LORD ABBETT
BOND-DEBENTURE FUND, INC.
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
OUR FUND, LORD ABBETT BOND-DEBENTURE FUND, INC. ("WE" OR THE "FUND"), IS A
MUTUAL FUND WITH THREE CLASSES OF SHARES. THESE CLASSES, CALLED CLASS A, B AND C
SHARES, PROVIDE INVESTORS WITH DIFFERENT INVESTMENT OPTIONS IN PURCHASING SHARES
OF THE FUND. SEE PURCHASES FOR A DESCRIPTION OF THESE CHOICES. THE CLASS B
SHARES WILL BE OFFERED TO THE PUBLIC FOR THE FIRST TIME ON OR ABOUT AUGUST 1,
1996.
WE SEEK HIGH CURRENT INCOME AND THE OPPORTUNITY FOR CAPITAL APPRECIATION TO
PRODUCE A HIGH TOTAL RETURN. SEE INVESTMENT OBJECTIVE. IN SEEKING THIS
INVESTMENT OBJECTIVE, THE FUND INVESTS IN LOWER-RATED DEBT SECURITIES WHICH
ENTAIL GREATER RISKS THAN INVESTMENTS IN HIGHER-RATED DEBT SECURITIES AND,
THEREFORE, THE FORMER ARE REFERRED TO COLLOQUIALLY AS JUNK BONDS. BEFORE
INVESTING, INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS SET FORTH UNDER HOW
WE INVEST AND ALSO THAT AT LEAST 20% OF OUR ASSETS MUST BE INVESTED IN ANY
COMBINATION OF INVESTMENT GRADE DEBT SECURITIES, U.S. GOVERNMENT SECURITIES AND
CASH EQUIVALENTS. THERE CAN BE NO ASSURANCE THAT WE WILL ACHIEVE OUR OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AND MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO THE FUND OR BY
CALLING 800-874-3733. ASK FOR PART B OF THE PROSPECTUS THE STATEMENT OF
ADDITIONAL INFORMATION.
THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION IS
JULY 15, 1996.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE FUND OR BY CALLING 800-821-5129. YOU CAN ALSO MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. AN
INVESTMENT IN THE FUND INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 3
5 Purchases 5
6 Shareholder Services 13
7 Our Management 14
8 Dividends, Capital Gains
Distributions and Taxes 14
9 Redemptions 15
10 Performance 16
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
1 INVESTMENT OBJECTIVE
Our investment objective is high current income and the opportunity for capital
appreciation to produce a high total return through a professionally-managed
portfolio consisting primarily of convertible and discount debt securities, many
of which are lower-rated.
2 FEE TABLE
A summary of the Funds expenses is set forth in the table below. The example
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Shareholder Transaction Expenses
(as a percentage of offering price)
Maximum Sales Load(1) on Purchases
(See Purchases) 4.75%(2)(3) None None
Deferred Sales Load(1) (See Purchases) None(2) 5% if shares are redeemed 1% if shares
before 1st anniversary are redeemed
of purchase, declining before 1st anniversary
to 1% before 6th of purchase(2)(3)
anniversary and
eliminated on and
after 6th anniversary(2)(3)
Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management Fees (See Our Management) 0.46%(5) 0.46%(5) 0.46%(5)
12b-1 Fees (See Purchases) 0.25%(2)(3) 1.00%(2)(3) 0.91%(2)(3)
Other Expenses (See Our Management) 0.14% 0.14% 0.14%
Total Operating Expenses 0.85% 1.60% 1.51%
Example: Assume an annual return of 5% and there is no change in the level of
expenses described above. For a $1,000 investment, with reinvestment of all
distributions, you would have paid the following total expenses if you closed
your account after the number of years indicated.
1 year 3 years 5 years 10 years
Class A shares(4) $56 $73 $92 $147
Class B shares(4) $56 $80 $97 $170(6)
Class C shares(4) $15 $48 $82 $180
(1)Sales load is referred to as sales charge, deferred sales load is referred to
as contingent deferred sales charge (or CDSC) and 12b-1 fees which consist of a
service fee and a distribution fee are referred to by either or both of these
terms where appropriate with respect to Class A, Class B and Class C shares
throughout this Prospectus.
(2)See Purchases for descriptions of the Class A front-end sales charges, the
CDSC payable on certain redemptions of Class A, Class B and Class C shares and
separate Rule 12b-1 plans applicable to each class of shares of the Fund. The
CDSC reimburses: (a) the Fund, in the case of Class A and Class C shares, and
(b) Lord Abbett Distributor LLC, in the case of Class B shares. The Class B
share 12b-1 fees are slightly greater than the estimated Class C share 12b-1
fees.
(3)Although the Fund does not, with respect to the Class B and Class C shares,
charge a front-end sales charge, investors should be aware that long-term
shareholders may pay, under the Rule 12b-1 plans applicable to the Class B and
Class C shares of the Fund (both of which pay annual 0.25% service and 0.75%
distribution fees), more than the economic equivalent of the maximum front-end
sales charge as permitted by certain rules of the National Association of
Securities Dealers, Inc. Likewise, with respect to Class A shares, investors
should be aware that, long-term, such maximum may be exceeded due to the Rule
12b-1 plan applicable to Class A shares which permits the Fund to pay up to
0.50% in total annual fees, half for service and the other half for
distribution. The 12b-1 fee for the Class A shares has been restated to reflect
estimated current fees under the recently amended Class A 12b-1 plan; the actual
12b-1 fees for such shares for the fiscal year ended December 31, 1995 under the
former plan were 0.21%.
(4)The annual operating expenses shown in the summary are the actual expenses
for the fiscal year ended December 31, 1995 except for (i) a lower management
fee as explained in note 5 and (ii) the substitution of estimated 12b-1 fees for
Class A, B and C shares as explained in notes 2 and 3 .
(5)Based on total operating expenses shown in the table above. The annual
management fee changes from 0.50% to 0.45% when the Funds average daily net
assets reach $500 million. On July 12, 1996 (as a result of the acquisition of
the assets of Lord Abbett Bond-Debenture Trust) this average increased to a
level which reduced the management fee to 0.46% instead of the actual fee
(0.47%) for the fiscal year ended December 31, 1995.
(6)Based on conversion of Class B shares to Class A shares on the eighth
anniversary of the purchase of Class B shares and closing your account by
redeeming Class A shares after ten years.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in the Fund.
<PAGE>
3 FINANCIAL HIGHLIGHTS
The following table has been audited by Deloitte & Touche llp, independent
accountants, in connection with their annual audit of the Funds Financial
Statements, whose report thereon is incorporated by reference in the Statement
of Additional Information and may be obtained on request, and has been included
herein in reliance upon their authority as experts in accounting and auditing.
</TABLE>
<TABLE>
<CAPTION>
Per Class A* Share Operating Year Ended October 31,
Performance: 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.71 $9.95 $9.43 $9.02 $7.36 $9.03 $9.59 $9.39 $10.29 $10.56
Income from investment operations
Net investment income .85 .84 .89 .95 .98 1.02 1.04 1.09 1.07 1.16
Net realized and unrealized
gain (loss) on securities .606 (1.203) .55 .42 1.66 (1.65) (.56) .15 (.85) (.10)
Total from investment operations 1.456 (.363) 1.44 1.37 2.64 (.63) .48 1.24 .22 1.06
Distributions
Dividends from net investment income (.876) (.877) (.92) (.96) (.98) (1.04) (1.04) (1.04) (1.12) (1.19)
Distribution from net realized gain -- -- -- -- -- -- -- -- -- (.14)
Net asset value, end of year $9.29 $8.71 $9.95 $9.43 $9.02 $7.36 $9.03 $9.59 $9.39 $10.29
Total Return** 17.50% (3.87)% 15.97% 15.99% 38.34% (7.57)% 5.06% 13.80% 1.88% 10.61%
Ratios/Supplemental Data:
Net assets, end of year (000) $1,339,508 $987,613 $969,736 $734,017 $594,008 $480,847 $643,953 $717,775 $733,198 $700,553
Ratios to Average Net Assets:
Expenses 0.82% 0.88% 0.88% 0.84% 0.85% 0.80% 0.59% 0.64% 0.65% 0.61%
Net investment income 9.41% 8.97% 9.17% 10.18% 11.96% 12.48% 10.97% 11.29% 10.49% 11.09%
Portfolio turnover rate 134.90% 147.98% 159.79% 188.44% 208.49% 145.47% 123.77% 140.01% 176.37%137.33%
<FN>
* The Fund had only one class of shares prior to July 12, 1996. That class of
shares is now designated Class A shares. **Total return does not consider the
effects of sales charges.
See Notes to Financial Statements.
</FN>
</TABLE>
4 HOW WE INVEST
We believe that a high total return (current income and capital appreciation)
may be derived from an actively-managed, diversified debt-security portfolio.
Under normal circumstances, we invest at least 65% of our total assets in bonds
and/or debentures. We seek unusual values, particularly in lower-rated debt
securities, some of which are convertible into common stocks or have warrants to
purchase common stocks.
