-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BhEkNlvR/14KB7TMwJEDkCgntf46nPROgB0YxKbPyawkVeEeAqsEkqRuh3/Rtl6O BTm+2e5kZ6AxdqggKe5m7Q== 0001047469-05-022608.txt : 20050907 0001047469-05-022608.hdr.sgml : 20050907 20050907162357 ACCESSION NUMBER: 0001047469-05-022608 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050907 DATE AS OF CHANGE: 20050907 EFFECTIVENESS DATE: 20050907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORD ABBETT BOND DEBENTURE FUND INC CENTRAL INDEX KEY: 0000060365 IRS NUMBER: 132669319 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02145 FILM NUMBER: 051073035 BUSINESS ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 201-395-2000 MAIL ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBETT BOND FUND INC DATE OF NAME CHANGE: 19790412 N-CSRS 1 a2162526zn-csrs.txt N-CSRS 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: 6/30/2005 --------- ITEM 1: REPORT TO SHAREHOLDERS. [LORD ABBETT LOGO] 2005 SEMIANNUAL REPORT LORD ABBETT BOND-DEBENTURE FUND FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- LORD ABBETT BOND-DEBENTURE FUND SEMIANNUAL REPORT FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 DEAR SHAREHOLDERS: We are pleased to provide you with this overview of Lord Abbett Bond-Debenture Fund's strategies and performance for the six-month period ended June 30, 2005. On this and the following pages, we discuss the major 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 - -------------------------------------------------------------------------------- Q: WHAT WERE THE OVERALL MARKET CONDITIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A: For most of the six-month period ended June 30, 2005, the U.S. economy showed signs of healthy growth. Consumer spending during the period grew slightly faster than its 30-year average, business spending expanded at near double-digit rates, residential housing demand surged on continued declines in mortgage rates, and corporate fundamentals remained strong. Although investor optimism waned in April 2005 as energy prices soared and the stock market relinquished some of its previous gains, economic trends again turned more positive in May 2005 and June 2005 as consumer confidence increased. The stock market rose in May 2005 and remained unchanged in June 2005. Overall, for the six-month period ended June 30, 2005, equities drifted marginally lower. Of greatest note, the Federal Reserve Board (the Fed) continued its measured pace of interest rate hikes, raising the fed funds rate in 0.25 percent increments in December 2004, February, March, May, and June 2005, bringing the rate to 3.25 percent at the end of the six-month period ended June 30, 2005. The June 30, 2005, interest rate hike marked the ninth quarter-point increase since June 2004. (The fed funds rate is the interest rate charged by banks with excess reserves at a Federal Reserve Board district bank to other banks needing overnight loans to meet reserve requirements.) Longer-term rates, however, were less obliging, actually falling over the six-month period ended June 30, 2005, albeit with considerable volatility along the way. As yields on short-term maturities declined, the bellwether 10-year Treasury note began the period at 4.22 percent, dropped to 3.89 percent in early June 2005, and finished the period at 3.92 1 - -------------------------------------------------------------------------------- percent on June 30, 2005. As the difference between short-term rates and long-term rates diminished, the yield curve flattened. (The yield curve is a graphic representation of short-term versus long-term interest rates.) Q: HOW DID THE FUND PERFORM OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A: For the six-month period ended June 30, 2005, the fund returned -0.4 percent, reflecting performance at the net asset value (NAV) of Class A shares with all distributions reinvested, compared with its benchmark, the Lehman Brothers U.S. Aggregate Bond Index,(1) which returned 2.5 percent over the same period. STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS, WHICH REFLECT PERFORMANCE AT THE MAXIMUM 4.75 PERCENT SALES CHARGE APPLICABLE TO CLASS A SHARE INVESTMENTS AND INCLUDE THE REINVESTMENT OF ALL DISTRIBUTIONS AS OF JUNE 30, 2005, ARE: 1 YEAR: 1.95 PERCENT, 5 YEARS: 4.83 PERCENT, AND 10 YEARS: 6.36 PERCENT. Class A shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A shares made without a front-end sales charge may be subject to a CDSC of 1 percent if the shares are redeemed within 12 months of the purchase. PERFORMANCE DATA QUOTED REFLECT PAST PERFORMANCE AND ARE NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. 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. YOU CAN OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END BY CALLING LORD ABBETT AT 800-821-5129 OR REFERRING TO OUR WEBSITE AT www.LordAbbett.com. Q: WHAT WERE THE MOST SIGNIFICANT FACTORS AFFECTING PERFORMANCE? A: The fund's flexible investment strategy allows its investment managers to adjust allocations among asset classes as market conditions change. The primary asset classes in which the fund participates are high-yield bonds and convertible securities. In addition, the fund must hold 20 percent of its portfolio in investment-grade corporate bonds, government bonds, and/or agencies. In the high yield sector, holdings in auto parts detracted from performance relative to the benchmark. Contributing to performance within the high-yield sector were the credits of wireless telephone, healthcare, cable, and energy. Detracting from performance relative to the benchmark within the convertible and equity sectors were the portfolio's holdings in media and technology. The 2 - -------------------------------------------------------------------------------- portfolio was underweight relative to the benchmark within the technology sector. Nonetheless, the portfolio's holdings in convertible and equity securities outperformed overall those of the benchmark. Also adding to performance in the six-month period ended June 30, 2005 were holdings in healthcare, energy, pharmaceutical, insurance, hotels, and food companies. Positions in high-grade investment bonds, such as mortgage-backed securities and the credits of utilities, financial services, and telecommunications equipment companies also contributed to performance relative to the benchmark. THE FUND'S PORTFOLIO IS ACTIVELY MANAGED AND, THEREFORE, ITS HOLDINGS AND WEIGHTINGS OF A PARTICULAR ISSUER OR PARTICULAR SECTOR AS A PERCENTAGE OF PORTFOLIO ASSETS ARE SUBJECT TO CHANGE. SECTORS MAY INCLUDE MANY INDUSTRIES. A PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT A FUND, INCLUDING ITS INVESTMENT OBJECTIVES, RISKS, CHARGES, AND ONGOING EXPENSES, THAT YOU SHOULD CAREFULLY CONSIDER BEFORE INVESTING. TO OBTAIN A PROSPECTUS ON ANY LORD ABBETT MUTUAL FUND, PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT DISTRIBUTOR LLC AT 800-874-3733 OR VISIT OUR WEBSITE AT www.LordAbbett.com. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. (1) The Lehman Brothers U.S. Aggregate Bond Index represents securities that are U.S. domestic, taxable, nonconvertible, 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. The index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. IMPORTANT PERFORMANCE AND OTHER INFORMATION The views of the fund's management and the portfolio holdings described in this report are as of June 30, 2005; these views and portfolio holdings may have changed subsequent to this date, and they do not guarantee the future performance of the markets or the fund. Information provided in this report should not be considered a recommendation to purchase or sell securities. 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: BECAUSE OF ONGOING MARKET VOLATILITY, FUND PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATION. 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 additional classes of shares with distinct pricing options. For a full description of the differences in pricing alternatives, please see the fund's prospectus. 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. 3 - -------------------------------------------------------------------------------- EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments (these charges vary among the share classes); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees (these charges vary among the share classes); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2005 through June 30, 2005). ACTUAL EXPENSES For each class of the Fund, the first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period 1/1/05 - 6/30/05" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES For each class of the Fund, the second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5.0% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5.0% hypothetical example with the 5.0% hypothetical examples that appear in the shareholder reports of the other funds. 4 - -------------------------------------------------------------------------------- Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES ACCOUNT ACCOUNT PAID DURING VALUE VALUE PERIOD+ ----- ----- ----------- 1/1/05 - 1/1/05 6/30/05 6/30/05 ------ ------- ------- CLASS A Actual $ 1,000.00 $ 996.50 $ 4.95 Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,019.84 $ 5.01 CLASS B Actual $ 1,000.00 $ 994.40 $ 8.16 Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.61 $ 8.25 CLASS C Actual $ 1,000.00 $ 993.30 $ 8.15 Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.61 $ 8.25 CLASS P Actual $ 1,000.00 $ 997.30 $ 5.45 Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,019.34 $ 5.51 CLASS Y Actual $ 1,000.00 $ 998.20 $ 3.22 Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,021.57 $ 3.26
+ For each class of the Fund, expenses are equal to the annualized expense ratio for such class (1.00% for Class A, 1.65% for Classes B and C, 1.10% for Class P and .65% for Class Y) multiplied by the average account value over the period, multiplied by 181/365 (to reflect one-half year period). - -------------------------------------------------------------------------------- PORTFOLIO HOLDINGS PRESENTED BY SECTOR JUNE 30, 2005
SECTOR %* Agency 5.52% Banking 0.88% Basic Industry 8.16% Brokerage 0.15% Capital Goods 7.30% Consumer Cyclical 5.72% Consumer Non-Cyclical 8.17% Energy 8.04% Finance & Investment 1.85% Government Guaranteed 1.88% Insurance 0.35% Media 11.66% Mortgage Backed 0.25% Services Cyclical 11.71% Services Non-Cyclical 6.93% Short-Term Investments 6.38% Technology & Electronics 4.30% Telecommunications 5.61% Utilities 5.14% Total 100.00%
