<PAGE>
--------------------------------------------------------------------------------
---------------------------------------------------------
Lord Abbett BOND-DEBENTURE FUND
Semi-Annual Report for the Six Months Ended June 30, 1995
---------------------------------------------------------
A mutual fund
with the objective
of providing you
with high current [Picture of Mother Father and daughter sitting by a wagon]
income and
capital growth to
produce a high
total return.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
LORD ABBETT BOND-DEBENTURE FUND
The Fund's flexibility enables it Since its establishment in 1971, Lord
to adapt to changing economic Abbett Bond-Debenture Fund has sought the
conditions. (See page 4 for the best of both worlds -- high current
Fund's portfolio composition.) income and capital growth. The Fund's
flexible investment approach, combined
with Lord Abbett's value management
style, has produced a history of strong
performance in a variety of economic
climates.
[Picture of man and boy in fishing boat]
High Current Income
DISTRIBUTION RATES ON 6/30/95/(1)/
At Net Asset Value = 9.58%
At Maximum Offering Price = 9.13%
Historically Consistent Total Returns
AVERAGE ANNUAL RATES OF TOTAL RETURN AS OF 6/30/95/(2)/
11.2% yearly for the past 20 years
11.3% yearly for the past 15 years
10.1% yearly for the past 10 years
12.3% yearly for the past 5 years
8.7% for the past year
The results quoted herein represent past performance which is no indication
of future results. The investment return and principal value of an investment
in the Fund will fluctuate so that shares, on any given day or when redeemed,
may be worth more or less than their original cost.
SEC RETURNS
Average annual compound returns for periods ended 6/30/95 at the 4.75%
maximum sales charge, with all distributions reinvested:
1 year: 3.50%
5 years: 11.21%
10 years: 9.60%
The Fund's SEC yield for the 30 days ended 6/30/95 was 8.57%.
Total return is the percent change in value, assuming the reinvestment of all
distributions.
/(1)/ Based on the $.073 monthly dividend, annualized.
/(2)/ At net asset value.
See Important Information on page 4.
<PAGE>
--------------------------------------------------------------------------------
REPORT TO SHAREHOLDERS For the Six Months Ended June 30, 1995
[PHOTO - Ronald P. Lynch]
----------------------------
Ronald P. Lynch, Chairman
July 20, 1995
Lord Abbett Bond-Debenture Fund ended the first half of fiscal 1995 on June 30.
The Fund's total return (the percent change in net asset value assuming the
reinvestment of all distributions) was 10.2% over the period. Dividends totaling
$.438 per share were paid over this period. The Fund's dividend distribution
rates (based on the monthly dividend of $.073, annualized) were 9.58% and 9.13%
based on the net asset value and maximum offering price of $9.14 and $9.60,
respectively, on June 30.
The interest rate increases initiated by the Federal Reserve in 1994 took
hold, slowing the economy in the first half of 1995. As most economic indicators
pointed to a continuation of the economic slowdown and a better than expected
outlook for inflation, interest rates dramatically decreased in the second
quarter. This environment, coupled with expectations for increased corporate
profits, boded well for the stock market and led to a rally in the bond market.
Combined improvement in all the sectors the Fund invests in, particularly
in the high-yield corporate and convertible bond markets, contributed to the
Fund's strong returns year-to-date. Aided by the decline in interest rates,
high-yield corporate bonds were able to post competitive returns during the
period; falling rates benefit the high-yield market in two ways. First, because
bond prices and yields are inversely related, falling rates result in price
appreciation. Secondly, lower rates also enable companies to reduce their
interest expense, thereby improving their balance sheets. High-yield corporate
bond prices have been driven up by stronger market technicals, such as a greater
inflow of funds and a decrease in the availability of bonds issued by higher
yielding, solid companies. Additionally, the attractive valuations of
convertible securities in the portfolio and the rise in the U.S. stock
--------------------------------------------------------------------------------
"Combined improvement in all the sectors the Fund invests in, particularly in
the high-yield corporate and convertible bond markets, contributed to the Fund's
strong returns year-to-date."
--------------------------------------------------------------------------------
market positively impacted the Fund's total return performance. (Convertible
securities can be exchanged for the underlying shares of the issuer's common
stock.)
On June 30, 63% of the Fund's portfolio was invested in higher yielding,
lower rated debt (including straight-preferred stocks); the balance was invested
in convertible securities, U.S. Government securities and equity holdings.
While there can be no guarantee that the Fund's net asset value will be
preserved in extreme market environments, the Fund's long-term investors have
been rewarded with strong returns in various economic climates.
We are pleased Lord Abbett Bond-Debenture Fund is a part of your portfolio
and we welcome any questions or comments you may have about your Fund.
1
<PAGE>
================================================================================
Aiming for High Total Returns
--------------------------------------------------------------------------------
SEEKING HIGH RETURNS
----------------------------------------------------------------------------
Dividend distribution rates were 9.58% and 9.13% (based on the net asset
value and maximum offering price, respectively, on 6/30/95, and the monthly
dividend of $.073, annualized).
STRIVING FOR CONSISTENCY OF PERFORMANCE
---------------------------------------------------------------------------
The Fund's goal is high total return through high current income and capital
appreciation. The Fund strives for competitive returns in both up and down
markets.
Information About the Following Investment
----------------------------------------------------------------------------
Investment Period: 4/1/71/(1)/ to 6/30/95
----------------------------------------------------------------------------
Amount Invested: $10,000
----------------------------------------------------------------------------
Distributions: Dividends and capital gains reinvested
----------------------------------------------------------------------------
This graph illustrates total return. The
Fund's results do not include the
maximum sales charge of 4.75% applicable
to investments under $100,000; there is
no sales charge on investments of $1
million or more. For performance at the
maximum sales charge, see inside front
cover. See Important Information on page 4.
The Average High Inflation
Date Fund Current Yield Fund(2) (Consumer Price Index)
----- ---- --------------------- ---------------------
4/1/71 $10,000 $10,000 $10,000
12/31/71 10,765 10,687 10,275
12/31/72 11,438 11,584 10,625
12/31/73 10,313 10,453 11,550
12/31/74 9,789 9,274 12,975
12/31/75 12,689 11,339 13,875
12/31/76 16,613 14,570 14,550
12/31/77 17,777 15,638 15,525
12/31/78 18,269 15,999 16,925
12/31/79 19,547 16,959 19,175
12/31/80 21,283 17,914 21,575
12/31/81 22,412 18,969 23,500
12/31/82 28,585 24,584 24,400
12/31/83 33,416 28,613 25,325
12/31/84 35,073 30,859 26,325
12/31/85 42,442 37,506 27,325
12/31/86 46,946 42,119 27,625
12/31/87 47,838 42,717 28,850
12/31/88 54,427 48,019 30,125
12/31/89 57,181 47,433 31,525
12/31/90 52,852 42,182 33,450
12/31/91 73,116 57,519 34,475
12/31/92 84,810 67,695 35,475
12/31/93 98,356 80,726 36,450
12/31/94 94,553 77,634 37,425
6/30/95 104,229 85,180 38,075
/(1)/ The Fund commenced operations on 4/1/71.
/(2)/ Average of high current yield funds in
existence at each month or quarter end
for the periods shown. At 6/30/95, there
were 124 high current yield funds
reported by Lipper. No sales charge has
been deducted from these figures. Source:
Lipper Analytical Services.
2
<PAGE>
================================================================================
Performance Update
--------------------------------------------------------------------------------
OBJECTIVE: HIGH TOTAL RETURNS
----------------------------------------------------------------------------
The Fund has an impressive history of protecting long-term income investors
from public enemy #1 -- inflation. Below, the Fund's growth is compared to
the Consumer Price Index, a standard inflation measure. (See Important
Information on page 4.)
