Lord Abbett Bond-Debenture Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2000
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A mutual fund with a multi-faceted
approach to seeking high income
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Visit our
Web Site and get
up-to-date statistics and
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<PAGE>
Lord Abbett Bond-Debenture Fund
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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.
"Over the long haul, this Fund's returns have been competitive, and it has been
less volatile than the typical high-yield fund. The Fund has delivered fine
long-term returns."
Morningstar Mutual Funds
June 2000
--------------------------------------------------------------------------------
Historically Consistent Average Annual Rates of Total Return
Total Returns as of 6/30/00(1)
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For the past 20 years +10.4% per year
For the past 15 years + 9.4% per year
For the past 10 years +10.1% per year
For the past 5 years + 7.9% per year
For the past year + 3.0% for the year
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Flexibility The Fund's flexible investment
policy enables it to adapt to
changing economic conditions. (See
page 5 for the Fund's portfolio
composition.)
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High Current Income Dividend Distribution Rates on 6/30/00(2)
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At Net Asset Value +8.6%
At Maximum Offering Price +8.2%
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Average Annual Average annual total returns for
Total Returns periods ended 6/30/00 at the Class
A share maximum sales charge of
4.75%, with all distributions
reinvested:
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10 years +9.55%
5 years +6.84%
1 year -1.90%
The Fund's SEC yield for the 30
days ended 6/30/00 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 and assumes the
reinvestment of all
distributions. The Series issues
additional classes of shares
with distinct pricing options.
See Important Information on
page 6.
(2) Based on the Class A share
monthly dividend of $.0625,
annualized.
<PAGE>
Report to Shareholders
For the Six Months Ended June 30, 2000
[PHOTO]
Robert S. Dow
Chairman
July 10, 2000
"We are pleased to report that despite challenging market conditions for
high-yield bonds, your Fund outperformed its peer group of high-yield bond
funds."
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| DALBAR Lord, Abbett & Co. is proud to |
| HONORS COMMITMENT TO announce we have received a DALBAR |
| INVESTORS award for providing consistently |
| 1999 good service to shareholders, the |
| 1999 Key Honors Award for Mutual |
| Fund Service. DALBAR, Inc., an |
| independent research firm and |
| evaluator of mutual fund service, |
| presents the award to financial |
| services firms that provide |
| consistently solid service to |
| clients. |
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Lord Abbett Bond-Debenture Fund completed the first six months of its fiscal
year on June 30, 2000, with net assets of approximately $3.6 billion. Below is
an overview of Class share performance for the period.
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
Class A Class B Class C Class P Class Y
--------------------------------------------------------------------------------
Net asset value $8.74 $8.74 $8.75 $8.84 $8.73
Dividends $0.38 $0.35 $0.35 $0.37 $0.39
Total return* 0.64% 0.42% 0.43% 1.62% 0.83%
The first half of this year was highlighted by several key events in the fixed
income markets. The Federal Reserve Board (the Fed) raised short-term interest
rates three times from January to June, making the rate hike in May 2000 the
sixth in 12 months. Another significant event was the Treasury Department's
independent decision to buy back some of its long-term debt (30-year
Treasuries). At the same time, the Treasury also announced its decision to cut
the number of auctions during the year of these long Treasuries from four to
two. These decisions by the Treasury, coupled with the actions of the Fed,
helped invert the Treasury yield curve. This created an unusual situation in
which longer-term Treasuries yielded less than short- and intermediate-term
Treasuries.(1)
As the year progressed into the second quarter, hints of a slightly cooling
economy began to emerge. Unemployment rose a bit in May, and consumer spending
lost some steam and fell off from its record highs of 1999 and early 2000. At
the Fed's meeting in June 2000, it did not raise rates again -- a sign that it
was possibly becoming more satisfied that economic growth in the U.S. was, in
fact, slowing. Throughout most of the second quarter, the Treasury yield curve
changed little. Although intermediate-term Treasuries fell slightly in yield in
June, they continued to yield more than long-term maturities. Also significant
to fixed income investors was the fact that throughout the six-month period
under review, yields on most non-Treasury debt securities remained significantly
higher than yields of Treasury securities.
Overall, this was a difficult period for high-yield credit, marked by rising
borrowing costs and reduced access to capital for many companies, which resulted
in continued low issuance of new high-yield debt securities. Fragile market
conditions and heavy outflows of funds from high-yield bond mutual funds
resulted in a somewhat lackluster performance in the high-yield bond market. The
yield spread, or difference in yields, between lower-rated, high-yield bonds and
10-year Treasury notes has remained at historically wide levels since January of
this year; whereas high-yield bonds (represented by the Merrill Lynch High Yield
Master Index(2)) have yielded roughly 629 basis points (6.29%) more than
Treasuries.
Favorable Performance in Challenging Conditions
We are pleased to report that despite challenging market conditions for
high-yield bonds, your Fund outperformed its peer group of high-yield bond funds
during this period.(3) We raised the overall quality of the portfolio during the
period by increasing our allocation to investment-grade corporate bonds. In
addition, we identified what we believe are compelling opportunities to capture
attractive yield in the mortgage-backed securities market.
1
<PAGE>
Report to Shareholders
For the Six Months Ended June 30, 2000
We also increased the portfolio's percentage of equity-related securities,
primarily convertible bonds issued by select technology and
wireless-telecommunications companies. Finally, we reduced the number of
companies represented in the portfolio by culling the portfolio of
underperforming securities and increasing our exposure to the holdings that we
favor, including certain oil and gas companies.
Preparing for the Months Ahead
We believe that high-yield securities are apt to provide good returns in the
months ahead, particularly if the Fed is successful in slowing consumer demand
and in engineering a "soft landing" for the economy. Provided this "soft
landing" plays out, we would consider increasing our exposure to high-yield
bonds. We will continue to focus on the securities issued by select
wireless-telecommunications companies, as we anticipate strong growth and
further consolidation in this industry sector. Likewise, we are keeping a close
watch on securities associated with companies in oil and natural gas, since we
believe oil and gas prices are likely to remain above historical averages
throughout the remainder of the year. In general, we expect that the Fed's
attempts to slow U.S. economic growth will continue to have an effect. As
sufficient evidence of an economic slowdown becomes more apparent in the second
half of this year, we believe the Fed will no longer need to pursue its
tightening posture.
Past performance is no indication of future results.
* Total return, which is not annualized, is the percent change in net asset
value, assuming the reinvestment of all distributions.
(1) Unlike U.S. Treasuries, the high-yield/lower-rated bonds in which the Fund
invests are neither insured nor guaranteed by the U.S. Government and are
regarded as involving a greater degree of risk.
(2) The Merrill Lynch High Yield Master Index is unmanaged and is unavailable
for direct investment.
(3) Comparison based on 6-month total returns for the period 12/31/99 to
6/30/00 for Lipper's High Yield Bond Average (-1.67%) vs. Lord Abbett
Bond-Debenture Fund (0.64%), Class A shares at net asset value. Source:
Lipper Analytical Services, Inc. and Lord, Abbett & Co. Lipper Analytical
Services, Inc. is an independent, third party research firm that provides
data and research information to the investment industry.
2
<PAGE>
Aiming for High Total Returns
Seeking High Returns
Dividend distribution rates were 8.59% and 8.18% (based on the Class A share net
asset value and maximum offering price, respectively, on 6/30/00, and the
monthly dividend of $.0625, annualized). See Important Information on page 6.
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.
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Growth of $10,000 Investments: 4/1/71-6/30/00(1)
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1973 - 1974: The last major bear market; the unmanaged S&P 500 declined 37.3%.
The Fund mitigated the cedline, 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.
1997 - 1998: Global economic fears hurt high-yield bonds. The Fund posted a
positive total return.
The Fund High Yield Funds Inflation
4/1/71 10,000 10,000 10,000
197 10,765 10,675 10,275
1972 11,438 11,596 10,625
1973 10,313 10,387 11,550
1974 9,789 9,209 12,975
1975 12,689 11,299 13,875
1976 16,613 14,590 14,550
1977 17,777 15,607 15,525
1978 18,269 15,900 16,925
1979 19,547 16,614 19,175
1980 21,283 17,250 21,575
1981 22,412 18,361 23,500
1982 28,585 23,996 24,400
1983 33,416 27,838 25,325
1984 35,073 30,185 26,325
1985 42,442 36,771 27,325
1986 46,946 41,897 27,625
1987 47,828 42,777 28,850
1988 54,427 48,398 30,125
1989 57,181 48,039 31,525
1990 52,852 43,303 33,450
1991 73,116 59,333 34,475
1992 84,810 69,764 35,475
1993 98,356 83,005 36,450
1994 94,553 79,992 37,425
1995 111,099 93,327 38,375
1996 123,498 106,253 39,650
1997 139,175 120,087 40,325
1998 145,805 119,583 40,975
1999 151,495 125,024 42,075
6/30/00 152,478 122,948 43,075
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 6. Past performance is no
indication of future results.
(1) The Fund commenced operations on 4/1/71.
(2) Source: Lipper, Inc.
(3) Calculated from 3/31/71.
