<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File Number 811-02145
LORD ABBETT BOND-DEBENTURE FUND, INC.
-------------------------------------
(Exact name of Registrant as specified in charter)
90 Hudson Street, Jersey City, NJ 07302
---------------------------------------
(Address of principal executive offices) (zip code)
Christina T. Simmons, Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
---------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 201-6984
--------------
Date of fiscal year end: 12/31
-----
Date of reporting period: 12/31/2004
----------
<Page>
ITEM 1: REPORT TO SHAREHOLDERS.
<Page>
[LORD ABBETT LOGO]
2004
ANNUAL
REPORT
LORD ABBETT
BOND-DEBENTURE FUND
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
<Page>
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LORD ABBETT BOND-DEBENTURE FUND
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
DEAR SHAREHOLDERS: We are pleased to provide you with this overview of the Lord
Abbett Bond-Debenture Fund's (the Fund) strategies and performance for the
fiscal year ended December 31, 2004. On this and the following pages, we discuss
the major factors that influenced performance.
Thank you for investing in Lord Abbett Mutual Funds. We value the trust
that you place in us and look forward to serving your investment needs in the
years to come.
BEST REGARDS,
/s/ ROBERT S. DOW
ROBERT S. DOW
CHAIRMAN
- --------------------------------------------------------------------------------
Q: WHAT WERE THE OVERALL MARKET CONDITIONS OF THE REPORTING PERIOD?
A: Overall, the U.S. economy showed signs of continued improvement in 2004. In
response, the Federal Reserve Board (the Fed) began in June a series of
increases in the fed funds rate, ultimately raising the short-term rate from
1.0% to 2.25% by year-end. (The fed funds rate is the rate charged by the Fed to
banks needing overnight loans to meet reserve requirements.) Since the Fed's
interest rate moves were widely anticipated, their effects were only felt in the
shortest of bond maturities. On the other hand, long-term rates, which are
generally driven by inflation, actually fell.
Corporate earnings grew stronger in 2004. Improved access to capital allowed
companies to improve balance sheet quality and, consequently, default rates were
low over the period. All of these factors helped to increase investors'
acceptance of below-investment grade issues. Less liquid, riskier securities
improved during the period, as investors accepted credit risk in exchange for
higher yields.
Q: HOW DID THE FUND PERFORM OVER THE FISCAL YEAR ENDED DECEMBER 31, 2004?
A: For the year ended December 31, 2004, the Fund returned 8.56%, reflecting
performance at the Net Asset Value (NAV) of Class A shares with all
distributions reinvested, compared with its benchmark, the Lehman Aggregate Bond
Index,(1) which returned 4.34% over the same period. Standardized Average Annual
Total Returns, which reflect performance at the maximum 4.75% sales charge
applicable to Class A share investments and include the reinvestment of all
distributions as of December 31, 2004 are 1 Year: 3.43%, 5 Years: 5.05% and 10
Years: 7.44%. Class A shares purchased subject to a front-end sales charge have
no contingent deferred sales charge (CDSC). However, certain purchases of Class
A shares made without a front-end sales charge may be subject to a CDSC of 1.0%
if the shares are
1
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redeemed within 12 months of the purchase.
PERFORMANCE DATA QUOTED REFLECT PAST PERFORMANCE AND ARE NO GUARANTEE OF FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT SHARES, ON ANY GIVEN DAY OR WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. YOU CAN OBTAIN PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END BY CALLING LORD ABBETT AT 800-821-5129 OR REFERRING TO OUR
WEBSITE AT www.LordAbbett.com.
Q: WHAT WERE THE MOST SIGNIFICANT FACTORS AFFECTING PERFORMANCE?
A: The Fund's flexible investment strategy allows its investment managers to
adjust allocations among asset classes as market conditions change. The primary
asset classes in which the Fund participates are high-yield bonds and
convertible securities. In addition the Fund must hold 20% of its portfolio in
investment-grade corporate bonds, government bonds and/or agencies.
For the year, the largest contributor to performance was the portfolio's
significant allocation to the high-yield asset class, including high-yield bonds
and convertible securities, as investors' search for yield continued to support
prices in the mid- and lower-credit quality segments of the fixed-income market.
High-yield bonds are also equity-sensitive, tending to improve in price as
economic and business fundamentals strengthen, as was the case for much of the
year. The greatest contributors to performance in the high-yield bond sector
were holdings in the media/cable and steel producers industries. Detracting from
performance in the high-yield market were portfolio positions in wireless
telecommunications, printing/publishing and maritime transportation.
Relative to its benchmark, the Lehman Aggregate Bond Index(1), the Fund's
portfolio was underweight in U.S. Treasury and other government securities in
2004. The underweight position contributed to relative performance as
investment-grade bonds in general underperformed lower-rated credits over the
twelve-month period ended December 31, 2004. In the investment-grade corporate
bond market, the portfolio benefited from select holdings in software services,
lease financing, machinery, chemicals and hotels.
The portfolio's holdings in convertible securities benefited from the
improving equity market, particularly in the fourth quarter of the year. Adding
to performance within this sector were positions in
2
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chemical, investment/financial services, energy (exploration and production),
telecommunications (wireless) and electronics. Select positions in health
services, electronics and computer hardware detracted from performance.
The Fund's flexible investment strategy also permits an allocation to
stocks. Contributing to performance in equities were portfolio holdings in food
and drug retailers, agriculture, chemicals, health services and energy
(exploration and production) industries. Detracting from performance were
holdings in metals/mining, pharmaceuticals and software services.
THE FUND'S PORTFOLIO IS ACTIVELY MANAGED AND, THEREFORE, ITS HOLDINGS AND
WEIGHTINGS OF A PARTICULAR ISSUER OR PARTICULAR SECTOR AS A PERCENTAGE OF
PORTFOLIO ASSETS ARE SUBJECT TO CHANGE. SECTORS MAY INCLUDE MANY INDUSTRIES.
THE PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUND, INCLUDING THE
FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES AND ONGOING EXPENSES, THAT YOU
SHOULD CAREFULLY CONSIDER BEFORE INVESTING. TO OBTAIN A PROSPECTUS ON THIS FUND
OR ANY LORD ABBETT MUTUAL FUND, PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR
LORD ABBETT DISTRIBUTOR LLC AT 800-874-3733 OR VISIT www.LordAbbett.com. READ
THE PROSPECTUS CAREFULLY BEFORE INVESTING.
(1) The Lehman Aggregate Bond Index represents securities that are U.S.
domestic, taxable, non-convertible and dollar denominated. The index covers the
investment-grade, fixed-rate bond market, with index components for government
and corporate securities, mortgage pass-through securities and asset-backed
securities. The index is unmanaged, does not reflect the deduction of fees or
expenses and is not available for direct investment.
IMPORTANT PERFORMANCE AND OTHER INFORMATION
The views of the Fund's management and the portfolio holdings described in this
report are as of December 31, 2004; these views and portfolio holdings may have
changed subsequent to this date and they do not guarantee the future performance
of the markets or the Fund. Information provided in this report should not be
considered a recommendation to purchase or sell securities.
A NOTE ABOUT RISK: See Notes to Financial Statements for a discussion of
investment risks. For a more detailed discussion of the risks associated with
the Fund, please see the Fund's Prospectus.
PERFORMANCE: BECAUSE OF ONGOING MARKET VOLATILITY, FUND PERFORMANCE MAY BE
SUBJECT TO SUBSTANTIAL FLUCTUATION. Except where noted, comparative Fund
performance does not account for the deduction of sales charges and would be
different if sales charges were included. The Fund offers additional classes of
shares with distinct pricing options. For a full description of the differences
in pricing alternatives, please see the Fund's Prospectus.
MUTUAL FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY BANKS, AND ARE SUBJECT TO INVESTMENT RISKS INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
3
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INVESTMENT COMPARISON
Below is a comparison of a $10,000 investment in Class A shares with the same
investment in the Credit Suisse First Boston High Yield Index and the Lehman
Aggregate Bond 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.
[CHART]
<Table>
<Caption>
THE FUND (CLASS A SHARES) THE FUND (CLASS A SHARES) CREDIT SUISSE FIRST LEHMAN AGGREGATE
AT NET ASSET VALUE AT MAXIMUM OFFERING PRICE(1) BOSTON HIGH YIELD INDEX(2) BOND INDEX(2)
12/31/94 $ 10,000 $ 9,525 $ 10,000 $ 10,000
12/31/95 $ 11,750 $ 11,192 $ 11,738 $ 11,847
12/31/96 $ 13,061 $ 12,441 $ 13,196 $ 12,277
12/31/97 $ 14,719 $ 14,020 $ 14,863 $ 13,462
12/31/98 $ 15,419 $ 14,687 $ 14,949 $ 14,632
12/31/99 $ 16,021 $ 15,260 $ 15,439 $ 14,512
12/31/2000 $ 15,883 $ 15,129 $ 14,634 $ 16,199
12/31/2001 $ 16,655 $ 15,864 $ 15,481 $ 17,567
12/31/2002 $ 16,475 $ 15,692 $ 15,962 $ 19,367
12/31/2003 $ 19,816 $ 18,875 $ 20,422 $ 20,161
12/31/2004 $ 21,512 $ 20,491 $ 22,862 $ 21,036
</Table>
AVERAGE ANNUAL TOTAL RETURN AT MAXIMUM APPLICABLE
SALES CHARGE FOR THE PERIODS ENDED DECEMBER 31, 2004
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS
CLASS A(3) 3.43% 5.05% 7.44% --
CLASS B(4) 3.86% 5.25% -- 6.25%
CLASS C(5) 7.86% 5.42% -- 6.37%
CLASS P(6) 8.37% 6.19% -- 5.74%
CLASS Y(7) 8.97% 6.46% -- 5.47%
</Table>
(1) Reflects the deduction of the maximum initial sales charge of 4.75%.
(2) Performance for each unmanaged index does not reflect transaction costs,
management fees or sales charges. The performance of each index is not
necessarily representative of the Fund's performance.
(3) Total return, which is the percentage change in net asset value, after
deduction of the maximum initial sales charge of 4.75% applicable to Class
A shares, with all dividends and distributions reinvested for the periods
shown ended December 31, 2004, is calculated using the SEC-required uniform
method to compute such return.
(4) Class B shares were first offered on August 1, 1996. Performance reflects
the deduction of a CDSC of 4% for 1 year, 1% for 5 years and 0% for the
life of the class.
(5) Class C shares were first offered on July 15, 1996. 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 P shares commenced operations on August 21, 1998. Performance is at
net asset value.
(7) Class Y shares commenced operations on March 27, 1998. Performance is at
net asset value.
4
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EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges on purchase payments (these charges vary among
the share classes); and (2) ongoing costs, including management fees;
distribution and service (12b-1) fees (these charges vary among the share
classes); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period (July 1, 2004 through December 31,
2004).
ACTUAL EXPENSES
For each class of the Fund, the first line of the table on the following
page provides information about actual account values and actual expenses. You
may use the information in this line, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
entitled "Expenses Paid During the Period 7/1/04 - 12/31/04" 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
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Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE PERIOD+
----------- ----------- -----------
7/1/04 -
7/1/04 12/31/04 12/31/04
----------- ----------- -----------
CLASS A
Actual $ 1,000.00 $ 1,073.60 $ 5.26
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,020.06 $ 5.13
CLASS B
Actual $ 1,000.00 $ 1,070.10 $ 8.59
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.84 $ 8.37
CLASS C
Actual $ 1,000.00 $ 1,071.40 $ 8.59
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.84 $ 8.37
CLASS P
Actual $ 1,000.00 $ 1,073.60 $ 5.79
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,019.56 $ 5.64
CLASS Y
Actual $ 1,000.00 $ 1,075.70 $ 3.44
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,021.82 $ 3.35
</Table>
+ For each class of the Fund, expenses are equal to the annualized expense
ratio for such class (1.01% for Class A, 1.65% for Classes B and C, 1.11%
for Class P and .66% for Class Y) multiplied by the average account value
over the period, multiplied by 184/366 (to reflect one-half year period).
- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS PRESENTED BY SECTOR
DECEMBER 31, 2004
<Table>
<Caption>
SECTOR %*
Agency 2.72%
Banking .65%
Basic Industry 7.59%
Capital Goods 8.24%
Consumer Cyclical 5.75%
Consumer Non-Cyclical 8.21%
Energy 6.15%
Finance & Investment 1.45%
Government Guaranteed 1.03%
Insurance .47%
Media 11.16%
Mortgage Backed .22%
Real Estate .06%
Services Cyclical 10.64%
Services Non-Cyclical 6.96%
Short-Term Investments 12.72%
Technology & Electronics 5.40%
Telecommunications 5.36%
Utilities 5.22%
Total 100.00%
</Table>
* Represents percent of total investments.
