Lord Abbett Bond-Debenture
Fund
Semi-Annual Report For the Six Months Ended June 30, 1998
[GRAPHIC OMITTED]
A mutual fund with a multifaceted
approach to seeking high income
[LOGO](R)
<PAGE>
Lord Abbett Bond-Debenture Fund
[GRAPHIC OMITTED]
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.
Value Line says:
"The fund...offers an above-average dividend, while exposing investors to
lower-than-par risk. It is an excellent choice for those seeking a high-yield
offering."
Value Line Mutual Fund Survey, May 26, 1998
- --------------------------------------------------------------------------------
Historically Consistent Average Annual Rates of Total Return as of 6/30/98(1)
Total Returns
[The following information was depicted as a bar graph in the printed material]
For the past 20 years +10.9% per year
For the past 15 years +10.3% per year
For the past 10 years +10.7% per year
For the past 5 years +9.5% per year
For the past year +11.0% 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 6/30/98(2)
[The following information was depicted as a bar graph in the printed material]
At Net Asset Value 7.61%
At Maximum Offering Price 7.25%
- --------------------------------------------------------------------------------
Average Annual Total Average annual total returns for periods ended 6/30/98
Returns 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 +10.18%
5 years +8.40%
1 year +5.70%
The Fund's SEC yield for the 30 days ended 6/30/98 was
6.89%. 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
$.0625, annualized.
<PAGE>
Report to Shareholders
For the Six Months Ended June 30, 1998
[PHOTO OMITTED]
/s/ Robert S. Dow
- -------------------------
ROBERT S. DOW
CHAIRMAN
JULY 23, 1998
"The Fund is currently structured to take full advantage of the excellent values
now offered by U.S. corporate high-yield bonds."
The investment decisions of a talented management team enabled Lord Abbett
Bond-Debenture Fund to provide its shareholders with impressive relative total
returns for the first six months of 1998. Indeed, as is seen in the accompanying
chart, the Fund's performance numbers for all of its share classes were well
above average in comparison with the 4.4% average total return of high-yield
bond mutual funds for the period, as measured by the Lipper High Current Yield
Funds Average. The Fund's performance was significantly above the 3.6% and 3.8%
returns provided, respectively, by U.S. government bond funds, as measured by
the Lipper General U.S. Government Funds Averages and by investment-grade
corporate bond funds, as measured by the Lipper Corporate Bond Fund BBB-rated
Average.
Six Months Ended June 30,1998
--------------------------------------------
Class A Class B Class C Class Y
--------------------------------------------
(3/27/98 to
6/30/98*)
- --------------------------------------------------------------------------------
Net asset value $9.86 $9.86 $9.87 $9.86
Dividends $0.39 $0.35 $0.35 $0.20
Total return**+ 5.0% 4.8% 4.7% 0.8%
U.S. financial markets became unnerved late in the first half of 1998 by
mounting concerns about the impact of the Asian crisis and the fallout on
corporate earnings. The month of May marked the first time this year that U.S.
Treasury bonds outperformed their corporate high-yield counterparts on a monthly
basis. During both May and June, investors worldwide fled to the safety of U.S.
Treasuries, leaving corporate and high-yield bonds behind.
The Fund is currently structured to take advantage of the excellent values now
offered by U.S. corporate high-yield bonds. As the third quarter gets under way,
68% of your portfolio is invested in high-yield corporate bonds, with an
emphasis on media and telecommunications. Sixteen percent of the portfolio is
allocated to convertible securities and equity related securities, with an
emphasis on larger-cap investment-grade issues in business services and
financial companies. Lastly, 16% of the portfolio is invested among U.S.
government, U.S. government agency and investment-grade corporate bonds, with an
emphasis on current coupon AAA-rated FNMA mortgage-backed securities.
We believe the remainder of 1998 has the potential to post good bond returns. In
the U.S., there is continued low inflation, which we also expect will be helped
by the current decline in oil and commodities prices. Corporate profit growth
has slowed from the robust levels seen between 1995 and 1997, but is still
rising at approximately a 5% annualized pace. In our view, the credit markets
should continue to benefit from the fact that the largest borrower in world
history--the U.S. government--has a current account surplus for the first time
in 18 years and will need to borrow less.
Mutual funds are not insured by the FDIC, are not deposits or other
obligations of, or guaranteed by banks, and are subject to investment
risks including possible loss of principal amount invested.
* Commencement of offering respective class shares.
** Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
+ Not annualized.
1
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 7.61% and 7.25% (based on the Class A share net
asset value and maximum offering price, respectively, on 6/30/98, and the
monthly dividend of $.0625, 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: 4/1/71-6/30/98(1)
1973-1974
The last major bear market; the unmanaged S&P 500 declined 37.3%. The Fund
mitigated the decline, then recovered strongly.
1977-1981
Interest rates soared; bond prices sank. The Fund was up every year.
1990-1991
Recession and the Middle East crisis jolted all markets; lower rated bond market
especially hard hit. The Fund mitigated the decline, then recovered strongly
LABDF High Current CPI
4/1/71 10000 10000 10000
1971 10765 10675 10275
1972 11438 11596 10625
1973 10313 10387 11550
1974 9789 9209 12975
1975 12689 11299 13875
1976 16613 14590 14550
1977 17777 15607 15525
1978 18269 15900 16925
1979 19547 16614 19175
1980 21283 17250 21575
1981 22412 18380 23500
1982 28585 24017 24400
1983 33416 27894 25325
1984 35073 30226 26325
1985 42442 36887 27325
1986 46946 41882 27625
1987 47828 42757 28850
1988 54427 48320 30125
1989 57181 47924 31525
1990 52852 43146 33450
1991 73116 59002 34475
1992 84810 69433 35475
1993 98356 82591 36450
1994 94553 79618 37425
1995 111099 92810 38375
1996 123498 105599 39650
1997 139175 119317 40325
6/30/98 146181 124591 40750
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) Source: Lipper Analytical Services, Inc.
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: 4/1/71-6/30/98(2)
<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>
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 1980s
1987 51,214 460,251 288,500 the Fund outperformed
1988 53,120 523,756 301,250 the CPI by an average
1989 59,178 550,254 315,250 of 6.7% per year.
1990 66,312 508,602 334,500
1991 71,085 703,596 344,750 During the economic
1992 77,910 816,148 354,750 expansion of the
1993 82,556 946,487 364,500 < 1990s, the Fund
1994 86,858 909,890 374,250 outperformed the CPI
1995 95,753 1,069,120 383,750 by an average of
1996 103,439 1,188,430 396,500 8.6% per year.
1997 104,367 1,339,297 403,250
6/30/98 (6 months) 53,700 1,406,720 407,500
Total Dividends
Reinvested: $1,225,882
- -------------------==========---------------------------------
Average Annual Rate of Return: 10.19% 5.29%
- -------------------------------------------======--------=====
</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 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
The Fund's 3-Way Focus
Current Dividend Distribution Rates: 7.61% and 7.25% (based on the Class A share
net asset value and maximum offer-ing price, respectively, on 6/30/98, and the
monthly dividend of $.0625, annualized)
1. High-yield Corporate Debt and Straight-preferred Stocks: 71.6%(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: 15.5%(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: 12.9%(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
[The following tabke was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
1974 1979 1982 1985 1988 1990 1995 1996 1997 6/30/98
<S> <C> <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% 71.6%
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% 15.5%
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% 12.9%
</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 6/30/98.
