<PAGE>
January 10, 1997
TO THE SHAREHOLDER:
The Fund ended the quarter December 31, 1996, with a Net Asset Value of $20.99
per share. This represents a 2.7% increase from the $20.44 Net Asset Value per
share three months earlier. On December 12, 1996, the Board of Directors
declared a dividend of $0.39 per share payable January 20, 1997, with receipt of
this report.
The performance of the Fund is compared below to the average of the 19 other
closed-end bond funds with which we have historically compared ourselves:
Total Return-Percentage Change in Net Asset Value
Per Share with All Distributions Reinvested(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
10 Years 5 Years 2 Years 1 Year Quarter
To 12/31/96 To 12/31/96 To 12/31/96 To 12/31/96 To 12/31/96
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 145.42% 51.16% 25.02% 2.12% 4.60%
Average of 19 Other
Closed-End Bond Funds(2) 135.89% 50.39% 25.77% 4.34% 3.66%
Salomon Bros. Bond Index(3) 147.34% 50.52% 28.97% 1.39% 4.36%
- ------------------------------------------------------------------------------------------------------------
</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.
Long-term interest rates which have fallen slightly more than 0.25% during the
last three months, are essentially unchanged from the Fund's fiscal year-end on
March 31, 1996 and have risen 0.70% since a year ago. At December 31, 1996, the
Fund held approximately 2.5% in cash reserves, which have helped cushion the
Fund's sensitivity to the rise in interest rates that has taken place since the
end of November. At this writing, with long-term U.S. Treasury bond yields at
6.9%, the Fund has recommitted those cash reserves back into longer maturities
as we believe these higher yields represent an investment opportunity.
The table below updates the portfolio quality of the Fund's assets:
Percent of Total Investment (Standard & Poor's Ratings)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
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>
December 31, 1996 28.4% 0.0% 26.4% 34.9% 9.6% 0.4% 0.3%
September 30, 1996 29.4% 0.0% 26.1% 32.9% 11.3% 0.0% 0.3%
June 30, 1996 28.2% 0.0% 31.5% 25.5% 14.5% 0.0% 0.3%
March 31, 1996 31.4% 1.2% 26.2% 27.4% 9.6% 3.9% 0.3%
March 31, 1995 34.3% 3.7% 20.5% 34.5% 5.5% 1.3% 0.3%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
We have continued to modestly upgrade the portfolio, reducing the total exposure
to BB and B credits as we do not believe current market yield spreads fully
compensate investors for incremental credit risk.
Recently, we have received several phone calls from shareholders regarding the
Fund's listing on the New York Stock Exchange (NYSE) or in their local
newspapers. The Fund's symbol on the NYSE is BDF and the usual newspaper listing
is alphabetical as though "Eighteen..." is spelled out. We welcome any
shareholder inquiries on these or other matters.
Sincerely,
/s/ John H. Donaldson
----------------------------------
John H. Donaldson
President
2
<PAGE>
DECEMBER 31, 1996
SCHEDULE OF NET ASSETS
(unaudited)
<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>
LONG TERM DEBT SECURITIES (97.18%)
ELECTRIC UTILITIES (10.71%)
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 Ba2/BB $1,800 $1,662,876 $1,800,000
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 ........... Baa2/BBB 2,000 2,062,500 2,120,000
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 .................. A2/A+ 1,550 1,475,993 1,672,062
Niagara Mohawk Power, 8.75, 04/01/22 ...................... Ba3/BB- 1,000 1,028,220 944,865
Utilicorp United Inc., Sr. Notes, 10.50%, 12/01/20 ......... Baa3/BBB 1,500 1,560,938 1,717,500
