<PAGE>
[TYPE]
[DESCRIPTION] S/A REPORT
Lord Abbett Bond-Debenture
Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 1996
A mutual fund with
a multi-faceted
approach for producing [PHOTO OF SWISS ARMY KNIFE]
high income
[LOGO]
<PAGE>
Lord Abbett Bond-Debenture Fund
[Graphic of binoculars and map]
Since its establishment in 1971, Lord Abbett Bond-Debenture
Fund has sought the best of both worlds--high current 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.
- - --------------------------------------------------------------------------------
Flexibility The Fund's flexible investment policy enables it
to adapt to changing economic conditions. (See
page 4 for the Fund's portfolio composition.)
- - --------------------------------------------------------------------------------
High Current Income Dividend Distribution Rates on 6/30/96(1)
[The following table was presented as a graph in the printed document]
Dividend
Distribution
Rates
On 6/30/96(1)
-------------
At Net Asset Value 9.15%
At Maximum Offering Price 8.71%
- - --------------------------------------------------------------------------------
Historically Consistent Total Returns
[The following table was presented as a graph in the printed document]
Average Annual
Rates of
Total Return
as of 6/30/96(2)
----------------
For the past 20 years 10.8% per year
For the past 15 years 11.5% per year
For the past 10 years 9.4% per year
For the past 5 years 12.5% per year
For the past year 10.4% for the year
- - --------------------------------------------------------------------------------
Average Annual Average annual total returns 1 year: +5.10%
Total Returns for periods ended 6/30/96 5 years: +11.40%
at the 4.75% maximum sales 10 years: +8.88%
charge,with all distributions
reinvested.
The Fund's SEC yield for
the 30 days ended 6/30/96
was 7.82%.
Total return is the
percent change in value,
assuming the reinvestment
of all distributions.
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.
(1) Based on the $.07 monthly dividend (payable August
1996), annualized.
(2) At net asset value.
See Important Information on page 4.
<PAGE>
Report to Shareholders
For the Six Months Ended June 30, 1996
[Photo of Robert S. Dow Chairman
/s/ Robert S. Dow
ROBERT S. DOW
Chairman
July 12, 1996
- - --------------------------------------------------------------------------------
We would like to thank all shareholders who voted their proxy ballots. We are
pleased to announce that, on June 19, 1996, shareholders approved all the
proposals recommended by your Board of Directors.
- - --------------------------------------------------------------------------------
Lord Abbett Bond-Debenture Fund completed the first half of its fiscal year on
June 30, 1996. Over the period, the Fund paid dividends totaling $.438 per
share. The Fund's dividend distribution rates (based on the new monthly dividend
of $.07, payable in August) were 9.15% and 8.71% based on the Fund's net asset
value of $9.18 and maximum offering price of $9.64, respectively, on June 30,
1996. The past six months proved to be difficult for fixed-income investors;
despite this, your Fund produced a positive total return of 3.6% over the
period. (Total return is the percent change in net asset value assuming the
reinvestment of all distributions.)
Over the last six months, the bond markets were heavily influenced by investors'
expectations. The year began amidst slow economic growth in the U.S. and low
inflation, which enabled the Federal Reserve Bank to lower short-term lending
rates in January. Encouraged by this, many investors thought additional
reductions in interest rates would be forthcoming. However, as economic growth
picked up, it became evident that there would be no near-term action by the
Federal Reserve. Investor disappointment gave way to concern that faster growth
and higher inflation would cause the Federal Reserve to raise rates. In
response, long-term bond rates rose sharply in March and April. The yield on the
30-year Treasury bond, which began the year at about 6%, rose as high as 7.2%
before ending the period near 6.9%.
Economic growth, while stronger than many investors expected, is unlikely to
trigger much inflation. We forecast that the U.S. economy will grow at a rate
averaging about 21/4% in 1996, with inflation remaining close to 3%. The rise in
the 30-year U.S. Treasury bond rate to 6.9% resulted from concern that the
Federal Reserve may be forced to raise short-term interest rates. We recognize
this possibility, particularly if the economy does not slow down in the next
month or two. Such action would keep bond rates near current levels. However, as
the economy slows later this year and in early 1997, the 30-year bond rate is
likely to fall to 6 1/2%-6 1/4%.
We mentioned in our last letter to you that the high-yield market had the
potential to produce good returns. Indeed, this was the case as the high-yield
bond market benefited from the strength in the economy, which contributed to
higher company earnings. In particular, our holdings that are more sensitive to
the economic environment, such as steel, paper and chemicals companies,
performed well, as did issues related to basic materials and industrial
manufacturing. We maintained our position in convertible securities (which may
be exchanged for the underlying shares of the issuer's common stock) and
invested in select securities of large, value-oriented companies. Strong returns
were produced from our holdings in areas such as business services/outsourcing,
pharmaceuticals, energy and telecommunications. Going forward, we will continue
to look at bonds from corporations that are well positioned market leaders.
Additionally, given the rapid rise in interest rates, we believe that
high-quality mortgage-related securities and U.S. Treasuries represent a good
value; we will look to increase these holdings accordingly.
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 regret to inform you that Ronald P. Lynch, Chairman of your Fund, passed away
on June 27, 1996. Mr. Lynch had been with the Firm since 1965. He will be sorely
missed. The Board of Directors has elected Robert S. Dow as the new Chairman of
your Fund.
We are pleased Lord Abbett Bond-Debenture Fund is a part of your investment
portfolio and thank you for your continued trust and confidence.
1
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 9.15% and 8.71% (based on the net asset value
and maximum offering price, respectively, on 6/30/96, and the monthly dividend
of $.07 (payable August 1996), 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.