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3
<PAGE>
Performance Update
The Fund has an impressive history of protecting long-term income investors from
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: 4/1/71-6/30/00(2)
$100,000 invested at the Fund's inception grew to over $1 million
<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>
1971(3) $ 3,444 $103,408 $102,750---
1972 7,447 109,881 106,250 | From the early 1970s
1973 8,190 99,066 115,500 | through the early
1974 9,147 94,039 129,750 | 1980s, the U.S.
1975 9,702 121,891 138,750 | economy experienced
1976 10,951 159,588 145,500 | rapidly rising
1977 11,863 170,766 155,250 | <- inflation and
1978 14,075 175,496 169,250 | interest rates. The
1979 16,381 187,776 191,750 | Fund kept pace with
1980 18,581 204,460 215,750 | inflation over this
1981 22,804 215,294 235,000 | turbulent period.
1982 27,231 274,591 244,000---
1983 31,037 320,998 253,250---
1984 37,455 336,919 263,250 | As the rate of inflation and interest
1985 43,075 407,712 273,250 | rates declined in the 1980s, the Fund
1986 48,446 450,971 276,250 | <- outperformed the CPI by an average of
1987 51,124 459,445 288,500 | 6.7% per year.
1988 53,027 522,839 301,250 |
1989 59,075 549,292 315,250---
1990 66,196 507,711 334,500---
1991 70,960 702,365 344,750 |
1992 77,774 814,719 354,750 | During the economic
1993 82,411 944,831 364,500 | expansion of the
1994 86,706 908,297 374,250 | <- 1990s, the Fund
1995 95,586 1,067,248 383,750 | outperformed the CPI
1996 103,258 1,186,350 396,500 | by an average of
1997 104,184 1,336,953 403,250 | 8.0% per year.
1998 107,900 1,400,639 409,750 |
1999 115,369 1,455,307 420,750---
2000 (as of 6/30/00) 61,374 1,464,746 430,750
</TABLE>
Total Dividends
Reinvested: $1,454,773
-----------------===========----------------------------------------------------
Average Annual Rate of Return: 9.61% 4.95%
---------------------------------------======-----------=======-----------------
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The dollar amounts of capital gains distributions reinvested in Fund shares
were: 1973-$1,556; 1977-$969; 1978-$7,490; 1979-$5,612; 1980-$768; 1981-$2,760;
1984-$4,508; 1986-$5,405; total: $29,068.
Source: Lord, Abbett & Co.
(1) See Important Information on page 6.
(2) Fund investment reflects the deduction of the reduced 3.95% 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.
4
<PAGE>
Management in Action
Current Dividend Distribution Rates: 8.59% and 8.18% (based on the Class A share
net asset value and maximum offering price, respectively, on 6/30/00, and the
monthly dividend of $.0625, annualized). See Important Information on page 6.
The Fund's 3-Way Focus
1. High-yield Corporate Debt and Straight-preferred Stocks: 58.5%(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: 19.1%(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: 22.4%(1)
High-quality issues, corporate issues and U.S. Government-backed securities
provide a dependable stream of high current income.
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A History of the Fund's Portfolio Blend
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High Yield/ Equity Related High-grade
lower-rated Securities Debt
Corporate Debt and
Straight-preferred
Stocks
As of December 31,
1974 15.7% 49.6% 34.7%
1979 34.8% 36.1% 29.1%
1982 18.3% 54.6% 27.1%
1988 52.9% 33.4% 13.7%
1995 62.9% 16.5% 20.6%
1998 68.0% 15.3% 16.7%
1999 64.3% 19.2% 16.5%
2000 58.5% 19.1% 22.4%
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Consistency of Performance...Over the Long Term
The Fund produced positive total returns 18 out of the last
20 calendar years(2)
Over the Short Term Over the last 20 calendar years between 1980 and 2000, Lord
Abbett Bond-Debenture Fund shareholders holding the Fund for any 3-year period
earned a positive total return.(3)
Over the Long Term Over the last 20 calendar years between 1980 and 2000, Lord
Abbett Bond-Debenture Fund shareholders holding the Fund for any 10-year period
earned average annual total returns of at least 9% per year.(3)
Average Annual Total Returns for 10-Year Periods Ending December 31(2):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 as of 6/30/00
10.8% 69.0% 12.0% 11.0% 10.9% 9.9% 9.6% 9.6% 10.7% 9.8% 10.2% 10.1%
</TABLE>
(1) Percent of net assets on 6/30/00. The Fund's portfolio is actively managed
and subject to change.
(2) At net asset value. All periods end December 31, except where noted.
(3) All periods end December 31. Assumes investment in Class A shares at
maximum offering price. Total return is the percent change in value,
assuming the reinvestment of all distributions. Past performance is no
indication of future results.
5
<PAGE>
Important Information
SEC yield is calculated on the Class A share maximum offering price of $9.18 on
6/30/2000, using a standard method which does not take into account certain
portfolio strategies. The Fund's distribution rate may differ from its SEC yield
if the Fund purchases securities at a premium and distributes to shareholders
interest income that has not been reduced for amortization of premiums on those
securities. This practice is consistent with applicable tax elections made by
the Fund, but may result in a decrease in the Net Asset Value (NAV) of shares of
the Fund if the market values of the premium securities decrease over time.
Common stocks are subject to market fluctuations providing potential for gain
and risk of loss. Bonds purchased are subject to market fluctuations upward and
downward inversely to the rise and fall of interest rates. Lower rated bonds
generally provide a higher yield than higher rated bonds of similar average
maturity, but they have greater credit risk. Non-investment-grade, fixed-income
securities generally involve greater volatility of price to principal and income
than securities in higher rating categories. Performance results quoted herein
reflect past performance, current sales charges (where applicable) and
appropriate Rule 12b-1 Plan expenses from commencement of the Plan. Tax
consequences are not reflected. The Fund's sales charge structure has changed in
the past. The Fund issues additional classes of shares, with distinct pricing
options. For a full discussion of the differences in pricing alternatives,
please call 800-874-3733 and ask for the Fund's current prospectus. If used as
sales material after 9/30/2000, this report must be accom panied by Lord
Abbett's Performance Quarterly for the most recently completed calendar quarter.
<TABLE>
<CAPTION>
Statement of Net Assets
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-Term Investments 99.12%
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Investment-Grade Corporate Bonds 8.93%
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Banking .14% Dev Bank of Singapore 7 7/8% due 04/15/2010+ (F) $ 5,000 $ 4,920,755
-----------------------------------------------------------------------------------------------------------------------=============
Broadcasters 1.38% American Radio System Corp. 9% due 02/01/2006 13,500 14,014,067
CBS, Inc. 8 7/8% due 06/01/2022 3,000 3,086,571
Fox/Liberty Networks LLC 0% to 08/15/2002, 9 3/4% to 08/15/2007** 15,000 12,225,000
Fox/Liberty Networks LLC 8 7/8% due 08/15/2007 20,000 19,950,000
Total 49,275,638
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Cable TV .80% Fundy Cable Ltd. Sr. Secured 2nd Priority Notes 11% due 11/15/2005 (F) 17,500 18,637,500
Lenfest Communications, Inc. 8 1/4% due 02/15/2008 10,000 9,942,540
Total 28,580,040
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Diversified Financial
Services .20% Ford Motor Credit Co. 7 7/8% due 06/15/2010 7,100 7,102,272
-----------------------------------------------------------------------------------------------------------------------=============
Diversified Media 1.10% Cox Communications, Inc. 6 7/8% due 06/15/2005 25,000 24,187,125
Walt Disney Co. 7.30% due 02/08/2005 15,000 15,022,170
Total 39,209,295
-----------------------------------------------------------------------------------------------------------------------=============
Electric Utilities .11% Hyder plc 6 1/2% due 12/15/2008+ (F) 4,880 3,969,811
-----------------------------------------------------------------------------------------------------------------------=============
Energy 1.53% Gulf Canada Resources Ltd. 8.35% due 08/01/2006 (F) 15,000 14,925,000
MetroGas SA 12% due 08/15/2000 (F) 7,500 7,518,750
Perez Companc SA 9% due 01/30/2004+ (F) 9,400 9,000,500
Perez Companc SA 9% due 01/30/2004 (F) 3,100 2,960,500
Petroleos Mexicanos 9% due 06/01/2007 (F) 10,000 9,800,500
Phillips Petroleum Co. 8 3/4% due 05/25/2010 10,000 10,606,190
Total 54,811,440
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Food .33% Coca-Cola Femsa SA 8.95% due 11/01/2006 (F) 12,000 11,940,000
-----------------------------------------------------------------------------------------------------------------------=============
Gaming .52% Harrah's Operating Co., Inc. 7 1/2% due 01/15/2009 20,000 18,578,460
6
<PAGE>
Statement of Net Assets
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Paper .14% International Paper Co. 8 1/2% due 07/08/2005+ $ 5,000 $ 5,049,225
