LORD ABBETT AFFILIATED FUND, INC.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
800-426-1130
Lord Abbett Affiliated Fund, Inc. ("we" or the "Fund"), is a mutual fund with
three classes of shares. These classes, designated Class A, B and C shares,
provide investors with different investment options in purchasing shares of the
Fund. See "Purchases" for a description of these choices. Our investment
objective is long-term growth of capital and income without excessive
fluctuations in market value. We seek to attain our objective by investing in
securities selling at reasonable prices in relation to value. We normally invest
in large, seasoned companies in sound financial condition, issuing common stocks
which are expected to perform above-average with respect to earnings and price
appreciation. 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 and is
available upon request without charge. 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 March 1, 1997.
PROSPECTUS
Investors should read and retain this Prospectus for future reference.
Shareholder inquiries should be made in writing directly to the Fund or by
calling 800-821-5129. You also can 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.
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 4
5 Purchases 4
6 Shareholder Services 10
7 Our Management 11
8 Dividends, Capital Gains
Distributions and Taxes 11
9 Redemptions 12
10 Performance 12
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 long-term growth of capital and income without
excessive fluctuations in market value.
2 FEE TABLE
A summary of the Fund's expenses is set forth in the table below. The example is
not a representation of past or future expenses. Actual expenses may be greater
or less than those shown.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
(as a percentage of offering price)
Maximum Sales Load(2) on Purchases
(See "Purchases") 5.75% None None
Deferred Sales Load(2) (See "Purchases") None 5% if shares are redeemed 1% if shares
before 1st anniversary are redeemed
of purchase, declining before 1st anniversary
to 1% before 6th of purchase
anniversary and
eliminated on and
after 6th anniversary(3)
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Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management Fees (See "Our Management") 0.32% 0.32% 0.32%
12b-1 Fees (See "Purchases")(1)(2) 0.22% 1.00% 1.00%
Other Expenses (See "Our Management") 0.13% 0.13% 0.13%
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Total Operating Expenses 0.67% 1.45% 1.45%
<FN>
Example:Assume an annual return of 5% and there is no change in the level of
expenses described above. For a $1,000 investment, with reinvestment of
all distributions, you would have paid the following total expenses,
assuming redemption before the end of each time period indicated:
1 year 3 years 5 years 10 years
Class A shares $64 $78 $93 $136
Class B shares $64 $75 $98 $152
Class C shares $25 $46 $79 $174
You would pay the following expenses on the same investment, assuming no
redemption:
1 year 3 years 5 years 10 years
Class A shares $64 $78 $93 $136
Class B shares $15 $46 $79 $152
Class C shares $15 $46 $79 $174
(1)Although the Fund does not, with respect to the Class B and Class C shares,
charge a front-end sales charge, investors should be aware that long-term
shareholders may pay, under the Rule 12b-1 plans applicable to the Class B and
Class C shares of the Fund (both of which pay annual 0.25% service and 0.75%
distribution fees), more than the economic equivalent of the maximum front-end
sales charge as permitted by certain rules of the National Association of
Securities Dealers, Inc. Likewise, with respect to Class A shares, investors
should be aware that, over the long term, such maximum may be exceeded due to
the Rule 12b-1 plan applicable to Class A shares which permits the Fund to pay
up to 0.50% in total annual fees, half for service and the other half for
distribution. The 12b-1 fee for the Class A shares has been restated to reflect
estimated current fees under the recently amended Class A 12b-1 plan; the actual
12b-1 fees for such shares for the fiscal year ended October 31, 1996 under the
former plan were 0.21%.
(2)Sales "load" is referred to as sales "charge", "deferred sales load" is
referred to as "contingent deferred sales charge" (or "CDSC") and "12b-1 fees"
which consist of a "service fee" and a "distribution fee" are referred to by
either or both of these terms where appropriate with respect to Class A, Class B
and Class C shares throughout this Prospectus.
(3) Class B shares will automatically convert to Class A shares on the eighth
anniversary of the purchase of Class B shares.
(4)The annual operating expenses shown in the summary have been restated from
October 31, 1996 fiscal year amounts to reflect current fees.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in the Series.
</FN>
</TABLE>
<PAGE>
3 FINANCIAL HIGHLIGHTS
The following table has been audited by Deloitte & Touche llp, independent
public accountants, in connection with their annual audit of the Fund's
Financial Statements, whose report thereon is incorporated by reference in the
Statement of Additional Information and may be obtained on request, and has been
included herein in reliance upon their authority as experts in accounting and
auditing.
<TABLE>
Per Class A Share+ Operating Year Ended October 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Performance: 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $11.98 $11.03 $11.26 $10.55 $10.29 $8.91 $10.43 $9.64 $10.44 $11.71
Income from investment operations
Net investment income .30 .32 .31 .31 .38 .40 .44 .46 .46 .51
Net realized and unrealized
gain (loss) on investments 2.23 1.70 .38 1.43 .61 1.92 (1.16) 1.16 .57 (.12)
Total from investment operations 2.53 2.02 .69 1.74 .99 2.32 (.72) 1.62 1.03 .39
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.30) (.30) (.32) (.35) (.40) (.41) (.44) (.48) (.49) (.52)
Distributions from net realized gain (1.19) (.77) (.60) (.68) (.33) (.53) (.36) (.35) (1.34) (1.14)
Net asset value, end of year $13.02 $11.98 $11.03 $11.26 $10.55 $10.29 $8.91 $10.43 $9.64 $10.44
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return* 23.23% 20.46% 6.66% 17.76% 10.36% 28.00% (7.57)% 18.04% 12.19% 2.84%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Ratios to Average Net Assets:
Expenses 0.66% 0.63% 0.63% 0.63% 0.60% 0.58% 0.50% 0.42% 0.43% 0.37%
Net investment income 2.61% 2.90% 2.91% 2.95% 3.73% 4.22% 4.37% 4.64% 5.00% 4.18%
</TABLE>
<TABLE>
Class B Shares Class C Shares
Per Class Share Operating August 1, 1996** to August 1, 1996** to
Performance: October 31, 1996 October 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $11.88 $11.88
Income from investment operations
Net investment income .060 .062
Net realized and unrealized
gain on securities 1.142 1.130
Total from investment operations 1.202 1.192
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Distributions
Dividends from net investment income (.052) (.052)
Net asset value, end of period $13.03 $13.02
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return* 10.15%++ 10.07%++
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Ratios to Average Net Assets:
Expenses 0.34%++ 0.33%++
Net investment income 0.27%++ 0.25%++
<FN>
* Total return does not consider the effects of sales charges.
** Commencement of offering Class shares.
+ The Fund had only one class of shares prior to July 12, 1996. That class of
shares is now designated Class A shares.
++ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Data For All Classes: 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $6,100,665$4,964,525$4,229,586$4,174,033$3,680,332$3,565,230$3,032,954$3,550,414$3,339,427 $3,364,128
Portfolio turnover rate 47.06% 53.84% 51.48% 45.15% 42.00% 56.38% 31.78% 34.08% 26.95% 43.11%
Average commissions per share
paid on equity transactions $0.064 $0.063 -- -- -- -- -- -- -- --
</TABLE>
<PAGE>
4 HOW WE INVEST
We believe that long-term investors purchase and redeem shares to meet their own
financial requirements rather than to take advantage of price fluctuations.
If so, their needs will be best served by a growth investment seeking low
fluctuations in market value. For this reason, we try to keep our assets
invested in securities which are selling at reasonable prices in relation to
value and, thus, we are willing to forgo some opportunities for gains when, in
our judgment, they carry excessive risk.
We try to anticipate major changes in the economy and select stocks which we
believe will benefit most from these changes. We also look for positive change
within market sectors, industries and individual companies.
Normally we invest in large, seasoned companies, in sound financial condition,
issuing common stocks (including securities convertible into common stocks)
which are expected to perform above average with respect to earnings and price
appreciation. Although the prices of common stocks fluctuate and their dividends
vary, historically, common stocks have appreciated in value and their dividends
have increased when the companies they represent have prospered and grown.
We constantly balance the opportunity for profit against the risk of loss. In
the past, very few industries have continuously provided the best investment
opportunities. We believe it is important to take a flexible approach and adjust
the portfolio to reflect changes in the opportunities for sound investment
relative to the risks assumed. Therefore, we sell securities that we judge to be
overpriced and reinvest the proceeds in other securities which we believe offer
better value.
We may (a) for income and flexibility, write covered call options traded on a
national securities exchange with respect to securities in our portfolio, (b)
invest up to 10% of our net assets (at the time of investment) in foreign
securities and (c) invest in straight bonds or other debt securities, including
lower rated, high-yield bonds. We do not intend to write covered call options
with respect to securities with an aggregate market value of more than 10% of
our gross assets at the time an option is written. We will not invest more than
5% of our net assets (at the time of investment) in lower rated (BB/Ba or
lower), high-yield bonds.
The Fund may engage in the lending of its portfolio securities. These loans may
not exceed 30% of the value of the Fund's total assets. In such an arrangement,
the Fund lends securities from its portfolio to registered broker-dealers. Such
loans are continuously collateralized. Such collateral must be maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. Cash collateral is invested in short-term obligations issued or
guaranteed by the U.S. Government or its agencies, commercial paper or bond
obligations rated AA or A-1/P-1 by Standard & Poor's Ratings Services ("S&P") or
Moody's Investors Service ("Moody's") or repurchase agreements with respect to
the foregoing. As with other extensions of credit, there are risks of delay in
recovery and loss should the borrower of the security fail financially.
We do not purchase securities for trading purposes. To create reserve purchasing
power and also for temporary defensive purposes, we may invest in high-quality
money market instruments (short-term obligations of banks, corporations or the
U.S. Government).
<PAGE>
The Fund may invest up to 15% of its net assets in illiquid securities.
Securities determined by the Fund's Board of Directors to be liquid pursuant to
Securities and Exchange Commission Rule 144A ("Rule 144A") will not be subject
to this limit. Under Rule 144A, a qualifying security may be resold to a
qualified institutional buyer without registration and without regard to whether
the seller originally purchased the security for investment. Investments by the
Fund in Rule 144A securities initially determined to be liquid could have the
effect of diminishing the level of the Fund's liquidity during periods of
decreased market interest in such securities.
We will not change our investment objective or our investment restrictions
without shareholder approval. If we determine that our objective can best be
achieved by a substantive change in investment policy, which may be changed
without shareholder approval, we may make such change by disclosing it in our
prospectus.
