LORD ABBETT RESEARCH FUND, INC.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
800-426-1130
Lord Abbett Research Fund, Inc., (the "Fund"), is a mutual fund currently
consisting of three series. Only shares of two of those series-- Large-Cap
Series and Small-Cap Series ("we" or the "Series") are offered by this
Prospectus. Each Series has three classes called Class A, B and C shares, which
provide investors with different investment options in purchasing shares of the
Series. See "Purchases" for a description of these choices.
The Large-Cap Series' investment objective is growth of capital and growth of
income consistent with reasonable risk. Production of current income is a
secondary consideration. The Large-Cap Series seeks to attain its objective by
investing in a broad range of companies whose common stocks (including
securities convertible into common stocks) are selling at attractive prices and
therefore represent fundamental investment value. These companies are primarily
large-sized, based on the value of their outstanding equity securities.
The Small-Cap Series' investment objective is to seek long-term capital
appreciation. The Series will seek its objective through investments primarily
in equity securities which are believed to be undervalued in the marketplace. In
its search for value, the Small-Cap Series seeks companies which are primarily
small-sized, based on the value of their outstanding stock. These companies are
often out of favor or not closely followed by investors and, as a result, may
offer substantial appreciation potential over time.
There can be no assurance that each Series will achieve its objective.
This Prospectus sets forth concisely the information about the Fund and each
Series that a prospective investor should know before investing. Additional
information about the Fund and each Series has been filed with the Securities
and Exchange Commission and is available upon request without charge. The
Statement of Additional Information is incorporated by reference into this
Prospectus and may be obtained, without charge, by writing directly to the Fund
or by calling 800-874-3733. Ask for "Part B of the Prospectus -- The Statement
of Additional Information".
The date of this Prospectus, and the date of the Statement of Additional
Information, is April 1, 1997.
PROSPECTUS
Investors should read and retain this Prospectus. Shareholder inquiries should
be made in writing directly to the Fund or by calling 800-821-5129. You can also
make inquiries through your broker-dealer.
Shares of each Series 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 Series involves risks, including the possible loss of
principal.
C0NTENTS PAGE
1 Investment Objectives 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 5
5 Purchases 9
6 Shareholder Services 14
7 Our Management 15
8 Dividends, Capital Gains
Distributions and Taxes 15
9 Redemptions 16
10 Performance 16
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
1 INVESTMENT OBJECTIVES
The investment objective of the Large-Cap Series is growth of capital and growth
of income consistent with reasonable risk. Production of current income is a
secondary consideration. The investment objective of the Small-Cap Series is
long-term capital appreciation.
2 FEE TABLE
A summary of each Series' expenses is set forth in the table below. The example
should not be considered a representation of past or future expenses. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE-CAP SERIES
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses(1)
(as a percentage of offering price)
Maximum Sales Load(2) on Purchases
(See "Purchases") 5.75% None None
Deferred Sales Load(2) (See "Purchases") None 5% if shares are redeemed 1% if shares
before 1st anniversary are redeemed
of purchase, declining before 1st
anniversary
to 1% before 6th of purchase
anniversary and
eliminated on and
after 6th anniversary(3)
- ----------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management Fees (See "Our Management") 0.75% 0.75% 0.75%
12b-1 Fees (See "Purchases")(1)(2) 0.25% 1.00% 1.00%
Other Expenses (See "Our Management") 0.40% 0.40% 0.40%
- ----------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1.40% 2.15% 2.15%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SMALL-CAP SERIES
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses(1)
(as a percentage of offering price)
Maximum Sales Load(2) on Purchases
(See "Purchases") 5.75% None None
Deferred Sales Load(2) (See "Purchases") None 5% if shares are redeemed 1% if shares
before 1st anniversary are redeemed
of purchase, declining before 1st
anniversary
to 1% before 6th of purchase
anniversary and
eliminated on and
after 6th anniversary(3)
- -------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management Fees (See "Our Management") 0.75% 0.75% 0.75%
12b-1 Fees (See "Purchases")(1)(2) 0.25% 1.00% 1.00%
Other Expenses (See "Our Management") 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1.40% 2.15% 2.15%
Example: Assume each Series' annual return is 5% and there is no change in the
level of expenses described above. For a $1,000 investment, with reinvestment of
all dividends and distributions, you would pay the following total expenses
assuming redemption on the last day of each period indicated.
Large-Cap Series 1 year 3 years 5 years 10 years
Class A shares $71 $100 $130 $216
Class B shares $71 $ 95 $133 $229
Class C shares $32 $ 67 $115 $248
Small-Cap Series
Class A shares $71 $100 $130 $216
Class B shares $71 $ 95 $133 $229
Class C shares $32 $ 67 $115 $248
<PAGE>
Example: You would pay the following expenses on the same investment, assuming no redemption.
Large-Cap Series 1 year 3 years 5 years 10 years
Class A shares $71 $100 $130 $216
Class B shares $22 $ 67 $115 $229
Class C shares $22 $ 67 $115 $248
Small-Cap Series
Class A shares $71 $100 $130 $216
Class B shares $22 $ 67 $115 $229
Class C shares $22 $ 67 $115 $248
<FN>
(1)Although the Fund does not, with respect to the Class B and Class C shares,
charge a front-end sales charge, investors should be aware that long-term
shareholders may pay, under each Rule 12b-1 plan applicable to the Class B and
Class C shares of the Fund (both of which pay annual 0.25% service and 0.75%
distribution fees), more than the economic equivalent of the maximum front-end
sales charge as permitted by certain rules of the National Association of
Securities Dealers, Inc. Likewise, with respect to Class A shares, investors
should be aware that, over the long term, such maximum may be exceeded due to
the Rule 12b-1 plan applicable to Class A shares which permits the Fund to pay
up to 0.50% in total annual fees, half for service and the other half for
distribution. The 12b-1 fees for the Class A shares have been restated to
reflect the current fees under the recently amended Class A 12b-1 Plans.
(2)Sales "load" is referred to as sales "charge", "deferred sales load" is
referred to as "contingent deferred sales charge" (or "CDSC") and "12b-1 fees"
which consist of a "service fee" and a "distribution fee" are referred to by
either or both of these terms where appropriate with respect to Class A, Class B
and Class C shares throughout this Prospectus.
(3)Class B shares will automatically convert to Class A shares on the eighth
anniversary of the purchase of Class B shares.
(4)For Class A and B shares, the annual operating expenses shown in the summary
have been restated from November 30, 1996 fiscal-year amounts to reflect current
fees. For the Class C shares, annual operating expenses have been estimated
based on expenses incurred by Class A and B shares because Class C shares were
not available for purchase prior to April 1, 1997. The foregoing is provided to
give investors a better understanding of the expenses that are incurred by an
investment in a Series.
</FN>
</TABLE>
3 FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche llp, independent
public accountants, in connection with their annual audits of the Financial
Statements of each Series, whose report thereon is incorporated by reference in
the Statement of Additional Information and may be obtained upon request, and
has been included herein in reliance upon their authority as experts in auditing
and accounting.
<TABLE>
<CAPTION>
LARGE-CAP SERIES CLASS A SHARES CLASS B SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(COMMENCEMENT AUGUST 1, 1996+
PER SHARE OPERATING YEAR ENDED NOVEMBER 30, OF OPERATIONS) TO TO
PERFORMANCE: 1996 1995 1994 1993 NOVEMBER 30, 1992 NOVEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.54 $12.79 $12.33 $10.61 $10.00 $15.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income .270 .42 .34 .29 .12 .12
Net realized and unrealized
gain on securities 3.505 3.44 .65 1.57 .49 2.66
TOTAL FROM INVESTMENT OPERATIONS 3.775 3.86 .99 1.86 .61 2.78
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.57) (.29) (.20) (.14) ----- (.19)
Distributions from net realized gain (.885) (.82) (.33) ----- ----- -----
NET ASSET VALUE, END OF PERIOD $17.86 $15.54 $12.79 $12.33 $10.61 $17.83
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 26.25% 32.82% 8.21% 17.72% 6.10%++ 18.39%++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .36% .00% .00% .00% .00%++ .59%++
Expenses, excluding waiver .96% 1.02% 1.15% 1.20% .79%++ .59%++
Net investment income 2.24% 3.27% 2.65% 2.44% 1.39%++ .22%++
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LARGE-CAP SERIES JUNE 3, 1992
(COMMENCEMENT
YEAR ENDED NOVEMBER 30, OF OPERATIONS) TO
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 1996 1995 1994 1993 NOVEMBER 30, 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets, end of period (000) $23,592 $7,549 $5,558 $4,086 $2,372
Portfolio turnover rate 62.25% 37.17% 43.85% 74.16% 20.70%
Average commissions per share paid
on equity transactions $ .056 ----- ----- ----- -----
<FN>
*Total return does not consider the effects of front-end or contingent
deferred sales charges.
+Commencement of offering Class B shares.
++Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMALL-CAP SERIES CLASS A SHARES CLASS B SHARES
DECEMBER 13, 1995** NOVEMBER 15, 1996+
TO TO
PER SHARE OPERATING PERFORMANCE: NOVEMBER 30, 1996 NOVEMBER 30,1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $11.67
INCOME FROM INVESTMENT OPERATIONS
Net investment income .127 .001
Net realized and unrealized
gain on securities 2.658 .329
TOTAL FROM INVESTMENT OPERATIONS 2.785 .33
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividend from net investment income (.075) -----
Distribution from net realized gain (.700) -----
NET ASSET VALUE, END OF PERIOD $12.01 $12.00
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN* 28.24%++ 2.84%++
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .01%++ .04%++
Expenses, excluding waiver 1.00%++ .07%++
Net investment income 1.02%++ .01%++
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL-CAP SERIES
DECEMBER 13, 1995**
TO
SUPPLEMENTAL DATA FOR ALL CLASSES: NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Net assets, end of period (000) $8,772
Portfolio turnover rate 110.09%
Average commissions per share paid on
equity transactions $ .052
- --------------------------------------------------------------------------------
<FN>
*Total return does not consider the effects of front-end or contingent
deferred sales charges.
**Commencement of Operations.
+Commencement of offering Class B shares.
++Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
4 HOW WE INVEST
Large-Cap Series. The Large-Cap Series invests primarily in common stocks
(including securities convertible into common stocks such as investment-grade
convertible bonds or convertible-preferred stocks) of companies whose
outstanding equity securities have an aggregate market value of at least $1.5
billion. Under normal circumstances, at least 65% of the Large-Cap Series' total
assets will consist of investments made in large-cap companies, determined at
the time of purchase. These companies will have good prospects for improvement
in earnings trends or asset values. The Large-Cap Series will invest in
companies on the basis of the fundamental economic and business factors (such as
government, fiscal and monetary policies, employment levels, demographics,
retail sales and market share) which will affect future earnings and which the
Large-Cap Series believes are the primary factors determining the future market
valuation of stocks. 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. There can be no assurance that stocks selected for our portfolio will
appreciate in value or that their dividends will increase or be maintained.
In selecting securities for investment, the Large-Cap Series gives more weight
to the possibilities of capital growth and growth of income than to current
income. In seeking to fulfill our objective, we will invest also in both small
and middle-sized companies, as measured by the value of their outstanding stock
guided by the policies mentioned herein. Stock prices of such small-sized
companies may be more volatile than those of large- and middle-sized companies.
By concentrating our research and stock selection on companies that are
undervalued or out of current investment favor, our investment portfolio
typically will encompass less market risk as measured by its
price-to-normal-earnings and price-to-book-value ratios. The Large-Cap Series'
management process results in the sale of stocks that we judge to be overpriced
and reinvestment in other securities that we believe offer better values and
less market risk.
The Large-Cap Series' investment portfolio will be diversified among many
issuers representing many different industries. The portfolio reflects the
collective judgment of the Research Department of Lord, Abbett & Co. ("Lord
Abbett") as to what securities represent the greatest investment value,
regardless of industry sector, market capitalization, or Wall Street
sponsorship. At the time of purchase, securities selected for our portfolio may
be largely neglected by the investment community or, if widely followed, they
may be out of favor or at least controversial.
Up to 10% of the Large-Cap Series' net assets (at the time of investment) may be
invested in foreign securities (of the type described herein) primarily traded
in foreign countries.
We may write covered call options for securities in our portfolio with a market
value of up to 5% of our gross assets at the time an option is written. We may
use these options, which are traded on a national securities exchange, to
increase our income and to provide greater flexibility in the disposition of our
portfolio securities.
The Large-Cap Series may engage in (a) lending of portfolio securities to
broker-dealers on a secured basis and (b) investing in rights and warrants to
purchase securities. The Large--Cap Series has no present intention to commit
more than 5% of its gross assets to any one of these two identified practices.
The term "warrants" includes warrants which are not listed on the New York or
American Stock Exchanges. Such unlisted warrants may not exceed 2% of the
Large-Cap Series' assets.
The Large-Cap Series may invest in closed-end investment companies if bought in
the secondary market with a fee or commission no greater than the customary
broker's commission in compliance with the Investment Company Act of 1940.
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 we and the closed-end investment company both charge
a management fee.
The Large-Cap Series may deal in financial futures transactions with respect to
the type of securities described herein, including indices of such securities
and options on such financial futures. The Large-Cap Series 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 Series' total assets.
Small-Cap Series. The Small-Cap Series will attempt to achieve its objective by
investing primarily in a carefully selected portfolio of common stocks. Dividend
and investment income is of incidental importance, and the Small-Cap Series may
invest in securities which do not produce any income. Although the Small-Cap
Series typically will hold a large, diversified number of securities identified
through a quantitative, value-driven investment strategy, it does entail
above-average investment risk in comparison to the overall U.S. stock market.
Shares of the Small-Cap Series should be purchased with a long-term view in
mind.
The stocks in which the Small-Cap Series generally invests are those which, in
Fund management's judgment, are selling below intrinsic value and at prices that
do not adequately reflect their long-term business potential. Selected smaller
stocks may be undervalued because they are often overlooked by many investors,
or because the public is overly pessimistic about a company's prospects.
Accordingly, their prices can rise either as a result of improved business
fundamentals, particularly when earnings grow faster than general expectations,
or as more investors come to recognize the full extent of a company's underlying
potential. The price of shares in relation to book value, sales, asset value,
earnings, dividends and cash flow, both historical and prospective, are key
determinants in the security selection process. These criteria are not rigid,
and other stocks may be included in the Small-Cap Series' portfolio if they are
expected to help it attain its objective. These criteria can be changed by the
Fund's Board of Directors.
