., Inc., Debs., 7.75%, 01/15/27 .................. A2/A 3,000 3,007,020 2,708,778
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 .............. Baa1/A- 2,000 1,990,780 1,793,238
Texaco Capital Inc., Gtd. Debs., 7.50%, 03/01/43 .................. A1/A+ 2,000 1,977,920 1,864,638
Time Warner Inc., Debs., 9.15%, 02/01/23 .......................... Baa3/BBB 3,000 3,159,700 3,346,986
Tricon Global Restaurant, Sr. Notes, 7.65%, 05/15/08 .............. Ba1/BB 500 498,875 473,396
TRW Inc., Sr. Notes, 9.375%, 04/15/21 ............................. Baa1/BBB 303 320,893 340,913
Tyco Int'l. Group SA, Yankee, 6.875%, 01/15/29 .................... Baa1/A- 750 651,998 638,760
Union Camp Corp., 9.25%, 02/01/11 ................................. A3/BBB+ 1,500 1,486,305 1,642,941
Union Pacific Resources Co., 7.00%, 10/15/06 ...................... Baa3/BBB- 750 728,985 715,338
Western Atlas Inc., Debs., 8.55%, 06/15/24 ........................ A2/A 2,539 2,651,997 2,671,175
------------ ------------
29,138,600 28,197,657
TELEPHONE & COMMUNICATIONS (9.32%) ------------ ------------
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ............... Baa2/BBB 1,000 1,120,000 1,091,995
New York Telephone, 9.375%, 07/15/31 .............................. A2/A+ 1,250 1,426,113 1,311,783
Sprint Capital Corp., 6.875%, 11/15/28 ............................ Baa1/BBB+ 1,000 992,220 889,570
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 .............. A2/AA- 2,000 1,991,940 2,151,692
Worldcom, Inc., 6.95%, 08/15/28 ................................... A3/A- 1,500 1,485,975 1,368,189
------------ ------------
7,016,248 6,813,229
------------ ------------
</TABLE>
3
<PAGE>
SCHEDULE OF NET ASSETS--continued
(unaudited) December 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>
TRANSPORTATION (8.92%)
AMR Corp., Debs., 10.00%, 04/15/21 ...................... Baa2/BBB- $ 2,000 $ 2,148,940 $ 2,249,326
Auburn Hills Trust, Gtd. Ctfs., 12.00%, 05/01/20 ........ A1/A+ 1,000 1,000,000 1,447,251
Ford Holdings, Inc., Gtd. Debs., 9.375%, 03/01/20 ....... A1/A+ 1,000 1,117,790 1,139,640
Ford Motor Co., Debs., 8.90%, 01/15/32 .................. A1/A+ 1,500 1,480,350 1,686,341
------------- -----------
5,747,080 6,522,558
------------- -----------
MORTGAGE BACKED SECURITIES (3.45%)
FNMA Pool # 313411, 7.00%, 03/01/04 ..................... NR/NR 670 707,772 699,344
GNMA Pool # 780374, 7.50%, 12/15/23 ..................... NR/NR 477 472,929 474,231
GNMA Pool # 417239, 7.00%, 02/15/26 ..................... NR/NR 1,389 1,408,752 1,344,855
------------- -----------
2,589,453 2,518,430
------------- -----------
TAXABLE MUNICIPAL BONDS (0.70%)
Greater Orlando Aviation Authority, 8.20%, 10/01/12 ..... Aaa/AAA 500 551,875 514,086
------------- -----------
U.S. GOVERNMENT & AGENCIES (10.79%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ................... NR/NR 1,600 2,120,750 1,910,000
U.S. Treasury Bonds, 7.875%, 02/15/21 ................... NR/NR 3,900 4,051,031 4,358,250
U.S. Treasury Bonds, 8.125%, 08/15/21 ................... NR/NR 1,000 1,016,406 1,147,500
U.S. Treasury Bonds, 6.25%, 08/15/23 .................... NR/NR 500 548,125 471,563
------------- -----------
7,736,312 7,887,313
------------- -----------
TOTAL LONG-TERM DEBT SECURITIES ......................... 72,539,301 71,196,337
------------- -----------
INVESTMENT COMPANIES (2.23%) Shares
------
High Yield Plus Fund .................................... 33,333 223,875 208,331
Republic U.S. Govt. Money Market Fund ................... 1,421,862 1,421,862 1,421,862
------------- -----------
1,645,737 1,630,193
------------- -----------
TOTAL INVESTMENTS (99.62%) .............................. $ 74,185,038* 72,826,530
=============
OTHER ASSETS AND LIABILITIES (0.38%) .................... 274,826
-----------
NET ASSETS (100.00%) .................................... $73,101,356
===========
</TABLE>
* The cost for federal income tax purposes was $74,237,225. At December 31,
1999, net unrealized depreciation was $1,410,695. This consisted of aggregate
gross unrealized appreciation for all securities for which there was an
excess of market value over tax cost of $2,144,695 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over fair value of $3,555,390.
