November 30, 1998
Class Y Shares PROSPECTUS
Lord Abbett Affiliated Fund
Lord Abbett Small-Cap Fund
Lord Abbett Growth Opportunities Fund
Lord Abbett International Fund
Lord Abbett High Yield Fund
Lord Abbett Logo
1
<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.
(11/98)
LORD, ABBETT & Co.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
2
<PAGE>
Lord Abbett Affiliated Fund ("Affiliated Fund"), Lord Abbett Small-Cap Fund
("Small-Cap Fund"), Lord Abbett Growth Opportunities Fund ("Growth Opportunities
Fund"), Lord Abbett International Fund ("International Fund"), and Lord Abbett
High Yield Fund ("High Yield Fund"), individually ("we" or the "Fund"),
collectively (the "Funds"), are mutual funds each offering four or five classes
of shares, each class providing investors with different purchasing options.
Only Class Y shares of each Fund are offered by this Prospectus. See "Purchases"
for a description of this Class of shares.
Affiliated Fund's investment objective seeks long-term growth of capital and
income without excessive fluctuations in market value; Small-Cap Fund seeks
long-term capital appreciation; Growth Opportunities Fund seeks capital
appreciation; International Fund seeks long-term capital appreciation; and High
Yield Fund seeks high current income and the opportunity for capital
appreciation to produce a high total return. There can be no assurance that any
Fund will achieve its objective.
The Statement of Additional Information dated November 30, 1998 has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. You may obtain it, without charge, by writing to the Fund
or by calling 800-874-3733 and asking for "Part B of the Prospectus -- the
Statement of Additional Information." In addition, the Commission maintains a
website (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
registrants that file electronically with the Commission.
Mutual Fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank. Shares are not 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.
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.
The General Motors Building
767 Fifth Avenue o New York o New York o 10153
Broker-Dealer Division: (800) 426-1130
Financial Advisors Division: (888) 522-2388
LORD ABBETT AFFILIATED FUND
LORD ABBETT SMALL-CAP FUND
LORD ABBETT GROWTH OPPORTUNITIES FUND
LORD ABBETT INTERNATIONAL FUND LORD ABBETT
HIGH YIELD FUND
PROSPECTUS - Class Y Shares
November 30, 1998
TABLE OF CONTENTS PAGE
Affiliated Fund
How We Invest 2
Risk Factors 2
Portfolio Management 2
Investor Expenses 2
Financial Highlights 3
Small-Cap Fund
How We Invest 4
Risk Factors 4
Portfolio Management 4
Investor Expenses 4
Financial Highlights 5
Growth Opportunities Fund
How We Invest 6
Risk Factors 6
Portfolio Management 6
Investor Expenses 6
International Fund
How We Invest 5
Risk Factors 5
Portfolio Management 5
Investor Expenses 5
Financial Highlights 7
High Yield Fund
How We Invest 6
Risk Factors 6
Portfolio Management 6
Investor Expenses 6
Purchases 10
Shareholder Services 10
Redemptions 11
Dividends and Capital Gains 11
Our Management 12
Fund Performance 13
Investment Policies, Risks and Limits 13
Lord, Abbett & Co.
Investment Management
A Tradition of Performance Through Disciplined Investing
3
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AFFILIATED FUND
- --------------------------------------------------------------------------------
HOW WE INVEST
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 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.
See "Investment Policies, Risks and Limits."
RISK FACTORS
An investment in the Fund is not intended as a complete investment program. The
value of your investment will fluctuate in response to stock market movements.
We constantly balance the opportunity for profit against the risk of loss, and
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.
Before you invest, please read "Invest-ment Policies, Risks and Limits."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
W. Thomas Hudson, Jr., Partner of Lord, Abbett & Co. ("Lord Abbett"), Executive
Vice President and Portfolio Manager of Affiliated Fund, is primarily
responsible for day-to-day management of the Fund. Mr. Hudson has been with Lord
Abbett since 1982 and has over 32 years of investment experience. Mr. Hudson is
assisted by, and may delegate management duties to, other Lord Abbett employees.
Investor Expenses
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
- --------------------------------------------------------------------------------
AFFILIATED FUND Class Y
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
Maximum Sales Load on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses(1) (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fee (See "Our Management") .32%
12b-1 Fees None
- --------------------------------------------------------------------------------
Other Expenses (See "Our Management") .08%
Total Operating Expenses .40%
EXAMPLE
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
- --------------------------------------------------------------------------------
Share Class 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class Y shares $4 $13 $22 $51
You would pay the same expenses on the same investment, assuming you kept your
shares.
This example is for comparison and is not a representation of Affiliated Fund's
actual expenses and returns, either past or present.
(1) For Class Y shares, the annual operating expenses shown in the summary have
been restated from the Fund's fiscal-year-end 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 each Fund.
4
<PAGE>
FINANCIAL HIGHLIGHTS The following financial highlights have been audited by
Deloitte & Touche LLP, independent auditors, in connection with their
semi-annual audit of the Fund's Financial Statements, whose report may be
obtained on request. Call 800-821-5129 and ask for the Fund's 1998 semi-annual
report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Affiliated Fund
- --------------------------------------------------------------------------------
Per Class Y Share Operating For the Period March 27, 1998(a)
- --------------------------------------------------------------------------------
Performance: to April 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $15.44
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 0.016
Net realized and unrealized
- --------------------------------------------------------------------------------
gain on securities 0.014
Total from investment operations 0.03
- --------------------------------------------------------------------------------
Net asset value, end of period $15.47
Total Return(b) 0.19%
- --------------------------------------------------------------------------------
Ratios to Average Net Assets(b)
Expenses 0.04%
- --------------------------------------------------------------------------------
Net investment income 0.11%
- --------------------------------------------------------------------------------
Supplemental Data for all classes: Affiliated Fund
- --------------------------------------------------------------------------------
Net Assets, end of period (000) $8,991,127
Portfolio turnover rate 29.93%
(a) Commencement of Operations.
(b) Not Annualized.
(c) Amount less than 0.01%.
See Notes to Financial Statements.
</TABLE>
5
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SMALL-CAP FUND
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HOW WE INVEST
Normally, we invest primarily in a carefully selected portfolio of common stocks
which, in the opinion of Fund management, are selling below value, at prices not
reflecting their potential, and which can rise as a result of improved business
fundamentals or greater investor recognition. Dividend and investment income are
of incidental importance, and the Fund may invest in securities which do not
produce any income. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in common stocks issued by smaller, less well-known
companies (with market capitalizations of less than $1 billion) selected on the
basis of fundamental investment analysis. The Fund may, however, invest up to
35% of its total assets in the securities of any issuer without regard to its
size or the market capitalization of its common stock. Companies in which the
Fund is likely to invest may have limited product lines, markets or financial
resources and may lack management depth or experience. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
See "Investment Policies, Risks and Limits."
RISK FACTORS
Although the Fund may invest, from time to time, in stocks of large-sized and
small-sized companies guided by the policies mentioned above, the small
capitalized companies in which it primarily invests may offer significant
appreciation potential. However, smaller companies may carry more risk than
larger companies. Generally, small companies rely on limited product lines and
markets, financial resources, or other factors, and this may make them more
susceptible to setbacks or economic downturns. Small capitalized companies may
be more volatile in price, normally have fewer shares outstanding and trade less
frequently than large companies. Therefore, the securities of smaller companies
may be subject to wider price fluctuations. In many instances, the securities of
smaller companies are traded over the counter and may not be traded in the
volume typical of a national securities exchange. Before you invest, please read
"Investment Policies, Risks and Limits."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Robert P. Fetch, Partner of Lord, Abbett & Co. ("Lord Abbett"), Executive Vice
President and Portfolio Manager of the Fund, has been primarily responsible for
the day-to-day management of the Small-Cap Fund since its inception. He is
assisted by Gregory M. Macosko, and may delegate management duties to other Lord
Abbett employees. Prior to joining Lord Abbett, Mr. Fetch was a Managing
Director of Prudential Investment Advisors.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
- --------------------------------------------------------------------------------
SMALL-CAP FUND Class Y
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
Maximum Sales Load on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses(1) (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fee (See "Our Management") .75%
12b-1 Fees None
- --------------------------------------------------------------------------------
Other Expenses (See "Our Management") .11%
Total Operating Expenses .86%
EXAMPLE
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
- --------------------------------------------------------------------------------
Share Class 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class Y shares $9 $27 $48 $106
You would pay the same expenses on the same investment, assuming you kept your
shares.
This example is for comparison and is not a representation of Small-Cap Fund's
actual expenses and returns, either past or present.
(1) For Class Y shares, the annual operating expenses shown in the summary have
been restated from the Fund's fiscal-year-end amount to reflect current fees.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Fund.
6
<PAGE>
FINANCIAL HIGHLIGHTS The following financial highlights are unaudited. Call
800-821-5129 and ask for the Fund's 1998 semi-annual report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Small-Cap Fund
- --------------------------------------------------------------------------------
Per Class Y Share Operating For the Period December 30, 1997(a)
- --------------------------------------------------------------------------------
Performance: to May 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $16.34
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 0.00(c)
Net realized and unrealized
- --------------------------------------------------------------------------------
gain on securities 1.06
Total from investment operations 1.06
- --------------------------------------------------------------------------------
Net asset value, end of period $17.40
Total Return(b) 6.49%
- --------------------------------------------------------------------------------
Ratios to Average Net Assets(b)
Expenses 0.36%
- --------------------------------------------------------------------------------
Net investment income 0.00%(c)
- --------------------------------------------------------------------------------
Supplemental Data for all classes: Small-Cap Fund
- --------------------------------------------------------------------------------
Net Assets, end of period (000) $657,889
Portfolio turnover rate 25.58%
(a) Commencement of Operations.
(b) Not Annualized.
(c) Amount less than 0.01%.
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
GROWTH OPPORTUNITIES FUND
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HOW WE INVEST
Normally, we invest primarily in equity securities of mid-sized companies,
defined for this purpose as companies whose outstanding equity securities have
an aggregate market value of between $1 billion and $6 billion. We favor
companies that show the potential for stronger than expected earnings or growth.
Under normal circumstances, at least 65% of our total assets will consist of
investments made in growth companies, determined at the time of purchase.
See "Investment Policies, Risks and Limits."
- --------------------------------------------------------------------------------
RISK FACTORS
The value of your investment will fluctuate in response to stock market
movements. The Fund employs other investment practices such as investments in
foreign securities and other securities, that could adversely affect
performance.
Before you invest, please read "Investment Poli-cies, Risks and Limits."
PORTFOLIO MANAGEMENT
Stephen J. McGruder, Partner of Lord Abbett, Executive Vice President and Senior
Portfolio Manager of the Fund, is primarily responsible for day-to-day
management of the Fund. He joined Lord Abbett in 1995 and has over 29 years of
investment experience.
Prior to joining Lord Abbett, Mr. McGruder served since October of 1988 as
Vice President of Wafra Investment Advisory Group, a private investment company.
Mr. McGruder is assisted by, and may delegate management duties to, other Lord
Abbett employees who may be Fund officers.
When Mr. McGruder became the Senior Portfolio Manager of the Fund on July 15,
1998, he introduced a growth style of investing to the Fund. Under this method,
companies are favored that show the potential for stronger-than-expected
earnings growth. Gradually, as the opportunities present themselves, these kinds
of companies will be favored in the selection process. Under the former value
style of investing used to manage the Fund, companies were selected without
regard to current income under a process that sought to identify and invest in
undervalued securities.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
- --------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND Class Y
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
Maximum Sales Load on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses(1) (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fee (See "Our Management") .90%
12b-1 Fees None
- --------------------------------------------------------------------------------
Other Expenses (See "Our Management") .28%
Total Operating Expenses 1.18%
EXAMPLE
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
- --------------------------------------------------------------------------------
Share Class 1 year 3 years
- --------------------------------------------------------------------------------
Class Y shares $12 $37
You would pay the same expenses on the same investment, assuming you kept your
shares. This example is for comparison and is not a representation of Growth
Opportunities Fund's actual expenses and returns, either past or present.
(1) For Class Y shares, the annual operating expenses shown in the summary have
been restated from the Fund's fiscal-year-end amount to reflect current fees.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Fund.
8
<PAGE>
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
HOW WE INVEST
Portfolio investments will be made in equity securities of companies domiciled
in developed countries, but investments also may be made in the securities of
companies domiciled in developing countries. Equity securities include common
and preferred stocks, convertible securities, and rights and warrants to
purchase common stocks. Under normal circumstances, at least 80% of the total
assets of the Fund will be invested in such equity securities of companies which
are domiciled in at least three different countries outside the United States.
