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Table of Contents
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The Fund PAGE
What you should know Goal/Approach 2
about the fund Main Risks 2
Past Performance 3
Fees and Expenses 3
Your Investment
Information for managing Purchases 4
your fund account Opening Your Account 6
Redemptions 7
Distributions and Taxes 7
Services For Fund Investors 8
Sales Charges and Service Fees 9
Management 9
For More Information
How to learn more Other Investment Techniques 10
about the fund Glossary of Shaded Terms 10
Recent Performance 12
Financial Information
Financial Highlights 13
Compensation For Your Dealer 15
How to learn more about the Back Cover
fund and other Lord Abbett funds
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THE FUND
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GOAL/APPROACH
The fund's investment objective is long-term growth of capital and income
without excessive fluctuations in market value. Typically, in choosing stocks,
we look for companies using a three-step process.
QUANTITATIVE RESEARCH is performed on a universe of large, seasoned U.S. and
multinational companies to identify those whose stocks we believe represent the WE OR THE FUND refers to Lord Abbett
best bargains. Affiliated Fund, Inc. (the "company")
which operates under the supervi-
FUNDAMENTAL RESEARCH is conducted to assess a company's operating environment, sion of its Board with the advice of
resources and strategic plans and to determine its prospects for exceeding the Lord, Abbett & Co. ("Lord Abbett"),
earnings expectations reflected in its stock price. its investment manager.
BUSINESS CYCLE ANALYSIS is used to assess the economic and interest-rate ABOUT THE FUND. This fund is a profes-
sensitivity of our portfolio. This analysis helps us assess how adding or sionally managed portfolio primarily
deleting stocks changes our portfolio's overall sensitivity to economic holding securities purchased with the
activity and interest rates. pooled money of investors. It strives to
reach its stated goal, although as with
We believe that investors purchase and redeem our shares to meet long-term all funds, it cannot guarantee results.
financial objectives rather than to try to take advantage of short-term price
fluctuations. If so, their needs are best served by an investment seeking LARGE COMPANIES are established
capital appreciation with less fluctuations in market value than the Standard & companies that are considered
Poor's Composite Index of 500 stocks ("S&P 500'r'"). For this reason, we try to "known quantities." Large compa-
keep our assets invested in securities which are selling at reasonable prices nies often have the resources to
and, therefore, we are willing to forego some opportunities for gains when, in weather economic shifts, though
our judgment, they are too risky. they can be slower to innovate
than small companies.
We generally sell a stock when we think it is no longer a bargain, appears less
likely to benefit from the current market and economic environment, shows SEASONED COMPANIES are usually
deteriorating fundamentals or falls short of our expectations. established companies whose secu-
rities have gained a reputation for
While typically fully invested, at times we may take a temporary defensive quality with the investing public
position by investing some of our assets in short-term debt securities. This and enjoy liquidity in the market.
could have the effect of reducing the benefit from any upswing in the market and
prevent the fund from realizing its investment objective. BARGAIN STOCKS are stocks of
companies that appear under-
priced according to certain finan-
cial measurements of their intrinsic
MAIN RISKS worth or business prospects.
While stocks have historically been a leading choice of long-term investors, SMALL-COMPANY STOCKS are stocks of
they fluctuate in price. The value of your investment in the fund will go up and smaller companies which often are
down, which means that you could lose money. new and less established, with a ten-
dency to be faster-growing but more
Our performance may sometimes be lower or higher than that of other types of volatile than large company stocks.
funds (such as those emphasizing small-company stocks or growth stocks) because
different types of stocks tend to shift in and out of favor depending on market GROWTH STOCKS are stocks which
and economic conditions. While there is the risk that an investment may never exhibit faster-than-average gains in
reach what we think is its full value, or may go down in value, our emphasis on earnings and are expected to contin-
large seasoned company bargain stocks could limit our downside risk because ue profit growth at a high level, but
bargain stocks in theory are already underpriced and large seasoned company also tend to be more volatile than
stocks tend to be less volatile than small company stocks. In the long run, we bargain stocks.
may produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk. You should read this entire prospec-
tus, including "Other Investment
An investment in the fund is not a bank deposit. It is not FDIC-insured or Techniques," which concisely des-
government-endorsed. It is not a complete investment program. You could lose cribes the other investment strate-
money in this fund, but you also have the potential to make money. gies used by the fund and their risks.
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2 The Fund
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AFFILIATED FUND SYMBOLS: Class A - LAFFX
Class B - LAFBX
Class C - LAFCX
PAST PERFORMANCE
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The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's performance from calendar year to
calendar year and by showing how the fund's average annual returns compare
with those of a broad measure of market performance.
Past performance is not a
prediction of future
results.
[PAST PERFORMANCE GRAPH]
-------------------------
(i) The dates of
inception for each
- -------------------------------------------------------------------------------- class are:
A -1/1/50;
The table below shows a comparison of the fund's class A, B, C and P average B -8/1/96;
annual total return to that of the S&P 500'r' Index. Fund returns assume C -8/1/96;
reinvestment of dividends and distributions and payment of the maximum and P -12/8/97.
applicable front-end or deferred sales charge. All periods end on December 31,
1998. (ii) Performance for
the unmanaged
S&P 500'r'
Index does not
CLASS 1 YEAR 5 YEARS 10 YEARS INCEPTION(i) S&P 500'r' reflect
transaction costs
A 7.90% 17.30% 14.97% 12.67% - or management fees.
- -------------------------------------------------------------------------------
B 9.09% - - 20.94% 33.33(iii) (iii) Represents total
- ------------------------------------------------------------------------------- return for the
C 13.55% - - 22.48% 33.33(iii) period 7/31/96 -
- ------------------------------------------------------------------------------- 12/31/98, to
P 14.00% - - 11.35% 28.94(iv) correspond with
- ------------------------------------------------------------------------------- class B and C
S&P 500'r' Index(ii) 28.74% 24.08% 19.20% - - inception dates.
- -------------------------------------------------------------------------------
(iv) Represents total
return for the
period 12/31/97
- 12/31/98, to
correspond with
class P inception
date.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- -------------------------------------------------------------------------------------------------------
FEE TABLE
- -------------------------------------------------------------------------------------------------------
Class A Class B Class C Class P
SHAREHOLDER FEES (Fees paid directly from your investment) MANAGEMENT FEES are
- ------------------------------------------------------------------------------------------------------- payable to Lord Abbett
Maximum Sales Charge on Purchases for the fund's
- ------------------------------------------------------------------------------------------------------- investment management.
(as a % of offering price) 5.75% none none none
- ------------------------------------------------------------------------------------------------------- 12b-1 FEES refer to fees
Maximum Deferred Sales Charge (See "Purchases") none 5.00%(3) 1.00% none incurred for activities
- ------------------------------------------------------------------------------------------------------- that are primarily
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets) (as a % of average net assets)(1) intended to result in the
- ------------------------------------------------------------------------------------------------------- sale of fund shares and
Management Fees (See "Management") 0.31% 0.31% 0.31% 0.31% service fees for
- ------------------------------------------------------------------------------------------------------- shareholder account
Distribution and Service (12b-1) Fees(2) 0.35% 1.00% 1.00% 0.45% service and maintenance.
- -------------------------------------------------------------------------------------------------------
Other Expenses (See "Management") 0.09% 0.09% 0.09% 0.09% OTHER EXPENSES include
- ------------------------------------------------------------------------------------------------------- fees paid for
Total Operating Expenses 0.75% 1.40% 1.40% 0.85% miscellaneous items such
- ------------------------------------------------------------------------------------------------------- as transfer agency,
legal and share
registration fees.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period, although your
actual cost may be higher or lower. The expenses include any applicable
contingent deferred sales charges.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A shares $647 $801 $968 $1,454 --------------------------
- ----------------------------------------------------------------------------- (1) The annual operating
Class B shares(5) $642 $743 $966 $1,499 expenses have been
- ----------------------------------------------------------------------------- restated from fiscal
Class C shares $242 $443 $766 $1,682 year amounts to
- ----------------------------------------------------------------------------- reflect current fees.
Class P shares $87 $271 $471 $1,051
- ----------------------------------------------------------------------------- (2) Because 12b-1
distribution fees (up
You would pay the following expenses on the same investment, assuming you kept to: 0.10%- class A;
your shares. 0.75%- classes B and
C; and 0.25%- class
Class A shares $647 $801 $968 $1,454 P) are paid out on an
- ----------------------------------------------------------------------------- on-going basis, over
Class B shares(5) $142 $443 $766 $1,499 time they will
- ----------------------------------------------------------------------------- increase the cost of
Class C shares $142 $443 $766 $1,682 your investment and
- ----------------------------------------------------------------------------- may cost you more than
Class P shares $87 $271 $471 $1,051 paying other types of
- ----------------------------------------------------------------------------- sales charges. Service
fees under each
class's 12b-1 Plan
equal up to 0.25%,
This example is for comparison and is not a representation of the fund's actual except 0.20%- class P.
expenses or returns, either past or present.
(3) Class B shares will
convert to class A
shares on the eighth
anniversary of your
original purchase of
class B shares.
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The Fund 3
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YOUR INVESTMENT
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PURCHASES
This prospectus offers four classes of shares, class A, B, C and P. Although a
fund may have more than one class of shares, these different classes of shares
represent investments in the same portfolio of securities but are subject to
different expenses. Our shares are continuously offered. The offering price is NAV per share for each
based on the Net Asset Value ("NAV") per share next determined after we class of fund shares is
receive your purchase order submitted in proper form. A front-end sales charge calculated each business
is added to the NAV, in the case of the class A shares. There is no front-end day at the close of
sales charge, although there is a CDSC in the case of the class B and C regular trading on the
shares, as described below. New York Stock Exchange
("NYSE"). The fund is
You should read this section carefully to determine which class of shares open on those business
represents the best investment option for your particular situation. It may days when the NYSE is
not be suitable for you to place a purchase order for class B shares of open. Purchases and sales
$500,000 or more, or a purchase order for class C shares of $1,000,000 or of fund shares are
more. You should discuss pricing options with your investment professional. executed at the NAV next
determined after the fund
For more information, see "Alternative Sales Arrangements" in the Statement of receives your order. In
Additional Information. calculating NAV,
securities for which
We reserve the right to withdraw all or any part of the offering made by this market quotations are
prospectus or to reject any purchase order. We also reserve the right to waive available are valued at
or change minimum investment requirements. All purchase orders are subject to those quotations.
our acceptance and are not binding until confirmed or accepted in writing. Securities for which such
quotations are not
available are valued at
- -------------------------------------------------------------------------------- fair value under
FRONT-END SALES CHARGES - CLASS A SHARES procedures approved by
- -------------------------------------------------------------------------------- the Board.
