UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-02145
LORD ABBETT BOND-DEBENTURE FUND, INC.
(Exact name of Registrant as specified in charter)
90 Hudson Street, Jersey City, NJ 07302
(Address of principal executive offices) (Zip code)
Thomas R. Phillips, Esq., Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 201-6984
Date of fiscal year end: 12/31
Date of reporting period: 12/31/09
Item 1: | Report to Shareholders. |
2009
LORD ABBETT
ANNUAL
REPORT
Lord Abbett
Bond Debenture Fund
For the fiscal year ended December 31, 2009
Lord Abbett Bond Debenture Fund
Annual Report
For the fiscal year ended December 31, 2009
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.
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, 2009. 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
Q: What were the overall market conditions during the fiscal year ended December 31, 2009?
A: During the last twelve months policymakers continued to respond aggressively to the economic and financial crisis and the U.S. economy has gradually rebounded from the recession that began in December 2007. Global coordinated rate cuts, capital infusions into banks, development of the Troubled Asset Relief Program (TARP), the establishment of a commercial paper funding facility, the FDIC-backed Temporary Liquidity Guarantee Program (TLGP), the Term Asset-Backed Securities Loan Facility (TALF), and Public-Private Investment Program (PPIP) were among a number of emergency programs put in place to ease the crisis. As the credit crisis eased, investors’ tolerance for risk began to return. In many segments of the bond market, prices rose, yields fell, and spreads narrowed.
The fed funds rate was lowered in mid-December 2008, from 1.00% to a range of 0.00–0.25%. Economic sluggishness, combined with quiescent inflation, prompted the Fed to since keep its target for the fed funds rate at 0.00–0.25%.
1
In the fixed income market, the assumption of credit risk was rewarded in the 12-month period. In general, lower credit quality securities outperformed those with higher credit quality ratings. The investment-grade corporate bond market (as measured by the Barclays Capital U.S. Aggregate Bond Index 1) returned 5.93% while high-yield bonds (as measured by the BofA Merrill Lynch High Yield Master II Constrained Index2) rose 58.10%. Specifically, the BofA Merrill Lynch U.S. High Yield CCC-Rated Index3 led major bond indexes with a total return of 96.79%, followed by the BofA Merrill Lynch U.S. High Yield B-Rated Index3 up 47.64%, and the BofA Merrill Lynch U.S. High Yield BB-Rated Index3 up 45.21%. This trend was similar within convertible securities, with lower-rated credits outperforming higher-rated by a wide margin.
Q: How did the Bond Debenture Fund perform during the fiscal year ended December 31, 2009?
A: The Fund returned 35.37%, reflecting performance at the net asset value (NAV) of Class A shares with all distributions reinvested, compared to its benchmark, the Barclays Capital U.S. Aggregate Bond Index, which returned 5.93% 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/Agencies.
The Fund’s performance was helped by increased exposure to credit sensitive assets – high-yield corporates, high-grade corporates, and convertible securities – and decreased positions in more rate sensitive holdings such as Treasuries and agency mortgage-backed securities (MBS). The bond market’s rally during the year was led by lower-rated credits, thus the portfolio benefited from increased positions in lower quality credits. At the industry level, among the industries contributing the most to performance were health services, gas distribution, and media–cable.
Most industries had positive returns, however the returns within printing and publishing, and leisure, were among the lowest. Although the printing and publishing industry has recovered some losses experienced during the recession, it continues to be challenged by the decline in print advertising sales due to the weak economic environment. The portfolio’s allocation to government-guaranteed bonds also provided lower returns relative to other industries as Treasury bonds, being higher quality, more defensive holdings, did not participate in the credit rally to the extent of the broader market, as investors moved to more risky assets.
The Fund’s portfolio is actively managed and, therefore, its holdings and weighting of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
2
1 The Barclays Capital 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.
2 The BofA Merrill Lynch High Yield Master II Constrained Index is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities. Issues included in the index have maturities of one year or more and have a credit rating lower than BBB-/Baa3, but are not in default. The BofA Merrill Lynch High Yield Master II Constrained Index limits any individual issuer to a maximum of 2% benchmark exposure.
3 The BofA Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar-denominated below investment-grade corporate debt publicly issued in the U.S. domestic market. The indexes for CCC, B, BB, and speculative are part of the BofA Merrill Lynch U.S. High Yield Index, with the only difference being the addition of a ratings filter.
Unless otherwise indicated, indexes are unmanaged and reflect total returns with all distributions reinvested, but do not reflect the deduction of fees, expenses, or taxes, 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, 2009; 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 U.S. Aggregate Bond Index, the BofA Merrill Lynch High Yield Master II Constrained Index, and the 60% BofA Merrill Lynch High Yield Master II Constrained Index/20% Barclays Capital U.S. Aggregate Bond Index/20% BofA 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 Returns at Maximum Applicable
Sales Charge for the Periods Ended December 31, 2009
1 Year | 5 Years | 10 Years | Life of Class | |||||
Class A3 | 29.00% | 3.86% | 4.96% | – | ||||
Class B4 | 30.52% | 4.05% | 4.94% | – | ||||
Class C5 | 34.44% | 4.17% | 4.79% | – | ||||
Class F6 | 35.81% | – | – | 3.44% | ||||
Class I7 | 35.87% | 5.22% | 5.84% | – | ||||
Class P7 | 35.47% | 4.79% | 5.49% | – | ||||
Class R28 | 35.26% | – | – | 3.00% | ||||
Class R39 | 35.31% | – | – | 3.08% |
1 Reflects the deduction of the maximum initial sales charge of 4.75%.
2 Performance of each unmanaged index does not reflect any fees or expenses. 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, 2009, 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 and 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 and 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 and 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, 2009 through December 31, 2009).
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 titled “Expenses Paid During the Period 7/1/09 – 12/31/09” 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† | |||||||
7/1/09 | 12/31/09 | 7/1/09 - 12/31/09 | |||||||
Class A | |||||||||
Actual | $ | 1,000.00 | $ | 1,172.50 | $ | 5.48 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.21 | $ | 5.09 | |||
Class B | |||||||||
Actual | $ | 1,000.00 | $ | 1,168.30 | $ | 9.02 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,016.94 | $ | 8.39 | |||
Class C | |||||||||
Actual | $ | 1,000.00 | $ | 1,168.30 | $ | 9.02 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,016.94 | $ | 8.39 | |||
Class F | |||||||||
Actual | $ | 1,000.00 | $ | 1,172.30 | $ | 4.11 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,021.48 | $ | 3.82 | |||
Class I | |||||||||
Actual | $ | 1,000.00 | $ | 1,173.50 | $ | 3.56 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,021.97 | $ | 3.31 | |||
Class P | |||||||||
Actual | $ | 1,000.00 | $ | 1,171.60 | $ | 6.02 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.71 | $ | 5.60 | |||
Class R2 | |||||||||
Actual | $ | 1,000.00 | $ | 1,171.20 | $ | 6.84 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,018.95 | $ | 6.36 | |||
Class R3 | |||||||||
Actual | $ | 1,000.00 | $ | 1,170.50 | $ | 6.29 | |||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.46 | $ | 5.85 |
† | For each class of the Fund, net expenses are equal to the annualized expense ratio for such class (1.00% for Class A, 1.65% for Classes B and Class 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 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2009
Sector* | %** | Sector* | %** | |||||
Agency | 0.02% | Local Authority | 0.16% | |||||
Asset-Backed | 0.12% | Media | 7.04% | |||||
Banking | 4.13% | Mortgage-Backed | 0.28% | |||||
Basic Industry | 8.90% | Real Estate | 0.53% | |||||
Brokerage | 0.52% | Service Cyclical | 9.63% | |||||
Capital Goods | 8.78% | Services Non-cyclical | 7.03% | |||||
Consumer Cyclical | 7.72% | Technology & Electronics | 7.75% | |||||
Consumer Non-cyclical | 6.96% | Telecommunications | 7.34% | |||||
Energy | 12.21% | Utility | 5.74% | |||||
Finance & Investment | 2.30% | Short-Term Investment | 0.46% | |||||
Foreign Government | 0.42% | Total | 100.00% | |||||
Insurance | 1.96% |
* | A sector may comprise several industries. |
** | Represents percent of total investments. |
6
Schedule of Investments
December 31, 2009
Investments | Shares (000) | Value | |||
LONG-TERM INVESTMENTS 98.47% | |||||
COMMON STOCKS 5.16% | |||||
Aerospace & Defense 0.15% | |||||
Hexcel Corp.* | 350 | $ | 4,543,000 | ||
Lockheed Martin Corp. | 100 | 7,535,000 | |||
Total | 12,078,000 | ||||
Automotive 0.27% | |||||
Honda Motor Co., Ltd. ADR | 325 | 11,017,500 | |||
Oshkosh Corp. | 300 | 11,109,000 | |||
Total | 22,126,500 | ||||
Banking 0.16% | |||||
Bank of America Corp. | 250 | 3,765,000 | |||
JPMorgan Chase & Co. | 220 | 9,167,400 | |||
Total | 12,932,400 | ||||
Chemicals 0.07% | |||||
Dow Chemical Co. (The) | 150 | 4,144,500 | |||
Rockwood Holdings, Inc.* | 75 | 1,767,000 | |||
Texas Petrochemicals, Inc.* | 35 | 272,893 | |||
Total | 6,184,393 | ||||
Computer Hardware 0.13% | |||||
Hewlett-Packard Co. | 200 | 10,302,000 | |||
Consumer/Commercial/Lease Financing 0.05% | |||||
Capital One Financial Corp. | 100 | 3,834,000 | |||
Diversified Capital Goods 0.05% | |||||
Honeywell International, Inc. | 100 | 3,920,000 | |||
Electric: Generation 0.02% | |||||
RRI Energy, Inc.* | 300 | 1,716,000 | |||
Electric: Integrated 0.09% | |||||
NiSource, Inc. | 500 | 7,690,000 | |||
Electronics 0.36% | |||||
Broadcom Corp. Class A* | 220 | 6,919,000 | |||
Emerson Electric Co. | 400 | 17,040,000 |
See Notes to Financial Statements.
7
Schedule of Investments (continued)
December 31, 2009
Investments | Shares (000) | Value | |||
Electronics (continued) | |||||
Micron Technology, Inc.* | 500 | $ | 5,280,000 | ||
Total | 29,239,000 | ||||
Energy: Exploration & Production 0.44% | |||||
ConocoPhillips | 450 | 22,981,500 | |||
Continental Resources, Inc.* | 100 | 4,289,000 | |||
Devon Energy Corp. | 120 | 8,820,000 | |||
Total | 36,090,500 | ||||
Food & Drug Retailers 0.09% | |||||
Ingles Markets, Inc. Class A | 185 | 2,799,050 | |||
SUPERVALU, INC. | 350 | 4,448,500 | |||
Total | 7,247,550 | ||||
Investments & Miscellaneous Financial Services 0.69% | |||||
CIT Group, Inc.* | 124 | 3,412,789 | |||
SPDR S&P 500 ETF Trust | 375 | 41,790,000 | |||
T. Rowe Price Group, Inc. | 220 | 11,715,000 | |||
Total | 56,917,789 | ||||
Machinery 0.19% | |||||
Baldor Electric Co. | 235 | 6,601,150 | |||
Roper Industries, Inc. | 180 | 9,426,600 | |||
Total | 16,027,750 | ||||
Media: Cable 0.85% | |||||
Charter Communications, Inc. Class A(a) | 1,597 | 56,702,375 | |||
Charter Communications, Inc. Class A*(b) | 374 | 13,281,722 | |||
Total | 69,984,097 | ||||
Media: Services 0.12% | |||||
Omnicom Group, Inc. | 250 | 9,787,500 | |||
Multi-Line Insurance 0.22% | |||||
MetLife, Inc. | 517 | 18,274,536 | |||
Pharmaceuticals 0.46% | |||||
Celgene Corp.* | 200 | 11,136,000 | |||
Genzyme Corp.* | 125 | 6,126,250 | |||
Gilead Sciences, Inc.* | 150 | 6,492,000 |
See Notes to Financial Statements.
8
Schedule of Investments (continued)
December 31, 2009
Investments | Shares (000) | Value | |||
Pharmaceuticals (continued) | |||||
Merck & Co., Inc. | 237 | $ | 8,642,075 | ||
Pfizer, Inc. | 300 | 5,457,000 | |||
Total | 37,853,325 | ||||
Railroads 0.19% | |||||
Union Pacific Corp. | 250 | 15,975,000 | |||
Software/Services 0.28% | |||||
Adobe Systems, Inc.* | 220 | 8,091,600 | |||
Microsoft Corp. | 250 | 7,622,500 | |||
SAIC, Inc.* | 400 | 7,576,000 | |||
Total | 23,290,100 | ||||
Support: Services 0.11% | |||||
CRA International, Inc.* | 150 | 3,997,500 | |||
FTI Consulting, Inc.* | 100 | 4,716,000 | |||
Total | 8,713,500 | ||||
Telecommunications: Integrated/Services 0.17% | |||||
QUALCOMM, Inc. | 300 | 13,878,000 | |||
Total Common Stocks (cost $382,536,905) | 424,061,940 | ||||
Interest Rate | Maturity Date | Principal Amount (000) | |||||||
CONVERTIBLE BONDS 8.89% | |||||||||
Aerospace/Defense 0.53% | |||||||||
Alliant Techsystems, Inc. | 2.75% | 2/15/2024 | $ | 15,000 | 17,118,750 | ||||
L-3 Communications Holdings, Inc. | 3.00% | 8/1/2035 | 25,000 | 26,375,000 | |||||
Total | 43,493,750 | ||||||||
Automotive 0.29% | |||||||||
Ford Motor Co. | 4.25% | 11/15/2016 | 19,000 | 23,916,250 | |||||
Beverages 0.08% | |||||||||
Central European Distribution Corp. (Poland)(c) | 3.00% | 3/15/2013 | 8,050 | 6,872,688 | |||||
Computer Hardware 0.68% | |||||||||
Intel Corp. | 2.95% | 12/15/2035 | 20,000 | 19,400,000 | |||||
NetApp, Inc. | 1.75% | 6/1/2013 | 5,750 | 7,158,750 |
See Notes to Financial Statements.
9
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Computer Hardware (continued) | ||||||||||
SanDisk Corp. | 1.00% | 5/15/2013 | $ | 34,450 | $ | 28,894,937 | ||||
Total | 55,453,687 | |||||||||
Diversified Capital Goods 0.13% | ||||||||||
Ingersoll-Rand Co., Ltd. | 4.50% | 4/15/2012 | 5,000 | 10,287,500 | ||||||
Electronics 0.57% | ||||||||||
FLIR Systems, Inc. | 3.00% | 6/1/2023 | 1,365 | 4,052,344 | ||||||
Itron, Inc. | 2.50% | 8/1/2026 | 17,500 | 21,918,750 | ||||||
Millipore Corp. | 3.75% | 6/1/2026 | 20,000 | 20,725,000 | ||||||
Total | 46,696,094 | |||||||||
Health Services 0.48% | ||||||||||
Fisher Scientific International, Inc. | 3.25% | 3/1/2024 | 10,000 | 13,325,000 | ||||||
Life Technologies Corp. | 1.50% | 2/15/2024 | 20,000 | 23,200,000 | ||||||
Medtronic, Inc. | 1.50% | 4/15/2011 | 3,000 | 3,060,000 | ||||||
Total | 39,585,000 | |||||||||
Hotels 0.18% | ||||||||||
Gaylord Entertainment Co.† | 3.75% | 10/1/2014 | 5,200 | 5,323,500 | ||||||
Host Hotels & Resorts LP† | 2.625% | 4/15/2027 | 10,000 | 9,425,000 | ||||||
Total | 14,748,500 | |||||||||
Integrated Energy 0.14% | ||||||||||
SunPower Corp. | 4.75% | 4/15/2014 | 10,000 | 11,437,500 | ||||||
Investments & Miscellaneous Financial Services 0.06% | ||||||||||
Jefferies Group, Inc. | 3.875% | 11/1/2029 | 5,000 | 4,962,500 | ||||||
Media: Broadcast 0.23% | ||||||||||
Sinclair Broadcast Group, Inc. | 6.00% | 9/15/2012 | 22,545 | 18,796,894 | ||||||
Media: Cable 0.41% | ||||||||||
Virgin Media, Inc.† | 6.50% | 11/15/2016 | 28,000 | 33,320,000 | ||||||
Media: Diversified 0.33% | ||||||||||
Liberty Media LLC (convertible into Viacom, Inc., Class B and CBS Corp.) | 3.25% | 3/15/2031 | 45,000 | 27,000,000 | ||||||
See Notes to Financial Statements.
