<PAGE>
January 12, 1998
TO THE SHAREHOLDER:
The Fund ended the quarter December 31, 1997 with a Net Asset Value of $22.17
per share. This represents a 2.1% increase from $21.72 per share as of
September 30, 1997, and a 7.6% 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:
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 12/31/97 To 12/31/97 To 12/31/97 To 12/31/97 To 12/31/97
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 171.77% 53.60% 15.83% 13.42% 3.82%
Average of 18 Other
Closed-End Bond Funds(2) 156.49% 52.20% 16.08% 11.20% 3.10%
Salomon Bros. Bond Index(3) 180.09% 55.46% 14.54% 12.96% 4.61%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1 - This is historical information and should not be construed as indicative of
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 bond market had very positive performance in 1997 as interest rates
declined to their lowest levels in the past few years. The Fund was able to
benefit from the rally in bond prices and have a 13.42% total return for the
calendar year. We believe that long term bond yields have declined further
than is warranted by domestic economic fundamentals because of the currency
crisis in various Asian economies.
<PAGE>
The Fund's exposure to Asian bonds totaled 1.8% of Net Assets as of December
31, 1997. These holdings did impact negatively on performance during the
December quarter, but the overall strength of the bond market rally on the
vast majority of the Portfolio permitted the Fund to achieve the returns
detailed in the table above. In the previous shareholder report, we stated
management's intention to limit direct exposure to the Asian credits of 5% of
Net Assets and see no reason to change that limitation at this time. We also
do not expect to increase the current holdings until some additional stability
returns to the Asian markets.
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>
December 31, 1997 17.7% 0.0% 34.3% 41.2% 4.8% 1.7% 0.3%
September 30, 1997 17.4% 2.0% 34.3% 41.2% 4.5% 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 slight increase in non-investment grade holding is due to the downgrading
of the Asian holdings during December. Total exposure in BB, B and lower rated
credit remains below levels at the fiscal year end. We would not anticipate
increasing allocation to lower rated corporate bonds until yield spreads
reflect greater return for the additional credit risk.
On December 11, 1997, the Board of Directors declared a dividend of $0.38 per
share payable January 27, 1998 to shareholders of record December 22, 1997. We
would like to remind shareholders of the opportunities presented by the Fund's
dividend reinvestment plan as described in the Fund's prospectus. 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
<PAGE>
December 31, 1997
Schedule of Net Assets
(unaudited)
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's
Rating for
Debt Principal Identified Cost Value
Securities Amount (000's) (Note 2) (Note 1)
---------- -------------- -------- --------
LONG TERM DEBT SECURITIES (97.30%)
ELECTRIC UTILITIES (9.86%)
<S> <C> <C> <C> <C>
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 ......... Ba1/BB+ $ 1,800 $ 1,662,876 $ 1,975,500
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 .................... Baa2/BBB 2,000 2,062,500 2,097,500
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 ........................... A2/A+ 1,550 1,475,994 1,801,875
Niagara Mohawk Power, 8.75%, 04/01/22 ............................... Ba3/BB+ 1,000 1,028,220 1,044,375
Utilicorp United Inc., Sr. Notes, 9.00%, 11/15/21 ................... Baa3/BBB 1,000 1,090,000 1,110,896