The Fund currently intends to diversify investments among countries to reduce
currency risk. Although the Fund will typically hold a number of diversified
securities, it does entail above-average investment risk in comparison to the
U.S. stock market.
The Fund may temporarily reduce its equity holdings for defensive purposes in
response to adverse market conditions and invest in domestic, Eurodollar and
foreign short-term money market instruments.
See "Investment Policies, Risks and Limits."
RISK FACTORS
Although the International Fund intends to invest primarily in equity securities
of companies with market capitalization of less than $1 billion listed on stock
exchanges, it may also invest in equity securities of such companies traded in
over-the-counter markets, as well as large and middle capitalization securities.
Small capitalization securities involve greater risk and the markets for such
securities may be more volatile and less liquid than those of larger securities.
Securities of companies in developing countries may pose liquidity risks. For a
description of special considerations and certain risks associated with
investments in foreign issuers, before you invest see section headed "Investment
Policies, Risks and Limits."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Christopher Taylor serves as Portfolio Manager of the International Fund. Mr.
Taylor is Managing Director of Fuji-Lord Abbett International, Limited (the
"Sub-Adviser"). He has been with the Sub-Adviser and its predecessor since 1987
and has 15 years of investment experience.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
- --------------------------------------------------------------------------------
INTERNATIONAL FUND Class Y
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
Maximum Sales Load on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses(1) (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fee (See "Our Management") .75%
12b-1 Fees None
- --------------------------------------------------------------------------------
Other Expenses (See "Our Management") .43%
Total Operating Expenses 1.18%
EXAMPLE
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
- --------------------------------------------------------------------------------
Share Class 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class Y shares $12 $37 $65 $143
You would pay the same expenses on the same investment, assuming you kept your
shares.
This example is for comparison and is not a representation of International
Fund's actual expenses and returns, either past or present.
(1) For Class Y shares, the annual operating expenses shown in the summary have
been restated from the Fund's fiscal-year-end amount to reflect current fees.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Fund.
9
<PAGE>
FINANCIAL HIGHLIGHTS The following financial highlights are unaudited. Call
800-821-5129 and ask for the Fund's 1998 semi-annual report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------
Per Class Y Share Operating For the Period December 30, 1997(a)
- --------------------------------------------------------------------------------
Performance: to April 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $11.28
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 0.09
Net realized and unrealized
- --------------------------------------------------------------------------------
gain on securities 3.23
Total from investment operations 3.32
- --------------------------------------------------------------------------------
Net asset value, end of period $14.60
Total Return(b) 28.90%
- --------------------------------------------------------------------------------
Ratios to Average Net Assets(b)
Expenses 0.33%
- --------------------------------------------------------------------------------
Net investment income 0.60%
- --------------------------------------------------------------------------------
Supplemental Data for all classes: International Fund
- --------------------------------------------------------------------------------
Net Assets, end of period (000) $90,153
Portfolio turnover rate 11.14%
(a) Commencement of Operations.
(b) Not Annualized.
(c) Amount less than 0.01%.
See Notes to Financial Statements.
</TABLE>
10
<PAGE>
HIGH YIELD FUND
- --------------------------------------------------------------------------------
HOW WE INVEST
Normally, we invest in lower-rated debt securities, which entail greater risks
than investments in higher-rated debt securities. The former are referred to
colloquially as "junk bonds."
We believe that a high total return (current income and capital appreciation)
may be derived from an actively managed, diversified security portfolio. Under
normal circumstances, we invest at least 65% of our total assets in lower-rated
debt securities, some of which are convertible into common stock or have
warrants to purchase common stock.
We seek unusual values, particularly in lower-rated debt securities, some of
which are convertible into common stocks or have warrants to purchase common
stocks. Higher yield on debt securities can occur during periods of inflation
when the demand for borrowed funds is high. Also, buying lower-rated bonds when
the credit risk is above average but, we think, likely to decrease, can generate
higher yields.
See "Investment Policies, Risks and Limits."
- --------------------------------------------------------------------------------
RISK FACTORS
The lower-rated bonds in which the Fund invests involve risks that interest and
principal payments may not be made. Some issuers may default as to principal
and/or interest payments subsequent to our purchase of their securities. 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.
In addition, the value of your investment will change as the general levels of
interest rates fluctuate. When interest rates decline, share value may rise.
When interest rates rise, share value may decline. The Fund employs other
investment practices, such as investments in foreign securities, illiquid
securities and other securities, that could adversely affect performance. Before
you invest, please read "Investment Policies, Risks and Limits."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
Christopher J. Towle, Partner of Lord Abbett, Executive Vice President and
Co-Portfolio Manager of the Fund, is primarily responsible for the day-to-day
management of the Fund. Mr. Towle has been with Lord Abbett since 1988 and has
over 17 years of investment experience.Mr. Towle is assisted by, and may
delegate management duties to, other Lord Abbett employees who may be Fund
officers.
Michael Goldstein serves as Co-Portfolio Manager of the Fund. Mr. Goldstein
has been with Lord Abbett since April 1997. Prior to Joining Lord Abbett, Mr.
Goldstein was a bond trader for Credit Suisse BEA Associates from August 1992
through April 1997.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
- --------------------------------------------------------------------------------
High yield fund Class Y
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------
Maximum Sales Load on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses(1) (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fee (See "Our Management") 0.60%
12b-1 Fees None
- --------------------------------------------------------------------------------
Other Expenses (See "Our Management") 0.25%
Total Operating Expenses 0.85%
EXAMPLE
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
- --------------------------------------------------------------------------------
Share Class 1 year 3 years
- --------------------------------------------------------------------------------
Class Y shares $9 $27
You would pay the same expenses on the same investment, assuming you kept your
shares.
This example is for comparison and is not a representation of High Yield Fund
actual expenses and returns, either past or present.
(1) For Class Y shares, the annual operating expenses shown in the summary have
been restated from the Fund's fiscal-year-end amount to reflect current fees.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Fund.
11
<PAGE>
PURCHASES
CLASS Y SHARES. Class Y shares are purchased at net asset value with no sales
charge of any kind. 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.
WHO MAY INVEST? Eligible purchasers of Class Y shares include: (i) 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 Y shares in particular investment products
made available for a fee to clients of such brokers, dealers, registered
investment advisers or other financial institutions ("mutual fund wrap-fee
programs"), (ii) the trustee or custodian under any deferred compensation or
pension or profit-sharing plan or payroll deduction IRA established for the
benefit of the employees of any company with an account(s) in excess of $10
million managed by Lord Abbett or its sub-advisors on a private-advisory-account
basis, and (iii) institutional investors, including retirement plans, companies,
foundations, trusts, endowments and other entities where the total amount of
potential investable assets exceeds $20 million that were not introduced to Lord
Abbett by persons associated with a broker or dealer primarily involved in the
retail security business. Additional payments may be made by Lord Abbett out of
its own resources with respect to certain of these sales.
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 the Fund you selected (P.O. Box 419100, Kansas City, Missouri 64141). The
minimum initial investment is $1 million except for mutual fund wrap-fee
programs which have no minimum. This offering may be suspended, changed or
withdrawn by Lord Abbett Distributor which reserves the right to reject any
order.
BUYING SHARES THROUGH YOUR DEALER. Orders for shares received by a 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 net asset value 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 net asset
value 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.
BUYING SHARES BY WIRE. To open an account, call 800 -821-5129 Ext. 34028,
Institutional Trade Dept., to set up your account and to arrange a wire
transaction. Wire to: United Missouri Bank of Kansas City, N.A., Routing number
- - 101000695, bank account number: 9878002611, FBO: (account name) and (your Lord
Abbett account number). Specify the complete name of the fund of your choice,
note Class Y shares and include your new account number and your name. To add to
an existing account, wire to: United Missouri Bank of Kansas City, N.A., routing
number - 101000695, bank account number:9878002611, FBO: (account name) and
(your Lord Abbett account number). Specify the complete name of the fund of your
choice, note Class Y shares and include your account number and your name.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE: Class Y shares may be exchanged without a
service charge for Class Y shares of any eligible Lord Abbett-sponsored fund.
You or YOUR INVESTMENT PROFESSIONAL WITH PROPER IDENTIFICATION can instruct your
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.
A 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 ex-changes. Instructions must be
received by a Fund in Kansas City (800-821-5129) prior to the close of the NYSE
to obtain a Fund's net asset value per class
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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. Each
Fund reserves the right to terminate or limit the privilege of any shareholder
who makes frequent exchanges. Each 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 Telephone 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.
All correspondence should be directed to the Fund you selected (P.O. Box
419100, Kansas City, Missouri 64141; 800-821-5129).
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REDEMPTIONS
To obtain the proceeds of an expedited redemption, you can telephone your Fund.
A 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.
Send your written redemption request to the Fund you selected (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 on the date the redemption
order was received in proper form. Payment will be made within three business
days. Each Fund may suspend the right to redeem shares for not more than three
days (or longer under unusual circumstances as permitted by Federal law). If you
have purchased a Fund's 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.
WIRE. In order to receive funds by wire, our servicing agent must have the
wiring instruction on file. To verify that this feature is in place, call
800-821-5129 Ext. 34028, Institutional Trade Dept. Minimum wire: $1,000. Your
wire redemption request must be received by your Fund before the close of the
NYSE for money to be wired on the next business day.
TAX-QUALIFIED PLANS: For redemptions of $50,000 or less, follow normal
redemption procedures. Redemp-tions over $50,000 must be in writing from the
employer, broker or plan administrator stating the reason for the redemption.
The reason for the redemption must be received by the Fund prior to, or
concurrent with, the redemption request.
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DIVIDENDS AND CAPITAL GAINS
DIVIDENDS/CAPITAL GAINS DISTRIBUTIONS. Dividends from net investment income, if
any, are expected to be paid in February, May, August and November for
Affiliated Fund. A supplemental dividend may also be paid in December. For
Small-Cap Fund, Growth Opportunities Fund and International Fund, payments will
be made annually; High Yield Fund, distributions will be paid monthly. A second
distribution may be made in order to comply with Federal income tax requirements
that a certain percentage of capital gains be distributed during the year.
CAPITAL GAINS DISTRIBUTIONS. Any capital gains distribution is expected to be
made annually and may be taken in cash or reinvested. Distributions of any net
long-term capital gains will be taxable to a shareholder as long-term capital
gains regardless of how long the shareholder has held the shares. Under recently
enacted legislation, the maximum tax rate on long-term capital gains for a U.S.
individual, estate or trust is reduced to 20% for distributions derived from the
sale of assets held by the Fund for more than 12 months. (If the taxpayer is in
the 15% tax bracket, the rate is 10%.) Any gains realized on the Fund's
transactions in options and financial futures will be treated as taxable long-
or short-term capital gains.
DIVIDENDS/CAPITAL GAINS RECEIPT OR REINVESTMENT. If you elect to receive
dividends or capital gains in cash, a check will be mailed to you as soon as
possible after the reinvestment date. If you arrange for direct deposit, your
payment will be electronically
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transmitted to your bank account within one day after the payable date. Most
investors reinvest their dividends and capital gains. If you choose this option,
or if you do not indicate any choice, your dividends and capital gains
distributions will be automatically reinvested in additional shares.
TAXES. The Funds pay no federal income tax on the earnings distributed to
shareholders. Consequently, dividends you receive, whether reinvested or taken
in cash, are generally considered taxable. Dividends declared in December of any
year 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.
Each January, you will be mailed, if applicable, a Form 1099 tax information
statement detailing your dividends and capital gain distributions. You should
consult your tax adviser concerning applicable state and local taxes.
For more information about the tax consequences from dividends and
distributions, see the Statement of Additional Information.
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OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors/Trustees with the advice of Lord Abbett.
Each Fund employs Lord Abbett as investment manager pursuant to a management
Agreement. Lord Abbett has been an investment manager for over 69 years and
currently manages approximately $28 billion in a family of mutual funds and
other advisory accounts. Under the Management Agreement, Lord Abbett provides us
with investment management services and personnel, pays the remuneration of our
officers and of our Directors/Trustees affiliated withLord 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
portfolios and certain other costs. Lord Abbett provides similar services to
over thirty-four other mutual fund portfolios having various investment
objectives and also advises other investment clients.