---------- ----------
7,790,527 8,254,427
---------- ----------
TELEPHONE UTILITIES (1.15%)
U.S. West Communications, Debs., 6.875%, 09/15/33........... Aa3/A+ 1,000 896,920 890,000
---------- ----------
FINANCIAL (6.81%)
Chase Capital Corp., 7.67%, 12/01/26 ...................... A3/BBB+ 500 500,000 490,625
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 ......... A3/A- 1,000 1,090,125 1,161,250
FBS Capital I, Capital Securities, 8.09%, 11/15/26 ......... A2/BBB+ 1,000 1,000,000 1,012,500
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 .......... Bb1/BBB- 1,000 1,150,640 1,028,750
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 .......... B2/BBB- 1,500 1,634,965 1,558,125
---------- ----------
5,375,730 5,251,250
---------- ----------
INDUSTRIAL & MISCELLANEOUS (52.91%)
ADT Operations, Sr. Notes, 9.25%, 08/01/03 ................ Ba3/BB+ 500 520,625 533,750
AMR Corp., Debs., 10.00%, 04/15/21 ......................... Baa3/BB+ 2,000 2,148,940 2,486,750
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20 A3/A- 1,000 1,000,000 1,518,210
Chiquita Brands, Sr. Notes, 10.25%, 11/01/06 ............... B1/B+ 250 255,625 266,250
Columbia-HCA Healthcare, Gtd. Debs., 7.50%, 11/15/95 ....... A2/A- 2,850 2,972,778 2,810,813
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 ................ A1/A+ 1,000 1,117,790 1,196,250
Ford Motor Co., Debs., 8.875%, 01/15/22 .................... A1/A+ 1,500 1,480,350 1,726,875
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 ............. Baa2/BBB- 1,000 1,059,240 1,097,500
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ..... ...... Aaa/AAA 500 551,875 549,375
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 ......... Baa1/BBB+ 2,000 2,157,020 2,217,500
Harnischfeger Industries, Inc., Debs., 7.25%, 12/15/25 Baa2/BBB 2,000 1,962,952 1,847,500
K N Energy Inc., Debs., 8.75%, 10/15/24 .................... A3/BBB+ 1,150 1,263,799 1,242,000
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06 ........... Ba3/BB+ 500 462,650 491,250
May Department Stores Co., Debs., 10.75%, 06/15/18.......... A2/A 150 154,385 160,016
Missouri Pacific Railroad, Income Debs., 5.00%, 01/01/45 ... Baa2/BBB 1,122 692,960 685,823
News America Holdings Inc., Gtd. Debs., 10.125%, 10/15/12 .. Baa3/BBB 2,050 2,163,503 2,326,750
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95 .... Baa3/BBB 1,000 898,540 942,500
North Dakota State Muni. Bond Bank, Water Sys. Rev., 10.50%,
04/01/14 ................................................ Aaa/AAA 1,000 1,159,780 1,075,000
Owens Corning Fiberglas, Debs., 9.375%, 06/01/12 ........... Baa3/BBB- 1,640 1,720,905 1,840,900
Pope & Talbot Inc., Debs., 8.375%, 06/01/13 ................ Ba2/BB+ 1,000 970,920 933,750
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 1,912,500
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ....... Ba1/BBB- 2,000 1,991,940 1,968,900
TCI Communications, Inc., Sr. Debs., 8.75%, 02/15/23 ....... Ba1/BBB- 1,000 1,083,180 942,925
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ................ A1/A+ 2,000 1,977,920 2,000,000
Time Warner Inc., Debs., 9.15%, 02/01/23 ................... Ba1/BBB- 2,000 2,050,000 2,167,500
TRW Inc., Notes, 9.375%, 04/15/21 .......................... A2/A 303 320,893 370,417
Union Camp Corp., Debs., 9.25%, 02/01/11 ................... A1/A- 1,500 1,486,305 1,751,250
Union Pacific Co., Debs., 8.625%, 05/15/22 ................. Baa2/BBB 1,000 1,062,430 1,048,750
Western Atlas Inc., Debs., 8.55%, 06/15/24 ................. A3/A- 939 935,865 1,010,599
---------- ----------
39,108,325 40,794,103
</TABLE>
See notes to financial statements.
