<PAGE>
Lord Abbett Bond-Debenture
Fund
1997 ANNUAL REPORT
[GRAPHIC: Tool Kit]
A mutual fund with a multi-faceted
approach to seeking high income
<PAGE>
Lord Abbett Bond-Debenture Fund
[GRAPHIC: Work Gloves with Tools]
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,
produced a history of strong performance in a variety of economic climates.
Morningstar says:
"Manager Chris Towle's approach also inspires confidence...Investors looking for
returns competitive with the high-yield category's averages, but with somewhat
less credit risk, might want to consider this fund."
Morningstar Mutual Funds, October 24, 1997
- --------------------------------------------------------------------------------
Historically Consistent
Total Returns Average Annual Rates of Total Return as of
12/31/97(1)
[The following information was depicted as a bar graph in the printed material]
For the past 20 years +10.8% per year
For the past 15 years +11.1% per year
For the past 10 years +11.3% per year
For the past 5 years +10.4% per year
For the past year +12.7% per year
- -------------------------------------------------------------------------------
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 12/31/97(2)
[The following information was depicted as a bar graph in the printed material]
At Net Asset Value 7.99%
At Maximum Offering Price 7.61%
- --------------------------------------------------------------------------------
Average Annual Total Average annual total returns for periods ended
Returns 12/31/97 at the Class A share maximum sales charge
of 4.75%, with all distributions reinvested:
[The following information was depicted as a bar graph in the printed material]
10 years +10.73%
5 years +9.34%
1 year +7.30%
The Fund's SEC yield for the 30 days ended
12/31/97 was 6.92%. 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) Class A share performance at net asset value. The
Series issues additional classes of shares with
distinct pricing options. See Important
Information on page 5.
(2) Based on the Class A share monthly dividend of
$.065, annualized.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended December 31, 1997
[PHOTO: Robert S. Dow]
/s/ Robert S. Dow
- --------------------------
ROBERT S. DOW
CHAIRMAN
JANUARY 14, 1998
"Our economic forecasts see favorable conditions for the convertible and
high-yield corporate bond markets that should provide our management team
opportunity to uncover value using our in-depth research process."
Lord Abbett Bond-Debenture Fund completed its fiscal year on December 31, 1997,
with net assets of $2.9 billion. Below is an overview of Class share performance
for the period.
Fiscal Year Ended December 31, 1997
-----------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Net asset value $9.76 $9.75 $9.77
Dividends $0.80 $0.72 $0.72
Total return* +12.7% +11.9% +12.0%
Your Fund posted strong performance during the past year amid the continuing
economic growth, low inflation and favorable interest-rate environment that
characterized the period. Particularly beneficial to your Fund's performance was
the portfolio's concentration in the telephone communications, media and energy
sectors. Basic industry issues also generally outperformed the bond market. In
addition, the robust U.S. economic growth provided significant increases in
corporate profitability, which resulted in improved credit ratings and strong
gains for many of our holdings. We have been devoting increasing amounts of time
and resources to fundamental research, as financial markets have little
tolerance for earnings shortfalls. Our U.S. Treasury and mortgage-related
securities provided total returns in the 9.0%-9.5% range during the year.
However, significantly higher total returns earned by high-yield and convertible
securities throughout the course of 1997 proved most beneficial to your Fund.
Our outlook for 1998 is for economic growth to slow considerably, to 2% or less,
in the later half of the year. We anticipate inflation to remain moderate. Our
economic forecasts see favorable conditions for the convertible and high-yield
corporate bond markets that should provide our management team opportunity to
uncover value using our in-depth research process. We remain watchful of the
weaknesses in the Asian markets, but are encouraged by the fact that most of our
holdings do not have high exposure in the Asian economies. We will continue to
seek opportunities on a global basis. At this time, we are emphasizing the
high-yield sector as these securities should benefit from low interest rates and
a stable U.S. economy.
We are pleased that you chose to make the Fund a part of your investment
portfolio and look forward to assisting you with your financial goals in the
future. Thank you for placing your trust in Lord Abbett.
* Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
1
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 7.99% and 7.61% (based on the Class A share net
asset value and maximum offering price, respectively, on 12/31/97, and the
monthly dividend of $.065, 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: 4/1/71-12/31/97(1)
[THE FOLLOWING IS SHOWN AS A LINE GRAPH]
AVERAGE OF HIGH
DATE THE FUND CURRENT YIELD FUNDS(2) INFLATION
4/1/71 9523 10000 10000
12/31/71 10251 10666 10275
12/31/72 10893 11638 10625
12/31/73 9821 10426 11550
12/31/74 9321 9251 12975
12/31/75 12083 11351 13875
12/31/76 15820 14675 14550
12/31/77 16929 15633 15525
12/31/78 17397 15933 16925
12/31/79 18615 16729 19175
12/31/80 20268 17376 21575
12/31/81 21342 18518 23500
12/31/82 27221 24188 24400
12/31/83 31822 28054 25325
12/31/84 33400 30418 26325
12/31/85 40418 37190 27325
12/31/86 44706 42119 27625
12/31/87 45546 43083 28850
12/31/88 51830 48671 30125
12/31/89 54453 48174 31525
12/31/90 50331 43420 33450
12/31/91 69628 59311 34475
12/31/92 80766 69775 35475
12/31/93 93664 82950 36450
12/31/94 90042 79878 37425
12/31/95 105800 93257 38375
12/31/96 117606 106119 39650
12/31/97 132537 120010 40325
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 5.
(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, Concord, MA.
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, through various economic,
interest-rate and inflation environments.(1)
$100,000 invested at
the Fund's inception
grew to over $1 million
The Fund Versus Inflation
$100,000 Invested: 4/1/71-12/31/97(2)
Value of
$100,000
Year Annual Investment with Inflation
Ended Dividends all Distributions (Consumer
Dec. 31 Reinvested Reinvested Price Index)
- --------------------------------------------------------------------------------
1971(3) $ 3,450 $ 103,588 $ 102,750
1972 7,460 110,073 106,250 From the early 1970s
1973 8,204 99,239 115,500 through the early
1974 9,163 94,202 129,750 1980s, the U.S.
1975 9,719 122,105 138,750 economy experienced
1976 10,970 159,867 145,500 - rapidly rising
1977 11,883 171,064 155,250 inflation and
1978 14,100 175,803 169,250 interest rates. The
1979 16,410 188,105 191,750 Fund kept pace with
1980 18,614 204,818 215,750 inflation over this
1981 22,844 215,671 235,000 turbulent period.
1982 27,279 275,072 244,000
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 CPI
1989 59,178 550,254 315,250 by an average of
1990 66,312 508,602 334,500 6.7% per year.
1991 71,085 703,596 344,750
1992 77,910 816,148 354,750 During the economic
1993 82,556 946,487 364,500 expansion of the
1994 86,858 909,890 374,250 - 1990s, the Fund
1995 95,753 1,069,120 383,750 outperformed the CPI
1996 103,439 1,188,430 396,500 by an average of
1997 104,367 1,339,297 403,250 8.6% per year.
Total Dividends
Reinvested: $1,172,182
- -----------------==========-----------------------------------------------------
Average Annual Rate of Return: 10.19% 5.28%
- ----------------------------------=====--------------====-----------------------
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 5.
(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: 7.99% and 7.61% (based on the Class A share
net asset value and maximum offering price, respectively, on 12/31/97, and the
monthly dividend of $.065, annualized)
The Fund's 3-Way Focus
1. High-yield Corporate Debt and Straight-preferred Stocks: 67.8%(1)
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: 18.2%(1)
Capital appreciation is sought by investing in convertible bonds, which may be
exchanged for common stock. When the underlying stock rises, these
equity-related issues generally increase in value.