Growth of $10,000 Investments: 4/1/71(1)-6/30/96
[The following table was presented as a line graph in the printed document]
Date Amount
4/1/71 10000
12/31/71 10765
12/31/72 11438
12/31/73 10313
12/31/74 9789
12/31/75 12689
12/31/76 16613
12/31/77 17777
12/31/78 18269
12/31/79 19547
12/31/80 21283
12/31/81 22412
12/31/82 28585
12/31/83 33416
12/31/84 35073
12/31/85 42442
12/31/86 46946
12/31/87 47828
12/31/88 54427
12/31/89 57181
12/31/90 52852
12/31/91 73116
12/31/92 84810
12/31/93 98356
12/31/94 94553
12/31/95 111099
6/30/96 115096
This graph illustrates total return. The Fund's results do not include the
maximum sales charge of 4.75% applicable to Class A share 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.
(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 6/30/96, there were 157 high current yield
funds reported by Lipper. No sales charge has been deducted from these
figures. Source: Lipper Analytical Services.
2
<PAGE>
Performance Update
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(1).
<TABLE>
<CAPTION>
The Fund Versus Inflation
$100,000 Investments(2): 4/1/71-6/30/96
Value of
$100,000
Year Annual Investment with Inflation
Ended Dividends all Distributions (Consumer
Dec. 31 Reinvested Reinvested Price Index)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
$100,000 invested 1971(3) $ 3,450 $ 103,588 $ 102,750
at the Fund's 1972 7,460 110,073 106,250
inception grew to 1973 8,204 99,239 115,500
over $1 million 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
1995 95,753 1,069,120 383,750
6/30/96(6 months) 51,409 1,107,580 391,750
Total Dividends
Reinvested: $1,015,785
==========
-------------------------------------------------------------------
Average Annual Rate of Return: 9.99% 5.55%
==== ====
-------------------------------------------------------------------
</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 6.7%/year.
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) See Important Information on page 4.
(2) Fund investment reflects the deduction of the reduced
3.75% sales charge applicable to Class A share
investments of $100,000.
(3) Nine months only. The Fund began operations on
4/1/71.
3
<PAGE>
Management in Action
- - --------------------------------------------------------------------------------
Current Dividend Distribution Rates: 9.15% and 8.71% (based on the net asset
value and the maximum offering price, respectively, on 6/30/96, and the monthly
dividend of $.07 (payable August 1996), annualized)
- - --------------------------------------------------------------------------------
The Fund's 3-Way Focus
1. Lower Rated Debt and Straight-preferred Stocks: 63.9%*
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: 15.9%*
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: 20.2%*
High-quality issues, corporate issues and U.S. Government-backed securities
provide a dependable stream of high current income.
* Percent of portfolio on 6/30/96.
A History of the Fund's Portfolio Blend
[The following table was presented as a graph in the printed document]
<TABLE>
<CAPTION>
High-grade Debt
Equity-related Securities (U.S. Gov't and Agency Obligations,
Lower Rated Straight Debt (Convertible Debt, Convertible- Higher Rated Straight Debt)
and preferred Stocks, Common Stocks, and Other Assets,
Straight-preferred Stocks Warrants) Less Liabilities
------------------------- -------------------------------- ---------------------------------
<S> <C> <C> <C>
1974 15.7% 49.6% 34.7%
1975 14.3% 50.4% 35.3%
1979 34.8% 36.1% 29.1%
1982 18.3% 54.6% 27.1%
1985 45.1% 40.5% 14.4%
1988 52.9% 33.4% 13.7%
1990 55.7% 28.0% 16.3%
6/30/96 63.9% 15.9% 20.2%
</TABLE>
Important Information
SEC yield is calculated on the maximum offering price of $9.64 on 6/30/96,
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 (where applicable) and appropriate Rule 12b-1 Plan
expenses from commencement of the Plan with respect to Class A shares. Tax
consequences are not reflected. The Fund's sales charge structure has
changed in the past. The Fund issued additional classes of shares, with
distinct pricing options. For a full discussion of the differences in
pricing alternatives, please call 800-874-3733 and ask for the Fund's July
15, 1996 prospectus. If used as sales material after 9/30/96, this report
must be accompanied by Lord Abbett's Performance Quarterly for the most
recently completed calendar quarter.
4
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES 91.24%
- - ---------------------------------------------------------------------------------------------------------------------------------
LOWER RATED STRAIGHT DEBT (Note 2) 62.11%
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace BE Aerospace Inc. Sr. Sub. Notes 9 7/8/2006 $ 9,000M $ 8,876,250
1.57% Fairchild Corp. Sub. Deb. 13 1/8/2006 5,000M 5,012,500
UNC Inc. Sr. Sub. Notes 11/2006+ 7,020M 7,107,750
Wyman Gordon Co. Sr. Notes 10 3/4/2003 3,000M 3,180,000
Total 24,176,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Agricultural Arcadian Partner Sr. Notes 10 3/4/2005 5,000M 5,412,500
.92% PMI Acquisition Corp. Sr. Sub. Notes 10 1/4/2003 9,000M 8,865,000
Total 14,277,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Airlines Northwest Airlines Inc. Sr. Notes 12.0916/2000 3,065M 3,210,090
.51% US Air Inc. Equipment Trust Certificates 10 1/2/2004 2,634M 2,675,568
US Air Inc. (Piedmont) Equipment Trust Notes 10.35/2011 2,000M 1,973,125
Total 7,858,783
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Aluminum Kaiser Aluminum & Chemical Corp. Sr. Sub. Notes 12 3/4/2003 5,000M 5,287,500
.55% Maxxam Group Zero Coupon Sr. Secured Discount Notes Due 2003** 4,500M 3,217,500
Total 8,505,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Automotive .35% Motor Wheel Corp. Sr. Notes 11 1/2/2000 5,000M 5,331,250
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Banking Berkeley Federal Bank Sub. Deb. 12/2005 7,000M 7,280,000
.94% Saul, B.F. Real Estate Investment Trust Sr. Notes 11 5/8/2002 7,000M 7,210,000
