UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-02201
Exact Name of Registrant as specified in charter:
1838 Bond-Debenture Trading Fund
Address of principal executive offices: 2701 Renaissance Blvd., 4th Fl.,
King of Prussia, PA 19406
Name and address of agent for service:
Daniel N. Mullen, 2701 Renaissance Blvd., 4th Fl., King of Prussia, PA 19406
Copies to: Thomas E. Stabile, 113 King Street, Armonk, NY 10504
Registrant's telephone number, including area code: (484) 322-4300
Date of fiscal year end: March 31
Date of reporting period: April 1, 2004 - March 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
April 14, 2005
TO THE SHAREHOLDER:
For the year ended March 31, 2005, the Fund had a Net Asset Value of $20.62
per share. This represents a 0.7% decrease from $20.76 per share at
December 31, 2004 and a 3.3% decrease from $21.32 per share at the end of the
March 31, 2004 fiscal year. On March 31, 2005, the Fund's closing stock price
on the New York Stock Exchange was $18.26 per share, representing an 11.5%
discount to Net Asset Value
per share.
The table below compares the performance of the Fund to the average of the 13
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 3/31/05 TO 3/31/05 TO 3/31/05 TO 3/31/05 TO 3/31/05
- -----------------------------------------------------------------------------------------------------------------------------------
1838 Bond Fund (2) 7.21% 7.10% 4.12% 2.74% -0.67%
Average of 13 Other
Closed-End Bond Funds (2) 7.44% 7.38% 6.64% 2.20% -0.90%
Salomon Bros. Bond Index (3) 8.87% 10.26% 5.87% 4.01% 0.46%
(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
The Fund's performance for the historical periods was negatively impacted by
4.5% dilution of net asset value resulting from the rights offering during the
December 2003 quarter. The relative performance compared to the group of funds
for fiscal year 2005 and for the quarter ended 3/31/05 is gratifying as the
bond fund outperformed the average of the competitive funds for both periods.
The Fund had a higher expense ratio at 0.89% of net assets compared to 0.86%
for the Fiscal Year ending March 31, 2004.
Oil prices surged during the 4th fiscal quarter to a record of $58 per barrel
before falling back in the low-$50's per barrel. Employment growth in the U.S.
for the last twelve months was strong with approximately 2.1 million new jobs
added, however most of the job growth was concentrated in the service area
with only modest manufacturing job growth. The yield on the benchmark 10-year
Treasury note ended the quarter at 4.48%, down from a peak of 4.87% on June 14,
2004, but still well above the cyclical low yield of 3.11% on June 13, 2003.
This yield ranged between 4.0% and 4.6% during the quarter ending March 31,
2005, as uncertain and often contradictory economic data caused frequent
shifts in investor sentiment.
The Federal Reserve Board raised the Fed Funds rate twice in the most recent
quarter, ending at 2.75%, continuing its measured pace of rate increases. From
a historical perspective, the 2.75% rate remains accommodative and analysts
expect further increases during the balance of 2005. Fiscal policy continues
to exert upward pressure on interest rates as the Federal budget appears to be
in a deficit position for the foreseeable future. The bond market will be
watching how Congress addresses budget and tax issues during the balance of
2005.
1
The Fund's performance will continue to be subject to the trends in longer
term interest rates. This sensitivity is mitigated during periods such as the
past quarter when the bond market trades in a relatively narrow range of
interest rates. The Fund's performance also remains sensitive to trends in
relative yield spreads on corporate bonds due to the concentration in
corporate bonds. Corporate spreads have recently widened slightly from their
historically tight levels while spreads in the automotive sector have widened
sharply following the weak earnings forecasts from General Motors and Ford.
The pie chart below summarizes the portfolio quality of the Fund's long-term
invested assets as of March 31, 2005:
PERCENT OF TOTAL INVESTMENT (STANDARD & POOR'S RATINGS)
U.S. Treasuries
Agencies &
BBB BB B & Lower Not Rated AAA Rated AA A
- --------------------------------------------------------------------------------
30.5% 6.0% 3.0% 0.1% 23.2% 9.2% 28.0%
Please refer to the Schedule of Investments in the financial statements for
details concerning portfolio holdings.
On March 15, 2005 the Board of Directors declared a dividend payment of
$0.2875 per share payable May 4, 2005 to shareholders of record on April 8,
2005. The dividend was reduced from the prior quarter following a detailed
review of the Fund's forecast of income, expenses and projected investments in
the current low interest rate environment.
We would like to remind shareholders of the opportunities presented by the
Fund's dividend reinvestment plan as detailed in the Fund's prospectus and
referred to inside the back cover of this report. The dividend reinvestment
plan affords shareholders a price advantage by allowing the purchase of shares
at the lower of NAV or market price. This means that the reinvestment is at
market price when the Fund is trading at a discount to Net Asset Value or at
Net Asset Value per share when market trading is at a premium to that value.
