<PAGE>
Lord Abbett
Affiliated Fund
Prospectus
March 1, 2000
[GRAPHIC OMITTED]
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
The Fund
What you should know Goal/Principal Strategy 2
about the Fund Main Risks 2
Performance 3
Fees and Expenses 4
Your Investment
Information for managing Purchases 5
your Fund account Sales Compensation 7
Opening Your Account 8
Redemptions 9
Distributions and Taxes 9
Services For Fund Investors 10
Management 11
For More Information
How to learn more Other Investment Techniques 12
about the Fund Glossary of Shaded Terms 13
Recent Performance 14
Financial Information
Financial Highlights 16
Compensation For Your Dealer 18
Line Graph Comparison 17
How to learn more about the Back Cover
Fund and other Lord Abbett
Funds
<PAGE>
The Fund
GOAL / PRINCIPAL STRATEGY
The Fund's investment objective is long-term growth of capital and income
without excessive fluctuations in market value.
To pursue this goal, the Fund purchases stocks of large, seasoned, U.S. and
multinational companies which we believe are undervalued. The Fund chooses
stocks using
o quantitative research to identify which stocks we believe represent
the best bargains
o fundamental research to learn about a company's operating environment,
resources and strategic plans and to assess its prospects for
exceeding earnings expectations
o business cycle analysis to determine how buying or selling securities
changes our overall portfolio's sensitivity to interest rates and
economic conditions
The Fund is intended for investors looking for long-term growth with low
fluctuations in market value. For this reason, we will forego some
opportunities for gains when, in our judgment, they are too risky. The Fund
tries to keep its assets invested in securities selling at reasonable
prices in relation to value.
While there is the risk that an investment may never reach what we think is
its full value, or may go down in value, our emphasis on large, seasoned
company bargain stocks may limit our downside risk because bargain stocks
in theory are already underpriced and large, seasoned company stocks tend
to be less volatile than small company stocks.
We generally sell a stock when we think it is no longer a bargain, seems
less likely to benefit from the current market and economic environment,
shows deteriorating fundamentals or falls short of our expectations.
While typically fully invested, at times we may take a temporary defensive
position by investing some of the Fund's assets in short-term debt
securities. This could reduce the benefit from any upswing in the market
and prevent the Fund from achieving its investment objective.
MAIN RISKS
The Fund is subject to the general risks and considerations associated with
equity investing, as well as the particular risks associated with bargain
stocks. The value of your investment will fluctuate in response to
movements in the stock market in general and to the changing prospects of
individual companies in which the Fund invests. Bargain stocks may perform
differently than the market as a whole and other types of stocks, such as
small company stocks and growth stocks. This is because different types of
stocks tend to shift in and out of favor depending on market and economic
conditions. The market may fail to recognize the intrinsic value of
particular bargain stocks for a long time. In addition, if the Fund's
assessment of a company's value or prospects for exceeding earnings
expectations or market conditions is wrong, the Fund could suffer losses or
produce poor performance relative to other funds, even in a rising market.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The Fund is not a complete investment program and may
not be appropriate for all investors. You could lose money by investing in
the Fund.
We or the Fund refers to Lord Abbett Affiliated Fund, Inc.
About the Fund. The Fund is a
professionally managed portfolio
primarily holding securities purchased with the pooled money of investors. It
strives to reach its stated goal, although as with all funds, it cannot
guarantee results.
Large companies are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, although they can be slower to innovate than small companies.
Seasoned companies are usually established companies whose securities have
gained a reputation for quality with the investing public and enjoy liquidity in
the market.
Bargain stocks are stocks of com-panies which we believe the market undervalues
according to certain financial measurements of their intrinsic worth or business
prospects.
Small-company stocks are stocks of smaller companies which often are new and
less established, with a tendency to be faster-growing but more volatile than
large company stocks.
Growth stocks are stocks which exhibit faster-than-average gains in earnings and
are expected to continue profit growth at a high level, but also tend to be more
volatile than bargain stocks.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies used by the Fund and
their risks.
2 The Fund
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Affiliated Fund Symbols: Class A - LAFFX
Class B - LAFBX
Class C - LAFCX
PERFORMANCE
The bar chart and table below provide some indication of the risks of
investing in the Fund by illustrating the variability of the Fund's
returns. Each assumes reinvestment of dividends and distributions. The
Fund's past performance is not necessarily an indication of how the Fund
will perform in the future.
The bar chart shows changes in the performance of the Fund's Class A shares
from calendar year to calendar year. This chart does not reflect the sales
charges applicable to Class A shares. If the sales charges were reflected,
returns would be less.
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Bar Chart (per calendar year) - Class A Shares
90 - -5.2%
91 - 22.0%
92 - 12.4%
93 - 13.2%
94 - 4.1%
95 - 31.7%
96 - 20.1%
97 - 25.2%
98 - 14.4%
99 - 16.9%
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[GRAPHIC OMITTED]
Best Quarter 4th Q `98 17.1% Worst Quarter 2nd Q `90 -12.5%
- --------------------------------------------------------------------------------
The table below shows how the average annual total returns of the Fund's
Class A, B, C and P shares compare to those of a broad-based securities
market index and a more narrowly based index that more closely reflects the
market sectors in which the Fund invests. The Fund's returns reflect
payment of the maximum applicable front-end or deferred sales charges.
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Average Annual Total Returns Through December 31, 1999
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Share class 1 Year 5 Years 10 Years Since Inception(1)
Class A shares 10.10% 20.05% 14.34% 12.76%
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Class B shares 11.07% - - 20.00%
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Class C shares 15.07% - - 20.56%
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Class P shares 16.76% - - 15.34%
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S&P 500(R)Index(2) 21.03% 28.54% 18.19% 29.57%(3)
24.76%(4)
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S&P Barra Value Index(2) 12.72% 22.94% 15.37% 21.95%(3)
13.69%(4)
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(1) The dates of inception for each Class are: A -1/1/50; B -8/1/96; C -8/1/96;
and P -12/8/97.
(2) Performance for the unmanaged indices does not reflect fees or expenses.
The performance of the indices is not necessarily representative of the
Fund's performance.
(3) Represents total return for the period 7/31/96 - 12/31/99, to correspond
with Class B and C inception dates.
(4) Represents total return for the period 12/31/97 - 12/31/99, to correspond
with Class P inception date.
