<PAGE>
July 17, 1997
TO THE SHAREHOLDER:
The Fund ended the quarter June 30, 1997 with a Net Asset Value of $20.99 per
share. This represents a 1.8% increase from $20.61 per share at the end of the
March 31, 1997 fiscal year and a 2.7 % increase from $20.44 per share at June
30, 1996.
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 Reinvested1
- ------------------------------------------------------------------------------------------------------------
10 Years 5 Years 2 Years 1 Year Quarter
To 6/30/97 To 6/30/97 To 6/30/97 To 6/30/97 To 6/30/97
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund 2 155.54% 49.18% 14.17% 10.69% 5.68%
Average of 18 Other
Closed-End Bond Funds 2 143.46% 48.97% 15.97% 10.07% 4.30%
Salomon Bros. Bond Index 3 160.00% 50.56% 14.10% 9.33% 5.07%
</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 recent total return of the Fund is particularly gratifying as it comes on
the heels of a modest dividend reduction. On June 19, 1997, the Board of
Directors declared a dividend of $0.38 per share to shareholders of record on
July 2, 1997, payable on August 5, 1997 with receipt of this report. As we
discussed in previous shareholder reports, the primary reason for the reduction
in income and dividend was an aggressive tender offer by the issuer of a high
coupon bond held by the Fund. While recent results cannot be extrapolated into
the future, management continues to believe that emphasis of longer term total
return over shorter term income considerations is in the shareholders best
interest.
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>
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>
The most notable change in the Fund's portfolio quality has been the increase in
BBB rated bonds and corresponding decrease in BB rated bonds. The Fund's
performance has benefited from the improvement in corporate credit quality in
terms of earnings and cash flow that is reflected in the rise in the stock
market. The benefits to the Fund can be as diverse as upgrades in credit ratings
which improve market prices for the securities held by the Fund or increased
cash flow that is used for aggressive retirement of existing debt.
1
<PAGE>
Bond prices have trended higher as yields have fallen in response to a
combination of a slowdown in the economy from the robust 5.9% in the first
quarter of 1997, very benign inflation numbers and the Federal Reserve Bank's
decision not to raise interest rates at two recent meetings. We believe that the
economy is neither as strong as the first quarter's rate nor as weak as current
perception. Correspondingly, we do not believe that interest rates should be
quite as high as the levels seen earlier in the year, nor quite as low as
current levels.
The Board of Directors and Management of the Fund would like to thank all
shareholders who voted their proxies at the recent Annual Meeting. Your
continued support is greatly appreciated.
Sincerely,
/s/ John H. Donaldson
----------------------------
John H. Donaldson
President
2
<PAGE>
SCHEDULE OF NET ASSETS JUNE 30, 1997
(unaudited)
<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>
LONG TERM DEBT SECURITIES (97.19%)
ELECTRIC UTILITIES (9.16%)
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 Ba2/BB$ 1,800 $ 1,662,876 $ 1,856,250
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 ........... Baa2/BBB 2,000 2,062,500 2,072,500
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 .................. A2/A+ 1,550 1,475,994 1,641,063
Niagara Mohawk Power, 8.75%, 04/01/22 ...................... Ba3/BB- 1,000 1,028,220 994,825
Quezon Power Limited, 8.86%, 06/15/17....................... BA1/BB+ 500 500,000 500,000
----------- -----------
6,729,590 7,064,638
----------- -----------
FINANCIAL (14.40%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 .......... A3/A 1,000 1,090,125 1,133,750
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 .. A1/A- 2,000 2,012,070 2,007,500
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ......... A2/BBB+ 2,000 1,993,370 2,015,000
HSBC America Capital II, Capital Securities, 8.38%, 05/15/27 A3/BBB+ 2,000 2,042,690 2,017,500
JPM Capital Trust II, Capital Securities, 7.95%, 02/01/27 .. Aa2/AA- 1,000 986,950 1,002,500
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 .......... Ba1/BBB- 1,000 1,150,640 1,081,870
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 .......... Ba1/BBB- 1,500 1,634,965 1,843,650
----------- -----------
10,910,810 11,101,770
----------- -----------
INDUSTRIAL & MISCELLANEOUS (37.73%)
ADT Operations, Sr. Notes, 9.25%, 08/01/03 ................. Ba3/BB+ 500 520,625 535,000
Chiquita Brands, Sr. Notes, 10.25%, 11/01/06 ............... B1/B+ 250 255,625 266,250
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 ............. Baa2/BBB- 1,000 1,059,240 1,101,250