Each Fund pays Lord Abbett a monthly fee based on average daily net assets for
each month. In addition, each Fund pays all expenses not expressly assumed by
Lord Abbett. For the fiscal year ended October 31, 1998, the fee paid by
Affiliated Fund to Lord Abbett as a percentage of average daily net assets was
at the annual rate of .32 of 1%. For the fiscal year ended November 30, 1997,
the fee paid by Small-Cap Fund to Lord Abbett as a percentage of average daily
net assets was at the annual rate of .75 of 1%. For the fiscal year ended
November 30, 1997, Growth Opportunities Fund's fee to Lord Abbett was waived.
The International Fund, for the fiscal year ended October 31, 1998, paid Lord
Abbett as a percentage of daily net assets at the annual rate of .75 of 1%.
The services provided to the Fund and its shareholders by Lord Abbett, Lord
Abbett Distributor, the Fund's transfer agent and the Fund's custodian depend on
the proper functioning of their computer systems and those of their outside
service providers. Many computer systems, and many imbedded microprocessors now
in use cannot distinguish between the year 2000 and the year 1900, an inability
that could disrupt the services provided to the Fund. Lord Abbett, Lord Abbett
Distributor, the Fund's transfer agent and the Fund's custodian all have advised
the Fund that they have been actively working on changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
their outside service providers, will be adapted in time. However, because the
year 2000 problem is unprecedented, there can be no assurance that they will be
successful. Neither can there be any assurance that their services will not be
impaired by interactions with other computer systems that have not been adapted
for the year 2000.
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer and microprocessor failures
throughout the financial services industry beginning January 1, 2000. Also,
corporate and governmental data processing errors may result in problems for
individual companies and may create overall economic uncertainties. Accordingly,
the Fund's investments may be adversely affected.
The Funds will not hold annual meetings of shareholders unless required to by
the Investment Company Act of 1940, the Board of Directors/Trustees or the
shareholders with one-quarter of the outstanding stock of each Fund entitled to
vote. See the Statement of Additional Information for each Fund for more
details.
THE FUNDS. Lord Abbett Affiliated Fund, Inc. a diver-
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sified open-end management investment company, was incorporated under Maryland
law in 1975; Small-Cap Fund and Growth Opportunities Fund are diversified
separate series of Lord Abbett Research Fund, Inc., a diversified open-end
management investment company which was incorporated under Maryland law in 1992;
International Fund, a diversified separate series of Lord Abbett Securities
Trust, a diversified open-end management investment company which was organized
as a Delaware Business Trust in 1993. High Yield Fund is a diversified separate
series of Lord Abbett Investment Trust, a diversified open-end management
investment company, which was organized as a Delaware Business Trust in 1993.
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FUND PERFORMANCE
ABOUT THE AFFILIATED FUND. The Fund completed its fiscal year on October 31,
1997. During this time, it 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, the portfolio has been evenly diversified,
but with a moderate overweighting in financial stocks. 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.
ABOUT THE SMALL-CAP FUND. The Fund completed its fiscal year on November 30,
1997. Its exceptional performance over the past fiscal year can be attributed to
select industrial and technology stocks in the portfolio. During the year,
valuations of small-cap stocks were favorable, providing many opportunities in
the marketplace to purchase companies with performance characteristics that
drive toward consistent, strong performance with low volatility. We look for
companies with long operating histories, strong market positions within their
industry and financial strength. These characteristics help to reduce business
risk and protect companies form both economic and competitive pressures. We
continue to seek issues with solid fundamental prospects in the small-cap
universe to add value to the Fund.
ABOUT THE GROWTH OPPORTUNITIES FUND (FORMERLY, LORD ABBETT RESEARCH FUND -
MID-CAP SERIES). The Fund completed its fiscal year on November 30, 1997. Over
the past year, the stock market experienced several corrections before
rebounding to new heights. This occurred against a background of surprising
strength in the economy, concerns of inflation and a volatile interest-rate
environment. The positive performance of your Fund over the past year can be
attributed to the use of the best ideas generated by the Fund's research team.
Specifically, individual issues in the technology, finance and consumer sectors
proved to be rewarding.
ABOUT THE INTERNATIONAL FUND. The Fund completed its fiscal year on October 31,
1997. It enjoyed a strong performance over the past year due in large part to
gains made by industrial companies which are domiciled in Germany and Canada.
One company that helped portfolio performance during the year manufactures "zero
emission" hydrogen powered fuel cells that produce water and oxygen as waste
materials. Another is the world's largest supplier of database software tools
used for information integration. These are some examples of what we believe are
industry leaders. In addition, due to our selective investment process, we had
minimal exposure to companies located in the emerging and Far Eastern markets
that fell sharply during the period.
ABOUT THE HIGH YIELD FUND. This Fund was effective as of November 30, 1998 and,
consequently, has no reportable performance history at this time.
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INVESTMENT POLICIES, RISKS AND LIMITS
The Funds are permitted to utilize, within limits established by the Board of
Directors, the following investment policies, in an effort to enhance
performance. These policies have risks associated with them. However, certain
practices may reduce these risks. To the extent the Funds utilize these
policies, overall performance may be positively or negatively affected.
POLICIES COMMON TO ALL FUNDS
SECURITIES LENDING: This entails lending securities to financial institutions
which provide continuous collateral equal to the market value of the securities
loaned.
RISK: Delay in recovery of collateral and loss should the borrower of the
security fail financially.
LIMIT: Loans, in the aggregate, may not exceed 30% of Affiliated Fund's,
International Fund's, and High Yield Fund's total assets, and 5% of Small-Cap
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Fund's and Growth Opportunities Fund's total assets.
ILLIQUID SECURITIES. These securities are not traded on the open market. May
include illiquid Rule 144A securities.
RISK: Certain securities may be difficult or impossible to sell at the time
and price the seller would like.
LIMIT: Each Fund may invest up to 15% of its assets in illiquid securities.
Securities determined by the Board of Directors to be liquid are not subject to
this limitation.
BORROWING: Each Fund may borrow money.
RISK: Depending on the circumstances, the interest paid on borrowed money may
reduce a Fund's return.
LIMIT: Not in excess of 33 1/3% of total assets (including the amount
borrowed), and then only as a temporary measure for extraordinary or emergency
purposes. Up to an additional 5% of total assets are available for temporary
purposes. Each Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio securities.
FOREIGN SECURITIES: Foreign securities are securities primarily traded in
countries outside the United States.
RISK: These securities are not subject to the same degree of regulation and
may be more volatile and less liquid than securities traded in major U.S.
markets. Other considerations include political and social instability,
expropriations, higher transaction costs, currency fluctuations, nondeductable
withholding taxes and different settlement practices.
LIMIT: Affiliated Fund may invest up to 10% of its assets, Small Cap Fund and
Growth Opportunities Fund up to 35% of their net assets, International Fund at
least 80%, and High Yield Fund up to 20% of assets at the time of investment in
foreign securities (of the type described herein).
DIVERSIFICATION. Generally, the diversification rules under Subchapter M of the
Internal Revenue Code require that at the end of each quarter of the taxable
year, (a) not more than 25% of each Fund's total assets be invested in any one
issuer and (b) with respect to 50% of each Fund's total assets, no more than 5%
of each Fund's total assets be invested in any one issuer, except U.S.
Government securities. Each Fund intends to meet these rules.
Each Fund, as a "diversified" Fund, is prohibited, with respect to 75% of the
value of its total assets, from investing more than 5% of its total assets in
securities of any one issuer other than U.S. Government securities.
When the assets and revenues of a sovereign state's political subdivision are
separate from those of the sovereign state government creating the subdivision,
and the security is backed only by the assets and revenues of the subdivision,
the subdivision would be considered the sole issuer. Similarly, if a revenue
bond is backed only by the assets and revenues of a nongovernmental user, then
such user would be considered the sole issuer.
POLICIES COMMON TO AFFILIATED FUND, SMALL-CAP
FUND, GROWTH OPPORTUNITIES FUND AND
INTERNATIONAL FUND.
SELLING COVERED CALL OPTIONS: A covered call option on stock gives the buyer of
the option, upon payment of a premium to the seller (writer) of the option, the
right to call upon the writer to deliver a specified number of shares of a stock
owned by the writer on or before a fixed date at a predetermined price.
RISK: Although each Fund receives income based on receipt of the premium, it
gives up participation in the appreciation of the stock above the predetermined
price if it is called away by the buyer.
LIMIT: Each Fund may write covered call options on securities having an
aggregate market value not to exceed 10% of Affiliated Fund's gross assets, 5%
of Small-Cap Fund's gross assets, 5% of Growth Oppor-tunities Fund's gross
assets and International Fund's net assets.
POLICIES COMMON TO AFFILIATED FUND,
SMALL-CAP FUND, HIGH YIELD FUND AND
GROWTH
OPPORTUNITIES FUND.
RULE 144A SECURITIES: These securities are determined by the Directors to be
liquid pursuant to Securities and Exchange Commission Rule 144A (the "Rule").
Under the Rule, a qualifying unregistered security may be resold to a qualified
institutional buyer without registration and without regard to whether the
seller originally purchased the security for investment.
RISK: Investments in Rule 144A securities initially determined to be liquid
could have the effect of diminishing the level of a Fund's liquidity during
periods of decreased market interest in such securities.
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POLICIES COMMON TO SMALL-CAP FUND, GROWTH OPPORTUNITIES FUND, AND INTERNATIONAL
FUND
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS: Such transactions arise when
securities are purchased or sold by a Fund with payment and delivery taking
place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering other liquid high-grade debt obligations having a value equal to or
greater than the Fund's purchase commitments; the custodian will likewise
designate as segregated those securities sold on a delayed delivery basis.
RISK: The securities so purchased are subject to market fluctuation and no
interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities the value may be more or
less than the purchase price and an increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Fund's net asset value. Rights
and Warrants: The Funds may hold or sell any property or securities which it may
obtain through the exercise of conversion rights or warrants. The term
"warrants" includes warrants which are not listed on the New York or American
Stock Exchanges.
LIMIT: Growth Opportunities Fund has no present intention to commit more than
5% of its gross assets to rights and warrants, Small-Cap Fund 5% of its gross
assets, and International Fund 5% of its assets.
REPURCHASE AGREEMENTS: The Funds may, on occasion, enter into repurchase
agreements whereby the seller of a security agrees to repurchase that security
at a mutually agreed-upon time and price. The period of maturity is usually
quite short, possibly overnight or a few days, although it may extend over a
number of months. The resale price is in excess of the purchase price,
reflecting an agreed-upon rate of return effective for the period of time a
Fund's money is invested in the security. Each Fund's repurchase agreements will
at all times be fully collateralized in an amount at least equal to the purchase
price, including accrued interest earned on the underlying securities. The
instruments held as collateral are valued daily, and if the value of the
instruments declines, each Fund's will require additional collateral.
RISK: If the seller defaults and the value of the collateral securing the
repurchase agreement declines, each Fund may incur a loss.
FORWARD FOREIGN CURRENCY CONTRACTS: The Funds may utilize a forward foreign
currency contract which involves an obligation to purchase or sell a specific
amount of a currency at a set price on a future date. A Fund may enter into
forward foreign currency contracts in primarily two circumstances. First, when a
Fund desires to "lock in" the U.S. dollar price of the security, by entering
into a forward contract for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Fund will be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date of purchase or sale and the date of settlement.
Second, when Fund management believes that the currency of a particular
foreign country may suffer a decline against the U.S. dollar, a Fund may enter
into a forward contract to sell the amount of foreign currency approximating the
value of some or all of the portfolio securities denominated in such foreign
currency or, in the alternative, may use a cross-currency-hedging technique
whereby it enters into such a forward contract to sell another currency
(obtained in exchange for the currency in which the portfolio securities are
denominated if such securities are sold) which it expects to decline in a
similar manner.
RISK: Precise matching of the forward contract and the value of the securities
involved will generally not be possible.
CURRENCY PUT AND CALL OPTIONS: The International Fund may transact in currency
put and call options on U.S. exchanges or U.S. over-the-counter markets ("OTC")
to protect the dollar against foreign currency exposure. Small-Cap Fund and
Growth Opportunities Fund may purchase foreign currency put options and write
foreign currency call options on U.S. exchanges or U.S. over-the-counter markets
("OTC"). A put option gives a Fund, upon payment of a premium, the right to sell
a currency at the exercise price until the expiration of the option and serves
to insure against adverse currency price movements in the underlying portfolio
assets denominated in that currency.
