1933 Act File No. 33-31072
1940 Act File No. 811-5876
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ ]
Amendment No. 9 [X]
LORD ABBETT SERIES FUND, INC.
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, NY 10153-0203
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, NY 10153-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on May 1, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed its Rule 24f-2 Notice for the most recent fiscal year on
or about February 28, 1996.
This filing has pages.
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LORD ABBETT SERIES FUND, INC.
FORM N-1A
Cross Reference Sheet
Pursuant to Rule 481(a)
Form N-1A Location In Prospectus or
Item No. Statement of Additional Information
_________ ___________________________________
1 Cover Page
2 N/A
3 Financial Highlights; Performance
4 (a) (i) Cover Page; The Fund
4 (a) (ii) Investment Objectives and Policies
4 (b) (c) Investment Objectives and Policies; Risk Factors
5 (a) (b) The Fund; Management
5 (c) N/A
5 (d) Fund's Custodian, Transfer Agent, Auditors and Counsel
5 (e) Management
5 (f) (i) N/A
5 (f) (ii) Purchase and Redemption of Shares; Portfolio
Transactions
6 (a) Cover Page; Shareholder Rights
6 (b) Management
6 (c) (d) N/A
6 (e) Cover Page
6 (f) (g) Dividends and Distributions; Tax Status
7 (a) The Fund
7 (b) (c) (d) Purchase and Redemption of Shares; Net Asset Value
7 (e) (f) N/A
8 (a) (b) (c) (d) The Fund; Purchase and Redemption of Shares
9 N/A
10 Cover Page
11 Cover Page - Table of Contents
12 N/A
13 (a) (b) (c) Investment Objectives and Policies
13 (d) Portfolio Turnover Rates - Prospectus
14 Directors and Officers
15 (a) (b) (c) Directors and Officers; Investment Advisory and Other
Services
16 (a) (i) Investment Advisory and Other Services
16 (a) (ii) Directors and Officers
16 (a) (iii) Investment Advisory and Other Services
16 (b) (e) Investment Advisory and Other Services
16 (c) (d) (f) (g) N/A
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Form N-1A Location In Prospectus or
Item No. Statement of Additional Information
16 (h) Investment Advisory and Other Services
16 (i) N/A
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) The Fund - Prospectus
18 (b) N/A
19 (a) (b) The Fund - Prospectus; Purchase and
Redemption of Shares - Prospectus
19 (c) N/A
20 Taxes; Tax Status - Prospectus
21 (a) The Fund - Prospectus
21 (b) (c) N/A
22 N/A
23 Financial Statements
2
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LORD ABBETT SERIES FUND, INC.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
- -------------------------------------------------------------------------------
Lord Abbett Series Fund, Inc. (the "Fund"), is a diversified open-end management
investment company incorporated under Maryland law on August 28, 1989. The Fund
is a series fund currently comprised of three separate Portfolios (the
"Portfolios"). However, only shares of the Growth and Income Portfolio are
offered at this time. SHARES OF THE GLOBAL EQUITY PORTFOLIO ARE NO LONGER
OFFERED FOR SALE. The Directors may provide for additional Portfolios from time
to time. Each Portfolio issues a separate class of shares, which has rights
separate from the other classes of shares.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission. The
Statement of Additional Information is incorporated by reference into this
Prospectus and incorporates by reference the report of Deloitte & Touche, LLP
which is included in the Annual Report to shareholders. Both may be obtained,
without charge, by writing to the Fund or by calling 800-831-LIFE.
Investors should read and retain this Prospectus for future reference.
Shareholder inquiries should be made in writing directly to the Fund or by
calling 800-831-LIFE.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. An
investment in the Fund involves risks, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and of the Statement of Additional Information is
May 1, 1996.
1
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CONTENTS Page
FINANCIAL HIGHLIGHTS 1
THE FUND 3
INVESTMENT OBJECTIVES AND POLICIES 4
RISK FACTORS 10
PORTFOLIO TURNOVER RATES 12
MANAGEMENT 12
EXPENSES OF THE FUND 15
SHAREHOLDER RIGHTS 15
PURCHASE AND REDEMPTION OF SHARES 16
DIVIDENDS AND DISTRIBUTIONS 16
TAX STATUS 16
NET ASSET VALUE 17
PERFORMANCE 17
GENERAL INFORMATION 18
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1. FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audit of the Fund's Financial
Statements whose report thereon is incorporated by reference into the Statement
of Additional Information and may be obtained on request. The total return
information for the Portfolios of the Fund shown in the Tables below does not
reflect expenses of the Variable Account and the variable contracts. If such
charges were included, the total return figures would be lower for all periods
shown. Further information about the Fund's performance is contained in the
Annual Report to shareholders which may be obtained, without charge, by calling
800-831-LIFE.
<TABLE>
<CAPTION>
PART A
<PAGE>
GROWTH AND INCOME PORTFOLIO
For the Period
Dec. 11, 1989
(Commencement
Year Ended Dec 31. of Operations)
----------- ---------- ---------- ----------- --------- -----------
to Dec. 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991 1990 1989
----------- ---------- ---------- ----------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.71 $13.15 $12.27 $11.61 $ 9.93 $10.07 $10.00
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Income from investment operations
Net investment income .459 .41 .34 .45* .50* .41* .00*
Net realized and unrealized
gain
(loss) on investments 3.332 (.045) 1.48 1.3575 2.18 (.19) .07
Total from investment operations 3.791 .365 1.82 1.8075 2.68 .22 .07
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Distributions
Dividends from net investment (.36) (.33) (.27) (.32) (.35) (.29) ---
income
Distributions from net realized (.90) (.475) (.67) (.8275) (.65) (.07) ---
gain
Net asset value, end of period $15.241 $12.71 $13.15 $12.27 $11.61 $ 9.93 $10.07
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Total Return 29.82% 2.76% 14.80% 15.62% 27.00% 2.18% 0.70%
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Ratios/Supplemental Data:
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Net assets, end of period (000) $193,575 $114,608 $82,219 $37,307 $18,297 $10,754 $247
Ratios to Average Net Assets:
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
Expenses, including waiver .52% .59% .57% .51% .13% .46% .28%
Expenses, excluding waiver .52% .59% .57% .65% .72% .91% 1.73%
Net investment income 2.91% 2.97% 2.76% 3.38% 4.20% 4.38% .00%
Portfolio turnover rate 70.30% 68.94% 78.26% 107.30% 70.82% 49.06% .00%
- ---------------------------------------- ----------- ---------- ---------- ----------- --------- ----------- -----------------
<FN>
* Net of management fee waiver
See Notes to Financial
Statements
</FN>
</TABLE>
1
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<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO
For the Period
April 9, 1990
Year Ended Dec 31. (Commencement
----------- -------------- ------------- ------------- -------
of Operations)
to Dec. 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991 1990
------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.22 $12.58 $10.25 $10.75 $ 9.73 $10.00
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
Income from investment operations
Net investment income* .34 .27 .26 .29 .28 .24
Net realized and unrealized gain (loss)
on investments .83 (.0575) 2.4725 (.4575) 1.03 (.35)
Total from investment operations 1.17 .2125 2.7325 (.1675) 1.31 (.11)
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
Distributions
Dividends from net investment income (.32) (.29) (.32) (.24) (.22) (.16)
Distributions from net realized gain (.61) (1.2825) (.0825) (.0925) (.07) ---
Net asset value, end of period $11.46 $11.22 $12.58 $10.25 $10.75 $9.73
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
Total Return 10.43% 1.69% 26.67% (1.54)% 13.48% (1.10)%
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
Ratios/Supplemental Data:
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
Net assets, end of period (000) $2,675 $3,251 $3,775 $3,362 $4,407 $2,683
Ratios to Average Net Assets:
- ----------------------------------------------------- ------------- -------------- ------------- ------------------------- --------
Expenses, including waiver .11% .09% .09% .10% .10% .21%
Expenses, excluding waiver 1.58% 1.33% 1.62% 1.39% 2.15% 2.49%
Net investment income 2.86% 2.04% 2.24% 2.72% 2.69% 2.40%
Portfolio turnover rate 41.24% 50.63% 131.51% 128.59% 60.84% 25.59%
- ----------------------------------------------------- ------------- -------------- ------------- ------------- ------------ --------
<FN>
* Net of management fee waiver
Not annualized.
See Notes to Financial Statements
</FN>
</TABLE>
2
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2. THE FUND
- ------------------------------------------------------------------------------
LORD ABBETT SERIES FUND, INC. is a diversified open-end management investment
company incorporated under the laws of Maryland on August 28, 1989. The Fund is
a series fund currently comprised of three separate Portfolios. However, only
shares of the Growth and Income Portfolio are offered at this time. Each
Portfolio issues a separate class of shares. Each share of common stock of the
Fund has a par value of $.001 per share and has one vote and an equal right to
dividends and distributions with respect to its Portfolio. All shares have
noncumulative voting rights for the election of Directors. Each share is fully
paid, nonassessable and freely transferable. There are no liquidation,
conversion or preemptive rights. The fiscal year-end of the Fund is December 31.
Distribution of Fund Shares
Lord, Abbett & Co. ("Lord Abbett"), the Fund's "Investment Manager", located at
The General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203, is
the distributor of the shares of the Growth and Income Portfolio. Prior to May
1, 1994, the Fund distributed its own shares. Lord Abbett Distributor LLC, a
limited liability company organized as a subsidiary of Lord Abbett, will act as
the distributor of shares of the Fund after required approvals by the Fund's
Board of Directors and shareholders. The Growth and Income Portfolio of the Fund
bears certain costs of distributing shares of the Growth and Income Portfolio in
accordance with a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"). (See "Distribution Plan"
below.) Shares of the Fund are currently issued and redeemed only in connection
with investment in and payments under certain variable annuity contracts issued
by life insurance companies and their affiliates ("Life Companies"). The shares
of the Fund are purchased and redeemed at net asset value. Lord Abbett and the
Fund each reserves the right to suspend, change or withdraw the offering of
shares of any Portfolio or Portfolios or any of the terms of such offering.
Distribution Plan
The Board of Directors of the Fund has adopted a Distribution Plan (the "Plan")
for the Growth and Income Portfolio of the Fund which has been approved by the
shareholders of the Growth and Income Portfolio. The Plan has not been activated
to date. Pursuant to the Plan, the Fund, on behalf of the Growth and Income
Portfolio, may make payments to Lord Abbett for remittance to a Life Company for
certain distribution expenses incurred or paid by such Life Company, provided
that such remittances in the aggregate do not exceed 0.15%, on an annual basis,
of the average daily net asset value of shares of the Growth and Income
Portfolio sold to such Life Company to be used as the
3
<PAGE>
underlying investment for variable life insurance and variable annuity contracts
("Variable Contracts"). For the year ended December 31, 1995, no payments were
made pursuant to the Plan.
Distribution expenses for which a Life Company may be reimbursed include, but
are not limited to, expenses of printing and distributing Fund prospectuses,
statements of additional information and shareholder reports to existing and
potential Variable Contract owners and developing and preparing Fund
advertisements and other promotional materials designed to promote the
distribution of Fund shares. Lord Abbett will be required to submit to the
Directors for approval annual distribution expense budgets and quarterly reports
of, and requests for payment of, distribution expenses as to the Growth and
Income Portfolio.
Variable annuity contract owners should refer to the fee table section of their
separate account prospectuses for further information with respect to the effect
of the Plan on their annuity contract expenses.
3. INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
Each Portfolio of the Fund has a different investment objective which it pursues
through separate investment policies as described below. Each Portfolio is
managed separately by Lord Abbett and the risks and opportunities of each
Portfolio should be examined separately. The differences in objectives and
policies among the Portfolios can be expected to affect the return of each
Portfolio and the degree of market and financial risk of each Portfolio.
There is no assurance that the investment objectives of the various Portfolios
will be met.
Growth and Income Portfolio
The investment objective of the Growth and Income Portfolio is long-term growth
of capital and income without excessive fluctuation in market value.
The Fund intends to keep the Portfolio's assets invested in those securities
which are selling at reasonable prices in relation to value and, to do so, it
may have to forego some opportunities for gains when, in the Fund's judgment,
they carry excessive risk.
The Portfolio will try to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes.
The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies in sound financial
condition, which
4
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common stocks are expected to show above-average price appreciation. Although
the prices of common stocks fluctuate and their dividends vary, historically,
common stocks have appreciated in value and their dividends have increased when
the companies they represent have prospered and grown.
The Portfolio constantly seeks to balance the opportunity for profit against the
risk of loss. In the past, very few industries have continuously provided the
best investment opportunities. The Portfolio will take a flexible approach and
adjust the Portfolio to reflect changes in the opportunity for sound investments
relative to the risks assumed. Therefore, the Portfolio will sell stocks that
are judged to be overpriced and reinvest the proceeds in other securities which
are believed to offer better values for the Portfolio.
The Portfolio will not purchase securities for trading purposes. To create
reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in straight bonds and other fixed-income securities.
Global Equity Portfolio
The investment objective of the Global Equity Portfolio is long-term growth of
capital and income consistent with reasonable risk. The production of current
income is a secondary consideration for the Portfolio.
To best serve the needs of most long-term investors, the Portfolio seeks capital
growth without excessive fluctuations in market value. The Portfolio attempts to
invest in securities representing good values which are expected to decline less
in price than other securities. In an effort to obtain such values, the
Portfolio will try to invest in those domestic and foreign securities which are
selling at reasonable prices in relation to other domestic and foreign
securities' values considering the policies and factors below and, in doing so,
may forego some opportunities for gains when it is believed they carry excessive
risk.
The Portfolio will try to anticipate major changes in the world economy and
select domestic and foreign securities which it believes will benefit most from
these changes. The Portfolio normally invests primarily in common stocks
(including securities convertible into common stocks) of domestic and foreign
companies in sound financial condition which common stocks are expected to show
above-average price appreciation. Although the prices of common stocks fluctuate
and their dividends vary, historically, common stocks have appreciated in value
and their dividends have increased when the companies they represent have
prospered and grown.
The Portfolio constantly seeks to balance the opportunity for profit against the
risk of loss. In the past, very few industries or economies have continuously
provided the best investment opportunities. The policy of the Portfolio is to
take a flexible approach and to adjust the Portfolio to reflect changes in the
opportunity for sound investments relative to the risks assumed. Therefore,
domestic and foreign securities judged to be overvalued will be sold and the
proceeds will be reinvested in other securities believed to offer better values.
Under normal circumstances the Portfolio will invest its total assets in
domestic and foreign securities with at least 65% of such assets invested in
equity securities primarily traded in at least three countries, including the
United States. However, for temporary defensive purposes, this guideline may not
be followed.
The Portfolio's investment in foreign securities may be subject to non-U.S.
income or withholding tax, resulting in a lower rate of return on investments.