The Fund 3
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
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Fee Table
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Class A Class B(2) Class C Class P
<S> <C> <C> <C> <C>
Shareholder Fees (Fees paid directly from
your investment)
- -------------------------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% none none none
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Maximum Deferred Sales Charge none(1) 5.00% 1.00%(1) none
- -------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses deducted from Fund assets) (as a % of average net assets)(3)
- -------------------------------------------------------------------------------------------------------
Management Fees (See "Management") 0.31% 0.31% 0.31% 0.31%
Distribution (12b-1) and Service Fees(4) 0.35% 1.00% 1.00% 0.45%
Other Expenses 0.12% 0.12% 0.12% 0.12%
Total Operating Expenses 0.78% 1.43% 1.43% 0.88%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions (a) of Class A shares made within 24 months following any
purchases made without a sales charge, and (b) Class C shares if they are
redeemed before the first anniversary of their purchase.
(2) Class B shares will convert to Class A shares on the eighth anniversary of
your original purchase of Class B shares.
(3) The annual operating expenses have been restated from fiscal year amounts
to reflect current fees.
(4) Because 12b-1 fees are paid out on an ongoing basis, over time they will
increase the cost of your investment and may cost you more than paying
other types of sales charges.
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Example
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This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. This example, like that in
other funds' prospectuses, assumes that you invest $10,000 in the Fund at
maximum sales charge, if any, for the time periods indicated and then redeem all
of your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs (including any applicable contingent deferred sales
charges) would be:
Share Class 1 Year 3 Years 5 Years 10 Years
Class A shares $650 $810 $983 $1,486
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Class B shares $646 $752 $982 $1,536
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Class C shares $246 $452 $782 $1,713
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Class P shares $ 90 $281 $488 $1,084
You would have paid the following expenses if you did not redeem your shares:
Class A shares $650 $810 $983 $1,486
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Class B shares $146 $452 $782 $1,536
Class C shares $146 $452 $782 $1,713
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Class P shares $ 90 $281 $488 $1,084
Management fees are payable to Lord Abbett for the Fund's investment management.
12b-1 fees refer to fees incurred for activities that are primarily intended to
result in the sale of Fund shares and service fees for shareholder account
service and maintenance.
Other expenses include fees paid for miscellaneous items such as shareholder
service fees and professional fees.
4 The Fund
<PAGE>
Your Investment
PURCHASES
The Fund offers in this prospectus four classes of shares: Class A, B ,C
and P, each with different expenses and dividends. You may purchase shares
at the net asset value ("NAV") per share determined after we receive your
purchase order submitted in proper form. A front-end sales charge may be
added to the NAV in the case of the Class A shares. There is no front-end
sales charge in the case of Class B, C and P shares, although there
may be a contingent deferred sales charge ("CDSC") as described below.
You should read this section carefully to determine which class of shares
represents the best investment option for your particular situation. 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. You should discuss purchase options with your investment
professional.
For more information, see "Alternative Sales Arrangements" in the Statement
of Additional Information.
We reserve the right to withdraw all or any part of the offering made by
this prospectus or to reject any purchase order. We also reserve the right
to waive or change minimum investment requirements. All purchase orders are
subject to our acceptance and are not binding until confirmed or accepted
in writing.
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Share Classes
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Class A o normally offered with a front-end sales charge
Class B o no front-end sales charge, however, a CDSC is applied to shares sold
prior to the sixth anniversary of purchase
o higher annual expenses than Class A shares
o automatically converts to Class A shares after eight years
Class C o no front-end sales charge, however, a CDSC is applied to shares sold
prior to the first anniversary of purchase
o higher annual expenses than Class A shares
Class P o available to certain pension or retirement plans and pursuant to a
Mutual Fund Fee Based Program
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Front-End Sales Charges - Class A Shares
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<TABLE>
<CAPTION>
To Compute
As a % of As a % of OfferingPrice
Your Investment Offering Price Your Investment Divide NAV by
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% .9425
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$50,000 to $99,999 4.75% 4.99% .9525
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$100,000 to $249,999 3.95% 4.11% .9605
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$250,000 to $499,999 2.75% 2.83% .9725
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$500,000 to $999,999 1.95% 1.99% .9805
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$1,000,000 and over No Sales Charge 1.0000
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</TABLE>
NAV per share for each class of Fund shares is calculated each business day at
the close of regular trading on the New York Stock Exchange ("NYSE"), normally
4:00 p.m. Eastern time. Purchases and sales of Fund shares are executed at the
NAV next determined after the Fund receives your order in proper form. In
calculating NAV, securities for which market quotations are available are valued
at those quotations. Securities for which such quotations are not available are
valued at fair value under procedures approved by the Board of the Fund.
Your Investment 5
<PAGE>
Reducing Your Class A Front-End Sales Charges. Class A shares may be
purchased at a discount if you qualify under either of the following
conditions:
o Rights of Accumulation -- A Purchaser may apply the value of the
shares already owned to a new purchase of Class A shares of any
Eligible Fund in order to reduce the sales charge.
o Statement of Intention -- A Purchaser of Class A shares can purchase
additional shares of any Eligible Fund over a 13-month period and
receive the same sales charge as if all shares were purchased at once.
Shares purchased through reinvestment of dividends or distributions
are not included. A statement of intention can be backdated 90 days.
Current holdings under rights of accumulation may be included in a
statement of intention.
For more information on eligibility for these privileges, read the
applicable sections in the attached application.
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 conditions:
o purchases of $1 million or more +
o purchases by Retirement Plans with at least 100 eligible employees +
o purchases under a Special Retirement Wrap Program +
o purchases made with dividends and distributions on Class A shares of
another Eligible Fund
o purchases representing repayment under the loan feature of the Lord
Abbett- sponsored prototype 403(b) Plan for Class A shares
o purchases by employees of any consenting securities dealer having a
sales agreement with Lord Abbett Distributor
o purchases under a Mutual Fund Fee Based Program
o purchases by trustees or custodians of any pension or profit sharing
plan, or payroll deduction IRA for employees of any consenting
securities dealer having a sales agreement with Lord Abbett
Distributor
See the Statement of Additional Information for a listing of other
categories of purchasers who qualify for Class A share purchases without a
front-end sales charge.
+ These categories may be subject to a CDSC.
Class A Share CDSC. If you buy Class A shares under one of the starred (+)
categories listed above and you redeem any within 24 months after the month
in which you initially purchased them, the Fund will normally collect a
CDSC of 1%.
The Class A share CDSC generally will be waived for the following
conditions:
o benefit payments under Retirement Plans in connection with loans,
hardship withdrawals, death, disability, retirement, separation from
service or any excess distribution under Retirement Plans
(documentation may be required)
o redemptions continuing as investments in another fund participating in
a Special Retirement Wrap Program
Retirement Plans include employer-sponsored retirement plans under the Internal
Revenue Code, excluding Individual Retirement Accounts.
