<PAGE>
October 14, 1997
TO THE SHAREHOLDER:
The Fund ended the quarter September 30, 1997 with a Net Asset Value of $21.72
per share. This represents a 3.5% increase from $20.99 per share as of June 30,
1997, and a 5.4% increase from $20.61 per share at the end of the March 31, 1997
fiscal year.
In the table below, the performance of the Fund is compared to the average of
the 18 other closed-end bond funds with which we have historically compared
ourselves:
<TABLE>
<CAPTION>
Total Return-Percentage Change in Net Asset Value
Per Share with All Distributions Reinvested(1)
- --------------------------------------------------------------------------------------------------
10 Years 5 Years 2 Years 1 Year Quarter
To 09/30/97 To 09/30/97 To 09/30/97 To 09/30/97 To 09/30/97
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 180.70% 49.96% 18.30% 14.27% 5.29%
Average of 18 Other
Closed-End Bond Funds(2) 161.55% 48.32% 17.73% 11.86% 3.97%
Salomon Bros. Bond Index(3) 190.87% 50.64% 16.81% 12.68% 5.08%
- --------------------------------------------------------------------------------------------------
</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.
The positive total return performance of the Fund in recent months is indicative
of the improvement in bond prices as interest rates have fallen to their lowest
levels of the year. The Fund has been able to participate in the very favorable
markets as evidenced by the performance over the quarter and 12 month periods
relative to both comparable funds and the benchmark index. In response to the
strength of the market, we raised modest cash reserves with Commercial Paper
totaling 2.3% of Net Assets at September 30, 1997. We would expect to redeploy
the reserves into the market as interest rates potentially rise back up in
October.
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>
September 30, 1997 17.4% 2.0% 34.3% 41.2% 4.5% 0.4% 0.3%
June 30, 1997 20.2% 1.3% 32.0% 40.6% 5.2% 0.4% 0.3%
March 31, 1997 22.3% 1.3% 31.9% 34.5% 9.3% 0.4% 0.3%
March 31, 1996 31.4% 1.2% 26.2% 27.4% 9.6% 3.9% 0.3%
- ---------------------------------------------------------------------------------------------
</TABLE>
As evidenced by the table, the Fund's exposure to lower-rated corporate credits
is at its lowest level in some time. We believe that the incremental return for
the extra credit risk is insufficient for any additional allocation at this
time. The currency crisis in Southeast Asia has relatively weakened the bonds of
issuers in that region despite the strong bond markets. During September, the
Fund purchased an issue of Korea Electric Power Co. debt to begin to take
advantage of opportunities for incremental yield and potential total return from
bonds that have been under market pressure. At September 30, 1997, total
exposure was only 0.6% of Net Assets. If market opportunities permit, we would
expect to increase total exposure in that region to approximately 5% of Net
Assets. Such exposure is expected to be limited to sovereign government and
government sponsored or government owned enterprises.
On September 18, 1997, the Board of Directors declared a dividend of $0.38 per
share payable November 4, 1997 to shareholders of record September 30, 1997. We
would like to remind shareholders of the opportunities presented by the Fund's
dividend reinvestment plan. First Chicago Trust, the Fund's Transfer Agent and
Dividend Paying Agent, can be reached at (201) 324-0498.
