UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-02201
1838 Bond-Debenture Trading Fund
(Exact name of registrant as specified in charter)
--------
2701 Renaissance Blvd., 4th Floor
King of Prussia, PA 19406
(Address of principal executive offices) (Zip code)
Anna M. Bencrowsky
2701 Renaissance Blvd., 4th Floor, King of Prussia, PA 19406
(Name and address of agent for service
Copies to:
- --------------------------------------------------------------------------------
John McDonnell
1838 Investment Advisors Fund
2701 Renaissance Blvd., 4th Floor
King of Prussia, PA 19406
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code: 1-484-322-4300
Date of fiscal year end: March 31, 2004
Date of reporting period: September 30, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, D.C. 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
October 13, 2003
Item 1. Reports to Stockholders
TO THE SHAREHOLDER:
For the quarter ended September 30, 2003, the Fund had a Net Asset Value of
$21.66 per share. This represents a 0.7% increase from $21.50 per share at
the end of the March 31, 2003 Fiscal Year. On September 30, 2003 the Fund's
closing stock price on the New York Stock Exchange was $19.80 per share,
representing an 8.6% discount to Net Asset Value per share.
The table below compares the performance of the Fund to the average of the 14
other closed-end bond funds with which we have historically compared
ourselves:
Total Return-Percentage Change (Annualized for periods longer than 1 year)
in Net Asset Value Per Share with All Distributions Reinvested(1)
- -----------------------------------------------------------------------------------------------------------------------------------
10 Years 5 Years 2 Years 1 Year Quarter
to 9/30/03 to 9/30/03 to 9/30/03 to 9/30/03 to 9/30/03
- -----------------------------------------------------------------------------------------------------------------------------------
1838 Bond Fund (2) 7.04% 6.11% 9.97% 11.95% -0.38%
Average of 14 Other
Closed-End Bond Funds (2) 6.81% 6.11% 8.10% 12.62% 0.20%
Salomon Bros. Bond Index (3) 7.90% 7.40% 11.31% 6.95% -2.71%
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.
Since the end of the prior quarter on June 30, 2003, the yields on US Treasury
2-year notes have risen from 1.30% to 1.46%. The yields on 10-year notes and
30-year bonds have risen from 3.51% to 3.94% and from 4.56% to 4.88%,
respectively. At this writing, the yields on the Treasury issues have risen
further to 1.64%, 4.27% and 5.18%, respectively.
Fiscal policy has contributed to the upward pressure on interest rates. The
Bond Market Association forecasts net Treasury financing for the current
quarter to be 26% above last quarter and 66% above the year earlier quarter.
The deficit for the budget year ending September 2004 is expected to total
$510 billion.
The Fund's performance has benefited from the overall decline in interest
rates for the last few years. The recent quarter evidences the impact of a
modest rise in rates. The Fund has also benefited from the improvement in
yield spreads on corporate bonds relative to benchmark Treasury yields. The
Fund remains sensitive to both the general trend in interest rates and the
relative performance of corporate bonds.
On September 5, 2003 the Fund filed a registration statement with the SEC for
a proposed Rights Offering. Once the registration becomes effective with the
SEC, we anticipate proceeding with an offering. The general terms of the
offering, subject to market conditions, are anticipated to be: one
transferable right issued for each share held and for every three rights
issued a shareholder may buy one new share of common stock at a specified
discount to NAV per share.
1
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)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasuries,
Agencies & B and Not
Period Ended AAA Rated AA A BBB BB Lower Rated
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, 2003 16.3% 4.6% 33.3% 34.9% 9.2% 1.5% 0.2%
March 31, 2003 17.3% 5.3% 28.7% 39.5% 7.6% 1.4% 0.2%
March 31, 2002 16.7% 4.4% 22.6% 53.6% 1.9% 0.6% 0.2%
Please refer to the Schedule of Investments in the financial statements for
details concerning portfolio holdings. The increase in lower-rated holdings
results from rating downgrades of existing holdings rather than from new
purchases.