Higher yield on debt securities can occur during periods of inflation when the
demand for borrowed funds is high. Also, buying lower-rated bonds when the
credit risk is above average but, we think, likely to decrease, can generate
higher yields. Such debt securities normally will consist of secured debt
obligations of the issuer (i.e., bonds), general unsecured debt obligations of
the issuer (i.e., debentures) and debt securities which are subordinate in right
of payment to other debt of the issuer.
Capital appreciation potential is an important consideration in the selection of
portfolio securities. Capital appreciation may be obtained by (1) investing in
debt securities when the trend of interest rates is expected to be down; (2)
investing in convertible debt securities or debt securities with warrants
attached entitling the holder to purchase common stock; and (3) investing in
debt securities of issuers in financial difficulties when, in our opinion, the
problems giving rise to such difficulties can be successfully resolved, with a
consequent improvement in the credit standing of the issuers (such investments
involve corresponding risks that interest and principal payments may not be made
if such difficulties are not resolved). In no event will we invest more than 10%
of our gross assets at the time of investment in debt securities which are in
default as to interest or principal.
Normally we invest in long-term debt securities when we believe that interest
rates in the long run will decline and prices of such securities generally will
be higher. When we believe that long-term interest rates will rise, we will
endeavor to shift our portfolio into shorter-term debt securities whose prices
might not be affected as much by an increase in interest rates.
<PAGE>
The following policies are subject to change by the Board of Directors without
shareholder approval: (a) we must keep at least 20% of the value of our total
assets in (1) debt securities which, at the time of purchase, are investment
grade, i.e. rated within one of the four highest grades determined either by
Moodys Investors Service, Inc. or Standard & Poors Ratings Services, (2) debt
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, (3) cash or cash equivalents (short-term obligations of
banks, corporations or the U.S. Government), or (4) a combination of any of the
foregoing; (b) we may invest up to 10% of our gross assets, at market value, in
debt securities primarily traded in foreign countries such foreign debt
securities normally will be limited to issues where there does not appear to be
substantial risk of nationalization, exchange controls, confiscation or other
government restrictions; (c) subject to the percentage limitations for purchases
of other than debt securities described below, we may purchase common and
preferred stocks; (d) we may hold or sell any property or securities which we
may obtain through the exercise of conversion rights or warrants or as a result
of any reorganization, recapitalization or liquidation proceedings for any
issuer of securities owned by us. In no event will we voluntarily purchase any
securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the property and securities, other than debt
securities, in our portfolio is greater than 35% of the value of our gross
assets. A purchase or acquisition will not be considered voluntary if made in
order to avoid loss in value of a conversion or other premium; and (e) we
neither purchase securities for short-term trading, nor for the purpose of
exercising control of management.
We may invest up to 15% of our net assets in illiquid securities. Bonds which
are subject to legal or contractual restrictions on resale, but which have been
determined by the Board of Directors to be liquid, will not be subject to this
limit. Investment by the Fund in such securities, initially determined to be
liquid, could have the effect of diminishing the level of the Funds liquidity
during periods of decreased market interest in such securities.
We may, but have no present intention to, invest in financial futures and
options on financial futures and commit more than 5% of our gross assets to the
lending of our portfolio securities.
We may not borrow in excess of 5% of our gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes.
We will not change our investment objective without shareholder approval.
RISK FACTORS. We may invest substantially in lower-rated bonds for their higher
yields. In general, the market for lower-rated bonds is more limited than that
for higher-rated bonds and, therefore, may be less liquid. Market prices of
lower-rated bonds may fluctuate more than those of higher-rated bonds,
particularly in times of economic change and stress. In addition, because the
market for lower-rated corporate debt securities has in past years experienced
wide fluctuations in the values of certain of these securities, past experience
may not provide an accurate indication of the future performance of that market
or of the frequency of default, especially during periods of recession.
Objective pricing data for lower-rated bonds may be more limited than for
higher-rated bonds and valuation of such securities may be more difficult and
require greater reliance upon judgment.
While the market for lower-rated bonds may be less sensitive to interest rate
changes, the market prices of these bonds structured as zero coupon or
pay-in-kind securities may be affected to a greater extent by such changes and
thus may be more volatile than prices of lower-rated securities paying interest
periodically in cash. Lower-rated bonds that are callable prior to maturity may
be more susceptible to refunding during periods of falling interest rates,
requiring replacement with lower-yielding securities.
Since the risk of default generally is higher among lower-rated bonds, the
research and analysis performed by Lord, Abbett & Co. (Lord Abbett) are
especially important in the selection of such bonds, which, if rated BB/Ba or
lower, often are described as high-yield bonds because of their generally higher
yields and are referred to colloquially as junk bonds because of their greater
risks. In selecting lower-rated bonds for investment, Lord Abbett does not rely
upon ratings, which evaluate only the safety of principal and interest, not
market value risk, and which,
<PAGE>
furthermore, may not accurately reflect an issuers current financial condition.
We do not have any minimum rating criteria for our investments in bonds and some
issuers may default as to principal and/or interest payments subsequent to the
purchase of their securities. Through portfolio diversification, good credit
analysis and attention to current developments and trends in interest rates and
economic conditions, investment risk can be reduced, although there is no
assurance that losses will not occur.
Laws enacted from time to time could limit the tax or other advantages of, and
the issuance of, lower-rated securities and could adversely affect their
secondary market and the financial condition of their issuers. On the other
hand, such legislation (curtailing the supply of new issues) could improve the
liquidity, market values and demand for outstanding issues.
During our past fiscal year, the percentages of our average net assets invested
in (a) rated bonds and (b) unrated bonds judged by us to be of a quality
comparable to rated bonds, on a dollar-weighted basis, calculated monthly were
as follows: 21.52% AAA/Aaa, 1.27% AA/Aa, 3.50% A/A, 4.13% BBB/Baa, 10.08% BB/Ba,
50.48% B/B, 6.41% CCC/Caa, 0.0% C/C, 0.03% D and 2.60% unrated.
FOREIGN SECURITIES - Securities markets of foreign countries in which the Fund
may invest generally are not subject to the same degree of regulation as the
U.S. markets and may be more volatile and less liquid than the major U.S.
markets. Lack of liquidity may affect the Funds ability to purchase or sell
large blocks of securities and thus obtain the best price. There may be less
publicly-available information on publicly-traded companies, banks and
governments in foreign countries than generally is the case for such entities in
the United States. The lack of uniform accounting standards and practices among
countries impairs the validity of direct comparisons of valuation measures (such
as price/earnings ratios) for securities in different countries. Other
considerations include political and social instability, expropriation, higher
transaction costs, withholding taxes that cannot be passed through as a tax
credit or deduction to shareholders, currency fluctuations and different
securities settlement practices. Settlement periods for foreign securities,
which are sometimes longer than those for securities of U.S. issuers, may affect
portfolio liquidity. In addition, foreign securities held by the Fund may be
traded on days that the Fund does not value its portfolio securities, such as
Saturdays and customary business holidays and, accordingly, the Funds net asset
value may be significantly affected on days when shareholders do not have access
to the Fund.
5 PURCHASES
ALTERNATIVE SALES ARRANGEMENTS
CLASSES OF SHARES. The Fund offers investors three different classes of shares.
The different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices. Investors should read this section carefully to determine which
class represents the best investment option for their particular situation.
CLASS A SHARES. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
Retirement Plans) with less than 100 eligible employees). 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) 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%.
Class A shares are subject to service and distribution fees that are currently
estimated to total annually approximately 0.25 of 1% of the annual net asset
value of the Class A shares. The initial sales charge rates, the CDSC and the
Rule 12b-1 Plan applicable to the Class A shares are described in Buying Class A
Shares below.
<PAGE>
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.
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 Funds 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 fee 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 Funds 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 investors financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
INVESTING FOR THE SHORT TERM. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short-term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For
<PAGE>
investments over $250,000 expected to be held 4 to 6 years (or more), Class A
shares may become more appropriate than Class C. Although we believe you ought
to have a long-term investment horizon, 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, 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, Lord Abbett Distributor normally will not accept purchase orders (i) for
Class B shares of $500,000 or more and for Class C shares of $1,000,000 or more
from a single investor or (ii) for Retirement Plans with at least 100 eligible
employees.
INVESTING FOR THE LONGER TERM. If you are investing longer term (for example,
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 Funds Rights of Accumulation.
Of course, these examples are based on approximations of the effect of current
sales charges and expenses on a hypothetical investment over time, and should
not be relied on as rigid guidelines.
ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on withdrawals over 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 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
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.