6
<Page>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 93.57%
ASSET-BACKED SECURITY 0.11%
AIRLINES 0.11%
Continental Airlines Series 1997-1 Class B
(Cost $10,141,060) 7.461% 4/1/2013 $ 12,077 $ 9,691,857
=================
<Caption>
SHARES
(000)
-----------
COMMON STOCKS 7.03%
AEROSPACE/DEFENSE 0.34%
L-3 Communications Holdings Inc. 200 14,647,927
Raytheon Co. 400 15,532,000
-----------------
TOTAL 30,179,927
-----------------
AGRICULTURE 0.19%
Archer-Daniels-Midland Co. 750 16,732,500
-----------------
BANKING 0.29%
Wachovia Corp. 500 26,300,000
-----------------
BEVERAGE 0.28%
Pepsico, Inc. 475 24,795,000
-----------------
CHEMICALS 0.58%
E.I. du Pont de Nemours & CO. 500 24,525,000
Praxair, Inc. 500 22,075,000
Texas Petrochemical, Inc.* 444 5,815,169
-----------------
TOTAL 52,415,169
-----------------
DIVERSIFIED CAPITAL GOODS 0.27%
3M Co. 300 24,621,000
-----------------
ELECTRIC - INTEGRATED 0.36%
Dominion Resources, Inc. 200 13,547,932
Northeast Utilities 1,000 18,850,000
-----------------
TOTAL 32,397,932
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS 0.56%
Emerson Electric Co. 400 $ 28,040,000
Hubbell, Inc. 350 18,305,000
Mentor Graphics Corp.* 250 3,822,500
-----------------
TOTAL 50,167,500
-----------------
ENERGY - EXPLORATION & PRODUCTION 0.53%
Devon Energy Corp. 400 15,568,000
Exxon Mobil Corp. 350 17,941,000
Kerr-McGee Corp. 250 14,447,500
-----------------
TOTAL 47,956,500
-----------------
FOOD - WHOLESALE 0.31%
Conagra Foods, Inc. 200 5,890,000
Kellogg Co. 500 22,330,000
-----------------
TOTAL 28,220,000
-----------------
FORESTRY/PAPER 0.29%
International Paper Co. 375 15,750,000
MeadWestvaco Corp. 300 10,167,000
-----------------
TOTAL 25,917,000
-----------------
INTEGRATED ENERGY 0.29%
ChevronTexaco Corp. 500 26,255,000
-----------------
MACHINERY 0.13%
Parker Hannifin Corp. 150 11,361,000
-----------------
MEDIA - BROADCAST 0.09%
Clear Channel Communications, Inc. 250 8,372,500
-----------------
METALS/MINING EXCLUDING STEEL 0.20%
Alcoa, Inc. 400 12,568,000
Placer Dome, Inc.(a) 300 5,658,000
-----------------
TOTAL 18,226,000
-----------------
MULTI-LINE INSURANCE 0.45%
MetLife, Inc. 450 18,229,500
Prudential Financial, Inc. 400 21,984,000
-----------------
TOTAL 40,213,500
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
NON-ELECTRIC UTILITIES 0.12%
National Fuel Gas Co. 300 $ 8,502,000
Semco Energy, Inc. 489 2,610,090
-----------------
TOTAL 11,112,090
-----------------
PHARMACEUTICALS 0.66%
Amgen, Inc.* 250 16,037,500
Gilead Sciences, Inc.* 426 14,889,330
Merck & Co., Inc. 375 12,052,500
Mylan Laboratories, Inc. 400 7,072,000
Pfizer, Inc. 350 9,411,500
-----------------
TOTAL 59,462,830
-----------------
RAILROADS 0.26%
Union Pacific Corp. 350 23,537,500
-----------------
REAL ESTATE INVESTMENT TRUSTS 0.07%
Healthcare Realty Trust, Inc. 150 6,105,000
-----------------
SOFTWARE/SERVICES 0.31%
BEA Systems, Inc.* 525 4,651,500
EMC Corp.* 525 7,806,750
Sungard Data Systems, Inc.* 550 15,581,500
-----------------
TOTAL 28,039,750
-----------------
SUPPORT - SERVICES 0.08%
Manpower, Inc. 150 7,245,000
-----------------
TELECOM - INTEGRATED/SERVICES 0.14%
Verizon Communications, Inc. 300 12,153,000
-----------------
TELECOM - WIRELESS 0.05%
Nextel Communications, Inc.* 150 4,500,000
-----------------
TELECOMMUNICATIONS EQUIPMENT 0.18%
Avaya, Inc.* 655 11,270,541
Motorola, Inc. 289 4,971,144
-----------------
TOTAL 16,241,685
-----------------
TOTAL COMMON STOCKS (Cost $530,872,537) 632,527,383
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE NOTES & BONDS 9.34%
AEROSPACE/DEFENSE 0.71%
Alliant Techsystems, Inc. 2.75% 2/15/2024 $ 20,000 $ 21,275,000
EDO Corp. 5.25% 4/15/2007 10,000 10,950,000
Lockheed Martin Corp. 2.04%# 8/15/2033 30,000 31,185,600
-----------------
TOTAL 63,410,600
-----------------
BUILDING & CONSTRUCTION 0.13%
Fluor Corp. 1.50% 2/15/2024 10,000 11,450,000
-----------------
CHEMICALS 0.03%
Texas Petrochemical Corp. 7.25% 4/30/2009 1,866 2,889,968
-----------------
COMPUTER HARDWARE 0.28%
ASML Holding N.V.(a) 5.75% 10/15/2006 15,000 17,062,500
Corning, Inc. 3.50% 11/1/2008 7,000 8,531,250
-----------------
TOTAL 25,593,750
-----------------
DIVERSIFIED CAPITAL GOODS 0.35%
Tyco Int'l. Group(a) 2.75% 1/15/2018 20,000 31,800,000
-----------------
ELECTRONICS 0.68%
Artesyn Technologies, Inc. 5.50% 8/15/2010 4,000 6,820,000
Flir Systems, Inc. 3.00% 6/1/2023 6,000 9,780,000
RF Micro Devices, Inc. 1.50% 7/1/2010 22,500 25,762,500
STMicroelectronics N.V.(a)(d) Zero Coupon 7/5/2013 20,000 19,006,300
-----------------
TOTAL 61,368,800
-----------------
ENERGY - EXPLORATION & PRODUCTION 0.06%
Kerr-McGee Corp. 5.25% 2/15/2010 5,000 5,318,750
-----------------
FOOD - WHOLESALE 0.29%
Nestle Holdings, Inc. 3.00% 5/9/2005 23,000 26,174,000
-----------------
GAMING 0.21%
International Game Technology Zero Coupon 1/29/2033 25,000 19,218,750
-----------------
HEALTH SERVICES 1.66%
Advanced Medical Optics, Inc. 2.50% 7/15/2024 12,000 13,110,000
Fisher Scientific Int'l., Inc. 2.50% 10/1/2023 25,000 37,312,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Fisher Scientific Int'l., Inc. 3.25% 3/1/2024 $ 15,000 $ 16,893,750
Invitrogen Corp. 1.50% 2/15/2024 25,000 23,562,500
LifePoint Hospitals, Inc. 4.50% 6/1/2009 35,000 35,131,250
Universal Health Services, Inc. 0.426% 6/23/2020 40,000 23,250,000
-----------------
TOTAL 149,260,000
-----------------
HOUSEHOLD & LEISURE PRODUCTS 0.27%
Costco Cos., Inc. Zero Coupon 8/19/2017 22,000 24,255,000
-----------------
INVESTMENTS & MISC FINANCIAL SERVICES 0.33%
Lehman Brothers Holdings, Inc. 0.25% 6/24/2008 18,000 19,129,500
Lehman Brothers Holdings, Inc. 0.25% 7/7/2011 10,000 10,514,500
-----------------
TOTAL 29,644,000
-----------------
MEDIA - BROADCAST 0.07%
Sinclair Broadcast Group, Inc. 4.875%# 7/15/2018 6,500 6,264,375
-----------------
MEDIA - DIVERSIFIED 1.01%
Liberty Media Corp. Class A 3.25% 3/15/2031 35,000 34,518,750
Mediacom Communications Corp. 5.25% 7/1/2006 8,600 8,514,000
Walt Disney Co. (The) 2.125% 4/15/2023 42,500 47,493,750
-----------------
TOTAL 90,526,500
-----------------
MEDIA - SERVICES 0.37%
Lamar Advertising Co. 2.875% 12/31/2010 30,000 33,262,500
-----------------
OIL FIELD EQUIPMENT & SERVICES 0.34%
Schlumberger Ltd.(a) 1.50% 6/1/2023 27,500 30,250,000
-----------------
PHARMACEUTICALS 1.11%
Amylin Pharmaceuticals, Inc. 2.50% 4/15/2011 15,000 15,525,000
Cephalon, Inc. 2.50% 12/15/2006 10,000 9,850,000
Teva Pharmaceutical Finance II, LLC(a) 0.50% 2/1/2024 10,750 11,005,313
Teva Pharmaceutical Finance B.V.(a) 0.375% 11/15/2022 25,725 37,494,187
Watson Pharmaceutical, Inc. 1.75% 3/15/2023 25,000 25,875,000
-----------------
TOTAL 99,749,500
-----------------
SOFTWARE/SERVICES 1.07%
DST Systems, Inc. 4.125% 8/15/2023 25,000 32,687,500
EMC Corp. 4.50% 4/1/2007 20,000 22,600,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Manugistics Group, Inc. 5.00% 11/1/2007 $ 20,000 $ 18,450,000
Mentor Graphics Corp. 6.875% 6/15/2007 21,000 22,181,250
-----------------
TOTAL 95,918,750
-----------------
TELECOM - WIRELESS 0.11%
Nextel Communications, Inc. 5.25% 1/15/2010 10,000 10,287,500
-----------------
TELECOMMUNICATIONS EQUIPMENT 0.26%
LSI Logic Corp. 4.00% 5/15/2010 25,000 23,593,750
-----------------
TOTAL CONVERTIBLE NOTES & BONDS
(Cost $789,653,801) 840,236,493
=================
<Caption>
SHARES
(000)
-----------
CONVERTIBLE PREFERRED STOCKS 2.49%
AGENCY 0.12%
Federal National Mortgage Assoc. 5.375% -(c) 10,600,000
-----------------
AUTOMOTIVE 0.10%
Ford Motor Co. Capital Trust II 6.50% 175 9,238,250
-----------------
BEVERAGE 0.07%
Constellation Brands, Inc. 5.75% 160 6,019,200
-----------------
ELECTRIC - DISTR/TRANS 0.40%
FPL Group, Inc. 8.00% 600 36,144,000
-----------------
FOOD & Drug Retailers 0.21%
Albertson's, Inc. 7.25% 750 19,050,000
-----------------
FORESTRY/PAPER 0.22%
Temple-Inland, Inc. 7.50% 350 19,705,000
-----------------
HEALTH SERVICES 0.28%
Baxter Int'l., Inc. 7.00% 200 11,292,000
Omnicare, Inc. 4.00% 250 13,790,000
-----------------
TOTAL 25,082,000
-----------------
INTEGRATED ENERGY 0.28%
Williams Cos., Inc. (The) 5.50% 300 25,200,000
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
INTEREST SHARES
INVESTMENTS RATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
MEDIA - BROADCAST 0.17%
Sinclair Broadcast Group, Inc. 6.00% 340 $ 14,786,600
-----------------
MULTI-LINE INSURANCE 0.06%
XL Capital Ltd.(a) 6.50% 200 5,090,000
-----------------
PHARMACEUTICALS 0.31%
Schering-Plough Corp. 6.00% 500 28,050,000
-----------------
PRINTING & PUBLISHING 0.27%
Interpublic Group of Cos., Inc. 5.375% 500 24,500,000
-----------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $210,234,705) 223,465,050
=================
<Caption>
PRINCIPAL
MATURITY AMOUNT
DATE (000)
-----------------------
GOVERNMENT SPONSORED ENTERPRISES
BOND 0.91%
Federal Home Loan Mortgage Corp.