(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 $10.35 on
6/30/98, 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 values of the premium securities decrease 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 ratings 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 9/30/98, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
Investments in Securities 96.64%
==================================================================================================================================
High-Yield Corporate Debt 70.64%
==================================================================================================================================
<C> <S> <C> <C>
Air Transportation .92% America West Airlines Sr. Notes 10 3/4/2005 $ 10,000M $ 10,700,000
Canadian Airlines Corp. Sr. Notes 10/2005 9,000M 9,180,000
Trans World Airlines Sr. Notes 11 1/2/2004 5,000M 5,287,500
US Air Inc. Equipment Trust Certificate 10 1/2/2004 2,634M 2,927,855
US Air Inc. (Piedmont) Equipment Trust Notes Series G 10.35/2011 2,000M 2,331,875
Total 30,427,230
- --------------------------------------------------------------------------------------------------------------------==============
Automotive 2.87% Accuride Corp. Sr. Sub. Notes 9 1/4/2008+ 5,000M 5,025,000
Atlantic Express Sr. Notes 10 3/4/2004 6,200M 6,603,000
Atlantis Group Inc. Sr. Notes 11/2003 5,000M 5,293,750
Blue Bird Body Co. Sr. Sub. Notes 10 3/4/2006 5,000M 5,475,000
Diamond Triumph Auto Inc. Sr. Notes 9 1/4/2008+ 1,900M 1,947,500
LDM Technologies Inc. Sr. Sub. Notes 10 3/4/2007 4,000M 4,180,000
LDM Technologies Inc. Sr. Sub. Notes 10 3/4/2007+ 1,000M 1,045,000
Navistar Financial Corp. Sr. Sub. Notes 9/2002 10,000M 10,512,500
Navistar International Sr. Sub. Notes 8/2008 12,500M 12,609,375
Oshkosh Truck Corp. 8 3/4/2008 13,000M 13,195,000
Ryder Trs, Inc. Sr. Sub. Notes 10/2006 10,000M 11,679,687
Safelite Glass Corp. Sr. Sub. Notes 9 7/8/2006+ 7,500M 7,800,000
Venture Holdings Trust Sr. Notes 9 1/2/2005 10,000M 10,200,000
Total 95,565,812
- --------------------------------------------------------------------------------------------------------------------==============
Banking .14% Banc One Corp. Sub. Deb. 8/2027 3,976M 4,646,329
- --------------------------------------------------------------------------------------------------------------------==============
Broadcasting 6.28% Allbritton Communication Sr. Sub. Deb. 9 3/4/2007 12,500M 13,812,500
American Radio System Sr. Sub. Notes 9/2006 13,500M 14,580,000
Benedek Broadcasting Corp. Sr. Secured Notes 11 7/8/2005 6,000M 6,765,000
Chancellor Media Corp. Sr. Notes 10 1/2/2007 3,900M 4,329,000
Chancellor Media Corp. 9 3/8/2004 20,000M 21,100,000
CBS Inc. Sr. Sub. Deb. 8 7/8/2022 3,000M 3,329,531
</TABLE>
5
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Cumulus Media 10 3/8/2008 $ 4,500M $ 4,567,500
Granite Broadcasting Corp. Sr. Sub. Notes 10 3/8/2005 12,500M 13,171,875
Gray Communication System Inc. Sr. Sub. Notes 10 5/8/2006 4,000M 4,400,000
Grupo Televisa Zero Coupon due 2008 (F) 16,000M 13,080,000
Grupo Televisa, S.A. Sr. Notes 11 7/8/2006 Series B (F) 5,000M 5,562,500
Heritage Media Corp. Inc. Sr. Sub. Notes 8 3/4/2006 10,000M 10,550,000
Jacor Communications, Inc. Sr. Sub. Notes 9 3/4/2006 10,000M 10,887,500
Sinclair Broadcasting Group Sr. Sub. Notes 8 3/4/2007 5,500M 5,692,500
Sinclair Broadcasting Group, Inc. Sr. Sub. Notes 10/2005 43,500M 46,871,250
Sullivan Broadcasting Inc. Sr. Sub. Notes 10 1/4/2005 8,500M 9,733,828
SCI Television Sr. Secured Notes 11/2005 5,000M 5,064,062
TV Azteca S.A. De CV Sr. Notes 10 1/2/2007 (F) 15,000M 15,075,000
Total 208,572,046
- --------------------------------------------------------------------------------------------------------------------==============
Building Materials 1.12% American Builders & Contractors Supply Co., Inc. Sr. Sub. Notes
10 5/8/2007 10,000M 10,050,000
Euramax International plc Sr. Sub. Notes 11 1/4/2006 (F) 6,250M 6,781,250
Falcon Building Products Inc. Zero Coupon Sr. Sub. Discount Notes
due 2007** 15,000M 10,050,000
Kevco Inc. Sr. Sub. Notes 10 3/8/2007 10,000M 10,450,000
Total 37,331,250
- --------------------------------------------------------------------------------------------------------------------==============
Cable 6.01% Century Communications Corp. Sr. Notes 9 1/2/2005 17,000M 18,445,000
Comcast Cellular Holdings, Inc. Sr. Sub. Notes 9 1/2/2007 30,000M 31,500,000
CSC Holdings Inc. Sr. Sub. Notes 9 1/4/2005 15,000M 16,125,000
Diva Systems Corp. Zero Coupon Notes due 2008+ 4,000M 1,900,000
Fox/Liberty Networks Sr. Sub. Notes 8 7/8/2007 20,000M 20,450,000
Frontier Vision Sr. Sub. Notes 11/2006 5,000M 5,575,000
Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11/2005 (F) 13,250M 14,740,625
International Cabletel Incorporated Sr. Notes 10/2007+ 15,000M 16,125,000
Lenfest Communications Sr. Sub. Notes 8 1/4/2008+ 5,000M 5,212,500
Marcus Cable Co. Zero Coupon Sr. Sub. Discount Notes due 2004** 16,000M 15,580,000
Mediacom LLC/Capital Sr. Notes 8 1/2/2008+ 15,000M 15,018,750
Renaissance Media Group Zero Coupon Sr. Discount Notes due 2008+ 15,000M 9,300,000
Supercanal Hldgs S.A. Sr. Notes 11 1/2/2005+ 5,000M 4,781,250
Telewest plc Zero Coupon Sr. Discount Deb. due 2007** (F) 30,000M 24,787,500
Total 199,540,625
- --------------------------------------------------------------------------------------------------------------------==============
Capital Goods 3.27% Alvey Systems Inc. Sr. Sub. Notes 11 3/8/2003 10,000M 10,875,000
Aviation Sales Co. Sr. Sub. Notes 8 1/8/2008+ 7,500M 7,368,750
BE Aerospace Sr. Sub. Notes 8/2008 7,500M 7,481,250
BE Aerospace Inc. Sr. Sub. Notes 9 7/8/2006 15,000M 15,956,250
Clark Materials Handling Sr. Notes 10 3/4/2006 6,850M 7,295,250
Fairfield Manufacturing Inc. Sr. Sub. Notes 11 3/8/2001 4,800M 4,998,000
GSI Group Inc. Sr. Sub. Notes 10 1/4/2007 10,000M 10,650,000
Interface Inc. Sr. Sub. Notes 9 1/2/2005 15,000M 16,012,500
Scotsman Group Inc. Sr. Sub. Notes 8 5/8/2007 10,000M 10,100,000
Specialty Equipment Co. Inc. Sr. Sub. Notes 11 3/8/2003 9,950M 10,671,375
Steel Heddle Mfg. Co. Sr. Sub. Notes 10 5/8/2008+ 4,850M 4,886,375
Tokheim Corp. Sr. Sub. Notes 11 1/2/2006 2,000M 2,310,000
Total 108,604,750
- --------------------------------------------------------------------------------------------------------------------==============
Chemicals 1.68% Huntsman Specialty Chemicals Corp. Term Note 9 1/4/2007 5,000M 5,012,500
NL Industries Inc. Sr. Secured Notes 11 3/4/2003 5,000M 5,550,000
Pioneer American Sr. Notes 8.755/2006 2,440M 2,451,958
Pioneer American Sr. Notes 8.815/2006 4,518M 4,540,662
</TABLE>
6
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Pioneer American Sr. Secured Notes 8 5/8/2006 $ 452M $454,066
Pioneer American 10 1/8/2006 45M 45,406
Pioneer American Acquisition Corp. Sr. Secured Notes 9 1/4/2007 10,000M 9,950,000
Sovereign Specialty Chemicals, Inc. Sr. Sub. Notes 9 1/2/2007 4,500M 4,612,500
Sterling Chemicals Inc. Sr. Sub. Notes 11 3/4/2006 15,000M 15,075,000
Texas Petrochemicals Corp. Sr. Sub. Notes 11 1/8/2006 7,500M 8,175,000