* Represents percent of total investments. 5 SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2005
SHARES INVESTMENTS (000) VALUE - ----------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 94.16% COMMON STOCKS 5.99% AEROSPACE/DEFENSE 0.11% Raytheon Co. 250 $ 9,780,000 -------------- AGRICULTURE 0.19% Archer Daniels Midland Co. 750 16,035,000 -------------- AUTO PARTS & EQUIPMENT 0.09% Cummins, Inc. 100 7,461,000 -------------- BANKING 0.29% Wachovia Corp. 500 24,800,000 -------------- BEVERAGE 0.30% PepsiCo, Inc. 475 25,616,750 -------------- CHEMICALS 0.72% E.I. du Pont de Nemours & Co. 525 22,580,250 Lyondell Chemical Co. 325 8,586,500 Praxair, Inc. 500 23,300,000 Texas Petrochemical, Inc.* 444 6,658,590 -------------- TOTAL 61,125,340 -------------- DIVERSIFIED CAPITAL GOODS 0.25% 3M Co. 300 21,690,000 -------------- ELECTRIC - INTEGRATED 0.53% Dominion Resources, Inc. 200 14,677,927 Northeast Utilities 1,000 20,860,000 TECO Energy, Inc. 500 9,455,000 -------------- TOTAL 44,992,927 -------------- ELECTRONICS 0.43% Emerson Electric Co. 400 25,052,000 Hubbell, Inc. 200 8,820,000 Mentor Graphics Corp.* 250 2,562,500 -------------- TOTAL 36,434,500 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 6 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
SHARES INVESTMENTS (000) VALUE - ----------------------------------------------------------------------------------------- ENERGY - EXPLORATION & PRODUCTION 0.62% Devon Energy Corp. 400 $ 20,272,000 Exxon Mobil Corp. 350 20,114,500 Kerr-McGee Corp. 166 12,659,371 -------------- TOTAL 53,045,871 -------------- FOOD - WHOLESALE 0.31% Conagra Foods, Inc. 200 4,632,000 Kellogg Co. 500 22,220,000 -------------- TOTAL 26,852,000 -------------- FORESTRY/PAPER 0.21% International Paper Co. 600 18,126,000 -------------- GAMING 0.06% Aztar Corp.* 150 5,137,500 -------------- INTEGRATED ENERGY 0.33% Chevron Corp. 500 27,960,000 -------------- MACHINERY 0.22% Parker Hannifin Corp. 300 18,603,000 -------------- MEDIA - BROADCAST 0.09% Clear Channel Communications, Inc. 250 7,732,500 -------------- METALS/MINING EXCLUDING STEEL 0.18% Alcoa, Inc. 300 7,839,000 Placer Dome, Inc.(b) 500 7,690,000 -------------- TOTAL 15,529,000 -------------- NON-ELECTRIC UTILITIES 0.14% National Fuel Gas Co. 300 8,673,000 Semco Energy, Inc.* 489 2,927,798 -------------- TOTAL 11,600,798 -------------- PHARMACEUTICALS 0.35% Merck & Co., Inc. 375 11,550,000 Mylan Laboratories, Inc. 400 7,696,000 Pfizer, Inc. 400 11,032,000 -------------- TOTAL 30,278,000 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 7 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
SHARES INVESTMENTS (000) VALUE - ---------------------------------------------------------------------------------------------------------- RAILROADS 0.27% Union Pacific Corp. 350 $ 22,680,000 -------------- RESTAURANTS 0.06% McDonald's Corp. 200 5,550,000 -------------- SOFTWARE/SERVICES 0.05% BEA Systems, Inc.* 525 4,609,500 -------------- TELECOM - INTEGRATED/SERVICES 0.12% Verizon Communications, Inc. 300 10,365,000 -------------- TELECOMMUNICATIONS EQUIPMENT 0.07% Avaya Inc.* 750 6,240,000 -------------- TOTAL COMMON STOCKS (Cost $462,931,942) 512,244,686 ============== PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE (000) ----------------------------------------- CONVERTIBLE NOTES & BONDS 10.06% AEROSPACE/DEFENSE 0.74% Alliant Techsystems, Inc. 2.75% 2/15/2024 $ 20,000 20,975,000 EDO Corp. 5.25% 4/15/2007 10,000 10,350,000 Lockheed Martin Corp. 3.018%# 8/15/2033 30,000 32,082,300 -------------- TOTAL 63,407,300 -------------- BROKERAGE 0.15% Morgan Stanley+ 1.00% 3/30/2012 13,300 12,818,540 -------------- BUILDING & CONSTRUCTION 0.31% Fluor Corp. 1.50% 2/15/2024 23,000 26,680,000 -------------- COMPUTER HARDWARE 0.19% ASML Holding N.V.(b) 5.75% 10/15/2006 15,000 16,076,250 -------------- DIVERSIFIED CAPITAL GOODS 0.25% Tyco Int'l. Ltd.(b) 2.75% 1/15/2018 16,175 20,946,625 -------------- ELECTRONICS 0.46% Artesyn Technologies, Inc. 5.50% 8/15/2010 4,000 5,025,000 Cypress Semiconductor Corp. 1.25% 6/15/2008 12,500 13,281,250
SEE NOTES TO FINANCIAL STATEMENTS. 8 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - ---------------------------------------------------------------------------------------------------------- Flir Systems, Inc. 3.00% 6/1/2023 $ 8,000 $ 11,940,000 RF Micro Devices, Inc. 1.50% 7/1/2010 10,000 9,350,000 -------------- TOTAL 39,596,250 -------------- GAMING 0.27% International Game Technology Zero Coupon 1/29/2033 35,000 22,881,250 -------------- HEALTH SERVICES 1.49% Advanced Medical Optics, Inc. 2.50% 7/15/2024 15,000 15,131,250 Apogent Technologies Inc. 2.16%# 12/15/2033 15,000 18,534,000 Fisher Scientific Int'l., Inc. 2.50% 10/1/2023 20,000 29,325,000 Invitrogen Corp. 1.50% 2/15/2024 25,000 24,187,500 SFBC Int'l., Inc. 2.25% 8/15/2024 10,000 11,425,000 Universal Health Services, Inc. 0.426% 6/23/2020 40,000 28,400,000 -------------- TOTAL 127,002,750 -------------- HOTELS 0.21% Hilton Hotels Corp. 3.375% 4/15/2023 15,000 18,131,250 -------------- HOUSEHOLD & LEISURE PRODUCTS 0.26% Costco Cos., Inc. Zero Coupon 8/19/2017 22,000 22,522,500 -------------- INVESTMENTS & MISC. FINANCIAL SERVICES 0.61% American Express Co. 1.85% 12/1/2033 20,000 20,350,000 Lehman Brothers Holdings Inc. 0.25% 6/24/2008 20,000 21,100,000 Lehman Brothers Holdings Inc. 0.25% 7/7/2011 10,000 10,375,000 -------------- TOTAL 51,825,000 -------------- MEDIA - BROADCAST 0.27% Sinclair Broadcast Group, Inc. 4.875%# 7/15/2018 10,000 9,125,000 Sinclair Broadcast Group, Inc. 6.00% 9/15/2012 17,000 14,322,500 -------------- TOTAL 23,447,500 -------------- MEDIA - DIVERSIFIED 0.98% Liberty Media Corp. Class A 3.25% 3/15/2031 45,000 34,650,000 Mediacom Communications Corp. 5.25% 7/1/2006 5,600 5,607,000 Walt Disney Co. (The) 2.125% 4/15/2023 42,500 43,828,125 -------------- TOTAL 84,085,125 -------------- MEDIA - SERVICES 0.31% Lamar Advertising Co. 2.875% 12/31/2010 26,000 26,780,000 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - ---------------------------------------------------------------------------------------------------------- OIL FIELD EQUIPMENT & SERVICES 0.50% Hanover Compressor Co. 4.75% 1/15/2014 $ 8,000 $ 8,280,000 Schlumberger Ltd.(b) 1.50% 6/1/2023 30,000 34,575,000 -------------- TOTAL 42,855,000 -------------- PHARMACEUTICALS 1.21% Amylin Pharmaceuticals, Inc. 2.50% 4/15/2011 15,000 13,631,250 Celgene Corp. 1.75% 6/1/2008 10,000 17,637,500 Teva Pharmaceutical Finance B.V.(b) 0.375% 11/15/2022 27,725 40,859,719 Teva Pharmaceutical Finance II, LLC(b) 0.50% 2/1/2024 7,750 7,633,750 Watson Pharmaceuticals, Inc. 1.75% 3/15/2023 25,000 23,312,500 -------------- TOTAL 103,074,719 -------------- SOFTWARE/SERVICES 1.07% DST Systems, Inc. 4.125% 8/15/2023 27,000 30,881,250 EMC Corp. 4.50% 4/1/2007 20,000 21,200,000 Manugistics Group, Inc. 5.00% 11/1/2007 20,000 18,000,000 Mentor Graphics Corp. 6.875% 6/15/2007 21,000 20,895,000 -------------- TOTAL 90,976,250 -------------- SUPPORT - SERVICES 0.17% Charles River Assoc., Inc. 2.875% 6/15/2034 9,650 14,607,687 -------------- TELECOM - WIRELESS 0.12% Nextel Communications, Inc. 5.25% 1/15/2010 10,000 10,087,500 -------------- TELECOMMUNICATIONS EQUIPMENT 0.29% LSI Logic Corp. 4.00% 5/15/2010 25,000 24,750,000 -------------- THEATERS & ENTERTAINMENT 0.20% Lions Gate Entertainment Corp.(b) 3.625% 3/15/2025 17,000 17,191,250 -------------- TOTAL CONVERTIBLE NOTES & BONDS (Cost $842,105,047) 859,742,746 ============== SHARES (000) ------ CONVERTIBLE PREFERRED STOCKS 2.76% AGENCY 0.11% Federal National Mortgage Assoc. 5.375% --(d) 9,710,450 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 10 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
INTEREST SHARES INVESTMENTS RATE (000) VALUE - ---------------------------------------------------------------------------------------------------------- AUTOMOTIVE 0.08% Ford Motor Co. Capital Trust II 6.50% 175 $ 7,057,750 -------------- BANKING 0.18% Marshall & Ilsley Corp. 6.50% 550 15,152,500 -------------- BEVERAGE 0.08% Constellation Brands, Inc. 5.75% 160 7,152,000 -------------- ELECTRIC - DISTRIBUTION/TRANSMISSION 0.45% FPL Group, Inc. 8.00% 600 38,766,000 -------------- FOOD & DRUG RETAILERS 0.26% Albertson's, Inc. 7.25% 1,000 22,370,000 -------------- INTEGRATED ENERGY 0.39% Williams Cos., Inc. (The) 5.50% 360 32,850,000 -------------- INVESTMENTS & MISC. FINANCIAL SERVICES 0.15% Morgan Stanley+ 8.25% 198 13,178,880 -------------- LIFE INSURANCE 0.30% MetLife, Inc. 6.375% 960 25,171,200 -------------- PHARMACEUTICALS 0.36% Schering-Plough Corp. 6.00% 600 30,588,000 -------------- PRINTING & PUBLISHING 0.34% Interpublic Group of Cos., Inc. (The) Series A 5.375% 650 29,185,000 -------------- PROPERTY & CASUALTY INSURANCE 0.06% XL Capital Ltd. Class A(b) 6.50% 200 4,790,000 -------------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $229,647,422) 235,971,780 ============== PRINCIPAL MATURITY AMOUNT DATE (000) ------------------------- GOVERNMENT SPONSORED ENTERPRISES BOND 0.94% Federal Home Loan Mortgage Corp. (Cost $80,051,523) 7.00% 7/15/2005 $ 80,000 80,106,960 ==============
