Lord Abbett Bond-Debenture
Fund
1996 ANNUAL REPORT
[PICTURE OF WORK BELT]
A mutual fund with
a multi-faceted
approach to seeking
high income
[LOGO]
<PAGE>
Lord Abbett Bond-Debenture Fund
[PICTURE OF HAMMER]
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 12/31/96(1)
[The following table was represented as a
bar chart in the printed material.]
At Net Asset Value 8.93%
At Maximum Offering Price 8.50%
- --------------------------------------------------------------------------------
Historically Consistent Total Returns Average Annual Rates of Total
Return as of 12/31/96(2)
[The following table was represented as a
bar chart in the printed material.]
For the past 20 years 10.6% per year
For the past 15 years 12.1% per year
For the past 10 years 10.2% per year
For the past 5 years 11.1% per year
For the past years 11.2% for the year
- --------------------------------------------------------------------------------
Average Annual Average annual total returns for periods ended
Total Returns 12/31/96 at the Class A share maximum sales charge
of 4.75%, with all distributions reinvested:
1 year: +5.90%
5 years: +9.98%
10 years: +9.62%
The Fund's SEC yield for the 30 days ended 12/31/96
was 7.13%.
Total return is the percent change in value,
assuming the reinvestment of all distributions.
The results quoted herein represent Class A share
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 Class A share monthly dividend of $.07,
annualized.
(2) Class A share performance at net asset value.
See Important Information on page 4.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended December 31, 1996
[PICTURE OF ROBERT S. DOW]
/s/ ROBERT S. DOW
- -----------------
ROBERT S. DOW
CHAIRMAN
JANUARY 10, 1997
"...global economic
fundamentals warrant a
constructive view on the
bond market."
Lord Abbett Bond-Debenture Fund completed its fiscal year on December 31, 1996
with net assets of $2.1 billion. Below is an overview of each Class share's
performance for the fiscal year:
Year Ended 8/1/96*- 7/15/96*-
12/31/96 12/31/96 12/31/96
----------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Net asset value $ 9.41 $ 9.41 $ 9.41
Dividends $ 0.86 $ 0.32 $ 0.32
Total return** +11.2% +6.6%++ +7.9%++
1996 proved to be a rewarding year for shareholders, despite the volatility that
characterized the U.S. interest-rate environment. In the first half of the year,
interest rates rose in response to above-trend economic growth. Investors'
concern about a possible move by the Federal Reserve Board to hike short-term
interest rates (to slow economic growth) lessened as the year progressed.
Your Fund benefited from its exposure to high-yield bonds, especially those
bonds issued by cyclical companies (whose fortunes tend to parallel the
economy). These high-yield securities, many of which were purchased at the close
of 1995 at less than face value, produced good price appreciation while paying a
high rate of interest. In addition, your Fund profited from convertible bonds
(which may be exchanged for the underlying shares of the issuer's common stock)
issued by companies in the energy, financial and technology sectors. These bonds
were selected based upon our value-oriented criteria and provided strong
returns, especially toward the end of the year.
Heading into 1997, we expect economic growth to moderate to approximately
2%-21/2% or less and inflation to average between 21/2%-3%. We believe global
economic fundamentals warrant a constructive view on the bond market. Against
this backdrop, we will continue to research investment opportunities, focusing
on companies that we believe are positioned to perform well within their
industries.
Thank you for making Lord Abbett Bond-Debenture Fund a part of your investment
portfolio. We look forward to helping you achieve your financial goals in 1997
and beyond.
* Commencement of offering Class shares.
** Total return is the percent change in net asset value assuming the
reinvestment of all distributions. For the 12 months ended 12/31/96, total
return at net asset value for shareholders who owned Lord Abbett Securities
Trust-Bond-Debenture Trust and who now own Lord Abbett Bond-Debenture Fund
Class C was 11.1%.
++ Not annualized.
1
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 8.93% and 8.50% (based on the Class A share net
asset value and maximum offering price, respectively, on 12/31/96, and the
monthly dividend of $.07, 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)-12/31/96
1973--1974 1977--1981 1990--1991
The last major bear market; Interest rates Recession and the Middle
the unmanaged S&P 500 soared; bond East crisis jolted all
declined 37.3%. The Fund prices sank. The markets; lower rated bond
mitigated the decline, then Fund was up market especially hard hit.
recovered strongly. every year. The Fund mitigated the
decline, then recovered
strongly.
[The following table was represented as a line graph in the printed material.]
Fiscal Average of High Inflation
Year-End Current Yield (Consumer Price
December 31 The Fund Funds(2) Index)
- ----------- -------- -------- ------
4/1/71(1) - 1996 $123,498 $105,338 $39,650
This graph illustrates total return performance of Class A shares. 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 Class A share
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. No sales charge has been deducted from these
figures. Source: Chase Global Data and Research.
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).
The Fund Versus Inflation
$100,000 Investments(2): 4/1/71-12/31/96
<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> <C> <C>
$100,000 invested at 1971(3) $ 3,450 $103,588 $102,750 | From the early
the Fund's inception 1972 7,460 110,073 106,250 | 1970s through
grew to over $1 million 1973 8,204 99,239 115,500 | the early 1980s,
1974 9,163 94,202 129,750 | the U.S. economy
1975 9,719 122,105 138,750 | experienced rapidly
1976 10,970 159,867 145,500 | rising inflation
1977 11,883 171,064 155,250 | and interest
1978 14,100 175,803 169,250 | rates. The Fund
1979 16,410 188,105 191,750 | kept pace with
1980 18,614 204,818 215,750 | inflation
1981 22,844 215,671 235,000 | over this
1982 27,279 275,072 244,000 | turbulent period.
1983 31,092 321,561 253,250 | As the rate of
1984 37,521 337,510 263,250 | inflation and
1985 43,150 408,427 273,250 | interest rates
1986 48,531 451,763 276,250 | declined in the
1987 51,214 460,251 288,500 | 1980s, the Fund
1988 53,120 523,756 301,250 | outperformed the
1989 59,178 550,254 315,250 | CPI by an average
1990 66,312 508,602 334,500 of 6.7%/year.
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
1996 103,439 1,188,430 396,650
Total Dividends
Reinvested: $1,067,815
- ----------------------------------------------==========---------------------------------------
Average Annual Rate of Return: 10.09% 5.49%
- -----------------------------------------------------------------------======------------======
</TABLE>
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>
Current Dividend Distribution Rates: 8.93% and 8.50% (based on the Class A share
net asset value and maximum offering price, respectively, on 12/31/96, and the
monthly dividend of $.07, annualized)
Management in Action
The Fund's 3-Way Focus
1. High-yield Corporate Debt and Straight-preferred Stocks: 60.8%*
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: 18.1%*
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: 21.1%*
High-quality issues, corporate issues and U.S. Government-backed securities
provide a dependable stream of high current income.
*Percent of portfolio on 12/31/96.
A History of the Fund's Portfolio Blend
[The following table was represented as a bar graph in the printed material.]
