LORD ABBETT
BOND-DEBENTURE FUND, INC.
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
OUR FUND, LORD ABBETT BOND-DEBENTURE FUND, INC. ("WE" OR THE "FUND"), IS A
DIVERSIFIED, OPEN-END MANAGEMENT INVESTMENT COMPANY INCORPORATED UNDER MARYLAND
LAW ON JANUARY 23, 1976. WE HAVE A SINGLE CLASS OF SHARES WITH EQUAL RIGHTS AS
TO VOTING, DIVIDENDS, ASSETS AND LIQUIDATION.
OUR INVESTMENT OBJECTIVE IS HIGH CURRENT INCOME AND THE OPPORTUNITY FOR
CAPITAL APPRECIATION TO PRODUCE A HIGH TOTAL RETURN THROUGH A
PROFESSIONALLY-MANAGED PORTFOLIO CONSISTING PRIMARILY OF CONVERTIBLE AND
DISCOUNT DEBT SECURITIES, MANY OF WHICH ARE LOWER-RATED. THESE LOWER-RATED DEBT
SECURITIES ENTAIL GREATER RISKS THAN INVESTMENTS IN HIGHER-RATED DEBT SECURITIES
AND, THEREFORE, THE FORMER ARE REFERRED TO COLLOQUIALLY AS JUNK BONDS. INVESTORS
SHOULD CAREFULLY CONSIDER THESE RISKS SET FORTH UNDER HOW WE INVEST BEFORE
INVESTING. THERE CAN BE NO ASSURANCE THAT WE WILL ACHIEVE OUR OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AND MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO THE FUND OR BY
CALLING 800-874-3733. ASK FOR PART B OF THE PROSPECTUS - THE STATEMENT OF
ADDITIONAL INFORMATION.
THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION
IS MAY 1, 1995.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE FUND OR BY CALLING 800-821-5129. YOU CAN ALSO MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN THE FUND INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
CONTENTS PAGE
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 2
4 How We Invest 3
5 Purchases 5
6 Shareholder Services 7
7 Our Management 8
8 Dividends, Capital Gains
Distributions and Taxes 8
9 Redemptions 9
10 Performance 10
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
1 INVESTMENT OBJECTIVE
Our investment objective is high current income and the opportunity for capital
appreciation to produce a high total return through a professionally-managed
portfolio consisting primarily of convertible and discount debt securities, many
of which are lower-rated.
2 FEE TABLE
A summary of the Funds expenses is set forth in the table below. The example
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sales Load(1) on Purchases
(See Purchases) 4.75%
Deferred Sales Load(1) (See Purchases) None(2)
- ----------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (See Our Management) .48%
12b-1 Fee (See Purchases) .23%
Other Expenses (See Our Management) .17%
- ----------------------------------------------------
Total Operating Expenses .88%
====================================================
Example: Assume an annual return of 5% and there is no change in the level of
- -------
expenses described above. For every $1,000 invested, with reinvestment of all
distributions, you would pay the following total expenses if you closed your
account after the number of years indicated.
1 year 3 years 5 years 10 years
------ ------- ------- --------
$56(3) $74(3) $94(3) $151(3)
<FN>
(1)Sales load is referred to as sales charge and deferred sales load is referred
to as contingent deferred reimbursement charge throughout this Prospectus.
(2)Redemptions of shares on which the Funds 1% Rule 12b-1 sales distribution
fee for purchases of $1 million or more has been paid are subject to a 1%
contingent deferred reimbursement charge, if the redemption occurs within 24
months after the month of purchase, subject to certain exceptions described
herein.
(3)Based on total operating expenses shown in the table above.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in the Fund.
</FN>
</TABLE>
3 FINANCIAL HIGHLIGHTS
The following table has been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audit of the Funds Financial
Statements, whose report thereon is incorporated by reference in the Statement
of Additional Information and may be obtained upon request, and has been
included herein in reliance upon their authority as experts in accounting and
auditing.
<TABLE>
<CAPTION>
PER SHARE OPERATING YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE: 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $9.95 $9.43 $9.02 $7.36 $9.03 $9.59 $9.39 $10.29 $10.56 $9.82
INCOME FROM INVESTMENT OPERATIONS
Net investment income .84 .89 .95 .98 1.02 1.04 1.09 1.07 1.16 1.19
Net realized and unrealized
gain (loss) on securities (1.203) .55 .42 1.66 (1.65) (.56) .15 (.85) (.10) .75
TOTAL FROM INVESTMENT OPERATIONS (.363) 1.44 1.37 2.64 (.63) .48 1.24 .22 1.06 1.94
DISTRIBUTIONS
Dividends from net investment income (.877) (.92) (.96) (.98) (1.04) (1.04) (1.04) (1.12) (1.19) (1.20)
Distribution from net realized gain - - - - - - - - ( .14) -
NET ASSET VALUE, END OF YEAR $8.71 $9.95 $9.43 $9.02 $7.36 $9.03 $9.59 $9.39 $10.29 $10.56
TOTAL RETURN* (3.87)% 15.97% 15.99% 38.34% (7.57)% 5.06% 13.80% 1.88% 10.61% 21.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $987,613 $969,736 $734,017 $594,008 $480,847 $643,953 $717,775 $733,198 $700,553 $299,307
RATIOS TO AVERAGE NET ASSETS:
Expenses .88% .88% .84% .85% .80% .59% .64% .65% .61% .68%
Net investment income 8.97% 9.17% 10.18% 11.96% 12.48% 10.97% 11.29% 10.49% 11.09% 11.69%
PORTFOLIO TURNOVER RATE 147.98% 159.79% 188.44% 208.49% 145.47% 123.77% 140.01% 176.37% 137.33% 81.96%
<FN>
* Total return does not consider the effects of sales loads
See Financial Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
4 HOW WE INVEST
We believe that a high total return (current income and capital appreciation)
may be derived from an actively-managed, diversified debt-security portfolio. In
no event will we voluntarily purchase any securities other than debt securities,
if, at the time of such purchase or acquisition, the value of the debt
securities in our portfolio is less than 80% of the value of our total assets.
