Lord Abbett Bond-Debenture Fund
1998 ANNUAL REPORT
[GRAPHIC OMITTED]
A mutual fund with a multi-faceted
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.
Morningstar says:
"...Towle's credit selection has been strong enough to give this fund one of the
categories more attractive risk/reward profiles."
Morningstar Mutual Funds, January 22, 1999
- --------------------------------------------------------------------------------
Historically Consistent Average Annual Rates of Total Return as of 12/31/98(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 +10.4% per year
For the past 5 years +8.2% per year
For the past year +4.8% 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 12/31/98(2)
[The following information was depicted as a bar graph in the printed material.]
At Net Asset Value 7.94%
At Maximum Offering Price 7.56%
- --------------------------------------------------------------------------------
Average Annual Total Average annual total returns for periods ended 12/31/98
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 +9.82%
5 years +7.13%
1 year -0.20%
The Fund's SEC yield for the 30 days ended 12/31/98 was
8.00%. 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 Fiscal Year Ended December 31, 1998
[PHOTO OMITTED]
/s/ Robert S. Dow
- -------------------------------------
ROBERT S. DOW
CHAIRMAN
JANUARY 26, 1999
"We believe that our ability to fine-tune the Fund's investments among
high-yield bonds, convertible securities and high-grade bonds, including U.S.
Treasury securities, will be a key to uncovering exciting investment
opportunities through most market conditions, while helping to manage risk."
Lord Abbett Bond-Debenture Fund completed its fiscal year on December 31, 1998,
with net assets of approximately $3.5 billion. Below is an overview of Class
share performance for the period.
Fiscal Year Ended December 31,1998
------------------------------------------------------
Class A Class B Class C Class P Class Y
------------------------------------------------------
(8/21/98 to (3/27/98 to
12/21/98(1)) 12/31/98(1))
- --------------------------------------------------------------------------------
Net asset value $9.45 $9.44 $9.46 $9.45 $9.44
Dividends $0.76 $0.69 $0.69 $0.25 $0.59
Total return(2) 4.8% 4.0 4.0% 1.7%(3) 0.6%
U.S. financial markets were subject to significant volatility throughout the
Fund's fiscal year. Many investors became unnerved at mid-year as the economic
crises in Asia and Japan infected the emerging markets in South America and
Eastern Europe. These crises, in turn, seemed likely to negatively impact
corporate earnings in the U.S. and other developed market countries. During both
May and June, investors worldwide left corporate and high-yield investments for
the safety of U.S. Treasury bonds.
A series of autumn rate cuts initiated by the U.S. Federal Reserve Board helped
to calm the turmoil in the capital markets that existed throughout the late
summer. In October, a more optimistic view of global economies emerged. During
the fourth quarter, high-yield and convertible debt securities substantially
outperformed Treasury instruments of comparable maturities.(4)
Throughout the year, we underweighted the Fund's corporate bond holdings in
basic industries such as steel, paper and chemicals because we considered that,
given global economic conditions, there was little pricing power within these
industries. We emphasized industries with steady cash flows, such as
telecommunications, media and cable television providers. Bond-Debenture Fund's
focus on high-yield bonds provided substantial rewards for shareholders during
the fourth quarter as high-yield bonds performed well.
In our view, the current environment of low inflation, global overcapacity, and
an anticipated slow- down of U.S. economic growth makes a reversal of the
Federal Reserve's interest-rate policy unlikely. As a result, interest rates
should remain low into 1999. Against this backdrop, we expect attractive returns
from the high-yield bonds that we have selected. Because such bonds are
currently yielding more than 6% over Treasury securities(5) with comparable
maturities, we believe that they represent particularly good value, and we plan
to maintain the Fund's current overweighting of the high-yield sector. We
believe that our ability to fine-tune the Fund's investments among high-yield
bonds, convertible securities and high-grade bonds, including U.S. Treasury
securities, will be a key to uncovering exciting investment opportunities
through most market conditions, while helping to manage risk.
We are pleased that you have chosen Lord Abbett Bond-Debenture Fund as a part of
your investment portfolio and look forward to assisting you in the future as you
work toward meeting your financial goals. Thank you for placing your trust in
Lord, Abbett & Co.
(1) Commencement of offering respective share classes.
(2) Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
(3) Not annualized.
(4) Unlike Treasury securities, an investment in the Fund is neither insured
nor guaranteed by the U.S. government and is regarded as involving a
greater degree of risk. The Fund's share price and income are not
guaranteed and the value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
(5) Differences in yield between the First Boston (CSFB) High Yield Index and
10-Year Treasury Bonds as of 12/31/98. The CSFB High Yield Index is an
unmanaged index of 1,534 lower-rated debt securities, with a market value
of more than $260 billion. The Index is not available for direct
investment.
1
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 7.94% and 7.56% (based on the Class A share net
asset value and maximum offering price, respectively, on 12/31/98, and the
monthly dividend of $.0625, annualized). See Important Information on page 5.
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: 4/1/71-12/31/98(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
[LINE GRAPH OMITTED]
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)
The Fund Versus Inflation
$100,000 Invested: 4/1/71-12/31/98(2)
$100,000 invested at the Fund's inception grew to over $1 million
<TABLE>
<S>
<CAPTION>
Value of
$100,000
Year Annual Investment with Inflation
Ended Dividends all Distributions (Consumer
Dec. 31 Reinvested Reinvested Price Index)
- ------------------------------------------------------------------
<C> <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 9.4% per year
1997 104,367 1,339,297 403,250
1998 108,089 1,403,094 409,750
Total Dividends
Reinvested: $1,280,271
- -----------------==========--------------------------------------
Average Annual Rate of Return: 9.99% 5.21%
- -----------------------------------------=====--------------=====
</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 7.
(2) Fund investment reflects the deduction of the reduced 3.75% sales charge
applicable to Class A share investments of $100,000. The maximum sales
charge applicable to Class A shares is 4.75%.
(3) Nine months only. The Fund began operations on 4/1/71.
3
<PAGE>
Management in Action
Current Dividend Distribution Rates: 7.94% and 7.56% (based on the Class A share
net asset value and maximum offer-ing price, respectively, on 12/31/98, and the
monthly dividend of $.0625, annualized). See Important Information on page 5.
The Fund's 3-Way Focus
1. High-yield Corporate Debt and Straight-preferred Stocks: 68.0%(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: 15.3%(1)
Capital appreciation is sought by investing in convertible bonds and convertible
preferred stocks, 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: 16.7%(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 tabLe was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
As of December 31, 1974 1979 1982 1988 1995 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High-yield Corporate Debt and
Straight-preferred Stocks 15.7% 34.8% 18.3% 52.9% 62.9% 68.0%
Equity-related Securities
(Convertible Debt, Convertible-preferred
Stocks, Common Stocks, Warrants) 49.6% 36.1% 54.6% 33.4% 16.5% 15.3%
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% 13.7% 20.6% 16.7%
</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 1979 and 1998), 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:
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
===============================================================================
11.5% 11.3% 9.5% 12.6% 11.5% 11.4% 10.4% 10.1% 10.2% 11.3% 10.4%
(1) Percent of net assets on 12/31/98. The Fund's portfolio is actively
managed and subject to change.
(2) At net asset value. All years end 12/31.
(3) All periods end 12/31. 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>
A Note About Year 2000 Matters
As you probably know, the Fund depends on the proper functioning of computer
systems for most, if not all, aspects of its operations. Many computer systems
now in use cannot distinguish between the year 2000 (Y2K) and the year 1900, an
inability that could disrupt the services provided to the Fund.
Lord Abbett, Lord Abbett Distributor llc, the Fund's transfer agent, the Fund's
custodian and other providers of services critical to the Fund all have advised
the Fund that they have been actively working on changes to their computer
systems to prepare for the Year 2000 and expect that their systems, and those of
their external service providers, will be adapted in time. Although the Y2K
issue is unprecedented and the process of Y2K preparedness evaluation and
systems remediation is an ongoing one, we presently believe that there will be
no material effect on the Fund and its financial statements.