SEE NOTES TO FINANCIAL STATEMENTS. 11 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS 4.50% Federal National Mortgage Assoc. 5.50% 2/1/2033 $ 46,974 $ 47,687,478 Federal National Mortgage Assoc. 5.50% 7/1/2033 55,931 56,764,840 Federal National Mortgage Assoc. 5.50% 10/1/2033 17,463 17,723,140 Federal National Mortgage Assoc. 6.00% 9/1/2032 5,310 5,449,567 Federal National Mortgage Assoc. 6.00% 5/1/2033 5,497 5,641,485 Federal National Mortgage Assoc. 6.00% 10/1/2033 8,895 9,125,608 Federal National Mortgage Assoc. 6.00% 11/1/2033 3,775 3,872,802 Federal National Mortgage Assoc. 6.00% 1/1/2034 26,451 27,136,031 Federal National Mortgage Assoc. 6.00% 2/1/2034 46,903 48,118,373 Federal National Mortgage Assoc. 6.00% 8/1/2034 33,255 34,116,887 Federal National Mortgage Assoc. 6.00% 9/1/2034 4,663 4,783,837 Federal National Mortgage Assoc. 6.00% 11/1/2034 74,725 76,659,666 Federal National Mortgage Assoc. 6.00% 2/1/2035 31,000 31,802,433 Federal National Mortgage Assoc. 7.00% 3/1/2032 6,785 7,159,145 Federal National Mortgage Assoc. 8.00% 2/1/2030 2,124 2,285,700 Federal National Mortgage Assoc. 8.00% 4/1/2030 3,460 3,724,498 Government National Mortgage Assoc. 8.00% 3/15/2032 2,246 2,428,962 -------------- TOTAL GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS (Cost $383,084,649) 384,480,452 ============== HIGH YIELD CORPORATE NOTES & BONDS 67.77% AEROSPACE/DEFENSE 1.27% Alliant Techsystems Inc. 8.50% 5/15/2011 15,000 16,087,500 Armor Holdings, Inc. 8.25% 8/15/2013 10,000 10,862,500 DRS Technologies, Inc. 6.875% 11/1/2013 30,000 31,200,000 Esterline Technologies Corp. 7.75% 6/15/2013 16,000 17,040,000 L-3 Communications Corp. 6.125% 1/15/2014 10,000 10,050,000 Moog Inc. Class A 6.25% 1/15/2015 4,000 4,010,000 Titan Corp. 8.00% 5/15/2011 18,250 19,664,375 -------------- TOTAL 108,914,375 -------------- APPAREL/TEXTILES 0.32% INVISTA+ 9.25% 5/1/2012 25,000 27,437,500 -------------- AUTO LOANS 1.45% Ford Motor Credit Co. 7.25% 10/25/2011 35,000 33,721,065 Ford Motor Credit Co. 7.375% 10/28/2009 30,000 29,342,160 General Motors Acceptance Corp. 7.25% 3/2/2011 65,100 61,111,323 -------------- TOTAL 124,174,548 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 12 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- AUTO PARTS & EQUIPMENT 1.70% Accuride Corp. 8.50% 2/1/2015 $ 10,050 $ 9,874,125 Affinia Group, Inc.+ 9.00% 11/30/2014 5,790 4,892,550 ArvinMeritor, Inc. 8.75% 3/1/2012 15,000 15,712,500 Cooper-Standard Automotive Group 8.375% 12/15/2014 19,450 15,462,750 Cummins, Inc. 9.50% 12/1/2010 16,650 18,398,250 Delco Remy Int'l., Inc. 11.00% 5/1/2009 26,600 24,605,000 Dura Operating Corp. 8.625% 4/15/2012 8,200 7,421,000 Stanadyne Corp.** 0.00%/12.00% 8/15/2009 & 2/15/2015 15,000 8,175,000 Stanadyne Corp. 10.00% 8/15/2014 10,000 9,500,000 Tenneco Automotive, Inc. 8.625% 11/15/2014 15,000 15,150,000 TRW Automotive, Inc.^ 11.00% 2/15/2013 13,954 16,116,870 -------------- TOTAL 145,308,045 -------------- AUTOMOTIVE 0.23% General Motors Corp.^ 7.20% 1/15/2011 10,000 9,300,000 Navistar Int'l. Corp.^ 7.50% 6/15/2011 10,000 10,250,000 Venture Holdings Trust(c) 9.50% 7/1/2005 10,000 50,000 -------------- TOTAL 19,600,000 -------------- BANKING 0.42% Regions Financial Corp. 7.00% 3/1/2011 14,000 15,771,938 Wells Fargo & Co. 5.35% 5/6/2018 20,000 20,048,640 -------------- TOTAL 35,820,578 -------------- BEVERAGE 0.19% Le-Nature's, Inc.+ 10.00% 6/15/2013 15,000 15,825,000 -------------- BUILDING & CONSTRUCTION 0.75% Beazer Homes USA, Inc. 6.50% 11/15/2013 10,000 9,925,000 Beazer Homes USA, Inc. 8.375% 4/15/2012 10,000 10,775,000 Lennar Corp. 7.625% 3/1/2009 15,000 16,563,045 Schuler Homes, Inc. 9.375% 7/15/2009 15,000 15,728,775 William Lyon Homes, Inc. 10.75% 4/1/2013 10,000 10,900,000 -------------- TOTAL 63,891,820 -------------- BUILDING MATERIALS 0.89% American Standard Cos., Inc. 8.25% 6/1/2009 20,000 22,623,820 Builders FirstSource, Inc.+ 7.518%# 2/15/2012 17,400 17,400,000 Jacuzzi Brands, Inc. 9.625% 7/1/2010 22,000 24,200,000
SEE NOTES TO FINANCIAL STATEMENTS. 13 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Texas Industries, Inc.+(e) 7.25% 7/15/2013 $ 2,040 $ 2,101,200 Texas Industries, Inc. 10.25% 6/15/2011 8,000 9,310,000 -------------- TOTAL 75,635,020 -------------- CHEMICALS 2.82% Airgas, Inc. 6.25% 7/15/2014 10,000 10,175,000 Crompton Corp. 9.875% 8/1/2012 29,000 33,785,000 Equistar Chemicals, L.P. 7.55% 2/15/2026 26,000 24,245,000 Hercules, Inc. 6.75% 10/15/2029 25,000 24,375,000 Huntsman LLC 11.50% 7/15/2012 5,181 6,100,628 IMC Global, Inc. 11.25% 6/1/2011 35,000 38,850,000 Lyondell Chemical Co. 9.625% 5/1/2007 9,100 9,759,750 Nalco Co.^ 8.875% 11/15/2013 10,000 10,775,000 NOVA Chemicals Corp.(b) 6.50% 1/15/2012 12,000 11,700,000 PQ Corp.+ 7.50% 2/15/2013 8,450 8,344,375 Rhodia S.A.^(b) 8.875% 6/1/2011 26,825 25,953,187 Rockwood Specialties Group, Inc.+ 7.50% 11/15/2014 17,250 17,206,875 Rockwood Specialties Group, Inc. 10.625% 5/15/2011 4,000 4,430,000 Terra Capital, Inc. 11.50% 6/1/2010 13,000 14,885,000 -------------- TOTAL 240,584,815 -------------- CONS/COMM/LEASE FINANCING 0.27% GATX Financial Corp. 8.875% 6/1/2009 20,000 22,819,000 -------------- CONSUMER - PRODUCTS 1.15% Aearo Co. 8.25% 4/15/2012 7,500 7,537,500 Elizabeth Arden, Inc. 7.75% 1/15/2014 25,000 26,187,500 Playtex Products, Inc. 9.375% 6/1/2011 17,000 17,977,500 Rayovac Corp.+ 7.375% 2/1/2015 15,000 14,587,500 Rayovac Corp. 8.50% 10/1/2013 30,750 32,287,500 -------------- TOTAL 98,577,500 -------------- DIVERSIFIED CAPITAL GOODS 0.75% J.B. Poindexter & Co., Inc. 8.75% 3/15/2014 17,675 16,172,625 Park-Ohio Industries, Inc.+ 8.375% 11/15/2014 10,700 9,603,250 Sensus Metering Systems, Inc. 8.625% 12/15/2013 20,000 18,700,000 Trinity Industries, Inc. 6.50% 3/15/2014 20,000 20,000,000 -------------- TOTAL 64,475,875 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- ELECTRIC - GENERATION 2.26% AES Corp. (The) 9.50% 6/1/2009 $ 10,000 $ 11,200,000 AES Gener S.A.(b) 7.50% 3/25/2014 6,750 6,872,249 Dynegy Holdings, Inc.^ 6.875% 4/1/2011 22,000 21,835,000 Dynegy Holdings, Inc.+ 10.125% 7/15/2013 40,000 45,400,000 Mission Energy Holding Co. 13.50% 7/15/2008 16,000 19,080,000 NRG Energy, Inc.+ 8.00% 12/15/2013 22,750 24,115,000 Reliant Resources, Inc. 6.75% 12/15/2014 15,500 15,228,750 Reliant Resources, Inc. 9.50% 7/15/2013 34,500 38,467,500 Texas Genco Holdings, Inc.+ 6.875% 12/15/2014 10,575 11,183,063 -------------- TOTAL 193,381,562 -------------- ELECTRIC - INTEGRATED 1.62% Duke Energy Corp. 5.375% 1/1/2009 12,000 12,414,600 Midwest Generation, LLC 8.75% 5/1/2034 25,000 28,125,000 Nevada Power Co.+ 5.875% 1/15/2015 11,800 11,918,000 PG&E Corp. 4.80% 3/1/2014 10,000 10,042,290 PPL Energy Supply LLC 6.40% 11/1/2011 12,000 13,158,828 PSEG Energy Holdings Inc. 8.50% 6/15/2011 22,500 24,637,500 PSEG Energy Holdings Inc.^ 8.625% 2/15/2008 15,000 16,012,500 TECO Energy, Inc. 7.50% 6/15/2010 20,000 21,900,000 -------------- TOTAL 138,208,718 -------------- ELECTRONICS 1.01% Amkor Technology, Inc.^ 7.75% 5/15/2013 12,000 10,380,000 Communications & Power Industries, Inc. 8.00% 2/1/2012 17,850 18,028,500 Corning, Inc.^ 5.90% 3/15/2014 10,000 10,326,670 Corning, Inc. 8.30% 4/4/2025 15,000 15,665,055 Freescale Semiconductor, Inc.^ 7.125% 7/15/2014 16,000 17,280,000 SBA Communications Corp.** 0.00%/9.75% 12/15/2007 & 2011 15,657 14,482,725 -------------- TOTAL 86,162,950 -------------- ENERGY - EXPLORATION & PRODUCTION 3.36% Chesapeake Energy Corp.+ 6.25% 1/15/2018 45,000 44,550,000 Chesapeake Energy Corp. 7.00% 8/15/2014 25,750 27,423,750 El Paso Production Holding Co. 7.75% 6/1/2013 35,000 37,537,500 Energy Partners Ltd. 8.75% 8/1/2010 15,000 15,825,000 EXCO Resources, Inc. 7.25% 1/15/2011 31,000 31,155,000 Forest Oil Corp.^ 7.75% 5/1/2014 10,000 10,800,000
SEE NOTES TO FINANCIAL STATEMENTS. 15 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Forest Oil Corp. 8.00% 6/15/2008 $ 15,000 $ 15,975,000 Harvest Operations Corp.(b) 7.875% 10/15/2011 10,000 9,575,000 Houston Exploration Co. 7.00% 6/15/2013 16,000 16,600,000 KCS Energy Services, Inc.+ 7.125% 4/1/2012 11,300 11,582,500 KCS Energy Services, Inc. 7.125% 4/1/2012 13,600 13,940,000 Kerr-McGee Corp. 6.95% 7/1/2024 10,150 10,538,471 Magnum Hunter Resources Corp. 9.60% 3/15/2012 4,500 5,017,500 Pogo Producing Co.+ 6.625% 3/15/2015 12,000 12,450,000 Range Resources Corp. 7.375% 7/15/2013 22,925 24,529,750 -------------- TOTAL 287,499,471 -------------- ENVIRONMENTAL 0.83% Allied Waste North America, Inc. 5.75% 2/15/2011 15,000 14,100,000 Allied Waste North America, Inc.^ 6.125% 2/15/2014 33,500 31,280,625 Allied Waste North America, Inc.+ 7.25% 3/15/2015 25,800 25,090,500 -------------- TOTAL 70,471,125 -------------- FOOD - WHOLESALE 1.59% American Seafood Holdings LLC 10.125% 4/15/2010 10,000 10,725,000 Chiquita Brands Int'l., Inc. 7.50% 11/1/2014 25,000 23,375,000 Corn Products Int'l., Inc. 8.25% 7/15/2007 15,000 16,105,665 Del Monte Corp. 8.625% 12/15/2012 10,000 11,050,000 Dole Food Co. 8.75% 7/15/2013 20,000 21,750,000 Dole Food Co. 8.875% 3/15/2011 5,698 6,111,105 Land O'Lakes, Inc. 8.75% 11/15/2011 10,000 10,125,000 Land O'Lakes, Inc. 9.00% 12/15/2010 15,000 16,237,500 Pinnacle Foods Holdings Corp. 8.25% 12/1/2013 22,725 20,452,500 -------------- TOTAL 135,931,770 -------------- FOOD & DRUG RETAILERS 1.67% Ingles Markets, Inc.^ 8.875% 12/1/2011 23,250 23,744,062 Jean Coutu Group (PJC) Inc. (The)(b) 8.50% 8/1/2014 18,500 18,361,250 Rite Aid Corp. 6.875% 8/15/2013 34,000 29,580,000 Rite Aid Corp. 8.125% 5/1/2010 35,150 36,380,250 Roundy's, Inc. 8.875% 6/15/2012 10,000 10,350,000 Stater Brothers Holdings, Inc. 8.125% 6/15/2012 25,000 24,500,000 -------------- TOTAL 142,915,562 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- FORESTRY/PAPER 3.13% Abitibi-Consolidated, Inc.(b) 8.55% 8/1/2010 $ 20,025 $ 20,976,187 Ainsworth Lumber Co. Ltd.(b) 7.25% 10/1/2012 15,000 14,362,500 Boise Cascade, LLC+ 7.125% 10/15/2014 10,000 9,875,000 Bowater, Inc.^ 6.50% 6/15/2013 32,000 31,760,000 Buckeye Technologies, Inc. 8.00% 10/15/2010 21,000 20,265,000 Jefferson Smurfit Corp. 7.50% 6/1/2013 20,000 19,200,000 Jefferson Smurfit Corp. 8.25% 10/1/2012 10,000 10,100,000 JSG Funding plc+(b) 7.75% 4/1/2015 18,000 14,850,000 JSG Funding plc(b) 9.625% 10/1/2012 14,500 14,572,500 JSG Holding plc PIK+(a) 11.50% 10/1/2015 10,195 9,572,765 Longview Fibre Co. 10.00% 1/15/2009 11,500 12,305,000 Newark Group, Inc. 9.75% 3/15/2014 11,500 10,637,500 Norske Skog Canada Ltd.^(b) 7.375% 3/1/2014 18,925 18,641,125 Stone Container Corp. 8.375% 7/1/2012 4,000 4,060,000 Stone Container Corp. 9.75% 2/1/2011 17,000 18,062,500 Tembec Industries, Inc.(b) 7.75% 3/15/2012 15,000 11,100,000 Tembec Industries, Inc.^(b) 8.625% 6/30/2009 33,500 27,470,000 -------------- TOTAL 267,810,077 -------------- GAMING 4.62% Aztar Corp. 7.875% 6/15/2014 10,000 10,625,000 Boyd Gaming Corp. 8.75% 4/15/2012 8,650 9,439,312 Hard Rock Hotel, Inc. 8.875% 6/1/2013 30,000 32,775,000 Harrah's Operating Co., Inc.^ 5.375% 12/15/2013 10,000 10,162,390 Harrah's Operating Co., Inc. 7.50% 1/15/2009 25,000 27,328,250 Isle of Capri Casinos, Inc. 7.00% 3/1/2014 34,250 34,592,500 Isle of Capri Casinos, Inc.^ 9.00% 3/15/2012 15,000 16,387,500 Las Vegas Sands Corp.+ 6.375% 2/15/2015 32,325 31,759,313 Mandalay Resort Group^ 9.375% 2/15/2010 20,000 22,450,000 MGM Mirage, Inc. 6.75% 9/1/2012 29,150 30,170,250 Park Place Entertainment Corp. 8.125% 5/15/2011 15,000 17,325,000 Park Place Entertainment Corp. 9.375% 2/15/2007 23,500 25,321,250 Penn National Gaming, Inc. 6.875% 12/1/2011 16,250 16,737,500 Premier Entertainment Biloxi LLC 10.75% 2/1/2012 6,350 6,191,250 River Rock Entertainment Authority 9.75% 11/1/2011 15,700 17,309,250 Scientific Games Corp.+ 6.25% 12/15/2012 10,000 10,150,000 Seneca Gaming Corp.^ 7.25% 5/1/2012 4,500 4,674,375