Sincerely,
/s/ John H. Donaldson
---------------------
John H. Donaldson
President
2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF NET ASSETS SEPTEMBER 30, 1997
(unaudited)
Moody's
Standard &
Poor's
Rating for
Debt Principal Identified Cost Value
Securities Amount (000's) (Note 2) (Note 1)
---------- -------------- --------------- --------
<S> <C> <C> <C> <C>
LONG TERM DEBT SECURITIES (94.47%)
ELECTRIC UTILITIES (10.55%)
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 Bal/BB+ $1,800 $ 1,662,876 $ 1,926,000
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 ........... Baa2/BBB 2,000 2,062,500 2,122,500
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 .................. A2/A+ 1,550 1,475,994 1,730,187
Korea Electric Power, Debs., 7.00%, 02/01/27 .............. A1/AA- 500 484,160 500,625
Niagara Mohawk Power, 8.75%, 04/01/22 ...................... Ba3/BB 1,000 1,028,220 1,037,855
Utilicorp United Inc., Sr. Notes, 9.00%, 11/15/21 ......... Baa3/BBB 1,000 1,090,000 1,102,320
----------- -----------
7,803,750 8,419,487
----------- -----------
FINANCIAL (14.31%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 .......... A3/A 1,000 1,090,125 1,127,500
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27.. Aa3/A- 2,000 2,012,070 2,065,000
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ......... A2/BBB+ 2,000 1,993,370 2,060,000
HSBC America Capital II, Capital Securities, 8.38%, 05/15/27 A2/BBB+ 2,000 2,042,690 2,090,000
JPM Capital Trust II, Capital Securities, 7.95%, 02/01/27.. Aa2/AA- 1,000 986,950 1,025,000
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00........... Ba1/BBB- 1,000 1,150,640 1,095,160
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11........... Ba1/BBB- 1,500 1,634,965 1,957,050
----------- -----------
10,910,810 11,419,710
----------- -----------
INDUSTRIAL & MISCELLANEOUS (36.36%)
Chiquita Brands, Sr. Notes, 10.25%, 11/01/06............... B1/B+ 250 255,625 273,125
Georgia Pacific Corp., Debs., 9.625%, 03/15/22.............. Baa2/BBB- 1,000 1,059,240 1,132,500
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22.......... Baa1/BBB+ 2,000 2,157,020 2,325,000
Harcourt General Inc., Debs., 7.30%, 08/01/2097............ Baa1/BBB+ 1,250 1,245,250 1,226,563
K N Energy Inc., Debs., 8.75%, 10/15/24..................... A3/BBB+ 1,150 1,263,799 1,273,625
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06............ Ba2/BB+ 500 462,650 505,625
May Department Stores Co., Debs., 10.75%, 06/15/18.......... A2/A 150 154,385 158,813
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95..... Baa3/BBB 1,000 898,540 987,500
News America Holdings Inc., Sr. Debs., 10.125%, 10/15/12 ... Baa3/BBB 2,050 2,163,503 2,385,688
North Dakota State Muni. Bond Bank, Water Sys. Rev.,
10.50%, 04/01/14............................................ Aaa/AAA 1,000 1,159,780 1,056,250
Philip Morris Deb., 7.75%, 01/15/27........................ A2/A 3,000 3,007,020 3,052,500
Rohm & Haas Co., Notes, 9.50%, 04/01/21..................... A1/A 1,500 1,494,375 1,672,500
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ....... Baa1/A- 2,000 1,990,780 2,015,000
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ................ A1/A+ 2,000 1,977,920 2,052,500
Time Warner Inc., Debs., 9.15%, 02/01/23 ................... Ba1/BBB- 3,000 3,159,700 3,487,500
TRW, Inc., Notes, 9.25%, 12/30/11........................... A2/A 275 326,312 332,062
