<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
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LORD ABBETT BOND-DEBENTURE FUND, INC.
-------------------------------------
(Exact name of Registrant as specified in charter)
90 Hudson Street, Jersey City, NJ 07302
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(Address of principal executive offices) (zip code)
Christina T. Simmons, Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
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(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 201-6984
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Date of fiscal year end: 12/31
-----
Date of reporting period: 6/30/2005
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ITEM 1: REPORT TO SHAREHOLDERS.
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[LORD ABBETT LOGO]
2005
SEMIANNUAL
REPORT
LORD ABBETT
BOND-DEBENTURE FUND
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005
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LORD ABBETT BOND-DEBENTURE FUND
SEMIANNUAL REPORT
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005
DEAR SHAREHOLDERS: We are pleased to provide you with this overview of Lord
Abbett Bond-Debenture Fund's strategies and performance for the six-month period
ended June 30, 2005. On this and the following pages, we discuss the major
factors that influenced performance.
Thank you for investing in Lord Abbett mutual funds. We value the trust
that you place in us and look forward to serving your investment needs in the
years to come.
BEST REGARDS,
/s/ Robert S. Dow
ROBERT S. DOW
CHAIRMAN
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Q: WHAT WERE THE OVERALL MARKET CONDITIONS FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2005?
A: For most of the six-month period ended June 30, 2005, the U.S. economy showed
signs of healthy growth. Consumer spending during the period grew slightly
faster than its 30-year average, business spending expanded at near double-digit
rates, residential housing demand surged on continued declines in mortgage
rates, and corporate fundamentals remained strong. Although investor optimism
waned in April 2005 as energy prices soared and the stock market relinquished
some of its previous gains, economic trends again turned more positive in May
2005 and June 2005 as consumer confidence increased. The stock market rose in
May 2005 and remained unchanged in June 2005. Overall, for the six-month period
ended June 30, 2005, equities drifted marginally lower.
Of greatest note, the Federal Reserve Board (the Fed) continued its
measured pace of interest rate hikes, raising the fed funds rate in 0.25 percent
increments in December 2004, February, March, May, and June 2005, bringing the
rate to 3.25 percent at the end of the six-month period ended June 30, 2005. The
June 30, 2005, interest rate hike marked the ninth quarter-point increase since
June 2004. (The fed funds rate is the interest rate charged by banks with excess
reserves at a Federal Reserve Board district bank to other banks needing
overnight loans to meet reserve requirements.)
Longer-term rates, however, were less obliging, actually falling over the
six-month period ended June 30, 2005, albeit with considerable volatility along
the way. As yields on short-term maturities declined, the bellwether 10-year
Treasury note began the period at 4.22 percent, dropped to 3.89 percent in early
June 2005, and finished the period at 3.92
1
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percent on June 30, 2005. As the difference between short-term rates and
long-term rates diminished, the yield curve flattened. (The yield curve is a
graphic representation of short-term versus long-term interest rates.)
Q: HOW DID THE FUND PERFORM OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 2005?
A: For the six-month period ended June 30, 2005, the fund returned -0.4 percent,
reflecting performance at the net asset value (NAV) of Class A shares with all
distributions reinvested, compared with its benchmark, the Lehman Brothers U.S.
Aggregate Bond Index,(1) which returned 2.5 percent over the same period.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS, WHICH REFLECT PERFORMANCE AT THE
MAXIMUM 4.75 PERCENT SALES CHARGE APPLICABLE TO CLASS A SHARE INVESTMENTS AND
INCLUDE THE REINVESTMENT OF ALL DISTRIBUTIONS AS OF JUNE 30, 2005, ARE: 1 YEAR:
1.95 PERCENT, 5 YEARS: 4.83 PERCENT, AND 10 YEARS: 6.36 PERCENT. Class A shares
purchased subject to a front-end sales charge have no contingent deferred sales
charge (CDSC). However, certain purchases of Class A shares made without a
front-end sales charge may be subject to a CDSC of 1 percent if the shares are
redeemed within 12 months of the purchase.
PERFORMANCE DATA QUOTED REFLECT PAST PERFORMANCE AND ARE NO GUARANTEE OF FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT SHARES, ON ANY GIVEN DAY OR WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. YOU CAN OBTAIN PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END BY CALLING LORD ABBETT AT 800-821-5129 OR REFERRING TO OUR
WEBSITE AT www.LordAbbett.com.
Q: WHAT WERE THE MOST SIGNIFICANT FACTORS AFFECTING PERFORMANCE?
A: The fund's flexible investment strategy allows its investment managers to
adjust allocations among asset classes as market conditions change. The primary
asset classes in which the fund participates are high-yield bonds and
convertible securities. In addition, the fund must hold 20 percent of its
portfolio in investment-grade corporate bonds, government bonds, and/or
agencies.
In the high yield sector, holdings in auto parts detracted from performance
relative to the benchmark. Contributing to performance within the high-yield
sector were the credits of wireless telephone, healthcare, cable, and energy.
Detracting from performance relative to the benchmark within the
convertible and equity sectors were the portfolio's holdings in media and
technology. The
2
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portfolio was underweight relative to the benchmark within the technology
sector. Nonetheless, the portfolio's holdings in convertible and equity
securities outperformed overall those of the benchmark. Also adding to
performance in the six-month period ended June 30, 2005 were holdings in
healthcare, energy, pharmaceutical, insurance, hotels, and food companies.
Positions in high-grade investment bonds, such as mortgage-backed
securities and the credits of utilities, financial services, and
telecommunications equipment companies also contributed to performance relative
to the benchmark.
THE FUND'S PORTFOLIO IS ACTIVELY MANAGED AND, THEREFORE, ITS HOLDINGS AND
WEIGHTINGS OF A PARTICULAR ISSUER OR PARTICULAR SECTOR AS A PERCENTAGE OF
PORTFOLIO ASSETS ARE SUBJECT TO CHANGE. SECTORS MAY INCLUDE MANY INDUSTRIES.
A PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT A FUND, INCLUDING ITS
INVESTMENT OBJECTIVES, RISKS, CHARGES, AND ONGOING EXPENSES, THAT YOU SHOULD
CAREFULLY CONSIDER BEFORE INVESTING. TO OBTAIN A PROSPECTUS ON ANY LORD ABBETT
MUTUAL FUND, PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT
DISTRIBUTOR LLC AT 800-874-3733 OR VISIT OUR WEBSITE AT www.LordAbbett.com. READ
THE PROSPECTUS CAREFULLY BEFORE INVESTING.
(1) The Lehman Brothers U.S. Aggregate Bond Index represents securities that are
U.S. domestic, taxable, nonconvertible, and dollar denominated. The index covers
the investment-grade, fixed-rate bond market, with index components for
government and corporate securities, mortgage pass-through securities and
asset-backed securities. The index is unmanaged, does not reflect the deduction
of fees or expenses, and is not available for direct investment.
IMPORTANT PERFORMANCE AND OTHER INFORMATION
The views of the fund's management and the portfolio holdings described in this
report are as of June 30, 2005; these views and portfolio holdings may have
changed subsequent to this date, and they do not guarantee the future
performance of the markets or the fund. Information provided in this report
should not be considered a recommendation to purchase or sell securities.
A NOTE ABOUT RISK: See Notes to Financial Statements for a discussion of
investment risks. For a more detailed discussion of the risks associated with
the fund, please see the fund's prospectus.
PERFORMANCE: BECAUSE OF ONGOING MARKET VOLATILITY, FUND PERFORMANCE MAY BE
SUBJECT TO SUBSTANTIAL FLUCTUATION. Except where noted, comparative fund
performance does not account for the deduction of sales charges and would be
different if sales charges were included. The fund offers additional classes of
shares with distinct pricing options. For a full description of the differences
in pricing alternatives, please see the fund's prospectus.
MUTUAL FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY BANKS, AND ARE SUBJECT TO INVESTMENT RISKS INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
3
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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 (January 1, 2005 through June 30,
2005).
ACTUAL EXPENSES
For each class of the Fund, the first line of the table on the following
page provides information about actual account values and actual expenses. You
may use the information in this line, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
entitled "Expenses Paid During the Period 1/1/05 - 6/30/05" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
For each class of the Fund, the second line of the table on the following
page provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5.0% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5.0% hypothetical example with the 5.0%
hypothetical examples that appear in the shareholder reports of the other funds.
4
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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+
----- ----- -----------
1/1/05 -
1/1/05 6/30/05 6/30/05
------ ------- -------
CLASS A
Actual $ 1,000.00 $ 996.50 $ 4.95
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,019.84 $ 5.01
CLASS B
Actual $ 1,000.00 $ 994.40 $ 8.16
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.61 $ 8.25
CLASS C
Actual $ 1,000.00 $ 993.30 $ 8.15
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,016.61 $ 8.25
CLASS P
Actual $ 1,000.00 $ 997.30 $ 5.45
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,019.34 $ 5.51
CLASS Y
Actual $ 1,000.00 $ 998.20 $ 3.22
Hypothetical (5% Return Before Expenses) $ 1,000.00 $ 1,021.57 $ 3.26
</Table>
+ For each class of the Fund, expenses are equal to the annualized expense
ratio for such class (1.00% for Class A, 1.65% for Classes B and C, 1.10% for
Class P and .65% for Class Y) multiplied by the average account value over
the period, multiplied by 181/365 (to reflect one-half year period).
- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS PRESENTED BY SECTOR
JUNE 30, 2005
<Table>
<Caption>
SECTOR %*
Agency 5.52%
Banking 0.88%
Basic Industry 8.16%
Brokerage 0.15%
Capital Goods 7.30%
Consumer Cyclical 5.72%
Consumer Non-Cyclical 8.17%
Energy 8.04%
Finance & Investment 1.85%
Government Guaranteed 1.88%
Insurance 0.35%
Media 11.66%
Mortgage Backed 0.25%
Services Cyclical 11.71%
Services Non-Cyclical 6.93%
Short-Term Investments 6.38%
Technology & Electronics 4.30%
Telecommunications 5.61%
Utilities 5.14%
Total 100.00%
</Table>
* Represents percent of total investments.