High-yield Corporate
Debt and Straight- Equity-related High-grade
preferred Stocks Securities Debt
---------------- ---------- ----
1974 15.7% 49.6% 34.7%
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%
1995 62.9% 16.5% 20.6%
1996 60.8% 18.1% 21.1%
[GRAPHIC] High-yield Corporate Debt and Straight-preferred Stocks
[GRAPHIC] Equity-related Securities (Convertible Debt, Convertible-preferred
Stocks, Common Stocks, Warrants)
[GRAPHIC] High-grade Debt (U.S. Gov't and Agency Obligations, Higher Rated
Straight Debt) and Other Assets, Less Liabilities
Important Information
SEC yield is calculated on the Class A share maximum offering price of $9.88 on
12/31/96, 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 are subject to market fluctuations upward and downward inversely
to the rise and fall of interest rates. Common stocks are 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. Non-investment-grade, fixed-income
securities generally involve greater volatility of price to principal and income
than securities in higher rating categories. Performance results quoted herein
reflect past performance, current sales charges (where applicable) 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. The Fund issues 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 current prospectus. If used as
sales material after 3/31/97, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
4
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal
Investment Amount Market Value
====================================================================================================================================
Investments in Securities 91.32%
====================================================================================================================================
High-Yield Corporate Debt 59.85%
====================================================================================================================================
<S> <C> <C> <C>
Aerospace 1.36% BE Aerospace Inc. Sr. Sub. Notes 97/8/2006 $11,000M $ 11,605,000
Fairchild Corp. Sub. Deb. 131/8/2006 5,000M 5,050,000
UNC Inc. Sr. Sub. Notes 11/2006+ 8,440M 9,030,800
Wyman Gordon Co. Sr. Notes 103/4/2003 3,000M 3,232,500
Total 28,918,300
- ----------------------------------------------------------------------------------------------------------------------==============
Agricultural 1.26% Agricultural Minerals & Chemical Inc. Sr. Notes 103/4/2003 10,250M 11,185,313
Arcadian Partner Sr. Notes 103/4/2005 5,000M 5,493,750
PMI Acquisition Corp. Sr. Sub. Notes 101/4/2003 10,000M 10,250,000
Total 26,929,063
- ----------------------------------------------------------------------------------------------------------------------==============
Airlines .36% Northwest Airlines Inc. Sr. Notes 12.0916/2000 2,884M 3,028,035
US Air Inc. Equipment Trust Certificate 101/2/2004 2,634M 2,580,085
US Air Inc. (Piedmont) Equipment Trust Notes 10.35/2011 2,000M 1,869,375
US Air Inc. Equipment Trust Notes Series D 10.61/2007 300M 294,234
Total 7,771,729
- ----------------------------------------------------------------------------------------------------------------------==============
Aluminum .43% Kaiser Aluminum & Chemical Corp. Sr. Sub. Notes 123/4/2003 5,000M 5,387,500
Maxxam Group Zero Coupon Sr. Secured Discount Notes due 2003** 4,500M 3,858,750
Total 9,246,250
- ----------------------------------------------------------------------------------------------------------------------==============
Apparel and Textile .20% William Carter Sr. Sub. Notes 103/8/2006+ 4,000M 4,210,000
- ----------------------------------------------------------------------------------------------------------------------==============
Banking .72% Ocwen Federal Bank Sub. Deb. 12/2005 7,000M 7,665,000
Saul, B.F. Real Estate Investment Trust Sr. Notes 115/8/2002 7,000M 7,595,000
Total 15,260,000
- ----------------------------------------------------------------------------------------------------------------------==============
Building .33% Scotsman Group Inc. Sr. Notes 91/2/2000 6,800M 7,004,000
- ----------------------------------------------------------------------------------------------------------------------==============
Building Materials .37% Associated Materials, Inc. Sr. Sub. Notes 111/2/2003 1,500M 1,537,031
Southdown Inc. Sr. Sub. Notes 10/2006 6,000M 6,375,000
Total 7,912,031
- ----------------------------------------------------------------------------------------------------------------------==============
Chemicals 3.14% Acetex Corp. Sr. Secured Notes 93/4/2003 8,000M 7,900,000
Atlantis Group Inc. Sr. Notes 11/2003 5,000M 5,097,656
Borden Chemical Sr. Notes 91/2/2005 3,000M 3,067,500
Harris Chemical NA Inc. Sr. Secured Notes 101/4/2001 10,000M 10,418,750
NL Industries Inc. Zero Coupon Sr. Secured Discount Notes due 2005** 5,000M 4,312,500
NL Industries Inc. Sr. Secured Notes 113/4/2003 5,000M 5,318,750
Polymer Group Inc. Sr. Notes 121/4/2002 3,667M 3,960,360
Sterling Chemical Sr. Sub. Notes 113/4/2006 10,000M 10,600,000
Texas Petrochemicals Corp. Sr. Sub. Notes 111/8/2006+ 8,500M 9,201,250
UCC Investors Holdings Inc. Sr. Sub. Notes 11/2003 6,500M 6,922,500
Total 66,799,266
- ----------------------------------------------------------------------------------------------------------------------==============
Communications 11.35% Adelphia Communications Corp. Sr. Notes 97/8/2005 1,000M 928,750
Adelphia Communications Corp. Sr. Notes 121/2/2002 5,500M 5,651,250
Australis Media Ltd. Zero Coupon Sr. Discount Notes due 2003 w/Warrants** 8,000M 4,520,000
Bell Cable Media plc Zero Coupon Sr. Discount Notes due 2004** 10,000M 8,750,000
Brooks Fiber Properties Inc. Zero Coupon Sr. Discount Notes due 2006** 18,000M 12,060,000
Cablevision System Sr. Sub. Notes 91/4/2005 11,000M 10,917,500
CAI Wireless Systems Inc. Sr. Notes 121/4/2002 3,500M 1,627,500
Cellular Inc. Zero Coupon Sr. Sub. Discount Notes due 2003** 20,000M 17,900,000
Cencall Communications Corp. Zero Coupon Sr. Discount Notes due 2004** 7,500M 5,146,875
Comcast Cellular Corp. Zero Coupon Sr. Notes Series B due 2000 30,000M 21,825,000
C.S. Wireless Systems, Inc. Zero Coupon Sr. Discount Notes due 2006+** 13,340M 4,869,100
Frontier Vision Sr. Sub. Notes 11/2006 4,000M 4,020,000
</TABLE>
5
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal
Investment Amount Market Value
====================================================================================================================================
<S> <C> <C> <C>
Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11/2005 $ 7,000M $ 7,437,500
Gray Communication System Inc. Sr. Sub. Notes 105/8/2006 5,000M 5,325,000
Grupo Televisa, S.A. Sr. Notes Series B 117/8/2006 6,000M 6,682,500
Intelcom Group (USA) Inc. Zero Coupon Sr. Discount Notes due 2005
w/Warrants** 22,000M 15,675,000
Intermedia Communications of Florida Sr. Notes 131/2/2005 w/Warrants 5,000M 5,950,000
Lenfest Communications Sr. Notes 83/8/2005 5,000M 4,843,750
Marcus Cable Co. Zero Coupon Sr. Sub. Discount Notes due 2004** 10,000M 8,225,000
Metrocall Inc. Sr. Sub. Notes 103/8/2007 11,500M 10,005,000
MFS Communications Zero Coupon Sr. Discount Notes due 2006** 30,000M 21,900,000
Mobile Media Communications Inc. Sr. Sub. Notes 93/8/2007 12,000M 3,300,000
Nextel Communications Inc. Zero Coupon Sr. Discount Notes due 2003** 5,500M 4,303,750
Pan Am Sat L.P. Zero Coupon Sr. Sub. Discount Notes due 2003** 7,500M 6,993,750
Rogers Communications Inc. Sr. Sub. Deb. 107/8/2004 1,500M 1,576,875