3. High-grade Debt and Other Assets, Less Liabilities: 14.0%(1)
High-quality issues, corporate issues and U.S. Government-backed securities
provide a dependable stream of high current income.
A History of the Fund's Portfolio Blend
<TABLE>
<CAPTION>
1974 1979 1982 1985 1988 1990 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High-yield Corporate Debt and
Straight-preferred Stocks 15.7% 34.8% 18.3% 45.1% 52.9% 55.7% 62.9% 60.8% 67.8%
Equity-related Securities
(Convertible Debt, Convertible-preferred
Stocks, Common Stocks, Warrants) 49.6% 36.1% 54.6% 40.5% 33.4% 28.0% 16.5% 18.1% 18.2%
High-grade Debt
(U.S. Gov't and Agency Obligations,
Higher Rated Straight Debt) and
Other Assets, Less Liabilities 34.7% 29.1% 27.1% 14.4% 13.7% 16.3% 20.6% 21.1% 14.0%
</TABLE>
Consistency of Performance...Over the Long Term
The Fund produced positive total returns 18 out of the last 20 calendar years(2)
Over the last 20 years (between 1978 and 1997), Lord Abbett Bond-Debenture Fund
shareholders holding the Fund for any ten-year period earned average annual
returns of at least 9.5% per year(3):
Average Annual Total Returns for 10-Year Periods Ending December 31:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
================================================================================
10.4% 11.5% 11.3% 9.5% 12.6% 11.5% 11.4% 10.4% 10.1% 10.2% 11.3%
(1) Percent of net assets on 12/31/97.
(2) At net asset value. All years end 12/31.
(3) All periods end December 31. Assumes investment in Class A shares at net
asset value. Total return is the percent change in value, assuming the
reinvestment of all distributions.
4
<PAGE>
Important Information
SEC yield is calculated on the Class A share maximum offering price of $10.25 on
12/31/97, 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.
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 3/31/98, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
Investments in Securities 98.45%
==================================================================================================================================
High-Yield Corporate Debt 67.21%
==================================================================================================================================
<C> <S> <C> <C>
Advertising .45% Lamar Advertising Co. Sr. Sub. Notes 9 5/8/2006 $ 12,000M $ 12,990,000
- --------------------------------------------------------------------------------------------------------------------==============
Aerospace 1.37% BE Aerospace Inc. Sr. Sub. Notes 9 7/8/2006+ 13,500M 14,310,000
Fairchild Corp. Sub. Deb. 13 1/8/2006 4,350M 4,393,500
L-3 Communications Corp. Sr. Sub. Notes 10 3/8/2007+ 10,000M 10,875,000
United Defense Industries Inc. Sub. Notes 8 3/4/2007+ 10,000M 10,112,500
Total 39,691,000
- --------------------------------------------------------------------------------------------------------------------==============
Agricultural .76% Agricultural Minerals & Chemical Inc. Sr. Notes 10 3/4/2003 10,250M 11,082,813
PMI Acquisition Corp. Sr. Sub. Notes 10 1/4/2003 10,000M 10,700,000
Total 21,782,813
- --------------------------------------------------------------------------------------------------------------------==============
Airlines .40% Northwest Airlines Inc. Sr. Notes 12.0916/2000 1,126M 1,222,015
Trans World Airlines Sr. Notes 11 1/2/2004+ 5,000M 5,050,000
US Air Inc. Equipment Trust Certificate 10 1/2/2004 2,634M 2,919,213
US Air Inc. (Piedmont) Equipment Trust Notes Series G 10.35/2011 2,000M 2,286,875
Total 11,478,103
- --------------------------------------------------------------------------------------------------------------------==============
Aluminum .33% Kaiser Aluminum & Chemical Corp. Sr. Notes 10 7/8/2006 5,000M 5,425,000
Maxxam Group Zero Coupon Sr. Secured Discount Notes due 2003** 4,500M 4,140,000
Total 9,565,000
- --------------------------------------------------------------------------------------------------------------------==============
Automotive 1.23% Hayes Wheels International, Inc. Sr. Sub. Notes 9 1/2/2007+ 4,000M 4,155,000
LDM Technologies 10 3/4/2007+ 5,000M 5,475,000
Safelite Glass Corp. 9 7/8/2006+ 7,500M 8,325,000
Stanadyne Automotive Sr. Sub. Notes 10 1/4/2007+ 7,000M 7,052,500
Venture Holdings Trust Sr. Notes 9 1/2/2005 10,000M 10,200,000
Total 35,207,500
- --------------------------------------------------------------------------------------------------------------------==============
Banking .72% Ocwen Federal Bank FSB Sub. Deb. 12/2005 7,000M 7,700,000
Ocwen Financial Corp. Sr. Notes 117/8/2003 5,100M 5,775,750
Saul, B.F. Real Estate Investment Trust Sr. Notes 11 5/8/2002 7,000M 7,463,750
Total 20,939,500
-----------------------------------------------------------------------------------==============
</TABLE>
5
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Building Materials 1.01% American Builders & Contractors Supply Co.,
Inc. Sr. Sub. Notes 10 5/8/2007 $ 7,500M $ 7,818,750
Falcon Building Products Zero Coupon Sr. Sub. Discount Notes due 2007+ 14,500M 9,678,750
Kevco Inc. Sr. Sub. Notes 10 3/8/2007+ 8,500M 8,712,500
Southdown Inc. Sr. Sub. Notes 10/2006 2,500M 2,787,500
Total 28,997,500
- --------------------------------------------------------------------------------------------------------------------==============
Business Services 2.18% Dyncorp Inc. Sr. Sub. Notes 9 1/2/2007+ 12,500M 12,812,500
Iron Mountain Inc. Sr. Sub. Notes 10 1/8/2006 20,000M 22,100,000
Iron Mountain Inc. Sr. Sub. Notes 8 3/4/2009+ 10,000M 10,300,000
Outsourcing Solutions Sr. Sub. Notes 11/2006 2,600M 2,892,500
Pierce Leahy Corp. Sr. Sub. Notes 9 1/8/2007 9,000M 9,360,000
Unicco Service 97/8/2007+ 5,000M 5,025,000
Total 62,490,000
- --------------------------------------------------------------------------------------------------------------------==============
Chemicals 2.94% Atlantis Group Inc. Sr. Notes 11/2003 5,000M 5,270,313
Harris Chemical N.A., Inc. Sr. Secured Notes 10 1/4/2001 15,000M 15,825,000
Huntsman Specialty Chemicals Corp. Term Note 9 1/4/2007 5,000M 5,200,000
NL Industries Inc. Zero Coupon Sr. Secured Discount Notes due 2005** 5,000M 4,981,250
NL Industries Inc. Sr. Secured Notes 11 3/4/2003 5,000M 5,537,500
Pioneer American Inc. Term Loan Agreements, 8.755% to 10.125% due 2006 7,500M 7,481,236
Pioneer American Acquisition Corp. Sr. Secured Notes 9 1/4/2007+ 10,000M 10,150,000
Sovereign Specialty Chemicals, Inc. Sr. Sub. Notes 9 1/2/2007+ 4,500M 4,646,250
Sterling Chemical Sr. Sub. Notes 11 3/4/2006 10,000M 10,250,000
Texas Petrochemicals Corp. Sr. Sub. Notes 11 1/8/2006+ 7,500M 8,100,000
UCC Investors Holdings Inc. Sr. Sub. Notes 11/2003 6,500M 7,052,500
Total 84,494,049
- --------------------------------------------------------------------------------------------------------------------==============
Communications 11.55% Adelphia Communications Corp. Sr. Notes 12 1/2/2002 1,416M 1,502,730
Australia Media Ltd. Zero Coupon Sr. Discount Notes due 2003 w/Warrants** 5,000M 2,000,000
Brooks Fiber Properties Inc. Zero Coupon Sr. Discount Notes due 2006** 18,000M 15,120,000
Cablevision System Sr. Sub. Notes 9 1/4/2005 15,000M 15,918,750