5
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SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 2005
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- -----------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 94.16%
COMMON STOCKS 5.99%
AEROSPACE/DEFENSE 0.11%
Raytheon Co. 250 $ 9,780,000
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AGRICULTURE 0.19%
Archer Daniels Midland Co. 750 16,035,000
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AUTO PARTS & EQUIPMENT 0.09%
Cummins, Inc. 100 7,461,000
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BANKING 0.29%
Wachovia Corp. 500 24,800,000
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BEVERAGE 0.30%
PepsiCo, Inc. 475 25,616,750
--------------
CHEMICALS 0.72%
E.I. du Pont de Nemours & Co. 525 22,580,250
Lyondell Chemical Co. 325 8,586,500
Praxair, Inc. 500 23,300,000
Texas Petrochemical, Inc.* 444 6,658,590
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TOTAL 61,125,340
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DIVERSIFIED CAPITAL GOODS 0.25%
3M Co. 300 21,690,000
--------------
ELECTRIC - INTEGRATED 0.53%
Dominion Resources, Inc. 200 14,677,927
Northeast Utilities 1,000 20,860,000
TECO Energy, Inc. 500 9,455,000
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TOTAL 44,992,927
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ELECTRONICS 0.43%
Emerson Electric Co. 400 25,052,000
Hubbell, Inc. 200 8,820,000
Mentor Graphics Corp.* 250 2,562,500
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TOTAL 36,434,500
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- -----------------------------------------------------------------------------------------
ENERGY - EXPLORATION & PRODUCTION 0.62%
Devon Energy Corp. 400 $ 20,272,000
Exxon Mobil Corp. 350 20,114,500
Kerr-McGee Corp. 166 12,659,371
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TOTAL 53,045,871
--------------
FOOD - WHOLESALE 0.31%
Conagra Foods, Inc. 200 4,632,000
Kellogg Co. 500 22,220,000
--------------
TOTAL 26,852,000
--------------
FORESTRY/PAPER 0.21%
International Paper Co. 600 18,126,000
--------------
GAMING 0.06%
Aztar Corp.* 150 5,137,500
--------------
INTEGRATED ENERGY 0.33%
Chevron Corp. 500 27,960,000
--------------
MACHINERY 0.22%
Parker Hannifin Corp. 300 18,603,000
--------------
MEDIA - BROADCAST 0.09%
Clear Channel Communications, Inc. 250 7,732,500
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METALS/MINING EXCLUDING STEEL 0.18%
Alcoa, Inc. 300 7,839,000
Placer Dome, Inc.(b) 500 7,690,000
--------------
TOTAL 15,529,000
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NON-ELECTRIC UTILITIES 0.14%
National Fuel Gas Co. 300 8,673,000
Semco Energy, Inc.* 489 2,927,798
--------------
TOTAL 11,600,798
--------------
PHARMACEUTICALS 0.35%
Merck & Co., Inc. 375 11,550,000
Mylan Laboratories, Inc. 400 7,696,000
Pfizer, Inc. 400 11,032,000
--------------
TOTAL 30,278,000
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
SHARES
INVESTMENTS (000) VALUE
- ----------------------------------------------------------------------------------------------------------
RAILROADS 0.27%
Union Pacific Corp. 350 $ 22,680,000
--------------
RESTAURANTS 0.06%
McDonald's Corp. 200 5,550,000
--------------
SOFTWARE/SERVICES 0.05%
BEA Systems, Inc.* 525 4,609,500
--------------
TELECOM - INTEGRATED/SERVICES 0.12%
Verizon Communications, Inc. 300 10,365,000
--------------
TELECOMMUNICATIONS EQUIPMENT 0.07%
Avaya Inc.* 750 6,240,000
--------------
TOTAL COMMON STOCKS (Cost $462,931,942) 512,244,686
==============
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
RATE DATE (000)
-----------------------------------------
CONVERTIBLE NOTES & BONDS 10.06%
AEROSPACE/DEFENSE 0.74%
Alliant Techsystems, Inc. 2.75% 2/15/2024 $ 20,000 20,975,000
EDO Corp. 5.25% 4/15/2007 10,000 10,350,000
Lockheed Martin Corp. 3.018%# 8/15/2033 30,000 32,082,300
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TOTAL 63,407,300
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BROKERAGE 0.15%
Morgan Stanley+ 1.00% 3/30/2012 13,300 12,818,540
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BUILDING & CONSTRUCTION 0.31%
Fluor Corp. 1.50% 2/15/2024 23,000 26,680,000
--------------
COMPUTER HARDWARE 0.19%
ASML Holding N.V.(b) 5.75% 10/15/2006 15,000 16,076,250
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DIVERSIFIED CAPITAL GOODS 0.25%
Tyco Int'l. Ltd.(b) 2.75% 1/15/2018 16,175 20,946,625
--------------
ELECTRONICS 0.46%
Artesyn Technologies, Inc. 5.50% 8/15/2010 4,000 5,025,000
Cypress Semiconductor Corp. 1.25% 6/15/2008 12,500 13,281,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ----------------------------------------------------------------------------------------------------------
Flir Systems, Inc. 3.00% 6/1/2023 $ 8,000 $ 11,940,000
RF Micro Devices, Inc. 1.50% 7/1/2010 10,000 9,350,000
--------------
TOTAL 39,596,250
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GAMING 0.27%
International Game Technology Zero Coupon 1/29/2033 35,000 22,881,250
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HEALTH SERVICES 1.49%
Advanced Medical Optics, Inc. 2.50% 7/15/2024 15,000 15,131,250
Apogent Technologies Inc. 2.16%# 12/15/2033 15,000 18,534,000
Fisher Scientific Int'l., Inc. 2.50% 10/1/2023 20,000 29,325,000
Invitrogen Corp. 1.50% 2/15/2024 25,000 24,187,500
SFBC Int'l., Inc. 2.25% 8/15/2024 10,000 11,425,000
Universal Health Services, Inc. 0.426% 6/23/2020 40,000 28,400,000
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TOTAL 127,002,750
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HOTELS 0.21%
Hilton Hotels Corp. 3.375% 4/15/2023 15,000 18,131,250
--------------
HOUSEHOLD & LEISURE PRODUCTS 0.26%
Costco Cos., Inc. Zero Coupon 8/19/2017 22,000 22,522,500
--------------
INVESTMENTS & MISC. FINANCIAL SERVICES 0.61%
American Express Co. 1.85% 12/1/2033 20,000 20,350,000
Lehman Brothers Holdings Inc. 0.25% 6/24/2008 20,000 21,100,000
Lehman Brothers Holdings Inc. 0.25% 7/7/2011 10,000 10,375,000
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TOTAL 51,825,000
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MEDIA - BROADCAST 0.27%
Sinclair Broadcast Group, Inc. 4.875%# 7/15/2018 10,000 9,125,000
Sinclair Broadcast Group, Inc. 6.00% 9/15/2012 17,000 14,322,500
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TOTAL 23,447,500
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MEDIA - DIVERSIFIED 0.98%
Liberty Media Corp. Class A 3.25% 3/15/2031 45,000 34,650,000
Mediacom Communications Corp. 5.25% 7/1/2006 5,600 5,607,000
Walt Disney Co. (The) 2.125% 4/15/2023 42,500 43,828,125
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TOTAL 84,085,125
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MEDIA - SERVICES 0.31%
Lamar Advertising Co. 2.875% 12/31/2010 26,000 26,780,000
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ----------------------------------------------------------------------------------------------------------
OIL FIELD EQUIPMENT & SERVICES 0.50%
Hanover Compressor Co. 4.75% 1/15/2014 $ 8,000 $ 8,280,000
Schlumberger Ltd.(b) 1.50% 6/1/2023 30,000 34,575,000
--------------
TOTAL 42,855,000
--------------
PHARMACEUTICALS 1.21%
Amylin Pharmaceuticals, Inc. 2.50% 4/15/2011 15,000 13,631,250
Celgene Corp. 1.75% 6/1/2008 10,000 17,637,500
Teva Pharmaceutical Finance B.V.(b) 0.375% 11/15/2022 27,725 40,859,719
Teva Pharmaceutical Finance II, LLC(b) 0.50% 2/1/2024 7,750 7,633,750
Watson Pharmaceuticals, Inc. 1.75% 3/15/2023 25,000 23,312,500
--------------
TOTAL 103,074,719
--------------
SOFTWARE/SERVICES 1.07%
DST Systems, Inc. 4.125% 8/15/2023 27,000 30,881,250
EMC Corp. 4.50% 4/1/2007 20,000 21,200,000
Manugistics Group, Inc. 5.00% 11/1/2007 20,000 18,000,000
Mentor Graphics Corp. 6.875% 6/15/2007 21,000 20,895,000
--------------
TOTAL 90,976,250
--------------
SUPPORT - SERVICES 0.17%
Charles River Assoc., Inc. 2.875% 6/15/2034 9,650 14,607,687
--------------
TELECOM - WIRELESS 0.12%
Nextel Communications, Inc. 5.25% 1/15/2010 10,000 10,087,500
--------------
TELECOMMUNICATIONS EQUIPMENT 0.29%
LSI Logic Corp. 4.00% 5/15/2010 25,000 24,750,000
--------------
THEATERS & ENTERTAINMENT 0.20%
Lions Gate Entertainment Corp.(b) 3.625% 3/15/2025 17,000 17,191,250
--------------
TOTAL CONVERTIBLE NOTES & BONDS (Cost $842,105,047) 859,742,746
==============
<Caption>
SHARES
(000)
------
CONVERTIBLE PREFERRED STOCKS 2.76%
AGENCY 0.11%
Federal National Mortgage Assoc. 5.375% --(d) 9,710,450
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
INTEREST SHARES
INVESTMENTS RATE (000) VALUE
- ----------------------------------------------------------------------------------------------------------
AUTOMOTIVE 0.08%
Ford Motor Co. Capital Trust II 6.50% 175 $ 7,057,750
--------------
BANKING 0.18%
Marshall & Ilsley Corp. 6.50% 550 15,152,500
--------------
BEVERAGE 0.08%
Constellation Brands, Inc. 5.75% 160 7,152,000
--------------
ELECTRIC - DISTRIBUTION/TRANSMISSION 0.45%
FPL Group, Inc. 8.00% 600 38,766,000
--------------
FOOD & DRUG RETAILERS 0.26%
Albertson's, Inc. 7.25% 1,000 22,370,000
--------------
INTEGRATED ENERGY 0.39%
Williams Cos., Inc. (The) 5.50% 360 32,850,000
--------------
INVESTMENTS & MISC. FINANCIAL SERVICES 0.15%
Morgan Stanley+ 8.25% 198 13,178,880
--------------
LIFE INSURANCE 0.30%
MetLife, Inc. 6.375% 960 25,171,200
--------------
PHARMACEUTICALS 0.36%
Schering-Plough Corp. 6.00% 600 30,588,000
--------------
PRINTING & PUBLISHING 0.34%
Interpublic Group of Cos., Inc. (The)
Series A 5.375% 650 29,185,000
--------------
PROPERTY & CASUALTY INSURANCE 0.06%
XL Capital Ltd. Class A(b) 6.50% 200 4,790,000
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $229,647,422) 235,971,780
==============
<Caption>
PRINCIPAL
MATURITY AMOUNT
DATE (000)
-------------------------
GOVERNMENT SPONSORED ENTERPRISES
BOND 0.94%
Federal Home Loan Mortgage Corp.
