February 10, 1999
Application Inside
Lord Abbett
Series Fund, Inc.
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International Portfolio
PROSPECTUS
[LOGO]
Investment Manager and Underwriter
Lord, Abbett & Co. and Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend
Disbursing Agent
United Missouri Bank of Kansas City, N. A.
Tenth and Grand
Kansas City, Missouri 64141
Shareholder Servicing Agent
DST Systems, Inc.
P. O. Box 419100
Kansas City, Missouri 64141
800-821-5129
Auditors
Deloitte & Touche LLP Lord Abbett Series Fund, Inc.
The General Motors Building
Counsel 767 Fifth Avenue
Debevoise & Plimpton New York, New York 10153-0203
Printed in the U. S. A.
LASF-1 199
(1/99)
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This Prospectus sets forth concisely the information about the International
Portfolio (" we" or the "Portfolio") of Lord Abbett Series Fund, Inc. (the
"Fund") that you should know before investing. Please read this Prospectus
before investing and retain it for future reference.
The investment objective of the International Portfolio is long-term capital
appreciation. The production of any current income is incidental to this
objective and the International Portfolio also may invest in securities which do
not produce any income. The International Portfolio normally invests primarily
in equity securities of non-U. S. issuers. There can be no assurance that this
objective will be achieved.
The Statement of Additional Information dated February 10, 1999 has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. You may obtain it, without charge, by writing to the Fund
or by calling 800-874- 3733. Ask for "Part B of the Prospectus - the Statement
of Additional Information."
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank. Shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. An investment in
the Portfolio 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.
LORD ABBETT
SERIES FUND, INC.
INTERNATIONAL PORTFOLIO
PROSPECTUS
February 10, 1999
TABLE OF CONTENTS PAGE
How We Invest 2
Risk Factors 2
Portfolio Management 2
Purchases and Redemptions 2
Dividends and Distributions 3
Our Management 3
Investment Policies, Risks and Limits 3
Objective, Restriction and
Policy Changes 8
Tax Status 8
Net Asset Value 8
Performance 9
LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
The General Motors Building
767 Fifth Avenue o New York o New York o 10153
(800) 426-1130
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HOW WE INVEST
Investments for the International Portfolio will be made in equity securities of
companies domiciled in developed countries, but investments also may be made in
the securities of companies domiciled in developing countries. Equity securities
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Under normal circumstances, at least 80% of
the total assets of the Portfolio will be invested in such equity securities of
companies which are domiciled in at least three different countries outside the
United States. The Portfolio may temporarily reduce its equity holdings for
defensive purposes in response to adverse market conditions and invest in
domestic, Eurodollar and foreign short-term money market instruments.
See "Investment Policies" in the Statement of Additional Information.
Although the International Portfolio will not invest for short-term trading
purposes, investment securities may be sold from time to time without regard to
the length of time they have been held. Any remaining assets of the Portfolio
not invested as described above may be invested in certain securities or
obligations as set forth under the heading "Investment Policies, Risks and
Limits."
RISK FACTORS
Although the Portfolio will typically hold a number of diversified securities,
it does entail above-average investment risk in comparison to the U. S. stock
market. Also, although the International Portfolio intends to invest primarily
in equity securities of companies with market capitalization of less than $1
billion listed on stock exchanges, it may also invest in equity securities of
such companies traded in over-the-counter markets, as well as large and middle
capitalization securities. Small capitalization securities involve greater risk
and the markets for such securities may be more volatile and less liquid than
those of larger securities. Securities of companies in developing countries may
pose liquidity risks. For a description of special considerations and certain
risks associated with investments in foreign issuers, see section headed
"Investment Policies, Risks and Limits."
PORTFOLIO MANAGEMENT
Christopher Taylor serves as portfolio manager of the International Portfolio.
Mr. Taylor is Managing Director of Fuji-Lord Abbett International, Ltd. (the
"SubAdviser"). He has been with the Sub-Adviser and its predecessor since 1987
and has 15 years of investment experience.
PURCHASES AND REDEMPTIONS
Lord Abbett Distributor LLC (" Lord Abbett Distributor"), located at The General
Motors Building, 767 Fifth Avenue, New York, New York 10153-0203, is the
distributor of the shares (the "shares") of the Variable Contract Class (the
"Class") of the Portfolio. The shares 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 are purchased and redeemed at net asset value. Lord
Abbett Distributor 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.
In selecting broker-dealers to execute portfolio transactions for the
Fund's Portfolio, if two or more brokerdealers 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.
Shareholder Servicing Plan. Under the Shareholder Servicing Plan (the "Plan"),
the Portfolio, on behalf of the Class, may make payments to Lord Abbett
Distributor for remittance to a Life Company for certain shareholder servicing
activities of such Life Company, provided that such remittances in the aggregate
do not exceed 0.25 of 1%, on an annual basis, of the average daily net asset
value of shares of the Portfolio sold to such Life Company to be used as the
underlying investment for variable life insurance and variable annuity contracts
(" Variable Contracts").
The Plan is intended to provide additional incentives to Life Companies to
provide continuing information and investment services to variable life
insurance policyholders and variable annuity contract owners who invest in the
Portfolio and to encourage such persons to remain invested in the Portfolio.
Variable annu-
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ity 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.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions are distributed to the shareholders and will be
payable in shares or cash at the election of shareholders. The Life Companies,
with respect to shares held by their separate accounts, have elected, and intend
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.
OUR MANAGEMENT
The Fund is supervised by a Board of Directors, an independent body which has
ultimate responsibility for the Fund's activities. The Board has retained Lord
Abbett as investment manager pursuant to a Management Agreement. Lord Abbett has
been an investment manager for over 70 years and currently manages over $32
billion in a family of mutual funds and other advisory accounts. Lord Abbett
provides similar services to twelve other funds having various investment
objectives and also advises other investment clients. For more information about
the services Lord Abbett provides to the Fund, see the Statement of Additional
Information.