On September 10, 2003, the Board of Directors declared a dividend payment of
$0.34 per share payable November 4, 2003 to shareholders of record on
September 25, 2003.
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, the Fund's Transfer
Agent and Dividend Paying Agent, at 781-575-2723.
Sincerely,
/s/ John H. Donaldson, CFA
John H. Donaldson, CFA
President
2
SCHEDULE OF INVESTMENTS (Unaudited) September 30, 2003
Moody's/
Standard &
Poor's Principal Amortized Cost Value
Rating Amount (000's) (Note 1) (Note 1)
---------- -------------- -------------- -----------
LONG TERM DEBT SECURITIES (96.91%)
AUTOMOBILES & RELATED (6.56%)
Auburn Hills Trust, Gtd. Ctfs., 12.375%, 05/01/20 .................. A3/BBB+ $1,000 $ 1,000,000 $ 1,461,804
Ford Holdings, Inc., Gtd., 9.30%, 03/01/30 ......................... Baa1/BBB+ 1,000 1,110,625 1,068,064
Ford Motor Co., Debs., 8.90%, 01/15/32 ............................. Baa1/BBB 1,560 1,544,233 1,627,809
General Motors Acceptance Corp., Notes, 7.25%, 03/02/11 ............ A3/BBB 1,000 1,008,532 1,059,103
----------- -----------
4,663,390 5,216,780
----------- -----------
ELECTRIC UTILITIES (10.62%)
Arizona Public Service Co., Bonds, 5.625%, 05/15/33 ................ Baa1/BBB 1,000 988,622 936,485
Calpine Corp., Sr. Notes, 7.75%, 04/15/09 .......................... B1/CCC+ 500 488,503 345,000
Cleveland Electric Illum., 1st Mtge., 9.00%, 07/01/23 .............. Baa2/BBB 1,800 1,675,269 1,888,691
Dominion Resources Inc., Bonds, 6.75%, 12/15/32 .................... Baa1/BBB+ 1,000 997,598 1,075,516
Hydro-Quebec, Gtd. Debs., 8.25%, 04/15/26 .......................... A1/A+ 1,550 1,483,386 2,082,657
Midamerican Funding LLC, 6.927%, 03/01/29 .......................... Baa1/BBB+ 500 500,000 546,845
NSTAR, Notes, 8.00%, 02/15/10 ...................................... A2/A- 500 498,527 594,876
Old Dominion Electric Corp, 6.25%, 06/01/11, AMBAC ................. Aaa/AAA 500 500,483 561,258
Utilicorp United Inc., Sr. Notes, 8.27%, 11/15/21 .................. Caa1/B 500 539,860 415,000
----------- -----------
7,672,248 8,446,328
----------- -----------
FINANCIAL (22.44%)
Bank of America, Sub. Notes, 7.40%, 01/15/11 ....................... Aa3/A 1,000 1,058,474 1,187,880
BB&T Corp., Sub. Notes, 6.50%, 08/01/11 ............................ A2/A- 500 497,823 569,534
Citicorp Capital II, Capital Securities, Gtd., 8.015%, 02/15/27 .... Aa2/A 2,000 2,011,245 2,316,776
FBS Capital I, Capital Securities, Gtd., 8.09%, 11/15/26 ........... A1/A- 2,000 1,994,181 2,276,080
General Electric Capital Corp., Notes, 6.75%, 03/15/32 ............. Aaa/AAA 1,500 1,548,818 1,692,765
Household Finance Co., Notes, 6.75%, 05/15/11 ...................... A1/A 1,500 1,499,693 1,710,760
HSBC America Capital II, Gtd., 8.38%, 05/15/27, 144A ............... A-/A+ 2,500 2,566,269 2,948,570
Landesbank Baden-Wurtt NY, Sub. Notes, 6.35%, 04/01/12 ............. Aaa/AAA 500 498,770 562,629
National Rural Utilities, Notes, 7.25%, 03/01/12 ................... A2/A 500 548,298 586,324
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 .................. NR/BBB- 1,500 1,581,594 1,655,976
Sanwa Bank Ltd., Sub. Notes, 7.40%, 06/15/11 ....................... Baa1/BBB- 500 486,166 547,581
UBS PFD Funding Trust I, Gtd., 8.622%, 10/29/49 .................... A1/AA- 1,000 1,009,839 1,241,610
XL Capital Europe PLC, Gtd., 6.50%, 01/15/12 ....................... A1/A+ 500 497,696 558,406
----------- -----------
15,798,866 17,854,891
----------- -----------
INDUSTRIAL, MATERIALS & MISC. (19.72%)
Abitibi-Consolidated Inc., Debs., 8.85%, 08/01/30 .................. Ba1/BB+ 2,000 1,999,786 2,086,826
Darden Restaurants Inc., Debs., 7.125%, 02/01/16 ................... Baa1/BBB+ 500 436,416 554,454
EOP Operating LP, Sr. Notes, 7.25%, 02/15/18 ....................... Baa1/BBB+ 1,000 993,227 1,151,031
