<PAGE>
July 18, 2000
To The Shareholder:
The Fund ended the quarter June 30, 2000 with a Net Asset Value of $20.02 per
share. This represents a 1.8% decrease from $20.39 per share at the end of the
March 31, 2000 Fiscal Year and a 0.6% increase from $19.90 per share at
December 31, 1999. On June 30, 2000 the Fund's closing stock price on the New
York Stock Exchange was $17.50 per share, representing an 12.6% discount to Net
Asset Value.
The performance of the Fund is compared below to the average of the 17 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 6/30/00 to 6/30/00 to 6/30/00 to 6/30/00 to 6/30/00
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund (2) 120.87% 28.12% 0.07% 1.57% -0.07%
Average of 17 Other
Closed-End Bond Funds (2) 120.87% 30.14% 3.30% 2.28% 0.46%
Salomon Bros.Bond Index (3) 125.34% 32.26% 0.31% 1.57% 0.44%
</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 six separate times
since June 1999, most recently on May 16, 2000, to bring the rate to 6.5%. At
the June 28, 2000 meeting, the Federal Open Market Committee chose not to raise
rates and continued to highlight risks of rising inflation. This stability on
Federal Reserve policy has contributed to a more stable bond market, which may
be one of the causes of the reduction in the Fund's share price discount to Net
Asset Value from 18.7% at December 31, 1999 to the 12.6% at quarter-end. The
budget surplus has enabled the US Treasury to continue to repurchase long-term
debt. These repurchases have resulted in long-term Treasury bond yields falling
from 6.48% at year-end 1999 to 5.90% at June 30, 2000, while 3-month Treasury
Bill yields have risen from 5.31% to 5.86% in a more direct response to the
Federal Reserve's actions.
Looking forward, the Fund is still subject to the volatility in yield spreads.
Whether or not the Federal Reserve will raise rates again this year remains an
open question. There have been several releases of economic data that seem to
indicate that the economy has slowed from the pace of growth that the Fed deems
too fast. Conversely, there has been an increase in inflation, most visibly in
gasoline prices. The US trade deficit has reached new record levels, which may
develop as a concern for both bond and currency markets. The Presidential and
congressional elections add a degree of uncertainty to future economic and tax
policies. We believe that the Federal Reserve will raise rates again this year,
but perhaps only once. The uncertainty over the timing of their actions
combined with the other factors mentioned should result in continued volatility
in the markets for the next few months.
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>
June 30, 2000 15.0% 5.0% 32.1% 42.1% 5.5% 0.0% 0.3%
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%
</TABLE>
Please refer to the Schedule of Net Assets in the financial statements for
details concerning portfolio holdings.
On June 22, 2000 the Board of Directors declared a dividend payment of $0.3625
per share payable August 8, 2000 to shareholders of record on July 7, 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 Trust
Division, the Fund's Transfer and Dividend Paying Agent, at 201-324-0498.
Management and Directors of the Fund would like to thank all shareholders who
voted their proxies at the June 22, 2000 Annual Meeting for their continued
support.
Sincerely,
/s/ John H. Donaldson
---------------------------
John H. Donaldson, CFA
President
2
<PAGE>
SCHEDULE OF INVESTMENTS (Unaudited) June 30, 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 (96.36%)