Teleport Communications, Inc. Sr. Notes 97/8/2006 2,000M 2,145,000
Telewest plc Zero Coupon Sr. Discount Deb. due 2007** 21,000M 14,700,000
Vanguard Cellular Systems Sr. Deb. 93/8/2006 6,000M 6,075,000
Videotron Holdings plc Zero Coupon Sr. Discount Notes due 2004** 15,000M 13,087,500
Western Wireless Sr. Sub. Notes 101/2/2007+ 5,000M 5,237,500
Total 241,679,100
- ----------------------------------------------------------------------------------------------------------------------==============
Computer Systems and Digital Equipment Corp. Sr. Notes 73/4/2023 8,000M 6,861,250
Peripherals .50% Exide Electronics Group, Inc. Sr. Sub. Notes 111/2/2006 w/Warrants 3,530M 3,887,413
Total 10,748,663
- ----------------------------------------------------------------------------------------------------------------------==============
Consumer Products .77% American Standard Inc. Zero Coupon Sr. Sub. Deb. due 2005** 5,000M 4,668,750
Rayovac Corp. Sr. Sub. Notes 101/4/2006+ 11,340M 11,779,425
Total 16,448,175
- ----------------------------------------------------------------------------------------------------------------------==============
Container and Packaging 2.14% Calmar Inc. Sr. Sub. Notes 111/2/2005 9,000M 9,450,000
Owens Illinois Inc. Sr. Sub. Notes 10/2002 5,000M 5,250,000
Portola Packaging Inc. Sr. Notes 103/4/2005 7,000M 7,315,000
Printpack Inc. Sr. Sub. Notes 105/8/2006+ 12,000M 12,480,000
Silgan Corp. Sr. Sub. Notes 113/4/2002 3,000M 3,210,000
Silgan Holdings Inc. 131/4/2002 1,578M 1,593,780
US Can Corporation Sr. Sub. Notes 101/8/2006+ 6,000M 6,315,000
Total 45,613,780
- ----------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals .26% Imed Corp. Sr. Sub. Notes 93/4/2006+ 5,500M 5,616,875
- ----------------------------------------------------------------------------------------------------------------------==============
Financial .48% Aames Financial Corp. Sr. Notes 91/8/2003 4,500M 4,601,250
Ocwen Financial Corp. Sr. Notes 117/8/2003 5,100M 5,533,500
Total 10,134,750
- ----------------------------------------------------------------------------------------------------------------------==============
Food 2.42% Ameri King, Inc. Sr. Notes 103/4/2006 7,300M 7,628,500
Delta Beverage Group Sr. Notes 93/4/2003+ 6,400M 6,592,000
Doane Products Co. Sr. Notes 105/8/2006 10,000M 10,712,500
Dr. Pepper Bottling Holding Inc. Zero Coupon Sr. Discount Notes due 2003** 4,750M 4,488,750
Stroh Brewery 11.10/2006 w/Warrants 3,252M 3,414,600
Twin Laboratories Inc. Sr. Sub. Notes 101/4/2006 10,000M 10,487,500
Van de Kamp's Inc. Sr. Sub. Notes 12/2005 7,500M 8,212,500
Total 51,536,350
- ----------------------------------------------------------------------------------------------------------------------==============
Forest Products .43% Pacific Lumber Co. Sr. Notes 101/2/2003 9,000M 9,180,000
- ----------------------------------------------------------------------------------------------------------------------==============
Hotel/Leisure 3.61% Act III Theatres Inc. Sr. Sub. Notes 117/8/2003 5,000M 5,525,000
AMF Group Inc. Sr. Sub. Notes 107/8/2006 3,500M 3,701,250
Aztar Corp. Sr. Sub. Notes 11/2002 6,500M 6,305,000
Aztar Corp. Sr. Sub. Notes 133/4/2004 2,000M 2,137,500
</TABLE>
6
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal
Investment Amount Market Value
====================================================================================================================================
<S> <C> <C> <C>
Claridge Hotel & Casino Corp. 1st Mtge. Notes 113/4/2002 $ 5,000M $ 4,000,000
E & S Holdings Corp. Sr. Sub. Notes 103/8/2006+ 2,550M 2,677,500
HMC Acquisition Properties Sr. Notes 9/2007 5,000M 5,025,000
HMH Properties Inc. Sr. Secured Notes 91/2/2005 10,000M 10,450,000
Host Marriott Travel Plazas Inc. Sr. Secured Notes 91/2/2005 5,000M 5,231,250
Majestic Star Casino LLC Sr. Secured Notes 123/4/2003+ 3,650M 3,942,000
Plitt Theatres Inc. Sr. Sub. Notes 107/8/2004 5,000M 5,062,500
Santa Fe Hotel Inc. 1st Mtge. Notes 11/2000 w/Warrants 3,000M 2,235,068
Showboat Inc. 1st Mtge. Notes 91/4/2008 5,000M 4,931,250
Showboat Marina 1st Mtge. 131/2/2003 6,000M 6,630,000
Trump Atlantic City Funding 1st Mtge. Notes 111/4/2006 9,000M 8,955,000
Total 76,808,318
- ----------------------------------------------------------------------------------------------------------------------==============
Household Products 1.32% Ekco Group, Inc. Sr. Notes 91/4/2006 5,000M 4,962,500
Knoll Inc. Sr. Sub. Notes 107/8/2006 6,650M 7,364,875
Shop Vac Corp. Sr. Secured Notes 105/8/2003+ 1,275M 1,348,313
Specialty Equipment Cos. Inc. Sr. Sub. Notes 113/8/2003 5,000M 5,487,500
Sweetheart Cup Sr. Sub. Notes 101/2/2003 8,500M 8,882,500
Total 28,045,688
- ----------------------------------------------------------------------------------------------------------------------==============
Industrial and Capital
Goods .83% Euramax International Sr. Sub. Notes 111/4/2006+ 6,250M 6,500,000
HS Resources Inc. 91/4/2006+ 7,000M 7,227,500
Mettler Toledo Inc. Sr. Sub. Notes 93/4/2006 3,650M 3,859,875
Total 17,587,375
- ----------------------------------------------------------------------------------------------------------------------==============
Machinery 2.93% Alvey Systems Inc. Sr. Sub. Notes 113/8/2003 10,000M 10,575,000
Carbide Graphite Group Inc. Sr. Notes 111/2/2003 5,909M 6,440,810
Clark Materials Handling Sr. Notes 103/4/2006+ 6,850M 7,141,125
Essex Group Inc. Sr. Notes 10/2003 14,030M 14,380,750
J. Ray McDermott, S.A. Sr. Sub. Notes 93/8/2006 10,000M 10,525,000
Terex Corporation Sr. Secured Notes 133/4/2002+ 5,000M 5,450,000
Tokheim Corporation Sr. Sub. Notes 111/2/2006+ 7,500M 8,006,250
Total 62,518,935
- ----------------------------------------------------------------------------------------------------------------------==============
Media 3.72% American Radio System Sr. Sub. Notes 9/2006 8,000M 7,890,000
Benedek Broadcasting Corp. Sr. Secured Notes 117/8/2005 6,000M 6,570,000
Chancellor Broadcasting Co. Sr. Sub. Notes 93/8/2004 12,000M 12,150,000
Granite Broadcasting Corp. Sr. Sub. Notes 103/8/2005 10,500M 10,788,750
Granite Broadcasting Corp. Sr. Sub. Deb. 123/4/2002 1,000M 1,092,500
Heritage Media Corp. Sr. Sub. Notes 83/4/2006 5,500M 5,314,375
Heritage Media Corp. Inc. Sr. Secured Notes 11/2002 1,000M 1,067,500
SCI Television Sr. Secured Notes 11/2005 5,000M 5,337,500
Sinclair Broadcasting Group, Inc. Sr. Sub. Notes 10/2005 11,000M 11,192,500
Sullivan Broadcasting Sr. Sub. Notes 101/4/2005 8,000M 8,120,000
Viacom Inc. Sub. Deb. 8/2006 10,000M 9,662,500
Total 79,185,625
- ----------------------------------------------------------------------------------------------------------------------==============
Medical/Health Care .45% Integrated Health Services Sr. Sub. Notes 101/4/2006+ 3,900M 4,085,250
Quorum Health Group Inc. Sr. Sub. Notes 117/8/2002 5,000M 5,515,625
Total 9,600,875
- ----------------------------------------------------------------------------------------------------------------------==============
Miscellaneous 3.91% Fairfield Manufacturing Inc. Sr. Sub. Notes 113/8/2001 4,800M 5,040,000
Interface Inc. Sr. Sub. Notes 91/2/2005 12,000M 12,330,000
International Wire Group Inc. Sr. Sub. Notes 113/4/2005 10,000M 10,675,000
Iron Mountain Sr. Sub. Notes 101/8/2006 14,000M 14,910,000
Lamar Advertising Co. Sr. Notes 95/8/2006 8,000M 8,260,000
</TABLE>
7
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal
Investment Amount Market Value
====================================================================================================================================