TO COMPUTE
AS A % OF AS A % OF OFFERING PRICE
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT DIVIDE NAV BY
- -------------------------------------------------------------------------------- Share classes
Less than $50,000 5.75% 6.10% .9425
- -------------------------------------------------------------------------------- CLASS A
$50,000 to $99,999 4.75% 4.99% .9525
- -------------------------------------------------------------------------------- normally offered with a
$100,000 to $249,999 3.75% 3.90% .9625 front-end sales charge
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% .9725 CLASS B
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% .9800 no front-end sales
- -------------------------------------------------------------------------------- charge, however, a
$1,000,000 and over No Sales Charge 1.0000 contingent deferred
- -------------------------------------------------------------------------------- sales charge is applied
to shares sold prior to
Reducing Your Class A Front-End Sales Charges. Class A shares may be purchased the sixth anniversary of
at a discount if you qualify under either of the following: purchase
RIGHTS OF ACCUMULATION -- A Purchaser can apply the value (at public higher annual expenses
offering price) of the shares you already own to a new purchase of class A than class A shares
shares of any Eligible Fund in order to reduce the sales charge.
automatically convert to
STATEMENT OF INTENTION -- A Purchaser of class A shares can purchase class A shares after
additional shares of any Eligible Fund over a 13-month period and receive eight years
the same sales charge as if you had purchased all shares at once. Shares
purchased through reinvestment of dividends or distributions are not CLASS C
included. A statement of intention can be backdated 90 days. Current
holdings under rights of accumulation can be included in a statement of no front-end sales
intention. charge
For more information on eligibility for these privileges, read the applicable higher annual expenses
sections in the attached application. than class A shares
a contingent deferred
sales charge is applied
to shares sold prior to
the first anniversary of
purchase
CLASS P
available to certain
pension or retirement
plans and pursuant to a
Mutual Fund Advisory
Program
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4 Your Investment
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CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares may be
purchased without a front-end sales charge under any of the following:
purchases of $1 million or more*
purchases by Retirement Plans with at least 100 eligible employees* * These categories may be subject
to a Contingent Deferred Sales
purchases under a Special Retirement Wrap Program* Charge ("CDSC").
purchases made with dividends and distributions on class A shares of another
Eligible Fund
purchases representing repayment under the loan feature of the Lord Abbett- CDSC regardless of class, is not
sponsored prototype 403(b) Plan for class A shares charged on shares acquired through
reinvestment of dividends or
purchases by employees of any consenting securities dealer having a sales capital gains distributions and is
agreement with Lord Abbett Distributor charged on the original purchase
cost or the current market value of
purchases under a Mutual Fund Advisory Program the shares at the time they are
being sold, whichever is lower. In
purchases by trustees or custodians of any pension or profit sharing plan, or addition, repayment of loans under
payroll deduction IRA for employees of any consenting securities dealer having Retirement Plans and 403(b) Plans
a sales agreement with Lord Abbett Distributor will constitute new sales for
purposes of assessing the CDSC.
See the Statement of Additional Information for a listing of other categories of To determine if a CDSC applies to a
purchasers who qualify for class A share purchases without a front-end sales redemption, the fund redeems shares
charge. in the following order:
1. shares acquired by reinvestment
CLASS A SHARE CDSC. If you buy class A shares under one of the starred (*) of dividends and capital gains
categories listed above and you redeem any of them within 24 months after the
month in which you initially purchased them, the fund normally will collect a 2. shares held for six years or
CDSC of 1%. more (class B) or two years or
more after the month of purchase
The class A share CDSC generally will be waived for the following: (class A) or one year or more
(class C)
benefit payments such as Retirement Plan loans, hardship withdrawals, death,
disability, retirement, separation from service or any excess distribution 3. shares held the longest before
under Retirement Plans (documentation may be required) the sixth anniversary of their
purchase (class B) or before the
redemptions continuing as investments in another fund participating in a second anniversary after the
Special Retirement Wrap Program month of purchase (class A) or
before the first anniversary of
CLASS B SHARE CDSC. The CDSC for class B shares normally applies if you redeem their purchase (class C)
your shares before the sixth anniversary of their initial purchase. The CDSC
declines the longer you own your shares, according to the following schedule: RETIREMENT PLANS include
employer-sponsored retirement plans
under the Internal Revenue Code,
- -------------------------------------------------------------------------------- excluding Individual Retirement
CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES Accounts.
- --------------------------------------------------------------------------------
LORD ABBETT DISTRIBUTOR LLC ("Lord
ANNIVERSARY(1) OF CONTINGENT DEFERRED SALES CHARGE Abbett Distributor") acts as agent
THE DAY ON WHICH THE ON REDEMPTION (AS % OF AMOUNT for the funds to work with
PURCHASE ORDER WAS ACCEPTED SUBJECT TO CHARGE) investment professionals that buy
and/or sell shares of the funds on
On Before behalf of their clients. Generally,
- -------------------------------------------------------------------------------- Lord Abbett Distributor does not
1st 5.0% sell fund shares directly to
- -------------------------------------------------------------------------------- investors.
1st 2nd 4.0%
- -------------------------------------------------------------------------------- BENEFIT PAYMENT DOCUMENTATION.
2nd 3rd 3.0% (class A only)
- --------------------------------------------------------------------------------
3rd 4th 3.0% under $50,000 - no documentation
- -------------------------------------------------------------------------------- necessary
4th 5th 2.0%
- -------------------------------------------------------------------------------- over $50,000 - reason for benefit
5th 6th 1.0% payment must be received in
- -------------------------------------------------------------------------------- writing. Use the address
on or after the 6th(2) None indicated under "Opening Your
- -------------------------------------------------------------------------------- Account."
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(1) For class B and C shares, anniversary is the 365th day subsequent to a
purchase or a prior anniversary, starting with the day of purchase.
(2) Class B shares will automatically convert to class A shares on the eighth
anniversary of the purchase of class B shares.
Your Investment 5
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The class B share CDSC generally will be waived under any one of the following:
benefit payments such as Retirement Plan loans, hardship withdrawals, death,
disability, retirement, separation from service or any excess contribution or
distribution under Retirement Plans (documentation may be required)
Eligible Mandatory Distributions under 403(b) Plans and individual retirement
accounts IMPORTANT INFORMATION. You may be
subject to a $50 penalty under the
death of the shareholder (natural person) Internal Revenue Code if you do not
provide a correct taxpayer
redemptions of shares in connection with Div-Move and Systematic Withdrawal identification number (Social Security
Plans (up to 12% per year) Number for individuals) or make certain
required certifications. In addition,
See "Systematic Withdrawal Plan" under "Services For Fund Investors" below for we may be required to withhold from your
more information on CDSCs with respect to class B shares. account and pay to the U.S. Treasury 31%
of any redemption proceeds and any
CLASS C SHARE CDSC. The 1% CDSC for class C shares normally applies if you dividend or distribution from your
redeem your shares before the first anniversary of your original purchase. account.
CLASS P SHARES. Class P shares have lower annual expenses than class B and class
C shares, no front-end sales charge, and no CDSC. Class P shares are currently
sold and redeemed at NAV (a) pursuant to a Mutual Fund Advisory Program, or (b)
to the trustees of, or employer-sponsors with respect to, pension or retirement
plans with at least 100 eligible employees (such as a plan under Section 401(a),
401(k) or 457(b) of the Internal Revenue Code) which engage an investment
professional providing or participating in an agreement to provide, certain
recordkeeping, administrative and/or sub-transfer agency services to the fund on
behalf of the class P shareholders.
OPENING YOUR ACCOUNT
MINIMUM INITIAL INVESTMENT
Regular account $250
Individual Retirement Accounts and
403(b) Plans under the Internal Revenue Code $250
Uniform Gift to Minor Account $250
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For Retirement Plans and Mutual Fund Advisory Programs, no minimum investment
is required, regardless of share class.
You may purchase shares through any independent securities dealer who has a
sales agreement with Lord Abbett Distributor or you can fill out the attached
application and send it to the fund you select at the address stated below.
You should carefully read the paragraph below entitled "Proper Form" before
placing your order to assure your order will be accepted.
NAME OF FUND
P.O. Box 419100
Kansas City, MO 64141
PROPER FORM. An order submitted directly to the fund must contain: (1) a
completed application, and (2) payment by check. For more information
regarding proper form of a purchase order, call the fund at 800-821-5129.
Payment must be credited in U.S. dollars to our custodian bank's account.
BY EXCHANGE. Telephone the fund at 800-821-5129 to request an exchange from
any eligible Lord Abbett-sponsored fund.
6 Your Investment
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REDEMPTIONS
BY BROKER. Call your investment professional for directions on how to redeem
your shares.
BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less from
your account, you or your representative can call the fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating, the name(s) in which ELIGIBLE GUARANTOR is any broker or bank
the account is registered, the fund's name, the class of shares, your account that is a member of the Medallion Stamp
number, and the dollar value or number of shares you wish to sell. Program. Most major securities firms and
banks are members of this program. A
Include all necessary signatures. If the signer has any Legal Capacity, the NOTARY PUBLIC IS NOT AN ELIGIBLE
signature and capacity must be guaranteed by an Eligible Guarantor. Certain GUARANTOR.
other legal documentation may be required. For more information regarding
proper documentation call 800-821-5129.
Normally a check will be mailed to the name and address in which the account
is registered (or otherwise according to your instruction) within three
business days after receipt of your redemption request. Your account balance
must be sufficient to cover the amount being redeemed or your redemption order
will not be processed. Redemption requests for shares initially purchased by
check will not be honored for up to 15 days, unless we are assured that the
check has cleared earlier.
To determine if a CDSC applies to a redemption, see "Class A share CDSC,"
"Class B share CDSC" or "Class C share CDSC."
DISTRIBUTIONS AND TAXES
The fund pays its shareholders dividends from its net investment income, and SMALL ACCOUNTS. Our Board may authorize
distributes any net capital gains that it has realized. The fund expects that closing any account in which there are
its dividends from investment income will be paid quarterly. If a capital gain fewer than 25 shares if it is in the
distribution is declared, it will be paid annually. Your distributions will be fund's best interest to do so.
reinvested in the fund unless you instruct the fund to pay them to you in
cash. There are no sales charges on reinvestments.
