<PAGE>
April 11, 1996
TO THE SHAREHOLDER:
Your Fund ended its fiscal year March 31, 1996, with a Net Asset Value of $21.15
per share. This compares to $20.64 per share a year earlier and $22.17 per share
on December 31, 1995.
This quarter was particularly difficult for the bond market. The Fund's Net
Asset Value fell 4.6% for the three-months ended March 31, 1996. Long-term U.S.
Treasury Bonds, as represented by the 6.25% bond due 8/15/23, fell 10.1% in
price during the three-month period. The primary catalyst for the market decline
was the February employment report which showed job growth for the month of
705,000, compared to 1995's monthly average of 144,000 new jobs. This report
ignited fears of increased inflation and a potentially overheating economy that
might result in higher interest rates.
The Fund's performance for the quarter reflected the decline in bond prices and
impacted the longer term results as compared to the average of the 19 other
closed-end bond funds with which we have compared ourselves as shown below:
Total Return-Percentage Change in Net Asset Value
Per Share with All Distributions Reinvested(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
10 Years 5 Years 3 Years 2 Years 1 Year Quarter
To 03/31/96 To 03/31/96 To 03/31/96 To 03/31/96 To 03/31/96 To 03/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 147.02% 61.20% 21.45% 16.05% 10.79% -4.60%
Average of 19 Other 136.94% 61.27% 22.47% 17.21% 12.50% -1.79%
Closed-End Bond Funds(2)
Salomon Bros. Bond Index(3) 151.12% 63.07% 22.53% 19.68% 13.60% -4.86%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 - This is historical information and should not be construed as indicative
of any likely future performance.
2 - Source: Lipper Analytical Services Corporation.
3 - Comprised of long-term AAA and AA corporate bonds; series has been
changed to include mortgage-backed securities.
Management of the Fund is not pleased with these shorter term results, but
believes that a 10% drop in bond prices within a three-month period is
excessive. The portfolio remains essentially fully invested, net of funds for
dividend payments. We expect an unwinding of the excessive market pessimism
given that other economic fundamentals remain more positive for the bond market
as inflation remains low, as confirmed by the March data. GDP growth continues
to remain within the Federal Reserve's targets and sentiment indicators, such as
the Purchasing Manager's survey, show less enthusiasm for the economy.
1
<PAGE>
The table below updates the portfolio quality of the Fund's assets.
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1996 31.4% 1.2% 26.2% 27.4% 9.6% 3.9% 0.3%
December 31, 1995 29.7% 0.0% 25.0% 30.7% 8.8% 5.5% 0.3%
March 31, 1995 34.3% 3.7% 20.5% 34.5% 5.5% 1.3% 0.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund's assets have been upgraded modestly during the quarter in order to be
able to reduce credit risk while positioning the portfolio to be able to fully
participate in a market rally.
On April 4, 1996, the Board of Directors declared a dividend of $0.39 per share,
payable April 30, 1996, to shareholders of record on April 11, 1996. This
represents a $0.02 reduction from the previous payment level. The Fund did have
a redemption of $2,000,000 Occidental Petroleum bonds with an 11.75% coupon on
March 15, 1996. As we discussed in previous communications, the dividend is very
dependent upon the prevailing level of interest rates as bonds mature or are
redeemed. Even with the backup in interest rates this quarter, that high a
coupon is simply irreplaceable in the income stream for the Fund without
materially compromising longer term return objectives.
Management and the Board of the Fund appreciate your continued confidence during
these difficult few months and we hope the market will reflect more positive
results in the future.