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ......... Baa1/BBB+ 2,000 2,157,020 2,177,500
K N Energy Inc., Debs., 8.75%, 10/15/24 .................... A3/BBB+ 1,150 1,263,799 1,219,000
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06 ........... Ba2/BB+ 500 462,650 494,375
May Department Stores Co., Debs., 10.75%, 06/15/18 ......... A2/A 150 154,385 159,150
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95 .... Baa3/BBB 1,000 898,540 943,750
News America Holdings Inc., Gtd. Debs., 10.125%, 10/15/12 .. Baa3/BBB 2,050 2,163,503 2,321,625
North Dakota State Muni. Bond Bank, Water Sys. Rev., 10.50%,
04/01/14 ................................................ Aaa/AAA 1,000 1,159,780 1,060,000
Owens Corning Fiberglas, Debs., 9.375%, 06/01/12 ........... Baa3/BBB- 1,690 1,777,510 1,871,675
Philip Morris Deb., 7.75%, 01/15/2027 ...................... A2/A 3,000 3,007,020 2,932,500
Rohm & Haas Co., Notes, 9.50%, 04/01/21 .................... A1/A 1,500 1,494,375 1,653,750
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ....... Baa1/A- 2,000 1,990,780 1,912,500
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ................ A1/A+ 2,000 1,977,920 1,962,500
Time Warner Inc., Debs., 9.15%, 02/01/23 ................... Ba1/BBB- 3,000 3,159,700 3,296,250
TRW Inc., Notes, 9.25%, 12/30/11 ........................... A2/A 275 326,312 321,406
TRW Inc., Notes, 9.375%, 04/15/21 .......................... A2/A 303 320,893 363,600
Union Camp Corp., Debs., 9.25%, 02/01/11 ................... A1/A- 1,500 1,486,305 1,730,625
Western Atlas Inc., Debs., 8.55%, 06/15/24 ................. A3/A- 2,539 2,651,998 2,770,684
----------- -----------
28,287,980 29,093,390
----------- -----------
TELEPHONE & COMMUNICATIONS (6.61%)
Contintental Cablevision, 9.50%, 08/01/13 .................. Baa2/BBB+ 1,000 1,120,000 1,132,500
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ....... Ba1/BBB- 2,000 1,991,940 2,081,350
TCI Communications, Inc., Sr. Debs., 8.75%, 02/15/23 ....... Ba1/BBB- 1,000 1,083,180 998,585
U.S. West Communications, Debs., 6.875%, 09/15/33 .......... Aa3/A 1,000 896,920 886,250
----------- -----------
5,092,040 5,098,685
----------- -----------
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS -- continued JUNE 30, 1997
(unaudited)
<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 (11.78%)
AMR Corp., Debs., 10.00%, 04/15/21 ......................... Baa3/BBB- $ 2,000 $ 2,148,940 $ 2,447,150
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20 A3/A 1,000 1,000,000 1,485,825
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 ................ A1/A+ 1,000 1,117,790 1,181,250
Ford Motor Co., Debs., 8.875%, 01/15/22 .................... A1/A+ 1,500 1,480,350 1,713,750
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ............ Aaa/AAA 500 551,875 541,875
Missouri Pacific Railroad, Income Debs., 5.00%, 01/01/45 Baa3/BBB 1,122 692,960 673,200
Union Pacific Co., Debs., 8.625%, 05/15/22 ................. Baa2/BBB 1,000 1,062,430 1,041,250
----------- -----------
8,054,345 9,084,300
----------- -----------
MORTGAGE BACKED SECURITIES (6.22%)
FNMA Pool # 313411, 7.00%, 03/01/04......................... NR/NR 1,960 1,982,873 1,967,560
GNMA Pool #780374, 7.50%, 12/15/23 ......................... NR/NR 890 882,893 896,104
GNMA Pool #417239, 7.00%, 02/15/26 ......................... NR/NR 1,966 1,994,348 1,931,064
----------- -----------
4,860,114 4,794,728
----------- -----------
U.S. GOVERNMENT & AGENCIES (11.29%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ...................... NR/NR 1,600 2,120,750 2,017,792
U.S. Treasury Bonds, 7.875%, 02/15/21 ...................... NR/NR 2,900 2,888,219 3,232,340
U.S. Treasury Bonds, 8.125%, 08/15/21 ...................... NR/NR 1,000 1,016,406 1,144,790
U.S. Treasury Bonds, 6.25%, 08/15/23 ....................... NR/NR 2,500 2,271,328 2,314,074
----------- -----------
8,296,703 8,708,996
----------- -----------
TOTAL LONG TERM DEBT SECURITIES............................. 72,231,582 74,946,507
----------- -----------
Shares
------
INVESTMENT COMPANIES (0.30%)
High Yield Plus Fund ....................................... NR/NR 25,000 167,178 229,687
----------- -----------
TOTAL INVESTMENTS (97.49%) ................................. $72,398,760* $75,176,194
===========
OTHER ASSETS AND LIABILITIES (2.51%)........................ 1,934,049
-----------
NET ASSETS (100.00%)........................................ $77,110,243
===========
</TABLE>
* The cost for Federal income tax purposes was $72,503,135. The aggregate gross
unrealized appreciation in which there was an excess of market value over tax
cost was $3,600,493, and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value was
$927,434.
