-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sfy+OZO8w+N/R+plQ+rmtk+OS8tFYVnRn2Xx0js925omzS8az9Fy09gqC2xeFHK9 bbR6AQNcMbNcFqFdDWm9eQ== 0000950116-02-002476.txt : 20021107 0000950116-02-002476.hdr.sgml : 20021107 20021107100401 ACCESSION NUMBER: 0000950116-02-002476 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021107 EFFECTIVENESS DATE: 20021107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1838 BOND DEBENTURE TRADING FUND CENTRAL INDEX KEY: 0000030125 IRS NUMBER: 231745238 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02201 FILM NUMBER: 02811912 BUSINESS ADDRESS: STREET 1: 100 MATSONFORD RD STE 320 STREET 2: FIVE RADNOR CORP CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 2152934300 MAIL ADDRESS: STREET 1: 1100 NORTH MARKET ST STREET 2: 1100 NORTH MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19801-1246 FORMER COMPANY: FORMER CONFORMED NAME: DREXEL INCOME SECURITIES INC DATE OF NAME CHANGE: 19711102 FORMER COMPANY: FORMER CONFORMED NAME: DREXEL BOND DEBENTURE TRADING FUND DATE OF NAME CHANGE: 19890511 N-30D 1 n30d.txt N-30D October 9, 2002 TO THE SHAREHOLDER: For the quarter ended September 30, 2002, the Fund had a Net Asset Value of $20.61 per share. This represents a 2.4% increase from $20.13 per share at the end of the March 31, 2002 Fiscal Year. On September 30, 2002, the Fund's closing stock price on the New York Stock Exchange was $20.10 per share, representing a 2.5% 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 9/30/02 to 9/30/02 to 9/30/02 to 9/30/02 to 9/30/02 - -------------------------------------------------------------------------------------------------------- 1838 Bond Fund (2) 7.29% 6.14% 9.17% 8.02% 4.92% Average of 14 Other Closed-End Bond Funds (2) 6.86% 5.58% 6.84% 3.88% 1.94% Salomon Bros. Bond Index (3) 8.74% 8.95% 15.87% 15.85% 9.44%
(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. During the recent quarter, the Federal Reserve Bank left the Fed Funds rate at 1.75% but shifted its assessment of risks to the economy toward weakness for the foreseeable future from the prior neutral statement. Since the end of the Fund's fiscal year on March 31, 2002, the yields on US Treasury 2-year notes have declined from 3.72% to 1.68%. The yields on 10-year notes and 30-year bonds have declined from 5.40% to 3.59% and from 5.80% to 4.67% respectively. All of these current levels represent multi-decade low yields. The uncertain economic recovery, continued corporate accounting concerns, the weak stock market and the potential for conflict with Iraq have been among the factors leading to lower Treasury yields. The Fund's performance has benefited from the general decline in interest rates. The performance table above depicts some of the impact of lagging corporate bond performance due to the weak stock market, accounting issues and poor earnings. The Salomon Brothers Bond Index is comprised of high-grade AAA and AA issues and does not include any BBB-rated issues. The BBB component of Salomon Brothers US Credit Index returned 1.32% for the three-month period and 1.43% for the twelve months. The Fund's performance has been adversely impacted by the relative underperformance of corporate bonds, particularly the telecommunications and electric utility industries. The potential for future performance from general interest rate declines is limited at current low yield levels. The Fund should benefit from any general improvement in corporate bond yield spreads. Additionally, we look to take advantage of the wide yield spreads in more intermediate maturities to dampen the potential impact of any rise in interest rates. 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, 2002 17.4% 5.4% 28.6% 43.7% 4.5% 0.3% 0.1% March 31, 2002 16.7% 4.4% 22.6% 53.6% 1.9% 0.6% 0.2% March 31, 2001 14.8% 2.0% 33.1% 45.9% 3.9% 0.0% 0.3%