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 pays Lord Abbett a monthly fee, based on average daily net assets
of the Portfolio for each month, at an annual rate of 1%. Lord Abbett is
obligated to pay the Sub-Adviser a monthly fee equal to one-half of Lord
Abbett's fee. In addition, the Fund pays all expenses not expressly assumed by
Lord Abbett.
Lord Abbett has entered into an agreement with the Sub-Adviser, under which
the Sub-Adviser provides Lord Abbett with advice with respect to the
International Portfolio's assets. The Sub-Adviser is controlled by Fuji
Investment Management Co. (Tokyo). Fuji Bank Limited of Tokyo, Japan (" Fuji
Bank") directly owns 40% of the outstanding voting stock of the Sub-Adviser.
Fuji Investment Manage-ment Co. (Tokyo) is an affiliate of Fuji Bank. Lord
Abbett owns approximately 27% of such outstanding voting stock. As of December
31, 1998, the S u b Adviser manages approximately $1.029 billion, which is
invested globally. The Sub-Adviser furnishes Lord Abbett with advice and
recommendations with respect to the International Portfolio's assets, including
advice about the allocation of investments among foreign securities markets and
foreign equity and debt 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 port-folio should be purchased, held or
disposed of. The Sub-Adviser also gives advice with respect to foreign currency
matters.
The Fund. The Fund is a diversified open-end management investment company
established in 1989. The Fund is a series fund currently comprised of four
active Portfolios. This Prospectus offers only the single class of shares of the
International Portfolio: the Variable Contract Class. Each share of common stock
of the Fund, regardless of Class, has a par value of $. 001 per share and has
one vote and an equal right to dividends and distributions which are affected by
expenses unique to the class. 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.
INVESTMENT POLICIES, RISKS AND LIMITS
The Portfolio is permitted to utilize, within limits established by the Board of
Directors, the following investment policies in an effort to enhance the
Portfolio's performance. These policies have risks associated with them.
However, the Portfolio follows certain prac-
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tices that may reduce these risks. To the extent the Portfolio utilizes some of
these policies, its overall performance may be positively or negatively
affected.
Financial Futures and Options Thereon. The Portfolio may deal in financial
futures transactions with respect to the type of securities described in this
Prospectus, including indices of such securities and options on such financial
futures and indices. The Portfolio will not enter into any futures contracts, or
options thereon, if the aggregate market value of the securities covered by
futures contracts plus options on such financial futures exceeds 50% of the
Portfolio's total assets.
Investment Funds. Some emerging countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of such
countries is permitted through investment funds which have been specifically
authorized. The Portfolio may invest (normally not more than 5% of the
Portfolio's total assets) in these investment funds subject to the provisions of
the Investment Company Act of 1940, as amended, and other applicable
restrictions as discussed herein or in the Statement of Additional Information.
If the Portfolio invests in such investment funds, the Portfolio's shareholders
will bear not only their proportionate share of the expenses of the Portfolio
(including operating expenses and the fees of Lord Abbett), but also will
indirectly bear similar expenses of the underlying investment funds.
Depository Receipts. The International Portfolio may invest in American
Depository Receipts (" ADRs"), Global Depository Receipts (" GDRs"), European
Depository Receipts (" EDRs") and other Depository Receipts (which, together
with ADRs, GDRs and EDRs, are hereinafter collectively referred to as
"Depository Receipts"), to the extent that such Depository Receipts become
available. ADRs are securities, typically issued by a U. S. financial
institution (a "depository"), that evidence ownership interests in a security or
a pool of securities issued by a foreign issuer (the "underlying issuer") and
deposited with the depository. ADRs may be established by a depository without
participation by the underlying issuer. GDRs, EDRs and other types of Depository
Receipts are typically issued by foreign depositories, although they may also be
issued by U. S. depositories, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U. S. corporation. Generally,
Depository Receipts in registered form are designed for use in the U. S.
securities market and Depository Receipts in bearer form are designed for use in
securities markets outside the United States. The Portfolio may invest in
sponsored and unsponsored Depository Receipts. For purposes of the International
Portfolio's investment policies, the Portfolio's investments in Depository
Receipts will be deemed to be investments in the underlying securities.
Foreign Investments. Investment in the Portfolio requires consideration of
certain factors that are not normally involved in investments in U. S.
securities. Generally, at least 80% of the assets of the International 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 Portfolio's assets
denominated or traded in that currency. The performance of the Portfolio will be
measured in U. S. dollars, the base currency of the Portfolio. Securities
markets of foreign countries in which the 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 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 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 for foreign securities, which are sometimes longer
than those for securities of U. S. issuers, may
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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 Portfolio may be traded on days
that the Portfolio does not value its portfolio securities, such as Saturdays
and customary U. S. business holidays, and, accordingly, the Portfolio's net
asset value may be significantly affected on days when shareholders do not have
access to the Portfolio.
Many of the emerging or developing countries may have higher and more
rapidly fluctuating inflation rates, a higher demand for capital investment, a
higher dependence on export markets for their major industries, and a greater
need to develop basic economic infrastructures than more developed countries.
Foreign Currency Hedging Techniques. The Port-folio may utilize various foreign
currency hedging techniques described below when Fund management believes that
the currency of a particular foreign country may suffer a decline against the U.
S. dollar.
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a 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 it 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, it may desire to "lock in" the U. S. dollar
price of a 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 of purchase
or sale and the date of settlement.