Technology .79% Computer Associates International, Inc. 6 3/8% due 04/15/2005 30,000 28,122,210
-----------------------------------------------------------------------------------------------------------------------=============
Telecommunications 1.89% Deutsche Telekom Finance 8% due 06/15/2010 (F) 4,100 4,141,582
MasTec, Inc. 7 3/4% due 02/01/2008 5,500 5,087,500
Qwest Communications International, Inc. 0% to 02/01/2003,
8.29% to 02/01/2008** 13,000 10,276,409
Rogers Cantel, Inc. 8.30% due 10/01/2007 (F) 30,000 29,475,000
Telefonica De Argentina 9 1/8% due 05/07/2008+ (F) 18,170 16,898,100
Telefonica De Argentina 9 1/8% due 05/07/2008 (F) 1,830 1,715,625
Total 67,594,216
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Total Investment-GradeCorporate Bonds (Cost $324,661,351) 319,153,362
-----------------------------------------------------------------------------------------------------------------------=============
High-Yield Corporate Debt 58.22%
------------------------------------------------------------------------------------------------------------------------------------
Airlines .69% America West Airlines, Inc. 10 3/4% due 09/01/2005 15,000 14,437,500
Continental Airlines, Inc. 8% due 12/15/2005 6,250 5,781,250
Piedmont Aviation, Inc. Equipment Trust Certificate
10.35% due 03/28/2011 2,000 1,889,432
US Air, Inc. Equipment Trust Certificate 10 1/2% due 01/15/2004 2,634 2,640,437
Total 24,748,619
-----------------------------------------------------------------------------------------------------------------------=============
Auto Parts .38% Lear Corp. 8.11% due 05/15/2009 15,000 13,683,075
-----------------------------------------------------------------------------------------------------------------------=============
Automotive 2.94% Accuride Corp. 9 1/4% due 02/01/2008 12,750 10,773,750
Atlantic Express Transportation Corp. Sr. Secured Notes
10 3/4% due 02/01/2004 6,200 5,518,000
Collins & Aikman Products Co. 11 1/2% due 04/15/2006 15,000 14,512,500
Dura Operating Corp. 9% due 05/01/2009 15,000 13,125,000
Navistar Financial Corp. 9% due 06/01/2002 10,000 10,000,000
Navistar International Corp. 8% due 02/01/2008 12,500 11,531,250
Oshkosh Truck Corp. 8 3/4% due 03/01/2008 15,000 14,025,000
Safelite Glass Corp. 9 7/8% due 12/15/2006++ 10,000 137,500
Tenneco Automotive, Inc. 11 5/8% due 10/15/2009 20,000 17,900,000
Venture Holdings Trust 9 1/2% due 07/01/2005 10,000 7,650,000
Total 105,173,000
-----------------------------------------------------------------------------------------------------------------------=============
Banking .72% B.F. Saul REIT Sr. Secured Notes 9 3/4% due 04/01/2008 17,500 15,181,250
Ocwen Federal Bank FSB 12% due 06/15/2005 7,000 6,510,000
Ocwen Financial Corp. 11 7/8% due 10/01/2003 4,250 3,888,750
Total 25,580,000
-----------------------------------------------------------------------------------------------------------------------=============
Broadcasters 3.73% Allbritton Communications Co. 9 3/4% due 11/30/2007 25,500 24,607,500
Cumulus Media, Inc. 10 3/8% due 07/01/2008 9,000 7,650,000
Granite Broadcasting Corp. 10 3/8% due 05/15/2005 11,435 10,920,425
Gray Communication System, Inc. 10 5/8% due 10/01/2006 4,000 4,000,000
Interep National Radio Sales, Inc. 10% due 07/01/2008 11,000 9,790,000
Sinclair Broadcasting Group, Inc. 8 3/4% due 12/15/2007 7,500 6,637,500
Sinclair Broadcasting Group, Inc. 10% due 09/30/2005 52,000 49,920,000
TV Azteca SA de CV 10 1/2% due 02/15/2007 (F) 22,000 19,800,000
Total 133,325,425
-----------------------------------------------------------------------------------------------------------------------=============
Building Materials 1.22% American Builders & Contractors Supply Co., Inc.
10 5/8% due 05/15/2007 7,500 6,206,250
American Standard, Inc. 8 1/4% due 06/01/2009 15,000 14,437,500
Euramax International plc 11 1/4% due 10/01/2006 (F) 10,000 9,550,000
Kevco, Inc. 10 3/8% due 12/01/2007 10,000 2,450,000
Nortek, Inc. 8 7/8% due 08/01/2008 12,000 10,920,000
Total 43,563,750
-----------------------------------------------------------------------------------------------------------------------=============
Cable TV 8.36% CSC Holdings, Inc. 9 1/4% due 11/01/2005 20,000 20,225,000
7
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Century Communications Corp. 9 1/2% due 03/01/2005 $ 25,000 $ 24,250,000
Charter Communications Holdings 0% to 04/01/2004, 9.92% to 04/01/2011** 25,000 14,250,000
Charter Communications Holdings 8 5/8% due 04/01/2009 25,000 22,093,750
Charter Communications Holdings 10% due 04/01/2009 20,000 19,400,000
Comcast UK Cable 0% to 11/15/2000, 11.20% to 11/15/2007** (F) 10,000 9,375,000
EchoStar DBS Corp. 9 3/8% due 02/01/2009 10,000 9,650,000
FrontierVision 0% to 09/15/2001, 11 7/8% to 09/15/2007** 11,750 10,222,500
FrontierVision 0% to 09/15/2001, 11 7/8% to 09/15/2007** 8,250 7,177,500
FrontierVision Operating Partners 11% due 10/15/2006 15,000 15,225,000
Globo Communicacoes e Participacos Ltd. 10 5/8% due 12/05/2008+ (F) 15,000 12,637,500
Mediacom LLC 8 1/2% due 04/15/2008 20,000 18,500,000
NTL Communications Corp. 0% to 10/01/2003, 12 3/8% to 10/01/2008**(F) 25,000 16,000,000
NTL, Inc. 10% due 02/15/2007 (F) 15,000 14,250,000
Renaissance Media Group 0% to 04/15/2003, 10% to 04/15/2008** 15,000 10,275,000
Telewest Communication plc 0% to 04/15/2004, 9 1/4% to 04/15/2009** (F) 20,000 10,850,000
Telewest Communication plc 0% to 10/01/2000, 11% to 10/01/2007** (F) 8,000 7,620,000
Telewest Communication plc 9 7/8% due 02/01/2010+ (F) 14,500 13,557,500
United Pan-Europe Communications NV 0% to 08/01/2004, 12 1/2% to
08/01/2009** (F) 38,000 19,285,000
United Pan-Europe Communications NV 11 1/4% due 11/01/2009 (F) 27,000 23,895,000
Total 298,738,750
-----------------------------------------------------------------------------------------------------------------------=============
Capital Goods 1.05% BE Aerospace, Inc. 9 7/8% due 02/01/2006 20,000 19,100,000
International Wire Group, Inc. 11 3/4% due 06/01/2005 10,000 10,100,000
National Equipment Services 10% due 11/30/2004 10,000 8,350,000
Total 37,550,000
-----------------------------------------------------------------------------------------------------------------------=============
Chemicals 2.04% Atlantis Group, Inc. 11% due 02/15/2003 5,000 5,018,750
Huntsman Corp. 9 1/2% due 07/01/2007+ 15,450 14,136,750
Huntsman ICI Chemicals LLC 10 1/8% due 07/01/2009 (F) 10,000 10,125,000
Lyondell Chemical Co. Sr. Secured Notes 9 5/8% due 05/01/2007 10,000 9,875,000
NL Industries, Inc. Sr. Secured Notes 11 3/4% due 10/15/2003 5,350 5,483,750
Pioneer Americas Acquisition Corp. 9.18% due 12/05/2006 294 208,509
Pioneer Americas Acquisition Corp. 9.79% due 12/05/2006 2,440 1,732,229
Pioneer Americas Acquisition Corp. 9.79% due 12/05/2006 4,518 3,207,831
Pioneer Americas Acquisition Corp. Sr. Secured Notes 9 1/4%
due 06/15/2007 7,500 4,987,500
Sterling Chemical, Inc. 11 3/4% due 08/15/2006 14,150 11,673,750
Texas Petrochemicals Corp. 11 1/8% due 07/01/2006 7,500 6,412,500
Total 72,861,569
-----------------------------------------------------------------------------------------------------------------------=============
Conglomerates .08% Cathay International Ltd. 13% due 04/15/2008+ (F) 6,000 3,030,000
-----------------------------------------------------------------------------------------------------------------------=============
Consumer Products 1.10% Chattem, Inc. 8 7/8% due 04/01/2008 14,500 11,672,500
Rayovac Corp. 10 1/4% due 11/01/2006 9,250 9,527,500
Riddell Sports, Inc. 10 1/2% due 07/15/2007 12,000 9,300,000
Scotts Co. 8 5/8% due 01/15/2009+ 9,000 8,685,000
Total 39,185,000
-----------------------------------------------------------------------------------------------------------------------=============
Containers 1.08% Portola Packaging, Inc. 10 3/4% due 10/01/2005 7,550 6,153,250
Stone Container Corp. 1st Mtg. Notes 10 3/4% due 10/01/2002 10,000 10,187,500
U.S. Can Corp. 10 1/8% due 10/15/2006 15,000 15,450,000
Vicap SA 11 3/8% due 05/15/2007 (F) 7,500 6,637,500
Total 38,428,250
-----------------------------------------------------------------------------------------------------------------------=============
Diversified Financial
Services .33% Willis Corroon Corp. 9% due 02/01/2009 14,000 11,830,000
-----------------------------------------------------------------------------------------------------------------------=============
8
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Diversified Media 1.08% Ackerley Group, Inc. 9% due 01/15/2009 $ 15,000 $ 13,837,500
CEI Citicorp Holdings SA 9 3/4% due 02/14/2007 (F) 5,000 4,925,000
Heritage Media Corp. 8 3/4% due 02/15/2006 10,000 9,850,000
Lamar Media Corp. 9 5/8% due 12/01/2006 10,000 10,100,000
Total 38,712,500
-----------------------------------------------------------------------------------------------------------------------=============
Electric Utilities .20% AEI Holding Co. 10 1/2% due 12/15/2005+ 12,000 2,460,000
P&L Coal Holdings Corp. 8 7/8% due 05/15/2008 5,000 4,737,500
Total 7,197,500
