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 | |||||||
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LORD ABBETT BOND-DEBENTURE FUND, INC. | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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90 Hudson Street, Jersey City, NJ |
| 07302 | ||||||
(Address of principal executive offices) |
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Thomas R. Phillips, Esq., Vice President & Assistant Secretary | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (800) 201-6984 |
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Date of fiscal year end: | 12/31 |
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Date of reporting period: | 12/31/2008 |
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Item 1: Report to Shareholders.
2008
LORD ABBETT ANNUAL REPORT
Lord Abbett
Bond Debenture Fund
For the fiscal year ended December 31, 2008
Lord Abbett Bond Debenture Fund
Annual Report
For the fiscal year ended December 31, 2008
Dear Shareholders: We are pleased to provide you with this overview of the Lord Abbett Bond Debenture Fund's performance for the fiscal year ended December 31, 2008. On this page and the following pages, we discuss the major factors that influenced performance. For detailed and more timely information about the Fund, please visit our Website at www.lordabbett.com, where you also can access the quarterly commentaries by the Fund's portfolio managers.
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,
Robert S. Dow
Chairman
From left to right: Robert S. Dow, Director and Chairman of the Lord Abbett Funds; E. Thayer Bigelow, Independent Lead Director of the Lord Abbett Funds; and Daria L. Foster, Director and President of the Lord Abbett Funds.
Q: What were the overall market conditions during the fiscal year ended December 31, 2008?
A: According to the National Bureau of Economic Research (NBER), the U.S. economy officially has been in a recession since December 2007. Final estimates of third quarter 2008 gross domestic product (GDP) show a decrease of 0.5%, and estimates of fourth quarter 2008 GDP show growth declined by 3.8%. During the third and fourth quarters of 2008, the majority of economic data were decidedly negative, with many recent readings hitting historical lows. The manufacturing sector contracted further, with the Purchasing Managers Index (PMI)1 plunging to 32.4% in December – the fifth consecutive month of no growth and the lowest reading since June 1980. Home prices continued to decline in the fourth quarter, with th e S&P/Case-Shiller 20-City Composite Index2 down 18.0% year over year (as of October 2008) and down 23.4% from its peak in mid-2006. Retail and food services sales, according to advanced estimates, declined 2.7% in December, following a downwardly revised decline of 2.1% in the
1
prior month. Labor market conditions also weakened during the period, with initial and continuing jobless claims at their highest levels since 1982. December payrolls declined by 524,000 and the national unemployment rate rose to 7.2%.
Policymakers responded aggressively to the economic and financial crisis with global coordinated rate cuts, capital infusions into banks, development of the Troubled Asset Relief Program (TARP), and the establishment of the Commercial Paper Funding Facility, among a number of emergency programs. During the third quarter, the Federal Reserve Board (the Fed) initiated a program to purchase agency debt and mortgage-backed securities to assist the residential housing sector.
Q: How did the Bond Debenture Fund perform during the fiscal year ended December 31, 2008?
A: The Fund returned -20.26%, reflecting performance at the net asset value (NAV) of Class A shares with all distributions reinvested, compared to its benchmark, the Barclays Capital [formerly Lehman Brothers] U.S. Aggregate Bond Index,3 which returned 5.24% over the same period.
Q: What were the most significant factors affecting performance?
A: The Bond Debenture Fund is a multi-sector bond fund with portfolio holdings in high-yield bonds, convertible securities, investment-grade bonds, bank loans, some equities, derivatives, and mortgage-backed securities/Treasuries. The high-yield bond sector was the biggest percentage of the portfolio and was also the weakest sector in terms of performance. The convertible securities sector and equity positions also detracted from relative performance. The strongest sector performance in the 12-month period ended December 31, 2008, was derived from holdings in the mortgage-backed securities/Treasuries sector.
In terms of industries, the greatest detractors from relative performance in the year were the portfolio's positions in printing and publishing, media/broadcasting, and forestry/paper. The largest contribution to relative performance in terms of industries was derived from the portfolio's holdings in mortgage-backed securities.
The greatest detractors from perform-ance in the portfolio as a whole were printing and publishing holding Idearc Inc., a publisher of directories; media/cable holding Charter Communications, a cable television system operator; and automotive holding General Motors Corporation, a manufacturer of cars and trucks.
The greatest contributors to performance in the portfolio as a whole were select U.S. Treasury notes; mortgage-backed security holding Federal National Mortgage, a mortgage lender; and pharmaceuticals holding Amgen Inc., a drug manufacturer using cellular biology and medicinal chemistry to target cancers and other disorders.
2
The Fund's portfolio is actively managed and, therefore, its holdings and the 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, which an investor 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 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before investing.
1 The Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The index is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment.
2 The S&P/Case-Shiller 20-City Composite Index measures the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States.
3 The Barclays Capital [formerly 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.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
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 888-522-2388 or referring to www.lordabbett.com.
Except where noted, comparative Fund performance does not account for the deduction of sales charges and would be different if sales charges were included. The Fund offers several classes of shares with distinct pricing options. For a full description of the differences in pricing alternatives, please see the Fund's prospectus.
The views of the Fund's management and the portfolio holdings described in this report are as of December 31, 2008; 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.
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
Investment Comparison
Below is a comparison of a $10,000 investment in Class A shares with the same investment in the Barclays Capital [formerly Lehman Brothers] U.S. Aggregate Bond Index, Merrill Lynch High Yield Master II Constrained Index, and the 60% Merrill Lynch High Yield Master II Constrained Index/20% Barclays Capital [formerly Lehman Brothers] U.S. Aggregate Bond Index/20% Merrill Lynch All Convertible Index, assuming reinvestment of all dividends and distributions. The performance of other classes will be greater than or less than the performance shown in the graph below due to different sales loads and expenses applicable to such classes. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Past performance is no guarantee of future results.
Average Annual Total Return at Maximum Applicable Sales Charge for the Periods Ended December 31, 2008
1 Year | 5 Years | 10 Years | Life of Class | ||||||||||||||||
Class A3 | -24.01 | % | -0.62 | % | 2.22 | % | — | ||||||||||||
Class B4 | -23.79 | % | -0.45 | % | 2.21 | % | — | ||||||||||||
Class C5 | -20.90 | % | -0.32 | % | 2.06 | % | — | ||||||||||||
Class F6 | -20.17 | % | — | — | -16.70 | % | |||||||||||||
Class I7 | -20.14 | % | 0.67 | % | 3.07 | % | — | ||||||||||||
Class P7 | -20.50 | % | 0.22 | % | 2.72 | % | — | ||||||||||||
Class R28 | -20.61 | % | — | — | -17.06 | % | |||||||||||||
Class R39 | -20.52 | % | — | — | -16.97 | % |
1 Reflects the deduction of the maximum initial sales charge of 4.75%.
2 Performance for each unmanaged index does not reflect transaction costs, management fees or sales charges. The performance of each index is not necessarily representative of the Fund's performance.
3 Total return, which is the percentage change in net asset value, after deduction of the maximum initial sales charge of 4.75% applicable to Class A shares, with all dividends and distributions reinvested for the periods shown ended December 31, 2008, is calculated using the SEC-required uniform method to compute such return.
4 Performance reflects the deduction of a CDSC of 4% for 1 year, 1% for 5 years and 0% for 10 years. Class B shares automatically convert to Class A shares after approximately 8 years. (There is no initial sales charge for automatic conversions.) All returns for periods greater than 8 years reflect this conversion.
5 The 1% CDSC for Class C shares normally applies before the first anniversary of the purchase date. Performance is at net asset value.
6 Class F shares commenced operations on September 7, 2007. Performance for the class began on September 28, 2007. Performance is at net asset value.
7 Performance is at net asset value.
8 Class R2 shares commenced operations on September 7, 2007. Performance for the class began on September 28, 2007. Performance is at net asset value.
9 Class R3 shares commenced operations on September 7, 2007. Performance for the class began on September 28, 2007. Performance is at net asset value.
4
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) 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 (July 1, 2008 through December 31, 2008).
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 7/1/08 – 12/31/08" 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% 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% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
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 (loads). 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 Account Value | Ending Account Value | Expenses Paid During Period† | |||||||||||||
7/1/08 | 12/31/08 | 7/1/08 - 12/31/08 | |||||||||||||
Class A | |||||||||||||||
Actual | $ | 1,000.00 | $ | 808.70 | $ | 4.55 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | |||||||||
Class B | |||||||||||||||
Actual | $ | 1,000.00 | $ | 805.80 | $ | 7.49 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,016.83 | $ | 8.36 | |||||||||
Class C | |||||||||||||||
Actual | $ | 1,000.00 | $ | 806.00 | $ | 7.49 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,016.83 | $ | 8.36 | |||||||||
Class F | |||||||||||||||
Actual | $ | 1,000.00 | $ | 808.60 | $ | 3.41 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,021.37 | $ | 3.81 | |||||||||
Class I | |||||||||||||||
Actual | $ | 1,000.00 | $ | 809.50 | $ | 2.96 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,021.87 | $ | 3.30 | |||||||||
Class P | |||||||||||||||
Actual | $ | 1,000.00 | $ | 807.60 | $ | 5.00 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.60 | $ | 5.58 | |||||||||
Class R2 | |||||||||||||||
Actual | $ | 1,000.00 | $ | 806.20 | $ | 5.68 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,018.90 | $ | 6.34 | |||||||||
Class R3 | |||||||||||||||
Actual | $ | 1,000.00 | $ | 806.70 | $ | 5.22 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.36 | $ | 5.84 |
† 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, 0.75% for Class F, 0.65% for Class I, 1.10% for Class P, 1.25% for Class R2 and 1.15% for Class R3) multiplied by the average account value over the period, multiplied by 184/366 (to reflect one-half year period).
Portfolio Holdings Presented by Sector
December 31, 2008
Sector* | %** | ||||||
Agency | 1.54 | % | |||||
Banking | 2.01 | % | |||||
Basic Industry | 6.05 | % | |||||
Brokerage | 0.25 | % | |||||
Capital Goods | 7.18 | % | |||||
Consumer Cyclical | 4.47 | % | |||||
Consumer Non-Cyclical | 6.88 | % | |||||
Energy | 11.30 | % | |||||
Finance & Investment | 1.10 | % | |||||
Financial Services | 0.43 | % | |||||
Foreign Sovereign | 0.25 | % | |||||
Government Guaranteed | 0.88 | % | |||||
Sector* | %** | ||||||
Healthcare | 0.24 | % | |||||
Insurance | 0.94 | % | |||||
Media | 4.94 | % | |||||
Mortgage-Backed | 14.05 | % | |||||
Services Cyclical | 6.76 | % | |||||
Services Non-Cyclical | 6.61 | % | |||||
Technology & Electronics | 4.43 | % | |||||
Telecommunications | 6.09 | % | |||||
Utility | 9.51 | % | |||||
Short-Term Investment | 4.09 | % | |||||
Total | 100.00 | % |
* A sector may comprise several industries.
** Represents percent of total investments.
6
Schedule of Investments
December 31, 2008
Investments | Shares (000) | Value | |||||||||||||||||
LONG-TERM INVESTMENTS 93.82% | |||||||||||||||||||
COMMON STOCKS 2.12% | |||||||||||||||||||
Automotive 0.05% | |||||||||||||||||||
Oshkosh Corp. | 300 | $ | 2,667,000 | ||||||||||||||||
Chemicals 0.00% | |||||||||||||||||||
Texas Petrochemicals, Inc.* | 35 | 176,060 | |||||||||||||||||
Electric: Generation 0.13% | |||||||||||||||||||
PNM Resources, Inc. | 500 | 5,040,000 | |||||||||||||||||
Reliant Energy, Inc.* | 300 | 1,734,000 | |||||||||||||||||
Total | 6,774,000 | ||||||||||||||||||
Electric: Integrated 0.21% | |||||||||||||||||||
NiSource, Inc. | 700 | 7,679,000 | |||||||||||||||||
TECO Energy, Inc. | 300 | 3,705,000 | |||||||||||||||||
Total | 11,384,000 | ||||||||||||||||||
Electronics 0.24% | |||||||||||||||||||
Emerson Electric Co. | 350 | 12,813,500 | |||||||||||||||||
Energy: Exploration & Production 0.16% | |||||||||||||||||||
Schlumberger Ltd. | 200 | 8,466,000 | |||||||||||||||||
Financial: Miscellaneous 0.42% | |||||||||||||||||||
SPDR Trust Series 1 | 250 | 22,560,000 | |||||||||||||||||
Food & Drug Retailers 0.16% | |||||||||||||||||||
Ingles Markets, Inc. Class A | 185 | 3,254,150 | |||||||||||||||||
SUPERVALU, INC. | 350 | 5,110,000 | |||||||||||||||||
Total | 8,364,150 | ||||||||||||||||||
Investments & Miscellaneous Financial Services 0.01% | |||||||||||||||||||
CIT Group, Inc. | 71 | 324,474 | |||||||||||||||||
Machinery 0.22% | |||||||||||||||||||
Baldor Electric Co. | 215 | 3,837,750 | |||||||||||||||||
Roper Industries, Inc. | 180 | 7,813,800 | |||||||||||||||||
Total | 11,651,550 |
See Notes to Financial Statements.
7
Schedule of Investments (continued)
December 31, 2008
Investments | Shares (000) | Value | |||||||||||||||||
Media: Cable 0.16% | |||||||||||||||||||
Time Warner Cable, Inc. Class A* | 400 | $ | 8,580,000 | ||||||||||||||||
Multi-Line Insurance 0.15% | |||||||||||||||||||
MetLife, Inc. | 235 | 8,182,339 | |||||||||||||||||
Oil Field Equipment & Services 0.00% | |||||||||||||||||||
Exterran Holdings, Inc.* | 3 | 63,964 | |||||||||||||||||
Pharmaceuticals 0.13% | |||||||||||||||||||
Pfizer, Inc. | 400 | 7,084,000 | |||||||||||||||||
Support: Services 0.08% | |||||||||||||||||||
CRA International, Inc.* | 150 | 4,039,500 | |||||||||||||||||
Total Common Stocks (cost $176,846,250) | 113,130,537 | ||||||||||||||||||
Interest Rate | Maturity Date | Principal Amount (000) | |||||||||||||||||
CONVERTIBLE BONDS 5.65% | |||||||||||||||||||
Aerospace/Defense 0.59% | |||||||||||||||||||
Alliant Techsystems, Inc. | 2.75 | % | 2/15/2024 | $ | 10,000 | 11,475,000 | |||||||||||||
L-3 Communications Holdings, Inc. | 3.00 | % | 8/1/2035 | 20,000 | 20,000,000 | ||||||||||||||
Total | 31,475,000 | ||||||||||||||||||
Building & Construction 0.06% | |||||||||||||||||||
Fluor Corp. | 1.50 | % | 2/15/2024 | 2,000 | 3,262,500 | ||||||||||||||
Computer Hardware 0.29% | |||||||||||||||||||
Intel Corp. | 2.95 | % | 12/15/2035 | 18,000 | 15,682,500 | ||||||||||||||
Electronics 0.50% | |||||||||||||||||||
FLIR Systems, Inc. | 3.00 | % | 6/1/2023 | 1,365 | 3,801,525 | ||||||||||||||
Itron, Inc. | 2.50 | % | 8/1/2026 | 5,000 | 5,387,500 | ||||||||||||||
Millipore Corp. | 3.75 | % | 6/1/2026 | 20,000 | 17,550,000 | ||||||||||||||
Total | 26,739,025 | ||||||||||||||||||
Gas Distribution 0.07% | |||||||||||||||||||
NorthernStar Natural Gas, Inc. PIK† | 5.00 | % | 5/15/2013 | 4,912 | 3,708,274 |
See Notes to Financial Statements.