To participate in the plan, please contact EquiServe First Chicago, the Fund's
Transfer Agent and Dividend Paying Agent, at 781-575-2723. The Fund's
Investment Advisor, 1838 Investment Advisors, LP, may be reached at
800-232-1838 and the Fund's Sub-Advisor, MBIA Capital Management Corp., may be
reached at 914-765-3272.
Sincerely,
/s/ Ross K. Chapin
------------------
Ross K. Chapin
President
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF THE
1838 BOND-DEBENTURE TRADING FUND
We have audited the accompanying statement of assets and liabilities of 1838
Bond-Debenture Trading Fund, including the schedule of investments, as of
March 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the two years in the
period ended March 31, 2002 were audited by other auditors whose report dated
April 30, 2002 expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (U.S.). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of March 31, 2005 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of 1838
Bond-Debenture Trading Fund as of March 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
APRIL 15, 2005
3
SCHEDULE OF INVESTMENTS MARCH 31, 2005
MOODY'S/
STANDARD & PRINCIPAL AMORTIZED
POOR'S AMOUNT COST VALUE
RATING* (000'S) (NOTE 1) (NOTE 1)
--------- ---------- -------------- --------------
LONG TERM DEBT SECURITIES (97.54%)
AUTOMOBILES & RELATED (7.41%)
Auburn Hills Trust, Gtd. Ctfs., 12.375%, 05/01/20......... A3/BBB $1,000 $ 1,000,000 $ 1,497,598
Ford Holdings, Inc., Gtd., 9.30%, 03/01/30................ Baa1/BBB- 1,000 1,108,717 1,058,423
Ford Motor Co., Debs., 8.90%, 01/15/32.................... Baa1/BBB- 1,560 1,544,430 1,577,204
Ford Motor Credit Co., 7.00%, 10/01/13.................... A3/BBB- 2,000 2,056,119 1,937,430
General Motors Acceptance Corp., Notes, 7.25%, 03/02/11... Baa2/BBB- 1,000 1,007,144 928,447
Meritor Automotive, Notes, 6.8%, 02/15/09................. Ba1/BB+ 500 512,345 495,000
----------- -----------
7,228,755 7,494,102
----------- -----------
ELECTRIC UTILITIES (7.26%)
Arizona Public Service Co., 5.625%, 05/15/33.............. Baa1/BBB 1,000 988,857 980,424
Dominion Resources Inc., Sr. Notes, 6.75%, 12/15/32....... Baa1/BBB+ 1,000 997,640 1,088,245
Hydro-Quebec, Gtd. Debs., 8.25%, 04/15/26................. A1/A+ 1,550 1,484,949 2,136,313
Midamerican Funding LLC, 6.927%, 03/01/29................. Baa1/BBB+ 500 500,000 563,983
NSTAR, Notes, 8.00%, 02/15/10............................. A2/A- 500 498,810 568,548
Old Dominion Electric Corp., 6.25%, 06/01/11.............. Aaa/AAA 500 500,405 540,876
PSEG Power, Notes, 5.00%, 04/01/14........................ Baa1/BBB 1,500 1,498,166 1,468,559
----------- -----------
6,468,827 7,346,948
----------- -----------
FINANCIAL (19.45%)
Bank of America, Sub. Notes, 7.40%, 01/15/11.............. Aa3/A 1,000 1,048,522 1,127,344
BB&T Corp., Sub. Notes, 6.50%, 08/01/11................... A2/A- 500 498,160 545,624
Citicorp Capital II, Gtd., 8.015%, 02/15/27............... Aa2/A 2,000 2,010,974 2,204,710
FBS Capital I, Gtd., 8.09%, 11/15/26...................... Aa3/A- 2,000 1,994,320 2,143,836
General Electric Capital Corp., Notes, 6.75%, 03/15/32.... Aaa/AAA 1,500 1,547,830 1,731,484
Goldman Sachs Group Inc., Gtd., 6.345%, 02/15/34.......... A1/A- 1,500 1,509,710 1,537,332
Household Finance Corp., Notes, 6.75%, 05/15/11........... A1/A 1,500 1,499,736 1,642,099
HSBC America Capital II, Gtd., 8.38%, 05/15/27, 144A...... NA/A- 2,500 2,564,754 2,733,690
Landesbank Baden-Wurtt NY, Sub. Notes, 6.35%, 04/01/12.... Aaa/AA+ 500 498,942 546,753
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11......... WR/NR 1,500 1,569,042 1,783,500
Royal Bank of Scotland PLC, 4.7%, 07/03/18................ Aa3/A+ 1,500 1,413,847 1,412,209
Sanwa Bank Ltd., Sub. Notes, 7.40%, 06/15/11.............. A2/BBB+ 500 488,256 555,707
UBS PFD Funding Trust I, Gtd., 8.622%, 10/29/49........... A1/AA- 1,000 1,008,181 1,179,550
XL Capital Europe PLC, Gtd., 6 .50%, 01/15/12............. A2/A 500 498,027 535,402
----------- -----------
18,150,301 19,679,240
----------- -----------
INDUSTRIAL, MATERIALS & MISC. (17.89%)
Abitibi-Consolidated Inc., Debs., 8.85%, 08/01/30......... Ba3/BB- 2,000 1,999,789 1,875,000
