<PAGE>
Affiliated
Lord Abbett
Fund
1998 ANNUAL REPORT
[PHOTO OMITTED]
Helping you prepare
for tomorrow, today
[LOGO](R)
<PAGE>
Lord Abbett Affiliated Fund Building Investor Confidence Since 1934
A Tradition of
Value
Investing
[PHOTO OMITTED]
Affiliated's history highlights the concept of value
investing: buying quality companies when they are "on
sale" and selling them when they reach their potential.
Through the years, this discipline has helped Affiliated
Fund achieve returns competitive to the S&P 500 Index,
with relatively moderate fluctuations in price.(1)
- --------------------------------------------------------------------------------
Competitive Total Average Annual Rates of Total Return as of 10/31/98
Returns, Consistently
- ------------------------------------------
For the past 40 years +12.1% per year
- ------------------------------------------
- ------------------------------------------
For the past 30 years +12.1% per year
- ------------------------------------------
- ------------------------------------------------------
For the past 20 years +16.1% per year
- ------------------------------------------------------
- --------------------------------------------------
For the past 10 years +14.8% per year
- --------------------------------------------------
- -----------------------------------
For the past year +10.3%
- -----------------------------------
-----------------------------------------------
0 5 10 15 20%
- --------------------------------------------------------------------------------
Consistency The Fund has increased in value 33 out of the last 40
fiscal years.
- --------------------------------------------------------------------------------
Large and Growing Shareholders taking dividends in cash saw an increase in
Dividends their dividend checks 33 out of the last 40 fiscal
years.(2)
- --------------------------------------------------------------------------------
Shareholder Lord Abbett Affiliated Fund's history demonstrates its
Satisfaction ability to help shareholders realize their financial
objectives. That's probably why, on average, Affiliated
Fund shareholders have owned the Fund for over 15
years.(3)
- --------------------------------------------------------------------------------
The Fund: Something "Lord Abbett Affilated Fund has been a good citizen by
to Talk About staying out of trouble.... The fund's respectable
performance in 1998 is typical of its performance during
choppy markets. Its sell discipline keeps it out of the
category's trouble spots, so during challenging markets
like in 1994 and in 1998, returns have consistently been
above average."
Source: Morningstar Mutual Funds, December 1998
- --------------------------------------------------------------------------------
SEC Average Annual SEC average annual rates of total return, at the Class A
Total Returns share maximum sales charge of 5.75%, for the periods
ended 9/30/98 were:
--------- ------------
1 years -7.90%
--------- ------------
--------- ---------------------------
5 years +14.10
--------- ---------------------------
--------- ---------------------------
10 years +13.44
--------- ---------------------------
---------------------------------------------
-10 -5 0 5 10 15 20%
The Fund's SEC yield for the 30 days ended 10/31/98 for
Class A shares was 1.70%.
This past performance is no indication of future
results. The investment return and principal value of an
investment in the Fund will fluctuate so that shares, on
any given day or when redeemed, may be worth more or
less than their original cost.
The Fund's fiscal year-end is 10/31. Results quoted
above (unless stated otherwise) are for periods ending
10/31/98 and reflect Class A share performance at net
asset value with all distributions reinvested.
(1) The S&P 500 Index is an unmanaged index consisting
of the stocks of 500 companies. An investor cannot
invest directly in an index, such as the S&P 500.
(2) Capital gains were reinvested. Period ends
10/31/98.
(3) Based on a survey of Lord Abbett Affiliated Fund
shareholders conducted by Lord, Abbett & Co. in
1998.
See Important Information on page 8.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended October 31, 1998
[PHOTO OMITTED]
/s/ Robert S. Dow
ROBERT S. DOW
CHAIRMAN
NOVEMBER 10, 1998
"...underpinnings of sound equity markets remain in place, while price declines
late in the Fund's fiscal year have created more opportunities for long-term
investors."
Lord Abbett Affiliated Fund completed its fiscal year on October 31, 1998. Below
is an overview of some class-specific financial information at the close of the
year.
Twelve Months Ended October 31, 1998
------------------------------------
Class A Class B Class C Class P Class Y
---------------------------------------------------------------
(12/8/97* (3/27/98*
to 10/31/98) to 10/31/98)
- --------------------------------------------------------------------------------
Net asset value $14.56 $14.56 $14.56 $14.53 $14.57
Dividends $ 0.27 $ 0.15 $ 0.15 $ 0.16 $ 0.13
Capital gains $ 1.39 $ 1.39 $ 1.39 -- --
Total return** 10.27% 9.41% 9.41% 3.21%+ -4.77%+
Our concerns regarding the future health of world markets (expressed in the
Fund's semi-annual report) turned out to be extremely well-founded. As we
feared, the Asian economic and currency crises, along with economic problems in
Russia, had a negative impact on U.S. corporate profits and, more important, on
U.S. investor confidence. The performance of our portfolio was affected as
investors sought safety in large-capitalization growth stocks. As a result,
attention in the market focused on a very small number of the largest growth
stocks.
The economy continues to slow, and financial markets have shown increased
volatility over concern regarding the likelihood that corporate earnings will
fall short of previous estimates and evidence of a global credit crunch.
However, our expectation for the U.S. economy at this time is not recession, but
rather that we have reached a turning point and will now see slower growth.
Consumer activity, which comprises well over half the economy, continues to
provide support for growth with continuing gains in job creation, income and
spending. Business spending, however, is slowing down. Recession abroad is
likely to reduce exports and have a flattening effect on corporate profit
growth.
Overall, we believe gross domestic product is likely to grow at an annual rate
of approximately 2% during the next 6 to 12 months. U.S. interest rates have
fallen, reflecting slowing growth and continuing low inflation. At the time of
this writing, the domestic stock market is still anticipating some additional
easing by the Federal Reserve Board--an opinion with which we concur. In sum, it
is our view that the underpinnings of sound equity markets remain in place,
while price declines late in the Fund's fiscal year have created more
opportunities for long-term investors. The Fund's portfolio continues to
emphasize value opportunities in the domestic economy, including retail,
entertainment and communications stocks.
Thank you for your continued confidence in Lord Abbett Affiliated Fund. We look
forward to helping you achieve your financial goals in the years ahead.
* Commencement of offering of respective Class shares.
** Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
+ Not annualized.
