This Prospectus sets forth concisely the information about Lord Abbett Research
Fund, Inc. (the "Fund") that you should know before investing. Please read this
Prospectus before investing and retain it for future reference.
The Fund consists 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. However, the Small-Cap Series will be closed to new investors on
April 9, 1998. Each Series offers three classes designated Class A, B and C
shares which provide investors with different purchase options. 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. The Small-Cap Series' investment
objective is to seek long-term capital appreciation. There can be no assurance
that each Series will achieve its objective.
The Statement of Additional Information dated April 1, 1998 has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this Prospectus. You may obtain it, without charge, by writing to the Fund or by
calling 800-874-3733. Ask for "Part B of the Prospectus -- the Statement of
Additional Information".
Shaded terms are defined in the Glossary of Terms.
Mutual Fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank. Shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. An investment in
the Fund involves risks, including the possible loss of principal.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
LORD ABBETT
RESEARCH FUND
The Small-Cap Series will be closed to new investors on April 9, 1998. Purchases
may continue by shareholders with existing accounts and participants in
Retirement Plans which currently offer the Series as an option. Call
800-874-3733 for more information.
PROSPECTUS
April 1, 1998
TABLE OF CONTENTS PAGE
Large-Cap Series
How We Invest 2
Risk Factors 2
Portfolio Management 2
Investor Expenses 2
Financial Highlights 3
Small-Cap Series
How We Invest 4
Risk Factors 4
Portfolio Management 4
Investor Expenses 4
Financial Highlights 5
Purchases 6
Opening Your Account 8
Shareholder Services 8
Redemptions 9
Dividends and Capital Gains 9
Our Management 10
Fund Performance 10
Investment Policies, Risks and Limits 11
Sales Compensation 16
Glossary of Terms 17
Lord, Abbett & Co.
Investment Management
A Tradition of Performance Through Disciplined Investing
The General Motors Building
767 Fifth Avenue o New York o New York o10153
(800) 426-1130
<PAGE>
LARGE-CAP SERIES
HOW WE INVEST
Normally we invest in the 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.
See "Investment Policies, Risks and Limits".
RISK FACTORS
The value of your investment will fluctuate in response to stock market
movements. The Fund employs other investment practices such as investments in
foreign securities and other securities, that could adversely affect
performance. Before you invest, please read "Investment Policies, Risks and
Limits".
PORTFOLIO MANAGEMENT
Robert G. Morris, Partner of Lord, Abbett & Co. ("Lord Abbett") and Executive
Vice President of the Fund and portfolio manager of the Large-Cap Series is
primarily responsible for the day-to-day management of the Fund. Mr. Morris has
been with Lord Abbett since 1991 and has over 26 years of investment experience.
Mr. Morris delegates management duties to a committee of research professionals.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
LARGE-CAP SERIES Class A Class B Class C
Shareholder Transaction Expenses
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None None
Deferred Sales Charge (See "Purchases") None 5.00% 1.00%
Annual Fund Operating Expenses (as a % of average net assets)
Management Fees 0.75% 0.75% 0.75%
(See "Our Management")
12b-1 Fees(1) 0.23% 1.00% 1.00%
Other Expenses 0.54% 0.54% 0.54%
(See "Our Management")
Total Operating Expenses 1.52% 2.29% 2.29%
Example
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
Share Class 1 year 3 years 5 years 10 years
Class A shares $72 $103 $136 $229
Class B shares(2) $73 $101 $142 $243
Class C shares $33 $ 71 $122 $263
You would pay the following expenses on the same investment, assuming you kept
your shares:
Class A shares $72 $103 $136 $229
Class B shares(2) $23 $ 71 $122 $243
Class C shares $23 $ 71 $122 $263
This example is for comparison and is not a representation of the Large-Cap
Series' actual expenses and returns, either past or present.
(1)Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
(2)Class B shares will automatically convert to Class A shares on the eighth
anniversary of your original purchase of Class B shares.
<PAGE>
FINANCIAL HIGHLIGHTS The following table has been audited by Deloitte & Touche
LLP, independent auditors, in connection with their annual audit of the
Large-Cap Series' Financial Statements, whose report may be obtained on request.
Call 800-821-5129 and ask for the Large-Cap Series' 1997 annual report.
<TABLE>
<CAPTION>
LARGE-CAP SERIES
Per Class A Share Operating Year Ended November 30, June 3, 1992(d)
Performance: 1997 1996 1995 1994 1993 to November 30, 1992
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.86 $15.54 $12.79 $12.33 $10.61 $10.00
Income from investment operations
Net investment income .08(e) .270 .42 .34 .29 .12
Net realized and unrealized
gain on investments 3.21 3.505 3.44 .65 1.57 .49
Total from investment operations 3.29 3.775 3.86 .99 1.86 .61
Distributions
Dividends from net investment income (.12) (.57) (.29) (.20) (.14) --
Distributions from net realized gain (.95) (.885) (.82) (.33) -- --
Net asset value, end of year $20.08 $17.86 $15.54 $12.79 $12.33 $10.61
Total Return(a) 19.87% 26.25% 32.82% 8.21% 17.72% 6.10%(c)
Ratios to Average Net Assets:
Expenses, including waiver and reimbursements 1.52% 0.36% 0.00% 0.00% 0.00% 0.00%(c)
Expenses, excluding waiver and reimbursements 1.52% 0.96% 1.02% 1.15% 1.20% 0.79%(c)
Net Investment Income 0.42% 2.24% 3.27% 2.65% 2.44% 1.39%(c)
</TABLE>
<TABLE>
<CAPTION>
LARGE-CAP SERIES Class B Shares Class C Shares
Per Class Share Operating Year Ended August 1, 1996(b) to April 1, 1997(b) to
Performance November 30, 1997 November 30, 1996 November 30, 1997
<S> <C> <C> <C>
Net asset value, beginning of period $17.83 $15.24 $16.90
Income from investment operations
Net investment income (loss) (.06)(e) .12 (.07)(e)
Net realized and unrealized
gain on securities 3.20 2.66 3.18
Total from investment operations 3.14 2.78 3.11
Distributions
Dividends from net investment income (.02) (.19) --
Distribution From Net Realized Gain (.95) -- --
Net asset value, end of period $20.00 $17.83 $20.01
Total Return(a) 18.92% 18.39%(c) 18.40%(c)
Ratios to Average Net Assets:
Expenses 2.28% 0.59%(c) 1.54%(c)
Net investment income (0.34)% 0.22%(c) (0.37)%(c)
</TABLE>
<TABLE>
<CAPTION>
LARGE-CAP SERIES Year Ended November 30, June 3, 1992(d) to
Supplemental Data For All Classes: 1997 1996 1995 1994 1993 November 30, 1992
<S> <C> <C> <C> <C> <C> <C>
Net Assets, end of year (000) $69,796 $23,592 $7,549 $5,558 $4,086 $2,372
Portfolio turnover rate 30.81% 62.25% 37.17% 43.85% 74.16% 20.70%
Average commissions per share
paid on equity transactions $0.063 $0.056 -- -- -- --
<FN>
(a)Total return does not consider the effects of front-end sales or contingent
deferred sales charges.
(b)Commencement of offering Class shares.
(c)Not annualized.
(d)Commencement of Operations.
(e)Calculated using average shares outstanding during the period.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
small-cap series
HOW WE INVEST
Normally we invest 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. The Small-Cap
Series typically will hold a large, diversified number of securities identified
through a quantitative, value-driven investment strategy. Shares of the
Small-Cap Series should be purchased with a long-term view in mind. 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.
See "Investment Policies, Risks and Limits".
RISK FACTORS
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 herein,
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. Before you
invest, please read "Investment Policies, Risks and Limits".
PORTFOLIO MANAGEMENT
Robert P. Fetch, Executive Vice President and portfolio manager of the Small-Cap
Series is primarily responsible for the day-to-day management of the Small-Cap
Series. Mr. Fetch has been with Lord Abbett since 1995 and has over 20 years of
investment experience. Mr. Fetch is assisted by a team consisting of Gregory M.