We seek unusual values, particularly in lower-rated debt securities, some of
which are convertible into common stocks or have warrants to purchase common
stocks.
Higher yield on debt securities can occur during periods of inflation when
the demand for borrowed funds is high. Also, buying lower-rated bonds when the
credit risk is above average but, we think, likely to decrease, can generate
higher yields. Such debt securities normally will consist of secured debt
obligations of the issuer (i.e., bonds), general unsecured debt obligations of
the issuer (i.e., debentures) and debt securities which are subordinate in right
of payment to other debt of the issuer.
Capital appreciation potential is an important consideration in the
selection of portfolio securities. Capital appreciation may be obtained by (1)
investing in debt securities when the trend of interest rates is expected to be
down; (2) investing in convertible debt securities or debt securities with
warrants attached entitling the holder to purchase common stock; and (3)
investing in debt securities of issuers in financial difficulties when, in our
opinion, the problems giving rise to such difficulties can be successfully
resolved, with a consequent improvement in the credit standing of the issuers
(such investments involve corresponding risks that interest and principal
payments may not be made if such difficulties are not resolved). In no event
will we invest more than 10% of our gross assets at the time of investment in
debt securities which are in default as to interest or principal.
Normally we invest in long-term debt securities when we believe that
interest rates in the long run will decline and prices of such securities
generally will be higher. When we believe that long-term interest rates will
rise, we will endeavor to shift our portfolio into short-term debt securities
whose prices might not be affected as much by an increase in interest rates.
The following policies are subject to change without shareholder approval:
(a) we must keep at least 20% of the value of our total assets in (1) debt
securities which, at the time of purchase, are rated within one of the four
highest grades determined either by Moody's Investors Service, Inc. or Standard
& Poor's Corporation, (2) debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (3) cash or cash equivalents
(short-term obligations of banks, corporations or the U.S. Government), or (4) a
combination of any of the foregoing; (b) we may invest up to 10% of our gross
assets, at market value, in debt securities primarily traded in foreign
countries such foreign debt securities normally will be limited to issues where
there does not appear to be substantial risk of nationalization, exchange
controls, confiscation or other government restrictions; (c) subject to the
percentage limitations for purchases of other than debt securities described
below, we may purchase common and preferred stocks; (d) we may hold or sell any
property or securities which we may obtain through the exercise of conversion
rights or warrants or as a result of any reorganization, recapitalization or
liquidation proceedings for any issuer of securities owned by us. In no event
will we voluntarily purchase any securities other than debt securities, if, at
the time of such purchase or acquisition, the value of the property and
securities, other than debt securities, in our portfolio is greater than 20% of
the value of our gross assets. A purchase or acquisition will not be considered
voluntary if made in order to avoid loss in value of a conversion or other
premium; and (e) we do not purchase securities for short-term trading, nor do we
purchase securities for the purpose of exercising control of management.
We may invest up to 15% of our net assets in illiquid securities. Bonds
which are subject to legal or contractual restrictions on resale, but which have
been determined by the Board of Directors to be liquid, will not be subject to
this limit. Investment by the Fund in such securities, initially determined to
be liquid, could have the effect of diminishing the level of the Funds liquidity
during periods
<PAGE>
of decreased market interest in such securities.
We may, but have no present intention to, commit more than 5% of our gross
assets to the lending of our portfolio securities.
We will not change our investment objective without shareholder approval.
FUTURE CONVERSION. In the future, upon shareholder approval, the Fund may seek
to achieve its investment objective by investing all of its assets in another
investment company (or series or class thereof) having the same investment
objective. Shareholders will be notified thirty days in advance of such
conversion. Shareholders of the Fund will be able to exchange shares for shares
of the other funds, series or classes in the Lord Abbett family having an
exchange privilege with the Fund. (See Shareholder Services).
RISK FACTORS. We may invest substantially in lower-rated bonds for their higher
yields. In general, the market for lower-rated bonds is more limited than that
for higher-rated bonds and, therefore, may be less liquid. Market prices of
lower-rated bonds may fluctuate more than those of higher-rated bonds,
particularly in times of economic change and stress. In addition, because the
market for lower-rated corporate debt securities has in past years experienced
wide fluctuations in the values of certain of these securities, past experience
may not provide an accurate indication of the future performance of that market
or of the frequency of default, especially during periods of recession.
Objective pricing data for lower-rated bonds may be more limited than for
higher-rated bonds and valuation of such securities may be more difficult and
require greater reliance upon judgment.
While the market for lower-rated bonds may be less sensitive to interest
rate changes, the market prices of these bonds structured as zero coupon or
pay-in-kind securities may be affected to a greater extent by such changes and
thus may be more volatile than prices of lower-rated securities paying interest
periodically in cash. Lower-rated bonds that are receivable prior to maturity
may be more susceptible to refunding during periods of falling interest rates,
requiring replacement with lower-yielding securities.
Since the risk of default generally is higher among lower-rated bonds, the
research and analysis performed by Lord, Abbett & Co. (Lord Abbett) are
especially important in the selection of such bonds, which, if rated BB/Ba or
lower, often are described as high-yield bonds because of their generally higher
yields and referred to colloquially as junk bonds because of their greater