Georgia-Pacific Corp., Debs., 9.625%, 03/15/22 ..................... Ba3/BB+ 1,000 1,036,339 1,010,000
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ................. NR/A- 2,000 2,139,439 2,549,880
Liberty Property Trust, Sr. Notes, 7.50%, 01/15/18 ................. Baa2/BBB 1,000 999,097 1,152,197
Royal Caribbean Cruises, Sr. Notes, 6.75%, 03/15/08 ................ Ba2/BB+ 1,000 903,044 1,010,000
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ............... Ba3/BB- 2,000 1,991,635 1,900,000
Starwood Hotels & Resorts, Notes, 7.875%, 05/01/12 ................. Ba1/BB+ 1,000 995,522 1,095,000
Tupperware Finance Co. BV, Gtd., 7.25%, 10/01/06 ................... Baa2/BBB- 500 514,613 555,799
Tyco Int'l. Group SA, Gtd., 6.875%, 01/15/29 ....................... Ba2/BBB- 750 656,058 742,500
Union Camp Corp., Debs., 9.25%, 02/01/11 ........................... Baa2/BBB 1,500 1,492,151 1,878,487
----------- -----------
14,157,327 15,686,174
----------- -----------
OIL & GAS (11.94%)
Apache Corp., Notes, 7.70%, 03/15/26 ............................... A3/A- 500 523,511 622,784
Coastal Corp., Debs., 6.70%, 02/15/27 .............................. Caa1/B 500 504,861 420,000
ConocoPhillips, Gtd., 5.90%, 10/15/32 .............................. A3/A- 1,000 1,024,059 1,018,184
K N Energy Inc., Debs., 8.75%, 10/15/24 ............................ Baa2/BBB 1,150 1,206,311 1,261,519
Texaco Capital Inc., Gtd. Debs., 7.50% 03/01/43 .................... Aa3/AA 2,000 1,978,492 2,289,186
Transocean Sedco Forex, Notes, 7.50%, 04/15/31 ..................... Baa2/A- 500 497,751 584,563
Western Atlas Inc., Debs., 8.55%, 06/15/24 ......................... A2/A- 2,539 2,641,241 3,303,922
----------- -----------
8,376,226 9,500,158
----------- -----------
3
SCHEDULE OF INVESTMENTS (Unaudited)--continued September 30, 2003
Moody's/
Standard &
Poor's Principal Amortized Cost Value
Rating Amount (000's) (Note 1) (Note 1)
---------- -------------- -------------- -----------
TELECOMMUNICATIONS & MULTIMEDIA (13.33%)
AT&T Wireless Services Inc., Sr. Notes, 8.75%, 03/01/31 Baa2/BBB $1,000 $ 1,184,182 $ 1,236,839
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ................ Baa3/BBB 1,000 1,067,700 1,165,241
News America Holdings Inc., Debs., 7.90%, 12/01/95 ................. Baa3/BBB- 1,400 1,298,778 1,568,300
SBC Communications, Notes, 5.825%, 08/15/12 ........................ A1/A+ 500 493,020 545,958
Time Warner Inc., Debs., 9.15%, 02/01/23 ........................... Baa1/BBB+ 3,000 3,144,024 3,798,405
Verizon Global FDG Corp., 7.75%, 12/01/30 .......................... A2/A+ 1,646 1,675,519 1,977,185
Viacom Inc., Sr. Debs., 7.875%, 07/30/30 ........................... A3/A- 250 246,299 312,487
----------- -----------
9,109,522 10,604,415
----------- -----------
MORTGAGE BACKED SECURITIES (0.52%)
FNCX Pool #313411, 7.00%, 03/01/04 ................................. NR/NR 28 28,293 28,596
GNMA Pool #780374, 7.50%, 12/15/23 ................................. NR/NR 103 102,111 110,849
GNMA Pool #417239, 7.00%, 02/15/26 ................................. NR/NR 257 260,123 274,520
----------- -----------
390,527 413,965
----------- -----------
U.S. GOVERNMENT & AGENCIES (11.78%)
U.S. Treasury Bonds, 10.75%, 08/15/05 .............................. NR/NR 1,600 1,706,662 1,875,688
U.S. Treasury Bonds, 7.875%, 02/15/21 .............................. NR/NR 3,900 4,031,728 5,329,136
U.S. Treasury Bonds, 8.125%, 08/15/21 .............................. NR/NR 1,000 1,013,755 1,400,273
U.S. Treasury Bonds, 6.25%, 05/15/30 ............................... NR/NR 650 726,676 771,291
----------- -----------
7,478,821 9,376,388
----------- -----------
TOTAL LONG TERM DEBT SECURITIES .................................... 67,646,927 77,099,099
----------- -----------
INVESTMENT COMPANIES (2.99%) Shares
---------
High Yield Plus Fund ............................................... 33,333 223,875 134,999
