Affiliated
Lord Abbett Fund
1997 ANNUAL REPORT
[GRAPHIC: Box Gift Wrapped]
Helping you prepare
for tomorrow, today
[LOGO](R)
<PAGE>
Lord Abbett Affiliated Fund Building Investor Confidence Since 1934
A Tradition of
Value
Investing
[GRAPHIC: Opened gift and clock]
Affiliated's history highlights the concept of value
investing: buying quality companies when they are "on
sale" and selling them when they reach their potential.
Through the years, this discipline has helped Affiliated
Fund achieve competitive returns with relatively
moderate fluctuations in price.
- --------------------------------------------------------------------------------
Competitive Total Average Annual Rates of Total Return as of 10/31/97
Returns, Consistently
[The following table was depicted as a bar chart in the printed material.]
For the past 40 years +12.7% per year
For the past 30 years +12.5% per year
For the past 20 years +15.8% per year
For the past 10 years +15.0% per year
For the past year +25.8% for the year
- --------------------------------------------------------------------------------
Consistency The Fund has increased in value 33 out of the last 40
fiscal years.
- --------------------------------------------------------------------------------
Large and Growing Shareholders taking dividends in cash saw their dividend
Dividends checks increase 32 out of the last 40 fiscal years.(1)
- --------------------------------------------------------------------------------
Shareholder Lord Abbett Affiliated Fund's history demonstrates its
Satisfaction ability to help shareholders realize their financial
objectives. That's probably why, on average, Affiliated
Fund shareholders have owned the Fund for over 18
years.(2)
- --------------------------------------------------------------------------------
The Fund: Something "Lord Abbett Affiliated Fund keeps its wits when others
to Talk About panic... [Portfolio Manager Tom] Hudson has been correct
more often than not... Hudson and his predecessors have
built a record of decent returns with only modest
volatility--a strong recommendation for the fund."
Source: Morningstar Mutual Funds, August 1997
"...Lord Abbett Affiliated Fund's long-term performance
is quite good... Investors seeking a mix of income and
total return should consider this fund."
Source: Value Line Mutual Fund Survey, November 1997
- --------------------------------------------------------------------------------
Average Annual Average annual rates of total return at the Class A
Total Returns share maximum sales charge of 5.75%, for the periods
ended 9/30/97 were:
[The following table was depicted as a bar chart in the printed material.]
1 year +28.10%
5 years +18.24%
10 years +12.24%
The Fund's SEC yield for the 30 days ended 10/31/97 for
Class A shares was 1.60%.
This past performance is no indication of future
results. The investment return and principal value of an
investment in the Fund will fluctuate so that shares, on
any given day or when redeemed, may be worth more or
less than their original cost.
The Fund's fiscal year-end is 10/31. Results quoted
above (unless stated otherwise) are for periods ending
10/31/97 and reflect Class A share performance at net
asset value with all distributions reinvested.
(1) Capital gains were reinvested. Period ends 10/31/97.
(2) Based on a survey of Lord Abbett Affiliated Fund
shareholders conducted by Lord, Abbett & Co. in 1993.
See Important Information on page 8.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended October 31, 1997
[PHOTO Robert S. Dow]
/s/ Robert S. Dow
- ---------------------------
ROBERT S. DOW
CHAIRMAN
NOVEMBER 18, 1997
"... your Fund enjoyed returns above historical averages due to an environment
of solid economic growth, low inflation and strong corporate profit gains."
Lord Abbett Affiliated Fund completed its fiscal year on October 31, 1997. Below
is an overview of class-specific data as of the close of the year.
Twelve Months Ended October 31, 1997
------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Net asset value $14.84 $14.84 $14.84
Dividends $ 0.30 $ 0.20 $ 0.20
Capital gains $ 1.03 $ 1.03 $ 1.03
Total return* +25.8% +24.8% +24.9%
During the past year, the stock market and your Fund enjoyed returns above
historical averages due to an environment of solid economic growth, low
inflation and strong corporate profit gains. Throughout most of the period, your
portfolio has been evenly diversified, but with a moderate overweighting in
stocks of financial companies, such as banks. Furthermore, we have shifted our
focus within this group of stocks towards insurance companies, which are
benefiting from industry-wide consolidation and cost-cutting efforts.
We expect the economy to slow considerably in 1998. While profit growth should
also slow, we believe inflation will remain moderate and long-term bond rates
will fall to less than 6% later in the year.
Given the economic climate we are forecasting, equities could still produce
positive total returns over the next twelve months. However, companies whose
profits and performance usually track the economy and that depend on price
increases to offset rising costs (such as construction), may find it difficult
to maintain, much less increase, their profits. We also remain watchful of
weaknesses in the Asian and Latin American markets, which could negatively
impact world trade in general, and create increased competition for domestic
manufacturers of commodity and cyclical products. While we remain somewhat
defensively positioned, we do anticipate building up our "economy-sensitive"
stocks as the economy cools, because some of the most attractively priced stocks
today fall into that category.
We recognize the risk that can accompany an extended bull market, but we believe
that thorough research and careful stock selection can lead to attractive total
returns going forward.
Thank you for your continued confidence in Lord Abbett Affiliated Fund. We look
forward to maintaining our relationship in the coming years and helping you
achieve your financial goals.
* Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
1
<PAGE>
The Income Perspective
The Affiliated
Advantage: A
history of
increasing
dividends vs.
fluctuating
income from
guaranteed CDs
Income Generated from $100,000 Investments: 11/1/72-10/31/97
<TABLE>
<CAPTION>
<S> <C> <C>
Year
Ended Six-Month CD Affiliated Fund
Oct. 31 Interest(1) Dividends(2)
- --------------------------------------------------------
1973 $ 7,504 $ 4,134
1974 9,921 4,517
1975 7,417 3,691
1976 6,000 4,748
1977 5,540 5,311
1978 7,779 5,880
1979 10,816 6,740
1980 12,771 8,098
1981 16,038 9,935
1982 13,467 10,611
1983 9,204 10,497
1984 10,711 11,079
1985 8,591 12,676
1986 6,898 13,671
1987 6,644 13,980
1988 7,652 15,017
1989 9,258 15,700
1990 8,263 14,918
1991 6,593 14,654
1992 4,077 14,905
1993 3,337 13,818
1994 4,323 13,396
1995 6,161 13,485
1996 5,464 14,830
1997 5,676 16,107 If capital
gains and
Interest/Dividend Total $200,105 $ 272,398 dividends
- ---------------------------======== ========== had been
25 Years Later reinvested,
Initial $100,000 the Fund's
Investment plus Growth $100,000 $ 811,820 total value
- ---------------------------======== ========== would have been
Total Value $300,105 $1,084,218 -- $2,578,265
- ---------------------------======== ==========
The Real Cost of the
CD Guarantee $ 784,113
========================================================
Unlike the Fund, a CD is insured, and its rate and principal are guaranteed if
held until maturity. The FDIC insures CDs up to $100,000. The CD rate is subject
to change when the CD is renewed. Although CDs may offer safety on the downside,
they sacrifice capital growth on the upside.