Cellular Inc. Zero Coupon Sr. Sub. Discount Notes due 2003** 20,000M 19,875,000
Cencall Communications Corp. Zero Coupon Sr. Discount Notes due 2004** 10,000M 9,025,000
Comcast Cellular Holdings Sr. Sub. Notes 9 1/2/2007+ 25,000M 26,250,000
Dial Call Communications Inc. Zero Coupon Sr. Discount Notes
due 2004 w/Warrants** 7,500M 7,171,875
Dobson Communication Corp. Sr. Sub. Notes 11 3/4/2007+ 6,000M 6,360,000
Frontier Vision Sr. Sub. Notes 11/2006 5,000M 5,575,000
Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11/2005 9,000M 9,652,500
Hyperion Telecommunication Sr. Notes 12 1/4/2004+ 2,750M 3,066,250
ICG Holdings (USA) Inc. Zero Coupon Sr. Discount Notes due 2005
w/Warrants** 24,500M 20,426,875
Intermedia Communications, Inc. Sr. Discount Notes 11 1/4/2007+ 25,000M 18,062,500
Intermedia Communications, Inc. Sr. Sub. Notes 8 7/8/2007+ 5,000M 5,150,000
International Cabletel Incorporated Sr. Notes 10/2007+ 15,000M 15,975,000
Marcus Cable Co. Zero Coupon Sr. Sub. Discount Notes due 2004** 16,000M 14,880,000
McLeod Inc. Sr. Discount Notes 10 1/2/2007+ 12,000M 8,730,000
Mobile Media Communications Inc. Sr. Sub. Notes 9 3/8/2007* 12,000M 1,440,000
Nextel Communications Inc. Zero Coupon Sr. Discount Notes due 2003** 7,500M 7,462,500
Nextel Communications Inc. Zero Coupon Sr. Discount Notes due 2007** 2,500M 1,550,000
Nextlink Communications Sr. Notes 9 5/8/2007 10,000M 10,325,000
Price Communications Wireless Inc. Sr. Sub. Notes 11 3/4/2007 5,000M 5,437,500
RCN Corporation 11 1/8/2007+ 5,000M 3,162,500
RCN Corporation Sr. Sub. Notes 10/2007+ 4,000M 4,170,000
Rogers Cantel Inc. Sr. Notes 8.3/2007+ 20,000M 19,950,000
Sun Media Corp. Sr. Sub. Notes 9 1/2/2007 3,000M 3,240,000
Teleport Communications, Inc. Sr. Discount Notes 11 1/8/2007 20,000M 16,525,000
Teleport Communications, Inc. Sr. Notes 9 7/8/2006 10,000M 11,300,000
Telewest plc Zero Coupon Sr. Discount Deb. due 2007** 21,000M 16,406,250
</TABLE>
6
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Vanguard Cellular Systems Sr. Deb. 9 3/8/2006 $ 12,000M $ 12,540,000
Western Wireless Sr. Sub. Notes 10 1/2/2007+ 12,000M 12,990,000
Total 331,240,230
- --------------------------------------------------------------------------------------------------------------------==============
Computer Systems and Decision One Corp. Sr. Sub. Notes 9 3/4/2007 12,500M 12,937,500
Peripherals 1.43% Digital Equipment Corp. Sr. Notes 7 3/4/2023 8,000M 8,091,250
Exide Electronics Group, Inc. Sr. Sub. Notes 11 1/2/2006 w/Warrants 3,530M 4,359,550
Viasystems Inc. Sr. Sub. Notes 9 3/4/2007+ 15,000M 15,562,500
Total 40,950,800
- --------------------------------------------------------------------------------------------------------------------==============
Consumer Products 1.55% American Standard Inc. Zero Coupon Sr. Sub. Deb. due 2005** 5,000M 5,050,000
Interface Inc. Sr. Sub. Notes 9 1/2/2005 12,000M 12,720,000
Leiner Health Products Inc. Sr. Sub. Notes 9 5/8/2007+ 6,250M 6,687,500
Rayovac Corp. Sr. Sub. Notes 10 1/4/2006+ 8,236M 9,018,420
Twin Laboratories Inc. Sr. Sub. Notes 10 1/4/2006 10,000M 10,850,000
Total 44,325,920
- --------------------------------------------------------------------------------------------------------------------==============
Container and Packaging 1.56% BWAY Corp. Sr. Sub. Notes 10 1/4/2007+ 2,000M 2,190,000
GCB Calmar Inc. Sr. Sub. Notes 11 1/2/2005 12,000M 13,050,000
Portola Packaging Inc. Sr. Notes 10 3/4/2005 7,000M 7,402,500
Printpack Inc. Sr. Sub. Notes 10 5/8/2006+ 7,500M 8,006,250
US Can Corporation Sr. Sub. Notes 10 1/8/2006+ 6,000M 6,360,000
Vicap Guaranteed by Vitro, S.A. Sr. Notes 11 3/8/2007+ 7,500M 8,081,250
Total 45,090,000
- --------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals .20% Alaris Medical Sys Sr. Sub. Notes 9 3/4/2006+ 5,500M 5,802,500
Financial .82% CEI Citicorp Holding 9 3/4/2007+ 5,000M 4,800,000
Indah Kiat International Finance 11 7/8/2002 5,000M 4,825,000
Indah Kiat International Finance 12 1/2/2006 3,750M 3,656,250
Navistar Financial Corp. Sr. Notes 9/2002+ 10,000M 10,425,000
Total 23,706,250
- --------------------------------------------------------------------------------------------------------------------==============
Food 2.03% Ameri King, Inc. Sr. Notes 10 3/4/2006 7,300M 7,792,750
Aurora Foods Sr. Sub. Notes 9 7/8/2007+ 5,000M 5,300,000
Coca-Cola Femsa S.A. 8.95/2006 5,000M 5,250,000
Delta Beverage Group Sr. Notes 9 3/4/2003+ 6,400M 6,720,000
Doane Products Co. Sr. Notes 10 5/8/2006 8,000M 8,560,000
Pepsi-Gemex 9 3/4/2004+ 13,000M 13,422,500
Stroh Brewery 11.10/2006 w/Warrants 3,374M 2,884,770
Van de Kamp's Inc. Sr. Sub. Notes 12/2005 7,500M 8,306,250
Total 58,236,270
- --------------------------------------------------------------------------------------------------------------------==============
Forest Products .79% Pacific Lumber Co. Sr. Notes 10 1/2/2003 15,000M 15,600,000
US Timberland Sr. Notes 9 5/8/2007 6,700M 7,001,500
Total 22,601,500
- --------------------------------------------------------------------------------------------------------------------==============
Hotel/Leisure 3.02% Act III Theatres Inc. Sr. Sub. Notes 11 7/8/2003 5,000M 5,387,500
AMF Group Inc. Sr. Sub. Notes 10 7/8/2006 3,500M 3,850,000
Aztar Corp. Sr. Sub. Notes 11/2002 8,500M 8,755,000
Aztar Corp. Sr. Sub. Notes 13 3/4/2004 2,000M 2,295,000
Claridge Hotel & Casino Corp. 1st Mtge. Notes 11 3/4/2002 1,700M 1,666,000
HMC Acquisition Properties Sr. Notes 9/2007 5,000M 5,262,500
HMH Properties Inc. Sr. Secured Notes 9 1/2/2005 10,000M 10,675,000
Host Marriott Travel Plazas Inc. Sr. Secured Notes 9 1/2/2005 5,000M 5,343,750
Majestic Star Casino LLC Sr. Secured Notes 12 3/4/2003+ 5,000M 5,400,000
Plitt Theatres Inc. Sr. Sub. Notes 10 7/8/2004 8,000M 8,690,000
Showboat Inc. 1st Mtge. Notes 9 1/4/2008 7,000M 7,525,000
Showboat Marina 1st Mtge. 13 1/2/2003 6,000M 7,290,000
Trump Atlantic City Funding 1st Mtge. Notes 11 1/4/2006 15,000M 14,700,000
Total 86,839,750
-----------------------------------------------------------------------------------==============
</TABLE>
7
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Household Products .91% Fonda Group Inc. Sr. Sub. Notes 9 1/2/2007+ $ 10,000M $ 9,550,000
Knoll Inc. Sr. Sub. Notes 10 7/8/2006 3,285M 3,728,475
Specialty Equipment Cos. Inc. Sr. Sub. Notes 11 3/8/2003 5,000M 5,431,250
Sweetheart Cup Sr. Sub. Notes 10 1/2/2003 7,500M 7,331,250
Total 26,040,975
- --------------------------------------------------------------------------------------------------------------------==============
Industrial and
Capital Goods .97% Euramax International Sr. Sub. Notes 11 1/4/2006+ 6,250M 6,796,875
Fairfield Manufacturing Inc. Sr. Sub. Notes 11 3/8/2001 4,800M 5,094,000
International Wire Group Inc. Sr. Sub. Notes 11 3/4/2005 10,000M 11,000,000
Scotsman Group Inc. Sr. Sub. Notes 8 5/8/2007 5,000M 5,043,750
Total 27,934,625
- --------------------------------------------------------------------------------------------------------------------==============
Machinery 1.86% Alvey Systems Inc. Sr. Sub. Notes 11 3/8/2003+ 10,000M 10,675,000
Clark Materials Handling Sr. Notes 10 3/4/2006+ 6,850M 7,363,750
