<PAGE>
July 15, 1998
TO THE SHAREHOLDER:
The Fund ended the quarter, June 30, 1998, with a Net Asset Value of $22.66 per
share. This represents a 0.2% decrease from $22.70 per share at the end of the
March 31, 1998 fiscal year and an 8.0% increase from $20.99 per share a year
earlier. The Fund's stock closed the quarter on the New York Stock Exchange at
$21.375 per share, representing a 5.7% discount to Net Asset Value.
The performance of the Fund is compared below 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 6/30/98 to 6/30/98 to 6/30/98 to 6/30/98 to 6/30/98
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1838 Bond Fund (2) 170.01% 50.10% 27.86% 15.51% 3.22%
Average of 18 Other
Closed-End Bond Funds (2) 151.60% 45.87% 23.08% 11.75% 2.56%
Salomon Bros. Bond Index (3) 176.82% 49.54% 26.35% 15.50% 3.37%
</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.
Please note that during the quarter the Fund went "ex" two dividend payments,
which accounts for the seeming discrepancy between a slight decline in the Net
Asset Value per share and the positive performance results reported by Lipper
Analytical Services. On June 8, 1998, the Board of Directors declared a
dividend of $0.38 per share, payable on August 4, 1998 to shareholders of
record June 30, 1998.
1
<PAGE>
The table below updates the portfolio quality of the Fund's assets compared to
the end of the most recent fiscal years:
<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, 1998 18.5% 0.0% 29.2% 47.6% 4.2% 0.3% 0.3%
March 31, 1998 19.9% 0.0% 31.9% 44.0% 3.0% 0.9% 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 Annual Meeting of Shareholders of the Fund is scheduled to be held on July
30, 1998. As described in the proxy statement that you have already received,
one proposal is for shareholder approval of a new investment advisory agreement
between 1838 Investment Advisors and your fund, resulting from a pending merger
with MBIA Inc. If the shareholders of the Fund approve the new advisory
agreement, management of the Fund anticipates bringing a beneficial combination
of resources of the merged firms to the portfolio management of your Fund.
Additionally, effective July 1, 1998, Coopers and Lybrand L.L.P., the Fund's
independent accountants, combined their business and practices with Price
Waterhouse LLP and will be known as PricewaterhouseCoopers LLP.
We also would like to thank all shareholders that participated in the
governance of their fund and voted their proxies at the Annual Meeting.
Sincerely,
/s/ John H. Donaldson
-----------------------------
John H. Donaldson
President
JHD/mcr
2
<PAGE>
SCHEDULE OF NET ASSETS JUNE 30, 1998
(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 (96.79%)
ELECTRIC UTILITIES (9.82%)
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 ......... Ba1/BB+ $1,800 $ 1,662,876 $ 1,997,040
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 .................... Baa2/BBB 2,000 2,062,500 2,126,294
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 ........................... A2/A+ 1,550 1,475,994 1,873,873
Niagara Mohawk Power, 1st Mtge., 8.75%, 04/01/22 .................... Ba1/BBB- 1,000 1,028,220 1,090,300
Utilicorp United Inc., Sr. Note 9.00%, 11/15/21 ..................... Baa3/BBB 1,000 1,090,000 1,092,423
----------- -----------
7,319,590 8,179,930
----------- -----------
FINANCIAL (16.72%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 ................... A2/A 1,000 1,090,125 1,084,626
Citicorp Capital II, Capital Securities, 8.015%, 02/15/27 ........... Aa3/A- 2,000 2,012,070 2,178,136
EOP Operating LP, 7.25%, 02/15/18 ................................... Baa1/BBB 1,000 991,900 1,013,778
FBS Capital I, Capital Securities, 8.09%, 11/15/26 .................. A1/BBB+ 2,000 1,993,370 2,200,680
HSBC America Capital Corp., 8.38%, 05/15/27 ......................... A2/BBB+ 3,000 3,080,350 3,301,857
Liberty Property Trust, 7.50%, 01/15/18 ............................. Baa3/BBB- 1,000 998,430 1,000,000
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 ................... Ba1/BBB- 1,000 1,150,640 1,076,390
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ................... Ba1/BBB- 1,500 1,634,965 2,049,000
----------- -----------
12,951,850 13,904,467
----------- -----------
FOREIGN (.46%)
Korea Electric Power Inc., Debs., 7.00%, 02/01/27 ................... Ba1/BB+ 500 421,466 374,010
----------- -----------
INDUSTRIAL & MISCELLANEOUS (39.60%)
Chiquita Brands, Sr. Notes, 10.25%, 11/01/06 ........................ B1/B+ 250 255,625 270,000
Dell Computer Corp., Sr. Debs., 7.10%, 04/15/28 ..................... Baa1/BBB 2,500 2,501,140 2,579,557