<PAGE>
The Small-Cap Series also may invest in preferred stocks and bonds, which have
either attached warrants or a conversion privilege into common stocks. In
addition, the Small-Cap Series may: purchase options on stocks that it holds as
protection against a significant price decline; purchase and sell stock index
options and futures to hedge overall market risk and the investment of cash
flows; and write listed put and listed covered call options. See "Hedging and
Income Enhancement Strategies" below.
In seeking to achieve its investment objective, the Small-Cap Series generally
will invest in common stocks with smaller market capitalizations than those of
the stocks included in the Dow Jones Industrial Average or the Composite Index.
As a result, under normal circumstances, at least 65% of the Small-Cap Series'
total assets will be invested in common stocks issued by smaller, less
well-known companies (with market capitalizations of less than $1 billion)
selected on the basis of fundamental investment analysis. The Small-Cap Series
may, however, invest up to 35% of its total assets in the securities of any
issuer without regard to its size or the market capitalization of its common
stock. Companies in which the Small-Cap Series is likely to invest may have
limited product lines, markets or financial resources and may lack management
depth or experience. The securities of these companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.
HEDGING AND INCOME ENHANCEMENT STRATEGIES. The Small-Cap Series also may engage
in various portfolio strategies, to reduce certain risks of its investments and
to attempt to enhance income, but not for speculation. These strategies include
the purchase and sale of put and call options, and the purchase and sale of
stock index futures and strategy combinations. Fund management will use such
techniques as market conditions warrant. The Small-Cap Series' ability to use
these strategies may be limited by market conditions, regulatory limitations and
tax considerations and there can be no assurance that any of these strategies
will succeed. See "Investment Objective and Policies" in the Statement of
Additional Information. New financial products and risk management techniques
continue to be developed and the Small-Cap Series may use these new investments
and techniques to the extent consistent with its investment objective and
policies.
OPTIONS TRANSACTIONS. The Small-Cap Series may purchase and write (i.e., sell)
put and call options on equity securities or stock indices that are traded on
national securities exchanges. A call option on equity securities gives the
purchaser, in return for a premium paid, the right for a specified period of
time to purchase the securities subject to the option at a specified price (the
"exercise price" or "strike price"). The writer of a call option, in return for
the premium, has the obligation, upon exercise of the option, to deliver,
depending upon the terms of the option contract, the underlying securities to
the purchaser upon receipt of the exercise price. When the Small-Cap Series
writes a call option, it gives up the potential for gain on the underlying
securities in excess of the exercise price of the option during the period that
the option is open.
A put option on equity securities gives the purchaser, in return for a premium,
the right, for a specified period of time, to sell the securities subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities underlying the option at the exercise
price. The Small-Cap Series, as the writer of a put option, might therefore be
obligated to purchase underlying securities for more than their current market
value.
Options on stock indices are similar to options on equity securities except
that, rather than the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if the
closing level of the stock index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of an index option, in return for a premium, is obligated
to pay the amount of cash due upon exercise of the option.
The Small-Cap Series will write only "covered" options. An option is covered if,
so long as the Small-Cap Series is obligated under the option, it owns an
offsetting position in the underlying securities or maintains cash, U.S.
Government securities or other liquid high-grade debt obligations with a value
sufficient at all times to cover its obligations in a segregated account. See
"Investment Objective and Policies -- Limitation on Purchase and Sale of Stock
Options, Options on Stock Indices and Stock Index Futures" in the Statement of
Additional Information.
There is no limitation on the amount of call options the Small-Cap Series may
write. The Small-Cap Series may only write covered put options to the extent
that cover for such options does not exceed 25% of the Small-Cap Series' net
assets. The Small-Cap Series will not purchase an option if, as a result of such
purchase, more than 20% of its total assets would be invested in premiums for
such options.
STOCK INDEX FUTURES. The Small-Cap Series may purchase and sell stock index
futures, which are traded on a commodities exchange or board of trade for
certain hedging and risk management purposes, in accordance with regulations of
the Commodities Futures Trading Commission.
A stock index futures contract is an agreement in which one party agrees to
deliver to another an amount of cash equal to a specific dollar amount times the
difference between a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
The Small-Cap Series may not purchase or sell stock index futures if,
immediately thereafter, more than one-third of its net assets would be hedged.
In addition, except in the case of a call written and held on the same index,
the Small-Cap Series will write call options on indices or sell stock index
futures only if the amount resulting from the multiplication of the then current
level of the index (or indices) upon which the options or futures contract(s) is
based, the applicable multiplier(s), and the number of futures or options
contracts which would be outstanding would not exceed one-third of the value of
the Small-Cap Series' net assets.
<PAGE>
The Small-Cap Series' ability to enter into stock index futures and listed
options is limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), for qualification, as a regulated
investment company. See "Taxes" in the Statement of Additional Information.
FOREIGN INVESTMENTS. Up to 35% of the Small-Cap Series' net assets (at the time
of investment) may be invested in securities (of the type described above) that
are primarily traded in foreign countries. See "Risk Factors" below.
FOREIGN CURRENCY HEDGING TECHNIQUES. The Small-Cap Series may utilize various
foreign currency hedging techniques described below.
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 Small-Cap
Series may enter into forward foreign currency contracts in primarily two
circumstances. First, when the Small-Cap Series desires 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 Small-Cap Series 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, when Fund management believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, the Small-Cap Series 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 or, in the alternative, 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 but that has a lower transaction cost.
Precise matching of the forward contract and the value of the securities
involved will generally not be possible.
The Small-Cap Series also may purchase foreign currency put options and write
foreign currency call options on U.S. exchanges or U.S. over-the-counter markets
(OTC options are generally less liquid and involve issuer credit risk). A put
option gives the Small-Cap Series, 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 Small-Cap Series.
Unlisted options, together with other illiquid securities, may comprise no more
than 15% of the Small-Cap Series' net assets.
A foreign currency call option written by the Small-Cap Series gives the
purchaser, upon payment of a premium, the right to purchase from the Small-Cap
Series a currency at the exercise price until the expiration of the option. The
Small-Cap Series 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 or cross-hedging
(described above) may not exceed 90% of the value of the securities denominated
in such currency (a) invested in by the Small-Cap Series to cover such call
writing or (b) to be crossed.
The Small-Cap Series may engage in (a) investing in closed-end investment
companies, (b) investing in straight bonds or other debt securities, including
lower rated, high-yield bonds, (c) lending of its portfolio securities to
broker-dealers on a secured basis and (d) investing in rights and warrants to
purchase securities (included within these purchases, but not exceeding 2% of
the value of Small-Cap Series assets, may be warrants which are not listed on
the New York or American Stock Exchanges), but the Small-Cap Series has no
present intention to commit more than 5% of gross assets to any one of these
four identified practices. The Small-Cap Series will not invest more than 5% of
its assets (at the time of investment) in lower rated (BB/Ba or lower),
high-yield bonds.
The Small-Cap Series may, on occasion, enter into repurchase agreements whereby
the seller of a security agrees to repurchase that security at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Small-Cap
Series' money is invested in the security. The Small-Cap Series' repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the purchase price, including accrued interest earned on the underlying
securities. The instruments held as collateral are valued daily, and if the
value of the instruments declines, the Small-Cap Series will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Small-Cap Series may incur a loss.
The Small-Cap Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Small-Cap Series with payment and
delivery taking place as much as a month or more in the future in order to
secure what is considered to be an advantageous price and yield to the Series at
the time of entering other liquid high-grade debt obligations having a value
equal to or greater than the Series' purchase commitments; the custodian will
likewise segregate securities sold on a delayed delivery basis. The securities
so purchased are subject to market fluctuation and no interest accrues to the
purchaser during the period between purchase and settlement. At the time of
delivery of the securities the value may be more or less than the purchase price
and an increase in the percentage of the Small-Cap Series' assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Series' net asset value.
<PAGE>
The Small-Cap Series may make short sales of securities or maintain a short
position, provided that at all times when a short position is open the Series
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal amount
of the securities of the same issuer as the securities sold short (a "short sale
against-the-box"), and that not more than 25% of the Series' net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. The Small-Cap Series does not intend to have more than 5% of its
net assets (determined at the time of the short sale) subject to short sales
against-the-box.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities unless
the Small-Cap Series and the counterparty have provided for the Series, at the
Series' election, to unwind the OTC option. The exercise of such an option
ordinarily would involve the payment by the Small-Cap Series of an amount
designed to reflect the counterparty's economic loss from an early termination,
but does allow the Series to treat the assets used as "cover" as "liquid."
The Small-Cap Series will not change its investment objective without
shareholder approval. If the Series determines that its objective can best be
achieved by a substantive change in investment policy or strategy, the Small-Cap
Series may make such a change without shareholder approval by disclosing it in
the prospectus.
OTHER POLICIES COMMON TO BOTH SERIES. Each Series may invest up to 15% of its
net assets in illiquid securities. Securities determined by the Directors to be
liquid pursuant to Securities and Exchange Commission Rule 144A (the "Rule")
will not be subject to this limit. Investments in Rule 144A securities initially
determined to be liquid could have the effect of diminishing the level of a
Series' liquidity during periods of decreased market interest in such
securities. Under the Rule, a qualifying unregistered security may be resold to
a qualified institutional buyer without registration and without regard to
whether the seller originally purchased the security for investment.
Each Series will not borrow money, except as a temporary measure for
extraordinary or emergency purposes and then not in excess of 5% of its gross
assets at the lower of cost or market value.
For temporary defensive purposes or to create reserve purchasing power pending
other investments, each Series may invest in high-quality, short-term debt
obligations of banks, corporations or the U.S. Government of the type normally
owned by a money market fund. Neither an issuer's ceasing to be rated investment
grade nor a rating reduction below that grade will require elimination of a bond
from our portfolios.
RISK FACTORS. If a Series remains small, there is risk that redemptions may (a)
cause portfolio securities to be sold prematurely (at a loss or gain, depending
upon the circumstances) or (b) hamper or prevent a contemplated portfolio
security purchase. Securities markets of foreign countries in which we 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.
There may be less publicly-available information on publicly-traded companies,
banks and governments in foreign countries than generally is the case for such
entities in the United States. The lack of uniform accounting standards and
practices among countries impairs the validity of direct comparisons of
valuation measures (such as price/earnings ratios) for securities in different
countries. Other considerations include political and social instability,
expropriation, higher transaction costs, currency fluctuations, withholding
taxes that cannot be passed through as a tax credit or reduction to shareholders
and different securities settlement practices. Foreign securities may be traded
on days that we do not value our portfolio securities, and, accordingly, net
asset values may be significantly affected on days when shareholders do not have
access to a Series.
Under normal circumstances, each Series will invest primarily in common stocks,
and/or securities convertible into common stocks, which subjects a Series to
market risk, that is, the possibility that common stock prices will decline over
short or even extended periods.
RISK FACTOR UNIQUE TO THE SMALL-CAP SERIES. Although the Small-Cap Series may
invest, from time to time, in stocks of large-sized and small-sized companies
guided by the policies mentioned above, the small capitalized companies in which
it primarily invests may offer significant appreciation potential. However,
smaller companies may carry more risk than larger companies. Generally, small
companies rely on limited product lines and markets, financial resources, or
other factors, and this may make them more susceptible to setbacks or economic
downturns. Small capitalized companies may be more volatile in price, normally
have fewer shares outstanding and trade less frequently than large companies.
Therefore, the securities of smaller companies may be subject to wider price
fluctuations. In many instances, the securities of smaller companies are traded
over the counter and may not be traded in the volume typical of a national
securities exchange.
Risks of Hedging and Income Enhancement Strategies. Participation in the options
or futures markets involves investment risks and transaction costs to which the
Small-Cap Series would not be subject absent the use of these strategies. If the
Small-Cap Series management's prediction of movement in the direction of the
securities markets is inaccurate, the adverse consequences to the Series may
leave it in a worse position than if such strategies were not used. Risks
inherent in the use of options and stock index futures include (1) dependence on
management's ability to predict correctly movements in the direction of specific
securities being hedged or the movement in stock indices; (2) imperfect
correlation between the price of options and stock index futures and options
thereon and movements in the prices of the securities being hedged; (3) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and (6)
daily limits on price variance for a futures contract or related options imposed
by certain futures exchanges and boards of trade may restrict transactions in
such securities on a particular day. See "Investment Objective and Policies" and
"Taxes" in the Statement of Additional Information.
<PAGE>
PORTFOLIO TURNOVER. The Portfolio turnover rate for the fiscal year ended
November 30, 1996 for the Large-Cap Series was 62.25% compared to 37.17% for the
prior fiscal year. For the period December 13, 1995 (commencement of operations)
to November 30, 1996, the Small-Cap Series' portfolio turnover rate was 110.09%.
5 PURCHASES
ALTERNATIVE SALES ARRANGEMENTS
CLASSES OF SHARES. Each Series offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will likely
have different share prices. Investors should read this section carefully to
determine which class represents the best investment option for their particular
situation.
CLASS A SHARES. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees. If you purchase Class
A shares as part of an investment of at least $1 million (or for Retirement
Plans with at least 100 eligible employees), in shares of one or more Lord
Abbett-sponsored funds, you will not pay an initial sales charge, but if you
redeem any of those shares within 24 months after the month in which you buy
them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%.
Class A shares are subject to service and distribution fees that are currently
estimated to total annually approximately 0.25 of 1% of the annual net asset
value of the Class A shares. The initial sales charge rates, the CDSC and the
Rule 12b-1 plan applicable to the Class A shares are described in "Buying Class
A Shares" below.
CLASS B SHARES. If you buy Class B shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the sixth anniversary of
buying them, you will normally pay a CDSC to Lord Abbett Distributor LLC ("Lord
Abbett Distributor"). That CDSC varies depending on how long you own shares.
Class B shares are subject to service and distribution fees at an annual rate of
1% of the annual net asset value of the Class B shares. The CDSC and the Rule
12b-1 plan applicable to the Class B shares are described in "Buying Class B
Shares" below.