In selecting industries and companies representing good value for the Portfolio,
consideration will be given to, among other factors, overall growth prospects,
competitive position in domestic and foreign markets, technology, research and
development, productivity, labor costs, raw material costs and sources, profit
margins, return on investment, capital resources, management and government
regulation.
Country Diversification - Global Equity Portfolio. It is the present intention
of the Portfolio to invest its assets in securities which are primarily traded
in the United Kingdom, Western Europe (Austria, Germany, the Netherlands,
France, Switzerland, Italy, Belgium, Norway, Sweden, Denmark and Spain),
Australia, Canada, the Far East (Japan, Hong Kong and Singapore) and the United
States. However, investment may be made from time to time in securities which
are primarily traded in other developed countries. Except for the guidelines
described above with respect to investing in at least three countries, including
the United States, there are no limitations on how much of the Portfolio's
assets can be invested in securities primarily traded in any one country.
Foreign Currency Hedging Techniques - Global Equity Portfolio. The Portfolio may
utilize various foreign currency hedging techniques described below, including
forward foreign currency contracts and foreign currency put and call options.
A forward foreign currency contract involves an obligation to purchase or sell a
specific amount of a specific currency at a set price on a future date. The
Portfolio may enter into forward foreign currency contracts (but not in excess
of the amount the Portfolio has invested in non-U.S. dollar-denominated
securities at the time any such contract is entered into) in primarily two
circumstances. First, when the Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency, the Portfolio may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale of the amount of foreign currency
involved in the underlying security transaction, the Portfolio will be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S.
6
<PAGE>
dollar and the subject foreign currency during the period between the date the
security is purchased or sold and the date on which payment is made or received.
Second, when it is believed that the currency of a particular foreign country
may suffer a decline against the U.S. dollar, the Portfolio may enter into a
forward contract to sell the amount of foreign currency approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Precise matching of the forward contract amount and the value of the
securities involved will not generally be possible since the future value of
such securities denominated in foreign currencies will change as a consequence
of market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The Portfolio does not
intend to enter into such forward contracts under this second circumstance on a
regular or continuous basis.
The Fund's custodian will segregate cash or liquid high-grade debt securities
belonging to the Portfolio in an amount not less than the value of the
Portfolio's assets committed to forward foreign currency contracts entered into
under such a transaction. If the value of the securities segregated declines,
additional cash or debt securities will be added on a daily basis (i.e., marked
to market) so that the segregated amount will not be less than the amount of the
Portfolio's commitments with respect to such contracts.
The Portfolio may also purchase foreign currency put options on U.S. exchanges
or U.S. over-the-counter markets. A put option gives the Portfolio, upon payment
of a premium, the right to sell a currency at the exercise price until the
expiration of the option and serves to insure against adverse currency price
movements in the underlying portfolio assets denominated in that currency. The
premiums paid for such foreign currency put options will not exceed 5% of the
net assets of the Portfolio at the time of such payment.
Exchange-listed options markets in the United States include several major
currencies, and trading may be thin and illiquid. A number of major investment
firms trade unlisted options which are more flexible than exchange-listed
options with respect to strike price and maturity date. These unlisted options
generally are available on a wider range of currencies, including those of most
of the developed countries mentioned above. Unlisted foreign currency options
are generally less liquid than listed options and involve the credit risk
associated with the individual issuer. Investment in unlisted options together
with other illiquid securities is subject to a limit of 5% of the Portfolio's
net assets. See "Restricted or Not Readily Marketable Securities for the Fund's
Portfolios" in the Statement of Additional Information.
A call option written by the Portfolio gives the purchaser, upon payment of a
premium, the right to purchase from the Portfolio a currency at the exercise
price until the expiration of the option. The Portfolio may write a call option
on a foreign currency only
7
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in conjunction with a purchase of a put option on that currency by the
Portfolio. Such a strategy is designed to reduce the cost of downside currency
protection by limiting currency appreciation potential. The face value of such
writing may not exceed 90% of the face value of the put option with respect to
which such call option was written.
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Portfolio's ability to engage in transactions in
options and forward contracts.
The Fund's custodian will segregate cash or liquid high-grade debt securities
belonging to the Portfolio in an amount not less than the value of the
Portfolio's assets committed to writing options. If the value of the securities
segregated declines, additional cash or debt securities will be added on a daily
basis (i.e., marked to market), so that the segregated amount will not be less
than the amount of the Portfolio's commitments with respect to such written
options.
Growth Portfolio
The investment objective of the Growth Portfolio is to seek capital appreciation
through investments primarily in equity securities which are believed to be
undervalued in the marketplace.
The Portfolio invests primarily in common stocks (including securities
convertible into common stocks) of companies with good prospects for improvement
in earnings trends or with asset values that are not yet fully recognized in the
investment community. Selection of stocks is based on appreciation potential and
without regard to current income.
The Portfolio will be diversified among many issues representing many different
industries. The holdings in the Portfolio typically will be selected for their
potential for significant market appreciation from growing recognition of
substantial improvement in the companies' financial results, or increasing
anticipation of such improvement. This potential may derive from such factors as
(i) changes in the economic and financial environment, (ii) new or improved
products or services, (iii) new or rapidly expanding markets, (iv) changes in
management or structure of the company, (v) price increases due to shortages of
resources or productive capacity, (vi) improved efficiencies resulting from new
technologies or changes in distribution, or (vii) changes in governmental
regulations, political climate or competitive conditions. The companies
represented will have a strong or, in the Portfolio's perception, an improving
financial position and their outstanding stock will ordinarily have an aggregate
market value of not less than approximately $50 million. At the time of
purchase, the securities may be largely neglected by the investment community
or, if widely followed, they may be out of favor or at least controversial.
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While the Portfolio may take short-term gains if deemed appropriate, normally it
will hold securities in order to realize long-term capital gains.
Other Investment Policies and Techniques of the Portfolios
When the Fund believes that a Portfolio should assume a temporary defensive
position because of unfavorable investment conditions, the affected Portfolio
may temporarily hold its assets in cash and short-term money market instruments.
See "Risk Factors" below for a discussion of special diversification standards
which the Portfolios will meet.
The Fund intends to utilize from time to time one or more of the investment
techniques identified below and described in the Statement of Additional
Information, including covered call options, rights and warrants and repurchase
agreements. It is the Fund's current intention that no more than 5% of each
Portfolio's net assets will be at risk in the use of any one of such investment
techniques identified below. While some of these techniques involve risk when
utilized independently, the Fund intends to use them to reduce risk and
volatility in its Portfolios, although this result cannot be assured by the use
of such investment techniques.
Covered Call Options. The Fund may write 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.
Rights and Warrants. The Fund may invest in rights and warrants to purchase
securities. Included within these purchases, but not exceeding 2% of the value
of each Portfolio's net assets, may be warrants which are not listed on the New
York Stock Exchange or American Stock Exchange.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to a security. A repurchase agreement is a transaction by which the Fund
acquires a security and simultaneously commits to resell that security to the
seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon
date. The Fund requires at all times that the repurchase agreement be
collateralized by cash or U.S. Government securities having a value equal to, or
in excess of, the value of the repurchase agreement. Such agreements permit the
Fund to keep all of its assets at work while retaining flexibility in pursuit of
investments of a longer-term nature.
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Other Policies of the Portfolios
It is the Fund's current intention that no more than 5% of each Portfolio's net
assets will be at risk in the use of any one of the policies identified below.
Closed-End Investment Companies. The Fund may invest in shares of closed-end
investment companies if bought in primary or secondary offerings with a fee or
commission no greater than the customary broker's commission. Shares of such
investment companies sometimes trade at a discount or premium in relation to
their net asset value.
Lending of Portfolio Securities. The Fund may seek to earn income by lending its
Portfolio securities if the loan is collateralized and complies with regulatory
requirements.
Emergency Borrowing. The Fund will be permitted to borrow money up to one-third
of the value of each Portfolio's total assets taken at current value but only
from banks as a temporary measure for extraordinary or emergency purposes.
Beyond 5% of each Portfolio's total assets (at current value), this borrowing
may not be used for investment leverage to purchase securities. As a matter of
operating policy, each Portfolio will not borrow more than 25% of its total
assets taken at current value.
Change in Investment Objectives
The Fund will not change the investment objectives of a Portfolio without
Portfolio shareholder approval as described below in "Investment Restrictions."
However, the Fund's policies and techniques are not fundamental. Therefore, if
it is determined that an objective of a Portfolio can best be achieved by a
substantive change in such a policy or technique, the change will be made
without Portfolio shareholder approval by disclosing it in the Prospectus.
Investment Restrictions
In addition to the investment objectives set forth above, certain restrictions
relating to the investment of assets of the Portfolios are set forth in the
Statement of Additional Information. These investment restrictions are also
deemed fundamental and neither such restrictions nor the investment objectives
of the Portfolios may be changed without the approval of the holders of a
majority of the outstanding shares of the Portfolio affected (which for this
purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present or represented by proxy or (ii) more than 50% of the outstanding
shares).
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A change in a restriction or objective affecting only one Portfolio may be
effected with the approval of a majority of the outstanding shares of such
Portfolio.
4. RISK FACTORS
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The Fund was established as the underlying investment for Variable Contracts
issued by Cova Financial Services Life Insurance Company (formerly Xerox
Financial Services Life Insurance Company) and its affiliated insurance
companies.
Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes certain diversification standards on the underlying assets of Variable
Contracts held in the Portfolios of the Fund. The Code provides that a variable
contract shall not be treated as an annuity contract or life insurance for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the Treasury Department, adequately
diversified. Disqualification of a Variable Contract as an annuity contract or
life insurance would result in imposition of federal income tax on contract
owners with respect to earnings allocable to the Variable Contract prior to the
receipt of payments under the Variable Contract. Section 817(h)(2) of the Code
is a safe harbor provision which provides that contracts such as the Variable
Contracts meet the diversification requirements if, as of the close of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consists of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts. The Regulations amplify the
diversification requirements for variable contracts set forth in Section 817(h)
of the Code and provide an alternative to the safe harbor provision described
above. Under the Regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55 percent of the value of the total assets of
the portfolio is represented by any one investment; (ii) no more than 70 percent
of such value is represented by any two investments; (iii) no more than 80
percent of such value is represented by any three investments; and (iv) no more
than 90 percent of such value is represented by any four investments. For
purposes of these Regulations, all securities of the same issuer are treated as
a single investment.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
Each Portfolio of the Fund will be managed in such a manner as to comply with
these diversification requirements. It is possible that in order to comply with
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<PAGE>
the diversification requirements, less desirable investment decisions may be
made which would affect the investment performance of the Portfolios.
Investment in the shares of the Global Equity Portfolio requires consideration
of certain factors that are not normally involved in investments in U.S.
securities. Generally, most of the assets of the Global Equity Portfolio will be
denominated or traded in foreign currencies. Accordingly, a change in the value
of any foreign currency relative to the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the assets of the Global Equity
Portfolio denominated or traded in that currency. The performance of the Global
Equity Portfolio will be measured in U.S. dollars, the base currency of the
Global Equity Portfolio. In addition, the Global Equity Portfolio may be subject
to foreign withholding taxes which would reduce the yield on its investments.
Securities markets of foreign countries in which the Global Equity Portfolio may
invest generally are not subject to the same degree of regulation as the U.S.
markets and may be more volatile and less liquid than the major U.S. markets.
Lack of liquidity may affect the Global Equity Portfolio's ability to purchase
or sell large blocks of securities and thus obtain the best price. There may be
less publicly available information on publicly-traded companies, banks and
governments in foreign countries than is generally the case for such entities in
the United States. The lack of uniform accounting standards and practices among
countries impairs the validity of direct comparisons of valuation measures (such
as price/earnings ratios) for securities in different countries. In addition,
the Global Equity Portfolio may incur costs associated with currency hedging and
the conversion of foreign currency into U.S. dollars and may be adversely
affected by restrictions on the conversion or transfer of foreign currency.
Other considerations include political and social instability, expropriation,
higher transaction costs and different securities settlement practices.
Settlement periods of foreign securities, which are sometimes longer than those
for securities of U.S. issuers, may affect portfolio liquidity. These different
settlement practices may cause missed purchasing opportunities and/or the loss
of interest on money market and debt investments pending further equity or
long-term debt investments. In addition, foreign securities held by the Global
Equity Portfolio may be traded on days that the Fund does not value the Global
Equity Portfolio's securities, such as Saturdays and customary business
holidays, and, accordingly, the Global Equity Portfolio's net asset value may be
significantly affected on days when shareholders do not have access to the
Global Equity Portfolio.
The prices of long-term securities are more volatile than those of short-term
debt securities. When interest rates go up or down, the market value of such
long-term debt securities tends to go down or up, respectively, to a greater
extent than in the case of short-term debt securities.
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<PAGE>
5. PORTFOLIO TURNOVER RATES
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For the years ended December 31, 1994 and 1995, the portfolio turnover rates of
the Growth and Income Portfolio were 68.94% and 70.30%, respectively. For the
years ended December 31, 1994 and 1995, the portfolio turnover rates of the
Global Equity Portfolio were 50.63% and 41.24%, respectively. With respect to
the Global Equity Portfolio, these changes, dictated by market conditions,
resulted in a higher turnover of portfolio assets in 1994 than 1995, i.e. 50%
versus 41%. Higher portfolio turnover rates may involve correspondingly higher
brokerage costs which would have to be borne directly by the Fund and ultimately
by its shareholders.
6. MANAGEMENT
- ------------------------------------------------------------------------------
The Fund is managed by its officers on a day-to-day basis under the overall
direction of its Board of Directors. The Fund employs Lord Abbett as investment
manager for the Portfolios pursuant to a Management Agreement. Lord Abbett has
been an investment manager for over 65 years and currently manages approximately
$19 billion in a family of mutual funds and other advisory accounts. Lord Abbett
provides the Fund with investment management services and executive and other
personnel, pays the remuneration of its officers, provides the Fund with office
space and pays for ordinary and necessary office and clerical expenses relating
to research, statistical work and supervision of the Portfolios and certain
other costs. The Fund pays all other expenses not expressly assumed by Lord
Abbett, including, without limitation, outside Directors' fees and expenses,
association membership dues, legal and auditing fees, shareholder servicing
costs, expenses relating to shareholder meetings, expenses of preparing,
printing and mailing stock certificates and shareholder reports, expenses of
registering the Fund's shares under federal and state securities laws, expenses
of printing and mailing prospectuses to existing shareholders, insurance
premiums and brokerage and other expenses relating to the execution of Portfolio
transactions. Lord Abbett provides similar services to fifteen other funds
having their own investment objectives and also advises other investment
clients. Lord Abbett and Cova Financial Services Life Insurance Company (then
known as Xerox Financial Services Life Insurance Company) provided operating
funds to the Fund through their purchase of the initial shares of the Fund.
Mr. W. Thomas Hudson, Jr. is Executive Vice President of the Fund and is
primarily responsible for the day-to-day management of the Growth and Income
Portfolio. Mr. Hudson has been employed by Lord Abbett since 1982.