Case New Holland, Sr. Notes, 6%, 06/01/09................. Ba3/BB- 500 497,543 475,000
Darden Restaurants Inc., Debs., 7.125%, 02/01/16.......... Baa1/BBB+ 500 441,039 565,552
EOP Operating LP, Sr. Notes, 7.25%, 02/15/18.............. Baa2/BBB+ 1,000 993,653 1,120,826
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22........ WR/A- 2,000 2,134,264 2,657,194
Host Marriott LP, Sr. Notes, 7%, 08/15/12................. Ba3/B+ 500 527,249 495,000
IMC Global, Debs., 6.875%, 07/15/07....................... B1/B+ 500 521,973 512,500
Liberty Property Trust, Sr. Notes, 7.50%, 01/15/18........ Baa2/BBB 1,000 999,163 1,132,773
Mohegan Tribal Gaming Auth., Sr. Notes, 6.375%, 07/15/09.. Ba3/B+ 500 516,071 496,250
Monsanto Co (Pharmacia Corp), 6.5%, 12/1/18............... Aaa/AAA 500 581,459 560,337
Quebecor World Inc.,Gtd., 6.125%, 11/15/13................ Baa3/BBB- 1,500 1,510,361 1,522,821
Royal Caribbean Cruises, Sr. Notes, 6.75%, 03/15/08....... Ba1/BB+ 1,000 931,344 1,038,750
Smurfit Capital Funding, Debs., 7.50%, 11/20/25........... B1/BB- 2,000 1,991,871 1,920,000
Starwood Hotels & Resorts, Gtd., 7.875%, 05/01/12......... Ba1/BB+ 1,000 996,164 1,092,500
Tyco Int'l. Group SA, Gtd., 6.875%, 01/15/29.............. Baa3/BBB 750 657,918 840,677
Union Camp Corp., Debs., 9.25%, 02/01/11.................. Baa2/BBB 1,500 1,493,360 1,800,060
----------- -----------
16,793,221 18,105,240
----------- -----------
4
SCHEDULE OF INVESTMENTS--CONTINUED MARCH 31, 2005
MOODY'S/
STANDARD & PRINCIPAL AMORTIZED
POOR'S AMOUNT COST VALUE
RATING* (000'S) (NOTE 1) (NOTE 1)
--------- ---------- -------------- --------------
OIL & GAS (7.94%)
Apache Corp., Notes, 7.70%, 03/15/26...................... A3/A- $ 500 $ 522,841 $ 639,462
ChevronTexaco, Debs., 7.5%, 03/01/43...................... Aa3/AA 2,000 1,978,634 2,303,958
ConocoPhillips, 5.9%, 10/15/32............................ A3/A- 1,000 1,023,550 1,051,982
Transocean Inc., Notes, 7.50%, 04/15/31................... Baa2/A- 500 497,791 617,363
Western Atlas Inc., Debs., 8.55%, 06/15/24................ A2/A- 2,539 2,637,950 3,420,147
------------- --------------
6,660,766 8,032,912
------------- --------------
TELECOMMUNICATIONS & MULTIMEDIA (18.66%)
Comcast Corp., Gtd., 7.05%, 3/15/33....................... Baa3/BBB 2,000 2,192,411 2,236,980
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13....... Baa3/BBB 1,000 1,051,369 1,065,021
CSC Holdings, Sr. Notes, 7.25%, 07/15/08.................. B1/BB 500 532,007 512,500
Deutsche Telekom International, Gtd., 8.25%, 06/15/30..... Baa1/A- 2,000 2,508,388 2,615,702
GTE Corp. Deb., 6.94%, 04/15/28........................... A3/A+ 2,000 2,108,805 2,163,114
News America Holdings Inc., Gtd., 7.90%, 12/01/95......... Baa3/BBB- 1,400 1,298,783 1,642,588
SBC Communications Inc., Notes, 5.875%, 08/15/12.......... A2/A 500 493,956 521,131
Sprint Capital Corp., 6.90%, 05/01/19..................... Baa3/BBB- 1,750 1,760,663 1,895,367
Time Warner Inc., Debs., 9.15%, 02/01/23.................. Baa1/BBB+ 3,000 3,139,160 3,943,809
Verizon Global Funding Corp., Notes, 7.75%, 12/01/30...... A2/A+ 1,646 1,675,005 1,989,352
Viacom Inc., Sr. Debs., 7.875%, 07/30/30.................. A3/A- 250 246,363 296,958
------------- --------------
17,006,910 18,882,522
------------- --------------
MORTGAGE BACKED SECURITIES (10.03%)
FHLMC Pool # A15675, 6.00%, 11/01/33...................... NR/NR 1,997 2,068,181 2,044,572
FNMA Pool # B11892, 4.50%, 01/01/19....................... NR/NR 2,121 2,141,468 2,080,341
FNMA Pool # 763852, 5.50%, 02/01/34....................... NR/NR 3,548 3,630,351 3,555,836
FNMA Pool # 754791, 6.50%, 12/01/33....................... NR/NR 2,206 2,323,493 2,290,325
GNMA Pool # 417239 7.0%, 02/15/26......................... NR/NR 114 115,620 121,298
GNMA Pool # 780374 7.5%, 12/15/23......................... NR/NR 51 50,263 54,637
------------- --------------
10,329,376 10,147,009
------------- --------------
U.S. GOVERNMENT & AGENCIES (8.90%)
U.S. Treasury Bonds, 10.75%, 08/15/05..................... NR/NR 1,600 1,622,219 1,646,499
U.S. Treasury Bonds, 7.875%, 02/15/21..................... NR/NR 3,900 4,025,166 5,208,025