Macosko and Michael T. Smith. Prior to joining Lord Abbett, Mr. Fetch was a
Managing Director of Prudential Investment Advisors.
INVESTOR EXPENSES
The expenses shown below are based on historical expenses adjusted to reflect
current fees. Future expenses may be different than those shown.
SMALL-CAP SERIES Class A Class B Class C
Shareholder Transaction Expenses
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None None
Deferred Sales Charge (See "Purchases") None 5.00% 1.00%
Annual Fund Operating Expenses (as a % of average net assets)
Management Fees 0.75% 0.75% 0.75%
(See "Our Management")
12b-1 Fees(1) 0.31% 1.00% 1.00%
Other Expenses 0.11% 0.11% 0.11%
(See "Our Management")
Total Operating Expenses 1.17% 1.86% 1.86%
Example
Assume an average annual return of 5% and no change in the level of expenses.
For a $1,000 investment with all dividends and distributions reinvested, you
would have paid the following total expenses assuming you sold your shares at
the end of each time period indicated.
Share Class 1 year 3 years 5 years 10 years
Class A shares $69 $93 $118 $192
Class B shares(2) $69 $88 $121 $200
Class C shares $29 $58 $101 $218
You would pay the following expenses on the same investment, assuming you kept
your shares:
Class A shares $69 $93 $118 $192
Class B shares(2) $19 $58 $101 $200
Class C shares $19 $58 $101 $218
This example is for comparison and is not a representation of the Fund's actual
expenses and returns, either past or present.
(1)Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
(2)Class B shares will automatically convert to Class A shares on the eighth
anniversary of your original purchase of Class B shares.
<PAGE>
FINANCIAL HIGHLIGHTS The following table has been audited by Deloitte & Touche
LLP, independent auditors, in connection with their annual audit of the
Small-Cap Series' Financial Statements, whose report may be obtained on request.
Call 800-821-5129 and ask for the Small-Cap Series' 1997 annual report.
<TABLE>
<CAPTION>
SMALL-CAP SERIES Class A Shares Class B Shares Class C Shares
Year Ended December 13, 1995(b) Year Ended November 15, 1996(b) April 1, 1997(b) to
Per Share Operating November 30, to November 30, November 30, November 30, November 30,
Performance: 1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.01 $10.00 $12.00 $11.67 $12.81
Income from investment operations
Net investment income (loss) .02(e) .127 (.09)(e) .001 (.05)(e)
Net realized and unrealized
gain on investments 4.53 2.658 4.53 .329 3.68
Total from investment operations 4.55 2.785 4.44 .33 3.63
Distributions
Dividends from net investment income --- (.075) --- --- ---
Distributions from net realized gain ---- (.700) --- --- ---
Net asset value, end of year $16.56 $12.01 $16.44 $12.00 $16.44
Total Return(a) 37.89% 28.24%(c) 37.00% 2.84%(c) 28.34%(c)
Ratios to Average Net Assets:
Expenses, including waiver and reimbursements1.17% .01%(c) 1.86% 0.04%(c) 1.25%(c)
Expenses, excluding waiver and reimbursements1.17% 1.00%(c) 1.86% 0.07%(c) 1.25%(c)
Net Investment Income .10% 1.02%(c) (.56)% .01%(c) (.30)%(c)
</TABLE>
<TABLE>
<CAPTION>
SMALL-CAP SERIES Year Ended December 13, 1995(d) to
Supplemental Data For All Classes: November 30,1997 November 30, 1996
<S> <C> <C>
Net Assets, end of year (000) $435,776 $8,772
Portfolio turnover rate 45.24% 110.09%
Average commissions per share
paid on equity transactions $0.061 $0.052
<FN>
(a)Total return does not consider the effects of front-end sales or contingent
deferred sales charges.
(b)Commencement of offering Class shares.
(c)Not annualized.
(d)Commencement of Operations
(e)Calculated using average shares outstanding during the period.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
PURCHASES
This Prospectus offers three classes of shares, Class A, B and C. These classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses. Our shares are continuously offered based on the
per share net asset value ("NAV") next computed after we accept your purchase
order submitted in proper form, plus a front-end sales charge as described
below, in the case of the Class A shares and without a front-end sales charge,
in the case of the Class B and C shares as described below. Investors should
read this section carefully to determine which class of shares represents the
best investment option for their particular situation.
Class A
o Normally offered with a front-end sales charge.
o Lower annual expenses than Class B and Class C shares.
Class B
o No front-end sales charge.
o Higher annual expenses than Class A shares.
o A contingent deferred sales charge is applied to shares sold prior to
the sixth anniversary of purchase.
o Automatically convert to Class A shares after eight years.
Class C
o No front-end sales charge.
o Higher annual expenses than Class A shares.
o A contingent deferred sales charge is applied to shares sold prior to
the first anniversary of purchase.
It may not be suitable for you to place a purchase order for Class B shares of
$500,000 or more or a purchase order for Class C shares of $1,000,000 or more.
You should discuss pricing options with your investment professional. For more
information, see "Alternative Sales Arrangements" in the Statement of Additional
Information.
Class A Shares. Front-end sales charges are as follows:
To Compute
As a % of As a % of Offering Price
Offering Your Divide
Your Investment Price Investment NAV by
Less than $50,000 5.75% 6.10% .9425
$50,000 to $99,999 4.75% 4.99% .9525
$100,000 to $249,999 3.75% 3.90% .9625
$250,000 to $499,999 2.75% 2.83% .9725
$500,000 to $999,999 2.00% 2.04% .9800
$1,000,000 over No Sales Charge 1.0000
Reducing Your Class A Front-End Sales Charges. There are several ways you can
qualify for a lower sales charge when purchasing Class A shares if you inform
the Fund that you are eligible at the time of purchase.
o Rights of Accumulation-- a Purchaser can add the share value of any
Eligible Fund already owned to the amount of the next purchase of
Class A shares for purposes of calculating the sales charge.
o Statement of Intention-- a Purchaser can purchase Class A shares of
any Eligible Fund over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. Shares purchased
through reinvestment of distributions are not included.
For more information on eligibility for these privileges, read the applicable
sections in the attached application.
Class A Share Purchases Without a Front-End Sales Charge. Class A shares may be
purchased without a front-end sales charge under the following circumstances.
1 Purchases of $1 million or more. *
2 Purchases by Retirement Plans with at least 100 eligible employees.*
3 Purchases under a Special Retirement Wrap Program.*
4 Purchases made with dividends and distributions on Class A shares of another
Eligible Fund.
5 Purchases representing repayment under the loan feature of the Lord
Abbett-sponsored prototype 403(b) plan for Class A shares.
6 Employees of any consenting securities dealer having a sales agreement with
Lord Abbett Distributor.
7 Purchases under a Mutual Fund Wrap-Fee Program.
<PAGE>
8 Lord Abbett Consultants/Advisers.
9 Employees of our shareholder servicing agent.
10 Employees of any national securities trade organization to which Lord Abbett
belongs.
11 Employees of Lord Abbett and our Directors/Trustees (active or retired),
their spouses, including surviving spouses, and other family members.
12 Trustees or custodians of any pension or profit sharing plan, or payroll
deduction IRA for the persons mentioned in 6, 9, 10 and 11 above.
* May be subject to a CDSC.
Contingent Deferred Sales Charges ("CDSC"). The CDSC, regardless of class, is
not charged on shares acquired through reinvestment of dividends or capital
gains distributions and is charged on the original purchase cost or the current
market value of the shares being sold, whichever is lower.
Class A Share CDSC. If you buy Class A shares under one of the starred (*)
categories listed above subject to a dealer's concession of up to 1% and you
redeem any of the Class A shares within 24 months after the month in which you
initially purchased such shares, the Fund normally will collect a CDSC of 1%.