CLASS C SHARES. If you buy Class C shares, you pay no sales charge at the time
of purchase, but if you redeem your shares before the first anniversary of
buying them, you will normally pay the Fund a CDSC of 1%. Class C shares are
subject to service and distribution fees at an annual rate of 1% of the annual
net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan
applicable to the C shares are described in "Buying Class C Shares" below.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that a Series is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors that you should
discuss with your financial adviser. Class-specific expenses and the effect of
the different types of sales charges on your investment will affect your
investment results over time. The most important factors are how much you plan
to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in a Series. We used the sales charge rates that apply
to Class A, Class B and Class C, and considered the effect of the higher
distribution fees on Class B and Class C expenses (which will affect your
investment return). Of course, the actual performance of your investment cannot
be predicted and will vary, based on a Series' actual investment returns, the
operating expenses borne by each class of shares, and the class of shares you
purchase. The factors briefly discussed below are not intended to be investment
advice, guidelines or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
<PAGE>
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 that you expect
to hold for 5 or 6 years (or more). For investments over $250,000 that you
expect to hold 4 to 6 years (or more), Class A shares may become more
appropriate than Class C. If you are investing $500,000 or more, Class A may
become more desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees, in most cases Class A shares will be the most
advantageous choice, no matter how long you intend to hold your shares. For that
reason, Lord Abbett Distributor normally will not accept purchase orders (i) for
Class B shares of $500,000 or more and for Class C shares of $1,000,000 or more
from a single investor or (ii) for Class B or C shares for Retirement Plans with
at least 100 eligible employees.
Investing for the Longer Term. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more, Class B shares may
be an appropriate investment option, if you plan to invest less than $100,000.
If you plan to invest more than $100,000 over the long term, Class A shares will
likely be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in Class
A shares under the Fund's Rights of Accumulation.
Of course, these examples are based on approximations of the effect of current
sales charges and expenses on a hypothetical investment over time, and should
not be relied on as rigid guidelines.
ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" for more information
about the 12% annual waiver of the CDSC. You should carefully review how you
plan to use your investment account before deciding which class of shares you
buy. For example, the dividends payable to Class B and Class C shareholders will
be reduced by the expenses borne solely by each of these classes, such as the
higher distribution fee to which Class B and Class C shares are subject, as
described below.
HOW DOES IT AFFECT PAYMENTS TO MY BROKER? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A and B shares and is paid over
time, so long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC for the
Class B shares and the distribution fee for Class B and Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A shares: to
compensate brokers and other persons selling such shares. The CDSC, if payable,
supplements the Class B distribution fee and reduces the Class C distribution
fee expenses for a Series and Class C shareholders.
GENERAL
HOW MUCH MUST YOU INVEST? You may buy our shares through any independent
securities dealer having a sales agreement with Lord Abbett Distributor, our
exclusive selling agent. Place your order with your investment dealer or send it
to Lord Abbett Research Fund, Inc. (P.O. Box 419100, Kansas City, Missouri
64141). The minimum initial investment is $1,000 except for Individual
Retirement Accounts, Invest-A-Matic and Div-Move ($250 initial and $50
subsequent minimum for the latter two). See "Shareholder Services." For
information regarding the proper form of a purchase or redemption order, call
the Fund at 800-821-5129. This offering may be suspended, changed or withdrawn.
Lord Abbett Distributor reserves the right to reject any order.
The net asset value of our shares is calculated every business day as of the
close of the New York Stock Exchange ("NYSE") by dividing net assets by the
number of shares outstanding. Securities are valued at their market value as
more fully described in the Statement of Additional Information.
BUYING SHARES THROUGH YOUR DEALER. Orders for shares received by the Fund prior
to the close of the NYSE, or received by dealers prior to such close and
received by Lord Abbett Distributor prior to the close of its business day, will
be confirmed at the applicable public offering price effective at such NYSE
close. Orders received by dealers after the NYSE closes and received by Lord
Abbett Distributor in proper form prior to the close of its next business day
are executed at the applicable public offering price effective as of the close
of the NYSE on that next business day. The dealer is responsible for the timely
transmission of orders to Lord Abbett Distributor. A business day is a day on
which the NYSE is open for trading.
Lord Abbett Distributor may, for specified periods, allow dealers to retain the
full sales charge for sales of shares during such periods, or pay an additional
concession to a dealer who, during a specified period, sells a minimum dollar
amount of our shares and/or shares of other Lord Abbett-sponsored funds. In some
instances, such additional concessions will be offered only to certain dealers
expected to sell significant amounts of shares. Lord Abbett Distributor may,
from time to time, implement promotions under which Lord Abbett Distributor will
pay a fee to dealers with respect to certain purchases not involving imposition
of a sales charge. Additional payments may be paid from Lord Abbett
Distributor's own resources and will be made in the form of cash or, if
permitted, non-cash payments. The non-cash payments will include business
seminars at resorts or other locations, including meals and entertainment, or
the receipt of merchandise. The cash payments will include payment of various
business expenses of the dealer. In selecting dealers to execute portfolio
transactions for the Fund's portfolio, if two or more dealers are considered
capable of obtaining best execution, we may prefer the dealer who has sold our
shares and/or shares of other Lord Abbett-sponsored funds.
<PAGE>
BUYING CLASS A SHARES . The offering price of Class A shares is based on the
per-share net asset value next computed after your order is accepted plus a
sales charge as follows.
SALES CHARGE AS A DEALER'S
PERCENTAGE OF: CONCESSION
AS A TO COMPUTE
NET PERCENTAGE OFFERING
OFFERING AMOUNT OF OFFERING PRICE, DIVIDE
SIZE OF INVESTMENT PRICE INVESTED PRICE NAV BY
- --------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00% .9425
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% 4.00% .9525
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.25% .9725
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
- --------------------------------------------------------------------------------
$1,000,000 or more No sales charge 1.00%+ 1.0000
- --------------------------------------------------------------------------------
+AUTHORIZED INSTITUTIONS RECEIVE CONCESSIONS ON PURCHASES MADE BY A RETIREMENT
PLAN OR OTHER QUALIFIED PURCHASER WITHIN A 12-MONTH PERIOD (BEGINNING WITH THE
FIRST NET ASSET VALUE PURCHASE) AS FOLLOWS: 1.00% ON PURCHASES OF $5 MILLION,
0.55% OF THE NEXT $5 MILLION, 0.50% OF THE NEXT $40 MILLION AND 0.25% ON
PURCHASES OVER $50 MILLION. SEE "CLASS A RULE 12B-1 PLAN" BELOW.
CLASS A SHARE VOLUME DISCOUNTS. This section describes several ways to qualify
for a lower sales charge when purchasing Class A shares if you inform Lord
Abbett Distributor or the Fund that you are eligible at the time of purchase.
(1) Any purchaser (as described below) may aggregate a Class A share purchase in
the Fund with any share purchases of any other eligible Lord Abbett-sponsored
fund, together with the current value at maximum offering price of any shares in
the Fund and in any eligible Lord Abbett-sponsored funds held by the purchaser.
(Holdings in the following funds are not eligible for the above rights of
accumulation: Lord Abbett Equity Fund ("LAEF"), Lord Abbett Series Fund
("LASF"), any series of Lord Abbett Research Fund not offered to the general
public ("LARF") and Lord Abbett U.S. Government Securities Money Market Fund
("GSMMF"), except for holdings in GSMMF which are attributable to any shares
exchanged from a Lord Abbett-sponsored fund.) (2) A purchaser may sign a
non-binding 13-month statement of intention to invest $50,000 or more in any
shares of the Fund or in any of the above eligible funds. If the intended
purchases are completed during the period, the total amount of your intended
purchases of any shares will determine the reduced sales charge rate for the
Class A shares purchased during the period. If not completed, each Class A share
purchase will be at the sales charge for the aggregate of the actual share
purchases. Shares issued upon reinvestment of dividends or distributions are not
included in the statement of intention. The term "purchaser" includes (i) an
individual, (ii) an individual and his or her spouse and children under the age
of 21 and (iii) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account (including a pension, profit-sharing,
or other employee benefit trust qualified under Section 401 of the Internal
Revenue Code -- more than one qualified employee benefit trust of a single
employer, including its consolidated subsidiaries, may be considered a single
trust, as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
CLASS A NET ASSET VALUE PURCHASES. Our Class A shares may be purchased at net
asset value by our directors, employees of Lord Abbett, employees of our
shareholder servicing agent and employees of any securities dealer having a
sales agreement with Lord Abbett Distributor who consents to such purchases or
by the trustee or custodian under any pension or profit-sharing plan or Payroll
Deduction IRA established for the benefit of such persons or for the benefit of
any national securities trade organization to which Lord Abbett or Lord Abbett
Distributor belongs or any company with an account(s) in excess of $10 million
managed by Lord Abbett on a private-advisory-account basis. For purposes of this
paragraph, the terms "directors" and "employees" include a director's or
employee's spouse (including the surviving spouse of a deceased director or
employee). The terms "directors" and "employees of Lord Abbett" also include
other family members and retired directors and employees. Our Class A shares
also may be purchased at net asset value (a) at $1 million or more, (b) with
dividends and distributions on Class A shares of other Lord Abbett-sponsored
funds, except for dividends and distributions on shares of LARF, LAEF and LASF,
(c) under the loan feature of the Lord Abbett-sponsored prototype 403(b) plan
for Class A share purchases representing the repayment of principal and
interest, (d) by certain authorized brokers, dealers, registered investment
advisers or other financial institutions who have entered into an agreement with
Lord Abbett Distributor in accordance with certain standards approved by Lord
Abbett Distributor, providing specifically for the use of our Class A shares in
particular investment products made available for a fee to clients of such
brokers, dealers, registered investment advisers and other financial
institutions ("mutual fund wrap fee programs"), (e) by employees, partners and
owners of unaffiliated consultants and advisers to Lord Abbett, Lord Abbett
Distributor or Lord Abbett-sponsored funds who consent to such purchase if such
persons provide services to Lord Abbett, Lord Abbett Distributor or such funds
on a continuing basis and are familiar with such fund, (f) through Retirement
Plans with at least 100 eligible employees, and (g) subject to appropriate
documentation, through a securities dealer where the amount invested represents
redemption proceeds from shares ("Redeemed Shares") of a registered open-end
management investment company not distributed or managed by Lord Abbett
Distributor or Lord Abbett (other than a money market fund), if such redemptions
have occurred no more than 60 days prior to the purchase of our Class A shares,
the Redeemed Shares were held for at least six months prior to redemption and
the proceeds of redemption were maintained in cash or a money market fund prior
to purchase. Purchasers should consider the impact, if any, of contingent
deferred sales charges in determining whether to redeem shares for subsequent
investment in our Class A shares. Lord Abbett Distributor may suspend or
terminate the purchase option referred to in (g) above at any time. We plan to
terminate the net asset value transfer privilege on June 1, 1997.
<PAGE>
CLASS A RULE 12B-1 PLAN. The Fund has adopted a Class A share Rule 12b-1 plan on
behalf of each Series (the "A Plans", each, an "A Plan") which authorizes the
payment of fees to authorized institutions (except as to certain accounts for
which tracking data is not available) in order to provide additional incentives
for them (a) to provide continuing information and investment services to their
Class A shareholder accounts and otherwise to encourage those accounts to remain
invested in the Series and (b) to sell Class A shares of the Series. Under the A
Plan, in order to save on the expense of shareholders' meetings and to provide
flexibility to the Board of Directors, the Board, including a majority of the
outside directors who are not "interested persons" of the Fund as defined in the
Investment Company Act of 1940, is authorized to approve annual fee payments
from a Series' Class A assets of up to 0.50 of 1% of the average net asset value
of such assets consisting of distribution and service fees, each at a maximum
annual rate not exceeding 0.25 of 1% (the "Fee Ceiling").
Under the A Plans, the Board has approved payments by the Fund to Lord Abbett
Distributor which uses or passes on to authorized institutions (1) an annual
service fee (payable quarterly) of .25% of the average daily net asset value of
the Class A shares serviced by authorized institutions and (2) a one-time
distribution fee of up to 1% (reduced according to the following schedule: 1% of
the first $5 million, .55% of the next $5 million, .50% of the next $40 million
and .25% over $50 million), payable at the time of sale on all Class A shares
sold during any 12-month period starting from the day of the first net asset
value sale (i) at the $1 million level by authorized institutions, including
sales qualifying at such level under the rights of accumulation and statement of
intention privileges or (ii) through Retirement Plans with at least 100 eligible
employees. In addition, the Board has approved for those authorized institutions
which qualify, a supplemental annual distribution fee equal to 0.10% of the
average daily net asset value of the Class A shares serviced by authorized
institutions that have a satisfactory program for the promotion of such shares
comprising a significant percentage of the Class A assets, with a lower than
average redemption rate. Institutions and persons permitted by law to receive
such fees are "authorized institutions".
Under the A Plans, Lord Abbett Distributor is permitted to use payments received
to provide continuing services to Class A shareholder accounts not serviced by
authorized institutions and, with Board approval, to finance any activity which
is primarily intended to result in the sale of Class A shares. Any such payments
are subject to the Fee Ceiling. Any payments under that Plan not used by Lord
Abbett Distributor in this manner are passed on to authorized institutions.
Holders of Class A shares on which the 1% sales distribution fee has been paid
may be required to pay such Series on behalf of its Class A shares a CDSC of 1%
of the original cost or the then net asset value, whichever is less, of all
Class A shares so purchased which are redeemed out of the Lord Abbett-sponsored
family of funds on or before the end of the twenty-fourth month after the month
in which the purchase occurred. (Exceptions are made for redemptions by
Retirement Plans due to any benefit payment such as Plan loans, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants or the distribution of any excess contributions.) If the Class A
shares have been exchanged into another Lord Abbett-sponsored fund and are
thereafter redeemed out of the Lord Abbett family of funds on or before the end
of such twenty-fourth month, the charge will be collected for the Series' Class
A shares by the other fund. The Series will collect such a charge for other Lord
Abbett-sponsored funds in a similar situation.
BUYING CLASS B SHARES. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed for
cash before the sixth anniversary of their purchase, a CDSC may be deducted from
the redemption proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The charge will be
assessed on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The Class B CDSC is paid to Lord
Abbett Distributor to compensate it for its services rendered in connection with
the distribution of Class B shares, including the payment and financing of sales
commissions. See "Class B Rule 12b-1 Plan" below.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held until the sixth anniversary of
their purchase or later, and (3) shares held the longest before the sixth
anniversary of their purchase.
The amount of the CDSC will depend on the number of years since you invested and
the dollar amount being redeemed, according to the following schedule.