Second, the Portfolio may enter into a forward contract to sell the amount
of foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency or, in the alternative, the
Portfolio may use a cross-currency hedging technique whereby it enters into such
a forward contract to sell another currency (obtained in exchange for the
currency in which the portfolio securities are denominated if such securities
are sold) which it expects to decline in a similar manner. Precise matching of
the forward contract and the value of the securities involved will generally not
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 the contract matures. The Portfolio intends to enter into such forward
contracts under this second circumstance periodically.
The Portfolio also may transact in currency put and call options on U. S.
exchanges or U. S. over-thecounter markets (" OTC") to protect the dollar
against foreign currency exposure. 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 currency put and call options will not exceed 5% of the
net assets of the Portfolio.
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 and banks trade options which are more flexible than exchange-listed
options with respect to strike price and maturity date. These OTC options
generally are available on a wider range of currencies. OTC foreign-currency
options generally are more liquid than listed options and involve the credit
risk associated with the individual issuer. OTC options together with illiquid
securities may comprise no more than 15% of the Portfolio's net assets.
A currency call option, upon payment of a premium, gives the purchaser of the
option the right to buy and the seller (writer) of the obligation to sell, the
underlying currency at the exercise price until the expiration of the option.
The Portfolio's purchase of a call option on a currency might be intended to
protect the Portfolio against an increase in the price of the underlying
currency that it intends to purchase in the future by fixing the price at which
it may purchase such currency. The Portfolio may sell (write) a call option on a
foreign currency only in conjunction with a purchase of a put
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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 (as well as the cross-hedging described above) may
not exceed 90% of the value of the securities denominated in such currency (a)
invested in by the Portfolio to cover such call writing or (b) to be crossed.
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Portfolio's ability to engage in transactions in
options, forward contracts and cross hedges.
The Portfolio will segregate cash or permitted liquid securities belonging
to the Portfolio in an amount not less than that required by SEC Release 10666
and SEC staff interpretations thereof with respect to the Portfolio's assets
committed to (a) currency put and call options, (b) forward foreign currency
contracts and (c) cross hedges entered into by the Portfolio. If the value of
the securities segregated declines, additional cash or permitted 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 options, forward foreign currency contracts and cross hedges.
Illiquid Securities. The Portfolio may invest up to 15% of its net assets in
illiquid securities. Bonds which are subject to legal or contractual
restrictions on resale, but which have been determined by the Board of Directors
to be liquid, will not be subject to this limit. Investment by the Portfolio in
such securities, initially determined to be liquid, could have the effect of
diminishing the level of the Portfolio's liquidity during periods of decreased
market interest in such securities.
Borrowing. The Portfolio may borrow from banks (as defined in the Investment
Company Act of 1940, as amended, the "Act"), in amounts up to 33 1/3% of its
total assets (including the amount borrowed). The Portfolio may borrow up to an
additional 5% of its total assets for temporary purposes. The Portfolio may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
Diversification. The Portfolio intends to meet the diversification rules under
Subchapter M of the Internal Revenue Code. Generally, this requires, at the end
of each quarter of the taxable year, that (a) not more than 25% of the
Portfolio's total assets be invested in any one issuer and (b) with respect to
50% of the Portfolio's total assets, no more than 5% of such total assets be
invested in any one issuer except U. S. Government securities.
For purposes of the following 75% test, the Portfolio is prohibited as a
"diversified" investment company, with respect to 75% of the value of its total
assets, from investing more than 5% of its total assets in securities of any one
issuer other than U. S. Government securities. For diversification purposes, the
identification of an "issuer" for the fixed-income portion of the Portfolio's
assets will be determined on the basis of the source of assets and revenues
committed to meeting interest and principal payments of the securities. When the
assets and revenues of a sovereign state's political subdivision are separate
from those of the sovereign state government creating the subdivision, and the
security is backed only by the assets and revenues of the subdivision, then the
subdivision would be considered the sole issuer. Similarly, if a revenue bond is
backed only by the assets and revenues of a nongovernmental user, then such user
would be considered the sole issuer.
When-Issued or Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued basis and, while awaiting delivery and before paying
for them (" settlement"), normally may invest in short-term securities. The
Portfolio does not start earning interest on these when-issued securities until
settlement and often they are sold prior to settlement. During the period
between purchase and settlement, the value of the securities will fluctuate and
assets consisting of cash and/or marketable securities marked to market daily in
an amount sufficient to make payment at settlement will be segregated at our
custodian in order to pay for the commitment. There is a risk that market yields
available at settlement may be higher than yields obtained on the purchase date,
which could result in depreciation of value.
While this investment strategy may contribute significantly to a portfolio
turnover rate substantially in excess of 100%, it is anticipated to have little
or no transaction costs or adverse tax consequences for the Portfolio.
Transaction costs normally do not include brokerage because the Portfolio's
fixed-income portfolio transactions usually are on a principal basis and, at the
time of purchase, the Portfolio normally anticipates
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that any markups charged will be more than offset by the anticipated economic
benefits of the transactions. In the remote situation where this anticipated
result does not occur, the markups may offset any benefits.
Covered Call Options. The Portfolio may write call options on securities it
owns, provided that the securities it holds to cover such options does not
represent more than 5% of net assets. 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.
It is currently intended that no more than 5% of the Portfolio's net assets
will be at risk in the use of any one of the policies identified below.
Rights and Warrants. The Portfolio may invest in rights and warrants to purchase
securities provided that, at the time of the acquisition, its investment in
warrants, valued at the lower of cost or market, would not exceed 5% of its
total assets. Warrants which are not listed on the New York or American Stock
Exchange or a major foreign exchange may not exceed 2% of total assets.
Repurchase Agreements. The Portfolio may enter into repurchase agreements with
respect to a security. A repurchase agreement is a transaction by which the
Portfolio 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. Such repurchase agreement must, at all times, be
collateralized by cash or U. S. Government securities having a value equal to,
or in excess of, the value of the repurchase agreement.