Information About the Following Investment
----------------------------------------------------------------------------
Investment Period: 4/1/71/(1)/ to 6/30/95
----------------------------------------------------------------------------
Amount Invested: $100,000
----------------------------------------------------------------------------
Sales Charge: 3.75% (for investments of $100,000)
----------------------------------------------------------------------------
Distributions: Dividends and capital gains reinvested
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value of
$100,000
Year Annual Investment with Inflation
Ended Dividends all Distributions (Consumer
Dec. 31 Reinvested Reinvested Price Index)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1971/(1)/ $ 3,450 $ 103,588 $102,750
---------------------------------------------------------------------------------------
1972 7,460 110,073 106,250
---------------------------------------------------------------------------------------
1973 8,204 99,239 115,500
---------------------------------------------------------------------------------------
1974 9,163 94,202 129,750
---------------------------------------------------------------------------------------
1975 9,719 122,105 138,750
---------------------------------------------------------------------------------------
1976 10,970 159,867 145,500
---------------------------------------------------------------------------------------
1977 11,883 171,064 155,250
---------------------------------------------------------------------------------------
1978 14,100 175,803 169,250
---------------------------------------------------------------------------------------
1979 16,410 188,105 191,750
---------------------------------------------------------------------------------------
1980 18,614 204,818 215,750
---------------------------------------------------------------------------------------
1981 22,844 215,671 235,000
---------------------------------------------------------------------------------------
1982 27,279 275,072 244,000
---------------------------------------------------------------------------------------
1983 31,092 321,561 253,250
---------------------------------------------------------------------------------------
1984 37,521 337,510 263,250
---------------------------------------------------------------------------------------
1985 43,150 408,427 273,250
---------------------------------------------------------------------------------------
1986 48,531 451,763 276,250
---------------------------------------------------------------------------------------
1987 51,214 460,251 288,500
---------------------------------------------------------------------------------------
1988 53,120 523,756 301,250
---------------------------------------------------------------------------------------
1989 59,178 550,254 315,250
---------------------------------------------------------------------------------------
1990 66,312 508,602 334,500
---------------------------------------------------------------------------------------
1991 71,085 703,596 344,750
---------------------------------------------------------------------------------------
1992 77,910 816,148 354,750
---------------------------------------------------------------------------------------
1993 82,556 946,487 364,500
---------------------------------------------------------------------------------------
1994 86,858 909,890 374,250
---------------------------------------------------------------------------------------
6/30/95 (6 months) 46,721 1,003,012 380,750
</TABLE>
--------------------------------------------------------------------------------
From the early 1970s through the early 1980s, the U.S. economy experienced
rapidly rising inflation and interest rates. The Fund kept pace with inflation
over this turbulent period.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
As the rate of inflation and interest rates declined in the 1980s, the Fund
outperformed the CPI by an average of 7.3%/year.
--------------------------------------------------------------------------------
$100,000 invested at the Fund's inception grew to over $1 million, which
represents an average annual increase of 10.0% versus 5.7% for the CPI.
The dollar amounts of capital gains distributions reinvested in Fund Shares
were: 1973 - $1,559; 1977 - $971; 1978 - $7,503; 1979 - $5,622; 1980 - $769;
1981 - $2,765; 1984 -$4,516; 1986 - $5,415; total - $29,120.
Source: Lord, Abbett & Co.
/(1)/ Nine months only. The Fund began operations on 4/1/71.
3
<PAGE>
================================================================================
Management in Action
--------------------------------------------------------------------------------
Current Dividend Distribution Rates: 9.58% and 9.13% (based on the net asset
value and the maximum offering price, respectively, on 6/30/95, and the monthly
dividend of $.073, annualized)
THE FUND'S 3-WAY FOCUS
----------------------------------------------------------------------------
1. Lower Rated Debt and Straight-preferred Stocks: 63.2%*
The Fund's lower rated debt holdings pay high income and help minimize the
effects of interest-rate fluctuations. Price appreciation may result if the
credit rating of debt issuers is upgraded.
2. Equity-related Securities: 17.3%*
Capital appreciation is sought by investing in convertible bonds which may
be exchanged for common stock. When the stock market rises, these equity-
related issues generally increase in value.
3. High-grade Debt and Other Assets, Less Liabilities: 19.5%*
High-quality issues, corporate issues and U.S. Government-backed securities
provide a dependable stream of high current income.
*Percent of portfolio on 6/30/95.
A HISTORY OF THE FUND'S PORTFOLIO BLEND
----------------------------------------------------------------------------
U.S. Gov't Agency Lower Rated Convertible Debt
Obligations, Higher Straight Debt Convertible
Rated Straight Debt and Straight- Preferred Stocks,
and Other Assets, preferred Common Stocks and
Less Liabilities Stocks Warrants
---------------------------------------------------------------
1974 34.7% 15.7% 49.6%
1975 35.3% 14.3% 50.4%
1979 29.1% 34.8% 36.1%
1982 27.1% 18.3% 54.6%
1985 14.4% 45.1% 40.5%
1988 13.7% 52.9% 33.4%
1990 16.3% 55.7% 28.0%
6/30/95 19.5% 63.2% 17.3%
================================================================================
Important Information
--------------------------------------------------------------------------------
SEC yield is calculated on the maximum offering price of $9.60 on 6/30/95,
using a standard method which does not take into account certain portfolio
strategies. The Fund's distribution rate differs from its SEC yield
primarily because the Fund purchases short- and intermediate-term high-
coupon securities at a premium and distributes to shareholders all of the
interest income on those securities without amortizing the premiums. This
practice is consistent with applicable tax regulations and generally
accepted accounting principles, but may result in a decrease in the net
asset value of shares of the Fund as the market value of the premium
securities decreases over time. Dividends paid from this interest income are
taxable to shareholders as ordinary income.
Bonds purchased by the Fund are subject to market fluctuations upward and
downward inversely to the rise and fall of interest rates. Common stocks are
also subject to market fluctuations providing potential for gain and risk of
loss. Lower rated bonds generally provide a higher yield than higher rated
bonds of similar average maturity, but have greater credit risk. The
performance results quoted herein reflect past performance, current sales
charges and appropriate Rule 12b-1 Plan expenses from commencement of the
Plan. Tax consequences are not reflected. The Fund's sales charge structure
has changed in the past. If used as sales material after 9/30/95, this
report must be accompanied by Lord Abbett's Performance Quarterly for the
most recently completed calendar quarter.
4
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO APPEARS HERE] Lord, Abbett & Co.