(Cost $80,715,511) 7.00% 7/15/2005 $ 80,000 81,800,320
=================
GOVERNMENT SPONSORED ENTERPRISES
PASS-THROUGHS 1.88%
Federal National Mortgage Assoc. 5.50% 7/1/2033 62,890 63,920,773
Federal National Mortgage Assoc. 5.50% 10/1/2033 19,956 20,282,809
Federal National Mortgage Assoc. 6.00% 9/1/2032 6,344 6,570,785
Federal National Mortgage Assoc. 6.00% 5/1/2033 6,527 6,760,640
Federal National Mortgage Assoc. 6.00% 10/1/2033 10,684 11,056,330
Federal National Mortgage Assoc. 6.00% 1/1/2034 34,511 35,711,826
Federal National Mortgage Assoc. 7.00% 9/1/2029 738 783,340
Federal National Mortgage Assoc. 7.00% 3/1/2032 8,564 9,080,702
Federal National Mortgage Assoc. 7.00% 5/1/2032 3,959 4,197,803
Federal National Mortgage Assoc. 8.00% 2/1/2030 2,789 3,032,726
Federal National Mortgage Assoc. 8.00% 4/1/2030 4,175 4,539,238
Government National Mortgage Assoc. 8.00% 3/15/2032 3,467 3,765,560
-----------------
TOTAL GOVERNMENT SPONSORED ENTERPRISES
PASS-THROUGHS (Cost $168,019,696) 169,702,532
=================
HIGH YIELD CORPORATE NOTES & BONDS 70.47%
AEROSPACE/DEFENSE 1.31%
Alliant Techsystems, Inc. 8.50% 5/15/2011 15,000 16,500,000
Armor Holdings, Inc. 8.25% 8/15/2013 10,000 11,250,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
DRS Technologies, Inc.+ 6.875% 11/1/2013 $ 8,000 $ 8,400,000
DRS Technologies, Inc.^ 6.875% 11/1/2013 22,000 23,100,000
Esterline Technologies Corp. 7.75% 6/15/2013 16,000 17,560,000
L-3 Communications Holdings Corp. 6.125% 1/15/2014 7,500 7,762,500
L-3 Communications Holdings Corp. 7.625% 6/15/2012 12,500 13,781,250
Titan Corp.^ 8.00% 5/15/2011 18,250 19,527,500
-----------------
TOTAL 117,881,250
-----------------
APPAREL/TEXTILES 0.53%
INVISTA+(a) 9.25% 5/1/2012 25,000 28,000,000
Levi Strauss & Co.^ 7.00% 11/1/2006 9,000 9,495,000
Tommy Hilfiger USA, Inc.^ 6.85% 6/1/2008 10,000 10,100,000
-----------------
TOTAL 47,595,000
-----------------
AUTO LOANS 0.42%
Ford Motor Credit Corp.^ 7.25% 10/25/2011 35,000 37,585,485
-----------------
AUTO PARTS & EQUIPMENT 2.29%
Advanced Accessory System 10.75% 6/15/2011 7,000 6,685,000
Affinia Group, Inc.+ 9.00% 11/30/2014 12,500 13,093,750
Arvin Meritor, Inc.^ 8.75% 3/1/2012 15,000 17,400,000
Collins & Aikman Products Co.^ 10.75% 12/31/2011 10,000 10,250,000
Cooper-Standard Automotive
Group+ 8.375% 12/15/2014 14,025 14,060,062
Cummins, Inc.^ 9.50% 12/1/2010 16,650 18,981,000
Delco Remy Int'l., Inc. 11.00% 5/1/2009 26,600 28,462,000
Dura Operating Corp.^ 9.00% 5/1/2009 20,000 19,900,000
Eagle-Picher, Inc. 9.75% 9/1/2013 12,500 12,562,500
Stanadyne Corp.**+ 0.00%/12.00% 8/15/2009 & 2/15/2015 15,000 8,943,750
Stanadyne Corp.+ 10.00% 8/15/2014 8,800 9,548,000
Tenneco Automotive, Inc.+ 8.625% 11/15/2014 12,000 12,540,000
TRW Automotive, Inc.^ 11.00% 2/15/2013 18,254 22,087,340
Visteon Corp. 7.00% 3/10/2014 12,000 11,520,000
-----------------
TOTAL 206,033,402
-----------------
AUTOMOTIVE 0.47%
General Motors Corp.^ 7.20% 1/15/2011 30,000 30,806,550
Navistar Int'l. Corp.^ 7.50% 6/15/2011 10,000 10,775,000
Venture Holdings Trust(b) 9.50% 7/1/2005 10,000 325,000
-----------------
TOTAL 41,906,550
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
BANKING 0.40%
Regions Financial Corp. 7.00% 3/1/2011 $ 14,000 $ 15,996,316
Wells Fargo & Co. 5.10%# 5/6/2018 20,000 20,082,240
-----------------
TOTAL 36,078,556
-----------------
BEVERAGE 0.17%
Le-Nature's, Inc.+ 10.00% 6/15/2013 13,500 14,985,000
-----------------
BUILDING & CONSTRUCTION 0.93%
Beazer Homes USA, Inc. 6.50% 11/15/2013 11,500 11,701,250
Beazer Homes USA, Inc. 8.375% 4/15/2012 8,250 9,116,250
D. R. Horton, Inc. 6.875% 5/1/2013 5,100 5,546,250
Lennar Corp. 7.625% 3/1/2009 15,000 16,858,845
Schuler Homes, Inc. 9.375% 7/15/2009 15,000 16,200,000
Shaw Group, Inc.^ 10.75% 3/15/2010 12,000 13,290,000
William Lyon Homes, Inc. 10.75% 4/1/2013 10,000 11,287,500
-----------------
TOTAL 84,000,095
-----------------
BUILDING MATERIALS 1.00%
Ainsworth Lumber Co. Ltd.+(a) 7.25% 10/1/2012 15,000 15,337,500
American Standard Cos., Inc. 8.25% 6/1/2009 30,000 34,685,790
Jacuzzi Brands, Inc. 9.625% 7/1/2010 27,500 30,662,500
Texas Industries, Inc. 10.25% 6/15/2011 8,000 9,400,000
-----------------
TOTAL 90,085,790
-----------------
CHEMICALS 3.05%
Airgas, Inc. 6.25% 7/15/2014 10,000 10,250,000
Airgas, Inc. 7.75% 9/15/2006 5,000 5,325,000
Crompton Corp.+ 9.875% 8/1/2012 29,000 33,350,000
Ferro Corp. 9.125% 1/1/2009 12,000 13,363,512
Hercules, Inc. 6.75% 10/15/2029 25,000 25,937,500
Huntsman ICI Chemicals LLC^ 10.125% 7/1/2009 2,019 2,135,090
Huntsman Int'l. Holdings LLC Zero Coupon 12/31/2009 32,300 18,249,500
Huntsman LLC+^ 11.75%# 7/15/2012 7,850 9,321,875
IMC Global, Inc.^ 11.25% 6/1/2011 35,000 40,600,000
Lyondell Chemical Co.^ 9.625% 5/1/2007 21,450 23,702,250
Nalco Co.^ 8.875% 11/15/2013 12,500 13,781,250
NOVA Chemicals Corp.(a) 6.50% 1/15/2012 7,000 7,455,000
Rhodia S.A.^(a) 8.875% 6/1/2011 26,825 27,160,313
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Rockwood Specialties Corp.+ 7.50% 11/15/2014 $ 17,250 $ 17,983,125
Rockwood Specialties Corp. 10.625% 5/15/2011 4,000 4,620,000
Terra Capital, Inc. 11.50% 6/1/2010 13,000 14,885,000
United Industries Corp.^ 9.875% 4/1/2009 6,000 6,307,500
-----------------
TOTAL 274,426,915
-----------------
COMPUTER HARDWARE 0.13%
Seagate Technologies (U.S.)
Holdings, Inc.^(a) 8.00% 5/15/2009 10,500 11,392,500
-----------------
CONSUMER-PRODUCTS 1.08%
Aearo Corp. 8.25% 4/15/2012 7,500 7,762,500
Church & Dwight Co., Inc.+ 6.00% 12/15/2012 4,375 4,473,437
Elizabeth Arden, Inc. 7.75% 1/15/2014 25,000 26,625,000
Playtex Products, Inc.^ 9.375% 6/1/2011 23,250 24,935,625
Rayovac Corp.^ 8.50% 10/1/2013 30,000 33,450,000
-----------------
TOTAL 97,246,562
-----------------
DIVERSIFIED CAPITAL GOODS 0.79%
J.B. Poindexter & Co., Inc.+ 8.75% 3/15/2014 11,125 11,875,937
Park-Ohio Industries, Inc.+ 8.375% 11/15/2014 10,700 10,753,500
Sensus Metering Systems, Inc. 8.625% 12/15/2013 20,000 20,600,000
Trimas Corp. 9.875% 6/15/2012 7,600 8,094,000
Trinity Industries, Inc. 6.50% 3/15/2014 20,000 20,100,000
-----------------
TOTAL 71,423,437
-----------------
ELECTRIC-GENERATION 3.05%
AES Corp. 7.75% 3/1/2014 19,000 20,710,000
AES Corp.+ 8.75% 5/15/2013 15,000 17,118,750
AES Corp. 9.50% 6/1/2009 15,000 17,137,500
AES Gener S.A.+(a) 7.50% 3/25/2014 6,750 7,121,250
Calpine Corp.+ 8.50% 7/15/2010 15,000 12,937,500
Calpine Generating Co. 11.50% 4/1/2011 10,000 9,550,000
Dynegy Holdings, Inc.^ 6.875% 4/1/2011 20,000 19,350,000
Dynegy Holdings, Inc.+ 10.125% 7/15/2013 40,000 46,000,000
Mission Energy Holding Co. 13.50% 7/15/2008 16,000 20,040,000
NRG Energy, Inc.+^ 8.00% 12/15/2013 38,000 41,610,000
Reliant Resources, Inc. 6.75% 12/15/2014 11,650 11,635,438
Reliant Resources, Inc. 9.50% 7/15/2013 35,000 39,943,750
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Texas Genco Holdings, Inc.+ 6.875% 12/15/2014 $ 10,575 $ 10,984,781
-----------------
TOTAL 274,138,969
-----------------
ELECTRIC-INTEGRATED 1.49%
Duke Energy Corp.^ 5.375% 1/1/2009 12,000 12,588,300
Midwest Generation, LLC 8.75% 5/1/2034 25,000 28,500,000
Nevada Power Co.+ 5.875% 1/15/2015 11,800 11,947,500
NorthWestern Corp.+ 5.875% 11/1/2014 2,900 2,981,116
PG&E Corp.^ 4.80% 3/1/2014 15,000 14,974,890
PPL Energy Supply LLC 6.40% 11/1/2011 12,000 13,213,212
PSEG Energy Holdings, Inc. 8.50% 6/15/2011 10,000 11,462,500
PSEG Energy Holdings, Inc.^ 8.625% 2/15/2008 15,000 16,537,500
TECO Energy, Inc. 7.50% 6/15/2010 20,000 22,200,000
-----------------
TOTAL 134,405,018
-----------------
ELECTRONICS 1.37%
Amkor Technology, Inc.^ 7.125% 3/15/2011 9,895 9,350,775
Amkor Technology, Inc.^ 7.75% 5/15/2013 12,000 11,340,000
Communications & Power
Industries, Inc. 8.00% 2/1/2012 20,350 21,672,750
Corning, Inc.^ 5.90% 3/15/2014 15,000 15,108,270
Corning, Inc. 8.30% 4/4/2025 15,000 15,861,075
Freescale Semiconductor, Inc. 4.82%# 7/15/2009 15,000 15,693,750
Freescale Semiconductor, Inc.^ 7.125% 7/15/2014 20,000 21,800,000
SBA Telecommunications Inc.** 0.00%/9.75% 12/15/2007 & 2011 15,000 12,712,500
-----------------
TOTAL 123,539,120
-----------------
ENERGY - EXPLORATION & PRODUCTION 2.67%
Chesapeake Energy Corp.+ 6.375% 6/15/2015 11,675 12,054,437
Chesapeake Energy Corp.^ 6.875% 1/15/2016 7,500 7,893,750
Chesapeake Energy Corp. 7.00% 8/15/2014 7,750 8,292,500
Chesapeake Energy Corp. 7.50% 6/15/2014 11,000 12,072,500
Chesapeake Energy Corp. 7.75% 1/15/2015 18,000 19,665,000
El Paso Production Holding Co. 7.75% 6/1/2013 35,000 36,837,500
Energy Partners Ltd. 8.75% 8/1/2010 12,000 13,140,000
EXCO Resources, Inc. 7.25% 1/15/2011 31,000 33,325,000
Forest Oil Corp.^ 7.75% 5/1/2014 10,000 10,925,000
Forest Oil Corp. 8.00% 6/15/2008 15,000 16,631,250
Harvest Operations Corp.+(a) 7.875% 10/15/2011 7,250 7,340,625
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Houston Exploration Co.^ 7.00% 6/15/2013 $ 15,500 $ 16,507,500
KCS Energy Services, Inc. 7.125% 4/1/2012 11,500 12,132,500
Magnum Hunter Resources Corp.^ 9.60% 3/15/2012 7,592 8,654,880
Range Resources Corp.^ 7.375% 7/15/2013 22,925 24,701,688
-----------------
TOTAL 240,174,130
-----------------
ENVIRONMENTAL 0.58%
Allied Waste North America, Inc. 5.75% 2/15/2011 15,000 14,175,000
Allied Waste North America, Inc.^ 6.125% 2/15/2014 32,500 30,712,500
Allied Waste North America, Inc.^ 6.50% 11/15/2010 7,000 6,895,000
-----------------
TOTAL 51,782,500
-----------------
FOOD & DRUG RETAILERS 1.56%