Closed-end Investment Companies. The Portfolio may invest in shares of
closed-end investment companies if bought in the primary or secondary market
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 and there may be duplication of fees, for
example, to the extent that the Portfolio and the closed-end investment company
both charge a management fee.
Lending of Portfolio Securities. The Portfolio may seek to earn income by
lending its portfolio securities if the loan is collateralized and its terms are
in accordance with regulatory requirements. These loans may not exceed 30% of
the value of the Portfolio's total assets. In such an arrangement, the Portfolio
loans securities it owns to registered broker-dealers. Such loans are
continuously collateralized by an amount at least equal to 100% of the market
value of the securities loaned. Cash collateral is invested in obligations
issued or guaranteed by the U. S. Government or its agencies, commercial paper
or bond obligations rated AA or A-1/P-1 by Standard & Poor's Rating Services ("
S& P") or Moody's Investors Services, Inc. (" Moody's"), respectively, or
repurchase agreements with respect to the foregoing. As with other extensions of
credit, there are risks of delay in recovery and market loss should the
borrowers of the portfolio securities fail financially.
The Fund serves as the underlying investment for Variable Contracts issued
by the Life 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 any 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 1, 1989, the Treasury Department released 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
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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."
The Portfolio will be managed in such a manner as to comply with these
diversification requirements. It is possible that in order to comply with the
diversification requirements, less desirable investment decisions may be made
which would affect the investment performance of the Portfolio.
The Portfolio has a name and an investment objective similar to that of the
International Series of Lord Abbett Securities Trust. The performance of a
separate account investing in the Portfolio is not expected to be the same as
the performance of the International Series due in part to differences in their
investments. Various insurance-related costs at the Life Company's separate
account will also affect performance.
The Portfolio sells its shares to separate accounts of Life Companies that
are unaffiliated with Lord Abbett. The Portfolio does not foresee any
disadvantages to policyholders arising out of the fact that the Portfolio offers
its shares to separate accounts of various Life Companies to serve as the
investment medium for their variable products. Nevertheless, the Board of
Directors intends to monitor events to identify any material irreconcilable
conflicts that may possibly arise, and to determine what action, if any, should
be taken in response to such conflicts. If such a conflict were to arise, one or
more Life Companies might be required to withdraw its investments in the
Portfolio. This might force the Portfolio to sell securities at disadvantageous
prices. In addition, the Board of Directors may refuse to sell shares of the
Portfolio to any Life Company or may suspend or terminate the offering of shares
of any fund if such action is required by law or regulatory authority or is in
the best interests of shareholders of the Portfolio.
For more information about investment policies, restrictions and risk factors,
see the Statement of Additional Information.
OBJECTIVE, RESTRICTION AND POLICY CHANGES
We will not change our investment objective or our fundamental investment
restrictions without shareholder approval. If we determine that our objective
can best be achieved by a substantive change in investment policy, which may be
changed without shareholder approval, we may make such change by disclosing it
in our prospectus.
TAX STATUS
The Fund intends to cause the Portfolio to 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). The
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).
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 trading
by dividing the net assets of each class by the number of shares outstanding for
that class 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
the Portfolio's securities that the current net
8
<PAGE>
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 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.
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.
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 800-874-3733.
- --------------------------------------------------------------------------------
This Prospectus does not constitute an offering in any jurisdiction in
which such offer is not authorized or in which the person making such offer is
not qualified to do so or to anyone to whom it is unlawful to make such offer.
No person is authorized to give any information or to make any
representations not contained in this Prospectus authorized or in supplemental
sales material by the Fund and no person is entitled to rely upon any
information or representation not contained herein or therein.
9
<PAGE>
LORD ABBETT
Statement of Additional Information February 10, 1999
Lord Abbett Series Fund, Inc.
International Portfolio
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at the
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. This
Statement relates to, and should be read in conjunction with, the Prospectus
dated February 10, 1999.
Lord Abbett Series Fund, Inc. (sometimes referred to as "we" or the "Fund") was
incorporated under Maryland law in 1989. The Fund has 1,000,000,000 shares of
authorized capital stock consisting of four portfolios. This Statement of
Additional Information offers the Variable Contract shares of the International
Portfolio (the "Portfolio"). They are fully paid and nonassessable when issued
and have no preemptive or conversion rights. Although no present plans exist to
do so, further portfolios may be added in the future. The Investment Company Act
of 1940, as amended (the "Act"), requires that where more than one series
exists, each series must be preferred over all other series in respect of assets
specifically allocated to such series.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-874-3733.
TABLE OF CONTENTS Page
1. Investment Policies 2
2. Directors and Officers 5
3. Investment Advisory and Other Services 9
4. Portfolio Transactions 10
5. Purchases, Redemptions and 12
Shareholder Services
6. Past Performance 12
7. Taxes 13
8. Information About the Fund 13
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<PAGE>
1.