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 ...................... Baa2/BBB- 1,000 1,059,240 1,140,393
Harcourt General Inc., Sr. Debs., 8.875%, 06/01/22 .................. Baa1/BBB+ 2,000 2,157,020 2,455,232
Harcourt General Inc., Sr. Debs., 7.30%, 08/01/2097 ................. Baa1/BBB+ 1,500 1,488,886 1,495,785
K N Energy Inc., Debs., 8.75%, 10/15/24 ............................. Baa2/BBB- 1,150 1,263,799 1,335,438
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06 .................... Ba2/BB+ 500 462,650 518,937
May Department Stores Co., Debs., 10.75%, 06/15/18 .................. A2/A 150 154,385 158,250
News America Holdings Inc., Sr. Debs., 10.125%, 10/15/12 ............ Baa3/BBB- 2,050 2,163,502 2,407,223
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/2095 ........... Baa3/BBB- 1,400 1,298,624 1,506,568
North Dakota State Muni. Bond Bank, Water Sys. Rev., 10.50%, 04/01/14 Aaa/AAA 1,000 1,159,780 1,033,420
Phillip Morris, Debs., 7.75%, 01/15/27 .............................. A2/A 3,000 3,007,020 3,249,678
Smurfit Capital Funding, Gtd., Debs., 7.50%, 11/20/25 ............... Baa1/A- 2,000 1,990,780 2,169,996
Societe Generale(NY), 7.40%, 06/01/06 ............................... A1/A+ 400 413,588 422,217
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ......................... A1/A+ 2,000 1,977,920 2,172,660
Time Warner Inc., Debs., 9.15%, 02/01/23 ............................ Baa3/BBB- 3,000 3,159,700 3,806,853
Tricon Global Senior Note, 7.65%, 05/15/08 .......................... Ba1/BB 500 498,875 507,871
TRW Inc., Notes, 9.25%, 12/30/11 .................................... A2/A 275 326,312 347,878
TRW Inc., Notes, 9.375%, 04/15/21 ................................... A2/A 303 320,893 405,984
Union Camp Corp., Debs., 9.25%, 02/01/11 ............................ A2/A- 1,500 1,486,305 1,873,592
Westren Atlas Inc., Debs., 8.55%, 06/15/24 .......................... A2/A- 2,539 2,651,998 3,094,406
----------- -----------
29,798,041 32,951,938
----------- -----------
TELEPHONE & COMMUNICATIONS (5.43%)
Continental Cablevision, Sr. Debs., 9.50%, 08/01/13 ................. Baa3/BBB+ 1,000 1,120,000 1,190,831
TCI Communications, Inc., Sr. Debs., 9.25%, 01/15/23 ................ Baa3/BBB- 2,000 1,991,940 2,280,000
Worldcom Inc., Sr. Note., 9.375%, 01/15/04 .......................... Baa2/BBB- 1,000 1,051,875 1,053,750
----------- -----------
4,163,815 4,524,581
----------- -----------
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS--continued JUNE 30, 1998
(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 (9.71%)
AMR Corp., Debs., 10.00%, 04/15/21 ................................... Baa3/BBB- $ 2,000 $ 2,148,940 $ 2,695,000
Auburn Hills Trust, Gtd. Exchangeable Ctfs. 12.00%, 05/01/20 ......... A2/A 1,000 1,000,000 1,635,000
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 .......................... A1/A 1,000 1,117,790 1,319,149
Ford Motor Co., Debs., 8.875%, 01/15/22 .............................. A1/A 1,500 1,480,350 1,875,308
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ...................... Aaa/AAA 500 551,875 556,250
------------- -----------
6,298,955 8,080,707
------------- -----------
MORTGAGE BACKED SECURITIES (5.04%)
FNMA Pool #313411, 7.00%, 03/01/04 ................................... NR/NR 1,521 1,538,871 1,543,675
GNMA Pool #780374, 7.50%, 12/15/23 ................................... NR/NR 752 746,231 774,378
GNMA Pool #417239, 7.00%, 02/15/26 ................................... NR/NR 1,849 1,875,066 1,878,772
------------- -----------
4,160,168 4,196,825
------------- -----------
U.S. GOVERNMENT & AGENCIES (10.01%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ................................ NR/NR 1,600 2,120,750 2,081,501
U.S. Treasury Bonds, 8.125%, 08/15/21 ................................ NR/NR 1,000 1,016,407 1,303,438
U.S. Treasury Bonds, 7.875%, 02/15/21 ................................ NR/NR 3,900 4,051,031 4,949,345
------------- -----------
7,188,188 8,334,284
------------- -----------
TOTAL LONG TERM DEBT SECURITIES ...................................... 72,302,073 80,546,742
------------- -----------
US AGENCY DISCOUNT NOTE (1.19%)
FNMA Discount Note, 5.42%, 08/04/98 .................................. NR/NR 1,000 993,677 993,677
TOTAL US AGENCY DISCOUNT NOTE ........................................ 993,677 993,677
------------- -----------
Shares
-------
INVESTMENT COMPANIES (.27%)
High Yield Plus Fund ................................................. NR/NR 25,000 167,178 225,000
------------- -----------