TRW, Inc., Notes, 9.375%, 04/15/21.......................... A2/A 303 320,893 377,235
Union Camp Corp., Debs., 9.25%, 02/01/11.................... A1/A- 1,500 1,486,305 1,783,125
Western Atlas Inc., Debs., 8.55%, 06/15/24.................. A3/A- 2,539 2,651,998 2,900,808
----------- -----------
27,235,095 28,997,919
----------- -----------
TELEPHONE & COMMUNICATIONS (6.61%)
Continental Cablevision, 9.50%, 08/01/13 ................... Baa2/BBB+ 1,000 1,120,000 1,166,250
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23........ Ba1/BBB- 2,000 1,991,940 2,149,280
TCI Communications, Inc., Sr. Debs., 8.75%, 02/15/23........ Ba1/BBB- 1,000 1,083,180 1,031,715
U.S. West Communications, Debs., 6.875%, 09/15/33........... Aa3/A 1,000 896,920 928,750
----------- -----------
5,092,040 5,275,995
----------- -----------
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Moody's
Standard &
Poor's
Rating for
Debt Principal Identified Cost Value
Securities Amount (000's) (Note 2) (Note 1)
---------- -------------- --------------- --------
<S> <C> <C> <C> <C>
TRANSPORTATION (11.76%)
AMR Corp., Debs., 10.00%, 04/15/21 .................... Baa3/BBB- $ 2,000 $ 2,148,940 $ 2,530,930
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20 A3/A 1,000 1,000,000 1,545,125
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 .......... A1/A+ 1,000 1,117,790 1,225,000
Ford Motor Co., Debs., 8.875%, 01/15/22 ............... A1/A+ 1,500 1,480,350 1,777,500
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ...... Aaa/AAA 500 551,875 548,750
Missouri Pacific Railroad, Income Debs., 5.00%, 01/01/45 ... Baa3/BBB 1,122 692,960 702,652
Union Pacific Co., Debs., 8.625%, 5/15/22 ............. Baa2/BBB 1,000 1,062,430 1,055,000
----------- -----------
8,054,345 9,384,957
----------- -----------
MORTGAGE BACKED SECURITIES (5.95%)
FNMA Pool #313411, 7.00%, 03/01/04 ................... NR/NR 1,903 1,925,388 1,923,010
GNMA Pool #780374, 7.50%, 12/15/23 .................... NR/NR 865 858,243 882,980
GNMA Pool #417239, 7.00%, 02/15/26 .................... NR/NR 1,943 1,970,685 1,942,758
----------- -----------
4,754,316 4,748,748
----------- -----------
U.S. GOVERNMENT & AGENCIES (8.93%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ................ NR/NR 1,600 2,120,750 2,051,455
U.S. Treasury Bonds, 7.875%, 02/15/21 ................ NR/NR 2,900 2,888,219 3,373,715
U.S. Treasury Bonds, 8.125%, 08/15/21 ................ NR/NR 1,000 1,016,406 1,194,960
FNMA MTN, 7.47%, 07/19/07 ........................... AAA/NR 500 499,141 500,540
----------- -----------
6,524,516 7,120,670
----------- -----------
TOTAL LONG TERM DEBT SECURITIES............................. 70,374,872 75,367,486
----------- -----------
COMMERCIAL PAPER (2.26%)
Ford Motor Credit Corp., 5.74%, 10/02/97 .............. A1/P1 1,800 1,800,000 1,800,000
----------- -----------
Shares
------
INVESTMENT COMPANIES (0.29%)
High Yield Plus Fund ................................ NR/NR 25,000 167,178 234,375
----------- -----------
TOTAL INVESTMENTS (97.02%) ................................. $72,342,050* $77,401,861
===========
OTHER ASSETS AND LIABILITIES (2.98%)........................ 2,378,609
-----------
NET ASSETS (100.00%)........................................ $79,780,470
===========
</TABLE>
* 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
$5,410,860, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value was $351,049.