Investment Policies
Fundamental Investment Restrictions
We are subject to the following investment restrictions which cannot be changed
without approval of a majority of our outstanding shares. The Portfolio may not:
(1) borrow money, except that (i) the Portfolio may borrow from banks (as
defined in the Investment Company Act of 1940, as amended (the "Act")) in
amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii)
the Portfolio may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the Portfolio may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and (iv) the Portfolio may purchase securities on margin to the extent permitted
by applicable law; (2) pledge its assets (other than to secure borrowings, or to
the extent permitted by the Portfolio's investment policies as permitted by
applicable law); (3) engage in the underwriting of securities, except pursuant
to a merger or acquisition or to the extent that, in connection with the
disposition of its portfolio securities, it may be deemed to be an underwriter
under federal securities laws; (4) make loans to other persons, except that the
acquisition of bonds, debentures or other corporate debt securities and
investment in government obligations, commercial paper, pass-through
instruments, certificates of deposit, bankers acceptances, repurchase agreements
or any similar instruments shall not be subject to this limitation, and except
further that the Portfolio may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with applicable
law; (5) buy or sell real estate (except that the Portfolio may invest in
securities directly or indirectly secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein) or
commodities or commodity contracts (except to the extent the Portfolio may do so
in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act as, for example, with futures
contracts); (6) with respect to 75% of the gross assets of the Portfolio, buy
securities of one issuer representing more than (i) 5% of the Portfolio's gross
assets, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or (ii) 10% of the voting securities of such
issuer; (7) invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or (8) issue senior
securities to the extent such issuance would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by changes in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
Non-Fundamental Investment Restrictions. In addition to the investment
restrictions above which cannot be changed without shareholder approval, we also
are subject to the following non-fundamental investment policies which may be
changed by the Board of Directors without shareholder approval. The Portfolio
may not: (1) borrow in excess of 33 1/3% of its total assets (including the
amount borrowed), and then only as a temporary measure for extraordinary or
emergency purposes; (2) make short sales of securities or maintain a short
position except to the extent permitted by applicable law; (3) invest knowingly
more than 15% of its net assets (at the time of investment) in illiquid
securities, except for securities qualifying for resale under Rule 144A of the
Securities Act of 1933, deemed to be liquid by the Board of Directors; (4)
invest in the securities of other investment companies except as permitted by
applicable law; (5) invest in securities of issuers which, with their
predecessors, have a record of less than three years' continuous operations, if
more than 5% of the Portfolio's total assets would be invested in such
securities (this restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U. S.
Government, its agencies or instrumentalities); (6) hold securities of any
issuer if more than 1/2 of 1% of the securities of such issuer are owned
beneficially by one or more officers or directors of the Fund or by one or more
partners or members of the Fund's underwriter or investment adviser if these
owners in the aggregate own beneficially more than 5% of the securities of such
issuer; (7) invest in warrants if, at the time of the acquisition, its
investment in warrants, valued at the lower of cost or market, would exceed 5%
of the Portfolio's total assets (included within such limitation, but not to
exceed 2% of the Portfolio's total assets, are warrants which are not listed on
the New York or American Stock Exchange or a major foreign exchange); (8) invest
in real estate limited partnership interests or interests in oil, gas or other
mineral
2
<PAGE>
leases, or exploration or other development programs, except that the Portfolio
may invest in securities issued by companies that engage in oil, gas or other
mineral exploration or other development activities; (9) write, purchase or sell
puts, calls, straddles, spreads or combinations thereof, except to the extent
permitted in the Portfolio's prospectus and statement of additional information,
as they may be amended from time to time; or (10) buy from or sell to any of its
officers, directors, employees, or its investment adviser or any of its
officers, directors, partners or employees, any securities other than shares of
the Portfolio's common stock.
Portfolio Turnover Rate. For the first year of operation, our portfolio turnover
rate is expected to be between 50% and 100%.
Investment Techniques
Lending Portfolio Securities
The Portfolio may lend portfolio securities to registered broker-dealers. These
loans, if and when made, may not exceed 30% of the Portfolio's total assets.
Each Portfolio loan of securities will be collateralized by cash or marketable
securities issued or guaranteed by the U.S. Government or its agencies ("U.S.
Government securities") or other permissible means at least equal to the market
value of the loaned securities. From time to time, the Portfolio may pay a part
of the interest received with respect to the investment of collateral to a
borrower and/or a third party that is not affiliated with the Fund and is acting
as a "placing broker." No fee will be paid to affiliated persons of the Fund.
By lending portfolio securities, the Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government securities or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities or other forms of non-cash collateral
are received. The Portfolio will comply with the following conditions whenever
it loans securities: (i) the Portfolio must receive at least 100% collateral
from the borrower; (ii) the borrower must increase the collateral whenever the
market value of the securities loaned rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable compensation for the loan, as well as any
dividends, interest or other distributions on the loaned securities; (v) the
Portfolio may pay only reasonable fees in connection with the loan and (vi)
voting rights on the loaned securities may pass to the borrower except that, if
a material event adversely affecting the investment in the loaned securities
occurs, the Directors must terminate the loan and regain the right to vote the
securities.
Repurchase Agreements
The Portfolio may enter into repurchase agreements with respect to a security. A
repurchase agreement is a transaction by which the Portfolio 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 Portfolio
have a total value in excess of the value of the repurchase agreement. The
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio and are 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 Fund management acknowledges these
risks, it is expected that they can be controlled through stringent selection
criteria and careful monitoring procedures. Fund management intends to limit
repurchase agreements to transactions with dealers and financial institutions
believed by
3
<PAGE>
Fund management to present minimal credit risks. Fund management
will monitor creditworthiness of the repurchase agreement sellers on an ongoing
basis.
The Portfolio will enter into repurchase agreements only with those primary
reporting dealers that report to the Federal Reserve Bank of New York and with
the 100 largest United States commercial banks and the underlying securities
purchased under the agreements will consist only of those securities in which
the Portfolio otherwise may invest.
Warrants
Pursuant to Texas regulations, the Portfolio will not invest more than 5% of its
assets in warrants and not more than 2% of such value in warrants not listed on
the New York or American Stock Exchanges, except when they form a unit with
other securities. As a matter of operating policy, we will not invest more than
5% of our net assets in rights.
