<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File Number 811-02145
Lord Abbett Bond-Debenture Fund, Inc.
-------------------------------------
(Exact name of registrant as specified in charter)
90 Hudson Street, Jersey City, NJ 07302
---------------------------------------
(Address of principal executive offices) (zip code)
Christina T. Simmons, Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
---------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 201-6984
Date of fiscal year end: 12/31
Date of reporting period: 6/30/2003
<Page>
ITEM 1: Report to Shareholders.
<Page>
[LORD ABBETT LOGO]
2003
SEMI-
ANNUAL
REPORT
LORD ABBETT
BOND-DEBENTURE FUND
FOR THE SIX MONTHS ENDED JUNE 30, 2003
<Page>
LORD ABBETT BOND-DEBENTURE FUND
SEMI-ANNUAL REPORT
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2003
DEAR SHAREHOLDERS: We are pleased to provide an overview of the Lord Abbett
Bond-Debenture Fund's strategies and performance for the six-month period ended
June 30, 2003. On this and the following pages, we discuss the factors that
influenced performance.
Thank you for investing in Lord Abbett Mutual Funds. We value the trust
that you place in us and look forward to serving your investment needs in the
years to come.
BEST REGARDS,
/s/ Robert S. Dow
ROBERT S. DOW
CHAIRMAN
MARKET REVIEW(1)
Two trends dominated the fixed-income markets in the period: the flight to
a perceived safe haven from geopolitical and economic uncertainties and a search
for yield. These contradictory positions--the first, a flight from risk and the
second, a willingness to take on risk--kept the bid strong in nearly every
classification of fixed income, from government securities to corporate bonds.
With Treasury yields at historically low levels, the search for yield focused in
the corporate bond market, where investors remained optimistic, citing evidence
of improved corporate earnings and higher productivity. Demand for high-yield
bonds reached record levels. Lower-quality credits outperformed
investment-grade, as investors focused on the opportunity for high yield.
By June, with an end to the major combat in Iraq, both fixed-income and
equity markets seemed determined to rally. We believe equity investors responded
positively to improved corporate earnings, low interest rates and expectations
for a reasonably strong economic recovery in the second half of the year.
Investors in corporate bonds and convertible securities also looked on the
bright side, pushing prices higher and narrowing spreads against Treasuries.
Treasuries, on the other hand, rallied on the warnings from the Federal Reserve
Board (the Fed) against a far less benign outlook: the risk--albeit small--of
deflation.
FUND REVIEW(1)
The Lord Abbett Bond-Debenture Fund's Class A shares returned 11.6%(2) for
the six months ended June 30, 2003, compared with its benchmark, the Lehman
Brothers Aggregate Bond Index,(3) which returned 3.9% for the same period.
Standardized Average Annual Returns(4) for 1 year, 5 years and 10 years were
9.50%, 2.53% and 5.94%, respectively, as of June 30, 2003. The 30-day SEC yield
for the period ended June 30, 2003:(5) Class A: 5.31%.
The Fund benefited from its diversified positioning in the fixed-income
markets, with gains generated in both high-yield
1
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and investment-grade corporate bonds as well as in convertible securities. The
Fund's best performers in the high-yield market were below investment-grade
credits in telecommunications, utilities and cable firms. Also adding to
performance were holdings in below investment-grade convertible securities in
pharmaceutical and technology companies.
Detracting from performance were below-investment grade credits in specific
chemical, healthcare, software and energy firms. Convertible securities in
select computer services, energy and telecommunications also detracted from
performance in the period.
To reduce credit risk, the Fund holds at all times at least 20% of its
portfolio in investment-grade securities. The Fund also limits its participation
in lower quality credits (CCCs), which, over the long run, tend to have much
higher volatility, lower returns and higher probabilities of default than the
high-yield market as a whole. Both positions detracted somewhat from performance
for the most part, as lower-quality credits outperformed investment-grade in the
period.
We will continue to focus on the securities of pro-cyclical companies that
we believe may benefit from a potential economic recovery, and we will increase
slightly the portfolio's equity-sensitivity.
(1) The views of the Fund's management and the portfolio holdings described in
this report are as of June 30, 2003; these views and portfolio holdings may have
changed subsequent to this date. Information provided in this report should not
be considered a recommendation to purchase or sell securities.
(2) Reflects total returns at Net Asset Value (NAV) for Class A shares, with all
distributions reinvested for the six months ended June 30, 2003.
(3) The Lehman Brothers Aggregate Bond Index represents securities that are U.S.
domestic, taxable, non-convertible and dollar denominated. The index covers the
investment-grade fixed-rate bond market, with index components for government
and corporate securities, mortgage pass-through securities and asset-backed
securities. Indices are unmanaged, do not reflect the deduction of fees or
expenses and are not available for direct investment.
(4) Reflects performance at the maximum 4.75% sales charge applicable to Class A
share investments and includes the reinvestment of all distributions.
(5) The 30-day SEC yield for each class of shares is calculated by dividing
annualized net investment income per share during the 30-day period ended June
30, 2003 by the maximum offering price per share on the last day of the period.
IMPORTANT PERFORMANCE AND OTHER INFORMATION
A NOTE ABOUT RISK: See Notes to Financial Statements for a discussion of
investment risks. For a more detailed discussion of the risks associated with
the Fund, please see the Fund's Prospectus.
PERFORMANCE: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. BECAUSE OF
ONGOING MARKET VOLATILITY, FUND PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL
FLUCTUATION. 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. Except where noted, comparative
fund performance does not account for the deduction of sales charges and would
be different if sales charges were included. The Fund offers several classes of
shares with distinct pricing options. For a full description of the differences
in pricing alternatives, please see the Prospectus.
Funds are actively managed and, as a result, asset allocations are subject to
change.
MUTUAL FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY BANKS, AND ARE SUBJECT TO INVESTMENT RISKS INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. For more complete information about
this or any Lord Abbett Mutual Fund, including risks, charges and ongoing
expenses, please call your Investment Professional or Lord Abbett Distributor
LLC at 888-522-2388 for a Prospectus. An investor should read the Prospectus
carefully before investing.
2
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SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- -------------------------------------------------------------------------
LONG-TERM INVESTMENTS 93.50%
COMMON STOCKS 5.77%
APPAREL/TEXTILES 0.11%
Target Corp.^ 200 $ 7,568,000
-----------------
BANKING 0.89%
Bank of New York Co., Inc. 500 14,375,000
Wachovia Corp. 600 23,976,000
Wells Fargo & Co.^ 500 25,200,000
-----------------
TOTAL 63,551,000
-----------------
BEVERAGE 0.27%
PepsiCo, Inc. 425 18,912,500
-----------------
CHEMICALS 0.75%
E.I. du Pont de
Nemours & Co. 500 20,820,000
Eastman Chemical Co.^ 275 8,709,250
Praxair, Inc. 400 24,040,000
-----------------
TOTAL 53,569,250
-----------------
DIVERSIFIED CAPITAL GOODS 0.40%
3M Co. 220 28,375,600
-----------------
ELECTRIC-INTEGRATED 0.32%
Northeast Utilities^ 1,350 22,599,000
-----------------
ELECTRONICS 0.16%
Hubbell, Inc.^ 350 11,585,000
-----------------
ENERGY - EXPLORATION &
PRODUCTION 0.11%
Exxon Mobil Corp. 225 8,079,750
-----------------
FOOD - WHOLESALE 0.41%
Conagra Foods, Inc.^ 300 7,080,000
Kellogg Co.^ 650 22,340,500
-----------------
TOTAL 29,420,500
-----------------
FORESTRY/PAPER 0.08%