Investment Management
A Tradition of Performance Through Disciplined Investing
LABD-3-695
The GM Building * 767 Fifth Avenue * New York, NY 10153-0203 (8/95)
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
INVESTMENTS IN SECURITIES 87.20%
--------------------------------------------------------------------------------------------------------------------------------
LOWER RATED STRAIGHT DEBT (Note 2) 60.75%
--------------------------------------------------------------------------------------------------------------------------------
Aerospace Fairchild Corp. Sub. Deb. 13 1/8/2006 $ 5,000M $ 3,975,000
.82% ---------------------------------------------------------------------------------------------------------
GPA Delaware Inc. Deb. 8 3/4/1998 3,000M 2,565,000
---------------------------------------------------------------------------------------------------------
Wyman Gordon Co. Sr. Notes 10 3/4/2003 3,000M 2,861,250
---------------------------------------------------------------------------------------------------------
Total 9,401,250
--------------------------------------------------------------------------------------------------------------------------------
Agricultural Arcadian Partner Sr. Notes 10 3/4/2005 5,000M 5,068,750
.89% ---------------------------------------------------------------------------------------------------------
PMI Acquisition Corp. Sr. Sub. Notes 10 1/4/2003 5,000M 5,125,000
---------------------------------------------------------------------------------------------------------
Total 10,193,750
--------------------------------------------------------------------------------------------------------------------------------
Airlines Northwest Airlines Inc. Sr. Notes 12.0916/2000 3,426M 3,460,148
.71% ---------------------------------------------------------------------------------------------------------
US Air Inc. Equipment Trust CTF 10 1/2/2004 2,634M 2,607,248
---------------------------------------------------------------------------------------------------------
US Air Inc. (Piedmont) Equipment Trust Notes 10.35/2011 2,000M 2,026,875
---------------------------------------------------------------------------------------------------------
Total 8,094,271
--------------------------------------------------------------------------------------------------------------------------------
Aluminum Kaiser Aluminum & Chemical Corp. Sr. Sub. Notes 12 3/4/2003 5,000M 5,387,500
.72% ---------------------------------------------------------------------------------------------------------
Maxxam Group Zero Coupon Sr. Secured Notes due 2003** 4,500M 2,835,000
---------------------------------------------------------------------------------------------------------
Total 8,222,500
--------------------------------------------------------------------------------------------------------------------------------
Automotive .52% Motor Wheel Corp. Sr. Notes 11 1/2/2000 6,800M 5,882,000
--------------------------------------------------------------------------------------------------------------------------------
Banking Berkeley Federal Bank Sub. Deb. 12/2005 7,000M 6,991,250
1.26% ---------------------------------------------------------------------------------------------------------
Central Bank of Nigeria 6 1/4/2020 w/Warrants 6,000M 2,655,000
---------------------------------------------------------------------------------------------------------
Saul, B.F. Real Estate Investment Trust Sr. Notes 11 5/8/2002 5,000M 4,750,000
---------------------------------------------------------------------------------------------------------
Total 14,396,250
--------------------------------------------------------------------------------------------------------------------------------
Building .58% Scotsman Group Inc. Sr. Notes 9 1/2/2000 6,800M 6,630,000
--------------------------------------------------------------------------------------------------------------------------------
Building Materials Associated Materials, Inc. Sr. Sub. Notes 11 1/2/2003 2,000M 1,849,375
.98% ---------------------------------------------------------------------------------------------------------
Dal-tile International Inc. Zero Coupon Sr. Notes due 1998 15,000M 9,300,000
---------------------------------------------------------------------------------------------------------
Total 11,149,375
--------------------------------------------------------------------------------------------------------------------------------
Chemicals Atlantis Group Inc. Sr. Notes 11/2003 8,000M 8,161,250
3.90% ---------------------------------------------------------------------------------------------------------
Harris Chemical NA Inc. Zero Coupon Sr. Secured Discount Notes due 2001** 8,500M 7,756,250
---------------------------------------------------------------------------------------------------------
Huntsman Corp. 1st Mtge. Notes 11/2004 10,000M 10,962,500
---------------------------------------------------------------------------------------------------------
NL Industries Inc. Sr. Secured Discount Notes 11 3/4/2003 4,000M 4,180,000
---------------------------------------------------------------------------------------------------------
NL Industries Inc. Zero Coupon Sr. Secured Notes due 2005** 5,000M 3,515,625
---------------------------------------------------------------------------------------------------------
Polymer Group Inc. Sr. Notes 12 1/4/2002+ 4,750M 4,797,500
---------------------------------------------------------------------------------------------------------
UCC Investors Holdings Inc. Sr. Sub. Notes 11/2003 5,000M 5,118,750
---------------------------------------------------------------------------------------------------------
Total 44,491,875
--------------------------------------------------------------------------------------------------------------------------------
Communications Adelphia Communications Corp. Sr. Notes 12 1/2/2002 7,000M 6,982,500
9.39% ---------------------------------------------------------------------------------------------------------
Australis Media Ltd. Zero Coupon Sr. Discount Notes due 2003** 20,000M 10,500,000
---------------------------------------------------------------------------------------------------------
Bell Cable Media plc Zero Coupon Sr. Discount Notes due 2004** 16,000M 10,680,000
---------------------------------------------------------------------------------------------------------
Cellular Inc. Sr. Sub. Discount Notes due 2003** 6,500M 4,842,500
---------------------------------------------------------------------------------------------------------
Cencall Communications Corp. Zero Coupon Sr. Discount Notes due 2004** 7,500M 3,787,500
---------------------------------------------------------------------------------------------------------
Comcast Cellular Corp. Zero Coupon Sr. Notes due 2000 10,000M 7,150,000
---------------------------------------------------------------------------------------------------------
Dial Call Communications Inc. Zero Coupon Sr. Discount Notes
due 2004 w/Warrants** 5,000M 2,425,000
---------------------------------------------------------------------------------------------------------
Horizon Cellular Inc. Zero Coupon Sr. Sub. Discount Notes due 2000** 7,000M 5,547,500
---------------------------------------------------------------------------------------------------------
In-Flight Phone Corp. Sr. Discount Notes 14/2002 w/Warrants+** 7,500M 4,350,000
---------------------------------------------------------------------------------------------------------
Intermedia Communications of Florida 13 1/2/2005 w/Warrants+ 10,000M 10,062,500
---------------------------------------------------------------------------------------------------------
International Cabletel Inc. Zero Coupon Sr. Discount Notes due 2003** 5,000M 3,300,000
---------------------------------------------------------------------------------------------------------
International Cabletel Inc. Zero Coupon Discount Notes due 2005+** 10,000M 6,000,000
---------------------------------------------------------------------------------------------------------
Marcus Cable Co. Zero Coupon Sr. Discount Notes due 2004** 10,000M 6,337,500
---------------------------------------------------------------------------------------------------------
Mobile Media Communications Inc. Zero Coupon Sr. Sub. Notes due 2003** 8,000M 5,400,000
---------------------------------------------------------------------------------------------------------
Nextel Communications Inc. Zero Coupon Sr. Discount Notes due 2003** 5,500M 3,107,500
---------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Pan Am Sat L.P. Zero Coupon Sr. Sub. Notes due 2003** $ 7,500M $ 5,400,000
---------------------------------------------------------------------------------------------------------
Videotron Holdings plc Zero Coupon Sr. Discount Notes due 2004** 17,000M 11,177,500
---------------------------------------------------------------------------------------------------------
Total 107,050,000
--------------------------------------------------------------------------------------------------------------------------------
Computer Systems
and Peripherals .57% Digital Equipment Corp. Sr. Notes 7 3/4/2023 7,000M 6,443,281
--------------------------------------------------------------------------------------------------------------------------------
Consumer
Products .94% American Standard Inc. Zero Coupon Sr. Sub. Deb. due 2005** 14,000M 10,710,000
--------------------------------------------------------------------------------------------------------------------------------
Container and Silgan Corp. Sr. Sub. Notes 11 3/4/2002 1,000M 1,047,500
Packaging ---------------------------------------------------------------------------------------------------------
.58% Silgan Holdings Inc. Zero Coupon Sub. Notes due 2002** 6,000M 5,520,000
---------------------------------------------------------------------------------------------------------
Total 6,567,500
--------------------------------------------------------------------------------------------------------------------------------
Food Dr. Pepper Bottling Holding Inc. Zero Coupon Sr. Discount Notes due 2003** 6,750M 5,096,250
1.06% ---------------------------------------------------------------------------------------------------------
Envirodyne Industries Inc. Sr. Sub. Notes 10 1/4/2001 2,000M 1,600,000
---------------------------------------------------------------------------------------------------------
Heilman Acquisition Corp. Sr. Sub. Notes 9 5/8/2004 8,000M 5,400,000
---------------------------------------------------------------------------------------------------------
Total 12,096,250
--------------------------------------------------------------------------------------------------------------------------------
Forest Products .30% Pacific Lumber Co. Sr. Notes 10 1/2/2003 3,750M 3,459,375