SEE NOTES TO FINANCIAL STATEMENTS. 17 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Station Casinos, Inc. 6.50% 2/1/2014 $ 30,500 $ 31,262,500 Turning Stone Casino Resort+ 9.125% 12/15/2010 12,000 12,750,000 Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. 6.625% 12/1/2014 28,000 27,370,000 -------------- TOTAL 394,780,640 -------------- GAS DISTRIBUTION 2.29% El Paso Corp.^ 7.00% 5/15/2011 40,000 40,100,000 El Paso Corp. 7.75% 1/15/2032 28,250 27,685,000 Ferrellgas Partners, L.P. 6.75% 5/1/2014 15,950 15,471,500 Ferrellgas Partners, L.P. 8.75% 6/15/2012 13,825 13,894,125 MarkWest Energy Partners, L.P.+ 6.875% 11/1/2014 23,050 23,050,000 Sonat Inc.^ 7.625% 7/15/2011 18,000 18,225,000 Suburban Propane Partners, L.P. 6.875% 12/15/2013 20,000 19,100,000 Suburban Propane Partners, L.P.+ 6.875% 12/15/2013 4,325 4,130,375 Williams Cos., Inc. (The) 7.875% 9/1/2021 30,000 34,275,000 -------------- TOTAL 195,931,000 -------------- HEALTH SERVICES 4.66% Alliance Imaging, Inc. 7.25% 12/15/2012 12,000 11,400,000 AmeriPath, Inc. 10.50% 4/1/2013 22,500 22,893,750 Ardent Health Services Inc. 10.00% 8/15/2013 15,000 18,206,250 Bio-Rad Laboratories, Inc. 6.125% 12/15/2014 11,700 11,875,500 CDRV Investors, Inc.**+ 0.00%/9.625% 1/1/2010 & 2015 13,750 6,806,250 Coventry Health Care, Inc. 6.125% 1/15/2015 10,000 10,225,000 DaVita, Inc.+ 7.25% 3/15/2015 10,500 10,841,250 Fresenius Medical Capital Trust II 7.875% 2/1/2008 15,000 15,712,500 Hanger Orthopedic Group, Inc.^ 10.375% 2/15/2009 14,000 12,985,000 HCA Inc 6.375% 1/15/2015 22,250 23,142,403 HealthSouth Corp. 8.375% 10/1/2011 20,000 19,950,000 HealthSouth Corp. 10.75% 10/1/2008 15,000 15,675,000 National Mentor, Inc.+ 9.625% 12/1/2012 12,000 12,690,000 National Nephrology Assoc., Inc.+ 9.00% 11/1/2011 9,000 10,147,500 PacifiCare Health System, Inc. 10.75% 6/1/2009 22,750 25,138,750 PerkinElmer, Inc. 8.875% 1/15/2013 25,750 28,775,625 Rotech Healthcare Inc. 9.50% 4/1/2012 6,630 7,127,250 Senior Housing Properties Trust 8.625% 1/15/2012 7,750 8,699,375 Stewart Enterprises, Inc.+ 6.25% 2/15/2013 7,500 7,462,500 Tenet Healthcare Corp. 7.375% 2/1/2013 40,000 39,700,000
SEE NOTES TO FINANCIAL STATEMENTS. 18 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Tenet Healthcare Corp.+ 9.25% 2/1/2015 $ 26,700 $ 27,834,750 Tenet Healthcare Corp. 9.875% 7/1/2014 10,000 10,775,000 Triad Hospitals, Inc. 7.00% 11/15/2013 20,000 20,650,000 Vanguard Health Holdings Co. II LLC 9.00% 10/1/2014 18,125 19,665,625 -------------- TOTAL 398,379,278 -------------- HOTELS 1.29% FelCor Lodging Trust, Inc. 9.00% 6/1/2011 15,000 16,462,500 Gaylord Entertainment Co. 6.75% 11/15/2014 15,000 14,737,500 Host Marriott L.P.+ 6.375% 3/15/2015 17,250 17,163,750 Host Marriott L.P. 7.00% 8/15/2012 20,000 20,850,000 Host Marriott L.P. 9.25% 10/1/2007 25,000 27,125,000 John Q. Hammons Hotels, Inc. 8.875% 5/15/2012 12,500 13,687,500 -------------- TOTAL 110,026,250 -------------- INVESTMENTS & MISC FINANCIAL SERVICES 0.83% Dow Jones CDX HY+ 7.75% 12/29/2009 50,000 50,750,000 Dow Jones CDX HY+ 8.25% 6/29/2010 20,000 20,100,000 -------------- TOTAL 70,850,000 -------------- LEISURE 0.62% Gaylord Entertainment Co. 8.00% 11/15/2013 31,000 32,743,750 Six Flags, Inc. 9.625% 6/1/2014 12,000 11,280,000 Universal City Development Partners, Ltd. 11.75% 4/1/2010 8,000 9,220,000 -------------- TOTAL 53,243,750 -------------- MACHINERY 0.84% Briggs & Stratton Corp. 8.875% 3/15/2011 10,000 11,475,000 Case New Holland Inc. 9.25% 8/1/2011 10,000 10,550,000 Dresser, Inc. 9.375% 4/15/2011 15,000 15,862,500 Gardner Denver, Inc.+ 8.00% 5/1/2013 7,650 7,777,449 JLG Industries, Inc. 8.25% 5/1/2008 15,000 15,787,500 Manitowoc Co., Inc. 7.125% 11/1/2013 10,000 10,500,000 -------------- TOTAL 71,952,449 -------------- MEDIA - BROADCAST 2.46% Allbritton Communications Co.^ 7.75% 12/15/2012 65,000 64,350,000 Clear Channel Communications, Inc. 4.625% 1/15/2008 10,450 10,335,343 Clear Channel Communications, Inc. 7.65% 9/15/2010 18,500 20,058,754 Emmis Operating Co. 6.875% 5/15/2012 28,000 27,860,000
SEE NOTES TO FINANCIAL STATEMENTS. 19 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Lin Television Corp. 6.50% 5/15/2013 $ 10,075 $ 9,621,625 Paxson Communications Corp. 10.75% 7/15/2008 40,000 39,600,000 Radio One, Inc.+ 6.375% 2/15/2013 10,000 9,887,500 Sinclair Broadcast Group, Inc. 8.00% 3/15/2012 17,832 18,366,960 Sinclair Broadcast Group, Inc. 8.75% 12/15/2011 10,000 10,550,000 -------------- TOTAL 210,630,182 -------------- MEDIA - CABLE 4.49% Century Communications Corp.(g) 8.375% 12/15/2007 8,000 8,240,000 Century Communications Corp.(g) 9.50% 3/1/2005 40,000 41,400,000 Charter Communications Holdings LLC 10.00% 4/1/2009 50,000 38,875,000 Charter Communications Holdings LLC 10.25% 9/15/2010 20,000 20,325,000 Comcast Corp. 5.85% 1/15/2010 15,000 15,879,015 CSC Holdings, Inc. 8.125% 8/15/2009 22,800 23,199,000 DirecTV Holdings LLC+ 6.375% 6/15/2015 19,150 19,150,000 DirecTV Holdings LLC 8.375% 3/15/2013 16,900 18,801,250 Echostar DBS Corp. 6.375% 10/1/2011 17,500 17,434,375 Echostar DBS Corp. 9.125% 1/15/2009 10,000 10,675,000 Frontiervision L.P.(c) 11.875% 9/15/2007 20,000 27,600,000 Frontiervision L.P. Series B(c) 11.875% 9/15/2007 10,000 13,800,000 Globo Comunicacoes E Participacoes S.A.+(b)(c) 10.625% 12/5/2008 20,000 20,700,000 Insight Communications Co., Inc.** 0.00%/12.25% 2/15/2006 & 2011 50,000 50,375,000 Mediacom Communications Corp.^ 9.50% 1/15/2013 42,500 42,606,250 Renaissance Media Group LLC 10.00% 4/15/2008 15,000 14,925,000 -------------- TOTAL 383,984,890 -------------- MEDIA - DIVERSIFIED 0.19% Block Communications, Inc. 9.25% 4/15/2009 15,000 16,050,000 -------------- MEDIA - SERVICES 0.64% Interpublic Group of Cos., Inc. (The) 6.25% 11/15/2014 14,820 13,913,238 Interpublic Group of Cos., Inc. (The)* 7.25% 8/15/2011 10,000 10,130,090 Warner Music Group Corp. 7.375% 4/15/2014 30,000 30,450,000 -------------- TOTAL 54,493,328 -------------- METALS/MINING EXCLUDING STEEL 0.64% Century Aluminum Co. 7.50% 8/15/2014 5,550 5,508,375 Foundation PA Coal Co. 7.25% 8/1/2014 8,300 8,756,500 Novelis, Inc.+(b) 7.25% 2/15/2015 15,000 15,131,250
SEE NOTES TO FINANCIAL STATEMENTS. 20 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- Peabody Energy Corp. 5.875% 4/15/2016 $ 15,000 $ 15,075,000 Timken Co. (The) 5.75% 2/15/2010 10,000 10,265,420 -------------- TOTAL 54,736,545 -------------- NON-ELECTRIC UTILITIES 0.17% Semco Energy, Inc. 7.75% 5/15/2013 14,050 14,735,865 -------------- NON-FOOD & DRUG RETAILERS 1.08% Couche-Tard U.S. L.P. 7.50% 12/15/2013 14,000 14,770,000 J.C. Penney Co., Inc. 7.95% 4/1/2017 16,750 19,388,125 J.C. Penney Co., Inc. 8.00% 3/1/2010 10,000 11,050,000 Saks, Inc. 7.375% 2/15/2019 32,925 33,089,625 Toys "R" Us, Inc. 7.625% 8/1/2011 15,000 13,837,500 -------------- TOTAL 92,135,250 -------------- OFFICE EQUIPMENT 0.17% Xerox Corp. 6.875% 8/15/2011 14,000 14,910,000 -------------- OIL FIELD EQUIPMENT & SERVICES 0.60% Hanover Compressor Co. 8.625% 12/15/2010 12,075 12,829,688 Hanover Compressor Co. 9.00% 6/1/2014 6,150 6,580,500 J. Ray McDermott, S.A.+ 11.50% 12/15/2013 10,000 11,250,000 Key Energy Services, Inc. 6.375% 5/1/2013 12,000 12,120,000 Pride Int'l., Inc. 7.375% 7/15/2014 8,000 8,820,000 -------------- TOTAL 51,600,188 -------------- PACKAGING 2.01% Anchor Glass Container Corp. 11.00% 2/15/2013 15,000 11,775,000 Constar Int'l., Inc.^ 11.00% 12/1/2012 11,900 9,520,000 Crown Cork & Seal, Inc.^ 7.375% 12/15/2026 45,000 41,512,500 Graham Packaging Co., Inc.+ 8.50% 10/15/2012 17,795 18,061,925 Owens-Brockway Glass Container, Inc. 7.75% 5/15/2011 25,000 26,687,500 Owens-Brockway Glass Container, Inc. 8.875% 2/15/2009 35,000 37,362,500 Owens Illinois, Inc. 7.50% 5/15/2010 20,000 21,100,000 Vitro Envases Norteamerica+(b) 10.75% 7/23/2011 6,000 5,850,000 -------------- TOTAL 171,869,425 -------------- PHARMACEUTICALS 0.75% Alpharma Inc.+ 8.625% 5/1/2011 25,000 24,562,500 Warner Chilcott Corp.+ 8.75% 2/1/2015 40,000 39,100,000 -------------- TOTAL 63,662,500 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- PRINTING & PUBLISHING 1.95% American Media, Inc. 10.25% 5/1/2009 $ 5,000 $ 5,025,000 Dex Media, Inc.** 0.00%/9.00% 11/15/2008 & 2013 15,000 12,150,000 Dex Media, Inc. 8.00% 11/15/2013 13,000 13,877,500 Dex Media West 9.875% 8/15/2013 25,394 29,076,130 Houghton Mifflin Co.** 0.00%/11.50% 10/15/2008 & 2013 25,000 18,375,000 Houghton Mifflin Co. 9.875% 2/1/2013 35,000 37,537,500 Primedia, Inc. 8.875% 5/15/2011 15,000 15,787,500 R.H. Donnelley Corp.+ 6.875% 1/15/2013 22,150 22,703,750 R.H. Donnelley Inc. 10.875% 12/15/2012 10,000 11,675,000 -------------- TOTAL 166,207,380 -------------- RAILROADS 0.34% Union Pacific Corp. 3.625% 6/1/2010 30,500 29,339,902 -------------- RESTAURANTS 0.48% Denny's Corp./Denny's Holdings Inc. 10.00% 10/1/2012 15,500 16,197,500 Friendly Ice Cream Corp.^ 8.375% 6/15/2012 14,000 13,650,000 O'Charley's, Inc. 9.00% 11/1/2013 10,000 10,850,000 -------------- TOTAL 40,697,500 -------------- SOFTWARE/SERVICES 0.42% Electronic Data Systems Corp. 6.50% 8/1/2013 27,500 28,157,855 Unisys Corp. 6.875% 3/15/2010 8,000 7,900,000 -------------- TOTAL 36,057,855 -------------- STEEL PRODUCERS/PRODUCTS 0.32% AK Steel Corp. 7.75% 6/15/2012 15,000 12,750,000 Allegheny Ludlum Corp. 6.95% 12/15/2025 15,000 14,491,770 -------------- TOTAL 27,241,770 -------------- SUPPORT-SERVICES 1.53% Iron Mountain Inc. 6.625% 1/1/2016 37,000 34,410,000 Iron Mountain Inc. 7.75% 1/15/2015 50,000 50,500,000 Iron Mountain Inc. 8.625% 4/1/2013 15,000 15,600,000 JohnsonDiversey Holdings Inc.** 0.00%/10.67% 5/15/2007 & 2013 12,000 8,595,000 United Rentals (North America), Inc.^ 7.75% 11/15/2013 22,225 21,947,188 -------------- TOTAL 131,052,188 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- TELECOM - FIXED LINE 0.39% Level 3 Communications, Inc. 11.25% 3/15/2010 $ 15,000 $ 11,925,000 Level 3 Financing, Inc.+^ 10.75% 10/15/2011 25,000 21,187,500 -------------- TOTAL 33,112,500 -------------- TELECOM - INTEGRATED/SERVICES 2.40% Cincinnati Bell, Inc.+ 8.375% 1/15/2014 3,000 3,090,000 Cincinnati Bell, Inc. 8.375% 1/15/2014 25,000 25,750,000 Intelsat Bermuda Ltd.+(b) 8.25% 1/15/2013 22,750 23,603,125 MCI, Inc. 8.735% 5/1/2014 15,500 17,418,125 Qwest Capital Funding, Inc. 7.90% 8/15/2010 63,000 63,000,000 Qwest Communications Int'l., Inc. 7.25% 2/15/2011 10,000 9,725,000 Qwest Services Corp. 13.50% 12/15/2010 31,800 36,888,000 Telefonica de Argentina S.A.^(b) 9.125% 11/7/2010 13,500 14,748,750 Valor Telecommunications Enterprise LLC/Finance Corp.+ 7.75% 2/15/2015 11,275 11,134,063 -------------- TOTAL 205,357,063 -------------- TELECOM - WIRELESS 2.61% Airgate PCS, Inc. 6.891%# 10/15/2011 12,000 12,330,000 Airgate PCS, Inc.+^ 9.375% 9/1/2009 5,000 5,275,000 Airgate PCS, Inc. 9.375% 9/1/2009 9,200 9,705,895 Alamosa Delaware, Inc. 11.00% 7/31/2010 15,000 16,893,750 Centennial Communications Corp. 10.125% 6/15/2013 33,000 37,455,000 Dobson Communications Corp. 8.875% 10/1/2013 6,900 6,348,000 Dobson Communications Corp. 10.875% 7/1/2010 15,000 14,962,500 Nextel Partners, Inc. 8.125% 7/1/2011 27,200 29,648,000 Rogers Wireless, Inc.