Important Information
SEC yield is calculated on the Class A share maximum offering price of $9.92 on
12/31/98, 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 3/31/99, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
Investments in Securities 94.65%
===================================================================================================================================
High-Yield Corporate Debt 67.08%
===================================================================================================================================
<S> <C> <C> <C>
Air Transportation 1.41% America West Airlines Inc. Sr. Notes 10 3/4/2005 $15,000M $ 15,525,000
Aviation Sales Corp. Sr. Sub. Notes 8 1/8/2008 7,500M 7,462,500
Canadian Airlines Corp. Sr. Secured Notes 10/2005 (F) 10,000M 8,600,000
Continental Airlines Inc. 8/2005 6,250M 6,335,937
Trans World Airlines Inc. Sr. Secured Notes 11 1/2/2004 7,500M 6,562,500
US Air Inc. Equipment Trust Certificate 1987 Series D 10 1/2/2004 859M 950,806
US Air Inc. Equipment Trust Certificate 1987 Series E 10 1/2/2004 927M 1,026,073
US Air Inc. Equipment Trust Certificate 1987 Series F 10 1/2/2004 848M 938,630
Piedmont Aviation Inc. Equipment Trust Certificate 1988 Series G 10.35/2011 2,000M 2,379,375
Total 49,780,821
- -----------------------------------------------------------------------------------------------------------------------============
Apparel and Textile 0.45% Interface Inc. Sr. Sub. Notes Series B 9 1/2/2005 15,000M 15,975,000
- -----------------------------------------------------------------------------------------------------------------------============
Automotive 2.90% Accuride Corp. 9 1/4/2008 5,000M 4,925,000
Atlantic Express Transportation Corp. Sr. Secured Notes 10 3/4/2004 6,200M 6,293,000
Atlantis Group Inc. Sr. Notes 11/2003 5,000M 4,991,406
</TABLE>
5
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Blue Bird Body Co. Sr. Sub. Notes Series B 10 3/4/2006 $ 5,000M $ 5,175,000
Collins & Aikman Products Co. Sr. Sub. Notes 11 1/2/2006 10,850M 11,284,000
Diamond Triumph Auto Glass Inc. Sr. Notes 9 1/4/2008+ 7,500M 7,462,500
LDM Technologies Inc. Sr. Sub. Notes Series B 10 3/4/2007 4,000M 4,020,000
LDM Technologies Inc. Sr. Sub. Notes 10 3/4/2007+ 1,000M 1,005,000
Navistar Financial Corp. Sr. Sub. Notes Series B 9/2002 10,000M 10,400,000
Navistar International Corp. Sr. Sub. Notes 8/2008 12,500M 12,750,000
Oshkosh Truck Corp. Sr. Sub. Notes 8 3/4/2008 15,000M 15,075,000
Safelite Glass Corp. Sr. Sub. Notes 9 7/8/2006+ 10,000M 9,275,000
Venture Holdings Trust Sr. Notes Series B 9 1/2/2005 10,000M 10,000,000
Total 102,655,906
- -----------------------------------------------------------------------------------------------------------------------============
Banking 0.44% Ocwen Federal Bank FSB Fort Lee, NJ Sub. Deb. 12/2005 7,000M 6,300,000
Ocwen Financial Corp. Notes 11 7/8/2003 5,100M 4,564,500
Banc One Corp. Sub. Notes 8/2027 3,976M 4,729,576
Total 15,594,076
- -----------------------------------------------------------------------------------------------------------------------============
Broadcasting 6.19% Allbritton Communications Corp. Sr. Sub. Deb. Series B 9 3/4/2007 25,000M 26,625,000
American Radio System Corp. Sr. Sub. Notes 9/2006 13,500M 14,681,250
Benedek Broadcasting Corp. Sr. Notes 11 7/8/2005 6,000M 6,540,000
Chancellor Media Corp. 8 1/8/2007 2,000M 1,995,000
Chancellor Media Corp. Sr. Sub. Notes 9 3/8/2004 21,750M 22,674,375
Chancellor Media Corp. 10 1/2/2007 5,000M 5,575,000
Cumulus Media Inc. Sr. Sub. Notes 10 3/8/2008 9,000M 9,585,000
CBS Inc. Sr. Deb. 8 7/8/2022 3,000M 3,293,906
Granite Broadcasting Corp. Sr. Sub. Notes 10 3/8/2005 12,500M 12,593,750
Grupo Televisa S.A. Zero Coupon Sr. Discount Notes due 2008** (F) 23,000M 16,905,000
Grupo Televisa S.A. Sr. Notes Series B 11 7/8/2006 (F) 8,000M 7,980,000
Interep National Radio Sales Inc. Sr. Sub. Notes 10/2008+ 8,500M 8,797,500
Jacor Communications Inc. Sr. Sub. Notes 9 3/4/2006 10,000M 11,150,000
Sinclair Broadcasting Corp. Sr. Sub. Notes 8 3/4/2007 7,500M 7,631,250
Sinclair Broadcasting Group Inc. Sr. Sub. Notes 10/2005 46,500M 49,290,000
TV Azteca De CV S.A. Guaranteed Sr. Notes Series B 10 1/2/2007 (F) 17,000M 13,940,000
Total 219,257,031
- -----------------------------------------------------------------------------------------------------------------------============
Building Materials 1.22% American Builders & Contractors Supply Inc. Sr. Sub.
Notes Series B 10 5/8/2007 10,000M 9,350,000
Euramax International plc Sr. Sub. Notes 11 1/4/2006 (F) 8,250M 8,250,000
Falcon Building Products Inc. Zero Coupon Sr. Sub.
Discount Notes due 2007** 10,000M 5,950,000
Kevco Inc. Sr. Sub. Notes 10 3/8/2007 10,000M 9,350,000
Nortek Inc. Sr. Notes 8 7/8/2008+ 10,000M 10,325,000
Total 43,225,000
- -----------------------------------------------------------------------------------------------------------------------============
Cable 6.49% Century Communications Corp. Sr. Notes 9 1/2/2005 17,000M 19,040,000
Comcast Cellular Holdings Inc. Sr. Notes Series B 9 1/2/2007 30,000M 32,175,000
Comcast UK Cable Partners Ltd. Zero Coupon Sr. Discount Deb. due 2007** (F) 8,500M 7,140,000
CSC Holdings Inc. Sr. Notes 9 1/4/2005 15,000M 16,050,000
Fox/Liberty Networks Zero Coupon Sr. Discount Notes due 2007** 10,000M 6,950,000
Fox/Liberty Networks Sr. Notes 8 7/8/2007 20,000M 20,400,000
Frontiervision Operating Partners L.P. Sr. Sub. Notes 11/2006 3,000M 3,345,000
Frontiervision Zero Coupon due 2007+** 9,000M 7,582,500
Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11/2005 (F) 15,000M 15,825,000
Globo Comunicacoes e Participacoes Ltd. 10 5/8/2008+ (F) 15,000M 9,712,500
NTL Inc. Sr. Notes Series B 10/2007 (F) 15,000M 15,450,000
Lenfest Communications Inc. Sr. Sub. Notes 8 1/4/2008 5,000M 5,237,500
</TABLE>
6
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Marcus Cable Operating Co. Zero Coupon Guaranteed Sr. Sub.