Total 55,867,092
- --------------------------------------------------------------------------------------------------------------------==============
Conglomerates .14% Cathay International Ltd. Sr. Notes 13/2008+ 5,000M 4,500,000
- --------------------------------------------------------------------------------------------------------------------==============
Consumer Products 1.10% Chatham Inc. Sr. Sub. Notes 8 7/8/2008+ 10,000M 9,900,000
Diamond Brands Operating Corp. Sr. Notes 10 1/8/2008+ 7,500M 7,537,500
Rayovac Corp. Sr. Sub. Notes 10 1/4/2006 8,236M 8,977,240
Riddell Sports Inc. Sr. Notes 10 1/2/2007 10,000M 10,125,000
Total 36,539,740
- --------------------------------------------------------------------------------------------------------------------==============
Container 1.18% GCB Calmar Inc. Sr. Sub. Notes 11 1/2/2005 12,000M 13,695,000
Portola Packaging Inc. Sr. Notes 10 3/4/2005 7,000M 7,402,500
US Can Corporation Sr. Sub. Notes 10 1/8/2006 10,000M 10,425,000
Vicap S.A. De CV Sr. Notes 11 3/8/2007+ 7,500M 7,725,000
Total 39,247,500
- --------------------------------------------------------------------------------------------------------------------==============
Energy 6.71% Chesapeake Energy Corp. Sr. Notes 9 5/8/2005+ 8,500M 8,542,500
Coda Energy Inc. Sr. Sub. Notes 10 1/2/2006 12,000M 12,510,000
Cross Timbers Oil Co. Sr. Sub. Notes 9 1/4/2007 10,000M 10,350,000
Crown Central Petroleum Corp. Sr. Notes 10 7/8/2005 10,000M 10,700,000
Dailey International Inc. Sr. Notes 9 1/2/2008 12,500M 12,312,500
DI Industries Inc. Sr. Notes 8 7/8/2007 10,000M 9,700,000
Flores & Rucks Sr. Sub. Notes 9 3/4/2006 15,000M 16,350,000
Giant Industries Sr. Sub. Notes 9/2007 7,500M 7,790,625
Gulf Canada Resources Ltd. Sr. Sub. Deb. 9 1/4/2004 10,000M 10,515,625
HS Resources Inc. Sr. Sub. Notes 9 7/8/2003 10,000M 10,200,000
KCS Energy, Inc. Sr. Sub. Notes 8 7/8/2008 25,000M 23,875,000
KCS Energy, Inc. Sr. Notes 11/2003 8,500M 9,137,500
Lomak Petroleum Inc. Sr. Sub. Notes 8 3/4/2007 10,000M 9,925,000
Metrogas, S.A. Sr. Sub. Notes 12/2000 (F) 6,000M 6,367,500
Ocean Energy Inc. Sr. Sub. Notes 10 3/8/2005 6,750M 7,458,750
Perez Companc S.A. 9/2004 (F) 3,100M 3,069,000
Perez Companc S.A. 9/2004+ (F) 13,730M 13,592,700
Petroleos Mexicanos 9/2007 (F) 10,000M 9,750,000
Petroleos Mexicanos 9/2007+ (F) 5,000M 4,875,000
Pogo Producing Sr. Sub. Notes 8 3/4/2017 10,000M 10,200,000
Pool Energy Services Co. 8 5/8/2008+ 8,500M 8,075,000
Vintage Petroleum Sr. Sub. Notes 8 5/8/2009 7,500M 7,612,500
Total 222,909,200
- --------------------------------------------------------------------------------------------------------------------==============
Entertainment 1.04% Plitt Theatres Inc. Sr. Sub. Notes 10 7/8/2004 12,000M 13,140,000
Regal Cinemas Inc. Sr. Sub. Notes 9 1/2/2008+ 15,000M 15,225,000
Silver Cinemas Inc. Sr. Sub. Notes 10 1/2/2005+ 6,200M 6,262,000
Total 34,627,000
- --------------------------------------------------------------------------------------------------------------------==============
Environmental Services and Allied Waste North America 10 1/4/2006 6,000M 6,607,500
Equipment .49% Packard Bioscience Inc. Sr. Sub. Notes 9 3/8/2007 10,000M 9,750,000
Total 16,357,500
-----------------------------------------------------------------------------------==============
</TABLE>
7
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Financial 1.08% BF Saul Reit 9 3/4/2008 $ 17,500M $ 17,150,000
Ocwen Federal Bank FSB Sub. Deb. 12/2005 7,000M 7,691,250
Ocwen Financial Corp. 11 7/8/2003 5,100M 5,775,750
Outsourcing Solutions Sr. Sub. Notes 11/2006 5,000M 5,375,000
Total 35,992,000
- --------------------------------------------------------------------------------------------------------------------==============
Food/Beverage 2.29% AmeriKing, Inc. Sr. Notes 10 3/4/2006 7,300M 7,774,500
Aurora Foods Inc. Sr. Sub. Notes 9 7/8/2007 5,000M 5,325,000
Coca-Cola Femsa S.A. 8.95/2006 (F) 14,000M 14,105,000
Delta Beverage Group Inc. Sr. Notes 9 3/4/2003 6,400M 6,736,000
Doane Products Co. Sr. Notes 10 5/8/2006 8,000M 8,680,000
Pepsi-Gemex S.A. Sr. Notes 9 3/4/2004 (F) 15,000M 15,187,500
Stroh Brewery Co. 11.10/2006 w/Warrants expiring 7/1/2001 3,374M 2,648,590
Twin Laboratories Inc. Sr. Sub. Notes 10 1/4/2006 6,519M 7,203,495
Van de Kamp's Inc. Sr. Sub. Notes 12/2005 7,500M 8,325,000
Total 75,985,085
- --------------------------------------------------------------------------------------------------------------------==============
Healthcare 2.56% Fresenius Med Cap Tr II Sr. Sub. Notes 7 7/8/2008+ 12,000M 11,760,000
Integrated Health Services Sr. Sub. Notes 10 1/4/2006 8,250M 8,868,750
Integrated Health Services Inc. Sr. Sub. Notes 9 1/2/2007 15,000M 15,787,500
Leiner Health Products Inc. Sr. Sub. Notes 9 5/8/2007 10,000M 10,675,000
Multicare Cos. Inc. Sr. Sub. Notes 9/2007 7,500M 7,406,250
Prime Medical Svcs Inc. Sr. Sub. Notes 8 3/4/2008+ 12,500M 12,312,500
Tenet Healthcare Corp. Sr. Sub. Notes 8 5/8/2007 17,500M 18,156,250
Total 84,966,250
- --------------------------------------------------------------------------------------------------------------------==============
Hotel/Gaming 2.11% Aztar Corp. Sr. Sub. Notes 13 3/4/2004 2,000M 2,275,000
Claridge Hotel & Casino Corp. 1st Mtge. Notes 11 3/4/2002 1,700M 1,638,375
Grand Casinos Inc. 9/2004 6,375M 6,916,875
Host Marriott Travel Plazas Inc. Sr. Secured Notes 9 1/2/2005 5,000M 5,343,750
HMC Acquisition Properties Inc. Sr. Notes 9/2007 5,000M 5,531,250
HMH Properties Inc. Sr. Secured Notes 9 1/2/2005 10,000M 10,887,500
Majestic Star Casino LLC Sr. Secured Notes 12 3/4/2003 10,000M 10,950,000
Showboat Marina Casino 1st Mtge. 13 1/2/2003 6,000M 7,110,000
Trump Atlantic City Assoc. Funding Inc. 1st Mtge. Notes 11 1/4/2006 20,000M 19,600,000
Total 70,252,750
- --------------------------------------------------------------------------------------------------------------------==============
Leisure .23% AMF Bowling Worldwide Inc. Sr. Sub. Notes 10 7/8/2006 3,500M 3,745,000
Six Flags Entertainment Sr. Notes 8 7/8/2006 3,800M 3,871,250
Total 7,616,250
- --------------------------------------------------------------------------------------------------------------------==============
Media/Diversified 1.45% CEI Citicorp Holdings 9 3/4/2007 (F) 5,000M 4,987,500
Globo Communicacoes Participacoe Ltd. 10 5/8/2008+(F) 14,000M 12,495,000
Interep Natl. Rad 10/2008 7,000M 7,000,000
Lamar Advertising Co. Sr. Sub. Notes 9 5/8/2006 10,000M 10,762,500
Viacom Inc. Sub. Deb. 8/2006 12,500M 12,914,062
Total 48,159,062
- --------------------------------------------------------------------------------------------------------------------==============
Metals/Mining .62% Interlake Corp. Sr. Notes 12/2001 3,795M 4,155,525
International Wire Group Inc. Sr. Sub. Notes 11 3/4/2005 10,000M 10,962,500
Kaiser Aluminum & Chemical Corp. Sr. Notes 10 7/8/2006 5,000M 5,425,000
Total 20,543,025
- --------------------------------------------------------------------------------------------------------------------==============
Miscellaneous 3.11% Mexican United States 9 7/8/2007 (F) 22,500M 23,428,125