Essex Group Inc. Sr. Notes 10/2003 14,030M 14,696,425
GSI Group Inc. Sr. Sub. Notes 10 1/4/2007+ 8,000M 8,280,000
Terex Corporation Sr. Secured Notes 13 1/4/2002 3,345M 3,821,663
Tokheim Corporation Sr. Sub. Notes 11 1/2/2006+ 7,500M 8,550,000
Total 53,386,838
- --------------------------------------------------------------------------------------------------------------------==============
Media 5.54% American Radio System Sr. Sub. Notes 9/2006 8,000M 8,480,000
Benedek Broadcasting Corp. Sr. Secured Notes 11 7/8/2005 6,000M 6,750,000
CBS Inc. Sr. Sub. Deb. 8 7/8/2022 2,000M 2,070,625
Chancellor Radio Broadcasting Co. Sr. Sub. Notes 9 3/8/2004 15,000M 15,637,500
Fox Kids Worldwide Inc. Sr. Notes 9 1/4/2007+ 10,000M 9,725,000
Granite Broadcasting Corp. Sr. Sub. Notes 10 3/8/2005 10,500M 11,038,125
Gray Communication System Inc. Sr. Sub. Notes 10 5/8/2006 4,000M 4,350,000
Grupo Televisa, S.A. Sr. Notes Series B 11 7/8/2006 5,000M 5,693,750
Heritage Media Corp. Inc. Sr. Sub. Notes 8 3/4/2006 7,500M 8,123,438
ITT, Promedia Sr. Sub. Notes 9 1/8/2007+ 20,000M 11,609,320
SCI Television Sr. Secured Notes 11/2005 5,000M 5,165,625
Sinclair Broadcasting Corp., Inc. Sr. Sub. Notes 8 3/4/2007 7,500M 7,518,750
Sinclair Broadcasting Group, Inc. Sr. Sub. Notes 10/2005 26,500M 28,156,250
Sullivan Broadcasting Sr. Sub. Notes 10 1/4/2005 8,500M 9,137,500
TV Azteca S.A. Sr. Notes 10 1/2/2007 15,000M 15,525,000
Viacom Inc. Sub. Deb. 8/2006 10,000M 10,137,500
Total 159,118,383
- --------------------------------------------------------------------------------------------------------------------==============
Medical/Health Care 1.26% Genesis Eldercare 9/2007+ 7,500M 7,350,000
Integrated Health Services, Inc. Sr. Sub. Notes 10 1/4/2006+ 6,875M 7,321,875
Integrated Health Services, Inc. Sr. Sub. Notes 9 1/2/2007+ 2,350M 2,432,250
Packard Bioscience Co. Sr. Sub. Notes 9 3/8/2007+ 10,000M 9,625,000
Tenet Healthcare Corporation Sr. Sub. Notes 8 5/8/2007 9,000M 9,315,000
Total 36,044,125
- --------------------------------------------------------------------------------------------------------------------==============
Miscellaneous 3.44% Kinder Care Learning Center, Inc. Sr. Sub. Notes 9 1/2/2009 9,500M 9,500,000
Prime Succession Acquisition Co. Sr. Sub. Notes 10 3/4/2004+ 3,400M 3,740,000
Republic of Argentina 9 3/4/2027 15,000M 14,437,500
Republic of Argentina 11 3/8/2017 5,000M 5,478,125
Republic of Venezuela 9 1/4/2027 25,000M 22,468,750
United Mexican States 9 7/8/2007 22,500M 23,484,375
United Mexican States 6 1/4/2019 20,000M 16,700,000
Total 95,808,750
- --------------------------------------------------------------------------------------------------------------------==============
Oil and Gas 6.41% Coda Energy Inc. Sr. Sub. Notes 10 1/2/2006 12,000M 13,020,000
Cross Timbers Oil Co. Sr. Sub. Notes 9 1/4/2007+ 17,500M 18,331,250
Crown Central Petroleum Corp. Sr. Notes 10 7/8/2005 11,500M 12,132,500
Flores & Rucks Sr. Sub. Notes 9 3/4/2006 15,000M 16,518,750
Giant Industries Sr. Sub. Notes 9/2007+ 7,500M 7,500,000
</TABLE>
8
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Gulf Canada Resources Sr. Sub. Notes 9 1/4/2004 $ 10,000M $ 10,559,375
HS Resources Inc. Sr. Sub. Notes 9 7/8/2003 8,500M 8,840,000
HS Resources Inc. Sr. Sub. Notes 9 1/4/2006+ 6,500M 6,711,250
KCS Energy, Inc. Sr. Notes 11/2003 8,500M 9,392,500
Lomak Petroleum Inc. Sr. Sub. Notes 8 3/4/2007 10,000M 10,150,000
Metro Gas, S.A. Sr. Sub. Notes 12/2000 6,000M 6,435,000
Perez Company S.A. 9/2004+ 16,830M 17,124,525
Petroleos Mexicanos 9/2007+ 22,500M 22,668,750
Pogo Producing Sr. Sub. Notes 8 3/4/2017+ 9,000M 9,270,000
United Meridian Corp. Sr. Sub. Notes 10 3/8/2005 6,750M 7,408,125
Vintage Petroleum Sr. Sub. Notes 8 5/8/2009 7,500M 7,856,250
Total 183,918,275
- --------------------------------------------------------------------------------------------------------------------==============
Oil Service .83% Dailey Petroleum Services Corp. Sr. Notes 93/4/2007+ 10,000M 10,550,000
DI Industries Inc. Sr. Notes 8 7/8/2007 10,000M 10,450,000
Newpark Resources Inc. Sr. Sub. Notes 8 5/8/2007+ 2,750M 2,805,000
Total 23,805,000
- --------------------------------------------------------------------------------------------------------------------==============
Paper and Pulp 2.25% Crown Paper Co. Sr. Sub. Notes 11/2005 10,000M 10,250,000
Four M Corp. Sr. Secured Notes Series B 12/2006+ 7,000M 7,455,000
S.D. Warren Co. Sr. Sub. Notes 12/2004 12,000M 13,425,000
Stone Container Corp. Sr. Sub. Notes 12 5/8/1998 8,200M 8,460,094
Stone Container Corp. 1st Mtge. Notes 10 3/4/2002 14,000M 14,595,000
Tembec Finance Corp. Sr. Notes 9 7/8/2005 10,000M 10,250,000
Total 64,435,094
- --------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .55% Big Flower Press Sr. Sub. Notes 87/8/2007+ 10,000M 10,125,000
Garden State Newspapers Inc. Sr. Sub. Notes 12/2004 5,000M 5,687,500
Total 15,812,500
- --------------------------------------------------------------------------------------------------------------------==============
Real Estate .15% Trizec Finance Ltd. Sr. Notes 10 7/8/2005 3,860M 4,342,500
- --------------------------------------------------------------------------------------------------------------------==============
Retail 1.90% Guess Inc. Sr. Sub. Notes 9 1/2/2003 11,740M 12,092,200
Pamida Inc. Sr. Sub. Notes 11 3/4/2003 8,000M 8,240,000
Specialty Retailers, Inc. Sr. Sub. Notes 9/2007+ 4,750M 4,868,750
Stater Brothers Holdings Sr. Sub. Notes 11/2001 9,971M 11,017,955
Stater Brothers Holdings Sr. Sub. Notes 9/2004+ 9,065M 9,506,919
United Stationers Supply Co. Sr. Sub. Notes 12 3/4/2005 7,653M 8,743,553
Total 54,469,377
- --------------------------------------------------------------------------------------------------------------------==============
Steel 2.43% AK Steel Corp. Sr. Notes 10 3/4/2004 6,000M 6,405,000
Armco Inc. Sr. Sub. Notes 9/2007 15,000M 14,850,000
G.S. Technologies Operating Inc. Sr. Notes 12 1/4/2005 6,000M 6,750,000
Hylsa S.A. De Cv Sr. Notes 9 1/4/2007+ 7,000M 6,895,000
Interlake Corp. Sr. Notes 12/2001 5,000M 5,500,000
Ivaco Inc. Sr. Notes 11 1/2/2005 5,000M 5,425,000
WCI Steel Inc. Sr. Secured Notes 10/2004+ 15,000M 15,450,000
Westmin Resources Ltd Sr. Notes 11/2007 7,500M 8,250,000
Total 69,525,000
- --------------------------------------------------------------------------------------------------------------------==============
Supermarket .03% Farm Fresh Holdings Sr. Notes P.I.K. 14 1/4/2002* *** 8,073M 791,363
Victory Markets Inc. Sub. Notes 12 1/2/2000* 5,000M 150,000
Total 941,363
- --------------------------------------------------------------------------------------------------------------------==============
Textile 2.18% Dan River Inc. Sr. Sub. Notes 10 1/8/2003 6,000M 6,397,500
Delta Mills Inc. Sr. Notes 95/8/2007+ 10,000M 10,200,000
Dyersburg Corp. Sr. Sub. Notes 93/4/2007 2,500M 2,606,250
GFSI, Inc. Sr. Sub. Notes 95/8/2007+ 15,000M 15,450,000
Pillowtex Corp. Sr. Sub. Notes 9/2007+ 7,500M 7,725,000
Riddell Sports Inc. Sr. Notes 10 1/2/2007+ 10,000M 10,425,000
</TABLE>
9
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