Please refer to the Schedule of Investments in the financial statements for details concerning portfolio holdings. On September 12, 2002, the Board of Directors declared a dividend payment of $0.35 per share payable November 5, 2002 to shareholders of record on September 26, 2002. 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 ------------------------- John H. Donaldson, CFA President 2 SCHEDULE OF INVESTMENTS (Unaudited) September 30, 2002
Moody's/ Standard & Poor's Principal Amortized Cost Value Rating Amount (000's) (Note 1) (Note 1) ---------- -------------- -------------- ----------- LONG TERM DEBT SECURITIES (98.24%) AUTOMOBILES & RELATED (7.17%) Auburn Hills Trust, Gtd. Ctfs., 12.375%, 05/01/20 .................. A3/BBB+ $1,000 $ 1,000,000 $ 1,551,128 Ford Holdings, Inc., Gtd., 9.30%, 03/01/30 ......................... Baa1/BBB+ 1,000 1,111,773 997,876 Ford Motor Co., Debs., 8.90%, 01/15/32 ............................. Baa1/BBB+ 1,560 1,544,115 1,510,868 General Motors Acceptance Corp., Notes, 7.25%, 03/02/11 ............ A2/BBB+ 1,000 1,009,380 995,007 TRW Inc., Sr. Notes, 9.375%, 04/15/21 .............................. Baa2/BBB 303 318,954 374,878 ----------- ----------- 4,984,222 5,429,757 ----------- ----------- ELECTRIC UTILITIES (8.73%) Calpine Corp., Sr. Notes, 7.75%, 04/15/09 .......................... B1/B+ 500 486,950 200,000 Cleveland Electric Illum., 1st Mtge., 9.00%, 07/01/23 .............. Baa2/BBB 1,800 1,673,242 1,903,433 Hydro-Quebec, Gtd. Debs., 8.25%, 04/15/26 .......................... A1/A+ 1,550 1,482,450 2,118,010 Midamerican Funding LLC, 6.927%, 03/01/29 .......................... Baa1/BBB+ 500 500,000 500,982 NSTAR, Notes, 8.00%, 02/15/10 ...................................... A2/A- 500 498,355 602,986 Old Dominion Electric Corp., 6.25%, 06/01/11, AMBAC ................ Aaa/AAA 500 500,531 559,490 Utilicorp United Inc., Sr. Notes, 8.27%, 11/15/21 .................. Baa2/BBB- 1,000 1,081,753 721,100 ----------- ----------- 6,223,281 6,606,001 ----------- ----------- FINANCIAL (21.30%) Bank of America, Sub. Notes, 7.40%, 01/15/11 ....................... Aa3/A 1,000 1,064,606 1,181,977 BB&T Corp., Sub. Notes, 6.50%, 08/01/11 ............................ A2/A- 500 497,616 570,845 Citicorp Capital II, Capital Securities, Gtd., 8.015%, 02/15/27 .... Aa2/A 2,000 2,011,409 2,257,434 FBS Capital I, Capital Securities, Gtd., 8.09%, 11/15/26 ........... A1/BBB+ 2,000 1,994,097 2,299,860 General Electric Capital Corp., Notes, 6.75%, 03/15/32 ............. Aaa/AAA 500 494,081 536,276 Household Finance Co., Notes, 6.75%, 05/15/11 ...................... A2/A 1,500 1,499,633 1,433,022 HSBC America Capital II, Gtd., 8.38%, 05/15/27, 144A ............... NR/A- 2,500 2,567,184 2,801,863 Landesbank Baden-Wurtt NY, Sub. Notes, 6.35%, 04/01/12 ............. Aaa/AAA 500 498,664 565,049 Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 .................. Baa3/BBB- 1,500 1,589,182 1,678,736 Sanwa Bank Ltd., Sub. Notes, 7.40%, 06/15/11 ....................... Baa1/BBB- 500 484,902 520,717 Tupperware Finance Co. BV, Gtd., 7.25%, 10/01/06 ................... Baa2/BBB 500 518,922 548,611 UBS PFD Funding Trust I, Gtd., 8.622%, 10/29/49 .................... A1/AA- 1,000 1,010,836 1,195,685 XL Capital Europe PLC, Gtd., 6.50%, 01/15/12 ....................... A1/A+ 500 497,492 535,244 ----------- ----------- 14,728,624 16,125,319 ----------- ----------- INDUSTRIAL, MATERIALS & MISC. (19.77%) Abitibi-Consolidated Inc., Debs., 8.85%, 08/01/30 .................. Baa3/BBB- 2,000 1,999,784 1,986,474 Darden Restaurants Inc., Debs., 7.125%, 02/01/16 ................... Baa1/BBB+ 500 433,651 563,841 Duke Capital Corp., Sr. Notes, 6.75%, 02/15/32 ..................... A3/A- 1,000 671,884 859,475 EOP Operating LP, Sr. Notes, 7.25%, 02/15/18 ....................... Baa1/BBB+ 1,000 992,968 1,094,333 Georgia-Pacific Corp., Debs., 9.625%, 03/15/22 ..................... Ba1/BB+ 1,000 1,052,832 800,000 Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ................. Baa1/A- 2,000 2,142,560 2,533,162 Liberty Property Trust, Sr. Notes, 7.50%, 01/15/18 ................. Baa2/BBB 1,000 999,057 1,137,467 Royal Caribbean Cruises, Sr. Notes, 6.75%, 03/15/08 ................ Ba2/BB+ 1,000 886,246 815,000 Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ............... Ba3/BB+ 2,000 1,991,491 1,724,632 Starwood Hotels & Resorts, Notes, 7.875%, 05/01/12 ................. Ba1/BBB- 1,000 995,027 972,500 Tyco Int'l. Group SA, Gtd., 6.875%, 01/15/29 ....................... Ba2/BBB- 750 654,935 573,750 Union Camp Corp., Debs., 9.25%, 02/01/11 ........................... Baa2/BBB 1,500 1,491,432 1,910,880 ----------- ----------- 14,311,867 14,971,514 ----------- ----------- OIL & GAS (11.12%) Apache Corp., Notes, 7.70%, 03/15/26 ............................... A3/A- 500 523,919 612,770 Coastal Corp., Debs., 6.70%, 02/15/27 .............................. Baa2/BBB 500 504,947 360,000 K N Energy Inc., Debs., 8.75%, 10/15/24 ............................ Baa2/BBB 1,150 1,215,527 1,259,551 Texaco Capital Inc., Gtd. Debs., 7.50% 03/01/43 .................... Aa3/AA 2,000 1,978,405 2,320,304 Transocean Sedco Forex, Notes, 7.50%, 04/15/31 ..................... Baa2/A- 500 497,727 577,521 Western Atlas Inc., Debs., 8.55%, 06/15/24 ......................... A2/A- 2,539 2,643,238 3,288,883 ----------- ----------- 7,363,763 8,419,029 ----------- -----------
The accompanying notes are an integral part of these financial statements. 3 SCHEDULE OF INVESTMENTS (Unaudited)--continued September 30, 2002
Moody's/ Standard & Poor's Principal Amortized Cost Value Rating Amount (000's) (Note 1) (Note 1) ---------- -------------- -------------- ----------- TELECOMMUNICATIONS & MULTIMEDIA (15.28%) Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ................ Baa3/BBB+ $ 1,000 $ 1,077,577 $ 968,750 News America Holdings Inc., Gtd. Sr. Debs., 10.125%, 10/15/12 ...... Baa3/BBB- 2,050 2,134,586 2,145,797 News America Holdings Inc., Debs., 7.90%, 12/01/95 ................. Baa3/BBB- 1,400 1,298,775 1,284,343 SBC Communications Inc., Notes, 5.825%, 08/15/02 ................... Aa3/AA- 500 492,445 525,481 TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ............... Baa3/BBB+ 2,000 1,995,886 1,914,272 Time Warner Inc., Debs., 9.15%, 02/01/23 ........................... Baa1/BBB+ 3,000 3,146,951 2,782,500 Verizon Global Funding Corp., Notes, 7.75%, 12/01/30 ............... A1/A+ 1,646 1,675,595 1,643,113 Viacom Inc, Sr. Debs., 7.875%, 07/30/30 ............................ A3/A- 250 246,261 300,963 ----------- ----------- 12,068,076 11,565,219 ----------- ----------- MORTGAGE BACKED SECURITIES (1.47%) FNMA Pool #313411, 7.00%, 03/01/04 ................................. NR/NR 191 190,475 193,362 GNMA Pool #780374, 7.50%, 12/15/23 ................................. NR/NR 216 214,956 231,387 GNMA Pool #417239, 7.00%, 02/15/26 ................................. NR/NR 657 664,755 691,609 ----------- ----------- 1,070,186 1,116,358 ----------- ----------- TAXABLE MUNICIPAL BONDS (0.67%) Greater Orlando Aviation Authority, 8.20%, 10/01/12, MBIA** ........ Aaa/AAA 500 510,000 510,000 ----------- ----------- U.S. GOVERNMENT & AGENCIES (12.73%) U.S. Treasury Bonds, 10.75%, 08/15/05 .............................. NR/NR 1,600 1,758,374 1,989,374 U.S. Treasury Bonds, 7.875%, 02/15/21 .............................. NR/NR 3,900 4,035,769 5,427,704 U.S. Treasury Bonds, 8.125%, 08/15/21 .............................. NR/NR 1,000 1,014,095 1,427,539 U.S. Treasury Bonds, 6.25%, 05/15/30 ............................... NR/NR 650 727,943 793,046 ----------- ----------- 7,536,181 9,637,663 ----------- ----------- TOTAL LONG TERM DEBT SECURITIES .................................... 68,796,200 74,380,860 ----------- ----------- Shares INVESTMENT COMPANIES (1.69%) ------ High Yield Plus Fund ............................................... 33,333 223,875 99,999 Evergreen Select Money Market -- I ................................. 1,176,049 1,176,049 1,176,049 ----------- ----------- 1,399,924 1,276,048 ----------- ----------- TOTAL INVESTMENTS (99.93%) ......................................... $70,196,124 75,656,908 =========== OTHER ASSETS AND LIABILITIES (0.07%) ............................... 54,261 ----------- NET ASSETS (100.00%) ............................................... $75,711,169 ===========