-----------------------------------------------------------------------------------------------------------------------=============
Emerging Markets Panama (Republic of) 8 7/8% due 09/30/2027 (F) 10,000 8,462,500
Sovereign Debt Republic of Argentina 11 3/8% due 01/30/2017 (F) 10,000 8,975,000
1.06% Republic of Venezuela 9 1/4% due 09/15/2027 (F) 10,000 6,593,750
State of Qatar 9 3/4% due 06/15/2030+ (F) 3,650 3,595,159
United Mexican States 9 7/8% due 01/15/2007 (F) 10,000 10,325,000
Total 37,951,409
-----------------------------------------------------------------------------------------------------------------------=============
Energy 2.38% CODA Energy, Inc. 10 1/2% due 04/01/2006 10,000 10,112,500
Chesapeake Energy Corp. 9 5/8% due 05/01/2005 10,000 9,750,000
Cross Timbers Oil Co. 9 1/4% due 04/01/2007 10,000 9,775,000
HS Resources, Inc. 9 7/8% due 12/01/2003 12,500 12,531,250
KCS Energy, Inc. 8 7/8% due 01/15/2008++ 15,000 7,875,000
KCS Energy, Inc. 11% due 01/15/2003++ 9,300 8,881,500
Lomak Petroleum, Inc. 8 3/4% due 01/15/2007 10,000 8,650,000
Pogo Producing Co. 8 3/4% due 05/15/2007 10,000 9,500,000
Vintage Petroleum, Inc. 8 5/8% due 02/01/2009 8,500 8,181,250
Total 85,256,500
-----------------------------------------------------------------------------------------------------------------------=============
Entertainment .09% Loews Cineplex Entertainment Corp. 8 7/8% due 08/01/2008 7,000 3,325,000
-----------------------------------------------------------------------------------------------------------------------=============
Food 1.65% Del Monte Foods Co. 0% to 12/15/2002, 12 1/2% to 12/15/2007** 20,000 14,950,000
Delta Beverage Group, Inc. 9 3/4% due 12/15/2003 6,400 6,072,000
Doane Pet Care Co. 9 3/4% due 05/15/2007 5,859 5,038,740
Leiner Health Products, Inc. 9 5/8% due 07/01/2007 17,500 12,643,750
Pepsi-Gemex SA 9 3/4% due 03/30/2004 (F) 12,000 11,970,000
Twin Laboratories, Inc. 10 1/4% due 05/15/2006 8,400 8,400,000
Total 59,074,490
-----------------------------------------------------------------------------------------------------------------------=============
Gaming 2.28% Aztar Corp. 8 7/8% due 05/15/2007 20,000 18,950,000
Harrah's Operating Co., Inc. 7 7/8% due 12/15/2005 5,000 4,712,500
Mohegan Tribal Gaming Authority 8 3/4% due 01/01/2009 27,000 25,785,000
Park Place Entertainment Corp. 7 7/8% due 12/15/2005 12,000 11,310,000
Park Place Entertainment Corp. 9 3/8% due 02/15/2007 15,000 15,075,000
Trump Atlantic City Funding, Inc. 11 1/4% due 05/01/2006 8,000 5,680,000
Total 81,512,500
-----------------------------------------------------------------------------------------------------------------------=============
Healthcare 1.03% Fresenius Medical Capital Trust II 7 7/8% due 02/01/2008 7,500 6,693,750
Integrated Health Services, Inc. 9 1/2% due 09/15/2007++ 20,000 500,000
Prime Medical Services, Inc. 8 3/4% due 04/01/2008 12,500 10,437,500
Tenet Healthcare Corp. 8 5/8% due 01/15/2007 20,000 19,200,000
Total 36,831,250
-----------------------------------------------------------------------------------------------------------------------=============
Homebuilders 1.00% D.R. Horton, Inc. 10% due 04/15/2006 15,000 14,887,500
Lennar Corp. 7 5/8% due 03/01/2009 10,000 8,668,330
M.D.C. Holdings, Inc. 8 3/8% due 02/01/2008 13,500 12,015,000
Total 35,570,830
-----------------------------------------------------------------------------------------------------------------------=============
9
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Hotels .38% HMH Properties 7 7/8% due 08/01/2008 $ 15,000 $ 13,537,500
-----------------------------------------------------------------------------------------------------------------------=============
Minerals/Metals .13% Kaiser Aluminum & Chemical Corp. 10 7/8% due 10/15/2006 5,000 4,775,000
-----------------------------------------------------------------------------------------------------------------------=============
Paper 1.53% Fonda Group, Inc. 9 1/2% due 03/01/2007 9,000 7,200,000
Four M Corp. Sr. Secured Notes Series A 12% due 06/01/2006 8,500 7,862,500
Indah Kiat International Finance Co. 12 1/2% due 06/15/2006 (F) 7,500 5,268,750
Packaging Corp. of America 9 5/8% due 04/01/2009 17,000 16,957,500
Tembec Industries, Inc. 8 5/8% due 06/30/2009 (F) 18,000 17,370,000
Total 54,658,750
-----------------------------------------------------------------------------------------------------------------------=============
Pollution Control .36% Allied Waste North America, Inc. 7 7/8% due 01/01/2009 15,000 12,862,500
-----------------------------------------------------------------------------------------------------------------------=============
Publishing/Printing .26% R.H. Donnelly, Inc. 9 1/8% due 06/01/2008 10,000 9,462,500
-----------------------------------------------------------------------------------------------------------------------=============
Retail .43% Advanced Stores, Inc. 10 1/4% due 04/15/2008 5,000 4,150,000
Amazon.Com, Inc. 0% to 05/01/2003, 10% to 05/01/2008** 12,000 6,540,000
Norton McNaughton, Inc. 12 1/2% due 06/01/2005 5,000 4,500,000
Total 15,190,000
-----------------------------------------------------------------------------------------------------------------------=============
Services 2.00% Avis Group Holdings, Inc. 11% due 05/01/2009 9,000 9,427,500
Iron Mountain, Inc. 8 3/4% due 09/30/2009 20,000 18,500,000
Iron Mountain, Inc. 10 1/8% due 10/01/2006 22,750 22,863,750
Kinder Care Learning Center 9 1/2% due 02/15/2009 7,500 6,937,500
Pierce Leahy Corp. 9 1/8% due 07/15/2007 10,000 9,600,000
UNICCO Service Co. 9 7/8% due 10/15/2007 4,444 4,266,240
Total 71,594,990
-----------------------------------------------------------------------------------------------------------------------=============
Steel/Metals 1.14% AK Steel Corp. 9 1/8% due 12/15/2006 6,500 6,272,500
Armco, Inc. 9% due 09/15/2007 20,000 18,950,000
Republic Technologies International LLC 13 3/4% due 07/15/2009 10,000 1,656,250
WCI Steel, Inc. Sr. Secured Notes 10% due 12/01/2004 15,000 14,025,000
Total 40,903,750
-----------------------------------------------------------------------------------------------------------------------=============
Supermarkets .25% Stater Brothers Holdings, Inc. 10 3/4% due 08/15/2006 10,000 8,850,000
-----------------------------------------------------------------------------------------------------------------------=============
Technology 3.72% DynCorp, Inc. 9 1/2% due 03/01/2007 13,500 10,327,500
Exodus Communications, Inc. 10 3/4% due 12/15/2009 18,500 17,945,000
Exodus Communications, Inc. 11 5/8% due 07/15/2010+ 10,000 10,075,000
Fisher Scientific International, Inc. 9% due 02/01/2008 17,000 15,640,000
Flextronics International Ltd. 9 7/8% due 07/01/2010+ (F) 3,500 3,543,750
Globix Corp. 12 1/2% due 02/01/2010 5,000 4,125,000
L-3 Communications Corp. 10 3/8% due 05/01/2007 15,000 15,337,500
Packard BioScience Co. 9 3/8% due 03/01/2007 10,000 9,150,000
United Defense Industries, Inc. 8 3/4% due 11/15/2007 15,000 13,950,000
Verio, Inc. 10 5/8% due 11/15/2009 10,000 11,137,500
Verio, Inc. 11 1/4% due 12/01/2008 10,000 11,275,000
Viasystems, Inc. 9 3/4% due 06/01/2007 12,000 10,440,000
Total 132,946,250
-----------------------------------------------------------------------------------------------------------------------=============
Telecommunications 12.50% AMSC Acquisition Co., Inc. 12 1/4% due 04/01/2008 10,000 7,850,000
Clearnet Communications, Inc. 0% to 05/01/2004, 10 1/8% to 05/01/2009** (F) 20,000 12,100,000
Crown Castle International Corp. 10 3/4% due 08/01/2011 3,250 3,310,938
Esprit Telecom Group plc 10 7/8% due 06/15/2008 (F) 15,000 10,275,000
GST Network Funding, Inc. Sr. Secured Notes Zero Coupon due 05/01/2008++ 16,400 7,831,000
Global Crossing Holdings Ltd. 9 5/8% due 05/15/2008 (F) 21,000 20,475,000
Hyperion Telecommunication, Inc. Sr. Secured Notes 12 1/4% due 09/01/2004 10,000 10,150,000
10
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. 0% to 09/15/2000, 13 1/2% to 09/15/2005** $ 40,000 $ 38,700,000
Intermedia Communications, Inc. 0% to 07/15/2002, 11 1/4% to 07/15/2007** 25,000 19,750,000
Intermedia Communications, Inc. 0% to 03/01/2004, 12 1/4% to 03/01/2009** 23,800 14,458,500
Intermedia Communications, Inc. 9 1/2% due 03/01/2009 20,000 19,100,000
KPNQWEST BV 8 1/8% due 06/01/2009 (F) 16,000 15,120,000
Level 3 Communications, Inc. 11 1/4% due 03/15/2010+ 17,500 17,325,000
Logix Communications Enterprises, Inc. 12 1/4% due 06/15/2008 7,250 2,900,000
McLeod USA, Inc. 9 1/2% due 11/01/2008 22,000 21,615,000
Metromedia Fiber Network, Inc. 10% due 12/15/2009 10,000 9,900,000
NEXTLINK Communications, Inc. 0% to 06/01/2004, 12 1/4% to 06/01/2009** 14,250 8,835,000
NEXTLINK Communications, Inc. 10 3/4% due 11/15/2008 25,000 24,750,000
Nextel Communications, Inc. 0% to 02/15/2003, 9.95% to 02/15/2008** 35,000 25,812,500
Nextel Communications, Inc. 9 3/8% due 11/15/2009 25,000 24,000,000
Orbital Imaging Corp. 11 5/8% due 03/01/2005 10,000 4,625,000
Price Communications Wireless, Inc. Sr. Secured Notes 9 1/8% due 12/15/2006 8,000 8,120,000
RSL Communications plc 12% due 11/01/2008 (F) 25,000 18,625,000