ELECTRIC UTILITIES (10.40%)
Calpine Corp., 7.75%, 04/15/09 .................................. Ba1/BB+ $ 500 $ 483,593 $ 471,250
Cleveland Electric Illum., 1st Mtge., 9.00%, 07/01/23 ........... Ba1/BB+ 1,800 1,662,876 1,788,210
CMS Energy Corp., 7.50%, 01/15/09 ............................... Ba3/BB 1,000 1,000,000 894,537
Hydro-Quebec, Gtd. Debs., 8.25%, 04/15/26 ....................... A2/A+ 1,550 1,475,994 1,627,390
Midamerican Funding LLC, 6.927%, 03/01/29 ....................... Baa1/BBB+ 500 500,000 416,131
Niagara Mohawk Power Co., 1st Mtge., 8.75%, 04/01/22 ............ Baa2/BBB+ 1,000 1,028,220 1,010,125
NSTAR, Notes, 8.00%, 02/15/10 ................................... A2/BBB+ 500 497,965 501,405
Utilicorp United Inc., Sr. Notes, 8.27%, 11/15/21 ............... Baa3/BBB 1,000 1,090,000 940,799
------------ ------------
7,738,648 7,649,847
------------ ------------
FINANCIAL (17.58%)
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ....... Aa3/A 2,000 2,012,070 1,859,348
EOP Operating LP, Notes, 7.25%, 02/15/18 ........................ Baa1/BBB+ 1,000 991,900 859,695
FBS Capital I, Capital Securities, 8.09%, 11/15/26 .............. A1/BBB+ 2,000 1,993,370 1,763,818
HSBC America Capital II, 8.38%, 05/15/27 ........................ A1/A- 2,500 2,570,605 2,256,610
Liberty Property Trust, 7.50%, 01/15/18 ......................... Baa3/BBB- 1,000 998,430 865,086
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ............... Baa3/BBB 1,500 1,634,965 1,660,620
Royal Bank of Scotland, 8.817%, 03/31/49 ........................ A1/A- 1,000 1,000,000 1,030,155
Spieker Properties, 7.875%, 12/01/16 ............................ Baa2/BBB 1,000 1,001,830 915,813
United Dominion Realty Trust, 8.625%, 03/15/03 .................. Baa2/BBB 500 499,380 500,046
US Bank NA, Notes, 5.70%, 12/15/08 .............................. A1/A 1,000 871,830 862,117
West Deutsche LB, NY, 6.05%, 01/15/09 ........................... Aa1/AA+ 400 398,988 356,994
------------ ------------
13,973,368 12,930,302
------------ ------------
INDUSTRIAL & MISCELLANEOUS (34.45%)
Apache Corp., 7.70%, 03/15/26 ................................... Baa1/BBB+ 500 525,280 487,372
Dell Computer Corp., Sr. Debs., 7.10%, 04/15/28 ................. A3/BBB+ 1,500 1,503,520 1,341,255
Georgia-Pacific Corp., Debs., 9.625%, 03/15/22 .................. Baa2/BBB- 1,000 1,059,240 1,018,167
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 .............. Baa2/BBB 2,000 2,157,020 2,004,850
K N Energy Inc., Debs., 8.75%, 10/15/24 ......................... Baa2/BBB- 1,150 1,263,799 1,176,346
Meritor Automotive Inc., 6.80%, 02/15/09 ........................ Baa2/BBB 500 465,740 428,242
News America Holdings Inc., Gtd. Sr. Debs., 10.125%, 10/15/12 ... Baa3/BBB- 2,050 2,163,503 2,147,945
News America Holdings Inc., Notes, 7.90%, 12/01/95 .............. Baa3/BBB- 1,400 1,298,624 1,196,163
Owens Corning, 7.70%, 05/01/08 .................................. Baa3/BB+ 500 482,890 318,787
Phillip Morris Co., Inc., Debs., 7.75% 01/15/27 ................. A2/A 3,000 3,007,020 2,620,197
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ............ Baa2/BBB+ 2,000 1,990,780 1,711,508
Texaco Capital Inc., Gtd. Debs., 7.50%, 03/01/43 ................ A1/A+ 2,000 1,977,920 1,866,404
Time Warner Inc., Debs., 9.15%, 02/01/23 ........................ Baa3/BBB 3,000 3,159,700 3,289,278
Tricon Global Restaurant, Sr. Notes, 7.65%, 05/15/08 ............ Ba1/BB 500 498,875 444,261
TRW Inc., Sr. Notes, 9.375%, 04/15/21 ........................... Baa1/BBB 303 320,893 329,176