8
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Health Services 0.50% | |||||||||||||||||||
Fisher Scientific International, Inc. | 3.25 | % | 3/1/2024 | $ | 10,000 | $ | 11,262,500 | ||||||||||||
Invitrogen Corp. | 1.50 | % | 2/15/2024 | 20,000 | 15,100,000 | ||||||||||||||
Total | 26,362,500 | ||||||||||||||||||
Media: Broadcast 0.29% | |||||||||||||||||||
Sinclair Broadcast Group, Inc. | 6.00 | % | 9/15/2012 | 22,545 | 10,370,700 | ||||||||||||||
Sinclair Broadcast Group, Inc. (2.00% after 1/15/2011)(a) | 4.875 | % | 7/15/2018 | 10,000 | 4,950,000 | ||||||||||||||
Total | 15,320,700 | ||||||||||||||||||
Media: Diversified 0.27% | |||||||||||||||||||
Liberty Media LLC (convertible into Viacom, Inc., Class B and CBS Corp.) | 3.25 | % | 3/15/2031 | 45,000 | 14,400,000 | ||||||||||||||
Metals/Mining (Excluding Steel) 0.40% | |||||||||||||||||||
Newmont Mining Corp. | 1.25 | % | 7/15/2014 | 20,000 | 21,500,000 | ||||||||||||||
Oil Field Equipment & Services 0.12% | |||||||||||||||||||
Hanover Compressor Co. | 4.75 | % | 1/15/2014 | 10,000 | 6,475,000 | ||||||||||||||
Pharmaceuticals 1.05% | |||||||||||||||||||
CV Therapeutics, Inc. | 3.25 | % | 8/16/2013 | 15,000 | 9,656,250 | ||||||||||||||
Teva Pharmaceutical Finance Co. BV (Israel)(b) | 1.75 | % | 2/1/2026 | 33,100 | 36,534,125 | ||||||||||||||
Wyeth | 2.621 | %# | 1/15/2024 | 10,000 | 9,957,000 | ||||||||||||||
Total | 56,147,375 | ||||||||||||||||||
Printing & Publishing 0.21% | |||||||||||||||||||
Omnicom Group, Inc. | Zero Coupon | 7/1/2038 | 12,000 | 10,905,000 | |||||||||||||||
Software/Services 0.84% | |||||||||||||||||||
EMC Corp. | 1.75 | % | 12/1/2011 | 15,000 | 14,718,750 | ||||||||||||||
Equinix, Inc. | 2.50 | % | 4/15/2012 | 15,000 | 11,231,250 | ||||||||||||||
Symantec Corp. | 0.75 | % | 6/15/2011 | 20,000 | 19,000,000 | ||||||||||||||
Total | 44,950,000 | ||||||||||||||||||
Support: Services 0.25% | |||||||||||||||||||
CRA International, Inc. | 2.875 | % | 6/15/2034 | 15,000 | 13,481,250 |
See Notes to Financial Statements.
9
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Telecommunications: Wireless 0.21% | |||||||||||||||||||
Nextel Communications, Inc. | 5.25 | % | 1/15/2010 | $ | 8,000 | $ | 6,970,000 | ||||||||||||
NII Holdings, Inc. | 2.75 | % | 8/15/2025 | 5,000 | 4,356,250 | ||||||||||||||
Total | 11,326,250 | ||||||||||||||||||
Total Convertible Bonds (cost $384,161,481) | 301,735,374 | ||||||||||||||||||
Shares (000) | |||||||||||||||||||
CONVERTIBLE PREFERRED STOCKS 2.73% | |||||||||||||||||||
Agency 0.01% | |||||||||||||||||||
Fannie Mae | 8.75 | % | 450 | 472,500 | |||||||||||||||
Banking 0.68% | |||||||||||||||||||
Bank of America Corp. | 7.25 | % | 33 | 21,125,000 | |||||||||||||||
Wells Fargo & Co. | 7.50 | % | 20 | 15,000,000 | |||||||||||||||
Total | 36,125,000 | ||||||||||||||||||
Electric: Generation 0.29% | |||||||||||||||||||
NRG Energy, Inc. | 5.75 | % | 70 | 15,383,046 | |||||||||||||||
Food: Wholesale 0.51% | |||||||||||||||||||
Archer Daniels Midland Co. | 6.25 | % | 500 | 18,950,000 | |||||||||||||||
Bunge Ltd. | 4.875 | % | 125 | 8,562,500 | |||||||||||||||
Total | 27,512,500 | ||||||||||||||||||
Gas Distribution 0.63% | |||||||||||||||||||
El Paso Corp. | 4.99 | % | 20 | 13,205,000 | |||||||||||||||
Williams Cos., Inc. (The) | 5.50 | % | 300 | 20,400,000 | |||||||||||||||
Total | 33,605,000 | ||||||||||||||||||
Life Insurance 0.18% | |||||||||||||||||||
MetLife, Inc. | 6.375 | % | 960 | 9,888,000 | |||||||||||||||
Metals/Mining (Excluding Steel) 0.15% | |||||||||||||||||||
Vale Capital Ltd. (Brazil)(b) | 5.50 | % | 283 | 7,873,275 | |||||||||||||||
Pharmaceuticals 0.28% | |||||||||||||||||||
Mylan, Inc. | 6.50 | % | 23 | 14,828,175 | |||||||||||||||
Total Convertible Preferred Stocks (cost $217,994,680) | 145,687,496 |
See Notes to Financial Statements.
10
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
FLOATING RATE LOANS(c) 1.94% | |||||||||||||||||||
Aerospace/Defense 0.11% | |||||||||||||||||||
Hawker Beechcraft Acquistion Co. LLC Letter of Credit | 5.7619% | 3/31/2014 | $ | 646 | $ | 339,342 | |||||||||||||
Hawker Beechcraft Corp. Term Loan | 2.4613% - 3.4588% | 3/31/2014 | 10,997 | 5,778,995 | |||||||||||||||
Total | 6,118,337 | ||||||||||||||||||
Auto Parts & Equipment 0.20% | |||||||||||||||||||
Oshkosh Corp. Term Loan B | 1.97% - 3.70% | 12/6/2013 | 17,831 | 10,505,186 | |||||||||||||||
Health Services 0.51% | |||||||||||||||||||
HCA, Inc. Term Loan B | 3.7088% | 11/18/2013 | 34,597 | 27,352,984 | |||||||||||||||
Healthcare 0.24% | |||||||||||||||||||
Biomet, Inc. Term Loan B | 4.4589% | 3/25/2015 | 5,677 | 4,881,055 | |||||||||||||||
Community Health Systems, Inc. Term Loan B | 3.4038% - 4.4463% | 7/25/2014 | 10,000 | 7,835,000 | |||||||||||||||
Total | 12,716,055 | ||||||||||||||||||
Machinery 0.17% | |||||||||||||||||||
Baldor Electric Co. Term Loan B | 2.25% - 5.25% | 1/31/2014 | 10,497 | 8,931,506 | |||||||||||||||
Pharmaceuticals 0.39% | |||||||||||||||||||
Mylan, Inc. Term Loan B | 3.75% - 6.00% | 10/1/2014 | 24,500 | 21,029,159 | |||||||||||||||
Printing & Publishing 0.06% | |||||||||||||||||||
Idearc, Inc. Term Loan B | 2.47% - 3.46% | 11/17/2014 | 9,924 | 3,133,162 | |||||||||||||||
Utility 0.26% | |||||||||||||||||||
Texas Competitive Electric Holdings Co. LLC Term Loan B2 | 3.9488% - 5.8875% | 10/10/2014 | 19,849 | 13,853,126 | |||||||||||||||
Total Floating Rate Loans (cost $134,590,834) | 103,639,515 | ||||||||||||||||||
FOREIGN BONDS(d) 0.56% | |||||||||||||||||||
Canada | |||||||||||||||||||
Government of Canada | 4.00% | 9/1/2010 | CAD | 20,000 | 16,990,847 | ||||||||||||||
Government of Canada | 5.50% | 6/1/2010 | CAD | 15,000 | 12,917,983 | ||||||||||||||
Total Foreign Bonds (cost $35,394,286) | 29,908,830 |
See Notes to Financial Statements.
11
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
GOVERNMENT SPONSORED ENTERPRISES BONDS 1.50% | |||||||||||||||||||
Federal Home Loan Mortgage Corp. | 5.125 | % | 4/18/2011 | $ | 50,000 | $ | 54,033,250 | ||||||||||||
Federal National Mortgage Assoc. | 6.625 | % | 9/15/2009 | 25,000 | 26,026,625 | ||||||||||||||
Total Government Sponsored Enterprises Bonds (cost $77,151,581) | 80,059,875 | ||||||||||||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS 13.75% | |||||||||||||||||||
Federal National Mortgage Assoc. | 5.50 | % | 7/1/2033 - 5/1/2037 | 103,070 | 105,902,618 | ||||||||||||||
Federal National Mortgage Assoc. | 6.00 | % | 2/1/2034 - 8/1/2038 | 407,126 | 419,836,439 | ||||||||||||||
Federal National Mortgage Assoc. | 6.50 | % | 9/1/2035 - 7/1/2037 | 200,220 | 208,295,234 | ||||||||||||||
Total Government Sponsored Enterprises Pass-Throughs (cost $716,588,079) | 734,034,291 | ||||||||||||||||||
HIGH YIELD CORPORATE BONDS 64.78% | |||||||||||||||||||
Aerospace/Defense 1.63% | |||||||||||||||||||
DRS Technologies, Inc. | 6.875 | % | 11/1/2013 | 30,000 | 29,880,360 | ||||||||||||||
Esterline Technologies Corp. | 6.625 | % | 3/1/2017 | 4,625 | 3,954,375 | ||||||||||||||
Esterline Technologies Corp. | 7.75 | % | 6/15/2013 | 16,000 | 14,000,000 | ||||||||||||||
Hawker Beechcraft Corp. | 8.50 | % | 4/1/2015 | 5,000 | 2,075,000 | ||||||||||||||
Hawker Beechcraft Corp. PIK | 8.875 | % | 4/1/2015 | 12,000 | 4,140,000 | ||||||||||||||
L-3 Communications Corp. | 6.125 | % | 1/15/2014 | 14,000 | 12,775,000 | ||||||||||||||
L-3 Communications Corp. | 6.375 | % | 10/15/2015 | 14,000 | 13,160,000 | ||||||||||||||
Moog, Inc. Class A | 6.25 | % | 1/15/2015 | 8,500 | 6,842,500 | ||||||||||||||
Total | 86,827,235 | ||||||||||||||||||
Agriculture 0.08% | |||||||||||||||||||
Bunge NA Finance LP | 5.90 | % | 4/1/2017 | 6,050 | 4,410,317 | ||||||||||||||
Apparel/Textiles 0.18% | |||||||||||||||||||
Levi Strauss & Co. | 8.875 | % | 4/1/2016 | 5,625 | 3,853,125 | ||||||||||||||
Quiksilver, Inc. | 6.875 | % | 4/15/2015 | 17,000 | 5,567,500 | ||||||||||||||
Total | 9,420,625 | ||||||||||||||||||
Auto Loans 2.03% | |||||||||||||||||||
Ford Motor Credit Co. LLC | 7.25 | % | 10/25/2011 | 55,000 | 40,201,205 | ||||||||||||||
Ford Motor Credit Co. LLC | 7.375 | % | 10/28/2009 | 20,000 | 17,567,560 | ||||||||||||||
Ford Motor Credit Co. LLC | 9.75 | % | 9/15/2010 | 8,500 | 6,802,363 | ||||||||||||||
GMAC LLC | 7.25 | % | 3/2/2011 | 50,973 | 43,805,686 | ||||||||||||||
Total | 108,376,814 |
See Notes to Financial Statements.
12
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Auto Parts & Equipment 0.69% | |||||||||||||||||||
Cooper-Standard Automotive, Inc. | 8.375 | % | 12/15/2014 | $ | 20,000 | $ | 3,600,000 | ||||||||||||
Lear Corp. | 8.50 | % | 12/1/2013 | 10,000 | 3,150,000 | ||||||||||||||
Lear Corp. | 8.75 | % | 12/1/2016 | 1,225 | 361,375 | ||||||||||||||
Stanadyne Corp. | 10.00 | % | 8/15/2014 | 10,000 | 6,850,000 | ||||||||||||||
Stanadyne Corp. (12.00% after 8/15/2009)** | Zero Coupon | 2/15/2015 | 15,000 | 6,825,000 | |||||||||||||||
Tenneco, Inc. | 8.625 | % | 11/15/2014 | 20,000 | 7,700,000 | ||||||||||||||
TRW Automotive, Inc.† | 7.25 | % | 3/15/2017 | 16,425 | 8,458,875 | ||||||||||||||
Total | 36,945,250 | ||||||||||||||||||
Automotive 0.31% | |||||||||||||||||||
Ford Capital BV (Netherlands)(b) | 9.50 | % | 6/1/2010 | 16,500 | 7,260,000 | ||||||||||||||
Ford Motor Co. | 9.50 | % | 9/15/2011 | 7,000 | 2,555,000 | ||||||||||||||
General Motors Corp. | 7.20 | % | 1/15/2011 | 31,750 | 6,746,875 | ||||||||||||||
Total | 16,561,875 | ||||||||||||||||||
Banking 1.29% | |||||||||||||||||||
Bank of America Corp. | 5.75 | % | 12/1/2017 | 10,000 | 10,001,630 | ||||||||||||||
JPMorgan Chase & Co. | 6.00 | % | 1/15/2018 | 15,000 | 15,860,505 | ||||||||||||||
Regions Financing Trust II | 6.625 | % | 5/15/2047 | 10,000 | 5,454,220 | ||||||||||||||
Wachovia Corp. | 5.50 | % | 5/1/2013 | 11,000 | 10,887,569 | ||||||||||||||
Wells Fargo & Co. | 5.35 | % | 5/6/2018 | 20,000 | 19,964,640 | ||||||||||||||
Wells Fargo & Co. | 5.625 | % | 12/11/2017 | 6,500 | 6,793,196 | ||||||||||||||
Total | 68,961,760 | ||||||||||||||||||
Beverage 0.55% | |||||||||||||||||||
Constellation Brands, Inc. | 7.25 | % | 5/15/2017 | 17,000 | 16,150,000 | ||||||||||||||
Diageo Capital plc (United Kingdom)(b) | 7.375 | % | 1/15/2014 | 8,400 | 8,957,516 | ||||||||||||||
PepsiCo, Inc. | 7.90 | % | 11/1/2018 | 3,500 | 4,297,430 | ||||||||||||||
Total | 29,404,946 | ||||||||||||||||||
Brokerage 0.24% | |||||||||||||||||||
Morgan Stanley | 6.00 | % | 4/28/2015 | 12,000 | 10,365,804 | ||||||||||||||
Morgan Stanley | 6.625 | % | 4/1/2018 | 2,850 | 2,504,406 | ||||||||||||||
Total | 12,870,210 | ||||||||||||||||||
Building & Construction 0.04% | |||||||||||||||||||
William Lyon Homes, Inc. | 10.75 | % | 4/1/2013 | 8,375 | 2,135,625 |
See Notes to Financial Statements.
13
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Building Materials 0.24% | |||||||||||||||||||
Belden, Inc. | 7.00 | % | 3/15/2017 | $ | 12,500 | $ | 9,437,500 | ||||||||||||
NTK Holdings, Inc. (10.75% after 9/1/2009)** | Zero Coupon | 3/1/2014 | 15,000 | 3,300,000 | |||||||||||||||
Total | 12,737,500 | ||||||||||||||||||
Chemicals 1.96% | |||||||||||||||||||
Airgas, Inc. | 6.25 | % | 7/15/2014 | 10,000 | 8,550,000 | ||||||||||||||
Airgas, Inc.† | 7.125 | % | 10/1/2018 | 5,275 | 4,523,312 | ||||||||||||||
Equistar Chemicals LP(e) | 7.55 | % | 2/15/2026 | 26,000 | 3,380,000 | ||||||||||||||
Huntsman LLC | 11.50 | % | 7/15/2012 | 5,181 | 4,170,705 | ||||||||||||||
Ineos Group Holdings plc (United Kingdom)†(b) | 8.50 | % | 2/15/2016 | 30,000 | 2,850,000 | ||||||||||||||
INVISTA† | 9.25 | % | 5/1/2012 | 25,000 | 17,625,000 | ||||||||||||||
Mosaic Co. (The)† | 7.375 | % | 12/1/2014 | 1,800 | 1,477,667 | ||||||||||||||
Nalco Co. | 8.875 | % | 11/15/2013 | 10,425 | 8,861,250 | ||||||||||||||
NOVA Chemicals Corp. (Canada)(b) | 6.50 | % | 1/15/2012 | 10,000 | 4,200,000 | ||||||||||||||
Praxair, Inc. | 4.625 | % | 3/30/2015 | 20,000 | 20,159,400 | ||||||||||||||
Rockwood Specialties Group, Inc. | 7.50 | % | 11/15/2014 | 18,250 | 14,143,750 | ||||||||||||||
Terra Capital, Inc. | 7.00 | % | 2/1/2017 | 20,000 | 14,800,000 | ||||||||||||||
Total | 104,741,084 | ||||||||||||||||||
Consumer Products 0.45% | |||||||||||||||||||
Elizabeth Arden, Inc. | 7.75 | % | 1/15/2014 | 25,000 | 16,375,000 | ||||||||||||||
H.J. Heinz Co. | 5.35 | % | 7/15/2013 | 7,690 | 7,636,631 | ||||||||||||||
Total | 24,011,631 | ||||||||||||||||||
Consumer/Commercial/Lease Financing 0.74% | |||||||||||||||||||
American Express Bank FSB | 5.50 | % | 4/16/2013 | 18,375 | 17,421,778 | ||||||||||||||
American Express Credit Corp. | 7.30 | % | 8/20/2013 | 12,000 | 12,295,044 | ||||||||||||||
CIT Group, Inc. | 3.375 | % | 4/1/2009 | 3,500 | 3,393,100 | ||||||||||||||
CIT Group, Inc. | 5.20 | % | 11/3/2010 | 7,500 | 6,502,200 | ||||||||||||||
Total | 39,612,122 | ||||||||||||||||||
Diversified Capital Goods 1.57% | |||||||||||||||||||
Actuant Corp. | 6.875 | % | 6/15/2017 | 6,900 | 5,226,750 | ||||||||||||||
Honeywell International, Inc. | 5.30 | % | 3/1/2018 | 15,175 | 15,510,641 | ||||||||||||||
Mueller Water Products, Inc. | 7.375 | % | 6/1/2017 | 15,825 | 10,840,125 | ||||||||||||||
Park-Ohio Industries, Inc. | 8.375 | % | 11/15/2014 | 13,900 | 5,768,500 | ||||||||||||||
RBS Global & Rexnord Corp. | 8.875 | % | 9/1/2016 | 15,000 | 8,850,000 |
See Notes to Financial Statements.