Panama (Republic of) 8 7/8/2027 25,000M 23,640,625
Prime Succession Acquisition Co. Sr. Sub. Notes 10 3/4/2004 3,400M 3,731,500
General Binding Corp. Sr. Sub. Notes 9 3/8/2008+ 5,000M 5,100,000
</TABLE>
8
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Republic Of Argentina 11 3/8/2017 (F) $10,000M $ 10,637,500
Republic Of Venezuela 9 1/4/2027 (F) 15,000M 11,587,500
United Mexican States 6 1/4/2019 (F) 20,000M 16,562,500
United Stationers Supply Co. Sr. Sub. Notes 12 3/4/2005 7,653M 8,762,685
Total 103,450,435
- --------------------------------------------------------------------------------------------------------------------==============
Paper 2.33% Crown Paper Co. Sr. Sub. Notes 11/2005 10,000M 10,850,000
Fonda Group Inc. Sr. Sub. Notes 9 1/2/2007 9,000M 8,730,000
Four M Corp. Sr. Secured Notes Series B 12/2006 7,000M 7,525,000
Indah Kiat Intl. Finance Co. 12 1/2/2006 (F) 5,500M 4,455,000
Maxxam Group Inc. Zero Coupon Sr. Secured Discount Notes due 2003** 4,500M 4,635,000
S.D. Warren Co. Sr. Sub. Notes 12/2004 10,000M 11,075,000
Stone Container Sr. Sub. Notes 12 5/8/1998 8,200M 8,255,094
Stone Container Corp. 1st Mtge. Notes 10 3/4/2002 14,000M 14,927,500
US Timberland Sr. Notes 9 5/8/2007 6,700M 6,834,000
Total 77,286,594
- --------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .97% Big Flower Press Inc. Sr. Sub. Notes 8 7/8/2007 10,000M 10,200,000
Garden State Newspapers Inc. Sr. Sub. Notes 12/2004 5,000M 5,625,000
IPC Magazines Group 9 5/8/2008 (F) 7,450M 11,787,576
R.H. Donnelly Inc. Sr. Sub. Notes 9 1/8/2008+ 4,500M 4,590,000
Total 32,202,576
- --------------------------------------------------------------------------------------------------------------------==============
Real Estate/Homebuilders .73% D.R. Horton, Inc. Sr. Notes 10/2006 12,500M 13,437,500
Engle Homes Inc. Sr. Notes 9 1/4/2008 3,000M 2,977,500
MDC Holdings Inc. Sr. Notes 8 3/8/2008 8,000M 8,040,000
Total 24,455,000
- --------------------------------------------------------------------------------------------------------------------==============
Services 1.86% Iron Mountain Sr. Sub. Notes 10 1/8/2006 20,000M 21,750,000
Iron Mountain Inc. Sr. Sub. Notes 8 3/4/2009 17,500M 17,937,500
Kinder Care Learning Center, Inc. Sr. Sub. Notes 9 1/2/2009 7,500M 7,575,000
Pierce Leahy Corp. Sr. Sub. Notes 9 1/8/2007 9,000M 9,405,000
Unicco Service 9 7/8/2007 5,000M 5,062,500
Total 61,730,000
- --------------------------------------------------------------------------------------------------------------------==============
Specialty Retailing .95% Advanced Stores Co. Sr. Notes 10 1/4/2008 4,000M 4,180,000
Amazon.Com Inc. Zero Coupon Discount Notes due 2008+ 6,000M 3,675,000
Norton McNaughton Inc. Sr. Notes 12 1/2/2005+ 5,000M 5,087,500
Pamida Inc. Sr. Sub. Notes 11 3/4/2003 8,000M 8,320,000
Specialty Retailers, Inc. Sr. Sub. Notes 9/2007 10,000M 10,425,000
Total 31,687,500
- --------------------------------------------------------------------------------------------------------------------==============
Steel 1.37% Armco Inc. Sr. Sub. Notes 9/2007 10,000M 9,975,000
AK Steel Corp. Sr. Notes 10 3/4/2004 6,000M 6,412,500
G.S. Technologies Operating Inc. Sr. Notes 12 1/4/2005 6,000M 6,870,000
Hylsa S.A. De CV Sr. Notes 9 1/4/2007+ 7,000M 6,597,500
WCI Steel Inc. Sr. Secured Notes 10/2004 15,000M 15,525,000
Total 45,380,000
- --------------------------------------------------------------------------------------------------------------------==============
Supermarket .80% Stater Brothers Sr. Sub. Notes 11/2001 10,000M 10,850,000
Stater Brothers Holdings Inc. Sr. Sub. Notes 9/2004 15,000M 15,450,000
Victory Markets Inc. Sub. Notes 12 1/2/2000* 5,000M 125,000
Total 26,425,000
- --------------------------------------------------------------------------------------------------------------------==============
Technology 2.17% Decision One Corp. Zero Coupon due 2005 10,000M 9,850,000
Dyncorp Inc. Sr. Sub. Notes 9 1/2/2007 12,500M 12,812,500
L-3 Communications Corp. Sr. Sub. Notes 10 3/8/2007 15,000M 16,631,250
</TABLE>
9
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Unisys Corp. Sr. Deb. Notes 9 3/4/2016 $ 7,500M $ 7,762,500
United Defense Industries Inc. Sr. Sub. Notes 8 3/4/2007 10,000M 10,187,500
Viasystems Inc. Sr. Sub. Notes 9 3/4/2007 15,000M 14,775,000
Total 72,018,750
- --------------------------------------------------------------------------------------------------------------------==============
Telecommunications 10.78% American Mobile Satellite Corp. Sr. Sub. Notes 12 1/4/2008 w/Warrants+ 12,000M 11,340,000
Cencall Communications Corp. Zero Coupon Sr. Discount Notes due 2004** 15,000M 14,746,875
Dobson Communication Corp. Sr. Notes 11 3/4/2007 6,000M 6,375,000
Dobson Wireline Co. Sr. Notes 12 1/4/2008+ 7,100M 6,993,500
Esprit Telecom Group Sr. Notes 10 7/8/2008+ 5,500M 5,458,750
Global Crossing Sr. Notes 9 5/8/2008+ 16,900M 17,723,875
GST USA Inc. Zero Coupon due 2005 21,300M 17,466,000
Hyperion Telecommunications Inc. Sr. Secured Notes 12 1/4/2004 2,750M 2,976,875
Intermedia Communications Inc. Sr. Discount Notes 11 1/4/2007** 50,000M 36,750,000
ICG Holdings (USA) Inc. Zero Coupon Sr. Discount Notes due 2005** 35,000M 30,100,000
IXC Communications Inc. Sr. Sub. Notes 9/2008+ 8,000M 8,060,000
Level 3 Communication Inc. SRNT 9 1/8/2008+ 12,000M 11,760,000
Mastec Inc. Sr. Sub. Notes 7.34/2008+ 7,500M 7,181,250
McLeod USA Inc. Zero Coupon Sr. Discount Notes due 2007** 15,000M 11,250,000
Metronet Communications Corp. Zero Coupon due 2008+ 10,000M 6,237,500
Mobile Media Communications Inc. Sr. Sub. Notes 9 3/8/2007* 12,000M 3,780,000
Nextel Communications, Inc. Sr. Discount Notes Zero Coupon due 2008+ 10,500M 6,811,875
Nextlink Communications, Inc. Zero Coupon due 2008+ 7,000M 4,322,500
Nextlink Communications, Inc. Sr. Notes 9 5/8/2007 10,000M 10,250,000
Orbital Imaging Corp. Sr. Notes 11 5/8/2005+ 10,000M 10,250,000
Price Comm Wireless Inc. Sr. Sub. Notes 11 3/4/2007 5,000M 5,550,000
Price Comm. Wire Sr. Notes 9 1/8/2006+ 6,000M 6,030,000
Qwest Communications International Zero Coupon Sub. Sr. Discount
due 2008 30,000M 21,750,000
Rogers Cantel Inc. Sr. Secured Notes 8.3/2007 30,000M 29,587,500
RCN Corporation Zero Coupon due 2007** 15,000M 9,712,500
RSL Communications plc Zero Coupon due 2008+ (F)** 20,000M 6,608,780
SBA Communication Inc. Zero Coupon Sr. Notes due 2008** 15,000M 9,525,000
Vanguard Cellular Systems Inc. Sr. Deb. 9 3/8/2006 16,000M 16,880,000
Viatel Inc. 11.15/2008+ 15,000M 8,710,320
Western Wireless Corp. Sr. Sub. Notes 10 1/2/2007 13,000M 13,975,000
Total 358,163,100
- --------------------------------------------------------------------------------------------------------------------==============
Textile 1.91% Delta Mills Inc. Sr. Notes 9 5/8/2007 10,000M 9,850,000
Guess Inc. Sr. Sub. Notes 9 1/2/2003 13,500M 13,837,500
GFSI, Inc. Sr. Sub. Notes 9 5/8/2007 15,000M 15,675,000
Pillowtex Corp. Sr. Sub. Notes 9/2007 12,500M 12,906,250
PT Poly-Global 9 3/8/2007* 3,500M 1,207,500
William Carter Sr. Sub. Notes 10 3/8/2006 4,475M 4,788,250