ANNIVERSARY
OF THE DAY ON CONTINGENT DEFERRED
WHICH THE PURCHASE SALES CHARGE ON
ORDER WAS ACCEPTED REDEMPTIONS
(AS % OF AMOUNT
On Before SUBJECT TO CHARGE)
- --------------------------------------------------------------------------------
1st 5.0%
- --------------------------------------------------------------------------------
1st 2nd 4.0%
- --------------------------------------------------------------------------------
2nd 3rd 3.0%
- --------------------------------------------------------------------------------
3rd 4th 3.0%
- --------------------------------------------------------------------------------
4th 5th 2.0%
- --------------------------------------------------------------------------------
5th 6th 1.0%
- --------------------------------------------------------------------------------
on or after the None
6th anniversary
In the table, an "anniversary" is the 365th day subsequent to a purchase or a
prior anniversary. All purchases are considered to have been made on the
business day the purchase was made. See "Buying Shares Through Your Dealer"
above.
<PAGE>
If Class B shares are exchanged into the same class of another Lord
Abbett-sponsored fund and the new shares are subsequently redeemed for cash
before the sixth anniversary of the original purchase, the CDSC will be payable
on the new shares on the basis of the time elapsed from the original purchase.
The Series will collect such a charge for other Lord Abbett-sponsored funds in a
similar situation.
WAIVER OF CLASS B SALES CHARGES. The Class B CDSC will not be applied to shares
purchased in certain types of transactions nor will it apply to shares redeemed
in certain circumstances as described below. The Class B CDSC will be waived for
redemptions of shares (i) in connection with the Systematic Withdrawal Plan and
Div-Move services, as described in more detail under "Shareholder Services"
below, (ii) by Retirement Plans due to any benefit payment such as Plan loans,
hardship withdrawals, death, retirement or separation from service with respect
to plan participants or the distribution of any excess contributions, (iii) in
connection with mandatory distributions under 403(b) plans and individual
retirement accounts and (iv) in connection with the death of the shareholder.
CLASS B 12B-1 PLAN. The Fund has adopted a Class B share Rule 12b-1 plan on
behalf of each Series (the "B Plans", each a "B Plan") under which each Series
periodically pays Lord Abbett Distributor (i) an annual service fee of 0.25 of
1% of the average daily net asset value of the Class B shares and (ii) an annual
distribution fee of 0.75 of 1% of the average daily net asset value of Class B
shares that are outstanding for less than 8 years.
Lord Abbett Distributor uses the service fee to compensate authorized
institutions for providing personal services for accounts that hold Class B
shares. Those services are primarily similar to those provided under the A Plan,
described above.
Lord Abbett Distributor pays an up-front payment to authorized institutions
totalling 4%, consisting of 0.25% for service and 3.75% for a sales commission
as described below.
Lord Abbett Distributor pays the 0.25% service fee to authorized institutions in
advance for the first year after Class B shares have been sold by the authorized
institutions. After the shares have been held for a year, Lord Abbett
Distributor pays the service fee on a quarterly basis. Lord Abbett Distributor
is entitled to retain such service fee payable under the B Plans with respect to
accounts for which there is no authorized institution of record or for which
such authorized institution did not qualify. Although not obligated to do so,
Lord Abbett Distributor may waive receipt from the Series or part of all of the
service fee payments.
The 0.75% annual distribution fee is paid to Lord Abbett Distributor to
compensate it for its services rendered in connection with the distribution of
Class B shares, including the payment and financing of sales commissions.
Although Class B shares are sold without a front-end sales charge, Lord Abbett
Distributor pays authorized institutions responsible for sales of Class B shares
a sales commission of 3.75% of the purchase price. This payment is made at the
time of sale from Lord Abbett Distributor's own resources. Lord Abbett has made
arrangements to finance these commission payments, which arrangements include
non-recourse assignments by Lord Abbett Distributor to the financing party of
such distribution and CDSC payments which are made to Lord Abbett Distributor by
shareholders who redeem their Class B shares within six years of their purchase.
The distribution fee and CDSC payments described above allow investors to buy
Class B shares without a front-end sales charge while allowing Lord Abbett
Distributor to compensate authorized institutions that sell Class B shares. The
CDSC is intended to supplement Lord Abbett Distributor's reimbursement for the
commission payments it has made with respect to Class B shares and its related
distribution and financing costs. The distribution fee payments are at a fixed
rate and the CDSC payments are of a nature that, during any year, both forms of
payment may not be sufficient to reimburse Lord Abbett Distributor for its
actual expenses. Neither Series is liable for any expenses incurred by Lord
Abbett Distributor in excess of (i) the amount of such distribution fee payments
to be received by Lord Abbett Distributor and (ii) unreimbursed distribution
expenses of Lord Abbett Distributor incurred in a prior plan year, subject to
the right of the Board of Directors or shareholders to terminate a B Plan. Over
the long term, the expenses incurred by Lord Abbett Distributor are likely to be
greater than such distribution fee and CDSC payments. Nevertheless, there exists
a possibility that for a short-term period Lord Abbett Distributor may not have
sufficient expenses to warrant reimbursement by receipt of such distribution fee
payments. Although Lord Abbett Distributor undertakes not to make a profit under
the B Plans, a B Plan is considered a compensation plan (i.e., distribution fees
are paid regardless of expenses incurred) in order to avoid the possibility of
Lord Abbett Distributor not being able to receive distribution fees because of a
temporary timing difference between its incurring expenses and receipt of such
distribution fees.
AUTOMATIC CONVERSION OF CLASS B SHARES. On the eighth anniversary of your
purchase of Class B shares, those shares will automatically convert to Class A
shares. This conversion relieves Class B shareholders of the higher annual
distribution fee that applies to Class B shares under the Class B Rule 12b-1
Plan. The conversion is based on the relative net asset values of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions will also convert to Class A shares on a pro rata
basis. The conversion feature is subject to the continued availability of an
opinion of counsel or of a tax ruling described in "Purchases, Redemptions and
Shareholder Services" in the Statement of Additional Information.
BUYING CLASS C SHARES. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed for
cash before the first anniversary of their purchase, a CDSC of 1% will be
deducted from the redemption proceeds. That reimbursement charge
<PAGE>
will not apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net asset
value of the shares at the time of redemption or the original purchase price.
The Class C CDSC is paid to the appropriate Series to reimburse it, in whole or
in part, for the service and distribution fee payments made by the Series at the
time such shares were sold, as described below.
To determine whether the CDSC applies to a redemption, the Series redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held for one year or more and (3) shares
held the longest before the first anniversary of their purchase. If Class C
shares are exchanged into the same class of another Series or Lord
Abbett-sponsored fund and subsequently redeemed before the first anniversary of
their original purchase, the charge will be collected by the other Series or
fund on behalf of such Series' Class C shares. The Series will collect such a
charge for other Lord Abbett-sponsored funds in a similar situation.
CLASS C 12B-1 PLAN. The Fund has adopted a Class C share Rule 12b-1 Plan on
behalf of each Series (the "C Plans", each a "C Plan") under which (except as to
certain accounts for which tracking data is not available) the Series pays
authorized institutions through Lord Abbett Distributor (1) a service fee and a
distribution fee, at the time shares are sold, not to exceed 0.25 and 0.75 of
1%, respectively, of the net asset value of such shares and (2) at each
quarter-end after the first anniversary of the sale of shares, fees for services
and distribution at annual rates not to exceed 0.25 and 0.75 of 1% respectively,
of the average annual net asset value of such shares outstanding (payments with
respect to shares not outstanding during the full quarter to be prorated). These
service and distribution fees are for purposes similar to those mentioned above
with respect to the A Plan. Sales in clause (1) exclude shares issued for
reinvested dividends and distributions and shares outstanding in clause (2)
include shares issued for reinvested dividends and distributions after the first
anniversary of their issuance.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
Telephone Exchange Privilege: Shares may be exchanged, without a service charge:
(a) for shares of the same class of any other Lord Abbett-sponsored fund except
for (i) LAEF, LARF and LASF and (ii) certain tax-free single-state series where
the exchanging shareholder is a resident of a state in which such series is not
offered for sale and (b) for shares of any authorized institution's affiliated
money market fund satisfying Lord Abbett Distributor as to certain omnibus
account and other criteria (together, "Eligible Funds").
You or your representative with proper identification can instruct the Fund to
exchange uncertificated shares (held by the transfer agent) by telephone.
Shareholders have this privilege unless they refuse it in writing. The Fund will
not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification and recording all telephone exchanges. Instructions must be
received by the Fund in Kansas City (800-821-5129) prior to the close of the
NYSE to obtain each fund's net asset value per share on that day. Expedited
exchanges by telephone may be difficult to implement in times of drastic
economic or market change. The exchange privilege should not be used to take
advantage of short-term swings in the market. The Fund reserves the right to
terminate or limit the privilege of any shareholder who makes frequent
exchanges. The Fund can revoke the privilege for all shareholders upon 60 days'
prior written notice. A prospectus for the other Lord Abbett-sponsored fund
selected by you should be obtained and read before an exchange. Exercise of the
Exchange Privilege will be treated as a sale for federal income tax purposes
and, depending on the circumstances, a capital gain or loss may be recognized.
Systematic Withdrawal Plan ("SWP"): Except for Retirement Plans for which there
is no such minimum, if the maximum offering price value of your uncertificated
shares is at least $10,000, you may have periodic cash withdrawals automatically
paid to you in either fixed or variable amounts. With respect to Class B shares,
the CDSC will be waived on redemptions of up to 12% per year of the current net
asset value of your account at the time your SWP is established. For Class B
shares (over 12% per year) and C shares, redemption proceeds due to a SWP will
be derived from the following sources in the order listed: (1) shares acquired
by reinvestment of dividends and capital gains, (2) shares held for six years or
more (Class B) or one year or more (Class C); and (3) shares held the longest
before the sixth anniversary of their purchase (Class B) or before the first
anniversary of their purchase (Class C). For Class B share redemptions over 12%
per year, the CDSC will apply to the entire redemption. Therefore, please
contact the Fund for assistance in minimizing the CDSC in this situation.
Shareholders should be careful in establishing a SWP, especially to the extent
that such withdrawals exceed the annual total return for a class, in which case,
the shareholder's original principal will be invaded and, over time, may be
depleted.
Div-Move: You can invest the dividends paid on your account ($50 minimum
investment) into an existing account in any other Eligible Fund. The account
must be either your account, a joint account for you and your spouse, a single
account for your spouse, or a custodial account for your minor child under the
age of 21. Such dividends are not subject to a CDSC. You should read the
prospectus of the other fund before investing.
Invest-A-Matic: You can make fixed, periodic investments ($50 minimum
investment) into the Fund and/or any Eligible Fund by means of automatic money
transfers from your bank checking account. You should read the prospectus of the
other fund before investing. Retirement Plans: Lord Abbett makes available the
retirement plan forms, including 401(k) plans and custodial agreements for IRAs
(Individual Retirement Accounts, including Simple IRAs and Simplified Employee
Pensions), 403(b) plans and pension and profit-sharing plans.
<PAGE>
Householding: A single copy of an annual or semi-annual report will be sent to
an address to which more than one registered shareholder of the Fund with the
same last name has indicated mail is to be delivered, unless additional reports
are specifically requested in writing or by telephone. All correspondence should
be directed to the Lord Abbett Research Fund, Inc. (P.O. Box 419100, Kansas
City, Missouri 64141; 800-821-5129).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors with the advice of Lord Abbett. We employ
Lord Abbett as investment manager pursuant to a Management Agreement. Lord
Abbett has been an investment manager for over 67 years and currently manages
approximately $21 billion in a family of mutual funds and other advisory
accounts. Under the Management Agreement, Lord Abbett provides the Fund with
investment management services and executive and other personnel, pays the
remuneration of our officers and of our directors affiliated with Lord Abbett,
provides us with office space and pays for ordinary and necessary office and
clerical expenses relating to research, statistical work and supervision of our
portfolio and certain other costs. Lord Abbett provides similar services to
twelve other Lord Abbett-sponsored funds having various investment objectives
and also advises other investment clients. Robert G. Morris, Lord Abbett
partner, has been primarily responsible for oversight of the Large-Cap Series
since 1996, although he has been involved with the Series' management since
inception. Mr. Morris delegates management duties to a committee of research
professionals. Robert P. Fetch has been primarily responsible for the day-to-day
management of the Small-Cap Series since inception and is assisted by Gregory M.
Macosko. Prior to joining Lord Abbett, Mr. Fetch was a Managing Director of
Prudential Investment Advisors.
We are obligated to pay Lord Abbett a monthly fee based on average daily net
assets for each month at the annual rate of .75%. This fee may be higher than
that paid by other mutual funds. For the fiscal year ended November 30, 1996,
Lord Abbett waived $40,304 in management fees for the Large-Cap Series. The
Class A share ratio of expenses, including management fee expenses, to average
net assets for the year ended November 30, 1996 for the Large-Cap Series was
.36%. This Class A share expense ratio would have been .96% had Lord Abbett not
waived all or a portion of its management fee. For the period December 13, 1995
(commencement of operations) to November 30, 1996, Lord Abbett waived $24,461 in
management fees for the Small-Cap Series. The Class A share ratio of expenses,
including management fee expenses, to average net assets for the year ended
November 30, 1996 for the Small-Cap Series was .01% (not annualized). This Class
A share expense ratio would have been 1.00% (not annualized) had Lord Abbett not
waived all or a portion of its management fee.
THE FUND. The Fund is a diversified open-end management investment company
incorporated under Maryland law on April 6, 1992. Its Class A, B and C shares
have equal rights as to voting, dividends, assets and liquidation except for
differences resulting from certain class-specific expenses.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends from taxable net investment income may be taken in cash or reinvested
in additional shares at net asset value (without a sales charge) and are
expected to be paid to shareholders quarterly for the Large-Cap Series and
annually for the Small-Cap Series. If you elect a cash payment (i) a check will
be mailed to you as soon as possible after the monthly reinvestment date or (ii)
if you arrange for direct deposit, your payment will be wired directly to your
bank account within one day after the payable date.
A long-term capital gains distribution is made when we have net profits during
the year from sales of securities which we have held more than one year. If we
realize net short-term capital gains, they also will be distributed. Any capital
gains distributions are expected to be made in December and may be taken in cash
or reinvested in more shares at net asset value without a sales charge.
Dividends and distributions declared in October, November or December of any
year to shareholders of record as of a date in such a month will be treated for
federal income tax purposes as having been received by shareholders in that year
if they are paid before February 1 of the following year.