William Carter Sr. Sub. Notes 10 3/8/2006+ $ 4,475M $ 4,721,125
Worldtex Inc. Sr. Notes 9 5/8/2007+ 4,750M 4,892,500
Total 62,417,375
- --------------------------------------------------------------------------------------------------------------------==============
Transportation .78% Atlantic Express 10 3/4/2004+ 6,200M 6,618,500
Blue Bird Body Company 10 3/4/2006+ 3,000M 3,236,250
Ryder Trs, Inc. Sr. Sub. Notes 10/2006+ 12,500M 12,593,750
Total 22,448,500
- --------------------------------------------------------------------------------------------------------------------==============
Utility 1.15% AEI Holding Co. Sr. Notes 10/2007+ 6,000M 6,210,000
Cal Energy Co. Inc. Sr. Notes 9 1/2/2006+ 8,000M 8,780,000
Comp Energeticia Sao Paulo Notes 9 1/8/2007+ 10,000M 8,800,000
Voto-Votorantim 8 1/2/2005+ 10,000M 9,150,000
Total 32,940,000
- --------------------------------------------------------------------------------------------------------------------==============
Waste Management .23% Allied Waste North America 10 1/4/2006+ 6,000M 6,615,000
-----------------------------------------------------------------------------------==============
Total Investments in High-Yield Corporate Debt (Cost $1,873,576,819) 1,926,432,365
==================================================================================================================================
Convertible Debt 12.38%
==================================================================================================================================
Advertising .71% Interpublic Group of Companies Conv. Sub. Deb. 1.80/2004+ 7,500M 6,193,360
Omnicom Group Inc. Conv. Sub. Deb. 4 1/4/2007+ 10,000M 14,160,937
Total 20,354,297
- --------------------------------------------------------------------------------------------------------------------==============
Automotive .17% MascoTech Inc. Conv. Sub. Deb. 4 1/2/2003 3,500M 3,086,563
Pep Boys Zero Coupon Conv. Notes due 2011 3,300M 1,776,844
Total 4,863,407
- --------------------------------------------------------------------------------------------------------------------==============
Banking .38% Fuji International Finance Trust Conv. Unit .25/2002+ 563M 5,147,931
GS Financial Products (Citicorp) Conv. Deb. 3/2002 6,000M 5,743,125
Total 10,891,056
- --------------------------------------------------------------------------------------------------------------------==============
Business Services 1.13% Automatic Data Processing Zero Coupon Conv. Sub. Deb. due 2012 23,000M 18,353,281
Businessland Inc. Conv. Sub. Deb. 5 1/2/2007 5,300M 3,842,500
Corestaff Inc. Conv. Sub. Deb. 2.94/2004 12,000M 10,065,000
Total 32,260,781
- --------------------------------------------------------------------------------------------------------------------==============
Communications .39% Broadband Technologies, Inc. Conv. Sub. Deb. 5/2001+ 3,000M 1,892,813
Telefonica Conv. Sub. Deb. 2/2002+ 5,150M 5,549,125
Telekom Malaysia Conv. Notes 4/2004+ 5,000M 3,862,500
Total 11,304,438
- --------------------------------------------------------------------------------------------------------------------==============
Computer Software and
Services .33% National Data Corp. Sub. Notes 5/2003 10,000M 9,560,938
- --------------------------------------------------------------------------------------------------------------------==============
Consumer Products .20% CS First Boston (Exch. PG) Conv. Deb. 3 1/2/2001 4,700M 5,804,500
- --------------------------------------------------------------------------------------------------------------------==============
Data Processing Equipment EMC Corp. Conv. Sub. Notes 3 1/4/2002+ 3,000M 4,049,063
and Components .83% HMT Technology Conv. Deb. 5 3/4/2004+ 5,000M 4,385,938
Read-Rite Corp. Conv. Sub. Deb. 6 1/2/2004 3,800M 3,184,875
Synoptics Communications Conv. Deb. 5 1/4/2003+ 12,500M 12,119,141
Total 23,739,017
- --------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals 1.97% Alza Corp. Conv. Sub. Deb. 5/2006 11,000M 11,661,719
Rite Aid Corp. Conv. Sub. Notes 5 1/4/2002+ 10,000M 10,831,250
Roche Holdings Inc. Zero Coupon Conv. Notes due 2010+ 45,000M 24,918,750
Swiss Bank (Novartis) Sr. 2 1/2/2002+ 6,000M 6,285,000
Synetic Inc. Conv. Sub. Deb. 5/2007 3,350M 2,837,555
Total 56,534,274
- --------------------------------------------------------------------------------------------------------------------==============
Electrical Equipment .20% Thermo Instrument System Conv. Deb. 4 1/2/2003+ 5,000M 5,763,281
- --------------------------------------------------------------------------------------------------------------------==============
Electronics .69% Hewlett-Packard Co. Conv. Zero Coupon Due 2017+ 19,000M 10,013,594
Xilinx Inc. Conv. Sub. Notes 5 1/4/2002+ 10,000M 9,812,500
Total 19,826,094
-----------------------------------------------------------------------------------==============
</TABLE>
10
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Principal
Amount
Investments or shares Market Value
==================================================================================================================================
<C> <S> <C> <C>
Financial .34% Morgan Stanley (GE) Conv. Sub. Deb. 1 1/2/2003 $ 10,000M $ 9,700,000
- --------------------------------------------------------------------------------------------------------------------==============
Industrial and
Capital Goods .70% Orbital Sciences Corp. Conv. Sub. Deb. 5/2002+ 10,000M 12,700,000
RPM Inc. Zero Coupon Conv. Sub. Deb. due 2012 15,000M 7,256,250
Total 19,956,250
- --------------------------------------------------------------------------------------------------------------------==============
Insurance .90% American International Group Conv. 2 1/4/2004 20,000M 20,109,375
CII Financial Inc. Conv. Sub. Deb. 7 1/2/2001 6,000M 5,790,000
Total 25,899,375
- --------------------------------------------------------------------------------------------------------------------==============
Oil and Gas 1.26% Pennzoil (Exch. Chevron) Conv. Sub. Deb. 4 3/4/2003 10,000M 13,368,750
Pogo Producing Co. Conv. Sub. Notes 5 1/2/2006+ 5,000M 4,884,375
Swift Energy Co. Conv. 6 1/4/2006 8,500M 8,553,125
Texaco Capital Inc. Conv. 3 1/2/2004 7,000M 6,912,500
Wainoco Oil Corp. Inc. Conv. Sub. Deb. 7 3/4/2014 2,400M 2,430,000
Total 36,148,750
- --------------------------------------------------------------------------------------------------------------------==============
Oil Service .80% Baker Hughes Inc. Zero Coupon Conv. Notes Due 2008 15,000M 12,846,094
Loews Corp. (DO) Conv. Sub. Notes 3 1/8/2007 10,000M 10,101,563
Total 22,947,657
- --------------------------------------------------------------------------------------------------------------------==============
Photography .14% Xerox Credit Into Xerox Corp. Conv. 2 7/8/2002 4,000M 4,036,875
- --------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .95% Scholastic Corp. Conv. Sub. Deb. 5/2005+ 13,020M 11,604,075
Times Mirror Company Zero Coupon Conv. Sub. Deb. due 2017+ 30,000M 12,675,000
World Color Press Inc. Conv. Sub. Notes 6/2007 3,000M 2,880,000
Total 27,159,075