10
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Metals/Mining (Excluding Steel) 0.38% | ||||||||||
Newmont Mining Corp. | 1.25% | 7/15/2014 | $ | 20,000 | $ | 25,050,000 | ||||
Newmont Mining Corp. | 3.00% | 2/15/2012 | 5,000 | 6,325,000 | ||||||
Total | 31,375,000 | |||||||||
Oil Field Equipment & Services 0.11% | ||||||||||
Hanover Compressor Co. | 4.75% | 1/15/2014 | 10,000 | 9,025,000 | ||||||
Pharmaceuticals 0.82% | ||||||||||
Gilead Sciences, Inc. | 0.625% | 5/1/2013 | 21,000 | 26,013,750 | ||||||
Teva Pharmaceutical Finance Co. BV (Israel)(c) | 1.75% | 2/1/2026 | 33,100 | 40,961,250 | ||||||
Total | 66,975,000 | |||||||||
Printing & Publishing 0.08% | ||||||||||
Omnicom Group, Inc. | Zero Coupon | 7/1/2038 | 7,000 | 6,912,500 | ||||||
Real Estate Development & Management 0.23% | ||||||||||
ProLogis | 2.25% | 4/1/2037 | 20,000 | 18,650,000 | ||||||
Software/Services 1.35% | ||||||||||
Blackboard, Inc. | 3.25% | 7/1/2027 | 15,000 | 15,506,250 | ||||||
Cadence Design Systems, Inc. | 1.375% | 12/15/2011 | 10,000 | 9,362,500 | ||||||
EMC Corp. | 1.75% | 12/1/2011 | 22,000 | 26,840,000 | ||||||
Equinix, Inc. | 2.50% | 4/15/2012 | 12,000 | 13,290,000 | ||||||
Sybase, Inc.† | 3.50% | 8/15/2029 | 15,000 | 17,850,000 | ||||||
Symantec Corp. | 0.75% | 6/15/2011 | 26,000 | 28,405,000 | ||||||
Total | 111,253,750 | |||||||||
Support: Services 0.18% | ||||||||||
CRA International, Inc. | 2.875% | 6/15/2034 | 15,000 | 14,793,750 | ||||||
Telecommunications Equipment 1.12% | ||||||||||
Ciena Corp. | 0.25% | 5/1/2013 | 43,500 | 33,060,000 | ||||||
General Cable Corp. (2.25% after 11/15/19)~ | 4.50% | 11/15/2029 | 32,375 | 33,467,656 | ||||||
JDS Uniphase Corp. | 1.00% | 5/15/2026 | 30,000 | 25,800,000 | ||||||
Total | 92,327,656 | |||||||||
Telecommunications: Wireless 0.51% | ||||||||||
SBA Communications Corp.† | 4.00% | 10/1/2014 | 32,000 | 42,160,000 | ||||||
Total Convertible Bonds (cost $673,351,096) | 730,043,019 | |||||||||
See Notes to Financial Statements.
11
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Shares (000) | Value | ||||
CONVERTIBLE PREFERRED STOCKS 3.52% | |||||||
Agency/Government Related 0.01% | |||||||
Fannie Mae | 8.75% | 450 | $ | 801,000 | |||
Banking 0.90% | |||||||
Bank of America Corp. | 7.25% | 43 | 37,357,500 | ||||
Wells Fargo & Co. | 7.50% | 40 | 36,720,000 | ||||
Total | 74,077,500 | ||||||
Food: Wholesale 0.46% | |||||||
Archer Daniels Midland Co. | 6.25% | 500 | 21,805,000 | ||||
Bunge Ltd. | 4.875% | 180 | 16,110,000 | ||||
Total | 37,915,000 | ||||||
Gas Distribution 0.61% | |||||||
El Paso Corp. | 4.99% | 23 | 20,430,400 | ||||
Williams Cos., Inc. (The) | 5.50% | 300 | 29,362,500 | ||||
Total | 49,792,900 | ||||||
Investments & Miscellaneous Financial Services 0.50% | |||||||
AMG Capital Trust I | 5.10% | 450 | 18,000,000 | ||||
Citigroup, Inc. | 7.50% | 220 | 22,954,800 | ||||
Total | 40,954,800 | ||||||
Metals/Mining (Excluding Steel) 0.40% | |||||||
Freeport-McMoRan Copper & Gold, Inc. | 6.75% | 150 | 17,280,000 | ||||
Vale Capital Ltd. (Brazil)(c) | 5.50% | 283 | 15,240,875 | ||||
Total | 32,520,875 | ||||||
Oil Refining & Marketing 0.13% | |||||||
Whiting Petroleum Corp. | 6.25% | 60 | 10,779,600 | ||||
Pharmaceuticals 0.51% | |||||||
Mylan, Inc. | 6.50% | 37 | 42,143,000 | ||||
Total Convertible Preferred Stocks (cost $285,645,137) | 288,984,675 | ||||||
See Notes to Financial Statements.
12
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
FLOATING RATE LOANS(d) 2.47% | ||||||||||
Aerospace/Defense 0.11% | ||||||||||
Hawker Beechcraft Acquistion Co. LLC Letter of Credit | 2.251% | 3/26/2014 | $ | 646 | $ | 485,927 | ||||
Hawker Beechcraft Corp. Term Loan | 2.231% - 2.251% | 3/26/2014 | 10,885 | 8,191,117 | ||||||
Total | 8,677,044 | |||||||||
Automotive 0.13% | ||||||||||
Ford Motor Co. Term Loan | 3.24% - 3.29% | 12/16/2013 | 11,908 | 11,064,680 | ||||||
Electric: Generation 0.19% | ||||||||||
Texas Competitive Electric Holdings Co. LLC Term Loan B2 | 3.735% - 3.751% | 10/10/2014 | 19,648 | 16,050,157 | ||||||
Electronics 0.18% | ||||||||||
Palm, Inc. Term Loan | 3.76% | 10/24/2014 | 16,971 | 14,743,643 | ||||||
Health Services 0.48% | ||||||||||
Biomet, Inc. Term Loan B | 3.231% - 3.251% | 3/25/2015 | 5,608 | 5,375,208 | ||||||
Community Health Systems, Inc. Delayed Draw Term Loan | 2.506% | 7/25/2014 | 477 | 450,547 | ||||||
Community Health Systems, Inc. Term Loan | 2.506% | 7/25/2014 | 9,325 | 8,814,900 | ||||||
HCA, Inc. Term Loan B | 2.501% | 11/18/2013 | 26,136 | 25,015,842 | ||||||
Total | 39,656,497 | |||||||||
Investments & Miscellaneous Financial Services 0.54% | ||||||||||
Nuveen Investments, Inc. 2nd Lien Term Loan | 12.50% | 7/31/2015 | 13,800 | 14,438,250 | ||||||
Nuveen Investments, Inc. Term Loan B | 3.281% - 3.282% | 11/13/2014 | 24,956 | 21,942,469 | ||||||
USI Holdings Corp. Incremental Term Loan | 7.00% | 5/5/2014 | 8,000 | 7,760,000 | ||||||
Total | 44,140,719 | |||||||||
Machinery 0.12% | ||||||||||
Baldor Electric Co. Term Loan B | 5.25% | 1/31/2014 | 9,648 | 9,655,722 | ||||||
Media: Diversified 0.09% | ||||||||||
FoxCo Acquisition Sub LLC Term Loan | 7.50% | 7/14/2015 | 8,155 | 7,706,232 | ||||||
See Notes to Financial Statements.
13
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Non-Food & Drug Retailers 0.12% | ||||||||||
Neiman-Marcus Group, Inc. (The) Term Loan B | 2.255% | 4/6/2013 | $ | 10,681 | $ | 9,712,031 | ||||
Pharmaceuticals 0.40% | ||||||||||
Mylan, Inc. Term Loan B | 3.50% - 3.563% | 10/2/2014 | 33,209 | 32,530,488 | ||||||
Retail 0.11% | ||||||||||
Michaels Stores, Inc. Term Loan B1 | 2.563% | 10/31/2013 | 4,252 | 3,853,399 | ||||||
Michaels Stores, Inc. Term Loan B2 | 4.813% | 7/31/2016 | 5,722 | 5,402,432 | ||||||
Total | 9,255,831 | |||||||||
Total Floating Rate Loans (cost $197,487,377) | 203,193,044 | |||||||||
FOREIGN BOND(e) 0.14% | ||||||||||
Luxembourg | ||||||||||
Huntsman International LLC (cost $10,315,515) | 7.50% | 1/1/2015 | 8,500 | 11,393,138 | ||||||
FOREIGN GOVERNMENT OBLIGATIONS 0.42% | ||||||||||
Canada | ||||||||||
Government of Canada | 4.00% | 9/1/2010 | 20,000 | 19,564,182 | ||||||
Government of Canada | 5.50% | 6/1/2010 | 15,000 | 14,644,595 | ||||||
Total Foreign Government Obligations (cost $34,856,880) | 34,208,777 | |||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGH 0.27% | ||||||||||
Federal National Mortgage Assoc.(f) (cost $22,792,106) | 4.50% | 2/1/2039 | 22,474 | 22,464,311 | ||||||
HIGH YIELD CORPORATE BONDS 77.46% | ||||||||||
Aerospace/Defense 1.00% | ||||||||||
Esterline Technologies Corp. | 6.625% | 3/1/2017 | 8,000 | 7,840,000 | ||||||
Esterline Technologies Corp. | 7.75% | 6/15/2013 | 16,000 | 16,420,000 | ||||||
L-3 Communications Corp. | 6.125% | 1/15/2014 | 15,000 | 15,168,750 | ||||||
L-3 Communications Corp. | 6.375% | 10/15/2015 | 18,000 | 18,157,500 | ||||||
Moog, Inc. | 6.25% | 1/15/2015 | 10,750 | 10,225,938 | ||||||
Spirit AeroSystems, Inc.† | 7.50% | 10/1/2017 | 3,750 | 3,712,500 | ||||||
Triumph Group, Inc.† | 8.00% | 11/15/2017 | 10,820 | 10,968,775 | ||||||
Total | 82,493,463 | |||||||||
See Notes to Financial Statements.
14
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Airlines 0.06% | |||||||||||
Delta Air Lines, Inc.† | 9.50% | 9/15/2014 | $ | 4,400 | $ | 4,592,500 | |||||
Apparel/Textiles 0.67% | |||||||||||
Jones Apparel Group, Inc. | 6.125% | 11/15/2034 | 20,000 | 16,650,000 | |||||||
Levi Strauss & Co. | 8.875% | 4/1/2016 | 22,900 | 24,073,625 | |||||||
Quiksilver, Inc. | 6.875% | 4/15/2015 | 17,000 | 14,025,000 | |||||||
Total | 54,748,625 | ||||||||||
Auto Loans 1.10% | |||||||||||
Ford Motor Credit Co. LLC | 7.25% | 10/25/2011 | 55,000 | 55,567,270 | |||||||
Ford Motor Credit Co. LLC | 8.00% | 6/1/2014 | 25,000 | 25,693,275 | |||||||
Ford Motor Credit Co. LLC | 9.75% | 9/15/2010 | 8,500 | 8,772,187 | |||||||
Total | 90,032,732 | ||||||||||
Auto Parts & Equipment 1.21% | |||||||||||
Cooper-Standard Automotive, Inc.(g) | 8.375% | 12/15/2014 | 20,000 | 5,200,000 | |||||||
Goodyear Tire & Rubber Co. (The) | 10.50% | 5/15/2016 | 15,000 | 16,650,000 | |||||||
Stanadyne Corp. | 10.00% | 8/15/2014 | 10,000 | 9,150,000 | |||||||
Stanadyne Corp. | 12.00% | 2/15/2015 | 15,000 | 10,425,000 | |||||||
Tenneco, Inc. | 8.625% | 11/15/2014 | 20,000 | 20,275,000 | |||||||
TRW Automotive, Inc.† | 7.25% | 3/15/2017 | 25,000 | 24,375,000 | |||||||
TRW Automotive, Inc.† | 8.875% | 12/1/2017 | 12,725 | 13,297,625 | |||||||
Total | 99,372,625 | ||||||||||
Automotive 0.42% | |||||||||||
Ford Motor Co. | 7.45% | 7/16/2031 | 20,375 | 18,108,281 | |||||||
Ford Motor Co. | 9.50% | 9/15/2011 | 7,000 | 7,210,000 | |||||||
Navistar International Corp. | 8.25% | 11/1/2021 | 8,700 | 8,961,000 | |||||||
Total | 34,279,281 | ||||||||||
Banking 3.03% | |||||||||||
American Express Credit Corp. | 7.30% | 8/20/2013 | 12,000 | 13,497,420 | |||||||
Bank of America Corp. | 5.75% | 12/1/2017 | 16,500 | 16,922,994 | |||||||
Bank of America Corp. | 8.00% | – | (h) | 15,000 | 14,462,070 | ||||||
Capital One Capital VI | 8.875% | 5/15/2040 | 16,000 | 17,160,000 | |||||||
Discover Bank | 8.70% | 11/18/2019 | 9,700 | 10,409,507 | |||||||
GMAC, Inc.† | 7.25% | 3/2/2011 | 50,973 | 50,973,000 | |||||||
JPMorgan Chase & Co. | 6.00% | 1/15/2018 | 15,000 | 16,150,725 | |||||||
JPMorgan Chase & Co. | 7.90% | – | (h) | 15,925 | 16,479,731 |
See Notes to Financial Statements.