--------------------------------------------------------------------------------------------------------------------------------
Hotel/Leisure Act III Theatres Inc. Sr. Sub. Notes 11 7/8/2003 4,000M 4,300,000
7.13% ---------------------------------------------------------------------------------------------------------
Aztar Corp. Sr. Sub. Notes 11/2002 4,000M 4,000,000
---------------------------------------------------------------------------------------------------------
Aztar Corp. Sr. Sub. Notes 13 3/4/2004 2,000M 2,262,500
---------------------------------------------------------------------------------------------------------
Bally GNF Corp. 1st Mtge. Notes 10 5/8/2003 5,000M 4,150,000
---------------------------------------------------------------------------------------------------------
Bally's Park Place Funding 1st Mtge. Notes 9 1/4/2004 7,000M 6,597,500
---------------------------------------------------------------------------------------------------------
Claridge Hotel & Casino Corp. 1st Mtge. Notes 11 3/4/2002 5,000M 3,925,000
---------------------------------------------------------------------------------------------------------
Empress River Casino Finance Corp. Sr. Notes 10 3/4/2002 5,000M 5,025,000
---------------------------------------------------------------------------------------------------------
Harrah's Jazz Co. 1st Mtge. Notes 14 1/4/2001 5,000M 5,212,500
---------------------------------------------------------------------------------------------------------
HMH Properties Inc. Sr. Secured Notes 9 1/2/2005+ 10,000M 9,725,000
---------------------------------------------------------------------------------------------------------
Host Marriott Travel Plazas Inc. Sr. Notes 9 1/2/2005+ 5,000M 4,812,500
---------------------------------------------------------------------------------------------------------
Plitt Theatres Inc. Sr. Sub. Notes 10 7/8/2004 5,000M 4,965,625
---------------------------------------------------------------------------------------------------------
Road Master Industries Inc. Sr. Sub. Notes 11 3/4/2002 6,000M 5,850,000
---------------------------------------------------------------------------------------------------------
Sahara Finance 1st Mtge. Notes 12 1/8/1996 5,933M 6,110,642
---------------------------------------------------------------------------------------------------------
Santa Fe Hotel Inc. 1st Mtge. Notes 11/2000 w/Warrants 5,000M 4,675,000
---------------------------------------------------------------------------------------------------------
Showboat Inc. 1st Mtge. Notes 9 1/4/2008 5,000M 4,600,000
---------------------------------------------------------------------------------------------------------
Stratosphere Corp. 1st Mtge. Notes 14 1/4/2002 5,000M 5,125,000
---------------------------------------------------------------------------------------------------------
Total 81,336,267
--------------------------------------------------------------------------------------------------------------------------------
Household
Products .45% Specialty Equipment Cos. Inc. Sr. Sub. Notes 11 3/8/2003 5,000M 5,150,000
--------------------------------------------------------------------------------------------------------------------------------
Insurance .43% Penncorp Financial Group Inc. Sr. Sub. Notes 9 1/4/2003 5,000M 4,875,000
--------------------------------------------------------------------------------------------------------------------------------
Machinery Carbide Graphite Group Inc. Sr. Notes 11 1/2/2003 5,000M 5,300,000
2.93% ---------------------------------------------------------------------------------------------------------
Eagle Industries Inc. Zero Coupon Sr. Discount Notes due 2003** 6,000M 4,455,000
---------------------------------------------------------------------------------------------------------
Essex Group Inc. Sr. Notes 10/2003 10,000M 9,700,000
---------------------------------------------------------------------------------------------------------
IMO Industries Inc. Sr. Sub. Deb. 12/2001 5,000M 5,200,000
---------------------------------------------------------------------------------------------------------
Terex Corporation Sr. Secured Notes 13 3/4/2002+ 5,000M 4,425,000
---------------------------------------------------------------------------------------------------------
Ucar Global Enterprises Inc. Sr. Sub. Notes 12/2005+ 4,000M 4,320,000
---------------------------------------------------------------------------------------------------------
Total 33,400,000
--------------------------------------------------------------------------------------------------------------------------------
Media Benedek Broadcasting Corp. Sr. Notes 11 7/8/2005+ 5,000M 5,156,250
2.14% ---------------------------------------------------------------------------------------------------------
Granite Broadcasting Corp. Sr. Sub. Notes 10 3/8/2005+ 8,000M 8,040,000
---------------------------------------------------------------------------------------------------------
Lamar Advertising Inc. Sr. Secured Notes 11/2003 3,000M 3,030,000
---------------------------------------------------------------------------------------------------------
NWCG Holdings Corp. Zero Coupon Sr. Secured Discount Notes due 1999+ 8,000M 5,000,000
---------------------------------------------------------------------------------------------------------
SCI Television Sr. Notes 11/2005 3,000M 3,142,500
---------------------------------------------------------------------------------------------------------
Total 24,368,750
---------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Medical Integrated Health Service Inc. Sr. Sub. Notes 10 3/4/2004 $ 1,800M $ 1,921,500
.55% ---------------------------------------------------------------------------------------------------------
Quorum Healthcare Group Inc. Sr. Sub. Notes 11 7/8/2002 4,000M 4,400,000
---------------------------------------------------------------------------------------------------------
Total 6,321,500
--------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Fairfield Manufacturing Inc. Sr. Sub. Notes 11 3/8/2001 4,800M 4,560,000
2.10% ---------------------------------------------------------------------------------------------------------
International Wire Group Inc. Sr. Sub. Notes 11 3/4/2005+ 10,000M 10,100,000
---------------------------------------------------------------------------------------------------------
Monarch Acquisition Corp. Sr. Notes 12 1/2/2003+ 5,000M 5,025,000
---------------------------------------------------------------------------------------------------------
Republic of Venezuela 6 3/4/2020 w/Warrants 6,000M 3,007,500
---------------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. Sr. Notes 10 1/4/2002 1,240M 1,212,100
---------------------------------------------------------------------------------------------------------
Total 23,904,600
--------------------------------------------------------------------------------------------------------------------------------
Non Ferrous Metals Interlake Corp. Sr. Notes 12/2001 5,000M 5,056,250
.87% ---------------------------------------------------------------------------------------------------------
Sherritt Gordon Inc. Notes 11/2004 7,000M 4,847,990
---------------------------------------------------------------------------------------------------------
Total 9,904,240
--------------------------------------------------------------------------------------------------------------------------------
Oil and Gas Astra Compania Argentina de Petroleos 11 5/8/1999 5,000M 4,700,000
1.93% ---------------------------------------------------------------------------------------------------------
Clark USA Inc. Zero Coupon Sr. Collateralized Notes due 2000 10,000M 6,225,000
---------------------------------------------------------------------------------------------------------
Crown Central Petroleum Corp. Sr. Notes 10 7/8/2005 5,000M 5,250,000
---------------------------------------------------------------------------------------------------------
Nuevo Energy Co. Sr. Sub. Notes 12 1/2/2002 4,000M 4,300,000
---------------------------------------------------------------------------------------------------------
Wainoco Oil Corp. Sr. Notes 12/2002 1,500M 1,552,500
---------------------------------------------------------------------------------------------------------
Total 22,027,500
--------------------------------------------------------------------------------------------------------------------------------
Oil Service Deeptech International Inc. Sr. Secured Notes 12/2000 4,000M 2,960,000
.54% ---------------------------------------------------------------------------------------------------------
Rowan Cos. Inc. Sr. Notes 11 7/8/2001 3,000M 3,225,000
---------------------------------------------------------------------------------------------------------
Total 6,185,000
--------------------------------------------------------------------------------------------------------------------------------
Paper and Pulp Domtar Inc. Deb. 11 1/4/2017 7,000M 7,490,000
2.29% ---------------------------------------------------------------------------------------------------------
Repap Wisconsin Inc. Sr. Secured 2nd Priority 9 7/8/2006 8,000M 7,770,000
---------------------------------------------------------------------------------------------------------
S.D. Warren Co. Sr. Sub. Notes 12/2004+ 4,200M 4,546,500
---------------------------------------------------------------------------------------------------------
Stone Container Corp. 1st Mtge. Notes 10 3/4/2002 6,000M 6,315,000
---------------------------------------------------------------------------------------------------------
Total 26,121,500
--------------------------------------------------------------------------------------------------------------------------------
Printing and Big Flower Press Inc. Sr. Sub. Notes 10 3/4/2003 8,000M 7,800,000
Publishing ---------------------------------------------------------------------------------------------------------
1.53% *Chas. P. Young Co. Sr. Sub. P.I.K. Deb. 14/1999*** 2,825M 7,062
---------------------------------------------------------------------------------------------------------
Garden State Newspapers Inc. Sr. Sub. Notes 12/2004 5,000M 5,025,000
---------------------------------------------------------------------------------------------------------
Webcraft Technologies Inc. Sr. Sub. Notes 9 3/8/2002 5,000M 4,575,000
---------------------------------------------------------------------------------------------------------
Total 17,407,062
--------------------------------------------------------------------------------------------------------------------------------
Restaurant .38% American Restaurants Group Sr. Notes 12/1998 5,000M 4,325,000
--------------------------------------------------------------------------------------------------------------------------------
Retail Cole National Corp. Sr. Notes 11 1/4/2001 8,000M 7,520,000