** The bond's principal and interest payments are insured by MBIA, Inc., the parent company of 1838 Investment Advisors, LLC (See Note 4). 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 3.70% 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. 4 STATEMENT OF ASSETS AND LIABILITIES (Unaudited) September 30, 2002
Assets: Investment in securities at value (amortized cost $70,196,124) (Note 1)....................................................... $75,656,908 Receivable for investment securities sold ..................... 1,675,694 Interest receivable ........................................... 1,451,929 Dividends receivable .......................................... 1,083 Other assets .................................................. 5,950 ----------- TOTAL ASSETS ................................................. 78,791,564 ----------- Liabilities: Payable for investment securities purchased ................... 1,718,117 Dividends payable ............................................. 1,285,640 Due to Advisor ................................................ 34,971 Accrued expenses payable ...................................... 41,667 ----------- TOTAL LIABILITIES ............................................ 3,080,395 ----------- Net assets: (equivalent to $20.61 per share based on 3,673,258 shares of capital stock outstanding)............................ $75,711,169 =========== NET ASSETS consisted of: Par value ..................................................... $ 3,673,258 Capital paid-in ............................................... 72,374,251 Undistributed net investment income ........................... (1,929,076) Accumulated net realized loss on investments .................. (3,868,048) Net unrealized appreciation on investments .................... 5,460,784 ----------- $75,711,169 ===========
STATEMENT OF OPERATIONS (Unaudited) For the six months ended September 30, 2002
Investment Income: Interest......................................... $ 2,780,576 Dividends........................................ 7,167 ----------- Total Investment Income ........................ 2,787,743 ----------- Expenses: Investment advisory fees (Note 4)................ $ 211,764 Transfer agent fees.............................. 22,167 NYSE fee......................................... 12,500 Directors' fees.................................. 14,666 Audit fees....................................... 11,682 State and local taxes............................ 10,850 Legal fees and expenses.......................... 12,672 Reports to shareholders ......................... 14,406 Custodian fees................................... 4,032 Miscellaneous.................................... 14,108 ---------- Total Expenses ................................. 328,847 ----------- Net Investment Income ......................... 2,458,896 ----------- Realized and unrealized gain (loss) on investments (Note 1): Net realized loss from security transactions..... (1,023,873) Unrealized appreciation of investments: Beginning of period ............................ 1,283,019 End of period .................................. 5,460,784 ---------- Change in unrealized appreciation of investments.................................. 4,177,765 ----------- Net realized and unrealized gain of investments................................ 3,153,892 ----------- Net increase in net assets resulting from operations........................................ $ 5,612,788 ===========
The accompanying notes are an integral part of these financial statements. 5 STATEMENTS OF CHANGES IN NET ASSETS