(Cost $80,051,523) 7.00% 7/15/2005 $ 80,000 80,106,960
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT SPONSORED ENTERPRISES
PASS-THROUGHS 4.50%
Federal National Mortgage Assoc. 5.50% 2/1/2033 $ 46,974 $ 47,687,478
Federal National Mortgage Assoc. 5.50% 7/1/2033 55,931 56,764,840
Federal National Mortgage Assoc. 5.50% 10/1/2033 17,463 17,723,140
Federal National Mortgage Assoc. 6.00% 9/1/2032 5,310 5,449,567
Federal National Mortgage Assoc. 6.00% 5/1/2033 5,497 5,641,485
Federal National Mortgage Assoc. 6.00% 10/1/2033 8,895 9,125,608
Federal National Mortgage Assoc. 6.00% 11/1/2033 3,775 3,872,802
Federal National Mortgage Assoc. 6.00% 1/1/2034 26,451 27,136,031
Federal National Mortgage Assoc. 6.00% 2/1/2034 46,903 48,118,373
Federal National Mortgage Assoc. 6.00% 8/1/2034 33,255 34,116,887
Federal National Mortgage Assoc. 6.00% 9/1/2034 4,663 4,783,837
Federal National Mortgage Assoc. 6.00% 11/1/2034 74,725 76,659,666
Federal National Mortgage Assoc. 6.00% 2/1/2035 31,000 31,802,433
Federal National Mortgage Assoc. 7.00% 3/1/2032 6,785 7,159,145
Federal National Mortgage Assoc. 8.00% 2/1/2030 2,124 2,285,700
Federal National Mortgage Assoc. 8.00% 4/1/2030 3,460 3,724,498
Government National Mortgage Assoc. 8.00% 3/15/2032 2,246 2,428,962
--------------
TOTAL GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS (Cost $383,084,649) 384,480,452
==============
HIGH YIELD CORPORATE NOTES & BONDS 67.77%
AEROSPACE/DEFENSE 1.27%
Alliant Techsystems Inc. 8.50% 5/15/2011 15,000 16,087,500
Armor Holdings, Inc. 8.25% 8/15/2013 10,000 10,862,500
DRS Technologies, Inc. 6.875% 11/1/2013 30,000 31,200,000
Esterline Technologies Corp. 7.75% 6/15/2013 16,000 17,040,000
L-3 Communications Corp. 6.125% 1/15/2014 10,000 10,050,000
Moog Inc. Class A 6.25% 1/15/2015 4,000 4,010,000
Titan Corp. 8.00% 5/15/2011 18,250 19,664,375
--------------
TOTAL 108,914,375
--------------
APPAREL/TEXTILES 0.32%
INVISTA+ 9.25% 5/1/2012 25,000 27,437,500
--------------
AUTO LOANS 1.45%
Ford Motor Credit Co. 7.25% 10/25/2011 35,000 33,721,065
Ford Motor Credit Co. 7.375% 10/28/2009 30,000 29,342,160
General Motors Acceptance Corp. 7.25% 3/2/2011 65,100 61,111,323
--------------
TOTAL 124,174,548
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT 1.70%
Accuride Corp. 8.50% 2/1/2015 $ 10,050 $ 9,874,125
Affinia Group, Inc.+ 9.00% 11/30/2014 5,790 4,892,550
ArvinMeritor, Inc. 8.75% 3/1/2012 15,000 15,712,500
Cooper-Standard Automotive Group 8.375% 12/15/2014 19,450 15,462,750
Cummins, Inc. 9.50% 12/1/2010 16,650 18,398,250
Delco Remy Int'l., Inc. 11.00% 5/1/2009 26,600 24,605,000
Dura Operating Corp. 8.625% 4/15/2012 8,200 7,421,000
Stanadyne Corp.** 0.00%/12.00% 8/15/2009 & 2/15/2015 15,000 8,175,000
Stanadyne Corp. 10.00% 8/15/2014 10,000 9,500,000
Tenneco Automotive, Inc. 8.625% 11/15/2014 15,000 15,150,000
TRW Automotive, Inc.^ 11.00% 2/15/2013 13,954 16,116,870
--------------
TOTAL 145,308,045
--------------
AUTOMOTIVE 0.23%
General Motors Corp.^ 7.20% 1/15/2011 10,000 9,300,000
Navistar Int'l. Corp.^ 7.50% 6/15/2011 10,000 10,250,000
Venture Holdings Trust(c) 9.50% 7/1/2005 10,000 50,000
--------------
TOTAL 19,600,000
--------------
BANKING 0.42%
Regions Financial Corp. 7.00% 3/1/2011 14,000 15,771,938
Wells Fargo & Co. 5.35% 5/6/2018 20,000 20,048,640
--------------
TOTAL 35,820,578
--------------
BEVERAGE 0.19%
Le-Nature's, Inc.+ 10.00% 6/15/2013 15,000 15,825,000
--------------
BUILDING & CONSTRUCTION 0.75%
Beazer Homes USA, Inc. 6.50% 11/15/2013 10,000 9,925,000
Beazer Homes USA, Inc. 8.375% 4/15/2012 10,000 10,775,000
Lennar Corp. 7.625% 3/1/2009 15,000 16,563,045
Schuler Homes, Inc. 9.375% 7/15/2009 15,000 15,728,775
William Lyon Homes, Inc. 10.75% 4/1/2013 10,000 10,900,000
--------------
TOTAL 63,891,820
--------------
BUILDING MATERIALS 0.89%
American Standard Cos., Inc. 8.25% 6/1/2009 20,000 22,623,820
Builders FirstSource, Inc.+ 7.518%# 2/15/2012 17,400 17,400,000
Jacuzzi Brands, Inc. 9.625% 7/1/2010 22,000 24,200,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Texas Industries, Inc.+(e) 7.25% 7/15/2013 $ 2,040 $ 2,101,200
Texas Industries, Inc. 10.25% 6/15/2011 8,000 9,310,000
--------------
TOTAL 75,635,020
--------------
CHEMICALS 2.82%
Airgas, Inc. 6.25% 7/15/2014 10,000 10,175,000
Crompton Corp. 9.875% 8/1/2012 29,000 33,785,000
Equistar Chemicals, L.P. 7.55% 2/15/2026 26,000 24,245,000
Hercules, Inc. 6.75% 10/15/2029 25,000 24,375,000
Huntsman LLC 11.50% 7/15/2012 5,181 6,100,628
IMC Global, Inc. 11.25% 6/1/2011 35,000 38,850,000
Lyondell Chemical Co. 9.625% 5/1/2007 9,100 9,759,750
Nalco Co.^ 8.875% 11/15/2013 10,000 10,775,000
NOVA Chemicals Corp.(b) 6.50% 1/15/2012 12,000 11,700,000
PQ Corp.+ 7.50% 2/15/2013 8,450 8,344,375
Rhodia S.A.^(b) 8.875% 6/1/2011 26,825 25,953,187
Rockwood Specialties Group, Inc.+ 7.50% 11/15/2014 17,250 17,206,875
Rockwood Specialties Group, Inc. 10.625% 5/15/2011 4,000 4,430,000
Terra Capital, Inc. 11.50% 6/1/2010 13,000 14,885,000
--------------
TOTAL 240,584,815
--------------
CONS/COMM/LEASE FINANCING 0.27%
GATX Financial Corp. 8.875% 6/1/2009 20,000 22,819,000
--------------
CONSUMER - PRODUCTS 1.15%
Aearo Co. 8.25% 4/15/2012 7,500 7,537,500
Elizabeth Arden, Inc. 7.75% 1/15/2014 25,000 26,187,500
Playtex Products, Inc. 9.375% 6/1/2011 17,000 17,977,500
Rayovac Corp.+ 7.375% 2/1/2015 15,000 14,587,500
Rayovac Corp. 8.50% 10/1/2013 30,750 32,287,500
--------------
TOTAL 98,577,500
--------------
DIVERSIFIED CAPITAL GOODS 0.75%
J.B. Poindexter & Co., Inc. 8.75% 3/15/2014 17,675 16,172,625
Park-Ohio Industries, Inc.+ 8.375% 11/15/2014 10,700 9,603,250
Sensus Metering Systems, Inc. 8.625% 12/15/2013 20,000 18,700,000
Trinity Industries, Inc. 6.50% 3/15/2014 20,000 20,000,000
--------------
TOTAL 64,475,875
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
ELECTRIC - GENERATION 2.26%
AES Corp. (The) 9.50% 6/1/2009 $ 10,000 $ 11,200,000
AES Gener S.A.(b) 7.50% 3/25/2014 6,750 6,872,249
Dynegy Holdings, Inc.^ 6.875% 4/1/2011 22,000 21,835,000
Dynegy Holdings, Inc.+ 10.125% 7/15/2013 40,000 45,400,000
Mission Energy Holding Co. 13.50% 7/15/2008 16,000 19,080,000
NRG Energy, Inc.+ 8.00% 12/15/2013 22,750 24,115,000
Reliant Resources, Inc. 6.75% 12/15/2014 15,500 15,228,750
Reliant Resources, Inc. 9.50% 7/15/2013 34,500 38,467,500
Texas Genco Holdings, Inc.+ 6.875% 12/15/2014 10,575 11,183,063
--------------
TOTAL 193,381,562
--------------
ELECTRIC - INTEGRATED 1.62%
Duke Energy Corp. 5.375% 1/1/2009 12,000 12,414,600
Midwest Generation, LLC 8.75% 5/1/2034 25,000 28,125,000
Nevada Power Co.+ 5.875% 1/15/2015 11,800 11,918,000
PG&E Corp. 4.80% 3/1/2014 10,000 10,042,290
PPL Energy Supply LLC 6.40% 11/1/2011 12,000 13,158,828
PSEG Energy Holdings Inc. 8.50% 6/15/2011 22,500 24,637,500
PSEG Energy Holdings Inc.^ 8.625% 2/15/2008 15,000 16,012,500
TECO Energy, Inc. 7.50% 6/15/2010 20,000 21,900,000
--------------
TOTAL 138,208,718
--------------
ELECTRONICS 1.01%
Amkor Technology, Inc.^ 7.75% 5/15/2013 12,000 10,380,000
Communications & Power Industries, Inc. 8.00% 2/1/2012 17,850 18,028,500
Corning, Inc.^ 5.90% 3/15/2014 10,000 10,326,670
Corning, Inc. 8.30% 4/4/2025 15,000 15,665,055
Freescale Semiconductor, Inc.^ 7.125% 7/15/2014 16,000 17,280,000
SBA Communications Corp.** 0.00%/9.75% 12/15/2007 & 2011 15,657 14,482,725
--------------
TOTAL 86,162,950
--------------
ENERGY - EXPLORATION & PRODUCTION 3.36%
Chesapeake Energy Corp.+ 6.25% 1/15/2018 45,000 44,550,000
Chesapeake Energy Corp. 7.00% 8/15/2014 25,750 27,423,750
El Paso Production Holding Co. 7.75% 6/1/2013 35,000 37,537,500
Energy Partners Ltd. 8.75% 8/1/2010 15,000 15,825,000
EXCO Resources, Inc. 7.25% 1/15/2011 31,000 31,155,000
Forest Oil Corp.^ 7.75% 5/1/2014 10,000 10,800,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Forest Oil Corp. 8.00% 6/15/2008 $ 15,000 $ 15,975,000
Harvest Operations Corp.(b) 7.875% 10/15/2011 10,000 9,575,000
Houston Exploration Co. 7.00% 6/15/2013 16,000 16,600,000
KCS Energy Services, Inc.+ 7.125% 4/1/2012 11,300 11,582,500
KCS Energy Services, Inc. 7.125% 4/1/2012 13,600 13,940,000
Kerr-McGee Corp. 6.95% 7/1/2024 10,150 10,538,471
Magnum Hunter Resources Corp. 9.60% 3/15/2012 4,500 5,017,500
Pogo Producing Co.+ 6.625% 3/15/2015 12,000 12,450,000
Range Resources Corp. 7.375% 7/15/2013 22,925 24,529,750
--------------
TOTAL 287,499,471
--------------
ENVIRONMENTAL 0.83%
Allied Waste North America, Inc. 5.75% 2/15/2011 15,000 14,100,000
Allied Waste North America, Inc.^ 6.125% 2/15/2014 33,500 31,280,625
Allied Waste North America, Inc.+ 7.25% 3/15/2015 25,800 25,090,500
--------------
TOTAL 70,471,125
--------------
FOOD - WHOLESALE 1.59%
American Seafood Holdings LLC 10.125% 4/15/2010 10,000 10,725,000
Chiquita Brands Int'l., Inc. 7.50% 11/1/2014 25,000 23,375,000