GENERAL
HOW MUCH MUST YOU INVEST? You may buy our shares through any independent
securities dealer having a sales agreement with Lord Abbett Distributor, our
exclusive selling agent. Place your order with your investment dealer or send it
to Lord Abbett Bond-Debenture Fund, Inc. (P.O. Box 419100, Kansas City, Missouri
64141). The minimum initial investment is $1,000 except for Invest-A-Matic and
Div-Move ($250 initial and $50 subsequent minimum) and Retirement Plans ($250
minimum). See Shareholder Services. For information regarding the proper form of
a purchase or redemption order, call the Fund at 800-821-5129. This offering may
be suspended, changed or withdrawn. Lord Abbett Distributor reserves the right
to reject any order. The net asset value of our shares is calculated every
business day as of the close of the New York Stock Exchange (NYSE) by dividing
net assets by the number of shares outstanding. Securities are valued at their
market value as more fully described in the Statement of Additional Information.
<PAGE>
BUYING SHARES THROUGH YOUR DEALER. Orders for shares received by the Fund prior
to the close of the NYSE, or received by dealers prior to such close and
received by Lord Abbett Distributor prior to the close of its business day, will
be confirmed at the applicable public offering price effective at such NYSE
close. Orders received by dealers after the NYSE closes and received by Lord
Abbett Distributor in proper form prior to the close of its next business day
are executed at the applicable public offering price effective as of the close
of the NYSE on that next business day. The dealer is responsible for the timely
transmission of orders to Lord Abbett Distributor. A business day is a day on
which the NYSE is open for trading.
Lord Abbett Distributor may, for specified periods, allow dealers to retain the
full sales charge for sales of shares during such periods, or pay an additional
concession to a dealer who, during a specified period, 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. Lord Abbett Distributor may,
from time to time, implement promotions under which Lord Abbett Distributor will
pay a fee to dealers with respect to certain purchases not involving imposition
of a sales charge. Additional payments may be paid from Lord Abbett Distributors
own resources and will be made in the form of cash or, if permitted, non-cash
payments. The non-cash payments will include business seminars at resorts or
other locations, including meals and entertainment, or the receipt of
merchandise. The cash payments will include payment of various business expenses
of the dealer. In selecting dealers to execute portfolio transactions for the
Funds 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.
BUYING CLASS A SHARES. The offering price of Class A shares is based on the
per-share net asset value next computed after your order is accepted plus a
sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge as a Dealer's
Percentage of: Concession
as a To Compute
Net Percentage Offering
Offering Amount of Offering Price, Divide
Size of Investment Price Invested Price NAV by
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
$1,000,000 or more No Sales Charge 1.00%* 1.0000
<FN>
*Authorized institutions receive concessions on purchases made by a retirement
plan or other qualified purchaser within a 12-month period (beginning with the
first net asset value purchase) as follows: 1.00% on purchases of $5 million,
0.55% of the next $5 million, 0.50% of the next $40 million and 0.25% on
purchases over $50 million. See Class A Rule 12b-1 Plan below.
</FN>
</TABLE>
CLASS A SHARE VOLUME DISCOUNTS. This section describes several ways to qualify
for a lower sales charge when purchasing Class A shares if you inform Lord
Abbett Distributor or the Fund that you are eligible at the time of purchase.
(1) Any purchaser (as described below) may aggregate a Class A share purchase in
the Fund with any share purchases of any other eligible Lord Abbett-sponsored
fund, together with the current value at maximum offering price of any shares in
the Fund and in any eligible Lord Abbett-sponsored funds held by the purchaser.
(Holdings in the following funds are not eligible for the above rights of
accumulation: Lord Abbett Equity Fund (LAEF), Lord Abbett Series Fund (LASF),
any series of the Lord Abbett Research Fund not offered to the general public
(LARF) and Lord Abbett U.S. Government Securities Money Market Fund (GSMMF),
except for holdings in GSMMF which are attributable to any shares exchanged from
a Lord Abbett-sponsored fund.) (2) A purchaser may sign a non-binding 13-month
statement of intention to invest $100,000 or more in any shares of the Fund or
in any of the above eligible funds. If the intended purchases are completed
during the period, the total amount of your intended purchases of any shares
will determine the reduced sales charge rate for the Class A shares purchased
during the period. If not completed, each Class A share purchase will be at the
sales charge for the aggregate of the actual share purchases. Shares issued upon
reinvestment of dividends or distributions are not included in the statement of
intention. The term purchaser includes (i) an individual, (ii) an individual and
his or her spouse and children under the age of 21 and (iii) a trustee or other
fiduciary purchasing shares for a single trust estate or 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.
CLASS A SHARE NET ASSET VALUE PURCHASES. 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 Distributor who consents to such purchases or
by the trustee 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
any national securities trade organization to which Lord Abbett or Lord Abbett
Distributor 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 directors or employees
spouse (including the surviving spouse of a deceased director or employee). The
terms directors and employees of Lord Abbett also include other family members
and retired directors and employees. Our Class A shares also may be purchased at
net asset value (a) at $1 million or more, (b) with dividends and distributions
on Class A shares of other Lord Abbett-sponsored funds, except for dividends and
distributions on shares of LARF, LAEF and LASF, (c) under the loan feature of
the Lord Abbett-sponsored prototype 403(b) plan for Class A 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 Class A 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
programs), (e) by employees, partners and owners of unaffiliated consultants and
advisers to Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds
who consent to such purchase if such persons provide services 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 and (g) subject to appropriate documentation, through a securities
dealer where the amount invested represents redemption proceeds from shares
(Redeemed Shares) of a registered open-end management investment company not
distributed or managed by Lord Abbett Distributor or Lord Abbett (other than a
money market fund), if such redemptions have occurred no more than 60 days prior
to the purchase of our Class A shares, the Redeemed Shares were held for at
least six months prior to redemption and the proceeds of redemption were
maintained in cash or a money market fund prior to purchase. Purchasers should
consider the impact, if any, of contingent deferred sales charges in determining
whether to redeem shares for subsequent investment in our Class A shares. Lord
Abbett Distributor may suspend or terminate the purchase option referred to in
(g) above at any time.
Our Class A shares may be issued at net asset value in exchange for the assets,
subject to possible tax adjustment, of a personal holding company or an
investment company.
CLASS A RULE 12B-1 PLAN. We have adopted a Class A share Rule 12b-1 Plan (the A
Plan) which authorizes the payment of fees to authorized institutions (except as
to certain accounts for which tracking data is not available) in order to
provide additional incentives for them (a) to provide continuing information and
investment services to their Class A shareholder accounts and otherwise to
encourage those accounts to remain invested in the Fund and (b) to sell Class A
shares of the Fund. Under the A Plan, in order to save on the expense of
shareholders meetings and to provide
<PAGE>
flexibility to the Board of Directors, the Board, including a majority of the
outside directors who are not interested persons of the Fund as defined in the
Investment Company Act of 1940, is authorized to approve annual fee payments
from our Class A assets of up to 0.50 of 1% of the average net asset value of
such assets consisting of distribution and service fees, each at a maximum
annual rate not exceeding 0.25 of 1% except that the service fee may not exceed
0.15 of 1% in the case of shares sold or attributable to shares sold prior to
June 1, 1990 (the Fee Ceiling).
Under the A Plan, the Board has approved payments by the Fund to Lord Abbett
Distributor which uses or passes on to authorized institutions (1) an annual
service fee (payable quarterly) of .25% of the average daily net asset value of
the Class A shares serviced by authorized institutions; and (2) a one-time
distribution fee of up to 1% (reduced according to the following schedule: 1% of
the first $5 million, .55% of the next $5 million, .50% of the next $40 million
and .25% over $50 million), payable 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 (i) at the $1 million level by authorized institutions, including
sales qualifying at such level under the rights of accumulation and statement of
intention privileges; or (ii) through Retirement Plans with at least 100
eligible employees. In addition, the Board has approved for those authorized
institutions which qualify, a supplemental annual distribution fee equal to
0.10% of the average daily net asset value of the Class A shares serviced by
authorized institutions which have a satisfactory program for the promotion of
such shares comprising a significant percentage of the Class A assets, with a
lower than average redemption rate. Institutions and persons permitted by law to
receive such fees are authorized institutions.
Under the A Plan, Lord Abbett Distributor is permitted to use payments received
to provide continuing services to Class A shareholder accounts not serviced by
authorized institutions and, with Board approval, to finance any activity which
is primarily intended to result in the sale of Class A shares. Any such payments
are subject to the Fee Ceiling. Any payments under the A Plan not used by Lord
Abbett Distributor in this manner are passed on to authorized institutions.
Holders of Class A shares on which the 1% sales distribution fee has been paid
may be required to pay to the Fund on behalf of its Class A shares a CDSC of 1%
of the original cost or the then net asset value, whichever is less, of all
Class A shares so purchased which are redeemed out of the Lord Abbett-sponsored
family of funds on or before the end of the twenty-fourth month after the month
in which the purchase occurred. (An exception is made for redemptions by
Retirement Plans due to any benefit payment such as Plan loans, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants or the distribution of any excess contributions.) If the Class A
shares have been exchanged into another Lord Abbett-sponsored fund and are
thereafter redeemed out of the Lord Abbett family of funds on or before the end
of such twenty-fourth month, the charge will be collected for the Funds Class A
shares by the other fund. The Fund will collect such a charge for other Lord
Abbett-sponsored funds in a similar situation.