A foreign currency call option written by a Fund
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gives the purchaser, upon
payment of a premium, the right to purchase from a Fund a currency at the
exercise price until the expiration of the option. Each Fund may write a call
option on a foreign currency only in conjunction with a purchase of a put option
on that currency ("Cross Hedging"). Such a strategy is designed to reduce the
cost of downside currency protection by limiting currency appreciation
potential.
RISK: OTC options are generally less liquid and involve issuer credit risk.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities unless a
Fund and the counterparty have provided for the Fund, at the Fund's election, to
unwind the OTC option. The exercise of such an option ordinarily would involve
the payment by a Fund of an amount designed to reflect the counterparty's
economic loss from an early termination, but does allow the Fund to treat the
assets used as "cover" as "liquid."
LIMIT: The premiums paid for such foreign currency put options will not exceed
5% of the net assets of a Fund. Unlisted options, together with other illiquid
securities, may comprise no more than 15% of a Fund's net assets. The face value
of such currency call option writing or cross-hedging may not exceed 90% of the
value of the securities denominated in such currency (a) invested in by a Fund
to cover such call writing or (b) to be crossed.
The Funds will segregate cash or permitted liquid securities in an amount not
less than that required by SEC Release 10666 and SEC staff interpretations
thereof with respect to assets committed to (a) currency put and call options,
(b) forward foreign currency contracts, and (c) cross hedges entered into by
each Fund. If the value of the securities segregated declines, additional cash
or permitted securities will be added on a daily basis (i.e., marked to market),
so that that segregated amount will not be less than the amount of each Fund's
commitments with respect to such options, forward foreign currency contracts and
cross hedges.
POLICIES COMMON TO SMALL-CAP fund, GROWTH OPPORTUNITIES FUND AND INTERNATIONAL
FUND
CLOSED-END INVESTMENT COMPANIES: The Funds may invest in closed-end investment
companies.
RISK: Shares of such investment companies sometimes trade at a discount or
premium in relation to their net asset value and there may be duplication of
fees, for example, to the extent that a Fund and the closed-end investment
company both charge a management fee.
LIMIT: Except for International Fund which has no limit, no more than 5% of
the gross assets of each Fund may be invested in closed-end investment
companies.
POLICIES COMMON TO GROWTH OPPORTUNITIES FUND AND INTERNATIONAL FUND
FINANCIAL FUTURES: A financial futures transaction is an exchange-traded
contract to buy or sell a standard quantity and quality of a financial
instrument or index at a specific future date and price. Each Fund may deal in
financial futures transactions with respect to the type of securities described
for it, herein, including indices of such securities and options on such
financial futures and indices.
RISK: The price behavior of the futures contract may not correlate with that
of the item being hedged.
LIMIT: Each Fund will not enter into any futures contracts, or options
thereon, if the aggregate market value of the securities covered by futures
contracts plus options on such financial futures exceeds 50% of its total
assets.
POLICIES RELATING TO SMALL-CAP FUND AND GROWTH OPPORTUNITIES FUND
OPTIONS TRANSACTIONS: The Funds may purchase and write (i.e., sell) put and call
options on equity securities or stock indices that are traded on national
securities exchanges.
A put option on equity securities gives the purchaser, in return for a
premium, the right, for a specified period of time, to sell the securities
subject to the option to the writer of the put at the specified exercise price.
The writer of the put option, in return for the premium, has the obligation,
upon exercise of the option, to acquire the securities underlying the option at
the exercise price.
A call option on equity securities gives the purchaser, in return for a
premium paid, the right for a specified period of time to purchase the
securities subject to the option at a specified price (the "exercise price" or
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<PAGE>
"strike price"). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities to the purchaser upon receipt of
the exercise price.
Options on stock indices are similar to options on equity securities except
that, rather than the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if the
closing level of the stock index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of an index option, in return for a premium, is obligated
to pay the amount of cash due upon exercise of the option.
RISK: Each Fund, as the writer of a put option, might therefore be obligated
to purchase underlying securities for more than their current market value. When
a Fund writes a call option, it gives up the potential for gain on the
underlying securities in excess of the exercise price of the option during the
period that the option is open.
LIMIT: The Funds may only write covered put options to the extent that cover
for such options does not exceed 25% of the Fund's net assets. The Fund will not
purchase an option if, as a result of such purchase, more than 20% of its total
assets would be invested in premiums for such options. With respect to Growth
Opportunities Fund, provided they are traded on a national securities exchange
and used to increase the Fund's income and to provide greater flexibility in the
disposition of the Fund's portfolio securities, the Fund may write covered call
options on securities having an aggregate market value not to exceed 5% of the
Fund's gross assets.
Each Fund will write only "covered" options. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in the
underlying securities or maintains cash, U.S. Government securities or other
liquid high-grade debt obligations with a value sufficient at all times to cover
its obligations in a segregated account.
See "Investment Objective and Policies -- Limitation on Purchase and Sale of
Stock Options, Options on Stock Indices and Stock Index Futures" in the
Statement of Additional Information.
TEMPORARY INVESTMENTS: For temporary defensive purposes or to create reserve
purchasing power pending other investments, the Fund may invest in high-quality,
short-term debt obligations of banks, corporations or the U.S. Government of the
type normally owned by a money market fund. Neither an issuer's ceasing to be
rated investment grade nor a rating reduction below that grade will require
elimination of a bond from our portfolios.
POLICIES RELATING TO AFFILIATED FUND AND HIGH
YIELD FUND
HIGH YIELD DEBT SECURITIES: High yield debt securities or "junk bonds" are rated
BB/Ba or lower and typically pay a higher yield than investment-grade debt
securities.
RISK: The market for lower-rated bonds generally is less liquid than that for
higher-rated bonds. Market prices of lower-rated bonds may fluctuate more than
those of higher-rated bonds, particularly in times of economic change and
stress. In addition, because the market for lower-rated corporate debt
securities has in past years experienced wide fluctuations in the values of
certain of these securities, past experience may not provide an accurate
indication of the future performance of that market or of the frequency of
default, especially during periods of recession. Objective pricing data for
lower-rated bonds may be more limited than for higher-rated bonds and valuation
of such securities may be more difficult and require greater reliance upon
judgment. While the market for lower-rated bonds may be relatively insensitive
to interest rate changes, the market prices of these bonds structured as zero
coupon or pay-in-kind securities may be affected to a greater extent by such
changes and thus may be more volatile than prices of lower-rated securities
paying interest periodically in cash. Lower-rated bonds that are callable prior
to maturity may be more susceptible to refunding during periods of falling
interest rates, requiring replacement with lower-yielding securities.
LIMIT: Affiliated Fund will not invest more than 5% of assets at the time of
investment in high-yield debt securities. High Yield Fund has no limit on the
amount of high-yield securities it will invest in; in no event will it invest
more than 10% of gross assets at the time of investment in debt securities which
are in default as to interest or principal.
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POLICIES RELATING TO SMALL-CAP FUND ONLY
DEBT SECURITIES: The Small-Cap Fund may engage in investing in straight bonds or
other debt securities, including lower rated, high-yield bonds.
RISK: When interest rates rise the value of debt securities tend to fall and
when interest rates fall the value of debt securities tend to rise. The longer
the maturity of a debt security, the more this volatility tends to occur.
LIMIT: The Small-Cap Fund will not invest more than 5% of its assets (at the
time of investment) in lower rated (BB/Ba or lower), high-yield bonds.
STOCK INDEX FUTURES: A stock index futures contract is an agreement in which one
party agrees to deliver to another an amount of cash equal to a specific dollar
amount times the difference between a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made.
RISK: Participation in the options or futures markets involves investment
risks and transaction costs to which the Small-Cap Fund would not be subject
absent the use of these strategies. If the Small-Cap Fund management's
prediction of movement in the direction of the securities markets is inaccurate,
the adverse consequences to the Fund may leave it in a worse position than if
such strategies were not used. Risks inherent in the use of options and stock
index futures include: (1) dependence on management's ability to predict
correctly movements in the direction of specific securities being hedged or the
movement in stock indices; (2) imperfect correlation between the price of
options and stock index futures and options thereon and movements in the prices
of the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; (5) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; and (6) daily limits on price variance for a
futures contract or related options imposed by certain futures exchanges and
boards of trade may restrict transactions in such securities on a particular
day.
SHORT SALES: The Fund may make short sales of securities or maintain a short
position, provided that at all times when a short position is open the Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal amount
of the securities of the same issuer as the securities sold short (a "short sale
against-the-box").
RISK: There may not always be perfect correlation between a short sale
against-the-box and the deferral of realization of gain or loss for federal tax
purposes.
LIMIT: Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes. The Fund does not intend to have more than 5% of its
net assets (determined at the time of the short sale) subject to "short sales
against-the-box").
POLICIES RELATING TO INTERNATIONAL FUND ONLY
INVESTMENT FUNDS. Some emerging countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of such
countries is permitted through investment funds which have been specifically
authorized. The Fund may invest in these investment funds subject to the
provisions of the Investment Company Act of 1940, as amended, and other
applicable restrictions as discussed herein or in the Statement of Additional
Information.
RISK: If the Fund invests in such investment funds, shareholders will bear not
only their proportionate share of the expenses of the Fund (including operating
expenses and the fees of Lord Abbett), but also will indirectly bear similar
expenses of the underlying investment funds.
LIMIT: Normally, the Fund may invest not more than 5% of its total assets.
DEPOSITORY RECEIPTS. The Fund may invest in American Depository Receipts
("ADRs"), Global De-pository Receipts ("GDRs"), European Depository Re-ceipts
("EDRs") and other Depository Receipts (which, together with ADRs, GDRs and
EDRs, are hereinafter collectively referred to as "Depository Receipts"), to the
extent that such Depository Receipts become available. ADRs are securities,
typically issued by a U.S. financial institution (a "depository"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer (the "underlying issuer") and
20
<PAGE>
deposited with the depository. ADRs may be
established by a depository without participation by the underlying issuer.
GDRs, EDRs and other types of Depository Receipts are typically issued by
foreign depositories, although they may also be issued by U.S. depositories, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or U.S. corporation. Generally, Depository Receipts in
registered form are designed for use in the U.S. securities market and
Depository Receipts in bearer form are designed for use in securities markets
outside the United States. The Fund may invest in sponsored and unsponsored
Depository Receipts. For purpose of the Fund's investment policies, the Fund's
investments in Depository Receipts will be deemed to be investments in the
underlying securities.
POLICIES RELATING TO HIGH YIELD FUND ONLY
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS: The Fund may deal in options on
securities, securities indexes and financial futures transactions, including
options on financial futures to increase or decrease its exposure to changing
securities prices or interest rates or for bona fide hedging purposes.
An option is the right of the Fund to buy or sell securities of a company
which was granted in exchange for an agreed upon price.
A security index is an index which reflects the market price and number of
shares outstanding for the shares of the index.
A financial futures transaction is an exchange - traded contract to buy or
sell a standard quantity and quality of a financial instrument or index at a
specific future date and price.
RISK: The use of options and financial futures to achieve a Fund's investment
objective could result in a loss due to unanticipated market conditions and
could increase the volatility of the Fund. These transactions may involve a
small investment of cash relative to the risks assumed.
LIMIT: The Fund may write (sell) covered call options and secured put options
on up to 25% of its net assets and may purchase put and call options and
purchase and sell futures contracts provided that no more than 5% of its assets
(at the time of purchase) may be invested in premiums on such options and
initial margin deposits on such futures contracts.
EQUITY SECURITIES: Securities which may include stocks and preferred stocks. The
common stocks represent an equity ownership interest in a corporation.
RISK: Equity security prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
LIMIT: The Fund may not invest more that 20% of its total assets in equity
securities.
OTHER POLICIES. We may hold or sell any property or securities which we may
obtain through the exercise of conversion rights or warrants or as a result of
any reorganization, recapitalization or liquidation proceedings for any issuer
of securities owned by us. In no event will we voluntarily purchase any
securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the property and securities, other than debt
securities, in our portfolio is greater than 35% of the value of our gross
assets. A purchase or acquisition will not be considered "voluntary" if made in
order to avoid loss in value of a conversion or other premium.
OBJECTIVE, RESTRICTION AND POLICY CHANGES.
A Fund will not change its investment objective or its fundamental restrictions
without shareholder approval. If a Fund determines that its objective can best
be achieved by a substantive change in investment policy, which may be changed
without shareholder approval, a Fund may make such change by disclosing it in
the prospectus.
For more information about investment policies, restrictions and risk factors,
see the Statement of Additional Information.
- --------------------------------------------------------------------------------
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>
Lord, Abbett & Co.