SBA Communications Corp. 0% to 03/01/2003, 12% to 03/01/2008** 16,000 11,360,000
Time Warner Telecom, Inc. 9 3/4% due 07/15/2008 12,000 11,670,000
Triton PCS, Inc. 0% to 05/01/2003, 11% to 05/01/2008** 15,000 10,950,000
Versatel Telecom BV 11 7/8% due 07/15/2009 (F) 5,000 4,950,000
Viatel, Inc. Sr. Secured Notes 11 1/4% due 04/15/2008 (F) 17,000 12,665,000
VoiceStream Wireless Corp. 10 3/8% due 11/15/2009 10,000 10,400,000
Western Wireless Corp. 10 1/2% due 02/01/2007 16,600 17,015,000
Williams Communications Group, Inc. 10 7/8% due 10/01/2009 22,500 22,106,250
Total 446,744,188
-----------------------------------------------------------------------------------------------------------------------=============
Textiles 1.03% Delta Mills, Inc. 9 5/8% due 09/01/2007 5,500 4,647,500
Guess, Inc. 9 1/2% due 08/15/2003 13,000 13,065,000
Interface, Inc. 9 1/2% due 11/15/2005 15,000 13,125,000
Levi Strauss & Co. 6.80% due 11/01/2003+ 7,500 6,150,000
Total 36,987,500
-----------------------------------------------------------------------------------------------------------------------=============
Total High-Yield Corporate Debt (Cost $2,338,434,228) 2,081,642,345
------------------------------------------------------------------------------------------------------------------------------------
Convertible Debt 14.49%
------------------------------------------------------------------------------------------------------------------------------------
Advertising .48% Interpublic Group of Companies, Inc. 1.80% due 09/16/2004 11,000 13,035,000
Interpublic Group of Companies, Inc. 1.87% due 06/01/2006 4,275 4,146,750
Total 17,181,750
-----------------------------------------------------------------------------------------------------------------------=============
Aerospace/Defense .15% Orbital Sciences Corp. 5% due 10/01/2002 8,000 5,410,000
-----------------------------------------------------------------------------------------------------------------------=============
Biotechnology .64% Affymetrix, Inc. 4 3/4% due 02/15/2007+ 7,675 6,005,687
Alexion Pharmaceutical 5 3/4% due 03/15/2007+ 3,750 3,089,063
Protein Design Labs, Inc. 5 1/2% due 02/15/2007 3,000 3,757,500
Roche Holdings, Inc. Zero Coupon due 01/19/2015+ 10,775 9,966,875
Total 22,819,125
-----------------------------------------------------------------------------------------------------------------------=============
Broadcasting .40% Clear Channel Communications 1 1/2% due 12/01/2002 3,470 3,400,600
Clear Channel Communications 2 5/8% due 04/01/2003 5,000 6,481,250
Jacor Communications, Inc. Zero Coupon due 02/09/2018 7,500 4,462,500
Total 14,344,350
-----------------------------------------------------------------------------------------------------------------------=============
Computer: Hardware 1.00% ASM Lithography Holding 4 1/4% due 11/30/2004+ (F) 10,200 13,846,500
Solectron Corp. Zero Coupon due 01/27/2019 10,000 6,787,500
Solectron Corp. Zero Coupon due 05/08/2020 24,000 15,240,000
Total 35,874,000
-----------------------------------------------------------------------------------------------------------------------=============
11
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Computer: Software 2.25% Affiliated Computers Services, Inc. 4% due 03/15/2005 $ 8,000 $ 7,840,000
America Online, Inc. Zero Coupon due 12/06/2019 3,250 1,645,313
Arbor Software Corp. 4 1/2% due 03/15/2005 13,150 11,572,000
DoubleClick, Inc. 4 3/4% due 03/15/2006 4,000 4,290,000
Exodus Communications 4 3/4% due 07/15/2008 4,000 5,855,000
Juniper Networks, Inc. 4 3/4% due 03/15/2007 14,100 15,651,000
Mercury Interactive Corp. 4 3/4% due 07/01/2007+ 1,800 1,905,750
National Data Corp. 5% due 11/01/2003 18,000 14,940,000
Rational Software Corp. 5% due 02/01/2007+ 8,500 12,441,875
USinternetworking, Inc. 7% due 11/01/2004 3,000 4,215,000
Total 80,355,938
-----------------------------------------------------------------------------------------------------------------------=============
Diversified Manufacturing .20% Credit Suisse First Boston 2 5/8% due 04/20/2003 7,500 6,993,750
-----------------------------------------------------------------------------------------------------------------------=============
Drugs 2.36% Elan Finance Corp. Ltd. Zero Coupon due 12/14/2018 (F) 40,000 29,400,000
Ivax Corp. 5 1/2% due 05/15/2007+ 10,000 13,100,000
Roche Holdings, Inc. Zero Coupon due 04/20/2010+ 50,000 26,312,500
SBC Jersey 2 1/2% due 07/07/2002+ (F) 6,000 5,692,500
Swiss Life Finance Ltd. 2% due 05/20/2003 (F) 3,000 2,992,500
Swiss Life Finance Ltd. 2% due 05/20/2003+ (F) 7,000 6,973,750
Total 84,471,250
-----------------------------------------------------------------------------------------------------------------------=============
Electronics .35% SCI Systems, Inc. 3% due 03/15/2007 12,700 12,446,000
-----------------------------------------------------------------------------------------------------------------------=============
Electronics: ASE Test Ltd. 1% due 07/01/2004+ (F) 8,000 10,170,000
Semiconductor 2.17% Burr-Brown Corp. 4 1/4% due 02/15/2007+ 4,400 7,403,000
Cypress Semiconductor Corp. 3 3/4% due 07/01/2005 5,500 5,383,125
Cypress Semiconductor Corp. 4% due 02/01/2005 12,000 13,935,000
LSI Logic Corp. 4% due 02/15/2005 5,000 5,281,250
Lattice Semiconductor Co. 4 3/4% due 11/01/2006 3,000 5,426,250
STMicroelectronics NV Zero Coupon due 09/22/2009 (F) 6,500 11,220,625
Semtech Corp. 4 1/2% due 02/01/2007+ 10,000 10,925,000
Vitesse Semiconductor Corp. 4% due 03/15/2005+ 8,500 7,883,750
Total 77,628,000
-----------------------------------------------------------------------------------------------------------------------=============
Food/Beverage .19% Credit Suisse First Boston 2 1/4% due 03/16/2004 7,500 6,949,125
-----------------------------------------------------------------------------------------------------------------------=============
Hospital Supplies .19% Centocor, Inc. 4 3/4% due 02/15/2005 5,000 6,768,750
-----------------------------------------------------------------------------------------------------------------------=============
Insurance .11% CII Financial, Inc. 7 1/2% due 09/15/2001 6,000 4,042,500
-----------------------------------------------------------------------------------------------------------------------=============
Leisure .01% AMF Bowling, Inc. Zero Coupon due 05/12/2018 11,996 359,880
-----------------------------------------------------------------------------------------------------------------------=============
Lodging .16% Hilton Hotels Corp. 5% due 05/15/2006 7,000 5,538,750
-----------------------------------------------------------------------------------------------------------------------=============
Merchandising .04% Rite Aid Corp. 5 1/4% due 09/15/2002 2,500 1,509,375
-----------------------------------------------------------------------------------------------------------------------=============
Miscellaneous .48% Merrill Lynch & Co. 1 1/2% due 12/15/2005 15,000 17,118,750
-----------------------------------------------------------------------------------------------------------------------=============
Oil 1.36% Devon Energy Corp. 4.95% due 08/15/2008 17,500 16,778,125
Loews Corp. 3 1/8% due 09/15/2007 6,000 5,010,000
Parker Drilling Co. 5 1/2% due 08/01/2004 13,000 10,708,750
Swift Energy Co. 6 1/4% due 11/15/2006 10,000 10,087,500
Texaco Capital, Inc. 3 1/2% due 08/05/2004 6,250 5,968,750
Total 48,553,125
-----------------------------------------------------------------------------------------------------------------------=============
Publishing .31% Mail-Well, Inc. 5% due 11/01/2002 7,500 6,225,000
Scholastic Corp. 5% due 08/15/2005 5,000 4,956,250
Total 11,181,250
-----------------------------------------------------------------------------------------------------------------------=============
12
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Telecommunications 1.64% Bell Atlantic Financial Services 5 3/4% due 04/01/2003 $ 4,500 $ 4,390,290
COLT Telecom Group plc 2% due 04/03/2007+ (F) EUR 3,000 2,362,387
Commscope, Inc. 4% due 12/15/2006 8,500 9,296,875
EchoStar Communications Corp. 4 7/8% due 01/01/2007+ 15,050 14,335,125
NTL, Inc. 5 3/4% due 12/15/2009+ 12,000 9,585,000
Nextel Communications, Inc. 5 1/4% due 01/15/2010+ 7,000 7,166,250
US Cellular Corp. Zero Coupon due 06/15/2015 14,000 8,435,000
Versatel Telecom BV 4% due 03/30/2005 (F) EUR 3,200 2,874,954
Total 58,445,881
-----------------------------------------------------------------------------------------------------------------------=============
Total Convertible Debt (Cost $495,878,191) 517,991,549
-----------------------------------------------------------------------------------------------------------------------=============
Preferred Stocks .30% Shares
------------------------------------------------------------------------------------------------------------------------------------
Banks: Money Center .30% California Federal Capital Series A 9.125% 500,000 10,593,750
Total Preferred Stocks (Cost $12,837,500) 10,593,750
-----------------------------------------------------------------------------------------------------------------------=============