U.S. Treasury Bonds, 8.125%, 08/15/21..................... NR/NR 1,000 1,013,193 1,369,375
U.S. Treasury Bonds, 6.25%, 05/15/30...................... NR/NR 650 724,641 780,964
------------- --------------
7,385,219 9,004,863
------------- --------------
TOTAL LONG TERM DEBT SECURITIES........................... 90,023,375 98,692,836
------------- --------------
SHARES
INVESTMENT COMPANIES (.86%) ------
High Yield Plus Fund...................................... 33 223,875 136,665
Evergreen Select Money Market Fund - I Shares............. 733 734,065 734,065
------------- --------------
957,940 870,730
------------- --------------
TOTAL INVESTMENTS (98.40%)................................ $ 90,981,315 99,563,566
=============
OTHER ASSETS AND LIABILITIES (1.60%)...................... 1,617,534
--------------
NET ASSETS (100.00%)...................................... $ 101,181,100
==============
* 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, this security amounted
to 2.70% of net assets.
Legend
- ------
Ctfs. - Certificates
Debs. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
The accompanying notes are an integral part of these financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2005
Assets:
Investment in securities, at value (amortized cost
$90,981,315) (Note 1)..................................... $ 99,563,566
Interest receivable ........................................ 1,613,338
Receivable for Fund shares purchased ....................... 77
Dividends receivable ....................................... 1,167
Other assets ............................................... 5,406
--------------
TOTAL ASSETS .............................................. 101,183,554
--------------
Liabilities:
Accrued expenses payable ................................... 2,454
--------------
TOTAL LIABILITIES ......................................... 2,454
--------------
Net assets: (equivalent to $20.62 per share based on 4,907,678
shares of capital stock outstanding)......................... $ 101,181,100
==============
NET ASSETS consisted of:
Par value .................................................. $ 4,907,678
Capital paid-in ............................................ 91,982,851
Accumulated net investment income (loss) ................... (664,897)
Accumulated net realized loss on investments ............... (3,626,783)
Net unrealized appreciation on investments ................. 8,582,251
--------------
$ 101,181,100
==============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2005
Investment Income:
Interest......................................... $ 6,373,175
Dividends........................................ 14,000
-----------
Total Investment Income ........................ 6,387,175
-----------
Expenses:
Investment advisory fees (Note 4)................ $ 555,471
Transfer agent fees.............................. 44,111
Directors' fees.................................. 82,652
NYSE fee......................................... 25,000
Audit fees....................................... 17,001
Legal fees and expenses.......................... 54,381
Reports to shareholders.......................... 27,262
Custodian fees................................... 6,856
Insurance Fees................................... 24,299
State & Local Taxes.............................. 57,656
Miscellaneous.................................... 6,054
----------
Total Expenses ................................. 900,743
-----------
Net Investment Income ......................... 5,486,432
-----------
Realized and unrealized gain on investments (Note 1):
Net realized gain from security transactions..... 22,587
-----------
Unrealized appreciation of investments:
Beginning of the year .......................... 11,400,890
End of the year ................................ 8,582,251
----------
Change in unrealized appreciation of
investments................................. (2,818,639)
-----------
Net realized and unrealized loss on
investments................................ (2,796,052)
-----------
Net increase in net assets resulting from
operations........................................ $ 2,690,380
===========
The accompanying notes are an integral part of these financial statements.