Worldtex Inc. Sr. Notes 9 5/8/2007 5,000M 5,025,000
Total 63,289,500
- --------------------------------------------------------------------------------------------------------------------==============
Utility .37% Aei Holding Co. Sr. Notes 10/2007+ 6,000M 6,015,000
P & L Coal Holdings Corp. Sr. Notes 8 7/8/2008 6,200M 6,409,250
Total 12,424,250
-----------------------------------------------------------------------------------==============
Total Investments in High-Yield Corporate Debt (Cost $2,314,551,160) 2,346,763,201
-----------------------------------------------------------------------------------==============
</TABLE>
10
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Convertible Debt 11.32%
==================================================================================================================================
Advertising .61% Interpublic Group Of Companies Conv. Sub. Deb. 1.80/2004+ $ 7,500M $ 7,011,328
Omnicom Group Inc. Conv. Sub. Deb. 4 1/4/2007+ 8,000M 13,306,250
Total 20,317,578
- --------------------------------------------------------------------------------------------------------------------==============
Aerospace .46% Orbital Sciences Corp. Conv. Sub. Deb. 5/2002+ 10,000M 15,148,438
- --------------------------------------------------------------------------------------------------------------------==============
Banking .18% GS Financial Products (Citicorp) Conv. Deb. 1/2002 6,000M 6,025,313
- --------------------------------------------------------------------------------------------------------------------==============
Broadcasting .40% Jacor Communications Inc. CVDB Zero Coupon due 2018 5,000M 2,197,656
Clear Channel Conv. Sr. Notes 2 5/8/2003 10,000M 10,931,250
Total 13,128,906
- --------------------------------------------------------------------------------------------------------------------==============
Business Services .50% Businessland Inc. Conv. Sub. Deb. 5 1/2/2007 5,255M 3,816,444
Corestaff Inc. Conv. Sub. Deb. 2.94/2004 12,000M 11,767,500
Interim Services Inc. 4 1/2/2005 1,000M 1,083,750
Total 16,667,694
- --------------------------------------------------------------------------------------------------------------------==============
Chemicals .24% RPM Inc. Zero Coupon Conv. Sub. Deb. due 2012 15,000M 7,837,500
- --------------------------------------------------------------------------------------------------------------------==============
Computer Software and Affiliated Computer Services, Inc. Conv. Sub. Notes 4/2005+ 10,000M 10,918,750
Services .63% Analog Devices Inc. Conv. Sub. Deb. 3 1/2/2000 8,000M 10,150,000
Total 21,068,750
- --------------------------------------------------------------------------------------------------------------------==============
Computer Systems and Comverse Technology Inc. Conv. Sub. Deb. 4 1/2/2005+ 15,000M 15,075,000
Peripherals .79% Hewlett-Packard Co. Conv. Zero Coupon due 2017+ 10,000M 5,331,250
HMT Technology Corp. Conv. Deb. 5 3/4/2004 5,000M 3,550,000
Read-Rite Corp. Sr. Sub. Notes 6 1/2/2004 3,800M 2,414,188
Total 26,370,438
- --------------------------------------------------------------------------------------------------------------------==============
Consumer Products .22% Credit Suisse First Boston (MMM) Conv. Sub. Deb. 2 5/8/2003 7,500M 7,162,500
- --------------------------------------------------------------------------------------------------------------------==============
Data Processing Equipment and Arbor Software Corp. Conv. Sub. Deb. 4 1/2/2005+ 8,500M 7,464,063
Components .74% National Data Corp. Conv. Sub. Notes 5/2003 16,000M 17,040,000
Total 24,504,063
- --------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals 1.77% Alza Corp. Conv. Sub. Deb. 5/2006 10,000M 12,871,875
Rite Aid Corp. Conv. Sub. Notes 5 1/4/2002+ 7,500M 9,250,781
Roche Holdings Inc. Zero Coupon Conv. Notes due 2010+ 45,000M 25,762,500
Swiss Bank Corp. (Novartis) Sr. 2 1/2/2002+ 6,000M 6,330,000
Swiss Life Fin. (GLXO) Conv. 2/2003+ 4,425M 4,657,313
Total 58,872,469
- --------------------------------------------------------------------------------------------------------------------==============
Electrical Equipment .14% Xerox Credit Corp. Conv. 2 7/8/2002 4,000M 4,760,000
- --------------------------------------------------------------------------------------------------------------------==============
Electronics Instruments .15% Thermo Instrument System Sr. Conv. Deb. 4 1/2/2003+ 5,000M 4,995,313
- --------------------------------------------------------------------------------------------------------------------==============
Financial .14% Bell Atlantic Financial Service (Nlztel) Conv. Sub. Deb. 5 3/4/2003+ 4,500M 4,635,000
- --------------------------------------------------------------------------------------------------------------------==============
Healthcare .66% Centocor, Inc. Conv. Sub. Notes 4 3/4/2005+ 7,000M 7,170,625
Healthsouth Corp. Conv. Sub. Deb. 3 1/4/2003+ 14,000M 13,755,000
Healthsouth Corp. Conv. Sub. Deb. 3 1/4/2003 1,000M 995,000
Total 21,920,625
- --------------------------------------------------------------------------------------------------------------------==============
Insurance .93% American International Group Conv. 2 1/4/2004 20,000M 25,200,000
CII Financial Inc. Conv. Sub. Deb. 7 1/2/2001 6,000M 5,805,000
Total 31,005,000
- --------------------------------------------------------------------------------------------------------------------==============
Leisure .20% AMF Bowling Inc. Zero Coupon Conv. Note due 2018+ 25,000M 6,664,063
- --------------------------------------------------------------------------------------------------------------------==============
Miscellaneous .17% Fuji International Finance Trust Conv. Unit .25/2002+ (F) 5,630M 5,639,677
- --------------------------------------------------------------------------------------------------------------------==============
Oil and Gas .49% Pogo Producing Co. Conv. Sub. Notes 5 1/2/2006 1,000M 908,906
</TABLE>
11
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Swift Energy Co. Conv. Sub. Notes 6 1/4/2006 $ 8,500M $ 8,027,188
Texaco Capital Inc. Conv. 3 1/2/2004 (F) 7,000M 7,245,000
Total 16,181,094
- --------------------------------------------------------------------------------------------------------------------==============
Oil Service .78% Baker Hughes Inc. Zero Coupon Conv. Notes due 2008 15,000M 11,092,969
Loews Corp. Conv. Sub. Notes 3 1/8/2007 12,000M 10,940,625
Parker Drilling Co. Conv. Sub. Notes 5 1/2/2004 4,500M 3,875,625
Total 25,909,219
- --------------------------------------------------------------------------------------------------------------------==============
Printing and Publishing .69% Scholastic Corp. Conv. Sub. Deb. 5/2005+ 10,000M 9,218,750
Times Mirror Company Zero Coupon Conv. Sub. Deb. due 2017+ 30,000M 13,612,500
Total 22,831,250
- --------------------------------------------------------------------------------------------------------------------==============
Telecommunications .43% Broadband Technologies, Inc. Conv. Sub. Deb. 5/2001 3,000M 1,938,750