Tyco Int'l. Group SA, 6.875%, 01/15/29 .......................... Baa1/A- 750 651,997 641,348
Union Camp Corp., 9.25%, 02/01/11 ............................... Baa1/BBB+ 1,500 1,486,305 1,617,614
Western Atlas Inc., Debs., 8.55%, 06/15/24 ...................... A2/A 2,539 2,651,998 2,700,034
------------ ------------
26,665,104 25,338,947
------------ ------------
TELEPHONE & COMMUNICATIONS (9.80%)
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ............. A2/AA- 1,000 1,120,000 1,083,111
New York Telephone, Debs., 9.375%, 07/15/31 ..................... A1/A+ 1,250 1,426,113 1,308,146
Sprint Capital Corp., 6.875%, 11/15/28 .......................... Baa1/BBB+ 1,000 992,220 865,080
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ............ A2/AA- 2,000 1,991,940 2,133,496
Vodafone Airtouch PLC, 7.75%, 02/15/10, 144A .................... A2/A- 500 472,065 495,726
Worldcom, Inc., 6.95%, 08/15/28 ................................. A3/A- 1,500 1,485,975 1,325,271
------------ ------------
7,488,313 7,210,830
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SCHEDULE OF INVESTMENTS (Unaudited)--continued June 30, 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>
TRANSPORTATION (9.68%)
AMR Corp., Debs., 10.00%, 04/15/21 ...................... Baa2/BBB- $ 2,000 $ 2,148,940 $ 2,042,892
Auburn Hills Trust, Gtd. Ctfs., 12.00%, 05/01/20 ........ A1/A+ 1,000 1,000,000 1,457,738
Ford Holdings, Inc., Gtd. Debs., 9.375%, 03/01/20 ....... A1/A+ 1,000 1,117,790 1,127,241
Ford Motor Co., Debs., 8.90%, 01/15/32 .................. A1/A+ 1,500 1,480,350 1,634,148
Royal Caribbean Cruises, Sr. Notes, 6.75%, 03/15/08 ..... Baa2/BBB 1,000 851,430 860,566
------------- ------------
6,598,510 7,122,585
------------- ------------
MORTGAGE BACKED SECURITIES (3.20%)
FNMA Pool # 313411, 7.00%, 03/01/04 ..................... NR/NR 622 629,131 616,289
GNMA Pool # 780374, 7.50%, 12/15/23 ..................... NR/NR 447 443,732 446,258
GNMA Pool # 417239, 7.00%, 02/15/26 ..................... NR/NR 1,321 1,340,293 1,287,141
------------- ------------
2,413,156 2,349,688
------------- ------------
TAXABLE MUNICIPAL BONDS (0.70%)
Greater Orlando Aviation Authority, 8.20%, 10/01/12 ..... Aaa/AAA 500 551,875 511,542
------------- ------------
U.S. GOVERNMENT & AGENCIES (10.55%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ................... NR/NR 1,600 2,120,750 1,907,000
U.S. Treasury Bonds, 7.875%, 02/15/21 ................... NR/NR 3,900 4,051,031 4,631,250
U.S. Treasury Bonds, 8.125%, 08/15/21 ................... NR/NR 1,000 1,016,406 1,219,375
------------- ------------
7,188,187 7,757,625
------------- ------------
TOTAL LONG-TERM DEBT SECURITIES 72,617,161 70,871,366
------------- ------------
INVESTMENT COMPANIES (1.41%) Shares
--------
High Yield Plus Fund .................................... 33,333 223,875 214,581
Republic U.S. Govt. Money Market Fund ................... 820,138 820,138 820,138
------------- ------------
1,044,013 1,034,719
------------- ------------
TOTAL INVESTMENTS (97.77%) .............................. $ 73,661,174* 71,906,085
=============
OTHER ASSETS AND LIABILITIES (2.23%) .................... 1,636,862
------------
NET ASSETS (100.00%) .................................... $ 73,542,947
============
</TABLE>
* The cost for federal income tax purposes was $73,661,174. At June 30, 2000,
net unrealized depreciation was $1,755,089. This consisted of aggregate
gross unrealized appreciation for all securities for which there was an
excess of market value over tax cost of $2,234,905 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $3,989,994.