15
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Banking (continued) | |||||||||||
Regions Financing Trust II | 6.625% | 5/15/2047 | $ | 10,000 | $ | 6,536,990 | |||||
Royal Bank of Scotland Group plc (The) (United Kingdom)(c) | 5.00% | 11/12/2013 | 14,650 | 13,168,109 | |||||||
Royal Bank of Scotland Group plc (The) (United Kingdom)(c) | 6.40% | 10/21/2019 | 7,500 | 7,489,380 | |||||||
USB Capital IX | 6.189% | – | (h) | 13,000 | 10,578,750 | ||||||
Wachovia Capital Trust III | 5.80% | – | (h) | 15,000 | 11,625,000 | ||||||
Wells Fargo & Co. | 5.35% | 5/6/2018 | 20,000 | 19,152,760 | |||||||
Zions Bancorp | 7.75% | 9/23/2014 | 27,000 | 23,850,045 | |||||||
Total | 248,456,481 | ||||||||||
Beverages 0.79% | |||||||||||
Anheuser-Busch InBev Worldwide, Inc.† | 7.75% | 1/15/2019 | 20,000 | 23,455,060 | |||||||
CEDC Finance Corp. International, Inc.† | 9.125% | 12/1/2016 | 15,000 | 15,525,000 | |||||||
Constellation Brands, Inc. | 7.25% | 5/15/2017 | 21,000 | 21,393,750 | |||||||
PepsiCo, Inc. | 7.90% | 11/1/2018 | 3,500 | 4,302,505 | |||||||
Total | 64,676,315 | ||||||||||
Brokerage 0.51% | |||||||||||
Cantor Fitzgerald LP† | 7.875% | 10/15/2019 | 7,450 | 7,303,183 | |||||||
Lazard Group LLC | 7.125% | 5/15/2015 | 12,500 | 12,991,187 | |||||||
Raymond James Financial, Inc. | 8.60% | 8/15/2019 | 20,000 | 21,672,900 | |||||||
Total | 41,967,270 | ||||||||||
Building & Construction 1.02% | |||||||||||
Beazer Homes USA, Inc. | 8.375% | 4/15/2012 | 6,350 | 6,000,750 | |||||||
K. Hovnanian Enterprises, Inc.† | 10.625% | 10/15/2016 | 9,750 | 10,237,500 | |||||||
KB Home | 9.10% | 9/15/2017 | 19,500 | 20,572,500 | |||||||
Lennar Corp. | 12.25% | 6/1/2017 | 17,700 | 21,417,000 | |||||||
Ryland Group, Inc. | 8.40% | 5/15/2017 | 7,500 | 8,062,500 | |||||||
Toll Brothers Finance Corp. | 8.91% | 10/15/2017 | 10,000 | 11,369,790 | |||||||
William Lyon Homes, Inc. | 10.75% | 4/1/2013 | 8,375 | 5,946,250 | |||||||
Total | 83,606,290 | ||||||||||
Building Materials 0.32% | |||||||||||
Cemex Finance LLC† | 9.50% | 12/14/2016 | 4,825 | 5,078,313 | |||||||
Holcim US Finance SARL & Cie SCS (Luxembourg)†(c) | 6.00% | 12/30/2019 | 4,000 | 4,171,384 | |||||||
Owens Corning, Inc. | 9.00% | 6/15/2019 | 15,000 | 16,754,850 | |||||||
Total | 26,004,547 | ||||||||||
See Notes to Financial Statements.
16
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Chemicals 2.52% | ||||||||||
Airgas, Inc.† | 7.125% | 10/1/2018 | $ | 7,000 | $ | 7,315,000 | ||||
Ashland, Inc.† | 9.125% | 6/1/2017 | 15,000 | 16,500,000 | ||||||
Dow Chemical Co. (The) | 8.55% | 5/15/2019 | 40,000 | 47,805,720 | ||||||
Equistar Chemicals LP(g) | 7.55% | 2/15/2026 | 26,000 | 18,590,000 | ||||||
INEOS Group Holdings plc (United Kingdom)†(c) | 8.50% | 2/15/2016 | 30,000 | 20,325,000 | ||||||
INVISTA† | 9.25% | 5/1/2012 | 25,000 | 25,500,000 | ||||||
Koppers, Inc.† | 7.875% | 12/1/2019 | 2,300 | 2,334,500 | ||||||
Nalco Co.† | 8.25% | 5/15/2017 | 15,000 | 16,012,500 | ||||||
Nalco Co. | 8.875% | 11/15/2013 | 10,425 | 10,789,875 | ||||||
Potash Corp. of Saskatchewan, Inc. (Canada)(c) | 4.875% | 3/30/2020 | 9,750 | 9,638,733 | ||||||
Rockwood Specialties Group, Inc. | 7.50% | 11/15/2014 | 18,250 | 18,523,750 | ||||||
Terra Capital, Inc.† | 7.75% | 11/1/2019 | 12,425 | 13,356,875 | ||||||
Total | 206,691,953 | |||||||||
Consumer Products 0.30% | ||||||||||
Elizabeth Arden, Inc. | 7.75% | 1/15/2014 | 25,000 | 24,750,000 | ||||||
Consumer/Commercial/Lease Financing 0.10% | ||||||||||
International Lease Finance Corp. | 6.375% | �� | 3/25/2013 | 10,250 | 8,433,136 | |||||
Diversified Capital Goods 2.42% | ||||||||||
Actuant Corp. | 6.875% | 6/15/2017 | 23,000 | 21,993,750 | ||||||
Belden, Inc. | 7.00% | 3/15/2017 | 12,500 | 12,234,375 | ||||||
Belden, Inc.† | 9.25% | 6/15/2019 | 10,000 | 10,612,500 | ||||||
Eaton Corp. | 6.95% | 3/20/2019 | 15,000 | 17,129,550 | ||||||
Emerson Electric Co. | 5.25% | 10/15/2018 | 10,000 | 10,526,960 | ||||||
Ingersoll-Rand Global Holding Co., Ltd. | 9.50% | 4/15/2014 | 25,800 | 30,857,135 | ||||||
Mueller Water Products, Inc. | 7.375% | 6/1/2017 | 23,500 | 21,855,000 | ||||||
Park-Ohio Industries, Inc. | 8.375% | 11/15/2014 | 11,850 | 9,154,125 | ||||||
RBS Global & Rexnord Corp. | 8.875% | 9/1/2016 | 15,000 | 13,125,000 | ||||||
RBS Global & Rexnord Corp. | 9.50% | 8/1/2014 | 29,500 | 29,721,250 | ||||||
Sensus USA, Inc. | 8.625% | 12/15/2013 | 21,000 | 21,551,250 | ||||||
Total | 198,760,895 | |||||||||
Electric: Generation 3.56% | ||||||||||
Dynegy Holdings, Inc. | 7.75% | 6/1/2019 | 22,500 | 19,631,250 | ||||||
Dynegy Holdings, Inc. | 8.375% | 5/1/2016 | 40,000 | 38,200,000 | ||||||
Edison Mission Energy | 7.00% | 5/15/2017 | 53,275 | 42,353,625 | ||||||
Edison Mission Energy | 7.75% | 6/15/2016 | 51,000 | 43,605,000 |
See Notes to Financial Statements.
17
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Electric: Generation (continued) | |||||||||||
Mirant Americas Generation LLC | 9.125% | 5/1/2031 | $ | 34,250 | $ | 30,996,250 | |||||
Mirant North America LLC | 7.375% | 12/31/2013 | 14,000 | 13,912,500 | |||||||
NRG Energy, Inc. | 7.25% | 2/1/2014 | 21,500 | 21,822,500 | |||||||
NRG Energy, Inc. | 7.375% | 2/1/2016 | 8,300 | 8,331,125 | |||||||
NRG Energy, Inc. | 7.375% | 1/15/2017 | 12,025 | 12,085,125 | |||||||
RRI Energy, Inc. | 6.75% | 12/15/2014 | 6,352 | 6,510,800 | |||||||
Texas Competitive Electric Holdings Co. LLC | 10.25% | 11/1/2015 | 67,500 | 55,012,500 | |||||||
Total | 292,460,675 | ||||||||||
Electric: Integrated 1.81% | |||||||||||
AES Corp. (The) | 8.00% | 10/15/2017 | 33,950 | 35,010,937 | |||||||
Black Hills Corp. | 6.50% | 5/15/2013 | 5,000 | 5,233,865 | |||||||
Commonwealth Edison Co. | 5.80% | 3/15/2018 | 7,500 | 7,966,973 | |||||||
E. ON International Finance BV (Netherlands)†(c) | 5.80% | 4/30/2018 | 17,000 | 18,288,294 | |||||||
EDF SA (France)†(c) | 6.50% | 1/26/2019 | 12,000 | 13,494,840 | |||||||
Nevada Power Co. | 5.875% | 1/15/2015 | 10,000 | 10,743,160 | |||||||
Northeast Utilities | 5.65% | 6/1/2013 | 7,750 | 8,023,474 | |||||||
PPL Energy Supply LLC | 6.40% | 11/1/2011 | 12,000 | 12,899,844 | |||||||
PSEG Power LLC† | 5.32% | 9/15/2016 | 20,000 | 20,606,220 | |||||||
Toledo Edison Co. (The) | 7.25% | 5/1/2020 | 14,000 | 16,005,640 | |||||||
Total | 148,273,247 | ||||||||||
Electronics 1.27% | |||||||||||
Advanced Micro Devices, Inc.† | 8.125% | 12/15/2017 | 3,600 | 3,604,500 | |||||||
Agilent Technologies, Inc. | 5.50% | 9/14/2015 | 14,450 | 15,165,000 | |||||||
Amphenol Corp. | 4.75% | 11/15/2014 | 5,000 | 5,007,130 | |||||||
Analog Devices, Inc. | 5.00% | 7/1/2014 | 9,700 | 10,129,108 | |||||||
Freescale Semiconductor, Inc. | 8.875% | 12/15/2014 | 37,900 | 34,962,750 | |||||||
KLA-Tencor Corp. | 6.90% | 5/1/2018 | 12,850 | 13,541,433 | |||||||
NXP BV LLC (Netherlands)(c) | 9.50% | 10/15/2015 | 13,000 | 11,147,500 | |||||||
NXP BV LLC (Netherlands)(c) | 3.034% | # | 10/15/2013 | 12,500 | 10,421,875 | ||||||
Total | 103,979,296 | ||||||||||
Energy: Exploration & Production 4.18% | |||||||||||
Anadarko Petroleum Corp. | 7.625% | 3/15/2014 | 10,000 | 11,524,970 | |||||||
Chesapeake Energy Corp. | 6.25% | 1/15/2018 | 35,675 | 34,426,375 | |||||||
Chesapeake Energy Corp. | 7.00% | 8/15/2014 | 40,000 | 40,700,000 | |||||||
Cimarex Energy Co. | 7.125% | 5/1/2017 | 25,000 | 25,375,000 |
See Notes to Financial Statements.
18
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Energy: Exploration & Production (continued) | ||||||||||
Concho Resources, Inc. | 8.625% | 10/1/2017 | $ | 5,400 | $ | 5,697,000 | ||||
Continental Resources, Inc.† | 8.25% | 10/1/2019 | 16,975 | 17,908,625 | ||||||
Forest Oil Corp. | 7.25% | 6/15/2019 | 30,700 | 30,469,750 | ||||||
Forest Oil Corp.† | 8.50% | 2/15/2014 | 9,825 | 10,316,250 | ||||||
Hercules Offshore, Inc.† | 10.50% | 10/15/2017 | 13,000 | 13,780,000 | ||||||
KCS Energy Services, Inc. | 7.125% | 4/1/2012 | 25,000 | 25,187,500 | ||||||
Kerr-McGee Corp. | 6.95% | 7/1/2024 | 12,900 | 14,003,040 | ||||||
Newfield Exploration Co. | 7.125% | 5/15/2018 | 16,500 | 16,747,500 | ||||||
Questar Market Resources, Inc. | 6.80% | 3/1/2020 | 10,000 | 10,442,170 | ||||||
Quicksilver Resources, Inc. | 7.125% | 4/1/2016 | 12,325 | 11,554,686 | ||||||
Quicksilver Resources, Inc. | 8.25% | 8/1/2015 | 22,950 | 23,638,500 | ||||||
Range Resources Corp. | 7.25% | 5/1/2018 | 2,600 | 2,665,000 | ||||||
Range Resources Corp. | 7.375% | 7/15/2013 | 20,000 | 20,450,000 | ||||||
Range Resources Corp. | 8.00% | 5/15/2019 | 9,750 | 10,481,250 | ||||||
Ras Laffan Liquefied Natural Gas Co., Ltd. III (Qatar)†(c) | 5.50% | 9/30/2014 | 6,650 | 7,000,083 | ||||||
XTO Energy, Inc. | 5.50% | 6/15/2018 | 10,000 | 10,684,750 | ||||||
Total | 343,052,449 | |||||||||
Environmental 0.90% | ||||||||||
Allied Waste North America, Inc. | 7.125% | 5/15/2016 | 25,000 | 26,659,075 | ||||||
Allied Waste North America, Inc. | 7.25% | 3/15/2015 | 34,500 | 36,091,347 | ||||||
Clean Harbors, Inc. | 7.625% | 8/15/2016 | 11,100 | 11,308,124 | ||||||
Total | 74,058,546 | |||||||||
Food & Drug Retailers 1.39% | ||||||||||
Duane Reade, Inc. | 11.75% | 8/1/2015 | 13,750 | 14,987,500 | ||||||
Ingles Markets, Inc. | 8.875% | 5/15/2017 | 25,850 | 27,013,250 | ||||||
New Albertson’s, Inc. | 7.25% | 5/1/2013 | 2,250 | 2,289,375 | ||||||
Rite Aid Corp. | 9.375% | 12/15/2015 | 16,100 | 14,248,500 | ||||||
Rite Aid Corp.† | 10.25% | 10/15/2019 | 7,650 | 8,109,000 | ||||||
Stater Brothers Holdings, Inc. | 8.125% | 6/15/2012 | 27,000 | 27,405,000 | ||||||
SUPERVALU, INC. | 7.50% | 11/15/2014 | 20,000 | 20,350,000 | ||||||
Total | 114,402,625 | |||||||||
Food: Wholesale 1.06% | ||||||||||
Bumble Bee Foods LLC† | 7.75% | 12/15/2015 | 12,000 | 12,060,000 | ||||||
Bunge NA Finance LP | 5.90% | 4/1/2017 | 9,050 | 8,971,745 | ||||||
Del Monte Corp.† | 7.50% | 10/15/2019 | 6,425 | 6,649,875 |
See Notes to Financial Statements.
19
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Food: Wholesale (continued) | ||||||||||
Dole Food Co., Inc. | 8.75% | 7/15/2013 | $ | 30,000 | $ | 30,900,000 | ||||
Dole Food Co., Inc.† | 13.875% | 3/15/2014 | 5,395 | 6,514,463 | ||||||
M-Foods Holdings, Inc.† | 9.75% | 10/1/2013 | 6,000 | 6,262,500 | ||||||
Mead Johnson Nutrition Co.† | 4.90% | 11/1/2019 | 7,400 | 7,351,175 | ||||||
Pinnacle Foods Finance LLC/Pinnacle Foods Finance Corp.† | 9.25% | 4/1/2015 | 8,250 | 8,415,000 | ||||||
Total | 87,124,758 | |||||||||
Forestry/Paper 2.08% | ||||||||||
Boise Paper Holdings LLC/Boise Finance Co.† | 9.00% | 11/1/2017 | 3,750 | 3,904,687 | ||||||
Cascades, Inc. (Canada)†(c) | 7.75% | 12/15/2017 | 6,300 | 6,394,500 | ||||||
Cascades, Inc. (Canada)†(c) | 7.875% | 1/15/2020 | 3,425 | 3,493,500 | ||||||
Cellu Tissue Holdings, Inc. | 11.50% | 6/1/2014 | 10,000 | 11,150,000 | ||||||
Georgia-Pacific LLC† | 8.25% | 5/1/2016 | 35,000 | 37,275,000 | ||||||
International Paper Co. | 7.95% | 6/15/2018 | 4,000 | 4,620,908 | ||||||
Jefferson Smurfit Corp.(g) | 7.50% | 6/1/2013 | 20,000 | 17,700,000 | ||||||
Jefferson Smurfit Corp.(g) | 8.25% | 10/1/2012 | 17,000 | 15,045,000 | ||||||
PE Paper Escrow GmbH (Austria)†(c) | 12.00% | 8/1/2014 | 5,000 | 5,534,795 | ||||||
Rock-Tenn Co.† | 9.25% | 3/15/2016 | 10,000 | 10,912,500 | ||||||
Smurfit Kappa Funding plc (Ireland)(c) | 7.75% | 4/1/2015 | 18,000 | 17,392,500 | ||||||
Stone Container Corp.(g) | 8.00% | 3/15/2017 | 20,000 | 17,725,000 | ||||||
Stone Container Corp.(g) | 8.375% | 7/1/2012 | 10,000 | 8,900,000 | ||||||
Weyerhaeuser Co. | 7.375% | 10/1/2019 | 10,000 | 10,468,310 | ||||||
Total | 170,516,700 | |||||||||
Gaming 3.46% | ||||||||||
Ameristar Casinos, Inc.† | 9.25% | 6/1/2014 | 11,625 | 12,119,062 | ||||||
Boyd Gaming Corp. | 7.125% | 2/1/2016 | 10,000 | 8,750,000 | ||||||
Downstream Development Authority Quapaw Tribe of Oklahoma† | 12.00% | 10/15/2015 | 15,000 | 12,431,250 | ||||||
Harrah’s Operating Co., Inc.† | 11.25% | 6/1/2017 | 20,000 | 21,025,000 | ||||||
Harrah’s Operating Escrow LLC/Harrah’s Escrow Corp.† | 11.25% | 6/1/2017 | 4,500 | 4,730,625 | ||||||
International Game Technology | 7.50% | 6/15/2019 | 17,500 | 18,995,935 | ||||||
Isle of Capri Casinos, Inc. | 7.00% | 3/1/2014 | 32,925 | 29,467,875 | ||||||
Las Vegas Sands Corp. | 6.375% | 2/15/2015 | 31,875 | 28,368,750 | ||||||
Mandalay Resort Group | 9.375% | 2/15/2010 | 17,500 | 17,500,000 | ||||||
MGM Mirage | 6.75% | 9/1/2012 | 7,000 | 6,282,500 | ||||||
MGM Mirage† | 10.375% | 5/15/2014 | 2,500 | 2,725,000 |
See Notes to Financial Statements.