<S> <C> <C> <C>
Monarch Marking Acquisition Corp. Sr. Notes 121/2/2003 $ 5,000M $ 5,875,000
Outsourcing Solutions Sr. Sub. Notes 11/2006+ 2,600M 2,730,000
Prime Succession Acquisition Co. Sr. Sub. Notes 101/4/2004+ 3,400M 3,697,500
Republic of Argentina Series L 51/4/2023 10,000M 6,387,500
Republic of Venezuela Series B 63/4/2020 w/Warrants 6,000M 4,560,000
Rose Hills Acquisition Sr. Sub. Notes 91/2/2004+ 3,500M 3,587,500
Safelite Glass Corp. 97/8/2006+ 5,000M 5,162,500
Total 83,215,000
- ----------------------------------------------------------------------------------------------------------------------==============
Oil and Gas 4.10% Clark USA Inc. Zero Coupon Sr. Secured Notes due 2000 14,500M 10,494,375
Coda Energy Inc. Sr. Sub. Notes 101/2/2006 12,000M 12,750,000
Crown Central Petroleum Corp. Sr. Notes 107/8/2005 11,500M 11,801,875
Flores & Rucks Sr. Sub. Notes 93/4/2006 10,000M 10,625,000
KCS Energy, Inc. Sr. Notes 11/2003 8,500M 9,222,500
Mesa Operating Co. Sr. Sub. Notes 105/8/2006 7,500M 8,175,000
Metro Gas, S.A. Sr. Sub. Notes 12/2000 6,000M 6,577,500
Nuevo Energy Co. Sr. Sub. Notes 91/2/2006 5,000M 5,325,000
Nuevo Energy Co. Sr. Sub. Notes 121/2/2002 4,500M 4,848,750
United Meridian Corp. Sr. Sub. Notes 103/8/2005 6,750M 7,382,813
Total 87,202,813
- ----------------------------------------------------------------------------------------------------------------------==============
Oil Service .18% Rowan Cos. Inc. Sr. Notes 117/8/2001 3,500M 3,745,000
- ----------------------------------------------------------------------------------------------------------------------==============
Paper and Pulp 3.15% Crown Paper Co. Sr. Sub. Notes 11/2005 11,000M 10,367,500
Four M Corp. Sr. Secured Notes Series A 12/2006+ 7,000M 7,350,000
Repap Wisconsin Inc. Sr. Secured 2nd Priority 97/8/2006 12,000M 12,270,000
S.D. Warren Co. Sr. Sub. Notes 12/2004 12,000M 12,990,000
Stone Container Corp. 1st Mtge. Notes 103/4/2002 14,000M 14,787,500
Tembec Finance Corp. Sr. Notes 97/8/2005 10,000M 9,387,500
Total 67,152,500
- ----------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .51% Big Flower Press Inc. Sr. Sub. Notes 103/4/2003 5,333M 5,492,990
Garden State Newspapers Inc. Sr. Sub. Notes 12/2004 5,000M 5,475,000
Total 10,967,990
- ----------------------------------------------------------------------------------------------------------------------==============
Real Estate .30% Trizec Finance Ltd. Sr. Notes 107/8/2005 5,800M 6,467,000
- ----------------------------------------------------------------------------------------------------------------------==============
Retail 1.08% Cort Furniture Rental Corp. Sr. Notes 12/2000 w/Warrants 3,220M 3,421,250
Pamida Inc. Sr. Sub. Notes 113/4/2003 8,000M 6,760,000
United Stationers Supply Co. Sr. Sub. Notes 123/4/2005 11,500M 12,822,500
Total 23,003,750
- ----------------------------------------------------------------------------------------------------------------------==============
Steel 2.83% AK Steel Corp. Sr. Notes 103/4/2004 6,000M 6,570,000
Earle M. Jorgenson Co. Sr. Notes 103/4/2000 5,000M 5,125,000
G.S. Technologies Operating Co. Sr. Notes 121/4/2005 6,000M 6,330,000
Interlake Corp. Sr. Notes 12/2001 5,000M 5,375,000
Ivaco Inc. Sr. Notes 111/2/2005 5,500M 5,527,500
Oregon Steel Mills 1st Mtge. Notes 11/2003 4,615M 4,914,975
Republic Engineered Steel Inc. 1st Mtge. Notes 97/8/2001 12,000M 11,220,000
WCI Steel Inc. Sr. Secured Notes 10/2004+ 7,000M 7,157,500
Weirton Steel Sr. Notes 113/8/2004+ 7,900M 8,058,000
Total 60,277,975
- ----------------------------------------------------------------------------------------------------------------------==============
Supermarket 1.27% Dairy Mart Convenience Stores Inc. Sr. Sub. Notes 101/4/2004 5,000M 4,906,250
Farm Fresh Holdings Sr. Notes P.I.K. 141/4/2002*** 7,036M 949,794
Pathmark Stores Inc. Zero Coupon Jr. Sub. Discount Notes due 2003** 12,500M 8,109,375
Pathmark Stores Inc. Sub. Notes 115/8/2002 3,000M 3,056,250
Ralphs Grocery Co. Sr. Sub. Notes 133/4/2005 3,000M 3,187,500
</TABLE>
8
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal
Investment Amount Market Value
====================================================================================================================================
<S> <C> <C> <C>
Ralphs Supermarkets Inc. Sr. Notes 10.45/2004 $ 6,000M $ 6,390,000
Victory Markets Inc. Sub. Notes 121/2/2000* 5,000M 450,000
Total 27,049,169
- ----------------------------------------------------------------------------------------------------------------------==============
Textile 1.22% Dan River Inc. Sr. Sub. Notes 101/8/2003 6,000M 6,090,000
Guess Inc. Sr. Sub. Notes 91/2/2003 5,000M 5,137,500
Synthetic Industries Inc. Sr. Sub. Notes 123/4/2002 5,000M 5,518,750
Tultex Corp. Sr. Notes 105/8/2005 4,500M 4,905,000
US Leather Inc. Sr. Notes 101/4/2003 5,000M 4,275,000
Total 25,926,250
- ----------------------------------------------------------------------------------------------------------------------==============
Transportation .72% Blue Bird Body Company 103/4/2006+ 4,100M 4,305,000
Ryder Trs, Inc. Sr. Sub. Notes 10/2006+ 5,000M 5,212,500
Trism Inc. Sr. Sub. Notes 103/4/2000 6,000M 5,730,000
Total 15,247,500
- ----------------------------------------------------------------------------------------------------------------------==============
Utility .90% Beaver Valley II Funding Corp. Secured Lease Obligation 9/2017 7,170M 6,847,350
Cal Energy Co. Inc. Sr. Notes 91/2/2006+ 8,000M 8,260,000
El Paso Electric Co. 1st Mtge. Notes Series D 8.90/2006 3,825M 3,995,331
Total 19,102,681
- ----------------------------------------------------------------------------------------------------------------------==============
Waste Management .30% Allied Waste North Amer 101/4/2006+ 6,000M 6,315,000
---------------------------------------------------------------------------------------==============
Total Investments in High-Yield Corporate Debt (Cost $1,247,636,582) 1,274,427,776
====================================================================================================================================
Convertible Debt 10.72%
====================================================================================================================================
Advertising .24% Omnicom Group Inc. Conv. Sub. Deb. 41/4/2007+ 5,000M 5,185,156
- ----------------------------------------------------------------------------------------------------------------------==============
Automotive .51% Exide Corp. Conv. Sub. Notes 2.9/2005+ 5,000M 2,995,313
Pep Boys Zero Coupon Conv. Notes due 2011 3,300M 1,744,875
Pep Boys Conv. Sub. Deb. 4/1999 6,000M 6,067,500
Total 10,807,688
- ----------------------------------------------------------------------------------------------------------------------==============
Banking .69% Fuji International Finance Conv. Pfd.+ 563M 14,835,930
- ----------------------------------------------------------------------------------------------------------------------==============
Communications .35% Broadband Technologies, Inc. Conv. Sub. Deb. 5/2001+ 3,000M 2,274,375
Telekom Malaysia Conv. Notes 4/2004+ 5,000M 5,175,000
Total 7,449,375
- ----------------------------------------------------------------------------------------------------------------------==============
Computer Processing .95% Automatic Data Processing Zero Coupon Conv. Sub. Deb. due 2012 30,000M 17,015,625
Businessland Inc. Conv. Sub. Deb. 51/2/2007 5,000M 3,225,000
Total 20,240,625