The Class A share CDSC generally will be waived under the following
circumstances.
o Benefit payments such as Retirement Plan loans, hardship withdrawals,
death, disability, retirement, separation from service or any excess
distribution under Retirement Plans (documentation may be required).
o Redemptions continuing as investments in another fund participating in
a Special Retirement Wrap Program.
Class B Share CDSC. The CDSC for Class B shares normally applies if you redeem
your shares before the sixth anniversary of their initial purchase. The CDSC
varies depending on how long you own your shares according to the following
schedule.
Contingent Deferred
Anniversary(1) Sales Charge on
of the Day on Redemptions
Which the Purchase (As % of Amount
Order Was Accepted Subject to Charge)
On Before
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(2)
(1)Anniversary is the 365th day subsequent to a purchase or a prior anniversary.
(2)Class B shares will automatically convert to Class A shares on the eighth
anniversary of the purchase of Class B shares.
The Class B share CDSC generally will be waived under the following
circumstances.
o Benefit payments such as Retirement Plan loans, hardship withdrawals, death,
disability, retirement, separation from service or any excess distribution under
Retirement Plans.
o Eligible Mandatory Distributions under 403(b) plans and individual
retirement accounts.
o Death of the shareholder (natural person).
o On redemptions of shares in connection with Div-Move and Systematic
Withdrawal Plans (up to 12% per year).
See "Systematic Withdrawal Plan" for more information on CDSCs with respect to
Class B shares.
Class C Share CDSC. The 1% CDSC for Class C shares normally applies if you
redeem your shares before the first anniversary of your original purchase.
Application of CDSC to a Redemption. To determine if a CDSC applies to a
redemption, the Fund redeems shares in the following order.
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).
3 Shares held the longest before the sixth anniversary of their
purchase (Class B) or before the first anniversary of their
purchase (Class C).
<PAGE>
OPENING YOUR ACCOUNT
Minimum Initial Investment Per Series
o Regular account $1000
o Individual Retirement Accounts, 403(b)
and employer-sponsored retirement plans
under the Internal Revenue Code $250
o Invest-A-Matic and Div-Move $250 initial
$50 subsequent minimum
For Retirement Plans and Mutual Fund Wrap Programs, there is no minimum
investment required, regardless of share class.
You may purchase shares through any independent securities dealer who has a
sales agreement with Lord Abbett Distributor or you can fill out the attached
application and send it to the Fund at the address stated below. You should read
this Prospectus carefully before placing your order to assure your order is in
proper form.
Lord Abbett Research Fund, Inc.
P.O. Box 419100
Kansas City, MO 64141
Proper Form. To be in proper form an order submitted directly to the Fund must
contain (1) a completed Application Form or information and documentation
required supplementally by the Fund, and (2) payment must be credited in U.S.
dollars to our custodian bank's account. For more information regarding proper
form of a purchase order, call the Fund at 800-821-5129.
IMPORTANT INFORMATION. If you fail to provide a correct taxpayer identification
number or to make certain required certifications, you may be subject to a $50
penalty under the Internal Revenue Code and we may be required to withhold a
portion (31%) of any redemption proceeds and of any dividend or distribution on
your account.
By Exchange. Telephone the Fund at 1-800-821-5129 to request an exchange from
any eligible Lord Abbett-sponsored fund.
We reserve the right to withdraw all or any part of the offering made by this
Prospectus or to reject any purchase order. We also reserve the right to waive,
increase or establish minimum investment requirements. All purchase orders are
subject to our acceptance and are not binding until confirmed or accepted in
writing.
SHAREHOLDER SERVICES
Telephone Exchanges. You or your investment professional, with proper
identification, can instruct the Fund by telephone to exchange shares of any
class for the same class of any Eligible Fund. Instructions must be received by
the Fund in Kansas City by calling 1-800-821-5129 prior to the close of the New
York Stock Exchange ("NYSE") to obtain an Eligible Fund's NAV per class share on
that day. Exchanges will be treated as a sale for federal tax purposes.
For your protection, telephone requests for exchanges are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. The Fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
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 limit or terminate this privilege for any shareholder making frequent
exchanges and may revoke the privilege for all shareholders upon 60 days' prior
written notice. You have this privilege unless you refuse it in writing.
You should read the prospectus of the other Lord Abbett-sponsored fund(s)
selected before making an exchange.
Invest-A-Matic. You can make fixed, periodic investments ($250 initial and $50
subsequent minimum) into the Fund by means of automatic money transfers from
your bank checking account. See the attached Application Form for instructions.
Div-Move. You can invest the dividends paid on your account ($50 minimum) into
another account, within the same class, in any Eligible Fund.
The account must be either your account, a joint spousal account, or a custodial
account for your minor child.
Systematic Withdrawal Plan ("SWP"). You can make periodic cash withdrawals from
your account which are automatically paid to you in fixed or variable amounts.
To participate, the value of your shares must be at least $10,000, except for
retirement plans for which there is no minimum.
With respect to Class B shares, the CDSC will be waived on redemptions of up to
12% of the current net asset value of your account at the time of your SWP
request. For Class B share redemptions over 12% per year, the CDSC will apply to
the entire redemption. Please contact the Fund for assistance in minimizing the
CDSC in this situation.
<PAGE>
Redemption proceeds due to a SWP for Class B (up to 12% per year) and Class C
shares, will be redeemed in the order described under "Redemptions".
Lord Abbett's Retirement Plans. The Lord Abbett Family of Funds offers a range
of qualified retirement plans, including IRAs, SIMPLE IRAs, Simplified Employee
Pension Plans, 403(b) and pension and profit-sharing plans, including 401(k)
plans. To find out more about these plans, call the Fund at 1-800-842-0828.
Account Changes. For any changes you need to make to your account, consult your
financial representative or call the Fund at 1-800-821-5129.
Householding. Generally, shareholders with the same last name and address will
receive a single copy of an annual or semi-annual report, unless additional
reports are specifically requested in writing to the Fund.
Reinvestment Privilege. If you sell shares of the Fund, you have the one time
right to reinvest some or all of the proceeds in the same class of any Eligible
Fund within 60 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
Pricing Shares. The net asset value ("NAV") per share for each class of shares
is calculated each business day at the close of regular trading on the New York
Stock Exchange ("NYSE") by dividing a class's net assets by the number of shares
outstanding. The Fund is open on those business days when the NYSE is open.
Purchases and redemptions are executed at the next NAV to be calculated after
your request is accepted.
REDEMPTIONS
By Broker. Call your broker or investment professional for directions on how to
redeem your shares.
By Telephone. To obtain the proceeds of an expedited redemption of $50,000 or
less, you or your representative can call the Fund at 1-800-821-5129. The Fund
will employ the procedures described in telephone exchanges to confirm that the
instructions received are genuine.
The Fund will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine.
By Mail. Submit a written redemption request indicating your Fund's name, your
share class, your account number, the name(s) in which the account is registered
and the dollar value or number of shares you wish to sell.
Include all necessary signatures. If the signer has any Legal Capacity, the
signature and capacity must be guaranteed by an Eligible Guarantor. Certain
other legal documentation may be required. For more information regarding proper
documentation call 1-800-821-5129.
We will verify that the shares being redeemed were purchased at least 15 days
earlier. Your account balance must be sufficient to cover the amount being
redeemed or your redemption order will not be processed.
Normally a check will be mailed to the name(s) and addresses in which the
account is registered, or otherwise according to your instruction within one
business day after receipt of your redemption request. The Fund reserves the
right to make payment within three business days.
To determine if a CDSC applies to a redemption, see "Contingent Deferred Sales
Charges" above.
DIVIDENDS And capital gains
Dividends. The Fund distributes most or all of its net earnings in the form of
dividends which are expected to be paid to shareholders semi-annually for the
Large-Cap Series and annually for the Small-Cap Series.