Corn Products Int'l., Inc. 8.25% 7/15/2007 15,000 16,105,665
Del Monte Corp. 8.625% 12/15/2012 10,000 11,050,000
Dole Food Co. 8.75% 7/15/2013 20,000 21,750,000
Dole Food Co. 8.875% 3/15/2011 5,698 6,111,105
Land O'Lakes, Inc. 8.75% 11/15/2011 10,000 10,125,000
Land O'Lakes, Inc. 9.00% 12/15/2010 15,000 16,237,500
Pinnacle Foods Holdings Corp. 8.25% 12/1/2013 22,725 20,452,500
--------------
TOTAL 135,931,770
--------------
FOOD & DRUG RETAILERS 1.67%
Ingles Markets, Inc.^ 8.875% 12/1/2011 23,250 23,744,062
Jean Coutu Group (PJC) Inc. (The)(b) 8.50% 8/1/2014 18,500 18,361,250
Rite Aid Corp. 6.875% 8/15/2013 34,000 29,580,000
Rite Aid Corp. 8.125% 5/1/2010 35,150 36,380,250
Roundy's, Inc. 8.875% 6/15/2012 10,000 10,350,000
Stater Brothers Holdings, Inc. 8.125% 6/15/2012 25,000 24,500,000
--------------
TOTAL 142,915,562
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
FORESTRY/PAPER 3.13%
Abitibi-Consolidated, Inc.(b) 8.55% 8/1/2010 $ 20,025 $ 20,976,187
Ainsworth Lumber Co. Ltd.(b) 7.25% 10/1/2012 15,000 14,362,500
Boise Cascade, LLC+ 7.125% 10/15/2014 10,000 9,875,000
Bowater, Inc.^ 6.50% 6/15/2013 32,000 31,760,000
Buckeye Technologies, Inc. 8.00% 10/15/2010 21,000 20,265,000
Jefferson Smurfit Corp. 7.50% 6/1/2013 20,000 19,200,000
Jefferson Smurfit Corp. 8.25% 10/1/2012 10,000 10,100,000
JSG Funding plc+(b) 7.75% 4/1/2015 18,000 14,850,000
JSG Funding plc(b) 9.625% 10/1/2012 14,500 14,572,500
JSG Holding plc PIK+(a) 11.50% 10/1/2015 10,195 9,572,765
Longview Fibre Co. 10.00% 1/15/2009 11,500 12,305,000
Newark Group, Inc. 9.75% 3/15/2014 11,500 10,637,500
Norske Skog Canada Ltd.^(b) 7.375% 3/1/2014 18,925 18,641,125
Stone Container Corp. 8.375% 7/1/2012 4,000 4,060,000
Stone Container Corp. 9.75% 2/1/2011 17,000 18,062,500
Tembec Industries, Inc.(b) 7.75% 3/15/2012 15,000 11,100,000
Tembec Industries, Inc.^(b) 8.625% 6/30/2009 33,500 27,470,000
--------------
TOTAL 267,810,077
--------------
GAMING 4.62%
Aztar Corp. 7.875% 6/15/2014 10,000 10,625,000
Boyd Gaming Corp. 8.75% 4/15/2012 8,650 9,439,312
Hard Rock Hotel, Inc. 8.875% 6/1/2013 30,000 32,775,000
Harrah's Operating Co., Inc.^ 5.375% 12/15/2013 10,000 10,162,390
Harrah's Operating Co., Inc. 7.50% 1/15/2009 25,000 27,328,250
Isle of Capri Casinos, Inc. 7.00% 3/1/2014 34,250 34,592,500
Isle of Capri Casinos, Inc.^ 9.00% 3/15/2012 15,000 16,387,500
Las Vegas Sands Corp.+ 6.375% 2/15/2015 32,325 31,759,313
Mandalay Resort Group^ 9.375% 2/15/2010 20,000 22,450,000
MGM Mirage, Inc. 6.75% 9/1/2012 29,150 30,170,250
Park Place Entertainment Corp. 8.125% 5/15/2011 15,000 17,325,000
Park Place Entertainment Corp. 9.375% 2/15/2007 23,500 25,321,250
Penn National Gaming, Inc. 6.875% 12/1/2011 16,250 16,737,500
Premier Entertainment Biloxi LLC 10.75% 2/1/2012 6,350 6,191,250
River Rock Entertainment Authority 9.75% 11/1/2011 15,700 17,309,250
Scientific Games Corp.+ 6.25% 12/15/2012 10,000 10,150,000
Seneca Gaming Corp.^ 7.25% 5/1/2012 4,500 4,674,375
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Station Casinos, Inc. 6.50% 2/1/2014 $ 30,500 $ 31,262,500
Turning Stone Casino Resort+ 9.125% 12/15/2010 12,000 12,750,000
Wynn Las Vegas LLC/Wynn
Las Vegas Capital Corp. 6.625% 12/1/2014 28,000 27,370,000
--------------
TOTAL 394,780,640
--------------
GAS DISTRIBUTION 2.29%
El Paso Corp.^ 7.00% 5/15/2011 40,000 40,100,000
El Paso Corp. 7.75% 1/15/2032 28,250 27,685,000
Ferrellgas Partners, L.P. 6.75% 5/1/2014 15,950 15,471,500
Ferrellgas Partners, L.P. 8.75% 6/15/2012 13,825 13,894,125
MarkWest Energy Partners, L.P.+ 6.875% 11/1/2014 23,050 23,050,000
Sonat Inc.^ 7.625% 7/15/2011 18,000 18,225,000
Suburban Propane Partners, L.P. 6.875% 12/15/2013 20,000 19,100,000
Suburban Propane Partners, L.P.+ 6.875% 12/15/2013 4,325 4,130,375
Williams Cos., Inc. (The) 7.875% 9/1/2021 30,000 34,275,000
--------------
TOTAL 195,931,000
--------------
HEALTH SERVICES 4.66%
Alliance Imaging, Inc. 7.25% 12/15/2012 12,000 11,400,000
AmeriPath, Inc. 10.50% 4/1/2013 22,500 22,893,750
Ardent Health Services Inc. 10.00% 8/15/2013 15,000 18,206,250
Bio-Rad Laboratories, Inc. 6.125% 12/15/2014 11,700 11,875,500
CDRV Investors, Inc.**+ 0.00%/9.625% 1/1/2010 & 2015 13,750 6,806,250
Coventry Health Care, Inc. 6.125% 1/15/2015 10,000 10,225,000
DaVita, Inc.+ 7.25% 3/15/2015 10,500 10,841,250
Fresenius Medical Capital Trust II 7.875% 2/1/2008 15,000 15,712,500
Hanger Orthopedic Group, Inc.^ 10.375% 2/15/2009 14,000 12,985,000
HCA Inc 6.375% 1/15/2015 22,250 23,142,403
HealthSouth Corp. 8.375% 10/1/2011 20,000 19,950,000
HealthSouth Corp. 10.75% 10/1/2008 15,000 15,675,000
National Mentor, Inc.+ 9.625% 12/1/2012 12,000 12,690,000
National Nephrology Assoc., Inc.+ 9.00% 11/1/2011 9,000 10,147,500
PacifiCare Health System, Inc. 10.75% 6/1/2009 22,750 25,138,750
PerkinElmer, Inc. 8.875% 1/15/2013 25,750 28,775,625
Rotech Healthcare Inc. 9.50% 4/1/2012 6,630 7,127,250
Senior Housing Properties Trust 8.625% 1/15/2012 7,750 8,699,375
Stewart Enterprises, Inc.+ 6.25% 2/15/2013 7,500 7,462,500
Tenet Healthcare Corp. 7.375% 2/1/2013 40,000 39,700,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.+ 9.25% 2/1/2015 $ 26,700 $ 27,834,750
Tenet Healthcare Corp. 9.875% 7/1/2014 10,000 10,775,000
Triad Hospitals, Inc. 7.00% 11/15/2013 20,000 20,650,000
Vanguard Health Holdings Co. II LLC 9.00% 10/1/2014 18,125 19,665,625
--------------
TOTAL 398,379,278
--------------
HOTELS 1.29%
FelCor Lodging Trust, Inc. 9.00% 6/1/2011 15,000 16,462,500
Gaylord Entertainment Co. 6.75% 11/15/2014 15,000 14,737,500
Host Marriott L.P.+ 6.375% 3/15/2015 17,250 17,163,750
Host Marriott L.P. 7.00% 8/15/2012 20,000 20,850,000
Host Marriott L.P. 9.25% 10/1/2007 25,000 27,125,000
John Q. Hammons Hotels, Inc. 8.875% 5/15/2012 12,500 13,687,500
--------------
TOTAL 110,026,250
--------------
INVESTMENTS & MISC FINANCIAL SERVICES 0.83%
Dow Jones CDX HY+ 7.75% 12/29/2009 50,000 50,750,000
Dow Jones CDX HY+ 8.25% 6/29/2010 20,000 20,100,000
--------------
TOTAL 70,850,000
--------------
LEISURE 0.62%
Gaylord Entertainment Co. 8.00% 11/15/2013 31,000 32,743,750
Six Flags, Inc. 9.625% 6/1/2014 12,000 11,280,000
Universal City Development Partners, Ltd. 11.75% 4/1/2010 8,000 9,220,000
--------------
TOTAL 53,243,750
--------------
MACHINERY 0.84%
Briggs & Stratton Corp. 8.875% 3/15/2011 10,000 11,475,000
Case New Holland Inc. 9.25% 8/1/2011 10,000 10,550,000
Dresser, Inc. 9.375% 4/15/2011 15,000 15,862,500
Gardner Denver, Inc.+ 8.00% 5/1/2013 7,650 7,777,449
JLG Industries, Inc. 8.25% 5/1/2008 15,000 15,787,500
Manitowoc Co., Inc. 7.125% 11/1/2013 10,000 10,500,000
--------------
TOTAL 71,952,449
--------------
MEDIA - BROADCAST 2.46%
Allbritton Communications Co.^ 7.75% 12/15/2012 65,000 64,350,000
Clear Channel Communications, Inc. 4.625% 1/15/2008 10,450 10,335,343
Clear Channel Communications, Inc. 7.65% 9/15/2010 18,500 20,058,754
Emmis Operating Co. 6.875% 5/15/2012 28,000 27,860,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Lin Television Corp. 6.50% 5/15/2013 $ 10,075 $ 9,621,625
Paxson Communications Corp. 10.75% 7/15/2008 40,000 39,600,000
Radio One, Inc.+ 6.375% 2/15/2013 10,000 9,887,500
Sinclair Broadcast Group, Inc. 8.00% 3/15/2012 17,832 18,366,960
Sinclair Broadcast Group, Inc. 8.75% 12/15/2011 10,000 10,550,000
--------------
TOTAL 210,630,182
--------------
MEDIA - CABLE 4.49%
Century Communications Corp.(g) 8.375% 12/15/2007 8,000 8,240,000
Century Communications Corp.(g) 9.50% 3/1/2005 40,000 41,400,000
Charter Communications Holdings LLC 10.00% 4/1/2009 50,000 38,875,000
Charter Communications Holdings LLC 10.25% 9/15/2010 20,000 20,325,000
Comcast Corp. 5.85% 1/15/2010 15,000 15,879,015
CSC Holdings, Inc. 8.125% 8/15/2009 22,800 23,199,000
DirecTV Holdings LLC+ 6.375% 6/15/2015 19,150 19,150,000
DirecTV Holdings LLC 8.375% 3/15/2013 16,900 18,801,250
Echostar DBS Corp. 6.375% 10/1/2011 17,500 17,434,375
Echostar DBS Corp. 9.125% 1/15/2009 10,000 10,675,000
Frontiervision L.P.(c) 11.875% 9/15/2007 20,000 27,600,000
Frontiervision L.P. Series B(c) 11.875% 9/15/2007 10,000 13,800,000
Globo Comunicacoes E
Participacoes S.A.+(b)(c) 10.625% 12/5/2008 20,000 20,700,000
Insight Communications Co., Inc.** 0.00%/12.25% 2/15/2006 & 2011 50,000 50,375,000
Mediacom Communications Corp.^ 9.50% 1/15/2013 42,500 42,606,250
Renaissance Media Group LLC 10.00% 4/15/2008 15,000 14,925,000
--------------
TOTAL 383,984,890
--------------
MEDIA - DIVERSIFIED 0.19%
Block Communications, Inc. 9.25% 4/15/2009 15,000 16,050,000
--------------
MEDIA - SERVICES 0.64%
Interpublic Group of Cos., Inc. (The) 6.25% 11/15/2014 14,820 13,913,238
Interpublic Group of Cos., Inc. (The)* 7.25% 8/15/2011 10,000 10,130,090
Warner Music Group Corp. 7.375% 4/15/2014 30,000 30,450,000
--------------
TOTAL 54,493,328