6
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,486,432 $ 4,854,232
Net realized gain from security
transactions (Note 2)................... 22,587 544,219
Change in unrealized appreciation of
investments............................. (2,818,639) 3,653,484
------------- -------------
Net increase in net assets resulting
from operations........................ 2,690,380 9,051,935
------------- -------------
Distributions:
Dividends to shareholders from net
investment income....................... (5,588,396) (4,981,455)
Distributions to shareholders from tax
return of capital....................... (546,202) (298,918)
------------- -------------
Total distributions to shareholders ..... (6,134,598) (5,280,373)
------------- -------------
Capital Share Transactions:
Proceeds from common share offering....... -- 23,170,063
Dealer manager fee charged to paid-in
capital in excess of par................ (2,248) (868,877)
Common share offering costs charged to
paid-in capital in excess of par........ -- (417,993)
------------- -------------
Net proceeds (expenses) from common
share offering......................... (2,248) 21,883,193
------------- -------------
Increase (Decrease) net assets............ (3,446,466) 25,654,755
Net Assets:
Beginning of year......................... 104,627,566 78,972,811
------------- -------------
End of year............................... $ 101,181,100 $ 104,627,566
============= =============
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 13. 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
- --------------------------------------------------------------------------------
7
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
YEAR ENDED MARCH 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year..................................... $ 21.32 $ 21.50 $ 20.13 $ 20.95 $ 20.39
--------- --------- -------- -------- --------
Net investment income(1).............................................. 1.14 1.29 1.31 1.24 1.45
Net realized and unrealized gain (loss) on investments(1)............. (0.59) 0.83 1.45 (0.62) 0.56
--------- --------- -------- -------- --------
Total from investment operations....................................... 0.55 2.12 2.76 0.62 2.01
--------- --------- -------- -------- --------
Capital share transaction:
Dilution of the net asset value from rights offering (Note 6)......... -- (0.97) -- -- --
--------- --------- -------- -------- --------
Less distributions:
Dividends from net investment income.................................. (1.14) (1.27) (1.34) (1.43) (1.45)
Distributions from tax return of capital.............................. (0.11) (0.06) (0.05) (0.01) --
--------- --------- -------- -------- --------
Total distributions.................................................... (1.25) (1.33) (1.39) (1.44) (1.45)
--------- --------- -------- -------- --------
Net asset value, end of year........................................... $ 20.62 $ 21.32 $ 21.50 $ 20.13 $ 20.95
========= ========= ======== ======== ========
Per share market price, end of year.................................... $ 18.26 $ 19.51 $ 20.65 $ 19.34 $ 19.27
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (2)
Based on market value................................................. 0.22% 1.13% 14.55% 7.96% 23.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)..................................... $101,181 $104,628 $78,973 $73,955 $76,970
Ratio of expenses to average net assets................................ 0.89% 0.86% 0.91% 0.86% 0.91%
Ratio of net investment income to average net assets(1)................ 5.43% 5.57% 6.39% 6.73% 7.20%
Portfolio turnover rate................................................ 6.78% 11.99% 12.27% 10.87% 12.39%
Number of shares outstanding at the end of the period
(in 000's)........................................................... 4,908 4,908 3,673 3,673 3,673
(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 market price on the first day and a sale at the 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.
8
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES -- The 1838 Bond-Debenture Trading
Fund ("the Fund"), a Delaware Corporation, is registered under the Investment
Company Act of 1940, as amended, as a diversified closed-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles 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 March 31, 2005, 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. In order to reflect permanent book/tax
difference that occurred during the fiscal year the following capital
accounts were adjusted for the following amounts, accumulated net
investment income (loss) for $80,529 and accumulated net realized loss on
investments for $(80,529).
Distribution during the fiscal years ended March 31, 2005 and 2004 were
characterized as follows for tax purposes:
ORDINARY INCOME RETURN OF CAPITAL CAPITAL GAIN TOTAL DISTRIBUTION
--------------- ----------------- ------------ ------------------
FY 2005 $5,588,396 $546,202 --- $6,134,598
FY 2004 $4,981,455 $298,918 --- $5,280,373
At March 31, 2005, the components of distributable earnings on a tax
basis were as follows:
ACCUMULATED CAPITAL LOSS *POST-OCTOBER NET UNREALIZED
TOTAL ORDINARY INCOME CARRYFORWARD LOSS APPRECIATION
---------- --------------- ------------ ------------- --------------
$4,290,571 $ -- $(3,545,589) $(81,194) $7,917,354
========== ======= =========== ======== ==========
* Temporary differences include book amortization and deferral of post-
October losses which will be recognized for the tax year ending March 31,
2006.
9
As of March 31, 2005, the capital loss carryovers available to offset
possible future capital gains were as follows:
AMOUNT EXPIRATION DATE
-------- ---------------
$1,177,798 3/31/2009
974,596 3/31/2010
1,393,195 3/31/2011
At March 31, 2005, 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:
The difference between book basis and tax-basis unrealized appreciation
is attributable primarily to the differing treatments for amortization of
market premium and accretion of market discount.
AGGREGATE NET UNREALIZED GROSS UNREALIZED GROSS UNREALIZED
TAX COST APPRECIATION APPRECIATION DEPRECIATION
---------- -------------- ---------------- ----------------
$91,646,212 $7,917,354 $9,370,814 $(1,453,460)
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 fiscal year ended
March 31, 2005:
PROCEEDS
COST OF FROM SALES
PURCHASES OR MATURITIES
---------- -------------
U.S. Government Securities $ - $ 261,557
Other Investment Securities 8,625,225 6,380,309
NOTE 3 -- CAPITAL STOCK -- At March 31, 2005, there were 10,000,000 shares of
capital stock ($1.00 par value) authorized, with 4,907,678 shares issued and
outstanding.