Mr. E. Wayne Nordberg is a Partner of Lord Abbett and is primarily responsible
for the day-to-day management of the Global Equity Portfolio. Mr. Nordberg has
been employed by Lord Abbett since 1988.
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<PAGE>
Lord Abbett has entered into a new Sub-Investment Management Agreement with
Dunedin Fund Managers Limited, as Sub-Adviser, under which it provides Lord
Abbett with advice with respect to that portion of the Global Equity Portfolio's
assets invested in countries other than the United States (the "foreign
assets"). The Sub-Adviser and its predecessors date back 123 years to 1873. In
performing these services, the Sub-Adviser furnishes Lord Abbett with advice and
recommendations with respect to the foreign assets, including advice on the
allocation of investments among foreign securities markets and foreign equity
and debt securities, and, subject to consultation with Lord Abbett, advice as to
cash holdings and what securities in the portfolio of foreign assets should be
purchased, held or disposed of. The Sub-Adviser also gives advice with respect
to foreign currency matters.
Subject to the review of the Board of Directors, Lord Abbett, in consultation
with the Sub-Adviser, will determine at least quarterly the percentage of the
assets of the Global Equity Portfolio that shall be allocated to Lord Abbett or
the Sub-Adviser for investment management. With respect to the assets of the
Portfolio allocated to the Sub-Adviser for investment management, the
Sub-Adviser performs its services subject to the overall supervision and review
of Lord Abbett. From time to time or at any time requested by Lord Abbett or the
Fund's directors, the Sub-Adviser will make reports to Lord Abbett or the Fund,
as requested, of the Sub-Adviser's performance of the services described in the
new Sub-Investment Management Agreement.
Under the Management Agreement, the Fund is obligated to pay Lord Abbett a
monthly fee, based on average daily net assets for the Portfolios for each
month, at an annual rate of .75 of 1% with respect to the Global Equity
Portfolio and Growth Portfolio and .5 of 1% with respect to the Growth and
Income Portfolio. In addition, the Fund will pay all expenses not expressly
assumed by Lord Abbett. Upon Global Equity Portfolio shareholder approval or
opinion of counsel, Lord Abbett will be obligated to pay the Sub-Adviser a
monthly fee based on the average daily net assets of the Global Equity Portfolio
for each month equal, on an annual basis, to .375 of 1%. Lord Abbett currently
waives its advisory fees for the Global Equity Portfolio. For the year ended
December 31, 1995, the amount of the advisory fee for the Growth and Income
Portfolio was $704,093. For the year ended December 31, 1995, Lord Abbett waived
all $21,901 of its advisory fee with respect to the Global Equity Portfolio. No
advisory fees were received or waived by Lord Abbett with respect to the Growth
Portfolio as it has not yet commenced operations.
On March 19, 1996, Edinburgh Fund Managers Group plc ("Edinburgh") acquired all
of the ordinary share capital of DFM Holdings Limited ("DFM Holdings"), which
holds 100% of the ordinary share capital of the Sub-Adviser. Prior to such
acquisition, the Sub-Adviser had served as the Fund's sub-investment manager
under a previous Sub-Investment Management Agreement (the "Previous Agreement")
between Lord Abbett and the Sub-Adviser. As required by the Investment Company
Act of 1940, the Previous
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<PAGE>
Agreement was terminated as a result of the change in control of the Sub-Adviser
caused by such acquisition.
At a meeting of the Board of Directors of the Fund held on March 14, 1996, the
directors of the Fund, including a majority who are not interested persons of
Lord Abbett, Edinburgh, the Sub-Adviser or the Fund or parties to the Previous
Agreement, unanimously approved, subject to shareholder approval, a new
Sub-Investment Management Agreement (the "New Agreement") between Lord Abbett
and the Sub-Adviser with respect to the Global Equity Portfolio. The New
Agreement contains substantially the same terms and conditions and provides for
payment of a sub-advisory fee on the same basis with respect to the Global
Equity Portfolio as contained and provided for in the Previous Agreement.
Lord Abbett and the Board of Directors of the Fund believe that it is in the
interests of the shareholders of the Global Equity Portfolio to continue to
obtain the services of the Sub-Adviser on an uninterrupted basis. Since Lord
Abbett has waived all of its advisory fees with respect to the Global Equity
Portfolio and, therefore, has not paid the Sub-Adviser with respect to that
Portfolio, it is intended that the Sub-Adviser fulfill all of the provisions of
the New Agreement without any compensation following the change in control until
the New Agreement is submitted for approval at the Global Equity Portfolio's
next meeting of shareholders.
The acquisition of DFM Holdings by Edinburgh created a major fund management
group based in Scotland, with assets under management valued at over 8.2
billion, or approximately $12.6 billion. The Sub-Adviser manages several unit
trusts and investment trusts which are not comparable to U.S. regulated
investment companies. Edinburgh has advised Lord Abbett and the Fund that it
currently anticipates that all of the Sub-Adviser's officers and employees will
continue in their present capacities and will continue to provide sub-investment
management services to Lord Abbett with respect to the Global Equity Portfolio
with no material changes in operating personnel, except that the Sub-Adviser has
advised the Fund that it will now have access to the resources of the Edinburgh
Group, which will have some 50 investment professionals, representing an
enlarged fund management capability. Edinburgh has also advised Lord Abbett and
the Fund that it anticipates that the acquisition of DFM Holdings will neither
affect the operating procedures used by the Sub-Adviser with respect to Fund
assets nor the financial ability of the Sub-Adviser to fulfill its obligations
under the New Agreement and that the Sub-Adviser's business will operate, with
respect to the assets of the Global Equity Portfolio, in a manner consistent
with the Sub-Adviser's past practices.
7. EXPENSES OF THE FUND
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<PAGE>
The organizational expenses of the Fund are being amortized on a straight-line
basis over a period of five years (beginning with the commencement of
operations). If any of the initial shares (issued to Lord Abbett and Cova
Financial Services Life Insurance Company) are redeemed during the amortization
period by any holder thereof, the redemption proceeds will be reduced by any
unamortized organizational expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of the redemption.
Lord Abbett may waive its management fee and/or advance other expenses of the
Fund. Although each Portfolio must bear the expenses directly attributable to
it, the Portfolios are expected to experience cost savings over the aggregate
amount that would be payable if each Portfolio were a separate fund, because
they have the same Directors, accountants, attorneys and share other general and
administrative expenses. Any expenses which are not directly attributable to a
specific Portfolio are allocated on the basis of the net assets of the
respective Portfolios. For the year ended December 31, 1995, the expenses borne
by the Growth and Income Portfolio amounted to $762,593 or .52% of its average
daily net assets and the expenses borne by the Global Equity Portfolio amounted
to $3,285 or .11% of its average daily net assets.
8. SHAREHOLDER RIGHTS
- ------------------------------------------------------------------------------
Each Portfolio issues its own class of shares and may issue separate classes of
shares with respect to such Portfolio. Each share represents an equal
proportionate interest in the assets of the Portfolio with each other share in
the Portfolio. On any matter submitted to a vote of shareholders, all shares of
the Fund then issued and outstanding and entitled to vote shall be voted in the
aggregate and not by class except for matters concerning only one class. The
holder of each share of stock of the Fund will be entitled to one vote for each
full share and a fractional vote for each fractional share of stock. Shares of
one class may not bear the same economic relationship to the Fund as shares of
another class.
In accordance with its view of present applicable law, the Fund views the
separate account(s) of Life Companies as shareholders of the Fund having the
right to vote Fund shares at any meeting of shareholders and will provide
pass-through voting privileges to all contract owners. Life Companies will vote
shares of the Fund held in the separate account(s) for which no timely voting
instructions from contract owners are received, as well as shares they own, in
the same proportion as those shares for which voting instructions are received.
Additional information concerning voting rights is described in the separate
account prospectuses.
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
shareholders in any year unless one or more matters are required to be acted on
by shareholders under the 1940 Act, or unless called at the request in writing
of a majority
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<PAGE>
of the Board of Directors or by shareholders holding at least one-quarter of the
shares of the Fund outstanding and entitled to vote at the meeting. The Fund
will hold a shareholder meeting to fill existing vacancies on the Board in the
event that less than a majority of Directors were elected by the shareholders.
The Directors shall also call a meeting of shareholders for the purpose of
voting upon the question of removal of any Director when requested in writing to
do so by the record holders of not less than 10 percent of the outstanding
shares. Under the By-Laws of the Fund and in accordance with the 1940 Act,
shareholder approval of the independent auditors of the Fund will not be
required except when shareholder meetings are held. The Fund has an obligation
to assist shareholder communications.
9. PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------
Shares are currently only sold to the separate accounts of Cova Financial
Services Life Insurance Company and its affiliates ("Cova Life") at net asset
value (see below). Redemptions will be effected by the separate accounts to meet
obligations under the Variable Contracts. Contract owners do not deal directly
with the Fund with respect to acquisition or redemption of shares.
In selecting broker-dealers to execute portfolio transactions for the Fund's
Portfolios, if two or more broker-dealers are considered capable of best
execution, the Fund may prefer the broker-dealer who has sold Fund shares
through the sale of such Variable Contracts.
10. DIVIDENDS AND DISTRIBUTIONS
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All dividends and distributions are distributed to the shareholders and will be
payable in shares or cash at the election of shareholders. Cova Life, with
respect to shares held by its separate accounts, has elected, and intends to
continue to elect, to receive dividends and distributions in shares. Dividends
and distributions are made at such frequency and in such amount as to assure
compliance with the Internal Revenue Code.
11. TAX STATUS
- -------------------------------------------------------------------------------
It is the intention of the Fund to have each Portfolio qualify, and for the
fiscal year ended December 31, 1995, each did qualify, as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. The Fund
distributes all of its net income and gains to its shareholders (the separate
accounts). Each Portfolio is treated as a separate entity for federal income tax
purposes and, therefore, the investments and results of the Portfolio are
determined separately for purposes of determining whether the Portfolio
qualifies as a "regulated investment company" and for purposes of determining
net ordinary income (or loss) and net realized capital gains (or losses).
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<PAGE>
12. NET ASSET VALUE
- -------------------------------------------------------------------------------
Portfolio shares are sold and redeemed at a price equal to the share's net asset
value. Net asset value per share is determined as of the close of the New York
Stock Exchange on each day that the New York Stock Exchange is open for business
by dividing each Portfolio's total net assets by the number of shares
outstanding at the time of calculation. The daily net asset value per share is
also determined once daily on each day (other than a day during which no such
shares were tendered for redemption and no order to purchase or sell such shares
was received by the Fund) in which there is a sufficient degree of trading in a
Portfolio's securities that the current net asset value of the Portfolio's
shares might be materially affected by changes in the value of the securities.
Total assets are determined by adding the total current value of the Portfolio's
securities, cash, receivables and other assets and subtracting liabilities.
Portfolio shares are sold and redeemed at the net asset value next determined
after receipt of the sales order or request for redemption.
Securities that are listed on a securities exchange are valued at their closing
sales price on the day of the valuation. Price valuations for listed securities
are based on market quotations where the security is primarily traded or, if not
available, are valued at the mean of the bid and asked prices on any valuation
date. Unlisted securities in a Portfolio are primarily valued based on their
latest quoted bid price or, if not available, are valued by a method determined
by the Directors to accurately reflect fair value. Money market instruments
maturing in 60 days or less are valued on the basis of amortized cost, which
means that they are valued at their acquisition cost to reflect a constant
amortization rate to maturity of any premium or discount, rather than at current
market value.
13. PERFORMANCE
- ------------------------------------------------------------------------------
From time to time, advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Total
return information will include the Portfolio's average annual compounded rate
of return for a given period, based upon the value of the shares acquired
through a hypothetical $1000 investment at the beginning of the specified period
and the net asset or redemption value of such shares at the end of the period,
assuming reinvestment of all dividends and distributions at net asset value. In
lieu of or in addition to total return calculations, such information may
include performance rankings and similar information from independent
organizations such as Lipper Analytical Services, Inc., Business Week, Forbes or
other industry publications.
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<PAGE>
Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share can be expected to fluctuate over time. Further information
about the Fund's performance is contained in the Annual Report to shareholders
which may be obtained, without charge, by calling 800-831-LIFE.
14. GENERAL INFORMATION
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The Fund's custodian is The Bank of New York, 40 Wall Street, New York, New York
10286. The Fund's transfer agent and dividend disbursing agent is DST Systems,
Inc., Kansas City, Missouri 64141. The Fund's auditors are Deloitte & Touche
LLP, Two World Financial Plaza, New York, New York 10281. The Fund's counsel is
Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022.
19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LORD ABBETT SERIES FUND, INC.
May 1, 1996
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from Lord, Abbett & Co. at The General Motors Building, 767 Fifth
Avenue, New York, N.Y. 10153-0203. This Statement relates to, and should be read
in conjunction with, the Prospectus dated May 1, 1996.
Shareholder inquiries should be made by writing directly to the Fund or by
calling (800) 831-LIFE.
TABLE OF CONTENTS Page
Investment Objectives and Policies 1
Directors and Officers 6
Control Persons and Principal Holders of Securities 11
Investment Advisory and Other Services 11
Portfolio Transactions 14
Net Asset Value of Fund Shares 15
Dividends and Distributions 17
Distribution Arrangements 17
Taxes 18
Calculation of Performance Data 18
Financial Statements 19
<PAGE>
1.