(b) 9.625% 5/1/2011 5,000 5,893,750 Rural Cellular Corp. 9.75% 1/15/2010 20,225 18,910,375 TeleCorp PCS, Inc. 10.625% 7/15/2010 16,000 16,927,344 Triton PCS, Inc. 8.75% 11/15/2011 14,500 10,331,250 Triton PCS, Inc. 9.375% 2/1/2011 11,000 7,947,500 UbiquiTel Operating Co. 9.875% 3/1/2011 15,000 16,537,500 Western Wireless Corp. 9.25% 7/15/2013 12,500 14,296,875 -------------- TOTAL 223,462,739 -------------- TELECOMMUNICATIONS EQUIPMENT 0.16% Lucent Technologies, Inc. 6.45% 3/15/2029 15,000 13,500,000 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL INTEREST MATURITY AMOUNT INVESTMENTS RATE DATE (000) VALUE - --------------------------------------------------------------------------------------------------------------------- THEATERS & ENTERTAINMENT 0.58% AMC Entertainment, Inc. 8.00% 3/1/2014 $ 25,000 $ 22,312,500 Carmike Cinemas, Inc. Class A^ 7.50% 2/15/2014 11,325 10,319,906 Cinemark USA, Inc. 9.00% 2/1/2013 10,000 10,325,000 LCE Acquisition Corp.+ 9.00% 8/1/2014 6,400 6,224,000 -------------- TOTAL 49,181,406 -------------- TRANSPORTATION EXCLUDING AIR/RAIL 0.56% CHC Helicopter Corp. Class A(b) 7.375% 5/1/2014 15,000 15,037,500 CHC Helicopter Corp. Class A+(b) 7.375% 5/1/2014 5,000 5,012,500 Hornbeck Offshore Services, Inc. 6.125% 12/1/2014 12,790 13,013,825 Offshore Logistics, Inc. 6.125% 6/15/2013 15,645 15,175,650 -------------- TOTAL 48,239,475 -------------- TOTAL HIGH YIELD CORPORATE NOTES & BONDS (Cost $5,669,291,581) 5,792,866,629 ============== NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITY 0.25% Credit Suisse First Boston Series 1998-C2 Class A2 (Cost $19,517,452) 6.30% 11/11/2030 20,000 21,266,684 ============== U.S. TREASURY OBLIGATIONS 1.89% U.S. Treasury Note 4.375% 5/15/2007 75,000 76,022,475 U.S. Treasury Note 5.00% 2/15/2011 80,650 85,712,723 -------------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $161,403,158) 161,735,198 -------------- TOTAL LONG-TERM INVESTMENTS (Cost $7,848,032,774) 8,048,415,135 ============== SHARES (000) ------ SHORT-TERM INVESTMENTS 6.42% COLLATERAL FOR SECURITIES ON LOAN 1.69% State Street Navigator Securities Lending Prime Portfolio 3.15%(f) 144,467 144,466,730 --------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED) JUNE 30, 2005
PRINCIPAL AMOUNT (000) VALUE - ----------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT 4.73% Repurchase Agreement dated 6/30/2005, 2.45% due 7/1/2005 with State Street Bank & Trust Co. collateralized by $409,525,000 of Federal Home Loan Bank at zero coupon to 4.125% due from 7/20/2005 to 2/15/2008; value: $412,438,491; proceeds: $404,378,238 $ 404,351 $ 404,350,719 --------------- TOTAL SHORT-TERM INVESTMENTS (Cost $548,817,449) 548,817,449 =============== TOTAL INVESTMENTS IN SECURITIES 100.58% (Cost $8,396,850,223) 8,597,232,584 =============== LIABILITIES IN EXCESS OF FOREIGN CURRENCY, CASH AND OTHER ASSETS (0.58%) (49,802,174) --------------- NET ASSETS 100.00% $ 8,547,430,410 ===============
* Non-income producing security. ** Deferred-interest debentures pay no interest for a stipulated number of years, after which they pay a predetermined interest rate. + Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration normally to qualified institutional buyers. # Variable rate security. The interest rate represents the rate at June 30, 2005. ^ All (or a portion of security) on loan. See Note 2. (a) Bond issued by a foreign entity, denominated in Euros and converted to U.S. dollars at period-end exchange rate. The value of this security is 0.14% of total net assets. The remaining securities, 99.86% of total net assets, are invested in U.S. dollar-denominated securities. (b) Foreign security traded in U.S. dollars. (c) Defaulted security. (d) Amount represents less than 1,000 shares. (e) Securities purchased on a when-issued basis. (f) Rate shown reflects 7 day yield as of June 30, 2005. (g) Security in default. Maturity date represents original maturity date. PIK Payment-in-kind. SEE NOTES TO FINANCIAL STATEMENTS. 25 STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2005 ASSETS: Investment in securities, at value (cost $8,396,850,223) $ 8,597,232,584 Cash 324,375 Receivables: Interest and dividends 125,141,809 Investment securities sold 19,257,804 Capital shares sold 11,841,957 Prepaid expenses and other assets 543,483 - ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS 8,754,342,012 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable upon return of securities on loan 144,466,730 Payables: Investment securities purchased 37,121,041 Capital shares reacquired 14,341,104 Management fee 3,155,620 12b-1 distribution fees 4,633,688 Fund administration 280,800 Directors' fees 921,707 To bank-foreign cash, at value (cost $726) 686 To affiliate (See Note 3) 61,275 Accrued expenses and other liabilities 1,928,951 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 206,911,602 ================================================================================================================ NET ASSETS $ 8,547,430,410 ================================================================================================================ COMPOSITION OF NET ASSETS: Paid-in capital $ 8,988,919,332 Distributions in excess of net investment income (55,844,137) Accumulated net realized loss on investments and foreign currency related transactions (586,012,535) Net unrealized appreciation on investments 200,367,750 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS $ 8,547,430,410 ================================================================================================================ NET ASSETS BY CLASS: Class A Shares $ 4,970,841,356 Class B Shares $ 1,615,326,912 Class C Shares $ 1,544,014,585 Class P Shares $ 134,323,445 Class Y Shares $ 282,924,112 OUTSTANDING SHARES BY CLASS: Class A Shares (740 million shares of common shares authorized, $.001 par value) 628,274,398 Class B Shares (500 million shares of common shares authorized, $.001 par value) 204,057,345 Class C Shares (300 million shares of common shares authorized, $.001 par value) 194,925,415 Class P Shares (160 million shares of common shares authorized, $.001 par value) 16,733,903 Class Y Shares (300 million shares of common shares authorized, $.001 par value) 35,856,652 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (NET ASSETS DIVIDED BY OUTSTANDING SHARES): Class A Shares-Net asset value $ 7.91 Class A Shares-Maximum offering price (Net asset value plus sales charge of 4.75%) $ 8.30 Class B Shares-Net asset value $ 7.92 Class C Shares-Net asset value $ 7.92 Class P Shares-Net asset value $ 8.03 Class Y Shares-Net asset value $ 7.89 - ----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2005 INVESTMENT INCOME: Dividends $ 13,009,188 Interest 267,241,778 Securities lending-net 841,915 Foreign withholding tax (3,000) - ---------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 281,089,881 - ---------------------------------------------------------------------------------------------------------------- EXPENSES: Management fee 19,588,713 12b-1 distribution plan-Class A 8,745,823 12b-1 distribution plan-Class B 8,407,734 12b-1 distribution plan-Class C 8,048,735 12b-1 distribution plan-Class P 270,348 Shareholder servicing 5,194,790 Professional 83,688 Reports to shareholders 614,722 Fund administration 1,730,199 Custody 150,605 Directors' fees 280,245 Registration 78,876 Subsidy (See Note 3) 222,682 Other 89,624 - ---------------------------------------------------------------------------------------------------------------- Gross expenses 53,506,784 Expense reductions (See Note 7) (88,648) - ---------------------------------------------------------------------------------------------------------------- NET EXPENSES 53,418,136 - ---------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 227,671,745 ================================================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investments and foreign currency related transactions 78,128,574 Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies (348,651,176) ================================================================================================================ NET REALIZED AND UNREALIZED LOSS (270,522,602) ================================================================================================================ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (42,850,857) ================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 27 STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 FOR THE YEAR ENDED INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) DECEMBER 31, 2004 OPERATIONS: Net investment income $ 227,671,745 $ 461,636,138 Net realized gain (loss) on investments and foreign currency related transactions 78,128,574 163,913,812 Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies (348,651,176) 48,862,743 - ---------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (42,850,857) 674,412,693 ================================================================================================================ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A (162,700,594) (304,259,218) Class B (49,560,137) (105,827,104) Class C (47,585,185) (94,625,703) Class P (3,806,904) (5,402,678) Class Y (9,638,228) (15,911,837) - ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (273,291,048) (526,026,540) ================================================================================================================ CAPITAL SHARE TRANSACTIONS: Net proceeds from sales of shares 711,680,139 1,952,137,115 Reinvestment of distributions 202,580,872 380,570,154 Cost of shares reacquired (1,048,705,210) (1,678,331,223) - ---------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL SHARE TRANSACTIONS (134,444,199) 654,376,046 ================================================================================================================ NET INCREASE (DECREASE) IN NET ASSETS (450,586,104) 802,762,199 ================================================================================================================ NET ASSETS: Beginning of period 8,998,016,514 8,195,254,315 - ---------------------------------------------------------------------------------------------------------------- END OF PERIOD $ 8,547,430,410 $ 8,998,016,514 ================================================================================================================ DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME $ (55,844,137) $ (10,224,834) ================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 28 FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (CLASS A SHARES) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.20 $ 8.06 $ 7.19 $ 7.91 $ 8.23 $ 9.05 ============ ============ ============ ============ ============ ============ Investment operations: Net investment income(a) .22 .46 .48 .55 .65 .68 Net realized and unrealized gain (loss) (.25) .20 .92 (.64) (.26) (.75) ------------ ------------ ------------ ------------ ------------ ------------ Total from investment operations (.03) .66 1.40 (.09) .39 (.07) ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders from: Net investment income (.26) (.52) (.50) (.58) (.67) (.75) Paid-in capital - - (.03) (.05) (.04) - ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (.26) (.52) (.53) (.63) (.71) (.75) ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 7.91 $ 8.20 $ 8.06 $ 7.19 $ 7.91 $ 8.23 ============ ============ ============ ============ ============ ============ Total Return(b) (.35)%(c) 8.56% 20.28% (1.08)% 4.86% (.86)% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .50%(c) .99% 1.00% 1.00% 1.02% 1.00% Expenses, excluding expense reductions .50%(c) .99% 1.00% 1.00% 1.02% 1.01% Net investment income 2.73%(c) 5.71% 6.31% 7.51% 7.96% 7.88% SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of period (000) $ 4,970,841 $ 5,093,236 $ 4,497,233 $ 3,048,301 $ 2,500,544 $ 2,065,319 Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03% =================================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 29 FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (CLASS B SHARES) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.20 $ 8.06 $ 7.20 $ 7.92 $ 8.23 $ 9.05 ============ ============ ============ ============ ============ ============ Investment operations: Net investment income(a) .19 .41 .43 .51 .60 .63 Net realized and unrealized gain (loss) (.24) .20 .92 (.65) (.25) (.76) ------------ ------------ ------------ ------------ ------------ ------------ Total from investment operations (.05) .61 1.35 (.14) .35 (.13) ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders from: Net investment income (.23) (.47) (.46) (.53) (.63) (.69) Paid-in capital - - (.03) (.05) (.03) - ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (.23) (.47) (.49) (.58) (.66) (.69) ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 7.92 $ 8.20 $ 8.06 $ 7.20 $ 7.92 $ 8.23 ============ ============ ============ ============ ============ ============ Total Return(b) (.56)%(c) 7.86% 19.43% (1.67)% 4.29% (1.52)% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .82%(c) 1.64% 1.64% 1.65% 1.63% 1.61% Expenses, excluding expense reductions .82%(c) 1.64% 1.64% 1.65% 1.63% 1.62% Net investment income 2.41%(c) 5.07% 5.67% 6.86% 7.35% 7.26% SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of period (000) $ 1,615,327 $ 1,803,609 $ 1,861,920 $ 1,294,955 $ 1,105,501 $ 786,786 Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03% =================================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 30 FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (CLASS C SHARES) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.21 $ 8.07 $ 7.21 $ 7.93 $ 8.24 $ 9.06 ============ ============ ============ ============ ============ ============ Investment operations: Net investment income(a) .19 .41 .43 .51 .60 .63 Net realized and unrealized gain (loss) (.25) .20 .92 (.64) (.25) (.76) ------------ ------------ ------------ ------------ ------------ ------------ Total from investment operations (.06) .61 1.35 (.13) .35 (.13) ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders from: Net investment income (.23) (.47) (.46) (.54) (.63) (.69) Paid-in capital - - (.03) (.05) (.03) - ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (.23) (.47) (.49) (.59) (.66) (.69) ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 7.92 $ 8.21 $ 8.07 $ 7.21 $ 7.93 $ 8.24 ============ ============ ============ ============ ============ ============ Total Return(b) (.67)%(c) 7.86% 19.43% (1.58)% 4.29% (1.52)% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .82%(c) 1.64% 1.64% 1.59% 1.62% 1.65% Expenses, excluding expense reductions .82%(c) 1.64% 1.64% 1.59% 1.62% 1.66% Net investment income 2.41%(c) 5.07% 5.67% 6.92% 7.36% 7.26% SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of period (000) $ 1,544,015 $ 1,703,329 $ 1,593,650 $ 905,629 $ 662,848 $ 483,885 Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03% =================================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 31 FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (CLASS P SHARES) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.31 $ 8.17 $ 7.29 $ 8.02 $ 8.33 $ 9.05 ============ ============ ============ ============ ============ ============ Investment operations: Net investment income(a) .22 .45 .48 .55 .64 .67 Net realized and unrealized gain (loss) (.24) .20 .93 (.65) (.24) (.65) ------------ ------------ ------------ ------------ ------------ ------------ Total from investment operations (.02) .65 1.41 (.10) .40 .02 ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders from: Net investment income (.26) (.51) (.50) (.58) (.67) (.74) Paid-in capital - - (.03) (.05) (.04) - ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (.26) (.51) (.53) (.63) (.71) (.74) ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 8.03 $ 8.31 $ 8.17 $ 7.29 $ 8.02 $ 8.33 ============ ============ ============ ============ ============ ============ Total Return(b) (.27)%(c) 8.37% 20.10% (1.19)% 4.90% .06% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .55%(c) 1.09% 1.09% 1.10% 1.08% 1.06% Expenses, excluding expense reductions .55%(c) 1.09% 1.09% 1.10% 1.08% 1.07% Net investment income 2.68%(c) 5.62% 6.22% 7.41% 7.88% 7.83% SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of period (000) $ 134,323 $ 113,216 $ 60,848 $ 18,736 $ 7,017 $ 1,385 Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03% =================================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 32 FINANCIAL HIGHLIGHTS (CONCLUDED)
SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (CLASS Y SHARES) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.18 $ 8.04 $ 7.18 $ 7.90 $ 8.21 $ 9.04 ============ ============ ============ ============ ============ ============ Investment operations: Net investment income(a) .23 .48 .51 .58 .68 .71 Net realized and unrealized gain (loss) (.25) .21 .91 (.64) (.24) (.76) ------------ ------------ ------------ ------------ ------------ ------------ Total from investment operations (.02) .69 1.42 (.06) .44 (.05) ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders from: Net investment income (.27) (.55) (.53) (.61) (.71) (.78) Paid-in capital - - (.03) (.05) (.04) - ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (.27) (.55) (.56) (.66) (.75) (.78) ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 7.89 $ 8.18 $ 8.04 $ 7.18 $ 7.90 $ 8.21 ============ ============ ============ ============ ============ ============ Total Return(b) (.18)%(c) 8.97% 20.58% (.66)% 5.44% (.61)% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .32%(c) .64% .64% .65% .63% .61% Expenses, excluding expense reductions .32%(c) .64% .64% .65% .63% .62% Net investment income 2.90%(c) 6.07% 6.67% 7.86% 8.36% 8.26% SIX MONTHS ENDED YEAR ENDED 12/31 6/30/2005 ------------------------------------------------------------------------ (UNAUDITED) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of period (000) $ 282,924 $ 284,627 $ 181,603 $ 68,691 $ 44,931 $ 43,884 Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03% =================================================================================================================================
(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) Not annualized. SEE NOTES TO FINANCIAL STATEMENTS. 33 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. The Fund was 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 Net Asset Value ("NAV") for Class A shares. There is no front-end sales charge in the case of the Classes 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 (12 months if shares were purchased on or after November 1, 2004) following certain 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 certain 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 any recognized U.S. or non-U.S. exchange or on NASDAQ, Inc. are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Fixed income securities are valued at the mean between the bid and asked prices on the basis of prices supplied by independent pricing services, which reflect broker/dealer supplied valuations and electronic data processing techniques. Exchange-traded options and futures contracts are valued at the last sale price in the market where they are principally traded. If no sale has occurred, the mean between the most recently quoted bid and asked prices is used. 