Sincerely,
/s/ John H. Donaldson
----------------------------
John H. Donaldson
President
2
<PAGE>
SCHEDULE OF NET ASSETS MARCH 31, 1996
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal
Rating for Amount (000's)
Debt or Number Identified Cost Value
Securities+ of Shares (Note 2) (Note 1)
----------- --------- -------- --------
LONG TERM DEBT SECURITIES (95.37%)
ELECTRIC UTILITIES (12.50%)
<S> <C> <C> <C> <C>
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 Ba2/BB $1,800 $1,662,876 $1,611,000
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 ......... Baa2/BBB 2,000 2,062,500 2,175,000
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 ................. A2/A+ 1,550 1,475,994 1,623,625
K N Energy Inc., Debs., 8.75%, 10/15/24 .................. A2/A- 1,150 1,263,798 1,226,187
Niagara Mohawk Power, 8.75, 04/01/22 ..................... Ba1/BB 1,000 1,028,220 907,980
Toledo Edison Co., Debs., 8.70%, 09/01/02 ................. B1/B+ 500 486,430 440,625
Utilicorp United Inc., Senior Notes, 10.50%, 12/01/20 ..... Baa3/BBB 1,500 1,560,938 1,715,625
--------- ---------
9,540,756 9,700,042
--------- ---------
TELEPHONE UTILITIES (1.15%)
U.S. West Communications, Debs., 6.875%, 09/15/33 ........ Aa3/AA- 1,000 896,920 891,250
--------- ---------
FINANCIAL (3.53%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 ........ A3/A- 1,000 1,090,125 1,196,250
Leucadia National Corp., Senior Sub. Notes, 10.375%, 06/15/02 Ba1/BBB 550 549,775 591,250
Leucadia National Corp., Senior Notes, 7.75%, 08/15/13 .... Baa3/BBB+ 1,000 990,000 950,000
--------- ---------
2,629,900 2,737,500
--------- ---------
INDUSTRIAL & MISCELLANEOUS (51.76%)
AMR Corp., Debs., 10.00%, 04/15/21 ........................ Baa3/BB+ 2,000 2,148,940 2,375,120
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20 A3/A- 1,000 1,000,000 1,463,185
Columbia/HCA Healthcare, Debs., 7.50%, 11/15/95 ........... A3/BBB+ 2,850 2,972,778 2,689,688
Ford Holdings, Gtd. Debs, 9.375%, 03/01/20 ............... A1/A+ 1,000 1,117,790 1,187,500
Ford Motor Co., Debs., 8.875%, 01/15/22 ................... A1/A+ 1,500 1,480,350 1,710,000
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 ............ Baa2/BBB- 1,000 1,059,240 1,071,250
Greater Orlando Aviation Auth., 8.20%, 10/01/12 .......... Aaa/AAA 500 551,875 512,840
Harnischfeger Industries, Inc., Debs., 7.25%, 12/15/25 ... Baa2/BBB 1,900 1,871,215 1,748,000
May Department Stores Co., Debs., 10.75%, 06/15/18 ........ A2/A 150 154,385 160,594
Missouri Pacific Railroad, Income Debs., 5.00%, 01/01/45 .. Baa2/A- 1,122 692,960 681,615
News America Holdings Inc., Gtd. Debs., 10.125%, 10/15/12 . Baa3/BBB 2,050 2,163,503 2,303,687
North Dakota State Municipal Bond Bank, Water Sys. Rev.,
10.50%, 04/01/14 ....................................... Aaa/AAA 1,000 1,159,780 1,090,000
Owens Corning Fiberglas, Debs., 9.375%, 06/01/12 .......... Baa3/BBB- 1,140 1,157,140 1,279,650
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 ......... Ba3/B+ 1,000 1,150,640 1,028,750
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ......... Ba3/B+ 1,500 1,634,965 1,535,625
Pope & Talbot Inc., Debs., 8.375%, 06/01/13 ............... Ba2/BB+ 1,750 1,699,110 1,627,500
Province of Quebec, Debs., 7.50% 07/15/23 ................ A2/A+ 1,000 978,510 968,750
Rohm & Haas Co., Notes, 9.50%, 04/01/21 ................... A1/A 1,500 1,494,375 1,680,000