TAXES ON TRANSACTIONS. The chart at left
The tax status of distributions is the same for all shareholders regardless of also can provide a "rule of thumb" guide
how long they have been in the fund or whether distributions are reinvested or for your potential U.S. federal income
paid in cash. In general, distributions are taxable as follows: tax liability when selling or exchanging
fund shares. The second row, "Short-term
capital gains," applies to fund shares
- -------------------------------------------------------------------------------- sold within 12 months of purchase. The
FEDERAL TAXABILITY OF DISTRIBUTIONS third row, "Long-term capital gains,"
applies to shares held for more than 12
Type of Tax rate for taxpayer Tax rate for taxpayer subject months.
distribution subject to 15% bracket to 28% bracket or above
- --------------------------------------------------------------------------------
INCOME Ordinary Starting January 1, 2001, sales of
DIVIDENDS 15% income rate securities held for more than five years
- -------------------------------------------------------------------------------- will be taxed at special lower rates.
SHORT-TERM Ordinary
CAPITAL GAINS 15% income rate
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAINS 10% 20%
- --------------------------------------------------------------------------------
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Except in tax-advantaged accounts, any sale or exchange of fund shares may be
a taxable event.
ANNUAL INFORMATION. Information concerning the tax treatment of dividends and
other distributions will be mailed to shareholders each year. The fund will
also provide annually to its shareholders information regarding the source of
dividends and distributions of capital gains by the fund. Because everyone's
tax situation is unique, you should consult your tax adviser regarding the
treatment of those distributions under the federal, state and local tax rules
that apply to you as well as the tax consequences of gains or losses from the
redemption or exchange of your shares.
Your Investment 7
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SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services when filling
out your application or by calling 800-821-5129. Lord Abbett offers a variety of
Retirement Plans. Call 800-253-7299 for
information about:
- --------------------------------------------------------------------------------
For investing Traditional, Rollover, Roth and
Education IRAs
INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum)
(Dollar-cost into your fund account by means of automatic money Simple IRAs, SEP-IRAs, 401(k) and
averaging) transfers from your bank checking account. See the 403(b) accounts
attached application for instructions.
Defined Contribution Plans
DIV-MOVE You can automatically reinvest the dividends and
distributions from your account into another account in
any Eligible Fund ($50 minimum).
For selling shares TELEPHONE TRANSACTIONS. You have this
privilege unless you refuse it in
SYSTEMATIC You can make regular withdrawals from most Lord Abbett writing. For your security, telephone
WITHDRAWAL funds. Automatic cash withdrawals can be paid to you from transaction requests are recorded. We
PLAN ("SWP") your account in fixed or variable amounts. To establish a will take measures to verify the
plan, the value of your shares must be at least $10,000, identity of the caller, such as asking
except for Retirement Plans for which there is no for your name, account number, social
minimum. Your shares must be in non-certificate form. security or taxpayer identification
number and other relevant information.
CLASS B SHARES The CDSC will be waived On redemptions of up to 12% of The fund will not be liable for
the current net asset value of your account at the time following instructions communicated by
of your SWP request. For class B share redemptions over telephone that it reasonably believes to
12% per year, the CDSC will apply to the entire be genuine.
redemption. Please contact the fund for assistance in
minimizing the CDSC in this situation. Transactions by telephone may be
difficult to implement in times of
Class B and Redemption proceeds due to a SWP for class B and class drastic economic or market change.
C shares C shares will be redeemed in the order described under
Contingent Deferred Sales Charges" under "Purchases." Exchanges by telephone should not be
- -------------------------------------------------------------------------------- used to take advantage of short-term
swings in the market. The fund reserves
the right to limit or terminate this
OTHER SERVICES privilege for any shareholder making
frequent exchanges or abusing the
TELEPHONE INVESTING. After we have received the attached application privilege and may revoke the privilege
(selecting "yes" under Section 7C and completing Section 7), you can for all shareholders upon 60 days'
instruct us by phone to have money transferred from your bank account to written notice.
purchase shares of the fund for an existing account. The fund will purchase
the requested shares when it receives the money from your bank.
TELEPHONE EXCHANGES. You or your investment professional, with proper
identification, can instruct your fund by telephone to exchange shares of
any class for shares of the same class of any Eligible Fund by calling
800-821-5129. The fund must receive instructions for the exchange before
the close of the NYSE on the day of your call. If you meet this
requirement, you will get the NAV per share of the Eligible Fund determined
on that day. Exchanges will be treated as a sale for federal tax purposes.
Be sure to read the current prospectus for any fund into which you are
exchanging.
REINVESTMENT PRIVILEGE. If you sell shares of the fund, you have a one time
right to reinvest some or all of the proceeds in the same class of any
Eligible Fund within 60 days without a sales charge. If you paid a CDSC
when you sold your shares, you will be credited with the amount of the
CDSC. All accounts involved must have the same registration.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives
quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive
a single copy of a prospectus and an annual or semi-annual report, unless
additional reports are specifically requested in writing to the fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult
your investment professional or call the fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a
schedule of exchanges between the same classes of any Eligible Fund.
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8 Your Investment
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SALES CHARGES AND SERVICE FEES
Sales and Service Compensation. As part of its plan for distributing shares,
the fund and Lord Abbett Distributor pay sales and service compensation to
Authorized Institutions that sell the fund's shares and service its
shareholder accounts.
Sales compensation originates from two sources: sales charges and 12b-1 12B-1 FEES ARE PAYABLE REGARDLESS OF
distribution fees that are paid out of the fund's assets. Service compensation EXPENSES. The amounts payable by a fund
originates from 12b-1 service fees. The 12b-1 fee rates vary by share class, need not be directly related to
according to the Rule 12b-1 plan adopted by the fund. The sales charges and expenses. If Lord Abbett Distributor's
12b-1 fees paid by investors are shown in the class-by-class information under actual expenses exceed the fee payable
"Fees and Expenses" and "Purchases." The portion of these expenses that is to it, a fund will not have to pay more
paid as sales and service compensation to Authorized Institutions, such as than that fee. If Lord Abbett
your dealer, is shown in the chart at the end of this prospectus. The portion Distributor's expenses are less than the
of such sales and service compensation paid to Lord Abbett Distributor is fee it receives, Lord Abbett Distributor
discussed under "Sales Activities" and "Service Activities." Sometimes we do will keep the full amount of the fee.
not pay sales and service compensation where tracking data is not available
for certain accounts or where the Authorized Institution waives part of the
compensation.
We may pay Additional Concessions to Authorized Institutions from time to
time.
</TABLE>
Sales Activities. We may use 12b-1 distribution fees to pay Authorized
Institutions to finance any activity which is primarily intended to result in
the sale of shares. Lord Abbett Distributor uses its portion of the
distribution fees attributable to the fund's class A and class C shares for
activities which are primarily intended to result in the sale of such class A
and class C shares, respectively. These activities include, but are not
limited to, printing of prospectuses and statements of additional information
and reports for other than existing shareholders, preparation and distribution
of advertising and sales material, expenses of organizing and conducting sales
seminars, Additional Concessions to Authorized Institutions, the cost
necessary to provide distribution-related services or personnel, travel,
office expenses, equipment and other allocable overhead.
Service Activities. We may pay Rule 12b-1 service fees to Authorized
Institutions for any activity which is primarily intended to result in
personal service and/or the maintenance of shareholder accounts. Any portion
of the service fees paid to Lord Abbett Distributor will be used to service
and maintain shareholder accounts.
MANAGEMENT
The fund's investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the nation's
oldest mutual fund complexes, with approximately $28 billion in more than 35
mutual fund portfolios and other advisory accounts. For more information about
the services Lord Abbett provides to the fund, see the Statement of Additional
Information.
The fund pays Lord Abbett a monthly fee based on average daily net assets for
each month. For the fiscal year ended October 31, 1998, the fee paid to Lord
Abbett was at an annual rate of .31 of 1%. In addition, the fund pays all
expenses not expressly assumed by Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting together to
manage the company's investments. Thomas Hudson Jr., Partner of Lord Abbett,
heads the team, the senior members of which include Robert Morris, Partner of
Lord Abbett, and Eli Salzman, Portfolio Manager. Messrs. Hudson and Morris
each have been with Lord Abbett since 1982 and 1991, respectively. Mr. Salzman
joined Lord Abbett in 1997 and previously was a Vice President with Mutual of
America Capital Corp. since 1997 and a Vice President with Mitchell Hutchins
Asset Management, Inc. from 1986 to 1997.
Your Investment 9
<PAGE>
FOR MORE INFORMATION
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be used by
the fund and its risks.
FOREIGN SECURITIES. 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. This affects block trading. Foreign portfolio securities
may trade on days when the fund does not value them. Fund share prices could
be affected on days an investor cannot purchase or sell shares. Other risks
include less information on public companies, banks and governments; political
and social instability; expropriations; higher transaction costs; currency
fluctuations; nondeductable withholding taxes and different accounting and
settlement practices. The fund will not invest more than 10% of its net assets
measured at the time of investment in foreign securities.
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. These bonds have a higher risk of default than investment
grade bonds and their prices can be much more volatile. The fund will not
invest more than 5% of its assets measured at the time of investment in high
yield debt securities.
ILLIQUID SECURITIES. Securities not traded on the open market. Certain
securities may be difficult or impossible to sell at the time and price the
seller would like.The fund may invest up to 15% of its assets in illiquid
securities. Securities determined by the Board to be liquid are not subject to
this limitation, such as those purchased under Securities and Exchange
Commission Rule 144A.
PORTFOLIO SECURITIES LENDING. The fund may lend securities to broker-dealers
and financial institutions, as a means of earning income. This practice could
result in a loss or delay in recovering a fund's securities, if the borrower
defaults. The fund will limit its securities loans to 30% of its total assets.
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.
The 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. The fund will limit covered call options on
securities having an aggregate market value not to exceed 10% of the fund's
gross assets.
GLOSSARY OF SHADED TERMS
ADDITIONAL CONCESSIONS. Lord Abbett Distributor may, for specified periods,
allow dealers to retain the full sales charge for sales of shares or may pay
an additional concession to a dealer who sells a minimum dollar amount of our
shares and/or shares of other Lord Abbett-sponsored funds. In some instances,
such additional concessions will be offered only to certain dealers expected
to sell significant amounts of shares. Additional payments may be paid from
Lord Abbett Distributor's own resources or from distribution fees received
from the fund and will be made in the form of cash or, if permitted, non-
10 For More Information
<PAGE>
<TABLE>
<S> <C>
cash payments. The non-cash payments will include business seminars at Lord
Abbett's headquarters or other locations, including meals and entertainment,
or the receipt of merchandise. The cash payments may include payment of
various business expenses of the dealer.