International Paper Co.^ 75 2,679,750
Plum Creek Timber Co., Inc.^ 100 2,595,000
-----------------
TOTAL 5,274,750
-----------------
INTEGRATED ENERGY 0.31%
ChevronTexaco Corp.^ 300 $ 21,660,000
-----------------
MACHINERY 0.00%
Terex Corp.*^ 13 246,089
-----------------
METALS/MINING 0.20%
Alcoa, Inc.^ 550 14,025,000
-----------------
MULTI-LINE INSURANCE 0.38%
ACE Ltd.^(a) 256 8,791,202
MetLife, Inc.^ 641 18,159,435
-----------------
TOTAL 26,950,637
-----------------
NON-ELECTRIC UTILITIES 0.07%
National Fuel Gas Co.^ 200 5,210,000
-----------------
OIL REFINING & MARKETING 0.17%
Anadarko Petroleum Corp. 275 12,229,250
-----------------
PHARMACEUTICALS 0.48%
Merck & Co., Inc. 275 16,651,250
Mylan Laboratories, Inc.^ 350 12,169,500
Pfizer, Inc. 150 5,122,500
-----------------
TOTAL 33,943,250
-----------------
PRINTING & PUBLISHING 0.20%
Tribune Co. 300 14,490,000
-----------------
REAL ESTATE INVESTMENT TRUSTS 0.06%
Healthcare Realty Trust, Inc.^ 150 4,372,500
-----------------
SOFTWARE/SERVICES 0.18%
Automatic Data
Processing, Inc. 375 12,697,500
-----------------
TELECOM - INTEGRATED/SERVICES 0.21%
Amdocs Ltd.*^(a) 200 4,800,000
Verizon Communications, Inc.^ 250 9,862,500
-----------------
TOTAL 14,662,500
-----------------
TELECOM - WIRELESS 0.01%
Nextel Communications, Inc.*^ 40 728,262
-----------------
TOTAL COMMON STOCKS
(Cost $389,135,481) 410,150,338
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 11.00%
AEROSPACE/DEFENSE 0.58%
EDO Corp. 5.25% 4/15/2007 $ 15,000 $ 15,150,000
L-3 Comm Hldgs. Corp.^ 4.00% 9/15/2011 25,000 26,156,250
-------------
TOTAL 41,306,250
-------------
AUTO PARTS & EQUIPMENT 0.43%
Deutsche Bank Financial 2.75% 2/8/2008 10,750 10,803,750
Pep Boys 4.25% 6/1/2007 5,500 5,506,875
Tower Automotive, Inc.^ 5.00% 8/1/2004 15,000 14,550,000
-------------
TOTAL 30,860,625
-------------
COMPUTER HARDWARE 0.18%
ASML Holding NV(a) 5.75% 10/15/2006 5,750 5,872,187
Maxtor Corp.+ 6.80% 4/30/2010 6,000 6,930,000
-------------
TOTAL 12,802,187
-------------
ELECTRONICS 0.99%
LSI Logic Corp. 4.00% 11/1/2006 21,000 19,635,000
RF Micro Devices, Inc.+(d) 1.50% 7/1/2010 8,000 8,110,000
RF Micro Devices, Inc. 3.75% 8/15/2005 9,825 9,751,313
STMicroelectronics(a) Zero Coupon 9/22/2009 15,000 13,237,500
Thermo Electron Corp. 4.00% 1/15/2005 6,000 6,007,500
Vitesse Semiconductor Corp. 4.00% 3/15/2005 15,000 14,006,250
-------------
TOTAL 70,747,563
-------------
ENERGY - EXPLORATION & Production 0.33%
Kerr-McGee Corp. 5.25% 2/15/2010 18,005 19,355,375
Range Resources Corp. 6.00% 2/1/2007 4,450 4,266,438
-------------
TOTAL 23,621,813
-------------
FOOD - WHOLESALE 0.43%
General Mills, Inc.+ Zero Coupon 10/28/2022 7,500 5,353,125
Nestle Hldgs., Inc. 3.00% 5/9/2005 23,000 25,213,750
-------------
TOTAL 30,566,875
-------------
HEALTH SERVICES 1.03%
Abgenix, Inc. 3.50% 3/15/2007 5,000 4,187,500
Lehman Brothers Holdings 0.25% 5/27/2008 10,000 10,300,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Lifepoint Hospitals Holdings 4.50% 6/1/2009 $ 30,000 $ 29,137,500
Universal Hlth Services, Inc. 0.426% 6/23/2020 50,000 29,687,500
-------------
TOTAL 73,312,500
-------------
HOUSEHOLD & LEISURE PRODUCTS 0.18%
Costco Cos., Inc. Zero Coupon 8/19/2017 15,000 12,581,250
-------------
INVESTMENTS & MISC FINANCIAL
SERVICES 0.25%
Lehman Brothers Holdings 0.25% 6/24/2008 18,000 17,775,000
-------------
MACHINERY 0.19%
Danaher Corp. Zero Coupon 1/22/2021 20,000 13,425,000
-------------
MEDIA - BROADCAST 0.07%
Sinclair Broadcast Grp, Inc.+ 4.875%# 7/15/2018 5,000 5,125,000
-------------
MEDIA - DIVERSIFIED 0.74%
Interpublic Group of Cos., Inc. 1.87% 6/1/2006 28,000 24,535,000
Liberty Media Corp. Class A 3.25% 3/15/2031 27,000 28,215,000
-------------
TOTAL 52,750,000
-------------
MEDIA - SERVICES 0.14%
Lamar Advertising Co. 2.875% 12/31/2010 10,000 10,087,500
-------------
OIL FIELD EQUIPMENT & SERVICES 0.54%
Hanover Compressor Co. 4.75% 3/15/2008 20,000 18,025,000
Parker Drilling Co. 5.50% 8/1/2004 20,000 20,075,000
-------------
TOTAL 38,100,000
-------------
PROPERTY & CASUALTY 0.19%
First American Corp. 4.50% 4/15/2008 12,000 13,710,000
-------------
PHARMACEUTICALS 1.36%
Affymetrix, Inc.^ 5.00% 10/1/2006 10,000 10,000,000
Cell Therapeutics, Inc. 5.75% 6/15/2008 4,998 6,003,848
Cephalon, Inc. 2.50% 12/15/2006 12,500 11,578,125
Enzon, Inc.^ 4.50% 7/1/2008 23,500 19,387,500
IVAX Corp. 5.50% 5/15/2007 22,325 22,576,156
Protein Design Labs, Inc. 5.50% 2/15/2007 4,000 3,870,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Teva Pharmaceutical Industries(a) 0.375% 11/15/2022 $ 15,000 $ 21,112,500
Vertex Pharmaceuticals, Inc. 5.00% 9/19/2007 2,250 1,892,812
-------------
TOTAL 96,420,941
-------------
REIT 0.21%
EOP Operating LP 7.25%# 11/15/2008 14,000 14,892,500
-------------
SOFTWARE/SERVICES 2.33%
Affiliated Computer Services, Inc. 3.50% 2/15/2006 12,500 14,781,250
BEA Systems, Inc.^ 4.00% 12/15/2006 14,000 13,562,500
Bisys Group, Inc. 4.00% 3/15/2006 30,000 29,662,500
First Data Corp.^ 2.00% 3/1/2008 25,000 28,000,000
Manugistics Group, Inc. 5.00% 11/1/2007 25,000 19,000,000
Mentor Graphics Corp. 6.875% 6/15/2007 18,500 20,535,000
Mercury Interactive Corp. 4.75% 7/1/2007 20,000 19,825,000
Symantec Corp. 3.00% 11/1/2006 4,000 5,640,000
Wind River Systems, Inc.^ 3.75% 12/15/2006 17,000 14,790,000
-------------
TOTAL 165,796,250
-------------
TELECOM - WIRELESS 0.21%
Nextel Communications, Inc. 5.25% 1/15/2010 15,700 14,836,500
-------------
TELECOMMUNICATIONS EQUIPMENT 0.62%
Corning, Inc. 3.50% 11/1/2008 27,000 29,126,250
Juniper Networks, Inc. 4.75% 3/15/2007 12,500 11,859,375
Lucent Technologies, Inc. 2.75% 6/15/2023 3,500 3,189,375
-------------
TOTAL 44,175,000
-------------
TOTAL CONVERTIBLE BONDS (COST $758,433,277) 782,892,754
=============
<Caption>
SHARES
(000)
----------
CONVERTIBLE PREFERRED STOCKS 4.07%
AEROSPACE/DEFENSE 0.28%
Raytheon Co.^ 8.25% 350 20,034,000
-------------
AUTOMOTIVE 0.08%
Ford Motor Co. Cap. Tr. 6.50% 129 5,622,430
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
INTEREST SHARES
INVESTMENTS RATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
ELECTRIC-DISTR/TRANS 0.12%
FPL Group, Inc.^ 8.00% 150 $ 8,655,000
-------------
ELECTRIC-INTEGRATED 0.49%
Dominion Resources, Inc.^ 9.50% 500 29,480,000
NRG Energy, Inc. 6.50% 500 5,025,000
-------------
TOTAL 34,505,000
-------------
ENERGY - EXPLORATION & PRODUCTION 0.27%
Kerr-McGee Corp. 5.50% 400 19,048,000
-------------
FINANCIAL GUARANTEE/REINSURANCE 0.04%
Reinsurance Group of America 5.75% 50 2,781,250
-------------
FORESTRY/PAPER 0.32%
International Paper Capital Tr.^ 5.25% 150 7,387,500
Temple-Inland, Inc. 7.50% 350 15,557,500
-------------
TOTAL 22,945,000
-------------
GAS DISTRIBUTION 0.04%
Semco Energy, Inc. 11.00% 565 2,796,750
-------------
HEALTH SERVICES 0.72%
Anthem, Inc.^ 6.00% 200 18,716,000
Baxter Int'l., Inc. 7.00% 500 24,510,000
Omnicare, Inc. 4.00% 144 7,918,600
-------------
TOTAL 51,144,600
-------------
HOUSEHOLD & LEISURE PRODUCTS 0.04%
Six Flags, Inc.^ 7.25% 151 2,974,700
-------------
INVESTMENTS & MISC FINANCIAL SERVICES 0.21%
Washington Mutual, Inc. 5.375% 250 14,812,500
-------------
MEDIA - BROADCAST 0.14%
Sinclair Broadcast Grp, Inc.^ 6.00% 213 9,594,000
-------------
METALS/MINING 0.28%
Phelps Dodge Corp.^ 6.75% 200 19,800,000
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
INTEREST SHARES
INVESTMENTS RATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE 0.39%
Prudential Financial, Inc.^ 6.75% 500 $ 27,975,000
-------------
OIL FIELD EQUIPMENT & SERVICES 0.02%
Lomak Financing Tr. 5.75% 54 1,676,513
-------------
RAILROADS 0.05%
Union Pac. Cap. Tr. 6.25% 77 3,861,748
-------------
REIT 0.37%
General Growth Properties, Inc. 7.25% 150 5,892,000
Simon Property Group, Inc. 6.50% 200 20,774,000
-------------
TOTAL 26,666,000
-------------
SOFTWARE/SERVICES 0.11%
Electronic Data Systems Corp. 7.625% 350 7,717,500
-------------
TELECOM - WIRELESS 0.10%
Sprint Corp. 7.125% 856 6,807,187
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $295,211,854) 289,417,178
=============
<Caption>
PRINCIPAL
MATURITY AMOUNT
DATE (000)
----------------------
FOREIGN BONDS 0.32%
FOREIGN SOVEREIGN 0.32%
Republic of Panama(a) 9.375% 7/23/2012 $ 5,000 5,812,500
United Mexican States^(a) 10.375% 2/17/2009 13,000 16,848,000
-------------
TOTAL FOREIGN BONDS (COST $19,089,841) 22,660,500
=============
GOVERNMENT SPONSORED ENTERPRISE BONDS 1.25%
Federal Home Loan Mortgage Corp.