4.88% ---------------------------------------------------------------------------------------------------------
Cort Furniture Rental Corp. Sr. Notes 12/2000 w/Warrants 4,600M 4,531,000
---------------------------------------------------------------------------------------------------------
County Seat Stores Inc. Sr. Sub. Notes 12/2001 w/Warrants 5,000M 5,100,000
---------------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp. Sr. Notes 10 5/8/2003 5,000M 4,800,000
---------------------------------------------------------------------------------------------------------
Guess Inc. Sr. Sub. Notes 9 1/2/2003 5,000M 5,025,000
---------------------------------------------------------------------------------------------------------
Levitz Furniture Corp. Sr. Sub. Notes 9 5/8/2003 3,000M 2,250,000
---------------------------------------------------------------------------------------------------------
Pamida Inc. Sr. Sub. Notes 11 3/4/2003 8,000M 7,160,000
---------------------------------------------------------------------------------------------------------
Rickel Home Center Sr. Notes 13 1/2/2001 w/Warrants 5,000M 4,000,000
---------------------------------------------------------------------------------------------------------
United Stationers Supply Co. Sr. Sub. Notes 12 3/4/2005+ 10,000M 10,225,000
---------------------------------------------------------------------------------------------------------
Wickes Lumber Co. Sr. Sub. Notes 11 5/8/2003 6,000M 5,040,000
---------------------------------------------------------------------------------------------------------
Total 55,651,000
--------------------------------------------------------------------------------------------------------------------------------
Steel AK Steel Corp. Sr. Notes 10 3/4/2004 7,000M 7,385,000
2.45% ---------------------------------------------------------------------------------------------------------
Earle M. Jorgenson Co. Sr. Notes 10 3/4/2000 5,000M 4,825,000
---------------------------------------------------------------------------------------------------------
Inland Steel Industries Inc. Notes 12 3/4/2002 4,500M 5,028,750
---------------------------------------------------------------------------------------------------------
Republic Engineered Steel Inc. 1st Mtge. 9 7/8/2001 5,000M 4,537,500
---------------------------------------------------------------------------------------------------------
Stelco Inc. Sub. Deb. 10.40/2009 9,000M 6,181,875
---------------------------------------------------------------------------------------------------------
Total 27,958,125
---------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Supermarket Dairy Mart Convenience Stores Inc. Sr. Sub. Notes 10 1/4/2004 $ 5,000M $ 4,125,000
2.90% ---------------------------------------------------------------------------------------------------------
Farm Fresh Holdings Sr. Notes P.I.K. 14 1/4/2002***+ 5,108M 3,039,331
---------------------------------------------------------------------------------------------------------
Farm Fresh Inc. Sr. Notes 12 1/4/2000 3,000M 2,835,000
---------------------------------------------------------------------------------------------------------
Pathmark Stores Inc. Sub. Notes 11 5/8/2002 3,000M 3,183,750
---------------------------------------------------------------------------------------------------------
Pathmark Stores Inc. Zero Coupon Sub. Notes due 2003** 10,000M 6,050,000
---------------------------------------------------------------------------------------------------------
Ralphs Grocery Co. Sr. Sub. Notes 13 3/4/2005 3,000M 3,210,000
---------------------------------------------------------------------------------------------------------
Ralphs Supermarkets Inc. Sr. Notes 10.45/2004 9,100M 9,134,125
---------------------------------------------------------------------------------------------------------
Victory Markets Inc. Sub. Notes 12 1/2/2000 5,000M 1,525,000
---------------------------------------------------------------------------------------------------------
Total 33,102,206
--------------------------------------------------------------------------------------------------------------------------------
Textile Dan River Inc. Sr. Sub. Notes 10 1/8/2003 5,000M 4,975,000
2.69% ---------------------------------------------------------------------------------------------------------
J.P. Stevens & Co. Inc. Notes 9/2017 3,000M 2,880,000
---------------------------------------------------------------------------------------------------------
Plaid Clothings Group Inc. Sr. Sub. Notes 11/2003 3,000M 885,000
---------------------------------------------------------------------------------------------------------
Synthetic Industries Inc. Sr. Sub. Notes 12 3/4/2002 5,000M 5,075,000
---------------------------------------------------------------------------------------------------------
Tultex Corp. Sr. Notes 10 5/8/2005 4,000M 4,080,000
---------------------------------------------------------------------------------------------------------
US Leather Inc. Sr. Notes 10 1/4/2003 7,000M 6,055,000
---------------------------------------------------------------------------------------------------------
Westpoint Stevens Inc. Sr. Sub. Deb. 9 3/8/2005 7,000M 6,755,000
---------------------------------------------------------------------------------------------------------
Total 30,705,000
--------------------------------------------------------------------------------------------------------------------------------
Transportation Omi Corp. Sr. Notes 10 1/4/2003 5,000M 4,300,000
.90% ---------------------------------------------------------------------------------------------------------
Trism Inc. Sr. Sub. Notes 10 3/4/2000 6,000M 5,940,000
---------------------------------------------------------------------------------------------------------
Total 10,240,000
--------------------------------------------------------------------------------------------------------------------------------
Utility .44% Beaver Valley II Funding Corp. Secured Lease Obligation 9/2017 5,924M 5,005,780
---------------------------------------------------------------------------------------------------------
Total Investments in Lower Rated Straight Debt (Cost $725,477,254) 692,776,207
--------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE DEBT 11.49%
--------------------------------------------------------------------------------------------------------------------------------
Automotive .25% Pep Boys Manny Moe & Jack Conv. Sub. Deb 4/1999 3,000M 2,797,500
--------------------------------------------------------------------------------------------------------------------------------
Business
Services .28% Olsten Corp. Sub. Deb. 4 7/8/2003 3,000M 3,180,000
--------------------------------------------------------------------------------------------------------------------------------
Communications LDDS Communication Inc. Conv. Sub. Deb. 5/2003 5,000M 4,800,000
.84% ---------------------------------------------------------------------------------------------------------
Telekom Malaysia Berhad Conv. Notes 4/2004+ 5,000M 4,825,000
---------------------------------------------------------------------------------------------------------
Total 9,625,000
--------------------------------------------------------------------------------------------------------------------------------
Computer Support
Systems .12% Businessland Inc. Conv. Sub. Deb. 5 1/2/2007 5,000M 1,350,000
--------------------------------------------------------------------------------------------------------------------------------
Computer Systems Conner Peripherals Inc. Conv. Sub. Deb. 6 1/2/2002 5,000M 4,231,250
and Peripherals ---------------------------------------------------------------------------------------------------------
.96% EMC Corp. Conv. Sub. Deb. 4 1/4/2001 5,000M 6,700,000
---------------------------------------------------------------------------------------------------------
Total 10,931,250
--------------------------------------------------------------------------------------------------------------------------------
Data Processing
Equipment .47% Automatic Data Processing Inc. Zero Coupon Conv. Sub. Deb. due 2012 12,000M 5,355,000
--------------------------------------------------------------------------------------------------------------------------------
Drugs .52% Roche Holdings Inc. Zero Coupon Conv. Sub. Deb. due 2010+ 15,000M 5,962,500
--------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment General Signal Corp. Sub. Deb. 5 3/4/2002 4,975M 5,323,250
.60% ---------------------------------------------------------------------------------------------------------
Magnetek Inc. Sub. Notes 8/2001 1,500M 1,500,000
---------------------------------------------------------------------------------------------------------
Total 6,823,250
--------------------------------------------------------------------------------------------------------------------------------
Electronic
Components .46% Altera Corp. Conv. Sub. Deb. 5 3/4/2002+ 5,000M 5,275,000
--------------------------------------------------------------------------------------------------------------------------------
Electronics Fisher Scientific International Sub. Deb. 4 3/4/2003 3,000M 3,232,500
1.15% ---------------------------------------------------------------------------------------------------------
General Instrument Corp. Jr. Sub. Notes 5/2000 6,000M 9,900,000
---------------------------------------------------------------------------------------------------------
Total 13,132,500
--------------------------------------------------------------------------------------------------------------------------------
Hotel/Leisure Time Warner Inc. Zero Coupon due 2013 8,000M 3,210,000
.58% ---------------------------------------------------------------------------------------------------------
Time Warner Inc. (Exch. Hasbro) Zero Coupon Sr. Notes due 2012 10,000M 3,375,000
---------------------------------------------------------------------------------------------------------
Total 6,585,000
---------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Market Value
Security or Number of Shares (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Industrial and Interface Inc. Sub. Deb. 8/2013 $ 4,000M $ 3,920,000
Capital Goods ---------------------------------------------------------------------------------------------------------
.94% Raymond Corp. Conv. Sub. Deb. 6 1/2/2003 3,000M 3,675,000
---------------------------------------------------------------------------------------------------------
RPM, Inc. Zero Coupon Conv. Sub. Deb. due 2012 7,500M 3,150,000
---------------------------------------------------------------------------------------------------------
Total 10,745,000
--------------------------------------------------------------------------------------------------------------------------------
Insurance CII Financial Inc. Sub. Deb. 7 1/2/2001 5,000M 4,225,000