Synoptics Communications Inc. Conv. Deb. 5 1/4/2003 12,500M 12,585,938
Total 14,524,688
-----------------------------------------------------------------------------------==============
Total Investments in Convertible Debt (Cost $357,106,301) 376,169,578
==================================================================================================================================
Preferred and Convertible-Preferred Stocks, Common Stocks and Warrants 5.11%
==================================================================================================================================
Banking .87% California Federal Preferred Capital Corp. 9.125% Pfd. Series A 500,000 13,656,250
Crossland Savings FSB Brooklyn, NY $1.8125 Conv. Pfd. Series A 375,000 5,859
National Australia Bank 7.875% Pfd. 200,000 5,743,750
Westpac Banking 10% Conv. Pfd. 307,500 9,359,531
Total 28,765,390
- --------------------------------------------------------------------------------------------------------------------==============
Building Materials .15% Fleetwood Capital Trust 6% Conv. Pfd+ 95,800 5,155,238
- --------------------------------------------------------------------------------------------------------------------==============
Capital Goods .01% Orbital Imaging Corp. Warrants expiring 3/1/2005+ 10,000 450,000
- --------------------------------------------------------------------------------------------------------------------==============
Container .26% Owens-Illinois Inc. 4.75% Conv. Pfd 166,000 8,652,750
- --------------------------------------------------------------------------------------------------------------------==============
Drugs/Pharmaceuticals .33% CVS Corp. 6% Conv. Pfd. 142,000 10,836,375
- --------------------------------------------------------------------------------------------------------------------==============
Electronics .21% Coltec Capital Trust Inc. 5.25% Conv. Pfd. 150,000 7,012,500
- --------------------------------------------------------------------------------------------------------------------==============
Financial .76% Jefferson-Pilot Corp. $5.256 Conv. Pfd. 190,000 25,198,750
- --------------------------------------------------------------------------------------------------------------------==============
Insurance 1.18% Aetna Inc. 6.25% Conv. Pfd. 50,000 3,756,250
American General Corporation 6% Conv. Pfd. Series A 150,000 13,537,500
Frontier Financing Inc. 6.25% Conv. Pfd. 35,000 2,143,750
Frontier Financing Inc. 6.25% Conv. Pfd.+ 125,000 7,656,250
Life Re Capital Trust II 6% Conv. Pfd. 60,000 4,972,500
St. Paul's Capital, LLC $3 Conv. Pfd. 100,000 7,200,000
Total 39,266,250
- --------------------------------------------------------------------------------------------------------------------==============
Machinery .16% Ingersoll Rand Co. 6.75% Conv. Pfd. 225,000 5,400,000
- --------------------------------------------------------------------------------------------------------------------==============
Oil and Gas .31% Lomak Petroleum Inc. 5.75% Conv. Pfd.+ 54,300 2,046,431
Unocal Corp. 6.25% Conv. Pfd. 150,000 8,226,562
Total 10,272,993
- --------------------------------------------------------------------------------------------------------------------==============
Real Estate/Homebuilders .32% Walden Residential Properties $2.30 Pfd. w/Warrants expiring 12/31/2001 400,000 10,575,000
- --------------------------------------------------------------------------------------------------------------------==============
Telecommunications .55% GST Telecommunications Inc.* 120,000 1,732,500
Intermedia Communication Wts. expiring 6/1/2000+ 5,000 610,937
IXC Communication Conv. Pfd. 6.75%+ 213,000 10,224,000
Nextel Communications, Inc. Class A* 20,140 500,982
Nextlink Communications, Inc. 6.50% Conv. Pfd. 100,000 5,237,500
Total 18,305,919
-----------------------------------------------------------------------------------==============
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $155,411,104) 169,891,165
-----------------------------------------------------------------------------------==============
</TABLE>
12
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
==================================================================================================================================
<C> <S> <C> <C>
Investment-Grade Corporate Bonds 3.55%
==================================================================================================================================
CSFB 97-C2 A2 6.52/2007 $ 2,000M $ 2,040,312
FULB 97-C2 C 7.02/2012 10,260M 10,587,037
FULBA 98-C2 C 6.73/2035 7,970M 8,017,322
GECMS 95-10-B1 7/2010 672M 683,847
GMACC 97-C2 A2 6.55/2007 3,050M 3,104,328
IMCHE 97-5 A4 6.53/2013 2,150M 2,157,391
MSC 98 WF2 B 6.63/2030 4,950M 5,061,375
Nabisco Inc. Notes 63/8/2035 25,000M 24,414,062
NASC 96-MD5 A1B 7.12/2036 2,850M 3,007,641
SCAMT II 96-1 A 6.2/2006 10,000M 10,053,125
Telefonica de Argentina 91/8/2008 20,000M 19,000,000
Teleport Communications Sr. Discount Notes Zero Coupon due 2007** 15,000M 12,918,750
Teleport Communications, Inc. Sr. Notes 97/8/2006 10,000M 11,525,000
Texas Utilities Co. 7.17/2007 4,960M 5,158,400
Total Investments in Investment-Grade Corporate Bonds (Cost
$116,902,670) 117,728,590
==================================================================================================================================
Government Agency Issues 6.02%
==================================================================================================================================
Federal National Mortgage Association due on an announced basis 50,000M 49,796,875
Federal National Mortgage Association due on an announced basis 100,000M 101,328,125
U.S. Treasury Notes 7 1/2% due 11/15/2001 35,000M 37,078,125
U.S. Treasury Notes 7 1/2% due 5/15/2002 11,000M 11,740,781
Total Investments in Government Agency Issues (Cost $199,632,539) 199,943,906
-----------------------------------------------------------------------------------==============
Total Investments in Securities (Cost $3,143,603,774) 3,210,496,440
==================================================================================================================================
Other Assets, Less Liabilities 3.36%
==================================================================================================================================
Short-Term Investments
U.S. Government Obligations Federal Home Loan Banks 10% due 10/15/1998 50,000M 50,625,000
Federal National Mortgage Association 12% due 8/19/1998 75,000M 75,656,250
Federal National Mortgage Association 12% due 10/27/1998 50,000M 51,031,250
Total (Cost $180,295,854) 177,312,500
-----------------------------------------------------------------------------------==============
Corporate Obligations American General Corp. 6.20% due 7/11/1998 (Cost $36,000,000) 36,000M 36,000,000
- --------------------------------------------------------------------------------------------------------------------==============
Total Short-Term Investments (Cost $216,295,854) 213,312,500