14
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Diversified Capital Goods (continued) | |||||||||||||||||||
RBS Global & Rexnord Corp. | 9.50 | % | 8/1/2014 | $ | 29,500 | $ | 22,125,000 | ||||||||||||
Sensus Metering Systems, Inc. | 8.625 | % | 12/15/2013 | 21,000 | 15,435,000 | ||||||||||||||
Total | 83,756,016 | ||||||||||||||||||
Electric: Generation 5.71% | |||||||||||||||||||
AES Corp. (The) | 8.00 | % | 10/15/2017 | 27,500 | 22,687,500 | ||||||||||||||
Dynegy Holdings, Inc. | 7.75 | % | 6/1/2019 | 22,500 | 15,637,500 | ||||||||||||||
Dynegy Holdings, Inc. | 8.375 | % | 5/1/2016 | 38,600 | 27,599,000 | ||||||||||||||
Edison Mission Energy | 7.00 | % | 5/15/2017 | 65,000 | 56,875,000 | ||||||||||||||
Edison Mission Energy | 7.75 | % | 6/15/2016 | 45,000 | 40,275,000 | ||||||||||||||
Mirant Americas Generation LLC | 9.125 | % | 5/1/2031 | 34,250 | 25,516,250 | ||||||||||||||
Mirant North America LLC | 7.375 | % | 12/31/2013 | 15,225 | 14,692,125 | ||||||||||||||
NRG Energy, Inc. | 7.25 | % | 2/1/2014 | 21,500 | 20,156,250 | ||||||||||||||
NRG Energy, Inc. | 7.375 | % | 2/1/2016 | 12,300 | 11,469,750 | ||||||||||||||
NRG Energy, Inc. | 7.375 | % | 1/15/2017 | 15,000 | 13,837,500 | ||||||||||||||
Reliant Energy, Inc. | 6.75 | % | 12/15/2014 | 10,000 | 9,050,000 | ||||||||||||||
Reliant Energy, Inc. | 7.875 | % | 6/15/2017 | 12,500 | 10,187,500 | ||||||||||||||
Texas Competitive Electric Holdings Co. LLC† | 10.50 | % | 11/1/2015 | 52,000 | 37,180,000 | ||||||||||||||
Total | 305,163,375 | ||||||||||||||||||
Electric: Integrated 2.70% | |||||||||||||||||||
Commonwealth Edison Co. | 5.80 | % | 3/15/2018 | 18,000 | 16,296,570 | ||||||||||||||
E. ON International Finance BV (Netherlands)†(b) | 5.80 | % | 4/30/2018 | 17,000 | 15,922,421 | ||||||||||||||
Nevada Power Co. | 5.875 | % | 1/15/2015 | 15,000 | 14,433,645 | ||||||||||||||
NiSource Finance Corp. | 6.15 | % | 3/1/2013 | 7,000 | 5,398,407 | ||||||||||||||
Northeast Utilities | 5.65 | % | 6/1/2013 | 5,150 | 4,812,103 | ||||||||||||||
Northern States Power Co. Minnesota | 5.25 | % | 3/1/2018 | 15,000 | 14,971,965 | ||||||||||||||
Pacific Gas & Electric Co. | 4.80 | % | 3/1/2014 | 12,000 | 11,797,944 | ||||||||||||||
Pacific Gas & Electric Co. | 8.25 | % | 10/15/2018 | 10,000 | 12,035,620 | ||||||||||||||
PECO Energy Co. | 5.35 | % | 3/1/2018 | 10,000 | 9,563,400 | ||||||||||||||
PPL Energy Supply LLC | 6.40 | % | 11/1/2011 | 12,000 | 11,810,520 | ||||||||||||||
PSEG Energy Holdings, Inc. | 8.50 | % | 6/15/2011 | 28,425 | 26,935,985 | ||||||||||||||
Total | 143,978,580 | ||||||||||||||||||
Electronics 1.10% | |||||||||||||||||||
Advanced Micro Devices, Inc. | 7.75 | % | 11/1/2012 | 20,000 | 8,850,000 | ||||||||||||||
Avago Technologies Ltd. (Singapore)(b) | 10.125 | % | 12/1/2013 | 10,000 | 7,662,500 |
See Notes to Financial Statements.
15
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Electronics (continued) | |||||||||||||||||||
Emerson Electric Co. | 5.25 | % | 10/15/2018 | $ | 15,600 | $ | 15,964,073 | ||||||||||||
Freescale Semiconductor, Inc. | 8.875 | % | 12/15/2014 | 44,000 | 19,580,000 | ||||||||||||||
NXP BV (Netherlands)(b) | 9.50 | % | 10/15/2015 | 13,000 | 2,502,500 | ||||||||||||||
NXP BV LLC (Netherlands)(b) | 7.503 | %# | 10/15/2013 | 12,500 | 4,203,125 | ||||||||||||||
Total | 58,762,198 | ||||||||||||||||||
Energy: Exploration & Production 4.26% | |||||||||||||||||||
Chesapeake Energy Corp. | 6.25 | % | 1/15/2018 | 50,000 | 37,250,000 | ||||||||||||||
Chesapeake Energy Corp. | 6.50 | % | 8/15/2017 | 14,000 | 10,780,000 | ||||||||||||||
Chesapeake Energy Corp. | 7.00 | % | 8/15/2014 | 40,000 | 33,400,000 | ||||||||||||||
Cimarex Energy Co. | 7.125 | % | 5/1/2017 | 25,000 | 19,625,000 | ||||||||||||||
EOG Resources, Inc. | 6.125 | % | 10/1/2013 | 3,250 | 3,399,143 | ||||||||||||||
Forest Oil Corp. | 7.25 | % | 6/15/2019 | 27,500 | 20,212,500 | ||||||||||||||
Forest Oil Corp.† | 7.25 | % | 6/15/2019 | 3,200 | 2,352,000 | ||||||||||||||
KCS Energy Services, Inc. | 7.125 | % | 4/1/2012 | 25,000 | 18,875,000 | ||||||||||||||
Kerr-McGee Corp. | 6.95 | % | 7/1/2024 | 12,900 | 11,336,636 | ||||||||||||||
Nabors Industries, Inc. | 6.15 | % | 2/15/2018 | 10,000 | 8,617,740 | ||||||||||||||
Newfield Exploration Co. | 7.125 | % | 5/15/2018 | 14,500 | 11,527,500 | ||||||||||||||
Quicksilver Resources, Inc. | 7.125 | % | 4/1/2016 | 12,325 | 6,655,500 | ||||||||||||||
Quicksilver Resources, Inc. | 8.25 | % | 8/1/2015 | 22,950 | 14,688,000 | ||||||||||||||
Range Resources Corp. | 7.25 | % | 5/1/2018 | 2,600 | 2,184,000 | ||||||||||||||
Range Resources Corp. | 7.375 | % | 7/15/2013 | 20,000 | 17,550,000 | ||||||||||||||
XTO Energy, Inc. | 5.50 | % | 6/15/2018 | 10,000 | 9,068,920 | ||||||||||||||
Total | 227,521,939 | ||||||||||||||||||
Environmental 1.25% | |||||||||||||||||||
Allied Waste North America, Inc. | 7.125 | % | 5/15/2016 | 25,000 | 22,781,550 | ||||||||||||||
Allied Waste North America, Inc. | 7.25 | % | 3/15/2015 | 47,000 | 43,762,969 | ||||||||||||||
Total | 66,544,519 | ||||||||||||||||||
Food & Drug Retailers 1.16% | |||||||||||||||||||
Ingles Markets, Inc. | 8.875 | % | 12/1/2011 | 25,000 | 21,875,000 | ||||||||||||||
Stater Brothers Holdings, Inc. | 8.125 | % | 6/15/2012 | 26,000 | 23,660,000 | ||||||||||||||
SUPERVALU, INC. | 7.50 | % | 11/15/2014 | 20,000 | 16,500,000 | ||||||||||||||
Total | 62,035,000 | ||||||||||||||||||
Food: Wholesale 1.26% | |||||||||||||||||||
Dole Food Co. | 8.75 | % | 7/15/2013 | 35,000 | 20,825,000 |
See Notes to Financial Statements.
16
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Food: Wholesale (continued) | |||||||||||||||||||
General Mills, Inc. | 5.20 | % | 3/17/2015 | $ | 10,000 | $ | 9,786,920 | ||||||||||||
Kellogg Co. | 4.25 | % | 3/6/2013 | 10,000 | 9,693,050 | ||||||||||||||
Kraft Foods, Inc. | 6.50 | % | 8/11/2017 | 5,000 | 5,033,910 | ||||||||||||||
Kraft Foods, Inc. | 6.75 | % | 2/19/2014 | 6,700 | 6,960,509 | ||||||||||||||
Land O' Lakes, Inc. | 9.00 | % | 12/15/2010 | 15,000 | 14,962,500 | ||||||||||||||
Total | 67,261,889 | ||||||||||||||||||
Forestry/Paper 1.26% | |||||||||||||||||||
Buckeye Technologies, Inc. | 8.00 | % | 10/15/2010 | 16,662 | 15,245,730 | ||||||||||||||
Catalyst Paper Corp. (Canada)(b) | 7.375 | % | 3/1/2014 | 15,500 | 5,812,500 | ||||||||||||||
Graphic Packaging International Corp. | 9.50 | % | 8/15/2013 | 17,550 | 12,197,250 | ||||||||||||||
International Paper Co. | 7.95 | % | 6/15/2018 | 5,675 | 4,492,131 | ||||||||||||||
Jefferson Smurfit Corp.(e) | 7.50 | % | 6/1/2013 | 20,000 | 3,600,000 | ||||||||||||||
Jefferson Smurfit Corp.(e) | 8.25 | % | 10/1/2012 | 10,000 | 1,750,000 | ||||||||||||||
Rock-Tenn Co., Class A | 8.20 | % | 8/15/2011 | 9,250 | 8,833,750 | ||||||||||||||
Smurfit Kappa Funding plc (Ireland)(b) | 7.75 | % | 4/1/2015 | 18,000 | 9,900,000 | ||||||||||||||
Stone Container Corp.(e) | 8.00 | % | 3/15/2017 | 20,000 | 3,900,000 | ||||||||||||||
Stone Container Corp.(e) | 8.375 | % | 7/1/2012 | 10,000 | 1,700,000 | ||||||||||||||
Total | 67,431,361 | ||||||||||||||||||
Gaming 2.65% | |||||||||||||||||||
Boyd Gaming Corp. | 7.125 | % | 2/1/2016 | 10,000 | 5,950,000 | ||||||||||||||
Downstream Development Quapaw† | 12.00 | % | 10/15/2015 | 10,000 | 5,550,000 | ||||||||||||||
Isle of Capri Casinos, Inc. | 7.00 | % | 3/1/2014 | 32,925 | 14,157,750 | ||||||||||||||
Las Vegas Sands Corp. | 6.375 | % | 2/15/2015 | 35,000 | 20,475,000 | ||||||||||||||
Mandalay Resort Group | 9.375 | % | 2/15/2010 | 20,000 | 14,700,000 | ||||||||||||||
MGM Mirage, Inc. | 6.75 | % | 9/1/2012 | 21,500 | 15,157,500 | ||||||||||||||
River Rock Entertainment Authority | 9.75 | % | 11/1/2011 | 15,700 | 13,109,500 | ||||||||||||||
Scientific Games Corp. | 6.25 | % | 12/15/2012 | 10,000 | 8,100,000 | ||||||||||||||
Seneca Gaming Corp. | 7.25 | % | 5/1/2012 | 10,000 | 8,100,000 | ||||||||||||||
Snoqualmie Entertainment Authority† | 9.125 | % | 2/1/2015 | 17,800 | 11,125,000 | ||||||||||||||
Station Casinos, Inc. | 6.50 | % | 2/1/2014 | 27,000 | 1,687,500 | ||||||||||||||
Turning Stone Casino Resort† | 9.125 | % | 12/15/2010 | 15,000 | 12,675,000 | ||||||||||||||
Turning Stone Casino Resort† | 9.125 | % | 9/15/2014 | 10,000 | 7,650,000 | ||||||||||||||
Wynn Las Vegas LLC/Capital Corp. | 6.625 | % | 12/1/2014 | 4,000 | 3,040,000 | ||||||||||||||
Total | 141,477,250 |
See Notes to Financial Statements.
17
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Gas Distribution 3.01% | |||||||||||||||||||
El Paso Corp. | 7.00 | % | 6/15/2017 | $ | 26,275 | $ | 20,694,321 | ||||||||||||
El Paso Corp. | 7.25 | % | 6/1/2018 | 11,200 | 8,945,126 | ||||||||||||||
El Paso Corp. | 7.75 | % | 1/15/2032 | 10,000 | 6,541,210 | ||||||||||||||
El Paso Corp. | 12.00 | % | 12/12/2013 | 4,000 | 3,940,000 | ||||||||||||||
Ferrellgas Partners LP | 6.75 | % | 5/1/2014 | 15,950 | 11,085,250 | ||||||||||||||
Ferrellgas Partners LP | 8.75 | % | 6/15/2012 | 15,625 | 11,015,625 | ||||||||||||||
Inergy Finance LP | 8.25 | % | 3/1/2016 | 15,000 | 11,775,000 | ||||||||||||||
MarkWest Energy Partners LP | 6.875 | % | 11/1/2014 | 23,050 | 14,636,750 | ||||||||||||||
MarkWest Energy Partners LP | 8.50 | % | 7/15/2016 | 3,775 | 2,425,438 | ||||||||||||||
MarkWest Energy Partners LP | 8.75 | % | 4/15/2018 | 6,000 | 3,750,000 | ||||||||||||||
Northwest Pipeline GP | 6.05 | % | 6/15/2018 | 5,025 | 4,391,428 | ||||||||||||||
Northwest Pipeline GP | 7.00 | % | 6/15/2016 | 11,000 | 9,976,263 | ||||||||||||||
Panhandle Eastern Pipe Line Co. | 7.00 | % | 6/15/2018 | 4,600 | 3,679,020 | ||||||||||||||
Rockies Express Pipeline LLC† | 6.25 | % | 7/15/2013 | 4,000 | 3,942,052 | ||||||||||||||
Williams Cos., Inc. (The) | 7.875 | % | 9/1/2021 | 36,550 | 28,010,787 | ||||||||||||||
Williams Partners LP | 7.25 | % | 2/1/2017 | 20,000 | 15,822,420 | ||||||||||||||
Total | 160,630,690 | ||||||||||||||||||
Health Services 4.21% | |||||||||||||||||||
Alliance Imaging, Inc. | 7.25 | % | 12/15/2012 | 10,150 | 8,678,250 | ||||||||||||||
Bausch & Lomb, Inc.† | 9.875 | % | 11/1/2015 | 15,000 | 11,287,500 | ||||||||||||||
Baxter International, Inc. | 5.375 | % | 6/1/2018 | 3,375 | 3,534,617 | ||||||||||||||
Bio-Rad Laboratories, Inc. | 6.125 | % | 12/15/2014 | 16,325 | 13,182,438 | ||||||||||||||
Biomet, Inc. | 10.00 | % | 10/15/2017 | 22,000 | 21,230,000 | ||||||||||||||
Centene Corp. | 7.25 | % | 4/1/2014 | 12,075 | 9,599,625 | ||||||||||||||
Community Health Systems | 8.875 | % | 7/15/2015 | 30,000 | 27,750,000 | ||||||||||||||
DaVita, Inc. | 7.25 | % | 3/15/2015 | 10,500 | 10,027,500 | ||||||||||||||
Hanger Orthopedic Group, Inc. | 10.25 | % | 6/1/2014 | 11,700 | 10,530,000 | ||||||||||||||
HCA, Inc. | 6.375 | % | 1/15/2015 | 33,075 | 20,341,125 | ||||||||||||||
HCA, Inc. | 9.125 | % | 11/15/2014 | 18,500 | 17,205,000 | ||||||||||||||
Omnicare, Inc. | 6.875 | % | 12/15/2015 | 7,000 | 5,775,000 | ||||||||||||||
Select Medical Corp. | 7.625 | % | 2/1/2015 | 12,000 | 6,420,000 | ||||||||||||||
Tenet Healthcare Corp. | 9.25 | % | 2/1/2015 | 15,000 | 12,150,000 | ||||||||||||||
United Surgical Partners, Inc. | 8.875 | % | 5/1/2017 | 21,500 | 14,835,000 | ||||||||||||||
Vanguard Health Holdings Co. II LLC | 9.00 | % | 10/1/2014 | 28,500 | 23,940,000 | ||||||||||||||
VWR Funding, Inc. PIK | 10.25 | % | 7/15/2015 | 13,225 | 8,397,875 | ||||||||||||||
Total | 224,883,930 |
See Notes to Financial Statements.