TOTAL INVESTMENTS (98.25%) ........................................... $ 73,462,928* $81,765,419
============= ===========
OTHER ASSETS AND LIABILITIES (1.75%) ................................. 1,454,601
-----------
NET ASSETS (100.00%) ................................................. $83,220,020
</TABLE>
* The Moody's/Standard & Poor's rating for debt securities is not covered by
the Report of Independant Accountants.
* The cost for federal income tax purposes was $73,462,928. The aggregate gross
unrealized appreciation in which there was an excess of market value over
tax cost was $8,595,305, and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value
was $292,814.
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<S> <C> <C>
Assets:
Investment in securities at value(identified cost $73,462,928) (Note 1) ............... $81,765,419
Cash .................................................................................. 1,330,455
Interest receivable ................................................................... 1,630,202
Prepaid expenses ...................................................................... 9,728
-----------
TOTAL ASSETS ........................................................................ 84,735,803
-----------
Liabilities:
Accrued expenses payable .............................................................. 119,945
Dividends payable ..................................................................... 1,395,838
-----------
TOTAL LIABILITIES ................................................................... 1,515,783
-----------
Net assets: (equivalent to $22.66 per share based on 3,673,258 shares of capital stock $83,220,020
===========
outstanding)
NET ASSETS consisted of:
Capital paid - in ..................................................................... $74,634,276
Accumulated undistributed net realized gain on investments ............................ 283,253
Net unrealized appreciation on investments ............................................ 8,302,491
-----------
$83,220,020
===========
STATEMENT OF OPERATIONS
For the three months ended June 30, 1998
Investment Income:
Interest ............................................................ $ 1,550,643
Dividends ........................................................... 16,664
-----------
Total Investment Income ........................................... 1,567,307
-----------
Expenses:
Investment advisory fees (Note 4) ................................... $ 115,815
Transfer agent fees ................................................. 11,780
Insurance ........................................................... 3,909
Directors' fees and expenses ........................................ 7,533
Audit fees .......................................................... 6,333
State and local taxes ............................................... 5,118
Legal fees and expenses ............................................. 6,547
Reports to shareholders ............................................. 4,752
Custodian fees ...................................................... 2,146
Miscellaneous ....................................................... 6,429
----------
Total Expenses .................................................... 170,362
-----------
Net Investment Income .......................................... 1,396,945
-----------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized gain from security transactions ........................ 283,253
-----------
Unrealized appreciation of investments:
Beginning of period ............................................... 7,350,696
End of period ..................................................... 8,302,491
----------
Change in unrealized appreciation of investments ............... 951,795
-----------
Net realized and unrealized gain on investments .............. 1,235,048
-----------
Net increase in net assets resulting from operations ......... $ 2,631,993
===========
</TABLE>
See notes to financial statements
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months
ended
June 30, 1998 Year ended
(unaudited) March 31, 1998
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................... $ 1,396,945 $ 5,528,166
Net realized gain from security transactions (Note 2) ........................... 283,253 164,027
Change in unrealized appreciation (depreciation) of investments ................. 951,795 7,586,669
------------ ------------
Net increase in net assets resulting from operations ............................ 2,631,993 13,278,862
------------ ------------