We intend to continue to meet the requirements of Subchapter M of the Internal
Revenue Code. We try to distribute to shareholders all of our net investment
income and net realized capital gains, so as to avoid the necessity of the Fund
paying federal income tax. Shareholders, however, must report dividends and
capital gains distributions as taxable income. Distributions derived from net
long-term capital gains which are designated by the Fund as "capital gains
dividends" will be taxable to shareholders as long-term capital gains, whether
received in cash or shares, regardless of how long a taxpayer has held the
shares. Under current law, net long-term capital gains of individuals and
corporations are taxed at the rates applicable to ordinary income, except that
the maximum rate for long-term capital gains for individuals is 28%. Legislation
has been proposed that would have the effect of reducing the federal income tax
rate on capital gains.
Shareholders may be subject to a $50 penalty under the Internal Revenue Code and
we may be required to withhold and remit to the U.S. Treasury a portion (31%) of
any redemption proceeds (including the value of shares exchanged into another
Lord Abbett-sponsored fund), and of any dividend or distribution on any account,
where the payee (shareholder) failed to provide a correct taxpayer
identification number or to make certain required certifications.
<PAGE>
We will inform shareholders of the federal tax status of each dividend and
distribution after the end of each calendar year. Shareholders should consult
their tax advisers concerning applicable state and local taxes as well as the
tax consequences of gains or losses from the redemption or exchange of our
shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited redemption procedures described above to
redeem shares directly, send your request to the Lord Abbett Research Fund, Inc.
(P.O. Box 419100, Kansas City, Missouri 64141) with signature(s) and any legal
capacity of the signer(s) guaranteed by an eligible guarantor, accompanied by
any certificates for shares to be redeemed and other required documentation. We
will make payment of the net asset value of the shares on the date the
redemption order was received in proper form. Payment will be made within three
days. The Fund may suspend the right to redeem shares for not more than seven
days or longer under unusual circumstances as permitted by Federal law. If you
have purchased Fund shares by check and subsequently submit a redemption
request, redemption proceeds will be paid upon clearance of your purchase check,
which may take up to 15 days. To avoid delays you may arrange for the bank upon
which a check was drawn to communicate to the Fund that the check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee. If your
dealer receives your order prior to the close of the NYSE and communicates it to
Lord Abbett Distributor, as our agent, prior to the close of Lord Abbett
Distributor's business day, you will receive the net asset value as of the close
of the NYSE on that day. If the dealer does not communicate such an order to
Lord Abbett until the next business day, you will receive the net asset value as
of the close of the NYSE on that next business day.
Shareholders who have redeemed their shares have a one-time right to reinvest,
into another account having the identical registration, in any of the Eligible
Funds at the then applicable net asset value (i) without the payment of a sales
charge or (ii) with reimbursement for the payment of any CDSC. Such reinvestment
must be made within 60 days of the redemption and is limited to no more than the
amount of the redemption proceeds.
Under certain circumstances and subject to 30 days' prior written notice, our
Board of Directors may authorize redemption of all of the shares in any account
in which there are fewer than 25 shares, resulting from redemption or exchange
not market action.
10 PERFORMANCE
The Fund completed its fiscal year on November 30, 1996 with net asset values
for the Class A and Class B shares of the Large-Cap Series of $17.86 and $17.83,
respectively. The net asset value for the Class A and B shares for the Small-Cap
Series were $12.01 and $12.00, respectively.
The strong performance the Large-Cap Series enjoyed over the past fiscal year
can be attributed to several factors. Overweighting of interest-sensitive
stocks, particularly financial companies, proved to be very beneficial. These
stocks increased in value toward the close of the fiscal year, as long-term
interest rates began to decline. Additionally, the Series' holdings in consumer
non-cyclical stocks were steadily increased during the year and performed well.
The Small-Cap Series' strong performance in 1996 can be attributed to three
sectors: industrial, technology and transportation. The technology sector
experienced a third quarter correction which allowed us to add to positions at
attractive prices. The Small-Cap Series' industrial and transportation holdings
were relatively steady performers throughout the year. The Small-Cap Series is
not sector weighted (diversified in proportion to an index) and, as such,
continues to rely on stock selection of undervalued companies in the small-cap
universe with solid fundamental prospects.
TOTAL RETURN. Total return for the one-, five- and ten-year periods represents
the average annual compounded rate of return on an investment of $1,000 in the
Fund at the maximum public offering price. When total return is quoted for Class
A shares, it includes the payment of the maximum initial sales charge. When
total return is shown for Class B and C shares, it reflects the effect of the
applicable CDSC. Total return also may be presented for other periods or based
on investments at reduced sales charge levels or net asset value. Any quotation
of total return not reflecting the maximum sales charge (front-end, level, or
back-end) would be reduced if such sales charge were used. Quotations of total
return for any period when an expense limitation is in effect will be greater
than if the limitation had not been in effect. See "Past Performance" in the
Statement of Additional Information for a more detailed discussion of the
computation of the Fund's total return.
This Prospectus does not constitute an offering in any jurisdiction in which
such offer is not authorized or in which the person making such offer is not
qualified to do so or to anyone to whom it is unlawful to make such offer. No
person is authorized to give any information or to make any representations not
contained in this Prospectus or in supplemental sales material authorized by the
Fund and no person is entitled to rely upon any information or representation
not contained herein or therein.
<PAGE>
The performance of the Class A shares of each multi-class Series which is shown
in the comparisons below will be greater than or less than that shown below for
Class B and Class C shares based on the differences in sales charges and fees
paid by shareholders investing in the different classes.
Comparison of change in value of a $10,000 investment in Class A shares of
Large-Cap Series, assuming reinvestment of all dividends and distributions, and
the unmanaged Standard & Poor's 500 Index.
The Fund The Fund S&P 500
at Net at Maximum Index
Date Asset Value Offering Price
- ----------------------------------------------------------------
6/3/92 10,000 9,425 10,000
11/30/92 10,610 10,000 10,534
11/30/93 12,490 11,772 11,597
11/30/94 13,516 12,739 11,719
11/30/95 17,952 16,921 16,048
11/30/96 22,665 21,362 20,503
Average Annual Total Return
for Class A Shares (3)
1 Year 3 Years Life of Series
19.00% 19.58% 18.40%
Average Annual Total Return
for Class B Shares(4)
Life of Series
(8/1/96-11/30/96)
12.48%
Comparison of change in value of a $10,000 investment in Class A shares of
Small-Cap Series, assuming reinvestment of all dividends and distributions, and
the unmanaged Russell 2000 Index.
The Fund The Fund Russell 2000
at Net at Maximum Index
Date Asset Value Offering Price
- ----------------------------------------------------------------
12/1/95 10,000
12/13/95 10,000 9,425
12/31/95 10,030 9,453 10,264
1/31/96 10,230 9,642 10,254
2/29/96 10,670 10,057 10,548
3/31/96 10,910 10,283 10,746
4/30/96 11,630 10,961 11,277
5/31/96 11,980 11,291 11,689
6/30/96 11,690 11,018 11,243
7/31/96 11,020 10,386 10,332
8/31/96 11,636 10,967 10,885
9/30/96 12,018 11,328 11,278
10/31/96 12,160 11,460 11,117
11/30/96 12,824 12,087 11,541
Average Annual Total Return
for Class A Shares(3)
Life of Series
(12/13/95-11/30/96)
20.80%
Average Annual Total Return
for Class B Shares(4)
Life of Series
(11/15/96-11/30/96)
-2.34%
(1)Data reflects the deduction of the maximum initial sales charge of 5.75%
applicable to Class A shares.
(2)Performance numbers for the unmanaged Standard & Poor's 500 Index and Russell
2000 Index do not reflect transaction costs or management fees. An investor
cannot invest directly in either of these indices. Since the Russell 2000 Index
only starts on the first day of the month, in the case of the Russell 2000
comparison to the Small-Cap Series, the Russell 2000 starts on December 1, 1995.
(3)Total return is the percent change in value, after deduction of the maximum
initial sales charge of 5.75% applicable to Class A shares, with all dividends
and distributions reinvested for the periods shown ending November 30, 1996
using the SEC-required uniform method to compute such return. The Class A shares
for the Large-Cap Series and Small-Cap Series commenced operations on June 3,
1992 and December 13, 1995, respectively.
(4)Class B shares for the Large-Cap Series and Small-Cap Series were first
offered on August 1, 1996 and November 15, 1996, respectively. Performance
numbers are not annualized and reflect the deduction of a 5% CDSC.
<PAGE>
Investment Manager and Underwriter
Lord, Abbett & Co. and Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend
Disbursing Agent
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
Auditors
Deloitte & Touche llp
Counsel
Debevoise & Plimpton
<PAGE>
Lord Abbett
Research Fund
Large-Cap Series
A mutual fund for individuals and institutional investors who seek growth of
capital and income with reasonable risk.
Small-Cap Series
A mutual fund for individuals and institutional investors seeking long-term
capital appreciation.
<PAGE>
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 1997
LORD ABBETT RESEARCH FUND, INC
LARGE-CAP SERIES
SMALL-CAP SERIES
This Statement of Additional Information is not a Prospectus. A Prospectus for
Lord Abbett Research Fund, Inc. (the "Fund"or "We") may be obtained from your
securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett
Distributor") at The General Motors Building, 767 Fifth Avenue, New York, New
York 10153-0203. This Statement relates to, and should be read in conjunction
with, the Prospectus dated April 1, 1997.
Our Board of Directors has authority to create and classify shares of common
stock in separate series, without further action by shareholders. To date,
50,000,000 shares of the Large-Cap Series and 50,000,000 shares of the Small-Cap
Series have been authorized at $0.001 par value. Both Series consist of three
classes (A, B and C). The Class C shares for both Series will be offered to the
public for the first time on or about April 1, 1997. The Board of Directors will
allocate these authorized shares among the classes of each Series from time to
time. All shares have equal noncumulative voting rights and equal rights with
respect to dividends, assets and liquidation, except for certain class-specific
expenses. They are fully paid and nonassessable when issued and have no
preemptive or conversion rights. Although no present plans exist to do so,
further series may be added in the future. The Investment Company Act of 1940,
as amended (the "Act"), requires that where more than one series exists, each
series must be preferred over all other series in respect of assets specifically
allocated to such series.
Rule 18f-2 under the Act provides that any matter required to be submitted, by
the provisions of the Act or applicable state law, or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Fund
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, the Rule exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through Lord Abbett
Distributor.
TABLE OF CONTEN PAGE
1. Investment Policies 2
2. Directors and Officers 10
3. Investment Advisory and Other Services 12
4. Portfolio Transactions 13
5. Purchases, Redemptions
and Shareholder Services 14
6. Past Performance 21
7. Taxes 22
8. Information About The Fund 23
9. Financial Statements 23
<PAGE>
1.
Investment Policies
FUNDAMENTAL INVESTMENT RESTRICTIONS
We are subject to the following investment restrictions which cannot be changed
without approval of the holders of a majority of our outstanding shares. Each
Series may not: (1) borrow money, except that (i) each Series 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) each Series may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) each Series may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and (iv) each Series 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 Series' 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 each Series 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 each Series 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 each Series 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 each Series, buy
securities of one issuer representing more than (i) 5% of each Series' 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. Each Series may
not: (1) borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes; (2) make short sales of
securities or maintain a short position except to the extent permitted by
applicable law; (3) invest knowingly more than 15% of its net assets (at the
time of investment) in illiquid securities, except for securities qualifying for
resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the
Board of Directors; (4) invest in the securities of other investment companies
except as permitted by applicable law; (5) invest in securities of issuers
which, with their predecessors, have a record of less than three years'
continuous operations, if more than 5% of each Series' total assets would be
invested in such securities (this restriction shall not apply to
mortgaged-backed securities, asset-backed securities or obligations issued or
guaranteed by the U. S. Government, its agencies or instrumentalities); (6) hold
securities of any issuer if more than 1/2 of 1% of the securities of such issuer
are owned beneficially by one or more officers or directors of the Fund or by
one or more partners or members of the Fund's underwriter or investment adviser
if these owners in the aggregate own beneficially more than 5% of the securities
of such issuer; (7) invest in warrants if, at the time of the acquisition, its
investment in warrants, valued at the lower of cost or market, would exceed 5%
of each Series' total assets (included within such limitation, but not to exceed
2% of each Series' total assets, are warrants which are not listed on the New
York or American Stock Exchange or a major foreign exchange); (8) invest in real
estate limited partnership interests or interests in oil, gas or other mineral
leases, or exploration or other development programs, except that each Series
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
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in the Fund'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 the Fund's
officers, directors, employees, or its investment adviser or any of the Fund's
officers, directors, partners or employees, any securities other than shares of
the Funds' common stock.
For the fiscal year ended November 30, 1996, the portfolio turnover rate was
62.25% for the Large-Cap Series compared to 37.17% for the previous year. For
the period December 13, 1995 (commencement of operations) to November 30, 1996,
the Small-Cap Series' portfolio turnover rate was 110.09%.
LENDING OF PORTFOLIO SECURITIES. Although both Series have no current intention
of doing so, each 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 ("NYSE") 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. Each Series will have the right to call a loan and obtain the securities
loaned at any time upon five days' notice. During the existence of a loan we
will receive the income earned on investment of collateral. The aggregate value
of the securities loaned will not exceed 5% of the value of either Series' gross
assets.
LARGE-CAP SERIES (ONLY)
OTHER INVESTMENT RESTRICTIONS
(WHICH CAN BE CHANGED WITHOUT SHAREHOLDER APPROVAL)
COVERED CALL OPTIONS. As stated in the Prospectus, the Large-Cap Series may
write covered call options on securities in our 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 a
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 Large-Cap Series 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 our net
premium). The Large-Cap Series also 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 the Large- Cap Series is unable to enter into a closing purchase
transaction, it may be required to hold a security that it otherwise might have
sold to protect against depreciation. The Large-Cap Series does not intend to
write covered call options with respect to securities with an aggregate market
value of more than 5% of the Series' gross assets at the time an option is
written. This percentage limitation will not be increased without prior
disclosure in the Series' current prospectus.
RIGHTS AND WARRANTS. The Large-Cap Series may invest in rights and warrants to
purchase securities. Included within that amount, but not to exceed 2% of the
value of the Large-Cap Series' net assets, may be warrants which are not listed
on the NYSE 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.
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.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS
GENERAL. The Large-Cap Series may engage in options and financial futures
transactions in accordance with the Large- Cap Series investment objective and
policies. Although the Large-Cap Series is not currently employing such options
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and financial futures transactions, the Series may engage in such transactions
in the future if it appears advantageous to us to do so, in order to cushion the
effects of fluctuating interest rates and adverse market conditions. The use of
options and financial futures, and possible benefits and attendant risks, are
discussed below, along with information concerning certain other investment
policies and techniques.