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) SECURITY TRANSACTIONS-Security 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 (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. Discounts are accreted and premiums are amortized using 34 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) 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. (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 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. Classes A, B, C and 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 and Unrealized Gain (Loss) 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 foreign 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 (loss) is included in Net Change in Unrealized Appreciation (Depreciation) on Investments and Translation of Assets and Liabilities Denominated in Foreign Currencies on the Statement of Operations. The gain (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 (Loss) on Investments and Foreign Currency Related Transactions on the Statement of Operations. As of June 30, 2005, there were no open forward foreign currency exchange contracts outstanding. (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. Government securities in an amount at least equal to 102% of the market value of domestic 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, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value 35 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the value of those securities has declined, the Fund may incur a loss upon disposition of the securities. (j) STRUCTURED SECURITIES-The Fund may invest in structured securities. Structured securities are a type of derivative security whose value is determined by reference to changes in the value of specific underlying securities, currencies, interest rates, commodities, indices, credit default swaps, or other indicators (the "Reference"), or to relative changes in two or more References. The interest rate or principal amount payable upon maturity or redemption may be increased (decreased) depending upon changes in the applicable Reference or certain specified events. Structured securities may be positively or negatively indexed with the result that the appreciation of the Reference may produce an increase (decrease) in the interest rate or the value of the security at maturity. (k) WHEN-ISSUED OR FORWARD TRANSACTIONS-The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued or forward transactions involve a commitment by the Fund to purchase securities, with payment and delivery ("settlement") to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. The value of fixed income securities to be delivered in the future will fluctuate as interest rates vary. During the period between purchase and settlement, the value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. Government or U.S. Government sponsored enterprises securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund's custodian in order to pay for the commitment. There is a risk that market yields available at settlement may be higher than yields obtained on the purchase date which could result in depreciation of the value of fixed income when-issued securities. At the time the Fund makes commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and value of the security in determining its net asset value. The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. 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: First $500 million .50% Over $500 million .45%
Lord Abbett provides 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. 36 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) 12b-1 DISTRIBUTION PLAN The Fund has adopted a distribution plan (the "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 distribution and service 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:
FEE CLASS A CLASS B CLASS C CLASS P - ---------------------------------------------------------------------------------- Service .25%(1) .25% .25% .20% Distribution .10%(2) .75% .75% .25%
(1) Annual service fee on shares sold prior to June 1, 1990 is .15% of the average daily net asset value. (2) Until October 1, 2004, the Fund paid a one-time distribution fee of up to 1.00% on certain qualifying purchases of Class A shares. Effective October 1, 2004, the Distributor commenced payment of such one-time distribution fee. The unamortized balance of prepaid distribution fees as of June 30, 2005 was $113,532. This amount will continue to be amortized by the Fund, generally over a two-year period. The amount of CDSC collected by the Fund during the six months ended June 30, 2005 was $68,044. 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, 2005:
DISTRIBUTOR DEALERS' COMMISSIONS CONCESSIONS - ---------------------------------- $ 2,082,927 $ 10,677,262
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 (together the "Underlying Funds"), have entered into a Servicing Agreement with Balanced Strategy Fund (formerly known as Balanced Series) of Lord Abbett Investment Trust ("Balanced Strategy Fund"), pursuant to which each Underlying Fund pays a portion of the expenses of Balanced Strategy Fund in proportion to the average daily value of Underlying Fund shares owned by Balanced Strategy Fund. Amounts paid pursuant to the Servicing Agreement are included in the Subsidy on the Statement of Operations. 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, if any, is 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 earnings and profits for tax purposes are reported as a tax return of capital. 37 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) The tax character of distributions paid during the six months ended June 30, 2005 and for the fiscal year ended December 31, 2004 are as follows:
SIX MONTHS ENDED 6/30/2005 YEAR ENDED (UNAUDITED) 12/31/2004 - ------------------------------------------------------------------ Distributions paid from: Ordinary income $ 273,291,048 $ 526,026,540 - ------------------------------------------------------------------ Total distributions paid $ 273,291,048 $ 526,026,540 ==================================================================
As of December 31, 2004, the capital loss carryforwards along with the related expiration dates were as follows:
2008 2009 2010 TOTAL - ---------------------------------------------------------------- $ 29,104,644 $ 302,852,975 $ 303,185,812 $ 635,143,431
As of June 30, 2005, the aggregate unrealized security gains and losses based on cost for U.S. Federal income tax purposes are as follows: Tax cost $ 8,435,369,492 - -------------------------------------------------------- Gross unrealized gain 346,699,347 Gross unrealized loss (184,836,255) - -------------------------------------------------------- Net unrealized security gain $ 161,863,092 ========================================================
The difference between book-basis and tax-basis unrealized gains is primarily attributable to wash sales and other temporary tax adjustments. 5. PORTFOLIO SECURITIES TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2005 are as follows:
U.S. NON-U.S. U.S. NON-U.S. GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT PURCHASES* PURCHASES SALES* SALES - ---------------------------------------------------------------------------------- $ 855,093,245 $ 1,334,703,887 $ 511,700,393 $ 1,745,008,301
* Includes U.S. Government sponsored enterprises securities. As of June 30, 2005, the value of securities loaned was $141,373,139. These loans are collateralized by cash of $144,466,730, which is invested in a restricted money market account. In connection with the securities lending program, State Street Bank & Trust Company ("SSB") received fees of $360,821 for the six months ended June 30, 2005, which are netted against Securities Lending Income on the Statement of Operations. 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 38 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) deferred amounts are treated as though equivalent dollar amounts had been invested proportionately in the funds. 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 U.S. 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 0.08%. At June 30, 2005, there were no loans outstanding pursuant to this Facility nor was the Facility utilized at any time during the six-month period ended June 30, 2005. 9. CUSTODIAN AND ACCOUNTING AGENT SSB is the Fund's custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund's NAV. 10. INVESTMENT RISKS The Fund is subject to the general risks and considerations associated with investing in debt 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 debt 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 debt security will fail to make timely payments of principal or interest to the Fund, a risk that is greater with high yield securities (sometimes called "lower-rated debt securities" or "junk bonds") in which the Fund may invest. Some issuers, particularly of high yield securities, 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. 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. 39 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONCLUDED) The Fund may invest up to 5% of its net assets in structured securities. The Fund typically may use these securities as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risk, such as interest rate or currency risk. Structured securities may present additional risks that are different from those associated with a direct investment in fixed-income or equity securities; they may be volatile, less liquid and more difficult to price accurately and subject to additional credit risks. Changes in the value of structured securities may not correlate perfectly with the underlying asset, rate or index. The Fund that invests in structured securities could lose more than the principal amount invested. 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 net assets in foreign securities which may present market liquidity, currency, political, information, and other risks. These factors can affect the Fund's performance. 11. SUMMARY OF CAPITAL TRANSACTIONS Transactions in shares of capital stock are as follows:
SIX MONTHS ENDED JUNE 30, 2005 YEAR ENDED (UNAUDITED) DECEMBER 31, 2004 - --------------------------------------------------------------------------------------------------------------------- CLASS A SHARES SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------- Shares sold 60,597,207 $ 483,818,830 147,929,408 $ 1,185,674,948 Reinvestment of distributions 16,771,056 133,795,434 31,008,361 247,480,524 Shares reacquired (70,366,280) (560,034,676) (115,517,137) (922,609,162) - --------------------------------------------------------------------------------------------------------------------- Increase 7,001,983 $ 57,579,588 63,420,632 $ 510,546,310 - --------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Shares sold 7,409,089 $ 59,276,157 25,859,473 $ 207,400,148 Reinvestment of distributions 3,881,368 31,008,505 7,984,642 63,768,740 Shares reacquired (27,154,795) (216,500,012) (44,808,623) (357,804,358) - --------------------------------------------------------------------------------------------------------------------- Decrease (15,864,338) $ (126,215,350) (10,964,508) $ (86,635,470) - --------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Shares sold 16,146,682 $ 129,403,476 50,931,432 $ 409,302,369 Reinvestment of distributions 3,192,420 25,515,902 6,223,475 49,748,678 Shares reacquired (31,956,781) (254,274,015) (47,075,813) (375,969,765) - --------------------------------------------------------------------------------------------------------------------- Increase (decrease) (12,617,679) $ (99,354,637) 10,079,094 $ 83,081,282 - --------------------------------------------------------------------------------------------------------------------- CLASS P SHARES Shares sold 4,754,574 $ 38,486,015 7,883,029 $ 64,117,842 Reinvestment of distributions 336,404 2,720,265 474,986 3,842,232 Shares reacquired (1,974,309) (15,975,385) (2,187,653) (17,785,973) - --------------------------------------------------------------------------------------------------------------------- Increase 3,116,669 $ 25,230,895 6,170,362 $ 50,174,101 - --------------------------------------------------------------------------------------------------------------------- CLASS Y SHARES Shares sold 88,132 $ 695,661 10,767,799 $ 85,641,808 Reinvestment of distributions 1,199,198 9,540,766 1,976,991 15,729,980 Shares reacquired (240,429) (1,921,122) (517,857) (4,161,965) - --------------------------------------------------------------------------------------------------------------------- Increase 1,046,901 $ 8,315,305 12,226,933 $ 97,209,823 - ---------------------------------------------------------------------------------------------------------------------