1
<PAGE>
The Income Perspective
Income Generated from $100,000 Investments: 11/1/73-10/31/98
The Affiliated
Advantage:
A history of
increasing
dividends vs.
fluctuating
income from
guaranteed CDs
Year
Ended Six-Month CD Affiliated Fund
Oct. 31 Interest(1) Dividends(2)
- ---------------------------------------------------------------
1974 $ 10,420 $ 4,371
1975 7,480 3,571
1976 6,060 4,595
1977 5,750 5,139
1978 8,180 5,689
1979 11,570 6,522
1980 13,280 7,836
1981 17,570 9,614
1982 14,020 10,267
1983 9,520 10,157
1984 11,270 10,721
1985 8,770 12,265
1986 7,040 13,229
1987 6,920 13,528
1988 7,910 14,531
1989 9,610 15,192
1990 8,560 14,435
1991 6,610 14,180
1992 4,000 14,423
1993 3,380 13,371
1994 4,520 12,962
1995 6,310 13,049
1996 5,630 14,350 -----------
1997 5,820 15,586 If capital
1998 5,710 15,069 gains and
dividends
Interest/Dividend Total $ 205,910 $ 274,652 had been
- ----------------------------------========== ========== reinvested,
25 Years Later the Fund's
Initial $100,000 total value
Investment plus Growth $ 100,000 $ 850,555 would have
- ----------------------------------========== ========== been
Total Value $ 305,910 $1,125,207 < $2,635,079
- ----------------------------------========== ========== -----------
The Real Cost of the
CD Guarantee $ 819,297
===============================================================
Unlike the Fund, a CD is insured, and its rate and principal are guaranteed if
held until maturity. The FDIC insures CDs up to $100,000. The CD rate is subject
to change when the CD is renewed. Although CDs may offer safety on the downside,
they sacrifice capital growth on the upside.
(1) Average of six-month CD rates available each period. Source: Lipper
Analytical Services, Inc.
(2) Reflects the deduction of the 3.75% sales charge for Class A share
investments of $100,000. Dividends were taken in cash; capital gains were
reinvested.
See Important Information on page 8.
2
<PAGE>
Affiliated's Growth Record
Results Based on Fiscal Year-End October 31(1)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth of Capital(2) +12.8% -12.0% +23.1% + 6.3% +14.3% + 3.7% +17.6% +20.5% +23.3% + 8.4%
Dividend Return(3) + 5.2 + 4.4 + 4.9 + 4.1 + 3.5 + 3.0 + 2.9 + 2.7 + 2.5 + 1.9
- -------------------------------------------------------------------------------------------------------------
Total Return(4) +18.0 - 7.6 +28.0 +10.4 +17.8 + 6.7 +20.5 +23.2 +25.8 +10.3
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A share performance.
(2) Growth of capital reflects the reinvestment of capital gains
distributions.
(3) Dividend return reflects the reinvestment of dividends.
(4) Total return is the percent change in value with both dividends and
capital gains distributions reinvested. These results are at net asset
value. Net asset value purchases are available for class a share
investments of $1 million or more. For performance at the Class A share
maximum sales charge, as well as other information, please turn to the
inside front cover and pages 4 and 8.
Affiliated's Growth Helped Protect Your Purchasing Power
In our illustration, the prices noted for 1988 and 1998 are actual costs--then
and now. "Affiliated 1998" is what the 1988 amount would have grown to had it
been invested in the Fund.
Investments in Affiliated Fund (up 298.6%) surpassed increases in the cost of
living, which was up 36.4% in these 10 years. Protection against the erosion
caused by inflation is one important way to maintain--and enhance--your
lifestyle.
<TABLE>
[PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED]
<CAPTION>
One-Year Private One-Family House(6) U.S. Passport First-Class Stamp Income per Capita(7)
College Tuition(5)
<S> <C> <C> <C> <C> <C>
1988 $10,455 $112,800 $ 55 $ .25 $16,923
1998 $18,357 $131,300 $ 60 $ .32 $26,242
- -----------------------------------------------------------------------------------------------------------------------
Affiliated 1998 $41,673 $449,608 $219 $1.00 $67,453
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Affiliated's results reflect Class A share total return at net asset
value, with all distributions reinvested for the 10 years ended 10/31/98.
See Important Information on page 8.
(5) Based on Consumer Price Index.
(6) National average.
(7) National average. 1998 figure is based on January-March figures.
Sources: U.S. Department of Education, Statistics Bureau Section, College
Board Annual Survey of Colleges; National Association of Realtors,
Research Division; U.S. State Department; U.S. Postal Service; Department
of Commerce, Bureau of Economic Analysis Statistics.
3
<PAGE>
The Total Return Perspective
The chart below illustrates the growth of a $10,000 investment made in
Affiliated Fund on 10/31/72. Even when investing right before a major stock
market downturn long-term investors in Affiliated Fund did well. (Please see the
chart on page 5.) The Fund's average shareholder ownership of over 15 years
reflects the appeal of long-term investing.
Past performance is no indication of future results.
Growth of a $10,000 Fund Investment: 10/31/72-10/31/98(1)
A History of
Consistent
Performance
Value of Cumulative Value Cumulative How
Year Shares of Capital Gains Value of $10,000
Ended Initially Distributions Reinvested Grew
Oct. 31 Acquired Taken in Shares Dividends Total Value
- --------------------------------------------------------------------------------
1972 $ 9,417 $ 0 $ 0 $ 9,417
1973 9,550 267 432 10,249
1974 7,258 394 762 8,414
1975 8,993 545 1,394 10,932
1976 10,742 886 2,249 13,877
1977 9,695 1,149 2,624 13,468
1978 9,430 1,382 3,261 14,073
1979 10,570 2,257 4,606 17,433
1980 12,066 3,732 6,519 22,317
1981 10,742 4,887 7,186 22,815
1982 11,364 6,730 9,571 27,665
1983 13,325 9,187 13,197 35,709
1984 12,212 11,251 14,173 37,636
1985 12,993 14,172 17,623 44,788
1986 15,510 21,514 24,060 61,084
1987 13,828 24,951 24,040 62,819
1988 12,768 31,932 25,778 70,478
1989 13,815 37,558 31,817 83,190
1990 11,801 34,617 30,474 76,892
1991 13,629 45,458 39,336 98,423
1992 13,974 50,142 44,501 108,617
1993 14,914 61,407 51,590 127,911
1994 14,609 67,326 54,497 136,432
1995 15,868 84,828 63,654 164,350
1996 17,245 111,153 74,118 202,516
1997 19,656 145,178 89,919 254,753
1998 $ 19,285 $168,327 $ 93,307 $280,919
The dollar amounts of dividends and capital gains distributions reinvested
in shares were $64,954 and $122,440, respectively. The initial investment
plus all distributions reinvested amounted to $197,394. If dividends and
capital gains distributions had been withdrawn in cash, the amounts of
these payments would have been $14,234 and $19,856, respectively.
(1) Reflects the deduction of the Class A share maximum 5.75% sales charge for
investments under $50,000. All distributions were reinvested.
See Important Information on page 8.