Statement of Additional Information November 30, 1998
Lord Abbett Affiliated Fund
Lord Abbett Small-Cap Fund
Lord Abbett Growth Opportunities Fund
Lord Abbett International Fund
Lord Abbett High Yield Fund
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. A prospectus for
Class Y shares of the Funds identified below 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 November 30, 1998. This Statement of Additional
Information, relating to Lord Abbett Affiliated Fund, Inc. ("Affiliated Fund");
Lord Abbett Small-Cap Fund ("Small-Cap Fund") and Lord Abbett Growth
Opportunities Fund ("Growth Opportunities Fund"), both series of Lord Abbett
Research Fund, Inc.; Lord Abbett International Fund ("International Fund"),
which is a series of Lord Abbett Securities Trust; and Lord Abbett High Yield
Fund ("High Yield Fund"), which is a series of Lord Abbett Investment Trust,
each individually ("we" or the "Fund"), collectively (the "Funds"), 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 of Additional Information relates to, and
should be read in conjunction with, theProspectus dated November 30, 1998 (the
"Prospectus").
Our Boards of Directors/Trustees have authority to create and classify shares in
separate series, without further action by shareholders. To date, the Boards of
Directors/Trustees have authorized four classes of shares for Small-Cap Fund,
Growth Opportunities Fund, International Fund and High Yield Fund (Class A, B, C
and Y), and five classes of shares for Affiliated Fund (Class A, B, C, Y and P).
The Board of a Fund will allocate a Fund's shares among its classes from time to
time. All shares of a Fund 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. Although no present plans exist to do
so, further classes or series may be added to one or more of the Funds in the
future. The Investment Company Act of 1940, as amended (the "Act"), requires
that where more than one series exists for a Fund, each series must be preferred
over all other series in respect of assets specifically allocated to such
series.
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 a 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 or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, the Rule exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to your Fund or by
calling 800-821-5129. In addition, you can make inquiries through Lord Abbett
Distributor.
TABLE OF CONTENTS PAGE
1. Investment Policies 2
2. Directors (Trustees) and Officers 11
3. Investment Advisory and Other Services 16
4. Portfolio Transactions 18
5. Purchases, Redemptions
and Shareholder Services 19
6. Past Performance 20
7. Taxes 21
8. Information About The Funds 22
9. Financial Statements 22
<PAGE>
1.
Investment Policies
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each Fund is subject to the following
investment restrictions which cannot be changed without approval of the holders
of a majority of a Fund's outstanding shares. Each Fund may not: (1) borrow
money, except that (i) each 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) each Fund may borrow
up to an additional 5% of its total assets for temporary purposes, (iii) each
Fund may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) each 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 each 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 each 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 each 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 each Fund, buy
securities of one issuer representing more than (i) 5% of each 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, each
Fund also is subject to the following non-fundamental investment policies which
may be changed by the Boards of Directors (Trustees) without shareholder
approval. Each Fund may not: (1) borrow in excess of 33 1/3% of its total assets
(including the amount borrowed), 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 Boards of Directors
(Trustees); (4) invest in the securities of other investment companies as
defined under the Act, (in the case of the International Fund, as long as the
Fund is an underlying fund in a fund-of-funds structure) except as permitted by
applicable law; (5) invest in securities of issuers which, with their
predecessors, have a record of less than three years of continuous operation, if
more than 5% of each Fund's total assets would be invested in such securities
(this restriction shall not apply to mortgaged-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
of each Fund's officers or directors (trustees) 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 each Fund's
total assets (included within such limitation, but not to exceed 2% of each
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 each 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 a Fund's prospectus and statement of additional information, as
they may be amended from time to time; (10) buy from or sell to any of a Fund's
officers, directors (trustees), employees, or its investment adviser or any of a
Fund's officers, directors (trustees), partners or employees, any securities
other than shares of a Fund; (11) with respect to Affiliated Fund, 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; and (12) with respect to
High Yield Fund, invest more than 10%of the market value of its gross assets at
the time of investment in debt securities which are in default as to interest or
principal.
<PAGE>
For the year ended October 31, 1997, Affiliated Fund's portfolio turnover rate
was 46.41% versus 47.06% for the prior year. For the year ended November 30,
1997, the Small-Cap Fund's portfolio turnover rate was 45.24% and 110.09% for
the period December 13, 1997 (commencement of operations) to November 30, 1997.
For the period December 13, 1996 (commencement of operations) to October 31,
1997, the International Fund's' portfolio turnover rate was 29.72%.
With respect to the Affiliated Fund, it has no current intention to do so, but
may invest in financial futures & options on financial futures.
INVESTMENT TECHNIQUES
LENDING PORTFOLIO SECURITIES (Affiliated Fund, Growth Opportunities Fund,
International Fund, Small-Cap Fund) The Funds may lend portfolio securities to
registered broker-dealers. These loans may not exceed 30% of total assets. The
Funds' 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 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 Funds may allow to the borrower and/or a third party that is
not affiliated with the Funds 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 Funds.
By lending portfolio securities, the Funds can increase their 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 Funds
will comply with the following conditions whenever they loans securities: (i)
the Funds 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 Funds must
be able to terminate the loan at any time; (iv) the Funds must receive
reasonable compensation with respect to the loan, as well as any dividends,
interest or other distributions on the loaned securities; (v) the Funds 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 Funds'
Board of Directors must terminate the loan and regain the right to vote the
securities.
RULE 144A SECURITIES (Affiliated Fund) 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 (Affiliated Fund) As stated in the Prospectus, the
Fund 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
income and to provide greater flexibility in the disposition of 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, the Fund will 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 the 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 the Fund is unable to enter into a closing
purchase transaction, it may be required to hold a security that it might
otherwise have sold to protect against depreciation. The Fund does not intend to
write covered call options with respect to securities with an aggregate market
value of more than 10% of its gross assets at the time an option is written.
This percentage limitation will not be increased without prior disclosure in the
Fund's current Prospectus.
<PAGE>
REPURCHASE AGREEMENTS (International Fund) The Fund may enter into repurchase
agreements with respect to a security. A repurchase agreement is a transaction
by which the Fund acquires a security and simultaneously commits to resell that
security to the seller (a bank or securities dealer) at an agreed upon price on
an agreed upon date. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or date of
maturity of the purchased security. In this type of transaction, the securities
purchased by each Fund have a total value in excess of the value of the
repurchase agreement. The Fund requires at all times that the repurchase
agreement be collateralized by cash or U.S. Government securities having a value
equal to, or in excess of, the value of the repurchase agreement. Such
agreements permit the Fund to keep all of its assets at work while retaining
flexibility in pursuit of investments of a longer term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the Fund
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of each Fund and are
therefore subject to sale by the trustee in bankruptcy. Even though the
repurchase agreements may have maturities of seven days or less, they may lack
liquidity, especially if the issuer encounters financial difficulties. While
Fund management acknowledges these risks, it is expected that they can be
controlled through stringent selection criteria and careful monitoring
procedures. Fund management intends to limit repurchase agreements to
transactions with dealers and financial institutions believed by Fund management
to present minimal credit risks. Fund management will monitor creditworthiness
of the repurchase agreement sellers on an ongoing basis.
The Fund will enter into repurchase agreements only with those primary reporting
dealers that report to the Federal Reserve Bank of New York and with the 100
largest United States commercial banks and the underlying securities purchased
under the agreements will consist only of those securities in which the Fund
otherwise may invest.
WARRANTS (International Fund) Pursuant to Texas regulations, the Fund will not
invest more than 5% of its assets in warrants and not more than 2% of such value
in warrants not listed on the New York or American Stock Exchanges, except when
they form a unit with other securities. As a matter of operating policy, we will
not invest more than 5% of our net assets in rights.
COVERED CALL OPTIONS (International Fund) As stated in the Prospectus, the Fund
may write covered call options which are traded on a national securities
exchange with respect to securities in its portfolio in an attempt to increase
its income and to provide greater flexibility in the disposition of its
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, the Fund forgoes 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 its net premium). the
Fund may enter into "closing purchase transactions" in order to terminate its
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 the Fund is unable to enter
into a closing purchase transaction, it may be required to hold a security that
it might otherwise have sold to protect against depreciation. The Fund intends
to write covered call options with respect to securities with an aggregate
market value of more than 5% of its gross assets at the time an option is
written. This percentage limitation will not be increased without prior
disclosure in the current Prospectus.
<PAGE>
The Fund's custodian will segregate cash or liquid high-grade debt securities in
an amount not less than that required by Securities Exchange Commission ("SEC")
Release 10666 with respect to the Fund's assets committed to written covered
call options. If the value of the segregated securities declines, additional
cash or debt securities will be added on a daily basis (i.e., marked-to-market)
so that the segregated amount will not be less than the amount of the Fund's
commitments with respect to such written options.
FINANCIAL FUTURES CONTRACTS (International Fund) The Fund may enter into
contracts for the future delivery of a financial instrument, such as a security
or the cash value of a securities index. This investment technique is designed
primarily to hedge (i.e., protect) against anticipated future changes in
interest rates or market conditions which otherwise might adversely affect the
value of securities which we hold or intend to purchase. A "sale" of a futures
contract means the undertaking of a contractual obligation to deliver the
securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. At the time of delivery pursuant to the contract, adjustments
are made to recognize differences in value arising from the delivery of
securities which differ from those specified in the contract. In some cases,
securities called for by a futures contract may not have been issued at the time
the contract was written. The Fund will not enter into any futures contracts or
options on futures contracts if the aggregate of the market value of the
securities covered by its outstanding futures contracts and securities covered
by futures contracts subject to the outstanding options written by it would
exceed 50% of its total assets.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases, a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities. All transactions in the
futures market are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. The International Fund will
incur brokerage fees when it purchases or sells contracts and will be required
to maintain margin deposits. At the time it enters into a futures contract, it
is required to deposit with its custodian, on behalf of the broker, a specified
amount of cash or eligible securities called "initial margin." The initial
margin required for a futures contract is set by the exchange on which the
contract is traded. Subsequent payments, called "variation margin," to and from
the broker are made on a daily basis as the market price of the futures contract
fluctuates. The costs incurred in connection with futures transactions could
reduce the Fund's return. Futures contracts entail risks. If the investment
adviser's judgment about the general direction of interest rates or markets is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. The degree of difference in
price movements between futures contracts and the securities (or securities
indices) being hedged depends upon such things as variations in demand for
futures contracts and securities underlying the contracts and differences
between the liquidity of the markets for such contracts and the securities
underlying them. In addition, the market prices of futures contracts may be
affected by certain factors not directly related to the underlying securities.
At any given time, the availability of futures contracts, and hence their
prices, are influenced by credit conditions and margin requirements. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment adviser may not result in a successful hedging
transaction.
<PAGE>
OPTIONS ON FINANCIAL FUTURES CONTRACTS (International Fund) The Fund may
purchase and write call and put options on financial futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise, the writer of
the option delivers the futures contract to the holder at the exercise price.
The Fund would be required to deposit with our custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by us. Options on futures contracts involve risks similar to the risks
relating to transactions in financial futures contracts described above.
Generally speaking, a given dollar amount used to purchase an option on a
financial futures contract can hedge a much greater value of underlying
securities than if that amount were used to directly purchase the same financial
futures. Should the event that the Fund intends to hedge (or protect) against
not materialize, however, the option may expire worthless, in which case the
Fund would lose the premium paid therefor.
SEGREGATED ACCOUNTS (International Fund) To the extent required to comply with
Securities and Exchange Commission Release 10666 and any related SEC policies,
when purchasing a futures contract, or writing a put option, the Fund will
maintain in a segregated account at its custodian bank cash, U.S. Government and
other permitted securities to cover its position.
FORWARD FOREIGN CURRENCY CONTRACTS (Small-Cap Fund, Growth Opportunities Fund) A
forward foreign currency contract involves an obligation to purchase or sell a
specific amount of a specific currency at a set price at a future date. Each
Fund expects to enter into forward foreign currency contracts in primarily two
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale of the amount of foreign currency involved in the
underlying security transaction, each Fund will be able to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment is made or
received.
Second, when management believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, each Fund may enter into a
forward contract to sell the amount of foreign currency approximating the value
of some or all of each Fund's portfolio securities denominated in such foreign
currency or, in the alternative, each Fund may use a cross-hedging technique
whereby it sells another currency which each Fund expects to decline in a
similar way but which has a lower transaction cost. Precise matching of the
forward contract amount and the value of the securities involved will not
generally be possible since the future value of such securities denominated in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Each Fund does not intend to enter into such forward
contracts under this second circumstance on a continuous basis.