Capital Gains Distributions. Any capital gains distribution is expected to be
made annually and may be taken in cash or reinvested. Distributions by the Fund
of any net long-term capital gains will be taxable to a shareholder as long-term
capital gains regardless of how long the shareholder has held the shares. Under
recently enacted legislation, the maximum tax rate on long-term capital gains
for a U.S. individual, estate or trust is reduced to 20% for distributions
derived from the sale of assets held by the Fund for more than 18 months. (If
the taxpayer is in the 15% tax bracket, the rate is 10%.) For distributions
derived from the sale of assets held by the Fund between 12 and 18 months, the
tax rate remains at 28% (15% if the taxpayer is in the 15% tax bracket).
<PAGE>
Dividends/Capital Gains Receipt or Reinvestment. If you elect to receive
dividends or capital gains in cash, a check will be mailed to you as soon as
possible after the reinvestment date. If you arrange for direct deposit, your
payment will be electronically transmitted to your bank account within one day
after the payable date. Most investors reinvest their dividends and capital
gains. If you choose this option, or if you do not indicate any choice, your
dividends and capital gains distributions will be automatically reinvested in
additional shares.
Taxes. The Fund pays no federal income tax on the earnings it distributes to
shareholders. Consequently, dividends you receive from the Fund, whether
reinvested or taken in cash, are generally considered taxable. Dividends
declared in December of any year 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.
Each January the Fund will mail to you, if applicable, a Form 1099 tax
information statement detailing your dividends and capital gain distributions.
You should consult your tax adviser concerning applicable state and local taxes.
For more information about the tax consequences from dividends and
distributions, see the Statement of Additional Information.
OUR MANAGEMENT
The Fund is supervised by a Board of Directors, an independent body which has
ultimate responsibility for the Fund's activities. The Board has retained Lord
Abbett as investment manager pursuant to a Management Agreement. Lord Abbett has
been an investment manager for over 68 years and currently manages about $25
billion in a family of mutual funds and other advisory accounts. Lord Abbett
provides similar services to twelve other funds having various investment
objectives and also advises other investment clients. For more information about
the services Lord Abbett provides to the Fund, see the Statement of Additional
Information.
The Fund pays Lord Abbett a monthly fee based on average daily net assets for
each month. For the fiscal year ended November 30, 1997, the fee paid to Lord
Abbett was at an annual rate of .75 of 1% for each of the Large-Cap Series and
the Small-Cap Series. In addition, the Fund pays all expenses not expressly
assumed by Lord Abbett.
The Fund. The Fund is a diversified open-end management investment company
established in 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.
FUND PERFORMANCE
About the Large-Cap Series. The Large-Cap Series produced strong returns in
1997. Going forward, we are mindful that stock market valuations in general
remain near historical highs. Our industry analysts will continue to diligently
research securities to find those that are expected to increase in value over
time, while offering more attractive valuations than the stock market as a
whole. Over the year, we increased exposure to utilities (such as electric power
companies) and companies that produce consumer nondurables (products consumers
use regularly or must replace frequently, such as food). We also began to
slightly decrease our holdings in technology and consumer cyclicals (companies
whose profits are affected by cyclical changes in economic activity). These
shifts in the portfolio proved to be helpful to the performance of the Series.
About the Small-Cap Series. The exceptional performance of the Small-Cap Series
over the past fiscal year can be attributed to select industrial and technology
stocks in the portfolio. During the year, valuations of small-cap stocks were
favorable, providing many opportunities in the marketplace to purchase companies
with performance characteristics that drive toward consistent, strong
performance with low volatility. We look for companies with long operating
histories, strong market positions within their industry and financial strength.
These characteristics help to reduce business risk and protect companies from
both economic and competitive pressures. We continue to seek issues with solid
fundamental prospects in the small-cap universe to add value to the Series.
See the performance chart on the second to last page of this Prospectus.
<PAGE>
INVESTMENT POLICIES, RISKS AND LIMITS
HOW WE INVEST - LARGE-CAP SERIES
The companies in which Large-Cap Series invests 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. 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.
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 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. 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 is permitted to utilize, within limits established by the
Board of Directors, the following investment policies in an effort to enhance
the Large-Cap Series' performance. If no limit is disclosed for a particular
investment policy, this means that the Board of Directors did not establish a
limit for such investment policy. These policies have risks associated with
them. However, the Large-Cap Series follows certain practices that may reduce
these risks. To the extent the Large-Cap Series utilizes some of these policies,
its overall performance may be positively or negatively affected.
Selling Covered Call Options: A covered call option on stock gives the buyer of
the option, upon payment of a premium to the seller (writer) of the option, the
right to call upon the writer to deliver a specified number of shares of a stock
owned by the writer on or before a fixed date at a predetermined price.
Risk: Although the Fund receives income based on receipt of the premium, it
gives up participation in the appreciation of the stock above the predetermined
price if it is called away by the buyer.
Limit: Provided they are traded on a national securities exchange and used to
increase Large-Cap Series' income and to provide greater flexibility in the
disposition of Large-Cap Series' portfolio securities, the Large-Cap Series may
write covered call options on securities having an aggregate market value not to
exceed 5% of the Series' gross assets.
Foreign Securities: Foreign securities are securities primarily traded in
countries outside the United States.
Risk: These securities are not subject to the same degree of regulation and may
be more volatile and less liquid than securities traded in major U.S. markets.
Other considerations include political and social instability, expropriations,
higher transaction costs, currency fluctuations, nondeductable withholding taxes
and different settlement practices.
Limit: The Large-Cap Series may invest up to 10% of its assets at the time of
investment in foreign securities (of the type described herein).
Financial Futures: A financial futures transaction is an exchange-traded
contract to buy or sell a standard quantity and quality of a financial
instrument or index at a specific future date and price. 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.
Risk: The price behavior of the futures contract may not correlate with that of
the item being hedged.
Limit: 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.
<PAGE>
HOW WE INVEST - SMALL-CAP SERIES
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.
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.
The Small-Cap Series is permitted to utilize, within limits established by the
Board of Directors, the following investment policies in an effort to enhance
the Small-Cap Series' performance. If no limit is disclosed for a particular
investment policy, this means that the Board of Directors did not establish a
limit for such investment policy. These policies have risks associated with
them. However, the Small-Cap Series follows certain practices that may reduce
these risks. To the extent the Small-Cap Series utilizes some of these policies,
its overall performance may be positively or negatively affected.
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 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.
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.
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.
Risk: 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.
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.
See "Stock Index Futures" below.
Limit: 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.
<PAGE>
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.
Stock Index Futures: 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.
Risk: 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.
Limit: 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.
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: The Small-Cap Series may invest in securities (of the type
described herein) that are primarily traded in foreign countries.
Risk: 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.
Limit: Up to 35% of the Small-Cap Series' net assets (at the time of investment)
may be invested in securities that are primarily traded in foreign countries.
<PAGE>
Forward Foreign Currency Contracts: The Small-Cap Series may utilize a forward
foreign currency contract which 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.
Risk: Precise matching of the forward contract and the value of the securities
involved will generally not be possible.
Foreign Currency Put and Call Options: The Small-Cap Series may purchase foreign
currency put options and write foreign currency call options on U.S. exchanges
or U.S. over-the-counter markets ("OTC"). 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.
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 ("Cross Hedging").
Such a strategy is designed to reduce the cost of downside currency protection
by limiting currency appreciation potential.
Risk: OTC options are generally less liquid and involve issuer credit risk. 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."
Limit: 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. The face value of such currency call option writing or
cross-hedging 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.
Debt Securities: The Small-Cap Series may engage in investing in straight bonds
or other debt securities, including lower rated, high-yield bonds.
Risk: When interest rates rise the value of debt securities tend to fall and
when interest rates fall the value of debt securities tend to rise. The longer
the maturity of a debt security, the more this volatility tends to occur.
Limit: 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.
Repurchase Agreements: 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.