Lord Abbett offers a variety of Retirement Plans. Call 800-253-7299 for
information about:
o Traditional, Rollover, Roth and Education IRAs
o Simple IRAs, SEP-IRAs, 401(k) and 403(b) accounts
o Defined Contribution Plans
Lord Abbett Distributor LLC ("Lord Abbett Distributor") acts as agent
for the Fund to work with investment professionals that buy and/or sell shares
of the Fund on behalf of their clients. Generally, Lord Abbett Distributor does
not sell Fund shares directly to investors.
Benefit Payment Documentation.
(Class A CDSC only)
o under $50,000 - no documentation necessary
o over $50,000 - reason for benefit payment must be received in writing.Use
the address indicated under "Opening your Account."
6 Your Investment
<PAGE>
Class B Share CDSC. The CDSC for Class B shares normally applies if you
redeem your shares before the sixth anniversary of their initial purchase.
The CDSC declines the longer you own your shares, according to the
following schedule:
- --------------------------------------------------------------------------------
Contingent Deferred Sales Charges - Class B Shares
- --------------------------------------------------------------------------------
Anniversary(1) of the day on Contingent Deferred Sales Charge
which the purchase order on redemption (as % of amount
was accepted subject to charge)
On Before
- --------------------------------------------------------------------------------
1st 5.0%
- --------------------------------------------------------------------------------
1st 2nd 4.0%
- --------------------------------------------------------------------------------
2nd 3rd 3.0%
3rd 4th 3.0%
4th 5th 2.0%
5th 6th 1.0%
- --------------------------------------------------------------------------------
on or after the 6th(2) None
- --------------------------------------------------------------------------------
(1) The anniversary is the same calendar day in each respective year after the
date of purchase. For example, the anniversaries for shares purchased on
May 1 will be May 1 of each succeeding year.
(2) Class B shares will automatically convert to Class A shares on the eighth
anniversary of the purchase of Class B shares.
The Class B share CDSC generally will be waived under the following
circumstances:
o benefit payments under Retirement Plans in connection with loans,
hardship withdrawals, death, disability, retirement, separation from
service or any excess contribution or distribution under Retirement
Plans
o Eligible Mandatory Distributions under 403(b) Plans and individual
retirement accounts
o death of the shareholder
o redemptions of shares in connection with Div-Move and Systematic
Withdrawal Plans (up to 12% per year)
See "Systematic Withdrawal Plan" under "Services For Fund Investors" below
for more information on CDSCs with respect to Class B shares.
Class C Share CDSC. The 1% CDSC for Class C shares normally applies if you
redeem your shares before the first anniversary of the purchase of such
shares.
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 Fee Based
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.
SALES 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, as shown in the table "Fees
and Expenses": sales charges which are paid directly by shareholders; and
12b-1 distribution
CDSC, regardless of class, is not charged on shares acquired through
reinvestment of dividends or capital gains distributions and is charged on the
original purchase cost or the current market value of the shares at the time
they are being sold, which-ever is lower. In addition, repayment of loans under
Retirement Plans and 403(b) Plans will constitute new sales for purposes of
assessing the CDSC.
To minimize the amount of any CDSC, the Fund redeems shares in the following
order:
1. shares acquired by reinvestment of dividends and capital gains (always free
of a CDSC)
2. shares held for six years or more (Class B) or two years or more after the
month of purchase (Class A) or one year or more (Class C)
3. shares held the longest before the sixth anniversary of their purchase
(Class B) or before the second anniversary after the month of purchase
(Class A) or before the first anniversary of their purchase (Class C)
Your Investment 7
<PAGE>
fees that are paid out of the Fund's assets. Service compensation
originates from 12b-1 service fees. The total 12b-1 fees payable with
respect to each share class are up to .35% of Class A shares (plus
distribution fees of up to 1.00% on certain qualifying purchases), 1.00% of
Class B and C shares, and .45% of Class P shares. The amounts payable as
compensation to Authorized Institutions, such as your dealer, are shown in
the chart at the end of this prospectus. The portion of such compensation
paid to Lord Abbett Distributor is discussed under "Sales Activities" and
"Service Activities." Sometimes we do not pay compensation where tracking
data is not available for certain accounts or where the Authorized
Institution waives part of the compensation. In such cases, we may not
require payment of any otherwise applicable CDSC.
We may pay Additional Concessions to Authorized Institutions from time to
time.
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 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.
OPENING YOUR ACCOUNT
Minimum initial investment
o Regular Account $250
o Individual Retirement Accounts and
403(b) Plans under the Internal Revenue Code $250
o Uniform Gift to Minor Account $250
For Retirement Plans and Mutual Fund Fee Based 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 at the address stated below.
You should carefully read the paragraph below entitled "Proper Form" before
placing your order to ensure that your order will be accepted.
Lord Abbett Affiliated Fund, Inc.
P.O. Box 219100
Kansas City, MO 64121
By Exchange. Telephone the Fund at 800-821-5129 to request an exchange from
any eligible Lord Abbett-sponsored fund.
Proper Form. An order submitted directly to the Fund must contain: (1) a
completed application, and (2) payment by check. When purchases are made by
check, redemption
Exchange Limitations. Exchanges should not be used to try to take advantage of
short-term swings in the market. Frequent exchanges create higher expenses for
the Fund. Accordingly, the Fund reserves the right to limit or terminate this
privilege for any shareholder making frequent exchanges or abusing the
privilege. The Fund also may revoke the privilege for all shareholders upon 60
days' written notice.
8 Your Investment
<PAGE>
proceeds will not be paid until the Fund or transfer agent is advised that the
check has cleared, which may take up to 15 calendar days. For more information
call the Fund at 800-821-5129.
REDEMPTIONS
By Broker. Call your investment professional for instructions 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 should call the Fund at
800-821-5129.
By Mail. Submit a written redemption request indicating the name(s) in
which the account is registered, the Fund's name, the class of shares, your
account number, and the dollar value or number of shares you wish to sell.
Include all necessary signatures. If the signer has any Legal Capacity, the
signature and capacity must be guaranteed by an Eligible Guarantor. Certain
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(s) 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. Under unusual circumstances, the
Fund may suspend redemptions, or postpone payment for more than seven days,
as permitted by federal securities laws.
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 normally pays dividends from its net investment income each
quarter and distributes net capital gains (if any) as "capital gains
distributions" on an annual basis. Your distributions will be reinvested in
the Fund unless you instruct the Fund to pay them to you in cash. There are
no sales charges on reinvestments. The tax status of distributions is the
same for all shareholders regardless of how long they have owned Fund
shares or whether distributions are reinvested or paid in cash.
Except in tax-advantaged accounts, any sale, redemption or exchange of Fund
shares may be taxable to the shareholder.
Information on the tax treatment of distributions, including the source of
dividends and distributions of capital gains by the Fund, will be mailed to
shareholders each year. Because everyone's tax situation is unique, you
should consult your tax adviser regarding the federal, state and local tax
rules that apply to you.