4
<PAGE>
The Total Return Perspective
We've lived through several periods of economic, political and stock market
turmoil since 1972. By focusing on value investing, Affiliated Fund reduced
downside volatility in periods of stock market weakness and produced returns
that outpaced the S&P 500 (an unmanaged index), while outpacing guaranteed CDs
and inflation.
Using the Value Method of Investing, Affiliated Fund Reduced Volatility and
Produced Rewarding Gains
<TABLE>
<CAPTION>
- --------- --------- --------- ---------
1972-1974 1980-1982 1986-1991 1997-1998
- --------- --------- --------- ---------
<S> <C> <C> <C>
The last protracted Interest rates rose Two corrections jolted Difficulties in Russian
bear market; dramatically; the stock marekt; and Asian markets
S&P 500 declined Prime Rate hit 20%; war and recession spurred a bear-level
28.8%. Affiliated the economy suffered followed a year later. correction in world
Fund held the a recession. During Affilitated rose 61.1% markets. Affiliated
decline to 10.7%. these two years, over this period. rose 10.3% during
Affiliated rose 24.0%. this time of trial.
</TABLE>
Average Annual
Total Returns
Over 26 Years(1)
Affiliated: 13.7%
S&P 500: 13.4%
CDs: 8.2%
Inflation: 5.3%
[PLOT POINTS TO COME]
An investor cannot invest directly in an index, such as the S&P 500. For
more information on CDs, see page 2.
(1) Average annual total return at the Class A share maximum offering price
from 10/31/72 through 10/31/98.
(2) Average of six-month CD rates available each period. Source: Lipper
Analytical Services, Inc.
See Important Information on page 8.
5
<PAGE>
The Impact of a Disciplined Investment Plan
Perfectly timing the market is impossible because, often, opportunity can only
be identified after it has already passed.
For long-term investors in Lord Abbett Affiliated Fund, the key to one
successful strategy has focused on following a disciplined investment plan--not
timing the market. Let's compare two hypothetical investments made over the last
20 calendar years ending December 31, 1997, where $5,000 was invested in the
Fund every year. For Investment A, shares were purchased (with the benefit of
hindsight) when the Dow Jones Industrial Average was at the low for each given
year. Shares were purchased for Investment B on the first business day of every
year.
Here's What Happened...
- ------------
Investment A Timing
- ------------
Your financial
adviser can help
you discipline
your investing
and set up a
systematic plan
you are comfort-
able with
Account
Date of Cumulative Value
Investments Investments at Year-End
- -------------------------------------------------------------------------------
2/28/78 $ 5,000 $ 5,275
11/7/79 10,000 12,032
4/21/80 15,000 21,345
9/25/81 20,000 26,521
8/12/82 25,000 39,273
1/3/83 30,000 55,298
7/24/84 35,000 64,741
1/4/85 40,000 88,293
1/22/86 45,000 114,544
10/19/87 50,000 123,527
1/20/88 55,000 144,869
1/3/89 60,000 184,947
10/11/90 65,000 180,640
1/9/91 70,000 226,503
10/9/92 75,000 259,853
1/20/93 80,000 299,716
4/4/94 85,000 317,187
1/30/95 90,000 424,114
1/10/96 95,000 515,120
4/11/97 100,000 650,822
Account Value on 12/31/97 $650,822
- -----------------------------------------------------------------------========
Average Annual Total Return 16.2%
===============================================================================
- ------------
Investment B Systematic Investing
- ------------
Account
Date of Cumulative Value
Investments Investments at Year-End
- -------------------------------------------------------------------------------
1/2/78 $ 5,000 $ 4,876
1/2/79 10,000 12,362
1/2/80 15,000 21,371
1/2/81 20,000 26,136
1/4/82 25,000 38,225
1/3/83 30,000 53,982
1/2/84 35,000 62,773
1/2/85 40,000 85,745
1/2/86 45,000 111,300
1/2/87 50,000 119,742
1/4/88 55,000 140,336
1/2/89 60,000 179,347
1/2/90 65,000 174,448
1/2/91 70,000 218,744
1/2/92 75,000 251,271
1/4/93 80,000 289,979
1/3/94 85,000 306,834
1/2/95 90,000 410,518
1/2/96 95,000 489,620
1/2/97 100,000 630,234
Account Value on 12/31/97 $630,234
- -----------------------------------------------------------------------========
Average Annual Total Return 15.5%
===============================================================================
The disciplined investment plan (B) provided an average annual total return
almost the same as the "perfect" investment scenario (A). Since determining the
"perfect" time to invest without the benefit of hindsight is impossible, why not
sit down with your financial adviser and set up a disciplined investment plan
today?
The above illustrations assume the reinvestment of all dividends and
distributions. All investments were made at the applicable Class A share maximum
sales charge of 5.75% for account values up to $50,000 and at the applicable
reduced sales charges thereafter under rights of accumulation. Periodic
investment plans do not always return a profit and do not protect against losses
in a declining market. In addition, since periodic investment plans involve
continuous investment in securities regardless of fluctuating price levels,
investors should consider their financial ability to continue their purchases
through periods of low price levels. If held until 9/30/98 (with no additional
investments made), Investment A and Investment B would have been worth $635,889
and $615,773, respectively.
For performance at the Class A share maximum sales charge, please turn to the
inside front cover.
6
<PAGE>
Who Owns the Fund?
Investor Profile of Lord Abbett Affiliated Fund
- --------------------------------------------------------------------------------
Fiduciaries Custodians for Minors 19,353
Pension, Profit-Sharing and 401(k) Retirement Plans 17,589
Trusts 11,004
457 Retirement and 403(b) Plans 4,290
Estates 494
- -------------------------------------------------------------------------------
Institutions Broker-held Accounts 46,658
Banks, Credit Unions and Other Financial Institutions 425
Corporations 470
Religious, Charitable and Welfare Organizations 383
Clubs and Fraternal Organizations 104
Cemeteries 65
Nursing Homes and Hospitals 32
Colleges and Universities 34
Government Agencies 27
- --------------------------------------------------------------------------------
Individuals Single and Joint Accounts 78,671
IRAs 53,611
Total Accounts in Affiliated on 10/31/98 233,210
================================================================================
A Note About Year 2000 Matters
As you probably know, the Fund depends on the proper functioning of computer
systems for most, if not all, aspects of its operations. Many computer systems
now in use cannot distinguish between the year 2000 (Y2K) and the year 1900, an
inability that could disrupt the services provided to the Fund.
Lord Abbett, Lord Abbett Distributor llc, the Fund's transfer agent, the Fund`s
custodian and other providers of services critical to the Fund 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
external service providers, will be adapted in time. Although the Y2K issue is
unprecedented and the process of Y2K preparedness evaluation and systems
remediation is an ongoing one, we presently believe that there will be no
material effect on the Fund and its financial statements.