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
0.67% 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>
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
June 30, 2000
<TABLE>
<S> <C>
Assets:
Investment in securities at value (identified cost $73,661,174) (Note 1) $ 71,906,085
Interest receivable ..................................................... 1,675,162
Dividends receivable .................................................... 2,417
Other assets ............................................................ 4,497
------------
TOTAL ASSETS .......................................................... 73,588,161
------------
Liabilities:
Due to Advisor .......................................................... 34,333
Accrued expenses payable ................................................ 10,881
------------
TOTAL LIABILITIES ..................................................... 45,214
------------
Net assets: (equivalent to $20.02 per share based on 3,673,258 shares
of capital stock outstanding) ............................................. $ 73,542,947
============
NET ASSETS consisted of:
Par value ............................................................... $ 3,673,258
Capital paid-in ......................................................... 72,405,142
Undistributed net investment income ..................................... 52,906
Accumulated net realized loss on investments ............................ (833,270)
Net unrealized depreciation on investments .............................. (1,755,089)
------------
73,542,947
============
</TABLE>
STATEMENT OF OPERATIONS (Unaudited)
For the three months ended June 30, 2000
<TABLE>
<S> <C> <C>
Investment Income:
Interest ............................................................ $ 1,485,688
Dividends ........................................................... 21,963
------------
Total Investment Income ........................................... 1,507,651
------------
Expenses:
Investment advisory fees (Note 4) ................................... $ 102,825
Transfer agent fees ................................................. 10,922
NYSE fee ............................................................ 4,000
Directors' fees ..................................................... 6,731
Audit fees .......................................................... 6,027
State and local taxes ............................................... 5,500
Legal fees and expenses ............................................. 6,690
Reports to shareholders ............................................. 6,574
Custodian fees ...................................................... 946
Miscellaneous ....................................................... 8,006
------------
Total Expenses .................................................... 158,221
------------
Net Investment Income .......................................... 1,349,430
------------
Realized and unrealized loss on investments (Note 1):
Net realized loss from security transactions ........................ (152,817)
------------
Unrealized depreciation of investments:
Beginning of period ............................................... (540,715)
End of period ..................................................... (1,755,089)
------------
Change in unrealized depreciation of investments ............... (1,214,374)
------------
Net realized and unrealized loss of investments .............. (1,367,191)
------------
Net decrease in net assets resulting from operations ......... $ (17,761)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three months
ended
June 30, 2000 Year ended
(Unaudited) March 31, 2000
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..................................................... $ 1,349,430 $ 5,403,956
Net realized loss from security transactions (Note 2) ..................... (152,817) (614,780)
Change in unrealized depreciation of investments .......................... (1,214,374) (6,065,904)
------------ ------------
Net decrease in net assets resulting from operations ..................... (17,761) (1,276,728)
------------ ------------
Dividends to shareholders from net investment income ......................... (1,331,556) (5,390,506)
------------ ------------
Decrease net assets ....................................................... (1,349,317) (6,667,234)
Net Assets:
Beginning of period ....................................................... 74,892,264 81,559,498
------------ ------------
End of period (including undistributed net investment income of $52,906 and
$35,032, respectively) ................................................... $ 73,542,947 $ 74,892,264
============ ============
</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>
Three months
ended
June 30, 2000
(Unaudited)
---------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period .............. $ 20.39
--------
Net investment income ............................ 0.37
Net realized and unrealized gain (loss) on
investments .................................... ( 0.38)
--------
Total from investment operations .................. ( 0.01)
--------
Less distributions
Dividends from net investment income ............. ( 0.36)
Dividends in excess of net investment
income ......................................... 0.00
Distributions from net realized gain ............. 0.00
Distributions from tax return of capital ......... 0.00
--------
Total distributions ............................... ( 0.36)
--------
Net asset value, end of period .................... $ 20.02
========
Per share market price, end of period ............. $ 17.50
========
Total Investment Return
Based on market value ............................ 6.03%
Ratios/Supplemental Data
Net assets, end of period (in 000's) .............. $ 73,543
Ratio of expenses to average net assets .......... 0.88%
Ratio of net investment income to average
net assets ..................................... 7.47%
Portfolio turnover rate .......................... 2.25%
Number of shares outstanding at the end of
the period (in 000's) ............................ 3,673
<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 period .............. $ 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 period .................... $ 20.39 $ 22.20 $ 22.70 $ 20.61 $ 21.15
======== ======== ======== ======== ========
Per share market price, end of period ............. $ 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 period (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 period (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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 June 30, 2000,
there were no securities valued by the Board of Directors.
At June 30, 2000, the Fund had invested 34.45% 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 for book purposes, but does accrete market discount on
securities sold for tax purposes.
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.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)--continued
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions, other than short-term investments, for the three-month period
ended June 30, 2000:
<TABLE>
<CAPTION>
Proceeds
Cost of from Sales
Purchases or Maturities
------------ --------------
<S> <C> <C>
U.S. Government Securities .......... $ 0 $ 538,981
Other Investment Securities ......... 2,195,325 1,052,276
</TABLE>
Note 3 -- Capital Stock -- At June 30, 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 three-month
period ended June 30, 2000, the Fund issued no shares under this Plan.
9
<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
=======================================================================
10
<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 STREET
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]
Quarterly Report
June 30, 2000