.98% ---------------------------------------------------------------------------------------------------------
Employee Benefit Plans, Inc. Sub. Deb. 6 3/4/2006 5,000M 4,825,000
---------------------------------------------------------------------------------------------------------
Old Republic International Corp. Sub. Deb. 5 3/4/2002 2,000M 2,120,000
---------------------------------------------------------------------------------------------------------
Total 11,170,000
--------------------------------------------------------------------------------------------------------------------------------
Medical Healthsouth Rehab. Corp. Conv. Sub. Deb. 5/2001 3,250M 3,615,625
.41% ---------------------------------------------------------------------------------------------------------
Integrated Health Service Conv. Sub. Deb. 6/2003 1,000M 1,056,875
---------------------------------------------------------------------------------------------------------
Total 4,672,500
--------------------------------------------------------------------------------------------------------------------------------
Metals and Minerals
.20% Inco Ltd. Conv. Deb. 5 3/4/2004 2,000M 2,280,000
--------------------------------------------------------------------------------------------------------------------------------
Oil and Gas Pennzoil (Exch. Chevron) Conv. Sub. Deb. 4 3/4/2003 3,000M 2,857,500
.44% ---------------------------------------------------------------------------------------------------------
Wainoco Oil Corp. Conv. Sub. Deb. 7 3/4/2014 2,400M 2,130,000
---------------------------------------------------------------------------------------------------------
Total 4,987,500
--------------------------------------------------------------------------------------------------------------------------------
Oil Service .23% Noble Affiliates Inc. Conv. Sub. Deb. 4 1/4/2003 2,800M 2,670,500
--------------------------------------------------------------------------------------------------------------------------------
Restaurant Boston Chicken, Inc. Conv. Deb. 4 1/2/2004 5,000M 4,643,750
.52% ---------------------------------------------------------------------------------------------------------
Starbucks Corp. Conv. Sub. Deb. 4 1/2/2003 1,000M 1,224,375
---------------------------------------------------------------------------------------------------------
Total 5,868,125
--------------------------------------------------------------------------------------------------------------------------------
Retail Broadway Stores, Inc. Conv. Sub. Deb. 6 1/4/2000 2,500M 1,562,500
.38% ---------------------------------------------------------------------------------------------------------
Michaels Stores Inc. Sub. Deb. 4 3/4/2003 3,000M 2,745,000
---------------------------------------------------------------------------------------------------------
Total 4,307,500
--------------------------------------------------------------------------------------------------------------------------------
Steel Allegheny Ludlum Corp. Sub. Deb. 5 7/8/2002 3,000M 3,255,000
.45% ---------------------------------------------------------------------------------------------------------
Stelco Inc. Conv. Sub. Deb. 7 3/4/1998 3,000M 1,863,750
---------------------------------------------------------------------------------------------------------
Total 5,118,750
--------------------------------------------------------------------------------------------------------------------------------
Transportation .34% Airborne Freight Corp. Conv. Deb. 6 3/4/2001 4,000M 3,920,000
--------------------------------------------------------------------------------------------------------------------------------
Waste Management WMX Technologies Inc. Conv. Notes 2/2005 5,000M 4,225,000
.37% ---------------------------------------------------------------------------------------------------------
Total Investments in Convertible Debt (Cost $128,902,096) 130,981,875
--------------------------------------------------------------------------------------------------------------------------------
PREFERRED AND CONVERTIBLE-PREFERRED STOCKS, COMMON STOCKS AND WARRANTS 8.24%
--------------------------------------------------------------------------------------------------------------------------------
Banking Ahmanson, H.F. & Co. 6% Conv. Pfd. Series D 100,000 5,112,500
1.34% ---------------------------------------------------------------------------------------------------------
California Federal Bank $10.625 Non Cum. Pfd. 45,000 4,848,750
---------------------------------------------------------------------------------------------------------
Greater NY Savings $3.00 Non Cum. Pfd. Series B 200,000 5,300,000
---------------------------------------------------------------------------------------------------------
Total 15,261,250
--------------------------------------------------------------------------------------------------------------------------------
Building Materials
.90% Owens Corning $3.25 Conv. Pfd.+ 200,000 10,300,000
--------------------------------------------------------------------------------------------------------------------------------
Chemicals .35% Atlantic Richfield Co. (Exch. Lyondell) $2.23 Conv. Pfd. 153,000 3,978,000
--------------------------------------------------------------------------------------------------------------------------------
Communications *ALC Communications Corp. Warrants 275,000 4,297
.81% ---------------------------------------------------------------------------------------------------------
Evergreen Media Corp. $3.00 Conv. Pfd. 60,000 3,240,000
---------------------------------------------------------------------------------------------------------
First Chicago Corp. (Exch. Nextel) $1.994 Conv. Pfd. 140,000 2,450,000
---------------------------------------------------------------------------------------------------------
K-III Communications Corp. $2.875 Sr. Exch. Pfd. 94,300 2,475,375
---------------------------------------------------------------------------------------------------------
Sprint Corp. (Exch. SNG) $2.62 Conv. Pfd. 30,000 1,042,500
---------------------------------------------------------------------------------------------------------
Total 9,212,172
--------------------------------------------------------------------------------------------------------------------------------
Data Processing
Equipment .41% General Motors Corp. (Electronic Data Systems) $3.25 Conv. Pfd. 75,000 4,725,000
--------------------------------------------------------------------------------------------------------------------------------
Drugs Foxmeyer Health Corp. $4.20 Pfd. Series A 150,000 5,456,250
.52% ---------------------------------------------------------------------------------------------------------
*Ornda Health Corp. 25,132 430,386
---------------------------------------------------------------------------------------------------------
Total 5,886,636
--------------------------------------------------------------------------------------------------------------------------------
Financial .11% American Express Company 6 1/4% Conv. Pfd. Notes 25,000 1,212,500
--------------------------------------------------------------------------------------------------------------------------------
Hotel/Leisure .49% AMC Entertainment Inc. $1.75 Conv. Pfd. 200,000 5,550,000
---------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
================================================================================
Statement of Net Assets June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Insurance American General $3.00 Conv. Pfd. A 200,000 $ 10,375,000
1.33% ---------------------------------------------------------------------------------------------------------
St. Paul's Capital, LLC $3.00 Conv. Pfd. 91,100 4,759,975
---------------------------------------------------------------------------------------------------------
Total 15,134,975
--------------------------------------------------------------------------------------------------------------------------------
Machinery *Bucyrus-Erie Company 56,624 325,588
.48% ---------------------------------------------------------------------------------------------------------
Navistar International Corp. $6.00 Conv. Pfd. G 100,000 5,200,000
---------------------------------------------------------------------------------------------------------
Total 5,525,588
--------------------------------------------------------------------------------------------------------------------------------
Medical .20% Beverly Enterprises Inc. $2.75 Conv. Pfd. 45,000 2,351,250
--------------------------------------------------------------------------------------------------------------------------------
Metals and Minerals
.24% Freeport McMoRan Copper & Gold $1.75 Conv. Pfd. 110,000 2,750,000
--------------------------------------------------------------------------------------------------------------------------------
Printing and *Chas. P. Young Co. Pfd. A P.I.K.***+ 11,784 184
Publishing ---------------------------------------------------------------------------------------------------------
.00% *Chas. P. Young Co.+ 7,542 118
---------------------------------------------------------------------------------------------------------
Total 302
--------------------------------------------------------------------------------------------------------------------------------
Real Estate .00% *Atlantic Gulf Communities Corp. w/Warrants 3,757 24,421
--------------------------------------------------------------------------------------------------------------------------------
Retail *Revco D.S. Inc. 4,645 111,489
.19% ---------------------------------------------------------------------------------------------------------
*Supermarkets General Holdings Corp. $3.52 Pfd. P.I.K.*** 80,000 2,080,000
---------------------------------------------------------------------------------------------------------
Total 2,191,489
--------------------------------------------------------------------------------------------------------------------------------
Telecommunications
and Telephone .55% LCI International Inc. $1.25 Conv. Pfd. 150,000 6,243,750
--------------------------------------------------------------------------------------------------------------------------------
Waste Management .32% Browning Ferris Industries Inc. $2.58 Conv. Pfd. 99,600 3,635,400
---------------------------------------------------------------------------------------------------------
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $111,496,658) 93,982,733
--------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY ISSUES 6.72%
--------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 8% due on an announced basis 55,000M 56,031,250
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 8 1/2% due on an announced basis 20,000M 20,625,000
---------------------------------------------------------------------------------------------------------