REPURCHASE AGREEMENTS (Small-Cap Fund, Growth Opportunities Fund) If each Fund
enters into repurchase agreements as provided in clause (4) of the fundamental
investment restrictions above, it will do so only with those primary reporting
dealers that report to the Federal Reserve Bank of New York and with the 100
largest United States commercial banks and the underlying securities purchased
under the agreements will consist only of those securities in which each Fund
otherwise may invest.
FOREIGN CURRENCY HEDGING TECHNIQUES (Small-Cap Fund, Growth Opportunities Fund)
The Funds may utilize various foreign currency hedging techniques, including
forward foreign currency contracts and foreign currency put and call options.
FOREIGN CURRENCY PUT AND CALL OPTIONS (Small-Cap Fund, Growth Opportunities
Fund) The Funds also may purchase foreign currency put options and write foreign
currency call options on U.S. exchanges or U.S. over-the-counter markets. A put
option gives the Funds, upon payment of a premium, the right to sell a currency
at the exercise price until the expiration of the option and serves to insure
against adverse currency price movements in the underlying portfolio assets
denominated in that currency.
Exchange-listed options markets in the United States include several major
currencies, and trading may be thin and illiquid. A number of major investment
firms trade unlisted options which are more flexible than exchange-listed
options with respect to strike price and maturity date. Unlisted options
generally are available in a wider range of currencies. Unlisted foreign
currency options are generally less liquid than listed options and involve the
credit risk associated with the individual issuer. Unlisted options, together
with other illiquid securities, are subject to a limit of 15% of each Funds' net
assets.
<PAGE>
A call option written by the Funds gives the purchaser, upon payment of a
premium, the right to purchase from the a currency at the exercise price until
the expiration of the option. The Funds may write call options on a foreign
currency only in conjunction with a purchase of a put option on that currency.
Such a strategy is designed to reduce the cost of downside currency protection
by limiting currency appreciation potential. The face value of such writing may
not exceed 90% of the value of the securities denominated in such currency
invested in by the Funds or in such cross currency (referred to above) to cover
such call writing.
The Funds' custodian will segregate cash or permitted securities belonging to
the Funds in an amount not less than that required by SEC Release 10666 and
related policies with respect to the Funds' assets committed to (a) writing
options, (b) forward foreign currency contracts and (c) cross hedges entered
into by the Funds. If the value of the securities segregated declines,
additional cash or debt securities will be added on a daily basis (i.e., marked
to market), so that the segregated amount will not be less than the amount of
the Funds' commitments with respect to such written options, forward foreign
currency contracts and cross hedges.
STOCK OPTIONS, OPTIONS ON STOCK INDICES AND STOCK INDEX FUTURES (Small-Cap Fund)
The Fund may write put and call options on stocks only if they are covered, and
such options must remain covered so long as the Fund is obligated as a writer.
The Fund will not (a) write puts having an aggregate exercise price greater than
25% of the Fund's total net assets; or (b) purchase (i) put options on stocks
not held in the Fund's portfolio, (ii) put options on stock indices or (iii)
call options on stocks or stock indices if, after any such purchase, the
aggregate premiums paid for such options would exceed 20% of the Fund's total
net assets.
CALL OPTIONS ON STOCK (Small-Cap Fund) The Fund may, from time to time, write
call options on its portfolio securities. The Fund may write only call options
which are "covered," meaning that the Fund either owns the underlying security
or has an absolute and immediate right to acquire that security, without
additional cash consideration, upon conversion or exchange of other securities
currently held in its portfolio. In addition, the Fund will not permit the call
to become uncovered prior to the expiration of the option or termination through
a closing purchase transaction as described below. If the Fund writes a call
option, the purchaser of the option has the right to buy (and the Fund has the
obligation to sell) the underlying security at the exercise price throughout the
term of the option. The amount paid to the Fund by the purchaser of the option
is the "premium." The Fund's obligation to deliver the underlying security
against payment of the exercise price would terminate either upon expiration of
the option or earlier if the Fund were to effect a "closing purchase
transaction" through the purchase of an equivalent option on an exchange. There
can be no assurance that a closing purchase transaction can be effected. The
Fund does not intend to write covered call options with respect to securities
with an aggregate market value of more than 5% of it's gross assets at the time
an option is written. This percentage limitation will not be increased without
prior disclosure in our current prospectus.
The Fund would not be able to effect a closing purchase transaction after it had
received notice of exercise. In order to write a call option, the Fund is
required to comply with the rules of The Options Clearing Corporation and the
various exchanges with respect to collateral requirements. The Fund may not
purchase call options except in connection with a closing purchase transaction.
It is possible that the cost of effecting a closing purchase transaction may be
greater than the premium received by the Fund for writing the option.
Generally, the Fund intends to write listed covered call options during periods
when it anticipates declines in the market values of portfolio securities
because the premiums received may offset to some extent the decline in the
Fund's net asset value occasioned by such declines in market value. Except as
part of the "sell discipline" described below, the Fund will generally not write
listed covered call options when it anticipates that the market values of it's
portfolio securities will increase.
One reason for the Fund to write call options is as part of a "sell discipline."
If the Fund decides that a portfolio security would be overvalued and should be
sold at a certain price higher than the current price, it could write an option
on the stock at the higher price. Should the stock subsequently reach that price
and the option be exercised, the Fund would, in effect, have increased the
selling price of that stock, which it would have sold at that price in any
event, by the amount of the premium. In the event the market price of the stock
declined and the option were not exercised, the premium would offset all or some
portion of the decline. It is possible that the price of the stock could
increase beyond the exercise price; in that event, the Fund would forego the
opportunity to sell the stock at that higher price. In addition, call options
may be used as part of a different strategy in connection with sales of
portfolio securities. If, in the judgment of the Fund Management, the market
price of a stock is overvalued and it should be sold, the Fund may elect to
write a call option with an exercise price substantially below the current
market price. As long as the value of the underlying security remains above the
exercise price during the term of the option, the option will, in all
probability, be exercised, in which case the Fund will be required to sell the
stock at the exercise price. If the sum of the premium and the exercise price
exceeds the market price of the stock at the time the call option is written,
the Fund would, in effect, have increased the selling price of the stock. The
Fund would not write a call option in these circumstances if the sum of the
premium and the exercise price were less than the current market price of the
stock.
<PAGE>
PUT OPTIONS ON STOCK (Small-Cap Fund) The Fund may also write listed put
options. If the Fund writes a put option, it is obligated to purchase a given
security at a specified price at any time during the term of the option.
Writing listed put options is a useful portfolio investment strategy when the
Fund has cash or other reserves available for investment as a result of sales of
Fund shares or, more importantly, because Fund Management believes a more
defensive and less fully invested position is desirable in light of market
conditions. If the Fund Management wishes to invest its cash or reserves in a
particular security at a price lower than current market value, it may write a
put option on that security at an exercise price which reflects the lower price
it is willing to pay. The buyer of the put option generally will not exercise
the option unless the market price of the underlying security declines to a
price near or below the exercise price. If the Fund writes a listed put, the
price of the underlying stock declines and the option is exercised, the premium,
net of transaction charges, will reduce the purchase price paid by the Fund for
the stock. The price of the stock may decline by an amount in excess of the
premium, in which event the Fund would have foregone an opportunity to purchase
the stock at a lower price.
If, prior to the exercise of a put option, the Fund determines that it no longer
wishes to invest in the stock on which the put option had been written, the Fund
may be able to effect a closing purchase transaction on an exchange by
purchasing a put option of the same Fund as the one which it has previously
written. The cost of effecting a closing purchase transaction may be greater
than the premium received on writing the put option and there is no guarantee
that a closing purchase transaction can be effected.
STOCK INDEX OPTIONS (Small-Cap Fund) Except as describe below, the Fund will
write call options on indices only if on such date it holds a portfolio of
stocks at least equal to the value of the index times the multiplier times the
number of contracts. When the Fund writes a call option on a broadly-based stock
market index, it will segregate or put into escrow with its custodian, or pledge
to a broker as collateral for the option, one or more "qualified securities"
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
SEGREGATED ACCOUNTS (Small-Cap Fund) If the Fund has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian, or pledge to a broker as collateral for the option, at least ten
"qualified securities," which are securities of an issuer in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on the National Association of Securities
Dealers Automated Quotation System against which the Fund has not written a
stock call option and which has not been hedged by the Fund by the sale of stock
index futures. Such securities will include stocks which represent at least 50%
of the weighing of the industry or market segment index and will represent at
least 50% of the Fund's holdings in that industry or market segment. No
individual security will represent more than 25% of the amount so segregated,
pledged or escrowed. If at the close of business on any day the market value of
such qualified securities so segregated, escrowed or pledged falls below 100% of
the current index value times the multiplier times the number of contracts, the
Fund will so segregate, escrow or pledge an amount in cash, Treasury bills or
other high-grade short-term obligations equal in value to the difference. In
addition, when the Fund writes a call on an index which is in-the-money at the
time the call is written, the Fund will segregate with its custodian or pledge
to the broker as collateral cash, equity securities, non-investment grade debt,
short term U.S. Government securities or other high-grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to the Small-Cap Fund's obligation to
segregate additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. However, if the Fund holds a call on the same
index as the call written where the exercise price of the call held is equal to
or less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
equity securities, non-investment grade debt, treasury bills or other high-grade
short-term obligations in a segregated account with its custodian, it will not
be subject to the requirements describe in this paragraph. In instances
involving the purchase of stock index futures contracts by the Fund, an amount
of cash or permitted securities equal to the market value of the futures
contracts will be deposited in a segregated account with the its custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures are unleveraged.
<PAGE>
Under regulations of the Commodity Exchange Act, investment companies registered
under the Act are exempt from the definition of "commodity pool operator,"
provided all of the Fund's commodity futures or commodity options transactions
constitute bona fide hedging transactions within the meaning of the CFTC's
regulations. The Fund will use stock index futures and options on futures as
described herein in a manner consistent with this requirement.
STOCK INDEX FUTURES (Small-Cap Fund) The Fund will engage in transactions in
stock index futures contracts as a hedge against changes resulting from market
conditions in the values of securities which are held in the Fund's portfolio or
which it intends to purchase. The Fund will engage in such transactions when
they are economically appropriate for the reduction of risks inherent in the
ongoing management of the Fund. The Fund may not purchase or sell stock index
futures if, immediately thereafter, more than one-third of its net assets would
be hedged and, in addition, except as described above in the case of a call
written and held on the same index, will write call options on indices or sell
stock index futures only if the amount resulting from the multiplication of the
then current level of the index (or indices) upon which the option or future
contract(s) is based, the applicable multiplier(s), and the number of futures or
options contracts which would be outstanding, would not exceed one-third of the
value of the Fund's net assets.
RISK FACTORS
RISK FACTORS (Affiliated Fund) As stated in the Prospectus, the Fund 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.
RISKS OF TRANSACTIONS IN STOCK OPTIONS (Small-Cap Fund) Writing options involves
the risk that there will be no market in which to effect a closing transaction.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same Fund. Although the Fund will
generally write only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange may exist. If the Fund, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
<PAGE>
RISKS OF OPTIONS ON INDICES (Small-Cap Fund) The Fund's purchase and sale of
options on indices will be subject to risks described above under "Risk of
Transactions in Stock Options." In addition, the distinctive characteristics of
options on indices create certain risks that are not present with stock options.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss on the purchase or sale of an option on an index depends upon
movements in the level of stock prices in the stock market generally or in an
industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading in the index option also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this occurred, the Fund would not be able to close out
options which it had purchased or written and, if restrictions on exercise were
imposed, may be unable to exercise an option it holds, which could result in
substantial losses to the Fund. It is the Fund's policy to purchase or write
options only on indices which include a number of stocks sufficient to minimize
the likelihood of a trading halt in the index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in Fund
management's opinion, the market for such options has developed sufficiently
that such risk in connection with such transactions in no greater than such risk
in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES (Small-Cap Fund) Because exercises of
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike call writing on specific
stocks, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. However, the
Fund will write call options on indices only under the circumstances described
above under "Limitations on the Purchases and Sales of Stock Options, Options on
Stock Indices and Stock Index Futures."