20
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Gaming (continued) | ||||||||||
Mohegan Tribal Gaming Authority | 6.125% | 2/15/2013 | $ | 12,742 | $ | 10,273,238 | ||||
Mohegan Tribal Gaming Authority† | 11.50% | 11/1/2017 | 17,000 | 17,425,000 | ||||||
Peninsula Gaming LLC† | 8.375% | 8/15/2015 | 4,600 | 4,611,500 | ||||||
River Rock Entertainment Authority (The) | 9.75% | 11/1/2011 | 17,000 | 16,107,500 | ||||||
Scientific Games Corp. | 6.25% | 12/15/2012 | 10,000 | 9,900,000 | ||||||
Scientific Games International, Inc. | 9.25% | 6/15/2019 | 10,500 | 11,077,500 | ||||||
Seneca Gaming Corp. | 7.25% | 5/1/2012 | 10,000 | 9,800,000 | ||||||
Shingle Springs Tribal Gaming Authority† | 9.375% | 6/15/2015 | 4,000 | 3,060,000 | ||||||
Snoqualmie Entertainment Authority† | 9.125% | 2/1/2015 | 17,725 | 9,482,875 | ||||||
Station Casinos, Inc.(g) | 6.50% | 2/1/2014 | 27,000 | 270,000 | ||||||
Turning Stone Casino Resort† | 9.125% | 9/15/2014 | 10,000 | 9,825,000 | ||||||
Wynn Las Vegas LLC/Capital Corp.† | 7.875% | 11/1/2017 | 20,000 | 20,350,000 | ||||||
Total | 284,578,610 | |||||||||
Gas Distribution 4.06% | ||||||||||
El Paso Corp. | 7.00% | 6/15/2017 | 30,000 | 29,903,760 | ||||||
El Paso Corp. | 7.25% | 6/1/2018 | 14,200 | 14,100,572 | ||||||
El Paso Corp. | 7.75% | 1/15/2032 | 10,000 | 9,506,130 | ||||||
El Paso Corp. | 8.25% | 2/15/2016 | 10,000 | 10,725,000 | ||||||
El Paso Corp. | 12.00% | 12/12/2013 | 4,000 | 4,710,000 | ||||||
Ferrellgas Escrow LLC/Ferrellgas Finance Escrow Corp. | 6.75% | 5/1/2014 | 15,950 | 15,790,500 | ||||||
Ferrellgas Partners LP | 8.75% | 6/15/2012 | 17,625 | 17,933,438 | ||||||
Florida Gas Transmission Co. LLC† | 7.90% | 5/15/2019 | 7,700 | 9,027,726 | ||||||
Inergy LP/Inergy Finance Corp. | 8.25% | 3/1/2016 | 17,750 | 18,105,000 | ||||||
Inergy LP/Inergy Finance Corp. | 8.75% | 3/1/2015 | 4,950 | 5,110,875 | ||||||
MarkWest Energy Partners LP | 6.875% | 11/1/2014 | 23,050 | 22,128,000 | ||||||
MarkWest Energy Partners LP | 6.875% | 11/1/2014 | 10,000 | 9,500,000 | ||||||
MarkWest Energy Partners LP | 8.50% | 7/15/2016 | 3,775 | 3,859,938 | ||||||
MarkWest Energy Partners LP | 8.75% | 4/15/2018 | 6,000 | 6,210,000 | ||||||
National Fuel Gas Co. | 6.50% | 4/15/2018 | 25,400 | 26,415,187 | ||||||
National Fuel Gas Co. | 8.75% | 5/1/2019 | 5,000 | 5,846,065 | ||||||
NiSource Finance Corp. | 10.75% | 3/15/2016 | 2,200 | 2,713,995 | ||||||
NorthernStar Natural Gas, Inc. PIK | 5.00% | 5/15/2014 | 4,229 | 3,488,847 | ||||||
Northwest Pipeline GP | 6.05% | 6/15/2018 | 5,025 | 5,324,927 | ||||||
Northwest Pipeline GP | 7.00% | 6/15/2016 | 12,500 | 14,093,350 | ||||||
Panhandle Eastern Pipeline Co. LP | 7.00% | 6/15/2018 | 7,600 | 8,405,600 | ||||||
Panhandle Eastern Pipeline Co. LP | 8.125% | 6/1/2019 | 23,000 | 26,618,521 |
See Notes to Financial Statements.
21
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Gas Distribution (continued) | ||||||||||
Rockies Express Pipeline LLC† | 6.25% | 7/15/2013 | $ | 6,000 | $ | 6,560,730 | ||||
Williams Cos., Inc. (The) | 7.875% | 9/1/2021 | 32,500 | 37,351,600 | ||||||
Williams Partners LP | 7.25% | 2/1/2017 | 20,000 | 20,231,500 | ||||||
Total | 333,661,261 | |||||||||
Health Services 5.09% | ||||||||||
Apria Healthcare Group, Inc.† | 11.25% | 11/1/2014 | 10,250 | 11,300,625 | ||||||
Bausch & Lomb, Inc. | 9.875% | 11/1/2015 | 30,000 | 31,800,000 | ||||||
Bio-Rad Laboratories, Inc. | 6.125% | 12/15/2014 | 16,325 | 16,406,625 | ||||||
Bio-Rad Laboratories, Inc.† | 8.00% | 9/15/2016 | 12,500 | 13,218,750 | ||||||
Biomet, Inc. | 10.00% | 10/15/2017 | 22,000 | 24,007,500 | ||||||
Centene Corp. | 7.25% | 4/1/2014 | 15,000 | 14,925,000 | ||||||
Community Health Systems, Inc. | 8.875% | 7/15/2015 | 35,000 | 36,312,500 | ||||||
DaVita, Inc. | 7.25% | 3/15/2015 | 15,000 | 15,112,500 | ||||||
Hanger Orthopedic Group, Inc. | 10.25% | 6/1/2014 | 12,950 | 13,791,750 | ||||||
HCA, Inc. | 6.375% | 1/15/2015 | 22,500 | 21,346,875 | ||||||
HCA, Inc.† | 7.875% | 2/15/2020 | 10,000 | 10,437,500 | ||||||
HCA, Inc.† | 8.50% | 4/15/2019 | 10,000 | 10,825,000 | ||||||
HCA, Inc. | 9.125% | 11/15/2014 | 33,500 | 35,426,250 | ||||||
HCA, Inc.† | 9.875% | 2/15/2017 | 12,000 | 13,320,000 | ||||||
HealthSouth Corp. | 8.125% | 2/15/2020 | 24,650 | 24,403,500 | ||||||
Omnicare, Inc. | 6.875% | 12/15/2015 | 7,000 | 6,842,500 | ||||||
Select Medical Corp. | 7.625% | 2/1/2015 | 26,140 | 25,486,500 | ||||||
Tenet Healthcare Corp.† | 8.875% | 7/1/2019 | 6,850 | 7,432,250 | ||||||
Tenet Healthcare Corp. | 9.25% | 2/1/2015 | 15,000 | 16,050,000 | ||||||
United Surgical Partners, Inc. | 8.875% | 5/1/2017 | 21,500 | 22,252,500 | ||||||
Vanguard Health Holdings Co. II LLC | 9.00% | 10/1/2014 | 32,000 | 33,320,000 | ||||||
VWR Funding, Inc. PIK | 10.25% | 7/15/2015 | 13,225 | 13,820,125 | ||||||
Total | 417,838,250 | |||||||||
Hotels 1.21% | ||||||||||
FelCor Lodging LP† | 10.00% | 10/1/2014 | 9,950 | 10,086,813 | ||||||
Gaylord Entertainment Co. | 6.75% | 11/15/2014 | 9,600 | 8,976,000 | ||||||
Host Hotels & Resorts LP | 6.375% | 3/15/2015 | 15,000 | 14,775,000 | ||||||
Host Hotels & Resorts LP | 7.00% | 8/15/2012 | 17,000 | 17,361,250 | ||||||
Hyatt Hotels Corp.† | 5.75% | 8/15/2015 | 20,036 | 20,180,019 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 6.25% | 2/15/2013 | 2,026 | 2,099,443 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 6.75% | 5/15/2018 | 6,600 | 6,649,500 |
See Notes to Financial Statements.
22
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Hotels (continued) | ||||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 7.875% | 10/15/2014 | $ | 18,000 | $ | 19,327,500 | ||||
Total | 99,455,525 | |||||||||
Household & Leisure Products 0.50% | ||||||||||
ACCO Brands Corp.† | 10.625% | 3/15/2015 | 3,600 | 3,978,000 | ||||||
Mattel, Inc. | 5.625% | 3/15/2013 | 13,950 | 14,747,731 | ||||||
Whirlpool Corp. | 8.60% | 5/1/2014 | 20,000 | 22,665,880 | ||||||
Total | 41,391,611 | |||||||||
Integrated Energy 0.25% | ||||||||||
Petrobras International Finance Co. (Brazil)(c) | 5.875% | 3/1/2018 | 20,000 | 20,268,200 | ||||||
Investments & Miscellaneous Financial Services 0.34% | ||||||||||
BlackRock, Inc. | 3.50% | 12/10/2014 | 7,700 | 7,611,827 | ||||||
CIT Group, Inc. | 7.00% | 5/1/2017 | 5,026 | 4,385,171 | ||||||
CIT Group, Inc. | 7.00% | 5/1/2016 | 3,590 | 3,177,139 | ||||||
CIT Group, Inc. | 7.00% | 5/1/2013 | 6,000 | 5,640,000 | ||||||
FMR LLC† | 5.35% | 11/15/2021 | 7,400 | 7,077,545 | ||||||
Total | 27,891,682 | |||||||||
Leisure 0.43% | ||||||||||
Speedway Motorsports, Inc. | 8.75% | 6/1/2016 | 15,450 | 16,377,000 | ||||||
Universal City Development Partners Ltd.† | 8.875% | 11/15/2015 | 9,250 | 9,099,688 | ||||||
Universal City Development Partners Ltd.† | 10.875% | 11/15/2016 | 10,000 | 10,075,000 | ||||||
Total | 35,551,688 | |||||||||
Life Insurance 0.61% | ||||||||||
MetLife Capital Trust X† | 9.25% | 4/8/2038 | 18,500 | 21,090,000 | ||||||
MetLife, Inc. | 5.00% | 6/15/2015 | 18,235 | 19,202,020 | ||||||
Prudential Financial, Inc. | 5.10% | 9/20/2014 | 6,525 | 6,810,293 | ||||||
Prudential Financial, Inc. | 5.15% | 1/15/2013 | 2,875 | 3,026,558 | ||||||
Total | 50,128,871 | |||||||||
Local-Authority 0.16% | ||||||||||
New York City Industrial Development Agency† | 11.00% | 3/1/2029 | 12,000 | 13,338,960 | ||||||
Machinery 1.33% | ||||||||||
Altra Holdings, Inc.† | 8.125% | 12/1/2016 | 20,000 | 20,625,000 | ||||||
Baldor Electric Co. | 8.625% | 2/15/2017 | 38,500 | 39,558,750 |
See Notes to Financial Statements.
23
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Machinery (continued) | |||||||||||
Briggs & Stratton Corp. | 8.875% | 3/15/2011 | $ | 10,000 | $ | 10,537,500 | |||||
Gardner Denver, Inc. | 8.00% | 5/1/2013 | 23,450 | 23,098,250 | |||||||
Roper Industries, Inc. | 6.25% | 9/1/2019 | 10,350 | 10,794,532 | |||||||
Roper Industries, Inc. | 6.625% | 8/15/2013 | 4,350 | 4,741,261 | |||||||
Total | 109,355,293 | ||||||||||
Media: Broadcast 1.76% | |||||||||||
Allbritton Communications Co. | 7.75% | 12/15/2012 | 55,250 | 54,628,437 | |||||||
Belo Corp. | 8.00% | 11/15/2016 | 7,650 | 7,898,625 | |||||||
CBS Corp. | 8.875% | 5/15/2019 | 20,000 | 23,966,100 | |||||||
Discovery Communications LLC | 5.625% | 8/15/2019 | 11,150 | 11,534,017 | |||||||
FoxCo Acquisition Sub LLC† | 13.375% | 7/15/2016 | 5,650 | 4,399,938 | |||||||
Grupo Televisa SA (Mexico)(c) | 6.00% | 5/15/2018 | 5,050 | 5,106,757 | |||||||
ION Media Networks, Inc. PIK†(g) | 8.381% | # | 1/15/2013 | 11,064 | 207,441 | ||||||
Lin TV Corp. | 6.50% | 5/15/2013 | 10,075 | 9,772,750 | |||||||
Salem Communications Corp.† | 9.625% | 12/15/2016 | 8,275 | 8,709,438 | |||||||
Sinclair Broadcast Group, Inc. | 8.00% | 3/15/2012 | 4,525 | 4,434,500 | |||||||
Univision Communications, Inc. PIK† | 9.75% | 3/15/2015 | 15,788 | 13,912,734 | |||||||
Total | 144,570,737 | ||||||||||
Media: Cable 1.90% | |||||||||||
CCH II LLC/CCH II Capital Corp.† | 13.50% | 11/30/2016 | 3,667 | 4,299,429 | |||||||
CSC Holdings, Inc.† | 8.625% | 2/15/2019 | 25,000 | 27,031,250 | |||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc. | 6.375% | 6/15/2015 | 25,000 | 26,093,750 | |||||||
DISH DBS Corp. | 7.125% | 2/1/2016 | 26,000 | 26,682,500 | |||||||
Mediacom Broadband LLC | 8.50% | 10/15/2015 | 10,000 | 10,150,000 | |||||||
Mediacom Communications Corp.† | 9.125% | 8/15/2019 | 32,450 | 33,261,250 | |||||||
Virgin Media Finance plc (United Kingdom)(c) | 8.375% | 10/15/2019 | 9,700 | 10,027,375 | |||||||
Virgin Media Finance plc (United Kingdom)(c) | 9.50% | 8/15/2016 | 17,500 | 18,878,125 | |||||||
Total | 156,423,679 | ||||||||||
Media: Services 1.18% | |||||||||||
Affinion Group, Inc. | 10.125% | 10/15/2013 | 6,000 | 6,195,000 | |||||||
Affinion Group, Inc. | 11.50% | 10/15/2015 | 12,200 | 12,840,500 | |||||||
Interpublic Group of Cos., Inc. (The) | 6.25% | 11/15/2014 | 23,000 | 22,195,000 | |||||||
Interpublic Group of Cos., Inc. (The) | 10.00% | 7/15/2017 | 15,000 | 16,725,000 | |||||||
Lamar Media Corp. | 6.625% | 8/15/2015 | 3,500 | 3,377,500 | |||||||
Nielsen Finance LLC/Nielsen Finance Co. | 11.50% | 5/1/2016 | 2,750 | 3,086,875 |
See Notes to Financial Statements.