Convertible-Preferred Stocks 4.24%
------------------------------------------------------------------------------------------------------------------------------------
Banks: Regional .00% Crossland Savings FSB Brooklyn $1.8125 375,000 60,000
-----------------------------------------------------------------------------------------------------------------------=============
Broadcasting .57% Cox Communications, Inc. 7% 200,000 12,287,500
MediaOne Group, Inc. 7% 100,000 4,050,000
Sinclair Broadcast Group, Inc. 6% 127,000 3,937,000
Total 20,274,500
-----------------------------------------------------------------------------------------------------------------------=============
Chemicals .16% Monsanto Co. 6.50% 128,000 5,792,000
-----------------------------------------------------------------------------------------------------------------------=============
Computer Services .02% NBC Internet, Inc. 7.25% 35,000 813,750
-----------------------------------------------------------------------------------------------------------------------=============
Entertainment .23% Seagram Co. Ltd. 7.50% (F) 155,000 8,331,250
-----------------------------------------------------------------------------------------------------------------------=============
Financial Services .28% WBK STRYPES Trust 10% 300,000 9,900,000
-----------------------------------------------------------------------------------------------------------------------=============
Insurance .83% American General Corp. 6% 150,000 11,700,000
Amerus Life Holdings, Inc. 7% 355,000 7,654,688
MetLife Capital Trust I 8% 147,000 10,170,562
Total 29,525,250
-----------------------------------------------------------------------------------------------------------------------=============
Machinery .13% Ingersoll-Rand Co. 6.75% 225,000 4,584,375
-----------------------------------------------------------------------------------------------------------------------=============
Merchandising .12% CVS Auto Exchange Trust 6% 60,000 4,248,750
-----------------------------------------------------------------------------------------------------------------------=============
Natural Gas .14% Semco Energy, Inc. 11% 480,000 5,010,000
-----------------------------------------------------------------------------------------------------------------------=============
Oil .03% Lomak Financing Trust 5.75% 54,300 923,100
-----------------------------------------------------------------------------------------------------------------------=============
Oil: Crude Producers .35% Kerr-McGee Corp. 5.50% 252,000 12,537,000
-----------------------------------------------------------------------------------------------------------------------=============
Paper and Forest Products .47% Georgia-Pacific Group 7.50% 350,000 11,200,000
International Paper Capital Trust 5.25% 150,000 5,681,250
Total 16,881,250
-----------------------------------------------------------------------------------------------------------------------=============
Telecommunications .34% AMDOCS Automatic Co. 6.75% 75,000 4,734,375
UnitedGlobalCom, Inc. 7% 120,000 7,470,000
Total 12,204,375
-----------------------------------------------------------------------------------------------------------------------=============
Utilities: Electrical .57% AES Trust VII 6%+ 200,000 11,881,250
TXU Corp. 9.25% 220,000 8,552,500
Total 20,433,750
-----------------------------------------------------------------------------------------------------------------------=============
Total Convertible-Preferred Stocks (Cost $164,391,868) 151,519,350
-----------------------------------------------------------------------------------------------------------------------=============
Common Stocks .36%
------------------------------------------------------------------------------------------------------------------------------------
Biotechnology .08% Human Genome Sciences* 20,942 2,793,139
-----------------------------------------------------------------------------------------------------------------------=============
Computer: Hardware .16% EMC Corp.* 75,000 5,770,313
-----------------------------------------------------------------------------------------------------------------------=============
13
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
Principal
Amount
Investments (000) Value
------------------------------------------------------------------------------------------------------------------------------------
Telecommunications .12% GST Telecommunications, Inc.*+++ 135,000 $ 59,063
Intermedia Communications, Inc.* 21,900 651,525
Nextel Communications, Inc.* 40,280 2,464,633
Viatel, Inc.* 33,657 961,328
Total 4,136,549
-----------------------------------------------------------------------------------------------------------------------=============
Total Common Stocks (Cost $8,240,793) 12,700,001
-----------------------------------------------------------------------------------------------------------------------=============
Warrants .02%
------------------------------------------------------------------------------------------------------------------------------------
Financial: Miscellaneous .01% Motient Corp. Expiring 04/01/2008+* 10,000 401,250
-----------------------------------------------------------------------------------------------------------------------=============
Technology .00% Republic Technology Expiring 07/15/2009* 10,000 50
-----------------------------------------------------------------------------------------------------------------------=============
Telecommunications .01% Orbital Imaging Corp. Expiring 03/01/2005+* 10,000 201,250
Splitrock Services, Inc. Expiring 07/15/2008* 1,500 279,750
Total 481,000
-----------------------------------------------------------------------------------------------------------------------=============
Total Warrants (Cost $21,600) 882,300
-----------------------------------------------------------------------------------------------------------------------=============
Commercial Mortgage-Backed Securities 1.55% Principal Amount (000)
------------------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Asset Trust 7.55% due 01/17/2010 $ 5,000 4,997,275
Credit Suisse First Boston 6.30% due 11/15/2008 20,000 18,479,360
Credit Suisse First Boston 6.52% due 07/17/2007 23,120 21,989,871
DLJ Commercial Mortgage Corp. 6.41% due 02/15/2008 5,000 4,660,480
GE Capital Mortgage Services, Inc. 7% due 10/25/2010 552 534,362
LB Commercial Conduit Mortgage Trust 6.21% due 10/15/2008 5,000 4,586,575
Total Commercial Mortgage-Backed Securities (Cost $58,086,814) 55,247,923
-----------------------------------------------------------------------------------------------------------------------=============
Mortgage-Backed Securities 7.76%
------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 6 1/2% due 02/01/2029 22,857 21,602,054
Federal Home Loan Mortgage Corp. 8% due on an announced basis 60,000 60,337,800
Federal National Mortgage Association 7% due 09/01/2029 24,591 23,742,670
Federal National Mortgage Association 8% due 02/01/2030 66,535 66,832,195
Federal National Mortgage Association 8% due 03/01/2030 8,714 8,752,735
Federal National Mortgage Association 8 1/2% due 04/01/2030 20,000 20,379,001
Federal National Mortgage Association 8 1/2% due 07/01/2030 25,000 25,473,750
Government National Mortgage Association 8% due 03/15/2030 24,721 25,000,423
Government National Mortgage Association 8% due on an announced basis 25,000 25,265,750
Total Mortgage-Backed Securities (Cost $278,222,066) 277,386,378
-----------------------------------------------------------------------------------------------------------------------=============
U.S. Government and Agency Issues 3.25%
------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 10% due 09/20/2000 50,000 50,375,000
U.S. Treasury Note 7 1/2% due 05/15/2002 40,000 40,737,600
U.S. Treasury Note 8 1/2% due 11/15/2000 25,000 25,195,250
Total U.S. Government and Agency Issues (Cost $117,950,173) 116,307,850
-----------------------------------------------------------------------------------------------------------------------=============
Total Long-Term Investments (Cost $3,798,724,584) 3,543,424,808
-----------------------------------------------------------------------------------------------------------------------=============
Short-Term Investments 1.34%
------------------------------------------------------------------------------------------------------------------------------------
Associates Corp. 6.95% due 07/03/2000 23,930 23,930,000
Chase Time Deposit 6.50% due 07/03/2000 24,000 24,000,000
Total Short-Term Investments (Cost $47,930,000) 47,930,000
-----------------------------------------------------------------------------------------------------------------------=============
Total Investments 100.46% (Cost $3,846,654,584) 3,591,354,808
-----------------------------------------------------------------------------------------------------------------------=============
Other Assets, Less Liabilities (.46)% (16,559,326