7
<PAGE>
Important Information
Bonds purchased by the Fund are subject to market fluctuations upward and
downward inversely to the rise and fall of interest rates. Common stocks are
also subject to market fluctuations, providing the potential for gains and the
risk of loss. Performance results quoted herein reflect past performance,
current sales charges (where applicable) and appropriate Rule 12b-1 Plan
expenses from commencement of the Plan. Past performance is no indication of
future results. Tax consequences are not reflected. The investment return and
principal value of an investment will fluctuate so that shares, on any given day
or when redeemed, may be worth more or less than their original cost. The Fund's
sales charge structure has changed in the past. The Fund issues additional
classes of shares, with distinct pricing options. For a full discussion of the
differences in pricing alternatives, please refer to the Fund's current
prospectus. If used as sales material after 12/31/98, this report must be
accompanied by Lord Abbett's Performance Quarterly for the most recently
completed calendar quarter.
Statement of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
Market
Investments Shares Value
==========================================================================================
Investments in Securities 97.65%
==========================================================================================
Common Stocks and Convertible Securities 97.65%
==========================================================================================
<S> <C> <C> <C>
Agricultural Equipment
1.87% Deere & Co.+ 4,500,000 $ 159,187,500
- ----------------------------------------------------------------------------==============
Agricultural Products Pioneer Hi-Bred
.39% International, Inc.+ 1,200,000 33,600,000
- ----------------------------------------------------------------------------==============
Apparel .98% VF Corp. 2,003,300 83,762,981
- ----------------------------------------------------------------------------==============
Automobiles 2.37% Ford Motor Company 1,750,000 94,937,500
General Motors Corp. 1,700,000 107,206,250
Total 202,143,750
- ----------------------------------------------------------------------------==============
Banks: Money Chase Manhattan Corp. 2,250,000 127,828,125
Center 2.88%
Citigroup 2,500,000 117,656,250
Total 245,484,375
- ----------------------------------------------------------------------------==============
Banks: Regional Bank One Corp.+ 1,623,807 79,363,567
6.35%
BankAmerica Corp. 1,600,000 91,900,000
Comerica Inc. 700,000 45,150,000
First Union Corp. 2,004,400 116,255,200
Mellon Bank Corp. 1,600,000 96,200,000
Washington Mutual Inc.+ 3,000,000 112,312,500
Total 541,181,267
- ----------------------------------------------------------------------------==============
Brokers 1.52% Morgan Stanley,
Dean Witter,
Discover & Co. 2,000,000 129,500,000
- ----------------------------------------------------------------------------==============
Chemicals 1.56% Dow Chemical Co.+ 500,000 46,812,500
DuPont (E.I.)
DeNemours Co.+ 1,500,000 86,250,000
Total 133,062,500
- ----------------------------------------------------------------------------==============
Communications
Equipment .47% Lucent Technologies Inc.+ 500,000 40,093,750
- ----------------------------------------------------------------------------==============
Computer: Hewlett-Packard Co. 1,000,000 60,187,500
Hardware 6.04%
International Business
Machines Corp. 2,000,000 296,875,000
Sun Microsystems Inc.+* 2,700,000 157,275,000
Total 514,337,500
--------------------------------------------------==============
</TABLE>
Statement of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
Shares or
Principal Market
Investments Amount Value
==========================================================================================
<S> <C> <C> <C>
Computer: EMC Corp./Mass+ 1,600,000 $ 103,000,000
Peripherals 2.65%
EMC Corp.
Conv. Sub. Notes
3/1/4/2002** 15,000M 43,586,719
Seagate Technology Inc.* 3,000,000 79,125,000
Total 225,711,719
- ----------------------------------------------------------------------------==============
Containers .47% Owens-Illinois Inc.
Conv. Pfd. 4.750% 1,000,000 40,125,000
- ----------------------------------------------------------------------------==============
Drugs/Health Care American Home
Products 4.86% Products Corp. 3,000,000 146,250,000
Pharmacia & Upjohn Inc. 2,750,000 145,578,125
SmithKline Beecham plc ADR 1,000,000 63,750,000
Warner-Lambert Co. 750,000 58,781,250
Total 414,359,375
- ----------------------------------------------------------------------------==============
Electric Power Allegheny Energy Inc. 1,500,000 46,125,000
7.95%
Baltimore Gas & Electric Co. 1,000,000 31,375,000
Carolina Power
& Light Co.+ 3,000,000 137,625,000
Duke Energy Corp. 2,500,000 161,718,750
Florida Progress Corp. 3,000,000 125,812,500
FPL Group+ 1,500,000 93,843,750
Houston Inds Inc.+
$3.22 Conv. Pfd. into
Time-Warner Inc. 1,000,000 81,062,500
Total 677,562,500
- ----------------------------------------------------------------------------==============
Electrical Equipment CBS Corp. 3,500,000 97,781,250
4.05%
Emerson Electric Co.+ 3,750,000 247,500,000
Total 345,281,250
- ----------------------------------------------------------------------------==============
Electronics:
Semiconductors
1.28% Texas Instruments, Inc.+ 1,700,000 108,693,750
- ----------------------------------------------------------------------------==============
Food 5.14% Best Foods+ 2,200,000 119,900,000
ConAgra Inc.+ 2,000,000 60,875,000
Heinz H.J. Co. 2,250,000 130,781,250
Ralston Purina Co.+ 2,000,000 66,750,000
</TABLE>
8
<PAGE>
Statement of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
Market
Investments Shares Value
==========================================================================================
<S> <C> <C> <C>
Sara Lee Corp.+ 1,000,000 $ 59,687,500
Total 437,993,750
- ----------------------------------------------------------------------------==============
Health-Care
Products 1.76% Baxter International Inc.+ 2,500,000 149,843,750
- ----------------------------------------------------------------------------==============
Health-Care Aetna Inc.+
Services 1.26% $4.758 Conv. Pfd. 1,500,000 107,250,000
- ----------------------------------------------------------------------------==============
Household Products .71% Fort James Corp. 1,500,000 60,468,750
- ----------------------------------------------------------------------------==============
Insurance: American General Corporation 3,000,000 205,500,000
Life 4.53%
Jefferson-Pilot Corp. 1,250,000 75,937,500
Transamerica Corp. 1,001,550 104,161,200
Total 385,598,700
- ----------------------------------------------------------------------------==============
Insurance: Chubb Corp.+ 2,000,000 123,000,000
Property and Casualty