24
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||||
Media: Services (continued) | ||||||||||||
WMG Acquisition Corp. | 7.375% | 4/15/2014 | $ | 12,000 | $ | 11,655,000 | ||||||
WMG Acquisition Corp.† | 9.50% | 6/15/2016 | 19,600 | 21,094,500 | ||||||||
Total | 97,169,375 | |||||||||||
Metals/Mining (Excluding Steel) 2.61% | ||||||||||||
Aleris International, Inc.(g) | 10.00% | 12/15/2016 | 14,175 | 106,313 | ||||||||
Aleris International, Inc. PIK(g) | 9.00% | 12/15/2014 | 7,500 | 57,900 | ||||||||
Anglo American Capital plc (United Kingdom)†(c) | 9.375% | 4/8/2014 | 10,000 | 12,010,180 | ||||||||
Arch Coal, Inc.† | 8.75% | 8/1/2016 | 6,300 | 6,693,750 | ||||||||
Barrick Gold Corp. (Canada)(c) | 6.95% | 4/1/2019 | 5,250 | 5,921,465 | ||||||||
Foundation PA Coal Co. | 7.25% | 8/1/2014 | 14,000 | 14,245,000 | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 8.25% | 4/1/2015 | 25,000 | 27,279,125 | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 8.375% | 4/1/2017 | 27,500 | 30,153,777 | ||||||||
Murray Energy Corp.† | 10.25% | 10/15/2015 | 10,000 | 10,000,000 | ||||||||
Noranda Aluminum Acquisition Corp. PIK | 5.274% | # | 5/15/2015 | 28,640 | 22,375,259 | |||||||
Peabody Energy Corp. | 5.875% | 4/15/2016 | 15,000 | 14,700,000 | ||||||||
Peabody Energy Corp. | 7.375% | 11/1/2016 | 10,000 | 10,362,500 | ||||||||
Teck Resources Ltd. (Canada)(c) | 9.75% | 5/15/2014 | 10,750 | 12,456,562 | ||||||||
Teck Resources Ltd. (Canada)(c) | 10.75% | 5/15/2019 | 40,000 | 48,000,000 | ||||||||
Total | 214,361,831 | |||||||||||
Mortgage Banks & Thrifts 0.00% | ||||||||||||
Washington Mutual Bank(g) | 6.875% | 6/15/2011 | 22,500 | 225,000 | ||||||||
Multi-Line Insurance 0.84% | ||||||||||||
American International Group, Inc. | 8.25% | 8/15/2018 | 20,000 | 18,805,060 | ||||||||
AXA SA (France)†(c) | 6.379% | – | (h) | 11,225 | 9,092,250 | |||||||
HUB International Holdings, Inc.† | 9.00% | 12/15/2014 | 12,875 | 12,360,000 | ||||||||
Marsh & McLennan Cos., Inc. | 9.25% | 4/15/2019 | 10,000 | 12,153,000 | ||||||||
USI Holdings Corp.† | 4.148% | # | 11/15/2014 | 17,250 | 14,252,813 | |||||||
ZFS Finance (USA) Trust V† | 6.50% | 5/9/2037 | 3,024 | 2,615,760 | ||||||||
Total | 69,278,883 | |||||||||||
Non-Food & Drug Retailers 2.30% | ||||||||||||
Brookstone Co., Inc. | 12.00% | 10/15/2012 | 10,000 | 6,700,000 | ||||||||
J.C. Penney Corp., Inc. | 6.875% | 10/15/2015 | 1,675 | 1,775,500 | ||||||||
J.C. Penney Corp., Inc. | 7.125% | 11/15/2023 | 5,025 | 5,006,156 | ||||||||
J.C. Penney Corp., Inc. | 7.95% | 4/1/2017 | 9,735 | 10,684,163 | ||||||||
Limited Brands, Inc. | 6.90% | 7/15/2017 | 13,116 | 13,165,185 |
See Notes to Financial Statements.
25
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Non-Food & Drug Retailers (continued) | ||||||||||
Limited Brands, Inc. | 7.60% | 7/15/2037 | $ | 7,500 | $ | 6,712,500 | ||||
Limited Brands, Inc.† | 8.50% | 6/15/2019 | 14,700 | 16,059,750 | ||||||
Macy’s Retail Holdings, Inc. | 5.90% | 12/1/2016 | 35,000 | 34,300,000 | ||||||
Macy’s Retail Holdings, Inc. | 6.375% | 3/15/2037 | 12,900 | 10,965,000 | ||||||
Macy’s Retail Holdings, Inc. | 8.875% | 7/15/2015 | 17,125 | 18,965,938 | ||||||
Nordstrom, Inc. | 6.25% | 1/15/2018 | 15,000 | 16,262,835 | ||||||
Toys “R” Us Property Co. I LLC† | 10.75% | 7/15/2017 | 23,575 | 25,932,500 | ||||||
Toys “R” Us Property Co. II LLC† | 8.50% | 12/1/2017 | 12,000 | 12,270,000 | ||||||
Toys “R” Us, Inc. | 7.625% | 8/1/2011 | 10,000 | 10,212,500 | ||||||
Total | 189,012,027 | |||||||||
Oil Field Equipment & Services 1.89% | ||||||||||
Bristow Group, Inc. | 6.125% | 6/15/2013 | 20,150 | 19,998,875 | ||||||
Bristow Group, Inc. | 7.50% | 9/15/2017 | 11,000 | 10,945,000 | ||||||
Cameron International Corp. | 6.375% | 7/15/2018 | 8,850 | 9,454,986 | ||||||
Complete Production Services, Inc. | 8.00% | 12/15/2016 | 20,000 | 19,825,000 | ||||||
Hornbeck Offshore Services, Inc.† | 8.00% | 9/1/2017 | 19,400 | 19,497,000 | ||||||
Hornbeck Offshore Services, Inc. Series B | 6.125% | 12/1/2014 | 8,275 | 7,768,156 | ||||||
Key Energy Services, Inc. | 8.375% | 12/1/2014 | 11,000 | 11,082,500 | ||||||
Nabors Industries, Inc. | 6.15% | 2/15/2018 | 10,000 | 10,409,980 | ||||||
National Oilwell Varco, Inc. | 6.125% | 8/15/2015 | 15,000 | 15,065,625 | ||||||
Pride International, Inc. | 7.375% | 7/15/2014 | 10,875 | 11,282,813 | ||||||
SEACOR Holdings, Inc. | 7.375% | 10/1/2019 | 19,750 | 20,028,238 | ||||||
Total | 155,358,173 | |||||||||
Oil Refining & Marketing 0.28% | ||||||||||
Tesoro Corp. | 6.25% | 11/1/2012 | 5,000 | 5,000,000 | ||||||
Tesoro Corp. | 9.75% | 6/1/2019 | 17,000 | 17,680,000 | ||||||
Total | 22,680,000 | |||||||||
Packaging 2.34% | ||||||||||
Ball Corp. | 6.625% | 3/15/2018 | 16,000 | 15,880,000 | ||||||
Ball Corp. | 7.375% | 9/1/2019 | 15,000 | 15,487,500 | ||||||
Crown Americas LLC/Crown Americas Capital Corp. II† | 7.625% | 5/15/2017 | 15,000 | 15,637,500 | ||||||
Crown Cork & Seal Co., Inc. | 7.375% | 12/15/2026 | 47,770 | 44,545,525 | ||||||
Graham Packaging Co. LP/GPC Capital Corp. I† | 8.25% | 1/1/2017 | 7,400 | 7,344,500 | ||||||
Graphic Packaging International Corp. | 9.50% | 8/15/2013 | 22,975 | 23,836,562 |
See Notes to Financial Statements.
26
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | ||||||
Packaging (continued) | ||||||||||
Owens-Brockway Glass Container, Inc. | 7.375% | 5/15/2016 | $ | 15,000 | $ | 15,562,500 | ||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC† | 7.75% | 10/15/2016 | 11,900 | 12,227,250 | ||||||
Sealed Air Corp.† | 7.875% | 6/15/2017 | 15,000 | 15,999,990 | ||||||
Solo Cup Co. | 8.50% | 2/15/2014 | 15,400 | 15,130,500 | ||||||
Solo Cup Co.† | 10.50% | 11/1/2013 | 1,950 | 2,086,500 | ||||||
Vitro SA de CV (Mexico)(c)(g) | 9.125% | 2/1/2017 | 20,000 | 8,700,000 | ||||||
Total | 192,438,327 | |||||||||
Pharmaceuticals 0.53% | ||||||||||
Axcan Intermediate Holdings, Inc. | 12.75% | 3/1/2016 | 9,500 | 10,663,750 | ||||||
Boston Scientific Corp. | 4.50% | 1/15/2015 | 5,200 | 5,216,422 | ||||||
Novartis Securities Investment Ltd. | 5.125% | 2/10/2019 | 10,000 | 10,524,380 | ||||||
Roche Holdings, Inc.† | 5.00% | 3/1/2014 | 10,000 | 10,708,430 | ||||||
Watson Pharmaceuticals, Inc. | 5.00% | 8/15/2014 | 6,000 | 6,132,132 | ||||||
Total | 43,245,114 | |||||||||
Property & Casualty 0.26% | ||||||||||
Liberty Mutual Group, Inc.† | 10.75% | 6/15/2058 | 20,000 | 21,400,000 | ||||||
Real Estate Investment Trusts 0.29% | ||||||||||
DuPont Fabros Technology LP† | 8.50% | 12/15/2017 | 12,750 | 13,020,938 | ||||||
ProLogis | 5.625% | 11/15/2016 | 12,000 | 11,073,852 | ||||||
Total | 24,094,790 | |||||||||
Restaurants 0.51% | ||||||||||
Denny’s Corp./Denny’s Holdings, Inc. | 10.00% | 10/1/2012 | �� | 17,000 | 17,467,500 | |||||
Wendy’s/Arby’s Restaurants LLC | 10.00% | 7/15/2016 | 22,500 | 24,637,500 | ||||||
Total | 42,105,000 | |||||||||
Software/Services 1.74% | ||||||||||
Ceridian Corp. | 11.25% | 11/15/2015 | 6,750 | 6,471,562 | ||||||
First Data Corp. | 9.875% | 9/24/2015 | 25,000 | 23,437,500 | ||||||
SERENA Software, Inc. | 10.375% | 3/15/2016 | 7,600 | 7,343,500 | ||||||
SunGard Data Systems, Inc. | 9.125% | 8/15/2013 | 27,050 | 27,861,500 | ||||||
SunGard Data Systems, Inc. | 10.25% | 8/15/2015 | 37,725 | 40,365,750 | ||||||
Syniverse Technologies, Inc. | 7.75% | 8/15/2013 | 15,000 | 14,981,250 | ||||||
Unisys Corp.† | 12.75% | 10/15/2014 | 4,994 | 5,793,040 | ||||||
Unisys Corp.† | 14.25% | 9/15/2015 | 4,006 | 4,687,020 |
See Notes to Financial Statements.
27
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Software/Services (continued) | |||||||||||
Vangent, Inc. | 9.625% | 2/15/2015 | $ | 12,500 | $ | 11,828,125 | |||||
Total | 142,769,247 | ||||||||||
Steel Producers/Products 0.61% | |||||||||||
Algoma Acquisition Corp. (Canada)†(c) | 9.875% | 6/15/2015 | 18,700 | 16,011,875 | |||||||
Allegheny Ludlum Corp. | 6.95% | 12/15/2025 | 13,875 | 12,600,165 | |||||||
Allegheny Technologies, Inc. | 9.375% | 6/1/2019 | 10,200 | 11,759,672 | |||||||
Essar Steel Algoma, Inc. (Canada)†(c) | 9.375% | 3/15/2015 | 9,600 | 9,516,000 | |||||||
Total | 49,887,712 | ||||||||||
Support: Services 2.23% | |||||||||||
ARAMARK Corp. | 3.781% | # | 2/1/2015 | 14,150 | 13,018,000 | ||||||
Ashtead Capital, Inc.† | 9.00% | 8/15/2016 | 14,000 | 14,087,500 | |||||||
Corrections Corp. of America | 7.75% | 6/1/2017 | 28,000 | 28,980,000 | |||||||
Expedia, Inc.† | 8.50% | 7/1/2016 | 14,250 | 15,479,063 | |||||||
FTI Consulting, Inc. | 7.75% | 10/1/2016 | 12,075 | 12,286,313 | |||||||
Hertz Corp. (The) | 8.875% | 1/1/2014 | 20,900 | 21,474,750 | |||||||
Iron Mountain, Inc. | 7.75% | 1/15/2015 | 8,600 | 8,686,000 | |||||||
Iron Mountain, Inc. | 8.375% | 8/15/2021 | 11,250 | 11,671,875 | |||||||
JohnsonDiversey, Inc.† | 8.25% | 11/15/2019 | 8,150 | 8,292,625 | |||||||
Rental Service Corp. | 9.50% | 12/1/2014 | 15,250 | 15,345,312 | |||||||
Rental Service Corp.† | 10.00% | 7/15/2017 | 7,350 | 8,029,875 | |||||||
Travelport LLC | 9.875% | 9/1/2014 | 3,760 | 3,901,000 | |||||||
United Rentals (North America), Inc. | 10.875% | 6/15/2016 | 20,000 | 21,850,000 | |||||||
Total | 183,102,313 | ||||||||||
Telecommunications: Fixed Line 0.15% | |||||||||||
Valor Telecommunications Enterprises LLC | 7.75% | 2/15/2015 | 12,000 | 12,368,460 | |||||||
Telecommunications: Integrated/Services 2.98% | |||||||||||
Cincinnati Bell, Inc. | 8.375% | 1/15/2014 | 55,000 | 56,237,500 | |||||||
GeoEye, Inc.† | 9.625% | 10/1/2015 | 20,000 | 20,675,000 | |||||||
Hellas II (Luxembourg)†(c)(g) | 6.034% | # | 1/15/2015 | 15,000 | 525,000 | ||||||
Hughes Network Systems LLC | 9.50% | 4/15/2014 | 11,500 | 11,931,250 | |||||||
Hughes Network Systems LLC | 9.50% | 4/15/2014 | 18,450 | 18,957,375 | |||||||
Intelsat Ltd. | 11.25% | 6/15/2016 | 11,000 | 11,962,500 | |||||||
MasTec, Inc. | 7.625% | 2/1/2017 | 12,500 | 12,078,125 | |||||||
Nordic Telephone Holdings Co. (Denmark)†(c) | 8.875% | 5/1/2016 | 39,000 | 41,437,500 | |||||||
Qwest Communications International, Inc. | 7.25% | 2/15/2011 | 30,000 | 30,300,000 |
See Notes to Financial Statements.