<FN>
(1) Average of six-month CD rates available each period. Source: Salomon
Brothers and The Federal Reserve Bank.
(2) Reflects the deduction of the 3.75% sales charge for Class A share
investments of $100,000. Dividends were taken in cash; capital gains were
reinvested.
</FN>
See Important Information on page 8.
</TABLE>
2
<PAGE>
Affiliated's Growth Record
Results Based on Fiscal Year-End October 31(1)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth of Capital(2) +6.9% +12.8% -12.0% +23.1% +6.3% +14.3% +3.7% +17.6% +20.5% +23.3%
Dividend Return(3) +5.3 +5.2 +4.4 +4.9 +4.1 +3.5 +3.0 +2.9 +2.7 +2.5
- --------------------------------------------------------------------------------------------------
Total Return(4) +12.2 +18.0 -7.6 +28.0 +10.4 +17.8 +6.7 +20.5 +23.2 +25.8
- --------------------------------------------------------------------------------------------------
<FN>
(1) Class A share performance.
(2) Growth of capital reflects the reinvestment of capital gains
distributions.
(3) Dividend return reflects the reinvestment of dividends.
(4) Total return is the percent change in value with both dividends and
capital gains distributions reinvested. These results are at net asset
value. Net asset value purchases are available for Class A share
investments of $1 million or more. For performance at the Class A share
maximum sales charge, as well as other information, please turn to the
inside front cover and pages 4 and 8.
</FN>
</TABLE>
Affiliated's Growth Exceeded Inflation
In our illustration, 1987 and 1997 are actual costs--then and now. "Affiliated
1997" is what the 1987 amount would have grown to had it been invested in the
Fund.
Investments in Affiliated Fund (up 305.5%) surpassed increases in the cost of
living (up 40.2%) in these 10 years. Protection against the erosion caused by
inflation is one important way to maintain--and enhance--your lifestyle.
[GRAPHIC: PC Notebook on text books; keys on a key ring; a U.S. Passport;
a First Class Stamp; envelop with statement]
<TABLE>
<CAPTION>
One-Year Private One-Family House(5) U.S. Passport First-Class Stamp Income per Capita(5)
College Tuition(5)
<S> <C> <C> <C> <C> <C>
1987 $10,455 $106,300 $ 55 $.22 $17,164
1997 $18,357 $155,000 $ 65 $.32 $19,573
- ----------------------------------------------------------------------------------------------------------------
Affiliated 1997 $42,395 $431,047 $223 $.89 $69,600
- ----------------------------------------------------------------------------------------------------------------
Affiliated's results reflect Class A share total return at net asset
value, with all distributions reinvested for the 10 years ended 10/31/97.
See Important Information on page 8.
<FN>
(5) National average.
Sources: U.S. Department of Education, Statistics Bureau Section, College
Board Annual Survey of Colleges; National Association of Realtors,
Research Division; U.S. State Department; U.S. Postal Service; Department
of Commerce, Bureau of Economic Analysis Statistics.
</FN>
</TABLE>
3
<PAGE>
The Total Return Perspective
The Fund is managed to anticipate change, to find good value and to maintain a
low level of risk in relation to expected returns. The Fund's average
shareholder ownership of over 18 1/2 years reflects the success of this
strategy.
A History of
Consistent
Performance
Growth of a $10,000 Fund Investment: 11/1/72-10/31/97(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Value of Cumulative Value Cumulative How
Year Shares of Capital Gains Value of $10,000
Ended Initially Distributions Reinvested Grew
Oct. 31 Acquired Taken in Shares Dividends Total Value
- --------------------------------------------------------------------------------
1973 $ 9,462 $ 264 $ 428 $ 10,154
1974 7,192 390 755 8,337
1975 8,911 540 1,381 10,832
1976 10,643 878 2,229 13,750
1977 9,606 1,138 2,600 13,344
1978 9,344 1,369 3,231 13,944
1979 10,472 2,237 4,564 17,273
1980 11,955 3,698 6,459 22,112
1981 10,643 4,842 7,120 22,605
1982 11,260 6,668 9,483 27,411
1983 13,202 9,103 13,076 35,381
1984 12,100 11,147 14,043 37,290
1985 12,874 14,042 17,461 44,377
1986 15,367 21,317 23,839 60,523
1987 13,701 24,722 23,819 62,242
1988 12,651 31,639 25,541 69,831
1989 13,688 37,213 31,525 82,426
1990 11,693 34,299 30,194 76,186
1991 13,504 45,040 38,974 97,518
1992 13,845 49,681 44,092 107,618
1993 14,777 60,843 51,116 126,736
1994 14,475 66,708 53,996 135,179
1995 15,722 84,048 63,069 162,839
1996 17,087 110,132 73,437 200,656
1997 $19,475 $143,844 $89,093 $252,412
The dollar amounts of dividends and capital gains distributions reinvested
in shares were $59,480 and $97,671, respectively. The initial investment
plus all distributions reinvested amounted to $167,151. If dividends and
capital gains distributions had been withdrawn in cash, the amounts of
these payments would have been $13,755 and $17,847, respectively.
<FN>
(1) Reflects the deduction of the Class A share maximum 5.75% sales charge for
investments under $50,000. All distributions were reinvested.
</FN>
See Important Information on page 8.
</TABLE>
4
<PAGE>
The Total Return Perspective
The past 25 years have included several periods of economic, political and stock
market turmoil. By focusing on value investing, Affiliated Fund reduced downside
volatility in periods of stock market weakness and produced returns that
outpaced the S&P 500 (an unmanaged index), guaranteed CDs and inflation.
Average Annual Total Returns
Over 25 Years(1)
Affiliated: 13.8%
S&P 500: 13.0%
CDs: 8.0%
Inflation: 5.5%
Using the Value Method of Investing, Affiliated Fund Reduced Volatility and
Produced Rewarding Gains
<TABLE>
<CAPTION>
[The following table was depicted as a line graph in the printed material.]