(Cost $82,619,186) 7.00% 7/15/2005 80,000 88,948,560
=============
GOVERNMENT SPONSORED ENTERPRISE
PASS-THROUGHS 1.54%
Federal National Mortgage Assoc. 7.00% 9/1/2029 3,337 3,516,744
Federal National Mortgage Assoc. 7.00% 1/1/2031 4,463 4,702,947
Federal National Mortgage Assoc. 7.00% 9/1/2031 18,719 19,718,026
Federal National Mortgage Assoc. 7.00% 10/1/2031 10,346 10,898,068
Federal National Mortgage Assoc. 7.00% 3/1/2032 24,139 25,428,761
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assoc. 7.00% 5/1/2032 $ 10,880 $ 11,460,619
Federal National Mortgage Assoc. 7.50% 6/1/2030 7,377 7,839,840
Federal National Mortgage Assoc. 7.50% 11/1/2031 4,232 4,497,433
Federal National Mortgage Assoc. 8.00% 2/1/2030 7,927 8,556,888
Federal National Mortgage Assoc. 8.00% 3/1/2030 10 10,873
Federal National Mortgage Assoc. 8.00% 4/1/2030 12,055 13,013,294
-------------
TOTAL GOVERNMENT SPONSORED ENTERPRISE
PASS-THROUGHS (COST $106,065,761) 109,643,493
=============
HIGH YIELD CORPORATE BONDS 68.38%
AEROSPACE/DEFENSE 1.10%
Alliant Techsystems, Inc. 8.50% 5/15/2011 15,000 16,725,000
Esterline Tech Corp.+ 7.75% 6/15/2013 10,000 10,300,000
L-3 Comm Hldgs Corp. 7.625% 6/15/2012 12,500 13,812,500
Raytheon Co. 6.30% 3/15/2005 20,000 21,369,360
Titan Corp.+^ 8.00% 5/15/2011 15,000 15,975,000
-------------
TOTAL 78,181,860
-------------
AIRLINES 0.34%
America West Airlines, Inc.^ 10.75% 9/1/2005 10,000 5,650,000
AMR Corp.^ 9.00% 8/1/2012 15,000 10,275,000
Delta Air Lines, Inc.^ 10.375% 2/1/2011 10,000 8,100,000
-------------
TOTAL 24,025,000
-------------
APPAREL/TEXTILES 0.88%
Dan River Inc.+ 12.75% 4/15/2009 10,000 9,050,000
Interface, Inc.^ 9.50% 11/15/2005 20,000 17,100,000
Levi Strauss & Co. 11.625% 1/15/2008 10,510 9,064,875
Levi Strauss & Co. 12.25% 12/15/2012 7,250 6,071,875
Oxford Industries, Inc.+ 8.875% 6/1/2011 6,000 6,330,000
Phillips-Van Heusen Corp.+ 8.125% 5/1/2013 5,000 5,156,250
Tommy Hilfiger USA, Inc.^ 6.85% 6/1/2008 10,000 10,000,000
-------------
TOTAL 62,773,000
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
AUTO LOANS 0.51%
Ford Motor Credit Corp.^ 7.25% 10/25/2011 $ 35,000 $ 36,038,450
-------------
AUTO PARTS & EQUIPMENT 2.23%
Advanced Accessory System+ 10.75% 6/15/2011 6,000 6,390,000
Collins & Aikman Products Co.^ 11.50% 4/15/2006 17,500 13,825,000
Cummins, Inc.+ 9.50% 12/1/2010 16,650 18,981,000
Dana Corp.^ 10.125% 3/15/2010 15,000 16,612,500
Delco Remy Int'l., Inc.^ 8.625% 12/15/2007 8,000 7,560,000
Delco Remy Int'l., Inc. 11.00% 5/1/2009 22,500 15,412,500
Dura Operating Corp.^ 9.00% 5/1/2009 20,000 18,500,000
Goodyear Tire & Rubber Co.^ 7.857% 8/15/2011 7,500 5,512,500
Tenneco Automotive, Inc.+ 10.25% 7/15/2013 3,500 3,561,250
Tenneco Automotive, Inc.^ 11.625% 10/15/2009 20,000 17,800,000
TRW Automotive, Inc.+ 11.00% 2/15/2013 31,500 34,492,500
-------------
TOTAL 158,647,250
-------------
AUTOMOTIVE 0.98%
Arvin Meritor, Inc.^ 8.75% 3/1/2012 15,000 16,875,000
General Motors Corp.(d) 7.125% 7/15/2013 2,500 2,490,175
General Motors Corp.^ 7.20% 1/15/2011 12,500 12,617,200
Navistar Int'l. Corp.^ 9.375% 6/1/2006 6,000 6,555,000
Oshkosh Truck Corp. 8.75% 3/1/2008 27,000 28,147,500
Venture Holding Trust(b) 9.50% 7/1/2005 10,000 2,825,000
-------------
TOTAL 69,509,875
-------------
BANKING 0.52%
Regions Financial Corp. 7.00% 3/1/2011 14,000 16,730,532
Wells Fargo & Co. 5.10%# 5/6/2018 20,000 20,487,160
-------------
TOTAL 37,217,692
-------------
BEVERAGE 0.07%
Le-Natures, Inc.+ 9.00% 6/15/2013 5,000 5,175,000
-------------
BUILDING & CONSTRUCTION 0.96%
Beazer Homes USA, Inc.^ 8.375% 4/15/2012 8,250 9,178,125
D. R. Horton, Inc. 6.875% 5/1/2013 5,100 5,393,250
Lennar Corp. 7.625% 3/1/2009 15,000 17,814,330
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Schuler Homes, Inc. 9.375% 7/15/2009 $ 15,000 $ 17,025,000
Texas Industries, Inc.+ 10.25% 6/15/2011 8,000 8,400,000
William Lyon Homes 10.75% 4/1/2013 10,000 10,675,000
-------------
TOTAL 68,485,705
-------------
BUILDING MATERIALS 1.11%
American Builders & Contractor 10.625% 5/15/2007 9,200 9,591,000
American Standard Cos., Inc. 8.25% 6/1/2009 30,000 34,762,500
American Standard Cos., Inc.^ 7.625% 2/15/2010 5,000 5,700,000
Euramax Int'l. plc^(a) 11.25% 10/1/2006 15,000 15,525,000
Nortek, Inc. 8.875% 8/1/2008 7,500 7,865,625
Nortek, Inc.^ 9.875% 6/15/2011 5,000 5,287,500
-------------
TOTAL 78,731,625
-------------
CHEMICALS 2.34%
Airgas, Inc. 7.75% 9/15/2006 5,000 5,225,000
Airgas, Inc. 9.125% 10/1/2011 4,000 4,470,000
Ferro Corp. 9.125% 1/1/2009 12,000 14,111,856
FMC Corp. 10.25% 11/1/2009 10,000 11,300,000
Huntsman ICI Chem LLC^ 10.125% 7/1/2009 25,000 24,125,000
IMC Global, Inc.^ 11.25% 6/1/2011 29,500 30,827,500
IMC Global, Inc.+ 11.25% 6/1/2011 10,700 11,181,500
Lyondell Chemical Co.^ 9.625% 5/1/2007 21,450 21,128,250
Methanex Corp.(a) 8.75% 8/15/2012 3,250 3,656,250
Rhodia S.A.+(a) 8.875% 6/1/2011 20,000 20,800,000
Solutia, Inc. 6.72% 10/15/2037 11,900 9,579,500
Solutia, Inc.^ 11.25% 7/15/2009 5,000 4,350,000
Texas Petrochemical Corp.^ 11.125% 7/1/2006 20,000 5,500,000
-------------
TOTAL 166,254,856
-------------
COMPUTER HARDWARE 0.16%
Seagate Tech Hldgs., Inc.^(a) 8.00% 5/15/2009 10,500 11,418,750
-------------
CONSUMER-PRODUCTS 0.83%
American Greetings Corp.^ 11.75% 7/15/2008 12,500 14,625,000
Chattem, Inc.^ 8.875% 4/1/2008 10,000 10,375,000
Int'l. Flavors & Frag, Inc.^ 6.45% 5/15/2006 15,000 16,757,880
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Johnsondiversey, Inc.^ 9.625% 5/15/2012 $ 9,000 $ 10,102,500
Merisant Co.+(d) 9.50% 7/15/2013 2,750 2,860,000
Pennzoil - Quaker State Co. 10.00% 11/1/2008 3,250 3,992,245
-------------
TOTAL 58,712,625
-------------
DIVERSIFIED CAPITAL GOODS 0.42%
Tyco Int'l. Group^(a) 6.375% 6/15/2005 20,000 20,950,000
Vicap S.A.^(a) 11.375% 5/15/2007 10,000 9,025,000
-------------
TOTAL 29,975,000
-------------
ELECTRIC-GENERATION 1.29%
AES Corp.+ 8.75% 5/15/2013 15,000 15,675,000
AES Corp. 9.50% 6/1/2009 15,000 15,225,000
Calpine Corp. 7.875% 4/1/2008 20,000 15,400,000
Calpine Corp. 8.50% 2/15/2011 35,000 26,425,000
Reliant Resources, Inc.+(d) 9.50% 7/15/2013 19,000 19,237,500
-------------
TOTAL 91,962,500
-------------
ELECTRIC-INTEGRATED 1.58%
Kansas City Power & Light 7.125% 12/15/2005 5,000 5,568,870
Mirant Americas General LLC 7.625% 5/1/2006 30,000 23,250,000
Nevada Power Co. 8.25% 6/1/2011 1,250 1,318,750
PPL Energy Supply LLC^ 6.40% 11/1/2011 12,000 13,347,816
PSEG Energy Holdings, Inc.^ 8.50% 6/15/2011 10,000 10,768,770
PSEG Energy Holdings, Inc.^ 8.625% 2/15/2008 15,000 16,143,495
TECO Energy, Inc.^ 7.50% 6/15/2010 28,000 28,700,000
TXU Corp.^ 6.375% 6/15/2006 12,500 13,359,375
-------------
TOTAL 112,457,076
-------------
ELECTRONICS 0.49%
Amkor Technology, Inc.+ 7.75% 5/15/2013 15,000 14,325,000
Cooperative Computing+ 10.50% 6/15/2011 3,500 3,605,000
Sanmina Corp.+ 10.375% 1/15/2010 15,000 16,800,000
-------------
TOTAL 34,730,000
-------------
ENERGY - EXPLORATION & PRODUCTION 1.87%
Chesapeake Energy Corp.^ 8.375% 11/1/2008 10,000 10,875,000
Forest Oil Corp. 7.75% 5/1/2014 10,000 10,450,000
Forest Oil Corp. 8.00% 6/15/2008 15,000 16,125,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Houston Exploration Co.+ 7.00% 6/15/2013 $ 4,500 $ 4,668,750
KCS Energy Services, Inc. 8.875% 1/15/2006 10,000 9,500,000
Magnum Hunter Resources Corp.^ 9.60% 3/15/2012 8,000 8,840,000
Pogo Producing Co. 8.75% 5/15/2007 10,000 10,350,000
Pogo Producing Co. 10.375% 2/15/2009 15,000 16,406,250
Range Resources Corp. 8.75% 1/15/2007 21,000 21,472,500
Stone Energy Corp. 8.25% 12/15/2011 5,000 5,300,000
Swift Energy Co.^ 9.375% 5/1/2012 15,000 16,387,500
XTO Energy, Inc.+ 6.25% 4/15/2013 2,250 2,401,875
-------------
TOTAL 132,776,875
-------------
ENVIRONMENTAL 1.69%
Allied Waste North America, Inc. 10.00% 8/1/2009 75,000 80,062,500
Allied Waste North America, Inc. Series B 7.875% 1/1/2009 25,000 26,281,250
National Waterworks, Inc. 10.50% 12/1/2012 2,250 2,500,312
Waste Management, Inc. 7.10% 8/1/2026 10,000 11,478,100
-------------
TOTAL 120,322,162
-------------
FOOD - WHOLESALE 2.38%
American Seafood Group LLC 10.125% 4/15/2010 11,500 13,110,000
Conagra Foods, Inc. 6.00% 9/15/2006 5,000 5,543,840