-----------------------------------------------------------------------------------==============
Cash and Receivables, Net of Liabilities (101,810,612)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 111,501,888
==================================================================================================================================
Net Assets 100.00% $3,321,998,328
==================================================================================================================================
Class A Shares-Net asset value ($2,274,839,554 / 230,629,371 shares outstanding) $9.86
Class B Shares-Net asset value ($536,224,003 / 54,380,256 shares outstanding) $9.86
Class C Shares-Net asset value ($494,007,119 / 50,039,024 shares outstanding) $9.87
Class Y Shares-Net asset value ($16,927,652 / 1,716,451 shares outstanding) $9.86
</TABLE>
* Non-income producing security.
** Deferred-interest debentures pay no interest for a stipulated number
of years, after which time they pay a predetermined coupon rate.
+ Restricted security under Rule 144A.
(F) Foreign Security.
See Notes to Financial Statements.
13
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Six Months Ended June 30, 1998
===========================================================================================================================
<S> <C> <C> <C>
Income Dividends $ 4,979,448
Interest 129,107,409
Total income $134,086,857
-------------------------------------------------------------------------------------------------------------
Expenses Management fee 7,219,350
12b-1 distribution plan-Class A 3,066,450
12b-1 distribution plan-Class B 2,295,672
12b-1 distribution plan-Class C 2,320,701
Shareholder servicing 1,359,731
Reports to shareholders 219,456
Registration 195,000
Directors' fees 39,165
Professional fees 97,000
Other 146,500
Total expenses 16,959,025
-------------------------------------------------------------------------------------------------------------
Net investment income 117,127,832
-------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments and Foreign Currency Transactions
===========================================================================================================================
Realized gain from investment and foreign currency transactions
Proceeds from sales 1,838,440,393
Cost of investments sold 1,789,164,176
-------------------------------------------------------------------------------------------------------------
Net realized gain 49,276,217
-------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments and foreign currency holdings (18,008,723)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency transactions 31,267,494
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $148,395,326
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
Increase in Net Assets 1998 1997
===========================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $ 117,127,832 $ 193,754,285
Net realized gain from investment transactions and foreign
currency transactions 49,276,217 38,805,326
Net unrealized appreciation (depreciation) of investments and foreign
currency holdings (18,008,723) 60,937,427
Net increase in net assets resulting from operations 148,395,326 293,497,038
-------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions 1,084,549 1,349,118
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income
Class A (85,653,231) (157,993,072)
Class B (15,981,365) (17,790,074)
Class C (16,317,018) (26,182,650)
Class Y (272,268) -
Total distributions (118,223,882) (201,965,796)
-------------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sale of shares 591,031,746 870,972,951
Net asset value of shares issued to shareholders in reinvestment of
net investment income 61,958,608 102,641,162
Total 652,990,354 973,614,113
-------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (228,431,949) (329,731,940)
-------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 424,558,405 643,882,173
-------------------------------------------------------------------------------------------------------------
Total increase in net assets 455,814,398 736,762,533
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets Beginning of period 2,866,183,930 2,129,421,397
End of period (including undistributed net investment income of
$5,928,859 and $5,940,360, respectively) $3,321,998,328 $2,866,183,930
=============================================================================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
Per Share Operating Performance: 6/30/98 1997 1996 1995 1994 1993
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.76 $9.41 $9.29 $8.71 $9.95 $9.43
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .38 .75(b) .81 .85 .84 .89
Net realized and unrealized gain (loss)
on investments .11 .40 .17 .606 (1.203) .55
Total from investment operations .49 1.15 .98 1.456 (.363) 1.44
-----------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.39) (.80) (.86) (.876) (.877) (.92)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.86 $9.76 $9.41 $9.29 $8.71 $9.95
- ------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 5.03%(c) 12.70% 11.16% 17.50% (3.87)% 15.97%
==============================================================================================================================
Ratios to Average Net Assets:
Expenses .43%(c) .89% .89% .82% .88% .88%
Net investment income 3.82%(c) 7.89% 8.77% 9.41% 8.97% 9.17%
=======================================================================================================================
<CAPTION>
Class B Class C Class Y
Shares Shares Shares
-------------------------------------- ----------------------------------------- -----------
Six
Months Year Ended 8/1/96(d) Six Months Year Ended 7/15/96(d) 3/27/98(d)
Ended December to Ended December to to
Per Share Operating Performance: 6/30/98 31, 1997 12/31/96 6/30/98 31, 1997 12/31/96 6/30/98
============================================================================= ========================================= ===========
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.75 $9.41 $9.13 $9.77 $9.41 $9.05 $9.98
- ----------------------------------------------------------------------------- ----------------------------------------- -----------
Income from investment
operations
Net investment income .35 .68(b) .34 .35 .69(b) .35 .21
Net realized and unrealized
gain (loss) on investments .11 .38 .26 .10 .39 .33 (.13)
Total from investment
operations .46 1.06 .60 .45 1.08 .68 .08
--------------------------------------------------------------------- ----------------------------------------- -----------
Distributions
Dividends from net investment
income (.35) (.72) (.32) (.35) (.72) (.32) (.20)
--------------------------------------------------------------------- ----------------------------------------- -----------
Net asset value, end of period $9.86 $9.75 $9.41 $9.87 $9.77 $9.41 $9.86
- ----------------------------------------------------------------------------- ----------------------------------------- -----------