Investment Objectives and Policies
The Fund's investment objectives and policies are described in the Prospectus
under "Investment Objectives and Policies". In addition to those investment
objectives, each Portfolio is subject to the following investment restrictions
which cannot be changed without approval of a majority of the outstanding shares
of the Portfolio. Each Portfolio may not: (1) sell short securities or buy
securities or evidences of interests therein on margin, although it may obtain
short-term credit necessary for the clearance of purchases of securities; (2)
buy or sell put or call options, although it may buy, hold or sell rights or
warrants, write covered call options and enter into closing purchase
transactions as discussed below; and, in the case of the Global Equity Portfolio
only, it may utilize various foreign currency hedging techniques as discussed
below; (3) borrow money which is in excess of one-third of the value of its
total assets taken at market value (including the amount borrowed) and then only
from banks as a temporary measure for extraordinary or emergency purposes
(borrowings beyond 5% of such total assets, may not be used for investment
leverage to purchase securities but solely to meet redemption requests where the
liquidation of the Portfolio's investment is deemed to be inconvenient or
disadvantageous); (4) invest in securities or other assets not readily
marketable at the time of purchase or subject to legal or contractual
restrictions on resale except as described under "Restricted or Not Readily
Marketable Securities for the Fund's Portfolios" below; (5) act as underwriter
of securities issued by others, unless it is deemed to be one in selling a
portfolio security requiring registration under the Securities Act of 1933, such
as those described under "Restricted or Not Readily Marketable Securities for
the Fund's Portfolios" below; (6) lend money or securities to any person except
that it may enter into short-term repurchase agreements with sellers of
securities it has purchased, and it may lend its portfolio securities to
registered broker-dealers where the loan is 100% secured by cash or its
equivalent as long as it complies with regulatory requirements and the Fund
deems such loans not to expose the Portfolio to significant risk (investment in
repurchase agreements exceeding 7 days and in other illiquid investments is
limited to a maximum of 5% of a Portfolio's assets); (7) pledge, mortgage or
hypothecate its assets; however, this provision does not apply to permitted
borrowing mentioned above or to the grant of escrow receipts or the entry into
other similar escrow arrangements arising out of the writing of covered call
options; (8) buy or sell real estate including limited partnership interests
therein (except securities of companies, such as real estate investment trusts,
that deal in real estate or interests therein), or oil, gas or other mineral
leases, commodities or commodity contracts in the ordinary course of its
business, except such interests and other property acquired as a result of
owning other securities, though securities will not be purchased in order to
acquire any of these interests; (9) invest more than 5% of its gross assets,
taken at market value at the time of investment, in companies (including their
predecessors) with less than three years' continuous operation; (10) buy
securities if the purchase would then cause a Portfolio to have more than (i) 5%
of its gross assets, at market value at the time of purchase, invested in
securities of any one issuer, except securities issued
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or guaranteed by the U.S. Government, its agencies or instrumentalities, or (ii)
25% of its gross assets, at market value at the time of purchase, invested in
securities issued or guaranteed by a foreign government, its agencies or
instrumentalities; (11) buy voting securities if the purchase would then cause a
Portfolio to own more than 10% of the outstanding voting stock of any one
issuer; (12) own securities in a company when any of its officers, directors or
security holders is an officer or director of the Fund or an officer, director
or partner of the Investment Manager or sub-adviser, if after the purchase any
of such persons owns beneficially more than 1/2 of 1% of such securities and
such persons together own more than 5% of such securities; (13) concentrate its
investments in any particular industry, but if deemed appropriate for attainment
of its investment objective, up to 25% of its gross assets (at market value at
the time of investment) may be invested in any one industry classification used
for investment purposes; or (14) buy securities from or sell them to the Fund's
officers, directors, or employees, or to the Investment Manager or sub-adviser
or to their partners, directors and employees.
Changes in Fund Objectives, Restrictions, Policies and Strategies
The Fund's investment objectives described in the Prospectus and the Fund's
investment restrictions described above in this Statement of Additional
Information, both under the same heading "Investment Objectives and Policies",
can be changed only with the approval of a majority of the outstanding shares of
the affected Portfolio. All of the Fund's policies and techniques, including
those described below, can be changed without such approval.
Other Investments. Described below are other Fund policies and techniques
applicable to one or all of the Portfolios as indicated.
Foreign Currency Hedging Techniques of the Global Equity Portfolio
The Fund's Global Equity Portfolio may utilize various foreign currency hedging
techniques described below, including forward foreign currency contracts and
foreign currency put and call options.
Forward Foreign Currency Contracts. A forward foreign currency contract involves
an obligation to purchase or sell a specific amount of a specific currency at a
set price at a future date. The Portfolio expects to enter into forward foreign
currency contracts in primarily two circumstances. First, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in the underlying security transaction, the
Portfolio will be able to protect against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
2
<PAGE>
Second, when it is believed that the currency of a particular foreign country
may suffer a decline against the U.S. dollar, the Portfolio may enter into a
forward contract to sell the amount of foreign currency approximating the value
of some or all of the Portfolio securities denominated in such foreign currency.
Precise matching of the forward contract amount and the value of the securities
involved will not generally be possible since the future value of such
securities denominated in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The Portfolio does not intend
to enter into such forward contracts under this second circumstance on a regular
or continuous basis.
The Fund's custodian will segregate cash or liquid high-grade debt securities in
an amount not less than the value of the Portfolio's assets committed to forward
foreign currency contracts entered into under this type of transaction. If the
value of the securities segregated declines, additional cash or debt securities
will be added on a daily basis (i.e. marked to market) so that the segregated
amount will not be less than the amount of the Global Equity Portfolio's
commitments with respect to such contracts.
Foreign Currency Put and Call Options. The Fund may also purchase foreign
currency put options on U.S. exchanges or U.S. over-the-counter markets for the
Global Equity Portfolio. A put option gives the Portfolio, upon payment of a
premium, the right to sell a currency at the exercise price until the expiration
of the option and serves to insure against adverse currency price movements in
the underlying portfolio assets denominated in that currency.
Exchange listed options markets in the United States include seven major
currencies, and trading may be thin and illiquid. The seven major currencies are
Australian dollars, British pounds, Canadian dollars, German marks, French
francs, Japanese yen and Swiss francs. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies, including those of most of the
developed countries mentioned in the Prospectus. Unlisted foreign currency
options are generally less liquid than listed options and involve the credit
risk associated with the individual issuer. Unlisted options are subject to the
Fund's policy on illiquid securities.
A call option written by the Fund on behalf of the Portfolio gives the
purchaser, upon payment of a premium, the right to purchase from the Portfolio a
currency at the exercise price until the expiration of the option. The Fund on
behalf of the Portfolio may write a call option on a foreign currency only in
conjunction with a purchase of a put option on that currency. Such a strategy is
designed to reduce the cost of downside currency protection by limiting currency
appreciation potential. The face value of such writing may not exceed 90% of the
value of the securities denominated in such currency invested in by the
Portfolio to cover such call writing.
3
<PAGE>
Investment Techniques for the Fund's Portfolios
The Fund intends to utilize from time to time one or more of the investment
techniques described below including covered call options, rights and warrants
and repurchase agreements. It is the Fund's current intention that no more than
5% of each Portfolio's net assets will be at risk in the use of any one of such
investment techniques. While some of these techniques involve risk when utilized
independently, the Fund intends to use them to reduce risk and volatility in its
Portfolios.
Covered Call Options. The Fund may write 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.
The writing of call options will, therefore, involve a potential loss of
opportunity to sell securities at higher prices. The writer of a fully
collateralized call option assumes the full downside risk of the securities
subject to such option. In addition, in exchange for the premium received, the
writer of the call gives up the gain possibility of the stock appreciating
beyond the call price. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the sum of the
premium less brokerage commissions and fees plus the difference between the
strike price of the call and the market price of the underlying security.
The Fund will not use call options on individual equity securities traded on
foreign securities markets.
The Fund's custodian will segregate cash or liquid high grade debt securities in
an amount not less than the value of the Fund's assets committed to written
covered call options. If the value of the securities segregated declines,
additional cash or debt securities will be added on a daily basis (i.e. marked
to market) so that the segregated amount will not be less than the amount of the
Fund's commitments with respect to such written options.
Rights and Warrants. The Fund may invest in rights and warrants to purchase
securities. Included within that amount, but not to exceed 2% of the value of
the Portfolio's net assets, may be warrants which are not listed on the New York
Stock Exchange or American Stock Exchange.
Rights represent a privilege offered to holders of record of issued securities
to subscribe (usually on a pro rata basis) for additional securities of the same
class, of a different class, or of a different issuer, as the case may be.
Warrants represent the privilege to purchase securities at a stipulated price
and are usually valid for several years. Rights and warrants generally do not
entitle a holder to dividends or voting rights with respect to the underlying
securities nor do they represent any rights in the assets of the issuing
company.
4
<PAGE>
Also, the value of a right or warrant may not necessarily change with the value
of the underlying securities, and rights and warrants cease to have value if
they are not exercised prior to their expiration date.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to a security. A repurchase agreement is a transaction by which the Fund
acquires a security and simultaneously commits to resell that security to the
seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon
date. The resale price reflects the purchase price plus an agreed-upon market
rate of interest which is unrelated to the coupon rate or date of maturity of
the purchased security. In this type of transaction, the securities purchased by
the Fund have a total value in excess of the value of the repurchase agreement.
The Fund requires at all times that the repurchase agreement be collateralized
by cash or U.S. government securities having a value equal to, or in excess of,
the value of the repurchase agreement. Such agreements permit the Fund to keep
all of its assets at work while retaining flexibility in pursuit of investments
of a longer-term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the Fund
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Fund and
therefore subject to sale by the trustee in bankruptcy. Even though the
repurchase agreements may have maturities of seven days or less, they may lack
liquidity, especially if the issuer encounters financial difficulties. While the
Fund acknowledges these risks, it is expected that they can be controlled
through stringent selection criteria and careful monitoring procedures. The Fund
intends to limit repurchase agreements to transactions with dealers and
financial institutions believed by the Fund to present minimal credit risks. The
Fund will monitor creditworthiness of the repurchase agreement sellers on an
ongoing basis.
Restricted or Not Readily Marketable Securities for the Fund's Portfolios
Although the Fund has no current intention of investing in such securities in
the foreseeable future, no more than 5% of the value of each Portfolio may be
invested in securities with legal or contractual restrictions on resale
("restricted securities") (excluding securities qualifying for resale under SEC
Rule 144A that are determined by the Board, or by Lord Abbett & Co. pursuant to
the Board's delegation, to be liquid securities), repurchase agreements with
maturities of more than seven days, over-the-counter options and securities
which are not readily marketable.
5
<PAGE>
Lending of Securities by the Fund's Portfolios
Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may seek to earn income by lending portfolio securities. Under
present regulatory policies, such loans may be made to member firms of the New
York Stock Exchange and are required to be secured continuously by collateral
consisting of cash, cash equivalents, or United States Treasury bills maintained
in an amount at least equal to the market value of the securities loaned. The
Fund will have the right to call a loan and obtain the securities loaned at any
time on five days' notice. During the existence of a loan the Fund will receive
the income earned on investment of collateral. The aggregate value of the
securities loaned will not exceed 15% of the value of each Portfolio's total
assets.
Portfolio Turnover Rates
During the fiscal year ended December 31, 1995, the portfolio turnover rate of
the Growth and Income Portfolio was 70.30%. During the fiscal year ended
December 31, 1994, the portfolio turnover rate of the Growth and Income
Portfolio was 68.94%.
During the fiscal year ended December 31, 1994, the portfolio turnover rate of
the Global Equity Portfolio was 50.63%. During the fiscal year ended December
31, 1995, the portfolio turnover rate of the Global Equity Portfolio was 41.24%.
These changes, dictated by market conditions, resulted in a higher turnover of
portfolio assets in 1994 than in 1995, i.e. 50% versus 41%.
2.
Directors and Officers
The following directors are partners of Lord, Abbett & Co., The General Motors
Building, 767 Fifth Avenue, New York, N.Y. 10153-0203 ("Lord Abbett"). They have
been associated with Lord Abbett for over five years and are also officers
and/or directors or trustees of the fifteen other Lord Abbett-sponsored funds,
except for Lord Abbett Research Fund, Inc., of which only Messrs. Lynch and Dow
are directors, described under "Investment Advisory and Other Services." They
are "interested persons" as defined in the Investment Company Act of 1940, as
amended, and as such, may be considered to have an indirect financial interest
in any Rule 12b-1 Plan adopted by a Portfolio.
Ronald P. Lynch, Age 60, Chairman and Director
Robert S. Dow, Age 51, President
The following outside directors are also directors of the fifteen other Lord
Abbett sponsored funds referred to above (except for Lord Abbett Research Fund,
Inc., of which only Messrs. Millican and Neff are directors).
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<PAGE>
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc. Age 54.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 65.
John C. Jansing
162 South Beach Road
Hobe Sound, Florida
Retired. Formerly Chairman of Independent Election Corporation of America, a
proxy tabulating firm. Age 70.
C. Alan MacDonald
The Marketing Partnership, Inc.
27 Signal Road
Stamford, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm. Formerly Chairman and Chief Executive Officer of Lincoln
Snacks, Inc., manufacturer of branded snack foods (1992-1994). Formerly
President and Chief Executive Officer of Nestle Foods Corp., and prior to that,
President and Chief Executive Officer of Stouffer Foods Corp., both subsidiaries
of Nestle S.A. Switzerland. Currently serves as Director of Den West Restaurant
Co., J.B. Williams, and Fountainhead Water Company. Age 62.
Hansel B. Millican, Jr.
Rochester Button Co.
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 67.
7
<PAGE>
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Age 58.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the retirement plan for outside directors maintained by the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside directors. The information provided is for
the fiscal year ended December 31, 1995. 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>
Compensation Table for the Fiscal Year Ended December 31, 1995
Estimated Annual
Benefits Upon
Pension or Retirement
Retirement Benefits Proposed to be Total
Paid by the Fund Compensation
Accrued Expenses and Fifteen Accrued by
by the Fund and Other Lord the Fund and
Aggregate Fifteen other Abbett- Fifteen Other Lord
Compensation Lord Abbett- sponsored Abbett-sponsored
Name of Director from the Fund1 sponsored Funds 2 Funds 2 Funds 3
<S> <C> <C> <C> <C>
E. Thayer Bigelow3 $407 $9,772 $33,600 $41,700
Stewart S. Dixon $393 $22,472 $33,600 $42,000
John C. Jansing $420 $28,480 $33,600 $42,960
C. Alan MacDonald $401 $27,435 $33,600 $42,750
Hansel B. Millican Jr $420 $24,707 $33,600 $43,000
Thomas J. Neff $410 $16,126 $33,600 $42,000
<FN>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on net
assets of each fund. A portion of the fees payable by the Fund to its outside
directors are being
8
<PAGE>
deferred under a plan that deems the deferred amounts to be invested in shares
of the Fund for later distribution to the directors. The amounts accrued by the
Fund for the year ended December 31, 1995, are as set forth after each outside
Director's name above. The total amount accrued for each outside Director since
the beginning of his tenure with the Fund, together with dividends reinvested
and changes in net asset value applicable to such deemed investments, were as
follows as of December 31, 1995: Mr. Bigelow, $547; Mr. Dixon, $724; Mr.
Jansing, $1,180; Mr. MacDonald, $699; Mr. Millican, $1,175; and Mr. Neff,
$1,166.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that outside
directors will receive annual retirement benefits for life equal to 80% of their
final annual retainers following retirement at or after age 72 with at least 10
years of service. Each plan also provides for a reduced benefit upon early
retirement under certain circumstances, a pre- retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits. The amounts stated
would be payable annually under such retirement plans if the director were to
retire at age 72 and the annual retainers payable by such funds were the same as
they were today. The amounts accrued in column 3 were accrued by Lord
Abbett-sponsored funds during the fiscal year ended December 31, 1995 with
respect to the retirement benefits in column 4.
3. This columns shows aggregate compensation, including director's 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, 1995.
4. Mr. Bigelow was elected a director of the Fund on October 19, 1994.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Carper, Cutler, Henderson, Morris, Nordberg and Walsh are partners of
Lord Abbett; the others are employees: William T. Hudson, age 53, Executive Vice
President; Kenneth B. Cutler, age 63, Vice President and Secretary; Stephen I.