3.91% Cigna Corp. 1,000,000 72,937,500
Providian Financial Corp.+ 800,000 63,500,000
Progressive Corporation+ 500,000 73,625,000
Total 333,062,500
- ----------------------------------------------------------------------------==============
Miscellaneous Fortune Brands Inc. 1,500,000 49,593,750
1.28%
Textron, Inc. 800,000 59,500,000
Total 109,093,750
- ----------------------------------------------------------------------------==============
Natural Gas: Consolidated
Pipelines .50% Natural Gas Co. 800,000 42,250,000
- ----------------------------------------------------------------------------==============
Oil: Domestic Occidental
Integrated .75% Petroleum Corp. 3,200,000 63,600,000
- ----------------------------------------------------------------------------==============
Oil: International British Petroleum
Integrated 7.18% Co. plc ADR+ 1,750,000 154,765,625
Chevron Corp. 1,000,000 81,500,000
Exxon Corp. 1,300,000 92,625,000
Mobil Corp. 2,500,000 189,218,750
Total S.A. ADR+ 1,600,000 93,600,000
Total 611,709,375
- ----------------------------------------------------------------------------==============
Paper and Forest Bowater Inc.+ 1,502,500 61,320,781
Products 1.67%
Champion International Corp. 1,500,000 47,906,250
Georgia Pacific Timber Group 1,500,000 33,281,250
Total 142,508,281
- ----------------------------------------------------------------------------==============
Photographic 1.82% Eastman Kodak Co. 2,000,000 155,000,000
- ----------------------------------------------------------------------------==============
Printing and Dow Jones & Co., Inc.+ 2,500,000 114,531,250
Publishing 1.89%
Time-Warner Inc. 500,000 46,406,250
Total 160,937,500
- ----------------------------------------------------------------------------==============
Retail: Department May Department Stores Co. 2,800,000 170,800,000
and Merchandise
4.84% Wal-Mart Stores Inc.+ 3,500,000 241,500,000
Total 412,300,000
- ----------------------------------------------------------------------------==============
Telephone: AT&T Corp.+ 4,200,000 261,450,000
Long Distance MCI WorldCom Inc.+* 2,500,000 138,125,000
4.69% Total 399,575,000
--------------------------------------------------==============
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Market
Investments Amount Value
==========================================================================================
<S> <C> <C> <C>
Telephone: Alltel Corp. 2,000,000 $ 93,625,000
Regional 5.45% Bell Atlantic Corp.+ 3,500,000 185,937,500
SBC Communications Inc.+ 4,000,000 185,250,000
Total 464,812,500
- ----------------------------------------------------------------------------==============
Tobacco 2.58% Gallaher Group
plc ADR 1,500,000 40,875,000
Philip Morris
Companies Inc. 3,500,000 178,937,500
Total 219,812,500
- ----------------------------------------------------------------------------==============
Waste Management Browning-Ferris
2.00% Industries Inc. 1,000,000 35,437,500
Waste Management Inc.+ 3,000,000 135,375,000
Total 170,812,500
--------------------------------------------------==============
Total Investments in
Common Stocks and
Convertible Securities
(Cost $6,163,323,959) 8,320,716,073
==========================================================================================
Other Assets, Less Liabilities 2.35%
==========================================================================================
Short-term American Express
Investments Credit Corp.
5.40% due 11/2/1998 39,170M 39,170,000
American General
Finance Corp.
5.67% due 11/2/1998 100,000M 100,000,000
UST Inc.
5.70% due 11/2/1998 38,830M 38,811,556
Total 177,981,556
--------------------------------------------------==============
Other (See Note 5) 630,617,812
--------------------------------------------------==============
Total Short-term Investments
(Cost $808,599,368) 808,599,368
- ----------------------------------------------------------------------------==============
Cash 6,142,894
- ----------------------------------------------------------------------------==============
Receivable for: Dividends and interest 15,739,941
Securities sold 8,448,379
Capital stock sold 6,472,113
Other 63,283
Total Other Assets 30,723,716
- ----------------------------------------------------------------------------==============
Payable for: Accrued liabilities 7,738,809
Capital stock reacquired 4,052,120
Securities purchased 3,170,096
Total 14,961,025
- ----------------------------------------------------------------------------==============
Other Liabilities (See Note 5) 630,617,812
Total Liabilities 645,578,837
- ----------------------------------------------------------------------------==============
Total Other Assets,
Less Liabilities 199,887,141
==========================================================================================
Net Assets 100.00% $8,520,603,214
==========================================================================================
</TABLE>
9
<PAGE>
Statement of Net Assets
October 31, 1998
================================================================================
Class A Shares-Net asset value
($8,051,341,693 / 553,107,254
shares outstanding) $14.56
Maximum offering price $15.45
Class B Shares-Net asset value
($315,695,493 / 21,684,669
shares outstanding) $14.56
Class C Shares-Net asset value
($120,452,746 / 8,272,808
shares outstanding) $14.56
Class P Shares-Net asset value
($1,811,417 / 124,651
shares outstanding) $14.53
Class Y Shares-Net asset value
($31,301,865 / 2,148,501
shares outstanding) $14.57
+ Securities (or a portion of securities) on loan. See Note 5.
* Non-income producing security.
** Restricted security under Rule 144A.
See Notes to Financial Statements.
Portfolio Changes
Issues added to or eliminated from the portfolio (exclusive of U.S. Government
obligations and short-term investments) during the six months ended October 31,
1998.
Additions
Alltel Corp.
Browning Ferris Industries Inc.
CBS Inc.
Champion International Corp.
Citigroup
Columbia/HCA Healthcare
Compaq Computer
First Data Corp.
Ford Motor Company
Mellon Bank Corp.
Merck & Co., Inc.
Owens-Illinois Inc. (Conv. Pfd. 4.750%)
Pharmacia & Upjohn Inc.
Philip Morris Inc.
Seagate Technology Inc.
Texas Instruments, Inc.
Time-Warner Inc.
- --------------------------------------------------------------------------------
Eliminations
Allstate Corp.
Archer-Daniels-Midland Co.
BankBoston, N.A.
Bankers Trust NY Corp.
Cinergy Corp.
Columbia/HCA Healthcare
Compaq Computer
Corning Inc.
Crown Cork & Seal Inc.
Delta Air Lines Inc.
ENI ADS
First Data Corp.
Georgia-Pacific Corp.
International Flavor & Fragrance
Kimberly Clark Corp.
Liz Claiborne, Inc.
Lyondell Petrochemical Co.
Merck & Co., Inc.
Penney, J.C. Co., Inc.
Rohm & Haas Co.
St. Paul Companies Inc.
Seagate Technology Inc.
Sonat Inc.
Toys R Us Inc.
United Healthcare Corp.
US Airways Group Inc.
Whirlpool Corp.