Corn Products Int'l., Inc. 8.25% 7/15/2007 20,000 22,200,000
Corn Products Int'l., Inc. 8.45% 8/15/2009 6,000 6,870,000
Dean Foods Co. 6.625% 5/15/2009 10,000 10,450,000
Dean Foods Co. 8.15% 8/1/2007 15,000 16,725,000
Del Monte Corp.+ 8.625% 12/15/2012 10,000 10,650,000
Del Monte Corp. 9.25% 5/15/2011 15,000 16,125,000
Dole Food Co. 8.75% 7/15/2013 20,000 21,550,000
Dole Food Co.+ 8.875% 3/15/2011 7,000 7,455,000
Gruma S.A. de C.V.^(a) 7.625% 10/15/2007 8,000 8,760,000
Land O' Lakes, Inc. 8.75% 11/15/2011 12,000 9,660,000
Michael Foods, Inc. 11.75% 4/1/2011 8,500 9,817,500
Smithfield Foods, Inc.+ 7.75% 5/15/2013 10,000 10,775,000
-------------
TOTAL 169,691,340
-------------
FOOD & DRUG RETAILERS 1.78%
Ahold Finance USA, Inc.^ 8.25% 7/15/2010 18,750 19,312,500
Great Atl & Pac Tea Co., Inc.^ 7.75% 4/15/2007 10,000 9,400,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Great Atl & Pac Tea Co., Inc.^ 9.125% 12/15/2011 $ 15,000 $ 14,100,000
Ingles Markets, Inc.^ 8.875% 12/1/2011 19,000 19,213,750
Rite Aid Corp.+ 8.125% 5/1/2010 25,000 26,000,000
Roundy's, Inc.^ 8.875% 6/15/2012 10,000 10,500,000
Stater Brothers Holdings, Inc.^ 10.75% 8/15/2006 26,500 28,023,750
-------------
TOTAL 126,550,000
-------------
FORESTRY/PAPER 4.04%
Abitibi-Consolidated, Inc.^(a) 8.55% 8/1/2010 27,500 30,854,147
Bowater, Inc.+ 6.50% 6/15/2013 23,500 22,336,867
Buckeye Technologies, Inc.^ 8.00% 10/15/2010 20,000 18,800,000
Corp Durango S.A. de C.V.+(a)(b) 13.75% 7/15/2009 10,000 5,275,000
Fonda Group, Inc. 9.50% 3/1/2007 11,500 6,497,500
Four M Corp. 12.00% 6/1/2006 10,200 10,302,000
Georgia-Pacific Corp. 8.125% 6/15/2023 10,000 9,150,000
Georgia-Pacific Corp. 8.25% 3/1/2023 36,000 33,030,000
Georgia-Pacific Corp.+ 9.375% 2/1/2013 1,750 1,938,125
Graphic Packaging Corp.^ 8.625% 2/15/2012 21,000 21,525,000
Jefferson Smurfit Corp.+ 7.50% 6/1/2013 15,000 15,375,000
Jefferson Smurfit Corp. 8.25% 10/1/2012 10,000 10,775,000
Longview Fibre Co.^ 10.00% 1/15/2009 11,500 12,822,500
MDP Acquisitions plc^(a) 9.625% 10/1/2012 14,500 16,095,000
Stone Container Corp.^ 8.375% 7/1/2012 4,000 4,310,000
Stone Container Corp.^ 9.75% 2/1/2011 12,000 13,200,000
Tembec Industries, Inc.^(a) 7.75% 3/15/2012 15,000 14,625,000
Tembec Industries, Inc.^(a) 8.625% 6/30/2009 23,000 22,827,500
Temple-Inland, Inc. 7.875% 5/1/2012 10,000 11,947,800
Weyerhaeuser Co. 6.125% 3/15/2007 5,000 5,535,620
-------------
TOTAL 287,222,059
-------------
GAMING 4.20%
Aztar Corp. 8.875% 5/15/2007 30,000 31,462,500
Aztar Corp.^ 9.00% 8/15/2011 10,000 10,875,000
Boyd Gaming Corp.^ 8.75% 4/15/2012 15,000 16,500,000
Chumash Casino & Resort+ 9.00% 7/15/2010 2,250 2,441,250
Hard Rock Hotel+ 8.875% 6/1/2013 6,800 7,140,000
Harrah's Operating Co., Inc.^ 7.50% 1/15/2009 25,000 29,655,125
Isle of Capri Casinos, Inc.^ 9.00% 3/15/2012 21,650 23,706,750
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Mandalay Resorts Group^ 9.375% 2/15/2010 $ 20,000 $ 22,700,000
Mohegan Tribal Gaming Authority^ 8.00% 4/1/2012 10,000 10,850,000
Mohegan Tribal Gaming Authority^ 8.75% 1/1/2009 55,000 59,537,500
Park Place Entertainment Corp.^ 8.125% 5/15/2011 15,000 16,537,500
Park Place Entertainment Corp.^ 9.375% 2/15/2007 23,500 26,085,000
Turning Stone Casino Resort+ 9.125% 12/15/2010 12,000 12,855,000
Venetian Casino Resort LLC^ 11.00% 6/15/2010 25,000 28,312,500
-------------
TOTAL 298,658,125
-------------
GAS DISTRIBUTION 1.91%
Dynegy, Inc.^ 8.125% 3/15/2005 30,000 29,325,000
El Paso Production+ 7.75% 6/1/2013 20,000 20,050,000
Semco Energy, Inc.+ 7.75% 5/15/2013 2,200 2,354,000
Sonat, Inc.^ 6.875% 6/1/2005 15,000 14,775,000
Sonat, Inc.^ 7.625% 7/15/2011 15,000 13,725,000
The Williams Co., Inc.^ 7.875% 9/1/2021 25,000 24,500,000
The Williams Co., Inc. 8.625% 6/1/2010 5,000 5,250,000
The Williams Co., Inc. 9.25% 3/15/2004 25,000 25,750,000
-------------
TOTAL 135,729,000
-------------
HEALTH SERVICES 4.62%
Advance PCS 8.50% 4/1/2008 16,000 17,280,000
Alliance Imaging^ 10.375% 4/15/2011 18,000 18,900,000
Ameripath, Inc.+ 10.50% 4/1/2013 10,000 10,775,000
Coventry Healthcare, Inc. 8.125% 2/15/2012 15,000 16,350,000
Extendicare Health Svcs, Inc.^ 9.50% 7/1/2010 12,000 12,660,000
Fresenius Medical Capital Tr. 7.875% 2/1/2008 20,000 21,100,000
Hanger Orthopedic Group, Inc. 10.375% 2/15/2009 10,000 11,100,000
Hanger Orthopedic Group, Inc.^ 11.25% 6/15/2009 10,000 10,850,000
Healthsouth Corp.(b) 8.375% 10/1/2011 20,000 15,800,000
Healthsouth Corp.(b) 10.75% 10/1/2008 20,000 10,500,000
Iasis Healthcare Corp.+ 8.50% 10/15/2009 16,000 16,240,000
Laboratory Corp. of America 5.50% 2/1/2013 5,000 5,363,255
Manor Care, Inc.+ 6.25% 5/1/2013 3,350 3,484,000
Medex, Inc.+ 8.875% 5/15/2013 24,175 25,202,437
PacifiCare Health System, Inc. 10.75% 6/1/2009 35,000 40,337,500
Prime Medical Services, Inc. 8.75% 4/1/2008 18,000 17,010,000
Rotech Healthcare, Inc. 9.50% 4/1/2012 15,000 15,487,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Senior Housing Trust 7.875% 4/15/2015 $ 5,000 $ 5,125,000
Senior Housing Trust 8.625% 1/15/2012 10,000 10,700,000
Tenet Healthcare Corp.^ 7.375% 2/1/2013 28,500 27,645,000
Triad Hospitals, Inc.^ 8.75% 5/1/2009 15,500 16,565,625
-------------
TOTAL 328,475,317
-------------
HOTELS 1.38%
FelCor Lodging LP^ 8.50% 6/1/2011 20,000 20,250,000
Hilton Hotels Corp.^ 8.25% 2/15/2011 20,000 22,500,000
HMH Properties, Inc.^ 7.875% 8/1/2008 15,000 15,300,000
Host Marriott LP^ 9.25% 10/1/2007 25,000 27,000,000
John Q. Hammons Hotels, Inc.^ 8.875% 5/15/2012 12,500 13,187,500
-------------
TOTAL 98,237,500
-------------
HOUSEHOLD & LEISURE PRODUCTS 0.98%
Briggs & Stratton Corp. 8.875% 3/15/2011 15,000 17,400,000
Remington Arms Co.+ 10.50% 2/1/2011 12,000 12,600,000
Royal Caribbean Cruises, Ltd.(a) 8.00% 5/15/2010 5,000 5,225,000
Sealy Mattress Co.^ 9.875% 12/15/2007 11,000 11,000,000
Sealy Mattress Co.^ 10.875% 12/15/2007 7,500 7,687,500
The Scotts Co. 8.625% 1/15/2009 10,000 10,750,000
United Industries Corp.+ 9.875% 4/1/2009 5,000 5,300,000
-------------
TOTAL 69,962,500
-------------
INTEGRATED ENERGY 0.26%
Conoco Phillips^ 8.75% 5/25/2010 7,000 9,123,219
Pecom Energia S.A.+(a) 9.00% 1/30/2007 9,250 9,250,000
-------------
TOTAL 18,373,219
-------------
INVESTMENTS & MISC FINANCIAL SERVICES 0.53%
Dun & Bradstreet Corp. 6.625% 3/15/2006 10,000 10,898,270
GATX Financial Corp.^ 8.875% 6/1/2009 25,000 26,892,550
-------------
TOTAL 37,790,820
-------------
LEISURE 0.42%
Six Flags, Inc.^ 9.50% 2/1/2009 20,000 19,800,000
Universal City Development+ 11.75% 4/1/2010 9,000 9,922,500
-------------
TOTAL 29,722,500
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
MACHINERY 0.72%
Agco Corp.^ 9.50% 5/1/2008 $ 10,000 $ 10,850,000
Case Corp.^ 7.25% 8/1/2005 4,550 4,578,437
Dresser, Inc.^ 9.375% 4/15/2011 20,000 20,700,000
JLG Industries, Inc.+ 8.25% 5/1/2008 15,000 15,300,000
-------------
TOTAL 51,428,437
-------------
MEDIA - BROADCAST 2.25%
Allbritton Comm Co.+ 7.75% 12/15/2012 11,750 12,190,625
Allbritton Comm Co. 7.75% 12/15/2012 31,650 32,836,875
Chancellor Radio Bcst, Inc.^ 8.00% 11/1/2008 3,750 4,378,125
Clear Channel Comm, Inc. 4.625% 1/15/2008 12,000 12,595,128
Clear Channel Comm, Inc.^ 7.65% 9/15/2010 17,500 21,095,515
Granite Broadcasting Corp.^ 10.375% 5/15/2005 11,435 11,463,588
Lin Television Corp.+ 6.50% 5/15/2013 7,500 7,518,750
Paxson Comm.^ 10.75% 7/15/2008 15,000 16,200,000
Sinclair Broadcast Grp, Inc. 8.75% 12/15/2011 10,000 11,025,000
Susquehanna Media Co. 7.375% 4/15/2013 3,000 3,165,000
TV Azteca, S.A. de C.V.^(a) 10.50% 2/15/2007 28,000 27,790,000
-------------
TOTAL 160,258,606
-------------
MEDIA - CABLE 4.55%
Century Communications Corp.^(b) 8.375% 12/15/2007 10,000 6,500,000
Century Communications Corp.(b) 9.50% 3/1/2005 39,000 25,350,000
Charter Communications Hldgs.^ 10.00% 4/1/2009 55,150 42,465,500
Comcast Corp.^ 5.85% 1/15/2010 15,000 16,531,575
Comcast Corp. 10.625% 7/15/2012 1,500 1,992,011
Comcast U.K. Cable Partners^(a) 11.20% 11/15/2007 22,200 21,783,750
CSC Holdings, Inc. 8.125% 8/15/2009 16,500 17,160,000
Direct TV Holdings+ 8.375% 3/15/2013 25,000 28,000,000
Echostar DBS Corp. 9.125% 1/15/2009 10,000 11,225,000