Total Investments in Government Agency Issues (Cost $76,850,000) 76,656,250
---------------------------------------------------------------------------------------------------------
Total Investments in Securities (Cost $1,042,726,008) 994,397,065
--------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES 12.80%
--------------------------------------------------------------------------------------------------------------------------------
Other Short-term Association Corp. of North America 12.40% due 10/1/1995 5,000M 5,021,875
Assets Investments, ---------------------------------------------------------------------------------------------------------
at Market Federal Home Loan Banks 15% due 7/6/1995 40,000M 40,275,000
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 12% due 3/13/1996 39,000M 39,719,061
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 12% due 5/1/1996 25,000M 25,984,375
---------------------------------------------------------------------------------------------------------
Student Loan Marketing Association 15% due 10/13/1995 11,000M 11,302,500
---------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 9 1/4% due 1/15/1996 24,000M 24,431,250
---------------------------------------------------------------------------------------------------------
Total (Cost $152,678,271) 146,734,061
-----------------------------------------------------------------------------------------------------------------------
Short-term Beneficial Corp. 6% due 7/6/1995 34,700M 34,700,000
Investments, ---------------------------------------------------------------------------------------------------------
at Cost Ford Motor Credit Co. 5.92% due 7/3/1995 14,200M 14,200,000
---------------------------------------------------------------------------------------------------------
General Electric Co. 5.70% due 7/5/1995 1,000M 1,000,000
---------------------------------------------------------------------------------------------------------
Total 49,900,000
---------------------------------------------------------------------------------------------------------
Total Short-Term Investments 196,634,061
---------------------------------------------------------------------------------------------------------
Receivable Securities sold 6,542,970
for: ---------------------------------------------------------------------------------------------------------
Other 32,252,675
---------------------------------------------------------------------------------------------------------
Total Other Assets 235,429,706
--------------------------------------------------------------------------------------------------------------------------------
Liabilities Payable Securities purchased 87,518,923
for: ---------------------------------------------------------------------------------------------------------
Other 1,961,000
---------------------------------------------------------------------------------------------------------
Total Liabilities 89,479,923
---------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 145,949,783
--------------------------------------------------------------------------------------------------------------------------------
Net Assets (equivalent to $9.14 a share on 124,788,566 shares of $1.00 par value
100.00% capital stock outstanding; authorized, 300,000,000 shares) $1,140,346,848
---------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing.
**Deferred-interest debentures pay no interest for a stipulated number of
years, after which they pay the indicated coupon rate.
***Represents a payment-in-kind security, which may pay interest/dividends in
additional face/shares.
+Restricted security under Rule 144A.
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Statement of Operations For the Six Months Ended June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income
----------------------------------------------------------------------------------------------------------------------
Income Interest $ 51,328,491
--------------------------------------------------------------------------------------------------------
Dividends 2,687,543
--------------------------------------------------------------------------------------------------------
Total income $ 54,016,034
----------------------------------------------------------------------------------------------------------------------
Expenses Management fee (Note 6) 2,434,506
--------------------------------------------------------------------------------------------------------
12b-1 distribution plan (Note 6) 729,623
--------------------------------------------------------------------------------------------------------
Shareholder servicing 599,996
--------------------------------------------------------------------------------------------------------
Reports to shareholders 89,927
--------------------------------------------------------------------------------------------------------
Legal and audit 32,997
--------------------------------------------------------------------------------------------------------
Other 147,608
--------------------------------------------------------------------------------------------------------
Total expenses 4,034,657
--------------------------------------------------------------------------------------------------------
Net investment income 49,981,377
--------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (Note 5)
----------------------------------------------------------------------------------------------------------------------
Net realized loss from security transactions
--------------------------------------------------------------------------------------------------------
Proceeds from sales 766,709,537
--------------------------------------------------------------------------------------------------------
Cost of securities sold 779,148,096
--------------------------------------------------------------------------------------------------------
Net realized loss (12,438,559)
----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
--------------------------------------------------------------------------------------------------------
Beginning of period (118,993,760)
--------------------------------------------------------------------------------------------------------
End of period (54,273,153)
--------------------------------------------------------------------------------------------------------
Net unrealized appreciation 64,720,607
--------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 52,282,048
--------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $102,263,425
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
================================================================================
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
Increase (Decrease) in Net Assets 1995 1994
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations Net investment income $ 49,981,377 $ 89,879,578
----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from security transactions (12,438,559) 13,853,235
----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 64,720,607 (144,176,493)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 102,263,425 (40,443,680)
------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of shares sold and reacquired (Note 1d) 1,795,037 2,516,546
------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (51,343,486) (93,546,234)
------------------------------------------------------------------------------------------------------------------------------
Capital share transactions
----------------------------------------------------------------------------------------------------------------
Net proceeds from sales of 14,857,734 and 25,133,098 shares, respectively 130,589,895 232,049,429
----------------------------------------------------------------------------------------------------------------
Net asset value of 2,798,726 and 4,986,894 shares, respectively, issued to
shareholders in reinvestment of net investment income 24,420,966 45,801,632
----------------------------------------------------------------------------------------------------------------
Total 155,010,861 277,851,061
----------------------------------------------------------------------------------------------------------------
Cost of 6,291,742 and 14,137,840 shares reacquired, respectively (54,991,893) (128,500,987)
----------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions (net increase of
11,364,718 and 15,982,152 shares, respectively) 100,018,968 149,350,074
------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 152,733,944 17,876,706
------------------------------------------------------------------------------------------------------------------------------
Net Assets
------------------------------------------------------------------------------------------------------------------------------
Beginning of period 987,612,904 969,736,198
----------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $27,529,452
and $27,096,524, respectively) $1,140,346,848 $987,612,904
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------------------------
Per Share Operating Performance: 1995 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.71 $ 9.95 $ 9.43 $ 9.02 $ 7.36 $ 9.03
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations
----------------------------------------------------------------------------------------------------------------------
Net investment income .42+ .84 .89 .95 .98 1.02
----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .448 (1.203) .55 .42 1.66 (1.65)
----------------------------------------------------------------------------------------------------------------------
Total from investment operations .868 (.363) 1.44 1.37 2.64 (.63)
-------------------------------------------------------------------------------------------------------------------------
Distributions
----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.438) (.877) (.92) (.96) (.98) (1.04)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.14 $ 8.71 $ 9.95 $ 9.43 $ 9.02 $ 7.36
----------------------------------------------------------------------------------------------------------------------------
Total Return* 10.23%+ (3.87)% 15.97% 15.99% 38.34% (7.57)%
----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) $1,140,347 $987,613 $969,736 $734,017 $594,008 $480,847
----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
-------------------------------------------------------------------------------------------------------------------------
Expenses .38%+ .88% .88% .84% .85% .80%
----------------------------------------------------------------------------------------------------------------------
Net investment income 4.76%+ 8.97% 9.17% 10.18% 11.96% 12.48%
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 74.93% 147.98% 159.79% 188.44% 208.49% 145.47%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return does not consider the effects of sales loads.