In selecting dealers to execute portfolio transactions for the fund's
portfolio, if two or more dealers are considered capable of obtaining best
execution, we may prefer the dealer who has sold our shares and/or shares of
other Lord Abbett-sponsored funds.
AUTHORIZED INSTITUTIONS. Institutions and persons permitted by law to receive
service and/or distribution fees under a Rule 12b-1 plan are "authorized
institutions." Lord Abbett Distributor is an Authorized Institution.
ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund except for
certain tax-free, single-state series where the exchanging shareholder is a
resident of a state in which such series is not offered for sale; Lord Abbett
Equity Fund; Lord Abbett Series Fund; Lord Abbett U.S. Government Securities
Money Market Fund ("GSMMF") (except for holdings in GSMMF which are
attributable to any shares exchanged from the Lord Abbett family of funds). An
Eligible Fund also is any Authorized Institution's affiliated money market
fund satisfying Lord Abbett Distributor as to certain omnibus account and
other criteria. GUARANTEED SIGNATURE. An acceptable form
of guarantee would be as follows:
ELIGIBLE MANDATORY DISTRIBUTIONS. If class B shares represent a part of an
individual's total IRA or 403(b) investment, the CDSC will be waived only for In the case of the estate -
that part of a mandatory distribution which bears the same relation to the
entire mandatory distribution as the B share investment bears to the total Robert A. Doe
investment. Executor of the Estate of
John W. Doe
LEGAL CAPACITY. With respect to a redemption request, if (for example) the
request is on behalf of the estate of a deceased shareholder, John W. Doe, by [Date]
a person (Robert A. Doe) who has the legal capacity to act for the estate of
the deceased shareholder because he is the executor of the estate, then the SIGNATURE GUARANTEED
request must be executed as follows: Robert A. Doe, Executor of the Estate of MEDALLION GUARANTEED
John W. Doe. That signature using that capacity must be guaranteed by an NAME OF GUARANTOR
Eligible Guarantor.
Similarly, if (for example) the redemption request is on behalf of the ABC [ILLEGIBLE]
Corporation by a person (Mary B. Doe) that has the legal capacity to act on ----------------------------
behalf of this corporation, because she is the President of the corporation, AUTHORIZED SIGNATURE
then the request must be executed as follows: ABC Corporation by Mary B. Doe,
President. That signature using that capacity must be guaranteed by an (960) X 9 0 0 3 4 7 0
Eligible Guarantor.
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
MUTUAL FUND ADVISORY PROGRAM. Certain unaffiliated authorized brokers, SR
dealers, registered investment advisers or other financial institutions who
either (a) have an arrangement with Lord Abbett Distributor in accordance with
certain standards approved by Lord Abbett Distributor, providing specifically In the case of the corporation -
for the use of our shares (and sometimes providing for acceptance of orders ABC Corporation
for such shares on our behalf) in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment Mary B. Doe
advisers and other financial institutions, or (b) charge an advisory,
consulting or other fee for their services and buy shares for their own By Mary B. Doe, President
accounts or the accounts of their clients.
[Date]
PURCHASER. The term "purchaser" includes: (i) an individual, (ii) an
individual and his or her spouse and children under the age of 21 and (iii) a
trustee or other fiduciary purchasing shares for a single trust estate or SIGNATURE GUARANTEED
single fiduciary account (including a pension, profit-sharing, or other MEDALLION GUARANTEED
employee benefit trust qualified under Section 401 of the Internal Revenue NAME OF GUARANTOR
Code -- more than one qualified employee benefit trust of a single employer,
[ILLEGIBLE]
----------------------------
AUTHORIZED SIGNATURE
(960) X 9 0 0 3 4 7 0
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
SR
</TABLE>
For More Information 11
<PAGE>
<TABLE>
<S> <C>
including its consolidated subsidiaries, may be considered a single trust, as
may qualified plans of multiple employers registered in the name of a single
bank trustee as one account), although more than one beneficiary is involved.
SPECIAL RETIREMENT WRAP PROGRAM. A program sponsored by an authorized
institution showing one or more characteristics distinguishing it, in the
opinion of Lord Abbett Distributor from a Mutual Fund Advisory Program. Such
characteristics include, among other things, the fact that an authorized
institution does not charge its clients any fee of a consulting or advisory
nature that is economically equivalent to the distribution fee under the class
A 12b-1 Plan and the fact that the program relates to participant-directed
Retirement Plans.
RECENT PERFORMANCE
During the past fiscal year, the stock market and the fund enjoyed returns YEAR 2000 ISSUES. The fund could be
above historical averages due to an environment of solid economic growth, low adversely affected if the computers used
inflation and strong corporate profit gains. Throughout most of the period, by the fund and their service providers
the portfolio has been evenly diversified, but with a moderate overweighting do not properly process and calculate
in financial stocks. Furthermore, we have shifted our focus within this group date-related information from and after
of stocks towards insurance companies, which are benefiting from industry-wide January 1, 2000.
consolidation and cost-cutting efforts.
While year 2000-related computer
problems could have a negative effect on
the fund, Lord Abbett is working to
avoid such problems and has assurances
from the fund's service providers that
they are taking similar steps. However,
because the problem is unprecedented, we
don't know whether these efforts will be
successful. Accordingly, the fund may be
adversely affected.
</TABLE>
12 For More Information
<PAGE>
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods indicated.
"Total return" shows how much your investment in the fund would have increased
(or decreased) during each period, assuming you had reinvested all dividends and
distributions. These Financial Highlights have been audited by Deloitte & Touche
LLP, the fund's independent auditors, in conjunction with their annual audit of
the fund's financial statements. Financial statements for the fiscal year ended
October 31, 1998 and the Independent Auditors' Report thereon appear in the
Annual Report to Shareholders for the fiscal year ended October 31, 1998 and are
incorporated by reference into the Statement of Additional Information, which is
available upon request. Certain information reflects financial results for a
single fund share.
<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 YEAR $ 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(d) 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 CLASS P SHARES
------------------------------ -------------------------- --------------
Year Ended October 31,
--------------------------------------------------------------------------------
Per Share Operating Performance: 1998 1997 1996(b) 1998 1997 1996(b) 1998(b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.84 $13.03 $11.88 $14.84 $13.02 $11.88 $14.24
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .14 .20 .060 .14 .22 .062 .18
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on securities 1.12 2.84 1.142 1.12 2.83 1.130 .27
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.26 3.04 1.202 1.26 3.05 1.192 .45
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.15) (.20) (.052) (.15) (.20) (.052) (.16)
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (1.39) (1.03) -- (1.39) (1.03) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $14.56 $14.84 $13.03 $14.56 $14.84 $13.02 $14.53
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(a) 9.41% 24.78% 10.15%(c) 9.41% 24.88% 10.07%(c) 3.21%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses(d) 1.38% 1.42% 0.34%(c) 0.40% 1.34% 0.33%(c) 0.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.87% 1.19% 0.27%(c) 0.85% 1.28% 0.25%(c) 1.21%
- -----------------------------------------------------------------------------------------------------------------------------------
</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 YEAR (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) From commencement of operations for each class of shares: August 1, 1996
(class B and C) and December 8, 1997 (class P).
(c) Not annualized.
(d) The ratios for 1998 and 1997 includes expenses paid through an expense
offset arrangement.
See Notes to Financial Statements.
Financial Information 13
<PAGE>
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the S&P 500'r' Index, assuming reinvestment of
all dividends and distributions.
<TABLE>
<S> <C>
[GRAPH FOR COMPARISON] (1) Reflects the deduction of the maximum initial
sales charge of 5.75%.
(2) Performance for the unmanaged S&P 500'r' Index
does not reflect transaction costs, management
fees or sales charges.
(3) This shows total return which is the percent
change in value, after deduction of the
maximum initial sales charge of 5.75%
applicable to class A shares, with all
dividends and distributions reinvested for the
periods shown ending October 31, 1998 using
the SEC-required uniform method to compute
such return. The inception date for class A
shares is 1/1/50.
(4) The class B shares were first offered on
8/1/96. Performance reflects the deduction of
a CDSC of 4% (for 1 year) and 3% (for life of
the class).
(5) The class C and P shares were first offered
on 8/1/96 and 12/8/97, respectively.
Performance is at net asset value.
- --------------------------------------------------------------------------------
Average Annual Total Return At Maximum Applicable
Sales Charge For The Periods Ending October 31, 1998
1 YEAR 5 YEARS 10 YEARS (OR LIFE)
- --------------------------------------------------------------
Class A(3) 3.90% 15.65% 14.15%
- --------------------------------------------------------------
Class B(4) 5.03% - 18.27%
- --------------------------------------------------------------
Class C(5) 9.41% - 19.88%
- --------------------------------------------------------------
Class P(5) - - 3.21%
- --------------------------------------------------------------
</TABLE>
14 Financial Information
<PAGE>
COMPENSATION FOR YOUR DEALER
- --------------------------------------------------------------------------------
FIRST YEAR COMPENSATION
<TABLE>
<CAPTION>
Front-end
sales charge Dealer's
paid by investors concession Service fee(1) Total compensation(2)
Class A investments (% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Less than $50,000 5.75% 5.00% 0.25% 5.24%
- -----------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.00% 0.25% 4.24%
- -----------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.25% 0.25% 3.49%
- -----------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.75% 2.25% 0.25% 2.49%
- -----------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.75% 0.25% 2.00%
- -----------------------------------------------------------------------------------------------------------------------------------
$1 million or more(3) or Retirement Plan - 100 or more
eligible employees(3) or Special Retirement Wrap Program(3)
- -----------------------------------------------------------------------------------------------------------------------------------
First $5 million no front-end sales charge 1.00% 0.25% 1.25%
- -----------------------------------------------------------------------------------------------------------------------------------
Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80%
- -----------------------------------------------------------------------------------------------------------------------------------
Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Over $50 million no front-end sales charge 0.25% 0.25% 0.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Class B investments Paid at time of sale (% of net asset value)
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 3.75% 0.25% 4.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Class C investments
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Class P investments Percentage of average net assets
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AFTER FIRST YEAR
Class A investments
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------------------------
Class B investments Percentage of average net assets(4)
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------------------------
Class C investments
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Class P investments
- -----------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The service fee for class A and P shares is paid quarterly and for class A
shares may not exceed 0.15% for shares sold prior to June 1, 1990. The first
year's service fee on class B and C shares is paid at the time of sale.