- ----------------------------------------------------------------------------------------------------------------------==============
Computer Systems and SCI Systems Inc. Conv. Sub. Deb. 5/2006 3,000M 3,525,000
Peripherals .26% Unisys Corp. Conv. Sub. Notes 81/4/2000 2,000M 1,940,000
Total 5,465,000
- ----------------------------------------------------------------------------------------------------------------------==============
Consumer Products .22% C S First Boston (Exch. PG) Conv. Deb. 31/2/2001 4,700M 4,717,625
- ----------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals 1.60% Alza Corp. Conv. Sub. Deb. 5/2006 10,000M 9,650,000
Roche Holdings Inc. Zero Coupon Conv. Notes due 2010+ 42,000M 19,005,000
Sandoz Capital, BVI, Ltd. Conv. Sub. Deb. 2/2002+ 5,000M 5,400,000
Total 34,055,000
- ----------------------------------------------------------------------------------------------------------------------==============
Electrical Equipment .04% Thermo Instrument System Conv. Deb. 41/2/2003+ 900M 937,265
- ----------------------------------------------------------------------------------------------------------------------==============
Electronics .63% General Instrument Jr. Sub. Notes 5/2000 3,000M 3,240,000
Xilinx Inc. Conv. Sub. Notes 51/4/2002+ 10,000M 10,075,000
Total 13,315,000
- ----------------------------------------------------------------------------------------------------------------------==============
Household Appliances .28% Whirlpool Corp. Zero Coupon Sub. Notes due 2011 15,000M 5,906,250
- ----------------------------------------------------------------------------------------------------------------------==============
Industrial and Capital
Goods .48% Raymond Corp. Conv. Sub. Deb. 61/2/2003 3,000M 3,258,750
RPM Inc. Zero Coupon Conv. Sub. Deb. due 2012 15,000M 6,862,500
Total 10,121,250
- ----------------------------------------------------------------------------------------------------------------------==============
</TABLE>
9
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Principal Amount
Investment or Shares Market Value
====================================================================================================================================
<S> <C> <C> <C>
Insurance .27% CII Financial Inc. Conv. Sub. Deb. 71/2/2001 $ 6,000M $ 5,670,000
- ----------------------------------------------------------------------------------------------------------------------==============
Medical/Health Care .81% Healthsource, Inc. Conv. Sub. Notes 5/2003+ 7,200M 5,744,250
Integrated Health Services Conv. Sub. Deb. 6/2003 12,000M 11,443,125
Total 17,187,375
- ----------------------------------------------------------------------------------------------------------------------==============
Office Equipment .09% U.S. Office Products, Co. Conv. Sub. Deb. 51/2/2003+ 2,000M 1,863,437
- ----------------------------------------------------------------------------------------------------------------------==============
Oil and Gas 1.90% Baker Hughes Inc. Zero Coupon Conv. Notes due 2008 15,000M 10,989,844
Nabors Industries Inc. Conv. Sub. Notes 5/2006 3,000M 3,827,813
Pennzoil (Exch. Chevron) Conv. Sub. Deb. 43/4/2003 10,000M 11,546,875
Pogo Producing Co. Conv. Sub. Notes 51/2/2006+ 5,000M 6,300,000
Swift Energy Co. Conv. 61/4/2006 5,500M 6,022,500
Wainoco Oil Corp. Inc. Conv. Sub. Deb. 73/4/2014 2,400M 1,974,000
Total 40,661,032
- ----------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .60% Scholastic Corp. Conv. Sub. Deb. 5/2005+ 12,020M 12,780,641
- ----------------------------------------------------------------------------------------------------------------------==============
Restaurant .17% UBS Fin. (Exch. MCD) Conv. Notes 2/2000 4,000M 3,725,000
- ----------------------------------------------------------------------------------------------------------------------==============
Retail .63% Home Depot Inc. Conv. Sub. Deb. 31/4/2001 13,700M 13,383,187
---------------------------------------------------------------------------------------==============
Total Investments in Convertible Debt (Cost $220,766,392) 228,306,836
====================================================================================================================================
Preferred and Convertible-Preferred Stocks, Common Stocks and Warrants 8.33%
====================================================================================================================================
Banking .38% Ahmanson, H.F. & Co. $3.00 Conv. Pfd. Series D 115,000 8,021,250
Crossland Savings FSB Brooklyn, NY $1.8125 Conv. Pfd. Series A 375,000 5,859
Total 8,027,109
- ----------------------------------------------------------------------------------------------------------------------==============
Building Materials .55% Owens Corning $3.25 Conv. Pfd.+ 200,000 11,756,250
- ----------------------------------------------------------------------------------------------------------------------==============
Chemicals .29% Atlantic Richfield Co. (Exch. Lyondell Petrochemical) $2.23 Conv. Pfd. 285,000 6,127,500
- ----------------------------------------------------------------------------------------------------------------------==============
Communications .42% Westinghouse Electric Corp. $1.30 Conv. Pfd. Series C+ 500,000 8,867,188
- ----------------------------------------------------------------------------------------------------------------------==============
Container and Packaging .24% Crown Cork & Seal $1.885 Conv. Pfd. 100,000 5,200,000
- ----------------------------------------------------------------------------------------------------------------------==============
Financial .79% Jefferson-Pilot Corp. (NBX) $5.256 Conv. Pfd. 185,000 16,835,000
- ----------------------------------------------------------------------------------------------------------------------==============
Food .49% Wendy's Financing $2.50 Conv. Pfd. 200,000 10,400,000
- ----------------------------------------------------------------------------------------------------------------------==============
Hotel/Leisure .10% AMC Entertainment Inc. $1.75 Conv. Pfd. 75,000 2,025,000
- ----------------------------------------------------------------------------------------------------------------------==============
Insurance 1.22% American Bankers Ins. Group $3.125 Conv. Pfd. 73,000 4,361,750
American General $3.00 Conv. Pfd. Series A 150,000 8,268,750
Frontier Insurance Group, Inc. $6.250 Conv. Pfd.+ 150,000 7,764,843
St. Paul's Capital, LLC $3.00 Conv. Pfd. 100,000 5,537,500
Total 25,932,843
- ----------------------------------------------------------------------------------------------------------------------==============
Machinery .29% Bucyrus-Erie Company 56,624 495,460
Navistar International Corp. $6.00 Conv. Pfd. Series G 100,000 5,650,000
Total 6,145,460
- ----------------------------------------------------------------------------------------------------------------------==============
Miscellaneous .60% Corning Delaware LP $3.00 Conv. Pfd. 200,000 12,725,000
- ----------------------------------------------------------------------------------------------------------------------==============
Non Ferrous Metals .13% Freeport McMoRan Copper & Gold Class A 100,551 2,827,997
- ----------------------------------------------------------------------------------------------------------------------==============
Oil and Gas .68% Occidental Petroleum $3.875 Conv. Pfd.+ 100,000 5,873,437
Unocal Corp. $6.250 Conv. Pfd. 150,000 8,678,906