10
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended October 31, 1998
======================================================================================
<S> <C> <C> <C>
Income Dividends $ 174,079,849
Interest 17,181,702
Total income $191,261,551
---------------------------------------------------------------------------
Expenses Management fee 26,317,934
12b-1 distribution plan--Class A 18,728,615
12b-1 distribution plan--Class B 2,476,427
12b-1 distribution plan--Class C 939,042
12b-1 distribution plan--Class P 744
Shareholder servicing 6,417,012
Reports to shareholders 636,889
Registration 347,470
Professional 270,218
Directors' fees 238,112
Other 343,087
--------------
Total expenses before reductions 56,715,550
Expense reductions (1,013,650) 55,701,900
-------------------------------
Net investment income 135,559,651
---------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
======================================================================================
Realized gain from investment transactions
Proceeds from sales 5,247,379,855
Cost of securities sold 4,691,005,960
---------------------------------------------------------------------------
Net realized gain 556,373,895
---------------------------------------------------------------------------
Unrealized appreciation of investments 78,452,439
- --------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 634,826,334
- --------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $770,385,985
======================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
=============================================================================================================================
<S> <C> <C>
Operations Net investment income $ 135,559,651 $ 151,565,568
Net realized gain from investment transactions 556,373,895 728,137,697
Net unrealized appreciation of investments 78,452,439 682,759,831
----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 770,385,985 1,562,463,096
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions 40,491 46,074
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (143,194,800) (147,797,223)
Class B (2,266,183) (866,777)
Class C (863,613) (355,394)
Class P (19,753) --
Class Y (172,653) --
----------------------------------------------------------------------------------------------------------------
Total (146,517,002) (149,019,394)
----------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (701,757,786) (480,477,970)
Class B (14,611,561) (1,534,145)
Class C (5,544,532) (638,747)
----------------------------------------------------------------------------------------------------------------
Total (721,913,879) (482,650,862)
----------------------------------------------------------------------------------------------------------------
Total distributions (868,430,881) (631,670,256)
----------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares 930,460,852 756,660,354
Net asset value of shares issued in reinvestment of net investment income
and realized gain from investment transactions 704,773,197 502,763,678
----------------------------------------------------------------------------------------------------------------
Total 1,635,234,049 1,259,424,032
----------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (714,380,526) (593,173,986)
----------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 920,853,523 666,250,046
----------------------------------------------------------------------------------------------------------------
Increase in net assets 822,849,118 1,597,088,960
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of period 7,697,754,096 6,100,665,136
----------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $28,029,457
and $27,965,329, respectively) $ 8,520,603,214 $ 7,697,754,096
================================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.84 $13.02 $11.98 $11.03 $11.26
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .24 .30 .30 .32 .31
Net realized and unrealized gain on investments 1.14 2.85 2.23 1.70 .38
Total from investment operations 1.38 3.15 2.53 2.02 .69
--------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.27) (.30) (.30) (.30) (.32)
Distributions from net realized gain (1.39) (1.03) (1.19) (.77) (.60)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.56 $14.84 $13.02 $11.98 $11.03
- -----------------------------------------------------------------------------------------------------------------
Total Return(a) 10.27% 25.80% 23.23% 20.46% 6.66%
================================================================================================================
Ratios to Average Net Assets:
Expenses(b) 0.63% 0.65% 0.66% 0.63% 0.63%
Net investment income 1.64% 2.15% 2.61% 2.90% 2.91%
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 8/1/1996(c) Year Ended 8/1/96(c)
October 31, to October 31, to
Per Share Operating Performance: 1998 1997 10/31/96 1998 1997 10/31/96
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.84 $13.03 $11.88 $14.84 $13.02 $11.88
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .14 .20 .060 .14 .22 .062
Net realized and unrealized gain on investments 1.12 2.84 1.142 1.12 2.83 1.130
Total from investment operations 1.26 3.04 1.202 1.26 3.05 1.192
---------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.15) (.20) (.052) (.15) (.20) (.052)
Distributions from net realized gain (1.39) (1.03) -- (1.39) (1.03) --
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.56 $14.84 $13.03 $14.56 $14.84 $13.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 9.41% 24.78% 10.15%(d) 9.41% 24.88% 10.07%(d)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses(b) 1.38% 1.42% 0.34%(d) 1.40% 1.34% 0.33%(d)
Net investment income 0.87% 1.19% 0.27%(d) 0.85% 1.28% 0.25%(d)
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
----------------- -----------------
12/8/97(c) 3/27/98(c)
Per Share Operating Performance: to 10/31/98 to 10/31/98
======================================================================== =================
<S> <C> <C>
Net asset value, beginning of period $14.24 $15.44
- ------------------------------------------------------------------------ -----------------
Income from investment operations
Net investment income .18 .15
Net realized and unrealized gain (loss) on investments .27 (.89)
Total from investment operations .45 (.74)
--------------------------------------------------------------------- -----------------
Distributions
Dividends from net investment income (.16) (.13)
--------------------------------------------------------------------- -----------------
Net asset value, end of period $14.53 $14.57
- ------------------------------------------------------------------------ -----------------
Total Return(a)(d) 3.21% (4.77)%
===========================================================================================
Ratios to Average Net Assets:
Expenses(d) 0.76% 0.24%
Net investment income(d) 1.21% 1.03%
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
Supplemental Data for All Classes: 1998 1997 1996 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of period (000) $8,520,603 $7,697,754 $6,100,665 $4,964,525 $4,229,586
Portfolio turnover rate 56.49% 46.41% 47.06% 53.84% 51.48%
=================================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) The ratios for 1997 and 1998 include expenses paid through an expense
offset arrangement.
(c) Commencement of offering respective class shares.
(d) Not annualized.
See Notes to Financial Statements.
13
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Lord Abbett Affiliated Fund, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial statements. The
following is a summary of significant accounting policies consistently followed
by the Company:
(a) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange, or, in the case of bonds, in the over-the-counter
market if, in the judgment of the Company's officers, that market more
accurately reflects the market value of the bonds. Securities traded only in the
over-the-counter market are valued at the mean between the bid and asked prices,
except that securities admitted to trading on the NASDAQ National Market System
are valued at the last sales price if it is determined that such price more
accurately reflects the value of such securities. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income. Therefore, no federal income tax provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Realized gains and losses from security
transactions are calculated on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Net
investment income (other than class-specific expenses such as distribution and
service fees) and realized and unrealized gains or losses are allocated to each
class of shares based upon the relative proportion of net assets at the
beginning of the day.