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (unaudited)
June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments in securities at value (identified cost $72,398,760) (Note 1)... $75,176,194
Cash........................................................................ 2,278,107
Interest receivable......................................................... 1,574,426
Dividends receivable........................................................ 43,759
Prepaid expenses............................................................ 7,974
-----------
TOTAL ASSETS............................................................. 79,080,460
-----------
Liabilities:
Dividends payable .......................................................... 1,395,838
Securities purchased payable................................................ 500,000
Accrued expenses payable.................................................... 74,379
-----------
TOTAL LIABILITIES ....................................................... 1,970,217
-----------
Net Assets: (equivalent to $20.99 per share based on 3,673,258 shares of capital
stock outstanding) ......................................................... $77,110,243
===========
NET ASSETS consisted of:
Capital paid-in............................................................. $76,078,400
Distributions in excess of net investment income ........................... (1,508,133)
Accumulated net realized loss .............................................. (237,458)
Net unrealized appreciation of investments.................................. 2,777,434
-----------
$77,110,243
===========
STATEMENT OF OPERATIONS (unaudited)
For the three months ended June 30, 1997
Investment Income:
Interest.................................................................... $1,498,301
Dividends................................................................... 48,882
-----------
Total Investment Income ................................................. 1,547,183
-----------
Expenses:
Investment advisory fees (Note 4)........................................... $108,929
Transfer agent fees......................................................... 13,692
Insurance................................................................... 1,134
Directors' fees and expenses................................................ 6,731
Audit fees.................................................................. 6,021
State and local taxes....................................................... 5,961
Legal fees and expenses..................................................... 6,180
Reports to shareholders..................................................... 5,427
Custodian fees.............................................................. 1,188
Miscellaneous............................................................... 10,332
--------
Total Expenses........................................................... 165,595
-----------
Net Investment Income ................................................ 1,381,588
-----------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized loss from security transactions................................ (177,266)
Unrealized appreciation (depreciation) of investments:
Beginning of period ..................................................... (235,973)
End of period ........................................................... 2,777,434
---------
Change in unrealized appreciation of investments...................... 3,013,407
-----------
Net realized and unrealized gain on investments................... 2,836,141
-----------
Net increase in net assets resulting from operations.............. $ 4,217,729
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997 Year Ended
Increase (decrease) in net assets; (unaudited) March 31, 1997
------------------- --------------
<S> <C> <C>
Operations:
Net investment income....................................................... $1,381,588 $5,547,419
Net realized loss from security transactions (Note 2)....................... (177,266) (60,192)
Change in unrealized appreciation (depreciation) of investments............. 3,013,407 (1,719,346)
----------- -----------
Net increase in net assets resulting from operations........................ 4,217,729 3,767,881
----------- -----------
Dividends to shareholders from net investment income............................ (1,381,588) (5,547,419)
Dividends to shareholders in excess of net investment income.................... (1,446,821) (61,312)
Distributions to shareholders from tax return of capital........................ 0 (119,660)
----------- -----------
(2,828,409) (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........................................... 1,389,320 (1,860,277)
Net Assets:
Beginning of period......................................................... 75,720,923 77,581,200
----------- -----------
End of period............................................................... $77,110,243 $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>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Three Months Ended Year Ended March 31,
June 30, 1997 ------------------------------------------------
(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.......................... 0.38 1.51 1.58 1.58 1.61 1.68
Net realized and unrealized gain (loss) on
investments................................ 0.77 (0.49) 0.61 (0.67) (0.68) 1.36
------ ------ ------ ------ ------ ------
Total from investment operations.................. 1.15 1.02 2.19 0.91 0.93 3.04
------ ------ ------ ------ ------ ------
Less distributions
Dividends from net investment income........... (0.38) (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 return of capital........... 0.00 (0.03) (0.04) (0.13) 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions............................... (0.77) (1.56) (1.68) (1.72) (1.75) (2.16)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................... $20.99 $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.......................... 4.56% 0.28% 13.91% 3.41% (7.72)% 18.91%
Ratios/Supplemental Data
Net assets, end of period (in 000's)........... $77,110 $75,721 $77,581 $75,384 $78,120 $73,595
Ratio of expenses to average net assets
(does not include loan interest expenses). 0.87%* 0.87% 0.86% 0.86% 0.92% 0.91%
Ratio of net investment income to average net
assets 7.23%* 7.27% 7.37% 7.83% 7.11% 7.95%
Portfolio Turnover............................. 35.59%* 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
June 30, 1997, the Fund had invested 97.19% 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 three months ended June 30, 1997:
Proceeds
Cost of from Sales
Purchases or Maturities
--------- -------------
Long Term Debt Securities....... $6,721,145 $6,331,851
Other Securities................ $0 $1,900,000
Note 3 -- Capital Stock -- At June 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 three month
period ended June 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 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 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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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
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
[LOGO]
Quarterly Report
June 30, 1997