NOTE 4 -- INVESTMENT ADVISORY CONTRACT AND PAYMENTS TO AFFILIATED PERSONS --
The Fund's Advisory Agreement (the "Advisory Agreement") was approved by the
Board of Directors on March 31, 2004 and approved by shareholders at a special
meeting of shareholders on July 20, 2004. The Advisory Agreement will continue
in effect, from year to year thereafter if such continuance is specifically
approved at least annually by the Board of Directors or by a majority of the
outstanding voting securities of the Fund, and in either event, by a majority
of the independent Directors of the Board with such Independent Directors
casting votes in person at a meeting called for such purpose, or by a vote of
a majority of the outstanding shares. In approving the Advisory Agreement, the
Board, including the Independent Directors, considered the reasonableness of
the advisory fee in light of the extent and quality of the advisory services
provided and any additional benefits received by the advisor or its affiliates
in connection with providing services to the Fund, compared the fees charged
to those of similar funds for comparable services, and analyzed the expenses
incurred by the advisor with respect to the Fund. The Board also considered
the Fund's performance relative to a selected peer group, the total expenses
of the Fund in comparison to other funds of comparable size and other factors.
Specifically, the Board noted information received at regular meetings
throughout the year related to Fund performance and advisory services, and
benefits potentially accruing to the advisor and its affiliates from
administrative and brokerage relationships, as well as the advisor's research
arrangements with brokers who execute transactions on behalf of the Fund.
After requesting and reviewing such information as they
10
deemed necessary, the Board concluded that the approval of the Advisory
Agreement was in the best interests of the Fund and its shareholders. The Fund
or the investment advisor may terminate its Advisory Agreement on sixty days'
written notice without penalty. The Advisory Agreement will terminate
automatically in the event of an assignment (as defined in the 1940 Act).
Under the terms of the current contract with 1838 Investment Advisors, LP (the
"Advisor"), advisory fees are calculated 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 Capital Management Corp. ("MBIA-CMC") has served as interim sub-advisor
to the Fund since January 14, 2005. Upon approval of shareholders, MBIA-CMC
will enter into a new subadvisory agreement under which the Advisor will pay
MBIA-CMC an annual fee of 0.218% of month end net assets.
MBIA Municipal Investors Services Corporation provides accounting services to
the Fund and is compensated for these services by the Advisor.
Certain officers of the Fund are also directors, officers and/or employees of
the Advisor. 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 fiscal year ended March 31, 2005, the Fund issued no shares under
this Plan.
NOTE 6 -- RIGHTS OFFERING -- On December 3, 2003 the Fund completed its
transferable rights offering. In accordance with the terms of the rights
offering described in the Fund's prospectus an additional 1,234,420 shares
were issued at a subscription price of $18.77 per share, making the gross
proceeds raised by the offering $23,170,063, before offering-related expenses.
Dealer/managers fees of $868,877 and offering costs of approximately $417,993
were deducted from the gross proceeds making the net proceeds available for
investment by the Fund $21,883,193. The dilution impact of the offering was
$0.97 per share or 4.49% of the $21.58 net asset value per share on December 3,
2003, the expiration and pricing date of the offering.
- --------------------------------------------------------------------------------
HOW TO GET INFORMATION REGARDING PROXIES
The Fund has adopted the Advisor's proxy voting policies and procedures
to govern the voting of proxies relating to the voting securities of the
Fund. You may obtain a copy of these proxy voting procedures, without
charge, by calling (800) 232-1838 or on the Securities and Exchange
Commission website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12 month period ended June 30 is
available, without charge, by calling (800) 232-1838 or on the SEC's
website at http://www.sec.gov.
- --------------------------------------------------------------------------------
11
ADDITIONAL INFORMATION REGARDING THE FUND'S DIRECTORS AND OFFICERS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND POSITION(S) PRINCIPAL OCCUPATION DURING THE PAST POSITION WITH
ADDRESS (AGE) HELD WITH FUND FIVE YEARS AND OTHER PREVIOUS EXPERIENCE FUND SINCE AND TERM
- ------------------------------------------------------------------------------------------------------------------------------------
W. Thacher Brown* (57) Director President from July 1998 to September 2004, 1988; current term ends
1838 Investment Advisors, LLC MBIA Asset Management, LLC; Former President at the 2005 Annual
2701 Renaissance Blvd. and Director, 1838 Investment Advisors, LLC; Meeting.
Fourth Floor Trustee of 1838 Investment Advisors Funds;
King of Prussia, PA 19406 Director of Airgas, Inc., Harleysville Mutual
Insurance Company, and Harleysville Group.
- ------------------------------------------------------------------------------------------------------------------------------------
John Gilray Christy (72) Director Chairman of Chestnut Capital Corporation; 1983; current term ends
Chestnut Capital Corp. Fund Former Director of Echo Bay Mines, Ltd.; at the 2005 Annual
P.O. Box 22 Director of The Philadelphia Contributionship Meeting.
Flourtown, PA 19031 for the Insurance of Houses from Loss by Fire.
- ------------------------------------------------------------------------------------------------------------------------------------
Morris Lloyd, Jr. (67) Director Retired; Former Regional Director, 1989; current term ends
1838 Bond-Debenture Trinity College; Former Director, at the 2005 Annual
Trading Fund President, Treasurer and CEO of the Meeting.