3
<PAGE>
DECEMBER 31, 1996
SCHEDULE OF NET ASSETS
(unaudited)
<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 BACKED SECURITIES (7.36%)
FHLMC Collateralized Mtge. Oblig., Ser. 40-F, 10.00%,
05/15/20 ............................................... NR/NR $600 $660,000 $661,120
FNMA Collateralized Mtge. Oblig., Ser. G-8 E, 9.00%,
04/25/21 ............................................... NR/NR 2,000 2,143,750 2,107,409
GNMA Pool #780374, 7.50%, 12/15/23 ......................... NR/NR 939 931,034 942,326
GNMA Pool #417239, 7.00%, 02/15/26 ......................... NR/NR 2,003 2,031,981 1,958,739
---------- -----------
5,766,765 5,669,594
---------- -----------
U.S. GOVERNMENT & AGENCIES (18.24%)
U.S. Treasury Bonds, 6.125%, 08/31/98 ...................... NR/NR 1,000 1,007,031 1,004,510
U.S. Treasury Bonds, 10.75%, 08/15/05 ...................... NR/NR 1,600 2,120,750 2,053,168
U.S. Treasury Bonds, 7.875%, 02/15/21 ...................... NR/NR 2,900 2,888,219 3,279,900
U.S. Treasury Bonds, 8.125%, 08/15/21 ...................... NR/NR 1,000 1,016,406 1,160,540
U.S. Treasury Bonds, 6.25%, 08/15/23 ....................... NR/NR 7,000 6,740,117 6,564,949
---------- -----------
13,772,523 14,063,067
---------- -----------
TOTAL LONG TERM DEBT SECURITIES ........................... 72,710,790 74,922,441
---------- -----------
INVESTMENT COMPANIES (0.30%)
High Yield Plus Fund ................................ NR/NR 25,000 167,178 231,250
---------- -----------
TOTAL INVESTMENTS (97.48%) ................................. $72,877,968* $75,153,691
=========== -----------
OTHER ASSETS AND LIABILITIES (2.52%)........................ 1,945,534
-----------
NET ASSETS (100.00%)........................................ $77,099,225
===========
</TABLE>
* Also the cost for Federal income tax purposes. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $3,747,427, and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$1,471,704.
Seee notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments in securities at value (identified cost $72,877,968) (Note 1)................... $75,153,691
Cash ...................................................................................... 1,913,392
Interest receivable......................................................................... 1,500,713
Dividends receivable........................................................................ 15,533
------------
TOTAL ASSETS.............................................................................. 78,583,329
------------
Liabilities:
Dividends payable .......................................................................... 1,432,571
Accrued expenses payable.................................................................... 51,533
------------
TOTAL LIABILITIES ........................................................................ 1,484,104
------------
Net Assets: (equivalent to $20.99 per share based on 3,673,258 shares of capital
stock outstanding) ......................................................................... $77,099,225
============
NET ASSETS consisted of:
Capital paid-in............................................................................. $76,198,060
Distributions in excess of net investment income ........................................... (1,547,387)
Accumulated net realized gain .............................................................. 172,829
Net unrealized appreciation of investments.................................................. 2,275,723
------------
$77,099,225
============
STATEMENT OF OPERATIONS (unaudited)
For the nine months ended December 31, 1996
Investment Income:
Interest..................................................................... $4,642,186
Dividends.................................................................... 26,742
------------
Total Investment Income ................................................... 4,668,928
------------
Expenses:
Investment advisory fees (Note 4)............................................ $323,203
Transfer agent fees.......................................................... 41,040
Insurance.................................................................... 9,743
Directors' fees and expenses................................................. 20,342
Audit fees................................................................... 19,281
State and local taxes........................................................ 16,661
Legal fees and expenses...................................................... 8,725
Reports to shareholders...................................................... 14,337
Custodian fees............................................................... 3,322
Miscellaneous................................................................ 31,269
------------
Total Expenses............................................................. 487,923
------------
Net Investment Income ................................................... 4,181,005
------------
Realized and unrealized gain on investments (Note 1):
Net realized gain from security transactions................................. 172,829
Unrealized appreciation of investments:
Beginning of period ....................................................... 1,483,373
End of period ............................................................. 2,275,723
------------
Change in unrealized appreciation of investments......................... 792,350
------------
Net realized and unrealized gain on investments........................ 965,179
------------
Net increase in net assets resulting from operations................... $5,146,184