Total 14,490,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Building .45% Scotsman Group Inc. Sr. Notes 91/2/2000 6,800M 6,885,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Building Materials Associated Materials, Inc. Sr. Sub. Notes 11 1/2/2003 2,000M 1,722,813
1.25% Dal-Tile International Inc. Zero Coupon Sr. Secured Notes
due 1998** 15,000M 12,637,500
Southdown Inc. Sr. Sub. Notes 10/2006+ 5,000M 4,925,000
Total 19,285,313
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Chemicals Acetex Corp. Sr. Secured Notes 9 3/4/2003 5,000M 4,912,500
2.64% Atlantis Group Inc. Sr. Notes 11/2003 5,000M 4,796,875
Harris Chemical NA Inc. Sr. Secured Discount Notes 10 1/4/2001 8,500M 8,563,750
NL Industries Inc. Zero Coupon Sr. Secured Discount Notes
due 2005** 5,000M 3,906,250
NL Industries Inc. Sr. Secured Notes due 2003 5,000M 5,112,500
Polymer Group Inc. Sr. Notes 12 1/4/2002 3,167M 3,459,948
Texas Petrochemicals Corp. Sr. Sub. Notes 11 1/8/2006+ 4,565M 4,644,888
UCC Investors Holdings Inc. Sr. Sub. Notes 11/2003 5,000M 5,250,000
Total 40,646,711
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Communications Adelphia Communications Corp. Sr. Notes 12 1/2/2002 7,000M 7,140,000
13.71% Australis Media Ltd. Zero Coupon Sr. Discount Notes due 2003
w/Warrants** 8,000M 4,760,000
Bell Cable Media plc Zero Coupon Sr. Discount Notes due 2004** 14,000M 9,870,000
Brooks Fiber Properties Inc. Zero Coupon Sr. Discount Notes
due 2006+** 15,000M 8,025,000
Cablevision System Sr. Sub. Notes 9 1/4/2005 10,000M 9,325,000
CAI Wireless Systems Inc. Sr. Notes 12 1/4/2002 2,850M 2,985,375
Cellular Inc. Zero Coupon Sr. Sub. Discount Notes due 2003** 15,000M 12,262,727
Cencall Communications Corp. Zero Coupon Sr. Discount Notes
due 2004** 7,500M 4,575,000
Comcast Cellular Corp. Zero Coupon Sr. Notes Series B due 2000 15,000M 10,312,500
Comcast UK Cable Partners Limited Zero Coupon Sr. Discount Deb.
due 2007** 10,000M 5,800,000
C.S. Wireless Systems, Inc. Zero Coupon Sr. Discount Notes
due 2006+** 11,600M 6,032,000
Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11/2005 6,000M 6,075,000
Grupo Televisa, S.A. Sr. Notes 11 7/8/2006 Series B+ 7,000M 7,175,000
Horizon Cellular Telephone Zero Coupon Sr. Sub. Discount Notes
due 2000** 7,000M 6,615,000
Intelcom Group (USA) Inc. Zero Coupon Sr. Discount Notes due
2005 w/Warrants** 20,000M 13,175,000
Intermedia Communications of Florida Sr. Notes 13 1/2/2005
w/Warrants 5,000M 5,950,000
Lenfest Communications Sr. Notes 8 3/8/2005 5,000M 4,575,000
</TABLE>
5
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marcus Cable Co. Zero Coupon Sr. Sub. Discount Notes due 2004** $ 10,000M $ 7,200,000
Metrocall Inc. Sr. Sub. Notes 10 3/8/2007 10,000M 9,300,000
MFS Communications Zero Coupon Sr. Discount Notes due 2006** 20,000M 12,125,000
Mobile Media Communications Inc. Zero Coupon Sr. Sub. Discount
Notes due 2003** 8,000M 5,720,000
Mobile Media Communications Inc. Sr. Sub. Notes 9 3/8/2007 7,500M 6,750,000
Nextel Communications Inc. Zero Coupon Sr. Discount Notes
due 2003** 5,500M 3,781,250
Pan Am Sat L.P. Zero Coupon Sr. Sub. Discount Notes due 2003** 7,500M 6,543,750
Rifkin Acquistion Partners, L.P. Sr. Sub. Notes 11 1/8/2006 1,800M 1,777,500
Teleport Communications, Inc. Sr. Notes 9 7/8/2006 1,500M 1,500,938
Telewest plc Zero Coupon Sr. Discount Deb. due 2007** 18,000M 10,665,000
Vanguard Cellular Systems Sr. Deb. 9 3/8/2006 4,000M 3,890,000
Viacom Inc. Sub. Deb. 8/2006 7,000M 6,475,000
Videotron Holdings plc Zero Coupon Sr. Discount Notes due 2004** 15,000M 11,062,500
Total 211,443,540
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Computer Systems and Digital Equipment Corp. Sr. Notes 7 3/4/2023 7,000M 6,362,344
Peripherals Exide Electronics Group, Inc. Sr. Sub. Notes 11 1/2/2006
.61% w/Warrants+ 2,900M 3,074,000
Total 9,436,344
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Consumer Products AAF-McQuay, Inc. Sr. Notes 8 7/8/2003 2,300M 2,196,500
.94% American Standard Inc. Zero Coupon Sr. Sub. Deb. due 2005** 14,000M 12,250,000
Total 14,446,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Container and Calmar Inc. Sr. Sub. Notes 11 1/2/2005 7,500M 7,425,000
Packaging Portola Packaging Inc. Sr. Notes 10 3/4/2005 5,000M 5,112,500
1.14% Silgan Corp. Sr. Sub. Notes 11 3/4/2002 3,000M 3,060,000
Silgan Holdings Inc. Zero Coupon Sr. Discount Notes due 2002** 1,995M 2,029,913
Total 17,627,413
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Food Doane Products Co. Sr. Notes 10 5/8/2006 7,000M 7,043,750
1.93% Dr. Pepper Bottling Holding Inc. Zero Coupon Sr. Discount Notes
due 2003** 6,750M 5,754,375
Heileman Acquisition Corp. Sr. Sub. Notes 9 5/8/2004* 8,000M 3,480,000
Twin Laboratories Inc. Sr. Sub. Notes 10 1/4/2006+ 7,000M 7,157,500
Van de Kamp's Inc. Sr. Sub. Notes 12/2005 6,000M 6,390,000
Total 29,825,625
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Forest Products .32% Pacific Lumber Co. Sr. Notes 101/2/2003 5,000M 4,875,000
- - ---------------------------------------------------------------------------------------------------------------------------------
Hotel/Leisure Act III Theatres Inc. Sr. Sub. Notes 11 7/8/2003 4,000M 4,420,000
4.79% AMF Group Inc. Sr. Sub. Notes 10 7/8/2006+ 3,000M 2,970,000
Aztar Corp. Sr. Sub. Notes 11/2002 5,000M 5,212,500
Aztar Corp. Sr. Sub. Notes 13 3/4/2004 2,000M 2,305,000
Bally GNF Corp. 1st Mtge. Notes Series B 10 5/8/2003 5,000M 5,443,750
Claridge Hotel & Casino Corp. 1st Mtge. Notes 11 3/4/2002 5,000M 4,675,000
Empress River Casino Finance Corp. Sr. Notes 10 3/4/2002 7,000M 7,332,500
HMC Acquisition Properties Sr. Notes 9/2007+ 3,000M 2,745,000
HMH Properties Inc. Sr. Secured Notes 9 1/2/2005 10,000M 9,562,500
Host Marriott Travel Plazas Inc. Sr. Secured Notes 9 1/2/2005 5,000M 4,787,500
Majestic Star Casino LLC Sr. Secured Notes 12 3/4/2003+ 2,800M 3,038,000
Plitt Theatres Inc. Sr. Sub. Notes 10 7/8/2004 5,000M 5,075,000
Santa Fe Hotel Inc. 1st Mtge. Notes 11/2000 w/Warrants 4,000M 3,220,073