2701 Renaissance Blvd. Philadelphia Contributionship for the Insurance
Fourth Floor of Houses from Loss by Fire.
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
J. Lawrence Shane (70) Director Retired; Former Chair of the Board of Managers 1974; current term ends
1838 Bond-Debenture of Swarthmore College; Former Vice Chairman of at the 2005 Annual
Trading Fund Scott Paper Co.; Former Director of CoreStates Meeting.
2701 Renaissance Blvd. Bank, N.A.
Fourth Floor
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
Ross K. Chapin (52) President Chairman, 1838 Investment Advisors, LP; 2005; indefinite
1838 Investment Advisors, LP December 2004 to present; Managing Member, Orca
2701 Renaissance Blvd. Bay Partners, LLC from June 1998 to present
Fourth Floor
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel N. Mullen (54) Secretary and Chief Compliance Officer 1838 Investment 2005; indefinite
1838 Investment Advisors, LP Chief Compliance Advisors, LP; Chief Compliance Officer,
2701 Renaissance Blvd. Officer Treasurer and Secretary of 1838 Investment
Fourth Floor Advisors Funds; Principal, Andres Capital
King of Prussia, PA 19406 Management, LLC; and Vice President, AGL Life
Assurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford D. Corso* (43) Vice President Former Managing Director and Head of Fixed 1998; indefinite
MBIA Capital Management Corp. Income, 1838 Investment Advisors, LLC;
113 King Street President and Senior Portfolio Manager, MBIA
Armonk, NY 10504 Capital Management Corp.; Managing Director and
Chief Investment Officer, MBIA Insurance Corp.;
Vice President of the 1838 Investment Advisors
Funds
- ------------------------------------------------------------------------------------------------------------------------------------
*Designates a director/officer who is an "interested person" of the Fund as
defined under the Investment Company Act of 1940. Messrs. Brown, Chapin,
Corso and Mullen are interested persons of the Fund by virtue of being
employees of the Fund's investment manager or one of its affiliates.
12
QUARTERLY STATEMENT OF INVESTMENTS (UNAUDITED)
Each Fund files a complete statement of investments with the Security and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the
Commission's website at sec.gov. The filed form may also be viewed and copied
at the Commission's Public Reference Room in Washington, D.C. Information
regarding the operations of the Public Reference Room may be obtained by
calling 1-800/SEC-0330.
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.
13
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
- --------------------------------------------------------------------------------
14
D I R E C T O R S
--------------------------
W. THACHER BROWN
JOHN GILRAY CHRISTY
MORRIS LLOYD, JR.
J. LAWRENCE SHANE
O F F I C E R S
--------------------------
ROSS K. CHAPIN
President
DANIEL N. MULLEN
Secretary and Chief
Compliance Officer
CLIFFORD D. CORSO
Vice President
1838
I N V E S T M E N T A D V I S O R
-------------------------- 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
C U S T O D I A N
-------------------------- [LOGO]
WACHOVIA NATIONAL BANK
123 S. BROAD STREET ANNUAL REPORT
PHILADELPHIA, PA 19109
MARCH 31, 2005
T R A N S F E R A G E N T
--------------------------
EQUISERVE
P.O. BOX 43069
PROVIDENCE, RI 02940-3069
781-575-2723
C O U N S E L
--------------------------
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & ARCH STREETS
PHILADELPHIA, PA 19103
A U D I T O R S
--------------------------
TAIT, WELLER & BAKER
1818 MARKET STREET
SUITE 2400
PHILADELPHIA, PA 19103
ITEM 2. CODE OF ETHICS.
The Board of Directors has adopted a code of ethics that applies to the
principal executive officer, principal financial officer, principal accounting
officer or controller of the Registrant, 1838 Investment Advisors, LLC, and to
persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that J. Lawrence Shane,
the Chairman of the Board's Audit Committee, possesses the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit
committee financial expert," and has designated Mr. Shane as the Audit
Committee's financial expert. Mr. Shane is an "independent" Director pursuant to
paragraph (a)(2)of Item 3 to Form N-CSR. Under applicable securities laws, a
person who is determined to be an audit committee financial expert will not be
deemed an "expert" for any purpose, including without limitation for the
purposes of Section 11 of the Securities Act of 1933, as a result of being
designated or identified as an audit committee financial expert. The designation
or identification of a person as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities that are greater
than the duties, obligations, and liabilities imposed on such person as a member
of the audit committee and Board of Directors in the absence of such designation
or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal years
for professional services rendered by the principal accountant for the audit of
the Fund's annual financial statements or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $14,500 and $14,000 for the fiscal years
ending March 31, 2005 and March 31, 2004, respectively.
(b) AUDIT-RELATED FEES. There were no fees billed in each of the last two fiscal
years for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the Fund's financial
statements and are not reported above in Item 4(a).
(c) TAX FEES. The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were $2,500 a year for the fiscal years ending March
31, 2005 and March 31, 2004. The nature of these services was federal, state and
excise tax return preparation and related advice and planning, determination of
taxable income and miscellaneous tax advice.