Evergreen Select Money Market - I Shares ........................... 2,242,370 2,242,370 2,242,370
----------- -----------
2,466,245 2,377,369
----------- -----------
TOTAL INVESTMENTS (99.90%) ......................................... $70,113,172 79,476,468
===========
OTHER ASSETS AND LIABILITIES (0.10%) ............................... 79,132
-----------
NET ASSETS (100.00%) ............................................... $79,555,600
===========
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, this security amounted
to 3.71% of net assets.
Legend
- ------
Ctfs. - Certificates
Debs. - Debentures
Gtd. - Guranteed
Sr. - Senior
Sub. - Subordinated
4
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
September 30, 2003
Assets:
Investment in securities, at value (amortized cost
$70,113,172) (Note 1)...................................... $79,476,468
Interest receivable ........................................... 1,333,521
Prepaid expenses .............................................. 72,962
Dividends receivable .......................................... 1,167
Other assets .................................................. 8,901
-----------
TOTAL ASSETS ................................................. 80,893,019
-----------
Liabilities:
Dividends payable ............................................. 1,248,908
Due to Advisor ................................................ 34,673
Accrued expenses payable ...................................... 53,838
-----------
TOTAL LIABILITIES ............................................ 1,337,419
-----------
Net assets: (equivalent to $21.66 per share based on 3,673,258
shares of capital stock outstanding)............................ $79,555,600
===========
NET ASSETS consisted of:
Par value ..................................................... $ 3,673,258
Capital paid-in ............................................... 72,181,446
Accumulated net investment income (loss) ...................... (1,999,900)
Accumulated net realized loss on investments .................. (3,662,500)
Net unrealized appreciation on investments .................... 9,363,296
-----------
$79,555,600
===========
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended September 30, 2003
Investment Income:
Interest.......................................... $2,657,342
Dividends......................................... 6,833
----------
Total Investment Income ......................... 2,664,175
----------
Expenses:
Investment advisory fees (Note 4)................. $ 224,345
Transfer agent fees............................... 22,991
NYSE fee.......................................... 12,500
Directors' fees................................... 14,625
Audit fees........................................ 9,000
State and local taxes............................. 10,700
Legal fees and expenses........................... 19,660
Reports to shareholders........................... 11,832
Custodian fees.................................... 3,750
Miscellaneous..................................... 40,309
----------
Total Expenses .................................. 369,712
----------
Net Investment Income .......................... 2,294,463
----------
Realized and unrealized gain on investments (Note 1):
Net realized loss from security transactions...... 419,159
----------
Unrealized appreciation of investments:
Beginning of period ............................. 7,747,406
End of period ................................... 9,363,296
----------
Change in unrealized appreciation of
investments................................ 1,615,890
----------
Net realized and unrealized gain of
investments................................ 2,035,049
----------
Net increase in net assets resulting from operations $4,329,512
==========
The accompanying notes are an integral part of these financial statements.