** 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 period, 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.
4
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
December 31, 1999
<TABLE>
<S> <C>
Assets:
Investment in securities at value ( identified cost $74,185,038) (Note 1).............. $ 72,826,530
Cash .................................................................................. 448
Interest receivable ................................................................... 1,658,713
Dividends receivable .................................................................. 2,917
Other assets .......................................................................... 6,769
------------
TOTAL ASSETS ........................................................................ 74,495,377
------------
Liabilities:
Due to Advisor ........................................................................ 35,290
Dividends payable ..................................................................... 1,331,556
Accrued expenses payable .............................................................. 27,175
------------
TOTAL LIABILITIES ................................................................... 1,394,021
------------
Net assets: (equivalent to $19.90 per share based on 3,673,258 shares of capital stock
outstanding) ........................................................................... $ 73,101,356
============
NET ASSETS consisted of:
Par value ............................................................................. $ 3,673,258
Capital paid-in ....................................................................... 72,405,142
Dividends paid in excess of net investment income ..................................... (1,326,338)
Accumulated net realized loss on investments .......................................... (292,198)
Net unrealized depreciation of investments ............................................ (1,358,508)
------------
$ 73,101,356
============
</TABLE>
<TABLE>
<S> <C> <C>
STATEMENT OF OPERATIONS (unaudited)
For the nine months ended December 31, 1999
Investment Income:
Interest ............................................................... $ 4,536,694
Dividends .............................................................. 15,116
------------
Total Investment Income .............................................. 4,551,810
------------
Expenses:
Investment advisory fees (Note 4) .................................... $ 327,275
Transfer agent fees .................................................. 36,725
Insurance ............................................................ 1,258
NYSE fees ............................................................ 12,350
Directors' fees and expenses ......................................... 20,301
Audit fees ........................................................... 15,747
State and local taxes ................................................ 15,169
Legal fees and expenses .............................................. 14,094
Reports to shareholders .............................................. 18,676
Custodian fees ....................................................... 5,579
Miscellaneous ........................................................ 28,564
------------
Total Expenses ....................................................... 495,738
------------
Net Investment Income ............................................. 4,056,072
------------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized loss from security transactions ........................... (240,011)
------------
Unrealized appreciation (depreciation) of investment:
Beginning of period .................................................. 5,525,189
End of period ........................................................ (1,358,508)
------------
Change in unrealized appreciation (depreciation) of investments ... (6,883,697)
------------
Net realized and unrealized loss on investments ................. (7,123,708)
------------
Net decrease in net assets resulting from operations ............ $ (3,067,636)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1999 Year Ended
(unaudited) March 31, 1999
------------------- ---------------
Increase (Decrease) in net assets:
<S> <C> <C>
Operations:
Net investment income ................................................................ $ 4,056,072 $ 5,560,689
Net realized gain (loss) from security transactions (Note 2) ......................... (240,011) 340,192
Change in unrealized appreciation (depreciation) of investments ...................... (6,883,697) (1,825,507)
------------ ------------
Net increase (decrease) in net assets resulting from operations ...................... (3,067,636) 4,075,374
------------ ------------
Dividends to shareholders from net investment income .................................. (4,056,072) (5,472,586)
Dividends to shareholders in excess of net investment income .......................... (1,334,434) --
Distributions to shareholders from net realized gain .................................. -- (422,993)
------------ ------------
(5,390,506) (5,895,579)
------------ ------------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends from
net investment income (Note 5) ..................................................... -- --
------------ ------------
Decrease in net assets ............................................................... (8,458,142) (1,820,205)
Net Assets:
Beginning of period .................................................................. 81,559,498 83,379,703
------------ ------------
End of period ........................................................................ $ 73,101,356 $ 81,559,498
============ ============
</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 10. 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.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Nine Months
Ended
December 31, 1999
(unaudited)
-------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period ............. $ 22.20
---------
Net investment income ........................... 1.10
Net realized and unrealized gain (loss) on
investments ................................... ( 1.93)
---------
Total from investment operations ................. ( 0.83)
---------
Less distributions
Dividends from net investment income ............ ( 1.10)
Dividends in excess of net investment income ( 0.37)
Distributions from net realized gain ............ 0.00
Distributions from tax return of capital ........ 0.00
---------
Total distributions .............................. ( 1.47)
---------
Net asset value, end of period ................... $ 19.90
=========
Per share market price, end of period ............ $ 16.19
=========
Total Investment Return
Based on market value ........................... (17.12)%
Ratios/Supplemental Data
Net assets, end of the period (in 000's) ......... $ 73,101
Ratio of expenses to average net assets ......... 0.86%*
Ratio of net investment income to average net
assets ........................................ 7.04%*
Portfolio turnover rate ......................... 6.45%
Number of shares outstanding at the end of the
period (in 000's) ............................... 3,673
<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 period ............. $ 22.70 $ 20.61 $ 21.15 $ 20.64 $ 21.45
------- ------- ------- ------- -------
Net investment income ........................... 1.52 1.51 1.51 1.58 1.58
Net realized and unrealized 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 period ................... $ 22.20 $ 22.70 $ 20.61 $ 21.15 $ 20.64
======= ======= ======= ======= =======
Per share market price, end of period ............ $ 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 the 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 the
period (in 000's) ............................... 3,673 3,673 3,673 3,668 3,653
</TABLE>
* Annualized
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
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 -- Effective September 16, 1999, the Fund's Board of
Directors authorized the following new pricing procedures for the Fund: 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 December 31, 1999 there were no securities valued by
the Board of Directors.
December 31, 1999 the Fund had invested 38.57% 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 nine month period ended December 31, 1999:
Proceeds
Cost of from Sales
Purchases or Maturities
------------ --------------
U.S. Government Securities .......... $ 0 $ 441,859
Other Investment Securities ......... 4,828,048 5,261,576
Note 3 -- Capital Stock -- At December 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
1% on the first $40 million of the Fund's month end net assets and 1/2 of 1% on
the excess.
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.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)--continued
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 period ended
December 31, 1999, the Fund issued no shares under this Plan.
9
<PAGE>
DIVIDEND REINVESTMENT PLAN
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
10
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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
1838
BOND--DEBENTURE TRADING FUND
----------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
[GRAPHIC OMITTED]
Quarterly Report
December 31, 1999