Six months ended September 30, 2002 Year ended (Unaudited) March 31, 2002 ------------------ -------------- Increase (decrease) in net assets: Operations: Net investment income................. $ 2,458,896 $ 5,105,531 Net realized loss from security transactions (Note 2) ............... (1,023,873) (1,070,484) Change in unrealized appreciation (depreciation) of investments ....... 4,177,765 (1,768,960) ----------- ----------- Net increase in net assets resulting from operations ................... 5,612,788 2,266,087 ----------- ----------- Distributions: Dividends to shareholders from net investment income ................... (3,856,921) (5,249,417) Distributions to shareholders from tax return of capital ................... - (30,891) ----------- ----------- Total distributions to shareholders . (3,856,921) (5,280,308) ----------- ----------- Increase (decrease) net assets........ 1,755,867 (3,014,221) Net Assets: Beginning of period................... 73,955,302 76,969,523 ----------- ----------- End of period......................... $75,711,169 $73,955,302 =========== ===========
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, 2002 --------------------------------------------------- (Unaudited) 2002 2001 2000 1999 1998 ------------------ ------- ------- --------- ------- ------- Per Share Operating Performance Net asset value, beginning of period .................. $ 20.13 $ 20.95 $ 20.39 $ 22.20 $ 22.70 $ 20.61 ------- ------- ------- --------- ------- ------- Net investment income(1).............................. 0.67 1.24 1.45 1.47 1.52 1.51 Net realized and unrealized gain (loss) on investments(1) .................................. 0.86 (0.62) 0.56 (1.81) (0.41) 2.11 ------- ------- ------- --------- ------- ------- Total from investment operations ...................... 1.53 0.62 2.01 (0.34) 1.11 3.62 ------- ------- ------- --------- ------- ------- Less distributions Dividends from net investment income ................. (1.05) (1.43) (1.45) (1.47) (1.48) (1.53) Distributions from net realized gain ................. - - - - (0.13) - Distributions from tax return of capital ............. - (0.01) - - - - ------- ------- ------- --------- ------- ------- Total distributions ................................... (1.05) (1.44) (1.45) (1.47) (1.61) (1.53) ------- ------- ------- --------- ------- ------- Net asset value, end of period ........................ $ 20.61 $ 20.13 $ 20.95 $ 20.39 $ 22.20 $ 22.70 ======= ======= ======= ========= ======= ======= Per share market price, end of period ................. $ 20.10 $ 19.34 $ 19.27 $ 16.88 $ 20.69 $ 20.81 ======= ======= ======= ========= ======= ======= Total Investment Return Based on market value ................................ 9.64% 7.96% 23.91% (11.67)% 7.28% 13.11% Ratios/Supplemental Data Net assets, end of period (in 000's) .................. $75,711 $73,955 $76,970 $ 74,892 $81,559 $83,380 Ratio of expenses to average net assets .............. 0.88%* 0.86% 0.91% 0.88% 0.77% 0.85% Ratio of net investment income to average net assets(1) .............................. 6.59%* 6.73% 7.20% 7.09% 6.70% 6.89% Portfolio turnover rate .............................. 8.65% 10.87% 12.39% 10.21% 17.89% 18.88% 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 adopted 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. 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, 2002, 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. For the year ended March 31, 2002, of the $5,280,308 distributed to shareholders $5,249,417 was ordinary income and $30,891 was return of capital for tax purposes. At March 31, 2002, the components of distributable earnings on a tax basis were as follows: $2,523,201 was accumulated capital losses and $759,007 was net unrealized appreciation. As of March 31, 2002, the Fund had tax basis capital loss carryover of $159,409, $1,389,196 and $974,596 available to offset future capital gains, if any, until fully utilized or until their expiration on March 31, 2008, 2009 and 