Discount Notes due 2004** $20,000M $ 20,050,000
Mediacom LLC Sr. Notes Series B 8 1/2/2008+ 15,000M 15,412,500
Renaissance Media LLC Zero Coupon Sr. Discount Notes due 2008+** 15,000M 10,125,000
Supercanal Holdings S.A. Sr. Notes 11 1/2/2005+ (F) 5,000M 2,862,500
Telewest plc Zero Coupon Sr. Discount Deb. due 2007** (F) 27,000M 22,477,500
Total 229,835,000
- -----------------------------------------------------------------------------------------------------------------------============
Capital Goods 0.97% Alvey Systems Inc. Sr. Sub. Notes 11 3/8/2003 6,955M 6,989,775
Clark Materials Handling Co. Sr. Notes Series D 10 3/4/2006 6,850M 7,004,125
GSI Group Inc. Sr. Sub. Notes 10 1/4/2007 9,500M 6,982,500
Scotsman Group Inc. Guaranteed Sr. Sub. Notes 8 5/8/2007 10,000M 9,850,000
Steel Heddle Manufacturing Co. Sr. Sub. Notes 10 5/8/2008 4,850M 3,419,250
Total 34,245,650
- -----------------------------------------------------------------------------------------------------------------------============
Chemicals 1.68% Huntsman Corp. Sr. Sub. Notes 9 1/2/2007+ 10,000M 10,000,000
Huntsman Specialty Chemicals Corp. Term Note 9 1/4/2007 5,000M 4,975,000
NL Industries Inc. Sr. Secured Notes 11 3/4/2003 5,000M 5,300,000
Pioneer American Sr. Notes 8 5/8/2006 (F) 2,440M 2,000,602
Pioneer American Sr. Notes 7 7/8/2006 (F) 4,518M 3,704,819
Pioneer American Sr. Notes 7.945/2006 (F) 361M 296,386
Pioneer American Sr. Notes 9 3/8/2006 (F) 68M 55,572
Pioneer American Acquisition Corp. Sr. Secured Notes Series B 9 1/4/2007 10,000M 8,050,000
Sovereign Specialty Chemicals Inc. Sr. Sub. Notes Series B 9 1/2/2007 4,500M 4,590,000
Sterling Chemicals Inc. Sr. Sub. Notes 11 3/4/2006 15,000M 12,975,000
Texas Petrochemicals Corp. Sr. Sub. Notes 11 1/8/2006 7,500M 7,425,000
Total 59,372,379
- -----------------------------------------------------------------------------------------------------------------------============
Conglomerates 0.07% Cathay International Ltd. Sr. Notes 13/2008+ (F) 6,000M 2,340,000
- -----------------------------------------------------------------------------------------------------------------------============
Consumer Products 1.10% Chattem Inc. Sr. Sub. Notes 8 7/8/2008 12,000M 12,360,000
Diamond Brands Operating Corp. Sr. Sub. Notes 10 1/8/2008 7,500M 6,937,500
Rayovac Corp. Sr. Sub. Notes Series B 10 1/4/2006 8,236M 8,853,700
Riddell Sports Inc. Sr. Notes 10 1/2/2007 11,250M 10,687,500
Total 38,838,700
- -----------------------------------------------------------------------------------------------------------------------============
Container 0.50% Portola Packaging Inc. Sr. Notes 10 3/4/2005 7,000M 7,175,000
U.S. Can Corp. Sr. Sub. Notes Series B 10 1/8/2006 10,000M 10,575,000
Total 17,750,000
- -----------------------------------------------------------------------------------------------------------------------============
Department Stores 0.56% Saks Inc. Sr. Notes 8 1/4/2008 10,000M 10,637,500
Specialty Retailers Inc. Sr. Notes 8 1/2/2005 7,400M 6,401,000
Specialty Retailers Inc. Sr. Sub. Notes 9/2007 3,600M 2,934,000
Total 19,972,500
- -----------------------------------------------------------------------------------------------------------------------============
Emerging Markets 2.45% Mexican United States 9 7/8/2007 (F) 22,500M 22,303,125
Republic Of Panama 8 7/8/2027 (F) 28,000M 26,460,000
Republic Of Argentina 11 3/8/2017 (F) 10,000M 10,025,000
Republic Of Venezuela 9 1/4/2027 (F) 20,000M 12,250,000
United Mexican States Series WA 6 1/4/2019 (F) 5,000M 3,903,125
United Mexican States Series WB 6 1/4/2019 (F) 15,000M 11,709,375
Total 86,650,625
- -----------------------------------------------------------------------------------------------------------------------============
Energy 4.42% Chesapeake Energy Corp. Sr. Notes Series B 9 5/8/2005 7,500M 5,887,500
Coda Energy Inc. Sr. Sub. Notes Series B 10 1/2/2006 12,000M 11,880,000
Cross Timbers Oil Co. Sr. Sub. Notes Series B 9 1/4/2007 10,000M 9,350,000
Crown Central Petroleum Corp. Sr. Notes 10 7/8/2005 10,000M 9,700,000
</TABLE>
7
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Dailey International Inc. Sr. Notes Series B 9 1/2/2008 $ 6,000M $ 2,820,000
DI Industries Inc. Sr. Notes 8 7/8/2007 10,000M 7,550,000
Flores & Rucks Inc. Sr. Sub. Notes 9 3/4/2006 20,000M 20,600,000
Gulf Canada Resources Ltd. Sr. Sub. Deb. 9 1/4/2004 (F) 10,000M 10,050,000
HS Resources Inc. Sr. Sub. Notes 9 7/8/2003 10,000M 9,950,000
KCS Energy, Inc. Sr. Sub. Notes 8 7/8/2008 25,000M 14,375,000
KCS Energy, Inc. Sr. Notes 11/2003 9,300M 8,230,500
Lomak Petroleum Inc. Sr. Sub. Notes 8 3/4/2007 10,000M 9,250,000
Petroleos Mexicanos Guaranteed Notes 9/2007+ (F) 12,500M 11,875,000
Pogo Producing Co. Sr. Sub. Notes Series B 8 3/4/2017 10,000M 9,550,000
Pool Energy Services Co. Sr. Sub. Notes Series B 8 5/8/2008 8,500M 8,117,500
Vintage Petroleum Inc. Sr. Sub. Notes 8 5/8/2009 7,500M 7,200,000
Total 156,385,500
- -----------------------------------------------------------------------------------------------------------------------============
Entertainment 0.74% Loews Cineplex Entertainment Corp. Sr. Sub. Notes 8 7/8/2008 6,000M 6,225,000
Regal Cinemas Inc. Sr. Sub. Notes 9 1/2/2008 15,000M 15,525,000
Silver Cinemas International Inc. Sr. Sub. Notes 10 1/2/2005 6,200M 4,495,000
Total 26,245,000
- -----------------------------------------------------------------------------------------------------------------------============
Financial 0.14% Outsourcing Solutions Inc. Sr. Sub. Notes 11/2006 5,000M 4,850,000
- -----------------------------------------------------------------------------------------------------------------------============
Food/Beverage 2.11% Agrilink Foods 11 7/8/2008 2,225M 2,269,500
AmeriKing Inc. Sr. Notes 10 3/4/2006 7,300M 7,665,000
Aurora Foods Inc. Sr. Sub. Notes Series B 9 7/8/2007 5,000M 5,475,000
Coca-Cola Femsa S.A. 8.95/2006 (F) 15,000M 14,737,500
Delta Beverage Group Inc. Sr. Notes 9 3/4/2003 6,400M 6,688,000
Doane Products Co. Sr. Sub. Notes 9 3/4/2007+ 5,859M 6,064,065
Pepsi-Gemex S.A. Guaranteed Sr. Notes Series B 9 3/4/2004 (F) 15,000M 14,400,000
Purina Mills Inc. Sr. Sub. Notes 9/2010 7,750M 7,750,000
Stroh Brewery Co. Sr. Sub. Notes 11.10/2006 w/Wts. expiring 7/1/2001 3,374M 2,547,370
Twin Laboratories Inc. Sr. Sub. Notes 10 1/4/2006 6,519M 7,073,115
Total 74,669,550
- -----------------------------------------------------------------------------------------------------------------------============
Healthcare 2.54% Fresenius Med Cap Tr II Sr. Guaranteed Trust Pfd. Secs. 7 7/8/2008+ 12,000M 12,120,000
Integrated Health Services Inc. Sr. Sub. Notes Series A 10 1/4/2006 8,250M 8,208,750
Integrated Health Services Inc. Sr. Sub. Notes 9 1/2/2007 20,000M 18,900,000
Leiner Health Products Inc. Sr. Sub. Notes 9 5/8/2007+ 14,000M 14,630,000
Multicare Cos. Inc. Sr. Sub. Notes 9/2007 3,300M 3,135,000
Prime Medical Services Inc. Sr. Sub. Notes 8 3/4/2008 12,500M 12,093,750
Tenet Healthcare Corp. Sr. Sub. Notes 8 5/8/2007 20,000M 20,900,000
Total 89,987,500
- -----------------------------------------------------------------------------------------------------------------------============
Hotel/Gaming 2.34% Aztar Corp. Sr. Sub. Notes 13 3/4/2004 2,000M 2,220,000
Claridge Hotel & Casino Corp. 1st Mtge. Notes 11 3/4/2002 1,700M 1,198,500
Empress Entertainment Inc. Sr. Sub. Notes 8 1/8/2006 10,000M 10,050,000
Grand Casinos Inc. Sr. Notes Series B 9/2004 6,375M 7,171,875