Dividends to shareholders from net investment income ............................... (1,402,545) (5,528,166)
Dividends to shareholders in excess of net investment income ....................... (1,389,131) (86,494)
Distributions to shareholders from net realized gain ............................... -- (5,422)
------------ ------------
(2,791,676) (5,620,082)
------------ ------------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5) ............................................ -- --
------------ ------------
Increase (decrease) in net assets ............................................... (159,683) 7,658,780
Net Assets:
Beginning of period ............................................................. 83,379,703 75,720,923
------------ ------------
End of period ................................................................... $ 83,220,020 $ 83,379,703
============ ============
</TABLE>
HOW TO ENROLL IN THE DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan
for the automatic investment of dividends and distributions which all
shareholders of record are eligible to join. The method by which shares
are obtained is explained on page 11. The Fund has appointed First
Chicago Trust Company of New York to act as the Agent of each
shareholder electing to participate in the plan. Information and
application forms are available from First Chicago Trust Company of New
York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
See notes to financial statements.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Three months
ended Year Ended March 31,
06/30/98 -----------------------------------------------------
(unaudited) 1998 1997 1996 1995
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .................. $ 22.70 $ 20.61 $ 21.15 $ 20.64 $ 21.45
------- ------- ------- ------- -------
Net investment income ................................ 0.38 1.51 1.51 1.58 1.58
Net realized and unrealized gain (loss) on
investments ......................................... 0.34 2.11 (0.49) 0.61 (0.67)
------- ------- ------- ------- -------
Total from investment operations ...................... 0.72 3.62 1.02 2.19 0.91
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income ................. (0.38) (1.51) (1.51) (1.58) (1.58)
Dividends in excess of net investment income ......... (0.38) 0.00 (0.02) 0.00 (0.01)
Distributions from net realized gain ................. 0.00 (0.02) 0.00 (0.06) 0.00
Distributions in excess of net realized gain ......... 0.00 0.00 0.00 0.00 0.00
Distributions from tax return of capital ............. 0.00 0.00 (0.03) (0.04) (0.13)
------- ------- ------- ------- -------
Total distributions ................................... (0.76) ( 1.53) (1.56) (1.68) (1.72)
------- ------- ------- ------- -------
Net asset value, end of period ........................ $ 22.66 $ 22.70 $ 20.61 $ 21.15 $ 20.64
======= ======= ======= ======= =======
Per share market price, end of period ................. $ 21.38 $ 20.81 $ 19.75 $ 21.25 $ 20.13
======= ======= ======= ======= =======
Total Investment Return
Based on market value ................................ 6.39% 13.11% 0.28% 13.91% 3.41%
Ratios/Supplemental Data
Net assets, end of period (in 000's) .................. $ 83,220 $83,380 $75,721 $77,581 $75,384
Ratio of expenses to average net assets .............. 0.82%* 0.85% 0.87% 0.86% 0.86%
Ratio of net investment income to average net
assets ............................................. 6.75%* 6.89% 7.27% 7.37% 7.83%
Portfolio Turnover Rate .............................. 21.44%* 25.03% 32.83% 43.25% 35.38%
Number of shares outstanding at the end of period
(in 000's) ........................................... 3,673 3,673 3,673 3,668 3,653
</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, 1998, the Fund had invested 96.79%
of its portfolio in long-term debt obligations of issuers engaged in
financial, industrial, electric utilities, trans- portation, telephone &
communication, foreign 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 quarter ended June 30, 1998:
Proceeds
Cost of from Sales
Purchases or Maturities
------------- --------------
U.S. Government Securities .......... $ 993,677 $ 518,594
Other Investment Securities ......... $5,043,730 $3,831,320
Note 3 -- Capital Stock -- At June 30, 1998, there were 10,000,000 shares of
capital stock ($1.00 par value) authorized, with 3,673,258 shares issued and
outstanding.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)--continued
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 services as a director of the Fund. Similarly, none of the
Fund's officers receive compensation from the Fund.