<PAGE>
Risk: If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Small-Cap Series may incur a loss.
When-issued or delayed delivery transactions: Such 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.
Risk: 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.
Short Sales: 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").
Risk: There may not always be perfect correlation between a short sale
against-the-box and the deferral of realization of gain or loss for federal tax
purposes.
Limit: 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.
OTHER POLICIES COMMON TO BOTH SERIES
Illiquid Securities: Securities not traded on the open market. May include
illiquid Rule 144A securities.
Risk: Certain securities may be difficult or impossible to sell at the time and
price the seller would like.
Limit: Each Series may invest up to 15% of its assets in illiquid securities.
Securities determined by the Board of Directors to be liquid are not subject to
this limitation.
Rule 144A Securities: Securities determined by the Directors to be liquid
pursuant to Securities and Exchange Commission Rule 144A (the "Rule"). 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.
Risk: 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.
Borrowing: Each Series may borrow money.
Risk: Depending on the circumstances, the interest paid on borrowed money may
reduce a Series' return.
Limit: Not in excess of 331/3% of total assets (including the amount borrowed),
and then only as a temporary measure for extraordinary or emergency purposes. Up
to an additional 5% of total assets are available for temporary purposes. Each
Series may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
Rights and Warrants: Each Series may hold or sell any property or securities
which it may obtain through the exercise of conversion rights or warrants. The
term "warrants" includes warrants which are not listed on the New York or
American Stock Exchanges.
<PAGE>
Limit: Each Series has no present intention to commit more than 5% of its gross
assets to rights and warrants.
Closed-End Investment Companies: Each Series may invest in closed-end investment
companies.
Risk: 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 a Series and the closed-end investment
company both charge a management fee.
Limit: No more than 5% of the gross assets of a Series may be invested in
closed-end investment companies.
Securities Lending: The lending of securities to financial institutions which
provide continuous collateral equal to the market value of the securities
loaned.
Risk: Delay in recovery of collateral and loss should the borrower of the
security fail financially.
Limit: Loans, in the aggregate, may not exceed 5% of the Series' total assets.
Temporary Investments: 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.
Objective, Restriction and Policy Changes.
A Series will not change its investment objective or its fundamental
restrictions without shareholder approval. If a Series determines that its
objective can best be achieved by a substantive change in investment policy,
which may be changed without shareholder approval, the Series may make such
change by disclosing it in the prospectus.
For more information about investment policies, restrictions and risk factors,
see the Statement of Additional Information.
SALES COMPENSATION
As part of its plan for distributing shares, the Fund, along with Lord Abbett
Distributor, pays compensation to Authorized Institutions that sell the Fund's
shares. These firms typically pass along a portion of this compensation to your
financial representative.
Compensation payments originate from two sources: sales charges and 12b-1 fees
that are paid out of the Fund's assets ("12b-1" refers to the federal securities
regulation authorizing annual fees of this type). The 12b-1 fee rates vary by
share class, according to the Rule 12b-1 plan adopted by the Fund for each share
class. The sales charges and 12b-1 fees paid by investors are detailed in the
class-by-class information under "Investor Expenses" and "Purchases". The
portion of these expenses that are paid as compensation to Authorized
Institutions, such as your dealer, are shown in the chart on the last page of
this Prospectus. Sometimes compensation is not paid where tracking data is not
available for certain accounts and where the Authorized Institution waives part
of the compensation as with an account under a Mutual Fund Wrap-Fee Program.
Rule 12b-1 distribution fees may be used to pay for sales compensation to
Authorized Institutions, for any activity which is primarily intended to result
in the sale of shares and, for Class B shares, the financing of sales
commissions.
First Year Compensation. Whenever you make an investment in the Fund, the
Authorized Institution receives compensation as described in the chart on the
last page of this Prospectus.
Annual Compensation After First Year. Beginning with the second year after an
investment is made, the Authorized Institution receives annual compensation as
described in the chart on the last page of this Prospectus.
Additional Concessions may be paid to Authorized Institutions from time to time.
<PAGE>
GLOSSARY OF TERMS
Additional Concessions. A supplemental annual distribution fee equal to 0.10% of
the average daily net asset value of the Class A shares is available to
Authorized Institutions which have a program for the promotion and retention of
such shares satisfying Lord Abbett Distributor. Class A shares held pursuant to
a satisfactory program would, for example, (i) constitute a significant
percentage of the Fund's net assets, (ii) be held for a substantial length of
time and/or (iii) have a lower than average redemption rate.
Lord Abbett Distributor may, for specified periods, allow dealers to retain the
full sales charge for sales of shares or may pay an additional concession to a
dealer who sells a minimum dollar amount of our shares and/or shares of other
Lord Abbett-sponsored funds. In some instances, such additional concessions will
be offered only to certain dealers expected to sell significant amounts of
shares. 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 Lord Abbett's headquarters or other
locations, including meals and entertainment, or the receipt of merchandise. The
cash payments may include payment of various business expenses of the dealer.
In selecting dealers to execute portfolio transactions for 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.
Authorized Institutions. Institutions and persons permitted by law to receive
service and/or distribution fees under a Rule 12b-1 plan are "authorized
institutions".
Eligible Fund. (a) Any Lord Abbett-sponsored fund except 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; Lord Abbett Equity Fund; Lord Abbett
Series Fund; Lord Abbett Research Fund -- Mid-Cap Series; Lord Abbett U.S.
Government Securities Money Market Fund ("GSMMF") (except for holdings in GSMMF
which are attributable to any shares exchanged from the Lord Abbett Family of
Funds). (b) Any Authorized Institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria.
Eligible Guarantor. Any broker or bank that is a member of the medallion stamp
program. Most major securities firms and banks are members of this program. A
notary public is not an eligible guarantor.
Eligible Mandatory Distributions. If Class B shares represent a part of an
individual's total IRA or 403(b) investment, the CDSC waiver is available only
for that portion of a mandatory distribution which bears the same relation to
the entire mandatory distribution as the B share investment bears to the total
investment.
Employees of Lord Abbett/Fund Directors (Trustees). The terms "directors,"
"trustees" (of a Fund) and "employees" (of Lord Abbett) include a director's
(trustee's) or employee's spouse (including the surviving spouse of a deceased
director (trustee) or employee). The terms "directors," "trustees" and
"employees of Lord Abbett" also include other family members and retired
directors (trustees) and employees.
Legal Capacity. With respect to a redemption request, if (for example) the
request is on behalf of the estate of a deceased shareholder, John W. Doe, by a
person (Robert A. Doe) who has the legal capacity to act for the estate of the
deceased shareholder because he is the executor of the estate, then the request
must be executed as follows: Robert A. Doe, Executor of the Estate of John W.
Doe.
Similarly, if (for example) the redemption request is on behalf of the ABC
Corporation by a person (Mary B. Doe) that has the legal capacity to act on
behalf of this corporation, because she is the President of the corporation,
then the request must be executed as follows: ABC Corporation by Mary B. Doe,
President.
<PAGE>
An acceptable form of guarantee would be as follows:
o In the case of the estate -
Robert A. Doe, Executor
of the Estate of John W. Doe
[Date] SIGNATURE GUARANTEED
o In the case of the corporation -
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date] SIGNATURE GUARANTEED
Lord Abbett Consultants/Advisers. 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.
Lord Abbett Distributor LLC. Lord Abbett Distributor is the Fund's exclusive
selling agent. 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.
Mutual Fund Wrap-Fee Program. Certain unaffiliated 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.
Purchaser. 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.
Retirement Plans. Employer-sponsored retirement plans under the Internal Revenue
Code.
Special Retirement Wrap Program. A program sponsored by an authorized
institution showing one or more characteristics distinguishing it, in the
opinion of Lord Abbett Distributor from a mutual fund wrap-fee program. Such
characteristics include, among other things, the fact that an authorized
institution does not charge its clients any fee of a consulting or advisory
nature that is economically equivalent to the distribution fee under Class A
12b-1 Plan and the fact that the program relates to participant-directed
Retirement Plans.