---------- ----------
7,319,590 8,030,146
---------- ----------
FINANCIAL (14.23%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 ................... A3/A 1,000 1,090,125 1,112,500
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ........... Aa3/A- 2,000 2,012,070 2,140,000
FBS Capital I, Capital Securities, 8.09%, 11/15/26 .................. A1/BBB+ 2,000 1,993,370 2,120,000
HSBC America Capital II, Capital Securities, 8.38%, 05/15/27 ........ A2/BBB+ 3,000 3,080,350 3,172,500
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 ................... Ba1/BBB- 1,000 1,150,640 1,091,250
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ................... Ba1/BBB- 1,500 1,634,965 1,951,575
---------- ----------
10,961,520 11,587,825
---------- ----------
FOREIGN (1.79%)
Korea Electric Power, Debs., 7.00%, 02/01/27 ........................ Ba1/B+ 1,000 905,626 703,750
Korea Electric Power, Debs., 6.75%, 08/01/27 ........................ Ba1/B+ 500 489,235 365,625
Republic of Indonesia, 7.75%, 08/01/06 .............................. Ba1/BB 500 462,555 391,250
---------- ----------
1,857,416 1,460,625
---------- ----------
INDUSTRIAL & MISCELLANEOUS (39.46%)
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 1,142,500
Harcourt General Inc., Debs., 7.30%, 08/01/2097 ..................... Baa1/BBB+ 1,450 1,438,292 1,493,500
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 .................. Baa1/BBB+ 2,000 2,157,020 2,415,000
K N Energy Inc., Debs., 8.75%, 10/15/24 ............................. A3/BBB+ 1,150 1,263,799 1,292,968
Lockheed Martin, 7.25%, 05/15/06 .................................... A3/BBB+ 1,000 1,039,820 1,056,250
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06 .................... Ba2/BB+ 500 462,650 506,250
May Department Stores Co., Debs., 10.75%, 06/15/18 .................. A2/A 150 154,385 158,775
News America Holdings Inc., Sr. Debs., 10.125%, 10/15/12 ............ Baa3/BBB- 2,050 2,163,503 2,393,375
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95 ............. Baa3/BBB- 1,400 1,298,624 1,461,250
North Dakota State Muni. Bond Bank, Water Sys. Rev., 10.50%, 04/01/14 Aaa/AAA 1,000 1,159,780 1,051,250
Phillip Morris Deb., 7.75%, 01/15/27 ................................ A2/A 3,000 3,007,020 3,243,750
Rohm & Haas Co., Debs., 9.50%, 04/01/21 ............................. A1/A 1,500 1,494,375 1,687,500
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ................ Baa1/A- 2,000 1,990,780 2,115,000
Societe Generale (NY), Sr. Notes, 7.40%, 06/01/06 ................... A1/A+ 400 413,588 421,000
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ......................... A1/A+ 2,000 1,977,920 2,167,500
Time Warner Inc., Debs., 9.15%, 02/01/23 ............................ Ba1/BBB- 3,000 3,159,700 3,682,500
TRW, Inc. Notes, 9.25%,12/30/11 ..................................... A2/A 275 326,312 340,312
TRW, Inc., Notes, 9.375%, 04/15/21 .................................. A2/A 303 320,893 391,628
Union Camp Corp., Debs., 9.25%, 02/01/11 ............................ A1/A- 1,500 1,486,305 1,826,250
Western Atlas Inc., Debs., 8.55%, 06/15/24 .......................... A3/A- 2,539 2,651,998 3,008,715
---------- ----------
29,281,629 32,128,398
---------- ----------
TELEPHONE & COMMUNICATIONS (5.28%)
Contintental Cablevision, 9.50%, 08/01/13 ........................... Baa3/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 2,170,600
U.S. West Communications, Debs., 6.875%, 09/15/33 ................... Aa3/A 1,000 896,920 960,000
---------- ----------
4,008,860 4,296,850
---------- ----------
</TABLE>
See notes to financial statements.