BUYING CLASS B SHARES. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed for
cash before the sixth anniversary of their purchase, a CDSC may be deducted from
the redemption proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The charge will be
assessed on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The CDSC is not 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). The Class B CDSC is paid to Lord Abbett
Distributor to compensate it for its services rendered in connection with the
distribution of Class B shares, including the payment and financing of sales
commissions. See Class B Rule 12b-1 Plan below.
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 until the sixth anniversary of
their purchase or later, and (3) shares held the longest
<PAGE>
before the sixth anniversary of their purchase.
The amount of the CDSC 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
Which the Purchase Sales Charge on
Order Was Accepted Redemptions
(As % of Amount
On Before Subject to Charge)
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 None
6th anniversary
In the table, an anniversary is the 365th day subsequent to a purchase or a
prior anniversary. All purchases are considered to have been made on the
business day the purchase was made. See Buying Shares Through Your Dealer above.
If Class B shares are exchanged into the same class of another Lord
Abbett-sponsored fund and the new shares are subsequently redeemed for cash
before the sixth anniversary of the original purchase, the CDSC will be payable
on the new shares on the basis of the time elapsed from the original purchase.
The Fund will collect such a charge for other Lord Abbett-sponsored funds in a
similar situation.
WAIVER OF CLASS B SALES CHARGES. The Class B CDSC will not be applied to shares
purchased in certain types of transactions nor will it apply to shares redeemed
in certain circumstances as described below.
The Class B CDSC will be waived for redemptions of shares (i) in connection with
the Systematic Withdrawal Plan and Div-Move services, as described in more
detail under Shareholder Services below; (ii) by Retirement Plans due to any
benefit payment such as Plan loans, hardship withdrawals, death, retirement or
separation from service with respect to plan participants or the distribution of
any excess contributions, and (iii) in connection with mandatory distributions
under 403(b) plans and individual retirement accounts.
CLASS B RULE 12B-1 PLAN. The Fund has adopted a Class B share Rule 12b-1 Plan
(the B Plan) under which the Fund periodically pays Lord Abbett Distributor (i)
an annual service fee of 0.25 of 1% of the average daily net asset value of the
Class B shares and (ii) an annual distribution fee of 0.75 of 1% of the average
daily net asset value of the Class B shares that are outstanding for less than 8
years.
Lord Abbett Distributor uses the service fee to compensate authorized
institutions for providing personal services for accounts that hold Class B
shares. Those services are primarily similar to those provided under the A Plan,
described above.
Lord Abbett Distributor pays an up-front payment to authorized institutions
totalling 4%, consisting of 0.25% for service and 3.75% for a sales commission
as described below.
Lord Abbett Distributor pays the 0.25% service fee to authorized institutions in
advance for the first year after Class B shares have been sold by the authorized
institutions. After the shares have been held for a year, Lord Abbett
Distributor pays the service fee on a quarterly basis. Lord Abbett Distributor
is entitled to retain such service fee payable under the B Plan with respect to
accounts for which there is no authorized institution of record or for which
such authorized institution did not qualify. Although not obligated to do so,
Lord Abbett Distributor may waive receipt from the Fund of part of all of the
service fee payments.
The 0.75% annual distribution fee is paid to Lord Abbett Distributor to
compensate it for its services rendered in connection with the distribution of
Class B shares, including the payment and financing of sales commissions.
Although Class B shares are sold without a front-end sales charge, Lord Abbett
Distributor pays authorized institutions responsible for sales of Class B shares
a sales commission of 3.75% of the purchase price. This payment is made at the
time of sale from Lord Abbett Distributors own resources. Lord Abbett has made
arrangements to finance these commission
<PAGE>
payments, which arrangements include non-recourse assignments by Lord Abbett
Distributor to the financing party of such distribution and CDSC payments which
are made to Lord Abbett Distributor by shareholders who redeem their Class B
shares within six years of their purchase.
The distribution fee and the CDSC payments described above allow investors to
buy Class B shares without a front-end sales charge while allowing Lord Abbett
Distributor to compensate authorized institutions that sell Class B shares. The
CDSC is intended to supplement Lord Abbett Distributors reimbursement for the
commission payments it has made with respect to Class B shares and its related
distribution and financing costs. The distribution fee payments are at a fixed
rate and the CDSC payments are of a nature that, during any year, both forms of
payment may not be sufficient to reimburse Lord Abbett Distributor for its
actual expenses. The Fund is not liable for any expenses incurred by Lord Abbett
Distributor in excess of (i) the amount of such distribution fee payments to be
received by Lord Abbett Distributor and (ii) unreimbursed distribution expenses
of Lord Abbett Distributor incurred in a prior plan year, subject to the right
of the Board of Directors or shareholders to terminate the B Plan. Over the long
term the expenses incurred by Lord Abbett Distributor are likely to be greater
than such distribution fee and CDSC payments. Nevertheless, there exists a
possibility that for a short-term period Lord Abbett Distributor may not have
sufficient expenses to warrant reimbursement by receipt of such distribution fee
payments. Although Lord Abbett Distributor undertakes not to make a profit under
the B Plan, the B Plan is considered a compensation plan (i.e., distribution
fees are paid regardless of expenses incurred) in order to avoid the possibility
of Lord Abbett Distributor not being able to receive distribution fees because
of a temporary timing difference between its incurring expenses and receipt of
such distribution fees.
AUTOMATIC CONVERSION OF CLASS B SHARES. On the eighth anniversary of your
purchase of Class B shares, those shares will automatically convert to Class A
shares. This conversion relieves Class B shareholders of the higher annual
distribution fee that applies to Class B shares under the Class B Rule 12b-1
Plan. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions will also convert to Class A shares on a pro rata
basis. The conversion feature is subject to the continued availability of an
opinion of counsel or of a tax ruling described in Purchases, Redemptions and
Shareholder Services in the Statement of Additional Information.
BUYING CLASS C SHARES. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed for
cash before the first anniversary of their purchase, a CDSC of 1% will be
deducted from the redemption proceeds. That reimbursement charge will not apply
to shares purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net asset value
of the shares at the time of redemption or the original purchase price. The CDSC
is not 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). The Class C CDSC
is paid to the Fund to reimburse it, in whole or in part, for the service and
distribution fee payment made by the Fund at the time such shares were sold, as
described below. 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 for one year or more,
and (3) shares held the longest before the first anniversary of their purchase.
If Class C 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 Funds Class C shares. The Fund will collect such a charge for
other Lord Abbett-sponsored funds in a similar situation.
CLASS C RULE 12B-1 PLAN. The Fund has adopted a Class C share Rule 12b-1 Plan
(the C Plan) under which (except as to certain accounts for which tracking data
is not available) the Fund pays authorized institutions through Lord Abbett
Distributor (1) a service fee and a distribution fee, at the time shares are
sold, not to exceed 0.25 and 0.75 of 1%, respectively, of the net asset value of
such shares and (2) at each quarter-end after the first anniversary of the sale
of shares, fees for services and distribution at annual rates not to exceed 0.25
and 0.75 of 1% respectively,
<PAGE>
of the average annual net asset value of such shares outstanding (payments with
respect to shares not outstanding during the full quarter to be prorated). These
service and distribution fees are for purposes similar to those mentioned above
with respect to the A Plan. Sales in clause (1) exclude shares issued for
reinvested dividends and distributions and shares outstanding in clause (2)
include shares issued for reinvested dividends and distributions after the first
anniversary of their issuance. Lord Abbett Distributor may retain from the
quarterly distribution fee, for the payment of distribution expenses incurred
directly by it, an amount not to exceed .10% of the average net asset value of
such shares outstanding.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE: Shares of any class may be exchanged without a
service charge: (a) for shares of the same class of any other Lord
Abbett-sponsored fund except for (i) LAEF, LASF and LARF and (ii) certain
tax-free, single-state series where the exchanging shareholder is a resident of
a state in which such series is not offered for sale and (b) for shares of any
authorized institutions affiliated money market fund satisfying Lord Abbett
Distributor as to certain omnibus account and other criteria (together, Eligible
Funds).
You or YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can instruct the Fund to
exchange uncertificated shares of a class (held by the transfer agent) by
telephone. Shareholders have this privilege unless they refuse it in writing.