Harrah's Operating Inc. 7 7/8/2005 16,000M 16,040,000
Host Marriott Travel Plazas Inc. Sr. Secured Notes Series B 9 1/2/2005 5,000M 5,237,500
Majestic Star Casino LLC Sr. Secured Notes 12 3/4/2003 10,000M 10,450,000
Park Place Entertainment 7 7/8/2005+ 6,000M 6,037,500
Showboat Marina Casino 1st Mtge. Notes Series B 13 1/2/2003 6,000M 6,810,000
Trump Atlantic City Assoc. Funding Inc. 1st Mtge. Notes 11 1/4/2006 20,000M 17,600,000
Total 82,815,375
- -----------------------------------------------------------------------------------------------------------------------============
</TABLE>
8
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Leisure 0.07% Six Flags Entertainment Corp. Sr. Notes 8 7/8/2006 $ 2,280M $2,351,250
- -----------------------------------------------------------------------------------------------------------------------============
Media/Diversified 1.75% Ackerley Group 9/2009+ 6,200M 6,324,000
CEI Citicorp Holdings S.A. Series B 9 3/4/2007 (F) 5,000M 4,412,500
Gray Communications Systems Inc. Sr. Sub. Notes 10 5/8/2006 4,000M 4,260,000
Heritage Media Corp. Sr. Sub. Notes 8 3/4/2006 10,000M 10,500,000
Lamar Advertising Co. Sr. Sub. Notes 9 5/8/2006 10,000M 10,875,000
Time Warner Telecom. Inc. Sr. Notes 9 3/4/2008 12,000M 12,660,000
Viacom Inc. Sub. Deb. 8/2006 (F) 12,500M 13,031,250
Total 62,062,750
- -----------------------------------------------------------------------------------------------------------------------============
Metals/Mining 0.44% International Wire Group Inc. Sr. Sub. Notes 11 3/4/2005 10,000M 10,525,000
Kaiser Aluminum & Chemical Corp. Sr. Notes Series B 10 7/8/2006 5,000M 5,150,000
Total 15,675,000
- -----------------------------------------------------------------------------------------------------------------------============
Miscellaneous 0.85% General Binding Corp. Sr. Sub. Notes 9 3/8/2008+ 5,000M 4,975,000
National Equipment Services Inc. Sr. Sub. Notes 10/2004+ 8,000M 7,960,000
P & L Coal Holdings Corp. Sr. Notes 8 7/8/2008 5,000M 5,112,500
Prime Succession Inc. Sr. Sub. Notes 10 3/4/2004 3,400M 3,349,000
United Stationers Supply Co. Sr. Sub. Notes 12 3/4/2005 7,653M 8,571,360
Total 29,967,860
- -----------------------------------------------------------------------------------------------------------------------============
Paper 1.59% Crown Paper Co. Sr. Sub. Notes 11/2005 11,000M 9,790,000
Fonda Group Inc. Sr. Sub. Notes Series B 9 1/2/2007 9,000M 7,515,000
Four M Corp. Sr. Secured Notes Series B 12/2006 10,000M 7,750,000
Indah Kiat International Finance Co. Guaranteed
Secured Notes 12 1/2/2006 (F) 5,000M 3,225,000
S.D. Warren Co. Sr. Sub. Notes Series B 12/2004 10,000M 10,850,000
Stone Container Corp. 1st Mtge. Notes 10 3/4/2002 10,000M 10,350,000
Vicap S.A. Guaranteed Sr. Notes 11 3/8/2007 (F) 7,500M 6,693,750
Total 56,173,750
- -----------------------------------------------------------------------------------------------------------------------============
Printing and Publishing 1.60% Big Flower Press Holdings Inc. 8 5/8/2008+ 11,000M 11,055,000
Big Flower Press Holdings Inc. Sr. Sub. Notes 8 7/8/2007 15,000M 15,375,000
IPC Magazines Group 9 5/8/2008 (F) 10,000M 14,359,000
Mail-Well Corp. 8 3/4/2008+ 8,000M 8,040,000
R.H. Donnelly Inc. Sr. Sub. Notes 9 1/8/2008 7,500M 7,931,250
Total 56,760,250
- -----------------------------------------------------------------------------------------------------------------------============
Real Estate/Homebuilders 1.29% D.R. Horton Inc. Sr. Notes 10/2006 14,000M 14,910,000
Engle Homes Inc. Sr. Notes Series C 9 1/4/2008 3,000M 3,015,000
MDC Holdings Inc. Sr. Notes 8 3/8/2008 12,000M 11,880,000
B.F. Saul REIT 9 3/4/2008 17,500M 16,012,500
Total 45,817,500
- -----------------------------------------------------------------------------------------------------------------------============
Services 2.15% Entex Information Services Inc. Sr. Sub. Notes 12 1/2/2006+ 10,000M 7,050,000
Iron Mountain Inc. Sr. Sub. Notes 10 1/8/2006 20,000M 21,700,000
Iron Mountain Inc. Sr. Sub. Notes 8 3/4/2009 20,000M 20,700,000
Kinder Care Learning Centers Inc. Sr. Sub. Notes Series B 9 1/2/2009 7,500M 7,500,000
Loewen Group International Inc. Sr. Guaranteed Notes Series 3 7 3/4/2001 5,500M 4,867,500
Pierce Leahy Corp. Sr. Sub. Notes 9 1/8/2007 9,000M 9,540,000
Unicco Service Co. Sr. Sub. Notes Series B 9 7/8/2007 5,000M 4,850,000
Total 76,207,500
- -----------------------------------------------------------------------------------------------------------------------============
Specialty Retailing 0.62% Advance Stores Inc. Sr. Sub. Notes 10 1/4/2008 5,000M 5,100,000
Amazon.com Inc. Zero Coupon Sr. Discount Notes due 2008** 10,000M 6,650,000
Norton McNaughton Inc. Sr. Notes 12 1/2/2005 5,000M 4,225,000
</TABLE>
9
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Pamida Inc. Sr. Sub. Notes 11 3/4/2003 $ 6,000M $ 5,760,000
Total 21,735,000
- -----------------------------------------------------------------------------------------------------------------------============
Steel 1.01% Armco Inc. Sr. Notes 9/2007 10,000M 10,250,000
AK Steel Corp. Sr. Notes 10 3/4/2004 6,000M 6,240,000
Hylsa De CV S.A. Notes 9 1/4/2007+ (F) 5,500M 4,290,000
WCI Steel Inc. Sr. Secured Notes Series B 10/2004 15,000M 15,075,000
Total 35,855,000
- -----------------------------------------------------------------------------------------------------------------------============
Supermarkets 0.71% Stater Brothers Holdings Inc. Sr. Notes 11/2001 10,000M 10,450,000
Stater Brothers Holdings Inc. Sr. Sub. Notes 9/2004 15,000M 14,700,000
Victory Markets Inc. Sub. Notes 12 1/2/2000* 5,000M 100,000
Total 25,250,000
- -----------------------------------------------------------------------------------------------------------------------============
Technology 3.28% BE Aerospace Inc. Sr. Sub. Notes 8/2008 5,000M 4,925,000
BE Aerospace Inc. Sr. Sub. Notes Series B 9 7/8/2006+ 15,000M 15,637,500
Decision One Corp. Sr. Sub Note 8.64/2005 5,276M 3,904,190
Decision One Corp. Sr. Sub. Note 8.69/2005 1,010M 747,286
Decision One Corp. Sr. Sub. Note 8.82/2005 3,664M 2,711,243
Dyncorp Inc. Sr. Sub. Notes 9 1/2/2007 12,965M 12,900,175
Fisher Scientific International Inc. 9/2008 15,000M 15,000,000
L-3 Communications Corp. Sr. Sub. Notes 10 3/8/2007 15,000M 16,575,000
Packard Bioscience Co. Sr. Sub. Notes Series B 9 3/8/2007 10,000M 9,500,000
United Defense Industries Inc. Sr. Sub. Notes 8 3/4/2007 15,000M 15,225,000
Verio Inc. 11 1/4/2008+ 5,000M 5,075,000
Viasystems Inc. Sr. Sub. Notes 9 3/4/2007 15,000M 14,025,000
Total 116,225,394
- -----------------------------------------------------------------------------------------------------------------------============
Telecommunications 10.96% AMSC Acquisition Inc. Sr. Notes 12 1/4/2008+ 12,000M 7,470,000
Call-Net Enterprises Inc. Sr. Discount Notes Zero Coupon due 2008 (F) 12,500M 7,406,250
Cencall Communications Corp. Zero Coupon Sr. Discount Notes due 2004** 15,000M 14,700,000
Dobson Communications Corp. Sr. Notes 11 3/4/2007 7,000M 7,122,500
Dobson Wireline Co. Sr. Notes 12 1/4/2008 7,100M 6,585,250
Esprit Telecom Group plc Sr. Notes 10 7/8/2008 (F) 10,000M 10,150,000
Global Crossing Holdings Ltd. Sr. Notes 9 5/8/2008 22,000M 23,265,000
GST USA Inc. Zero Coupon Sr. Discount Exchange Notes due 2005 30,000M 22,125,000
Hyperion Telecommunications Inc. Sr. Secured Notes Series B 12 1/4/2004 8,500M 8,670,000
Intermedia Communications Inc. Zero Coupon Sr. Disc.