(2) Reallowance/concession percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition. Additional
Concessions may be paid to Authorized Institutions, such as your dealer,
from time to time.
(3) Concessions are paid at the time of sale on all class A shares sold during
any 12-month period starting from the day of the first net asset value sale.
With respect to (a) class A share purchases at $1 million or more, sales
qualifying at such level under rights of accumulation and statement of
intention privileges are included and (b) for Special Retirement Wrap
Programs, only new sales are eligible and exchanges into the fund are
excluded.
(4) With respect to class B, C and P shares, 0.25%, 1.00% and 0.45%,
respectively, of the average annual net asset value of such shares
outstanding during the quarter (including distribution reinvestment shares
after the first anniversary of their issuance) is paid to Authorized
Institutions, such as your dealer. These fees are paid quarterly in arrears.
Financial Information 15
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
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<S> <C>
More information on this fund is available
free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORT To obtain information:
Describes the fund, lists portfolio holdings BY TELEPHONE. Call the fund
and contains a letter from the fund's manager at 800-426-1130
discussing recent market conditions and the
fund's investment strategies. BY MAIL.
Write to the fund at:
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The Lord Abbett Family of Funds
767 Fifth Avenue
Provides more details about the fund and its New York, NY 10153-0203
policies. A current SAI is on file with the
Securities and Exchange Commission ("SEC") VIA THE INTERNET. Text only
and is incorporated by reference (is legally versions of fund documents
considered part of this prospectus). can be viewed online or
downloaded from:
LORD, ABBETT & CO.
http://www.lordabbett.com
SEC
http://www.sec.gov
You can also obtain copies by visiting
the SEC's Public Reference Room in Washington,
DC (phone 800-SEC-0330) or by sending
your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.
Affiliated Fund LAA-1-399
(3/99)
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
- ------------------------------
SEC file number: 811-5
</TABLE>
<PAGE>
Lord
Abbett Affiliated Fund
Prospectus
March 1, 1999
[LOGO]
As with all mutual funds, the Securities and Exchange
Commission does not guarantee that the information in this
prospectus is accurate or complete, and it has not judged this
fund for its investment merit. It is a criminal offense to
state otherwise.
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................. 'TM'
The registered trademark symbol shall be expressed as.................. 'r'
<PAGE>
- --------------------------------------------------------------------------------
LORD ABBETT
Statement of Additional Information March 1, 1999
- --------------------------------------------------------------------------------
Lord Abbett Affiliated Fund, Inc.
================================================================================
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord Abbett Distributor LLC
("Lord Abbett Distributor") at The General Motors Building, 767 Fifth Avenue,
New York, New York 10153-0203. This Statement relates to, and should be read in
conjunction with, the Prospectus dated March 1, 1999.
Lord Abbett Affiliated Fund, Inc. (referred to as "we" or the "Fund") was
organized in 1934 and was reincorporated under Maryland law on November 26,
1975. The Fund has 2,000,000,000 shares of authorized capital stock consisting
of five classes (A, B, C, P and Y), $0.001 par value. Only classes A, B, C and P
are offered by this Statement of Additional Information. The Fund is an
open-end, diversified management investment company. The Board of Directors will
allocate these authorized shares of capital stock among the classes from time to
time. All shares have equal noncumulative voting rights and equal rights with
respect to dividends, assets and liquidation, except for certain class-specific
expenses. They are fully paid and nonassessable when issued and have no
preemptive or conversion rights.
Rule 18f-2 under the Investment Company Act of 1940, as amended (the "Act")
provides that any matter required to be submitted, by the provisions of the Act
or applicable state law or otherwise, to the holders of the outstanding voting
securities of an investment company such as the Fund shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each class affected by such matter. Rule 18f-2 further
provides that a class shall be deemed to be affected by a matter unless the
interests of each class in the matter are substantially identical or the matter
does not affect any interest of such class. However, the Rule exempts the
selection of independent public accountants, the approval of a contract with a
principal underwriter and the election of directors from its separate voting
requirements.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. The 1998 Annual shareholder report is available, without
charge, upon request by calling that number. In addition, you can make inquiries
through your dealer.
TABLE OF CONTENTS Page
1. Investment Policies 2
2. Directors and Officers 4
3. Investment Advisory and Other Services 7
4. Portfolio Transactions 8
5. Purchases, Redemptions and
Shareholder Services 9
6. Past Performance 16
7. Taxes 17
8. Information About the Fund 18
9. Financial Statements 18
<PAGE>
1.
Investment Policies
Fundamental Investment Restrictions. We will not change our investment objective
mentioned in the Prospectus or the following fundamental investment restrictions
without shareholder approval. If we determine that our objective can best be
achieved by a change in any non-fundamental investment policy, strategy or
restriction, we may make such change without shareholder approval by disclosing
it in the prospectus or statement of additional information.
The Fund may not: (1) borrow money, except that (i) the Fund may borrow from
banks (as defined in the Act)) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (ii) the Fund may borrow up to an additional 5%
of its total assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law; (2) pledge its assets (other than to
secure borrowings, or to the extent permitted by the Fund's investment policies,
as permitted by applicable law); (3) engage in the underwriting of securities,
except pursuant to a merger or acquisition or to the extent that, in connection
with the disposition of its portfolio securities, it may be deemed to be an
underwriter under federal securities laws; (4) make loans to other persons,
except that the acquisition of bonds, debentures or other corporate debt
securities and investment in government obligations, commercial paper,
pass-through instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be subject to this
limitation, and except further that the Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in accordance
with applicable law; (5) buy or sell real estate (except that the Fund may
invest in securities directly or indirectly secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein)
or commodities or commodity contracts (except to the extent the Fund may do so
in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act as, for example, with futures
contracts); (6) with respect to 75% of the gross assets of the Fund, buy
securities of one issuer representing more than (i) 5% of the Fund's gross
assets, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or (ii) 10% of the voting securities of such
issuer; (7) invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or (8) issue senior
securities to the extent such issuance would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by changes in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
Non-Fundamental Investment Restrictions. In addition to the investment
restrictions above which cannot be changed without shareholder approval, the
Fund is subject to the following non-fundamental investment policies which may
be changed by the Board of Directors without shareholder approval. The Fund may
not: (1) borrow in excess of 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 Act, deemed to be liquid
by the Board of Directors; (4) invest in the securities of other investment
companies except as permitted by applicable law; (5) invest in securities of
issuers which, with their predecessors, have a record of less than three years'
continuous operations, if more than 5% of the Fund's total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or guaranteed by the
U. S. Government, its agencies or instrumentalities); (6) hold securities of any
issuer if more than 1/2 of 1% of the securities of such issuer are owned
beneficially by one or more officers or directors of the Fund or by one or more
partners or members of the Fund's underwriter or investment adviser if these
owners in the aggregate own beneficially more than 5% of the securities of such
issuer; (7) invest in warrants if, at the time of the acquisition, its
investment in warrants, valued at the lower of cost or market, would exceed 5%
of the Fund's total assets (included within such limitation, but not to exceed
2% of the Fund's total assets, are warrants which are not listed on the New York
or American Stock Exchange or a major foreign exchange); (8) invest in real
estate limited partnership interests or interests in oil, gas or other mineral
leases, or exploration or other development programs, except that the Fund may
invest in securities issued by companies that engage in oil, gas or other
mineral exploration or other development activities; (9) write, purchase or sell
puts, calls, straddles, spreads or combinations thereof, except to the extent
permitted in the Fund's prospectus and statement of additional information, as
they may be amended from time to time; (10) buy from or sell to any of its
officers, directors,
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<PAGE>
employees, or its investment adviser or any of its officers, directors, partners
or employees, any securities other than shares of the Fund's common stock; or
(11) pledge, mortgage or hypothecate its assets, however, this provision does
not apply to the grant of escrow receipts or the entry into other similar escrow
arrangements arising out of the writing of covered call options.
Although it has no current intention to do so, the Fund may invest in financial
futures and options on financial futures.
For the year ended October 31, 1998, the portfolio turnover rate was 56.44%
versus 46.41% for the prior year.
Lending Portfolio Securities. The Fund may lend portfolio securities to
registered broker-dealers. These loans may not exceed 30% of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash or
marketable securities issued or guaranteed by the U.S. Government or its
agencies ("U.S. Government Securities") or other permissible means. The cash or
instruments collateralizing the Fund's loans of securities will be maintained at
all times in an amount at least equal to the current market value of the loaned
securities. From time to time, the Fund may allow to the borrower and/or a third
party that is not affiliated with the Fund and is acting as a "placing broker" a
part of the interest received with respect to the investment of collateral
received for securities loaned. No fee will be paid to affiliated persons of the
Fund.
By lending portfolio securities, the Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either investing the
cash collateral in permissible investments, such as U.S. Government Securities,
or obtaining yield in the form of interest paid by the borrower when such U.S.
Government Securities are used as collateral. The Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% collateral from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned rises above the
level of the collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable compensation with respect to the
loan, as well as any dividends, interest or other distributions on the loaned
securities; (v) the Fund may pay only reasonable fees in connection with the
loan and (vi) voting rights on the loaned securities may pass to the borrower
except that, if a material event adversely affecting the investment in the
loaned securities occurs, the Fund's Board of Directors must terminate the loan
and regain the right to vote the securities.
Rule 144A Securities. We may invest in securities qualifying for resale to
"qualified institutional buyers" under SEC Rule 144A that are determined by the
Board, or by Lord Abbett pursuant to the Board's delegation, to be liquid
securities. The Board will review quarterly the liquidity of the investments the
Fund makes in such securities. Investments by the Fund in Rule 144A securities
initially determined to be liquid could have the effect of diminishing the level
of the Fund's liquidity during periods of decreased market interest in such
securities among qualified institutional buyers.