Risk Factors. Securities markets of foreign countries are not subject to the
same degree of regulation as the U.S. markets and may be more volatile and less
liquid than the major U.S. markets. There may be less publicly-available
information on publicly-traded issuers in foreign countries than is generally
the case in the United States. The lack of uniform accounting standards and
practices among countries impairs the validity of direct comparisons of
valuation measures (such as price/earnings ratios) for securities in different
countries. Other considerations include political and social instability,
expropriation, higher transaction costs, currency fluctuations, withholding
taxes that cannot be passed through as a tax credit or deduction to shareholders
and different securities settlement practices. Foreign securities may be traded
on days that we do not value our portfolio securities and, accordingly, our net
asset value may be significantly affected on days when shareholders do not have
access to the Fund.
Convertible bonds and convertible preferred stocks tend to be more volatile than
straight bonds but tend to be less volatile and produce more income than their
underlying common stocks.
5 PURCHASES
ALTERNATIVE SALES ARRANGEMENTS
Classes of Shares. The Fund offers investors three different classes of shares.
The different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices. Investors should read this section carefully to determine which
class represents the best investment option for their particular situation.
Class A Shares. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees or on investments that
do not qualify to be under a "special retirement wrap program" defined under
"Class A Net Asset Value Purchases" below). If you purchase Class A shares as
part of an investment of at least $1 million (or for Retirement Plans with at
least 100 eligible employees or under a special retirement wrap program) in
shares of one or more Lord Abbett-sponsored funds, you will not pay an initial
sales charge, but if you redeem any of those shares within 24 months after the
month in which you buy them, you may pay to the Fund a contingent deferred sales
charge ("CDSC") of 1% except for redemptions under a special retirement wrap
program. Class A shares are subject to service and distribution fees that are
currently estimated to total annually approximately 0.22 of 1% of the annual net
asset value of the Class A shares. The initial sales charge rates, the CDSC and
the Rule 12b-1 plan applicable to the Class A shares are described in "Buying
Class A Shares" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the sixth anniversary of
buying them, you will normally pay a CDSC to Lord Abbett Distributor LLC ("Lord
Abbett Distributor"). That CDSC varies depending on how long you own shares.
Class B shares are subject to service and distribution fees at an annual rate of
1% of the annual net asset value of the Class B shares. The CDSC and the Rule
12b-1 plan applicable to the Class B shares are described in "Buying Class B
Shares" below.
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the first anniversary of
buying them, you will normally pay the Fund a CDSC of 1%. Class C shares are
subject to service and distribution fees at an annual rate of 1% of the annual
net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan
applicable to the C shares are described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Fund's class-specific expenses and the
effect of the different types of sales charges on your investment will affect
your investment results over time. The most important factors are how much you
plan to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in the Fund. We used the sales charge rates that apply
to Class A, Class B and Class C, and considered the effect of the higher
distribution fees on Class B and Class C expenses (which will affect your
investment return). Of course, the actual performance of your investment cannot
be predicted and will vary, based on the Fund's actual investment returns, the
operating expenses borne by each class of shares, and the class of shares you
purchase. The factors briefly discussed below are not intended to be investment
advice, guidelines or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
<PAGE>
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000 expected to be
held 4 to 6 years (or more), Class A shares may become more appropriate than
Class C. If you are investing $500,000 or more, Class A may become more
desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees or for investments pursuant to a special retirement
wrap program, in most cases Class A shares will be the most advantageous choice,
no matter how long you intend to hold your shares. For that reason, Lord Abbett
Distributor normally will not accept purchase orders (i) for Class B shares of
$500,000 or more and for Class C shares of $1,000,000 or more from a single
investor or (ii) for Class B or C shares (a) for Retirement Plans with at least
100 eligible employees or (b) for special retirement wrap programs.
Investing for the Longer Term. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more, Class B shares may
be an appropriate investment option, if you plan to invest less than $100,000.
If you plan to invest more than $100,000 over the long term, Class A shares will
likely be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in Class
A shares under the Fund's Rights of Accumulation. Of course, these examples are
based on approximations of the effect of current sales charges and expenses on a
hypothetical investment over time, and should not be relied on as rigid
guidelines.
Are There Differences in Account Features That Matter to You? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" for more information
about the 12% annual waiver of the CDSC. You should carefully review how you
plan to use your investment account before deciding which class of shares you
buy. For example, the dividends payable to Class B and Class C shareholders will
be reduced by the expenses borne solely by each of these classes, such as the
higher distribution fee to which Class B and Class C shares are subject, as
described below.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A and B shares and is paid over
time, so long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC for the
Class B shares and the distribution fee for Class B and Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A shares: to
compensate brokers and other persons selling such shares. The CDSC, if payable,
supplements the Class B distribution fee and reduces the Class C distribution
fee expenses for the Fund and Class C shareholders.
GENERAL
How Much Must You Invest? You may buy our shares through any independent
securities dealer having a sales agreement with Lord Abbett Distributor, our
exclusive selling agent. Place your order with your investment dealer or send it
to Lord Abbett Affiliated Fund, Inc. (P.O. Box 419100, Kansas City, Missouri
64141). The minimum initial investment is $250. For Invest-A-Matic and Div-Move,
the subsequent minimum investment is $50. See "Shareholder Services". For
information regarding the proper form of a purchase or redemption order, call
the Fund at 800-821-5129. This offering may be suspended, changed or withdrawn.
Lord Abbett Distributor reserves the right to reject any order. The net asset
value of our shares is calculated every business day as of the close of the New
York Stock Exchange ("NYSE") by dividing net assets by the number of shares
outstanding. Securities are valued at their market value as more fully described
in the Statement of Additional Information.
Buying Shares Through Your Dealer. Orders for shares received by the Fund prior
to the close of the NYSE, or received by dealers prior to such close and
received by Lord Abbett Distributor prior to the close of its business day, will
be confirmed at the applicable public offering price effective at such NYSE
close. Orders received by dealers after the NYSE closes and received by Lord
Abbett Distributor in proper form prior to the close of its next business day
are executed at the applicable public offering price effective as of the close
of the NYSE on that next business day. The dealer is responsible for the timely
transmission of orders to Lord Abbett Distributor. A business day is a day on
which the NYSE is open for trading. Lord Abbett Distributor may, for specified
periods, allow dealers to retain the full sales charge for sales of shares
during such periods, or pay an additional concession to a dealer who, during a
specified period, sells a minimum dollar amount of our shares and/or shares of
other Lord Abbett-sponsored funds. In some instances, such additional
concessions will be offered only to certain dealers expected to sell significant
amounts of shares. Lord Abbett Distributor may, from time to time, implement
promotions under which Lord Abbett Distributor will pay a fee to dealers with
respect to certain purchases not involving imposition of a sales charge.
Additional payments may be paid from Lord Abbett Distributor's own resources and
will be made in the form of cash or, if permitted, non-cash payments. The
non-cash payments will include business seminars at resorts or other locations,
including meals and entertainment, or the receipt of merchandise. The cash
payments will include payment of various business expenses of the dealer. In
selecting dealers to execute portfolio transactions for the Fund's portfolio, if
two or more dealers are considered capable of obtaining best execution, we may
prefer the dealer who has sold our shares and/or shares of other Lord
Abbett-sponsored funds.
Buying Class A Shares. The offering price of Class A shares is based on the
per-share net asset value next computed after your order is accepted plus a
sales charge as follows.
Sales Charge as a Dealer's
Percentage of: Concession
as a To Compute
Net Percentage Offering
Offering Amount of Offering Price, Divide
Size of Investment Price Invested Price NAV by
- --------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00% .9425
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% 4.00% .9525
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.25% .9725
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
- -------------------------------------------------------------------------------
$1,000,000 or more No Sales Charge 1.00%+ 1.0000
- ------------------------------------------------------------------------------
+Authorized institutions receive concessions on purchases made by a retirement
plan, pursuant to a special retirement wrap program or other qualified purchaser
within a 12-month period (beginning with the first net asset value purchase) as
follows: 1.00% on purchases of $5 million, 0.55% of the next $5 million, 0.50%
of the next $40 million and 0.25% on purchases over $50 million. See "Class A
Rule 12b-1 Plan" below.
Class A Share Volume Discounts. This section describes several ways to qualify
for a lower sales charge when purchasing Class A shares if you inform Lord
Abbett Distributor or the Fund that you are eligible at the time of purchase.
(1) Any purchaser (as described below) may aggregate a Class A share purchase in
the Fund with any share purchases of any other eligible Lord Abbett-sponsored
fund, together with the current value at maximum offering price of any shares in
the Fund and in any eligible Lord Abbett-sponsored funds held by the purchaser.
(Holdings in the following funds are not eligible for the above rights of
accumulation: Lord Abbett Equity Fund ("LAEF"), Lord Abbett Series Fund
("LASF"), any series of Lord Abbett Research Fund not offered to the general
public ("LARF") and Lord Abbett U.S. Government Securities Money Market Fund
("GSMMF"), except for holdings in GSMMF which are attributable to any shares
exchanged from a Lord Abbett-sponsored fund.) (2) A purchaser may sign a
non-binding 13-month statement of intention to invest $50,000 or more in any
shares of the Fund or in any of the above eligible funds. If the intended
purchases are completed during the period, the total amount of your intended
purchases of any shares will determine the reduced sales charge rate for the
Class A shares purchased during the period. If not completed, each Class A share
purchase will be at the sales charge for the aggregate of the actual share
purchases. Shares issued upon reinvestment of dividends or distributions are not
included in the statement of intention. The term "purchaser" includes (i) an
individual, (ii) an individual and his or her spouse and children under the age
of 21 and (iii) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account (including a pension, profit-sharing,
or other employee benefit trust qualified under Section 401 of the Internal
Revenue Code -- more than one qualified employee benefit trust of a single
employer, including its consolidated subsidiaries, may be considered a single
trust, as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
Class A Share Net Asset Value Purchases. Our Class A shares may be purchased at
net asset value by our directors, employees of Lord Abbett, employees of our
shareholder servicing agent and employees of any securities dealer having a
sales agreement with Lord Abbett Distributor who consents to such purchases or
by the trustee or custodian under any pension or profit-sharing plan or Payroll
Deduction IRA established for the benefit of such persons or for the benefit of
any national securities trade organization to which Lord Abbett or Lord Abbett
Distributor belongs or any company with an account(s) in excess of $10 million
managed by Lord Abbett on a private-advisory-account basis. For purposes of this
paragraph, the terms "directors" and "employees" include a director's or
employee's spouse (including the surviving spouse of a deceased director or
employee).