Covered Call Options
As stated in the Prospectus, the Portfolio may write covered call options which
are traded on a national securities exchange with respect to securities in its
portfolio in an attempt to increase its income and to provide greater
flexibility in the disposition of its portfolio securities. A "call option" is a
contract sold for a price (the "premium") giving its holder the right to buy a
specific number of shares of stock at a specific price prior to a specified
date. A "covered call option" is a call option issued on securities already
owned by the writer of the call option for delivery to the holder upon the
exercise of the option. During the period of the option, the Portfolio forgoes
the opportunity to profit from any increase in the market price of the
underlying security above the exercise price of the option (to the extent that
the increase exceeds its net premium). The Portfolio may enter into "closing
purchase transactions" in order to terminate its obligation to deliver the
underlying security (this may result in a short-term gain or loss). A closing
purchase transaction is the purchase of a call option (at a cost which may be
more or less than the premium received for writing the original call option) on
the same security, with the same exercise price and call period as the option
previously written. If a Portfolio is unable to enter into a closing purchase
transaction, it may be required to hold a security that it might otherwise have
sold to protect against depreciation. Neither Portfolio intends to write covered
call options with respect to securities with an aggregate market value of more
than 5% of its gross assets at the time an option is written. This percentage
limitation will not be increased without prior disclosure in the current
Prospectus.
The Fund's custodian will segregate cash or liquid high-grade debt securities in
an amount not less than that required by Securities and Exchange Commission
("SEC") Release 10666 with respect to Portfolio assets committed to written
covered call options. If the value of the segregated securities 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 Portfolios' commitments with respect to such written options.
Financial Futures Contracts. The Portfolio may enter into contracts for the
future delivery of a financial instrument, such as a security or the cash value
of a securities index. This investment technique is designed primarily to hedge
(i.e., protect) against anticipated future changes in interest rates or market
conditions which otherwise might adversely affect the value of securities which
we hold or intend to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index called for by the contract at a specified price during a
specified delivery period. "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities or cash value
of an index at a specified price during a specified delivery period. At the time
of delivery pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities which differ from
those specified in the contract. In some cases, securities called for by a
futures contract may not have been issued at the time the contract was written.
The Portfolio will not enter into any futures contracts or options on futures
contracts if the aggregate of the market value of the securities covered by its
outstanding futures contracts and securities covered by futures contracts
subject to the outstanding options written by it would exceed 50% of its total
assets.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases, a party will close out the
contractual commitment before delivery without having
4
<PAGE>
to make or take delivery of the security by purchasing (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, if effected through a member of
an exchange, cancels the obligation to make or take delivery of the securities.
All transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
The Portfolio will incur brokerage fees when it purchases or sells contracts and
will be required to maintain margin deposits. At the time it enters into a
futures contract, it is required to deposit with its custodian, on behalf of the
broker, a specified amount of cash or eligible securities called "initial
margin." The initial margin required for a futures contract is set by the
exchange on which the contract is traded.
Subsequent payments, called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates. The
costs incurred in connection with futures transactions could reduce the
Portfolio's return. Futures contracts entail risks. If the investment adviser's
judgment about the general direction of interest rates or markets is wrong, the
overall performance may be poorer than if no such contracts had been entered
into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. The degree of difference in
price movements between futures contracts and the securities (or securities
indices) being hedged depends upon such things as variations in demand for
futures contracts and securities underlying the contracts and differences
between the liquidity of the markets for such contracts and the securities
underlying them. In addition, the market prices of futures contracts may be
affected by certain factors not directly related to the underlying securities.
At any given time, the availability of futures contracts, and hence their
prices, are influenced by credit conditions and margin requirements. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment adviser may not result in a successful hedging
transaction.
Options on Financial Futures Contracts. The Portfolio may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Portfolio
would be required to deposit with its custodian initial margin and maintenance
margin with respect to put and call options on futures contracts written by us.
Options on futures contracts involve risks similar to the risks relating to
transactions in financial futures contracts described above. Generally speaking,
a given dollar amount used to purchase an option on a financial futures contract
can hedge a much greater value of underlying securities than if that amount were
used to directly purchase the same financial futures. Should the event that the
Portfolio intends to hedge (or protect) against not materialize, however, the
option may expire worthless, in which case we would lose the premium paid
therefor.
Segregated Accounts. To the extent required to comply with SEC Release 10666 and
any related SEC policies, when purchasing a futures contract, or writing a put
option, the Portfolio will maintain in a segregated account at its custodian
bank cash, U.S. Government and other permitted securities to cover its position.
2.
Directors and Officers
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also an officer
and/or director or trustee of the other Lord Abbett-sponsored funds. He is an
"interested person" as defined in the Act.
Robert S. Dow, age 54, Chairman and President
The following outside directors are also directors or trustees of the other Lord
Abbett-sponsored funds referred to above.
5
<PAGE>
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer of
Courtroom Television Network (1997-1998). Formerly President and Chief Executive
Officer of Time Warner Cable Programming, Inc. (1991-1997). Prior to that,
President and Chief Operating Officer of Home Box Office. Age 57.
William H.T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri
Co-founder and Chairman of the Board of the financial advisory firm of
Bush-O'Donnell & Co. Age 60.
Robert Calhoun, Jr.
Monitor Clipper Partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of The Clipper
Group, both private equity investment funds. Age 56.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 68.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 73.