Small Accounts. Our Board may authorize closing any account in which there are
fewer than 25 shares if it is in the Fund's best interest to do so.
Eligible Guarantor is any broker or bank that is a member of the medallion stamp
program. Most major securities firms and banks are members of this program. A
notary public is not an eligible guarantor.
Your Investment 9
<PAGE>
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 may set up most of these services when filling
out your application or by calling 800-821-5129.
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For investing
Invest-A-Matic You may make fixed, periodic investments ($50 minimum) into
(Dollar-cost your Fund account by means of automatic money transfers
averaging) from your bank checking account. See the attached
application for instructions.
Div-Move You may automatically reinvest the dividends and
distributions from your account into another account in any
Eligible Fund ($50 minimum).
For selling shares
Systematic You can make regular withdrawals from most Lord Abbett
Withdrawal Funds. Automatic cash withdrawals will be paid to you from
Plan ("SWP") your account in fixed or variable amounts. To establish a
plan, the value of your shares must be at least $10,000,
except for Retirement Plans for which there is no minimum.
Class B shares The CDSC will be waived on redemptions of up to 12% of the
current net asset value of your account at the time of your
SWPrequest. For Class B share redemptions over 12% per
year, the CDSC will apply to the entire redemption. Please
contact the Fund for assistance in minimizing the CDSC in
this situation.
Class B and Redemption proceeds due to a SWP for class B and Class C
C shares shares will be redeemed in the order described under "CDSC"
under "Purchases."
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OTHER SERVICES
Telephone Investing. After we have received the attached application
(selecting "yes" under Section 8C and completing Section 7), you may
instruct us by phone to have money transferred from your bank account to
purchase shares of the Fund for an existing account. The Fund will purchase
the requested shares when it receives the money from your bank.
Exchanges. You or your investment professional may instruct the Fund to
exchange shares of any class for shares of the same class of any Eligible
Fund. Instruction may be provided in writing or by telephone, with proper
identification, 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 in
which case 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 and semi-annual report, unless
additional reports are specifically requested in writing to the Fund.
Telephone Transactions. You have this privilege unless you refuse it in writing.
For your security, telephone transaction requests are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. The Fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
Transactions by telephone may be difficult to implement in times of drastic
economic or market change.
10 Your Investment
<PAGE>
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.
MANAGEMENT
The Fund's investment adviser is Lord, Abbett & Co., located at 90 Hudson
St., Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one
of the nation's oldest mutual fund complexes, with approximately $35
billion in more than 40 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.
Lord Abbett is entitled to a monthly fee based on the Fund's average daily
net assets for each month as follows:
.50 of 1% on the first $200 million in assets
.40 of 1% on the next $300 million
.375 of 1% on the next $200 million
.35 of 1% on the next $200 million
.30 of 1% on the Fund's assets over $900 million
For the fiscal year ended October 31, 1999, the actual fee paid to Lord
Abbett was at an effective annual rate of .31 of 1%. In addition, the Fund
pays all expenses not expressly assumed by Lord Abbett.
Portfolio Managers. Lord Abbett uses a team of portfolio managers and
analysts acting together to manage the Fund's investments. The senior
members of the team are: Thomas Hudson Jr., Partner of Lord Abbett; Robert
Morris, Partner of Lord Abbett; and Eli Salzman, Portfolio Manager. Messrs.
Hudson and Morris 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 11
<PAGE>
For More Information
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be used
by the Fund and their risks.
Adjusting Investment Exposure. The Fund may, but is not required to, use
various strategies to change its investment exposure to adjust to changing
security prices, interest rates, currency exchange rates, commodity prices
and other factors. The Fund may use these transactions to change the risk
and return characteristics of the Fund's portfolio. If we judge market
conditions incorrectly or use a strategy that does not correlate well with
the Fund's investments, it could result in a loss, even if we intended to
lessen risk or enhance returns. These transactions may involve a small
investment of cash compared to the magnitude of the risk assumed and could
produce disproportionate gains or losses. Also, these strategies could
result in losses if the counterparty to a transaction does not perform as
promised.
Convertible Securities. The Fund may invest in convertible bonds and
convertible preferred stocks. These investments tend to be more volatile
than debt securities but tend to be less volatile and produce more income
than their underlying common stocks.
Debt Securities. The Fund may invest in debt securities such as bonds,
debentures, government obligations, commercial paper and pass-through
instruments. When interest rates rise, prices of these investments are
likely to decline, and when interest rates fall, prices tend to rise. There
is also the risk that an issuer of a debt security will fail to make timely
payments of principal or interest to the Fund.
Diversification. The Fund is a diversified fund, which generally means that
with respect to 75% of its total assets, it will not purchase a security
if, as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer or the Fund would hold more than 10% of
the outstanding voting securities of the issuer. U.S. government securities
are not subject to these requirements.
Foreign Securities. The Fund may invest up to 10% of its net assets in
foreign securities. Foreign markets and the securities traded in them are
not subject to the same degree of regulation as U.S. markets. Securities
clearance and settlement procedures may be different in foreign countries.
There may be less trading volume in foreign markets, subjecting the
securities traded in them to higher price fluctuations. Transaction costs
may be higher in foreign markets. The Fund may hold foreign securities
which trade on days when the Fund does not sell shares. As a result, the
value of the Fund's portfolio securities may change on days an investor may
not purchase or sell Fund shares.
Foreign issuers are generally not subject to similar, uniform accounting,
auditing and financial reporting requirements as U.S. issuers. Foreign
investments may be affected by changes in currency rates or currency
controls. Certain foreign countries may limit the Fund's ability to remove
its assets from the country. With respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes, and political or
social instability which could affect investments in those countries.
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 in high yield debt securities.
12 For More Information
<PAGE>
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 the Fund's
securities, if the borrower defaults. The Fund will limit its securities
loans to 30% of its total assets and all loans will be fully
collateralized.
Selling Covered Call Options. The Fund may write or sell covered call
options on equity securities or stock indices that are traded on national
securities exchanges. A call option gives the writer (seller) of the option
the obligation to sell the underlying instrument. When the Fund writes a
call option it gives up the potential for gain on the underlying securities
in excess of the exercise price of the option during the period that the
option is open. The Fund will limit covered call options on securities
having an aggregate market value not to exceed 10% of its total 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 a fund and will be made in the form of cash
or, if permitted, non-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 (1) certain tax-free, single-state funds where the exchanging
shareholder is a resident of a state in which such a Fund is not offered
for sale; (2) Lord Abbett Equity Fund; (3) Lord Abbett Series Fund; (4)
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.
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 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 investment.