18
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Hotels 1.33% | |||||||||||||||||||
FelCor Lodging LP | 8.50 | % | 6/1/2011 | $ | 15,000 | $ | 11,175,000 | ||||||||||||
Gaylord Entertainment Co. | 6.75 | % | 11/15/2014 | 9,600 | 6,000,000 | ||||||||||||||
Gaylord Entertainment Co. | 8.00 | % | 11/15/2013 | 36,700 | 25,506,500 | ||||||||||||||
Host Hotels & Resorts LP | 6.375 | % | 3/15/2015 | 15,000 | 11,250,000 | ||||||||||||||
Host Hotels & Resorts LP | 7.00 | % | 8/15/2012 | 20,000 | 17,050,000 | ||||||||||||||
Total | 70,981,500 | ||||||||||||||||||
Household & Leisure Products 0.42% | |||||||||||||||||||
Mattel, Inc. | 5.625 | % | 3/15/2013 | 13,950 | 12,329,610 | ||||||||||||||
Walt Disney Co. (The) | 4.50 | % | 12/15/2013 | 10,000 | 10,077,030 | ||||||||||||||
Total | 22,406,640 | ||||||||||||||||||
Integrated Energy 0.80% | |||||||||||||||||||
National Fuel Gas Co.† | 6.50 | % | 4/15/2018 | 24,400 | 22,488,138 | ||||||||||||||
Petrobras International Finance Co. (Brazil)(b) | 5.875 | % | 3/1/2018 | 20,000 | 18,080,000 | ||||||||||||||
VeraSun Energy Corp.(e) | 9.375 | % | 6/1/2017 | 17,150 | 2,143,750 | ||||||||||||||
Total | 42,711,888 | ||||||||||||||||||
Investments & Miscellaneous Financial Services 0.32% | |||||||||||||||||||
General Electric Capital Corp. | 4.80 | % | 5/1/2013 | 17,500 | 17,234,683 | ||||||||||||||
Leisure 0.10% | |||||||||||||||||||
Universal City Development Partners Ltd. | 11.75 | % | 4/1/2010 | 8,000 | 5,180,000 | ||||||||||||||
Machinery 1.16% | |||||||||||||||||||
Baldor Electric Co. | 8.625 | % | 2/15/2017 | 34,950 | 26,212,500 | ||||||||||||||
Briggs & Stratton Corp. | 8.875 | % | 3/15/2011 | 10,000 | 9,350,000 | ||||||||||||||
Gardner Denver, Inc. | 8.00 | % | 5/1/2013 | 22,665 | 20,058,525 | ||||||||||||||
Roper Industries, Inc. | 6.625 | % | 8/15/2013 | 6,350 | 6,374,263 | ||||||||||||||
Total | 61,995,288 | ||||||||||||||||||
Media: Broadcast 0.81% | |||||||||||||||||||
Allbritton Communications Co. | 7.75 | % | 12/15/2012 | 60,000 | 29,775,000 | ||||||||||||||
ION Media Networks, Inc. PIK† | 11.003 | %# | 1/15/2013 | 10,837 | 1,205,666 | ||||||||||||||
Lin TV Corp. | 6.50 | % | 5/15/2013 | 10,075 | 4,861,187 | ||||||||||||||
Sinclair Broadcast Group, Inc. | 8.00 | % | 3/15/2012 | 7,000 | 5,285,000 | ||||||||||||||
Univision Communications, Inc. PIK† | 9.75 | % | 3/15/2015 | 18,150 | 2,359,500 | ||||||||||||||
Total | 43,486,353 |
See Notes to Financial Statements.
19
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Media: Cable 2.11% | |||||||||||||||||||
CCH I LLC | 11.75 | % | 5/15/2014 | $ | 33,000 | $ | 1,856,250 | ||||||||||||
CCH I LLC / CCH I Capital Corp. | 11.00 | % | 10/1/2015 | 70,250 | 12,645,000 | ||||||||||||||
CCH II LLC / CCH II Capital Corp. | 10.25 | % | 9/15/2010 | 5,000 | 2,325,000 | ||||||||||||||
DirecTV Holdings LLC | 6.375 | % | 6/15/2015 | 25,000 | 23,187,500 | ||||||||||||||
DirecTV Holdings LLC | 8.375 | % | 3/15/2013 | 13,850 | 13,850,000 | ||||||||||||||
Echostar DBS Corp. | 7.125 | % | 2/1/2016 | 24,000 | 20,160,000 | ||||||||||||||
Mediacom Broadband LLC | 8.50 | % | 10/15/2015 | 10,000 | 6,562,500 | ||||||||||||||
Mediacom Communications Corp. | 9.50 | % | 1/15/2013 | 42,500 | 32,300,000 | ||||||||||||||
Total | 112,886,250 | ||||||||||||||||||
Media: Diversified 0.08% | |||||||||||||||||||
Grupo Televisa SA (Mexico)(b) | 6.00 | % | 5/15/2018 | 5,050 | 4,271,795 | ||||||||||||||
Media: Services 0.60% | |||||||||||||||||||
Affinion Group, Inc. | 11.50 | % | 10/15/2015 | 8,700 | 5,274,375 | ||||||||||||||
Interpublic Group of Cos., Inc. (The) | 6.25 | % | 11/15/2014 | 16,820 | 7,569,000 | ||||||||||||||
Lamar Media Corp. | 6.625 | % | 8/15/2015 | 10,000 | 7,275,000 | ||||||||||||||
Warner Music Group Corp. | 7.375 | % | 4/15/2014 | 20,000 | 11,800,000 | ||||||||||||||
Total | 31,918,375 | ||||||||||||||||||
Metals/Mining (Excluding Steel) 1.63% | |||||||||||||||||||
Aleris International, Inc.(e) | 10.00 | % | 12/15/2016 | 16,500 | 2,763,750 | ||||||||||||||
Aleris International, Inc. PIK(e) | 9.00 | % | 12/15/2014 | 7,500 | 487,500 | ||||||||||||||
Foundation PA Coal Co. | 7.25 | % | 8/1/2014 | 10,000 | 8,250,000 | ||||||||||||||
Freeport-McMoRan Copper & Gold, Inc. | 8.25 | % | 4/1/2015 | 25,000 | 21,274,500 | ||||||||||||||
Freeport-McMoRan Copper & Gold, Inc. | 8.375 | % | 4/1/2017 | 27,500 | 22,581,240 | ||||||||||||||
Noranda Aluminum Acquisition Corp. PIK | 6.595 | %# | 5/15/2015 | 26,800 | 9,246,000 | ||||||||||||||
Peabody Energy Corp. | 5.875 | % | 4/15/2016 | 15,000 | 12,825,000 | ||||||||||||||
Peabody Energy Corp. | 7.375 | % | 11/1/2016 | 10,000 | 9,450,000 | ||||||||||||||
Total | 86,877,990 | ||||||||||||||||||
Mortgage Banks & Thrifts 0.00% | |||||||||||||||||||
Washington Mutual Bank(e) | 6.875 | % | 6/15/2011 | 22,500 | 15,750 | ||||||||||||||
Multi-Line Insurance 0.58% | |||||||||||||||||||
Hub International Holdings, Inc.† | 9.00 | % | 12/15/2014 | 12,875 | 7,934,219 | ||||||||||||||
MetLife, Inc. | 5.00 | % | 6/15/2015 | 18,235 | 17,103,573 | ||||||||||||||
USI Holdings Corp.† | 6.024 | %# | 11/15/2014 | 15,000 | 6,168,750 | ||||||||||||||
Total | 31,206,542 |
See Notes to Financial Statements.
20
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Non-Food & Drug Retailers 0.23% | |||||||||||||||||||
Brookstone Co., Inc. | 12.00 | % | 10/15/2012 | $ | 10,000 | $ | 5,750,000 | ||||||||||||
Harry & David Operations Corp. | 9.00 | % | 3/1/2013 | 4,850 | 1,576,250 | ||||||||||||||
Toys 'R' Us, Inc. | 7.625 | % | 8/1/2011 | 10,000 | 4,950,000 | ||||||||||||||
Total | 12,276,250 | ||||||||||||||||||
Oil Field Equipment & Services 1.85% | |||||||||||||||||||
BJ Services Co. | 6.00 | % | 6/1/2018 | 9,750 | 8,364,788 | ||||||||||||||
Bristow Group, Inc. | 6.125 | % | 6/15/2013 | 20,150 | 14,608,750 | ||||||||||||||
Bristow Group, Inc. | 7.50 | % | 9/15/2017 | 11,000 | 7,425,000 | ||||||||||||||
Cameron International Corp. | 6.375 | % | 7/15/2018 | 3,200 | 2,819,904 | ||||||||||||||
CGG Veritas (France)(b) | 7.75 | % | 5/15/2017 | 5,525 | 3,232,125 | ||||||||||||||
Complete Production Services, Inc. | 8.00 | % | 12/15/2016 | 20,000 | 12,700,000 | ||||||||||||||
Hornbeck Offshore Services, Inc. Series B | 6.125 | % | 12/1/2014 | 15,790 | 10,342,450 | ||||||||||||||
Key Energy Services, Inc. | 8.375 | % | 12/1/2014 | 9,200 | 6,118,000 | ||||||||||||||
National Oilwell Varco, Inc. | 6.125 | % | 8/15/2015 | 15,000 | 13,046,310 | ||||||||||||||
Pride International, Inc. | 7.375 | % | 7/15/2014 | 21,450 | 20,055,750 | ||||||||||||||
Total | 98,713,077 | ||||||||||||||||||
Oil Refining & Marketing 0.16% | |||||||||||||||||||
Tesoro Corp. | 6.25 | % | 11/1/2012 | 9,375 | 6,515,625 | ||||||||||||||
Tesoro Corp. | 6.50 | % | 6/1/2017 | 3,550 | 1,965,813 | ||||||||||||||
Total | 8,481,438 | ||||||||||||||||||
Packaging 1.34% | |||||||||||||||||||
Ball Corp. | 6.625 | % | 3/15/2018 | 15,000 | 13,462,500 | ||||||||||||||
Berry Plastics Corp. | 8.875 | % | 9/15/2014 | 15,000 | 6,600,000 | ||||||||||||||
Crown Cork & Seal Co., Inc. | 7.375 | % | 12/15/2026 | 47,770 | 35,588,650 | ||||||||||||||
Solo Cup Co. | 8.50 | % | 2/15/2014 | 15,000 | 9,675,000 | ||||||||||||||
Vitro SA de CV (Mexico)(b) | 9.125 | % | 2/1/2017 | 20,000 | 6,100,000 | ||||||||||||||
Total | 71,426,150 | ||||||||||||||||||
Pharmaceuticals 0.59% | |||||||||||||||||||
Axcan Intermediate Holdings, Inc. | 12.75 | % | 3/1/2016 | 7,500 | 6,337,500 | ||||||||||||||
Warner Chilcott Corp. | 8.75 | % | 2/1/2015 | 28,009 | 25,068,055 | ||||||||||||||
Total | 31,405,555 | ||||||||||||||||||
Printing & Publishing 0.25% | |||||||||||||||||||
Dex Media West | 9.875 | % | 8/15/2013 | 20,000 | 4,800,000 | ||||||||||||||
Dex Media, Inc. | 9.00 | % | 11/15/2013 | 10,000 | 1,900,000 |
See Notes to Financial Statements.
21
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Printing & Publishing (continued) | |||||||||||||||||||
Idearc, Inc. | 8.00 | % | 11/15/2016 | $ | 30,600 | $ | 2,448,000 | ||||||||||||
R.H. Donnelley Corp. | 8.875 | % | 1/15/2016 | 20,000 | 3,100,000 | ||||||||||||||
R.H. Donnelley Corp. | 8.875 | % | 10/15/2017 | 6,975 | 1,081,125 | ||||||||||||||
Total | 13,329,125 | ||||||||||||||||||
Railroads 0.13% | |||||||||||||||||||
Canadian National Railway Co. (Canada)(b) | 4.95 | % | 1/15/2014 | 7,330 | 7,192,071 | ||||||||||||||
Restaurants 0.20% | |||||||||||||||||||
Denny's Corp./Denny's Holdings, Inc. | 10.00 | % | 10/1/2012 | 15,500 | 10,811,250 | ||||||||||||||
Software/Services 1.36% | |||||||||||||||||||
Ceridian Corp.† | 11.50 | % | 11/15/2015 | 6,750 | 3,602,813 | ||||||||||||||
First Data Corp. | 9.875 | % | 9/24/2015 | 13,350 | 8,143,500 | ||||||||||||||
SERENA Software, Inc. | 10.375 | % | 3/15/2016 | 7,600 | 3,895,000 | ||||||||||||||
SunGard Data Systems, Inc. | 9.125 | % | 8/15/2013 | 27,850 | 24,229,500 | ||||||||||||||
SunGard Data Systems, Inc. | 10.25 | % | 8/15/2015 | 22,500 | 14,962,500 | ||||||||||||||
Syniverse Technologies, Inc. | 7.75 | % | 8/15/2013 | 14,800 | 7,640,500 | ||||||||||||||
Unisys Corp. | 8.00 | % | 10/15/2012 | 10,000 | 2,850,000 | ||||||||||||||
Vangent, Inc. | 9.625 | % | 2/15/2015 | 12,500 | 7,328,125 | ||||||||||||||
Total | 72,651,938 | ||||||||||||||||||
Steel Producers/Products 0.44% | |||||||||||||||||||
Algoma Acquisition Corp. (Canada)†(b) | 9.875 | % | 6/15/2015 | 13,250 | 5,101,250 | ||||||||||||||
Allegheny Ludlum Corp. | 6.95 | % | 12/15/2025 | 13,875 | 12,353,093 | ||||||||||||||
Century Aluminum Co. | 7.50 | % | 8/15/2014 | 10,000 | 5,800,000 | ||||||||||||||
Total | 23,254,343 | ||||||||||||||||||
Support: Services 1.68% | |||||||||||||||||||
ARAMARK Corp. | 6.693 | %# | 2/1/2015 | 9,500 | 7,220,000 | ||||||||||||||
Ashtead Capital, Inc. (United Kingdom)†(b) | 9.00 | % | 8/15/2016 | 15,200 | 7,904,000 | ||||||||||||||
Avis Budget Car Rental | 7.625 | % | 5/15/2014 | 15,575 | 4,594,625 | ||||||||||||||
Education Management LLC/Education Management Finance Corp. | 8.75 | % | 6/1/2014 | 2,125 | 1,625,625 | ||||||||||||||
Expedia, Inc.† | 8.50 | % | 7/1/2016 | 10,775 | 8,081,250 | ||||||||||||||
FTI Consulting, Inc. | 7.75 | % | 10/1/2016 | 12,075 | 9,992,063 | ||||||||||||||
Hertz Corp. (The) | 8.875 | % | 1/1/2014 | 23,700 | 14,694,000 | ||||||||||||||
Hertz Corp. (The) | 10.50 | % | 1/1/2016 | 8,000 | 3,690,000 | ||||||||||||||
Iron Mountain, Inc. | 7.75 | % | 1/15/2015 | 8,600 | 7,761,500 |
See Notes to Financial Statements.