C. Alan MacDonald
Directorship, Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly General Partner of The Marketing Partnership,
Inc., a full service marketing consulting firm (1994-1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992-1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J.B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
6
<PAGE>
President and Chief Executive Officer of Rochester Button Company. Currently
serves as Director of Polyvision Corporation Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as a Director of Ace, Ltd. (NYSE) Age 61.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the equity-based benefits accrued for outside directors/trustees
maintained by the Lord Abbett-sponsored funds. The fourth column sets forth the
total compensation payable by such funds to the outside directors/trustees. No
director of the Fund associated with Lord Abbett and no officer of the Fund
received any compensation from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31, 1998
-------------------------------------------
(1) (2) (3) (4)
<S> <C> <C> <C>
Name of Director Aggregate Compensation Pension or Retirement For Year Ended December
Accrued by the Portfolio Benefits Accrued by the 31, 1998
(1) Fund and All Other Lord Total Compensation
Abbett sponsored Funds Accrued by the Fund and
(2) All Other Lord
Abbett-sponsored Funds
(3)
- --------------------- -------------- -------------- -----------------
E. Thayer Bigelow $1,969 $17,068 $57,400
William H.T. Bush* $ 943 $0 $27,500
Robert Calhoun, Jr. ** $1,148 $0 $33,500
Stewart S. Dixon $1,938 $32,190 $56,500
John C. Jansing $1,904 $45,085 (4) $55,500
C. Alan MacDonald $1,887 $30,703 $55,000
Hansel B. Millican, Jr. $1,904 $37,747 $55,500
Thomas J. Neff $1,938 $19,853 $56,500
</TABLE>
*Elected August 13, 1998
**Elected June 17, 1998
7
<PAGE>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund.The amounts shown above represents amounts accrued
for the Fund for the year ended December 31, 1998. The Portfolio has not
begun paying such fees. When the Portfolio starts to pay such fees, a
portion of the fees payable by the Portfolio to its outside directors/
trustees will be deferred under a plan that deems the deferred amounts to
be invested in shares of the Portfolio for later distribution to the
directors/trustees.
2. The amounts in Column 3 were accrued by the Lord Abbett-sponsored funds for
the year ended December 31, 1998, with respect to the equity based plans
established for independent directors in 1996. This plan superseded a
previously approved retirement plan for all future directors. Current
directors had the option to convert their accrued benefits under the
retirement plan. All of the outside directors except one made such an
election.
3. This column shows aggregate compensation, including directors' fees and
attendance fees for board and committee meetings, of a nature referred to
in footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31, 1998.
4. Mr. Jansing chose to continue to receive benefits under the retirement plan
which provides that outside directors/trustees may receive annual
retirement benefits for life equal to their final annual retainer following
retirement at or after age 72 with at least ten years of service. Thus, if
Mr. Jansing were to retire and the annual retainer payable by the funds
were the same as it is today, he would receive annual retirement benefits
of $50,000.
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Carper, Hilstad, Hudson, Morris, Towle and Walsh are partners of Lord
Abbett; the others are employees.
Executive Vice Presidents:
W. Thomas Hudson, Jr., age 56
Edward K. von der Linde, age 38
Christopher Taylor, age 40 (Managing Director of Fuji Lord-Abbett International,
Ltd.)
Christopher J. Towle, age 41
Vice Presidents:
Paul A. Hilstad, age 56, Vice President and Secretary (with Lord Abbett since
1995; formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.)
Zane E. Brown, age 47
Daniel E. Carper, age 47
Lawrence H. Kaplan, age 42 (with Lord Abbett since 1997 - formerly Vice
President and Chief Counsel of Salomon Brothers Asset Management Inc. from 1995
to 1997, prior thereto Senior Vice President, Director and General Counsel of
Kidder Peabody Asset Management, Inc.)
Robert G. Morris, age 54
A. Edward Oberhaus, age 39
8
<PAGE>
Keith F. O'Connor, age 43
John J. Walsh, age 63
Treasurer:
Donna M. McManus, age 38, (with Lord Abbett since 1996, formerly a Senior
Manager at Deloitte & Touche LLP).
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of
stockholders unless one or more matters are required to be acted on by
shareholders under the Act or unless called by a majority of the Board of
Directors by the holders of at least one-quarter of the shares of the Fund
outstanding and entitled to vote at the meeting.
As of October 31, 1998, our directors and officers, as a group, owned less than
1% of our outstanding shares. As of October 31, 1998, these were no holders of
5% or more of the Fund's outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the
investment manager for the Portfolio. The general partners of Lord Abbett who
are officers and/or directors of the Fund, are: Zane E. Brown, Daniel E. Carper,
Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Jr., Robert G. Morris,
Christopher J. Towle, and John J. Walsh. The address of each partner is The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. The
other general partners of Lord Abbett who are neither officers nor directors of
the Fund are Stephen I. Allen, John E. Erard, Robert P. Fetch, Daria L. Foster,
Robert Gerber, Stephen I. McGruder, Michael McLaughlin, Robert J. Noelke, and R.
Mark Pennington.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under the Management Agreement, the Portfolio is obligated to
pay Lord Abbett a monthly fee, based on average daily net assets for each month,
at the annual rate of 1%. Lord Abbett is obligated to pay the Sub-Adviser a
monthly fee equal to one-half of Lord Abbett's fee. In addition, the Fund pays
all expenses not expressly assumed by Lord Abbett.
Although not obligated to do so, Lord Abbett has waived or may waive all or part
of its management fees and has assumed or may assume other expenses of the
Portfolio.
Lord Abbett has entered into an agreement with the Sub-Adviser, under which the
Sub-Adviser provides Lord Abbett with advice with respect to the International
Portfolio's assets. The Sub-Adviser is controlled by Fuji Investment Management
Co. (Tokyo). Fuji Bank Limited of Tokyo, Japan ("Fuji Bank") directly owns 40%
of the outstanding voting stock of the Sub-Adviser. Fuji Investment Management
Co. (Tokyo) is an affiliate of Fuji Bank. Lord Abbett owns approximately 27% of
such outstanding voting stock. As of December 31, 1998, the Sub-Adviser manages
approximately $1.029 billion, which is invested globally. The Sub-Adviser
furnishes Lord Abbett with advice and recommendations with respect to the
International Portfolio's assets, including advice about the allocation of
investments among foreign securities markets and foreign equity and debt
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 should be purchased, held or disposed of. The Sub-Adviser also
gives advice with respect to foreign currency matters.