<PAGE>
The terms "directors" and "employees of Lord Abbett" also include other family
members and retired directors and employees. Our Class A shares also may be
purchased at net asset value (a) at $1 million or more, (b) with dividends and
distributions on Class A shares of other Lord Abbett-sponsored funds, except for
dividends and distributions on shares of LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for Class A share
purchases representing the repayment of principal and interest, (d) by certain
authorized brokers, dealers, registered investment advisers or other financial
institutions who have entered into an agreement with Lord Abbett Distributor in
accordance with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our Class A shares in particular investment products
made available for a fee to clients of such brokers, dealers, registered
investment advisers and other financial institutions ("mutual fund wrap fee
programs"), (e) by employees, partners and owners of unaffiliated consultants
and advisers to Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored
funds who consent to such purchase if such persons provide services to Lord
Abbett, Lord Abbett Distributor or such funds on a continuing basis and are
familiar with such fund, (f) through Retirement Plans with at least 100 eligible
employees, (g) subject to appropriate documentation, through a securities dealer
where the amount invested represents redemption proceeds from shares ("Redeemed
Shares") of a registered open-end management investment company not distributed
or managed by Lord Abbett Distributor or Lord Abbett (other than a money market
fund), if such redemptions have occurred no more than 60 days prior to the
purchase of our Class A shares, the Redeemed Shares were held for at least six
months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Purchasers should consider the
impact, if any, of contingent deferred sales charges in determining whether to
redeem shares for subsequent investment in our Class A shares. Lord Abbett
Distributor may suspend or terminate the purchase option referred to in (g)
above at any time. (We plan that on June 1, 1997 the net asset value transfer
privileges will be terminated.) and (h) through a "special retirement wrap
program" sponsored by an authorized institution showing one or more
characteristics distinguishing it, in the opinion of Lord Abbett Distributor
from a mutual fund wrap fee program. Such characteristics include, among other
things, the fact that an authorized institution does not charge its clients any
fee of a consulting or advisory nature that is economically equivalent to the
distribution fee under Class A 12b-1 Plan and the fact that the program relates
to participant-directed Retirement Plans.
Class A Rule 12b-1 Plan. We have adopted a Class A share Rule 12b-1 plan (the "A
Plan") which authorizes the payment of fees to authorized institutions (except
as to certain accounts for which tracking data is not available) in order to
provide additional incentives for them (a) to provide continuing information and
investment services to their Class A shareholder accounts and otherwise to
encourage those accounts to remain invested in the Fund and (b) to sell Class A
shares of the Fund. Under the A Plan, in order to save on the expense of
shareholders' meetings and to provide flexibility to the Board of Directors, the
Board, including a majority of the outside directors who are not "interested
persons" of the Fund as defined in the Investment Company Act of 1940, is
authorized to approve annual fee payments from our Class A assets of up to 0.50
of 1% of the average net of such assets consisting of distribution and service
fees, each at a maximum annual rate not exceeding 0.25 of 1% except that the
service fee may not exceed 0.15 of 1% in the case of shares sold or attributable
to shares sold prior to June 1, 1990 (the "Fee Ceiling").
Under the A Plan, the Board has approved payments by the Fund to Lord Abbett
Distributor which uses or passes on to authorized institutions (1) an annual
service fee (payable quarterly) of .25% of the average daily net asset value of
the Class A shares serviced by authorized institutions and (2) a one-time
distribution fee of up to 1% (reduced according to the following schedule: 1% of
the first $5 million, .55% of the next $5 million, .50% of the next $40 million
and .25% over $50 million), payable at the time of sale on all Class A shares
sold during any 12-month period starting from the day of the first net asset
value sale (i) at the $1 million level by authorized institutions, including
sales qualifying at such level under the rights of accumulation and statement of
intention privileges; (ii) through Retirement Plans with at least 100 eligible
employees or (iii) constituting a new sale pursuant to a special retirement wrap
program and excluding exchanges into the Fund under such a program. In addition,
the Board has approved for those authorized institutions which qualify, a
supplemental annual distribution fee equal to 0.10% of the average daily net
asset value of the Class A shares serviced by authorized institutions which have
a satisfactory program for the promotion of such shares comprising a significant
percentage of the Class A assets, with a lower than average redemption rate.
Institutions and persons permitted by law to receive such fees are "authorized
institutions".
Under the A Plan, Lord Abbett Distributor is permitted to use payments received
to provide continuing services to Class A shareholder accounts not serviced by
authorized institutions and, with Board approval, to finance any activity which
is primarily intended to result in the sale of Class
A shares. Any such payments are subject to the Fee Ceiling. Any payments under
that Plan not used by Lord Abbett Distributor in this manner are passed on to
authorized institutions.
Holders of Class A shares on which the 1% sales distribution fee has been paid
may be required to pay to the Fund on behalf of its Class A shares a CDSC of 1%
of the original cost or the then net asset value, whichever is less, of all
Class A shares so purchased which are redeemed out of the Lord Abbett-sponsored
family of funds on or before the end of the twenty-fourth month after the month
in which the purchase occurred. (Exceptions are made for: (i) redemptions by
Retirement Plans due to any benefit payment such as Plan loans, hardship
withdrawals, death, retirement or
<PAGE>
separation from service with respect to plan participants or the distribution of
any excess contributions and (ii) redemptions which continue as investments in
another fund participating in a special retirement wrap program.) If the Class A
shares have been exchanged into another Lord Abbett-sponsored fund and are
thereafter redeemed out of the Lord Abbett family of funds on or before the end
of such twenty-fourth month, the charge will be collected for the Fund's Class A
shares by the other fund. The Fund will collect such a charge for other Lord
Abbett-sponsored funds in a similar situation.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed for
cash before the sixth anniversary of their purchase, a CDSC may be deducted from
the redemption proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The charge will be
assessed on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The Class B CDSC is paid to Lord
Abbett Distributor to compensate it for its services rendered in connection with
the distribution of Class B shares, including the payment and financing of sales
commissions. See "Class B Rule 12b-1 Plan" below. To determine whether the CDSC
applies to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains distributions,
(2) shares held until the sixth anniversary of their purchase or later, and (3)
shares held the longest before the sixth anniversary of their purchase.
The amount of the CDSC will depend on the number of years since you invested and
the dollar amount being redeemed, according to the following schedule.
Anniversary
of the Day on Contingent Deferred
Which the Purchase Sales Charge on
Order Was Accepted Redemptions
(As % of Amount
On Before Subject to Charge)
- --------------------------------------------------------------------------------
1st 5.0%
- --------------------------------------------------------------------------------
1st 2nd 4.0%
- -----------------------------------------------------------------------------
2nd 3rd 3.0%
- -------------------------------------------------------------------------------
3rd 4th 3.0%
- -------------------------------------------------------------------------------
4th 5th 2.0%
- -------------------------------------------------------------------------------
5th 6th 1.0%
- -------------------------------------------------------------------------------
on or after the None
6th anniversary
In the table, an "anniversary" is the 365th day subsequent to a purchase or a
prior anniversary. All purchases are considered to have been made on the
business day the purchase was made. See "Buying Shares Through Your Dealer"
above.
If Class B shares are exchanged into the same class of another Lord
Abbett-sponsored fund and the new shares are subsequently redeemed for cash
before the sixth anniversary of the original purchase, the CDSC will be payable
on the new shares on the basis of the time elapsed from the original purchase.
The Fund will collect such a charge for other Lord Abbett-sponsored funds in a
similar situation.
Waiver of Class B Sales Charges. The Class B CDSC will not be applied to shares
purchased in certain types of transactions nor will it apply to shares redeemed
in certain circumstances as described below.
The Class B CDSC will be waived for redemptions of shares (i) in connection with
the Systematic Withdrawal Plan and Div-Move services, as described in more
detail under "Shareholder Services" below; (ii) by Retirement Plans due to any
benefit payment such as Plan loans, hardship withdrawals, death, retirement or
separation from service with respect to plan participants or the distribution of
any excess contributions, (iii) in connection with mandatory distributions under
403(b) plans and individual retirement accounts and (iv) in connection with
death of the shareholder.
Class B Rule 12b-1 Plan. The Fund has adopted a Class B share Rule 12b-1 plan
(the "B Plan") under which the Fund periodically pays Lord Abbett Distributor
(i) an annual service fee of 0.25 of 1% of the average daily net asset value of
the Class B shares and (ii) an annual distribution fee of 0.75 of 1% of the
average daily net asset value of the Class B shares that are outstanding for
less than 8 years. Lord Abbett Distributor uses the service fee to compensate
authorized institutions for providing personal services for accounts that hold
Class B shares. Those services are primarily similar to those provided under the
A Plan, described above.
Lord Abbett Distributor pays an up-front payment to authorized institutions
totalling 4%, consisting of 0.25% for service and 3.75% for a sales commission
as described below.
Lord Abbett Distributor pays the 0.25% service fee to authorized institutions in
advance for the first year after Class B shares have been sold by the authorized
institutions. After the shares have been held for a year, Lord Abbett
Distributor pays the service fee on a quarterly basis. Lord Abbett Distributor
is entitled to retain such service fee payable under the B Plan with respect to
accounts for which there is no authorized institution of record or for which
such authorized institution did not qualify. Although not obligated to do so,
Lord Abbett Distributor may waive receipt from the Fund or part of all of the
service fee payments.
The 0.75% annual distribution fee is paid to Lord Abbett Distributor to
compensate it for its services rendered in connection with the distribution of
Class B shares, including the payment and financing of sales commissions.
Although Class B shares are sold without a front-end sales charge, Lord Abbett
Distributor pays authorized institutions responsible for sales of Class B shares
a sales commission of 3.75% of the purchase price. This payment is made at the
time of sale from Lord Abbett Distributor's own resources. Lord Abbett has made
arrangements to finance these commission payments, which arrangements include
non-recourse assignments by Lord Abbett Distributor to the financing party of
such distribution and CDSC payments which are made to Lord Abbett Distributor by
shareholders who redeem their Class B shares within six years of their purchase.
The distribution fee and CDSC payments described above allow investors to buy
Class B shares without a front-end sales charge while allowing Lord Abbett
Distributor to compensate authorized institutions that sell Class B shares. The
CDSC is intended to supplement Lord Abbett Distributor's reimbursement for the
commission payments it has made with respect to Class B shares and its related
distribution and financing costs. The distribution fee payments are at a fixed
rate and the CDSC payments are of a nature that, during any year, both forms of
payment may not be sufficient to reimburse Lord Abbett Distributor for its
actual expenses. The Fund is not liable for any expenses incurred by Lord Abbett
Distributor in excess of (i) the amount of such distribution fee payments to be
received by Lord Abbett Distributor and (ii) unreimbursed distribution expenses
of Lord Abbett Distributor incurred in a prior plan year, subject to the right
of the Board of Directors or shareholders to terminate the B Plan. Over the long
term, the expenses incurred by Lord Abbett Distributor are likely to be greater
than such distribution fee and CDSC payments. Nevertheless, there exists a
possibility that for a short-term period Lord Abbett Distributor may not have
sufficient expenses to warrant reimbursement by receipt of such distribution fee
payments. Although Lord Abbett Distributor undertakes not to make a profit under
the B Plan, the B Plan is considered a compensation plan (i.e., distribution
fees are paid regardless of expenses incurred) in order to avoid the possibility
of Lord Abbett Distributor not being able to receive distribution fees because
of a temporary timing difference between its incurring expenses and receipt of
such distribution fees.