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 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 request must be executed as follows: Robert A.Doe,
Executor of the Estate of John W. Doe. That signature using that capacity
must be guaranteed by an Eligible Guarantor.
GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows:
o In the case of the estate --
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
[SIGNATURE ILLEGIBLE]
- --------------------------------------------------
AUTHORIZED SIGNATURE
(960) X 9 6 0 3 4 7 0
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'sm'
SR
o In the case of the corporation --
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
[SIGNATURE ILLEGIBLE]
- --------------------------------------------------
AUTHORIZED SIGNATURE
(960) X 9 6 0 3 4 7 0
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'sm'
SR
For More Information 13
<PAGE>
Similarly, if (for example) the redemption request is on behalf of the ABC
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, 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 Eligible Guarantor (see example in right column, on the
prior page).
Mutual Fund Fee Based Program. Certain unaffiliated authorized brokers,
dealers, registered investment advisers or other financial institutions
("entities") who either (1) have an arrangement with Lord Abbett
Distributor in accordance with certain standards approved by Lord Abbett
Distributor, providing specifically for the use of our shares (and
sometimes providing for acceptance of orders for such shares on our behalf)
in particular investment products made available for a fee to clients of
such entities, or (2) charge an advisory, consulting or other fee for their
services and buy shares for their own accounts or the accounts of their
clients.
Purchaser. The term "purchaser" includes: (1) an individual, (2) an
individual and his or her spouse and children under the age of 21, and (3)
a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account (including a pension, profit-sharing, or other
employee benefit trust qualified under Section 401 of the Internal Revenue
Code - more than one qualified employee benefit trust of a single employer,
including its consolidated subsidiaries, may be considered a single trust,
as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
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 Fee Based 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
The following is a discussion of recent performance for the twelve month
period ending October 31, 1999.
The past fiscal year was characterized by continued overall strength in
both the broad equity market and the U.S. economy. Low interest rates and a
deceleration in earnings have driven the U.S. equity market for the last
two and one-half years. This environment favored a very select group of
large stocks that have had stable earnings growth. Rather than venturing
into "unknown" waters, investors stayed the course and continued to
purchase names familiar to them, remaining with companies that exhibited
strong earnings stories. The result, however, is that many of the larger,
more well-known growth names have become, in our opinion, quite expensive.
In anticipation of an improvement in the global economy, we made an early
entry into the energy sector, a strategy that paid off well for the Fund.
In our view, the rise in oil prices initiated by OPEC, coupled with solid
fundamentals for many energy companies, helped to boost this sector. In
addition, the technology sector continued to outperform the general market.
However, despite strong performance by a number of holdings in this sector,
we recently began to reduce our exposure to technology, as prices began to
reach the upper end of our valuation discipline. We reinvested a good
portion of the proceeds
14 For More Information
<PAGE>
from those sales into more traditional cyclical sectors such as paper,
chemicals and aluminum, and anticipate these areas will benefit from a rise
in commodity prices as the global economy strengthens.
In addition, we have started to focus some attention toward the property
and casualty insurance sector during this period, and will continue to seek
out companies in this market segment that display improving fundamentals.
At the same time, we are generally underweighted in financial companies,
which has worked to our advantage since many of these stocks continued to
struggle during this period as interest rates increased. We believe there
is only a small chance that U.S. interest rates will continue to climb.
This view, coupled with the fact that many financial service companies have
solid fundamentals, will likely result in an increase in our exposure to
the financial services area.
As we look forward, we anticipate the global economy will continue to grow.
However, there are some signs that the robust U.S. economy may be
moderating. A slowdown in consumer spending is possible due to high
consumer debt levels and a decrease in mortgage refinancings (which reduce
consumers' monthly mortgage payments). In addition, the recent volatility
in the equity markets may serve to curtail spending previously attributable
to the "wealth effect" from appreciated portfolios. Consequently, we are
moderately underweighted in consumer stocks, especially those that are
highly sensitive to changes in economic activity.
For More Information 15
<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, 1999 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended October 31, 1999 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: 1999 1998 1997
1996 1995
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of year $14.56 $14.84 $13.02
$11.98 $11.03
Income from investment operations
Net investment income .21(e) .24 .30
.30 .32
Net realized and unrealized gain on investments 2.64 1.14 2.85
2.23 1.70
Total from investment operations 2.85 1.38 3.15
2.53 2.02
Distributions
Dividends from net investment income (.24) (.27) (.30)
(.30) (.30)
Distributions from net realized gain (.95) (1.39) (1.03)
(1.19) (.77)
Net asset value, end of year $16.22 $14.56 $14.84
$13.02 $11.98
Total Return(a) 20.69% 10.27% 25.80%
23.23% 20.46%
Ratios to Average Net Assets:
Expenses(b) .74% .63% .65%
.66% .63%
Net investment income 1.36% 1.64% 2.15%
2.61% 2.90%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Shares Class C Shares
Class P Shares
-------------- --------------
- --------------
Year Ended October 31,
- ---------------------------------------------------------------------------------------------
Per Share Operating Performance: 1999 1998 1997 1996(c) 1999 1998 1997 1996(c)
1999 1998(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $14.56 $14.84 $13.03 $11.88 $14.56 $14.84 $13.02 $11.88
$14.53 $14.24
Income from investment operations
Net investment income .10(e) .14 .20 .060 .10(e) .14 .22 .062
.19(e) .18
Net realized and unrealized gain on 2.65 1.12 2.84 1.142 2.65 1.12 2.83 1.130
2.63 .27
securities
Total from investment operations 2.75 1.26 3.04 1.202 2.75 1.26 3.05 1.192
2.82 .45
Distributions
Dividends from net investment income (.13) (.15) (.20) (.052) (.13) (.15) (.20) (.052)
(.21) (.16)
Distribution from net realized gain (.95) (1.39) (1.03) -- (.95) (1.39) (1.03) --
(.95) --
Net asset value, end of year $16.23 $14.56 $14.84 $13.03 $16.23 $14.56 $14.84 $13.02
$16.19 $14.53
Total Return(a) 19.87% 9.41% 24.78% 10.15%(d) 19.80% 9.41% 24.88% 10.07%(d)
20.51% 3.21%(d)
Ratios to average net assets:
Expenses(b) 1.43% 1.38% 1.42% .34%(d) 1.43% 1.40% 1.34% .33%(d)
.88% .76%(d)
Net investment income .66% .87% 1.19% .27%(d) .66% .85% 1.28% .25%(d)
1.22% 1.21%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
- ------------------------------------------------------------------------------------
Supplemental Data For All Classes: 1999 1998 1997
1996 1995
Net Assets, end of year (000) $10,080,754 $8,520,603 $7,697,754
$6,100,665 $4,964,525
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 62.30% 56.49% 46.41%
47.06% 53.84%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return does not consider the effects of sales loads and assumes the reinvestment of all
distributions.