============
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1996 Year Ended
(unaudited) March 31, 1996
----------------- --------------
Increase (decrease) in net assets:
<S> <C> <C>
Operations:
Net investment income........................................................ $4,181,005 $5,801,610
Net realized gain from security transactions (Note 2)........................ 172,829 1,176,590
Change in unrealized appreciation of investments............................. 792,350 1,044,839
----------- -----------
Net increase in net assets resulting from operations......................... 5,146,184 8,023,039
----------- -----------
Dividends to shareholders from net investment income............................ (4,181,005) (5,801,610)
Dividends to shareholders in excess of net investment income.................... (1,547,387) 0
Dividends to shareholders from net realized gains............................... 0 (220,972)
Distributions to shareholders from return of capital............................ 0 (127,447)
----------- -----------
(5,728,392) (6,150,029)
----------- -----------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5)........................................ 100,233 324,089
----------- -----------
Increase (decrease) in net assets............................................ (481,975) 2,197,099
Net Assets:
Beginning of period.......................................................... 77,581,200 75,384,101
----------- -----------
End of period................................................................ $77,099,225 $77,581,200
=========== ===========
</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 sharesholders 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 ezch 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>
Nine Months Ended Year Ended March 31,
December 31, 1996 ----------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period........... $21.15 $20.64 $21.45 $22.27 $21.39 $20.27
------ ------ ------ ------ ------ ------
Net investment income....................... 1.14 1.58 1.58 1.61 1.68 1.83
Net realized and unrealized gain on
investments.............................. 0.26 0.61 (0.67) (0.68) 1.36 1.12
------ ------ ------ ------ ------ ------
Total from investment operations............... 22.55 2.19 0.91 0.93 3.04 2.95
------ ------ ------ ------ ------ ------
Less distributions
Dividends from net investment income........ (1.14) (1.58) (1.58) (1.73) (1.84) (1.83)
Dividends in excess of net investment income (0.42) 0.00 (0.01) 0.00 0.00 0.00
Distributions from net realized gain........ 0.00 (0.06) 0.00 0.00 (0.32) 0.00
Distributions in excess of net realized gain 0.00 0.00 0.00 (0.02) 0.00 0.00
Distributions from return of capital........ 0.00 (0.04) (0.13) 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions............................ (1.56) (1.68) (1.72) (1.75) (2.16) (1.83)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................ $20.99 $21.15 $20.64 $21.45 $22.27 $21.39
====== ====== ====== ====== ====== ======
Per share market price, end of period ......... $19.75 $21.25 $20.13 $21.13 $24.75 $22.63
====== ====== ====== ====== ====== ======
Total Investment Return
Based on market value....................... 0.28% 13.91% 3.41% (7.72)% 18.91% 14.41%
Ratios/Supplemental Data
Net assets, end of period (in 000's)........ $77,099 $77,581 $75,384 $78,120 $73,595 $56,163
Ratio of expenses to average net assets
(does not include loan interest expenses) 0.85%* 0.86% 0.86% 0.92% 0.91% 0.97%
Ratio of net investment income to average
net assets............................... 7.29%* 7.37% 7.83% 7.11% 7.95% 8.85%
Portfolio Turnover.......................... 21.18%* 43.25% 35.38% 18.91% 68.56% 73.11%
Number of shares outstanding at end of
period (in 000's)........................... 3,673 3,668 3,653 3,642 3,304 2,626
Amount of bank loans outstanding at end
of period (in 000's)........................ $0 $0 $0 $0 $0 $1,679
Average amount of bank loans outstanding
during the period (in 000's)................ $0 $0 $0 $0 $46 $299
Amount of maximum month-end bank loans
during the period (in 000's)................ $0 $0 $0 $0 $0 $2,171
Average amount of bank loans per share
during the period .......................... $0.00 $0.00 $0.00 $0.00 $0.01 $0.11
Weighted average interest rate of bank loans
during the period .......................... 0.00% 0.00% 0.00% 0.00% 6.31% 5.42%
*Annualized
</TABLE>
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMMENTS (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 December 31, 1996, the Fund had invested
97.18% 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 nine months ended December 31, 1996:
Proceeds
Cost of from Sales
Purchases or Maturities
----------- -------------
Long Term Debt Securities............ $11,360,692 $11,376,591
Other Securities..................... $2,430,000 $4,175,000
8
<PAGE>
NOTES TO FINANCIAL STATEMMENTS (unaudited)-continued
Note 3 -- Capital Stock -- At December 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.
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 nine months
ended December 31, 1996, the Fund issued 4,851 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.
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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
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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
KEVIN D. BARRY
Vice President
ANNA M. BENCROWSKY
Vice President
and Secretary
MARCIA ZERCOE
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
December 31, 1996