Allen, age 43; Daniel E. Carper, age 44; Robert G. Morris, age 51, E. Wayne
Nordberg, age 59; John J. Gargana, Jr., age 65; Paul A. Hilstad, age 53 (with
Lord Abbett since 1995 - formerly Senior Vice President and General Counsel of
American Capital Management & Research, Inc.); Thomas F. Konop, age 54; Victor
W. Pizzolato, age 63; John J. Walsh, age 58, Vice Presidents; and Keith F.
O'Connor, age 40, Treasurer.
The Fund's by-laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Investment Company Act of 1940, as amended (the
"Act"), or unless called at the request of 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
9
<PAGE>
the meeting. When any such annual meeting is held, the stockholders will elect
directors to hold the offices of any directors who have held office for more
than one year or who have been elected by the Board of Directors to fill
vacancies. Under the By-laws and in accordance with the Act, stockholder
approval of the independent auditors of the Fund will not be required except
when such meetings are held.
3.
Control Persons and Principal Holders of Securities
Substantial Shareholders
As of March 29, 1996, COVA Variable Annuity Account One, a separate account of
COVA Financial Services Life Insurance Company, One Tower Lane, Oakbrook
Terrace, Illinois 60181 ("COVA Life"), was known to the Board of Directors and
the management of the Fund to own of record 13,680,048 shares representing 0.11%
of the total shares issued and outstanding of the Growth and Income Portfolio
and Lord Abbett was known to own of record 15,185 shares representing 99.89% of
the total shares issued and outstanding. As of that same date, COVA Life was
known to own of record 215,033 shares representing 94.00% of the total shares
issued and outstanding of the Global Equity Portfolio and Lord Abbett was known
to own of record 13,715 shares representing 6.00% of the total shares issued and
outstanding. As of that date, the officers and directors of the Fund together
owned no variable contracts.
4.
Investment Advisory and Other Services
As described under "Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The nine general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Daniel E. Carper,
Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Ronald P. Lynch, Robert
G. Morris, E. Wayne Nordberg and John J. Walsh. The address of each partner is
The General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203.
Lord Abbett and COVA Life provided operating funds to the Fund through their
purchase of the initial shares of the Fund.
Lord Abbett acts as investment manager for fifteen other investment companies
comprising the Lord Abbett family of funds. The names of these investment
companies are: Lord Abbett Affiliated Fund, Inc., Lord Abbett Bond-Debenture
Fund, Inc., Lord Abbett Developing Growth Fund, Inc., Lord Abbett Global Fund,
Inc., Lord Abbett U.S. Government Securities Fund, Inc., Lord Abbett Mid-Cap
Value Fund, Inc., Lord Abbett Tax-Free Income Fund, Inc., Lord Abbett California
Tax-Free Income Fund, Inc., Lord
10
<PAGE>
Abbett Tax-Free Income Trust, Lord Abbett Fundamental Value Fund, Inc., Lord
Abbett Equity Fund, Lord Abbett U.S. Government Securities Money Market Fund,
Inc., Lord Abbett Securities Trust, Lord Abbett Investment Trust and Lord Abbett
Research Fund, Inc.
The services to be provided by Lord Abbett are described under "Management" in
the Prospectus. Under the Management Agreement, the Fund on behalf of each
Portfolio is obligated to pay Lord Abbett a monthly fee, based on the average
daily net assets of a Portfolio for each month, at the annual rate of .50 of 1%
with respect to the Growth and Income Portfolio and .75 of 1% with respect to
the Global Equity Portfolio. For the year ended December 31, 1993, Lord Abbett
was paid an advisory fee of $269,800 with respect to the Growth and Income
Portfolio and waived all $17,699 of its advisory fee with respect to the Global
Equity Portfolio. For the year ended December 31, 1994, Lord Abbett was paid an
advisory fee of $518,190 with respect to the Growth and Income Portfolio and
waived all $17,889 of its advisory fee with respect to the Global Equity
Portfolio. For the year ended December 31, 1995, Lord Abbett was paid an
advisory fee of $704,093 with respect to the Growth and Income Portfolio and
waived all $21,901 of its advisory fee with respect to the Global Equity
Portfolio.
The Fund pays all expenses not expressly assumed by Lord Abbett, including,
without limitation, 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 the Fund's shares under federal and state
securities laws, expenses of printing and mailing prospectuses to existing
shareholders, insurance premiums, brokerage and other expenses connected with
executing portfolio transactions.
Subject to approval by the contract holders with respect to the Global Equity
Portfolio, the Fund's Board of Directors has approved for the Global Equity
Portfolio a new Sub-Investment Management Agreement (the "New Sub-Investment
Management Agreement"), between Lord Abbett and Dunedin Fund Managers Limited
(the "Sub-Adviser"), under which the Sub-Adviser provides Lord Abbett with
advice with respect to that portion of the Global Equity Portfolio's assets
invested in countries other than the United States as more particularly
described in the Prospectus. The New Sub-Investment Management Agreement
replaces a Sub-Investment Management Agreement (the "Prior Sub-Investment
Management Agreement") between Lord Abbett and the Sub-Adviser which terminated
on March 19, 1996 when Edinburgh Fund Managers Group plc purchased 100% of the
outstanding voting stock of the sole stockholder of the Sub-Adviser. The New
Sub-Investment Management Agreement contains the same terms and conditions and
provides for payment of a sub-advisory fee on the same basis (one-half of the
fee paid to Lord Abbett) with respect to the Global Equity Portfolio as were
contained and provided for in the Prior Sub-Investment Management Agreement. No
11
<PAGE>
advisory fee is currently being paid by the Global Equity Portfolio to Lord
Abbett and no such fee will be paid until the New Sub-Investment Management
Agreement is approved by the contract holders with respect to the Global Equity
Portfolio in accordance with the 1940 Act.
The Sub-Adviser and its parent holding company, DFM Holdings Limited, are
located at Donaldson House, 97 Haymarker Terrace, Edinburgh EH12 5HD Scotland.
The Sub-Adviser and its predecessors date back 123 years to 1873. The
Sub-Adviser provides international investment research and advisory services to
private and institutional clients, investment trusts, pension clients and unit
trusts both in the United Kingdom and overseas. The Sub-Adviser's currently
managers about _______ billion and its investment and administrative staffs have
substantial global investment management experience.
Due to different investment objectives or other factors, a particular security
may be bought for one or more funds, portfolios or clients (for which Lord
Abbett or the Sub-Adviser or their affiliates offer investment advice) when one
or more are selling the same security. If opportunities for purchase or sale of
securities by Lord Abbett or the Sub-Adviser for the Fund or for other funds,
portfolios or clients for which they render investment advice arise for
consideration at or about the same time, transactions in such securities will be
made insofar as feasible for the respective funds, portfolios or clients in a
manner deemed equitable to all of them. To the extent that transactions on
behalf of more than one client of Lord Abbett, the Sub-Adviser or their
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Deloitte & Touche LLP, Two World Financial Plaza, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
the Fund's Board of Directors to continue in such capacity. They perform audit
services for the Fund including the examination of financial statements included
in the Fund's annual report to shareholders.
The Bank of New York ("BNY"), 40 Wall Street, New York, New York 10286, is the
Fund's custodian. Rules adopted by the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, permit the Fund to maintain the
Global Equity Portfolio's foreign securities and cash in the custody of certain
eligible foreign banks and securities depositories. Pursuant to these rules, the
Global Equity Portfolio's securities and cash, when invested in foreign
securities and not held by Morgan or foreign branches of a United States bank,
are held by Sub-Custodians of BNY who will be approved by the Board of Directors
of the Fund in accordance with such rules.
The Sub-Custodians of BNY are: Euro-Clear (a transnational securities
depository); Australia: ANZ Banking Group; Austria: Creditanstalt-Bankverein;
Canada: Canadian
12
<PAGE>
Imperial Bank of Commerce; Chile: Citibank, N.A.; Czech Republic: Ceskoslovenska
Obchodni Banka; Denmark: Den Danske Bank; Finland: Union Bank of Finland;
Germany: J.P. Morgan GmbH; Greece: National Bank of Greece S.A.; Hong Kong,
Indonesia, Philippines, Taiwan and Thailand: Hong Kong & Shanghai Banking Corp.;
Hungary: Citibank Budapest Rt; India: Hong Kong & Shanghai Banking Corporation;
Ireland: Allied Irish Banks, PLC; Israel: Bank Leumi LE - Israel B.M.; Japan:
The Fuji Bank, Ltd.; Jordan: Citibank, N.A.; Korea: Bank of Seoul; Luxembourg:
Banque Internationale A Luxembourg S.A.; Mexico: Citibank, N.A.; Morocco: Banque
Commerciale du Maroc; Netherlands: Bank van Haften Labouchere; New Zealand: ANZ
Banking Group Ltd.; Norway: Den Norske Bank; Pakistan: Citibank, N.A.; Peru:
Citibank, N.A.; Poland: Bank Handlowy w Warszawie S.A.; Portugal, Banco Espirito
Santo E Comercial de Lisboa; Malaysia, Singapore: Development Bank of Singapore;
South Africa: The First National Bank of Southern Africa; Sri Lanka: Hong Kong
and Shanghai Banking Corporation; Sweden: Skandinaviska Enskilda Banken;
Switzerland: Bank Leu: Turkey: Citibank, N.A.; Venezuela: Citibank, N.A..
5.
Portfolio Transactions
The Fund's policy is to obtain best execution on all 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 transactions. The Fund's
policy with respect to best execution governs the selection of brokers or
dealers and the market in which the transaction is executed. To the extent
permitted by law, the Fund may, if considered advantageous, make a purchase from
or sale to another Lord Abbett-managed fund without the intervention of any
broker-dealer.
The Fund selects broker-dealers on the basis of their professional capability
and the value and quality of their brokerage and research services. Normally,
for domestic assets, the selection is made by the Fund's traders who are
officers of the Fund and also are employees of Lord Abbett. For foreign assets,
as in the case of the Global Equity Portfolio, the selection is made by the
Sub-Adviser. The Fund's 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 the negotiation of
prices and commissions.
In transactions on stock exchanges in the United States, commissions are
negotiated, whereas on many foreign stock exchanges commissions are fixed. In
the case of securities traded in the foreign and domestic over-the-counter
markets, there is generally
13
<PAGE>
no stated commission, but the price usually includes an undisclosed commission
or markup. Purchases from underwriters of newly-issued securities for inclusion
in the Fund's portfolios usually will include a concession paid to the
underwriter by the issuer and purchases from dealers serving as market makers
will include the spread between the bid and asked prices. When commissions are
negotiated, the Fund pays a commission rate that it believes is appropriate to
give maximum assurance that its brokers will provide the Fund, on a continuing
basis, the highest level of brokerage services available. While the Fund does
not always seek the lowest possible commission on particular trades, it believes
that its commission rates are in line with the rates that many institutions pay.
The Fund's 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 the Fund and the other accounts they manage. Such services
include such factors as showing the Fund trading opportunities including blocks,
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 the Fund's
brokers also provide research services at least some of which are useful to Lord
Abbett in their overall responsibilities with respect to the Fund and the other
accounts they manage. Research includes the furnishing of analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage of other
accounts managed by Lord Abbett may be used in connection with their services to
the Fund, and not all of such research will necessarily be used by Lord Abbett
in connection with their advisory services to such other accounts. The Fund has
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 reduce 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.
14
<PAGE>
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold the Fund's shares
through the sale of variable contracts may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as the Fund does, transactions will, to the extent practicable, be allocated
among all participating accounts in proportion to the amount of each order and
will be executed daily until filled so that each account shares the average
price and commission cost of each day. Other clients who direct that their
brokerage business be placed with 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.
The Fund will not seek "reciprocal" broker-dealer business (for the purpose of
applying commissions in whole or in part for the Fund's benefit or otherwise)
from broker-dealers as consideration for the direction to them of portfolio
business. However, the Fund may receive quotations and pricing services without
charge from broker-dealers selected on the basis of the Fund's policy described
above.
During the fiscal years ended December 31, 1995, 1994 and 1993, the total dollar
amounts of brokerage commissions paid by the Fund were $418,128, $285,241, and
$253,502, respectively.
6.
Net Asset Value of Fund Shares
Portfolio shares are sold and redeemed at a price equal to the share's net asset
value. Net asset value per share is determined as of the close of the New York
Stock Exchange on each day that the New York Stock Exchange is open for
business, which is Monday through Friday, except for New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day by dividing each Portfolio's total net assets by the number of
shares outstanding at the time of calculation. The Portfolios will also
calculate such price on each other day in which there is a sufficient degree of
trading in the Portfolio's securities such that the current net asset value of
the Portfolio's shares might be materially affected by changes in the value of
such Portfolio securities, but only if on any such day the Portfolio is required
to purchase or redeem shares. Total net assets are determined by adding the
total current value of Portfolio securities, cash, receivables, and other assets
and subtracting liabilities. Portfolio shares
16
<PAGE>
will be sold and redeemed at the net asset value next determined after receipt
of the sales order or request for redemption.
Valuation of Securities Held in Each Portfolio
Securities in the Fund's Portfolios are valued at their market value as of the
close of the New York Stock Exchange. Securities that are listed on a securities
exchange are valued at their closing sales price on the day of the valuation.
Price valuations for listed securities are based on market quotations where the
security is primarily traded or, if not available, are valued at the mean of the
bid and asked prices on any valuation date. Unlisted securities in a Portfolio
are primarily valued based on their latest quoted bid price or, if such a price
is not available, are valued by a method determined by the Directors to
accurately reflect fair value. Money market instruments maturing in 60 days or
less are valued on the basis of amortized cost, which means that they are valued
at their acquisition cost to reflect a constant amortization rate to maturity of
any premium or discount, rather than at current market value.
All assets and liabilities expressed in foreign currencies will be converted
into United States dollars at the mean between the buying and selling rates of
such currencies against United States dollars last quoted by any major bank. If
such quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Board of Directors of the Fund. The
Board of Directors will monitor, on an ongoing basis, the Fund's method of
valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in various foreign
markets on days which are not business days in New York and on which the Fund's
net asset value is not calculated. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of the New York Stock Exchange will not be reflected in the Fund's
calculation of net asset value unless the Fund's Directors determine that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
7.
Dividends and Distributions
It is the Fund's intention to distribute substantially all the net investment
income, if any, of each Portfolio. For dividend purposes, net investment income
of each Portfolio will consist of dividends and/or interest earned by such
Portfolio less the expenses of such Portfolio.
All net realized capital gains of the Fund, if any, are declared and distributed
annually to the shareholders of the Portfolio or Portfolios to which such gains
are attributable.
8.
Distribution Arrangements
General
Lord Abbett (and subsequently, upon shareholder approval, Lord Abbett
Distributor LLC, a subsidiary of Lord Abbett organized as a New York limited
liability company) serves as the distributor in connection with the offering of
the Fund's shares. Currently, only shares of the Growth and Income Portfolio are
offered for sale. In connection with the sale of its shares, the Fund has
authorized Lord Abbett to provide only such information and to make only such
statements and representations which are not materially misleading or which are
contained in Fund's then-current Prospectus or Statement of Additional
Information or shareholder reports in such financial and other statements which
are furnished to Lord Abbett by the Fund.