(b) The ratios for 1997, 1998 and 1999 include expenses paid through an expense offset arrangement.
(c) From commencement of operations for each class of shares: August 1, 1996 (Class B and C) and December 8,
1997 (Class P).
(d) Not annualized.
(e) Calculated using average shares outstanding during the period.
</TABLE>
16 Financial Information
<PAGE>
Line Graph Comparison
Immediately below is a comparison of a $10,000 investment in Class A shares
to the same investment in the S&P 500(R) Index and S$P Barra Value Index,
assuming reinvestment of all dividends and distributions.
[GRAPHIC OMITTED]
NAV MAX S&P 500 S&P Barra
10000 9422 10000 10000
9243 8709 9252 8802
11831 11147 12344 11502
13057 12301 13572 12456
15377 14488 15596 15465
16400 15452 16198 15804
19756 18614 20476 19444
24344 22937 25406 24229
30623 28853 33562 31425
33769 31816 40949 25117
40756 38400 51456 41793
- --------------------------------------------------------------------------------
Average Annual Total Return At Maximum Applicable
Sales Charge For The Periods Ending October 31, 1999
1 Year 5 Years 10 Years (or Life)
- --------------------------------------------------------------------------------
Class A(3) 13.70% 18.55% 14.40%
- --------------------------------------------------------------------------------
Class B(4) 14.87% - 19.26%
- --------------------------------------------------------------------------------
Class C(5) 18.80% - 19.86%
- --------------------------------------------------------------------------------
Class P(6) 20.51% - 13.71%
- --------------------------------------------------------------------------------
(1) Reflects the deduction of the maximum initial sales charge of 5.75%.
(2) Performance for each unmanaged index does not reflect any fees or expenses.
The performance of the indices, particularly that of the S&P 500(R) Index,
is not necessarily representative of the Fund's performance.
(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, 1999 using the SEC-required uniform method to
compute such return.
(4) The Class B shares were first offered on 8/1/96. Performance reflects the
deduction of a CDSC of 5% (for 1 year) and 3% (for life of the class).
(5) The Class C shares were first offered on 8/1/96. Performance reflects the
deduction of a CDSC of 1% (for 1 year) and 0% (for the life of the class).
(6) The Class P shares were first offered on 12/8/97. Performance is at net
asset value.
Financial Information 17
<PAGE>
COMPENSATION FOR YOUR DEALER
<TABLE>
<CAPTION>
====================================================================================================================================
First Year Compensation
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 3.95% 3.25% 0.25%
3.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.75% 2.25% 0.25%
2.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 1.95% 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(4) 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(4)
- ------------------------------------------------------------------------------------------------------------------------------------
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 Percentage of average net assets(5)
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25%
0.25%
Class B investments(4)
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25%
0.25%
Class C investments(4)
- ------------------------------------------------------------------------------------------------------------------------------------
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 fees for Class A and P shares are paid quarterly. The first
year's service fees on Class B and C shares are 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. Certain purchases of Class A shares are subject to a CDSC.
(4) Class B and C shares are subject to CDSCs.
(5) 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.
18 Financial Information
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
More information on the Fund is available free upon request, including the
following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the Fund, lists portfolio holdings and contains a letter from the
Fund's manager discussing recent market conditions and the Fund's
investment strategies.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Affiliated Fund, Inc.
90 Hudson Street
Jersey City, NJ 07302-3973
SEC file number: 811-5
To obtain information:
By telephone. Call the Fund at:
800-426-1130
By mail. Write to the Fund at:
The Lord Abbett Family of Funds
90 Hudson Street
Jersey City, NJ 07302-3973
Via the Internet.
Lord, Abbett & Co.
www.lordabbett.com
Text only versions of Fund
documents can be viewed
online or downloaded from:
SEC
www.sec.gov
You can also obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to
the SEC's Public Reference Section, Washington, DC 20549-6009 or by sending your
request electronically to [email protected].
LAA-1-300
(3/00)
<PAGE>
LORD ABBETT
Statement of Additional Information March 1, 2000
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 90 Hudson Street, Jersey City, N.J. 07302-3973.
This Statement relates to, and should be read in conjunction with, the
Prospectus dated March 1, 2000.
Shareholder inquiries should be made by directly contacting the Fund or by
calling 800-821-5129. The 1999 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 8
4. Portfolio Transactions 8
5. Purchases, Redemptions and
Shareholder Services 9
6. Performance 17
7. Taxes 18
8. Information About the Fund 19
9. Financial Statements 20
<PAGE>
1.
Investment Policies
The Lord Abbett Affiliated Fund, Inc. (the "Company" or the "Fund") is a
diversified open-end investment management company registered under the
Investment Company Act of 1940, as amended (the"Act").
Fundamental Investment Restrictions. The Fund is subject to the following
fundamental investment restrictions, which cannot be changed without approval of
a majority of the Fund's outstanding shares.
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.
Compliance with the investment restrictions above will be determined at the time
of purchase or sale of the portfolio.
Non-Fundamental Investment Restrictions. In addition to the policies in the
Prospectus and 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.
2
<PAGE>
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, 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, 1999, the portfolio turnover rate was 62.30%
versus 56.49% 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,
3
<PAGE>
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
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 Board of Directors of the Fund is responsible for the management of the
business and affairs of the Fund.
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), 90
Hudson Street, Jersey City New Jersey 07302-3973. He has been associated with
Lord Abbett for over five years and is also an officer, director or trustee of
the thirteen other Lord Abbett-sponsored funds.
*Robert S. Dow, age 54, Chairman and President
*Mr. Dow is an "interested person" as defined in the Act.
4
<PAGE>
The following outside directors are also directors or trustees of thirteen other
Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow, Director
245 Park Avenue, Suite 2414
New York, New York
Senior Adviser, Time Warner Inc. (since 1998). Formerly, Acting Chief Executive
Officer of Courtroom Television Network (1997-1998). Formerly, President and
Chief Executive Officer of Time Warner Cable Programming, Inc. (1991-1997).
Prior to that, President and Chief Operating Officer of Home Box Office, Inc.
Age 58.
William H.T. Bush, Director
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 (since 1986). Age 61.
Robert B. Calhoun, Jr., Director
Monitor Clipper Partners
650 Madision Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners (since 1997) and President of The
Clipper Group L.P., both private equity investment funds (since 1990). Age 57.
Stewart S. Dixon, Director
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon (since 1990). Age 69.
John C. Jansing, Director
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 74.
C. Alan MacDonald, Director
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Currently involved in golf development management on a consultancy basis (since
1999). Formerly, Managing Director of The Directorship Inc., a consultancy in
board management and corporate governance (1997-1999). Prior to that 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 66.