Ingles Markets, Inc.^ 8.875% 12/1/2011 21,500 23,112,500
Jean Coutu Group (PJC), Inc. (The)+(a) 8.50% 8/1/2014 18,500 19,055,000
Rite Aid Corp. 6.875% 8/15/2013 37,000 33,485,000
Rite Aid Corp. 8.125% 5/1/2010 32,150 34,159,375
Roundy's, Inc.^ 8.875% 6/15/2012 10,000 10,975,000
Stater Brothers Holdings Inc.^ 8.125% 6/15/2012 18,250 19,390,625
-----------------
TOTAL 140,177,500
-----------------
FOOD - WHOLESALE 2.18%
American Seafoods Holdings LLC 10.125% 4/15/2010 11,500 12,362,500
Chiquita Brands Int'l., Inc.+ 7.50% 11/1/2014 25,000 25,437,500
Corn Products Int'l., Inc. 8.25% 7/15/2007 20,000 22,016,860
Del Monte Corp.^ 8.625% 12/15/2012 10,000 11,250,000
Del Monte Corp. 9.25% 5/15/2011 15,000 16,500,000
Dole Food Co. 8.75% 7/15/2013 20,000 22,450,000
Dole Food Co.^ 8.875% 3/15/2011 16,000 17,480,000
Land O'Lakes, Inc. 8.75% 11/15/2011 10,000 10,000,000
Land O'Lakes, Inc.^ 9.00% 12/15/2010 18,850 20,735,000
Michael Foods, Inc. 8.00% 11/15/2013 15,000 15,900,000
Pinnacle Foods Holding Corp.+ 8.25% 12/1/2013 22,725 21,759,187
-----------------
TOTAL 195,891,047
-----------------
FORESTRY/PAPER 2.91%
Abitibi-Consolidated, Inc. ^(a) 8.55% 8/1/2010 27,500 29,940,625
Boise Cascade, LLC+ 7.125% 10/15/2014 8,400 8,925,000
Bowater, Inc.^ 6.50% 6/15/2013 32,000 32,164,544
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc.^ 8.00% 10/15/2010 $ 21,000 $ 21,105,000
Jefferson Smurfit Corp.^ 7.50% 6/1/2013 20,000 21,450,000
Jefferson Smurfit Corp.^ 8.25% 10/1/2012 10,000 10,950,000
JSG Funding plc(a) 9.625% 10/1/2012 14,500 16,240,000
Longview Fibre Co.^ 10.00% 1/15/2009 11,500 12,621,250
Newark Group, Inc. 9.75% 3/15/2014 11,500 12,305,000
Norske Skog Canada Ltd.^(a) 7.375% 3/1/2014 15,000 15,712,500
Stone Container Corp. 8.375% 7/1/2012 4,000 4,380,000
Stone Container Corp.^ 9.75% 2/1/2011 17,000 18,700,000
Tembec Industries, Inc.(a) 7.75% 3/15/2012 15,000 14,587,500
Tembec Industries, Inc.^(a) 8.625% 6/30/2009 31,000 31,310,000
Temple-Inland, Inc. 7.875% 5/1/2012 10,000 11,852,400
-----------------
TOTAL 262,243,819
-----------------
GAMING 4.62%
Aztar Corp. 7.875% 6/15/2014 10,000 11,075,000
Boyd Gaming Corp.^ 8.75% 4/15/2012 17,000 18,997,500
Hard Rock Hotel, Inc. 8.875% 6/1/2013 30,000 33,300,000
Harrah's Operating Co., Inc.^ 5.375% 12/15/2013 10,000 10,070,200
Harrah's Operating Co., Inc. 7.50% 1/15/2009 25,000 27,727,850
Isle of Capri Casinos, Inc.^ 7.00% 3/1/2014 27,050 27,726,250
Isle of Capri Casinos, Inc.^ 9.00% 3/15/2012 19,650 21,762,375
Mandalay Resorts Group^ 9.375% 2/15/2010 20,000 23,400,000
MGM Mirage, Inc. 6.75% 9/1/2012 29,150 30,826,125
Mohegan Tribal Gaming Authority^ 8.00% 4/1/2012 10,000 10,900,000
Park Place Entertainment Corp.^ 8.125% 5/15/2011 15,000 17,400,000
Park Place Entertainment Corp. 9.375% 2/15/2007 23,500 25,967,500
Penn National Gaming, Inc. 6.875% 12/1/2011 25,875 27,039,375
Premier Entertainment Biloxi 10.75% 2/1/2012 1,900 2,085,250
River Rock Entertainment 9.75% 11/1/2011 15,700 17,682,125
Scientific Games Corp.+ 6.25% 12/15/2012 10,000 10,225,000
Seneca Gaming Corp.^ 7.25% 5/1/2012 4,500 4,758,750
Station Casinos, Inc.^ 6.50% 2/1/2014 30,500 31,491,250
Turning Stone Casino Resort+ 9.125% 12/15/2010 12,000 13,050,000
Venetian Casino Resort LLC 11.00% 6/15/2010 25,000 28,656,250
Wynn Las Vegas LLC/Wynn
Las Vegas Capital Corp.+ 6.625% 12/1/2014 21,725 21,616,375
-----------------
TOTAL 415,757,175
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTION 1.68%
El Paso Corp.^ 7.00% 5/15/2011 $ 25,000 $ 25,406,250
El Paso Corp. 7.75% 1/15/2032 12,500 12,031,250
Ferrellgas Partners, L.P.^ 6.75% 5/1/2014 15,000 15,487,500
Ferrellgas Partners, L.P. 8.75% 6/15/2012 9,350 10,238,250
MarkWest Energy Partners, L.P.+ 6.875% 11/1/2014 14,900 15,198,000
Sonat, Inc.^ 7.625% 7/15/2011 18,000 18,720,000
Suburban Propane Partners, L.P. 6.875% 12/15/2013 20,000 20,500,000
Williams Cos., Inc. (The) 7.875% 9/1/2021 30,000 33,600,000
-----------------
TOTAL 151,181,250
-----------------
HEALTH SERVICES 4.94%
Alliance Imaging Inc.+ 7.25% 12/15/2012 5,150 5,265,875
AmeriPath, Inc. 10.50% 4/1/2013 22,500 24,018,750
Ardent Health Services Inc. 10.00% 8/15/2013 15,000 15,825,000
Beverly Enterprises, Inc.+ 7.875% 6/15/2014 15,000 16,162,500
Bio-Rad Laboratories, Inc.+ 6.125% 12/15/2014 6,425 6,505,313
Fisher Scientific Int'l., Inc. 8.00% 9/1/2013 10,000 11,400,000
Fresenius Medical Care
Capital Trust II 7.875% 2/1/2008 20,000 21,750,000
Hanger Orthopedic Group, Inc.^ 10.375% 2/15/2009 12,000 12,450,000
HCA Inc. 6.375% 1/15/2015 30,000 30,176,760
Healthsouth Corp. 8.375% 10/1/2011 20,000 20,850,000
Healthsouth Corp. 10.75% 10/1/2008 15,000 15,900,000
Medex, Inc. 8.875% 5/15/2013 36,000 42,120,000
National Mentor Inc.+ 9.625% 12/1/2012 11,725 12,516,437
National Nephrology Associates, Inc.+ 9.00% 11/1/2011 9,000 10,462,500
PacifiCare Health System, Inc. 10.75% 6/1/2009 22,750 26,390,000
PerkinElmer, Inc.^ 8.875% 1/15/2013 25,750 29,483,750
Prime Medical Services, Inc. 8.75% 4/1/2008 9,150 9,333,000
Rotech Healthcare, Inc. 9.50% 4/1/2012 15,500 17,127,500
Senior Housing Trust 8.625% 1/15/2012 10,000 11,475,000
Tenet Healthcare Corp. 7.375% 2/1/2013 46,000 44,850,000
Tenet Healthcare Corp.+ 9.875% 7/1/2014 10,000 10,950,000
Triad Hospitals, Inc.^ 7.00% 11/15/2013 20,000 20,550,000
Vanguard Health Holding Co. II LLC+ 9.00% 10/1/2014 18,125 19,484,375
Ventas Realty L.P./Veritas Capital Corp. 8.75% 5/1/2009 8,750 9,854,687
-----------------
TOTAL 444,901,447
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
HOTELS 1.12%
FelCor Lodging Trust, Inc.^ 9.00% 6/1/2011 $ 15,000 $ 17,062,500
Hilton Hotels Corp.^ 8.25% 2/15/2011 12,000 14,215,644
HMH Properties, Inc. 7.875% 8/1/2008 5,447 5,624,027
Host Marriott L.P.+ 7.00% 8/15/2012 20,000 21,250,000
Host Marriott L.P.^ 9.25% 10/1/2007 25,000 28,000,000
John Q. Hammons Hotels, Inc. 8.875% 5/15/2012 12,500 14,187,500
-----------------
TOTAL 100,339,671
-----------------
HOUSEHOLD & LEISURE PRODUCTS 0.20%
Fedders North America, Inc. 9.875% 3/1/2014 22,250 18,245,000
-----------------
INVESTMENTS & MISC FINANCIAL SERVICES 0.97%
Dow Jones CDX HY+ 7.75% 12/29/2009 85,000 87,496,875
-----------------
LEISURE 0.89%
Gaylord Entertainment Co.+ 6.75% 11/15/2014 11,550 11,665,500
Gaylord Entertainment Co. 8.00% 11/15/2013 31,000 33,635,000
Six Flags, Inc.^ 9.50% 2/1/2009 22,250 23,251,250
Universal City Development Partners, Ltd. 11.75% 4/1/2010 8,000 9,490,000
Universal City Florida Holding Co. I/II+ 8.375% 5/1/2010 2,000 2,085,000
-----------------
TOTAL 80,126,750
-----------------
MACHINERY 1.07%
AGCO Corp. 9.50% 5/1/2008 10,000 10,700,000
Briggs & Stratton Corp. 8.875% 3/15/2011 15,000 18,112,500
Case New Holland, Inc.+ 9.25% 8/1/2011 12,300 13,745,250
Dresser, Inc.^ 9.375% 4/15/2011 20,000 22,000,000
JLG Industries, Inc.^ 8.25% 5/1/2008 15,000 16,275,000
Manitowoc Co., Inc. 7.125% 11/1/2013 10,000 10,875,000
Westinghouse Air Brake Co. 6.875% 7/31/2013 4,500 4,747,500
-----------------
TOTAL 96,455,250
-----------------
MEDIA - BROADCAST 2.46%
Allbritton Communications Co.^ 7.75% 12/15/2012 65,000 67,600,000
Clear Channel Communications, Inc. 4.625% 1/15/2008 20,000 20,323,220
Clear Channel Communications, Inc.^ 7.65% 9/15/2010 18,500 21,074,312
Emmis Operating Co. 6.875% 5/15/2012 30,000 31,537,500
Fisher Communications, Inc.+ 8.625% 9/15/2014 4,000 4,340,000
Lin Television Corp.^ 6.50% 5/15/2013 10,075 10,415,031
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Paxson Communications Co. 10.75% 7/15/2008 $ 47,000 $ 49,585,000
Sinclair Broadcast Group, Inc. 8.00% 3/15/2012 5,000 5,337,500
Sinclair Broadcast Group, Inc. 8.75% 12/15/2011 10,000 10,937,500
-----------------
TOTAL 221,150,063
-----------------
MEDIA - CABLE 4.97%
Century Communications Corp.(b) 8.375% 12/15/2007 8,000 9,560,000
Century Communications Corp.^(b) 9.50% 3/1/2005 39,000 47,385,000
Charter Communications Holdings 10.00% 4/1/2009 50,000 45,250,000
Charter Communications Holdings II 10.25% 9/15/2010 20,000 21,300,000
Comcast Corp. 5.85% 1/15/2010 15,000 16,097,040
CSC Holdings, Inc.+ 6.75% 4/15/2012 14,250 14,748,750
CSC Holdings, Inc. 8.125% 8/15/2009 22,800 25,051,500
DirecTV Holdings LLC 8.375% 3/15/2013 26,000 29,282,500
Echostar DBS Corp.^ 6.375% 10/1/2011 17,500 17,981,250
Echostar DBS Corp.^ 9.125% 1/15/2009 10,000 11,050,000
Frontiervision L.P.(b) 11.875% 9/15/2007 20,000 26,800,000
Frontiervision L.P. Series B(b) 11.875% 9/15/2007 10,000 13,400,000
Globo Communicacoes e
Participacoes S.A.+(a)(b) 10.625% 12/5/2008 20,000 19,100,000
Insight Communications Co., Inc.** 0.00%/12.25% 2/15/2006 & 2011 60,000 58,650,000
Mediacom Communications Corp.^ 8.50% 4/15/2008 35,000 35,875,000
Mediacom Communications Corp.^ 9.50% 1/15/2013 40,000 40,350,000
Renaissance Media Group LLC 10.00% 4/15/2008 15,000 15,525,000
-----------------
TOTAL 447,406,040
-----------------
MEDIA - DIVERSIFIED 0.18%
Block Communications, Inc. 9.25% 4/15/2009 15,000 16,425,000
-----------------
MEDIA - SERVICES 0.57%
Interpublic Group of Cos., Inc. (The) 6.25% 11/15/2014 14,820 15,069,865
Interpublic Group of Cos., Inc. (The)^ 7.25% 8/15/2011 10,000 10,906,210
Warner Music Group+ 7.375% 4/15/2014 25,000 25,750,000
-----------------
TOTAL 51,726,075
-----------------
METALS/MINING EXCLUDING STEEL 0.49%
Century Aluminum Co.+ 7.50% 8/15/2014 5,550 5,938,500
Foundation PA Coal Co.+ 7.25% 8/1/2014 7,300 7,811,000