22
Schedule of Investments (continued)
December 31, 2008
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||||
Support: Services (continued) | |||||||||||||||||||
Iron Mountain, Inc. | 8.625 | % | 4/1/2013 | $ | 10,000 | $ | 9,450,000 | ||||||||||||
Rental Service Corp. | 9.50 | % | 12/1/2014 | 15,250 | 8,463,750 | ||||||||||||||
United Rentals North America, Inc. | 7.75 | % | 11/15/2013 | 10,000 | 6,500,000 | ||||||||||||||
Total | 89,976,813 | ||||||||||||||||||
Telecommunications: Fixed Line 0.16% | |||||||||||||||||||
Valor Telecommunications Enterprises LLC | 7.75 | % | 2/15/2015 | 10,000 | 8,356,950 | ||||||||||||||
Telecommunications: Integrated/Services 4.07% | |||||||||||||||||||
Cincinnati Bell, Inc. | 8.375 | % | 1/15/2014 | 59,075 | 45,783,125 | ||||||||||||||
Hughes Network Systems LLC | 9.50 | % | 4/15/2014 | 10,000 | 8,175,000 | ||||||||||||||
Intelsat Ltd. | 11.25 | % | 6/15/2016 | 11,000 | 10,065,000 | ||||||||||||||
MasTec, Inc. | 7.625 | % | 2/1/2017 | 11,050 | 8,356,562 | ||||||||||||||
Nordic Telephone Holdings Co. (Denmark)†(b) | 8.875 | % | 5/1/2016 | 37,725 | 26,596,125 | ||||||||||||||
Qwest Capital Funding, Inc. | 7.90 | % | 8/15/2010 | 78,750 | 72,056,250 | ||||||||||||||
Qwest Communications International, Inc. | 7.25 | % | 2/15/2011 | 30,000 | 26,250,000 | ||||||||||||||
Windstream Corp. | 7.00 | % | 3/15/2019 | 26,000 | 20,150,000 | ||||||||||||||
Total | 217,432,062 | ||||||||||||||||||
Telecommunications: Wireless 1.52% | |||||||||||||||||||
Centennial Communications Corp. | 10.00 | % | 1/1/2013 | 12,750 | 13,260,000 | ||||||||||||||
Centennial Communications Corp. | 10.125 | % | 6/15/2013 | 10,000 | 10,150,000 | ||||||||||||||
Hellas II (Luxembourg)†(b) | 10.503 | %# | 1/15/2015 | 17,850 | 3,659,250 | ||||||||||||||
IPCS, Inc. PIK | 6.443 | %# | 5/1/2014 | 4,700 | 2,890,500 | ||||||||||||||
MetroPCS Wireless, Inc. | 9.25 | % | 11/1/2014 | 8,675 | 7,807,500 | ||||||||||||||
Sprint Capital Corp. | 6.90 | % | 5/1/2019 | 28,550 | 20,303,818 | ||||||||||||||
Sprint Capital Corp. | 8.375 | % | 3/15/2012 | 7,000 | 5,603,654 | ||||||||||||||
Verizon Wireless† | 8.50 | % | 11/15/2018 | 7,500 | 8,802,772 | ||||||||||||||
Wind Acquisition Finance SA (Italy)†(b) | 10.75 | % | 12/1/2015 | 10,000 | 8,650,000 | ||||||||||||||
Total | 81,127,494 | ||||||||||||||||||
Theaters & Entertainment 0.29% | |||||||||||||||||||
AMC Entertainment, Inc. | 8.00 | % | 3/1/2014 | 25,000 | 15,500,000 | ||||||||||||||
Total High Yield Corporate Bonds (cost $4,922,448,126) | 3,459,571,311 |
See Notes to Financial Statements.
23
Schedule of Investments (concluded)
December 31, 2008
Investments | Interest Rate | Maturity Date | Shares (000) | Value | |||||||||||||||
NON-CONVERTIBLE PREFERRED STOCKS 0.26% | |||||||||||||||||||
Agency 0.01% | |||||||||||||||||||
Fannie Mae | 8.25 | % | 481 | $ | 399,562 | ||||||||||||||
Auto Loans 0.06% | |||||||||||||||||||
GMAC LLC | 9.00 | % | 11 | 3,405,780 | |||||||||||||||
Consumer Products 0.19% | |||||||||||||||||||
H.J. Heinz Co. | 8.00 | % | — | (f) | 10,306,250 | ||||||||||||||
Total Non-Convertible Preferred Stocks (cost $25,495,584) | 14,111,592 | ||||||||||||||||||
Principal Amount (000) | |||||||||||||||||||
U.S. TREASURY OBLIGATION 0.53% | |||||||||||||||||||
U.S. Treasury Note (cost $26,229,538) | 4.00 | % | 2/15/2014 | $ | 25,000 | $ | 28,343,775 | ||||||||||||
Total Long-Term Investments (cost $6,718,900,439) | 5,010,222,596 | ||||||||||||||||||
SHORT-TERM INVESTMENT 4.00% | |||||||||||||||||||
Repurchase Agreement | |||||||||||||||||||
Repurchase Agreement dated 12/31/2008, 0.01% due 1/2/2009 with State Street Bank & Trust Co. collateralized by $209,425,000 of U.S. Treasury Bill at 0.15% due 2/26/2009 and $8,635,000 of U.S. Treasury Bill at 0.49% due 5/28/2009; value: $218,038,194; proceeds: $213,762,712 (cost $213,762,593) | 213,763 | 213,762,593 | |||||||||||||||||
Total Investments in Securities 97.82% (cost $6,930,663,032) | 5,223,985,189 | ||||||||||||||||||
Cash, Foreign Cash and Other Assets in Excess of Liabilities 2.18% | 116,257,807 | ||||||||||||||||||
Net Assets 100.00% | $ | 5,340,242,996 |
PIK Payment-in-kind.
* Non-income producing security.
† Security was purchased pursuant to Rule 144A under the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be resold to qualified institutional investors. Unless otherwise noted, 144A securities are deemed to be liquid.
# Variable rate security. The interest rate represents the rate at December 31, 2008.
** Deferred interest debentures pay the stated rate, after which they pay a predetermined interest rate.
(a) On the maturity date, the issuer will redeem the notes at their accreted principal price, which will be equal to 125.66% of principal amount at issuance. The "accreted principal price" of the note will be equal to the principal amount of the note at issuance plus accretion on the principal amount at issuance beginning January 15, 2011.
(b) Foreign security traded in U.S. dollars.
(c) Floating Rate Loan. Generally pays interest at rates which are periodically re-determined at a margin above the London Inter-Bank Offered Rate ("LIBOR") or other short-term rates. The rate shown is the rate(s) in effect at December 31, 2008.
(d) Investment in non-U.S. dollar denominated securities.
(e) Defaulted security.
(f) Amount represents less than 1,000 shares.
Industry classifications have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
24
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Statement of Assets and Liabilities
December 31, 2008
ASSETS: | |||||||
Investments in securities, at value (cost $6,930,663,032) | $ | 5,223,985,189 | |||||
Cash | 17,772,992 | ||||||
Foreign cash, at value (cost $699,335) | 652,605 | ||||||
Receivables: | |||||||
Interest and dividends | 104,203,125 | ||||||
Capital shares sold | 39,888,958 | ||||||
Prepaid expenses and other assets | 142,954 | ||||||
Total assets | 5,386,645,823 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Investment securities purchased | 23,025,129 | ||||||
Capital shares reacquired | 15,018,485 | ||||||
12b-1 distribution fees | 3,159,083 | ||||||
Management fee | 1,978,077 | ||||||
Directors' fees | 1,050,992 | ||||||
Fund administration | 176,074 | ||||||
To affiliates (See Note 3) | 83,462 | ||||||
Accrued expenses and other liabilities | 1,911,525 | ||||||
Total liabilities | 46,402,827 | ||||||
NET ASSETS | $ | 5,340,242,996 | |||||
COMPOSITION OF NET ASSETS: | |||||||
Paid-in capital | $ | 7,559,354,250 | |||||
Distributions in excess of net investment income | (17,395,383 | ) | |||||
Accumulated net realized loss on investments, credit default swap agreements and foreign currency related transactions | (494,978,810 | ) | |||||
Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies | (1,706,737,061 | ) | |||||
Net Assets | $ | 5,340,242,996 |
See Notes to Financial Statements.
26
Statement of Assets and Liabilities (concluded)
December 31, 2008
Net assets by class: | |||||||
Class A Shares | $ | 3,316,663,441 | |||||
Class B Shares | $ | 660,919,752 | |||||
Class C Shares | $ | 1,018,175,189 | |||||
Class F Shares | $ | 35,771,322 | |||||
Class I Shares | $ | 203,842,571 | |||||
Class P Shares | $ | 99,134,075 | |||||
Class R2 Shares | $ | 337,602 | |||||
Class R3 Shares | $ | 5,399,044 | |||||
Outstanding shares by class : | |||||||
Class A Shares (740 million shares of common stock authorized, $.001 par value) | 566,309,572 | ||||||
Class B Shares (500 million shares of common stock authorized, $.001 par value) | 112,605,390 | ||||||
Class C Shares (300 million shares of common stock authorized, $.001 par value) | 173,445,476 | ||||||
Class F Shares (300 million shares of common stock authorized, $.001 par value) | 6,111,617 | ||||||
Class I Shares (300 million shares of common stock authorized, $.001 par value) | 34,937,793 | ||||||
Class P Shares (160 million shares of common stock authorized, $.001 par value) | 16,617,909 | ||||||
Class R2 Shares (300 million shares of common stock authorized, $.001 par value) | 57,658 | ||||||
Class R3 Shares (300 million shares of common stock authorized, $.001 par value) | 922,212 | ||||||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares): | |||||||
Class A Shares-Net asset value | $ | 5.86 | |||||
Class A Shares-Maximum offering price (Net asset value plus sales charge of 4.75%) | $ | 6.15 | |||||
Class B Shares-Net asset value | $ | 5.87 | |||||
Class C Shares-Net asset value | $ | 5.87 | |||||
Class F Shares-Net asset value | $ | 5.85 | |||||
Class I Shares-Net asset value | $ | 5.83 | |||||
Class P Shares-Net asset value | $ | 5.97 | |||||
Class R2 Shares-Net asset value | $ | 5.86 | |||||
Class R3 Shares-Net asset value | $ | 5.85 |
See Notes to Financial Statements.
27
Statement of Operations
For the Year Ended December 31, 2008
Investment income: | |||||||
Dividends (net of foreign withholding taxes of $14,041) | $ | 19,258,264 | |||||
Interest and other | 478,155,857 | ||||||
Income from securities lending-net | 140,002 | ||||||
Total investment income | 497,554,123 | ||||||
Expenses: | |||||||
Management fee | 29,662,907 | ||||||
12b-1 distribution plan-Class A | 14,143,591 | ||||||
12b-1 distribution plan-Class B | 8,954,813 | ||||||
12b-1 distribution plan-Class C | 12,120,121 | ||||||
12b-1 distribution plan-Class F | 13,977 | ||||||
12b-1 distribution plan-Class P | 525,854 | ||||||
12b-1 distribution plan-Class R2 | 2,666 | ||||||
12b-1 distribution plan-Class R3 | 13,409 | ||||||
Shareholder servicing | 8,270,325 | ||||||
Fund administration | 2,614,481 | ||||||
Reports to shareholders | 685,786 | ||||||
Registration | 208,793 | ||||||
Professional | 146,868 | ||||||
Custody | 86,474 | ||||||
Directors' fees | 6,572 | ||||||
Subsidy (See Note 3) | 411,158 | ||||||
Other | 185,772 | ||||||
Gross expenses | 78,053,567 | ||||||
Expense reductions (See Note 7) | (112,767 | ) | |||||
Net expenses | 77,940,800 | ||||||
Net investment income | 419,613,323 | ||||||
Net realized and unrealized loss: | |||||||
Net realized loss on investments, credit default swap agreements and foreign currency related transactions | (115,983,108 | ) | |||||
Net change in unrealized appreciation on investments, credit default swap agreements and translation of assets and liabilities denominated in foreign currencies | (1,725,819,765 | ) | |||||
Net realized and unrealized loss | (1,841,802,873 | ) | |||||
Net Decrease in Net Assets Resulting From Operations | $ | (1,422,189,550 | ) |
See Notes to Financial Statements.
28
Statements of Changes in Net Assets
DECREASE IN NET ASSETS | For the Year Ended December 31, 2008 | For the Year Ended December 31, 2007 | |||||||||
Operations: | |||||||||||
Net investment income | $ | 419,613,323 | $ | 422,341,797 | |||||||
Net realized gain (loss) on investments, credit default swap agreements and foreign currency related transactions | (115,983,108 | ) | 205,165,534 | ||||||||
Net change in unrealized appreciation on investments, credit default swap agreements and translation of assets and liabilities denominated in foreign currencies | (1,725,819,765 | ) | (236,346,566 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | (1,422,189,550 | ) | 391,160,765 | ||||||||
Distributions to shareholders from: | |||||||||||
Net investment income | |||||||||||
Class A | (294,255,527 | ) | (304,491,960 | ) | |||||||
Class B | (58,353,843 | ) | (68,054,202 | ) | |||||||
Class C | (79,422,542 | ) | (76,617,679 | ) | |||||||
Class F | (1,065,894 | ) | (172 | ) | |||||||
Class I | (18,721,315 | ) | (20,917,317 | ) | |||||||
Class P | (8,229,674 | ) | (6,960,053 | ) | |||||||
Class R2 | (31,103 | ) | (251 | ) | |||||||
Class R3 | (199,081 | ) | (161 | ) | |||||||
Total distributions to shareholders | (460,278,979 | ) | (477,041,795 | ) | |||||||
Capital share transactions (Net of share conversions) (See Note 11): | |||||||||||
Proceeds from sales of shares | 1,230,615,749 | 997,791,137 | |||||||||
Reinvestment of distributions | 354,653,059 | 368,498,442 | |||||||||
Cost of shares reacquired | (1,656,541,163 | ) | (1,749,420,480 | ) | |||||||
Net decrease in net assets resulting from capital share transactions | (71,272,355 | ) | (383,130,901 | ) | |||||||
Net decrease in net assets | (1,953,740,884 | ) | (469,011,931 | ) | |||||||
NET ASSETS: | |||||||||||
Beginning of year | $ | 7,293,983,880 | $ | 7,762,995,811 | |||||||
End of year | $ | 5,340,242,996 | $ | 7,293,983,880 | |||||||
Distributions in excess of net investment income | $ | (17,395,383 | ) | $ | (3,633,566 | ) |
See Notes to Financial Statements.
29
Financial Highlights
Class A Shares | |||||||||||||||||||||||
Year Ended 12/31 | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||
Net asset value, beginning of year | $ | 7.92 | $ | 8.02 | $ | 7.80 | $ | 8.20 | $ | 8.06 | |||||||||||||
Investment operations: | |||||||||||||||||||||||
Net investment income(a) | .47 | .46 | .43 | .43 | .46 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (2.01 | ) | (.04 | ) | .31 | (.31 | ) | .20 | |||||||||||||||
Total from investment operations | (1.54 | ) | .42 | .74 | .12 | .66 | |||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||
Net investment income | (.52 | ) | (.52 | ) | (.52 | ) | (.52 | ) | (.52 | ) | |||||||||||||
Net asset value, end of year | $ | 5.86 | $ | 7.92 | $ | 8.02 | $ | 7.80 | $ | 8.20 | |||||||||||||
Total Return(b) | (20.26 | )% | 5.34 | % | 9.87 | % | 1.56 | % | 8.56 | % | |||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||
Expenses, including expense reductions | 1.00 | % | .99 | % | .99 | % | .99 | % | .99 | % | |||||||||||||
Expenses, excluding expense reductions | 1.00 | % | .99 | % | .99 | % | 1.00 | % | .99 | % | |||||||||||||
Net investment income | 6.63 | % | 5.73 | % | 5.54 | % | 5.45 | % | 5.71 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of year (000) | $ | 3,316,663 | $ | 4,526,753 | $ | 4,731,545 | $ | 4,815,148 | $ | 5,093,236 | |||||||||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % | 42.02 | % |
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
See Notes to Financial Statements.