Total Return(a) 4.76%(c) 11.85% 6.57%(c) 4.65%(c) 11.97% 7.86%(c) .76%(c)
===================================================================================================================================
Ratios to Average Net Assets:
Expenses .79%(c) 1.63% .70%(c) .79%(c) 1.58% .75%(c) .15%(c)
Net investment income 3.46%(c) 7.06% 3.37%(c) 3.46%(c) 7.16% 3.72%(c) 2.02%(c)
===========================================================================================================================
<CAPTION>
Six Months Ended Year Ended December 31,
Supplemental Data for All Classes: 6/30/98 1997 1996 1995 1994 1993
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $3,321,998 $2,866,184 $2,129,421 $1,339,508 $987,613 $969,736
Portfolio turnover rate 53.64% 89.14% 106.79% 134.90% 147.98% 159.79%
=======================================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads and
assumes the reinvestment of all distributions.
(b) Calculated using average shares outstanding during the period.
(c) Not annualized.
(d) Commencement of offering respective class shares.
See Notes to Financial Statements.
15
<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.
Short-term securities are valued at amortized cost which approximates market
value. 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. Class Y does not have a plan.
Distributor received $1,203,817 representing payment of commissions on sales of
Class A shares after deducting $7,571,089 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 June 30, 1998, accumulated net
realized loss for financial reporting purposes aggregated $12,070,965.
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 1 billion shares of $.001 par value capital stock
designated as follows: Class A-360 million shares, Class B-160 million shares,
Class C-80 million shares, Class Y-300 million shares and Class P-100 million
shares. There have been no Class P shares sold to date. Paid in capital amounted
to $3,264,449,627 at June 30, 1998. Transactions in shares of capital stock were
as follows:
16
<PAGE>
Notes to Financial Statements
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------- ----------------------------
Sales of shares 30,364,189 $298,750,140 46,518,192 $442,496,854
Shares issued to
shareholders in
reinvestment of net
investment income 4,460,334 43,632,543 8,213,131 78,274,234
Total 34,824,523 342,382,683 54,731,323 520,771,088
- ------------------------------------------------- ----------------------------
Shares reacquired (16,423,802) (161,773,536) (27,836,818) (264,621,803)
Increase in shares 18,400,721 $180,609,147 26,894,505 $256,149,285
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------------------- ----------------------------
Class B Shares Amount Shares Amount
- ------------------------------------------------- ----------------------------
Sales of shares 17,497,611 $172,948,864 27,683,539 $264,657,297
Shares issued to
shareholders in
reinvestment of net
investment income 845,564 8,331,036 970,289 9,292,808
Total 18,343,175 181,279,900 28,653,828 273,950,105
- ------------------------------------------------- ----------------------------
Shares reacquired (2,394,475) (23,705,084) (1,792,655) (17,211,993)
Increase in shares 15,948,700 $157,574,816 26,861,173 $256,738,112
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------------------- ----------------------------
Class C Shares Amount Shares Amount
- ------------------------------------------------- ----------------------------
Sales of shares 10,356,769 $102,515,346 17,113,612 $163,818,800
Shares issued to
shareholders in
reinvestment of net
investment income 984,934 9,722,749 1,573,966 15,074,120
Total 11,341,703 112,238,095 18,687,578 178,892,920
- ------------------------------------------------- ----------------------------
Shares reacquired (4,332,176) (42,953,329) (5,004,533) (47,898,144)
Increase in shares 7,009,527 $ 69,284,766 13,683,045 $130,994,776
- -------------------------------------------------------------------------------
March 27, 1998
(Commencement of
offering Class Y shares)
to June 30, 1998
--------------------------
Class Y Shares Amount
- -------------------------------------------------------------------------------
Sales of shares 1,688,916 $16,817,396
Shares issued to
shareholders in
reinvestment of net
investment income 27,535 272,280
Total 1,716,451 17,089,676
- -------------------------------------------------------------------------------
Increase in shares 1,716,451 $17,089,676
- -------------------------------------------------------------------------------
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 $1,323,203,883 and $860,186,382, respectively. Purchases and sales of
U.S. Government obligations aggregated $831,393,824 and $949,426,602,
respectively. As of June 30, 1998, unrealized appreciation for federal income
tax purposes aggregated $63,909,312, of which $135,623,830 related to
appreciated securities and $71,714,518 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at June
30, 1998 was substantially the same as the cost for financial reporting
purposes.
At June 30, 1998 the Company had outstanding forward currency contracts to sell
foreign currency as follows:
Value at
Foreign Currency Settlement Date Current Unrealized
Sell Contracts Receivable Value Depreciation
- -------------------------------------------------------------------------------
Deutsche Marks,
expiring 10/17/98 to 12/15/98 $15,477,872 $15,523,537 $ (45,665)
- -------------------------------------------------------------------------------
British Pounds,
expiring 9/9/98 $12,188,200 $12,361,040 $(172,840)
- -------------------------------------------------------------------------------
Total $27,666,072 $27,884,577 $(218,505)
- -------------------------------------------------------------------------------
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
June 30, 1998 were $437,000.
7. Line of Credit
The Company along with certain other funds managed by Lord Abbett, have
available a $200,000,000 unsecured revolving credit facility ("Facility"), from
a consortium of banks, to be used for temporary or emergency purposes as an
additional source of liquidity to fund redemptions of investor shares. Any
borrowings under this Facility will bear interest at current market rates as
defined in the agreement. The fee for this Facility is .05% per annum. There
were no loans outstanding pursuant to this Facility at June 30, 1998, nor was
the Facility utilized at any time during the period.
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.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Bond-Debenture Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Bond-Debenture Fund, Inc. as of June 30, 1998, 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 June 30,
1998 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Bond-Debenture Fund, Inc. at June 30, 1998, 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
August 7, 1998
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LABD-3-698
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (8/98)