Showboat Inc. 1st Mtge. Notes 9 1/4/2008 5,000M 5,075,000
Trump Atlantic City Funding 1st Mtge. Notes 11 1/4/2006 8,000M 8,062,500
Total 73,924,323
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Household Products Ekco Group, Inc. Sr. Notes 9 1/4/2006+ 5,700M 5,529,000
1.35% Knoll Inc. Sr. Sub. Notes 10 7/8/2006+ 4,000M 4,100,000
Specialty Equipment Cos. Inc. Sr. Sub. Notes 11 3/8/2003 5,000M 5,181,250
</TABLE>
6
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sweetheart Cup Sr. Sub. Notes 10 1/2/2003 $ 6,000M $ 5,970,000
Total 20,780,250
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance .48% Penncorp Financial Group Inc. Sr. Sub. Notes 9 1/4/2003 7,500M 7,396,875
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Machinery Alvey Systems Inc. Sr. Sub. Notes 11 3/8/2003 8,000M 8,200,000
1.98% Carbide Graphite Group Inc. Sr. Notes 11 1/2/2003 5,455M 5,932,313
Essex Group Inc. Sr. Notes 10/2003 11,030M 11,195,450
Terex Corporation Sr. Secured Notes 13 3/4/2002+ 5,000M 5,268,750
Total 30,596,513
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Media American Radio System Sr. Sub. Notes 9/2006 7,000M 6,597,500
4.25% Benedek Broadcasting Corp. Sr. Secured Notes 11 7/8/2005 5,000M 5,300,000
Chancellor Broadcasting Co. Sr. Sub. Notes 9 3/8/2004 10,000M 9,475,000
Granite Broadcasting Corp. Sr. Sub. Notes 10 3/8/2005 10,000M 9,850,000
Heritage Media Corp. Sr. Sub. Notes 8 3/4/2006 2,500M 2,331,250
Lamar Advertising Inc. Sr. Secured Notes 11/2003 3,000M 3,105,000
NWCG Holdings Corp. Zero Coupon Sr. Secured Discount Notes
Series B due 1999** 10,000M 7,375,000
SCI Television Sr. Secured Notes 11/2005 5,000M 5,206,250
Sinclair Broadcasting Group, Inc. Sr. Sub. Notes 10/2005 10,000M 9,575,000
Sullivan Broadcasting Sr. Sub. Notes 10 1/4/2005 7,000M 6,720,000
Total 65,535,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Medical/Health Care Paracelsus Health Care Corp. Sr. Sub. Notes 9 7/8/2003 5,000M 5,025,000
.61% Quorum Healthcare Group Inc. Sr. Sub. Notes 11 7/8/2002 4,000M 4,435,000
Total 9,460,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Fairfield Manufacturing Inc. Sr. Sub. Notes 11 3/8/2001 4,800M 4,920,000
2.53% Interface Inc. Sr. Sub. Notes 9 1/2/2005 10,000M 9,550,000
International Wire Group Inc. Sr. Sub. Notes 11 3/4/2005 10,000M 9,900,000
Monarch Marking Acquisition Corp. Sr. Notes 12 1/2/2003 5,000M 5,312,500
Republic of Argentina Series L 5 1/4/2023 10,000M 5,862,500
Republic of Venezuela Series B 6 3/4/2020 w/Warrants 6,000M 3,525,000
Total 39,070,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Non Ferrous Metals .34% Interlake Corp. Sr. Notes 12/2001 5,000M 5,275,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Oil and Gas Clark USA Inc. Zero Coupon Sr. Secured Notes due 2000 12,000M 8,220,000
3.93% Coda Energy Inc. Sr. Sub. Notes 10 1/2/2006+ 10,000M 9,900,000
Crown Central Petroleum Corp. Sr. Notes 10 7/8/2005 10,000M 10,275,000
KCS Energy, Inc. Sr. Notes 11/2003 7,000M 7,420,000
Mesa Operating Co. Sr. Sub. Notes 10 5/8/2006 4,385M 4,461,738
Metro Gas, S.A. Sr. Sub. Notes 12/2000 5,000M 5,337,500
Nuevo Energy Co. Sr. Sub. Notes 9 1/2/2006 3,080M 3,033,800
Nuevo Energy Co. Sr. Sub. Notes 12 1/2/2002 4,000M 4,330,000
Plains Resources, Inc. Sr. Sub. Notes 10 1/4/2006+ 1,600M 1,592,000
United Meridian Corp. Sr. Sub. Notes 10 3/8/2005 5,750M 5,965,625
Total 60,535,663
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Oil Service .21% Rowan Cos. Inc. Sr. Notes 11 7/8/2001 3,000M 3,240,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Paper and Pulp Crown Paper Co. Sr. Sub. Notes 11/2005 10,000M 9,562,500
3.23% Domtar Inc. Sub. Deb. 11 1/4/2017 5,000M 5,325,000
Four M Corp. Sr. Secured Notes Series A 12/2006+ 4,000M 4,110,000
Repap Wisconsin Inc. Sr. Secured 2nd Priority 9 7/8/2006 10,000M 8,925,000
S.D. Warren Co. Sr. Sub. Notes 12/2004 5,000M 5,287,500
Stone Container Corp. 1st Mtge. Notes 10 3/4/2002 10,000M 10,112,500
Tembec Finance Corp. Sr. Notes 9 7/8/2005 7,000M 6,527,500
Total 49,850,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Printing and Publishing Big Flower Press Inc. Sr. Sub. Notes 10 3/4/2003 5,333M 5,439,660
.70%
</TABLE>
7
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Principal Market Value
Security Amount (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Garden State Newspapers Inc. Sr. Sub. Notes 12/2004 $ 5,000M $ 5,300,000
Total 10,739,660
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Real Estate .33% Trizec Finance Ltd. Sr. Notes 10 7/8/2005 5,000M 5,037,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Retail Cole National Corp. Sr. Notes 11 1/4/2001 5,000M 5,306,250
2.05% Cort Furniture Rental Corp. Sr. Notes 12/2000 w/Warrants 3,220M 3,429,300
Guess Inc. Sr. Sub. Notes 9 1/2/2003 5,000M 5,075,000
Pamida Inc. Sr. Sub. Notes 11 3/4/2003 8,000M 7,000,000
United Stationers Supply Co. Sr. Sub. Notes 12 3/4/2005 10,000M 10,775,000
Total 31,585,550
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Steel AK Steel Corp. Sr. Notes 10 3/4/2004 5,000M 5,400,000
2.77% Earle M. Jorgenson Co. Sr. Notes 10 3/4/2000 5,000M 4,975,000
G.S. Technologies Operating Co. Sr. Notes 12 1/4/2005 5,000M 5,075,000
Ivaco Inc. Sr. Notes 11 1/2/2005 5,000M 4,900,000
Oregon Steel Mills 1st Mtge. 11/2003 3,515M 3,620,450
Republic Engineered Steel Inc. 1st Mtge. 9 7/8/2001 8,000M 7,480,000
WCI Steel Inc. Sr. Notes 10 1/2/2002 7,000M 7,140,000
Weirton Steel Sr. Notes 11 3/8/2004+ 4,125M 4,046,130
Total 42,636,580
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Supermarket Bruno's Inc. Sr. Sub. Notes 10 1/2/2005 5,000M 4,943,750
2.09% Dairy Mart Convenience Stores Inc. Sr. Sub. Notes 10 1/4/2004 5,000M 4,637,500
Farm Fresh Holdings Sr. Notes P.I.K. 14 1/4/2002*** 5,862M 2,374,188
Pathmark Stores Inc. Zero Coupon Jr. Sub. Notes due 2003** 10,000M 6,075,000
Pathmark Stores Inc. Sub. Notes 11 5/8/2002 3,000M 2,988,750
Ralphs Grocery Co. Sr. Sub. Notes 13 3/4/2005 3,000M 3,060,000
Ralphs Supermarkets Inc. Sr. Notes 10.45/2004 7,500M 7,368,750