-----------------------------------------------------------------------------------------------------------------------=============
Net Assets 100.00% $3,574,795,482
-----------------------------------------------------------------------------------------------------------------------=============
14
<PAGE>
Statement of Net Assets (continued)
June 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
Class A Shares-Net asset value ($2,193,123,016 / 250,911,672 shares outstanding) $8.74
Maximum offering price (net asset value plus sales charge of 4.75% of the offering price) $9.18
Class B Shares-Net asset value ($811,515,422 / 92,818,620 shares outstanding) $8.74
Class C Shares-Net asset value ($517,952,800 / 59,170,474 shares outstanding) $8.75
Class P Shares-Net asset value ($624,748 / 70,691 shares outstanding) $8.84
Class Y Shares-Net asset value ($51,579,496 / 5,909,786 shares outstanding) $8.73
*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.
++Defaulted security.
+++Security valued by the Board of Directors.
(F)Foreign issuer.
EUR Euro.
See Notes to Financial Statements.
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Six Months Ended June 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income Interest $ 157,317,773
Dividends 6,548,921
Total income 163,866,694
------------------------------------------------------------------------------------------------------------------------------------
Expenses Management fee 8,279,844
12b-1 distribution plan-Class A 3,895,658
12b-1 distribution plan-Class B 4,056,229
12b-1 distribution plan-Class C 2,637,210
12b-1 distribution plan-Class P 785
Shareholder servicing 2,681,763
Reports to shareholders 235,001
Registration 206,655
Professional 101,522
Directors' fees 48,160
Other 185,035
Total expenses before reductions 22,327,862
------------------------------------------------------------------------------------------------------------------------------------
Expense reductions (203,388)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 22,124,474
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 141,742,220
------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Loss on Investments and Foreign Currency Transactions
====================================================================================================================================
Net realized loss from investment and foreign currency transactions (18,151,491)
------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments and foreign currency holdings (99,435,972)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency transactions (117,587,463)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 24,154,757
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations Net investment income $ 141,742,220 $ 296,475,22
4
Net realized loss from investment and foreign currency transactions (18,151,491) (88,204,475)
Net change in unrealized depreciation of investments and foreign currency holdings (99,435,972) (75,599,179)
Net increase in net assets resulting from operations 24,154,757 132,671,570
------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (95,146,062) (192,354,033)
Class B (31,924,304) (58,055,378)
Class C (20,754,811) (41,241,035)
Class P (14,850) (7,532)
Class Y (2,283,875) (3,278,597)
Total (150,123,902) (294,936,575)
------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sales of shares 256,020,804 952,817,978
Net asset value of shares issued in reinvestment of distributions 100,404,940 195,455,819
Total 356,425,744 1,148,273,797
------------------------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (433,283,721) (748,509,944)
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets derived from capital share transactions (76,857,977) 399,763,853
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (202,827,122) 237,498,848
------------------------------------------------------------------------------------------------------------------------------------
Net Assets Beginning of period 3,777,622,604 3,540,123,756
End of period+ $3,574,795,482 $3,777,622,604
====================================================================================================================================
+Including undistributed (overdistributed) net investment income of $(1,241,937) and $7,139,745, respectively, as of
June 30, 2000 and December 31, 1999. See Notes to Financial Statements.
</TABLE>
16
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
Per Share Operating Performance: June 30, 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.05 $9.45 $9.76 $9.41 $9.29 $8.71
------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .35(b) .75(b) .76(b) .75(b) .81 .85
Net realized and unrealized gain (loss)on investments
and foreign currency transactions (.28) (.40) (.31) .40 .17 .606
Total from investment operations .07 .35 .45 1.15 .98 1.456
------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.38) (.75) (.76) (.80) (.86) (.876)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.74 $9.05 $9.45 $9.76 $9.41 $9.29
------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) .64%(c) 3.91% 4.76% 12.70% 11.16% 17.50%
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) .50%(c) .92% .88% .89% .89% .82%
Net investment income 4.02%(c) 8.17% 7.85% 7.89% 8.77% 9.41%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended December 31, 8/1/1996(d) to
Per Share Operating Performance: June 30, 2000 1999 1998 1997 12/31/1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.05 $9.44 $9.75 $9.41 $9.13
------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .33(b) .69(b) .69(b) .68(b) .34
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (.29) (.39) (.31) .38 .26
Total from investment operations .04 .30 .38 1.06 .60
------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.35) (.69) (.69) (.72) (.32)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.74 $9.05 $9.44 $9.75 $9.41
------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) .42%(c) 3.29% 3.98% 11.85% 6.57%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) .82%(c) 1.60% 1.60% 1.63% .70%(c)
Net investment income 3.69%(c) 7.49% 7.13% 7.06% 3.37%(c)
====================================================================================================================================
(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 2000, 1999 and 1998 include expenses paid through an expense offset arrangement.
See Notes to Financial Statements.
</TABLE>
17
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class C Shares
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended December 31, 7/15/1996(d) to
Per Share Operating Performance: June 30, 2000 1999 1998 1997 12/31/1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.06 $9.46 $9.77 $9.41 $9.05
------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .33(b) .69(b) .69(b) .69(b) .35
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (.29) (.40) (.31) .39 .33
Total from investment operations . .04 .29 .38 1.08 .68
------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.35) (.69) (.69) (.72) (.32)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.75 $9.06 $9.46 $9.77 $9.41
------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) .43%(c) 3.17% 3.98% 11.97% 7.86%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) .82%(c) 1.60% 1.60% 1.58% .75%(c)
Net investment income 3.70%(c) 7.49% 7.13% 7.16% 3.72%(c)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
------------------------------------------------------------------------------------------------------------------------------------
Six Months YearEnded 8/21/1998(d) Six Months Year Ended 3/27/1998(d)
Ended December 31, to Ended December 31, to
Per Share Operating Performance: June 30, 2000 1999 12/31/1998 June 30, 2000 1999 12/31/1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.05 $9.45 $9.54 $9.04 $9.44 $9.98
------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income(b) .35 .73 .25 .37 .78 .59
Net realized and unrealized loss on investments
and foreign currency transactions (.19) (.39) (.09) (.29) (.40) (.54)
Total from investment operations .16 .34 .16 .08 .38 .05
------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.37) (.74) (.25) (.39) (.78) (.59)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.84 $9.05 $9.45 $8.73 $9.04 $9.44
------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 1.62%(c) 3.86% 1.73%(c) .83%(c) 4.27% .55%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(e) .55%(c) 1.05% .38%(c) .32%(c) .60% .46%(c)
Net investment income 3.90%(c) 8.10% 2.90%(c) 4.19%(c) 8.52% 6.24%(c)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
Supplemental Data for All Classes: June 30, 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $3,574,795 $3,777,623 $3,540,124 $2,866,184 $2,129,421 $1,339,508
Portfolio turnover rate 39.87% 67.93% 86.48% 89.14% 106.79% 134.90%
------------------------------------------------------------------------------------------------------------------------------------
(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 2000, 1999 and 1998 include expenses paid through an expense offset arrangement.
See Notes to Financial Statements.