--------------
METALS/MINING EXCLUDING STEEL 0.64%
Century Aluminum Co. 7.50% 8/15/2014 5,550 5,508,375
Foundation PA Coal Co. 7.25% 8/1/2014 8,300 8,756,500
Novelis, Inc.+(b) 7.25% 2/15/2015 15,000 15,131,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
Peabody Energy Corp. 5.875% 4/15/2016 $ 15,000 $ 15,075,000
Timken Co. (The) 5.75% 2/15/2010 10,000 10,265,420
--------------
TOTAL 54,736,545
--------------
NON-ELECTRIC UTILITIES 0.17%
Semco Energy, Inc. 7.75% 5/15/2013 14,050 14,735,865
--------------
NON-FOOD & DRUG RETAILERS 1.08%
Couche-Tard U.S. L.P. 7.50% 12/15/2013 14,000 14,770,000
J.C. Penney Co., Inc. 7.95% 4/1/2017 16,750 19,388,125
J.C. Penney Co., Inc. 8.00% 3/1/2010 10,000 11,050,000
Saks, Inc. 7.375% 2/15/2019 32,925 33,089,625
Toys "R" Us, Inc. 7.625% 8/1/2011 15,000 13,837,500
--------------
TOTAL 92,135,250
--------------
OFFICE EQUIPMENT 0.17%
Xerox Corp. 6.875% 8/15/2011 14,000 14,910,000
--------------
OIL FIELD EQUIPMENT & SERVICES 0.60%
Hanover Compressor Co. 8.625% 12/15/2010 12,075 12,829,688
Hanover Compressor Co. 9.00% 6/1/2014 6,150 6,580,500
J. Ray McDermott, S.A.+ 11.50% 12/15/2013 10,000 11,250,000
Key Energy Services, Inc. 6.375% 5/1/2013 12,000 12,120,000
Pride Int'l., Inc. 7.375% 7/15/2014 8,000 8,820,000
--------------
TOTAL 51,600,188
--------------
PACKAGING 2.01%
Anchor Glass Container Corp. 11.00% 2/15/2013 15,000 11,775,000
Constar Int'l., Inc.^ 11.00% 12/1/2012 11,900 9,520,000
Crown Cork & Seal, Inc.^ 7.375% 12/15/2026 45,000 41,512,500
Graham Packaging Co., Inc.+ 8.50% 10/15/2012 17,795 18,061,925
Owens-Brockway Glass Container, Inc. 7.75% 5/15/2011 25,000 26,687,500
Owens-Brockway Glass Container, Inc. 8.875% 2/15/2009 35,000 37,362,500
Owens Illinois, Inc. 7.50% 5/15/2010 20,000 21,100,000
Vitro Envases Norteamerica+(b) 10.75% 7/23/2011 6,000 5,850,000
--------------
TOTAL 171,869,425
--------------
PHARMACEUTICALS 0.75%
Alpharma Inc.+ 8.625% 5/1/2011 25,000 24,562,500
Warner Chilcott Corp.+ 8.75% 2/1/2015 40,000 39,100,000
--------------
TOTAL 63,662,500
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING 1.95%
American Media, Inc. 10.25% 5/1/2009 $ 5,000 $ 5,025,000
Dex Media, Inc.** 0.00%/9.00% 11/15/2008 & 2013 15,000 12,150,000
Dex Media, Inc. 8.00% 11/15/2013 13,000 13,877,500
Dex Media West 9.875% 8/15/2013 25,394 29,076,130
Houghton Mifflin Co.** 0.00%/11.50% 10/15/2008 & 2013 25,000 18,375,000
Houghton Mifflin Co. 9.875% 2/1/2013 35,000 37,537,500
Primedia, Inc. 8.875% 5/15/2011 15,000 15,787,500
R.H. Donnelley Corp.+ 6.875% 1/15/2013 22,150 22,703,750
R.H. Donnelley Inc. 10.875% 12/15/2012 10,000 11,675,000
--------------
TOTAL 166,207,380
--------------
RAILROADS 0.34%
Union Pacific Corp. 3.625% 6/1/2010 30,500 29,339,902
--------------
RESTAURANTS 0.48%
Denny's Corp./Denny's Holdings Inc. 10.00% 10/1/2012 15,500 16,197,500
Friendly Ice Cream Corp.^ 8.375% 6/15/2012 14,000 13,650,000
O'Charley's, Inc. 9.00% 11/1/2013 10,000 10,850,000
--------------
TOTAL 40,697,500
--------------
SOFTWARE/SERVICES 0.42%
Electronic Data Systems Corp. 6.50% 8/1/2013 27,500 28,157,855
Unisys Corp. 6.875% 3/15/2010 8,000 7,900,000
--------------
TOTAL 36,057,855
--------------
STEEL PRODUCERS/PRODUCTS 0.32%
AK Steel Corp. 7.75% 6/15/2012 15,000 12,750,000
Allegheny Ludlum Corp. 6.95% 12/15/2025 15,000 14,491,770
--------------
TOTAL 27,241,770
--------------
SUPPORT-SERVICES 1.53%
Iron Mountain Inc. 6.625% 1/1/2016 37,000 34,410,000
Iron Mountain Inc. 7.75% 1/15/2015 50,000 50,500,000
Iron Mountain Inc. 8.625% 4/1/2013 15,000 15,600,000
JohnsonDiversey Holdings Inc.** 0.00%/10.67% 5/15/2007 & 2013 12,000 8,595,000
United Rentals (North America), Inc.^ 7.75% 11/15/2013 22,225 21,947,188
--------------
TOTAL 131,052,188
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
TELECOM - FIXED LINE 0.39%
Level 3 Communications, Inc. 11.25% 3/15/2010 $ 15,000 $ 11,925,000
Level 3 Financing, Inc.+^ 10.75% 10/15/2011 25,000 21,187,500
--------------
TOTAL 33,112,500
--------------
TELECOM - INTEGRATED/SERVICES 2.40%
Cincinnati Bell, Inc.+ 8.375% 1/15/2014 3,000 3,090,000
Cincinnati Bell, Inc. 8.375% 1/15/2014 25,000 25,750,000
Intelsat Bermuda Ltd.+(b) 8.25% 1/15/2013 22,750 23,603,125
MCI, Inc. 8.735% 5/1/2014 15,500 17,418,125
Qwest Capital Funding, Inc. 7.90% 8/15/2010 63,000 63,000,000
Qwest Communications Int'l., Inc. 7.25% 2/15/2011 10,000 9,725,000
Qwest Services Corp. 13.50% 12/15/2010 31,800 36,888,000
Telefonica de Argentina S.A.^(b) 9.125% 11/7/2010 13,500 14,748,750
Valor Telecommunications
Enterprise LLC/Finance Corp.+ 7.75% 2/15/2015 11,275 11,134,063
--------------
TOTAL 205,357,063
--------------
TELECOM - WIRELESS 2.61%
Airgate PCS, Inc. 6.891%# 10/15/2011 12,000 12,330,000
Airgate PCS, Inc.+^ 9.375% 9/1/2009 5,000 5,275,000
Airgate PCS, Inc. 9.375% 9/1/2009 9,200 9,705,895
Alamosa Delaware, Inc. 11.00% 7/31/2010 15,000 16,893,750
Centennial Communications Corp. 10.125% 6/15/2013 33,000 37,455,000
Dobson Communications Corp. 8.875% 10/1/2013 6,900 6,348,000
Dobson Communications Corp. 10.875% 7/1/2010 15,000 14,962,500
Nextel Partners, Inc. 8.125% 7/1/2011 27,200 29,648,000
Rogers Wireless, Inc.(b) 9.625% 5/1/2011 5,000 5,893,750
Rural Cellular Corp. 9.75% 1/15/2010 20,225 18,910,375
TeleCorp PCS, Inc. 10.625% 7/15/2010 16,000 16,927,344
Triton PCS, Inc. 8.75% 11/15/2011 14,500 10,331,250
Triton PCS, Inc. 9.375% 2/1/2011 11,000 7,947,500
UbiquiTel Operating Co. 9.875% 3/1/2011 15,000 16,537,500
Western Wireless Corp. 9.25% 7/15/2013 12,500 14,296,875
--------------
TOTAL 223,462,739
--------------
TELECOMMUNICATIONS EQUIPMENT 0.16%
Lucent Technologies, Inc. 6.45% 3/15/2029 15,000 13,500,000
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
INTEREST MATURITY AMOUNT
INVESTMENTS RATE DATE (000) VALUE
- ---------------------------------------------------------------------------------------------------------------------
THEATERS & ENTERTAINMENT 0.58%
AMC Entertainment, Inc. 8.00% 3/1/2014 $ 25,000 $ 22,312,500
Carmike Cinemas, Inc. Class A^ 7.50% 2/15/2014 11,325 10,319,906
Cinemark USA, Inc. 9.00% 2/1/2013 10,000 10,325,000
LCE Acquisition Corp.+ 9.00% 8/1/2014 6,400 6,224,000
--------------
TOTAL 49,181,406
--------------
TRANSPORTATION EXCLUDING AIR/RAIL 0.56%
CHC Helicopter Corp. Class A(b) 7.375% 5/1/2014 15,000 15,037,500
CHC Helicopter Corp. Class A+(b) 7.375% 5/1/2014 5,000 5,012,500
Hornbeck Offshore Services, Inc. 6.125% 12/1/2014 12,790 13,013,825
Offshore Logistics, Inc. 6.125% 6/15/2013 15,645 15,175,650
--------------
TOTAL 48,239,475
--------------
TOTAL HIGH YIELD CORPORATE
NOTES & BONDS (Cost $5,669,291,581) 5,792,866,629
==============
NON-AGENCY COMMERCIAL
MORTGAGE-BACKED SECURITY 0.25%
Credit Suisse First Boston Series 1998-C2
Class A2 (Cost $19,517,452) 6.30% 11/11/2030 20,000 21,266,684
==============
U.S. TREASURY OBLIGATIONS 1.89%
U.S. Treasury Note 4.375% 5/15/2007 75,000 76,022,475
U.S. Treasury Note 5.00% 2/15/2011 80,650 85,712,723
--------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $161,403,158) 161,735,198
--------------
TOTAL LONG-TERM INVESTMENTS (Cost $7,848,032,774) 8,048,415,135
==============
<Caption>
SHARES
(000)
------
SHORT-TERM INVESTMENTS 6.42%
COLLATERAL FOR SECURITIES ON LOAN 1.69%
State Street Navigator Securities
Lending Prime Portfolio 3.15%(f) 144,467 144,466,730
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT
(000) VALUE
- -----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 4.73%
Repurchase Agreement dated 6/30/2005, 2.45%
due 7/1/2005 with State Street Bank &
Trust Co. collateralized by $409,525,000 of
Federal Home Loan Bank at zero coupon to
4.125% due from 7/20/2005 to 2/15/2008;
value: $412,438,491; proceeds: $404,378,238 $ 404,351 $ 404,350,719
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $548,817,449) 548,817,449
===============
TOTAL INVESTMENTS IN SECURITIES 100.58% (Cost $8,396,850,223) 8,597,232,584
===============
LIABILITIES IN EXCESS OF FOREIGN CURRENCY, CASH AND OTHER ASSETS (0.58%) (49,802,174)
---------------
NET ASSETS 100.00% $ 8,547,430,410
===============
</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 June 30,
2005.
^ All (or a portion of security) on loan. See Note 2.
(a) Bond issued by a foreign entity, denominated in Euros and converted to U.S.
dollars at period-end exchange rate. The value of this security is 0.14% of
total net assets. The remaining securities, 99.86% of total net assets, are
invested in U.S. dollar-denominated securities.
(b) Foreign security traded in U.S. dollars.
(c) Defaulted security.
(d) Amount represents less than 1,000 shares.
(e) Securities purchased on a when-issued basis.
(f) Rate shown reflects 7 day yield as of June 30, 2005.
(g) Security in default. Maturity date represents original maturity date.