(d) A portion of the proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
2. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett & Co. ("Lord Abbett")
pursuant to which Lord Abbett supplies the Company with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research, statistical work and the supervision of the
Company's investment portfolio. The management fee is based on average daily net
assets at the following annual rates: 1/2 of 1% on the first $200 million; 2/5
of 1% on the next $300 million; 3/8 of 1% on the next $200 million; 7/20 of 1%
on the next $200 million and 3/10 of 1% on the excess over $900 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B, Class C
and Class P Plans") with Lord Abbett Distributor llc ("Distributor"), an
affiliate of Lord Abbett. The Company makes payments to Distributor which uses
or passes on such payments to authorized institutions. Pursuant to the Class A
Plan, the Company pays Distributor (1) an annual service fee of 0.15% of the
average daily net asset value of shares sold prior to June 1, 1990 and 0.25% of
the average daily net asset value of shares sold on or after that date, (2) a
one-time distribution fee of up to 1% on certain qualifying purchases and (3) a
supplemental annual distribution fee of 0.10% of the average daily net assets of
Class A shares serviced by certain qualifying institutions. Pursuant to the
Class B Plan, the Company pays Distributor an annual service and distribution
fee of 0.25% and 0.75%, respectively, of the average daily net asset value of
the Class B shares. Pursuant to the Class C Plan, the Company pays Distributor
(1) a service fee and a distribution fee, at the time such shares are sold, not
to exceed 0.25% and 0.75%, respectively, of the net asset value of such shares
sold and (2) at each quarter-end after the first anniversary of the sale of such
shares, a service fee and a distribution fee at an annual rate not to exceed
0.25% and 0.75%, respectively, of the average annual net asset value of such
shares outstanding. Pursuant to the Class P Plan, the Company pays Distributor
an annual service and distribution fee of 0.20% and 0.25%, respectively, of the
average daily net asset value of the Class P shares. Class Y does not have a
Plan.
Distributor received $3,002,258 representing payment of commissions on sales of
Class A shares after deducting $18,696,650 allowed to authorized distributors as
concessions. Certain of the Company's officers and directors have an interest in
Lord Abbett.
3. Distributions
Dividends from net investment income are declared quarterly. Net realized gain
from investment transactions is distributed to shareholders annually.
Accumulated undistributed net realized gain at October 31, 1998 for financial
reporting purposes aggregated $553,636,709. Income and capital gains
distributions are determined in accordance with income tax regulations which may
differ from methods used to determine the corresponding income and capital gains
amounts in accordance with generally accepted accounting principles.
Distributions declared on November 18, 1998 and payable on November 25, 1998 to
shareholders of record as of November 18, 1998 were as follows:
Rate Per Aggregate
Net Investment Income Share Amount
- --------------------------------------------------------------------------------
Class A $0.060 $33,134,776
Class B 0.030 658,551
Class C 0.030 251,448
Class P 0.051 6,324
Class Y 0.068 154,274
- --------------------------------------------------------------------------------
Rate Per Aggregate
Capital Gains Share Amount
- --------------------------------------------------------------------------------
Class A $0.95 $524,633,950
Class B 0.95 20,854,111
Class C 0.95 7,962,532
Class P 0.95 117,803
Class Y 0.95 2,155,299
- --------------------------------------------------------------------------------
4. Capital
The Company has authorized 1,150 million shares of $.001 par value capital stock
designated Class A, 100 million shares of $.001 par value capital stock
designated Class B, 100 million shares of $.001 par value capital stock
designated Class C, 75 million shares of $.001 par value capital stock
designated Class P and 75 million shares of $.001 par value capital stock
designated Class Y. Paid in capital amounted to $5,781,544,934 at October 31,
1998. Transactions in shares of capital stock were as follows:
14
<PAGE>
Notes to Financial Statements
<TABLE>
<CAPTION>
Year Ended
October 31, 1998 October 31, 1997
-------------------------------------------------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 44,496,423 $ 647,321,212 41,249,386 $ 575,438,146
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 50,482,142 682,391,630 38,407,350 499,579,938
Total 94,978,565 1,329,712,842 79,656,736 1,075,018,084
- ------------------------------------------------------------------------------------------
Shares reacquired (46,371,906) (672,172,411) (41,932,725) (584,724,363)
Increase 48,606,659 $ 657,540,431 37,724,011 $ 490,293,721
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
October 31, 1998 October 31, 1997
----------------------------------------------------------------
Class B Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 12,095,054 $176,522,488 9,261,683 $131,415,142
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 1,191,014 16,111,114 169,389 2,251,936
Total 13,286,068 192,633,602 9,431,072 133,667,078
- ------------------------------------------------------------------------------------------
Shares reacquired (1,852,596) (26,707,944) (353,069) (5,141,805)
Increase 11,433,472 $165,925,658 9,078,003 $128,525,273
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
October 31, 1998 October 31, 1997
---------------------------------------------------------------
Class C Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 4,987,808 $ 72,979,231 3,536,298 $49,807,066
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 449,243 6,084,002 70,220 931,804
Total 5,437,051 79,063,233 3,606,518 50,738,870
- ------------------------------------------------------------------------------------------
Shares reacquired (1,074,218) (15,311,549) (229,278) (3,307,818)
Increase 4,362,833 $ 63,751,684 3,377,240 $47,431,052
- ------------------------------------------------------------------------------------------
</TABLE>
December 8, 1997
(Commencement
of Offering
Class P Shares) to
October 31, 1998
--------------------------
Class P Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 136,502 $1,953,673
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 1,376 19,466
Total 137,878 1,973,139
- --------------------------------------------------------------------------------
Shares reacquired (13,227) (188,622)
Increase 124,651 $1,784,517
- --------------------------------------------------------------------------------
March 27, 1998
(Commencement
of Offering
Class Y Shares) to
October 31, 1998
----------------------------
Class Y Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 2,136,585 $31,684,248
Shares issued to
shareholders in
reinvestment of net
investment income
and realized gain
from investment
transactions 11,916 166,985
Total 2,148,501 31,851,233
- --------------------------------------------------------------------------------
Increase 2,148,501 $31,851,233
- --------------------------------------------------------------------------------
5. Portfolio Securities
The Company loans its portfolio securities to brokers to generate additional
revenue to the Fund. As of October 31, 1998, the market value of securities on
loan to brokers was $617,406,045, for which the Company has obtained collateral
aggregating $629,754,166, consisting of cash and U.S. Treasury securities.
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term securities) aggregated $5,363,761,515 and
$4,973,841,028, respectively.
As of October 31, 1998, unrealized appreciation based on cost for federal income
tax purposes aggregated $2,157,392,114, of which $2,261,537,095 related to
appreciated securities and $104,144,981 related to depreciated securities. The
cost of investments for federal income tax purposes is substantially the same as
that used for financial reporting purposes.
6. Directors' Remuneration
The Directors of the Company associated with Lord Abbett and all officers of the
Company receive no compensation from the Company for acting as such. Outside
Directors' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on the net assets of each fund. Directors' fees payable at
October 31, 1998 were $2,022,482.
7. Expense Reduction
The Company has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Company's expenses.
8. Line of Credit
The Company, along with certain other funds managed by Lord Abbett, has
available a $200,000,000 unsecured revolving credit facility ("Facility"), from
a consortium of banks, to be used for temporary or emergency purposes as an
additional source of liquidity to fund redemptions of investor shares. Any
borrowings under this Facility will bear interest at current market rates as
defined in the agreement. The fee for this Facility is 0.05% per annum. There
were no loans outstanding pursuant to this Facility at October 31, 1998, nor was
the Facility utilized at any time during the year.