28
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||
Telecommunications: Integrated/Services (continued) | |||||||||||
Qwest Communications International, Inc.† | 8.00% | 10/1/2015 | $ | 9,100 | $ | 9,395,750 | |||||
Telemar Norte Leste SA (Brazil)†(c) | 9.50% | 4/23/2019 | 4,175 | 5,010,000 | |||||||
Windstream Corp. | 7.00% | 3/15/2019 | 28,000 | 26,320,000 | |||||||
Total | 244,830,000 | ||||||||||
Telecommunications: Wireless 3.45% | |||||||||||
CC Holdings GS V LLC/Crown Castle GS III Corp.† | 7.75% | 5/1/2017 | 40,000 | 42,800,000 | |||||||
DigitalGlobe, Inc.† | 10.50% | 5/1/2014 | 33,250 | 35,743,750 | |||||||
Inmarsat Finance plc (United Kingdom)†(c) | 7.375% | 12/1/2017 | 8,625 | 8,862,188 | |||||||
iPCS, Inc. PIK | 3.531% | # | 5/1/2014 | 4,816 | 4,117,389 | ||||||
MetroPCS Wireless, Inc. | 9.25% | 11/1/2014 | 35,000 | 35,612,500 | |||||||
NII Capital Corp.† | 8.875% | 12/15/2019 | 14,750 | 14,436,562 | |||||||
NII Capital Corp.† | 10.00% | 8/15/2016 | 15,840 | 16,671,600 | |||||||
SBA Telecommunications, Inc.† | 8.25% | 8/15/2019 | 10,000 | 10,650,000 | |||||||
Sprint Capital Corp. | 6.90% | 5/1/2019 | 45,000 | 41,625,000 | |||||||
Sprint Nextel Corp. | 8.375% | 8/15/2017 | 25,000 | 25,625,000 | |||||||
ViaSat, Inc.† | 8.875% | 9/15/2016 | 10,400 | 10,764,000 | |||||||
Wind Acquisition Finance SA (Italy)†(c) | 11.75% | 7/15/2017 | 21,625 | 23,733,437 | |||||||
Wind Acquisition Finance SA (Italy)†(c) | 12.00% | 12/1/2015 | 12,000 | 12,900,000 | |||||||
Total | 283,541,426 | ||||||||||
Theaters & Entertainment 0.31% | |||||||||||
AMC Entertainment, Inc. | 8.00% | 3/1/2014 | 8,800 | 8,448,000 | |||||||
Cinemark USA, Inc.† | 8.625% | 6/15/2019 | 11,825 | 12,357,125 | |||||||
Regal Cinemas Corp. | 8.625% | 7/15/2019 | 4,550 | 4,754,750 | |||||||
Total | 25,559,875 | ||||||||||
Transportation (Excluding Air/Rail) 0.14% | |||||||||||
Commercial Barge Line Co.† | 12.50% | 7/15/2017 | 11,125 | 11,625,625 | |||||||
Total High Yield Corporate Bonds (cost $6,238,730,704) | 6,362,241,954 | ||||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITY 0.12% | |||||||||||
Crown Castle Towers LLC 2006-1A AFX† (cost $9,045,159) | 5.245% | 11/15/2036 | 9,810 | 10,104,300 | |||||||
See Notes to Financial Statements.
29
Schedule of Investments (continued)
December 31, 2009
Investments | Interest Rate | Shares (000) | Value | |||||
NON-CONVERTIBLE PREFERRED STOCK 0.01% | ||||||||
Agency/Government Related | ||||||||
Fannie Mae* (cost $12,089,804) | Zero Coupon | 481 | $ | 529,540 | ||||
WARRANT 0.01% | ||||||||
Media: Services | ||||||||
Charter Communications, Inc. (11/30/2014 at $46.86)* (cost $294,273) | 84 | 525,487 | ||||||
Total Long-Term Investments (cost $7,867,144,956) | 8,087,750,185 | |||||||
Principal Amount (000) | ||||||||
SHORT-TERM INVESTMENT 0.45% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2009, Zero Coupon due 1/4/2009 with Fixed Income Clearing Corp. collateralized by $37,540,000 of Federal National Mortgage Assoc. at 1.722% due 5/10/2011; value: $37,821,550; proceeds: $37,077,248 (cost $37,077,248) | $ | 37,077 | 37,077,248 | |||||
Total Investments in Securities 98.92% (cost $7,904,222,204) | 8,124,827,433 | |||||||
Cash and Other Assets in Excess of Liabilities(i) 1.08% | 88,448,944 | |||||||
Net Assets 100.00% | $ | 8,213,276,377 | ||||||
See Notes to Financial Statements.
30
Schedule of Investments (concluded)
December 31, 2009
ADR | American Depositary Receipt. |
ETF | Exchange Traded Fund. |
PIK | Payment-in-kind. |
* | Non-income producing security. |
† | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 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. |
~ | Deferred interest debentures pay the stated rate, after which they pay a predetermined interest rate. |
# | Variable rate security. The interest rate represents the rate at December 31, 2009. |
(a) | Restricted security. The Fund acquired 1,597,250 shares in a private placement on June 11, 2009 for a cost of $29,948,438. The fair value per share on December 31, 2009 is $35.50. |
(b) | Restricted security. The Fund acquired 374,133 shares in a private placement on November 30, 2009 for a cost of $7,716,493. The fair value price per share on December 31, 2009 is $35.50. |
(c) | Foreign security traded in U.S. dollars. |
(d) | Floating Rate Loans in which the Fund invests generally pay interest at rates which are periodically re-determined at a margin above the London Interbank Offered Rate (“LIBOR”) or the prime rate offered by major U.S. banks. The rate shown is the rate(s) in effect at December 31, 2009. |
(e) | Investment in non-U.S. dollar denominated securities. |
(f) | Securities have been fully/partially segregated to cover margin requirements for open futures contracts as of December 31, 2009 (See Note 2(h)). |
(g) | Defaulted security. |
(h) | Security is perpetual in nature and has no stated maturity. |
(i) | Cash and Other Assets in Excess of Liabilities include net unrealized appreciation on open futures contracts, as follows: |
Open Futures Contracts at December 31, 2009:
Type | Expiration | Contracts | Position | Market Value | Unrealized Appreciation | |||||||
U.S. 10 Year-Treasury Note | March 2010 | 1,100 | Short | $ | (126,998,438) | $ | 4,438,855 |
See Notes to Financial Statements.
31
Statement of Assets and Liabilities
December 31, 2009
ASSETS: | ||||
Investments in securities, at value (cost $7,904,222,204) | $ | 8,124,827,433 | ||
Cash | 2,317,189 | |||
Receivables: | ||||
Interest and dividends | 126,040,871 | |||
Capital shares sold | 18,903,445 | |||
Investment securities sold | 13,706,250 | |||
Variation margin | 429,682 | |||
Prepaid expenses and other assets | 289,244 | |||
Total assets | 8,286,514,114 | |||
LIABILITIES: | ||||
Payables: | ||||
Capital shares reacquired | 20,101,092 | |||
Investment securities purchased | 6,456,770 | |||
12b-1 distribution fees | 5,205,110 | |||
Management fee | 3,130,484 | |||
Directors’ fees | 1,105,408 | |||
Fund administration | 278,505 | |||
To affiliates (See Note 3) | 25,819 | |||
Distributions payable | 34,899,747 | |||
Accrued expenses and other liabilities | 2,034,802 | |||
Total liabilities | 73,237,737 | |||
NET ASSETS | $ | 8,213,276,377 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 8,790,254,853 | ||
Distributions in excess of net investment income | (63,511,933 | ) | ||
Accumulated net realized loss on investments, futures contracts and foreign currency related transactions | (738,502,701 | ) | ||
Net unrealized appreciation on investments, futures contracts and translation of assets and liabilities denominated in foreign currencies | 225,036,158 | |||
Net Assets | $ | 8,213,276,377 |
See Notes to Financial Statements.
32
Statement of Assets and Liabilities (concluded)
December 31, 2009
Net assets by class: | |||
Class A Shares | $ | 4,709,960,937 | |
Class B Shares | $ | 717,670,858 | |
Class C Shares | $ | 1,888,177,176 | |
Class F Shares | $ | 435,085,076 | |
Class I Shares | $ | 294,143,698 | |
Class P Shares | $ | 150,001,759 | |
Class R2 Shares | $ | 456,445 | |
Class R3 Shares | $ | 17,780,428 | |
Outstanding shares by class: | |||
Class A Shares (1.14 billion shares of common stock authorized, $.001 par value) | 641,130,325 | ||
Class B Shares (500 million shares of common stock authorized, $.001 par value) | 97,384,556 | ||
Class C Shares (600 million shares of common stock authorized, $.001 par value) | 256,393,133 | ||
Class F Shares (300 million shares of common stock authorized, $.001 par value) | 59,292,560 | ||
Class I Shares (300 million shares of common stock authorized, $.001 par value) | 40,214,321 | ||
Class P Shares (160 million shares of common stock authorized, $.001 par value) | 20,014,217 | ||
Class R2 Shares (300 million shares of common stock authorized, $.001 par value) | 62,142 | ||
Class R3 Shares (300 million shares of common stock authorized, $.001 par value) | 2,423,056 | ||
Net asset value, offering and redemption price per share | |||
Class A Shares-Net asset value | $7.35 | ||
Class A Shares-Maximum offering price | $7.72 | ||
Class B Shares-Net asset value | $7.37 | ||
Class C Shares-Net asset value | $7.36 | ||
Class F Shares-Net asset value | $7.34 | ||
Class I Shares-Net asset value | $7.31 | ||
Class P Shares-Net asset value | $7.49 | ||
Class R2 Shares-Net asset value | $7.35 | ||
Class R3 Shares-Net asset value | $7.34 |
See Notes to Financial Statements.
33
Statement of Operations
For the Year Ended December 31, 2009
Investment income | ||||
Dividends | $ | 25,661,763 | ||
Interest and other | 522,441,461 | |||
Total investment income | 548,103,224 | |||
Expenses: | ||||
Management fee | 31,812,435 | |||
12b-1 distribution plan-Class A | 14,431,818 | |||
12b-1 distribution plan-Class B | 7,044,112 | |||
12b-1 distribution plan-Class C | 15,180,619 | |||
12b-1 distribution plan-Class F | 279,231 | |||
12b-1 distribution plan-Class P | 564,721 | |||
12b-1 distribution plan-Class R2 | 3,019 | |||
12b-1 distribution plan-Class R3 | 53,934 | |||
Shareholder servicing | 8,920,465 | |||
Fund administration | 2,805,550 | |||
Reports to shareholders | 562,981 | |||
Subsidy (See Note 3) | 375,180 | |||
Registration | 339,495 | |||
Directors’ fees | 221,404 | |||
Professional | 124,694 | |||
Custody | 104,302 | |||
Other | 228,019 | |||
Gross expenses | 83,051,979 | |||
Expense reductions (See Note 7) | (15,140 | ) | ||
Net expenses | 83,036,839 | |||
Net investment income | 465,066,385 | |||
Net realized and unrealized gain (loss): | ||||
Net realized loss on investments, futures contracts and foreign currency related transactions | (258,256,792 | ) | ||
Net change in unrealized appreciation/depreciation on investments, futures contracts and translation of assets and liabilities denominated in foreign currencies | 1,931,773,219 | |||
Net realized and unrealized gain | 1,673,516,427 | |||
Net Increase in Net Assets Resulting From Operations | $ | 2,138,582,812 |
See Notes to Financial Statements.
34
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2009 | For the Year Ended December 31, 2008 | ||||||
Operations: | ||||||||
Net investment income | $ | 465,066,385 | $ | 419,613,323 | ||||
Net realized loss on investments, credit default swap agreements, futures contracts and foreign currency related transactions | (258,256,792 | ) | (115,983,108 | ) | ||||
Net change in unrealized appreciation/depreciation on investments, credit default swap agreements, futures contracts and translation of assets and liabilities denominated in foreign currencies | 1,931,773,219 | (1,725,819,765 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 2,138,582,812 | (1,422,189,550 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
Class A | (317,335,074 | ) | (294,255,527 | ) | ||||
Class B | (49,605,957 | ) | (58,353,843 | ) | ||||
Class C | (104,904,428 | ) | (79,422,542 | ) | ||||
Class F | (20,364,092 | ) | (1,065,894 | ) | ||||
Class I | (19,645,945 | ) | (18,721,315 | ) | ||||
Class P | (9,264,735 | ) | (8,229,674 | ) | ||||
Class R2 | (37,136 | ) | (31,103 | ) | ||||
Class R3 | (777,509 | ) | (199,081 | ) | ||||
Total distributions to shareholders | (521,934,876 | ) | (460,278,979 | ) | ||||
Capital share transactions (Net of share conversions) (See Note 11): |
| |||||||
Net proceeds from sales of shares | 2,766,846,679 | 1,230,615,749 | ||||||
Reinvestment of distributions | 374,204,151 | 354,653,059 | ||||||
Cost of shares reacquired | (1,884,665,385 | ) | (1,656,541,163 | ) | ||||
Net increase (decrease) in net assets resulting from capital share transactions | 1,256,385,445 | (71,272,355 | ) | |||||
Net increase (decrease) in net assets | 2,873,033,381 | (1,953,740,884 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 5,340,242,996 | $ | 7,293,983,880 | ||||
End of year | $ | 8,213,276,377 | $ | 5,340,242,996 | ||||
Distributions in excess of net investment income | $ | (63,511,933 | ) | $ | (17,395,383 | ) |
See Notes to Financial Statements.
35
Financial Highlights
Class A Shares | |||||||||||||||
Year Ended 12/31 | |||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of year | $5.86 | $7.92 | $8.02 | $7.80 | $8.20 | ||||||||||
Investment operations: | |||||||||||||||
Net investment income(a) | .45 | .47 | .46 | .43 | .43 | ||||||||||
Net realized and unrealized gain (loss) | 1.55 | (2.01 | ) | (.04 | ) | .31 | (.31 | ) | |||||||
Total from investment operations | 2.00 | (1.54 | ) | .42 | .74 | .12 | |||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.51 | ) | (.52 | ) | (.52 | ) | (.52 | ) | (.52 | ) | |||||
Net asset value, end of year | $7.35 | $5.86 | $7.92 | $8.02 | $7.80 | ||||||||||
Total Return(b) | 35.37 | % | (20.26 | )% | 5.34 | % | 9.87 | % | 1.56 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | 1.00 | % | 1.00 | % | .99 | % | .99 | % | .99 | % | |||||
Expenses, excluding expense reductions | 1.00 | % | 1.00 | % | .99 | % | .99 | % | 1.00 | % | |||||
Net investment income | 6.82 | % | 6.63 | % | 5.73 | % | 5.54 | % | 5.45 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of year (000) | $4,709,961 | $3,316,663 | $4,526,753 | $4,731,545 | $4,815,148 | ||||||||||
Portfolio turnover rate | 41.93 | % | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % |
(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.
36
Financial Highlights (continued)
Class B Shares | |||||||||||||||
Year Ended 12/31 | |||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Per Share Operating Performance |
| ||||||||||||||
Net asset value, beginning of year | $5.87 | $7.93 | $8.03 | $7.80 | $8.20 | ||||||||||
Investment operations: | |||||||||||||||
Net investment income(a) | .41 | .43 | .41 | .38 | .38 | ||||||||||
Net realized and unrealized gain (loss) | 1.55 | (2.02 | ) | (.04 | ) | .32 | (.31 | ) | |||||||
Total from investment operations | 1.96 | (1.59 | ) | .37 | .70 | .07 | |||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.46 | ) | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | |||||
Net asset value, end of year | $7.37 | $5.87 | $7.93 | $8.03 | $7.80 | ||||||||||
Total Return(b) | 34.52 | % | (20.82 | )% | 4.63 | % | 9.26 | % | .88 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | 1.65 | % | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||
Expenses, excluding expense reductions | 1.65 | % | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||
Net investment income | 6.21 | % | 5.95 | % | 5.08 | % | 4.88 | % | 4.80 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of year (000) | $717,671 | $660,920 | $1,061,150 | $1,269,914 | $1,473,891 | ||||||||||
Portfolio turnover rate | 41.93 | % | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % |
(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.