Price movements in the Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, the Fund bears the risk
that the price of the securities held may not increase as much as the index. In
such event the Fund would bear a loss on the call which is not completely offset
by movements in the price of the Fund's portfolio. It is also possible that the
index may rise when the Fund's portfolio of stocks does not rise. If this
occurred, the Fund would experience a loss on the call which is not offset by an
increase in the value of its portfolio and might also experience a loss in its
portfolio. However, because the value of a diversified portfolio will, over
time, tend to move in the same direction as the market, movements in the value
of the Fund in the opposite direction to the market would be likely to occur for
only a short period or to a small degree.
Unless the Fund has other liquid assets that are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow (in amounts not exceeding 20% of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
<PAGE>
When the Fund has written a call, there is also a risk that the market may
decline between the time the call is written and the time the Fund is able to
sell stocks in its portfolio. As with stock options, the Fund will not learn
that an index option has been exercised until the day following the exercise
date but, unlike a call on stock where the Fund would be able to deliver the
underlying securities in settlement, the Fund may have to sell part of its stock
portfolio in order to make settlement in cash, and the price of such stocks
might decline before they can be sold. This timing risk makes certain strategies
involving more than one option substantially more risky with index options than
with stock options. For example, even if an index call which the Fund has
written is "covered" by an index call held by the Fund with the same strike
price, the Fund will bear the risk that the level of the index may decline
between the close of trading on the date the exercise notice is filed with the
clearing corporation and the close of trading on the date the Fund exercises the
call it holds or the time the Fund sells the call which in either case would
occur no earlier than the day following the day the exercise notice was filed.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES (Small-Cap Fund) If the
Fund holds an index option and exercises it before final determination of the
closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiple) to the assigned writer. Although the Fund may be
able to minimize this risk by withholding exercise instructions until just
before the daily cut off time or by selling rather than exercising an option
when the index level is close to the exercise price it may not be possible to
eliminate this risk entirely because the cut off times for index options may be
earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.
2.
Directors (Trustees) 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 an officer,
director, or trustee of 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 Plan described in the
Prospectus.
Robert S. Dow, age 53, Chairman and President
The following outside directors are also directors or trustees of some or all of
the twelve other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer
of Courtroom Television Network (1997 - 1998). Formerly, President and Chief
Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). Prior to
that, President and Chief Operating Officer of Home Box Office, Inc. Age 57.
William H. T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri
Co-founder and Chairman of the Board of financial advisory firm of
Bush-0'Donnell & Company. Age 60.
Robert B. Calhoun
Monitor Clipper Partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of The Clipper Group
L.P., both private equity investment funds. Age 56.
<PAGE>
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 68.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a
proxy tabulating firm. Age 73.
C. Alan MacDonald
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly General Partner of the Marketing Partnership,
Inc., a full service marketing consulting firm (1994 - 1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992 - 1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J.B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company. Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as a Director of Ace, Ltd. (NYSE). Age 61.
<PAGE>
For the Fiscal Year Ended October 31, 1997 - Affiliated Fund
For the Fiscal Year Ended November 30, 1997 - Research
Fund -Small-Cap Fund, Growth Opportunities Fund For
the Fiscal Year Ended November 30, 1997 - Investment
Trust -High Yield Fund
For the Fiscal Year Ended October 31, 1997 - Securities Trust - International
Fund
The following table sets forth the compensation accrued for each Fund's
outside directors/trustees.
Aggregate
Name of Director Compensation Accrued by each Fund1
Investment
Research Fund - Trust - Securities
Growth High Trust -
Affiliated Small-Cap Opportuni- Yield Interna-
Fund Fund & ties Fund Fund tional
Fund
E. Thayer Bigelow $22,939 $311 $10,580 $450
William H. T. Bush* $0 $0 $0 $0
Robert B. Calhoun** $0 $0 $0 $0
Stewart S. Dixon $22,527 $306 $10,388 $442
John C. Jansing(4) $22,527 $306 $10,388 $442
C. Alan MacDonald $23,418 $320 $10,843 $460
Hansel B. Millican, Jr. $22,719 $307 $10,438 $446
Thomas J. Neff $22,839 $311 $10,528 $449
*Elected as of August 13, 1998
**Elected as of June 17, 1998
The following table sets forth information with respect to the
equity-based benefits accrued for outside directors/trustees by the Lord
Abbett-sponsored funds.
Name of Director Pension or Retirement Benefits
Accrued by each Fund and Twelve Other
Lord Abbett-sponsored Funds 2
E. Thayer Bigelow $17,068
William H.T. Bush* $0
Robert B. Calhoun** $0
Stewart S. Dixon $32,190
John C. Jansing 4 $45,0854
C. Alan MacDonald $30,703
Hansel B. Millican, Jr. $37,747
Thomas J. Neff $19,853
<PAGE>
The following table sets forth the total compensation payable by such funds
to the outside directos/trustees. No director/trsutee of the funds associated
with Lord Abbett and no officer of the funds received any compensation from
the funds for acting as a director or officer.
Name of Director For Year Ended December 31, 1997
Total Compensation Accrued by each Fund and
Twelve Other Lord Abbett-sponsored Funds 3
E. Thayer Bigelow $56,000
William H.T. Bush* $0
Robert B. Calhoun** $0
Stewart S. Dixon $55,000
John C. Jansing 4 $55,000
C. Alan MacDonald $57,400
Hansel B. Millican, Jr. $55,000
Thomas J. Neff $56,000
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund. A portion of the fees payable by each Fund to its
outside directors is 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 High Yield Fund has not commenced paying fees. When the High
Yield Fund starts to pay such fees, a portion of the fees payable by the Fund
to its outside directors/trustees will be deferred under a plan that d eems
tha deferred amounts to be invested in shares of the Fund for later
distribution to the directors/trustees.The amount of aggregate compensation
payable by each Fund as of its 1997 fiscal year end deemed invested in Fund
shares includes dividends reinvested and changes in net asset value
applicable to such deemed investments.
2.The amounts were accrued by the Lord Abbett-sponsored funds for the 12 months
ended December 31, 1997 with respect to the equity based plans established for
independent directors in 1996. This plan supercedes a previously approved
retirement plan for all future directors. Directors participating in the
retirement plan had the option to convert their accrued benefits under the plan.
All of the outside directors except one made such an election.
3.This table shows aggregate compensation, including directors/trustees 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, 1997. The amounts of the aggregate compensation payable as
of October 31, 1997 deemed invested in Fund shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments were, for Affiliated Fund, Mr. Bigelow, $72,452; Mr. Dixon,
$323,416; Mr. Jansing, $ 390,389; Mr. MacDonald, $234,210; Mr. Millican,
$394,521 and Mr. Neff, $390,787. If the amounts deemed invested in Fund
shares were added to each director/trustee's actual holdings of Fund shares
as of October 31, 1997, each would own the following: Mr. Bigelow, 1,546
shares; Mr. Dixon, 2,276 shares; Mr. Jansing, 21,336 shares; Mr. MacDonald,
30,234 shares; Mr. Millican, 21,998 shares; and Mr. Neff, 5,823 shares.
For Research Fund -Small-Cap Fund and Growth Opportunities Fund, the
amounts of the aggregate compensation payable by the Fund as of November 30,
1997 deemed invested in Fund shares, including dividends reinvested and changes
in net asset value applicable to such deemed investments, were: Mr. Bigelow,
$334; Mr. Dixon, $0; Mr. Jansing, $327; Mr. MacDonald, $0; Mr. Millican, $331;
and Mr. Neff, $334. If the amounts deemed invested in Fund shares were added to
each director's actual holdings of Fund shares as of November 30, 1997 each
would own, the following: Mr. Bigelow, 19 shares; Mr. Dixon, 0 shares; Mr.
Jansing, 1,420 shares; Mr. MacDonald, 4,008 shares; Mr. Millican, 19 shares; and
Mr. Neff, 19 shares.
For Investment Trust -High Yield Fund, the amounts of aggregate
compensation payable by the Fund as of November 30, 1997 deemed invested in Fund
shares, including dividends reinvested and changes in net asset value applicable
to such deemed investments, were: Mr. Bigelow, $39,081; Mr. Dixon, $107,152; Mr.
Jansing, $142,903; Mr. MacDonald, $84,555; Mr. Millican, $143,927; and Mr. Neff,
$143,008. If the amounts deemed invested in Fund shares were added to each
director's actual holdings of Fund shares as of November 30, 1997, each would
own, the following: Mr. Bigelow, 1,233 shares; Mr. Dixon, 4,267.85 shares; Mr.
Jansing, 8,833 shares; Mr. MacDonald, 214,120 shares; Mr. Millican, 0 shares;
and Mr. Neff, 5,896 shares.
For Securities Trust - International Fund, the amounts of the aggregate
compensation payable by the Fund as of October 31, 1997 deemed invested in Fund
shares, including dividends reinvested and changes in net asset value applicable
to such deemed investments, were: Mr. Bigelow, $ 939; Mr. Dixon, $21,556; Mr.
Jansing, $22,346; Mr. MacDonald, $9,515; Mr. Millican, $21,626; and Mr. Neff,
$22,587. If the amounts deemed invested in Fund shares were added to each
director's actual holdings of Fund shares as of October 31, 1997, each would
own, the following: Mr. Bigelow, 107 shares; Mr. Dixon, 2,890 shares; Mr.
Jansing, 6,920 shares; Mr. MacDonald, 1,083 shares; Mr. Millican, 2,460 shares;
and Mr. Neff, 2,996 shares.
4. Mr. Jansing chose to continue to receive benefits under the retirement plan,
which provides that outside directors (trustees) may receive annual
retirement benefits for life equal to their final annual retainer following
retirement at or after age 72 with at least ten years of service. Thus, if
Mr. Jansing were to retire and the annual retainer payable by the funds were
the same as it is today, he would receive annual retirement benefits of
$50,000.
Except where indicated, the following executive officers of each Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Fetch, Carper, Gerber, Hilstad, Hudson, McGruder, Morris, and Walsh are
partners of Lord Abbett; the others are employees:
EXECUTIVE VICE PRESIDENTS:
Zane E. Brown, age 46 (International Fund )
Robert P. Fetch, age 45 (Small-Cap Fund) (with Lord Abbett since 1995 -
formerly Managing Director at Prudential Investment Advisors from 1983 to 1995)
Robert I. Gerber, age 44 (High Yield Fund) (with Lord Abbett since 1997 -
formerly Senior Portfolio Manager at Sanford Bernstein & Co. from 1992 - 1997)
W. Thomas Hudson, age 56 (Affiliated Fund )
Robert G. Morris, age 54 (Small-Cap Fund, Growth Opportunities Fund,
International Fund, High Yield Fund)
<PAGE>
Stephen J. McGruder, age 55 (Growth Opportunities Fund) (with Lord Abbett since
1995 - formerly Vice President of Wafra Securities from 1988 to 1995)
VICE PRESIDENTS:
Paul A. Hilstad, age 55, Vice President and Secretary (all Funds) (with Lord
Abbett since 1995 - formerly Senior Vice President and General Counsel of
American Capital Management & Research, Inc.)
Zane E. Brown, age 46 (Small-Cap Fund)
Daniel E. Carper, age 46 (all Funds)
Timothy Horan, age 44 (International Fund) (with Lord Abbett since 1996-
formerly Senior Manager at Credit Suisse from 1994 to 1995; prior thereto Vice
President at Aubrey G. Lanston & Co. from 1992 to 1994)
Lawrence H. Kaplan, age 41, Vice President and Assistant Secretary (all Funds)
(with Lord Abbett since 1997 - formerly Vice President and Chief Counsel of
Salomon Brothers Asset Management Inc from 1995 to 1997; prior thereto Senior
Vice President, Director and General Counsel of Kidder Peabody Asset Management,
Inc.)
Thomas F. Konop, age 56, Vice President and Assistant Secretary (all Funds)
Jerald Lanzotti, age 31 (International Fund)
Gregory M. Macosko, age 51 (Small-Cap Fund) (with Lord Abbett since 1997 -
formerly Analyst with Royce Associates from 1991 to 1997)
Robert Morris, age 54 (Affiliated Fund)
A. Edward Oberhaus III, age 38 (all Funds)
Keith F. O'Connor, age 43 (all Funds)
Fernando Saldanha, age 45 (International Fund) (with Lord Abbett since 1998 -
formerly Economist and Senior Financial Officer of World Bank (IBRO) from 1988
to 1998)
Eli Salzman, age 34 (Affiliated Fund) (with Lord Abbett since 1997 - formerly
Vice President of Mutual of America Capital Corp.; prior thereto Vice President
of Mitchell Hutchins Asset Mgt. from 1986 to 1996)
Christopher J. Towle, age 41 (International Fund)
John J. Walsh, age 62 (all Funds); and
Treasurer:
Donna M. McManus, age 37, Treasurer (all Funds) (with Lord Abbett since
1996 - formerly a Senior Manager at Deloitte & Touche
LLP).