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 Class C shares, it reflects the effect of
the applicable CDSC. Total return also may be presented for other periods or
based on investments at reduced sales charge levels or net asset value. Any
quotation of total return not reflecting the maximum sales charge (front-end,
level, or back-end) would be reduced if such sales charge were used. Quotations
of yield or total return for any period when an expense limitation is in effect
will be greater than if the limitation had not been in effect. See "Past
Performance" in the Statement of Additional Information for a more detailed
description.
<PAGE>
Yield. Each class of shares calculates its "yield" by dividing the annualized
net investment income per share on the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The yield of each class
will differ because of the different expenses (including actual 12b-1 fees) of
each class of shares. The yield data represents a hypothetical investment return
on the portfolio, and does not measure investment return based on dividends
actually paid to shareholders. To show that return, a dividend distribution rate
may be calculated. Dividend distribution rate is calculated by dividing the
dividends of a class derived from net investment income during a stated period
by the maximum offering price on the last day of the period. Yields and dividend
distribution rate for Class A shares reflect the deduction of the maximum
initial sales charge, but may also be shown based on the Fund's net asset value
per share. Yields for Class B and Class C shares do not reflect the deduction of
the CDSC.
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 in the
Large-Cap Series, assuming reinvestment of all dividends and distributions and
the unmanaged Standard & Poor's 500 Index.
The following chart was represented by a line graph.
The Series The Series Standard
(Class A Shares) (Class A Shares) & Poor's
Date at Net Asset Value at Maximum Offering Price(1) 500 Index(2)
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
11/30/97 27,169 25,607 26,349
Average Annual Total Return for Class A Shares(3)
1 year 3 Years Life of Series (6/30/92-11/30/97)
13.00% 23.75% 18.67%
Average Annual Total Return for Class B Shares(4)
1 year Life of Series (8/1/96-11/30/97)
14.16% 25.35%
Average Annual Total Return for Class C Shares(5)
Life of Series (4/1/97-11/30/97)
17.22%
(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 do not
reflect transaction costs or management fees. An investor cannot invest directly
in the Standard & Poor's 500 Index.
(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, 1997
using the SEC-required uniform method to compute such return.
(4)The Class B shares were first offered on 8/1/96. Performance reflects the
deduction of a 4% CDSC.
(5)The Class C shares were first offered on 4/1/97. Performance is at net asset
value.
Comparison of change in value of a $10,000 investment in Class A shares in the
Small-Cap Series, assuming reinvestment of all dividends and distributions and
the unmanaged Standard & Poor's 500 Index.
The following chart was represented by a line graph.
The Series The Series
(Class A Shares) (Class A Shares) Russell 2000
Date at Net Asset Value at Maximum Offering Price(1) Index(2)
12/13/95 10,000 9,425 10,000
11/30/96 12,824 12,087 11,656
11/30/97 17,683 16,667 14,385
Average Annual Total Return for Class A Shares(3)
1 year Life of Series (12/13/95-11/30/97)
30.00% 29.65%
Average Annual Total Return for Class B Shares(4) 1 year Life of Series
(11/15/96-11/30/97) 31.52% 33.51%
Average Annual Total Return for Class C Shares(5)
Life of Series (4/1/97-11/30/97)
27.05%
(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 do not
reflect transaction costs or management fees. An investor cannot invest directly
in the Standard & Poor's 500 Index.
(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, 1997
using the SEC-required uniform method to compute such return.
(4)The Class B shares were first offered on 11/15/96. Performance reflects the
deduction of a 4% CDSC.
(5)The Class C shares were first offered on 4/1/97. Performance is at net asset
value.
<PAGE>
FIRST YEAR COMPENSATION
<TABLE>
<CAPTION>
Class A investments
Front-end
sales charge Dealer's
paid by investors concession Service fee(1) Total compensation(2)
(% of offering price) (% of offering price) (%of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 5.00% 0.25% 5.24%
$50,000 - $99,999 4.75% 4.00% 0.25% 4.24%
$100,000 - $249,999 3.75% 3.25% 0.25% 3.49%
$250,000 - $499,999 2.75% 2.25% 0.25% 2.49%
$500,000 - $999,999 2.00% 1.75% 0.25% 2.00%
$1 million or more(3) or
Retirement Plan -
100 or more eligible employees(3) or
Special Retirement Wrap Program(3)
First $5 million no front-end sales charge 1.00% 0.25% 1.25%
Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80%
Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75%
Over $50 million no front-end sales charge 0.25% 0.25% 0.50%
Class B investments Paid at time of sale (% of net asset value)
All amounts no front-end sales charge 3.75% 0.25% 4.00%
Class C investments
All amounts no front-end sales charge 0.75% 0.25% 1.00%
ANNUAL COMPENSATION AFTER FIRST YEAR
Class A investments
All amounts no front-end sales charge none 0.25% 0.25%
Class B investments Percentage of average net assets (4)
All amounts no front-end sales charge none 0.25% 0.25%
Class C investments
All amounts no front-end sales charge 0.75% 0.25% 1.00%
<FN>
(1) The service fee for Class A shares is paid quarterly. The first year's
service fee on Class B and C shares is paid at the time of sale.
(2) Reallowance/concession percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition. Additional
Concessions may be paid to Authorized Institutions from time to time.
(3) Concessions are paid at the time of sale on all Class A shares sold during
any 12-month period starting from the day of the first net asset value sale.
With respect to(a) Class A share purchases at $1 million or more, sales
qualifying at such level under rights of accumulation and statement of intention
privileges are included and(b) for Special Retirement Wrap Programs, only new
sales are eligible and exchanges into the Fund are excluded.
(4) With respect to Class B and C shares, 0.25% and 1.00%, respectively, of the
average annual net asset value of such shares outstanding during the quarter
(including distribution reinvestment shares after the first anniversary of their
issuance) is paid to Authorized Institutions. These fees are paid quarterly in
arrears. CDSC revenues collected by Lord Abbett Funds may be used to fund
commission payments when there is no initial sales charge.
</FN>
</TABLE>
<PAGE>
Investment Manager and Underwriter
Lord, Abbett & Co. and Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent and Dividend
Disbursing Agent
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
Auditors
Deloitte & Touche LLP
Counsel
Debevoise & Plimpton
Printed in the U.S.A.
LARF-1-498
(4/98)
LORD ABBETT
RESEARCH FUND, INC.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
April 1, 1998 Application Inside
Lord Abbett
Research Fund
Large-Cap Series
Small-Cap Series
<PAGE>
LORD ABBETT
Statement of Additional Information April 1, 1998
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, 1998.
Our Board of Directors has authority to create and classify shares of common
stock in separate series, without further action by shareholders. To date,
70,000,000 shares of the Large-Cap Series and 100,000,000 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 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 CONTENTS 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 23
7. Taxes 24
8. Information About The Fund 25
9. Financial Statements 25
<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 33 1/3% of its total assets (including the amount
borrowed), and then only as a temporary measure for extraordinary or emergency
purposes; (2) make short sales of securities or maintain a short position except
to the extent permitted by applicable law; (3) invest knowingly more than 15% of
its net assets (at the time of investment) in illiquid securities, except for
securities qualifying for resale under Rule 144A of the Securities Act of 1933,
deemed to be liquid by the Board of Directors; (4) invest in the securities of
other investment companies except as permitted by applicable law; (5) invest in
securities of issuers which, with their predecessors, have a record of less than
three years' continuous operations, if more than 5% of 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 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
2
<PAGE>
Fund's officers, directors, partners or employees, any securities other than
shares of the Funds' common stock.
For the fiscal year ended November 30, 1997, the portfolio turnover rate was
30.81% for the Large-Cap Series compared to 62.25% for the previous year. For
the fiscal year ended November 30, 1997, the Small-Cap Series' portfolio
turnover rate was 45.24% compared to 110.09% for the previous fiscal year.