30
Financial Highlights (continued)
Class B Shares | |||||||||||||||||||||||
Year Ended 12/31 | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||
Net asset value, beginning of year | $ | 7.93 | $ | 8.03 | $ | 7.80 | $ | 8.20 | $ | 8.06 | |||||||||||||
Investment operations: | |||||||||||||||||||||||
Net investment income(a) | .43 | .41 | .38 | .38 | .41 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (2.02 | ) | (.04 | ) | .32 | (.31 | ) | .20 | |||||||||||||||
Total from investment operations | (1.59 | ) | .37 | .70 | .07 | .61 | |||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||
Net investment income | �� | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | ||||||||||||
Net asset value, end of year | $ | 5.87 | $ | 7.93 | $ | 8.03 | $ | 7.80 | $ | 8.20 | |||||||||||||
Total Return(b) | (20.82 | )% | 4.63 | % | 9.26 | % | .88 | % | 7.86 | % | |||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||
Expenses, including expense reductions | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||||||||||
Expenses, excluding expense reductions | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||||||||||
Net investment income | 5.95 | % | 5.08 | % | 4.88 | % | 4.80 | % | 5.07 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of year (000) | $ | 660,920 | $ | 1,061,150 | $ | 1,269,914 | $ | 1,473,891 | $ | 1,803,609 | |||||||||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % | 42.02 | % |
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
See Notes to Financial Statements.
31
Financial Highlights (continued)
Class C Shares | |||||||||||||||||||||||
Year Ended 12/31 | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||
Net asset value, beginning of year | $ | 7.94 | $ | 8.03 | $ | 7.81 | $ | 8.21 | $ | 8.07 | |||||||||||||
Investment operations: | |||||||||||||||||||||||
Net investment income(a) | .43 | .41 | .38 | .38 | .41 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (2.03 | ) | (.03 | ) | .31 | (.31 | ) | .20 | |||||||||||||||
Total from investment operations | (1.60 | ) | .38 | .69 | .07 | .61 | |||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||
Net investment income | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | |||||||||||||
Net asset value, end of year | $ | 5.87 | $ | 7.94 | $ | 8.03 | $ | 7.81 | $ | 8.21 | |||||||||||||
Total Return(b) | (20.90 | )% | 4.77 | % | 9.13 | % | .89 | % | 7.86 | % | |||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||
Expenses, including expense reductions | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||||||||||
Expenses, excluding expense reductions | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||||||||||
Net investment income | 5.98 | % | 5.08 | % | 4.88 | % | 4.80 | % | 5.07 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of year (000) | $ | 1,018,175 | $ | 1,322,738 | $ | 1,312,440 | $ | 1,423,141 | $ | 1,703,329 | |||||||||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % | 42.02 | % |
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
See Notes to Financial Statements.
32
Financial Highlights (continued)
Class F Shares | |||||||||||
Year Ended 12/31/2008 | 9/7/2007(a) to 12/31/2007 | ||||||||||
Per Share Operating Performance | |||||||||||
Net asset value, beginning of period | $ | 7.92 | $ | 7.92 | |||||||
Investment operations: | |||||||||||
Net investment income(b) | .00 | (c) | |||||||||
Net realized and unrealized gain | .03 | ||||||||||
Total from investment operations | .03 | ||||||||||
Net asset value on SEC Effective Date, 9/14/2007 | $ | 7.95 | |||||||||
Investment operations: | |||||||||||
Net investment income(b) | .49 | .15 | |||||||||
Net realized and unrealized loss | (2.02 | ) | (.04 | ) | |||||||
Total from investment operations | (1.53 | ) | .11 | ||||||||
Distributions to shareholders from: | |||||||||||
Net investment income | (.54 | ) | (.14 | ) | |||||||
Net asset value, end of period | $ | 5.85 | $ | 7.92 | |||||||
Total Return(d) | .38 | %(e)(f) | |||||||||
Total Return(d) | (20.17 | )% | 1.31 | %(e)(g) | |||||||
Ratios to Average Net Assets: | |||||||||||
Expenses, including expense reductions | .75 | % | .25 | %(e) | |||||||
Expenses, excluding expense reductions | .75 | % | .25 | %(e) | |||||||
Net investment income | 7.44 | % | 1.87 | %(e) | |||||||
Supplemental Data: | |||||||||||
Net assets, end of period (000) | $ | 35,771 | $ | 10 | |||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % |
(a) Commencement of investment operations was 9/7/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Amount is less than $.01.
(d) Total return assumes the reinvestment of all distributions.
(e) Not annualized.
(f) Total return for the period 9/7/2007 through 9/14/2007.
(g) Total return for the period 9/14/2007 through 12/31/2007.
See Notes to Financial Statements.
33
Financial Highlights (continued)
Class I Shares | |||||||||||||||||||||||
Year Ended 12/31 | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||
Net asset value, beginning of year | $ | 7.90 | $ | 8.00 | $ | 7.78 | $ | 8.18 | $ | 8.04 | |||||||||||||
Investment operations: | |||||||||||||||||||||||
Net investment income(a) | .50 | .49 | .46 | .46 | .48 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (2.02 | ) | (.04 | ) | .31 | (.31 | ) | .21 | |||||||||||||||
Total from investment operations | (1.52 | ) | .45 | .77 | .15 | .69 | |||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||
Net investment income | (.55 | ) | (.55 | ) | (.55 | ) | (.55 | ) | (.55 | ) | |||||||||||||
Net asset value, end of year | $ | 5.83 | $ | 7.90 | $ | 8.00 | $ | 7.78 | $ | 8.18 | |||||||||||||
Total Return(b) | (20.14 | )% | 5.72 | % | 10.29 | % | 1.93 | % | 8.97 | % | |||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||
Expenses, including expense reductions | .65 | % | .64 | % | .64 | % | .64 | % | .64 | % | |||||||||||||
Expenses, excluding expense reductions | .65 | % | .64 | % | .64 | % | .64 | % | .64 | % | |||||||||||||
Net investment income | 6.98 | % | 6.07 | % | 5.89 | % | 5.80 | % | 6.07 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of year (000) | $ | 203,843 | $ | 262,929 | $ | 342,363 | $ | 304,725 | $ | 284,627 | |||||||||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % | 42.02 | % |
(a) Calculated using average shares outstanding during the year.
(b) Total return assumes the reinvestment of all distributions.
See Notes to Financial Statements.
34
Financial Highlights (continued)
Class P Shares | |||||||||||||||||||||||
Year Ended 12/31 | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||
Net asset value, beginning of year | $ | 8.06 | $ | 8.15 | $ | 7.91 | $ | 8.31 | $ | 8.17 | |||||||||||||
Investment operations: | |||||||||||||||||||||||
Net investment income(a) | .47 | .46 | .43 | .43 | .45 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (2.05 | ) | (.04 | ) | .32 | (.32 | ) | .20 | |||||||||||||||
Total from investment operations | (1.58 | ) | .42 | .75 | .11 | .65 | |||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||
Net investment income | (.51 | ) | (.51 | ) | (.51 | ) | (.51 | ) | (.51 | ) | |||||||||||||
Net asset value, end of year | $ | 5.97 | $ | 8.06 | $ | 8.15 | $ | 7.91 | $ | 8.31 | |||||||||||||
Total Return(b) | (20.50 | )% | 5.27 | % | 9.86 | % | 1.45 | % | 8.37 | % | |||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||
Expenses, including expense reductions | 1.10 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.09 | % | |||||||||||||
Expenses, excluding expense reductions | 1.10 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.09 | % | |||||||||||||
Net investment income | 6.55 | % | 5.64 | % | 5.43 | % | 5.35 | % | 5.62 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of year (000) | $ | 99,134 | $ | 120,343 | $ | 106,734 | $ | 134,592 | $ | 113,216 | |||||||||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % | 42.02 | % |
(a) Calculated using average shares outstanding during the year.
(b) Total return assumes the reinvestment of all distributions.
See Notes to Financial Statements.
35
Financial Highlights (continued)
Class R2 Shares | |||||||||||
Year Ended 12/31/2008 | 9/7/2007(a) to 12/31/2007 | ||||||||||
Per Share Operating Performance | |||||||||||
Net asset value, beginning of period | $ | 7.92 | $ | 7.92 | |||||||
Investment operations: | |||||||||||
Net investment income(b) | .00 | (c) | |||||||||
Net realized and unrealized gain | .03 | ||||||||||
Total from investment operations | .03 | ||||||||||
Net asset value on SEC Effective Date, 9/14/2007 | $ | 7.95 | |||||||||
Investment operations: | |||||||||||
Net investment income(b) | .46 | .14 | |||||||||
Net realized and unrealized loss | (2.02 | ) | (.05 | ) | |||||||
Total from investment operations | (1.56 | ) | .09 | ||||||||
Distributions to shareholders from: | |||||||||||
Net investment income | (.50 | ) | (.12 | ) | |||||||
Net asset value, end of period | $ | 5.86 | $ | 7.92 | |||||||
Total Return(d) | .38 | %(e)(f) | |||||||||
Total Return(d) | (20.61 | )% | 1.18 | %(e)(g) | |||||||
Ratios to Average Net Assets: | |||||||||||
Expenses, including expense reductions | 1.24 | % | .39 | %(e) | |||||||
Expenses, excluding expense reductions | 1.24 | % | .39 | %(e) | |||||||
Net investment income | 6.44 | % | 1.72 | %(e) | |||||||
Supplemental Data: | |||||||||||
Net assets, end of period (000) | $ | 338 | $ | 46 | |||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % |
(a) Commencement of investment operations was 9/7/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Amount is less than $.01.
(d) Total return assumes the reinvestment of all distributions.
(e) Not annualized.
(f) Total return for the period 9/7/2007 through 9/14/2007.
(g) Total return for the period 9/14/2007 through 12/31/2007.
See Notes to Financial Statements.
36
Financial Highlights (concluded)
Class R3 Shares | |||||||||||
Year Ended 12/31/2008 | 9/7/2007(a) to 12/31/2007 | ||||||||||
Per Share Operating Performance | |||||||||||
Net asset value, beginning of period | $ | 7.92 | $ | 7.92 | |||||||
Investment operations: | |||||||||||
Net investment income(b) | .00 | (c) | |||||||||
Net realized and unrealized gain | .03 | ||||||||||
Total from investment operations | .03 | ||||||||||
Net asset value on SEC Effective Date, 9/14/2007 | $ | 7.95 | |||||||||
Investment operations: | |||||||||||
Net investment income(b) | .47 | .14 | |||||||||
Net realized and unrealized loss | (2.03 | ) | (.04 | ) | |||||||
Total from investment operations | (1.56 | ) | .10 | ||||||||
Distributions to shareholders from: | |||||||||||
Net investment income | (.51 | ) | (.13 | ) | |||||||
Net asset value, end of period | $ | 5.85 | $ | 7.92 | |||||||
Total Return(d) | .38 | %(e)(f) | |||||||||
Total Return(d) | (20.52 | )% | 1.21 | %(e)(g) | |||||||
Ratios to Average Net Assets: | |||||||||||
Expenses, including expense reductions | 1.15 | % | .35 | %(e) | |||||||
Expenses, excluding expense reductions | 1.15 | % | .35 | %(e) | |||||||
Net investment income | 7.01 | % | 1.77 | %(e) | |||||||
Supplemental Data: | |||||||||||
Net assets, end of period (000) | $ | 5,399 | $ | 14 | |||||||
Portfolio turnover rate | 29.01 | % | 40.08 | % |
(a) Commencement of investment operations was 9/7/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Amount is less than $.01.
(d) Total return assumes the reinvestment of all distributions.
(e) Not annualized.
(f) Total return for the period 9/7/2007 through 9/14/2007.
(g) Total return for the period 9/14/2007 through 12/31/2007.
See Notes to Financial Statements.
37
Notes to Financial Statements
1. ORGANIZATION
Lord Abbett Bond-Debenture Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (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 eight classes of shares: Class A, B, C, F, I, P, R2 and R3, 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 Class B, C, F, I, P, R2 and R3 shares, although there may be a contingent deferred sales charge ("CDSC") as follows: Class A shares purchased without a sales charge and redeemed before the first day of the month in which the one-year anniversary of the purchase falls (subject to certain exceptions); 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 automatically convert to Class A shares on the 25th day of the month (or, if the 25th is n ot a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted. As of October 1, 2007, the Fund's Class P shares were closed to substantially all new retirement and benefit plans and fee-based programs, with certain exceptions as set forth in the Fund's Prospectus.
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 actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange LLC. The Fund may rely on an independent fair valuation service in adjusting the valuations of foreign securities. 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 in come 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. Loans are valued at the average of bid and asked quotations from dealers in loans on the basis of prices supplied by independent pricing services. As of December 31, 2008, 100% of total investments in loans were valued based on prices from such services. Securities for which market quotations are not readily available are valued at fair value as determined by management and approved in
38
Notes to Financial Statements (continued)
good faith by the Board of Directors. Unlisted fixed income securities (other than senior loans) 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 the effective interest method. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country's tax rules and rates. Investment income is allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day.
(d) Income 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 income tax provision is required.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund's U.S. federal tax returns remains open for the fiscal years ended December 31, 2005 through December 31, 2007. The statutes of limitations on the Fund's state and local tax returns may remain open for an additional year depending upon the jurisdiction.
(e) Expenses–Expenses, excluding class specific expenses, are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. Class A, B, C, F, P, R2 and R3 shares bear their class specific share of all expenses and fees relating to the Fund's 12b-1 Distribution Plan.
(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 daily to reflect current exchange rates and any unrealized gain (loss) is included in Net change in appreciation on investments, credit default swap agreements and translation of assets and liabilities denominated in foreign currencies on the Fund's Statement of Operations. The resultant exchange gains and losses upon settlement are included in Net realized loss on investments, credit default swap agreements and foreign currency related transactions on the Fund's Statement o f 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) 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
39
Notes to Financial Statements (continued)
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. State Street Bank and Trust Company ("SSB") received fees for $46,678 for the fiscal year ended December 31, 2008 which are netted against Income from securities lending included on the Statement of Operations. As of December 31, 2008, there were no securities on loan.
(h) When-Issued or Forward Transactions–The Fund may purchase securities on a when-issued or forward basis. When-issued, forward transactions or to-be-announced ("TBA") transactions involve a commitment by a 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. 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 enterprise securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund's custodia n in order to pay for the commitment. At the time the Fund makes the 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.
(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 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 these securities has dec lined, 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) Disclosures About Credit Derivatives–The Fund adopted Financial Accounting Standards Board ("FASB") Staff Position No. 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (the "FSP") effective December 31, 2008. The FSP amends FASB Statement No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, to require disclosures by
40
Notes to Financial Statements (continued)
sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. A credit derivative is a derivative instrument (a) in which one or more of its underlyings are related to the credit risk of a specific entity (or group of entities) or an index based on the credit risk of a group of entities and (b) that exposes the seller to the potential loss from credit-risk related events specified in the contract. As of December 31, 2008, the Fund had no outstanding credit derivatives.
Credit Default Swaps
The Fund may enter into credit default swap contracts ("swaps") for investment purposes to hedge credit risk or for speculative purposes. As a seller of a credit default swap contract, the Fund is required to pay the notional amount or other agreed-upon value of a referenced debt obligation to the counterparty in the event of a default by a third party, such as a U.S. or foreign corporate issuer, on the referenced debt obligation. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the contract provided that no event of default occurs. If no default occurs, the Fund keeps the stream of payments and has no payment obligations. Such periodic payments are accrued daily and recorded as a realized gain.
The Fund may also purchase credit default swap contracts in order to hedge against the risk of default of debt securities held, in which case the Fund would function as the counterparty referenced in the preceding paragraph. As a purchaser of a credit default swap contract, the Fund would receive the notional amount or other agreed upon value of a referenced debt obligation from the counterparty in the event of default by a third party, such as a U.S. or foreign corporate issuer on the referenced obligation. In return, the Fund would make periodic payments to the counterparty over the term of the contracts, provided no event of default has occurred. Such periodic payments are accrued daily and recorded as a realized loss.
Swaps are marked to market daily based upon quotations from counterparties, brokers or market-makers and the change in value, if any, is recorded as an unrealized appreciation or depreciation. For a credit default swap sold by the Fund, payment of the agreed-upon amount made by the Fund in the event of default of the referenced debt obligation is recorded as the cost of the referenced debt obligation purchased/received. For a credit default swap purchased by the Fund, the agreed-upon amount received by the Fund in the event of default of the referenced debt obligation is recorded as proceeds from sale/delivery of the referenced debt obligation and the resulting gain or loss realized on the referenced debt obligation is recorded as such by the Fund.
Any upfront payments made or received upon entering a credit default swap contract would be amortized or accreted over the life of the swap and recorded as realized gains or losses. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap agreement. The value of each credit default swap and credit rating for each reference where the Fund is the seller of protection, are both measures of the current payment/performance risk of the swap. As the value of the swap changes as a positive or negative percentage of the total notional amount, the payment/performance risk may decrease or increase, respectively. The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the
41
Notes to Financial Statements (continued)
notional amount of the agreement. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
Entering into swaps involves, to varying degrees, elements of credit, market and documentation risk. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in net interest rates.