Victory Markets Inc. Sub. Notes 12 1/2/2000* 5,000M 700,000
Total 32,147,938
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Textile Dan River Inc. Sr. Sub. Notes 10 1/8/2003 5,000M 4,825,000
1.39% J.P. Stevens & Co. Inc. Sr. Deb. 9/2017 3,000M 2,985,000
Synthetic Industries Inc. Sr. Sub. Notes 12 3/4/2002 5,000M 5,293,750
Tultex Corp. Sr. Notes 10 5/8/2005 4,000M 4,140,000
US Leather Inc. Sr. Notes 10 1/4/2003 5,000M 4,250,000
Total 21,493,750
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Transportation Omi Corp. Sr. Notes 10 1/4/2003 5,000M 4,925,000
.69% Trism Inc. Sr. Sub. Notes 10 3/4/2000 6,000M 5,670,000
Total 10,595,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Utility Beaver Valley II Funding Corp. Secured Lease Obligation 9/2017 5,924M 4,845,647
.56% El Paso Electric Co. 1st Mtge. Notes Series D 8.9/2006 3,825M 3,827,391
Total 8,673,038
--------------
-----------------------------------------------------------------------------------------------------
Total Investments in Lower Rated Straight Debt (Cost $969,008,796) 957,683,119
- - ---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE DEBT 8.68%
- - ---------------------------------------------------------------------------------------------------------------------------------
Automotive .18% Exide Corp. Conv. Sub. Notes 2.9/2005+ 5,000M 2,758,594
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Communications LDDS Communication Inc. Conv. Sub. Deb. 5/2003 3,000M 4,413,750
.87% Telekom Malaysia Conv. Notes 4/2004+ 5,000M 5,275,000
United Communication, Industries Conv. Sub. Deb. 23/4/2006+ 3,710M 3,719,275
Total 13,408,025
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Computer Support Systems
.19% Businessland Inc. Conv. Sub. Deb. 5 1/2/2007 5,000M 2,900,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Computer Systems and Applied Magnetics Corp. Conv. Sub. Deb. 7/2006+ 4,000M 3,515,000
Peripherals SCI Systems, Inc. Conv. Sub. Deb. 5/2006+ 6,000M 6,300,000
1.29% Unisys Corp. Conv. Sub. Notes 8 1/4/2000 2,000M 1,955,000
</TABLE>
8
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Principal Amount or Market Value
Security Number of Shares (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Xilinx Inc. Conv. Sub. Notes 5 1/4/2002+ $ 9,000M $ 8,190,000
Total 19,960,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Data Processing
Equipment and Components
.50% Automatic Data Processing Zero Coupon Conv. Sub. Deb. due 2012 15,000M 7,767,188
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Drugs/Pharmaceuticals Roche Holdings Inc. Zero Coupon Conv. Notes due 2010+ 37,000M 15,725,000
1.44% Sandoz Capital, BVI, Ltd. Conv. Sub. Deb. 2/2002+ 6,000M 6,450,000
Total 22,175,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Electronics Analog Devices Conv. Sub. Deb. 3 1/2/2000 4,000M 4,510,000
.66% Apple Computer Inc. Conv. Sub. Notes 6/2001+ 4,000M 3,865,625
VLSI Technology, Inc. Conv. Sub. Deb. 8 1/4/2005 2,000M 1,770,000
Total 10,145,625
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Industrial and Raymond Corp. Conv. Sub. Deb. 6 1/2/2003 3,000M 3,397,500
Capital Goods RPM Inc. Zero Coupon Conv. Sub. Deb. due 2012 15,000M 6,450,000
.64% Total 9,847,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance .30% CII Financial Inc. Conv. Sub. Deb. 71/2/2001 5,000M 4,550,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Medical/Health Care Healthsource, Inc. Conv. Sub. Notes 5/2003+ 6,000M 4,627,500
.91% Integrated Health Services Conv. Sub. Deb. 6/2003 10,000M 9,575,000
Total 14,202,500
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Office Equipment .13% U.S. Office Products, Co. Conv. Sub. Deb. 5 1/2/2003+ 2,000M 1,972,188
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Oil and Gas Pennzoil (Exch. Chevron) Conv. Sub. Deb. 4 3/4/2003 6,000M 6,525,938
.81% Pogo Producing Co. Conv. Sub. Notes 5 1/2/2006+ 3,750M 4,059,961
Wainoco Oil Corp. Inc. Conv. Sub. Deb. 7 3/4/2014 2,400M 1,932,000
Total 12,517,899
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Printing and Publishing
.55% Scholastic Corp. Conv. Sub. Deb. 5/2005+ 8,020M 8,433,531
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Waste Management .21% United Waste Systems Inc. Conv. Sub. Deb. 4 1/2/2001+ 3,000M 3,278,906
--------------
-----------------------------------------------------------------------------------------------------
Total Investments in Convertible Debt (Cost $129,926,935) 133,916,956
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
PREFERRED AND CONVERTIBLE-PREFERRED STOCKS, COMMON STOCKS AND WARRANTS 8.98%
- - ---------------------------------------------------------------------------------------------------------------------------------
Banking Ahmanson, H.F. & Co. $3.00 Conv. Pfd. Series D 100,000 5,937,500
1.31% California Federal Bank $10.625 Non Cum. Pfd. Series B 45,000 4,921,875
Chevy Chase Savings $3.25 Pfd. P.I.K. Series A*** 200,000 6,050,000
Crossland Savings FSB Brooklyn, NY $1.8125 Conv. Pfd. Series A* 375,000 5,859
First Chicago Corp. $2.875 Conv. Pfd. 50,000 3,331,250
Total 20,246,484
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Building Materials .73% Owens Corning $3.25 Conv. Pfd.+ 200,000 11,346,875
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Chemicals .40% Atlantic Richfield Co. (Exch. Lyondell Petrochemical) $2.23
Conv. Pfd. 250,000 6,093,750
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Communications MCI Communications Corp. 100,000 2,562,500
.98% Westinghouse Electric Corp. $1.30 Conv. Pfd. Series C+ 700,000 12,512,500
Total 15,075,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Drugs/Pharmaceuticals
.29% Foxmeyer Health Corp. $4.20 Pfd. Series A 166,377 4,492,179
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Financial American Express Co. $2.297 Conv. Pfd. Notes 112,500 7,382,813
1.27% Jefferson-Pilot Corp. (Exch. NationsBank) $5.256 Conv. Pfd. 150,000 12,225,000
Total 19,607,813