Affiliated Fund Unmanaged S&P 500 Six-Month CD Inflation
<S> <C> <C> <C> <C>
11/1/72 9420 10000 10000 10000
10/31/73 10154 9905 10750 10780
10/31/74 8337 7053 11817 12080
10/31/75 10832 8886 12693 12979
10/31/76 13750 10678 13455 13688
10/31/77 13344 10033 14200 14563
10/31/78 13944 10670 15305 15863
10/31/79 17273 12317 16960 17778
10/31/80 22112 16267 19126 20047
10/31/81 22605 16359 22194 22080
10/31/82 27411 19024 25183 23215
10/31/83 35381 24341 27500 23877
10/31/84 37290 25891 30446 24894
10/31/85 44377 30902 33061 25697
10/31/86 60523 41282 35342 26076
10/31/87 62242 43924 37690 27258
10/31/88 69831 50471 40574 28416
10/31/89 82426 63735 44330 29693
10/31/90 76186 58984 47993 31560
10/31/91 97518 78717 51158 32482
10/31/92 107618 86544 53243 33522
10/31/93 126736 99343 55020 34444
10/31/94 135179 103175 57398 35343
10/31/95 162839 130423 60935 36336
10/31/96 200656 161729 64264 37423
10/31/97 252412 213642 67912 38203
<FN>
An investor cannot invest directly in an index, such as the S&P 500. For
more information on CDs, see page 2.
(1) Average annual total return at the Class A share maximum offering price
from 11/1/72 through 10/31/97.
(2) Average of six-month CD rates available each period. Source: Salomon
Brothers and The Federal Reserve Bank.
See Important Information on page 8.
</FN>
</TABLE>
5
<PAGE>
The Impact of a Disciplined Investment Plan
Perfectly timing the market is impossible because, often, opportunity can only
be identified after it has already passed.
For long-term investors in Lord Abbett Affiliated Fund, the key to one
successful strategy has focused on following a disciplined investment plan--not
timing the market. Let's compare two hypothetical investments made over the last
20 calendar years ending December 31, 1996, where $5,000 was invested in the
Fund every year. For Investment A, shares were purchased (with the benefit of
hindsight) when the Dow Jones Industrial Average was at the low for each given
year. Shares were purchased for Investment B on the first business day of every
year.
Your financial
adviser can help
you discipline
your investing
and set up a
systematic plan
you are comfortable
with
Here's What Happened...
Investment A Timing
Account
Date of Cumulative Value
Investments Investments at Year-End
- -------------------------------------------------------
11/2/77 $ 5,000 $ 5,000
2/28/78 10,000 10,452
11/7/79 15,000 18,733
4/21/80 20,000 29,695
9/25/81 25,000 34,898
8/12/82 30,000 49,659
1/3/83 35,000 68,402
7/24/84 40,000 78,741
1/4/85 45,000 106,056
1/22/86 50,000 136,441
10/19/87 55,000 146,122
1/20/88 60,000 170,359
1/3/89 65,000 216,434
10/11/90 70,000 210,482
1/9/91 75,000 262,910
10/9/92 80,000 300,771
1/20/93 85,000 346,042
4/4/94 90,000 365,392
1/30/95 95,000 487,601
1/10/96 100,000 591,384
Account Value on 12/31/96 $591,384
- -----------------------------------------------========
Average Annual Total Return 15.5%
=======================================================
Investment B Systematic Investing
Account
Date of Cumulative Value
Investments Investments at Year-End
- -------------------------------------------------------
1/3/77 $ 5,000 $ 4,412
1/2/78 10,000 9,489
1/2/79 15,000 18,331
1/2/80 20,000 28,810
1/2/81 25,000 33,600
1/4/82 30,000 47,477
1/3/83 35,000 65,665
1/2/84 40,000 75,254
1/2/85 45,000 101,581
1/2/86 50,000 130,833
1/2/87 55,000 139,899
1/4/88 60,000 163,075
1/2/89 65,000 207,436
1/2/90 70,000 201,068
1/2/91 75,000 251,221
1/2/92 80,000 287,823
1/4/93 85,000 331,362
1/3/94 90,000 349,897
1/2/95 95,000 467,231
1/2/96 100,000 566,748
Account Value on 12/31/96 $566,748
- ----------------------------------------------========
Average Annual Total Return 14.7%
======================================================
The disciplined investment plan (B) provided an average annual total return
almost the same as the "perfect" investment scenario (A). Since determining the
"perfect" time to invest without the benefit of hindsight is impossible, why not
sit down with your financial adviser and set up a disciplined investment plan
today?
The above illustrations assume the reinvestment of all dividends and
distributions. All investments were made at the applicable Class A share maximum
sales charge of 5.75% for account values up to $50,000 and at the applicable
reduced sales charges thereafter under rights of accumulation. Periodic
investment plans do not always return a profit and do not protect against losses
in a declining market. In addition, since periodic investment plans involve
continuous investment in securities regardless of fluctuating price levels,
investors should consider their financial ability to continue their purchases
through periods of low price levels. If held until 9/30/97 (with no additional
investments made), Investment A and Investment B would have been worth $740,146
and $709,314, respectively.
For performance at the Class A share maximum sales charge, please turn to the
inside front cover.
6
<PAGE>
Who Owns the Fund?
Investor Profile of Lord Abbett Affiliated Fund
- ------------------------------------------------------------------------------
Fiduciaries Custodians for Minors 17,993
Pension, Profit-Sharing and 401(k) Retirement Plans 11,697
Trusts 10,736
457 Retirement and 403(b) Plans 3,745
Estates 490
- ------------------------------------------------------------------------------
Institutions Broker-held Accounts 69,252
Banks, Credit Unions and Other Financial Institutions 454
Corporations 430
Religious, Charitable and Welfare Organizations 360
Clubs and Fraternal Organizations 107
Cemeteries 65
Nursing Homes and Hospitals 35
Colleges and Universities 33
Government Agencies 18
- ------------------------------------------------------------------------------
Individuals Single and Joint Accounts 80,155
IRAs 44,815
- ------------------------------------------------------------------------------
Total Accounts in Affiliated on 10/31/97 240,385
- ------------------------------------------------------------------------------
What Are the Fund's Top Ten Holdings?