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ..... Baa1/A- 2,000 1,990,780 1,882,500
TCI Communications Inc., Senior Debs., 9.25%, 01/15/23 .... Baa3/BBB- 2,000 1,991,940 2,064,020
TCI Communications Inc., Senior Debs., 8.75%, 02/15/23 .... Baa3/BBB- 1,000 1,083,180 986,290
Texaco Capital Inc., Debs., 7.50%, 03/01/43 .............. A1/A+ 2,000 1,977,920 1,960,000
Time Warner Inc., Debs., 9.125%, 01/15/13 ................ Ba1/BBB- 1,000 1,116,220 1,077,500
Time Warner Inc., Debs., 9.15%, 02/01/23 .................. Ba1/BBB- 1,000 1,030,020 1,070,000
TRW Inc., Notes, 9.375%, 04/15/21 ........................ A2/A 303 320,893 370,039
Union Camp Corp., Debs., 9.25%, 02/01/11 .................. A1/A- 1,500 1,486,305 1,730,625
Union Pacific Co., Debs., 8.625%, 05/15/22 ............... A3/A- 1,000 1,062,430 1,057,500
Viacom Inc., Gtd. Senior Notes, 7.75%, 06/01/05 ........... Ba2/BB+ 750 784,973 749,062
Western Atlas Inc., Debs., 8.55%, 06/15/24 ............... Baa1/A- 939 935,865 1,007,078
Williams Cos. Inc., Debs., 8.875%, 09/15/12 ............... Baa2/BBB- 1,000 974,870 1,085,000
---------- ---------
39,242,952 40,153,368
---------- ---------
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS -- continued MARCH 31, 1996
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal
Rating for Amount (000's)
Debt or Number Identified Cost Value
Securities+ of Shares (Note 2) (Note 1)
----------- --------- -------- --------
<S> <C> <C> <C> <C>
MORTGAGE SECURITIES (8.57%)
CMSI Collateralized Mtge. Oblig., Series 1994-7 A4, 6.25%,
04/25/24 ............................................... Aaa/AAA $1,000 $801,477 $852,500
FHLMC Collateral Mtge. Oblig., Series 40-F, 10.00%, 05/15/20 NR/NR 600 660,000 661,867
FNMA Collateral Mtge. Oblig., Series 1989 50-G, 8.60%, 08/25/19 NR/NR 1,000 1,065,937 1,034,231
FNMA Collateral Mtge. Oblig., Series G-8 E, 9.00%, 04/25/21 NR/NR 2,000 2,143,750 2,109,355
GNMA Pool # 417239, 7.00%, 02/15/26 ...................... NR/NR 2,038 2,067,477 1,986,587
---------- ----------
6,738,641 6,644,540
---------- ----------
U.S. GOVERNMENT & AGENCIES (17.86%)
U.S. Treasury Bonds, 10.75%, 08/15/05 .................... NR/NR 1,600 2,120,750 2,077,040
U.S. Treasury Bonds, 7.875%, 02/15/21 .................... NR/NR 2,900 2,888,219 3,239,213
U.S. Treasury Bonds, 8.125%, 08/15/21 .................... NR/NR 1,000 1,016,406 1,147,670
U.S. Treasury Bonds, 6.25%, 08/15/23 ..................... NR/NR 8,000 7,479,317 7,395,039
---------- ----------
13,504,692 13,858,962
---------- ----------
TOTAL LONG TERM DEBT SECURITIES............................. 72,553,861 73,985,662
---------- ----------
COMMERCIAL PAPER (2.25%)
General Electric Capital Corp., 5.20%, 04/03/96 ........... A-1+/P-1 1,745 1,744,496 1,744,496
---------- ----------
INVESTMENT COMPANIES (0.28%)
High Yield Plus Fund .................................... NR/NR 25,000 167,178 218,750
---------- ----------
TOTAL INVESTMENTS (97.90%) ................................. $74,465,535* $75,948,908
=========== ----------
CASH AND OTHER ASSETS, LESS LIABILITIES (2.10%)............. 1,632,292
----------
NET ASSETS (100.00%)........................................ $77,581,200
===========
</TABLE>
+ The Moody's/Standard & Poor's rating for debt securities is not covered by
the Report of Independent Accountants.