- --------------------------------------------------------------------------------------------------------------------==============
Restaurant .14% UBS Fin. (Exch. MCD) Conv. Notes 2/2000 4,000M 3,883,750
- --------------------------------------------------------------------------------------------------------------------==============
Waste Management .15% WMX Technologies Inc. Conv. Sub. Notes 2/2005 5,000M 4,298,438
- --------------------------------------------------------------------------------------------------------------------==============
Total Investments in Convertible Debt (Cost $341,814,745) 354,932,253
==================================================================================================================================
Preferred and Convertible-Preferred Stocks, Common Stocks and Warrants 6.83%
==================================================================================================================================
Automotive .69% Federal-Mogul Fin Trust 7.0% Conv. Pfd.+ 388,000 19,751,625
- --------------------------------------------------------------------------------------------------------------------==============
Banking .98% California Federal Preferred Capital Corp. Series A $9.125 Pfd. 350,000 9,187,500
Crossland Savings FSB Brooklyn, NY Series A $1.8125 Conv. Pfd.* 375,000 5,859
National Australia Bank Pfd. $7.875 297,000 8,408,813
Westpac Banking Conv. Pfd. 10/2000 307,500 10,378,125
Total 27,980,297
- --------------------------------------------------------------------------------------------------------------------==============
Building Materials .35% Owens Corning $3.25 Conv. Pfd.+ 200,000 10,015,625
- --------------------------------------------------------------------------------------------------------------------==============
Communications .37% Chancellor Media Corporation $3.00 Conv. Pfd.+ 120,000 9,585,000
Intermedia Communication w/Warrants expire 6/1/2000+ 5,000 454,063
Nextel Communication Inc. Class A 20,140 523,640
Total 10,562,703
- --------------------------------------------------------------------------------------------------------------------==============
Container and Packaging .28% Crown Cork & Seal Inc. $1.885 Conv. Pfd. 170,000 7,952,813
- --------------------------------------------------------------------------------------------------------------------==============
Financial .69% Jefferson-Pilot Corp. (NBX) $5.256 Conv. Pfd. 185,000 19,795,000
- --------------------------------------------------------------------------------------------------------------------==============
Insurance 1.24% Aetna Inc. $4.758 Conv. Pfd. Class C 50,000 3,575,000
American Bankers Ins. Group Series B $3.125 Conv. Pfd. 73,000 6,816,375
American General Series A $3.00 Conv. Pfd. 150,000 10,650,000
Frontier Insurance Group, Inc. $6.250 Conv. Pfd.+ 125,000 7,312,500
St. Paul's Capital, LLC $3.00 Conv. Pfd. 100,000 7,200,000
Total 35,553,875
- --------------------------------------------------------------------------------------------------------------------==============
Machinery .21% Navistar International Corp. Series G $6.00 Conv. Pfd. 100,000 5,975,000
- --------------------------------------------------------------------------------------------------------------------==============
Miscellaneous .44% Corning Delaware LP $3.00 Conv. Pfd. 170,000 10,476,250
Next Level Sys Inc. 126,315 2,257,881
Total 12,734,131
-----------------------------------------------------------------------------------==============
</TABLE>
11
<PAGE>
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Shares or
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Oil and Gas .81% Lomak Petroleum Inc. $5.75 Conv. Pfd.+ $ 54,300 $ 2,575,856
Occidental Petroleum $3.875 Conv. Pfd.+ 100,000 6,503,125
Unocal Corp. $6.250 Conv. Pfd. 250,000 14,195,313
Total 23,274,294
- --------------------------------------------------------------------------------------------------------------------==============
Paper and Pulp .21% International Paper Capital Trust $2.625 Conv. Pfd. 125,000 6,072,266
- --------------------------------------------------------------------------------------------------------------------==============
Real Estate .38% Walden Residential Properties $2.30 Pfd. w/Warrants 400,000 10,750,000
- --------------------------------------------------------------------------------------------------------------------==============
Waste Management .18% Browning Ferris Industries Inc. $2.58 Conv. Pfd. 150,000 5,100,000
-----------------------------------------------------------------------------------==============
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $180,628,681) 195,517,629
==================================================================================================================================
Investment-Grade Corporate Bonds .93%
==================================================================================================================================
Bell Cable Media plc Zero Coupon Sr. Discount Notes due 2004** 10,000M 9,409,375
Credit Suisse First Boston Series 97-C2 A2 6.52/2007 2,000M 2,014,375
GMAC Series 97-C2 A2 6.55/2007 3,050M 3,071,445
IMCHome Equity Loan Trust Series 97-5 A4 6.53/2013 2,150M 2,150,336
Sears Credit Account Master Trust 1996-1A 6.2/2002 10,000M 10,015,625
Total Investments in Investment-Grade Corporate Bonds (Cost $25,584,211) 26,661,156
==================================================================================================================================
U.S. Government Obligations 11.10%
==================================================================================================================================
Federal National Mortgage Association 61/2% due on an announced basis 100,000M 98,750,000
Federal National Mortgage Association 7% due on an announced basis 100,000M 100,640,625
Federal National Mortgage Association 7% due 3/1/2026 9,373M 9,463,477
Federal National Mortgage Association 71/2% due 6/01/2027 24,334M 24,907,628
Government National Mortgage Association 71/2% due 1/15/2027 23,894M 24,491,432
U.S. Treasury Notes 71/2% due 5/15/2002 30,000M 32,020,313
U.S. Treasury Notes 77/8% due 11/15/2004 25,000M 27,953,125
Total Investments in Government Obligations (Cost $315,739,485) 318,226,600
-----------------------------------------------------------------------------------==============
Total Investments in Securities (Cost $2,737,343,941) 2,821,770,003
==================================================================================================================================
Other Assets, Less Liabilities 1.55%
==================================================================================================================================
Short-Term Investments American Express Credit Corp. 6.20% due 1/6/1998 4,000M 4,000,000
American Express Credit Corp. 6.25% due 1/2/1998 5,000M 5,000,000
Federal Home Loan Banks 91/2% due 1/15/1998 50,000M 50,070,313
Federal Home Loan Banks 121/2% due 4/23/1998 50,000M 51,046,875
Federal National Mortgage Association 121/2% due 3/19/1998 76,000M 77,128,125
Total (Cost $190,096,400) 187,245,313