5
STATEMENTS OF CHANGES IN NET ASSETS
Six months
ended
September 30, 2003 Year ended
(Unaudited) March 31, 2003
------------------ --------------
Increase (decrease) in net assets:
Operations:
Net investment income................. $ 2,294,463 $ 4,819,627
Net realized gain (loss) from security
transactions (Note 2).............. 419,159 (1,160,677)
Change in unrealized appreciation of
investments........................ 1,615,890 6,464,387
----------- -----------
Net increase in net assets resulting
from operations.................... 4,329,512 10,123,337
----------- -----------
Distributions:
Dividends to shareholders from net
investment income.................. (3,746,723) (4,913,023)
Distributions to shareholders from tax
return of capital.................. -- (192,805)
----------- -----------
Total distributions to shareholders . (3,746,723) (5,105,828)
----------- -----------
Increase net assets................... 582,789 5,017,509
Net Assets:
Beginning of period................... 78,972,811 73,955,302
----------- -----------
End of period......................... $79,555,600 $78,972,811
=========== ===========
The accompanying notes are an integral part of these financial statements.
+-----------------------------------------------------------------------+
| |
| 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 to act as the Agent of each |
| shareholder electing to participate in the plan. Information and |
| application forms are available from Equiserve, P.O. Box 43069, |
| Providence, RI 02940-3069. |
| |
+-----------------------------------------------------------------------+
6
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
Six months
ended Year Ended March 31,
September 30, 2003 ---------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
------------------ ------- ------- ------- --------- -------
Per Share Operating Performance
Net asset value, beginning of period .................. $ 21.50 $ 20.13 $ 20.95 $ 20.39 $ 22.20 $ 22.70
------- ------- ------- ------- --------- -------
Net investment income ................................ 0.62 1.31 1.24(1) 1.45 1.47 1.52
Net realized and unrealized gain
(loss) on investments............................... 0.56 1.45 (0.62)(1) 0.56 (1.81) (0.41)
------- ------- ------- ------- --------- -------
Total from investment operations ...................... 1.18 2.76 0.62 2.01 (0.34) 1.11
------- ------- ------- ------- --------- -------
Less distributions
Dividends from net investment income.................. (1.02) (1.34) (1.43) (1.45) (1.47) (1.48)
Distributions from net realized gain ................. -- -- -- -- -- (0.13)
Distributions from tax return of capital.............. -- (0.05) (0.01) -- -- --
------- ------- ------- ------- --------- -------
Total distributions ................................... (1.02) (1.39) (1.44) (1.45) (1.47) (1.61)
------- ------- ------- ------- --------- -------
Net asset value, end of period ........................ $ 21.66 $ 21.50 $ 20.13 $ 20.95 $ 20.39 $ 22.20
======= ======= ======= ======= ========= =======
Per share market price, end of period ................. $ 19.80 $ 20.65 $ 19.34 $ 19.27 $ 16.88 $ 20.69
======= ======= ======= ======= ========= =======
Total Investment Return(2)
Based on market value ................................ 0.96% 14.55% 7.96% 23.91% (11.67)% 7.28%
Ratios/Supplemental Data
Net assets, end of period (in 000's) .................. $79,556 $78,973 $73,955 $76,970 $ 74,892 $81,559
Ratio of expenses to average net assets ............... 0.93%* 0.91% 0.86% 0.91% 0.88% 0.77%
Ratio of net investment income to average net assets .. 5.75%* 6.39% 6.73%(1) 7.20% 7.09% 6.70%
Portfolio turnover rate ............................... 4.85% 12.27% 10.87% 12.39% 10.21% 17.89%
Number of shares outstanding at the end of the period
(in 000's)........................................... 3,673 3,673 3,673 3,673 3,673 3,673
* Annualized
(1) As required, effective April 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies. The
effect of this change for the year ended March 31, 2002 for all securities
was to decrease net investment income per share by $0.02, increase net
realized and unrealized gains and losses per share by $0.02 and decrease
the ratio of net investment income to average net assets by 0.11%. Per
share ratios and supplemental data for periods prior to April 1, 2001 have
not been restated to reflect this change in presentation.