Automatic Conversion of Class B Shares. On the eighth anniversary of your
purchase of Class B shares, those shares will automatically convert to Class A
shares. This conversion relieves Class B shareholders of the higher annual
distribution fee that applies to Class B shares under the Class
B Rule 12b-1 Plan. The conversion is based on the relative net asset values of
the two classes, and no sales charge or other charge is imposed. When Class B
shares convert, any other Class B shares that were acquired by the reinvestment
of dividends and distributions will also convert to Class A shares on a pro rata
basis. The conversion feature is subject to the continued availability of an
opinion of counsel or of a tax ruling described in "Purchases, Redemptions and
Shareholder Services" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed for
cash before the first anniversary of their purchase, a CDSC of 1% will be
deducted from the redemption proceeds. That reimbursement charge will not apply
to shares purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net asset value
of the shares at the time of redemption or the original purchase price. The
Class C CDSC is paid to the Fund to reimburse it, in whole or in part, for the
service and distribution fee payments made by the Fund at the time such shares
were sold, as described below.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held for one year or more and (3) shares
held the longest before the first anniversary of their purchase. If Class C
shares are exchanged into the same class of another Lord Abbett-sponsored fund
and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of this
Fund's Class C shares. The Fund will collect such a charge for other Lord
Abbett-sponsored funds in a similar situation.
Class C Rule 12b-1 Plan. The Fund has adopted a Class C share Rule 12b-1 Plan
(the "C Plan") under which (except as to certain accounts for which tracking
data is not available) the Fund pays authorized institutions through Lord Abbett
Distributor (1) a service fee and a distribution fee, at the time shares are
sold, not to exceed 0.25 and 0.75 of 1%, respectively, of the net asset value of
such shares and (2) at each quarter-end after the first anniversary of the sale
of shares, fees for services and distribution at annual rates not to exceed 0.25
and 0.75 of 1% respectively, of the average annual net asset value of such
shares outstanding (payments with respect to shares not outstanding during the
full quarter to be prorated). These service and distribution fees are for
purposes similar to those mentioned above with respect to the A Plan. Sales in
clause (1) exclude shares issued for reinvested dividends and distributions and
shares outstanding in clause (2) include shares issued for reinvested dividends
and distributions after the first anniversary of their issuance.
6 SHAREHOLDER SERIVCES
We offer the following shareholder services:
Telephone Exchange Privilege: Shares of any class may be exchanged without a
service charge: (a) for shares of the same class of any other Lord
Abbett-sponsored fund except for (i) LAEF, LASF and LARF and (ii) certain
tax-free, single-state series where the exchanging shareholder is a resident of
a state in which such series is not offered for sale and (b) for shares of any
authorized institution's affiliated money market fund satisfying Lord Abbett
Distributor as to certain omnibus account and other criteria (together,
"Eligible Funds").
You or your representative with proper identification can instruct the Fund to
exchange uncertificated shares of a class (held by the transfer agent) by
telephone. Shareholders have this privilege unless they refuse it in writing.
The Fund will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine and will employ reasonable procedures
to confirm that instructions received are genuine, including requesting proper
identification and recording all telephone exchanges. Instructions must be
received by the Fund in Kansas City (800-821-5129) prior to the close of the
NYSE to obtain each fund's net asset value per class share on that day.
Expedited exchanges by telephone may be difficult to implement in times of
drastic economic or market change. The exchange privilege should not be used to
take advantage of short-term swings in the market. The Fund reserves the right
to terminate or limit the privilege of any shareholder who makes frequent
exchanges. The Fund can revoke the privilege for all shareholders upon 60 days'
prior written notice. A prospectus for the other Lord Abbett-sponsored fund
selected by you should be obtained and read before an exchange. Exercise of the
Exchange Privilege will be treated as a sale for federal income tax purposes
and, depending on the circumstances, a capital gain or loss may be recognized.
Systematic Withdrawal Plan ("SWP"): Except for Retirement Plans for which there
is no such minimum, if the maximum offering price value of your uncertificated
shares is at least $10,000, you may have periodic cash withdrawals automatically
paid to you in either fixed or variable amounts. With respect to Class B shares,
the CDSC will be waived on redemptions of up to 12% per year of the current net
asset value of your account at the time your SWP is established. For Class B
shares (over 12% per year) and C shares, redemption proceeds due to a SWP will
be derived from the following sources in the order listed: (1) shares acquired
by reinvestment of dividends and capital gains, (2) shares held for six years or
more (Class B) or one year or more (Class C); and (3) shares held the longest
before the sixth anniversary of their purchase (Class B) or before the first
anniversary of their purchase (Class C). For redemptions over 12% per year, the
CDSC will apply to the entire redemption. Therefore, please contact the Fund for
assistance in minimizing the CDSC in this situation. Shareholders should be
careful in establishing a SWP, especially to the extent that such a withdrawal
exceeds the annual total return for a class, in which case, the shareholder's
original principal will be invaded and, over time, may be depleted.
Div-Move: You can invest the dividends paid on your account ($50 minimum
investment) into an existing account within the same class in any Eligible Fund.
The account must be either your account, a joint account for you and your
spouse, a single account for your spouse or a custodial account for your minor
child under the age of 21. Such dividends are not subject to a CDSC. You should
read the prospectus of the other fund before investing.
Invest-A-Matic: You can make fixed, periodic investments ($250 initial and $50
subsequent minimum investment) into the Fund and/or any Eligible Fund by means
of automatic money transfers from your bank checking account. You should read
the prospectus of the other fund before investing.
Retirement Plans: Lord Abbett makes available the retirement plan forms and
custodial agreements for IRAs (Individual Retirement Accounts including Simple
IRAs and Simplified Employee Pensions), 403(b) plans and pension and
profit-sharing plans, including 401(k) plans.
Householding: A single copy of an annual or semi-annual report will be sent to
an address to which more than one registered shareholder of the Fund with the
same last name has indicated mail is to be delivered, unless additional reports
are specifically requested in writing or by telephone.
All correspondence should be directed to Lord Abbett Affiliated Fund, Inc. (P.O.
Box 419100, Kansas City, Missouri 64141; 800-821-5129).
<PAGE>
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors. We employ Lord Abbett as investment manager
pursuant to a Management Agreement. Lord Abbett has been an investment manager
for over 67 years and currently manages approximately $21 billion in a family of
mutual funds and other advisory accounts. Under the Management Agreement, Lord
Abbett provides us with investment management services and executive and other
personnel, pays the remuneration of our officers and of our directors affiliated
with Lord Abbett, provides us with office space and pays for ordinary and
necessary office and clerical expenses relating to research, statistical work
and supervision of our portfolio and certain other costs. Lord Abbett provides
similar services to twelve other funds having various investment objectives and
also advises other investment clients. Mr. W. Thomas Hudson, Jr., Executive Vice
President and portfolio manager of the Fund, is primarily responsible for the
day-to-day management of the Fund. Mr. Hudson has been with Lord Abbett since
1982.
We pay Lord Abbett a monthly fee based on average daily net assets for each
month. For the fiscal year ended October 31, 1996, the fee paid to Lord Abbett
as a percentage of average daily net assets was at the annual rate of .32 of 1%.
In addition, we pay all expenses not expressly assumed by Lord Abbett. Our Class
A, B and C share ratios of expenses, including management fee expenses, to
average net assets for the year ended October 31, 1996 with respect to the Class
A shares, and for the period August 1, 1996 through October 31, 1996, with
respect to the Class B and C shares was .66, .34 and .33 of 1% respectively. We
will not hold annual meetings of shareholders unless required to by the
Investment Company Act of 1940, the Board of Directors or the shareholders with
one-quarter of the outstanding stock entitled to vote. See the Statement of
Additional Information for more details.
The Fund. The Fund is a diversified open-end management investment company
incorporated under Maryland law on November 26, 1975. Its Class A, B and C
shares have equal rights as to voting, dividends, assets and liquidation except
for differences resulting from certain class-specific expenses.
8 DIVIDENDS CAPITAL GAINS DISTRIBUTIONS AND TAXES
Our net investment income is paid to shareholders in February, May, August and
November as dividends. Dividends from net investment income may be taken in cash
or reinvested in additional shares at net asset value without a sales charge. If
you elect a cash payment (i) a check will be mailed to you as soon as possible
after the quarterly reinvestment date or (ii) if you arrange for direct deposit,
your payment will be wired directly to your bank account within one day after
the payable date.
Supplemental dividends also may be paid on or about December 31. A long-term
capital gains distribution is made if we have net profits during the year from
sales of securities which we have held more than one year. If we realize net
short-term capital gains, they also will be distributed. Any capital gains
distribution will be made in November and may be taken in cash or reinvested in
more shares at net asset value without a sales charge. Dividends and
distributions declared in October, November or December of any year to
shareholders of record as of a date in such a month will be treated for federal
income tax purposes as having been received by shareholders in that year if they
are paid before February 1 of the following year.
We intend to continue to meet the requirements of Subchapter M of the Internal
Revenue Code. We try to distribute to shareholders all our net investment income
and net realized capital gains, so as to avoid the necessity of the Fund paying
federal income tax. Shareholders, however, must report dividends and capital
gains distributions as taxable income. Distributions derived from net long-term
capital gains which are designated by the Fund as "capital gains dividends" will
be taxable to shareholders as long-term capital gains, whether received in cash
or shares, regardless of how long a taxpayer has held the shares. Under current
law, net long-term capital gains of individuals and corporations are taxed at
the rates applicable to ordinary income, except that the maximum rate for
long-term capital gains for individuals is 28%. Legislation has been proposed
that would have the effect of reducing the federal income tax rate on capital
gains.