Echostar DBS Corp.^ 9.375% 2/1/2009 15,000 16,068,750
Echostar DBS Corp. 10.375% 10/1/2007 7,500 8,343,750
Frontiervision LP(b) 11.875% 9/15/2007 20,000 16,100,000
Frontiervision LP(b) 11.875% 9/15/2007 10,000 8,050,000
Globo Communicacoes e
Participacos Ltd.+(a)(b) 10.625% 12/5/2008 20,000 7,150,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Insight Comm Co., Inc.** 0.00%/12.25% 2/15/2006 & 2011 $ 50,000 $ 41,750,000
Mediacom LLC^ 8.50% 4/15/2008 40,000 40,600,000
Renaissance Media Group LLC 10.00% 4/15/2008 15,000 14,887,500
-------------
TOTAL 323,957,836
-------------
MEDIA - DIVERSIFIED 0.73%
AOL Time Warner, Inc.^ 6.125% 4/15/2006 20,000 21,885,840
Block Communications, Inc. 9.25% 4/15/2009 15,000 16,425,000
Vivendi Universal+(a) 9.25% 4/15/2010 12,000 13,710,000
-------------
TOTAL 52,020,840
-------------
MEDIA - SERVICES 0.23%
Interep National Radio Sales, Inc.^ 10.00% 7/1/2008 6,500 5,557,500
Interpublic Group of Cos., Inc.^ 7.25% 8/15/2011 10,000 10,600,000
-------------
TOTAL 16,157,500
-------------
METALS/MINING 0.48%
Century Aluminum Co.^ 11.75% 4/15/2008 12,500 12,812,500
International Wire Group, Inc. 11.75% 6/1/2005 10,000 6,450,000
Peabody Energy Corp.+ 6.875% 3/15/2013 7,500 7,893,750
Republic Technology Int'l.~(b) 13.75% 7/15/2009 10,000 -(c)
Trimas Corp. 9.875% 6/15/2012 7,000 7,210,000
-------------
TOTAL 34,366,250
-------------
MORTGAGE BANKS & THRIFTS 0.37%
B.F. Saul REIT 9.75% 4/1/2008 20,000 20,100,000
Ocwen Federal Bank 12.00% 6/15/2005 3,755 3,783,163
Ocwen Financial Corp. 11.875% 10/1/2003 2,754 2,774,655
-------------
TOTAL 26,657,818
-------------
MULTI-LINE INSURANCE 0.16%
Willis Corroon Corp. 9.00% 2/1/2009 11,000 11,715,000
-------------
NON-FOOD & DRUG RETAILERS 1.55%
Cole National Group 8.875% 5/15/2012 15,000 14,512,500
Dillard's, Inc.^ 7.85% 10/1/2012 12,750 12,686,250
Dollar General Corp. 8.625% 6/15/2010 3,000 3,333,750
J.C. Penney Co., Inc.^ 7.95% 4/1/2017 20,750 20,646,250
J.C. Penney Co., Inc. 8.00% 3/1/2010 12,500 13,156,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Office Depot, Inc.^ 10.00% 7/15/2008 $ 5,000 $ 5,962,500
Saks, Inc.^ 7.375% 2/15/2019 12,500 11,937,500
Saks, Inc.^ 9.875% 10/1/2011 25,000 28,250,000
-------------
TOTAL 110,485,000
-------------
OFFICE EQUIPMENT 0.23%
Xerox Corp.^ 5.50% 11/15/2003 5,000 5,050,000
Xerox Corp.+ 9.75% 1/15/2009 10,000 11,300,000
-------------
TOTAL 16,350,000
-------------
OIL FIELD EQUIPMENT & SERVICES 0.53%
Key Energy Services, Inc. 6.375% 5/1/2013 1,500 1,530,000
Key Energy Services, Inc.^ 8.375% 3/1/2008 13,500 14,715,000
Parker Drilling Co.^ 10.125% 11/15/2009 20,000 21,700,000
-------------
TOTAL 37,945,000
-------------
PACKAGING 1.86%
AEP Industries, Inc.^ 9.875% 11/15/2007 7,500 6,937,500
Anchor Glass Container+ 11.00% 2/15/2013 17,000 18,657,500
BWAY Corp.+ 10.00% 10/15/2010 25,000 25,500,000
Owens-Brockway Glass Co.+ 7.75% 5/15/2011 7,000 7,437,500
Owens-Brockway Glass Co. 8.875% 2/15/2009 50,000 54,500,000
Plastipak Holdings, Inc. 10.75% 9/1/2011 6,500 6,987,500
Portola Packaging, Inc. 10.75% 10/1/2005 12,500 12,625,000
-------------
TOTAL 132,645,000
-------------
PHARMACEUTICALS 0.79%
Alpharma, Inc.+ 8.625% 5/1/2011 11,600 12,238,000
Biovail Corp.(a) 7.875% 4/1/2010 15,000 15,975,000
Perkinelmer, Inc. 8.875% 1/15/2013 25,750 28,067,500
-------------
TOTAL 56,280,500
-------------
PRINTING & PUBLISHING 1.18%
American Color Graphics+(d) 10.00% 6/15/2010 15,000 15,000,000
American Media, Inc. 10.25% 5/1/2009 5,000 5,425,000
Houghton Mifflin Co.+ 9.875% 2/1/2013 28,000 30,520,000
Primedia, Inc.^ 8.875% 5/15/2011 20,000 21,150,000
RH Donnelley Fin Corp.+ 10.875% 12/15/2012 10,000 11,700,000
-------------
TOTAL 83,795,000
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
REIT 0.13%
Ventas Realty LP Cap Corp. 8.75% 5/1/2009 $ 8,750 $ 9,493,750
-------------
RESTAURANTS 0.04%
Domino's, Inc.+ 8.25% 7/1/2011 2,900 3,008,750
-------------
SOFTWARE/SERVICES 1.05%
Computer Associates Int'l., Inc. 6.375% 4/15/2005 25,000 26,513,800
Electronic Data Systems Corp.+ 6.00% 8/1/2013 13,000 12,702,014
Unisys Corp.^ 6.875% 3/15/2010 8,000 8,360,000
Unisys Corp.^ 8.125% 6/1/2006 25,000 26,875,000
-------------
Total 74,450,814
-------------
STEEL PRODUCERS/PRODUCTS 0.89%
AK Steel Corp. 7.75% 6/15/2012 20,000 16,700,000
Armco, Inc. 9.00% 9/15/2007 30,000 26,550,000
Oregon Steel Mills, Inc.^ 10.00% 7/15/2009 5,000 4,525,000
The Timken Co. 5.75% 2/15/2010 10,000 10,542,530
WCI Steel, Inc. 10.00% 12/1/2004 15,000 4,725,000
-------------
TOTAL 63,042,530
-------------
SUPPORT-SERVICES 1.10%
Iron Mountain, Inc.^ 6.625% 1/1/2016 9,000 8,910,000
Iron Mountain, Inc. 7.75% 1/15/2015 26,200 27,837,500
Iron Mountain, Inc. 8.625% 4/1/2013 20,000 21,500,000
Kinder Care Learning Centers, Inc. 9.50% 2/15/2009 4,500 4,556,250
UNICCO Service Co. 9.875% 10/15/2007 4,444 3,444,100
Williams Scotsman, Inc.^ 9.875% 6/1/2007 10,000 9,850,000
Worldspan LP+ 9.625% 6/15/2011 2,000 2,070,000
-------------
TOTAL 78,167,850
-------------
TELECOM - FIXED LINE 0.40%
Level 3 Communications, Inc. 11.25% 3/15/2010 22,600 21,470,000
Time-Warner Telecom, Inc.^ 10.125% 2/1/2011 7,000 6,790,000
-------------
TOTAL 28,260,000
-------------
TELECOM - INTEGRATED/SERVICES 1.16%
Qwest Capital Funding 5.875% 8/3/2004 22,500 21,656,250
Qwest Communications Int'l. 7.50% 11/1/2008 12,000 11,160,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
Qwest Services Corp.+ 13.50% 12/15/2010 $ 31,800 $ 36,093,000
Telefonica De Argentina+(a) 9.125% 5/7/2008 15,000 13,425,000
-------------
TOTAL 82,334,250
-------------
TELECOM - WIRELESS 5.18%
Alamosa Delaware, Inc. 12.50% 2/1/2011 31,000 25,575,000
Alamosa Delaware, Inc. 13.625% 8/15/2011 13,500 11,407,500
Centennial Cell Communications+ 10.125% 6/15/2013 10,000 9,950,000
Crown Castle Int'l. Corp. 10.75% 8/1/2011 20,000 21,900,000
Dobson Communications Corp. 10.875% 7/1/2010 15,000 16,275,000
Nextel Communications, Inc. 9.50% 2/1/2011 50,000 55,625,000
Nextel Communications, Inc. 12.00% 11/1/2008 40,000 43,200,000
Nextel Partners, Inc.+ 8.125% 7/1/2011 3,115 3,122,788
Rogers Cantel, Inc.^(a) 8.30% 10/1/2007 35,000 36,093,750
Rogers Wireless, Inc.(a) 9.625% 5/1/2011 5,000 5,775,000
Rural Cellular Corp. 9.75% 1/15/2010 24,650 21,938,500
SBA Communications Corp. 10.25% 2/1/2009 15,000 13,875,000
TeleCorp PCS, Inc. 10.625% 7/15/2010 16,000 19,400,000
Tritel PCS, Inc. 10.375% 1/15/2011 9,301 11,416,977
Triton PCS, Inc.^ 11.00% 5/1/2008 50,000 53,250,000
Voicestream Wireless Corp. 10.375% 11/15/2009 6,586 7,689,155
Western Wireless Corp. 10.50% 2/1/2007 12,000 12,240,000
-------------
TOTAL 368,733,670
-------------
TELECOMMUNICATIONS EQUIPMENT 0.41%
Nortel Networks, Inc.^(a) 6.125% 2/15/2006 30,000 29,250,000
-------------
THEATERS & ENTERTAINMENT 0.30%
AMC Entertainment, Inc.^ 9.50% 3/15/2009 10,000 10,275,000
Cinemark USA, Inc.+ 9.00% 2/1/2013 10,000 10,900,000
-------------
TOTAL 21,175,000
-------------
TRANSPORTATION EXCLUDING AIR/RAIL 0.22%
Avis Group Holdings, Inc. 11.00% 5/1/2009 14,000 15,750,000
-------------
TOTAL HIGH YIELD CORPORATE BONDS
(COST $4,730,222,268) 4,865,537,082
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- -----------------------------------------------------------------------------------------------------
NON-AGENCY COMMERCIAL MORTGAGE-BACKED
SECURITIES 0.32%
Credit Suisse First Boston
1998-C2 A2 (Cost $19,463,845) 6.30% 11/11/2030 $ 20,000 $ 22,900,300
=============
<Caption>
SHARES
(000)
----------
NON-CONVERTIBLE PREFERRED STOCKS 0.29%
MEDIA - CABLE 0.29%
CSC Holdings, Inc.^ 11.125% 150 15,412,500
CSC Holdings, Inc.^ 11.75% 50 5,150,000
-------------
TOTAL NON-CONVERTIBLE PREFERRED STOCKS
(COST $21,270,000) 20,562,500
=============
<Caption>
PRINCIPAL
AMOUNT
(000)
----------
PASS-THROUGH AGENCY 0.25%
Government National Mortgage
Assoc. (Cost $17,390,653) 8.00% 3/15/2032 $ 16,450 17,760,257
=============
U.S. TREASURY OBLIGATIONS 0.31%
U.S. Treasury Note (Cost $21,057,358) 6.75% 5/15/2005 20,000 22,032,040
=============
<Caption>
SHARES
(000)
----------
WARRANTS 0.00%
CHEMICALS 0.00%
Solutia, Inc. Warrant* 7/15/2009 5 50
-------------
FOOD & DRUG RETAILERS 0.00%
Leiner Health Products, Inc.