<PAGE>
The Funds' By-Laws provide that each 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 Investment Company Act of 1940, as amended (the
"Act"), or unless called by a majority of the Board of Directors (Trustees) or
by shareholders holding at least one quarter of the stock of each Fund
outstanding and entitled to vote at the meeting. When any such annual meeting is
held, the shareholders will elect directors (trustees) and vote on the approval
of the independent auditors of each Fund, except for International Fund.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the
investment manager of the Funds. Ten of the general partners of Lord Abbett are
officers and/or directors (trustees) of the Funds, as follows: Zane E. Brown;
Daniel E. Carper; Robert S. Dow; Robert P. Fetch; Robert I. Gerber; Paul A.
Hilstad; W. Thomas Hudson; Stephen J. McGruder; Robert G. Morris; Christopher J.
Towle; and John J. Walsh.
The other general partners who are neither officers nor directors of the
Funds are Stephen Allen, John E. Erard, Daria L. Foster, Michael B. McLaughlin,
R. Mark Pennington, and Robert J. Noelke. 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 its Management Agreement, Affiliated Fund pays 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 its 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.
For the fiscal years ended October 31, 1997, 1996 and 1995, the management fees
paid to Lord Abbett by the Affiliated Fund amounted to $22,192,209, $17,683,694
and $14,431,000, respectively.
Under its Management Agreement, Small-Cap Fund is obligated to pay Lord Abbett a
monthly fee, based on average daily net assets for each month, at the annual
rate of .75 of 1% of the Small-Cap Fund's average daily net assets. For the
period December 13, 1995 (commencement of operations) to November 30, 1996, Lord
Abbett waived $24,461 in management fees with respect to the Small-Cap Fund. For
the same time period, Lord Abbett did not receive management fees with respect
to the Small-Cap Fund. For the year end November 30, 1997 and the period
December 13, 1995 (commencement of operations) to November 30, 1996, the
management fees paid to Lord Abbett by the Small-Cap Fund amounted to $1,075,019
and $0 , respectively.
Under the Management Agreement, Growth Opportunities Fund is obligated to pay
Lord Abbett a monthly fee, based on average daily net assets for each month, at
the annual rate of .90 of 1% of the Fund's average daily net assets. For the
period from August 1, 1995 (commencement of operations) through November 30,
1995, the fiscal year ended November 30, 1996 and the fiscal year ended November
30, 1997 and the semi-annual period ended May 31, 1998, the management fee was
.75 of 1% and was waived by Lord Abbett with respect to the Fund and, except for
this waiver, would have amounted to $2,125, $8,249; $10,844, and $7,077,
respectively. On September 15, 1998, the Fund's shareholders voted to raise the
management fee to .90 of 1%.
Under its Management Agreement, International Fund is obligated to pay Lord
Abbett a monthly fee, based on average daily net assets for each month, at the
annual rate of .75 of 1%. For the period December 13, 1996 (commencement of
operations) to October 31, 1997, the management fees paid to Lord Abbett by the
International Fund amounted to $ 127,715.
Each Fund's fee is allocated among all of its classes based on each's
proportionate share of such daily net assets.
In addition we are obligated to pay all expenses not expressly assumed by Lord
Abbett, including, without limitation, 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.
<PAGE>
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors for each Fund and must be approved at least annually by
each Fund's Board of Directors (Trustees) to continue in such capacity. They
perform audit services for each Fund including the audits of financial
statements included in each Fund's annual report to shareholders.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York 10268, is each
Fund's custodian. In accordance with the requirements of Rule 17f-5, each Fund's
directors (trustees) have approved arrangements permitting each Fund's foreign
assets not held by BNY or its foreign branches to be held by certain qualified
foreign banks and depositories.
The Sub-Custodians of BNY are:
Euro-Clear (a transnational securities depository); Australia: ANZ Banking
Group; Austria: Creditanstalt-Bankverein; Canada: Canadian Imperial Bank of
Commerce; Chile: Citibank, N.A.; Czech Republic: Ceskoslovenska Obchodni Banka;
Denmark: Den Danske Bank; Finland: Union Bank of Finland; Germany: J.P. Morgan
GmbH; Greece: National Bank of Greece S.A.; Hong Kong, Indonesia, Philippines,
Taiwan and Thailand: Hong Kong & Shanghai Banking Corp.; Hungary: Citibank
Budapest Rt; India: Hong Kong and Shanghai Banking Corporation; Ireland: Allied
Irish Banks, PLC; Israel: Bank Leumi LE-Israel B.M.; Japan: The Fuji Bank, Ltd.;
Jordan: Citibank, N.A.; Korea: Bank of Seoul; Luxembourg: Banque Internationale
A Luxembourg, S.A.; Mexico: Citibank, N.A.; Morocco: Banque Commerciale du
Maroc; Netherlands: Bank van Haften Labouchere; New Zealand: Anz Banking Group
Ltd.; Norway: Den Norske Bank; Pakistan: Citibank, N.A.; Peru: Citibank, N.A.;
Poland: Bank Handlowy w Warszawie S.A.; Portugal: Banco Espirito Santo E
Comercial de Lisboa; Malaysia, Singapore: Development Bank of Singapore; South
Africa: The First National Bank of Southern Africa; Sri Lanka: Hong Kong and
Shanghai Banking Corporation; Sweden: Skandinaviska Enskilda Banken;
Switzerland: Bank Leu; Turkey: Citibank, N.A.; Venezuela: Citibank, N.A.
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.
<PAGE>
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 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, and 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, 1997, 1996 and 1995, Affiliated Fund paid
total commissions to independent dealers of $7,681,037, $5,897,259 and
$6,542,354, respectively.
For the period December 13, 1995 (commencement of operations) to November 30,
1996 and the year ended November 30, 1997, the Small-Cap Fund paid total
commissions to independent broker-dealers of $45,266 and 1,812,425,
respectively.
For the period December 13, 1996 (commencement of operations) through October
31, 1997, the International Fund paid total commissions to independent
broker-dealers of $108,270.
5.
Purchases, Redemptions
and Shareholder Services
Information concerning how we value our shares for the purchase and redemption
of our shares is contained in the Prospectus under "Purchases" and
"Redemptions," respectively.
<PAGE>
As disclosed in the Prospectus, we calculate our net asset value as of the close
of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for
trading by dividing our total net assets by the number of shares outstanding at
the time of calculation. The NYSE is closed on Saturdays and Sundays and the
following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Each 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 (Trustees).
The net asset value per share for the Class Y shares will be determined by
taking Class Y shares net assets and dividing by shares outstanding. Our Class Y
shares will be offered at net asset value.
Each 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 each 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.
CLASS Y SHARE EXCHANGES. The Prospectus describes the Telephone Exchange
Privilege. You may exchange some or all of your Y shares for Y shares of any
Lord Abbett-sponsored funds currently offering Class Y shares to the public.
Currently those other funds consist of Lord Abbett Investment Trust - Core Fund,
Strategic Core Fund, Bond-Debenture Fund, Developing Growth Fund, and Mid-Cap
Value Fund.
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 each Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in each 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 (Trustees) may authorize redemption of all of the shares
in any account in which there are fewer than 25 shares (Affiliated Fund,
Small-Cap Fund, Growth Opportunities Fund, and High Yield Fund), and 60 shares
(International Fund). 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 month's 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.
<PAGE>
6.
Past Performance
Each Fund computes the annual compounded rate of total return for Class Y shares
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 no sales charge from the initial amount invested and reinvestment
of all income dividends and capital gains distributions on the reinvestment
dates at prices calculated as stated in each Prospectus. The ending redeemable
value is determined by assuming a complete redemption at the end of the
period(s) covered by the annual total return computation.
In calculating total returns for Class Y shares no sales charge is deducted from
the initial investment and the 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.
CLASS Y SHARE PERFORMANCE. Using the computation method described above,
Affiliated Fund's total return for Class Y shares for the period from inception
(March 27, 1998) to April 30, 1998 was .20%. For the period from inception
(December 30, 1997) to May 31, 1998, the total return for the Small-Cap Fund was
6.50%. For the period from inception (December 30, 1997) to April 30, 1998, the
total return for the International Fund was 28.90% (not annualized).
Our yield quotation for Class Y shares 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 net asset value 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 the 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 net asset value 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. Yields for Class Y shares do not reflect the
deduction of any sales charge.
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 each 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 a Fund's 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.
Each Fund will be subject to a four-percent nondeductible 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. Each Fund
intends to distribute to shareholders each year an amount adequate to avoid the
imposition of such excise tax.
The writing of call options and other investment techniques and practices which
each 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 a Fund. Such transactions may increase the amount of short-term capital gain
realized by each Fund, which is taxed as ordinary income when distributed to
shareholders. Limitations imposed by the Internal Revenue Code on regulated
investment companies may restrict each Fund's ability to engage in transactions
in options.
<PAGE>
Certain futures contracts and certain listed options held by a Fund will be
required to be "marked to market" for federal income tax purpose, i.e., treated
as having been sold at their fair market value on the last day of the Fund's
taxable year (referred to as Section 1256 Contracts). Sixty percent of any gain
or loss recognized on actual or deemed sales of such Section 1256 Contracts will
be treated as long-term capital gain or loss, and 40% of such gain or loss will
be treated as short-term capital gain or loss. Each Fund may be required to
defer the recognition of losses on securities and options and futures contracts
to the extent of any recognized gain on offsetting positions held by the Fund.
As described in the Prospectus under "How We Invest - Risk Factors," each 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 shareholders of each Fund
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
each Fund.
Gains and losses realized by each 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 either 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 to
deferred taxes arising from such distributions or gains.
If a Fund were to invest in a passive foreign investment company with respect to
which a 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 a Fund.
Dividends paid by a Fund will qualify for the dividends-received deduction for
corporations to the extent they are derived from dividends paid by domestic
corporations.
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 advisor
regarding U.S. and foreign tax consequences of the ownership of shares of a
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 gift
and estate taxes to non-United States persons who own Fund shares.
<PAGE>
8.
Information About the Funds
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 or Lord Abbett-managed account
considers a trade or 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.
9.
Financial Statements
The financial statements for the fiscal year ended October 31, 1997, the
semi-annual period ended April 30, 1998, and the reports of Deloitte & Touche
LLP, independent auditors, on such financial statements contained in the 1997
Annual Report to Shareholders and the April 30, 1998 Semi-Annual Report to
shareholders of Lord Abbett Affiliated Fund, Inc. are incorporated herein by
reference to such financial statements and reports in reliance upon the
authority of Deloitte & Touche LLP as experts in auditing and accounting.
The financial statements for the fiscal year ended November 30, 1997, the
semi-annual period ended May 31, 1998, and the report thereon of Deloitte &
Touche LLP, independent auditors, on such financial statements contained in the
1997 Annual Report to Shareholders of the Lord Abbett Research Fund, Inc. (which
includes Small-Cap Fund and Growth Opportunities Fund, formerly, Mid-Cap Fund),
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.
The financial statements for the period from December 13, 1996 (commencement of
operations) to October 31, 1997, the semi-annual period ended April 30, 1998,
and the report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1997 Annual Report to Shareholders of Lord Abbett
Securities Trust (which includes International Fund) 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.
The financial statements for the fiscal year ended November 30, 1997, the
semi-annual period ended May 31, 1998, and the report thereon of Deloitte &
Touche LLP, independent auditors, on such financial statements contained in the
1997 Annual Report to Shareholders of the Lord Abbett Investment Trust (which
includes High Yield Fund) are incorporated by reference to such financial
statements and report in reliance upon the authority of Deloitte & Touche LLP as
experts in auditing and accounting.
CONSENT OF INDEPENDENT AUDITORS
Lord Abbett Affiliated Fund, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 75
to Registration Statement No. 2-10638 of our report dated May 29, 1998 appearing
in the Semi-Annual Report to Shareholders for the six months ended April 30,
1998 and our report dated December 2, 1997 appearing in the Annual Report to
Shareholders for the year ended October 31, 1997, and to the reference to us
under the caption "Financial Highlights" in the Prospectus and to the references
to us under the captions "Investment Advisory and Other Services" and "Financial
Statements" in the Statement of Additional Information, both of which are part
of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
December 3, 1998