* Also the cost for Federal income tax purposes. The aggregate gross
unrealized appreciation in which there was an excess of market value over
tax cost was $3,453,519, and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value
was $1,970,146.
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities at value (identified cost $74,465,535)(Note 1)...................... $75,948,908
Cash.......................................................................................... 1,122
Interest receivable........................................................................... 1,673,351
Dividends receivable.......................................................................... 1,750
Prepaid expenses.............................................................................. 19,195
-----------
TOTAL ASSETS............................................................................... 77,644,326
Liabilities:
Accrued expenses payable...................................................................... 63,126
-----------
Net Assets: (equivalent to $21.15 per share based on 3,668,407 shares of capital
stock outstanding) $77,581,200
===========
NET ASSETS consisted of:
Capital paid-in............................................................................... $76,097,827
Net unrealized appreciation of investments.................................................... 1,483,373
-----------
$77,581,200
===========
STATEMENT OF OPERATIONS
For the year ended March 31, 1996 Investment Income:
Interest..................................................................... $6,455,751
Dividends.................................................................... 21,250
-----------
Total Investment Income................................................... 6,477,001
-----------
Expenses:
Investment advisory fees (Note 4)............................................ $449,491
Transfer agent fees.......................................................... 52,188
Insurance.................................................................... 11,825
Directors' fees and expenses................................................. 27,000
Audit fees................................................................... 24,603
State and local taxes........................................................ 22,155
Legal fees and expenses...................................................... 11,758
Reports to shareholders...................................................... 18,926
Custodian fees............................................................... 4,199
Miscellaneous................................................................ 53,246
-------
Total Expenses............................................................ 675,391
-----------
Net Investment Income.................................................. 5,801,610
-----------
Realized and unrealized gain on investments (Note 1):
Net realized gain from security transactions................................. 1,176,590
-----------
Unrealized appreciation of investments:
Beginning of year......................................................... 438,534
End of year............................................................... 1,483,373
---------
Change in unrealized appreciation of investments....................... 1,044,839
-----------
Net realized and unrealized gain on investments..................... 2,221,429
-----------
Net increase in net assets resulting from operations................ $8,023,039
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1996 March 31, 1995
-------------- --------------
Increase (decrease) in net assets:
<S> <C> <C>
Operations:
Net investment income........................................................ $5,801,610 $5,780,031
Net realized gain (loss) from security transactions (Note 2)................. 1,176,590 (928,365)
Change in unrealized appreciation (depreciation) of investments.............. 1,044,839 (1,541,820)
---------- ----------
Net increase in net assets resulting from operations......................... 8,023,039 3,309,846
---------- ----------
Dividends to shareholders from net investment income............................ (5,801,610) (5,780,031)
Dividends to shareholders in excess of net investment income.................... 0 (27,253)
Dividends to shareholders from net realized gains............................... (220,972) 0
Distributions to shareholders from return of capital............................ (127,447) (468,712)
---------- ----------
(6,150,029) (6,275,996)
---------- ----------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5)....................................... 324,089 230,025
---------- ----------
Increase (decrease) in net assets............................................ 2,197,099 (2,736,125)
Net Assets:
Beginning of year............................................................ 75,384,101 78,120,226
----------- -----------
End of year.................................................................. $77,581,200 $75,384,101
=========== ===========
</TABLE>
||============================================================================||
|| HOW TO ENROLL IN THE DIVIDEND REINVESTMENT PLAN ||
|| ||