Notes Series B due 2007** 50,000M 34,750,000
ICG Holdings Inc. Zero Coupon Sr. Discount Notes
due 2005 w/Warrants expiring 10/15/2005** 35,000M 29,050,000
IXC Communications Inc. Sr. Sub. Notes 9/2008 13,800M 13,886,250
Level 3 Communications Inc. Sr. Notes 9 1/8/2008+ 10,000M 9,975,000
Mastec Inc. Sr. Sub. Notes 7 3/4/2008 7,500M 7,275,000
McLeod USA Inc. Zero Coupon Sr. Discount Notes due 2007** 15,000M 11,400,000
Metronet Communications Corp. Zero Coupon Sr. Discount
Notes due 2008+ (F) 10,000M 6,175,000
Mobilemedia Corp. Sr. Sub. Notes 9 3/8/2007* 6,000M 600,000
Nextel Communications Inc. Zero Coupon Sr. Discount Notes due 2008+ 15,000M 9,075,000
Nextlink Communications Inc. Sr. Notes 9 5/8/2007 3,000M 2,932,500
Nextlink Communications Inc. Sr. Discount Notes 10 3/4/2008+ 16,000M 16,400,000
Orange plc 8/2008 (F) 7,000M 7,035,000
Orbital Imaging Corp. Sr. Notes Series B 11 5/8/2005 10,000M 9,950,000
Price Communications Wireless Inc. Sr. Secured Notes 9 1/8/2006+ 6,000M 6,090,000
Qwest Communications International Zero Coupon Sr.
Discount Notes due 2008** 13,000M 9,880,000
Qwest Communications International Sr. Notes 7 1/2/2008** 15,000M 15,750,000
</TABLE>
10
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Rogers Cantel Inc. Sr. Secured Notes 8.3/2007 (F) $30,000M $ 30,300,000
RCN Corp. Zero Coupon Sr. Discount Notes due 2007** 15,000M 8,700,000
RSL Communications plc Zero Coupon due 2008+** (F) 20,000M 6,529,300
RSL Communications plc Guaranteed Sr. Notes 10 1/2/2008+ (F) 2,500M 2,462,500
RSL Communications plc 12/2008+ (F) 8,000M 8,320,000
Splitrock Services Inc. 11 3/4/2008 1,500M 1,312,500
SBA Communications Corp. Zero Coupon Sr. Discount Notes due 2008** 16,700M 9,769,500
Viatel Inc. Sr. Notes 11.15/2008 14,800M 8,776,800
Western Wireless Corp. Sr. Sub. Notes 10 1/2/2007 13,000M 13,942,500
Total 387,830,850
- -----------------------------------------------------------------------------------------------------------------------============
Textile 1.62% Delta Mills Inc. Sr. Notes Series B 9 5/8/2007 10,000M 9,725,000
Guess Inc. Sr. Sub. Notes Series B 9 1/2/2003 13,500M 13,230,000
GFSI Inc. Sr. Sub. Notes Series B 9 5/8/2007 15,000M 14,325,000
Pillowtex Corp. Sr. Sub. Notes Series B 9/2007 15,000M 15,525,000
Worldtex Inc. Sr. Notes Series B 9 5/8/2007 5,000M 4,475,000
Total 57,280,000
- -----------------------------------------------------------------------------------------------------------------------============
Utility 0.28% Aei Holding Co. Sr. Notes 10 1/2/2005 10,000M 9,850,000
- -----------------------------------------------------------------------------------------------------------------------============
Waste Management 0.14% Allied Waste North America Inc. Sr. Notes 7 7/8/2009+ 5,000M 5,075,000
-------------------------------------------------------------------------------------============
Total Investments in High-Yield Corporate Debt (Cost $2,466,626,256) 2,374,562,717
===================================================================================================================================
Convertible Debt 10.73%
===================================================================================================================================
Advertising 0.27% Interpublic Group Of Companies Conv. Sub. Notes 1.80/2004+ 7,500M 8,462,109
Interpublic Group Of Companies Conv. Sub. Notes 1.80/2004 1,000M 1,128,281
Total 9,590,390
- -----------------------------------------------------------------------------------------------------------------------============
Aerospace/Defense 0.46% Orbital Sciences Corp. Conv. Sub. Notes 5/2002+ 10,000M 16,170,312
- -----------------------------------------------------------------------------------------------------------------------============
Broadcasting 0.41% Clear Channel Conv. Sr. Notes 2 5/8/2003 10,000M 10,900,000
Jacor Communications Inc. Zero Coupon due 2018 7,500M 3,648,046
Total 14,548,046
- -----------------------------------------------------------------------------------------------------------------------============
Business Services 0.65% Businessland Inc. Conv. Sub. Deb. 5 1/2/2007 5,255M 4,151,450
Interim Services Inc. Conv. 4 1/2/2005 3,000M 2,718,750
Metamor Worldwide Inc. Conv. Sub. Notes 2.94/2004 20,000M 16,250,000
Total 23,120,200
- -----------------------------------------------------------------------------------------------------------------------============
Computer Software 1.76% Affiliated Computer Services Inc. Conv. Notes 4/2005+ 10,000M 12,340,625
Arbor Software Corp. Conv. Sub. Notes 4 1/2/2005+ 8,500M 6,247,500
Arbor Software Corp. Conv. Sub. Notes 4 1/2/2005 3,500M 2,572,500
Comverse Tech Conv. Sub. Notes 4 1/2/2005 12,000M 15,135,000
HMT Technology Corp. Conv. Sub. Notes 5 3/4/2004+ 5,000M 3,950,000
National Data Corp. Conv. Sub. Notes 5/2003 20,000M 21,962,500
Total 62,208,125
- -----------------------------------------------------------------------------------------------------------------------============
Drugs/Pharmaceuticals/ Alza Corp. Conv. Sub. Deb. 5/2006 5,000M 7,230,468
Biotechnology 1.47% Roche Holdings Inc. Zero Coupon Conv. Notes due 2010+ (F) 50,000M 32,625,000
Swiss Bank Corp. (NOV) Conv. 2 1/2/2002+ (F) 6,000M 7,035,000
Swiss Life Financial (GLXO) Conv. 2/2003 (F) 4,425M 5,033,437
Total 51,923,905
- -----------------------------------------------------------------------------------------------------------------------============
Electronics 0.26% Analog Devices Inc. Conv. Sub. Notes 3 1/2/2000 6,000M 9,215,625
-------------------------------------------------------------------------------------============
</TABLE>
11
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Financial 0.74% Elan Finance Corp. Ltd. Zero Coupon due 2018 $30,000M $ 17,029,687
Fuji International Finance Trust Conv. Pfd. Unit 2/2002+*(F) 3,930M 3,592,880
GS Financial Products (Citicorp) Conv. Notes 3/2002 6,000M 5,726,250
Total 26,348,817
- -----------------------------------------------------------------------------------------------------------------------============
Healthcare 0.64% Healthsouth Corp. Conv. Sub. Deb. 3 1/4/2003+ 14,000M 11,970,000
Healthsouth Corp. Conv. Sub. Notes 3 1/4/2003 3,000M 2,565,000
Total Renal Care Holdings 7/2009 7,500M 8,046,094
Total 22,581,094
- -----------------------------------------------------------------------------------------------------------------------============
Instrumentation 0.13% Thermo Instrument System Inc. Conv. Sr. Deb. 4 1/2/2003+ 5,000M 4,484,375