3
<PAGE>
December 31, 1997
Schedule of Net Assets -- Continued
(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 (10.96%)
AMR Corp., Debs., 10.00%, 04/15/21 ............................ Baa3/BBB- $ 2,000 $ 2,148,940 $ 2,594,420
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20.. A3/A 1,000 1,000,000 1,589,600
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 ................... A1/A 1,000 1,117,790 1,270,000
Ford Motor Co., Debs., 8.875%, 01/15/22 ....................... A1/A 1,500 1,480,350 1,846,875
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ............... Aaa/AAA 500 551,875 553,750
Union Pacific Co., Debs., 8.625%, 05/15/22 .................... Baa2/BBB 1,000 1,062,430 1,067,500
---------- ----------
7,361,385 8,922,145
Mortgage Backed Securities (5.73%)
FNMA Pool #313411, 7.00%, 03/01/04 ............................ NR/NR 1,846 1,867,072 1,870,533
GNMA Pool #780374, 7.50%, 12/15/23 ............................ NR/NR 835 828,836 859,253
GNMA Pool #417239, 7.00%,02/15/26 ............................ NR/NR 1,919 1,946,214 1,934,222
---------- ----------
4,642,122 4,664,008
---------- ----------
U.S. Government Agency Obligations (9.99%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ........................ NR/NR 1,600 2,120,750 2,081,008
U.S. Treasury Bonds, 7.875%, 02/15/21 ........................ NR/NR 3,900 4,051,031 4,788,264
U.S. Treasury Bonds, 8.125%, 08/15/21 ........................ NR/NR 1,000 1,016,405 1,261,280
---------- ----------
7,188,186 8,130,552
---------- ----------
Total Long Term Debt Securities .............................. 72,620,708 79,220,549
---------- ----------
Commercial Paper (2.15%)
General Electric Capital Corp., 5.65%, 01/02/98 .............. A1+/P1 1,750 1,750,000 1,750,000
---------- ----------
Shares
------
Investment companies (0.29%)
High Yield Plus Fund ......................................... NR/NR 25,000 167,178 237,500
Total Investments (99.74%) ................................... $74,537,886* 81,208,049
====== =========== -----------
Other Assets and Liabilities (0.26%) ......................... 213,622
-----------
Net Assets (100.00%) ......................................... $81,421,671
===========
</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
$7,289,258, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value was $619,095.
See notes to financial statements
4
<PAGE>
Financial Statements
Statement of Assets and Liabilities
December 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities at value (identified cost $74,537,886) (Note 1) ....................... $ 81,208,049
Cash ............................................................................................ 80,018
Interest receivable ............................................................................. 1,506,101
Dividends receivable ............................................................................ 115,946
Prepaid expenses ................................................................................ 71
------------
Total Assets .................................................................................. 82,910,185
------------
Liabilities:
Dividends payable ............................................................................... 1,395,838
Accrued expenses payable ........................................................................ 92,676
------------
Total Liabilities ............................................................................. 1,488,514
------------
Net Assets: (equivalent to $22.17 per share based on 3,673,258 shares of capital stock outstanding) $ 81,421,671
============
Net Assets consisted of:
Capital paid-in ................................................................................. $ 76,078,400
Distributions in excess of net investment income ................................................ (1,517,873)
Accumulated net realized gain ................................................................... 190,981
Net unrealized appreciation of investments ...................................................... 6,670,163
------------
$ 81,421,671
============
Statement of Operations
For the nine months ended December 31, 1997 (unaudited)
Investment Income:
Interest ........................................................................ $ 4,267,176
Dividends ....................................................................... 407,792
------------
Total Investment Income ....................................................... 4,674,968
============
Expenses:
Investment advisory fees (Note 4) ............................................... $ 337,652
Transfer agent fees ............................................................. 38,799
Insurance ....................................................................... 1,134
Directors' fees and expenses .................................................... 22,069
Audit fees ...................................................................... 18,612
State and local taxes ........................................................... 16,646
Legal fees and expenses ......................................................... 20,792
Reports to shareholders ......................................................... 18,677
Custodian fees .................................................................. 4,714
Miscellaneous ................................................................... 32,350
------------
Total Expenses ................................................................ 511,445
------------
Net Investment Income ............................................................. 4,163,523
------------
Realized and unrealized gain on investments (Note 1):
Net realized gain from security transactions .................................... 251,173
------------
Unrealized appreciation (depreciation) of investments:
Beginning of period ........................................................... (235,973)
End of period ................................................................. 6,670,163
------------
Change in unrealized appreciation (depreciation) of investments ............. 6,906,136
------------
Net realized and unrealized gain on investments .......................... 7,157,309
------------
Net increase in net assets resulting from operations ..................... $ 11,320,832
============
</TABLE>
See notes to financial statements.