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Hotel/Leisure .28% AMC Entertainment Inc. $1.75 Conv. Pfd. 90,000 4,286,250
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance American General $3.00 Conv. Pfd. Series A 200,000 10,500,000
1.21% Penncorp Financial $3.375 Conv. Pfd. 40,000 2,985,000
St. Paul's Capital, LLC $3.00 Conv. Pfd. 100,000 5,250,000
Total 18,735,000
--------------
-----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Statement of Net Assets June 30, 1996
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Machinery Bucyrus-Erie Company* 56,624 $ 580,396
.40% Navistar International Corp. $6.00 Conv. Pfd. Series G 100,000 5,562,500
Total 6,142,896
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous .30% Corning Delaware L.P. $3.00 Conv. Pfd. 80,000 4,570,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Non Ferrous Metals .22% Freeport McMoRan Copper & Gold $1.75 Conv. Pfd. 110,000 3,410,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Paper and Pulp Alco Standard Corp. $5.04 Conv. Pfd. 75,000 6,225,000
1.04% International Paper Capital Trust $2.625 Conv. Pfd. 220,000 9,786,563
Total 16,011,563
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Retail .13% Supermarkets General Holdings Corp. $3.52 Pfd. P.I.K.*** 80,000 2,040,000
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Utility .42% Calenergy, C.T. $3.125 Conv. Pfd.+ 120,000 6,405,000
--------------
-----------------------------------------------------------------------------------------------------
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $139,530,131) 138,462,810
- - ---------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY ISSUES 11.47%
- - ---------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6 1/2% due 5/1/2026 25,150M 23,530,700
Federal National Mortgage Association 7% due on an
announced basis 100,000M 96,128,125
Federal National Mortgage Association 7% due 3/15/2026 20,159M 19,402,887
Federal National Mortgage Association 8 1/2% due 2/1/2005 4,950M 5,159,602
U.S. Treasury Strips Zero Coupon due 11/15/2004 15,000M 8,566,406
U.S. Treasury Notes 5 7/8% due 11/15/2005 15,000M 14,135,156
U.S. Treasury Notes 6 1/2% due 8/15/2005 10,000M 9,859,375
Total Investments in Government Agency Issues (Cost $179,853,822) 176,782,251
--------------
-----------------------------------------------------------------------------------------------------
Total Investments in Securities (Cost $1,418,319,684) 1,406,845,136
- - ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES 8.76%
- - ---------------------------------------------------------------------------------------------------------------------------------
Other Short-term Federal Home Loan Banks 13% due 7/19/1996 62,000M 62,251,875
Assets Investments, Federal Home Loan Banks 13 1/2% due 9/6/1996 39,000M 39,566,719
at Market Federal Home Loan Mortgage Corporation 14% due 11/1/1996 16,300M 16,755,891
Federal National Mortgage Association 14% due 9/25/1996 64,500M 65,820,234
U.S. Treasury Notes 8% due 10/15/1996 18,600M 18,736,594
Total (Cost $212,542,778) 203,131,313
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Short-term General Electric Capital Corp. 5.20% due 7/1/1996 7,400M 7,400,000
Investments, Prudential Funding Corp. 5.00% due 7/1/1996 1,500M 1,500,000
at Cost
Total 8,900,000
--------------
-----------------------------------------------------------------------------------------------------
Total Short-Term Investments 212,031,313
--------------
---------------------------------------------------------------------------------------------------------------------
Cash 1,476,741
--------------
---------------------------------------------------------------------------------------------------------------------
Receivable for: Securities sold 100,113,460
Interest 29,033,552
Capital shares sold 4,915,540
Dividends 263,476
-----------------------------------------------------------------------------------------------------
Total Other Assets 347,834,082
--------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Liabilities Payable for: Securities purchased 210,179,940
Capital Stock Reacquired 888,206
Accrued expenses 1,743,673
-----------------------------------------------------------------------------------------------------
Total Liabilities 212,811,819
-----------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 135,022,263
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Assets (equivalent to $9.18 a share on 168,039,332 shares of $1.00
100.00% par value capital stock outstanding; authorized, 300,000,000
shares) $1,541,867,399
-----------------------------------------------------------------------------------------------------
</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, 1996
<TABLE>
Investment Income
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Interest $ 67,099,262
----------------------------------------------------------------------------------------- ---------------- -----------
Dividends 3,838,588
----------------------------------------------------------------------------------------- ---------------- -----------
Total income $70,937,850
- - ----------------------------------------------------------------------------------------------------- ---------------- -----------
Expenses Management fee (Note 6) 3,389,440
----------------------------------------------------------------------------------------- ---------------- -----------
12b-1 distribution plan (Note 6) 1,903,148
----------------------------------------------------------------------------------------- ---------------- -----------
Shareholder servicing 775,000
----------------------------------------------------------------------------------------- ---------------- -----------
Registration fee 156,000
----------------------------------------------------------------------------------------- ---------------- -----------
Reports to shareholders 108,000
----------------------------------------------------------------------------------------- ---------------- -----------