<TABLE>
<CAPTION>
Percent of
Total
Net Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deere & Co. World's largest manufacturer of farm equipment 2.73%
- -------------------------------------------------------------------------------------------
Minnesota Mining & Worldwide supplier of industrial, consumer and
Manufacturing Co. healthcare products that use coating or bonding
technology 2.67%
- -------------------------------------------------------------------------------------------
Hewlett-Packard Co. Leading manufacturer of computer products 2.40%
- -------------------------------------------------------------------------------------------
Chubb Corp. Large, broadly based property/casualty insurance
company 2.37%
- -------------------------------------------------------------------------------------------
Motorola Inc. Leading supplier of cellular telephone systems and
paging equipment 2.21%
- -------------------------------------------------------------------------------------------
Kimberly Clark Corp. Maker of consumer and personal care products
including "Huggies" diapers and "Kleenex" tissues 2.02%
- -------------------------------------------------------------------------------------------
Washington Mutual Largest savings and loan company in the U.S. 2.00%
- -------------------------------------------------------------------------------------------
ConAgra Inc. Largest independent U.S. food processor 1.96%
- -------------------------------------------------------------------------------------------
Heinz H.J. Co. Worldwide producer of a wide variety of food
products and pet food 1.93%
- -------------------------------------------------------------------------------------------
International Business World's largest technology company, providing
Machines Corp. computer hardware equipment, application and
system software and related services 1.91%
- -------------------------------------------------------------------------------------------
Total 22.20%
</TABLE>
Data as of 10/31/97.
7
<PAGE>
Important Information
Bonds purchased by the Fund are subject to market fluctuations upward and
downward inversely to the rise and fall of interest rates. Common stocks are
also subject to market fluctuations, providing the potential for gains and the
risk of loss. Performance results quoted herein reflect past performance,
current sales charges (where applicable) and appropriate Rule 12b-1 Plan
expenses from commencement of the Plan. Past performance is no indication of
future results. Tax consequences are not reflected. The investment return and
principal value of an investment will fluctuate so that shares, on any given day
or when redeemed, may be worth more or less than their original cost. The Fund's
sales charge structure has changed in the past. The Fund issues additional
classes of shares, with distinct pricing options. For a full discussion of the
differences in pricing alternatives, please call 800-874-3733 and ask for the
Fund's current prospectus. If used as sales material after 12/31/97, this report
must be accompanied by Lord Abbett's Performance Quarterly for the most recently
completed calendar quarter.
Statement of Net Assets
October 31, 1997
<TABLE>
<CAPTION>
Investments Shares Market Value
====================================================================================================
Investments in Securities 96.90%
====================================================================================================
Common Stocks and Convertible Securities 94.74%
====================================================================================================
<S> <C> <C> <C>
Aerospace .62% Boeing Co. 1,000,000 $ 47,875,000
- ---------------------------------------------------------------------------------------=============
Agricultural Products Archer-Daniels-
1.66% Midland Co. 2,300,000 51,175,000
Pioneer Hi-Bred
International, Inc. 800,000 73,300,000
Total 124,475,000
- ---------------------------------------------------------------------------------------=============
Apparel 2.28% Liz Claiborne, Inc.+ 1,000,000 50,687,500
VF Corp. 1,400,000 125,125,000
Total 175,812,500
- ---------------------------------------------------------------------------------------=============
Automobiles 1.88% General Motors Corp. 2,250,000 144,421,875
- ---------------------------------------------------------------------------------------=============
Banks: Money BankAmerica Corp.+ 1,000,000 71,500,000
Center 3.36% Chase Manhattan Corp. 800,000 92,300,000
First Chicago NBD+ 1,300,000 94,575,000
Total 258,375,000
- ---------------------------------------------------------------------------------------=============
Banks: Regional BankBoston, N.A. 1,200,000 97,275,000
3.87% Comerica Inc. 1,250,000 98,828,125
First Union Corp.+ 2,000,000 98,125,000
Mellon Bank Corp. 78,700 4,057,969
Total 298,286,094
- ---------------------------------------------------------------------------------------=============
Brokers 1.27% Morgan Stanley,
Dean Witter,
Discover & Co. 2,000,000 98,000,000
- ---------------------------------------------------------------------------------------=============
Chemicals 3.00% Dow Chemical Co. 800,000 72,600,000
Lyondell
Petrochemical Co. 1,500,000 38,437,500
Rohm & Haas Co.+ 1,000,000 83,312,500
Union Carbide Corp. 800,000 36,550,000
Total 230,900,000
- ---------------------------------------------------------------------------------------=============
Communications Corning Inc.+ 3,000,000 135,375,000
Equipment 4.50% Lucent Technologies Inc.+ 500,000 41,218,750
Motorola Inc.+ 2,750,000 169,812,500
Total 346,406,250
---------------------------------------------------=============
</TABLE>
<TABLE>
<CAPTION>
Shares of
Principal
Investments Amount Market Value
====================================================================================================
<S> <C> <C> <C>
Computer: Hewlett-Packard Co.+ 3,000,000 $ 185,062,500
Hardware 4.31% International Business
Machines Corp. 1,500,000 147,093,750
Total 332,156,250
- ---------------------------------------------------------------------------------------=============
Computer: EMC Corp. 1,000,000 56,000,000
Peripherals 2.05% EMC Corp.
Conv. Sub. Notes
31/4/2002* 15,000M 20,646,093
Seagate Technology Inc.+ 3,000,000 81,375,000
Total 158,021,093
- ---------------------------------------------------------------------------------------=============
Cosmetics .54% International Flavor &
Fragrance 861,200 41,660,550
- ---------------------------------------------------------------------------------------=============
Drugs/Health Care American Home
Products 3.05% Products Corp. 1,300,000 96,362,500
SmithKline Beecham
plc ADS 2,000,000 95,250,000
Warner-Lambert Co. 300,000 42,956,250
Total 234,568,750
- ---------------------------------------------------------------------------------------=============
Electric Power Allegheny Power
6.64% System, Inc.+ 1,750,000 49,437,500
Baltimore Gas &
Electric Co.+ 3,000,000 82,312,500
Carolina Power &
Light Co. 2,500,000 89,375,000
CINergy Corp. 1,740,200 57,426,600
Duke Power Co.+ 2,000,000 96,500,000
Florida Progress Corp. 1,000,000 32,562,500
FPL Group+ 2,000,000 103,375,000
Total 510,989,100
- ---------------------------------------------------------------------------------------=============
Electrical Equipment
1.84% Emerson Electric Co. 2,700,000 141,581,250
- ---------------------------------------------------------------------------------------=============
Electronics:
Semiconductors
.40% Intel Corp. 400,000 30,800,000
- ---------------------------------------------------------------------------------------=============
Food 7.73% ConAgra Inc. 5,000,000 150,625,000
CPC International Inc.+ 1,000,000 99,000,000
Heinz H.J. Co. 3,200,000 148,600,000
</TABLE>
8
<PAGE>
Statement of Net Assets
October 31, 1997
<TABLE>
<CAPTION>
Investments Shares Market Value
====================================================================================================
<S> <C> <C> <C>
Hershey Foods Corp. 1,250,000 $ 69,062,500
Sara Lee Corp. 2,500,000 127,812,500
Total 595,100,000
- ---------------------------------------------------------------------------------------=============
Furniture and
Appliances .79% Whirlpool Corp. 1,000,000 60,625,000
- ---------------------------------------------------------------------------------------=============
Health Care
Products 1.65% Baxter International Inc. 2,750,000 127,187,500
- ---------------------------------------------------------------------------------------=============
Health Care Aetna Inc.