Note 5 -- Dividend and Distribution Reinvestment -- 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 quarter
ended June 30, 1998, the Fund issued zero shares under this Plan.
9
<PAGE>
DIVIDEND REINVESTMENT PLAN
1838 Bond-Denture 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 the
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% on the market price on
the Valuation Date, then valued at 95% of the market price. If net asset value
per share on the Valuation Date exceeds the market price per share on that
date, plus the brokerage commissions applicable to one such share, the Agent
will buy shares on the open market, on the New York Stock Exchange, for the
participants' accounts. If, before the Agent has completed its purchases, the
market price exceeds the net asset value of shares, the average per share
purchase price paid by the Agent may exceed the net asset value of shares,
resulting in the acquisition of fewer shares than if the dividend or
distribution has been paid in shares issued by the Fund at net asset value.
There is no charge to participants for reinvesting dividends or distributions
payable in either shares or cash. The Agent's fees for handling of reinvestment
of such dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or distributions payable either in shares or cash. However,
each participant will be charged by the Agent a pro rata share of brokerage
commissions incurred with respect to the Agent's open market purchases in
connection with the reinvestment of dividends or distributions payable only in
cash.
For purposes of determining the number of shares to be distributed under the
Plan, the net asset value is computed on the Valuation Date and compared to the
market value of such shares on such date. The Plan may be terminated by a
participant by delivery of written notice of termination to the Agent at the
address shown below. Upon termination, the Agent will cause a certificate or
certificates for the full shares held for a participant under the Plan and a
check for any fractional shares to be delivered to the former participant.
Distributions of investment company taxable income that are invested in
additional shares generally are taxable to shareholders as ordinary income. A
capital gain distribution that is reinvested in shares is taxable to
shareholders as long-term capital gain, regardless of the length of time a
shareholder has held the shares or whether such gain was realized by the Fund
before the shareholder acquired such shares and was reflected in the price paid
for the shares.
Plan information and authorization forms are available from First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey, 07303-2500.
HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS
Contact Your Transfer Agent, First Chicago Trust Company of New York,
P.O. Box 2500, Jersey City, New Jersey 07303-2500, or call 201-324-0498
10
<PAGE>
DIRECTORS
-----------------------------
W. THACHER BROWN
JOHN GILRAY CHRISTY
JOHN H. DONALDSON
MORRIS LLOYD, JR.
JOHN J. McELROY, III
J. LAWRENCE SHANE
OFFICERS
-----------------------------
JOHN H. DONALDSON
President
ANNA M. BENCROWSKY
Vice President
and Secretary
MARCIA ZERCOE
Vice President
RHONDA L. McNAVISH
Assistant Vice President
INVESTMENT ADVISOR
-----------------------------
1838 INVESTMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER, SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN
-----------------------------
REPUBLIC NATIONAL BANK OF NEW YORK
452 FIFTH AVENUE
NEW YORK, NY 10018
TRANSFER AGENT
-----------------------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
COUNSEL
-----------------------------
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & ARCH STREETS
PHILADELPHIA, PA 19103
AUDITORS
-----------------------------
PricewaterhouseCoopers 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
[GRAPHIC OMITTED]
Quarterly Report
June 30, 1998