Total 14,552,343
- ----------------------------------------------------------------------------------------------------------------------==============
Paper and Pulp .88% Alco Standard Corp. $5.04 Conv. Pfd. 75,000 7,162,500
International Paper Capital Trust $2.625 Conv. Pfd. 250,000 11,585,938
Total 18,748,438
- ----------------------------------------------------------------------------------------------------------------------==============
Real Estate .50% Walden Residential Properties $2.30 Pfd. w/Warrants 400,000 10,562,500
- ----------------------------------------------------------------------------------------------------------------------==============
Retail .10% Supermarkets General Holdings Corp. $3.52 Pfd. P.I.K.*** 80,000 2,180,000
---------------------------------------------------------------------------------------==============
</TABLE>
10
<PAGE>
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
Shares or
Investment Principal Amount Market Value
====================================================================================================================================
<S> <C> <C> <C>
Utility .44% Calenergy, C.T. $3.125 Conv. Pfd.+ 150,000 $ 9,353,906
- ----------------------------------------------------------------------------------------------------------------------==============
Waste Management .23% Browning-Ferris Industries Inc. $2.58 Conv. Pfd. 176,300 5,024,550
---------------------------------------------------------------------------------------==============
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $182,162,443) 177,291,084
====================================================================================================================================
<CAPTION>
Government Agency Issues 12.42%
====================================================================================================================================
<S> <C> <C>
Federal National Mortgage Association 61/2% due on an announced basis 75,000M 71,531,250
Federal National Mortgage Association 7% due on an announced basis 50,000M 48,820,313
Federal National Mortgage Association 7% due 3/15/2021 19,726M 19,303,566
Federal National Mortgage Association 7.95% due 3/7/2005 10,000M 10,337,500
Federal National Mortgage Association 8% due 9/1/2026 24,596M 25,072,315
Government National Mortgage Association 71/2% due on an announced basis 25,000M 25,007,812
U.S. Treasury Notes Zero Coupon due 11/15/2004 25,000M 15,173,594
U.S. Treasury Notes 57/8% due 11/15/2005 35,000M 33,758,594
U.S. Treasury Notes 87/8% due 2/15/1999 14,700M 15,556,734
Total 264,561,678
---------------------------------------------------------------------------------------==============
Total Investments in Government Agency Issues (Cost $268,857,854) 264,561,678
---------------------------------------------------------------------------------------==============
Total Investments in Securities (Cost $1,919,423,271) 1,944,587,374
====================================================================================================================================
<CAPTION>
Other Assets, Less Liabilities 8.68%
====================================================================================================================================
<S> <C> <C> <C> <C>
Other Short-Term Federal Home Loan Banks 121/2% due 7/22/1997 65,000M 67,437,500
Assets Investments, Federal Home Loan Banks 121/2% due 9/10/1997 40,000M 41,850,000
at Market Federal Home Loan Banks 121/2% due 10/23/1997 50,000M 52,648,438
Student Loan Marketing Association 121/2% due 9/26/1997 76,000M 79,657,500
U.S. Treasury Notes 81/2% due 7/15/1997 25,500M 25,914,375
Total (Cost $271,909,813) 267,507,813
-----------------------------------------------------------------------------------------------------==============
Short-Term Ford Motor Credit Co. 5.96% due 1/3/1997 3,400M 3,400,000
Investments, General Electric Capital Corp. 6.10% due 1/2/1997 1,000M 1,000,000
at Cost Total 4,400,000
-----------------------------------------------------------------------------------------------------==============
Total Short-Term Investments 271,907,813
-----------------------------------------------------------------------------------------------------==============
Cash 3,421,237
-----------------------------------------------------------------------------------------------------==============
Receivable
for: Investments sold 152,305,521
Interest 39,960,322
Capital shares sold 7,891,253
Dividends 249,708
Other 13,554
Total Other Assets 475,749,408
====================================================================================================================================
Liabilities Payable for: Investments purchased 287,958,522
Capital stock reacquired 1,384,750
Accrued expenses 1,509,188
Dividends 62,925
Total Liabilities 290,915,385
-----------------------------------------------------------------------------------------------------==============
Total Other Assets, Less Liabilities 184,834,023
====================================================================================================================================
Net Assets 100.00% $2,129,421,397
====================================================================================================================================
Class A Shares-Net asset value ($1,744,345,766 / 185,334,145 shares outstanding) $9.41
Class B Shares-Net asset value ($108,843,763 / 11,570,383 shares outstanding) $9.41
Class C Shares-Net asset value ($276,231,868 / 29,346,452 shares outstanding) $9.41
</TABLE>
* Non-income producing.
** Deferred-interest debentures pay no interest for a stipulated number of
years, after which time they pay a stipulated 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.
11
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended December 31, 1996
====================================================================================================================================
<S> <C> <C>
Income Dividends $ 8,782,128
Interest 153,169,838
Total income $161,951,966
----------------------------------------------------------------------------------------------------------------------
Expenses Management fee 7,802,104
12b-1 distribution plan-Class A 4,077,353
12b-1 distribution plan-Class B 213,870
12b-1 distribution plan-Class C 1,073,700
Shareholder servicing 1,940,000
Reports to shareholders 280,000
Registration 175,000
Directors 51,000
Professional services 135,000
Other 213,905
Total expenses 15,961,932
----------------------------------------------------------------------------------------------------------------------
Net investment income 145,990,034
----------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
====================================================================================================================================
Realized gain from investment transactions
Proceeds from sales $2,031,319,176
Cost of investments sold 2,009,974,786
----------------------------------------------------------------------------------------------------------------------
Net realized gain 21,344,390
----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments 19,291,096
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 40,635,486
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $186,625,520
====================================================================================================================================
See Notes to Financial Statements.