5
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1997 Year Ended
(unaudited) March 31, 1997
----------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 4,163,523 $ 5,547,419
Net realized gain (loss) from security transactions (Note 2) ................ 251,173 (60,192)
Change in unrealized appreciation (depreciation) of investments ............. 6,906,136 (1,719,346)
------------ ------------
Net increase in net assets resulting from operations ........................ 11,320,832 3,767,881
------------ ------------
Dividends to shareholders from net investment income .......................... (4,163,523) (5,547,419)
Dividends to shareholders in excess of net investment income .................. (1,456,561) (61,312)
Distributions to shareholders from return of capital .......................... 0 (119,660)
------------ ------------
(5,620,084) (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 ........................................... 5,700,748 (1,860,277)
Net Assets:
Beginning of period ......................................................... 75,720,923 77,581,200
------------ ------------
End of period ............................................................... $ 81,421,671 $ 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 financia data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended March 31,
December 31, 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 ..................................... 1.13 1.51 1.58 1.58 1.61 1.68
Net realized and unrealized gain (loss) on
investments ........................................... 1.96 (0.49) 0.61 (0.67) (0.68) 1.36
------ ------ ------- ------- ------- -------
Total from investment operations .......................... 3.09 1.02 2.19 0.91 0.93 3.04
------ ------ ------- ------- ------- -------
Less distributions
Dividends from net investment income ..................... (1.13) (1.51) (1.58) (1.58) (1.73) (1.84)
Dividends in excess of net investment income (0.40) (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 distribuions ........................................ (1.53) (1.56) (1.68) (1.72) (1.75) (2.16)
------ ------ ------- ------- ------- -------
Net asset value, end of period ............................ $22.17 $20.61 $ 21.15 $ 20.64 $ 21.45 $ 22.27
------ ------ ------- ------- ------- -------
Per share market price, end of period ..................... $20.44 $19.75 $ 21.25 $ 20.13 $ 21.13 $ 24.75
====== ====== ======= ======= ======= =======
Total Investment Return
Based on market value .................................... 11.24% 0.28% 13.91% 3.41% (7.72)% 18.91%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ..................... $81,422 $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 ............................................ 6.99%* 7.27% 7.37% 7.83% 7.11% 7.95%
Portfolio turnover ....................................... 29.67%* 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 December 31, 1997, the Fund had
invested 97.30% 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 sttements 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>
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions for the nine months ended December 31, 1997:
Proceeds
Cost of from Sales
Purchases or Maturities
--------- -------------
Long Term Debt Securities $17,395,957 $16,545,977
Other Securities $ 4,946,000 $ 5,096,000
Note 3 -- Capital Stock -- At December 31, 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 procees are used to purchase Fund
shares on the open market for participants in the Plan. During the nine months
ended December 31, 1997, the Fund issued no shares under this plan.
Note 6 -- Subsequent Event -- RSMC has entered into an agreement with PFPC, Inc.
("PFPC") pursuant to which PFPC will acquire the Fund accounting, administration
and transfer agent business of RSMC.
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 chrged 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
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
11
<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 PRESIDENTAND 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
December 31, 1997
<PAGE>
IMPORTANT TAX INFORMATION
1838 BOND-DEBENTURE TRADING FUND
This is to advise you of the tax status of distributions per share taxable to
you in calendar year 1997:
Payment Date Return of Capital Ordinary Income
------------ ----------------- ---------------
04/29/97 $0.008 $0.382
08/05/97 $0.008 $0.372
11/04/97 $0.008 $0.372
01/27/98 $0.008 $0.372
-------- ------ ------
Totals $0.032 $1.498
Mutual fund income derived from interest on U.S. Treasury obligations and
certain of its agencies and instrumentalities may be exempt from state and local
taxes. Of the above ordinary income per share, 11.24% was earned from direct
U.S. Treasury obligations. Tax laws in each state vary. Shareholders should
consult with their tax adviser or state revenue department to determine their
own state's requirements.