The Fund will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine and will employ reasonable procedures
to confirm that instructions received are genuine, including requesting proper
identification and recording all telephone exchanges. Instructions must be
received by the Fund in Kansas City (800-821-5129) prior to the close of the
NYSE to obtain each funds net asset value per class share on that day. Expedited
exchanges by telephone may be difficult to implement in times of drastic
economic or market change. The exchange privilege should not be used to take
advantage of short-term swings in the market. The Fund reserves the right to
terminate or limit the privilege of any shareholder who makes frequent
exchanges. The Fund can revoke the privilege for all shareholders upon 60 days
prior written notice. A prospectus for the other Lord Abbett-sponsored fund
selected by you should be obtained and read before an exchange. Exercise of the
Exchange Privilege will be treated as a sale for federal income tax purposes
and, depending on the circumstances, a capital gain or loss may be recognized.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Except for Retirement Plans for which there is
no such minimum, if the maximum offering price value of your uncertificated
shares is at least $10,000, you may have periodic cash withdrawals automatically
paid to you in either fixed or variable amounts. With respect to Class B shares,
the CDSC will be waived on redemptions of up to 12% per year of either the
current net asset value of your account or your original purchase price,
whichever is higher. For Class B shares (over 12% per year) and C shares,
redemption proceeds due to a SWP will be derived from the following sources in
the order listed: (1) shares acquired by reinvestment of dividends and capital
gains, (2) shares held for six years or more (Class B) or one year or more
(Class C); and (3) shares held the longest before the sixth anniversary of their
purchase (Class B) or before the first anniversary of their purchase (Class C).
Shareholders should be careful in establishing a SWP, especially to the extent
that such a withdrawal exceeds the annual total return for a class, in which
case, the shareholders original principal will be invaded and, over time, may be
depleted.
DIV-MOVE: You can invest the dividends paid on your account ($50 minimum
investment) into an existing account within the same class in any 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. Such dividends are not subject to a CDSC. You should
read the prospectus of any other fund before investing.
<PAGE>
INVEST-A-MATIC: You can make fixed, periodic investments ($50 minimum
investment) into the Fund and/or any Eligible Fund by means of automatic money
transfers from your bank checking account. You should read the prospectus of the
other fund before investing.
RETIREMENT PLANS: Lord Abbett makes available the retirement plan forms and
custodial agreements for IRAs (Individual Retirement Accounts including
Simplified Employee Pensions), 403(b) plans and pension and profit-sharing
plans, including 401(k) plans.
HOUSEHOLDING: A single copy of an annual or semi-annual report will be sent to
an address to which more than one registered shareholder of the Fund with the
same last name has indicated mail is to be delivered, unless additional reports
are specifically requested in writing or by telephone.
All correspondence should be directed to Lord Abbett Bond-Debenture Fund, Inc.
(P.O. Box 419100, Kansas City, Missouri 64141; 800-821-5129).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors with the advice of Lord Abbett. We employ
Lord Abbett as investment manager pursuant to a Management Agreement. Lord
Abbett has been an investment manager for over 65 years and currently manages
over $19 billion in a family of mutual funds and other advisory accounts. Under
the Management Agreement, Lord Abbett provides us with investment management
services and executive and other personnel, pays the remuneration of our
officers and directors affiliated with Lord Abbett, provides us with office
space and pays for ordinary and necessary office and clerical expenses relating
to research, statistical work and supervision of our portfolio and certain other
costs. Lord Abbett provides similar services to twelve other Lord
Abbett-sponsored funds having various investment objectives and also advises
other investment clients. Christopher J. Towle, Executive Vice President of the
Fund, has been primarily responsible for the day-to-day management of the Fund
since June 1, 1995, and he has been involved with the Funds management since
1987.
Mr. Towle has been with Lord Abbett nine years and has sixteen years of
investment experience.
We pay Lord Abbett a monthly fee, based on average daily net assets for each
month. For the fiscal year ended December 31, 1995, the fee paid to Lord Abbett
as a percentage of average daily net assets was at the annual rate of .47%. In
addition, we pay all expenses not expressly assumed by Lord Abbett. Our Class A
share ratio of expenses, including management fee expenses, to average net
assets for the year ended December 31, 1995 was .82%.
THE FUND. The Fund is a diversified open-end management investment company
incorporated under Maryland law on January 23, 1976. Its Class A, B and C shares
have equal rights as to voting, dividends, assets and liquidation except for
differences resulting from certain class-specific expenses.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Our net investment income is paid to shareholders monthly as a dividend.
Dividends may be taken in cash or reinvested in additional shares at net asset
value without a sales charge.
If you elect a cash payment (i) a check will be mailed to you as soon as
possible after the monthly reinvestment date or (ii) if you arrange for direct
deposit, your payment will be wired directly to your bank account within one day
after the date on which the dividend is paid.
A long-term capital gains distribution is made when we have net profits during
the year from sales of securities which we have held more than one year. If we
realize net short-term capital gains, they also will be distributed. Any capital
gains distribution will be paid in January. You may take the distribution in
cash or reinvest it in additional shares at net asset value without a sales
charge.
Supplemental dividends and distributions also may be paid in December or
January. Dividends and distributions declared in October, November or December
of any year to shareholders of record as of a date in such a month will be
treated for federal income tax purposes as having been received by shareholders
in that year if they are paid before February 1 of the following year. We intend
to continue to meet the requirements of Subchapter M of the Internal Revenue
Code. We will try to distribute to shareholders all our net investment income
and net realized capital gains, so as to
<PAGE>
avoid the necessity of the Fund paying federal income tax. Shareholders,
however, must report dividends and capital gains distributions as taxable
income. Distributions derived from net long-term capital gains which are
designated by the Fund as capital gains dividends will be taxable to
shareholders as long-term capital gains, whether received in cash or shares,
regardless of how long a taxpayer has held the shares. Under current law, net
long-term capital gains are taxed at the rates applicable to ordinary income,
except that the maximum rate for long-term capital gains for individuals is 28%.
Legislation pending as of the date of this Prospectus would have the effect of
reducing the federal income tax rate on capital gains. See Performance for a
discussion of the purchase of high-coupon securities at a premium and the
distribution to shareholders as ordinary income of all interest income on those
securities. This practice increases current income of the Fund, but may result
in higher taxable income to Fund shareholders than other portfolio management
practices.
Shareholders may be subject to a $50 penalty under the Internal Revenue Code and
we may be required to withhold and remit to the U.S. Treasury a portion (31%) of
any redemption proceeds (including the value of shares exchanged into another
Lord Abbett-sponsored fund), and of any dividend or distribution on any account,
where the payee (shareholder) failed to provide a correct taxpayer
identification number or to make certain required certifications.
We will inform shareholders of the federal tax status of each dividend and
distribution after the end of each calendar year. Shareholders should consult
their tax advisers concerning applicable state and local taxes as well as on the
tax consequences of gains or losses from the redemption or exchange of our
shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited procedures described above, to redeem
shares directly, send your request to Lord Abbett Bond-Debenture Fund, Inc.
(P.O. Box 419100, Kansas City, Missouri 64141) with signature(s) and any legal
capacity of the signer(s) guaranteed by an eligible guarantor, accompanied by
any certificates for shares to be redeemed and other required documentation. We
will make payment of the net asset value of the shares on the date the
redemption order was received in proper form. Payment will be made within three
days. The Fund may suspend the right to redeem shares for not more than seven
days (or longer under unusual circumstances as permitted by Federal law). If you
have purchased Fund shares by check and subsequently submit a redemption
request, redemption proceeds will be paid upon clearance of your purchase check,
which may take up to 15 days. To avoid delays you may arrange for the bank upon
which a check was drawn to communicate to the Fund that the check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee.
If your dealer receives your order prior to the close of the NYSE and
communicates it to Lord Abbett, as our agent, prior to the close of Lord Abbetts
business day, you will receive the net asset value as of the close of the NYSE
on that day. If the dealer does not communicate such an order to Lord Abbett
until the next business day, you will receive the net asset value as of the
close of the NYSE on that next business day.
Shareholders who have redeemed their shares have a one-time right to reinvest,
in another account having the identical class and registration, in any of the
Eligible Funds at the then applicable net asset value (i) without the payment of
a front-end sales charge or (ii) with reimbursement for the payment of any CDSC.
Such reinvestment must be made within 60 days of the redemption and is limited
to no more than the amount of the redemption proceeds.
<PAGE>
Under certain circumstances and subject to prior written notice, our Board of
Directors may authorize redemption of all of the shares in any account in which
there are fewer than 25 shares.
Tax-qualified Plans: For redemptions of $50,000 or less, follow normal
redemption procedures. Redemptions over $50,000 must be in writing from the
employer, broker or plan administrator stating the reason for the redemption.
The reason for the redemption must be received by the Fund prior to, or
concurrent with, the redemption request.
10 PERFORMANCE
Lord Abbett Bond-Debenture Fund completed its fiscal year on December 31, 1995.
The Fund's total return (the percent change in net asset value, assuming the
reinvestment of all distributions) was 17.5% for the year. Dividends totaling
$.876 per share were paid over this period. The Fund's dividend distribution
rates (based on the monthly dividend of $.073) were 9.4% and 9.0% based on the
net asset value of $9.29 and the maximum offering price of $9.75, respectively,
at the close of the fiscal year. Prior to July 12, 1996, the Fund had only one
class of shares, which class is now designated Class A. The performance data
provided in this section of the Prospectus are for those shares.
After a surge last fall that heightened inflation concerns, the economy slowed
during the winter in response to credit restraints by the Federal Reserve. The
Fund benefited from this years favorable inflation and interest-rate
environment. We adjusted some of the Funds strategies in the second half of
1995, in response to the strong performance of financial markets. In particular,
we reduced our holdings of convertibles (securities which can be exchanged for
the underlying shares of the issuers common stock).