Services 1.70% $4.758 Conv. Pfd.+ 1,500,000 107,625,000
United Healthcare Corp.+ 500,000 23,156,250
Total 130,781,250
- ---------------------------------------------------------------------------------------=============
Household Products Fort James Corp. 1,841,300 73,076,594
2.97% Kimberly Clark Corp. 3,000,000 155,812,500
Total 228,889,094
- ---------------------------------------------------------------------------------------=============
Housewares 1.50% Fortune Brands Inc. 3,500,000 115,718,750
- ---------------------------------------------------------------------------------------=============
Insurance: American General
Life 2.70% Corporation+ 1,500,000 76,500,000
Transamerica Corp.+ 1,300,000 131,218,750
Total 207,718,750
- ---------------------------------------------------------------------------------------=============
Insurance: Chubb Corp. 2,750,000 182,187,500
Property and Casualty CIGNA Corp. 500,000 77,625,000
5.30% Providian Corp. 1,250,000 46,250,000
St. Paul Companies Inc. 750,000 59,953,125
The Progressive
Corporation 400,000 41,700,000
Total 407,715,625
- ---------------------------------------------------------------------------------------=============
Machinery:
Diversified 2.73% Deere & Co. 4,000,000 210,500,000
- ---------------------------------------------------------------------------------------=============
Miscellaneous Minnesota Mining &
3.28% Manufacturing Co. 2,250,000 205,875,000
Textron, Inc.+ 800,000 46,250,000
Total 252,125,000
- ---------------------------------------------------------------------------------------=============
Natural Gas:
Diversified 1.19% Sonat Inc. 2,000,000 91,875,000
- ---------------------------------------------------------------------------------------=============
Natural Gas: Consolidated
Pipelines 1.23% Natural Gas Co. 1,750,000 94,609,375
- ---------------------------------------------------------------------------------------=============
Oil: Domestic Occidental Petroleum*
Integrated .81% $3.875 Conv. Pfd. 1,000,000 62,734,375
- ---------------------------------------------------------------------------------------=============
Oil: International Amoco Corp. 800,000 73,350,000
Integrated 7.03% Chevron Corp.+ 1,500,000 124,406,250
ENI ADS+ 1,000,000 56,375,000
Exxon Corp. 1,400,000 86,012,500
Mobil Corp. 2,000,000 145,625,000
Total S.A.
Sponsored ADS 1,000,000 55,500,000
Total 541,268,750
- ---------------------------------------------------------------------------------------=============
Oil Well Equipment/
Service .45% Schlumberger Ltd.+ 400,000 35,000,000
---------------------------------------------------=============
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Investments Amount Market Value
====================================================================================================
<S> <C> <C> <C>
Paper and Forest Bowater Inc. 1,500,000 $ 62,718,750
Products 3.28% Georgia-Pacific Corp. 600,000 50,887,500
International Paper Co.+ 2,000,000 90,000,000
Westvaco Corporation 1,500,000 49,218,750
Total 252,825,000
- ---------------------------------------------------------------------------------------=============
Printing: Specialty
.64% Deluxe Corp. 1,500,000 49,125,000
- ---------------------------------------------------------------------------------------=============
Retail: Department May Department Stores
and Merchandise Company 1,000,000 53,875,000
1.73% Wal Mart Stores Inc.+ 2,266,400 79,607,300
Total 133,482,300
- ---------------------------------------------------------------------------------------=============
Retail: Specialty
1.11% Toys R Us Inc. 2,500,000 85,156,250
- ---------------------------------------------------------------------------------------=============
Savings and Loan
2.00% Washington Mutual+ 2,250,000 153,984,375
- ---------------------------------------------------------------------------------------=============
Telephone: Local Bell Atlantic Corp.+ 1,000,000 79,875,000
2.11% SBC Communication Inc. 1,300,000 82,712,500
Total 162,587,500
- ---------------------------------------------------------------------------------------=============
Telephone: MCI Communications
Long Distance .92% Corp. 2,000,000 71,000,000
- ---------------------------------------------------------------------------------------=============
Tobacco .62% Gallaher Group
plc ADS 2,500,000 47,968,750
- ---------------------------------------------------------------------------------------=============
Total Investments in
Common Stocks and
Convertible Securities
(Cost $5,222,701,778) 7,292,306,356
====================================================================================================
U.S. Government Obligations 2.16%
====================================================================================================
U.S. Treasury Notes
6 3/4% due 8/15/2026+ 82,000M 88,137,188
U.S. Treasury Notes
7% due 7/15/2006+ 73,000M 78,338,125
Total Investments in
U.S. Government
Obligations
(Cost $156,734,960) 166,475,313
- ---------------------------------------------------------------------------------------=============
Total Investments in
Securities (Cost $5,379,436,738) 7,458,781,669
====================================================================================================
Other Assets, Less Liabilities 3.10%
====================================================================================================
Short-term Investments
- ----------------------------------------------------------------------------------------------------
U.S. Government Federal National
Obligations Mortgage Association
12 1/2% due 3/19/1998
(Cost $60,926,350) 59,000M 60,521,094
---------------------------------------------------=============
Corporate American Express
Obligations Credit Co.
5.53% due 11/4/1997 20,000M 20,000,000
American General
Finance Corp.
5.60% due 11/7/1997 15,000M 15,000,000
Ford Motor Credit Co.
5.46% due 11/3/1997 20,000M 20,000,000
</TABLE>
9
<PAGE>
Statement of Net Assets
October 31, 1997
<TABLE>
<CAPTION>
Principal
Investments Amount Market Value
====================================================================================================
<S> <C> <C> <C>
General Electric
Capital Corp.
5.57% due 11/6/1997 40,000M $ 40,000,000
Prudential Funding Corp.