|| 1838 Bond-Debenture Trading Fund (the "Fund") has established a plan ||
|| for the automatic investment of dividends and distributions which ||
|| all shareholders of record are eligible to join. The method by which ||
|| shares are obtained is explained on page 11. The Fund has appointed ||
|| First Chicago Trust Company of New York to act as the Agent of each ||
|| shareholder electing to participate in the plan. Information and ||
|| application forms are available from First Chicago Trust Company of ||
|| New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500. ||
||============================================================================||
See notes to financial statements.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year............. $20.64 $21.45 $22.27 $21.39 $20.27
------ ------ ------ ------ ------
Net investment income....................... 1.58 1.58 1.61 1.68 1.83
Net realized and unrealized gain (loss) on
investments.............................. 0.61 (0.67) (0.68) 1.36 1.12
------ ------ ------ ------ ------
Total from investment operations............... 2.19 0.91 0.93 3.04 2.95
------ ------ ------ ------ ------
Less distributions
Dividends from net investment income........ (1.58) (1.58) (1.73) (1.84) (1.83)
Dividends in excess of net investment income 0.00 (0.01) 0.00 0.00 0.00
Distributions from net realized gain........ (0.06) 0.00 0.00 (0.32) 0.00
Distributions in excess of net realized gain 0.00 0.00 (0.02) 0.00 0.00
Distributions from return of capital........ (0.04) (0.13) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions............................ (1.68) (1.72) (1.75) (2.16) (1.83)
------ ------ ------ ------ ------
Net asset value, end of year................... $21.15 $20.64 $21.45 $22.27 $21.39
====== ====== ====== ====== ======
Per share market price, end of year............ $21.25 $20.13 $21.13 $24.75 $22.63
====== ====== ====== ====== ======
Total Investment Return
Based on market value....................... 13.91% 3.41% (7.72)% 18.91% 14.41%
Ratios/Supplemental Data
Net assets, end of year (in 000's).......... $77,581 $75,384 $78,120 $73,595 $56,163
Ratio of expenses to average net assets
(does not include loan interest expenses) 0.86% 0.86% 0.92% 0.91% 0.97%
Ratio of net investment income to average
net assets............................... 7.37% 7.83% 7.11% 7.95% 8.85%
Portfolio Turnover....................... 43.25% 35.38% 18.91% 68.56% 73.11%
Number of shares outstanding at end of
year (in 000's)............................. 3,668 3,653 3,642 3,304 2,626
Amount of bank loans outstanding at end
of year (in 000's).......................... $0.00 $0 $0 $0 $1,679
Average amount of bank loans outstanding
during the year (in 000's).................. $0.00 $0 $0 $46 $299
Amount of maximum month-end bank loans
during the year (in 000's).................. $0.00 $0 $0 $0 $2,171
Average amount of bank loans per share
during the year............................. $0.00 $0.00 $0.00 $0.01 $0.11
Weighted average interest rate of bank loans
during the year............................. 0.00% 0.00% 0.00% 6.31% 5.42%
</TABLE>
TAX INFORMATION (Unaudited)
The Fund paid distributions of $6,022,582 from investment income (representing
$1.64 per share) taxable as ordinary income and $127,447 from return of capital
(representing $0.04 per share) for the Fund's tax period April 1, 1995 through
March 31, 1996.
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Significant Accounting Policies -- The 1838 Bond-Debenture Trading
Fund ("the Fund") is registered under the Investment Company Act of 1940, as
amended, as a diversified closed-end management investment company. The
following is a summary of significant accounting policies consistently followed
by the Fund in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security Valuation -- Securities which are primarily traded in the
over-the-counter market are valued at the mean of the bid prices on the
last business day of the period generally obtained from at least two
dealers regularly making a market in the security. Securities which are
primarily traded on a national securities exchange are valued at the last
reported sales price. The Fund believes that, because of the size of its
position in securities, the primary market for the listed debt securities
in its portfolio is the over-the-counter market. Short-term money market
instruments which have a maturity of more than 60 days are valued at the
mean bid prices for securities of a similar type, yield and maturity
obtained from at least two dealers. Short-term money market instruments
which have a maturity of 60 days or less are valued at amortized cost which
approximates market value. At March 31, 1996, the Fund had invested 95.37%
of its portfolio in long-term debt obligations of issuers engaged in
electric utilities, telephone utilities, financial, industrial and other
miscellaneous activities. The issuers' ability to meet these obligations
may be affected by economic developments in their respective industries.
B. Determination of Gains or Losses on Sale of Securities -- Gains or losses
on the sale of securities are calculated for accounting and tax purposes on
the identified cost basis.