Neenah Corp.+ 13.00% 9/30/2013 5,000 5,150,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Peabody Energy Corp. 5.875% 4/15/2016 $ 15,000 $ 15,000,000
Timken Co. (The) 5.75% 2/15/2010 10,000 10,197,880
-----------------
TOTAL 44,097,380
-----------------
NON-ELECTRIC UTILITIES 0.17%
Semco Energy, Inc. 7.75% 5/15/2013 14,050 15,498,906
-----------------
NON-FOOD & DRUG RETAILERS 1.37%
Couche-Tard U.S. L.P. 7.50% 12/15/2013 14,000 15,085,000
J.C. Penney Co., Inc.^ 7.95% 4/1/2017 20,750 24,381,250
J.C. Penney Co., Inc. 8.00% 3/1/2010 17,000 19,507,500
Saks, Inc. 7.375% 2/15/2019 35,000 34,825,000
Saks, Inc.^ 9.875% 10/1/2011 25,000 29,750,000
-----------------
TOTAL 123,548,750
-----------------
OFFICE EQUIPMENT 0.23%
Xerox Corp. 6.875% 8/15/2011 14,000 14,980,000
Xerox Corp. 9.75% 1/15/2009 5,000 5,900,000
-----------------
TOTAL 20,880,000
-----------------
OIL FIELD EQUIPMENT & SERVICES 0.74%
Hanover Compressor Co. 8.625% 12/15/2010 12,075 13,252,313
Hanover Compressor Co.(d) 9.00% 6/1/2014 6,150 6,872,625
J. Ray McDermott, S.A.+(a) 11.00% 12/15/2013 10,000 11,200,000
Key Energy Services, Inc. 6.375% 5/1/2013 12,000 12,270,000
Key Energy Services, Inc. 8.375% 3/1/2008 13,500 14,208,750
Pride Int'l., Inc. 7.375% 7/15/2014 8,000 8,780,000
-----------------
TOTAL 66,583,688
-----------------
PACKAGING 2.86%
AEP Industries, Inc.^ 9.875% 11/15/2007 7,500 7,668,750
Anchor Glass Container Corp. 11.00% 2/15/2013 15,000 16,125,000
BWAY Corp.^ 10.00% 10/15/2010 25,000 26,125,000
Constar Int'l., Inc.^ 11.00% 12/1/2012 14,000 14,595,000
Crown Cork & Seal, Inc.^ 7.375% 12/15/2026 45,000 42,525,000
Graham Packaging Co., Inc.+ 8.50% 10/15/2012 14,000 14,770,000
Owens-Brockway Glass Container Inc.^ 7.75% 5/15/2011 34,700 37,736,250
Owens-Brockway Glass Container Inc. 8.875% 2/15/2009 41,000 44,741,250
Owens Illinois, Inc. 7.50% 5/15/2010 15,000 15,993,750
Plastipak Holdings, Inc.^ 10.75% 9/1/2011 6,500 7,345,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Portola Packaging, Inc.^ 8.25% 2/1/2012 $ 16,525 $ 13,137,375
Solo Cup Co.^ 8.50% 2/15/2014 10,000 10,450,000
Vitro Envases Norteamerica+(a) 10.75% 7/23/2011 6,000 6,255,000
-----------------
TOTAL 257,467,375
-----------------
PHARMACEUTICALS 0.58%
Alpharma Inc.+ 8.625% 5/1/2011 25,000 26,250,000
Biovail Corp.^(a) 7.875% 4/1/2010 15,000 15,600,000
Elan Finance plc/Elan Finance Corp.+(a) 7.75% 11/15/2011 10,000 10,700,000
-----------------
TOTAL 52,550,000
-----------------
PRINTING & PUBLISHING 1.80%
American Color Graphics, Inc. 10.00% 6/15/2010 15,000 12,731,250
American Media, Inc.^ 10.25% 5/1/2009 5,000 5,293,750
Dex Media, Inc.** 0.00%/9.00% 11/15/2008 & 2013 15,000 11,831,250
Dex Media, Inc.^ 8.00% 11/15/2013 20,000 21,750,000
Dex Media West 9.875% 8/15/2013 25,394 29,393,555
Houghton Mifflin Co.**^ 0.00%/11.50% 10/15/2008 & 2013 17,250 12,765,000
Houghton Mifflin Co.^ 9.875% 2/1/2013 35,000 38,500,000
Primedia, Inc.^ 8.875% 5/15/2011 16,675 17,717,188
R.H. Donnelley Finance Corp. 10.875% 12/15/2012 10,000 11,925,000
-----------------
TOTAL 161,906,993
-----------------
RAILROADS 0.33%
Union Pacific Corp.^ 3.625% 6/1/2010 30,500 29,385,469
-----------------
REAL ESTATE INVESTMENT TRUSTS 0.26%
GATX Financial Corp. 8.875% 6/1/2009 20,000 23,210,680
-----------------
RESTAURANTS 0.52%
Carrols Holding Corp.+ 9.00% 1/15/2013 2,650 2,756,000
Denny's Corp./Denny's Holdings Inc.+ 10.00% 10/1/2012 14,500 15,678,125
Friendly Ice Cream Corp.^ 8.375% 6/15/2012 17,400 17,160,750
O'Charley's, Inc.^ 9.00% 11/1/2013 10,000 10,750,000
-----------------
TOTAL 46,344,875
-----------------
SOFTWARE/SERVICES 0.42%
Electronic Data Systems Corp.^ 6.50% 8/1/2013 27,500 29,084,798
Unisys Corp.^ 6.875% 3/15/2010 8,000 8,600,000
-----------------
TOTAL 37,684,798
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
STEEL PRODUCERS/PRODUCTS 0.17%
AK Steel Corp. 7.75% 6/15/2012 $ 15,000 $ 15,525,000
-----------------
SUPPORT-SERVICES 1.57%
Iron Mountain, Inc. 6.625% 1/1/2016 37,000 34,687,500
Iron Mountain, Inc. 7.75% 1/15/2015 47,000 47,940,000
Iron Mountain, Inc. 8.625% 4/1/2013 15,000 16,012,500
JohnsonDiversey Holdings, Inc.**^ 0.00%/10.67% 5/15/2007 & 2013 12,000 10,440,000
JohnsonDiversey, Inc. 9.625% 5/15/2012 9,000 10,102,500
United Rentals North America, Inc.^ 7.75% 11/15/2013 22,225 21,891,625
-----------------
TOTAL 141,074,125
-----------------
TELECOM - FIXED LINE 0.39%
Level 3 Communications, Inc. 11.25% 3/15/2010 15,000 12,675,000
Level 3 Financing, Inc.+^ 10.75% 10/15/2011 25,000 22,750,000
-----------------
TOTAL 35,425,000
-----------------
TELECOM - INTEGRATED/SERVICES 2.27%
Cincinnati Bell, Inc. 8.375% 1/15/2014 25,000 25,437,500
Eircom Funding^(a) 8.25% 8/15/2013 4,770 5,294,700
MCI, Inc. 7.688% 5/1/2009 18,013 18,688,488
MCI, Inc. 8.735% 5/1/2014 10,000 10,775,000
Qwest Capital Funding, Inc. 7.90% 8/15/2010 63,000 63,945,000
Qwest Communications Int'l., Inc.+ 5.79%# 2/15/2009 17,000 17,297,500
Qwest Communications Int'l., Inc.+^ 7.25% 2/15/2011 10,000 10,300,000
Qwest Services Corp.+ 14.00% 12/15/2010 31,800 38,398,500
Telefonica de Argentina S.A.^(a) 9.125% 11/7/2010 13,500 14,310,000
-----------------
TOTAL 204,446,688
-----------------
TELECOM - WIRELESS 2.79%
Airgate PCS, Inc.+ 5.85%# 10/15/2011 10,000 10,325,000
Airgate PCS, Inc.+^(d) 9.375% 9/1/2009 5,000 5,412,500
Airgate PCS, Inc.^ 9.375% 9/1/2009 9,000 9,742,392
Alamosa Delaware, Inc.^ 11.00% 7/31/2010 17,000 20,102,500
American Cellular Corp. 10.00% 8/1/2011 3,500 3,018,750
Centennial Communications Corp. 10.125% 6/15/2013 35,000 39,462,500
Crown Castle Int'l. Corp. 10.75% 8/1/2011 20,000 21,800,000
Dobson Communications Corp. 8.875% 10/1/2013 9,300 6,579,750
Dobson Communications Corp. 10.875% 7/1/2010 15,000 11,700,000
Nextel Communications, Inc. 6.875% 10/31/2013 8,000 8,720,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Nextel Partners, Inc.^ 8.125% 7/1/2011 $ 27,200 $ 30,328,000
Rogers Wireless, Inc.+(a) 7.25% 12/15/2012 7,475 7,960,875
Rogers Wireless, Inc.(a) 9.625% 5/1/2011 5,000 5,887,500
Rural Cellular Corp.^ 9.75% 1/15/2010 25,475 23,182,250
SBA Communications Corp.+ 8.50% 12/1/2012 4,000 4,100,000
TeleCorp PCS, Inc. 10.625% 7/15/2010 16,000 17,440,864
UbiquiTel Operating Co.+ 9.875% 3/1/2011 10,000 11,275,000
Western Wireless Corp.^ 9.25% 7/15/2013 12,500 13,656,250
-----------------
TOTAL 250,694,131
-----------------
TELECOMMUNICATIONS EQUIPMENT 0.30%
Lucent Technologies, Inc.^ 6.45% 3/15/2029 17,610 16,025,100
Motorola, Inc.^ 5.80% 10/15/2008 10,000 10,605,910
-----------------
TOTAL 26,631,010
-----------------
THEATERS & ENTERTAINMENT 0.61%
AMC Entertainment, Inc. 8.00% 3/1/2014 25,000 25,000,000
Carmike Cinemas, Inc. Class A^ 7.50% 2/15/2014 11,325 11,650,594
Cinemark USA, Inc. 9.00% 2/1/2013 10,000 11,462,500
LCE Acquisition Corp.+ 9.00% 8/1/2014 6,400 6,960,000
-----------------
TOTAL 55,073,094
-----------------
TRANSPORTATION EXCLUDING AIR/RAIL 0.55%
CHC Helicopter Corp.(a) 7.375% 5/1/2014 15,000 15,900,000
Horizon Lines LLC+ 9.00% 11/1/2012 4,200 4,536,000
Hornbeck Offshore Services, Inc.+ 6.125% 12/1/2014 12,790 12,917,900
Offshore Logistics, Inc. 6.125% 6/15/2013 12,500 12,750,000
Stena AB+(a) 7.00% 12/1/2016 2,950 2,935,250
-----------------
TOTAL 49,039,150
-----------------
TOTAL HIGH YIELD CORPORATE NOTES & BONDS
(Cost $5,962,134,102) 6,341,270,353
=================
NON-AGENCY COMMERCIAL
MORTGAGE-BACKED SECURITY 0.24%
Credit Suisse First Boston
1998-C2 A2 (Cost $19,513,701) 6.30% 11/11/2030 20,000 21,586,736
=================
U.S. TREASURY OBLIGATIONS 1.10%
U.S. Treasury Note 5.00% 2/15/2011 55,000 58,525,610
U.S. Treasury Note 6.75% 5/15/2005 40,000 40,631,280
-----------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $99,133,509) 99,156,890
=================
TOTAL LONG-TERM INVESTMENTS
(Cost $7,870,418,622) 8,419,437,614
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<Page>
SCHEDULE OF INVESTMENTS (CONCLUDED)
DECEMBER 31, 2004
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 13.63%
COLLATERAL FOR SECURITIES ON LOAN 8.71%
State Street Navigator Securities
Lending Prime Portfolio 2.17%(e) 783,723 $ 783,723,300
-----------------
<Caption>
PRINCIPAL
AMOUNT
(000)
-----------
REPURCHASE AGREEMENT 4.92%
Repurchase Agreement dated 12/31/2004,
1.80% due 1/3/2005 with State Street
Bank & Trust Co. collateralized by
$45,875,000 of Federal Farm Credit
Bank at 2.50% due 3/15/2006 and
$368,520,000 of Federal Home Loan
Bank from 1.703% to 2.625% due from
2/15/2006 to 7/16/2018 and $38,660,000
of Federal Home Loan Mortgage Corp.
at 2.07% due 8/26/2005; value:
$451,888,623; proceeds: $443,057,231 $ 442,991 442,990,782
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,226,714,082) 1,226,714,082
=================
TOTAL INVESTMENTS IN SECURITIES 107.20% (Cost $9,097,132,704) 9,646,151,696
=================
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS (7.20%) (648,135,182)
-----------------
NET ASSETS 100.00% $ 8,998,016,514
=================
</Table>
* Non-income producing security.
** Deferred-interest debentures pay no interest for a stipulated number of
years, after which they pay a predetermined interest rate.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers.
# Variable rate security. The interest rate represents the rate at December
31, 2004.
^ All (or a portion) of security on loan. See Note 5.
(a) Foreign security traded in U.S. dollars.
(b) Defaulted security.
(c) Amount represents less than 1,000 shares.
(d) Private placement.