5.56% due 11/6/1997 50,000M 50,000,000
Total 145,000,000
---------------------------------------------------=============
Other (See Note 5) 405,390,376
---------------------------------------------------=============
Total Short-term Investments
(Cost $611,316,726) 610,911,470
====================================================================================================
Cash and Receivables, Net of Liabilities $ (371,939,043)
- ---------------------------------------------------------------------------------------=============
Total Other Assets,
Less Liabilities 238,972,427
====================================================================================================
Net Assets 100.00% $7,697,754,096
====================================================================================================
Class A Shares-Net asset value
($7,487,604,717 / 504,500,595
shares outstanding) $14.84
Class B Shares-Net asset value
($152,117,078 / 10,251,197
shares outstanding) $14.84
Class C Shares-Net asset value
($58,032,301 / 3,909,975
shares outstanding) $14.84
<FN>
+ Securities (or a portion of securities) on loan. See Note 5.
* Rule 144A security.
See Notes to Financial Statements.
</FN>
</TABLE>
Portfolio Changes
Issues added to or eliminated from
the portfolio (exclusive of U.S.
Government obligations and
short-term investments) during the
six months ended October 31, 1997
Additions
Aetna Inc. ENI ADS Motorola Inc.
Archer-Daniels-Midland Co. International Flavor & St. Paul Companies Inc.
Fragrance
CINergy Corp. Mellon Bank Corp. Wal Mart Stores Inc.
- --------------------------------------------------------------------------------
Eliminations
Aetna Inc. Johnson Controls, Inc. Ryder Systems Inc.
American Electric Power Mallinckrodt Group Inc. Sears, Roebuck & Co.
Genuine Parts Company Pharmacia & Upjohn Inc. Waste Management Inc.
10
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended October 31, 1997
=================================================================================================================================
<S> <C> <C> <C>
Income Dividends $ 155,811,019
Interest 41,769,110
Total income $ 197,580,129
--------------------------------------------------------------------------------------------------------------
Expenses Management fee 22,192,209
12b-1 distribution plan-Class A 15,889,161
12b-1 distribution plan-Class B 765,318
12b-1 distribution plan-Class C 286,097
Shareholder servicing 6,086,146
Reports to shareholders 567,455
Registration 354,691
Professional 203,674
Directors 232,635
Other 319,884
--------------
Total expenses before reductions 46,897,270
Expense reductions (882,709) 46,014,561
--------------------------------------
Net investment income 151,565,568
--------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
=================================================================================================================================
Realized gain from investment transactions
Proceeds from sales 3,283,096,268
Cost of investments sold 2,554,958,571
--------------------------------------------------------------------------------------------------------------
Net realized gain 728,137,697
--------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments 682,759,831
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,410,897,528
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $1,562,463,096
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
=================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $ 151,565,568 $ 137,994,396
Net realized gain from investment transactions 728,137,697 483,949,235
Net unrealized appreciation of investments 682,759,831 525,111,985
Net increase in net assets resulting from operations 1,562,463,096 1,147,055,616
--------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions 46,074 233,353
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (147,797,223) (135,003,440)
Class B (866,777) (11,185)
Class C (355,394) (4,435)
Total (149,019,394) (135,019,060)
--------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (480,477,970) (493,958,520)
Class B (1,534,145) -
Class C (638,747) -
Total (482,650,862) (493,958,520)
--------------------------------------------------------------------------------------------------------------
Total distributions (631,670,256) (628,977,580)
--------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 756,660,354 555,712,816
Net asset value of shares issued in reinvestment of net investment income
and realized gain from investment transactions 502,763,678 497,740,138
Total 1,259,424,032 1,053,452,954
--------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (593,173,986) (435,624,271)
--------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 666,250,046 617,828,683
--------------------------------------------------------------------------------------------------------------
Increase in net assets 1,597,088,960 1,136,140,072
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of year 6,100,665,136 4,964,525,064
--------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$27,965,329 and $25,373,081, respectively) $7,697,754,096 $6,100,665,136
==============================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1997 1996 1995 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.02 $ 11.98 $ 11.03 $ 11.26 $ 10.55
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .30 .30 .32 .31 .31
Net realized and unrealized gain on investments 2.85 2.23 1.70 .38 1.43
Total from investment operations 3.15 2.53 2.02 .69 1.74
----------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.30) (.30) (.30) (.32) (.35)
Distributions from net realized gain (1.03) (1.19) (.77) (.60) (.68)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 14.84 $ 13.02 $ 11.98 $ 11.03 $ 11.26
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 25.80% 23.23% 20.46% 6.66% 17.76%
==================================================================================================================================
Ratios to Average Net Assets:
Expenses(b) 0.65%(b) 0.66% 0.63% 0.63% 0.63%
Net investment income 2.15%(b) 2.61% 2.90% 2.91% 2.95%
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
--------------------------------- -------------------------------
Year Ended 8/1/96(c) Year Ended 8/1/96(c)
October 31, to October 31, to
Per Share Operating Performance: 1997 10/31/96 1997 10/31/96
============================================================================================ ===============================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.03 $ 11.88 $ 13.02 $ 11.88
- -------------------------------------------------------------------------------------------- ------------------------------
Income from investment operations
Net investment income .20 .060 .22 .062
Net realized and unrealized gain on investments 2.84 1.142 2.83 1.130
Total from investment operations 3.04 1.202 3.05 1.192
-------------------------------------------------------------------------------------- ------------------------------
Distributions
Dividends from net investment income (.20) (.052) (.20) (.052)
Distributions from net realized gain (1.03) - (1.03) -
-------------------------------------------------------------------------------------- ------------------------------
Net asset value, end of period $ 14.84 $ 13.03 $ 14.84 $ 13.02
- -------------------------------------------------------------------------------------------- ------------------------------
Total Return(a) 24.78% 10.15%(d) 24.88% 10.07%(d)
============================================================================================================================
Ratios to Average Net Assets:
Expenses(b) 1.42% 0.34%(d) 1.34% 0.33%(d)
Net investment income 1.19% 0.27%(d) 1.28% 0.25%(d)
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
Supplemental Data for All Classes: 1997 1996 1995 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $7,697,754 $6,100,665 $4,964,525 $4,229,586 $4,174,033
Portfolio turnover rate 46.41% 47.06% 53.84% 51.48% 45.15%
Average commissions per share paid
on equity transactions $ .062 $ .064 $ .063 0n/a 0n/a
============================================================================================================================
<FN>
(a) Total return does not consider the effects of sales loads.
(b) The ratios for 1997 include expenses paid through an expense offset
arrangement.
(c) Commencement of offering respective class shares.