C. Federal Income Taxes -- It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
D. Other -- Security transactions are accounted for on the date the securities
are purchased or sold. The Fund records interest income on the accrual
basis. In computing net investment income, the Fund does not amortize
premiums or accrue discounts on fixed income securities in the portfolio.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
E. Distributions to Shareholders -- Distributions of net investment income
will be made quarterly. Distributions of net capital gains realized will be
made annually. Income distributions and capital gain distributions are
determined in accordance with U.S. Federal Income Tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments in market discount and mortgage
backed securities.
F. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of
the financial statements and the reported amounts of revenues 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 for the year ended March 31, 1996:
Proceeds
Cost of from Sales
Purchases or Maturities
--------- -------------
Long Term Debt Securities........... $34,251,892 $31,999,126
Other Securities.................... $3,343,740 $5,650,000
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
Note 3 -- Capital Stock -- At March 31, 1996, there were 10,000,000 shares of
capital stock ($1.00 par value) authorized.
Note 4 -- Investment Advisory Contract and Payments to Affiliated Persons --
Under the terms of the current contract with 1838 Investment Advisors, L.P.,
advisory fees are paid monthly to the Investment Advisor at an annual rate of
5/8 of 1% on the first $40 million of the Fund's month end net assets and 1/2 of
1% on the excess.
Certain directors and officers of the Fund are also directors, officers and/or
employees of the Investment Advisor or its corporate general partner, 1838
Investment Advisors, Inc. None of the directors so affiliated receives
compensation for his services as a director of the Fund. Similarly, none of the
Fund's officers receives compensation from the Fund. Legal fees aggregating
$3,841 during the year ended March 31, 1996 were paid to Stradley, Ronon,
Stevens & Young of which the Secretary of the Fund is a partner.
Note 5 -- Dividend and Distribution Reinvestments -- 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 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 commisions 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 year ended
March 31, 1996, the Fund issued 15,369 shares under this Plan.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
1838 Bond-Debenture Trading Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of net assets, of 1838 Bond-Debenture Trading Fund as of March 31,
1996, 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 five 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. Our procedures included confirmation of securities owned as of March
31, 1996, by correspondence with the custodian and brokers. 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, 1996, 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 its financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 16, 1996
10
<PAGE>
DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan for the
automatic investment of dividends and distributions (the "Plan") pursuant to
which dividends and capital gain distributions to shareholders will be paid in
or reinvested in additional shares of the Fund. All shareholders of record are
eligible to join the Plan. First Chicago Trust Company of New York acts as 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 commisions 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 commisions 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 the 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 First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey, 07303-2500.
||============================================================================||
|| HOW TO ASSISTANCE WITH SHARE TRANSFER OF DIVIDENDS ||
|| ||
|| Contact Your Transfer Agent, First Chicago Trust Company of New York, ||
|| P.O. Box 2500, Jersey City, New Jersey 07303-2500, or call 201-324-0498 ||
||============================================================================||
11
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DIRECTORS
- -------------------------------------------
W. THACHER BROWN
JOHN GILRAY CHRISTY
JOHN H. DONALDSON
MORRIS LLOYD, JR.
JOHN J. McELROY, III
J. LAWRENCE SHANE
OFFICERS
- -------------------------------------------
JOHN H. DONALDSON
President
KEVIN D. BARRY
Vice President 1838
ANNA M. BENCROWSKY BOND--DEBENTURE TRADING FUND
Vice President ---------------------
and Assistant Secretary FIVE RADNOR CORPORATE CENTER,
MARCIA ZERCOE SUITE 320
Vice President 100 MATSONFORD ROAD
JOSEPH V. DEL RASO RADNOR, PA 19087
Secretary GRAPHIC
Annual Report
INVESTMENT ADVISOR March 31, 1996
- -------------------------------------------
1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER, SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN AND
TRANSFER AGENT
- -------------------------------------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
COUNSEL
- -------------------------------------------
STRADLEY, RONON, STEVENS & YOUNG
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
AUDITORS
- -------------------------------------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