Series C Pfd Warrant*~ 7/1/2007 1 1,441
-------------
TOTAL WARRANTS (COST $16,917,494) 1,491
=============
TOTAL LONG-TERM INVESTMENTS (COST $6,476,877,018) 6,652,506,493
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONCLUDED)
JUNE 30, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT
INVESTMENTS (000) VALUE
- -------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 18.51%
COLLATERAL FOR SECURITIES ON LOAN 13.24%
State Street Navigator Securities
Lending Prime Portfolio, 1.10%(e) $ 942,417 $ 942,416,531
---------------
REPURCHASE AGREEMENT 5.27%
Repurchase Agreement dated 6/30/2003,
1.10% due 7/1/2003 with State Street
Bank & Trust Co. collateralized
by $46,615,000 of Federal Home Loan Bank
at 1.425% due 3/8/2004, $95,770,000 of
Federal Home Loan Bank at 1.25% due
7/2/2004, $235,725,000 of Federal
National Mortgage Assoc. at 2.00%
due 3/15/2005; value: $382,562,869;
proceeds: $374,962,097 374,951 374,950,640
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,317,367,171) 1,317,367,171
===============
TOTAL INVESTMENTS 112.01% (COST $7,794,244,189) $ 7,969,873,664
===============
</Table>
* Non-income producing security.
** Deferred-interest debentures pay no interest for a stipulated number of
years, after which they pay a predetermined interest rate.
+ Restricted security under Rule 144A.
^ All (or a portion) of security on loan.
~ Fair Valued Security - See Note 2a.
# Variable rate security. The interest rate represents the rate at June 30,
2003.
(a) Foreign security denominated in U.S. dollars.
(b) Defaulted security.
(c) Amount represents less than $1.
(d) Securities purchased on a when-issued basis.
(e) Rate shown reflects 7 day yield as of June 30, 2003.
REIT - Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2003
<Table>
ASSETS:
Investment in securities, at value (cost $7,794,244,189) $ 7,969,873,664
Receivables:
Interest and dividends 118,940,742
Investment securities sold 415,616,877
Capital shares sold 45,707,036
From Lord, Abbett & Co. LLC 31,403
Prepaid expenses and other assets 879,029
- -----------------------------------------------------------------------------------------
TOTAL ASSETS 8,551,048,751
- -----------------------------------------------------------------------------------------
LIABILITIES:
Payable upon return of securities on loan 942,416,531
Payables:
Investment securities purchased 472,888,924
Capital shares reacquired 7,886,759
Management fee 2,590,041
12b-1 distribution fees 4,000,595
Fund administration 128,390
Directors' fees 738,331
To bank 3,712,771
To affiliate 81,065
Dividends payable 214
Accrued expenses and other liabilities 1,322,720
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,435,766,341
=========================================================================================
NET ASSETS $ 7,115,282,410
=========================================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 7,790,999,103
Distributions in excess of net investment income (31,509,346)
Accumulated net realized loss on investments and foreign currency
related transactions (819,836,822)
Net unrealized appreciation on investments 175,629,475
- -----------------------------------------------------------------------------------------
NET ASSETS $ 7,115,282,410
=========================================================================================
NET ASSETS BY CLASS:
Class A Shares $ 3,893,804,841
Class B Shares $ 1,712,409,645
Class C Shares $ 1,364,838,668
Class P Shares $ 39,067,542
Class Y Shares $ 105,161,714
OUTSTANDING SHARES BY CLASS:
Class A Shares 503,970,912
Class B Shares 221,496,311
Class C Shares 176,382,190
Class P Shares 4,989,790
Class Y Shares 13,646,193
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(NET ASSETS DIVIDED BY OUTSTANDING SHARES):
Class A Shares-Net asset value $ 7.73
Class A Shares-Maximum offering price
(Net asset value plus sales charge of 4.75%) $ 8.12
Class B Shares-Net asset value $ 7.73
Class C Shares-Net asset value $ 7.74
Class P Shares-Net asset value $ 7.83
Class Y Shares-Net asset value $ 7.71
=========================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
STATEMENT OF OPERATIONS (UNAUDITED)
For the Six Months Ended June 30, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 16,467,996
Interest 210,910,137
Securities lending 908,824
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 228,286,957
- -----------------------------------------------------------------------------------------
EXPENSES:
Management fee 13,883,014
12b-1 distribution plan-Class A 6,123,791
12b-1 distribution plan-Class B 7,383,279
12b-1 distribution plan-Class C 5,516,172
12b-1 distribution plan-Class P 62,236
Shareholder servicing 3,508,486
Professional 56,921
Reports to shareholders 286,475
Fund administration 1,169,758
Custody 113,918
Directors' fees 74,773
Registration 194,185
Subsidy (see Note 3) 67,623
Other 384,117
- -----------------------------------------------------------------------------------------
Gross expenses 38,824,748
Expense reductions (37,855)
- -----------------------------------------------------------------------------------------
NET EXPENSES 38,786,893
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 189,500,064
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN:
Net realized loss on investments (17,205,804)
Net change in unrealized appreciation/depreciation on investments 500,854,315
=========================================================================================
NET REALIZED AND UNREALIZED GAIN 483,648,511
=========================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 673,148,575
=========================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
INCREASE IN NET ASSETS (UNAUDITED) 2002
OPERATIONS:
Net investment income $ 189,500,064 $ 341,967,818
Net realized loss on investments
and foreign currency related transactions (17,205,804) (289,095,114)
Net change in unrealized appreciation/depreciation on
investments and foreign currency related transactions 500,854,315 (101,154,988)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 673,148,575 (48,282,284)
===========================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (126,564,787) (208,196,540)
Class B (50,238,398) (84,835,122)
Class C (37,448,460) (55,494,565)
Class P (979,662) (955,236)
Class Y (3,096,530) (4,446,077)
Paid-in capital
Class A - (17,515,233)
Class B - (7,137,040)
Class C - (4,668,667)
Class P - (80,362)
Class Y - (374,041)
- -----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (218,327,837) (383,702,883)
===========================================================================================================
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 1,799,304,288 2,089,601,650
Reinvestment of distributions 151,623,650 256,930,881
Cost of shares reacquired (626,778,515) (899,076,019)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS 1,324,149,423 1,447,456,512
===========================================================================================================
NET INCREASE IN NET ASSETS 1,778,970,161 1,015,471,345
===========================================================================================================
NET ASSETS:
Beginning of period 5,336,312,249 4,320,840,904
- -----------------------------------------------------------------------------------------------------------
END OF PERIOD $ 7,115,282,410 $ 5,336,312,249
===========================================================================================================
DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME $ (31,509,346) $ (2,681,573)
===========================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ---------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
PER SHARE OPERATING PERFORMANCE
(CLASS A SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.19 $ 7.91 $ 8.23 $ 9.05 $ 9.45 $ 9.76
=========== ======= ======= ======= ======= =======
Investment operations:
Net investment income(a) .24 .55 .65 .68 .75 .76
Net realized and
unrealized gain (loss) .57 (.64) (.26) (.75) (.40) (.31)
----------- ------- ------- ------- ------- -------
Total from investment
operations .81 (.09) .39 (.07) .35 .45
----------- ------- ------- ------- ------- -------
Distributions to shareholders from:
Net investment income (.27) (.58) (.67) (.75) (.75) (.76)
Paid-in capital - (.05) (.04) - - -
----------- ------- ------- ------- ------- -------
Total distributions (.27) (.63) (.71) (.75) (.75) (.76)
----------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.73 $ 7.19 $ 7.91 $ 8.23 $ 9.05 $ 9.45
=========== ======= ======= ======= ======= =======
Total Return(b) 11.57%(d) (1.08)% 4.86% (.86)% 3.91% 4.76%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .50%(d) 1.00% 1.02% 1.00% .92% .88%
Expenses, excluding expense
reductions .50%(d) 1.00% 1.02% 1.01% .92% .88%
Net investment income 3.20%(d) 7.51% 7.96% 7.88% 8.17% 7.85%
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ----------------------------------------------------------------------------
SUPPLEMENTAL DATA: (UNAUDITED) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Net assets,
end of period (000) $ 3,893,805 $ 3,048,301 $ 2,500,544 $ 2,065,319 $ 2,328,531 $ 2,320,163
Portfolio turnover rate 18.96% 37.03% 55.44% 66.03% 67.93% 86.48%
=========================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ---------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
PER SHARE OPERATING PERFORMANCE
(CLASS B SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.20 $ 7.92 $ 8.23 $ 9.05 $ 9.44 $ 9.75
=========== ======= ======= ======= ======= =======
Investment operations:
Net investment income(a) .21 .51 .60 .63 .69 .69
Net realized and
unrealized gain (loss) .57 (.65) (.25) (.76) (.39) (.31)
----------- ------- ------- ------- ------- -------
Total from investment
operations .78 (.14) .35 (.13) .30 .38
----------- ------- ------- ------- ------- -------
Distributions to shareholders from:
Net investment income (.25) (.53) (.63) (.69) (.69) (.69)
Paid-in capital - (.05) (.03) - - -
----------- ------- ------- ------- ------- -------
Total distributions (.25) (.58) (.66) (.69) (.69) (.69)
----------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.73 $ 7.20 $ 7.92 $ 8.23 $ 9.05 $ 9.44
=========== ======= ======= ======= ======= =======
Total Return(b) 11.09%(d) (1.67)% 4.29% (1.52)% 3.29% 3.98%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .82%(d) 1.65% 1.63% 1.61% 1.60% 1.60%
Expenses, excluding
expense reductions .82%(d) 1.65% 1.63% 1.62% 1.60% 1.60%
Net investment income 2.88%(d) 6.86% 7.35% 7.26% 7.49% 7.13%
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ----------------------------------------------------------------------------
SUPPLEMENTAL DATA: (UNAUDITED) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Net assets,
end of period (000) $ 1,712,409 $ 1,294,955 $ 1,105,501 $ 786,786 $ 840,533 $ 671,047
Portfolio turnover rate 18.96% 37.03% 55.44% 66.03% 67.93% 86.48%
=========================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ---------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
PER SHARE OPERATING PERFORMANCE
(CLASS C SHARES)
Net asset value,
beginning of period $ 7.21 $ 7.93 $ 8.24 $ 9.06 $ 9.46 $ 9.77
=========== ======= ======= ======= ======= =======
Investment operations:
Net investment income(a) .21 .51 .60 .63 .69 .69
Net realized and
unrealized gain (loss) .57 (.64) (.25) (.76) (.40) (.31)
----------- ------- ------- ------- ------- -------
Total from investment
operations .78 (.13) .35 (.13) .29 .38
----------- ------- ------- ------- ------- -------
Distributions to shareholders from:
Net investment income (.25) (.54) (.63) (.69) (.69) (.69)
Paid-in capital - (.05) (.03) - - -
----------- ------- ------- ------- ------- -------
Total distributions (.25) (.59) (.66) (.69) (.69) (.69)
----------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.74 $ 7.21 $ 7.93 $ 8.24 $ 9.06 $ 9.46
=========== ======= ======= ======= ======= =======
Total Return(b) 11.10%(d) (1.58)% 4.29% (1.52)% 3.17% 3.98%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .82%(d) 1.59% 1.62% 1.65% 1.60% 1.60%
Expenses, excluding
expense reductions .82%(d) 1.59% 1.62% 1.66% 1.60% 1.60%
Net investment income 2.88%(d) 6.92% 7.36% 7.26% 7.49% 7.13%
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2003 ----------------------------------------------------------------------------
SUPPLEMENTAL DATA: (UNAUDITED) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Net assets,
end of period (000) $ 1,364,839 $ 905,629 $ 662,848 $ 483,885 $ 557,149 $ 521,103