As discussed in the Prospectus under "Our Management," the Portfolio is
contingently obligated to repay to Lord Abbett the amounts of such assumed other
expenses.
The Portfolio 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
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registering our shares under federal and state securities laws, expenses of
preparing, printing and mailing prospectuses to existing shareholders, insurance
premiums, brokerage and other expenses connected with executing portfolio
transactions.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10128, are
the independent auditors of the Fund and must be approved at least annually by
our directors to continue in such capacity. Deloitte & Touche LLP perform audit
services for the Fund including the examination of financial statements included
in our annual report to shareholders.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York 10286, is the
Fund's custodian. Rules adopted by the Securities and Exchange Commission permit
the International Portfolio to maintain its foreign assets in the custody of
certain eligible foreign banks and securities depositories. The Portfolio's
securities and cash, when invested in foreign securities and not held by BNY or
its foreign branches, are held by sub-custodians of BNY 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 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 and 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.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, the Fund may pay, as described below, a higher commission than
some brokers might charge on the same transaction. This policy governs the
selection of brokers or dealers and the market in which the transaction is
executed. To the extent permitted by law, we may, if considered advantageous,
make a purchase from or sale to another Lord Abbett-sponsored fund without the
intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett.
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 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
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commissions are negotiated, we pay a commission rate that we believe is
appropriate to give maximum assurance that our brokers will provide us, on a
continuing basis, the highest level of brokerage services available. While we do
not always seek the lowest possible commission on particular trades, we pay a
commission rate that we believe is appropriate to give maximum assurance that
our brokers will provide us, on a continuing basis, the highest level of
brokerage services available. While we do not always seek the lowest possible
commissions on particular trades, we believe that our commission rates are in
line with the rates that many other institutions pay. Our traders are authorized
to pay brokerage commissions in excess of those that other brokers might accept
on the same transactions in recognition of the value of the services performed
by the executing brokers, viewed in terms of either the particular transaction
or the overall responsibilities of Lord Abbett with respect to us and the other
accounts they manage. Such services include showing us trading opportunities
including blocks, a willingness and ability to take positions in securities,
knowledge of a particular security or market, proven ability to handle a
particular type of trade, confidential treatment, promptness and reliability.
Some of our brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund; and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and, when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
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5.
Purchases, Redemptions and Shareholder Services
Securities in the Fund's portfolios are valued at their market values as of the
close of the NYSE. Market value will be determined as follows: securities listed
or admitted to trading privileges on any national or foreign 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, or, in the case of bonds, in the
over-the-counter market if, in the judgment of the Fund's officers, that market
more accurately reflects the market value of the bonds. Securities traded only
in the over-the-counter market are valued at the mean between the bid and asked
prices, except that securities admitted to trading on the NASDAQ National Market
System are valued at the last sales price. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors. 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
Fund's Board of Directors. The Board of Directors will monitor, on an ongoing
basis, the Fund's method of valuation.
Information concerning how we value our Shares for the purchase and redemption
of our Shares is described in the Prospectus under "Purchases and Redemptions."
As disclosed in the Prospectus, we calculate our net asset values and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor"), under
which Lord Abbett Distributor is obligated to use its best efforts to find
purchasers for the shares of the Fund, and to make reasonable efforts to sell
Fund shares so long as, in Lord Abbett Distributor's judgment, a substantial
distribution can be obtained by reasonable efforts.
Shareholder Servicing Plan. As described in the Prospectus, under the
Shareholder Servicing Plan (the "Plan"), the Portfolio, on behalf of the Class,
may make payments to Lord Abbett Distributor for remittance to a Life Company
for certain shareholder servicing activities of such Life Company, provided that
such remittances in the aggregate do not exceed 0.25 of 1%, on an annual basis,
of the average daily net asset value of shares of the Portfolio sold to such
Life Company to be used as the underlying investment for variable life insurance
and variable annuity contracts ("Variable Contracts").
The Plan is intended to provide additional incentives to Life Companies to
provide continuiing information and investment services to variable life
insurance policyholders and variable annuity contract owners who invest in the
Portfolio and to encourage such persons to remain invested in the 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.
6.
Past Performance
The Portfolio computes the average annual compounded rate of total return for
the Variable Contract Class during specified periods that would equate the
initial amount invested to the ending redeemable value of such investment by
adding one to the computed average annual total return, raising the sum to a
power equal to the number of years covered by the computation and multiplying
the result by $1,000, which represents a hypothetical initial investment. The
calculation assumes deduction of the maximum sales charge (as described in the
next paragraph) from the amount invested and reinvestment of all income
dividends and capital gains distributions on the reinvestment dates at net asset
value. The ending
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redeemable value is determined by assuming a complete redemption at the end of
the period(s) covered by the average annual total return computation.
The Portfolio's yield quotation for each class is based on a 30-day period ended
on a specified date, computed by dividing the Portfolio's net investment income
per share earned during the period by such Portfolio' maximum offering price per
share on the last day of the period. This is determined by finding the following
quotient: take the dividends and interest earned during the period minus its
expenses accrued for the period and divide by the product of (i) the average
daily number of Class shares outstanding during the period that were entitled to
receive dividends and (ii) the Portfolio's maximum offering price per share on
the last day of the period. To this quotient add one. This sum is multiplied by
itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Therefore, there is no assurance that this performance will be
repeated in the future.
7.
Taxes
The Fund intends to 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. The
Portfolio will be 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 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.
The Portfolio may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes.
8.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment account. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security seven days
before or after any Lord Abbett-sponsored fund trades in such security,
profiting from trades of the same security within 60 days and trading on
material non-public information. The Code imposes similar requirements and
restrictions on the independent directors of the Fund to the extent contemplated
by the recommendations of such Advisory Group.
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