- -----------------------------------------------------------------------------------------------------------------------============
Insurance 0.90% American International Group Inc. Conv. 2 1/4/2004 20,000M 26,125,000
CII Financial Inc. Conv. Sub. Deb. 7 1/2/2001 6,000M 5,760,000
Total 31,885,000
- -----------------------------------------------------------------------------------------------------------------------============
Leisure 0.09% AMF Bowling Inc. Zero Coupon Conv. Deb. due 2018+ 25,000M 3,148,438
- -----------------------------------------------------------------------------------------------------------------------============
Manufacturing 0.20% Credit Suisse First Boston (MMM) Conv. Sr. Notes 2 5/8/2003 7,500M 7,012,500
- -----------------------------------------------------------------------------------------------------------------------============
Miscellaneous 0.44% Merrill Lynch & Co., Inc. (STOXX) Conv. Sub. Deb. 1 1/2/2005 15,000M 15,600,000
- -----------------------------------------------------------------------------------------------------------------------============
Oil 0.82% Baker Hughes Inc. Zero Coupon Conv. Sr. Notes due 2008 5,000M 3,281,250
Loews Corp. Conv. Sub. Notes 3 1/8/2007 10,000M 8,129,688
Parker Drilling Co. Conv. Sub. Notes 5 1/2/2004 6,000M 3,840,000
Pogo Producing Co. Conv. Sub. Deb. 5 1/2/2006+ 1,000M 702,812
Swift Energy Co. Conv. Sub. Notes 6 1/4/2006 8,500M 6,056,250
Texaco Capital Inc. Conv. 3 1/2/2004 7,000M 7,035,000
Total 29,045,000
- -----------------------------------------------------------------------------------------------------------------------============
Printing and Publishing 0.66% Scholastic Corp. Conv. Sub. Deb. 5/2005+ 10,000M 9,690,625
Times Mirror Co. Zero Coupon Conv. Sub. Deb. due 2017+ 30,000M 13,696,875
Total 23,387,500
- -----------------------------------------------------------------------------------------------------------------------============
Retail 0.27% Rite Aid Corp. Conv. Sub. Notes 5 1/4/2002 6,500M 9,545,859
- -----------------------------------------------------------------------------------------------------------------------============
Telecommunications 0.56% Bell Atlantic Financial Service (Niztel) Conv. Sub. Deb. 5 3/4/2003+ 4,500M 4,668,750
Broadband Technologies Inc. Conv. Sub. Notes 5/2001 3,000M 1,068,750
CellStar Corp. Conv. Sub. Notes 5/2002 1,400M 903,219
Synoptics Communications Inc. Conv. Sub. Deb. 5 1/4/2003 12,500M 12,919,922
Viatel Inc. Conv. Sub. Deb. 14 1/4/2011+ 777M 470,062
Total 20,030,703
-------------------------------------------------------------------------------------============
Total Investments in Convertible Debt (Cost $358,496,226) 379,845,889
===================================================================================================================================
Preferred and Convertible-Preferred Stocks, Common Stocks and Warrants 5.55%
===================================================================================================================================
Aerospace/Defense 0.19% Coltec Capital Trust Inc. 5.25% Conv. Pfd. 150,000 6,677,344
- -----------------------------------------------------------------------------------------------------------------------============
Banking 0.36% California Federal Preferred Capital Corp. 9.125% Pfd. Series A 500,000 12,656,250
Crossland Savings FSB Brooklyn, NY $1.8125 Conv. Pfd. Series A* 375,000 5,859
Total 12,662,109
- -----------------------------------------------------------------------------------------------------------------------============
Broadcasting 0.18% Sinclair Broadcasting Group Inc. 6% Conv. Pfd. Series D 127,000 6,397,625
- -----------------------------------------------------------------------------------------------------------------------============
Building 0.13% Fleetwood Capital Trust 6% Conv. Pfd.+ 95,800 4,563,972
- -----------------------------------------------------------------------------------------------------------------------============
Capital Goods 0.01% Orbital Imaging Corp. Wts. expiring 3/1/2005+* 10,000 400,000
- -----------------------------------------------------------------------------------------------------------------------============
Chemicals 0.18% Monsanto Co. 6.50% Pfd. 128,000 6,272,000
- -----------------------------------------------------------------------------------------------------------------------============
Containers 0.20% Owens-Illinois Inc. 4.75% Conv. Pfd. 166,000 7,055,000
- -----------------------------------------------------------------------------------------------------------------------============
Energy 0.23% Texas Utilities Co. 9.25% Conv. Pfd. 147,000 8,287,125
-------------------------------------------------------------------------------------============
</TABLE>
12
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Financial 1.02% Jefferson-Pilot Corp. 7.25% Conv. Pfd. $ 200,000 $ 20,900,000
National Australia Bank Ltd. 7.875% Pfd. (F) 200,000 5,575,000
Westpac Banking 10% Conv. Pfd. (F) 307,500 9,782,344
Total 36,257,344
- -----------------------------------------------------------------------------------------------------------------------============
Insurance 1.17% Aetna Inc. 6.25% Conv. Pfd. Class C 50,000 3,803,125
American General Corporation 6% Conv. Pfd. Series A 150,000 13,068,750
Amerus Life Holdings Inc. 7% Conv. Pfd. 355,000 8,520,000
Frontier Financing Trust 6.25% Conv. Pfd.+ 125,000 5,171,875
Frontier Financing Trust 6.25% Conv. Pfd. 35,000 1,448,125
Lincoln National Corp. 7.75% Conv. Pfd 395,000 9,307,188
Total 41,319,063
- -----------------------------------------------------------------------------------------------------------------------============
Machinery 0.15% Ingersoll-Rand Co. 6.75% Conv. Pfd. 225,000 5,343,750
- -----------------------------------------------------------------------------------------------------------------------============
Natural Gas 0.17% KN Energy Inc. 8.25% Conv. Pfd. 157,000 5,897,313
- -----------------------------------------------------------------------------------------------------------------------============
Oil 0.06% Lomak Petroleum Inc. 5.75% Conv. Pfd.+ 54,300 923,100
Unocal Corp. 6.25% Conv. Pfd. 25,000 1,223,438
Total 2,146,538
- -----------------------------------------------------------------------------------------------------------------------============
Real Estate/Homebuilders 0.26% Walden Residential Properties Inc. Wts. expiring 12/31/2001* 400,000 400,000
Walden Residential Properties Inc. 9.20% Sr.