Other Investment Policies (which can be changed without shareholder approval) As
stated in the Prospectus, we may write covered call options which are traded on
a national securities exchange with respect to securities in our portfolio in an
attempt to increase our income and to provide greater flexibility in the
disposition of our portfolio securities. A "call option" is a contract sold for
a price (the "premium") giving its holder the right to buy a specific number of
shares of stock at a specific price prior to a specified date. A "covered call
option" is a call option issued on securities already owned by the writer of the
call option for delivery to the holder upon the exercise of the option. During
the period of the option, we forgo the opportunity to profit from any increase
in the market price of the underlying security above the exercise price of the
option (to the extent that the increase exceeds our net premium). We also may
enter into "closing purchase transactions" in order to terminate our obligation
to deliver the underlying security (this may result in a short-term gain or
loss). A closing purchase transaction is the purchase of a call option (at a
cost which may be more or less than the premium received for writing the
original call option) on the same security, with the same exercise price and
call period as the option previously written. If we are unable to enter into a
closing purchase transaction, we may be required to hold a security that we
might otherwise have sold to protect against depreciation. We do not intend to
write covered call options with respect to securities with an aggregate market
value of more than 10% of our gross assets at the time an option is written.
This percentage limitation will not be increased without prior disclosure in our
current Prospectus.
Risk Factors. As stated in the Prospectus, we may invest no more than 5% of our
net assets (at the time of investment) in lower-rated, high-yield bonds. In
general, the market for lower-rated, high-yield bonds is more limited than the
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<PAGE>
market for higher-rated bonds, and because trading in such bonds may be thinner
and less active, the market prices of such bonds may fluctuate more than the
prices of higher-rated bonds, particularly in times of market stress. In
addition, while the market for high-yield, corporate debt securities has been in
existence for many years, the market in recent years experienced a dramatic
increase in the large-scale use of such securities to fund highly-leveraged
corporate acquisitions and restructurings. Accordingly, past experience may not
provide an accurate indication of future performance of the high-yield bond
market, especially during periods of economic recession. Other risks which may
be associated with lower-rated, high-yield bonds include their relative
insensitivity to interest-rate changes; the exercise of any of their redemption
or call provisions in a declining market which may result in their replacement
by lower-yielding bonds; and legislation, from time to time, which may adversely
affect their market. Since the risk of default is higher among lower-rated,
high-yield bonds, Lord Abbett's research and analyses are an important
ingredient in the selection of such bonds. Through portfolio diversification,
good credit analysis and attention to current developments and trends in
interest rates and economic conditions, investment risk can be reduced, although
there is no assurance that losses will not occur. The Fund does not have any
minimum rating criteria applicable to the fixed-income securities in which it
invests.
2.
Directors and Officers
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also an officer,
director or trustee of the twelve other Lord Abbett-sponsored funds. He is an
"interested person" as defined in the Act, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plan described in the
Prospectus.
Robert S. Dow, age 53, Chairman and President
The following outside directors are also directors or trustees of the twelve
other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer
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 the financial advisory firm of
Bush-O'Donnell & Company. Age 60.
Robert B. Calhoun, Jr.
Monitor Clipper Partners
650 Madision 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.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
4
<PAGE>
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.
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 eighteen 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 Director of Ace, Ltd. (NYSE). Age 61.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the equity-based benefits accrued for outside directors
maintained by the Lord Abbett-sponsored funds. The fourth column sets forth the
total compensation payable by such funds to the outside directors. No director
of the Fund associated with Lord Abbett and no officer of the Fund received any
compensation from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended October 31, 1998
------------------------------------------
(1) (2) (3) (4)
Pension or For Year Ended
Retirement Benefits December 31, 1998
Accrued by the Total Compensation
Aggregate Fund and Accrued by the Fund
Compensation All Other Lord and All Other Lord
Accrued by Abbett-sponsored Abbett-sponsored
Name of Director the Fund(1) Funds(2) Funds(3)
- ---------------- ------------ ------------------- -------------------
<S> <C> <C> <C>
E. Thayer Bigelow $24,154 $17,068 $57,400
William H. T. Bush* $ 6,971 $ 0 $27,500
Robert B. Calhoun, Jr.** $ 9,506 $ 0 $33,500
</TABLE>
5
<PAGE>
Stewart S. Dixon $23,766 $32,190 $56,500
John C. Jansing $23,449 $45,085 $55,500
C. Alan MacDonald $23,440 $30,703 $55,000
Hansel B. Millican, Jr $23,449 $37,747 $55,500
Thomas J. Neff $23,871 $19,853 $56,500
* Elected as of August 13, 1998.
** Elected as of June 17, 1998.
1. Outside trustees' 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 the Fund to its
outside directors/trustees 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/trustees.
2. The amounts in Column 3 were accrued by the Lord Abbett-Sponsored Funds
for the 12 months ended October 31, 1998 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. Current
directors had the option to convert their accrued benefits under the
retirement plan. All of the outside directors except one made such an
election.
3. This column shows aggregate compensation, including directors fees and
attendance fees for board and committee meetings, of a nature referred to
in footnote one, accrued by the Lord Abbett-sponsored funds during the
year ended December 31, 1998 The amounts of the aggregate compensation
payable by the Fund as of October 31, 1998 deemed invested in Fund shares,
including dividends reinvested and changes in net asset value applicable
to such deemed investments, were: Mr. Bigelow, $105,839; Mr. Bush, $ 0 ,
Mr. Calhoun, Jr. $6,971, Mr. Dixon, $ 455,675; Mr. Jansing, $ 455,675; Mr.
MacDonald, $ 258,267; Mr. Millican, $ 460,231 and Mr. Neff, $456,571. If
the amounts deemed invested in Fund shares were added to each director's
actual holdings of Fund shares as of October 31, 1998, each would own, the
following: Mr. Bigelow, 7,269 shares; Mr. Bush, 0 shares, Mr. Calhoun,
478 shares, Mr. Dixon, 31,296 shares; Mr. Jansing, 31,296 shares, Mr.
McDonald, 17,738 shares; Mr. Millican, 31,609 shares; and Mr. Neff,
31,609 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 the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Carper, Hilstad, Hudson, Morris and Walsh are partners of Lord Abbett; the
others are employees:
Executive Vice President:
W. Thomas Hudson, Jr. age 57
Vice Presidents:
Paul A. Hilstad, age 56, Vice President and Secretary (with Lord Abbett since
1995; formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.)
Daniel E. Carper, age 47
Lawrence H. Kaplan, age 42 (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
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<PAGE>
Robert G. Morris, age 54
A. Edward Oberhaus III, age 39
Keith F. O'Connor, age 43
Eli M. Salzmann, age 34
John J. Walsh, age 62
Treasurer:
Donna M. McManus, age 38 (with Lord Abbett since 1996, formerly a Senior Manager
at Deloitte & Touche LLP).
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called by a majority of the Board of
Directors or by stockholders holding at least one quarter of the stock of the
Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the stockholders will elect directors and vote on the approval
of the independent auditors of the Fund.
As of February 12, 1999 our officers and directors, as a group, owned less than
1% of our outstanding shares. As of February 12, 1999 there were no record
holders of 5% or more of the Fund's outstanding shares.
3.
Investment Advisory and Other Services
As described under "Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. Of the seventeen general partners of Lord Abbett are
officers and/or directors of the Fund and are identified as follows: Daniel E.
Carper, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Robert G. Morris and
John J. Walsh. The other general partners of Lord Abbett who are neither
officers nor directors of the Fund are: Stephen I. Allen, Zane E. Brown, John E.
Erard, Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Stephen J. McGruder,
Michael McLaughlin, Robert J. Noelke, Robert M. Pennington, and Christopher J.
Towle. 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
"Management." Under the Management Agreement, we pay Lord Abbett a monthly fee,
based on average daily net assets for each month, at the annual rate of .5 of 1%
of the portion of our net assets not in excess of $200,000,000; .4 of 1% of the
portion in excess of $200,000,000, but not in excess of $500,000,000; .375 of 1%
of the portion in excess of $500,000,000, but not in excess of $700,000,000; .35
of 1% of the portion in excess of $700,000,000, but not in excess of
$900,000,000; and .3 of 1% of the portion in excess of $900,000,000. This fee is
allocated among Class A, B and C based on the classes' proportionate shares of
such average daily net assets.
For the fiscal years ended October 31, 1998, 1997 and 1996, the management fees
paid to Lord Abbett by the Fund amounted to $26,317,934, $22,192,209 and
$17,683,694 respectively.
We pay all expenses not expressly assumed by Lord Abbett, including without
limitation 12b-1 expenses, outside directors' fees and expenses, association
membership dues, legal and auditing fees, taxes, transfer and dividend
disbursing agent fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions.
Lord Abbett Distributor LLC serves as the principal underwriter for the Fund.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
our Board of Directors to continue in such capacity. They perform auditing
services for the Fund including the audits of financial statements included in
our Annual Report to Shareholders.
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<PAGE>
The Bank of New York ("BNY"), 48 Wall Street, New York, New York, 10286, is the
Fund's custodian. In accordance with the requirements of Rule 17f-5, the Fund's
directors have approved arrangements permitting the Fund's foreign assets not
held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
United Missouri Bank of Kansas City, N.A. Tenth and Grand Kansas City, Missouri,
64141, acts as the transfer agent and dividend dispersing agent for each Fund.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, we generally pay, as described below, a higher commission than
some brokers might charge on the same transactions. Our policy with respect to
best execution governs the selection of brokers or dealers and the market in
which the transaction is executed. To the extent permitted by law, we may, if
considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and ability to take
positions in securities, knowledge of a particular security or market proven
ability to handle a particular type of trade, confidential treatment, promptness
and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of 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 from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of Lord Abbett 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-
8
<PAGE>
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, 1998, 1997 and 1996, we paid total
commissions to independent dealers of $12,832,030, $7,681,037 and $5,897,259,
respectively.
5.
Purchases, Redemptions
and Shareholder Services
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
Information concerning how we value our shares for the purchase and redemption
of our shares is described in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate our net asset value and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The maximum offering price of our Class A shares on October 31, 1998 was
computed as follows:
Net asset value per share (net assets divided by
shares outstanding)......................................$14.56
Maximum offering price per share (net asset value
divided by .9425)........................................$15.45
The net asset value per share for the Class B and Class C shares will be
determined in the same manner as for the Class A shares (net assets divided by
shares outstanding). Our Class B and Class C shares will be sold at net asset
value.
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor") and
subsidiary of Lord Abbett, under which Lord Abbett Distributor is obligated to
use its best efforts to find purchasers for the shares of the Fund, and to make
reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's
judgment, a substantial distribution can be obtained by reasonable efforts.