(2) Total investment return is calculated assuming a purchase of common shares
at the current market price on the first day and a sale at the current
market price on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. The total
investment return, if for less than a full year, is not annualized. Past
performance is not a guarantee of future results.
The accompanying notes are an integral part of these financial statements.
7
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 within the United States of America ("GAAP").
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 September 30, 2003, there were no securities valued by the Board of
Directors.
B. Determination of Gains or Losses on Sale of Securities -- Gains or losses
on the sale of securities are calculated for financial reporting purposes
and for federal tax purposes using the identified cost basis. The
identified cost basis for financial reporting purposes differs from that
used for federal tax purposes in that the amortized cost of the
securities sold is used for financial reporting purposes and the original
cost of the securities sold is used for federal tax purposes, except for
those instances where tax regulations require the use of amortized cost.
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 and Book/Tax Differences -- Distributions
of net investment income will be made quarterly. Distributions of net
capital gains realized will be made annually. Income and capital gain
distributions are determined in accordance with federal income tax
regulations, which may differ from GAAP. These differences are primarily
due to differing treatments for amortization of market premium and
accretion of market discount. Distributions during the six months ended
September 30, 2003 were characterized as follows for tax purposes:
Ordinary Income Capital Gain Total Distribution
--------------- ------------ ------------------
$3,746,723 -- $3,746,723
At March 31, 2003, the components of distributable earnings on a tax
basis were as follows:
Accumulated Accumulated
Ordinary Income (Loss) Capital Gain (Loss)
---------------------- -------------------
$ -- $(3,916,396)
As of March 31, 2003, the capital loss carryovers available to offset
possible future capital gains were as follows:
Amount Expiration Date
-------- ---------------
$ 159,409 3/31/2008
1,389,196 3/31/2009
974,596 3/31/2010
1,393,195 3/31/2011
8
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, 2003, the Fund elected to defer
losses occurring between November 1, 2002 and March 31, 2003 in the
amount of $165,263.
At September 30, 2003, the following table shows for federal tax purposes
the aggregate cost of investments, the net unrealized appreciation of
those investments, the aggregate gross unrealized appreciation of all
securities with an excess of market value over tax cost and the aggregate
gross unrealized depreciation of all securities with an excess of tax
cost over market value:
Aggregate Net Unrealized Gross Unrealized Gross Unrealized
Tax Cost Appreciation Appreciation Depreciation
----------- -------------- ---------------- ----------------
$70,723,706 $8,752,762 $9,777,944 $(1,025,182)
F. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with GAAP 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.