The Fund and Lord Abbett are parties to a Distribution Agreement that continues
in force until January 30, 1997. The Distribution Agreement may be terminated by
either party and will automatically terminate in the event of its assignment.
The Distribution Agreement may be renewed annually if specifically approved by
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund provided that any such renewal shall be approved by the
vote of a majority of the Directors who are not parties to the Distribution
Agreement and are not "interested persons" of the Fund and have no direct or
indirect financial interest in the operation of the Distribution Agreement.
17
<PAGE>
9.
Taxes
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended. Under such provisions, the
Fund will not be subject to Federal income tax on that part of its net ordinary
income and net realized capital gains which it distributes to shareholders. Each
Portfolio will be treated as a separate entity for Federal income tax purposes
and, therefore, the investments and results of the Portfolios are determined
separately for purposes of determining whether the Fund qualifies as a regulated
investment company and for purposes of determining the Fund's net ordinary
income (or loss) and net realized capital gains (or losses). To qualify for
treatment as a regulated investment company, the Fund must, among other things,
derive in each taxable year at least 90% of its gross income from dividends,
interest and gains from the sale or other disposition of securities and certain
other related income and derive less than 30% of its gross income in each
taxable year from the gains (without deduction for losses) from the sale or
other disposition of securities (including, in certain circumstances, gains from
options, futures, forward contracts and foreign currencies) held for less than
three months.
If the Global Equity Portfolio purchases shares in certain foreign investment
entities, called "passive foreign investment companies", that Portfolio 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 Portfolio to its shareholders.
Additional charges in the nature of interest may be imposed on either the
Portfolio or its shareholders in respect of deferred taxes arising from such
distributions or gains. If the Portfolio were to invest in a passive foreign
investment company with respect to which the Portfolio elected to make a
"qualified electing fund" election, in lieu of the foregoing requirements, the
Portfolio might be required to include in income each year a portion of the
ordinary earnings and net capital gains of the qualified electing fund, even if
such amount were not distributed to the Portfolio.
10.
Calculation of Performance Data
Each Portfolio's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
{P~(~1~+~T~)}SUP n~=~ERV
where
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1000 purchase
at the end of the period.
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
Using this method to compute average annual compounded rates of total return for
the Growth and Income Portfolio, the Portfolio's last one, five and the life of
the fund periods ending on December 31, 1995 are: 29.80%, 17.60% and 14.86%,
respectively. Using this method to compute average annual compounded rates of
total return for the Global Equity Portfolio, the Portfolio's last one, five and
life of the fund periods ending on December 31, 1995 are 10.40% , 9.70 and
8.22%, respectively.
11.
Financial Statements
The financial statements for the fiscal year ended December 31, 1995 and the
opinion thereon of Deloitte & Touche LLP, independent auditors, included in the
1995 Annual Report to Shareholders of the Lord Abbett Series Fund, Inc., are
incorporated herein by reference in reliance upon the authority of Deloitte &
Touche LLP as experts in auditing and accounting.
19
<PAGE>
<PAGE>
LORD ABBETT SERIES FUND -- GLOBAL EQUITY PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Notes 1a & 1g)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN COMMON STOCKS AND WARRANTS 97.41%
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN 78.13%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - 3.65%
AAPC ..................................................................................... 41,000 $ 22,222
Australian Gas Light Co. ................................................................. 6,000 22,500
Australian National Industries ........................................................... 20,000 14,860
Broken Hill Proprietary .................................................................. 1,600 22,678
QNI ...................................................................................... 7,000 14,763
Total .................................................................................... 97,023
France - 5.14%
AXA ...................................................................................... 575 38,993
Christian Dior ........................................................................... 355 37,638
Lafarge .................................................................................. 447 28,946
Naf Naf .................................................................................. 787 7,543
Naf Naf Warrants ......................................................................... 87 41
Paribas .................................................................................. 425 23,440
Total .................................................................................... 136,601
Germany - 2.96%
Mannesmann ............................................................................... 140 44,490
Veba ..................................................................................... 800 34,194
Total .................................................................................... 78,684
Hong Kong - 4.84%
Hong Kong Electric ....................................................................... 8,000 26,224
HSBC Holdings ............................................................................ 2,000 30,262
Hutchison Whampoa ........................................................................ 4,000 24,364
Sun Hung Kai Properties .................................................................. 3,000 24,540
Swire Pacific 'A' ........................................................................ 3,000 23,277
Total .................................................................................... 128,667
Italy - 2.68%
INA ...................................................................................... 30,000 39,300
Italcementi .............................................................................. 5,330 31,895
Italcementi Warrants ..................................................................... 1,230 188
Total .................................................................................... 71,383
Japan - 30.79%
Canon Inc. ............................................................................... 3,000 54,204
Fuji Machine Mfg ......................................................................... 1,000 35,749
Honda Motor .............................................................................. 4,000 82,320
Kurimoto Iron ............................................................................ 6,000 60,870
Mitsubishi Bank .......................................................................... 2,000 46,956
Mitsubishi Heavy Industry ................................................................ 9,000 71,568
NGK Spark Plug ........................................................................... 4,000 50,240
Nippon Meat Packers ...................................................................... 300 4,348
Nippondenso .............................................................................. 3,000 55,941
Nomura Securities ........................................................................ 2,000 43,478
Sansei Yusoki ............................................................................ 4,400 60,790
Sony Corp. ............................................................................... 1,000 59,807
Toray Industries ......................................................................... 9,000 59,130
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND -- GLOBAL EQUITY PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Notes 1a & 1g)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Toshiba Corp. ............................................................................ 8,000 $ 62,528
Toshiba Plant Kensetsu ................................................................... 3,000 24,639
77th Bank ................................................................................ 5,000 45,750
Total .................................................................................... 818,318
Malaysia - 2.17%
Alcom .................................................................................... 9,000 13,320
Malaysian Airline System ................................................................. 4,000 12,992
Southern Bank ............................................................................ 16,250 31,476
Total .................................................................................... 57,788
Netherlands - 4.77%
Hunter Douglas ........................................................................... 730 33,765
ING ...................................................................................... 500 33,323
Philips Electronics ...................................................................... 830 29,928
Vendex International ..................................................................... 1,000 29,655
Total .................................................................................... 126,671
Singapore - 3.11%
Jurong Shipyard .......................................................................... 2,000 15,414
Singapore Airlines ....................................................................... 2,000 18,666
United Overseas Bank ..................................................................... 5,057 48,628
Total .................................................................................... 82,708
Spain - 1.43%
Banco Santander .......................................................................... 440 21,734
Europistas ............................................................................... 1,995 16,183
Total .................................................................................... 37,917
Sweden - 1.58%
Atlas Copco .............................................................................. 2,750 41,954
Switzerland - 5.55%
Brown Boveri & Cie ....................................................................... 25 29,012
Ciba Geigy ............................................................................... 25 21,975
Nestle ................................................................................... 30 33,151
Roche Holdings ........................................................................... 8 63,220
Total .................................................................................... 147,358
United Kingdom - 9.46%
British Petroleum ........................................................................ 2,670 22,335
British Telecom .......................................................................... 3,500 19,229
BTR ...................................................................................... 3,123 15,946
BTR Warrants ............................................................................. 184 59
Grand Metropolitan ....................................................................... 2,300 16,562
Greenalls Group .......................................................................... 4,000 36,500
Guardian Royal Exchange .................................................................. 4,000 17,132
National Westminster Bank ................................................................ 2,800 28,202
North West Water ......................................................................... 1,400 13,384
Peninsular and Oriental Steam Navigation Company ......................................... 3,191 23,572
Siebe .................................................................................... 1,300 16,019
Tesco .................................................................................... 3,500 16,132
Tomkins .................................................................................. 6,000 26,256
Total .................................................................................... 251,328
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND -- GLOBAL EQUITY PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Notes 1a & 1g)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS IN
FOREIGN SECURITIES (COST $1,770,883) ..................................................... $2,076,400
UNITED STATES 19.28%
Comerica Inc. ............................................................................ 1,000 40,125
First Fidelity Bancorporation ............................................................ 1,000 75,375
Freeport-McMoRan Copper & Gold-Silver .................................................... 3,000 63,375
Great Western Financial Corp. ............................................................ 2,000 51,000
Mobil Corp. .............................................................................. 1,000 112,000
National City Corp. ...................................................................... 2,000 66,250
RJR Nabisco .............................................................................. 1,000 30,875
Thomas & Betts Corp. ..................................................................... 500 36,875
Transamerica Corp. ....................................................................... 500 36,438
TOTAL INVESTMENTS IN
UNITED STATES SECURITIES (COST $425,494) ................................................. 512,313
TOTAL INVESTMENTS IN SECURITIES
(COST $2,196,377) ........................................................................ 2,588,713
OTHER ASSETS, LESS LIABILITIES 2.59%
Cash and Receivables, Net of Liabilities ................................................. 68,718
NET ASSETS 100.00%
(equivalent to $11.46 a share on 231,928 shares of $.001
par value capital stock outstanding; authorized, 50,000,000 shares) ...................... $2,657,431
See Notes to Financial Statements.
</TABLE>
<PAGE>
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
Investment Income
Income:
Dividends $ 77,492
Interest 15,458
Foreign taxes withheld (6,203)
- --------------------------------------------------------------------------------
Total income $ 86,747
Expenses:
Management fee (Note 5) 21,901
Pricing 11,700
Custodian 9,000
Audit 3,000
Organization (Note 1e) 312
Shareholder servicing 300
Management fee waived and expenses assumed by
Lord, Abbett & Co. (Note 5) (42,928)
- --------------------------------------------------------------------------------
Total expenses 3,285
- --------------------------------------------------------------------------------
Net investment income 83,462
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions (Notes 1f & 4)
Net realized gain from security transactions and
foreign currency transactions
Proceeds from sales 2,307,334
Cost of securities sold 2,172,400
- --------------------------------------------------------------------------------
Net realized gain 134,934
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments
and foreign currency holdings
Beginning of year 345,793
End of year 398,086
- --------------------------------------------------------------------------------
Net unrealized appreciation 52,293
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency transactions 187,227
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $270,689
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 83,462 $ 72,693
Net realized gain from security transactions and
foreign currency holdings 134,934 326,515
Net unrealized appreciation (depreciation) of investments
and foreign currency holdings 52,293 (321,886)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 270,689 77,322
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price
of shares sold (reacquired) (Note 1d) (15,456) (11,166)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income (68,646) (73,774)
Net realized gain from investment and foreign currency transactions (130,857) (326,261)
Total distributions (199,503) (400,035)
- -------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sales of 7,257 and 10,522 shares, respectively 79,385 134,118
Net asset value of 17,409 and 35,654 shares, respectively, issued to
shareholders in reinvestment of net investment income and
realized gain from security transactions 192,160 400,035
- -------------------------------------------------------------------------------------------------------
Total 271,545 534,153
- -------------------------------------------------------------------------------------------------------
Cost of 82,564 and 56,482 shares reacquired, respectively (920,766) (724,448)
- -------------------------------------------------------------------------------------------------------
Decrease in net assets derived from capital share transactions
(net decrease of 57,898 and 10,306 shares, respectively) (649,221) (190,295)
- -------------------------------------------------------------------------------------------------------
Decrease in net assets (593,491) (524,174)
Net Assets
Beginning of year 3,250,922 3,775,096
- -------------------------------------------------------------------------------------------------------
End of year (including overdistributed net investment
income of $1,901 and $1,551, respectively) $ 2,657,431 $ 3,250,922
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.22 $12.58 $10.25 $10.75 $9.73
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income* .34 .27 .26 .29 .28
Net realized and unrealized gain
(loss) on investments .83 (.0575) 2.4725 (.4575) 1.03
Total from investment operations 1.17 .2125 2.7325 (.1675) 1.31
-----------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.32) (.29) (.32) (.24) (.22)
Distributions from net realized gain (.61) (1.2825) (.0825) (.0925) (.07)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.46 $11.22 $12.58 $10.25 $10.75
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 10.43% 1.69% 26.67% (1.54)% 13.48%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $2,657 $3,251 $3,775 $3,362 $4,407
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver .11% .09% .09% .10% .10%
Expenses, excluding waiver 1.58% 1.33% 1.62% 1.39% 2.15%
Net investment income 2.86% 2.04% 2.24% 2.72% 2.69%
Portfolio turnover rate 41.24% 50.63% 131.51% 128.59% 60.84%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of management fee waiver and expenses assumed.
See Notes to Financial Statements.
<PAGE>
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Company was incorporated under Maryland law on August 28, 1989 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company currently consists of two active
Series. The Global Equity Portfolio (the "Company") commenced operations on
April 9, 1990. Shares of the Company are currently issued and redeemed only in
connection with investment in, and payments under, certain variable annuity
contracts issued by COVA Financial Services Life Insurance Company ("COVA") and
its affiliated insurance companies. Shares of the Company are no longer offered
for sale. The following is a summary of significant accounting policies
consistently followed by the Company. The policies are in conformity with
generally accepted accounting principles.
(a) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange. Securities traded in the over-the-counter market are
valued at the mean between the last bid and asked prices in such market, except
that securities admitted to trading on the NASDAQ National Market System are
valued at the last sales price if it is determined that such price more
accurately reflects the value of such securities. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors. Short-term securities are carried at cost which
approximates market.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income in taxable distributions. Therefore, no federal income tax
provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
(d) A portion of proceeds from sales and costs of repurchases of capital shares,
equivalent to the amount of distributable net investment income on the date of
the transaction, is credited or charged to undistributed income. Undistributed
net investment income per share thus is unaffected by sales or repurchases of
shares.
(e) The organization expenses of the Company are amortized evenly over a period
of five years. If any of the 20,000 initial shares of the Company issued to
Lord, Abbett & Co. and COVA are redeemed during the amortization period, the
proceeds of any such redemption will be reduced by the proportionate amount of
the unamortized organization expenses which the number of shares redeemed bears
to the number of shares then outstanding.
(f) The Company enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. A forward contract is a commitment to purchase or sell a foreign
currency at a future date (usually the security transaction settlement date) at
a negotiated forward rate. The contracts are valued daily at current exchange
rates and any unrealized gain or loss is included in net unrealized appreciation
or depreciation of investments and foreign currency holdings. The gain or loss,
if any, arising from the difference between the settlement value of the forward
contract and the closing of such contract, is included in net realized gain or
loss from security and foreign currency transactions. Risks may arise due to
changes in the value of the foreign currency and as a result of the potential
inability of the counterparties to meet the terms of their contracts.