Lord Abbett Distributor is obligated to distribute our shares on a best effort
basis. Our shares are offered on a continuous basis. For the last three fiscal
years, Lord Abbett Distributor, as our principal underwriter, received net
commissions after allowance of a portion of the sales charge to independent
dealers with respect to Class A shares as
9
<PAGE>
follows:
Year Ended October 31, 1998
---------------------------
1998 1997 1996
---- ---- ----
Gross sales charge $21,698,908 $16,853,194 $15,464,565
Amount allowed to dealers $18,696,650 $14,522,076 $13,701,148
----------- ----------- -----------
Net commissions
received by
Lord Abbett $ 3,002,258 $ 2,331,118 $ 1,763,417
=========== =========== ===========
Conversion of Class B Shares. The conversion of Class B shares on the eighth
anniversary of their purchase is subject to the continuing availability of a
private letter ruling from the Internal Revenue Service, or an opinion of
counsel or tax adviser, to the effect that the conversion of Class B shares does
not constitute a taxable event for the holder under Federal income tax law. If
such a revenue ruling or opinion is no longer available, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the holder.
ALTERNATIVE SALES ARRANGEMENTS
Classes of Shares. The Fund offers investors five different classes of shares.
This Statement of Additional Information offers four of those classes designated
Class A, B, C and P. The different classes of shares represent investments in
the same portfolio of securities but are subject to different expenses and will
likely have different share prices. Investors should read this section carefully
to determine which class represents the best investment option for their
particular situation.
Class A Shares. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees or on investments that
do not qualify to be under a "special retirement wrap program" as a program
sponsored by an authorized institution showing one or more characteristics
distinguishing it, in the opinion of Lord Abbett Distributor from a mutual fund
wrap fee program). If you purchase Class A shares as part of an investment of at
least $1 million (or for Retirement Plans with at least 100 eligible employees
or under a special retirement wrap program) in shares of one or more Lord
Abbett-sponsored funds, you will not pay an initial sales charge, but if you
redeem any of those shares within 24 months after the month in which you buy
them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%
except for redemptions under a special retirement wrap program. Class A shares
are subject to service and distribution fees that are currently estimated to
total annually approximately 33 of 1% of the annual net asset value of the Class
A shares. The initial sales charge rates, the CDSC and the Rule 12b-1 plan
applicable to the Class A shares are described in "Buying Class A Shares" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the sixth anniversary of
buying them, you will normally pay a CDSC to Lord Abbett Distributor LLC ("Lord
Abbett Distributor"). That CDSC varies depending on how long you own shares.
Class B shares are subject to service and distribution fees at an annual rate of
1% of the annual net asset value of the Class B shares. The CDSC and the Rule
12b-1 plan applicable to the Class B shares are described in "Buying Class B
Shares" below.
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the first anniversary of
buying them, you will normally pay the Fund a CDSC of 1%. Class C shares are
subject to service and distribution fees at an annual rate of 1% of the annual
net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan
applicable to the C shares are described in "Buying Class C Shares" below.
Class P Shares. If you buy Class P shares, you pay no sales charge at the time
of purchase, and if you redeem your
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<PAGE>
shares you pay no CDSC. Class P shares are subject to service and distribution
fees at an annual rate of .45 of 1% of the average daily net asset value of the
Class P shares. The Rule 12b-1 plan applicable to the Class P shares is
described in "Class P Rule 12b-1 Plan". Class P shares are available to a
limited number of investors.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Fund's class-specific expenses and the
effect of the different types of sales charges on your investment will affect
your investment results over time. The most important factors are how much you
plan to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in the Fund. We used the sales charge rates that apply
to Class A, Class B and Class C, and considered the effect of the higher
distribution fees on Class B and Class C expenses (which will affect your
investment return). Of course, the actual performance of your investment cannot
be predicted and will vary, based on the Fund's actual investment returns, the
operating expenses borne by each class of shares, and the class of shares you
purchase. The factors briefly discussed below are not intended to be investment
advice, guidelines or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000 expected to be
held 4 to 6 years (or more), Class A shares may become more appropriate than
Class C. If you are investing $500,000 or more, Class A may become more
desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees or for investments pursuant to a special retirement
wrap program, in most cases Class A shares will be the most advantageous choice,
no matter how long you intend to hold your shares. For that reason, it may not
be suitable for you to place a purchase order for Class B shares of $500,000 or
more or a purchase order for Class C shares of $1,000,000 or more. In addition,
it may not be suitable for you to place an order for Class B or C shares for a
Retirement Plan with at least 100 eligible employees or for a special retirement
wrap program. You should discuss this with your financial advisor.
Investing for the Longer Term. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more, Class B shares
11
<PAGE>
may be an appropriate investment option, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or Class C shares,
as discussed above, because of the effect of the expected lower expenses for
Class A shares and the reduced initial sales charges available for larger
investments in Class A shares under the Fund's Rights of Accumulation. Of
course, these examples are based on approximations of the effect of current
sales charges and expenses on a hypothetical investment over time, and should
not be relied on as rigid guidelines.
Are There Differences in Account Features That Matter to You? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" in the Prospectus for
more information about the 12% annual waiver of the CDSC. You should carefully
review how you plan to use your investment account before deciding which class
of shares you buy. For example, the dividends payable to Class B and Class C
shareholders will be reduced by the expenses borne solely by each of these
classes, such as the higher distribution fee to which Class B and Class C shares
are subject, as described below.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A and B shares and is paid over
time, so long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC for the
Class B shares and the distribution fee for Class B and Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A shares: to
compensate brokers and other persons selling such shares. The CDSC, if payable,
supplements the Class B distribution fee and reduces the Class C distribution
fee expenses for the Fund and Class C shareholders.
Class A, B, C and P Rule 12b-1 Plans. As described in the Prospectus, the Fund
has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act
for each of four Fund Classes: the "A Plan", the "B Plan" , the "C Plan", and
the "P Plan", respectively. In adopting each Plan and in approving its
continuance, the Board of Directors has concluded that there is a reasonable
likelihood that each Plan will benefit its respective Class and such Class'
shareholders. The expected benefits include greater sales and lower redemptions
of Class shares, which should allow each Class to maintain a consistent cash
flow, and a higher quality of service to shareholders by authorized institutions
than would otherwise be the case. During the last fiscal year, the Fund accrued
or paid through Lord Abbett to authorized institutions $18,728,615 under the A
Plan, $2,476,427 under the B Plan , $939,042 under the C Plan and $ 744 Class P
Plan. Lord Abbett uses all amounts received under each Plan as described in the
Prospectus and for payments to dealers for (i) providing continuous services to
the shareholders, such as answering shareholder inquiries, maintaining records,
and assisting shareholders in making redemptions, transfers, additional
purchases and exchanges and (ii) their assistance in distributing shares of the
Fund.
Each Plan requires the directors to review, on a quarterly basis, written
reports of all amounts expended pursuant to the Plan and the purposes for which
such expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the directors,
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("outside directors"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at any time by vote of a majority of the outside
directors or by vote of a majority of its Class's outstanding voting securities.
Contingent Deferred Sales Charges. A Contingent Deferred Sales Charge ("CDSC")
(i) applies regardless of class, (ii) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (iii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iv) will not be imposed on the amount of your
account value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of dividends and
capital gains distributions) and upon
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<PAGE>
early redemption of shares.
Class A Shares. As stated in the Prospectus, a CDSC of 1% is imposed with
respect to those Class A shares (or Class A shares of another Lord
Abbett-sponsored fund or series acquired through exchange of such shares) on
which the Fund has paid the one-time distribution fee of 1% if such shares are
redeemed out of the Lord Abbett-sponsored family of funds within a period of 24
months from the end of the month in which the original sale occurred.
Class B Shares. As stated in the Prospectus, if Class B shares (or Class B
shares of another Lord Abbett-sponsored fund or series acquired through exchange
of such shares) are redeemed out of the Lord Abbett-sponsored family of funds
for cash before the sixth anniversary of their purchase, a CDSC will be deducted
from the redemption proceeds. The Class B CDSC is paid to Lord Abbett
Distributor to reimburse its expenses, in whole or in part, for providing
distribution-related service to the Fund in connection with the sale of Class B
shares.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held on or after the sixth anniversary
of their purchase, and (3) shares held the longest before such sixth
anniversary.
The amount of the contingent deferred sales charge will depend on the number of
years since you invested and the dollar amount being redeemed, according to the
following schedule:
<TABLE>
<CAPTION>
Anniversary of the Day on Contingent Deferred Sales Charge
Which the Purchase Order Was Accepted on Redemptions (As % of Amount Subject to Charge)
<S> <C>
Before the 1st........................................................5.0%
On the 1st, before the 2nd............................................4.0%
On the 2nd, before the 3rd............................................3.0%
On the 3rd, before the 4th............................................3.0%
On the 4th, before the 5th............................................2.0%
On the 5th, before the 6th ...........................................1.0%
On or after the 6th anniversary.......................................None
</TABLE>
In the table, an "anniversary" is the 365th day subsequent to the acceptance of
a purchase order or a prior anniversary. All purchases are considered to have
been made on the business day on which the purchase order was accepted.
Class C Shares. As stated in the Prospectus, if Class C shares are redeemed for
cash before the first anniversary of their purchase, the redeeming shareholder
will be required to pay to the Fund on behalf of Class C shares a CDSC of 1% of
the lower of cost or the then net asset value of Class C shares redeemed. If
such shares are exchanged into the same class of another Lord Abbett-sponsored
fund and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of this
Fund's Class C shares.
General. Each percentage (1% in the case of Class A and C shares and 5% through
1% in the case of Class B shares) used to calculate CDSCs described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class A shares
purchased pursuant to a special retirement wrap program, no CDSC is payable on
redemptions which continue or investments in another fund participating in the
program. In the case of Class A and Class C shares, the CDSC is received by the
Fund and is intended to reimburse all or a portion of the amount paid by the
Fund if the shares are redeemed before the Fund has had an opportunity to
realize the anticipated benefits of having a long-term shareholder account in
the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett
Distributor and is intended to reimburse its expenses of providing
distribution-related service to the Fund (including recoupment of the commission
payments made) in connection with the sale of Class B shares before Lord Abbett
Distributor has had an opportunity to realize its anticipated reimbursement by
having such a long-term shareholder account subject to the B Plan distribution
fee.
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<PAGE>
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares are held in AMMF. Therefore,
if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
Exchanges. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the
14
<PAGE>
privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts and Lord
Abbett Equity Fund ("LAEF") which is not issuing shares.