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions, other than short-term investments, for the six month period
ended September 30, 2003:
Proceeds
Cost of from Sales
Purchases or Maturities
---------- -------------
U.S. Government Securities $ -- $ 250,233
Other Investment Securities 3,696,685 3,669,345
Note 3 -- Capital Stock -- At September 30, 2003, 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, LLC
(the "Advisor"), a wholly-owned subsidiary of MBIA, Inc., advisory fees are
paid monthly to the Advisor at an annual rate of 0.625% on the first $40
million of the Fund's month end net assets and 0.50% 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 six months ended September 30, 2003, the Fund issued no shares
under this Plan.
9
Note 6 -- Rights Offering -- On July 31, 2003 the Fund's Board of Directors
authorized the filing of a preliminary registration statement for a rights
offering to the Fund's shareholders. Under the offering, each shareholder will
receive one right for each share held on the record date. Shareholders of
record may purchase one additional share of the Fund for every three rights
held. The "Subscription Price" for the shares will be determined at a later
date. Shareholders of record on the record date for the rights offering are
expected to be entitled to oversubscribe, subject to certain limitations and
subject to allotment, for any shares not purchased pursuant to the primary
subscription rights. The record date for the offering and the length of the
offering period will also be announced at a later date. The rights are
expected to be transferable and the Fund expects to apply to have them
accepted for trading on the New York Stock Exchange.
10
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, 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, P.O.
Box 43069, Providence, RI 02940-3069.
+----------------------------------------------------------------------+
| |
| HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS |
| |
| Contact Your Transfer Agent, Equiserve, |
| P.O. Box 43069, Providence, RI 02940-3069, or call 781-575-2723 |
| |
+----------------------------------------------------------------------+
11
DIRECTORS
--------------------
W. THACHER BROWN
JOHN GILRAY CHRISTY
JOHN H. DONALDSON
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
-------------------- BOND--DEBENTURE TRADING FUND
1838 INVESTMENT ADVISORS, LLC --------------------
2701 RENAISSANCE BOULEVARD 2701 RENAISSANCE BOULEVARD
FOURTH FLOOR FOURTH FLOOR
KING OF PRUSSIA, PA 19406 KING OF PRUSSIA, PA 19406
CUSTODIAN [GRAPHIC OMITTED]
--------------------
WACHOVIA NATIONAL BANK Semi-Annual Report
123 S. BROAD STREET September 30, 2003
PHILADELPHIA, PA 19109
TRANSFER AGENT
--------------------
EQUISERVE
P.O. BOX 43069
PROVIDENCE, RI 02940-3069
781-575-2723
COUNSEL
--------------------
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & arch streets
PHILADELPHIA, PA 19103
AUDITORS
--------------------
TAIT, WELLER & BAKER
1818 Market street
SUITE 2400
PHILADELPHIA, PA 19103
EXHIBITS FORM N-CSR
Registrant Name: 1838 Bond-Debenture Trading Fund
File Number: 811-02201
Registrant CIK Number: 0000030125
Item 2. Code of Ethics.
Not applicable at this time.
Item 3. Audit Committee Financial Expert.
Not applicable at this time.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time.
Items 5-6. (Reserved)
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable at this time.
Item 8. (Reserved)
Item 9. Controls and Procedures
(a) The Principal Executive and Financial Officers concluded that the
Registrant's Disclosure Controls and Procedures are effective based on their
evaluation of the Disclosure Controls and Procedures as of a date within 90 days
of the filing date of this report.
(b) There were no significant changes in Registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Item 10. Exhibits.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act
(17 CFR 270.30a-2) in the exact form set forth below: Ex-99.CERT Attached
hereto.
(c) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Section 906 of the
Sarbanes-Oxley Act of 2002. EX-99.906CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
1838 Bond-Debenture Trading Fund
By /s/ John H. Donaldson
-----------------------------
John H. Donaldson
President
(Principal Executive Officer)
Date November 7, 2003
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ John H. Donaldson
-----------------------------
John H. Donaldson
President
(Principal Executive Officer)
Date November 7, 2003
-----------------------------
By /s/ Anna M. Bencrowsky
-----------------------------
Anna M. Bencrowsky
Secretary
(Principal Financial Officer)
Date November 7, 2003
-----------------------------