Shareholders may be subject to a $50 penalty under the Internal Revenue Code and
we may be required to withhold and remit to the U.S. Treasury a portion (31%) of
any redemption proceeds (including the value of shares exchanged into another
Lord Abbett-sponsored fund), and of any dividend or distribution on any account,
where the payee (shareholder) failed to provide a correct taxpayer
identification number or to make certain required certifications. We will inform
shareholders of the federal tax status of each dividend and distribution after
the end of each calendar year. Shareholders should consult their tax advisers
concerning applicable state and local taxes as well as the tax consequences of
gains or losses from the redemption or exchange of our shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited redemption procedures described above to
redeem shares directly, send your request to Lord Abbett Affiliated Fund, Inc.
(P.O. Box 419100, Kansas City, Missouri 64141) with signature(s) and any legal
capacity of the signer(s) guaranteed by an eligible guarantor, accompanied by
any certificates for shares to be redeemed and other required documentation. We
will make payment of the net asset value of the shares as of the date the
redemption order was received in proper form. Payment will be made within three
days. The Fund may suspend the right to redeem shares for not more than seven
days or longer under unusual circumstances as permitted by Federal law. If you
have purchased Fund shares by check and subsequently submit a redemption
request, redemption proceeds will be paid upon clearance of your purchase check,
which may take up to 15 days. To avoid delays you may arrange for the bank upon
which a check was drawn to communicate to the Fund that the check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee.
If your dealer receives your order prior to the close of the NYSE and
communicates it to Lord Abbett, as our agent, prior to the close of Lord
Abbett's business day, you will receive the net asset value as of the close of
the NYSE on that day. If the dealer does not communicate such an order to Lord
Abbett until the next business day, you will receive the net asset value as of
the close of the NYSE on that next business day. Shareholders who have redeemed
their shares have a one-time right to reinvest, into another account having the
identical registration, in any of the Eligible Funds at the then applicable net
asset value (i) without the payment of a front-end sales charge or (ii) with
reimbursement for the payment of any CDSC. Such reinvestment must be made within
60 days of the redemption and is limited to no more than the amount of the
redemption proceeds.
Under certain circumstances and subject to 30 days' prior written notice, our
Board of Directors may authorize redemption of all of the shares in any account
in which there are fewer than 20 shares.
10 PERFORMANCE
The Fund ended its fiscal year on October 31, 1996 with net asset values of
$13.02 per share for Class A shares, $13.03 per share for Class B shares and
$13.02 per share for Class C shares, respectively. Assuming reinvestment of both
the capital gains distribution and dividends, the Fund produced a total return
of 23.23%, 10.15% and 10.07% for Class A, B and C shares, respectively.
In the past year, stock market averages climbed to new heights, against a
background of modest economic growth, low inflation and volatile interest rates.
The strong performance of the Fund can be attributed to several factors. We
established an important position in the technology sector early in the year and
used the market correction in June and July to add to these holdings at
attractive prices. Additionally, holdings in consumer non-durables, such as
food, pharmaceutical, household products and agriculture stocks, were steadily
increased during the year and performed well.
Yield and Total Return. Yield and total return data may, from time to time, be
included in advertisements about the Fund. Each class of shares calculates its
"yield" by dividing the annualized net investment income per share on the
portfolio during a 30-day period by the maximum offering price on the last day
of the period. The yield of each class will differ because of the different
expenses (including actual 12b-1 fees) of each class of shares. The yield data
represents a hypothetical investment return on the portfolio, and does not
measure investment return based on dividends actually paid to shareholders. To
show that return, a dividend distribution rate may be calculated. Dividend
distribution rate is calculated by dividing the dividends of a class derived
from net investment income during a stated period by the maximum offering price
on the last day of the period. Yields and dividend distribution rate for Class A
shares reflect the deduction of the maximum initial sales charge, but may also
be shown based on the Fund's net asset value per share. Yields for Class B and
Class C shares do not reflect the deduction of the CDSC.
"Total return" for the one-, five- and ten-year periods represents the average
annual compounded rate of return on an investment of $1,000 in the Fund at the
maximum public offering price. When total return is quoted for Class A shares,
it includes the payment of the maximum initial sales charge. When total return
is shown for Class B and Class C shares, it reflects the effect of the
applicable CDSC. Total return also may be presented for other periods or based
on investments at reduced sales charge levels or net asset value. Any quotation
of total return not reflecting the maximum sales charge (front-end, level, or
back-end) would be reduced if such sales charge were used. Quotations of yield
or total return for any period when an expense limitation is in effect will be
greater than if the limitation had not been in effect. See "Past Performance" in
the Statement of Additional Information for a more detailed description.
See "Performance" in the Statement of Additional Information for a more detailed
discussion concerning the computation of the Fund's total return and yield.
This Prospectus does not constitute an offering in any jurisdiction in which
such offer is not authorized or in which the person making such offer is not
qualified to do so or to anyone to whom it is unlawful to make such offer.
No person is authorized to give any information or to make any representations
not contained in this Prospectus or in supplemental sales material authorized by
the Fund and no person is entitled to rely upon any information or
representation not contained herein or therein.
<PAGE>
Comparison of change in value of a $10,000 investment, assuming reinvestment of
all dividends and distributions, in the Fund and the unmanaged Standard & Poors
500 Index.
The The
Fund at Fund at
Net Asset Maximum Offering S&P 500
Date Value Price Index
10/31/86 $10000 $ 9452 $10000
10/31/87 10284 9753 10640
10/31/88 11538 11002 12225
10/31/89 13619 13593 15437
10/31/90 12588 12882 14287
10/31/91 16112 15716 19067
10/31/92 17781 17663 20962
10/31/93 20940 19997 24063
10/31/94 22335 20808 24991
10/31/95 26906 27405 31591
10/31/96 33154 31258 39174
(1) Data reflects the deduction of the maximum initial sales charge of 5.75%
applicable to Class A shares.
(2) Performance numbers for the unmanaged Standard & Poor's 500 Index do not
reflect transaction costs or management fees. An investor cannot invest directly
in the Standard & Poor's 500 Index.
(3) Total return is the percent change in value, after deduction of the maximum
initial sales charge of 5.75% applicable to Class A shares, with all dividends
and distributions reinvested for the periods shown ending October 31, 1996 using
the SEC-required uniform method to compute such return.
(4) The Class B shares were first offered on 8/1/96; performance numbers are not
annualized. Performance reflects the deduction of a 5% CDSC.
(5) The Class C shares were first offered on 8/1/96; performance numbers are not
annualized. Performance reflects the deduction of a 1% CDSC.
<PAGE>
Investment Manager and Underwriter
Lord, Abbett & Co. and Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend
Disbursing Agent
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
Auditors
Deloitte & Touche LLP
Counsel
Debevoise & Plimpton Printed in the U.S.A.
<PAGE>
LORD ABBETT
Statement of Additional Information March 1, 1997
Lord Abbett Affiliated Fund, Inc.
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord Abbett Distributor LLC
("Lord Abbett Distributor") at The General Motors Building, 767 Fifth Avenue,
New York, New York 10153-0203. This Statement relates to, and should be read in
conjunction with, the Prospectus dated March 1, 1997.
Lord Abbett Affiliated Fund, Inc. (sometimes referred to as "we" or the "Fund")
was organized in 1934 and was incorporated under Maryland law on November 26,
1975. The Fund has 500,000,000 shares of authorized capital stock consisting of
three classes (A, B and C), $0.001 par value. The Board of Directors will
allocate these authorized shares of capital stock among the classes from time to
time. All shares have equal noncumulative voting rights and equal rights with
respect to dividends, assets and liquidation, except for certain class-specific
expenses. They are fully paid and nonassessable when issued and have no
preemptive or conversion rights.
Rule 18f-2 under the Act provides that any matter required to be submitted, by
the provisions of the Act or applicable state law or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Fund
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class affected by such
matter. Rule 18f-2 further provides that a class shall be deemed to be affected
by a matter unless the interests of each class in the matter are substantially
identical or the matter does not affect any interest of such class. However, the
Rule exempts the selection of independent public accountants, the approval of
principal distributing contracts and the election of directors from its separate
voting requirements.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 212-848-1800. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Policies 2
2. Directors and Officers 4
3. Investment Advisory and Other Services 6
4. Portfolio Transactions 7
5. Purchases, Redemptions and
Shareholder Services 8
6. Past Performance 14
7. Taxes 15
8. Information About the Fund 16
9. Financial Statements 17
<PAGE>
1.
Investment Policies
FUNDAMENTAL INVESTMENT RESTRICTIONS
We are subject to the following investment restrictions which cannot be changed
without approval of a majority of our outstanding shares. The Fund may not: (1)
borrow money, except that (i) the Fund may borrow from banks (as defined in the
Investment Company Act of 1940, as amended (the "Act")) in amounts up to 33 1/3%
of its total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Fund may purchase
securities on margin to the extent permitted by applicable law; (2) pledge its
assets (other than to secure borrowings, or to the extent permitted by the
Fund's investment policies, as permitted by applicable law); (3) engage in the
underwriting of securities, except pursuant to a merger or acquisition or to the
extent that, in connection with the disposition of its portfolio securities, it
may be deemed to be an underwriter under federal securities laws; (4) make loans
to other persons, except that the acquisition of bonds, debentures or other
corporate debt securities and investment in government obligations, commercial
paper, pass-through instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be subject to this
limitation, and except further that the Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in accordance
with applicable law; (5) buy or sell real estate (except that the Fund may
invest in securities directly or indirectly secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein)
or commodities or commodity contracts (except to the extent the Fund may do so
in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act as, for example, with futures
contracts); (6) with respect to 75% of the gross assets of the Fund, buy
securities of one issuer representing more than (i) 5% of the Fund's gross
assets, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or (ii) 10% of the voting securities of such
issuer; (7) invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or (8) issue senior
securities to the extent such issuance would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by changes in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the investment
restrictions above which cannot be changed without shareholder approval, we also
are subject to the following non-fundamental investment policies which may be
changed by the Board of Directors without shareholder approval. The Fund may
not: (1) borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes; (2) make short sales of
securities or maintain a short position except to the extent permitted by
applicable law; (3) invest knowingly more than 15% of its net assets (at the
time of investment) in illiquid securities, except for securities qualifying for
resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the
Board of Directors; (4) invest in the securities of other investment companies
except as permitted by applicable law; (5) invest in securities of issuers
which, with their predecessors, have a record of less than three years'
continuous operations, if more than 5% of the Fund's total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or guaranteed by the
U. S. Government, its agencies or instrumentalities); (6) hold securities of any
issuer if more than 1/2 of 1% of the securities of such issuer are owned
beneficially by one or more officers or directors of the Fund or by one or more
partners or members of the Fund's underwriter or investment adviser if these
owners in the aggregate own beneficially more than 5% of the securities of such
issuer; (7) invest in warrants if, at the time of the acquisition, its
investment in warrants, valued at the lower of cost or market, would exceed 5%
of the Fund's total assets (included within such limitation, but not to exceed
2% of the Fund's total assets, are warrants which are not listed on the New York
or American Stock Exchange or a major foreign exchange); (8) invest in real
estate limited partnership interests or interests in oil, gas or other mineral
leases, or exploration or other development programs, except that the Fund may
invest in securities issued by companies that engage in oil, gas or other
mineral exploration or other development activities; (9) write, purchase or sell
puts, calls, straddles, spreads or combinations thereof, except to the extent
permitted in the Fund's prospectus and statement of additional information, as
they may be amended from time to time; (10) buy from or sell
2
<PAGE>
to any of its officers, directors, employees, or its investment adviser or any
of its officers, directors, partners or employees, any securities other than
shares of the Fund's common stock; or (11) pledge, mortgage or hypothecate its
assets, however, this provision does not apply to the grant of escrow receipts
or the entry into other similar escrow arrangements arising out of the writing
of covered call options.