Directors' fees 40,500
----------------------------------------------------------------------------------------- ---------------- -----------
Legal and audit 39,500
----------------------------------------------------------------------------------------- ---------------- -----------
Other 209,271
----------------------------------------------------------------------------------------- ---------------- -----------
Total expenses 6,620,859
----------------------------------------------------------------------------------------- ---------------- -----------
Net investment income 64,316,991
----------------------------------------------------------------------------------------- ---------------- -----------
Net Realized and Unrealized Gain (Loss) on Investments (Note 5)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from securities transactions (excluding short-term securities)
----------------------------------------------------------------------------------------- ---------------- -----------
Proceeds from sales 924,021,242
----------------------------------------------------------------------------------------- ---------------- -----------
Cost of securities sold 914,717,958
----------------------------------------------------------------------------------------- ---------------- -----------
Net realized gain 9,303,284
- - ----------------------------------------------------------------------------------------------------- ---------------- -----------
Net unrealized appreciation (depreciation) of investments
----------------------------------------------------------------------------------------- ---------------- -----------
Beginning of period 3,230,300
----------------------------------------------------------------------------------------- ---------------- -----------
End of period (20,886,013)
----------------------------------------------------------------------------------------- ---------------- -----------
Net unrealized depreciation (24,116,313)
----------------------------------------------------------------------------------------- ---------------- -----------
Net realized and unrealized loss on investments (14,813,029)
----------------------------------------------------------------------------------------- ---------------- -----------
Net Increase in Net Assets Resulting from Operations $49,503,962
- - ----------------------------------------------------------------------------------------------------------------------------------
</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 1996 1995
- - --------------------------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C> <C>
Operations Net investment income $ 64,316,991 $ 107,707,744
--------------------------------------------------------------------------------------- -------------- --------------
Net realized gain (loss) from securities transactions 9,303,284 (48,660,364)
--------------------------------------------------------------------------------------- -------------- --------------
Net unrealized appreciation (depreciation) of investments (24,116,313) 122,224,060
--------------------------------------------------------------------------------------- -------------- --------------
Net increase in net assets resulting from operations 49,503,962 181,271,440
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Undistributed net investment income included in price of shares sold (Note 1d) 2,979,956 4,588,268
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Distributions to shareholders from net investment income (67,921,450) (109,789,425)
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Capital share transactions
--------------------------------------------------------------------------------------- -------------- --------------
Net proceeds from sales of 29,114,110 and 38,145,671 shares, respectively 266,254,916 341,253,620
--------------------------------------------------------------------------------------- -------------- --------------
Net asset value of 3,671,058 and 5,890,156 shares, respectively, issued to
shareholders in reinvestment of net investment income 33,520,957 52,422,843
--------------------------------------------------------------------------------------- -------------- --------------
Total 299,775,873 393,676,463
--------------------------------------------------------------------------------------- -------------- --------------
Cost of 8,968,820 and 13,236,691 shares reacquired, respectively (81,979,265) (117,851,327)
Increase in net assets derived from capital share transactions
(net increase of 23,816,348 and 30,799,136 shares, respectively) 217,796,608 275,825,136
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Total increase in net assets 202,359,076 351,895,419
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Net Assets
- - --------------------------------------------------------------------------------------------------- -------------- --------------
Beginning of period 1,339,508,323 987,612,904
--------------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $30,597,884
and $29,603,110, respectively) $1,541,867,399 $1,339,508,323
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
Per Share Operating Performance: 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------ ------------ --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.29 $ 8.71 $ 9.95 $ 9.43 $ 9.02 $ 7.36
------------------------------------------ ------------ --------------------------------------------------------------
Income from investment operations
------------------------------------- ------------ --------------------------------------------------------------
Net investment income .411+ .85 .84 .89 .95 .98
------------------------------------- ------------ --------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.083) .606 (1.203) .55 .42 1.66
------------------------------------- ------------ --------------------------------------------------------------