(e) Rate shown reflects 7 day yield as of December 31, 2004.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
<Table>
ASSETS:
Investments in securities, at value (Cost $9,097,132,704) $ 9,646,151,696
Cash 10,445,866
Receivables:
Interest and dividends 126,949,285
Investment securities sold 9,029,019
Capital shares sold 16,845,162
Prepaid expenses and other assets 434,560
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS 9,809,855,588
- --------------------------------------------------------------------------------------------------
LIABILITIES:
Payable upon return of securities on loan 783,723,300
Payables:
Investment securities purchased 6,383,377
Capital shares reacquired 10,839,620
Management fee 3,400,937
12b-1 distribution fees 5,004,089
Fund administration 302,550
Directors' fees 703,243
To bank 770
To affiliate (See Note 3) 17,592
Accrued expenses and other liabilities 1,463,596
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 811,839,074
==================================================================================================
NET ASSETS $ 8,998,016,514
==================================================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 9,123,363,531
Distributions in excess of net investment income (10,224,834)
Accumulated net realized loss on investments and foreign currency
related transactions (664,141,109)
Net unrealized appreciation on investments and translation of
assets and liabilites denominated in foreign currencies 549,018,926
- --------------------------------------------------------------------------------------------------
NET ASSETS $ 8,998,016,514
==================================================================================================
NET ASSETS BY CLASS:
Class A Shares $ 5,093,236,379
Class B Shares $ 1,803,608,682
Class C Shares $ 1,703,328,863
Class P Shares $ 113,215,532
Class Y Shares $ 284,627,058
OUTSTANDING SHARES BY CLASS:
Class A Shares (540 million shares of common shares authorized, $.001 par value) 621,272,415
Class B Shares (200 million shares of common shares authorized, $.001 par value) 219,921,683
Class C Shares (300 million shares of common shares authorized, $.001 par value) 207,543,094
Class P Shares (160 million shares of common shares authorized, $.001 par value) 13,617,234
Class Y Shares (300 million shares of common shares authorized, $.001 par value) 34,809,751
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(NET ASSETS DIVIDED BY OUTSTANDING SHARES):
Class A Shares-Net asset value $ 8.20
Class A Shares-Maximum offering price
(Net asset value plus sales charge of 4.75%) $ 8.61
Class B Shares-Net asset value $ 8.20
Class C Shares-Net asset value $ 8.21
Class P Shares-Net asset value $ 8.31
Class Y Shares-Net asset value $ 8.18
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 31,842,958
Interest 533,009,221
Securities lending-net 2,214,562
Foreign withholding tax (18,750)
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 567,047,991
- --------------------------------------------------------------------------------------------------
EXPENSES:
Management fee 38,278,558
12b-1 distribution plan-Class A 16,659,659
12b-1 distribution plan-Class B 18,106,964
12b-1 distribution plan-Class C 16,200,889
12b-1 distribution plan-Class P 388,692
Shareholder servicing 9,785,247
Professional 157,805
Reports to shareholders 801,913
Fund administration 3,380,316
Custody 324,843
Directors' fees 154,356
Registration 442,587
Subsidy (See Note 3) 489,888
Other 325,540
- --------------------------------------------------------------------------------------------------
Gross expenses 105,497,257
Expense reductions (85,404)
- --------------------------------------------------------------------------------------------------
NET EXPENSES 105,411,853
- --------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 461,636,138
==================================================================================================
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments and foreign currency related transactions 163,913,812
Net change in unrealized appreciation on investments
and translation of assets and liabilities denominated in foreign currencies 48,862,743
==================================================================================================
Net realized and unrealized gain 212,776,555
==================================================================================================
Net Increase in Net Assets Resulting From Operations $ 674,412,693
==================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
INCREASE IN NET ASSETS DECEMBER 31, 2004 DECEMBER 31, 2003
- -------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 461,636,138 $ 414,050,606
Net realized gain on investments and foreign currency
related transactions 163,913,812 4,578,180
Net change in unrealized appreciation on investments and
translation of assets and liabilities denominated in
foreign currencies 48,862,743 825,381,023
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 674,412,693 1,244,009,809
=============================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (304,259,218) (249,078,467)
Class B (105,827,104) (98,396,445)
Class C (94,625,703) (77,331,697)
Class P (5,402,678) (2,399,636)
Class Y (15,911,837) (7,291,188)
Paid-in capital
Class A - (13,796,655)
Class B - (5,450,258)
Class C - (4,283,465)
Class P - (132,918)
Class Y - (403,865)
- -------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (526,026,540) (458,564,594)
=============================================================================================================
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 1,952,137,115 3,087,844,333
Reinvestment of distributions 380,570,154 321,057,719
Cost of shares reacquired (1,678,331,223) (1,335,405,201)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS 654,376,046 2,073,496,851
=============================================================================================================
NET INCREASE IN NET ASSETS 802,762,199 2,858,942,066
=============================================================================================================
NET ASSETS:
Beginning of year 8,195,254,315 5,336,312,249
- -------------------------------------------------------------------------------------------------------------
END OF YEAR $ 8,998,016,514 $ 8,195,254,315
=============================================================================================================
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME $ (10,224,834) $ (738,130)
=============================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (CLASS A SHARES)
NET ASSET VALUE, BEGINNING OF YEAR $ 8.06 $ 7.19 $ 7.91 $ 8.23 $ 9.05
========== ========== ========== ========== ==========
Investment operations
Net investment income(a) .46 .48 .55 .65 .68
Net realized and unrealized gain (loss) .20 .92 (.64) (.26) (.75)
---------- ---------- ---------- ---------- ----------
Total from investment operations .66 1.40 (.09) .39 (.07)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (.52) (.50) (.58) (.67) (.75)
Paid-in capital - (.03) (.05) (.04) -
---------- ---------- ---------- ---------- ----------
Total distributions (.52) (.53) (.63) (.71) (.75)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 8.20 $ 8.06 $ 7.19 $ 7.91 $ 8.23
========== ========== ========== ========== ==========
Total Return(b) 8.56% 20.28% (1.08)% 4.86% (.86)%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .99% 1.00% 1.00% 1.02% 1.00%
Expenses, excluding expense
reductions .99% 1.00% 1.00% 1.02% 1.01%
Net investment income 5.71% 6.31% 7.51% 7.96% 7.88%
</Table>
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
SUPPLEMENTAL DATA: 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 5,093,236 $ 4,497,233 $ 3,048,301 $ 2,500,544 $ 2,065,319
Portfolio turnover rate 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED 12/31
-------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (CLASS B SHARES)
Net asset value, beginning of year $ 8.06 $ 7.20 $ 7.92 $ 8.23 $ 9.05
========== ========== ========== ========== ==========
Investment operations
Net investment income(a) .41 .43 .51 .60 .63
Net realized and unrealized gain (loss) .20 .92 (.65) (.25) (.76)
---------- ---------- ---------- ---------- ----------
Total from investment operations .61 1.35 (.14) .35 (.13)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (.47) (.46) (.53) (.63) (.69)
Paid-in capital - (.03) (.05) (.03) -
---------- ---------- ---------- ---------- ----------
Total distributions (.47) (.49) (.58) (.66) (.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 8.20 $ 8.06 $ 7.20 $ 7.92 $ 8.23
========== ========== ========== ========== ==========
Total Return(b) 7.86% 19.43% (1.67)% 4.29% (1.52)%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions 1.64% 1.64% 1.65% 1.63% 1.61%
Expenses, excluding expense
reductions 1.64% 1.64% 1.65% 1.63% 1.62%
Net investment income 5.07% 5.67% 6.86% 7.35% 7.26%
</Table>
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
SUPPLEMENTAL DATA: 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 1,803,609 $ 1,861,920 $ 1,294,955 $ 1,105,501 $ 786,786
Portfolio turnover rate 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (CLASS C SHARES)
Net asset value, beginning of year $ 8.07 $ 7.21 $ 7.93 $ 8.24 $ 9.06
========== ========== ========== ========== ==========
Investment operations
Net investment income(a) .41 .43 .51 .60 .63
Net realized and unrealized gain (loss) .20 .92 (.64) (.25) (.76)
---------- ---------- ---------- ---------- ----------
Total from investment operations .61 1.35 (.13) .35 (.13)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (.47) (.46) (.54) (.63) (.69)
Paid-in capital - (.03) (.05) (.03) -
---------- ---------- ---------- ---------- ----------
Total distributions (.47) (.49) (.59) (.66) (.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 8.21 $ 8.07 $ 7.21 $ 7.93 $ 8.24
========== ========== ========== ========== ==========
Total Return(b) 7.86% 19.43% (1.58)% 4.29% (1.52)%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions 1.64% 1.64% 1.59% 1.62% 1.65%
Expenses, excluding expense
reductions 1.64% 1.64% 1.59% 1.62% 1.66%
Net investment income 5.07% 5.67% 6.92% 7.36% 7.26%
</Table>
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
SUPPLEMENTAL DATA: 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 1,703,329 $ 1,593,650 $ 905,629 $ 662,848 $ 483,885
Portfolio turnover rate 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (CLASS P SHARES)
Net asset value, beginning of year $ 8.17 $ 7.29 $ 8.02 $ 8.33 $ 9.05
========== ========== ========== ========== ==========
Investment operations
Net investment income(a) .45 .48 .55 .64 .67
Net realized and unrealized gain (loss) .20 .93 (.65) (.24) (.65)
---------- ---------- ---------- ---------- ----------
Total from investment operations .65 1.41 (.10) .40 .02
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (.51) (.50) (.58) (.67) (.74)
Paid-in capital - (.03) (.05) (.04) -
---------- ---------- ---------- ---------- ----------
Total distributions (.51) (.53) (.63) (.71) (.74)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 8.31 $ 8.17 $ 7.29 $ 8.02 $ 8.33
========== ========== ========== ========== ==========
Total Return(b) 8.37% 20.10% (1.19)% 4.90% .06%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions 1.09% 1.09% 1.10% 1.08% 1.06%
Expenses, excluding expense
reductions 1.09% 1.09% 1.10% 1.08% 1.07%
Net investment income 5.62% 6.22% 7.41% 7.88% 7.83%
</Table>
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
SUPPLEMENTAL DATA: 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 113,216 $ 60,848 $ 18,736 $ 7,017 $ 1,385
Portfolio turnover rate 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<Page>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (CLASS Y SHARES)
Net asset value, beginning of year $ 8.04 $ 7.18 $ 7.90 $ 8.21 $ 9.04
========== ========== ========== ========== ==========
Investment operations
Net investment income(a) .48 .51 .58 .68 .71
Net realized and unrealized gain (loss) .21 .91 (.64) (.24) (.76)
---------- ---------- ---------- ---------- ----------
Total from investment operations .69 1.42 (.06) .44 (.05)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (.55) (.53) (.61) (.71) (.78)
Paid-in capital - (.03) (.05) (.04) -
---------- ---------- ---------- ---------- ----------
Total distributions (.55) (.56) (.66) (.75) (.78)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 8.18 $ 8.04 $ 7.18 $ 7.90 $ 8.21
========== ========== ========== ========== ==========
Total Return(b) 8.97% 20.58% (.66)% 5.44% (.61)%
RATIOS TO AVERAGE NET ASSETS
Expenses, including expense
reductions .64% .64% .65% .63% .61%
Expenses, excluding expense
reductions .64% .64% .65% .63% .62%
Net investment income 6.07% 6.67% 7.86% 8.36% 8.26%
</Table>
<Table>
<Caption>
YEAR ENDED 12/31
------------------------------------------------------------------------------
SUPPLEMENTAL DATA: 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 284,627 $ 181,603 $ 68,691 $ 44,931 $ 43,884
Portfolio turnover rate 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================
</Table>
(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.
35
<Page>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Lord Abbett Bond-Debenture Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 (the "Act") as a diversified open-end management
investment company. The Fund was incorporated under Maryland law on January 23,
1976.
The Fund's investment objective is to seek high current income and the
opportunity for capital appreciation to produce a high total return. The Fund
offers five classes of shares: Classes A, B, C, P and Y, each with different
expenses and dividends. A front-end sales charge is normally added to the net
asset value ("NAV") for Class A shares. There is no front-end sales charge in
the case of the Class B, C, P and Y shares, although there may be a contingent
deferred sales charge ("CDSC") as follows: certain redemptions of Class A shares
made within 24 months (12 months if shares were purchased on or after November
1, 2004) following certain purchases made without a sales charge; Class B shares
redeemed before the sixth anniversary of purchase; and Class C shares redeemed
before the first anniversary of purchase. Class B shares will convert to Class A
shares on the eighth anniversary of the original purchase of Class B shares.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) INVESTMENT VALUATION-Securities traded on any recognized U.S. or non-U.S.
exchange or on NASDAQ, Inc. are valued at the last sale price or official
closing price on the exchange or system on which they are principally
traded. Unlisted equity securities are valued at last quoted sale price or,
if no sale price is available, at the mean between the most recently quoted
bid and asked prices. Fixed income securities are valued at the mean
between the bid and asked prices on the basis of prices supplied by
independent pricing services, which reflect broker/dealer supplied
valuations and electronic data processing techniques. Exchange-traded
options and futures contracts are valued at the last sales price in the
market where they are principally traded. If no sale has occurred, the mean
between the most recently quoted bid and asked prices is used. Securities
for which market quotations are not readily available are valued at fair
value as determined by management and approved in good faith by the Board
of Directors. Short-term securities with 60 days or less remaining to
maturity are valued using the amortized cost method, which approximates
current market value.
(b) SECURITY TRANSACTIONS-Security transactions are recorded as of the date
that the securities are purchased or sold (trade date). Realized gains and
losses on sales of portfolio securities are calculated using the
identified-cost method. Realized and unrealized gains (losses) are
allocated to each class of shares based upon the relative proportion of net
assets at the beginning of the day.
(c) INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Discounts are accreted
and premiums are amortized using the effective interest method. Investment
income is allocated to each class of shares based upon the relative
proportion of net assets at the beginning of the day.
36
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) FEDERAL TAXES-It is the policy of the Fund to meet the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable net
investment income and capital gains to its shareholders. Therefore, no
Federal income tax provision is required.
(e) EXPENSES-Expenses, excluding class specific expenses, are allocated to each
class of shares based upon the relative proportion of net assets at the
beginning of the day. Class A, B, C and P shares bear all expenses and fees
relating to their respective 12b-1 Distribution Plans.
(f) FOREIGN TRANSACTIONS-The books and records of the Fund are maintained in
U.S. dollars and transactions denominated in foreign currencies are
recorded in the Fund's records at the rate prevailing when earned or
recorded. Asset and liability accounts that are denominated in foreign
currencies are adjusted to reflect current exchange rates. The resultant
exchange gains and losses are included in Net Realized and Unrealized Gain
(Loss) on the Statement of Operations. The Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in market prices of the securities.
(g) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS-The Fund may enter into forward
foreign currency exchange contracts in order to reduce its exposure to
changes in foreign currency exchange rates on its foreign portfolio
holdings and to lock in the U.S. dollar cost of firm purchase and sale
commitments for securities denominated in foreign currencies. A forward
foreign currency exchange contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated rate. The contracts are
valued daily at forward exchange rates and any unrealized gain (loss) is
included in Net Change in Unrealized Appreciation (Depreciation) on
Investments and Translation of Assets and Liabilities Denominated in
Foreign Currencies on the Statement of Operations. The gain (loss) arising
from the difference between the U.S. dollar cost of the original contract
and the value of the foreign currency in U.S. dollars upon closing of such
contracts is included in Net Realized Gain (Loss) on Investments and
Foreign Currency Related Transactions on the Statement of Operations. At
December 31, 2004, there are no open forward foreign currency exchange
contracts.
(h) SECURITIES LENDING-The Fund may lend its securities to member banks of the
Federal Reserve System and to registered broker/dealers approved by the
Fund. The loans are collateralized at all times by cash and/or U.S.
Government securities in an amount at least equal to 102% of the market
value of domestic securities loaned (105% in the case of foreign securities
loaned) as determined at the close of business on the preceding business
day. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
Lending portfolio securities could result in a loss or delay in recovering
the Fund's securities if the borrower defaults.