YIELD AND TOTAL RETURN. Yield and total return data may, from time to time, be
included in advertisements about the Fund. Each class of shares calculates its
yield by dividing the annualized net investment income per share on the
portfolio during a 30-day period by the maximum offering price on the last day
of the period. The yield of each class will differ because of the different
expenses (including actual 12b-1 fees) of each class of shares. The yield data
represents a hypothetical investment return on the portfolio, and does not
measure an investment return based on dividends actually paid to shareholders.
To show that return, a dividend distribution rate may be calculated. Dividend
distribution rate is calculated by dividing the dividends of a class derived
from net investment income during a stated period by the maximum offering price
on the last day of the period. Yields and dividend distribution rate for Class A
shares reflect the deduction of the maximum initial sales charge, but may also
be shown based on the Funds net asset value per share. Yields for Class B and
Class C shares do not reflect the deduction of the CDSC.
Total return for the one-, five- and ten-year periods represents the average
annual compounded rate of return on an investment of $1,000 in the Fund at the
maximum public offering price. When total return is quoted for Class A shares,
it includes the payment of the maximum initial sales charge. When total return
is shown for Class B and Class C shares, it reflects the effect of the
applicable CDSC. Total return also may be presented for other periods or based
on investments at reduced sales charge levels or net asset value. Any quotation
of total return not reflecting the maximum sales charge (front-end, level, or
back-end) would be reduced if such sales charge were used. Quotations of yield
or total return for any period when an expense limitation is in effect will be
greater than if the limitation had not been in effect. See Past Performance in
the Statement of Additional Information for a more detailed description.
The Funds dividend distribution rate may differ from its SEC yield primarily
because the Fund may purchase short- and intermediate-term high-coupon
securities at a premium and, consistent with applicable tax regulations,
distribute to shareholders all of the interest income on these
<PAGE>
securities without amortizing the premiums. This practice also is used by the
Fund for financial statement purposes and is in accordance with generally
accepted accounting principles. In other words, the Fund may pay more than face
value for a security that pays a greater-than-market rate of interest and then
distribute all such interest as dividends. The principal payable on the security
at maturity will equal face value, and so the market value of the security will
gradually decrease to face value, assuming no changes in the market rate of
interest or in the credit quality of the issuer. Shareholders should recognize
that such dividends therefore will tend to decrease the net asset value of the
Fund. Dividends paid from this interest income are taxable to shareholders at
ordinary income rates.
The Fund may make distributions in excess of net investment income from time to
time to provide more stable dividends. Such distributions could cause slight
decreases in net asset values over time, but historically have not resulted in a
return of capital for tax purposes.
SEE PERFORMANCE IN THE STATEMENT OF ADDITIONAL INFORMATION FOR A MORE DETAILED
DISCUSSION CONCERNING THE COMPUTATION OF THE FUNDS TOTAL RETURN AND YIELD.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFER IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS OR IN SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
THE FUND AND NO PERSON IS ENTITLED TO RELY UPON ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN OR THEREIN.
<PAGE>
Comparison of change in value of a $10,000 investment in Class A shares of the
Fund, assuming reinvestment of all dividends and distributions, with Salomon
Brothers Broad Investment High-Grade Index, First Boston High-Yield Index and
Value Line Convertible Index.
<TABLE>
<CAPTION>
FUND FUND SALOMON
AT AT BROTHERS FIRST
NET MAXIMUM BROAD INVESTMENT BOSTON VALUE LINE
ASSET OFFERING HIGH-GRADE HIGH-YIELD CONVERTIBLE
DATE VALUE PRICE INDEX INDEX INDEX
---- ------ -------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
12-31-84 $10,000 $ 9,525 $10,000 $10,000 $10,000
12-31-85 12,102 11,526 12,225 12,494 12,539
12-31-86 13,386 12,749 14,114 14,447 14,378
12-31-87 13,637 12,989 14,479 15,392 13,350
12-31-88 15,519 14,781 15,636 17,496 15,265
12-31-89 16,304 15,528 17,894 17,564 16,405
12-31-90 15,070 14,353 19,521 16,443 14,248
12-31-91 20,847 19,856 22,638 23,634 18,417
12-31-92 24,181 23,031 24,359 27,574 21,763
12-31-93 28,043 26,711 26,775 32,785 26,264
12-31-94 26,959 26,677 26,009 32,470 25,234
12-31-95 27,177 24,926 25,218 30,506 25,574
<FN>
(1) Data reflects the deduction of the maximum initial sales charge of 4.75%
applicable to Class A shares.
(2) Performance numbers for Salomon Brothers Broad Investment High-Grade Index,
First Boston High-Yield Index and Value Line Convertible Index do not
reflect transaction costs or management fees. An investor cannot invest
directly in any of these unmanaged indices. A review of the Funds 1995
annual shareholders report shows a history of the Funds portfolio blend
changing through the years but composed primarily of three categories of
securities: (i) lower rated debt (including straight-preferred stocks),
(ii) equity-related securities and (iii) high-grade debt. The three indices
chosen to compare to the Funds performance have elements of these three
categories, but since there is no one index combining all three in the same
annual blend as the Funds portfolio, these three separate indices may not
be a valid comparison for the Fund.
(3) Total return is the percent change in value, after deduction of the maximum
initial sales charge of 4.75%, applicable to Class A shares, with all
dividends and distributions reinvested for the periods shown ending
December 31, 1995 using the SEC-required uniform method to compute such
return.
<PAGE>
Investment Manager and Underwriter
Lord, Abbett & Co. and Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend
Disbursing Agent
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
Auditors
Deloitte & Touche LLP
Counsel
Debevoise & Plimpton
Printed in the U.S.A.
<PAGE>
LORD ABBETT July 15, 1996
Statement of Additional Information
Lord Abbett
Bond-Debenture
Fund, Inc.
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord Abbett Distributor LLC
("Lord Abbett Distributor") at The General Motors Building, 767 Fifth Avenue,
New York, New York 10153-0203. This Statement relates to, and should be read in
conjunction with, the Prospectus dated July 15, 1996.
Lord Abbett Bond-Debenture Fund, Inc. (sometimes referred to as "we" or the
"Fund") was organized in 1970 and was incorporated under Maryland law on January
23, 1976. As of July 12, 1996, our 300,000,000 shares of authorized capital
stock consist of three classes (A, B and C), $0.01 par value. The Board of
Directors will allocate these authorized shares of capital stock among the
classes from time to time. Prior to July 12, 1996, we had only one class of
shares, which class is now designated Class A. The Class B shares will be
offered to the public for the first time on or about August 1, 1996. All shares
have equal noncumulative voting rights and equal rights with respect to
dividends, assets and liquidation, except for certain class-specific expenses.
They are fully paid and nonassessable when issued and have no preemptive or
conversion rights.
Rule 18f-2 under the 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
principal distributing contracts and the election of directors from its separate
voting requirements.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Objective and Policies 2
2. Directors and Officers 3
3. Investment Advisory and Other Services 5
4. Portfolio Transactions 6
5. Purchases, Redemptions and Shareholder Services 7
6. Past Performance 13
7. Taxes 14
8. Information About the Fund 14
9. Financial Statements 15
10. Appendix 15
<PAGE>
1.
Investment Objective and Policies
Fundamental Investment Restrictions
- -----------------------------------
The Fund may not: (1) borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act of 1940, as amended (the "Act"))
in amounts up to 33 1/3% of its total assets (including the amount borrowed),
(ii) the Fund may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities and
(iv) the Fund may purchase securities on margin to the extent permitted by
applicable law; (2) pledge its assets (other than to secure borrowings, or to
the extent permitted by the Fund's investment policies as permitted by
applicable law); (3) engage in the underwriting of securities, except pursuant
to a merger or acquisition or to the extent that, in connection with the
disposition of its portfolio securities, it may be deemed to be an underwriter
under federal securities laws; (4) make loans to other persons, except that the
acquisition of bonds, debentures or other corporate debt securities and
investment in government obligations, commercial paper, pass-through
instruments, certificates of deposit, bankers acceptances, repurchase agreements
or any similar instruments shall not be subject to this limitation, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with applicable
law; (5) buy or sell real estate (except that the Fund may invest in securities
directly or indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein) or commodities or
commodity contracts (except to the extent the Fund may do so in accordance with
applicable law and without registering as a commodity pool operator under the
Commodity Exchange Act as, for example, with futures contracts); (6) with
respect to 75% of the gross assets of the Fund, buy securities of one issuer
representing more than (i) 5% of the Fund's gross assets, except securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or (ii) 10% of the voting securities of such issuer; (7) invest more than 25% of
its assets, taken at market value, in the securities of issuers in any
particular industry (excluding securities of the U.S. Government, its agencies
and instrumentalities); or (8) issue senior securities to the extent such
issuance would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by changes in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
Non-Fundamental Investment Restrictions. In addition to the investment
- -------------------------------------------
restrictions above which cannot be changed without shareholder approval, we also
are subject to the following non-fundamental investment policies which may be
changed by the Board of Directors without shareholder approval. The Fund may
not: (1) borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes; (2) make short sales of
securities or maintain a short position except to the extent permitted by
applicable law; (3) invest knowingly more than 15% of its net assets (at the
time of investment) in illiquid securities, except for securities qualifying for
resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the
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
mortgaged-backed securities, asset-backed securities or obligations issued or
guaranteed by the U. S. Government, its agencies or instrumentalities); (6) hold
securities of any issuer if more than 1/2 of 1% of the securities of such issuer
are owned beneficially by one or more 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
2
<PAGE>
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) invest more than 10% of
the market value of its gross assets at the time of investment in debt
securities which are in default as to interest or principal.
Although it has no current intention to do so, the Fund may invest in financial
futures and options on financial futures.
PORTFOLIO TURNOVER RATE. For the year ended December 31, 1995, our portfolio
turnover was 134.90% versus 147.98% for the prior year.
2.
Directors and Officers
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also an officer
and/or director or trustee of the twelve other Lord Abbett-sponsored funds. He
is an "interested person" as defined in the Act, and as such, may be considered
to have an indirect financial interest in the Rule 12b-1 Plan described in the
Prospectus.
Robert S. Dow, age 51, Chairman and President
The following outside directors are also directors or trustees of the twelve
other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc. Age 54.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 65.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 70.
C. Alan MacDonald
The Marketing Partnership, Inc.
27 Signal Road
Stamford, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm. Formerly Chairman and Chief Executive Officer of Lincoln
Snacks, Inc., manufacturer of branded snack foods (1992-1994). Formerly
President and Chief Executive Officer of Nestle Foods Corp, and prior to that,
President and Chief Executive Officer
3
<PAGE>
of Stouffer Foods Corp., both subsidiaries of Nestle SA, Switzerland. Currently
serves as Director of Den West Restaurant Co., J. B. Williams, and Fountainhead
Water Company. Age 63.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 68.
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Age 58.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the retirement plan for outside directors maintained by the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside directors. The first four columns give
information for the Fund's fiscal year ended December 31, 1995; the fifth column
gives information for the year ended December 31, 1995. No director of the Fund
associated with Lord Abbett or Lord Abbett Distributor and no officer of the
Fund received any compensation from the Fund for acting as a director or
officer.
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31, 1995
- -------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Pension or Estimated Annual For Year Ended
Retirement Benefits Benefits Upon December 31, 1995
Accrued as Expenses Retirement Accrued Total Compensation
by the Fund and by the Fund and Accrued by the Fund and
Aggregate Twelve Other Lord Twelve Other Lord Twelve Other Lord
Compensation Abbett-sponsored Abbett-sponsored Abbett-sponsored
Name of Director from the Fund1 Funds2 Funds2 Funds3
- --------------- -------------- ------------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
E. Thayer Bigelow $3,534 $9,772 $33,600 $41,700
Stewart S. Dixon $3,517 $22,472 $33,600 $42,000
John C. Jansing $3,642 $28,480 $33,600 $42,960
C. Alan MacDonald $3,589 $27,435 $33,600 $42,750
Hansel B. Millican, Jr. $3,646 $24,707 $33,600 $43,000
Thomas J. Neff $3,559 $16,126 $33,600 $42,000
<FN>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are generally allocated among all Lord Abbett-sponsored funds based
on net assets of each fund. A portion of the fees payable by the Fund to its
outside directors is being deferred under a plan that deems the deferred
amounts to be invested in shares of the Fund for later distribution to the
directors. The total amount accrued under the plan for each outside director
since the beginning of his tenure with the Fund, including dividends
reinvested and changes in net asset value applicable to such deemed
investments, were as follows as of December 31,1995: Mr. Bigelow, $4,593; Mr.
Dixon, $53,543; Mr. Jansing, $57,202; Mr. MacDonald, $31,512; Mr. Millican,
$57,554 and Mr. Neff, $57,706.
2. The retirement plan of the Lord Abbett-sponsored funds provides that outside
directors will receive an annual retirement benefit equal to 80% of their
final annual retainer following retirement at or after age 72 with at least
10 years of service. The plan also provides for a reduced benefit upon early
retirement under certain circumstances, a pre-retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits. The amounts stated
would be payable annually under such retirement plan if the director were to
retire at age 72 and the annual retainer payable by such funds were the same
as it is today. The amounts set forth in column 3 were accrued by the Lord
Abbett-sponsored funds during the fiscal year ended December 31, 1995 with
respect to the retirement benefits set forth in column 4.
4
<PAGE>
3. This column shows aggregate compensation, including director's fees and
attendance fees for board and committee meetings, of a nature referred to in
the first sentence of footnote one accrued by the Lord Abbett-sponsored funds
during the year ended December 31, 1995.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Carper, Cutler, Henderson, Morris, Nordberg and Walsh are partners of
Lord Abbett; the others are employees: Christopher Towle, age 38, Executive Vice
President, Kenneth B. Cutler, age 64, Vice President and Secretary; Stephen I.
Allen, age 43; Daniel E. Carper, age 44; Robert G. Morris, age 51, E. Wayne
Nordberg, age 58; John J. Gargana, Jr., age 65; Thomas S. Henderson, age 64;
Paul A. Hilstad, age 53 (with Lord Abbett since 1995; formerly Senior Vice
President and General Counsel of American Capital Management & Research, Inc.);
Thomas F. Konop, age 54; Victor W. Pizzolato, age 63; John J. Walsh, age 60,
Vice Presidents; and Keith F. O'Connor, age 41, Treasurer.
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called by a majority of the Board of
Directors or by stockholders holding at least one quarter of the stock of the
Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the stockholders will elect directors and vote on the approval
of the independent auditors of the Fund.
As of April 1, 1995, our officers and directors as a group owned less than 1% of
our outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The eight general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Daniel E. Carper,
Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Robert G. Morris, E.
Wayne Nordberg and John J. Walsh. The address of each partner is The General
Motors Building, 767 Fifth Avenue, New York, New York 10153-0203.
The services performed by Lord Abbett are described in the Prospectus under "Our
Management". Under the Management Agreement, we are obligated to pay Lord Abbett
a monthly fee, based on average daily net assets for each month, at the annual
rate of .50 of 1% of the Fund's first $500 million of average daily net assets
and .45% of such assets over $500 million. This fee is allocated among Classes
A, B and C based on the classes' proportionate shares of such average daily net
assets. For the fiscal years ended December 31, 1995, 1994, and 1993,
respectively, the management fees paid to Lord Abbett amounted to $5,342,563,
$4,786,098 and $4,091,742, respectively, and were attributable to Class A shares
only.
We pay all expenses not expressly assumed by Lord Abbett, including, without
limitation, 12b-1 expenses, outside directors' fees and expenses, association
membership dues, legal and auditing fees, taxes, transfer and dividend
disbursing agent fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions.
We have agreed with the State of California to limit operating expenses
(including management fees but excluding taxes, interest, extraordinary expenses
and brokerage commissions) to 2 1/2% of average annual net assets up to
$30,000,000, 2% of the next $70,000,000 of such assets and 1 1/2% of such assets
in excess of $100,000,000. The expense limitation is a condition on the
registration of investment company shares for sale in the state, and applies so
long as our shares are registered for sale in that state.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent public accountants of the Fund and must be approved at least
annually by our Board of Directors to continue in such capacity.
5
<PAGE>
Independent public accountants perform audit services for the Fund including the
examination of financial statements included in our annual report to
shareholders.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, the Fund may pay, as described below, a higher commission than
some brokers might charge on the same transaction. This policy governs the
selection of brokers or dealers and the market in which the transaction is
executed. To the extent permitted by law, we may, if considered advantageous,
make a purchase from or sale to another Lord Abbett-sponsored fund without the
intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and ability to take
positions in securities, knowledge of a particular security or market, proven
ability to handle a particular type of trade, confidential treatment, promptness
and reliability.
Some of our 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.
6
<PAGE>
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
During the fiscal years ending December 31, 1995, 1994 and 1993, respectively,
we paid total commissions to independent broker-dealers of $6,717,922,
$4,482,094 and $5,739,293, respectively, with respect to the Class A share only.
5.
Purchases, Redemptions
and Shareholder Services
The Fund values its portfolio securities at market value as of the close of the
New York Stock Exchange ("NYSE"). Market value will be determined as follows:
securities listed or admitted to trading privileges on the New York or American
Stock Exchange or on the NASDAQ National Market System are valued at the last
sales price, or, if there is no sale on that day, at the mean between the last
bid and asked prices, or, in the case of bonds, in the over-the-counter market
if, in the judgment of the Fund's officers, that market more accurately reflects
the market value of the bonds. Over-the-counter securities not traded on the
NASDAQ National Market System are valued at the mean between the last bid and
asked prices. Securities for which market quotations are not available are
valued at fair market value under procedures approved by the Board of Directors.
Information concerning how we value our shares for the purchase and redemption
of our shares is described in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate our net asset value and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
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 maximum offering price of our Class A shares on December 31, 1995 was
computed as follows:
Net asset value per share (net assets divided by shares outstanding) .....$9.29
Maximum offering price per share (net asset value divided by .9525) .....$9.75
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.
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<PAGE>
For the last three fiscal years, Lord Abbett, 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:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross sales charge $12,694,946 $7,717,386 $8,973,226
Amount allowed to
dealers $10,898,476 $6,648,480 $7,739,343
---------- --------- ---------
Net commissions
received by Lord Abbett $1,796,470 $1,068,906 $1,233,883
========= ========= =========
</TABLE>
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.
CLASS A, B AND C 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 $2,437,438 under the A Plan. Both the B Plan
and the C Plan were adopted by the Fund subsequent to its last fiscal year. Lord
Abbett used all amounts received under the A Plan for payments to dealers for
(i) providing continuous services to the Class A 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 Class A shares of the Fund.
Each Plan requires the directors to review, on a quarterly basis, written
reports of all amounts expended pursuant to the Plan and the purposes for which
such expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the directors,
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("outside directors"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at any time by vote of a majority of the outside
directors or by vote of a majority of its Class's outstanding voting securities.
CONTINGENT DEFERRED SALES CHARGES. The charges described below apply upon early
redemption of shares, and consist of a Contingent Deferred Sales Charge
("CDSC"), regardless of class, (i) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (ii) 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 (iii) are not 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).
8
<PAGE>
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:
Contingent Deferred Sales Charge
Anniversary of the Day on on Redemptions (As % of Amount
Which the Purchase Order Was Accepted 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
In the table, an "anniversary" is the 365th day subsequent to the acceptance of
a purchase order or a prior anniversary. All purchases are considered to have
been made on the business day on which the purchase order was received.
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. 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.
9
<PAGE>
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares are held in AMMF. Therefore,
if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
Exchanges. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would
10
<PAGE>
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, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares, and series of Lord Abbett
Research Fund not offered to the general public ("LARF").
STATEMENT OF INTENTION. Under the terms of the Statement of Intention to invest
$100,000 or more over a 13-month period as described in the Prospectus, in
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) shares currently owned by you are credited as purchases
(at their current offering prices on the date the Statement is signed) toward
achieving the stated investment and reduced initial sales charge for Class A
shares. Class A shares valued at 5% of the amount of intended purchases are
escrowed and may be redeemed to cover the additional sales charge payable if the
Statement is not completed. The Statement of Intention is neither a binding
obligation on you to buy, nor on the Fund to sell, the full amount indicated.
RIGHTS OF ACCUMULATION. As stated in the Prospectus, purchasers (as defined in
the Prospectus) may accumulate their investment in Lord Abbett-sponsored funds
(other than LAEF, LARF, LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF
are attributable to shares exchanged from a Lord Abbett-sponsored fund offered
with a front-end, back-end or level sales charge) so that a current investment,
plus the purchaser's holdings valued at the current maximum offering price,
reach a level eligible for a discounted sales charge for Class A shares.
NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our
Class A shares may be purchased at net asset value by our directors, employees
of Lord Abbett, employees of our shareholder servicing agent and employees of
any securities dealer having a sales agreement with Lord Abbett who consents to
such purchases or by the director or custodian under any pension or
profit-sharing plan or Payroll Deduction IRA established for the benefit of such
persons or for the benefit of employees of any national securities trade
organization to which Lord Abbett belongs or any company with an account(s) in
excess of $10 million managed by Lord Abbett on a private-advisory-account
basis. For purposes of this paragraph, the terms "directors" and "employees"
include a director's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "our directors" and "employees of Lord
Abbett" also include retired directors and employees and other family members
thereof.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, and (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. 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.
Our Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a securities dealer where the amount invested
represents redemption proceeds from shares ("Redeemed Shares") of a registered
11
<PAGE>
open-end management investment company not distributed or managed by Lord Abbett
(other than a money market fund), if such redemption has occurred no more than
60 days prior to the purchase of our shares, the Redeemed Shares were held for
at least six months prior to redemption and the proceeds of redemption were
maintained in cash or a money market fund prior to purchase. Purchasers should
consider the impact, if any, of contingent deferred sales charges in determining
whether to redeem shares for subsequent investment in our Class A shares. Lord
Abbett may suspend, change or terminate this purchase option at any time.
Our Class A shares may be issued at net asset value in exchange for the assets,
subject to possible tax adjustment, of a personal holding company or an
investment company. There are economies of selling efforts and sales-related
expenses with respect to offers to these investors and those referred to above.
Redemptions. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or supplementally by
Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and
any legal capacity of the signer(s) must be guaranteed by an eligible guarantor.
See 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.
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, the CDSC will be waived on redemptions of up to 12% per
year of either the current net asset value of your account or your original
purchase price, whichever is higher. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The SWP may be terminated by you or by us at any time by written
notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms and custodial agreements for IRAs (Individual
Retirement Accounts, including Simplified Employee Pensions), 403(b) plans and
qualified pension and profit-sharing
12
<PAGE>
plans, including 401(k) plans. The forms name Investors Fiduciary Trust Company
as custodian and contain specific information about the plans. Explanations of
the eligibility requirements, annual custodial fees and allowable tax advantages
and penalties are set forth in the relevant plan documents. Adoption of any of
these plans should be on the advice of your legal counsel or qualified tax
adviser.
6.
Past Performance
The Fund computes the average annual compounded rate of total return for each
class 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 (as described in the next
paragraph) from the 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 covered by the average annual
total return computation.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (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. Prior to July 12,
1996, the Fund had only one class of shares, which class is now designated Class
A.
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 December 31, 1995 are as follows: 11.90%, 14.89% and 9.57% for the
Fund's Class A shares, respectively.
Our yield quotation is based on a 30-day period ended on a specified date,
computed by dividing our net investment income per share earned during the
period by our maximum offering price per share on the last day of the period.
This is determined by finding the following quotient: take the Fund's dividends
and interest earned during the period minus its expenses accrued for the period
and divide by the product of (i) the average daily number of Fund shares
outstanding during the period that were entitled to receive dividends and (ii)
the Fund's maximum offering price per share 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 Fund's 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 December 31, 1995, the yield
for the Class A shares of Fund was 8.06%.
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.
13
<PAGE>
7.
Taxes
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time the
redemption, repurchase or sale is made. Any gain or loss will generally be
taxable for federal income tax purposes. Any loss realized on the sale,
redemption or repurchase of Fund shares which you have held for six months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any capital gains distributions which you received with respect to such
shares. Losses on the sale of stock or securities are not deductible if, within
a period beginning 30 days before the date of the sale and ending 30 days after
the date of the sale, the taxpayer acquires stock or securities that are
substantially identical.
The Fund will be subject to a 4% non-deductible excise tax on certain amounts
not distributed (and not treated as having been distributed) on a timely basis
in accordance with a calendar-year distribution requirement. The Fund intends to
distribute to shareholders each year an amount adequate to avoid the imposition
of such excise tax. Dividends paid by the Fund will qualify for the
dividends-received deduction for corporations to the extent they are derived
from dividends paid by domestic corporations.
As described in the Prospectus under "Risk Factors", the Fund may be subject to
foreign withholding taxes which would reduce the yield on its investments. Tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is expected that Fund shareholders who are subject to United
States federal income tax will not be entitled to claim a federal income tax
credit or deduction for foreign income taxes paid by the Fund.
Gains and losses 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 gains or losses are attributable to changes in
exchange rates for foreign currencies. Accordingly, distributions taxable as
ordinary income will include the net amount, if any, of such foreign exchange
gains and will be reduced by the net amount, if any, of such foreign exchange
losses.
The foregoing discussion relates solely to U. S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates). Each
shareholder who is not a United States person should consult his tax adviser
regarding the U. S. and foreign tax consequences of the ownership of shares of
the Fund, including a 30% (or lower treaty rate) United States withholding tax
on dividends representing ordinary income and net short-term capital gains, and
the applicability of United States gift and estate taxes to non-United States
persons who own Fund shares.
8.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account
considers a trade or trades in such security, from profiting on trades of the
same security within 60 days and from 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 the Advisory Group.
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9.
Financial Statements
The financial statements for the fiscal year ended December 31, 1995 and the
report of Deloitte & Touche LLP, independent public accountants, on such
financial statements contained in the 1995, Annual Report to Shareholders of
Lord Abbett Bond-Debenture Fund, Inc. are incorporated herein by reference to
such financial statements and report in reliance upon the authority of Deloitte
& Touche LLP as experts in auditing and accounting. Prior to July 12, 1996, the
Fund had only one class of shares, which class is now designated Class A.
10.
Appendix
Corporate Bond Ratings
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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Standard & Poor's Corporation's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB-B-CCC-CC-C - Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of
speculation and 'CCC' the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