2010, respectively, whichever occurs first. Under the current tax law, capital losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended March 31, 2002, the Fund elected to defer losses occurring between November 1, 2001 and March 31, 2002 in the amount of $320,974. At March 31, 2001, capital contributions, accumulated undistributed net investment income and accumulated net realized loss from investments were adjusted for permanent book/tax differences which arose principally from differing book/ tax treatments of amortization and accretion of market premium and discount. The following amounts were reclassified within the capital accounts: $(30,891) to paid in capital, $152,993 to undistributed net investment income and $(122,102) to accumulated net realized loss on investments. At September 30, 2002, the aggregate tax cost for all securities was $70,781,968. The $4,874,940 of net unrealized appreciation, at September 30, 2002, consisted of aggregate gross unrealized appreciation for those securities for which there was an excess of market value 8 over tax cost of $7,651,343 and aggregate gross unrealized depreciation for those securities for which there was an excess of tax cost over fair value of $2,776,403. 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. G. Change in Accounting Principle -- Effective April 1, 2001, the Fund adopted provisions required by the new AICPA Audit and Accounting Guide for Investment Companies issued in November 2000. The Fund began amortizing market premium and accreting market discount on debt securities and began classifying gains and losses from paydown transactions on mortgage and asset backed securities as investment income or loss for financial reporting purposes. The Fund retroactively computed the amortized cost of the debt securities held at the beginning of the fiscal year ended March 31, 2002 based upon the original acquisition date and cost of the securities. The gross amount of premium and discount calculated was $606,237 and $62,922, respectively, which resulted in the amortized cost of securities decreasing $543,315 below the original cost of the securities. During the year ended March 31, 2002 net investment income decreased $86,964 and net realized and unrealized gain (loss) increased $86,964 due to the net amortization of market premium and reclassification of net paydown losses. Note 2 -- Portfolio Transactions -- The following is a summary of the security transactions, other than short-term investments, for the six months ended September 30, 2002:
Proceeds Cost of from Sales Purchases or Maturities U.S. Government Securities $ -- $1,234,636 Other Investment Securities 6,346,055 4,978,077
Note 3 - Capital Stock - At September 30, 2002, 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 period ended September 30, 2002, the Fund issued no shares under this Plan. 9 NOTICE TO SHAREHOLDERS (Unaudited) At the annual shareholders meeting held on June 20, 2002, shareholders of the Fund re-elected the Directors of the Fund. The results of the shareholder vote were as follows:
Percentage For Candidate for Director For Withheld of Shares Voted ---------------------- --------- -------- --------------- W. Thacher Brown 3,014,715 147,082 95.3% John Gilray Christy 3,121,907 39,890 98.7% Morris Lloyd, Jr. 3,122,782 39,015 98.8% J. Lawrence Shane 3,106,584 55,213 98.3%
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 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 FOURTH FLOOR KING OF PRUSSIA, PA 19406 2701 RENAISSANCE BOULEVARD FOURTH FLOOR KING OF PRUSSIA, PA 19406 CUSTODIAN - ------------------------------- [GRAPHIC OMITTED] FIRST UNION NATIONAL BANK Semi-Annual Report 123 S. BROAD STREET September 30, 2002 PHILADELPHIA, PA 19103 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 - ------------------------------- PRICEWATERHOUSECOOPERS LLP TWO COMMERCE SQUARE, SUITE 1700 2001 MARKET STREET PHILADELPHIA, PA 19103 -----END PRIVACY-ENHANCED MESSAGE-----