(l) Floating Rate Loans–The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. Loan participations and assignments are agreements to make money available to U.S. or foreign corporations, partnerships or other business entities (the "Borrower") in a specified amount, at a specified rate and within a specified time. A loan is typically originated, negotiated and structured by a U.S. or foreign bank, insurance company or other financial institution (the "Agent") for a group of loan investors ("Loan Investors"). The Agent typically administers and enforces the loan on behalf of the other Loan Investors in the syndicate and may hold any collateral on behalf of the Loan Investors. Such loan participations and assignments are ty pically senior, secured and collateralized in nature. A Fund records an investment when the Borrower withdraws money and records interest as earned. These loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or London InterBank Offered Rate ("LIBOR").
The loans in which a Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, a Fund may be contractually obligated to receive approval from the Agent and/or Borrower prior to the sale of these investments. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the Borrower. As a result, a Fund assumes the credit risk of the Borrower, the selling participant and any other persons interpositioned between the Fund and the Borrower ("Intermediate Participants"). In the event that the Borrower, selling participant or Intermediate Participants becomes insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the Borrower. At any point in time, up to the maturity date of the issue, the Borrower may demand the unfunded portion. These unfunded amounts are recorded in memorandum accounts. As of December 31, 2008, the Fund had no unfunded loan commitments.
(m) Fair Value Measurements–The Fund adopted FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"), effective January 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. SFAS 157 established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in
42
Notes to Financial Statements (continued)
pricing the asset or liability, including assumptions about risk – for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
• Level 1 – quoted prices in active markets for identical investments;
• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and
• Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.
The following is a summary of the inputs used as of December 31, 2008 in valuing the Fund's investments carried at value:
Valuation Inputs | Investments in Securities | ||||||
Level 1 – Quoted Prices | $ | 217,050,095 | |||||
Level 2 – Other Significant Observable Inputs | 5,006,935,094 | ||||||
Total | $ | 5,223,985,189 |
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 the Fund's average daily net assets at the following annual rates:
First $500 million | .50 | % | |||||
Next $9.5 billion | .45 | % | |||||
Over $10 billion | .40 | % |
For the fiscal year ended December 31, 2008, the effective management fee paid to Lord Abbett was at an annualized rate of .45% of the Fund's average daily net assets.
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.
43
Notes to Financial Statements (continued)
The Fund, along with certain other funds managed by Lord Abbett (the "Underlying Funds") has entered into a Servicing Arrangement with Lord Abbett Balanced Strategy Fund of Lord Abbett Investment Trust (the "Balanced Strategy Fund") and Lord Abbett Diversified Income Strategy Fund of Lord Abbett Investment Trust (the "Diversified Income Strategy Fund"), pursuant to which each Underlying Fund pays a portion of the expenses (excluding management fees and distribution and service fees) of Balanced Strategy Fund and Diversified Income Strategy Fund in proportion to the average daily value of Underlying Fund shares owned by Balanced Strategy Fund and Diversified Income Strategy Fund. Amounts paid pursuant to the Servicing Arrangement are included in Subsidy expense on the Fund's Statement of Operations and Payable to affiliates on the Fund's Statement of Assets and Liabilities.
12b-1 Distribution Plan
The Fund has adopted a distribution plan with respect to Class A, B, C, F, P, R2 and R3 shares pursuant to Rule 12b-1 under the Act, which provides for the payment of ongoing distribution and service fees to Lord Abbett Distributor LLC (the "Distributor"), an affiliate of Lord Abbett. The fees are accrued daily at annual rates based upon average daily net assets as follows:
Fees* | Class A | Class B | Class C | Class F | Class P | Class R2 | Class R3 | ||||||||||||||||||||||||
Service | .25 | %(1) | .25 | % | .25 | % | - | .20 | % | .25 | % | .25 | % | ||||||||||||||||||
Distribution | .10 | % | .75 | % | .75 | % | .10 | % | .25 | % | .35 | % | .25 | % |
* The Fund may designate a portion of the aggregate fee as attributable to service activities for purposes of calculating Financial Industry Regulatory Authority, Inc. ("FINRA") sales charge limitations.
(1) Annual service fee on shares sold prior to June 1, 1990 is .15% of the average net asset value.
Class I does not have a distribution plan.
Commissions
Distributor received the following commissions on sales of shares of the Fund, after concessions were paid to authorized dealers, for the fiscal year ended December 31, 2008:
Distributor Commissions | Dealers' Concessions | ||||||
$ | 1,867,239 | $ | 9,457,349 |
Distributor received CDSCs of $9,300 and $79,449 for Class A and Class C shares, respectively, for the fiscal year ended December 31, 2008.
Two Directors and certain of the Fund's officers have an interest in Lord Abbett.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS
Dividends from net investment income, if any, are declared and paid monthly. Taxable net realized gains from investment transactions, reduced by allowable 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
44
Notes to Financial Statements (continued)
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.
The tax character of distributions paid during the fiscal years ended December 31, 2008 and 2007 was as follows:
Year Ended 12/31/2008 | Year Ended 12/31/2007 | ||||||||||
Distributions paid from: | |||||||||||
Ordinary income | $ | 460,278,979 | $ | 477,041,795 | |||||||
Total distributions paid | $ | 460,278,979 | $ | 477,041,795 |
As of December 31, 2008, the components of accumulated losses on a tax-basis were as follows:
Undistributed ordinary income - net | $ | 32,694,719 | |||||
Total undistributed earnings | $ | 32,694,719 | |||||
Capital loss carryforwards* | (348,363,482 | ) | |||||
Temporary differences | (128,797,216 | ) | |||||
Unrealized losses - net | (1,774,645,275 | ) | |||||
Total accumulated losses - net | $ | (2,219,111,254 | ) |
* As of December 31, 2008, the capital loss carryforwards, along with the related expiration dates, were as follows:
2009 | 2010 | 2016 | Total | ||||||||||||
$ | 25,484,842 | $ | 303,185,812 | $ | 19,692,828 | $ | 348,363,482 |
Certain losses incurred after October 31 ("Post-October Losses"), within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. The Fund incurred and will elect to defer net capital losses of $127,695,709 and net ordinary losses of $50,515 during fiscal 2008.
As of December 31, 2008, the aggregate unrealized security gains and losses based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 6,998,571,246 | |||||
Gross unrealized gain | 43,895,154 | ||||||
Gross unrealized loss | (1,818,481,211 | ) | |||||
Net unrealized security loss | $ | (1,774,586,057 | ) |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales, amortization and certain securities.
Permanent items identified during the fiscal year ended December 31, 2008, have been reclassified among the components of net assets based on their tax basis treatment as follows:
Distributions in Excess of Net Investment Income | Accumulated Net Realized Loss | ||||||
$ | 26,903,839 | $ | (26,903,839 | ) |
The permanent differences are attributable to the tax treatment of amortization, certain securities, paydown gains and losses, and foreign currency transactions.
45
Notes to Financial Statements (continued)
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2008 were as follows:
U.S. Government Purchases* | Non-U.S. Government Purchases | U.S. Government Sales* | Non-U.S. Government Sales | ||||||||||||
$ | 600,730,631 | $ | 1,247,843,196 | $ | 677,548,101 | $ | 1,233,882,630 |
* Includes U.S. Government sponsored enterprises securities
6. DIRECTORS' REMUNERATION
The Fund's officers and the two Directors who are associated with Lord Abbett do not receive any compensation from the Fund for serving in such capacities. Outside Directors' fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all outside Directors under which outside Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, Directors' fees. The deferred amounts are treated as though equivalent dollar amounts have been invested 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 and certain other funds managed by Lord Abbett have available an unsecured revolving credit facility ("Facility") from SSB, to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Facility is renewed annually under terms that depend on market conditions at the time of the renewal. Accordingly, effective December 5, 2008, the amount available under the Facility was changed from $250,000,000 to $200,000,000 and the annual fee to maintain the Facility (of which each participating fund pays its pro rata share based on the net assets of each participating fund) was changed from .08% of the amount available under the Facility to .125%. Any borrowings under this Facility will bear interest at current market rates as set forth in the credit agreement. As of December 31, 2008, there were no loans outstanding pursuant to this Facility nor was the Facility utilized at any time during the fiscal year ended December 31, 2008.
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.
46
Notes to Financial Statements (continued)
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 debt 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 bonds" 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, and economic conditions, including delinquencies and/or defaults. These changes can affect the value, income and/or liquidity of such positions. 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. Alternatively, rising interest rates may cause payments to occur at a slower-than-expected rate, extending the duration of a security and typically reducing its value. The payment rate will thus 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 securit ies are guaranteed with respect to the timely payment of interest and principal by the particular Government sponsored enterprise involved, not by the U.S. Government.
The Fund may invest up to 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 equity securities 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.
Swap contracts are bi-lateral agreements between the Fund and its counterparty, each party is exposed to the risk of default by the other. In addition, they may involve a small investment of cash compared to the risk assumed with the result that small changes may produce disproportionate and substantial gains or losses to the Fund.
47
Notes to Financial Statements (continued)
The Fund may invest up to 10% of its net assets in floating rate or adjustable rate senior loans, which are subject to increased credit and liquidity risks. Senior loans are business loans made to borrowers that may be U.S. or foreign corporations, partnerships or other business entities.
These factors can affect the Fund's performance.
11. SUMMARY OF CAPITAL TRANSACTIONS
Transactions in shares of capital stock are as follows:
Year Ended December 31, 2008 | Year Ended December 31, 2007 | ||||||||||||||||||
Class A Shares | Shares | Amount | Shares | Amount | |||||||||||||||
Shares sold | 109,646,315 | $ | 744,343,221 | 79,211,702 | $ | 638,356,907 | |||||||||||||
Converted from Class B* | 5,620,079 | 39,042,700 | 8,835,341 | 71,362,120 | |||||||||||||||
Reinvestment of distributions | 34,387,494 | 244,159,569 | 31,647,722 | 254,142,827 | |||||||||||||||
Shares reacquired | (154,551,810 | ) | (1,073,192,933 | ) | (138,657,085 | ) | (1,112,982,676 | ) | |||||||||||
Decrease | (4,897,922 | ) | $ | (45,647,443 | ) | (18,962,320 | ) | $ | (149,120,822 | ) | |||||||||
Class B Shares | |||||||||||||||||||
Shares sold | 9,546,559 | $ | 66,698,400 | 7,410,888 | $ | 59,747,186 | |||||||||||||
Reinvestment of distributions | 5,632,063 | 40,157,969 | 5,699,256 | 45,829,302 | |||||||||||||||
Shares reacquired | (30,703,071 | ) | (214,561,299 | ) | (28,792,786 | ) | (231,862,793 | ) | |||||||||||
Converted to Class A* | (5,607,787 | ) | (39,042,700 | ) | (8,824,420 | ) | (71,362,120 | ) | |||||||||||
Decrease | (21,132,236 | ) | $ | (146,747,630 | ) | (24,507,062 | ) | $ | (197,648,425 | ) | |||||||||
Class C Shares | |||||||||||||||||||
Shares sold | 41,181,380 | $ | 280,863,445 | 27,108,067 | $ | 218,561,879 | |||||||||||||
Reinvestment of distributions | 6,285,390 | 44,581,210 | 5,298,912 | 42,632,433 | |||||||||||||||
Shares reacquired | (40,652,545 | ) | (278,733,756 | ) | (29,245,619 | ) | (235,563,747 | ) | |||||||||||
Increase | 6,814,225 | $ | 46,710,899 | 3,161,360 | $ | 25,630,565 | |||||||||||||
Period Ended December 31, 2007† | |||||||||||||||||||
Class F Shares | |||||||||||||||||||
Shares sold | 6,645,169 | $ | 45,276,121 | 1,265 | $ | 10,016 | |||||||||||||
Reinvestment of distributions | 117,800 | 771,173 | 21 | 172 | |||||||||||||||
Shares reacquired | (652,638 | ) | (4,232,437 | ) | - | - | |||||||||||||
Increase | 6,110,331 | $ | 41,814,857 | 1,286 | $ | 10,188 | |||||||||||||
Year Ended December 31, 2007 | |||||||||||||||||||
Class I Shares | |||||||||||||||||||
Shares sold | 7,237,694 | $ | 49,857,855 | 5,965,797 | $ | 47,714,258 | |||||||||||||
Reinvestment of distributions | 2,389,642 | 16,904,272 | 2,418,680 | 19,378,272 | |||||||||||||||
Shares reacquired | (7,973,146 | ) | (54,293,156 | ) | (17,923,009 | ) | (143,981,510 | ) | |||||||||||
Increase (decrease) | 1,654,190 | $ | 12,468,971 | (9,538,532 | ) | $ | (76,888,980 | ) | |||||||||||
Class P Shares | |||||||||||||||||||
Shares sold | 4,875,884 | $ | 35,656,446 | 4,070,949 | $ | 33,340,925 | |||||||||||||
Reinvestment of distributions | 1,095,307 | 7,883,180 | 797,994 | 6,515,024 | |||||||||||||||
Shares reacquired | (4,280,967 | ) | (30,336,847 | ) | (3,045,270 | ) | (25,029,754 | ) | |||||||||||
Increase | 1,690,224 | $ | 13,202,779 | 1,823,673 | $ | 14,826,195 |
48
Notes to Financial Statements (concluded)
Year Ended December 31, 2008 | Period Ended December 31, 2007† | ||||||||||||||||||
Class R2 Shares | Shares | Amount | Shares | Amount | |||||||||||||||
Shares sold | 107,436 | $ | 795,121 | 5,805 | $ | 45,985 | |||||||||||||
Reinvestment of distributions | 1,036 | 7,286 | 32 | 251 | |||||||||||||||
Shares reacquired | (56,651 | ) | (353,824 | ) | - | - | |||||||||||||
Increase | 51,821 | $ | 448,583 | 5,837 | $ | 46,236 | |||||||||||||
Class R3 Shares | |||||||||||||||||||
Shares sold | 1,021,770 | $ | 7,125,140 | 1,767 | $ | 13,981 | |||||||||||||
Reinvestment of distributions | 28,521 | 188,400 | 20 | 161 | |||||||||||||||
Shares reacquired | (129,866 | ) | (836,911 | ) | - | - | |||||||||||||
Increase | 920,425 | $ | 6,476,629 | 1,787 | $ | 14,142 |
* Automatic conversion of Class B shares occurs on the 25th day of the month (or if the 25th is not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted.
† For the period September 7, 2007 (commencement of investment operations) to December 31, 2007.
12. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"), which is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance and cash flows. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statements and disclosures.
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Lord Abbett Bond-Debenture Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Lord Abbett Bond-Debenture Fund, Inc. (the "Fund"), including the schedule of investments, as of December 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant e stimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Lord Abbett Bond-Debenture Fund, Inc. as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 25, 2009
50
Basic Information About Management
The Board of Directors (the "Board") is responsible for the management of the business and affairs of the Fund in accordance with the laws of the State of Maryland. The Board appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. As discussed in the Fund's Annual Report to Shareholders, the Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services provided by the investment adviser, and annually considers whether to renew the contract with the adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Fund's organizational documents.
Lord, Abbett & Co. LLC ("Lord Abbett"), a Delaware limited liability company, is the Fund's investment adviser.
Interested Directors
The following Directors are partners of Lord Abbett and are "interested persons" of the Fund as defined in the Act. Mr. Dow and Ms. Foster are officers, directors, or trustees of each of the fourteen Lord Abbett-sponsored funds, which consist of 53 portfolios or series.
Name, Address and Year of Birth | Current Position Length of Service with Fund | Principal Occupation During Past Five Years | Other Directorships | ||||||||||||
Robert S. Dow Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1945) | Director since 1989, Chairman since 1996 | Senior Partner since 2007 and Chief Executive Officer of Lord Abbett since 1996, formerly Managing Partner of Lord Abbett (1996 - 2007). | N/A | ||||||||||||
Daria L. Foster Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1954) | Director since 2006 | Managing Partner of Lord Abbett since 2007, formerly Director of Marketing and Client Service of Lord Abbett (1990 - 2007). | N/A | ||||||||||||
Independent Directors
The following independent or outside Directors ("Independent Directors") are also directors or trustees of each of the fourteen Lord Abbett-sponsored funds, which consist of 53 portfolios or series.