5
<PAGE>
Hansel B. Millican, Jr., Director
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company (since 1991).
Age 71.
Thomas J. Neff, Director
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm (since 1976).
Currently serves as Director of Ace, Ltd. (NYSE). Age 62.
The second column of the following table sets forth the compensation accrued by
the Company for outside directors/trustees. The third column sets forth with
respect to the pension or retirement benefits accrued by all Lord
Abbett-sponsored funds for outside directors/trustees. The fourth column sets
forth the total compensation paid by all Lord Abbett-sponsored funds to the
outside directors/trustees,and amounts payable but deferred at the option of the
director/trustee. No director/trustee of the Funds associated with Lord
Abbett and no officer of the Funds received any compensation from the Funds for
acting as a director/trustee or officer.
<TABLE>
<CAPTION>
For the Fiscal Year ended October 31, 1999
------------------------------------------
(1) (2) (3) (4)
Pension or For Year Ended
Retirement Benefits December 31, 1999
Accrued by the Total Compensation Paid
Aggregate Fund and thirteen by the Fund and
Compensation Other Lord Thirteen 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 $27,341 $17,622 $57,720
William H. T. Bush* $27,240 $15,846 $58,000
Robert B. Calhoun, Jr.** $26,880 $12,276 $57,000
Stewart S. Dixon $27,600 $32,420 $58,500
John C. Jansing $26,880 $41,108(4) $57,500
C. Alan MacDonald $27,120 $26,763 $57,500
Hansel B. Millican, Jr. $27,100 $37,822 $57,250
Thomas J. Neff $28,046 $20,313 $59,660
</TABLE>
* Elected as of August 13, 1998.
** Elected as of June 17, 1998.
1. Outside directors'/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 may be deferred under a
plan ("equity based plan") that deems the deferred amounts to be
invested in shares of the Fund for later distribution to the directors/
trustees. The amounts of the aggregate compensation payable by the
Company as of October 31,1999 deemed invested in Fund shares, including
dividends reinvested and changes in net asset value applicable to such
deemed investments, were: Mr. Bigelow, $177,464 ; Mr. Bush, $1,512;
Mr. Calhoun, $39,595; Mr. Dixon, $337,337 ;
Mr. Jansing, $575,176; Mr. MacDonald, $422,105 ; Mr. Millican, $743,736
and Mr. Neff, $657,888 . If the amounts deemed
invested in Fund shares were added to each director's actual holdings of
Fund shares as of October 31, 1999, each would own, the following: Mr.
Bigelow, $177,464; Mr. Bush, $1,512; Mr. Calhoun, $39,595;
Mr. Dixon, $351,857; Mr. Jansing, $923,465;
Mr. McDonald,$780,769; Mr. Millican, $743,736; and Mr. Neff, $721,255.
2. The amounts in Column 3 were accrued by the Lord Abbett-Sponsored funds for
the twelve months ended October 31, 1999.
6
<PAGE>
3. This column shows aggregate compensation, including directors/trustees fees
and attendance fees for board and committee meetings, of a nature referred
to in footnote one, accrued by the Lord Abbett-sponsored funds during the
year ended December 31, 1999, including fees directors/trustees have
chosen to defer but does not include amounts accrued under the equity-based
plans and shown in Column 3.
4. The equity-based plans superseded a previously approved retirement plan
for all directors/trustees. Directors/trustees had the option to convert
their accrued benefits under the retirement plan. All of the current
outside directors/trustees except one made such election. 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. Messrs. Carper, Hilstad,
Hudson, Morris and Walsh are partners of Lord Abbett; the others are employees.
None have received compensation from the Funds.
Executive Vice President:
W. Thomas Hudson, Jr. age 57
Robert G. Morris, age 54
Eli M. Salzmann, age 34
Vice Presidents:
Joan A. Binstock, age 45 (with Lord Abbett since 1999, formerly Chief Operating
Officer of Morgan Grenfell from 1996 to 1999, prior thereto Principal of Ernst &
Young LLP).
Paul A. Hilstad, age 57, 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 48
Lawrence H. Kaplan, age 43 (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.)
A.Edward Oberhaus III, age 40
Tracie E. Richter, age 32 (with Lord Abbett since 1999, formerly Vice President
- - Head of Fund Administration of Morgan Grenfell from 1998 to 1999, Vice
President of Bankers Trust from 1996 to 1998, prior thereto Tax Associate of
Goldman Sachs)
John J. Walsh, age 62
Treasurer:
Donna M. McManus, age 39 (with Lord Abbett since 1996, formerly a Senior Manager
at Deloitte & Touche LLP)
7
<PAGE>
As of February 15, 2000, our officers and directors, as a group, owned less than
1% of our outstanding shares and there were no record holders of 5% or more of
the Fund's outstanding shares, other than Lord Abbett Distributor.
3.
Investment Advisory and Other Services
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, 1999, 1998 and 1997, the management fees
paid to Lord Abbett by the Fund amounted to $26,317,934, $22,192,209 and
$17,683,694 respectively.
The Fund pays 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 audit services
for the Fund, including the examination of financial statements included in the
Fund's Annual Report to Shareholders.
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
Board of 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 disbursing agent for each Fund.
4.
Portfolio Transactions
The Fund's policy is to obtain best execution on all our portfolio transactions,
which means that it seeks to have purchases and sales of portfolio securities
executed at the most favorable prices, considering all costs of the transaction
including brokerage commissions (if any) and dealer markups and markdowns and
brokerage commissions 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 transaction. This 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 each Lord Abbett-sponsored 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.
8
<PAGE>
We pay a brokerage 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 the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold the Lord
Abbett-sponsored funds' 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 a Lord Abbett-sponsored fund does, 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 a Lord Abbett-sponsored
fund 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 a Lord
Abbett sponsored fund does.
For the fiscal years ended October 31,1999, 1998, and 1997 , we paid total
commissions to independent dealers of $11,088,462, $12,832,030 and $7,681,037,
respectively.
5.
Purchases, Redemptions
and Shareholder Services
9
<PAGE>
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 as of the close
of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for
trading by dividing our total net assets by the number of shares outstanding at
the time of calculation. The NYSE is closed on Saturdays and Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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.
The maximum offering price of our Class A shares on October 31, 1999 was
computed as follows:
Net asset value per share (net assets divided by
shares outstanding)...................................................$16.22
Maximum offering price per share (net asset value
divided by .9425) ....................................................$17.21
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 follows:
Year Ended October 31,
1999 1998 1997
---- ---- ----
Gross sales charge $18,730,335 $21,698,908 $16,853,194
Amount allowed to dealers $16,074,161 $18,696,650 $14,522,076
----------- ----------- -----------
Net commissions
received by
Lord Abbett $ 2,656,174 $ 3,002,258 $ 2,331,118
=========== =========== ===========
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 in
this Statement of Additional Information. 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.