Statement of Intention. Under the terms of the Statement of Intention to invest
$50,000 or more over a 13-month period as described in the Prospectus, shares of
a Lord Abbett-sponsored fund (other than shares of LAEF, LASF, LARF, GSMMF and
AMMF, unless holdings in GSMMF and AMMF are attributable to shares exchanged
from a Lord Abbett-sponsored fund offered with a front-end, back-end or level
sales charge) currently owned by you are credited as purchases (at their current
offering prices on the date the Statement is signed) toward achieving the stated
investment and reduced initial sales charge for Class A shares. Class A shares
valued at 5% of the amount of intended purchases are escrowed and may be
redeemed to cover the additional sales charge payable if the Statement is not
completed. The Statement of Intention is neither a binding obligation on you to
buy, nor on the Fund to sell, the full amount indicated.
Rights of Accumulation. As stated in the Prospectus, purchasers (as defined in
the Prospectus) may accumulate their investment in Lord Abbett-sponsored funds
(other than LAEF, LARF, LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF
are attributable to shares exchanged from a Lord Abbett-sponsored fund offered
with a front-end, back-end or level sales charge) so that a current investment,
plus the purchaser's holdings valued at the current maximum offering price,
reach a level eligible for a discounted sales charge for Class A shares.
Net Asset Value Purchases of Class A Shares. As stated in the Prospectus, our
Class A shares may be purchased at net asset value by our directors, employees
of Lord Abbett, employees of our shareholder servicing agent and employees of
any securities dealer having a sales agreement with Lord Abbett who consents to
such purchases or by the director or custodian under any pension or
profit-sharing plan or Payroll Deduction IRA established for the benefit of such
persons or for the benefit of employees of any national securities trade
organization to which Lord Abbett belongs or any company with an account(s) in
excess of $10 million managed by Lord Abbett on a private-advisory-account
basis. For purposes of this paragraph, the terms "directors" and "employees"
include a director's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "our directors" and "employees of Lord
Abbett" also include retired directors and employees and other family members
thereof.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, ("mutual fund wrap fee program"), (e)
by employees, partners and owners of unaffiliated consultants and advisors to
Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent
to such purchase if such persons provide service to Lord Abbett, Lord Abbett
Distributor or such funds on a continuing basis and are familiar with such
funds, (f) through Retirement Plans with at least 100 eligible employees, (g) in
connection with a merger, acquisition or other reorganization, and (h) through a
"special retirement wrap program" sponsored by an authorized institution showing
one or more characteristics distinguishing it, in the opinion of Lord Abbett
Distributor from a mutual fund wrap program. Such characteristics include, among
other things, the fact that an authorized institution does not charge its
clients any fee of a consulting or advisory nature that is economically
equivalent to the distribution fee under Class A 12b-1 Plan and the fact that
the program relates to participant-directed Retirement Plan. Shares are offered
at net asset value to these investors for the purpose of promoting goodwill with
employees and others with whom Lord Abbett Distributor and/or the Fund has
business relationships.
Redemptions. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or supplementary by
Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and
any legal capacity of the signer(s) must be guaranteed by an eligible guarantor.
See the Prospectus for expedited redemption procedures.
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<PAGE>
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than 25 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 6 months prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
Div-Move. Under the Div-Move service described in the Prospectus, you can invest
the dividends paid on your account of any class into an existing account of the
same class in any other Eligible Fund. The account must be either your account,
a joint account for you and your spouse, a single account for your spouse, or a
custodial account for your minor child under the age of 21. You should read the
prospectus of the other fund before investing.
Invest-A-Matic. The Invest-A-Matic method of investing in the Fund and/or any
other Eligible Fund is described in the Prospectus. To avail yourself of this
method you must complete the application form, selecting the time and amount of
your bank checking account withdrawals and the funds for investment, include a
voided, unsigned check and complete the bank authorization.
Systematic Withdrawal Plans. The Systematic Withdrawal Plan ("SWP") also is
described in the Prospectus. You may establish a SWP if you own or purchase
uncertificated shares having a current offering price value of at least $10,000.
Lord Abbett prototype retirement plans have no such minimum. With respect to a
SWP for Class B shares, on redemptions over 12% per year, the CDSC will apply to
the entire redemption. Therefore, please contact the Fund for assistance in
minimizing the CDSC in this situation. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The SWP may be terminated by you or by us at any time by written
notice.
Retirement Plans. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms and custodial agreements for IRAs (Individual
Retirement Accounts, including Simple IRAs and Simplified Employee Pensions),
403(b) plans and qualified pension and profit-sharing plans, including 401(k)
plans. The forms name Investors Fiduciary Trust Company as custodian and contain
specific information about the plans. Explanations of the eligibility
requirements, annual custodial fees and allowable tax advantages and penalties
are set forth in the relevant plan documents. Adoption of any of these plans
should be on the advice of your legal counsel or qualified tax adviser.
6.
Past Performance
The Fund computes the average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to the computed average annual
total return, raising the sum to a power equal to the number of years covered by
the computation and multiplying the result by one thousand dollars, which
represents a hypothetical initial investment. The calculation assumes deduction
of the maximum sales charge from the initial amount invested and reinvestment of
all income dividends and capital gains distributions on the reinvestment dates
at prices calculated as stated in the Prospectus. The ending redeemable value is
determined by assuming a complete redemption at the end of the period(s) covered
by the average annual total return computation.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment (unless the return is shown at net asset value). For Class B
shares, the payment of the applicable CDSC (5.0% prior to the first anniversary
of purchase, 4.0% prior to the second
16
<PAGE>
anniversary of purchase, 3.0% prior to the third and fourth anniversaries of
purchase, 2.0% prior to the fifth anniversary of purchase, 1.0% prior to the
sixth anniversary of purchase and no CDSC on and after the sixth anniversary of
purchase) is applied to the Fund's investment result for that class for the time
period shown (unless the total return is shown at net asset value). For Class C
shares, the 1.0% CDSC is applied to the Fund's investment result for that class
for the time period shown prior to the first anniversary of purchase (unless the
total return is shown at net asset value). Total returns also assume that all
dividends and capital gains distributions during the period are reinvested at
net asset value per share, and that the investment is redeemed at the end of the
period.
Using the computation method described above, the Fund's average annual
compounded rates of total return for the last one, five and ten fiscal years
ending on October 31, 1998 are as follows: 3.90%, 15.65% and 14.15%,
respectively, for the Fund's Class A shares. For the fiscal year ending on
October 31, 1998 and for the period since inception, August 1, 1996, the average
annual compounded rate of total return 5.03 % and 18.27%, respectively, for the
Fund's Class B shares. For the fiscal year ending October 31, 1998 and for the
period since inception, August 1, 1996, the average annual compounded rate of
total return was 9.41% and 9.88%, respectively, for the Fund's Class C shares.
Our yield quotation for each class is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
take the dividends and interest earned during the period for a class minus its
expenses accrued for the period and divide by the product of (i) the average
daily number of Class shares outstanding during the period that were entitled to
receive dividends and (ii) the maximum offering price per share of such class on
the last day of the period. To this quotient add one. This sum is multiplied by
itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two. Yield for the Class A
shares reflects the deduction of the maximum initial sales charge, but may also
be shown based on the Class A net asset value per share. Yields for Class B and
C shares do not reflect the deduction of the CDSC. For the 30-day period ended
October 31, 1998 the yield for the Class A shares of Fund was 1.55%.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Therefore, there is no assurance that this performance will be
repeated in the future.
7.
Taxes
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time of
disposition. Any gain will generally be taxable for United States federal income
tax purposes. Any loss realized on Fund shares which you have held for six
months or less will be treated for tax purposes as a long-term capital loss to
the extent of any "capital gains distributions" which you received with respect
to such shares. Losses on the sale of shares 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 shares that are substantially
identical.
The writing of call options and other investment techniques and practices which
the Fund may utilize, as described above under "Investment Policies," may affect
the character and timing of the recognition of gains and losses by the Fund. In
particular, such transactions may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Limitations imposed by the Internal Revenue Code on regulated
investment companies may restrict the Fund's ability to engage in transactions
in options.
The Fund may be subject to foreign withholding taxes, which would reduce the
yield on its investments. It is expected that Fund shareholders who are subject
to United States federal income tax will not be entitled to claim a federal
income tax credit or deduction for foreign income taxes paid by the Fund.
The Fund will be subject to a 4% non-deductible excise tax on certain amounts
not distributed or treated as having been distributed on a timely basis each
calendar year. The Fund intends to distribute to shareholders each year an
amount adequate to avoid the imposition of such excise tax.
Dividends paid by the Fund will qualify for the dividends-received deduction for
corporations to the extent they are
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derived from dividends paid by domestic corporations.
Gain and loss realized by the Fund on certain transactions, including sales of
foreign debt securities and certain transactions involving foreign currency,
will be treated as ordinary income or loss for federal income tax purposes to
the extent, if any, that such gain or loss is attributable to changes in
exchange rates for foreign currencies. Accordingly, distributions taxable as
ordinary income will include the net amount, if any, of such foreign exchange
gains and will be reduced by the net amount, if any, of such foreign exchange
losses.
If the Fund purchases shares in certain foreign investment entities called
"passive foreign investment companies" it may be subject to United States
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the Fund or its shareholders in respect of
deferred taxes arising from such distributions or gains. If the Fund were to
make a "qualified electing fund" election with respect to its investment in a
passive foreign investment company, in lieu of the foregoing requirements, the
Fund might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if such
amount were not distributed to the Fund.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates.) Each
shareholder who is not a United States person should consult his tax adviser
regarding the U.S. and foreign tax consequences of the ownership of shares of
the Fund, including a 30% (or lower treaty rate) United States withholding tax
on dividends representing ordinary income and net short-term capital gains, and
the applicability of United States gift and estate taxes.
8.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund trades in such security,
prohibiting profiting on trades of the same security within 60 days and trading
on material and non-public information. The Code imposes certain similar
requirements and restrictions on the independent directors and trustees of each
Lord Abbett-sponsored mutual fund to the extent contemplated by the
recommendations of such Advisory Group.
9.
Financial Statements
The financial statements for the fiscal year ended October 31, 1998 and the
opinion thereon of Deloitte & Touche LLP, independent auditors, included in the
1998 Annual Report to Shareholders of Lord Abbett Affiliated Fund, Inc., are
incorporated herein by reference in reliance upon the authority of Deloitte &
Touche LLP as experts in auditing and accounting.
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