Pfd. w/Wts. expiring 12/31/2001 400,000 8,700,000
Total 9,100,000
- -----------------------------------------------------------------------------------------------------------------------============
Retail 0.40% CVS Corp. 6% Conv. Pfd. 142,000 14,226,625
- -----------------------------------------------------------------------------------------------------------------------============
Telecommunications 0.84% American Mobile Satellite Corp. Wts. expiring 4/1/2008+* 12,000 49,500
GST Telecommunications Inc.* 135,000 885,938
Intermedia Communications Inc. Wts. expiring 6/1/2000+* 5,000 253,359
IXC Communications Inc. 6.75% Conv. Pfd. 37,000 1,251,063
IXC Communications Inc. 6.75% Conv. Pfd.+ 213,000 7,202,063
Mediaone Group 6.25% Conv. Pfd. 235,000 15,627,500
Nextel Communications Inc. Class A 20,140 475,808
Nextlink Communications Inc. 6.50% Conv. Pfd.+ 100,000 4,112,500
Splitrock Services Inc. Wts. expiring 7/15/2008* 1,500 16,500
Total 29,874,231
-------------------------------------------------------------------------------------============
Total Investments in Preferred and Convertible-Preferred Stocks,
Common Stocks and Warrants (Cost $203,781,654) 196,480,039
===================================================================================================================================
Investment-Grade Corporate Bonds 5.09%
===================================================================================================================================
Computer Associates International Inc. 6 3/8/2005 25,000M 24,769,531
CSFB 1997-C2 Class A2 6.52/2007 23,120M 24,117,050
Dayton Hudson Corp. 6 3/4/2028 4,955M 5,154,748
Fleet Financial Group, Inc. Sub. Deb. 6.7/2028 4,000M 4,093,750
FULB 1997-C2 Pass-Through Certificates Class C 7.02/2012 10,260M 10,622,306
FULBA 1998-C2 Class C 6.73/2012 7,970M 8,022,303
GECMS 1995-10 REMIC Mortgage Pass-Through Certificates Class B1 7/2010 636M 640,506
GMAC 1998-C2 Class A2 Mortgage Pass-Through Certificates 6.42/2008 4,150M 4,299,141
GMAC 1997-C2 Class A3 Mortgage Pass-Through Certificates 6.566/2007 5,305M 5,550,356
IMCHE 1997-5 Class A4 6.53/2013 2,150M 2,152,687
Metrogas S.A. Sr. Notes Series A 12/2000 (F) 6,000M 6,150,000
MSC 1998-WF2 Class B 6.63/2008 4,950M 5,111,648
Nabisco Inc. Notes 6 3/8/2035 25,000M 24,542,968
Perez Companc S.A. 9/2004+ (F) 15,000M 14,289,843
SCAMT II 1996-1 Class A 6 1/5/2006 10,000M 10,153,125
Telefonica de Argentina S.A. 9 1/8/2008 (F) 27,500M 25,231,250
</TABLE>
13
<PAGE>
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Principal
Investments Amount Value
===================================================================================================================================
<S> <C> <C> <C>
Texas Utilities Electric Co. 7.17/2007 $ 4,960M $ 5,438,950
Total Investments in Investment-Grade Corporate
Bonds (Cost $182,064,391) 180,340,162
===================================================================================================================================
Government Agency Issues 6.20%
===================================================================================================================================
Federal National Mortgage Association 6 1/2 due on an announced basis 100,000M 100,609,375
Federal National Mortgage Association Pass-Through
Certificates 6 1/2/2028 24,282M 24,448,940
Federal National Mortgage Association Pass-Through
Certificates 6.812/2007 2,393M 2,538,426
U.S. Treasury Notes 7 1/2% due 2001 35,000M 37,635,938
U.S. Treasury Notes 7 1/2% due 2002 50,000M 54,289,063
Total Investments in Government Agency Issues (Cost $217,600,932) 219,521,742
-----------------------------------------------------------------------------------==============
Total Investments in Securities (Cost $3,428,569,459) 3,350,750,549
===================================================================================================================================
Other Assets, Less Liabilities 5.35%
===================================================================================================================================
Short-term Investments Federal Home Loan Bank Discount Notes 4.36% due 1/4/1999 30,000M 29,985,667
U.S. Government Federal Home Loan Bank Deb. 10% due 4/15/1999 50,000M 50,664,063
Obligations Federal Home Loan Mortgage Corporation Deb. 10 1/2% due 5/5/1999 50,000M 50,882,813
Federal National Mortgage Association Medium-Term Notes 11% due 2/18/1999 83,000M 83,583,594
Total (Cost $217,842,624) 215,116,137
-----------------------------------------------------------------------------------==============
Cash and Receivables, Net of Liabilities (25,742,930)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 189,373,207
===================================================================================================================================
Net Assets 100.00% $3,540,123,756
===================================================================================================================================
Class A Shares-Net asset value ($2,320,162,589 / 245,646,010 shares outstanding) $9.45
Maximum offering price (Class A shares) $9.92
Class B Shares-Net asset value ($671,046,879 / 71,056,722 shares outstanding) $9.44
Class C Shares-Net asset value ($521,103,489 / 55,110,236 shares outstanding) $9.46
Class P Shares-Net asset value ($128.07 / 13.559 shares outstanding) $9.45
Class Y Shares-Net asset value ($27,810,671 / 2,946,199 shares outstanding) $9.44
</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.
14
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended December 31, 1998
===================================================================================================================================
<S> <C> <C> <C>
Income Interest $ 272,130,958
Dividends 10,703,212
Total income $ 282,834,170
-----------------------------------------------------------------------------------------------------------------
Expenses Management fee 14,835,355
12b-1 distribution plan--Class A 6,222,572
12b-1 distribution plan--Class B 5,245,746
12b-1 distribution plan--Class C 4,810,757
Shareholder servicing 3,487,739
Reports to shareholders 405,176
Registration 289,000
Directors 83,431
Professional 157,500
Other 168,701
Total expenses before reductions 35,705,977
-------------------------------
Expense reductions (230,588)
Total expenses 35,475,389
-----------------------------------------------------------------------------------------------------------------
Net investment income 247,358,781
-----------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions
===================================================================================================================================
Realized gain from investment and foreign currency transactions
Proceeds from sales 3,177,534,289
Cost of investments sold 3,125,374,416
-----------------------------------------------------------------------------------------------------------------
Net realized gain 52,159,873
-----------------------------------------------------------------------------------------------------------------
Unrealized depreciation of investments and foreign currency holdings (161,964,155)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency transactions (109,804,282)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 137,554,499
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase in Net Assets 1998 1997
===================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $247,358,781 $ 193,754,285
Net realized gain from investment and foreign currency transactions 52,159,873 38,805,326
Net unrealized appreciation (depreciation) of investments and
foreign currency holdings (161,964,155) 60,937,427
Net increase in net assets resulting from operations 137,554,499 293,497,038
--------------------------------------------------------------------------------------------------- --------------
Undistributed net investment income included in price of share transactions 2,086,963 1,349,118
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income
Class A (174,256,684) (157,993,072)
Class B (36,713,105) (17,790,074)
Class C (33,996,539) (26,182,650)
Class P (3) --
Class Y (1,070,186) --
Total distributions (246,036,517) (201,965,796)
-----------------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sale of shares 1,130,478,848 870,972,951
Net asset value of shares issued to shareholders in reinvestment
of net investment income 144,066,481 102,641,162
Total 1,274,545,329 973,614,113
-----------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (494,210,448) (329,731,940)
-----------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 780,334,881 643,882,173
-----------------------------------------------------------------------------------------------------------------
Total increase in net assets 673,939,826 736,762,533
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets Beginning of year 2,866,183,930 2,129,421,397
End of year (including undistributed net investment income of
$5,601,096 and $5,940,360, respectively) $3,540,123,756 $2,866,183,930
=================================================================================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Financial Highlights
<TABLE>
<C>
<CAPTION>
Class A Shares
---------------------------------------------------------------------------
Year Ended December 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.76 $9.41 $9.29 $8.71 $9.95
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .76(b) .75(b) .81 .85 .84
Net realized and unrealized gain (loss) on investments (.31) .40 .17 .606 (1.203)
Total from investment operations .45 1.15 .98 1.456 (.363)
----------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.76) (.80) (.86) (.876) (.877)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.45 $9.76 $9.41 $9.29 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.76% 12.70% 11.16% 17.50% (3.87)%
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) .88% .89% .89% .82% .88%
Net investment income 7.85% 7.89% 8.77% 9.41% 8.97%
============================================================================================================================
<S>
<CAPTION>
Class P Class Y
Class B Shares Class C Shares Shares Shares
------------------------------ -------------------------------- ----------- -----------
8/1/96(d) 7/15/96(d) 8/21/98(d) 3/27/98(d)
Year Ended 12/31, to Year Ended 12/31, to to to
Per Share Operating Performance: 1998 1997 12/31/96 1998 1997 12/31/96 12/31/98 12/31/98
====================================================================================================================================
Net asset value, beginning of period $9.75 $ 9.41 $9.13 $9.77 $ 9.41 $9.05 $9.54 $9.98
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
Net investment income .69(b) .68(b) .34 .69(b) .69(b) .35 .25(b) .59(b)
Net realized and unrealized
gain (loss) on investments (.31) .38 .26 (.31) .39 .33 (.09) (.54)
Total from investment operations .38 1.06 .60 .38 1.08 .68 .16 .05
----------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment
income (.69) (.72) (.32) (.69) (.72) (.32) (.25) (.59)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.44 $ 9.75 $9.41 $9.46 $ 9.77 $9.41 $9.45 $9.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 3.98% 11.85% 6.57%(c) 3.98% 11.97% 7.86%(c) 1.73%(c) .55%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) 1.60% 1.63% .70%(c) 1.60% 1.58% .75%(c) .38%(c) .46%(c)
Net investment income 7.13% 7.06% 3.37%(c) 7.13% 7.16% 3.72%(c) 2.90%(c) 6.24%(c)
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Supplemental Data for All Classes: 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $3,540,124 $2,866,184 $2,129,421 $1,339,508 $987,613
Portfolio turnover rate 86.48% 89.14% 106.79% 134.90% 147.98%
====================================================================================================================================
</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.