Name, Address and Year of Birth | Current Position Length of Service with Fund | Principal Occupation During Past Five Years | Other Directorships | ||||||||||||
E. Thayer Bigelow Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1941) | Director since 1994 | Managing General Partner, Bigelow Media, LLC (since 2000), Senior Adviser, Time Warner Inc. (1998 - 2000), Acting Chief Executive Officer of Courtroom Television Network (1997 - 1998), President and Chief Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). | Currently serves as director of Crane Co. (since 1984) and Huttig Building Products Inc. (since 1998). | ||||||||||||
51
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position Length of Service with Fund | Principal Occupation During Past Five Years | Other Directorships | ||||||||||||
William H.T. Bush Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1938) | Director since 1998 | Co-founder and Chairman of the Board of the financial advisory firm of Bush-O'Donnell & Company (since 1986). | Currently serves as director of WellPoint, Inc., a health benefits company (since 2002). | ||||||||||||
Robert B. Calhoun, Jr. Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1942) | Director since 1998 | Managing Director of Monitor Clipper Partners (since 1997) and President of Clipper Asset Management Corp. (since 1991), both private equity investment funds. | Currently serves as director of Avondale, Inc. (since 1991) and Interstate Bakeries Corp. (since 1991). | ||||||||||||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Owner and CEO of The Hill Company, a business consulting firm (since 1998), Founder, President and Owner of the Hiram-Hill and Hillsdale Development Company, a residential real estate development firm (1998 - 2000). | Currently serves as director of WellPoint, Inc., a health benefits company (since 1994) and Lend Lease Corporation Limited (since 2005). | ||||||||||||
Franklin W. Hobbs Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2000 | Advisor of One Equity Partners, a private equity firm (since 2004), Chief Executive Officer of Houlihan Lokey Howard & Zukin, an investment bank (2002 - 2003), Chairman of Warburg Dillon Read, an investment bank (1999 - 2001), Global Head of Corporate Finance of SBC Warburg Dillon Read (1997 - 1999), Chief Executive Officer of Dillon, Read & Co. (1994 - 1997). | Currently serves as director of Molson Coors Brewing Company (since 2002). | ||||||||||||
Thomas J. Neff Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1937) | Director since 1982 | Chairman of Spencer Stuart (U.S.), an executive search consulting firm (since 1996), President of Spencer Stuart (1979 - 1996). | Currently serves as director of Ace, Ltd. (since 1997) and Hewitt Associates, Inc. (since 2004). | ||||||||||||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006 | CEO of Tullis-Dickerson and Co. Inc, a venture capital management firm (since 1990). | Currently serves as director of Crane Co. (since 1998). | ||||||||||||
52
Basic Information About Management (continued)
Officers
None of the officers listed below have received compensation from the Fund. All the officers of the Fund may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302.
Name and Year of Birth | Current Position with Fund | Length of Service of Current Position | Principal Occupation During Past Five Years | ||||||||||||
Robert S. Dow (1945) | Chief Executive Officer and Chairman | Elected in 1996 | Senior Partner since 2007 and Chief Executive Officer of Lord Abbett since 1996, formerly Managing Partner of Lord Abbett (1996 - 2007). | ||||||||||||
Daria L. Foster (1954) | President | Elected in 2006 | Managing Partner of Lord Abbett since 2007, formerly Director of Marketing and Client Service of Lord Abbett (1990 - 2007). | ||||||||||||
Robert I. Gerber (1954) | Executive Vice President | Elected in | Partner and Chief Investment Officer, formerly Director of Taxable Fixed Income Management, joined Lord Abbett in 1997. | ||||||||||||
Christopher J. Towle (1957) | Executive Vice President | Elected in 1995 | Partner and Director, joined Lord Abbett in 1987. | ||||||||||||
James W. Bernaiche (1956) | Chief Compliance Officer | Elected in 2004 | Partner and Chief Compliance Officer, joined Lord Abbett in 2001. | ||||||||||||
Joan A. Binstock (1954) | Chief Financial Officer and Vice President | Elected in 1999 | Partner and Chief Operations Officer, joined Lord Abbett in 1999. | ||||||||||||
John K. Forst (1960) | Vice President and Assistant Secretary | Elected in 2005 | Deputy General Counsel, joined Lord Abbett in 2004, formerly Managing Director and Associate General Counsel at New York Life Investment Management LLC (2002 - 2003). | ||||||||||||
Michael S. Goldstein (1968) | Vice President | Elected in 1998 | Partner and Portfolio Manager, joined Lord Abbett in 1997. | ||||||||||||
Lawrence H. Kaplan (1957) | Vice President and Secretary | Elected in 1997 | Partner and General Counsel, joined Lord Abbett in 1997. | ||||||||||||
Maren Lindstrom (1962) | Vice President | Elected in 2000 | Partner and Portfolio Manager, joined Lord Abbett in 2000. | ||||||||||||
53
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with Fund | Length of Service of Current Position | Principal Occupation During Past Five Years | ||||||||||||
Elizabeth O. MacLean (1966) | Vice President | Elected in 2008 | Partner and Portfolio Manager, joined Lord Abbett in 2006, formerly Managing Director/Portfolio Manager at Nomura Corporate Research and Asset Management, Inc. (2000 - 2006). | ||||||||||||
A. Edward Oberhaus, III (1959) | Vice President | Elected in 1996 | Partner and Director, joined Lord Abbett in 1983. | ||||||||||||
Thomas R. Phillips (1960) | Vice President and Assistant Secretary | Elected in 2008 | Deputy General Counsel, joined Lord Abbett in 2006, formerly attorney at Morgan, Lewis & Bockius LLP (2005 - 2006), and Stradley Ronon Stevens & Young, LLP (2000 - 2005). | ||||||||||||
Lawrence B. Stoller (1963) | Vice President and Assistant Secretary | Elected in 2007 | Senior Deputy General Counsel, joined Lord Abbett in 2007, formerly Senior Vice President and General Counsel (1999 - 2005), and Executive Vice President and General Counsel at Cohen & Steers Capital Management, Inc. (2005 - 2007). | ||||||||||||
Bernard J. Grzelak (1971) | Treasurer | Elected in 2003 | Partner and Director of Fund Administration, joined Lord Abbett in 2003. | ||||||||||||
Please call 888-522-2388 for a copy of the Statement of Additional Information (SAI), which contains further information about the Fund's Directors. It is available free upon request.
54
Approval of Advisory Contract
At meetings held on December 10 and 11, 2008, the Board, including all of the Directors who are not interested persons of the Fund or Lord Abbett, 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 Board also took into account its familiarity with Lord Abbett gained through its previous meetings and discussions, and the examination of the portfolio management team conducted by members of the Contract Committee during the year.
The materials received by the Board included, but were not limited to, (1) information provided by Lipper Inc. regarding the investment performance of the Fund compared to the investment performance of one or more groups of funds with substantially similar investment objectives (the "performance universe") and to the investment performance of an appropriate securities index for various time periods each ended September 30, 2008, (2) information on the effective management fee rates and expense ratios for one or more groups of funds with similar objectives and of similar size (the "peer expense 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, and (7) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund. In light of the recent volatility in the securities markets, the Board also considered the investment performance of the Fund for the period from September 30, 2008 through December 9, 2008.
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, and Lord Abbett's commitment to compliance with all relevant legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest resulting from being engaged in other lines of business. The Board noted that in recent years Lord Abbett had not used brokerage commissions to purchase third-party research, but intended to change this practice in 2009, as it had previously discussed with the Board. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other.
Investment Performance and Compliance. The Board reviewed the Fund's investment performance in relation to that of the performance universe, both in terms of total return and in terms of other statistical measures. The Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of the performance universe for the nine-month and one-year periods, and in the third quintile for the three-year, five-year, and ten-year periods. The Board also observed that the investment performance was lower than that of the Lipper Multi-Sector Income Index for the nine-month, one-year, and three-year periods and higher than that of the Index for the five-year 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 its investment objective and discipline. Among other things, the Board considered the size, experience, and
55
turnover rates 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. The Board determined that Lord Abbett had the expertise and resources to manage the Fund effectively.
Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services performed by Lord Abbett and Lord Abbett Distributor and the nature and extent of Lord Abbett's supervision of third party service providers, including the Fund's transfer agent and custodian.
Expenses. The Board considered the expense levels of the Fund and the expense levels of the peer expense group. It also considered the amount and nature of the fees paid by shareholders. The Board observed that for the nine months ended September 30, 2008 the contractual management and administrative services fees were approximately two basis points below the median of the peer group and the actual management and administrative services fees were approximately four basis points below the median of the peer group. The Board also observed that for the nine months ended September 30, 2008 the total expense ratio of Class A was approximately two basis points above the median of the peer group, the total expense ratios of Class B, Class C, and Class I were approximately six basis points below the median of the peer group, the total expense ratio of Class P was approxim ately fourteen basis points below the median of the peer group, the total expense ratio of Class R2 was approximately the same as the median of the peer group, and the total expense ratio of Class R3 was approximately ten basis points below the median of the peer group. The Board also noted that there were only a limited number of substantially similar funds with Class F shares or an equivalent class of shares, so Lipper had not provided an expense group comparison for that class. The Board also observed that the Rule 12b-1 plan had been operational for Class R2 and Class R3 for only a portion of the period and that had it been operational for the entire period the expense ratios of Class R2 and R3 would have been approximately one basis point higher.
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 personn el. The Board recognized that Lord Abbett's profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to the Fund. The Board noted that Lord Abbett's overall profitability had decreased in fiscal 2008, largely due to declines in market prices and shareholder redemptions. The Board concluded that Lord Abbett's profitability overall and as to the Fund was not excessive.
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. The Board concluded that the existing advisory fee schedule, with its breakpoints in the level of the advisory fee, adequately addressed any economies of scale in managing the Fund.
56
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. The Board observed that Lord Abbett Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees from the Funds, and receives a portion of the sales charges on sales and redemptions of some classes of shares. The Board observed that, in addition, Lord Abbett accrues certain benefits for i ts business of providing investment advice to clients other than the Lord Abbett Funds, but that that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Fund. The Board also took into consideration the investment research that Lord Abbett receives as a result of Fund brokerage transactions.
Alternative Arrangements. The Board considered whether, instead of approving continuation of the management agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, 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.
57
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 888-522-2388 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 each Fund's proxies during the 12-month period ended June 30 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett's website at www.LordAbbett.com; and (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. 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 888-522-2388. 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 duplicating fee to the SEC's Public Reference Room, Washington, DC 20549-0102; or (iii) sending your request electronically to publicinfo@sec.gov.
Tax Information
2.41% of the ordinary income distributions paid by the Fund during fiscal 2008 is qualified dividend income. For corporate shareholders, only 2.39% of the Fund's ordinary income distributions qualified for the dividends received deduction.
For foreign shareholders, 95.87% of the ordinary income distributions paid by the Fund during the fiscal year ended December 31, 2008 represents interest-related dividends.
58
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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 mutual fund shares are distributed by
LORD ABBETT DISTRIBUTOR LLC.
Lord Abbett Bond-Debenture Fund, Inc.
LABD-2-1208
(2/09)
Item 2: Code of Ethics.
(a) In accordance with applicable requirements, the Registrant adopted a Sarbanes-Oxley Code of Ethics on June 19, 2003 that applies to the principal executive officer and senior financial officers of the Registrant (“Code of Ethics”). The Code of Ethics was in effect during the fiscal year ended December 31, 2008 (the “Period”).
(b) Not applicable.
(c) The Registrant has not amended the Code of Ethics as described in Form N-CSR during the Period.
(d) The Registrant has not granted any waiver, including an implicit waiver, from a provision of the Code of Ethics as described in Form N-CSR during the Period.
(e) Not applicable.
(f) See Item 12(a)(1) concerning the filing of the Code of Ethics. The Registrant will provide a copy of the Code of Ethics to any person without charge, upon request. To obtain a copy, please call Lord Abbett at 888-522-2388.
Item 3: Audit Committee Financial Expert.
The Registrant’s board of directors has determined that each of the following independent directors who are members of the audit committee are audit committee financial experts: E. Thayer Bigelow, Robert B. Calhoun Jr., Franklin W. Hobbs, and James L.L. Tullis. Each of these persons is independent within the meaning of the Form N-CSR.
Item 4: Principal Accountant Fees and Services.
In response to sections (a), (b), (c) and (d) of Item 4, the aggregate fees billed to the Registrant for the fiscal years ended December 31, 2008 and 2007 by the Registrant’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) were as follows:
|
| Fiscal year ended: |
| ||||
|
| 2008 |
| 2007 |
| ||
Audit Fees (a) |
| $ | 65,500 |
| $ | 63,500 |
|
Audit-Related Fees |
| -0- |
| -0- |
| ||
Total audit and audit-related fees |
| 65,500 |
| 63,500 |
| ||
|
|
|
|
|
| ||
Tax Fees (b) |
| 9,379 |
| 8,993 |
| ||
All Other Fees |
| - 0 - |
| - 0 - |
| ||
|
|
|
|
|
| ||
Total Fees |
| $ | 74,879 |
| $ | 72,493 |
|
(a) Consists of fees for audits of the Registrant’s annual financial statements.
(b) Fees for the fiscal year ended December 31, 2008 and 2007 consist of fees for preparing the U.S. Income Tax Return for Regulated Investment Companies, New Jersey Corporation Business Tax Return, New Jersey Annual Report Form, U.S. Return of Excise Tax on Undistributed Income of Investment Companies, IRS Forms 1099-MISC and 1096 Annual Summary and Transmittal of U.S. Information Returns.
(e) (1) Pursuant to Rule 2-01(c) (7) of Regulation S-X, the Registrant’s Audit Committee has adopted pre-approval policies and procedures. Such policies and procedures generally provide that the Audit Committee must pre-approve:
· any audit, audit-related, tax, and other services to be provided to the Lord Abbett Funds, including the Registrant, and
· any audit-related, tax, and other services to be provided to the Registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to one or more Funds comprising the Registrant if the engagement relates directly to operations and financial reporting of a Fund, by the independent auditor to assure that the provision of such services does not impair the auditor’s independence.
The Audit Committee has delegated pre-approval authority to its Chairman, subject to a fee limit of $10,000 per event, and not to exceed $25,000 annually. The Chairman will report any pre-approval decisions to the Audit Committee at its next scheduled meeting. Unless a type
of service to be provided by the independent auditor has received general pre-approval, it must be pre-approved by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
(e) (2) The Registrant’s Audit Committee has approved 100% of the services described in this Item 4 (b) through (d).
(f) Not applicable.
(g) The aggregate non-audit fees billed by Deloitte for services rendered to the Registrant are shown above in the response to Item 4 (a), (b), (c) and (d) as “All Other Fees”.
The aggregate non-audit fees billed by Deloitte for services rendered to the Registrant’s investment adviser, Lord, Abbett & Co. LLC (“Lord Abbett”), for the fiscal years ended December 31, 2008 and 2007 were:
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| Fiscal year ended: |
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| 2008 |
| 2007 |
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All Other Fees (a) |
| $ | 155,939 |
| $ | 137,700 |
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(a) Consist of fees for Independent Services Auditors’ Report on Controls Placed in Operation and Tests of Operating Effectiveness related to Lord Abbett’s Asset Management Services (“SAS 70 Report”).
The aggregate non-audit fees billed by Deloitte for services rendered to entities under the common control of Lord Abbett for the fiscal years ended December 31, 2008 and 2007 were:
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| Fiscal year ended: |
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| 2008 |
| 2007 |
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All Other Fees |
| $ | - 0 - |
| $ | - 0- |
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(h) The Registrant’s Audit Committee has considered the provision of non-audit services that were rendered to the Registrant’s investment adviser, and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant, that were not pre-approved pursuant to Rule 2-01 (c)(7)(ii) of Regulation S-X and has determined that the provision of such services is compatible with maintaining Deloitte’s independence.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: 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 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 second fiscal quarter of the period covered by this report 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 Investment Company Act of 1940 is attached hereto as a part of EX-99.CERT.
(a)(3) Not applicable.
(b) 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 provided as a part of EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities 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. | ||
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| By: | /s/ Robert S. Dow |
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| Robert S. Dow | |
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| Chief Executive Officer and Chairman | |
Date: February 25, 2009 |
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| By: | /s/ Joan A. Binstock |
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| Joan A. Binstock | |
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| Chief Financial Officer and Vice President | |
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Date: February 25, 2009 |
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Pursuant to the requirements of the Securities 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.
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| By: | /s/ Robert S. Dow |
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| Robert S. Dow | |
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| Chief Executive Officer and Chairman | |
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Date: February 25, 2009 |
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| By: | /s/ Joan A. Binstock |
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| Joan A. Binstock | |
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| Chief Financial Officer and Vice President | |
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Date: February 25, 2009 |
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