Although it has no current intention to do so, the Fund may invest in financial
futures and options on financial futures.
For the year ended October 31, 1996, the portfolio turnover rate was 47.06%
versus 53.84% for the prior year.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
registered broker-dealers. These loans may not exceed 30% of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash or
marketable securities issued or guaranteed by the U.S. Government or its
agencies ("U.S. Government Securities") or other permissible means. The cash or
instruments collateralizing the Fund's loans of securities will be maintained at
all times in an amount at least equal to the current market value of the loaned
securities. From time to time, the Fund may allow to the borrower and/or a third
party that is not affiliated with the Fund and is acting as a "placing broker" a
part of the interest received with respect to the investment of collateral
received for securities loaned. No fee will be paid to affiliated persons of the
Fund.
By lending portfolio securities, the Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either investing the
cash collateral in permissible investments, such as U.S. Government Securities,
or obtaining yield in the form of interest paid by the borrower when such U.S.
Government Securities are used as collateral. The Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% collateral from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned rises above the
level of the collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable compensation with respect to the
loan, as well as any dividends, interest or other distributions on the loaned
securities; (v) the Fund may pay only reasonable fees in connection with the
loan and (vi) voting rights on the loaned securities may pass to the borrower
except that, if a material event adversely affecting the investment in the
loaned securities occurs, the Fund's Board of Directors must terminate the loan
and regain the right to vote the securities.
RULE 144A SECURITIES. We may invest in securities qualifying for resale to
"qualified institutional buyers" under SEC Rule 144A that are determined by the
Board, or by Lord Abbett pursuant to the Board's delegation, to be liquid
securities. The Board will review quarterly the liquidity of the investments the
Fund makes in such securities. Investments by the Fund in Rule 144A securities
initially determined to be liquid could have the effect of diminishing the level
of the Fund's liquidity during periods of decreased market interest in such
securities among qualified institutional buyers.
OTHER INVESTMENT POLICIES (WHICH CAN BE CHANGED WITHOUT SHAREHOLDER APPROVAL)
As stated in the Prospectus, we may write covered call options which are traded
on a national securities exchange with respect to securities in our portfolio in
an attempt to increase our income and to provide greater flexibility in the
disposition of our portfolio securities. A "call option" is a contract sold for
a price (the "premium") giving its holder the right to buy a specific number of
shares of stock at a specific price prior to a specified date. A "covered call
option" is a call option issued on securities already owned by the writer of the
call option for delivery to the holder upon the exercise of the option. During
the period of the option, we forgo the opportunity to profit from any increase
in the market price of the underlying security above the exercise price of the
option (to the extent that the increase exceeds our net premium). We also may
enter into "closing purchase transactions" in order to terminate our obligation
to deliver the underlying security (this may result in a short-term gain or
loss). A closing purchase transaction is the purchase of a call option (at a
cost which may be more or less than the premium received for writing the
original call option) on the same security, with the same exercise price and
call period as the option previously written. If we are unable to enter into a
closing purchase transaction, we may be required to hold a security that we
might otherwise have sold to protect against depreciation. We do not intend to
write covered call options with respect to securities with an aggregate market
3
<PAGE>
value of more than 10% of our gross assets at the time an option is written.
This percentage limitation will not be increased without prior disclosure in our
current Prospectus.
RISK FACTORS. As stated in the Prospectus, we may invest no more than 5% of our
net assets (at the time of investment) in lower-rated, high-yield bonds. In
general, the market for lower-rated, high-yield bonds is more limited than the
market for higher-rated bonds, and because trading in such bonds may be thinner
and less active, the market prices of such bonds may fluctuate more than the
prices of higher-rated bonds, particularly in times of market stress. In
addition, while the market for high-yield, corporate debt securities has been in
existence for many years, the market in recent years experienced a dramatic
increase in the large-scale use of such securities to fund highly-leveraged
corporate acquisitions and restructurings. Accordingly, past experience may not
provide an accurate indication of future performance of the high-yield bond
market, especially during periods of economic recession. Other risks which may
be associated with lower-rated, high-yield bonds include their relative
insensitivity to interest-rate changes; the exercise of any of their redemption
or call provisions in a declining market which may result in their replacement
by lower-yielding bonds; and legislation, from time to time, which may adversely
affect their market. Since the risk of default is higher among lower-rated,
high-yield bonds, Lord Abbett's research and analyses are an important
ingredient in the selection of such bonds. Through portfolio diversification,
good credit analysis and attention to current developments and trends in
interest rates and economic conditions, investment risk can be reduced, although
there is no assurance that losses will not occur. The Fund does not have any
minimum rating criteria applicable to the fixed-income securities in which it
invests.
2.
Directors and Officers
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also officer and/or
director or trustee of the twelve other Lord Abbett-sponsored funds. He is an
"interested person" as defined in the Act, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plans described in the
Prospectus.
Robert S. Dow, age 51, Chairman and President
The following outside directors are also directors or trustees of the twelve
other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief
Operating Officer of Home Box Office, Inc. Age 55.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 66.
John C. Jansing 162 S. Beach Road Hobe Sound, Florida Retired. Former Chairman
of Independent Election Corporation of America, a proxy tabulating firm. Age 71.
4
<PAGE>
C. Alan MacDonald
The Marketing Partnership, Inc.
27 Signal Road
Stamford, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm. Formerly President & CEO of Nestle Foods Corp, and prior to
that, President & CEO of Stouffer Foods Corp., both subsidiaries of Nestle SA,
Switzerland. Currently serves as Director of Den West Restaurant Co., J. B.
Williams, and Fountainhead Water Company. Age 63.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 68.
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
Chairman of Spencer Stuart U.S., an executive search consulting firm. Age 59.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the retirement plan for outside directors maintained by the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside directors. No director of the Fund
associated with Lord Abbett and no officer of the Fund received any compensation
from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
(1) (2) (3) (4) (5)
Pension or Estimated Annual For Year Ended
Retirement Benefits Benefits Upon December 31, 1995
Accrued by the Retirement Proposed Total Compensation
Aggregate Fund and to be Paid by the Accrued by the Fund and
Compensation Twelve Other Lord Fund and Twelve Twelve Other Lord
Accrued by Abbett-sponsored Other Lord Abbett- Abbett-sponsored
NAME OF DIRECTOR THE FUND1 FUNDS SPONSORED FUNDS2 FUNDS3
E. Thayer Bigelow $17,215 $11,563 $50,000 $41,700
Stewart S. Dixon $16,729 $22,283 $50,000 $42,000
John C. Jansing $16,908 $28,242 $50,000 $42,960
C. Alan MacDonald $17,308 $29,942 $50,000 $42,750
Hansel B. Millican, Jr. $17,751 $24,499 $50,000 $43,000
Thomas J. Neff $16,817 $15,990 $50,000 $42,000
5
<PAGE>
<FN>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on net
assets of each fund. A portion of the fees payable by the Fund to its outside
directors are being deferred under a plan that deems the deferred amounts to be
invested in shares of the Fund for later distribution to the directors. The
amounts of the aggregate compensation payable by the Fund as of October 31,
1996, deemed invested in Fund shares, including dividends reinvested and changes
in net asset value applicable to such deemed investments, were: Mr. Bigelow,
$37,681; Mr. Dixon, $256,216; Mr. Jansing, $291,129; Mr. MacDonald, $185,546;
Mr. Millican, $293,179 and Mr. Neff, $290,052.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that outside
directors may receive annual retirement benefits for life equal to 100% of their
final annual retainers following retirement at or after age 72 with at least 10
years of service. Each plan also provides for a reduced benefit upon early
retirement under certain circumstances, a pre-retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits. Such retirement plans,
and the deferred compensation plans referred to in footnote one, have been
amended recently to, among other things, enable outside directors to elect to
convert their prospective benefits under the retirement plans to equity-based
benefits under the deferred compensation plans (to be renamed the equity-based
plans). The amounts accrued in column 3 were accrued by the Lord
Abbett-sponsored funds during the fiscal year ended October 31, 1996 with
respect to the retirement plans. These accruals were based on the retirement
plans as in effect before the recent amendments and on the fees payable to
outside directors of the Fund during the fiscal year ended October 31, 1996.
Under the recent amendments, the annual retainer was increased to $50,000 and
the annual retirement benefits were increased from 80% to 100% of a director's
final annual retainer. The amounts stated in column 4 would be payable annually
under the retirement plans as recently amended if the directors were to retire
at age 72 and the annual retainers payable by the funds were the same as they
are today.
3. This column shows aggregate compensation, including directors
fees and attendance fees for board and committee meetings, of
a nature referred to in footnote one, accrued by the Lord
Abbett-sponsored funds during the year ended December 31,
1995.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Brown, Carper, Cutler, Dow, Morris, Noelke, Nordberg, Walsh and Ms.
Foster are partners of Lord Abbett; the others are employees: W. Thomas Hudson,
age 54, Executive Vice President; Kenneth B. Cutler, age 64, Vice President and
Secretary; Stephen I. Allen, age 43; Zane E. Brown, age 45; Daniel E. Carper,
age 45; Robert S. Dow, age 51; Daria L. Foster, age 42; Robert G. Morris, age
52; Robert J. Noelke, age 40; E. Wayne Nordberg, age 59; Paul A. Hilstad, age 54
(with Lord Abbett since 1995 - formerly Senior Vice President and General
Counsel of American Capital Management & Research, Inc.); Thomas F. Konop, age
54; Victor W. Pizzolato, age 64; A. Edward Oberhaus, age 36; John J. Walsh, age
60, Vice Presidents; and Keith F. O'Connor, age 41, Vice President and
Treasurer.