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
3
<PAGE>
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 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.
4
<PAGE>
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 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.
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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 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 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.
8
<PAGE>
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 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.
9
<PAGE>
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 53, Chairman and President
E. Wayne Nordberg, age 59, 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
Courtroom Television Network
600 Third Avenue
New York, New York
Chief Executive Officer of Courtroom Television. Formerly President and Chief
Executive Officer of Time Warner Cable Programming, Inc. Prior to that, formerly
President and Chief Operating Officer of Home Box Office, Inc. Age 56.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 67.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 72.
C. Alan MacDonald
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly General Partner of The Marketing Partnership,
Inc., a full service marketing consulting firm (1994-1997). Prior to that, he
was Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer
of branded snack foods (1992-1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J. B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 64.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 69.
10
<PAGE>
Thomas J. Neff
Spencer Stuart U.S.
277 Park Avenue
New York, New York
Chairman of Spencer Stuart U.S., an executive search consulting firm. Age 60.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the equity-based benefits accrued for outside directors/trustees
maintained by the Lord Abbett-sponsored funds. The fourth column sets forth the
total compensation payable by such funds to the outside directors/trustees. No
director of the Fund associated with Lord Abbett and no officer of the Fund
received any compensation from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended November 30, 1997
(1) (2) (3) (4)
<S> <C> <C> <C>
Pension or For Year Ended
Retirement Benefits December 31, 1997
Accrued by the Total Compensation
Aggregate Fund and Accrued by the Fund and
Compensation Twelve Other Lord Twelve Other Lord
Accrued by Abbett-sponsored Abbett-sponsored
NAME OF DIRECTOR THE FUND(1) FUNDS(2) FUNDS(3)
E. Thayer Bigelow $ 311 $17,068 $ 56,000
Stewart S. Dixon $ 306 $32,190 $ 55,000
John C. Jansing $ 306 $45,085(4) $ 55,000
C. Alan MacDonald $ 320 $30,703 $ 57,400
Hansel B. Millican, Jr. $ 307 $37,747 $ 55,000
Thomas J. Neff $ 311 $19,853 $ 56,000
<FN>
1. Outside directors' fees, including attendance fees for board and
committee meetings, are allocated among all Lord Abbett-sponsored funds
based on the net assets of each fund. A portion of the fees payable by
the Fund to its outside directors/trustees is being deferred under a
plan that deems the deferred amounts to be invested in shares of the
Fund for later distribution to the directors/trustees.
2. The amounts in Column 3 were accrued by the Lord Abbett-Sponsored Funds
for the 12 months ended October 31, 1997 with respect to the equity
based plans established for independent directors in 1996. This plan
supercedes a previously approved retirement plan for all future
directors. Current directors had the option to convert their accrued
benefits under the retirement plan. All of the outside directors except
one made such an election.
3. This column shows aggregate compensation, including directors fees and
attendance fees for board and committee meetings, of a nature referred to
in footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31, 1997. The amounts of the aggregate compensation payable
by the Fund as of November 30, 1997 deemed invested in Fund shares,
including dividends reinvested and changes in net asset value applicable to
such deemed investments, were: Mr. Bigelow, $334; Mr. Dixon, $0; Mr.
Jansing, $327; Mr. MacDonald, $0; Mr. Millican, $331; and Mr. Neff, $334.
If the amounts deemed invested in Fund shares were added to each director's
11
<PAGE>
actual holdings of Fund shares as of November 30, 1997 each would own, the
following: Mr. Bigelow, 19 shares; Mr. Dixon, 0 shares; Mr. Jansing, 1420
shares; Mr. MacDonald, 4,008 shares; Mr. Millican, 19 shares; and Mr. Neff,
19 shares.
4. Mr. Jansing chose to continue to receive benefits under the retirement
plan which provides that outside directors (Trustees) may receive
annual retirement benefits for life equal to their final annual
retainer following retirement at or after age 72 with at least ten
years of service. Thus, if Mr. Jansing were to retire and the annual
retainer payable by the funds were the same as it is today, he would
receive annual retirement benefits of $50,000.
</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, Ms. Foster, Messrs. Hilstad, Morris, Noelke and Walsh are
partners of Lord Abbett; the others are employees: Robert G. Morris, age 53,
Executive Vice President; Robert P. Fetch, age 45, Executive Vice President
(with Lord Abbett since 1995; formerly Managing Director at Prudential
Investment Advisors); Paul A. Hilstad, age 55, Vice President and Secretary
(with Lord Abbett since 1995; formerly Senior Vice President and General Counsel
of American Capital Management & Research, Inc.); Stephen I. Allen, age 44; Zane
Brown, age 46, Daniel E. Carper, age 46; Daria L. Foster, age 43; Lawrence H.
Kaplan, age 41 (with Lord Abbett since 1997 - formerly Vice President and Chief
Counsel of Salomon Brothers Asset Management Inc from 1995 to 1997, prior
thereto Senior Vice President, Director and General Counsel of Kidder Peabody
Asset Management, Inc.); Thomas F. Konop, age 55; Gregory M. Macosko, age 51
(with Lord Abbett since 1996; formerly Portfolio Manager and Analyst at Royce
Associates); Robert J. Noelke, age 41; A. Edward Oberhaus, age 38; Keith F.
O'Connor, age 42; John J. Walsh, age 62, Vice Presidents; and Donna M. McManus,
age 37, Treasurer (with Lord Abbett since 1996, formerly a Senior Manager at
Deloitte & Touche LLP).
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the 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, 1998 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. Ten of the twelve general partners of Lord Abbett are
officers and/or trustees of the Fund and are identified as follows: Stephen I.
Allen, Zane E. Brown, Daniel E. Carper, Robert S. Dow, Daria L. Foster, Paul A.
Hilstad, 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 other general partners of Lord Abbett
who are neither officers nor trustees of the Fund are W. Thomas Hudson and
Michael McLaughlin.
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, 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.
12
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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,
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, 1995 and 1996 would
have been $50,255 and $78,668 respectively. For the fiscal years ended November
30, 1996 and 1997 Lord Abbett received $38,364 and $334,394 respectively 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. For the fiscal year ended
November 30, 1997, Lord Abbett received $1,075,019 in management fees with
respect to Small-Cap Series.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
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 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
13
<PAGE>
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and, when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
For the fiscal years ended November 30, 1995, 1996 and 1997 we paid total
commissions to independent broker-dealers of $7,832, $28,649 and $88,234 for the
Large-Cap Series, respectively. For the period December 13, 1995 (commencement
of operations) to November 30, 1996 and fiscal year ended November 30, 1997, we
paid total commissions to independent broker-dealers of $45,266 and $1,812,425
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 -- New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices.
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<PAGE>
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, 1997 was computed as follows:
Net asset value per share (net assets divided
by shares outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . .$20.08
Maximum offering price per share (net asset
value divided by .9425) . . . . . . . . . . . . . . . . . . . . . . . . .$21.31
The maximum offering price of Class A shares of the Small-Cap Series on November
30, 1997 was computed as follows:
Net asset value per share (net assets divided
by shares outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . $16.56
Maximum offering price per share (net asset
value divided by .9425) ). . . . . . . . . . . . . . . . . . . . . . . .. $17.57
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:
Large-Cap Series
Year Ended November 30,
1997 1996
---- ----
Gross sales charge $1,005,548 $270,755
Amount allowed to dealers $ 864,739 $234,486
---------- --------
Net commissions
received by
Lord Abbett $ 140,809 $ 36,269
======== =======
15
<PAGE>
Small-Cap Series
Period December 13, 1995
Year Ended (commencement of operations)
November 30, 1997 to November 30, 1996
Gross sales charge $7,021,169 $46,090
Amount allowed to dealers $6,026,914 $39,745
---------- -------
Net commissions
received by
Lord Abbett $ 994,255 $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.