<PAGE>
GLOBAL EQUITY PORTFOLIO
(g) Foreign Currency Translation
Effective January 1, 1994, the Fund adopted Statement of Position (SOP) 93-4:
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. In accordance with this SOP, reported net realized gains and losses
from foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. Further, as
permitted under the SOP, the effects of changes in foreign currency exchange
rates on investments in securities are not segregated in the Statement of
Operations from the effects of changes in market prices of those securities.
2. Distributions
Net realized gain from security transactions, if any, is declared in December
and distributed to shareholders in the succeeding year. Undistributed net
realized capital gain at December 31, 1995 for financial reporting purposes,
which is substantially the same as for federal income tax purposes, aggregated
$28,250.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
These differences are primarily caused by differences in the timing of
recognition of certain components of income, expenses or capital gains and
losses. Where such differences are permanent in nature, they are reclassified
based upon their ultimate characterization for federal income tax purposes. Any
such reclassification will have no effect on net assets, results of operations
or net asset value of the Fund.
3. Capital Paid In
At December 31, 1995, capital paid in aggregated $2,229,194.
4. Purchases and Sales of Securities
Purchases and sales of investment securities (other than short-term investments
and foreign currency transactions) aggregated $1,076,773 and $1,723,648,
respectively. Security gains and losses, if any, are computed on the identified
cost basis.
As of December 31, 1995, unrealized appreciation on investment securities for
federal income tax purposes aggregated $392,336 of which $481,619 related to
appreciated securities and $89,283 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at
December 31, 1995 was substantially the same as the cost for financial reporting
purposes.
<PAGE>
GLOBAL EQUITY PORTFOLIO
At December 31, 1995, the Global Equity Portfolio had an outstanding forward
currency contract to sell foreign currency as follows:
Value at
Foreign Currency Settlement Date Current
Sell Receivable Value Appreciation
- --------------------------------------------------------------------------------
Japanese Yen,
expiring 2/16/96 $300,000 $294,250 $5,750
- --------------------------------------------------------------------------------
5. Management Fee and Other Transactions with Affiliates
Lord, Abbett & Co. provided the Company with investment management services and
executive and other personnel, paid the remuneration of officers, provided
office space and paid for ordinary and necessary office and clerical expenses
relating to research and statistical work. Lord Abbett has entered into a
sub-advisory agreement with Dunedin Fund Managers Ltd. ("Dunedin"); Dunedin
furnishes investment advisory services in connection with the management of the
Company. Lord Abbett pays for the cost of Dunedin's services. For the year ended
December 31, 1995, Lord, Abbett & Co. waived the Company's management fee of
$21,901. The management fee paid to Lord, Abbett & Co. is based on average daily
net assets at the rate of 3/4 of 1% per annum. Lord, Abbett & Co. has subsidized
the Company for $21,027 for the year ended December 31, 1995. Certain of the
Company's officers and Directors have an interest in Lord, Abbett & Co.
<PAGE>
LORD ABBETT SERIES FUND, INC.
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Series Fund, Inc.
We have audited the accompanying statements of net assets of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. as of December 31, 1995, the related statements of operations for the year
then ended, and of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented. These
financial statements and the financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Growth and
Income Portfolio and the Global Equity Portfolio of Lord Abbett Series Fund,
Inc. at December 31, 1995, the results of their operations, the changes in their
net assets and the financial highlights for the above-stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
New York, New York
January 26, 1996
<PAGE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN COMMON AND CONVERTIBLE-PREFERRED STOCKS 93.64%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace - 1.69%
Boeing Co. ............................................................................... 25,000 $ 1,959,375
Rockwell International Corp. ............................................................. 25,000 1,321,875
Total .................................................................................... 3,281,250
Agricultural Equipment/Supplies - .86%
Pioneer Hi-Bred International, Inc. ...................................................... 30,000 1,668,750
Airlines - .94%
British Airways plc ADR .................................................................. 25,000 1,818,750
Apparel - 1.61%
VF Corp. ................................................................................. 40,000 2,110,000
Warnaco Group Inc. ....................................................................... 40,000 1,000,000
Total .................................................................................... 3,110,000
Auto Parts - 1.40%
Snap-On, Inc. ............................................................................ 60,000 2,715,000
Automobiles - 2.19%
General Motors Corp. ..................................................................... 80,000 4,230,000
Banks: Money Center - 2.12%
Chemical Banking Corp. ................................................................... 70,000 4,112,500
Banks: Regional - 4.76%
Bank of Boston Corp. ..................................................................... 50,000 2,312,500
BankAmerica Corp. ........................................................................ 60,000 3,885,000
Comerica Inc. ............................................................................ 75,000 3,009,375
Total .................................................................................... 9,206,875
Building Materials - .57%
Crane Co. ................................................................................ 30,000 1,106,250
Chemicals - 3.20%
Atlantic Richfield Co. $2.23 Conv. Pfd. (Exch. Lyondell Petrochemical) ................... 90,000 2,115,000
Dow Chemical Co. ......................................................................... 30,000 2,111,250
Hanna, M.A. Co. .......................................................................... 70,000 1,960,000
Total .................................................................................... 6,186,250
Containers - 1.18%
Sonoco Products Co. $2.25 Conv. Pfd. ..................................................... 40,000 2,285,000
Data Processing Equipment - 2.98%
EMC Corp.+ ............................................................................... 150,000 2,306,250
Hewlett-Packard Co. ...................................................................... 30,000 2,512,500
Seagate Technology Inc. .................................................................. 20,000 950,000
Total .................................................................................... 5,768,750
Data Processing Services - 1.26%
H & R Block Inc. ......................................................................... 60,000 2,430,000
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Drugs/Health Care Products - 7.36%
Baxter International Inc. ................................................................ 40,000 $ 1,675,000
Mallinckrodt Group Inc. .................................................................. 120,000 4,365,000
Merck & Co., Inc. ........................................................................ 30,000 1,972,500
SmithKline Beecham plc ADR ............................................................... 60,000 3,330,000
Warner Lambert Co. ....................................................................... 30,000 2,913,750
Total .................................................................................... 14,256,250
Electric Power - 6.28%
CINergy Corp. ............................................................................ 140,000 4,287,500
DTE Energy Co. (Formerly Detroit Edison Co.) ............................................. 85,000 2,932,500
Ohio Edison Co. .......................................................................... 150,000 3,525,000
Public Service Co. of Colorado ........................................................... 40,000 1,415,000
Total .................................................................................... 12,160,000
Electrical Equipment - 2.32%
Emerson Electric Co. ..................................................................... 55,000 4,496,250
Electronics: Communications - 1.13%
Harris Corp. ............................................................................. 40,000 2,185,000
Electronics: Components - 1.78%
AMP Inc. ................................................................................. 90,000 3,453,750
Electronics: Equipment - .59%
Perkin-Elmer Corp. ....................................................................... 30,000 1,132,500
Financial: Miscellaneous - 1.88%
Transamerica Corp. ....................................................................... 50,000 3,643,750
Food - 6.28%
Conagra Inc. ............................................................................. 90,000 3,712,500
Dean Foods Co. ........................................................................... 33,300 915,750
Hershey Foods Corp. ...................................................................... 50,000 3,250,000
Sara Lee Corp. ........................................................................... 45,000 1,434,375
Supervalu Inc. ........................................................................... 90,000 2,835,000
Total .................................................................................... 12,147,625
Insurance - 6.43%
Aetna Life & Casualty Co. ................................................................ 60,000 4,155,000
Chubb Corp. .............................................................................. 40,000 3,870,000
Lincoln National Corp. ................................................................... 30,000 1,612,500
St. Paul's Capital $3.00 Conv. Pfd. ...................................................... 50,000 2,812,500
Total .................................................................................... 12,450,000
Machinery: Diversified - 1.03%
Goulds Pumps, Inc. ....................................................................... 80,000 2,000,000
Metals: Miscellaneous - .77%
Cyprus Amax Minerals $4.00 Conv. Pfd. A .................................................. 25,000 1,484,375
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous - 2.40%
Moore Corp. Ltd. ......................................................................... 110,000 $ 2,048,750
National Service Industries, Inc. ........................................................ 80,000 2,590,000
Total .................................................................................... 4,638,750
Natural Gas Distribution - 1.76%
Consolidated Natural Gas Co. ............................................................. 75,000 3,403,125
Natural Gas Diversified - 1.66%
Sonat Inc. ............................................................................... 90,000 3,206,250
Natural Gas Transmission - 1.35%
The Coastal Corporation .................................................................. 70,000 2,607,500
Oil: International - 3.38%
Chevron Corp. ............................................................................ 60,000 3,150,000
Total S.A. Sponsored ADR ................................................................. 100,000 3,400,000
Total .................................................................................... 6,550,000
Oil Well Equipment/Service - .49%
Schlumberger Ltd. ........................................................................ 13,800 955,650
Paper and Forest Products - 5.44%
International Paper Co. $5.25 Conv. Pfd.++ ............................................... 50,000 2,283,594
James River Corp. ........................................................................ 160,000 3,860,000
Kimberly Clark Corp. ..................................................................... 31,200 2,581,800
Westvaco Corporation ..................................................................... 65,000 1,803,750
Total .................................................................................... 10,529,144
Printing and Publishing - 2.04%
Deluxe Corp. ............................................................................. 75,000 2,175,000
Donnelley, R.R. & Sons Co. ............................................................... 45,000 1,771,875
Total .................................................................................... 3,946,875
Restaurants - 1.25%
Brinker International Inc.+ .............................................................. 160,000 2,420,000
Retail - 2.72%
May Department Stores Company ............................................................ 60,000 2,535,000
Sears, Roebuck & Co. ..................................................................... 70,000 2,730,000
Total .................................................................................... 5,265,000
Savings and Loan - 2.81%
Ahmanson, H.F. & Co. ..................................................................... 85,000 2,252,500
Great Western Financial Corp. ............................................................ 125,000 3,187,500
Total .................................................................................... 5,440,000
Telecommunications - 3.96%
AT&T Corp. ............................................................................... 70,000 4,532,500
MCI Communications Corp. ................................................................. 120,000 3,135,000
Total .................................................................................... 7,667,500
</TABLE>
<PAGE>
LORD ABBETT SERIES FUND - GROWTH AND INCOME PORTFOLIO
December 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Security Number of Shares (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tire and Rubber Goods - .25%
Standard Products Co. .................................................................... 27,200 $ 479,400
Waste Management - 3.52%
Browning Ferris Industries Inc. .......................................................... 130,000 3,835,000
WMX Technologies Inc. .................................................................... 100,000 2,987,500
Total .................................................................................... 6,822,500
TOTAL INVESTMENTS IN COMMON AND CONVERTIBLE -
PREFERRED STOCKS (COST $157,925,266) ..................................................... 181,260,569
OTHER ASSETS, LESS LIABILITIES 6.36%
Short-Term Investments, at Cost
American Express Credit Co.
5.61% due 1/2/1996 ....................................................................... 2,900M 2,900,000
General Electric Capital Corp.
5.40% due 1/2/1996 ....................................................................... 5,200M 5,200,000
Prudential Funding Corp.
5.65% due 1/3/1996 ....................................................................... 4,200M 4,200,000
Total Short-Term Investments ............................................................. 12,300,000
Cash and Receivables, Net of Liabilities ................................................. 12,314,291
TOTAL OTHER ASSETS, LESS LIABILITIES ..................................................... 24,614,291
NET ASSETS 100.00%
(equivalent to $15.24 a share on 12,701,667 shares of $.001
par value capital stock outstanding; authorized, 50,000,000 shares) ...................... $193,574,860
</TABLE>
+ Non-income producing.
++ Restricted security under Rule 144A.
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income
Income:
Dividends $ 4,369,994
Interest 684,726
- ------------------------------------------------------------------------------------------------------------
Total income $ 5,054,720
Expenses:
Management fee (Note 5) 704,093
Audit and tax 30,000
Registration 12,000
Legal 6,000
Shareholder servicing 4,800
Pricing 1,500
Other 4,200
Total expenses 762,593
- ------------------------------------------------------------------------------------------------------------
Net investment income 4,292,127
Realized and Unrealized Gain on Investments (Note 4)
Realized gain from security transactions (excluding short-term securities)
Proceeds from sales 95,647,394
Cost of securities sold 85,121,420
- ------------------------------------------------------------------------------------------------------------
Net realized gain 10,525,974
- ------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments:
Beginning of year 865,512
End of year 23,335,303
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation 22,469,791
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 32,995,765
- ------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $37,287,892
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 4,292,127 $ 2,978,323
Net realized gain from security transactions 10,525,974 3,923,110
Net unrealized appreciation (depreciation) of investments 22,469,791 (4,040,441)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,287,892 2,860,992
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price
of shares sold (reacquired) (Note 1d) 2,257,311 1,371,924
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 2)
Net investment income (4,218,307) (2,794,800)
Net realized gain from security transactions (10,545,767) (4,022,817)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (14,764,074) (6,817,617)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions
Net proceeds from sales of 3,010,712 and 2,524,309 shares, respectively 43,401,887 31,847,505
Net asset value of 968,835 and 536,398 shares, respectively, issued to
shareholders in reinvestment of net investment income and
realized gain from security transactions 14,764,074 6,817,617
- ------------------------------------------------------------------------------------------------------------------------------------
Total 58,165,961 38,665,122
Cost of 295,814 and 294,061 shares reacquired, respectively (3,979,869) (3,691,518)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions
(net increase of 3,683,733 and 2,766,646 shares, respectively) 54,186,092 34,973,604
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 78,967,221 32,388,903
Net Assets
Beginning of year 114,607,639 82,218,736
- ------------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $7,690,466 and $4,409,150, respectively) $193,574,860 $114,607,639
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.71 $13.15 $12.27 $11.61 $9.93
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .459 .41 .34 .45* .50*
Net realized and unrealized gain
(loss) on investments 3.332 (.045) 1.48 1.3575 2.18
Total from investment operations 3.791 .365 1.82 1.8075 2.68
------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.36) (.33) (.27) (.32) (.35)
Distributions from net realized gain (.90) (.475) (.67) (.8275) (.65)
------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $15.24 $12.71 $13.15 $12.27 $11.61
- ----------------------------------------------------------------------------------------------------------------------------
Total Return 29.82% 2.76% 14.80% 15.62% 27.00%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year (000) $193,575 $114,608 $82,219 $37,307 $18,297
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver .52% .59% .57% .51% .13%
Expenses, excluding waiver .52% .59% .57% .65% .72%
Net investment income 2.91% 2.97% 2.76% 3.38% 4.20%
Portfolio turnover rate 70.30% 68.94% 78.26% 107.30% 70.82%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of management fee waiver.
See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Company was incorporated under Maryland law on August 28, 1989 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company currently consists of two active
Series. The Growth and Income Portfolio (the "Company") commenced operations on
December 11, 1989. Shares of the Company are currently issued and redeemed only
in connection with investment in, and payments under, certain variable annuity
contracts issued by COVA Financial Services Life Insurance Company ("COVA") and
its affiliated insurance companies. The following is a summary of significant
accounting policies consistently followed by the Company. The policies are in
conformity with generally accepted accounting principles.