(i) REPURCHASE AGREEMENTS-The Fund may enter into repurchase agreements with
respect to securities. A repurchase agreement is a transaction in which the
Fund acquires a security and simultaneously commits to resell that security
to the seller (a bank or securities dealer) at an agreed-upon price on an
agreed-upon date. The Fund requires at all times that the repurchase
agreement be collateralized by cash, or by securities of the U.S.
Government, its agencies, its instrumentalities, or U.S. Government
sponsored enterprises having a value
37
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
equal to, or in excess of, the value of the repurchase agreement (including
accrued interest). If the seller of the agreement defaults on its
obligation to repurchase the underlying securities at a time when the value
of those securities has declined, the Fund may incur a loss upon
disposition of the securities.
(j) STRUCTURED SECURITIES-The Fund may invest in structured securities.
Structured securities are a type of derivative security whose value is
determined by reference to changes in the value of specific underlying
securities, currencies, interest rates, commodities, indices, credit
default swaps, or other indicators (the "Reference"), or to relative
changes in two or more References. The interest rate or principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference or certain specified events.
Structured securities may be positively or negatively indexed with the
result that the appreciation of the Reference may produce an increase
(decrease) in the interest rate or the value of the security at maturity.
(k) WHEN-ISSUED OR FORWARD TRANSACTIONS-The Fund may purchase portfolio
securities on a when-issued or forward basis. When-issued or forward
transactions involve a commitment by the Fund to purchase securities, with
payment and delivery ("settlement") to take place in the future, in order
to secure what is considered to be an advantageous price or yield at the
time of entering into the transaction. The value of fixed income securities
to be delivered in the future will fluctuate as interest rates vary. During
the period between purchase and settlement, the value of the securities
will fluctuate and assets consisting of cash and/or marketable securities
(normally short-term U.S. Government or U.S. Government sponsored
enterprises securities) marked to market daily in an amount sufficient to
make payment at settlement will be segregated at the Fund's custodian in
order to pay for the commitment. There is a risk that market yields
available at settlement may be higher than yields obtained on the purchase
date which could result in depreciation of the value of fixed income
when-issued securities. At the time the Fund makes commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect
the liability for the purchase and value of the security in determining its
net asset value. The Fund, generally, has the ability to close out a
purchase obligation on or before the settlement date rather than take
delivery of the security. Under no circumstances will settlement for such
securities take place more than 120 days after the purchase date.
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE
The Fund has a management agreement with Lord, Abbett & Co. LLC ("Lord Abbett")
pursuant to which Lord Abbett supplies the Fund with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research and statistical work and supervision of the Fund's
investment portfolio. The management fee is based on average daily net assets at
the following annual rates:
<Table>
First $500 million .50%
Over $500 million .45%
</Table>
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.
38
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12b-1 DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Plan") with respect to one or
more classes of shares pursuant to Rule 12b-1 of the Act, which provides for the
payment of distribution and service fees to Lord Abbett Distributor LLC
("Distributor"), an affiliate of Lord Abbett. The fees are accrued daily at
annual rates based upon average daily net assets as follows:
<Table>
<Caption>
FEE CLASS A CLASS B CLASS C CLASS P
- -----------------------------------------------------------------------------------
Service .25%(1) .25% .25% .20%
Distribution .10%(2) .75% .75% .25%
</Table>
(1) Annual service fee on shares sold prior to June 1, 1990 was .15% of the
average daily net asset value.
(2) In addition, until September 30, 2004, the Fund paid a one-time
distribution fee of up to 1.00% on certain qualifying purchases of Class A
shares. Effective October 1, 2004, the Distributor commenced payment of
such one-time distribution fee. The unamortized balance of prepaid
distribution fees as of September 30, 2004 was $344,195. This amount will
continue to be amortized by the Fund, generally over a two-year period. The
amount of CDSC collected by the Fund during the fiscal year ended December
31, 2004 was $125,254.
Class Y does not have a distribution plan.
COMMISSIONS
Distributor received the following commissions on sales of Class A shares of the
Fund, after concessions were paid to authorized dealers, for the year ended
December 31, 2004:
<Table>
<Caption>
DISTRIBUTOR DEALERS'
COMMISSIONS CONCESSIONS
- -------------------------------
$ 4,928,320 $ 25,203,792
</Table>
One Director and certain of the Fund's officers have an interest in Lord Abbett.
The Fund, and certain other funds managed by Lord Abbett (together, the
"Underlying Funds"), have entered into a Servicing Agreement with Balanced Fund
of Lord Abbett Investment Trust ("Balanced Fund") pursuant to which each
Underlying Fund pays a portion of the expenses of Balanced Fund in proportion to
the average daily value of Underlying Fund shares owned by Balanced Fund.
Amounts paid pursuant to the Servicing Agreement are included in Subsidy on the
Statement of Operations.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARD
Dividends from net investment income, if any, are declared and paid monthly.
Taxable net realized gains from investment transactions, reduced by capital loss
carryforwards, if any, are declared and distributed to shareholders at least
annually. The capital loss carryforward amount, if any, is available to offset
future net capital gains. Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions from
net investment income and net realized capital gains are determined in
accordance with Federal income tax regulations which may differ from accounting
principles generally accepted in the United States of America. These book/tax
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the components of net assets based on their federal tax basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed earnings and profits for tax purposes are reported as
a tax return of capital.
39
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the fiscal years ended December
31, 2004 and 2003 are as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/2004 12/31/2003
- ----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 526,026,540 $ 434,497,433
Tax return of capital - 24,067,161
- ----------------------------------------------------------------
Total distributions paid $ 526,026,540 $ 458,564,594
================================================================
</Table>
As of December 31, 2004, the components of accumulated earnings (losses) on a
tax basis are as follows:
<Table>
Capital loss carryforwards* $ (635,143,431)
Temporary differences (703,243)
Unrealized gains - net 510,499,657
- ------------------------------------------------
Total accumulated losses - net $ (125,347,017)
================================================
</Table>
* As of December 31, 2004, the capital loss carryforward amounts, along with
the related expiration dates, is as follows:
<Table>
<Caption>
2008 2009 2010 TOTAL
- -----------------------------------------------------------------------
$ 29,104,644 $ 302,852,975 $ 303,185,812 $ 635,143,431
</Table>
As of December 31, 2004, the aggregate unrealized security gains and losses
based on cost for U.S. Federal income tax purposes were as follows:
<Table>
Tax cost $ 9,135,651,973
- ------------------------------------------------
Gross unrealized gain 583,938,045
Gross unrealized loss (73,438,322)
- ------------------------------------------------
Net unrealized security gain $ 510,499,723
================================================
</Table>
The difference between book-basis and tax-basis unrealized gains (losses) is
primarily attributable to wash sales and the tax treatment of certain
securities.
Permanent items identified during the year ended December 31, 2004 have been
reclassified among the components of net assets based on their tax basis
treatment as follows:
<Table>
<Caption>
DISTRIBUTIONS
IN EXCESS OF ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAIN CAPITAL
- --------------------------------------------------------
$ 54,903,698 $ (18,942,830) $ (35,960,868)
</Table>
The permanent differences are primarily attributable to the tax treatment of
amortization and the tax treatment of certain distributions.
40
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the fiscal year ended December 31, 2004 are as follows:
<Table>
<Caption>
U.S. NON-U.S. U.S. NON-U.S.
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES* PURCHASES SALES* SALES
- -------------------------------------------------------------------------------
$ 250,971,626 $ 3,677,579,755 $ 163,286,551 $ 3,216,249,254
</Table>
* Includes U.S. Government sponsored enterprises securities.
As of December 31, 2004, the value of securities loaned was $767,883,314. These
loans are collateralized by cash of $783,723,300, which is invested in a
restricted money market account. In connection with the securities lending
program, State Street Bank & Trust Company ("SSB") received fees of $949,098 for
the fiscal year ended December 31, 2004, which are netted against Securities
Lending Income on the Statement of Operations.
At their October 21, 2004 meeting, the Board of Directors voted to discontinue,
as soon as practicable, the Fund's participation in the SSB securities lending
program.
6. DIRECTORS' REMUNERATION
The Fund's officers and the one Director who are associated with Lord Abbett do
not receive any compensation from the Fund for serving in such capacities.
Outside Directors' fees are allocated among all Lord Abbett-sponsored funds
based on the net assets of each fund. There is an equity based plan available to
all outside Directors under which outside Directors must defer receipt of a
portion of, and may elect to defer receipt of an additional portion of
Directors' fees. The deferred amounts are treated as though equivalent dollar
amounts had been invested proportionately in the funds. Such amounts and
earnings accrued thereon are included in Directors' Fees on the Statement of
Operations and in Directors' Fees Payable on the Statement of Assets and
Liabilities and are not deductible for U.S. Federal income tax purposes until
such amounts are paid.
7. EXPENSE REDUCTIONS
The Fund has entered into arrangements with its transfer agent and custodian
whereby credits realized as a result of uninvested cash balances are used to
reduce a portion of the Fund's expenses.
8. LINE OF CREDIT
The Fund, along with certain other funds managed by Lord Abbett, has available a
$200,000,000 unsecured revolving credit facility ("Facility") from a consortium
of banks, to be used for temporary or emergency purposes as an additional source
of liquidity to fund redemptions of investor shares. Any borrowings under this
Facility will bear interest at current market rates as defined in the agreement.
For the period January 1, 2004 through December 9, 2004, the fee for this
Facility was at an annual rate of 0.09%. Effective December 10, 2004, the
Facility was renewed at an annual rate of .08%. At December 31, 2004, there were
no loans outstanding pursuant to this Facility nor was the Facility utilized at
any time during the fiscal year ended December 31, 2004.
41
<Page>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CUSTODIAN AND ACCOUNTING AGENT
SSB is the Fund's custodian and accounting agent. SSB performs custodian,
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 fixed income securities. The value of an investment will change as
interest rates fluctuate and in response to market movements. When interest
rates rise, the prices of fixed income securities are likely to decline; when
rates fall, such prices tend to rise. Longer-term securities are usually more
sensitive to interest rate changes. There is also the risk that an issuer of a
fixed income security will fail to make timely payments of principal or interest
to the Fund, a risk that is greater with high yield securities (sometimes called
"lower-rated debt securities" or "junk bonds") in which the Fund may invest.
Some issuers, particularly of high yield securities, may default as to principal
and/or interest payments after the Fund purchases its securities. A default, or
concerns in the market about an increase in risk of default, may result in
losses to the Fund. High yield bonds are subject to greater price fluctuations,
as well as additional risks.
The mortgage-related securities in which the Fund may invest may be particularly
sensitive to changes in prevailing interest rates. When interest rates are
declining, the value of these securities with prepayment features may not
increase as much as other fixed income securities. Early principal repayment may
deprive the Fund of income payments above current market rates. The prepayment
rate also will affect the price and volatility of a mortgage-related security.
Some of these securities may be those of such Government sponsored enterprises
as Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association. Such securities are guaranteed with respect to the timely payment
of interest and principal by the particular Government sponsored enterprise
involved, not by the U.S. Government.
The Fund may invest up to 5% of its net assets in structured securities. The
Fund typically may use these securities as a substitute for taking a position in
the underlying asset and/or as part of a strategy designed to reduce exposure to
other risks, such as interest rate or currency risk. Structured securities may
present additional risks that are different from those associated with a direct
investment in fixed-income or equity securities; they may be volatile, less
liquid and more difficult to price accurately and subject to additional credit
risks. Changes in the value of structured securities may not correlate perfectly
with the underlying asset, rate or index. The Fund that invests in structured
securities could lose more than the principal amount invested.
The Fund may invest up to 20% of its net assets in equity securities which may
subject it to the general risks and considerations associated with investing in
equity securities. The value of an investment will fluctuate in response to
movements in the stock market in general and to the changing prospects of
individual companies in which the Fund invests.
The Fund may invest up to 20% of its net assets in foreign securities which may
present market liquidity, currency, political, information, and other risks.
These factors can affect the Fund's performance.
42
<Page>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
11. SUMMARY OF CAPITAL TRANSACTIONS
Transactions in shares of capital stock are as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- -----------------------------------------------------------------------------------------------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Shares sold 147,929,408 $ 1,185,674,948 223,314,498 $ 1,689,989,527
Reinvestment of distributions 31,008,361 247,480,524 27,714,251 209,698,270
Shares reacquired (115,517,137) (922,609,162) (116,943,155) (887,585,222)
- -----------------------------------------------------------------------------------------------------------------
Increase 63,420,632 $ 510,546,310 134,085,594 $ 1,012,102,575
- -----------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -----------------------------------------------------------------------------------------------------------------
Shares sold 25,859,473 $ 207,400,148 72,430,972 $ 544,783,767
Reinvestment of distributions 7,984,642 63,768,740 8,005,065 60,644,990
Shares reacquired (44,808,623) (357,804,358) (29,396,050) (223,787,955)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) (10,964,508) $ (86,635,470) 51,039,987 $ 381,640,802
- -----------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- -----------------------------------------------------------------------------------------------------------------
Shares sold 50,931,432 $ 409,302,369 94,019,224 $ 711,800,299
Reinvestment of distributions 6,223,475 49,748,678 5,446,530 41,378,345
Shares reacquired (47,075,813) (375,969,765) (27,653,284) (211,351,213)
- -----------------------------------------------------------------------------------------------------------------
Increase 10,079,094 $ 83,081,282 71,812,470 $ 541,827,431
- -----------------------------------------------------------------------------------------------------------------
CLASS P SHARES
- -----------------------------------------------------------------------------------------------------------------
Shares sold 7,883,029 $ 64,117,842 5,912,734 $ 45,617,841
Reinvestment of distributions 474,986 3,842,232 226,620 1,749,236
Shares reacquired (2,187,653) (17,785,973) (1,263,181) (9,783,156)
- -----------------------------------------------------------------------------------------------------------------
Increase 6,170,362 $ 50,174,101 4,876,173 $ 37,583,921
- -----------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------------------------
Shares sold 10,767,799 $ 85,641,808 12,393,435 $ 95,652,899
Reinvestment of distributions 1,976,991 15,729,980 999,864 7,586,878
Shares reacquired (517,857) (4,161,965) (383,339) (2,897,655)
- -----------------------------------------------------------------------------------------------------------------
Increase 12,226,933 $ 97,209,823 13,009,960 $ 100,342,122
- -----------------------------------------------------------------------------------------------------------------
</Table>
43
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
LORD ABBETT BOND-DEBENTURE FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Lord Abbett Bond-Debenture Fund, Inc. (the
"Fund") as of December 31, 2004, 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 five
years in the period then ended. 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 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. An audit
includes 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, 2004 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Lord
Abbett Bond-Debenture Fund, Inc. as of December 31, 2004, the results of its
operations, the changes in its net assets 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 22, 2005
44
<Page>
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 DIRECTOR
The following Director is the Managing Partner of Lord Abbett and is an
"interested person" as defined in the Act. Mr. Dow is also an officer, director,
or trustee of each of the fourteen Lord Abbett-sponsored funds, which consist of
50 portfolios or series.