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called by a majority of the Board of
Directors or by stockholders holding at least one quarter of the stock of the
Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the stockholders will elect directors and vote on the approval
of the independent auditors of the Fund.
As of February 1, 1997 our officers and directors, as a group, owned less than
1% of our outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The ten general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Zane E. Brown,
Daniel E. Carper, Kenneth B. Cutler, Robert S. Dow, Daria L. Foster, Robert G.
Morris, Robert J. Noelke, E. Wayne Nordberg and John J. Walsh. The address of
each partner is The General Motors Building, 767 Fifth Avenue, New York, New
York 10153-0203.
The services performed by Lord Abbett are described in the Prospectus under "Our
Management". Under the Management Agreement, we pay Lord Abbett a monthly fee,
based on average daily net assets for each month, at the annual rate of .5 of 1%
of the portion of our net assets not in excess of $200,000,000; .4 of 1% of the
portion in excess of $200,000,000, but not in excess of $500,000,000; .375 of 1%
of the portion in excess of $500,000,000, but not in excess of $700,000,000; .35
of 1% of the portion in excess of $700,000,000, but not in excess of
$900,000,000; and .3 of 1% of the portion in excess of $900,000,000. This fee is
allocated among Class A, B and C based on the classes' proportionate shares of
such average daily net assets.
6
<PAGE>
For the fiscal years ended October 31, 1996, 1995 and 1994, the management fees
paid to Lord Abbett by the Fund amounted to $17,683,694, $14,431,000 and
$13,311,646, respectively.
We pay all expenses not expressly assumed by Lord Abbett, including without
limitation 12b-1 expenses, outside directors' fees and expenses, association
membership dues, legal and auditing fees, taxes, transfer and dividend
disbursing agent fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
our Board of Directors to continue in such capacity. They perform audit services
for the Fund including the examination of financial statements included in our
annual report to shareholders.
The Bank of New York of New York ("BNY"), 48 Wall Street, New York, New York, is
the Fund's custodian. In accordance with the requirements of Rule 17f-5, the
Fund's directors have approved arrangements permitting the Fund's foreign assets
not held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, we generally pay, as described below, a higher commission than
some brokers might charge on the same transactions. Our policy with respect to
best execution governs the selection of brokers or dealers and the market in
which the transaction is executed. To the extent permitted by law, we may, if
considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and ability to take
positions in securities, knowledge of a particular security or market proven
ability to handle a particular type of trade, confidential treatment, promptness
and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of
7
<PAGE>
the Fund; conversely, such services furnished in connection with brokerage on
other accounts managed by Lord Abbett may be used in connection with their
management of the Fund, and not all of such services will necessarily be used by
Lord Abbett in connection with their advisory services to such other accounts.
We have been advised by Lord Abbett that research services received form brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
For the fiscal years ended October 31, 1996, 1995 and 1994, we paid total
commissions to independent dealers of $5,897,259, $6,542,354 and $6,133,695,
respectively.
5.
Purchases, Redemptions
and Shareholder Services
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
Information concerning how we value our shares for the purchase and redemption
of our shares is described in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate our net asset value and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
The net asset value per share for the Class B and Class C shares will be
determined in the same manner as for the Class
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A shares (net assets divided by shares outstanding). Our Class B and Class C
shares will be sold at net asset value.
The maximum offering price of our Class A shares on October 31, 1996 was
computed as follows:
Net asset value per share (net assets divided by
shares outstanding)...... . . . . . . . .... . . . .$13.02
Maximum offering price per share (net asset value
divided by .9425).....................................$13.81
The maximum offering prices of our Class B shares on October 31, 1996 were
computed as follows:
Net asset value per
share (net assets divided by shares
outstanding ........................................ $13.03
Maximum offering
price per share (net asset value
divided by .9525). . . . . . . . . . . . ... . . .. $13.68
The maximum offering prices of our Class C shares on October 31, 1996 were
computed as follows:
Net asset value per
share (net assets divided by shares
outstanding..........................................$13.02
Maximum offering
price per share (net asset value
divided by .9525). . . . . . . . . . . . . . ... .. .$13.67
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor") and
subsidiary of Lord Abbett, under which Lord Abbett Distributor is obligated to
use its best efforts to find purchasers for the shares of the Fund, and to make
reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's
judgment, a substantial distribution can be obtained by reasonable efforts.
For the last three fiscal years, Lord Abbett, as our principal underwriter,
received net commissions after allowance of a portion of the sales charge to
independent dealers with respect to Class A shares as follows:
YEAR ENDED OCTOBER 31,
1996 1995 1994
---- ---- ----
Gross sales charge $15,464,565 $6,940,216 $5,987,070
Amount allowed
to dealers $13,701,148 $6,295,403 $5,165,044
----------- ---------- ----------
Net commissions
received by
Lord Abbett $1,763,417 $ 644,813 $ 822,026
========== =========== ===========
CONVERSION OF CLASS B SHARES. The conversion of Class B shares on the eighth
anniversary of their purchase is subject to the continuing availability of a
private letter ruling from the Internal Revenue Service, or an opinion of
counsel or
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<PAGE>
tax adviser, to the effect that the conversion of Class B shares does not
constitute a taxable event for the holder under Federal income tax law. If such
a revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the holder.
CLASS A, B AND C RULE 12B-1 PLANS. As described in the Prospectus, the Fund has
adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act for
each of the three Fund Classes: the "A Plan", the "B Plan" and the "C Plan",
respectively. In adopting each Plan and in approving its continuance, the Board
of Directors has concluded that there is a reasonable likelihood that each Plan
will benefit its respective Class and such Class' shareholders. The expected
benefits include greater sales and lower redemptions of Class shares, which
should allow each Class to maintain a consistent cash flow, and a higher quality
of service to shareholders by authorized institutions than would otherwise be
the case. During the last fiscal year, the Fund accrued or paid through Lord
Abbett to authorized institutions $11,638,558 under the A Plan, $18,947 under
the B Plan and $8,776 under the C Plan. Lord Abbett used all amounts received
under the A Plan for payments to dealers for (i) providing continuous services
to the Class A shareholders, such as answering shareholder inquiries,
maintaining records, and assisting shareholders in making redemptions,
transfers, additional purchases and exchanges and (ii) their assistance in
distributing Class A shares of the Fund.
Each Plan requires the directors to review, on a quarterly basis, written
reports of all amounts expended pursuant to the Plan and the purposes for which
such expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the directors,
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("outside directors"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at any time by vote of a majority of the outside
directors or by vote of a majority of its Class's outstanding voting securities.
CONTINGENT DEFERRED SALES CHARGES. A Contingent Deferred Sales Charge ("CDSC")
applies regardless of class, (i) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (ii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iii) will not be imposed on the amount of your
account value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of dividends and
capital gains distributions) and upon early redemption of shares.
CLASS A SHARES. As stated in the Prospectus, a CDSC of 1% is imposed with
respect to those Class A shares (or Class A shares of another Lord
Abbett-sponsored fund or series acquired through exchange of such shares) on
which the Fund has paid the one-time distribution fee of 1% if such shares are
redeemed out of the Lord Abbett-sponsored family of funds within a period of 24
months from the end of the month in which the original sale occurred.
CLASS B SHARES. As stated in the Prospectus, if Class B shares (or Class B
shares of another Lord Abbett-sponsored fund or series acquired through exchange
of such shares) are redeemed out of the Lord Abbett-sponsored family of funds
for cash before the sixth anniversary of their purchase, a CDSC will be deducted
from the redemption proceeds. The Class B CDSC is paid to Lord Abbett
Distributor to reimburse its expenses, in whole or in part, for providing
distribution-related service to the Fund in connection with the sale of Class B
shares.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held on or after the sixth anniversary
of their purchase, and (3) shares held the longest before such sixth
anniversary.
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The amount of the contingent deferred sales charge will depend on the number of
years since you invested and the dollar amount being redeemed, according to the
following schedule:
Anniversary of the Day on Contingent Deferred Sales Charge
Which the Purchase Order Was Accepted on Redemptions (As % of Amount
Subject to Charge)
Before the 1st...............................................5.0%
On the 1st, before the 2nd...................................4.0%
On the 2nd, before the 3rd...................................3.0%
On the 3rd, before the 4th................ ..................3.0%
On the 4th, before the 5th...................................2.0%
On the 5th, before the 6th ..................................1.0%
On or after the 6th anniversary..............................None
In the table, an "anniversary" is the 365th day subsequent to the acceptance of
a purchase order or a prior anniversary. All purchases are considered to have
been made on the business day on which the purchase order was accepted.
CLASS C SHARES. As stated in the Prospectus, if Class C shares are redeemed for
cash before the first anniversary of their purchase, the redeeming shareholder
will be required to pay to the Fund on behalf of Class C shares a CDSC of 1% of
the lower of cost or the then net asset value of Class C shares redeemed. If
such shares are exchanged into the same class of another Lord Abbett-sponsored
fund and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of this
Fund's Class C shares.
GENERAL. Each percentage (1% in the case of Class A and C shares and 5% through
1% in the case of Class B shares) used to calculate CDSCs described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class A shares
purchased pursuant to a special retirement wrap program, no CDSC is payable on
redemptions which continue or investments in another fund participating in the
program. In the case of Class A and Class C shares, the CDSC is received by the
Fund and is intended to reimburse all or a portion of the amount paid by the
Fund if the shares are redeemed before the Fund has had an opportunity to
realize the anticipated benefits of having a long-term shareholder account in
the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett
Distributor and is intended to reimburse its expenses of providing
distribution-related service to the Fund (including recoupment of the commission
payments made) in connection with the sale of Class B shares before Lord Abbett
Distributor has had an opportunity to realize its anticipated reimbursement by
having such a long-term shareholder account subject to the B Plan distribution
fee.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
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<PAGE>
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares are held in AMMF. Therefore,
if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares, and series of Lord Abbett
Research Fund not offered to the general public ("LARF").
STATEMENT OF INTENTION. Under the terms of the Statement of Intention to invest
$50,000 or more over a 13-month period as described in the Prospectus, shares of
a Lord Abbett-sponsored fund (other than shares of LAEF, LASF, LARF, GSMMF and
AMMF, unless holdings in GSMMF and AMMF are attributable to shares exchanged
from a Lord
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<PAGE>
Abbett-sponsored fund offered with a front-end, back-end or level sales charge)
currently owned by you are credited as purchases (at their current offering
prices on the date the Statement is signed) toward achieving the stated
investment and reduced initial sales charge for Class A shares. Class A shares
valued at 5% of the amount of intended purchases are escrowed and may be
redeemed to cover the additional sales charge payable if the Statement is not
completed. The Statement of Intention is neither a binding obligation on you to
buy, nor on the Fund to sell, the full amount indicated.