(a) Market value is determined as follows: Securities listed or admitted to
trading privileges on any national securities exchange are valued at the last
sales price on the principal securities exchange on which such securities are
traded, or, if there is no sale, at the mean between the last bid and asked
prices on such exchange. Securities traded in the over-the-counter market are
valued at the mean between the last bid and asked prices in such market, except
that securities admitted to trading on the NASDAQ National Market System are
valued at the last sales price if it is determined that such price more
accurately reflects the value of such securities. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors. Short-term securities are carried at cost which
approximates market.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income in taxable distributions. Therefore, no federal income tax
provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
(d) A portion of proceeds from sales and costs of repurchases of capital shares,
equivalent to the amount of distributable net investment income on the date of
the transaction, is credited or charged to undistributed income. Undistributed
net investment income per share thus is unaffected by sales or repurchases of
shares.
(e) The organization expenses of the Company were amortized evenly over a period
of five years.
2. Distributions
Net realized gain from security transactions, if any, is declared in December
and distributed to shareholders in the succeeding year. Accumulated
distributions in excess of net realized capital gain at December 31, 1995 for
financial statement purposes, which is substantially the same as for federal
income tax purposes, aggregated $207,124. The excess distribution will be
utilized in determining the realized capital gain distribution in 1996.
<PAGE>
GROWTH AND INCOME PORTFOLIO
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles. These differences are primarily caused by
differences in the timing of recognition of certain components of income,
expenses or capital gains and losses. Where such differences are permanent in
nature, they are reclassified based upon their ultimate characterization for
federal income tax purposes. Any such reclassifications will have no effect on
net assets, results of operations or net asset value of the Fund.
3. Capital Paid In
At December 31, 1995, capital paid in aggregated $162,381,553.
4. Purchases and Sales of Securities
Purchases and sales of investment securities (other than short-term investments)
aggregated $139,366,324 and $95,647,394, respectively. Security gains and losses
are computed on the identified cost basis.
As of December 31, 1995, unrealized appreciation for federal income tax purposes
for the Company aggregated $23,335,303 of which $25,359,794 related to
appreciated securities and $2,024,491 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at
December 31, 1995 was substantially the same as the cost for financial reporting
purposes.
5. Management Fee and Other Transactions with Affiliates
Lord, Abbett & Co. received a management fee of $704,093 for which it provided
the Company with investment management services and executive and other
personnel, paid the remuneration of officers, provided office space and paid for
ordinary and necessary office and clerical expenses relating to research and
statistical work. The management fee paid to Lord, Abbett & Co. is based on
average daily net assets at the rate of 1/2 of 1% per annum. Certain of the
Company's officers and Directors have an interest in Lord, Abbett & Co.
The Company adopted a Rule 12b-1 Plan on April 20, 1994 which permits the
Company to make payments to Lord, Abbett & Co. for remittance to a Life
Insurance Company at the annual rate of .15% of the average daily net asset
value of shares of the Company attributable to such Life Insurance Company's
variable contract owners. No payments were made under the Plan during the
periods ended December 31, 1994 and 1995 to reimburse such Company for
distribution expenses.
6. Directors' Remuneration
The Directors of the Company associated with Lord, Abbett & Co. and all officers
of the Company receive no compensation from the Company for acting as such.
Outside Directors' fees, including attendance fees for board and committee
meetings, and outside Directors' retirement costs, are allocated among all funds
in the Lord Abbett group based on net assets of each fund. The direct
remuneration accrued during the period for outside Directors of the Company as a
group was $2,372 (exclusive of expenses), a portion of which has been deemed
invested in shares of the Company under a deferred compensation plan
contemplating future payment of the value of those shares. As of December 31,
1995, the aggregate amount in Directors' accounts maintained under the plan was
$5,224. Retirement costs accrued during the year ended December 31, 1995
amounted to $1,800.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
----------------------------------
(a) Financial Statements
The financial statements of the Fund for the fiscal year ended
December 31, 1995 are included in the 1995 Annual Report to
Shareholders and are incorporated by reference in Part B hereof.
(b) Exhibits -
(1) Articles of Incorporation of Registrant*
(2) By-Laws of Registrant**
(3) Not Applicable
(4) Not Applicable
(5) Management Agreement between Registrant and Lord, Abbett & Co.***
(i) Sub-Investment Management Agreement#
(6) Form of Distribution Plan between Registrant and Lord, Abbett
& Co.##
(7) Not Applicable
(8) (i) Custody Agreement between Registrant and The Bank of New York#
(ii) Form of Transfer Agency Agreement**
(9) Not Applicable
(10) Opinion and Consent of Counsel**
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Form of Agreements Governing Contribution of Capital**
(14) Not Applicable
(15) Form of Distribution Agreement between Registrant and Lord, Abbett
& Co.##
(16) Not Applicable
* Incorporated by reference to Registrant's initial registration on
Form N-1A, filed on September 15, 1989.
** Incorporated by reference to Registrant's Pre-Effective Amendment
No. 1, filed on November 17, 1989.
*** Incorporated by reference to Registrant's Post-Effective Amendment
No. 1, filed on April 2, 1990.
# Incorporated by reference to Registrant's Post-Effective Amendment
No. 2, filed on April 22, 1991.
## Incorporated by reference to Registrant's Post-Effective Amendment
No. 6, filed on April 28, 1994.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
The shares of the Fund are currently sold only to Xerox Variable
Annuity Account One of Xerox Financial Services Life Insurance
Company (the "Company").
1
<PAGE>
The Company and Lord, Abbett & Co., (the Fund's Investment
Manager) each made initial capital contributions to the Fund and
together own the majority of the outstanding shares of the Fund.
Xerox Financial Services, Inc. ("XFS") and Xerox Credit Corp.
("XCC") currently own 73.55% and 26.45% of the Company,
respectively. XFS, a Delaware corporation, is a wholly-owned
subsidiary of Xerox Corporation, a New York corporation. XCC, a
Delaware corporation, is a wholly-owned subsidiary of XFS. The
Company's address is One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644.
Lord, Abbett & Co. is a partnership located at The General Motors
Building, 767 Fifth Avenue, New York, New York 10153-0203. The
nine general partners of Lord, Abbett & Co., all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen,
Daniel E. Carper, Kenneth B. Cutler, Robert S. Dow, Thomas S.
Henderson, Ronald P. Lynch, Robert G. Morris, E. Wayne Nordberg
and John J. Walsh.
Item 26. Number of Record Holders of Securities
--------------------------------------
Xerox Financial Services Life Insurance Company and its separate
account, Xerox Variable Annuity Account One, and Lord, Abbett &
Co. are the shareholders of the Fund.
Item 27. Indemnification
---------------
Registrant is incorporated under the laws of the State of
Maryland and is subject to Section 2-418 of the Corporations and
Associations Article of the Annotated Code of the State of
Maryland controlling the indemnification of directors and
officers. Since Registrant has its executive offices in the State
of New York, and is qualified as a foreign corporation doing
business in such State, the persons covered by the foregoing
statute may also be entitled to and subject to the limitations of
the indemnification provisions of Sections 721-726 of the New
York Business Corporation Law.
The general effect of these statutes is to protect officers,
directors and employees of Registrant against legal liability and
expenses incurred by reason of their positions with the
Registrant. The statutes provide for indemnification for
liability for proceedings not brought on behalf of the
corporation and for those brought on behalf of the corporation,
and in each case place conditions under which indemnification
will be permitted,
2
<PAGE>
including requirements that the officer, director or employee
acted in good faith. Under certain conditions, payment of
expenses in advance of final disposition may be permitted. The
By-Laws of Registrant, without limiting the authority of
Registrant to indemnify any of its officers, employees or agents
to the extent consistent with applicable law, make the
indemnification of its directors mandatory subject only to the
conditions and limitations imposed by the above-mentioned Section
2-418 of Maryland Law and by the provisions of Section 17(h) of
the Investment Company Act of 1940 as interpreted and required to
be implemented by SEC Release No. IC-11330 of September 4, 1980.
In referring in its By-Laws to, and making indemnification of
directors subject to the conditions and limitations of, both
Section 2-418 of the Maryland Law and Section 17(h) of the
Investment Company Act of 1940, Registrant intends that
conditions and limitations on the extent of the indemnification
of directors imposed by the provisions of either Section 2-418 or
Section 17(h) shall apply and that any inconsistency between the
two will be resolved by applying the provisions of said Section
17(h) if the condition or limitation imposed by Section 17(h) is
the more stringent. In referring in its By-Laws to SEC Release
No. IC-11330 as the source for interpretation and implementation
of said Section 17(h), Registrant understands that it would be
required under its By-Laws to use reasonable and fair means in
determining whether indemnification of a director should be made
and undertakes to use either (1) a final decision on the merits
by a court or other body before whom the proceeding was brought
that the person to be indemnified ("indemnitee") was not liable
to Registrant or to its security holders by reason of willful
malfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office ("disabling
conduct") or (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of such disabling conduct, by
(a) the vote of a majority of a quorum of directors who are
neither "interested persons" (as defined in the Investment
Company Act of 1940) of Registrant nor parties to the proceeding,
or (b) an independent legal counsel in a written opinion. Also,
Registrant will make advances of attorneys' fees or other
expenses incurred by a director in his defense only if (in
addition to his undertaking to repay the advance if he is not
ultimately entitled to indemnification) (1) the indemnitee
provides a security for his undertaking, (2) Registrant shall be
insured against losses arising by reason of any lawful advances,
or (3) a majority of a quorum of the non-interested, non-party
directors of Registrant, or an independent legal counsel in a
written opinion,
3
<PAGE>
shall determine, based on a review of readily available facts,
that there is reason to believe that the indemnitee ultimately
will be found entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
In addition, Registrant maintains a directors' and officers'
errors and omissions liability insurance policy protecting
directors and officers against liability for breach of duty,
negligent act, error or omission committed in their capacity as
directors or officers. The policy contains certain exclusions,
among which is exclusion from coverage for active or deliberate
dishonest or fraudulent acts and exclusion for fines or penalties
imposed by law or other matters deemed uninsurable.
Finally, the Registrant's Articles of Incorporation provide that
to the fullest extent permitted by Maryland statutory or
decisional law, as amended from time to time, no director or
officer of the Registrant shall be personally liable to the
Registrant or its stockholders for money damages, except to the
extent such exemption from liability or limitation thereof is not
permitted by the Investment Company Act of 1940, as amended from
time to time. No amendment of these Articles or repeal of any of
their provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to
any act or omission which occurred prior to such amendment or
repeal.
4
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Lord, Abbett & Co. acts as investment adviser for thirteen other
open-end investment companies (of which it is the principal
underwriter for twelve such investment companies), and as
investment adviser to approximately 5,100 private accounts. Other
than acting as directors and/or officers of open-end investment
companies sponsored by Lord, Abbett & Co., none of Lord, Abbett &
Co.'s partners has, in the past two fiscal years, engaged in any
other business, profession, vocation or employment of a
substantial nature for his own account or in the capacity of
director, officer, employee, partner or trustee of any entity
except as follows:
John J. Walsh
Trustee
Brooklyn Hospital
Parkside Avenue
Brooklyn, N.Y.
Item 29. Principal Underwriter
----------------------
(a) Lord Abbett Affiliated Fund, Inc.
Lord Abbett U.S. Government Securities Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free Income Fund, Inc.
Lord Abbett Tax-Free Income Trust
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett Equity Fund
5
<PAGE>
Lord Abbett U.S. Government Securities Money Market Fund, Inc.
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Lord Abbett Research Fund, Inc.
Investment Advisor
------------------
American Skandia Trust
(Lord Abbett Growth and Income Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
Ronald P. Lynch Chairman and Director
Kenneth B. Cutler Vice President & Secretary
Daniel E. Carper Vice President
Robert S. Dow President
Thomas S. Henderson Vice President
Robert G. Morris Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
Stephen I. Allen Vice President
(1) Each of the above has a principal business address of
767 Fifth Avenue, New York, NY 10153-0203
(c) Not applicable
Item 30. Location of Accounts and Records
--------------------------------
Registrant maintains the records, required by Rules 31a-1(a) and
(b), and 31a-2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules
31a-1(f) and 31a-2(e) at its main office.
Certain records and correspondence may be physically maintained
at the main office of the Registrant's Transfer Agent, Custodian,
or Shareholder Servicing Agent within the requirements of Rule
31a-3.
6
<PAGE>
Item 31. `Management Services
------------------
None
Item 32. Undertakings
------------------
Registrant undertakes to furnish each person to whom a prospectus is
delivered, with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets the requirements of
Rule 485(b) of the Securities Act of 1933 for effectiveness of this Registration
Statement and has duly caused this Registration Statement and/or any amendment
thereto to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 29th day of
April, 1996.
LORD ABBETT SERIES FUND, INC.
By: /s/ RONALD P. LYNCH
------------------------------------
Ronald P. Lynch, Chairman of the Board
and Director
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Chairman of
/s/Ronald P. Lynch the Board and Director April 29, 1996
- ----------------------- ---------------------------- -------------
Ronald P. Lynch (Title) (Date)
Vice President and
/s/John J. Gargana, Jr. Chief Financial Officer April 29, 1996
- ----------------------- ---------------------------- ------------
John J. Gargana, Jr. (Title) (Date)
/s/Robert S. Dow President and Director April 29, 1996
- ----------------------- ---------------------------- -----------
Robert S. Dow (Title) (Date)
/s/E. Thayer Bigelow Director April 29, 1996
- ----------------------- ---------------------------- -----------
E. Thayer Bigelow (Title) (Date)
/s/Steward S. Dixon Director April 29, 1996
- ----------------------- ---------------------------- -----------
Steward S. Dixon (Title) (Date)
/s/John C. Jansing Director April 29, 1996
- ----------------------- ---------------------------- -----------
John C. Jansing (Title) (Date)
/s/C. Alan MacDonald Director April 29, 1996
- ----------------------- ---------------------------- ------------
C. Alan MacDonald (Title) (Date)
/s/ Hansel B. Millican, Jr. Director April 29, 1996
- ----------------------- ----------------------------- -----------
Hansel B. Millican, Jr. (Title) (Date)
/s/ Thomas J. Neff Director April 29, 1996
- ----------------------- ----------------------------- ------------
Thomas J. Neff (Title) (Date)
<PAGE>
EXHIBITS
INDEX TO EXHIBITS
Exhibits Page
- -------- ----
(11) Consent of Independent Auditors
EXHIBIT (11)
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
Lord Abbett Series Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-31072 of our report dated February 9, 1996 appearing in the
annual report to shareholders and to the reference to us under the captions
"Financial Highlights" in the Prospectus and "Investment Advisory and Other
Services" and "Financial Statements" in the Statement of Additional Information,
both of which are part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 26, 1996