Total from investment operations .328 1.456 (.363) 1.44 1.37 2.64
------------------------------------------ ------------ --------------------------------------------------------------
Distributions
------------------------------------- ------------ --------------------------------------------------------------
Dividends from net investment income (.438) (.876) (.877) (.92) (.96) (.98)
- - ------------------------------------------------------ ------------ --------------------------------------------------------------
Net asset value, end of period $ 9.18 $ 9.29 $ 8.71 $ 9.95 $ 9.43 $ 9.02
- - ------------------------------------------------------ ------------ --------------------------------------------------------------
Total Return* 3.60%+ 17.50% (3.87)% 15.97% 15.99% 38.34%
- - ------------------------------------------------------ ------------ --------------------------------------------------------------
Ratios/Supplemental Data:
- - ------------------------------------------------------ ------------ --------------------------------------------------------------
Net assets, end of period (000) $1,541,867 $1,339,508 $ 987,613 $ 969,736 $ 734,017 $ 594,008
------------------------------------- ------------ --------------------------------------------------------------
Ratios to Average Net Assets:
------------------------------------------ ------------ --------------------------------------------------------------
Expenses .46%+ .82% .88% .88% .84% .85%
------------------------------------- ------------ --------------------------------------------------------------
Net investment income 4.43%+ 9.41% 8.97% 9.17% 10.18% 11.96%
------------------------------------------ ------------ --------------------------------------------------------------
Portfolio turnover rate 58.27% 134.90% 147.98% 159.79% 188.44% 208.49%
- - ----------------------------------------------------------------------------------------------------------------------------------
</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; such procedures
require the use of estimates.
(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.
(e) Certain amounts of the components of net assets in prior periods have been
reclassified to conform the presentation of such components to that reported in
the current period.
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 securities transactions, if any, are usually
declared in December of the current year or January of the succeeding year. At
June 30, 1996, accumulated net realized loss for financial reporting purposes,
which is substantially the same as for federal income tax purposes, aggregated
$111,200,875.
The Company had a capital loss carryforward as of December 31, 1995 of
approximately $120,000,000 of which $20,000,000 expires in 1996, $5,000,000
expires in 1997, $28,000,000 expires in 1998, $17,000,000 expires in 1999 and
$50,000,000 in 2003. Accordingly, no capital gain
12
<PAGE>
Notes to Financial Statements
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 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, 1996, capital paid in aggregated $1,643,356,403.
5. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term investments) aggregated $356,665,883 and
$202,871,389, respectively. Purchases and sales of short-term investments and
long-term U.S. Government obligations aggregated $741,835,102 and $721,149,853,
respectively. Security gains and losses are computed on the identified cost
basis. As of June 30, 1996, unrealized depreciation for federal income tax
purposes aggregated $20,886,013, of which $44,830,246 related to appreciated
securities and $65,716,259 related to depreciated securities. For federal income
tax purposes, the identified cost of investments owned at June 30, 1996 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 $3,389,440 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 $1,128,763 representing payment of commissions on sales of
capital stock of the Company after deducting $7,150,857 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 $12,159 (exclusive of expenses), a portion of 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, 1996,
the aggregate amount in Directors' accounts maintained under the plan was
$327,506. Retirement costs accrued during the period ended June 30, 1996
amounted to $4,525.
8. Subsequent Event
On July 12, 1996, the Fund acquired the net assets of Lord Abbett Securities
Trust-Bond-Debenture Trust in exchange for 22,794,551 shares of newly-issued
Class C shares. Also, on June 19, 1996, the Fund's shareholders approved the
issuance of both Class B and Class C shares. There was no impact on the net
asset value of the Fund's previously issued shares, which will now be designated
as Class A shares.
Copyright (C) 1996 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. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
<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, 1996, 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, 1995, and the financial
highlights for the six months then ended and for each of the years in the
five-year period ended December 31, 1995. 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,
1996 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, 1996, 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.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
July 29, 1996
Our Management
Board of Directors
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. and
Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
The Bank of New York
New York, NY
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
Numbers to Keep Handy
For Literature: 800-874-3733
For Account Information: 800-821-5129
For Fund Information: 800-426-1130
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[LOGO] LORD ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC LABD-3-696
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The GM Building o 767 Fifth Avenue o New York, NY 10153-0203