</TABLE>
18
<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 manage ment investment
company. The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America 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 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 approxi mates 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 se curities are
purchased or sold (trade date). Realized gains and losses from investment
transactions are calculated on the identified cost basis. Interest income
including discount amortization on zero coupon bonds 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 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) 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 forward 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.
(e) The Company along with certain other funds managed by Lord Abbett (the
"Underlying Funds") has entered into a Servicing Agreement with the Balanced
Series of Lord Abbett Investment Trust pursuant to which the Underlying Funds
will pay a portion of the expenses of the Balanced Series in proportion to the
average daily value of shares owned by the Balanced Series. Other expenses
include approximately $83,314 accrued pursuant to this Servicing Agreement.
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 for each month at the following annual rates: 0.50% on the
first $500 million and 0.45% on assets over $500 million. At June 30, 2000, the
management fee payable was $1,330,228.
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) an
annual distribution fee of 0.10% of the average daily net asset value ofClass A
shares. Pursuant to the Class B Plan, the Company pays Distributor an annual
service fee 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 fee and a distribution
fee of 0.20% and 0.25%, respec tively, of the average daily net asset value of
the Class P shares. Class Y does not have a plan. At June 30, 2000, the 12b-1
fees payable with respect to all classes of shares aggregated $2,142,050.
Distributor received $551,128 representing payment of commissions on sales of
Class A shares after deducting $2,793,633 allowed to auth orized 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 declared and paid monthly. Capital gain
distributions, if any, will be made annually. At June 30, 2000, accumulated net
realized loss for financial re porting purposes aggregated $115,543,275.
The Company had a capital loss carryforward as of June 30, 2000 of approximately
$101,251,695 of which $11,240,802 expires in 2003 and $90,010,893 in 2007. 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 dis tributions 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 accounting
principles generally accepted in the United States of America.
4. Capital
The Company has authorized 1 billion shares of $.001 par value capital stock
designated as follows: Class A-300 million shares, Class B-160 million shares,
Class C-80 million shares, Class P-160 million shares and
19
<PAGE>
Class Y-300 million shares. Paid in capital amounted to $3,946,880,470 at June
30, 2000. Trans actions in shares of capital stock were as follows:
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Class A Shares Amount Shares Amount
--------------------------------------------------------------------------------
Sales of shares 15,290,038 $ 134,751,479 46,204,380 $ 427,164,662
Shares issued to
shareholders in
reinvestment of
dividends 7,558,430 66,516,013 14,347,378 131,444,164
Total 22,848,468 201,267,492 60,551,758 558,608,826
--------------------------------------------------------------------------------
Shares reacquired (29,351,983) (258,858,319) (48,782,581) (447,064,212)
Increase (decrease) (6,503,515) $ (57,590,827) 11,769,177 $ 111,544,614
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Class B Shares Amount Shares Amount
--------------------------------------------------------------------------------
Sales of shares 8,396,044 $ 73,971,647 32,292,536 $ 298,330,831
Shares issued to
shareholders in
reinvestment of
dividends 2,114,983 18,622,820 3,749,435 34,311,846
Total 10,511,027 92,594,467 36,041,971 332,642,677
--------------------------------------------------------------------------------
Shares reacquired (10,595,174) (93,616,064) (14,195,926) (129,722,785)
Increase (decrease) (84,147) $ (1,021,597) 21,846,045 $ 202,919,892
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Class C Shares Amount Shares Amount
--------------------------------------------------------------------------------
Sales of shares 5,075,494 $ 44,791,440 22,171,975 $ 205,282,312
Shares issued to
shareholders in
reinvestment of
dividends 1,470,352 12,968,912 2,880,804 26,417,246
Total 6,545,846 57,760,352 25,052,779 231,699,558
--------------------------------------------------------------------------------
Shares reacquired (8,883,649) (78,584,135) (18,654,738) (171,504,635)
Increase (decrease) (2,337,803) $(20,823,783) 6,398,041 $ 60,194,923
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Class P Shares Amount Shares Amount
--------------------------------------------------------------------------------
Sales of shares 90,116 $ 799,455 25,320 $229,776
Shares issued to
shareholders in
reinvestment of
dividends 1,548 13,698 636 5,778
Total 91,664 813,153 25,956 235,554
--------------------------------------------------------------------------------
Shares reacquired (46,301) (411,253) (642) (5,812)
Increase 45,363 $ 401,900 25,314 $229,742
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Class Y Shares Amount Shares Amount
--------------------------------------------------------------------------------
Sales of shares 191,754 $ 1,706,783 2,382,642 $21,810,397
Shares issued to
shareholders in
reinvestment of
dividends 259,951 2,283,497 359,490 3,276,785
Total 451,705 3,990,280 2,742,132 25,087,182
--------------------------------------------------------------------------------
Shares reacquired (206,586) (1,813,950) (23,664) (212,500)
Increase 245,119 $ 2,176,330 2,718,468 $24,874,682
--------------------------------------------------------------------------------
5. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Govern ment
obligations, short-term investments and foreign currency transactions)
aggregated $1,435,156,345 and $1,567,928,320, respectively. Purchases and sales
of U.S. Government obli gations aggregated $338,792,107 and $102,711,791,
respectively. As of June 30, 2000, net unrealized depreciation for federal
income tax purposes aggregated $255,299,776, of which $86,264,277 related to
appreciated securities and $341,564,053 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at June
30, 2000 was substantially the same as the cost for financial reporting
purposes.
6. Directors' Remuneration
The Directors of the Company associated with Lord Abbett and all officers of the
Company receive no compensation from the Company for acting as such. Outside
Directors' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on the net assets of each fund. Direct ors' fees payable at
June 30, 2000, under a deferred compensation plan, were $538,328.
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 .09% per annum. There
were no loans outstanding pursuant to this Facility at June 30, 2000, and the
Facility was not utilized at any time during the period.
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.
20
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Bond-Debenture Fund:
We have audited the accompanying statement of net assets of Lord Abbett
Bond-Debenture Fund (the "Company") as of June 30, 2000, the related statements
of operations for the six-month period then ended and of changes in net assets
for each of the periods in the eighteen-month period then ended and the
financial highlights for each of the periods presented. These financial state
ments and the financial highlights are the responsibility of the Company's
manage ment. 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 auditing standards generally accepted
in the United States of America. 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 exam ining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000 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 at June 30, 2000, the results of its operations, the changes
in its net assets and its financial highlights for each of the periods presented
in conformity with accounting principles generally accepted in the United States
of America.
[GRAPHIC OMITTED]
New York, New York
August 10, 2000
Our Management
Board of Directors
Robert S. Dow
William H.T. Bush*+
Robert B. Calhoun, Jr.*+
E. Thayer Bigelow*
Stewart S. Dixon*+
John C. Jansing*+
C. Alan MacDonald*
Hansel B. Millican, Jr.*
Thomas J. Neff*
* Outside Director
+ Audit Committee
Investment Manager and
Underwriter
Lord, Abbett & Co. and
Lord Abbett Distributor LLC
90 Hudson Street
Jersey City, NJ 07302-3973
800-201-6984
Custodian
The Bank of New York
New York, NY
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Wilmer, Cutler & Pickering
Washington, DC
Copyright(C)2000 by Lord Abbett Bond-Debenture Fund, Inc., 90 Hudson Street,
Jersey City, NJ 07302-3973
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>
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 Funds Income Funds Income Funds Market Fund
Growth Large-Cap Research Fund - Balanced World Bond- National U. S. Government
Opportunities Growth Fund Large-Cap Series** Debenture Series California Securities Money
Fund Research Fund- Series Global Fund - Connecticut Market Fund + ++
Small-Cap Value Growth & Income Series Florida
Series Income Series High Yield Fund Georgia
Alpha Series* Affiliated Fund Bond-Debenture Hawaii
Developing International Fund Michigan
Growth Fund Series Limited Duration Minnesota
Lord Abbett Mid-Cap U. S. Government Missouri
Developing Value Fund Securities Series+ New Jersey
Growth Fund Global Fund- U. S. Government) New York
is closed to Equity Series Securities Series+ Pennsylvania
new investors Texas
Washington
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your investment professional provides value in helping you identify and
under stand your investment objectives and, ultimately, offering fund recom
mendations 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 fund(s) covered by this
report.
For more complete information about any Lord Abbett fund, in cluding risks,
charges and ongoing expenses, call your investment professional or Lord Abbett
Distributor LLC at 800-874-3733 for a prospectus. Read it carefully before
investing.
The Lord Abbett Family of Funds lets you access more than 30 portfolios designed
to meet a variety of investment needs.
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.
You may reallocate assets among our funds at any time. Speak 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:
www.lordabbett.com
* Lord Abbett Securities Trust - Alpha Series is a fund of funds investing in
shares of Lord Abbett Developing Growth Fund, Lord Abbett Research Fund -
Small-Cap Value Series and Lord Abbett Securities Trust - International
Series.
** Lord Abbett Balanced Series is a fund of funds investing in shares of
certain other Lord Abbett funds.
+ An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
++ An investment in this 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.
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Lord Abbett mutual fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC LABD-3-600
90 Hudson Street o Jersey City, New Jersey 07302-3973 8/00