ALTERNATIVE SALES ARRANGEMENTS
Classes of Shares. The Fund offers investors five different classes of shares.
This Prospectus offers four of those classes designated Class A, B and C. The
different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices. Investors should read this section carefully to determine which
class represents the best investment option for their particular situation.
Class A Shares. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees or on investments that
do not qualify to be under a "special retirement wrap program" as a program
sponsored by an authorized institution showing one or more characteristics
distinguishing it, in the opinion of Lord Abbett Distributor from a mutual fund
wrap fee program). If you purchase Class A shares as part of an investment of at
least $1 million (or for Retirement Plans with at least 100 eligible employees
or under a special retirement wrap program) in shares of one or more Lord
Abbett-sponsored funds, you will not pay an initial sales charge, but if you
redeem any of those shares within 24 months after the month in which you buy
them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%
except for redemptions under a special retirement wrap program. Class A shares
of the Large-Cap Series are subject to service and distribution fees that are
currently estimated to total annually approximately .23 of 1% of the annual net
asset value of the Class A shares. Class A shares of the Small-Cap Series are
subject to service and distribution fees that are currently estimated to total
annually approximately .31 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.
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<PAGE>
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Fund's class-specific expenses and the
effect of the different types of sales charges on your investment will affect
your investment results over time. The most important factors are how much you
plan to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in the Fund. We used the sales charge rates that apply
to Class A, Class B and Class C, and considered the effect of the higher
distribution fees on Class B and Class C expenses (which will affect your
investment return). Of course, the actual performance of your investment cannot
be predicted and will vary, based on the Fund's actual investment returns, the
operating expenses borne by each class of shares, and the class of shares you
purchase. The factors briefly discussed below are not intended to be investment
advice, guidelines or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to consider in
purchasing a particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is because of the effect of the Class B CDSC if you redeem before
the sixth anniversary of your purchase, as well as the effect of the Class B
distribution fee on the investment return for that class in the short term.
Class C shares might be the appropriate choice (especially for investments of
less than $100,000), because there is no initial sales charge on Class C shares,
and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000 expected to be
held 4 to 6 years (or more), Class A shares may become more appropriate than
Class C. If you are investing $500,000 or more, Class A may become more
desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees or for investments pursuant to a special retirement
wrap program, in most cases Class A shares will be the most advantageous choice,
no matter how long you intend to hold your shares. For that reason, it may not
be suitable for you to place a purchase order for Class B shares of $500,000 or
more or a purchase order for Class C shares of $1,000,000 or more. In addition,
it may not be suitable for you to place an order for Class B or C shares for a
Retirement Plan with at least 100 eligible employees or for a special retirement
wrap program. You should discuss this with your financial advisor.
Investing for the Longer Term. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
17
<PAGE>
expect to need access to your money for seven years or more, Class B shares may
be an appropriate investment option, if you plan to invest less than $100,000.
If you plan to invest more than $100,000 over the long term, Class A shares will
likely be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in Class
A shares under the Fund's Rights of Accumulation. Of course, these examples are
based on approximations of the effect of current sales charges and expenses on a
hypothetical investment over time, and should not be relied on as rigid
guidelines.
Are There Differences in Account Features That Matter to You? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" in the Prospectus for
more information about the 12% annual waiver of the CDSC. You should carefully
review how you plan to use your investment account before deciding which class
of shares you buy. For example, the dividends payable to Class B and Class C
shareholders will be reduced by the expenses borne solely by each of these
classes, such as the higher distribution fee to which Class B and Class C shares
are subject, as described below.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A and B shares and is paid over
time, so long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC for the
Class B shares and the distribution fee for Class B and Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A shares: to
compensate brokers and other persons selling such shares. The CDSC, if payable,
supplements the Class B distribution fee and reduces the Class C distribution
fee expenses for the Fund and Class C shareholders.
Class A, B 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 went 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, 1997 fees paid to dealers
under the A Plans for the Large-Cap Series were $73,684 and for the Small-Cap
Series were $236,338.
For the fiscal year ended November 30, 1997 fees paid to dealers under the B
Plans for the Large-Cap Series were $133,177 and for the Small-Cap Series were
$594,944.
For the fiscal year ended November 30, 1997 fees paid to dealers under the C
Plans for the Large-Cap Series were $4,548 and for the Small-Cap Series were
$111,432.
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
18
<PAGE>
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable Class and the approval of a
majority of the directors, including a majority of the outside directors. Each
Plan may be terminated at any time by vote of a majority of the outside
directors or by vote of a majority of its Class's outstanding voting securities.
Contingent Deferred Sales Charges. A Contingent Deferred Sales Charge ("CDSC")
(i) applies regardless of class, (ii) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (iii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iv) will not be imposed on (a) the aggregate
dollar amount of your account, in the case of Class A shares, and (b) the
percentage of each share redeemed, in the case of class B and C shares,
representing an increase in net asset value over the initial purchase price
(including increases due to the reinvestment of dividends and capital gains
distributions).
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 Order Was on Redemptions
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 CDSC's described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
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<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) shares
representing an aggregate dollar amount of your account, in the case of Class A
shares, (ii) that percentage of each share redeemed, in the case of Class B and
C shares, derived from increases in the value of the shares above the total cost
of shares being redeemed due to increases in net asset value, (iii) shares with
respect to which no Lord Abbett fund paid a 12b-1 fee and, in the case of Class
B shares, Lord Abbett Distributor paid no sales charge or service fee (including
shares acquired through reinvestment of dividend income and capital gains
distributions) or (iv) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
Exchanges. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
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sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the 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 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
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available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, ("mutual fund wrap fee program"), (e)
by employees, partners and owners of unaffiliated consultants and advisors to
Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent
to such purchase if such persons provide service to Lord Abbett, Lord Abbett
Distributor or such funds on a continuing basis and are familiar with such
funds, (f) through Retirement Plans with at least 100 eligible employees, (g) in
connection with a merger, acquisition or other reorganization, and (h) through a
"special retirement wrap program" sponsored by an authorized institution showing
one or more characteristics distinguishing it, in the opinion of Lord Abbett
Distributor from a mutual fund wrap program. Such characteristics include, among
other things, the fact that an authorized institution does not charge its
clients any fee of a consulting or advisory nature that is economically
equivalent to the distribution fee under Class A 12b-1 Plan and the fact that
the program relates to participant-directed Retirement Plan. Shares are offered
at net asset value to these investors for the purpose of promoting goodwill with
employees and others with whom Lord Abbett Distributor and/or the Fund has
business relationships.
Redemptions. A redemption order is in proper form when it contains all of the
information and documentation required by the order form or supplementally by
Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and
any legal capacity of the signer(s) must be guaranteed by an eligible guarantor.
See the Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than 25 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 6 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 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
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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 each of the two fiscal
years ending November 30, 1996 and 1997, and the life-of-Series periods (from
commencement of operations on June 3, 1992 through November 30, 1997) assuming a
$1,000 investment at the beginning of the period, the average annual rates of
total return were 19.00%, 13.00% and 18.67% and the redeemable values amounted
to $1,190, $1,130 and $2,561 respectively. With respect to Class A shares of the
Small-Cap Series for the fiscal year ended November 30, 1997 and for the
life-of-Series, (commencement of operations December 13, 1995 through November
30, 1997) assuming a $1,000 investment at the beginning of the period, the
average annual rate of total return was 30.00% and 29.65% and the redeemable
value amounted to $1,300 and $1,667 respectively.
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 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.
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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.
If either Series purchases shares in certain foreign investment entities, called
"passive foreign investment companies," it may be subject to United States
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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, 1997 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1997 Annual Report to Shareholders of the Lord
Abbett Research Fund, Inc., are incorporated herein by reference to such
financial statements and report in reliance upon the authority of Deloitte &
Touche LLP as experts in auditing and accounting.
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