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (unaudited)
<TABLE>
Assets:
<S> <C>
Investments in securities at value (identified cost $72,342,050) (Note 1)..................... $ 77,401,861
Cash.......................................................................................... 101,913
Investment securities sold receivable......................................................... 2,047,587
Interest receivable........................................................................... 1,535,184
Dividends receivable.......................................................................... 159,801
Prepaid expenses.............................................................................. 4,022
-----------
TOTAL ASSETS................................................................................ 81,250,368
-----------
Liabilities:
Dividends payable ............................................................................ 1,395,838
Accrued expenses payable...................................................................... 74,060
------------
TOTAL LIABILITIES .......................................................................... 1,469,898
------------
Net Assets: (equivalent to $21.72 per share based on 3,673,258 shares of capital
stock outstanding) ........................................................................... $ 79,780,470
============
NET ASSETS consisted of:
Capital paid-in............................................................................... $ 76,078,400
Distributions in excess of net investment income ............................................. (1,509,394)
Accumulated net realized gain ................................................................ 151,653
Net unrealized appreciation of investments.................................................... 5,059,811
------------
$ 79,780,470
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest..................................................................... $ 2,854,197
Dividends.................................................................... 256,427
------------
Total Investment Income ................................................... 3,110,624
------------
Expenses:
Investment advisory fees (Note 4)............................................ $ 220,579
Transfer agent fees.......................................................... 26,578
Insurance.................................................................... 1,134
Directors' fees and expenses................................................. 13,961
Audit fees................................................................... 12,210
State and local taxes........................................................ 11,371
Legal fees and expenses...................................................... 13,503
Reports to shareholders...................................................... 11,469
Custodian fees............................................................... 2,732
Miscellaneous................................................................ 20,923
-------------
Total Expenses............................................................. 334,460
------------
Net Investment Income ................................................... 2,776,164
------------
Realized and unrealized gain on investments (Note 1):
Net realized gain from security transactions................................. 211,845
------------
Unrealized appreciation (depreciation) of investments:
Beginning of period ....................................................... (235,973)
End of period ............................................................. 5,059,811
-------------
Change in unrealized appreciation (depreciation) of investments.......... 5,295,784
------------
Net realized and unrealized gain on investments........................ 5,507,629
------------
Net increase in net assets resulting from operations................... $ 8,283,793
============
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
September 30, 1997 Year Ended
(unaudited) March 31, 1997
------------------ --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................ $ 2,776,164 $ 5,547,419
Net realized gain (loss) from security transactions (Note 2)................. 211,845 (60,192)
Change in unrealized appreciation (depreciation) of investments.............. 5,295,784 (1,719,346)
------------- ------------
Net increase in net assets resulting from operations......................... 8,283,793 3,767,881
------------- ------------
Dividends to shareholders from net investment income............................ (2,776,164) (5,547,419)
Dividends to shareholders in excess of net investment income.................... (1,448,082) (61,312)
Distributions to shareholders from tax return of capital........................ 0 (119,660)
------------- ------------
(4,224,246) (5,728,391)
------------- ------------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5)........................................ 0 100,233
------------- ------------
Increase (decrease) in net assets............................................ 4,059,547 (1,860,277)
Net Assets:
Beginning of period.......................................................... 75,720,923 77,581,200
------------- ------------
End of period................................................................ $ 79,780,470 $ 75,720,923
============= ============
</TABLE>
HOW TO ENROLL IN THE DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan
for the automatic investment of dividends and distributions which all
shareholders of record are eligible to join. The method by which
shares are obtained is explained on page 10. The Fund has appointed
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>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
Six Months Ended
September 30, 1997 Year Ended March 31,
-------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