(d) ALL OTHER FEES. The were no fees billed in each of the last two fiscal years
for products and services provided by the principal accountant, other than the
services reported above in Items 4(a) through (c).
(e)(1) The registrant's audit committee has adopted policies and procedures
relating to the pre-approval of services provided by the registrant's principal
accountant (the "Pre-Approval Policies"). The Pre-Approval Policies establish a
framework intended to assist the audit committee in the proper discharge of its
pre-approval responsibilities. As a general matter, the Pre-Approval Policies
(i) specify certain types of audit, audit-related, tax, and other services
determined to be pre-approved by the audit committee; and (ii) delineate
specific procedures governing the mechanics of the pre-approval process,
including the approval and monitoring of audit and non-audit service fees.
Unless a service is specifically pre-approved under the Pre-Approval Policies,
it must be separately pre-approved by the audit committee.
(e)(2) For the fiscal years ended March 31, 2005 and March 31, 2004, 100% of the
Tait, Weller & Baker fees described above under the captions "Audit Related
Fees", "Tax Fees" and "All Other Fees" were approved by the Registrant's Audit
Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2.01 of Regulation S-X.
(f) Not applicable.
(g) There were no non-audit fees billed by the Fund's accountant for services
rendered to the Fund, the Advisor or any entity controlling, controlled by, or
under common control with the Advisor that provides ongoing services to the
registrant that directly impacted the Fund for each of the last two fiscal
years.
(h) Not Applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Fund has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
audit committee of the Fund is comprised of: John Gilray Christy; Morris Lloyd,
Jr.; and J. Lawrence Shane.
ITEM 6. SCHEDULE OF INVESTMENTS.
Attached as part of ITEM 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant has delegated the voting of proxies relating to its voting
securities to its investment advisor, 1838 Investment Advisors, LLC (the
"Advisor"). The Proxy Voting Policies and Procedures of the Advisor (the "Proxy
Voting Policies") are included as an Exhibit hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Portfolio Manager:
Robert T. Claiborne, CFA,
Director, MBIA Capital Management Corp.
January 2000 - March 31, 2005
Responsible for day-to-day management of portfolio
Asst. Portfolio Manager:
Gautam Khanna, CPA, CFA
Vice President, MBIA Capital Management Corp.
May 2003 - March 31, 2005
Assists in day-to-day management of portfolio
Prior to joining MBIA, Mr. Khanna was an analyst with TimesSquare Capital in NY,
NY.
(a)(2)(i) Robert T. Claiborne, CFA
(ii)(A)Registered investment companies - 0
(B) Other pooled investment vehicles - 0
(C) Other Accounts - CDOs -5. Approximately $2.7 billion in total
assets. The five CDO portfolios are co-managed with another Portfolio
Manager who has no investment responsibilities for the 1838 Bond
Debenture Fund.
(iii) See (ii)
(iv) No material conflicts of interests are expected to arise with the
management of the 1838 Bond Debenture Fund and the CDO portfolios as
the CDO portfolios have very specific requirements under the
respective Indentures for purchases. Only three of the CDO portfolios
are cash portfolios and only one can make purchases at this time as
the other two CDOs are in the amortization period. The one cash CDO
still investing will cease making purchases effective October 31, 2005
after it enters its amortization period. The other two CDOs are
synthetic and invest only in credit default swaps. The two synthetic
CDOs mature in June 2007 and October 2007, respectively.
(a)(3) The Portfolio Manager and Asst. Portfolio Manager each receive
compensation that is composed of a annual cash fixed salary, a variable cash
bonus, and long-term incentive compensation comprised of common stock options
and restricted stock of MBIA Inc. The cash salary level is adjusted annually.
The cash bonus and long term incentive compensation is determined annually and
is based on a combination of the overall performance of MBIA Inc., the overall
performance of MBIA Asset Management and the individual Portfolio Manager and
Asst. Portfolio Managers' contribution to that performance. Compensation is not
based on any specific performance criteria of any of the portfolios managed.
(a)(4) The Portfolio Manager and Asst. Portfolio Manager do not own any equity
securities of the registrant as of March 31, 2005.
(b) N/A. Filing is an annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
No purchases made by or on behalf of the registrant or any "affiliated
purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR
240.10b-18(a)(3)), of shares or other units of any class of the registrant's
equity securities that are registered by the registrant pursuant to Section 12
of the Exchange Act (15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No material changes.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have evaluated the Registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the Registrant's disclosure controls
and procedures are effective, as of a date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer
are aware of no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics.
(a)(2) Separate certifications of Principal Executive and Financial Officers
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Separate certifications of Principal Executive and Financial Officers
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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 Investment Advisors Funds
BY: /s/ Ross K. Chapin
----------------------------------
Ross K. Chapin
President
Date:
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/ Ross K. Chapin
----------------------------------
Ross K. Chapin
President
(Principal Executive Officer)
Date:
BY: /s/ Daniel N. Mullen
-----------------------------
Daniel N. Mullen
Secretary and Treasurer
(Principal Financial Officer)
Date: