<PAGE>
LORD
ABBETT Bond-Debenture Fund
PROSPECTUS
May 1, 1999
[LOGO]
As with all mutual funds, the Securities and Exchange Commission does
not guarantee that the information in this prospectus is accurate or
complete, and it has not judged this fund for its investment merit. It
is a criminal offense to state otherwise.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
The Fund Page
<S> <C> <C>
What you should know Goal/Strategy 2
about the fund Main Risks 2
Past Performance 3
Fees and Expenses 4
<CAPTION>
Your Investment
<S> <C> <C>
Information for managing Purchases 5
your fund account Opening Your Account 7
Redemptions 8
Distributions and Taxes 8
Services For Fund Investors 9
Sales Charges and Service Fees 10
Management 11
<CAPTION>
For More Information
How to learn more Other Investment Techniques 12
about the fund Glossary of Shaded Terms 12
Recent Performance 14
<CAPTION>
Financial Information
<S> <C> <C>
Financial Highlights 15
Compensation For Your Dealer 17
How to learn more about the Back Cover
fund and other Lord Abbett funds
</TABLE>
<PAGE>
The Fund
GOAL / STRATEGY
The fund seeks high current income and the opportunity for capital
appreciation to produce a high total return. We believe that a high total
return (current income and capital appreciation) may be derived from an
actively managed, diversified security portfolio. Normally, we invest at
least 65% of our total assets in bonds (secured obligations) and debentures
(generally unsecured obligations). We seek unusual values, using
fundamental, bottom-up research to identify undervalued securities.
We invest principally in lower-rated debt securities, securities
convertible into common stock, preferred stocks and bonds and investment
grade debt. At least 20% of the portfolio must be invested in investment
grade debt, or U.S. government securities. In addition, the fund may invest
up to 20% of its assets in foreign securities. In recent years, the fund
has found good value in lower-rated, higher yielding debt securities and
has invested more than half its assets in those securities.
While typically fully invested, we may take a temporary defensive position
in cash and short-term debt securities. This could prevent the fund from
realizing its investment objective.
MAIN RISKS
The fund faces interest rate risk, credit risk, and currency risk.
As with other bond funds, the value of your investment may change as
interest rates fluctuate, due to interest rate risk. This is because often
the prices of fixed-income securities rise when interest rates fall and
fall when interest rates rise. Longer-term bonds are usually more sensitive
to interest rate changes. Put another way, the longer the maturity of a
bond or other debt security, the greater the effect a change in interest
rates is likely to have on the instrument's price. The fund tends to own
securities with longer maturities, so it may face more interest rate risk
than some fixed income funds.
Lower-rated debt securities involve greater credit risks than do investment
grade bonds. Companies that issue high yield debt securities are not as
strong financially as those with higher credit ratings and may default on
principal or interest payments. Through portfolio diversification, good
credit analysis and attention to current developments and trends in
interest rates and economic conditions, we attempt to reduce investment
risk, but losses may occur. In addition, we attempt to reduce investment
risk by investing at least 20% of our assets in a combination of investment
grade debt securities, U.S. government securities, and cash equivalents.
Finally, because it may invest up to 20% of its assets in foreign
securities, the fund faces the risk that unfavorable changes in currency
exchange rates could reduce its share price.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could
lose money in this fund.
WE OR THE FUND refers to the Lord Abbett Bond-Debenture Fund, Inc. (the
"company"), which operates under the supervision of the company's Board with the
advice of Lord, Abbett & Co. ("Lord Abbett"), its investment manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
securities purchased with the pooled money of investors. It strives to reach its
stated goal, although as with all funds, it cannot guarantee results.
INVESTMENT GRADE DEBT SECURITIES are, at the time of purchase, rated in one of
the four highest grades determined either by Moody's Investors Service, Inc. or
Standard & Poor's Ratings Services, or determined by Lord Abbett to be
equivalent in quality.
U.S. GOVERNMENT SECURITIES are obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
HIGH YIELD DEBT SECURITIES, commonly known as "junk bonds" typically pay a
higher yield than investment grade debt securities. These bonds have a higher
risk of default than investment grade bonds and their prices can be much more
volatile.
FOREIGN SECURITIES are securities primarily traded in countries outside the
United States. These securities are not subject to the same degree of regulation
and may be more volatile and less liquid than securities traded in major U.S.
markets. Other considerations include political and social instability,
expropriations, higher transaction costs, currency fluctuations, nondeductible
withholding taxes and different settlement practices.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies, and their risks, used
by the fund.
2 The Fund
<PAGE>
Bond-Debenture Fund Symbols: Class A - LBNDX
Class B - LBNBX
Class C - BDLAX
PAST PERFORMANCE
The information below provides some indication of the risks of investing in
the fund by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance.
Past performance is not a prediction of future results.
[PERFORMANCE GRAPH]
<TABLE>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.8% 5.1% -7.6% 38.3% 16.0% 16.0% -3.9% 17.5% 11.2% 12.7% 4.8%
</TABLE>
BEST QUARTER: 1st Q '91 13.85% WORST QUARTER: 3rd Q '90 -8.24%
================================================================================
The table below shows a comparison of the fund's class A, B and C average annual
total return to that of the Salomon Brothers Broad Investment High-Grade Index
("SBBIHGI") and the First Boston High-Yield Index ("FBHYI"). Fund returns assume
reinvestment of all dividends and distributions and payment of the maximum
applicable front-end or deferred sales charge. All periods end on December 31,
1998.
<TABLE>
<CAPTION>
SINCE
CLASS 1 YEAR 5 YEARS 10 YEARS INCEPTION(i) SBBIHGI(ii) FBHYI(iii)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A (0.20)% 7.13% 9.82% 9.94% -- --
- ---------------------------------------------------------------------------------------------
B (0.86)% -- -- 8.19% 10.01%(iii) 8.25%(iii)
- ---------------------------------------------------------------------------------------------
C 3.01% -- -- 9.69%(iv) 9.59%(iv) 8.44%(iv)
- ---------------------------------------------------------------------------------------------
SBBIHGI 8.72% 7.30% 9.31% -- -- --
- ---------------------------------------------------------------------------------------------
FBHYI 0.57% 8.16% 10.74% -- -- --
- ---------------------------------------------------------------------------------------------
</TABLE>
(i) The date of inception for each class is: A - 4/1/71; B - 8/1/96; and
C - 7/15/96.
(ii) Performance for the unmanaged Salomon Brothers Broad Investment High-Grade
Index and First Boston High-Yield Index do not reflect transaction costs
or management fees.
(iii) Represents total returns for the period 8/31/96 to 12/31/98, to correspond
with class B inception date.
(iv) Represents total returns for the period 7/31/96 to 12/31/98, to correspond
with class C inception date.
The Fund 3
<PAGE>
Bond-Debenture Fund Symbols: Class A - LBNDX
Class B - LBNBX
Class C - BDLAX
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
==================================================================================================
Fee table
- --------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS P
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- --------------------------------------------------------------------------------------------------
(as a % of offering price) 4.75% none none none
- --------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (See "Purchases") none 5.00%(1) 1.00% none
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets) (as a %
of average net assets)(2)
- --------------------------------------------------------------------------------------------------
Management Fees (See "Management") 0.46% 0.46% 0.46% 0.46%
- --------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(3) 0.35% 1.00% 1.00% 0.45%
- --------------------------------------------------------------------------------------------------
Other Expenses 0.14% 0.14% 0.14% 0.14%
- --------------------------------------------------------------------------------------------------
Total Operating Expenses 0.95% 1.60% 1.60% 1.05%
- --------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period, although your
actual cost may be higher or lower. The expenses include any applicable
contingent deferred sales charges.
<TABLE>
<CAPTION>
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $567 $763 $ 976 $1,588
- -----------------------------------------------------------
Class B shares $663 $805 $1,071 $1,728
- -----------------------------------------------------------
Class C shares $263 $505 $ 871 $1,902
- -----------------------------------------------------------
Class P shares $107 $334 $ 579 $1,285
- -----------------------------------------------------------
</TABLE>
You would pay the following expenses on the same investment, assuming you kept
your shares.
<TABLE>
<S> <C> <C> <C> <C>
Class A shares $567 $763 $976 $1,588
- -----------------------------------------------------------
Class B shares $163 $505 $871 $1,728
- -----------------------------------------------------------
Class C shares $163 $505 $871 $1,902
- -----------------------------------------------------------
Class P shares $107 $334 $579 $1,285
- -----------------------------------------------------------
</TABLE>
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
12b-1 FEES refer to fees incurred for activities that are primarily intended to
result in the sale of fund shares and service fees for shareholder account
service and maintenance.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
service and professional fees.
- --------------------------------------------------------------------------------
(1) Class B shares will convert to class A shares on the eighth anniversary of
your original purchase of class B shares.
(2) The annual operating expenses have been restated from fiscal year amounts
to reflect current fees.
(3) Because 12b-1 distribution fees are paid out on an ongoing basis, over time
they will increase the cost of your investment and may cost you more than
paying other types of sales charges.
4 The Fund
<PAGE>
Your Investment
PURCHASES
This prospectus offers four classes of shares, Class A, B, C and P.
Although the fund has more than one class of shares, these different
classes of shares represent investments in the same portfolio of securities
but are subject to different expenses. Our shares are continuously offered.
The offering price is based on the Net Asset Value ("NAV") per share next
determined after we receive your purchase order submitted in proper form. A
front-end sales charge is added to the NAV, in the case of the class A
shares. There is no front-end sales charge, although there is a Contingent
Deferred Sales Charge in the case of the class B and C shares, as described
below.
You should read this section carefully to determine which class of shares
represents the best investment option for your particular situation. It may
not be suitable for you to place a purchase order for class B shares of
$500,000 or more or a purchase order for class C shares of $1,000,000 or
more. You should discuss pricing options with your investment professional.
For more information, see "Alternative Sales Arrangements" in the Statement
of Additional Information.
We reserve the right to withdraw all or any part of the offering made by
this prospectus or to reject any purchase order. We also reserve the right
to waive or change minimum investment requirements. All purchase orders are
subject to our acceptance and are not binding until confirmed or accepted
in writing.
<TABLE>
<CAPTION>
================================================================================
Front-End Sales Charges - Class A Shares
- --------------------------------------------------------------------------------
TO COMPUTE
AS A % OF AS A % OF OFFERING PRICE
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT DIVIDE NAV BY
================================================================================
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% .9525
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% .9525
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% .9625
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% .9725
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% .9800
- --------------------------------------------------------------------------------
$1,000,000 and over No Sales Charge 1.0000
- --------------------------------------------------------------------------------
</TABLE>
REDUCING YOUR CLASS A FRONT-END SALES CHARGES. Class A shares may be
purchased at a discount if you qualify under either of the following
conditions:
RIGHTS OF ACCUMULATION -- A Purchaser can apply the value (at public
offering price) of the shares you already own to a new purchase of class
A shares of any Eligible Fund in order to reduce the sales charge.
STATEMENT OF INTENTION -- A Purchaser of class A shares can purchase
additional shares of any Eligible Fund over a 13-month period and receive
the same sales charge as if you had purchased all shares at once. Shares
purchased through reinvestment of dividends or distributions are not
included. A statement of intention can be backdated 90 days. Current
holdings under rights of accumulation can be included in a statement of
intention.
For more information on eligibility for these privileges, read the
applicable sections in the attached application.
NAV per share for each class of fund shares is calculated each business day at
the close of regular trading on the New York Stock Exchange ("NYSE"). The fund
is open on those business days when the NYSE is open. Purchases and sales of
fund shares are executed at the NAV next determined after the fund receives your
order. In calculating NAV, securities for which market quotations are available
are valued at those quotations. Securities for which such quotations are not
available are valued at fair value under procedures approved by the Board.
Share classes
CLASS A
normally offered with a front-end sales charge
CLASS B
no front-end sales charge, however, a contingent deferred sales charge is
applied to shares sold prior to the sixth anniversary of purchase
higher annual expenses than class A shares
automatically convert to class A shares after eight years
CLASS C
no front-end sales charge
higher annual expenses than class A shares
a contingent deferred sales charge is applied to shares sold prior to the
first anniversary of purchase
CLASS P
available to certain pension or retirement plans and pursuant to a Mutual Fund
Advisory Program
Your Investment 5
<PAGE>
CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares
may be purchased without a front-end sales charge under any of the
following conditions:
purchases of $1 million or more*
purchases by Retirement Plans with at least 100 eligible employees*
purchases under a Special Retirement Wrap Program*
purchases made with dividends and distributions on class A shares of
another Eligible Fund
purchases representing repayment under the loan feature of the Lord
Abbett-sponsored prototype 403(b) Plan for class A shares
purchases by employees of any consenting securities dealer having a sales
agreement with Lord Abbett Distributor
purchases under a Mutual Fund Advisory Program
purchases by trustees or custodians of any pension or profit sharing
plan, or payroll deduction IRA for employees of any consenting securities
dealer having a sales agreement with Lord Abbett Distributor
See the Statement of Additional Information for a listing of other
categories of purchasers who qualify for class A share purchases without a
front-end sales charge.
* These categories may be subject to a Contingent Deferred Sales Charge
("CDSC").
CLASS A SHARE CDSC. If you buy class A shares under one of the starred (*)
categories listed above and you redeem any of them within 24 months after
the month in which you initially purchased them, the fund will normally
collect a CDSC of 1%.
The class A share CDSC will generally be waived for the following
conditions:
benefit payments such as Retirement Plan loans, hardship withdrawals,
death, disability, retirement, separation from service or any excess
distribution under Retirement Plans (documentation may be required)
redemptions continuing as investments in another fund participating in a
Special Retirement Wrap Program
CLASS B SHARE CDSC. The CDSC for class B shares normally applies if you
redeem your shares before the sixth anniversary of their initial purchase.
The CDSC declines the longer you own your shares, according to the
following schedule:
<TABLE>
<CAPTION>
================================================================================
Contingent Deferred Sales Charges - Class B Shares
================================================================================
ANNIVERSARY(1) OF CONTINGENT DEFERRED SALES CHARGE
THE DAY ON WHICH THE ON REDEMPTION (AS % OF AMOUNT
PURCHASE ORDER WAS ACCEPTED SUBJECT TO CHARGE)
On Before
- --------------------------------------------------------------------------------
<S> <C> <C>
1st 5.0%
- --------------------------------------------------------------------------------
1st 2nd 4.0%
- --------------------------------------------------------------------------------
2nd 3rd 3.0%
- --------------------------------------------------------------------------------
3rd 4th 3.0%
- --------------------------------------------------------------------------------
4th 5th 2.0%
- --------------------------------------------------------------------------------
5th 6th 1.0%
- --------------------------------------------------------------------------------
on or after the 6th(2) None
- --------------------------------------------------------------------------------
</TABLE>
(1) The anniversary is the same calendar day in each respective year after the
date of purchase. For example, the anniversaries for shares purchased on
May 1 will be May 1 of each succeeding year.
(2) Class B shares will automatically convert to class A shares on the eighth
anniversary of the purchase of class B shares.
CDSC, regardless of class, is not charged on shares acquired through
reinvestment of dividends or capital gains distributions and is charged on the
original purchase cost or the current market value of the shares at the time
they are being sold, whichever is lower. In addition, repayment of loans under
Retirement Plans and 403(b) Plans will constitute new sales for purposes of
assessing the CDSC.
To minimize the amount of any CDSC, the fund redeems shares in the following
order:
1. shares acquired by reinvestment of dividends and capital gains (always free
of a CDSC)
2. shares held for six years or more (class B) or two years or more after the
month of purchase (class A) or one year or more (class C)
3. shares held the longest before the sixth anniversary of their purchase
(class B) or before the second anniversary after the month of purchase
(class A) or before the first anniversary of their purchase (class C)
RETIREMENT PLANS include employer-sponsored retirement plans under the Internal
Revenue Code, excluding Individual Retirement Accounts.
LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the
funds to work with investment professionals that buy and/or sell shares of the
funds on behalf of their clients. Generally, Lord Abbett Distributor does not
sell fund shares directly to investors.
BENEFIT PAYMENT DOCUMENTATION
(class A only)
under $50,000 - no documentation necessary
over $50,000 - reason for benefit payment must be received
in writing. Use the address indicated under "Opening Your
Account."
6 Your Investment
<PAGE>
The class B share CDSC will generally be waived under any one of the
following conditions:
benefit payments such as Retirement Plan loans, hardship withdrawals,
death, disability, retirement, separation from service or any excess
contribution or distribution under Retirement Plans (documentation may be
required)
Eligible Mandatory Distributions under 403(b) Plans and individual
retirement accounts
death of the shareholder (natural person)
redemptions of shares in connection with Div-Move and Systematic
Withdrawal Plans (up to 12% per year)
See "Systematic Withdrawal Plan" under "Services For Fund Investors" below
for more information on CDSCs with respect to class B shares.
CLASS C SHARE CDSC. The 1% CDSC for class C shares normally applies if you
redeem your shares before the anniversary of the purchase of such shares.
CLASS P SHARES. Class P shares have lower annual expenses than class B and
class C shares, no front-end sales charge, and no CDSC. Class P shares are
currently sold and redeemed at NAV (a) pursuant to a Mutual Fund Advisory
Program, or (b) to the trustees of, or employer-sponsors with respect to,
pension or retirement plans with at least 100 eligible employees (such as a
plan under Section 401(a), 401(k) or 457(b) of the Internal Revenue Code)
which engage an investment professional providing or participating in an
agreement to provide certain recordkeeping, administrative and/or
sub-transfer agency services to the fund on behalf of the class P
shareholders.
OPENING YOUR ACCOUNT
MINIMUM INITIAL INVESTMENT
Regular account $1,000
Individual Retirement Accounts and
403(b) Plans under the Internal Revenue Code $250
Uniform Gifts to Minors Account $250
For Retirement Plans and Mutual Fund Advisory Programs, no minimum
investment is required, regardless of share class.
You may purchase shares through any independent securities dealer who has a
sales agreement with Lord Abbett Distributor or you can fill out the
attached application and send it to the fund at the address stated below.
You should carefully read the paragraph below entitled "Proper Form" before
placing your order to assure your order will be accepted.
LORD ABBETT BOND-DEBENTURE FUND
P.O. Box 419100
Kansas City, MO 64141
PROPER FORM. An order submitted directly to the fund must contain: (1) a
completed application, and (2) payment by check. When purchases are made by
check, redemptions will not be allowed until the fund or the transfer agent
is advised that the check has cleared, which may take up to 15 calendar
days. For more information regarding proper form of a purchase order, call
the fund at 800-821-5129.
BY EXCHANGE. Telephone the fund at 800-821-5129 to request an exchange from
any eligible Lord Abbett-sponsored fund.
IMPORTANT INFORMATION. You may be subject to a $50 penalty under the Internal
Revenue Code if you do not provide a correct taxpayer identification number
(Social Security Number for individuals) or make certain required
certifications. In addition, we may be required to withhold from your account
and pay to the U.S. Treasury 31% of any redemption proceeds and any dividend or
distribution from your account.
Your Investment 7
<PAGE>
REDEMPTIONS
BY BROKER. Call your investment professional for directions on how to
redeem your shares.
BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less
from your account, you or your representative can call the fund at
800-821-5129.
BY MAIL. Submit a written redemption request indicating the name(s) in
which the account is registered, the fund's name, the class of shares, your
account number, and the dollar value or number of shares you wish to sell.
Include all necessary signatures. If the signer has any Legal Capacity, the
signature and capacity must be guaranteed by an Eligible Guarantor. Certain
other legal documentation may be required. For more information regarding
proper documentation call 800-821-5129.
Normally a check will be mailed to the name and address in which the
account is registered (or otherwise according to your instruction) within
three business days after receipt of your redemption request. Your account
balance must be sufficient to cover the amount being redeemed or your
redemption order will not be processed. Under unusual circumstances, the
fund may suspend redemptions, or postpone payment for more than seven days,
as permitted by federal securities laws.
To determine if a CDSC applies to a redemption, see "Class A Share CDSC,"
"Class B Share CDSC" or "Class C Share CDSC."
DISTRIBUTIONS AND TAXES
The fund pays its shareholders dividends from its net investment income,
and distributes any net capital gains that it has realized. The fund
expects to pay income dividends to shareholders monthly. If a capital gain
distribution is declared, it is expected to be paid annually. Your
distributions will be reinvested in your fund unless you instruct the fund
to pay them to you in cash. There are no sales charges on reinvestments.
The tax status of distributions is the same for all shareholders regardless
of how long they have been in the fund or whether distributions are
reinvested or paid in cash. In general, distributions are taxable as
follows:
<TABLE>
<CAPTION>
================================================================================
Federal Taxability Of Distributions
Type of Tax rate for taxpayer Tax rate for taxpayer subject
distribution subject to 15% bracket to 28% bracket or above
================================================================================
<S> <C> <C>
INCOME Ordinary Ordinary
DIVIDENDS income rate income rate
- --------------------------------------------------------------------------------
SHORT-TERM Ordinary Ordinary
CAPITAL GAINS income rate income rate
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAINS 10% 20%
- --------------------------------------------------------------------------------
</TABLE>
Except in tax-advantaged accounts, any sale or exchange of fund shares may
be a taxable event.
SMALL ACCOUNTS. Our Board may authorize closing any account in which there are
fewer than 25 shares if it is in a fund's best interest to do so.
ELIGIBLE GUARANTOR is any broker or bank that is a member of the Medallion Stamp
Program. Most major securities firms and banks are members of this program. A
NOTARY PUBLIC IS NOT AN ELIGIBLE GUARANTOR.
TAXES ON TRANSACTIONS. The chart at left also can provide a "rule of thumb"
guide for your potential U.S. federal income tax liability when selling or
exchanging fund shares. The second row, "Short-term capital gains," applies to
fund shares sold within 12 months of purchase. The third row, "Long-term capital
gains," applies to shares held for more than 12 months.
Starting January 1, 2001, sales of securities held for more than five years will
be taxed at special lower rates.
Any gains realized on a fund's transactions in options and financial futures
will be treated as taxable long- or short-term capital gains.
8 Your Investment
<PAGE>
ANNUAL INFORMATION - Information concerning the tax treatment of dividends
and other distributions will be mailed to shareholders each year. The fund
will also provide annually to its shareholders information regarding the
source of dividends and distributions of capital gains paid by the fund.
Because everyone's tax situation is unique, you should consult your tax
adviser regarding the treatment of those distributions under the federal,
state and local tax rules that apply to you as well as the tax consequences
of gains or losses from the redemption or exchange of your shares.
SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services when filling
out your application or by calling 800-821-5129.
<TABLE>
<CAPTION>
================================================================================
For investing
<S> <C>
INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum) into
(Dollar-cost your fund account by means of automatic money transfers from
averaging) your bank checking account. See the attached application for
instructions.
DIV-MOVE You can automatically reinvest the dividends and
distributions from your account into another account in any
Eligible Fund ($50 minimum).
<CAPTION>
For selling shares
<S> <C>
SYSTEMATIC You can make regular withdrawals from most Lord Abbett
WITHDRAWAL funds. Automatic cash withdrawals can be paid to you from
PLAN ("SWP) your account in fixed or variable amounts. To establish a
plan, the value of your shares must be at least $10,000,
except for Retirement Plans for which there is no minimum.
Your shares must be in non-certificate form.
CLASS B SHARES The CDSC will be waived on SWP redemptions of up to 12% of
the current net asset value of your account at the time of
your SWP request. For class B share SWP redemptions over 12%
per year, the CDSC will apply to the entire redemption.
Please contact the fund for assistance in minimizing the
CDSC in this situation.
CLASS B AND Redemption proceeds due to a SWP for class B and class C
C SHARES shares will be redeemed in the order described under
"Purchases."
================================================================================
</TABLE>
OTHER SERVICES
TELEPHONE INVESTING. After we have received the attached application
(selecting "yes" under Section 7C and completing Section 7), you can
instruct us by phone to have money transferred from your bank account to
purchase shares of the fund for an existing account. The fund will purchase
the requested shares when it receives the money from your bank.
TELEPHONE EXCHANGES. You or your investment professional, with proper
identification, can instruct your fund by telephone to exchange shares of
any class for shares of the same class of any Eligible Fund by calling
800-821-5129. The fund must receive instructions for the exchange before
the close of the NYSE on the day of your call. If you meet this
requirement, you will get the NAV per share of the Eligible Fund determined
on that day. Exchanges will be treated as a sale for federal tax purposes.
Be sure to read the current prospectus for any fund into which you are
exchanging.
REINVESTMENT PRIVILEGE. If you sell shares of the fund, you have a one time
right to reinvest some or all of the proceeds in the same class of any
Eligible Fund within 60 days
Lord Abbett offers a variety of Retirement Plans.
Call 800-253-7299 for information about:
Traditional, Rollover, Roth and Education IRAs
Simple IRAs, SEP-IRAs, 401(k) and 403(b) accounts
Defined Contribution Plans
TELEPHONE TRANSACTIONS. You have this privilege unless you refuse it in writing.
For your security, telephone transaction requests are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. The fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
Transactions by telephone may be difficult to implement in times of drastic
economic or market change.
Exchanges by telephone should not be used to take advantage of short-term swings
in the market. The fund reserves the right to limit or terminate this privilege
for any shareholder making frequent exchanges or abusing the privilege and may
revoke the privilege for all shareholders upon 60 days' written notice.
Your Investment 9
<PAGE>
without a sales charge. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must
have the same registration.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives
quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive
a single copy of a prospectus and an annual or semi-annual report, unless
additional reports are specifically requested in writing to the fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult
your investment professional or call the fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a
schedule of exchanges between the same classes of any Eligible Fund.
SALES CHARGES AND SERVICE FEES
SALES AND SERVICE COMPENSATION. As part of its plan for distributing
shares, the fund and Lord Abbett Distributor pay sales and service
compensation to Authorized Institutions that sell the fund's shares and
service its shareholder accounts.
Sales compensation originates from two sources: sales charges and 12b-1
distribution fees that are paid out of the fund's assets. Service
compensation originates from 12b-1 service fees. The 12b-1 fee rates vary
by share class, according to the Rule 12b-1 Plan adopted by the fund. The
sales charges and 12b-1 fees paid by investors are shown in the class-by-
class information under "Fees and Expenses" and "Purchases." The portion
of these expenses that is paid as sales and service compensation to
Authorized Institutions, such as your dealer, is shown in the chart at
the end of this prospectus. The portion of such sales and service
compensation paid to Lord Abbett Distributor is discussed under "Sales
Activities" and "Service Activities." Sometimes we do not pay sales and
service compensation where tracking data is not available for certain
accounts or where the Authorized Institution waives part of the
compensation.
We may pay Additional Concessions to Authorized Institutions from time to
time.
SALES ACTIVITIES. We may use 12b-1 distribution fees to pay Authorized
Institutions to finance any activity which is primarily intended to result
in the sale of shares. Lord Abbett Distributor uses its portion of the
distribution fees attributable to a fund's class A and class C shares for
activities which are primarily intended to result in the sale of such class
A and class C shares, respectively. These activities include, but are not
limited to, printing of prospectuses and statements of additional
information and reports for other than existing shareholders, preparation
and distribution of advertising and sales material, expenses of organizing
and conducting sales seminars, Additional Concessions to Authorized
Institutions, the cost necessary to provide distribution-related services
or personnel, travel, office expenses, equipment and other allocable
overhead.
SERVICE ACTIVITIES. We may pay Rule 12b-1 service fees to Authorized
Institutions for any activity which is primarily intended to result in
personal service and/or the maintenance of shareholder accounts. Any
portion of the service fees paid to Lord Abbett Distributor will be used to
service and maintain shareholder accounts.
12b-1 FEES PAYABLE REGARDLESS OF EXPENSES. The amounts payable by a fund need
not be directly related to expenses. If Lord Abbett Distributor's actual
expenses exceed the fee payable to it, the fund will not have to pay more than
that fee. If Lord Abbett Distributor's expenses are less than the fee it
receives, Lord Abbett Distributor will keep the full amount of the fee.
10 Your Investment
<PAGE>
MANAGEMENT
The fund's investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with over $30 billion in more than
35 mutual fund portfolios and other advisory accounts. For more information
about the services Lord Abbett provides to the fund, see the Statement of
Additional Information.
The fund pays Lord Abbett a monthly fee based on average daily net assets
for each month. For the fiscal year ended December 31, 1998, the fee paid
to Lord Abbett was at an annual rate of .46 of 1%. In addition, the fund
pays all expenses not expressly assumed by Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the fund's investments. Christopher J. Towle, Partner of Lord
Abbett, heads the team, the other senior members of which include Richard
Szaro, Michael Goldstein and Thomas Baade. Messrs. Towle and Szaro have
been with Lord Abbett since 1988 and 1983, respectively. Mr. Goldstein has
been with Lord Abbett since 1997. Before joining Lord Abbett, Mr. Goldstein
was a bond trader for Credit Suisse BEA Associates from August 1992 through
April 1997. Mr. Baade joined Lord Abbett in 1998; prior to that he was a
credit analyst with Greenwich Street Advisors.
Your Investment 11
<PAGE>
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be used
by the fund and their risks.
ADJUSTING INVESTMENT EXPOSURE. The fund may, but is not required to, use
various strategies to change its investment exposure to adjust to changing
security prices, interest rates, currency exchange rates, commodity prices
and other factors. The fund may use these transactions to change the risk
and return characteristics of the fund's portfolio. If we judge market
conditions incorrectly or use a strategy that does not correlate well with
the fund's investments, it could result in a loss, even if we intended to
lessen risk or enhance returns. These transactions may involve a small
investment of cash compared to the magnitude of the risk assumed and could
produce disproportionate gains or losses. Also, these strategies could
result in losses if the counterparty to a transaction does not perform as
promised.
COVERED CALL OPTIONS. The Fund may write (sell) call options on securities
it owns. A call option on stock gives the purchaser of the option, upon
payment of a premium to the writer of the option, the right to call upon
the writer to deliver a specified number of shares of a stock on or before
a fixed date at a predetermined price.
FOREIGN SECURITIES. These securities are not subject to the same degree of
regulation and may be more volatile and less liquid than securities traded
in major U.S. markets. Foreign portfolio securities may trade on days when
the fund does not value them. Fund share prices could be affected on days
an investor cannot purchase or sell shares. Other risks include less
information on public companies, banks and governments; political and
social instability; expropriations; higher transaction costs; currency
fluctuations; nondeductible withholding taxes and different accounting and
settlement practices. The fund may invest up to 20% of its assets in
foreign securities.
ILLIQUID SECURITIES. These securities include those that are not traded on
the open market or that trade irregularly or in very low volume. They may
be difficult or impossible to sell at the time and price the fund would
like. The fund may invest up to 15% of its assets in illiquid securities.
PORTFOLIO SECURITIES LENDING. The fund may lend securities to
broker-dealers and financial institutions, as a means of earning income.
This practice could result in a loss or delay in recovering a fund's
securities, if the borrower defaults. The fund will limit its security
loans to 30% of its total assets.
GLOSSARY OF SHADED TERMS
ADDITIONAL CONCESSIONS. Lord Abbett Distributor may, for specified periods,
allow dealers to retain the full sales charge for sales of shares or may
pay an additional concession to a dealer who sells a minimum dollar amount
of our shares and/or shares of other Lord Abbett-sponsored funds. In some
instances, such additional concessions will be offered only to certain
dealers expected to sell significant amounts of shares. Additional payments
may be paid from Lord Abbett Distributor's own resources or from
distribution fees received from a fund and will be made in the form of cash
or, if permitted, non-cash payments. The non-cash payments will include
business seminars at Lord Abbett's head-
12 For More Information
<PAGE>
quarters or other locations, including meals and entertainment, or the
receipt of merchandise. The cash payments may include payment of various
business expenses of the dealer.
In selecting dealers to execute portfolio transactions for a fund's
portfolio, if two or more dealers are considered capable of obtaining best
execution, we may prefer the dealer who has sold our shares and/or shares
of other Lord Abbett-sponsored funds.
AUTHORIZED INSTITUTIONS. Institutions and persons permitted by law to
receive service and/or distribution fees under a Rule 12b-1 Plan are
"Authorized Institutions." Lord Abbett Distributor is an Authorized
Institution.
ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund except
for certain tax-free, single-state funds where the exchanging shareholder
is a resident of a state in which such a fund is not offered for sale; Lord
Abbett Equity Fund; Lord Abbett Series Fund; Lord Abbett U.S. Government
Securities Money Market Fund ("GSMMF") (except for holdings in GSMMF which
are attributable to any shares exchanged from the Lord Abbett family of
funds). An Eligible Fund also is any Authorized Institution's affiliated
money market fund satisfying Lord Abbett Distributor as to certain omnibus
account and other criteria.
ELIGIBLE MANDATORY DISTRIBUTIONS. If class B shares represent a part of an
individual's total IRA or 403(b) investment, the CDSC will be waived only
for that part of a mandatory distribution which bears the same relation to
the entire mandatory distribution as the B share investment bears to the
total investment.
LEGAL CAPACITY. With respect to a redemption request, if (for example) the
request is on behalf of the estate of a deceased shareholder, John W. Doe,
by a person (Robert A. Doe) who has the legal capacity to act for the
estate of the deceased shareholder because he is the executor of the
estate, then the request must be executed as follows: Robert A. Doe,
Executor of the Estate of John W. Doe. That signature using that capacity
must be guaranteed by an Eligible Guarantor.
Similarly, if (for example) the redemption request is on behalf of the ABC
Corporation by a person (Mary B. Doe) that has the legal capacity to act on
behalf of this corporation, because she is the President of the
corporation, then the request must be executed as follows: ABC Corporation
by Mary B. Doe, President. That signature using that capacity must be
guaranteed by an Eligible Guarantor (see example in right column).
MUTUAL FUND ADVISORY PROGRAM. Certain unaffiliated authorized brokers,
dealers, registered investment advisers or other financial institutions who
either (1) have an arrangement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares (and sometimes providing for
acceptance of orders for such shares on our behalf) in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions,
or (2) charge an advisory, consulting or other fee for their services and
buy shares for their own accounts or the accounts of their clients.
PURCHASER. The term "purchaser" includes: (1) an individual, (2) an
individual and his or her spouse and children under the age of 21 and (3) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account (including a pension, profit-sharing, or other
employee benefit trust qualified under Section 401 of the Internal Revenue
Code - more than one qualified employee benefit trust of a single employer,
including its consolidated subsidiaries, may be considered a single trust,
as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows:
In the case of the estate -
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ David R. Levy
- ------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
SR
In the case of the corporation -
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ David R. Levy
- ------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
SR
For More Information 13
<PAGE>
SPECIAL RETIREMENT WRAP PROGRAM. A program sponsored by an Authorized
Institution showing one or more characteristics distinguishing it, in the
opinion of Lord Abbett Distributor from a Mutual Fund Advisory Program.
Such characteristics include, among other things, the fact that an
Authorized Institution does not charge its clients any fee of a consulting
or advisory nature that is economically equivalent to the distribution fee
under the class A 12b-1 Plan and the fact that the program relates to
participant-directed Retirement Plans.
RECENT PERFORMANCE
U.S. financial markets were subject to significant volatility throughout
the fund's fiscal year. Many investors became unnerved at mid-year as the
economic crises in Asia and Japan infected the emerging markets in South
America and Eastern Europe. These crises, in turn, seemed likely to
negatively impact corporate earnings in the U.S. and other developed market
countries. During both May and June, investors worldwide left corporate and
high-yield investments for the safety of U.S. Treasury bonds.
A series of autumn rate cuts initiated by the U.S. Federal Reserve Board
helped to calm the turmoil in the capital markets that existed throughout
the late summer. In October, a more optimistic view of global economies
emerged. During the fourth quarter, high-yield and convertible debt
securities substantially outperformed Treasury instruments of comparable
maturities.*
Throughout the year, we underweighted the fund's corporate bond holdings in
basic industries such as steel, paper and chemicals because we considered
that, given global economic conditions, there was little pricing power
within these industries. We emphasized industries with steady cash flows,
such as telecommunications, media and cable television providers.
Bond-Debenture Fund's focus on high-yield bonds provided substantial
rewards for shareholders during the fourth quarter as high-yield bonds
performed well.
In our view, the current environment of low inflation, global overcapacity,
and an anticipated slowdown of U.S. economic growth makes a reversal of the
Federal Reserve's interest-rate policy unlikely. As a result, interest
rates should remain low for the duration of 1999. Against this backdrop, we
expect attractive returns from the high-yield bonds that we have selected.
Because such bonds are currently yielding more than 6% over Treasury
securities with comparable maturities, we believe that they represent
particularly good value, and we plan to maintain the fund's current
overweighting of the high-yield sector. We believe that our ability to
fine-tune the fund's investments among high-yield bonds, convertible
securities and high-grade bonds, including U.S. Treasury securities, will
be a key to uncovering exciting investment opportunities through most
market conditions, while helping to manage risk.
* Unlike Treasury securities, an investment in the fund is neither insured
nor guaranteed by the U.S. government and is regarded as involving a
greater degree of risk. The fund's share price and income are not
guaranteed and the value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
YEAR 2000 ISSUES. The fund could be adversely affected if the computers used by
the fund and their service providers do not properly process and calculate
date-related information from and after January 1, 2000.
Lord Abbett is working to avoid such problems and has received assurances from
each fund's service providers that they are taking similar steps. Of course, the
Year 2000 problem is unprecedented and, therefore, Lord Abbett cannot eliminate
altogether the possibility that it or the funds will be affected.
14 For More Information
<PAGE>
Financial Information
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights have
been audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audit of the fund's financial statements.
Financial statements for the fiscal year ended December 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended December 31, 1998 and are
incorporated by reference into the Statement of Additional Information,
which is available upon request. Certain information reflects financial
results for a single fund share.
<TABLE>
<CAPTION>
================================================================================================================
CLASS A SHARES
---------------------------------------------------------------------
Year Ended December 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.76 $9.41 $9.29 $8.71 $9.95
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
Net investment income .76(a) .75(a) .81 .85 .84
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
- ----------------------------------------------------------------------------------------------------------------
gain (loss) on investments (.31) .40 .17 .606 (1.203)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations .45 1.15 .98 1.456 (.363)
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.76) (.80) (.86) (.876) (.877)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.45 $9.76 $9.41 $9.29 $8.71
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 4.76% 12.70% 11.16% 17.50% (3.87)%
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ----------------------------------------------------------------------------------------------------------------
Expenses(e) 0.88% 0.89% 0.89% 0.82% 0.88%
- ----------------------------------------------------------------------------------------------------------------
Net investment income 7.85% 7.89% 8.77% 9.41% 8.97%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B SHARES CLASS C SHARES CLASS P SHARES
---------------------------------- ---------------------------------- ----------------
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
Per Share Operating Performance: 1998 1997 1996(c) 1998 1997 1996(c) 1998(c)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.75 $9.41 $9.13 $9.77 $9.41 $9.05 $9.54
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .69(a) .68(a) .34 .69(a) .69(a) .35 .25(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
- ------------------------------------------------------------------------------------------------------------------------------------
gain (loss) on investments (.31) .38 .26 (.31) .39 .33 (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .38 1.06 .60 .38 1.08 .68 .16
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.69) (.72) (.32) (.69) (.72) (.32) (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.44 $9.75 $9.41 $9.46 $9.77 $9.41 $9.45
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 3.98% 11.85% 6.57%(d) 3.98% 11.97% 7.86%(d) 1.73%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses(e) 1.60% 1.63% 0.70%(d) 1.60% 1.58% 0.75%(d) 0.38%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment Income 7.13% 7.06% 3.37%(d) 7.13% 7.16% 3.72%(d) 2.90%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Year Ended December 31,
-------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $3,540,124 $2,866,184 $2,129,421 $1,339,508 $987,613
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 86.48% 89.14% 106.79% 134.90% 147.98%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated using average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Commencement of operations for class shares: B - August 1, 1996, C - July
15, 1996 and P - August 21, 1998.
(d) Not annualized.
(e) The ratios for 1998 include expenses paid through an expense offset
arrangement.
Financial Information 15
<PAGE>
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the Salomon Brothers Broad Investment High-Grade
Index, First Boston High-Yield Index, and the Value Line Convertible Index,
assuming reinvestment of all dividends and distributions.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
================================================================================
Average Annual Total Return at Maximum Sales Charge
for the Periods Ending December 31, 1998
1 YEAR 5 YEARS 10 YEARS (OR LIFE)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A(3) (0.20)% 7.13% 9.82%
- --------------------------------------------------------------------------------
Class B(4) (0.86)% -- 8.19%
- --------------------------------------------------------------------------------
Class C(5) 3.01% -- 9.69%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Data reflects the deduction of the maximum initial sales charge of 4.75%
applicable to class A shares.
(2) Performance numbers for the unmanaged Salomon Brothers Broad Investment
High-Grade Index (source: Chase Global Data Service), First Boston
High-Yield Index (source: CSFB), and Value Line Convertible
Index (source: Morgan Stanley) do not reflect transaction costs or
management fees. A review of the fund's 1998 annual shareholders' report
shows a history of the fund's portfolio blend changing through the years
but composed primarily of three categories of securities: (i) high-yield
corporate debt (including straight-preferred stocks), (ii) equity-related
securities and (iii) high-grade debt. The three indices chosen to compare
to the fund's performance have elements of these three categories, but
since there is no one index combining all three in the same annual blend as
the fund's 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, 1998 using the SEC-required uniform method to compute such
return.
(4) The class B shares commenced operations on August 1, 1996. Performance
numbers reflect the deduction of a 4% CDSC.
(5) The class C shares commenced operations on July 15, 1996.
16 Financial Information
<PAGE>
COMPENSATION FOR YOUR DEALER
<TABLE>
<CAPTION>
====================================================================================================================================
FIRST YEAR COMPENSATION
Front-end
sales charge Dealer's
paid by investors concession Service fee(1) Total compensation(2)
Class A investments (% of offering price) (% of offering price) (% of net investment) (% of offering price)
====================================================================================================================================
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.00% 0.25% 4.24%
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.25% 0.25% 4.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.25% 0.25% 3.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.75% 2.50% 0.25% 2.74%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.75% 0.25% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$1 million or more(3) or Retirement Plan - 100 or more
eligible employees(3) or Special Retirement Wrap Program(3)
- ------------------------------------------------------------------------------------------------------------------------------------
First $5 million no front-end sales charge 1.00% 0.25% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Over $50 million no front-end sales charge 0.25% 0.25% 0.50%
====================================================================================================================================
Class B investments Paid at time of sale (% of net asset value)
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 3.75% 0.25% 4.00%
====================================================================================================================================
Class C investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
====================================================================================================================================
Class P investments Percentage of average net assets
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
ANNUAL COMPENSATION AFTER FIRST YEAR
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
====================================================================================================================================
Class B investments Percentage of average net assets(4)
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
====================================================================================================================================
Class C investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.65% 0.25% 0.90%
====================================================================================================================================
Class P investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The service fee for class A and P shares is paid quarterly and for class A
shares may not exceed 0.15% if sold prior to June 1, 1990. The first year's
service fee on class B and C shares is paid at the time of sale.
(2) Dealer's concession percentages and service fee percentages are calculated
from different amounts, and therefore may not equal total compensation
percentages if combined using simple addition. Additional Concessions may
be paid to Authorized Institutions from time to time.
(3) Concessions are paid at the time of sale on all class A shares sold during
any 12-month period starting from the day of the first net asset value
sale. With respect to (a) class A share purchases at $1 million or more,
sales qualifying at such level under rights of accumulation and statement
of intention privileges are included and (b) for Special Retirement Wrap
Programs, only new sales are eligible and exchanges into the fund are
excluded.
(4) With respect to class B, C and P shares, 0.25%, 0.90% and 0.45%,
respectively, of the average annual net asset value of such shares
outstanding during the quarter (including distribution reinvestment shares
after the first anniversary of their issuance) is paid to Authorized
Institutions. These fees are paid quarterly in arrears. In the case of C
shares for fixed-income portfolios, such as the fund, 0.10% of the average
annual net asset value of such shares is retained by Lord Abbett
Distributor, thus reducing from 0.75% to 0.65% after the first year. Lord
Abbett Distributor uses this 0.10% for expenses primarily intended to
result in the sale of such fund's shares.
Financial Information 17
<PAGE>
This page intentionally left blank
<PAGE>
This page intentionally left blank
<PAGE>
This page intentionally left blank
<PAGE>
More information on this fund is available free upon request, including the
following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the fund, lists portfolio holdings and contains a letter from the
fund's manager discussing recent market conditions and the fund's
investment strategies.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the fund and its policies. A current SAI is on
file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Bond-Debenture Fund
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
- ---------------------------
SEC file number: 811-2145
To obtain information:
BY TELEPHONE. Call the fund at:
800-426-1130
BY MAIL. Write to the fund at:
The Lord Abbett Family of Funds
767 Fifth Avenue
New York, NY 10153-0203
VIA THE INTERNET.
LORD, ABBETT & CO.
http://www.lordabbett.com
Text only versions of fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
LABDF-1-599
(5/99)
- -----------------
BULK RATE
U.S. POSTAGE
PAID
SECAUCUS, N.J.
PERMIT NO. 237
- -----------------
<PAGE>
- --------------------------------------------------------------------------------
LORD ABBETT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1999
- --------------------------------------------------------------------------------
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 May 1, 1999.
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. The Fund has 1,000,000,000 shares of authorized capital stock
consisting of five classes of shares. This statement of additional information
offers four of those classes (A, B, C and P), $0.001 par value. The Board of
Directors will allocate these authorized shares of capital stock among the
classes from time to time. All shares have equal noncumulative voting rights and
equal rights with respect to dividends, assets and liquidation, except for
certain class-specific expenses. They are fully paid and nonassessable when
issued and have no preemptive or conversion rights. Although no present plans
exist to do so, further series may be added in the future. The Investment
Company Act of 1940, as amended (the "Act"), requires that where more than one
series exists, each series must be preferred over all other series in respect of
assets specifically allocated to such series.
Rule 18f-2 under the Act provides that any matter required to be submitted, by
the provisions of the Act or applicable state law or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Fund
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class affected by such
matter. Rule 18f-2 further provides that a class shall be deemed to be affected
by a matter unless the interests of each class in the matter are substantially
identical or the matter does not affect any interest of such class. However, the
Rule exempts the selection of independent public accountants, the approval of a
contract with a principal underwriter and the election of directors from its
separate voting requirements.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
1. Investment Policies 2
2. Directors and Officers 3
3. Investment Advisory and Other Services 6
4. Portfolio Transactions 7
5. Purchases, Redemptions and
Shareholder Services 8
6. Past Performance 16
7. Taxes 17
8. Information About the Fund 18
9. Financial Statements 18
10. Appendix 18
</TABLE>
<PAGE>
1.
INVESTMENT POLICIES
Fundamental Investment Restrictions
The Fund is subject to the following investment restrictions which cannot be
changed without approval of a majority of our outstanding shares. 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 33 1/3% of its total assets (including the amount
borrowed), and then only as a temporary measure for extraordinary or emergency
purposes; (2) make short sales of securities or maintain a short position except
to the extent permitted by applicable law; (3) invest knowingly more than 15% of
its net assets (at the time of investment) in illiquid securities, except for
securities qualifying for resale under Rule 144A of the Securities Act of 1933,
deemed to be liquid by the Board of Directors; (4) invest in the securities of
other investment companies except as permitted by applicable law; (5) invest in
securities of issuers which, with their predecessors, have a record of less than
three years' continuous operations, if more than 5% of the Fund's total assets
would be invested in such securities (this restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities); (6) hold
securities of any issuer if more than 1/2 of 1% of the securities of such issuer
are owned beneficially by one or more officers or directors of the Fund or by
one or more partners or members of the Fund's underwriter or investment adviser
if these owners in the aggregate own beneficially more than 5% of the securities
of such issuer; (7) invest in warrants if, at the time of the acquisition, its
investment in warrants, valued at the lower of cost or market, would exceed 5%
of the Fund's total assets (included within such limitation, but not to exceed
2% of the Fund's total assets, are warrants which are not listed on the New York
or American Stock Exchange or a major foreign exchange); (8) invest in real
estate limited partnership interests or interests in oil, gas or other mineral
leases, or exploration or other development programs, except that the Fund may
invest in securities issued by companies that engage in oil, gas or other
mineral exploration or other development activities; (9) write, purchase or sell
puts, calls, straddles, spreads or combinations thereof, except to the extent
permitted in the Fund's prospectus and statement of additional information, as
they may be amended from time to time; (10) buy from or sell to any of its
officers, directors, employees, or its investment adviser or any of its
officers, directors, partners or employees, any securities other than
2
<PAGE>
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, 1998, our portfolio
turnover was 86.48% versus 89.14% 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 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 54, Chairman and President
The following outside directors are also directors or trustees of the other Lord
Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer of
Courtroom Television Network. (1997-1998). Formerly, President and Chief
Executive Officer of Time Warner Cable Programming, Inc. (1991-1997). Prior to
that, President and Chief Operating Officer of Home Box Office. Age 57.
William H. T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri.
Co-founder and Chairman of the Board of financial advisory firm of
Bush-O'Donnell & Company. Age 60.
Robert B. Calhoun, Jr.
Monitor Clipper Partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of the Clipper Group
L.P., both private equity investment funds. Age 56.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 68.
3
<PAGE>
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 73.
C. Alan MacDonald
Directorship, Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly General Partner of The Marketing Partnership,
Inc., a full service marketing consulting firm (1994 - 1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992 - 1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J.B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company. Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as Director of Ace, Ltd. (NYSE). Age 61.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third column sets forth information with
respect to the equity-based benefits accrued for outside directors by the Lord
Abbett-sponsored funds. The fourth column sets forth the total compensation
payable by such funds to the outside directors. No director of the Fund
associated with Lord Abbett and no officer of the Fund received any compensation
from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31, 1998
(1) (2) (3) (4)
Pension or For Year Ended
Retirement Benefits December 31, 1998
Accrued by the Total Compensation
Aggregate Fund and Accrued by the Fund and
Compensation Twelve Other Lord Twelve Other Lord
Accrued by Abbett-sponsored Abbett-sponsored
Name of Director the Fund(1) Funds(2) Funds(3)
- ---------------- ------------ ------------------ ----------------
<S> <C> <C> <C>
E. Thayer Bigelow $9,758 $17,068 $57,400
William H. T. Bush* $4,675 $0 $27,500
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Robert B. Calhoun Jr.** $5,695 $0 $33,500
Stewart S. Dixon $9,605 $32,190 $56,500
John C. Jansing $9,435 $45,085(4) $55,500
C. Alan MacDonald $9,350 $30,703 $55,000
Hansel B. Millican, Jr. $9,435 $37,747 $55,500
Thomas J. Neff $9,605 $19,853 $56,500
</TABLE>
*Elected August 13, 1998.
**Elected June 17, 1998.
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund. A portion of the fees payable by 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.
2. The amounts in Column 3 were accrued by the Lord Abbett-sponsored funds for
the 12 months ended October 31, 1998 with respect to the equity based plans
established for independent directors in 1996. This plan supercedes a
previously approved retirement plan for all future directors. Current
directors had the option to convert their accrued benefits under the
retirement plan. All of the outside directors except one made such an
election. Each plan also provides for a pre-retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits.
3. This column shows aggregate compensation, including directors fees and
attendance fees for board and committee meetings, of a nature referred to in
footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31, 1998. The amounts of the aggregate compensation payable
by the Fund as of December 31, 1998 deemed invested in Fund shares,
including dividends reinvested and changes in net asset value applicable to
such deemed investments, were: Mr. Bigelow, $31,694; Mr. Calhoun, $5,735;
Mr. Dixon, $32,763; Mr. Jansing, $100,161; Mr. MacDonald, $41,389; Mr.
Millican, $100,939 and Mr. Neff, $103,424. If the amounts deemed invested in
Fund shares were added to each director's actual holdings of Fund shares as
of December 31, 1998, each would own, the following: Mr. Bigelow, 31,365
shares; Mr. Calhoun, 607 shares; Mr. Dixon, 4,000 shares; Mr. Jansing,
11,369 shares; Mr. MacDonald, 68,445 shares; Mr. Millican, 10,681 shares;
and Mr. Neff, 11,473 shares.
4. Mr. Jansing chose to continue to receive benefits under the retirement plan,
which provides that outside directors may receive annual retirement benefits
for life equal to their final annual retainer following retirement at or
after age 72 with at least ten years of service. Thus, if Mr. Jansing were
to retire and the annual retainer payable by the funds were the same as it
is today, he would receive annual retirement benefits of $50,000.
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Carper, Hilstad, Morris, Towle and Walsh are partners of Lord Abbett; the
others are employees:
EXECUTIVE VICE PRESIDENT:
Christopher Towle, age 41
VICE PRESIDENTS:
Paul A. Hilstad, age 56, Vice President and Secretary (with Lord Abbett since
1995 - formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.)
Zane E. Brown, age 47
Daniel E. Carper, age 47
5
<PAGE>
Lawrence H. Kaplan, age 42 (with Lord Abbett since 1997 - formerly vice
president and Chief Counsel of Salomon Brothers Asset Management Inc. from 1995
to 1997; prior thereto, Senior Vice President, Director and General Counsel of
Kidder Peabody Asset Management, Inc.)
Robert G. Morris, age 54
A. Edward Oberhaus III, age 39
Keith F. O'Connor, age 43
John J. Walsh, age 63
TREASURER:
Donna M. McManus, age 38 (with Lord Abbett since 1996, formerly a Senior Manager
at Deloitte & Touche LLP)
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called by a majority of the Board of
Directors or by stockholders holding at least one quarter of the stock of the
Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the stockholders will elect directors and vote on the approval
of the independent auditors of the Fund.
As of April 15, 1999, our officers and directors as a group owned less than 1%
of our outstanding shares. As of that date, the record holders of 5% or more of
the Fund's outstanding shares were as follows:
<TABLE>
<CAPTION>
Class A Class P
------- -------
<S> <C>
Edward Jones & Co. - 30% Smith Barney Corporate Trust - 99.62%
201 Progress Pkwy 2 Tower Center
Maryland Hts, MO 63043 P.O. Box 1063
East Brunswick, NJ 08816
MLPF&S/Benefit of its Customers - 6%
4800 Deer Lake Dr E Fl 3
Jacksonville, FL 32246
<CAPTION>
Class C
-------
<S> <C>
Edward Jones & Co. - 13%
201 Progress Pkwy
Maryland Hts, MO 63043
MLPF&S/Benefit of its Customers - 44%
4800 Deer Lake Dr E Fl 3
Jacksonville, FL 32246
</TABLE>
3.
INVESTMENT ADVISORY AND OTHER SERVICES
As described under "Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. Of the general partners of Lord Abbett, the officers and/or
directors of the Fund are: Zane E. Brown, Daniel E. Carper, Robert S. Dow, Paul
A. Hilstad, Robert G. Morris, Christopher Towle and John J. Walsh. The other
general partners are: Stephen I. Allen, John E. Erard, Robert P. Fetch, Daria L.
Foster, Robert I. Gerber, W. Thomas Hudson, Stephen J. McGruder, Michael B.
McLaughlin, Robert J. Noelke, and Robert M. Pennington. The address of each
partner is The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203.
The services performed by Lord Abbett are described in the Prospectus under
"Management." Under the Management Agreement, we 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 class's assets over
6
<PAGE>
$500 million. This fee is allocated among the classes based on the proportionate
shares of such average daily net assets. For the fiscal years ended December 31,
1998, 1997 and 1996, the management fees paid to Lord Abbett amounted to
$14,835,355, $11,621,344, and $7,802,104, respectively.
We pay all expenses not expressly assumed by Lord Abbett, including, without
limitation, 12b-1 expenses, outside directors' fees and expenses, association
membership dues, legal and auditing fees, taxes, transfer and dividend
disbursing agent fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York, is the Fund's
custodian. In accordance with the requirements of Rule 17f-5, the Fund's
directors have approved arrangements permitting the Fund's foreign assets not
held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
our Board of Directors to continue in such capacity. Independent auditors
perform audit services for the Fund, including the audit 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 databases. Such services may be used
by Lord Abbett in servicing all their accounts, and not all of such services
will necessarily be used by
7
<PAGE>
Lord Abbett in connection with their management of the Fund; conversely, such
services furnished in connection with brokerage on other accounts managed by
Lord Abbett may be used in connection with their management of the Fund; and not
all of such services will necessarily be used by Lord Abbett in connection with
their advisory services to such other accounts. We have been advised by Lord
Abbett that research services received from brokers cannot be allocated to any
particular account, are not a substitute for Lord Abbett's services but are
supplemental to their own research effort and, when utilized, are subject to
internal analysis before being incorporated by Lord Abbett into their investment
process. As a practical matter, it would not be possible for Lord Abbett to
generate all of the information presently provided by brokers. While receipt of
research services from brokerage firms has not reduced Lord Abbett's normal
research activities, the expenses of Lord Abbett could be materially increased
if it attempted to generate such additional information through its own staff
and purchased such equipment and software packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold 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, 1998, 1997, and 1996, we paid total
commissions to independent broker-dealers of $19,393,923, $14,773,720, and
$8,760,174, respectively.
5.
PURCHASES, REDEMPTIONS
AND SHAREHOLDER SERVICES
Information concerning how we value our shares for the purchase and redemption
of our shares is contained in the Prospectus under "Purchases" and
"Redemptions," respectively.
As disclosed in the Prospectus, we calculate our net asset value as of the close
of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for
trading by dividing our total net assets by the number of shares outstanding at
the time of calculation. The NYSE is closed on Saturdays and Sundays and the
following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
The maximum offering price of Class A shares on December 31, 1998 was computed
as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Class A
-------
<S> <C>
Net asset value per share (net assets divided
by shares outstanding) $ 9.45
Maximum offering price per share (net asset
value divided by .9525) $ 9.92
</TABLE>
The net asset value per share for the Class B, C and P shares is determined in
the same manner as for the Class A shares (net assets divided by shares
outstanding). Our Class B, C and P shares are offered at net asset value.
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor") and
subsidiary of Lord Abbett under which Lord Abbett Distributor is obligated to
use its best efforts to find purchasers for the shares of the Fund, and to make
reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's
judgment, a substantial distribution can be obtained by reasonable efforts.
For the last three fiscal years Lord Abbett, as the Fund's 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,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross sales charge $17,440,941 $12,867,756 $14,739,450
Amount allowed to dealers $14,988,816 $11,119,368 $12,711,165
----------- ----------- -----------
Net commissions
received by Lord Abbett $ 2,452,125 $ 1,748,388 $ 2,028,285
=========== =========== ===========
</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.
ALTERNATIVE SALES ARRANGEMENTS
CLASSES OF SHARES. The Fund offers investors five different classes of shares.
This Prospectus offers four of those classes designated Class A, B, C and P. The
different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices. Investors should read this section carefully to determine which
class represents the best investment option for their particular situation.
CLASS A SHARES. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees or on investments that
do not qualify to be under a "special retirement wrap program" as a program
sponsored by an authorized institution showing one or more characteristics
distinguishing it, in the opinion of Lord Abbett Distributor, from a mutual fund
wrap fee program). If you purchase Class A shares as part of an investment of at
least $1 million (or for Retirement Plans with at least 100 eligible employees
or under a special retirement wrap program) in shares of one or more Lord
Abbett-sponsored funds, you will not pay an initial sales charge, but if you
redeem any of those shares within 24 months after the month in which you buy
them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%
except for redemptions under a special retirement wrap program. Class A shares
are subject to service and distribution fees
9
<PAGE>
that are currently estimated to total annually approximately 0.28 of 1% of the
annual net asset value of the Class A shares. The initial sales charge rates,
the CDSC and the Rule 12b-1 plan applicable to the Class A shares are described
in "Buying Class A Shares" below.
CLASS B SHARES. If you buy Class B shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the sixth anniversary of
buying them, you will normally pay a CDSC to Lord Abbett Distributor LLC ("Lord
Abbett Distributor"). That CDSC varies depending on how long you own shares.
Class B shares are subject to service and distribution fees at an annual rate of
1% of the annual net asset value of the Class B shares. The CDSC and the Rule
12b-1 plan applicable to the Class B shares are described in "Buying Class B
Shares" below.
CLASS C SHARES. If you buy Class C shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the first anniversary of
buying them, you will normally pay the Fund a CDSC of 1%. Class C shares are
subject to service and distribution fees at an annual rate of 1% of the annual
net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan
applicable to the C shares are described in "Buying Class C Shares" below.
CLASS P SHARES. If you buy Class P shares, you pay no sales charge at the time
of purchase, and if you redeem your shares you pay no CDSC. Class P shares are
subject to service and distribution fees at an annual rate of .45 of 1% of the
average daily net asset value of the Class P shares. The Rule 12b-1 plan
applicable to the Class P shares is described in "Class P Rule 12b-1 Plan."
Class P shares are available to a limited number of investors.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Fund's class-specific expenses and the
effect of the different types of sales charges on your investment will affect
your investment results over time. The most important factors are how much you
plan to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in the Fund. We used the sales charge rates that apply
to Class A, Class B and Class C, and considered the effect of the higher
distribution fees on Class B and Class C expenses (which will affect your
investment return). Of course, the actual performance of your investment cannot
be predicted and will vary, based on the Fund's actual investment returns, the
operating expenses borne by each class of shares, and the class of shares you
purchase. The factors briefly discussed below are not intended to be investment
advice, guidelines or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
10
<PAGE>
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000 expected to be
held 4 to 6 years (or more), Class A shares may become more appropriate than
Class C. If you are investing $500,000 or more, Class A may become more
desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees or for investments pursuant to a special retirement
wrap program, in most cases Class A shares will be the most advantageous choice,
no matter how long you intend to hold your shares. For that reason, it may not
be suitable for you to place a purchase order for Class B shares of $500,000 or
more or a purchase order for Class C shares of $1,000,000 or more. In addition,
it may not be suitable for you to place an order for Class B or C shares for a
Retirement Plan with at least 100 eligible employees or for a special retirement
wrap program. You should discuss this with your financial advisor.
Investing for the Longer Term. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more, Class B shares may
be an appropriate investment option, if you plan to invest less than $100,000.
If you plan to invest more than $100,000 over the long term, Class A shares will
likely be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in Class
A shares under the Fund's Rights of Accumulation. Of course, these examples are
based on approximations of the effect of current sales charges and expenses on a
hypothetical investment over time, and should not be relied on as rigid
guidelines.
ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" in the Prospectus for
more information about the 12% annual waiver of the CDSC. You should carefully
review how you plan to use your investment account before deciding which class
of shares you buy. For example, the dividends payable to Class B and Class C
shareholders will be reduced by the expenses borne solely by each of these
classes, such as the higher distribution fee to which Class B and Class C shares
are subject, as described below.
HOW DOES IT AFFECT PAYMENTS TO MY BROKER? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A and B shares and is paid over
time, so long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC for the
Class B shares and the distribution fee for Class B and Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A shares: to
compensate brokers and other persons selling such shares. The CDSC, if payable,
supplements the Class B distribution fee and reduces the Class C distribution
fee expenses for the Fund and Class C shareholders.
CLASS A, B, C AND P RULE 12B-1 PLANS. As described in the Prospectus, the Fund
has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act
for each of the Fund Classes: the "A Plan", the "B Plan", "C Plan" and "P
Plan", respectively. In adopting each Plan and in approving its continuance, the
Board of Directors has concluded that there is a reasonable likelihood that each
Plan will benefit its respective Class and such Classes 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 $6,222,572 under the A Plan,
$5,245,746 under the B Plan and $4,810,757 under the C Plan. Lord Abbett
11
<PAGE>
used all amounts received under each Plan for payments to dealers for (i)
providing continuous services to shareholders, such as answering shareholder
inquiries, maintaining records, and assisting shareholders in making
redemptions, transfers, additional purchases and exchanges and (ii) their
assistance in distributing shares of the Fund.
Each Plan requires the directors to review, on a quarterly basis, written
reports of all amounts expended pursuant to the Plan and the purposes for which
such expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the directors,
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("outside directors"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at any time by vote of a majority of the outside
directors or by vote of a majority of its Class's outstanding voting securities.
CONTINGENT DEFERRED SALES CHARGES. A Contingent Deferred Sales Charge ("CDSC")
(i) applies regardless of class, (ii) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (iii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iv) will not be imposed on the amount of your
account value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of dividends and
capital gains distributions) and upon early redemption of shares. In the case of
Class A shares, this increase is represented by shares having an aggregate
dollar value in your account. In the case of Class B and C shares, this increase
is represented by that percentage of each share redeemed where the net asset
value exceeded the initial purchase price.
CLASS A SHARES. As stated in the Prospectus, subject to certain exceptions, 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, subject to certain exceptions, if
Class B shares (or Class B shares of another Lord Abbett-sponsored fund or
series acquired through exchange of such shares) are redeemed out of the Lord
Abbett-sponsored family of funds for cash before the sixth anniversary of their
purchase, a CDSC will be deducted from the redemption proceeds. The Class B CDSC
is paid to Lord Abbett Distributor to reimburse its expenses, in whole or in
part, for providing distribution-related service to the Fund in connection with
the sale of Class B shares.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held on or after the sixth anniversary
of their purchase, and (3) shares held the longest before such sixth
anniversary.
The amount of the contingent deferred sales charge will depend on the number of
years since you invested and the dollar amount being redeemed, according to the
following schedule:
<TABLE>
<CAPTION>
Anniversary of the Day on Contingent Deferred Sales Charge
Which the Purchase Order Was Accepted on Redemptions (As % of Amount Subject to Charge)
<S> <C>
Before the 1st 5.0%
On the 1st, before the 2nd 4.0%
On the 2nd, before the 3rd 3.0%
On the 3rd, before the 4th 3.0%
On the 4th, before the 5th 2.0%
On the 5th, before the 6th 1.0%
On or after the 6th anniversary None
</TABLE>
12
<PAGE>
In the table, an "anniversary" is the same calendar day in each respective year
after the date of purchase. For example, the anniversaries for shares purchased
on May 1 will be May 1 of each succeeding year. All purchases are considered to
have been made on the business day on which the purchase order was accepted.
CLASS C SHARES. As stated in the Prospectus, subject to certain exceptions 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. The 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."
CLASS P SHARES. If you buy Class P shares, you pay no sales chare at the time of
purchase, and if you redeem your shares you pay no CDSC. Class P shares are
subject to service and distribution fees at an annual rate of .45 of 1% of the
average daily net asset value of the Class P shares. The Rule 12b-1 Plan
applicable to the Class P shares is described in "Class P Rule 12b-1 Plan".
Class P shares are available to a limited number of investors.
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class A shares
purchased pursuant to a special retirement wrap program, no CDSC is payable on
redemptions which continue as investments in another fund participating in the
program. With respect to Class B shares, no CDSC is payable for redemptions (i)
in connection with Systematic Withdrawal Plan and Div-Move services as described
below under those headings, (ii) in connection with mandatory distribution under
403(b) plans and IRAs and (iii) in connection with death of the shareholder. In
the case of Class A and Class C shares, the CDSC is received by the Fund and is
intended to reimburse all or a portion of the amount paid by the Fund if the
shares are redeemed before the Fund has had an opportunity to realize the
anticipated benefits of having a long-term shareholder account in the Fund. In
the case of Class B shares, the CDSC is received by Lord Abbett Distributor and
is intended to reimburse its expenses of providing distribution-related service
to the Fund (including recoupment of the commission payments made) in connection
with the sale of Class B shares before Lord Abbett Distributor has had an
opportunity to realize its anticipated reimbursement by having such a long-term
shareholder account subject to the B Plan distribution fee.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares
13
<PAGE>
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) shares
representing an aggregate dollar amount of your account, in the case of Class A
shares, (ii) that percentage of each share redeemed, in the case of Class B and
C shares, derived from increases in the value of the shares above the total cost
of shares being redeemed due to increases in net asset value, (iii) 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 (iv) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, 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 as
described in the Prospectus you may invest $100,000 or more over a 13-month
period 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 of Intention 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.
14
<PAGE>
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. Our Class A shares may be purchased
at net asset value by our directors, employees of Lord Abbett, employees of our
shareholder servicing agent and employees of any securities dealer having a
sales agreement with Lord Abbett who consents to such purchases or by the
director or custodian under any pension or profit-sharing plan or Payroll
Deduction IRA established for the benefit of such persons or for the benefit of
employees of any national securities trade organization to which Lord Abbett
belongs or any company with an account(s) in excess of $10 million managed by
Lord Abbett on a private-advisory-account basis. For purposes of this paragraph,
the terms "directors" and "employees" include a director's or employee's spouse
(including the surviving spouse of a deceased director or employee). The terms
"our directors" and "employees of Lord Abbett" also include retired directors
and employees and other family members thereof.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, ("mutual fund wrap fee program"), (e)
by employees, partners and owners of unaffiliated consultants and advisors to
Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent
to such purchase if such persons provide service to Lord Abbett, Lord Abbett
Distributor or such funds on a continuing basis and are familiar with such
funds, (f) through Retirement Plans with at least 100 eligible employees, (g) in
connection with a merger, acquisition or other reorganization (h) through a
"special retirement wrap program" sponsored by an authorized institution having
one or more characteristics distinguishing it, in the opinion of Lord Abbett
Distributor, from a mutual fund wrap program. Such characteristics include,
among other things, the fact that an authorized institution does not charge its
clients any fee of a consulting or advisory nature that is economically
equivalent to the distribution fee under Class A 12b-1 Plan and the fact that
the program relates to participant-directed Retirement Plan. Shares are offered
at net asset value to these investors for the purpose of promoting goodwill with
employees and others with whom Lord Abbett Distributor and/or the Fund has
business relationships.
REDEMPTIONS. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or 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.
15
<PAGE>
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
Class B shares the CDSC will be waived on redemptions of up to 12% per year of
the current net asset value of your account at the time the SWP is established.
For Class B share redemptions over 12% per year, the CDSC will apply to the
entire redemption. Therefore, please contact the Fund for assistance in
minimizing the CDSC in this situation. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The SWP may be terminated by you or by us at any time by written
notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms including 401(k) plans and custodial agreements for
IRAs (Individual Retirement Accounts, including Traditional, Education, Roth and
SIMPLE IRAs and Simplified Employee Pensions), 403(b) plans and qualified
pension and profit-sharing plans. The forms name Investors Fiduciary Trust
Company as custodian and contain specific information about the plans excluding
401(k) 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.
Using the computation method described above, the Fund's average annual
compounded rates of total return for the last one, five and ten fiscal year(s)
ending on December 31, 1998 were as follows: (.20)%, 7.13% and 9.82% for the
Fund's Class A shares, respectively. The average annual compounded total return
for Class B shares for the fiscal year ending
16
<PAGE>
on December 31, 1998 and for the period August 1, 1996 through December 31, 1998
were (.86)%, and 8.19%, respectively. For Class C shares for the fiscal year
ending December 31, 1998 and for the period July 15, 1996 through December 31,
1998, the total returns were 3.01%, and 9.69%, respectively.
Yield quotation for each Class 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 the maximum offering price per share of such Class on the last day of
the period. This is determined by finding the following quotient: take the
Class' 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 shares of such Class outstanding during the period that were entitled to
receive dividends and (ii) the maximum offering price per share of such Class on
the last day of the period. To this quotient add one. This sum is multiplied by
itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two. Yield for the Class A
shares reflects the deduction of the maximum initial sales charge, but may also
be shown based on the 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, 1998, the yield for the Class A, B and C shares of the Fund were
8.00%, 7.65% and 7.65%, respectively.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Therefore, there is no assurance that this performance will be
repeated in the future.
7.
TAXES
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time of
disposition. Any gain will generally be taxable for federal income tax purposes.
Any loss realized on the disposition 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 shares are not deductible if, within a
period beginning 30 days before the date of the sale and ending 30 days after
the date of the sale, the taxpayer acquires shares that are substantially
identical.
The Fund will be subject to a 4% non-deductible excise tax on certain amounts
not distributed or treated as having been distributed on a timely basis each
calendar year. The Fund intends to distribute to shareholders each year an
amount adequate to avoid the imposition of such excise tax.
The writing of call options and other investment techniques and practices which
the Fund may utilize may affect the character and timing of the recognition of
gains and losses by the Fund. Such transactions may increase the amount of
short-term capital gain realized by the Fund, which is taxed as ordinary income
when distributed to shareholders.
The Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. It is generally expected that Fund shareholders who
are subject to 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.
Gain and loss realized by the Fund on certain transactions, including sales of
foreign debt securities and certain transactions involving foreign currency,
will be treated as ordinary income or loss for federal income tax purposes to
the extent, if any, that such gains or losses are attributable to changes in
exchange rates for foreign currencies. Accordingly, distributions taxable as
ordinary income will include the net amount, if any, of such foreign exchange
gains and will be reduced by the net amount, if any, of such foreign exchange
losses.
If the Fund purchases shares in certain foreign investment entities called
"passive foreign investment companies," it may be subject to United States
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the Fund or its shareholders in respect of
deferred taxes arising from such distributions or gains. If the Fund were to
make a "qualified electing fund" election with respect to its investment in a
passive foreign investment company, in lieu of the foregoing requirements, the
Fund might be required to include
17
<PAGE>
in income each year a portion of the ordinary earnings and net capital gains of
the qualified electing fund, even if such amount were not distributed to the
Fund.
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. 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
or her tax adviser regarding the U.S. and foreign tax consequences of the
ownership of shares of the Fund, including a 30% (or lower treaty rate) United
States withholding tax on dividends representing ordinary income and net
short-term capital gains, and the applicability of United States gift and estate
taxes.
8.
INFORMATION ABOUT THE FUND
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund 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.
9.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1998 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 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.
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.
18
<PAGE>
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.
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.
19
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ........................... 'TM'