10
<PAGE>
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 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 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.
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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 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, described in greater detail
below under "Rights of Accumulation".
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.
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Rule 12b-1 Plans. As described in the Prospectus, the Fund
has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act
for each of the three Fund Classes: the "A Plan", the "B Plan" and the "C Plan",
respectively. In adopting each Plan and in approving its continuance, the Board
of Directors has concluded that there is a reasonable likelihood that each Plan
will benefit its respective Class and such Class' shareholders. The expected
benefits include greater sales and lower redemptions of Class shares, which
should allow each Class to maintain a consistent cash flow, and a higher quality
of service to shareholders by authorized institutions than would otherwise be
the case. During the last fiscal year, the Fund accrued or paid through Lord
Abbett to authorized institutions $27,926,819 under the A Plan, $4,281,069 under
the B Plan, $1,584,742 under the C Plan and $9,131 under 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 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 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:
Anniversary of the Day on Contingent Deferred Sales
Which the Purchase Order Was Accepted Charge on Redemptions (As %
of Amount Subject to Charge)
Before the 1st........................................................5.0%
On the 1st, before the 2nd............................................4.0%
On the 2nd, before the 3rd............................................3.0%
On the 3rd, before the 4th............................................3.0%
On the 4th, before the 5th............................................2.0%
On the 5th, before the 6th ...........................................1.0%
On or after the 6th anniversary.......................................None
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In the table, an "anniversary" is the same dalendar day in each respective year
after the date of purchase. For example, the anniversaries for shares purchased
on May 1 will be May 1 of each succeeding year. All purchases are considered to
have been made on the business day on which the purchase order was accepted.
Class C Shares. As stated in the Prospectus, if Class C shares are redeemed for
cash before the first anniversary of their purchase, the redeeming shareholder
will be required to pay to the Fund on behalf of Class C shares a CDSC of 1% of
the lower of cost or the then net asset value of Class C shares redeemed. If
such shares are exchanged into the same class of another Lord Abbett-sponsored
fund and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of this
Fund's Class C shares.
General. Each percentage (1% in the case of Class A and C shares and 5% through
1% in the case of Class B shares) used to calculate CDSCs described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class A shares
purchased pursuant to a special retirement wrap program, no CDSC is payable on
redemptions which continue or investments in another fund participating in the
program. In the case of Class A and Class C shares, the CDSC is received by the
Fund and is intended to reimburse all or a portion of the amount paid by the
Fund if the shares are redeemed before the Fund has had an opportunity to
realize the anticipated benefits of having a long-term shareholder account in
the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett
Distributor and is intended to reimburse its expenses of providing
distribution-related service to the Fund (including recoupment of the commission
payments made) in connection with the sale of Class B shares before Lord Abbett
Distributor has had an opportunity to realize its anticipated reimbursement by
having such a long-term shareholder account subject to the B Plan distribution
fee.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
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.
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In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
Exchanges. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts 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.
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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.
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.
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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 including 401(k) plans 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 excluding 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.
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 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, 1999 are as follows: 13.70%, 18.55% and 14.40%,
respectively, for the Fund's Class A shares. For the fiscal year ending on
October 31, 1999 and for the period since inception, August 1, 1996, the average
annual compounded rate of total return was 14.87% and 19.26%, respectively, for
the Fund's Class B shares. For the fiscal year ending October 31, 1999 and for
the period since inception, August 1, 1996, the average annual compounded rate
of total return was 18.80% and 19.86%,respectively, for the Fund's Class C
shares.
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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, 1999 the yield for the Class A shares of Fund was 0.94%.
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 Fund intends to elect and to qualify for special tax treatment afforded
regulated investment companies under the Internal Revenue Code of 1986 (the
"Code"). If it so qualifies, the Fund (but not its shareholders) will be
relieved of federal income taxes on the amount it distributes to shareholders.
If in any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be taxed to the Fund at regular
corporate rates.
The Fund contemplates declaring as dividends substantially all of its net
investment income. Dividends paid by the Fund from its investment income and
distributions of its net realized short-term capital gains are taxable to
shareholders as ordinary income or capital gain, whether received in cash or
reinvested in additional shares of the Fund. The Fund will send each shareholder
annual information concerning the tax treatment of dividends and other
distributions.
Upon sale, exchange or redemption of shares of the Fund, a shareholder will
recognize short- or long-term capital gain or loss, depending upon the
shareholder's holding period in the Fund's shares. However, if a shareholder's
holding period in his shares is six months or less, any capital loss realized
from a sale or exchange of such shares must be treated as long-term capital loss
to the extent of dividends classified as "capital gains dividends" received with
respect to such shares. The maximum tax rates applicable to net capital gains
recognized by individuals and other non- corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less and (ii) 20%
for capital assets held for more than one year. Capital gains or losses
recognized by corporate shareholders are subject to tax at the ordinary income
tax rates applicable to corporations.
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.
Some shareholders may be subject to a 31% withholding tax on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Generally, shareholders subject to backup withholding will be
those for whom a certified taxpayer identification number is not on file with
the Fund or who, to the Fund's knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under penalties of
perjury that such number is correct and that he is not otherwise subject to
backup withholding.
The writing of call options and other investment techniques and practices which
the Fund may utilize may affect the character and timing of the recognition of
gains and losses. 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.
The Fund may be subject to foreign withholding taxes, which would reduce the
yield on its investments. It is generally expected that Fund shareholders who
are subject to U.S. 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 also 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.
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Dividends paid by the Fund will qualify for the dividends-received deduction for
corporations to the extent they are derived from dividends paid by domestic
corporations. Corporate shareholders must have held their shares in the Fund for
more than 45 days to qualify for the deduction on dividends paid by the Fund.
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
gain and will be reduced by the net amount, if any, of such foreign exchange
loss.
If the Fund purchases shares in certain foreign investment entities called
"passive foreign investment companies," the Fund may be subject to U.S. 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 U.S. persons (U.S. citizens or residents and United States
domestic corporations, partnerships, trusts and estates). Each shareholder who
is not a U.S. person should consult his tax adviser regarding the U.S. and
foreign tax consequences of the ownership of shares of a Fund, including the
applicable rate of U.S. withholding tax on dividends representing ordinary
income and net short-term capital gains, and the applicability of U.S. gift and
estate taxes.
8.
Information About the Fund
Lord Abbett Affiliated Fund, Inc. 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. 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.
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.
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.
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, 1999 and the
opinion thereon of Deloitte & Touche LLP, independent auditors, included in the
1999 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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