37
Financial Highlights (continued)
Class C Shares | |||||||||||||||
Year Ended 12/31 | |||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Per Share Operating Performance |
| ||||||||||||||
Net asset value, beginning of year | $5.87 | $7.94 | $8.03 | $7.81 | $8.21 | ||||||||||
Investment operations: | |||||||||||||||
Net investment income(a) | .41 | .43 | .41 | .38 | .38 | ||||||||||
Net realized and unrealized gain (loss) | 1.54 | (2.03 | ) | (.03 | ) | .31 | (.31 | ) | |||||||
Total from investment operations | 1.95 | (1.60 | ) | .38 | .69 | .07 | |||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.46 | ) | (.47 | ) | (.47 | ) | (.47 | ) | (.47 | ) | |||||
Net asset value, end of year | $7.36 | $5.87 | $7.94 | $8.03 | $7.81 | ||||||||||
Total Return(b) | 34.44 | % | (20.90 | )% | 4.77 | % | 9.13 | % | .89 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | 1.65 | % | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||
Expenses, excluding expense reductions | 1.65 | % | 1.65 | % | 1.64 | % | 1.64 | % | 1.64 | % | |||||
Net investment income | 6.13 | % | 5.98 | % | 5.08 | % | 4.88 | % | 4.80 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of year (000) | $1,888,177 | $1,018,175 | $1,322,738 | $1,312,440 | $1,423,141 | ||||||||||
Portfolio turnover rate | 41.93 | % | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % |
(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.
38
Financial Highlights (continued)
Class F Shares | |||||||||
Year Ended 12/31 | 9/7/2007(a) to 12/31/2007 | ||||||||
2009 | 2008 | ||||||||
Per Share Operating Performance | |||||||||
Net asset value, beginning of period | $5.85 | $7.92 | $7.92 | ||||||
Investment operations: | |||||||||
Net investment income(b) | – | (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 | .49 | .15 | ||||||
Net realized and unrealized gain (loss) | 1.55 | (2.02 | ) | (.04 | ) | ||||
Total from investment operations | 2.01 | (1.53 | ) | .11 | |||||
Distributions to shareholders from: | |||||||||
Net investment income | (.52 | ) | (.54 | ) | (.14 | ) | |||
Net asset value, end of period | $7.34 | $5.85 | $7.92 | ||||||
Total Return(d) | .38 | %(e)(f) | |||||||
Total Return(d) | 35.81 | % | (20.17 | )% | 1.31 | %(e)(g) | |||
Ratios to Average Net Assets: | |||||||||
Expenses, including expense reductions | .75 | % | .75 | % | .25 | %(e) | |||
Expenses, excluding expense reductions | .75 | % | .75 | % | .25 | %(e) | |||
Net investment income | 6.87 | % | 7.44 | % | 1.87 | %(e) | |||
Supplemental Data: | |||||||||
Net assets, end of period (000) | $435,085 | $35,771 | $10 | ||||||
Portfolio turnover rate | 41.93 | % | 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.
39
Financial Highlights (continued)
Class I Shares | |||||||||||||||
Year Ended 12/31 | |||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of year | $5.83 | $7.90 | $8.00 | $7.78 | $8.18 | ||||||||||
Investment operations: | |||||||||||||||
Net investment income(a) | .47 | .50 | .49 | .46 | .46 | ||||||||||
Net realized and unrealized gain (loss) | 1.54 | (2.02 | ) | (.04 | ) | .31 | (.31 | ) | |||||||
Total from investment operations | 2.01 | (1.52 | ) | .45 | .77 | .15 | |||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.53 | ) | (.55 | ) | (.55 | ) | (.55 | ) | (.55 | ) | |||||
Net asset value, end of year | $7.31 | $5.83 | $7.90 | $8.00 | $7.78 | ||||||||||
Total Return(b) | 35.87 | % | (20.14 | )% | 5.72 | % | 10.29 | % | 1.93 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | .65 | % | .65 | % | .64 | % | .64 | % | .64 | % | |||||
Expenses, excluding expense reductions | .65 | % | .65 | % | .64 | % | .64 | % | .64 | % | |||||
Net investment income | 7.15 | % | 6.98 | % | 6.07 | % | 5.89 | % | 5.80 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of year (000) | $294,144 | $203,843 | $262,929 | $342,363 | $304,725 | ||||||||||
Portfolio turnover rate | 41.93 | % | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % |
(a) | Calculated using average shares outstanding during the year. |
(b) | Total return assumes the reinvestment of all distributions. |
See Notes to Financial Statements.
40
Financial Highlights (continued)
Class P Shares | |||||||||||||||
Year Ended 12/31 | |||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of year | $5.97 | $8.06 | $8.15 | $7.91 | $8.31 | ||||||||||
Investment operations: | |||||||||||||||
Net investment income(a) | .45 | .47 | .46 | .43 | .43 | ||||||||||
Net realized and unrealized gain (loss) | 1.57 | (2.05 | ) | (.04 | ) | .32 | (.32 | ) | |||||||
Total from investment operations | 2.02 | (1.58 | ) | .42 | .75 | .11 | |||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.50 | ) | (.51 | ) | (.51 | ) | (.51 | ) | (.51 | ) | |||||
Net asset value, end of year | $7.49 | $5.97 | $8.06 | $8.15 | $7.91 | ||||||||||
Total Return(b) | 35.47 | % | (20.50 | )% | 5.27 | % | 9.86 | % | 1.45 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | 1.10 | % | 1.10 | % | 1.09 | % | 1.09 | % | 1.09 | % | |||||
Expenses, excluding expense reductions | 1.10 | % | 1.10 | % | 1.09 | % | 1.09 | % | 1.09 | % | |||||
Net investment income | 6.70 | % | 6.55 | % | 5.64 | % | 5.43 | % | 5.35 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of year (000) | $150,002 | $99,134 | $120,343 | $106,734 | $134,592 | ||||||||||
Portfolio turnover rate | 41.93 | % | 29.01 | % | 40.08 | % | 32.40 | % | 46.63 | % |
(a) | Calculated using average shares outstanding during the year. |
(b) | Total return assumes the reinvestment of all distributions. |
See Notes to Financial Statements.
41
Financial Highlights (continued)
Class R2 Shares | |||||||||
Year Ended 12/31 | 9/7/2007(a) to 12/31/2007 | ||||||||
2009 | 2008 | ||||||||
Per Share Operating Performance | |||||||||
Net asset value, beginning of period | $5.86 | $7.92 | $7.92 | ||||||
Investment operations: | |||||||||
Net investment income(b) | – | (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) | .43 | .46 | .14 | ||||||
Net realized and unrealized gain (loss) | 1.55 | (2.02 | ) | (.05 | ) | ||||
Total from investment operations | 1.98 | (1.56 | ) | .09 | |||||
Distributions to shareholders from: | |||||||||
Net investment income | (.49 | ) | (.50 | ) | (.12 | ) | |||
Net asset value, end of period | $7.35 | $5.86 | $7.92 | ||||||
Total Return(d) | .38 | %(e)(f) | |||||||
Total Return(d) | 35.26 | % | (20.61 | )% | 1.18 | %(e)(g) | |||
Ratios to Average Net Assets: | |||||||||
Expenses, including expense reductions | 1.25 | % | 1.24 | % | .39 | %(e) | |||
Expenses, excluding expense reductions | 1.25 | % | 1.24 | % | .39 | %(e) | |||
Net investment income | 6.57 | % | 6.44 | % | 1.72 | %(e) | |||
Supplemental Data: | |||||||||
Net assets, end of period (000) | $456 | $338 | $46 | ||||||
Portfolio turnover rate | 41.93 | % | 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.
42
Financial Highlights (concluded)
Class R3 Shares | |||||||||
Year Ended 12/31 | 9/7/2007(a) to 12/31/2007 | ||||||||
2009 | 2008 | ||||||||
Per Share Operating Performance | |||||||||
Net asset value, beginning of period | $5.85 | $7.92 | $7.92 | ||||||
Investment operations: | |||||||||
Net investment income(b) | – | (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) | .44 | .47 | .14 | ||||||
Net realized and unrealized gain (loss) | 1.55 | (2.03 | ) | (.04 | ) | ||||
Total from investment operations | 1.99 | (1.56 | ) | .10 | |||||
Distributions to shareholders from: | |||||||||
Net investment income | (.50 | ) | (.51 | ) | (.13 | ) | |||
Net asset value, end of period | $7.34 | $5.85 | $7.92 | ||||||
Total Return(d) | .38 | %(e)(f) | |||||||
Total Return(d) | 35.31 | % | (20.52 | )% | 1.21 | %(e)(g) | |||
Ratios to Average Net Assets: | |||||||||
Expenses, including expense reductions | 1.14 | % | 1.15 | % | .35 | %(e) | |||
Expenses, excluding expense reductions | 1.14 | % | 1.15 | % | .35 | %(e) | |||
Net investment income | 6.53 | % | 7.01 | % | 1.77 | %(e) | |||
Supplemental Data: | |||||||||
Net assets, end of period (000) | $17,780 | $5,399 | $14 | ||||||
Portfolio turnover rate | 41.93 | % | 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.
43
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 Class B, C, F, I, P, R2 and R3 shares, although there may be a contingent deferred sales charge (“CDSC”) in certain cases 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 not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted. The Fund’s Class P shares are closed to substantially all new retirement and benefit plans and fee-based programs, with certain exceptions as set forth in the Fund’s prospectus. Effective March 31, 2010, the Fund will no longer offer Class B shares.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) | Investment Valuation–Securities 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 income securities are valued at the mean between the bid and asked prices on the basis of prices supplied by independent pricing services, which reflect broker/dealer supplied valuations and the independent pricing services’ own 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. Floating rate 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. Securities for which market quotations are not readily available are valued at fair value as determined by management and approved in good faith by the Board of Directors. Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates current market value. |
44
Notes to Financial Statements (continued)
(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 as earned. 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, 2006 through December 31, 2009. 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 unrealized appreciation/depreciation on investments, futures contracts 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 of such transactions are included in Net realized loss on investments, futures contracts and foreign currency related transactions on the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms.
(g) | When-Issued, Forward Transactions or To-Be-Announced (“TBA”) Transactions–The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued, forward transactions or 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 |
45
Notes to Financial Statements (continued)
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 custodian 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 NAV. 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. |
(h) | Futures Contracts–The Fund may purchase and sell futures contracts for bona fide hedging purposes including hedging against changes in interest rates and securities prices. At the time of entering into a futures transaction, an investor is required to deposit and maintain a specified amount of cash or eligible securities called “initial margin”. Subsequent payments made or received by a Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates. The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized gain (loss) is recorded equal to the difference between the opening and closing value of the contract. |
(i) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a 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 declined, a Fund may incur a loss upon disposition of the securities. |
(j) | 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 typically 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
46
Notes to Financial Statements (continued)
persons interpositioned between the Fund and the Borrower (“Intermediate Participants”). In the event that the Borrower, selling participant or Intermediate Participants become insolvent or enter 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. As of December 31, 2009, the Fund had no unfunded loan commitments.
(k) | Fair Value Measurements–In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (formerly 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. ASC 820 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 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 risk associated with investing in those securities.
47
Notes to Financial Statements (continued)
The following is a summary of the inputs used as of December 31, 2009 in valuing the Fund’s investments carried at value:
Investment Type* | Level 1 | Level 2 | Level 3 | Total | ||||||||
Common Stocks | $ | 367,359,565 | $ | 56,702,375 | $ | – | $ | 424,061,940 | ||||
Convertible Bonds | – | 730,043,019 | – | 730,043,019 | ||||||||
Convertible Preferred Stocks | 162,938,775 | 126,045,900 | – | 288,984,675 | ||||||||
Floating Rate Loans | – | 203,193,044 | – | 203,193,044 | ||||||||
Foreign Bond | – | 11,393,138 | – | 11,393,138 | ||||||||
Foreign Government Obligations | – | 34,208,777 | – | 34,208,777 | ||||||||
Government Sponsored | ||||||||||||
Enterprises Pass-Through | – | 22,464,311 | – | 22,464,311 | ||||||||
High Yield Corporate Bonds | – | 6,358,753,107 | 3,488,847 | 6,362,241,954 | ||||||||
Non-Agency Commercial | ||||||||||||
Mortgage-Backed Security | – | 10,104,300 | – | 10,104,300 | ||||||||
Non-Convertible Preferred Stock | 529,540 | – | – | 529,540 | ||||||||
Warrant | – | 525,487 | – | 525,487 | ||||||||
Repurchase Agreement | – | 37,077,248 | – | 37,077,248 | ||||||||
Total | $ | 530,827,880 | $ | 7,590,510,706 | $ | 3,488,847 | $ | 8,124,827,433 | ||||
Other Financial Instruments | ||||||||||||
Futures Contracts | ||||||||||||
Assets | $ | 4,438,855 | $ | – | $ | – | $ | 4,438,855 | ||||
Liabilities | – | – | – | – | ||||||||
Total | $ | 4,438,855 | $ | – | $ | – | $ | 4,438,855 |
* | See Schedule of Investments for values in each industry. |
The following is a reconciliation of investment for unobservable inputs (Level 3) that were used in determining fair value:
Investment Type* | Balance as of January 1, 2009 | Accrued discounts/ premiums | Realized gain (loss) | Change in (depreciation) | Net purchase (sales) | Net transfers in or out of Level 3 | Balance as of December 31, 2009 | ||||||||||||||||
High Yield Corporate Bonds | $ | — | $ | (91,021 | ) | $ | — | $ | (1,351,751 | ) | $ | 4,931,619 | $ | — | $ | 3,488,847 |
* | See Schedule of Investments for values in each industry. |
(l) | Disclosures about Derivative Instruments and Hedging Activities–The Fund adopted ASC Topic 815 Derivatives and Hedging (formerly SFAS 161), for the fiscal year ended December 31, 2009. |
The Fund entered into U.S. Treasury futures contracts during the fiscal year ended December 31, 2009 (as described in note 2(h)) to hedge against changes in interest rates. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
As of December 31, 2009, the Fund held futures contracts with interest rate risk exposure with a cumulative unrealized appreciation of $4,438,855, which is included in the Schedule of
48
Notes to Financial Statements (continued)
Investments. Only the current day’s variation margin is included in the Statement of Assets and Liabilities. Amounts of $(3,901,230) and $4,438,855 are included in the Statement of Operations related to futures contracts with interest rate risk exposure under the captions Net realized loss on investments, futures contracts and foreign currency related transactions and Net change in unrealized appreciation/depreciation on investments, futures contracts and translation of assets and liabilities denominated in foreign currencies, respectively. The average number of futures contracts outstanding during this fiscal year ended December 31, 2009 was 373.
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, 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, 2009, 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.
The Fund, along with certain other funds managed by Lord Abbett (collectively, the “Underlying Funds”), has entered into a Servicing Arrangement with Lord Abbett Balanced Strategy Fund and Lord Abbett Diversified Income Strategy Fund of Lord Abbett Investment Trust (each, a “Fund of Funds”), pursuant to which each Underlying Fund pays a portion of the expenses (excluding management fees and distribution and service fees) of each Fund of Funds in proportion to the average daily value of Underlying Fund shares owned by each Fund of Funds. 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.
As of December 31, 2009, the percentages of the Fund’s outstanding shares owned by Lord Abbett Balanced Strategy Fund and Lord Abbett Diversified Income Strategy Fund were 2.17% and .26%, respectively.
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% | — | .25% | .25% | .25% | |||||||
Distribution | .10% | .75% | .75% | .10% | .20% | .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 shares do not have a distribution plan.
49
Notes to Financial Statements (continued)
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, 2009:
Distributor Commissions | Dealers’ Concessions | ||
$3,953,448 | $ | 20,330,795 |
Distributor received CDSCs of $178,802 and $464,915 for Class A and Class C shares, respectively, for the fiscal year ended December 31, 2009.
Two Directors and certain of the Fund’s officers have an interest in Lord Abbett.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS
Prior to May 8, 2009, dividends from net investment income, if any, were declared and paid monthly. Effective May 8, 2009, dividends from net investment income, if any, are declared daily 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 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, 2009 and 2008 was as follows:
Year Ended 12/31/09 | Year Ended 12/31/08 | |||||
Distributions paid from: | ||||||
Ordinary income | $ | 521,934,876 | $ | 460,278,979 | ||
Total distributions paid | $ | 521,934,876 | $ | 460,278,979 |
As of December 31, 2009, the components of accumulated losses on a tax-basis were as follows:
Capital loss carryforwards* | (648,077,731 | ) | ||
Temporary differences | (72,318,886 | ) | ||
Unrealized gains - net | 143,418,141 | |||
Total accumulated losses - net | $ | (576,978,476 | ) |
* | As of the fiscal year ended December 31, 2009, the capital loss carryforwards, along with the related expiration dates, were as follows: |
2010 | 2016 | 2017 | Total | ||||||
$ 303,185,812 | $ | 19,692,828 | $ | 325,199,091 | $ | 648,077,731 |
50
Notes to Financial Statements (continued)
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 $68,046,590 and net ordinary losses of $1,006,360 during fiscal 2009.