FINANCIAL FUTURES CONTRACTS. The Large-Cap Series 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 the Large-Cap Series 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. A "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 Large-Cap Series will not enter into any futures
contracts or options on futures contracts if the aggregate of the market value
of the securities covered by the Large-Cap Series outstanding futures contracts
and securities covered by futures contracts subject to the outstanding options
written by us would exceed 50% of the Large-Cap Series 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 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 Large-Cap Series 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 our 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 Large-Cap Series 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 Large-Cap
Series would be required to deposit with Series' custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by the Series. 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
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amount were used to directly purchase the same financial futures. Should the
event it intends to hedge (or protect) against not materialize, however, the
option may expire worthless, in which case the Large-Cap Series would lose the
premium paid therefor.
SEGREGATED ACCOUNTS. To the extent required to comply with Securities and
Exchange Commission Release 10666 and subsequent interpretation thereof by the
Commission or its staff, when purchasing a futures contract, or writing a put
option, the Large-Cap Series will maintain in a segregated account at its
custodian bank liquid high grade debt obligations, such as cash and U.S.
Government Securities to cover its position.
SMALL-CAP SERIES (ONLY)
OTHER INVESTMENT RESTRICTIONS
(WHICH CAN BE CHANGED WITHOUT SHAREHOLDER APPROVAL)
REPURCHASE AGREEMENTS. If the Small-Cap Series enters into repurchase agreements
as provided in clause (4) of the fundamental investment restrictions above, it
will do so 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 Small-Cap Series otherwise may invest.
FOREIGN CURRENCY HEDGING TECHNIQUES. The Small-Cap Series 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 Small-Cap Series expects to enter into forward
foreign currency contracts in primarily two circumstances. First, when the
Small-Cap Series 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 Small-Cap Series 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.
Second, when management believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, the Small-Cap Series may
enter into a forward contract to sell the amount of foreign currency
approximating the value of some or all of the Small-Cap Series' portfolio
securities denominated in such foreign currency or, in the alternative, the
Small-Cap Series may use a cross-hedging technique whereby it sells another
currency which the Small- Cap Series expects to decline in a similar way but
which has a lower transaction cost. 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 Small-Cap Series does not intend to enter into such forward contracts under
this second circumstance on a continuous basis.
Management of the Fund is by its officers on a day to day basis under the
overall supervision of the Board of Directors with advice of Lord, Abbett & Co.
FOREIGN CURRENCY PUT AND CALL OPTIONS. The Small-Cap Series also may purchase
foreign currency put options and write foreign currency call options on U.S.
exchanges or U.S. over-the-counter markets. A put option gives the Small- Cap
Series, 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 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. Unlisted options
generally are available in a wider range of
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currencies. Unlisted foreign currency options are generally less liquid than
listed options and involve the credit risk associated with the individual
issuer. Unlisted options, together with other illiquid securities, are subject
to a limit of 15% of the Small-Cap Series' net assets.
A call option written by the Small-Cap Series gives the purchaser, upon payment
of a premium, the right to purchase from the Series a currency at the exercise
price until the expiration of the option. The Small-Cap Series 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 Small-Cap Series or in such cross currency
(referred to above) to cover such call writing.
LIMITATIONS ON THE PURCHASES AND SALES OF STOCK OPTIONS, OPTIONS ON STOCK
INDICES AND STOCK INDEX FUTURES. The Small-Cap Series may write put and call
options on stocks only if they are covered, and such options must remain covered
so long as the Small-Cap Series is obligated as a writer. The Small-Cap Series
will not (a) write puts having an aggregate exercise price greater than 25% of
the Series' total net assets; or (b) purchase (i) put options on stocks not held
in the Small-Cap Series' portfolio, (ii) put options on stock indices or (iii)
call options on stocks or stock indices if, after any such purchase, the
aggregate premiums paid for such options would exceed 20% of the Small-Cap
Series' total net assets.
CALL OPTIONS ON STOCK. The Small-Cap Series may, from time to time, write call
options on its portfolio securities. The Small-Cap Series may write only call
options which are "covered," meaning that the Small-Cap Series either owns the
underlying security or has an absolute and immediate right to acquire that
security, without additional cash consideration, upon conversion or exchange of
other securities currently held in its portfolio. In addition, the Small-Cap
Series will not permit the call to become uncovered prior to the expiration of
the option or termination through a closing purchase transaction as described
below. If the Small-Cap Series writes a call option, the purchaser of the option
has the right to buy (and the Series has the obligation to sell) the underlying
security at the exercise price throughout the term of the option. The amount
paid to the Small-Cap Series by the purchaser of the option is the "premium."
The Small-Cap Series' obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Small-Cap Series were to effect a "closing purchase
transaction" through the purchase of an equivalent option on an exchange. There
can be no assurance that a closing purchase transaction can be effected. The
Small-Cap Series does not intend to write covered call options with respect to
securities with an aggregate market value of more than 5% of it's gross assets
at the time an option is written. This percentage limitation will not be
increased without prior disclosure in our current prospectus.
The Small-Cap Series would not be able to effect a closing purchase transaction
after it had received notice of exercise. In order to write a call option, the
Small-Cap Series is required to comply with the rules of The Options Clearing
Corporation and the various exchanges with respect to collateral requirements.
The Small-Cap Series may not purchase call options except in connection with a
closing purchase transaction. It is possible that the cost of effecting a
closing purchase transaction may be greater than the premium received by the
Small-Cap Series for writing the option.
Generally, the Small-Cap Series intends to write listed covered call options
during periods when it anticipates declines in the market values of portfolio
securities because the premiums received may offset to some extent the decline
in the Small-Cap Series' net asset value occasioned by such declines in market
value. Except as part of the "sell discipline" described below, the Small-Cap
Series will generally not write listed covered call options when it anticipates
that the market values of it's portfolio securities will increase.
One reason for the Small-Cap Series to write call options is as part of a "sell
discipline." If the Small-Cap Series decides that a portfolio security would be
overvalued and should be sold at a certain price higher than the current price,
it could write an option on the stock at the higher price. Should the stock
subsequently reach that price and the option be exercised, the Small-Cap Series
would, in effect, have increased the selling price of that stock, which it would
have sold at that price in any event, by the amount of the premium. In the event
the market price of the stock declined and the option were not exercised, the
premium would offset all or some portion of the decline. It is possible that the
price of
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the stock could increase beyond the exercise price; in that event, the Small-Cap
Series would forego the opportunity to sell the stock at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgment of the Fund
Management, the market price of a stock is overvalued and it should be sold, the
Small-Cap Series may elect to write a call option with an exercise price
substantially below the current market price. As long as the value of the
underlying security remains above the exercise price during the term of the
option, the option will, in all probability, be exercised, in which case the
Small-Cap Series will be required to sell the stock at the exercise price. If
the sum of the premium and the exercise price exceeds the market price of the
stock at the time the call option is written, the Small-Cap Series would, in
effect, have increased the selling price of the stock. The Small-Cap Series
would not write a call option in these circumstances if the sum of the premium
and the exercise price were less than the current market price of the stock.
PUT OPTIONS ON STOCK. The Small-Cap Series may also write listed put options. If
the Small-Cap Series writes a put option, it is obligated to purchase a given
security at a specified price at any time during the term of the option.
Writing listed put options is a useful portfolio investment strategy when the
Small-Cap Series has cash or other reserves available for investment as a result
of sales of Small-Cap Series shares or, more importantly, because Fund
Management believes a more defensive and less fully invested position is
desirable in light of market conditions. If the Fund Management wishes to invest
its cash or reserves in a particular security at a price lower than current
market value, it may write a put option on that security at an exercise price
which reflects the lower price it is willing to pay. The buyer of the put option
generally will not exercise the option unless the market price of the underlying
security declines to a price near or below the exercise price. If the Small-Cap
Series writes a listed put, the price of the underlying stock declines and the
option is exercised, the premium, net of transaction charges, will reduce the
purchase price paid by the Small-Cap Series for the stock. The price of the
stock may decline by an amount in excess of the premium, in which event the
Small-Cap Series would have foregone an opportunity to purchase the stock at a
lower price.
If, prior to the exercise of a put option, the Small-Cap Series determines that
it no longer wishes to invest in the stock on which the put option had been
written, the Series may be able to effect a closing purchase transaction on an
exchange by purchasing a put option of the same series as the one which it has
previously written. The cost of effecting a closing purchase transaction may be
greater than the premium received on writing the put option and there is no
guarantee that a closing purchase transaction can be effected.
STOCK INDEX OPTIONS. Except as describe below, the Small-Cap Series will write
call options on indices only if on such date it holds a portfolio of stocks at
least equal to the value of the index times the multiplier times the number of
contracts. When the Small-Cap Series writes a call option on a broadly-based
stock market index, the Small-Cap Series will segregate or put into escrow with
its custodian, or pledge to a broker as collateral for the option, one or more
"qualified securities" with a market value at the time the option is written of
not less than 100% of the current index value times the multiplier times the
number of contracts.
SEGREGATED ACCOUNTS. If the Small-Cap Series has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian, or pledge to a broker as collateral for the option, at least ten
"qualified securities," which are securities of an issuer in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on the National Association of Securities
Dealers Automated Quotation System against which the Small-Cap Series has not
written a stock call option and which has not been hedged by the Small-Cap
Series by the sale of stock index futures. Such securities will include stocks
which represent at least 50% of the weighing of the industry or market segment
index and will represent at least 50% of the Small-Cap Series' holdings in that
industry or market segment. No individual security will represent more than 25%
of the amount so segregated, pledged or escrowed. If at the close of business on
any day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Small-Cap Series will so segregate, escrow or
pledge an
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amount in cash, Treasury bills or other high-grade short-term obligations equal
in value to the difference. In addition, when the Small-Cap Series writes a call
on an index which is in-the-money at the time the call is written, the Small-Cap
Series will segregate with its custodian or pledge to the broker as collateral
cash, equity securities, non-investment grade debt, short term U.S. Government
securities or other high-grade short-term debt obligations equal in value to the
amount by which the call is in-the-money times the multiplier times the number
of contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Small-Cap Series' obligation to segregate additional amounts in
the event that the market value of the qualified securities falls below 100% of
the current index value times the multiplier times the number of contracts.
However, if the Small-Cap Series holds a call on the same index as the call
written where the exercise price of the call held is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the difference is maintained by the Small-Cap Series in cash,
equity securities, non-investment grade debt, treasury bills or other high-grade
short-term obligations in a segregated account with its custodian, it will not
be subject to the requirements describe in this paragraph. In instances
involving the purchase of stock index futures contracts by the Small-Cap Series,
an amount of cash or permitted securities equal to the market value of the
futures contracts will be deposited in a segregated account with the its
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures are unleveraged.
Under regulations of the Commodity Exchange Act, investment companies registered
under the Act are exempt from the definition of "commodity pool operator,"
provided all of the Small-Cap Series' commodity futures or commodity options
transactions constitute bona fide hedging transactions within the meaning of the
CFTC's regulations. The Small- Cap Series will use stock index futures and
options on futures as described herein in a manner consistent with this
requirement.
STOCK INDEX FUTURES. The Small-Cap Series will engage in transactions in stock
index futures contracts as a hedge against changes resulting from market
conditions in the values of securities which are held in the Small-Cap Series'
portfolio or which it intends to purchase. The Small-Cap Series will engage in
such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Small-Cap Series. The Small-Cap
Series may not purchase or sell stock index futures if, immediately thereafter,
more than one-third of its net assets would be hedged and, in addition, except
as described above in the case of a call written and held on the same index,
will write call options on indices or sell stock index futures only if the
amount resulting from the multiplication of the then current level of the index
(or indices) upon which the option or future contract(s) is based, the
applicable multiplier(s), and the number of futures or options contracts which
would be outstanding, would not exceed one-third of the value of the Small-Cap
Series' net assets.
RISKS OF TRANSACTIONS IN STOCK OPTIONS. Writing options involves the risk that
there will be no market in which to effect a closing transaction. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. Although the Small-Cap Series will generally
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange may exist. If the Small-Cap Series, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
RISKS OF OPTIONS ON INDICES. The Small-Cap Series' purchase and sale of options
on indices will be subject to risks described above under "Risk of Transactions
in Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Small-Cap Series
will realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the price
of a particular stock. Accordingly, successful use by the Small-Cap Series of
options on indices would be subject to the investment adviser's ability to
predict correctly movements in the direction of the
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stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading in the index option also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this occurred, the Small-Cap Series would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Small-Cap Series. It is the Small-Cap
Series' policy to purchase or write options only on indices which include a
number of stocks sufficient to minimize the likelihood of a trading halt in the
index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Small-Cap Series
will not purchase or sell any index option contract unless and until, in Fund
management's opinion, the market for such options has developed sufficiently
that such risk in connection with such transactions in no greater than such risk
in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index options
are settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on specific stocks, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. However, the Small-Cap Series
will write call options on indices only under the circumstances described above
under "Limitations on the Purchases and Sales of Stock Options, Options on Stock
Indices and Stock Index Futures."
Price movements in the Small-Cap Series' portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Series
bears the risk that the price of the securities held may not increase as much as
the index. In such event the Small-Cap Series would bear a loss on the call
which is not completely offset by movements in the price of the Small-Cap
Series' portfolio. It is also possible that the index may rise when the
Small-Cap Series' portfolio of stocks does not rise. If this occurred, the
Small-Cap Series would experience a loss on the call which is not offset by an
increase in the value of its portfolio and might also experience a loss in its
portfolio. However, because the value of a diversified portfolio will, over
time, tend to move in the same direction as the market, movements in the value
of the Small-Cap Series in the opposite direction to the market would be likely
to occur for only a short period or to a small degree.
Unless the Small-Cap Series has other liquid assets that are sufficient to
satisfy the exercise of a call, the Small-Cap Series would be required to
liquidate portfolio securities in order to satisfy the exercise. Because an
exercise must be settled within hours after receiving the notice of exercise, if
the Small-Cap Series fails to anticipate an exercise, it may have to borrow (in
amounts not exceeding 20% of the Series' total assets) pending settlement of the
sale of securities in its portfolio and would incur interest charges thereon.