(d) Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
12
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Lord Abbett Affiliated Fund, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial statements. The
following is a summary of significant accounting policies consistently followed
by the Company:
(a) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange, or, in the case of bonds, in the over-the-counter
market if, in the judgment of the Company's officers, that market more
accurately reflects the market value of the bonds. Securities traded only in the
over-the-counter market are valued at the mean between the bid and asked prices,
except that securities admitted to trading on the NASDAQ National Market System
are valued at the last sales price if it is determined that such price more
accurately reflects the value of such securities. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income. Therefore, no federal income tax provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Realized gains and losses from security
transactions are calculated on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Net
investment income (other than distribution and service fees) and realized and
unrealized gains or losses are allocated to each class of shares based upon the
relative proportion of net assets at the beginning of the day.
(d) A portion of the proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
2. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett & Co. ("Lord Abbett")
pursuant to which Lord Abbett supplies the Company with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research, statistical work and the supervision of the
Company's investment portfolio. The management fee is based on average daily net
assets at the following annual rates: 1/2 of 1% on the first $200 million; 2/5
of 1% on the next $300 million; 3/8 of 1% on the next $200 million; 7/20 of 1%
on the next $200 million and 3/10 of 1% on the excess over $900 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B and Class
C Plans") with Lord Abbett Distributor LLC ("Distributor"), an affiliate of Lord
Abbett. The Company makes payments to Distributor which uses or passes on such
payments to authorized institutions. Pursuant to the Class A Plan, the Company
pays Distributor (1) an annual service fee of 0.15% of the average daily net
asset value of shares sold prior to June 1, 1990 and 0.25% of the average daily
net asset value of shares sold on or after that date, (2) a one-time
distribution fee of up to 1% on certain qualifying purchases and (3) a
supplemental annual distribution fee of 0.10% of the average daily net assets of
Class A shares serviced by certain qualifying institutions. Pursuant to the
Class B Plan, the Company pays Distributor an annual service and distribution
fee of 0.25% and 0.75%, respectively, of the average daily net asset value of
the Class B shares. Pursuant to the Class C Plan, the Company pays Distributor
(1) a service fee and a distribution fee, at the time such shares are sold, not
to exceed 0.25% and 0.75%, respectively, of the net asset value of such shares
sold and (2) at each quarter-end after the first anniversary of the sale of such
shares, a service fee and a distribution fee at an annual rate not to exceed
0.25% and 0.75%, respectively, of the average annual net asset value of such
shares outstanding.
Distributor received $2,331,118 representing payment of commissions on sales of
Class A shares after deducting $14,522,076 allowed to authorized distributors as
concessions. Certain of the Company's officers and directors have an interest in
Lord Abbett.
3. Distributions
Dividends from net investment income are declared quarterly. Net realized gain
from investment transactions is distributed to shareholders annually.
Accumulated undistributed net realized gain at October 31, 1997 for financial
reporting purposes aggregated $771,155,274.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
Distributions declared on November 12, 1997 were as follows:
Rate Per Aggregate
Net Investment Income Share Amount
- --------------------------------------------------------------------------------
Class A $.075 $37,859,455
Class B $.050 $ 525,595
Class C $.050 $ 199,445
- --------------------------------------------------------------------------------
Rate Per Aggregate
Capital Gains Share Amount
- --------------------------------------------------------------------------------
Class A $1.39 $701,661,908
Class B $1.39 $ 14,611,541
Class C $1.39 $ 5,544,532
- --------------------------------------------------------------------------------
4. Capital
The Company has authorized 800 million shares of $.001 par value capital stock
designated Class A, 100 million shares of $.001 par value capital stock
designated Class B and 100 million shares of $.001 par value capital stock
designated Class C. Paid in capital amounted to $4,819,693,818 at October 31,
1997. Transactions in shares of capital stock were as follows:
Year Ended Year Ended
October 31, 1997 October 31, 1996
----------------------------------------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 41,249,386 $ 575,438,146 44,568,823 $ 534,216,135
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 38,407,350 499,579,938 43,968,874 497,726,351
Total 79,656,736 1,075,018,084 88,537,697 1,031,942,486
- --------------------------------------------------------------------------------
Shares reacquired (41,932,725) (584,724,363) (36,145,893) (435,401,023)
Increase in shares 37,724,011 $ 490,293,721 52,391,804 $ 596,541,463
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Financial Statements
August 1, 1996
(Commencement of
Year Ended offering Class B shares)
October 31, 1997 to October 31, 1996
----------------------------------------------------------
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 9,261,683 $ 131,415,142 1,179,425 $ 14,724,105
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 169,389 2,251,936 783 9,557
Total 9,431,072 133,667,078 1,180,208 14,733,662
- --------------------------------------------------------------------------------
Shares reacquired (353,069) (5,141,805) (7,014) (89,042)
Increase in shares 9,078,003 $ 128,525,273 1,173,194 $ 14,644,620
- --------------------------------------------------------------------------------
August 1, 1996
(Commencement of
Year Ended offering Class B shares)
October 31, 1997 to October 31, 1996
----------------------------------------------------------
Class C Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 3,536,298 $ 49,807,066 543,059 $ 6,772,576
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 70,220 931,804 347 4,230
Total 3,606,518 50,738,870 543,406 6,776,806
- --------------------------------------------------------------------------------
Shares reacquired (229,278) (3,307,818) (10,671) (134,206)
Increase in shares 3,377,240 $ 47,431,052 532,735 $ 6,642,600
- --------------------------------------------------------------------------------
5. Portfolio Securities
The Company loans its portfolio securities to brokers. As of October 31, 1997,
the market value of securities on loan to brokers was $398,302,675, for which
the Company has obtained collateral aggregating $408,434,827, consisting of cash
and U.S. Treasury securities.
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term securities) aggregated $3,116,948,492 and
$2,825,086,269, respectively.
As of October 31, 1997, unrealized appreciation based on cost for federal income
tax purposes aggregated $2,078,939,675 of which $2,147,127,676 related to
appreciated securities and $68,188,001 related to depreciated securities. The
cost of investments for federal income tax purposes is substantially the same as
that used for financial reporting purposes.
6. Directors' Remuneration
The Directors of theCompany associated with Lord Abbett and all officers of the
Company receive no compensation from the Company for acting as such. Outside
Directors' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on the net assets of each fund. Directors' fees payable at
October 31, 1997 were $2,071,358.
7. Expense Reduction
The Company has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Company's expenses.