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1996 1995
====================================================================================================================================
<S> <C> <C>
Operations Net investment income $ 145,990,034 $ 107,707,744
Net realized gain (loss) from investment transactions 21,344,390 (48,660,364)
Net unrealized appreciation of investments 19,291,096 122,224,060
Net increase in net assets resulting from operations 186,625,520 181,271,440
----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions 3,837,343 4,588,268
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (142,154,269) (109,789,425)
Class B (1,525,182) --
Class C (8,199,939) --
Total distributions (151,879,390) (109,789,425)
----------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 659,731,030 341,253,620
Net asset value of shares issued to shareholders in reinvestment
of net investment income 75,207,820 52,422,843
Net asset value of shares issued in exchange for assets acquired
in tax-free acquisition 208,387,462 --
Total 943,326,312 393,676,463
----------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (191,996,711) (117,851,327)
----------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 751,329,601 275,825,136
----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 789,913,074 351,895,419
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of year 1,339,508,323 987,612,904
----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $28,014,489 and $29,603,110, respectively) $2,129,421,397 $1,339,508,323
======================================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------
Year Ended December 31,
Per Share Operating Performance: 1996 1995 1994 1993 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.29 $8.71 $9.95 $9.43 $9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .81 .85 .84 .89 .95
Net realized and unrealized gain (loss)on investments .17 .606 (1.203) .55 .42
Total from investment operations .98 1.456 (.363) 1.44 1.37
------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.86) (.876) (.877) (.92) (.96)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.41 $9.29 $8.71 $9.95 $9.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.16% 17.50% (3.87)% 15.97% 15.99%
====================================================================================================================================
Ratios to Average Net Assets:
Expenses .89% .82% .88% .88% .84%
Net investment income 8.77% 9.41% 8.97% 9.17% 10.18%
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
Shares Shares
------------------- -----------------
8/1/96(b) 7/15/96(b)
Per Share Operating Performance: to 12/31/96 to 12/31/96
============================================================================================================== =================
<S> <C> <C>
Net asset value, beginning of period $9.13 $9.05
- -------------------------------------------------------------------------------------------------------------- -----------------
Income from investment operations
Net investment income .34 .35
Net realized and unrealized gain on investments .26 .33
Total from investment operations .60 .68
- -------------------------------------------------------------------------------------------------------------- -----------------
Distributions
Dividends from net investment income (.32) (.32)
-------------------------------------------------------------------------------------------------------- -----------------
Net asset value, end of period $9.41 $9.41
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 6.57%(c) 7.86%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses .70%(c) .75%(c)
Net investment income 3.37%(c) 3.72%(c)
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Supplemental Data for All Classes: 1996 1995 1994 1993 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $2,129,421 $1,339,508 $987,613 $969,736 $734,017
Portfolio turnover rate 106.79% 134.90% 147.98% 159.79% 188.44%
==============================================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads.
(b) Commencement of offering Class shares.
(c) Not annualized.
See Notes to Financial Statements.
13
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Lord Abbett Bond-Debenture Fund, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the Company:
(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. 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). Realized gains and losses from investment
transactions are calculated on the identified cost basis. 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. Net investment income (other than distribution
and service fees) and realized and unrealized gains or losses are allocated to
each class of shares based upon the relative proportion of net assets at the
beginning of the day.
(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 components of net assets in the prior period have been reclassified
to conform to the current year presentation.
2. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett & Co. ("Lord Abbett")
pursuant to which it supplies the Company with investment management, research,
statistical and advisory services and pays officers' remuneration and certain
other expenses of the Company. The management fee is based on average daily net
assets at the following annual rates: 0.50% on the first $500 million and 0.45%
on assets over $500 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B and Class
C Plans") with Lord Abbett Distributor LLC ("Distributor"), an affiliate of Lord
Abbett. The Company makes payments to Distributor which uses or passes on such
payments to authorized institutions. Pursuant to the Class A Plan, the Company
pays Distributor (1) an annual service fee of 0.15% of the average daily net
asset value of shares sold prior to June 1, 1990 and 0.25% of the average daily
net asset value of shares sold on or after that date and (2) a one-time
distribution fee of up to 1% on certain qualifying purchases and a supplemental
annual distribution fee of 0.10% of the average daily net assets ofClass A
shares serviced by certain qualifying institutions. Pursuant to the Class B
Plan, the Company pays Distributor an annual service and a distribution fee of
0.25% and 0.75%, respectively, of the average daily net asset value of the Class
B shares. Pursuant to the Class C Plan, the Company pays Distributor (1) a
service fee and a distribution fee, at the time such shares are sold, not to
exceed 0.25% and 0.75%, respectively, of the net asset value of such shares sold
and (2) at each quarter-end after the first anniversary of the sale of such
shares, a service fee and a distribution fee at an annual rate not to exceed
0.25% and 0.75%, respectively, of the average annual net asset value of such
shares outstanding.
Distributor received $2,028,285 representing payment of commissions on sales of
Class A shares after deducting $12,711,165 allowed to authorized distributors as
concessions. Certain of the Company's officers and directors have an interest in
Lord Abbett.
3. Distributions
Dividends from net investment income are paid monthly. Capital gain
distributions, if any, will be made annually. At December 31, 1996, accumulated
net realized loss for financial reporting purposes aggregated $99,239,387.
The Company had a capital loss carryforward as of December 31, 1996 of
approximately $99,200,000 of which $3,300,000 expires in 1997, $28,600,000
expires in 1998, $16,945,000 expires in 1999, $35,000 expires in 2002 and
$50,320,000 in 2003. 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.
4. Capital
The Company has authorized 760 million shares of $.001 par value capital stock
designated Class A, 160 million shares of $.001 par value capital stock
designated Class B, and 80 million shares of $.001 par value capital stock
designated Class C. Paid in capital amounted to $2,179,884,192 at December 31,
1996. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------------------- -----------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Sales of shares 52,597,828 $482,030,592 38,145,671 $341,253,620
Shares issued to
shareholders in
reinvestment of net
investment income 7,626,981 70,002,967 5,890,156 52,422,843
Total 60,224,809 552,033,559 44,035,827 393,676,463
- ----------------------------------------------------- ------------------------------
Shares reacquired (19,113,648) (177,419,703) (13,236,691) (117,851,327)
Increase in shares 41,111,161 $374,613,856 30,799,136 $275,825,136
- ---------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Notes to Financial Statements
August 1, 1996
(Commencement of
offering Class B shares)
to December 31, 1996
----------------------------------
Class B Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 11,594,111 $107,794,119
Shares issued to
shareholders in
reinvestment of net
investment income 80,127 746,995
Total 11,674,238 108,541,114
- --------------------------------------------------------------------------------
Shares reacquired (103,855) (972,069)
Increase in shares 11,570,383 $107,569,045
- --------------------------------------------------------------------------------
July 15, 1996
(Commencement of
offering Class C shares)
to December 31, 1996
----------------------------------
Class C Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 7,294,466 $ 69,906,319
Shares issued to
shareholders in
reinvestment of net
investment income 488,922 4,457,858
Shares issued to
shareholders in exchange
for net assets acquired in
tax-free acquisition 23,033,874 208,387,462
Total 30,817,262 282,751,639
- --------------------------------------------------------------------------------
Shares reacquired (1,470,810) (13,604,939)
Increase in shares 29,346,452 $ 269,146,700
- -------------------------------------------------------------------------------
5. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term investments) aggregated $851,013,166 and
$501,128,296, respectively. Purchases and sales of U.S. Government obligations
aggregated $1,675,344,669 and $1,530,190,880, respectively. As of December 31,
1996, unrealized appreciation for federal income tax purposes aggregated
$20,762,103, of which $91,342,097 related to appreciated securities and
$70,579,994 related to depreciated securities. For federal income tax purposes,
the identified cost of investments owned at December 31, 1996 was substantially
the same as the cost for financial reporting purposes.
6. Directors' Remuneration
The Directors of the Company associated with Lord Abbett and all officers of the
Company receive no compensation from the Company for acting as such. Outside
Directors' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on net assets of each fund. A portion of the Directors' fees
accrued 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 December 31, 1996, the aggregate amount in Directors' accounts maintained
under the plan was $368,000.