+Not annualized.
See Notes to Financial Statements.
===============================================================================
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Company is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The following is a summary
of significant accounting policies consistently followed by the Company. The
policies are in conformity with generally accepted accounting principles.
(a) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange, or, in the case of bonds and notes, in the over-the-
counter market if, in the judgment of the Company's officers, that market more
accurately reflects the market value of bonds and notes. Securities traded only
in the over-the-counter market are valued at the mean between the bid and asked
prices, except that securities admitted to trading on the NASDAQ National Market
System are valued at the last sales price if it is determined that such price
more accurately reflects the value of such securities. Securities for which
market quotations are not available are valued at fair value under procedures
approved by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income in taxable distributions. Therefore, no federal income tax
provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Interest income is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the ex-
dividend date. The Company has elected not to amortize the premiums on U.S.
Government bonds, which is consistent with the treatment for federal income tax
purposes.
(d) A portion of the proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
12
<PAGE>
================================================================================
Notes to Financial Statements
--------------------------------------------------------------------------------
2. Investment Grades
Investment-grade corporate bonds consist of securities rated within one of the
four highest ratings determined either by Moody's Investors Service, Inc. or
Standard & Poor's Corporation. Lower rated straight debt consists of securities
rated lower than the four highest ratings or that have no rating.
3. Distributions
Dividends from net investment income are declared quarterly and paid monthly.
Taxable net realized gains from security transactions, if any, are usually
declared in December of the current year or January of the succeeding year. At
June 30, 1995, accumulated net realized loss for financial reporting purposes,
which is substantially the same as for federal income tax purposes, aggregated
$75,090,949.
The Company had a capital loss carryforward as of December 31, 1994 of
approximately $64,000,000 of which $19,000,000 expires in 1996, $4,000,000
expires in 1997, $28,000,000 expires in 1998 and $13,000,000 expires in 1999.
Accordingly, no capital gain distribution is expected to be paid to shareholders
until net gains have been realized in excess of such amounts.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles. These differences are primarily caused by
differences in the timing of the recognition of certain components of income,
expense, or capital gain. Where such differences are permanent in nature, they
are reclassified in the Sources of Net Assets based upon their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value of
the Fund.
4. Capital Paid In
At June 30, 1995, capital paid in aggregated $1,242,181,498.
5. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term investments) aggregated $732,489,871 and
$666,585,178, respectively. Purchases and sales of short-term investments and
long-term U.S. Government obligations aggregated $112,046,666 and $100,124,359,
respectively. Security gains and losses are computed on the identified cost
basis. As of June 30, 1995, unrealized depreciation for federal income tax
purposes aggregated $54,273,153, of which $31,603,260 rela ted to appreciated
securities and $85,876,413 related to depreciated securities. For federal
income tax purposes, the identified cost of investments owned at June 30, 1995
was substantially the same as the cost for financial reporting purposes.
6. Management Fee and Other Transactions with Affiliates
Lord, Abbett & Co. received a management fee of $2,434,506 for which it supplied
investment management, research, statistical and advisory services and paid
officers' remuneration and certain other expenses of the Company. For the
services performed and expenses assumed by Lord, Abbett & Co., the Company paid
a fee based on average daily net assets at the following annual rates: 0.50% on
the first $500 million and 0.45% on the assets over $500 million. Lord, Abbett &
Co. also received $638,592 representing payment of commissions on sales of
capital stock of the Company after deducting $3,927,656 allowed to authorized
distributors as concessions. Certain of the Company's officers and directors
have an interest in Lord, Abbett & Co. The Company has a Rule 12b-1 Plan
providing for (a) the payment of a service fee to dealers at the annual rate of
.15% of the average daily net asset value of the Company's shares sold by
dealers prior to June 1, 1990 and .25% of the average daily net asset value of
such shares sold on or after that date and (b) a one-time 1% distribution fee,
at the time of sale, on such shares sold at net asset value of $1 million or
more.
7. Directors' Remuneration
The Directors of the Company associated with Lord, Abbett & Co. and all officers
of the Company receive no compensation from the Company for acting as such.
Outside Directors' fees, including attendance fees for board and committee
meetings, and outside Directors' retirement costs, are allocated among all funds
in the Lord Abbett group based on net assets of each fund. The direct
remuneration accrued during the period for outside Directors of the Company as a
group was $10,551 (exclusive of expenses), which has been deemed invested in
shares of the Company under a deferred compensation plan contemplating future
payment of the value of those shares. As of June 30, 1995, the aggregate amount
in Directors' accounts maintained under the plan was $268,472. Retirement costs
accrued during the period ended June 30, 1995 amounted to $4,488.
<PAGE>
================================================================================
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Lord Abbett Bond-Debenture Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett Bond-
Debenture Fund, Inc. as of June 30, 1995, the related statements of operations
for the six months then ended and of changes in net assets for the six months
then ended and the year ended December 31, 1994, and the financial highlights
for the six months then ended and for each of the years in the five-year period
ended December 31, 1994. These financial statements and the financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett Bond-
Debenture Fund, Inc. at June 30, 1995, the results of its operations, the
changes in its net assets and the financial highlights for the above-stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 3, 1995
Copyright (C) 1995 by Lord Abbett Bond-Debenture Fund, Inc., 767 Fifth Avenue,
New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Bond-Debenture Fund, Inc., is to be distributed only if preceded or
accompanied by a current prospectus, which includes information concerning the
Fund's investment objective and policies, sales charges and other matters.
All rights reserved. Printed in the U.S.A.
=============================
Our Management
-----------------------------
Board of Directors
Ronald P. Lynch
Robert S. Dow
E. Thayer Bigelow*
Stewart S. Dixon*
John C. Jansing*+
C. Alan MacDonald*+
Hansel B. Millican, Jr.*+
Thomas J. Neff*
*Outside Director
+Audit Committee
Investment Manager and
Underwriter
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
Morgan Guaranty Trust Company
of New York
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