<Table>
<Caption>
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------
ROBERT S. DOW Director since Managing Partner and Chief N/A
Lord, Abbett & Co. LLC 1989; Chairman Investment Officer of
90 Hudson Street since 1996 Lord Abbett since 1996.
Jersey City, NJ
Date of Birth: 3/8/1945
</Table>
----------
INDEPENDENT DIRECTORS
The following independent or outside Directors are also directors or trustees of
each of the fourteen Lord Abbett-sponsored funds, which consist of 50 portfolios
or series.
<Table>
<Caption>
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------
E. THAYER BIGELOW Director since 1994 Managing General Partner, Currently serves as
Emmerling Bigelow Media, LLC director of Adelphia
Communications (since 2000); Senior Adviser, Communications, Inc.,
41 Madison Ave. Time Warner Inc. (1998 - Crane Co., and Huttig
Suite 3810 2000); Acting Chief Building Products Inc.
New York, NY Executive Officer of
Date of Birth: 10/22/1941 Courtroom Television
Network (1997 - 1998);
President and Chief
Executive Officer of Time
Warner Cable Programming,
Inc. (1991 - 1997).
WILLIAM H.T. BUSH Director since 1998 Co-founder and Chairman Currently serves as
Bush-O'Donnell & Co., Inc. of the Board of the financial director of Wellpoint
101 South Hanley Road advisory firm of Bush- Health Networks, Inc.
Suite 1250 O'Donnell & Company (since (since 2002), and
St. Louis, MO 1986). Engineered Support
Date of Birth: 7/14/1938 Systems, Inc.
(since 2000).
</Table>
45
<Page>
BASIC INFORMATION ABOUT MANAGEMENT (CONTINUED)
<Table>
<Caption>
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------
ROBERT B. CALHOUN, JR. Director since 1998 Managing Director of Currently serves as
Monitor Clipper Partners Monitor Clipper Partners director of Avondale,
Two Canal Park (since 1997) and President Inc. and Interstate
Cambridge, MA of Clipper Asset Bakeries Corp.
Date of Birth: 10/25/1942 Management Corp. (since
1991), both private equity
investment funds.
JULIE A. HILL Director since 2004 Owner and CEO of the Currently serves as
1280 Bison Hillsdale Companies, a director of Wellpoint
Newport Coast, CA business consulting firm Health Networks Inc.;
Date of Birth: 7/16/1946 (since 1998); Founder, Resources Connection
President and Owner of the Inc.; and Holcim (US)
Hiram-Hill and Hillsdale Inc. (a subsidiary of
Development Companies (1998 Holcim Ltd.)
- 2000).
FRANKLIN W. HOBBS Director since 2000 Former Chief Executive Currently serves as
One Equity Partners Officer of Houlihan Lokey director of Adolph
320 Park Ave. Howard & Zukin, an Coors Company.
New York, NY investment bank
Date of Birth: 7/30/1947 (January 2002 - April 2003);
Chairman of Warburg Dillon
Read (1999 - 2001); Global
Head of Corporate Finance of
SBC Warburg Dillon Read
(1997 - 1999); Chief
Executive Officer of Dillon,
Read & Co. (1994 - 1997).
C. ALAN MACDONALD Director since 1998 Retired - General Business Currently serves as
P.O. Box 4393 and Governance Consulting director of H.J. Baker
Greenwich, CT (since 1992); formerly (since 2003).
Date of Birth: 5/19/1933 President and CEO of Nestle
Foods.
THOMAS J. NEFF Director since 1982 Chairman of Spencer Stuart Currently serves as
Spencer Stuart (U.S.), an executive search director of Ace, Ltd.
277 Park Avenue consulting firm (since 1996); (since 1997) and
New York, NY President of Spencer Stuart Hewitt Associates, Inc.
Date of Birth: 10/2/1937 (1979 -1996).
</Table>
46
<Page>
BASIC INFORMATION ABOUT MANAGEMENT (CONTINUED)
OFFICERS
None of the officers listed below have received compensation from the Fund. All
the officers of the Fund may also be officers of the other Lord Abbett-sponsored
funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302.
<Table>
<Caption>
NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
(DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------
ROBERT S. DOW Chief Executive Elected in 1996 Managing Partner and
(3/8/1945) Officer and President Chief Investment Officer of
Lord Abbett (since 1996).
CHRISTOPHER J. TOWLE Executive Vice Elected in 1995 Partner and Investment
(10/12/1957) President Manager, joined Lord Abbett
in 1987.
TRACIE E. AHERN Vice President Elected in 1999 Partner and Director of
(1/12/1968) Portfolio Accounting and
Operations, joined Lord
Abbett in 1999.
JAMES BERNAICHE Chief Compliance Elected in 2004 Chief Compliance Officer,
(7/28/1956) Officer joined Lord Abbett in 2001;
formerly Chief Compliance
Officer with Credit Suisse
Asset Management.
JOAN A. BINSTOCK Chief Financial Elected in 1999 Partner and Chief
(3/4/1954) Officer and Vice Operations Officer, joined
President Lord Abbett in 1999.
DANIEL E. CARPER Vice President Elected in 1987 Partner, joined Lord
(1/22/1952) Abbett in 1979.
MICHAEL S. GOLDSTEIN Vice President Elected in 1998 Partner and Fixed Income
(10/29/1968) Investment Manager, joined
Lord Abbett in 1997.
PAUL A. HILSTAD Vice President and Elected in 1995 Partner and General
(12/13/1942) Secretary Counsel, joined Lord Abbett
in 1995.
ELLEN G. ITSKOVITZ Vice President Elected in 2001 Partner and Senior
(10/30/1957) Research Analyst, joined Lord
Abbett in 1998.
LAWRENCE H. KAPLAN Vice President and Elected in 1997 Partner and Deputy
(1/16/1957) Assistant Secretary General Counsel, joined Lord
Abbett in 1997.
MAREN LINDSTROM Vice President Elected in 2000 Partner and Fixed Income
(9/17/1962) Investment Manager, joined
Lord Abbett in 2000.
ROBERT G. MORRIS Vice President Elected in 1995 Partner and Director of
(11/6/1944) Equity Investments, joined
Lord Abbett in 1991.
A. EDWARD OBERHAUS, III Vice President Elected in 1996 Partner and Manager of
(12/21/1959) Equity Trading, joined Lord
Abbett in 1983.
</Table>
47
<Page>
BASIC INFORMATION ABOUT MANAGEMENT (CONCLUDED)
<Table>
<Caption>
NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
(DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------
CHRISTINA T. SIMMONS Vice President and Elected in 2001 Assistant General Counsel,
(11/12/1957) Assistant Secretary joined Lord Abbett in 1999;
formerly Assistant General
Counsel of Prudential
Investments (1998 - 1999);
prior thereto Counsel of
Drinker, Biddle & Reath LLP,
a law firm.
BERNARD J. GRZELAK Treasurer Elected in 2003 Director of Fund
(6/12/1971) Administration, joined Lord
Abbett in 2003; formerly Vice
President, Lazard Asset
Management LLC; prior thereto
Manager of Deloitte & Touche
LLP.
</Table>
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.
48
<Page>
HOUSEHOLDING
The Fund has adopted a policy that allows it to send only one copy of the Fund's
Prospectus, proxy material, annual report and semi-annual report to certain
shareholders residing at the same "household." This reduces Fund expenses, which
benefits you and other shareholders. If you need additional copies or do not
want your mailings to be "householded," please call Lord Abbett at 800-821-5129
or send a written request with your name, the name of your fund or funds and
your account number or numbers to Lord Abbett Family of Funds, P.O. Box 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 the Fund's proxies during the 12-month period ended June 30, 2004
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 for fiscal quarters
ending on or after July 9, 2004. Once filed, the Form N-Q will be available
without charge, upon request on the SEC's website at www.sec.gov and may be
available by calling Lord Abbett at 800-821-5129. You can also obtain copies of
Form N-Q by (i) visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 800-SEC-0330); (ii) sending your request and a duplicating fee to the
SEC's Public Reference Room, Washington, DC 20549-0102; or (iii) sending your
request electronically to publicinfo@sec.gov.
TAX INFORMATION
1.52% of the ordinary income distribution paid by the Fund during fiscal 2004
is qualifying dividend income. For corporate shareholders, only 2.79% of the
Fund's ordinary income distribution qualified for the dividends received
deduction.
49
<Page>
[LORD ABBETT(R) LOGO]
<Table>
This report when not used for the general
information of shareholders of the Fund, is to be
distributed only if preceded or accompanied by a
current Fund prospectus. Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Mutual Fund shares are distributed by LABD-2-1204
LORD ABBETT DISTRIBUTOR LLC (2/05)
</Table>
<Page>
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, 2004 (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 11(a) 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 800-821-5129.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Directors has determined that each of the
following independent Directors who are members of the audit
committee are audit committee financial experts: E. Thayer Bigelow,
Robert B. Calhoun, and Franklin W. Hobbs. 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, 2004 and 2003
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:
<Page>
<Table>
<Caption>
FISCAL YEAR ENDED:
2004 2003
Audit Fees {a} $ 58,000 $ 55,000
Audit-Related Fees {b} 1,448 1,428
---------- ----------
Total audit and audit-related fees 59,448 56,428
---------- ----------
Tax Fees {c} 9,409 8,919
All Other Fees {d} - 0 - 2,334
---------- ----------
Total Fees $ 68,857 $ 67,681
---------- ----------
</Table>
- ----------
{a} Consists of fees for audits of the Registrant's annual financial
statements.
{b} Consists of the Registrant's proportionate share of fees for
performing certain agreed-upon procedures regarding compliance with the
provisions of Rule 17a-7 of the Investment Company Act of 1940 and
related Board approved procedures.
{c} Fees for the fiscal year ended December 31, 2004 and 2003 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.
{d} Fees for the year ended December 31, 2003 consist of the
Registrant's proportionate share of fees for testing of Anti-Money
Laundering Compliance.
(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.
<Page>
(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, 2004 and 2003 were:
<Table>
<Caption>
FISCAL YEAR ENDED:
2004 2003
All Other Fees {a} $ 120,650 $ 76,900
</Table>
- ----------
{a} Fees for the fiscal years ended December 31, 2004 and 2003 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 (i.e., Lord Abbett Distributor
LLC, the Registrant's principal underwriter) for the fiscal years ended December
31, 2004 and 2003 were:
<Table>
<Caption>
FISCAL YEAR ENDED:
2004 2003
All Other Fees {b} $ - 0 - $ 11,378
</Table>
- ----------
{b} Fees for the fiscal year ended December 31, 2003 represent fees for
testing of Anti-Money Laundering Compliance.
(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.
<Page>
ITEM 6: SCHEDULE OF INVESTMENTS.
NOT APPLICABLE.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM10: CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the Registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment
Company Act of 1940) as of a date within 90 days prior to the
filing date of this report, the Chief Executive Officer and Chief
Financial Officer of the Registrant have concluded that such
disclosure controls and procedures are reasonably designed and
effective to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known
to them by others within those entities.
(b) There were no significant changes in the Registrant's internal
control over financial reporting (as defined in Rule 30a-3(d) under
the Investment Company Act of 1940) that occurred during the
Registrant's last fiscal half-year that have materially affected,
or are reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 11: EXHIBITS.
(a)(1) Amendments to Code of Ethics - Not applicable.
(a)(2) Certification of each principal executive officer and principal
financial officer of the Registrant as required by Rule 30a-2 under
the Act (17 CFR 270.30a-2) is attached hereto as a part of
EX-99.CERT.
(a)(3) Certification of each principal executive officer and principal
financial officer of the Registrant as required by Section 906 of
the Sarbanes-Oxley Act of 2002 is attached hereto as a part of
EX-99.906CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LORD ABBETT BOND-DEBENTURE FUND, INC.
/s/ Robert S. Dow
----------------------------------------
Robert S. Dow
Chief Executive Officer,
Chairman and President
/s/ Joan A. Binstock
----------------------------------------
Joan A. Binstock
Chief Financial Officer and Vice President
Date: February 14, 2005
<Page>
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
LORD ABBETT BOND-DEBENTURE FUND, INC.
/s/ Robert S. Dow
----------------------------------------
Robert S. Dow
Chief Executive Officer,
Chairman and President
/s/ Joan A. Binstock
----------------------------------------
Joan A. Binstock
Chief Financial Officer and Vice President
Date: February 14, 2005