PIK Payment-in-kind.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2005
<Table>
ASSETS:
Investment in securities, at value (cost $8,396,850,223) $ 8,597,232,584
Cash 324,375
Receivables:
Interest and dividends 125,141,809
Investment securities sold 19,257,804
Capital shares sold 11,841,957
Prepaid expenses and other assets 543,483
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 8,754,342,012
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable upon return of securities on loan 144,466,730
Payables:
Investment securities purchased 37,121,041
Capital shares reacquired 14,341,104
Management fee 3,155,620
12b-1 distribution fees 4,633,688
Fund administration 280,800
Directors' fees 921,707
To bank-foreign cash, at value (cost $726) 686
To affiliate (See Note 3) 61,275
Accrued expenses and other liabilities 1,928,951
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 206,911,602
================================================================================================================
NET ASSETS $ 8,547,430,410
================================================================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 8,988,919,332
Distributions in excess of net investment income (55,844,137)
Accumulated net realized loss on investments and foreign currency related transactions (586,012,535)
Net unrealized appreciation on investments 200,367,750
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 8,547,430,410
================================================================================================================
NET ASSETS BY CLASS:
Class A Shares $ 4,970,841,356
Class B Shares $ 1,615,326,912
Class C Shares $ 1,544,014,585
Class P Shares $ 134,323,445
Class Y Shares $ 282,924,112
OUTSTANDING SHARES BY CLASS:
Class A Shares (740 million shares of common shares authorized, $.001 par value) 628,274,398
Class B Shares (500 million shares of common shares authorized, $.001 par value) 204,057,345
Class C Shares (300 million shares of common shares authorized, $.001 par value) 194,925,415
Class P Shares (160 million shares of common shares authorized, $.001 par value) 16,733,903
Class Y Shares (300 million shares of common shares authorized, $.001 par value) 35,856,652
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(NET ASSETS DIVIDED BY OUTSTANDING SHARES):
Class A Shares-Net asset value $ 7.91
Class A Shares-Maximum offering price
(Net asset value plus sales charge of 4.75%) $ 8.30
Class B Shares-Net asset value $ 7.92
Class C Shares-Net asset value $ 7.92
Class P Shares-Net asset value $ 8.03
Class Y Shares-Net asset value $ 7.89
- ----------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<Page>
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2005
<Table>
INVESTMENT INCOME:
Dividends $ 13,009,188
Interest 267,241,778
Securities lending-net 841,915
Foreign withholding tax (3,000)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 281,089,881
- ----------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee 19,588,713
12b-1 distribution plan-Class A 8,745,823
12b-1 distribution plan-Class B 8,407,734
12b-1 distribution plan-Class C 8,048,735
12b-1 distribution plan-Class P 270,348
Shareholder servicing 5,194,790
Professional 83,688
Reports to shareholders 614,722
Fund administration 1,730,199
Custody 150,605
Directors' fees 280,245
Registration 78,876
Subsidy (See Note 3) 222,682
Other 89,624
- ----------------------------------------------------------------------------------------------------------------
Gross expenses 53,506,784
Expense reductions (See Note 7) (88,648)
- ----------------------------------------------------------------------------------------------------------------
NET EXPENSES 53,418,136
- ----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 227,671,745
================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments and foreign currency related transactions 78,128,574
Net change in unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in foreign currencies (348,651,176)
================================================================================================================
NET REALIZED AND UNREALIZED LOSS (270,522,602)
================================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (42,850,857)
================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX MONTHS
ENDED JUNE 30, 2005 FOR THE YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) DECEMBER 31, 2004
OPERATIONS:
Net investment income $ 227,671,745 $ 461,636,138
Net realized gain (loss) on investments and
foreign currency related transactions 78,128,574 163,913,812
Net change in unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies (348,651,176) 48,862,743
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS (42,850,857) 674,412,693
================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (162,700,594) (304,259,218)
Class B (49,560,137) (105,827,104)
Class C (47,585,185) (94,625,703)
Class P (3,806,904) (5,402,678)
Class Y (9,638,228) (15,911,837)
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (273,291,048) (526,026,540)
================================================================================================================
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 711,680,139 1,952,137,115
Reinvestment of distributions 202,580,872 380,570,154
Cost of shares reacquired (1,048,705,210) (1,678,331,223)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS (134,444,199) 654,376,046
================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS (450,586,104) 802,762,199
================================================================================================================
NET ASSETS:
Beginning of period 8,998,016,514 8,195,254,315
- ----------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 8,547,430,410 $ 8,998,016,514
================================================================================================================
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME $ (55,844,137) $ (10,224,834)
================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(CLASS A SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.20 $ 8.06 $ 7.19 $ 7.91 $ 8.23 $ 9.05
============ ============ ============ ============ ============ ============
Investment operations:
Net investment income(a) .22 .46 .48 .55 .65 .68
Net realized and
unrealized gain (loss) (.25) .20 .92 (.64) (.26) (.75)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (.03) .66 1.40 (.09) .39 (.07)
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders
from:
Net investment income (.26) (.52) (.50) (.58) (.67) (.75)
Paid-in capital - - (.03) (.05) (.04) -
------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.26) (.52) (.53) (.63) (.71) (.75)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
END OF PERIOD $ 7.91 $ 8.20 $ 8.06 $ 7.19 $ 7.91 $ 8.23
============ ============ ============ ============ ============ ============
Total Return(b) (.35)%(c) 8.56% 20.28% (1.08)% 4.86% (.86)%
RATIOS TO AVERAGE NET ASSETS:
Expenses, including expense
reductions .50%(c) .99% 1.00% 1.00% 1.02% 1.00%
Expenses, excluding expense
reductions .50%(c) .99% 1.00% 1.00% 1.02% 1.01%
Net investment income 2.73%(c) 5.71% 6.31% 7.51% 7.96% 7.88%
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets,
end of period (000) $ 4,970,841 $ 5,093,236 $ 4,497,233 $ 3,048,301 $ 2,500,544 $ 2,065,319
Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(CLASS B SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.20 $ 8.06 $ 7.20 $ 7.92 $ 8.23 $ 9.05
============ ============ ============ ============ ============ ============
Investment operations:
Net investment income(a) .19 .41 .43 .51 .60 .63
Net realized and
unrealized gain (loss) (.24) .20 .92 (.65) (.25) (.76)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (.05) .61 1.35 (.14) .35 (.13)
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders
from:
Net investment income (.23) (.47) (.46) (.53) (.63) (.69)
Paid-in capital - - (.03) (.05) (.03) -
------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.23) (.47) (.49) (.58) (.66) (.69)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
END OF PERIOD $ 7.92 $ 8.20 $ 8.06 $ 7.20 $ 7.92 $ 8.23
============ ============ ============ ============ ============ ============
Total Return(b) (.56)%(c) 7.86% 19.43% (1.67)% 4.29% (1.52)%
RATIOS TO AVERAGE NET ASSETS:
Expenses, including expense
reductions .82%(c) 1.64% 1.64% 1.65% 1.63% 1.61%
Expenses, excluding expense
reductions .82%(c) 1.64% 1.64% 1.65% 1.63% 1.62%
Net investment income 2.41%(c) 5.07% 5.67% 6.86% 7.35% 7.26%
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets,
end of period (000) $ 1,615,327 $ 1,803,609 $ 1,861,920 $ 1,294,955 $ 1,105,501 $ 786,786
Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(CLASS C SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.21 $ 8.07 $ 7.21 $ 7.93 $ 8.24 $ 9.06
============ ============ ============ ============ ============ ============
Investment operations:
Net investment income(a) .19 .41 .43 .51 .60 .63
Net realized and
unrealized gain (loss) (.25) .20 .92 (.64) (.25) (.76)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (.06) .61 1.35 (.13) .35 (.13)
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders
from:
Net investment income (.23) (.47) (.46) (.54) (.63) (.69)
Paid-in capital - - (.03) (.05) (.03) -
------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.23) (.47) (.49) (.59) (.66) (.69)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
END OF PERIOD $ 7.92 $ 8.21 $ 8.07 $ 7.21 $ 7.93 $ 8.24
============ ============ ============ ============ ============ ============
Total Return(b) (.67)%(c) 7.86% 19.43% (1.58)% 4.29% (1.52)%
RATIOS TO AVERAGE NET ASSETS:
Expenses, including expense
reductions .82%(c) 1.64% 1.64% 1.59% 1.62% 1.65%
Expenses, excluding expense
reductions .82%(c) 1.64% 1.64% 1.59% 1.62% 1.66%
Net investment income 2.41%(c) 5.07% 5.67% 6.92% 7.36% 7.26%
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets,
end of period (000) $ 1,544,015 $ 1,703,329 $ 1,593,650 $ 905,629 $ 662,848 $ 483,885
Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<Page>
FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(CLASS P SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.31 $ 8.17 $ 7.29 $ 8.02 $ 8.33 $ 9.05
============ ============ ============ ============ ============ ============
Investment operations:
Net investment income(a) .22 .45 .48 .55 .64 .67
Net realized and
unrealized gain (loss) (.24) .20 .93 (.65) (.24) (.65)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (.02) .65 1.41 (.10) .40 .02
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders
from:
Net investment income (.26) (.51) (.50) (.58) (.67) (.74)
Paid-in capital - - (.03) (.05) (.04) -
------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.26) (.51) (.53) (.63) (.71) (.74)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
END OF PERIOD $ 8.03 $ 8.31 $ 8.17 $ 7.29 $ 8.02 $ 8.33
============ ============ ============ ============ ============ ============
Total Return(b) (.27)%(c) 8.37% 20.10% (1.19)% 4.90% .06%
RATIOS TO AVERAGE NET ASSETS:
Expenses, including expense
reductions .55%(c) 1.09% 1.09% 1.10% 1.08% 1.06%
Expenses, excluding expense
reductions .55%(c) 1.09% 1.09% 1.10% 1.08% 1.07%
Net investment income 2.68%(c) 5.62% 6.22% 7.41% 7.88% 7.83%
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets,
end of period (000) $ 134,323 $ 113,216 $ 60,848 $ 18,736 $ 7,017 $ 1,385
Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<Page>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
PER SHARE OPERATING PERFORMANCE
(CLASS Y SHARES)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.18 $ 8.04 $ 7.18 $ 7.90 $ 8.21 $ 9.04
============ ============ ============ ============ ============ ============
Investment operations:
Net investment income(a) .23 .48 .51 .58 .68 .71
Net realized and
unrealized gain (loss) (.25) .21 .91 (.64) (.24) (.76)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations (.02) .69 1.42 (.06) .44 (.05)
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders
from:
Net investment income (.27) (.55) (.53) (.61) (.71) (.78)
Paid-in capital - - (.03) (.05) (.04) -
------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.27) (.55) (.56) (.66) (.75) (.78)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
END OF PERIOD $ 7.89 $ 8.18 $ 8.04 $ 7.18 $ 7.90 $ 8.21
============ ============ ============ ============ ============ ============
Total Return(b) (.18)%(c) 8.97% 20.58% (.66)% 5.44% (.61)%
RATIOS TO AVERAGE NET ASSETS:
Expenses, including expense
reductions .32%(c) .64% .64% .65% .63% .61%
Expenses, excluding expense
reductions .32%(c) .64% .64% .65% .63% .62%
Net investment income 2.90%(c) 6.07% 6.67% 7.86% 8.36% 8.26%
<Caption>
SIX MONTHS
ENDED YEAR ENDED 12/31
6/30/2005 ------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets,
end of period (000) $ 282,924 $ 284,627 $ 181,603 $ 68,691 $ 44,931 $ 43,884
Portfolio turnover rate 26.90% 42.02% 40.96% 37.03% 55.44% 66.03%
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Lord Abbett Bond-Debenture Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 (the "Act") as a diversified open-end management
investment company. The Fund was incorporated under Maryland law on January 23,
1976.
The Fund's investment objective is to seek high current income and the
opportunity for capital appreciation to produce a high total return. The Fund
offers five classes of shares: Classes A, B, C, P and Y, each with different
expenses and dividends. A front-end sales charge is normally added to the Net
Asset Value ("NAV") for Class A shares. There is no front-end sales charge in
the case of the Classes B, C, P and Y shares, although there may be a contingent
deferred sales charge ("CDSC") as follows: certain redemptions of Class A shares
made within 24 months (12 months if shares were purchased on or after November
1, 2004) following certain purchases made without a sales charge; Class B shares
redeemed before the sixth anniversary of purchase; and Class C shares redeemed
before the first anniversary of purchase. Class B shares will convert to Class A
shares on the eighth anniversary of the original purchase of Class B shares.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) INVESTMENT VALUATION-Securities traded on any recognized U.S. or non-U.S.
exchange or on NASDAQ, Inc. are valued at the last sale price or official
closing price on the exchange or system on which they are principally
traded. Unlisted equity securities are valued at the last quoted sale price
or, if no sale price is available, at the mean between the most recently
quoted bid and asked prices. Fixed income securities are valued at the mean
between the bid and asked prices on the basis of prices supplied by
independent pricing services, which reflect broker/dealer supplied
valuations and electronic data processing techniques. Exchange-traded
options and futures contracts are valued at the last sale price in the
market where they are principally traded. If no sale has occurred, the mean
between the most recently quoted bid and asked prices is used. Securities
for which market quotations are not readily available are valued at fair
value as determined by management and approved in good faith by the Board of
Directors. Short-term securities with 60 days or less remaining to maturity
are valued using the amortized cost method, which approximates current
market value.