14
<PAGE>
1997 Tax Information
In early 1998, shareholders of Lord Abbett Affiliated Fund will receive
information which must be included in each shareholder's federal income tax
return. In accordance with the regulations of the U.S. Treasury Department, this
information must be reported by the Fund to the Internal Revenue Service.
67% of the Fund's dividends for the fiscal year ended October 31, 1997 qualify
for the dividend-received deduction available to corporate shareholders in
accordance with Section 243 of the Internal Revenue Code.
Distribution of Net Realized Securities Gains
Federal Tax Information. A distribution of $1.39 a share from net realized
securities gains in the fiscal year ended October 31, 1997 was paid on November
20, 1997. $1.25 of this distribution should be reported as realized long-term
gain and $.14 of this distribution should be reported as realized short-term
gain.
If a shareholder receives shares of stock in payment of the distribution, the
stock should be assigned a "cost" of $13.42, $13.44 and $13.44 a share for Class
A, B and C shares, respectively, for federal income tax purposes. The cost basis
of the shares on which the distribution is received is not affected.
State Tax Information. The treatment of the distribution for state income tax
purposes varies with the tax laws and regulations of the various states. It is
suggested that you consult your local tax adviser for information relating to
the taxes which may be imposed by the laws of your state.
Lord Abbett Affiliated Fund, Inc.
New York, New York
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Affiliated Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Affiliated Fund, Inc. as of October 31, 1997, the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Affiliated Fund, Inc. at October 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
December 2, 1997
15
<PAGE>
Our Management
Board of Directors
Robert S. Dow
E. Wayne Nordberg
E. Thayer Bigelow*+
Stewart S. Dixon*
John C. Jansing*
C. Alan MacDonald*+
Hansel B. Millican, Jr.*
Thomas J. Neff*+
* Outside Director
+ Audit Committee
Officers
Robert S. Dow, Chairman and President
W. Thomas Hudson, Jr., Executive Vice
President and Portfolio Manager
Paul A. Hilstad, Vice President
and Secretary
Stephen I. Allen, Vice President
Zane E. Brown, Vice President
Daniel E. Carper, Vice President
Daria L. Foster, Vice President
Robert G. Morris, Vice President
Robert J. Noelke, Vice President
E. Wayne Nordberg, Vice President
John J. Walsh, Vice President
Laurence H. Kaplan, Vice President
and Assistant Secretary
Thomas F. Konop, Vice President
and Assistant Secretary
Keith F. O'Connor, Vice President
A. Edward Oberhaus III, Vice President
Donna McManus, Treasurer
Joseph Van Dyke, Assistant Treasurer
Lydia Guzman, Assistant Secretary
Robert M. Hickey, Assistant Secretary
Investment Manager and
Underwriter
Lord, Abbett & Co. and
Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
The Bank of New York
New York, NY
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
Copyright (C) 1997 by Lord Abbett Affiliated Fund, Inc.
767 Fifth Avenue, New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Affiliated Fund, Inc., is to be distributed only if preceded or
accompanied by a current prospectus which includes information concerning the
Fund's investment objective and policies, sales charges and other matters. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
16
<PAGE>
Lord, Abbett & Co.
A Tradition of Performance Through
Disciplined
Investing
[PHOTO of Daniel H. Frascarelli, Eli Salzmann, Melanie M. Smith, W. Thomas
Hudson, Jr. and Robert G. Morris]
(standing, left to right)
Daniel H. Frascarelli
Portfolio Manager
Eli Salzmann
Director of Research
Melanie M. Smith
Equity Analyst
(seated, left to right)
W. Thomas Hudson, Jr.
Partner and Portfolio Manager--
Lord Abbett Affiliated Fund
Robert G. Morris
Partner and Director of Equity Investments
A successful long-term track record is evidence of a successful investment
strategy. For decades we, at Lord, Abbett & Co., have believed that investing
with a disciplined, value approach is the best way to achieve competitive
returns and reduce portfolio risk. This commitment and the dedication of our
team of 51 investment professionals have helped us earn the trust of financial
professionals and investors for over 65 years.
About Your
Fund's
Board of
Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor LLC (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience. Lord Abbett
Affiliated Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, C. Alan MacDonald.
C. Alan MacDonald
Director - Lord Abbett
Affiliated Fund
[PHOTO C. Alan MacDonald]
Mr. MacDonald is a graduate of Cornell University's School of Hotel
Administration and has over 40 years of corporate management experience. He is
currently the Managing Director of Directorship, a firm that focuses on the
responsibilities of corporate boards.
Mr. MacDonald serves as director for Fountainhead Water Company, DenAmerica
Corp., J.B. Williams and Exigent Diagnostics, Inc. He has been an independent
director for all of Lord Abbett's funds since 1988.
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
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GROWTH
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INCOME
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Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Income Funds Income Funds Market Fund
<S> <C> <C> <C> <C> <C> <C>
Developing Global Fund- Affiliated Fund Balanced Series Bond-Debenture o National U.S. Government
Growth Fund Equity Series Fund o California Securities
Growth & o Connecticut Money Market
International Mid-Cap Income Series Global Fund- o Florida Fund*+
Series Value Fund Income Series o Georgia
Research Fund- o Hawaii
Research Fund- Large-Cap Series Limited Duration o Michigan
Small-Cap U.S. Government o Minnesota
Series Securities Series* o Missouri
o New Jersey
U.S. Government o New York
Securities Series* o Pennsylvania
o Texas
o Washington
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your financial adviser provides value in helping you identify and
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for Lord Abbett Affiliated Fund.
For more complete information about any other Lord Abbett fund, including
charges and expenses, call your financial adviser or Lord Abbett Distributor LLC
at 800-874-3733 for a prospectus. Read it carefully before investing.
When you invest in a family of funds, you benefit from:
Diversification. You and your financial adviser can diversify your investments
between equity and income funds.
Flexibility. As your investment goals change, your financial adviser can help
you reallocate your portfolio.
As an investor in the Lord Abbett Family of Funds, you have access to 28
portfolios designed to meet a variety of investment needs. While you may
reallocate your assets among our funds at any time, we recommend speaking with
your financial adviser to help you customize your investment plan.
Numbers to Keep Handy
For Shareholder Account or
Statement Inquiries:
800-821-5129
For Literature:
800-874-3733
For More Information:
800-426-1130
Visit Our Web Site:
http://www.lordabbett.com
* An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ There can be no assurance that this Fund will be able to maintain a stable
net asset value of $1.00 per share. This Fund is managed to maintain, and
has maintained, its stable $1.00 per share price.
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC
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The GM Building o 767 Fifth Avenue o New York, NY 10153-0203
LAA-2-1097
(1/98)