40 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 semiannual 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 219336, Kansas City, MO 64121. PROXY VOTING POLICIES, PROCEDURES AND RECORD A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund's portfolio securities, and information on how Lord Abbett voted the Fund's proxies during the 12-month period ended June 30, 2005 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett's website at www.LordAbbett.com; or (iii) on the Securities and Exchange Commission's ("SEC") website at www.sec.gov. SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q for fiscal quarters ending on or after July 9, 2004. Copies of the filings are available without charge, upon request on the SEC's website at www.sec.gov and may be available by calling Lord Abbett at 800-821-5129. You can also obtain copies of Form N-Q by (i) visiting the SEC's Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330); (ii) sending your request and a duplicating fee to the SEC's Public Reference Room, Washington, DC 20549-0102; or (iii) sending your request electronically to publicinfo@sec.gov. 41 APPROVAL OF ADVISORY CONTRACT At a meeting on December 9, 2004, the Board, including all Directors who are not interested persons of the Fund, considered whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett. In addition to the materials the Board had reviewed throughout the course of the year, the Board received materials relating to the management agreement before the meeting and had the opportunity to ask questions and request further information in connection with its consideration. The materials received by the Board as to the Fund included, but were not limited to, (1) information provided by Lipper Analytical Services, Inc. regarding the investment performance of the Fund compared to the investment performance of a group of funds with substantially similar investment objectives (the "performance universe") and to the investment performance of an appropriate securities index (if such an index existed), for various time periods each ending September 30, 2004, (2) information on the effective management fee rates and expense ratios for funds with similar objectives and similar size (the "peer group"), (3) sales and redemption information for the Fund, (4) information regarding Lord Abbett's financial condition, (5) an analysis of the relative profitability of the management agreement to Lord Abbett, (6) information regarding the distribution arrangements of the Fund, (7) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund. The specific considerations are discussed below. INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board considered the investment management services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading. The Board noted that Lord Abbett did not use brokerage commissions to purchase third-party research. INVESTMENT PERFORMANCE AND COMPLIANCE. The Board reviewed the Fund's investment performance as well as the performance of the performance universe of funds, both in terms of total return and in terms of other statistical measures. The Board noted that the performance of the Class A shares of the Fund was in the fifth quintile of its performance universe for the nine-month period, in the fourth quintile for the one- and three-year periods, in the second quintile for the five-year period, and in the first quintile for the ten-year period. The Board also noted that the performance was below that of the Lipper High Current Yield Bond Index in the nine-month, one-year, and three-year periods, and above that of the Index for the five- and ten-year periods. LORD ABBETT'S PERSONNEL AND METHODS. The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of the Fund's investment objective and discipline. Among other things, they considered the size and experience of Lord Abbett's investment management staff, Lord Abbett's investment methodology and philosophy, and Lord Abbett's approach to recruiting, training, and retaining investment management personnel. NATURE AND QUALITY OF OTHER SERVICES. The Board considered the nature, quality, costs, and extent of administrative and other services performed by Lord Abbett and Lord Abbett Distributor and the nature and extent of Lord Abbett supervision of third party service providers, including the Fund's transfer agent and custodian. EXPENSES. The Board considered the expense ratios of each class and the expense ratios of peer groups. It also considered the amount and nature of the fees paid by shareholders. The Board 42 noted that the contractual management and administrative services fees of the Fund were approximately six basis points below the median of the peer group and that the actual management and administrative services fees were approximately ten basis points below the median. The Board also noted that the actual total expense ratio of Class A was approximately eight basis points below the median of the peer group, that the actual total expense ratios of Classes B and C were approximately seventeen basis points below the median, that the actual total expense ratio of Class P was approximately seven basis points below the median, and the actual total expense ratio of Class Y was approximately eleven basis points below the median. PROFITABILITY. The Board considered the level of Lord Abbett's profits in managing the Fund, including a review of Lord Abbett's methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable basis and was appropriate. It considered the profits realized by Lord Abbett in connection with the operation of the Fund and whether the amount of profit was fair for the management of the Fund. The Board also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to the Fund's business. The Board considered Lord Abbett's profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett's ability to recruit and retain investment personnel. The Board noted that Lord Abbett's profitability had increased, in part due to an increase in assets under management. ECONOMIES OF SCALE. The Board considered whether there had been any economies of scale in managing the Fund, whether the Fund had appropriately benefited from any such economies of scale, and whether there was potential for realization of any further economies of scale. OTHER BENEFITS TO LORD ABBETT. The Board considered the character and amount of fees paid by the Fund and the Fund's shareholders to Lord Abbett and Lord Abbett Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord Abbett's investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. ALTERNATIVE ARRANGEMENTS. The Board considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of the Fund, such as continuing to employ Lord Abbett, but on different terms. In considering whether to approve the continuation of the management agreement, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered. After considering all of the relevant factors, the Board unanimously found that continuation of the existing management agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the management agreement. 43 [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 Fund prospectus. Lord Abbett Bond-Debenture Fund, Inc. Lord Abbett Mutual Fund shares are distributed by LABD-3-0605 LORD ABBETT DISTRIBUTOR LLC (08/05)
ITEM 2: CODE OF ETHICS. Not applicable. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11: CONTROLS AND PROCEDURES. (a) Based on their evaluation of the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days prior to the filing date of this report, 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 control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant's second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12: EXHIBITS. (a)(1) Amendments to Code of Ethics - Not applicable. (a)(2) 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. (a)(3) 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. 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 17, 2005 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 17, 2005 EX-99.CERT 2 a2162526zex-99_cert.txt EXHIBIT 99.CERT Exhibit 99.CERT CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Robert S. Dow, certify that: 1. I have reviewed this report on Form N-CSR of Lord Abbett Bond-Debenture Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 17, 2005 /s/ Robert S. Dow -------------------------------- Robert S. Dow Chief Executive Officer, Chairman and President CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Joan A. Binstock, certify that: 1. I have reviewed this report on Form N-CSR of Lord Abbett Bond-Debenture Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 17, 2005 /s/ Joan A. Binstock -------------------------------- Joan A. Binstock Chief Financial Officer and Vice President EX-99.906CERT 3 a2162526zex-99_906cert.txt EXHIBIT 99.906CERT Exhibit 99.906CERT CERTIFICATIONS Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that: 1. This report on Form N-CSR of Lord Abbett Bond-Debenture Fund, Inc. (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Date: August 17, 2005 By: /s/ Robert S. Dow -------------------------------------- Robert S. Dow Chief Executive Officer, Chairman and President By: /s/ Joan A. Binstock -------------------------------------- Joan A. Binstock Chief Financial Officer and Vice President A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. CERTIFICATIONS Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that: 1. This report on Form N-CSR of Lord Abbett Bond-Debenture Fund, Inc. (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Date: August 17, 2005 By: /s/ Robert S. Dow -------------------------------------- Robert S. Dow Chief Executive Officer, Chairman and President By: /s/ Joan A. Binstock -------------------------------------- Joan A. Binstock Chief Financial Officer and Vice President -----END PRIVACY-ENHANCED MESSAGE-----