(b) SECURITY TRANSACTIONS-Security transactions are recorded as of the date that
the securities are purchased or sold (trade date). Realized gains and losses
on sales of portfolio securities are calculated using the identified-cost
method. Realized and unrealized gains (losses) are allocated to each class
of shares based upon the relative proportion of net assets at the beginning
of the day.
(c) INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Discounts are accreted and
premiums are amortized using
34
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
the effective interest method. Investment income is allocated to each class
of shares based upon the relative proportion of net assets at the beginning
of the day.
(d) FEDERAL TAXES-It is the policy of the Fund to meet the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all taxable income and capital
gains to its shareholders. Therefore, no Federal income tax provision is
required.
(e) EXPENSES-Expenses, excluding class specific expenses, are allocated to each
class of shares based upon the relative proportion of net assets at the
beginning of the day. Classes A, B, C and P shares bear all expenses and
fees relating to their respective 12b-1 Distribution Plans.
(f) FOREIGN TRANSACTIONS-The books and records of the Fund are maintained in
U.S. dollars and transactions denominated in foreign currencies are recorded
in the Fund's records at the rate prevailing when earned or recorded. Asset
and liability accounts that are denominated in foreign currencies are
adjusted to reflect current exchange rates. The resultant exchange gains and
losses are included as Net Realized and Unrealized Gain (Loss) on the
Statement of Operations. The Fund does not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the changes in market prices of the securities.
(g) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS-The Fund may enter into forward
foreign currency exchange contracts in order to reduce its exposure to
changes in foreign currency exchange rates on its foreign portfolio holdings
and to lock in the U.S. dollar cost of firm purchase and sale commitments
for securities denominated in foreign currencies. A forward foreign currency
exchange contract is a commitment to purchase or sell a foreign currency at
a future date at a negotiated rate. The contracts are valued daily at
forward exchange rates and any unrealized gain (loss) is included in Net
Change in Unrealized Appreciation (Depreciation) on Investments and
Translation of Assets and Liabilities Denominated in Foreign Currencies on
the Statement of Operations. The gain (loss) arising from the difference
between the U.S. dollar cost of the original contract and the value of the
foreign currency in U.S. dollars upon closing of such contracts is included
in Net Realized Gain (Loss) on Investments and Foreign Currency Related
Transactions on the Statement of Operations. As of June 30, 2005, there were
no open forward foreign currency exchange contracts outstanding.
(h) SECURITIES LENDING-The Fund may lend its securities to member banks of the
Federal Reserve System and to registered broker/dealers approved by the
Fund. The loans are collateralized at all times by cash and/or U.S.
Government securities in an amount at least equal to 102% of the market
value of domestic securities loaned (105% in the case of foreign securities
loaned) as determined at the close of business on the preceding business
day. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
Lending portfolio securities could result in a loss or delay in recovering
the Fund's securities if the borrower defaults.
(i) REPURCHASE AGREEMENTS-The Fund may enter into repurchase agreements with
respect to securities. A repurchase agreement is a transaction in which the
Fund acquires a security and simultaneously commits to resell that security
to the seller (a bank or securities dealer) at an agreed-upon price on an
agreed-upon date. The Fund requires at all times that the repurchase
agreement be collateralized by cash, or by securities of the U.S.
Government, its agencies, its instrumentalities, or U.S. Government
sponsored enterprises having a value
35
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
equal to, or in excess of, the value of the repurchase agreement (including
accrued interest). If the seller of the agreement defaults on its obligation
to repurchase the underlying securities at a time when the value of those
securities has declined, the Fund may incur a loss upon disposition of the
securities.
(j) STRUCTURED SECURITIES-The Fund may invest in structured securities.
Structured securities are a type of derivative security whose value is
determined by reference to changes in the value of specific underlying
securities, currencies, interest rates, commodities, indices, credit default
swaps, or other indicators (the "Reference"), or to relative changes in two
or more References. The interest rate or principal amount payable upon
maturity or redemption may be increased (decreased) depending upon changes
in the applicable Reference or certain specified events. Structured
securities may be positively or negatively indexed with the result that the
appreciation of the Reference may produce an increase (decrease) in the
interest rate or the value of the security at maturity.
(k) WHEN-ISSUED OR FORWARD TRANSACTIONS-The Fund may purchase portfolio
securities on a when-issued or forward basis. When-issued or forward
transactions involve a commitment by the Fund to purchase securities, with
payment and delivery ("settlement") to take place in the future, in order to
secure what is considered to be an advantageous price or yield at the time
of entering into the transaction. The value of fixed income securities to be
delivered in the future will fluctuate as interest rates vary. During the
period between purchase and settlement, the value of the securities will
fluctuate and assets consisting of cash and/or marketable securities
(normally short-term U.S. Government or U.S. Government sponsored
enterprises securities) marked to market daily in an amount sufficient to
make payment at settlement will be segregated at the Fund's custodian in
order to pay for the commitment. There is a risk that market yields
available at settlement may be higher than yields obtained on the purchase
date which could result in depreciation of the value of fixed income
when-issued securities. At the time the Fund makes commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect
the liability for the purchase and value of the security in determining its
net asset value. The Fund, generally, has the ability to close out a
purchase obligation on or before the settlement date rather than take
delivery of the security. Under no circumstances will settlement for such
securities take place more than 120 days after the purchase date.
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE
The Fund has a management agreement with Lord, Abbett & Co. LLC ("Lord Abbett")
pursuant to which Lord Abbett supplies the Fund with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research and statistical work and supervision of the Fund's
investment portfolio.
The management fee is based on average daily net assets at the following annual
rates:
<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.
36
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
12b-1 DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Plan") with respect to one or
more classes of shares pursuant to Rule 12b-1 of the Act, which provides for the
payment of ongoing distribution and service fees to Lord Abbett Distributor LLC
("Distributor"), an affiliate of Lord Abbett.
The fees are accrued daily at annual rates based upon average daily net assets
as follows:
<Table>
<Caption>
FEE CLASS A CLASS B CLASS C CLASS P
- ----------------------------------------------------------------------------------
Service .25%(1) .25% .25% .20%
Distribution .10%(2) .75% .75% .25%
</Table>
(1) Annual service fee on shares sold prior to June 1, 1990 is .15% of the
average daily net asset value.
(2) Until October 1, 2004, the Fund paid a one-time distribution fee of up to
1.00% on certain qualifying purchases of Class A shares. Effective October
1, 2004, the Distributor commenced payment of such one-time distribution
fee. The unamortized balance of prepaid distribution fees as of June 30,
2005 was $113,532. This amount will continue to be amortized by the Fund,
generally over a two-year period. The amount of CDSC collected by the Fund
during the six months ended June 30, 2005 was $68,044.
Class Y does not have a distribution plan.
COMMISSIONS
Distributor received the following commissions on sales of Class A shares of the
Fund, after concessions were paid to authorized dealers, for the six months
ended June 30, 2005:
<Table>
<Caption>
DISTRIBUTOR DEALERS'
COMMISSIONS CONCESSIONS
- ----------------------------------
$ 2,082,927 $ 10,677,262
</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
Strategy Fund (formerly known as Balanced Series) of Lord Abbett Investment
Trust ("Balanced Strategy Fund"), pursuant to which each Underlying Fund pays a
portion of the expenses of Balanced Strategy Fund in proportion to the average
daily value of Underlying Fund shares owned by Balanced Strategy Fund. Amounts
paid pursuant to the Servicing Agreement are included in the Subsidy on the
Statement of Operations.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARD
Dividends from net investment income, if any, are declared and paid monthly.
Taxable net realized gains from investment transactions, reduced by capital loss
carryforwards, if any, are declared and distributed to shareholders at least
annually. The capital loss carryforward amount, if any, is available to offset
future net capital gains. Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions from
net investment income and net realized capital gains are determined in
accordance with Federal income tax regulations which may differ from accounting
principles generally accepted in the United States of America. These book/tax
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the components of net assets based on their federal tax basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed earnings and profits for tax purposes are reported as
a tax return of capital.
37
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
The tax character of distributions paid during the six months ended June 30,
2005 and for the fiscal year ended December 31, 2004 are as follows:
<Table>
<Caption>
SIX MONTHS
ENDED 6/30/2005 YEAR ENDED
(UNAUDITED) 12/31/2004
- ------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 273,291,048 $ 526,026,540
- ------------------------------------------------------------------
Total distributions paid $ 273,291,048 $ 526,026,540
==================================================================
</Table>
As of December 31, 2004, the capital loss carryforwards along with the related
expiration dates were as follows:
<Table>
<Caption>
2008 2009 2010 TOTAL
- ----------------------------------------------------------------
$ 29,104,644 $ 302,852,975 $ 303,185,812 $ 635,143,431
</Table>
As of June 30, 2005, the aggregate unrealized security gains and losses based on
cost for U.S. Federal income tax purposes are as follows:
<Table>
Tax cost $ 8,435,369,492
- --------------------------------------------------------
Gross unrealized gain 346,699,347
Gross unrealized loss (184,836,255)
- --------------------------------------------------------
Net unrealized security gain $ 161,863,092
========================================================
</Table>
The difference between book-basis and tax-basis unrealized gains is primarily
attributable to wash sales and other temporary tax adjustments.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended June 30, 2005 are as follows:
<Table>
<Caption>
U.S. NON-U.S. U.S. NON-U.S.
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES* PURCHASES SALES* SALES
- ----------------------------------------------------------------------------------
$ 855,093,245 $ 1,334,703,887 $ 511,700,393 $ 1,745,008,301
</Table>
* Includes U.S. Government sponsored enterprises securities.
As of June 30, 2005, the value of securities loaned was $141,373,139. These
loans are collateralized by cash of $144,466,730, which is invested in a
restricted money market account. In connection with the securities lending
program, State Street Bank & Trust Company ("SSB") received fees of $360,821 for
the six months ended June 30, 2005, which are netted against Securities Lending
Income on the Statement of Operations.
6. DIRECTORS' REMUNERATION
The Fund's officers and the one Director who are associated with Lord Abbett do
not receive any compensation from the Fund for serving in such capacities.
Outside Directors' fees are allocated among all Lord Abbett-sponsored funds
based on the net assets of each fund. There is an equity based plan available to
all outside Directors under which outside Directors must defer receipt of a
portion of, and may elect to defer receipt of an additional portion of
Directors' fees. The
38
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
deferred amounts are treated as though equivalent dollar amounts had been
invested proportionately in the funds. Such amounts and earnings accrued thereon
are included in Directors' Fees on the Statement of Operations and in Directors'
Fees Payable on the Statement of Assets and Liabilities and are not deductible
for U.S. Federal income tax purposes until such amounts are paid.
7. EXPENSE REDUCTIONS
The Fund has entered into arrangements with its transfer agent and custodian
whereby credits realized as a result of uninvested cash balances are used to
reduce a portion of the Fund's expenses.
8. LINE OF CREDIT
The Fund, along with certain other funds managed by Lord Abbett, has available a
$200,000,000 unsecured revolving credit facility ("Facility") from a consortium
of banks, to be used for temporary or emergency purposes as an additional source
of liquidity to fund redemptions of investor shares. Any borrowings under this
Facility will bear interest at current market rates as defined in the agreement.
The fee for this Facility is an annual rate of 0.08%. At June 30, 2005, there
were no loans outstanding pursuant to this Facility nor was the Facility
utilized at any time during the six-month period ended June 30, 2005.
9. CUSTODIAN AND ACCOUNTING AGENT
SSB is the Fund's custodian and accounting agent. SSB performs custodial,
accounting and recordkeeping functions relating to portfolio transactions and
calculating the Fund's NAV.