15
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Affiliated Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Affiliated Fund, Inc. as of October 31, 1998, the related statement of
operations for the year then ended and of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the periods presented. These financial statements and the financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Affiliated Fund, Inc. at October 31, 1998, the results of its operations, the
changes in its net assets and its financial highlights for the respective
periods presented in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
December 11, 1998
1998 Tax Information
In early 1999, shareholders of Lord Abbett Affiliated Fund will receive
information which must be included in each shareholder's federal income tax
return. In accordance with the regulations of the U.S. Treasury Department, this
information must be reported by the Fund to the Internal Revenue Service.
100% of the Fund's ordinary dividends for the fiscal year ended October 31, 1998
qualify for the dividend-received deduction available to corporate shareholders
in accordance with Section 243 of the Internal Revenue Code.
Distribution of Net Realized Securities Gains
Federal Tax Information. A distribution of $.95 a share from net realized
securities gains in the fiscal year ended October 31, 1998 was paid on November
25, 1998. This distribution should be reported as realized long-term gain.
If a shareholder receives shares of stock in payment of the special
distribution, the stock should be assigned a "cost" of $14.20, $14.23 and $14.23
a share for Class A, B and C shares, respectively, for federal income tax
purposes. The cost basis of the shares on which the distribution is received is
not affected.
State Tax Information. The treatment of the distribution for state income tax
purposes varies with the tax laws and regulations of the various states. It is
suggested that you consult your local tax adviser for information relating to
the taxes which may be imposed by the laws of your state.
Lord Abbett Affiliated Fund, Inc.
New York, New York
Copyright (C) 1998 by Lord Abbett Affiliated Fund, Inc., 767 Fifth Avenue, New
York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Affiliated Fund, Inc., is to be distributed only if preceded or
accompanied by a current prospectus which includes information concerning the
Fund's investment objective and policies, sales charges and other matters. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
Our Management
Board of Directors
Robert S. Dow
E. Thayer Bigelow*+
William H.T. Bush*
Robert B. Calhoun, Jr.*
Stewart S. Dixon*
John C. Jansing*
C. Alan MacDonald*+
Hansel B. Millican, Jr.*
Thomas J. Neff*+
* Outside Director
+ Audit Committee
Officers
Robert S. Dow, Chairman and President
W. Thomas Hudson, Jr., Executive Vice
President and Portfolio Manager
Paul A. Hilstad, Vice President
and Secretary
Daniel E. Carper, Vice President
Robert G. Morris, Vice President
John J. Walsh, Vice President
Lawrence H. Kaplan, Vice President
and Assistant Secretary
Thomas F. Konop, Vice President
and Assistant Secretary
A. Edward Oberhaus III, Vice President
Keith F. O'Connor, Vice President
Donna McManus, Treasurer
Joseph Van Dyke, Assistant Treasurer
Lydia Guzman, Assistant Secretary
Robert M. Hickey, Assistant Secretary
Investment Manager and
Underwriter
Lord, Abbett & Co. and
Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
The Bank of New York
New York, NY
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
16
<PAGE>
Lord, Abbett & Co.
Portfolio
Manager
Profile
[PHOTO OMITTED]
W. Thomas Hudson, Jr.
Partner and Portfolio Manager
Lord Abbett Affiliated Fund
W. Thomas Hudson, Jr., Partner and Portfolio Manager of Lord Abbett Affiliated
Fund, joined the Firm in 1982, and has over 32 years of professional experience
in the financial services industry. During his tenure with Lord Abbett, Mr.
Hudson has served as Director of Research, Portfolio Manager of the COVA
Variable Annuity Growth and Income Portfolio and Portfolio Manager of the
American Skandia Lord Abbett Growth and Income Portfolio.
Mr. Hudson holds a BS in Finance and Accounting from St. Mary's College in
California.
About Your
Fund's
Board of
Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor llc (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience. Lord Abbett
Affiliated Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, Robert B. Calhoun, Jr.
Robert B. Calhoun, Jr.
Director--Lord Abbett
Affiliated Fund
[PHOTO OMITTED]
Mr. Calhoun is a graduate of Princeton University with over 35 years of Wall
Street experience. He is a Managing Partner and co-founder of Monitor Clipper
Partners and The Clipper Group, both private equity investment firms.
Previously, Mr. Calhoun spent over 25 years in Credit Suisse First Boston`s
Investment Banking Department.
Mr. Calhoun became a director of Lord Abbett's funds in 1998. He also currently
serves on the boards of David`s Bridal, Interstate Bakeries, Hvide Marine,
TravelCenters of America and Long John Silver`s Inc.
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
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GROWTH
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INCOME
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<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Growth Fund Income Funds Income Funds Market Fund
Developing Alpha Series Affiliated Fund Balanced Series Bond-Debenture o National U.S. Government
Growth Fund Fund o California Securities
Global Fund- Growth & o Connecticut Money Market
Equity Series Income Series Global Fund- o Florida Fund**+
Income Series o Georgia
Growth Research Fund- o Hawaii
Opportunities Large-Cap High Yield Fund o Michigan
Fund Series o Minnesota
Limited Duration o Missouri
International U.S. Government o New Jersey
Series Securities Series** o New York
o Pennsylvania
Mid-Cap U.S. Government o Texas
Value Fund Securities Series** o Washington
Research Fund- World Bond-
Small-Cap Debenture Series
Series*
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your investment professional provides value in helping you identify and
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for Lord Abbett Affiliated Fund.
For more complete information about any other Lord Abbett fund, including
charges and expenses, call your investment professional or Lord Abbett
Distributor llc at 800-874-3733 for a prospectus. Read it carefully before
investing.
When you invest in a family of funds, you benefit from:
Diversification. You and your investment professional can diversify your
investments between equity and income funds.
Flexibility. As your investment goals change, your investment professional can
help you reallocate your portfolio.
As an investor in the Lord Abbett Family of Funds, you have access to 32
portfolios designed to meet a variety of investment needs. While you may
reallocate your assets among our funds at any time, we recommend speaking with
your invest-ment professional to help you customize your investment plan.
Numbers to Keep Handy
For Shareholder Account or Statement Inquiries: 800-821-5129
For Literature Only: 800-874-3733
For More Information: 800-462-1130
Visit Our Web Site:
http://www.lordabbett.com
* The Lord Abbett Research Fund-Small-Cap Series is closed to new investors.
** An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. This Fund is managed
to maintain, and has maintained its stable $1.00 price per share.
- --------------------------------------------------------------------------------
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LAA-2-1098
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (12/98)