-----------------------------------------------------------------------------------==============
Cash and Receivables, Net of Liabilities (142,831,386)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 44,413,927
==================================================================================================================================
Net Assets 100.00% $2,866,183,930
==================================================================================================================================
Class A Shares-Net asset value ($2,071,047,126 / 212,228,650 shares outstanding) $9.76
Class B Shares-Net asset value ($374,895,445 / 38,431,556 shares outstanding) $9.75
Class C Shares-Net asset value ($420,241,359 / 43,029,497 shares outstanding) $9.77
* 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.
</TABLE>
12
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended December 31, 1997
==================================================================================================================================
<C> <S> <C> <C>
Income Interest $ 210,133,969
Dividends 10,189,951
Total income $220,323,920
-----------------------------------------------------------------------------------------------------------------------
Expenses Management fee 11,621,344
12b-1 distribution plan-Class A 5,369,967
12b-1 distribution plan-Class B 2,452,228
12b-1 distribution plan-Class C 3,466,612
Shareholder servicing 2,599,939
Reports to shareholders 358,059
Registration 304,431
Directors 51,798
Professional services 149,339
Other 195,918
Total expenses 26,569,635
-----------------------------------------------------------------------------------------------------------------------
Net investment income 193,754,285
-----------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments and Foreign Currency Transactions
==================================================================================================================================
Realized gain from investments and foreign currency transactions
Proceeds from sales 2,386,795,136
Cost of investments sold 2,347,989,810
-----------------------------------------------------------------------------------------------------------------------
Net realized gain 38,805,326
-----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments and foreign currency holdings 60,937,427
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency transactions 99,742,753
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $293,497,038
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) in Net Assets 1997 1996
==================================================================================================================================
<C> <S> <C> <C>
Operations Net investment income $ 193,754,285 $ 145,990,034
Net realized gain from investment transactions 38,805,326 21,344,390
Net unrealized appreciation of investments 60,937,427 19,291,096
Net increase in net assets resulting from operations 293,497,038 186,625,520
-------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions 1,349,118 3,837,343
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income
Class A (157,993,072) (142,154,269)
Class B (17,790,074) (1,525,182)
Class C (26,182,650) (8,199,939)
Total distributions (201,965,796) (151,879,390)
-------------------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sale of shares 870,972,951 659,731,030
Net asset value of shares issued to shareholders in reinvestment of net
investment income 102,641,162 75,207,820
Net asset value of shares issued in exchange for assets acquired in
tax-free acquisition - 208,387,462
Total 973,614,113 943,326,312
-------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (329,731,940) (191,996,711)
-------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 643,882,173 751,329,601
-------------------------------------------------------------------------------------------------------------------
Total increase in net assets 736,762,533 789,913,074
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets Beginning of year 2,129,421,397 1,339,508,323
End of year (including undistributed net investment income of $5,940,360 and
$28,014,489, respectively) $2,866,183,930 $2,129,421,397
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
-------------------------------------------------------------
Year Ended December 31,
Per Share Operating Performance: 1997 1996 1995 1994 1993
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.41 $ 9.29 $ 8.71 $ 9.95 $ 9.43
Income from investment operations
Net investment income .75(b) .81 .85 .84 .89
Net realized and unrealized gain (loss)on investments .40 .17 .606 (1.203) .55
Total from investment operations 1.15 .98 1.456 (.363) 1.44
---------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.80) (.86) (.876) (.877) (.92)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.76 $ 9.41 $ 9.29 $ 8.71 $ 9.95
- --------------------------------------------------------------------------------------------------------------------------
Total Return(a) 12.70% 11.16% 17.50% (3.87)% 15.97%
==========================================================================================================================
Ratios to Average Net Assets:
Expenses .89% .89% .82% .88% .88%
Net investment income 7.89% 8.77% 9.41% 8.97% 9.17%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 8/1/96(d) December 31, 7/15/96(d)
Per Share Operating Performance: 1997 to 12/31/96 1997 to 12/31/96
=========================================================================================== ================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.41 $ 9.13 $ 9.41 $ 9.05
- ------------------------------------------------------------------------------------------- --------------------------------
Income from investment operations
Net investment income .68(b) .34 .69(b) .35
Net realized and unrealized gain on investments .38 .26 .39 .33
Total from investment operations 1.06 .60 1.08 .68
-------------------------------------------------------------------------------------- --------------------------------
Distributions
Dividends from net investment income (.72) (.32) (.72) (.32)
-------------------------------------------------------------------------------------- --------------------------------
Net asset value, end of period $ 9.75 $ 9.41 $ 9.77 $ 9.41
- ------------------------------------------------------------------------------------------- --------------------------------
Total Return(a) 11.85% 6.57%(c) 11.97% 7.86%(c)
============================================================================================================================
Ratios to Average Net Assets:
Expenses 1.63% .70%(c) 1.58% .75%(c)
Net investment income 7.06% 3.37%(c) 7.16% 3.72%(c)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Supplemental Data for All Classes: 1997 1996 1995 1994 1993
================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $2,866,184 $2,129,421 $1,339,508 $987,613 $969,736
Portfolio turnover rate 89.14% 106.79% 134.90% 147.98% 159.79%
===========================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads.