10. INVESTMENT RISKS
The Fund is subject to the general risks and considerations associated with
investing in debt securities. The value of an investment will change as interest
rates fluctuate and in response to market movements. When interest rates rise,
the prices of debt securities are likely to decline; when rates fall, such
prices tend to rise. Longer-term securities are usually more sensitive to
interest rate changes. There is also the risk that an issuer of a debt security
will fail to make timely payments of principal or interest to the Fund, a risk
that is greater with high yield securities (sometimes called "lower-rated debt
securities" or "junk bonds") in which the Fund may invest. Some issuers,
particularly of high yield securities, may default as to principal and/or
interest payments after the Fund purchases its securities. A default, or
concerns in the market about an increase in risk of default, may result in
losses to the Fund. High yield bonds are subject to greater price fluctuations,
as well as additional risks.
The mortgage-related securities in which the Fund may invest may be particularly
sensitive to changes in prevailing interest rates. When interest rates are
declining, the value of these securities with prepayment features may not
increase as much as other fixed income securities. Early principal repayment may
deprive the Fund of income payments above current market rates. The prepayment
rate also will affect the price and volatility of a mortgage-related security.
Some of these securities may be those of such Government sponsored enterprises
as Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association. Such securities are guaranteed with respect to the timely payment
of interest and principal by the particular Government sponsored enterprise
involved, not by the U.S. Government.
39
<Page>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONCLUDED)
The Fund may invest up to 5% of its net assets in structured securities. The
Fund typically may use these securities as a substitute for taking a position in
the underlying asset and/or as part of a strategy designed to reduce exposure to
other risk, such as interest rate or currency risk. Structured securities may
present additional risks that are different from those associated with a direct
investment in fixed-income or equity securities; they may be volatile, less
liquid and more difficult to price accurately and subject to additional credit
risks. Changes in the value of structured securities may not correlate perfectly
with the underlying asset, rate or index. The Fund that invests in structured
securities could lose more than the principal amount invested.
The Fund may invest up to 20% of its net assets in equity securities which may
subject it to the general risks and considerations associated with investing in
equity securities. The value of an investment will fluctuate in response to
movements in the stock market in general and to the changing prospects of
individual companies in which the Fund invests.
The Fund may invest up to 20% of its net assets in foreign securities which may
present market liquidity, currency, political, information, and other risks.
These factors can affect the Fund's performance.
11. SUMMARY OF CAPITAL TRANSACTIONS
Transactions in shares of capital stock are as follows:
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Shares sold 60,597,207 $ 483,818,830 147,929,408 $ 1,185,674,948
Reinvestment of distributions 16,771,056 133,795,434 31,008,361 247,480,524
Shares reacquired (70,366,280) (560,034,676) (115,517,137) (922,609,162)
- ---------------------------------------------------------------------------------------------------------------------
Increase 7,001,983 $ 57,579,588 63,420,632 $ 510,546,310
- ---------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 7,409,089 $ 59,276,157 25,859,473 $ 207,400,148
Reinvestment of distributions 3,881,368 31,008,505 7,984,642 63,768,740
Shares reacquired (27,154,795) (216,500,012) (44,808,623) (357,804,358)
- ---------------------------------------------------------------------------------------------------------------------
Decrease (15,864,338) $ (126,215,350) (10,964,508) $ (86,635,470)
- ---------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 16,146,682 $ 129,403,476 50,931,432 $ 409,302,369
Reinvestment of distributions 3,192,420 25,515,902 6,223,475 49,748,678
Shares reacquired (31,956,781) (254,274,015) (47,075,813) (375,969,765)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) (12,617,679) $ (99,354,637) 10,079,094 $ 83,081,282
- ---------------------------------------------------------------------------------------------------------------------
CLASS P SHARES
Shares sold 4,754,574 $ 38,486,015 7,883,029 $ 64,117,842
Reinvestment of distributions 336,404 2,720,265 474,986 3,842,232
Shares reacquired (1,974,309) (15,975,385) (2,187,653) (17,785,973)
- ---------------------------------------------------------------------------------------------------------------------
Increase 3,116,669 $ 25,230,895 6,170,362 $ 50,174,101
- ---------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
Shares sold 88,132 $ 695,661 10,767,799 $ 85,641,808
Reinvestment of distributions 1,199,198 9,540,766 1,976,991 15,729,980
Shares reacquired (240,429) (1,921,122) (517,857) (4,161,965)
- ---------------------------------------------------------------------------------------------------------------------
Increase 1,046,901 $ 8,315,305 12,226,933 $ 97,209,823
- ---------------------------------------------------------------------------------------------------------------------
</Table>
40
<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 semiannual report to certain
shareholders residing at the same "household." This reduces Fund expenses, which
benefits you and other shareholders. If you need additional copies or do not
want your mailings to be "householded," please call Lord Abbett at 800-821-5129
or send a written request with your name, the name of your fund or funds, and
your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336,
Kansas City, MO 64121.
PROXY VOTING POLICIES, PROCEDURES AND RECORD
A description of the policies and procedures that Lord Abbett uses to vote
proxies related to the Fund's portfolio securities, and information on how Lord
Abbett voted the Fund's proxies during the 12-month period ended June 30, 2005
are available without charge, upon request, (i) by calling 888-522-2388; (ii) on
Lord Abbett's website at www.LordAbbett.com; or (iii) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q for fiscal quarters
ending on or after July 9, 2004. Copies of the filings are available without
charge, upon request on the SEC's website at www.sec.gov and may be available by
calling Lord Abbett at 800-821-5129. You can also obtain copies of Form N-Q by
(i) visiting the SEC's Public Reference Room in Washington, DC (information on
the operation of the Public Reference Room may be obtained by calling
800-SEC-0330); (ii) sending your request and a duplicating fee to the SEC's
Public Reference Room, Washington, DC 20549-0102; or (iii) sending your request
electronically to publicinfo@sec.gov.
41
<Page>
APPROVAL OF ADVISORY CONTRACT
At a meeting on December 9, 2004, the Board, including all Directors who are not
interested persons of the Fund, considered whether to approve the continuation
of the existing management agreement between the Fund and Lord Abbett. In
addition to the materials the Board had reviewed throughout the course of the
year, the Board received materials relating to the management agreement before
the meeting and had the opportunity to ask questions and request further
information in connection with its consideration.
The materials received by the Board as to the Fund included, but were not
limited to, (1) information provided by Lipper Analytical Services, Inc.
regarding the investment performance of the Fund compared to the investment
performance of a group of funds with substantially similar investment objectives
(the "performance universe") and to the investment performance of an appropriate
securities index (if such an index existed), for various time periods each
ending September 30, 2004, (2) information on the effective management fee rates
and expense ratios for funds with similar objectives and similar size (the "peer
group"), (3) sales and redemption information for the Fund, (4) information
regarding Lord Abbett's financial condition, (5) an analysis of the relative
profitability of the management agreement to Lord Abbett, (6) information
regarding the distribution arrangements of the Fund, (7) information regarding
the personnel and other resources devoted by Lord Abbett to managing the Fund.
The specific considerations are discussed below.
INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board considered the investment
management services provided by Lord Abbett to the Fund, including investment
research, portfolio management, and trading. The Board noted that Lord Abbett
did not use brokerage commissions to purchase third-party research.
INVESTMENT PERFORMANCE AND COMPLIANCE. The Board reviewed the Fund's investment
performance as well as the performance of the performance universe of funds,
both in terms of total return and in terms of other statistical measures. The
Board noted that the performance of the Class A shares of the Fund was in the
fifth quintile of its performance universe for the nine-month period, in the
fourth quintile for the one- and three-year periods, in the second quintile for
the five-year period, and in the first quintile for the ten-year period. The
Board also noted that the performance was below that of the Lipper High Current
Yield Bond Index in the nine-month, one-year, and three-year periods, and above
that of the Index for the five- and ten-year periods.
LORD ABBETT'S PERSONNEL AND METHODS. The Board considered the qualifications of
the personnel providing investment management services to the Fund, in light of
the Fund's investment objective and discipline. Among other things, they
considered the size and experience of Lord Abbett's investment management staff,
Lord Abbett's investment methodology and philosophy, and Lord Abbett's approach
to recruiting, training, and retaining investment management personnel.
NATURE AND QUALITY OF OTHER SERVICES. The Board considered the nature, quality,
costs, and extent of administrative and other services performed by Lord Abbett
and Lord Abbett Distributor and the nature and extent of Lord Abbett supervision
of third party service providers, including the Fund's transfer agent and
custodian.
EXPENSES. The Board considered the expense ratios of each class and the expense
ratios of peer groups. It also considered the amount and nature of the fees paid
by shareholders. The Board
42
<Page>
noted that the contractual management and administrative services fees of the
Fund were approximately six basis points below the median of the peer group and
that the actual management and administrative services fees were approximately
ten basis points below the median. The Board also noted that the actual total
expense ratio of Class A was approximately eight basis points below the median
of the peer group, that the actual total expense ratios of Classes B and C were
approximately seventeen basis points below the median, that the actual total
expense ratio of Class P was approximately seven basis points below the median,
and the actual total expense ratio of Class Y was approximately eleven basis
points below the median.
PROFITABILITY. The Board considered the level of Lord Abbett's profits in
managing the Fund, including a review of Lord Abbett's methodology for
allocating its costs to its management of the Fund. The Board concluded that the
allocation methodology had a reasonable basis and was appropriate. It considered
the profits realized by Lord Abbett in connection with the operation of the Fund
and whether the amount of profit was fair for the management of the Fund. The
Board also considered the profits realized from other businesses of Lord Abbett,
which may benefit from or be related to the Fund's business. The Board
considered Lord Abbett's profit margins in comparison with available industry
data, both accounting for and ignoring marketing and distribution expenses, and
how those profit margins could affect Lord Abbett's ability to recruit and
retain investment personnel. The Board noted that Lord Abbett's profitability
had increased, in part due to an increase in assets under management.
ECONOMIES OF SCALE. The Board considered whether there had been any economies of
scale in managing the Fund, whether the Fund had appropriately benefited from
any such economies of scale, and whether there was potential for realization of
any further economies of scale.
OTHER BENEFITS TO LORD ABBETT. The Board considered the character and amount of
fees paid by the Fund and the Fund's shareholders to Lord Abbett and Lord Abbett
Distributor for services other than investment advisory services. The Board also
considered the revenues and profitability of Lord Abbett's investment advisory
business apart from its mutual fund business, and the intangible benefits
enjoyed by Lord Abbett by virtue of its relationship with the Fund.
ALTERNATIVE ARRANGEMENTS. The Board considered whether, instead of approving
continuation of the management agreement, employing one or more alternative
arrangements might be in the best interests of the Fund, such as continuing to
employ Lord Abbett, but on different terms.
In considering whether to approve the continuation of the management agreement,
the Board did not identify any single factor as paramount or controlling. This
summary does not discuss in detail all matters considered. After considering all
of the relevant factors, the Board unanimously found that continuation of the
existing management agreement was in the best interests of the Fund and its
shareholders and voted unanimously to approve the continuation of the management
agreement.
43
<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-3-0605
LORD ABBETT DISTRIBUTOR LLC (08/05)
</Table>
<Page>
ITEM 2: CODE OF ETHICS.
Not applicable.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6: SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11: CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) as of a date within 90 days prior to the
filing date of this report, the Chief Executive Officer and Chief
Financial Officer of the Registrant have concluded that such
disclosure controls and procedures are reasonably designed and
effective to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made
known to them by others within those entities.
(b) There were no significant changes in the Registrant's internal
control over financial reporting (as defined in Rule 30a-3(d)
under the Investment Company
<Page>
Act of 1940) that occurred during the Registrant's second fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12: EXHIBITS.
(a)(1) Amendments to Code of Ethics - Not applicable.
(a)(2) Certification of each principal executive officer and principal
financial officer of the Registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2) is attached hereto as a part of
EX-99.CERT.
(a)(3) Certification of each principal executive officer and principal
financial officer of the Registrant as required by Section 906 of
the Sarbanes-Oxley Act of 2002 is attached hereto as a part of
EX-99.906CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LORD ABBETT BOND-DEBENTURE FUND, INC.
/s/ Robert S. Dow
---------------------------------
Robert S. Dow
Chief Executive Officer,
Chairman and President
/s/ Joan A. Binstock
---------------------------------
Joan A. Binstock
Chief Financial Officer and Vice President
Date: August 17, 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: August 17, 2005