(e) The ratios for 1998 include expenses paid through an expense offset
arrangement.
See Notes to Financial Statements.
17
<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) Securities are valued as follows: Portfolio 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 ask 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 last bid and
ask 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 investment 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, Class C
and Class P 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. Pursuant to the Class P Plan, the Company pays Distributor
an annual service and distribution fee of 0.20% and 0.25%, respectively, of the
average daily net asset value of the Class P shares. Class Y does not have a
plan.
Distributor received $2,452,125 representing payment of commissions on sales of
Class A shares after deducting $14,988,816 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 ecember 31, 1998, accumulated
net realized loss for financial reporting purposes aggregated $9,187,309.
The Company had a capital loss carryforward as of December 31, 1998 of
approximately $11,190,000 expiring 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 gain 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. Paid in capital amounted to $3,623,974,594 at December 31, 1998.
Transactions in shares of capital stock were as follows:
18
<PAGE>
Notes of Financial Statements
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 57,590,947 $ 552,957,628 46,518,192 $ 442,496,854
Shares issued to
shareholders in
reinvestment of net
investment income 10,683,812 101,432,633 8,213,131 78,274,234
Total 68,274,759 654,390,261 54,731,323 520,771,088
- ------------------------------------------------- --------------------------
Shares reacquired (34,857,399) (333,882,819) (27,836,818) (264,621,803)
Increase 33,417,360 $ 320,507,442) 26,894,505 $ 256,149,285
- -------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Class B Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 36,377,830 $ 349,838,761 27,683,539 $ 264,657,297
Shares issued to
shareholders in
reinvestment of net
investment income 2,140,183 20,422,737 970,289 9,292,808
Total 38,518,013 370,261,498 28,653,828 273,950,105
- ------------------------------------------------- --------------------------
Shares reacquired (5,892,847) (56,423,776) (1,792,655) (17,211,993)
Increase 32,625,166 $ 313,837,722) 26,861,173 $ 256,738,112
- -------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Class C Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 20,409,568 $ 197,171,682 17,113,612 $ 163,818,800
Shares issued to
shareholders in
reinvestment of net
investment income 2,202,269 21,140,927 1,573,966 15,074,120
Total 22,611,837 218,312,609 18,687,578 178,892,920
- ------------------------------------------------- --------------------------
Shares reacquired (10,531,098) (101,040,511) (5,004,533) (47,898,144)
Increase 12,080,739 $ 117,272,098) 13,683,045 $ 130,994,776
- -------------------------------------------------------------------------------
August 21, 1998
(Commencement of
offering Class P shares) to
December 31, 1998
-------------------------------
Class P Shares Amount
- -------------------------------------------------------------------------------
Sales of shares 13 $125
Shares issued to
shareholders in
reinvestment of net
investment income -- --
Total 13 125
- -------------------------------------------------------------------------------
Shares reacquired -- --
Increase 13 $125
- -------------------------------------------------------------------------------
March 27, 1998
(Commencement of
offering Class Y shares) to
December 31, 1998
-------------------------------
Class Y Shares Amount
- -------------------------------------------------------------------------------
Sales of shares 3,146,376 $ 30,510,652
Shares issued to
shareholders in
reinvestment of net
investment income 112,756 1,070,184
Total 3,259,132 31,580,836
- -------------------------------------------------------------------------------
Shares reacquired (312,933) (2,863,342)
Increase 2,946,199 $ 28,717,494
- -------------------------------------------------------------------------------
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 $2,028,972,464 and $1,272,663,029, respectively. Purchases and sales
of U.S. Government obligations aggregated $1,700,589,172 and $1,824,833,207,
respectively. As of December 31, 1998, unrealized appreciation (depreciation)
for federal income tax purposes aggregated $(80,545,397), of which $111,751,915
related to appreciated securities and $192,297,312 related to depreciated
securities. For federal income tax purposes, the identified cost of investments
owned at December 31, 1998 was substantially the same as the cost for financial
reporting purposes.
At December 31, 1998 the Company had outstanding forward currency contracts to
sell foreign currency as follows:
Value at Unrealized
Foreign Currency Settlement Date Current Appreciation
Sell Contracts Receivable Value (Depreciation)
- --------------------------------------------------------------------------------
Deutsche Marks,
expiring 4/7/99 $17,059,617 $16,757,900 $ 301,717
- --------------------------------------------------------------------------------
British Pounds,
expiring 3/11/99 to 3/15/99 $15,861,263 $15,882,208 $ (20,945)
- --------------------------------------------------------------------------------
Total $32,920,880 $32,640,108 $ 280,772
- --------------------------------------------------------------------------------
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, 1998, under a deferred compensation plan, were $445,560.
7. Line of Credit
The Company, along with certain other funds managed by Lord Abbett, has
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 .06% per annum. There
were no loans outstanding pursuant to this Facility at December 31, 1998, nor
was the Facility utilized at any time during the year.
8. Expense Reduction
The Company has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Fund's expenses.
19
<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, 1998, the related statements of
operations for the year then ended and of changes in net assets for each of the
years in the two-year period then ended 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, 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 December 31, 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
February 12, 1999
1998 Tax Information
In January 1999, 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.
4.33% of the Fund's dividends for the fiscal year ended December 31, 1998
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) 1999 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. Thayer Bigelow*
William H.T. Bush*+
Robert B. Calhoun*
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
Zane E. Brown, Vice President
Daniel E. Carper, Vice President
Robert G. Morris, 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
Richard S. Szaro, Vice President
Michael S. Goldstein, Vice President
Thomas J. Baade, Vice President
Donna M. 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
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche llp
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
20
<PAGE>
Lord, Abbett & Co.
Portfolio
Manager
Profile
[PHOTO OMITTED]
Christopher J. Towle
Partner and Portfolio Manager
Lord Abbett Bond-Debenture Fund
Christopher Towle has been a Portfolio Manager of the Lord Abbett Bond-Debenture
Fund since 1993. Chris joined Lord, Abbett & Co. in 1987 as an Assistant Fixed
Income Portfolio Manager and Trader. Prior to that, he was associated with
American International Group as a Portfolio Manager and with Savings Bank Trust
Company as an Analyst.
Chris holds a BA in economics from Rutgers University. He has 18 years of
experience in the financial services industry and is a Chartered Financial
Analyst.
About Your
Fund's
Board of
Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor llc (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience. Lord Abbett
Bond-Debenture Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, Robert B. Calhoun, Jr.
Robert B. Calhoun, Jr.
Director--Lord Abbett
Bond-Debenture Fund
[PHOTO OMITTED]
Mr. Calhoun is a graduate of Princeton University with over 35 years of Wall
Street experience. He is a Managing Partner and co-founder of Monitor Clipper
Partners and The Clipper Group, both private equity investment firms.
Previously, Mr. Calhoun spent over 25 years in Credit Suisse First Boston's
Investment Banking Department.
Mr. Calhoun became a director of Lord Abbett's funds in 1998. He also currently
serves on the boards of David's Bridal, Interstate Bakeries, Hvide Marine,
TravelCenters of America and Long John Silver's Inc.
<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
Developing Alpha Fund Affiliated Fund Balanced Fund High Yield Fund o National U.S. Government
Growth Fund o California Securities
Global Equity Growth & Bond-Debenture o Connecticut Money Market
Fund Income Fund Fund o Florida Fund**+
o Georgia
Growth Large-Cap Global Income o Hawaii
Opportunities Research Fund Fund o Michigan
Fund o Minnesota
Limited Duration o Missouri
International U.S. Government o New Jersey
Fund Securities Fund** o New York
o Pennsylvania
Mid-Cap U.S. Government o Texas
Value Fund Securities Fund** o Washington
Small-Cap World Bond-
Value Fund* Debenture Fund
</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
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for the Funds covered by this
report.
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 more than
30 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 Only: 800-874-3733
24-Hour Automated Shareholder
Service Line: 800-865-7582
Visit Our Web Site:
http://www.lordabbett.com
*The Lord Abbett Small-Cap Value Fund Classes A, B and C are closed to new
investors.
**An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund. This Fund is managed to maintain, and has
maintained its stable $1.00 price per share.
[LOGO] LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual funds are distributed by:
LORD ABBETT DISTRIBUTOR LLC
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The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (2/99)