When the Small-Cap Series has written a call, there is also a risk that the
market may decline between the time the call is written and the time the
Small-Cap Series is able to sell stocks in its portfolio. As with stock options,
the Small-Cap Series will not learn that an index option has been exercised
until the day following the exercise date but, unlike a call on stock where the
Small-Cap Series would be able to deliver the underlying securities in
settlement, the Series may have to sell part of its stock portfolio in order to
make settlement in cash, and the price of such stocks might decline before they
can be sold. This timing risk makes certain strategies involving more than one
option substantially more risky with index options than with stock options. For
example, even if an index call which the Small-Cap Series has written is
"covered" by an index call held by the Small-Cap Series with the same strike
price, the Small-Cap Series will bear the risk that the level of the index may
decline between the close of trading on the date the exercise notice is filed
with the clearing corporation and the close of trading on the date the Small-Cap
Series exercises the call it holds or the
9
<PAGE>
time the Small-Cap Series sells the call which in either case would occur no
earlier than the day following the day the exercise notice was filed.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Small-Cap Series
holds an index option and exercises it before final determination of the closing
index value for that day, it runs the risk that the level of the underlying
index may change before closing. If such a change causes the exercised option to
fall out-of-the-money, the Series will be required to pay the difference between
the closing index value and the exercise price of the option (times the
applicable multiple) to the assigned writer. Although the Small-Cap Series may
be able to minimize this risk by withholding exercise instructions until just
before the daily cut off time or by selling rather than exercising an option
when the index level is close to the exercise price it may not be possible to
eliminate this risk entirely because the cut off times for index options may be
earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.
2.
Directors and Officers
The following directors are partners of Lord, Abbett & Co. ("Lord Abbett"),
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. They
have been associated with Lord Abbett for over five years and are also officers
and directors/trustees of the twelve other Lord Abbett-sponsored funds. They are
"interested persons" as defined in the Act, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plans described in the
Prospectus.
Robert S. Dow, age 51, Chairman and President
E. Wayne Nordberg, age 58, Vice President
The following outside directors are also directors or trustees of the twelve
other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc. Age 55.
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 66.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America,
a proxy tabulating firm. Age 71.
10
<PAGE>
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 SA, Switzerland. Currently serves as Director of Den West Restaurant
Co., J. B. Williams, and Fountainhead Water Company. Age 63.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 68.
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
Chairman of Spencer Stuart U.S., an executive search consulting firm. Age 59.
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. 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 NOVEMBER 30, 1996
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Estimated Annual For Year Ended
Equity-Based Benefits December 31, 1995
Benefits Accrued Equity-Based Plans Total Compensation
Aggregate by the Fund and to be Paid by the Accrued by the Fund and
Compensation Twelve Other Lo Fund and Twelve Twelve Other Lord
Accrued by Abbett-sponsored Other Lord Abbett- Abbett-sponsored
NAME OF DIRECTOR the Fund1 Funds2 Sponsored Funds2 Funds3
E. Thayer Bigelow $13 $11,563 $50,000 $41,700
Stewart S. Dixon $13 $22,283 $50,000 $42,000
John C. Jansing $13 $28,242 $50,000 $42,960
C. Alan MacDonald $13 $29,942 $50,000 $42,750
Hansel B. Millican, Jr. $14 $24,499 $50,000 $43,000
Thomas J. Neff $13 $15,990 $50,000 $42,000
11
<PAGE>
<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 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 of the aggregate compensation payable by the Fund as of November 30,
1996, deemed invested in Fund shares, including dividends reinvested and changes
in net asset value applicable to such deemed investments, were: Mr. Bigelow,
$20; Mr. Dixon, none; Mr. Jansing, $18; Mr. MacDonald, none; Mr. Millican, $21
and Mr. Neff, $20.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that outside
directors may receive annual retirement benefits for life equal to 100% 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. Such retirement plans,
and the deferred compensation plans referred to in footnote one, have been
amended recently to, among other things, enable outside directors to elect to
convert their prospective benefits under the retirement plans to equity-based
benefits under the deferred compensation plans (renamed the equity-based plans
and hereinafter referred to as such). All outside directors made such an
election. The amounts accrued in column 3 were accrued by the Lord
Abbett-sponsored funds during the fiscal year ended October 31, 1996 with
respect to the equity-based plans. These accruals were based on the retirement
plans as in effect before the recent amendments and on the fees payable to
outside directors of the Fund during the year ended October 31, 1996. Under the
recent amendments, the annual retainer was increased to $50,000 and the annual
equity-based benefits were increased from 80% to 100% of a director's final
annual retainer. The amounts stated in column 4 would be payable annually under
the retirement plans as recently amended if the directors were to retire at age
72 and the annual retainers payable by the funds were the same as they are
today.
3. This column shows aggregate compensation, including directors fees and
attendance fees for board and committee meetings, ofa nature referred to in
footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31,1995.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Brown, Carper, Cutler, Ms. Foster, Messrs. Morris, Noelke, Nordberg and
Walsh are partners of Lord Abbett; the others are employees; Robert G. Morris,
age 52, Executive Vice President; Kenneth B. Cutler, age 64, Vice President and
Secretary; Stephen I. Allen, age 43; Zane E. Brown, age 46; Daniel E. Carper,
age 45; Daria Foster, age 42; Robert Noelke, age 40; E. Wayne Nordberg, age 58;
Paul A. Hilstad, age 54 (with Lord Abbett since 1995 - formerly Senior Vice
President and General Counsel of American Capital Management & Research, Inc.);
Thomas F. Konop, age 54; A. Edward Oberhaus, age 36; Victor W. Pizzolato, age
64; John J. Walsh, age 61, Vice Presidents; and Keith F. O'Connor, age 41, Vice
President and 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 by a majority of the Board of Directors or by
stockholders holding at least one quarter of the stock of the Fund outstanding
and entitled to vote at the meeting. When any such annual meeting is held, the
stockholders will elect directors and vote on the approval of the independent
auditors of the Fund.
As of March 1, 1997 our officers and directors as a group owned less than 1% of
our outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The ten general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Zane E. Brown,
Daniel E. Carper, Kenneth B. Cutler, Robert S. Dow, Daria L. Foster, Robert G.
Morris, Robert J. Noelke, E. Wayne Nordberg and John J. Walsh. The address of
each partner is The General Motors Building, 767 Fifth Avenue, New York, New
York 10153-0203.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under the Management Agreement, we are obligated to pay Lord
Abbett a monthly fee, based on average daily net assets for each month, at the
annual rate of .75 of 1% of each Series' average daily net assets. In addition
we are obligated to pay all expenses not expressly assumed by Lord Abbett,
including, without limitation, outside directors' fees and expenses,
12
<PAGE>
association membership dues, legal and auditing fees, taxes, transfer and
dividend disbursing agent fees, shareholder servicing costs, expenses relating
to shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions. For the fiscal years
ended November 30, 1995 and 1994, although not obligated to, Lord Abbett assumed
the above-mentioned expenses of the Large-Cap Series, in the amount of $18,000
for each year.
Although not obligated to do so, Lord Abbett waived all of its management fees
with respect to the Large-Cap Series for the fiscal years ended November 30,
1994 and 1995 and a portion of its fee for the fiscal year ended 1996. Absent
such waiver the management fees for the fiscal years ended November 30, 1994,
1995 and 1996 would have been $33,861, $50,255 and $78,668 respectively. For the
fiscal year ended November 30, 1996 Lord Abbett received $38,364 in management
fees with respect to the Large-Cap Series.
For the period December 13, 1995 (commencement of operations) to November 30,
1996, Lord Abbett waived $24,461 in management fees with respect to the
Small-Cap Series. For the same time period, Lord Abbett did not receive
management fees with respect to the Small-Cap Series.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent accountants 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 our annual report to shareholders.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York 10268, is the
Fund's custodian. In accordance with the requirements of Rule 17f-5, the Fund's
directors have approved arrangements permitting the Fund's foreign assets not
held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
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, we generally pay, as described below, a higher commission than
some brokers might charge on the same transactions. Our policy with respect to
best execution governs the selection of brokers or dealers and the market in
which the transaction is executed. To the extent permitted by law, we may, if
considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and
13
<PAGE>
ability to take positions in securities, knowledge of a particular security or
market proven ability to handle a particular type of trade, confidential
treatment, promptness and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received form 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.
For the fiscal years ended November 30, 1994, 1995 and 1996 we paid total
commissions to independent broker-dealers of $8,033, $7,832 and $28,649 for the
Large-Cap Series, respectively. For the period December 13, 1995 (commencement
of operations) to November 30, 1996, we paid total commissions to independent
broker-dealers of $45,266 for the Small-Cap Series.
5.
Purchases, Redemptions
and Shareholder Services
Information concerning how we value our shares for the purchase and redemption
of our shares is contained in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate our net asset value as of the close
of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for
trading by dividing our total net assets by the number of shares outstanding at
the time of calculation. The NYSE is closed on Saturdays and Sundays and the
following holidays --
14
<PAGE>
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
The net asset value per share for the Class B and C shares will be determined in
the same manner as for the Class A shares (net assets divided by shares
outstanding).
The maximum offering price of Class A shares of the Large-Cap Series on November
30, 1996 was computed as follows:
CLASS A
Net asset value per share (net assets divided
by shares outstanding)..............................................$17.86
Maximum offering price per share (net asset
value divided by .9425).............................................$18.95
The maximum offering price of Class A shares of the Small-Cap Series on November
30, 1996 was computed as follows:
CLASS A
Net asset value per share (net assets divided
by shares outstanding). . . . . . . . . . . . . . . . . . . . . $12.01
Maximum offering price per share (net asset
value divided by .9425)........................................... $12.74
Our Class B and C shares will be offered at net asset value.
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor") and
subsidiary of Lord Abbett under which Lord Abbett Distributor is obligated to
use its best efforts to find purchasers for the shares of the Fund, and to make
reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's
judgment, a substantial distribution can be obtained by reasonable efforts.
For the last three fiscal years Lord Abbett, as the Fund's principal
underwriter, received net commissions after allowance of a portion of the sales
charge to independent dealers with respect to Class A shares as follows:
15
<PAGE>
Small-Cap Series
Period December 13, 1995
Large-Cap Series (commencement of operations)
Year Ended November,30,1996 to November 30, 1996
Gross sales charge $270,755 $46,090
Amount allowed
to dealers $234,486 $39,745
--------- -------
Net commissions
received by
Lord Abbett $36,269 $6,345
======= ======
CONVERSION OF CLASS B SHARES. The conversion of Class B shares on the eighth
anniversary of their purchase is subject to the continuing availability of a
private letter ruling from the Internal Revenue Service, or an opinion of
counsel or tax adviser, to the effect that the conversion of Class B shares does
not constitute a taxable event for the holder under Federal income tax law. If
such a revenue ruling or opinion is no longer available, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the holder.
CLASS A, B AND C RULE 12B-1 PLANS. As described in the Prospectus, the Fund has
adopted on behalf of each class of each Series, a Distribution Plan and
Agreement pursuant to Rule 12b-1 of the Act: the "A Plans", the "B Plans" and
the "C Plans", respectively. In adopting each Plan and in approving its
continuance, the Board of Directors has concluded that there is a reasonable
likelihood that each Plan will benefit its respective Class and such Class'
shareholders. The expected benefits include greater sales and lower redemptions
of Class shares, which should allow each Class to maintain a consistent cash
flow, and a higher quality of service to shareholders by authorized institutions
than would otherwise be the case. The C Plan will go into effect on April 1,
1997. Lord Abbett used all amounts received under each A Plan for payments to
dealers for (i) providing continuous services to the Class A shareholders, such
as answering shareholder inquiries, maintaining records, and assisting
shareholders in making redemptions, transfers, additional purchases and
exchanges and (ii) their assistance in distributing Class A shares of each
Series.
The fees payable under the A Plan, B Plan and C Plan are described in the
Prospectus. For the fiscal year ended November 30, 1996 fees paid to dealers
under the A Plans for the Large-Cap Series were $3,700 and for the period
December 13, 1995 (commencement of operations) to November 30, 1996, with
respect to the Small-Cap Series were $343.
For the fiscal year ended November 30, 1996 fees paid to dealers under the B
Plans for the Large-Cap Series were $11,900 and for the period December 13, 1995
(commencement of operations) to November 30, 1996, for the Small- Cap Series
were $131.
Each Plan requires the directors to review, on a quarterly basis, written
reports of all amounts expended pursuant to the Plan and the purposes for which
such expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the directors,
including a majority of the directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("outside directors"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable Class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at
16
<PAGE>
any time by vote of a majority of the outside directors or by vote of a majority
of its Class's outstanding voting securities.
CONTINGENT DEFERRED SALES CHARGES. A Contingent Deferred Sales Charge ("CDSC")
(i) applies regardless of class, (ii) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (iii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iv) will not be imposed on the amount of your
account value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of dividends and
capital gains distributions) and upon early redemption of shares.
CLASS A SHARES. As stated in the Prospectus, a CDSC of 1% is imposed with
respect to those Class A shares (or Class A shares of another Lord
Abbett-sponsored fund or series acquired through exchange of such shares) on
which the Fund has paid the one-time distribution fee of 1% if such shares are
redeemed out of the Lord Abbett-sponsored family of funds within a period of 24
months from the end of the month in which the original sale occurred.
CLASS B SHARES. As stated in the Prospectus, if Class B shares (or Class B
shares of another Lord Abbett-sponsored fund or series acquired through exchange
of such shares) are redeemed out of the Lord Abbett-sponsored family of funds
for cash before the sixth anniversary of their purchase, a CDSC will be deducted
from the redemption proceeds. The Class B CDSC is paid to Lord Abbett
Distributor to reimburse its expenses, in whole or in part, for providing
distribution-related service to the Fund in connection with the sale of Class B
shares.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held on or after the sixth anniversary
of their purchase, and (3) shares held the longest before such sixth
anniversary.
The amount of the contingent deferred sales charge will depend on the number of
years since you invested and the dollar amount being redeemed, according to the
following schedule:
Anniversary of the Day on Contingent Deferred Sales Charge
Which the Purchase on Redemptions
Order was Accepted (As % of Amount Subject to Charge)
Before the 1st................................................5.0%
On the 1st, before the 2nd..... ..............................4.0%
On the 2nd, before the 3rd....................................3.0%
On the 3rd, before the 4th....................................3.0%
On the 4th, before the 5th....................................2.0%
On the 5th, before the 6th ...................................1.0%
On or after the 6th anniversary...............................None
In the table, an "anniversary" is the 365th day subsequent to the acceptance of
a purchase order or a prior anniversary. All purchases are considered to have
been made on the business day on which the purchase order was accepted.