7. Acquisition
On July 12, 1996, the Company acquired the net assets of Lord Abbett Securities
Trust-Bond-Debenture Trust (the "Trust") pursuant to a plan of reorganization
approved by the Trust's shareholders on June 19, 1996. The acquisition was
accomplished by a tax-free exchange of 23,033,874 shares of newly issued Class C
shares for 44,089,410 shares of the Trust valued at $208,387,462 in the
aggregate on July 12, 1996. The aggregate net assets of the Company and the
Trust immediately before the acquisition were $1,535,612,851 and $208,387,462
(including $1,759,291 of net unrealized depreciation and $79,619 of accumulated
net realized losses), respectively.
8. Proxy Results (unaudited)
The Company's shareholders voted on the following proposals at the Annual
Meeting of Shareholders held on June 19, 1996. Each Director was elected and all
other proposals were approved. The description of each proposal and the results
of the shareholder vote are as follows:
Election of Directors For Withheld
- --------------------------------------------------------------------------------
Ronald P. Lynch 124,437,367 1,562,648
Robert S. Dow 124,503,431 1,496,584
E. Thayer Bigelow 124,458,979 1,541,036
Stewart S. Dixon 124,464,587 1,535,428
John C. Jansing 124,312,490 1,687,525
C. Alan MacDonald 124,498,008 1,502,007
Hansel B. Millican, Jr 124,485,641 1,514,374
Thomas J. Neff 124,442,282 1,557,733
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratification of Deloitte &
Touche LLP as independent
public accountants 121,810,666 733,403 3,455,946 --
Approval of certain changes
in fundamental investment
policies and restrictions 87,790,217 5,099,863 6,356,451 26,753,484
Approval of new Class A
share Distribution Plan
and Agreement 86,807,156 5,802,229 6,634,147 26,756,483
Approval of an amendment
to the Articles of Incorporation
authorizing the creation of
classes and series of shares
and confirming that the Directors
may impose contingent deferred
sales charges on certain
redemptions of new classes
of shares 86,730,489 5,957,200 6,558,841 26,753,485
Approval of an amendment to
the Articles of Incorporation to
reduce the par value of capital
stock to $0.001 88,641,076 4,512,672 6,094,404 26,751,863
- ------------------------------------------------------------------------------------------
</TABLE>
15
<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 December 31, 1996, the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. 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 December
31, 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 December 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods presented in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
February 7, 1997
1996 Tax Information
In January 1997, shareholders of Lord Abbett Bond-Debenture Fund, Inc. received
information which must be included in each shareholder's federal income tax
return. In accordance with the regulations of the U.S. Treasury Department, this
information must be reported by the Fund to the Internal Revenue Service.
5.98% of the Fund's dividends for the fiscal year ended December 31, 1996
qualify for the dividend-received deduction available to corporate shareholders
in accordance with Section 243 of the Internal Revenue Code.
Lord Abbett Bond-Debenture Fund, Inc.
New York, New York
Our Management
Board of Directors
Robert S. Dow
E. Wayne Nordberg
E. Thayer Bigelow*+
Stewart S. Dixon*
John C. Jansing*
C. Alan MacDonald*+
Hansel B. Millican, Jr.*+
Thomas J. Neff*
* Outside Director
+ Audit Committee
Officers
Robert S. Dow, Chairman and President
Christopher J. Towle, Executive Vice
President and Portfolio Manager
Kenneth B. Cutler, Vice President
and Secretary
Stephen I. Allen, Vice President
Zane E. Brown, Vice President
Daniel E. Carper, Vice President
Daria L. Foster, Vice President
Robert G. Morris, Vice President
Robert J. Noelke, Vice President
E. Wayne Nordberg, Vice President
John J. Walsh, Vice President
Paul A. Hilstad, Vice President
and Assistant Secretary
Thomas F. Konop, Vice President
and Assistant Secretary
Keith F. O'Connor, Vice President
and Treasurer
A. Edward Oberhaus III, Vice President
Victor W. Pizzolato, Vice President
Donna McManus, Assistant Treasurer
Joseph Van Dyke, Assistant Treasurer
Lydia Guzman, Assistant Secretary
Robert M. Hickey, Assistant Secretary
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
Copyright (C) 1997 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.
16
<PAGE>
Lord, Abbett & Co.
A Tradition of Performance Through
Disciplined
Investing
[PHOTO]
(from left to right)
Richard S. Szaro, senior securities analyst
Amy K. Kennedy, securities analyst
Ho C. Wang, senior securities analyst
Christopher J. Towle, portfolio manager--
Lord Abbett Bond-Debenture Fund
(seated)
Zane E. Brown, partner and
director of fixed income
A successful long-term track record is evidence of a successful investment
strategy. For decades we, at Lord, Abbett & Co., have believed that investing
with a disciplined, value approach is the best way to achieve competitive
returns and reduce portfolio risk. This commitment and the dedication of our
team of 50 investment professionals have helped us earn the trust of financial
professionals and investors for over 65 years.
About Your
Fund's
Board of
Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor LLC (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience; Lord Abbett
Bond-Debenture Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, Thomas J. Neff.
Thomas J. Neff,
Director--Lord Abbett
Bond-Debenture Fund
[PHOTO]
An alumnus of Lafayette College, Mr. Neff also holds an MBA from Lehigh
University. He is Chairman of Spencer Stuart U.S., an executive search
consulting firm based in New York.
Mr. Neff is a trustee of Lafayette College and also has served as Chairman of
the Board of Trustees of the Brunswick School in Greenwich, CT. He has been a
director for all of Lord Abbett's funds since 1982.
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Growth & Balanced Income Tax-Free Money
Growth Funds Funds Income Funds Fund Funds Income Funds Market Fund
Developing Global Fund-- Affiliated Fund Balanced Series Bond-Debenture o National U.S. Government
Growth Fund Equity Series Fund o California Securities
Growth & o Connecticut Money Market
International Mid-Cap Income Series Global Fund-- o Florida Fund*+
Series Value Fund Income Series o Georgia
Research Fund-- o Hawaii
Research Fund-- Large-Cap Limited Duration o Michigan
Small-Cap Series U.S. Government o Minnesota
Series Securities Series* o Missouri
o New Jersey
U.S. Government o New York
Securities Series* o Pennsylvania
o Texas
o Washington
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your financial adviser provides value in helping you identify and
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for Lord Abbett Mid-Cap Value
Fund.
For more complete information about any other Lord Abbett fund, including
charges and expenses, call your financial adviser or Lord Abbett Distributor LLC
at 800-874-3733 for a prospectus. Read it carefully before investing.
When you invest in a family of funds, you benefit from:
Diversification. You and your financial adviser can diversify your investments
between equity and income funds.
Flexibility. As your investment goals change, your financial adviser can help
you reallocate your portfolio.
As an investor in the Lord Abbett Family of Funds, you have access to 28
portfolios designed to meet a variety of investment needs. While you may
reallocate your assets among our funds at any time, we recommend speaking with
your financial adviser to help you customize your investment plan.
Numbers to Keep Handy
For Shareholder Account or
Statement Inquiries:
800-821-5129
For Literature:
800-874-3733
For More Information:
800-426-1130
Visit our Web site:
http://www.lordabbett.com
* An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ There can be no assurance that this Fund will be able to maintain a stable
net asset value of $1.00 per share. This Fund is managed to maintain, and
has maintained, its stable $1.00 per share price.
- --------------------------------------------------------------------------------
[LOGO] LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LABD-2-1296
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (2/97)