As of December 31, 2009, the aggregate unrealized security gains and losses based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 7,981,401,366 | ||
Gross unrealized gain | 503,104,819 | |||
Gross unrealized loss | (359,678,752 | ) | ||
Net unrealized security gain | $ | 143,426,067 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales, premium amortization, and certain securities.
Permanent items identified during the fiscal year ended December 31, 2009 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 | Paid-in Capital | |||||
$10,751,941 | $ | 14,732,901 | $ | (25,484,842 | ) |
The permanent differences are attributable to the tax treatment of premium amortization, certain securities, paydown gains and losses, foreign currency transactions, and the expiration of capital loss carryforwards.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2009 were as follows:
U.S. Government Purchases* | Non-U.S. Government Purchases | U.S. Government Sales* | Non-U.S. Government Sales | ||||||
$196,791,804 | $ | 4,126,166,222 | $ | 103,915,541 | $ | 2,743,099,664 |
* | 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.
51
Notes to Financial Statements (continued)
7. EXPENSE REDUCTIONS
The Fund has entered into arrangements with the Fund’s 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 State Street Bank and Trust Company (“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 4, 2009, the amount available under the Facility remains $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 .125% of the amount available under the Facility to .15%. This amount is included in Other Expenses on the Fund’s Statement of Operations. In connection with the renewal, the Fund paid an upfront commitment fee of .05% on December 4, 2009, which is included in Prepaid expenses and other assets on the Statement of Assets and Liabilities, and is amortized through Other expenses on the Statement of Operations over the annual period. Any borrowings under this Facility will bear interest at current market rates as set forth in the credit agreement. As of December 31, 2009, there were no loans outstanding pursuant to this Facility nor was the Facility utilized at any time during the fiscal year ended December 31, 2009.
9. CUSTODIAN AND ACCOUNTING AGENT
SSB is the Fund’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
10. INVESTMENT RISKS
The Fund is subject to the general risks and considerations associated with investing in debt securities. The value of an investment will change as interest rates fluctuate and in response to market movements. When interest rates rise, the prices of debt securities are likely to decline; when rates fall, such prices tend to rise. Longer-term 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
52
Notes to Financial Statements (continued)
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. In addition, while securities of government sponsored enterprises are guaranteed with respect to the timely payment of interest and principal by the particular enterprise involved, they commonly are not guaranteed by the U.S. Government.
The Fund may invest up to 20% of its net assets in equity securities, which may subject it to the general risks and considerations associated with investing in equity securities. The value of an investment will fluctuate in response to movements in the 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.
The Fund is subject to the risks associated with derivatives, which may be different from and greater than the risks associated with directly investing in securities. Derivatives may be subject to risks such as liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Illiquid securities may lower the Fund’s returns since the Fund may be unable to sell these securities at their desired time or price. Derivatives also may involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value of the underlying asset, rate or index. Whether the Fund’s use of derivatives is successful will depend on, among other things, if Lord Abbett correctly forecasts market movements, changes in foreign exchange and interest rates, and other factors. If Lord Abbett incorrectly forecasts these and other factors, the Fund’s performance could suffer.
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 were as follows:
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||
Class A Shares | Shares | Amount | Shares | Amount | ||||||||||
Shares sold | 214,281,990 | $ | 1,358,874,796 | 109,646,315 | $ | 744,343,221 | ||||||||
Converted from Class B* | 17,486,060 | 110,933,552 | 5,620,079 | 39,042,700 | ||||||||||
Reinvestment of distributions | 38,380,899 | 247,238,214 | 34,387,494 | 244,159,569 | ||||||||||
Shares reacquired | (195,328,196 | ) | (1,266,920,130 | ) | (154,551,810 | ) | (1,073,192,933 | ) | ||||||
Increase (decrease) | 74,820,753 | $ | 450,126,432 | (4,897,922 | ) | $ | (45,647,443 | ) | ||||||
Class B Shares | ||||||||||||||
Shares sold | 19,007,896 | $ | 121,527,142 | 9,546,559 | $ | 66,698,400 | ||||||||
Reinvestment of distributions | 5,237,889 | 33,691,237 | 5,632,063 | 40,157,969 | ||||||||||
Shares reacquired | (22,028,804 | ) | (148,357,424 | ) | (30,703,071 | ) | (214,561,299 | ) | ||||||
Converted to Class A* | (17,437,815 | ) | (110,933,552 | ) | (5,607,787 | ) | (39,042,700 | ) | ||||||
Decrease | (15,220,834 | ) | $ | (104,072,597 | ) | (21,132,236 | ) | $ | (146,747,630 | ) |
53
Notes to Financial Statements (continued)
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||
Class C Shares | ||||||||||||||
Shares sold | 112,179,888 | $ | 714,417,118 | 41,181,380 | $ | 280,863,445 | ||||||||
Reinvestment of distributions | 9,141,107 | 59,462,644 | 6,285,390 | 44,581,210 | ||||||||||
Shares reacquired | (38,373,338 | ) | (255,258,983 | ) | (40,652,545 | ) | (278,733,756 | ) | ||||||
Increase | 82,947,657 | $ | 518,620,779 | 6,814,225 | $ | 46,710,899 | ||||||||
Class F Shares | ||||||||||||||
Shares sold | 68,284,444 | $ | 426,897,613 | 6,645,169 | $ | 45,276,121 | ||||||||
Reinvestment of distributions | 1,213,990 | 8,039,182 | 117,800 | 771,173 | ||||||||||
Shares reacquired | (16,317,491 | ) | (109,578,509 | ) | (652,638 | ) | (4,232,437 | ) | ||||||
Increase | 53,180,943 | $ | 325,358,286 | 6,110,331 | $ | 41,814,857 | ||||||||
Class I Shares | ||||||||||||||
Shares sold | 13,659,103 | $ | 85,936,408 | 7,237,694 | $ | 49,857,855 | ||||||||
Reinvestment of distributions | 2,610,364 | 16,780,060 | 2,389,642 | 16,904,272 | ||||||||||
Shares reacquired | (10,992,939 | ) | (68,143,420 | ) | (7,973,146 | ) | (54,293,156 | ) | ||||||
Increase | 5,276,528 | $ | 34,573,048 | 1,654,190 | $ | 12,468,971 | ||||||||
Class P Shares | ||||||||||||||
Shares sold | 6,993,007 | $ | 46,061,760 | 4,875,884 | $ | 35,656,446 | ||||||||
Reinvestment of distributions | 1,264,807 | 8,315,908 | 1,095,307 | 7,883,180 | ||||||||||
Shares reacquired | (4,861,506 | ) | (32,487,520 | ) | (4,280,967 | ) | (30,336,847 | ) | ||||||
Increase | 3,396,308 | $ | 21,890,148 | 1,690,224 | $ | 13,202,779 | ||||||||
Class R2 Shares | ||||||||||||||
Shares sold | 46,914 | $ | 301,071 | 107,436 | $ | 795,121 | ||||||||
Reinvestment of distributions | 1,288 | 8,338 | 1,036 | 7,286 | ||||||||||
Shares reacquired | (43,718 | ) | (306,362 | ) | (56,651 | ) | (353,824 | ) | ||||||
Increase | 4,484 | $ | 3,047 | 51,821 | $ | 448,583 | ||||||||
Class R3 Shares | ||||||||||||||
Shares sold | 1,960,670 | $ | 12,830,771 | 1,021,770 | $ | 7,125,140 | ||||||||
Reinvestment of distributions | 101,716 | 668,568 | 28,521 | 188,400 | ||||||||||
Shares reacquired | (561,542 | ) | (3,613,037 | ) | (129,866 | ) | (836,911 | ) | ||||||
Increase | 1,500,844 | $ | 9,886,302 | 920,425 | $ | 6,476,629 |
* | 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. |
12. SUBSEQUENT EVENTS
In accordance with the provisions set forth in ASC Topic 855 (formerly SFAS 165), Subsequent Events, adopted by the Fund as of December 31, 2009, management has evaluated subsequent events existing in the Fund’s financial statements through February 25, 2010. Management has determined that there were no material subsequent events that would require recognition or additional disclosure in the Fund’s financial statements through this date.
54
Notes to Financial Statements (concluded)
13. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update 2010-06 “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 provides clarifications to existing disclosures required by ASC 820 as well as amends ASC 820 to require certain new disclosures. ASU 2010-06 is substantially effective for interim and annual reporting periods beginning after December 15, 2009. Management is currently evaluating the impact the adoption of ASU 2010-06 will have on the Fund’s financial statement disclosures.
55
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, 2009, 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 estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian, brokers and agent banks; where replies were not received from brokers and agent banks, 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, 2009, 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, 2010
56
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. 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 14 Lord Abbett-sponsored funds, which consist of 53 portfolios or series.
Name, Address and Year of Birth | Current Position and 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 and Chairman since 1996 | Senior Partner (since 2007), Chief Executive Officer (since 1996) and was formerly Managing Partner (1996 – 2007), joined Lord Abbett in 1972. | N/A | |||
Daria L. Foster Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1954) | Director since 2006 | Managing Partner (since 2007) and was formerly Director of Marketing and Client Service, joined Lord Abbett in 1990. | N/A |
Independent Directors
The following independent or outside Directors (“Independent Directors”) are also directors or trustees of each of the 14 Lord Abbett-sponsored funds, which consist of 53 portfolios or series.
Name, Address and Year of Birth | Current Position and 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). | Currently serves as director of Crane Co. (since 1984), Huttig Building Products Inc. (since 1998) and R.H. Donnelley Inc. (since 2009). |
57
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and 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 | Senior Advisor of Monitor Clipper Partners, a private equity investment fund (since 1997); President of Clipper Asset Management Corp. (1991 – 2009). | N/A | |||
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). | 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). | Currently serves as a director and Chairman of the Board of GMAC Inc., a financial services firm (since 2009) and as a 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). | 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). |
58
Basic Information About Management (continued)
Officers
None of the officers listed below have received compensation from the Fund. All of 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. Unless otherwise indicated, the titles and positions listed under the “Principal Occupation” column indicate the officer’s position(s) and title(s) with Lord Abbett.
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), Chief Executive Officer (since 1996) and was formerly Managing Partner (1996 – 2007), joined Lord Abbett in 1972. | |||
Daria L. Foster (1954) | President | Elected in 2006 | Managing Partner (since 2007) and was formerly Director of Marketing and Client Service, joined Lord Abbett in 1990. | |||
Robert I. Gerber (1954) | Executive Vice President | Elected in 2007 | Partner and Chief Investment Officer (since 2007), joined Lord Abbett in 1997 as Director of Taxable Fixed Income Management. | |||
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. | |||
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. |
59
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 and was formerly a 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 and was formerly an attorney at Morgan, Lewis & Bockius LLP. | |||
Lawrence B. Stoller (1963) | Vice President and Assistant Secretary | Elected in 2007 | Senior Deputy General Counsel, joined Lord Abbett in 2007 and was formerly an Executive Vice President and General Counsel at Cohen & Steers Capital Management, Inc. (1999 – 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.
60
Approval of Advisory Contract
At meetings held on December 16 and 17, 2009, the Board, including all of the Directors who are not interested persons of the Fund or Lord, Abbett & Co. LLC (“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, (2) information on the expense ratios, effective management fee rates, and other expense components, for the Fund and one or more groups of funds with similar objectives and of similar size (the “peer group”), (3) sales and redemption information for the Fund, (4) information regarding Lord Abbett’s financial condition, (5) an analysis of the relative profitability of the management agreement to Lord Abbett, (6) information regarding the distribution arrangements of the Fund, and (7) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
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 had changed 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 first quintile of the performance universe for the nine-month period, in the third quintile for the one-year, three-year, and five-year periods, and in the fourth quintile for the ten-year period. The Board also observed that the investment performance was higher than that of the Lipper Multi-Sector Income Index for the nine-month period and lower than that of the Index for the one-year, three-year, 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 turnover 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
61
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 LLC (“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 group. The Board considered the fiscal periods on which the peer group information was based, and noted that such periods ended before September 30, 2009. The Board noted that the expense levels of the peer group likely would have been different for periods ending September 30, 2009, due to the lower asset levels prevailing in the mutual fund industry during much of 2009. The Board also observed that the Fund’s transfer agency expenses were likely to decrease in 2010, as a result of renegotiation of the transfer agency agreement. It also considered the amount and nature of the fees paid by shareholders. The Board observed that for the nine months ended September 30, 2009 (annualized) the contractual management and administrative services fee rates were approximately two basis points below the median of the peer group and the actual management and administrative services fee rates were approximately six basis points below the median of the peer group. The Board also observed that for the nine months ended September 30, 2009 (annualized) the total expense ratio of Class A was approximately one basis point above the median of the peer group, the total expense ratios of Class B and Class C were approximately seven basis points below the median of the peer group, the total expense ratio of Class I was approximately three basis points below the median of the peer group, the total expense ratio of Class P was approximately fifteen 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.
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 any profits realized by Lord Abbett in connection with the operation of the Fund and whether the amount of profit was fair for the management of the Fund. The Board also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett’s ability to recruit and retain investment personnel. The Board 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 its 2009 fiscal year, 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.
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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 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 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 its 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.
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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 Records
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 Section, Washington, DC 20549-1520; or (iii) sending your request electronically, after paying a duplicating fee, to publicinfo@sec.gov.
Tax Information
3.60% of the ordinary income distributions paid by the Fund during fiscal 2009 is qualified dividend income. For corporate shareholders, only 3.60% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
For foreign shareholders, 95.26% of the ordinary income distributions paid by the Fund during the fiscal year ended December 31, 2009 represents interest-related dividends.
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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-2-1209
(2/10)
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, 2009 (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 is an audit committee financial expert: 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, 2009 and 2008 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: | ||||
2009 | 2008 | |||
Audit Fees {a} | $65,500 | $65,500 | ||
Audit-Related Fees | - 0 - | - 0 - | ||
Total audit and audit-related fees | $65,500 | 65,500 | ||
Tax Fees {b} | 9,542 | 9,379 | ||
All Other Fees | - 0 - | - 0 - | ||
Total Fees | $75,042 | $74,879 | ||
{a} Consists of fees for audits of the Registrant’s annual financial statements.
{b} Fees for the fiscal year ended December 31, 2009 and 2008 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, 2009 and 2008 were:
Fiscal year ended: | ||||
2009 | 2008 | |||
All Other Fees {a} | $161,385 | $155,939 |
{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, 2009 and 2008 were:
Fiscal year ended: | ||||
2009 | 2008 | |||
All Other Fees | $ - 0 - | $ - 0 - |
(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. | ||||||
By: | /s/ Robert S. Dow | |||||
Robert S. Dow | ||||||
Chief Executive Officer and Chairman | ||||||
Date: February 16, 2010 | ||||||
By: | /s/ Joan A. Binstock | |||||
Joan A. Binstock | ||||||
Chief Financial Officer and Vice President | ||||||
Date: February 16, 2010 |
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.
By: | /s/ Robert S. Dow | |||||
Robert S. Dow | ||||||
Chief Executive Officer and Chairman | ||||||
Date: February 16, 2010 | ||||||
By: | /s/ Joan A. Binstock | |||||
Joan A. Binstock | ||||||
Chief Financial Officer and Vice President | ||||||
Date: February 16, 2010 |