CLASS C SHARES. As stated in the Prospectus, if Class C shares are redeemed for
cash before the first anniversary of their purchase, the redeeming shareholder
will be required to pay to the Fund on behalf of Class C shares a CDSC of 1% of
the lower of cost or the then net asset value of Class C shares redeemed. If
such shares are exchanged into the same class of another Lord Abbett-sponsored
fund and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of the
Series' Class C shares.
GENERAL. Each percentage (1% in the case of Class A and C shares and 5% through
1% in the case of Class B shares) used to calculate CDSCs described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
17
<PAGE>
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class B
shares, no CDSC is payable for redemptions (i) in connection with Systematic
Withdrawal Plan and Div-Move services as described below under those headings,
(ii) in connection with mandatory distribution under 403(b) plans and IRAs and
(iii) in connection with death of the shareholder. In the case of Class A and
Class C shares, the CDSC is received by the Fund and is intended to reimburse
all or a portion of the amount paid by the Fund if the shares are redeemed
before the Fund has had an opportunity to realize the anticipated benefits of
having a long-term shareholder account in the Fund. In the case of Class B
shares, the CDSC is received by Lord Abbett Distributor and is intended to
reimburse its expenses of providing distribution-related service to the Fund
(including recoupment of the commission payments made) in connection with the
sale of Class B shares before Lord Abbett Distributor has had an opportunity to
realize its anticipated reimbursement by having such a long-term shareholder
account subject to the B Plan distribution fee.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares are held in AMMF. Therefore,
if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made
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in your state. You should read the prospectus of the other fund before
exchanging. In establishing a new account by exchange, shares of the Series
being exchanged must have a value equal to at least the minimum initial
investment required for the other fund into which the exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of each Series' shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares, and series of Lord Abbett
Research Fund not offered to the general public ("LARF").
STATEMENT OF INTENTION. Under the terms of the Statement of Intention to invest
$50,000 or more over a 13-month period as described in the Prospectus, shares of
a Lord Abbett-sponsored fund (other than shares of LAEF, LASF, LARF, GSMMF and
AMMF, unless holdings in GSMMF and AMMF are attributable to shares exchanged
from a Lord Abbett-sponsored fund offered with a front-end, back-end or level
sales charge) currently owned by you are credited as purchases (at their current
offering prices on the date the Statement is signed) toward achieving the stated
investment and reduced initial sales charge for Class A shares. Class A shares
valued at 5% of the amount of intended purchases are escrowed and may be
redeemed to cover the additional sales charge payable if the Statement is not
completed. The Statement of Intention is neither a binding obligation on you to
buy, nor on the Fund to sell, the full amount indicated.
RIGHTS OF ACCUMULATION. As stated in the Prospectus, purchasers (as defined in
the Prospectus) may accumulate their investment in Lord Abbett-sponsored funds
(other than LAEF, LARF, LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF
are attributable to shares exchanged from a Lord Abbett-sponsored fund offered
with a front-end, back-end or level sales charge) so that a current investment,
plus the purchaser's holdings valued at the current maximum offering price,
reach a level eligible for a discounted sales charge for Class A shares.
NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our
Class A shares may be purchased at net asset value by our directors, employees
of Lord Abbett, employees of our shareholder servicing agent and employees of
any securities dealer having a sales agreement with Lord Abbett who consents to
such purchases or by the director or custodian under any pension or
profit-sharing plan or Payroll Deduction IRA established for the benefit of such
persons or for the benefit of employees of any national securities trade
organization to which Lord Abbett belongs or any company with an account(s) in
excess of $10 million managed by Lord Abbett on a private-advisory-account
basis. For purposes of this paragraph, the terms "directors" and "employees"
include a trustee's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "our directors" and "employees of Lord
Abbett" also include other family members and retired directors and employees.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment
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of principal and interest, (d) by certain authorized brokers, dealers,
registered investment advisers or other financial institutions who have entered
into an agreement with Lord Abbett Distributor in accordance with certain
standards approved by Lord Abbett Distributor, providing specifically for the
use of our shares in particular investment products made available for a fee to
clients of such brokers, dealers, registered investment advisers and other
financial institutions, ("mutual fund wrap fee program"), (e) by employees,
partners and owners of unaffiliated consultants and advisors to Lord Abbett,
Lord Abbett Distributor or Lord Abbett-sponsored funds who consent to such
purchase if such persons provide service to Lord Abbett, Lord Abbett Distributor
or such funds on a continuing basis and are familiar with such funds, (f)
through Retirement Plans with at least 100 eligible employees, (g) our Class A
shares also may be purchased at net asset value, subject to appropriate
documentation, through a securities dealer where the amount invested represents
redemption proceeds from shares ("Redeemed Shares") of a registered open-end
management investment company not distributed or managed by Lord Abbett (other
than a money market fund), if such redemption has occurred no more than 60 days
prior to the purchase of our shares, the Redeemed Shares were held for at least
six months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Purchasers should consider the
impact, if any, of contingent deferred sales charges in determining whether to
redeem shares for subsequent investment in our Class A shares. Lord Abbett may
suspend, change or terminate this purchase option referred to in (g) above at
any time. We plan on June 1, 1997 to terminate this net asset value transfer
privilege. Shares are offered at net asset value to these investors for the
purpose of promoting goodwill with employees and others with whom Lord Abbett
Distributor and/or the Fund has business relationships.
REDEMPTIONS. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or supplementally by
Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and
any legal capacity of the signer(s) must be guaranteed by an eligible guarantor.
See the Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than 25 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 6 month's prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
DIV-MOVE. Under the Div-Move service described in the Prospectus, you can invest
the dividends paid on your account of any class into an existing account of the
same class in any other Eligible Fund. The account must be either your account,
a joint account for you and your spouse, a single account for your spouse, or a
custodial account for your minor child under the age of 21. You should read the
prospectus of the other fund before investing.
INVEST-A-MATIC. The Invest-A-Matic method of investing in the Fund and/or any
other Eligible Fund is described in the Prospectus. To avail yourself of this
method you must complete the application form, selecting the time and amount of
your bank checking account withdrawals and the funds for investment, include a
voided, unsigned check and complete the bank authorization.
SYSTEMATIC WITHDRAWAL PLANS. The Systematic Withdrawal Plan ("SWP") also is
described in the Prospectus. You may establish a SWP if you own or purchase
uncertificated shares having a current offering price value of at least $10,000.
Lord Abbett prototype retirement plans have no such minimum. With respect to a
SWP for Class B shares, the CDSC will be waived for redemptions of 12% or less
per year and for redemptions over 12% per year, the CDSC will apply to the
entire redemption. Therefore, please contact the Fund for assistance in
minimizing the CDSC in this situation. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts
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at periodic intervals. Since the value of shares redeemed may be more or less
than their cost, gain or loss may be recognized for income tax purposes on each
periodic payment. Normally, you may not make regular investments at the same
time you are receiving systematic withdrawal payments because it is not in your
interest to pay a sales charge on new investments when in effect a portion of
that new investment is soon withdrawn. The minimum investment accepted while a
withdrawal plan is in effect is $1,000. The SWP may be terminated by you or by
us at any time by written notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms, including 401(k) plans and custodial agreements for
IRAs (Individual Retirement Accounts, including Simple IRAs and Simplified
Employee Pensions), 403(b) plans and qualified pension and profit-sharing plans.
The forms name Investors Fiduciary Trust Company as custodian and contain
specific information about the plans. Explanations of the eligibility
requirements, annual custodial fees and allowable tax advantages and penalties
are set forth in the relevant plan documents. Adoption of any of these plans
should be on the advice of your legal counsel or qualified tax adviser.
6.
Past Performance
Each Series computes the average annual compounded rate of total return for each
class during specified periods that would equate the initial amount invested to
the ending redeemable value of such investment by adding one to the computed
average annual total return, raising the sum to a power equal to the number of
years covered by the computation and multiplying the result by one thousand
dollars, which represents a hypothetical initial investment. The calculation
assumes deduction of the maximum sales charge from the initial amount invested
and reinvestment of all income dividends and capital gains distributions on the
reinvestment dates at prices calculated as stated in the Prospectus. The ending
redeemable value is determined by assuming a complete redemption at the end of
the period(s) covered by the average annual total return computation.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment (unless the return is shown at net asset value). For Class B
shares, the payment of the applicable CDSC (5.0% prior to the first anniversary
of purchase, 4.0% prior to the second anniversary of purchase, 3.0% prior to the
third and fourth anniversaries of purchase, 2.0% prior to the fifth anniversary
of purchase, 1.0% prior to the sixth anniversary of purchase and no CDSC on and
after the sixth anniversary of purchase) is applied to the Series' investment
result for that class for the time period shown (unless the total return is
shown at net asset value). For Class C shares, the 1.0% CDSC is applied to the
Series' investment result for that class for the time period shown prior to the
first anniversary of purchase (unless the total return is shown at net asset
value). Total returns also assume that all dividends and capital gains
distributions during the period are reinvested at net asset value per share, and
that the investment is redeemed at the end of the period. Total returns also
assume that all dividends and capital gains distributions during the period are
reinvested at net asset value per share, and that the investment is redeemed at
the end of the period.
Using the method to compute average annual compounded total return described
above, for the Class A shares of the Large-Cap Series for the one year, and the
life-of-Series periods (from commencement of operations on June 3, 1992 through
November 30, 1996) assuming a $1,000 investment at the beginning of the period,
the average annual rates of total return were 19.00% and 18.40% and the
redeemable values amounted to $1,190 and $2,136, respectively. With respect to
Class A shares of the Small-Cap Series for the life-of-Series, (commencement of
operations December 13, 1995 through November 30, 1996) assuming a $1,000
investment at the beginning of the period, the average annual rate of total
return was 20.80% (not annualized) and the redeemable value amounted to $1,208.
Our yield quotation for each class is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
take the dividends and interest earned during
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the period for a class minus its expenses accrued for the period and divide by
the product of (i) the average daily number of Class shares outstanding during
the period that were entitled to receive dividends and (ii) the maximum offering
price per share of such class on the last day of the period. To this quotient
add one. This sum is multiplied by itself five times. Then one is subtracted
from the product of this multiplication and the remainder is multiplied by two.
Yield for the Class A shares reflects the deduction of the maximum initial sales
charge, but may also be shown based on the Class A net asset value per share.
Yields for Class B and C shares do not reflect the deduction of the CDSC.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Series' investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. Therefore, there is no assurance that this performance will
be repeated in the future.
7.
Taxes
The value of any shares redeemed by each Series or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time the
redemption, repurchase or sale is made. Any gain or loss will generally be
taxable for federal income tax purposes. Any loss realized on the sale,
redemption or repurchase of a Series' shares which you have held for six months
or less will be treated for tax purposes as a long-term capital loss to the
extent of any capital gains distributions which you received with respect to
such shares. Losses on the sale of stock or securities are not deductible if,
within a period beginning 30 days before the date of the sale and ending 30 days
after the date of the sale, the taxpayer acquires stock or securities that are
substantially identical.
Each Series will be subject to a four-percent nondeductible excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with a calendar-year distribution requirement. Each
Series intends to distribute to shareholders each year an amount adequate to
avoid the imposition of such excise tax.
The writing of call options and other investment techniques and practices which
each Series may utilize, as described above under "Investment Objectives and
Policies," may create "straddles" for United States federal income tax purposes
and may affect the character and timing of the recognition of gains and losses
by a Series. Such transactions may increase the amount of short-term capital
gain realized by each Series, which is taxed as ordinary income when distributed
to shareholders. Limitations imposed by the Internal Revenue Code on regulated
investment companies may restrict each Series' ability to engage in transactions
in options.
Certain futures contracts and certain listed options held by a Series will be
required to be "marked to market" for federal income tax purpose, i.e., treated
as having been sold at their fair market value on the last day of the Series'
taxable year (referred to as Section 1256 Contracts). sixty percent of any gain
or loss recognized on actual or deemed sales of such Section 1256 Contracts will
be treated as long-term capital gain or loss, and 40% of such gain or loss will
be treated as short-term capital gain or loss. The Series may be required to
defer the recognition of losses on securities and options and futures contracts
to the extent of any recognized gain on offsetting positions held by the Series.
As described in the Prospectus under "How We Invest - Risk Factors," each Series
may be subject to foreign withholding taxes which would reduce the yield on its
investments. Tax treaties between certain countries and the United States may
reduce or eliminate such taxes. It is expected that shareholders of each Series
who are subject to United States federal income tax will not be entitled to
claim a federal income tax credit or deduction for foreign income taxes paid by
each Series.
Gains and losses realized by each Series on certain transactions, including
sales of foreign debt securities and certain transactions involving foreign
currency, will be treated as ordinary income or loss for federal income tax
purposes to the extent, if any, that such gains or losses are attributable to
changes in exchange rates for foreign currencies. Accordingly, distributions
taxable as ordinary income will include the net amount, if any, of such foreign
exchange gains and will be reduced by the net amount, if any, of such foreign
exchange losses.
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If either Series purchases shares in certain foreign investment entities, called
"passive foreign investment companies," it may be subject to United States
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Series to its shareholders. Additional charges in the nature of
interest may be imposed on either the Series or its shareholders in respect to
deferred taxes arising from such distributions or gains.
If either Series were to invest in a passive foreign investment company with
respect to which a Series elected to make a "qualified electing fund" election,
in lieu of the foregoing requirements, the Series might be required to include
in income each year a portion of the ordinary earnings and net capital gains of
the qualified electing series, even if such amount were not distributed to a
Series.
Dividends paid by a Series will qualify for the dividends-received deduction for
corporations to the extent they are derived from dividends paid by domestic
corporations.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates). Each
shareholder who is not a United States person should consult his tax advisor
regarding U.S. and foreign tax consequences of the ownership of shares of a
Series, including a 30% (or lower treaty rate) United States withholding tax on
dividends representing ordinary income and net short-term capital gains, and the
applicability of United States gift and estate taxes to non-United States gift
and estate taxes to non-United States persons who own Series shares.
8.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account
considers a trade or trades in such security, prohibiting profiting on trades of
the same security within 60 days and trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored mutual fund
to the extent contemplated by the recommendations of such Advisory Group.
9.
Financial Statements
The financial statements for the fiscal year ended November 30, 1996 and the
opinion thereon of Deloitte & Touche LLP, independent public accountants,
included in the 1996 Annual Report to Shareholders of the Lord Abbett Research
Fund, Inc., are incorporated herein by reference in reliance upon the authority
of Deloitte & Touche LLP as experts in auditing and accounting.
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