Portfolio turnover rate 18.96% 37.03% 55.44% 66.03% 67.93% 86.48%
=========================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31 8/21/1998(c)
6/30/2003 ---------------------------------------- TO
(UNAUDITED) 2002 2001 2000 1999 12/31/1998
PER SHARE OPERATING PERFORMANCE
(CLASS P SHARES)
Net asset value,
beginning of period $ 7.29 $ 8.02 $ 8.33 $ 9.05 $ 9.45 $ 9.54
=========== ======= ======= ======= ======= ===========
Investment operations:
Net investment income(a) .24 .55 .64 .67 .73 .25
Net realized and
unrealized gain (loss) .57 (.65) (.24) (.65) (.39) (.09)
----------- ------- ------- ------- ------- -----------
Total from investment
operations .81 (.10) .40 .02 .34 .16
----------- ------- ------- ------- ------- -----------
Distributions to shareholders from:
Net investment income (.27) (.58) (.67) (.74) (.74) (.25)
Paid-in capital - (.05) (.04) - - -
----------- ------- ------- ------- ------- -----------
Total distributions (.27) (.63) (.71) (.74) (.74) (.25)
----------- ------- ------- ------- ------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.83 $ 7.29 $ 8.02 $ 8.33 $ 9.05 $ 9.45
=========== ======= ======= ======= ======= ===========
Total Return(b) 11.39%(d) (1.19)% 4.90% .06% 3.86% 1.73%(d)
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .54%(d) 1.10% 1.08% 1.06% 1.05% .38%(d)
Expenses, excluding expense
reductions .54%(d) 1.10% 1.08% 1.07% 1.05% .38%(d)
Net investment income 3.16%(d) 7.41% 7.88% 7.83% 8.10% 2.90%(d)
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31 8/21/1998(c)
6/30/2003 ------------------------------------------------------------ TO
SUPPLEMENTAL DATA: (UNAUDITED) 2002 2001 2000 1999 12/31/1998
- -------------------------------------------------------------------------------------------------------------------------
Net assets,
end of period (000) $ 39,067 $ 18,736 $ 7,017 $ 1,385 $ 229 $ -(e)
Portfolio turnover rate 18.96% 37.03% 55.44% 66.03% 67.93% 86.48%
=========================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<Page>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31 3/27/1998(c)
6/30/2003 ---------------------------------------- TO
(UNAUDITED) 2002 2001 2000 1999 12/31/1998
PER SHARE OPERATING PERFORMANCE
(CLASS Y SHARES)
Net asset value,
beginning of period $ 7.18 $ 7.90 $ 8.21 $ 9.04 $ 9.44 $ 9.98
=========== ======= ======= ======= ======= ===========
Investment operations:
Net investment income(a) .25 .58 .68 .71 .78 .59
Net realized and
unrealized gain (loss) .57 (.64) (.24) (.76) (.40) (.54)
----------- ------- ------- ------- ------- -----------
Total from investment
operations .82 (.06) .44 (.05) .38 .05
----------- ------- ------- ------- ------- -----------
Distributions to shareholders from:
Net investment income (.29) (.61) (.71) (.78) (.78) (.59)
Paid-in capital - (.05) (.04) - - -
----------- ------- ------- ------- ------- -----------
Total distributions (.29) (.66) (.75) (.78) (.78) (.59)
----------- ------- ------- ------- ------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.71 $ 7.18 $ 7.90 $ 8.21 $ 9.04 $ 9.44
=========== ======= ======= ======= ======= ===========
Total Return(b) 11.63%(d) (.66)% 5.44% (.61)% 4.27% .55%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .32%(d) .65% .63% .61% .60% .46%
Expenses, excluding expense
reductions .32%(d) .65% .63% .62% .60% .46%
Net investment income 3.38%(d) 7.86% 8.36% 8.26% 8.52% 6.24%
</Table>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31 3/27/1998(c)
6/30/2003 ------------------------------------------------------------ TO
SUPPLEMENTAL DATA: (UNAUDITED) 2002 2001 2000 1999 12/31/1998
- -------------------------------------------------------------------------------------------------------------------------
Net assets,
end of period (000) $ 105,162 $ 68,691 $ 44,931 $ 43,884 $ 51,181 $ 27,811
Portfolio turnover rate 18.96% 37.03% 55.44% 66.03% 67.93% 86.48%
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Commencement of offering of class shares.
(d) Not annualized.
(e) Amount less than $1,000.
SEE NOTES TO FINANCIAL STATEMENTS.
31
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Lord Abbett Bond-Debenture Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 (the "Act") as a diversified open-end management
investment company incorporated under Maryland law on January 23, 1976.
The Fund's investment objective is to seek high current income and the
opportunity for capital appreciation to produce a high total return. The Fund
offers five classes of shares: Classes A, B, C, P and Y, each with different
expenses and dividends. A front-end sales charge is normally added to the NAV
for Class A shares. There is no front-end sales charge in the case of the Class
B, C, P and Y shares, although there may be a contingent deferred sales charge
("CDSC") as follows: certain redemptions of Class A shares made within 24 months
following any purchases made without a sales charge; Class B shares redeemed
before the sixth anniversary of purchase; and Class C shares redeemed before the
first anniversary of purchase. Class B shares will convert to Class A shares on
the eighth anniversary of the original purchase of Class B shares.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) INVESTMENT VALUATION-Securities traded on national or foreign securities
exchanges are valued at the last quoted sales price, or if no sales price
is available, at the mean between the latest bid and asked prices on such
exchanges or, in the case of bonds, in the over-the-counter market if, in
the judgment of the Fund's officers, that market more accurately reflects
the market value of the bonds. Securities traded only in the
over-the-counter market are valued at the mean between the latest bid and
asked prices, except that securities admitted to trading on the NASDAQ
National Market System are valued at the last sales price if it is
determined that such price more accurately reflects the value of such
securities. Securities for which market quotations are not readily
available are valued at fair value as determined by management and approved
in good faith by the Board of Directors. Short-term securities with 60 days
or less remaining to maturity are valued using the amortized cost method,
which approximates current market value.
(b) SECURITIES TRANSACTIONS-Securities transactions are recorded as of the date
that the securities are purchased or sold (trade date). Realized gains and
losses on sales of portfolio securities are calculated using the
identified-cost method. 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.
(c) INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis and discounts are accreted
and premiums are amortized using the effective interest method. Investment
income is allocated to each class of shares based upon the relative
proportion of net assets at the beginning of the day.
32
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(d) FEDERAL TAXES-It is the policy of the Fund to meet the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all taxable net
investment income and capital gains to its shareholders. Therefore, no
federal income tax provision is required.
(e) EXPENSES-Expenses, excluding class specific expenses, are allocated to each
class of shares based upon the relative proportion of net assets at the
beginning of the day. Class A, Class B, Class C and Class P shares bear all
expenses and fees relating to their respective 12b-1 Distribution Plans.
(f) FOREIGN TRANSACTIONS-The books and records of the Fund are maintained in
U.S. dollars and transactions denominated in foreign currencies are
recorded in the Fund's records at the rate prevailing when earned or
recorded. Asset and liability accounts that are denominated in foreign
currencies are adjusted to reflect current exchange rates. The resultant
exchange gains and losses are included as net realized gain (loss) on
investments and foreign currency related transactions on the Statement of
Operations. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates
from the changes in market prices of the securities.
(g) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS-The Fund may enter into forward
foreign currency exchange contracts in order to reduce its exposure to
changes in foreign currency exchange rates on its foreign portfolio
holdings and to lock in the U.S. dollar cost of firm purchase and sale
commitments for securities denominated in foreign currencies. A forward
currency exchange contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated rate. The contracts are valued
daily at forward exchange rates and any unrealized gain or loss is included
in net unrealized appreciation/depreciation on investments and translation
of assets and liabilities denominated in foreign currencies. The gain or
loss arising from the difference between the U.S. dollar cost of the
original contract and the value of the foreign currency in U.S. dollars
upon closing of such contracts is included in net realized gain or loss on
investments and foreign currency related transactions. At June 30, 2003,
there are no open forward foreign currency exchange contracts.
(h) SECURITIES LENDING-The Fund may lend its securities to member banks of the
Federal Reserve System and to registered broker/dealers approved by the
Fund. The loans are collateralized at all times by cash and/or U.S.
Treasury securities. The collateral received is at least equal to 102% of
the market value of the securities loaned (105% in the case of foreign
securities loaned), as determined at the close of business on the preceding
business day.
The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
Lending portfolio securities could result in a loss or delay in recovering
the Fund's securities if the borrower defaults.
(i) REPURCHASE AGREEMENTS-The Fund may enter into repurchase agreements with
respect to securities. A repurchase agreement is a transaction in which the
Fund acquires a security and simultaneously commits to resell that security
to the seller (a bank or securities dealer) at an agreed-upon price on an
agreed-upon date. The Fund requires at all times that the repurchase
agreement be collateralized by cash, U.S. Government securities or U.S.
Government Enterprise securities having a value equal to, or in excess of,
the value of the repurchase agreement. If the seller of the agreement
defaults on its obligation to repurchase the underlying securities at a
time when the value of these securities has declined, the Fund may incur a
loss upon disposition of them.
33
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE
The Fund has a management agreement with Lord, Abbett & Co. LLC ("Lord Abbett")
pursuant to which Lord Abbett supplies the Fund with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research and statistical work and supervision of the Fund's
investment portfolio.
The management fee is based on average daily net assets at the following annual
rates:
<Table>
First $500 million .50%
Over $500 million .45%
</Table>
In addition, effective January 1, 2003, Lord Abbett began providing certain
administrative services to the Fund pursuant to an Administrative Services
Agreement at an annual rate of .04% of the Fund's average daily net assets. This
will result in Lord Abbett paying fund accounting expenses that were previously
charged to the Fund.
12b-1 DISTRIBUTION PLAN
The Fund has adopted a distribution plan with respect to one or more classes of
shares pursuant to Rule 12b-1 of the Act, which provides for the payment of
ongoing account maintenance and distribution fees to Lord Abbett Distributor LLC
("Distributor"), an affiliate of Lord Abbett. The fees are accrued daily at
annual rates based upon average daily net assets as follows:
<Table>
<Caption>
FEE CLASS A CLASS B CLASS C CLASS P
- -----------------------------------------------------------------------
Service .25%(1) .25% .25% .20%
Distribution .10%(2) .75% .75% .25%
</Table>
(1) Annual service fee on shares sold prior to June 1, 1990 is .15% of the
average daily net asset value.
(2) In addition, the Fund pays a one-time distribution fee of up to 1% on
certain qualifying purchases, which is generally amortized over a two-year
period.
Class Y does not have a distribution plan.
COMMISSIONS
Distributor received the following commissions on sales of Class A shares of the
Fund after concessions were paid to authorized dealers for the six months ended
June 30, 2003:
<Table>
<Caption>
DISTRIBUTOR COMMISSIONS DEALERS' CONCESSIONS
- ---------------------------------------------------
$4,098,668 $ 21,172,710
</Table>
One Director and certain of the Fund's officers have an interest in Lord Abbett.