RIGHTS OF ACCUMULATION. As stated in the Prospectus, purchasers (as defined in
the Prospectus) may accumulate their investment in Lord Abbett-sponsored funds
(other than LAEF, LARF, LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF
are attributable to shares exchanged from a Lord Abbett-sponsored fund offered
with a front-end, back-end or level sales charge) so that a current investment,
plus the purchaser's holdings valued at the current maximum offering price,
reach a level eligible for a discounted sales charge for Class A shares.
NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our
Class A shares may be purchased at net asset value by our directors, employees
of Lord Abbett, employees of our shareholder servicing agent and employees of
any securities dealer having a sales agreement with Lord Abbett who consents to
such purchases or by the director or custodian under any pension or
profit-sharing plan or Payroll Deduction IRA established for the benefit of such
persons or for the benefit of employees of any national securities trade
organization to which Lord Abbett belongs or any company with an account(s) in
excess of $10 million managed by Lord Abbett on a private-advisory-account
basis. For purposes of this paragraph, the terms "directors" and "employees"
include a director's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "our directors" and "employees of Lord
Abbett" also include retired directors and employees and other family members
thereof.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, ("mutual fund wrap fee program"), (e)
by employees, partners and owners of unaffiliated consultants and advisors to
Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent
to such purchase if such persons provide service to Lord Abbett, Lord Abbett
Distributor or such funds on a continuing basis and are familiar with such
funds, (f) through Retirement Plans with at least 100 eligible employees, (g)
our Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a securities dealer where the amount invested
represents redemption proceeds from shares ("Redeemed Shares") of a registered
open-end management investment company not distributed or managed by Lord Abbett
(other than a money market fund), if such redemption has occurred no more than
60 days prior to the purchase of our shares, the Redeemed Shares were held for
at least six months prior to redemption and the proceeds of redemption were
maintained in cash or a money market fund prior to purchase. Purchasers should
consider the impact, if any, of contingent deferred sales charges in determining
whether to redeem shares for subsequent investment in our Class A shares. Lord
Abbett may suspend, change or terminate this purchase option referred to in (g)
above at any time, we plan that on June 1, 1997 the net asset value transfer
privilege will be terminated, and (h) through a "special retirement wrap
program" sponsored by an authorized institution showing one or more
characteristics distinguishing it, in the opinion of Lord Abbett Distributor
from a mutual fund wrap program. Such characteristics include, among other
things, the fact that an authorized institution does not charge its clients any
fee of a consulting or advisory nature that is economically equivalent to the
distribution fee under Class A 12b-1 Plan and the fact that the program relates
to participant-directed Retirement Plan. Shares are offered at net asset value
to these investors for the purpose of promoting goodwill with employees and
others with whom Lord Abbett Distributor and/or the Fund has business
relationships.
REDEMPTIONS. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or supplementally by
Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and
any legal capacity of the signer(s) must be guaranteed by an eligible guarantor.
See the Prospectus for expedited
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<PAGE>
redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than 25 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 6 months prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
DIV-MOVE. Under the Div-Move service described in the Prospectus, you can invest
the dividends paid on your account of any class into an existing account of the
same class in any other Eligible Fund. The account must be either your account,
a joint account for you and your spouse, a single account for your spouse, or a
custodial account for your minor child under the age of 21. You should read the
prospectus of the other fund before investing.
INVEST-A-MATIC. The Invest-A-Matic method of investing in the Fund and/or any
other Eligible Fund is described in the Prospectus. To avail yourself of this
method you must complete the application form, selecting the time and amount of
your bank checking account withdrawals and the funds for investment, include a
voided, unsigned check and complete the bank authorization.
SYSTEMATIC WITHDRAWAL PLANS. The Systematic Withdrawal Plan ("SWP") also is
described in the Prospectus. You may establish a SWP if you own or purchase
uncertificated shares having a current offering price value of at least $10,000.
Lord Abbett prototype retirement plans have no such minimum. With respect to a
SWP for Class B shares, on redemptions over 12% per year, the CDSC will apply to
the entire redemption. Therefore, please contact the Fund for assistance in
minimizing the CDSC in this situation. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The SWP may be terminated by you or by us at any time by written
notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms and custodial agreements for IRAs (Individual
Retirement Accounts, including Simple IRAs and Simplified Employee Pensions),
403(b) plans and qualified pension and profit-sharing plans, including 401(k)
plans. The forms name Investors Fiduciary Trust Company as custodian and contain
specific information about the plans. Explanations of the eligibility
requirements, annual custodial fees and allowable tax advantages and penalties
are set forth in the relevant plan documents. Adoption of any of these plans
should be on the advice of your legal counsel or qualified tax adviser.
6.
Past Performance
The Fund computes the average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to the computed average annual
total return, raising the sum to a power equal to the number of years covered by
the computation and multiplying the result by one thousand dollars, which
represents a hypothetical initial investment. The calculation assumes deduction
of the maximum sales charge from the initial amount invested and reinvestment of
all income dividends and
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capital gains distributions on the reinvestment dates at prices calculated as
stated in the Prospectus. The ending redeemable value is determined by assuming
a complete redemption at the end of the period(s) covered by the average annual
total return computation.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment (unless the return is shown at net asset value). For Class B
shares, the payment of the applicable CDSC (5.0% prior to the first anniversary
of purchase, 4.0% prior to the second anniversary of purchase, 3.0% prior to the
third and fourth anniversaries of purchase, 2.0% prior to the fifth anniversary
of purchase, 1.0% prior to the sixth anniversary of purchase and no CDSC on and
after the sixth anniversary of purchase) is applied to the Fund's investment
result for that class for the time period shown (unless the total return is
shown at net asset value). For Class C shares, the 1.0% CDSC is applied to the
Fund's investment result for that class for the time period shown prior to the
first anniversary of purchase (unless the total return is shown at net asset
value). Total returns also assume that all dividends and capital gains
distributions during the period are reinvested at net asset value per share, and
that the investment is redeemed at the end of the period.
Using the computation method described above, the Fund's average annual
compounded rates of total return for the last one, five and ten fiscal-years
ending on October 31, 1996 are as follows: 16.10%, 14.16% and 12.07% for the
Fund's Class A shares, respectively. For the period August 1, 1996 to October
31, 1996 the average annual compounded rates of total return for the Class B
shares was 4.70% (not annualized). For the period August 1, 1996 to October 31,
1996 the average annual compounded rates of total return for Class C shares was
9.00% (not annualized).
Our yield quotation for each class is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
take the dividends and interest earned during the period for a class minus its
expenses accrued for the period and divide by the product of (i) the average
daily number of Class shares outstanding during the period that were entitled to
receive dividends and (ii) the maximum offering price per share of such class on
the last day of the period. To this quotient add one. This sum is multiplied by
itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two. Yield for the Class A
shares reflects the deduction of the maximum initial sales charge, but may also
be shown based on the Class A net asset value per share. Yields for Class B and
C shares do not reflect the deduction of the CDSC. For the 30-day period ended
October 31, 1996, the yield for the Class A shares of Fund was 1.96%.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Therefore, there is no assurance that this performance will be
repeated in the future.
7.
Taxes
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time the
redemption, repurchase or sale is made. Any gain or loss will generally be
taxable for federal income tax purposes. Any loss realized on the sale,
redemption or repurchase of Fund shares which you have held for six months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any capital gains distributions which you received with respect to such
shares. Losses on the sale of stock or securities are not deductible if, within
a period beginning 30 days before the date of the sale and ending 30 days after
the date of the sale, the taxpayer acquires stock or securities that are
substantially identical.
The writing of call options and other investment techniques and practices which
the Fund may utilize, as described above under "Investment Objectives and
Policies," may create "straddles" for United States federal income tax purposes
and may affect the character and timing of the recognition of gains and losses
by the Fund. Such transactions may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Limitations imposed by the Internal Revenue Code on regulated
investment companies may restrict
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the Fund's ability to engage in transactions in options.
As described in the Prospectus under "How We Invest - Risk Factors", the Fund
may be subject to foreign withholding taxes which would reduce the yield on its
investments. Tax treaties between certain countries and the United States may
reduce or eliminate such taxes. It is expected that Fund shareholders who are
subject to United States federal income tax will not be entitled to claim a
federal income tax credit or deduction for foreign income taxes paid by the
Fund.
The Fund will be subject to a 4% non-deductible excise tax on certain amounts
not distributed (and not treated as having been distributed) on a timely basis
in accordance with a calendar-year distribution requirement. The Fund intends to
distribute to shareholders each year an amount adequate to avoid the imposition
of such excise tax. Dividends paid by the Fund will qualify for the
dividends-received deduction for corporations to the extent they are derived
from dividends paid by domestic corporations.
Gains and losses realized by the Fund on certain transactions, including sales
of foreign debt securities and certain transactions involving foreign currency,
will be treated as ordinary income or loss for federal income tax purposes to
the extent, if any, that such gains or losses are attributable to changes in
exchange rates for foreign currencies. Accordingly, distributions taxable as
ordinary income will include the net amount, if any, of such foreign exchange
gains and will be reduced by the net amount, if any, of such foreign exchange
losses.
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" it may be subject to United States
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the Fund or its shareholders in respect of
deferred taxes arising from such distributions or gains.
If the Fund were to invest in a passive foreign investment company with respect
to which the Fund elected to make a "qualified electing fund" election, in lieu
of the foregoing requirements, the Fund might be required to include in income
each year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if such amount were not distributed to the Fund.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates.) Each
shareholder who is not a United States person should consult his tax adviser
regarding the U.S. and foreign tax consequences of the ownership of shares of
the Fund, including a 30% (or lower treaty rate) United States withholding tax
on dividends representing ordinary income and net short-term capital gains, and
the applicability of United States gift and estate taxes to non-United States
persons who own Fund shares.
8.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund trades in such security,
prohibiting profiting on trades of the same security within 60 days and trading
on material and non-public information. The Code imposes certain similar
requirements and restrictions on the independent directors and trustees of each
Lord Abbett-sponsored mutual fund to the extent contemplated by the
recommendations of such Advisory Group.
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9.
Financial Statements
The financial statements for the fiscal year ended October 31, 1996 and the
report of Deloitte & Touche LLP, independent public accountants, on such
financial statements contained in the 1996 Annual Report to Shareholders of Lord
Abbett Affiliated Fund, Inc. are incorporated herein by reference to such
financial statements and report in reliance upon the authority of Deloitte &
Touche LLP as experts in auditing and accounting.
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