(b) Calculated using average shares outstanding during the period.
(c) Not annualized.
(d) Commencement of offering respective class shares.
See Notes to Financial Statements.
14
<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
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) The Company enters into forward currency contracts to hedge its exposure to
changes in foreign currency exchange rates on its foreign portfolio holdings. A
forward contract is a commitment to purchase or sell a foreign currency at a
future date (usually the security transaction settlement date) at a negotiated
forward rate. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation of investments and foreign currency holdings. The gain or loss, if
any, arising from the difference between the settlement value of the forward
contract and the closing of such contract, is included in net realized gain or
loss from security and foreign currency transactions. Risks may arise due to
changes in the value of the foreign currency and as a result of the potential
inability of the counterparties to meet the terms of their contracts.
2. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett & Co. ("Lord Abbett")
pursuant to which Lord Abbett 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, (2) a one-time
distribution fee of up to 1% on certain qualifying purchases and (3) a
supplemental annual distribution fee of 0.10% of the average daily net assets of
Class 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 $1,748,388 representing payment of commissions on sales of
Class A shares after deducting $11,119,368 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, 1997, accumulated
net realized loss for financial reporting purposes aggregated $61,347,182.
The Company had a capital loss carryforward as of December 31, 1997 of
approximately $61,345,000 of which $10,990,000 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 600 million shares of $.001 par value capital stock
designated as follows: Class A-360 million shares, Class B-160 million shares
and Class C-80 million shares. Paid in capital amounted to $2,839,891,222 at
December 31, 1997. Transactions in shares of capital stock were as follows:
15
<PAGE>
Notes to Financial Statements
Year Ended Year Ended
December 31, 1997 December 31, 1996
---------------------------- -----------------------------
Class A Shares Amount Shares Amount
- -------------------------------------------------- -----------------------------
Sales of shares 46,518,192 $ 442,496,854 52,597,828 $ 482,030,592
Shares issued to
shareholders in
reinvestment of net
investment income 8,213,131 78,274,234 7,626,981 70,002,967
Total 54,731,323 520,771,088 60,224,809 552,033,559
- -------------------------------------------------- -----------------------------
Shares reacquired (27,836,818) (264,621,803) (19,113,648) (177,419,703)
Increase in shares 26,894,505 $ 256,149,285 41,111,161 $ 374,613,856
- --------------------------------------------------------------------------------
August 1, 1996
(Commencement of
Year Ended offering Class B shares)
December 31, 1997 to December 31, 1996
---------------------------- -----------------------------
Class B Shares Amount Shares Amount
- -------------------------------------------------- -----------------------------
Sales of shares 27,683,539 $264,657,297 11,594,111 $107,794,119
Shares issued to
shareholders in
reinvestment of net
investment income 970,289 9,292,808 80,127 746,995
Total 28,653,828 273,950,105 11,674,238 108,541,114
- -------------------------------------------------- -----------------------------
Shares reacquired (1,792,655) (17,211,993) (103,855) (972,069)
Increase in shares 26,861,173 $256,738,112 11,570,383 $107,569,045
- -------------------------------------------------------------------------------
July 15, 1996
(Commencement of
Year Ended offering Class C shares)
December 31, 1997 to December 31, 1996
---------------------------- -----------------------------
Class C Shares Amount Shares Amount
- -------------------------------------------------- -----------------------------
Sales of shares 17,113,612 $ 163,818,800 7,294,466 $ 69,906,319
Shares issued to
shareholders in
reinvestment of net
investment income 1,573,966 15,074,120 488,922 4,457,858
Shares issued to
shareholders in
exchange for net
assets acquired in
tax-free acquisition -- -- 23,033,874 208,387,462
Total 18,687,578 178,892,920 30,817,262 282,751,639
- -------------------------------------------------- -----------------------------
Shares reacquired (5,004,533) (47,898,144) (1,470,810) (13,604,939)
Increase in shares 13,683,045 $ 130,994,776 29,346,452 $ 269,146,700
- --------------------------------------------------------------------------------
5. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Government
obligations, short-term investments and foreign currency transactions)
aggregated $1,540,132,165 and $858,533,452, respectively. Purchases and sales of
U.S. Government obligations aggregated $1,488,485,325 and $1,516,907,402,
respectively. As of December 31, 1997, unrealized appreciation for federal
income tax purposes aggregated $81,574,975, of which $146,058,376 related to
appreciated securities and $64,483,401 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at
December 31, 1997 was substantially the same as the cost for financial reporting
purposes.
At December 31, 1997 the Company had outstanding forward currency contracts to
sell foreign currency as follows:
Value at
Foreign Currency Settlement Date Current
Sell Contracts Receivable Value Appreciation
- --------------------------------------------------------------------------------
Deutsche Marks,
expiring 1/6/98 $11,242,460 $11,117,905 $124,555
- --------------------------------------------------------------------------------
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 the net assets of each fund. Directors' fees payable at
December 31, 1997, under a deferred compensation plan were $444,000.
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.
16
<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, 1997, 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, 1997 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, 1997, 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 9, 1998
1997 Tax Information
In January 1998, 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.
5.27% of the Fund's dividends for the fiscal year ended December 31, 1997
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
Copyright (C) 1998 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.
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
Paul A. Hilstad, 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
Lawrence H. Kaplan, Vice President
and Assistant Secretary
Thomas F. Konop, Vice President
and Assistant Secretary
A. Edward Oberhaus III, Vice President
Keith F. O'Connor, Vice President
Donna McManus, 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
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Growth Fund Income Funds Income Funds Market Fund
Global Fund- Balanced Series Bond-Debenture
Developing Equity Series Affiliated Fund Fund o National U.S. Government
Growth Fund o California Securities
International Growth & Global Fund- o Connecticut Money Market
Series Income Series Income Series o Florida Fund**+
o Georgia
Mid-Cap Research Fund- Limited Duration o Hawaii
Value Fund Large-Cap U.S. Government o Michigan
Series Securities Series** o Minnesota
Research Fund- o Missouri
Small-Cap U.S. Government o New Jersey
Series* Securities Series** o New York
o Pennsylvania
o Texas
o Washington
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your investment professional provides value in helping you identify and
under stand 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 investment professional 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 investment professional can diversify your
investments between equity and income funds.
Flexibility. As your investment goals change, your investment professional 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 investment professional 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
*Lord Abbett intends to close Lord Abbett Research Fund-Small-Cap Series to new
investors in the first half of 1998. For information, call Lord Abbett
Distributor LLC at 800-426-1130.
**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 man aged 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
- ------------------------------------------------------------
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 LABD-2-1297
(2/98)