The Fund, and certain other funds managed by Lord Abbett (the "Underlying
Funds"), has entered into a Servicing Arrangement with Balanced Series of Lord
Abbett Investment Trust, Inc. ("Balanced Series") pursuant to which each
Underlying Fund pays a portion of the expenses of Balanced Series in proportion
to the average daily value of Underlying Fund shares owned by Balanced Series.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARD
Dividends from net investment income, if any, are declared and paid monthly.
Taxable net realized gains from investment transactions, reduced by capital loss
carryforwards, if any, are declared and distributed to shareholders at least
annually. The capital loss carryforward amount is
34
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
available to offset future net capital gains. Dividends and distributions to
shareholders are recorded on the ex-dividend date. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from accounting principles generally accepted in the United States of America.
These book/tax differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the components of net assets based on their federal tax
basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for tax purposes are reported as distributions of paid-in capital.
The tax character of distributions paid during the six months ended June 30,
2003 and the year ended December 31, 2002 are as follows:
<Table>
<Caption>
6/30/2003 12/31/2002
- --------------------------------------------------------------
Distributions paid from:
Ordinary income $ 218,327,837 $ 353,927,540
Tax return of capital - 29,775,343
- --------------------------------------------------------------
Total distributions paid $ 218,327,837 $ 383,702,883
==============================================================
</Table>
At fiscal year end December 31, 2002, the capital loss carryforwards along with
the related expiration dates were as follows:
<Table>
<Caption>
AMOUNT YEARS OF EXPIRATION
- ------------------------------------------------
$ 781,736,745 2003-2010
</Table>
As of June 30, 2003, the Fund's aggregate security unrealized gains and losses
based on cost for U.S. federal income tax purposes are as follows:
<Table>
Tax cost $ 6,872,721,931
- ------------------------------------------------
Gross unrealized gain 379,321,335
Gross unrealized loss (224,586,133)
- ------------------------------------------------
Net unrealized gain $ 154,735,202
================================================
</Table>
The difference between book-basis and tax-basis unrealized gains (losses) is
primarily attributable to wash sales and other temporary tax adjustments.
5. PORTFOLIO SECURITIES TRANSACTIONS
At June 30, 2003, the value of securities loaned for the Fund is $921,970,614.
These loans are collateralized by cash of $942,416,531, which is invested in a
restricted money market account. Expenses relating to securities lending of
$228,268 are included in other expenses on the Statement of Operations.
Purchases and sales of investment securities (other than short-term investments)
for the six months ended June 30, 2003 are as follows:
<Table>
<Caption>
U.S. GOVERNMENT NON-U.S. GOVERNMENT
PURCHASES* PURCHASES
- ------------------------------------------------
$ 81,650,000 $ 2,047,108,985
</Table>
<Table>
<Caption>
U.S. GOVERNMENT NON-U.S. GOVERNMENT
SALES* SALES
- ------------------------------------------------
$ 198,840,876 $ 905,760,635
</Table>
* Includes U.S. Government Sponsored Enterprise securities.
35
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
6. DIRECTORS' REMUNERATION
The Fund's officers and the one Director who are associated with Lord Abbett do
not receive any compensation from the Fund for serving in such capacities.
Outside Directors' fees are allocated among all Lord Abbett-sponsored funds
based on the net assets of each fund. There is an equity based plan available to
all outside Directors under which outside Directors must defer receipt of a
portion of, and may elect to defer receipt of an additional portion of
Directors' fees. The deferred amounts are treated as though equivalent dollar
amounts have been invested proportionately in the Fund. Such amounts and
earnings accrued thereon are included in Directors' fees on the Statement of
Operations and in Directors' fees payable on the Statement of Assets and
Liabilities and are not deductible for federal income tax purposes until such
amounts are paid.
7. EXPENSE REDUCTIONS
The Fund has entered into arrangements with its transfer agent and custodian
whereby credits realized as a result of uninvested cash balances are used to
reduce a portion of the Fund's expenses.
8. LINE OF CREDIT
The Fund, 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 an annual rate of 0.09%. At June 30, 2003, there
were no loans outstanding pursuant to this Facility nor was the Facility
utilized at any time during the six months ended June 30, 2003.
9. CUSTODIAN AND ACCOUNTING AGENT
State Street Bank and Trust Company ("SSB") is the Fund's custodian and
accounting agent. SSB performs custodian functions and accounting and record
keeping functions relating to portfolio transactions and calculating the Fund's
net asset value.
10. INVESTMENT RISKS
The Fund is subject to the general risks and considerations associated with
investing in fixed income securities. The value of an investment will change as
interest rates fluctuate and in response to market movements. When interest
rates rise, the prices of fixed income securities are likely to decline; when
rates fall, such prices tend to rise. Longer-term securities are usually more
sensitive to interest rate changes. There is also the risk that an issuer of a
fixed income security will fail to make timely payments of principal or interest
to the Fund, a risk that is greater with high yield bonds (sometimes called
"junk bonds") in which the Fund may invest. Some issuers, particularly of high
yield bonds, may default as to principal and/or interest payments after the Fund
purchases its securities. A default, or concerns in the market about an increase
in risk of default, may result in losses to the Fund. High yield bonds are
subject to greater price fluctuations, as well as additional risks.
The mortgage-related securities in which the Fund may invest may be particularly
sensitive to changes in prevailing interest rates. When interest rates are
declining, the value of these securities with prepayment features may not
increase as much as other fixed income securities. Early principal repayment may
deprive the Fund of income payments above current market rates.
36
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
The prepayment rate also will affect the price and volatility of a
mortgage-related security. Some of these securities may be those of such
government sponsored enterprises as Federal Home Loan Mortgage Corporation and
Federal National Mortgage Association. Such securities are guaranteed with
respect to the timely payment of interest and principal by the particular
government sponsored enterprise involved, not by the U.S. Government.
The Fund may invest up to 20% of its net assets in equity securities which may
subject it to the general risks and considerations associated with investing in
equity securities. The value of an investment will fluctuate in response to
movements in the stock market in general and to the changing prospects of
individual companies in which the Fund invests.
The Fund may invest up to 20% of its assets in foreign securities. Investments
in foreign securities may present market liquidity, currency, political,
information, and other risks.
These factors can affect Fund performance.
11. SUMMARY OF CAPITAL TRANSACTIONS
The Fund has authorized 1.5 billion shares of $0.001 par value capital stock
designated as follows: 540 million Class A shares, 200 million Class B shares,
300 million Class C shares, 160 million Class P shares and 300 million Class Y
shares.
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 (UNAUDITED) DECEMBER 31, 2002
- --------------------------------------------------------------------------------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
Shares sold 129,293,683 $ 957,734,218 157,354,137 $ 1,155,022,546
Reinvestment of Distributions 13,612,654 100,291,230 23,709,802 174,203,078
Shares reacquired (62,701,614) (467,016,572) (73,291,236) (537,438,772)
- --------------------------------------------------------------------------------------------------
Increase 80,204,723 $ 591,008,876 107,772,703 $ 791,786,852
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------------------------
Shares sold 49,129,079 $ 363,436,511 61,428,238 $ 454,981,810
Reinvestment of distributions 3,919,977 28,935,251 6,702,222 49,330,319
Shares reacquired (11,398,949) (84,396,333) (27,789,685) (203,547,440)
- --------------------------------------------------------------------------------------------------
Increase 41,650,107 $ 307,975,429 40,340,775 $ 300,764,689
- --------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------
Shares sold 57,839,723 $ 429,538,813 58,627,811 $ 434,433,066
Reinvestment of distributions 2,524,337 18,668,121 3,805,259 28,005,949
Shares reacquired (9,633,400) (71,659,735) (20,344,362) (149,214,186)
- --------------------------------------------------------------------------------------------------
Increase 50,730,660 $ 376,547,199 42,088,708 $ 313,224,829
- --------------------------------------------------------------------------------------------------
CLASS P SHARES
- --------------------------------------------------------------------------------------------------
Shares sold 2,718,883 $ 20,388,604 2,314,364 $ 17,319,960
Reinvestment of distributions 90,970 681,742 91,478 674,428
Shares reacquired (390,762) (2,932,656) (710,550) (5,216,805)
- --------------------------------------------------------------------------------------------------
Increase 2,419,091 $ 18,137,690 1,695,292 $ 12,777,583
- --------------------------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------------------------
Shares sold 3,764,813 $ 28,206,142 3,767,496 $ 27,844,268
Reinvestment of distributions 414,210 3,047,306 644,703 4,717,107
Shares reacquired (105,688) (773,219) (526,935) (3,658,816)
- --------------------------------------------------------------------------------------------------
Increase 4,073,335 $ 30,480,229 3,885,264 $ 28,902,559
- --------------------------------------------------------------------------------------------------
</Table>
37
<Page>
HOUSEHOLDING
The Fund has adopted a policy that allows it to send only one copy of the Fund's
prospectus, proxy material, annual report and semi-annual report to certain
shareholders residing at the same "household." This reduces Fund expenses, which
benefits you and other shareholders. If you need additional copies or do not
want your mailings to be "householded," please call Lord Abbett at 800-821-5129
or send a written request with your name, the name of your fund or funds and
your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219100,
Kansas City, MO 64121.
38
<Page>
[LORD ABBETT(R) LOGO]
This report when not used for the
general information of shareholders of
the Fund, is to be distributed only if
preceded or accompanied by a current Lord Abbett Bond-Debenture Fund, Inc.
Fund prospectus.
Lord Abbett Mutual Fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC LABD-3-603
90 Hudson Street - Jersey City, New Jersey 07302-3973 (8/03)
<Page>
ITEM 2: Code of Ethics.
Not applicable
ITEM 3: Audit Committee Financial Expert.
Not applicable.
ITEM 4-8: [Reserved]
ITEM 9: Controls and Procedures.
(a) Based on their evaluation of the registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment
Company Act of 1940) as of August 21, 2003, the Chief Executive
Officer and Chief Financial Officer of the registrant have concluded
that such disclosure controls and procedures are reasonably designed
and effective to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to them by others within those entities.
(b) There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 10: Exhibits.
ITEM 10(a): Not applicable.
ITEM 10(b):
(i) Certification of each principal executive officer and principal financial
officer of the registrant as required by Rule 30a-2 under the Act (17 CFR
270.30a-2) is attached hereto as a part of EX-99.CERT.
(ii) Certification of each principal executive officer and principal financial
officer of the registrant as required by Section 906 of the
Sarbanes-Oxley Act of 2002 is attached hereto as a part of EX-99.906CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Lord Abbett Bond-Debenture Fund, Inc.
/s/ Robert S. Dow
-------------------------------------
Robert S. Dow
Chief Executive Officer,
Chairman and President
/s/ Joan A. Binstock
-------------------------------------
Joan A. Binstock
Chief Financial Officer and Vice President
Date August 21, 2003
<Page>
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Lord Abbett Bond-Debenture Fund, Inc.
/s/ Robert S. Dow
-------------------------------------
Robert S. Dow
Chief Executive Officer,
Chairman and President
/s/ Joan A. Binstock
-------------------------------------
Joan A. Binstock
Chief Financial Officer and Vice President
Date August 21, 2003