------------ -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period........... $20.61 $21.15 $20.64 $21.45 $22.27 $21.39
------- ------- ------- ------- ------- ------
Net investment income....................... 0.76 1.51 1.58 1.58 1.61 1.68
Net realized and unrealized gain (loss) on
investments.............................. 1.50 (0.49) 0.61 (0.67) (0.68) 1.36
------- ------- ------- ------- ------- ------
Total from investment operations............... 2.26 1.02 2.19 0.91 0.93 3.04
------- ------- ------- ------- ------- ------
Less distributions
Dividends from net investment income........ (0.76) (1.51) (1.58) (1.58) (1.73) (1.84)
Dividends in excess of net investment
income.................................... (0.39) (0.02) 0.00 (0.01) 0.00 0.00
Distributions from net realized gain........ 0.00 0.00 (0.06) 0.00 0.00 (0.32)
Distributions in excess of net realized
gain...................................... 0.00 0.00 0.00 0.00 (0.02) 0.00
Distributions from tax return of capital.... 0.00 (0.03) (0.04) (0.13) 0.00 0.00
------- -------- ------- ------- ------- -------
Total distributions............................ (1.15) (1.56) (1.68) (1.72) (1.75) (2.16)
------- -------- ------- ------- ------- -------
Net asset value, end of period ................ $21.72 $20.61 $21.15 $20.64 $21.45 $22.27
------- -------- ------- ------- ------- -------
Per share market price, end of period ......... $19.88 $19.75 $21.25 $20.13 $21.13 $24.75
======= ======== ======= ======= ======= =======
Total Investment Return
Based on market value....................... 6.48% 0.28% 13.91% 3.41% (7.72)% 18.91%
Ratios/Supplemental Data
Net assets, end of period (in 000's)........ $79,780 $75,721 $77,581 $75,384 $78,120 $73,595
Ratio of expenses to average net assets
(does not include loan interest
expenses)................................ 0.86%* 0.87% 0.86% 0.86% 0.92% 0.91%
Ratio of net investment income to average
net assets............................... 7.10%* 7.27% 7.37% 7.83% 7.11% 7.95%
Portfolio turnover.......................... 32.21%* 32.83% 43.25% 35.38% 18.91% 68.56%
Number of shares outstanding at end of
period (in 000's)........................... 3,673 3,673 3,668 3,653 3,642 3,304
Amount of bank loans outstanding at end
of period (in 000's)........................ $0 $0 $0 $0 $0 $0
Average amount of bank loans outstanding
during the period (in 000's)................ $0 $0 $0 $0 $0 $46
Amount of maximum month-end bank loans
during the period (in 000's)................ $0 $0 $0 $0 $0 $0
Average amount of bank loans per share
during the period .......................... $0.00 $0.00 $0.00 $0.00 $0.00 $0.01
Weighted average interest rate of bank loans
during the period .......................... 0.00% 0.00% 0.00% 0.00% 0.00% 6.31%
</TABLE>
* Annualized
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 September 30, 1997, the Fund had invested
94.47% of its portfolio in long-term debt obligations of issuers engaged in
electric utilities, financial, telephone and communications, transportation,
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. The
Fund has a net tax basis capital loss carry-forward of approximately $17,000
as of March 31, 1997, which may be applied against any realized net capital
gains of each succeeding fiscal year until fully utilized or until the
expiration date, whichever occurs first. The carry-forward expires on March
31, 2005.
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.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) - continued
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions for the six months ended September 30, 1997:
Proceeds
Cost of from Sales
Purchases or Maturities
--------- -------------
Long Term Debt Securities...... $11,775,695 $13,132,223
Other Securities............... $ 1,800,000 $ 1,900,000
Note 3 -- Capital Stock-- At September 30, 1997, 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.
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 commissions applicable to one such share, equals or exceeds the net
asset value per share, however, if the net asset value is less than 95% of the
market price on the Valuation Date, the shares issued will be valued at 95% of
the market price. If the net asset value per share exceeds market price plus
commissions, the dividend or distribution proceeds are used to purchase Fund
shares on the open market for participants in the Plan. During the six-month
period ended September 30, 1997, the Fund issued no shares under this plan.
9
<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 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 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 GET ASSISTANCE WITH SHARE TRANSFER OR 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
10
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<PAGE>
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
ANNA M. BENCROWSKY
Vice President
and Secretary
MARCIA ZERCOE
Vice President
RHONDA L. McNAVISH
Assistant Vice President
INVESTMENT ADVISOR
- -------------------------------------------------------------------------------
1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER, SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN
- -------------------------------------------------------------------------------
REPUBLIC NATIONAL BANK OF NEW YORK
452 FIFTH AVENUE
NEW YORK, NY 10018
TRANSFER AGENT
- -------------------------------------------------------------------------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
COUNSEL
- -------------------------------------------------------------------------------
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
AUDITORS
- -------------------------------------------------------------------------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
<PAGE>
1838
BOND--DEBENTURE TRADING FUND
----------------------------------------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
Semi-Annual Report
September 30, 1997
